Associated Banc-Corp (ASB) 2016 Q1 法說會逐字稿

Greetings, and welcome to the Associated Banc-Corp first-quarter 2016 earnings conference call.

(Operator instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Phil Flynn. Please proceed.

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

Just as a reminder, we have slides on our website if you need to look at those. So turning to slide 2, overall our first-quarter results reflect higher revenues, lower expenses, a growing loan book and stable margins. We're encouraged by several positive trends in the quarter including particularly strong commercial loan growth and record insurance commissions which have helped us navigate the continuing low interest rate and volatile energy market environment.

Our progress against our 2016 priorities are on slide 2. We are committed to an enhanced customer experience and we're pleased to report improving branch customer satisfaction trends as we continue to invest in our retail deposit franchise. We saw average loan growth accelerate to $380 million in the first quarter, up from $90 million in the fourth quarter.

This time last year, we closed on an insurance brokerage acquisition to further diversify our revenue stream. This investment contributed to record insurance commissions of $21 million for the quarter.

We continue to monitor the energy portfolio closely and we increased the energy-related allowance to 6.5% at quarter end. I'll discuss this in more detail during the call.

Expenses decreased $2 million and the efficiency ratio improved to 67% in the first quarter. This was down from 69% in the fourth quarter. We continue to drive expense discipline across the bank. We remained prudent capital managers and returned about 90% of first-quarter's net income to shareholders through repurchases and dividends while maintaining a strong capital profile. Bottom line, we delivered $40 million of net income available to common equity or $0.27 per common share in the quarter.

Loan details for the first quarter are highlighted on slide 3. Average loans grew $380 million to $18.9 billion. This represents our strongest quarterly growth in a year. Average commercial and business loans were up 3% and accounted for the majority of the quarter's growth. The increase was driven by strong growth in our power and utilities and real estate investment trust lending areas. Commercial and business lending line utilization increased modestly to 53%.

On the horizontal bar chart we've highlighted our REIT-lending activity. During the first quarter, average REIT loan balances were up over $90 million. Over the past year, average REIT loans have grown by about $300 million.

Generally, we are a participate in REIT loans, they're primarily investment-grade credits and so have lower yields than our general commercial portfolio. Our goal has been to initially grow the business through line participations and then build on the relationships through cross-selling, project financing, commercial deposits, and capital market solutions.

We saw general commercial loans increase by less than 1%. Competition in this space has not let up. We're pleased with growth in our other commercial categories and this highlights the diversity of our lending businesses and our ability to organically grow our balance sheet while passing on deals that don't provide attractive risk-adjusted returns.

Moving on to commercial real estate. Average CRE loans were up 2% from the fourth quarter driven by balanced growth across our regional offices. CRE lending is up 9% year over year. We've been growing this book at a steady clip for some time now. Commercial real estate line utilization remains in the mid-50%s.

Residential lending was up $75 million, reflecting slower first-quarter purchase activity. Our home equity and other consumer portfolios continue to decline modestly. Our loan mix changed only slightly. CRE is now up to 24% from 23% and both CNI and consumer represent 38% of total loans. Overall, we were pleased with the growth across our diversified lending businesses.

I'd like to provide a few comments on deposits and funding. Our loan-to-deposit ratio remains at 93%, comfortably below 100%. During the first quarter, we saw a normal seasonal deposit outflows and average total deposits decrease slightly by $41 million. Money market and time deposits, our most expensive deposit categories, declined about $150 million, and this was partially offset by increases to average interest-bearing and non-interest-bearing demand deposit accounts.

On slide 4, we summarized credit quality trends of both energy-related loans, as well as the rest of the portfolio. We saw several trends emerge this quarter but only one significant charge-off. The trends are largely being driven by ongoing volatility in the energy markets and the recent introduction of new regulatory guidance which has prompted us to reclassify a number of oil and gas credits.

Potential problem loans increased about $100 million this quarter, due to risk rating migration on a handful of general, commercial and energy-related credits. First [to]quarter non-accrual loans of $286 million were up $108 million, due primarily to downgrades in the oil and gas portfolio. The level of non-accrual loans to total assets increased to 1.49% and is up from 97 basis points a year ago.

