Good afternoon, everyone and welcome to Associated Banc-Corp’s Third Quarter 2015 Earnings Conference Call. My name is Manny and I will be your operator today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session at the end of this conference. Copies of the slides that will be referenced during today’s call are available on the Company’s Web site at investor.associatedbank.com. As a reminder, this 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 Web site in the Risk Factors section of Associated's most recent Form 10-K and any subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please see the press release financial tables. Following today’s presentation, instructions will be given for the question-and-answer session. At this time, I’d like to turn the conference over to Philip Flynn, President and Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you and welcome to our third quarter earnings call. Joining me today are Chris Niles, our Chief Financial Officer and Scott Hickey, our Chief Credit Officer. Our third quarter highlights are outlined on Slide 2. Our results reflect higher net interest income, lower fees, and lower expenses. Average loans grew by 264 million in the third quarter driven by residential mortgages and commercial real estate. As we had anticipated, commercial and business loan growth has slowed during the second half of the year. Overall, we’re still on track to deliver high single-digit annual average loan growth. Deposits reached a record level in the third quarter at $20.3 billion. Balances were up 3% from the second quarter driven by strong growth in demand deposits and money market accounts. Our net interest income of $171 million was up $4 million or up 2% from the second quarter. Margin compression was just one basis point and our average loan yields were unchanged from the second quarter. Fee income was lower driven by reduced mortgage banking income and expected seasonally lower insurance activity. Expenses were down $5 million, primarily related to lower personnel and technology costs. We are committed to expense discipline in a revenue constrained environment and we’re pleased to report lower expenses in several categories. We remain on our target capital range with a Tier 1 common equity ratio of 9.39% and we did not repurchase shares of common stock during the quarter. Overall, we delivered net income to common shareholders of $47 million or $0.31 per share and we delivered a double-digit return on average Tier 1 common equity for the fifth consecutive quarter. Loan details are highlighted on Slide 3. Overall, our average loans are up 8% year-over-year. During the third quarter our residential mortgage loan portfolio grew by…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Dave Rochester of Deutsche Bank. Please go ahead.

Hey, good afternoon guys.

Good afternoon Dave.

On the expenses, it sounds like you have some more cost saves coming with the branch closures you’re planning for this quarter. Just wondering how much more reduction do you think you can get from the roll off of projects in the data processing line. And then just given that consolidation activity you talked about, I was just curious if you had any preliminary thoughts on expense trends for next year, since it looks like you’re clearly going to hit your targets for this year.

Yes, Dave, this is Phil. So we will provide guidance for next year in January and I will let Chris answer the rest of this specific question, but we continue to be very aware of the trends out there for consumers. And we continue to take a hard look at how our consumers access us. So I don’t know how many more branch closures there could be as time goes on, but we’re clearly getting down to pretty reasonable levels now. We feel pretty comfortable with our footprint and as I mentioned the work that we’ve done to improve the 200 plus remaining branches is largely complete now.

So just to add a little more color to that we will be closing some additional branches. However, there will be charges that will be incurring in the fourth quarter, so it will actually be expenses incurred in those closures and we will also be moving into our seasonal weather seasons and so you will see an uptick in our snowplow and heating and other costs. So I wouldn’t expect to see a down tick in occupancy, in fact we will probably see an uptick. We do not expect that to have a material impact on other areas per se, but I also don’t think we’re going to slow down technology investment. In fact, to the contrary we’re already contemplating our next upgrade to a variety of systems and I don’t think you will see that come down.

Okay.

That said we remain committed to the expense guidance that we provided at the start of the year for this year.

Got you. Great. That’s good color. Thanks. And then on the capital front, I was just wondering if you could just give us an update on your thoughts there and what you might be looking forward to restart the buybacks eventually?

I think what we would like to say is we’re in line with where we expect it to be given our overall capital targets at around 7% tangible at a 7.5 leverage, at 10% Tier 1 risk base, 12.5% total very comfortable numbers to operate given the risk profile we have, given our DFAST stress testing and given the opportunities we see they all sort of level that give us comfort that we can grow in our organic means without having to tap additional capital and we see growth opportunities ahead of us.

Okay, great. And then just one last one on the energy credit, I was just curious I know that you just started this at the end of the quarter, but what percentage of those re-determinations were done at this point and then how much you see in the price tag come down as you go through those?

Scott Hickey can you answer that?

This is Scott. We are about -- as of 9/30 we were about 20% through the re-determinations and if you look at the fall oil deck versus the spring oil deck, obviously it’s down more at the beginning and less at the outer years, but on average down about 14%.

