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First Midwest Bancorp, Inc. Announces 2018 First Quarter Results

/EIN News/ -- ITASCA, Ill., April 24, 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 first quarter of 2018. Net income for the first quarter of 2018 was $33.5 million, or $0.33 per share, compared to $2.3 million, or $0.02 per share, for the fourth quarter of 2017, and $22.9 million, or $0.23 per share, for the first quarter of 2017.

Reported results for the fourth quarter of 2017 were impacted by the revaluation of the Company's deferred tax assets ("DTAs") and various actions taken by the Company in light of federal income tax reform legislation. For the first quarter of 2017, reported results 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, adjusted(1) was $0.33 for the first quarter of 2018, compared to $0.34 for both the fourth and the first quarters of 2017.

SELECT FIRST QUARTER HIGHLIGHTS

  • Increased earnings per share to $0.33, up from $0.02 and $0.23 for the fourth and first quarters of 2017, respectively.
    • Generated earnings per share, adjusted(1) of $0.33, down 3% from the fourth and first quarters of 2017.
    • Higher provision expense impacted earnings per share by $0.05 compared to the fourth quarter of 2017, reflective of loan growth and remediation costs specific to two isolated credits.
  • Grew loans to $11 billion, up 9% annualized from December 31, 2017 and 6% from March 31, 2017.
  • Maintained total average deposits at $11 billion, consistent with the fourth quarter of 2017 and up 3% from the first quarter of 2017; core deposit mix of 84%, consistent with both prior periods.
  • Generated tax-equivalent net interest margin(1) of 3.80%; reflects declining loan accretion and a 3 basis point reduction due to federal income tax reform; excluding these items, underlying margin expanded 3 basis points compared to the fourth quarter of 2017 and up 16 basis points from the first quarter of 2017.
  • Lower noninterest income by 11% compared to the first quarter of 2017; up 6% from the first quarter of 2017, excluding the $4 million reclassification impact of recently adopted accounting guidance(2), the impact of the Durbin Amendment effective in the third quarter of 2017, and net securities losses(1).
  • Controlled noninterest expenses, reporting an efficiency ratio(1) of 61%, consistent with the fourth and first quarters of 2017.
  • Increased dividends per share to $0.11, up 10% and 22% from the fourth and first quarters of 2017, respectively.

"We had a solid start to the year," said Michael L. Scudder, Chairman of the Board, President, and Chief Executive Officer of the Company. "Operating performance for the quarter benefitted from strong earning asset growth and stable core funding and margins, combined with lower corporate income taxes. At the same time, comparatively higher credit provisioning weighed on the quarter’s results, reflective of both the pace of loan growth and isolated credit remediation."

Mr. Scudder concluded, "As we look ahead, progress continues on our "Delivering Excellence" initiative, our Company-wide effort to better align customer needs, technology, and processes with client experiences. These same efforts will also enhance operational efficiency and further improve the scalability of our platform. Continued successful execution combined with the strength of our capital and core funding will leave us well-positioned for further business expansion and improved operating performance." 

(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, certain noninterest income line items and the related noninterest expense line items that are presented on a gross basis in prior periods are presented on a net basis in noninterest income for the current period.

OPERATING PERFORMANCE 

   
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
   
  Quarters Ended
  March 31, 2018     December 31, 2017     March 31, 2017
  Average Balance   Interest   Yield/
Rate
(%)
    Average
Balance
  Interest   Yield/
Rate
(%)
    Average
Balance
  Interest   Yield/
Rate
(%)
Assets                                      
Other interest-earning assets $ 112,137     $ 423     1.53       $ 203,459     $ 721     1.41       $ 215,915     $ 441     0.83  
Securities(1) 2,063,223     12,141     2.35       1,890,020     10,977     2.32       2,021,157     11,535     2.28  
Federal Home Loan Bank ("FHLB") and
  Federal Reserve Bank ("FRB") stock
76,883     438     2.28       63,520     506     3.19       54,219     368     2.71  
Loans(1) 10,499,283     119,318     4.61       10,384,074     119,204     4.55       9,920,513     113,409     4.64  
Total interest-earning assets(1) 12,751,526     132,320     4.20       12,541,073     131,408     4.16       12,211,804     125,753     4.17  
Cash and due from banks 181,797               188,683               176,953          
Allowance for loan losses (99,234 )             (99,590 )             (89,065 )        
Other assets 1,352,964               1,488,459               1,373,433          
Total assets $ 14,187,053               $ 14,118,625               $ 13,673,125          
Liabilities and Stockholders' Equity                                      
Savings deposits $ 2,015,679     368     0.07       $ 2,017,489     382     0.08       $ 2,029,631     400     0.08  
NOW accounts 1,992,672     1,048     0.21       1,992,150     690     0.14       1,916,816     478     0.10  
Money market deposits 1,814,057     824     0.18       1,938,195     772     0.16       1,890,703     619     0.13  
Time deposits 1,735,155     3,939     0.92       1,619,758     3,033     0.74       1,515,597     1,712     0.46  
Borrowed funds 858,297     3,479     1.64       554,634     2,263     1.62       734,091     2,194     1.21  
Senior and subordinated debt 195,243     3,124     6.49       195,102     3,114     6.33       194,677     3,099     6.46  
Total interest-bearing liabilities 8,611,103     12,782     0.60       8,317,328     10,254     0.49       8,281,515     8,502     0.42  
Demand deposits 3,466,832               3,611,811               3,355,674          
Total funding sources 12,077,935         0.43       11,929,139         0.34       11,637,189         0.30  
Other liabilities 235,699               309,221               272,398          
Stockholders' equity - common 1,873,419               1,880,265               1,763,538          
Total liabilities and
  stockholders' equity
$ 14,187,053               $ 14,118,625               $ 13,673,125          
Tax-equivalent net interest
  income/margin(1)
    119,538     3.80           121,154     3.84           117,251     3.89  
Tax-equivalent adjustment     (975 )             (1,823 )             (2,054 )    
Net interest income (GAAP)(1)     $ 118,563               $ 119,331               $ 115,197      
Impact of acquired loan accretion(1)     $ 5,112     0.16           $ 6,240     0.20           $ 11,345     0.38  
Tax-equivalent net interest income/
  margin, adjusted(1)
    $ 114,426     3.64           $ 114,914     3.64           $ 105,906     3.51  


