FMBI - Earnings call transcript Q3 2019 | First Midwest Bancorp Inc

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Operator

Good morning, ladies and gentlemen, and welcome to the First Midwest Bancorp 2019 Third Quarter Earnings Conference Call.

Following the close of the market yesterday, the company released its earnings results for the third quarter of 2019 and 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 2019.

During the course of the discussion today, management's comments and the presentation materials may include forward-looking statements. These statements are based upon the company's current beliefs and are not historical facts or guarantees of future performances or outcomes.

may outcomes or results differ. Actual forward-looking and The considered company's the SEC earnings information other for the in release and should call harbor most risks, as included recent be the as the the uncertainties company's with XX-K contained filings today. and materials safe and in non-GAAP statement, presentation well legends other

a recorded Finally, call. This this forward-looking statements and participants the all after company will not be listen-only are in is updating being mode. any call

Mike by Sander, Operating and President presentations Following for and Mark analysts Pat the Chairman Vice question-and-answers the Executive Officer; Officer, only. open Scudder, President Chief Executive will Financial and Officer; be and for call Chief Chief Barrett,

now turn call will Mr. the Scudder. to I ahead. over Please go

Mike Scudder

for with remind call, us to shared as move record we supplemental presentation joining great in described to what a was backdrop opening Thanks you. the do through it for a introduction It's be along remarks. I us as quarter against with we you, follow our a the as we we today. morning, have Good rate Overall, tougher everybody. for

walk is through As I'll highlights to the then the it custom, to Pat and components. cover leave Mark and our you

with start So let highlights. me the

last with and As Total of from generated earnings that's XX% I assets billion, ago. a $XX.X from year stood the suggested, quarter we a closed X% quarter up million. having a -- record levels at $XX

XX% EPS and up from and of Excellence costs and acquisitions, that's impact versus prior Excellence the Delivering X% ago. year last a from was all for our for implementation Adjusted a Delivering robust periods, quarter periods

assets common as ratio risk all to Tier improved result, a points, our a return As basis XX X equity tangible ago. common year equity expanded versus again to even XX.X% our on weighted

Bridgeview onboarding systems quarter and been and -- completed going the having we activity track. integration with full and conversions completed a well had Operationally, on

responsive that guidance heavier also we through quarter up and our through downs. add solid both diversification, C&I to to rate annualized duration see follow from growth continues on we backdrop. were X% consumer were to pay last the loans yield portfolio as CRE looking Our while our was

hold to own we're discipline. continue our maintaining there underwriting our We and

talked perspective, is year environment, linked was this and where very to relatively Mark Deposits you have As in ago environment lead chase and and on as be and the I've also respectively XX% from others up about mix volume. really this X% average from my held this sometimes will unchanged. our a nicely increasing to rate quarter while careful,

this XX% as quarter. which revenues stable were X% derivative benefited average rate declined assets earning holding of increase in mortgage years, we those contributors quarter, our platform to environment X.XX%, sales was our year. for the revenues that a which focus remained prior the to last the better as rates both efficiency of income at percentage change were lower from improved continues Operating of coming margins from as to than year essentially remain and in XX% investments a offsetting from interest mix. our drive big and the to products of from grew XX% our ago. us where in see Net impact quarter's nice reflective in lower well and Also from points fee-based the increased XX% X as for both It was last made, and we've both quarter last improved margins perspective

was for align not our And and then, line prior last which least, credit growth with stable in but quarters. generally certainly

additional over color. So with and that, Pat it some let me Mark to turn for

Mark Sander

expected Overall, of loan on $XXX our presentation in Page came and in growth at as deck. Mike X shown Thanks, QX million all. morning good as

us allowed to solid and quarter, continued which commercial line expectations and teams in with all had activity. elevated in Our fact consumer production payoff to strong grow the despite in

levels and seen sales all and term longer this from year property talked and financings payoff in quarter. CRE about high We've again in

