By Becky Yerak
| The new chief executive of Associated Banc-Corp apologized last week to
almost 300 Chicago-area customers, prospects and employees at a private
breakfast, saying that the Green Bay-based lender has been too “inwardly
focused” and vowing to be more aggressive in the market.

“We’ve done a lousy job for our customers,” Philip Flynn, who joined
Associated last December, told the gathering at the Mid-America Club in
Aon Center. “We’re sorry and we’ll fix that.”

Associated workers have been “somewhat shell shocked” by the bank’s
problems, explained Flynn, previously a 29-year veteran of San
Francisco-based Union Bank who most recently served as chief operating
officer for the Japanese-owned lender.

The $23 billion-asset parent of Associated Bank, which has 27 Chicago-area branches, has been dealing with mounting problems in its commercial real estate portfolio.

Its former CEO announced his retirement last year after six years in the job, months after his hand-picked heir apparent quit abruptly. The bank grew rapidly in recent years but ran into trouble in 2009, losing $161 million. Its stock price was down about 45 percent, closing the year at $11. In early 2009, it was also the center of a public uproar due to plans to reward 100 high achievers with a trip to Puerto Rico; Associated was among the banks that received capital through the U.S. Treasury Department’s Troubled Asset Relief Program. The company later canceled the trip, according to the Milwaukee Journal Sentinel.

But in January, Associated raised nearly $500 million in a common stock sale “relatively easily,” Flynn told the crowd. Its stock is trading around $13.

“We need to go back to being an outwardly focused company,” he said, encouraging attendees to call him or Mark Sander, a former LaSalle Bank executive who’s now a commercial banking director for Associated, with any concerns. Associated said it was its first such outreach event in Chicago.

Associated is looking to add 10 to 20 Chicago-area commercial bankers — it currently has about 35 — as well as a handful of wealth managers. It operates in a three-state footprint, but has only 17 private bankers, those catering to wealthy individuals.

It expects troubled banks, particularly in Chicago, to be a fertile hunting ground for new workers.

An audience member asked him what he found so attractive about the Chicago banking market.

“This is the biggest market in the Midwest, and it’s the most fragmented big-city banking market in the country,” he said. “It represents a great opportunity now that we’ve righted our own ship and rebuilt our capital base.”

It’s among the top six players in five of its six markets, the exception being Chicago, where it’s 24th in market share.

While Associated has recognized its problems and successfully raised capital, it needs to reduce the levels of troubled loans on its books before it can participate in deals for failed banks. Nearly 8 percent of its loans were delinquent at year-end, a level that Flynn has called “very miserable.” That’s up from 6 percent in the third quarter, when its peers were at 4 percent.

When Associated gets its big credit problems out of the way, it would like to bid on failed banks, Flynn told the Tribune afterwards.

When the Federal Deposit Insurance Corp. shuts down a bank, it usually lines up a healthy institution to take over the failed lender’s deposits and assets through a loss-sharing deal.

Associated would be unlikely to do a deal without FDIC assistance, Flynn said, noting that few banks have been unscathed in the recession.

“To buy a bank without protection on the downside doesn’t make any sense,” he said.

Asked to elaborate on his “lousy job” comment, he said that the folks out in the field generally weren’t out looking for new customers and were uncertain about what they could deliver. They could be slow, for example, about servicing existing customers who wanted, for example, loan refinancing.

Last month at a Keefe Bruyette Woods 2010 bank conference in Boston, Flynn said employees got paralyzed by the bad news piling up.

“Stuff gets bounced up the chain for approval; stuff gets pushed down,” he said. “The board yells at the credit guys. The credit guys yell at the line guys.

“I’ve seen this happen through the cycles during my 30 years in banking, and I know this can be fixed,” he said. “And I think it can be fixed within the next quarter or so.”

Associated said it has been moving up the ranks of Small Business Administration lending in Illinois. And the company had a record year for mortgage loan originations in 2009.

But overall it has had declining loans balances.

“We’re going to have more shrinkage in 2010 because we have to run off about a billion and a half dollars of the combination” of loans that aren’t generating interest income, as well as shared loans that Flynn doesn’t think Associated should be in.

“At some point, you’ll start to get some new growth,” Flynn said at the Boston conference. “But you won’t see net growth for quite a ways out, given the magnitude of what needs to leave the balance sheet.”

It has marked down some of its nonperforming construction loans, for example, to 61 cents on the dollar.

“When I say ‘mark,’ I’m talking about charge-offs taken and reserves held against specific loans,” he said at the conference.

Charge-offs occur when a bank deems a loan uncollectible and removes it from its balance sheet, an action that eats into its reserves for loan losses. And when a bank sets aside more money for loan losses, that comes right off the bottom line.

“We’re going to actively sell loans into the secondary market as we go through the course of 2010,” Flynn said last month. “A really crying need for the company is to work down the” nonperforming assets.”

Another upcoming challenge for Associated and other banks will be the impact of legislation that restricts overdraft fees.

“Associated booked about $80 million of overdraft, non-sufficient funds fees last year,” he said. “Come July 1,” about half of that will be under pressure, he said.

Also, consumers still aren’t spending a lot of money.

“We actually saw a decline in debit card usage and transaction dollar volume,” he said.
Flynn, 52, also said last month that he was interested in the Associated job partly because he knew that he’d never get the CEO job at Union, a Japanese-owned bank.