Associated Banc-Corp (ASB) 2015 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to Associated Banc-Corp's second-quarter 2015 earnings conference call. My name is Manny, and I will be your operator today.

(Operator Instructions)

As a reminder, this conference call is being recorded.

During the course of the discussion today, Associated Management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10-K and any subsequent SEC filings. These factors are incorporated herein by reference.

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 Chief Executive Officer, for opening remarks.

Please go ahead, sir.

Thank you, Manny.

Welcome to our second-quarter earnings call. Joining me today are Chris Niles, our Chief Financial Officer, and Scott Hickey, our Chief Credit Officer.

Our second-quarter highlights are outlined on slide 2. Our results reflect study loan growth, strong core fees, higher mortgage banking income, and benign credit trends. Loans were up 2% from the first quarter, with commercial and business lending, and residential mortgages driving the increase. Deposits also showed momentum. Deposits were up 3% from the first quarter, driven by strong growth in money market and savings accounts.

Net interest income of $166 million was down $1 million, or 1%, from the first quarter. Net interest margin compressed slightly more than we expected, as we saw continued competition and aggressive new and renewed loan pricing, particularly in commercial real estate lending.

Despite our margin pressures, the quarter benefited from strong core fee-based revenue and higher mortgage banking income. Those categories drove $5 million of revenue growth from the prior quarter. Expenses were up $3 million, which included severance related to the restructuring of our brokerage business and the planned consolidation of 13 branches in the second half of 2015.

We continue to optimize our capital. During the second quarter we issued $65 million of preferred stock with a 6 1/8% dividend rate. Also during the quarter we repurchased 3.2 million shares of common stock for $63 million.

Overall, we delivered net income to common shareholders and $48 million or $0.31 per share, an 11% year-over-year increase. We also delivered double-digit return on Tier 1 common equity for the fourth consecutive quarter.

Loan details are highlighted on slide 3. Loans are up 2% quarter over quarter, and 9% year over year. Growth during the quarter was balanced between our commercial and consumer businesses. Total commercial loans were up $220 million.

Average commercial and business lending grew $174 million, or 2% for the quarter. We saw strong growth in mortgage warehouse, along with modest growth in general commercial lending and power and utilities. The strong growth in the mortgage warehouse portfolio was partially seasonal, in line with the upper Midwest sales cycle, and partly due to relatively low interest rates.

General commercial lending growth was moderate, given intensifying competition. Competition has broadly increased over the last year, especially in Chicago and in some specific industry verticals. We're seeing deals being done at pricing that does not seem to justify the inherent risks. We're mindful of delivering double-digit risk-adjusted returns. We have a diverse loan business across a wide geography, and we're well-positioned to say no to deals that don't deliver appropriate returns.

CRE loans were up 1% during the quarter. CRE loan growth showed momentum in the second half of the quarter, with period-end loans up 3%, driven by higher construction balances. Consumer loans were up $153 million.

Strong residential mortgage growth was partially offset by continued run-off in home equity and installment loan books. Our residential mortgage loan growth was driven by strong arm production. We continue to position ourselves as the lender of choice for the ARM market, due to our proven ability to deliver a competitive product set with high-quality service. In addition to the loans we put on the balance sheet, we originated $351 million mortgages for sale during the quarter.

Turning to utilization on slide 4, we were pleased to see a continued increase in commercial and business lending line utilization. Utilization rate is a blended rate of our commercial and specialty lending groups. The general commercial portfolio utilization rate is in the high 40[%]'s, and our specialty verticals are in the high 60[%]'s.

Overall, our specialty lending groups are driving the increase in the utilization, particularly the mortgage warehouse, health care, and power and utilities groups. The combined specialty verticals have seen increased utilization since the fourth quarter of 2013, which was the low point in this trend.

This trend reflects the growth of these groups, as newer business with higher utilization rates are on boarded, as infrastructure projects continue to fund, and the cyclical strength in the home-buying market fuels borrowings. In the same period, general commercial lending utilization has also increased. These trends reflect the growth of our specialty lending verticals and general customer confidence.

