Associated Banc-Corp ( ASBC )

Q2 2010 Earnings Call Transcript

July 22, 2010 5:00 pm ET


Philip Flynn – President and CEO

Joseph Selner – EVP and CFO


David George – Robert W. Baird & Co.

Jon Arfstrom – RBC Capital Markets

Scott Siefers – Sandler O'Neill & Partners LP

Terry McEvoy – Oppenheimer & Co.

Erika Penala – UBS Investment Bank

David Konrad – KBW



Good afternoon everyone, and welcome to Associated Banc-Corp’s second quarter 2010 results conference call. My name is Joe, and I will be your operator today. (Operator instructions) During the course of the discussion today, Associated’s management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated’s actual results could differ materials 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 ready available on the SEC website, in the Risk Factors section of Associated’s most recent Form 10-K and any subsequent Form 10-Q. (Operator instructions)

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

Philip Flynn

Thanks Joe, and welcome to our second quarter conference call. Joining me today are Joe Selner, our CFO; and Scott Hickey, our Chief Credit Officer. This afternoon I will provide more detail on our second quarter results, and discuss the improvements in our credit quality, as well as our strong capital and liquidity positions. I will also provide you with an update one steps we are taking to position the company for future profitability and growth.

Today, we reported a net loss to common shareholders of $10 million or $0.06 per share for the second quarter. This compares to a net loss of $34 million or $0.20 a share last quarter, and $25 million or $0.19 for the second quarter of ’09. We have taken a lot of action to strengthen our balance sheet and address our credit quality during the past few quarters, and we are seeing positive results.

So let us start with credit, we saw a significant improvement in our key credit quality indicators during the quarter, including substantial declines in the loan loss provision, net charge-offs, non-performing loans, potential problem loans and early stage delinquencies. The provision for loan losses for the quarter was $98 million, down significantly from $165 million for the first quarter, and $395 million for the last quarter of ‘09.

Net charge-offs for the quarter were $105 million, also significantly lower than $163 million for the first quarter and $234 million for the last quarter of ’09. While we are pleased with the declines in charge-offs in the last two quarters, we expect them to continue at elevated levels as we continue to work through our non-performing loans.

Our allowance for loan losses was $568 million, or $4.5% of total loans for the quarter, up from 4.3% in the last quarter. Non-performing loans were $1.02 billion at June 30, down $190 or 16% from $1.21 billion at March 31. The decline in total non-performing loans was primarily driven by the sale of select problem loans, and the continued slowdown in the formation of new non-performing loans during the quarter.

Through a combination of bulk and individual loan sales, we sold over 70 notes with a total bank balance of $216 million during the quarter. We received an average of $0.73 against our bank balance. 57% of the $216 million in NPL sold came out of the real estate construction segment of the portfolio with the balance 43% coming out of the commercial real estate segment. About half of the loans sold were for projects outside of our core markets with the balance split between Wisconsin and a combination of Minnesota and Illinois.

The flow of new non-performing loans continued to decline. We had 169 million of new non-accruals in the second quarter down 41% from 287 million in the first quarter, and down 64% from 475 million in the fourth quarter of ‘09. The non-performing loan book was marked to approximately 67% at the end of the quarter. The marks ranged from a low of about 53% for the C&I portfolio to a high of approximately 78% for commercial real estate loans, and about 65% for construction loans.

Of the new additions to non-performing loans, approximately 47% are current. In total, 36% of our non-performers are current. The ratio of non-performing loans to total loans declined to 8.09% at June 30 from 9.1% in the first quarter. We are confident that the ratio of non-performing loans to total loans will continue to improve going forward. Our overall level of reserves to the loan portfolio remains conservative at 4.51%. The coverage of non-performing loans grew during the quarter to 56%, up 8 percentage points from 48% at March 31. That number will continue to improve over the balance of the year as we continue to reduce non-performing loans through loan sales, charge-offs, and pay downs.

We continue to target a reduction in non-performing loans of $500 million during 2010. Potential problem loans of 1.3 billion for the quarter were down 95 million or 7% from 1.4 billion at the end of the first quarter. Upgrades and payoffs, coupled with a reduction in migration in the non-performing loans had a positive impact on potential problem loans. This was our second consecutive quarter of declines in potential problem loans.

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