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Associated Banc-Corp (ASB) Rides on Strategic Plan, Costs High
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Associated Banc-Corp (ASB - Free Report) is committed to advancing its strategic efforts to strengthen loan and deposit balances. It expects the strategic growth plan to yield favorable operating leverage gradually. However, elevated funding costs and a worsening operating backdrop are likely to exert pressure on asset quality.
ASB remains focused on its organic growth strategy, driven by robust loans and deposit balances and efforts to improve fee income. Loans and deposits witnessed a compound annual growth rate (CAGR) of 5.8% and 6.6%, respectively, over the last six years ended 2023. The company anticipates enhancing its lending capabilities under its strategic plan, adding “higher-margin” loans to its portfolio and digital investments to strengthen revenues. Further, this will help achieve positive operating leverage going forward.
Though Associated Banc-Corp’s total revenues dipped in 2021, the metric witnessed a CAGR of 3.2% over the last six years (2017-2023). We estimate total revenues-FTE (excluding one-time items) to witness a CAGR of 2.5% by 2026 on the back of strategic plans and NIM growth.
In November 2023, Associated Banc-Corp announced Phase 2 of its strategic plan, leveraging on the success of its first phase, which was announced in September 2021. The plan intends to further strengthen loan and deposit-gathering capabilities by 2025.
Further, high interest rates will keep supporting net interest margin (NIM) expansion, though elevated funding costs will weigh on the metric. Despite NIM reduction in 2021 and 2020 attributed to low interest rates, a subsequent recovery occurred in 2022 amid rising rates, followed by a decline in the last year, primarily due to higher funding and deposit costs. Nonetheless, the balance sheet repositioning action and rate cuts (as signaled by the Federal Reserve) will likely support NIM this year. We project NIM to be 2.81%, 2.91% and 3.01% in 2024, 2025 and 2026, respectively.
Over the past three months, shares of ASB have gained 14.1% compared with the industry’s growth of 7.9%. Currently, the stock carries a Zacks Rank #3 (Hold).
Image Source: Zacks Investment Research
Nonetheless, Associated Banc-Corp witnessed a consistent increase in non-interest expenses, with a CAGR of 2.3% over the last six years (2017-2023). The rise was primarily attributed to high personnel costs and technology expenses. Non-interest expenses are expected to remain elevated due to business expansion plans. We expect adjusted total non-interest expenses to rise 2.5% this year.
Poor asset quality poses challenges for Associated Banc-Corp. Though provision for credit losses declined in 2021, it increased in 2022 and 2023 on anticipations of a worsening macroeconomic environment. Going forward, expectations of an economic slowdown are likely to exert pressure on asset quality. We project provision for credit losses to jump 41.1% in 2024. ASB's loan portfolio was 63% commercial as of Dec 31, 2023, with decreasing demand and potential asset quality deterioration amid challenges.
The Zacks Consensus Estimates for SRCE’s 2024 earnings have been revised 7.1% upward over the past 30 days. Shares of 1st Source Corporation have jumped 15.2% over the past six months.
The Zacks Consensus Estimates for FMNB’s 2024 earnings have been revised 4% upward over the past 30 days. Shares of Farmers National Banc Corp have gained 9.8% over the past six months.
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Associated Banc-Corp (ASB) Rides on Strategic Plan, Costs High
Associated Banc-Corp (ASB - Free Report) is committed to advancing its strategic efforts to strengthen loan and deposit balances. It expects the strategic growth plan to yield favorable operating leverage gradually. However, elevated funding costs and a worsening operating backdrop are likely to exert pressure on asset quality.
ASB remains focused on its organic growth strategy, driven by robust loans and deposit balances and efforts to improve fee income. Loans and deposits witnessed a compound annual growth rate (CAGR) of 5.8% and 6.6%, respectively, over the last six years ended 2023. The company anticipates enhancing its lending capabilities under its strategic plan, adding “higher-margin” loans to its portfolio and digital investments to strengthen revenues. Further, this will help achieve positive operating leverage going forward.
Though Associated Banc-Corp’s total revenues dipped in 2021, the metric witnessed a CAGR of 3.2% over the last six years (2017-2023). We estimate total revenues-FTE (excluding one-time items) to witness a CAGR of 2.5% by 2026 on the back of strategic plans and NIM growth.
In November 2023, Associated Banc-Corp announced Phase 2 of its strategic plan, leveraging on the success of its first phase, which was announced in September 2021. The plan intends to further strengthen loan and deposit-gathering capabilities by 2025.
Further, high interest rates will keep supporting net interest margin (NIM) expansion, though elevated funding costs will weigh on the metric. Despite NIM reduction in 2021 and 2020 attributed to low interest rates, a subsequent recovery occurred in 2022 amid rising rates, followed by a decline in the last year, primarily due to higher funding and deposit costs. Nonetheless, the balance sheet repositioning action and rate cuts (as signaled by the Federal Reserve) will likely support NIM this year. We project NIM to be 2.81%, 2.91% and 3.01% in 2024, 2025 and 2026, respectively.
Over the past three months, shares of ASB have gained 14.1% compared with the industry’s growth of 7.9%. Currently, the stock carries a Zacks Rank #3 (Hold).
Image Source: Zacks Investment Research
Nonetheless, Associated Banc-Corp witnessed a consistent increase in non-interest expenses, with a CAGR of 2.3% over the last six years (2017-2023). The rise was primarily attributed to high personnel costs and technology expenses. Non-interest expenses are expected to remain elevated due to business expansion plans. We expect adjusted total non-interest expenses to rise 2.5% this year.
Poor asset quality poses challenges for Associated Banc-Corp. Though provision for credit losses declined in 2021, it increased in 2022 and 2023 on anticipations of a worsening macroeconomic environment. Going forward, expectations of an economic slowdown are likely to exert pressure on asset quality. We project provision for credit losses to jump 41.1% in 2024. ASB's loan portfolio was 63% commercial as of Dec 31, 2023, with decreasing demand and potential asset quality deterioration amid challenges.
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are 1st Source Corporation (SRCE - Free Report) and Farmers National Banc Corp. (FMNB - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimates for SRCE’s 2024 earnings have been revised 7.1% upward over the past 30 days. Shares of 1st Source Corporation have jumped 15.2% over the past six months.
The Zacks Consensus Estimates for FMNB’s 2024 earnings have been revised 4% upward over the past 30 days. Shares of Farmers National Banc Corp have gained 9.8% over the past six months.