Associated Banc-Corp (ASBC)

of certain tax matters and changes in the estimated exposure of uncertain tax positions, partially offset by the increase in valuation allowance related to certain deferred tax assets, resulted in the net reduction of previously recorded tax liabilities and income tax expense of approximately $4.4 million in the first quarter of 2008.

 

See Note 1, “Summary of Significant Accounting Policies,” of the notes to consolidated financial statements for the Corporation’s income tax accounting policy and section “Critical Accounting Policies.” Income tax expense recorded in the consolidated statements of income involves interpretation and application of certain accounting pronouncements and federal and state tax codes, and is, therefore, considered a critical accounting policy. The Corporation undergoes examination by various taxing authorities. Such taxing authorities may require that changes in the amount of tax expense or valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See Note 13, “Income Taxes,” of the notes to consolidated financial statements for more information.

 

BALANCE SHEET ANALYSIS

 

The Corporation’s growth comes predominantly from loans and investment securities. See sections “Loans” and “Investment Securities Portfolio.” The Corporation has generally financed its growth through increased deposits and issuance of debt (see sections, “Deposits,” “Other Funding Sources,” and “Liquidity”), as well as retention of earnings and the issuance of common and preferred stock, particularly in the case of certain acquisitions (see section “Capital”).

 

 

Income tax expense for 2008 was $53.8 million compared to
$133.4 million for 2007. The Corporation’s effective
tax rate (income tax expense divided by income before taxes) was
24.2% in 2008 and 31.8% in 2007. The decline in the effective
tax rate was primarily due to the decrease in income before
taxes, as the level of permanent difference items (such as
tax-exempt interest and dividends) while relatively consistent
between years, had a proportionately greater impact on the
effective tax rate based on lower pre-tax income. Additionally,
the first quarter 2008 resolution

of certain tax matters and changes in the estimated exposure of
uncertain tax positions, partially offset by the increase in
valuation allowance related to certain deferred tax assets,
resulted in the net reduction of previously recorded tax
liabilities and income tax expense of approximately
$4.4 million in the first quarter of 2008.

 

See Note 1, “Summary of Significant Accounting
Policies,” of the notes to consolidated financial
statements for the Corporation’s income tax accounting
policy and section “Critical Accounting Policies.”
Income tax expense recorded in the consolidated statements of
income involves interpretation and application of certain
accounting pronouncements and federal and state tax codes, and
is, therefore, considered a critical accounting policy. The
Corporation undergoes examination by various taxing authorities.
Such taxing authorities may require that changes in the amount
of tax expense or valuation allowance be recognized when their
interpretations differ from those of management, based on their
judgments about information available to them at the time of
their examinations. See Note 13, “Income Taxes,”
of the notes to consolidated financial statements for more
information.

 

BALANCE
SHEET ANALYSIS

 

The Corporation’s growth comes predominantly from loans and
investment securities. See sections “Loans” and
“Investment Securities Portfolio.” The Corporation has
generally financed its growth through increased deposits and
issuance of debt (see sections, “Deposits,”
“Other Funding Sources,” and “Liquidity”),
as well as retention of earnings and the issuance of common and
preferred stock, particularly in the case of certain
acquisitions (see section “Capital”).

 

 

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes, which arise principally from temporary differences between the period in which certain income and expenses are recognized for financial accounting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and, if necessary, tax planning strategies in making this assessment.

 

The Corporation files a consolidated federal income tax return and individual or consolidated state income tax returns. Accordingly, amounts equal to tax benefits of those subsidiaries having taxable federal losses or credits are offset by other subsidiaries that incur federal tax liabilities.

 

It is the Corporation’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2008 and 2007, the Corporation believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Corporation prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Corporation’s effective tax rate in a given financial statement period may be effected. See Note 13 for additional information on income taxes.

 

 

Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income taxes, which arise principally from temporary differences
between the period in which certain income and expenses are
recognized for financial accounting purposes and the period in
which they affect taxable income, are included in the amounts
provided for income taxes. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income and tax planning strategies which will create
taxable income during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and, if necessary, tax planning strategies in
making this assessment.

 

The Corporation files a consolidated federal income tax return
and individual or consolidated state income tax returns.
Accordingly, amounts equal to tax benefits of those subsidiaries
having taxable federal losses or credits are offset by other
subsidiaries that incur federal tax liabilities.

 

It is the Corporation’s policy to provide for uncertain tax
positions and the related interest and penalties based upon
management’s assessment of whether a tax benefit is more
likely than not to be sustained upon examination by tax
authorities. At December 31, 2008 and 2007, the Corporation
believes it has appropriately accounted for any unrecognized tax
benefits. To the extent the Corporation prevails in matters for
which a liability for an unrecognized tax benefit is established
or is required to pay amounts in excess of the liability, the
Corporation’s effective tax rate in a given financial
statement period may be effected. See Note 13 for
additional information on income taxes.