Phil Flynn - President and Chief Executive Officer Chris Niles - Chief Financial Officer Scott Hickey - Chief Credit Officer James Simons - Deputy Chief Credit Officer.

Dave Rochester - Deutsche Bank Timur Braziler - Wells Fargo Securities Ebrahim Poonawala - Bank of America Merrill Lynch Chris McGratty - KBW Jon Arfstrom - RBC Capital Markets Michael Young - SunTrust Robinson Humphrey Kevin Reevey - D.A. Davidson Nathan Race - Piper Jaffray Scott Siefers - Sandler O'Neill.

Good afternoon everyone, and welcome to Associated Banc-Corp's Fourth Quarter and Full Year 2016 Earnings Conference Call. My name is Daren 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.

The slide presentation and accompanying press release, financial tables 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 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 under page 10 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..

Thanks and welcome to our fourth quarter and full year 2016 earnings call. Joining me today are Chris Niles, our Chief Financial Officer, Scott Hickey, our Chief Credit Officer and Jim Simons, our Deputy Chief Credit Officer. For the quarter we reported $0.34 per common share, our highest quarterly earnings of the year.

The fourth quarter benefited from stabilizing margins, higher net interest income and lower provision. For the year we reported $1.26 per common share. We delivered positive operating leverage on higher net interest income and fee revenues combined with slightly higher expenses. Our progress against our 2016 priorities is summarized on Slide 2.

Average loans were up 8% from 2015 with growth driven by commercial real estate and residential lending. We'll touch more on loans on the next slide. Deposit growth was quite good year-over-year. Average deposits were up 6% from 2015. We focus our efforts on growing organic, long-term deposits.

Our affinity programs and evolving mobile technology have proven to be affective in capturing low cost deposit balances. Non-interest income increased $24 million from 2015 driven by significant growth in capital markets and insurance commissions businesses where we've made great strides in deepening our client relationships.

Expenses increased 1% from the prior-year and included $5 million of severance. We improved efficiency over 200 basis points year-over-year and we've now lowered our efficiency ratio for five consecutive years.

We posted near double-digit returns on capital and returned 35% of the year's net income to shareholders through dividends reflecting our disciplined approach to capital management. The 2016 loan details are highlighted on Slide 3. Average loans grew $1.4 billion or 8% from a year ago and were up nearly $5 billion or 33% from 2012.

Highlighted in green, residential lending was the primary driver of our growth. Average balances were up $618 million or 11% for the year. We remain the largest mortgage lender in Wisconsin and have significant market share in Illinois and Minnesota as well.

Residential mortgage has continued to represent approximately 31% of our average total loan book. In orange, commercial real estate lending has been a steady contributor to our growth over the past five years and was up 12% this past year. During 2016 we added over $0.5 billion of CRE outstandings principally across our eight-state footprint.

Now at $4.7 billion, CRE accounts for 24% of our average total loans and is well diversified. Multi-family, retail and office projects each comprised between 20% and 30% of our commercial real estate outstandings at year end. Presented in blue, the commercial and business lending portfolio grew by 360 million or 5% from 2015.

Although all commercial growth was driven by solid performances from our power and utilities and REIT businesses, our goal for our specialized vertical is to act as agent, underwriter and syndicator. We've made good progress on this front in 2016.

Our commercial and business lending portfolio accounts for 38% of average total loans, manufacturing continues to be our largest industry exposure at year end. And during 2016 we continued to see run-off in our home equity and installment portfolios. Loan details for the fourth quarter are highlighted on Slide 4.

We closed the quarter with $20 billion in loans, a new high watermark. Average loans decreased $76 million down less than 1% quarter-over-quarter. We remind you that we settled over $200 million of loan sales late in Q3 which contributed to the downtick in average loans in Q4.

Historically we have enjoyed stronger loan growth during the first half of the year and softer growth over the back half. This pattern repeated itself once again.

Seasonality and commercial line utilization is contributor to this pattern while the power and utilities and REIT areas saw continued growth, our mortgage warehouse and general commercial outstandings declined. Overall commercial line utilization decreased from 54% in Q2 to 52% in Q3 and was down to 50% in Q4.

Shifting to residential mortgages average balances increased by $63 million during the quarter. We remain primarily an RM lender for our portfolio with RMs accounting for approximately 75% of our residential mortgage portfolio at year-end up from 70% last year. I'd like to highlight a recent shift in our residential mortgage strategy.

