Associated Banc-Corp (ASB) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to Associated Banc-Corp's Second Quarter 2013 Earnings Conference Call. My name is Mike, and I will be your operator today. [Operator Instructions] Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded. During the course of the discussion today, Associated 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 could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website 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. 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 Mr. Philip Flynn, President and CEO, for opening remarks. Mr. Flynn, the floor is yours, sir.

Thank you, Mike, and welcome to our Second Quarter Earnings Conference Call. Joining me today are Chris Niles, our Chief Financial Officer; and Scott Hickey, our Chief Credit Officer. Highlights for the second quarter are outlined on Slide #2. These solid results were highlighted by another record quarter for mortgage banking and improving net interest income. For the quarter, we reported net income to common shareholders of $47 million or $0.28 per share. This compares to net income of $42 million or $0.24 a share a year ago. Return on Tier 1 common equity was 9.9%. Average loan balances increased by 2% from the previous quarter, with the majority of growth coming from the commercial portfolios. Average deposits of $17.1 billion were essentially flat to the first quarter. Gross fee income of $84 million was up 3% from the first quarter and was driven by mortgage banking. Net interest income was up $2 million from the first quarter, reflecting one additional day and further liability cost management actions. We maintained the quarterly dividend at $0.08 per share and repurchased another $30 million of common stock or approximately 2 million shares at an average price of $15.09. Our Tier 1 common equity ratio remains very strong at 11.48%. So let me share some detail on the main performance drivers during the second quarter. Loan growth is highlighted on Slide 3. Average loans continue to grow from the first quarter, with net growth of $280 million. This represents a 2% quarter-over-quarter growth rate and an 8% increase year-over-year. Growth during the second quarter was driven by continued strong results in our Commercial and Commercial Real Estate businesses, which were both up 4%, offset by continued runoff of home equity and installment loans and our planned reduction and the retention of 15-year mortgages. Commercial and business lending average balances increased by $245 million during the quarter, with general commercial loans growing an average of $90 million. Within our specialized lending areas, we saw our powers and utilities business grow an average of $108 million, driven by portfolio acquisitions from European banks, and our oil and gas book was up $60 million, while mortgage warehouse shrank reflecting slowing refi activity at quarter end. Average commercial real estate loans grew by $130 million during the quarter, with multi-family and retail project construction loans accounting for $78 million of that growth. We continue to see good opportunities to grow our commercial real estate portfolio. Average residential mortgage loans grew by $39 million or 1% during the quarter. We continue to hold approximately $1.3 billion of 15-year fixed-rate mortgages on our balance sheet and intend to maintain that level going forward, reflecting our strategy to sell substantially all of our 15- and 30-year production. During the second quarter, we sold $782 million of loans, compared to $680 million in the prior quarter. Gain on these sales totaled over $10 million for the second quarter or about 218 basis points on the loans delivered. With continued relatively low mortgage rates, we expect our home equity portfolios to experience more runoff as consumers deleverage and refinance into lower priced first lien mortgages, and almost half of our home equity portfolio is in a first lien position. Average deposits of $17.1 billion were basically flat compared to the first quarter. Increases in checking and savings average balances were offset by money market and time deposit declines. We also paid off $300 million of higher rate Federal home loan bank advances maturing during the second quarter. Turning to Slide 4. Net interest income of $160 million increased by $2 million or 2% quarter-over-quarter. Loan interest income was up over $1 million from the first quarter, while our liability funding costs decreased by $1 million. Net interest margin for the second quarter was 316 basis points, down 1 basis point from the prior quarter. Year-over-year, net interest margin is down a total of 14 basis points. The 5-basis-point decline in total asset yields was primarily driven by a 7-basis-point decline in commercial loan yields. The renewal and refinancing trends in our commercial books are grinding away at embedded floors and we expect to see continuing pressure on the asset side of our balance sheet. Our strategy is to remain asset sensitive in this low rate environment and we recognize that this is weighing on our margin. Loan pricing continues to be competitive in our footprint, as banks seek to gain market share. In commercial real estate for example, we've recently seen lenders aggressively come back to this business who retreated during the crisis. With this competition, we've seen yields