Good afternoon, everyone and welcome to Associated Banc-Corp's Fourth Quarter and Full Year 2017 Earnings Conference Call. My name is Omar 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 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. As outlined on Slide 2, during the course of discussion today, 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 can 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 refer to the slide presentation and to Page 10 of 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 conference over to Philip Flynn, President and CEO for opening remarks. Please go ahead, sir.

Thank you and welcome to our fourth quarter and full year 2017 earnings call. Joining me today are Chris Niles, our Chief Financial Officer; and John Hankerd, our Chief Credit Officer. On Slide 3, we have 2017 highlights. It's been a watershed year for regulatory and tax reform. We are pleased to receive regulatory approval for the Bank Mutual transaction this week and we're optimistic about the benefit of tax reform to our customers, our shareholders and our colleagues. Excluding the expenses related to the Tax Act, we reported earnings of $1.52 per common share, 2017 benefited from higher net interest income, improved efficiency, well-managed expenses and higher returns on capital. Our progress against our 2017 priorities is on the slide. Average loans were up 5% from 2016 with growth driven by the companies on balance sheet mortgage retention strategy. We continued to grow our fee-based revenue year-over-year driven by brokerage and asset management activity and boosted by the acquisition of Whitnell. Total non-interest income decreased as expected on lower mortgage banking income. We kept expense growth under 1% and we're able to improve our efficiency ratio by nearly 100 basis points from the prior year. We've now improved our efficiency ratio for six consecutive years. Lastly the credit environment remains strong contributing to our solid growth in year-over-year earnings and dividends. On Slide 4, at the end of the year, the Tax Act was signed resulting in a number of immediate 2017 impacts and an improved tax outlook. For 2017, the company recorded $15 million of Tax Act related expenses primarily driven by a partial write-down of the company's deferred tax assets. These expenses reduced reported GAAP earnings per share by $0.10 for the fourth quarter and full year. Looking forward, we believe the Tax Act lays the foundation…

At this time, we would be conducting a question-and-answer session. [Operator Instructions] Our first question is from Michael Young, SunTrust Robin Humphrey. Please proceed with your question.

Hey, good evening.

Good evening, Michael.

Thanks for all the color on the outlook for 2018 very helpful and what can be a little bit confusing here. But I wanted to dig just a little deeper into the kind of $1 billion of organic growth that you expect next year, obviously resi being a big factor this year. But, do you expect to return to kind of CRE growth next year or any other categories within the kind of the C&I buckets that you expect to be relatively stronger year-over-year?

Yes. Thanks. We would expect proportionately that both CRE and C&I would provide more growth than they did this past year. The pipeline for commercial real estate is pretty attractive at the moment. Commercial, we really do expect the impact of the Tax Act to start to generate more activity amongst our commercial borrowers. There's growing optimism out there and we would expect particularly as we get further into this year to see more activity there. With rising rates, we would expect the residential mortgage business to continue to moderate. So overall, the billion-ish or so growth that we think should be proportionally more weighted towards C&I and CRE than resi mortgage as compared to this past year.

And thanks for that color. And then, I guess maybe hitting on the inorganic side, with the Bank Mutual deal closing February 1 and conversion maybe by kind of fall of this year. Do you look back to the M&A market again to deploy some of the excess capital going into 2019 or how quickly [indiscernible] back in that market?

Yes. So just to correct something you said we expect conversion actually in early summer not fall. So we've -- that timeline has moved a little bit from when we first announced the transaction. As far as M&A there's I think a favorable regulatory environment in place right now. So, we will be open minded as we move through the year as we think about other opportunities.

Our next question is from Emlen Harmon, JMP Securities. Please proceed with your question.

Hey good evening, guys.

Good evening, Emlen.

Just in terms of tax reform should drive better profitability for you guys. I mean does it change your strategic thinking at all in terms of either potential investments as we go through this year. And also just in terms of capital strategy whether maybe we see some more capital fall to those kind of those bottom buckets on your preferred uses of capital?

Yes. So I mean that's a great question. You've seen us take a few opportunities already to deploy the improved bottom line that we're going to have. So we've taken some actions for our colleague base. We think that that's the appropriate thing to do. We know our customers are going to benefit; shareholders are going to benefit from increased net income. And we will take a look at our capital deployment in relation to that. On top of that, we have a number of significant projects and investments that we're undertaking this year. We would have done these anyway, but the effect of the Tax Act makes these things even more attractive for us. As I mentioned we have a significant conversion of our online and mobile platforms which will occur in the coming couple of months. We're going to be converting the commercial deposit platform toward the latter part of the year and in between we'll have the conversion of Bank Mutual. So we've got a lot on our plates this year and the additional income that will come to the bottom line helps all of that.