Historically we have sold the majority of our long dated loans to the agencies. Beginning in the fourth quarter, we began to hold some of our 30-year mortgage production and we intend to retain more over the next several quarters. We've matched this activity with reduced mortgage backed securities purchases.

In a rising rate environment, we believe this strategy will result in higher revenue as increased net interest income will largely upset reduced mortgage banking revenue realized during 2017.

Heading into 2017 we are well positioned to capture market share and new customers in all the markets we operate in and we anticipate mid to high single-digit annual average loan growth. We highlight our annual deposit growth on Slide 5. Average deposits grew 1.1 billion or 6% from a year ago and have grown 35% from 2012.

In 2016 nearly all of our growth came through our demand account relationships. In particular 2016 was a great year for our non-interest bearing demand product. Average non-interest bearing balances topped $5 billion and we are up more than 10% from the prior year.

On the right side of the page, the chart illustrates the cumulative growth of our three largest deposit categories from 2012. We're particularly pleased to deliver this growth in an environment where we've been consolidating branches, streamlining deposit account offerings and adapting to evolving customer preferences.

Money market and time deposits our most expensive deposit categories decreased modestly in 2016. We managed these deposit categories down and focused on growing lower cost balances. We're committed to building a simpler way for depositors to bank with us. Our results were encouraging.

On average over 55% of our deposit and withdrawal activity now occurs outside of our branches. Over 30% of our retail depositors have signed up for mobile banking app, compared to about 25% a year ago. Additionally we saw more active online banking users year-over-year.

While we have good trends, there is still room to improve our customer awareness and adoption. We expect to roll out a new mobile app in 2017. In general, we are pleased to see continued and steady deposit growth in an industry that is rapidly changing. Deposit details for the fourth quarter are highlighted on Slide 6.

Average deposits were $21.7 billion up 2% from the third quarter. Despite the December Fed rate increase, we continue to see very little deposit pricing action from the larger institutions in our markets. The cost of interest bearing deposits remained relatively stable at 33 basis points, compared to 32% in the prior quarter.

We continue to grow our non-interest bearing deposits. Balance were up about $130 million or 3% in the quarter. This category represented nearly a quarter of our average total deposit balances in the fourth quarter.

Money market deposits were up about $200 million or 2% and our cost to money market deposits was 31 basis points up 1% from the prior quarter. All of the deposit categories were relatively flat from the third quarter. For 2017 we expect to maintain a loan to deposit ratio of under 100%.

We remain committed to funding the majority of our loan growth with core deposits. On Slide 7 we summarize the annual or credit quality trends of our loan bank. Our oil and gas loans are highlighted in light gray. In 2016 almost all of our non-accrual and net charge up activity was driven by the oil and gas portfolio.

Looking back over the entirety of 2016, while potential problem loans increased moderately, other credit trends outside of our oil and gas broadly improved. Non-accrual loans increased by $97 million primarily due to downgrades in oil and gas booked. These were partially offset by a net decrease in other non-accrual categories.

At year end, all oil and gas non-accrual loans were current on the contractual interest payments. Total net charge-offs for the year were $65 million, $59 million of which were oil and gas loans. In 2016 we took losses on three sizeable oil and gas credits which had some common characteristics.

We're comfortable that we don't have similar loss content in the remaining book. Nevertheless, given volatility in the oil and gas market price, we are retaining an allowance of 5.7% against oil and gas loans. Over the past five years, our overall allowance level has trended down reflecting the broadly improved credit environment.

Slide 8, we detail our quarterly credit quality trends. For the quarter, we saw declining levels of potential problem loans, non-accrual loans and net charge-offs. On a linked quarter basis, we saw improvement in oil and gas book. Potential problem loans decreased $90 million from the prior quarter.

Non-accrual loans moved in the right direction down $15 million. Our overall level of non-accrual loans declined to 1.37% of total loans from 1.46% last quarter. Total net charge-offs were $9 million for the quarter and were 18 basis points of average loans. Outside of energy, we continue to see remarkably low levels of charge-offs.

We ended the year with allowance for loan losses covering 101% of our non-accrual loans and representing 1.4% of total loans. Both of these ratios were slightly higher than the prior quarter. In 2017, we expect provisioning to adjust with changes in risk rate, other indications of credit quality and loan volume.

On Slide 9, we provide a little more detail on energy book which now accounts for about 3% of our total loans. Period end oil and gas loans were $668 million down $28 million from the prior quarter and down $84 million from the prior year end.

