Associated Banc-Corp (ASB) 2006 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the Associated Banc-Corp second quarter earnings conference call.

[OPERATOR INSTRUCTIONS]

It is now my pleasure to turn the floor over to your host, Mr. Paul Beideman, the President and CEO of Associated Banc-Corp.

Sir, you may begin your conference.

Thank you very much, and Joe Selner, our CFO, is here with me, as he always is, and I want to thank you all for participating in our call this afternoon.

As you can see from our release in the second quarter, we earned $0.63 a share, which is compared to $0.57 last year for an 11% growth. And net income was up 13% to $83.5 million.

There's a lot going on, certainly, in those numbers and what I'd like to do is walk you briefly through the important components of it and then we will be happy to answer any questions that you may have. Let me start with the margin.

As we predicted at the end of the first quarter, our margin did recover 11 basis points from 348 to 359. The improvement is largely the result of the reduction in wholesale funds that took place in the first quarter but also our greater focus on price discipline within the second quarter.

Our reduction of wholesale funding continued through the second quarter, as well. And since announcing the initiative in September of '05 and net of our acquisition of State Financial, we have reduced wholesale funding by $1.6 billion and reduced the percentage of wholesale funds from 34% to 27%.

And you will recall that we committed to accomplish about a $2 billion reduction in wholesale funds, so we would like to think that that initiative, as we grow deposits through the rest of the year and investments mature, we'll continue towards that $2 billion number.

Importantly, however, in absolute terms, the amount of net interest income also increased and that's even with about a half billion dollar reduction in total earning assets as a result of the wholesale funding initiative. Average loans in the second quarter were up about $188 million, while average deposits grew a corresponding amount.

At the end of the quarter, we did experience some commercial payoffs that impacted the point to point growth. We've been feeling pretty good about our sustained growth through most of the month this year but did see, late in the quarter, some pay downs.

We've had several medium-size companies actually sell themselves and that in fact puts them in a negative impact in terms of the point to point balances in the second quarter and as a result would obviously put a little bit of pressure on our growth rates in terms of commercial loans in the third quarter.

If you look at our commercial businesses, we've seen, through the second quarter, a reduction in line utilization and frankly some redeployment of balances, lowering--lowering loan demand but also putting some pressure on commercial deposits here in the short-term.

But we feel very good about our sales efforts and we are definitely strengthening relationships and adding new deposit based relationships to the Company and as these usage trends normalize, we think we're going to benefit from that over the intermediate term.

In our retail businesses, we've seen pretty solid DDA growth and our net new account DDA growth really continues just to strengthen, both in terms of sales and retention. Our in-store system is performing really at rates that are exceeding my expectations and we're seeing strong growth there and as you can see from our results, our consumer loan growth continues to be quite good.

In terms of fee income, we thought we had a strong quarter, reflecting continued momentum in our asset management, brokerage and insurance fees but also, importantly, in our deposit and card based retail fees. Mortgage banking, while it's now certainly is a less significant portion of our fee revenue, also improved.

Asset quality was strong in the quarter and has been consistent over the last several quarters. Loan losses were $3.7 million or about 10 basis points of total loans and our allowance for reserves is about 1.32% of total loans. Non-performing loans fell slightly to right around $100 million, $103 million. We feel very good about that and it's really a major focus of our strategic priorities.

If you look at our non-performing performance in some of the segments of our business, our commercial non-performers are essentially flat since the fourth quarter of '07, even having significantly increased the size of the Company during that period of time and our retail non-performers are down in absolute terms, again, having added significant assets from the acquisitions that we've done.

Our expenses, we feel, also are very well controlled in the quarter. They grew about $1.2 million and our efficiency ratio is hanging in there, right about 50%. Just a small note on expenses, you might notice in the staff line we've seen an increase to the run rate in benefit expenses in the second quarter and there's a couple of things going on there.

We've had some severance expense in the quarter. We have moved our bonus accruals a little bit, but the most significant impact is we--we added a one-time entry, if you will, to all med health care expenditures in the quarter and netting all of this stuff out, in terms of how we see this going forward, is probably about a $2 million net effect in the second quarter that we wouldn't consider to be run rate.

That's pretty much it in a nut shell in terms of some of the high points in the business, in terms of our performance in the second quarter. I will be happy to answer any questions you have about that or about how we see prospects around the corner.

Thank you.

[ OPERATOR INSTRUCTIONS ]

Your first question comes from Scott Siefers from Sandler O'Neill, please go ahead.

Good afternoon, guys.

