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First Midwest Bancorp, Inc. Announces 2020 Fourth Quarter and Full Year Results

/EIN News/ -- CHICAGO, Jan. 26, 2021 (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 2020. Net income applicable to common shares for the fourth quarter of 2020 was $37.2 million, or $0.33 per diluted common share, compared to $23.4 million, or $0.21 per diluted common share, for the third quarter of 2020, and $51.7 million, or $0.47 per diluted common share, for the fourth quarter of 2019. For the full year of 2020, the Company reported net income applicable to common shares of $97.8 million, or $0.87 per diluted common share, compared to $198.1 million, or $1.82 per diluted common share, for the year ended December 31, 2019.

Results for the fourth quarter and full year of 2020 were impacted by balance sheet and retail optimization strategies, as well as income tax benefits. For the full year 2020, the COVID-19 pandemic (the "pandemic"), including governmental responses to it, impacted performance, resulting in higher provision for loan losses, as well as lower net interest and noninterest income. In addition, securities gains impacted the full year of 2020. Reported results for all periods 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.

SELECT FOURTH QUARTER HIGHLIGHTS

  • Generated EPS of $0.33, up 57% compared to the third quarter of 2020, reflective of lower credit costs, higher revenues, and income tax benefits; down 30% from the fourth quarter of 2019 due to the impact of the pandemic and optimization costs.
    • EPS, adjusted(1) of $0.43, up 30% from the third quarter of 2020 and down 16% from the fourth quarter of 2019.
  • Reported pre-tax, pre-provision earnings, adjusted(1) of $79 million, up 10% compared to third quarter 2020 due to:
    • Net interest income of $148 million at a net margin of 3.14%, up 4% and 19 basis points ("bps"), respectively, reflective of Paycheck Protection Program ("PPP") loan forgiveness.
    • Fee-based revenues up 10% due to record wealth management fees and record mortgage banking income.
  • Stable credit performance compared to the third quarter of 2020, risk rating migration as expected:
    • Net loan charge-offs ("NCOs") of 0.12%, down 14 bps excluding purchased credit deteriorated ("PCD") and PPP loans.
    • Allowance for credit losses ("ACL") of 1.67% of total loans, consistent with the prior quarter.
    • Non-performing assets ("NPAs") to total loans plus foreclosed assets of 1.11%, consistent with the prior quarter.
  • Grew loans to nearly $14 billion, up 4% and 9% from the prior quarter and prior year, excluding PPP.
  • Generated 118 basis points of total capital during 2020, ending the year at 14.14% of risk-weighted assets, benefiting from the issuance of $230.5 million of 7.0% fixed rate preferred stock.

"The best of First Midwest has been on display in what has been an unprecedented and turbulent period for our country," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "While the year's financial performance was impacted by the severe economic conditions caused by both the rapid onset and the magnitude of the pandemic, I am extremely proud of our 2,100 colleagues, who represent First Midwest each day. Amid the demands of a global health crisis, they were able to be agile, resilient and successfully pivot within our dramatically changed operating environment, working tirelessly to help support our clients, communities, and each other."

Mr. Scudder continued, "Importantly, earnings momentum for the quarter showed continued improvement, reflecting higher revenue, lower credit costs and controlled expenses. The quarter also saw the benefit of efforts undertaken to better position our balance sheet and efficiently manage our business to navigate today's low rate environment."

Mr. Scudder concluded, "As we look forward, we expect economic recovery to continue in 2021, complemented by COVID-19 vaccinations and execution of the federal government's fiscal policy. As these unfold, we remain centered on our collective drive to help our clients achieve financial success. While challenges certainly remain, times such as these also present an opportunity to build on that drive, leveraging our financial strength to best serve the needs of our clients and communities, as well as grow and enhance the value of our franchise."

OPTIMIZATION STRATEGIES

During the third quarter of 2020, the Company initiated certain actions that include optimizing its retail branch network and delivery model through the consolidation of 17 branches, or approximately 15% of its branch network, in early 2021. These actions reflect First Midwest's commitment to best meet the evolving needs and preferences of its clients and resulted in pre-tax costs of $18.4 million and $1.5 million for the third and fourth quarters of 2020, respectively. These costs are associated with valuation adjustments related to locations identified for closure due to their close proximity to another branch, modernization of our ATM network, advisory fees, employee severance, and other expenses associated with locations identified for closure. These costs are recorded within optimization costs within noninterest expense and are expected to be earned back in approximately 2 years.

During the fourth and third quarters of 2020, the Company terminated longer term interest rate swaps with a notional amount of $510 million and $1.1 billion, respectively, as well as reduced a portion of the borrowed funds related to the terminated swaps. As a result of these transactions, $17.6 million and $14.3 million of pre-tax losses on swap terminations were recorded within noninterest income for the quarters ended December 31, 2020 and September 30, 2020, respectively. For the third quarter of 2020, the loss was offset by $14.3 million of pre-tax securities gains. In addition, the Company purchased high quality 1-4 family mortgages of approximately $600 million, net during the fourth quarter of 2020 to reallocate securities cash flows into higher yielding assets and utilize excess liquidity. These actions are expected to positively impact future net interest income along with reducing higher levels of excess liquidity.

(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, 2020     September 30, 2020     December 31, 2019
  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 $ 1,244,999       $ 930       0.30       $ 1,234,948       $ 799       0.26       $ 204,001       $ 1,223       2.38  
Securities(1) 3,164,310       17,051       2.16       3,291,724       19,721       2.40       2,893,856       19,989       2.76  
Federal Home Loan Bank ("FHLB") and        
Federal Reserve Bank ("FRB") stock
123,287       1,342       4.35       150,033       976       2.60       117,994       881       2.99  
Loans, excluding PPP loans(1) 13,335,154       126,474       3.77       13,558,857       131,680       3.86       12,753,436       155,863       4.85  
PPP loans(1) 1,013,511       15,195       5.96       1,194,808       7,001       2.33                    
Total Loans(1) 14,348,665       141,669       3.93       14,753,665       138,681       3.74       12,753,436       155,863       4.85  
Total interest-earning assets(1) 18,881,261       160,992       3.39       19,430,370       160,177       3.28       15,969,287       177,956       4.43  
Cash and due from banks 252,268                 284,730                 241,616            
Allowance for loan losses (246,278 )               (243,667 )               (112,623 )          
Other assets 1,995,074                 2,055,262                 1,790,878            
Total assets $ 20,882,325                 $ 21,526,695                 $ 17,889,158            