In 2016, we funded 14 new credits with $310 million of commitments at about $190 million of outstandings, nearly 30% of the books year end outstandings were originated in 2016. We remain committed to this business and we recently closed our first agency transaction.

Turning to Slide 10, full year net interest income was $707 million, up $31 million or 5% from 2015. Margin was down four basis points from 15 reflecting modest levels of compression through the first three quarters of the year.

Relative to prior year, the margin has generally stabilized and was in line with our expectations as Fed rates were largely unchanged during the year. The average yield on total loans was 3.38% down two basis points from the prior year.

Interest-bearing deposits costs were up 10 basis points from 15 reflecting the deposit base of 0.4 which was slightly better than our modeled expectation of 0.5. Looking forward, we expect deposit repricing to remain disciplined in our core Wisconsin and Minnesota markets.

Our other funding costs declined as we redeemed $430 million of senior notes in early 2016 and benefited from growing core deposits throughout the year.

Turning to Slide 11, net interest income was up $1.5 million or 1% from the third quarter, net interest margin for the fourth quarter was 2.8% up three basis points from Q3, the average yields on total loans increased to 3.4% for the quarter however this was primarily driven by $2 million of interest recoveries which added three basis points for the quarter's NIM.

Yields on investment securities continue to trend down and ended the year at 2.25% at these yields and this rate environment we are reluctant to grow the portfolio. In the fourth quarter, the cost of interest-bearing liabilities increased just one basis point from the prior and year ago quarters.

The December 2016 interest rate increase had no real impact to our fourth quarter's results but is expected to add to this year's bottom line. Looking ahead, we expect to see a stable to improving NIM trend assuming additional Fed action to raise rates. Annual non-interest income is highlighted on Slide 12.

In 2016 total non-interest income was $353 million up $24 million from the prior year. Fee based revenue grew by $8 million from the prior year and comprised nearly 75% of this year's total non-interest income. Growth was largely driven by higher insurance commissions.

Our insurance business acquisition in 2015 help to grow our insurance revenues from under $50 million to over $80 million in 2016. Last year, we rebranded our insurance business under a new name Associated Benefits and Risk Consulting which is more reflective of the comprehensive services we offer.

We also enjoyed strong growth in mortgage banking and capital markets activity this year. Capital markets fees increased significantly to $22 million and we're the largest contributor to this year's growth. We benefited from higher loan syndication activity and increased customer hedging transactions.

Of note for real estate transactions of $100 million or less, Associated Banc is the number one book runner with 43 syndicated transactions. We were number two in 2015.

Mortgage banking income increased $6 million from the prior year driven by portfolio sales generating $9 million of gross gains in the third quarter and higher overall gains on sales throughout the year. Turning to Slide 13, non-interest income was down $3 million in the fourth quarter.

Capital markets activity was quite strong again in the fourth quarter, we are pleased by the momentum we are building in this line of business. Mortgage banking was $12 million in the fourth quarter down from an elevated third quarter but up nicely from the prior periods.

Our insurance commissions were slightly lower in the fourth quarter and was down from the first half of the year as usual due to seasonal factors. Securities gains of $3 million in fourth quarter were driven by reduced investment positions. All other fee categories were collectively about $1 million in the quarter.

Looking ahead into 2017, we expect reported non-interest income to decline by approximately $20 million year-over-year. The drivers of the expected decline are lower mortgage banking income and increased tax credit investment activity. However this decline is expected to be largely offset in other reported income statement line items.

Reported mortgage banking income will be impacted by the retention of loans which will contribute to lower net gains for 2017, also $9 million of the past years mortgage gains were generated from portfolio sales which we don’t plan to repeat this year.

Over the last several years, we have expanded our tax credit investment activity, while to date this activity has not been particularly material, we expect it to become more meaningful starting this year. In general, we expect higher tax credit write-offs to occur in concert with lower reported tax expense.

Annual non-interest expense is highlighted on Slide 14. Positive operating leverage remains the top priority of ours and we are pleased with our consistent and steady progress. In 2016, revenues were up 5% while expenses grew by less than 1%. Our efficiency ratio was lower in 2016 and has now improved by nearly 600 basis points from 2012.

Enhanced automation, operational efficiencies and branch consolidations have all been part of the equation. We believe that our strategy of focusing on long-term reengineering is the right approach and we will continue to drive improvement over time. Total expenses for the year came in at $703 million.

Personnel expense increased $10 million from the prior year driven by $5 million of severance incurred in 2016. Excluding this charge, we held the expense line to under $700 million.

