Q1 2021 First Midwest Bancorp Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the first Midwest Bancorp 2021 first quarter earnings Conference call. Following the close of the market yesterday first Midwest released its earnings results for the first quarter of 2021 and issued presentation materials that will be referred to during the call today.
During the course of the discussion management's comments and the presentation materials may include forward looking statements and non-GAAP financial information. The company refers you to the forward looking statement non-GAAP and other legends, including included in its earnings release and presentation materials, which should be considered for the call today.
Call's being recorded and all participants are in a listen only mode. Following the presentations by Mike Scudder, Chairman and Chief Executive Officer, Mark Sander, President and Chief operating Officer, and Pat Barrett Executive Vice President and Chief Financial Officer, the call will be opened for questions and answers for analysts only.
Now I'll turn the call over to Mr. Scudder.
Great. Thank you good morning, everybody.
<unk> again for joining us today, it's great to be with.
I Hope this line everyone on the card family is doing well Danielle D is ready to rock and roll as we go into 2021.
Well, let me start with some perspective on the quarter, you really had a pretty solid start for the year overall performance improvement.
C nicely as the economy continues to gain traction here.
Operating performance certainly benefited from stronger production this quarter from our fee businesses, which has frankly been.
Ongoing for some time now and a continued focus on our end of managing our costs.
Unfortunately in the world today quarterly comparisons to a large degree a.
Get distorted distorted, particularly in the first quarter of the year by normal seasonality, but also the impact and the magnitude of just go up what's going on with the various stimulus stimulus programs and how those are impacting liquidity and transactional volume. So I'll leave that for Mark and Pat to help you walk through some of those nuances.
Poorly underneath all of that our underlying business momentum is strengthening as both production volume and sales pipelines normalized.
And as we see operating and credit conditions continue to improve.
So quickly here's a walk through of the highlights EPS came in at 36 cents, that's up about 9% and 100% from the fourth and first quarters of last year, respectively. If you'll allow for adjustments EPS was 37 six.
Six cents of that dropped from the fourth quarter was mostly due to the timing of PPP revenue.
Which was also partly offset by some of the lower provisioning for credit losses, obviously, if you are.
Kind of comparing year over year, the increase and the improvement this year largely reflects the initial increase in provisioning that we saw responsive to the pandemic.
So as I said in my earlier remarks fee based revenues were up 5% and 17% from the force fourth and first quarters from 2020 and Mark can expand on this we saw a record wealth management and mortgage banking income again this quarter noninterest expense adjusted was only up.
<unk>, 2% from last quarter, and when you think about the typical inflation that you see in the first quarter as well as the fact that it was a heavy snow year here across our markets.
We feel pretty good about that so we continue to closely control our costs and obviously a line that with the company's growth.
Net interest income was $141 million net margin was 3.03% with the change from the fourth quarter largely exaggerated by lower PPP loan income.
And the elevated level of liquidity that's out there in the typical normal fewer days commentary that you see this time of year.
Total loans were up almost 3% annualized from year end.
And Mark can speak to this in greater depth I think it's they were up over 3% anyway. It was almost 4%, we'll see pipelines returning to pre pandemic levels.
Which is important for us and he can expand on that as I said earlier credit conditions are also improving and as they do so our credit and capital reserves remain robust as the economy continues to gain traction here.
Our allowances at 173% of total loans.
If you exclude PPP as a part of that which is basically in line down a little bit from where it was the prior quarter.
And up from 162% a year ago, our net loan charge offs away from loans that we acquired were came in at $8 million, but about $4 million of that or more than half of it was related to.
Intellectual we made just to do a note sale and had incurred some losses and charges as part of that so we simply brought forward from activity there overall.
Overall that remains at a very very low historical levels non performing assets relative to loans stayed within normal ranges while loans classified.
We call those generally substandard or special mention dropped by almost 10% linked quarter and our loans past due 30 to 89 declined by 24% again on a linked quarter comparison.
Tier one capital grew to 11, 7%, that's about 200 basis points higher than a year ago and I would also note that as we announced we started a repurchase program back up again and again Pat can expand on that but we I think we've got about 715000 shares as a part of that we started last.
