Apr 19, 2012
Executives
Phillip Flynn - President and CEO Chris Niles - CFO Scott Hickey - Chief Credit Officer
Analysts
Jon Arfstrom - RBC Capital Markets Scott Siefers - Sandler O'Neill Dave Rochester - Deutsche Bank Chris McGratty - Keefe, Bruyette & Woods Emlen Harmon – Jefferies Terry McEvoy - Oppenheimer & Co. Mac Hodgson - SunTrust Robinson Humphrey Steven [Game] - Stifel Nicolaus Tom Alonso - Macquarie Russell Gunther - Bank of America Merrill Lynch
Operator
Good afternoon everyone, and welcome to Associated Banc-Corp’s first quarter 2012 earnings conference call. [Operator instructions.]
Copies of the slides that will be referenced during today’s call are available on the company’s website at investor.associatedbank.com. As a reminder, this conference is being recorded today.
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 statement.
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 sections of Associated’s most recent Form 10-K and any subsequent Form 10-Q. 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 Phil Flynn, president and CEO, for opening remarks. Please go ahead sir.
Philip Flynn
Thank you operator, and welcome to our first quarter conference call. Joining me today is Chris Niles, who recently assumed the role of chief financial officer from Joe Selner, after Joe’s retirement announcement last month.
Joe has led the company’s finance function for nearly three decades, and has guidance Associated through periods of tremendous growth, including several mergers and acquisitions. I feel very fortunate to have worked with Joe to restore Associated to a strong and profitable company.
Joe will continue to support the company as a member of various operating committees until his retirement later this summer. Joining us as well today is Scott Hickey, our chief credit officer.
I’ll begin by reviewing our results for the quarter, then provide you with an update on the key drivers of our business, and finally share our outlook for the rest of the year. In general, this quarter’s performance was in line with our expectations and I’m pleased to reiterate our outlook for the balance of 2012.
First quarter highlights are outlined on slide two. We reported net income available to common shareholders of $41 million, or $0.24 a share.
this compares to net income of $40 million, or $0.23 a share for the fourth quarter and $15 million, or $0.09 a share from a year ago. This quarter’s net income to common shareholders now stands at the highest level since early 2008.
Also during the quarter, we increased to common dividend to $0.05 per share. Loan balances continued to grow during the quarter, and increased by $223 million, or 2%, to $14.3 billion.
Net interest income increased by $3 million to $155 million, while net interest margin grew from the prior quarter to 331 basis points. We continue to see steady improvement in credit quality including a 9% decline in nonperforming assets this quarter.
Nonperforming assets of $362 million are at the lowest level in nine quarters, and now represent just 165% of total assets. We recorded zero provision for loan losses this quarter.
Moving on to slide three, you’ll see our improving earnings trend. The earnings profile of Associated has shown considerable progress over the prior year, with both net income and return on tier one common improving significantly in each period.
Return on tier one common for the first quarter was 9.23%, up significantly from just under 4% a year ago as we continued to drive toward bringing long term value to our shareholders. On slide four, you’ll see some detail on our loan portfolio.
The portfolio grew to $14.3 billion at March 31. This was up $223 million from year end and represents a 2% quarter-over-quarter and 13% year over year growth rate.
Although loan growth this quarter was seasonally weaker than we would have liked, we remain optimistic for the balance of the year. First quarter loan growth was driven by net growth in the retail and residential mortgage portfolio of $155 million, and in commercial real estate lending of $82 million.
Residential mortgage balances increased by $178 million, or 6%, during the quarter. Installment loan balances continued to decline by $20 million this quarter, and home equity balances were down $3 million.
Investor commercial real estate loans grew by $100 million during the quarter, while construction loan balances declined by $18 million. The commercial and business lending portfolio declined by a net $15 million during the quarter.
General commercial loans, which include middle market activity, grew by a net $27 million. Oil and gas lending increased by about $5 million during the quarter.
Declines in the mortgage warehouse book of $37 million, and declines in the power and utilities portfolio of $12 million offset the growth in the other commercial and business lending portfolios during the quarter. On slide five, we have information about our deposits and cost of funding.
Total deposits of $15.7 billion were up $563 million, or 4%, from the end of the fourth quarter. Net deposit growth was primarily driven by a $1 billion, or 20%, increase in money market deposits, and was driven by our pricing strategies to shift client funds away from repo agreements and into more traditional deposit products.
