Market Overview

First Midwest Bancorp, Inc. Announces 2018 Second Quarter Results

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CHICAGO, July 24, 2018 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ:FMBI), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the second quarter of 2018. Net income for the second quarter of 2018 was $29.6 million, or $0.29 per share, compared to $33.5 million, or $0.33 per share, for the first quarter of 2018, and $35.0 million, or $0.34 per share, for the second quarter of 2017.

Reported results for the second quarter of 2018 were impacted by implementation costs related to the Company's Delivering Excellence initiative ("Delivering Excellence") and reported results for the same period in 2017 were impacted by acquisition and integration related expenses. For additional detail on these adjustments, see the "Non-GAAP Financial Information" section presented later in this release.

Earnings per share ("EPS"), adjusted(1) was $0.40 for the second quarter of 2018, compared to $0.33 for the first quarter of 2018 and $0.35 the second quarter of 2017.

SELECT SECOND QUARTER HIGHLIGHTS

  • Generated EPS of $0.29 compared to $0.33 and $0.34 for the first quarter of 2018 and second quarter of 2017, respectively; impacted by $0.11 due to implementation costs associated with Delivering Excellence.

    • Increased EPS, adjusted(1) to $0.40, up 21% from the first quarter of 2018 and 14% from the second quarter of 2017.

  • Grew loans to $11 billion, up 8% annualized from March 31, 2018 and 6% from June 30, 2017.

  • Increased total average deposits to $11 billion, up 3% from the first quarter of 2018 and the second quarter of 2017; core deposits mix of 84%, consistent with both prior periods.

  • Expanded net interest income and margin to $127 million and 3.91%, respectively, up 7% and 11 basis points from the first quarter of 2018 and 8% and 3 basis points from the second quarter of 2017.

  • Higher noninterest income in most categories excluding an accounting reclassification(2) and the Durbin Amendment; linked quarter seasonally impacted.

  • Reported provision for loan losses of $12 million, down $4 million from the first quarter of 2018 and up $3 million from the second quarter of 2017.

  • Controlled noninterest expense, reported an efficiency ratio(1) of 60%, down from 61% in the first quarter of 2018 and up from 59% in the second quarter of 2017.

    • Increased expense of $1 million, or $0.01 per share, related to the Company's corporate headquarters relocation.

  • Announced the pending acquisition of Northern States Financial Corporation with approximately $530 million in total assets, $450 million in deposits, and $310 million in loans.

"It was a strong and active quarter," said Michael L. Scudder, Chairman of the Board, President, and Chief Executive Officer of the Company. "We earned $0.29 per share for the quarter, which, as expected, absorbed $0.11 per share of implementation costs attendant to our Delivering Excellence initiative. Adjusted for this investment, earnings improved to $0.40 per share, a robust 21% increase over last quarter. Overall, earnings benefited from solid loan growth, stable core funding, as well as higher interest rates, which in turn expanded net interest income and margin. Our performance was further enhanced by improved credit costs, controlled operating expenses, and lower taxes."

Mr. Scudder continued, "Delivering Excellence remains on track as we advance our commitment to give our clients a superior service experience, as well as maximize the efficiency and scalability of our platforms. Importantly, today's investments will be more than recouped through the benefits of a deeper relationship with our clients and improved operating performance. Additionally, our pending acquisition of Northern States Financial Corporation will further strengthen our balance sheet and add to our business momentum. As we look ahead, these investments, supported by a talented team of colleagues and healthy economic backdrop, leave us well positioned for continued business growth and improved performance."

DELIVERING EXCELLENCE INITIATIVE

During the second quarter of 2018, the Company initiated certain actions in connection with its previously announced Delivering Excellence initiative. This initiative further demonstrates the Company's ongoing commitment to providing service excellence to its clients, as well as maximizing both the efficiency and scalability of its operating platform. Components of Delivering Excellence include improved delivery of services to clients through streamlined processes, the consolidation or closing of 19 locations, organizational realignments, and several revenue growth opportunities.

The Company expects to incur total pre-tax implementation costs associated with Delivering Excellence of $25 million, the majority of which will be recognized in 2018. The Company began implementing this initiative in the second quarter of 2018, which resulted in pre-tax implementation costs of $15 million associated with property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services.

PENDING ACQUISITION

Northern States Financial Corporation

On June 6, 2018, the Company entered into a definitive agreement to acquire Northern States Financial Corporation ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. As of June 30, 2018, Northern States had approximately $530 million in total assets, $450 million in deposits, and $310 million in loans. The merger agreement provides for an exchange ratio of 0.0369 shares of Company stock for each share of Northern States common stock, subject to adjustment as set forth in the merger agreement. As of the date of announcement, the overall transaction was valued at approximately $91 million. The acquisition is expected to close in the fourth quarter of 2018, subject to customary regulatory approvals and closing conditions, as well as the approval of Northern States' stockholders.

(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.

(2)  As a result of accounting guidance adopted in the first quarter of 2018 (the "accounting reclassification"), certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior year period are presented on a net basis in noninterest income for the current year periods.

OPERATING PERFORMANCE


Net Interest Income and Margin Analysis
(Dollar amounts in thousands)

  Quarters Ended
  June 30, 2018     March 31, 2018     June 30, 2017
  Average
Balance
  Interest   Yield/
Rate
(%)
    Average
Balance
  Interest   Yield/
Rate
(%)
    Average
Balance
  Interest   Yield/
Rate
(%)
Assets                                      
Other interest-earning assets $ 147,996     $ 519     1.41       $ 112,137     $ 423     1.53       $ 262,206     $ 686     1.05  
Securities(1) 2,165,091     13,322     2.46       2,063,223     12,141     2.35       1,983,341     11,482     2.32  
Federal Home Loan Bank ("FHLB") and
  Federal Reserve Bank ("FRB") stock
80,038     864     4.32       76,883     438     2.28       57,073     441     3.09  
Loans(1) 10,788,285     128,422     4.77       10,499,283     119,318     4.61       10,064,119     115,949     4.62  
Total interest-earning assets(1) 13,181,410     143,127     4.35       12,751,526     132,320     4.20       12,366,739     128,558     4.17  
Cash and due from banks 197,025               181,797               188,886          
Allowance for loan losses (99,469 )             (99,234 )             (92,152 )        
Other assets 1,326,749               1,352,964               1,497,370          
Total assets $ 14,605,715               $ 14,187,053               $ 13,960,843          
Liabilities and Stockholders' Equity                                      
Savings deposits $ 2,060,066     373     0.07       $ 2,015,679     368     0.07       $ 2,072,343     394     0.08  
NOW accounts 2,065,530     1,472     0.29       1,992,672     1,048     0.21       2,010,152     663     0.13  
Money market deposits 1,759,313     1,073     0.24       1,814,057     824     0.18       1,942,672     648     0.13  
Time deposits 1,871,666     5,114     1.10       1,735,155     3,939     0.92       1,538,845     2,024     0.53  
Borrowed funds 913,902     3,513     1.54       858,297     3,479     1.64       553,046     2,099     1.52  
Senior and subordinated debt 195,385     3,140     6.45       195,243     3,124     6.49       194,819     3,105     6.39  
Total interest-bearing liabilities 8,865,862     14,685     0.66       8,611,103     12,782     0.60       8,311,877     8,933     0.43  
Demand deposits 3,621,645               3,466,832               3,538,049          
Total funding sources 12,487,507         0.47       12,077,935         0.43       11,849,926         0.30  
Other liabilities 227,481               235,699               280,381          
Stockholders' equity - common 1,890,727               1,873,419               1,830,536          
Total liabilities and
  stockholders' equity
$ 14,605,715               $ 14,187,053               $ 13,960,843          
Tax-equivalent net interest
  income/margin(1)
    128,442     3.91           119,538     3.80           119,625     3.88  
Tax-equivalent adjustment     (1,039 )             (975 )             (2,042 )    
Net interest income (GAAP)(1)     $ 127,403               $ 118,563               $ 117,583      
Impact of acquired loan accretion(1)     $ 4,445     0.14           $ 5,112     0.16           $ 8,757     0.28  
Tax-equivalent net interest income/
  margin, adjusted(1)
    $ 123,997     3.77           $ 114,426     3.64           $ 110,868     3.60  