Hi, Scott.

I was just wondering if you could comment a little on the margin outlook. You've obviously got the lift from the deleveraging. I'm imagining that that's basically into the run rate on the margin right now, so, I'd be curious, just given where we are with the old curve, how you see things and then separately, I think usually you get a little--a little seasonal bump up in non-interest bearing deposits, but it looks like on an average basis they were kind of flat. Is that due to the commercial dynamic that you discussed, Paul? Or anything else? And if you could just sort of elaborate on that, please?

Sure. Let me take the second part first, and basically you're exactly right. Our retail demand deposits are showing improved growth from year-over-year but we've seen this effect in our commercial balances, demand deposits included, that really has put a little bit of a damper on that in the second quarter.

Now, I continue to feel pretty good about where demand deposits are going. Our net accounts are growing both in commercial and consumer and in small business. And I feel pretty good about where they're going to go in the third and the fourth quarter and we should see some seasonal lift from that.

But in the short run here, we have seen some of our commercial customers using their balances rather than borrowing. If you think about the margin all in and there is certainly a lot of variables that can affect it, from our point of view, as long as the overnight rate and the 10-year rate are essentially the same, this is going to be a very challenging environment.

And in terms of asset growth I've said this several times and I will continue to say it, we're not going to go out on a limb to take duration risk or credit risk or compromise our pricing discipline to feel better about our growth in the short run. And I'd like to think that what we're trying to do is position our businesses to be stronger in markets and with product capabilities and to create a stronger balance sheet so that over the intermediate run we're going to be able to manage and see our performance grow. And I think we're doing those things.

If we wanted to see loan growth at greater rates, we could do that. We could compromise on price, we could compromise on terms, we could match the terms that we're seeing. We choose not to do that.

Having said all of that, from my point of view, I think that we're going to see good progress on the demand deposit side of the equation. Continued--I will call it healthy deposit growth. And if you look at it, our--our absolute growth in deposits maybe isn't breathtaking, but you compare it to what was about a $600 million decline in deposits in the first half of last year and the marginal effect, I think it is pretty significant.

Having said all of that, depending upon what the Fed does and where some of these external factors come into play, we could see some margin pressure in the third and fourth quarter and I would estimate in the 3 to 5 point range. Or if we're successful at our pricing initiatives and we execute on those things it could stay flat in this environment.

Okay, thank you very much.

Thank you. Your next question comes from Kevin Reevey of Ryan Beck, please go ahead.

Good afternoon. Congratulations on a nice quarter.

Thank you.

I noticed that there was a jump in your 90-day category and in your other real estate owned. Can you talk a little bit about that?

Kevin, specifically which categories?

Other real estate -- looked like --

We have one property. Yeah, that's one property going into there.

It moved in there. That we're working our way through.

Okay. And then --

We don't expect any losses.

And the 90-day category? That was up also, a little bit?

It's up a little bit and most of that is administrative. There are just some things we need to work through. We have just--just have some credits that we have to get current. We don't expect any problems in that area, either.

And watchless trend, how are they looking?

It's pretty stable.

And then, Paul, earlier you mentioned that you're seeing line reductions on the commercial side and at the same time you're seeing balances in your commercial DDAs come down a little bit. In the event that this continues to happen, do you think that this will in any way hamper your deleveraging strategy?

Well, if we need to do another couple of hundred million dollars in each of the next two quarters, I don't know that there's a big execution stretch to get to there given what we've been able to do here. I guess the balance would be from a loan growth point of view, whether or not earning assets would be slightly lower than anticipated or slightly higher based upon loan growth net-net. But, we want to continue to execute that strategy going forward.

From a pricing discipline point of view, I feel pretty good about what we've been able to do, especially late in the second quarter. We've been starting to really move loan yields and constrain if you will deposit costs in some important categories that are creating a little bit of margin momentum for us. So, sustainability there of being able to keep doing that is--is an important issue, too.

But Kevin, I'm glad you raised those issues about the non-performing loans for a minute. And the reason we're trying to stay as disciplined as we can from a credit point of view is that--and I said it earlier, but from the fourth quarter of '04 through the second quarter of '06, our non-performing loans are flat. When you add it all together.

They move into categories a little bit. But I mean we're just rock solid there and we want to keep that. We think in this environment that's an area of--that's significantly important going forward, and as interest rates keep going up, it's not illogical to see business change their borrowing habits a little bit and the utilization of their funds a little bit.