Generally, the loans that have migrated to non-accrual status are current and the customers are performing all loan obligations as outlined in their loan agreements. We expect to see some level of continued negative migration in ratings as we work through the spring borrowing-base re-determinations.

At quarter end, none of our outstanding oil and gas credits were delinquent. Outside of energy, non-accrual loans were relatively flat from the fourth quarter and down $17 million or about 10% from a year ago. Net charge-offs of $17 million included a $13 million charge from a single credit in the energy portfolio. Outside of the energy book, we continued to see very low levels of net charge-offs. The total allowance for loan losses was stable at 1.44% of total loans compared to 1.48% a year ago.

So let me elaborate on our energy portfolio on slide 5. This business represents 4% of our total loans and remains focused on meeting the financing needs of upstream, independent, exploration and production companies. We have no midstream, downstream, or service company exposure. We generally lend to small- and medium-size companies and our exposure is diversified across all the major US producing basins The book is comprised of 53 credits and we are a participant in nearly all of those.

Looking at the chart, period-end loan outstandings have modestly increased to $756 million. During the quarter, we originated two credits with high quality opportunistic buyers. Our commitments are down 5% year over year and we've held roughly flat at about $1 billion of commitments. We could see further reductions in commitments as we complete the spring re-determination process.

Utilization levels for oil and gas have been stable over the last several quarters. At the end of the first quarter, utilization was in the low [70s]. As this cycle has persisted, borrowing-base re-determinations have reduced the credit lines of our deteriorating credits to a point where most stressed credits have little or no capacity remaining. We are nearly 30% through the spring borrowing-base re-determinations and expect to see that completed by late June.

At this early stage, we're seeing both borrowing-based re-affirmations and decreases. The decreases have seen a reduction of about 20% on average. The chart also illustrates our reserve levels against this portfolio over the past several quarters and, as I said, the reserve level now stands at 6.5%.

Turning to slide 6, we'll provide some additional detail on the portfolio's credit trends and the energy-related reserves. The top table reflects risk-rating migration over the past several quarters. The recent non-accrual changes were largely driven by new regulatory guidance.

I'd like to highlight two key changes from that new guidance. First, it requires that all debt be analyzed for future repayment in a reasonable time frame, not just senior secured debt in which we participate. Second, it outlines very specific leverage ratios relative to regulatory risk ratings. Frankly, the guidance takes some of the judgment out of the risk rating and to some extent makes it more transparent and consistent.

The middle table pulls out the energy portfolio's potential problem loans from the commercial and industrial portfolio. Potential problem loans increased by $26 million in the first quarter. And the bottom chart reflects the buildup of the energy reserve of the past five quarters.

I'd like to provide a little additional information around a $13 million energy charge-off in the first quarter. We originally extended a $26 million loan, secured by non-operated working interests in numerous producing wells. The wells are operated by a third party. This is a common structure in the industry.

Over time, half of our loan has been repaid. However, a dispute between the operator and our borrower resulted in the operator withholding distributions to our borrower, leading to extensive litigation. This litigation is likely to be protracted and combined with the lack of cash flow of our borrower caused us to decide to charge-off the balance of the loan in the first quarter. This is a unique situation in our portfolio.

The total provision for credit losses was $20 million for the quarter, approximately 75% of which was energy-related. We increased the energy-related allowance from $42 million to $49 million, which was driven by risk-rating migration. And that incremental build, as I said, puts the energy allowance to 6.5% of total energy loans. And remember that those energy loans are all reserve secured.

Outside of energy, credit quality was solid in the first quarter. We're still seeing very low levels of stress and loss. We have robust internal management controls to ensure we grow loan exposures in a balanced and diversified manner. And lastly it's important to mention lower energy prices generally benefit the other 96% of our loans.

