Winter weather in Wisconsin can be brutal, not that Philip Flynn expects to notice.
The newly named chief executive of Associated Banc-Corp plans to be holed up indoors this season, safely shielded from the elements as he scrutinizes the company's loan book, concerned with exposure only as it relates to credits in the portfolio.
"For me, the first challenge will be to really dig into the portfolio with fresh eyes and make sure I agree with the assessment of [the current] management," said Flynn, who will take over the Green Bay, Wis., company on Dec. 1 after 29 years with Union Bank in Los Angeles.
Traditionally known as a staid lender in a staid market, Associated was burned this year by two big loans in Wisconsin, as well as some dealings in the Chicago condominium market and the syndicated loan business. Now the $23 billion-asset company is operating under a memorandum of understanding with its primary regulator, the Office of the Comptroller of the Currency.
Investors are feeling the pain. Associated shares, left out of the broad market rally in recent months, are trading at just more than half their 52-week high of $21.80. At this point, the only thing more dangerous to shareholders than the writedowns Associated has taken is the prospect of writedowns it hasn't.
Cautioning that his perspective was still that of an outsider's, Flynn said Associated looks to be "adequately capitalized and adequately reserved to get through this" rough patch. "I have absolutely no reason to doubt the situation" that outgoing CEO Paul S. Beideman and his team have described to Wall Street, he added, "but I have to be sure myself as well."
Flynn has a strong track record of evaluating assets and working out problem loans.
The 52-year-old landed right after college in the credit training program at Union Bank, where industry stalwarts Jerry and Jack Grundhofer and Carl Reichardt also trained.
Flynn became an energy banker and rose to head of commercial banking. Later he ran specialized lending and commercial financial services, and became chief credit officer on his way to the post of vice chairman and chief operating officer of both the bank and its parent company, Mitsubishi UFJ Financial Group Inc.'s UnionBanCal.
Colleagues describe him as a decisive straight-shooter who, when given a problem or opportunity, quickly drills down to the crux of the issue and comes up with an answer or solution. He also has a reputation for being more concerned with reality than image.
"We've had a lot of internal discussion about what's really the right amount of provision to put in, and what you do from an optics standpoint and what you do from the standpoint of what you really feel you need. Phil really pushes what he believes in," said Robert Dawson, Union Bank's senior executive vice president for commercial banking.
When Flynn announced last week he was moving on just shy of his 30th anniversary with the company, "a lot of people here felt almost a passing of an era a little bit," Dawson said.
Flynn's send-off included a big cocktail reception plus the obligatory presentation of a Green Bay Packers foam cheesehead.
"I've been here five weeks shy of 30 years. I really love this place," Flynn said in a phone interview from his desk on Thursday, his second-to-last day with Union Bank. "But when I was contacted about this opportunity at Associated, I was intrigued."
Some analysts speculated that Flynn's arrival would herald a capital raise by Associated, even though the firm currently exceeds the minimum capital requirements prescribed by the MOU.
Flynn downplayed that theory, warning that comparisons that some analysts drew between Associated's current capital ratios and the more thickly padded ratios Union Bank maintained during his years as chief credit officer did not account for big changes in industry circumstances and regulatory guidelines.
"It would be disingenuous to say that [a capital raise] is not possible, but that's not the plan," he said.
That will be good news to shareholders who do not want to see their investments diluted.
"A lot of the Street is pounding the table for capital raises, but if you look at Associated's numbers, if they can just maintain chargeoffs where they came in at the third quarter, they should be fine," said Katherine Licau, an analyst with Kitzinger Lautmann Capital.
Licau takes added comfort in the fact that the company hired a new chief credit officer, U.S. Bancorp veteran Scott Hickey, 13 months ago. His tenure has been long enough for him to get a close look at the books and short enough for him to retain an objective perspective, Licau said.
Banks these days have a bad habit of playing the "extend and pretend" game to keep from having to write off problem loans, said Rick Lane, head of Broadview Advisors, a Milwaukee firm that holds Associated shares. But Associated's close ties to the three-state region where it operates historically has allowed the company to run with higher-than-average levels of non-performing assets without seeing a corresponding trend in chargeoffs.
"There's an old saying about Wisconsin people," Lane said. "They borrow money and then they actually pay it back."
Sounds like a climate Flynn could get used to.