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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       2,039,593     809     0.16       1,715,228     313     0.07  
Money market deposits 1,938,195     772     0.16       1,928,962     700     0.14       1,623,392     436     0.11  
Time deposits 1,619,758     3,033     0.74       1,559,966     2,469     0.63       1,213,048     1,426     0.47  
Borrowed funds 554,634     2,263     1.62       648,275     2,544     1.56       617,975     1,716     1.10  
Senior and subordinated debt 195,102     3,114     6.33       194,961     3,110     6.33       259,531     4,112     6.30  
Total interest-bearing liabilities 8,317,328     10,254     0.49       8,412,366     10,023     0.47       7,062,184     8,303     0.47  
Demand deposits 3,611,811               3,574,012               2,803,016          
Total funding sources 11,929,139               11,986,378               9,865,200          
Other liabilities 309,221               313,741               244,915          
Stockholders' equity - common 1,880,265               1,855,647               1,269,993          
Total liabilities and stockholders' equity $ 14,118,625               $ 14,155,766               $ 11,380,108          
Tax-equivalent net interest income/margin (1)     121,154     3.84           121,935     3.86           90,088     3.44  
Tax-equivalent adjustment     (1,823 )             (2,042 )             (2,064 )    
Net interest income (GAAP) (1)     $ 119,331               $ 119,893               $ 88,024      
Impact of acquired loan accretion (1)     $ 6,240     0.20           $ 7,581     0.24           $ 2,663     0.10  
Tax-equivalent net interest income/margin, adjusted (1)     $ 114,914     3.64           $ 114,354     3.62           $ 87,425     3.34  

(1) Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Net interest income for the fourth quarter of 2017 was consistent with the third quarter of 2017 and increased by 35.6% compared to the fourth quarter of 2016. Compared to the third quarter of 2017, net interest income was negatively impacted by lower acquired loan accretion and securities income and higher cost of time deposits, mostly offset by loan growth. The increase in net interest income compared to the fourth quarter of 2016 was driven primarily by higher interest rates, organic loan growth, and the acquisition of interest-earning assets from the Standard Bancshares, Inc. ("Standard") transaction, as well as lower senior and subordinated debt costs.

Acquired loan accretion contributed $6.2 million, $7.6 million, and $2.7 million to net interest income for the fourth quarter of 2017, the third quarter of 2017, and the fourth quarter of 2016, respectively.

Tax-equivalent net interest margin for the current quarter was 3.84%, consistent with the third quarter of 2017 and increasing by 40 basis points from the fourth quarter of 2016. Compared to the third quarter of 2017, tax-equivalent net interest margin reflected the negative impact of a 4 basis point decrease in acquired loan accretion and an increase in the cost of time deposits, partially offset by the reinvestment of proceeds from securities sales late in the third quarter of 2017 into higher-yielding securities during the fourth quarter of 2017. The increase in tax-equivalent net interest margin compared to the fourth quarter of 2016 was due to the positive impact of higher interest rates, higher acquired loan accretion, lower senior and subordinated debt balances, and the reinvestment of proceeds from securities sales during the fourth quarter of 2017.

For the fourth quarter of 2017, total average interest-earning assets were consistent with the third quarter of 2017 and rose $2.1 billion from the fourth quarter of 2016. The increase from the fourth quarter of 2016 reflected the impact of the Standard transaction and loan growth.

Average funding sources for the fourth quarter of 2017 were consistent with the third quarter of 2017 and increased $2.1 billion from the fourth quarter of 2016. Deposits acquired in the Standard transaction contributed to the increase in average funding sources compared to the fourth quarter of 2016.

 

 
Fee-based Revenues and Total Noninterest Income Analysis
(Dollar amounts in thousands)
 
    Quarters Ended   December 31, 2017
Percent Change From
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  September 30,
 2017
  December 31,
 2016
Service charges on deposit accounts   $ 12,289     $ 12,561     $ 10,315     (2.2 )   19.1  
Wealth management fees   10,967     10,169     8,375     7.8     30.9  
Card-based fees   6,052     5,992     7,462     1.0     (18.9 )
Merchant servicing fees   1,771     2,237     3,016     (20.8 )   (41.3 )
Mortgage banking income   2,352     2,246     3,537     4.7     (33.5 )
Capital market products income   1,986     2,592     1,827     (23.4 )   8.7  
Other service charges, commissions, and fees   2,369     2,508     2,575     (5.5 )   (8.0 )
Total fee-based revenues   37,786     38,305     37,107     (1.4 )   1.8  
Net securities (losses) gains   (5,357 )   3,197     323     (267.6 )   (1,758.5 )
Other income   2,476     1,846     2,281     34.1     8.5  
Total noninterest income   $ 34,905     $ 43,348     $ 39,711     (19.5 )   (12.1 )

 

Total fee-based revenues of $37.8 million for the fourth quarter of 2017 were consistent with the third quarter of 2017 and the same period in 2016. Compared to the third quarter of 2017, the rise in wealth management fees as a result of continued sales of fiduciary and investment advisory services to new and existing customers were offset by decreases in service charges on deposit accounts and lower sales of capital market products to commercial clients.

Compared to the fourth quarter of 2016, organic growth and services provided to customers acquired in the Standard and Premier Asset Management LLC ("Premier") transactions contributed to the increases in service charges on deposit accounts and wealth management fees. The decrease in card-based fees compared to the fourth quarter of 2016 resulted from the reduction in interchange revenue as the impact of the Durbin Amendment of the Dodd-Frank Act became effective in the third quarter of 2017. This reduction was partially offset by higher transaction volumes and services provided to customers acquired in the Standard transaction.

The decline in merchant servicing fees compared to both prior periods reflected lower customer volumes, substantially offset by the decline in merchant card expense included in noninterest expense for each period presented.

Mortgage banking income for the fourth quarter of 2017 resulted from sales of $66.5 million of 1-4 family mortgage loans in the secondary market, compared to $72.1 million in the third quarter of 2017 and $85.3 million in the fourth quarter of 2016. In addition, mortgage banking income for the fourth quarter of 2016 was positively impacted by changes in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter.

Net securities losses of $5.4 million were recognized during the fourth quarter of 2017 in connection with certain actions taken in light of tax reform. Net securities gains of $3.2 million were recognized during the third quarter of 2017 as a result of the opportunistic repositioning of the securities portfolio.

