Associated Banc-Corp (ASB) Earnings Call Transcript & Summary

Greetings. Welcome to the 2020 Annual Meeting of Shareholders for Associated Banc-Corp. I would now like to turn the call over to Mr. Bill Hutchinson. Thank you. You may begin.

Good morning, ladies and gentlemen. I am William Hutchinson, Chairman of the Board of Associated Banc-Corp. On behalf of my fellow associated directors, let me welcome you to the webcast of our annual meeting. Participating in the webcast with me today are Phil Flynn, our President and Chief Executive Officer; and Randy Erickson, our General Counsel and Corporate Secretary. Also joining in this webcast are your directors who are standing for election today. I'll read their names: John Bergstrom, Michael T. Crowley, Philip Flynn, Jay Gerken, Judy Greffin; Michael Haddad; Robert Jeffe, Eileen Kamerick, Gale Klappa, Richard Lommen, Cory Nettles, Karen van Lith, Jay Williams and myself. I now call the meeting to order. We have a quorum present with over 86% of the shares represented by proxy as of 10 a.m. A final tally will be available at the close of the meeting after the tellers have made the necessary adjustments. I now declare that the polls open. There are 4 items which are being submitted to a vote of the shareholders today. If you are a record shareholder who has not voted and would like to vote, please call (877) 236-8652. Again, that number is (877) 236-8652. That number can also be found on the company's website. If you are prompted to leave a message, please do so and a shareholder representative will return your call promptly. Polls will close at the end of our presentations. The minutes of the 2019 annual meeting are available for inspection on the company's website, in the Investor Relations section. Before turning the call over to Phil, let me make a few comments on the Board itself. Personally, I've been privileged to serve as a director of Associated since 1994 and as Nonexecutive Chairman since 2009. I want to thank our shareholders for electing me over so many years and also our directors for the confidence they have shown by supporting me in the Chairman's role for over 10 years. But it is a time for a transition. After this meeting, I will step down as Chairman but hope to serve in the Board for another year with the new designation of Chairman Emeritus. I also expect that my colleague Jay Williams, our current Vice Chairman, will be appointed as Chairman. With his extensive banking experience, Jay is well equipped to handle the position. So my congratulations to Jay. I also want to express my thanks to Phil for the excellent relationship we have enjoyed over the past decade. Although regional banks like ours are currently experiencing some difficulties, Phil has transformed our bank greatly and very much enhanced the quality of our management team. We are a much different and stronger bank today than we were 10 years ago. And now I'll turn it over to Phil.