Okay, great. Thanks for the color guys. I appreciate it.

Thank you. The next question is from Scott Siefers of Sandler O'Neill. Please go ahead.

Good afternoon, guys. Maybe the first one, Chris, would you mind reminding me what the number was on the mortgage mark to market specifically for both the second quarter and the third quarter? I know it’s a $5 million unfavorable dealt but just trying to get at what a good run rate core number is to base off of?

Sure. It’s about a plus 2 at the end of the second quarter and a minus 3 at the end of the third quarter.

Okay. All right. Thank you very much. And then Phil do you mind maybe expanding on the comments on the deposit inflows during the quarter? I think it’s in particular the money market numbers were pretty strong, but -- I mean, just overall deposit really kind of ramped up , so any additional thoughts or color you could add please?

Sure. I mean, we’re - we view the ability to gather low cost granular deposits as being perhaps the most important thing we do as a bank and I think it drives a lot of value in the banking business in general, so we’ve put huge effort into improving the customer experience for both commercial and retail depositors here and I think we’re starting to see the benefit of that. We had growth across the board, across geographies and in many different types of deposits.

Okay. Okay. And then, I guess final question, you mentioned the Dallas LPO that you opened, I understand the relationship you would have with the Union Bank guys, but just curious for your thoughts I think this is your first foray out of what you might consider the greater Midwest so, is there something that would be sort of a one-off because you had a longer term experience with those guys or is there more of an appetite to do this kind of thing more broadly out of market in certain situations, how are you thinking about that dynamic?

Sure. Well, we’ve been very selective. So since over the last five years we’ve opened up LPOs initially commercial real estate LPOs in three cities. We had -- we already had one in St. Louis. Obviously we opened up our oil and gas business in Houston and now we’ve gone to Dallas. So we think about the opportunities to do this based on is it an attractive market and are the right people available and the right people generally from our point of view are people we know that we’ve worked with and who have been in that market for their professional career. So I wouldn’t draw any big conclusions that we’re about to open up the LPOs all over the country. This was another one of those great circumstances where the right people are available in what we think is a very attractive market.

Okay. That sounds good. Thank you guys very much.

Thank you. The next question is from Jon Arfstrom of RBC Capital Markets. Please go ahead.

Good afternoon.

Good afternoon, Jon

Just a loan growth question. So you kind of touched on a little bit, but can you maybe give us an idea of the in footprint loan growth environment? It seems a little bit slower. I don’t know if that’s right or not, but if in fact that’s the case, your risk appetite, is it the demand side or is it both?

Well, there’s generally speaking three legs to our loan growth stool. So residential mortgages continues to be just fine to good, commercial real estate has been a steady grower for us. But general commercial and business lending environment, I would probably -- given what some other banks have reported, I guess, I wouldn’t say necessarily it’s the market. I’d probably attribute it to our, I think pretty firm discipline on getting an appropriate risk adjusted return when we’re risking our capital, and I mean I’ll leave it at that. I’m not going to comment on what other banks are doing because I don’t know exactly what they’re doing. But if we can't see our way to on a relationship basis strong, double digit risk adjusted returns, so including loans and other cross sell opportunities then we take a real hard look at it and are prepared to pass.

Okay. Can you repeat the potential problem loan number, I think you said $75 million of the increase…?

So if you look at -- yes, look at Slide 9.

9, yes.

Yes, potential problem loans are up to $264 million, keep that in some context, that number back in 2010 you can multiple that by 10.

Right.

So it’s a really low number, of that about 75 of that is oil and gas loans, which have come on over the past call it three quarters.

And was there anything in terms of oil and gas in there…?

I think there was one oil and gas credit that moved, maybe not even that. It was mostly a collection of few commercial loans.

Okay. All right. And then I guess this question that didn’t come up yet. But just give us your latest thinking on acquisitions and are you seeing things that could make sense and what's the flow like?

We’ve -- we’re actually more focused right now on opportunities to grow our fee businesses, as we think about acquisitions when you look at the deposit growth we’re generating, and if we can continue to do that, we’re going to have a whole lot of need to pay someone for their deposits if we can continue to grow this way. The FDIC data that just came out from the state of Wisconsin showed us significantly picking up market share from some of our larger competitors and with the biggest market share gain of any bank here and there’s a whole lot of banks there. So we’re doing very well on growing low cost funding, so that the compelling need to go out and think about buying another depository isn’t really pressing today. The Ahmann & Martin transaction worked up very well, we’re looking at opportunities to fill in our insurance business if possible and we’ll look at other key related acquisitions. So I would guess, our focus is probably shifted somewhat away from looking at bank opportunities to others.

