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Associated Banc-Corp (ASB) Rides on Rates, Faces Cost Woes
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Associated Banc-Corp’s (ASB - Free Report) efforts to focus on fee income, inorganic expansion initiatives, decent loan growth and higher rates are expected to keep aiding financials. Its robust balance sheet and efforts to improve operating efficiency are commendable. Nonetheless, elevated costs, huge commercial loan exposure and high debt levels are major headwinds.
Looking at the fundamentals, Associated Banc-Corp is focused on its organic growth strategy, evident from solid loans and deposit balances, higher interest rates and efforts to improve fee income. While the company’s total revenues declined in 2021, it witnessed a CAGR of 4.8% over the five-year period that ended in 2020. The company expects the expansion of its lending capabilities (as part of its new strategic plan) to help drive incremental revenues going forward. We expect total revenues to grow 16%, 10.8% and 2.1% in 2022, 2023 and 2024, respectively.
ASB has been undertaking measures to improve operating efficiency. In September 2021, the company announced a strategic expansion plan, which has already resulted in the growth of its lending capabilities and will support core business growth and transform digital capabilities. The efforts include the addition of “higher-margin” lending portfolios and digital investments, which are expected to bolster revenues, operating leverage and profitability over time.
We remain encouraged by Associated Banc-Corp’s enhanced capital deployment activities. The company has been raising dividends on a regular basis. The last hike of 5% was announced in October 2022. Also, it has a share repurchase program in place. As of Sep 30, 2022, $80 million worth of authorization remained available. Given its earnings strength and efforts to improve its liquidity position, Associated Banc-Corp’s capital deployment activities look sustainable.
Analysts also seem to be optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for the company’s earnings for 2022 has been revised 1.3% upward over the past 30 days. Shares of this Zacks Rank #2 (Buy) company have rallied 16.3% over the past six months, outperforming the industry’s rise of 9.7%.
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However, Associated Banc-Corp has been witnessing a consistent rise in non-interest expenses. Expenses witnessed a CAGR of 0.2% over the last six years (2016-2021), with the uptrend continuing in the first nine months of 2022. Expenses are expected to remain elevated, given the company’s inorganic growth efforts, digitization, inflationary pressure and investments in franchises. Our estimates for total non-interest expenses suggest a CAGR of 6.8% over the next three years.
Further, a major part of Associated Banc-Corp’s loan portfolio — 62.8% as of Sep 30, 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.
The Zacks Consensus Estimate for Hancock Whitney’s 2022 earnings has moved marginally upward over the past 30 days. So far this year, HWC’s shares have gained 7.6%.
The Zacks Consensus Estimate for F.N.B. Corp’s 2022 has remained unchanged over the past 30 days. FNB’s shares have rallied 13.5% in the year-to-date period.
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Associated Banc-Corp (ASB) Rides on Rates, Faces Cost Woes
Associated Banc-Corp’s (ASB - Free Report) efforts to focus on fee income, inorganic expansion initiatives, decent loan growth and higher rates are expected to keep aiding financials. Its robust balance sheet and efforts to improve operating efficiency are commendable. Nonetheless, elevated costs, huge commercial loan exposure and high debt levels are major headwinds.
Looking at the fundamentals, Associated Banc-Corp is focused on its organic growth strategy, evident from solid loans and deposit balances, higher interest rates and efforts to improve fee income. While the company’s total revenues declined in 2021, it witnessed a CAGR of 4.8% over the five-year period that ended in 2020. The company expects the expansion of its lending capabilities (as part of its new strategic plan) to help drive incremental revenues going forward. We expect total revenues to grow 16%, 10.8% and 2.1% in 2022, 2023 and 2024, respectively.
ASB has been undertaking measures to improve operating efficiency. In September 2021, the company announced a strategic expansion plan, which has already resulted in the growth of its lending capabilities and will support core business growth and transform digital capabilities. The efforts include the addition of “higher-margin” lending portfolios and digital investments, which are expected to bolster revenues, operating leverage and profitability over time.
We remain encouraged by Associated Banc-Corp’s enhanced capital deployment activities. The company has been raising dividends on a regular basis. The last hike of 5% was announced in October 2022. Also, it has a share repurchase program in place. As of Sep 30, 2022, $80 million worth of authorization remained available. Given its earnings strength and efforts to improve its liquidity position, Associated Banc-Corp’s capital deployment activities look sustainable.
Analysts also seem to be optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for the company’s earnings for 2022 has been revised 1.3% upward over the past 30 days. Shares of this Zacks Rank #2 (Buy) company have rallied 16.3% over the past six months, outperforming the industry’s rise of 9.7%.
Image Source: Zacks Investment Research
However, Associated Banc-Corp has been witnessing a consistent rise in non-interest expenses. Expenses witnessed a CAGR of 0.2% over the last six years (2016-2021), with the uptrend continuing in the first nine months of 2022. Expenses are expected to remain elevated, given the company’s inorganic growth efforts, digitization, inflationary pressure and investments in franchises. Our estimates for total non-interest expenses suggest a CAGR of 6.8% over the next three years.
Further, a major part of Associated Banc-Corp’s loan portfolio — 62.8% as of Sep 30, 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.
Other Bank Stocks That Warrant a Look
A couple of other bank stocks worth a look are Hancock Whitney Corporation (HWC - Free Report) and F.N.B. Corporation (FNB - Free Report) . At present, both HWC and FNB carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Hancock Whitney’s 2022 earnings has moved marginally upward over the past 30 days. So far this year, HWC’s shares have gained 7.6%.
The Zacks Consensus Estimate for F.N.B. Corp’s 2022 has remained unchanged over the past 30 days. FNB’s shares have rallied 13.5% in the year-to-date period.