Thank you, Bill, and thank you, shareholders on the phone, for attending this most unconventional annual meeting during these difficult and trying times. I want to thank our regional advisory Board members who've called in from a number of our markets as well as my many colleagues who are on as well. Normally, I would recap our 2019 financial results in detail. Given what's happened in these past 2 months, 2019 seems like ancient history. The coronavirus pandemic has overtaken our country as well as the entire globe, with devastating impact to the economy and people everywhere. Unlike 2008 and 2009, Associated and other financial institutions in the U.S. are well prepared and positioned to help solve the financial crisis that has engulfed us. So while I will briefly touch on the past fiscal year, my plan is to spend most of my time discussing our response to the coronavirus pandemic. I will describe the steps we've already taken and will take to help our customers and communities in this time of need. I'll also discuss what we have done to protect our colleagues and customers from the virus while remaining ready and able to meet customer needs. I'll describe our results from the first quarter and what we have done to weather the storm. Associated will come out the other end of this crisis having met its stakeholders' needs and ready to thrive in the recovery that will surely come. Before any of that, I want to take a moment to acknowledge my friend Bill Hutchinson. As you know, as he just said, Bill will be stepping down later today as our Board Chair, to be succeeded by Jay Williams and will remain on the Board as Chairman Emeritus. You just heard that Bill joined the Associated Board 27 years ago and has served as Chairman for 10 years. Bill has been instrumental in the success of Associated these many years, providing oversight and guidance to 4 CEOs. He took the lead in recruiting me to Associated 10 years ago. I've appreciated his guidance these past years and look forward to benefiting from his continued advice in his new role. Normally, we would stand and applaud at this time, but we'll save that for the day in the future when we are next together. Associated earned $312 million of net income in 2019 or $1.91 per common share, slightly more than 2018's $1.89 per share. The interest rate environment changed dramatically and unexpectedly during the year, impacting our earnings. Loans and deposits grew modestly. Fees grew nicely, and we aggressively managed expenses to $28 million lower than the previous year. Credit quality was strong. We increased our dividend and paid 11% more in total dividends than 2018. We announced the acquisition of the Wisconsin branches of Huntington Bank during the year and successfully integrated those operations. We also announced the acquisition of the First National Bank in Staunton mid-year and completed that purchase this past February. Turning to current events. Associated took early action to help our customers and communities as well as to protect our colleagues. We closed our branch lobbies and transitioned to drive-through and appointment-only service on March 17. Since then, we have operated 216 branches in this manner. 29 branches have been temporarily closed that were either in stores or lacked drive-through lanes. Because of their location, we still have 4 branches operating as usual, although with extraordinary caution. We began to send our people to work remotely on March 13. With the support of our technology team, we quickly had more than 3,000 colleagues working from home. We've increased social distancing and cleaning in all our buildings where colleagues continue to work. We continue to pay all of our employees who have been impacted by these new work arrangements and have not and will not lay off anyone during this crisis. Thankfully, our actions to protect our colleagues appear to be working. We've had less than a handful test positive for COVID-19 so far. People depend on their bank and my colleagues have done an extraordinary job of maintaining our operations and serving our customers. Despite all the change, customer satisfaction ratings have been high. We are handling a historic mortgage refinance boom with $2.5 billion of loan applications since January 1, double what we had last year. And we've done a great job for our customers in providing access to the SBA's Paycheck Protection Program, which I'll discuss shortly. We were fast to offer a COVID-19 relief program providing certain fee waivers and deferrals of loan and mortgage payments. More than 1,500 customers have received loan deferrals on loans, totaling more than $700 million so far, mostly for residential mortgage loans but also commercial banking and commercial real estate borrowers as well. And we've waived more than $400,000 in fees in the past 30 days. Associated was well positioned to fund an extraordinary amount of loan demand, which grew by more than $1.5 billion from December 31 to March 31, the bulk of that beginning mid-March. Since quarter end, we have funded almost $1 billion more. Despite the significant reduction in interest paid on deposits driven by the Fed's cutting short-term rates to almost 0, inflows of deposits have been extraordinary as well, more than keeping pace with loan growth. We were also ready to take applications for the PPP on April 3, the first day the SBA offered it. Through the efforts of hundreds of my colleagues, we stood up this new loan program in days, modifying systems and creating the needed forms and processes. By the time the first $350 billion of SBA guarantees ran out, we had gained approval for $900 million in loans to more than 3,600 customers. 8% of those loans went to nonprofits and 20% to businesses in low- to moderate-income census tracts. All of these loans were funded by last week. The only way this happened was through the tireless dedication of my colleagues who literally worked around the clock to get our customers these needed loans. The loans funded so far have ensured paychecks for 90,000 people. In the interim period before the PPP started again last -- again yesterday, we worked to get all the applications ready for submittal that didn't make it to approval in the first round. As we speak, my colleagues are furiously working another more than 2,000 loans through the SBA system, totaling another $100 million. We've also stepped in to help our communities this past 2 months. We've donated $150,000 to United Way chapters that are providing frontline basic needs support throughout our footprint; and another $150,000 to organizations providing housing and small business relief in Milwaukee, Chicago and Minnesota. I've always been proud to work at Associated because of the people I am fortunate to lead. The effort of my colleagues these past 2 months, whether working from home or practicing social distancing in our facilities, going above and beyond as with the PPP loans, well, to me, it's nothing short of inspiring. When I said at the beginning of my remarks that Associated will be part of the solution to the financial crisis, this is an example of what I meant. Let me turn to our first quarter's results and some thoughts on the rest of the year. The economy went from incredible health to recession in a matter of days. Nothing like this has ever occurred. Our country has purposely turned off most commerce to slow the spread of the coronavirus. We have moved from full employment to a total of 26 million initial jobless claims in 1 month. Debt, equity and commodity markets have experienced tremendous volatility, but social distancing has worked. Some parts of the country have thankfully bent the curve with declining new infections and hospital admissions, although other areas are on the rise. Here in Brown County, we are experiencing a sudden spike. We have a delicate balancing act in front of us. We need to reopen the economy, but we can't risk an out-of-control wave of infections. Until we have a therapeutic that works, followed by a vaccine, we're going to be managing this reality. It is critical that we rely on the data to guide us, not arbitrary dates, not magical thinking. In the face of this uncertainty, we are preparing to manage our company through a potential credit downturn. We increased our loan loss reserves by $171 million since December 31 to a total of almost $400 million or 1.62% of our loans. This ratio is on a higher end compared to similar banks. We'll be happy if we prove to have been overly conservative. Putting these reserves away impacted our first quarter's net income. We made $42 million or $0.27 per share compared to $68 million and $0.43 in the previous quarter. Loans and deposits grew strongly, fees were up, expenses were down. Our financial results compared favorably to the previous quarter, except for the provision for loan losses. Actual credit results for the quarter were generally in line with previous quarters. Potential problem and nonaccrual loans were up modestly. Actual charge-offs were similar to the previous couple of quarters. But we expect things to get worse and we will be ready. Given the lack of clarity regarding the timing and shape of a recovery from the current environment, like most banks, we withdrew our previous guidance for the year when we announced our first quarter results last week. I can tell you we will manage our expenses rigorously. We have ample capital and liquidity, with $11 billion available from various sources if necessary. We will not buy back shares for the balance of the year and plan to continue to pay our dividend, although a prolonged and deep recession could cause us and most banks to have to reconsider. Our focus this year will be on ensuring the safety and soundness of the bank, keeping our colleagues safe, meeting all the needs of our customers and being ready to participate in the recovery which I am confident will come. Thank you for your support for Associated.