Liabilities and Stockholders' Equity
                   
Savings deposits $ 2,436,930       109       0.02       $ 2,342,355       104       0.02       $ 2,044,386       220       0.04  
NOW accounts 2,774,989       277       0.04       2,744,034       307       0.04       2,291,667       2,172       0.38  
Money market deposits 2,923,881       694       0.09       2,781,666       724       0.10       2,178,518       3,980       0.72  
Time deposits 2,047,260       3,131       0.61       2,302,019       5,702       0.99       3,033,903       13,554       1.77  
Borrowed funds 1,661,731       4,158       1.00       2,436,922       6,021       0.98       1,559,326       4,579       1.17  
Senior and subordinated debt 234,669       3,482       5.90       234,464       3,498       5.94       233,848       3,740       6.35  
Total interest-bearing liabilities 12,079,460       11,851       0.39       12,841,460       16,356       0.51       11,341,648       28,245       0.99  
Demand deposits 5,753,600                 5,631,355                 3,862,157            
Total funding sources 17,833,060           0.26       18,472,815           0.35       15,203,805           0.74  
Other liabilities 373,854                 378,786                 326,156            
Stockholders' equity 2,675,411                 2,675,094                 2,359,197            
Total liabilities and        
stockholders' equity
$ 20,882,325                 $ 21,526,695                 $ 17,889,158            
Tax-equivalent net interest
income/margin(1)
    149,141       3.14           143,821       2.95           149,711       3.72  
Tax-equivalent adjustment     (1,030 )               (1,092 )               (1,352 )      
Net interest income (GAAP)(1)     $ 148,111                 $ 142,729                 $ 148,359        
Impact of acquired loan accretion(1)     $ 7,603       0.16           $ 7,960       0.16           $ 9,657       0.24  
Tax-equivalent net interest income/        
margin, adjusted(1)
    $ 141,538       2.98           $ 135,861       2.79           $ 140,054       3.48  


(1) Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax of 21%. 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 2020 increased by 3.8% from the third quarter of 2020 and was consistent with the fourth quarter of 2019. Net interest income compared to both prior periods was impacted by an increase in interest income and fees on PPP loans and lower cost of funds, partially offset by lower yields on loans and securities. Compared to the fourth quarter of 2019, net interest income was also impacted by growth in loans and securities as well as the acquisition of interest-earning assets from the Park Bank transaction that closed in the first quarter of 2020.

Acquired loan accretion contributed $7.6 million, $8.0 million, and $9.7 million to net interest income for the fourth quarter of 2020, the third quarter of 2020, and the fourth quarter of 2019, respectively.

Tax-equivalent net interest margin for the current quarter was 3.14%, increasing by 19 basis points from the third quarter of 2020 and decreasing 58 basis points from the fourth quarter of 2019. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.98%, up 19 basis points from the third quarter of 2020 and down 50 basis points from the fourth quarter of 2019. Compared to the third quarter of 2020 tax-equivalent net interest margin increased primarily due to accelerated income due to the forgiveness of approximately $410 million of PPP loans partly offset by lower cost of funds and lower yields on loans. Tax equivalent net interest income decreased compared to the fourth quarter of 2019 as a result of lower interest rates on loans and securities, as well as a higher balance of other interest earnings assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by lower cost of funds and higher yields on PPP loans.

For the fourth quarter of 2020, total average interest-earning assets decreased by $549.1 million from the third quarter of 2020 and increased $2.9 billion from the fourth quarter of 2019. The decrease compared to the third quarter of 2020 resulted primarily from a decrease in average loans and securities, while the increase compared to the fourth quarter of 2019 was driven primarily by PPP loans, a higher balance of other interest-earning assets, and interest-earning assets acquired in the Park Bank transaction.

Total average funding sources for the fourth quarter of 2020 decreased by $639.8 million from the third quarter of 2020 and increased $2.6 billion from the fourth quarter of 2019. The decrease compared to the third quarter of 2020 resulted primarily from lower levels of borrowed funds. Compared to the fourth quarter of 2019, the increase was driven primarily by deposit growth due to higher customer balances resulting from PPP funds and other government stimuli, as well as deposits assumed in the Park Bank transaction.

Noninterest Income Analysis
(Dollar amounts in thousands)

    Quarters Ended   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Wealth management fees   $ 13,548       $ 12,837       $ 12,484     5.5       8.5    
Service charges on deposit accounts   10,811       10,342       12,664     4.5       (14.6 )  
Mortgage banking income   9,191       6,659       4,134     38.0       122.3    
Card-based fees, net   4,530       4,472       4,512     1.3       0.4    
Capital market products income   659       886       6,337     (25.6 )     (89.6 )  
Other service charges, commissions, and fees   2,993       2,823       2,946     6.0       1.6    
Total fee-based revenues   41,732       38,019       43,077     9.8       (3.1 )  
Other income   3,550       2,523       3,419     40.7       3.8    
Swap termination costs   (17,567 )     (14,285 )         23.0       N/M    
Net securities gains         14,328           (100.0 )     N/M    
Total noninterest income   $ 27,715        $ 40,585        $ 46,496      (31.7 )     (40.4 )  

N/M – Not meaningful.

Total noninterest income of $27.7 million was down by 31.7% and 40.4% from the third quarter of 2020 and the fourth quarter of 2019, respectively. Excluding the impact of swap termination costs and net securities gains, total noninterest income of $45.3 million increased 11.7% and decreased 2.6% compared to the third quarter of 2020 and fourth quarter of 2019, respectively. Record wealth management fees resulted from a higher market environment and continued sales of fiduciary and investment advisory services to new and existing customers compared to both prior periods. The decrease in service charges on deposit accounts compared to the fourth quarter of 2019 resulted from the impact of lower transaction volumes due to the pandemic.

Record mortgage banking income for the fourth quarter of 2020 resulted from sales of $275.6 million of 1-4 family mortgage loans in the secondary market, compared to $251.8 million in the third quarter of 2020 and $173.0 million in the fourth quarter of 2019. In addition, mortgage banking income for the fourth quarter of 2020 increased compared to both prior periods due to increases in market pricing on sales of 1-4 family mortgage loans.

Capital market products income decreased compared to both prior periods as a result of continuing lower levels of sales to corporate clients in light of market conditions. Other income increased compared to the third quarter of 2020 primarily due to higher fair value adjustments on equity securities as a result of the higher market environment and benefit settlements on bank-owned life insurance.

During the fourth and third quarters of 2020, the Company terminated longer term interest rate swaps with notional amounts of $510 million and $1.1 billion, respectively, due to excess liquidity and in response to market conditions. As a result of these transactions, $17.6 million and $14.3 million of pre-tax losses on swap terminations were recorded in the same periods, respectively. At the same time as the swap terminations during the third quarter of 2020, the Company liquidated $160 million of securities, which resulted in $14.3 million of pre-tax securities gains to fully offset the loss on swap terminations.