Demand deposits also increased during the quarter by $60 million, or 2%, and are up $704 million, or 21%, from a year ago. At the same time, we continued to allow brokered and other timed deposits to decline as we maintained a disciplined deposit pricing strategy.
We continue to focus on growing core customer deposits. We were pleased with the early feedback on Associated Connect, our enhanced treasury management solution for commercial clients, and we expect continued commercial deposit growth in 2012.
First quarter net interest income increased by $3 million, or 2%, from the fourth quarter, to $155 million. The net interest margin for the first quarter was 331 basis points.
Yields on earning assets increased by 4 basis points quarter-over-quarter, and the runoff of high-cost CDs and disciplined repricing of liabilities drove down liability costs by 8 basis points, contributing to the increase in NIM for the quarter. This disciplined deposit pricing has allowed us to manage down the cost of money market deposits to 25 basis points, or down 32% year over year, while we’ve grown the portfolio over the same period by 24%.
Noninterest income on slide six: Total noninterest income for the quarter was $82 million, up $8 million from the fourth quarter. Mortgage banking outperformed during the quarter, and accounted for most of the lift.
Increased trust service fees and higher retail commissions offset the seasonality lower card-based fee revenues. On slide seven, total noninterest expense for the quarter was down 1%, or $2 million, reflecting net reduction in expenses.
Legal and professional fees increased by $5 million from the prior quarter, primarily due to the cost of addressing BSA items. Losses other than loans were $8 million lower than the fourth quarter, which included increased litigation settlement expense in that period.
Personnel expense increased by $4 million and was driven by the resetting of payroll taxes and benefit accruals. Occupancy expenses were up $1 million while reduced business development and advertising expense, lower foreclosure and OREO expense, and reduced FDIC insurance expense all helped to offset the net impact to total noninterest expense.
Late last year, we announced plans to consolidate 21 retail branch offices as part of our footprint enhancement strategy. We’ve completed closing activities at all of the impacted locations.
Early results confirm that we’re seeing retention of clients and deposit balances in line with our projections. On slide eight, we continue to see improvement in our key credit metrics.
Net chargeoffs were $22 million for the first quarter, down 59% from $53 million for the first quarter of 2011. Potential problem loans continued to decline to $480 million, down from $566 million from the prior quarter and down from $912 million a year ago.
The level of nonaccrual loans to total loans continued to improve to 2.3% from 2.5% at the end of the fourth quarter and is down over 150 basis points from a year ago. Nonaccrual loans were down 8% to $327 million from $357 million last quarter, and down 33% from $488 million a year ago.
The allowance for loan losses now equals 2.5% of loans, and covers over 100% of period end and nonaccrual loans. And the provision for loan losses for the quarter was zero, as the portfolio continues to show significant improvement.
Our capital ratios on slide nine continue to remain very strong and remain well in excess of regulatory benchmarks and what will be expected under Basel III. Tier one common is at 12.49%, and provides us with a great deal of flexibility as we think about priorities for capital deployment throughout the year.
As we’ve said previously, foremost we remain focused on utilizing capital to fund organic growth in our core businesses. Second, we’re committed to paying a competitive dividend to our shareholders and as we said have recently increased the quarter dividend on common shares to $0.05.
Next, we’ll look to deploy capital through nonorganic options such as M&A. However, we continue to see limited opportunities at prices that make sense for our shareholders.
If we do a transaction, we will be disciplined in pricing and structure and will likely favor in-market consolidation transactions with certainty of cost takeouts. Finally, we’ll look at buybacks of our common stock and redemptions of other capital instruments as part of our overall capital plan to the extent that it makes financial sense for our shareholders.
So on slide ten, we want to talk about our outlook for the rest of 2012 compared to 2011. We continue to expect robust loan growth and deposit growth over the year.
Although the margin will continue to be pressured by the current low rate environment we continue to believe that we’ll be able to defend a relatively stable margin for full year 2012 compared to full year 2011. Modest, full year improvement in fee income will likely include reduced mortgage banking income going forward, compared to the increased level from this quarter.
We remain committed to managing full year expense growth in the low single digit range, including the costs of BSA compliance and realized savings from branch consolidations. This outlook continues to be guided by our focus on creating and maintaining positive operating leverage for the full year while continuing to invest in our franchise in order to build long term shareholder value at Associated.
