First Midwest Bancorp (ONBPP)

Mike Scudder Chairman and Chief Executive Officer
Mark Sander President and Chief Operating Officer
Pat Barrett Executive Vice President and Chief Financial Officer
Michael Young SunTrust
Kelly Motta KBW
Cooper Brown Stephens
Call transcript
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Good morning ladies and gentlemen and welcome to the First Midwest Bancorp 2019 Fourth Quarter and Full Year Earnings Conference Call.

Following the close of the market yesterday, the company released its earnings results for the fourth quarter and full year of 2019. It also issued presentation materials that will be referred to during the call today. These provide both historical financial information and the company's outlook for 2020.

During the course of the discussion today, management's comments and the presentation materials may include forward-looking statements. upon or current or guarantees based not and outcomes. are facts historical of statements the beliefs company's are These future performance Actual may outcomes results differ. or contained recent The presentation the well materials release for included as non-GAAP considered with Harbor in and statement, risks, as the information should forward-looking other uncertainties the SEC be company's and XX-K call and and most the other the filings Safe earnings in today. legends company's

statements will after company Finally, not any forward-looking call. be this the updating

This participants mode. call and in are all is being recorded a listen-only

answers Executive go Following Mark Officer now will Mike the ahead. Vice Officer, for Please presentations Scudder, call for by the Barrett, turn and will Pat President Chairman President to Operating analysts and Chief only. call Mr. Chief Chief Scudder. Financial opened the Officer, I and and over Executive Sander, be and questions

Mike Scudder

morning. Great. remarks. and follow you. as everyone It's with us joining be move on you Good we've to of to Thank great our presentation through to you all we a supplemental that want today. I with for remind provided given

So Mark as they Pat custom, is walk highlights can and details. through you the and leave it cover and the then our to I'll

EPS also growth our we lending acquisition those year, year-over-year. about announced by saw a early back all as excited acquisition moves. of on further was our through well XX% teams our truly or of us Oaks very year bank, a record year meaningful First both us there. in what of as our Looking very the commercial acquisition $X.XX to at This share close represented so expand our as Midwest, to well those pending Bridgeview as of record, additions do 'XX and closed as greater Part Milwaukee on Northern of $XX as, augmented into assets The well was a for per grow saw XXXX levels than billion in

basis profitability our return has equity year. XX.X%. activities, tangible common those to of result from increasing on XX our improved a As points with last almost up That's

also of due Our and almost stronger per strength the the we capital XXXX well capital earnings spent activity. all shares fact our that earnings acquisition recovery our of book accelerate accelerated that certainly the as in value increased as by to XX% tangible largely over that capital on recovery

a the For $X.XX that's for the or the quarter adjusted X% X% quarter. from fourth $X.XX fourth over about quarter up was $X.XX EPS third about of 'XX quarter or down

performance from lower expected, we at. impact rates the As our the would started have revenue continues from reflect to what course reversal we year on the the

Highlights X% for would of largely to That's the the rate up increased our X% about Bridgeview, the quarter it year-over-year. as consumer of duration our there. yield added we exclude strength environment that portfolio include, quarter's XX% diversification a linked on loans were loans annualized though the benefits and was performance responsive

quarter the investments platforms last along repricing It linked mix Net repricing At our drive derivative as points quarter rates. nice in fee-based a products was lower a revenues contrast from for expected shifting once the year, time, increased which from of to interest basis in about sales same XX loans deposits. offset see impact to declined and mortgage at the pace largely about to increase. wealth our and XX% helped last the again by we've of was our with that record made with down income as and margin X.X% all different our the X% quarter

well a as we've the percentage books that offs as linked was seen whole full while percentage up a what the year as were mix of costs our that would down charge-offs we are seen warranted provisioning a portfolio put down quality from in we the originations slightly of the as as Credit of line trends consumer and but the slightly greater lending with for on lower portfolio. charge from year quarter have the last were

focus remainder to made of full About to internal be up professional been timing from related area expenses year variable -- our percentage investments consumer us. for some we growth the was were has continues for tied sales for we income year. was platforms quarter. portfolio a retail XX. quarter half That's out of expense our at in incurred revenue tied that last some we that while It in efficiency to XX% Operating in and up ahead expenses full and almost with our last non-interest came tied and building But full and our increase to to quarters where points the X the year processes.