Turning to slide 7, net interest income was up from the fourth quarter, and it was up nicely from a year ago. Net interest margin for the first quarter was 2.81%, down 1 basis point. We've seen a relatively stable margin trend over the past several quarters. The yield on interest-earning assets was up 2 basis points this quarter. This was the first increase we've seen in some time. The increase was driven by higher loan yields, specifically higher commercial loan yields and offset by lower securities reinvestment rates.

The cost of total interest-bearing liabilities increased 4 basis points. Interest-bearing deposit costs increased 8 basis points, reflecting the impact of the December Fed-fund rate increase. This was partially offset by lower long-term funding costs as we retired $430 million of senior notes late in February. Absent additional Fed rate increases, we expect the net interest margin to dip into the 2.75% to 2.80% range over the balance of the year and that's going to reflect the impact of higher non-accrual balances.

Turning to slide 8. First quarter non-interest income was $83 million, flat to the prior quarter, up $3 million from the prior-year's quarter. Insurance commissions were up $3 million. This increase was primarily related to annual property and casualty insurance commissions. And as a reminder, our insurance business is seasonal; commissions are expected to be higher during the first half of the year.

Mortgage banking income decreased $4 million from the fourth quarter due to lower volumes and negative interest rate marks. Mortgage loans originated for sale decreased to just under $200 million, down from over $300 million in the fourth quarter. However, at the end of the first quarter, our mortgage pipeline was up about $300 million higher than year end so that bodes well for second-quarter closings. Other non-interest income categories were up due to higher bank-owned life insurance.

We're focused on enhancing our fee businesses to support diversified recurring revenue streams. We restructured the brokerage and annuity business last year and we're pleased to see modestly higher revenues in the first quarter. Capital market fees also saw an up-tick.

Turning to slide 9, non-interest expenses were down $2 million from the fourth quarter and flat from the year-ago quarter. And our efficiency ratio improved to 67% with FTE trends steady. An increase in personnel expense was more than offset by decreases in other expense categories, including declines in occupancy and loan expense. Our technology and equipment spend has been generally stable over the past several quarters.

In the first quarter, we expanded our relationship with the Milwaukee Brewers with additional in-stadium signage and additional marketing rights on debit and credit cards which complement our Brewers checking product. We also put more emphasis on our Minnesota Wild partnership. Together, these marketing efforts contributed to higher business development and advertising expense of $8 million for the quarter.

However, we expect this amount to moderate over the balance of the year. And our expense guidance remains unchanged. Our first-quarter effective income tax rate of 31% was down from 32% in the year-ago quarter.

On slide 10, we would like to update our 2016 outlook, so we continue to expect high single-digit annual loan growth. We expect to maintain the loan-to-deposit ratio under 100%. In the absence of Fed action, we expect NIM to modestly dip to the 2.75% to 2.80% range, reflecting the impact of non-accrual loans.

Non-interest income is expected to be approximately flat to 2015, adjusted for $8 million in investment security gains. However, our trust and brokerage fees may come under pressure given market volatility. Non-interest expense is also expected to be approximately flat to 2015. We will continue to deploy capital to our stated priorities. Finally, the loan-loss provision is expected to be dependent on loan growth and changes in risk grade or other indications of credit quality.

With that, we'll open it up to your questions.

Thank you. At this time, we will be conducting a question-and-answer session.

(Operator Instructions)

Chris McGratty, KBW.

That's a tough one. Good morning or good afternoon, guys. So first, I'm looking at slide 4, maybe a little bit of color. I'm looking at the potential problem loans. It's up about $100 million. It looks like about a quarter of it is related to the energy book. Any color? Or maybe I'm misreading it. Any color on the allocation of the potential problems that have moved the other way?

Sure. Scott, do you want to answer that question?

Sure, Chris. So if you look at the other, it's really diversified. We've got a non-energy commodity company, a construction company, transportation, chemical, so there's no common theme there. It's just a variety of credits.

Okay. Okay, great. Maybe one for Chris. In the release, it talked about an MSR. Was there an MSR adjustment in the quarter and if so, what was it?

It was a $1 million downward valuation adjustment.

