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First Midwest Bancorp (NASDAQ:FMBI)

Q2 2013 Earnings Call

July 24, 2013 10:00 am ET

Executives

Nicholas J. Chulos - Executive Vice President, General Counsel and Corporate Secretary

Michael L. Scudder - Chief Executive Officer, President, Director, Member of Advisory Committee, Chairman of First Midwest Bank and Chief Executive Officer of First Midwest Bank

Mark G. Sander - Chief Operating Officer, Senior Executive Vice President, President of First Midwest Bank and Chief Operating Officer of First Midwest Bank

Paul F. Clemens - Chief Financial Officer, Executive Vice President, Executive Vice President of First Midwest Bank - Sub and Chief Financial Officer of First Midwest Bank - Sub

Analysts

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

David J. Long - Raymond James & Associates, Inc., Research Division

Emlen B. Harmon - Jefferies LLC, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the First Midwest Bancorp Inc. 2013 Second Quarter Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions]

It is now my pleasure to turn the floor over to Nick Chulos, Executive Vice President and Corporate Secretary of First Midwest Bancorp Inc. Sir, you may begin.

Nicholas J. Chulos

Good morning, everyone, and thank you for joining us today. Earlier this morning, we released our second quarter results. If you haven't already received a copy of the press release, you may obtain it on our website or by calling (630) 875-7463. During the course of the discussion today, our comments may contain forward-looking statements, which are based on management's existing beliefs and expectations, as well as the current economic environment. These statements regarding future results or events are subject to certain assumptions, risks and uncertainties and are not a guarantee of future performance. Actual results may differ materially from those described or implied by our statements. Our most recent 10-K and first quarter 10-Q contain a full discussion of the risks that could affect any forward-looking statements. We will not be updating any forward-looking statements to reflect facts or circumstances that may arise after this call. Here this morning to discuss our second quarter results and outlook are Mike Scudder, President and Chief Executive Officer of First Midwest Bancorp, and Chairman and Chief Executive Officer of First Midwest Bank; Mark Sander, Senior Executive Vice President and Chief Operating Officer of First Midwest Bancorp, as well as President and Chief Operating Officer of First Midwest Bank; and Paul Clemens, Executive Vice President and Chief Financial Officer of both First Midwest Bancorp and First Midwest Bank.

With that, I will now turn the floor over to Mike Scudder.

Michael L. Scudder

Thanks, Nick. Good morning, everyone, and again, thank you for joining us here today. The quarter for us was a very solid one. It's right in line with our expectations. It reflected continued improvement in our business activity, our credit quality and then by extension, certainly our earnings. From an earnings perspective, we earned $0.22 for the quarter, that's up about 10% from the first quarter itself, and some 1.4x where we were a year ago. This was our third consecutive quarter of double digit earnings increases.

Away from the trading gains that you sometimes see in our deferred -- related to our deferred comp plans: our total revenues were up 2% versus last quarter, and our emphasis on growing our fee-based business and businesses generally continues to have positive results for us. Compared to last year, our fee revenues were up some 10% largely on the strength of our Wealth Management, deposits and mortgage business lines. In comparison to the first quarter, growth in our Deposit and Wealth Management more than deflected the impact of lower mortgage spreads given the recent back up in rates, and I've asked Mark to talk about that, and talk about mortgage volumes more generally. But as we've shared with you previously, our investments sure haven't been so outsized that normalization in that business would have a material impact on us.

Our corporate growth was very strong, 2% or 8% annualized versus last quarter. And for the most part, was incurred late over the course of the quarter. Our pipelines continue to look solid, and so we would look for continued growth in the second half of the year. However, similar to last quarter, I would caution everyone that it still remains a very competitive environment. And as you know, and Mark certainly can expand on this, we're sticking to our credit and pricing disciplines, and those obviously can have an influence on volume levels. But overall, very pleased with our corporate growth rates.

