Flynn tackles ‘a solvable problem’ at Associated Bank

Associated Bank

Assets under management: $22.8 billion

Branches: 291

Employees: almost 4,800

2009 net operating loss: $123.4 million

2009 net allowance for loan and lease losses: $573.5 million

In December, Phil Flynn was named president and chief executive officer of Green Bay-based Associated Banc-Corp. Flynn was previously vice president and chief operating officer of San Francisco-based Union Bank.

While he has been with the Wisconsin bank for less than six months, Flynn believes it has a solid future. After continuing to write off large losses in the fourth quarter of 2009 and first quarter of 2010, Flynn believes the bank will return to profitability and begin repaying its TARP loan late this year or in 2011.

Associated was the largest Small Business Administration (SBA) lender in Wisconsin for 2009 and has already exceeded that level this year. Flynn recently spoke with BizTimes reporter Eric Decker about the bank’s future. The following are excerpts from that interview.

BizTimes: What is Associated Bank’s go-forward strategy to recover from the losses it has experienced over the last few years?

Flynn: “We’ve got two overarching issues to deal with. We have to deal with the credit portfolio. And we’ve made some good strides in that. We’ve taken some painful decisions. The dividend was cut dramatically at this time last year from 32 cents per quarter to five cents a quarter. And then we cut it again in January to a penny.

“When I got here in December, we sat for two days, and we went through all the problem loans. We took some huge charges, big losses, a significant increase in the loan loss provision, and it drove a big loss in the fourth quarter. On Dec. 21, we had a board meeting (in Milwaukee), and management recommended to our board that we raise capital. We were able to raise $500 million on Jan. 11 in Boston. That boosted our capital ratios to amongst the highest in the country. That really gives us the flexibility to attack our problem loans in earnest, and that’s what we’re doing now. Goal number one this year is to reduce our non-performing assets. Goal number two is to become much more focused again on our customers. We’re doing a lot of work across the company now to make sure that we know what our risk appetite is. We’re redefining that right now.”

BizTimes: Delinquent loans declined in your first quarter results. What is your outlook on your loan portfolio?

Flynn: “We had a few promising signs. Early stage delinquencies, 30 to 89 days past due loans, were the lowest since the end of 2007. Potential problem loans were down more than a couple hundred million dollars from the fourth quarter (of 2009). And new non-performing loans, which were up $88 million, the smallest increase in five quarters. I’m encouraged, but I wouldn’t call it a trend. Give me a couple more quarters, and I’ll feel more comfortable calling it a trend.”

When you look at the reception of the capital raised in the public markets, what does that tell you about an external vision of the bank’s future and plans going forward?

Flynn: “I believe that the investors that bought the stock know that Associated was and is a fundamentally sound bank with a very specific problem, a credit problem. That’s a solvable problem. I wouldn’t have come here if it wasn’t.”

BizTimes: What are Associated Bank’s plans to repay the $525 million in TARP financing?

Flynn: “We have publicly stated that we would like to pay back TARP toward the end of this year. That’s a goal. That’s not a promise, and I don’t know for sure. We’ve got to clearly see our credit situation improve. Our non-performing loan balances have to come way down, our loan loss provision has to come way down, we have to return to profitability and see sustainable profitability for a sustained time. Only then will I go to the Federal Reserve and the Treasury and start talking to them about paying TARP. And just because a bank goes to the government and says, ‘I want to start paying you back,’ doesn’t mean that (you can). They have to feel that you’re completely ready.”

What is Associated Bank’s appetite for commercial lending today?

Flynn: “We are very much focused now in doing business from Minneapolis through the state of Wisconsin, including Milwaukee and Madison, down to Chicago, and then we have a smaller presence that goes south through Illinois toward East St. Louis. What we are not doing any more is participating in other banks’ credits. And we have lots of credits like that that we put out over the last few years. The likelihood of Associated becoming an important bank to those types of companies is not great. We’re really pulling away from that type of lending.”

Are there types of commercial lending that the bank is no longer interested in?

Flynn: “For those (real estate) developers who are still standing through this horrible downturn, we’re interested in looking at their transactions, as well. With the capital that we have now, with the liquidity the bank has now, we’re in a great position to lend money. We need to do a better job making sure everybody in our company really understands this, and I’m working hard to get that done.”

There has been a lot of talk over the last few years about a looming commercial real estate bubble. Is that risk still out there?

Flynn: “It’s already here. It has been for more than a year. I think we’re nearing the bottom, but I wouldn’t say we’re there yet. To really get improvement in commercial real estate, we need to see improvement in employment numbers. You’ve got to have people working to fill office buildings, to shop in retail centers, to fill factories. Stability in employment, which appears to be coming, is probably a harbinger of the bottom in commercial real estate, but we’ve got to have a little time to see what happens.”

BizTimes: Federal regulators continue to close non-performing banks around the nation, and the banks are acquired by other banks. Is this a tool that Associated is considering to use for future growth?

Flynn: “In a perfect world, we’d be very active. It’s not a perfect world for us right now. We’re not in a condition to do that. We’ve got to get our own house in order. Depending on how long this crisis plays and how quickly we get ourselves back to health, hopefully we can involve ourselves later. The growth that we’re focused on is more of an organic growth. We are actively hiring new commercial bankers and private bankers. We’ve hired a new head of the Milwaukee market (Lou Banach). We’ve hired four people in Chicago in the last three weeks. We’ve got a bunch of other people we’re talking to down there. We’ve hired someone up in Minneapolis. We’ve hired some private bankers around the system. The banking industry’s in turmoil, particularly in the Chicago area. So, there are a lot of people that are willing to talk to us right now.”

BizTimes: Associated Bank is based in Green Bay, but you have a growing presence in Milwaukee. Would you ever consider moving the bank’s headquarters here?

Flynn: “There’s no discussion right now about moving the headquarters. I’ve got five months in here. But I do think that our commitment to Milwaukee, given that it’s the biggest city by far in our home state, is huge. In the corporate (offices), we’ve got 300 people. And we’re actually taking more space in this building right now. Our chief credit officer’s here, our chief commercial lender is here, marketing is here, so we’ve got a huge presence. That’s not going to change. We’re going to grow in Milwaukee. But whether or not we’re going to move the headquarters here, I don’t think that’s highly likely.”

Where is Associated looking to expand?

Flynn: “We have the biggest branch network in Wisconsin. So, we don’t need to add a lot of branches in Wisconsin. We need to enhance and upgrade them and do more selling out of them.

I think the markets where we’re going to put a lot of attention, particularly on the commercial side, are the bigger markets. Milwaukee, Chicago, Minneapolis, Madison. In Chicago, with the tremendous dislocation of banks down there, there’s opportunity. Customers are on the move.”

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