Fortunate in C&I production Such strong growth QX. million, that headwind resulted in developed dynamics in our modest our but to us, that given elevated very for pay-offs also book about these a favorable borrowers, overall were some for of reasons $XX C&I for clients.

rate had drove certainly industry. the by quarter the businesses across consumer led Our good higher environment across a board, volumes mortgage. The

expanded also we year in as previous teams our earlier noted Importantly, this calls.

while to mortgages retain expanding to us allowed this assets income. fee also grow together, So earning

grew our direct nice a Elsewhere, pace consumer again at business organically.

to given quarter. our Looking flat consumer credit think commercial total we may expect same asset again dynamics We comfort businesses quarter solid up market forward, annualized we we more of this Conversely, loan our sales that to and In look story low-to-mid then, results. stretch expect certain in growth post will QX. this level. modestly beyond be the foresee single-digit

quality to XX on asset offset outlook going was guidance. forward to line expect approximate charge-offs should near slightly by adverse unchanged. drop performing we a plus enough Page remains X, we were were in maintain normal as our But allowance in current growth, reflecting a fell levels. loans. Charge-offs cover modestly QX to be that Provision points, Turning more basis than XX% fluctuations. well. such to QX quarter-to-quarter this loan Thus, our assets right our with near elevated results Non-performing level in in

we closely competitive rate interest growth X, shown cuts. rates on remain meaningfully Page have match as growth Deposit to not far thus and loan reacted on markets

in our advantage the result strong peers. whatever deposit our cost to core versus Fortunately, base continues environment, rate a

So, Pat net and income now margin. will discuss interest

Pat Barrett

Thanks, Mark.

income and was $XX to mid combined periods, were the compared XX% second X, both compared funding or acquisition of Turning modestly Bridgeview higher this securities prior million up to prior quarter same growth closed by net in which period Compared the interest net margin offset quarter XXXX. Slide income to the up partly costs. loan and to interest purchases of year, with on

the day, increase the increase the compared impacted of extra to second addition, acquisition the year NorStates quarter Bank. by a while period an In the benefited compared same ago was to from

loan $X.X the to to million contributed quarter same with prior year million expectations period the a and $X compared $X in line million down Acquired ago. quarter, from the accretion up

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

market quarter of on assets year the compression to compression acquired compared prior yields impact compared ago. the in mix Margin to lower interest reflected a rates Bridgeview to and related the transaction the of loan earning

impacted higher both prior to actions quarter funds cost taken In compared reduce the to we've current sensitivity addition, rate periods. and of

nearly balance expectations compression result as well was margin mix. funding as higher Overall due to rates expected of market double costs sheet modestly our a lower than as

Turning sources. earning prior assets year, were acquisition, reflecting Bridgeview to loan the the Average earning million funding and earning $XXX quarter linked and assets to compared securities up from and purchases. growth billion assets $X.X

In addition, to the earning compared the in year. acquired assets NorStates asset prior transaction impacted growth

advances. sources $XXX the billion growth Bank million impact funding up Loan prior organic Federal $X.X and year, linked over from quarter and Average Home were the of reflecting acquisitions,

downward decline expect likely NII in by rate XXXX, Moving decrease to quarter the from points, in adjustment would assuming of per approximately cuts modest the quarter. XX to further basis NII our NII quarter, a outlook, Fed $X we flat million result every third occur, fourth a

approximately Overall, fourth with guidance guidance line million previously guidance is the year is this provided. $X full that with accretion unchanged expected quarter. for we Our in XXXX in had the

rate rates by From the as range compression single-digit a interest cuts fourth quarter assuming we expect in year-end. in stabilize. continued further outlook do we this slow compression NIM perspective, expect the high But to

again, acquisitions. to Once remind you of the I pace due to rates, in of that projections volatility movements are interest and impact to growth loan want subject

back Slide I'll about X. to Mark non-interest to over turn on it talk that, With income

Mark Sander

Thanks.