Noninterest Expense Analysis
(Dollar amounts in thousands)

    Quarters Ended   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Salaries and employee benefits:                    
Salaries and wages   $ 55,950       $ 53,385       $ 53,043       4.8       5.5    
Retirement and other employee benefits   10,430       11,349       9,930       (8.1 )     5.0    
Total salaries and employee benefits   66,380       64,734       62,973       2.5       5.4    
Net occupancy and equipment expense(1)   14,002       13,736       12,940       1.9       8.2    
Technology and related costs(1)   11,005       10,416       7,429       5.7       48.1    
Professional services(1)   8,424       7,325       10,949       15.0       (23.1 )  
Advertising and promotions   1,850       2,688       2,896       (31.2 )     (36.1 )  
Net other real estate owned ("OREO") expense   106       544       1,080       (80.5 )     (90.2 )  
Other expenses   12,851       12,374       13,000       3.9       (1.1 )  
Optimization costs   1,493       18,376             (91.9 )     100.0    
Acquisition and integration related expenses   1,860       881       5,258       111.1       (64.6 )  
Delivering Excellence implementation costs               223             (100.0 )  
Total noninterest expense   $ 117,971        $ 131,074        $ 116,748        (10.0 )     1.0     
Optimization costs   (1,493 )     (18,376 )           (91.9 )     (100.0 )  
Acquisition and integration related expenses   (1,860 )     (881 )     (5,258 )     111.1       (64.6 )  
Delivering Excellence implementation costs               (223 )           (100.0 )  
Total noninterest expense, adjusted(2)   $ 114,618       $ 111,817       $ 111,267       2.5       3.0    


(1) Certain reclassifications were made to prior year amounts to conform to the current year presentation.
   
(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 2020 decreased 10.0% compared to the third quarter of 2020 and increased 1.0% compared to the fourth quarter of 2019. Noninterest expense for all periods presented was impacted by acquisition and integration related expenses. In addition, the fourth and third quarters of 2020 were impacted by optimization costs and the fourth quarter of 2019 was impacted by costs related to our Delivering Excellence initiative. Excluding these items, noninterest expense for the fourth quarter of 2020 was $114.6 million, up 2.5% and 3.0% from the third quarter of 2020 and fourth quarter of 2019, respectively. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans was 2.29% for the fourth quarter of 2020, up 5% and down 7% from the third quarter of 2020 and fourth quarter of 2019, respectively.

Operating costs associated with the Park transaction completed in the first quarter of 2020 contributed to the increase in noninterest expense compared to the fourth quarter of 2019. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, professional services, technology and related costs, and other expenses.

The increase in salaries and employee benefits compared to the third quarter was driven primarily by higher compensation accruals and equity compensation valuations. Compared to the fourth quarter of 2019, the increase in salaries and employee benefits was driven by merit increases, partially offset by lower compensation accruals. In addition, salaries and employee benefits compared to both prior periods was impacted by higher commissions resulting from sales of 1-4 family mortgage loans in the secondary market and higher levels of deferred loan salaries. Occupancy and equipment costs increased compared to the fourth quarter of 2019 primarily due to expenses resulting from the pandemic. Technology and related costs compared to the fourth quarter of 2019 was impacted by investments in technology, including the origination of PPP loans. Professional services for the fourth quarter of 2019 were elevated due to process enhancements and services associated with organizational growth. Advertising and promotions expense decreased compared to both prior periods due to the timing of certain costs related to marketing campaigns. The decrease in net OREO expense compared to both prior periods was due mainly to sales of properties at gains.

Optimization costs of $1.5 million and $18.4 million for the fourth quarter and third quarter of 2020, respectively, primarily include valuation adjustments related to locations identified for closure, modernization of our ATM network, advisory fees, employee severance, and other expenses associated with locations identified for closure.

Acquisition and integration related expenses for all periods resulted from the acquisition of Park Bank. In addition, acquisition and integration related expenses for the fourth quarter of 2019 also resulted from the acquisition of Bridgeview, which closed in the second quarter of 2019.

INCOME TAXES

The Company's effective tax rate for the fourth quarter of 2020 was 12.1% compared to 23.9% for both the third quarter of 2020 and the fourth quarter of 2019. The Company's effective tax rate for the fourth quarter of 2020 decreased compared to both prior periods due primarily to $3.6 million of income tax benefits resulting from deferred tax asset adjustments, as well as the finalization of the prior year returns and the expiration of the statute of limitations on uncertain tax positions.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)

    As of   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Commercial and industrial   $ 4,578,254     $ 4,635,571     $ 4,481,525     (1.2 )     2.2    
Agricultural   364,038     377,466     405,616     (3.6 )     (10.3 )  
Commercial real estate:                    
Office, retail, and industrial   1,861,768     1,950,406     1,848,718     (4.5 )     0.7    
Multi-family   872,813     868,293     856,553     0.5       1.9    
Construction   612,611     631,607     593,093     (3.0 )     3.3    
Other commercial real estate   1,481,976     1,452,994     1,383,708     2.0       7.1    
Total commercial real estate   4,829,168     4,903,300     4,682,072     (1.5 )     3.1    
Total corporate loans, excluding PPP 
loans
  9,771,460     9,916,337     9,569,213     (1.5 )     2.1    
PPP loans   785,563     1,196,538         (34.3 )     N/M    
Total corporate loans   10,557,023     11,112,875     9,569,213     (5.0 )     10.3    
Home equity   761,725     827,746     851,454     (8.0 )     (10.5 )  
1-4 family mortgages   3,022,413     2,287,555     1,927,078     32.1       56.8    
Installment   410,071     425,012     492,585     (3.5 )     (16.8 )  
Total consumer loans   4,194,209     3,540,313     3,271,117     18.5       28.2    
Total loans   $ 14,751,232     $ 14,653,188     $ 12,840,330     0.7       14.9    

N/M – Not meaningful.

Total loans includes loans originated under the PPP loan program beginning in the second quarter of 2020, which totaled $785.6 million and $1.2 billion as of December 31, 2020 and September 30, 2020, respectively. Excluding these loans, total loans grew by 3.8% from September 30, 2020 and 8.8% from December 31, 2019. Excluding PPP loans and loans acquired in the Park Bank transaction in the first quarter of 2020, total loans grew by 2.5% from December 31, 2019. Compared to December 31, 2019, corporate loans, excluding PPP loans, were impacted by lower production and line usage and higher paydowns due to current economic conditions as a result of the ongoing pandemic. Production increased in the fourth quarter of 2020 compared to the third quarter of 2020; however, this continued to be more than offset by excess borrower liquidity and paydowns as a result of the pandemic.

