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CST: 22/08/2019 02:43:42   

First Midwest Bancorp, Inc. Announces 2018 Fourth Quarter and Full Year Results

211 Days ago

CHICAGO, Jan. 22, 2019 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest"), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the fourth quarter and full year of 2018. Net income for the fourth quarter of 2018 was $41.4 million, or $0.39 per share, compared to $53.4 million, or $0.52 per share, for the third quarter of 2018, and $2.3 million, or $0.02 per share, for the fourth quarter of 2017. For the full year of 2018, the Company reported net income of $157.9 million, or $1.52 per share, compared to $98.4 million, or $0.96 per share, for the year ended December 31, 2017.

Reported results for the fourth quarter and the full year of 2018 were impacted by acquisition and integration related expenses and implementation costs related to the Company's Delivering Excellence initiative ("Delivering Excellence"). In addition, the third quarter and full year of 2018 were impacted by certain income tax benefits resulting from federal income tax reform legislation ("tax reform"). Reported results for the fourth quarter and full year of 2017 were impacted by various actions taken by the Company in light of tax reform. In addition, the full year of 2017 was 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 $0.48 for the fourth quarter of 2018 compared to $0.46 for the third quarter of 2018 and $0.34 for the fourth quarter of 2017. EPS, adjusted(1) was $1.67 and $1.35 for the full years ended December 31, 2018 and 2017, respectively.

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

  • Generated EPS of $0.39 for the fourth quarter of 2018 and $1.52 for the full year 2018, up from $0.02 and $0.96 from the same periods in 2017, respectively.
    • Increased EPS, adjusted(1) by 41% and 24% from the fourth quarter and full year of 2017, respectively.
  • Produced returns on average tangible common equity, adjusted(1) of 16.4% for the fourth quarter of 2018 and 15.1% for the full year 2018, up 407 and 207 basis points, respectively, versus a year ago.
  • Expanded net interest income and margin to $517 million and 3.90%, respectively, for the full year 2018, up 9% and 3 basis points from the full year 2017.
  • Improved operating efficiency, lowering the efficiency ratio(1) to 55% and 58% for the fourth quarter and full year of 2018 compared to 61% and 60% for the same periods in 2017.
  • Grew loans to over $11 billion, up 14%, annualized, from September 30, 2018 and 10% from December 31, 2017.
  • Reduced non-performing assets to $80 million, down 2% from September 30, 2018 and 14% from December 31, 2017.
  • Increased total average deposits to $12 billion, up 4% from the third quarter of 2018 and 7% from the fourth quarter of  2017.
  • Generated common equity Tier 1 capital of 10.20%, up 27 basis points from September 30, 2018 and 52 basis points from December 31, 2017.
  • Completed or announced the following acquisitions:
    • Completed Northern States Financial Corporation on October 12, 2018, adding $579 million of assets and $463 million of deposits, of which 75% were core deposits.
    • Completed Northern Oak Wealth Management, Inc. on January 16, 2019, adding approximately $800 million of trust assets under management.
    • Announced the pending Bridgeview Bancorp, Inc. acquisition with approximately $1.2 billion of assets, $1.1 billion of deposits, and $800 million of loans.

"2018 was a very successful year for First Midwest," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "We grew loans and deposits and added clients across our business while continuing to focus on operating efficiency. The success of these efforts, combined with the benefits of higher interest rates and lower taxes, significantly improved our performance for the quarter and full year. Importantly, we also continued to build for our future, executing throughout the year on our strategic priorities, including targeted acquisitions and our "Delivering Excellence" and technology initiatives."

Mr. Scudder concluded, "As we enter the new year, we are ready to build on 2018’s momentum. Continuation of our "Delivering Excellence" initiative will further enhance an already superior client experience as well as strengthen operational performance and scalability. Pending as well as recently completed acquisitions will further set us apart as a market leader in metro Chicago, positioning us for further market expansion and increasing our flexibility as we continue to invest in our businesses, communities and colleagues. All of these actions are taken with an unwavering focus on helping our clients achieve financial success and growing long-term value for our shareholders."

DELIVERING EXCELLENCE INITIATIVE

During 2018, the Company initiated certain actions in connection with its 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 implementation of this initiative resulted in pre-tax implementation costs of $20 million for the year ended December 31, 2018, associated with property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services.

ACQUISITIONS

Completed

Northern States Financial Corporation

On October 12, 2018, the Company completed its acquisition of Northern States Financial Corporation ("Northern States"), the holding company for NorStates Bank, based in Waukegan, Illinois. At closing, the Company acquired $579 million of total assets, $463 million of deposits, and $285 million of loans. The merger consideration totaled $83 million and consisted of 3.3 million shares of Company common stock. All Northern States operating systems were converted during the fourth quarter of 2018.

Northern Oak Wealth Management, Inc.

On January 16, 2019, the Company completed its acquisition of Northern Oak Wealth Management, Inc. ("Northern Oak"), a registered investment adviser based in Milwaukee, Wisconsin with approximately $800 million of trust assets under management.

Pending

Bridgeview Bancorp, Inc.

On December 6, 2018, the Company entered into a merger agreement to acquire Bridgeview Bancorp, Inc. ("Bridgeview"), the holding company for Bridgeview Bank Group. With the acquisition the Company would acquire 13 banking offices located across greater Chicagoland and several suburbs. As of September 30, 2018, Bridgeview had approximately $1.2 billion of assets, $1.1 billion of deposits, and $800 million of loans, excluding Bridgeview's mortgage division, which the Company is not acquiring. The merger agreement provides for a fixed exchange ratio of 0.2767 shares of Company common stock, plus $1.79 in cash, for each share of Bridgeview common stock, subject to certain adjustments. As of the date of announcement, the overall transaction was valued at approximately $145 million. The acquisition is subject to customary regulatory approvals, the approval of Bridgeview’s stockholders, and the completion of various closing conditions, and is anticipated to close in the second quarter of 2019.

 (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.