Overall non-personnel expense was down year-over-year as savings and occupancy, technology and other areas offset increases in FDIC expense and legal and professional fees. Slide 15 shows that non-interest expense was up $4 million from the third quarter driven by $3 million of severance reported in personnel expense.

During the fourth quarter, we restructured our commercial and business lending areas to improve profitability and ensure that these operations were positioned for efficient growth. Occupancy was down about $2 million from the prior quarter driven by a lease termination charge which was incurred in the third quarter.

Business development and advertising expense was up $1 million from the prior quarter reflecting an increased focus on our marketing activities related to mortgage and lending businesses. Outside of these larger movements, all other expense categories were steady quarter-over-quarter.

For 2017, we expect total non-interest expense to increase by approximately 1%. The Company's 2016 tax expense increased by $6 million and the effective tax rate was largely unchanged at about 30%. For 2017 given our increased tax credit activity, we expect an annual average effective tax rate between 28% and 30%.

So on Slide 16, we'd like to summarize our 2017 outlook. We expect mid to high single digit annual average loan growth and we expect to maintain our loan to deposit ratio under 100%. We expect a stable to improving NIM trend assuming additional Federal Reserve action to raise rates.

Non-interest income is expected to decline by approximately $20 million from 2016, as well as our mortgage banking revenue and tax credit write-offs are expected to be partially offset by continued growth in fee base and capital markets revenues.

We expect lower reported non-interest income to be largely offset by improvements in other income statement line items. Non-interest expense is expected to be up about 1%. We expect continued improvement in our efficiency ratio.

We expect to continue to deploy capital to our stated priorities, we continue to target the common equity Tier 1 ratio within a range of 8% to 9.5% and finally our loan loss provision is expected to adjust with changes in risk rate, other indications of credit quality and loan volume.

This outlook reflects a similar economy to what we experienced in 2016 and includes our expectation of two interest rate increases in 2017. The guidance does not reflect any changes to the regulatory environment or the corporate tax rates. We may adjust our outlook if and when we have more clarity on any of these factors.

And with that, we will open it up to your questions..

[Operator Instructions] Our first question comes from Dave Rochester of Deutsche Bank..

Hi, good afternoon guys.

On your slower loan growth guide for 2017, if you could just provide some color on what you think will grow more slowly next year, I know Energy was still considered - continue to be the drag but any other areas that stand out?.

No, I mean we're expecting mid to high single digit growth. This year we had 8%. The mortgage business is most likely to slow even though we are going to retain some mortgages as rates go up, things will slow there, the backlog is already slower this past quarter than it was in previous quarters.

Certainly the oil and gas business although we're active as some of the other loans are worked out in refinance, there is not going to be much upward pressure there. In general we are not really forecasting a really big change there..

Okay. And then on your NIM guide, I know you said that included two rate hikes. How will that look without the rate hike but with the curve as it is today. Would you expect stable NIM, would you still expect some pressure, just any thoughts there would be great..

I mean I think keep in mind and I think we have break it out in charts.

We've had interest recoveries along way, so our realized effective NIM is slightly less than the 280 net of the interest recoveries and so in a flat rate environment we tend to compete away a lot of the spread when renewals come up, you've see that in our sort of first and second quarters, we the banking industry and so in the absence of further actions, it is not clear how quickly our margins would grow.

On the other hand in spite of - in light of expected actions we expect our margins to generally expand..

Got you, okay.

And then just drilling into deals that are coming on today, where are securities reinvestment rates generally these days given the steeper curve?.

Yes, so generally I would say our current investment portfolio two in a quarter-ish or lower is given the stuff that we're buying and that's part of the reason why we've not purchased securities to the same degree in Q4 and we are shifting the strategy because new mortgage loans yield higher levels seem to make more sense..

And then where are spreads on C&I and CRE? Have those changed at all post rate hike and can you remind us what those are today?.

They haven't really changed much, you get the current numbers that are in..

The overall spread on our commercial book was 330 for the fourth quarter and 345 for the CRE book for 336 total..

And so post rate hike where would you be bringing in C&I and CRE at this point spread-wise versus LIBOR?.

Again they really - we haven’t seen any commercial actions that would tell us that spreads are widening yet..

Okay.

And just one last one on credit, you had mentioned the energy reserve ratio was up, there is a slide here but problem loans were down decently, so I was just curious what you need to see to actually reduce that reserve ratio on that specific segments?.

Well, it's highly likely that the worst is behind us obviously on our oil and gas portfolio. That said, a significant move on price accrued would potentially impact some of the loans that are still in the workout phase. So we are being conservative but it's likely that our oil and gas book will improve throughout the year..

