Associated Banc-Corp (ASB) is a leading Midwest banking franchise with a rich history spanning over a century. Headquartered in Green Bay, Wisconsin, the company has carved out a strong presence across the region, offering a comprehensive suite of financial products and services to a diverse customer base.
Business Overview and History Founded in 1964, Associated Banc-Corp has grown steadily over the decades, both organically and through strategic acquisitions. The company's primary subsidiary is Associated Bank, N.A., which is the largest bank headquartered in Wisconsin. A significant milestone in the company's expansion came in 1985 when it acquired Marine Corporation of Wisconsin, adding branches and assets in Milwaukee and southeastern Wisconsin. This acquisition helped Associated Banc-Corp expand its geographic footprint beyond its roots in northeastern Wisconsin.
In the early 2000s, the company faced challenges related to credit quality issues and regulatory oversight. However, Associated Banc-Corp worked diligently to address these problems and strengthen its risk management practices, including enhancing underwriting standards and improving problem loan resolution efforts. During the late 2000s and early 2010s, the company continued its expansion strategy, acquiring banks such as Insouth Bancorp in Illinois and Blue Valley Ban Corp in Kansas, further solidifying its presence in the Midwest region.
Throughout its history, Associated Banc-Corp has demonstrated resilience in navigating various challenges, from credit quality issues to regulatory oversight, while consistently growing its footprint and enhancing its product and service offerings for customers. The company has also invested in its technology and digital capabilities to better serve its client base, adapting to the evolving needs of the banking industry.
Today, Associated Banc-Corp's footprint encompasses nearly 200 banking locations serving more than 100 communities throughout Wisconsin, Illinois, and Minnesota. In addition to its robust retail banking operations, Associated has also established a prominent commercial and corporate banking division, catering to the needs of businesses ranging from small enterprises to large corporations.
One of the hallmarks of Associated's success has been its unwavering focus on the Midwest market. By deeply embedding itself within the communities it serves, the bank has developed a keen understanding of the unique dynamics and challenges faced by its customers. This localized approach has enabled the company to tailor its offerings and cultivate long-lasting relationships with both individual and business clients.
Financial Performance and Ratios As of the most recent financial reporting period, Associated Banc-Corp boasted total assets of $42 billion, making it the largest bank holding company headquartered in Wisconsin. The company's net income for the fiscal year 2023 stood at $182.96 million, while its annual revenue reached $1.10 billion. Furthermore, Associated's operating cash flow and free cash flow for the same period amounted to $442.74 million and $380.93 million, respectively.
In the most recent quarter (Q3 2024), Associated Banc-Corp reported revenue of $326.98 million, net income of $88.02 million, operating cash flow of $105.12 million, and free cash flow of $93.44 million. These increases in revenue, net income, operating cash flow, and free cash flow were primarily driven by higher loan and deposit balances, as well as an increase in net interest income due to rising interest rates.
The bank's financial ratios paint a picture of a well-capitalized and conservatively managed institution. As of the latest quarter, Associated's common equity tier 1 (CET1) capital ratio stood at 9.72%, comfortably exceeding regulatory requirements. The company's tangible common equity (TCE) ratio, a key metric of balance sheet strength, was a robust 7.50%. These ratios, coupled with the bank's strong liquidity position, underscore its ability to navigate the evolving financial landscape.
Liquidity Associated Banc-Corp maintains a strong liquidity position, which is crucial for its ability to meet short-term obligations and weather potential economic downturns. The bank's liquidity management strategy includes maintaining diverse funding sources, including retail and commercial deposits, as well as access to wholesale funding markets. This approach ensures that Associated has the flexibility to meet its funding needs under various market conditions.
As of the latest reporting period, Associated Banc-Corp's debt-to-equity ratio stood at 0.62, indicating a balanced capital structure. The company reported cash on hand of $909.47 million, providing a solid buffer for short-term obligations. Associated also maintains access to additional liquidity sources, including a $200 million commercial paper program and access to the Federal Reserve Bank discount window and Federal Home Loan Bank (FHLB) borrowing capacity. As of September 30, 2024, the Bank had $6.20 billion available for future FHLB funding and $2.98 billion available for discount window borrowings.
The company's current ratio of 1.11 and quick ratio of 0.28 further underscore its ability to meet short-term obligations, although the lower quick ratio suggests a reliance on inventory or less liquid assets to cover immediate liabilities.