OPERATING PERFORMANCE

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

  Quarters Ended
  December 31, 2018     September 30, 2018     December 31, 2017
  Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
    Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
    Average
Balance
  Interest
Earned/
Paid
  Yield/
Rate
(%)
Assets                                      
Other interest-earning assets  $ 145,436     $ 476     1.30       $ 162,646     $ 631     1.54       $ 203,459     $ 721     1.41  
Securities(1)  2,359,083     15,907     2.70       2,245,784     14,533     2.59       1,890,020     10,977     2.32  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock  85,427     709     3.32       83,273     734     3.53       63,520     506     3.19  
Loans(1)  11,408,062     143,561     4.99       10,980,916     134,768     4.87       10,384,074     119,204     4.55  
Total interest-earning assets(1)  13,998,008     160,653     4.56       13,472,619     150,666     4.44       12,541,073     131,408     4.16  
Cash and due from banks  211,312               196,382               188,683          
Allowance for loan losses  (104,681 )             (100,717 )             (99,590 )        
Other assets  1,398,760               1,326,386               1,488,459          
Total assets  $ 15,503,399               $ 14,894,670               $ 14,118,625          
Liabilities and Stockholders' Equity                                      
Savings deposits  $ 2,044,312     358     0.07       $ 2,003,928     364     0.07       $ 2,017,489     382     0.08  
NOW accounts  2,128,722     1,895     0.35       2,164,018     2,151     0.39       1,992,150     690     0.14  
Money market deposits  1,831,311     1,990     0.43       1,772,821     1,522     0.34       1,938,195     772     0.16  
Time deposits  2,311,453     8,894     1.53       1,993,361     6,389     1.27       1,619,758     3,033     0.74  
Borrowed funds  1,031,249     4,469     1.72       980,421     3,927     1.59       554,634     2,263     1.62  
Senior and subordinated debt  204,030     3,292     6.40       195,526     3,152     6.40       195,102     3,114     6.33  
Total interest-bearing liabilities 9,551,077     20,898     0.87       9,110,075     17,505     0.76       8,317,328     10,254     0.49  
Demand deposits  3,685,806               3,624,520               3,611,811          
Total funding sources  13,236,883         0.63       12,734,595         0.55       11,929,139         0.34  
Other liabilities  251,299               250,745               309,221          
Stockholders' equity - common  2,015,217               1,909,330               1,880,265          
Total liabilities and stockholders' equity  $ 15,503,399               $ 14,894,670               $ 14,118,625          
Tax-equivalent net interest income/margin(1)      139,755     3.96           133,161     3.92           121,154     3.84  
Tax-equivalent adjustment      (1,126 )             (1,134 )             (1,823 )    
Net interest income (GAAP)(1)      $ 138,629               $ 132,027               $ 119,331      
Impact of acquired loan accretion(1)      $ 5,426     0.15           $ 4,565     0.13           $ 6,240     0.20  
Tax-equivalent net interest income/margin, adjusted(1)      $ 134,329     3.81           $ 128,596     3.79           $ 114,914     3.64  

(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 fourth quarter of 2018 increased by 5.0% from the third quarter of 2018 and 16.2% compared to the fourth quarter of 2017. The rise in net interest income compared to both prior periods resulted primarily from the acquisition of interest-earning assets from the Northern States transaction early in the fourth quarter of 2018, higher interest rates, and growth in loans and securities, partially offset by higher cost of funds.

Acquired loan accretion contributed $5.4 million, $4.6 million, and $6.2 million to net interest income for the fourth quarter of 2018, the third quarter of 2018, and the fourth quarter of 2017, respectively.

Tax-equivalent net interest margin for the current quarter was 3.96%, increasing by 4 basis points from the third quarter of 2018 and 12 basis points from the fourth quarter of 2017. Compared to both prior periods presented, the benefit of higher interest rates more than offset the rise in funding costs. In addition, compared to the fourth quarter of 2017, tax-equivalent net interest margin was negatively impacted by a 5 basis point decrease in acquired loan accretion and a 3 basis point reduction in the tax-equivalent adjustment as a result of lower federal income tax rates.

For the fourth quarter of 2018, total average interest-earning assets rose by $525.4 million from the third quarter of 2018 and $1.5 billion from the fourth quarter of 2017. The increase compared to both prior periods resulted primarily from interest-earning assets acquired in the Northern States transaction, organic loan growth, and security purchases.

Total average funding sources for the fourth quarter of 2018 increased by $502.3 million from the third quarter of 2018 and $1.3 billion from the fourth quarter of 2017. The increase compared to both prior periods resulted from funding sources acquired in the Northern States transaction, time deposits, and FHLB advances.

Noninterest Income Analysis
(Dollar amounts in thousands)

    Quarters Ended   December 31, 2018
Percent Change From
    December 31,
 2018
  September 30,
 2018
  December 31,
 2017
  September 30,
 2018
  December 31,
 2017
Service charges on deposit accounts    $ 12,627     $ 12,378     $ 12,289     2.0     2.8  
Wealth management fees    10,951     10,622     10,967     3.1     (0.1 )
Card-based fees, net(1):                    
Card-based fees    6,615     5,975     6,052     10.7     9.3  
Cardholder expenses    (2,041 )   (1,852 )       10.2     N/M  
Card-based fees, net    4,574     4,123     6,052     10.9     (24.4 )
Capital market products income    1,408     1,936     1,986     (27.3 )   (29.1 )
Mortgage banking income    1,304     1,657     2,352     (21.3 )   (44.6 )
Merchant servicing fees, net(1):                    
Merchant servicing fees    2,566     2,702     1,771     (5.0 )   44.9  
Merchant card expenses    (2,201 )   (2,315 )       (4.9 )   N/M  
Merchant servicing fees, net    365     387     1,771     (5.7 )   (79.4 )
Other service charges, commissions, and fees    2,353     2,399     2,369     (1.9 )   (0.7 )
Total fee-based revenues    33,582     33,502     37,786     0.2     (11.1 )
Other income    2,880     2,164     2,476     33.1     16.3  
Net securities losses            (5,357 )       (100.0 )
Total noninterest income(1)    $ 36,462     $ 35,666     $ 34,905     2.2     4.5  
Accounting reclassification(1)    $     $     $ (3,338 )       (100.0 )
Net securities losses            5,357         (100.0 )
Total noninterest income, adjusted(2)    $ 36,462     $ 35,666     $ 36,924     2.2     (1.3 )

N/M – Not meaningful.

(1) 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. 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 $36.5 million for the fourth quarter of 2018 was up by 2.2% and 4.5% from the third quarter of 2018 and the fourth quarter of 2017, respectively. 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 third and fourth quarters of 2018 versus a gross basis within noninterest expense for the fourth quarter of 2017. Excluding the accounting reclassification and net securities losses, noninterest income decreased modestly from the fourth quarter of 2017.

Compared to both prior periods, the increase in service charges on deposit accounts and net card-based fees was driven primarily by services provided to customers acquired in the Northern States transaction. In addition, net card-based fees benefited from higher transaction volumes compared to both prior periods. The rise in wealth management fees compared to the third quarter of 2018 resulted from continued sales of fiduciary and investment advisory services to new and existing customers, which was partially offset by the lower market environment.

Mortgage banking income for the fourth quarter of 2018 resulted from sales of $51.4 million of 1-4 family mortgage loans in the secondary market, compared to $61.3 million in the third quarter of 2018 and $66.5 million in the fourth quarter of 2017. In addition, mortgage banking income for the fourth quarter of 2018 decreased due to changes in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter. Noninterest income for the fourth quarter of 2018 was impacted by lower capital market products income, which fluctuates from quarter to quarter based on the size and frequency of sales to corporate clients. Other income compared to both prior periods was elevated primarily due to higher fair value adjustments on equity securities and other miscellaneous items.

Net securities losses of $5.4 million were recognized during the fourth quarter of 2017 in connection with certain actions taken in light of tax reform.

