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On Apr 30, 2021, we issued an updated research report on Associated Banc-Corp ASB. The company’s business-restructuring plans, its efforts to improve operating efficiency and a solid balance sheet position are expected to continue supporting financials.
Moreover, analysts seem to be optimistic regarding its earnings growth potential. Thus, the Zacks Consensus Estimate for the company’s current-year earnings has been revised 17.7% upward over the past 30 days.
However, near-zero interest rates, mounting operating expenses and high debt levels remain major concerns for the company. Hence, Associated Banc-Corp currently carries a Zacks Rank #3 (Hold).
So far this year, shares of the company have gained 28.4% compared with a 24% rise of the industry.
Looking at fundamentals, Associated Banc-Corp’s revenues have witnessed a compound annual growth rate (CAGR) of 4.8% over the last five years (2016-2020). Also, a continuous change in deposit mix due to rising non-interest-bearing deposit accounts has been impressive.
The company’s inorganic growth efforts are encouraging. In February 2020, it acquired First Staunton Bancshares. In June 2019, it acquired 32 branches in Winconsin. In the first half of 2018, it acquired Anderson Insurance, Diversified Insurance Solutions and Bank Mutual. The deals are expected to be accretive to the company’s earnings. In fact, given a solid liquidity position, the company is well-positioned to grow further on the back of opportunistic acquisitions.
Further, it has been making efforts to improve operating efficiency. In late 2020, the company announced branch-optimization efforts, which are expected to result in annual cost savings. Also, in March 2021, it sold its wealth management subsidiary Whitnell, while in June 2020, it divested its insurance business, Associated Benefits & Risk Consulting. The initiatives are aimed at improving profitability, going forward.
However, Associated Banc-Corp’s net interest margin (NIM) has been under pressure over the past few years. NIM declined in the first quarter of 2021 as well. Due to near-zero interest rates and the Federal Reserve signaling no chance of a hike anytime soon, the company’s NIM is expected to remain under pressure in the near term.
Also, while expenses declined in 2019 and 2020, the same witnessed a CAGR of 2.1% over the last six years (2015-2020) due to higher personnel costs and technology expenses. Though operating expenses declined in the first quarter; the same is expected to remain elevated in the near term, given the company’s inorganic growth efforts and investments in franchise.
Further, almost 64% of the company’s total loan portfolio comprised commercial loans (commercial and business lending as well as commercial real estate lending) as of Mar 31, 2021. A higher concentration of commercial loans may pose regulatory and market challenges for the company and hence makes us apprehensive.
Stocks That Warrant a Look
A few stocks from the same space worth a look are mentioned below.
Commerce Bancshares, Inc.’s CBSH Zacks Consensus Estimate for current-year earnings has been revised upward by 11.5% over the past 60 days. The company currently sports a Zacks Rank #1 (Strong Buy). Over the past year, shares of the company have gained 39.8%.
The consensus estimate for earnings of Mercantile Bank Corporation MBWM has been revised 47.9% upward for the current year over the past 60 days. The stock has gained 43.9% over the past year. It presently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Civista Bancshares, Inc. CIVB has witnessed an upward earnings estimate revision of 4.8% for 2021 over the past 60 days. The company currently carries a Zacks Rank #2 (Buy). Its shares have gained 57.2% over the past year.
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Commerce Bancshares, Inc. (CBSH) : Free Stock Analysis Report
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