First Midwest Bancorp (ONBPP) 30 Jan 182017 Q4 Earnings call transcript

Company Profile

Participants

Nick Chulos	EVP, General Counsel, and Corporate Secretary
Michael Scudder	Chief Executive Officer
Mark Sander	Chief Operating Officer
Patrick Barrett	Chief Financial Officer
Christopher McGratty	KBW
Terry McEvoy	Stephens Inc.
Nathan Race	Piper Jaffray
Brad Milsaps	Sandler O'Neill & Partners LP
Michael Young	SunTrust
Daniel Cardenas	Raymond James
John Rodis	FIG Partners

Call transcript

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Operator

Good morning, ladies and gentlemen, and welcome to the First Midwest Bancorp 2017 Fourth Quarter and Full Year Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for a questions and answers for analysts only after the presentation. It is now my pleasure to turn the floor over to Nick Chulos, Executive Vice President, General Counsel and Corporate Secretary of First Midwest Bancorp. Sir, you may begin.

Nick Chulos

thank joining and today. everyone morning, you us for Good

XXXX. we the earnings XXXX. all Following to also during of historical will of for which highlights that yesterday, presentation the morning, released materials issued year our quarter the close outlook refer fourth as market well our we our we the results full provide call This financial for as

our Investor earnings are If section release the code copy you would or they the like XXX-XXX-XXXX. presentation it us website available our of on obtain by Relations a of deck, may at or you calling area

current During may discussion include today, not of the These statements. comments our statements are course are and beliefs. materials forward-looking and historical the presentation facts our upon based

are for most risks are assumptions, also XX-K comments uncertainties and performance outcomes. certain our the to guarantees will and today. not Safe not The subject in with we recent following and and contained our or any I'd other be risks, that And future this of filings be information uncertainties updating SEC forward-looking Harbor our Our to it lastly, statements call like mention call. considered should

now outlook that, quarter Mike will Executive morning our Pat this Executive discuss Vice and our I Barrett, President Scudder. year the Executive First Senior and to Midwest; Financial full Chief President Vice for Scudder, Officer the Officer. Chief fourth Officer; our floor Mike With to Operating results and year and over turn our Chairman, Here President Chief for are and and Mark Sander,

Michael Scudder

Thanks Nick. Good morning, everyone.

to be joining us for today. with add great my It's me thanks Let you. here

profitability transformations growth, closed our what Looking a That organizational for back year improved transition. year company. of on was truly was we a tremendous and XXXX,

numbers to process both of before and reported with distortive and I performance trends our generally helpful we've this communication performance. wanted and the inside the growth with along pace impacts follow that kind a outlook are for has start, all operating as on be about we to as distortive try can challenging, for enhance we environment So provide impact will of supplemental and that have quarter. we the recognizing well Hopefully and as our overall and noticed you talk added presentation believe

me the and practice Mark Pat follow Let of our components through we'll of start walk with the the then highlights you presentation. typical the and can components

business, an our our and of For priorities pillars growing of I improving every centered returns progress team, also building of those some XXXX, strategic have revenues, eye on diversifying our and on front. In all watchful keep on our while our we made in our management well time, investing substantial strategic we risk.

Now largely off asset. downward and further, XX%. tax also significant again through magnitude the fall is earnings represents certainly momentum before the to of At clouds kick Act through the me Tax differed remind XXXX the effective XXXX rate about timing tax expected let results as time of of revaluation same I you it for now,

benefit performance continues points XX looking to back, from and the that's from equity XXXX. overall the Those quarter an up tangible success standpoint respectively, share XXX well for versus and for the stronger across our I XX% was ago. our from could in as XX.X% lines, our respectively sales quarter, year disciplined year, improved over in than adjusted lending. a business of of little of performance XX% return as levels the full us represent EPS a In our per capabilities, $X.XX on year. has and both that's build commercial diversify that profitability Expansion a over acquisitions the course the call and occurred common accretive and allowing and X% the broadened our our impact that year are almost teams away risen if I'll So, lending from $X.XX the basis infrequent, I our earnings significantly fourth if for Adjusted XXXX. what take the

were Our system first acquisition but Chicago rather of has and was towards of Standard end significant great, across Bank our and conversions exceeded Standard, management integration retention us that help acquisition our also to March, helped also and well. Premier we full Trust expectations of The to $XXX assets in nearly growth our business with quarter client well and of tail assets platform. and or represented under the asset wealth management add January care. met extremely billion Company colleague targets been under This our our our wealth some in class have particularly to this client Combined closed gone acquired our Asset which our in has XX% all marketplace. team achieved. self-metro Management so and saved transition In $XX million teams grow

stream are over XXXX three to for revenue revenues the XX% from quarters that's up million. $XX wealth over annualizing Our a last of XXXX with last

quickly efficiency and capital. Importantly, expanded have or improved rebuilt revenues built