Noninterest Expense Analysis
(Dollar amounts in thousands)

    Quarters Ended   December 31, 2018
Percent Change From
    December 31,
 2018
  September 30,
 2018
  December 31,
 2017
  September 30,
 2018
  December 31,
 2017
Salaries and employee benefits:                    
Salaries and wages    $ 45,011     $ 44,067     $ 48,204     2.1     (6.6 )
Retirement and other employee benefits    10,378     10,093     10,204     2.8     1.7  
Total salaries and employee benefits    55,389     54,160     58,408     2.3     (5.2 )
Net occupancy and equipment expense    12,827     13,183     12,826     (2.7 )    
Professional services    8,859     7,944     7,616     11.5     16.3  
Technology and related costs    4,849     4,763     4,645     1.8     4.4  
Advertising and promotions    2,011     3,526     4,083     (43.0 )   (50.7 )
Net other real estate owned ("OREO")
  expense 
  763     (413 )   695     (284.7 )   9.8  
Other expenses    13,418     11,015     10,715     21.8     25.2  
Acquisition and integration related expenses    9,553     60         N/M     100.0  
Delivering Excellence implementation costs    3,159     2,239         41.1     100.0  
Cardholder expenses(1)            1,915         (100.0 )
Merchant card expense(1)            1,423         (100.0 )
Total noninterest expense   $ 110,828     $ 96,477     $ 102,326     14.9     8.3  
Acquisition and integration related expenses    (9,553 )   (60 )       N/M   (100.0 )
Delivering Excellence implementation costs    (3,159 )   (2,239 )       41.1     (100.0 )
Accounting reclassification(1)            (3,338 )       (100.0 )
Special bonus and charitable contribution            (3,515 )       (100.0 )
Total noninterest expense, adjusted(2)    $ 98,116     $ 94,178     $ 95,473     4.2     2.8  

N/M – Not meaningful.

(1) As a result of 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. 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 expense for the fourth quarter of 2018 increased by 14.9% and 8.3% compared to the third quarter of 2018 and the fourth quarter of 2017, respectively. During the fourth and third quarters of 2018, noninterest expense was impacted by acquisition and integration related expenses and costs related to the implementation of the Delivering Excellence initiative. 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 fourth and third quarters of 2018 versus a gross basis within noninterest expense for the prior period. In addition, the fourth quarter of 2017 was impacted by certain actions responsive to tax reform including a special bonus and charitable contribution. Excluding these items, noninterest expense for the fourth quarter of 2018 was $98.1 million, up by 4.2% and 2.8% from the third quarter of 2018 and fourth quarter of 2017, respectively.

Operating costs associated with the Northern States acquisition contributed approximately $2.1 million to noninterest expense for the fourth quarter of 2018. These costs primarily occurred within salaries and employee benefits as well as net occupancy and equipment expense, technology and related costs, professional services, and other expenses.

The decrease in salaries and employee benefits compared to the fourth quarter of 2017 was driven primarily by the ongoing benefits of the Delivering Excellence initiative. Professional services increased compared to both prior periods as a result of higher loan remediation costs. Advertising and promotions expense for both prior periods reflect higher charitable contributions to the First Midwest Charitable Foundation. The third quarter of 2018 was also elevated due to the launch of a new marketing campaign. Compared to both prior periods, other expenses increased due primarily to property valuation adjustments, the reserve for unfunded commitments, and other miscellaneous expenses.

The increase in net OREO expenses compared to the third quarter of 2018 was due mainly to higher valuation adjustments and operating expenses.

Acquisition and integration related expenses for the fourth and third quarters of 2018 resulted from the acquisition of Northern States, which was completed during the fourth quarter of 2018.

INCOME TAXES

The Company's effective tax rate for the fourth quarter of 2018 was 24.0%, compared to 11.0% for the third quarter of 2018 and 94.7% for the fourth quarter of 2017. The third quarter of 2018 was impacted by $7.8 million of income tax benefits resulting from tax reform. The Company's effective tax rate for the fourth quarter of 2017 was impacted by the downward revaluation of deferred tax assets ("DTAs") by $26.6 million due to tax reform. Excluding these items, the Company's effective tax rate for the third quarter of 2018 was 24.0%, consistent with the fourth quarter of 2018 and down from 34.1% for the fourth quarter of 2017. The decrease in the effective tax rate from the fourth quarter of 2017 was driven 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 tax reform.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)

    As of   December 31, 2018
Percent Change From
    December 31, 2018                
    Legacy   Acquired (1)   Total   September 30,
 2018
  December 31,
 2017
  September 30,
 2018
  December 31,
 2017
Commercial and industrial    $ 4,091,101     $ 29,192     $ 4,120,293     $ 3,994,142     $ 3,529,914     3.2     16.7  
Agricultural    430,928         430,928     432,220     430,886     (0.3 )    
Commercial real estate:                            
Office, retail, and industrial    1,752,169     68,748     1,820,917     1,782,757     1,979,820     2.1     (8.0 )
Multi-family    688,921     75,264     764,185     698,611     675,463     9.4     13.1  
Construction    614,688     34,649     649,337     632,779     539,820     2.6     20.3  
Other commercial real estate    1,314,924     46,886     1,361,810     1,348,831     1,358,515     1.0     0.2  
Total commercial real estate    4,370,702     225,547     4,596,249     4,462,978     4,553,618     3.0     0.9  
Total corporate loans    8,892,731     254,739     9,147,470     8,889,340     8,514,418     2.9     7.4  
Home equity    846,201     5,406     851,607     853,887     827,055     (0.3 )   3.0  
1-4 family mortgages    1,007,432     9,749     1,017,181     888,797     774,357     14.4     31.4  
Installment    429,167     1,358     430,525     418,524     321,982     2.9     33.7  
Total consumer loans    2,282,800     16,513     2,299,313     2,161,208     1,923,394     6.4     19.5  
Total loans    $ 11,175,531     $ 271,252     $ 11,446,783     $ 11,050,548     $ 10,437,812     3.6     9.7  

(1) Amount represents loans acquired in the Northern States transaction, which was completed in the fourth quarter of 2018.

Total loans of $11.4 billion grew by 14.3%, annualized, from September 30, 2018 and 9.7% from December 31, 2017. Excluding loans acquired in the Northern States transaction of $271.3 million, total loans grew by 4.5%, annualized, from September 30, 2018 and 7.1% from December 31, 2017. Compared to both prior periods, growth in commercial and industrial loans was driven primarily by strong production in our sector-based lending. The rise in construction loans compared to December 31, 2017 was due largely 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 organic production as well as the impact of purchases of 1-4 family mortgages. Compared to December 31, 2017, growth in consumer loans also benefited from the purchase of shorter-duration home equity and installment loans.

Asset Quality
(Dollar amounts in thousands)

    As of   December 31, 2018
Percent Change From
    December 31,
 2018
  September 30,
 2018
  December 31,
 2017
  September 30,
 2018
  December 31,
 2017
Asset quality                    
Non-accrual loans    $ 56,935     $ 64,766     $ 66,924     (12.1 )   (14.9 )
90 days or more past due loans, still accruing interest(1)    8,282     2,949     3,555     180.8     133.0  
Total non-performing loans    65,217     67,715     70,479     (3.7 )   (7.5 )
Accruing troubled debt restructurings ("TDRs")    1,866     1,741     1,796     7.2     3.9  
OREO    12,821     12,244     20,851     4.7     (38.5 )
Total non-performing assets    $ 79,904     $ 81,700     $ 93,126     (2.2 )   (14.2 )
30-89 days past due loans(1)    $ 37,524     $ 46,257     $ 39,725          
Non-accrual loans to total loans    0.50 %   0.59 %   0.64 %        
Non-performing loans to total loans    0.57 %   0.61 %   0.68 %        
Non-performing assets to total loans plus OREO    0.70 %   0.74 %   0.89 %        
Total allowance for credit losses    $ 103,419     $ 100,925     $ 96,729          
Allowance for credit losses to total loans(2)    0.90 %   0.91 %   0.93 %        
Allowance for credit losses to loans, excluding acquired loans    1.01 %   1.01 %   1.07 %        
Allowance for credit losses to non-accrual loans    181.64 %   155.83 %   144.54 %        

(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 plus OREO at December 31, 2018 compared to 0.74% and 0.89% at September 30, 2018 and December 31, 2017, respectively. The decline in OREO compared to December 31, 2017 resulted from sales of OREO properties.

