Associated Banc Corp CEO Discusses Q2 2012 Results - Earnings Call Transcript

Associated Banc Corp (ASBC)

Q2 2012 Earnings Call

July 19, 2012 05:00 PM ET

Executives

Phil Flynn - President and CEO

Chris Niles - EVP and CFO

Scott Hickey – EVP and CCO

Analysts

Scott Siefers - Sandler O'Neill

Dave Rochester - Deutsche Bank

Terry McEvoy - Oppenheimer

Emlen Harmon - Jefferies

Russell Gunther - Bank of America

Chris McGratty - KBW

Stephen Geyen - Stifel Nicolaus

Mac Hodgson - SunTrust Robinson Humphrey

Presentation

Operator

Good afternoon everyone, and welcome to Associated Banc-Corp’s second quarter 2012 earnings conference call. My name is Jamie 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 today's conference. 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, today's 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’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. 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 call over to Phil Flynn, President and CEO, for opening remarks. Please go ahead sir.

Phil Flynn

Thanks and good afternoon, welcome to our second 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. In general, this quarter's performance was in line with our expectations and was marked by improving fundamental trends. We continue to be focused on building upon the strength of our franchise and capitalizing on opportunities to grow our business. We reported net income available to common shareholders of $42 million in the second quarter or $0.24 a share and that compares to net income of 26 million or $0.15 a share a year ago. Return on Tier 1 common equity for the quarter was 9.26% and that’s up from a little over 6% a year ago. Loan balances grew by $445 million, a 3% during the quarter with all of the net growth coming from our commercial portfolios. Total loans have grown by 1.6 billion or 12% from a year ago.

Net interest income was essentially flat compared to last quarter and year-end, despite the continuing record lower rate environment, net interest margin was down just 1 basis point compared to the first quarter.

We continue to see steady improvement in credit quality metrics and recorded zero provision for loan loss in this quarter as the portfolio continues to improve. And during the quarter, we repurchased $30 million worth of common stock and we redeemed $25 million of trust preferred securities as we remain focused on deploying our capital in a disciplined manner. Even after these two transactions, our Tier 1 common equity ratio remains strong at 12.04%.

On slide three, the loan portfolio grew 445 million during the quarter, represented at 3% quarter-over-quarter and 12% year-over-year growth rate. Second quarter loan growth was driven by continued momentum in the commercial portfolios, as commercial real estate lending grew by 193 million from the first quarter and commercial and business lending increased by 401 million. The commercial real estate business continues to provide us with opportunities for growth and we're seeing solid results from across the footprint including opportunities in the newer loan production offices.

Within commercial and business lending, general commercial loans which includes middle market activity, grew by 139 million, our mortgage warehouse lending unit grew by 122 million, oil and gas loans by 79 million, power and utility loans by 61 million.

The combined retail and residential mortgage portfolio shrank by 149 million during the quarter. Residential mortgage loans were down by a net $50 million due in part to the sale of a 109 million of loans from the portfolio during the quarter. The loan portfolio sale facilitated funding the deposit transfers related to the three branches we sold during the quarter.

The retail loan portfolio which includes home equity loans was down 99 million from the first quarter, home equity balances continue to experience run-off as consumers continue to refinance equity loans in to new mortgages. The mortgage business continued to perform strongly with mortgage loans originated for sales during the quarter of $738 million, which is up 31% from the first quarter. We've been pleased by the continued strength of our mortgage originations and while we expect the current trends to moderate, the third quarter will likely also be an active mortgage banking period.

On slide four, average deposits of 15.1 billion were up slightly from the first quarter and have grown by 1 billion or 7% from a year ago. Period end checking and savings account balances are up more than 18% from a year ago. However, period end deposits were down from first quarter levels and flat compared to year-end 2011, partly due to the sale of a (114) million of deposits in connection with the sale to branches in rural western Illinois. Deposit volumes were negatively impacted during the quarter as we continued to allow brokered, collateralized public funds and other high cost time deposits to run off consistent with our disciplined deposit pricing strategy. We continue to be focused on gathering commercial deposits through our enhanced treasury management offerings and while we're beginning to see signs of improving volumes in our annualized checking accounts, we still see significant growth opportunities for expanding these services within our existing footprint and commercial customer base.

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