Quarter.
So with that let me turn it over to Mark and Pat and they can expand on some of the details as we walk through the day. Thanks, Mike and good morning, I'll start on slide three of our presentation loans increased $100 million again this quarter largely due to strong mortgage production the most.
<unk>, we had last year has continued thus far in 2021 with production of $400 million in Q1.
An additional loan growth has helped drive a strong fee income quarter, as well, which we'll cover in more detail here shortly.
Mortgage business remains robust and given the improving outlook for consumer credit more generally we expect to see similar steady increases in consumer loans. The rest of this year.
Commercial loan production continued its upward trend this quarter up 10% from Q4, largely driven by our specialty businesses.
Pay off activity remained flat.
Fairly robust levels, though resulted in a relatively flat quarter for corporate loans.
The excess liquidity our clients continue to maintain somewhat masks masks the overall strengthening economic outlook.
We see in the expectations of our clients have for growth in their businesses.
Thus, our overall outlook for commercial growth is favorable despite the pressures.
As Michael alluded to we are encouraged that our commercial pipeline continued to grow nicely. This quarter now at pre pandemic levels for the first time and as a result, we anticipate net growth in commercial loans on a quarterly basis going forward.
Our outlook in total then for loan growth away from PPP is thus unchanged at mid single digits for the full year.
As the PPP loans for a second we have a full page on this in the appendix for now just to summarize briefly we ended the quarter with about $1 1 billion of outstanding loans comprised of half of our first round program that are still in the process of forgiveness and about $525 million from the 2021 program.
We were certainly pleased to be able to help our clients yet again at a high level this year.
We believe most of the balances here will be forgiven and repaid before year end, which Pat will detail in his margin discussion in a minute.
Looking deeper at the portfolio beginning on slide four our story relative to the higher risk elements remains very similar similar to last quarter with flat overall balances and generally improving trends.
We continue to have a well diversified loan book broadly with very modest exposure to the industries most impacted by the pandemic.
At this point are payment deferrals across all clients are very low as the programs. We ran to help our clients accomplish their objectives and of course, the economy began to recover.
Slide five displays our consumer loan portfolio, our prime book dominated by 1% for residential.
We've discussed the highlighted unsecured installment segment several times over the last year suffice it to say, we remain very comfortable with our risk exposures in this relatively modest but nicely profitable category.
Looking at credit performance, then beginning on slide six we came in at or slightly better than our expectations as we started the year.
Credit began to move their way through the cycle at a greater pace in Q1, and we saw some nice progress, particularly in special mentioned loans from both pay offs as well as upgrades.
Non accrual loans as Mike said remained in line with historical averages.
Special mentioned in sub standard loans in total remain elevated from pre pandemic levels, but came down materially and our reserves to cover them are also elevated.
Charge offs as shown on slide seven we're at the low end of our guidance.
We expect the credit story to play out over the remainder of the year as we articulated in January specifically charge offs will likely increase from here and may fluctuate from quarter to quarter, but we'll stay within our 25% to 40 basis point range for the full year.
We remain very well reserved to fully absorb any charge offs and thus we would expect to bring the allowance down as a credit migration plays out this year index.
Turning to deposits on slide nine.
Funding of course remains a core strength of our franchise with.
With the industry flush with liquidity our historical comparative cost advantage is more muted now, but it's still there.
Our cost of deposits came down a little further in the quarter to nine basis points levels last seen following the financial crisis importantly, we have plenty of dry powder and funding sources to take advantage of market opportunities. So Pat will pick it up from here.
Thanks, Mark good morning to everyone on the call turning to net interest income and margin on slide 10.
Net interest income decreased 5% compared to the prior quarter, 2% from the same period in 2020.
Inc decreased linked quarter was driven by approximately $6 million and lower PPP paycheck to paycheck protection program.
Come and fewer days in the quarter, partly offset by loan growth and lower cost of funds.
PPP loans forgiven in the quarter decreased from approximately $400 million in the prior quarter to approximately $200 million in the current quarter driving the decline in income.