Our improved credit profile drives lower costs and continues to show progress there away from covered loans. Our second quarter net charge-offs were essentially in line with the first quarter and roughly 1/3 of the prior year, while we are -- or other real estate sales activity posted some small gains for the quarter. And again, another positive for us is our overhead costs continue to improve. Compensation in the aggregate decreased about 5% linked quarter, and that's after allowing for various severance and, again, nonqualified expenses there. So as our credit metrics continue to improve, we expect to see improvement in our overhead as well. So as I said, overall, a very solid quarter, and right in line with where we expect it to be.

So I'll now turn it over to Mark and Paul and they can offer further details in the business and our financials.

Mark G. Sander

Thanks, Mike. As Mike mentioned, we had a solid quarter on many fronts as we hit the expectations we had laid out internally and externally in all 3 of our lines of our business. In commercial banking, loans grew $100 million or 2%, driven by an $83 million increase in C&I loans. This represented 5% C&I growth from March 31, and 9% from a year ago, despite the subsequent large loan sale we executed last year. Our second quarter C&I production was, again, very diversified by size and geography as we continue to build relationships across all of our various platforms. One area I would note was the continued success of our asset-based lending division which booked several new relationships in the quarter. This business unit now exceeds $100 million in loan outstandings. It's a very granular loan book, and it's only been in existence for 15 months.

Commercial real estate, on the other hand, was flat in the quarter. Our production was offset by some significant payoffs. We would expect to see CRE grow modestly for the remainder of 2013. We also had another solid quarter from our Ag team. Agricultural loans grew almost 6% year-over-year, and this is an area where we will look to further leverage our existing strong team.

We remain very pleased with our teams overall and the pipeline activity that we see. Last call, we suggested full year loan growth was trending toward the mid-single digits, and that guidance remains unchanged going forward. As most people listening to this call very well know, loan pricing is competitive in our markets. That's probably an understatement. We continue to believe we can profitably grow our number of relationships and our loan outstandings in the face of this margin pressure.

Elsewhere in commercial, our business service charges grew double digits year-over-year, driven by price increases and cross-selling success. Further, we sold several slots in the quarter as we continue to roll out this new product line for us. As a result, other service charges were up 7.5% year-over-year.

Switching to retail banking, we had a solid quarter there as well. Net households grew for the fourth consecutive quarter, and low-cost retail deposits remain a competitive strength as transactional deposits grew slightly again in the second quarter. Our core client growth also accounted for the 4.4% year-over-year growth in card fees that we reported, boosted further relative to linked quarter by some seasonal activity. Enhanced sales disciplines around performance metrics for our retail teams is generating some good momentum in our core franchise. The only change to our guidance this quarter centers on our mortgage business housed within retail. Our production, again, was double the year-earlier period as the previously mentioned adds to staff began to ramp up. We produced approximately $50 million in fundings in Q1 and Q2. Our footings at this quarter-end spiked due to timing issues as June was a very volatile market -- month in the mortgage market. Given the recent rise in long-term interest rates and the current gain on sale opportunities, we think mortgage fee income over the remainder of 2013 will be closer to Q2 levels of $1 million per quarter. Bear in mind, our investments in this business, as Mike alluded to, are simply commensurate with our footprint. Given the modest fixed costs we have in this core franchise-based business, we remain solidly profitable at current volume levels. We do expect, going forward, to sell the majority of our loan production and mortgage into more normalized markets, and thus, our balance sheet of 1-4 should remain relatively stable over the next couple of quarters.

Our third line of business is Wealth Management, where we had yet another outstanding quarter. Our Wealth Management fees grew 13.6% year-over-year, driven by strong sales results across all units and very, very high continuing client retention. At $6.4 billion in assets, our Wealth business is the fourth largest bank trust operation in Illinois. Our fiduciary products in particular, personal trust, estates, guardianships, are showing significant growth based principally on expansion of existing client relationships, a strong partnership approach we have with the legal community in greater Chicagoland and the Quad-Cities and help by more referrals from our commercial bankers. We won a couple of large, meaningful custody relationships in the quarter as well. If you'll recall, we have been very upbeat about our prospects in this business for some time, and that story also remains the same. Recent sales results, again, should bode well for strong year-over-year growth for the next couple of quarters at least.