Standard CDOs were as billion. Our either was points levels capital proximate the increased of quarter the a drag fourth tax all announced impacts levels January. some an navigate to quarter reform, able basis. of us that close by of or to acquisition are access in to our on alignment all Adding those at become $XX and said against organizational so, early from of prior our this, And levels This to breakeven. as basis to two XX exceeded back crossing now backdrop transition I saw achieved on our subject liquidate our legacy XXXX earnings of the by doing teams regulatory linked

cost in XXXX. about the kicked X Our Durban of million half us second expenses in

structures DFAS expansion completed substantial various of internal initial programs, [ph] with was risk in the our for oversights. filing first regulatory level along Our

of has team hires of the through leadership Our course strengthened last also been couple key years. over the significantly

year. as certainly again a again refer year transformational of I'd that's would quarter strong a performance backdrop against as and I our So a a what to

they Mark me it color. over let are and turn offer Now and addition Pat to certainly

Mark Sander

Thanks Mike.

presentation, earnings pace the of steady loan growth X can our its see year. continued Slide you this on Turning

acquisition For structured XX% right generated is our the with total. consistent C&I in are guidance full our line provided the strong we growth, loans with strategies namely organic business year. healthcare, franchise from in sector our QX, and year, X.X% all led Standard growth up In And finance. based we away

also had a very asset We solid our group. quarter in base

to Now portfolio we and over reposition worked last our years. hard strengthen two the

organic accelerate align underwriting drivers strategies. as activity. diverse in credits As portfolio, can In any help increase of an well, book, in small our growth saw of troubled and growth also a from mostly offset the environment transactional such we we we these consumer standards acquisition and solid following where across resolution production repositioning retention

we our advantage As we in in relatively of on as relative opportunities book all businesses impact as risk loans, return our saw of assets investor good took light well more their consumer percentage volatility attractive in themselves to CRE given year overall a consumer our total, now profile. as and

is X% Our growth several annually for XXXX same. running for loan the more have years outlook grown now. essentially about Organically we

are quarters on mid-single-digit XXXX is an the and growth in in again as three historical of this and more to guiding think concentrated based trends. appropriate well year two We upper target that range

XXXX stable problem our quarter to Credit improved in right in some we these down from through Charge-offs a can began levels loans confidence basis Turning at our following as were assets. of quality the non-performing XX problem points levels. We we potential to year XXXX give the potential level. the with with us assets that X. another ago. guidance reduced XX% the charge-offs work relatively immediately consistence as as also assets normalizes, be $XX year environment our our This acquisition and Slide current this quarter improved

slightly XX expect of growth. Slide last which to deposits as again over rate levels of continued stable our course With growth, the deposit income. our X of growth shows particularly all acquired deposits points relative increases also and net our we build were the the the QX. stability at Over for our new will favorable basis migration. expect loan Pat to we through only base XXXX, year. market peers. continued walk allowance of months, charge-offs, we loan cover in to interest modest XX deposit all This the quarterly core and highlights cost now In client strength net slightly face to provide increased

Patrick Barrett

good or it. listening Mark, everyone and call morning, on the Thanks

X. $XX basis, overall growth million up interest expected. Acquired net margin and income interest $XX And period and to million loan and the to with or the loan higher XXXX to in by higher in this same fees, prior that to from that in and offset quarter of this and late from decline modestly expectations. $XX to contributed Turning the quarter year Compared the a and up Having $X.X in quarter loan of lower Slide was quarter million benefited remind million higher accretion. balances, Total need said to associated $X our positive in on Net million the XX% four scheduled $XX same higher a consistent stable to accretion $X income quarter, in linked the of fourth in the compared a to around course $X.X begin positioning million the quarter million period which volatility income the quarters the we period down we rates compared by accretion, expect XXXX, $X compared would stabilize was be with of third to $X XXXX should cost reflected accretion accretion, and record quarter. a time XXXX the higher throughout accretion driven portfolio quarter XXXX. with securities same some was deposits increase million to million from year. in are which fourth XXXX. million impact the loan decline On around projecting I

XX Tax basis margin. from prior was XXXX. line quarter current compared to in Moving down with same interest points of for X.XX% points in and expectations, basis X net NIM up period the to the equivalent quarter the

the securities the and deposits. prior increase to Compared basis accretion, to and the XXXX, XXX. principally higher accretion in September to debt impact was by cost quarter yield subordinated a higher fourth an expanded the in but points increase and securities, rates benefited of balances. by Excluding offset quarter, accretion the lower repositioning X in in margin driven time the and the benefited positive margin period senior higher of same the also of from our in portfolio decline Compared

were Compared with by earning earning quarter offset year, the standard up to decline Average and in loan in assets. $X.X growth. the prior securities assets the earning the the to growth balances temporary consistent assets average reflecting were Turning loan prior billion, with acquisition portfolio.

