GREEN BAY, Wis. - Shareholders of Associated Banc-Corp want to see it sold. The pressure has been on for a year and the community bank company hasn't done much to reduce it.

Associated fell well short of its goal of 10% earnings growth in 1999 and many shareholders doubt that, with its current management, the $12.7 billion-asset company will reach that target in 2000.

"When you see banks that succeed in a tough environment, it's because they know how to roll up their sleeves, hunker down, and get the job done," says David M. Moore, an analyst at Chicago-based Podesta & Co. "It's hard work. These guys in Green Bay don't have the stomach for it. They don't have what it takes."

Podesta represents shareholders with three million shares and has been pushing the sale for a year.

Associated's management, however, seems committed to staying independent. President and chief executive officer Robert C. Gallagher said he is charting a course for Associated to achieve the double-digit core earnings growth it promised after its 1997 acquisition of a Wisconsin thrift. Besides, with bank stocks still depressed, Mr. Gallagher says now is not the time to be selling out.

"When you're a company that's been an active acquirer, you're a mix of disparate parts," he said. "My challenge is to bring the company together for the singular focus of improving value to our shareholders and providing the best banking company possible to our customers."

Question is, can Associated can outperform possible acquirers? Even with Associated's stock trading near its 52-week low, many observers believe that it might be better off sold at a lower price now than not sold at all.

Mr. Moore said management has moved far too slowly in integrating First Financial Corp. of Stevens Point, Wis., a $6 billion thrift that Associated acquired for $1 billion in October 1997. He also questioned whether the top executives and board members - some of whom have been in place for two decades or more - are up to the challenge.

But Mr. Gallagher said he is confident in the management team. In an interview at his headquarters, he said the company is poised to wring more efficiency from the old First Financial branches.

Acknowledging that "it's going to take some time," Mr. Gallagher, who is 62, outlined plans to boost the company's performance by restructuring its portfolio to focus more on commercial loans and generate more fee income. In addition, he said that over the longer term that he would consider aligning with third-party firms to outsource some of the company's insurance and mortgage-origination businesses.

Associated promised after the merger to deliver core earnings growth of at least 10% per year. It failed to meet that promise in 1999, when net income increased by only 5% from the year before.

Observers also question if the company will meet that goal this year. First half net income climbed 10.1%, to $86.8 million, the company said. However, this year's income included a $13 million one-time gain from selling the company's credit-card portfolio.

Mr. Gallagher said he is "disappointed when we don't make our published goals." However, he said, "by the same token, we're not going to change our goals if we think they're achievable over time - and we do think they're achievable."

The company pins much of its future on business banking, which was its bread and butter before it bought First Financial.

Associated had $4.7 billion of assets at the time, and 51% of its loans went to businesses, versus 29% to residential mortgages. But after acquiring the thrift, mortgages leapfrogged to 46%, versus 32% for commercial loans.

"You had a nice clean bank with bank assets and liabilities and a nice trust operation that was profitable," Mr. Moore said. "To merge it with a big thrift was a mistake."

But Mr. Gallagher said he is confident that Associated can boost its commercial loans to more than 50% of the portfolio and reduce residential lending to 25%. He also said he still thinks the merger was the right thing to do.

Associated said much opportunity lies in generating more business loans from the old First Financial branches. The bank has hired commercial lenders for them and has trained other First Financial staff to focus on business loans.

Mary Ann Bamber, Associated's director of sales and distribution, said the company also stands to cross-sell more profitable services to retail customers, many of which it gained in the merger. Of the 500,000 households Associated serves, roughly half use only one service.

"It's not cross-selling for the sake of cross-selling," she said. "That doesn't necessarily equate to value for the organization. But if you generate the right sales, you find value."

Mr. Gallagher said he sees potential benefits in generating more fee income, perhaps by selling the services of the company's $5 billion-asset trust and investment management business to more customers. The company earns about 28% of its income from noninterest sources, compared with a banking industry average of 43%, according to the Federal Deposit Insurance Corp.

The investment business has room to grow.

Roughly 70% of the assets under management are concentrated in Associated's core markets of Green Bay and Neenah, Wis., said Mark Hilgendorf, a portfolio manager. He said the business could expand in other Wisconsin markets in addition to looking at former First Financial branches in Illinois markets such as Rockford, Peoria, and St. Louis suburbs east of the Mississippi River.

Analysts and investors contend the company has moved too slowly in generating efficiencies at the First Financial branches. They said they believe Associated should have integrated the companies' computer systems more quickly, rather than taking a full year after the merger. They said that would have allowed First Financial branches to start remaking themselves into commercial centers sooner.

Mr. Gallagher acknowledged that the integration of the two companies could have moved a "little faster," but added that Associated proceeded slowly to avoid losing First Financial customers.

But shareholders and industry observers grew frustrated at the slow pace.

"The time horizon for investors and research analysts to see results is lunch or maybe this afternoon," said Wayne R. Bopp, a banking analyst at Robert W. Baird & Co. in Milwaukee. "Investors want you to show them the money - and show it now."

Mr. Moore's firm, Podesta, pushed for a sale, sending letters to Associated and repeatedly calling for such a move in Wisconsin newspapers.

Podesta started its effort late last year after speculation that Associated would sell itself subsided. Associated's shares, which had traded in the $20s early last year, surged last summer above $40 on rumors that Wells Fargo & Co. was nearing a deal to buy the company. Mr. Moore said the company could have fetched $50 per share.

Associated's stock has since dropped. It was trading at $TK per share on Thursday.

For many, the rumors made sense because the Associated-First Financial combination had been viewed as a way to attract larger banks as bidders. When the two companies combined, they became the third-largest Wisconsin bank.

But during the much-publicized buyout speculation, Associated remained mum. The company's management waited until April - at the annual shareholders meeting - to say there had never been an offer.

Some investors are still hopeful.

Robert L. Vrakas, who owns 66,000 shares of Associated, said, "I had hoped they'd see to a larger bank. And I still do."


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