Philip Flynn - President and CEO Chris Niles - CFO Scott Hickey - Chief Credit Officer.

Jon Arfstrom - RBC Capital Dave Rochester - Deutsche Bank Emlen Harmon - Jefferies Ebrahim Poonawala - Bank of America Ken Zerbe - Morgan Stanley Stephen Geyen - D.A. Davidson Scott Siefers - Sandler O'Neill & Partners Tom Alonso - Macquarie.

Good afternoon, everyone and welcome to the Associated Banc-Corp’s First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference.

Copies of the slides that will be referenced during today’s call are available on the Company’s Web site at associatedbank.com/investors. 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 Web site in the Risk Factors section of Associated's most recent Form 10-K and any subsequent SEC filings.

These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please see 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 as usual are Chris Niles, our Chief Financial Officer and Scott Hickey, our Chief Credit Officer. Our first quarter highlights are outlined on Slide 2. Our results reflects continued loan growth, higher insurance commissions and benign credit trends.

Average loans of $17.8 billion grew $428 million from the fourth quarter. Personal loans accounted for most of the overall growth. Average deposits of $19.1 billion were up $523 million from the fourth quarter with money market accounts contributing to most of the increase.

Net interest income of $168 million was up from last year but down from the fourth quarter. Net interest margin compressed more than expected as we saw added growth in higher quality but lower yielding commercial loans along with greater than expected levels of mortgage prepayments.

Our margin pressures were offset by a strong quarter for insurance commissions and mortgage banking income, which drove non-interest fees up $10 million from the first quarter. Our expenses were in line and only increased $2 million from the fourth quarter largely due to the Ahmann-Martin acquisition.

Overall, we delivered net income to common shareholders of $45 million or $0.30 per share, an 11% year-over-year increase. We also delivered a double-digit return on Tier 1 common equity for the third consecutive quarter. Loan details for the first quarter are highlighted on Slide 3.

As I said average loans grew $428 million from the fourth quarter to $17.8 billion. This represents growth of 2% quarter-over-quarter and 10% year-over-year. Growth during the quarter was driven by our commercial and commercial real estate businesses which were up over $300 million combined.

Our retail loans grew over 100 million as growth in mortgage balances were partially offset by continued run-off in our home equity and instalment loan portfolios. Average commercial and business lending portfolios grew $272 million or 4% during the quarter. Within this group, general commercial loans grew $168 million or 3%.

Over half of this growth came from our REIT and Healthcare segments. These credits typically have higher credit quality and lower yields, more in line with investment grade credits. Oil and gas average balances grew $92 million during the quarter with most of the growth driven by higher fundings in the fourth quarter.

End of period balances grew only 26 million or 3% from last quarter. Power and Utilities average balances were down slightly in the first quarter as there were a few substantial payoffs at the end of last year.

As mortgage refinanced activity picked up during the quarter, our mortgage warehouse portfolio grew 5% and was up about $200 million compared to last year. Average residential mortgage loans grew $174 million or 4% in the first quarter driven by continued strong ARM production.

During the first quarter total mortgage production of $780 million was up 4% from the prior quarter. Slide 4 reflects the trends we've seen in our commercial line utilization. Commercial and business lending utilization increased 200 basis points from the fourth quarter. First quarter utilization is up 6% compared to a year-ago.

Mortgage refinance activity in the first quarter drove our mortgage warehouse utilization rate up to 55% compared to 24% a year-ago. Commercial real-estate line usage has moderated as this portfolio has matured and stabilized after several years of growth.

The higher utilization rates in 2013 reflected a ramp up in construction financing as a result of improved market conditions. In 2014 utilization rates began to decline reflecting payoffs of the short-term deals driven by permanent refinancing and property sales. We expect commercial real-estate utilization rates to expand as we approach the summer.

Moving to deposits and funding, average deposits of $19.1 billion increased over $500 million from the fourth quarter. Average money market balances grew by over $400 million or 5% from the previous quarter and accounted for the majority of the growth.