Growth in consumer loans compared to both prior periods resulted primarily from purchases of high-quality 1-4 family mortgages, as well as organic growth.

Allowance for Credit Losses
(Dollar amounts in thousands)

    As of   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Allowance for credit losses                    
ACL, excluding PCD loans   $ 215,915     $ 209,988     $ 109,222     2.8       97.7  
PCD loan ACL   31,127     36,885         (15.6 )     100.0  
Total ACL   $ 247,042     $ 246,873     $ 109,222     0.1       126.2  
Provision for credit losses   $ 10,507     $ 15,927     $ 9,594     (34.0 )     9.5  
ACL to total loans(1)   1.67 %   1.68 %   0.85 %        
ACL to total loans, excluding PPP loans(1)(2)   1.77 %   1.83 %   0.85 %        
ACL to non-accrual loans   173.33 %   171.95 %   132.76 %        


(1) Prior to the adoption of the current expected credit losses accounting standard ("CECL") on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans. Subsequent to adoption, an ACL on acquired loans is established as of the acquisition date and the acquired loans are no longer recorded net of a credit-related acquisition adjustment.
   
(2) This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

The Company adopted CECL on January 1, 2020, which impacted both the level of ACL as well as other asset quality metrics due to the change in accounting for acquired PCD loans. In addition, the Company participated in the PPP program, resulting in $1.2 billion of loans originated in the second and third quarters of 2020 with a total outstanding balance of $785.6 million as of December 31, 2020 that are expected to be forgiven by the Small Business Administration ("SBA"). As a result, certain metrics are presented excluding PCD and PPP loans to provide comparability to prior periods.

The ACL was $247.0 million or 1.67% of total loans as of December 31, 2020, consistent with September 30, 2020 and increasing $137.8 million compared to December 31, 2019. Excluding the impact of PPP loans, ACL to total loans was 1.77% as of December 31, 2020, down from 1.83% and up from 0.85% as of September 30, 2020 and December 31, 2019, respectively. The decrease from September 30, 2020 reflects net charge-offs on PCD loans that previously had an ACL established upon acquisition. Compared to December 31, 2019, the increase in ACL is a result of the adoption of the CECL accounting standard, the Park Bank acquisition, as well as additional ACL established as a result of the pandemic.

Asset Quality
(Dollar amounts in thousands)

    As of   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Asset quality                    
Non-accrual loans, excluding PCD loans(1)(2)   $ 109,957     $ 103,582     $ 82,269     6.2       33.7    
Non-accrual PCD loans(1)   32,568     39,990         (18.6 )     N/M    
Non-accrual loans   142,525     143,572     82,269     (0.7 )     73.2    
90 days or more past due loans, still accruing        
interest(1)
  4,395     3,781     5,001     16.2       (12.1 )  
Total non-performing loans, ("NPLs")   146,920     147,353     87,270     (0.3 )     68.4    
Accruing troubled debt restructurings        
("TDRs")
  813     841     1,233     (3.3 )     (34.1 )  
Foreclosed assets(3)   16,671     15,299     20,458     9.0       (18.5 )  
Total NPAs   $ 164,404     $ 163,493     $ 108,961     0.6       50.9    
30-89 days past due loans(1)   $ 40,656     $ 21,551     $ 31,958     88.7       27.2    
Special mention loans(4)   $ 409,083     $ 395,295     $ 188,703     3.5       116.8    
Substandard loans(4)   357,219     311,430     188,811     14.7       89.2    
Total performing loans classified as 
substandard and special mention(4)
  $ 766,302     $ 706,725     $ 377,514     8.4       103.0    
Non-accrual loans to total loans:                    
Non-accrual loans to total loans   0.97 %   0.98 %   0.64 %        
Non-accrual loans to total loans, excluding 
PPP loans(1)(2)(5)
  1.02 %   1.07 %   0.64 %        
Non-accrual loans to total loans, excluding 
PCD and PPP loans(1)(2)(5)
  0.80 %   0.78 %   0.64 %        
Non-performing loans to total loans:                    
NPLs to total loans   1.00 %   1.01 %   0.68 %        
NPLs to total loans, excluding PPP loans(1)(2)(5)   1.05 %   1.10 %   0.68 %        
NPLs to total loans, excluding PCD and PPP
loans(1)(2)(5)
  0.83 %   0.81 %   0.68 %        
Non-performing assets to total loans plus foreclosed assets:                
NPAs to total loans plus foreclosed assets   1.11 %   1.11 %   0.85 %        
NPAs to total loans plus foreclosed assets,         
excluding PPP loans(1)(2)(5)
  1.18 %   1.21 %   0.85 %        
NPAs to total loans plus foreclosed assets,         
excluding PCD and PPP loans(1)(2)(5)
  0.96 %   0.93 %   0.85 %        
Performing loans classified as substandard and special mention to corporate loans:
Performing loans classified as substandard and        
special mention to corporate loans(4)
  7.26 %   6.36 %   3.95 %        
Performing loans classified as substandard and        
special mention to corporate loans, excluding        
PPP loans(4)(5)
  7.84 %   7.13 %   3.95 %        

N/M – Not meaningful.

(1) Prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("PCI") loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an ACL is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.
   
(2) See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
   
(3) Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
   
(4) Performing loans classified as substandard and special mention excludes accruing TDRs.
   
(5) This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans.

NPAs represented 1.11% of total loans and foreclosed assets at December 31, 2020 compared to 1.11% and 0.85% at September 30, 2020 and December 31, 2019, respectively. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.96% at December 31, 2020, compared to 0.93% at September 30, 2020 and 0.85% at December 31, 2019, reflective of normal fluctuations that occur on a quarterly basis.

Performing loans classified as substandard and special mention increased to $766.3 million for the fourth quarter of 2020 up from $706.7 million and $377.5 million at September 30, 2020 and December 31, 2019, respectively. This increase is a result of the pandemic's impact on certain borrowers primarily focused in elevated risk sectors that the Company has determined require additional monitoring. These loans exhibit potential or well-defined weaknesses but continue to accrue interest because they are well secured, and collection of principal and interest is expected.