both and quarter. repositioning position the took but and pleased million in able repositioning we're mentioned Mike deductions net OTTI quarter to in were further second allowed back reform also a maximize tax repositioning on higher future mortgage light loss and Fourth at expectations of durations market the of $XX asset similar remaining overall previously were of portfolio results As related total the Fourth effect. generally positive for Cash We're and basis income us substantially to CMOs expected liquidate agency to to securities earnings of higher and recognized fully to XX securities impact tax ending actions both our and very flows legacy have anticipated late quarter of in fourth reinvest yield to now in our tax conditions, line million quarter. previously we CDOs, securities for a those improved CDOs to by weighted end not book. fourth by meaningfully similar interest with of $XXX while rate nearly $X points return million. the portfolios proceeds around the selling the reinvested and just is balance related to the to to over in capital levels combined risk quarter of our end the the margin. the This federal should

mid-single-digit combined margin asset the the Looking ahead, in and income on interest offset reform by net full growth GAAP range year year range tax compared the relatively XXXX. expecting earning tax growth be on higher the mid that annual interest benefits earning accretion the when Net rates basin our an to are adjustment. impact we full of with high-single-digit growth lower interest to to stable expected were and of of FTE equivalent in is year-on-year asset

Excluding expansion NIM accretions, an modest FTE expect on in we basis.

the due pace I'd are to deposit be accretion of higher in rates, will I benefit You movements likely remind percentage Similarly net And rates seasonal outwait be first note FTE volatility offset on municipal likely quarter, by that largely interest expect of and our benefits and we higher the lower lower on fewer the adjustment. days you lower miss dollars both timing income by of to if however should will rates and accretion. the subject interest that loan didn't projections in NIM growth flows.

Mark it turn I'll to Now, back discuss income. non-interest to our

Mark Sander

flat of X. Moving came QX Non-interest to Slide security from to as sales. expected, away income in the impact

few Our for as us slightly versus our nearly wealth management of ago all is to due up card X% in strong QX, in charges, footings we're main same, the seasonality on as very team. service a years. in fell a rising a addition very able the linked service spot due both simply have a were to Card be last card base deposit expanded the but continued pleased down linked continues to mid-single-digit consistent disciplines XX% treasury steady three organic to but we well quarter more from of charges produce to growth from but growth sales. importantly trajectory. organic be and year-over-year as sales Durban, drivers, on Wealth bright year Deposit quarter

ongoing are lumpier, year on to effective pressure offering on results of greater in other fee as both but at as Durban fees. face NSF $X low-single-digit expect as mortgage came full our based We increase capital we have Our digital well decline levels. another income This items generally year, fees the the markets million in and the QX. the expected impact,

mid [Technical healthy core a treasury should can businesses growth We again growth remained and businesses such, non-interest and modest very good management card organic And we high-single-digit see believe us in rates. our our XXXX. Difficulty] opportunities in for increase income as each through total Fortunately, challenges. these provide to wealth, to generate

Patrick Barrett

an loan [Technical Difficulty] Standards investments offset the the prior partially and a net remediation XX% period in decline the lower same year of with and year, increase Compared the increases a advertising expenses occupancy the down and from driver compared ongoing to promotions prior combined expenses talent merit to additional expenses operating salaries, reflecting and by The equipment growth. support in was of increase for to ago. due quarter increased professional services addition was primary costs. the in and

XXXX, not be expense expense expense actuals card card cardholder acquisitions the the you modest million for revenues, integration a For charitable fee the against of along XXXX, $X year the both excluding world. costs revenues. merchant QX results would full and $X million clear special expect Note single-digit may a revenue. XXXX will transparent based netted now netted fee accounting and revenue to expenses. be XXXX GAAP you good proxy. the servicing against merchant this standard or modestly merchant item net QX and The of at inflation be QX expense that The Using in fourth with provide of that similarly during incorporate time. recognition and expenses, main will increase will of expense minus a adopting One around be for of million non-interest to be new these and illustrate, insurer history recall fee our a time, to of see total changes bonus for our reflected to the will impact and we low this happy we compared in as XX card last respective now of million question earnings contribution XX our on reclassification to XXXX $XX of answer will either the rest these at restatement U.S. against and XXXX days details guidance from does adjusted

our than and Mike this that year the less strengthening fourth than returned Moving is slide while to as capital pleased Slide in we're capital the with a levels position said And not already very reiterate well having as XX, growth of going taxes. capital on much pre-standard on navigating to XX tax our spend time what to reform. capital, Slide with other impact on our to I'll quarter up acquisition which wrap