(1)  Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are presented using the federal income tax rate applicable at that time 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 second quarter of 2018 increased by 7.5% from the first quarter of 2018 and 8.4% compared to the second quarter of 2017. The rise in net interest income compared to both prior periods resulted primarily from the impact of higher interest rates and growth in loans and securities, partially offset by lower acquired loan accretion and higher cost of funds. In addition, net interest income for the second quarter of 2018 benefited from an increase in the number of days compared to the first quarter of 2018.

Acquired loan accretion contributed $4.4 million, $5.1 million, and $8.8 million to net interest income for the second quarter of 2018, the first quarter of 2018, and the second quarter of 2017, respectively.

Tax-equivalent net interest margin for the current quarter was 3.91%, increasing 11 basis points from the first quarter of 2018 and 3 basis points from the second quarter of 2017. Compared to both prior periods, the benefit of higher interest rates and growth in interest-earning assets more than offset the 2 and 14 basis point decrease in acquired loan accretion compared to the first quarter of 2018 and second quarter of 2017, respectively. In addition, compared to the second quarter of 2017, tax-equivalent net interest margin was negatively impacted by a 3 basis point reduction in the tax-equivalent adjustment as a result of lower federal income tax rates.

For the second quarter of 2018, total average interest-earning assets rose by $429.9 million from the first quarter of 2018 and $814.7 million from the second quarter of 2017. The increase compared to both prior periods resulted primarily from loan growth and security purchases.

Total average funding sources for the second quarter of 2018 increased by $409.6 million from the first quarter of 2018 and $637.6 million from the second quarter of 2017. The increase compared to both prior periods resulted primarily from an increase in core and time deposits and FHLB advances.


Noninterest Income Analysis
(Dollar amounts in thousands)

    Quarters Ended   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Service charges on deposit accounts   $ 12,058     $ 11,652     $ 12,153     3.5     (0.8 )
Wealth management fees   10,981     10,958     10,525     0.2     4.3  
Card-based fees, net(1):                    
Card-based fees   6,270     5,692     8,832     10.2     (29.0 )
Cardholder expenses   (1,876 )   (1,759 )       6.7     N/M  
Card-based fees, net   4,394     3,933     8,832     11.7     (50.2 )
Mortgage banking income   1,736     2,397     1,645     (27.6 )   5.5  
Capital market products income   2,819     1,558     2,217     80.9     27.2  
Merchant servicing fees, net(1):                    
Merchant servicing fees   2,553     2,237     3,197     14.1     (20.1 )
Merchant card expenses   (2,170 )   (1,907 )       13.8     N/M  
Merchant servicing fees, net   383     330     3,197     16.1     (88.0 )
Other service charges, commissions, and fees   2,455     2,218     2,659     10.7     (7.7 )
Total fee-based revenues   34,826     33,046     41,228     5.4     (15.5 )
Other income   2,121     2,471     3,433     (14.2 )   (38.2 )
Net securities gains           284         (100.0 )
Total noninterest income(1)   $ 36,947     $ 35,517     $ 44,945     4.0     (17.8 )
 

Noninterest Income, Adjusted(2)
(Dollar amounts in thousands)

    Quarters Ended   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Total noninterest income(1)   $ 36,947     $ 35,517     $ 44,945     4.0     (17.8 )
Net securities gains           (284 )       (100.0 )
Accounting reclassification(1)   4,046     3,666         10.4     N/M  
Durbin Amendment           (3,100 )       (100.0 )
Total noninterest income, adjusted(2)   $ 40,993     $ 39,183     $ 41,561     4.6     (1.4 )

N/M – Not meaningful.

(1)  As a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior year period are presented on a net basis in noninterest income for the current year periods. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

(2)  See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Total noninterest income of $36.9 million was up by 4.0% from the first quarter of 2018 and down by 17.8% compared to the second quarter of 2017. In the first quarter of 2018, the Company adopted accounting guidance which impacted how cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first and second quarters of 2018 versus a gross basis within noninterest expense for the second quarter of 2017. In addition, the Durbin Amendment became effective for the Company in the third quarter of 2017. Excluding these items and net securities gains, noninterest income was $41.0 million, up 4.6% from the first quarter of 2018 and down modestly from the second quarter of 2017.

The increase in noninterest income compared to the first quarter of 2018 was impacted by seasonally higher transaction volumes in service charges on deposit accounts and net card-based fees. Capital market products income increased compared to both prior periods, which fluctuates from quarter to quarter based on the size and frequency of sales to corporate clients.

The increase in wealth management fees compared to the second quarter of 2017 was driven primarily by continued sales of fiduciary and investment advisory services. Net card-based fees, excluding the accounting reclassification and the Durbin Amendment, were up 8.5% compared to the second quarter of 2017 due to higher transaction volumes. Other income in the second quarter of 2017 was elevated due to net gains from the disposition of branch properties and other miscellaneous items.

Mortgage banking income for the second quarter of 2018 resulted from sales of $64.3 million of 1-4 family mortgage loans in the secondary market, compared to $63.8 million in the first quarter of 2018 and $59.5 million in the second quarter of 2017. Compared to the first quarter of 2018, mortgage banking income declined due primarily to decreases in market pricing on sales of 1-4 family mortgage loans and lower fair value adjustments on mortgage servicing rights, which fluctuate from quarter to quarter.


Noninterest Expense Analysis
(Dollar amounts in thousands)

    Quarters Ended   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Salaries and employee benefits:                    
Salaries and wages   $ 46,256     $ 45,830     $ 44,194     0.9     4.7  
Retirement and other employee benefits   11,676     10,957     10,381     6.6     12.5  
Total salaries and employee benefits   57,932     56,787     54,575     2.0     6.2  
Net occupancy and equipment expense   13,651     13,773     12,485     (0.9 )   9.3  
Professional services   8,298     7,580     9,112     9.5     (8.9 )
Technology and related costs   4,837     4,771     4,485     1.4     7.8  
Advertising and promotions   2,061     1,650     1,693     24.9     21.7  
Net other real estate owned ("OREO") expense   (256 )   1,068     1,631     (124.0 )   (115.7 )
Other expenses   11,878     9,953     10,282     19.3     15.5  
Delivering Excellence implementation costs   15,015             100.0     100.0  
Acquisition and integration related expenses           1,174         (100.0 )
Cardholder expenses(1)           1,682         (100.0 )
Merchant card expenses(1)           2,632         (100.0 )
Total noninterest expense(1)   $ 113,416     $ 95,582     $ 99,751     18.7     13.7  
 

Noninterest Expense, Adjusted(2)
(Dollar amounts in thousands)

    Quarters Ended   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Total noninterest expense(1)   $ 113,416     $ 95,582     $ 99,751     18.7     13.7  
Accounting reclassification(1)   4,046     3,666         10.4     100.0  
Delivering Excellence implementation costs   (15,015 )           (100.0 )   (100.0 )
Acquisition and integration related expenses           (1,174 )       (100.0 )
Total noninterest expense, adjusted(2)   $ 102,447     $ 99,248     $ 98,577     3.2     3.9  

(1)  As a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis for the prior year period are presented on a net basis in noninterest income for the current year periods. For further discussion of this guidance, see Note 2 of "Notes to the Consolidated Financial Statements" in Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2017.

