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Loan Growth Aids Associated Banc-Corp (ASB) Despite High Costs

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Associated Banc-Corp’s ASB robust loan growth, efforts to focus on fee income and inorganic expansion initiatives are expected to keep supporting financials. Its solid balance sheet and efforts to improve operating efficiency are commendable.

Moreover, analysts seem to be optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward over the past 30 days.

However, relatively lower interest rates, elevated costs and the company’s loan exposure to sectors, which are hit hardest by the COVID-19 mayhem, are major concerns.

Looking at the fundamentals, while Associated Banc-Corp’s total revenues declined in 2021 and first-quarter 2022, it witnessed a compound annual growth rate (CAGR) of 4.8% over the five-year period ended 2020.

Moreover, continuous change in the deposit mix due to rising non-interest-bearing deposit accounts (non-interest-bearing demand deposits, as a percentage of total deposits, were 29.3% as of Mar 31, 2022) has been impressive.

ASB has been undertaking measures to improve operating efficiency. In September 2021, the company announced a strategic expansion plan, which will bolster operating leverage and profitability over time.

In 2020, it announced branch optimization efforts, which are expected to result in continued annual cost savings. In 2021, Associated Banc-Corp sold its wealth management subsidiary Whitnell & Co., whereas, in 2020, it divested its insurance business, Associated Benefits & Risk Consulting.

Associated Banc-Corp has been growing inorganically as well. In 2020, it acquired First Staunton Bancshares and in 2019, it acquired 32 branches in Wisconsin. In the first half of 2018, it acquired Anderson Insurance, Diversified Insurance Solutions and Bank Mutual. These deals are expected to be accretive to the company’s earnings.

However, the company’s net interest margin (NIM) has been under pressure over the past few years. Although NIM increased in first-quarter 2022, the company’s margins are expected to remain under pressure for some time in the near term due to relatively lower rates despite the rate hike expectations in 2022.

While ASB’s expenses declined in the first quarter of 2022, the same witnessed a CAGR of 0.2% over the last six years (2016-2021). The rise was mainly due to higher personnel costs and technology expenses. Operating expenses are expected to remain elevated in the near term, given the company’s inorganic growth efforts, digitization and investments in franchise.

Further, a major part of Associated Banc-Corp’s loan portfolio — 63.4% as of Mar 31, 2022 — comprised total commercial loans (commercial and business lending, as well as commercial real estate lending). A higher concentration of commercial loans may pose regulatory and market challenges for the company.

Stocks That Warrant a Look

A couple of stocks from the same space worth a look are Independent Bank Corporation IBCP and Civista Bancshares, Inc. CIVB.

Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past two years, shares of IBCP have gained more than 30%.

Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. CIVB’s shares have gained more than 40% over the past two years.


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