Associated Banc-Corp (ASB) 2005 Q4 法說會逐字稿

Good afternoon. My name is Regina and I will be your conference facilitator. At this time, I would like to welcome everyone to Associated Banc-Corp's 2005 year-end earnings call with Associated Banc-Corp President and CEO, Mr. Paul Beideman. All lines have been lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

I will now turn the call over to Mr. Paul S. Beideman, President and CEO. Sir, you may begin your conference.

Thank you very much and good afternoon everybody. Happy new year and we are glad that you could join us this afternoon. We released our earnings today, as you know, and we achieved $0.64 a share in the fourth quarter, which is up about 12% over last year. What I would like to do is just make a couple of comments about a few of the important variables here and try and provide some light, given the fact that this quarter was the first one that reflects the full quarter of State Financial's passing through our numbers as well, and then I will be happy to answer any questions that you have.

First of all, in regards to net interest income, we were up as you can tell from the numbers $11.5 million, which is 7% over the third quarter and the margin did increase by three basis points, and that is the first time in about seven quarters that the margin has increased three basis points up to 359. And basically, that is reflecting State Financial coming into our financials, all of the balance sheet dynamics around growth that occurred in the quarter, and also our strategy to reduce borrowed funds, which we articulated at the end of the third quarter. And I think we have made some good progress in regards to that initiative.

We have reduced our wholesale funding position by about $620 million. There was an addition with State Financial coming in, but because of our initiatives to use the funding from our maturing investments to reduce those borrowed funds, we have achieved a reduction of about $620 million; that, coupled with the fact that deposits did grow in the fourth quarter faster than loans. So applying those dynamics to the broad funds position, we're down about $620 million. We were also successful as you know as we announced during the quarter in repurchasing about 1 million shares of common stock, again, against this transaction to make sure that all of this in terms of the dynamics are accretive to the shareholders. So we feel we've made very good progress along that initiative and we'll continue to as we move into 2006.

Fees we felt very good about also. Wealth management fees were strong, our deposit fees were strong, our retail commissions were down slightly from the first half of the year run rates. But if you go back and look at us historically, you can see that in the third and fourth quarters from a seasonality point of view. It was higher than the third quarter, but down from first and second quarter, reflecting seasonality in terms of the receipt of those incomes.

And mortgage banking what is about the same, but there is some dynamics going on there. As you can see, we decided that we would sell about 16% of our servicing, about $1.5 billion. And the purpose of this sale, and you've heard me talk about that several times before, is to find ways to improve the quality of our earnings and to reduce the volatility of earnings. And after the First Federal acquisition, we basically reached the conclusion that our servicing asset was somewhat outsized relative to our mortgage origination capability in this environment. And so the sale of the mortgage servicing assets here is reflective of that decision. And in terms of all of the dynamics around it, we feel that there was a net impact to our run rates or to our cores of about $3.1 billion around all of those dynamics.

It is you look at the balance sheet, certainly there's some noise given the fact of State Financial coming in. But I can't tell you generally that -- well, first of all, we've been very successful in the integration of State financial and the retention of their customers. If you look at our deposits in the fourth quarter, you will see that the growth there ex-State Financial us about 10% on an annualized basis, which we feel pretty good about. And if you look at our C&I loans, again, State Financial's dynamics, they're up over 15% and our home equity loans are up about 15%. And we continue to see paydowns in our commercial real estate portfolios and some actual decline in that portfolio. And you've heard me speak about this over the last couple of quarters and we maintain our position at it. We just really aren't going to be chasing volume for unacceptable price and risk, but we felt very good about our C&I loans and our home equity loan growth in the fourth quarter, as well as our deposit growth.

In terms of asset quality, it continues to be quite strong. Our net charge-offs in the fourth quarter were about $3.6 million and 12.7 million for the year, which is around nine basis points in total. Charge-offs were lower in absolute terms in 2005, even after a significant increase in asset size as a result of the two acquisitions. Also, very importantly from my point of view, non-performing loans are down from 115 million, or 83 basis points at the end of '04, to 98.5 million, or about 6.5 of total loans. And, again, down in absolute dollars and significantly down in percentage, even after adding in the asset growth associated with First Federal and State Financial. So we feel really very good about how we have been able to manage through that. And you can continue to see how our expense discipline has been passing through the numbers. With the efficiency rate where we are again at the fourth quarter, pretty flat to where we have been throughout the year, I would suggest that we have successfully been able to get the costs associated with the State Financial acquisition out of our books.

