First Midwest Bancorp's (FMBI) CEO Michael Scudder on Q1 2016 Results - Earnings Call Transcript

| About: First Midwest (FMBI)

First Midwest Bancorp, Inc. (NASDAQ:FMBI)

Q1 2016 Earnings Call

April 20, 2016 11:00 AM ET

Executives

Nicholas Chulos – Executive Vice President, Corporate Secretary and General Counsel

Michael Scudder – President and Chief Executive Officer

Mark Sander – Senior Executive Vice President and Chief Operating Officer

Paul Clemens – Executive Vice President and Chief Financial Officer

Analysts

Emlen Harmon – Jefferies

Christopher McGratty – KBW

Brad Milsaps – Sandler O'Neill

Terry McEvoy – Stephens

Kevin Reevey – DA Davidson

Operator

Good morning, ladies and gentlemen, and welcome to the First Midwest Bancorp's 2016 First Quarter Earnings Conference Call. At this time, I'd like to inform you that this conference is being recorded, and that all participants are in a listen-only mode. [Operator Instructions] At the request of the company, we will open the conference up for question-and-answers for analysts only after the presentation.

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

Nicholas Chulos

Good morning everyone and thank you for joining us today. Following the close of the market yesterday, we released our earnings results for the first quarter of this year. If you have not received a copy of this press release, it is available on our website or you may obtain it by calling us at 630-875-7463.

During the course of the discussion today, our comments may include forward-looking statements. These statements are not historical facts and are based on our current beliefs. Our comments also are subject to certain assumptions, risks and uncertainties and are not guarantees of future performance or outcomes. The risks, uncertainties and Safe Harbor information contained in our most recent 10-K and other filings with the SEC should be considered for our call today. Lastly, I would like to mention that we will not be updating any forward-looking statements following this call.

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

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

Michael Scudder

Thanks Nick. Good morning everyone. As always, thanks for joining us today. As is typically my practice, so it would be my intend to cover the highlights for the quarter, and then turn it over to Mark and Paul, who then can offer select additional color on the quarter's activities.

As we look at the quarter, it was really a very solid quarter for us on a number of key fronts. With our performance across business lines either right in line with or frankly exceeding our expectations. This performance combined with our mid-March close of our acquisition of National Bank and Trust of Sycamore as is off to a really a very strong start for 2016.

Earnings per share for the quarter was $0.23 per share, or $0.27 after you allow for the acquisition and integration costs related to our NB&T acquisition. Again, these expenses were largely in line with the expectations that we would have shared with you on our last quarter. Contrasted to this time last year, EPS of $0.27 represents an increase of about 4% year-over-year and it's typically the case, the linked quarter core EPS was down about a marginal amount largely due to the seasonality of the first quarter that comes with having fewer days in the quarter, and generally a softer start that we would typically see in our fee revenues to kick off the year.

As we think about the quarter, there is a number of highlights that as I said we'll service well as we progress through the year, that I want to emphasize. First, as I mentioned, we closed on NB&T in mid-March that further strengthened our presence in DeKalb County in the western portion of metro Chicago. It added about $600 million in deposits, $400 in loans to our balance sheet and an additional $700 million in assets under management to our wealth management business.

With a great team in place there in both operating and wealth management system conversions, behind us, we're very excited to move forward and grow our business in these markets. We think we've got some great opportunities there. Away from NB&T's contribution for the quarter, our legacy and lending teams also had a particularly strong quarter, largely led by growth in corporate lending, our total loans were up 3.7% since year-end, if you annualize that that's pushing 16% in annualized growth. So a very, very strong quarter out of those teams.

When combined with balance sheet expansion late in the fourth quarter, our period end or interest-earning assets increased about 10% from the fourth quarter. Now on average basis, they were up about 2.5%, and our margin improved by 7 basis points to 3.66%.

Because this growth was relatively balanced, weighted frankly more heavily to floating rather than fixed, our overall rate sensitivity really wasn't materially changed and continues to be very solid and in line with where we have been over the last several quarters.

So, we think we're pretty well positioned there, both from the standpoint of having expanded our balance sheet, but also in terms of retaining what we think is a very strong interest rate sensitivity.

