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On Oct 3, 2013, we reaffirmed our Neutral recommendation on Associated Banc-Corp (ASBC - Analyst Report). This was based on the company’s impressive organic growth and consistent improvement in credit quality. However, higher operating expenses, considerable exposure to commercial loans and concentration risks arising from limited geographic diversification keep us apprehensive.

Why Neutral?

Associated Banc-Corp is a sound asset for yield-seeking investors. Going forward, efficient capital deployment activities will continue to boost investors’ confidence in the stock. Further, Associated Banc-Corp is focused on its organic growth strategy and this is reflected in the rise in deposits as well as net interest income over the past several quarters. The continuous change in deposit mix, backed by rising non-interest-bearing deposit accounts, has also been impressive.

Moreover, Associated Banc-Corp's second-quarter 2013 earnings per share beat the Zacks Consensus Estimate. Better-than-expected results were driven by top-line growth, partially offset by higher operating expenses.

Additionally, the Zacks Consensus Estimate for 2013 advanced 2.9% to $1.60 per share over the last 90 days. Further, for 2014, the Zacks Consensus Estimate increased 1.0% to $1.60 per share over the same time period. As a result, Associated Banc-Corp currently carries a Zacks Rank #3 (Hold).

On the flip side, increase in non-interest expenses remains a major cause of concern for Associated Banc-Corp. Moreover, in the near term, a stringent regulatory landscape and subsequent compliance costs will likely keep expenses high. Furthermore, another issue that is plaguing the bank is its limited foothold. The concentration risk can adversely affect Associated Banc-Corp’s financial performance if the regional economy falters.

Other Stocks Worth Considering

Some better-performing banks include Tower Financial Corporation , Enterprise Financial Services Corp. (EFSC - Snapshot Report) and Lakeland Financial Corp. (LKFN - Snapshot Report). While Tower Financial Corporation has a Zacks Rank #1(Strong Buy), both Enterprise Financial Services and Lakeland Financial carry a Zacks Rank #2 (Buy).

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