Compared to the prior year the decrease in NII was due to lower rates, partly offset by growth in loans PPP income and the park Bank acquisition.
Acquired loan accretion of approximately $7 million was stable compared to both prior periods.
Accretion in the first quarter was higher than anticipated due to favorable resolution of certain acquired loans.
Continuing on the same slide with net interest margin.
Tax equivalent NIM for the current quarter of three 3% was down 11 basis points linked quarter, primarily as a result of PPP loan forgiveness.
51 basis points from the same period a year ago.
Excluding accretion margin was 288% for the quarter down 10 basis points linked quarter, and 49 basis points from the prior year.
Compared to a year ago net interest margin compression was primarily driven by the impact of lower rates on loan and securities yields as well as the impact of higher customer liquidity, partially offset by lower cost of funds loan growth and higher income from PPP loans.
Our outlook for 2021, NII is relative stability with core NIM, excluding the impact of accretion and Pvp approximating 3% for the full year.
Accretion is expected to be approximately $18 million for the full year with $11 million expected over the remaining three quarters of 2021.
Aggregate PPP net interest income is expected to approximate $30 million for the full year with $21 million coming into the remaining three quarters roughly evenly by quarter.
Note that the exact timing and amounts are completely dependent upon the sba's process for forgiveness of these loans.
Turning to noninterest income on slide 11.
We continued to see solid recovery in overall growth across virtually all of our fee income streams.
Fees in total were up 5% linked quarter and 17% versus a year ago.
Mortgage income of $10 million was a record of 11% linked quarter and over 400% from a year ago.
And continued strong production levels.
And a modest increase in the value of our mortgage servicing rights rates sorry rights.
We also posted a record quarter in wealth management up 4% from Q4, and 15% from a year ago, reflecting robust markets combined with strong sales production and client retention.
Card income was relatively flat linked quarter, but up 15% from a year ago reflective of normalizing transaction volumes.
Capital markets income rose linked quarter as loan pipelines continued to strengthen.
However, these levels remained down from the very elevated levels, we saw a year ago.
These various product strengths were partially offset by normal seasonal declines in service charges combined with the impact of ongoing elevated levels high levels of customer liquidity.
In total given our strong first quarter results were modestly revising our guidance upward to expect high single digit to low double digit growth in noninterest income for the full year.
I'd emphasize the quarterly total non interest income is expected to be modestly lower for the remainder of the year is record first quarter mortgage revenues are expected to moderate.
Moving on to expenses on slide 12.
Note that the current quarter includes $2 million of costs associated with our retail optimization strategy, we announced in the third quarter of last year, which was fully completed this quarter as well as the final insignificant residual amount of acquisition and integration expenses from the <unk> acquisition.
Away from these items total expenses were up 2% linked quarter and 4% from the same quarter a year ago.
Compared to the prior quarter, the seasonal impact of merit increases payroll tax timing.
And weather related costs snow removal.
In addition to modest valuation costs on equity compensation loan mitigation costs contributed to the increase.
All of these were largely offset by the benefits of lower expenses associated with our branch optimizations.
Compared to a year ago higher operating costs reflected growth due to the park Bank acquisition.
Higher compensation accruals foreclosed asset valuation tossed in mortgage commissions combined with continued investments in technology.
Continue to focus on our expense run rate and while our efficiency ratio has ticked up during the quarter overall annualized expenses as a percentage of average assets away from PPP loans was approximately two 4% down modestly from a year ago.
Our outlook for 2021 remains unchanged relatively stable total expenses for the full year compared to the full year of 2020.
Away from approximately $6 million of additional loan servicing costs associated with the larger portfolio.
Another way of saying that would be expenses are expected to be up modestly or low single digits.
As to timing.
You should expect relatively stable levels in the second quarter, followed by gradual declines in the second half of the year reflective of the benefits of ongoing process efficiency efforts.
Last note on taxes before I leave this slide our effective tax rate for the quarter was 27, 8% compared to our normal 25% both prior periods.
<unk> of additional current quarter expense associated with equity compensation vesting flow as the impact of lower interest rates on our tax exempt income.