Other income for the fourth quarter of 2017 was positively impacted by benefit settlements on bank-owned life insurance ("BOLI").

 

 
Noninterest Expense Analysis
(Dollar amounts in thousands)
 
    Quarters Ended   December 31, 2017
Percent Change From
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  September 30,
 2017
  December 31,
 2016
Salaries and employee benefits:                    
Salaries and wages   $ 48,204     $ 45,219     $ 39,257     6.6     22.8  
Retirement and other employee benefits   10,204     10,419     8,160     (2.1 )   25.0  
Total salaries and employee benefits   58,408     55,638     47,417     5.0     23.2  
Net occupancy and equipment expense   12,826     12,115     10,774     5.9     19.0  
Professional services   7,616     8,498     7,138     (10.4 )   6.7  
Technology and related costs   4,645     4,505     3,514     3.1     32.2  
Merchant card expense   1,423     1,737     2,603     (18.1 )   (45.3 )
Advertising and promotions   4,083     1,852     2,330     120.5     75.2  
Cardholder expenses   1,915     1,962     1,426     (2.4 )   34.3  
Net other real estate owned ("OREO") expense   695     657     925     5.8     (24.9 )
Other expenses   10,715     9,842     8,050     8.9     33.1  
Acquisition and integration related expenses       384     7,542     (100.0 )   (100.0 )
Lease cancellation fee           950         (100.0 )
Total noninterest expense   $ 102,326     $ 97,190     $ 92,669     5.3     10.4  

 

Total noninterest expense for the fourth quarter of 2017 increased by 5.3% and 10.4% compared to the third quarter of 2017 and the fourth quarter of 2016, respectively. Compared to both prior periods, the increase in salaries and wages and advertising and promotions expense were impacted by the special bonus and charitable contribution in connection with tax reform. In addition, prior periods were impacted by acquisition and integration related expenses related to the acquisitions of Standard and Premier as well as a lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation. Excluding these items, total noninterest expense increased to $98.8 million, up 2.1% and 17.4% compared to the third quarter of 2017 and fourth quarter of 2016, respectively.

The decline in merchant card expense compared to both prior periods is in-line with the decrease in merchant servicing fees included in noninterest income.

The increase in net occupancy and equipment expense compared to the third quarter of 2017 was driven primarily by higher computer processing and software maintenance costs. Professional services decreased compared to the same period as a result of lower loan remediation costs. In addition to the charitable contribution noted above, advertising and promotions expense was higher due to the timing of certain advertising costs.

Compared to the fourth quarter of 2016, the increase in total noninterest expense resulted from operating costs associated with the Standard and Premier transactions, which impacted most expense categories. In addition, compensation costs associated with merit increases and investments in additional talent to support growth contributed to the rise in salaries and employee benefits.

INCOME TAXES

The Company's effective tax rate for the fourth quarter of 2017 was 94.7%, compared to 31.7% for the third quarter of 2017, and 30.4% for the fourth quarter of 2016. Excluding the downward revaluation of DTAs by $26.6 million in the fourth quarter of 2017 due to federal income tax reform as well as a $2.8 million benefit in the third quarter of 2017 due to changes in Illinois income tax rates, the effective tax rates for the fourth and third quarters of 2017 were 34.1% and 36.7%, respectively.

 

LOAN PORTFOLIO AND ASSET QUALITY

 
Loan Portfolio Composition
(Dollar amounts in thousands)
 
    As of   December 31, 2017
Percent Change From
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  September 30,
 2017
  December 31,
 2016
Commercial and industrial   $ 3,529,914     $ 3,462,612     $ 2,827,658     1.9     24.8  
Agricultural   430,886     437,721     389,496     (1.6 )   10.6  
Commercial real estate:                  
Office, retail, and industrial   1,979,820     1,960,367     1,581,967     1.0     25.1  
Multi-family   675,463     711,101     614,052     (5.0 )   10.0  
Construction   539,820     545,666     451,540     (1.1 )   19.6  
Other commercial real estate   1,358,515     1,391,241     979,528     (2.4 )   38.7  
Total commercial real estate   4,553,618     4,608,375     3,627,087     (1.2 )   25.5  
Total corporate loans   8,514,418     8,508,708     6,844,241     0.1     24.4  
Home equity   827,055     847,209     747,983     (2.4 )   10.6  
1-4 family mortgages   774,357     711,607     423,922     8.8     82.7  
Installment   321,982     322,768     237,999     (0.2 )   35.3  
Total consumer loans   1,923,394     1,881,584     1,409,904     2.2     36.4  
Total loans   $ 10,437,812     $ 10,390,292     $ 8,254,145     0.5     26.5  

 

Total loans of $10.4 billion grew by 1.8% on an annualized basis from September 30, 2017, and 26.5% from December 31, 2016. Excluding loans related to the Standard transaction, total loans grew by 6.5% from December 31, 2016. Compared to both prior periods, growth in commercial and industrial loans, primarily within our sector-based lending businesses, drove the increase in total corporate loans. The addition of consumer loans also contributed to the increase in total loans compared to both prior periods. The declines in multi-family and other commercial real estate loans compared to September 30, 2017 were driven primarily by the decision of certain customers to opportunistically sell their investment real estate properties, as well as expected payoffs.

 

 
Asset Quality
(Dollar amounts in thousands)
 
    As of   December 31, 2017
Percent Change From
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  September 30,
 2017
  December 31,
 2016
Asset quality                    
Non-accrual loans   $ 66,924     $ 65,176     $ 59,289     2.7     12.9  
90 days or more past due loans, still accruing interest (1)   3,555     2,839     5,009     25.2     (29.0 )
Total non-performing loans   70,479     68,015     64,298     3.6     9.6  
Accruing troubled debt restructurings ("TDRs")   1,796     1,813     2,291     (0.9 )   (21.6 )
OREO   20,851     19,873     26,083     4.9     (20.1 )
Total non-performing assets   $ 93,126     $ 89,701     $ 92,672     3.8     0.5  
30-89 days past due loans (1)   $ 39,725     $ 28,868     $ 21,043          
                     
Non-accrual loans to total loans   0.64 %   0.63 %   0.72 %        
Non-performing loans to total loans   0.68 %   0.65 %   0.78 %        
Non-performing assets to total loans plus OREO   0.89 %   0.86 %   1.12 %        
Allowance for Credit Losses                    
Allowance for loan losses   $ 95,729     $ 94,814     $ 86,083          
Reserve for unfunded commitments   1,000     1,000     1,000          
Total allowance for credit losses   $ 96,729     $ 95,814     $ 87,083          
Allowance for credit losses to total loans (2)   0.93 %   0.92 %   1.06 %        
Allowance for credit losses to loans, excluding acquired loans   1.07 %   1.09 %   1.11 %        
Allowance for credit losses to non-accrual loans   144.54 %   147.01 %   146.88 %        

(1) Purchased credit impaired loans with an accretable yield are considered current and are not included in past due loan totals.
(2) This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses on acquired loans is established as necessary to reflect credit deterioration.