(2)  See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Total noninterest expense increased by 18.7% compared to the first quarter of 2018 and 13.7% compared to the second quarter of 2017. During the second quarter of 2018, noninterest expense was impacted by costs related to the implementation of the Delivering Excellence initiative, which include property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services. In the first quarter of 2018, the Company adopted accounting guidance which impacted how cardholder and merchant card expenses are presented within noninterest income on a prospective basis. As a result, these expenses are presented on a net basis against the related noninterest income for the first and second quarters of 2018 versus a gross basis within noninterest expense for the prior period. The second quarter of 2017 was impacted by acquisition and integration related expenses. Excluding these items, noninterest expense for the second quarter of 2018 was $102.4 million, up 3.2% and 3.9% from the first quarter of 2018 and second quarter of 2017, respectively.

Compared to both prior periods, the increase in retirement and other employee benefits was driven primarily by the distribution of higher pension plan lump-sum payments to retired employees. Advertising and promotions expense increased compared to both prior periods as a result of the timing of certain advertising costs. The decrease in net OREO expense compared to both prior periods resulted primarily from higher levels of operating income and lower valuation adjustments. Other expenses increased compared to both prior periods as a result of property valuation adjustments related to the Company's corporate headquarters relocation and higher other miscellaneous expenses.

The increase in professional services expenses compared to the first quarter of 2018 was due mainly to higher service costs related to the sale of capital market products to commercial clients and the timing of certain legal accruals.

Compared to the second quarter of 2017, salaries and wages increased as a result of merit increases and organizational growth. The increase in net occupancy and equipment expense compared to the second quarter of 2017 was due largely to higher costs related to the Company's corporate headquarters relocation. Professional services expenses decreased compared to the second quarter of 2017 as the prior year was impacted by certain costs associated with organizational growth and higher loan remediation expenses.

INCOME TAXES

The Company's effective tax rate for the second quarter of 2018 was 24.7%, compared to 22.6% for the first quarter of 2018 and 35.9% for the second quarter of 2017. The first quarter of 2018 was impacted by a $1.0 million income tax benefit related to employee share-based payments. The decrease in the effective tax rate from the second quarter of 2017 was driven primarily by the reduction in the federal income tax rate from 35% to 21% which became effective in the first quarter of 2018 as a result of federal income tax reform.

LOAN PORTFOLIO AND ASSET QUALITY


Loan Portfolio Composition
(Dollar amounts in thousands)

    As of   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Commercial and industrial   $ 3,844,067     $ 3,659,066     $ 3,410,748     5.1     12.7  
Agricultural   433,175     435,734     433,424     (0.6 )   (0.1 )
Commercial real estate:                    
Office, retail, and industrial   1,834,918     1,931,202     1,983,802     (5.0 )   (7.5 )
Multi-family   703,091     695,830     681,032     1.0     3.2  
Construction   633,601     585,766     543,892     8.2     16.5  
Other commercial real estate   1,337,396     1,363,238     1,383,937     (1.9 )   (3.4 )
Total commercial real estate   4,509,006     4,576,036     4,592,663     (1.5 )   (1.8 )
Total corporate loans   8,786,248     8,670,836     8,436,835     1.3     4.1  
Home equity   847,903     881,534     865,656     (3.8 )   (2.1 )
1-4 family mortgages   880,181     798,902     614,818     10.2     43.2  
Installment   377,233     325,502     314,850     15.9     19.8  
Total consumer loans   2,105,317     2,005,938     1,795,324     5.0     17.3  
Total loans   $ 10,891,565     $ 10,676,774     $ 10,232,159     2.0     6.4  
 

Total loans of $10.9 billion increased by 8.0%, annualized from March 31, 2018 and by 6.4% from June 30, 2017. Compared to both prior periods, growth in commercial and industrial loans, primarily within our sector-based lending businesses, multi-family, and construction loans drove the rise in total corporate loans. The rise in construction loans compared to both prior periods was due to line draws on existing credits. The overall decline in office, retail, and industrial and other commercial real estate loans compared to both prior periods resulted primarily from the decision of certain customers to opportunistically sell their commercial business and investment real estate properties, as well as expected payoffs.

Growth in consumer loans compared to both prior periods benefited from the impact of purchases of 1-4 family mortgages and installment loans, as well as organic production. Compared to June 30, 2017, growth in consumer loans also benefited from the purchase of shorter-duration home equity loans.


Asset Quality
(Dollar amounts in thousands)

    As of   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Asset quality                    
Non-accrual loans   $ 53,475     $ 75,015     $ 79,196     (28.7 )   (32.5 )
90 days or more past due loans, still accruing
  interest(1)
  7,954     4,633     2,059     71.7     286.3  
Total non-performing loans   61,429     79,648     81,255     (22.9 )   (24.4 )
Accruing troubled debt restructurings
  ("TDRs")
  1,760     1,778     2,029     (1.0 )   (13.3 )
OREO   12,892     17,472     26,493     (26.2 )   (51.3 )
Total non-performing assets   $ 76,081     $ 98,898     $ 109,777     (23.1 )   (30.7 )
30-89 days past due loans(1)   $ 39,171     $ 42,573     $ 19,081          
Non-accrual loans to total loans   0.49 %   0.70 %   0.77 %        
Non-performing loans to total loans   0.56 %   0.75 %   0.79 %        
Non-performing assets to total loans plus
  OREO
  0.70 %   0.92 %   1.07 %        
Allowance for credit losses   $ 97,691     $ 95,854     $ 93,371          
Allowance for credit losses to total loans(2)   0.90 %   0.90 %   0.91 %        
Allowance for credit losses to loans, excluding
  acquired loans
  1.00 %   1.01 %   1.10 %        
Allowance for credit losses to non-accrual
  loans
  182.69 %   127.78 %   117.90 %        

(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.

Total non-performing assets represented 0.70% of total loans and OREO at June 30, 2018, down from 0.92% and 1.07% at March 31, 2018 and June 30, 2017, respectively. The decline in OREO compared to both prior periods resulted from sales of OREO properties. Non-accrual loans decreased by $21.5 million from the first quarter of 2018 due primarily to the final resolution of two corporate relationships.

The allowance for credit losses to total loans was 0.90% at June 30, 2018, consistent with March 31, 2018 and down slightly from 0.91% at June 30, 2017.