The allowance for credit losses to total loans was 0.90% at December 31, 2018, consistent with September 30, 2018 and down from 0.93% at December 31, 2017.

Charge-Off Data
 (Dollar amounts in thousands)

    Quarters Ended
    December 31,
 2018
  % of
Total
  September 30,
 2018
  % of
Total
  December 31,
 2017
  % of
Total
Net loan charge-offs (1)                        
Commercial and industrial    $ 5,558     73.9     $ 5,230     65.2     $ 5,635     79.3  
Agricultural    71     0.9     631     7.9     (102 )   (1.4 )
Office, retail, and industrial    713     9.5     596     7.4     (78 )   (1.1 )
Multi-family    (3 )       1         (3 )    
Construction    (99 )   (1.3 )   (4 )       (12 )   (0.2 )
Other commercial real estate    (817 )   (10.9 )   23     0.3     (5 )   (0.1 )
Consumer    2,094     27.9     1,537     19.2     1,674     23.5  
Total net loan charge-offs    $ 7,517     100.0     $ 8,014     100.0     $ 7,109     100.0  
Total recoveries included above    $ 2,810         $ 1,250         $ 2,011      
Net loan charge-offs to average loans(1)(2)                        
Quarter-to-date    0.26 %       0.29 %       0.27 %    
Year-to-date    0.38 %       0.42 %       0.21 %    

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

(2) Annualized based on the actual number of days for each period presented.

Net loan charge-offs to average loans, annualized, were 0.26% for the fourth quarter of 2018, down from 0.29% for the third quarter of 2018 and 0.27% for the fourth quarter of 2017.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

    Average for Quarters Ended   December 31, 2018
Percent Change From
    December 31, 2018                
    Legacy   Acquired(1)   Total   September 30,
 2018
  December 31,
 2017
  September 30,
 2018
  December 31,
 2017
Demand deposits    $ 3,607,573     $ 78,233     $ 3,685,806     $ 3,624,520     $ 3,611,811     1.7     2.0  
Savings deposits    1,969,197     75,115     2,044,312     2,003,928     2,017,489     2.0     1.3  
NOW accounts    2,029,784     98,938     2,128,722     2,164,018     1,992,150     (1.6 )   6.9  
Money market accounts    1,774,939     56,372     1,831,311     1,772,821     1,938,195     3.3     (5.5 )
Core deposits    9,381,493     308,658     9,690,151     9,565,287     9,559,645     1.3     1.4  
Time deposits    2,216,839     94,614     2,311,453     1,993,361     1,619,758     16.0     42.7  
Total deposits    $ 11,598,332     $ 403,272     $ 12,001,604     $ 11,558,648     $ 11,179,403     3.8     7.4  

(1) Amount represents deposits assumed in the Northern States transaction, which was completed in the fourth quarter of 2018.

Total average deposits were $12.0 billion for the fourth quarter of 2018, up 3.8% from the third quarter of 2018 and 7.4% from the fourth quarter of 2017. Excluding the impact of average deposits acquired in the Northern States transaction, total average deposits were consistent with the third quarter of 2018 and up 3.7% from the fourth quarter of 2017. The increase from the fourth quarter of 2017 resulted from the continued success of time deposit marketing initiatives.

CAPITAL MANAGEMENT

Capital Ratios

    As of
    December 31,
 2018
  September 30,
 2018
  December 31,
 2017
Company regulatory capital ratios:
Total capital to risk-weighted assets    12.62 %   12.32 %   12.15 %
Tier 1 capital to risk-weighted assets    10.20 %   10.34 %   10.10 %
Common equity Tier 1 ("CET1") to risk-weighted assets    10.20 %   9.93 %   9.68 %
Tier 1 capital to average assets    8.90 %   9.10 %   8.99 %
Company tangible common equity ratios(1)(2):                  
Tangible common equity to tangible assets    8.59 %   8.21 %   8.33 %
Tangible common equity, excluding accumulated other comprehensive
    income ("AOCI"), to tangible assets 
  8.95 %   8.74 %   8.58 %
Tangible common equity to risk-weighted assets    9.81 %   9.33 %   9.31 %

(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.

Compared to both prior periods, total capital and CET1 to risk-weighted assets were up as a result of strong earnings, partially offset by the Northern States acquisition and the impact of loan growth and securities purchases on risk-weighted assets. Overall, both Tier 1 capital ratios decreased compared to prior periods, which was driven primarily by the phase out of Tier 1 treatment of the Company's trust-preferred securities due to asset growth.

The Board of Directors approved a quarterly cash dividend of $0.12 per common share during the fourth quarter of 2018, which is a 9% increase from the third quarter of 2018. This dividend represents the 144th 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, January 23, 2019 at 11:00 A.M. (ET). Members of the public who would like to listen to the conference call should dial (877) 507-0639 (U.S. domestic) or (412) 317-6003 (International) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (International) conference I.D. 10127613 beginning one hour after completion of the live call until 9:00 A.M. (ET) on February 6, 2019. 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, 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 First Midwest's future financial performance, including the related outlook for 2019, the performance of First Midwest's 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 associated therewith and the timing thereof, anticipated trends in First Midwest's business, regulatory developments, the impact of federal income tax reform legislation, acquisition transactions, including First Midwest's proposed acquisition of Bridgeview, estimated synergies, cost savings and financial benefits of completed 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 First Midwest's Annual Report on Form 10-K for the year ended December 31, 2017, as well as First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). However, these risks and uncertainties are not exhaustive. Other sections of such reports describe additional factors that could adversely impact First Midwest's 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, adjusted, 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 acquisition and integration related expenses associated with completed and pending acquisitions (fourth and third quarters of 2018 and full years 2018 and 2017), Delivering Excellence implementation costs (fourth, third, and second quarters of 2018 and full year 2018), certain income tax benefits resulting from tax reform (third quarter and full year 2018), the revaluations of DTAs (fourth quarter and full year 2017), certain actions resulting in securities losses and gains (fourth quarter and full year 2017), and a special bonus to colleagues and charitable contributions to the First Midwest Charitable Foundation (fourth quarter and full year 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 may be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics may be 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 may enhance comparability for peer comparison purposes.

The Company presents noninterest income, adjusted, which excludes the accounting reclassification and net securities losses, and noninterest expense, adjusted, which excludes the accounting reclassification, Delivering Excellence implementation costs, and acquisition and integration related expenses. In addition, the Company presents the effective income tax rate, adjusted, which excludes certain income tax benefits resulting from tax reform and the revaluations of DTAs. Management believes that excluding these items from noninterest income, noninterest expense, and the effective income tax rate may be useful in assessing the Company’s underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate 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 of 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 may enhance comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, adjusted, may enhance 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 that may be 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 Bridgeview, First Midwest will file a registration statement on Form S-4 with the SEC. The registration statement will include a proxy statement of Bridgeview, which also will constitute a prospectus of First Midwest, that will be sent to Bridgeview 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, Bridgeview 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) 831-7483, or from Bridgeview upon written request to Bridgeview Bancorp, Inc., Attn: William Conaghan, President and Chief Executive Officer, 4753 North Broadway, Chicago, Illinois 60640 or by calling (773) 989-5728.