Because they're feeling the same kind of pressure from interest rates and the cost. But all of those variables, over time, affect what businesses do and the health of those businesses and we're very concerned about making sure that we maintain as much discipline as we can in--in an environment that's very different today than it was two years ago.

Great, thank you.

Thank you. Your next question comes from Andrea Jao from Lehman Brothers, please go ahead.

Good afternoon.

Hi.

Quick question on tax rates. It's higher already than the fourth quarter, but still lower than previous quarters. What's a good run rate to use going forward? And if you could tell us a bit more about the $4.2 million reduction in income tax?

Well, we can't really talk very much about it, but it's really just a settlement with--with various government entities and the like. But I think the best way to look at it is to take the first and second quarter out and go back and look at the last three or four quarters before that. And you would calculate a run rate that's probably in the mid-32's and historically that's where we've been.

Okay.

So, all things being equal, I would suggest that that's reasonable going forward.

Great. Thank you.

Thank you. Your next question comes from Terry McEvoy from Oppenheimer, please go ahead.

Good afternoon.

Hi, Terry.

Just the statement in the press release that you settled the March '06 repurchase of 4 million shares. Does that imply that the broker dealer that was repurchasing the stock for you since then has fully completed that buy back?

Yes.

Yes.

Okay, and with tangible capital, 6.69, looks like the highest level in the last five quarters. Could you talk about your appetite for buy backs going forward?

Well, we have not been hesitant to use buy backs. I believe what, from the first quarter of '05 to the first quarter of '06 we returned over 100% of the earnings of the Company to shareholders through buy backs.

And in this environment, given where maybe you need to be to generate loan growth, buying back stock is certainly an attractive alternative. So, I can't be specific about it, but it's--it's something that we have not been hesitant to use and will continue to do and we have the authority to--to buy back significant stock.

And then were there any more MSR sales completed in the second quarter, like there were in the fourth quarter, I believe?

No.

No.

Thank you very much.

Uh-huh.

Thank you. Your next question comes from Eric Grubelich from KBW, please go ahead.

Hi, good afternoon.

Hi, Eric.

Yeah, thanks. Thanks for a good quarter. At least it's nice to see one larger bank get it right.

Thanks.

The question I had was something you just commented about, about the stock buy back. Where's the program balance now?

3.5 million shares left.

3.5 million? Okay. And then the other question I had was on the deposit side.

You had a big bump in the MMDA, the money market accounts. And if I remember correctly, I thought you came out with a new set of deposit products earlier this year. Is that what's driving that?

Predominantly.

And is there a teaser rate related to it that the money might be a little hot in run-off next quarter?

It's really not a teaser environment. For higher balances, we will pay rates closer to--towards Fed fund. And our view over the long run is that if you index the product and provide a fair return to customers in that environment, in any environment, that the balances should be relatively stable in that account.

It might move back and forth from it to certificates or other instruments, perhaps, but if it's indexed, the customer doesn't run the risk of the bank pulling the rug out from under them.

Okay. But that, again, is that what--it's that account that's driving that average balance up nicely?

Yes, yes. It's the single driver in that category. And then some business deposits, as well.

Okay. And then the other question I had, just to clarify, Paul, the comment you made about the margin, where if things don't go well, that you might be looking at a three to--I think you said a three to five basis point range. Was that per quarter over the next couple of quarters? Or in total from where you are now?

Eric, let me try that a little bit. We have a pattern here at Associated that toward the end of the year, non-interest bearing deposits grow, and that should help the margin.

So, what we're suggesting is if that doesn't happen, if that does happen, we would expect it to be flat to up a little bit, but if it doesn't happen, this--this three to five basis points is sort of a--a rate we think we'd be operating at, given the current mix of our loans and deposits.

Again, just to clarify --

It's run rate a little bit lower. Three to five lower.

All right, so that's not--that wouldn't be three to five third quarter and another three to five in the fourth quarter?

The fourth quarter may be a little more positive than that.

Yeah. Okay. Okay. That's--but could it occur in the third quarter?

Yeah. It's so imprecise. And I've been feeling as if I need to be conservative around this variable because in the last few quarters when things can go one way or the other, they usually go the other.

And that was different in the second quarter, we started to feel pretty good about some of the hard work our people were doing out there and that sort of thing. But, what's the sustainability? How long is it going to hold in? What's the economy going to do? What's the price of oil going to be? All of these things ultimately affect what's going to happen on the margin.

Paul, I understand your point. There's a certain amount of imprecision with it, but this general guidance is helpful rather than no guidance at all. So...

Sure.