 

Overall, asset quality was consistent with the prior quarter and improved from a year ago. Total non-performing assets represented 0.89% of total loans plus OREO at December 31, 2017, compared to 0.86% at September 30, 2017 and 1.12% at December 31, 2016.

The allowance for credit losses to total loans was 0.93% at December 31, 2017, down from 1.06% at December 31, 2016 driven primarily by loans acquired in the Standard transaction. The slight increase from September 30, 2017 was due to renewal and payment activity on acquired loans.

 
Charge-Off Data
 (Dollar amounts in thousands)
 
    Quarters Ended   Years Ended
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Net Loan Charge-offs (1):                    
Commercial and industrial   $ 5,635     $ 8,237     $ 3,540     $ 17,487     $ 7,531  
Agricultural   (102 )           1,248      
Office, retail, and industrial   (78 )   (1,811 )   165     (2,745 )   4,370  
Multi-family   (3 )   (2 )   17     (39 )   210  
Construction   (12 )   (25 )   (12 )   (232 )   78  
Other commercial real estate   (5 )   (19 )   (111 )   511     2,408  
Consumer   1,674     1,286     933     5,414     3,933  
Total net loan charge-offs   $ 7,109     $ 7,666     $ 4,532     $ 21,644     $ 18,530  
Total recoveries included above   $ 2,011     $ 2,900     $ 1,489     $ 9,179     $ 4,763  
                     
Net loan charge-offs to average loans (2)   0.27 %   0.30 %   0.22 %   0.21 %   0.24 %

(1) Amounts represent charge-offs, net of recoveries.
(2) Annualized based on the actual number of days for each period presented.

 

Net loan charge-offs to average loans, annualized, were 0.27% for the fourth quarter of 2017, down from 0.30% for the third quarter of 2017 and up from 0.22%  for the fourth quarter of 2016.


DEPOSIT PORTFOLIO

 
Deposit Composition
(Dollar amounts in thousands)
 
    Average for Quarters Ended   December 31, 2017
Percent Change From
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  September 30,
 2017
  December 31,
 2016
Demand deposits   $ 3,611,811     $ 3,574,012     $ 2,803,016     1.1     28.9  
Savings deposits   2,017,489     2,040,609     1,633,010     (1.1 )   23.5  
NOW accounts   1,992,150     2,039,593     1,715,228     (2.3 )   16.1  
Money market accounts   1,938,195     1,928,962     1,623,392     0.5     19.4  
Core deposits   9,559,645     9,583,176     7,774,646     (0.2 )   23.0  
Time deposits   1,619,758     1,559,966     1,213,048     3.8     33.5  
Total deposits   $ 11,179,403     $ 11,143,142     $ 8,987,694     0.3     24.4  

 

Average core deposits were $9.6 billion for the fourth quarter of 2017, consistent with the third quarter of 2017 and up 23.0% from the fourth quarter of 2016. The rise in average core deposits compared to the fourth quarter of 2016 was driven primarily by deposits assumed in the Standard transaction, which contributed $1.6 billion to average core deposits in the fourth quarter of 2017, as well as organic growth.


CAPITAL MANAGEMENT

 
Capital Ratios
    As of
    December 31,
 2017
  September 30,
 2017
  December 31,
 2016
Company regulatory capital ratios:
Total capital to risk-weighted assets   12.15 %   11.79 %   12.23 %
Tier 1 capital to risk-weighted assets   10.10 %   9.83 %   9.90 %
Common equity Tier 1 ("CET1") to risk-weighted assets   9.68 %   9.42 %   9.39 %
Tier 1 capital to average assets   8.99 %   9.04 %   8.99 %
Company tangible common equity ratios (1)(2):        
Tangible common equity to tangible assets   8.33 %   8.25 %   8.05 %
Tangible common equity, excluding accumulated other comprehensive income ("AOCI"), to tangible assets   8.58 %   8.53 %   8.42 %
Tangible common equity to risk-weighted assets   9.31 %   9.02 %   8.88 %

(1)  These ratios are not subject to formal Federal Reserve regulatory guidance.
(2)  Tangible common equity ("TCE") represents common stockholders' equity less goodwill and identifiable intangible assets. For details of the calculation of these ratios, see the sections titled, "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.

 

Overall, the Company's regulatory capital ratios returned to levels last achieved prior to the Standard acquisition. The increase in ratios compared to September 30, 2017 was primarily driven by certain actions taken by management to sell all of its $46 million in CDOs, which received significantly higher risk-weightings for regulatory capital ratio calculation purposes.

The Board of Directors approved a quarterly cash dividend of $0.10 per common share during the fourth quarter of 2017, which is consistent with the third quarter of 2017 and will represent the 140th consecutive cash dividend paid by the Company since its inception in 1983. The dividend increased 11% from $0.09 to $0.10 per common share during the second quarter of 2017.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Tuesday, January 30, 2018 at 11:00 A.M. (ET). Members of the public who would like to listen to the conference call should dial (877) 507-0639 (U.S. domestic) or (412) 317-6003 (International) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (International) conference I.D. 10115697 beginning one hour after completion of the live call until 9:00 A.M. (ET) on February 13, 2018. Please direct any questions regarding obtaining access to the conference call to First Midwest Bancorp, Inc. Investor Relations, via e-mail, at investor.relations@firstmidwest.com.

Press Release and Additional Information Available on Website

This press release, the accompanying unaudited Selected Financial Information, and the presentation materials to be discussed during the conference call are available through the "Investor Relations" section of First Midwest's website at www.firstmidwest.com/investorrelations.

