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Associated Banc-Corp. (ASBC)

Q2 2011 Earnings Call

July 21, 2011 5:00 pm ET


Philip Flynn – President and CEO

Joseph Selner – CFO

Scott Hickey – Chief Credit Officer


John Astrom [ph] – RBC Capital

Emiline Harmon [ph] – Jefferies

Tony Davis – Stifel Nicolaus

David George – Robert W. Baird

Scott Siefers – Sandler O'Neill

Erika Penala – Bank of America/Merrill Lynch

Terry McEvoy – Oppenheimer



Good afternoon everyone and welcome to Associate Banc-Corp second quarter 2011 earnings conference call. My name is Tyrone and I will be your operator today. At this time, all participants are in a listen-only mode. We will be conducting our question-and-answer session at the end of this conference. The instructions will be given for the question-and-session session following the presentation.

As a reminder, this conference is being recorded. Management will be referring a slide presentation on the prepared remarks. A copy of this slide presentation as well as the earnings release and financial tables are available on the investor relations portion of the company's website at

During the course of discussion today, Associated management may make statements that constitute projections, expectations, release, or similar forward looking statement. Associated's actual results could differ materially from the results anticipated or projected in such forward looking statement.

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 and the risk factor session of Associated's most recent form 10-K and any subsequent form 10-Q.

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

Philip Flynn

Thanks, and welcome to our second quarter conference call. Joining me today are Joseph Selner, our CFO, and Scott Hickey, our chief credit officer.

This afternoon, I'll provide you with our results for the quarter along with an update on our strategic priorities and steps we're taking to grow our core businesses. I'll begin by pointing out a few highlights from our second quarter results on slide three and four.

As we reported, net income, the common share holders was $26 million or $0.15 per share. This compares to net income of $15 million or $0.09 per share for the first quarter. Pretax income was up $13 million and net income to common shareholders grew by $10 million over the prior quarter.

Our loan portfolio grew 3% to $13.1 billion during the quarter with the most significant growth in the C&I segment. The commercial real estate loans and residential mortgages also grew as we began to see the benefits of the investments we are making in these areas. As a result of our strategies to grow loans and improve credit quality, interest earning loans, that is total loans net of nonaccrual loans, grew by nearly $1 billion on a year-over-year basis to $12.6 billion from $11.6 billion a year ago.

Total deposits and customer funding of $16.1 billion was up $184 million. We continue to optimize our funding cost by driving non-customer network transaction deposits and brokered CDs down another 10% this quarter, while growing in savings and interest-bearing demand deposits.

As you know, we completed a $300 million debt offering in late March and used a portion of the net proceeds to repay half of our TARP. Despite the added interest expense, our net interest margin was 3.29%, down only three basis points from last quarter. We expect to repay the remaining TARP during the third or fourth quarter and will do so in a shareholder-friendly manner as possible.

We continue to be pleased with the ongoing improvement in our credit quality indicators including a 4% decline in nonaccrual loans this quarter. Nonaccruals of $468 million are at the lowest level in six quarters and represent 3.6% of total loans down from 3.9% last quarter and a high of almost 9% during the first quarter of 2010.

Importantly, potential problem loans declined to $213 million or 23% from the first quarter. We recorded a provision for loan losses of $16 million, left the net charge-off to $45 million. The lower provision and reserve release were driven by the ongoing improvement in the credit quality of our loan portfolio. Our capital ratio has remained very strong with Tier 1 common ratio of 12.61% and a total capital ratio of 17.5% at June 30th.

If you go to slide five, you'll find some information about our regional economy. The upper Midwest continues to be a positive place for business and banking. Jobs, output, and the outlook for growth are all moving in the right direction. The unemployment rate in each of our Midwestern states remains below the national average. In fact, most major metro areas in our footprint posted significant job gains year over year and year to date.

What we are seeing in terms of loan growth is consistent with recent news about improvements in unemployment and a pick-up in manufacturing in the Midwest.

If you move to slide six, I can talk about our loan portfolio which grew to $13.1 billion at June 30th. This was up $434 million from March 31st. Our goal is for the portfolio to be roughly balanced in thirds. Today, it's somewhat overweighted on consumer assets and somewhat underweighted on the commercial side with 30% in commercial real estate and construction loans and 25% in C&I loans.

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