We continue to guide to a more normalized 25% effective tax rate for the remainder of the year, but with the potential for some ongoing volatility.
Moving to capital Slide 13.
Capital levels continue to be strong, reflecting earnings growth and the volume and mix of risk weighted assets.
These levels along with our quarterly earnings contribution continued to support our quarterly dividend of <unk> 14 per share.
In addition, during the quarter as Mike mentioned, we did announce the resumption of our two year stock repurchase program that was suspended a year ago at the onset of the pandemic and.
And repurchased 715000 shares at a cost of around $15 million.
Consistent with our usual practice, which summarizes our outlook for the year on slide 14, which is largely unchanged from the prior quarter.
I would emphasize that our commentary on outlook. This quarter is dependent on the persistence and impact of the pandemic customer behaviors and the ongoing impact of the government stimulus activities.
We also concluded for convenience for summary of financial results for the quarter and year on slide 16.
Mike back over to you Greg.
Thanks for that just a couple of quick remarks before we open it up for collection.
We talk about this all the time you talk about recovery in the world. It doesn't always move in a linear fashion I will tell you where we stand today, we like where we stand as recovery continues to build and as I said gains traction.
And then just a couple of points to emphasize before we open up our balance sheet is extremely strong we have tremendous liquidity, our credit is stable and improving and our reserves are robust.
So as conditions improve.
And continue to improve our capital just gives us a lot of flexibility to take advantage of the opportunities that are in from it.
Volumes are recovering our core deposit base remains a undervalued strength that will differentiate we believe as rates move higher and we like our sensitivity positioning there.
And as I said revenues will rebuild over the course of the years since fully opened back up so as we said before our pipelines, which are back to pre pandemic levels will ultimately see those convert to stronger footing.
From an efficiency and an optimization standpoint and activities.
Efforts are also continuing to move forward and as always for those are weighted to our clients are choosing to use us and how we can continue to deliver superior service experience for those clients.
And then lastly, not to be under weighted as well as we have just have a great culture, a great place to work.
The opportunity for us to add talent and teams to help drive that is something that we're actively looking for at all times, both in our existing markets and the target markets, where we'd like to grow. So again, we're very excited about where we stand so with that let's open it up for your questions.
Thank you Sir a question and answer session will begin at this time.
We are using a speakerphone please pick up the handset before pressing any numbers. If you have a question. Please press Star then one on your telephone.
You wish to withdraw your question. Please press Star then tier.
For your questions will be taken in the order received please standby for your first question Sir.
The first question comes from Chris Mcgratty with <unk> definitely <unk>. Please state your question.
Hey, good morning, Mike.
Morning.
Pat maybe a question a question for you.
Yes.
The liquidity build that the industry is seeing is nothing short of amazing.
And various banks have had different strategies of deploying the excess cash.
We're doing it in the investment portfolio.
Line mortgages on our warehouses I'm interested in kind of your kind of.
Thought process.
Process around just sopping up the excess liquidity, but also kind of managing the rate profile of the company.
Sure sure.
Surprise surprise, our margin and liquidity question.
So yes, we are facing the same challenges.
<unk> will recall that over the years, we've had a pretty good discipline about thinking of alternative investments to our securities book, which is largely agency paper with underlying mortgage assets.
And so we very much think of whole loans mortgages as an alternative investment and if we have purchased loans.
<unk> over the years.
So that continues to be I think that we evaluate a lot of it depends on the availability of supply.
Credit quality and importantly, the price so we won't overpay for something like that but as long as we can get a spread on mortgage pools, that's at least 50 or 75 basis points better than a similar duration of Securities Agency paper.
After adjusting for expected credit costs.
Then we would like that trade and we've continued to use that.
The flip side of that is when you pay a premium for anything that you buy.
Refinancing occurs.
You will have an offsetting headwind to net interest margin because of that premium will come shooting back in as a negative so we've experienced some of that as well.
Net net we kind of like the trade off.
Okay.
Okay.
Maybe maybe in terms of.
A capital question.
You started the buyback again I'm interested kind of.