Notably average time deposits grew $45 million during the first quarter as our special rates on longer-term CDs attracted more customer traffic. That’s the first growth we've seen in CDs in years.

This growth in total deposits combined with the proceeds from our debt offerings in the fourth quarter allowed us to pay down 1 billion of our FHLB advances in the first quarter. Turning to Slide 5, on a year-over-year basis first quarter net interest income was up $3 million.

However compared to the fourth quarter net interest income was down $7 million and that was due to three primary factors. First $2 million was related to the day count difference between the quarters.

Second, our cost of interest bearing liabilities increased $2 million related to the full quarter impact of the $500 million debt issuance in November 2014. The remaining $3 million was attributable to overall loan yield compression along with lower interest recoveries and prepayment fees.

Net interest margin for the first quarter was 2.89%, down 15 basis points from the fourth quarter. The average yield on total loans declined 14 basis points. The largest portion of this decline was attributable to loan yield compression resulting from adding incremental higher quality commercial loans at lower yields in our existing portfolio.

Three basis points of decline was attributed to less interest recovery prepayments compared to quarter four. Finally higher mortgage prepayments resulting from re-fi activity accelerated our write-down of mortgage origination costs and reduced NIM by one basis point.

On the liability side, our total cost of interest bearing liabilities increased four basis points from the prior quarter. This increase was predominantly driven from the full quarter effect of the November 2014 debt issuance. Looking forward, we remain asset sensitive to short rates, particularly LIBOR.

We expect fewer interest recoveries and modest ongoing compression related to new volumes as we continue to focus on new high quality commercial loans with yields well below our existing book. Absent any Fed action, we'd expect two to four basis points of continued quarterly compression through this year. Non-interest income is highlighted on Slide 6.

Total non-interest income for the quarter was $80 million, up $10 million from the fourth quarter and up $7 million from a year-ago. Insurance commissions of $20 million were up $9 million from the fourth quarter and up $7 million from a year-ago. This increase was primarily related to our acquisition of Ahmann-Martin.

Mortgage banking income of $7 million was up $4 million from the fourth quarter and was up $1 million on a year-over-year basis. The increase from the fourth quarter was largely attributed to a more favorable mark-to-market on our pipeline and the release of repurchase reserves on previously sold loans to the GSEs.

Turning to slide 7, total non-interest expenses of a $174 million were up $2 million from the fourth quarter. Without the Ahmann-Martin expense impact of nearly $4 million, expenses for the quarter would have been down. Personnel expense of 100 million in the first quarter was up $3 million from the prior quarter.

Occupancy expense increased $3 million from the fourth quarter but that was related to a non-recurring one-time lease breakage expense linked to office consolidation in Chicago. Advertising expense declined $3 million from the prior quarter. Our advertising expenses are seasonal and we typically have higher expenses in the spring and fall.

Our first quarter effective income tax rate of 32% was up modestly from last year's blended rate of 31%. Turning to Page 8, we'd like to give you an update on our oil and gas portfolio. Last quarter we disclosed the specifics of the G&A or a stress test that we performed.

As a reminder we stressed at $50 per barrel for the next five years and $55 per barrel thereafter without changing any other volume or costs. Give this price outlook, the qualitative and quantitative loan loss reserves for potential losses was $17 million at year end 2014.

At the end of the first quarter, the Nimex Five [ph] Strip was similar to our last stress test. So we determined that another test wasn’t necessary. However as a result of downed migration within the portfolio we've increased our reserve to $27 million.

We continue to monitor this portfolio closely and we'll have new engineering reports during the second quarter to be used in borrowing base lease terminations. Turning to Page 9, potential problem loans increased 28% million this quarter related to the down grade of a few of our oil and gas credits.