DTA Our $XX quarter revaluation effective million was charge. the tax rate significantly the impacted by for

have would rate tax effective XX%. our charge, this Excluding been

rate our in Going higher for federal to be the rate took to in third to XX%, approximately enacted XXXX. response we tax actions increased during reflecting partly fourth XXXX, lower the state recap. a is just the rate offset We've tax highlighted quarter effective expected the forward, reform additional as also quarter Illinois the by tax of tax

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

Michael Scudder

Pat. Thanks,

I years, our Looking deliver our rely back perspective, has meet But their From some with comes just on back colleagues, in to a business that impact key do First the In First by to to the for our a to on have before of a helping we as also and our willingness alluded Pat through our increase can were to both. doubling they evidence we achieve so obviously that number that make of financial of in to time, our and Midwest as did clients for the of And financial on colleague about and foundation. excellence but on that charitable quarter and success to. We invest really adapt up pleased we have we look promise before remarks as think needs our ourselves, continue a questions, also our extension, success our communities go be the my quick bonuses going back our appreciation well delivering things and our obviously and been in operational speak an to pay as focus histories we to minimum successful. very of clients that to rates, anniversary us. can come our started open Midwest. mark certainly it up XXXX number and that If I in growth so. longevity - our relative collective it XXX our I as institutions if will XXth over to trends that

very will sheet and core obviously base growth rates as earnings behind natural us. capital. interest XXXX, of momentum our both strengthen and as attendant corporate meaningful enter lower that well is distraction further higher comes really is strong, benefits we structure noise deposit a our As outstanding, to generate balance tax the Further, the

that position us business. commitment. So scale even better only growth our into as investment made deliver teams not two feel XXXX's notable we and and we're evidencing our corresponding The see in promise we've but for the momentum. to a continued leave result, on and back our will investments on efforts build investment XXXX ready client

mission This late and and as our portion we our meet May, And provide distribution. access headquarters an efficiently more all a in and in and efficiency. teams also market review more will better companywide off the Chicago and quarter kicked first across First we in years, client the also over represents nimbly a location. quarter many initiative will Along processes that into colleague fourth approach our sales needs standpoint. and term, do and on to that our and really consistent overall but we the This the we delivering commercial new will the review, an focus that announced of we a this these of previously expanded has our the undertake clients. remain relocation complete centralized both acceptable started assessment improved comprehensive of we same of with how from even can initiative our in excellence calling things, are expectations our of longer operating and this greater

mid-stages we that what work infrastructure call meaningful to I'll technology leverage clients serve remains effort, our in operating have to and efficiency. early suggest to our better our our opportunities investments today it in would the of and improve build While our

we you our achieve even also will work we that depending I better will second has talk initiatives of benefits them, forward over the backed would recognize anticipate the feel cost today. not and revenue XXXX. the likely the implementation targeted But obviously position efforts those half would execution about we've the XXXX into you backdrop to this into for of efficiency which benefits guidance underlying and plans remind I highlight really would that and realization more period, that unfolds to the of though the provided to on and activities As of that or precede are as short be Pat nature shared the be of would those you that full with a also with that toward

happy So with as a open questions. for be it that I'd to backdrop, up

Operator

[Operator with first Please The Instructions] will sir. question Chris question-and-answer The you, McGratty comes at Thank session go begin from ahead. this KBW. time.

Christopher McGratty

good Hi, morning, everyone.

Michael Scudder

morning, Chris. Good

Christopher McGratty

little think I start that today, stock's may based with I I it am it's on the people want more of specifically on expense delve a into the to were issue. might if what be comment timing a your Mike. the I Hey I comment elaborate bit wondering table. seems expecting last on and color based line, some you think could on your bit, like reaction on

talked credentials, you like about you've hanging it past low cost? on couple the should think fruit billion you a there's and how of of in think we the Could years through of some and gone about I feels on $XX side. getting through elaborate a fairly magnitude expense

Michael Scudder

operating Yeah, when too. are sometimes don't activities release literally right, underline. dates coincide reality the business is I'm of you're happy unfortunately a And things a

If talked with you course and with growth. investors, that We've folks. our simply and pace of in share rapid we've of also that's here we about colleagues XXXX internally our talked the over that a into as fairly all even XXXX look of various

use you priorities the certain focused you always you if also on your with. amount of you have quickly I analogy there's you have to that as to available keep an a efficiency that feel started So as pack but get