Looking at head briefly to 2006, certainly the environment in 2006, if interest rates stay the way they are, is going to be challenging. But we feel that we have positioned ourselves pretty well to be able to generate some strong results going into 2006 and some momentum. As a result of the acquisitions, we have strengthened ourselves in attractive markets. Our in-store banking system is beginning to gain some traction. We have been able to make some very good hires at several different levels of our organization, all the way from executive management down through retail directors and business bankers to enhance our position. It's the second full year that we've had our line of business structure into place, and I'm talking about 2005 now, so our tactics are much better defined, our priorities are more clearly defined, our growth initiatives more clearly defined.

And around this issue of momentum, it's also I think just as important to talk about what we're not going to be doing in 2006 as what we are going to be doing. What we're not going to be doing in 2006 is integrating two substantive acquisitions with the inherent risks around those integrations. We're not going to be implementing a completely new mortgage model, which we spent much of 2005 doing that involved hiring 100 new commissioned mortgage originators across the system, and we're not going to be reducing our headcount by 10% across the Company. Each of these things generates some degree of internal focus and certainly a lot of management attention, and I'm very proud of how our people have dealt with each of these issues. But we have gotten through those challenging initiatives successfully and we've put them behind us. So we think we can sort of turn our guns outward at this point and focus on execution against our strategy as a result of the investments that we have made.

If you look at 2006 growth prospects generally, I believe that because of where we see our growth going and our wholesale funding initiative, that our margin's going to continue to improve slightly. We would like to see net interest income grow in the high-single digits. We see fee income growing in the low-teens and expenses around 4, 5%, given the integration of State financial into our organization. Provision certainly is going to increase slightly I think from these incredibly pristine levels, but we think asset quality is strong. And as a result of all of this, we continue to maintain as we have in the fourth quarter, we have some positive operating leverage and we believe that we can continue to maintain that positive operating leverage going forward.

So I have covered an awful lot of area here in a very short period of time, but we will be happy to -- and Joe's here -- we will be happy to answer any questions that any of you may have.

(Operator Instructions). Scott Siefers.

Good afternoon, guys. I was just looking for a little additional color on [exhortations] for the margin. First, if I recall I think State Financial's margin was higher absolutely than Associated. So I was curious if you had a sense for how much State added. And then on the one hand, you have the benefit of the deed leveraging, which it could continue to help. On the other hand, the rest of the balance sheet still has to contend with the flattening curve. So I'm just looking for a little more clarity on the outlook. And actually, we'd be looking for three basis points a quarter or if the curve stays flat as it is, would we hope to have that margin just kind of stand pat, see if any more color, would be appreciated?

Well, the clearest color I can give is on the first quarter. And from my point of view, there will be some seasonal impacts on deposits that they go up in the fourth quarter, especially some of these municipal deposits and transaction deposits will go down a little bit in the first quarter. So that will create maybe a little bit of pressure there. But I also believe that when you look at the growth prospects through the year overall, deposit growth I think is going to be stronger in '06 than it was in '05, which bodes well for the margin. I also believe that the systematic reduction in wholesale funds is taking some effect. And, yes, State Financial was slightly better, but it's very, very small, so its impact really is somewhat negligible.

So I see the margin improving at around this same kind of a rate and maybe even gaining some additional momentum as you go later into the year. But certainly, interest rates have a major effect there.

Okay, thank you. And then just one more follow-up question. In looking at the guidance for 2006, does that contemplate any additional MSR sale gains in there?

When we talk about earnings, I know your industry wants to talk about what you call nonrecurring items. We don't talk in those languages. We're making business decisions and whatever business decisions we make will be involved in that number. Whether we're going to have MSR sales or not, we have not made a decision. It obviously will be somewhat dependent on what the environment is like as we go through the year. But, again, when we say we're going to making it, it's earnings. It's not what I think you were trying to point out or get at.

