ASBC

Associated Banc-Corp (ASBC)

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Associated Bank Corp., (ASBC)

Q3 2010 Earnings Conference Call

October 21, 2010 5:00 pm ET

Executives

Joseph B. Selner - Executive Vice President and Chief Financial Officer

Philip B. Flynn - President and Chief Executive Officer

Scott S. Hickey - Executive Vice President and CCO

Analysts

Linda Kim - UBS

Jon Arfstrom - RBC Capital Markets

David George - Robert W. Baird

R. Scott Siefers - Sandler O'Neill

Terry McEvoy - Oppenheimer

Ken Zerbe - Morgan Stanley

Peyton Green - Sterne Agee

Presentation

Operator

Good afternoon, everyone and welcome to Associated Banc-Corp's Third Quarter 2010 Earnings Conference Call. My name is Joe and I will be your operator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference. Instructions will be given for the question-and-answer session following the presentation. (Operator Instructions). As a reminder, this conference is being recorded.

Management will be referencing a slide presentation during the prepared remarks. A copy of the slide presentation as well as the earnings release and financial tables are available on the Investor Relations portion of the Company's website at www.associatedbank.com.

During the course of the discussion today, Associated management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10-K and any subsequent Form 10-Q.

Now, I would like to turn the call over to Phil Flynn, President and CEO of Associated Banc-Corp.

Philip B. Flynn

Thanks, Joe. Good afternoon everyone. Joe Selner, our CFO; and Scott Hickey, our Chief Credit Officer are with me today.

I'll begin by talking about some of the highlights for our third quarter and then provide a credit overview and more detail about our quarterly financial results. Finally, I'll provide some updates on our business activities and then we'll be happy to answer your questions.

As outlined on slide three of the presentation, today we reported net income to common shareholders of $6.9 million or $0.04 per share for the third quarter. We believe we've now turned the corner on profitability and we're encouraged by the growth we saw in commercial loans and our commercial loan pipeline during the quarter. Consumer loans also grew during the quarter, with mortgage loan activity up significantly and home equity loans showing positive growth for the first time since the fourth quarter of 2008.

We continue to see significant improvements in our credit metrics and continued slowdowns in the inflows of new problem loans. Potential problem loans were down 11% from the prior quarter and 30 to 89 day past due loans were down 16% from the second quarter. Both declined for the third consecutive quarter.

We continue to aggressively work on reducing our problem loans through robust internal management and loan sales. Nonperforming loans were down 20% from the prior quarter. As previously stated, we've expected to sell a total of $500 million or more in nonperforming loans during the year. We are well on our way to achieving that goal with total nonperforming loan sales of $434 million through the end of the third quarter, including $199 million in the third quarter.

Net interest income was $154 million for the quarter compared to $160 million for the second quarter and $179 million for the same quarter a year ago as reductions in borrowings and deposit pricing did not offset the decline in loan income. The company’s Tier 1 capital and total capital to risk-weighted assets ratios were 17.68% and 19.16% respectively at the end of the quarter which we believe are amongst the strongest in our peer group.

Now, I'll get into more detail about our third quarter results and I'll begin with the loan sales. The charts on slides 4 and 5 provide more detailed information about the nonperforming loans we sold during the quarter and year-to-date. Through a combination of bulk and individual loan sales, we sold more than 300 notes during the quarter, on average we received $0.71 against the net bank balance, the balance on our books, minus the FAS 114 reserves we held against the specific loans sold. The net proceeds from these sales were roughly comparable to the proceeds received from our second quarter loan sales. The loan sales are part of our strategy to reduce our level of nonperforming loans. We plan to continue our sales efforts through the balance of the year, and we expect sales of nonperforming loans in the fourth quarter will be approximately $100 million.

Slide 6 shows the slowing inflow of new nonperforming loans. For $100 million of new nonaccrual loans during the quarter, we had the lowest formation of net new nonperforming loans that we've had in six quarters. With the sale of nonperforming loans in this downward trend in new NPLs, total nonperforming loans of $817 million are significantly lower than where they peaked in the first quarter. We expect this trend will continue into the fourth quarter. The nonperforming loan book was marked to approximately $0.67 at the end of the quarter. The marks range from a low of about $0.52 for C&I loans to a high of about $0.77 for commercial real estate loans, and about $0.63 for construction loans.

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