Acquisition

12 Months Ended

Dec. 31, 2018

Acquisitions

Completed Acquisitions:

Bank Mutual Acquisition

On February 1, 2018, the Corporation completed its acquisition of Bank Mutual Corporation ("Bank Mutual") in a stock transaction valued at approximately $482 million. Bank Mutual was a diversified financial services company headquartered in Milwaukee, Wisconsin. The merger resulted in a combined company with a larger market presence in markets the Corporation currently operates in, as well as expansion into nearly a dozen new markets. The merger is also expected to provide significant efficiency opportunities and economies of scale associated with a larger financial institution.

Under the terms of the Agreement and Plan of Merger dated July 20, 2017 (the "Merger Agreement"), Bank Mutual’s shareholders received 0.422 shares of the Corporation's common stock for each share of Bank Mutual common stock. The Corporation issued approximately 19.5 million shares for a total deal value of approximately $482 million based on the closing sale price of a share of common stock of the Corporation on January 31, 2018. The Corporation completed the conversion of Bank Mutual in the second quarter of 2018. The banking subsidiary of Bank Mutual merged with and into Associated Bank, N.A. on June 24, 2018.

The acquisition of Bank Mutual constituted a business combination. The merger has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments will be material.

Goodwill related to the Bank Mutual acquisition increased $6 million during the second quarter of 2018 and an additional $2 million during the third quarter of 2018 to $175 million. Upon review of information relating to events and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. Based on updated appraisal information, the fair value of premises and equipment decreased by $6 million and $2 million during the second and third quarters of 2018, respectively. Additionally, during the second quarter of 2018, the fair value of loans was increased by less than $1 million due to an updated appraisal and other adjustments. Goodwill created by the acquisition of Bank Mutual is not tax deductible. See Note 5 for additional information on goodwill, as well as the carrying amount and amortization of core deposit and other intangible assets related to the Bank Mutual acquisition.

The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Bank Mutual:



	Purchase Accounting Adjustments			February 1, 2018
	($ in Thousands)
Assets
Cash and cash equivalents	$	—		$	78,052
Investment securities	(6,238		)	452,867
Federal Home Loan Bank stock, at cost	—			20,026
Loans	(48,043		)	1,875,877
Premises and equipment, net	2,930			42,689
Bank owned life insurance	(24		)	65,390
Goodwill				175,499
Core deposit intangibles (included in other intangible assets, net on the face of the Consolidated Balance Sheets)	58,100			58,100
Other real estate owned (included in other assets on the face of the Consolidated Balance Sheets)	199			4,848
Others assets	$	7,054		$	47,158
Total assets				$	2,820,506
Liabilities
Deposits	$	2,498		$	1,840,950
Other borrowings	1,875			431,886
Other liabilities	$	4,487		$	65,982
Total liabilities				$	2,338,818
Total consideration paid				$	481,688

The following is a description of the methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above.

Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status, and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques.

For loans acquired, the contractual amounts due, expected cash flows to be collected, interest component, and fair value as of the respective acquisition dates were as follows:



	February 1, 2018
	Acquired Performing Loans			Acquired Impaired Loans			Total
	($ in Thousands)
Contractual required principal and interest at acquisition	$	1,899,932		$	23,988		$	1,923,920
Contractual cash flows not expected to be collected (nonaccretable discount)	—			(1,866		)	(1,866		)
Expected cash flows at acquisition	1,899,932			22,122			1,922,054
Interest component of expected cash flows (accretable discount)	(41,324		)	(4,853		)	(46,177		)
Fair value of acquired loans	$	1,858,608		$	17,269		$	1,875,877

Core deposit intangible ("CDI"): This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The CDI is being amortized on a straight-line basis over 10 years.

Time deposits: The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.

FHLB borrowings: The fair values of FHLB advances are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

See Note 17 for additional information on fair value measurements.

Other Acquisitions

During the second quarter of 2018, the Corporation completed the acquisition of Anderson, an independent insurance agency based in Minneapolis, Minnesota. Anderson adds a range of complementary services and significant expertise in workers' compensation and executive risk management services. The transaction was valued at approximately $10 million. As a result of the acquisition, the Corporation recorded goodwill of approximately $7 million and added approximately $3 million of other intangibles related to customer relationships associated with the Anderson acquisition. The other intangibles related to the acquisition are being amortized on a straight-line basis over 7 years. See Note 5 for more information on goodwill and other intangible assets.

During the first quarter of 2018, the Corporation completed the acquisition of Diversified. The acquisition improved Associated Benefits and Risk Consulting's ability to achieve greater scale in the Metro Milwaukee market and to further expand its Wisconsin employee benefits and property and casualty market position and capabilities. The transaction was valued at approximately $19 million. As a result of the acquisition, the Corporation recorded goodwill of approximately $10 million and other intangibles of approximately $8 million. The other intangibles related to the acquisition are being amortized on a straight-line basis over 10 years. See Note 5 for more information on goodwill and other intangible assets.

Pending Branch Acquisition:

During the fourth quarter of 2018, the Corporation announced that Associated had reached an agreement to acquire the Wisconsin branch banking operations of The Huntington National Bank, a subsidiary of Huntington Bancshares Incorporated. Under the terms of the transaction, Associated Bank will acquire approximately $850 million in deposits and $134 million in loans. The Huntington National Bank branch acquisition will add a net 14 branches to our franchise. The transaction is subject to customary closing conditions, and is expected to close in June 2019.