Okay, thank you very much.

Ben Crabtree.

Yes, good afternoon. A couple of questions I guess about the balance sheet restructuring. You obviously shrunk the investments. If I look at the income statement, it looks like you actually sold some of those at gains, surprisingly enough. Is that true?

Ben, the gain on sale from investments were from equity securities. We did not sell anything out of the bond portfolio.

So this was just cash flow maturities kind of a deal shrinkage?

Correct.

Okay, great. The significant reduction in wholesale funds. When you announced this program, it did not sound as though you were sure just how far you were going to take it and what that might mean in terms of stock buybacks. Have you developed that to the point where you could talk about maybe how much total balance sheet shrinkage there would be?

A couple of points, Ben. Our commitment is to do 1 billion to 1.5 billion. And I would imagine we'll be in the upper end of that range. And it's something we're going to look at going forward. But that was a commitment that we were comfortable in making at the time, and again we took this balanced approach because we felt it was right from a whole variety of perspectives which I talked about earlier for us as to taking a onetime action. And we think that's playing through certainly early on here and will continue to do so, and using buybacks to keep it accretive. We have the significant room to do more buybacks. And from my point of view, there's other dynamics around our decision about level of buybacks and the like as well. And we are doing a lot to work hard to reduce the volatility of earnings, to increase the quality of earnings. And to some extent, I remain a little bit baffled as to the significance of our discount to many of the other peers out there that we are compared to. And one of my resolutions is to listen to investors this year and do everything we can do to continue to try and address that discount. But as long as it's there, buying back our stock from my point of view is a very good investment. And so that comes into play too. And we're always going to deploy our capital in a balanced way and we want to be able to be opportunistic and we want to be able to reward our shareholders with a strong dividend. But right now, I look at buying back our shares as a very attractive alternative, given where we are.

And Ben, one other point, and I'm not sure if this is where you were going in terms of your comments. But while we are shrinking the investment portfolio, I don't automatically assume that's shrinking the balance sheet because there are other parts of the balance sheet that will continue to grow. You have to put those two initiatives, I guess our growth initiatives, next to the investment initiative.

That's a very good point. And in the fourth quarter here, our net interest income is up 11.5 million while we are reducing our wholesale funding. So there's lots of dynamics going on that are going to impact that line.

Okay. A couple of more questions. One of which is, if -- I think if I take your comments to heart, Paul, you're saying you're not going to be spending any time this year integrating any large acquisitions, which means you're not planning on making any?

Those things are opportunistic in nature and they come along on a very short time line. We're always going to take a balanced view and we believe that we can create shareholder value by making intelligent acquisitions that increase our ability to enhance our earnings over an intermediate term. And we will continue to look for those kinds of opportunities. But what I am saying is, right now when I weigh all of the options available to us, buying back our stock given where it trades, is to me a very attractive alternative. So I will go that far.

Great. One last question. In terms of looking at your footprint, you have good, solid loan growth. Were there any parts of the footprint where it was notably better than the whole, and any parts where it was sluggish?

The core markets for us continue to drive our growth and they drive it on the consumer side and they drive it on the commercial side. And frankly, it's driving on the fee income side too. Is you look at the increases we're seeing year-over-year in terms of retail commissions and deposit fees and wealth management fees, a lot of that is coming from positioning our ability to deliver a broader product line in these more attractive markets because the companies that we bought really had no capability round those variables at all. So the lift is coming from our ability to expand our product offering to a larger, more attractive customer base.

On the customer loan side, which is where your question was, we're seeing our growth in our core markets where we have been investing in our people. And as we get stable and get those organizations stable and pass the integrations and the like, we look for those markets to really be the high contributors. And that's the way we're laying out our operating plans. The dust is just clearing around the Northern Illinois, or the Northern Chicago suburbs as a result of State Financial and we see that as a very high potential market for us. So we look forward to generating growth from that segment of our business that wasn't there in 2005.