Participants in this Transaction

First Midwest, Bridgeview 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 Bridgeview 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 (NASDAQ: FMBI) 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 over $15 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, consumer, wealth management, trust and private banking products and services through locations in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. Visit First Midwest at www.firstmidwest.com.

Contacts

Investors
Patrick S. Barrett
EVP, Chief Financial Officer
(708) 831-7231
pat.barrett@firstmidwest.com
Media
Maurissa Kanter
SVP, Director of Corporate Communications
(708) 831-7345
maurissa.kanter@firstmidwest.com


Accompanying Unaudited Selected Financial Information

First Midwest Bancorp, Inc.
Consolidated Statements of Financial Condition (Unaudited)
(Dollar amounts in thousands)
   
  As of
  December 31,   September 30,   June 30,   March 31,   December 31,
  2018   2018   2018   2018   2017
Period-End Balance Sheet                  
Assets                  
Cash and due from banks  $ 211,189     $ 185,239     $ 181,482     $ 150,138     $ 192,800  
Interest-bearing deposits in other banks  78,069     111,360     192,785     84,898     153,770  
Trading securities, at fair value(1)                  20,447  
Equity securities, at fair value(1)  30,806     29,046     28,441     28,513      
Securities available-for-sale, at fair value(1)  2,272,009     2,179,410     2,142,865     2,040,950     1,884,209  
Securities held-to-maturity, at amortized cost  10,176     12,673     13,042     13,400     13,760  
FHLB and FRB stock  80,302     87,728     82,778     80,508     69,708  
Loans:                  
Commercial and industrial  4,120,293     3,994,142     3,844,067     3,659,066     3,529,914  
Agricultural  430,928     432,220     433,175     435,734     430,886  
Commercial real estate:                  
Office, retail, and industrial  1,820,917     1,782,757     1,834,918     1,931,202     1,979,820  
Multi-family  764,185     698,611     703,091     695,830     675,463  
Construction  649,337     632,779     633,601     585,766     539,820  
Other commercial real estate  1,361,810     1,348,831     1,337,396     1,363,238     1,358,515  
Home equity  851,607     853,887     847,903     881,534     827,055  
1-4 family mortgages  1,017,181     888,797     880,181     798,902     774,357  
Installment  430,525     418,524     377,233     325,502     321,982  
Total loans  11,446,783     11,050,548     10,891,565     10,676,774     10,437,812  
 Allowance for loan losses  (102,219 )   (99,925 )   (96,691 )   (94,854 )   (95,729 )
Net loans  11,344,564     10,950,623     10,794,874     10,581,920     10,342,083  
OREO  12,821     12,244     12,892     17,472     20,851  
Premises, furniture, and equipment, net  132,502     126,389     127,024     126,348     123,316  
Investment in bank-owned life insurance ("BOLI")  296,733     284,074     282,664     281,285     279,900  
Goodwill and other intangible assets  790,744     751,248     753,020     754,814     754,757  
Accrued interest receivable and other assets  245,734     231,465     206,209     219,725     221,451  
Total assets  $ 15,505,649     $ 14,961,499     $ 14,818,076     $ 14,379,971     $ 14,077,052  
Liabilities and Stockholders' Equity                  
Noninterest-bearing deposits  $ 3,642,989     $ 3,618,384     $ 3,667,847     $ 3,527,081     $ 3,576,190  
Interest-bearing deposits  8,441,123     7,908,730     7,824,416     7,618,941     7,477,135  
Total deposits  12,084,112     11,527,114     11,492,263     11,146,022     11,053,325  
Borrowed funds  906,079     1,073,546     981,044     950,688     714,884  
Senior and subordinated debt  203,808     195,595     195,453     195,312     195,170  
Accrued interest payable and other liabilities  256,652     247,569     265,753     218,662     248,799  
Stockholders' equity 2,054,998     1,917,675     1,883,563     1,869,287     1,864,874  
Total liabilities and stockholders' equity  $ 15,505,649     $ 14,961,499     $ 14,818,076     $ 14,379,971     $ 14,077,052  
Stockholders' equity, excluding AOCI  $ 2,107,510     $ 1,992,808     $ 1,947,963     $ 1,926,818     $ 1,897,910  
Stockholders' equity, common 2,054,998     1,917,675     1,883,563     1,869,287     1,864,874  

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     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2018   2018   2018   2018   2017     2018   2017
Income Statement                            
Interest income  $ 159,527     $ 149,532     $ 142,088     $ 131,345     $ 129,585       $ 582,492     $ 509,716  
Interest expense  20,898     17,505     14,685     12,782     10,254       65,870     37,712  
Net interest income  138,629     132,027     127,403     118,563     119,331       516,622     472,004  
Provision for loan losses  9,811     11,248     11,614     15,181     8,024       47,854     31,290  
Net interest income after provision for loan losses  128,818     120,779     115,789     103,382     111,307       468,768     440,714  
Noninterest Income                            
Service charges on deposit accounts 12,627     12,378     12,058     11,652     12,289       48,715     48,368  
Wealth management fees  10,951     10,622     10,981     10,958     10,967       43,512     41,321  
Card-based fees, net(1):                            
Card-based fees  6,615     5,975     6,270     5,692     6,052       24,552     28,992  
Cardholder expenses  (2,041 )   (1,852 )   (1,876 )   (1,759 )         (7,528 )    
Card-based fees, net 4,574     4,123     4,394     3,933     6,052       17,024     28,992  
Capital market products income  1,408     1,936     2,819     1,558     1,986       7,721     8,171  
Mortgage banking income  1,304     1,657     1,736     2,397     2,352       7,094     8,131  
Merchant servicing fees, net(1)                            
Merchant servicing fees  2,566     2,702     2,553     2,237     1,771       10,058     10,340  
Merchant card expenses  (2,201 )   (2,315 )   (2,170 )   (1,907 )         (8,593 )    
Merchant servicing fees, net  365     387     383     330     1,771       1,465     10,340  
Other service charges, commissions, and fees  2,353     2,399     2,455     2,218     2,369       9,425     9,843  
Total fee-based revenues  33,582     33,502     34,826     33,046     37,786       134,956     155,166  
Other income  2,880     2,164     2,121     2,471     2,476       9,636     9,859  
Net securities losses                  (5,357 )         (1,876 )
Total noninterest income  36,462     35,666     36,947     35,517     34,905       144,592     163,149  
Noninterest Expense                            
Salaries and employee benefits:                            
Salaries and wages  45,011     44,067     46,256     45,830     48,204       181,164     182,507  
Retirement and other employee benefits  10,378     10,093     11,676     10,957     10,204       43,104     41,886  
Total salaries and employee benefits  55,389     54,160     57,932     56,787     58,408       224,268     224,393  
Net occupancy and equipment expense 12,827     13,183     13,651     13,773     12,826       53,434     49,751  
Professional services 8,859     7,944     8,298     7,580     7,616       32,681     33,689  
Technology and related costs  4,849     4,763     4,837     4,771     4,645       19,220     18,068  
Advertising and promotions  2,011     3,526     2,061     1,650     4,083       9,248     8,694  
Net OREO expense  763     (413 )   (256 )   1,068     695       1,162     4,683  
Merchant card expense(1)                  1,423           8,377  
Cardholder expenses(1)                  1,915           7,323  
Other expenses  13,418     11,015     11,878     9,953     10,715       46,264     40,808  
Delivering Excellence implementation costs  3,159     2,239     15,015               20,413      
Acquisition and integration related expenses  9,553     60                   9,613     20,123  
Total noninterest expense  110,828     96,477     113,416     95,582     102,326       416,303     415,909  
Income before income tax expense  54,452     59,968     39,320     43,317     43,886       197,057     187,954  
Income tax expense 13,044     6,616     9,720     9,807     41,539       39,187     89,567  
Net income  $ 41,408     $ 53,352     $ 29,600     $ 33,510     $ 2,347       $ 157,870     $ 98,387  
Net income applicable to common shares  $ 41,088     $ 52,911     $ 29,360     $ 33,199     $ 2,341       $ 156,558     $ 97,471  
Net income applicable to common shares, adjusted(2)  $ 50,622     $ 46,837     $ 40,621     $ 33,199     $ 34,131       $ 171,279     $ 136,599  

