ASBC

Associated Banc-Corp (ASBC)

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Associated Banc-Corp (ASBC)

Bank of America Merrill Lynch Banking and Financial Services Conference

November 14, 2012 08:50 AM ET

Executives

Phil Flynn - President and CEO

Analysts

Erika Penala - Bank of America Merrill Lynch

Presentation

Erika Penala - Bank of America Merrill Lynch

Good morning everybody in the room and on the webcast. A gross and capital recurring story sounds like an unlikely combination that Associated Banc Corp may be it. Since President and Chief Executive Officer Phil Flynn took the reins during in 2009, he has aggressively tackled by legacy credit issues, strengthened the balance sheet and has surpassed loan growth expectations and yesterday Associated announced an increase in dividend of $0.08 and $125 million buyback. Also with Phil today is Chief Financial Officer, Chris Niles and with that I’m going to turn over the stage to the company.

Phil Flynn

Thanks Erika. Good morning everybody. So I’d like to start for those of you who aren’t real familiar with Associated with just a little bit of background information on the company. We operate in the upper Midwest. We have branch network that covers the area from Twin Cities all through Wisconsin, into Chicago and then down through Illinois to East St. Louis. We have about 250 branches currently and we are very active in all types of lending in the upper Midwest. In particular in Wisconsin we are the number mortgage originator in the State and we’re also the number one SPA lender in the State.

I came to Associate as Erica mentioned back in December ’09. So it’s just shy three years right now and what I didn’t know about the Midwest since I was in Californian and actually this part of the world is really good place to operate in, whether you’re a business or a bank.

And interesting statistic we came across when you look at the cities with the highest average FICO scores in the country five of the 10 are in the areas where we operate, mostly in Wisconsin. So one of the nice things about that part of the world is people tend to pay their bills. That’s one of the reason why we didn’t have, throughout the crisis a big problem with our mortgage book. Generally speaking we didn’t have the price spikes that you saw on the coast during the south. Generally speaking people are conservative and make sure that when they borrow money, they are capable of paying it back.

We continue in Wisconsin and Minnesota to generally track somewhat better the national unemployment rates, particularly up in Minnesota and we are a manufacturing state, particularly in Wisconsin and we’ve continued to have good results from the manufacturing sector.

The chart there on the slide gives you a sense of where our deposit concentrations are. They are where you would expect in the larger cities and towns in our footprint. We’ve got good stories as far as deposit growth which we’ll talk about in a minute. So some highlights from the third quarter, we continue to have increasing net income over the past several years. We made about $45 million or $0.26 share in the third quarter and our return on tier 1 common equity is just shy of 10%, nothing to be terribly proud of, but we are working to improve that number overtime.

We have had a good loan growth story now for a good probably two years. Loans were up about 2% in the third quarter. That was actually a lower pace of growth than we have seen for the preceding four or five quarters. Not too surprising. As a person who has been in the business for a long time and with a lot of credit background, I’m not necessarily comfortable with continued clips of double digit loan growth.

So a 2% quarterly loan growth is fine. We’re not getting a lot of help from the economy obviously so most of what we’re doing is taking market share or growing some new businesses that we’ll talk about in a minute. So that type of growth is just fine. But we have had over the past year over 11% loan growth.

Deposit growth has been very good. I’m still a believer even in this low rate environment that a core-funded deposit franchise ultimately determines the value of the regional bank and we put a lot of emphasis in growing our granular core deposit business. We have put a lot of time and energy and money into improving our treasury management and corporate deposit offerings and are starting to see traction there. In fact we had in the third quarter particularly good results on the commercial side.

Net interest margin has been a real challenge for the entire industry. We have done a good job for the past year of defending our net interest margin at around that 325 to 330 level and we did that again in the third quarter and we increased net interest income because we actually expanded the balance sheet of debt. In the third quarter previous to that we saw our balance sheet been fairly static and the loan growth was offsetting the rundown in our securities book which had been planned, but we’re at the point now where the securities book is about where it’s going to be and so the loan growth now will tend to expand the balance sheet a drive a little in of NII growth.

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