With offer me to additional that turn Mark let and Pat they some and it over color. can

Mark Sander

Park quarter Thanks, fourth our all. Mike, impact the and we morning XXXX we'll good full acquisition. you the And performance, through of year reference guidance excluding take also

each greater Park and then page on XX For our note on slide we total ease clarity, separately of and presentation. in

of this with across commercial. offset loans of annualized four an high abnormally activity by all was a production of page Starting partially on result our was payoff deck, of level X% of qX growth in solid the platforms, but

in certain asset higher As QX. in payoffs credit and C&I dynamics, visibility, signaled call CRE had last given sales we we the both and market were a

but disciplines was high thought of lending course discipline additions were earning year We quarter clients good posted faced record well. fronts. on our mortgage Consumer had the fortunate a environment, We by sales purchases supplemented throughout strong lower in all quarter as mortgages quality year. by rate CRE, aided but staff in for this assets. this resulted outstandings That some originations of C&I some by the favorable the events of transactional as largely driven combination the which a well we over as pressure our and credit

of to levels. these as grew Organic think solid loan normalized as couple quarters pipelines nicely, this activity net also our about next continuing returns and commercial installment we drive year, lending so payoff production should growth more

loan one and remains model modest of again and demand, While generate competition results. business diversified organic teams our the solid seasoned expected to are high market

economic overall Reflecting loan the single for remaining steady see we given also growth organic of strong mid landscape. We total the project digit year. consumer the all lending above,

offs results and expected with Asset as metrics remain guidance. Mike consistent With XX no from offs expected, XXXX a in loan cover our charge will think QX net expense the course again key and as came will in as macro Cecil. the QX be narrow around range in we of mentioned, in points all quality outlook basis charge growth. change the away over Provision

six our given page consistent on composition. seen as favorable remained Deposits

competitive down and our a here Our peers. costs came advantage QX versus five points basis from remain

to margin. and Pat to discuss net over income interest Now

Pat Barrett

Thanks, Mark. call. to everyone Good the morning on

quarter offset interest funds increase lower offset of and the accretion, by margin and Bridgeview, was to slide or interest Compared Turning securities purchases, up prior accretion. net acquisition X.X% costs. acquired and the year, prior income to Net to loan funding interest cost growth on due rates, compared income the X% the loan the to million lower partially higher compared period quarter $XX compared to was was seven. in due to same of decreased and decreased XXXX, to by prior higher the partly

million from loans. X.X Acquired X.X period certain year same the quarter favorable to Accretion X.X acquired resolution a compared was expected higher due in of million to quarter contributed and loan ago. accretion to the up than prior the million

current of linked interest was from basis XX for net quarter margin, basis NIM to period tax points the and Moving quarter X.XX down same the ago. year equivalent XX points a

from basis points Excluding points quarter XX down accretion, the same X.XX ago. year basis for was and linked core margin XX the period a quarter

compared yields year reduce to the on reflected cost margin compression compared compression prior both Margin taken this periods impact sensitivity prior offset compared funds; reflected quarter, also of market actions loan the partially to by funds. lower of lower higher to combined cost was with the to rates prior rates of

up levels higher prior billion borrowed Average million assets sources, quarter borrowed X were year organic acquisition growth up earning reflecting funding growth to the to deposit linked billion XXX Bridgeview higher prior of securities earning up the acquisitions, up from the reflecting impact reflecting were XXX sources quarter assets and assets and and and purchases. due of loan funds over of from Turning to loan levels million funding and funds. compared earning X year growth, linked average the

