Associated Banc-Corp's former compliance albatross could soon become an M&A advantage.

The $24 billion-asset company has talked about its interest in acquisitions for much of the last year, but was held back by a 2012 enforcement action with the Office of the Comptroller of the Currency concerning its compliance with the Bank Secrecy Act and anti-money laundering laws. The OCC lifted the order last month and, on Tuesday, the company filed a $500 million shelf registration for common stock.

Although Associated (ASBC) says it has no immediate plans, the Green Bay, Wis., company noted that its shelf registration was filed with acquisitions in mind.

As safety and soundness issues wane, compliance has become the focal point for regulators as they review potential merger applications. The clean bill of health should strengthen Associated's hand a bit in competing for potential acquisitions, says Philip Flynn, the company's president and chief executive.

"There are smart people who say that companies that have gone through a process like we've just completed are more attractive acquirers," Flynn says. "The acquired institution can find some comfort in knowing that we've just gone through a rigorous exam and it is not going to hang up their deal."

In M&A, a buyer's ability to close a deal was often a given. That changed last year when M&T Bank (MTB) announced the delay of its purchase of Hudson City Bancorp (HCBK) after the Federal Reserve Board unearthed issues at M&T tied to the Bank Secrecy Act and anti-money laundering measures.

"The M&T case tells us regulators are looking at both the targets and the acquirers with increased scrutiny," says Ross Delston, a Washington lawyer with expertise in compliance. "They could argue that they are in a better position having just exited an enforcement [action, compared to] other acquirers who just think they are in compliance."

Analysts agree that sellers could find comfort in Associated's recent regulatory release, but were mildly skeptical of how much of a leg-up it would provide.

Delston cautions that regulatory scrutiny is the toughest he has seen in his career, adding that companies like Associated shouldn't necessarily expect a fresh release from an order to be an indication of an smoother approval process.

"If the acquirer has a clean bill of health, would there then be more scrutiny on the target?" Delston says. "There is no way to know. Even if you could read the regulators' mind, you still can't predict what will happen."

Flynn, who took the helm at Associated in 2009 and has spent the last four years fixing it, describes his team and "risk averse," adding that they are taking a cautious approach toward M&A.

"We worked hard to rebuild and we know an acquisition is the riskiest thing a company can do to its shareholders," he says. "It is hard to recover from a bad acquisition."

Associated is looking to buy competitors that Flynn describes as the "lowest risk play." The company operates in eight Midwest states, with the largest concentrations in Wisconsin, Illinois and Minnesota.

"The most attractive acquisitions at this point ... are in-market [deals] driven by efficiencies," Flynn says. "We haven't talked a whole lot about size."

Small acquisitions could work in specific scenarios, Flynn says, such as an acquisition in an area where it already has several branches.

In Wisconsin, the inventory of banks is skewed toward smaller institutions. "The picks of the litter" have less than $1 billion in assets, says Chris McGratty, an analyst at Keefe, Bruyette & Woods.

Chicago has more selection, but Associated's presence there is smaller, with just 0.56% of the market's deposits at June 30, according to the Federal Deposit Insurance Corp.

"They have a potential decision to be made in Chicago - to get bigger or go home," says Terry McEvoy, an analyst at Oppenheimer.

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