Moving on to CRE, the portfolio's line utilization has declined slightly, due to the normal churn of our construction portfolio. We believe both portfolios' utilization trends reflect improved economic conditions.

Turning to slide 5, we'd like to provide an update on our oil and gas portfolio. Our energy exposure remains low, at 4% total loan outstandings; and we're pleased to report the portfolio is performing as we expected. The loan portfolio has not materially changed from the prior information we shared. As we've summarized before, our exposure is focused on the upstream sector. We lend to small to medium-sized independent companies, and the loans are collateralized by oil and gas reserves.

Our spring borrowing base re-determinations and the shared national credit exam are now complete. All changes are reflected in our second-quarter results. We saw an expected decline in outstandings, as approximately 3% of the portfolio paid down. Based on the pay-downs and the completed re-determinations, we released a small amount of reserves. Given where oil prices are today, we are comfortable with our exposure. Pricing is continuously monitored, and is factored into the semi-annual borrowing-base re-determinations.

I'd like to provide a few comments on deposits and funding. Our loan-to-deposit ratio ended the quarter at 95%, comfortably below 100%. While end-of-period balances were down, we saw generally strong average deposit growth in money markets, savings, and CDs. We've had strong deposit growth trends on average over the first half of the year, and we feel very comfortable about our overall deposit patterns. We believe our positive deposit trends are a reflection of our strong A1P1 ratings profile, and the investments we've made developing our retail and commercial deposit platforms.

Turning to slide 6, the yield on earning assets continued to decline. Overall, the yield on the total loan book declined by 8 basis points in the second quarter, primarily due to margin compression in commercial real estate and continuing paydowns in the home equity portfolio. Excluding the effect of out-sized interest recoveries and pre-payments collected in the first quarter, we estimate the run rate margin compression was about 3 basis points. Our second-quarter deposit expense was unchanged, and the overall cost of funding was relatively stable. We have a low-cost funding base, and we do not expect this to increase in a continuing low-rate environment.

Net interest income was down $1 million from the first quarter. This decline is partially attributed to the restructuring of our investment portfolio. During the quarter, we sold over $1 billion of Fanny Mae and Freddie Mac mortgage-backed securities, and reinvested in Ginnie Mae securities, resulting in $1 million in lower portfolio income and generating a $1 million net gain on the sale. This restructuring lowered our risk-weighted assets, creating capital relief, while improving the liquidity of our portfolio and not materially changing its duration or income profile going forward.

Looking forward, we remain asset-sensitive to short-term rates. About 50% of our earning assets, including commercial and business lending, commercial real estate, and HELOCs, are aligned with LIBOR and prime, and are expected to reset favorably in a rising-rate environment. However, absent any Fed action, we would expect ongoing modest margin compression.

Turning to non-interest income on slide 7, income was up $6 million from the first quarter and up $14 million from a year ago. Our fee categories have generally seen solid growth, with the exception of deposit service charges. Core fee-based revenues were generally all up, thanks to higher trust, insurance, brokerage, and syndication fees.

Mortgage banking income was up $3 million from the first quarter, and was up $5 million from a year ago. The increase from the first quarter was due to higher seasonal production and sales volumes. Other non-interest income is also up, due to the previously-mentioned gain on the investment portfolio restructure. Investing in fee-generating businesses is important in this low interest rate environment. We're optimistic about our fee trends and our outlook for high-single-digit, year-over-year growth.

This quarter we took a hard look at our retail securities brokerage business, Associated Investment Services. While US markets have generally performed well over the last couple of years, our brokerage business was not tracking with the overall market, largely due to costs. As such, during the second quarter we decided to restructure these operations and streamline the distribution network. We expect these changes will reduce brokerage and annuity revenues modestly going forward, but contribute to bottom-line profitability.

On slide 8, we highlight our insurance business expansion. Through the Ahmann-Martin acquisition, we've significantly added to our property and casualty service capabilities and related insurance commissions. Associated Financial Group is now positioned as a top-50 brokerage firm in the country, servicing 14,000 clients. The acquisition enhances our ability to offer clients comprehensive insurance solutions. It creates a powerful value proposition for clients -- centralized management of their financial risks to one trusted partner.