XXXX year, the To clarify Cecil occur. we loan NII expect Accretion growth. digit occurs outlook, excluding digit single which to rate losses. this is Moving evenly $X in of the further the NII lower to for million transition growth single for to a mid to inclusion cuts low reflecting no with Park, expected net accretion around reclassifies our fairly year approximately XX and million mid provision throughout be assuming be the which would

stable and to Once in rates, want early you are loan calls the for short-term NIM Our impact that XXXX 'XX outlook stable a to for remind movements This from in of again, decline levels acquisitions. QX due growth, pace volatility modest of subject rates. assumes I to projections interest core thereafter.

back it income to non-interest over Mark Turn slide eight. on discuss to

Mark Sander

Thanks Pat.

most following well aided Non-interest as minute. streams cover both income a favorable swaps QX. We in environment. Pat the linked variance rather impacted stronger quarter we record in drove fee a up expected fees a X% revenue in quarter of as mortgage robust came rate posted These than by expenses and and will the

XX% in quarter acquisitions, also in QX. combined year-over-year treasury a with management benefit our wealth of solid We and posted generated the we growth

digit mid near in is to QX. components We core mortgage gains will The streams. swaps outlook and fee organic favorable. record the low posted at of our the to likely The results term not for in see remain revenue we levels in more volatile continue opportunities also

results of we solid couple possible non-interest XXXX. momentum are growth reflects total, year. calling single income outsized to normalization mid factoring our last business a a while our in in This In for areas low core in digit

will Pat expenses. up pick on now

Pat Barrett

acquisition. that largely by to integration fourth of our and the quarter, related includes acquisition million slide associated with expenses, nine. anticipated costs Moving Note $X Bridgeview quarter current driven

higher quarter Away staff enhancements. to combined increase mortgage reflecting operating by prior total up X% base increases, driven due third professional and commissions the with due related expenses costs services from continuing compared The items, higher higher in and were ago. acquisitions year merit to to to higher and year same technology the XX% up volumes compared larger for a was compared process investments to the our salaries quarter production to these higher

in services and technology the reflected prior quarter enhancements, insurance FDIC, professional the mortgage increases commissions. related to accruals, and process higher these to incentive premiums, expenses compensation, Compared

up year, noted ratio in As prior compared fluctuate a XXXX. result, quarter-to-quarter overall XXXX modestly efficiency ratio our the can and prior for quarter both XX% be compared ticked to and but should our it to efficiency was XX% that

XXX legacy year. evenly spread for generally expenses outlook but variability quarterly the million XXXX throughout some is around with for Our the year

lower XX% Last our effective tax quarter. than approximately this in our for note on realized slide, to quarter taxes, before the the I leave guidance due rate was credits

continuing We expect rate effective XX% XXXX. of tax our into

Moving at our to capital on pleased deployed on Slide capital track XX, capital back of strong levels earning we record with maintain we to rapidly acquisitions. are continue and

In tangible with us remaining have in although accretion flexibility pending is fund the value to addition, which our XX.XX continues the board approximately million been for earnings share from up note acquisition. nearly a provide XX% continued we book from authorization, $XXX repurchases not due excess and that repurchasing ago. Capital we to to growth Park year of have approved

quarter, a a XX% from the same represents to than dividend shareholders we During period the more paid that a ago. year increase

presentation standard quarters one approximately of Slide $XX generation. earnings the basis our These prior changed two from is losses million was and have to one XX impact capital for tier of limited both quarters quarter current not adoption and our the allowance on the typical recap, points of to of Cecil capital lastly we XX, million estimated capital summarized to impact $XX of what overall, estimated QX representing in relatively is of presented at XXXX. or estimates credit range a XX to our this And to

our with usual summarize practice outlook Consistent on XX. our XXXX we for will Slide