Switching to credits for a second. I would echo all the things that I noted in our last quarterly call. We demonstrated nice progress in bringing our nonperforming loans down $8 million, or 8%, in this quarter, as our long-stated strategies to restructure credit to TDRs and to move properties to OREO both had some traction in the quarter. As a result, our nonperforming assets were basically flat, down 2%. However, our mix is stronger. In April, we projected a few more quarters of elevated NPA inflows from our consumer and certain segments of our small business portfolios, and this was the case in Q2. In line with our Q1 call guidance, we continue to expect similar results in the second half of the year from these portfolios. The consumer and small business units also comprised a disproportionate share of our charge-offs in the quarter. We have given charge-off guidance all year of 60 to 80 basis points annualized, and Q2, again, came in at the bottom of this range at $7.3 million away from covered loans. I would again reaffirm that range for the remainder of 2013. We have a concerted push to move all problem credits along, including active remediation and transfers -- continuing transfers to OREO as a step towards an exit. While sales of assets in Q2 were a bit delayed, we expect meaningful progress on reducing all adverse categories in Qs 3 and 4.

So now, I'll turn over to Paul. Before I do, I do want to wish him a happy birthday.

Paul F. Clemens

Thank you, Mark. Well, I want to talk about net interest income and margin, and then get to talk a little bit about expenses. And not surprisingly, Mark and Mike's comments about our solid loan production quarter reflected sales in our -- in my topics here. Net interest income for the second quarter was $54.9 million, a $1 million or a 1.6% increase from first quarter. The increase was generally from additional loans, investments and reduce reliance on higher costing time deposits for funding.

Our net interest margin for the quarter was 3.70%, a decline of 7 basis points though still very strong in our market and in line with the guidance we gave on the first quarter call. I would like to be clear, this decline was due entirely to the seasonal inflow of approximately $150 million of real estate cash deposits held on behalf of our municipal customers. Away from those, our margin would've stayed flat. We expect such deposits will continue to average up and accumulate during the third quarter, and temporary depress margin the further until our municipal customers withdraw them during the fourth quarter and late third quarter.

Loan yield totaled nicely as we maintained discipline pricing, and we're also aided in part by the additional yield on covered loans. As we look to the rest of 2013, we guided -- at the end of the first quarter, we expect net interest income to increase each succeeding quarter. We hold to that guidance, generally in line with what we experienced in the second quarter. Expected loan growth should generate net interest income from the payout pace of the margin pressures from repricing and renewals and lower spreads in new loans.

Let me move on to noninterest expenses. We provided a fair amount of color in our earnings release. So I won't reiterate that, but just generally make a couple of broad comments. Our second quarter expense of $62.4 million was down $2.4 million or 3.7% from the first quarter, and as Mike pointed out, even when we exclude our nonqualified plan and OREO expense from both periods, we're still down nearly $1 million, and our efficiency ratio improved from 66.5% from first quarter to 64.3% for the second quarter. These numbers were slightly better than we guided last quarter, so we believe we're seeing results from our efforts to realign and reduce expenses. I would add that during the second quarter, we incurred severance-related expense of approximately $600,000, compared to $1 million in the first quarter, as we realigned our resources.

And as we look for 2013 -- look to the rest of 2013 -- our guidance for the remainder of 2013 remains relatively unchanged with what suggested 3 months ago, perhaps a little bit better. Noninterest expense for the third and fourth quarter should be in the range of $62 million to $63 million or perhaps slightly less, as we look to leverage our existing resources to generate sales and improve our efficiency further. The actions we're taking should enable us to make consistent progress and improve our efficiency ratio going forward.

