Associated Banc-Corp, headquartered in Green Bay, Wisconsin, is a regional bank holding company that has been steadily transforming its business model over the past several years. With a focus on serving customers in the Midwest region, the company has made strategic moves to diversify its loan portfolio and enhance its profitability.

History and Growth

Associated Banc-Corp was founded in 1970 as a bank holding company, with its primary subsidiary being Associated Bank, National Association, which was originally established in 1861. The company has a rich history spanning over 50 years, during which it has grown from a small community bank to become one of the largest financial institutions in the Midwest. In 1984, Associated Banc-Corp took a significant step by going public through an initial public offering, which provided the necessary capital to fund further expansion.

Throughout its history, Associated Banc-Corp has demonstrated resilience in the face of economic challenges. The company successfully navigated through the savings and loan crisis of the 1980s and the 2008 financial crisis, showcasing its ability to adapt and thrive in difficult economic conditions. As part of its growth strategy, Associated Banc-Corp has expanded its presence beyond Wisconsin, entering neighboring states like Minnesota and Illinois through strategic acquisitions of smaller banks.

Diversification Strategy

To address challenges such as managing interest rate risk and maintaining credit quality during economic downturns, Associated Banc-Corp has focused on diversifying its revenue streams. This diversification strategy has included growing its wealth management and commercial banking businesses, as well as making significant investments in technology to improve operational efficiency and enhance the customer experience.

Loan Portfolio Transformation

One of the key aspects of Associated Banc-Corp's transformation has been its focus on diversifying its loan portfolio. In the past, the company had a significant concentration in residential mortgages, which made up over 36% of its total loan book. However, under the leadership of CEO Andrew Harmening, who joined the company in 2021, the company has made a concerted effort to reduce its reliance on this low-yielding asset class.

By the end of 2024, the company's residential mortgage loans had declined to just 24% of its total loan portfolio, as it has shifted its focus to higher-yielding commercial and industrial (C&I) loans, as well as auto finance and other consumer lending products. This diversification strategy has paid off, with the company's C&I loan book growing by over 20% since 2020, and its auto finance portfolio expanding by nearly 40% over the same period.

Deposit Base Strengthening

In addition to its loan portfolio transformation, Associated Banc-Corp has also been focused on strengthening its deposit base. The company has made significant investments in its commercial banking team, hiring over 20 new relationship managers in 2024 alone. This has enabled the company to deepen its relationships with existing customers and attract new business, leading to a 4.3% increase in core customer deposits in 2024.

Financials

The company's balance sheet repositioning efforts have contributed to its improved profitability. In the fourth quarter of 2024, the company reported a loss of $1.03 per share, primarily due to non-recurring items related to the sale of its residential mortgage loans and securities. However, excluding these one-time charges, the company's adjusted earnings per share came in at $0.57, exceeding analyst expectations.

For the most recent quarter (Q3 2024), Associated Banc-Corp reported revenue of $61,563,000 and a net loss of $161,615,000. The operating cash flow (OCF) for the quarter was $207,129,000, while free cash flow (FCF) stood at $193,844,000. The large net loss in Q3 2024 was due to non-recurring items related to the company's balance sheet repositioning, including a $130 million loss from the sale of mortgages and a $148 million net loss on the securities sale.

Liquidity

Associated Banc-Corp maintains a strong liquidity position, which is crucial for its ability to meet customer demands and navigate economic uncertainties. The company's focus on growing its core customer deposits has contributed to its solid liquidity profile. As of Q3 2024, the company had $408.10 million in interest-bearing deposits in other financial institutions. Additionally, the company has access to credit facilities and credit lines, although specific details were not provided.

Business Segments

Associated Banc-Corp operates through three reportable segments: Corporate and Commercial Specialty, Community, Consumer, and Business, and Risk Management and Shared Services.

The Corporate and Commercial Specialty segment serves larger businesses, developers, not-for-profits, municipalities, and financial institutions. In the third quarter of 2024, this segment's total revenue increased 9% year-over-year to $193.05 million, driven by higher loan volumes and interest rates. The segment's net income grew 10% to $89.63 million, with average earning assets of $17.79 billion and average loans of $17.78 billion, both up 1% from the prior year.

The Community, Consumer, and Business segment provides lending and deposit solutions to individuals and small to mid-sized businesses. For the first nine months of 2024, this segment's total revenue increased 4% year-over-year to $649.85 million. Net income for this segment grew 9% to $235.84 million, while average earning assets and loans declined 4% to $11.33 billion, and average deposits increased 2% to $18.59 billion.

The Risk Management and Shared Services segment includes key shared corporate functions and Parent Company activity. For the first nine months of 2024, this segment's total revenue increased 46% year-over-year to $239.28 million, primarily driven by higher interest expense. The segment recognized an income tax benefit of $95.08 million, resulting in a net loss of $208.90 million.

Future Outlook

Looking ahead, Associated Banc-Corp has provided guidance for 2025 that suggests continued momentum in its business. The company expects to grow its total loans by 5-6%, with a focus on C&I lending, and its core customer deposits by 4-5%. Additionally, the company anticipates that its net interest income will increase by 12-13% in 2025, reflecting the benefits of its balance sheet repositioning and the higher interest rate environment.

Furthermore, Associated Banc-Corp expects non-interest income growth of 0% to 1% in 2025 compared to their adjusted 2024 base, and non-interest expense growth of 3% to 4% off their adjusted 2024 base. The company also plans to manage its CET1 ratio within a range of 10% to 10.5% in 2025.

While the company has faced some challenges in recent years, such as the COVID-19 pandemic and the resulting economic uncertainty, Associated Banc-Corp has demonstrated its ability to adapt and thrive in the face of adversity. With a strong capital position, a diversified loan portfolio, and a renewed focus on customer relationships, the company appears well-positioned to continue its transformation and deliver value to its shareholders in the years to come.

Overall, Associated Banc-Corp's story is one of a Midwest bank that has proactively taken steps to reshape its business model and enhance its long-term competitiveness. By focusing on loan diversification, deposit growth, and operational efficiency, the company has laid the foundation for sustainable growth and profitability in the years ahead. The company's performance across its various segments and its forward-looking guidance demonstrate a commitment to strategic growth and financial stability in the competitive banking landscape.