Based on current levels of the stock similar pace and maybe a comment about inorganic growth.
So I'll take the capital and share repurchase just remind everyone that we.
Initiated two year program $200 million and total.
Last year at the beginning of the year, which was really designed to programmatically just consume the excess earnings that we expect it to create each quarter.
Over and above the needs for dividend and debt service, so call it $20 million ish, a quarter and that's only in the absence of more robust growth opportunities or other capital deployment opportunities like M&A et cetera.
We suspended it as soon as the crisis hit as all of the larger banks.
And have kept that in suspension untapped for a year.
And so we're simply resuming that with the exact same philosophy, it's really only designed in the absence of better capital deployment priorities.
To keep our capital levels from increasing further going forward.
So I wouldn't expect that to be anything more than that kind of quarterly run rate of around $20 million and we're going to evaluate it every quarter.
Yes. Your last part of your question was something else did you say something about the inorganic growth, yes, just to comment about what youre seeing in terms of M&A.
Maybe a question for Mike.
Yes.
For you to answer the question I wish I.
I was telling somebody earlier today Christmas I think this is my 76th consecutive earnings call as I go through I think I've answered the M&A question.
76.
Yes, the environment remains theres a lot of dialogue Theres a lot of challenges that are out there and I think consolidation in this space is likely to continue.
To the extent that we see those opportunities that align with strategically.
Where we want to go and what we think is from the best interest of the franchise from the shareholders we will certainly.
Look to take advantage of those but there is always a bid at spread as you go through that Youre, managing but I would suggest at least the dialogue around that would seem to be growing as confidence in the economy and the outlook continues to grow along with it.
And just to add to Pat's question I think we're always interested in how to deploy our capital for those efforts and actions that generate the greatest long term shareholder value for us so to the extent, we can find those opportunities.
All things being equal we'll prioritize those.
Great and just one point of clarification Pat.
The noninterest income guide was there any was there an MSR markup in the quarter and if so is that included.
There was it was a little over 1 million Bucks that brings our assets maybe $7 million, it's pretty modest.
Got it awesome. Thank you.
Gross.
The next question will be from Terry Mcevoy of Stephens.
Good morning, everyone.
Gary maybe a question for Mark could you just remind us the specialty businesses that you highlighted that were behind the growth just expand on on those businesses and maybe if you have some comments on commercial pipelines overall at the end of the first quarter versus where you started the year.
Sure sure that our specialty businesses that give us outsized growth for a couple of years quarter to quarter it might be one versus another or certainly health care would be the <unk>.
Primary driver, but structured finance asset based lending leasing is where most of those those for business units are where most of the specialty growth is coming from with other specialties AG has been kind of flat. These last few years, but those are the ones that are HUD pipelines as I said return to pre pandemic levels.
I'm pleased that its more widely distributed than just specialty now that's where we saw the growth for specialties pipeline is maintained and the other business units are core business banking and middle market CRE markets also saw the pipelines increase last couple of quarters, but more significantly this quarter. So that was nice to see.
Thanks, Dan.
So why we think loans will grow mid single digits until sorry.
Alright, perfect. Thanks, Mark sorry to interrupt and then Pat maybe as a follow up just on the expenses. They came in above what we were modeling and you said theyre going to go up from here.
I guess just to push you a little bit I'm, having a tough time kind of getting to your full year guidance of stable on an adjusted basis and I guess to keep it stable do you need to identify further process efficiencies just to kind of quote your slide here or do you think you can get there without an additional round of.
Efficiency moves.
Yes. So so yeah, we were up $2 million linked quarter and expenses, which is one.
One 5% or so.
And I would call that fairly typical depending on how compensation shakes out with the first quarter, where we do see higher levels of expenses associated with payouts FICA taxes et cetera.
And Mike stole my Thunder, I've said, it before and I'll say it one more time snow removal.
Which doesn't seem like a big deal, but it's a 1% increase in our expenses when we have a lot of snow and you know we had less snow in February so.
Those were kind of the tick ups, we expect that to be pretty flat linked quarter and the second quarter, and then declined modestly back down to call. It Q4 of.
