Associated Banc-Corp's (ASB) CEO Phil Flynn on Q1 2017 Results - Earnings Call Transcript

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Associated Banc-Corp (NYSE:ASB) Q1 2017 Earnings Conference Call April 20, 2017 5:00 PM ET

Executives

Phil Flynn - President and CEO

Chris Niles - CFO

James Simons - Chief Credit Officer

Analysts

Scott Siefers - Sandler O'Neill

Jon Arfstrom - RBC Capital Markets

Michael Young - SunTrust Robinson Humphrey

Ken Zerbe - Morgan Stanley

Chris McGratty - KBW

Terry McEvoy - Stephens

Emlen Harmon - JMP Securities

Nathan Race - Piper Jaffray

Operator

Good afternoon everyone, and welcome to Associated Banc-Corp's First Quarter 2017 Earnings Conference Call. My name is Matt and I will be your operator today. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference. Copies of the slide that will be during today's call are available on the company's website at investor.associatedbank.com. As a reminder this conference call is being recorded.

During the course of the discussion today management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements.

Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the risk factors section of Associated's most recent Form 10-K and any subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to the slide presentation and to page eight of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session.

At this time, I would like to turn the conference over to Philip Flynn, President and CEO for opening remarks. Please go ahead, sir.

Phil Flynn

Thank you. Welcome to our first quarter earnings call. Joining me today are Chris Niles, Chief Financial Officer, and Jim Simons, our Chief Credit Officer.

Turning to slide two, higher revenues, margin expansion, flat expenses and an improving credit environment contributed to a 30% increase in earnings per share from the year ago quarter. In Q1 we benefited from higher loan yields and growing fee based revenues. We had commercial real estate loan growth and an increase in residential mortgages.

Quarter-over-quarter our expenses and provision both decreased. We delivered a double-digit return on average common equity Tier 1 for the third consecutive quarter and returned a third of our net income to our shareholders through dividends.

Loan details for the first quarter are highlighted on slide three. First quarter average loans grew very modestly from the fourth quarter, reflecting decreased general commercial line utilization and significantly reduced mortgage warehouse activity. Highlighted in green, average residential mortgage loans increased $247 million or 4% from the fourth quarter and $644 million or 11% from the prior year. During Q4 2016, we began to retain some of our longer data production.

Given the steepest of the curve we saw in Q4, this made sense to us. We will take measured steps to retain additional longer data production through Q2 and potentially spilling over into Q3. Residential mortgages now represent 33% of our average total loan book.

In orange, average CRE loans were up 2% from the fourth quarter and up12% from the prior year. Commercial real estate line utilization trended higher in the quarter. While on a year-over-year basis, growth has been driven by the multi-family and retail portfolios for the quarter, we saw increased activity in our industrial and office portfolios.

We are mindful of our current CRE exposure and managed within our established concentration limits by actively monitoring our loan pipelines to ensure we are not overly concentrated in any particular asset class.

In blue, average commercial and business loans were down 3% from the fourth quarter, primarily driven by a $200 million decline in mortgage warehouse outstandings. Power and utilities and REIT loans continue to grow, while we had net pay downs and pay-offs in oil and gas book.

While we saw a decrease in our commercial and business outstandings, our line commitments have increased nearly $200 million or 2% from the fourth quarter and are up almost $800 million or 9% year-over-year. Customer sentiment remains optimistic, but cautious. Our customer base is likely to benefit from the current administrations economic policies and proposals. We happen to sit in the part of the country that's poised the benefit from a refocus on manufacturing infrastructure and defense.

However, our customers tend to be rational and disciplined about their approach to growth and are unlikely to higher more or borrow more, until there is more certainty and clarity. Overall, we are committed to growing our loans, balancing risk with the appropriate returns, assuming a stable to improve in economy, we anticipate accelerating loan growth over the next three quarters and expect to deliver mid to high single-digit loan growth for the year.

On slide four, we highlight our quarterly deposit trends. During the first quarter, we saw seasonal deposit outflows, which contributed to a $277 million decrease in average total deposits from the quarter. And as a reminder, we tend to build deposits during the back half of the year. Our loan to deposit ratio remained at 92% and in line with the past two quarters, as we continue to optimize our deposit mix.