Those are my prepared remarks, and with that we’ll open it up to your questions.
Operator
[Operator instructions.] Our final question comes from Jon Arfstrom of RBC Capital Markets.
Please go ahead.
Jon Arfstrom - RBC Capital Markets
In terms of the loan growth category drivers for the rest of 2012, do you expect it to be residential-heavy? You talked about C&I maybe being seasonally weaker in Q1.
Just curious how you see that flowing for the rest of the year.
Philip Flynn
The first quarter was seasonally weak, and commercial and industrial results were weaker than we had hoped. But like last year, we actually expect we’ll get balanced growth among the three main categories, C&I, commercial real estate, and residential.
So it won’t be all residential mortgage growth by any means.
Jon Arfstrom - RBC Capital Markets
Question for you on M&A. Just one of your later comments.
Is this something that’s on the wish list in terms of longer term? Or is this something you’re actively considering at this point in looking at potential transactions?
Philip Flynn
We get shown a lot of stuff. At this point, nothing really seems to make a lot of sense.
If something did, we would consider doing it.
Jon Arfstrom - RBC Capital Markets
And how do you think about some of your expansion, like in Michigan for example, Detroit. You obviously have some hiring there.
You may be a little bit light in Minneapolis-St. Paul, a little bit light in St.
Louis or Chicago. When you say in-market, is that considered in-market, or are you thinking Wisconsin?
Philip Flynn
No, our market is, at this point, the eight upper Midwestern states. But when we talk about an acquisition that’s based up on surety with cost takeouts, it needs to be somewhere we have significant operations.
Having an LPO in Cincinnati, St. Louis, Indianapolis, and now Detroit doesn’t really qualify.
Jon Arfstrom - RBC Capital Markets
What kind of growth are you seeing out of Chicago. Just curious how that effort is going for you.
Philip Flynn
Chicago’s doing well. This past quarter it generated more than 25% of the commercial loan production, more than 40% of the commercial real estate.
It’s a big market. So for this past year, year and a half, it’s been a significant piece of our growth, and we expect it to continue that way.
Operator
Our next question comes from Scott Siefers of Sandler O’Neill . Please go ahead.
Scott Siefers - Sandler O'Neill
I guess over the last year or so I’ve become really accustomed to seeing just really outsized loan growth number, so I was a little surprised to hear your comments. You’ve spoken to it at least a little, but I was just hoping you could give a bit more color on kind of where you were and weren’t satisfied with how things came out in the first quarter.
And I know basically the outlook sounds like it’s still intact and kind of firing on all cylinders, but just would be curious to hear your outlook. And then separately, maybe for Chris, I was just wondering what stage you guys are in in terms of runoff of the securities portfolio and if that’s pretty much as low as we’re going to go, such that the earning asset base might expand a bit more rapidly as we look forward.
Philip Flynn
On the loan side, I would take you back to slide four. And you can see that in the first quarter of last year, we actually had less than 1% quarter-over-quarter growth.
And so this first quarter we had a little less than 2%. So it was better.
I too have gotten used to robust loan growth, so when I expressed a certain amount of disappointment, there is the reality that we and a lot of other banks who have been reporting do show some seasonality in that first quarter. As I said, we clearly are looking for more commercial banking growth, and we expect to get that with the pipeline that’s in place right now, and actually with transactions that have closed since month end and are scheduled to be closing over the next month or two.
We also knew that we would have a drag from the mortgage warehouse, that there would be some paydowns in that portfolio, and that did occur. So overall we would like to see better growth.
We had extraordinary growth through the last three quarters of last year, but we do expect to be right back on track.
Chris Niles
And with respect to the question on securities investment portfolio positions, I would draw your attention to the first page of the consolidated balance sheet. And you’ll see that the net shrinkage in the securities portfolio from December 31 to March 31 was $268 million, which largely mirrored the $244 million of net balance sheet loan growth.
So we have been pacing and managing the runoff in securities to fund the run up in loan growth. And we’ll continue to manage those in parallel.
And we believe we’ll have the flexibility to continue to manage that going well into the third quarter.
Scott Siefers - Sandler O'Neill
And then Phil, just one additional follow up. You’ve done some of the things like LPOs placed in the Midwest that are sort of outside the core banking footprint.
Do you see any more opportunities for dynamics such as those? What stage are you in in that kind of a rollout?