While our insurance commissions have been a key driver for our year-to-date non-interest revenue growth, we remind investors that our insurance business is seasonal. We generate higher revenues in the first half of the year, and we expect insurance revenue to be lower in the second half of 2015.

Turning to slide 9, total non-interest expense was up $3 million from the first quarter. Personnel expense was up, and included $2 million in severance related to the previously-mentioned restructuring of our securities brokerage business, and the planned consolidation of 13 branches. Occupancy expenses decreased $3 million from the first quarter. As you recall, a non-recurring one-time lease-breakage expense linked to office consolidations in Chicago was expensed in the first quarter.

Advertising expense increased $1 million from the prior quarter. Earlier this year, we launched a multifaceted campaign. From an experiential perspective, the campaign is currently centered on increasing fan engagement at Miller Park, in partnership with the Milwaukee Brewers, and increasing brand awareness at Union Station in Chicago. In the fall, the campaign will shift over to our long-standing partnership with the Green Bay Packers. We continue to maintain our focus on expense discipline as we react to the changing banking environment.

Turning to slide 10, we highlight changes to our branch network and our progress in various multi-channel initiatives. As I mentioned, we've made a decision to consolidate 13 additional branches by year end. We know that fewer transactions now take place in our branches. About one-third of all transactions occur at our ATMs. Also about half of our deposit customers are active online banking users. Mobile banking is our fastest growing digital platform, and about 20% of our depositors are using it.

Also in the second quarter, our $5-million website redesign was launched. The redesign created a more robust e-commerce experience. It is designed to drive sales across channels by making it easier for customers to search for content, compare products, obtain financial guidance, and initiate the purchase process.

Over the past several years, we have closed or consolidated over 100 branches to adapt to these changing customer branch usage patterns. Over the same period, we invested in digital banking solutions. Furthermore, insured deposits -- those deposits with less than $250,000 -- have increased 50% since 2011. Our deposit growth has actually accelerated as we've reduced branches.

Our second-quarter income taxes were $22 million, with an effective tax rate of 31%, comparable to the $22 million we recorded last quarter and the year-ago quarter. Also, our effective task tax rate has not moved materially.

Turning to slide 11, our credit quality continued to improve this quarter. Potential problem loans decreased 9%. At $200 million, the balance is 31% lower than a year ago.

Our non-accrual loans also decreased from the prior quarter. As a result, non-accrual loans improved to 88 basis points of total loans, down from 105 basis points a year ago. Allowance for loan losses fell modesty from the first quarter, and our allowance to non-accruals ratio improved to 163%, due to lower non-accruals.

While net charge-offs increased $3 million, the net charge-off ratio of 19 basis points still reflects low credit risk and a benign credit environment. The increase was driven primarily by a single credit. The provision for credit losses was $5 million in the second quarter and essentially flat to the first quarter.

Moving on, let me comment on capital. Capital management has been a central theme in our strategy over the past several years. We've managed our Tier 1 common capital into our target range of 8% to 9.5%, which is still above our pre-crisis levels.

During the second quarter, the Company issued $65 million of preferred stock for net proceeds of $63 million. Also during the quarter, the Company repurchased $63 million of common stock, or approximately 3.2 million shares. This combined issuance and repurchase allowed us to pull forward our planned repurchase activity and accelerate our move into our target capital range.

Last month we released our Company-run capital stress test results, as required by the Dodd-Frank Act. Given the hypothetical severely adverse economic scenario, we maintain sufficient capital to remain well-capitalized throughout the nine-quarter forecasting horizon. We are well-positioned for changing economic cycles and future challenges. Going forward, we expect to continue to follow our stated corporate priorities for capital deployment.