Forward-Looking Statements

This press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and First Midwest cautions you not to place undue reliance on these statements. Forward-looking statements are made only as of the date of this press release, and First Midwest undertakes no obligation to update any forward-looking statements contained in this press release to reflect new information or events or conditions after the date hereof.

Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, including the related outlook for 2018, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in our business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including estimated synergies, cost savings and financial benefits of consummated transactions, and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and assumptions. For a discussion of these risks, uncertainties and assumptions, you should refer to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as our subsequent filings made with the Securities and Exchange Commission. However, these risks and uncertainties are not exhaustive. Other sections of such reports describe additional factors that could adversely impact our business and financial performance.

Non-GAAP Financial Information

The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These non-GAAP financial measures include earnings per share ("EPS"), adjusted, the efficiency ratio, return on average assets, adjusted, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, tax-equivalent net interest margin, adjusted, effective income tax rate, excluding revaluations of DTAs, tangible common equity to tangible assets, tangible common equity, excluding AOCI, to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, and return on average tangible common equity, adjusted.

The Company presents EPS, the efficiency ratio, return on average assets, and return on average tangible common equity, all adjusted for certain significant transactions. These transaction include the revaluation of DTAs (fourth and third quarters of 2017), certain actions resulting in securities losses and gains (fourth and third quarters of 2017), a special bonus to colleagues (fourth quarter of 2017), a charitable contribution to the First Midwest Charitable Foundation (fourth quarter of 2017), acquisition and integration related expenses associated with completed and pending acquisitions (all periods presented, excluding the fourth quarter of 2017), a lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation (fourth quarter of 2016), and a net gain on a sale-leaseback transaction (third quarter of 2016). Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, and return on average tangible common equity is useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion facilitates better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics is useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics enhances comparability for peer comparison purposes.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it enhances comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, excluding the impact of acquired loan accretion, enhances comparability for peer comparison purposes and is useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.

In management's view, tangible common equity measures are capital adequacy metrics meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. See the previously provided tables and the following reconciliations in the "Non-GAAP Reconciliations" section for details on the calculation of these measures to the extent presented herein.

About the Company

First Midwest is a relationship-focused financial institution and one of the largest independent publicly-traded bank holding companies based on assets headquartered in the Midwest, with over $14 billion in assets and approximately $11 billion in trust assets under management. First Midwest's principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, treasury management, equipment leasing, retail, wealth management, trust and private banking products and services through over 130 locations in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. First Midwest's common stock is traded on the NASDAQ Stock Market under the symbol FMBI. First Midwest's website is www.firstmidwest.com.

Contact Information

Investors: Patrick S. Barrett
EVP, Chief Financial Officer
(630) 875-7273
pat.barrett@firstmidwest.com
Media: James M. Roolf
SVP and Corporate Relations Officer
(630) 875-7533
jim.roolf@firstmidwest.com


Accompanying Unaudited Selected Financial Information

 
First Midwest Bancorp, Inc.
Consolidated Statements of Financial Condition (Unaudited)
(Dollar amounts in thousands)
   
  As of
  December 31,   September 30,   June 30,   March 31,   December 31,
  2017   2017   2017   2017   2016
Period-End Balance Sheet                  
Assets                  
Cash and due from banks $ 192,800     $ 174,147     $ 181,171     $ 174,268     $ 155,055  
Interest-bearing deposits in other banks 153,770     252,753     103,181     74,892     107,093  
Trading securities, at fair value 20,447     20,425     19,545     19,130     17,920  
Securities available-for-sale, at fair value 1,884,209     1,732,984     1,908,248     1,937,124     1,919,450  
Securities held-to-maturity, at amortized cost 13,760     14,638     17,353     17,742     22,291  
FHLB and FRB stock 69,708     69,708     66,333     46,306     59,131  
Loans:                  
Commercial and industrial 3,529,914     3,462,612     3,410,748     3,370,780     2,827,658  
Agricultural 430,886     437,721     433,424     422,784     389,496  
Commercial real estate:                  
Office, retail, and industrial 1,979,820     1,960,367     1,983,802     1,988,979     1,581,967  
Multi-family 675,463     711,101     681,032     671,710     614,052  
Construction 539,820     545,666     543,892     568,460     451,540  
Other commercial real estate 1,358,515     1,391,241     1,383,937     1,357,781     979,528  
Home equity 827,055     847,209     865,656     880,667     747,983  
1-4 family mortgages 774,357     711,607     614,818     540,148     423,922  
Installment 321,982     322,768     314,850     253,061     237,999  
Total loans 10,437,812     10,390,292     10,232,159     10,054,370     8,254,145  
 Allowance for loan losses (95,729 )   (94,814 )   (92,371 )   (88,163 )   (86,083 )
Net loans 10,342,083     10,295,478     10,139,788     9,966,207     8,168,062  
OREO 20,851     19,873     26,493     29,140     26,083  
Premises, furniture, and equipment, net 123,316     131,295     135,745     140,653     82,577  
Investment in BOLI 279,900     279,639     278,353     276,960     219,746  
Goodwill and other intangible assets 754,757     750,436     752,413     754,621     366,876  
Accrued interest receivable and other assets 221,451     525,766     340,517     336,428     278,271  
Total assets $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471     $ 11,422,555  
Liabilities and Stockholders' Equity                  
Noninterest-bearing deposits $ 3,576,190     $ 3,580,922     $ 3,525,905     $ 3,492,987     $ 2,766,748  
Interest-bearing deposits 7,477,135     7,627,575     7,473,815     7,463,554     6,061,855  
Total deposits 11,053,325     11,208,497     10,999,720     10,956,541     8,828,603  
Borrowed funds 714,884     700,536     639,333     547,923     879,008  
Senior and subordinated debt 195,170     195,028     194,886     194,745     194,603  
Accrued interest payable and other liabilities 248,799     297,951     298,358     269,529     263,261  
Stockholders' equity 1,864,874     1,865,130     1,836,843     1,804,733     1,257,080  
Total liabilities and stockholders' equity $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471     $ 11,422,555  
Stockholders' equity, excluding AOCI $ 1,897,910     $ 1,903,166     $ 1,873,410     $ 1,844,997     $ 1,297,990  
Stockholders' equity, common 1,864,874     1,865,130     1,836,843     1,804,733     1,257,080  