At $219 million, the balance is essentially flat from year ago. Net charge-offs were only $6 million for the quarter, up slightly from the fourth quarter. The level of non-accrual loans to total loans in the first quarter improved to 97 basis points, down from 101 basis points.

First quarter non-accrual loans of $174 million are down slightly from both the prior quarter and last year. Total allowance for loan losses equals 1.48% to total loans, covers a 152% period end non-accruals. The provision for credit losses was $4.5 million in the first quarter compared to $5 million last quarter.

Turning to Slide 10 we've included our 2015 full year outlook. Our only change from last quarter is that we've updated our margin outlook. Assuming no Fed actions on rates our outlook is for modest compression 2 to 4 basis points from the first quarter, throughout the year as well as continue to reprise lower. With that, thank you.

We'll open it up to your questions..

(Operator Instructions) Our first question comes from the line of Jon Arfstrom with RBC Capital. Please proceed..

Quick question for you on the higher quality credits that you talked about driving some of the margin compression. Can you talk a little bit about the decision and the profile of the credits? I think you touched on it briefly but maybe give us a little more detail as to what they are..

Just going back, I think we've been very clear that despite the very low interest and long low interest environment we've been in, that the Company has not been willing to stretch into higher yielding but riskier after classes, nor have we been willing to extend the duration on the loan book or the securities book.

So we've been really very much sticking to what we think are sound assets classes and careful interest rate management. This particular quarter we put on a reasonably significant amount of REIT and healthcare credits, which are almost all investment grade quality. They necessarily carry lower yields.

We're doing this business of cross sell other things. But a lot of banks have commented over the last couple of days about net interest margin compression, and the outlook for the year and we are very much in the same boat.

It's very late in the game to try to change our strategy and take more risk in assets or on interest rate risks and we're not going to do that. So we will continue to move forward on the strategy that we have and really won't see any release NIM of course unless the Fed moves sometime this year..

Okay.

And is the net of the equation net interest income growth for the year?.

We believe we should be able to get net interest income growth despite we did last year. And then we grew NII last year despite the fact that NIM compressed. We have very comfortable loan growth as we expected and we're certainly on target for the high single digit average loan growth that we expected this year.

We are continuing to run the bank for dollars of income and that’s where we focused on..

And then go for the comment again on the energy and loan growth. I think what you said is -- just go over it again, the averages versus the period..

Yes. So if you look at point to point, as in where we end at December 31 and where we ended March 31, the total oil and gas reserves secured loans were up $26 million. The average was much higher than that because we had significant fundings at the end of the fourth quarter.

We actually expect as we go into the second quarter to probably see some decline in overall outstandings as lease terminations start to trigger some pay downs..

And then just a separate question on credit. It looks better overall. But it looks like C&I non-performers were up a bit and CRE non-performers are down.

Can you maybe give us a little more detail on those changes?.

Scott, do you have that detail?.

Yes, I mean if you look at the non-accruals, commercial was basically flat quarter-to-quarter. We were basically down $3 million. So, really nonaccruals were I would say flat..

Yes, just as a reminder, we’re talking about such low numbers now that even a very small credit moving around should boost the numbers. .

Okay. I’ll look at my numbers and hop back in the queue. Thanks..

That’s fine. Our outlook for credit continues to be very benign with the exception of as we go through the borrowing based determinations on oil and gas. We’ll probably see some noise there as we talked about a couple quarters ago but we have no indication that credit has turned if you will..

Okay.

And then just the jump in the potential problem loans, is that substantially all of it is energy?.

Those were down grades to oil and gas reserves. Reserve secure loans, yes..

Thank you. Our next question comes from the line of Dave Rochester with Deutsche Bank. Please proceed..

On the guidance for non-interest income growth, you’re using a 290 for that base level for the guidance for 2014, right? I just want to make sure I’m using the right thing. Because if I annualize the first quarter fee income, it seems like that would give me stronger growth in the mid to upper single-digits for 2015.

