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First Midwest Bancorp (NASDAQ:FMBI)

Q3 2013 Earnings Call

October 23, 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

Emlen B. Harmon - Jefferies LLC, Research Division

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

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

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

Operator

Good morning, ladies and gentleman, and welcome to the First Midwest Bancorp Inc. 2013 Third 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 results for the third quarter of 2013. If you haven't already received a copy of the press release, you may obtain it on our website or by calling area code (630) 875-7463.

During the course of the discussion today, our comments may include statements that are not historical facts. These forward-looking statements 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 guarantees of future performance. Actual results or outcomes may differ materially from those described or implied by our statements.

The risks and uncertainties contained in our most recent 10-K and second quarter 10-Q should be considered when evaluating any forward-looking statements. We will not be updating any statements to reflect facts or circumstances that may arise after this call.

Here this morning to discuss our third quarter results and outlook are Mike Scudder, President and Chief Executive Officer of First Midwest Bancorp; Mark Sander, our Senior Executive Vice President and Chief Operating Officer; and Paul Clemens, Executive Vice President and Chief Financial Officer of First Midwest.

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

Michael L. Scudder

Thank you, Nick. Good morning, everyone. Thank you for joining us. We appreciate your interest in our company. As is our normal practice, what I'm going to do is provide a brief summary, if you will, and then turn it over to Mark and Paul to offer some additional color in the quarter.

We are obviously very pleased with the quarter. With earnings of what, approaching $29 million, $0.39 per share, some $11 million, which came in the -- came to us late in the quarter in the form of some net gains from our liquidation or restructuring activities relative to our balance sheet. It was a very positive quarter for us on a number of fronts. And, really, reflected execution of some of our priorities are key strategic priorities embedded in those results. So let me see if I can cover those.

First, and probably most importantly, away from the late quarter activity, our earnings approximated $0.24 per share, and we're right in line with our expectations and plans. We had strong production from virtually all of our business lines, both in terms of the 12% annualized growth that we saw in our lending portfolio and 14% year-over-year growth in our fee-based revenues. So these reflect the benefits of earlier investments we've made in our business, and those continue to serve us well. Separately, we continued to show solid improvement in our overall credit quality.

So away from the business activity, late in the quarter, we had the opportunity both to strengthen our capital and better position our balance sheet for rising rates and in an evolving rate environment. Paul will provide some further color here. The key to this with the sale and equity position that we had in a company called Textura. Textura is a software -- is a service provider to the construction space, and this was an equity investment we had made back in 2005 that went public in June. And, frankly, market demand for that offering in September was such that the value of our initial $4 million investment grew very rapidly. And we were able to sell it for a pretax gain of about $34 million. So, obviously, a very positive result for us on the whole. It's the kind of noise you like to talk about in the quarter as opposed to something separate from that.

At the same time, we also had the opportunity to terminate about $250 million in some Federal Home Loan Bank commitments and modify our agreement for some $95 million of lower-yielding BOLI policies. So we were very pleased through the combination of all 3 of those activities to add $11.4 million intangible capital to our capital base and earnings and create the opportunity to redeploy the underlying BOLI investments at a higher rate. This was, from my perspective, a win-win, as we both had the opportunity to manage our balance sheet position and generate real capital. So as I said, a very positive quarter overall and right in line with our expectations.

So with that, I'll now turn it over to Mark and Paul, and they can offer some additional color.

Mark G. Sander

Thanks, Mike. As Mike indicated, we had another solid quarter in all our business units, as we met or exceeded expectations in revenue growth, in expense control and in our progress on credit quality. Loan growth was certainly a highlight, at best repeating up 12% annualized in the quarter, as we demonstrated strength in all of our targeted segments. C&I growth of $50 million in the quarter continues our steady, measured gain and market share, up over 11% from a year ago.

Similarly, our agricultural lending story remains consistently positive. Growth of 10% in the quarter and 22% from a year ago reflects the strong team we have dedicated to this segment, and we've actually supplemented it recently with a couple of staff additions, who were off to a really good start.