(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, or 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 first quarter of 2018 was consistent with the fourth quarter of 2017 and increased 2.9% compared to the first quarter of 2017. Compared to the fourth quarter of 2017, net interest income benefited from the impact of higher interest rates and growth in loans and securities, offset by fewer days in the quarter, lower acquired loan accretion, and higher cost of funds. The rise in net interest income compared to the first quarter of 2017 was driven primarily by higher interest rates and loan growth, partially offset by lower acquired loan accretion and higher cost of funds.

Acquired loan accretion contributed $5.1 million, $6.2 million, and $11.3 million to net interest income for the first quarter of 2018, the fourth quarter of 2017, and the first quarter of 2017, respectively.

Tax-equivalent net interest margin for the current quarter was 3.80%, decreasing 4 basis points from the fourth quarter of 2017 and 9 basis points from the first quarter of 2017. Compared to both prior periods, tax-equivalent net interest margin was negatively impacted by a 3 basis points reduction in the tax-equivalent adjustment as a result of lower federal income tax rates. In addition, compared to the fourth quarter of 2017, the decrease in tax-equivalent net interest margin was impacted by a 4 basis point reduction in acquired loan accretion and higher cost of funds, mostly offset by the benefit of higher interest rates. The decrease in tax-equivalent net interest margin compared to the first quarter of 2017 was due to a 22 basis point decrease in acquired loan accretion partially offset by the positive impact of higher interest rates.

For the first quarter of 2018, total average interest-earning assets rose by $210.5 million from the fourth quarter of 2017 and $539.7 million from the first quarter of 2017. The increase compared to both prior periods resulted primarily from loan growth, which was partially offset by a reduction in other interest-earning assets. In addition, security purchases during the first quarter of 2018 contributed to the growth in total average interest-earning assets compared to the fourth quarter of 2017. 

Total average funding sources for the first quarter of 2018 increased by $148.8 million from the fourth quarter of 2017 and $440.7 million from the first quarter of 2017. The increase compared to both prior periods resulted from an increase in FHLB advances and time deposits. 

         
Noninterest Income Analysis
(Dollar amounts in thousands)
         
    Quarters Ended   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Service charges on deposit accounts   $ 11,652     $ 12,289     $ 11,365     (5.2 )   2.5  
Wealth management fees   10,958     10,967     9,660     (0.1 )   13.4  
Card-based fees, net(1):                    
Card-based fees   5,692     6,052     8,116     (5.9 )   (29.9 )
Cardholder expenses   (1,759 )           N/M     N/M  
Card-based fees, net   3,933     6,052     8,116     (35.0 )   (51.5 )
Mortgage banking income   2,397     2,352     1,888     1.9     27.0  
Capital market products income   1,558     1,986     1,376     (21.6 )   13.2  
Merchant servicing fees, net(1):                    
Merchant servicing fees   2,237     1,771     3,135     26.3     (28.6 )
Merchant card expenses   (1,907 )           N/M     N/M  
Merchant servicing fees, net   330     1,771     3,135     (81.4 )   (89.5 )
Other service charges, commissions, and fees   2,218     2,369     2,307     (6.4 )   (3.9 )
Other income   2,471     2,476     2,104     (0.2 )   17.4  
Net securities losses       (5,357 )       (100.0 )    
Total noninterest income(1)   $ 35,517     $ 34,905     $ 39,951     1.8     (11.1 )
                                     


         
Noninterest Income, Excluding Net Securities Losses,
the Accounting Reclassification, and Durbin(2)
(Dollar amounts in thousands)
         
    Quarters Ended   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Total noninterest income(1)   $ 35,517     $ 34,905     $ 39,951     1.8     (11.1 )
Net securities losses       5,357              
Reclassification impact of adopted accounting
  guidance(1)
  3,666             N/M     N/M  
Impact of the Durbin Amendment of the
  Dodd-Frank Act ("Durbin")
          (2,900 )       (100.0 )
Total noninterest income, excluding net
  securities losses, reclassification,
  and Durbin(2)
  $ 39,183     $ 40,262     $ 37,051     (2.7 )   5.8  
                                     

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 periods are presented on a net basis in noninterest income for the current period. 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 income of $35.5 million was up 1.8% from the fourth quarter of 2017 and down 11.1% compared to the first 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 quarter of 2018 versus a gross basis within noninterest expense for the prior periods. In addition, Durbin became effective for the Company in the third quarter of 2017. Excluding net securities losses, the accounting reclassification, and Durbin, noninterest income was $39.2 million, down 2.7% from the fourth quarter of 2017 and up 5.8% from the first quarter of 2017.

The decrease in noninterest income compared to the fourth quarter of 2017 was impacted by a normal seasonal decline in service charges on deposit accounts and card-based fees. Capital market products income decreased compared to the fourth quarter of 2017, which fluctuates from quarter to quarter based on the size and frequency of sales to commercial clients.

Net card-based fees were up 8.4% compared to the first quarter of 2017, excluding the accounting reclassification and Durbin, due to higher transaction volumes. Compared to the first quarter of 2017, the increase in wealth management fees was driven primarily by the full quarter impact of customers acquired in the Premier Asset Management LLC ("Premier") transaction and organic growth. The decline in merchant servicing fees from the first quarter of 2017 reflected lower customer volumes, substantially offset by the decline in merchant card expense.

