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First Midwest Bancorp, Inc. Announces 2017 Fourth Quarter and Full Year Results

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ITASCA, Ill., Jan. 29, 2018 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ NGS:FMBI), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the fourth quarter and full year of 2017. Net income for the fourth quarter of 2017 was $2.3 million, or $0.02 per share, compared to $38.2 million, or $0.37 per share, for the third quarter of 2017, and $20.7 million, or $0.25 per share, for the fourth quarter of 2016. For the full year of 2017, the Company reported net income of $98.4 million, or $0.96 per share, compared to $92.3 million, or $1.14 per share, for the year ended December 31, 2016.

Reported results for the fourth quarter and the full year of 2017 were impacted by various actions taken by the Company in light of federal income tax reform legislation, which include: the revaluation of the Company's deferred tax assets (the "DTAs"), additional investments in the Company's colleagues and communities, and certain actions related to the securities portfolio. For additional detail on these adjustments, see the "Non-GAAP Financial Information" section presented later in this release.

Earnings per share, adjusted(1) was $0.34 for the fourth quarter of 2017 compared to $0.33 for the third quarter of 2017 and $0.32 for the fourth quarter of 2016. Earnings per share, adjusted(1) was $1.35 and $1.22 for the full years ended December 31, 2017 and 2016, respectively.

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

  • Improved both earnings per share and profitability, as adjusted(1) in 2017:
        ° Increased earnings per share, adjusted(1) to $0.34 for the fourth quarter of 2017 and $1.35 for the full year of 2017, up 6% and 11%, respectively, versus a year ago.
        ° Produced returns on average tangible common equity, adjusted(1) of 12.4% for the fourth quarter of 2017 and 13.1% for the full year of 2017, improved 80 and 160 basis points, respectively, versus a year ago.
        ° Improved operating efficiency, lowering the efficiency ratio(1) to 60% for the full year of 2017, from 63% for 2016.
  • Expanded net interest income and net interest margin to $472 million and 3.87% for the full year of 2017, up 35% and 27 basis points, respectively, compared to the full year of 2016.
  • Grew fee-based revenues 7% from 2016, or 11% excluding the impact of the Durbin Amendment on the last half of 2017.
  • Strengthened capital, returning to levels last achieved prior to the Standard acquisition:
        ° Increased common equity Tier 1 capital to risk-weighted assets to 9.68%, up 29 basis points from a year ago.
        ° Expanded tangible common equity to tangible assets to 8.33%, up 28 basis points from a year ago.
  • Grew total loans 2%, annualized, and 26% from September 30, 2017 and December 31, 2016, respectively.
        ° Increased commercial and industrial lending 8%, annualized, and 25% compared to September 30, 2017 and December 31, 2016, respectively.
  • Increased average core deposits to $9.6 billion, consistent with the third quarter of 2017 and up 23% from the fourth quarter of 2016, holding the average core deposit ratio at 86%.
  • Completed the acquisition of Standard Bancshares, Inc. on January 6, 2017, adding $2.6 billion in assets.
  • Expanded total assets under management to $11 billion and wealth management fees to $41 million, both up nearly 25% from last year, driven by acquisitions including Premier Asset Management LLC.

(1) These metrics are non-GAAP financial measures. For details on the calculation of these metrics, see the sections titled "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.

"Performance for 2017 was strong, against a backdrop of transformative growth, higher rates and tax reform," said Michael L. Scudder, Chairman and Chief Executive Officer. "The magnitude and timing of tax legislation impacted both fourth quarter and full year operating results, largely in the form of a downward revaluation of our deferred tax assets. Importantly, core performance benefited from disciplined sales success across business lines, as well as our strategic acquisitions of Standard Bank and Trust Company and Premier Asset Management. Excluding tax-related actions and costs attendant to acquired growth, earnings per share improved 6% and 11% for the quarter and full year versus a year ago. Importantly, we closed 2017 as a larger, more diverse and profitable financial institution, having replenished capital and largely navigated the regulatory costs and organizational changes attendant to growth."

Mr. Scudder concluded, "We begin 2018 with heightened optimism, ready to build on the momentum of 2017. Higher interest rates as well as the benefits of a lower corporate tax structure will generate earnings momentum and further strengthen capital. As a result, we are well positioned for continued investment in our business and communities, delivering both service excellence and greater efficiency. As we do so, our actions remain centered on helping our clients to achieve financial success, enhancing the value of our franchise, and the long-term interests of our shareholders."

IMPACT OF TAX REFORM

On December 22, 2017, the "Tax Cuts and Jobs Act" ("tax reform") was enacted into law. This tax reform, among other things, reduces the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result, the Company revalued its DTAs, expanded investments in its colleagues and communities, and took certain actions related to its securities portfolio as follows:

  • Revalued its DTAs by $27 million, which was recorded as additional income tax expense in the Company's statement of operations in the fourth quarter of 2017. Earnings for the fourth quarter of 2017 were reduced by $0.26 due to this additional income tax expense.
  • Increased its minimum pay rate to $15 for hourly colleagues, effective in 2018.
  • Paid a special bonus of up to $1,035 to nearly 85% of colleagues. The aggregate amount of these bonuses was approximately $2 million on a pre-tax basis. Earnings for the fourth quarter of 2017 were reduced by $0.01 due to this bonus.
  • Contributed approximately $2 million to the First Midwest Charitable Foundation, which supports charitable organizations in the communities the Company serves. Earnings for the fourth quarter of 2017 were reduced by $0.01 due to this charitable contribution.
  • Liquidated all of its $46 million in trust-preferred collateralized debt obligations ("CDOs") at a minimal loss of approximately $800,000 late in the fourth quarter of 2017. This action improved the Company's total capital to risk-weighted assets by approximately 20 basis points.
  • Sold $150 million of collateralized mortgage obligations and other mortgage-backed securities late in the fourth quarter of 2017 at a loss of approximately $5 million in order to invest the proceeds in higher-yielding securities with similar durations.

 

OPERATING PERFORMANCE

 
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 
  Quarters Ended
  December 31, 2017     September 30, 2017     December 31, 2016
  Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
    Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
    Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
Assets:                                      
Other interest-earning assets $ 203,459     $ 721     1.41       $ 237,727     $ 793     1.32       $ 177,974     $ 362     0.81  
Securities (1) 1,890,020     10,977     2.32       1,961,382     11,586     2.36       2,016,588     11,088     2.20  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock 63,520     506     3.19       67,605     312     1.85       54,093     421     3.11  
Loans (1) 10,384,074     119,204     4.55       10,277,420     119,267     4.60       8,177,036     86,520     4.21  
Total interest-earning assets (1) 12,541,073     131,408     4.16       12,544,134     131,958     4.18       10,425,691     98,391     3.76  
Cash and due from banks 188,683               194,149               145,807          
Allowance for loan losses (99,590 )             (99,249 )             (89,401 )        
Other assets 1,488,459               1,516,732               898,011          
Total assets $ 14,118,625               $ 14,155,766               $ 11,380,108          
Liabilities and Stockholders' Equity:                                      
Savings deposits $ 2,017,489     382     0.08       $ 2,040,609     391     0.08       $ 1,633,010     300     0.07  
NOW accounts 1,992,150     690     0.14  
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