On Jul 5, 2013, we reiterated our long-term Neutral recommendation on Associated Banc-Corp (ASBC), based on impressive loan and deposit growth, along with improving asset quality and sound capital deployment activity. However, higher expenses and considerable exposure to commercial loans keep us apprehensive.
Associated’s focus on its organic growth strategy has resulted in an increase in deposits as well as net interest income (:NII) over the past several quarters. Further, the company continues to build capital, leading to a better financial position that will aid in fulfilling higher capital requirements. Moreover, meaningful capital deployment and consistently improving credit quality are the positives for Associated.
Nevertheless, increased non-interest expenses and significant exposure to commercial loans remain major causes of concern for the company. In addition, Associated’s profitability remains subject to stringent regulations. Another issue that plagues the company is its limited exposure to markets.
Associated’s first-quarter 2013 earnings marginally surpassed the Zacks Consensus Estimate. Lower operating expenses, partly offset by a reduction in top-line drove the results. The company is scheduled to announce second-quarter results on Jul 18.
The Zacks Consensus Estimate for the quarter is pegged at 25 cents per share. The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Associated is +4.00% for the second quarter. This, along with its Zacks Rank #3 (Hold), makes it likely for the company to report a positive earnings surprise.
Other Stocks to Consider
Better performing Midwest banks include Old Second Bancorp Inc. (OSBC), First Interstate Bancsystem Inc. (FIBK) and Tower Financial Corporation (TOFC). All these stocks carry a Zacks Rank #1 (Strong Buy).
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