Mortgage banking income for the first quarter of 2018 resulted from sales of $63.8 million of 1-4 family mortgage loans in the secondary market, compared to $66.5 million in the fourth quarter of 2017 and $54.6 million in the first quarter of 2017. In addition, mortgage banking income for the first quarter of 2018 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 securities portfolio repositioning in light of federal income tax reform.

         
Noninterest Expense Analysis
(Dollar amounts in thousands)
         
    Quarters Ended   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Salaries and employee benefits:                    
Salaries and wages   $ 45,830     $ 48,204     $ 44,890     (4.9 )   2.1  
Retirement and other employee benefits   10,957     10,204     10,882     7.4     0.7  
Total salaries and employee benefits   56,787     58,408     55,772     (2.8 )   1.8  
Net occupancy and equipment expense   13,773     12,826     12,325     7.4     11.7  
Professional services   7,580     7,616     8,463     (0.5 )   (10.4 )
Technology and related costs   4,771     4,645     4,433     2.7     7.6  
Advertising and promotions   1,650     4,083     1,066     (59.6 )   54.8  
Net other real estate owned ("OREO") expense   1,068     695     1,700     53.7     (37.2 )
Cardholder expenses(1)       1,915     1,764     (100.0 )   (100.0 )
Merchant card expenses(1)       1,423     2,585     (100.0 )   (100.0 )
Other expenses   9,953     10,715     9,969     (7.1 )   (0.2 )
Acquisition and integration related expenses           18,565         (100.0 )
Total noninterest expense(1)   $ 95,582     $ 102,326     $ 116,642     (6.6 )   (18.1 )
                                     


         
Noninterest Expense, Adjusted, Excluding the Accounting Reclassification(2)
(Dollar amounts in thousands)
         
    Quarters Ended   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Total noninterest expense(1)   $ 95,582     $ 102,326     $ 116,642     (6.6 )   (18.1 )
Reclassification impact of adopted accounting
  guidance(1)
  3,666             100.0     100.0  
Special bonus, charitable contribution       (3,515 )       (100.0 )    
Acquisition and integration related expenses           (18,565 )       (100.0 )
Total noninterest expense, adjusted,
  excluding the reclassification(2)
  $ 99,248     $ 98,811     $ 98,077     0.4     1.2  


(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 periods are presented on a net basis in noninterest income for the current period. 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 decreased by 6.6% compared to the fourth quarter of  2017 and 18.1% compared to the first 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 quarter of 2018 versus a gross basis within noninterest expense for the prior periods. In addition, the fourth quarter of 2017 was impacted by a special bonus and charitable contribution in connection with federal income tax reform and the first quarter of 2017 was impacted by acquisition and integration related expenses that resulted from the acquisition of Standard Bancshares, Inc. ("Standard"). Noninterest expense, adjusted, excluding the accounting reclassification, for the first quarter of 2018 was $99.2 million, consistent with the fourth and first quarters of 2017.

Compared to the fourth quarter of 2017, the decreases in salaries and wages and advertising and promotions expense were driven mainly by a special bonus and charitable contribution made during the fourth quarter of 2017. Net occupancy and equipment expense increased compared to the fourth quarter of 2017 primarily as a result of higher costs related to winter weather conditions. The increase in net OREO expense resulted from net losses on sales of OREO properties compared to net gains on sales in the fourth quarter of 2017, partially offset by a decrease in operating expenses.

The increase in salaries and wages compared to the first quarter of 2017 was driven primarily by merit increases and organizational growth. Compared to the first quarter of 2017, net occupancy and equipment expenses increased as a result of higher costs related to winter weather conditions and the timing of expenses related to the Company's planned corporate headquarters relocation. Professional services expense declined compared to the first quarter of 2017 due to lower loan remediation expenses. Compared to the first quarter of 2017, the rise in advertising and promotions expense resulted from the timing of certain advertising costs. Net OREO expense decreased compared to the first quarter of 2017 as a result of lower levels of operating expenses, losses on sales, and valuation adjustments.

INCOME TAXES

The Company's effective tax rate for the first quarter of 2018 was 22.6%, compared to 94.7% for the fourth quarter of 2017 and 32.0% for the first quarter of 2017. The decrease in the effective tax rate from both prior periods 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. In addition, the first quarter of 2018 was impacted by a $1.0 million income tax benefit related to employee share-based payments and the fourth quarter of 2017 was impacted by the downward revaluation of DTAs due to federal income tax reform.

LOAN PORTFOLIO AND ASSET QUALITY 

         
Loan Portfolio Composition
(Dollar amounts in thousands)
         
    As of   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Commercial and industrial   $ 3,659,066     $ 3,529,914     $ 3,370,780     3.7     8.6  
Agricultural   435,734     430,886     422,784     1.1     3.1  
Commercial real estate:                    
Office, retail, and industrial   1,931,202     1,979,820     1,988,979     (2.5 )   (2.9 )
Multi-family   695,830     675,463     671,710     3.0     3.6  
Construction   585,766     539,820     568,460     8.5     3.0  
Other commercial real estate   1,363,238     1,358,515     1,357,781     0.3     0.4  
Total commercial real estate   4,576,036     4,553,618     4,586,930     0.5     (0.2 )
Total corporate loans   8,670,836     8,514,418     8,380,494     1.8     3.5  
Home equity   881,534     827,055     880,667     6.6     0.1  
1-4 family mortgages   798,902     774,357     540,148     3.2     47.9  
Installment   325,502     321,982     253,061     1.1     28.6  
Total consumer loans   2,005,938     1,923,394     1,673,876     4.3     19.8  
Total loans   $ 10,676,774     $ 10,437,812     $ 10,054,370     2.3     6.2  
                                     

Total loans of $10.7 billion increased by 9.3%, annualized from December 31, 2017 and 6.2% from March 31, 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. 

Growth in consumer loans compared to both prior periods benefited from the impact of purchases of shorter-duration home equity loans and organic production. Compared to March 31, 2017, growth in consumer loans also benefited from certain purchases of 1-4 family mortgages and installment loans.

