Elevated Expenses to Hurt Associated Banc-Corp's (ASB) Profits
Associated Banc-Corp’s ASB bottom line will likely be hurt in the near term because of persistently rising costs. Moreover, the company’s significant exposure to commercial loans makes us apprehensive.
Analysts are also not optimistic regarding ASB’s earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for Associated Banc-Corp’s current-year earnings has been revised 5% lower. The stock currently carries a Zacks Rank #4 (Sell).
In the past six months, shares of the company have lost 15.5% compared with the industry’s decline of 16.8%.
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Looking at its fundamentals, Associated Banc-Corp’s expenses witnessed a compound annual growth rate (CAGR) of 1% over the last five years (2017-2022). The rise was mainly due to higher personnel costs and technology expenses. The upward trend in expenses continued in the first half of 2023.
Operating expenses are expected to remain elevated in the near term, given the company’s inorganic growth efforts, digitization, inflationary pressure and investments in franchise.
Management expects non-interest expenses to rise 3-4% in 2023.
As of Jun 30, 2023, 61.8% of ASB’s loan portfolio comprised total commercial loans (commercial and business lending, as well as commercial real estate lending). High concentration of commercial loans may pose regulatory and market challenges for the company.
Also, Associated Banc-Corp’s exposure to sectors like retailers, restaurants and transportation, which were hit the hardest by the coronavirus-induced economic slowdown, makes us apprehensive.
Nevertheless, ASB’s strategic initiative to expand lending capabilities will likely support its core business growth and transform digital competencies. Also, decent loan demand, focus on fee income and rising interest rates are expected to aid top-line growth.
The company’s solid balance sheet and efforts to improve operating efficiency are commendable.
Stocks to Consider
A couple of better-ranked stocks from the same space are Independent Bank Corporation IBCP and Old Second Bancorp, Inc. OSBC.
The Zacks Consensus Estimate for IBCP’s 2023 earnings has been revised 4.5% upward over the past 30 days. Its shares have gained 19.1% in the past three months. Currently, IBCP carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Old Second Bancorp also carries a Zacks Rank #2 at present. Its earnings estimates for 2023 have been revised 1.9% upward over the past month. In the past three months, OSBC’s shares have gained 31.1%.
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Old Second Bancorp, Inc. (OSBC) : Free Stock Analysis Report
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Associated Banc-Corp (ASB) : Free Stock Analysis Report
