Associated Banc-Corp Earnings Call Insights: The Reserve Build and Possible Bank Deal
Associated Banc-Corp (NASDAQ:ASBC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
The Reserve Build
Scott Siefers – Sandler O’Neill: My first question was just on the reserve build for mortgage repurchased issues. So, I guess that could be one or two things, just sort of general, elevated levels or repurchase requests or then newer things, that a lot of the big banks learned about I should say, back in December was the increased look back period from ’04 to ’06. What dynamics were at play in the need to build that up?
Philip B. Flynn – President and CEO: Yeah. It’s not an increased look back period. So, what we’ve seen is we’ve seen very moderated and practically immaterial volume in this area in 2009 and ’10. We saw modest amounts of increase, that were still relatively material ’11 and into the first part of ’12 and we saw increasing volumes on requests coming through in 2012, and so we thought it was prudent and appropriate given the new OCC guidance that was out there and what we saw others doing to establish a reasonable and prudent reserve. The bulk of the activity was related to ’06, ’07, ’08 loans lending and we think it’s a reserve that’s in line with peer levels and appropriate for the level of our foreclosure activity.
Scott Siefers – Sandler O’Neill: Then does that kind of cover you for both Fannie and Freddie or just one of them?
Philip B. Flynn – President and CEO: Yes. No. It’s for all the agency activity.
Scott Siefers – Sandler O’Neill: Just want to make sure I understand the provision guidance for next year. I mean, so you still – an excellent and still improving credit profile overall and I just want to make sure. It sounds like the provisioning for next year is probably going to look a lot like what we saw in the third quarter where you kind of some nominal provision just for loan growth but not necessarily to cover whatever charge-offs might come through?
Christopher J. Del Moral-Niles – EVP, CFO: Well let’s be clear, the third quarter was zero. The fourth quarter was $3 million and that’s largely to accommodate growth and we will continue to provide to accommodate growth provided that credit trends continue to improve.
Philip B. Flynn – President and CEO: So Scott just a little more, just to fill on that, we have seen continued meaningful improvement in our credit quality now for three years. We’ve also seen significant loan growth over the last two years. So the benefit of improvement in the credit portfolio has offset the need to provide for loan growth over last two years in a meaningful way but that benefit is coming to an end now with the credit portfolio having improved to the point it has. With continued robust loan growth we expect the need to cover some of that with provisioning.
Scott Siefers – Sandler O’Neill: But it doesn’t sound like the provision is going to be anywhere near what an anticipated level of charge-offs would be in the coming year.
Philip B. Flynn – President and CEO: Likely not.
Possible Bank Deal
Christopher McGratty – KBW: Phil, on the expenses, just unclear, the run-rate for ’13 is after reported, $682 million, right?
Philip B. Flynn – President and CEO: Correct.
Christopher McGratty – KBW: Can you talk to maybe about a capital deployment through acquisitions? I think during the past quarter, you talked more openly about completing possibly a bank deal. Can you talk about maybe what markets, what size and then do you think in reality you will announce a deal this year?
Philip B. Flynn – President and CEO: So what we’ve been talking about is a desire to deploy capital in an accretive way. We think the best way to do that is to look at opportunities in our markets where we have scale so that if we were to acquire part of an institution or an entire institution, there would be very significant and highly likely cost take-outs to drive the economics of the transaction. I think it’s reasonably likely we will do something this year along those lines.
Christopher McGratty – KBW: Then just last one and I will jump in the queue. The tax benefit the $5 million, there is also the $2 million through spread income those are two separate adjustments that we should be making? Am I interpreting that correctly?
Philip B. Flynn – President and CEO: That’s correct. Those are two separate transactions.