Market Reactions to Banc-Corp (ASB)'s New Strategic Plan

Associated Banc-Corp has the next phase of its strategic plan. This will include investments in people, products, and technology to grow and remix the loan portfolio, accelerate core customer deposit growth, and deliver a better banking experience for customers. President and CEO Andy Harmening stated, "These efforts have resulted in strong balance sheet expansion, and better positioned us to attract, deepen and retain customer relationships."

Associated Banc-Corp, a bank holding company, provides various banking and nonbanking products to individuals and businesses in Wisconsin, Illinois, and Minnesota. Based in Green Bay, WI, the mid-cap Finance company has 4,222 full time employees.

The company is expanding its commercial middle market team, with plans to hire over 20 additional relationship managers in focus markets such as Milwaukee, Madison, Chicago, Twin Cities, and St. Louis. Neil Riegelman, with over 20 years of experience in commercial banking, has been appointed as SVP, Commercial Banking Segment Leader. Additionally, Gus Hernandez has been appointed to the role of SVP, Director of Business Banking, and a new commercial banking group leader is expected to be announced by December 1, 2023.

Associated also announced several adjustments to the company’s consumer lending strategy, with key strategic changes including limiting construction lending to customers with associated bank deposit relationships and emphasizing the sale of conforming mortgage loans to continue serving communities while maintaining capacity for more profitable loan growth in other areas.

Following the successful launch of several deposit gathering initiatives, the company is focused on accelerating core customer deposit relationships. It plans to dedicate additional resources to grow the mass affluent segment as well as release key product enhancements to drive growth in consumer and small business households.

In connection with diligent expense control efforts, the company has identified $25 million to $30 million in noninterest expense reductions for 2024, primarily comprising FTE reductions, branch consolidations, and decreased discretionary spending.

Additionally, the company has announced a balance sheet repositioning transaction, including the sale of approximately $0.8 billion of investment securities and the agreement to sell approximately $1 billion in mortgage loans by the year-end 2023. This is expected to significantly increase the company’s wholesale funding capacity and remove low-yielding assets from the books.

Andy Harmening remarked, "Already underway, this plan accelerates our efforts to attract and deepen relationships, enhance our return profile and drive improved shareholder returns over time. We look forward to sharing updates on our progress in 2024 and beyond."

The company logged a modest 0.6% change Friday, and is now trading at a price of $16.95 per share. Associated Banc-Corp returned losses of -29.0% last year, with its stock price reaching a high of $24.82 and a low of $14.47. Over the same period, the stock underperformed the S&P 500 index by -41.0%. As of April 2023, the company's 50-day average price was $16.77.

Associated Banc- has offered a 5.0% dividend yield over the last 12 months.

Growing Revenues With a Flat Capital Expenditure Trend:

2018 2019 2020 2021 2022 2023
Revenue (MM) $1,235 $1,216 $1,277 $798 $1,145 $1,630
Interest Income (MM) $880 $836 $763 $726 $957 $1,085
Operating Margins 33.0% 33.0% 26.0% 55.0% 40.0% 31.0%
Net Margins 27.0% 27.0% 24.0% 44.0% 32.0% 24.0%
Net Income (MM) $334 $327 $307 $351 $366 $396
Depreciation & Amort. (MM) $48 $58 $51 $47 $45 $45
Earnings Per Share $1.89 $1.91 $1.86 $2.18 $2.34 $2.53
Diluted Shares (MM) 170 162 154 152 150 152
Free Cash Flow (MM) $431 $507 $495 $477 $784 $477
Capital Expenditures (MM) $66 $67 $55 $52 $63 $59
Net Current Assets (MM) -$25,222 -$24,583 -$25,284 -$25,943 -$31,837 -$36,229
Long Term Debt (MM) $4,737 $4,606 $2,574 $2,293 $828 $1,105

Associated Banc- has growing revenues and a flat capital expenditure trend, low debt levels, and positive EPS growth. Furthermore, Associated Banc- has average net margins with a stable trend and irregular cash flows.

The Market May Be Undervaluing Associated Banc-Corp's Assets and Equity:

Associated Banc- has a trailing twelve month P/E ratio of 6.9, compared to an average of 14.34 for the Finance sector. Based on its EPS guidance of $1.98, the company has a forward P/E ratio of 8.5. The company doesn't issue forward earnings guidance, and the compound average growth rate of its last 6 years of reported EPS is 5.0%. On this basis, the company's PEG ratio is 1.38, which shows that it is fairly priced. Additionally, the market is possibly undervaluing Associated Banc- in terms of its equity because its P/B ratio is 0.64 whereas the sector average is 1.57. The company's shares are currently trading -57.1% below their Graham number.

Analysts Give Associated Banc- an Average Rating of Hold:

The 10 analysts following Associated Banc- have set target prices ranging from $18.0 to $25.0 per share, for an average of $19.4 with a hold rating. As of April 2023, the company is trading -13.6% away from its average target price, indicating that there is an analyst consensus of some upside potential.

Associated Banc- has an average amount of shares sold short because 4.5% of the company's shares are sold short. Institutions own 84.2% of the company's shares, and the insider ownership rate stands at 1.37%, suggesting a small amount of insider investors. The largest shareholder is Blackrock Inc., whose 13% stake in the company is worth $325,686,688.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.