As we have talked about it, we have consistently emphasized our drive to expand our and diversify our revenues. Away from margin, our fee-based revenue growth continues to highlight those efforts. Our fee sources were up 17% from the first quarter of 2015 with linked quarter comparisons influenced by the typical seasonality that comes with fewer days. So, as you look at that you'll often times see our fees down in different card categories you'll see various deposit service charge categories influenced both by the number of days and typical seasonality here.

So posting that strong linked quarter growth is really an outstanding effort over the course of the – over the course of the year to year. So, if you compare it to this time last year, our wealth management business weathered an extremely volatile start to the year with revenues almost up 8% versus a year ago. We expect the addition of NB&T to add some of 15% in additional revenue to this business, and further strengthen our position as the third largest among Illinois-based institutions in our markets. So, at the same time, investments in our equipment financing and derivative sales platforms continue to drive improved results. These businesses largely contributed to an additional $2.3 million in our other commission and fees items also versus a year ago.

Moving away from fees and revenue, credit was also in line with both non-performer and charge-off levels improved from last year. And allowing for today's historically low levels, and our growth year-over-year, we were generally in line on a metric basis with last quarter. As we suggested last quarter, higher comparative provisioning simply reflects the fact that we're growing our loans. So, it all positives and all boarding well for future revenue streams.

Finally, from a revenue contributions, revenue streams, finally from an expense standpoint, away from acquisition costs, our core operating efficiency remains consistent and reflective of today's operating environment. Our progress on the property initiatives, we announced in the last quarter, are right on track in terms of both the sale of targeted properties, as well as our newest – the opening of our newest locations in downtown Naperville and on LaSalle in downtown Chicago.

So, with that as a high level of backdrop, let me turn it over to Mark for some additional color on the business.

Mark Sander

Thanks, Mike. And as Mike highlighted, we had a strong quarter in all of our revenue-producing areas. Let me start with loans, our annualized organic growth of around 15% was led by commercial banking, most notably our commercial real estate and specialty businesses. This growth was entirely driven by in-market relationships and was in line with our existing portfolio mix.

Commercial real estate had a particularly strong quarter, as our slightly higher level of new loan production, which actually followed the several strong quarters was not offset by significant payoff is occurring through our most of 2015.

Our growth here was spread across office, retail, industrial and construction segments, with that latter category largely, centered on multi-family. This diversity in production is purposeful, as we look to maintain our existing credit profile across these various real estate sectors. Specialty growth was also generated from multiple areas, most notably healthcare, structured finance and equipment finance. Our investments in these segments over the last few years have provided measured growth in line with our expectations and we believe that we are still in the early innings of these efforts. We also saw a modest increase in our legacy C&I businesses in this very competitive landscape. We are holding to our risk tolerance and profile, so our diverse offerings elsewhere are crucial and allowing us to meet our growth objectives overall.

In retail banking, we also saw measured growth in our home equity and installment loan categories, as a result mostly of our increasing online activity, another trend we see continuing in the future. Given all of this, we remain comfortable with our full year loan growth guidance of mid to high single-digits. We believe production will remain at favorable levels, but we anticipate some volatility in certain segments the remainder of the year based on specific property sales and some refinance activity.

So turning to fee income. Results in Q1 were consistent with our strong history and guidance. As Mike highlighted, in total our fees grew $5 million from last year's first quarter or 17%, actually a little above our expectations. We saw continued solid growth in wealth management and card income of 4% to 5% organically year-over-year. Our mortgage business saw an improved run rate in accordance with our efforts to garner our fair share of in footprint business. And we had a terrific quarter in swap sales as well as continued gains from the sale of leases, which together resulted in a 150% increase in the other fee category.

We remain optimistic about fee income growth opportunities broadly across our businesses for several reasons. First, we saw a modest level of fees from our NB&T acquisition in Q1, given the timing of that closing. But we expect that to be more meaningful going forward. Our new colleagues have a very strong wealth business and we also anticipate expanding various other services to their solid core retail and commercial businesses. Across our legacy teams, we have delivered on growth objectives in wealth management, treasury management and cards for several years. Yet, we think there is room for further extensions to existing and new clients in all three of these areas. Lastly, our mortgage swaps and leasing income streams have outsized growth potential, albeit not linear quarter-to-quarter. As a result of all this, we still feel good about meeting or even exceeding our full year of fee growth guidance.

