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Associated Banc-Corp (ASBC)

Q3 2012 Results Earnings Call

October 18, 2012 5:00 PM ET


Phil Flynn - President and CEO

Chris Niles - Chief Financial Officer

Scott Hickey - Chief Credit officer


Dave Rochester - Deutsche Bank

Emlen Harmon - Jefferies

Scott Siefers - Sandler O’Neill

Stephen Geyen - Stifel Nicolaus

Jon Arfstrom - RBC Capital Markets

Terry McEvoy - Oppenheimer

Erika Penala - Bank of America Merrill Lynch

Chris McGratty - KBW

Matthew Keating - Barclays

Peyton Green - Sterne, Agee



Good afternoon, everyone. And welcome to Associated Banc-Corp’s Third Quarter 2012 Earnings Conference Call. My name is Mike, 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. Copies of the slides that will be referenced during today’s call are available on the company’s website at As a reminder, this conference call is being recorded.

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 actual results to differ materially from the information discussed today is readily available on the SEC website in the risk factors section of Associated most recent Form 10-K and any subsequent Form 10-Q. These factors are incorporated here-in by reference. Following today’s presentation, instructions will be given for the question-and-answer session.

At this time, I would like to turn the conference over to Mr. Phil Flynn, President and CEO, for opening remarks. Please go ahead, sir.

Phil Flynn

Thank you, Mike. Good afternoon. And welcome to our third quarter conference call. Joining me today are Chris Niles, our Chief Financial Officer; and Scott Hickey, our Chief Credit officer.

Highlights from the quarter are outlined on slide two. Our results were in line with expectations as we delivered another quarter of strong performance. We continue to see opportunities to capitalize on disruptions across the footprint as we remain focused on growing our business and strengthening our franchise.

We reported net income available to common shareholders of $45 million for the third quarter or $0.26 per share, and that compares to net income of $34 million or $0.20 a share a year ago.

Return on Tier 1 common equity for the quarter was 9.7%, which was up from 7.8% a year ago. Loan balances grew as expected by 2% during the quarter with particular strength in the commercial and residential mortgage portfolios.

Total loan balances have grown by $1.5 billion or 11% from a year ago. Average deposits increased by 4% from the second quarter to $15.6 billion and are up $1.2 billion or 8% from a year ago.

Net interest income increased by $2 million compared to last quarter. While the net interest margin was 3.26% which was in line with guidance.

Credit quality continues to improve across the Board and we recorded zero provision for loan losses this quarter.

On October 1st, we redeemed $150 million of trust preferred securities and we intend to call the remaining $30 million of trust preferred during the fourth quarter. We remain focused on deploying our capital in a discipline manner and our Tier 1 common equity ratio remains strong at over 12%.

On slide three, loans continued to grow during the quarter. Net growth of $267 million drove 2% quarter-over-quarter increase and an 11% increase year-over-year.

Total commercial loans grew 3% from the second quarter and now account for about 60% of our total loan book. We experienced continued growth in our specialized lending portfolios and commercial real estate books, but only modest net improvement in middle market lending.

Oil and gas, and power and utilities lending now collectively represent 4% of the total loan portfolio, up from 3% in the second quarter.

We would note that during the third quarter, we transferred $75 million of balances that were in investor commercial real estate to the owner occupied category in order to better reflect their nature. This had no impact on total commercial growth.

Construction loans declined slightly from the prior quarter, while we continued to be very active, new production was essentially offset by the pay down of completed projects. While there is some seasonality in our construction book, we remain optimistic for loan outstanding in coming quarters.

Residential mortgage loans grew by $125 million or 4% during the third quarter and are up 13% from a year ago. We continue the portfolio predominantly in footprint, hybrid ARMs and expect to maintain about $1.2 billion of 15-year fixed rate mortgages on the balance sheet.

We’ve been disciplined on our new portfolio origination pricing and we are holding the line at around 3% with respect to mortgages we put on our balance sheet. We continue to sell 30-year production to the agencies through our mortgage banking operations.

The retail loan portfolio, which includes home equity loans was down $101 million from the second quarter. Home equity balances continue to experience runoff as many of our consumers have considerable equity and are in a position to refinance into new first lean fixed rate mortgage loans at lower pricing. 55% of our current home equity book is in a first lien position and we expect this portion of the portfolio to continue to show elevated levels of pay downs into next year.

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