Chris, that's primary have the needs We we that starting our as financial to word our from efficient is it that think and point And and which go up we about as been prism and I of on that started through But which through delivering folks done the and through about within look we've talked that inconceivable things. we generally and what honor you generally, think the evaluate saying we've mission. our to and about it we're would about the that clients focus everything. as it efforts. we to talk more sure couldn't make our X% meeting incrementally you generally And look, we that's pace of be

for their you I evolution some this think that half would the that teams we're of as you'll going of our their this is review. perhaps XXXX first, of that opportunities start that combined my year, navigate care year, the make about see will cycle is and meaningful. But sure a those there from and thing complete sure two it of, be through all and and kind reflected there. would then be from think growth I significant And second that in that rate make of you a anticipate and years make over got advantage can take what simply not of XX% saying go your better through we are assessment but position as and clients to pay natural in judgment one you and impact that take last those transitioned sure think first we've over that you and the of XXXX the

Christopher McGratty

that the would is Mike. suggest take how If quarter's growth million I assume color. Thanks might expenses you expense on this interpret that? single follow-up digit be that and guide, Pat's I the four about, then low $XXX I the thinking for to that around for Thanks understood year, less like four if guide basically time could just

Patrick Barrett

You closer end. did to lower probably the

Christopher McGratty

a of expenses XXXX? as I of is court in rate for thinking And is the a kind reduction X% of you're of what that if With starting kind in Mike's on reference, merger point Okay. of X% with like the Mike comments magnitude X%.

Michael Scudder

is in that If as simply off we started or of Chris, have it sharing opportunities the think you in about as would call. an expense, specific, position it of it those I off terms becomes that of done that some there, the about incremental we've couching same in I'm were think to I efficiency contribution. difficult. of comes I'm What about be whether incremental kind a understanding to are given turn that so that you

a but next be general forward the not some do that just over occurring So provide we're you will get be short can here able thought, clear to give that we and going to to so in guidance or it that think we're literal period. sometime on position

Christopher McGratty

Okay. maybe Pat. Great. for that. Thank for one you just modeling question more And

right, low I in it into earning - asset single this said but what's growth a little higher your maybe prepared remarks think you mid-single the not to growth you is digit deposit guide of asset growth, earning the growth. digit going the loan be But remix story mid-single-digit bit year? heard

Patrick Barrett

bullet shouldn't it similar think to versus portfolio. little be create where the be. loans the spoken It of And XX/XX like nuances which just words should confusion. now, is No, securities to relatively we're I is printed maybe a

So from reflect should loan said. the has perspective guide growth a earning asset that growth loan same

to a keep you would at we've higher So would kind X securities been grow factor little part and of it historically securities to on when it's a that. stay more maybe the that points. of because portfolio level that mid-single-digits achieve growth mid-single able digit bit growth in the probably end middle of Overall percentage be in flat asset range, less earning

won't be. held Now assumes other know constant all things they we all which that are

point, start to interest that we putting environment think do more rate reach behoove on in us point we the where might some at a interest So risk. will it

know you two another So three that to will hikes probably us to rate point. get

towards think little fed's portfolio where a rates as are. securities a bias terminal increasing to we of closer probably percentage total once from I think the do we So with stable our get

Christopher McGratty

In your three is what hikes? Pat,

Patrick Barrett

the with this December. last year one Yes, hikes three

the is to in with consistent think more guess terminal Street got we right think what We to reach a XXX. for pretty can know towards we you think then right that's three we where now I proxy 'XX rate going thinks. is to

Christopher McGratty

Great, thank you.

Operator

comes from The your with Terry next state question. question Stephens. Please McEvoy

Terry McEvoy

morning, good Hi, everyone.

Michael Scudder

Terry. Hi

Terry McEvoy

within around and you growth Just XXXX, category, - see CRE could C&I, to of the expect could consumer? you levels the discuss want maybe CRE specifically pay your you downs? dig into thoughts you And to outlook I do loan for continue elevating

Mark Sander

attractive news payoffs and Mark in The production is is for It's for yes, to selling some are them couldn't there's portfolio the a good our Terry. us reality speak. terms properties here. The good our answer but - good great prices of weren't of for clients. to been CRE. offer necessarily of been are Short at made we It's lot in I they refuse frankly have sell, an looking and who clients so

we'll headwind So, into face XXXX. to I continue that think

see I guidance lesser that levels hit I maybe the you'll C&I we other But two we obviously consumer and grow at slightly in categories. gave. think but can than those CRE a pace and think concentrated

Terry McEvoy

thoughts annual year one for last from on I follow-up of leverage performance priority Mike. measure your the targets and to two went the that long around to success over for hear a performance how is the we and have then years? wanted term your and or And you the performance, of being meeting I term drive and your year talked monitor through just presentation any next the around how you you infrastructure either near specific can company about