turn now it final remarks. to back I'll over Mike for

Mike Scudder

Pat. Thanks,

remains all say as environment a uneven So least. just of recap, you the not operating know, to to little the kind

as remain us momentum year industry and rate as the same it backdrops, our the early and of time, really has we transition. At tough the our certainly the positioning strategic adjusted the on execution priorities. it's that whole a impact on focused for we core like for While, our

grow places to First a of pleased build here as Midwest here in work We best our We're once that's to market noticeable team great certainly at and a locally again, very size. influence to to more our haven't continued environment. and and be the here continues work recognized with one as on our both Chicago's market, profile great markets

and build great of will, to today's a as tends a if And and serve noise, to the continues it long-term a worked undervalued core this We've hard maintain very to you while tremendous deposit that's foundation. company. be strength

diverse better Our credit years ago years. the more through what is positioned as several forwards than we profile as it and was certainly move such, we're

continue earnings as we our flexibility will tremendous to that us Our gives efforts that our build optimize in well us better the work both to remains to better mix. and risk strong continue environment but this landscape XXXX will to well. act and And very Operationally, as and to organically and to risk capital. as drive experience, grow resources, as leverage well manage as capital see client evolving as and in processes our better also invest to leverage more a technology efficient efficiency an

and the both that. XXXXs environment advancement the to technology incentive and offer just perspective do my from opportunity

our on in Park very acknowledge we and we of in about adding Wisconsin engaged talented that Southeast of also assets and built a presence in and most acquisition would certainly I the finally, Bank have team billion a build importantly, was Milwaukee So bankers.

Organizational with roles expectations. integration teams from and are within well path the and tracking our aligned metrics our and down planning perspective

solid a summary, strong team, engaged we've got in opportunity. sheet, underlying So balance strong

well our to have as and business us. to opportunities as manage our in make flexibility capital, for invest We pursue that the sense those infrastructure

eye As returns. always, long-term to with continue shareholder that on do we an will maximizing

for that, open with So up let's your it that up questions.


Instructions] [Operator SunTrust. Please ahead. Michael question sir. Young you, first Thank go was from comes The

Michael Young

good Hey, morning everyone.

Mark Scudder

morning. Good

Michael Young

normalization you recent downs mentioned to you if uh, remarks was curious trends? in your giving something a slow if year. you for is potentially prepared that pay next question confidence first the loan was My expected were seeing of greater I environment Mark, Mark. that in you the that's or, just

Pat Barrett

of bit little both, A Michaels.

I normalization. think it's a

So we've year higher this was before. ever by seen far than a

mess we were bought in I expect of bit events that circumstances two not couple think of banks year. clients, 'XX the in remember, those portfolio, there a you you there XX repeat. also expect transitions of little we to drop for first for months as and So necessarily last unique do you transition a the

I So, it speak so bit normalized the think I will a of combination all to little more think here. be that

Michael Young

and are are other the those when of And maybe you transpiring, Okay. capturing, parts events bank? guys business that

Pat Barrett

in Sometimes, are But for part, it's planning certain advance we Certainly can't yes of businesses always. hopefully say to having when the estate sell, for and would relationships relative investing sometimes, no. and can places been large we I conversations There types where things. and those years we no. the continue others where

Michael Young

just NII of purchase Okay. And to Pat, right maybe that? a if for XXX the Is rate we're switch I clarification on amount that adding growth on top million mid-single number accounting then digit the and use? guide. could XX of that just right the to Is base accretion

Pat Barrett

put it kind way. of me Let this

So which digit. that NII looking of our XXX, single to reported all be the for a year accretion. We're end for with at inclusion of Park is the mid inclusive

accretion. phase in that's X%, the it of call So sharply declining

well rates transitions X the going mind a impact off million from keep rolls into through And a in nearly because out as negative that and that be of as slight So million credit expected NII in $XX year-on-year, item. lower our as of line we've provision that we're got to Cecil, year.