         
Asset Quality
(Dollar amounts in thousands)
         
    As of   March 31, 2018
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Asset quality                    
Non-accrual loans   $ 75,015     $ 66,924     $ 54,294     12.1     38.2  
90 days or more past due loans, still accruing
  interest(1)
  4,633     3,555     2,633     30.3     76.0  
Total non-performing loans   79,648     70,479     56,927     13.0     39.9  
Accruing troubled debt restructurings
  ("TDRs")
  1,778     1,796     2,112     (1.0 )   (15.8 )
OREO   17,472     20,851     29,140     (16.2 )   (40.0 )
Total non-performing assets   $ 98,898     $ 93,126     $ 88,179     6.2     12.2  
30-89 days past due loans(1)   $ 42,573     $ 39,725     $ 23,641          
Non-accrual loans to total loans   0.70 %   0.64 %   0.54 %        
Non-performing loans to total loans   0.75 %   0.68 %   0.57 %        
Non-performing assets to total loans plus
  OREO
  0.92 %   0.89 %   0.87 %        
Allowance for credit losses                    
Allowance for credit losses   $ 95,854     $ 96,729     $ 89,163          
Allowance for credit losses to total loans(2)   0.90 %   0.93 %   0.89 %        
Allowance for credit losses to loans, excluding
  acquired loans
  1.01 %   1.07 %   1.11 %        
Allowance for credit losses to non-accrual
  loans
  127.78 %   144.54 %   164.22 %        


(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 0.92% of total loans and OREO at March 31, 2018, up from 0.89% and 0.87% at December 31, 2017 and March 31, 2017, respectively, reflective of normal fluctuations that can occur on a quarterly basis.

The allowance for credit losses to total loans was 0.90% at March 31, 2018, compared to 0.93% at December 31, 2017 and consistent with March 31, 2017.

     
Charge-Off Data
(Dollar amounts in thousands)
     
    Quarters Ended
    March 31,
 2018
  % of
Total
  December 31,
 2017
  % of
Total
  March 31,
 2017
  % of
Total
Net loan charge-offs(1)                        
Commercial and industrial   $ 13,149     81.9     $ 5,635     79.3     $ 1,894     66.8  
Agricultural   983     6.1     (102 )   (1.4 )   514     18.1  
Office, retail, and industrial   364     2.3     (78 )   (1.1 )   (848 )   (29.9 )
Multi-family           (3 )       (28 )   (1.0 )
Construction   (13 )   (0.1 )   (12 )   (0.2 )   (222 )   (7.8 )
Other commercial real estate   30     0.2     (5 )   (0.1 )   307     10.8  
Consumer   1,543     9.6     1,674     23.5     1,221     43.0  
Total net loan charge-offs   $ 16,056     100.0     $ 7,109     100.0     $ 2,838     100.0  
Total recoveries included above   $ 1,029         $ 2,011         $ 3,440      
Net loan charge-offs to average loans:                        
Quarter-to-date(1)   0.62 %       0.27 %       0.12 %    
                               
(1) Amounts represent charge-offs, net of recoveries.
                               

Net loan charge-offs to average loans, annualized were 0.62%, up from 0.27% and 0.12% for the fourth and first quarters of 2017, respectively. The increase in net loan charge-offs compared to both prior periods resulted largely from expected losses on two corporate relationships based upon circumstances unique to these borrowers. Included within net charge-offs for the first quarter of 2017 were $3.4 million in recoveries which related to three corporate relationships that were charged-off in prior periods.

DEPOSIT PORTFOLIO

         
Deposit Composition
(Dollar amounts in thousands)
         
    Average for the Quarters Ended   March 31, 2018  
Percent Change From
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
  December 31,
 2017
  March 31,
 2017
Demand deposits   $ 3,466,832     $ 3,611,811     $ 3,355,674     (4.0 )   3.3  
Savings deposits   2,015,679     2,017,489     2,029,631     (0.1 )   (0.7 )
NOW accounts   1,992,672     1,992,150     1,916,816         4.0  
Money market accounts   1,814,057     1,938,195     1,890,703     (6.4 )   (4.1 )
Core deposits   9,289,240     9,559,645     9,192,824     (2.8 )   1.0  
Time deposits   1,735,155     1,619,758     1,515,597     7.1     14.5  
Total deposits   $ 11,024,395     $ 11,179,403     $ 10,708,421     (1.4 )   3.0  

Average core deposits of $9.3 billion for the first quarter of 2018 decreased by 2.8% from the fourth quarter of 2017 and increased 1.0% compared to the first quarter of 2017. The decrease in average core deposits compared to the fourth quarter of 2017 resulted primarily from the normal seasonal decline in commercial and municipal deposits. Compared to the first quarter of 2017, the rise in average core deposits was driven by organic growth. The increase in average time deposits compared to both prior periods was primarily driven by the continued success of promotions started in 2017.

CAPITAL MANAGEMENT

     
Capital Ratios
     
    As of
    March 31,
 2018
  December 31,
 2017
  March 31,
 2017
Company regulatory capital ratios:
Total capital to risk-weighted assets   12.07 %   12.15 %   11.48 %
Tier 1 capital to risk-weighted assets   10.07 %   10.10 %   9.53 %
Common equity Tier 1 ("CET1") to risk-weighted assets   9.65 %   9.68 %   9.11 %
Tier 1 capital to average assets   9.07 %   8.99 %   8.89 %
Company tangible common equity ratios(1)(2):        
Tangible common equity to tangible assets   8.18 %   8.33 %   8.07 %
Tangible common equity, excluding accumulated other comprehensive
  income ("AOCI"), to tangible assets
  8.60 %   8.58 %   8.38 %
Tangible common equity to risk-weighted assets   9.18 %   9.31 %   8.68 %


(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 decreased compared to December 31, 2017, due primarily to the impact of loan growth on risk-weighted assets and the nearly 10 basis point impact of the phase-in of certain provisions related to regulatory capital ratio calculations, substantially offset by an increase in retained earnings. Compared to March 31, 2017, the Company's regulatory capital ratios benefited from the full-year impact of retained earnings and certain actions taken by management in the fourth quarter of 2017 to sell all of its $46 million in trust-preferred collateralized debt obligations, partially offset by loan growth and the phase-in of certain provisions.