I realize that insurance line is seasonal, but you only have a partial quarter impact from the deal in that right now and the 1Q numbers right. So you’re expecting a little bit more of an uptick in 2Q there..

Yes, we've [indiscernible] the insurance business. Our insurance business is particularly strong in the second quarter because of the benefits cycle. It tends to trail off if you go back due to the seasonality in the second quarter and the PMC business had a little bit of seasonality in the first quarter.

So we've picked up some of the seasonal components and what we'll see going forward in one of the normalized components. That wouldn’t necessarily annualize everything. And keep in mind the mortgage banking business is not a business you want to have to annualize..

Right, understood, got it..

We enjoyed being in the $80 million, no doubt..

Right. Okay, understood. And on the expense guidance, I was wondering if you’re still thinking expenses will come and below the $700 million mark for the year? Like what you were talking about last quarter. .

Yes. We absolutely expect to come in at 700 or lower. It's one of the numbers we get to control..

Got it. And the occupancy expense, you said there was a one-time in there for the lease break.

How much was that?.

$3 million..

On the energy reserve, I appreciated the color there. So that reserve was up $10 million this quarter.

I was just wondering how much one of the portfolio you would say you’re willing to hear back from a redetermination perspective? Have you gotten reports on their behalf of these credits at this point or maybe just?.

No, we haven’t -- we essentially don’t have any reports yet on it. We’re being proactive..

Okay, got you. And then just one last one on capital. I know you guys have talked about your Basel III Tier 1 common ratio range and that 8% to 9.5%.

We're at the upper end of that range right now and I was wondering if you have any similar ranges or implied similar buffers for the Tier 1 capital ratio or the Tier 1 leverage ratio? Just trying to figure out repurchase activity going forward. .

We continue to be very opportunistic. Obviously we’ve been fairly consistent about the normal patterns and you can see that we’ve driven the numbers into the ranges that we laid out for you. At 939 I think we’re very comfortable with that number and we probably still have some capital flexibility relative to the public as we talked about.

Our priorities remain the same though; grow the bank, grow our organic assets, pay a reasonable dividend, look for M&A worth adding value and if not we'll probably continue to buy back stock..

Thank you. Our next question comes from the line of Emlen Harmon with Jefferies. Please proceed..

Just often because -- could we hop back to the Ahmann revenues just quickly. You guys I think last quarter talked about them adding, call it $25 million in fee income this year.

So with already $9 million, with kind of half a quarter under your belt, was that actually conservative or should we expect that kind of meaningful seasonal normalization through the rest of the year. .

Now the portion attributable to Ahmann-Martin is closer to six and change. Other factors contributed to the strong first quarters numbers as well. .

Our organic business had a good quarter..

And the effect of cross sell implications, I can't tell you that that's related to that yet but it wasn’t important..

Got it, okay. And I did notice the end of period shares appear to be up.

Is there some effect -- that’s more I guess that I was expecting from the Ahmann deal loan? Is there another effect in there that we should be considering and just kind of how should we be thinking about the share count going forward?.

Certainly ordinary course the Company has incentive plans which typically have shares issued investing and we issued some more shares to a number of layers of employee space. And shares that were previously under performance plans have also vested and that all happens in the first quarter.

So you don’t see any much -- you won't see much noise in the second, third or fourth quarter related to that activity, but there is sometimes noise in our first quarter..

Thank you. Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed..

Just a quick question, I guess on the deposit side, if you can talk a little bit in terms of what drove this and I'm sorry if I missed it.

Actually, you mentioned this earlier in terms of what drove the growth in sort of the money market deposit this quarter? And then did sort of targeted strategy with some promotions to sort of maintain that loan to deposit where it is today and growth deposits? I'm just wondering if you should see that funding cost as far as deposits are concerned edge higher through the year..

I don’t know. In the absence of many Fed action, I think what we can count on is we’re going to continue to look for a funding strategy that positions us well and to remain asset sensitive.