Philip Flynn
We don’t have any plans to open any other LPOs right now. The three that we opened in Cincinnati, Indianapolis, and Detroit we had planned a while ago.
The small operation that we have in Houston, for the oil and gas business, has been up and going for a while. So we’re not planning anything else.
What you will see us doing is adding additional product lines to some of these operations. So Cincinnati, Indianapolis started as commercial real estate.
We’ve added commercial banking capabilities. Over time, the commercial real estate LPO in Detroit will likely expand with some commercial banking operations as well.
But we don’t have any new geographies on our mind at the moment.
Operator
Our next question comes from Dave Rochester of Deutsche Bank. Please go ahead.
Dave Rochester - Deutsche Bank
On the margin, it generally looked like the loan yield pressure wasn’t too bad given some of the competitive pressures you talked about, especially on the C&I side. Can you just talk about where those spreads are today?
And then if you could also touch on CRE spreads? It sounds like it may be a little less competitive on that side.
Philip Flynn
Commercial real estate continues to be pretty good, and when you think about the mix of loans that came on, quite a bit of residential, quite a bit of commercial real estate. We’re getting pretty good yields in both of those lines at the moment.
Where there’s pressure is on commercial banking middle market loans. And whether it’s Chicago, Wisconsin, Minneapolis, banks are fiercely competing for available commercial banking transactions.
And spreads are reflective of that.
Dave Rochester - Deutsche Bank
Have you seen those spreads come in at all last quarter to this quarter?
Philip Flynn
Anecdotally, maybe, but it’s been competitive now for a good six, nine months probably.
Dave Rochester - Deutsche Bank
And on the funding cost side, it seems like you still have some more room to go on the CDs. Can you just talk briefly about what’s repricing over the next couple quarters and the rate on that?
Chris Niles
You can see from the table on page seven of the press release the weighted average yield for the quarter on the $2.3 billion of CDs was around 119 basis points. We’ve previously noted that 80% of our CD book was going to mature during 2012.
We’re on track for that. There’s no new information there.
Continue to see continual repricing throughout the year. We did have a solid lift in the first quarter.
We will continue to see repricing from that book, which has been north of 1%, into something more in the 50 basis point range as we continue to move through the year. The majority of what is repricing and rolling over is rolling into maturities of less than 13 months, and when they’re not rolling into CDs we’re very comforted to see that we’re capturing a fair amount of that in money market and savings products, which are actually repricing into lower rates.
So we’ve been very pleased by the migration of the high-cost CD book into other core deposit categories. And we continue to see that continuing.
Dave Rochester - Deutsche Bank
Should we expect to see the bulk of that $5 million increase in the legal and professional line from the BSA to go away next quarter?
Philip Flynn
No, we’re going to have some elevated costs for BSA compliance through the course of the year. It’s not going to stay at that run rate for the entire year.
But we’re working fast and furious right now with a lot of consultant help, a lot of systems work we’re doing. So it will be elevated in the early part of the year and probably moderate as we get later into the year.
Operator
Our next question comes from Chris McGratty of KBW. Please go ahead.
Chris McGratty - Keefe, Bruyette & Woods
Just a question on the mortgage banking business. Was there a write up or a write down on the MSR this quarter?
Chris Niles
There was a write up, and there was less expense incurred than in the prior period. So collectively, a lower net MSR expense of $3 million.
Chris McGratty - Keefe, Bruyette & Woods
And then on the capital levels, Phil, maybe you could just talk to us and remind us where you’re longer term thinking about where the bank needs to be?
Philip Flynn
We are going to remain very well-capitalized. We’re going to be Basel III compliant.
But we have a lot of room between there and where we are today, clearly. So as time goes on, we need to deploy the capital or return the capital.
Chris McGratty - Keefe, Bruyette & Woods
And just lastly, what’s the tax rate we should be using going forward?
Chris Niles
I think the current period tax rate is reflective of our full year expectation, so that wouldn’t be a bad starting point.
Operator
Our next question comes from Emlen Harmon of Jefferies. Please go ahead.
Emlen Harmon – Jefferies
Could we go back to the liability profile? You guys showed what I would call extraordinary growth in money market deposits over the course of the quarter.
Was there anything unique going on there to kind of drive that and would you expect growth there to continue going forward? And then just maybe pulling that into the big picture, how are you thinking about the liability profile longer term?
And would you expect any other significant shifts?
