Good afternoon everyone and welcome to Associate Banc-Corp second quarter 2011 earnings conference call. My name is Tyrone and I will be your operator today. At this time, all participants are in a listen-only mode. We will be conducting our question-and-answer session at the end of this conference. The instructions will be given for the question-and-session session following the presentation. As a reminder, this conference is being recorded. Management will be referring a slide presentation on the prepared remarks. A copy of this slide presentation as well as the earnings release and financial tables are available on the investor relations portion of the company's website at www.associatedbanc.com. During the course of discussion today, Associated management may make statements that constitute projections, expectations, release, or similar forward looking statement. Associated's actual results could differ materially from the results anticipated or projected in 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 and the risk factor session of Associated's most recent form 10-K and any subsequent form 10-Q. Now, I would like to turn the call over to Philip Flynn, president and CEO of Associated Banc-Corp.

Thanks, and welcome to our second quarter conference call. Joining me today are Joseph Selner, our CFO, and Scott Hickey, our chief credit officer. This afternoon, I'll provide you with our results for the quarter along with an update on our strategic priorities and steps we're taking to grow our core businesses. I'll begin by pointing out a few highlights from our second quarter results on slide three and four. As we reported, net income, the common share holders was $26 million or $0.15 per share. This compares to net income of $15 million or $0.09 per share for the first quarter. Pretax income was up $13 million and net income to common shareholders grew by $10 million over the prior quarter. Our loan portfolio grew 3% to $13.1 billion during the quarter with the most significant growth in the C&I segment. The commercial real estate loans and residential mortgages also grew as we began to see the benefits of the investments we are making in these areas. As a result of our strategies to grow loans and improve credit quality, interest earning loans, that is total loans net of nonaccrual loans, grew by nearly $1 billion on a year-over-year basis to $12.6 billion from $11.6 billion a year ago. Total deposits and customer funding of $16.1 billion was up $184 million. We continue to optimize our funding cost by driving non-customer network transaction deposits and brokered CDs down another 10% this quarter, while growing in savings and interest-bearing demand deposits. As you know, we completed a $300 million debt offering in late March and used a portion of the net proceeds to repay half of our TARP. Despite the added interest expense, our net interest margin was 3.29%, down only three basis points from last quarter. We expect to…

Thank you. (Operator instructions) Our first question is from John Astrom [ph] of RBC Capital. Your line is open. John Astrom – RBC Capital: Thank you. Good afternoon.

Hi, John. John Astrom – RBC Capital: And congratulations to Jay in joining your Board. He's a big help in Milwaukee.

Thanks. John Astrom – RBC Capital: Just a question on Milwaukee, specifically you talked about the 80 new hires, is that the expense in the run rate or how do we think about that rolling through expenses?

It's largely in the run rate. We've been hiring people pretty consistently throughout the last six months. It hasn't been a big rush at the end of the last quarter. So, I'd say most of those expenses you've seen in the first consecutive quarter and you can see that our personal expenses have been pretty flat. So, although we're adding these folks, other people are leaving in other places. John Astrom – RBC Capital: And is it safe to say there's more to come in Milwaukee? Would you feel like you're essentially there in terms of who you need?

We are not just in Milwaukee, but across the footprint, eager and anxious to hire folks who can help us grow the company. And we continue to do that. John Astrom – RBC Capital: Okay. And then just on the C&I growth, you talked a little bit about where you're seeing some of the growth geographically, but seriously, if you could comment on market share gains versus new relationships. And on the new relationships, there's a common theme?

It's really hard to do that because it's all anecdotal, John. We've had a little bit of line pick-up, which is probably indicative of lift in the market, lift from the economic activity. The bulk of what we're doing is typically in the commercial side, in the region taking some share from someone else. But it's pretty early days to try to equate that to some sort of market share gains. But we're happy with more than $400 million of net outstanding loan growth and we're recently optimistic about the rest of the year. So, whether it's a combination of picking up market share, economic recovery, or the entry into some new businesses through the specialized financial services area, our momentum is really starting to pick up. John Astrom – RBC Capital: Okay. I have just one real detailed question, is there any story behind the foreclosure expense? I know you have that every quarter, but it was a little higher than I thought it would be.

Not that I'm aware of. I recall that we had a sizeable property tax issue that we had to pay. But there wasn't anything particularly exciting there. John Astrom – RBC Capital: Okay. All right. Thanks for the help.