Okay. All right. Thank you.

Thank you. The next question is from Ebrahim Poonawala of Bank of America Merrill Lynch.

Hi, guys. Good afternoon. Ebrahim here.

Go ahead.

Go ahead. Ebrahim?

He must have cut out. Why don’t you go to another question?

Certainly. The next question is from Jared Shaw of Wells Fargo Securities. Please go ahead.

Hi, good afternoon. This is actually Timur Braziler filling in for Jared. My first question also relates to the oil sector. Kind of what's your appetite for lending into that sector right now?

We disclosed our first agency deal. So we are -- we are dedicated to this space. We intend on being a lender that goes through the cycle. I’m not sure that you know about some of the backgrounds people work here. This was my professional background starting back in 1982. So as a bank that opened up this business four plus years ago it’s all about being a consistent provider of credit to the industry. So we are there, we’re active. Obviously transaction volume is down at the moment but it won't always be that way. This is a cyclical business.

Okay, that’s fair. And I guess just from a broader perspective, what's the competitive dynamic like for the loans that do exist today? Are you still seeing the same type of competition or are some of the players started backing away from the space?

I’m not sure I can answer that. I doubt that anyone is really backing away from the space at the moment. In last year in the service area, you probably haven’t really taken any losses of any significance at this point. Reserved secured lending has proven itself over many cycles for the last decades to be a generally lower risk asset class than a lot of other general commercial lending you do as long as you stick to reserved secured lending and you don’t stray into other related industries.

Okay, thanks. And then looking at the securities portfolio, what's the remaining opportunity there to transition until this Ginnie Mae product?

, :

Okay. And kind of that perceived notion that we’re going to have lower to longer rate environment here, does that at all change your mind as to the pace or the magnitude of the shift?

Today we haven’t seen a huge change or variation in the yield, and so essentially it’s a reinvestment decision only. We’re not making a significant duration adjustment through this process.

Okay, great. And then just my last question is again on the deposit side, what was the growth between new and existing clients, as much of its coming from new accounts or are existing clients also adding for deposition?

Yes, it’s a mix across, I don’t have those, that breakout for the quarter per say. But we’ve clearly seen some new corporate additions, those have been very well received and helpful, but we’ve also got general growth in our average account size.

Okay, great. Thank you.

Thank you. [Operator Instructions] And the next question is from Ebrahim Poonawala of Bank of America Merrill Lynch. Please go ahead.

Hi, guys. Good afternoon.

Welcome back.

Yes. Thank you. With this quick question, I’m sorry if I missed this. You mentioned if your slide in terms of the deposit growth was driven by sort of network transaction deposits.

No, we didn’t and it wasn’t. If you look at those tables Ebrahim on page 9, we clearly breakout the growth and you’ll see actually one of the largest categories of growth was [technical difficulty] bearing DDA, so that’s generally corporate customers, some municipal customers but also households, so that was a large piece of it. Obviously overall money market growth was a very big piece of it, but we separately denote [ph] the portion that was down below, like network and deposits and that was less than a quarter of it. So the vast majority of it came from our customers.

Fair enough, and I guess the question I was getting to is, if the network component of it should we view that as probably more, we might miss see some more lumpiness or volatility around those balances, or do you feel as good about the stickiness of those as, as you feel about the rest of the deposit growth?

Clearly we assume the network deposits are very price sensitive and they have a high beta. In terms of stickiness, we’ve had some long standing network relationships. There’s a big brokerage firm with a bullhead as a logo and they’ve been [indiscernible] program for more than 15 years, and again I don’t know that there is a slight risk, but they’re going to patch up the price to the market, and so we view those as price sensitive deposits and we treat them as such and we valuate our liquidity keeping that in mind. But from a core deposit perspective which is again the net customer deposits and funding that we break it up on page 9, and we’ve seen better than 8% year-over-year and better than a 6% for the quarter core customer deposit growth which is remarkable.

Fair enough, make sense. And I’m familiar with that bull that you mentioned. But all right, and just a separate question, again I’m sorry if I missed this, but in terms of the swap into Ginnie Mae, is there more to go there or are we kind of where you wanted that portfolio to be?

Yes, so you just missed the last question but we’re at 60% now and it’ll probably continue to grow over time to reinvestments and maturities.

Got it. Thank you very much.

Thank you.

Thank you. The next question is from Emlen Harmon of Jefferies. Please go ahead.

