Philip Flynn – President and Chief Executive Officer Christopher Del Moral-Niles – Vice President and Chief Financial Officer Scott Hickey – Executive Vice President and Chief Credit Officer.

Emlen Harmon – Jefferies Scott Siefers – Sandler O'Neill Ken Zerbe – Morgan Stanley Jon Arfstrom – RBC Capital Markets Terry McEvoy – Sterne Agee Chris McGratty – KBW Ebrahim Poonawala – Merrill Lynch.

Good afternoon everyone and welcome to the Associated Banc-Corp’s Third Quarter 2014 Earnings Conference Call. My name is Shay 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 the conference.

Copies of the slides that will be referenced during today’s call are available on the company’s website at associatedbank.com/investors. As a reminder, this conference is being recorded.

During the course of the discussion today, Associated’s 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 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 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 would like to turn the call over to Philip Flynn, President and CEO, for opening remarks. Please go ahead, sir..

Thank you. Welcome to our third quarter earnings conference call. Joining me today are Chris Niles, our Chief Financial Officer and Scott Hickey, our Chief Credit Officer. Turning to Slide 2, our strong results this quarter reflects growing net interest income trends and improving credit dynamics.

Average loan balances increased 3% from the second quarter to $17.1 billion with equal contributions from our commercial and mortgage businesses. Net interest income grew $4 million, up 2% from the second quarter with two basis points at NIM compression.

Credit trends were positive with declines in potential problem loans and low net charge-offs driving provision expense of only $1 million for the quarter. Non-interest fee revenue grew $3 million, up 4% from the second quarter, expenses increased modestly during the third quarter primarily driven by our fall marketing campaign costs.

We also repurchased 5 million shares of common stock during the quarter. We delivered net income to common shareholders of $49 million or $0.31 per share and a return on Tier-1 common equity of 10.4%. Now let me share some details on our third quarter results. Loans are highlighted on Slide 3.

Average loans grew $495 million from the second quarter to $17.1 billion. This represents a 3% quarter-over-quarter growth rate and a 9% increase year-over-year. Mortgage lending accounted for the majority of growth this quarter. Commercial and business lending average portfolios grew by $184 million or 3%.

Within this group, mortgage warehouse line utilization remained elevated and in fact increased $115 million from the second quarter. For the end of the third quarter we started to see these lines pay down and we expect this trend to continue into the fourth quarter as the traditional home buying season ends.

General commercial loans were relatively flat from the second quarter. We saw several significant pay-offs and line pay downs during the third quarter. In addition, competition picked up even more as all banks seem to be seeking asset growth. We continue to see aggressive structures and pricing that does not equate with the risk.

From a risk-adjusted return on capital perspective, certain transactions did not make sense for us and we therefore been selective. Average commercial real estate loans grew by $51 million during the quarter, multi-family loans continue to make up the largest segment of that portfolio.

Average residential mortgage loans grew by $231 million or 6% in the third quarter driven by continued strong adjustable rate mortgage production. Our mix has changed from 45% variable in late 2013, the 59% in the third quarter. In addition, mix has shifted to the 69% purchase and new construction from 30% earlier in 2013.

We continue to sell substantially all of our 15 and 30 year productions. During the third quarter our mortgage banking unit originated $298 million of loans for sale to the GSEs compared to $276 million in the prior quarter.

Installment loans grew by $75 million or 19% during the third quarter, driven by the purchase of a 45% participation in our Associated Bank branded credit card portfolio which we announced on June 30. Slide 4 reflects the trends that we’ve seen on our commercial line utilization.

Commercial and business lending utilization grew 170 basis points driven predominantly by increased mortgage warehouse line usage. Commercial real estate line usage of 58% has fallen as many projects we funded in prior quarters have been completed and have paid off.

In addition, new construction loans were booked in the third quarter with minimal funding thus lowering our overall utilization. Average deposits increased by $701 million from the second quarter to $17.9 billion, checking balances grew $369 million or 5% during the third quarter and are up 4% from last year.