First Midwest Bancorp, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(Dollar amounts in thousands)                            
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Income Statement                            
Interest income $ 129,585     $ 129,916     $ 126,516     $ 123,699     $ 96,328       $ 509,716     $ 378,332  
Interest expense 10,254     10,023     8,933     8,502     8,304       37,712     28,641  
Net interest income 119,331     119,893     117,583     115,197     88,024       472,004     349,691  
Provision for loan losses 8,024     10,109     8,239     4,918     5,307       31,290     30,983  
Net interest income after provision for loan losses 111,307     109,784     109,344     110,279     82,717       440,714     318,708  
Noninterest Income                            
Service charges on deposit accounts 12,289     12,561     12,153     11,365     10,315       48,368     40,665  
Wealth management fees 10,967     10,169     10,525     9,660     8,375       41,321     33,071  
Card-based fees 6,052     5,992     8,832     8,116     7,462       28,992     29,104  
Merchant servicing fees 1,771     2,237     3,197     3,135     3,016       10,340     12,533  
Mortgage banking income 2,352     2,246     1,645     1,888     3,537       8,131     10,162  
Capital market products income 1,986     2,592     2,217     1,376     1,827       8,171     10,024  
Other service charges commissions, and fees 2,369     2,508     2,659     2,307     2,575       9,843     9,542  
Total fee-based revenues 37,786     38,305     41,228     37,847     37,107       155,166     145,101  
Net securities (losses) gains (5,357 )   3,197     284         323       (1,876 )   1,420  
Net gain on sale-leaseback transaction                           5,509  
Other income 2,476     1,846     3,433     2,104     2,281       9,859     7,282  
Total noninterest income 34,905     43,348     44,945     39,951     39,711       163,149     159,312  
Noninterest Expense                            
Salaries and employee benefits:                            
Salaries and wages 48,204     45,219     44,194     44,890     39,257       182,507     151,341  
Retirement and other employee benefits 10,204     10,419     10,381     10,882     8,160       41,886     33,309  
Total salaries and employee benefits 58,408     55,638     54,575     55,772     47,417       224,393     184,650  
Net occupancy and equipment expense 12,826     12,115     12,485     12,325     10,774       49,751     41,154  
Professional services 7,616     8,498     9,112     8,463     7,138       33,689     25,122  
Technology and related costs 4,645     4,505     4,485     4,433     3,514       18,068     14,765  
Merchant card expense 1,423     1,737     2,632     2,585     2,603       8,377     10,782  
Advertising and promotions 4,083     1,852     1,693     1,066     2,330       8,694     7,787  
Cardholder expenses 1,915     1,962     1,682     1,764     1,426       7,323     5,812  
Net OREO expense 695     657     1,631     1,700     925       4,683     3,024  
Other expenses 10,715     9,842     10,282     9,969     8,050       40,808     31,102  
Acquisition and integration related expenses     384     1,174     18,565     7,542       20,123     14,352  
Lease cancellation fee                 950           950  
Total noninterest expense 102,326     97,190     99,751     116,642     92,669       415,909     339,500  
Income before income tax expense 43,886     55,942     54,538     33,588     29,759       187,954     138,520  
Income tax expense 41,539     17,707     19,588     10,733     9,041       89,567     46,171  
Net income $ 2,347     $ 38,235     $ 34,950     $ 22,855     $ 20,718       $ 98,387     $ 92,349  
Net income applicable to common shares $ 2,341     $ 37,895     $ 34,614     $ 22,621     $ 20,501       $ 97,471     $ 91,306  
Net income applicable to common shares, adjusted (1) $ 34,131     $ 33,390     $ 35,318     $ 33,760     $ 25,596       $ 136,599     $ 97,182  

Footnotes to Condensed Consolidated Statements of Income
(1)   Adjustments to net income for the fourth and third quarters of 2017 include revaluation of DTAs related to federal income tax reform and changes in Illinois income tax rates, a special colleague bonus, a charitable contribution, and certain actions related to the securities portfolio. In addition, net income for certain periods was adjusted for acquisition and integration related expenses associated with completed and pending acquisitions, a lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation, and a net gain on a sale-leaseback transaction. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.


