Associated Bank said its focus on serving Midwestern markets helped insulate the company from deposit outflows and other fallout as turbulence rocked the banking sector last month.
The Green Bay, Wisconsin-based bank had a "vanilla" first quarter, analysts said. In line with industry trends, Associated saw slowing revenue, higher funding costs and deposit pressure.
"While these past five weeks have generated a wide range of headlines about regional banks and the financial service industry in general, we can still say that Associated Bank continues to operate from a position of strength and it starts with our markets," CEO Andrew Harmening said during the company's first quarter earnings call. "As the largest bank headquartered in Wisconsin, we've been operating largely in conservative, diversified Midwest markets for more than 160 years, including metropolitan areas, mid-sized cities and small towns."
However, rising interest rates and the higher cost of deposits still affected Associated. Core customer deposits declined 1% from the previous quarter, with non-interest-bearing deposits taking the hit as customers sought ways to get more bang for their buck.
The $41 billion-asset bank reported net interest income of $274 million, a 5% drop from the previous quarter. Net interest margin fell 24 basis points to 3.07%.
Scott Siefers, an analyst at Piper Sandler, said in an interview that the bank's margin drop, although steep, wasn't unique from other banks. He added Associated is "holding up well" and still has a strong growth trajectory.
"The interest rate environment and the deposit pricing environment changed very, very quickly here in the early part of this year, particularly last month," Siefers said in an interview. "[Associated] is not immune from that, but they still have a pretty sound [net interest income] trajectory, and they should still be in a position to generate positive operating leverage."
Associated has used swaps to manage interest rate risk for when rates do begin to fall, one part of a series of changes the company has made in the last several years.
Harmening, who took the reins of the bank in 2021, reset Associated's growth blueprint, focusing on growth in auto finance and asset-based lending, launching a new digital platform and ramping up core commercial and small business banking. But now that the dust has settled on the strategy overhaul, the bank has been executing steadily, analysts said.
"There were no fireworks last quarter, and it was business as usual," said Terry McEvoy, an analyst at Stephens, in an interview. "If we had this conversation a year ago, there was a lot more going on following the change at the CEO level…but for the most part, it would be a very in-line quarter in this environment. I think that's a good thing."
McEvoy added that the company, which he's covered over the course of four chief executives, has always stayed relatively low-risk and low-reward. He said he has been impressed with Associated's cost cutting over the last year and a half, but that the company should continue to try amplifying profitability in the stable Midwest markets.
