Associated Bank plans to continue adding relationship managers to its commercial banking team but has cut its overall workforce by 3% as the Green Bay-based bank shifts away from a reliance on residential mortgages toward other forms of lending.
On Thursday, Associated announced the second phase of its strategic plan including $25 million to $30 million in expense reduction, reinvestments in people, products and technology and a repositioning of its balance sheet.
For the third quarter, Associated averaged 4,220 full-time equivalent employees, putting a 3% reduction at around 127 jobs.
In addition to the 3% workforce reduction, the expense control efforts include reductions in discretionary spending, a review of vendor contracts and the planned closure of 14 branches by March 2024.
“We had a lot of pieces that we wanted to execute on,”
Andy Harmening, president and chief executive officer of Associated Bank, said on a call with analysists. “We wanted to make sure we got the expense piece right. That’s hard and we wanted to be there early so we had kind of a clear runway going into the year and we didn’t hold that over people’s heads going into the year.”
The expense reductions are being reinvested in other parts of the business with an eye towards growth. In announcing the updated strategic plans, the bank highlighted several recent hires including
Neil Riegelman as senior vice president of commercial banking to oversee relationship development strategies in Milwaukee and Madison,
Gus Hernandez as senior vice president and director of business banking, and
Jayne Hladio as executive vice president and president of the private wealth business.
Associated is also planning to announce a new commercial banking group leader by Dec. 1.
“We wanted to start hiring people in key positions and not just anybody, we wanted to hire game changers and so far that’s what we we’ve been able to do. Those game changers generate business, that’s the way that will work,” Harmening said.
The bank is planning to hire another 20 relationship managers across its footprint, including three planned hires in the Milwaukee and Madison market.
The goal of the hires is to drive around $250 million in additional loan growth next year and $750 million additional loan growth by 2025 along with around $475 million in deposit growth.
Loan growth was part of the original strategic plan announced in 2021 and Associated has seen 28% growth in its loan portfolio from the end of the third quarter 2021 to the end of the third quarter this year. That growth included a 24% increase in commercial and business lending, a 20% increase in commercial real estate lending, and a 16% increase in residential mortgage lending. Auto finance, home equity and other consumer lending went from $900 million to $2.9 billion over the same period.
The bank also established lending verticals in asset-based lending, equipment finance and prime/super-prime auto and exited its third-party originated mortgage business.
In the latest strategic plans, Associated will scale back its low-yielding residential mortgage business. Currently, residential mortgages make up about 29% of the bank’s loan portfolio and have an average yield of 3.39%. Commercial loans had an average yield of 7.14% in the third quarter and the full portfolio averaged 5.96%.
Moving forward, the bank plans to limit construction lending to customers with deposit relationships, focus portfolio lending to private wealth, mass affluent and Community Reinvestment Act customers and emphasize saleable mortgages to maintain capacity for more profitable loan growth areas.
In 2022, Associated’s mortgage production totaled around $2.9 billion. This year, with a challenged housing market, that figure will fall to $1.2 billion and is expected to reach $1 billion in 2024 and 2025.
Asked if the bank is looking to grow its loan portfolio in the mid-single digits or even faster, Harmening said he would exercise caution.
“I would be very hesitant to try to grow double digit on loans on a regular basis,” he said. “I learned long ago that if you do that on a regular basis you’re probably going to run into troubles.”
Instead, he said decreasing the mortgage business while increasing equipment financing, commercial, asset-based and small business lending would lead to greater profitability.
“My experience tells me we have a really great path,” Harmening said.
The bank has also made a number of investments in its technology and digital experience and has additional improvements planned this year. Those investments include an AI-enabled chatbot, omnichannel branch sales platform, a personalized digital marketplace, private wealth client experience, credit score and identity production and an advanced digital security center.
Other efforts aimed at improving customer relationships include shifting marketing spend toward acquisition, product enhancements, upstreaming customers into mass affluent and private wealth and improving the use of data and analytics.
Those efforts have added up to a reversal in annual household growth trends which were down 1% to 3% annually from 2016 to 2022 and are now expected to be flat this year.
Harmening said the emergence of digital banks plus limited growth in households has challenged all regional banks.
“In order to compete with them you have to be strong in digital, you have to be strong in how you communicate, you have to have products that are relevant and the way you find out those products’ relevancy is by testing them,” he said.
“It is not an easy thing to do. I very rarely celebrate breakeven. I’m celebrating this breakeven because I know the platform and where it goes from here is growth,” Harmening added.
For 2024, Associated is estimating the number of its households served will increase 1.5%, translating to an additional $1 billion in deposits. Those figures are expected to grow to 3% and $2.5 billion in 2025.