We also had an excellent quarter in commercial real estate. Growth here of $80 million was brought across several segments, including multifamily and industrial. We also -- we saw an increase of about $30 million in our other CRE in the quarter. This is largely comprised of long-term care facilities generated by our recently added healthcare colleagues that we spoke of in the past.

In summary, our commercial loan story this quarter is very compelling. Across diverse segments, we had strong granular loan production. We generated many new relationships and expanded many existing relationships. But, virtually, all of our production were in amounts ranging from a couple of hundred thousand dollars to $12 million in new loan outstandings, again very granular.

I talked in recent calls about my confidence in our team. Specifically, we had, and we continue to maintain a strong base of relationship managers in several of our legacy platforms. We undertook a strategic repositioning elsewhere, as we upgraded talent where necessary in certain platforms, and we expanded into a few industry specializations. Simply stated, it's working well. Our pipelines remain at healthy levels and position us for further loan growth, although I would expect the pace of growth in Q4 to be a little bit lower than what you saw in the last 2 quarters.

The main concern we have here is pricing, which as everyone knows, is very competitive in greater Chicago land, and indeed, in all of our markets. We will compete on price within reason, including our recent shift to a mix of more floating rates with swaps attached rather than fixed rates to meet client preferences, while still -- while better positioning our book for the long term.

However, we have also lost several opportunities where we just could not justify the loan based on the low return that was offered. The takeaway, from my perspective, I hope from yours, is we have grown all year in the face of these pressures, and we expect our team will continue to be able to meet this challenge successfully.

Our broader retail loan production also began to gain some traction, but it was offset by 1:4 portfolio sales and weaker mortgage volumes such that it resulted in flat retail loan outstandings from Q2. Mortgage production of $43 million was down from $50 million in the last 2 quarters, consistent with declining industry volumes. As a result, fees from loan sales were flat to the linked quarter at $1 million, as expected, with total mortgage banking income up driven by a fair market value adjustment of servicing rights.

Noninterest revenues were strong overall, as Mike alluded to. On a year-over-year basis, our quarterly Wealth Management revenues were up 11%, card revenues were up 5% and commercial service charges were up 11%. These 3 revenue streams have been specific areas of focus for us and have consistently grown over the course of this year at a similar pace as we saw in this quarter.

Partially offsetting the strength in these segments was a decline in NSF income of about $300,000 from the year-earlier period, due to a lower incidence rate in retail and our fortunate exit from a handful of stressed commercial relationships. We believe the sustainability and the momentum of our growing Wealth Management, card and Treasury Management businesses position us well to grow fee revenues going forward.

In addition, our expansion into new but foundational products for us, like swaps, are important drivers, as we diversify our revenue streams in accordance with our strategic objectives. Swaps also happen to be a nice offset to yield pressure, as we position the portfolio for a higher rate environment in the future.

Shifting to credit quality for a minute. Our performance was in line with expectations, we said, in previous earnings calls. Charge-offs of $8 million in Q3 were below our guidance, as are year-to-date charge-offs of 53 basis points annualized, away from covered loans. Certainly, at this stage, we expect to be at the lower end of our previously expressed 60 to 80 basis point charge-off range for the year.

In addition, our level in mix of troubled assets improved in the quarter, as both NPAs and adversely rated performing credits fell. Most notably, non-accrual loans decreased $21 million or 23% as we restructured several credits, driven largely by one corporate relationship, which moved to accruing TDR status. We also reduced OREO by 10% in the quarter, including a choice we made to accelerate the sale of one large unique property at a loss.

Overall, our asset quality metrics improved broadly, again, consistent with both the trends we saw in prior and that we expect in future quarters. Now Paul will now speak to margins and expenses.

Paul F. Clemens

Okay, thanks. And it's your CFO. It's great to follow those comments.

Let me talk about net interest income for a second. For the third quarter, it was $65.7 million and an annualized increase of 4.5% from the second quarter. The increase was generated from significant loan growth, as Mark talked about, and reduced reliance on the higher costing time deposits for funding, which more than offset margin compression, a similar story from last quarter. Our net interest margin for the quarter was 3.63% which is down 7 basis points, though still very strong in the market. And it was in line with the guidance we gave on the second quarter call. Roughly half the decline was due to volatility in our covered loan portfolio and the other half was due primarily to repricing of new and renewed loans.

