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Associated Banc-Corp. ASB remains well-positioned for growth on the back of its strategic expansion plan, with a steady rise in loans and deposit balance. Also, the company’s balance sheet repositioning efforts will support top-line growth. However, mounting expenses and worsening asset quality are headwinds.
Factors Supporting Associated Banc-Corp’s Growth
Organic Growth Story: Associated Banc-Corp.’s organic growth strategy is reflected in its robust loans and deposit balances and efforts to boost fee income. While the company’s total revenues declined in 2021 and the first nine months of 2024, it witnessed a compound annual growth rate (CAGR) of 3.2% over the six years ended 2023. In the same time frame, loans and deposits recorded a CAGR of 5.8% and 6.6%, respectively. Though loans declined in the first nine months of 2024, deposits grew.
As part of its strategic plan, ASB expects the expansion of its lending capabilities and the inclusion of “higher-margin” lending portfolios and digital investments to bolster revenues and drive positive operating leverage over time. Our estimate for total revenue-FTE (excluding one-time items) implies a CAGR of 3.2% by 2026.
Efforts to Support Net Interest Income (NII) Growth: Amid the current relatively high interest rates scenario, Associated Banc-Corp.’s net interest margin (NIM) is likely to witness a moderate expansion as high funding costs are weighing on it. Though NIM declined in 2021 and 2020 from the prior years because of low interest rates, it improved in 2022 on the back of rising rates before declining again in 2023 and the first nine months of 2024. The decline was mainly due to a drastic rise in funding and deposit costs.
Nonetheless, ASB’s balance sheet repositioning actions undertaken in the fourth quarter of 2024 and steady stabilization in funding costs are likely to support NIM expansion in the upcoming quarters. We project NIM to be 2.80%, 2.92% and 3.03% in 2024, 2025 and 2026, respectively.
Strategic Expansion Plan: Associated Banc-Corp is undertaking several measures to improve operating efficiency and bolster its balance sheet. In November 2023, the company announced Phase 2 of its strategic plan. Under this, the company is leveraging the success of its first phase of the plan (announced in September 2021) and focusing on loan and deposit growth by 2025. The plan focuses on driving growth through customer acquisition and deepening relationships.
ASB intends to achieve this by acquiring customers, particularly in the mass affluent and private wealth segments, and strengthening its commercial lending business. Phase 1 of the plan has already resulted in the growth of its lending capabilities and will continue to support core business growth and transform digital capabilities. The company is on track with Phase 2 targets and expects the full impact of the initiatives to be realized in the second half of 2024 and 2025.