The and XX% As exceeded to desire expectations last up Mortgage this see, outlook swaps a XX% a can versus double advantage non-interest given previously as ago. loan lock a commercial to quarter. and year you nearly record to dramatically, in was had I income a and higher environment positive quarter quarter, than fixed QX, uptick production our remains rate there the levels. led rates higher in take strong in mentioned of rate linked quarter it interest

had Elsewhere we solid well. in gains as services, core

million our non-interest of result, income was $XX above our guidance. a As

similar income levels, current expect swap at QX. we holds in results post fee to Assuming

Now back over about expenses to Pat capital. and to talk

Pat Barrett

costs. year X, note the with Both original the residual Excellence on we please the includes or of current acquisition quarter higher to that was associated the Delivering the than to Slide reflecting compared second extent, to by full from million ago. operating expectations were staff expenses implementation The increased expenses better to prior compared cost integration-related increases. with combined which believe remain these at expenses in with year. of quarter quarter a and and lesser $X Bridgeview for with XX% Moving associated and will acquisition up total increase merit acquisitions same items, a year Away the costs driven line

XX% and of efficiency improved ratio Our quarter XX% a year linked XX% ago. from

to to year. remains fourth the modestly second average for around we for up the we expenses as continue per quarter outlook from expect legacy Our the million the XXXX quarter. quarter be of expenses to $XXX way, expect unchanged, Said half third another

slide. Last note I on taxes this leave before

tax in with our Our the fourth rate remains XX% guidance approximately the for for expectation effective quarter our and was line quarter.

on Moving to Slide X. capital

we've record continued on levels with growth we Park currently earning closed strong of constrained at share continues track to pleased back and both capital although we note until from fund provide capital maintain the that deployed. to Capital to with flexibility accretion activity continue us We and earnings excess are acquisition. repurchase repurchases to are the rapidly our

XXX,XXX shareholders paid dividend nearly During that the same XX% a from a period ago. repurchased year quarter, a increase the represents we shares to and

further accretion million. flexibility have we repurchases that earnings fund from continued $XXX for approximately capacity close or excess expect of share remaining Park We once and Board continued approved providing repurchase we growth capital to

the Looking we've range capital and January ahead credit the adoption of of current on both Slide for allowance with estimated CECL impact Xst XXXX. summarized on losses standard our of XX,

estimated points as approximately approximately rate to $XX to quarters. with capital $XX one relatively which quarterly limited and be our or expected, is earnings to million basis quarter basis XX earned two can at typical the our in impact million to points Tier accretion back X Overall we XX

acquired we million, of Building will the will loans, purchase as XX% title acquired an an credit or will no mark the but by on allowance for of loans majority to $XX $XX add PCD loans or expect deteriorated which approximately additional the to million the or credit to million. the capital this represents allowance to with impaired the Excluding XX% purchased approximately impact increase impact. transition $XX loans, allowance XX% allowance

date. and as of the and reminder, economic the composition the depend of as a these of portfolio extent the conditions estimates loan As as on adoption are will increase the well forecasts

we convenience, well earnings The announced your for Park as Slides current the that our of have summarized acquisition note as respectively. Slide on our XX finally, through And outlook. details quarter's XX are

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

Mike Scudder

Thanks, Pat.

rate to recap, true short-term. just but obviously, it's a tough backdrop, for that's the So really

term, we longer to like As we look our the positioning. really

of and type execute that creates to our as continue say accrue environment on benefit. We believe this that in will to also we long-term our priorities we opportunities

Included can among which foundation is amidst hard those a noise. continue deposit short-term and work to have teams today's our be built undervalued tremendous core

Our credit and more diverse. broader capabilities are

attractive to Our add an a in broader talented $X very is access marketplace. acquisition we of billion team believe what Bank will Park assets, additional and a Milwaukee

our marketplace. an We're close, the loaded and competing locked and to-date the very look forward to await with we we first expected team quarter there. thrilled in is progress As

Our earnings very strong. remain

technology continue all environment, Operationally, our environment experience. we much and well organically grow important. focused improvement, us makes even as on more to driving efforts capital more process optimize build client capital, efficient a the remain with Today's flexibility leverage and As mix. as this that we an toward leverage eye very tremendous our to gives to better