The Board of Directors approved a quarterly cash dividend of $0.11 per common share during the first quarter of 2018, which is a 10% increase from the fourth quarter of 2017 and will represent the 141st 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, April 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 10118829 beginning one hour after completion of the live call until 9:00 A.M. (ET) on May 9, 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 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 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, 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 earnings per share ("EPS"), adjusted, the efficiency ratio, total 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, excluding net securities losses, the accounting reclassification, and Durbin, noninterest expense, adjusted, excluding the accounting reclassification, 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), and acquisition and integration related expenses associated with completed and pending acquisitions (first, second, and third quarters of 2017). 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 Company presents noninterest income, excluding net securities losses, the accounting reclassification, and Durbin and noninterest expense, adjusted, excluding the accounting reclassification. 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. 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 and 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
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Period-End Balance Sheet                  
Assets                  
Cash and due from banks $ 150,138     $ 192,800     $ 174,147     $ 181,171     $ 174,268  
Interest-bearing deposits in other banks 84,898     153,770     252,753     103,181     74,892  
Trading securities, at fair value(1)     20,447     20,425     19,545     19,130  
Equity securities, at fair value(1) 28,513                  
Securities available-for-sale, at fair value(1) 2,040,950     1,884,209     1,732,984     1,908,248     1,937,124  
Securities held-to-maturity, at amortized cost 13,400     13,760     14,638     17,353     17,742  
FHLB and FRB stock 80,508     69,708     69,708     66,333     46,306  
Loans:                  
Commercial and industrial 3,659,066     3,529,914     3,462,612     3,410,748     3,370,780  
Agricultural 435,734     430,886     437,721     433,424     422,784  
Commercial real estate:                  
Office, retail, and industrial 1,931,202     1,979,820     1,960,367     1,983,802     1,988,979  
Multi-family 695,830     675,463     711,101     681,032     671,710  
Construction 585,766     539,820     545,666     543,892     568,460  
Other commercial real estate 1,363,238     1,358,515     1,391,241     1,383,937     1,357,781  
Home equity 881,534     827,055     847,209     865,656     880,667  
1-4 family mortgages 798,902     774,357     711,607     614,818     540,148  
Installment 325,502     321,982     322,768     314,850     253,061  
Total loans 10,676,774     10,437,812     10,390,292     10,232,159     10,054,370  
Allowance for loan losses (94,854 )   (95,729 )   (94,814 )   (92,371 )   (88,163 )
Net loans 10,581,920     10,342,083     10,295,478     10,139,788     9,966,207  
OREO 17,472     20,851     19,873     26,493     29,140  
Premises, furniture, and equipment, net 126,348     123,316     131,295     135,745     140,653  
Investment in bank-owned life insurance ("BOLI") 281,285     279,900     279,639     278,353     276,960  
Goodwill and other intangible assets 754,814     754,757     750,436     752,413     754,621  
Accrued interest receivable and other assets 219,725     221,451     525,766     340,517     336,428  
Total assets $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471  
Liabilities and Stockholders' Equity                  
Noninterest-bearing deposits $ 3,527,081     $ 3,576,190     $ 3,580,922     $ 3,525,905     $ 3,492,987  
Interest-bearing deposits 7,618,941     7,477,135     7,627,575     7,473,815     7,463,554  
Total deposits 11,146,022     11,053,325     11,208,497     10,999,720     10,956,541  
Borrowed funds 950,688     714,884     700,536     639,333     547,923  
Senior and subordinated debt 195,312     195,170     195,028     194,886     194,745  
Accrued interest payable and other liabilities 218,662     248,799     297,951     298,358     269,529  
Stockholders' equity 1,869,287     1,864,874     1,865,130     1,836,843     1,804,733  
Total liabilities and stockholders' equity $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471  
Stockholders' equity, excluding accumulated other
  comprehensive income ("AOCI")
$ 1,926,818     $ 1,897,910     $ 1,903,166     $ 1,873,410     $ 1,844,997  
Stockholders' equity, common 1,869,287     1,864,874     1,865,130     1,836,843     1,804,733  
                             


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 the current period.


 
First Midwest Bancorp, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(Dollar amounts in thousands)
                   