Hi. Good evening guys.

Good evening.

Chris, what earnings impact any should we expect from the shift in liabilities, and just looking to the averages, it seems like that may have been hit late and, may have hit late in the quarter, just I was hoping you could confirm that as well.

Yes, clearly we see a run up in most deposit categories, certainly our corporate deposits at quarter end, so we see spikes at the end of March, at the end of September and at the end of December and that’s fairly typical. So yes, there’s a bit of an average risk the end points adjustment there. In terms of cost, if you look at our average cost I would say I think we breakdown on our schedules. You can see that the average cost of our short-term funding was call it 21 basis points and most of the deposits that we got were in our money market category which come at 18, so it’ll be pretty marginal. But from our perspective the benefit is, is that -- that means we’ve got another $1.1 billion of freely available borrowing capacity as a better home loan bank to help us fund the next years growth.

Thanks. And then, just any -- it sounds like we’ve got some pending one time expenses related to the branch closures coming here in the fourth quarter, was there anything unusual in the third quarter as well?

We had three branch closures and some modest expense but less than $1 million during Q3, again we expect $2 million to $3 million during Q4.

Got it. And one last minor one for me, if you don’t mind, the -- just the, the warehouse balance, you guys gave us the average in the deck, what was the shift in that on an end to period basis?

Our Chief Credit Officer has that schedule.

Thank you.

We’re digging deep, sorry.

I’m digging, I’m not sure I do have …

I’ll tell you what, why don’t we go to another question and after he finds it we’ll come back on that one, okay. Do you have any other questions?

No, that’s good for me. Thanks guys.

Thanks. We’ll take the print out, Scott [indiscernible].

Thank you. The next question is from Chris McGratty of KBW. Please go ahead.

Hi. Good afternoon, everybody.

Good afternoon, Chris.

Chris, you made a lot of progress on your loan to deposit taking it from like you said 100 to call it 90. Is this what we should be thinking it settles in kind of heading into ideally a period where rates begin to rise and there maybe risk to industry deposit outflows?

Yes, the only target we’ve set is to be under a 100. So yes, I think being down in the 90 or low 90s range I think is probably a comfortable place given we’re coming off historic lows and nobody can exactly forecast what's going to happen with deposit flows, right. I think 90 is a good place.

Right. On the margin, with the kind of growing consensus that rates are going to be lower for loan growth to lift off, it’ll be a little bit shallower, is there anything heading into budget season that you maybe contemplating but in terms of the balance sheet strategy whether it means putting on some swaps or the hedges or, is there anything material into next year we should be thinking about to kind of either capture somewhat of the lost income that maybe from lower rates?

No, I mean look, we have very purposefully kept this balance sheet short. We have made decisions for a long time with that mind. We don’t feel like we control rates. We control what we do control and we work hard on those things. I mean there aren’t a lot of banks that have managed, invest as much as we have and hold our expenses flat like we have. So no, we’re not contemplating going long on the mortgages or any of that kind of stuff, its way too late for that and we’re going to see this through.

Okay, great. And last question, I mean, I missed it. The balance of the securities portfolio, Chris I think you said $6 billion, did you say the dollars was likely just kind of little bit lower than kind of a steady level?

I didn’t say one way or the other, but we tend to reinvest all of our cash flow and we were pretty thoughtful about deposit inflow levels and so to the extent the deposit inflows continue into Q4, we will probably add the security portfolio to some extent.

Great. Thank you.

And we don’t have the answer to the mortgage warehouse number, but it’s something we can provide later if you’re really curious.

Thank you. And with that we have no further questions in the queue. I’d like to turn the conference back over to Mr. Flynn for any additional remarks.

Thanks and thank you everybody for joining us today. As we’ve said, we are pleased with the quarter’s performance. We had record average deposit growth, stabilizing loan margin, lower core expenses. We’re in an industry undergoing transformation driven by technology advances and evolving customer preferences. These pressures and our lower for longer rate outlook require us to be strategic about all the decisions we make. Our three year program to standardize and modernize our branch network as we said is going to be completed this fall. We’ve spent more than $100 million over the past four years, remodeling, relocating and rebuilding our branch network at the same time we’ve aggressively shrunk our branch footprint. We’ve reinvested all of the savings from branch consolidations and a lot more into spending on technology. We believe these decisions will keep associated relevant and thriving into the future. So we look forward to talking with all of you again in January and providing you guidance for 2016. And as always if you have any questions in the meantime give us a call. Thanks again for your interest in Associated.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.