Got it. Thanks. And then, give us a lot of color on your expectations for next year and I guess maybe I look at all of the guidance you provided for one wildcard would be kind of the credit costs you guys note obviously it's kind of going to have to adjust relative to the environment. I mean is there anything on the horizon that you see coming that that could meaningfully change your kind of credit costs and how are you thinking about the provision, if the environment holds as it is today, how do you think about the provision trending through the year?

Yes. So you just us provide zero in the fourth quarter. I would not recommend that you use that as a baseline. But not to be facetious, I think the oil and gas portfolio has significantly improved at this point. There is still a couple of transactions that could generate some losses. But they're fully reserved at this point. So we think the oil and gas issues that we've lived with the last few years is essentially behind us. There is no other stress of any systemic or meaningful amount sitting in the portfolio today. That doesn't mean there aren't always a few bad credits or losses to take but there are no indications that credit quality is slipping anywhere. So the combination of going into the start of it what appears to be a really benign credit environment will probably dictate that the provision will be driven much by loan growth as well as perhaps the unexpected that might pop-up. So it's a long way of saying I'm not going to put a number on it because we never really can do that. But the outlook is awfully positive for credit quality as we sit today.

Got it. Thanks for taking the questions. Appreciate it.

Our next question is from Scott Siefers, Sandler O’Neill. Please proceed with your question.

Good afternoon, everybody.

Good afternoon, Scott.

Let's see, Phil or Chris, was just something you could expand upon your comments and I think probably Slide 10 is the best place to start just on the sequential decline in loan yields specifically in the commercial and resi mortgage. It sounds like that's nothing more than kind of the cumulative effect of mix shift. But I just want to make sure there's nothing else going on in there, number one. And then, number two, how long would that dynamic be expected to continue or is it transitory or something that that goes on for another quarter or two?

Yes. So the resi mortgage drop was really driven by prepayments that was most of it. Commercial we had some interest recoveries in the third quarter, so that that drove some of that decline. We don't think there's anything as we sit today systemic which will drive any of those yields down in fact that we should be benefiting as usual starting this quarter particularly on the commercial lines and the commercial real estate lines from the Fed increase we saw in February.

In December.

I'm sorry in December. I mean we will be seeing the benefit as we get into February. So yes, I don't think that there's a systemic issue there.

Okay. All right. Perfect. Thank you. And then, Chris just sort of a geography question on the unusual items. So the each is small individually but with the exception of the one roughly $1 million in costs related to the compensation actions, is everything else in the tax line obviously the DTA, the $12 million DTA thing is, but the low income housing stuff and then that other accelerated write-off are those both also in the tax line or do they shop somewhere else?

So 13 of the 15 are in the tax line. The compensation items are in the compensation items and the other one is the combination of other things.

Okay.

But 13 of the 15 are on the tax line and one is in the personal line.

All right. Perfect. Thank you guys very much.

Our next question is from Chris McGrady, Keefe, Bruyette and Woods Incorporated. Please proceed with your question.

Hi, good afternoon, and thanks for taking the question. I mean Chris maybe for you. Anything to do with the acquired investment portfolio from -- that's coming over or should we think in just -- add your 6.6 and they are roughly $0.5 billion, and you got to settle out around a $7 billion.

Obviously, we have an opportunity to consider options but at this point in time we're not communicating anything about our intentions?

Okay.

Maybe the total will be about 7. The issue will be do we -- do we reorient their portfolio in some way and we are thinking that too.

Okay. So 7 is the right size. Okay, great

Yes.

And then on the expenses, just to make sure I understand the guide, the 780 is that on an operating basis, the full year or is that suggesting just take the 195 for the fourth quarter and annualize it? I'm just trying to get...

So, we are doing both, so the 780 is the full year number on an operating basis, the 820 is the full year number for GAAP. It's also going to be about 190 to 195 in Q4 of 2018. So you'll be able to look at Q4 2018 and you'll be able to tell us we are on the right path.

Got it. Got it. And then, maybe one more on credit the drop in the potential problem loans, I might have missed in your prepared remarks, is that just oil and gas bookers or anything else that shouldn't permit? Thanks.

