Good afternoon everyone, and welcome to Associated Banc-Corp's First Quarter 2017 Earnings Conference Call. My name is Matt and I will be your operator today. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference. Copies of the slide that will be 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 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. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to the slide presentation and to page eight of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session. At this time, I would like to turn the conference over to Philip Flynn, President and CEO for opening remarks. Please go ahead, sir.

Thank you. Welcome to our first quarter earnings call. Joining me today are Chris Niles, Chief Financial Officer, and Jim Simons, our Chief Credit Officer. Turning to slide two, higher revenues, margin expansion, flat expenses and an improving credit environment contributed to a 30% increase in earnings per share from the year ago quarter. In Q1 we benefited from higher loan yields and growing fee based revenues. We had commercial real estate loan growth and an increase in residential mortgages. Quarter-over-quarter our expenses and provision both decreased. We delivered a double-digit return on average common equity Tier 1 for the third consecutive quarter and returned a third of our net income to our shareholders through dividends. Loan details for the first quarter are highlighted on slide three. First quarter average loans grew very modestly from the fourth quarter, reflecting decreased general commercial line utilization and significantly reduced mortgage warehouse activity. Highlighted in green, average residential mortgage loans increased $247 million or 4% from the fourth quarter and $644 million or 11% from the prior year. During Q4 2016, we began to retain some of our longer data production. Given the steepest of the curve we saw in Q4, this made sense to us. We will take measured steps to retain additional longer data production through Q2 and potentially spilling over into Q3. Residential mortgages now represent 33% of our average total loan book. In orange, average CRE loans were up 2% from the fourth quarter and up12% from the prior year. Commercial real estate line utilization trended higher in the quarter. While on a year-over-year basis, growth has been driven by the multi-family and retail portfolios for the quarter, we saw increased activity in our industrial and office portfolios. We are mindful of our current CRE exposure and managed within…

Thank you. At this time we'll begin to question-and-answer session. [Operator Instructions] Our first question comes from Scott Siefers from Sandler O'Neill. Please go ahead.

Good afternoon guys.

Good afternoon, Scott.

Phil I was hoping you could just expand upon the comments that you made in your introductory remarks about loan growth accelerating throughout the course of the year. I mean I definitely got what you said, but perhaps the slower start to the year than I might have anticipated and just given the lingering uncertainty with some policy issues, et cetera just want to get a little more color as to where are you getting your confidence about acceleration for the remainder of the year?

Sure, it's good question it was a slower quarter than we expected. Mortgage warehouse had a big impact on the quarter. I guess we all expected to see that and other banks that have been reporting have been reporting the same thing. So $200 million swing in that item itself is significant. As we think about the rest of the year though we are retaining mortgage production that we would have sold in the past we did that in the fourth quarter that will continue this quarter and into the third quarter most likely. And frankly as we sit here today, our loan growth since the end of the first quarter is up more than what we saw during the entire first quarter. So, we're actually had a good starting pace right now.

Okay. Good, that's helpful. And then if I can switch gears a little Chris maybe if you can talk about the margin and specifically deposit beta. So the margin doesn't seem to be any negative issue there, in fact it came in better than I would have anticipated. But with that said, the nearly 40% deposit beta is got to be among the higher of the companies that I follow. So just curious where that's coming from, I imagine the networks deposits have a big part to play in that, but any thoughts on just competitive dynamics, what you guys are doing, how are you responding, et cetera?

Sure, so Scott, if you look at page six in our press release, you will see the tables [indiscernible] yields and our rates versus classes. Obviously there has been no movement and a pure retail sort of savings type accounts. Where we've seen a little bit of uptick has been in the money market and our interest bearing demand products. We expect that, you are right, in part of those balances of about $13 billionish, include about $3.5 billion of network deposits and both have a beta of close to one. So let's call it a quarter of that. So yes that's a big driver within those. But I would just ask you to reflect upon most institutions that I have seen comment or syncing data of about 0.5 make sense over the cycle and we are operating at 0.4.

Okay. Alright that sounds good. Thank you, guys.

Our next question comes from Jon Arfstrom from RBC Capital Markets. Please go ahead.

Thanks, good afternoon.

Good afternoon, Jon.