And now let me turn the call back over to Mike Scudder.

Michael L. Scudder

Thanks, Paul. Let me just recap before we open it up for questions. We continue to execute on our strategic plan. And as we do so, our fundamentals as a business are growing ever more solid. Our deposit funding is extremely strong, and we feel we're well-balanced for rising rates as that occurs here over time. Our fee businesses are growing. Our credit pipelines are in good shape. We continue to expand, and we think the footings that we're bringing on are more diverse. We expect solid second half improvement in our risk profile -- our credit risk profile, as we look for further progress in reducing both our existing and potential problem asset levels. And we remain keenly focused on driving greater overall efficiency within our operations. And then finally, our capital levels remain very solid. So having said all of that, and as a result, we think we're very well positioned both to expand and take advantage of market opportunities, and most importantly, continue to provide greater returns for our shareholders. So with that, let me open it up for any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Chris McGratty of KBW.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Mike, on the efficiency progress. I think in the past, you've talked about getting it into the 60% range over time. Again, the question #1 is can you get there in this rate environment. And #2, I think in the past you've talk about some opportunities on the expense side whether it be from the pension freeze or what. I was wondering if you could offer a little bit of color there?

Michael L. Scudder

Sure. We've talked about generally driving greater efficiency within the platform. The interest rate environment certainly makes that more challenging, but as we leverage our existing infrastructure, we think we'll drive continued improvement there. So I think, as we progress, I certainly have the guidance from Paul through the remainder of the year. I think as we look out into 2014, our focus there should drive it. One of the caveats that I have, as we talk about efficiency, is growth within our Wealth Management business and within our mortgage platforms do have an influence on efficiency as those variable causes through there, so that's something else to keep in mind more broadly. As it relates to our retirement programs and planning there, we did take an action this quarter to curtail our expenses from a pension standpoint. However, the savings that we would expect to see or any savings there will really move back into other forms of our retirement programs here in the short run. So those savings are -- will come in the form of more controlled, more -- less volatile expenses. But you won't see those carry immediately in the short run.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then on M&A, Mike. There was obviously a nice deal in your back yard last week. Can you talk about First Midwest's role in M&A as the cycle continues to evolve now that capital levels are pretty robust?

Michael L. Scudder

Well, we continue to view ourselves as a buyer in this market. We think we have some great opportunities there. As I said, the fundamentals that we have, the retail platform that we have and our overall reputation and experience in this market, we think, is attractive to anybody who's thinking about those types of options.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Are there more conversations being had today given the improvement in asset values and currencies?

Michael L. Scudder

To be honest with you, Chris, there are a lot of conversations going on. But there has always been a lot of conversations. I would say -- I had a saying. "If write it down made it happen we'd all be wealthy," wouldn't we? So some of those have to translate into more activity, and whether that happens or not, I guess time will tell. I think the key in this environment, and certainly as one considers that space -- and I've talked about this before -- is it's all about patience and discipline in terms of what you're trying to accomplish in there. But as I said, I think that's an opportunity that's out there for us, and certainly one we would expect to take advantage of, if it make sense for us.

Operator

And the next question will come from Brad Milsaps of Sandler O'Neill.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Appreciate the color on some of the moving parts with the margin and the inflow of the immediate deposits. Approximately how many -- how much more do you expect in the third quarter? And then just curious, kind of the overall balance sheet management thoughts. It looks like you're -- even absent that, you're still sitting on a fair amount of Fed funds parked in short-term rates. What are your thoughts there in deployment? I certainly would assume you'd like to put it in the loan growth. But as longer rates have moved up tier, what are your thoughts towards the bond portfolio and kind of how you think about the back half of this year and into next?