We also saw growth in average money market balances and continue to see modest declines in time deposit balances. So at the end of the third quarter our loan to deposit ratio was 94%. Turning to Slide 5, net interest income continued to grow and was up $4 million from the second quarter, and up $12 million from a year ago.

Net interest margins for the third quarter was 3.06% down two basis points from the prior quarter, notably both loan yields and funding costs were flat. So, all this quarter’s margin compression is attributable to the investment portfolio.

Essentially, this quarter’s loan growth was all funded with deposits and without further compression of the loan book’s margin. We continue to aggressively manage our liability funding cost lower and have kept interest-bearing deposit cost below 20 basis points, while growing deposits over the last two quarters.

We also benefit from having nearly $8 billion in money market balances funded at 16 basis points. Nonetheless in this rate environment our expectation is for continued modest NIM compression each quarter, year-over-year the NIM is down seven basis points. Non-interest income is highlighted on Slide 6.

Total non-interest income for the quarter was $75 million, up $3 million from the second quarter and up $4 million from a year ago. We continued to rationalize our real estate holdings. During the quarter, we completed two separate transactions where we recognized total gains of $4 million.

In Green Day, we consolidated two branches and sold the excess property. In St. Paul, we were able to sell one of our largest branch buildings and surrounding land and building small and more cost-effective branch. Mortgage banking income of almost $7 million was up $1 million from the second quarter and up $3 million year-over-year.

Insurance commissions were down $6 million from the second quarter and down $3 million from last year. The decrease was primarily related to the establishment of reserves for remediation cost on legacy debt protection products. Turning to Slide 7, total expenses were up $4 million from the last quarter.

Advertising expenses increased $2 million related to our fall marketing campaign and FDIC expenses were up $2 million as growth in loans outstanding contributed the higher FDIC charges.

In this environment, expense management remains key focus and the management is committed keeping our full year expenses flat versus 2013 while still investing in technology solutions to drive operational efficiency. Turning to Page 8, credit quality continues to improve.

This quarter’s net charge-off benefited from one $7 million recovery on a commercial real estate loan with net charge-offs at the six basis points for the second consecutive quarter difficult to matching credit quality getting any better.

Potential problem loans declined $68 million this quarter and $220 million in this balance is 21% lower than a year ago. With these continuing positive credit trends, our provision for credit losses of $1 million was driven by an increase in our provision for unfunded commitments.

Total allowance for loan loss is equal to 155% of total loans and covers a 145% of period end non-accrual loans. And with that, we’ll be happy to take your questions..

Thank you. (Operator Instructions) Our first question comes from Emlen Harmon from Jefferies..

Hi, good evening guys..

Hi..

You talk to the average loan growth in your prepared remarks, I guess speaking to the ended period growth specifically, it was fairly flat quarter-over-quarter, I know, you tend that – number of those tend to slow some in the third quarter.

With that as a backdrop, could you just talk about kind of any changes that you are seeing in the pipeline and whether or not we should view this as in fact a seasonal trend?.

Yes, Emlen, we’ve always encouraged everyone not to get too terribly hung up on quarterly information. Now we thought that we would get about 8% average loan growth this year versus last year and we think we are about on track to do that this year and the pipeline should okay.

But one thing I would say as I mentioned in my remarks is that, we are being selective on transactions where we just don’t think it makes sense from a risk and return point of view..

Gotcha.

Okay, thanks, and then, just on the remediation of the legacy debt protection products within the insurance business, I guess not much an insurance background for me, but could you explain that business for us a little bit, just kind of what that product entails and how we should think about the size of that business as you guys are involved in it?.

Yes, well, our Associated Financial Group is an insurance brokerage. So, that’s a business we’ve been in for a long time, it’s a one of the larger bank owned employee benefits brokers in the country.