Before we move to our 2015 outlook, I would like to address our conciliation agreement with the US Department of Housing and Urban Development. This agreement was finalized in the second quarter, and resolves HUD's investigation into the Company's lending practices between 2008 and 2011. Over the next three years, we'll enhance our existing lending programs and market strategies in minority communities by opening a new branch location, adding four mortgage loan production offices, expanding our special financing programs, and providing affordable home repair grants.

The costs of these enhancements will be spread over four calendar years and are not expected to have a material impact on our financial results. We're pleased to have the HUD matter resolved, and we are always committed to meeting the financial needs of all the people in the communities we serve.

Turning to slide 12, we've concluded our 2015 full-year outlook. Our outlook has not materially changed from last quarter. Assuming no Fed actions on rates, our margin outlook is for modest compression through the second half of the year.

We expect to manage our total expenses to not more than $700 million. This is essentially flat to last year, excluding the Ahmann-Martin acquisition. With our current Tier 1 common capital ratio now in our target range, we will continue to follow our stated corporate priorities; and we will pause on additional share repurchases.

With that, we will open it up to your questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Our first question is from Dave Rochester of Deutsche Bank.

Good afternoon.

Good afternoon, Dave.

A question on the resi growth that was very strong this quarter. Can you talk about the structure of those loans, and then the pricing you're getting on that product right now?

We haven't changed any of our project set, so what you see going on to the balance sheet are adjustable-rate mortgages -- 3.1%, 5.1%, 7.1%. Rates on the five-year -- what are they at now, Chris?

Just a little over 3%. The nice thing is they are marginally accretive to the margin as you put them on, given the alternative asset classes. The shift we've seen is in the first quarter we saw more refinance, and here as we've moved into the second quarter we saw majority purchase and new construction activity.

Then, in addition to what came on at the balance sheet, we did another $350 million of forming 30-year, largely, which we sold.

Got you. Then you were talking about the increasing competitive pressures. I was just wondering what type of pricing you're getting now on C&I and commercial real estate, new loan production?

Well, everything's priced off of LIBOR, so we're starting at essentially zero, or pretty close. If you can get a 200-basis-point spread on top of that you probably feel pretty good, but that yield is still coming on at -- call it 2.25%. It impacts the margin.

Got it. Then on the securities restructuring, could we end up seeing more shifts to Ginnies in the back half of the year, or is this it? Then what were the rates on those securities purchased?

Sure. The overall rates were roughly comparable to the ones we sold, so there wasn't a material change in the yield, which is why you don't see a really yield impact in our margin tables. But those are yields sub 2%. In any case, we've taken a good look at the $1 billion. That trade made sense for us at the time. There's some more we could do, but we'll evaluate that based on marketing conditions. It won't be as big as what we just did, though.

Got it. Then one last one on expenses. How much in cost savings should we expect to come into the run rate for the branch closers? How much more work is there that you can do in terms of closing branches in 2016, or are you pretty much wrapping that up this year?

We believe that depending upon deposit attrition, we pick up starting next year about $3 million a year with these 13 branches that we closed. It's hard to say what other plans will come out in 2016. We're constantly evaluating the network. We're moving branches.

We're continuing to build new branches, find better locations. I can't tell you that we're done, but I can say that as we've gone through this process where we've closed now basically a third of the branches over the past eight years, the low-hanging fruit is gone, and every additional decision gets harder and harder.

Yes, okay. Are you pretty much done with your branch update plan at the end of this year?

Yes, the branch renovations are wrapping up by this fall. That's not to say that we won't continue to relocate branches occasionally, or maybe even build new ones, but the program that we started more than three years ago is wrapping up this fall.

Okay, great. Thanks.

Thank you.

Scott Siefers, Sandler O'Neill.

Good afternoon.

Good afternoon, Scott.

Phil or Chris, I want to make sure I understand the cost savings on the branch closing. I know it's small at $3 million. Are you suggesting that will all drop to the bottom line, or will -- I imagine at least a portion of that gets reinvested, as you continue to build out the mobile and digital channels, et cetera. How are you thinking about that dynamic?