But your traditional Wisconsin markets are generating growth too?

Madison, Milwaukee, down through the Fox Valley -- that is our bread and butter.

Thank you.

Terry McEvoy.

Good afternoon. Your credit trends looked really strong this last quarter and it seems like you were immune to the change in the bankruptcy laws and some of the negative impacts that it's having on some of your peers. Should -- can you just walk through why we didn't see an increase in charge-offs, and maybe will some of that spill over into the first quarter possibly?

The thing that really bodes the best from my point of view, in terms of asset quality, is the reduction in non-performers. And, again, we brought in almost $5 billion of new assets to the Company and the nonperformers are down in absolute dollars for getting the significant percentage drop. We believe that we have a sound process that, it's sort of a hybrid and we remain somewhat decentralized so that we can really I think compete well in terms of delivering these services, but we manage risk I think prudently. And it's a core strength of the company that's been here for quite some time. Didn't come with me, but I appreciate it and we're nurturing it and building it and continuing to focus on how we can improve it. So I think it's a core strength.

On the consumer side of the equation, I would say that we have seen some small blips. But again, the asset quality is really sound and it's really good. So I view those as natural occurrences, given some of the things that did happen in the market. But our increases have been much, much lower than we have seen from many others. So I feel good about our asset quality going forward. it's hard for me to say that it's going to get better, but I don't see it significantly deteriorating, at least over an intermediate foreseeable view.

One other quick question. The asset sale gain of about 2.8 million -- was that a branch sale in the quarter?

We had a branch sale and a facility sale.

Okay, thank you very much.

Andrea Jao.

I'm just hoping to get a bit more detail on the underlying loan growth and deposit growth that goes into your projected high-single-digit net interest income growth. And if you could also talk about pricing competition for both loans and deposits?

Pricing competition in this interest rate environment is incredibly intense. And customers in this environment are driven on the deposit side to the shortest terms possible and everybody is competing very aggressively there and borrowing customers are driven to the longest terms possible and everybody is competing very aggressively there.

We believe that our run rates are going to improve. And if you look at 2005, I cut it into two pieces. The first half of the year, very focused on the successful integration of First federal and a significant reduction in headcount in the Company and our deposit levels were down and frankly, our loan levels because of some of the real estate stuff we were talking about earlier was down as well. In the second half of the year, those levels started to improve. And in the fourth quarter we saw some decent lift.

I believe that we're going to see that stability and that we're going to be able to generate the improved growth in 2006 in any competitive environment because we've improved our position in these markets, we have improved our marketing, we have made a significant investment in people and in dollars in terms of getting our message out there. As a result of those people, we have improved the product line and we continue to focus on improving both the people and the process around selling effectiveness. So you put all that stuff together and eliminate the disruptions of things I was talking about before that we're not going to do in '06, then -- we don't have to do in '06 because of the investments made in '05, prospects for growth improve.

I believe that, again, in this environment, we're going to be fighting for demand deposit growth. But when you compare us to ourselves, I can see us doing better than we have done in the past because of the strategic focus in the investments that we have made. I think the lion's share of our deposit growth is going to come from interest-bearing deposits and that we are comfortable with that in this environment for the long run.

Great, thank you.

Brad Ness.

With a lot of major initiatives being included in 2005, what would you say some major initiatives are for 2006?

Our theme internally for 2006 is execution. We had laid out the strategies, we have articulated what we're trying to do, we have invested in these markets. Now to the salesforce, to the management teams in each of our regions and our businesses, it's time to enhance the execution and to continue to make process that delivering the potential. That is the simple message. And it's around -- it's the marketing, the product and the sales, and that is really where we're spending our time.

And, Brad, you recall if you've seen some of our presentations, we have had six initiatives -- seven now we have -- and those are consistent initiatives. They are the same thing we talked about in '05 that we're going to continue to do in '06 and just try to do a better job of continuing to improve on those.

Okay.

There's nothing real new in that respect.

And with the sale of the mortgage servicing asset of I believe 16%, does that imply that you are happy with the size of that asset currently?