on new commercial, commercial real estate and specialized loans decline by about 10 to 15 basis points on recent transactions. We continue to manage down interest bearing liability costs, which now stand at 41 basis points, down from 65 basis points a year ago. Our expectation for the rest of 2013 is that earning asset yields will continue to compress, while our ability to manage deposit and funding costs lower will become more challenging. There'll be some continuing benefit from repricing of the CD book through the rest of the year. And additionally, we have about $26 million of 9.25% subordinated debt outstanding that's redeemable in October. On Slide 5, total non-interest income for the quarter was $84 million, up $2 million from the first quarter and up $8 million dollars or 11% from the second quarter of 2012. Mortgage banking had another record quarter and was up over $1 million from the first quarter. Mortgage banking income was aided by a $3 million pickup in MSR valuation, compared to the first quarter, which was partially offset by a $2 million decline in gain on sale. After this quarter's MSR gain, there'll be $2 million left in the valuation allowance. This will be reflected in our second quarter 10-Q filing. In our core fee categories, service charges on deposits, card-based income and trust service fees, all improved by 4% to 5% from the first quarter. Gains and core fee revenue were offset by a $2 million second quarter decrease in insurance revenue from the previous quarter. Recently there's been an industry-wide focus on third-party vendor relationships in the products that are sold to our customers. Related to this, we proactively recognize that $3 million reserve related to third-party products sold in prior years. Capital markets fees increased by about $2 million from a weaker-than-usual first quarter. We also revalued some of our real estate that we intend to sell down to market value as part of our continuing process to evaluate consolidation opportunities and rationalize our footprint. Total non-interest expense for the quarter increased by $3 million or 2% from the first quarter. Personnel expenses increased by $2 million, including a $1 million charge for severance related to our ongoing consolidation efforts. FTE levels continued to decline and are at their lowest level since mid-2010. Losses other than loans were also up $2 million from the first quarter due to higher unfunded commitment reserves. Occupancy expense declined by more than $1 million. This is a seasonal variance related to a reduction in contracted services, mainly snow removal. Our efficiency ratio is showing improvement in recent quarters and we've remained committed to work diligently toward a number that is more in line with our peers. Turning to credit quality on Slide 6. We've now improved credit quality to a point where improvements in the future will likely be more modest. Net charge-offs were $14 million for the second quarter and the majority of those charge-offs were at our home equity portfolios. Potential problem loans declined to $310 million and are down 24% from $410 million a year ago. The level of non-accrual loans to total loans continued to improve to 138 basis points, down from 145 basis points at the end of the first quarter. That ratio has improved for the 13th consecutive quarter. Total non-accrual loans of $217 million were down from $225 million at the end of the first quarter and $318 million a year ago. The allowance for loan losses now equals 1.76% of loans and covers 127% of period end non-accruals. Provision for loan losses for the quarter was $4 million, which was the same amount we provided for in the first quarter. We expect provision expense to increase as loans grow. Turning to Slide 7. Our capital ratio has continued to remain very strong, with a Tier 1 common equity ratio of 11.48%. We are well-capitalized and well in excess of the Basel III expectations on a fully phased-in basis. We reiterate that our priority for capital deployment continues to focus on organic growth. We plan to maintain our dividend in line with earnings growth and we'll be disciplined in evaluating other opportunities to optimize our capital structure over the coming year. On Slide 8, we've replaced our 2013 full year guidance with our second half outlook. Average loan growth for the first half of the year was about 4%. We expect quarterly loan growth for the remainder of the year to be in the 1% to 2% range per quarter. We've not made any changes to our deposit growth guidance. We'll remain focused on disciplined deposit pricing and we look to continue to grow core retail deposits and commercial deposits through our enhanced treasury management offerings. We expect continued modest net interest margin compression over the course of the year, driven by continued pressure on earning asset yields. We expect to defend margin compression through some liability repricing and refinancing actions. We are focused on expense management and are committed to keep total non-interest expense for 2013 flat on a year-over-year basis compared to 2012. Credit trends are expected to continue to improve, but more modestly. Provision expense is expected to increase generally in line with new loan growth. Capital deployment will continue to be a priority in order to drive long-term shareholder value. And with that, we'll open it up to your questions.