Great, all right guys. Thank you very much..

Your next question comes from Jared Shaw of Wells Fargo Securities..

Hi, good afternoon. This is actually Timur Braziler filling in for Jared. I guess my first question is on commercial utilization rates, you guys have mentioned that for a few quarters now those have been trending lower.

Can you just give us a little bit of color what's going on in that book and what your expectations are for utilization rates as we head into 2017?.

I can't answer the question, I don’t really know, it's a fairly large book and there is no one issue that drives utilization across a pretty big book of loans. So we have had some seasonality that we have noticed between first half and second half on loans. So we will see what happens as we get into this New Year.

Much depends upon whether the optimism that's building in the economy actually is realized in actual economic activity..

Okay. Thank you. And then just switching gears to the mortgage banking business excluding the $9 million gain last quarter. Again a pretty strong quarter especially with the fact that you are now [portfolio-ing] [ph] more of that 30 year product.

What was the dynamic that drove that strong result and I guess was that shift in strategy, can you maybe help frame what that line item should look like in future quarters?.

Keep in mind we've began this shift to strategy mid-way to late into the fourth quarter. So essentially it had no impact on settlements, so if you look at Page 4 of the press release table, you will see that settlements were actually up essentially year-over-year and we're still strong in the fourth quarter.

We added settlements data for you to see that. So you will see the shift in banking income really start in 2017 as product that we originated or locked in November starts to close into the first quarter, so that's part of it.

And then secondly we will continue to keep a portion of not all our 30 year production and again that's - we haven’t quantified that number but that's baked into our overall loan growth guidance..

There is also a phenomenon that we have seen over many cycles of when folks think that rates are about to move, there is a little bit of a rush to refi. So for example in the third quarter about 40% give or take of our production was refi activity, it bumped up to more than 50% in the fourth quarter.

So it is probably a little bit of rush for people trying to get their refi done..

Okay. That's helpful color. And then one more if I could just following up on Dave's question on the energy reserves.

Given the perceived increased optimism with energy prices where they are, could we see some of that reserve shifted into new production in 2017 or is that still likely too early a timeframe?.

On the gas oil production?.

No, so the reserve that's going to be established for the oil and gas books shift over to production on other lending categories for reserves..

Well, I mean it doesn't exactly work that way.

I mean as the oil and gas book improves which we think will likely that level of reserves will come down and then we will be adding reserves for new loan volume but those new loans will be coming on at much different risk rates and take up a lot less potential reserve than the oil and gas loans occurring around today.

So, it's likely there is a net benefit there assuming the oil and gas book improves like we think it will..

Okay, thank you..

Our next question comes from Ebrahim Poonawala of Bank of America Merrill Lynch..

Good afternoon guys.

Just Chris first question following up on the margin, I think to understand sort of at least in the near term we are looking into 1Q, do you saw C&I yields move up nicely in the fourth quarter, I'm assuming picking up some of the move in the LIBOR like should we expect any pressure on the margins to 1Q as the money market deposits are repriced slightly higher and beta flows through or am I missing something?.

I think, Ebrahim, there really wasn't much pick up in the margin in the fourth quarter related to the December Fed hike, keep in mind the Fed hike happened after most loans are reset in the month and so essentially we won't really see the up-tick on C&I loans until January.

We do see some of the mark-to-market and money market in the current months that happened because they’re sort of price daily indexes. But you're right, we will still see more probably lead into January.

So I would say what you saw in the fourth quarter was the combination of recoveries and the mix of the book essentially helping the dollar numbers from the third quarter to fourth quarter on a small percentage basis. In absolute dollar terms, you will note there wasn’t particularly significant move and so on the C&I book in particular.

So I think you will see more of that pump come up in the first quarter but again there will be some offset in the money markets that will still be over into the first quarter as well..

But I mean if you assume we have no interest recoveries and we often have interest recoveries, they are hard to predict but that's more normal than abnormal. If you adjusted for that, there isn’t any particular reason why there will be downward pressure on the NIM post the rate hike, it should be a little bit of upward pressure with the beta point..

Understood, that's clear.

And what is the timing of the two rate hikes you assumed in your forecast?.

We haven’t specified it..

Got it. And just quickly I guess moving onto expenses, the 1% year-over-year growth guidance that's based on the reported $703 million number, I assume..

Yes, it's not adjusted on that..