This specific issue has to do with a review that the regulators asked us in all banks to do going back now in a couple of years to look at add-on products where third-parties were selling products to our customers.

And so, over the last couple of years, we continue to look back in history at lots of our add-on products and working with the regulators on remediation and refunds to customers in events where we don’t think that the customers got the full benefit for what they are signing up or this is a common industry thing you’ve been reading about this.

So, we have – in the past paid out a significant amount of money to our customers. We established this reserve because we are now taking a look at our current customers but former customers as well and that’s why we established the reserve that happens to hit our insurance line but it’s not specifically part of the AFG business..

Got you, so, as we think about like the products that have been looked at, do you have a sense of just how far through that review process you’ve actually gone with the regulators?.

That’s a hard question to answer, isn’t it? I think we are pretty far along..

Got it. Okay, thanks for taking the questions..

Thank you. Our next question comes from Scott Siefers from Sandler O'Neill..

Good afternoon guys. And the first question, Phil is something you could maybe kind of expand. In the comments you made about the sort of the competitive pressure on the lending side particularly C&I, is that kind of with the larger banks or smaller banks do that simply since we bought base.

What are your thoughts on that?.

It’s broad based. You are starting to see more and more loosening structures obviously pricing is quite competitive. I think I’ve said many times, we’re always willing to be competitive on price for the right transaction.

But when the transactions are getting to be quite mid road as far as structured terms et cetera, you get to the point where you really need to take a step back and think about the long-term..

Okay, I agree, but, appreciate the color and then, maybe a couple of questions for Chris, one, is there any – just given what’s happened with the longer in the curve, just any update on how you think about the series – portfolio and just what you do with cash flows as they come along and then just kind of related to that.

Obviously, from anybody’s guess now what happens with determining overall rates as we look into next year, but if we got a situation where the fed started to raise the short-end but the long-end stayed low such as we’ve got a kind of a flattening of the curve qualitatively, what are your thoughts on how Associated would deal with that kind of a situation?.

Couple of questions and I’ll try to pack a few of them. I would broadly remind you that going back a few years, we had spent a fair amount of time structuring portfolio that was relatively short dated and had significant cash flows.

Over the time, we have invested a substantial part of those cash flows into loans and that has continued and the effect has been a modest but increasing extension of the duration over the course of the last year and a half.

And so they sit here at the end of September, as we said at the end of September, our duration was up to just over 4 up from 3 where it heads up for most of prior periods. So this turns out the subsequent drop in rates, we’ll actually invented in a mark-to-market basis and portfolio values will be up higher.

All of that extension really has come from our investment in Ginnie Mae project loans and we’ve added about $1 billion of Ginnie Mae and that tends to perform fairly closely or closes another asset classes with moves in treasury.

So it’s so well positioned and it also happens to be 0% risk weighted fully backed by US government and highly complementary to including LCR profiles. So from an overall investment portfolio what have we’ve been doing and how that works and how that changed? It’s worked out pretty well.

I don’t see a changing a lot but as we lengthened the amount of incremental cash flows that actually come down and therefore our need to reinvest has come down and in fact if you look the balance sheet page, you’ll note that during this quarter our overall investments were actually net negative.

So we actually had net reductions in the investment portfolio in the third quarter and I don’t have a compelling scenario for how that point will change per se as I look forward absence any changes in our business or activities.

So, with regard to how do we see the broader theme playing out with regard to the rate and curve, I would not that we believe we are fundamentally asset sensitive and we are particularly asset sensitive to the short end of the curve. And so to the extent that the curve was to flatten out by the short end going up will be very prohibitive for us.

We don’t have lot of assets on our balance sheet that are particularly tied to the long end of the curve. We tend to sell all of our 15 and 30 year products but we are not reliant upon that coming back yet again.

And most of our commercial lending inside of five years and even that lending as we see that have the term on it, I’ll remind you that any increase percent of our loans repriced or resent within a year. So we are already beholding to the short end of the curve, not the long end and the good news is that short end can’t go down a lot. So far there..