Yes. That was the analysis that we did. And there was an earlier question about this. The sale of 16% in our mind gets us more into equilibrium there, and that is one of the ways we hedge the volatility around this thing. If interest rates were to fall like a stone and originations were to pick up aggressively, then we might think about it differently that way. And to the point Joe made before, we will continue to look at it. And I would not preclude the fact that we would continue to balance it out if we felt that that was appropriate going forward. So it's a management issue, a management decision, looking as best that we can prospectively about where we see that business over the intermediate horizon.

And, Brad, just as a point, when we looked at our process of trying to h8h it, we don't do any artificial hedge. So it is a natural hedge and the natural hedge is production. And we thought, given the environment we're in, we just had too much volatility in the asset. And so we have sort of right-sized it. So yes, we're very comfortable where we are and based on our plans, it looks okay.

Great, thanks.

(Operator Instructions). Andrew Marquardt.

I was wondering if you could give a little additional color in terms of what you're expecting for the rate environment in '06. What are your underlying assumptions behind your margin outlook beyond your balance sheet restructuring?

We're not taking bets, in terms of interest rates. We plan in a very stable type of a scenario. So we're not -- on either end of the curve, we're not applying assumptions to our plans that reflect significant change. And then we try and work through scenario planning exercises where we stress test different variables of our plans, should interest rates move upward or downward in certain bands. And that gives you your risk or reward potentials and those sorts of things. But we don't use interest rates as a lever to try in our own minds get our revenue objectives to where we think they need to be. We want to -- I'm not smart enough or Joe isn't either to figure all of that out. So we just try and keep it stable and in a very tight band. So we're planning flat. The flat rates to now and the flatness of the curve.

Okay. And can you give me a sense of what the remix lift is from the securities portfolio I guess generally? And then what the I guess overall earning asset growth expectations are given all of the actions that are going on in '06?

Andrew, I don't understand your question. The remix -- what do you mean by the remix?

In terms of the lift from reinvesting securities run-off? The benefit there, in terms of the margin -- how much has that been benefiting, or how much do you expect that to benefit?

Last quarter when we announced this, of course we were talking about last time here at the end of October, so there isn't a lot of time that has passed. But we talked about north of 10 basis points maybe from this process. I don't remember exactly the number, but something like that. And I don't have any data to tell me that that's a number we should adjust. So we expected to get some lift from that perspective.

And if interest rates were to go up, the impact would be more positive.

What was second the part of you question? I'm sorry.

Overall earning asset growth expectations.

Again, I think the point we were making earlier is, if we're going to grow loans, and you can put whatever percentage you think is appropriate on it, and you look at our loan portfolio of $15 billion and you say you're going to decline investments of 1 billion, 1.5 billion over the next six, eight, 10 months, you can say that the earning asset portfolio could be flat, up a little bit. So, again, it really depends on the timing of all of the growth numbers. Again, that's not going to be 10% growth in earning assets, obviously.

One housekeeping item. Just curious about the tax rate. It looked a little bit low this quarter. What should one think about in terms of a normal tax rate?

I don't think it's substantially low; it maybe slightly low. Really, there's a whole set of dynamics about how much of your income is tax exempt, and that has a bearing on it. We have gotten some investments and tax credit arrangements (indiscernible) past it. So there's a few things in there. I don't know that it's -- it may be a tad low, but I don't know that it's a lot low.

So maybe bounce around 31 to 33?

Yes, I would think that is fair, and maybe 32 to 33 kind of thing in my mind, but anywhere in that range. Year-over-year, it has not changed very much.

Okay, thank you.

Peyton Green.

Joe, a question on the State Financial acquisition. Their expense rate was about 9.8 million per quarter. How much of that have you all taken out already, and how much should we be thinking about in the first half of '06?

We announced 25% cost saves. The fact that we integrated them almost immediately after we bought them, we integrated them early in November, it is very difficult to separate the expenses. Again, I think Paul said earlier, if you look at our efficiency ratio, our efficiency ratio held. So I would suggest to you that we have a fair amount of the cost expense already. But given that we did the integration in mid-November, I would say there may be a little more upside going into the first quarter next year. But it's go to be hard to see in the numbers.