Just everyone. things complicate for to

Michael Young

acquisition. the inclusive the And that Cecil is but guide the that piece mid park exclusive of off Right. of single digit XXX

digit given mid gave digit. demonstrate quarter, the really kind guides. away mid-single accretion. -- to to should trying would I be was single tough just end we're we multiple The from of So it's probably that you have a low all That just

from one accretion those here. of flat Hopefully Park, legacy your NII If with comments the year be modeling. we'd least you drop our just at in resonates away on with looked at

Michael Young

Pat. Okay. Thanks

Pat Barrett

calls. as We'll some sure follow up be I'm offline follow and there'll needed up


[Operator Please Instructions] The ahead. Chris next go KBW. question is from with McGratty

Kelly Motta

you Hi. actually Motta I Thank a for my This Kelly is on question. Chris. stand on maybe wanted taking to NIM. for

how kind how were the be kind to to to I rates. should about NIM here prepared deposit you have of offset that room your cut, from I'm and your trajectory remarks pressure wondering, costs we if or overall of happen. kind of we you think thinking would mentioned to of if get that flat if were is seems your another still think about of in

Mark Scudder

Sure. question Compound Kelly.

shot So best it. do my let take at me

answer question I'll the sensitivity So first.

kind and point XX I change, in point. would million move lock time a assuming at think down a basis that of this fed or quarter, it's step LIBOR whether over about $X.X be up

that the two kind stabilizing see repricing, stable over So repricing that quarters, NIM. lagging we of and a last and with deposit, QX seeing state, pretty loan

lower on costs. of the loan should in yields funding be compression impact So continued reflected

basis to printed in we to forties, think So the we we're throughout maybe going much pretty expect NIM after so we that and quarter, levels going three three we're the we think in high to the drop to QX, see that or would two point this returned persist year.

Kelly Motta

accretion, a an you. just that thank or XX? of is it, and is included And additional Park million on Got in clarification you X XX million total point then in said the the

Mark Scudder

one. an without include choose guidance it how is X the us in additional to it XX pick clear. to make our Park both should done probably gave have with. Yes. and Park XX or and We had we

Kelly Motta

much. so you Thank Great.


we take If if you Instructions] call turn did Pardon a I back are Scudder further over question to have any now there for Mr. late questions, me, wanted will closing come the it. no comments. Mr. [Operator to Scudder, in

Mark Scudder

to Sure. Happy take.


from be with Stephens. Cooper will ahead. go Brown This Please

Cooper Brown

guys. on guess, had the and your markets This Terry. a XXX mortgage revenue quick specifically Brown are I is expense Park? morning banking assumptions within I question capital Cooper good guide on the what for Hey, in before guide. that

Pat Barrett

that. at shot a take I'll maybe So

capital the Mark, to the unclear sustained I we're we're guess see of first. to as income. whether assumptions going Maybe bigger record the levels So markets question on revenue is

amount paid drive huge our banking of commissions. print doesn't First heightened we Mortgage in a but $X.XX does for because all, every dollar that gets that of on expenses. of out revenue dollar really

expense really call the expecting drive higher We're long last with relatively couple continue as it space. performed this a, consistent levels as does does quarters. in So it at mortgage low rate to environment we've of

So but in, pay out those in it revenues we'll heightened it levels, track will commissions. at steady back

hard Capital in to more the to predict XX future that. much days than markets, on it's XX

a million more a anticipating, really which it more that, bring we're to of shouldn't $X So to maybe million expenses. could a a $X.X but of range, normalization back down that actually influence kind of of quarter

Cooper Brown

you. all great. I Thank had. Okay, That's


is from follow-up with The KBW. a go next Motta Kelly question Please ahead.