John Hankerd is here, our Chief Credit Officer, with mostly oil and gas.

Was mostly oil and gas, yes.

Yes.

Thanks Phil.

Our next question comes from Jared Shaw, Wells Fargo Securities. Please proceed with your question.

Hi, good evening.

Good evening, Jared.

Yes. I guess on the deposit side as we go through and see the next round of rate hikes, what are your expectations for deposit beta there? And in terms of the mix shift, do you feel that we've sort of stabilized here or should we still expect to see I guess a continued trend towards time?

So, first on the overall deposit betas. Deposit betas is generally for our core retail books have been benign and we don't necessarily see that shifting although we do see a competitive build up. Our anticipation is that as perhaps another couple of Fed actions take place we'll start to see that build a little more. So built into our outlook is an expectation that there will be a little more responsiveness in retail in 2018. We haven't necessarily seen that yet, but that's certainly an expectation going into 2018. With regard to the mix, we continue to see a mix out of pure DDA and into interest bearing on the consumer side out of DDA and money market and in that time we'll probably continue to see a little of that shift. At the same time, as you're aware, we've been reducing our use of network deposits as core deposit growth has continued to be sort of available on a marketplace at a reasonable cost. And so I think you'll see that mix is well balanced itself at least through the first quarter and into the second when we normally have our typical seasonal fall-off in deposits and then reversing itself back in the back half of the year.

Thanks. And then, with the recovery here in oil prices what's your appetite for growing that portfolio with your improvement in asset quality as well?

Yes. We have continued to be active oil and gas cylinders throughout the downturn, I think we've talked before that. In these kind of businesses you don't try to jump in and out of the market. So out of the 56 credits that make up our loan portfolio, 22 of those are new since prices declined about half of our commitments and almost half of our outstandings are new since prices reset. So we continue to have a strong appetite and oil with a 6 in front of it is certainly helpful as far as generating activity in the oil patch.

In terms of looking at that as a percentage of the loan portfolio though so keeping pace with growth, the overall portfolio or could we see that picking up as a contributor?

Well, as far as compared to the whole portfolio once we add Bank Mutual to it, it's going to fall as a percentage and by the end of the year, it was back to the same percentage with just Associated that would probably be surprising. So it is an overall percentage of the portfolio by the time we get to year-end. It's probably where it is today or a little lower just because of the Bank Mutual acquisition.

Great. Thank you.

Our next question comes from Terry McEvoy, Stephens Incorporated. Please proceed with your question.

Hi, guys. Good evening.

Good evening, Terry.

Just start with the two questions on non-interest income. The up tick in the fourth quarter in the brokerage line, was there any one-time payments or seasonality within that business. And could you just talk about the outlook for 2018 specific to that line.

So there was no material one-time items, it was just a positive and equity market background and an opportunity for folks to do a lot of year-end thinking given on different things that drove probably some of the activity and contributed. And we would expect to see that continue on a buoyant path provided market conditions remain positive. We would note down the asset management fees that was driven by the Whitnell acquisition, which is also benefiting from the market environment as well.

Sure. And then, as a follow-up question, Phil, the branch count, the branch networks come down lot over the years, what's your thought on standalone Associated whether that number will continue to come down and whether any of those expense savings are built into forward projections?

Yes. So the legacy Associated bank branch network has been pretty stable now for good couple of three years. So we did most of the heavy lifting in the past. With Bank Mutual of course, we are taking their 50-odd branches down by almost 2/3rds 60% and that will put us in good stead I think. There is 12 new markets we will be entering across the state of Wisconsin with the Bank Mutual acquisition and we are comfortable with each of those locations. One of the really great benefits of this because of Bank Mutual sitting inside of our footprint and as we consolidate these branches we are going to create an increasing number of large branches which of course become more efficient. We will have a significant number of $100 million plus footings branches, which is great for driving our efficiency.

And just one last one for Chris. Any purchase accounting accretion on Slide 16 built into any of those expectations on the margin or NII?

No. We haven't built any. We are in the process of going through the market and start within the credit mark as they would like to be a modestly negative interest rate mark and it's in our math we sort of take that in consideration, but that is not an explicit accretion expectation going into this.

Okay, great. Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Philip Flynn for closing remarks.

Okay. Well, thank you for waiting all through that. I know its little complex. I hope that we provided you enough detail in the slides to be able to answer some of your questions. But, it's always -- please give us a call, if you have any additional questions. And thank you for your interest in Associated.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.