Charge-Off Data
 (Dollar amounts in thousands)

    Quarters Ended
    June 30,
2018
  % of
Total
  March 31,
2018
  % of
Total
  June 30,
2017
  % of
Total
Net loan charge-offs(1)                        
Commercial and industrial   $ 7,081     72.4     $ 13,149     81.9     $ 1,721     42.7  
Agricultural   828     8.5     983     6.1     836     20.7  
Office, retail, and industrial   279     2.9     364     2.3     (8 )   (0.2 )
Multi-family   4                 (6 )   (0.2 )
Construction   (8 )   (0.1 )   (13 )   (0.1 )   27     0.7  
Other commercial real estate   (358 )   (3.7 )   30     0.2     228     5.7  
Consumer   1,951     20.0     1,543     9.6     1,233     30.6  
Total net loan charge-offs   $ 9,777     100.0     $ 16,056     100.0     $ 4,031     100.0  
Total recoveries included above   $ 1,532         $ 1,029         $ 828      
Net loan charge-offs to average loans:                        
Quarter-to-date(1)   0.36 %       0.62 %       0.16 %    
Year-to-date(1)   0.49 %       0.62 %       0.14 %    

(1)  Amounts represent charge-offs, net of recoveries.

Net loan charge-offs to average loans, annualized were 0.36%, down from 0.62% and up from 0.16% for the first quarter of 2018 and second quarter of 2017, respectively. Net loan charge-offs were elevated in the first quarter of 2018 due to losses on two corporate relationships based upon circumstances unique to these borrowers. Charge-offs for the second quarter of 2018 include the final resolution of certain commercial and industrial relationships for which specific reserves were previously established.

DEPOSIT PORTFOLIO


Deposit Composition
(Dollar amounts in thousands)

    Average for the Quarters Ended   June 30, 2018
Percent Change From
    June 30,
2018
  March 31,
2018
  June 30,
2017
  March 31,
2018
  June 30,
2017
Demand deposits   $ 3,621,645     $ 3,466,832     $ 3,538,049     4.5     2.4  
Savings deposits   2,060,066     2,015,679     2,072,343     2.2     (0.6 )
NOW accounts   2,065,530     1,992,672     2,010,152     3.7     2.8  
Money market accounts   1,759,313     1,814,057     1,942,672     (3.0 )   (9.4 )
Core deposits   9,506,554     9,289,240     9,563,216     2.3     (0.6 )
Time deposits   1,871,666     1,735,155     1,538,845     7.9     21.6  
Total deposits   $ 11,378,220     $ 11,024,395     $ 11,102,061     3.2     2.5  

Average core deposits of $9.5 billion for the second quarter of 2018 increased by 2.3% from the first quarter of 2018 and were consistent with the second quarter of 2017. The rise in average core deposits compared to the first quarter of 2018 resulted primarily from the normal seasonal increase in municipal deposits. The increase in average time deposits compared to both prior periods was primarily driven by the continued success of promotions which started in 2017.

CAPITAL MANAGEMENT

Capital Ratios

    As of
    June 30,
2018
  March 31,
2018
  December 31,
2017
  June 30,
2017
Company regulatory capital ratios:
Total capital to risk-weighted assets     12.07 %     12.07 %     12.15 %     11.69 %
Tier 1 capital to risk-weighted assets   10.09 %   10.07 %   10.10 %   9.71 %
Common equity Tier 1 ("CET1") to risk-weighted assets   9.68 %   9.65 %   9.68 %   9.30 %
Tier 1 capital to average assets   8.95 %   9.07 %   8.99 %   8.93 %
Company tangible common equity ratios(1)(2):            
Tangible common equity to tangible assets   8.04 %   8.18 %   8.33 %   8.20 %
Tangible common equity, excluding accumulated other comprehensive
  income ("AOCI"), to tangible assets
  8.50 %   8.60 %   8.58 %   8.48 %
Tangible common equity to risk-weighted assets   9.16 %   9.18 %   9.31 %   8.90 %

(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 were consistent compared to March 31, 2018. Compared to June 30, 2017, the Company's regulatory capital ratios benefited from strong earnings and the sale of its trust-preferred collateralized debt obligations portfolio during the fourth quarter of 2017, partially offset by the impact of loan growth on risk-weighted assets and the phase-in of certain regulatory capital calculation provisions.

The Board of Directors approved a quarterly cash dividend of $0.11 per common share during the second quarter of 2018, which follows a dividend increase from $0.10 to $0.11 per common share during the first quarter of 2018 and represents the 142nd consecutive cash dividend paid by the Company since its inception in 1983.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, July 25, 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 ID 10122054 beginning one hour after completion of the live call until 9:00 A.M. (ET) on August 8, 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, Presentation Materials, and Additional Information Available on Website

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

Forward-Looking Statements

This press release, as well as any oral statements made by or on behalf of First Midwest in connection herewith, 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," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Forward-looking statements are not historical facts or guarantees of future performance 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. 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, First Midwest's "Delivering Excellence" initiative, including actions, goals, and expectations, as well as costs and benefits therewith and the timing thereof, 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 pending or consummated transactions (such as First Midwest's proposed acquisition of Northern States), 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2017, 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 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, noninterest income, adjusted, noninterest expense, adjusted, effective income tax rate, excluding revaluations of deferred tax assets ("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 common equity, adjusted, 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, return on average common equity, and return on average tangible common equity, all adjusted for certain significant transactions. These transactions include Delivering Excellence implementation costs (second quarter of 2018), the revaluation of DTAs (third and fourth quarters of 2017), certain actions resulting in securities losses and gains (third and fourth 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), and acquisition and integration related expenses associated with completed and pending acquisitions (second and third quarters of 2017). Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, return on average common equity, 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 Company presents noninterest income, adjusted, which excludes the accounting reclassification, the Durbin Amendment, and net securities gains, and noninterest expense, adjusted, which excludes the accounting reclassification, Delivering Excellence implementation costs, and acquisition and integration related expenses. Management believes that excluding these items from noninterest income and noninterest expense is useful in assessing the Company's underlying operational performance as these items either do not pertain to its core business operations or their exclusion facilitates better comparability between periods and 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. Interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are computed using the federal income tax rate applicable at that time, or 35%. 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, adjusted, 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. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. 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.

Additional Information

The information contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed merger of First Midwest and Northern States, First Midwest will file a registration statement on Form S-4 with the SEC. The registration statement will include a proxy statement of Northern States, which also will constitute a prospectus of First Midwest, that will be sent to Northern States' stockholders. Investors and stockholders are advised to read the registration statement and proxy statement/prospectus when it becomes available because it will contain important information about First Midwest, Northern States and the proposed transaction. When filed, this document and other documents relating to the transaction filed by First Midwest can be obtained free of charge from the SEC's website at www.sec.gov. These documents also can be obtained free of charge by accessing First Midwest's website at www.firstmidwest.com under the tab "Investor Relations" and then under "SEC Filings." Alternatively, these documents can be obtained free of charge from First Midwest upon written request to First Midwest Bancorp, Inc., Attn: Corporate Secretary, 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631 or by calling (708) 831-7563, or from Northern States upon written request to Northern States Financial Corporation, Attn: Scott Yelvington, President and Chief Executive Officer, 1601 North Lewis Avenue, Waukegan, Illinois 60085 or by calling (847) 775-8200.