Charge-Off Data
(Dollar amounts in thousands)

    Quarters Ended
    December 31,
2020
  % of
Total
  September 30,
2020
  % of
Total
  December 31,
2019
  % of
Total
Net loan charge-offs(1)                        
Commercial and industrial   $ 3,536     33.6     $ 5,470     34.7     $ 6,799     64.2    
Agricultural   1,779     16.9     265     1.7     15     0.1    
Commercial real estate:                        
Office, retail, and industrial   1,701     16.1     1,339     8.5     256     2.4    
Multi-family   19     0.2             (439 )   (4.1 )  
Construction   140     1.3     4,889     31.1     3        
Other commercial real estate   916     8.7     1,753     11.1     13     0.1    
Consumer   2,448     23.2     2,027     12.9     3,953     37.3    
Total net loan charge-offs   $ 10,539     100.0     $ 15,743     100.0     $ 10,600     100.0    
Less: NCOs on PCD loans(2)(3)   (6,488 )   61.6     (6,923 )   44.0         N/A    
Total NCOs, excluding PCD 
loans(2)(3)
  $ 4,051         $ 8,820         $ 10,600      
Total recoveries included above   $ 2,588         $ 1,795         $ 2,135      
Quarter-to-Date(1)(4):                        
Net charge-offs to average loans   0.29 %       0.42 %       0.33 %    
Net charge-offs to average loans, 
excluding PPP loans(3)(5)
  0.31 %       0.46 %       0.33 %    
Net charge-offs to average loans,  
excluding PCD and PPP loans(3)(5)
  0.12 %       0.26 %       0.33 %    
Year-to-Date(1)(4):                        
Net charge-offs to average loans   0.36 %       0.38 %       0.31 %    
Net charge-offs to average loans, 
excluding PPP loans(3)(5)
  0.38 %       0.40 %       0.31 %    
Net charge-offs to average loans,        
excluding PCD and PPP loans(3)(5)
  0.24 %       0.29 %       0.31 %    

N/A – Not applicable.

(1) Amounts represent charge-offs, net of recoveries.
   
(2) Prior to the adoption of CECL on January 1, 2020, the portion of PCI loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, an ACL on PCD loans, including those previously identified as PCI, is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the ACL.
   
(3) See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
   
(4) Annualized based on the actual number of days for each period presented.
   
(5) This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans.

Net loan charge-offs to average loans, annualized, were 0.29% for the fourth quarter of 2020, compared to 0.42% for the third quarter of 2020 and 0.33% for the fourth quarter of 2019. Excluding charge-offs on PCD and PPP loans on this metric, NCOs to average loans was 0.12% for the fourth quarter of 2020, down from 0.26% for the third quarter of 2020 and 0.33% for the fourth quarter of 2019. For the year ended December 31, 2020, net loan charge-offs to average loans was 0.36% compared to 0.31% for the same period in 2019. Excluding charge-offs on PCD and PPP loans on this metric for 2020, NCOs to average loans was 0.24% for 2020.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

    Average for Quarters Ended   December 31, 2020
Percent Change From
    December 31,
2020
  September 30,
2020
  December 31,
2019
  September 30,
2020
  December 31,
2019
Demand deposits           $ 5,753,600      $ 5,631,355      $ 3,862,157      2.2        49.0     
Savings deposits           2,436,930      2,342,355      2,044,386      4.0        19.2     
NOW accounts           2,774,989      2,744,034      2,291,667      1.1        21.1     
Money market accounts           2,923,881      2,781,666      2,178,518      5.1        34.2     
Core deposits           13,889,400      13,499,410      10,376,728      2.9        33.9     
Time deposits           2,047,260      2,302,019      3,033,903      (11.1 )     (32.5 )  
Total deposits           $ 15,936,660      $ 15,801,429      $ 13,410,631      0.9        18.8     

Total average deposits were $15.9 billion for the fourth quarter of 2020, up modestly from the third quarter of 2020 and up 18.8% from the fourth quarter of 2019. The rise in total average deposits compared to both prior periods was impacted by higher customer balances resulting from PPP funds and other government stimuli. Compared to the third quarter of 2020, the increase in total average deposits was partially offset by seasonal outflows of municipal deposits. In addition, the increase in total average deposits compared to the fourth quarter of 2019 was also driven by deposits assumed in the Park Bank transaction during the first quarter of 2020.

CAPITAL MANAGEMENT

Capital Ratios

    As of
    December 31,
2020
  September 30,
2020
  December 31,
2019
Company regulatory capital ratios:
Total capital to risk-weighted assets   14.14 %   14.06 %   12.96 %
Tier 1 capital to risk-weighted assets   11.55 %   11.48 %   10.52 %
Common equity Tier 1 ("CET1") to risk-weighted assets   10.06 %   9.97 %   10.52 %
Tier 1 capital to average assets   8.91 %   8.50 %   8.81 %
Company tangible common equity ratios(1)(2):        
Tangible common equity to tangible assets   7.67 %   7.43 %   8.81 %
Tangible common equity to tangible assets, excluding PPP loans   7.98 %   7.90 %   8.81 %
Tangible common equity, excluding accumulated other comprehensive        
income ("AOCI"), to tangible assets
  7.54 %   7.30 %   8.82 %
Tangible common equity, excluding AOCI, to tangible assets, excluding        
PPP loans
  7.85 %   7.77 %   8.82 %
Tangible common equity to risk-weighted assets   9.93 %   9.84 %   10.51 %


(1) 
These ratios are not subject to formal Federal Reserve regulatory guidance.
   
(2) Tangible common equity ("TCE") is a non-GAAP measure that 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.

Total and Tier 1 capital to risk-weighted assets ratios increased compared to all prior periods primarily as a result of retained earnings and the mix of risk-weighted assets. Compared to December 31, 2019, total and Tier 1 capital ratios also benefited from the issuance of preferred stock. In addition, compared to December 31, 2019, all capital ratios were impacted by the approximately 50 basis point decrease due to the Park Bank acquisition, 15 basis point decrease due to stock repurchases, and the impact of loan growth and securities purchases on risk-weighted and average assets. The Company elected the five year CECL transition relief for regulatory capital, which retained approximately 30 basis points of CET1 and tier 1 capital at December 31, 2020.

The Board of Directors approved a quarterly cash dividend of $0.14 per common share during the fourth quarter of 2020, which is consistent with third quarter of 2020 and the fourth quarter of 2019. This dividend represents the 152nd 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 27, 2021 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, investor.firstmidwest.com. 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. 10151130 beginning one hour after completion of the live call until 8:00 A.M. (ET) on April 20, 2021. 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 investor.firstmidwest.com.

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 speak only as of the date made, and First Midwest undertakes no obligation to update any forward-looking statements.

