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Associated Banc-Corp (ASB) Ratings, Outlook Affirmed by Moody's

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Associated Banc-Corp (ASB - Free Report) and its banking subsidiary Associated Bank, N.A.’s outlook has been re-affirmed at negative by Moody's Investors Service, a division of Moody’s Corporation (MCO - Free Report) . The rating agency has also affirmed the company’s a3 standalone baseline credit assessment and A1/Prime-1 for its long-term deposits. The holding company’s issuer rating of Baa1 for long-term senior unsecured notes also remained unchanged.

Reasons for Affirming the Ratings

Per Moody’s, Associated Banc-Corp’s ratings affirmation is indicative of a strong market position and direct banking franchise network in its key Wisconsin market. This aids the company’s robust funding and liquidity position and solid asset quality.

The rating agency is of the opinion that ASB’s asset quality performance is supported by “conservative credit culture,” which remained robust amid the coronavirus pandemic. These are further balanced by the credit challenges, its lower capitalization relative to similar-rated peers and a substantially lower part of liquid assets on the balance sheet.

Despite these, Associated Banc-Corp’s above-average exposure to commercial real estate lending compared with its peers is a matter of concern. ASB’s lending to the sector was roughly 2.3 times its tangible common equity as of Jun 30, 2021. This continues to pose a challenge to the bank’s credit quality. Nonetheless, Moody’s noted that the company has successfully reduced its exposure to energy sector lending over the past few years.

Further, despite Associated Banc-Corp witnessing deteriorating profitability in 2020 following the implementation of the CECL accounting standard and a worsening in the operating environment, Moody's expects profitability to keep improving this year and through 2022.

This likely to be driven by strategic actions announced by the company in September 2021. Associated Banc-Corp has taken several steps to diversify revenues. While pressure remains on margins and net interest income owing the lower interest rate environment, Moody's anticipates ASB’s increased income diversity from new business verticals will aid its profitability.

Reason Behind No Change in Outlook

The primary reason behind the reiteration of the negative outlook is Associated Banc-Corp’s weaker capital and liquidity position compared with the other regional banks with similar ratings.

Notably, the outlook can return to stable if Associated Banc-Corp is able to improve profitability on a sustainable basis.

What Can Trigger a Change in Ratings?

Even though ratings upgrades are less likely in 12-18 months due to the negative outlook, ratings for Associated Banc-Corp can return to stable if Moody’s thinks that the bank has strengthened on asset quality and profitability fronts and will prove to be resilient on all of the aspects.

At the same time, ratings can go down if the bank’s capital position worsens compared with its peers. Also, deterioration in credit profile or any hint of declining profitability can lead to a ratings downgrade.

Price Performance & Zacks Rank

Associated Banc-Corp’s shares have rallied 32.6% so far this year, outperforming 14.5% growth for the industry.

Zacks Investment ResearchImage Source: Zacks Investment Research

Associated Banc-Corp currently carries a Zacks Rank #3 (Hold).

Bank Stocks Worth a Look

Banks worth considering are Washington Federal (WAFD - Free Report) and Eastern Bankshares (EBC - Free Report) . Both WAFD and EBC at present sport a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past year, shares of Washington Federal have rallied 28.8% and Eastern Bankshares gained 30.6%. Further, the Zacks Consensus Estimate for earnings for WAFD has moved 12.7% north, while the same for EBC has been revised 6.9% upward, over the past 60 days.