  Quarters Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Income Statement                  
Interest income $ 131,345     $ 129,585     $ 129,916     $ 126,516     $ 123,699  
Interest expense 12,782     10,254     10,023     8,933     8,502  
Net interest income 118,563     119,331     119,893     117,583     115,197  
Provision for loan losses 15,181     8,024     10,109     8,239     4,918  
Net interest income after provision for loan losses 103,382     111,307     109,784     109,344     110,279  
Noninterest Income                  
Service charges on deposit accounts 11,652     12,289     12,561     12,153     11,365  
Wealth management fees 10,958     10,967     10,169     10,525     9,660  
Card-based fees, net(1):                  
Card-based fees 5,692     6,052     5,992     8,832     8,116  
Cardholder expenses (1,759 )                
Card-based fees, net 3,933     6,052     5,992     8,832     8,116  
Mortgage banking income 2,397     2,352     2,246     1,645     1,888  
Capital market products income 1,558     1,986     2,592     2,217     1,376  
Merchant servicing fees, net(1):                  
Merchant servicing fees 2,237     1,771     2,237     3,197     3,135  
Merchant card expenses (1,907 )                
Merchant servicing fees, net 330     1,771     2,237     3,197     3,135  
Other service charges, commissions, and fees 2,218     2,369     2,508     2,659     2,307  
Other income 2,471     2,476     1,846     3,433     2,104  
Noninterest income, excluding net securities
  (losses) gains
35,517     40,262     40,151     44,661     39,951  
Net securities (losses) gains     (5,357 )   3,197     284      
Total noninterest income 35,517     34,905     43,348     44,945     39,951  
Noninterest Expense                  
Salaries and employee benefits:                  
Salaries and wages 45,830     48,204     45,219     44,194     44,890  
Retirement and other employee benefits 10,957     10,204     10,419     10,381     10,882  
Total salaries and employee benefits 56,787     58,408     55,638     54,575     55,772  
Net occupancy and equipment expense 13,773     12,826     12,115     12,485     12,325  
Professional services 7,580     7,616     8,498     9,112     8,463  
Technology and related costs 4,771     4,645     4,505     4,485     4,433  
Advertising and promotions 1,650     4,083     1,852     1,693     1,066  
Net OREO expense 1,068     695     657     1,631     1,700  
Merchant card expenses(1)     1,423     1,737     2,632     2,585  
Cardholder expenses(1)     1,915     1,962     1,682     1,764  
Other expenses 9,953     10,715     9,842     10,282     9,969  
Acquisition and integration related expenses         384     1,174     18,565  
Total noninterest expense 95,582     102,326     97,190     99,751     116,642  
Income before income tax expense 43,317     43,886     55,942     54,538     33,588  
Income tax expense 9,807     41,539     17,707     19,588     10,733  
Net income $ 33,510     $ 2,347     $ 38,235     $ 34,950     $ 22,855  
Net income applicable to common shares $ 33,199     $ 2,341     $ 37,895     $ 34,614     $ 22,621  
Net income applicable to common shares, adjusted(2) $ 33,199     $ 34,131     $ 33,390     $ 35,318     $ 33,760  
                                       


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 prior periods presented are now presented on a net basis in noninterest income for the current period.
(2) 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. 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
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Earnings Per Share                  
Basic EPS(1) $ 0.33     $ 0.02     $ 0.37     $ 0.34     $ 0.23  
Diluted EPS(1) $ 0.33     $ 0.02     $ 0.37     $ 0.34     $ 0.23  
Diluted EPS, adjusted(1)(7) $ 0.33     $ 0.34     $ 0.33     $ 0.35     $ 0.34  
Common Stock and Related Per Common Share Data
Book value $ 18.13     $ 18.16     $ 18.16     $ 17.88     $ 17.56  
Tangible book value $ 10.81     $ 10.81     $ 10.85     $ 10.55     $ 10.22  
Dividends declared per share $ 0.11     $ 0.10     $ 0.10     $ 0.10     $ 0.09  
Closing price at period end $ 24.59     $ 24.01     $ 23.42     $ 23.31     $ 23.68  
Closing price to book value 1.4     1.3     1.3     1.3     1.3  
Period end shares outstanding 103,092     102,717     102,722     102,741     102,757  
Period end treasury shares 9,261     9,634     9,626     9,604     9,586  
Common dividends $ 11,349     $ 10,278     $ 10,411     $ 10,256     $ 9,126  
Key Ratios/Data                  
Return on average common equity(1)(2) 7.19 %   0.49 %   8.10 %   7.58 %   5.20 %
Return on average tangible common equity(1)(2) 12.50 %   1.20 %   14.02 %   13.37 %   9.53 %
Return on average tangible common equity, adjusted(1)(2)(7) 12.50 %   12.35 %   12.41 %   13.64 %   13.99 %
Return on average assets(2) 0.96 %   0.07 %   1.07 %   1.00 %   0.68 %
Return on average assets, adjusted(1)(2)(7) 0.96 %   0.96 %   0.95 %   1.02 %   1.01 %
Loans to deposits 95.79 %   94.43 %   92.70 %   93.02 %   91.77 %
Efficiency ratio(1) 60.96 %   60.78 %   59.32 %   59.01 %   61.31 %
Efficiency ratio (prior presentation)(1)(8)   N/A     60.32 %   58.97 %   58.67 %   60.98 %
Net interest margin(3) 3.80 %   3.84 %   3.86 %   3.88 %   3.89 %
Yield on average interest-earning assets(3) 4.20 %   4.16 %   4.18 %   4.17 %   4.17 %
Cost of funds(4) 0.43 %   0.34 %   0.33 %   0.30 %   0.30 %
Net noninterest expense to average assets 1.72 %   1.74 %   1.60 %   1.58 %   2.27 %
Effective income tax rate 22.64 %   94.65 %   31.65 %   35.92 %   31.95 %
Effective income tax rate, excluding the revaluations of DTAs(5) 22.64 %   34.14 %   36.74 %   35.92 %   31.95 %
Capital Ratios                  
Total capital to risk-weighted assets(1) 12.07 %   12.15 %   11.79 %   11.69 %   11.48 %
Tier 1 capital to risk-weighted assets(1) 10.07 %   10.10 %   9.83 %   9.71 %   9.53 %
CET1 to risk-weighted assets(1) 9.65 %   9.68 %   9.42 %   9.30 %   9.11 %
Tier 1 capital to average assets(1) 9.07 %   8.99 %   9.04 %   8.93 %   8.89 %
Tangible common equity to tangible assets(1) 8.18 %   8.33 %   8.25 %   8.20 %   8.07 %
Tangible common equity, excluding AOCI, to tangible assets(1) 8.60 %   8.58 %   8.53 %   8.48 %   8.38 %
Tangible common equity to risk-weighted assets(1) 9.18 %   9.31 %   9.02 %   8.90 %   8.68 %
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
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Asset Quality Performance Data                
Non-performing assets                  
Commercial and industrial $ 43,974     $ 40,580     $ 41,504     $ 51,400     $ 21,514  
Agricultural 4,086     219     380     387     1,283  
Commercial real estate:                  
Office, retail, and industrial 12,342     11,560     12,221     15,031     19,505  
Multi-family 144     377     153     158     163  
Construction 208     209     146     197     198  
Other commercial real estate 4,088     3,621     2,239     3,736     3,858  
Consumer 10,173     10,358     8,533     8,287     7,773  
Total non-accrual loans 75,015     66,924     65,176     79,196     54,294  
90 days or more past due loans, still accruing interest 4,633     3,555     2,839     2,059     2,633  
Total non-performing loans 79,648     70,479     68,015     81,255     56,927  
Accruing TDRs 1,778     1,796     1,813     2,029     2,112  
OREO 17,472     20,851     19,873     26,493     29,140  
Total non-performing assets $ 98,898     $ 93,126     $ 89,701     $ 109,777     $ 88,179  
30-89 days past due loans $ 42,573     $ 39,725     $ 28,868     $ 19,081     $ 23,641  
Allowance for credit losses                  
Allowance for loan losses $ 94,854     $ 95,729     $ 94,814     $ 92,371     $ 88,163  
Reserve for unfunded commitments 1,000     1,000     1,000     1,000     1,000  
Total allowance for credit losses $ 95,854     $ 96,729     $ 95,814     $ 93,371     $ 89,163  
Provision for loan losses $ 15,181     $ 8,024     $ 10,109     $ 8,239     $ 4,918  
Net charge-offs by category                  
Commercial and industrial $ 13,149     $ 5,635     $ 8,237     $ 1,721     $ 1,894  
Agricultural 983     (102 )       836     514  
Commercial real estate:                  
Office, retail, and industrial 364     (78 )   (1,811 )   (8 )   (848 )
Multi-family     (3 )   (2 )   (6 )   (28 )
Construction (13 )   (12 )   (25 )   27     (222 )
Other commercial real estate 30     (5 )   (19 )   228     307  
Consumer 1,543     1,674     1,286     1,233     1,221  
Total net charge-offs $ 16,056     $ 7,109     $ 7,666     $ 4,031     $ 2,838  
Total recoveries included above $ 1,029     $ 2,011     $ 2,900     $ 828     $ 3,440  
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
    March 31,   December 31,   September 30,   June 30,   March 31,
    2018   2017   2017   2017   2017
Asset Quality ratios                    
Non-accrual loans to total loans   0.70 %   0.64 %   0.63 %   0.77 %   0.54 %
Non-performing loans to total loans   0.75 %   0.68 %   0.65 %   0.79 %   0.57 %
Non-performing assets to total loans plus OREO   0.92 %   0.89 %   0.86 %   1.07 %   0.87 %
Non-performing assets to tangible common equity plus allowance
  for credit losses
  8.17 %   7.72 %   7.41 %   9.32 %   7.74 %
Non-accrual loans to total assets   0.52 %   0.48 %   0.46 %   0.57 %   0.39 %
Allowance for credit losses and net charge-off ratios
Allowance for credit losses to total loans(5)   0.90 %   0.93 %   0.92 %   0.91 %   0.89 %
Allowance for credit losses to loans, excluding acquired loans   1.01 %   1.07 %   1.09 %   1.10 %   1.11 %
Allowance for credit losses to non-accrual loans   127.78 %   144.54 %   147.01 %   117.90 %   164.22 %
Allowance for credit losses to non-performing loans   120.35 %   137.25 %   140.87 %   114.91 %   156.63 %
Net charge-offs to average loans(2)   0.62 %   0.27 %   0.30 %   0.16 %   0.12 %