First Midwest Bancorp, Inc.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)                            
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Earnings Per Share                            
Basic EPS (1) $ 0.02     $ 0.37     $ 0.34     $ 0.23     $ 0.25       $ 0.96     $ 1.14  
Diluted EPS (1) $ 0.02     $ 0.37     $ 0.34     $ 0.23     $ 0.25       $ 0.96     $ 1.14  
Diluted EPS, adjusted (1)(7) $ 0.34     $ 0.33     $ 0.35     $ 0.34     $ 0.32       $ 1.35     $ 1.22  
Common Stock and Related Per Common Share Data          
Book value $ 18.16     $ 18.16     $ 17.88     $ 17.56     $ 15.46       $ 18.16     $ 15.46  
Tangible book value $ 10.81     $ 10.85     $ 10.55     $ 10.22     $ 10.95       $ 10.81     $ 10.95  
Dividends declared per share $ 0.10     $ 0.10     $ 0.10     $ 0.09     $ 0.09       $ 0.39     $ 0.36  
Closing price at period end $ 24.01     $ 23.42     $ 23.31     $ 23.68     $ 25.23       $ 24.01     $ 25.23  
Closing price to book value 1.3     1.3     1.3     1.3     1.6       1.3     1.6  
Period end shares outstanding 102,717     102,722     102,741     102,757     81,325       102,717     81,325  
Period end treasury shares 9,634     9,626     9,604     9,586     9,959       9,634     9,959  
Common dividends $ 10,278     $ 10,411     $ 10,256     $ 9,126     $ 7,315       $ 40,071     $ 29,191  
Key Ratios/Data                            
Return on average common equity (1)(2) 0.49 %   8.10 %   7.58 %   5.20 %   6.42 %     5.32 %   7.38 %
Return on average tangible common equity (1)(2) 1.20 %   14.02 %   13.37 %   9.53 %   9.35 %     9.44 %   10.77 %
Return on average tangible common equity, adjusted (1)(2)(7) 12.35 %   12.41 %   13.64 %   13.99 %   11.60 %     13.06 %   11.45 %
Return on average assets (2) 0.07 %   1.07 %   1.00 %   0.68 %   0.72 %     0.70 %   0.84 %
Return on average assets, adjusted (1)(2)(7) 0.96 %   0.95 %   1.02 %   1.01 %   0.90 %     0.98 %   0.90 %
Loans to deposits 94.43 %   92.70 %   93.02 %   91.77 %   93.49 %     94.43 %   93.49 %
Efficiency ratio (1) 60.32 %   58.97 %   58.67 %   60.98 %   63.98 %     59.73 %   62.59 %
Net interest margin (3) 3.84 %   3.86 %   3.88 %   3.89 %   3.44 %     3.87 %   3.60 %
Yield on average interest-earning assets (3) 4.16 %   4.18 %   4.17 %   4.17 %   3.76 %     4.17 %   3.89 %
Cost of funds (4) 0.34 %   0.33 %   0.30 %   0.30 %   0.33 %     0.32 %   0.30 %
Net noninterest expense to average assets 1.74 %   1.60 %   1.58 %   2.27 %   1.86 %     1.79 %   1.71 %
Effective income tax rate 94.65 %   31.65 %   35.92 %   31.95 %   30.38 %     47.65 %   33.33 %
Effective income tax rate, excluding revaluations of DTAs (5) 34.14 %   36.74 %   35.92 %   31.95 %   30.38 %     35.04 %   33.33 %
Capital Ratios                            
Total capital to risk-weighted assets (1) 12.15 %   11.79 %   11.69 %   11.48 %   12.23 %     12.15 %   12.23 %
Tier 1 capital to risk-weighted assets (1) 10.10 %   9.83 %   9.71 %   9.53 %   9.90 %     10.10 %   9.90 %
CET1 to risk-weighted assets (1) 9.68 %   9.42 %   9.30 %   9.11 %   9.39 %     9.68 %   9.39 %
Tier 1 capital to average assets (1) 8.99 %   9.04 %   8.93 %   8.89 %   8.99 %     8.99 %   8.99 %
Tangible common equity to tangible assets (1) 8.33 %   8.25 %   8.20 %   8.07 %   8.05 %     8.33 %   8.05 %
Tangible common equity, excluding AOCI, to tangible assets (1) 8.58 %   8.53 %   8.48 %   8.38 %   8.42 %     8.58 %   8.42 %
Tangible common equity to risk- weighted assets (1) 9.31 %   9.02 %   8.90 %   8.68 %   8.88 %     9.31 %   8.88 %
Note: Selected Financial Information footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)                            
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Asset Quality Performance Data                          
Non-performing assets                            
Commercial and industrial $ 40,580     $ 41,504     $ 51,400     $ 21,514     $ 29,938       $ 40,580     $ 29,938  
Agricultural 219     380     387     1,283     181       219     181  
Commercial real estate:                            
Office, retail, and industrial 11,560     12,221     15,031     19,505     17,277       11,560     17,277  
Multi-family 377     153     158     163     311       377     311  
Construction 209     146     197     198     286       209     286  
Other commercial real estate 3,621     2,239     3,736     3,858     2,892       3,621     2,892  
Consumer 10,358     8,533     8,287     7,773     8,404       10,358     8,404  
Total non-accrual loans 66,924     65,176     79,196     54,294     59,289       66,924     59,289  
90 days or more past due loans, still accruing interest 3,555     2,839     2,059     2,633     5,009       3,555     5,009  
Total non-performing loans 70,479     68,015     81,255     56,927     64,298       70,479     64,298  
Accruing TDRs 1,796     1,813     2,029     2,112     2,291       1,796     2,291  
OREO 20,851     19,873     26,493     29,140     26,083       20,851     26,083  
Total non-performing assets $ 93,126     $ 89,701     $ 109,777     $ 88,179     $ 92,672       $ 93,126     $ 92,672  
30-89 days past due loans $ 39,725     $ 28,868     $ 19,081     $ 23,641     $ 21,043       $ 39,725     $ 21,043  
Allowance for credit losses                            
Allowance for loan losses $ 95,729     $ 94,814     $ 92,371     $ 88,163     $ 86,083       $ 95,729     $ 86,083  
Reserve for unfunded commitments 1,000     1,000     1,000     1,000     1,000       1,000     1,000  
Total allowance for credit losses $ 96,729     $ 95,814     $ 93,371     $ 89,163     $ 87,083       $ 96,729     $ 87,083  
Provision for loan losses $ 8,024     $ 10,109     $ 8,239     $ 4,918     $ 5,307       $ 31,290     $ 30,983  
Net charge-offs by category                            
Commercial and industrial $ 5,635     $ 8,237     $ 1,721     $ 1,894     $ 3,540       $ 17,487     $ 7,531  
Agricultural (102 )       836     514           1,248      
Commercial real estate:                            
Office, retail, and industrial (78 )   (1,811 )   (8 )   (848 )   165       (2,745 )   4,370  
Multi-family (3 )   (2 )   (6 )   (28 )   17       (39 )   210  
Construction (12 )   (25 )   27     (222 )   (12 )     (232 )   78  
Other commercial real estate (5 )   (19 )   228     307     (111 )     511     2,408  
Consumer 1,674     1,286     1,233     1,221     933       5,414     3,933  
Total net charge-offs 7,109     7,666     4,031     2,838     4,532       21,644     18,530  
Total recoveries included above $ 2,011     $ 2,900     $ 828     $ 3,440     $ 1,489       $ 9,179     $ 4,763  
Note: Selected Financial Information footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)                    
    As of or for the
    Quarters Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2017   2017   2017   2017   2016
Asset Quality ratios                    
Non-accrual loans to total loans   0.64 %   0.63 %   0.77 %   0.54 %   0.72 %
Non-performing loans to total loans   0.68 %   0.65 %   0.79 %   0.57 %   0.78 %
Non-performing assets to total loans plus OREO   0.89 %   0.86 %   1.07 %   0.87 %   1.12 %
Non-performing assets to tangible common equity plus allowance for credit losses   7.72 %   7.41 %   9.32 %   7.74 %   9.48 %
Non-accrual loans to total assets   0.48 %   0.46 %   0.57 %   0.39 %   0.52 %
Allowance for credit losses and net charge-off ratios
Allowance for credit losses to total loans (6)   0.93 %   0.92 %   0.91 %   0.89 %   1.06 %
Allowance for credit losses to loans, excluding acquired loans   1.07 %   1.09 %   1.10 %   1.11 %   1.11 %
Allowance for credit losses to non-accrual loans   144.54 %   147.01 %   117.90 %   164.22 %   146.88 %
Allowance for credit losses to non-performing loans   137.25 %   140.87 %   114.91 %   156.63 %   135.44 %
Net charge-offs to average loans (2)   0.27 %   0.30 %   0.16 %   0.12 %   0.22 %