Participants in the Proposed Northern States Transaction

First Midwest, Northern States and certain of their respective directors and executive officers may be deemed under the rules of the SEC to be participants in the solicitation of proxies from Northern States' stockholders in connection with the proposed transaction. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the proxy statement/prospectus regarding the proposed transaction when it becomes available. Additional information about First Midwest and its directors and certain of its officers may be found in First Midwest's definitive proxy statement relating to its 2018 Annual Meeting of Stockholders filed with the SEC on April 11, 2018 and First Midwest's annual report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018. The definitive proxy statement and annual report can be obtained free of charge from the SEC's website at www.sec.gov.

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 Chicago and the Midwest, with approximately $15 billion in assets and $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 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 and Chief Financial Officer
(708) 831-7231
pat.barrett@firstmidwest.com
   


Accompanying Unaudited Selected Financial Information

First Midwest Bancorp, Inc.
Consolidated Statements of Financial Condition (Unaudited)
(Dollar amounts in thousands)
   
  As of
  June 30,   March 31,   December 31,   September 30,   June 30,
  2018   2018   2017   2017   2017
Period-End Balance Sheet                  
Assets                  
Cash and due from banks $ 181,482     $ 150,138     $ 192,800     $ 174,147     $ 181,171  
Interest-bearing deposits in other banks 192,785     84,898     153,770     252,753     103,181  
Trading securities, at fair value(1)         20,447     20,425     19,545  
Equity securities, at fair value(1) 28,441     28,513              
Securities available-for-sale, at fair value(1) 2,142,865     2,040,950     1,884,209     1,732,984     1,908,248  
Securities held-to-maturity, at amortized cost 13,042     13,400     13,760     14,638     17,353  
FHLB and FRB stock 82,778     80,508     69,708     69,708     66,333  
Loans:                  
Commercial and industrial 3,844,067     3,659,066     3,529,914     3,462,612     3,410,748  
Agricultural 433,175     435,734     430,886     437,721     433,424  
Commercial real estate:                  
Office, retail, and industrial 1,834,918     1,931,202     1,979,820     1,960,367     1,983,802  
Multi-family 703,091     695,830     675,463     711,101     681,032  
Construction 633,601     585,766     539,820     545,666     543,892  
Other commercial real estate 1,337,396     1,363,238     1,358,515     1,391,241     1,383,937  
Home equity 847,903     881,534     827,055     847,209     865,656  
1-4 family mortgages 880,181     798,902     774,357     711,607     614,818  
Installment 377,233     325,502     321,982     322,768     314,850  
Total loans 10,891,565     10,676,774     10,437,812     10,390,292     10,232,159  
Allowance for loan losses (96,691 )   (94,854 )   (95,729 )   (94,814 )   (92,371 )
Net loans 10,794,874     10,581,920     10,342,083     10,295,478     10,139,788  
OREO 12,892     17,472     20,851     19,873     26,493  
Premises, furniture, and equipment, net 127,024     126,348     123,316     131,295     135,745  
Investment in bank-owned life insurance ("BOLI") 282,664     281,285     279,900     279,639     278,353  
Goodwill and other intangible assets 753,020     754,814     754,757     750,436     752,413  
Accrued interest receivable and other assets 206,209     219,725     221,451     525,766     340,517  
Total assets $ 14,818,076     $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140  
Liabilities and Stockholders' Equity                  
Noninterest-bearing deposits $ 3,667,847     $ 3,527,081     $ 3,576,190     $ 3,580,922     $ 3,525,905  
Interest-bearing deposits 7,824,416     7,618,941     7,477,135     7,627,575     7,473,815  
Total deposits 11,492,263     11,146,022     11,053,325     11,208,497     10,999,720  
Borrowed funds 981,044     950,688     714,884     700,536     639,333  
Senior and subordinated debt 195,453     195,312     195,170     195,028     194,886  
Accrued interest payable and other liabilities 265,753     218,662     248,799     297,951     298,358  
Stockholders' equity 1,883,563     1,869,287     1,864,874     1,865,130     1,836,843  
Total liabilities and stockholders' equity $ 14,818,076     $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140  
Stockholders' equity, excluding accumulated other
  comprehensive income ("AOCI")
$ 1,947,963     $ 1,926,818     $ 1,897,910     $ 1,903,166     $ 1,873,410  
Stockholders' equity, common 1,883,563     1,869,287     1,864,874     1,865,130     1,836,843  

Footnote to Consolidated Statements of Financial Condition
(1)     As a result of accounting guidance adopted in the first quarter of 2018, equity securities are no longer presented within trading securities or securities available-for-sale and are now presented as equity securities in the Consolidated Statements of Financial Condition for periods subsequent to December 31, 2017.


First Midwest Bancorp, Inc.          
Condensed Consolidated Statements of Income (Unaudited)
(Dollar amounts in thousands)
         
                             
  Quarters Ended     Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,     June 30,   June 30,
  2018   2018   2017   2017   2017     2018   2017
Income Statement                            
Interest income $ 142,088     $ 131,345     $ 129,585     $ 129,916     $ 126,516       $ 273,433     $ 250,215  
Interest expense 14,685     12,782     10,254     10,023     8,933       27,467     17,435  
Net interest income 127,403     118,563     119,331     119,893     117,583       245,966     232,780  
Provision for loan losses 11,614     15,181     8,024     10,109     8,239       26,795     13,157  
Net interest income after
  provision for loan losses
115,789     103,382     111,307     109,784     109,344       219,171     219,623  
Noninterest Income                            
Service charges on deposit
  accounts
12,058     11,652     12,289     12,561     12,153       23,710     23,518  
Wealth management fees 10,981     10,958     10,967     10,169     10,525       21,939     20,185  
Card-based fees, net(1):                            
Card-based fees 6,270     5,692     6,052     5,992     8,832       11,962     16,948  
Cardholder expenses (1,876 )   (1,759 )                 (3,635 )    
Card-based fees, net 4,394     3,933     6,052     5,992     8,832       8,327     16,948  
Capital market products
  income
2,819     1,558     1,986     2,592     2,217       4,377     3,593  
Mortgage banking income 1,736     2,397     2,352     2,246     1,645       4,133     3,533  
Merchant servicing fees, net(1):                            
Merchant servicing fees 2,553     2,237     1,771     2,237     3,197       4,790     6,332  
Merchant card expenses (2,170 )   (1,907 )                 (4,077 )    
Merchant servicing fees,
  net
383     330     1,771     2,237     3,197       713     6,332  
Other service charges,
  commissions, and fees
2,455     2,218     2,369     2,508     2,659       4,673     4,966  
Total fee-based revenues 34,826     33,046     37,786     38,305     41,228       67,872     79,075  
Other income 2,121     2,471     2,476     1,846     3,433       4,592     5,537  
Net securities (losses) gains         (5,357 )   3,197     284           284  
Total noninterest
  income
36,947     35,517     34,905     43,348     44,945       72,464     84,896  
Noninterest Expense                            
Salaries and employee benefits:                          
Salaries and wages 46,256     45,830     48,204     45,219     44,194       92,086     89,084  
Retirement and other
  employee benefits
11,676     10,957     10,204     10,419     10,381       22,633     21,263  
Total salaries and
  employee benefits
57,932     56,787     58,408     55,638     54,575       114,719     110,347  
Net occupancy and
  equipment expense
13,651     13,773     12,826     12,115     12,485       27,424     24,810  
Professional services 8,298     7,580     7,616     8,498     9,112       15,878     17,575  
Technology and related costs 4,837     4,771     4,645     4,505     4,485       9,608     8,918  
Advertising and promotions 2,061     1,650     4,083     1,852     1,693       3,711     2,759  
Net OREO expense (256 )   1,068     695     657     1,631       812     3,331  
Merchant card expenses(1)         1,423     1,737     2,632           5,217  
Cardholder expenses(1)         1,915     1,962     1,682           3,446  
Other expenses 11,878     9,953     10,715     9,842     10,282       21,831     20,251  
Delivering Excellence 
  implementation costs
15,015                       15,015      
Acquisition and integration
  related expenses
            384     1,174           19,739  
Total noninterest expense 113,416     95,582     102,326     97,190     99,751       208,998     216,393  
Income before income tax
  expense
39,320     43,317     43,886     55,942     54,538       82,637     88,126  
Income tax expense 9,720     9,807     41,539     17,707     19,588       19,527     30,321  
Net income $ 29,600     $ 33,510     $ 2,347     $ 38,235     $ 34,950       $ 63,110     $ 57,805  
Net income applicable to
  common shares
$ 29,360     $ 33,199     $ 2,341     $ 37,895     $ 34,614       $ 62,559     $ 57,235  
Net income applicable to
  common shares, adjusted(2)
40,621     33,199     34,131     33,390     35,318       73,820     69,078  

