Associated Banc-Corp, a leading financial institution in the Midwest, has demonstrated its ability to navigate the evolving market landscape with a steadfast focus on strategic execution. Despite the challenges posed by the current economic environment, the company has continued to deliver solid financial performance, driven by its diversified business model and disciplined approach to growth.

Financials

For the fiscal year 2023, Associated Banc-Corp reported an annual net income of $182,956,000 and annual revenue of $1,097,347,000. The company's annual operating cash flow stood at $442,740,000, while its annual free cash flow reached $380,927,000. These robust financial metrics underscore the company's ability to generate sustainable value for its stakeholders.

In the second quarter of 2024, Associated Banc-Corp reported earnings per share of $0.52, in line with the Zacks Consensus Estimate. The company's revenue for the quarter came in at $325.5 million, slightly missing the consensus estimate of $331.36 million. This performance reflects the company's ability to navigate the ongoing market dynamics while maintaining its focus on strategic initiatives.

Loan Growth

One of the key highlights of the quarter was the company's continued emphasis on quality relationship-focused loan growth. Despite facing some headwinds, such as softer demand in the auto industry and elevated payoffs in the commercial real estate (CRE) portfolio, Associated Banc-Corp managed to grow its average loans by $211 million during the second quarter. The company's C&I and auto finance portfolios remained the primary drivers of this growth.

Deposit Performance

On the deposit front, the company experienced a decrease in average core customer deposits of less than 1% in the second quarter, which was largely in line with its expectations. The company attributed this to the typical seasonal slowdown in deposit growth during the second quarter, as well as the normalization of some of the inflated balances seen in the first quarter. However, the company remains confident in its ability to deliver core customer deposit growth in the back half of the year, driven by its focus on enhancing customer relationships and expanding its customer base.

Net Interest Income and Margin

Regarding the company's net interest income (NII) and net interest margin (NIM) performance, Associated Banc-Corp reported a $1 million decrease in NII compared to the previous quarter. This was primarily due to a combination of higher funding costs and a slight decline in asset yields. The company's NIM decreased by 4 basis points to 2.75% during the quarter. Looking ahead, the company expects sequential growth in NII and NIM expansion by the end of the year, driven by balance sheet growth, deposit betas, and anticipated Federal Reserve rate cuts.

Non-Interest Income and Expenses

In terms of non-interest income, the company reported $65.2 million, slightly down from the previous quarter but in line with the Zacks Consensus Estimate. The decrease was largely attributable to lower service charges, deposit account fees, mortgage banking, and net asset losses, partially offset by growth in wealth management fees, card-based fees, and bank-owned life insurance income.

On the expense front, Associated Banc-Corp continued to demonstrate its disciplined approach to cost management. The company's non-interest expenses increased by 2.7% to $195.9 million, which included a $2 million adjustment related to the FDIC special assessment. Excluding this one-time item, the company's adjusted non-interest expenses were $198 million, in line with its guidance.

Capital Position and Credit Quality

The company's capital position remains strong, with a Common Equity Tier 1 (CET1) ratio of 9.68% as of the end of the second quarter, up from 9.48% in the previous quarter. This improvement was driven by the company's stable core profitability and a one-time tax benefit recognized during the quarter.

In terms of credit quality, Associated Banc-Corp maintained its conservative approach, with delinquencies, criticized loans, and net charge-offs all decreasing compared to the prior quarter. The company's allowance for credit losses on loans (ACLL) increased by $2 million to $390 million, reflecting loan growth, nominal credit movement, and general macroeconomic trends.

Outlook

Looking ahead, the company has provided updated guidance for the full year 2024. It now expects net interest income growth of 1% to 3%, down from its previous guidance of 3% to 5%. This adjustment is primarily due to the company's expectations for a more competitive deposit environment and the impact of anticipated Federal Reserve rate cuts. The company also expects non-interest income to finish the year plus or minus 1% compared to its 2023 adjusted base of $264 million. On the expense front, the company continues to expect non-interest expense growth of 2% to 3%, excluding the impact of FDIC special assessment charges.

Recent Developments

Despite the challenges posed by the current market conditions, Associated Banc-Corp remains focused on executing its strategic plan. The company's Phase 2 initiatives, which build upon the momentum generated in Phase 1, are expected to have a more meaningful impact on its financial results as the company progresses through the back half of 2024 and into 2025.

Key elements of the company's strategic plan include:

1. Accelerating organic growth: The company is focused on expanding its commercial relationship management team, with plans to add 26 additional commercial relationship managers, representing a 28% increase from September 2023 levels. These hires are expected to contribute to the company's loan and deposit growth in the coming quarters.

2. Enhancing customer relationships: Associated Banc-Corp has made significant investments in improving customer satisfaction and deepening existing relationships. This is evidenced by the company's recent recognition as the number one retail banking customer satisfaction provider in its markets, as well as the highest net promoter scores the company has seen since 2017.

3. Driving digital transformation: The company continues to invest in its digital capabilities, including the recent launch of a new credit monitoring tool for its digital customers. These initiatives are aimed at improving the customer experience and positioning the company for long-term success in the evolving financial services landscape.

Conclusion

In conclusion, Associated Banc-Corp has demonstrated its ability to navigate the current market challenges with resilience and strategic execution. The company's diversified business model, disciplined approach to growth, and focus on enhancing customer relationships have positioned it well for the future. As the company continues to execute on its strategic plan, investors can expect to see the benefits of its initiatives reflected in its financial performance in the coming quarters and years.