Paul F. Clemens

Okay, that's -- there's a lot of questions there. First of all, I think you'll see our margin decline. It's kind of similar to what you saw the second quarter. It's the line about 7 basis points. You might see it go down similar to that, 5 to 10 basis points again, but simply because primarily of the continued accumulation of those deposits. And I guess, really, the way we think about our liquidity, if you will, of those deposits -- Mark talked about the loan growth and what we see in the horizon, and we've kept it fairly short. We have gone out in the first quarter. We bought about $160 million worth of CMOs. Our investments that were fairly short. Just to triple the return that we had on those deposits that were sitting at Fed funds. We didn't extend out very far, but in any event, we used a few those. And we did a little bit more of that in the second quarter, not nearly as much. We may look to do some of that. But frankly, we look to redeploy our -- those excess deposits. It's deceiving right now because there's so much right now, and they'll dissipate back by hundreds of millions of dollars over the next 1.5 quarters, and then we'll have the liquidity we need to fund March loans.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Do you have a sense for how the duration changed from the first quarter to the second quarter in the securities portfolio?

Paul F. Clemens

Yes. The duration didn't change a whole lot. The duration was, well -- I'm sorry, the duration was about 3.25, it's about 4 from -- I'm sorry, from June -- from December to June. So it's probably a little less than 4 at March. It's gone up a little bit above 4 as of June.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then just final question. Appreciate your color on the expenses as well. I know you got several quarters of different amounts of severance charges. And it looks like you're down about, I don't know, 75 or so employees year-over-year, 7 branches. Do you think that -- are most of these folks being replaced with other revenue-generating type folks to where you're sort of replacing 1 set of cost for another, or is there more to read into that? And then I guess as a follow-up to that would be, Mark, what would be sort of -- what's the hiring environment like for you guys right now, and any potential new hires out there or anything significant you made in the second quarter?

Mark G. Sander

Sure. So relative to the first part of your question, Brad. I would say a little bit of both. Meaning, overall, we have had, and we'll look to have net -- we've had reductions in staff overall, in total, okay? We certainly have taken some of the headcount, if you will, and redirected it to revenue-producing activities. So there has been a little of that, but again, overall, our headcount is certainly down year-over-year. We're going to continue to look to reduce expenses as part of our culture. We have infrastructure right now, I would say, that we can grow without adding much incremental expense. We're always in the market looking to hire, as I alluded to last quarter, good relationship managers, good investment managers, good revenue producers pay for themselves very quickly. So we think we always have to be in open dialogues around that. Again, as I said last quarter, I feel good about the team that we have, and we can grow nicely without any resources. But we'll always keep some of those dialogues open, if you will. But again, that's all against the backdrop of a need to watch our expenses and continue to drive that expense base down.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Okay. And prospects for new hires or any significant hires you made in the second quarter?

Mark G. Sander

We didn't -- we had a couple of relationship managers in commercial banking. We added a -- I'm kind of thinking -- I'm thinking whether it's first or second quarter. In the first half of the year, we added a couple of folks in our Wealth Management group. I don't know when they come out, frankly, if it's March or April as I sit here, Brad. But we had a couple of sales folks there as well that we think will help us.

Michael L. Scudder

Brad, this is Mike. We have a great reputation and it's very solid and good cultural place to work and get business done. The way we do business and our focus on relationships and taking care of our clients and helping to meet their financial needs, while a lot of people say it, we actually do it and that resonates very well within the community. So that helps us as we look to both attract, as well as retain the quality people that we have.

Operator

And our next question is from Stephen Geyen of D.A. Davidson.

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Just curious -- the agricultural loans were up. Just curious, how much of that this seasonal? I think you mentioned 4% year-over-year. Where are you seeing the growth?

Michael L. Scudder

Well, it's 6% year-over-year, and that's why I quote year-over-year to try to get away from that seasonal component. Because if you compared linked quarter, you'll get that seasonal, whereas year-over-year that's a better comparison for true, real growth, if you will. So it was 6% year-over-year. It's mostly in production. There's a little bit of land in there, but it's mostly in production, in crops.