Footnotes to Condensed Consolidated Statements of Income
(1)     As a result of accounting guidance adopted in the first quarter of 2018, certain noninterest income line items and related noninterest expense line items that are presented on a gross basis for periods prior to December 31, 2017 are now presented on a net basis in noninterest income for periods subsequent to December 31, 2017.
(2)     See the "Non-GAAP Reconciliations" section for the detailed calculation.


First Midwest Bancorp, Inc.          
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
                             
  As of or for the
  Quarters Ended     Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,     June 30,   June 30,
  2018   2018   2017   2017   2017     2018   2017
Earnings Per Share                            
Basic EPS(1) $ 0.29     $ 0.33     $ 0.02     $ 0.37     $ 0.34       $ 0.61     $ 0.57  
Diluted EPS(1) $ 0.29     $ 0.33     $ 0.02     $ 0.37     $ 0.34       $ 0.61     $ 0.57  
Diluted EPS, adjusted(1) $ 0.40     $ 0.33     $ 0.34     $ 0.33     $ 0.35       $ 0.72     $ 0.68  
Common Stock and Related Per Common Share Data          
Book value $ 18.28     $ 18.13     $ 18.16     $ 18.16     $ 17.88       $ 18.28     $ 17.88  
Tangible book value $ 10.97     $ 10.81     $ 10.81     $ 10.85     $ 10.55       $ 10.97     $ 10.55  
Dividends declared per share $ 0.11     $ 0.11     $ 0.10     $ 0.10     $ 0.10       $ 0.22     $ 0.19  
Closing price at period end $ 25.47     $ 24.59     $ 24.01     $ 23.42     $ 23.31       $ 25.47     $ 23.31  
Closing price to book value 1.4     1.4     1.3     1.3     1.3       1.4     1.3  
Period end shares outstanding 103,059     103,092     102,717     102,722     102,741       103,059     102,741  
Period end treasury shares 9,297     9,261     9,634     9,626     9,604       9,297     9,604  
Common dividends $ 11,333     $ 11,349     $ 10,278     $ 10,411     $ 10,256       $ 22,682     $ 18,407  
Key Ratios/Data                            
Return on average common
  equity(1)(2)
6.23 %   7.19 %   0.49 %   8.10 %   7.58 %     6.70 %   6.42 %
Return on average common
  equity, adjusted(1)(2)
8.62 %   7.19 %   7.20 %   7.14 %   7.74 %     7.91 %   7.75 %
Return on average tangible
  common equity(1)(2)
10.83 %   12.50 %   1.20 %   14.02 %   13.37 %     11.65 %   11.52 %
Return on average tangible
  common equity, adjusted(1)(2)
14.81 %   12.50 %   12.35 %   12.41 %   13.64 %     13.67 %   13.81 %
Return on average assets(2) 0.81 %   0.96 %   0.07 %   1.07 %   1.00 %     0.88 %   0.84 %
Return on average assets,
  adjusted(1)(2)
1.12 %   0.96 %   0.96 %   0.95 %   1.02 %     1.04 %   1.02 %
Loans to deposits 94.77 %   95.79 %   94.43 %   92.70 %   93.02 %     94.77 %   93.02 %
Efficiency ratio(1) 59.65 %   60.96 %   60.78 %   59.32 %   59.01 %     60.28 %   60.13 %
Efficiency ratio (prior
  presentation)(1)(3)
N/A     N/A     60.32 %   58.97 %   58.67 %     N/A     59.80 %
Net interest margin(2)(4) 3.91 %   3.80 %   3.84 %   3.86 %   3.88 %     3.85 %   3.88 %
Yield on average interest-earning
  assets(2)(4)
4.35 %   4.20 %   4.16 %   4.18 %   4.17 %     4.28 %   4.17 %
Cost of funds(2)(5) 0.47 %   0.43 %   0.34 %   0.33 %   0.30 %     0.45 %   0.30 %
Net noninterest expense to
  average assets(2)
2.10 %   1.72 %   1.74 %   1.60 %   1.58 %     1.91 %   1.92 %
Effective income tax rate 24.72 %   22.64 %   94.65 %   31.65 %   35.92 %     23.63 %   34.41 %
Effective income tax rate,
  excluding the revaluations of
  DTAs(6)
24.72 %   22.64 %   34.14 %   36.74 %   35.92 %     23.63 %   34.41 %
Capital Ratios                            
Total capital to risk-weighted
  assets(1)
12.07 %   12.07 %   12.15 %   11.79 %   11.69 %     12.07 %   11.69 %
Tier 1 capital to risk-weighted
  assets(1)
10.09 %   10.07 %   10.10 %   9.83 %   9.71 %     10.09 %   9.71 %
CET1 to risk-weighted assets(1) 9.68 %   9.65 %   9.68 %   9.42 %   9.30 %     9.68 %   9.30 %
Tier 1 capital to average assets(1) 8.95 %   9.07 %   8.99 %   9.04 %   8.93 %     8.95 %   8.93 %
Tangible common equity to
  tangible assets(1)
8.04 %   8.18 %   8.33 %   8.25 %   8.20 %     8.04 %   8.20 %
Tangible common equity,
  excluding AOCI, to tangible
  assets(1)
8.50 %   8.60 %   8.58 %   8.53 %   8.48 %     8.50 %   8.48 %
Tangible common equity to risk
  -weighted assets(1)
9.16 %   9.18 %   9.31 %   9.02 %   8.90 %     9.16 %   8.90 %
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     Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,     June 30,   June 30,
  2018   2018   2017   2017   2017     2018   2017
Asset quality Performance Data                          
Non-performing assets                            
Commercial and industrial $ 22,672     $ 43,974     $ 40,580     $ 41,504     $ 51,400       $ 22,672     $ 51,400  
Agricultural 2,992     4,086     219     380     387       2,992     387  
Commercial real estate:                            
Office, retail, and industrial 9,007     12,342     11,560     12,221     15,031       9,007     15,031  
Multi-family 3,551     144     377     153     158       3,551     158  
Construction 208     208     209     146     197       208     197  
Other commercial real estate 5,288     4,088     3,621     2,239     3,736       5,288     3,736  
Consumer 9,757     10,173     10,358     8,533     8,287       9,757     8,287  
Total non-accrual loans 53,475     75,015     66,924     65,176     79,196       53,475     79,196  
90 days or more past due loans,
  still accruing interest
7,954     4,633     3,555     2,839     2,059       7,954     2,059  
Total non-performing loans 61,429     79,648     70,479     68,015     81,255       61,429     81,255  
Accruing TDRs 1,760     1,778     1,796     1,813     2,029       1,760     2,029  
OREO 12,892     17,472     20,851     19,873     26,493       12,892     26,493  
Total non-performing assets $ 76,081     $ 98,898     $ 93,126     $ 89,701     $ 109,777       $ 76,081     $ 109,777  
30-89 days past due loans $ 39,171     $ 42,573     $ 39,725     $ 28,868     $ 19,081       $ 39,171     $ 19,081  
Allowance for credit losses                            
Allowance for loan losses $ 96,691     $ 94,854     $ 95,729     $ 94,814     $ 92,371       $ 96,691     $ 92,371  
Reserve for unfunded
  commitments
1,000     1,000     1,000     1,000     1,000       1,000     1,000  
Total allowance for credit
  losses
$ 97,691     $ 95,854     $ 96,729     $ 95,814     $ 93,371       $ 97,691     $ 93,371  
Provision for loan losses $ 11,614     $ 15,181     $ 8,024     $ 10,109     $ 8,239       $ 26,795     $ 13,157  
Net charge-offs by category                            
Commercial and industrial $ 7,081     $ 13,149     $ 5,635     $ 8,237     $ 1,721       $ 20,230     $ 3,615  
Agricultural 828     983     (102 )       836       1,811     1,350  
Commercial real estate:                            
Office, retail, and industrial 279     364     (78 )   (1,811 )   (8 )     643     (856 )
Multi-family 4         (3 )   (2 )   (6 )     4     (34 )
Construction (8 )   (13 )   (12 )   (25 )   27       (21 )   (195 )
Other commercial real estate (358 )   30     (5 )   (19 )   228       (328 )   535  
Consumer 1,951     1,543     1,674     1,286     1,233       3,494     2,454  
Total net charge-offs $ 9,777     $ 16,056     $ 7,109     $ 7,666     $ 4,031       $ 25,833     $ 6,869  
Total recoveries included above $ 1,532     $ 1,029     $ 2,011     $ 2,900     $ 828       $ 2,561     $ 4,268  
Note: Selected Financial Information footnotes are located at the end of this section.          