Thank you. Our next question is from Emiline Harmon [ph] of Jefferies. Your line is open. Emiline Harmon – Jefferies: Good evening. Could you talk about the disposal plan for MTA at this point? I know you guys have, obviously, halted kind of the bulk sales the past couple of quarters. Could you give us a sense on some of your higher plan to work things down in going forward?

That's a great question. We obviously had a consorted sales effort throughout the latter part of last year where we dramatically reduced the MPAs. The MPAs that we have left, we're working in the old-fashioned way, if you will. So, we're not indulging in both loan sales anymore because we really don't need to. We had a reasonable amount of MPA reduction this quarter. We expect probably some acceleration in that through the rest of the year. We have a couple of sizeable non-performing loans which we think will reach resolution this quarter or next. The truth is most of the big MPAs are gone, and what you see left is pretty granular. So, it doesn't really land itself to the bulk sales that we did previously. So, we'll continue to work on that. Scott Hickey and I were talking just today about thinking through plans to reduce some of the MPAs as we get through the year. But with the economic recovery that we're seeing here in the Midwest, a lot of these companies are getting healthier without any extraordinary effort on our part. Emiline Harmon – Jefferies: Got it. Okay. Thanks. And then, this is the second question, could you maybe give us a little bit more color just on where you are with specialty lending initiatives and just kind of what the progress on growth there has been?

Sure. So, about half of our net C&I growth came from the specialty units. Joe helped me with that, $80 million of growth in the mortgage banking business. We had about 60 or so in the oil and gas base and the rest was scattered around some of the other units. So, we're starting to get nice lift from these new businesses that we put in place over the last six to nine months. Emiline Harmon – Jefferies: Okay. Great. Thanks for taking my questions.

Sure.

Thank you. Our next question is from Tony Davis at Stifel Nicolaus. Your line is open. Tony Davis – Stifel Nicolaus: Good afternoon, Phil and Joe. Just on that same thing, are you now fully stayed and specialized and any thoughts on where that portfolio in terms of size in the year?

We're still looking for a few folks, but we're largely staffed in those areas. I think on the last call or somewhere publicly, we had talked about trying to grow that portfolio to around a billion dollars or so. We didn’t think we're… Tony Davis – Stifel Nicolaus: Is that how you say that, in commitment?

In commitments, yes, not outstanding. So, we put on in that new 120 this quarter. If we could do the same over the next couple of quarters in each quarter, that would be great. And that would probably put out outstandings at three quarters of a billion, give or take. Tony Davis – Stifel Nicolaus: Great. Phil, continuing with C&I, what do you say (inaudible) Scott has got on this too? What are you seeing in terms of recent credit spread, the price competition? I guess too across loan sizes and if there's any geographic dispersion around what you see in terms of competition?

Yes. Again, it's anecdotal clearly yields on new loans are coming down because it is competitive. I would say it's probably most competitive in the market that you would get. It would be most competitive, which is Chicago. Tony Davis – Stifel Nicolaus: Right.

We continue to be pleased that a lot of our renewals are able to retain their floors. But clearly, that new business that we're up competing, rarely, we're going to get a floor based on that new transaction. Tony Davis – Stifel Nicolaus: Yes.

So, yields are coming down on the new stuff due to competition. On the other hand, as I've said, we intend on being very price competitive. We have a very attractive overall cost of funds at this company. And if we're doing a job cross-selling our other products and services, it's always worth to be competitive on the pricing of a commercial loan. Tony Davis – Stifel Nicolaus: Okay. Joe, roughly, $145 in security cash flows, I know the residential mortgage bulk is continuing to grow, what are your thoughts here at this point in a way of challenging that?

Well, we're seeing somewhere in the neighborhood of $300 million, $350 a quarter of cash flow coming off the investment portfolio. We're reinvesting about $150 million of it and using the rest of it to grow along. That's been our strategy. And clearly, the investment yields our goal [ph]. They're in a 2% range and we're trying to be in a market steadily, but it's really not a very attractive place to be at this point. Tony Davis – Stifel Nicolaus: Well, I guess your thought is hitting into the (inaudible) environment here, guys, net pricing and what are you expectations are in your market.

We'll see what other banks star doing. We really don't have any news on that yet. Tony Davis – Stifel Nicolaus: Okay.

However, we believe, as we've been saying consistently, that given that's the vast bulk of our commercial borrowers are already on analysis, we don't think this is going to be a particularly noticeable impact if we do start paying interest to, say, small businesses or the odd commercial account that might not be analyzed today. Tony Davis – Stifel Nicolaus: Okay. Thank you very much.