What we’ve been doing in the last couple of quarters is having a CD special and where you see the rates have gone up the most is deals that our Page 6 and our analysis is our time deposit cost of funding, that’s been drifting higher, as we’ve been offering special four-year and five-year CDs.

We continue to think reflecting those reasonably in the marketplace competitively with U.S. Bank and [indiscernible] and others that are also offering similar CD specials, but that is causing that component of cost to trip a little higher. You just see a bit of an uptake, a basis point in the money market deposits.

Really that was because we’re able to find some alternatives, larger dollar relationships that we can use the takeout some of the federal home loan bank activity. In the grand scheme of things, we prefer working with customers to dealing with the better home loan banks..

Understood.

And then just in terms of the home equity portfolio, when does it stop? Is there a point or is there a lot more run-off to go before it stabilizes at some point?.

If you go back a few years, it's been slowing and we’re getting close probably to the inflection point. We’ve got that number lumped in with student loans that run-off. So it's a lot less run-off than we were seeing say a year ago.

There is -- I think when we file the [indiscernible], only 250 million of those that are really truly first-lien home equity positions, that’s the most sensitive and that number was well over 700 million, 800 million.

So that’s the piece that's been burning down as people are refi-ed out of their first-lien home equities into new actual first mortgages. But that’s got a limited room, but it could be a while for the course of year. If stable, it continue to slow, we’ll get to a term maybe sometime this year..

Understood. And if I can sneak in one last question just in terms of follow-up on your oil and gas disclosure. It seems like you moved from unallocated reserves towards sneaking a specific reserves against that portfolio.

Am I thinking about that correctly, the 17 to 27?.

This is Scott. Although we do have some qualitative reserves. The majority of the increase came through our quantitative, as the credits migrated into lower grades, they attract more reserves. So it's more along lines of risk ratings than a qualitative piece..

Understood. And just because it means -- I guess we are trying to figure out how this plays out.

How do we think about in terms of the work you’ve already done and sort of the re-grading that you’ve done on that portfolio so far and what should we expect as you go through that spring cycle? Like do you think that there would be a lot more surprises that that could actually have a PNN [ph] impact as you provide for these or no?.

What we’ve said I think two quarters ago when we started these disclosures was expecting the ways around provisioning, but we don’t think we have a lot of loss content in our reserve secured portfolio. And we’re still there. We don’t have the new engineering yet. That will be coming in over the next two months as with their entire industry.

And that will give us a lot more of insight into volumes and we’ll be able to drive some cost analysis from that too. So it's really too early to tell, but we are still very comfortable that we don’t have a lot of loss content in this book..

Thank you. Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed..

Just going back to the Ahmann-Martin acquisition, just want to make sure I got my numbers right. So the $6 million is the incremental revenue, $4 million is the incremental expense.

So if you think about sort of a $2 million pre-tax earnings contribution, is that -- if we look out over the next few quarters or years, is that the right number to think about or is there still something else that that it could drive or change profitability?.

I think Ken, keep in mind we've only really had two months of activity and because of the nature and the way that area overrides and end of year calculations are done for insurance companies, we probably pick up some benefit in the first quarter.

That’s partially attributable to activity that's carried over from last year and that activity won’t be recurring in the second, third and fourth quarter on the PMC businesses. Just like in the benefit business, we’ll pick up benefit in the second quarter that won’t be recurring in the third and fourth.

So I wouldn’t -- I would caution you not to annualize, but yes it's been, we believe a successfully closed acquisition and an acquisition that's off to a good start and one that we feel really good about and we appreciate the hard efforts that were made -- team members that’s been involved and bringing together and we’re on a good path..

And just to push a little harder on this. So, again I don’t mean to put words in your mouth.

But if the revenues are unsustainably high, just because you said you picked up some benefit from last year so those come down a little bit so your pretax of 2 million, and now something smaller than that and I think I remember and correct me if I'm wrong, that this wasn't supposed to be accretive until say 2017 I think.