2020 levels by the time, we reach Q4.
Next year. So all of this is also in the face of about $6 million of higher servicing costs that we pay away to others. We don't service all of the loans that we purchase.
Which was.
The increase away from that I think expenses would have been up $2 million or half a percent for the year year on year.
Okay. Thanks.
Thanks, Pat I appreciate it.
Yep.
The next question comes from Nathan race of Piper Sandler.
Yes.
Good morning.
Alright.
Going back to Terry's question on just the loan growth outlook Mark I appreciate the commercial pipeline is up nicely.
For Junior I guess, if you look at the.
More traditional C&I and CRE book.
Is the confidence that we're going to see gross in that segment of the portfolio stemming from some increased demand recently with existing clients or is it more so weighted towards share gains across Chicago. These days.
Yeah.
I would say a little bit of both Nate. Thank you for the question. It is.
Clients are.
Suddenly seeing the recovery and are optimistic about the growth in their businesses. So you're seeing some decent demand there, but we certainly expect to pick up market share in our core businesses of business banking middle market in CRE. So.
Yes, a little bit of both frankly.
And again just.
The level of activity the level of optimism and what and how it's translated into our pipeline. Just has me I think all of our businesses can grow in that.
3% to 6% range basically in specialty can grow a little bit more on that and I should clarify when I say, what health care, our health care is actually divided into four segments. So we have a <unk>.
Diversified book.
As we look for this growth.
Got it.
I would also just expand on that this is Pat sorry to interject that within CRE, there's a little bit of a mixed bag with particularly within the office retail industrial category, which is about 15% of our commercial loan book. So the growth that we anticipate from retail.
As.
Insignificant because thats not an area that we're looking to grow.
Spin offs and at a loft office also some kind of longer term concerns about the health and strength.
That over over the course of the next couple of years.
And some of them.
A little geographic as well so.
Got it okay. I appreciate that that's helpful. And then Pat just kind of thinking about the margin outlook ex PPP and accretion.
In terms of getting to that kind of 3% level.
Sure.
For the full year.
I imagine we're going to see some increase in net margin figure from I get to like a.
284 number ex PPP and accretion from the first quarter, So I imagine.
Number where we can see some expansion from just given.
Presumably a continued downgrade from excess liquidity levels that you guys continue to redeploy.
Curious book and loan growth increases does that kind of the rate dynamics to think about in terms of margin.
Marching up towards that 3% number.
Yes.
That's exactly right. It is kind of a slow steady grind upwards I mean, if you think about it just in terms of the numerator gross.
Our core revenues.
For $125 million in the fourth quarter of last year annualize that it's $500 million.
That number is probably going to grow by about <unk> <unk>.
$10 million by the time, we get to the fourth quarter of this year 135 million net annualized as to $5 40, and so there is an 8% numerator growth in core just from that and we also look to be able to deploy liquidity.
And something that doesn't crush our margin.
Hopefully, we'll continue to see higher yielding opportunities on the securities.
But we will continue to look for other other asset acquisitions loan acquisitions to help supplement.
Okay understood I appreciate all the color thanks, guys.
The next question is from Daniel Tamayo of Raymond James.
Hey, good morning, guys.
Maybe just one on the on the mortgage banking strength in the first quarter.
I know you talked about those those numbers likely coming down going forward, but.
Maybe if you could talk about the what the gain on sale margin was in the first quarter.
And what you're thinking going forward and then kind of just thoughts on the on the.
Refi versus purchase market.
For the rest of the year.
Sure so.
In the quarter, we were about two thirds refi and one third purchase so.
We keep forecast that's going to come down and yet the pipeline stay robust so somewhere along the line, yes, the refi has to come down.
But not seen evidence of that yet I guess I would say.
So we think.
Yes, so the mortgage market at least for the next quarter or so you don't have too much visibility past that is going to stay pretty robust.
Our margin in the first quarter was right at 3% thereabouts of what we sold.
And that same free.
Solid new sales as well coming out a little bit as the tenure has gone up.
Yeah.
Okay. Thanks, that's helpful. Marc and then.
