Associated Banc-Corp. ASB remains well-positioned for growth on the back of its strategic expansion plan, with a steady rise in loans and deposit balance. Also, the company’s balance sheet repositioning efforts will support top-line growth. However, mounting expenses and worsening asset quality are headwinds.

Factors Supporting Associated Banc-Corp’s Growth

Organic Growth Story: Associated Banc-Corp.’s organic growth strategy is reflected in its robust loans and deposit balances and efforts to boost fee income. While the company’s total revenues declined in 2021 and the first nine months of 2024, it witnessed a compound annual growth rate (CAGR) of 3.2% over the six years ended 2023. In the same time frame, loans and deposits recorded a CAGR of 5.8% and 6.6%, respectively. Though loans declined in the first nine months of 2024, deposits grew. 

As part of its strategic plan, ASB expects the expansion of its lending capabilities and the inclusion of “higher-margin” lending portfolios and digital investments to bolster revenues and drive positive operating leverage over time. Our estimate for total revenue-FTE (excluding one-time items) implies a CAGR of 3.2% by 2026.

Efforts to Support Net Interest Income (NII) Growth: Amid the current relatively high interest rates scenario, Associated Banc-Corp.’s net interest margin (NIM) is likely to witness a moderate expansion as high funding costs are weighing on it. Though NIM declined in 2021 and 2020 from the prior years because of low interest rates, it improved in 2022 on the back of rising rates before declining again in 2023 and the first nine months of 2024. The decline was mainly due to a drastic rise in funding and deposit costs. 

Nonetheless, ASB’s balance sheet repositioning actions undertaken in the fourth quarter of 2024 and steady stabilization in funding costs are likely to support NIM expansion in the upcoming quarters. We project NIM to be 2.80%, 2.92% and 3.03% in 2024, 2025 and 2026, respectively.

Strategic Expansion Plan: Associated Banc-Corp is undertaking several measures to improve operating efficiency and bolster its balance sheet. In November 2023, the company announced Phase 2 of its strategic plan. Under this, the company is leveraging the success of its first phase of the plan (announced in September 2021) and focusing on loan and deposit growth by 2025. The plan focuses on driving growth through customer acquisition and deepening relationships. 

ASB intends to achieve this by acquiring customers, particularly in the mass affluent and private wealth segments, and strengthening its commercial lending business. Phase 1 of the plan has already resulted in the growth of its lending capabilities and will continue to support core business growth and transform digital capabilities. The company is on track with Phase 2 targets and expects the full impact of the initiatives to be realized in the second half of 2024 and 2025.

Near-Term Hurdles Faced by Associated Banc-Corp

Elevated Expense Base: ASB’s elevated expense base remains a concern. Expenses witnessed a 2.3% CAGR over the past six years ended 2023, with the uptrend persisting in the first nine months of 2024. The increase was due to higher personnel costs and technological expenses. Operating expenses are expected to remain elevated because of the company’s expansion efforts, digitization and inflationary pressure. The company has identified $25-$30 million in non-interest expense reductions for 2024 as part of its strategic plan. Management anticipates fulfilling its target of hiring 26 relationship managers by the first quarter of 2025. 

Consequently, expenses are expected to remain high as Associated Banc-Corp continues to invest in talent acquisition, product development and technology enhancements aimed at improving customer experience and attracting new clients. Our estimates for total non-interest expenses suggest a CAGR of 2.1% by 2026.

Worsening Asset Quality: Provision for credit losses witnessed an increase in 2022 and 2023. The uptrend persisted in the first three quarters of 2024. Though the near-term recession risks have faded, the challenging operating backdrop will likely keep Associated Banc-Corp’s asset quality under pressure. We project provision for credit losses to increase 9% in 2024.

ASB’s Price Performance & Zacks Rank

Associated Banc-Corp. currently carries a Zacks Rank #3 (Hold). Over the past three months, shares of the company have rallied 12%, outperforming the industry’s growth of 9.6%.
 

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ASB’s Peer Stocks Worth Considering

Some better-ranked peers of ASB are Old National Bancorp ONB and Huntington Bancshares HBAN. ONB sports a Zacks Rank #1 (Strong Buy), while HBAN has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for ONB’s current-year earnings have remained unchanged in the past month. The company’s shares rallied 15% over the past three months.

Estimates for HBAN’s current-year earnings have been revised marginally upward in the past 30 days. The company’s shares have risen 10.7% over the past six months.

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