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 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, or 35%.
  4. Cost of funds expresses total interest expense as a percentage of average total funding sources.
  5. This measure excludes the impact of revaluation of DTAs related to federal tax reform and changes in Illinois income tax rates for the fourth and third quarter 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. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.
  8. 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.
 
First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
                   
  Quarters Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Earnings Per Share                  
Net income $ 33,510     $ 2,347     $ 38,235     $ 34,950     $ 22,855  
Net income applicable to non-vested restricted shares (311 )   (6 )   (340 )   (336 )   (234 )
Net income applicable to common shares 33,199     2,341     37,895     34,614     22,621  
Adjustments to net income:                  
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     18,565  
Tax effect of acquisition and integration related expenses         (157 )   (470 )   (7,426 )
Total adjustments to net income, net of tax     31,790     (4,505 )   704     11,139  
Net income applicable to common shares, adjusted(1) $ 33,199     $ 34,131     $ 33,390     $ 35,318     $ 33,760  
Weighted-average common shares outstanding:                
Weighted-average common shares outstanding (basic) 101,922     101,766     101,752     101,743     100,411  
Dilutive effect of common stock equivalents 16     21     20     20     21  
Weighted-average diluted common shares outstanding 101,938     101,787     101,772     101,763     100,432  
Basic EPS $ 0.33     $ 0.02     $ 0.37     $ 0.34     $ 0.23  
Diluted EPS $ 0.33     $ 0.02     $ 0.37     $ 0.34     $ 0.23  
Diluted EPS, adjusted(1) $ 0.33     $ 0.34     $ 0.33     $ 0.35     $ 0.34  
Anti-dilutive shares not included in the computation of diluted EPS 110     190     190     195     343  
                   