And despite -- as we look for the fourth quarter, despite continued pricing pressures, we expect net interest income to continue to grow similar to what we saw in the third quarter before the fourth quarter. I think as far as margins are concerned, we would expect a slightly higher margin as the seasonal short-term municipal policies went off [ph], and we see recovery of a higher yield on our covered loans, which we normally would see in the second and the fourth quarters. So that's our comments with regards to margin that the numbers, obviously, reflect what Mark just talked about.

On the noninterest expense side. Our third quarter expenses $64.7 million was up $2.3 million from the second quarter. However, if you exclude both periods of non-qualified plan expense, which, once again, is offset by a similar amount of noninterest expense -- noninterest income and a loss in the sale of the [indiscernible] property Mark mentioned, that we chose to accelerate, we're flat with the second quarter at $62.4 million and in line with our prior guidance. Excluding these items, our efficiency ratio improved to 62.7% down from 64.3% for the second quarter.

And our guidance for the fourth quarter of 2013 remains unchanged from what we suggested 3 months ago. Noninterest expense for the quarter should be in the range of $62 million to $63 million, as we look to leverage our existing resources and generate sales and improve our efficiency further. I guess, I want to repeat that. We think we've got the infrastructure needed to support growth, and we made investments to do so. And notwithstanding that, we continued to look for additional opportunities to cut costs and improve our efficiency.

Before I turn it back over to Mike, let me talk about 2 of the items -- Mike talked on -- talked about Textura, which is great news. We also have -- took advantage of what was going on in the market to terminate 2 FHLB forward contracts that we entered into 1.5 years ago. We were set to take approximately $250 million -- about $250 million, beginning in May and September of next year at an average rate of approximately 2%. We entered into these contracts only for a couple of reasons. The general consensus in the market was that rates were going to go up and continue to go up through 2013 -- late 2013 and 2014. And we thought to lock up the money for that at a good price. And also, we anticipate we need the funding for loan growth.

Since those contracts were entered into, a couple of things have happened. We did see rates rise. They rose, primarily, in the first quarter -- the second quarter of this year. They've stabilized. They went up in this third quarter and came back down, but they rose. But this general consensus is now that rates are pretty much topped out. And we won't see these rates rise further until later on in 2014. And in fact, we could do the same deal now today at the same rate, so we sought to give that up.

At the same time, you may recall, we had, as far as funding is concerned, we picked up some very cheap FDIC deposits last year. Actually, we entered into this contract, and we generated $90 million worth of cash on a bulk sale from last year on nonperforming assets that we turned around and funded, marks our tremendous loan growth. So the timing was right, and it seemed that we took this opportunity to generate a $7.8 million gain on that contract. And once again, we could enter into that contract today at this very same rate.

Let me talk about BOLI for a second. As Mike mentioned, the action was taken to give us the flexibility to move approximately $100 million of assets from a money market account to a longer-duration, higher-yielding asset as interest rates rise. Our insurer over the last couple of years has adjusted our crediting rate downward for the dividends between the market value and cash surrender value, which has put a tremendous drag on these earnings, particularly, since they are invested in money market.

By voluntarily adjusting our cash surrender value down by $13.3 million, we no longer have this drag, and we'll have the flexibility to reinvest these assets, as I said, in longer-duration, higher-yielding assets that should generate, we think, when we think the market's right to invest, approximately $2 million additional fee income next year after tax. So that's really, the net of what we try to do with those two transactions.

With that, let me turn it back over to Mike.

Michael L. Scudder

Thanks, Paul. So some big closing remarks here before we open it up for questions.

I think as you look at our performance for this quarter and contrast it to a year ago, it's worth noting or marking that, that's the period of time transpires since we took credit some significant aggressive steps to improve our problem asset levels. So from my perspective, the promises that we made when we indicated that was the right course of action for us and the steps that we took, we've delivered that.