Is the benefit of doing this acquisition more relates to cross sales and other things that are not actually directly tied to the insurance commission?.

We believe it will be a profitably acquisition. The Company was profitable also and it will continue to be profitable as on. Together, we think we’ll be more profitable.

Keep in mind that part of the cost of the acquisition also is amortizing the implied theme that we see and there is some of that costs as well which I don’t think you’ve factored into your analysis in your back of the envelope there which is part of reason why it won't be as accretive as you articulated on an annualized or quarterized multiple basis.

So yes it will be good. Yes it's going well. Yes we’re very pleased. And no, I wouldn't annualize our first quarter. .

Our next question comes from the line of Stephen Geyen with D.A. Davidson. Please proceed. .

Maybe question for Phil. Certainly, you’ve talked about just the entire commercial relationship being a factor in the kind of how you structure deals and that brings us income and interest income. Kind of looking at the fee income line, there hasn't been a lot of growth year-over-year for the last couple of years.

And certainly, there is been some changes in the retail customer and various transactions and the whole, due to regulatory issues and changes that have occurred in banking, as far as -- does it drop off the revenue.

Can you point to us where you’ve had successes and where you see the opportunities going forward?.

You’re absolutely right. Reg E and Durbin took a gigantic chunk out of the entire industry's fee income. And so the entire industry is working back from a new base-line.

Our various fee generating businesses, whether it's insurance stuff we just talked about or some of the capital markets activities we have, deposit fees are down a little this quarter just because of the day count. Our Trust fees, our asset management fees, almost all of our fee lines have been growing at modest cliffs from the bottom.

So, the strategy whether it's a private banking customer or commercial customer is to cross sell as best we can and generate additional income. If we were to stop making loans to commercial borrowers these days, we’d probably stop because that you can't get a reasonable return in this rate environment if you are not doing other things.

So, the Company is very focused on cross-selling. But in general, our various fee components are performing well..

Do you think you are getting – well, capital markets really impact from -- because of the rate environment, but do you think you are getting your fair share of treasury management part of the relationship and other fee-based businesses from the commercial customer? Are you at where you want to be?.

I’d say we've a ton of work to do there and have worked single on now for years. We still are relatively, in my view, under indexed in collecting our share of the commercial deposit treasury management business from our commercial borrowers. But there is a lot of effort, a lot of investment has been made there, and we’re progress.

But we've a lot of upside there to go..

Our next question comes from the line of Scott Siefers with Sandler O'Neill & Partners. Please proceed. .

Just wanted to ask a quick question on loan growth. So, obviously you’ve benefited quite a bit from energy as a contributor to your total loan growth, sounds like it’s understandably going to be down going forward.

But in the aggregate what we saw in the first quarter is that a high watermark for growth in your guys’ opinion or is there enough just other core growth that you can still absorb a more material slowdown in the oil and gas portfolio and still generate? The reason I asked this is because I think you can basically kind of flat line the average first quarter number through the remainder of the year, and still have pretty good year-over-year growth.

So, just curious how you are thinking about the dynamic through the rest of the year?.

So when we provided guidance as far as loan growth this year in January we certainly assume that we wouldn't enjoy the same growth that we had for the last couple of years in the oil and gas business. And we feel like we have enough other businesses that are well positioned that we will achieve the high single-digit growth that we forecast for you.

So, we did take that into account..

All right, and then…..

And secondly your fee aggregate total loan growth period to period to period it’s not going to…..

I get that I guess I was just wondering about that..

The only thing I would temper is, the competition, and we’ve talked about this, quarter-after-quarter-after-quarter. The competition for quality commercial banking assets, continues to ramp up. Almost everybody is still in a lot of NIM pressure. And the reaction of many is to make it up in volume. So, yields are going down.