All right. That’s perfect. I appreciate just kind of the qualitative thoughts. So thank you. And that’s all I have..

Thank you. Your next question comes from David Rochester from Deutsche Bank..

Hey, good afternoon guys. I had a question on capital.

You guys returned a lot this quarter and I was just wondering about how you think about the about the pace of repurchases going forward and then with the TCE ratio now about 7.5%, what’s your comfort level taking that down to 7% or below with repurchases?.

Yes, so saying on a broad basis, I think you've seen in our prior presentations, we have laid out that we believe our Tier-1 common equity ratio has some room to move down. We’ve laid out a long-term perspective that we think that can come down into the nines and we will look at that as a long-term outlook.

Obviously, that’s a long-term and concert with our thoughts around other strategic opportunities to grow the balance sheet that include both on-balance sheet growth directly organic growth, acquisition funded growth and other strategies and we can’t find the right way to get there organically or through acquisition.

We look to repurchase sort of way to get there over time..

And so would you anticipate the pace of repurchase activity is slowing going forward or do you think it remains more elevated as we saw this quarter?.

I think we’ll continue to look to fund loan growth first and foremost and build up themselves that will be our first view.

We’ll look to do M&A as a second lever and to the extent we are able to pull on that levers that would probably cause of the diminish the share repurchase activity and to the extent that we don’t find the right opportunities to either grow the organic growth or growth through M&A, we’ll have to continue to look to share repurchases the way to get to the right answer.

And we are in a position where we have significant Tier-1 capital obviously and to the extent we are not using it for M&A, we don’t really want to stockpile it. We don’t need to stockpile it..

All right, okay.

And then just switching to expenses, it kind of sounds like the higher FDIC expenses maybe a good run rate going forward, but we get some relief with that fall marketing campaign dropping out of the run rate as we go forward?.

So the FDIC, yes it’s tied to risk-weighted assets and should be at a run rate adjustment. The fall marketing campaigns really carries into the fourth quarter, so, for us the campaign starts in the third quarter and carries through the fourth quarter. So you can see that somewhat elevated in Q4 as well..

So, that will drop out in the first quarter I guess?.

Yes, but we’d remind you that we are still committed to keeping expenses flat to last year. So, basically rounding the numbers we are at 168 million in the first quarter and 168 million in the second, 172 this quarter. And we need to be at 680 for the year given that a little bit..

Okay, and then along those lines, can you just update us on the branch refurbishment plan at this point if that’s still on track and you are wrapping that up, I guess, next year is the plan?.

Yes, we’ve been moving through the branch upgrade consistently. We’ve got several projects potentially in flight as we sit here today. Phil mentioned too earlier where we had either consolidated or built something new over the course of this last quarter.

And there is another half dozen similar projects in like currently and there is another half dozen sort of on the drawing board but it all wraps up by the time we get to the third quarter of next year and those have already been identified and I think you’ll start to see the overall cost of occupancy come down year-over-year and we would continue in subsequent periods as we get through the sort of investments..

Gotcha and just one last one regarding M&A.

If you could just update us there, you mentioned M&A, I know it’s been a part of the plan and the strategy, but any updates or changes to your thoughts there and if you could just comment on the volume of conversations, activity in the market anything you are seeing?.

We are actively leading the people, talking with people, looking at opportunities.

But I think as I’ve said publicly fairly recently, we believe that the risk around M&A has substantially increased from an approval point of view from the expectations that whatever you buy you are now responsible for and so we are being – we think appropriately cautious and prudent.

That said, we do believe that finding the right transaction would be a good think for Associated and we are out looking..

All right, great, thanks guys..

Thank you..

Thank you. Our next question comes from Ken Zerbe from Morgan Stanley..

Right, thanks.