And maybe the last one is a housekeeping. Does the buyback that is left under authorization and plans to continue to use it? That would be great. Thank you.

Sure. We have authorization capacity of $88 million and obviously we don't disclose our plans in advance.

Great, thanks, Chris.

Ken Zerbe, Morgan Stanley.

Great, thank you. First of all, just (inaudible) the energy. So you made a comment that -- I know you're 30% of the way through the spring redetermination process, but there was a comment there that said you expect more ratings migration as you go through the process. I mean, is it fair to say that whatever deterioration we saw this quarter is only 30% of what is to come or how do you guys think about forecasting deterioration that you haven't yet seen for this spring process?

Sure. So, no, I certainly wouldn't take what you just saw and multiply it. What you've seen was, to a great extent, driven by the new guidance that the regulators put out and that's been a common theme throughout all the calls that you've listened to and all the banks with energy exposure that reported.

Everybody has seen some migration. In particular, everybody that I've looked at has had nonaccruals run up because of the new tests that are very prescriptive in the new guidance.

As far as the spring redeterminations, we have a pretty decent sense for where we sit. We're applying at least a little more steady stable oil price and gas price outlook. What we need to get is updated engineering and production reports. We don't expect huge changes with that.

But I'd caution that this has been very volatile. Everybody feels a little bit better with $40-plus oil, but we all know that could change in weeks. So it's very hard to prognosticate where all of this ends up. At 6.5% reserved against a reserve-secured book, I'd feel very comfortable with where we sit today. I certainly don't anticipate reporting, three months from now, wildly run-up nonaccruals or other risk migration at this point.

Okay. That helps. I just wanted to make sure I understood what you meant by that. The other question I had --

The big driver was the new guidance (multiple speakers).

Yes, we've seen that across the board for all the banks with energy exposure. So that is absolutely fair.

The other question I had, the trust income. In your guidance it sounded like that was sort of the one area that you may have -- you don't have a lot of visibility on. The trust business so far, it looks like it was down a little bit this quarter. What are the trends that you are seeing sort of into April? Is this something where we should actually be thinking about fee income under incremental pressure?

No, it's been actually getting better in the latter half of the quarter, but let's not forget where we were at the start of the quarter. So we've had a significant amount of volatility in the stock market, which drives some of these fees, of course. So we're just pointing out that we've had unusual volatility in the markets and that does have an impact. But as we sit here, with the recovery we've seen, I'm not trying to tell you that these fees are going to fall off the earth. In fact, they're trending up.

Got it. Understood. And then just one last question for you. At the very beginning you were talking about the REIT loans, how you were trying to cross-sell into these borrowers once you get the loan. Do you have any data or stats that help us understand how successful you've been in terms of the cross-sell, just to assess whether this has been a survival strategy?

Yes, it's a fairly new area. We hired a couple of folks who used to work with us at the other bank. They've done a great job of penetrating the REITs, but it's only been about a year and a half.

So we've built a portfolio of line participations. They are getting some success on cross-selling deposit products and other things, but it's a little too early to declare victory on that. We are disciplined about getting appropriate risk adjusted return on capital, so it's the extent as we go through the rest of this year and into next year to the extent we are not penetrating some of these companies with cross-sell opportunities, then we would exit the lines at the appropriate time.

Perfect. Thank you very much.

John Arfstrom, RBC Capital Markets.

Thanks, good afternoon.

Good afternoon, John.

Just a follow-up on the REIT team, as long as you were just talking about it. Why the strength now? Is it just maturation of the business? I think it's the first time that you've singled this business out as a big growth driver, so I'm just kind of curious what's happening?

Yes, we did want to single it out because we haven't mentioned it before. And it is something where we have generated commitments and outstandings over this past five quarters or so. So we just wanted to draw some visibility to it. That's all.

Okay. Good. Chris, on the repurchase, we will try a different way. Would you say the $20 million repurchase was just opportunistic during the quarter given what happened to bank stock prices or is this just still a longer term plan where you're committed to continue to buy back stock?