And can we just talk a little bit in terms of areas where you are investing bit on the frontline, on the insurance side versus additional opportunities to restructure and is there anything left on the branch distribution side that you are doing which might show up as we move into 2017?.

Well we held our expenses essentially flat for about five years now. So we expect to basically continue that I mean 1% or less increases, I don't know if that's industry leading over this period of time but it is pretty good. So we don't have a lot of branches to consolidate at this point. We didn’t really do much of that this past year.

So there aren't any big branch consolidation plans, I think we have a footprint that's appropriately sized at this point.

That said, as consumer preferences continue to change and as mobile and online offerings become even more sophisticated, we are very cognizant of that, I mean I think we have been extremely diligent and if anything ahead of most banks on recognizing them, we got to change the distribution metrics.

We don't see any of that coming up, we are very aware that as people just aren't going into branches like they use to, we will adjust accordingly over time. But less than 1% continues to assume very significant technology investments of high teens to $20 million a quarter that we have been running for a while.

We continue to work hard on all kinds of back shop initiatives to continue to get more efficiency and that continues. We are just not a believer in announcing big programs to cut expenses.

I think you have seen us manage our expenses very well for these last five years, quietly letting the numbers speak for themselves, making the processes more efficient and then seeing the benefits flow through..

That's fair.

And if I can just sneak one last one in, you talked about ramping up or picking up a little bit in terms of the tax credit investments, how does any potential tax reform impact your decision around doing more or less of that or is it indifferent to what happens with the tax reform bill in Congress at some point this year?.

Well the assumption was certainly be that, if corporate taxation changes then the economics of your investments into tax credit will change as well. But we would assume that there would be adjustments in that business..

Got it. Thanks for taking my questions..

Your next question comes from Chris McGratty of KBW..

Good afternoon. Thanks for taking the question.

Chris can you just close the amount of premium amortization that went through this quarter and what was last quarter?.

So the change was a little less than a $1 million and we typically don’t give the actual number but you got the change less than a $1 million..

Okay. And another housekeeping, was there any adjustment to the MSR in the quarter that may have rented the mortgage loan..

There was not a material number there..

Okay. And then last if I could, just want to make sure I got the balance sheet guide appropriately, securities, the portfolio that you guys are talking about not that often to think about what rates are in portfolio putting bonds on the balance sheet.

Is there any way to think about the $6.4 billion, $6.5 billion of investment kind of holding study here and declining maybe as a percentage of assets or there is a dollar amount of securities trying going over '17..

I think as we're thinking above over the first half of the year it's more of the steady while we grow the rest of the balance sheet. And then we’ll look to see what type of investments so far we have with the balance of the year based on how much we retain and what the interest rate environment looks like that we move to the middle of the year..

Okay, great helpful. And then may be on M&A or potential use of capital outside of a dividend, can you just remind us you gave a target and you see one maybe what you’re seeing post election are there more potential parties going to talk or is that amount of strategy this year a lot of value. Thanks..

There has been continued chatter for - it certainly picked up some last year and I think it generally continues, we’ve been talking to folks so, whether it has anything to do the election or not I'm not sure but there is opportunities that we choose to pursue them..

Great. Thank you very much..

Our next question comes from Jon Arfstrom of RBC Capital Markets..

Thanks. Good afternoon. So good luck to the hometown team on Sunday..

Thank you..

I want to ask you questions about the game plan. We'll just stick to banking at this point..

Leave the ball in Rogers hands, and we will be good..

All right. Couple of follow ups here, the energy business you talked about starting to grow that business again what's the competition like. Do you have banks that are permanently gone from the business and you are seeing wider spreads and….

Absolutely..

Okay. .

And this is the time when you are in a business like this is cyclical, this is the time to be in the business. So we never set our window and you can see that we were active throughout the year. We're gaining opportunities now to step up and delete positions.

There are banks that have shut the doors and gone away and there other banks who are there but are not entertaining new opportunities. So, deals are better, there is more equity, there is less leverage, price seems better, it's clearly the right time to be in that business..

Basically the same type of business you've been doing all along..

Yes, reserved secured oil and gas lending, we are not doing anything other than that..

Okay. Chris I don't know if you'll bite on this, but I’ll ask it anyway.

Just how significant should we expect the growth to be in the single family portfolio in the coming year, I know it’s a bit of a shifting strategy and you’ve laid out the kind of the revenue puts and takes but what should we expect there?.

Well again we've given mid to high single digit total average loan growth.

So you can do the math on that and the mortgage growth has been a meaningful part of that and we're just making sure that embedded in that you recognize mortgages could be as much if not more - than then they were this year because of the shift in strategy even though market volumes maybe down..

