Associated’s new CEO likes where bank, Midwest economy are going

While visiting a restaurant in Minneapolis, one of the top markets for Associated Banc-Corp, last week, the company’s new CEO was pleasantly surprised by the size of the crowd.

“It was a 45 minute wait and I couldn’t have been happier,” said Andrew Harmening. “For me, this is a sign that something is happening and that our employees are more comfortable with our footprint.”

Harmening took over the board position at Green Bay, a Wisconsin-based company, in April as the economy began to recover from the COVID-19 pandemic. In a recent interview, he was optimistic not only about the economic recovery but also about Associated’s credit prospects.

Associated had only around $ 37 million in loans deferred in March, up from more than $ 1.5 billion at the height of the crisis last year. “That’s a really good sign for me,” said Harmening. The total number of distressed assets has also decreased by 25% since September.

Banks across the industry are waiting for new credit growth, and many executives have vague hopes of a return to borrowing in the second half of the year. More specifically, Harmening stated that the use of credit lines could be resumed as early as the end of the third quarter.

Associated, with assets of $ 34.5 billion, is the largest bank based in Wisconsin and several other states in the Midwest, including Minnesota and Illinois.

“We are seeing pretty good unemployment rates for the markets we operate in,” said Harmening. “This heralds the return of the markets and ultimately the need for borrowing, which the companies in our portfolio currently have the capacity to do.”

Associated could get a kickstart with a plan to expand commercial lending in markets like Chicago, as well as a new indirect auto loan division.

After these two companies, there may also be an opportunity to hire talented loan officers outside of First Midwest Bancorp in Chicago and Old National Bancorp in Evansville, Indiana Made a deal in June to merge into a new regional lender with assets of $ 45 billion, said Terry McEvoy, an analyst at Stephens.

“This merger could open up some opportunities,” said McEvoy.

Associated predicts business loan growth of between 2% and 4% for the year without the paycheck protection program, according to a recent investor presentation.

Harmening continues to face uncertainties such as the threat of a COVID-19 variant, skyrocketing property prices that could limit mortgage production, and fundamental shifts in commercial real estate, especially in the office sector.

“As leaders in this industry, we need to be wise enough to know that the world has changed and to understand that we may not yet fully understand what that change is,” said Harmening.

Still, McEvoy said in a recent research note that Associated could report a $ 25 million release of its loan loss reserve in the second quarter, more than previously forecast as the economic outlook brightened.

Analysts are also encouraged by Harmening’s forward-thinking story in his previous role as Senior Executive Vice President of Consumer and Business Banking at Huntington Bancshares, with $ 123 billion in Columbus, Ohio. Harmening suggested bringing new digital products to Associated without giving details.

He also admitted that he had internal discussions with Associated about changes to overdraft fees. A number of regional banks recently announced changes this leads to less revenue from these fees.

“I’m not really thinking about waiving an overdraft fee, I’m thinking of the underlying problem,” said Harmening. “We don’t have a final idea of ​​what this might look like yet, but for me it means really understanding what they need. And I think that was short-term liquidity in the past. “

Associated completed the acquisition of First Staunton Bancshares in February 2020, and Harmening has made no indication that the company is looking to re-enter the M&A market. The next six to twelve months will initially be spent supporting the bank’s own operations, he said.

Harmening’s predecessor, Philip Flynn, served as CEO for more than a decade, turned the company around after the financial crisis and led a series of large acquisitions that made the bank grow significantly. Harmening said that during a recent listening tour, employees told him to be “brave” in running the company.

Nevertheless, McEvoy expects Stephens to give Harmening time to consciously shape the company. “The testimony doesn’t start right away,” he said.

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