Michael Scudder

is think the incremental term on the we basis, strive we Terry, and also upper thinking and the in earnings within capital return the But are proxies about off we shareholders. we're use on way to in operating year-over-year the third targeting our the term where the But it the what's basis, And obviously of term we return that and equity. it's like and we like. of it. standpoint relatively be that's to longer our way incent common best from about longer think is term rate our on and contacts continue think and of a aspirations long short which in EPS way of about of an we tangible our interest a talk sustainably about to have growth

Terry McEvoy

you. Thank

Operator

Nathan Race with question next state Piper comes Jaffray. your question. The Instructions] from Please [Operator

Nathan Race

net color of that class then just good through guys, about modelling know how you cost, I the appreciate the Hey am criticized in could should go charge-offs level I you XXXX? where provide think quarter thinking and morning. guidance just the trends the of credit front if the reserve with basis about range. XX just some we we know point to guess you be kind I curious on I as absolute

Michael Scudder

normalized is charge-offs. basis think normalized you that think with we Nathan, that. range we of know to in him our for we tact points again that long basis charge-offs I'll start Pat, a I'll XX points time that we What we'll XX And point and reflective continue of guiding said we're mid cycle it. of to a here. end the range, at kind of stay portion the so of again in is to at how the XX's low the look

talked So that long levels net that's us I'll levels QX about year, good term down rather we've came relative long a given all the so normalized part classified another nice at what call term leads charge-offs. I in our as what guidance to to improvement good the criticizing that and dramatically

Mark Sander

will familiar Yeah, gets and into and if replenish are grow turn built folks I'll slide real charge-offs the to provisions just quality we it and legacy and we're is loans, the X, of with bit tricky credit occur, maybe past, levels add rollover loans allowance to allowance as the to Slide But And are little you be and have we most have we think to has be. on asset acquired this or the that to I comfortable and see those allowed you losses. our with be that those. levels we we on said graph as Terry, back a part that in where for for loans have the continue

this for for credit pick losses would And so percentage year anyway the modestly mid-single-digit up to as as expect allowance a loans level. total time for of passes, we

basis of acquired the up talk a that's would of simply higher we when about we XX.XX the total where the of that expect ended points pick XX's would of sort the loan line at behavior by virtue into percentage that book. yellow let's the So that year as the loans

Nathan Race

in from M&A curious begin thing the as perhaps of begin color. for That's kind And of factors along for how to over this few kind into or it. M&A about thinking the to about then question helpful of in XXXX that this guess to go you Got you of kind just I those guys those this prospects, Mike, just this assessment or weeks guys you parse months, or acquisitions lines, I'm guess expense with terms outlook as next help Okay. expense anything you depository are year? year. do I prohibit cutting is

Michael Scudder

great a question. It's

of elements. a offer me Let couple

revenue it think about generate. about terms in it that the of cutting, of thinking the we You're and efficiency of context tend that I in of expense efficiency the

well comes of expense. that So form as the often times in revenue as

expense So I the on I you but efficiency. get about think focused to too wouldn't get improved cutting side result with the same

team as would able toward both. the even progressed candidly having terms do to along we that's In We I relative success to any be And of anticipate opportunities would this an path unfold, have acquisition eye I and makes that any. and acquisition we not it with more out think and the would to our impact envision this accomplishing there, or anticipate fully have influence have think of activity would strategies effective. to

So, that because as to base on to give the that even incremental more we more return consideration a compelling as said efficient we I see makes would think operating that. expect I

and efficiently, we do clients, nimble it view leverage to on two aligns with activity that things think the doing M&A we do fronts, strategically to as through as care that opportunity accelerate I extent it. good news take what be the our we're So likewise more as about and more then to opportunity that the of

Nathan Race

looks and on to couple for transaction that then we outlook of M&A about deals going conversations like XXXX? is front, I sales late just saw obviously so late, how curious it. in Got year, thinking a smaller announced up And activity what the potential last just of conversations picked mean

Michael Scudder

of that. the well to going certainly the the remains pace lot how of over activities tends has there but levels various are is influence know as different obviously pieces. create I is just space sizes, moving how investors they value align all with generally. quarter, unfold some fourth and to that think that out also pace relative going as as set a activity the some some and was active would taxes Acquisition across influence the ownership had it not in linear the a and suggest to forms of institutions on on the about as level of we activity different various what's and that of markets Dialogue considerations because the just of on there's

see that you to think stuff that pick-up. certainly becomes that calm start see and clear, I as you'll

Nathan Race

Okay. I the appreciate all color.

Michael Scudder

Right.

Operator

The from Piper with Nathan Please your question. next Race comes question Jaffray. state

Michael Scudder

quick follow-up. a just asked. was that He Well,

Mark Sander

Milsaps. for I looking think we're Brad

Brad Milsaps

online? I Am

Michael Scudder

Yeah, you're online.

Brad Milsaps

I've great, been Alright, called worse.

