Ladies and gentlemen, thank you for standing by. Welcome to the Associated Banc-Corp First Quarter 2008s Earnings Conference. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. [Operator Instructions]. This conference is being recorded April 17, 2008. I would now like to turn the conference over to Mr. Paul Beideman, Chairman and CEO of Associate Banc-Corp. Please go ahead, sir.

Thanks Nicole and Lisa Binder and Joe Selner are on the phone call as well and I want to thank you all for joining the call. As you can see from our press release, we earned $0.52 per share in the first quarter and we are pleased with our revenue dynamics specifically with how net interest income continues to improve. We are seeing sustained loan growth in the target categories that we have been talking about and also we are seeing improving deposit flows, which are contribution to net interest income growth. Our credit metrics are largely as we have forecasted them to be with increasing NPAs, but losses remaining stable to what we have seen in the fourth quarter. There are several one time items that occurred in the quarter that largely offset each other. We have a $5 million gain from our interest in the Visa public offering reversal of tax reserves for about 4 million. Fair value accounting changes that impact our business by about $1.5 million. We booked an expense for $2 million to reserve certain funding commitments. We had a $3 million charge for other than temporary impairment which relates to our Freddie Mac preferred stock and we took a provision for in excess of losses of about $7 million. So there is some noise in the quarter. Let me go right to discussion about credit you know, I will make a few comments and we will take certainly all your questions later. In our recent presentation and discussion that we have had with investors we have been articulating that losses will be arranged similar to what we have been seeing recently that non-performers would continue to increase and that we maybe providing at levels that are higher in charges and losses were 16 versus…

Thank you. (Operator Instruction). Our first question comes from the line of Andrea Jao with the Lehman Brothers. Please go ahead.

Hi,

Good afternoon everyone.

Hi, again.

I mean, good afternoon.

Yes.

How should we think about the mortgage banking line going forward. Is a fair value adjustment just this quarter?

Yes. Since this is the first quarter where the accounting standards have changed that should have been, but the entry that defines the difference if you will, this quarter. So we have highlighted it as a one time item. It will have an effect going forward based on a whole series of variable that can impact it certainly, but it’s a change to what occurred in this quarter and we felt it should be highlighted.

Andrea this is Joe.

Hi Joe.

Again the accounting rules allow you now in terms of the fair value measurement, allows you to count for servicing asset in the fair value management and that is now a permanent change. So each quarters we have commitments and we have close loans, we will be able to count that value. So this is just a change in how we are recognizing it in and it will be permanent now. So you should think about it as, part of our evaluation every quarter.

So I guess I mean it’s recurring in the sense that will happen, but this is the first quarter we are changed.

Okay. I guess, it makes the question, how should we think of a run rate?

It is very difficult, because the essence of change is creating volatility.

Okay.

And so it’s very very challenging to predict, with markets volume based its execution in market space in terms of sale of mortgage in the secondary market. All those variables. It is best predictable at the MSR.

Okay.

I would suggest to you that the way we try to think about it, is we try to think about at the activity. And the activity in the mortgage banking business has been strong in the first quarter and we are seeing that continue. Now we will do marks at the end of the quarter, be the same direction, the same magnitude that’s difficult to tell, because it is the point time mark. But I think the fundamental business is doing okay.

The fundamental business is quite strong right now as the interest rates have come down. And Paul has just commented on that, this is the first time, really in the last 5 years, we are starting to see an environment where mortgage demand is strengthening in any real way. And I am very happy to see how the repositioning of our business that we took a few years ago you know, shaking it from the branches, encouraging its dedicated forces is beyond with it, in terms of successes that the volume that they are generating.

And I guess Andrea the easiest way for me to demonstrate that views on our table as we put mortgage loan originate for sale during the period. We have a table and it was 248 million the first quarter last year and this quarter was over 500 million. So again that’s the point mortgage is doing pretty good.

Okay. Great. So I was just hoping to get a bit more detail on your outlook on loans. Can commercial and home equity continue?

We believe that it can. The momentum that we are generating is coming from a whole series of initiatives around improving our selling and marketing effectiveness and it’s coming from business sources. I will say this way, we are able to get this business on our terms. We are underwriting it and originating it based upon the standards that we put into place, that’s not changed in fact if anything is tighter. What's changed is the capacity to execute. And for example, in the first quarter our regional CNI business had it’s best production quarter of the last 8 quarter. And the home equity business, I mean part of it that interest rates have come down and some of it is first linked, which frankly we are very happy with. But just to give you a some color, the LTV on the first linked is about 58% with average FICO scores of around 760. So there is an opportunity and first linked position is a more attractive position at about 70% of it in the first quarter was first linked. So I mean we feel good about that and I believe that this is the time that you can begin to be opportunistic if you maintain those standards.

