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

During a visit last week to a restaurant in Minneapolis, which is one of the top markets for Associated Banc-Corp, 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 more happy,” Andrew Harmening said. “To me, that’s a sign that something’s happening, and our people are getting more comfortable in our footprint.”

Harmening took over the chief executive spot at the Green Bay, Wisconsin-based company in April, as the economy started to emerge from the COVID-19 pandemic. In a recent interview, he was upbeat about not only the economic recovery, but also Associated’s lending prospects.

As of March, only about $37 million in loans at Associated were still in deferral, down from more than $1.5 billion at the height of the crisis last year. “To me, that is a really, really good sign,” Harmening said. Total nonperforming assets have also been on the decline, falling 25% since September.

Across the industry, banks are waiting for new loan growth, with many executives expressing vague hopes for a return to borrowing in the second half of the year. Harmening was more specific, saying that a resumption of credit line utilization could occur as early as the end of the third quarter.

The $34.5 billion-asset Associated is the largest Wisconsin-based bank and has a presence in several other Midwestern states, including Minnesota and Illinois.

“For the markets that we’re operating in, we see pretty good unemployment numbers,” Harmening said. “That’s a harbinger for the markets to come back and, ultimately, the need for borrowing, which the companies cearly have the capacity to do in our portfolio right now.”

Associated could get a kick-start from a plan to build out commercial lending in markets like Chicago, as well as from a new indirect auto lending division.

There may also be a chance to hire talented loan officers away from First Midwest Bancorp in Chicago and Old National Bancorp in Evansville, Indiana, after those two companies struck a deal in June to merge into a new $45 billion-asset regional lender, said Terry McEvoy, an analyst with Stephens.

“That merger could shake out some opportunities,” McEvoy said.

Associated is forecasting commercial loan growth of between 2% and 4% for the year, excluding the Paycheck Protection Program, according to a recent investor presentation.

There are still uncertainties for Harmening, such as the threat of a COVID-19 variant, ballooning house prices that could pinch mortgage production, and fundamental shifts in commercial real estate, specifically in the office sector.

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

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

Analysts are also encouraged by Harmening’s forward-thinking history in his previous role as senior executive vice president of consumer and business banking at the $123 billion-asset Huntington Bancshares in Columbus, Ohio. Harmening hinted at bringing new digital products to Associated without providing details.

He also acknowledged that he has had internal talks at Associated about making changes to overdraft fees. A number of regional banks have recently announced changes that will result in less revenue from those charges.

“I don’t really think of things in terms of just waiving an overdraft fee as much as what’s the underlying issue,” Harmening said. “We haven’t come up with a final view of what that could look like, but, to me, it is understanding truly what they need. And in the past, I think that has been short-term liquidity.”

Associated closed its acquisition of First Staunton Bancshares in February 2020, and Harmening didn’t indicate that the company is eager to jump back into the M&A market. The next six to 12 months will be spent shoring up the bank’s own operations first, he said.

Harmening’s predecessor, Philip Flynn, spent more than a decade in the CEO job, turning the company around after the financial crisis and spearheading a series of major acquisitions that grew the bank substantially. Harmening said that employees during a recent listening tour told him to be “bold” in his steering of the company.

Nonetheless, McEvoy at Stephens expects that Harmening will be given time to make a deliberate mark on the company. “The report card doesn’t start immediately,” he said.

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