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 2021, the performance of First Midwest's loan or securities portfolio, the expected amount of future credit allowances or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, acquisition transactions, estimated synergies, cost savings and financial benefits of announced or completed transactions, growth strategies, including possible future acquisitions, and the continued effects of the pandemic on our business, financial condition, liquidity, capital, loans, asset quality and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including the duration, extent and severity of the pandemic, and the pandemic's continued effects on our business, operations and employees, as well as on our clients and service providers, and on economies and markets more generally and other risks, uncertainties and assumptions that are discussed under 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, 2019, and in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these 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 expense, 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, return on average tangible common equity, adjusted, non-accrual loans, excluding PCD loans, non-accrual loans to total loans, excluding PPP loans, non-accrual loans to total loans, excluding PCD and PPP loans, NPLs to total loans, excluding PPP loans, NPLs to total loans, excluding PCD and PPP loans, NPAs to total loans plus foreclosed assets, excluding PPP loans, NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans, performing loans classified as substandard and special mention to corporate loans, excluding PPP loans, NCOs, excluding PCD loans, NCOs to average loans, excluding PPP loans, NCOs to average loans, excluding PCD and PPP loans, and pre-tax, pre-provision earnings, 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 swap termination costs (fourth and third quarters of 2020), income tax benefits (fourth quarter of 2020), optimization costs (fourth and third quarters of 2020), acquisition and integration related expenses associated with completed and pending acquisitions (all periods), net securities gains (losses) (third and first quarters of 2020), and Delivering Excellence implementation costs (all periods in 2019). In addition, net OREO expense is excluded from the calculation of the efficiency ratio. 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.

Income tax expense, provision for loan losses, and the certain significant transactions listed above are excluded from the calculation of pre-tax, pre-provision earnings, adjusted due to the fluctuation in income before income tax and the level of provision for loan losses required based on the estimated impact of the pandemic on the ACL. Management believes pre-tax, pre-provision earnings, adjusted may be useful in assessing the Company's underlying operational performance and their exclusion may facilitate better comparability between periods and for peer comparison purposes.

The Company presents noninterest expense, adjusted, which excludes optimization costs, acquisition and integration related expenses, and Delivering Excellence implementation costs. Management believes that excluding these items from noninterest expense 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 are presented using the current federal income tax rate of 21%. 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.

The Company presents non-accrual loans, non-accrual loans to total loans, NPLs to total loans, NPAs to total loans plus foreclosed assets, performing loans classified as substandard and special mention to corporate loans, excluding PPP loans, NCOs, and NCOs to average loans, all excluding PCD and/or PPP loans. Management believes excluding PCD and PPP loans is useful as it facilitates better comparability between periods. Prior to the adoption of CECL on January 1, 2020, PCI loans with an accretable yield were considered current and were not included in past due and non-accrual loan totals and the portion of PCI loans deemed to be uncollectible was recorded as a reduction of the credit-related acquisition adjustment, which was netted within loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals and an ACL on PCD loans is established as of the acquisition date and the PCD loans are no longer recorded net of a credit-related acquisition adjustment. PCD loans deemed to be uncollectible are recorded as a charge-off through the ACL. The Company began originating PPP loans during the second quarter of 2020 and the loans are expected to be forgiven by the SBA if the applicable criteria are met. Additionally, management believes excluding PCD and PPP loans from these metrics may enhance comparability for peer comparison purposes.

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.

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 approximately $21 billion of assets and an additional $14 billion of assets under management. First Midwest Bank and First Midwest's other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust and private banking products and services. First Midwest operates branches and other locations throughout metropolitan Chicago, southeast Wisconsin, northwest Indiana, eastern Iowa and other markets in the Midwest. 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,
  2020   2020   2020   2020   2019
Period-End Balance Sheet                  
Assets                  
Cash and due from banks $ 196,364       $ 254,212       $ 304,445       $ 252,138       $ 214,894    
Interest-bearing deposits in other banks 920,880       936,528       637,856       229,474       84,327    
Equity securities, at fair value 76,404       55,021       43,954       40,098       42,136    
Securities available-for-sale, at fair value 3,096,408       3,279,884       3,435,862       3,382,865       2,873,386    
Securities held-to-maturity, at amortized cost 12,071       22,193       19,628       19,825       21,997    
FHLB and FRB stock 117,420       138,120       148,512       154,357       115,409    
Loans:                  
Commercial and industrial 4,578,254       4,635,571       4,789,556       5,064,295       4,481,525    
Agricultural 364,038       377,466       381,124       393,063       405,616    
Commercial real estate:                  
Office, retail, and industrial 1,861,768       1,950,406       2,020,318       2,092,097       1,848,718    
Multi-family 872,813       868,293       874,861       918,944       856,553    
Construction 612,611       631,607       687,063       661,363       593,093    
Other commercial real estate 1,481,976       1,452,994       1,475,937       1,415,892       1,383,708    
PPP loans 785,563       1,196,538       1,179,403                
Home equity 761,725       827,746       892,867       973,658       851,454    
1-4 family mortgages 3,022,413       2,287,555       2,175,322       1,957,037       1,927,078    
Installment 410,071       425,012       457,207       488,668       492,585    
Total loans 14,751,232       14,653,188       14,933,658       13,965,017       12,840,330    
Allowance for loan losses (239,017 )     (239,048 )     (240,052 )     (219,948 )     (108,022 )  
Net loans 14,512,215       14,414,140       14,693,606       13,745,069       12,732,308    
OREO 8,253       6,552       9,947       9,814       8,750    
Premises, furniture, and equipment, net 132,045       132,267       143,001       145,844       147,996    
Investment in bank-owned life insurance ("BOLI") 301,101       300,429       299,649       298,827       296,351    
Goodwill and other intangible assets 932,764       935,801       940,182       935,241       875,262    
Accrued interest receivable and other assets 532,753       612,996       568,239       539,748       437,581    
Total assets $ 20,838,678       $ 21,088,143       $ 21,244,881       $ 19,753,300       $ 17,850,397    
Liabilities and Stockholders' Equity                  
Noninterest-bearing deposits $ 5,797,899       $ 5,555,735       $ 5,602,016       $ 4,222,523       $ 3,802,422    
Interest-bearing deposits 10,214,565       10,215,838       10,055,640       9,876,427       9,448,856    
Total deposits 16,012,464       15,771,573       15,657,656       14,098,950       13,251,278    
Borrowed funds 1,546,414       1,957,180       2,305,195       2,648,210       1,658,758    
Senior and subordinated debt 234,768       234,563       234,358       234,153       233,948    
Accrued interest payable and other liabilities 355,026       460,656       391,461       336,280       335,620    
Stockholders' equity 2,690,006       2,664,171       2,656,211       2,435,707       2,370,793    
Total liabilities and stockholders' equity $ 20,838,678       $ 21,088,143       $ 21,244,881       $ 19,753,300       $ 17,850,397    
Stockholders' equity, excluding AOCI $ 2,663,627       $ 2,638,422       $ 2,627,484       $ 2,400,384       $ 2,372,747    
Stockholders' equity, common 2,459,506       2,433,671       2,425,711       2,435,707       2,370,793    