Kelly Motta

is, Hi. the healthy I ask you people in how kind wanted last be thinking the market think to stock should cause doing of would blackouted about continue interested your that coming we up wondering, just forward. purchase and out. this you're just going you question are in on from but capital, you to one out that and were you buyback with And kind mentioned not stepping about the of when of Park

Mike Sander

kind a we place just to earnings to our excess consume the would over of than We put time, in gear thing. onetime a able towards reminder, rather being program

to sorry, going bit than of I'm maybe that. roughly more is equal quarters earnings, So impact Cecil be worth Park, little the probably of a a to

earnings maintain Then to little And so to capitalized capital, to levels. two levels with lower expect those, the we're part maybe buybacks to than basis level absorb QX our and capital a excess well add use where back would bit feel were or even at maybe level. Um, of have will you'll very of a to as another today's XX deployments continue way you consume points. QX. like capital revert they probably see from We still that away end

Kelly Motta

far -- in us your we about ratio you as can remind be deal capital? And that your Great. as kind that's mind of just should keeping governor, what's

Mark - Sander A


up in that we'd volatility acquisitions to Our comfortable like it the things other that. nine incur that we And with be with ET to tier short-term very and one down. either to of kind XX range with moves X, incur us or the

that we that benign the this over levels little environment, is point. outlook think prudent for we're or at which we So the is the a have necessary given really

Mike Scudder

to have what's best manage environment we -- it the level be keep the that the just you're I capital with of flexible of Kelly, terms earnings flexibility in the in. to way and generation Yes. that

Kelly Motta

Okay. Thank you.


Please Young is question follow-up from Michael next ahead. The SunTrust. with go a

Michael Young

the sneak today, with included the XXXX? of on there a for to relative any balance follow-up. purchases NII thanks could or, consumer the more a Hey, in in just the in. We're assumptions little figured I looking either, Pat, remix continuation are one in so guide, securities light indirect of sheet more purchases I overall kind

Pat Barrett

well, think, purchases been I more one Yes, residential have to the four.

not indirect that. or anything to financing be clear, like Just an

would securities, relatively could stay good about that expect the is. little So, sheet feel with again, think mix little steady We balance a less more that. I where we have it to We securities. a

for as liquidity thinking buying four securities. about mortgage really capital We're though one alternatives to to mortgages backed excess and

whether balanced durations, better So security or paper for for that sure would adjusted similar were a versus buying an than higher MBS, the yield getting for with the CMBS profile. similar do the we agency we're whole mortgage credit we make a but loan, and paid credit we

that we do that depends It opportunistically. to of more But at continue of on this see. little growth decision it's point. really yield a we So organic kind a

Michael Young

one put on new frame Okay. loan And you that provision books? help can ad you mortgage day the the what on us a is

Pat Barrett

comes to that, on a a it mix is average around on a will for and been the higher XX%, for It really past. of kind C&I because of lower we're operating rule towards operating We've little to shift to in X% back of XXX increase guided Yes. now. has Colorado average XXX, right thumb in And But positive probably bit. Cecil long just of the the on under XX% environment mortgages going average. X% historically by

So have to our short a and anyway. than the we historically mortgages tends residential on more book commercial just quite commercial probably roughly bit be little for term because on we'll be putting same


Michael Young

Thanks helpful. Very Pat.


Mr. Scudder I questions, further no for now back Showing over his comments. Instructions] turn [Operator will the to closing call

Mike Scudder

our the I opportunity, our to and calls calendar our to as thank recap take take thank Thanks. know the year particularly the think colleagues. to right, colleagues to opportunity before to for All closing, our opportunity we to and thank it's them whom investment performance. number always take in of contributions I their a important the listen great. Well, and

all recognize of and they're to XXXX. looked would of colleagues As And First we all I year. them reminder and have this forward asset. face of that us, done they've a And of a job our what company. our accomplishing to in to our at very They're Midwest the I'm proud what accomplished greatest tremendous

you share our day all thank a So for story is that Midwest investment. your a interest as in to first great and attention Have belief everybody. ongoing we our great


concludes gentlemen, and a day. and Ladies nice Thank disconnect. may all now All participating this the today. parties for you conference for have