Associated Banc-Corp's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Associated Banc-Corp (ASBC)

Q1 2012 Earnings Call

April 19, 2012 5:00 p.m. ET

Executives

Phillip Flynn - President and CEO

Chris Niles - CFO

Scott Hickey - Chief Credit Officer

Analysts

Jon Arfstrom - RBC Capital Markets

Scott Siefers - Sandler O'Neill

Dave Rochester - Deutsche Bank

Chris McGratty - Keefe, Bruyette & Woods

Emlen Harmon – Jefferies

Terry McEvoy - Oppenheimer & Co.

Mac Hodgson - SunTrust Robinson Humphrey

Steven [Game] - Stifel Nicolaus

Tom Alonso - Macquarie

Russell Gunther - Bank of America Merrill Lynch

Presentation

Operator

Good afternoon everyone, and welcome to Associated Banc-Corp’s first quarter 2012 earnings conference call. [Operator instructions.] Copies of the slides that will be referenced during today’s call are available on the company’s website at investor.associatedbank.com. As a reminder, this conference is being recorded today.

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 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 in the risk factors sections of Associated’s most recent Form 10-K and any subsequent Form 10-Q. 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 Phil Flynn, president and CEO, for opening remarks. Please go ahead sir.

Philip Flynn

Thank you operator, and welcome to our first quarter conference call. Joining me today is Chris Niles, who recently assumed the role of chief financial officer from Joe Selner, after Joe’s retirement announcement last month.

Joe has led the company’s finance function for nearly three decades, and has guidance Associated through periods of tremendous growth, including several mergers and acquisitions. I feel very fortunate to have worked with Joe to restore Associated to a strong and profitable company. Joe will continue to support the company as a member of various operating committees until his retirement later this summer. Joining us as well today is Scott Hickey, our chief credit officer.

I’ll begin by reviewing our results for the quarter, then provide you with an update on the key drivers of our business, and finally share our outlook for the rest of the year. In general, this quarter’s performance was in line with our expectations and I’m pleased to reiterate our outlook for the balance of 2012.

First quarter highlights are outlined on slide two. We reported net income available to common shareholders of $41 million, or $0.24 a share. this compares to net income of $40 million, or $0.23 a share for the fourth quarter and $15 million, or $0.09 a share from a year ago. This quarter’s net income to common shareholders now stands at the highest level since early 2008. Also during the quarter, we increased to common dividend to $0.05 per share.

Loan balances continued to grow during the quarter, and increased by $223 million, or 2%, to $14.3 billion. Net interest income increased by $3 million to $155 million, while net interest margin grew from the prior quarter to 331 basis points. We continue to see steady improvement in credit quality including a 9% decline in nonperforming assets this quarter. Nonperforming assets of $362 million are at the lowest level in nine quarters, and now represent just 165% of total assets. We recorded zero provision for loan losses this quarter.

Moving on to slide three, you’ll see our improving earnings trend. The earnings profile of Associated has shown considerable progress over the prior year, with both net income and return on tier one common improving significantly in each period. Return on tier one common for the first quarter was 9.23%, up significantly from just under 4% a year ago as we continued to drive toward bringing long term value to our shareholders.

On slide four, you’ll see some detail on our loan portfolio. The portfolio grew to $14.3 billion at March 31. This was up $223 million from year end and represents a 2% quarter-over-quarter and 13% year over year growth rate. Although loan growth this quarter was seasonally weaker than we would have liked, we remain optimistic for the balance of the year.

First quarter loan growth was driven by net growth in the retail and residential mortgage portfolio of $155 million, and in commercial real estate lending of $82 million. Residential mortgage balances increased by $178 million, or 6%, during the quarter. Installment loan balances continued to decline by $20 million this quarter, and home equity balances were down $3 million.

Investor commercial real estate loans grew by $100 million during the quarter, while construction loan balances declined by $18 million. The commercial and business lending portfolio declined by a net $15 million during the quarter.

General commercial loans, which include middle market activity, grew by a net $27 million. Oil and gas lending increased by about $5 million during the quarter. Declines in the mortgage warehouse book of $37 million, and declines in the power and utilities portfolio of $12 million offset the growth in the other commercial and business lending portfolios during the quarter.

On slide five, we have information about our deposits and cost of funding. Total deposits of $15.7 billion were up $563 million, or 4%, from the end of the fourth quarter. Net deposit growth was primarily driven by a $1 billion, or 20%, increase in money market deposits, and was driven by our pricing strategies to shift client funds away from repo agreements and into more traditional deposit products.

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