Okay. It looks likes you guys are in a good place. Okay. Thank you very much.

Thanks

Thank you. Our next question comes from the line of Terry Mcevoy with Oppenheimer. Please go ahead.

Good afternoon.

Hi Terry.

Is it strange for Associated Bank to have four credits of that size about $50 million and move into non-performing status. Was there a specific review of a portfolio done in the first quarter I think Paul you had mentioned it was.

Yeah.

I think related to housing market, just seemed a little strange?

Well I have been here for five years in these corporate portfolio has been pristine for all five. But it is comprised of larger size CNI loans and commercial real state loans that we've sliced and diced for the folks in our recent presentation. And its clearly function of those few credits that are linked to -- well the deterioration is linked thankfully to a few credits not a portfolio, but a few credits that have deteriorated that are linked to the real estate construction, the home construction specifically component of business. We have gone through both in our regional portfolios and in commercial portfolios and aggressive systematic review of all the loans in it. And the non-performers that we are seeing here are a reflection of that and obliviously the deterioration of the credit. I believed and we've talked about this at some of the Q&A sessions that we had with investors over the last couple of months that the non-performers could increase a little bit more and in the second quarter from that review. But again it is going to be a couple of credits, its not going be a portfolio kind of an issue. And face the problem what we see today in the economic environment we are operating in today, we would like to think that after that we are going see things feel little more stable. Now, why we feel that way? If you think back, we are not and I guess this is a good think about being a $22 [trillion] bank. There is 400 customers in this entire portfolio. So can we get our hands around it? The answer is yes, you can. We are looking at 400 relationships in total in entire corporate banks. So if economic conditions change you know good or bad its going to reflect, its going to affect the portfolio one way the other. But before looking at it today and making some assumptions about how we see it, we feel much more confident as a result of going through this review process that we understand what these dynamics are.

And then the in 10-K, I think it was mention that you are going through systems conversion of our core banking platform in mid '08 any additional expenses and why you specifically see that happening?

We anticipate it happening in May. And that’s still up for some discussion, but that’s the plan at this point in time. The run rate expenses right now reflect three conversion types of expenses. Overtime we believed that the conversion is going to increase our effectiveness first of all, because we are up grading our system substantively and can be more efficient as we grow and as we manage and build our systems going forward. So we actually see it as a potential and to dust clears to have a small -- it’s not a massive effect on overall cost, but a slight reduction.

Great. Thanks Paul.

Thank you. (Operators Instructions). Our Next question is from the line of Ben Crabtree with Stifel Nicolaus. Please go ahead.

Thank you. Good afternoon.

Hi Ben.

The salary line, it got me by a surprise little bit it. Seasonally that’s a number you know, one would want to get salary increases and go back on (inaudible) you normally get the sequentially increase and you didn’t. Is that part of the cost containment program, is there anything unusual in there and is this a good base to work from going forward?

There is only moving parts in those thing. In the forth quarter you remember there was a severance charge in there. Our raise is -- that’s vast majority of our raises take effect in March. So the first quarter although it has sub security and also com back in a new [pending] benefits charges and all that the effective salary increase is really won't be seen more until the second quarter. The offsets are that we are always working on being efficient. If you look at our head counts and none of the numbers are in front of me, but recollection tells me that headcount is absolutely flat from January of last year to January of this year and we happen to buy a bank in the middle of the year. So, we in essence through a whole series of actions kept that headcount flat even though we bought Hudson, which wasn't large, but certainly had positions associated with broadening the organization. So we've been working down the headcount and continue to focus on that all along. And so, it’s a constant investment in business in certain areas and a revaluation of expenses and others and the net of that is the headcount basically is flat year-over-year. So, I would assume that there will be some small increase to staff expense going forward just because those raises start to come into effect more in the second quarter, but then we're going to continue to work on ways to be to be more efficient as well. So I guess in a nutshell, it’s a decent place.

Okay, great. The tax rate, obviously you got the special benefit here but looking for a little bit of guidance, I have been using 32 going forward, is that a reasonable number?

Yes.

Then maybe a question or two, following on relative to the large credits. Maybe I reason too much into that, but it seems like some of your recent hires have been more oriented towards the large corporate business. And I'm just wondering Paul, if by moving into that space if you're kind of building more volatility into your numbers with higher average loan size and things like that, whether or not you kind of lose the small variability factor that’s been true for Associated, most of its history?

