Associated Banc-Corp: Baby Bond Presents Best Income Option

Core Viewpoint - Associated Banc-Corp is effectively navigating the challenges of maintaining deposits and rising interest expenses, making its baby bond an attractive option for income investors [1][18]. Company Financials - The bank's net interest income has increased and stabilized, surpassing pre-pandemic levels due to rising interest rates [4][9]. - Associated Banc-Corp has experienced a 10% year-over-year growth in deposits, marking eight consecutive quarters of deposit growth, which is crucial for managing interest expenses [12]. - Despite a decline in lending in the fourth quarter, the bank has maintained year-over-year lending growth since Q1 2022 and has utilized excess capital to purchase agency and Treasury securities, which increased by $100 million in the first quarter [12]. Risks - The bank has exposure to commercial real estate loans, particularly those classified as investor or non-owner occupied, which make up approximately 17% of total loans, with office loans constituting only 3% [14]. - Uninsured deposits pose a risk, but the bank has improved its liquidity, achieving 115% coverage for liquidity available within one business day, up from 81% during the regional banking crisis [15]. - The baby bond has a reset feature in March 2028, which introduces interest rate risk, as the yield may decline if rates are significantly lower at that time [16]. Conclusion - Associated Banc-Corp is positioned well within the banking sector, with common shares at a 52-week high and preferred shares offering minimal dividend risk. The baby bond is highlighted as a safer investment with a higher income potential, making it a recommended option for income investors [18].