Chris Niles
Sure. We would highlight that we had, last year, chosen to migrate our customers into short term repo-based and repo sweep arrangements and as we have gone through the course of the year, and as our securities book is paid down, and the amount of excess collateral available there has moderated, we have, through pricing and given the lower rate environment, been able to profitably and appropriately migrate customers away from repos and back to core customer deposits.
So you’ll note that the offset there was reduction in customer repo term and repo sweep as well as reduction in overall CD balances where we have seen a fair amount of recapture of CD maturities into our money market products. There was also a component of that which was related to network deposits, which was an uptick of about $300 million in the totality.
However, that really offset reduced federal home loan bank borrowings.
Emlen Harmon – Jefferies
And then just one other quick follow up on expenses. Just the increase in the personnel expense.
Can you help us understand what portion of that is due to seasonal effects versus other factors that may be in there? Seasonal expenses, like FICA expense.
Typically, we see some seasonal pickup in the personnel line because of the payroll taxes in the first quarter. So I’m assuming that’s part of the increase, but was just kind of curious what other effects were in there.
Chris Niles
More than three-quarters of it is FICA-related, and the balance would be accruals for full year bonuses on the assumption that things were going to be better this year than they were last year. As well as the resetting of merit increases, which we typically do during the first quarter.
Operator
Our next question comes from Terry McEvoy from Oppenheimer. Please go ahead.
Terry McEvoy - Oppenheimer & Co.
Just a question on the branch closures. Can you talk about customer attrition?
Was it in line with expectations? Some of the newer branches that you’ve built or refreshed, so to speak, any increased traction because of just being more appealing?
Anything there would be helpful. And another question.
If I remember, when you bought First Federal, in ’04-05, they had a fair amount of supermarket branches. How does the supermarket branch model appeal to you today in light of the regulatory changes and some of the pressure on consumer banking?
Philip Flynn
Three pieces to that, Terry. On the branch consolidations, we’ve now completed those.
So it’s very early days, but as we sit today we’ve actually - if you take the consolidated branch into the branch it was consolidated into - deposits are up, and we haven’t had any customer attrition. So we had modeled high 90% retention rates, and we’re actually doing better than that.
But it’s still early days. Some of these branches have only been closed a matter of a couple of weeks.
On the remodels and refreshing of the branch network, it’s also early. The one piece of information I can share that we’ve tracked from last year was a pickup in transaction volume and new [account holdings] in the branches as they got new signage up.
A lot of our signage was very dated, and we now have made our branches much more visible through signage. So we’ve seen some pickup on that.
As far as the branches that we’ve done significant remodels on, it’s just really too early. But we’ll be tracking that as the quarters go by, and we’ll let you know.
And then finally, we do operate a significant amount of in-store branches, and that model seems to work very well for us. Actually, it works better than what I was used to at the bank I used to be at, in California.
We continue to be quite comfortable with the in-store model. We’ve actually opened, I think, three in-stores over the past nine months or so, and we’ll continue to look for those opportunities.
Terry McEvoy - Oppenheimer & Co.
Retail commissions. Every quarter I just plug in $15 million or $16 million, and it’s been that way for quite some time.
What goes into that? And what can drive that higher, to get it out of that range that it’s been in for quite some time.
Chris Niles
A lot goes into it, and it’s a lot of different aspects of different things that are done within retail. But it’s a combination of the insurance sales, the retail brokerage channel, retail foreign exchange to the extent that there is that component there, and other related ancillary services.
And it has been a fairly steady number, which I think reflects the steady core customer base that we’ve had. And I think it will be customer activity driven [unintelligible] moves, and household attraction retention driven to sort of drive that number meaningfully higher, as we’re currently not aggressively introducing new products or adding new ancillary services in the current regulatory environment.
Operator
Our next question comes from Mac Hodgson of SunTrust Robinson Humphrey. Please go ahead.
Mac Hodgson - SunTrust Robinson Humphrey
I thought the net interest margin was great this quarter. It improved more than I expected.
So I was a little surprised that you didn’t kind of raise your expectations there. Is it more being conservative given it’s just the first quarter?
Or are there other expected movements as the year progresses that might put some pressure on that number from here?
Philip Flynn
It’s the first quarter.
Mac Hodgson - SunTrust Robinson Humphrey
That’s what I figured. And then just one more.
Do you mind giving some color on the types of investor commercial real estate projects you’re funding?