Footnotes to Condensed Consolidated Statements of Income
(1)   As a result of accounting guidance adopted in 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     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2018   2018   2018   2018   2017     2018   2017
EPS                            
Basic EPS $ 0.39     $ 0.52     $ 0.29     $ 0.33     $ 0.02       $ 1.52     $ 0.96  
Diluted EPS  $ 0.39     $ 0.52     $ 0.29     $ 0.33     $ 0.02       $ 1.52     $ 0.96  
Diluted EPS, adjusted(1)  $ 0.48     $ 0.46     $ 0.40     $ 0.33     $ 0.34       $ 1.67     $ 1.35  
Common Stock and Related Per Common Share Data          
Book value  $ 19.32     $ 18.61     $ 18.28     $ 18.13     $ 18.16       $ 19.32     $ 18.16  
Tangible book value $ 11.88     $ 11.32     $ 10.97     $ 10.81     $ 10.81       $ 11.88     $ 10.81  
Dividends declared per share  $ 0.12     $ 0.11     $ 0.11     $ 0.11     $ 0.10       $ 0.45     $ 0.39  
Closing price at period end  $ 19.81     $ 26.59     $ 25.47     $ 24.59     $ 24.01       $ 19.81     $ 24.01  
Closing price to book value  1.0     1.4     1.4     1.4     1.3       1.0     1.3  
Period end shares outstanding  106,375     103,058     103,059     103,092     102,717       106,375     102,717  
Period end treasury shares  9,297     9,301     9,297     9,261     9,634       9,297     9,634  
Common dividends  $ 12,774     $ 11,326     $ 11,333     $ 11,349     $ 10,278       $ 46,782     $ 40,071  
Key Ratios/Data                            
Return on average common equity(2)  8.09 %   10.99 %   6.23 %   7.19 %   0.49 %     8.14 %   5.32 %
Return on average common equity, adjusted(1)(2) 9.97 %   9.73 %   8.62 %   7.19 %   7.20 %     8.91 %   7.45 %
Return on average tangible common equity(1)(2) 13.42 %   18.60 %   10.83 %   12.50 %   1.20 %     13.87 %   9.44 %
Return on average tangible common equity, adjusted(1)(2)  16.42 %   16.51 %   14.81 %   12.50 %   12.35 %     15.13 %   13.06 %
Return on average assets(2)  1.06 %   1.42 %   0.81 %   0.96 %   0.07 %     1.07 %   0.70 %
Return on average assets, adjusted(1)(2)  1.30 %   1.26 %   1.12 %   0.96 %   0.96 %     1.17 %   0.98 %
Loans to deposits  94.73 %   95.87 %   94.77 %   95.79 %   94.43 %     94.73 %   94.43 %
Efficiency ratio(1)  55.25 %   56.03 %   59.65 %   60.96 %   60.78 %     57.87 %   60.09 %
Efficiency ratio, prior presentation(1)(3)  N/A     N/A     N/A     N/A     60.32 %     N/A     59.73 %
Net interest margin(2)(4)  3.96 %   3.92 %   3.91 %   3.80 %   3.84 %     3.90 %   3.87 %
Yield on average interest-earning assets(2)(4) 4.56 %   4.44 %   4.35 %   4.20 %   4.16 %     4.39 %   4.17 %
Cost of funds(2)(5)  0.63 %   0.55 %   0.47 %   0.43 %   0.34 %     0.52 %   0.32 %
Net noninterest expense to average assets(2)  1.90 %   1.62 %   2.10 %   1.72 %   1.74 %     1.84 %   1.79 %
Effective income tax rate  23.96 %   11.03 %   24.72 %   22.64 %   94.65 %     19.89 %   47.65 %
Effective income tax rate, adjusted(1)  23.96 %   24.04 %   24.72 %   22.64 %   34.14 %     23.84 %   35.04 %
Capital Ratios                                                        
Total capital to risk-weighted assets(1)  12.62 %   12.32 %   12.07 %   12.07 %   12.15 %     12.62 %   12.15 %
Tier 1 capital to risk-weighted assets(1)  10.20 %   10.34 %   10.09 %   10.07 %   10.10 %     10.20 %   10.10 %
CET1 to risk-weighted assets(1) 10.20 %   9.93 %   9.68 %   9.65 %   9.68 %     10.20 %   9.68 %
Tier 1 capital to average assets(1)  8.90 %   9.10 %   8.95 %   9.07 %   8.99 %     8.90 %   8.99 %
Tangible common equity to tangible assets(1)  8.59 %   8.21 %   8.04 %   8.18 %   8.33 %     8.59 %   8.33 %
Tangible common equity, excluding AOCI, to tangible assets(1)  8.95 %   8.74 %   8.50 %   8.60 %   8.58 %     8.95 %   8.58 %
Tangible common equity to risk-weighted assets(1)  9.81 %   9.33 %   9.16 %   9.18 %   9.31 %     9.81 %   9.31 %
Note: Selected Financial Information footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
                             