Thank you. Our next question is from David George of Baird. Your line is open. David George – Robert W. Baird: Thanks for taking the question. A question on capital, obviously, job one, as you think sell about deploying access capital overtime given the fact that you've been profitable for a few quarters now. When you think more intermediate to longer term, is there a Tier 1 common kind of (inaudible) three number that you think about that's reasonable in managing the company in the future? Thanks.

Yes, I know the whole world would love to hear the answer to that question, not just from us but from every bank. I don't have a great answer for you right now. We're focused right now on growing the company organically and utilizing our capital to support that growth. We're focused on retaining the balance of our TARP money in the third or fourth quarter. After that, with continued profitability, then we now have a solid year of profitability behind us. We'll take a look at our dividend policy later this year. And then, ultimately, we'll look at deploying capital through acquisitions and even way out there and probably not preferentially through share (inaudible). So where that all ends up and where the industry ends up then what a reasonable return on equity is going to be is still to be determined in the industry. David George – Robert W. Baird: Sure. Okay. Thanks for the call I appreciate it.

Thank you. Our next question is from Scott Siefers of Sandler O'Neill. Your line is open. Scott Siefers – Sandler O'Neill: Good afternoon, guys. I guess my first question was on the legacy overall expense outlook. I mean this quarter, this number, I'd say, came in better than I thought it would. So you're talking about continuing to be eager to hire more people. I guess I'm just curious to hear how that all flushes out into the cost side.

We maintain cost discipline around this place and we've been doing well the first couple of quarters. We have a number of investments that we're making in the company, the branch remodel that I talked about, some systems upgrades for internal measurement, as well as looking to hire folks. The people we're hiring we view as further investment in growing the profitability of the company. They will pay for themselves as well all of these things, but it will take some time. So I wouldn't expect to see dramatic expense growth through the balance of this year. Scott Siefers – Sandler O'Neill: Okay. And then (inaudible), I was hoping you could talk a little bit about sort of what the strategy is or sort of what's going on with the core deposit base. I appreciated the color on the total base and some of the areas you're trying to sort of push some money out. But the core deposit base, at least as I would definite, hasn't grown very robust and, in fact, has been declining for a few of the last couple of quarters. I know you got the TAG issue last quarter. But just what are the main dynamics that play there?

Yeah. The way we view our core funding from customers is not declining. It's growing. We've made some purposeful decisions, which I know are somewhat different than what some others in the industry have done, to utilize the collateral we have with the expiration of the TAG program to push some of our customer funding in repos. We're very focused on pushing net worth in brokers, i.e. non-core deposits out, and we've been doing that very consistently now for quarters. We're also very focused on growing the regular core deposits of the company and we continue to work hard to do that. We're investing significant amount of time, energy, money and people into improving our treasury management offerings to grow our commercial deposit base. The outcome of that will be felt in coming quarters. We haven't seen that yet. So we're really focused on growing customer deposits. Scott Siefers – Sandler O'Neill: And then last question. So in pretty much all the credit metrics, we're moving in the right direction, but the one that's kind of still going the other way is the occurring restructures, which are going up in kind of double digits pretty consistently. I wonder if you could just sort of talk about the strategy there.

Yeah. I mean the accruing TDRs, we're doing less and less really restructurings in the residential side than we did probably in the last six months. So that piece of it is probably going to level off. The new accounting that comes in second half of the year, we're looking at all the TDR book as well relative to the new accounting. And so we'll have to see how that all sorts out as we get through the whole book.

But, Scott, the other thing that's impacting is you're doing AB notes which in fact TDR is also (inaudible).

Yeah, but we're not doing nearly as many of those as we bought.

No. But that is affecting some of the growth.

Correct.

If we do one, it is a growth.

Right.

And yet the loan is paying.

Yeah. Scott, remember that we have a pretty low base of this stuff. So it doesn't take more than a couple of loans for you to see it.

You see a percentage change. Scott Siefers – Sandler O'Neill: Exactly. Okay. Great. Thank you very much.

Sure.

Thank you. Our next question is from Erika Penala of Bank of America/Merrill Lynch. Your line is open. Erika Penala – Bank of America/Merrill Lynch: Thank you. Good afternoon. My first question is on your loan growth items for the second half of the year. Given your commentary with regard to positive economic underpinnings in the upper Midwest and the hirings and consolidation activity in your footprint that's setting you up for taking market share, I'm wondering what you're seeing. That loan growth is not going to be at least from what you posted in the second quarter.