Well, the money is somewhat fungible. Closing those branches picks up $3 million of expense saves year after year after year going forward. Obviously, there's costs in severance, lease terminations, et cetera, this year. What we choose to do with those funds as far as we investment will be determined as we move forward. In addition to the cost savings that we pick up with these branch closures, the restructuring of AIS, our investment brokerage, will also pick up $3 million to $4 million of expenses going forward per year.

All right. How much of -- you had the $2 million in severance costs this quarter. Was most of that related to the brokerage side? Or in other words, how much of the $3 million in costs for the branch rationalization should we expect in the second half of the year?

The $2 million of additional severance was the combination of the brokerage business, the branches, and a few other things. There is still some lease breakage and such to come in the second half: $2 million to $3 million, something like that.

Okay. All right, thank you.

You don't get to -- you have to expense that as you actually close.

Yes. No, I understand. I was just curious how much we saw versus how much there will be. I appreciate that color. Then, Chris, just on the margin on a reported basis maybe a little more than you thought, but when you adjust for things in line with the 2 to 4 basis points you had been suggesting when we last spoke 90 days or so ago, as you look forward -- I know you have been hoping the margin would bottom around the 280 area or so. Is that still what the hope would be, or until we get the Fed to move, which hopefully would be the end of this year, could we drift a little south of that number?

I'll reiterate Phil's comment, which is assuming there's no Fed action, we would expect continued modest compression. Depending on the timing and magnitude of Fed action that can stabilize and maybe even turn positive, but if there's no Fed action it will continue to compress through the end of the year.

I think one of the changes that we've really seen taking hold, not just through the first half of this year, but perhaps accelerated, is even more competition for assets out there. Loan yields continue to be under pressure as banks compete for assets.

Okay. Then maybe just one final one. Phil we've had a little more volatility recently in energy prices. I think when you spoke in April you were hoping that the energy portfolio might begin to expand again in the second half of the year. Based on what you've seen so far year to date, and then with the renewed volatility in prices, what are your thoughts on expansion and contraction in that portfolio?

It's very hard to say. We've had some volatility, but nothing like what we experienced. Generally, oil has been in a trading range of $50 to $60 for -- what, Scott, six to nine months, something like that. There is a certain amount of price stability that is starting to re-enter the market. As some of our borrowers go about rebuilding their balance sheets, maybe selling assets, et cetera, you could start to see some more activity. I would guess that our portfolio probably is flattish to up a little as we go through the balance of the year.

Okay. All right, that's perfect. Thank you very much.

Emlen Harmon, Jefferies.

Good evening.

Good evening.

A point of clarity on the securities restructuring in the quarter; It sounds like you effectively switched into the Ginnie Mae securities fully, but you did note that there was an impact on the yields, and I think the income in the second quarter or so. Was there a period where you were un-invested there and we should expect some improvement in the securities book? Can you walk me through how the restructuring took place?

You are correct. We were partially uninvested for a portion of the quarter that resulted in less interest income. However, we also essentially sold first and bought later. As a result of selling first, we picked up more price, so we recognized a $1.2-million gain in the quarter. Those two largely offset each other, but we expect the yield will normalize moving forward.

Got it, perfect. Thank you. On the pause of the repurchase program, it would appear that you, over the next few quarters, will start to re-accrue some capital, and improve the capital ratios. How long do you pause on that buy-back program before reassessing where you are on your capital position, and whether that's something you want to resume?

We have been pretty transparent about our uses of capital as time has gone on, and we've also been quite explicit about what our range was. For the first time, we've moved into that range. We're at 9.3, as we said. We used the words pause very deliberately.

It doesn't mean we aren't going to buy back shares in the future, but the clip of give or take $30 million a quarter that occasionally has been different is not something you should expect. But we will remain opportunistic, and as we evaluate how much capital we're building up, and as we look at potential opportunities to deploy in other ways, share buy-backs are always one of the tools that's something we'll consider.

Got it. Thanks for taking the questions.

Jon Arfstrom, RBC Capital.

Thanks, good afternoon.

Good afternoon, Jon.