Okay.

And I don't know if you touched on this last quarter and I might have missed but the restructuring in the commercial and business banking can you just give us an idea of what you’re doing there?.

Sure, yes well, we did that this quarter this past quarter - we haven’t talked about it before but, yes I mean we took to look at the smaller end of our commercial lending activities and business banking which is smaller than that.

We had a separate organization that was focused on that business separate and apart from our corporate bank and we have taken that organization, broken it up regionally and attached it under the leadership of John Utz to the corporate bank so that for example in the Green Bay market here we use to have two market leaders one at the upper end, one at lower end, now the person who is - now we have one person running the entire market up above small business lending and that’s true now throughout the footprint.

So, we reduced some of our administrative overhead expense and made the business more attached locally then run as a synchronized business..

And the costs are largely done..

Yes, the $3 million of severance expense that we took in the fourth quarter was largely that restructuring..

Okay..

Of course the gain benefit going forward from that as far as expenses..

Okay, good. All right thanks very much and hopefully what…..

New business..

New business, okay. All right thank you..

Next question comes from Michael Young of SunTrust Robinson Humphrey..

Hi, good afternoon. Lot of my questions have been asked but just wanted to may be ask a big picture question on just a hiring outlook for next year as we kind of move into hiring season here in first quarter and you did the restructurings so you might have a little more capacity to at producers any specific areas that you are targeting currently..

We view the bank has been fully staffed today.

That said we're always looking for the opportunity to hire someone who can bring in customers and new revenue and those occasions occur all the time but generally speaking if you look at the FD kind of the bank it's been down to steady so we’re not looking to ramp up additional folks inside the company right now..

Okay. No mix shift towards certain business lines from one to another..

No, I think we’re in good shape in all our business lines..

Okay..

Absent us doing an acquisition of some sort of course..

Sure.

And this one may be a little more to downtick but just on the fee outlook of down $20 million, can you help me parse out may be how much of that is mortgage versus, how much of that is going to get a tax credit right off and I don’t know if you have a idea of the nominal amount of tax credit investments you’re going to make or anything to that affect..

Sure. I guess we want to make sure we highlighted the 20 because our retentions strategy in mortgage is embedded in the loan volume given you and our - the benefits of our tax credit its embedded in the tax expense rate we've given you. So, I want to make sure you didn’t double count anything.

Clearly our fee based revenues have some positive to them but downtick will come from mortgage banking and essentially our net gains and losses and that's why I want to call out this $20 million.

As you're aware, we publically disclosed the $9 million of gains on sales which we're not planning to repeat so that's an easy one to call out and separately the other net gains and losses will be offset to large extend as Phil commented our tax productivity largely.

But that will show up down below the line but one thing you should understood the geography that line will be down by call it $20 million, you will see some uptick in net interest income for the mortgages, you will see some benefits in the tax lines down below but the geography will be down $20 million in the middle of the income statement..

But it will largely offset so it’s a shift in geography on the income statement..

Sure, I guess I was just trying to think between mortgage versus the tax credit amortization how much is coming from which line..

Certainly at least the nine, that we don't plan to repeat on the sales and the balance will be a mix of gain on sales changes over the course of the year and reduce gains on other assets which will be eaten up by essentially tax credit right off which will hit above the pretax line to be offset below the pretax in the tax frontline..

Okay, got it..

Our next question comes from Kevin Reevey of D.A. Davidson..

Hi guys, its Kevin Reevey here.

How are you?.

Good afternoon..

I guess first Chris could you give us an idea how we should think about the net charge off ratio going into 2017?.

This is Phil. I mean if you look at the experience we've just had, we had give-or-take $65 million of charge offs, 59 of which were oil and gas loans in the entire year of 2016. So we essentially had no charge offs outside of oil and gas.

We don't see any stress building in the rest of our portfolio today and we think that well there might be some ordinance charge offs left in oil and gas that probably isn’t a whole lot assuming a stable price environment..

Okay..

You can probably conclude that our charge-offs are going to be lower absent some other business ticking over this year..

Okay..

Charge-offs ratio is going to be likely with all the caveats I just gave you here..

Okay. And then you have a pretty sizable share of manufacturing type clients in your commercial business.

How are they feeling about 2017, any sense there - are they excited about the New Year and what's in store and how does they translate into business prospects for you guys?.

Yes, so as we gave our guidance, if you think about what people feel about the economy there is a certain sense of optimism out there.