Well, I would say absolutely we felt the purchase opportunity presented itself and we were glad we executed when we did. And secondly, we would say that we remain with $88 million capacity and will be prudent in managing our capital as we move through the balance of the year.

Jon, we would take you back to our stated capital priorities which we talked about a lot. And the first one is to support organic growth. We had point-to-point loan growth of more than $500 million. And we do need capital to support that kind of growth.

Yes. Okay, good. Couple of other things too. Just oil and gas money and appetite. You talked about a couple of credits and obviously we're very focused on this even though it's a small piece of your business. But I'm guessing you're seeing some opportunities? I'm just curious what your appetite is?

We are. I'll give you a little color on that because I was talking to my team in Houston yesterday. Philosophically, our goal at Associated Bank is to support our customers and support the industries we're in and to be in a position of strength throughout cycles. One of the ways that you build a reputation in a place in any industry, particularly a specialized industry, is not to open the doors and shut the doors, depending on what's going on.

So we are still actively looking for opportunities. Obviously, they are a little fewer and farther apart, but pricing on these two transactions is up significantly and structure is extremely favorable. It fits the new guidelines that the OCC has. Both of these deals had more than 50% equity put into them. Obviously, we're lending at a time of relatively low hydrocarbon prices. So this is the time for us to continue to be steady participants in the business.

And for what it's worth, I heard that, give or take, there's been about 50 banks participating in the oil and gas business in the US. And as best we can determine, or at least my experts in the field, probably only 15% are open for business today. That's where I want to be.

Okay. Good. And then just one back on the migration question. If we see some more migration, which I don't think would surprise people, do you expect that to correspond with required higher loan-loss provisions or reserves or do you feel like most of that has been captured by the new guidance?

It's hard to say. It's so dependent upon where prices go and it's dependent upon production profiles from the various companies that we lend to. So to the extent there isn't a lot of drilling activity, you're going to start to see declines in production.

Now our borrowing bases don't plan on new production typically so that shouldn't hurt us. But price volatility is a big deal. And even though we and much of the banking industry, of course, is senior secured, there's quite a bit of junior capital in these deals that's going to have to get resolved over the coming year. And some of that, as we all know, is going to get resolved in bankruptcy court.

At the back end of all of that, as the senior lender, you should come out pretty well. But there's a lot of restructuring that's going to have to occur in the industry over the course of this year.

Okay. I guess one of the things I'm trying to get at is you did mention the growth and you guys had a decent quarter, except for the $20 million provision. And we understand the negative migration that's going on, but if 75% of the provision is energy related, a lot of it is maybe a piece of it that is out of your control, maybe part of it is the charge-off. I guess my assumption is the provision comes down pretty materially next quarter. Is that the right way to think about this?

I'm not going to help you with forming that opinion. I just can't sit here and tell you that I have perfect visibility into the oil and gas markets over the course of the rest of this quarter, let alone later into the year. So I can't tell you that the provision is coming down.

Okay. But what you have said essentially with your prepared text is $5 million of the provision was for the rest of the book and you feel comfortable with the rest of the book and we can make our own guesses on energy. Is that fair?

I think that is very fair. We just aren't seeing a lot of pain here. I mean, absent oil and gas, this would have been a pretty strong quarter.

Okay. All right. Thank you.

Jared Shaw, Wells Fargo Securities.

Hi, good afternoon.

Good afternoon.

Just on the energy side, could you share with us what your stress test scenarios are for oil and gas prices?

Yes, things have sort of changed with the guidance. So one of the things that's very different is the guidance now, when you're testing your portfolio at quarter end, instructs banks to use the NYMEX Strip at that point in time. And the NYMEX Strip, as we sit here today, is about $10 north of our current internal price deck for how we would lend.

So things changed rather dramatically the day the OCC put out that new guidance. Our price deck is fairly low right now.

Okay, but when you are looking at determining or setting your reserve, you're using the NYMEX Strip or are you using your own internal pricing?

This is Scott. We are using both, actually. To the extent it is an impaired loan, we will use the current NYMEX Strip to do a collateral analysis. To the extent it is not an impaired loan, we will use our price deck and the risk rating that comes out of that. So it's really both.