Strategic Initiatives and Outlook In recent years, Associated Banc-Corp has embarked on a strategic transformation aimed at enhancing its customer experience, diversifying its revenue streams, and driving sustainable growth. The company's Phase 2 initiatives have focused on bolstering its consumer banking offerings, including the rollout of new digital tools and the expansion of its mass affluent program. On the commercial side, Associated has made strategic hires to strengthen its middle market and specialty banking capabilities, targeting sectors such as commercial real estate, equipment finance, and treasury management.
These efforts have begun to bear fruit, with the bank reporting solid growth in core customer deposits and commercial loan volumes. Looking ahead, Associated expects to continue executing on its strategic plan, aiming to achieve incremental commercial loan growth of $750 million, incremental deposit balances of $2.5 billion, and annual household growth of 3% by the end of 2025.
Based on the company's guidance provided in the third quarter of 2024, Associated Banc-Corp expects total loan growth for 2024 to land at the lower end of its original 4-6% range. Similarly, core customer deposit growth is anticipated to finish 2024 at the lower end of the previously guided 3-5% range. Noninterest income growth for 2024 is expected to remain in the range of -1% to +1% compared to the adjusted 2023 base of $264 million. The outlook for noninterest expense growth has been lowered to 1-2% for 2024, excluding the impact of FDIC special assessments, down from the previous guidance of 1-2% growth off the adjusted 2023 base of $783 million.
Associated Banc-Corp has also adjusted its net interest income (NII) growth outlook for 2024 to 0-1% growth, down from its previous guidance. Regarding capital ratios, the company expects its Tangible Common Equity (TCE) ratio to remain in the range of 6.75%-7.75% and its Common Equity Tier 1 (CET1) ratio to stay within the 9-10% range for 2024.
Challenges and Risks Like any financial institution, Associated Banc-Corp faces a range of risks and challenges that require diligent management. The ongoing evolution of the interest rate environment, with the potential for further rate cuts, could exert pressure on the bank's net interest margin and profitability. Additionally, the company's reliance on the Midwest region, while a strength in many ways, also exposes it to economic fluctuations and industry-specific challenges within that geographic footprint.
The bank's ability to effectively manage its credit risk, particularly in its commercial and real estate lending portfolios, will be crucial in maintaining asset quality and mitigating potential losses. Furthermore, the heightened competition from both traditional and emerging financial players in the Midwest market underscores the need for Associated to continuously innovate and adapt its service offerings to meet the evolving needs of its customers.
Segment Performance Associated Banc-Corp operates through three main reportable segments:
Corporate and Commercial Specialty Segment: This segment serves larger businesses, developers, not-for-profits, municipalities, and financial institutions by providing lending and deposit solutions, as well as investment, fiduciary, and retirement planning products and services. In the third quarter of 2024, this segment's total revenue increased 9% compared to the same period in 2023, driven by higher loan volumes and interest rates leading to an increase in net interest income. Average loans for this segment increased 1% from the third quarter of 2023 and 2% from the first nine months of 2023, mainly attributed to growth in commercial and business lending as well as residential mortgages. Average deposits for this segment decreased 2% from the third quarter of 2023 and 3% from the first nine months of 2023.
Community, Consumer, and Business Segment: This segment caters to individuals and small to mid-sized businesses. Total revenue for this segment increased 4% in the first nine months of 2024 compared to the same period in 2023, primarily due to receiving higher net FTP credit for providing funding and the impact of higher interest rates. Average loans for this segment decreased 4% from the third quarter of 2023 and 2% from the first nine months of 2023, driven by a decline in residential mortgage lending partially offset by growth in auto finance. Average deposits for this segment increased 2% from the third quarter of 2023 and 1% from the first nine months of 2023.
Risk Management and Shared Services Segment: This segment includes key shared operational functions, the Parent Company's activity, intersegment eliminations, and residual revenues and expenses. Total revenue for this segment decreased 46% in the first nine months of 2024 compared to the same period in 2023, mainly driven by increased interest expense. Average earning assets for this segment increased 4% from the third quarter of 2023 and 5% from the first nine months of 2023, primarily due to higher balances of AFS investment securities. Average deposits for this segment increased 22% from the third quarter of 2023 and 54% from the first nine months of 2023.
Conclusion Despite the challenges that lie ahead, Associated Banc-Corp's deep roots in the Midwest, its diversified business model, and its strategic focus on enhancing the customer experience position the company well for continued success. As the bank navigates the dynamic banking landscape, its strong financial foundation, prudent risk management, and commitment to sustainable growth provide a solid foundation for long-term value creation. The company's ability to adapt to changing market conditions, as evidenced by its revised guidance and segment performance, demonstrates its resilience and strategic agility in the face of evolving economic conditions.