Investment Thesis

Headquartered in Green Bay, Wisconsin, Associated Banc-Corp (ASB) is the $36 billion asset holding company for Associated Bank, a Midwest commercial and retail bank. Associated offers a broad array of banking and capital market products and services to retail and commercial customers throughout Wisconsin, Illinois, and Minnesota, as well as a few other nearby states.

With the excess equity from the insurance sale, future capital deployment opportunities could represent upside over time. However, ASB has historically had lower than average profitability levels and a higher expense base, which kept a lid on valuation relative to peer banks.

However, I have become more positive on the shares following ASB’s announcement of additional cost rationalization efforts, branch sales, and early redemption of higher cost borrowings.

My bullish stance is driven by management’s increased focus on enhancing profitability through expense control. I expect to see an improvement in operating leverage and the efficiency ratio, albeit at a slow rate, but any sustainable improvement is often rewarded by shareholders through the form of valuation relative to peers, even if the move up is to simply be “average” (like in ASB’s case). While the current branch count is a little too high, in my view, I believe the recent actions to not only stem expense growth, but cutting costs should lead to share price outperformance.

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While I don’t believe ASB is going to start to trade at a premium to Midwest banks, most peers are near 1.1x Price to Tangible Book Value per share. In the next few weeks, I believe bank’s third quarter earnings are likely to shed some light on the overall credit picture.

In my mind, if things look worse from a credit perspective, ASB should be fairly insulated given its extremely low share price valuation. If