Turning to credit for a moment. Our Q1 results again overall were favorable to plan. As stated in the previous calls, we believe normalized charge-offs for us are in the range of 25 basis points to 40 basis points. And we have forecasted results in this range for the last several quarters. While charge-offs this quarter came in slightly better than guidance at 22 basis points. We continued to believe that full year levels will be in the lower half of that range. With NPAs at 90 basis points of loans and adverse performing credits at manageable levels, we feel confident in these forecasts.

So now Paul will walk us through some further income statement detail.

Paul Clemens

Okay. Thank you, Mark, and good morning, everyone. Let me cover net interest income, and expenses that I usually do. Net interest income was up $3.9 million or 5.1% from the first quarter a year ago, and $2.7 million or 3.5% from the linked quarter, which is in line with where we are -- our expectations a quarter ago.

The increases from the first and fourth quarters of last year were due to growth in average earnings assets of 7.1% and 2.5% respectively, led by an improved mix, as evidenced by the average loan growth that Mark talk about. In terms of average loan growth, we were up 9% year-over-year, and 4.7% from those same period. Plus we saw the benefit of the February, I'm sorry December. I wish February, December 2015 rate hike, these more than offset the $2.6 million comparative drop we saw in accretion from acquired and covered loans from the first quarter of 2015.

The linked quarter margin improvement of 7 basis points were right in line with our expectations and reflected the benefit once again of the fed's rate hike, as well as earning asset growth I just described. Compared to a year ago, the margin declined 13 basis points, substantially all due to the decline in loan accretion, otherwise the margin would have been essentially unchanged from a year-ago.

We continue to expect low to mid-double digit year-over-year growth and net interest income. Obviously, this is -- will depend on the pace and timing of future earning asset growth and interest rate movements.

As we look to the second quarter, we expect margin to be similar to the first quarter with the increase in linked quarter net interest income, commensurate with the increase in earning assets, which will be aided by the full quarters impact of NB&T, as well as the substantial loan growth that Mark alluded to, and the securities we had in the first quarter.

So, let me turn to non-interest expense for just a moment. First quarter expenses excluding the integration costs totaled $77.6 million, and stripping out the unusual cost from the fourth quarter, the increase was approximately 3% from the fourth quarter, largely reflecting the impact of annual salary increases. The normal seasonal increase and weather-related operating costs and in some level, the operating costs for the two banking centers acquired from the Peoples' transaction for a full quarter and the operating costs associated with the 10 former NB&T banking centers, as well as the commercial wealth management sales staff we brought on for the month of March.

Our efficiency ratio was steady at 64.8%, essentially unchanged from the prior period quarters. As we look forward, we expect expense for the second quarter to be largely in line with the first quarter plus approximately $3.5 million from the NB&T acquisition, obviously less the $5 million in the first quarter integration expenses and subject to perhaps some seasoning higher marketing spend. As another comment, we do not expect any further material integration costs related to NB&T.

And with that, let me turn it back over to Mike.

Michael Scudder

Okay. Thanks, Paul. Before we open up for questions, just some further remarks. As I look at the first quarter, we're off to a really good start for the year, execution across that quarter has really left us confident in our plan and confident in our positioning here as we go forward.

NB&T's integration has gone very well. We'll provide further leverage and by extensions going to add to our earnings momentum. Margins are solid. Our rate sensitivity is supported by an even stronger core deposit foundation that provides us, in my view with an operating advantage, few can enjoy as we navigate the course of future interest rates.

Our credit positioning remains strong with the expectations that we've shared previously for a relatively benign environment this year, but also recognizing reality that credit essentially is going to normalize. As such, we've talked about for the last couple of quarters, growth in our lending will continue to be prudently accompanied by the reserved provisions.

Most importantly our ability and willingness to invest in our infrastructure and our talent, really leaves us well-positioned to operate as a larger company and grow our business. And the ability to do that without sacrificing the focus on really what drives the value, and that's helping our clients be – achieve financial success.

So, I fully expect growth opportunities to be there, as Mark had shared before, first and foremost, driven by our ongoing investment in talent. And secondly, where it makes sense through lined consolidation opportunities that we would expect to see over the forward environment. And we have a longstanding philosophy and culture of client and community service, and really a business ethics that appeals to many – many of our peers as we operate in that environment.

Combined with the strength of our balance sheet and in our funding base, our investments and our infrastructure and as I shared most importantly in each team of colleagues, those are tremendous advantages as we go forward. With NB&T really on pace for successful execution, we're really excited about our future. We feel we're well-positioned to grow and continue to enhance shareholder return.