Footnotes to Selected Financial Information
(1) See the "Non-GAAP Reconciliations" section for the detailed calculation.
(2) Annualized based on the actual number of days for each period presented.
(3) Presented on a tax-equivalent basis, assuming a federal income tax rate of 35%.
(4) Cost of funds expresses total interest expense as a percentage of average total funding sources.
(5) This measure excludes the impact of revaluations of DTAs related to federal tax reform and changes in Illinois income tax rates for the fourth and third quarters of 2017.
(6) This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established on acquired loans as necessary to reflect credit deterioration.
(7) Adjustments to net income for the fourth and third quarters of 2017 include revaluation of DTAs related to federal income tax reform and changes in Illinois income tax rates, a special colleague bonus, a charitable contribution, and certain actions related to the securities portfolio. In addition, net income for certain periods was adjusted for acquisition and integration related expenses associated with completed and pending acquisitions, a lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation, and a net gain on a sale-leaseback transaction. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.


First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)                            
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Earnings Per Share                            
Net income $ 2,347     $ 38,235     $ 34,950     $ 22,855     $ 20,718       $ 98,387     $ 92,349  
Net income applicable to non-vested restricted shares (6 )   (340 )   (336 )   (234 )   (217 )     (916 )   (1,043 )
Net income applicable to common shares 2,341     37,895     34,614     22,621     20,501       97,471     91,306  
Adjustments to net income:                            
DTA revaluation 26,555     (2,846 )                 23,709      
Losses (gains) from securities portfolio repositioning 5,357     (3,197 )                 2,160      
Tax effect of losses (gains) from securities portfolio repositioning (2,196 )   1,311                   (885 )    
Special bonus 1,915                       1,915      
Tax effect of special bonus (785 )                     (785 )    
Charitable contribution 1,600                       1,600      
Tax effect of charitable contribution (656 )                     (656 )    
Acquisition and integration related expenses     384     1,174     18,565     7,542       20,123     14,352  
Tax effect of acquisition and integration related expenses     (157 )   (470 )   (7,426 )   (3,017 )     (8,053 )   (5,741 )
Lease cancellation fee                 950           950  
Tax effect of lease cancellation fee                 (380 )         (380 )
Net gain on sale-leaseback transaction                           (5,509 )
Tax effect of net gain on sale-leaseback transaction                           2,204  
Total adjustments to net income 31,790     (4,505 )   704     11,139     5,095       39,128     5,876  
Net income applicable to common shares, adjusted (1) $ 34,131     $ 33,390     $ 35,318     $ 33,760     $ 25,596       $ 136,599     $ 97,182  
Weighted-average common shares outstanding:                          
Weighted-average common shares outstanding (basic) 101,766     101,752     101,743     100,411     80,415       101,423     79,797  
Dilutive effect of common stock equivalents 21     20     20     21     15       20     13  
Weighted-average diluted common shares outstanding 101,787     101,772     101,763     100,432     80,430       101,443     79,810  
Basic EPS $ 0.02     $ 0.37     $ 0.34     $ 0.23     $ 0.25       $ 0.96     $ 1.14  
Diluted EPS $ 0.02     $ 0.37     $ 0.34     $ 0.23     $ 0.25       $ 0.96     $ 1.14  
Diluted EPS, adjusted(1) $ 0.34     $ 0.33     $ 0.35     $ 0.34     $ 0.32       $ 1.35     $ 1.22  
Anti-dilutive shares not included in the computation of diluted EPS 190     190     195     343     445       229     494  
                             
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)                            
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Return on Average Common and Tangible Common Equity                      
Net income applicable to common shares $ 2,341     $ 37,895     $ 34,614     $ 22,621     $ 20,501       $ 97,471     $ 91,306  
Intangibles amortization 1,806     1,931     2,163     1,965     1,207       7,865     4,682  
Tax effect of intangibles amortization (740 )   (792 )   (865 )   (786 )   (483 )     (3,183 )   (1,873 )
Net income applicable to common shares, excluding intangibles amortization 3,407     39,034     35,912     23,800     21,225       102,153     94,115  
Total adjustments to net income 31,790     (4,505 )   704     11,139     5,095       39,128     5,876  
Net income applicable to common shares, excluding intangible amortization, adjusted (1) $ 35,197     $ 34,529     $ 36,616     $ 34,939     $ 26,320       $ 141,281     $ 99,991  
Average stockholders' equity $ 1,880,265     $ 1,855,647     $ 1,830,536     $ 1,763,538     $ 1,269,993       $ 1,832,880     $ 1,236,606  
Less: average intangible assets (749,700 )   (751,366 )   (753,521 )   (750,589 )   (367,328 )     (751,292 )   (363,112 )
Average tangible common equity $ 1,130,565     $ 1,104,281     $ 1,077,015     $ 1,012,949     $ 902,665       $ 1,081,588     $ 873,494  
Return on average common equity (3) 0.49 %   8.10 %   7.58 %   5.20 %   6.42 %     5.32 %   7.38 %
Return on average tangible common equity (3) 1.20 %   14.02 %   13.37 %   9.53 %   9.35 %     9.44 %   10.77 %
Return on average tangible common equity, adjusted (1)(3) 12.35 %   12.41 %   13.64 %   13.99 %   11.60 %     13.06 %   11.45 %
Return on Average Assets                      
Net Income $ 2,347     $ 38,235     $ 34,950     $ 22,855     $ 20,718       $ 98,387     $ 92,349  
Total adjustments to net income 31,790     (4,505 )   704     11,139     5,095       39,128     5,876  
Net income, adjusted (1) $ 34,137     $ 33,730     $ 35,654     $ 33,994     $ 25,813       $ 137,515     $ 98,225  
Average assets $ 14,118,625     $ 14,155,766     $ 13,960,843     $ 13,673,125     $ 11,380,108       $ 13,978,693     $ 10,934,240  
Return on average assets (3) 0.07 %   1.07 %   1.00 %   0.68 %   0.72 %     0.70 %   0.84 %
Return on average assets, adjusted (1)(3) 0.96 %   0.95 %   1.02 %   1.01 %   0.90 %     0.98 %   0.90 %
Efficiency Ratio Calculation                            
Noninterest expense $ 102,326     $ 97,190     $ 99,751     $ 116,642     $ 92,669       $ 415,909     $ 339,500  
Less:                            
Net OREO expense (695 )   (657 )   (1,631 )   (1,700 )   (925 )     (4,683 )   (3,024 )
Special bonus (1,915 )                     (1,915 )    
Charitable contribution (1,600 )                     (1,600 )    
Acquisition and integration related expenses     (384 )   (1,174 )   (18,565 )   (7,542 )     (20,123 )   (14,352 )
Lease cancellation fee                 (950 )         (950 )
Total $ 98,116     $ 96,149     $ 96,946     $ 96,377     $ 83,252       $ 387,588     $ 321,174  
Tax-equivalent net interest income (2) $ 121,154     $ 121,935     $ 119,625     $ 117,251     $ 90,088       $ 479,965     $ 358,334  
Fee-based revenues 37,786     38,305     41,228     37,847     37,107       155,166     145,101  
Add:                            
Other income, excluding BOLI income 625     422     2,022     844     1,310       3,913     3,635  
BOLI Income 1,851     1,424     1,411     1,260     971       5,946     3,647  
Tax-equivalent adjustment of BOLI 1,234     949     941     840     647       3,964     2,431  
Total $ 162,650     $ 163,035     $ 165,227     $ 158,042     $ 130,123       $ 648,954     $ 513,148  
Efficiency ratio 60.32 %   58.97 %   58.67 %   60.98 %   63.98 %     59.73 %   62.59 %
                             
