Associated Banc-Corp. ( ASBC) Q3 2011 Earnings Call October 20, 2011 5:00 p.m. ET Executives Philip Flynn – President and CEO Joseph Selner – CFO Scott Hickey – Chief Credit Officer Analysts Terry Mcevoy – Oppenheimer & Co. Chris McGratty – KBW Emlen Harmon – Jefferies & Co. John Arfstrom – RBC Capital Scott Siefers – Sandler O'Neill Russell Gunther – BofA/Merrill Lynch Presentation Operator
Philip Flynn Thank you, John, and welcome to our third quarter conference call. Joining me today are Joe Selner, our CFO, and Scott Hickey, our chief credit officer, and our recently-appointed Deputy CFO Chris Niles. This afternoon, I'll begin by reviewing our results for the quarter and then update you with what’s going on with our businesses. I'll begin by pointing out a few highlights from our third quarter results on Slide 2. We reported net income to common shareholders of $34 million or $0.20 a share. This compares to net income of $26 million or $0.15 a share for the second quarter, a 33% increase. Our loan portfolio grew 3% to 13.5 billion during the quarter, with solid growth from each of our major segments including commercial, commercial real estate and residential mortgage. We continue to see the results from the investments we are making in these areas. Consistent with our strategy to fund loan growth, primarily through runoff of the securities portfolio, net interest income from loans grew quarter-over-quarter, while securities income continued to contract. The net interest margin for the quarter was 323 basis points, down 6 basis points from last quarter. This was driven by a compression of yields on earning assets, partially offset by a decline in cost of non-brokered deposits, and partially reflecting the effect of our TARP refinancing. We’re pleased with the ongoing improvement in our credit quality indicators including a 14% decline in nonaccrual loans during this quarter. Nonaccrual loans of 403 million are at the lowest level in seven quarters, and represent 3% of total loans, down from 3.6% last quarter. We recorded a provision for loan losses of $4 million, less the net charge-offs of 30 million. The lower provision and reserve release were driven by the continued ongoing improvement in the credit quality of the loan portfolio. Despite this lower level of provision, we note that our overall allowance for loan losses now covers essentially 100% of period-end nonaccrual loans.
Our capital ratios remain very strong even after our repayment of TARP, with Tier 1 common ratio of 12.44% and a total capital ratio of 15.81% at September 30.As you know, we completed repayment of our remaining TARP funds in September through a secondary senior note offering and a preferred stock offering. This action was in line with our prior commitment to exit TARP in a shareholder-friendly manner. If you go to Slide 3, you’ll see some information on our loan portfolio. As mentioned, the company’s portfolio grew to 13.5 billion at September 30. This was up $414 million from June 30, representing a 3% quarter-over-quarter growth rate, and a 9% year-over-year growth rate. The total commercial lending portfolio grew by a net $306 million while our retail and residential mortgage portfolio grew by a net 108. For the quarter, we increased commercial and business loan balances by a net 198 million and commercial real estate loans by net 108 million. Within the $4.5 billion commercial and business lending portfolio, our specialized group accounted for the majority of the growth, including about 70 million of mortgage warehouse financing, which was driven by the current levels of mortgage refinancing activity. The commercial real estate lending portfolio grew by 108 million to 3 billion. We’re working with strong regional developers, and continue to see opportunities for growth and expansion in CRE lending. We’re seeing positive results from the new CRE offices in Indianapolis and Cincinnati. And additionally this past quarter, we’ve added commercial bankers to the team in Indianapolis in order to provide full relationship banking. The retail and residential mortgage portfolio grew by 108 million or 2% to 6 billion at the end of the quarter, driven by a significant increase of production volume due to the historic low rate environment. We continue to be the leading mortgage originator in the state of Wisconsin, but we anticipate a slower pace of net growth for the fourth quarter of the year. Read the rest of this transcript for free on seekingalpha.com