Our business is gaining momentum. Our core earnings are significantly stronger. Our capital has been replenished, not just to the levels they're at, but still at very strong, robust levels, and also at the levels higher than they were a year ago. And our deposit foundation, which I think is going to grow in value, or the value of deposits, generally, are to grow over time, remains very strong. So we feel we’re very well positioned to continue to grow, strengthen our business, and by extension, strengthen our shareholder returns.

So with that, I'll be happy to open it up if there are any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Emlen Harmon with Jefferies.

Emlen B. Harmon - Jefferies LLC, Research Division

So I was hoping to hit on just the credit outlook, to start with. A good progress on charge-offs this quarter. Mark, you indicated you should be at the bottom of your guided range for the second half of the year. Kind of, what's the outlook as we look into next year for charge-offs? Do you think that there is potential for additional progress? And maybe how are you thinking about, kind of a more normal level of charge-offs as we get into next year?

Mark G. Sander

We certainly think there is room for additional progress and expect to make a quarterly -- with the caveat that we've always thrown out there, which we believe of course, is it's lumpy. It could be lumpy and bumpy along the way. But we certainly see progress that we can make with specific credits that are in our book right now. And while we'll be at the lower end of our range, as I said, first for 2013. We, certainly, we expect, a lower range in 2014. We're a little hesitant to put a number on that right now, Emlen, but 60 to 80 basis points is not the long-term, charge-off range that we would expect for the company, and certainly, we expect it to be lower in 2014.

Emlen B. Harmon - Jefferies LLC, Research Division

Got it. Okay, thanks. And then, I was hoping to hit on just benefits expenses this quarter. After backing out the deferred compensation adjustment that hits over quarter here. You're still up a little bit quarter-over-quarter. Just kind of curious if that's investment in teams, if that's variable comp related. Just kind of what's driving the tick up there and what the outlook is going forward.

Paul F. Clemens

Emlen, this is Paul. It's a little bit of variable comp, and it's a little bit of just an adjustment. We had a nice adjustment in our -- one of our benefit plans last quarter. We have a couple of hundred thousand dollars, but it didn't recur. So I think it'll sell down. And I don't think you'll see any more real change in the selling benefit line for the fourth quarter.

Emlen B. Harmon - Jefferies LLC, Research Division

Got it. Okay, thanks. And then, just one little last quick one. On mortgage banking, I didn't notice the effect of the MSR. I didn't notice in your press release. Could you guys just quantify that for me?

Mark G. Sander

So it was -- quarter-over-quarter, it was about $0.25 million, change in valuation. So our fee income from sales was right about -- almost exactly about $1 million, which is similar to what we posted in Q2. Gain on -- the actual proceeds from sales.

Operator

Our next question comes from Terry McEvoy with Oppenheimer.

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

Mike, you got to feel happy about having charge-offs below 50 basis points. I -- and I apologize, I got on the call a little bit late. In the press release, you talked about better positioning for higher rates and some of the actions taken in the third quarter. Can you quantify at all, what's behind that statement in terms of being more asset sensitive? And when you talk about higher rates, is it the short end of the curve or the long end of the curve that you're now better positioned for?

Michael L. Scudder

Frankly, it's a little bit of both. We've got a couple of activities that we undertook, first among those was the volume of loans that we originated, certainly, over the second or third quarter has had a higher percentage of those floating rate, so that positions us even more strongly as we think about the short end of the curve starting to rise. What Paul alluded to earlier in his earlier comments on the adjustment that was made with the bank-owned life insurance, affords us the opportunity to retake those rates -- or excuse me, those proceeds or those underlying investments and put those out and reinvest them at the longer end of the curve, so we can benefit on both sides. So that's what I'm talking about generally.

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

Okay. And then, just a downward repricing on new and renewed loans. Is there less of an impact now or going forward on the downward repricing relative to total loan yields. And will -- are we close to hitting that inflection point, where there's some sort of parity between the 2?