Just have a quick question on the loan growth, can you mention you are still looking at the 8% loan growth number for the year and I just want to clarify is that these time full year 2014 average over 2013 average as I guess that – it’s still it would actually imply a fairly decent amount of loan growth roughly 3% in fourth quarter, I’m trying to square that with your comments that….

It’s not that much, it is the average-to-average and as we report all of our loan outstandings on an average basis because we think it gets away from quarter end anomalies. But, it doesn’t require 3% growth to get to 8% average over average full or less than that..

Got it. Understood.

And you are still comfortable given the comments about increased competition and challenging structures across the industry?.

Yes..

Okay. Thanks much. I Appreciate it..

Thank you, Keb..

Thank you. Our next question comes from Jon Arfstrom from RBC Capital..

Good afternoon guys..

Hi, Jon..

Most of my questions are scratched off here but, Chris, you talked about the 6 to 12 branches on the drawing board, is that for refurbishment or changing or making smaller, is that like the St.

Paul example, is that we are talking about?.

St. Paul was a home run. So we won’t get that many home runs. I mean, St. Paul was an unusual situation where we had a very large building that was the headquarters of the bank the company bought many years ago including seven acres of land on a very good corner in St. Paul.

So we essentially entered into an arrangement with one of our real estate developer customers to redevelop all that. They built us a new building on one end, far end of that parcel and are redeveloping the whole thing into a mixed use property and we booked a substantial gain. That’s unusual..

The other one is just I think we are moving away from what would have been $3 million city branches into $1.5 million glass boxes and that continues to be the case and those economics continue to be compelling and we continue to move the orientation of our retail footprint in that direction and it seems to be working possibly for us..

Yes, most of what’s left is refurbishment of existing branches. There are a few relocations and where we would look to sell what we move out of, but we won’t have the type of gains we just reported on a routine basis..

Okay, got it.

This probably goes hand-in-hand, but you have a quote in your release about investing in technology and for operational efficiencies, where is the money going just maybe the major categories and what do you expect to get from that?.

So, we’re in the final throws of updating our website. In fact, we just rolled out new functionality around people making loan applications online for mortgages and then they are coming couple of months, we will have complete redo of the website which will give people a lot more functionality. We think that drives cost we have.

As we talked about before a major tax op initiative to get end-to-end processing into all the commercial loan fulfillment that’s starting to wind up and will be finished early next year. And there is many other examples like that. I mean, if you look at Slide 7, you can see just going back a year we’ve significantly reduced the FTE.

If you roll that back even farther than that you’d see a very significant reduction and a lot of that is been driven by the combination of reducing the branch footprint, but a lot of it’s also has been driven by automating a lot of manual processes..

Okay. Got it. Okay and then just maybe one more for you or Scott.

Just your oil and gas business, gas really hasn’t moved but oil price is down, is there anything we need to think about or worry about that?.

We are going to let Scott talk.

Scott?.

So, Jon, when you look at that business, we’ve done a current review of that and most of our customers are certainly hedged well into 2015 and 2016. So, even with the price volatility we see there, they are well hedged. In addition, we take the NYMEX strip and take a discount off of that and then a further discount.

So, we think we are fine as we look in the short-term. Now for long three to five years decline in oil prices is a different discussion, but in the near term we think we are in good shape..

Okay. Thanks a lot..

Thank you. Our next question comes from Terry McEvoy from Sterne Agee..

Hi, thanks. Good afternoon.

Just to follow-up on John’s question, is most of the energy portfolio reserve based lending and I am curious if any of the portfolio is on the servicing side of the business?.

No, it’s all reserve secured lending. We are not in the service business. We are not in the stream business. We are in the reserve secured business..

Okay, that’s easy.

And then what were the yields on the arms that you added to the portfolio in the third quarter? And then where is that product today? And does it make sense to continue to add going forward if they are lower?.