And we are turning down more and more frequently opportunities to do credits when we just don’t think there is going to be a reasonable chance that we're going cross-sell, other products and services. And just putting-on a loan at date yield at less than two, just doesn’t make any sense.

So, there is probably, as we sit here three-months after giving guidance, little more pressure on our outlook on loan growth. We still we will get to the guidance we provided or we would have changed it for you.

But there will be more pressure, just because we are not going to just lay-out loans if we don’t think we can get a reasonable return on capital from them..

And then I guess just along the lines of pricing. So, if you kind of net all the moving parts of the benefits last quarter and to the margin from the interest recovery is then the full quarter impact into that. So the margin came in about 5 basis points or so, worst than you anticipated.

What would cause the amount of compression just below? It sounds like there is going to be less interest recoveries going forward, that competitive dynamics still continues.

So, why wouldn’t something in the mid single-digit just continue until the Fed does something?.

Forecasting NIM is a -- I refer to it as some of our folks sort of pull there, because there are so many moving pieces. Our best estimate and we did a bunch of work on this, this past week as we think about two to four per quarter is about what we'll see, taking into account everything that you just ran through and other things as well.

What would make that better, if you have a hot line to the fed, please use it..

I'm not I am going to take into I will do what I can..

Just to add one point I think keep in mind that Phil articulated in his comments, at least the basis points of the NIM was lost -- the February refi-boom that we saw in the mortgages.

So if there is not another downward boom refi event should stabilize or something less than the five and further we saw a very competitive market I think we're reacting to sort of new Basel III. We’re all reacting to capital consideration people are looking at these banks.

And I would suspect that we’re going to be very thoughtful on our pricing as we move forward, not only us but everyone else in the marketplace. So I'm thinking there is going to be stability..

You are describing an awful lot of price discipline to the banking industry..

I have, I hope you’re right..

We’ll hope for the best. And if I can just sneak in a couple of kind of tricky type questions, the energy downgrades.

Were those traces that you guys made or were those driven by the leads? And I guess regardless of we made the decision are you guys noticing any more regulatory pressure to be also conservative just given the environment, how is that all working on?.

All of these downgrades were internally driven as we review the portfolio. Now that being said, as you know, the Share National Credit exam will be taking place. And so sometime in the second or third quarter, we will have feedback from the regulators and those large credits. But for now, all of this is done by internal risk rating reviews..

And then Chris just a final one, I think I might have missed some of your color on mortgage banking.

Out of the $7.4 million, what's kind of a core number in there once you kind of net-out any write-ups repurchase reserve release, et cetera?.

With or without another refi -- I think it's an interesting core number keep in mind we've reported quarters here and that number was 19 million and we recorded before so that number was 3 million. So between 3 million and 19 million, seems pretty core..

It's really difficult, as you know. And so much of it depends on what happens to rates literally on a day. So, it's hard to describe core to that number..

The mark to market on our pipeline at the end of the number could be several million dollars.

And that’s function of where the rates are on that day and what loans are in the pipeline over preceding 30 to 60 days depending upon our churn times, so it's somewhat difficult to say what's this true core but we've seen good spreads, good gain on sale, good volume and the team has been doing a herculean job of getting products or customers done in the marketplace.

And we continue to have a very strong and leading market share here on core markets and to do a lot of very good business in the surrounding things..

Our next question comes from line of Tom Alonso with Macquarie. Please proceed..

Most of my questions have actually been asked.

Just is there a way -- could you tell us what the reserve release in the mortgage banking line was?.

1 million..

Okay. So, not a tremendous impact there, okay, great.

And then just I guess on the energy stuff, your confirm in terms of not a lot of loss content, is that just the idea that if guys do find themselves in trouble, is this probably; A more collateral, they can bring to the table because they’ve continued to drill over the past year; and/or B is there a way that they can start to pay down a little bit faster maybe the exploration side of the E&P equation goes away and that cash flow starts to come to you guys.

Is that the way we should think about it?.