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)                            
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2017   2017   2017   2017   2016     2017   2016
Risk-Based Capital Data                            
Common stock $ 1,123     $ 1,123     $ 1,123     $ 1,123     $ 913       $ 1,123     $ 913  
Additional paid-in capital 1,031,870     1,029,002     1,025,607     1,022,417     498,937       1,031,870     498,937  
Retained earnings 1,074,990     1,082,921     1,056,072     1,030,403     1,016,674       1,074,990     1,016,674  
Treasury stock, at cost (210,073 )   (209,880 )   (209,392 )   (208,946 )   (218,534 )     (210,073 )   (218,534 )
Goodwill and other intangible assets, net of deferred tax liabilities (743,327 )   (738,645 )   (740,236 )   (742,012 )   (356,477 )     (743,327 )   (356,477 )
Disallowed deferred tax assets (644 )   (275 )   (472 )   (1,150 )   (198 )     (644 )   (198 )
CET1 capital 1,153,939     1,164,246     1,132,702     1,101,835     941,315       1,153,939     941,315  
Trust preferred securities 50,690     50,690     50,690     50,690     50,690       50,690     50,690  
Other disallowed deferred tax assets (161 )   (69 )   (118 )   (287 )   (132 )     (161 )   (132 )
Tier 1 capital 1,204,468     1,214,867     1,183,274     1,152,238     991,873       1,204,468     991,873  
Tier 2 capital 243,656     242,652     240,121     235,825     233,656       243,656     233,656  
Total capital $ 1,448,124     $ 1,457,519     $ 1,423,395     $ 1,388,063     $ 1,225,529       $ 1,448,124     $ 1,225,529  
Risk-weighted assets $ 11,920,372     $ 12,362,833     $ 12,180,416     $ 12,095,592     $ 10,019,434       $ 11,920,372     $ 10,019,434  
Adjusted average assets $ 13,404,998     $ 13,439,744     $ 13,245,499     $ 12,965,450     $ 11,036,835       $ 13,404,998     $ 11,036,835  
Total capital to risk-weighted assets 12.15 %   11.79 %   11.69 %   11.48 %   12.23 %     12.15 %   12.23 %
Tier 1 capital to risk-weighted assets 10.10 %   9.83 %   9.71 %   9.53 %   9.90 %     10.10 %   9.90 %
CET1 to risk-weighted assets 9.68 %   9.42 %   9.30 %   9.11 %   9.39 %     9.68 %   9.39 %
Tier 1 capital to average assets 8.99 %   9.04 %   8.93 %   8.89 %   8.99 %     8.99 %   8.99 %
Tangible Common Equity                            
Stockholders' equity $ 1,864,874     $ 1,865,130     $ 1,836,843     $ 1,804,733     $ 1,257,080       $ 1,864,874     $ 1,257,080  
Less: goodwill and other intangible assets (754,757 )   (750,436 )   (752,413 )   (754,621 )   (366,876 )     (754,757 )   (366,876 )
Tangible common equity 1,110,117     1,114,694     1,084,430     1,050,112     890,204       1,110,117     890,204  
Less: AOCI 33,036     38,036     36,567     40,264     40,910       33,036     40,910  
Tangible common equity, excluding AOCI $ 1,143,153     $ 1,152,730     $ 1,120,997     $ 1,090,376     $ 931,114       $ 1,143,153     $ 931,114  
Total assets $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471     $ 11,422,555       $ 14,077,052     $ 11,422,555  
Less: goodwill and other intangible assets (754,757 )   (750,436 )   (752,413 )   (754,621 )   (366,876 )     (754,757 )   (366,876 )
Tangible assets $ 13,322,295     $ 13,516,706     $ 13,216,727     $ 13,018,850     $ 11,055,679       $ 13,322,295     $ 11,055,679  
Tangible common equity to tangible assets 8.33 %   8.25 %   8.20 %   8.07 %   8.05 %     8.33 %   8.05 %
Tangible common equity, excluding AOCI, to tangible assets 8.58 %   8.53 %   8.48 %   8.38 %   8.42 %     8.58 %   8.42 %
Tangible common equity to risk-weighted assets 9.31 %   9.02 %   8.90 %   8.68 %   8.88 %     9.31 %   8.88 %
                             

Footnotes to Non-GAAP Reconciliations
(1)Adjustments to net income for the fourth and third quarters of 2017 include revaluation of DTAs related to federal income tax reform and changes in Illinois income tax rates, a special colleague bonus, a charitable contribution, and certain actions related to the securities portfolio. In addition, net income for certain periods was adjusted for acquisition and integration related expenses associated with completed and pending acquisitions, a lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation, and a net gain on a sale-leaseback transaction. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.
(2) Presented on a tax-equivalent basis, assuming a federal tax rate of 35%.
(3)Annualized based on the actual number of days for each period presented.

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