October 18, 2022 - 6:06am EST by
2022 2023
Price: 21.98 EPS 0 0
Shares Out. (in M): 150 P/E 0 0
Market Cap (in $M): 3,200 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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  • Banks


Investment Thesis 

Regional bank trading below book value (0.78x 2023 P/BV). ASB is currently pricing in a recession and ignoring the change in its deposit beta since the last downturn. Deposit beta currently is estimated at 23% compared to 42% during the last cycle as network deposits / other wholesale funding declined from 33.3% in Q2’16 to 15.6% in Q2’22. On a 1.3x P/BV ASB’s stock is worth $36.19, a 64.5% increase in value while a 0.7x downside is only an 11.4% downside, resulting in a 5.65x upside/downside ratio. H2’22 results are expected to continue to show loan growth, resilient credit losses and a low deposit beta.

Macro Environment

 Historic Performance

The NASDAQ KBW NASDAQ Bank Index (BKX) is down 28% year to date and 33% since its peak on 1/13/22. The S&P500 is down 24% year to date. Looking back over the history of the sector, this correction ranks near its historic correct as:

There have been 27 selloffs in the sector of 20%+ since 1966. During a bank market selloff, the S&P500 drops on average 30%.

In the past 56 years, bank stocks have dropped 40%+ only 7 times and just 4 times excluding the financial crisis. In the 7 times bank stocks reached peak selloff levels, they returned 30%+ the following 12 months.

The bank sector is today on average trading at 1.9x P/TBV (TBV as of 6/30/22) and 9.1x 2022 and 7.7x 2023 earnings. On average compared to the S&P500, banks are trading at a near 40% discount to forward earnings compared to a discount of 30 – 40% average.


Deposit beta, the amount the deposit rate goes up in response to a rise in market rates. A key focus is banks maintaining their deposits as accelerated fed activity allows banks to benefit from a larger balance sheet and higher NII (net interest income). In the current rising rate environment, a preference is for banks that are able to maintain balance sheet growth and maintain low deposit betas. Growth banks, are poorly positioned in a recessionary environment compared to banks with stable deposit bases as they can maintain their balances and extend their asset sensitivity benefits.

Higher rates will yield to margin expansion but risk credit concerns, as net interest income rises sharply concerns are focused on worsening credit quality that override NII upside.   Higher rates boost loan yields, historically low loan to deposit ratios along the largest banks will result in new competition for new loans.

Company Overview

Associated Banc-Corp is a bank holding company registered pursuant to the BHC Act. Bank subsidiary, Associated Bank traces its history back to the founding of the Bank of Neenah in 1861. Measured by total assets reported at December 31, 2021, ASB is the largest commercial bank holding company headquartered in Wisconsin. ASB is the largest bank holding company headquartered in Wisconsin, with approximately 4,000 workers, serving over one million customers, more than 220 banking locations serving more than 120 communities throughout Wisconsin, Illinois and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas.



Key Characteristics


Asset sensitivity

ASB has its grown low-cost, granular consumer deposits while reducing wholesale funding. Since the last rate cycle, ASB has halved its utilization of higher-beta network and wholesale funding and replaced higher-beta deposits with core granular Community, Consumer & Business deposits while growing deposits overall across the bank. The company’s funding profile is resilient, has reduced beta since the last cycle and expects further positive deposit flows over the back half of 2022. Deposit beta currently is estimated at 23% compared to 42% during the last cycle as network deposits / other wholesale funding declined from 33.3% in Q2’16 to 15.6% in Q2’22. ASB’s historic shift in deposit beta has been largely ignored by the market.


Source: Q2’22 Investor Presentation


Geographic Drivers