There is a lot of factors to go in I mean the first factor is the underwriting standards that we and most of the banks follow here provides a lot of cushion.

Two, there is a lot of different ways that oil and gas companies can typically pay down their debt, whether it’s as you said bringing more collateral over the party they can improve the cash flow by reducing expenses. And we’re seeing that happen very rapidly.

I mean you actually saw production start to decline in the Bakken which has been fueling some of this rally we’ve seen in last couple of days. There is also a lot of price equity money on the side lines looking for opportunities to be deployed at lower cost bases as far as acquisition costs and what was up there a year ago.

And you got strategic players who will undoubtedly be active as perhaps some of the larger independents or independents feel some pressure.

So, besides the very conservative underwriting that goes in at the start, there is a lot of other ways for people to -- they've reduced their borrowings, add more collateral, or improve their cash flows or find buyers, if necessary, for properties or themselves..

Thank you. [Operator Instructions] Our next question comes from the line of Chris McGratty with KBW. Please proceed..

Chris on your margin outlook, I’m assuming you said we get a rate hike in the back-half of the year, maybe late in the year.

Can you talk about the lag effect of stabilization? Is that the time when the margin pressure nearly stops? Or can you maybe answer the question in terms of the amount of -- minus the amount of floors, the timing that you might think before you get to go the other way and then kind of benefit from what you described as asset to balance sheet?.

On the asset side, I remind you that well over 85% of our loans re-priced or reset very quickly at a time and the bulk of our loans well over half we said actually to LIBOR or essentially a 30 to 90 day roll basis. So, we would expect that the asset side of our balance sheet would re-price a very significant portion within the first quarter.

And at this point in time really there are no meaningful floors that would come and strain the upside. I will always highlight that along side of the significant LIBOR loan books that we have we have a fairly significant money market deposit.

So the real question is will be, to what extent we will be able to lag the money market deposit re-pricing to benefit from that uptick. And at this point in time, we continue to believe that much of our money market book is very core. We’ll have a reprising lag opportunity as said on administered rates, not necessarily index rates.

And we will provide a very substantial opportunity to benefit from that lag. I don’t think that I’ve done this before, at different place, at different time, every time is different I don’t know that we’ll see the same sort of rapid uptick that we saw four, or five, or six, but it’s good to be a competitor market that’s got some rational big players.

And I have no reason to believe that the other big deposit taking institutions here in Wisconsin and Minneapolis won’t be very rational..

Okay, helpful, thank you. So on capital deployment [indiscernible] you real talk about bank M&A but I know you haven’t done anything yet.

But is there any change in kind of appetite for bank deals or is it going to be continued kind of buybacks over the course of the year?.

We continue to be in dialog with potential partners and that hasn’t changed. And our priority is still to find something that makes sense for us that fits our risk profile versus doing buybacks..

And you might have the size of at this point given you haven’t done a deal that you will be still be focusing on smaller institutions are there opportunities to do multibillion dollar deals?.

There’s opportunities to do almost any size of deals to tell you the truth. But you’ve been around as long enough to know that we are risk adverse bankers. So the larger the transaction the more risk there would be. And considering this institution hasn’t bought another depository since 2007, my bias is to do something smaller at the start. .

Thank you. We have no further questions in queue at this time. I would like to return the floor back over to Mr. Flynn for closing remarks..

Thanks, and thank you, everybody for joining us today. In closing, we are pleased with this quarter’s performance. We had strong loan growth, higher fees, stable core expenses and we continue to return capital to our shareholders.

In this low rate environment, we’ll continue to control expenses, grow our loans and fees and do our best, to defend our net interest margin without taking undue duration or credit risk in search of yield. I look forward to talking with you again next quarter. If you have any questions in the meantime, as always, please give us a call.

And thank you for your interest in Associated..

Ladies and gentlemen, this concludes the Associated Bancorp’s first quarter 2015 conference call. You may disconnect your lines at this time. And thank you for your participation..