Don't worry, we--I won't nail you to the wall if it doesn't happen next quarter.

Thank you.

And just one follow-up on the securities portfolio. So, you continue to liquidate and in order of magnitude, should we expect about another $400 million of cumulative to come off the books in the second half?

In round numbers, yeah. Close to that range.

Okay.

Yeah, I think that's a fair way to look at it.

Okay, and was there any other--Joe, was there anything else of a non-recurring nature in any of the revenue items or not? On the fee side?

No, I think we were pretty clear in the disclosures. I mean obviously you can look at the asset sale gains. You know those and we disclosed the evaluation issues for mortgage banking.

Nothing else?

But we didn't talk about those two specific things, but no, there is nothing else to tell you about.

The only thing we really didn't clarify probably as well as we could have in the press release is the expense thing.

Right. And this is a real small thing, but the bowie number for the quarter, was there any death benefit there? Or is that a new run rate?

A new run rate.

Okay. Thanks. Thanks a lot.

Sure.

Thank you. Your next question comes from Ron Reidel from Reidel Financial, please go ahead.

Good afternoon.

Hi, Ron.

I recently did a study on my capital I.Q. program just relative to, and I'm addressing share price. And I found that the diversified bank holding companies, that would be companies that have an investment banking component had substantially higher P.E. ratios than the regular bank holding companies.

My question is is this a business that associated--has looked at in if the past or might look at? And maybe you can address the issue of why those P.E. ratios are so much higher. I found 30 companies anywhere from 16 times to 30 times earnings with out of the 39 of them, 9 of the bank holding--diversified bank holding companies up to a 30 times earnings, but this is not recent information. It's about 60 days ago.

It's not a business that we have thought seriously about getting into, probably more than for any other reason that we just don't have the expertise or management capabilities without buying it to get into it on a de novo basis, certainly and I really--it's hard for me to gauge why that would be the case.

I would also wonder if businesses that are in that area predominantly don't also, over a period of time, have maybe more volatility of earnings, as well. But I don't know. It's--I guess I'd wait to read your next report on it to understand it better.

All right. Thank you.

Thank you. Your next question comes from Andrew Marquardt from Fox Pitt Kelton, please go ahead.

Hi, guys.

Hi.

Maybe if I missed it, could you just review what your underlying assumptions are? Behind your margin outlook for the Fed and the yield curve?

Exactly what you see today.

So, the Fed stock is where it is?

With the risk of maybe one more increase. So, we're looking for a flat to slightly inverted yield curve for the intermediate term and maybe there's an increase in there, but maybe not. Hopefully not.

Okay. And how would the margin respond if the yield curve improved to a more normal level, if you will, or simply just wider? Would the margin--go ahead--

Well, it depends if long-term rates went up or short-term rates went down, to normalize it. If short-term rates went down, I guess logic would say that you would experience to some extent the dollar for dollar reduction in expense that we experienced going up from the wholesale funds.

And as we continue to grow, our capability to grow demand deposits and the like at better rates than have been historical for Associated, that that could bode well and it would also, I think, create more demand, perhaps, for businesses to borrow than to aggressively deploy their--their warehouse balances.

If it was the long rate going up with short-term rates staying where they are, that creates another set of dynamics that might take place over a longer period of time as yields on the asset side of the balance sheet improve.

Okay, thanks. Separately, can you give us an update on the deposit initiatives you've had in place for a little while now? I know you mentioned that account--PDA account growth is tracking well. Is there any kind of harder metrics that you can share with us or give us an update?

Well, we're seeing 40% improvements over run rates from last year and higher than that in the in-store systems. We're also seeing significantly improved retention and that's probably logical given the fact that we were going through some major system conversions of First Federal and later in the year State Financial. And as I've talked to you guys about 10% internal staff reduction focus.

So, I think this--it's not illogical to just naturally get a benefit from that, but we're starting to see some real lift on markets like Madison, where we've able to invest in significant distribution capability.

But our branch system is generating significantly more micro business, loans and deposits than they have been in the past. So, it's a maturing of the sales process and--and just very visible from my point of view net flows of--of these accounts and customer relationships, which over time turn into balances.

Are there any particular reasons or pockets that are particularly performing better or worse?

Sure, it's--different really in every one of our regions, but we--we're seeing this lift across really the entire retail system, where a large percentage of the branches are showing a meaningful lift in net demand deposit accounts and the in-store system, 50 stores really throughout our footprint, are showing it across the whole in-store system.