[Operator Instructions] And the first question we have comes from Dave Rochester of Deutsche Bank.

On the margin, I know you mentioned there's stronger competition, but are you seeing any relief at all from higher longer-term rates on real estate loan pricing?

Short rates are what really makes the difference for us in our commercial businesses. So the fact that the long end has moved impacts our mortgage lending business by slowing -- or didn't slow really this quarter, but certainly will slow, we think, for the remainder of the year. So for us to really see health on the margin, we need movement on the short end.

And what are you guys seeing in terms of reinvestment rates today? Because I know those were up for you guys.

On the security slip?

Yes.

Chris?

Yes, so we had been closer to sort of a 1.5 and the market's backed up, arguably 60 to 70 basis points for the sort of 3-year duration stuff that's typical of our portfolio. So we would see rates in the 2s, low 2s, as opposed to the 1.5s.

So a little less pressure?

So that's good. That helps a little.

Yes. And then in terms of the securities premium amortization expense going forward with the backup in the curve, can you talk about how much of a benefit you saw this quarter and if the curve stays where it is, how much more you might expect through the end of this year?

We saw around $1 million of net pickup relative to the first quarter in terms of change period-over-period. Obviously, there's slightly different principle balances, et cetera, but order of magnitude, that was a shift. And we would expect given the continued back up, although we've seen a little rally here of late, to see that get better, so we'd reduce amortization expense in future periods.

Great, and just based on what you guys are seeing in the competitive landscape and in the repricing of the portfolio that's coming off of floors, if we assume that the current curve persists, are you thinking we hit a bottom on the NIM sometime maybe in the first half of next year?

We've been reluctant to call it a bottom, but if you and Mr. Bernanke gave us some guidance, we'd be happy to.

All right and just one last one. On your new loan growth guidance, is that primarily -- and you're being that in related to the competitive landscape? Are you seeing any drop off in activity in any of your businesses, just maybe some color there?

Well, it's been competitive. I think in some of our business lines it appears, of late, to have gotten more competitive, for example, particularly in commercial real estate. Generally speaking, I think for our bank and I think for most banks, we're not getting a lot of growth out of general economic activity and certainly, in our part of the world, most of our loan growth has been taking share from somebody else. So as it gets more competitive and as we're not getting a lot of action out of the economy. I think it's just prudent to assume that we're not going to be generating 2% plus quarterly loan growth for the rest of the year. Now we'd be delighted if that happens. Originally, we thought we would get to high single-digit loan growth over the course of this year and basically what we're saying is we think it will probably be 6% to 8% for the year, say. So still probably at the upper end of what other banks are doing, but maybe a point or so less than what we were thinking when we started the year.

And next we have Chris McGratty of KBW. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: Phil, on M&A, I think in the past you've talked about maybe completing the deal or announcing the deal this year. Obviously, there's a big one in Chicago this week. Can you maybe talk about appetite for markets whether you still think you can announce a deal this year and kind of size?

Okay. Well, just to be clear, we never -- I certainly don't recall saying we were going to announce a deal this year. But our view on M&A has been very consistent and we've been quite transparent about it. We believe that the most effective M&A transaction for us will be one where we can either buy someone's branch network or perhaps a whole bank in a part of our footprint where we have significant overlap so that we can be assured of significant cost takeouts. And our view of that hasn't changed even given the transaction that was announced in Chicago a couple of days ago. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, and then one for you Chris on the DDA decline in the quarter, I think the first quarter was seasonal, but anything to read into the $200 million drop in DDA?

I think we have an end-of-period loss that you typically see in the second quarter and in the fourth quarter, but the average balances for DDA were up both on the checking overall and savings overall from the second quarter to the first. So focusing on the average, I think, tells the appropriate story. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, and then -- and one last one on the commercial loan yields, the C&I yields. They were actually up 1 basis point. Maybe I missed it, but can you offer a little bit of the color on what drove the increase?

Yes, I think we had reasonable renewals. And so, on the renewals, we tend to have a slightly higher effective yield. We also had a small amount of interest recovery relative to the prior period and the combination of those 2 has led to a modest improvement.

Your next question we have comes from Scott Siefers of Sandler O'Neill. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: I guess either Phil or Chris, I just was hoping you could expand a little on your thoughts on capital management. I mean, Phil, you gave kind of the summary towards the end of your prepped remarks, but it sounds like the balance sheet growth dynamic, maybe a little slower, not materially slower, but a little slower than maybe we would have thought 90 days or so ago. And then I think you guys are getting towards the upper end of the range you've kind of called out, sort of the between book and tangible book as the appropriate place to repurchase a lot of shares. So just -- I'm curious how you're thinking about that dynamic here given the run in the stock price?

