Associated Bank eyes a profitable horizon

Philip B. Flynn

At the end of 2018, Green Bay, Wis.-based Associated Bank announced it would acquire 32 Wisconsin branches of Huntington National Bank, Columbus, Ohio. That group of offices holds $850 million in deposits and $134 million in loans, lending considerable oomph to Associated’s Wisconsin footprint. That deal is expected to close this month and the bank is working on consolidating geographic overlap and expanding efficiencies.

Once the deal closes, the deposit boost will be instantly notable, said Philip B. Flynn, president and CEO of the $33 billion bank. “Our loan to deposit ratio was 91 percent at the end of the quarter, at the low end of the range we typically experience at this time of the year,” Flynn said.

Associated Bank reported earnings of $83 million for the first quarter of 2019, compared to $67 million the same quarter last year.

“We were pleased with our commercial and business lending results in the quarter as we had solid growth in our general commercial line and across most of our specialty lending verticals,” Flynn said. “We remain optimistic for the remainder of 2019. We expect continued growth in our [commercial and industrial] portfolio and anticipate that our commercial real estate book will begin to ramp up in the second half of the year.”

The bank’s average deposits were up $300 million from the fourth quarter. Net charge-offs were $7 million for the quarter, up from the previous quarter but down from levels seen in the first three quarters of 2018.

Total loan balances increased more than 1 percent from the prior quarter due to growth in commercial and business lending, Flynn said, which was up more than 4 percent from the fourth quarter of 2018 and up 15 percent year-over-year. The increase from the prior quarter was led by growth in the bank’s general commercial lending business. Flynn said they also saw gains in specialty areas, particularly in power and utilities.

Associated’s commercial real estate loans declined in the quarter due to continued elevated pay-down activity. “However, we believe we are nearing the inflection point and we expect that this portfolio will begin to show positive growth in the second half of the year as we begin funding our construction lending commitments,” Flynn said. “We currently have over $1 billion in unused commitments and expect that we’ll fund $500 million of those over the remainder of 2019.”

Flynn told investors the bank’s residential mortgage portfolio was up slightly, and that growth in this business has been restrained by “generally weak sales volume in the housing industry and modest refinance activity.”

Flynn expects interest rates to remain untouched. “Given the Fed’s more dovish outlook and the flatter yield curve, we now expect our full year net interest margin will be in the mid-290s range,” Flynn said.

Associated’s municipal customers drew on government funding received in the third quarter of last year, Flynn said, adding the outflow was typical for the beginning of the year.

“Additionally we saw reduced non-interest bearing balances from consumers and commercial customers as often occurs in the first quarter,” Flynn said. “We expect these balances will return in coming months. We offset these outflows in part by temporarily increasing our network transaction deposits, which were less expensive than alternative funding sources such as FHLB advances.”