A couple of follow-ups. On Emlen's last question, Phil, you said other uses for capital. Can you give us an update on your thinking attitude, opportunities for acquisitions?

Sure. You saw us do the insurance acquisition earlier. We continue to look at opportunities both in the insurance space, potentially other fee-generating spaces, as well as talk to other banks. If something comes that we find meets our risk profile and looks attractive, we would move forward on that.

You feel there are opportunities there in the bank space?

There's opportunities, but as I think we've described over and over again, we are a risk-adverse crew around here. We do believe that there's an element of risk in buying a depository in a whole bank transaction, which is pretty high. There's regulatory risk, there's approval risks, and there's the risks of understanding what it is you've bought, and the potential problems that might be embedded in that company. So, we are cautious.

Okay. On the topic of Ahmann-Martin and insurance, Chris we hear you loud and clear on the revenue pull-back from seasonality. But can you maybe help us size that a bit?

I would take a good look at last year's second half, and add a reasonable additional for the Ahmann-Martin piece. I think we gave some guidance earlier in the year. That probably gets you pretty close.

Okay. All right. Then on loan-growth drivers, obviously your resi and warehouse heavy quarter, a little bit different than last quarter. I'm just curious -- then some of your comments, Phil, on the tightness of some of the spreads on commercial. Curious, your future drivers of loan growth -- is it going to look a lot like this quarter, or do you expect C&I and CRE to pick up again?

We expect CRE to pick up again. They have a very robust pipeline, and they have a number of relatively newer vintage construction loans which will be funding up. C&I is a little harder to predict. We are very disciplined about looking at the risk-adjusted return on capital that we're getting for extending loans right now. We're fortunate to have a -- relatively for a bank our size -- broad geography, and relatively broad group of businesses that we're in. We don't have to necessarily chase every commercial loan if we don't think we're getting paid for the risk. So, hard to predict.

We're out looking for transactions. There's a number that are in the hopper. Of course, we always have significant pipeline. I would expect more CRE growth than we saw, potentially some more commercial growth, although harder to predict. The warehouse business is really highly dependent upon rates and sales activity. The resi mortgage business is really strong. We have a very strong mortgage business here. That will continue to click along.

Okay, good. One quick one. The FTE growth in the quarter -- give us an idea of where you're adding bodies?

Sure. Keep in mind that the Ahmann-Martin acquisition closed partially, partway through the first quarter. What you're seeing is essentially 110 people, 113 all-in for the Ahmann-Martin acquisition. That FTE count is going to go down over the balance of the year, with the branch consolidations and the AIS restructuring we talked about.

Okay, all right. Good, that helps. Thank you.

(Operator Instructions)

Ken Zerbe, Morgan Stanley.

Thank you. I want to clarify on the CE guidance that you're giving: the upper-single-digit growth versus 2014. If I put in my numbers right, you had $80 million first quarter, $87 million second quarter. But to get even 9%-ish growth year over year you need to have about $75 million in the next two quarters for fees, which is a pretty sizable reduction. Am I missing anything? Is there any unusual items that I should be backing out or adding into -- or could we really see fee income in the mid-$70-million range?

Yes, and I think -- Ken, I think you might be including all of the gains on sales of other assets in those numbers.

Yes, okay.

If you -- we wouldn't expect recurring gains on the investment portfolio. We might do a slightly smaller restructuring, but it certainly wouldn't be in that magnitude. I don't normally assume additional gains on the sale of other assets. There might be some; but again, it's not in our projections.

Got you.

We're really talking about core fees.

But are you including --

To add a little color, we feel pretty good about our guidance. How's that?

No, understood. Even if I took out asset fees -- and again, maybe we can follow up off line, but if I take out asset fees it only makes the matters worse, because you had a fair number last year. Okay. I'm struggling with this one. Maybe I will follow-up off-line. But I --

Okay. Follow-up, Ken, off-line.

Okay, but yes -- or maybe a yes or no -- is in the mid-$70 millions a fair number for core fees?

Probably a fair number.