Mark G. Sander

Well, I would say that we certainly sacrificed a little bit of yield, as we -- in the short term when we do more floating than fixed. Our fixed spreads are slightly higher than our floating spreads. So we're sacrificing a little bit in the short term. We think it's the right long-term decision. And again, some of that sacrifice is offset by the swap income, because our clients are still, as you had hoped, in this environment, have a preference for fixing their weights, and so you can pick it up, some of that sacrifices, I say, in the swap income. And that's what you saw this quarter. So now are we at the end of that -- are we at the inflection point? That's a great question. That's the proverbial. If I could predict rates, what would I be doing? But to try to answer your question, because I can't, Terry. I think, now there certainly is -- continues to be pricing pressure in the marketplace. And so as much as we're -- I think we're holding the line quite well, it's hard for me to say that we're at the tipping point to where that's going to turn, I guess.

Michael L. Scudder

Yes, I think I would add to that. I think what we would say is that we continue to see pressure going forward. The pace of that pressure, the level of that may start to moderate here as time passes. It certainly will moderate as time passes.

Operator

[Operator Instructions] Our next question comes from Chris McGratty with KBW.

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

Paul, on your -- I just want to make sure that I got the BOLI comment correct. You said there's going to be an additional $2 million to the bottom line from the actions taken, so buy back into -- that is just -- given you use to be running like $300,000. It's like a million dollars a quarter in terms of fee income contributions? Is that about right?

Paul F. Clemens

Yes. Well, I mean, it was running $300,000, then you'll just add $2 million to that.

Michael L. Scudder

Yes, let me also offer some clarification. We haven't made the redeployment decision yet.

Paul F. Clemens

Right.

Michael L. Scudder

So at that point where we do. I think, what Paul was suggesting is when we elect to do that, you would see that go out on the longer end of the curve, so depending on the timing, those -- the underlying investments that make those up are yielding about -- or yielding say, 15 basis points. And those have a drag then from the cost of credit insurance. But, incrementally, wherever we would invest that out on the curve, you would simply take that incremental increase from that level and use that against the $85 million or $95 million for the BOLI that we've got out there. But we haven't made that investment as of yet.

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

Yes, but the $2 million is an after-tax number. That's what I was getting at.

Paul F. Clemens

Correct. That's correct.

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

Your comments about NIM, next quarter going up, Paul or Mark. Can you speak to the ability next year on margin and in growth? How should we be thinking about, I guess, the size of the investment portfolio restructured a little bit this quarter and the ability to, I guess, generate positive NI growth next year?

Paul F. Clemens

Well, let me take a part of that, if that's okay, Mark. You asked us a couple of questions. First of all, let me talk about the investment portfolio. What we've done over the last quarter and probably will look to do for the time being, we'll allow some of our investment portfolio to go to cash when they mature, investment short term and fund the loan growth that we anticipate. That's earning -- right now, they're earning a little bit above or below 1%, depending on what's coming off. It’s coming from our CMO portfolio, primarily, of about $15 million of cash per month that's freed up. And so we'll provide that -- and so we can turn around and invest that at 4.5% or something, that's a pretty good deal. We'll also -- I don't see our investment portfolio growing because of that. We may -- that doesn't say we may not choose to do so, because it'll be an effective way that -- well, to the extent we can attract additional deposits. We may choose to hold the investment portfolio. We'll see what happens. That's a play that will make from our ALCO discussions. As far as the loans, what was your question on the loans?

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

I was just asking about net interest income next year?

Paul F. Clemens

Oh, okay. Well, we -- let me put it this way. We certainly expect pressure to continue on pricing. But just as we did this year, we expect to outrun the pricing pressure with loan growth and redeployment from our lower-earning overnight fund. We still have, today, $600 million of those assets. Some of those will play down obviously, from municipal customers over the next quarter. But we'll still have several hundred million dollars that we can redeploy. And then as Mike mentioned, we think that deposits are still where people need to go to get their best return, so we'll continue the search to get the deposits in here.

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

One on M&A, Mike. Tier 1 capital, Tie 1 common. Got a nice boost, you got some of the DTA back. Can you talk about capital targets longer term, and whether you guys think acquisitions are going to be a part of the strategy going forward?