Okay. And then when we look at the 6.5% reserve level at this point, does that incorporate the expectation of the redetermination on the whole portfolio or was that with what you got through thus far at the end of the quarter?

Yes, that's our estimate at the end of the first quarter.

Okay, so as more go through (multiple speakers) to evaluate?

As I would say, there is some unallocated portion of that $49 million. How much is that, Scott?

It's about $12 million.

$12 million. So there's about $12 million that's not specifically attributed to specific credits. So, yes, there is some -- a significant portion of that $49 million is available, if you will, for further deterioration, I think is a fair way to say it.

Okay. All right. And finally just on that $13 million charge-off this quarter on the energy portfolio, was there a specific reserve established for that at all before this quarter or does this go bad fairly quickly?

No, that loan was on nonaccrual previous to this quarter and about half of that exposure had already been specifically reserved, so the impact this quarter was about one-half of that $13 million.

Okay, great. And then just finally, separate from energy, as you look at the rest of the lending book in your opportunities in the current pipeline, is the pipeline strong on the rest of lending going into second quarter?

It is. We had really strong loan growth throughout the first quarter and it continued afterwards. And it's fairly widespread across all of our categories. So, yes, loan growth looks pretty solid right now.

Great, thank you.

(Operator Instructions)

Scott Siefers, Sandler O'Neill.

Afternoon, guys. So outside the kind of unusual energy charge-off that you discussed in detail, I mean it looks like there's basically no actual loss content in the energy portfolio, which it makes sense given the E&P nature of it. But what in your mind would it take for you to start seeing some actual loss content? Is it simply a function of the price dipped down again materially and stayed there? What are the main factors as you see them?

Well, clearly price has been driving all of this for the last year and a half. So that's certainly the most import thing. But beyond that, I like I said earlier, a lot of these oil and gas companies have junior capital that is going to have to get resolved and so when you go through the courts, banks and us are senior lenders.

But there's always the possibility that you don't come out whole at the back end. A combination of price and then individual workout nature of these loans will drive future loss content.

Okay. All right. Thank you. And then, Chris, can you talk a little bit about what's going on with your funding costs, specifically deposit costs? It seems just as I look at some of your numbers that you guys are experiencing a bit more pressure on your funding costs than most of the other banks I follow.

So I'm just curious if there are competitive dynamics at play or what's causing your funding costs to go up perhaps a little more than others?

Sure. And I would draw your attention to page 7 of our financial tables. And we break out for you what we refer to as our network deposits. And you'll see well over $3 billion of network deposits. And those are deposits that are either institutional, governmental, or related to larger financial conglomerates.

And those deposits tend to be indexed to active Fed funds or other market indices. And those reprice on us pretty directly. So that portion of our deposit book essentially has a beta close to [1]. And the rest of the deposit that you can see, and if you look back to page 6, we've had no movement on the sort of traditional savings accounts.

So it's just essentially the network deposits that were really the driver of that. And that accounted for most of the 8 basis point increase you saw in our total cost to deposits. Overall, that's still a beta of about 0.3, which I think is very much in line with what we expected.

Okay. And then -- so basically these network deposits, I mean, that just won't change again basically until the Fed -- until and if, I guess, the Fed raises rates again, right? So that's already now fully baked into the run rate, right?

Correct. And if is the big word, right?

Exactly. All right. Good. Thank you, guys.

Terry McCarthy, Stephens.

Thanks, good afternoon.

Good afternoon, Terry.

Seemed like there was a slew of announcements last quarter in terms of your investments in Milwaukee, including a big building that was purchased for like $60 million. Could you just talk about what you're doing in that market and any financial impact as you think about real estate and reallocating resources down in that market?

Sure. So we have a lot of people in Milwaukee. To some extent it's a second headquarters, as you know, for Associated. We are in leased space today and in coming years those leases will expire. So we've been interested in controlling our own real estate destiny in Milwaukee for quite a while.