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

Operator

Instructions]. [Operator

The comes state Michael SunTrust. your from Young question. with Please first question

Michael Young

that give process purchase just I stands kind Can in update where risk we from and and of wanted with us kind the reducing where an maybe tell on that purchases sensitivity asset was how quarter. just liability, that of start then the NII stand volume at of with an perspective? of us mortgage to today loan in you much

Pat Barrett

majority quality the were Hey, is but purchases have our pretty that the the guidelines the during Mike. quarter that. we Pat, credit of say mortgage both yield. on duration, extending tight This I'll take and would I under banner of

what origination was of the right purchased still over continue if make increase know solid getting mortgages, and from were with. of I to repurchases, Mark? we sure we risk for for it was mortgage-backed we're bought don't that our example, pretty we're paid origination So which securities XX% of incremental pretty we get we would comfortable probably the increase had activity XX% just Away -- our

Mark Sander

That's right.

Pat Barrett

Yes.

hit duration we frankly, it our well origination feel we about and that see, market the floating-rate we we continued year, quarters continue -- set forward, three perspective. still the extending we something from way looking to Going But with the the lion's objective be that loans behaving year. what a predominantly of is I ago out a got think that this done that I were that, do year, modestly, into we might we next that of this think but share with could

Michael Young

Okay.

purchases it next of that be on with kind stronger the of pacing a that's will in we'll think And way of purchases portfolio, so if is what's more and kind commercial year? going growth to right less about future see the

Pat Barrett

Michael. Mark? think the it, way I exactly about think to that's

Mark Sander

Yes.

Michael Young

Mark. And

you the you Just to tax expect lot of out clients favorable the a fourth on you're C&I, of and sell businesses, higher the get liquidate cycle called think pay-downs. capturing sense this Do et kind persist ahead looking that that a or specifically to quarter? or Do I Presidential of you seeing pay-offs cetera? seeing, environment, you're into activity are

Mark Sander

dramatic QX. has continue across I in do for a you to I fourth or C&I largely want it didn't there first this the the CRE got you in number of that certainly but it little component know, and guess, as and this just quarter say and quarters is there had will doing, was company stuff we also are some want that, we've to some in payoffs of seen didn't a time industry I'll that the in continue sales, say. is that in bit And see increase this to a We I time. for more a and trend visibility credit us think do stuff that see we've would in we way, we C&I, a been assets, that

those And see to so a of couple, -- call of a got visibility QX. more not trend, a a there is in I'm in a bit QX. that but little a short-term little of I bit more to pressure we’ve ready that few

will So be therefore, up I as said, total modestly commercial flat to QX. in in very

Michael Young

maybe kind of that for given more kind of in to Okay. And or sneak are are wait I given of from easing stock? last just does the of where back try those if you're make saying, one the bit could cycle, seeing, to markets in, production one kind moving we hiring. some it a we that buy just, aggressive mean, hire, you I us, off and more just little get you and just dynamics on we to more away

Mark Sander

say this Michael. I'll it way,

really production nice issue. Our had the is a not quarter. production We

I and And so -- quarter in a nice we'll think have QX. production

need a feel don't all. I higher So to go at

touch in some don't them we're with our markets us always make if bankers we've even have in stay to if quickly. for spot, we other of did course, to so good said a quality pay want hand, to opportunistically high some join as QX, as and the just and room, normal in On part have a of themselves happy and we bankers

Mike Scudder

And Michael, is Mike. this

to If you in comments, see some picked the chase so. in Because maintain disciple. performance also to the market your you start long-term up judgment, growth where is you in it want of environment an underwriting detriment can to this our my that

Operator

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

Chris McGratty

securities but down single-digit continuation the imply basis slight purchases of start of the NII the modestly kind flat maybe NII high -- are levels? you're mean, Pat, this margin, The maybe down of and to in guide. securities with points in terms quarter. update on And these I point. provide at would an where at what adding buying borrowings could you you the