It is going to vary from company to company to company, I mean if the dollar remains really strong and makes an impact on exports which we have some here but I would say in general there is a renewed sense of optimism that there will be some regulatory relief for manufacturers that the economy will pick up, it will have higher growth.

So I would say in general there is an optimistic sense. None of that has manifested itself as we sit here today. But there is a certain amount of optimism that it will..

Okay. Great, thank you..

Our next question comes from Nathan Race of Piper Jaffray..

Hi guys.

Good evening, lot of my questions have been asked and answered but just a question on the commercial real estate growth particularly in construction, just wondering if you guys could provide any additional color in terms of geography and property type that you have seen various opportunities in that asset class and we are expecting any firm pricing as well given some retrenchment from some other banks and maybe bump up on concentration levels?.

Sure. I think in fact we are particularly well positioned because we have substantial room underneath the OCC guidance where other banks are bumping up against the various limits. We are - we've been very disciplined about making sure that we have diversity amongst product types.

So for example our real estate guys have been managing their multi-family exposure underneath our own internal caps. So they have been holding dry powder for best customers and passing on any number of transactions for the last several years and that they could have been doing because we are not going to overbuild the concentration in that type.

So most of the activity in '16 was in multi-family retail projects, industrial but I mean just to give you a sense of it, we did putting the REIT business aside about $2.2 billion of new commitments and a little under $600 million was multi-family, little over $500 million was retail, little under $400 million was industrial, little over $300 million was office.

There is actually little under 200 of new single family and condo when that was very, very little in previous years.

So we run very diverse book in general as we have talked about in a few other calls because there is a scarcity value building amongst banks that have room to do this business terms and pricing have been generally improving in commercial real estate.

So we are well positioned but with the caveat that this is a bank that will maintain quite a bit of discipline around how much exposure we have by geography and by product type. And don't get over exposed in either of those in any particular market..

Understood.

And then in terms of geography, are you seeing any particular pockets of strength and conversely you are kind of pulling back in some markets that maybe little obviously did in some areas?.

We have CRE offices in eight states and our activity was pretty well diversified amongst those areas.

In any particular market, you might be concerned about too much multifamily in one city or another and we're very cognizant that but, there is nothing out there that it would indicate any high degree of concern at this bank of about exposures and any product type of market..

I appreciate taking the questions..

Next question comes from Scott Siefers of Sandler O'Neill..

Good afternoon guys.

I think most of my questions have been answered just curious if you could talk a little about how are the non-energy reserve, I just curious why you guys have felt compile to build up there is over last couple of quarters I guess, as I look at things, the charge off that’s been extraordinarily above outside of energy, all the leading indicators seem to be improving if anything and then based on what you've said it sounds like the risk rate on stuff is coming on is also very low.

So just curious about the choice to be building up the non-energy reserve for last couple of quarters?.

Well, I think it really comes down to lease in reserving somewhat proportionally to the charge offs we have been taking in oil and gas.

So, you're right, I mean there is a lot of concerning activity outside of oil and gas over this past year and reserves are only really build based on volume growth which we had pretty decent volume growth outside energy during the course of the year..

Okay, all right. And then Chris just sorry to harp on this, do you think - as you look at the changing geography in '17 versus '15 I guess that mortgage will come down considerably do math - just the natural stuff but then the change - the way you're doing - conducting the business as well.

So what’s the other line items that ends up getting things by the increase tax credit investment activity?.

So we haven't previously broken it out, it's in the other gains and losses, in net asset gains and losses.

So essentially if you look at the combination of investing gains and losses and other gains and losses, that will be negatively impacted by the right off to the tax credit and that would scale with the mortgage banking with those two items will drop total non-interest income down by about 20..

Okay, all right, I think that makes a little more sense. I appreciate it. All right thank you..

There are no further questions at this time. I'd like to turn the call back over to Mr. Phil Flynn for closing remarks..

Thanks. So, thank you everyone for joining us today. 2016 saw a continued improvement in almost all areas loans, deposits, non-interest income increase, the NIM was generally stable, expenses were up only slightly and earnings increased every quarter.

Absent oil and gas loan quality was very strong and we look forward to the continuation of these trends in 2017. We're in uncertain times and if economic growth does indeed accelerate, interest rates rise more rapidly, and we get a change in the regulatory environment and corporate taxation, our results may well exceed our current outlook.

So we look forward to talking with you again in April. If you have any questions in the mean time please give us call. Thanks for your interest in Associated and Go Pack..

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