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,
  2020   2020   2020   2020   2019     2020   2019
Income Statement                            
Interest income $ 159,962       $ 159,085       $ 162,044       $ 170,227       $ 176,604         $ 651,318       $ 698,739    
Interest expense 11,851       16,356       16,810       26,652       28,245         71,669       110,257    
Net interest income 148,111       142,729       145,234       143,575       148,359         579,649       588,482    
Provision for loan losses 10,507       15,927       32,649       39,532       9,594         98,615       44,027    
Net interest income after        
provision for loan losses
137,604       126,802       112,585       104,043       138,765         481,034       544,455    
Noninterest Income                            
Wealth management fees 13,548       12,837       11,942       12,361       12,484         50,688       48,337    
Service charges on deposit        
accounts
10,811       10,342       9,125       11,781       12,664         42,059       49,424    
Mortgage banking income 9,191       6,659       3,477       1,788       4,134         21,115       10,105    
Card-based fees, net 4,530       4,472       3,180       3,968       4,512         16,150       18,133    
Capital market products        
income
659       886       694       4,722       6,337         6,961       13,931    
Other service charges,        
commissions, and fees
2,993       2,823       2,078       2,682       2,946         10,576       11,363    
Total fee-based revenues 41,732       38,019       30,496       37,302       43,077         147,549       151,293    
Other income 3,550       2,523       2,495       3,065       3,419         11,633       11,586    
Swap termination costs (17,567 )     (14,285 )                         (31,852 )        
Net securities gains (losses)       14,328             (1,005 )             13,323          
Total noninterest        
income
27,715       40,585       32,991       39,362       46,496         140,653       162,879    
Noninterest Expense                            
Salaries and employee benefits:                          
Salaries and wages 55,950       53,385       52,592       49,990       53,043         211,917       197,640    
Retirement and other        
employee benefits
10,430       11,349       11,080       12,869       9,930         45,728       42,879    
Total salaries and        
employee benefits
66,380       64,734       63,672       62,859       62,973         257,645       240,519    
Net occupancy and        
equipment expense
14,002       13,736       15,116       14,227       12,940         57,081       51,818    
Technology and related costs 11,005       10,416       9,853       8,548       7,429         39,822       27,787    
Professional services 8,424       7,325       8,880       10,390       10,949         35,019       36,428    
Advertising and promotions 1,850       2,688       2,810       2,761       2,896         10,109       11,561    
Net OREO expense 106       544       126       420       1,080         1,196       2,436    
Other expenses 12,851       12,374       14,624       12,654       13,000         52,503       47,829    
Optimization costs 1,493       18,376                           19,869          
Acquisition and integration related expenses 1,860       881       5,249       5,472       5,258         13,462       21,860    
Delivering Excellence        
implementation costs
                        223               1,157    
Total noninterest expense 117,971       131,074       120,330       117,331       116,748         486,706       441,395    
Income before income        
tax expense
47,348       36,313       25,246       26,074       68,513         134,981       265,939    
Income tax expense 5,743       8,690       6,182       6,468       16,392         27,083       66,201    
Net income $ 41,605       $ 27,623       $ 19,064       $ 19,606       $ 52,121         $ 107,898       $ 199,738    
Preferred dividends (4,034 )     (4,033 )     (1,037 )                   (9,104 )        
Net income applicable to non-vested restricted shares (369 )     (236 )     (187 )     (192 )     (424 )       (984 )     (1,681 )  
Net income applicable to        
common shares
$ 37,202       $ 23,354       $ 17,840       $ 19,414       $ 51,697         $ 97,810       $ 198,057    
Net income applicable to        
common shares, adjusted(1)
49,253       37,765       21,777       24,272       55,807         133,067       215,317    