That's more sales management than anything else. That's getting people running the thing that--that are driving for that performance on a sustained basis and taking advantage of the opportunities of all of those non-customers that are--that are right there in your--in your traffic pattern.

And what would be kind of examples of kind of the better and worse markets? I know you mentioned Madison --

There's some branches in the system where we're seeing no lift at all. And you've got to look at that and say, okay, is that the market the branch is in? Is it how it's being managed? Is it the marketing around it? There's all sorts of things you need to consider.

But we're--one of the--one of the key senior sales managers in our retail system is focusing on, right now, sort of managing horizontally through the whole system 50 branches that we think we can improve the performance in.

So, he's working with marketing and with the sales leaders in those regions to target those branches specifically and focus on what they can do to get those branches to move and we're going to find out by really putting a microscope on it, what the reason for the under performance is and then do our best to fix it.

Okay. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]

Your next question comes from Brad Ness of Friedman Billings, please go ahead.

Guys, how you doing?

Good. How are you?

Doing good. On occupancy expense for the quarter, it looked like it was around $1 million less than it was in the first quarter. Can you explain that?

Winter.

Oh, okay.

That's right!

And other expenses was about $2 million less than the first quarter. What would be the rationale for that?

We--we had a liability in our balance sheet that we no longer needed and we reversed it.

Okay, so that's probably a better run rate going forward? That $20 million?

No, you should probably add back the $2 million, that just was a reversal from this--

Okay, and that's different than any other one-time item that we've talked about yet today?

Yes.

Okay, and in the salary and benefits, I know we--we talked about some of those one-time items. Could you just carve out the increased bonus accrual out of that $2 million because that sounds like that's something tat could be recurring next year?

It's not something that changes quarter to quarter, year to year, based upon what the revenue generation of the Company is. I would suggest that it links to revenue growth and there would be more revenue growth and there would be bonus expense coming through all those line items.

It's really hard to comment on, if I said something now, it would be radically different next quarter and the quarter after that.

Okay. And with credit card and other non-deposit fees, they were up $1 million more than I thought they were going to be up. Can you just comment on the driving trends there?

I think we're seeing real momentum in terms of distribution of debit cards through our system and utilization. And we're getting bigger and, again, attractive markets and selling more demand deposit accounts. That, to me, is a clear reflection of that.

And a piece of that, also, is loan fees related to commercial business. Again, we can't get spreads, we're trying to get fees. That's part of it in there. It's kind of all in those--in the numbers.

Okay, and lastly, it appears that this quarter you didn't give guidance and it looks like you have over the past five or so quarters. Why not? As far as earnings guidance.

I just sort of did, I think, when we were talking about the margin and all that sort of thing. I mean I could have put one general sentence in there that didn't really say much of anything or we can talk about it here. I thought it was better to talk about it here.

Okay, appreciate it, guys.

Thank you. Your next question comes from Peyton Green of FTN Midwest Securities, please go ahead.

Good afternoon.

Hey, Peyton.

A couple of questions, just trying to get a little bit, I guess, more detail in terms of the sales culture improvement. I know that you all had a fair amount of turnover that occurred last year and to what extent do you think you're really through that process and really have the right people in the stores and in the management ranks, marshalling the sales process?

I feel much better about it now than I did last year and I think we're--I am much more confident that almost across the board we've got people in those positions that understand what's expected and conceptually believe in what we're trying to do and how we're trying to do it.

So, I feel an awful lot better about it, and I think it's why we've seen a lot of results. I don't think you're ever all the way through and I still think there's some room for some changes organizationally and in terms of performance. And on the commercial side of the business, there is room there to keep--to keep focusing on improving effectiveness, as well.

So, we're not finished by any stretch of the imagination, but I feel very good about the progress.

I mean would you say you're over half the way through the process and that was just --

Oh, yeah. Yeah.

Okay. Okay, and then in terms of the M&A environment, I think you all have mentioned several times that you still would have an appetite for additional transactions and I guess if you could just kind of go through what in this environment, is the right kind of transaction for Associated?

Attractive markets, good management, customer basis of high quality that we can cross sell our broader product array to. A transaction that gives us the prospect to have revenue growth be stronger, 9 to 12 months out after the transaction was completed than it would have been if we hadn't done it.

Okay, and likelihood of that happening, are you seeing more deals, less deals?

There's certainly a lot of opportunities to look. But we want to try and be disciplined about those things.

Okay, good enough. And then how much lower can the securities book go without causing any kind of pledging or liquidity issues for you all? And I guess in this kind of environment, is there more appetite to drive it lower? Than to keep it at kind of the targeted level that you all assessed about nine months ago?