Sure. So our priorities for using capital has been consistent since Chris and I walked through the door here, which are, number one, to support the organic growth and we continue to grow at a pretty decent clip, I think. So we'll continue to support the organic growth. We're paying out an $0.08 per quarter dividend and as our earnings continue to grow, we'll revisit that at an appropriate place in the future. Our third priority is to deploy capital toward an accretive acquisition but those haven't come about. And so our fourth priority has been, therefore, to repurchase shares which we've been doing now for the last 4 quarters, 3 or 4 quarters. And as we sit today, we still have $35 million of available board-approved allocation to buy back shares. It's likely we will exercise that, and we will be in discussions with our board in the future about our plans for buybacks going forward. We have said that at less than book value, buying back shares is a pretty easy choice to make. That said, we have a lot of optimism about the course of our company and we will not have a hard stop, if you will, at book value, but we will spend time talking to our board about what direction we'll take going forward. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Okay, that's perfect. I appreciate that color. And then maybe just a separate question on mortgage. Your numbers have obviously held up pretty well and then as we look into the second half of the year, obviously, would expect some sort of slowing. But I wonder if you could just maybe frame order of magnitude of how you guys are thinking about the second half of the year, and just maybe what the major kind of pros and cons are as you look at sort of where your pipeline's applications are, characteristics of the portfolio, et cetera, and how you're thinking about that?

Sure. So first of all, we've been quite delighted with the results through the first half. When we were planning for this year, our expectation is that we would have a drop off in our mortgage banking activity through the course of the year, and of course, we've had basically 2 record quarters in a row. So that's been great. Interestingly, as we got into the first quarter, toward the end of the first quarter, we had a shifting of our backlog of mortgage business where we started to pick up quite a bit of purchase money applications rather than simply refis. Last year, we averaged about 80% of the book was refi, 20% new stuff. So we moved to a 50-50 mix on the same volume, give or take $1 billion, say, at any point in time. And then as rates started to move, we seem to have a land rush of applications for refis and the backlog went up to about $1.5 billion. So as we sit here today as of mid-July, the backlog is at now down to about $1 billion again, and it's moved back to about a 50-50 mix. So we're actually pretty encouraged by that, particularly the mix aspects because the purchase applications will likely continue forward, while we certainly expect refi activity to dwindle as time goes on. So we certainly continue to expect to see a fall off in our mortgage banking income as the year goes on, but with purchase activity picking up here and all across the country, results may be a little better than what we would have -- certainly what we thought they were going to be a couple of quarters ago.

Next we have Matthew Clark of Credit Suisse. Matthew T. Clark - Crédit Suisse AG, Research Division: On expenses, I think your run rate is basically -- it gets you to flat for the year relative to last. And can you just discuss maybe initiatives that you have as we look beyond this year? Obviously, you're reinvesting in the business, but you also want to right size it, that efficiency ratio. Just can you give us a sense for what opportunities might exist as you look at the franchise today?

Sure. So you've seen our efficiency ratio come in about 3 points since the end of the year, which is good. That's a combination of discipline on the expense side and a little bit of help on the revenue side. We continue to look for opportunities for consolidation both on the front office and the back office. As you know, we've consolidated more than 30 branches over the past, call it, 1.5 years, about 10% of our network. We continue to look for opportunities to do that and there'll probably be some that will present themselves to us. A big focus right now is on efficiency in the back shop and we've talked quite a bit about the fact that the company was an under-investor in technology solutions for processing in its past and that's led us to an awful lot of manual types of processes. So we're working diligently in a number of areas of the company to improve the efficiency of the back shop. In order to do that, often requires investment upfront in order to get efficiency in the back end. So for example, we're in the process of modernizing our commercial loan operations system, which was a technology project upfront, efficiency out the back and we're 1/3 of the way through that project. We have others like that, that we're doing. We're also working hard on consolidating physical facilities to get efficiency and to save money. So we've, actually this is the first conference call we've had in the building that we bought in downtown Green Bay and we're 2/3 of the way of consolidating more than 500 of our colleagues into this building and getting out of 5 different lease spaces. Likewise we've moved into a consolidated space in Chicago and we'll be taking people out of, I think, 4 different facilities there. We're looking for other opportunities and are working on other opportunities for consolidation around the company. So there's a lot of different things we're doing, which will lead to more efficiency in the future. Matthew T. Clark - Crédit Suisse AG, Research Division: Okay, that's helpful. And then on the incremental growth in the power and utilities book, I think you had mentioned that there's some opportunities to acquire some portfolios. I guess, how much more of that do you think there is out there and do you feel like you might be reaching a -- tapping out or reaching a point where you don't want to grow that portfolio too large relative to the overall book?