It's likely based on where we are that we'd be slightly above the mid-$70 millions, but it certainly won't be running at the second quarter's total numbers, no. It will be coming down from the second quarter.

That helps, okay. All right, thank you very much.

Chris McGratty, KBW.

Hi, good afternoon, everybody. Chris, maybe I missed it in your prepared remarks, but assuming that Fed moves at the end of the year, whether it be September or December, can you talk about how you're thinking about the transition from the margin degradation to stability, and ultimately to expansion? I'm interested, really, in the timing. Is this a several-quarter phenomenon, or is it an instantaneous move?

I think what we've seen in prior rate movement cycles, and Phil I worked together at another institution, and certainly went through a nice, long rate cycle, is we were able to use substantial deposit lag by leading players in the market place. We would note that in certain of our markets there are core players that are pretty disciplined, and we like to think that in the Wisconsin market place there's a couple core players that are fairly disciplined. In those markets we would expect to see a reasonable deposit lag.

When we talk about deposit betas internally, those numbers are roughly in the 0.5 range. Most of that comes from re-pricing of course wholesale funds, which is nearly instantaneous; and re-pricing in money market products. But we would expect that our savings now and other consumer-oriented accounts would be far more modest re-pricing, and that there would be a reasonable deposit lag -- for several quarters.

Okay. If I'm hearing you right, assuming the fourth quarter is when we get the hike, obviously you'll lag the deposits quite a bit in 2016, but the asset re-pricing should lead to expansion pretty quickly in 2016. Is that a fair characterization?

Yes. All things being as modeled, we would expect to see better income in the first quarter after a Fed rate -- Fed raise, assuming we got the full-quarter benefit. Again, the bulk is largely LIBOR-oriented, but there are 30- and 90-day LIBOR borrowers. Give it a full quarter to pass, and then you can see the asset side expand. Assuming we're deposit-lagging as we would expect, we'd probably see a quarter or two of improvement first on the asset side, followed by an increasing interest expense over time.

All right, that's helpful. Thank you.

Jared Shaw, Wells Fargo.

Hi, good afternoon, thanks. Most of what I was going to ask has been asked, but just on the restructuring, could you walk through the timing on that again? Just trying to reconcile how we're able to go to 0% risk-weighted assets, and not change the yield or duration, and still take a gain there?

Yes. No, actually, I think in a curious way the timing worked for us, because there was a point in time when we decided we were going to execute on the strategy. For a variety of reasons we decided to execute on the sales first. We expected that we'd be giving up a little bit, either yield or duration, as we reinvested. Because we held off on the reinvestment, we were actually able to buy back in at about the same all-in points.

Now that left us un-invested for a portion of the cycle, which cost us net interest income. But, since we sold early and we got the benefit of that. We got it in the gain up front, and as we re-invested over time, patiently throughout the quarter, we were able to reinvest in at potentially near neutral.

Okay. Then as we look at the full quarter, how, on a percentage basis roughly, how long of the quarter would you say you were uninvested? Would you say like net one month of the quarter, or less than that or more than that?

Most of the impact came in one month.

Okay.

We gave up a million of interest income, which now that we're reinvested, we're going to be essentially at the exact same yield going forward. I really think you ought to look at this as a one-quarter phenomenon where we just had a little geography shift between net interest income and a million-dollar gain. Going forward, it's all about what it used to be.

Yes, with a lower risk rate.

(inaudible -- multiple speakers) -- assets, which is nice.

Okay, great. Thank you very much.

Probably can't do the same period again today, which is why we may not do more.

Thank you. At this time, I would like to turn the conference back over to Management for any additional or closing remarks.

Okay, thank you for joining us today. We were pleased with this quarter's performance. We saw continued balance sheet momentum, strong fee revenue, stable core expenses, and we returned capital to our shareholders. We continue to make strategic decisions as we're managing the Company for the long term, and we're committed to maintaining our credit and expense discipline in this low-rate environment.

We'll look forward to talking with all of you again next quarter. If you have any questions in the mean time, please give us a call. Thank you for your interest in Associated.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.