It's very difficult to forecast loan growth. So we had about 3% first quarter to second quarter. Our best look right now is that pace may come off a little bit and that's why we're guiding into the 2, 3%; I hope we beat it. But I think that's a number that we're comfortable with and that you could probably be comfortable modeling. Erika Penala – Bank of America/Merrill Lynch: Is it a function of more careful commentary from your customers in terms of expanding their business at this point in the economic cycle or just...?

No, it's not. Erika Penala – Bank of America/Merrill Lynch: Okay. And with regards to Durbin, we've gotten commentary from some other regional banks with regards to potential mitigation. I'm wondering if it's also, like with you commentary and Reg Q, too early to tell in terms of how much you can make up for this.

It is, Erika. We fully intend on figuring out some way to claw back some of this revenue, whether we do it directly on the product, debit cards, or whether we change the way we think about charging for the overall of services we're still working on. Some of the test we do is what the rest of the industry does. So it is a little early, but probably as we get into later in the third quarter, we'll have a better feel for that and we can hopefully give some color. Erika Penala – Bank of America/Merrill Lynch: Okay. And lastly, I just wanted to follow up on your comments with regard to capital management. In terms of preferring acquisitions over buybacks, are you seriously looking at anything today? I mean clearly you talked about TARP outstanding and repaying that is in a shareholder or a friendly manner as a priority. But I'm just wondering if you're seeing specific opportunities in your footprint.

No, we're not looking at anything today and repaying TARP, of course, is the step first. So we're very focused on getting that done, as you said, in the most shareholder friendly-way possible. So, when I was talking about deploying capital, I was thinking further out. Erika Penala – Bank of America/Merrill Lynch: Okay. Thank you, Phil.

Sure.

Thank you. And again, ladies and gentlemen, if you have a question, please press star then one on your touchtone phone. Our next question is from Terry McEvoy of Oppenheimer. Your line is open. Terry McEvoy – Oppenheimer: Thanks. Good afternoon. Could you talk about the new talent that's been hired? Has any of that been the private banking area? A year plus ago, you talked about that being an initiative and an area of focus and it seems like there'd be some good opportunities coming out of Milwaukee.

Yes. And, in fact, we've hired some great people in our wealth business in Milwaukee as well as in some of our other metro centers including Chicago and Minneapolis. Terry McEvoy – Oppenheimer: And Phil, do you think you can keep the share count on changed as you look at the rest of the TARP repayment in the third and fourth quarter?

I hope so but we'll have to find out. Terry McEvoy – Oppenheimer: I understand. And then just the last question. Could you just give us a level of comfort the bank in Green Bay growing $300 million in CNI loans last quarter, 60 or 80 million coming in on oil and gas, kind of some new areas for this company? Does it make you feel a little bit comfortable, the people, the decision-making and how we should go comfortable with that call to more rapid asset growth that Associated is used to?

Sure. Well, certainly the overall asset growth is not something Associated is not used to. But specifically in the energy business, the comfort, of course, doesn't come from the legacy of Associated Banc in the upper Midwest, but I have a deep personal background in that business as do the people that we've hired to oversee the business. And the person who's doing the business is actually in Houston; Green Bay not being a hot bed of energy lending in the United States. So we have experienced people on the ground all through (inaudible) with, frankly, including on the technical side of that business for many years in my past. So, if that helps give you some comfort, I'm pretty comfortable with it. Terry McEvoy – Oppenheimer: I appreciate it. Thank you.

Sure.

Thank you, ladies and gentlemen. This ends the Q&A portion of today's call. I'd like to turn the conference over to president & CEO, Mr. Philip Flynn.

Okay. Well, I want to thank everybody for joining the call today and for all the questions. We continue to make great progress in returning Associated's strength and health. We anticipate continued loan and earnings growth throughout the rest of the year, improving credit metrics and the repayment of our remaining TARP funds. So we look forward to talking to all of you next quarter. And if you have any questions in the meantime, as always, give us a call, and thanks again for your interest in Associated Banc.

Ladies and gentlemen, this concludes the Associated Banc-Corp second quarter 2011 conference call. If you would like to listen to a replay of today's call, please dial 1-800-642-1687. International participants, dial 1706-645-9291. Enter in the access code, 758-044-03.