We strive to maintain our loan to deposit ratio of less than 100%, while keeping deposit costs as low as possible. We would expect our loan to deposit ratio to tighten up at the end of the second quarter, like it has in prior years. We understand our seasonal deposit patterns and we manage our quarter-to-quarter swings. Overall, our deposit sources are balanced and are check-in and savings accounts continue to represent 50% of our total deposits.

Turning to slide five, net interest income of $180 million was relatively flat to the fourth quarter and up $8 million from a year ago. We estimate the day count difference from the fourth quarter cost about $2 million. Net interest margin was 2.84% in the first quarter, up 4 basis points from the fourth quarter.

Total commercial loan yields were up 16 basis points quarter-over-quarter reflecting the asset sensitive profile of our LIBOR based commercial portfolio. Residential Mortgage loan yields also improved 11 basis points from the prior quarter, reflecting the shift in our mortgage retention strategy. The yield on taxable investment securities improved by 13 basis points for the quarter primarily reflecting reduced premium amortization which added $2 million to the investment yield.

The cost of interest bearing deposits increased by 9 basis points from the fourth quarter and reflects the deposit data of less than 0.4. We continue to assume there will be additional Fed action this year and expect to see an improving net interest margin trend.

Turning to slide 6, first quarter non-interest income was down $12 million from the fourth quarter. As expected mortgage banking income was down $7 million and we had $4 million in reduced gains. On a year-over-year basis we have positive trends in all fee based categories. Fee based revenue increased to $67 million from $63 million in the fourth quarter.

Insurance commissions were up $4 million from the prior quarter, the increase was largely driven by property and casualty business revenues. As a reminder our P&C business is seasonal with the first quarter bias and our employee benefits business with the second quarter bias.

Mortgage banking was lower quarter-over-quarter, driven by nearly $200 million decrease in mortgage settlements, despite the impact on mortgage banking revenues; we are growing net interest income with our mortgage retention strategy.

Capital market fees declined $4 million from the prior quarter due to fewer customer hedging transactions, lower valuation gains and lower loan syndication activity. Capital markets activity was quite strong in the back half of last year and we also benefited from the positive CVA with the pickup in rates following the election in Q4. We anticipate some level of lumpiness in our capital market revenues from our swap and syndication businesses.

On a full year basis, we expect fees to be down about $20 million from the prior year. We expect to see lower mortgage banking revenue offset by higher net interest income and losses related to tax credit investment activity offset by lower tax expense.

Turning to slide seven, non-interest expense of $174 million was down $5 million from the fourth quarter and essentially flat to the year ago quarter. Personnel expense was $104 million down $3 million from the prior quarter due to $3 million of severance cost incurred in Q4. Collectively, all other expenses decreased $2 million from the fourth quarter.

The first quarter's efficiency ratio was 65% as lower day count and lower gains impacted this ratio. For the full year, we continue to expect our efficiency ratio to improve. Our expense guidance remains unchanged, and we expect expenses to increase 1% from last year.

Our first quarter effective income tax rate of 27% was down from 31% in the year ago quarter and 30% in Q4, driven by a change in accounting standards related to stock compensation of $3 million. Going forward, these tax effects are expected to be higher in our first quarters when the majority of the company's restricted stock awards vest.

On another tax related matter, we received a favorable state franchise tax ruling in Minnesota this week. Subject to a possible appeal of this ruling by the state after-tax reserves of approximately $2 million could be released in the second quarter in connection with this ruling. This should contribute to our effective tax rate staying under 30% in Q2. And for the year, we continue to expect our effective tax rate to be in the high 20s, primarily due to increased tax credit benefits throughout the remainder of the year.

On slide eight, we detail our quarterly credit quality trends. Credit trends are positive, for the quarter we continue to see declining levels of potential problem loans, non-accrual loans and net charge-offs from both the prior quarter and prior year. Our Q1 credit quality metrics include the results from the OCC's most recent shared national credit exam. These exams can particularly impact the risk ratings of our REIT, power and utilities and oil and gas loans, which are primarily comprised this mix.