Thank you, Phil. I now declare the polls closed, and we can proceed to the business portion of the meeting. The first item of business is the election of 14 individuals who have been nominated to serve as directors. Mr. Secretary, could you present the results on this item?

Mr. Chairman, each of the nominated directors has received in excess of 92% of the votes cast.

Based upon the Secretary's report, the 14 nominated directors are elected. The next item is the approval of the Associated Banc-Corp 2020 incentive compensation plan. Mr. Secretary, could you present the results on this item?

Mr. Chairman, in excess of 91% of the votes cast voted to approve the 2020 incentive compensation plan.

Based on the Secretary's report, the Associated Banc-Corp 2020 incentive compensation plan is approved. The next item is the advisory approval of the compensation of the named executive officers. Mr. Secretary, could you present the results on this item?

Mr. Chairman, the advisory vote on executive officer compensation did not receive a majority of the votes cast.

Based on the Secretary's report, the advisory vote on the compensation of the named executive officers was not approved. The last item is the ratification of the appointment of KPMG to audit the company's 2020 financial statements. Mr. Secretary, could you present the results on this item?

Mr. Chairman, in excess of 97% of the votes cast voted to ratify the appointment of KPMG to audit the company's 2020 financial statements.

Based on the Secretary's report, the appointment of KPMG has been ratified. Now that concludes our formal meeting. Phil and I will now answer any questions you may have.

[Operator Instructions] As there are no questions in the queue, I would like to turn the floor back over to Mr. Hutchinson.

Well, thank you very much. That concludes our 2020 annual meeting and I thank all of the participants.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.