I would say it's a small amount, Peyton, because just with the dynamics around it and with the speed of the closing and the systems integration, a lot of the cost was really gotten out very, very fast.

So is the 4 to 5% non-interest expense growth -- is that based off of the fourth-quarter run rate?

No, that's year-to-year.

Okay, great. And then the interest-bearing deposit growth was mostly in the money market and CD side. Can you give a flavor for what you're trying to do to drive the money market balances?

Yes. We have put some new products out there that, I guess the most important one from my point of view is a product that we've put out there that indexes the yields at different tiers in those money market accounts so that it is competitive to really the entire universe of money market alternatives. And banks have historically put products out there that have special rates associated with them, but often the interest rates in them become obsolete. And we want to go for the long-term relationships and the indexed product competes very favorably. We are worried that as interest rates move up, the outflows from money market funds that were supporting bank deposits several years ago, the pendulum is going to swing the other way. And we want to make sure that we can compete and that these products do that. And then the real success then is selling off of an attractive product like that and capturing the remaining part of the consumer lending and the demand deposit and other fee-driven services around the relationship.

Okay. And then I think you all had some cannibalization earlier in the year. Did you see any in the fourth quarter, or has that pretty much subsided and you're really bringing in new business now?

A lot of it is new business. There's still some small amount of cannibalization internally that goes on all of the time. But to your point, it's down from where it was when large segments of deposits were created in an environment where all of the rates were [won].

Okay. And then Paul, in terms of the retail program and really gearing up Associated's effort there, how do you feel about the branch manager staff? I know that you all have been going through and they have had some turnover there. Can you address what your expectations are in '06?

Our expectations are high. We have spent a significant amount of time defining what our approach and program is going to be around the in-store banking system and we believe we're going to generate some solid demand deposit, interest-bearing deposit in consumer loan, momentum around that specific segment of the business. And our successes there is going to come from the fact that we're managing it very differently than in the traditional system. And again, we spent a lot of time having owned it for less than a year and are getting it to where we want to be. We have had -- yes, we have had turnover, but I view it positively in terms of, frankly, in terms of regional president, in terms of retail director and in terms of retail branch manager. We've been able to work a good combination of Associated bank people, people from merged organizations and people we've been able to attract to us from other organizations that net-net are going to create a stronger, more effective sales team. And again, a lot of that happened in 2005 consciously. So we feel good about how we have repositioned ourselves in terms of those key staffing positions.

So in terms of the staffing, you feel like the systemwide is mostly complete, or almost all complete?

There's always going to be changes, but the large-scale changes occurred around these staffing initiatives that we took last year that resulted in a net 10% reduction in headcount, but also a measurable, significant change in terms of the composition of the key management positions as well.

Okay, great. Thank you.

Marsella Martino.

I was just wondering if you could give a little bit more the color on service charges on deposits -- what kind of growth you kind of got there, ex-State Financial and what your outlook is heading into 2006?

Sure. Our growth in 2005 is really pretty strong there. And that is a function of bringing in a much larger customer base from First Federal just so the absolute size. But then, we also converted First Federal's fee structure to our fee structure, which was, again, a positive contributor. So I certainly don't see the same level of growth in 2006 and beyond in that category. I think that's a low-single-digit kind of a growth rate for deposit fees. There just isn't much you can do that's new there that's going to create new streams. And if you go too far, you end up in a situation where you actually damage both net interest income revenue and fee revenue because you have overstretched and you lose customer relationships. So I think that the whole industry has reached a point where that's a pretty low-growth proposition.

Okay, thank you.

Our fee growth is going to come from trust brokerage and insurance. That's really where we are strategically focused and it's where we have been generating some double-digit growth over the last couple of years and we're going to continue to focus there.

Okay, thank you.

Eric Grubelich.

Question on that -- there was a question before on the money market deposit accounts. And, yes, there was some pretty significant volume growth there. How much of that was from this new initiative with the new products versus State Financial?

State Financial is pretty small.

That's what I thought. So most of it was from the products?