Provision expense was down from both the year ago and sequential quarter. The majority of our charge-offs continue to be from our oil and gas portfolio as we continue to resolve our problem credits.

On slide nine, we provide some detail on our energy book. Period end oil and gas loans were $625 million, down $43 million from the prior quarter and down $131 million from prior year's quarter. This quarter's lower balances were attributable to payments and or reductions to our problem credit and lower hold amounts on new commitments. We're reducing the amount of our problem loans faster and we're able to add new customers or expand the existing relationships.

Our oil and gas reserves increased modestly this quarter, reflecting our concern over the continued price volatility being exhibited in the market. During the last 30 days of the quarter the price of oil both fell and then rose by more than 10%.

Since January 1st of 2016 when lower hydrocarbon price assumptions became standard we have funded 15 new credits, $335 million of commitments, which represent about a third of all of our oil and gas commitments currently.

Turing to slide 10, we would like to summarized our 2017 outlook. We continue to expect mid to high single-digit annual average loan growth and to maintain our loan to deposit ratio under 100%. We now expect an improving net interest margin trend.

Non-interest income is expected to decline by approximately $20 million from 2016, driven by lower mortgage banking revenue and tax credit write-offs. We expect this lower reported non-interest income to be largely offset by improvements in net interest income and lower tax expense.

Non-interest expense is expected to be up approximately 1%. We expect continued improvement in our efficiency ratio. We expect to continue to deploy capital to our stated priorities and target a CET1 ratio within the range of 8% to 9.5%.

Finally our loan loss provision is expected to adjust with changes in risk rate, other indication of credit quality and loan volume. This outlook reflects a stable to improving economy includes our expectation of the midyear interest rate increase 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 anyone or more of those factors.

And finally before we open it up to your questions, I would like to mention our Community Reinvestment Act rating upgrade to satisfactory from the OCC. This CRA rating covers the period between January 1st of 2011 and July 27th of 2015. We're pleased with the updated CRA rating and recognize our success is depended upon strong relationships with the communities we serve.

And with that we'll turn it over to your questions.

Question-and-Answer Session

Operator

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

Scott Siefers

Good afternoon guys.

Phil Flynn

Good afternoon, Scott.

Scott Siefers

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

Phil Flynn

Sure, it's good question it was a slower quarter than we expected. Mortgage warehouse had a big impact on the quarter. I guess we all expected to see that and other banks that have been reporting have been reporting the same thing. So $200 million swing in that item itself is significant.

As we think about the rest of the year though we are retaining mortgage production that we would have sold in the past we did that in the fourth quarter that will continue this quarter and into the third quarter most likely. And frankly as we sit here today, our loan growth since the end of the first quarter is up more than what we saw during the entire first quarter. So, we're actually had a good starting pace right now.

Scott Siefers

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

Chris Niles

Sure, so Scott, if you look at page six in our press release, you will see the tables [indiscernible] yields and our rates versus classes. Obviously there has been no movement and a pure retail sort of savings type accounts. Where we've seen a little bit of uptick has been in the money market and our interest bearing demand products. We expect that, you are right, in part of those balances of about $13 billionish, include about $3.5 billion of network deposits and both have a beta of close to one.

So let's call it a quarter of that. So yes that's a big driver within those. But I would just ask you to reflect upon most institutions that I have seen comment or syncing data of about 0.5 make sense over the cycle and we are operating at 0.4.

Scott Siefers

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

Operator

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

Jon Arfstrom

Thanks, good afternoon.

Phil Flynn

Good afternoon, Jon.

Jon Arfstrom

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

Chris Niles

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

Jon Arfstrom

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

Phil Flynn

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

Jon Arfstrom

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

Chris Niles

Jim do you have a feel for that.

James Simons

It's probably something 10% or so.

Phil Flynn

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

Chris Niles

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

Jon Arfstrom

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

Operator

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

Michael Young

Hey, good afternoon.

Phil Flynn

Good afternoon, Michael.