First Midwest Bancorp, Inc.
Selected Financial Information (Unaudited)
                     
    As of or for the
    Quarters Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Asset quality ratios                    
Non-accrual loans to total loans      0.49 %   0.70 %   0.64 %   0.63 %   0.77 %
Non-performing loans to total loans   0.56 %   0.75 %   0.68 %   0.65 %   0.79 %
Non-performing assets to total loans plus OREO   0.70 %   0.92 %   0.89 %   0.86 %   1.07 %
Non-performing assets to tangible common equity plus allowance
  for credit losses
  6.19 %   8.17 %   7.72 %   7.41 %   9.32 %
Non-accrual loans to total assets   0.36 %   0.52 %   0.48 %   0.46 %   0.57 %
Allowance for credit losses and net charge-off ratios
Allowance for credit losses to total loans(7)   0.90 %   0.90 %   0.93 %   0.92 %   0.91 %
Allowance for credit losses to loans, excluding acquired loans   1.00 %   1.01 %   1.07 %   1.09 %   1.10 %
Allowance for credit losses to non-accrual loans   182.69 %   127.78 %   144.54 %   147.01 %   117.90 %
Allowance for credit losses to non-performing loans   159.03 %   120.35 %   137.25 %   140.87 %   114.91 %
Net charge-offs to average loans(2)   0.36 %   0.62 %   0.27 %   0.30 %   0.16 %

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 as calculated prior to March 31, 2018, which included a tax-equivalent adjustment for BOLI. Management believes that removing this adjustment from the current calculation of this metric enhances comparability for peer comparison purposes.
(4)    Presented on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are computed using the federal income tax rate applicable at that time of 35%.
(5)     Cost of funds expresses total interest expense as a percentage of total average funding sources.
(6)    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.
(7)    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.


First Midwest Bancorp, Inc.          
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
         
                             
  Quarters Ended     Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,     June 30,   June 30,
  2018   2018   2017   2017   2017     2018   2017
Earnings Per Share                            
Net income $ 29,600     $ 33,510     $ 2,347     $ 38,235     $ 34,950       $ 63,110     $ 57,805  
Net income applicable to non-
  vested restricted shares
(240 )   (311 )   (6 )   (340 )   (336 )     (551 )   (570 )
Net income applicable to
  common shares
29,360     33,199     2,341     37,895     34,614       62,559     57,235  
Adjustments to net income:                            
Delivering Excellence
  implementation costs
15,015                       15,015      
Tax effect of Delivering
  Excellence implementation
  costs
(3,754 )                     (3,754 )    
DTA revaluation         26,555     (2,846 )              
Losses (gains) from securities
  portfolio repositioning
        5,357     (3,197 )              
Tax effect of losses (gains)
  from securities portfolio
  repositioning
        (2,196 )   1,311                
Special bonus         1,915                    
Tax effect of special bonus         (785 )                  
Charitable contribution         1,600                    
Tax effect of charitable
  contribution
        (656 )                  
Acquisition and integration
  related expenses
            384     1,174           19,739  
Tax effect of acquisition and
  integration related expenses
            (157 )   (470 )         (7,896 )
Total adjustments to net
  income, net of tax
11,261         31,790     (4,505 )   704       11,261     11,843  
Net income applicable to
  common shares,
  adjusted(1)
$ 40,621     $ 33,199     $ 34,131     $ 33,390     $ 35,318       $ 73,820     $ 69,078  
Weighted-average common shares outstanding:                          
Weighted-average common
  shares outstanding (basic)
102,159     101,922     101,766     101,752     101,743       102,041     101,081  
Dilutive effect of common
  stock equivalents
    16     21     20     20       8     20  
Weighted-average diluted
  common shares
  outstanding
102,159     101,938     101,787     101,772     101,763       102,049     101,101  
Basic EPS $ 0.29     $ 0.33     $ 0.02     $ 0.37     $ 0.34       $ 0.61     $ 0.57  
Diluted EPS $ 0.29     $ 0.33     $ 0.02     $ 0.37     $ 0.34       $ 0.61     $ 0.57  
Diluted EPS, adjusted(1) $ 0.40     $ 0.33     $ 0.34     $ 0.33     $ 0.35       $ 0.72     $ 0.68  
Anti-dilutive shares not included
  in the computation of diluted
  EPS
    110     190     190     195       54     269  
                             