Hey. Just to follow-up on that Chris, do you expect a similar type reaction this is on the margin on page six. Do you think the Q2 numbers will look similar to what we saw in Q1 in terms of the impact from the March hike?

I think we will see continuing push upwards in our money market and spend demand rates, clearly our retail rates aren't moving too much. And I would highlight for you Jon, further to that the total interest bearing liability costs are moving a little more slowly than that. So we have been able to optimize our funding mix as we move through the cycle and we will continue to look for ways to optimize that in Q2 as well.

Okay, that helps. And then question on oil and gas, is there a point Phil where you think those balances will bottom?

Sure, yes, I don't know exactly when they are going to bottom, but we are actively out looking at transactions the market is back in space frankly there is a lot of people looking to refi and do transactions. So, yes, I guess if I had to guess, we'll bottom out third quarter something like that maybe and probably move up from there.

Okay, good. And I am assuming there is a lot of moving parts, but you guys give us maybe a ballpark on what kind of reserve requirements you would have on a new oil and gas loan?

Jim do you have a feel for that.

It's probably something 10% or so.

The question is on a new oil and gas credit, on the new dollar commitment?

Yes, I mean we are sitting right now at about 6.5% reserves against the whole book. So it's probably 1.5-ish this something like that.

Okay. So there is some room there. Okay. I appreciate it, thanks for the help.

Our next question comes from Michael Young from SunTrust. Please go ahead.

Hey, good afternoon.

Good afternoon, Michael.

Wanted to start on the CRA rating upgrade, obviously that was good to see, but just curious how that will impact you going forward. Obviously you could return to the bank M&A market. So maybe just talk about your interest there by size and geography update us. And then also does that impact anything on the cost reduction side, are you able to take out any additional cost related to that on the branch side or otherwise?

Yes, so the second question first Michael. No it has absolutely no impact on cost. I mean we continue many, many programs serving minority, majority minority communities with subsidized mortgages and the rest. So not cost changes. Certainly with the satisfactory CRA rating we are able if we choose to pursue whole bank M&A. We have been in dialogue for a long time with a number of different parties and our priorities as far as bank M&A have not changed. I think we have always said that the ideal candidate would be in market where we could gain more efficiencies and nothing has changed that way. So you're correct, so we can execute at this point if we choose to and we couldn't while we have to needs to improve, although we have the need to improve for about six months and three weeks to be exact.

Got you. And then, maybe moving over to the capital markets business, obviously it was a little bit lower seasonally and that's to be expected. But just curious in particular on the sort of multi-family syndication market are you seeing any more pressure there? Is it any harder to kind of get those syndications done or pricing concessions, et cetera?

I don't think it's harder to get transactions done. I think transaction volume is starting to slow a bit. If nothing else, we've been operating very vigorously within our own self-imposed caps here. So we're still originating transactions we still syndicate them just recognize that there is not really any seasonality to that business it's just a lumpy business. It depends on when transactions close and when they're being syndicated. The same is true on the swaps business which are the two big drivers of that line item.

Okay, great. Thanks.

Our next question comes from Ken Zerbe from Morgan Stanley. Please go ahead.

Great, thanks. Just wanted to talk a little bit more about those deposit betas, similar to the first question or another question that was asked like the 40%. Like I get the most other banks are talking about a 50% deposit beta, but really it's like 50% over the entire cycle. And what we're hearing from a lot of other banks is that their deposit betas are I won't say zero or low-single digit something very, very low. With the expectation that those deposit betas ultimately rise much more meaningfully the Fed keeps hiking rates. The question for you guys though if you're 40% today and that norm if you will is that deposit betas rise overtime. Does that imply that your deposit betas go from 40% to something much higher overtime? Thanks.

I guess I would look at it slightly differently Ken which is the $3.5 billion of deposits that we have that are network deposits that essentially have a beta one have a beta one and can't go any higher. So we are fully recognizing the full impact each time each day the Fed moves rates on 100% of that book. And it can't reprise against us more than that. So there is no delayed or lagged effect on those it's fully passed through. I think if you look at our page six you'd see the savings accounts and time deposits actually have a net negative beta over the last year. So our core retail customer base is like everyone else. It is a component that's within the interest bearing and money market that's tied to the networks that's driving the difference. But that's not a risk factor, that's a pay as you go fully priced in and we're not lagging on that, but we're not ahead of the curve at all.