I guess my last question you mentioned the acquisition integration charges should be essentially complete are you expecting anything in terms of optimization optimization charges for the rest of 2021.
No at this at this point, we're pretty much all banked on any costs or charges that relate to that for.
And in fact kind of ongoing.
Process efficiency a lot of that is.
<unk> has already been spent and we will continue to expect to see improvement in.
Processing times.
And speed.
<unk> testing across a number of different larger processes in the bank as we move through the year, but those are those will be modest and hard to call out because it will be very gradual.
Alright, that's all I had appreciate the color.
Thank you.
Ladies and gentlemen, as a reminder, please press star then one if you'd have a question.
The next question is from Michael Young of Trust Securities.
Hey, Thanks for taking the question.
We covered a lot of them on the margin and liquidity already but I was curious I think theres a lot more chatter about potential for inflation and rising rates.
So was curious if you guys have kind of discussed are taking many actions to prepare the balance sheet for that in advance or anything strategically within the underwriting.
We're taking action on now to prepare for that.
Yeah, maybe I'll take a crack at that Michael This is Pat.
So so.
We're hopeful that we will see rising rates and inflation. We wanted a few parts of the economy that actually benefit the most when that happens.
For our natural posture.
From an asset sensitivity for perspective puts us in a pretty good position.
We have to do is to stop periodically hedging floating rate loans and even as we've gone through this pretty significant decline.
In rates.
We've never dropped below $50 50 for floating versus fixed origination perspective.
And frankly, we gravitate towards a more normal 70, 30, and so for US just just stopping fixing those loans and trying to maintain neutrality on assets sensitivity.
It is pretty pretty easy thing to do and it does unlock.
Pretty decent upside for that having said all of that we are constantly looked at about how prudent we are and our risk management practices and so we have triggers and zones and we try and stay fairly much in the middle and not taken significant positions because we.
<unk> been wrong before and rates have failed to rise for years and years.
So.
So we're not going to be too aggressive and trying to position ourselves ahead.
What's the market things.
Okay and then similarly have you shortened maturity at all in terms of what Youre willing to underwrite to maybe in the commercial real estate space in particular.
We really haven't modified that Michael I would say it this way if anything the market pressures would be extending maturities candidly in that space and so were more weighted that then I've been looking at to shorten them right now.
Okay and then the last one just maybe on tax rate.
Any expectations now that it looks like this year will be better.
And then maybe last year and maybe what we had even expected with some reopening that that would move higher and any updated enel.
Analysis relative to sensitivities.
Tax rate.
Sure.
Well I wish we knew and we don't I think our bias is that generally there is more chance that ratings are going to be higher for <unk>.
Corporations and lower.
The sensitivity that we have would be roughly $1 5 million Bucks.
Tax expense for each incremental per quarter.
On each incremental percentage of increase.
So you can kind of do the math based on that I think I think if you compare our overall tax burden versus where we were before the rate cuts from 2017.
Our run rate is probably about 40, 35% lower.
And the conventional wisdom would say that rates may go up by about half of that so we may.
See higher taxes to the tune of about half of our run rates three or four years ago.
Okay. Thanks.
As a reminder, please press star then one if you have a question.
If there are no further questions I will now turn the call back over to Mr. Scudder for any closing remarks.
Thank you well before I close just once again.
It's always.
An opportunity I like to take advantage of because I know a number of our colleagues listen to our calls and that's to publicly acknowledge.
All of their hard work and all of their efforts.
Over the course of the year in the quarter, but that we live in this world that we're in today, it's their commitment for living who we are what our values are and what makes first Midwest, what I'd like to say special.
<unk> is really what drives our success. So I'm very proud on behalf of everybody want to make sure we acknowledge and thank them for doing the right things every day for our clients our communities and for each other so.
Would also go on to say and thank all of you for your interest and your attention to our story as we share our ongoing belief that first Midwest is a great investment.
Thank you very much have a great day every day.
Ladies and gentlemen, this concludes the conference for today. Thank you all for participating and have a nice day.
All parties may now disconnect.
[music].
Hmm.
Yeah.