Yeah, I don't think the nature of the company changes. We've been in the corporate banking business for a decent amount of time before even I got here. So it's long before five years ago. The hires that we are making are part of the strategy to get us better positioned in the stronger market from one point of view. So that’s an investment in capacity to grow. But it's also an investment in the capacity to diversify the revenue streams from this business segment. We're bringing in people into to organization that have expertise in cash management and fee-related aspects of this business that can allow us to broaden those relationships out. So it's less a lending focus, lending driven business and more of a value relationship oriented business. So you can do the lending, but then we can maximize the return on equity and the value that can be obtained from the other ancillary businesses that the loan can support. And the other point I would like to make is that we are seeing some credit deterioration and I think the reasons for it are obvious. From my five years, I'd say this portfolio has been just pristine and it's been managed well as it's been built and I think that’s evidence of it. In this review process that we've gone through, we've gone back and looked at these loans very very closely and there's really very few of them that I would suggest that we would regret having made. It's good high quality customers that have been in existence for quite sometime that for the reasons that again that are obvious. Their prospects have deteriorated. But if we've underwritten them well, if the land is at 65% loan to value and we've applied conservative general standards to it, okay, it’s a non-performing loan, but we are not going to take a 40, 50% charge-off on the thing. We are going to -- if there is a charge-off in at all, it's going to be relatively small and in many cases it's our hope that it just doesn't exist. The optics of non-performing are affected by it because of the nature of a real estate transaction it takes longer to work out of it. Could we sell them? Probably at some point we could some of them. But in this environment right now, the losses you are taking is exaggerated because of just the nature of the markets and the demand. And when we see our collateral position, it's much enhanced over what those levels of alternatives would be.

And these four loans, have they been on the books for a while or are they relatively young for you?

Well, they have been on the books for some time and there have been relationships that we've had for some time.

And then if I could shift gears for one last question. Paul, going back to I guess when we talked in Chicago a few months ago, you were seeing a little more rationale in loan pricing beginning to enter the market, just was looking for an update on that. Has it held and are you still feeling fairly good about that issue?

A little more. I believe that -- well from my perception, banks are still being way too aggressive given what the credit spread can be and it's my expectation in our organization that we are going to maintain that discipline and that we are going to continue to work to improve the relative, the absolute credit spread that we are getting and that's part of the discipline in this environment and bank should be able to get it. The competitive factors and some of your rationality drives, I will call it overaggressive behavior relative to all other credit alternatives that are out there. Banks in today's environment should be capturing higher credit spreads. That's a theory. The practice is intense competition takes some of that away. We are going to keep driving at it, and yeah I do think it is getting better and I do think that on the deposit side of things some of the pressures beginning to be relieved but it's still -- it's not where it should be.

Great. Thanks a lot.

Thank you. Our next question is from the line of Scott Siefers with Sandler O'Neill. Please go ahead.

Good afternoon guys.

Hi Scott

I think most of my questions have been answered, but Paul, I was just hoping if you expand a little on something you said at the outset and then maybe you touched on a little in responding to the last question. But you made the comment about improving deposit flows, which I guess only sounded surprising and that this tends to be your weakest quarter. So I guess I'm wondering what kind of things you guys are focusing on why you see -- why you think things are maybe a -- I guess I took it to mean that things are perhaps a little better than they usually are this time of year, just the overall dynamics on what drove you to make that comment if anything?

Sure. I think there is some external effect. As rates come down that some pressure on commercial demand deposits does get alleviated. So on a portfolio basis, some of the pressure is relieved just because interest rates are coming down and I think that has some effect. But we feel good about what's going on inside the company. Just a couple of facts: Our consumer checking weekly production sales are up over 17% over what they were last year, but our small business checking is up 60% over the last year and that's a function of what we would categorize as a big opportunity of where there has been some under-performance as part of what the company has done and many of the things that Lisa is doing and the management team is doing to focus on that business and we've talked about hiring in business development officers in prior calls. We are starting to see the impact of that and there is 60% increase in small business checking production every time it's going to really contribute to that variable. So in terms of our marketing of our savings products, our money market products, and the core selling around the improved home equity and then linking checking products to that selling process, we are seeing services per household beginning to increase across the entire portfolio and the measures are starting to move in the right direction and over time that starts to build. So we feel that although there is some market effect because rates have come down, we think a lot of it is a result of changing the growth dynamics and the sales dynamics in our retail and commercial business.

Perfect. Thank you.

Thank you. Our next question is from the line of Peyton Green with Ftn Midwest Securities. Please go ahead.

Good afternoon. I was just wondering if you could comment Paul on the opportunity to hire additional capacity at this point of the cycle. Is it getting better or are people still chasing the same talent?

It's hard for me to gauge what's going on in the whole marketplace. It's hard for me to gauge what others are seeing and others are doing, but we have been very successful over the last 12, 15 months of hiring in a category of talent really across our businesses and across our support function from a whole variety of different companies that are enhancing the execution of those businesses and the quality of the support that they receive. We feel very good about how we've been able to attract and bring talent in. It seems to me -- my subjected comment would be, it seems to me that because banks are also suffering to some extent here at some level, there is much less attacking of our people by others. There is much less trying to take our group people, which has been an issue for us in some of our markets. Just because of that they are not hiring. We are in certain areas and as I mentioned the question earlier before, we are keeping our headcount sort of net, but we are also -- we are hiring in certain key areas and I feel very good about the success that we have had.

