Associated Banc-Corp in Green Bay, Wis., will increase its fourth-quarter allowance for loan losses by $13 million to compensate for potential late payments or defaults on loans in its energy portfolio.
The allowance will reduce earnings by about 3 cents per share, the $27 billion-asset company said in a Friday news release. Associated's 2015 year-end reserves for energy credits will total about $42 million, a 147% increase from a year earlier. Associated's fourth-quarter provision for loan losses is expected to total $20 million, an increase of 150% from the third quarter.
Associated is at least the second bank to increase its allowance for loan losses tied to energy credits ahead of reporting fourth-quarter earnings. The $21.6 billion-asset Hancock Holding in Gulfport, Miss., on Dec. 17 said it would increase its allowance.
"The continuing decline in the market price for oil and the negative outlook for a near term price recovery has caused us to update our views," Philip Flynn, Associated's chief executive, said in the release.
Associated's energy exposure totaled $752 million of outstanding loans, or about 4% of its total loan portfolio. All of Associated's energy credits are secured loans. Associated's energy portfolio comprises about 50 credits to small and midsize companies. Associated did not identify its borrowers or which specific credits are now or could be categorized as classified.
Associated's strategy for energy lending has focused on the "upstream sector," in which loans are secured by a first-priority lien on oil and gas reserves, Flynn said.
Associated is expected to report fourth-quarter and full-year results on Jan. 21.