Yes.

Okay, okay, that's good. The other question I had for you was more on the loan side. And I think you touched on it a little bit before, Paul. I know you talked more at length last quarter just about the situation with -- perhaps I'd call it uneconomic commercial real estate lending. Is that still pretty much the same case as you see it now that it's not making sense?

Yes.

It's gotten better?

No. I think the issue and opportunity I guess from my point of view, and I cannot predict it -- it's really hard to be precise -- is what would the velocity of payoffs be? And if you look at -- from an outside view looking at the Company, how are you making progress in terms of asset generation? It's easy to say the Associated loan growth has been lower than some of the other guys, okay, so they are not growing loans as efficiently and effectively as others. The way I would look at it is carving it into its logical segments. C&I growth is strong even compared to Associated's traditional growth. Home equity growth, a strategic priority of the organization, is much stronger than it has ever been and will very likely grow at those rates out into the future. Real estate construction lending in 2005 in terms of originations has never been stronger. It has never been stronger. The dynamic is, the payoffs of more mature real estate transactions has been about twice what it normally would be.

My question when I sit down with the field and talk to them about it is, have we gotten through that largely? Is it something that is going to continue at that rate? Is it going to continue at half the rate, or is it going to stabilize? A lot of it has to do with interest rate environment, a lot of that has to do with the risk appetite of competitors. We aren't going to chase the risk. It is just an unacceptable to level of risk for us to take for the payment that you're going to receive for the asset. But when you carve us into our segments and look at the Company prospectively, you have to see that we are doing what we said we were going to do, in terms of growing these core components of the business when you look at it in its segmented fashion. Okay?

Last question. You provided good insight on the service charges on deposit accounts, that it's not exactly a growth opportunity right now. But if you look at some of the other retail, retail banking, and I would include trust in that and wealth management, you know the retail commissions, how does the pricing power look in those businesses outside of service charges? Are there opportunities there, or is it very competitive?

Well, everything is competitive --.

But some more than others.

Yes, that's right. I feel just great about our insurance businesses and the level of expertise and the quality of people and the competitive advantage that they bring to the table. And the fact that we have these benefits consulting organizations linked with our business bankers in this environment where business customers are looking for real advice and value in terms of their health care initiatives, we come in with a differentiated proposition. Our business bankers are leading with these guys because the CEOs of their companies are dying for information and help around the biggest single marginal cost increase the variable that they have and we're helping them solve it. So we generate fees and then we generate assets under management and we generate 401(k) programs and pension assets. And that makes our business customers happy, so we generate more deposits and loans. It's a very symbiotic kind of a relationship and it works very, very well.

So on the brokerage side of the equation, we continue to need to invest in more brokers in more attractive markets where the banks we bought did not have them. So at the margin, we should be able to show the revenue increases there that are noticeable. And our wealth management business continues to, you know, we add more people to it, better sales folks again in attractive areas. So the growth prospects from my point of view are there.

And Eric, the pricing of those products are really third-party pricing. We're selling the products that they have and we have multiple vendors we're working with. So whatever the industry pricing is, it's not a pricing power issue for us because we have sources which we get through our customers. It's a matter of being able to sell mutual funds, it's a matter of selling insurance products. That's where we get our revenue from.

And those insurance organizations generate an awful lot of sales in their own right with their own customer base in their own markets, but we have a long way to go before we exhaust the opportunity in our commercial banking base.

Okay, good. Joe, one last thing. The [BOLI] income was up a little bit in the quarter. Is that a better run rate going forward, or do you expect that to climb a bit more? (MULTIPLE SPEAKERS) that was related to State Financial where you may have (MULTIPLE SPEAKERS) more BOLI or not related to that.

Part of it's State Financial and part of it is better returns.

Okay, great. Thank you very much.

We expect that to get a little better.

Okay.

At this time, there are no further questions. Mr. Beideman, are there any closing remarks?

No thank you, we appreciate it.

Thank you. This concludes today's Associated Banc-Corp 2005 year end earnings call with Associated Banc-Corp President and CEO, Mr. Paul Beideman. You may now disconnect.