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     Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,     June 30,   June 30,
  2018   2018   2017   2017   2017     2018   2017
Return on Average Common and Tangible Common Equity                      
Net income applicable to
  common shares
$ 29,360     $ 33,199     $ 2,341     $ 37,895     $ 34,614       $ 62,559     $ 57,235  
Intangibles amortization 1,794     1,802     1,806     1,931     2,163       3,596     4,128  
Tax effect of intangibles
  amortization
(449 )   (508 )   (740 )   (792 )   (865 )     (957 )   (1,651 )
Net income applicable to
  common shares, excluding
  intangibles amortization
30,705     34,493     3,407     39,034     35,912       65,198     59,712  
Total adjustments to net income,
  net of tax
11,261         31,790     (4,505 )   704       11,261     11,843  
Net income applicable to
  common shares, adjusted(1)
$ 41,966     $ 34,493     $ 35,197     $ 34,529     $ 36,616       $ 76,459     $ 71,555  
Average stockholders' equity $ 1,890,727     $ 1,873,419     $ 1,880,265     $ 1,855,647     $ 1,830,536       $ 1,882,121     $ 1,797,222  
Less: average intangible assets (753,887 )   (753,870 )   (749,700 )   (751,366 )   (753,521 )     (753,879 )   (752,063 )
Average tangible common
  equity
$ 1,136,840     $ 1,119,549     $ 1,130,565     $ 1,104,281     $ 1,077,015       $ 1,128,242     $ 1,045,159  
Return on average common
  equity(2)
6.23 %   7.19 %   0.49 %   8.10 %   7.58 %     6.70 %   6.42 %
Return on average common
  equity, adjusted(1)(2)
8.62 %   7.19 %   7.20 %   7.14 %   7.74 %     7.91 %   7.75 %
Return on average tangible
  common equity(2)
10.83 %   12.50 %   1.20 %   14.02 %   13.37 %     11.65 %   11.52 %
Return on average tangible
  common equity, adjusted(1)(2)
14.81 %   12.50 %   12.35 %   12.41 %   13.64 %     13.67 %   13.81 %
Return on Average Assets                      
Net income $ 29,600     $ 33,510     $ 2,347     $ 38,235     $ 34,950       $ 63,110     $ 57,805  
Total adjustments to net income,
  net of tax
11,261         31,790     (4,505 )   704       11,261     11,843  
Net income, adjusted(1) $ 40,861     $ 33,510     $ 34,137     $ 33,730     $ 35,654       $ 74,371     $ 69,648  
Average assets $ 14,605,715     $ 14,187,053     $ 14,118,625     $ 14,155,766     $ 13,960,843       $ 14,397,540     $ 13,817,779  
Return on average assets(2) 0.81 %   0.96 %   0.07 %   1.07 %   1.00 %     0.88 %   0.84 %
Return on average assets,
  adjusted(1)(2)
1.12 %   0.96 %   0.96 %   0.95 %   1.02 %     1.04 %   1.02 %
Efficiency Ratio Calculation                          
Noninterest expense $ 113,416     $ 95,582     $ 102,326     $ 97,190     $ 99,751       $ 208,998     $ 216,393  
Less:                            
Net OREO expense 256     (1,068 )   (695 )   (657 )   (1,631 )     (812 )   (3,331 )
Delivering Excellence
  implementation costs
(15,015 )                     (15,015 )    
Special bonus         (1,915 )                  
Charitable contribution         (1,600 )                  
Acquisition and integration
  related expenses
            (384 )   (1,174 )         (19,739 )
Total $ 98,657     $ 94,514     $ 98,116     $ 96,149     $ 96,946       $ 193,171     $ 193,323  
Tax-equivalent net interest
  income(3)
$ 128,442     $ 119,538     $ 121,154     $ 121,935     $ 119,625       $ 247,980     $ 236,876  
Noninterest income 36,947     35,517     34,905     43,348     44,945       72,464     84,896  
Less: net securities losses (gains)         5,357     (3,197 )   (284 )         (284 )
Total $ 165,389     $ 155,055     $ 161,416     $ 162,086     $ 164,286       $ 320,444     $ 321,488  
Efficiency ratio 59.65 %   60.96 %   60.78 %   59.32 %   59.01 %     60.28 %   60.13 %
                             
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
  June 30,   March 31,   December 31,   September 30,   June 30,
  2018   2018   2017   2017   2017
Risk-Based Capital Data                  
Common stock $ 1,124     $ 1,123     $ 1,123     $ 1,123     $ 1,123  
Additional paid-in capital 1,025,703     1,021,923     1,031,870     1,029,002     1,025,607  
Retained earnings 1,122,107     1,103,840     1,074,990     1,082,921     1,056,072  
Treasury stock, at cost (200,971 )   (200,068 )   (210,073 )   (209,880 )   (209,392 )
Goodwill and other intangible assets, net of deferred tax liabilities (753,020 )   (754,814 )   (743,327 )   (738,645 )   (740,236 )
Disallowed DTAs (389 )   (522 )   (644 )   (275 )   (472 )
CET1 capital 1,194,554     1,171,482     1,153,939     1,164,246     1,132,702  
Trust-preferred securities 50,690     50,690     50,690     50,690     50,690  
Other disallowed DTAs (97 )   (131 )   (161 )   (69 )   (118 )
Tier 1 capital 1,245,147     1,222,041     1,204,468     1,214,867     1,183,274  
Tier 2 capital 244,795     242,870     243,656     242,652     240,121  
Total capital $ 1,489,942     $ 1,464,911     $ 1,448,124     $ 1,457,519     $ 1,423,395  
Risk-weighted assets $ 12,345,200     $ 12,135,662     $ 11,920,372     $ 12,362,833     $ 12,180,416  
Adjusted average assets $ 13,907,100     $ 13,472,294     $ 13,404,998     $ 13,439,744     $ 13,245,499  
Total capital to risk-weighted assets 12.07 %   12.07 %   12.15 %   11.79 %   11.69 %
Tier 1 capital to risk-weighted assets 10.09 %   10.07 %   10.10 %   9.83 %   9.71 %
CET1 to risk-weighted assets 9.68 %   9.65 %   9.68 %   9.42 %   9.30 %
Tier 1 capital to average assets 8.95 %   9.07 %   8.99 %   9.04 %   8.93 %
Tangible Common Equity                  
Stockholders' equity $ 1,883,563     $ 1,869,287     $ 1,864,874     $ 1,865,130     $ 1,836,843  
Less: goodwill and other intangible assets (753,020 )   (754,814 )   (754,757 )   (750,436 )   (752,413 )
Tangible common equity 1,130,543     1,114,473     1,110,117     1,114,694     1,084,430  
Less: AOCI 64,400     57,531     33,036     38,036     36,567  
Tangible common equity, excluding AOCI $ 1,194,943     $ 1,172,004     $ 1,143,153     $ 1,152,730     $ 1,120,997  
Total assets $ 14,818,076     $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140  
Less: goodwill and other intangible assets (753,020 )   (754,814 )   (754,757 )   (750,436 )   (752,413 )
Tangible assets $ 14,065,056     $ 13,625,157     $ 13,322,295     $ 13,516,706     $ 13,216,727  
Tangible common equity to tangible assets 8.04 %   8.18 %   8.33 %   8.25 %   8.20 %
Tangible common equity, excluding AOCI, to tangible assets 8.50 %   8.60 %   8.58 %   8.53 %   8.48 %
Tangible common equity to risk-weighted assets 9.16 %   9.18 %   9.31 %   9.02 %   8.90 %
                   

Footnotes to Non-GAAP Reconciliations
(1)     Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.
(2)     Annualized based on the actual number of days for each period presented.
(3)    Presented on a tax-equivalent basis, assuming the applicable federal income tax rate for each period presented. As a result, interest income and yields on tax-exempt securities and loans subsequent to December 31, 2017 are presented using the current federal income tax rate of 21% and prior periods are computed using the federal income tax rate applicable at that time of 35%.

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