We felt that the $2 billion number was about where we could go. We're still driving the investment number down to a fairly low percentage. And that doesn't mean we want to be finished attacking the wholesale funds, either.

So, I think the $2 billion number is a reasonable one. Once we get through that and digest it and look at it, perhaps there are some other opportunities, but that's pretty much where we'd be comfortable.

Okay.

And Peyton, I guess I would have commented the same as Paul in that taking it from the low-20s to the 15 target that we're going at is a pretty dramatic shift for us, and we are working through those exact issues that you're alluding to and trying to figure out how do we maintain liquidity, how do we maintain collateral?

At this point, we're reaching a point where it is putting some strain, so we're working our way through that process. If we can figure that out, maybe we can do more. But at this point, I would suggest we're stopping.

Okay, and you all booked a gain on security sales in the quarter. I mean have you materially altered the mix of the portfolio and I guess I'm thinking about it from the perspective of tax exempt versus taxable?

These were equity securities, they weren't part of the bond portfolio.

Okay, so it was all equity. Okay, great. And then I guess as you drive the portfolio down on a mixed basis, is there--I mean do you view that as something that should be a little longer in duration with less call risk? Or how do you all think about that?

Yes.

Okay, great. Thank you very much.

Thank you. Your next question comes from Eric Grubelich of KBW, please go ahead.

A couple of other things on the revenue side. One, do you have any repricing capability on the service charge side of the customer base right now? Any planned tweaks to the product pricing?

Yeah, we look at that a couple of times a year and both on the consumer and the commercial side we think we have some--not strategically significant, but certainly some opportunities to improve the run rates there.

Okay, and then the other thing, Paul, the retail commission business. You normally always talk about that? What's going on there? And is the growth trajectory still pretty solid, double digits in the teens or more?

I'd like to think so. We've had strong performance at our--our brokers, many of them, are performing in the top textile of the industry from a revenue-generation point of view now, you can get that data and look at it. Second quarter was the best quarter we've ever had in terms of annuity sales through our licensed branch sales folks.

I feel good about it--we continue to strengthen the category. We've invested in more people in--again, in markets like Madison, where we didn't have the depth we had before. I'd like to see it be a double-digit contributor year in/year out, all things being equal.

The only caution I guess I'd give you, Eric, is that the insurance business, while the growth rate--growth rate is still strong, it's--you also get profit-sharing payments in the second quarter.

So, even though the fundamental business would be growing up, you've got to be careful--you have to be careful because the second quarter tends to be inflated a little bit because--because of the profit sharing payments out of the insurance companies, but it has nothing to do with the underlying business, just the timing of the revenue.

So, the net revenues might be a little bit lower as they were last year?

Yes. Potential. Potential. Again, we're investing, and as Paul said we're--

There's other parts of the business that are moving forward, but there's nothing about the business that's--that's disappointing. It seems to be doing very well.

That--that profit-sharing payment would reflect in the third quarter, then?

Second quarter.

Second quarter. In this quarter it was--there is some in the first, some in the second-- We might get some in the third. They're both different depending on the carriers.

I'm sorry, I was thinking about it the wrong way.

Eric, I'm talking about the brokerage business but Joe is pointing it out rightfully, on that line, the insurance business is there, too, is what he's saying. That's not just brokerage.

Correct.

So, I'm talking about a piece of it, to answer your question.

And just for clarity, Joe, before when either you or Paul had mentioned about the one-time staff expenses, the bonus accrual, some severance expense and the one-time entry for the health care, when you were saying that $2 million really wasn't run rate, does that really reflect the severance and the one-time on the health care?

It reflects--in fact, the health care is more than that because we're trying to normalize going forward what we think the bonus accruals are going to be. But the health care was slightly more than that if you want to just look at a one-time item.

Oh. So --

It was more like $3 million, but we're trying to just balance that out so that--it's my expectation that from a run rate point of view, the bonus accruals would be slightly larger than they have been. So--

Okay. So $2 million is a good number to work with?

From my point of view, yeah.

Okay, that's fine. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]

Your next question comes from [Hilary Hayes] of [Biesemeyer Trust], please go ahead.

Thanks, guys, actually my question was answered, it was on the card.

Oh, okay.

Thank you.

Mr. Beideman, there are no further questions at this time.

All right, well thank you all for participating. We appreciate it. And as usual, if you need more information, you can give Joe or I a call. So, thank you very much.

This concludes today's Associated Banc-Corp conference call. You may now disconnect.