And we're also making good inroads into market share there and really putting our flag into Wisconsin as the largest bank in Wisconsin and the most important bank in Wisconsin. If we're going to be that and continue along that path, we need a big presence in Milwaukee which is by far the largest market in the state. So this building came along as an opportunity.

As we sit here today, we didn't need to own the building today, but it was available today. We thought the price was fair. It's leased to the point where between now and the time that we move in, which is some years in the future, it has no material impact on our financial condition. The lease payments more than pay for the operating costs. So it was an opportunistic opportunity to buy a good building, control our real estate destiny for a long, long time to come, and at a reasonable price that won't impact our financials.

Okay. Thanks. All my other questions have been asked and answered. Thanks.

Great.

Emlen Harmon, Jefferies.

Good afternoon, guys. Excuse me.

Good afternoon.

Last quarter, we were expecting that with an increase in Fed funds there would be an increased NIM and didn't see that this quarter. I suspect part of that is the nonaccruals. But should we get additional Fed funds increases, is it your view that, has your view on asset sensitivity changed at all?

I think it's fair to say if you look at page 6, we saw over 10 basis points of upticks in our commercial real estate portfolio. So that indexed as we expected it to.

On the C&I side, we also saw an uptick, a little more muted, but I would remind you that a good portion of our growth came from the power utilities and REIT spaces. And we know the power utility space is a higher credit space overall and the REIT space, as we have articulated, is predominately investment grade. So it's been slightly lower growth yielding assets than the average book. So the new growth came on at marginally lower yields and that depressed the uptick, so we only saw 4 basis points of uptick in that category.

Those are two things to keep in mind. We saw it on CRE side, we didn't see it on the C&I side, but that's because some of the growth we did was concentrated in generally higher credit, lower yielding piece of the C&I book.

With respect to sort of what would come next in a Fed raising further, we have a very small portion of the book that in any type of floor position, it's less than $600 million, have any type of floor at all. So it is really not going to be something that holds us back. So we would still expect to see the asset sensitivity come through at some point on the commercial books. And again, we've done pretty nicely at holding the line on deposit costs outside of the network deposits, so we would expect that there is a positive dynamic to come still.

We're also were not counting on any rate increases. And if you looked at the guidance we provided, we definitely changed those words. None of us really know what's going to happen there, but we're pretty darn sure it's not going to happen three more times this year.

In the absence of that, I think what we tried to articulate was in the absence of any Fed increases, we'll probably continue to grow marginally and the marginal growth generally is diluted to the current book, so you'll see very marginal erosion quarter to quarter. Now we did retire the debt at the end of February, so we will likely see a modest uptick just because of the debt effect in the second quarter, but then it will probably erode absent other changes.

Got it. Thanks. I'll step back there. Thank you.

There are no further questions in the audio portion of the conference at this time. I would now like to turn the conference back over to Philip Flynn for closing remarks.

Thanks and thank you, everybody, for joining us today. We are generally encouraged with the quarter's growing loan book and growing fees. We're also committed, as you know, to containing expenses as we continue to manage through this long, low interest rate environment and the energy price cycle.

In closing, I'd like to share our commitment to our customers. In the first quarter, we launched new vision, values and aspirations statements. And one of the primary visions that we have is that our customers will work with a knowledgeable, capable, and compassionate team focused on ensuring they have anytime, anywhere access to the best solutions for their financial and business goals.

Over the next month, we're going to be highlighting that commitment through roadshows with our 4,400 colleagues located across the Upper Midwest, so a lot of us have been traveling and will be traveling for the rest of the quarter.

Success in banking comes down to great service and relationships. And we're pleased to report that 90% of our consumer customers were completely satisfied with their branch experience during the first quarter. We've recently expanded our Voice of the Customer program to include all of our digital channels as we continue to evolve along with changes in customer behavior. Overall, we believe our shareholders are going to benefit from our disciplined focus on improving the fundamentals of our business and our customers' experience.

So we look forward to talking with you again next quarter. If you have any questions in the meantime, please give us a call. And thanks again for your interest in Associated Banc.

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