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
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Return on Average Common and Tangible Common Equity            
Net income applicable to common shares $ 33,199     $ 2,341     $ 37,895     $ 34,614     $ 22,621  
Intangibles amortization 1,802     1,806     1,931     2,163     1,965  
Tax effect of intangibles amortization (508 )   (740 )   (792 )   (865 )   (786 )
Net income applicable to common shares, excluding intangibles
  amortization
34,493     3,407     39,034     35,912     23,800  
Total adjustments to net income, net of tax     31,790     (4,505 )   704     11,139  
Net income applicable to common shares, adjusted(1) $ 34,493     $ 35,197     $ 34,529     $ 36,616     $ 34,939  
Average stockholders' equity $ 1,873,419     $ 1,880,265     $ 1,855,647     $ 1,830,536     $ 1,763,538  
Less: average intangible assets (753,870 )   (749,700 )   (751,366 )   (753,521 )   (750,589 )
Average tangible common equity $ 1,119,549     $ 1,130,565     $ 1,104,281     $ 1,077,015     $ 1,012,949  
Return on average common equity(3) 7.19 %   0.49 %   8.10 %   7.58 %   5.20 %
Return on average tangible common equity(3) 12.50 %   1.20 %   14.02 %   13.37 %   9.53 %
Return on average tangible common equity, adjusted(1)(3) 12.50 %   12.35 %   12.41 %   13.64 %   13.99 %
Return on Average Assets            
Net income $ 33,510     $ 2,347     $ 38,235     $ 34,950     $ 22,855  
Total adjustments to net income, net of tax     31,790     (4,505 )   704     11,139  
Net income, adjusted(1) $ 33,510     $ 34,137     $ 33,730     $ 35,654     $ 33,994  
Average assets $ 14,187,053     $ 14,118,625     $ 14,155,766     $ 13,960,843     $ 13,673,125  
Return on average assets(3) 0.96 %   0.07 %   1.07 %   1.00 %   0.68 %
Return on average assets, adjusted(1)(3) 0.96 %   0.96 %   0.95 %   1.02 %   1.01 %
Efficiency Ratio Calculation                
Noninterest expense $ 95,582     $ 102,326     $ 97,190     $ 99,751     $ 116,642  
Less:                  
Net OREO expense (1,068 )   (695 )   (657 )   (1,631 )   (1,700 )
Special bonus     (1,915 )            
Charitable contribution     (1,600 )            
Acquisition and integration related expenses         (384 )   (1,174 )   (18,565 )
Total $ 94,514     $ 98,116     $ 96,149     $ 96,946     $ 96,377  
Tax-equivalent net interest income(2) $ 119,538     $ 121,154     $ 121,935     $ 119,625     $ 117,251  
Noninterest income 35,517     34,905     43,348     44,945     39,951  
Less: net securities losses (gains)     5,357     (3,197 )   (284 )    
Total $ 155,055     $ 161,416     $ 162,086     $ 164,286     $ 157,202  
Efficiency ratio 60.96 %   60.78 %   59.32 %   59.01 %   61.31 %
                   
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
  March 31,   December 31,   September 30,   June 30,   March 31,
  2018   2017   2017   2017   2017
Risk-Based Capital Data                  
Common stock $ 1,123     $ 1,123     $ 1,123     $ 1,123     $ 1,123  
Additional paid-in capital 1,021,923     1,031,870     1,029,002     1,025,607     1,022,417  
Retained earnings 1,103,840     1,074,990     1,082,921     1,056,072     1,030,403  
Treasury stock, at cost (200,068 )   (210,073 )   (209,880 )   (209,392 )   (208,946 )
Goodwill and other intangible assets, net of deferred tax liabilities (754,814 )   (743,327 )   (738,645 )   (740,236 )   (742,012 )
Disallowed DTAs (522 )   (644 )   (275 )   (472 )   (1,150 )
CET1 capital 1,171,482     1,153,939     1,164,246     1,132,702     1,101,835  
Trust-preferred securities 50,690     50,690     50,690     50,690     50,690  
Other disallowed DTAs (131 )   (161 )   (69 )   (118 )   (287 )
Tier 1 capital 1,222,041     1,204,468     1,214,867     1,183,274     1,152,238  
Tier 2 capital 242,870     243,656     242,652     240,121     235,825  
Total capital $ 1,464,911     $ 1,448,124     $ 1,457,519     $ 1,423,395     $ 1,388,063  
Risk-weighted assets $ 12,135,662     $ 11,920,372     $ 12,362,833     $ 12,180,416     $ 12,095,592  
Adjusted average assets $ 13,472,294     $ 13,404,998     $ 13,439,744     $ 13,245,499     $ 12,965,450  
Total capital to risk-weighted assets 12.07 %   12.15 %   11.79 %   11.69 %   11.48 %
Tier 1 capital to risk-weighted assets 10.07 %   10.10 %   9.83 %   9.71 %   9.53 %
CET1 to risk-weighted assets 9.65 %   9.68 %   9.42 %   9.30 %   9.11 %
Tier 1 capital to average assets 9.07 %   8.99 %   9.04 %   8.93 %   8.89 %
Tangible Common Equity                  
Stockholders' equity $ 1,869,287     $ 1,864,874     $ 1,865,130     $ 1,836,843     $ 1,804,733  
Less: goodwill and other intangible assets (754,814 )   (754,757 )   (750,436 )   (752,413 )   (754,621 )
Tangible common equity 1,114,473     1,110,117     1,114,694     1,084,430     1,050,112  
Less: AOCI 57,531     33,036     38,036     36,567     40,264  
Tangible common equity, excluding AOCI $ 1,172,004     $ 1,143,153     $ 1,152,730     $ 1,120,997     $ 1,090,376  
Total assets $ 14,379,971     $ 14,077,052     $ 14,267,142     $ 13,969,140     $ 13,773,471  
Less: goodwill and other intangible assets (754,814 )   (754,757 )   (750,436 )   (752,413 )   (754,621 )
Tangible assets $ 13,625,157     $ 13,322,295     $ 13,516,706     $ 13,216,727     $ 13,018,850  
Tangible common equity to tangible assets 8.18 %   8.33 %   8.25 %   8.20 %   8.07 %
Tangible common equity,excluding AOCI, to tangible assets 8.60 %   8.58 %   8.53 %   8.48 %   8.38 %
Tangible common equity to risk-weighted assets 9.18 %   9.31 %   9.02 %   8.90 %   8.68 %
                   


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. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.
(2) 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, or 35%.
(3) Annualized based on the actual number of days for each period presented.


 

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