Sure, I don’t have the production yields for the third quarter, but I’d point you to the tables on Page 7. And the residential mortgage book is predominantly an arm mortgage book, a combination of three one, mostly five ones and seven ones and you see that the yield for the quarter on average was 3.27.

Current yields on what we are doing today, we tend to have pricing right around 3%, but as we go through the process, there are reasons why we sometimes have an adjustment. And so the effective yields tend to come in slightly above 3% even in today’s rate environment.

So a new loan on average booked today would probably north of 3% and at those levels we’re happy to continue to book hybrid arms in our portfolio..

And then just one last question, loan yields were flat which was nice to see.

CRE was up a bit, are there any loans fees or anything kind of lumpy in there to keep that flat quarter-over-quarter?.

No, we didn’t have any big anomalies this quarter..

That’s great. Thanks guys..

It was encouraging, it’s too early to call it, but we are hopeful of a little flattening..

That’s perfect. Thanks again..

And I still like to say, one quarter does not make a trend..

Right, we can hope. .

(Operator Instructions) Our next question comes from Chris McGratty from KBW..

Hey, good afternoon guys.

Phil or Chris, on the loan to deposit change in the quarter, is that just kind of arbitrage between reducing some borrowings and growing some core deposits? Are you guys managing, like you are seeing some of your peers through a kind of loan to deposit ratio in the phase of eventually higher rate?.

Well, we’ve said that, we want to maintain, it’s a fine line, the loan to deposit ratio. We definitely don’t want to be over 100%. But we also want to utilize our deposit. So, this quarter’s results were very good that way. We were pushing up against the 100 in the second quarter and we moved to back down to 94 and good core deposit growth..

Okay, just a last one on the buyback.

So, what’s left in the authorization after many more buybacks, what’s the average fully diluted share count [which is used] in the fourth quarter given the timing of the ASR?.

Sorry, so there is $55 million remaining under the authorization and the last year repurchase we executed was in the third quarter. So that we haven’t executed anything in the fourth quarter..

Okay. .

So the numbers on the press release table are the numbers that we have..

All right, but given I guess, even there – was there anything unusual, I guess I can day count when you did the buyback, the large 5 million shares in the quarter, but is that the way to look at it for kind of the starting point for the average fully diluted share count for Q4?.

The actual shares outstanding on the bottom of the income statement..

No, I understand it. Okay, got it..

Thank you. Our next question comes from Ebrahim Poonawala from Merrill Lynch.

Good afternoon guys. All of my questions have been asked, just one follow-up question in terms of buybacks. Given – and you've talked about this publicly over the last month regarding sort of the caution around M&A, given that the stock is about 7% to 8% lower today than where you bought back in the third quarter.

Why not be more aggressive given your view on sort of near term M&A outlook and general sort of seasonally slower quarter with regards to loan growth and given sort of expectations that you’ll build capital anyways organically over the next couple of quarters so if you bought back some more in pull forward activity, you can still sort of build back capital ratios?.

Was there a question in there?.

Yes, I guess, the question is why not be more aggressive with the stock 7% lower today than 3Q in terms of buying it back given the caution on M&A?.

We are not really in a mode of putting up big signals as to what we want to do on things like buybacks. We were quite aggressive in the third quarter and you are right, the share price is lower today..

Got it. Thank you very much..

Thank you. At this time, we have no further questions. I’ll turn the call back over to our speakers for closing comments..

Well, thanks everybody for joining us today. In closing, we’re very happy with our third quarter results. Despite the rate environment, we are able to grow net interest income and the bottom line. We have started to see the benefits of a larger loan portfolio this quarter with increasing NII up substantially year-over-year and quarter-over-quarter.

So that’s encouraging. To the speaker’s last point, or the questioner’s last point, we’ll continue to be opportunistic as we think about ways to deploy capital and we’ll look forward to talking again with our full year results in January and provide any guidance for next year at that time.

So, thanks again for your interest in Associated and if you have any questions in the meantime, please feel free to give us a call..

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..