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2018   2018   2018   2018   2017     2018   2017
Asset quality Performance Data                          
Non-performing assets                            
Commercial and industrial  $ 33,507     $ 37,981     $ 22,672     $ 43,974     $ 40,580       $ 33,507     $ 40,580  
Agricultural  1,564     2,104     2,992     4,086     219       1,564     219  
Commercial real estate:                            
Office, retail, and industrial  6,510     6,685     9,007     12,342     11,560       6,510     11,560  
Multi-family  3,107     3,184     3,551     144     377       3,107     377  
Construction  144     208     208     208     209       144     209  
Other commercial real estate  2,854     4,578     5,288     4,088     3,621       2,854     3,621  
Consumer 9,249     10,026     9,757     10,173     10,358       9,249     10,358  
Total non-accrual loans  56,935     64,766     53,475     75,015     66,924       56,935     66,924  
90 days or more past due loans, still accruing interest  8,282     2,949     7,954     4,633     3,555       8,282     3,555  
Total non-performing loans  65,217     67,715     61,429     79,648     70,479       65,217     70,479  
Accruing TDRs  1,866     1,741     1,760     1,778     1,796       1,866     1,796  
OREO  12,821     12,244     12,892     17,472     20,851       12,821     20,851  
Total non-performing assets  $ 79,904     $ 81,700     $ 76,081     $ 98,898     $ 93,126       $ 79,904     $ 93,126  
30-89 days past due loans  $ 37,524     $ 46,257     $ 39,171     $ 42,573     $ 39,725       $ 37,524     $ 39,725  
Allowance for credit losses                            
Allowance for loan losses  $ 102,219     $ 99,925     $ 96,691     $ 94,854     $ 95,729       $ 102,219     $ 95,729  
Reserve for unfunded commitments  1,200     1,000     1,000     1,000     1,000       1,200     1,000  
Total allowance for credit losses  $ 103,419     $ 100,925     $ 97,691     $ 95,854     $ 96,729       $ 103,419     $ 96,729  
Provision for loan losses  $ 9,811     $ 11,248     $ 11,614     $ 15,181     $ 8,024       $ 47,854     $ 31,290  
Net charge-offs by category                            
Commercial and industrial  $ 5,558     $ 5,230     $ 7,081     $ 13,149     $ 5,635       $ 31,018     $ 17,487  
Agricultural  71     631     828     983     (102 )     2,513     1,248  
Commercial real estate:                            
Office, retail, and industrial  713     596     279     364     (78 )     1,952     (2,745 )
Multi-family  (3 )   1     4         (3 )     2     (39 )
Construction  (99 )   (4 )   (8 )   (13 )   (12 )     (124 )   (232 )
Other commercial real estate  (817 )   23     (358 )   30     (5 )     (1,122 )   511  
Consumer 2,094     1,537     1,951     1,543     1,674       7,125     5,414  
Total net charge-offs 7,517     8,014     9,777     16,056     7,109       41,364     21,644  
Total recoveries included above  $ 2,810     $ 1,250     $ 1,532     $ 1,029     $ 2,011       $ 6,621     $ 9,179  
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
    December 31,   September 30,   June 30,   March 31,   December 31,
    2018   2018   2018   2018   2017
Asset quality ratios                    
Non-accrual loans to total loans    0.50 %   0.59 %   0.49 %   0.70 %   0.64 %
Non-performing loans to total loans    0.57 %   0.61 %   0.56 %   0.75 %   0.68 %
Non-performing assets to total loans plus OREO    0.70 %   0.74 %   0.70 %   0.92 %   0.89 %
Non-performing assets to tangible common equity plus allowance for credit losses    5.84 %   6.45 %   6.19 %   8.17 %   7.72 %
Non-accrual loans to total assets    0.37 %   0.43 %   0.36 %   0.52 %   0.48 %
Allowance for credit losses and net charge-off ratios                              
Allowance for credit losses to total loans(6)    0.90 %   0.91 %   0.90 %   0.90 %   0.93 %
Allowance for credit losses to loans, excluding acquired loans   1.01 %   1.01 %   1.00 %   1.01 %   1.07 %
Allowance for credit losses to non-accrual loans    181.64 %   155.83 %   182.69 %   127.78 %   144.54 %
Allowance for credit losses to non-performing loans    158.58 %   149.04 %   159.03 %   120.35 %   137.25 %
Net charge-offs to average loans(2)   0.26 %   0.29 %   0.36 %   0.62 %   0.27 %

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 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     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2018   2018   2018   2018   2017     2018   2017
EPS                            
Net income  $ 41,408     $ 53,352     $ 29,600     $ 33,510     $ 2,347       $ 157,870     $ 98,387  
Net income applicable to non-vested restricted shares  (320 )   (441 )   (240 )   (311 )   (6 )     (1,312 )   (916 )
Net income applicable to common shares  41,088     52,911     29,360     33,199     2,341       156,558     97,471  
Adjustments to net income:                            
Delivering Excellence implementation costs  3,159     2,239     15,015               20,413      
Tax effect of Delivering Excellence implementation costs  (790 )   (560 )   (3,754 )             (5,104 )    
Acquisition and integration related expenses  9,553     60                   9,613     20,123  
Tax effect of acquisition and integration related expenses  (2,388 )   (15 )                 (2,403 )   (8,053 )
Income tax benefits(1)      (7,798 )                 (7,798 )    
DTA revaluation                  26,555           23,709  
Losses from securities portfolio repositioning                  5,357           2,160  
Tax effect of losses from securities portfolio repositioning                  (2,196 )         (885 )
Special bonus                  1,915           1,915  
Tax effect of special bonus                  (785 )         (785 )
Charitable contribution                  1,600           1,600  
Tax effect of charitable contribution                  (656 )         (656 )
Total adjustments to net income, net of tax  9,534     (6,074 )   11,261         31,790       14,721     39,128  
Net income applicable to common shares, adjusted(2)  $ 50,622     $ 46,837     $ 40,621     $ 33,199     $ 34,131       $ 171,279     $ 136,599  
Weighted-average common shares outstanding:                          
Weighted-average common shares outstanding (basic)  105,116     102,178     102,159     101,922     101,766       102,850     101,423  
Dilutive effect of common stock equivalents              16     21       4     20  
Weighted-average diluted common shares outstanding  105,116     102,178     102,159     101,938     101,787       102,854     101,443  
Basic EPS $ 0.39     $ 0.52     $ 0.29     $ 0.33     $ 0.02       $ 1.52     $ 0.96  
Diluted EPS  $ 0.39     $ 0.52     $ 0.29     $ 0.33     $ 0.02       $ 1.52     $ 0.96  
Diluted EPS, adjusted(2)  $ 0.48     $ 0.46     $ 0.40     $ 0.33     $ 0.34       $ 1.67     $ 1.35  
Anti-dilutive shares not included in the computation of diluted EPS              110     190       27     229  
Effective Tax Rate                            
Income before income tax expense  $ 54,452     $ 59,968     $ 39,320     $ 43,317     $ 43,886       $ 197,057     $ 187,954  
Income tax expense $ 13,044     $ 6,616     $ 9,720     $ 9,807     $ 41,539       $ 39,187     $ 89,567  
Income tax benefits(1)      7,798                   7,798      
DTA revaluation                  (26,555 )         (23,709 )
Income tax expense, adjusted  $ 13,044     $ 14,414     $ 9,720     $ 9,807     $ 14,984       $ 46,985     $ 65,858  
Effective income tax rate  23.96 %   11.03 %   24.72 %   22.64 %   94.65 %     19.89 %   47.65 %
Effective income tax rate, adjusted 23.96 %   24.04 %   24.72 %   22.64 %   34.14 %     23.84 %   35.04 %
                             
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.