Got you. Okay, so it sounds like it's just more of a mix issue that the core savings product sold have an increasing beta just like everyone else, but this is already at a high I guess the highest beta currently. Okay. Go ahead. Sorry go ahead please.

No, that you got it right I think.

Okay. And then maybe just, can you just address some of the issues the rising energy reserves. I see the dollar amounts are really small and I see the rest of the portfolio the whole energy portfolio is shrinking. Is it fair to assume that like the 6.7% reserve ratio is that whatever still left is just sort of the incremental credit quality of the remaining pieces is just not as good as the entire portfolio because the good stuff is paying off paying down faster is that fair assumption?

No, that should be the contrary. I think as the quarters have passed we've got more clarity on the few problem loans remaining where we substantiated and increased a couple of specific reserves. The rising rates relates to the qualitative portion of the reserve, which is formulate and it looks at historical losses and given the time frames with we are looking at quarters that now have more charge-offs from a historical perspective than the quarters that dropped off. So part of it is just because of our qualitative factors that increased the reserve.

And on top of that as I mentioned, there is still price volatility. We had a pretty interesting swing downwards of 5 to 6 bucks and then it came right back up. So we still a little leery about running this level of reserves down. I understand that compared to most spear banks this is a relatively high percentage, although it is relatively small dollars.

Got it. Okay, thank you very much.

The next question comes from Chris McGratty from KBW. Please go ahead.

Hey, good afternoon. Thanks for taking the question. Chris, I think I heard here the premium am was about $2 million lower in this quarter versus the fourth, is that the right number $2 million?

Correct.

And I guess given the dropping rate, I am interested at your comments that your guidance for kind of the next couple quarters or next quarter in particular assumes the potentials that this moves the other way or perhaps even more than $2 million?

It could, although I would also note there was about two fewer days in the quarter, so the date kind of alone will more than offset that.

Okay. How much total premium am do you have in the investment portfolio?

On amortized premium?

Yes.

Same or…

Do you have another question always written around to that?

Yes, Phil maybe for you, I think in your prepared remarks you talk about the shift that's ongoing with the balance sheet right moving from gain on sale to portfolio retention, but if I heard you right you kind of maybe set a little bit of a pause given where rates are and the ability to put new production in did I get that rate and maybe what's the outlook if rates stay with the strategy, which is sit back?

Yes, actually what we've done is say to ourselves, there is a certain amount of the book that we are willing to take out longer-term. And so once that bucket fills, we will discontinue this strategy. So, we figure we'll probably be there as I said early in the third quarter and then go back to the more normal process that we've got.

Okay, that's helpful.

We did for better or worse, we tend to run this place with discipline around how much interest rate risk we have, how much long dated paper we have and we made a choice to go ahead and start retaining this 30 year production. As it turned out the timing was very good. And - but once we get to a point where we think we have enough of that we're going to stop.

Got it, thank you.

And total premium amortization including regular estimated amortization and principal pay down effect was a little over $7 million for the first quarter. And the change that came mostly from principal pay down effects comparing Q4 to Q1.

Your next question comes from Terry McEvoy from Stephens. Please go ahead.

Hi, thanks, good afternoon.

Good afternoon, Terry.

First question is the mortgage warehouse was the period balances above the average and did you see a pickup at all later in the quarter as rate fell and application volume picked up? And Phil you talked about the total loan growth here in April, is any of that coming from the mortgage warehouse or is there a potential for growth as we enter the spring home season?

So we saw the balances decline sequentially through the quarter, so no there was not a - there wasn't any pick up at the end like we've seen before. Just to give you numbers in the fourth quarter the average daily mortgage warehouse outstandings where a little over $500 million. And in the first quarter that dropped to about a little over $300 million. So, that's the $200 million swing that we take and the period end numbers weren't dramatically different.

Okay. And then I guess how higher interest rate impacted your view on branch consolidation you've been so active there just given the growing value of deposits, are you thinking that strategy? And then in terms of deposit base and some of those more rural or smaller [indiscernible] maybe you would be closing that branch, my guess is their lower deposit and less likely to make some changes within those towns and communities?