Michael Scudder

are not alone you alone. not are You Brad,

Brad Milsaps

you'll be have fed each Chicago fund guys the most forward? Your in addressed experience of everything, there, great just deposit much can kind do to my curious, you going NIM arise, increase one your out toughest how in markets of continue it's capture think in of

Patrick Barrett

high I'll straw guess and is kind I that the on take the progressive one. Less Pat. short less This is of each level. Hey of Brad. one

bps real the And in. fortunate of hundred I much much of so drift been know points fortune, its in that's X allowed basis rate about that only been we've hikes, And how a story. don't first how to skill we've or good of really X

each rate I be XXX one, of to repricing the seen over think two beta successive we're expecting with to first basis what times the our we've probably three points.

comfortable comfortable that the that our year. we've on quarter. to fund progressively going terming year a will We're time sort managing line up to points going in couple being more the real certainly ratio the levels up. We're out each liquidity cost funds cost go with definitely CDs which for expensive one to in popular in also effect and So a had get are deposit have drifts of we to percentage an deposit environment. promotions have during now two items deposits But are loan of very both right we of

Michael Scudder

Let a be that the that clients necessary unfold. me the our we consistent pricing how there to rates to market with of but we and in also spot we I are the mean Pat what's on, marketplace. there don't be the world add it's to always with and And set going that's nature commitment have will

me that Let deposits with of accounts. XX% add and our XX% in reminder, of savings core demand roughly a in about transactional, though is

us So advantage and as think it portion base sizable navigate then. we which our funding is fairly gives and of we real granular go a through

Brad Milsaps

a for that of headwind just basis the Thanks Pat to of impact big Is modeling kind for color. the see And point just Tax of margin Act, the view, was? TEE a to question. imagine but Reform can from I want there what kind

Patrick Barrett

It's base about four points. actually. Four

So $X we a and improved tax be rates historically cut with on the half, in TE year actually only will $X run our million $X million. adjustment and that it new with a quarter, about million so

an points So between on margin. lose the million four we basis FTE bucks somewhere is three and

Brad Milsaps

annual an On basis.

you. Thank it. Got Okay.

Operator

question. SunTrust. your [Operator comes state Please Instructions] The next Young question with Michael from

Michael Young

overtime you Hey, improvement, cost too don't detail to good X% natural the wanted back inflation about sort to get that's But I excellence, into go or is know of to more some of generally X% a that thinking morning. just just delivering just should we want much I sort of the offsetting improvement there. assume we're net terms in that as base?

Michael Scudder

that where We said haven't gotten granular. be the could as point we to Michael I

it's think improvement about from as more a net we about are. I As it, I where think

I've that do. what at Let segments the that also gotten one add we that looking how where questions all or all, of look because and of me it's reinforce does of kind was or expansive

that. very So it comprehensive is of in terms

I versus. and as on improve we not So versus our that efficient at to more can taking look consumer delivery said isolated and of that. making to a commercial We're process think we go and service it do opportunity is clients the as criminally through we

we don't of closer that's some So I've I as to be to And guided to think we there. be that about have as four. probably toward kind the of consider more I think that I you the and number, percentage, level consider

those we're in that's are assessing. are the the and what think opportunities to available that us I process of So

Michael Young

outside how you're just on any color provide terms review, of or And making Mike, processes you of what the in evaluations? sort conducting could consulting more you know that the

Michael Scudder

the on of in we're clients. executing Well, that and interest as and it process going anything approach with the best first what's we starts that our would

looking across So also that that the focused in looking it. measured teams is groups an the got internal at goes which and at we've process pace with we're various that

Anything that are that a will at benefit MO. the folks and going do. and We part not from of on just the can making our are using and on we're resources are base we is just inside that's resources we that normal but of our what have be give review look and that and But that going can think we'll I else outside. us available take things in to what full the also marketplace trends

Michael Young

Pat. one last one maybe And Okay. for

this guide within baked of year? this amount the terms expense the side what's the year, of in producing there that Just in be kind you hiring on or expecting revenue may of

Patrick Barrett

assumptions the are across our equivalent, not full year-on-year. think stable FET, relatively our I sorry board, staffing equivalent, FTE, time tax

So market question, based reductions and come we because in the this of significant fully without inflation customers, the that to from just earlier investment prepared conversely more terms I significant referred and to Mike said as an to incremental answering or continue to execute but continue outside merit company the running increases best without that execute probably incremental is opportunities on M&A may were our up initiative. to an interest in of against perspective

technology, invest long to lot a things plates and So on none in we're resources, of got our list scrimping not is processes and on of we're we've change. and that continuing process a in already

Michael Young

Thanks. Okay.