Philip Flynn
Sure, it’s a variety of different product types. This past quarter there was a significant amount of multi-family and a decent amount of office.
Across the footprint. A lot of activity in Milwaukee, a lot of activity around Chicago.
Multi-family has been clearly the hottest area of commercial real estate development of late.
Operator
Our next question is from Steven [Game] of Stifel Nicolaus. Please go ahead.
Steven [Game] - Stifel Nicolaus
Looking at the mortgage banking line, was there any impact from Harp 2? Or do you expect any impact from Harp 2?
Chris Niles
I think our existing portfolio base is perhaps not as Harp 2 sensitive as others. I think there’s some positives to that from a credit perspective.
There’s some negatives to that potentially from an opportunity perspective. That having been said, as a leading originator within certainly the Wisconsin footprint, and there being other institutions who have significantly different credit profiles, we see lots of upside and opportunity for us to grow the portfolio as a result of that, from others’ portfolio, not necessarily our own.
Steven [Game] - Stifel Nicolaus
And Phil, you mentioned acquisitions. Just curious if there’s any opportunity to grow the niche businesses that you have through M&A.
Philip Flynn
The place where we can grow some of the niche businesses, for example oil and gas or power and utilities, is through portfolio purchases. In fact, we’re just in the process of closing a small bundle of loans that we’re buying from a European entity that’s exiting that business.
So it’s not going to be buying a business, if you will, but it’s probably more along the lines of buying some loan portfolios.
Steven [Game] - Stifel Nicolaus
And last question, just wondering if there are any changes in line utilization by geography. I guess, specifically looking at maybe Chicago, Minneapolis, and then kind of the…
Philip Flynn
It’s all stuck around the high 40s right now, and hasn’t really been moving much I think. I think the last number I saw was 48% line utilization.
Operator
Our next question comes from Tom Alonso of Macquarie. Please go ahead.
Tom Alonso - Macquarie
Just real quick on the move from repo to money market. Is there additional opportunity to move more of that?
And when you move that, what’s the differential in terms of - how much do you pick up in terms of cost savings, if anything?
Chris Niles
We have repriced the product so that it’s considerably - our customers earn considerably less in a repo than in a money market. So actually the shift is costing us incrementally.
But it’s also freeing up the collateral, allowing us to allow the securities portfolio to continue to run down, allowing us to fund continual loan growth. So the margin, the earning asset pickup, is on the order of 100 basis points, although the actual net interest expense is going up when we move a customer from repo to money market.
But we free up an investment in the security, which we can then reloan out at loan rate and pick up the spread there.
Operator
Our next question comes from Erika Penala of Bank of America Merrill Lynch. Please go ahead.
Russell Gunther - Bank of America Merrill Lynch
This is Russell Gunther on for Erika. I just had a quick question on the securities yields.
Up 26 basis points quarter-over-quarter on lower balances. Can you give us a sense for what drove that?
Chris Niles
Sure. It was largely premium amortization and slowdown.
Russell Gunther - Bank of America Merrill Lynch
Do you have what that was on a dollar basis this quarter versus last? What the contribution was?
Chris Niles
No, but we can see if we can provide that number in a separate discussion. But it’s largely premium amortization.
Operator
Our next question is a follow up from Chris McGratty of KBW. Please go ahead.
Chris McGratty - Keefe, Bruyette & Woods
Chris, can you walk through the mortgage banking number again? The MSR.
What is the dollar amount of the writeup or writedown? And is there an offset, likewise, in the expenses?
Chris Niles
Well, we had increased gain on sale. That was the largest contributor, looking back to page six.
We had net lower MSR expense of three. There was a valuation component to that, which was on the order of $2.4 million.
Chris McGratty - Keefe, Bruyette & Woods
So a $2.4 million MSR writeup, okay.
Chris Niles
Correct.
Operator
I’m showing no further questions at this time, so we will conclude our question and answer session. I’d like to turn the conference back over to management for any final remarks they may have.
Philip Flynn
Well, thanks for joining the call today. We were pleased with this quarter’s performance, that was marked by higher loan balances, higher margin, higher core fees, stable core expenses, and continued improvement in credit.
We remain optimistic and committed to building shareholder value through our long term strategy for growth here at Associated. So we’ll look forward to talking with you again next quarter.
And if you have any questions in the meantime, you know where to find us. Thanks a lot.