Pat Barrett

really current, much. at are Well, market not fourth quarter, too the we in

than think flows, really are July aggressively and bulk in looking buy. cash did, this finished late the I we reinvesting up we the to it in not call what other of midway quarter, third -- just we

expectation So rates last, basis interest the an December, that for the cut the in impact. fourth actually October revenues rate October of for we're downward points we've is presumes what and our since and our for those, guidance be have XX million quarter NIM assumed modest will the then maybe that, will $X bulk which rate If cut. of $X.X the a come it call get million both would down assuming we

it of was So compression which we're not probably duration, did that will adding this anticipating the impact due anywhere that half that. to near sensitivity our was quarter asset have

Chris McGratty

Okay.

I'm So what the of current bond is stay levels portfolio of kind will hearing? kind at

Pat Barrett

Yes.

Chris McGratty

Maybe ...

Mike Scudder

on brings. Depending tomorrow what

so. volatile So I it's environment, a mean

Chris McGratty

bit credits industry these little be the and provide release. commercial No. loans press little Totally Could out they pop kind detail, call it. what a Maybe up unexpectedly a maybe did might of in credit, two non-accrual, on previously on get they the you you were in?

Mark Sander

criticized They moved they were $XX the manufacturing. this They and Yes. one business non-accrual, million One to in in services so were range. million in was the classified, but $X both and to not non-accrual was quarter.

trend real they radar the -- no and classified. been they've So criticized again screen on there. as were And

they've decrease been criticized and the had So nice time. said, in screen classified overall. a on radar That some for our

credit don't we of change this. a in as the any So outlook result see

Chris McGratty

maybe the benefit Pat, that you banks -- specify have might in of Could housekeeping Okay, you one. insurance a a lot been? had said And the great. that have then what quarter. FDIC

Pat Barrett

over got beat guidance. part of which most it versus like We for our did, our drove million, people the lot Yes. $X a Sure. a little it was drove expenses on

we sure get timing but that did quarter. the get the that about weren't during we that, that we So would

on about revenue think, and pretty BOLI I You our also other and was on is telegraphed quick quarter. linked that quarters of questions of non-fee-based stable three BOLI, a other income income couple that

wasn't that. on there a hit big So

Operator

with Please ahead. is McEvoy Stephens. from next Terry go The question

Terry McEvoy

economic Thanks and if one up the on XXX for XXXX change a that ultimately day about about XXXX with provision? is growth all the things the but reserve impact. disclosure $XX understand I think to I'm within I and say million, will I I will portfolio hold ratio basis your offs, the loan charge we build the guess come I CECL all reserve change, of loan on being and quarterly the XXX. thinking as equal, And assumptions the should to ratio to

Pat Barrett

would say a be XXX I'd handle. good

Terry McEvoy

you. thank Okay,

does margin see outlook quarter, your the of in costs that potentially continued deposit side, do or On sort plateau a some fourth increase your for or you the quarter? the fourth deposit in decline assume

Pat Barrett

we certainly I'll up. with say it go will a is and are CD we market market are still so depend that just competitive down competitive money -- could see month hopeful it modestly. the on A us offering. We that retail the side won't We're those much such I seven lot do. then dynamics that that what what have prefer dropping promotion promotion And running from we coming or drop to low-interest the of on retail to large room base. We obviously because a bearing to. keep just that cost deposit we we would extent have bearing lot don't non-interest could as there, have market the as a

corporate, bring bigger markets, municipal would them the corporate money borrowings a to extent in the and opportunity to the in that So certain love we'd but down. in the be

million think quarter. million -- you down expense, our $XX $XX I about now look So a quarterly if we're under to at interest

borrowings in and with -- all So and deposits. that's

have down. the bring interest there's go room such It also, we core is the great as to rates much base expense this deposit of interest that down, having only drop when have costs. curse to room So is don't we a so much