Our specialty businesses are still relatively small compared to the overall book, so we're not in any particular danger of stopping. These portfolio purchases that we've been able to do are quite happenstance. Obviously, we can't plan for those, but we're getting good organic growth in both our oil and gas business and the power and utilities business anyway. And when the opportunity presents itself, particularly as of late with European banks trying to pull that capital to Europe, we'll take advantage of that if the opportunity presents itself. But we don't plan for those things. Those are little blue birds that come by that we're happy to take advantage of. Matthew T. Clark - Crédit Suisse AG, Research Division: And just remind us how the size of the overall specialty book and what you'd like it -- your comfort level with the relative size?

Yes, so when we talk about specialty book, we talk about not just power and oil and gas but we've also got our mortgage warehouse, health care, financial services and a few others. Most of the growth has been in power and utilities and oil and gas. We expect the mortgage warehouse business to actually be much more modest than it's been and we saw that at the end of the second quarter. What we've said publicly is we -- a sum total of those, when we got to $1 billion in outstandings, we would take a look and decide how much more we want to do in proportion to the rest of our balance sheet. But as the mortgage warehouse probably comes down a bit, we have plenty of room. These are also, generally speaking, portfolios and credit types that have lower embedded loss content than basic commercial lending or commercial real estate lending. So we're quite comfortable in growing these businesses both to generate income, as well as the diversification play for the portfolio. So at this point, we're not feeling tapped out is the short answer to your question.

The next question we have comes from Emlen Harmon of Jefferies. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Going back to the loan growth, you guys are kind of -- as you laid out, you're hoping to get 1% to 2% loan growth on a quarterly basis through the rest of the year. The production in the last couple of quarters has been closer to 1%. Is there anything in particular in terms of either pent-up demand or anything else you're expecting kind of coming down the pipeline here that you think would push you closer to the 2% end of things? I know you just mentioned one in particular with some portfolio purchases, but just anything else out there that would push you to the higher end?

Well, our average loan growth action actually has been about 2% for the last quarters. And so we're anticipating, give or take, 2%, maybe a little bit lighter than that. So we actually think it will slow slightly from where we've been. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Okay, got you. I was looking more at the end-of-period balances.

Yes, we've moved -- we talked about this a quarter or 2 ago that because of the way the mortgage warehouse outstandings tend to work, whether we have a lot of pocket outstandings at the end of the quarter, looking at the point-to-point is not really the best way to do this. And the fact is we make net interest income on average loans not on loans on one day. So we've moved to talking about our loan growth on averages and that's why the average has been, give or take, 2% the last couple of quarters. And we expect the average growth to be 1% to 2% for the next 2 quarters. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Got you. Okay. That's helpful. And then just a couple of questions on the expense front, I'll fire both at you at the same time. But just -- are the facility consolidations in the expense run rate at this point in time or can we expect a little bit of help there as we go through the rest of the year? And then also, would just be curious on your progress on branch upgrades. I think kind of last update, you were roughly 2/3 of the way through there?

Sure. So on the consolidations that we've done here in Green Bay and Chicago, in particular, you really haven't seen the lift, so all the lift that you're seeing in this quarter's occupancy is really predominantly related to snow removal seasons quarter-to-quarter. The lift you will see will be as the leases that we had here in Green Bay and Chicago are terminated and expired. You'll start to see the benefit of that really roll to us fourth quarter this year, but really throughout next year and beyond. So the lift will come next year. We've incurred the expenses already today. We'll have 2 quarters here of a little bit of overlapping expenses, but that expense is already partially reflected in the second quarter. With regard to the second part of your question on where we are in the footprint, as I said, we're about 2/3 of the way through. We continue to do what we thought we would get done. We've shifted some of the order of the branches, but we will get about 40 or more branches done this year and those are in progress.

And we probably have, what, another 50 to do after that?

80 in total that haven't yet been touched.

So 80 out of 200, right?

Yes.

So we're -- yes, so we're give or take, 2/3. Be done by the end of next year.

And again, some of the 40 that we're doing this year are already in progress.

And the next question we have comes from Terry McEvoy of Oppenheimer. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: What was the size of the mortgage warehouse at the end of the quarter and how much of the potential runoff of that portfolio was taken into consideration when it came to your updated loan growth guidance?

