A year from now, Anchor BanCorp Wisconsin (ABCW) could emerge as one of 2013's most remarkable comeback stories, or it could end up as part of someone else's bank.
It is Chris Bauer's job, as Anchor's president and chief executive, to orchestrate the Madison company's turnaround. Bauer and his management team have been involved in an uphill battle to pull Anchor out of a deep credit pit without the benefit of new capital.
Anchor showed some improvement this year, reducing nonperforming assets by 40% through Sept. 30, compared to a year earlier. The $2.7 billion-asset company also shrank overall assets to preserve capital.
Bauer says Anchor's "emergency" days, along with its shrinkage, are over, though challenges remain. The company, for instance, is still losing money and operating under a regulatory order. Management is working on a plan to attract the right type of investors next year.
Here is an edited transcript of our recent interview with Bauer.
How would you describe 2012 compared to years past?
CHRIS BAUER: During the first year  it was like riding on an emergency vehicle. We had to do a lot of life-saving techniques to keep going with the goal to move forward to stability. Now, we have gone from putting out fires and emergency actions to getting back in the right condition.
Other than having a high level of nonperforming loans and real estate owned, we're really back to business as usual. And we're seeing our classified assets fall rather fast now with very little new ones coming in the door.
What were your goals at the start of the year and, looking back, now, did it pan out as expected?
We've pretty much hit or beat for every single goal this year. Our No. 1 goal was to remain adequately capitalized [while cleaning the balance sheet], and we've done that for nine consecutive quarters.
We also improved our net interest margin by lowering high-cost CDs. This was also a part of our plan to reduce single-service CD customers while retaining customers with multiple products. Because of this, we've seen core deposits rise 60% [from a year earlier] and we've increased product penetration per customer.
We also wanted to lower operating costs and we beat our own goals last spring and summer. We're really trying to get back on the offense. We've been shrinking but we don't want to shrink anymore.
Did anything surprise you about Anchor's performance this year?
The big surprise to us was the continued growth in refinanced mortgages. We have nearly $1 billion in mortgage originations annually. We kept expecting it to fall off to $600 million or $500 million and it has not, which has been a very positive surprise.
That's been very helpful in producing a lot of income to help carry the cost of bank-owned real estate and nonperforming loans. We really did some retooling to make the mortgage operation more profitable, so now it's making record profits and, frankly, that's kept us going the last two years.
What are your goals for 2013? How do you plan to get there?
Over the last few months, we put the final touches on our readiness plan which will be implemented after Jan. 1. This calls for more aggressively growing consumer loans and going back into the commercial business. We shut [commercial lending] down quite significantly while we were struggling with our problems. But we've been hiring commercial relationship managers and senior leaders and we expect to be aggressively back in the market.
Will Anchor return to well-capitalized status next year?
Frankly, if our sole purpose is to be well-capitalized, we can achieve that probably in 15 months by continuing to shrink the institution, but I don't think that's the right thing to do. By doing some reinvesting, such as recent upgrades to online banking and the mobile banking launch in July, we held our capital levels more level while finding some growth. We're very hopeful that, by doing that, the odds of finding investors dramatically improves by showing a company that is acting more normal by growing assets and deposits.
Anchor has already shrunk significantly. How much more do you have to shrink?
In our current [regulatory] order, we are required to shrink assets every quarter. Now that could be a dollar or $100 million. When I say we want to be on the offense, that means renewing more of our existing customer base and originating new loans to make up for the natural runoff.
To stay level, we have to originate new volumes of new assets. We don't have any major plans to sell branches. We've become pretty efficient during the last three years, so we're very capable of going on the offensive.
What is your greatest accomplishment thus far?
I could pick many, many things but at the end of the day, given where we were in June 2009, it's the fact that we've been able to recruit really experienced, great leaders …who were able to keep our employee base completely focused on our key goals. We hired 22 senior leaders …in the first two years. There's no way we could have done all of this without that talent. It completely transformed the company. Without that we couldn't have survived.
Is there anything you would have done differently?
One of the things we all learned in this process is that we really needed to ignore the distraction of potential investors. Within the first six months of joining the company, we found ourselves reacting to prospect investors' requests.
For example, we had sales of 15 branches teed up at the end of 2009 and it was delayed by six months. …We delayed solely because the investor really wanted to take a different tact. We made a lot of decisions thinking we had capital tomorrow, and we're never going to do that again. We've run it for ourselves and the way it needs to be done for our employees and our customers.
Do you think Anchor can remain independent at its current capital levels and outstanding debt?
We were at a slight competitive disadvantage because of our risk profile the last few years but our business is really about basic blocking and tackling. We've demonstrated that ability this year. At the end of the day we have lot of cheerleaders for AnchorBank.
I think that, after all this time, we've clearly proven we're here to stay.