Michael L. Scudder

Well, I think acquisitions will be a part of our strategy. That's -- sometimes we talk about it in the context of credit. It's true in the M&A world as well. That world is not linear, it doesn't flow. And we have and from my perspective a significant amount of capital. We have the ability to deploy that in a number of ways. We do -- we look to do that with what's in the best interest of our shareholders and generates a higher return. I think acquisition opportunities are going to be out there. And I think we're a very compelling partner as institutions consider that option. So I think that is a available use of capital for us.

Operator

Our next question comes from Brad Milsaps with Sandler O'Neill.

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

Paul, just a follow-up on the expenses. Looks like you guys are down, maybe about 125 employees year-over-year, 7 branches. Then maybe, close to 28 employees from the second quarter. Anymore of that to come? And do you expect, any further leverage from all the moves you guys have made there in tightening down your operating structure?

Michael L. Scudder

Brad, this is Mike, I'll add a little bit of it, just as you go to the infrastructure for how our resources are deployed. I think as Mark alluded to, and perhaps Paul did in some of their comments, there's always pockets of opportunities that relates to efficiency within our company. We've taken advantage of, and I think we've pursued what I would call, the easier of those choices as you move through them and then done the -- effectively done about as much as we can within our programs from a resource standpoint other than to go through and leverage what we have to continue to grow. And the ability to further leverage technology within our platforms, generally. But I think those opportunities is really where we'll see progress come forward, and those are harder to execute on that. The low-hanging fruit is really been taken. Away from that, we continue, as I've shared on a number of cases, to look at our overall means of lowering our occupancy cost without influencing per se the resources that we have, but just in terms of the overall operational costs there. And we'll continue to focus on that.

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

I guess, more specifically on the personnel piece of it. The FTEs are down, but your personnel costs are still up about 5% over year. -- year-over-year. Does that more reflect kind of a mixed change between maybe more frontline revenue producers. Just kind of curious, trying to figure out going forward.

Michael L. Scudder

That's exactly what -- that's what it exactly represents, Brad. That's a mix change in terms of where the resources are deployed and the nature and the skillsets of [indiscernible].

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

Okay. And then just a...

Michael L. Scudder

I'm sorry, Brad. One other thing I would add. Depending on where you're looking, that also reflects the shift toward, in some cases, more commission-based folks, certainly, within Wealth Management and other aspects of what we do.

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

Okay. And then, just a bigger picture question, it looks like the decision to terminate those Federal Home Loan Bank advances was a good trade. But just kind of thinking back at the time when you put those in place. You were sitting at an 80% loan to deposit ratio, roughly. You're basically there again today. Just kind of curious, obviously, you had some expectations for some really strong loan growth thinking you would need those. Were you thinking that -- would there be additional deposits for the bank? Or is it more your view that we don't want to take that loan deposit ratio much above kind of that 80% level?

Michael L. Scudder

No, I'd be candid with you. It was really a combination of opportunities that became available. We saw the opportunity to execute on this particular action. We felt the market had put us in a position where if we wanted to, essentially, do it again, we could. But away from that, we also felt that the interest rate risk element and benefit of that, we could actually more effectively achieve through the bank-owned life insurance modification as well. So we were kind of monitoring both of those circumstances collectively. And then as Paul alluded to, we actually had an inflow of cash in between in terms of the fact that we had the bulk loan sale last year that gave us roughly another $100 million worth of excess cash.

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

Right. I was, guess, more saying, at the time, is -- was it -- is it sort of your view, going forward, that you're comfortable at this level and you wouldn't want to take it materially higher in terms of the loan deposit ratio?

Michael L. Scudder

Oh no, I think we have the ability to take it higher towards that. No, I don't -- I wouldn't say that the level of where we're at is a floor. I think we have the capacity to continue to grow it.

Operator

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

Michael L. Scudder

Okay. Thank you. With that, I would simply take this opportunity to thank you for joining us today. Thank you for your interest in First Midwest Bancorp, and wish everyone a great day.

Operator

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

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