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Okay. And the system improvements, I think you said that they a potential in improving in efficiency. Will the efficiency improvement come from lower expense once the upgrade is complete, or will there be efficiency improvement coming from leveraging the new system?

Michael L. Scudder

I don't -- we're trying to think. I think we may have -- or perhaps you misheard us. I'm not aware of the system improvement, perhaps, that you're really talking about. What's going to drive our efficiency improvement, broadly, is largely going to be on the strength of greater revenue and leveraging the resources that we have today. And then likewise, the ongoing benefit of the initiatives that we've taken over the last couple of quarters to reduce expense, those will carry through under the third and fourth quarter, as well as continued improvement in our credit costs. Now those will be offset, in part, which goes to Paul's dialogue and guidance around additional investments that we've made back into our business. So when we talked about greater and expanded deployment of our marketing dollars in terms of promotion here within the marketplace and the like. So those are some redeployment of those expenses. That's why Paul's guidance gets a little more granular than what we might otherwise do.

Operator

And our next question will be from Terry McEvoy of Oppenheimer.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

I just wonder if I can get your thoughts on the suburban Chicago real estate market in terms of sales, new construction activity, et cetera?

Michael L. Scudder

Sure. I'll give you a quick overview, I guess. Suburban office market, I would say, has improved, and by that, I mean it's stabilized over the course of 2013. So rental and occupancy rates have stabilized in suburban office. Supply is stagnant. You're not really seeing anything coming online. So we're not being real aggressive here a given the fact that we have a fair amount of this in our portfolio. But we've seen a couple of well-capitalized medical office building opportunities that we're looking to finance here coming up. Elsewhere, industrial, slowly improving. Again, very little construction but a net positive absorption rate. So vacancies are ticking down slightly. Retail is pretty stagnant. Wide -- retails has wide variations in values based on the quantity and quality of in-place net income. That sounds obvious, but it can be heavily discounted or a very valuable property depending on who that anchored tenant is, if it's a grocery store. But people are giving virtually 0 value to vacant space in retail centers these days. So again, cautious. And then apartments -- apartments continues. It's a very favorable margin for all of those properties, very high occupancy driving very low cap rates, I would say. So we've done some of that. But again, as I alluded to last quarter, we're being cautious there. That market's pretty heated. And we'll see a few decent deals, but I do want to chase 4% or 5% cap rates in apartments. Does that give you what you look for?

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Yes. And then just as a follow-up: With some of those positive comments on real estate that you just mentioned, as well as the charge-offs being at the low end of your guidance, how does that change your reserve methodology? And does that support a lower reserve in the second half of this year, and into '14?

Paul F. Clemens

Terry, this is Paul. I think that, hopefully, it will, but we're being cautious. I mean, we've been very careful. And Mark didn't change the guidance, and we hope that a quarter from now we'll change it. But at this stage, we are seeing stabilized values. We're seeing our evaluation and appraisals have started to stabilize. They have for the last couple of quarters. We have broader allowance down slightly, but just being careful.

Mark G. Sander

And I guess I'd elaborate a little bit of part of the reconciliation of the comments of the firming real estate markets, and the continued 60 to 80 basis points charge-off guidance is for sale housing and 1-4s. Chicago has lagged the nation in 12-month price change. It's gone positive, but it's been below the national average. And certainly the amount -- the percentage of homes with negative equity in greater Chicagoland is higher than the national average as well. So you still have that drag, it's really what's driving the 60 to 80 basis points charge-off level we've talked about. It's really residential real estate driving that more than the other areas that I mentioned. That said, I will throw in there that our Indiana markets are significantly better than Illinois. We have a significant business in Indiana. And frankly, as relative to percentage of homes with negative equity and distressed sales, Indiana's better than the United States as a whole. So there are some good pockets in our markets as well.