Terry I'm not sure I caught the first part of the question you were kind of cutting in and out, but if the question is how are rates affecting some of our smaller more rural branches. Rising rates are helping them. So, we have gone through quite a consolidation of branch locations over the last four or five years. And we feel like as we have said, we are in a good place as far as where our locations are in the network today. So if anything of course these rising rates are going to help the branch level profitability going forward and we are seeing that in our community markets and other places.

Great, thank you.

Our next question is from Emlen Harmon from JMP Securities. Please go ahead.

Hey, good evening.

Good evening, Emlen.

So just want to make sure I understand you correctly on the outlook for an improving NIM. So that outlook for the NIM an improvement from this point forward as oppose to on a year-over-year basis. And how does that change, if you don't get that additional that action in here?

So, it's already better in the first quarter. The yield on total loans is already over 3.5, the yields on investment securities which could come back a little bit for some premium, but probably won't move that much is in a reasonable place. And we think we have a reasonable view on our deposit liabilities and our beta, with or without further Fed action. All of that points us to the fact that we feel better that the number from 284 will likely modestly improve. So that's the positive and if there is more Fed action it potentially could improve more although as we have talked about some of our liabilities will reprise one for one. But if there is no Fed action then we will start to see sort of the lagging benefit on our retail deposits hopefully overtime.

Got it, thanks for that. And then any items in fees or expenses you wouldn't necessarily expect to repeat in the second quarter? One item I did notice, you mentioned the press release but didn't quantify was some lease termination expense, so maybe that would be one place to start, but any other you have would be helpful too?

Snow ploughing [ph] was almost $1 million.

Yes, no effort.

Yes, I mean there is always a certain amount of noise along the way, but there actually wasn't a whole lot of noise in these items this quarter. Yes, I mean we have more as you know insurance revenues in the first half of the year than in the back half of the year. But there weren't lot of unissued items here.

And the lease termination expense, you maybe get a little bit of a downtick in the occupancy from that as well.

Right, so there was about $2 million swing in occupancy almost $1 million it was snow ploughing the difference was largely the terminations and related charges.

Yes, and we do that to improve our situation going forward. I mean the activity in the tax expense item isn't going to repeat because that's really going to be a first quarter event going forward under the new rules. But that said, we have tax credit activity that's going to as I mentioned in the prepared remarks, keep our tax rate probably in the zip code of where we just saw in the first quarter.

Okay, thanks guys. Appreciate it.

Our next question comes from Nathan Race from Piper Jaffray. Please go ahead.

Hey guys, good afternoon.

Good afternoon.

Question on the securities portfolio, obviously a strength on an average basis, just could you update us on kind of your strategy for reinvesting excess liquidity. Is there any update from the capital such a manner that you guys were reinvesting last year?

Sure, so as we mentioned we have got a mortgage retention strategy where we are holding 30 year loans that we historically have sold as an institution to Fannie and Freddie and parallel to that we are not buying as many mortgage back securities in our investment portfolio as we had historically bought to make sure we don't sort of extend out the wrong way on an asset liability basis.

We mix the securities portfolio at this point largely that's done. We moved into Genesis [ph] over a period of two years and we're probably as part of that mix pretty set right now.

But one thing that perhaps you might notice as well as we moved a little more into held the maturity and we will continue to evaluate how much held the maturity versus available for sale we keep as we move through the course of the year.

Got it. And just going back to the acquisition opportunities going forward, outside depository opportunities going forward are you seeing change in opportunities in terms of insurance? Are there other lines as well?

Yeah we've continue to look for opportunities to expand the insurance brokerage business as well as opportunities in the trust like and fiduciary areas. And we have a number of conversations going on. I would expect that we probably have some sort of transaction in this calendar year, maybe more than one, but they are going to be relatively small.

And in fact we had a little small one already in the first quarter, which is why you saw a small uptick in the goodwill amounts.

Great, got it. I appreciate all the color.

Thank you. This does conclude question-and-answer session. I would like turn the floor back over to management for any closing comments.

Well, thanks everybody for joining us today. Our steady results for the first quarter position us well. We're on track towards the year of growing revenues, improving margin, improved efficiency and ultimately expansion of our bottom line. We look forward to talking with you again in July and if you have any questions in the meantime as always give us a call and thank you for your interest in Associated.

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