So with that, that would conclude my remarks. Now, let's open it up for questions.

Question-and-Answer Session

Operator

Thank you, sir. The question-and-answer session will begin at this time. [Operator Instructions] The first question comes from Emlen Harmon of Jefferies. Please go ahead.

Emlen Harmon

Hey, good morning, guys.

Michael Scudder

Good morning, Emlen.

Emlen Harmon

From your commentary, it sounds like the reserve build in the quarter was principally related to growth. I mean is that a – assuming that the loan growth stays on its current path, I mean, is it fair to assume you'll be adding a similar amount to the reserve going forward. And really just trying to get an idea for the direction of the provision from here?

Michael Scudder

The way, I'd look at it Emlen is consistent with Mark's guidance there. Generally charge-offs are going to flow within the range that he outlined. We think we'll be on the lower end there. I think our raw reserve levels plus or minus a few percentage points as those move through that are going to stay roughly and about the same level. So if you look at that combined with where the loan growth, we were guiding too or you can get a reasonable sense of where our positioning might ultimately run. I think this quarter was particularly strong in terms of loan growth, which then obviously came with it a greater level of provisioning is that loan, volume and growth would decelerate from really very strong levels today, you see some lessening of that as opposed to an increase, all things being equal. Hope that helps.

Emlen Harmon

That does help. Thank you. And then, what are you seeing in terms of market pricing on the loan spreads. Starting to see any easing there at all in your markets?

Mark Sander

Not really, Emlen, its Mark. They've held up pretty well over the last really several quarters. So our net margin and our new and renewed spreads over I'll say the last four quarters has been pretty stable quarter-to-quarter.

Emlen Harmon

Got it. All right. Thanks, guys.

Operator

Our next question is from Chris McGratty of KBW. Please go ahead.

Christopher McGratty

Hey. Good morning, everybody.

Michael Scudder

Hi, Chris.

Christopher McGratty

I just wanted to – I understand the guidance. If I'm taking the expenses, is the second quarter like an $81 million number, is that the way to kind of strip out the $5 million and then add $3.5 million?

Paul Clemens

Yeah. I would think it'd be 81% to 81.5% somewhere in there.

Christopher McGratty

Okay. And then, Paul, can you remind me the starting point for the expense guidance – I'm sorry, on the fee income guidance for the year?

Paul Clemens

When we say, starting point, so our fee income last year, Chris, were – total was a $127 million. We gave guidance previously that we would grow high single-digits off of that base. I would say, at this point, we think we'll meet or exceed that high single-digit number.

Christopher McGratty

Okay. So $127 million, the number to go with. Okay. Great.

Paul Clemens

Is the base. You got it.

Christopher McGratty

Yes. That's great. Maybe last question, given the timing of the close and kind of the growth commentary, how should we be thinking about just the absolute level of earning assets, whether there will be remixing going on between the bond and cash and the loans or should we see kind of earning asset growth track loan growth for the balance? Thanks.

Michael Scudder

I think the response there would probably, you'll see earning asset growth more closely parallel loan growth. Keep in mind and Paul certainly could add additional color to this, remember the seasonality that you see typically over the second quarter and third quarter that comes from municipal tax inflows. So excluding that, you would see earning asset growth largely track off the loan growth, as you've been through it.

Christopher McGratty

Okay.

Michael Scudder

But keep in mind as well, one of the things we're trying to highlight and then I would emphasize we closed the quarter with earning asset growth up about 10% period-end versus period-end, 2.5% was the average growth. So on average, you should see some not quite 10% earning asset growth, but some level slightly below that, that will drive second quarter growth.

Christopher McGratty

Got it. And then finally on the tax rate if I could. Thanks.

Michael Scudder

The tax rate really is I don't think it's going to change a whole lot in the second quarter from the first quarter, maybe go up slightly it was what at 32 and change is probably still right in that same range.

Christopher McGratty

Great. Okay. Thanks a lot.

Michael Scudder

Thanks, Chris.

Operator

Our next question is from Brad Milsaps of Sandler O'Neill. Please go ahead.

Brad Milsaps

Hey, good morning, guys.

Michael Scudder

Good morning, Brad.