Michael L. Scudder

Terry, in response to your question on loan loss and reserves, just to add further clarification or insights. Ultimately, that's both a combination of what's the view in the current conditions of the markets itself, and it's also a function of our levels of adverse and potential problem assets. So if those continue to improve, you'll see continued improvement in those particular metrics.

Operator

And our next question is from David Long of Raymond James.

David J. Long - Raymond James & Associates, Inc., Research Division

With the merger of 2 of your end market competitors, I wanted to see how you guys weigh the opportunities that may be created versus the risks that such a merger may create for you guys?

Michael L. Scudder

Well, I don't anticipate, candidly, 1 transaction creating much of a change in profile either in the competitive landscape in an already competitive market, or in certainly in risk as it relate to our business and our strategies. So we don't anticipate much change in there at all. Certainly to the extent that, that creates opportunity or dialogue or disruption that certainly within the market becomes an opportunity for us to take advantage of, and we would certainly look to do so.

Operator

And next we have a question from Emlen Harmon of Jefferies.

Emlen B. Harmon - Jefferies LLC, Research Division

I guess, specifically, you guys mentioned ABL and some strengths there helping out on the commercials side. I guess I'd be interested in hearing just kind of quantitatively how much that improved in the quarter. But then, even just from a big picture perspective, Mark, could you give us just an update on progress on some of kind of the new specialty lending businesses you got? So ABL, some of the specialty healthcare, and I know Ag processes has been a focus for you guys, as well.

Mark G. Sander

Sure. I highlighted ABL because lately I had a few transactions that closed in the quarter as I referenced, but it's not like it was the driver of our growth. We had, as I said, diversified growth across all of our C&I platforms. It's just one that -- still, it's only 15 months old. So I want to highlight the fact that we've had nice progress quarter-after-quarter in that business unit, and we've very pleased with it, and we look to continue that. In terms of other initiatives, we've hired a healthcare lender I referenced last quarter to kind of help us grow in some senior living spaces, and he and his small team have generated some nice opportunities already. Ag, as we've talked about, and AgriBusiness, kind of those first level processors, we've had some nice opportunities in both of those niches. So those are the ones that we're first advanced in. We'd like to do a little bit more in equipment finance. We do some now. We'd like to do a little bit more there. So those are our principal niches, and we're pleased with every one of them.

Emlen B. Harmon - Jefferies LLC, Research Division

Got it. And then, Paul, just the tax rates seemed a little high this quarter. I guess is there anything unique going on in there that we should be thinking about, or just kind of 33%, 34% is the run rate going forward?

Paul F. Clemens

Well, I think it should be closer to around 32%. We have nothing particular unique going on in our tax and cap rates in this quarter. What I tell people is we have a sizable immunity book that us provides tax benefits, and generally it's around -- on ballpark, it's roughly around $5 million a quarter -- $5 million to $5.5 million a quarter. So you take that away from your pretax number and apply our 40% tax what you generally get, yes, around the low 30s and that's where it stays.

Operator

[Operator Instructions] And we do have a follow-up from Chris McGratty of KBW.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Mike, can you remind us the part of the yield curve that your guys are most sensitive to from the loan side?

Michael L. Scudder

Well, let's see if I can answer your question this way. We have about 2/3 of our portfolio that's fixed. No, that's high. That's closer to probably down to about 55% now, down from about 60% or 65%. So if you look at most of our credits having a -- on the fixed side, being roughly 3 to 5 years, then that will give you some insight as to where that portfolio would come in.

Operator

[Operator Instructions] Seeing no further questions, I will turn the call back over to Mr. Scudder for closing remarks.

Michael L. Scudder

Well, let me close by just saying thank you for joining us today, and we thank you for your ongoing interest in First Midwest Bancorp. Everyone, have a great day.

Operator

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

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Source: First Midwest Bancorp Inc (FMBI) Management Discusses Q2 2013 Results - Earnings Call Transcript
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