I don't have the -- Terry, I don't have the mortgage warehouse outstandings at the end of the quarter, but the thing to remember about mortgage warehouse is the outstandings tend to be on our books for a very brief period of time at the end of each quarter. So its impact on our average loan outstandings isn't all that great. So it's not a big contributor to the our view, frankly, of where the loan growth is going to be going forward. I mean, it impacts it a little bit, but it's not material. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Okay, and then just a small question, how do you hedge the MSR? You've had a nice gain in Q2. I'm guessing there's some sort of hedging strategy and how does that come into play in either recent quarters and going forward?

Sure. Actually, Terry, the reason there was a gain in the last 2 quarters is explicitly because we do not hedge the MSR. And so what you had seen for several quarters, probably more than a year, was fairly consistent write-downs to the MSR, which is why we were carrying our MSRs down at 60 basis points of value. And what you have seen in the last 2 quarters is, as rates have gently moved back up and then more strongly moved back up here, a recovery in the MSR value to something closer to original cost. We would suggest to you that our current capitalized fair value at around 79 basis points is a very conservative level relative to peers, and we feel very good about that value, but the reason you follow write-downs in prior quarters and the write-ups in the last 2 quarters is it's because we do not hedge.

[Operator Instructions]

As a follow up to Terry's comment, I would just say that, keep in mind, we only have $60 million of MSR in the books. So it's not a particularly large number for us, which is another reason we don't really hedge it.

And the next question we have comes from Jon Arfstrom of RBC Capital Markets.

Just a couple of more loan growth questions and then one other, but in terms of growth outlook, how much of it do you expect to be driven by the, call it, the footprint versus the specialty businesses?

We've had -- we expect good balanced growth across the whole book, and we've had really pretty solid consistent growth in commercial, commercial real estate, as well as the specialties, as well as residential. Now one of the places where we're seeing a slowdown is we're very disciplined about fixed-rate loans that we hold on the balance sheet. So we've filled our bucket or our appetite for 15-year mortgages and are only topping that up now. So we're not getting a lot of growth out of holding 15-year mortgages. But generally speaking, we've had really nice balance here for at least a couple of years across the major loan categories, and we expect that going forward.

Okay, and then just maybe a little more granularity on CRE, the growth, kind of maybe geography type size, a little more detail?

Sure. We operate, I think, it's 9 commercial real estate offices in Minnesota, Wisconsin, Illinois and then we have LPOs in Indianapolis, Cincinnati and outside of Detroit, as well as St. Louis. We've had really nice growth out of the new LPOs. We've had good growth in actually all of the legacy markets as well. So it's not in one particular geography that's been driving our CRE growth. We got back into the CRE business probably more quickly than a lot of our competitors in the upper Midwest because we, as you'll recall back in 2010, cleaned up that loan book very quickly coming out of the crisis. So I would say, we've had nice growth across the geographies. We've had a disproportionate amount of multifamily construction growth, as you would expect, as everybody has because that's been really the real estate asset class that you've seen new activity in. But we've also seen activity in retail, a little bit in office, a little bit in industrial, not as much. And we maintained a -- quite a granular real estate portfolio as far as individual credits compared to many of our competitors. Frankly, I think we're running a much more disciplined business than some of the people we compete with.

Okay, and then just a question on capital markets, I may have just missed it, but anything that drove that number higher and is that a repeatable number or more of a one-time item in there?

This quarter was more of a normal number coming off of a relatively low first quarter.

Well, it appears that we have no further questions at this time. We'll go ahead and conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Mr. Philip Flynn. Mr. Flynn?

Thanks. I appreciate that. We really appreciate all the good questions today. I'd like to point out a recent accomplishment related to how our colleagues feel about the work that they do. For the second year in a row, we've been named a top place to work in the Milwaukee Journal Sentinels' Annual Top Workplaces survey. This survey, which is given to our colleagues, measured several workplace factors such as strategic direction, work conditions, pay and career opportunities. So having colleagues that feel good about their workplace has a positive effect on how they interact with our customers, which helps drive value for our shareholders. To conclude, we're committed to our long-term strategies, which are based on building deeper relationships with our consumer and business customers through sound value-added solutions to their financial needs. So we look forward to talking with you again next quarter. And if you have any questions in the meantime, please give us a call. Thanks, again, for your interest in Associated.

And we thank you, sir, and the rest of your management team for your time. The conference call has now concluded. At this time, you may now disconnect your lines. Thank you, and take care, everyone.