First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
                             
  As of or for the
  Quarters Ended     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2018   2018   2018   2018   2017     2018   2017
Return on Average Common and Tangible Common Equity                      
Net income applicable to common shares  $ 41,088     $ 52,911     $ 29,360     $ 33,199     $ 2,341       $ 156,558     $ 97,471  
Intangibles amortization  2,077     1,772     1,794     1,802     1,806       7,444     7,865  
Tax effect of intangibles amortization  (519 )   (443 )   (449 )   (508 )   (740 )     (1,919 )   (3,183 )
Net income applicable to common shares, excluding intangibles amortization  42,646     54,240     30,705     34,493     3,407       162,083     102,153  
Total adjustments to net income, net of tax(2)  9,534     (6,074 )   11,261         31,790       14,721     39,128  
Net income applicable to common shares, adjusted(2) $ 52,180     $ 48,166     $ 41,966     $ 34,493     $ 35,197       $ 176,804     $ 141,281  
Average stockholders' equity  $ 2,015,217     $ 1,909,330     $ 1,890,727     $ 1,873,419     $ 1,880,265       $ 1,922,527     $ 1,832,880  
Less: average intangible assets  (754,495 )   (752,109 )   (753,887 )   (753,870 )   (749,700 )     (753,588 )   (751,292 )
Average tangible common equity  $ 1,260,722     $ 1,157,221     $ 1,136,840     $ 1,119,549     $ 1,130,565       $ 1,168,939     $ 1,081,588  
Return on average common equity(3)  8.09 %   10.99 %   6.23 %   7.19 %   0.49 %     8.14 %   5.32 %
Return on average common equity, adjusted(2)(3) 9.97 %   9.73 %   8.62 %   7.19 %   7.20 %     8.91 %   7.45 %
Return on average tangible common equity(3)  13.42 %   18.60 %   10.83 %   12.50 %   1.20 %     13.87 %   9.44 %
Return on average tangible common equity, adjusted(2)(3)  16.42 %   16.51 %   14.81 %   12.50 %   12.35 %     15.13 %   13.06 %
Return on Average Assets                      
Net income  $ 41,408     $ 53,352     $ 29,600     $ 33,510     $ 2,347       $ 157,870     $ 98,387  
Total adjustments to net income, net of tax(2)  9,534     (6,074 )   11,261         31,790       14,721     39,128  
Net income, adjusted(2)  $ 50,942     $ 47,278     $ 40,861     $ 33,510     $ 34,137       $ 172,591     $ 137,515  
Average assets  $ 15,503,399     $ 14,894,670     $ 14,605,715     $ 14,187,053     $ 14,118,625       $ 14,801,581     $ 13,978,693  
Return on average assets(3)  1.06 %   1.42 %   0.81 %   0.96 %   0.07 %     1.07 %   0.70 %
Return on average assets, adjusted(2)(3)  1.30 %   1.26 %   1.12 %   0.96 %   0.96 %     1.17 %   0.98 %
Efficiency Ratio Calculation                            
Noninterest expense $ 110,828     $ 96,477     $ 113,416     $ 95,582     $ 102,326       $ 416,303     $ 415,909  
Less:                            
Net OREO expense  (763 )   413     256     (1,068 )   (695 )     (1,162 )   (4,683 )
Delivering Excellence implementation costs  (3,159 )   (2,239 )   (15,015 )             (20,413 )    
Acquisition and integration related expenses  (9,553 )   (60 )                 (9,613 )   (20,123 )
Special bonus                  (1,915 )         (1,915 )
Charitable contribution                  (1,600 )         (1,600 )
Total  $ 97,353     $ 94,591     $ 98,657     $ 94,514     $ 98,116       $ 385,115     $ 387,588  
Tax-equivalent net interest income(4)  $ 139,755     $ 133,161     $ 128,442     $ 119,538     $ 121,154       $ 520,896     $ 479,965  
Noninterest income  36,462     35,666     36,947     35,517     34,905       144,592     163,149  
Less: net securities losses                  5,357           1,876  
Total  $ 176,217     $ 168,827     $ 165,389     $ 155,055     $ 161,416       $ 665,488     $ 644,990  
Efficiency ratio  55.25 %   56.03 %   59.65 %   60.96 %   60.78 %     57.87 %   60.09 %
                             
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
    December 31,   September 30,   June 30,   March 31,   December 31,
    2018   2018   2018   2018   2017
Risk-Based Capital Data                    
Common stock    $ 1,157     $ 1,124     $ 1,124     $ 1,123     $ 1,123  
Additional paid-in capital    1,114,580     1,028,635     1,025,703     1,021,923     1,031,870  
Retained earnings    1,192,767     1,164,133     1,122,107     1,103,840     1,074,990  
Treasury stock, at cost    (200,994 )   (201,084 )   (200,971 )   (200,068 )   (210,073 )
Goodwill and other intangible assets, net of deferred tax liabilities   (790,744 )   (751,248 )   (753,020 )   (754,814 )   (743,327 )
Disallowed DTAs    (1,334 )       (389 )   (522 )   (644 )
CET1 capital    1,315,432     1,241,560     1,194,554     1,171,482     1,153,939  
Trust-preferred securities        50,690     50,690     50,690     50,690  
Other disallowed DTAs    (334 )       (97 )   (131 )   (161 )
Tier 1 capital    1,315,098     1,292,250     1,245,147     1,222,041     1,204,468  
Tier 2 capital    311,391     248,118     244,795     242,870     243,656  
Total capital    $ 1,626,489     $ 1,540,368     $ 1,489,942     $ 1,464,911     $ 1,448,124  
Risk-weighted assets   $ 12,892,180     $ 12,500,342     $ 12,345,200     $ 12,135,662     $ 11,920,372  
Adjusted average assets    $ 14,782,327     $ 14,202,776     $ 13,907,100     $ 13,472,294     $ 13,404,998  
Total capital to risk-weighted assets    12.62 %   12.32 %   12.07 %   12.07 %   12.15 %
Tier 1 capital to risk-weighted assets    10.20 %   10.34 %   10.09 %   10.07 %   10.10 %
CET1 to risk-weighted assets    10.20 %   9.93 %   9.68 %   9.65 %   9.68 %
Tier 1 capital to average assets    8.90 %   9.10 %   8.95 %   9.07 %   8.99 %
Tangible Common Equity                                        
Stockholders' equity   $ 2,054,998     $ 1,917,675     $ 1,883,563     $ 1,869,287     $ 1,864,874  
Less: goodwill and other intangible assets   (790,744 )   (751,248 )   (753,020 )   (754,814 )   (754,757 )
Tangible common equity    1,264,254     1,166,427     1,130,543     1,114,473     1,110,117  
Less: AOCI    52,512     75,133     64,400     57,531     33,036  
Tangible common equity, excluding AOCI    $ 1,316,766     $ 1,241,560     $ 1,194,943     $ 1,172,004     $ 1,143,153  
Total assets    $ 15,505,649     $ 14,961,499     $ 14,818,076     $ 14,379,971     $ 14,077,052  
Less: goodwill and other intangible assets   (790,744 )   (751,248 )   (753,020 )   (754,814 )   (754,757 )
Tangible assets    $ 14,714,905     $ 14,210,251     $ 14,065,056     $ 13,625,157     $ 13,322,295  
Tangible common equity to tangible assets    8.59 %   8.21 %   8.04 %   8.18 %   8.33 %
Tangible common equity, excluding AOCI, to tangible assets    8.95 %   8.74 %   8.50 %   8.60 %   8.58 %
Tangible common equity to risk-weighted assets    9.81 %   9.33 %   9.16 %   9.18 %   9.31 %
                     
 

Footnotes to Non-GAAP Reconciliations
(1)   Includes certain income tax benefits resulting from tax reform.
(2)   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.
(3)   Annualized based on the actual number of days for each period presented.
(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%.

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