Brad Milsaps

Hey, you've kind of addressed most everything. But I was just kind of curious on kind of bigger picture efficiency plans. You guys have sort of been kind of a mid to low 60%, you know mid-60 top efficiency ratio for a couple years. I know you've added a lot more fee income which just can't be less efficient. But you know as you've crossed $10 billion, you know kind of, do you have any larger scale, sort of your efficiency plans to maybe drive that number lower. Just trying to think about, you know how you can push the ROA here up above 1%. And obviously, you've got headwinds with the $10 billion that that you have to deal with. But just kind of curious kind of bigger picture plans as it relates to you know being more efficient?

Michael Scudder

Sure, sure. Well, fundamentally the efficiency that we have is by definition, the calculation of it is – is simply ratio of expense throughout [indiscernible]. It's like from our perspective, last quarter, we took on an initiative to grow and kind of optimize our operating base from an occupancy and channel standpoint. We think there'll be more opportunities there to drive further efficiency within that.

And then the other avenue that is continued expansion on the revenue side, away from higher interest rates, the investments that we've made, what Mark's referred to in the fee-based businesses, really start to kick in and contribute as we move through that. And we think there is some real opportunity there. So our efficiency as it stands at 64% to 65% as it is today. We think we can continue to drive down here over the course of the year, and certainly out into the future.

Mark Sander

And I would add was, as we talked about in the past Brad, the investments we've made in talent while we'll continue to selectively and opportunistically look, we've made a lot of investments over the last few years. So the leveraging of that talent and getting more out of it if you will, I think is still has a room to run here.

Michael Scudder

If I could really quickly, the question with tax figure was 32% unchanged in the first quarter, I think it will be roughly around 33% for the second quarter just to correct that.

Operator

[Operator Instructions] And our next question is from Terry McEvoy of Stephens. Please go ahead.

Terry McEvoy

Hi, good morning.

Michael Scudder

Good morning, Terry.

Terry McEvoy

Just a follow up on Brad's question. You finally crossed the $10 billion mark. As you think about the incremental expenses connected to that, are they in the current run rate or are there any expenses that you foresee showing up in the future quarters that will need to be highlighted?

Paul Clemens

No, I think for the most parts they are in our run rate and in the guidance, as we have out there. We've made investments in prior years as Mark alluded to in terms of talent and infrastructure here, we've made systems investments that are already reflected in our run rate. So, I don't anticipate a significant alteration from our guidance there as we go forward.

Terry McEvoy

And then as part of crossing $10 billion, you've done some acquisitions, could you just talk about the stickiness of customers on the loan side, the deposit side and maybe some of the trust customers that are hopefully being brought over with the most recent transaction?

Paul Clemens

So, our track record in customer retention and loans and deposits is very good and we've exceeded our plans there in our past acquisitions and we certainly expect to do that in NB&T as well. I think part of is it's just a good cultural fit with NB&T. So, as we've talked to colleagues and then obviously have been talking to clients actively prior and after close – just I think folks where they can feel good about the opportunities with First Midwest. We're looking to grow their business, it's is in the efficiency play. And so, I think we're expecting very high customer retention rates and early indications early. I would say that we're well on track.

Terry McEvoy

And then, maybe one last question for you, Mark. We've seen some really good fee income trends for the last few years. As you think about the business in 2016, where do you feel the most optimistic about solid results?

Mark Sander

Thank you for that. We feel good about a number of areas, wealth management, treasury management, we see measured growth in card and merchant. So, we see some good opportunities there as well, but I would say the largest would be in treasury management and wealth management. And then, leasing, leasing and sales of equipment finance paper has – we still have – we've good plan there in terms of what we think we can grow that business as we did last year.

Mortgages would be a sequential kind of an incredible build where we should have a bigger mortgage business than we have right now frankly. So, I don't think it will be overly robust, but I think you'll see favorable comparisons quarter-to-quarter there as well.

Terry McEvoy

Great. Thanks a lot.

Mark Sander

Great, thanks.

Operator

Our next question is from Kevin Reevey of DA Davidson. Please go ahead.

Kevin Reevey

Good morning.

Michael Scudder

Hi, Kevin.

Mark Sander

Hi, Kevin.

Kevin Reevey

I wanted to follow-up on Terry's question as far as now that you're over the $10 billion marked up looking at it from, I guess a fee income side and really on your -- I guess service charge income, can you talk a little bit about that?

