Risk On, Risk Off: Associated Banc-Corp Chooses the Latter

Associated Banc-Corp in Green Bay, Wis., doesn't have much razzle-dazzle in its playbook, and that's OK with David Stein.

As chief of the $27 billion-asset company's consumer and commercial banking divisions, Stein oversees its efforts to bring together branch banking, the mortgage group, the broker-dealer group, payments operations including cards and digital, and commercial lending.

Associated has had success in shedding branches and making its online offerings more sophisticated, Stein said, but it is treading cautiously in cutting-edge payment and lending areas.

He spoke about his priorities going into the year and what to expect from the groups he oversees in a recent interview. What follows is an edited transcript.

What are your priorities for the year?

I am really focused on multichannel experience for the customer. I watch with great interest some of the innovations that get news. Some stick and have staying power. Others we have a wait-and-see attitude.

What do you have a wait-and-see attitude on?

Well over the last few years, Google Wallet was going to change everything. Bitcoin was going to change payments. We're still waiting.

Do you think technology in banking is overemphasized?

There are clearly good ideas in fintech. The key of course is deciding which will be transformative in the long haul versus others that end up dying.

Our stance has been to be a fast follower more than a market leader. You probably aren't going to see Associated introduce any particular product first.

Any interest in online or marketplace lending?

I'm intrigued by it, but anything reliant upon the general public, crowd-funding, to assess credit risk, I question. It sounds like a good idea. Undoubtedly there are good loans to be made, but it remains to be seen how those credits end up. There are a couple models. One, if it's a bank-based underwriting, more of a competitive pressure, or, it could be a crowd-funded small-business lending where anybody with a personal computer is suddenly a banker, there are some real credit issues there. I see pitfalls with many of the models I see out there.

Multichannel efforts are big priority for you. What is going on there?

The channel rebalancing for lack of a better term is what we are spending time on. I am head of consumer and commercial banking (branch banking, mortgage group, broker-dealer, payments and direct channels including cards and digital). I'm spending a lot of time working to modify our multichannel approach, particularly on the consumer side, as branches are of less interest going forward.

What's your branch count?

We have about 225 branches across our three-state footprint (Illinois, Minnesota and Wisconsin). That's down quite a bit; we're down 28% since I took over in 2007. We've cut 85 branches, closed or sold.

Is that going to continue declining at a steady pace?

I think it's modifying for us. We've been more aggressive than our peers, mostly because we had a lot of pretty small branches.

How are those mobile channels being received?

Very well. A few metrics I look at, in terms of customers using our branches, from 75% to less than 65% in the last year and a half. About a third of our customers come in less. We've had online banking for quite a while. You can do electronic account openings, and mobile banking is growing. Branch transactions are down 15% in the last two and a half years. And we are up 250% in mobile activity, which is consistent in the industry. We can do mortgages online. It depends on the nature of the borrowing situation, but you can go end to end electronically, too. We introduced Master Pass, [and] we have introduced Apple Pay. Adoption has been good. I think people buy into the security features and biometrics there. We feel good about that, too.

In recent earnings, Associated's gains on sales were lower than expected. How's business been like so far this year?

It's so much a function of the rate environment. We were down 60 days plus or minus, but then recaptured all of that since January, as has the rest of the industry. I don't get too hung up on what goes on week to week in terms of our accounting adjustments. But our gain on sale has been pretty rich so far year to date, as rates were low, and we've seen record volume on the mortgage side. Last January was the strongest application month we had in four years. That has moderated now.

Do you project similar performance for the year?

It's so rate dependent.

We are the No. 1 mortgage originator in the state. We do qualified mortgages and non-QM (underwritten to ability to repay), but we have never done anything exotic. We never got out over our skis in terms of Alt-A and subprime.

What's the profile for the non-QM product now?

Not sure I can put a label on it. It's a traditional Midwestern borrower that fits into a little higher debt-to-income [bracket] — couple percentage points over the QM levels.

You're selling those?

We generally sell anything in the secondary, anything with more than 15-year maturities. We portfolio shorter-term maturities. We don't want much interest rate risk on our balance sheet. We are more conservative than our peers. We are leaving a little money on the table, but as rates go back up I think we are better positioned.

Almost everything we do we sell to Fannie Mae. By and large we are seeing returns or premiums that are historically speaking above average than what we've seen in previous years.

Do you expect any breakouts in small-business lending?

Our portfolio is very much down the middle commercial and industrial, at least in my part of the organization. We don't specialize in any one industry. We are in the upper Midwest. We don't see the same boom-and-bust cycles that other parts of the country see. Most of our customers are reasonably conservative. That being said, a lot of banks out there are trying to make loans, and we are wondering if things are getting more frothy. We're passing on deals because of credit standards and structure. Over the past year, like us, a lot of our competitors are wanting to make loans. It's a trend we are certainly watching. Certainly pressure is on structure, but also pricing. Advance rates. People aren't necessarily out in left field, but they are more aggressive than we are willing to be.

Any new thoughts regarding M&A?

We look for opportunities. Who knows if something will pop. We need to be comfortable that any deal we want can actually get done. We all need to be far more focused on what we are buying, not just from pricing perspectives, but from a regulatory perspective.