Mike Scudder

quarter-to-quarter. Let operating will competitive in again me We're add we marketplace that we're not the that be. and philosophically,

or continue set rates deposits. -- We don't the market we to

the take look of grow continue to franchise. continue and We at those to advantage to

Terry McEvoy

not one quick portfolio? your you describe that as of you be Mark, as have loan if but do would credit if how not shared handy, leverage it for a handy, leverage national have sure great? quite your portfolio, sure have Maybe And it, you that I'm lending but size the I'm you well

Mark Sander

a small Yes, Terry, modest, so, really relatively our really number. STIC portfolio it's is very

it Our leverage $XXX about loan structure is million. range the call is leverage in tranches, portfolio of we

Operator

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

Nathan Race

question A on buyback the from here.

quarter in Park I you think probably fourth deal the it the mentioned, be will nears constrained as closing. Pat,

like assuming maybe current So the can it digestible. maybe the just buybacks fairly for impacts XXXX, stock seasonal the appetite curious be on the levels, near remains into and seems

as your kind enter just So buyback of curious to on XXXX? you thoughts get the

Pat Barrett

Yes, so we our capital where they levels are. like

them, growth not in we're quarter. accreting organic our earnings are -- but or every other we So a either capital XX% lower other of to deployment big hurry or alternatives, higher acquisition absent

like of we higher stock. a And will, remarks earnings philosophy excess you behind as would buyback, as it. so to accretion at that frankly on the it today's time to eat price was able earned our We Mike's good we if to the a the be over bit quite stock like up prepared value buyer, the probably

accrete So us that good earn and more expect a we think should it buy will to with you future continue and foreseeable that we capital. as the programmatic to for excess be be

Mike Scudder

-- We we well. consistent our there long-term and our me helpful with goals let as capital are. priorities Again, what manage with

drive at shareholders, as we to how to manage provides, we the So where that to look that's it. we're our will ultimately and what return strongest we determine think we going look

feedback really So we do as from talk through Consistent how about choices we what are that will our consistently and with as well. the consistent talking get with we plans and that the it capital are on dependent investors, we then our be the with them ultimately the we deploy with environment that. go and Board

Nathan Race

opportunities M&A helpful this the near-term. put guys of That's sideline to size guess just on imagine you're deal Park context, in the the I within at And terms curious of will in what can update Understood. flow an the get Mike, color. seeing terms of point. that I you of

recently? of seeing your or So it's just across what if state steady flow we've activity seen kind if you're increased curious desk a versus

Mike Scudder

the would the environment generally the M&A say reflects us. environment just around -- I environment reflects

of lot market. a and there's around the now, of right lot noise just volatility a So

that go as slow some there time. would say in there to So things of focus the where emphasis we want assume stream our be always here certainly our extent forward short of put any we To down to point a run about available, consider as but there. we our best and degree at in ready through make steady think integrate is is those is. point and dialog sure that's foot I Park proactive opportunities the out one would really that it we're would that's always to and we I become

Operator

[Operator Instructions]. The next question is from Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo

a question This a bit little is just of clean-up here.

You have mentioned terms higher and number you commissions the between the some related had employee sales. to third quarter? loan of expense quarter in change that the Do the the second

Mike Scudder

follow have that can tip that. up you I we fingers, of on with don't but

Daniel Tamayo

sounds by impacted And decline was differences. good. then timing professional in Okay, fees, services the it

jumping-off and was a $XX.X million, is quarter forward? there point then second better The a going that

Mike Scudder

think would I be timing delayed No, that sort and of deferred.

So that up could modestly. tick

Operator

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

Mike Scudder

you. thank Great,

for So as that I investment a always to everybody. to in the you for of whom in of of thank opportunity many to closing, success. to also performance. It's in opportunity interest do their take colleagues, to Midwest. contributions the day call just this many we engagement great our our and and thank listen in want their I take all Have and want for our First your investment listening drives all

Operator

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

First Midwest Bancorp (ONBPP) 23 Oct 192019 Q3 Earnings call transcript