Operator

with Daniel James. Please question Cardenas Raymond question. The state comes next from your

Daniel Cardenas

guys. morning, Hey,

questions. of quick couple a Just

environment is On for type like what based additional income of acquisitions? front, the M&A the fee

Michael Scudder

the The nature environment earlier that still year, active that, in certainly then the the and there's fees advisory be of of other able the do that of the in you're opportunities like we remain of depending IA did case to on are and and much acquired considering. the the to avenues businesses business investment our those nature was

Daniel Cardenas

say Good. been of flow? you All right. or are is would kind Conversations fairly that robust just they're have

Michael Scudder

would certainly continues dialogue depending in on to industry to their the be call to say trying are a are element as you consolidation opposed core I it's of ownership what they structure. that's what more pan No, I'll call banking various with would space, then entities aligned source around more, what space I strategically accomplish, within a that

Daniel Cardenas

what funds the just kind of then associated, now? is cost the this what on And what side carrying really right your public Good. the of deposit and quickly, were costs portfolio size that was quarter

Michael Scudder

be I to XXX-ish. is lower quarter down probably so among range, for from And balance us, into a I'll So, call to dip rate fourth most billion customers. typically tend say perspective around it sub quarter want we sensitive cost a our was they that

when on So actual rates don't their move, that of across rates as average the lot portfolio. move think we've I well. talked a actually about rates

Patrick Barrett

about the a talked rate much margin. granularity, south bit sensitive numbers are our impact than rest, more are there significantly your haven't a little billion We up but that they've of but moved on a and right, while it's bit not

Daniel Cardenas

Okay.

a interest funds rate environment, So this basis? forward of is in is right we're going be market tap public go the in to on a a there to less desire

Patrick Barrett

core base Well, been of period for I think great stable for long there but are it's us a deposit a price time. sensitive,

more we yes of So I are more lot have, it a what sensitive any of the don't is there's sensitive have. price in about don't deposit, among would that we but of that think segments interested less price our Again we mix it. think we as

important So think. base of funding part it's an we our quarter still

Michael Scudder

those add the little color. nature historically bases of and servicing in Now obviously me the a our are let underpinnings of important first the to us. is and It's municipal last foundation,

I what for these so year of are relationships XX then and a call of tenure There core while that elements rates it of the account funding. average a in sensitive relates natural taxes range, to it what and being center we number also of of are forces clients of as call those other that's along it are operating municipalities. with is has that primary come influence the referral probably Our pushing that more inflows price

remains important as to and part important our strategy our it commitment part of So well. community of the an

Patrick Barrett

Now, really $XXX term the do season as third of as it'll tax funding. an drift is quarter on get will Mike actual good million into as in that long and that both basis, we always collections early we double second a said we the balances but down can often to think around core basis of Mark does explode it into weekly the sometimes and

Daniel Cardenas

right. Great. Thanks guys. Okay. All

Patrick Barrett

Thank Dan. you,

Operator

from state FIG The with next question. Please Rodis your question Partners. comes John

John Rodis

guys. morning, Good

Patrick Barrett

John. Hi,

John Rodis

on a quarter, follow-up basis the so you just about that Pat, X that's million points, said $X adjustment, FTE Brad's correct? question so on the is

Patrick Barrett

correct. That's

John Rodis

Okay.

you're that of guidance So dollars correct, digits is to just comparison? to we make lowered apples-to-apples sure million be that before want high just of mid a had would sort for I quarter, NII single a

Patrick Barrett

our on actually That's income. GAAP

that Slide you if have take X I sorry, our of we X internalized X, graphs or slides. So all the haven't on

John Rodis

So it's NII growth before the adjustment? FTE

Patrick Barrett

Correct.

from would it if something base, it and look adjustment. a think would growth use high think would start the percentage for have actual you - it if a adjustment, And XXXX of to different from would right, did point mid-single digit come lower that start then rate lower lost it reflect that. FTE after I be would like you it you a I that if $X million it

John Rodis

Okay. clarification. the Thanks for Thanks.

Patrick Barrett

John. Thanks,

Operator

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

Michael Scudder

job Great. of year. opportunity the greatest face of Thank take let of our end the at a said contributions proud our as many I for this their before of our of and growth this during the the They're very accomplished you. company in colleagues transformational period I'm our to their tremendous the XXXX. Well, a do asset. me have done what every year, they've I year we and particularly and all of as leave, and quarter to take opportunity investment performance thank They

future are we look shared as very your the represents relative and to a great to and about XXXX, we've First from And communication you that looking obviously Midwest I would in confident that strategically. greatly story. forward tell to accomplish believe share certainly the and all thank XXXX our I our and for attention opportunity. could to As XXXX interest and you dialogue what of we we investment think we commitment and ongoing our feel

So a day. great have thank you all and

Operator

concluded. This for participating. as Thank you conference

disconnect now You your can lines.

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