Michael Young

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

Phil Flynn

Yes, so the second question first Michael. No it has absolutely no impact on cost. I mean we continue many, many programs serving minority, majority minority communities with subsidized mortgages and the rest. So not cost changes. Certainly with the satisfactory CRA rating we are able if we choose to pursue whole bank M&A. We have been in dialogue for a long time with a number of different parties and our priorities as far as bank M&A have not changed.

I think we have always said that the ideal candidate would be in market where we could gain more efficiencies and nothing has changed that way. So you're correct, so we can execute at this point if we choose to and we couldn't while we have to needs to improve, although we have the need to improve for about six months and three weeks to be exact.

Michael Young

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

Phil Flynn

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

Michael Young

Okay, great. Thanks.

Operator

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

Ken Zerbe

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

The question for you guys though if you're 40% today and that norm if you will is that deposit betas rise overtime. Does that imply that your deposit betas go from 40% to something much higher overtime? Thanks.

Phil Flynn

I guess I would look at it slightly differently Ken which is the $3.5 billion of deposits that we have that are network deposits that essentially have a beta one have a beta one and can't go any higher. So we are fully recognizing the full impact each time each day the Fed moves rates on 100% of that book. And it can't reprise against us more than that. So there is no delayed or lagged effect on those it's fully passed through.

I think if you look at our page six you'd see the savings accounts and time deposits actually have a net negative beta over the last year. So our core retail customer base is like everyone else. It is a component that's within the interest bearing and money market that's tied to the networks that's driving the difference. But that's not a risk factor, that's a pay as you go fully priced in and we're not lagging on that, but we're not ahead of the curve at all.

Ken Zerbe

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

Phil Flynn

No, that you got it right I think.

Ken Zerbe

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

James Simons

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

Phil Flynn

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

Ken Zerbe

Got it. Okay, thank you very much.

Operator

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

Chris McGratty

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

Chris Niles

Correct.

Chris McGratty

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

Chris Niles

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

Chris McGratty

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

Chris Niles

On amortized premium?

Chris McGratty

Yes.

Chris Niles

Same or…

Phil Flynn

Do you have another question always written around to that?

Chris McGratty

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

Phil Flynn

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

Chris McGratty

Okay, that's helpful.

Chris Niles

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

Chris McGratty

Got it, thank you.

Chris Niles

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

Operator

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

Terry McEvoy

Hi, thanks, good afternoon.

Phil Flynn

Good afternoon, Terry.

Terry McEvoy

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

Phil Flynn

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

Terry McEvoy

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

Phil Flynn

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

So if anything of course these rising rates are going to help the branch level profitability going forward and we are seeing that in our community markets and other places.

Terry McEvoy

Great, thank you.

Operator

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

Emlen Harmon

Hey, good evening.

Phil Flynn

Good evening, Emlen.

Emlen Harmon

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

Phil Flynn

So, it's already better in the first quarter. The yield on total loans is already over 3.5, the yields on investment securities which could come back a little bit for some premium, but probably won't move that much is in a reasonable place. And we think we have a reasonable view on our deposit liabilities and our beta, with or without further Fed action.

All of that points us to the fact that we feel better that the number from 284 will likely modestly improve. So that's the positive and if there is more Fed action it potentially could improve more although as we have talked about some of our liabilities will reprise one for one. But if there is no Fed action then we will start to see sort of the lagging benefit on our retail deposits hopefully overtime.

Emlen Harmon

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

Phil Flynn

Snow ploughing [ph] was almost $1 million.

Chris Niles

Yes, no effort.

Phil Flynn

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

Emlen Harmon

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

Chris Niles

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

Phil Flynn

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

Emlen Harmon

Okay, thanks guys. Appreciate it.

Operator

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

Nathan Race

Hey guys, good afternoon.

Phil Flynn

Good afternoon.

Nathan Race

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

Chris Niles

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

Phil Flynn

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

Chris Niles

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

Nathan Race

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

Phil Flynn

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

Chris Niles

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

Nathan Race

Great, got it. I appreciate all the color.

Operator

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

Phil Flynn

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

Operator

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

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