Paul Clemens

So, service charge income incorporates the two largest drivers, there are NSF and treasury management are the two largest categories within that. We've been facing declines in our NSF income streams over the course of the last several years of 3%, 4% annually. We've grown our fees nicely in the face of that challenge because treasury management has more than offset that, treasury management largely to commercial clients and to our smaller business banking clients as well.

So, in total, that's a line item given the NSF, whilst I'd say that that shrinkage is lessening, it still is not a growing area, NSF and yet as I say, treasury management should be more than able to offset that.

Kevin Reevey

Okay. And then looking at your capital ratio, your capital ratio has obviously declined one quarter, kind of what are your plans going forward as far as managing the capital to grow that?

Paul Clemens

Well, we've talked fairly consistently and certainly NB&T and the acquisition there put some short-term decline in the capital metrics that we have, but we – as we've guided before, the higher earnings level and contribution that comes from NB&T actually sees that recover very quickly. So, that's not so much of a concern, it's just a reality that contribution will happen very quickly on that end.

As we look to go forward, we continue to run our capital plan as we have over the last several years. Our focus is continue to generate strong overall earnings, which is continuing to generate higher levels of capital. We've been focused on deployment of that capital through both our dividend, which has expanded here over the last several years. And then likewise through the focus of deploying that for organic growth and then to the extent that it makes sense, through what I would call prudent strategic pursuit of opportunities from an M&A standpoint. So...

Kevin Reevey

Last. Go ahead.

Paul Clemens

I was going to say, I'm sorry Kev, I was going to say we continue to talk about that regularly. I mean we discuss our capital plans and what our view is going forward every quarter, have active discussions with our shareholders about that as well.

Kevin Reevey

And then, lastly on the mortgage banking fees. How should we think about that volume, I know it was down every quarter now was too good seasonality – can you give us some color as far as mortgage pipeline, you see that rebounding next quarter and then in the third quarter?

Michael Scudder

Yeah, I would say, so again – not to pick on words but you think about rebounding. We actually year-over-year in the first quarter we're up about 50% in our mortgage business in terms of our closed loans. So, we again first quarter is a little bit softer in that business as well, you know January and February are not really great months in Chicago land, to be out looking for a house. And so, we expect to have nice growth year-over-year in the quarterly year-over-year comparison all the way throughout 2016.

Kevin Reevey

Okay. Thank you.

Michael Scudder

Thanks.

Operator

Our next question is a follow-up from Chris McGratty of KBW. Please go ahead.

Christopher McGratty

Hey, thanks for the follow-up. I just want to make sure I got the guidance right. Is the 127 mark that you are talking about for fee income. Is that – is that all in or is that – is that legacy plus [indiscernible] I guess what I'm asking is, is the run rate like 35 a quarter or is it 35 plus a deal?

Paul Clemens

So, when I talk about it, just to be clear, $127 million is our straight off of our 10-K fee-based revenues, not including other income categories that are in a total non-interest income. So, our fee-based revenues in 2015 were $127 million. When I give guidance, I try to incorporate, so when I gave that in mid-single digits, that growth guidance incorporated NB&T within it. Again, I think we'll meet or exceed that high single digits, but that high single digits was probably about half from acquisitions and half organic.

Christopher McGratty

Okay. Thank you.

Paul Clemens

That makes sense?

Christopher McGratty

Yeah.

Paul Clemens

Thanks.

Operator

Our next question is a follow-up from Kevin Reevey from DA Davidson. Please go ahead.

Kevin Reevey

Yeah. On the – I know ag, the ag portfolio is a small part of your overall loan portfolio. Have you been seeing any early warning signs as far as stress and what are your borrowers saying?

Michael Scudder

Yes, as expected we are and a good question. We're starting to see a little bit of stress, we're seeing a little bit of elevated risk. We're comfortable with those exposures and are actively monitoring it. Frankly, proactively we've been talking to our clients, as you'd expect. The farm industry had several great years, leading into this down part of the cycle. So, they're having a couple of tough years right now with where commodity prices are and so we've seen some elevated risk, but we feel really good about that book still.

Kevin Reevey

Okay. Thank you.

Operator

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

Michael Scudder

Great. Thank you. As always, thank you for joining us today. We thank you for your interest in First Midwest Bancorp, and have a great day everybody.

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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