Okay. And then in terms of the positive certainly on the deposit side activities getting better, where are you still not as pleased with progress?

Around the core business, we are seeing -- it's still on the deposit side. I guess…

Okay.

At the end of the day, it's still on the deposit side and it's still on the -- although we are seeing progress, the level, the potential of commercial deposit balances and commercial demand deposits still is something that we can improve at. So it was one area I would really just continue to highlight and probably the same I have been talking about for the last two years is improving our trajectory of growth of commercial demand deposits and other core deposits that are linked to those commercial relationships.

Okay, great. And then with respect to the HELOC growth, how much of that -- you mentioned that a significant portion of it was first lien, how much of it was first lien versus more typical secondly?

Overall 60%. Between 60 and 65% was first lien and our portfolio have been around 35%, so it's a different mix. There is more obviously more of a whole loan component to it than a line of credit component to it, which historically has been, where we have had greater emphasis.

Okay. So you are saying they are amortizing?

Yes.

10, 15 year loans?

Yes. And because the opportunity is that the housing values have fallen significantly. And if you can do it now at 78%, you are getting a loan at 78% loan to value. And with interest rates coming down, there is a legitimate market there for first lien positions for that's more affluent customers to refinance or to move from company A to Associated. And this is sort of just -- it's not precise information, it's anecdotal. But we are seeing a lot of business, but we are hearing about a lot of business that we have been more countrywidish or brokerage-oriented, now coming back towards the traditional bank where I think the trust relationship is a little stronger.

Okay. And so, I mean this is because the jumbo market has somewhat fallen apart, do you think you are seeing the home equity loans basically replacing jumbos?

That could be a piece of it. We are doing some jumbo business in its own rate. Our mortgage portfolio is stabilizing to some extent to where it was running off, millions of dollars a month. And part of that is some jumbo business that's coming into the first mortgage channel also. So Joe's numbers before don't talk about the HELOC or the home equity portfolio at all, so we are seeing double on the mortgage volume in the first quarter that isn't even in the seasonal peak period, not including the HELOC where the home equity growth that we have put on.

Okay

I was talking about the secondary market, not the portfolio piece, all right.

Okay, great. Thank you very much.

Thank you. Our next question is from the line of Tom Doheney with [Decade Capital]. Please go ahead.

Hi. Good afternoon guys.

Hi.

I was curious; do you sell any MSR this quarter?

No.

No.

Okay, great. And then, I want to make sure I have this right. I may have missed this. So the four NPAs that came in this quarter, it's four loans of 50 million in aggregate?

Yes, 41.

49.

49, yeah, okay.

Is there any geographic area within your footprint where these are coming in particular or is it spread throughout the footprint?

To Chicago. There is no rhyme or reason to it, it just happens to be where the business is, but there is not a geographic concentration.

Okay. And then, you mentioned something about credits secured by land, are the NPAs that came in secured by land?

Well, it's unfortunate but I'm not sure. But basically because they are in the residential, construction residential marketplace there is land involved, yes.

Or some stage of development?

Right.

It could be raw land or projects that have been built or are in a stage of building that where the demand for purchase has…

And because of the size, many of these borrowers have multiple projects and they all have different characteristics, but some are in earlier stages, some are later stages.

So are these local builders regional builders.

In our footprint. They are in our market, these customers are here. Do some of them have products, I mean, projects that go a little further than the three states? I can't answer that explicitly, but generally they are Midwestern customers.

Okay.

Thank you. Our next question is from the line of Kenneth James. Please go ahead.

Hi, good afternoon. A question on the margin, I was wondering I can get your outlook there. It seems like given the way the trends are going, you could optimistically probably hold this level and if not see some modest expansion as we go through the year, would you concur with that?

Yeah. The level with which interest rates fell in the first quarter created some volatility there certainly. But the margin itself, we believe, it's going to be stable around -- I mean, I would call it 4 basis point decline from 362 to 358 stable. In my mind that's not a massive deterioration especially with some of the volume. And then you got the seasonal effect of demand deposits that come back in the second half of the year. So when you balance all that out, I would suggest that it's going to remain in that mid 50s kind of an area.

Okay. Thank you.

Thank you. (Operator Instructions). Okay. Mr. Beideman, I think we have no questions.

All right. Thank you all for participating and for your attention and questions. And, as always if -- feel free to call Joe and myself with any other questions you may have. Thank you.

Ladies and gentlemen, this concludes today's Associated Banc-Corp first quarter 2008 earnings conference. Thank you for your participation and you may now disconnect.