Footnotes to Condensed Consolidated Statements of Income
(1)   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,
  2020   2020   2020   2020   2019     2020   2019
EPS                            
Basic EPS         $ 0.33      $ 0.21      $ 0.16      $ 0.18      $ 0.47        $ 0.87      $ 1.83   
Diluted EPS         $ 0.33      $ 0.21      $ 0.16      $ 0.18      $ 0.47        $ 0.87      $ 1.82   
Diluted EPS, adjusted(1)         $ 0.43      $ 0.33      $ 0.19      $ 0.22      $ 0.51        $ 1.18      $ 1.98   
Common Stock and Related Per Common Share Data          
Book value         $ 21.52      $ 21.29      $ 21.23      $ 21.33      $ 21.56        $ 21.52      $ 21.56   
Tangible book value         $ 13.36      $ 13.11      $ 13.00      $ 13.14      $ 13.60        $ 13.36      $ 13.60   
Dividends declared per share         $ 0.14      $ 0.14      $ 0.14      $ 0.14      $ 0.14        $ 0.56      $ 0.54   
Closing price at period end         $ 15.92      $ 10.78      $ 13.35      $ 13.24      $ 23.06        $ 15.92      $ 23.06   
Closing price to book value         0.7      0.5      0.6      0.6      1.1        0.7      1.1   
Period end shares outstanding         114,296      114,293      114,276      114,213      109,972        114,296      109,972   
Period end treasury shares         11,071      11,067      11,079      11,136      10,443        11,071      10,443   
Common dividends         $ 16,017      $ 16,011      $ 16,015      $ 16,002      $ 15,404        $ 64,045      $ 59,150   
Dividend payout ratio         42.42  %   66.67  %   87.50  %   77.78  %   29.79  %     64.37  %   29.51  %
Dividend payout ratio, adjusted(1)         32.56  %   42.42  %   73.68  %   63.64  %   27.45  %     47.46  %   27.27  %
Key Ratios/Data                            
Return on average common        
equity(2)        
6.05  %   3.80  %   2.94  %   3.23  %   8.69  %     4.01  %   8.74  %
Return on average common        
equity, adjusted(1)(2)        
8.01  %   6.15  %   3.58  %   4.04  %   9.38  %     5.46  %   9.50  %
Return on average tangible        
common equity(1)(2)        
10.35  %   6.73  %   5.32  %   5.66  %   14.37  %     7.02  %   14.50  %
Return on average tangible        
common equity, adjusted(1)(2)        
13.53  %   10.53  %   6.37  %   6.94  %   15.47  %     9.36  %   15.71  %
Return on average assets(2)         0.79  %   0.51  %   0.37  %   0.43  %   1.16  %     0.53  %   1.17  %
Return on average assets,        
adjusted(1)(2)        
1.02  %   0.78  %   0.44  %   0.53  %   1.25  %     0.70  %   1.28  %
Loans to deposits         92.12  %   92.91  %   95.38  %   99.05  %   96.90  %     92.12  %   96.90  %
Efficiency ratio(1)         58.90  %   60.36  %   64.08  %   60.21  %   56.16  %     60.84  %   55.00  %
Net interest margin(2)(3)         3.14  %   2.95  %   3.13  %   3.54  %   3.72  %     3.18  %   3.90  %
Yield on average interest-earning        
assets(2)(3)        
3.39  %   3.28  %   3.49  %   4.19  %   4.43  %     3.57  %   4.63  %
Cost of funds(2)(4)         0.26  %   0.35  %   0.38  %   0.69  %   0.74  %     0.41  %   0.76  %
Noninterest expense to average        
assets(2)        
2.25  %   2.42  %   2.32  %   2.56  %   2.59  %     2.38  %   2.60  %
Noninterest expense, adjusted to        
average assets, excluding PPP        
loans(1)(2)        
2.29  %   2.19  %   2.32  %   2.44  %   2.47  %     2.31  %   2.46  %
Effective income tax rate         12.13  %   23.93  %   24.49  %   24.81  %   23.93  %     20.06  %   24.89  %
Capital Ratios                            
Total capital to risk-weighted        
assets(1)        
14.14  %   14.06  %   13.70  %   12.00  %   12.96  %     14.14  %   12.96  %
Tier 1 capital to risk-weighted        
assets(1)        
11.55  %   11.48  %   11.19  %   9.64  %   10.52  %     11.55  %   10.52  %
CET1 to risk-weighted assets(1)         10.06  %   9.97  %   9.70  %   9.64  %   10.52  %     10.06  %   10.52  %
Tier 1 capital to average assets(1)         8.91  %   8.50  %   8.70  %   8.60  %   8.81  %     8.91  %   8.81  %
Tangible common equity to        
tangible assets(1)        
7.67  %   7.43  %   7.32  %   7.97  %   8.81  %     7.67  %   8.81  %
Tangible common equity,        
excluding AOCI, to tangible        
assets(1)        
7.54  %   7.30  %   7.17  %   7.79  %   8.82  %     7.54  %   8.82  %
Tangible common equity to risk-        
weighted assets(1)        
9.93  %   9.84  %   9.61  %   9.63  %   10.51  %     9.93  %   10.51  %
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,
  2020   2020   2020   2020   2019     2020   2019
Asset quality Performance Data                          
Non-performing assets                            
Commercial and industrial $ 38,314       $ 40,781       $ 19,475       $ 24,944       $ 29,995         $ 38,314       $ 29,995    
Agricultural 10,719       13,293       8,494       5,823       5,954         10,719       5,954    
Commercial real estate:                            
Office, retail, and industrial 27,382       26,406       26,342       26,107       25,857         27,382       25,857    
Multi-family 1,670       1,547       2,132       2,688       2,697         1,670       2,697    
Construction 1,155       2,977       18,640       18,764       152         1,155       152    
Other commercial real estate 15,219       4,690       5,304       4,562       4,729         15,219       4,729    
Consumer 15,498       13,888       13,657       14,761       12,885         15,498       12,885    
Non-accrual, excluding PCD        
loans
109,957       103,582       94,044       97,649       82,269         109,957       82,269    
Non-accrual PCD loans 32,568       39,990       45,116       48,950               32,568          
Total non-accrual loans 142,525       143,572       139,160       146,599       82,269         142,525       82,269    
90 days or more past due loans,        
still accruing interest
4,395       3,781       3,241       5,052       5,001         4,395       5,001    
Total NPLs 146,920       147,353       142,401       151,651       87,270         146,920       87,270    
Accruing TDRs 813       841       1,201       1,216       1,233         813       1,233    
Foreclosed assets(5) 16,671       15,299       19,024       21,027       20,458         16,671       20,458    
Total NPAs $ 164,404       $ 163,493       $ 162,626       $ 173,894       $ 108,961         $ 164,404       $ 108,961    
30-89 days past due loans $ 40,656       $ 21,551       $ 36,342       $ 81,127       $ 31,958         $ 40,656       $ 31,958    
Allowance for credit losses                            
Allowance for loan losses $ 239,017       $ 239,048       $ 240,052       $ 219,948       $ 108,022         $ 239,017       $ 108,022    
Reserve for unfunded        
commitments
8,025       7,825       7,625       6,753       1,200         8,025       1,200    
Total ACL $ 247,042       $ 246,873       $ 247,677       $ 226,701       $ 109,222         $ 247,042       $ 109,222    
Provision for loan losses $ 10,507       $ 15,927       $ 32,649       $ 39,532       $ 9,594         $ 98,615       $ 44,027    
Net charge-offs by category                            
Commercial and industrial $ 3,536       $ 5,470       $ 4,735       $ 4,680       $ 6,799         $ 18,421       $ 21,992    
Agricultural 1,779       265       118       1,227       15         3,389       1,201    
Commercial real estate:                            
Office, retail, and industrial 1,701       1,339       3,086       329       256         6,455       2,547    
Multi-family 19             9       5       (439 )       33       (138 )  
Construction 140       4,889       798       1,808       3         7,635       (9 )  
Other commercial real estate 916       1,753       19       164       13         2,852       443    
Consumer 2,448       2,027       4,158       3,901       3,953         12,534       12,188    
Total NCOs $ 10,539       $ 15,743       $ 12,923       $ 12,114       $ 10,600         $ 51,319       $ 38,224    
Less: NCOs on PCD loans (6,488 )     (6,923 )     (3,833 )     (1,720 )             (18,964 )        
Total NCOs, excluding PCD        
loans
$ 4,051       $ 8,820       $ 9,090       $ 10,394       $ 10,600         $ 32,355       $ 38,224    
Total recoveries included above $ 2,588       $ 1,795       $ 1,311       $ 1,816       $ 2,153         $ 7,510       $ 7,984    
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     Years Ended
  December 31,   September 30,   June 30,   March 31,   December 31,     December 31,   December 31,
  2020   2020   2020   2020   2019     2020   2019
Performing loans classified as substandard and special mention          
Special mention loans(8) $ 409,083     $ 395,295     $ 256,373     $ 240,826     $ 188,703       $ 409,083     $ 188,703  
Substandard loans(8) 357,219     311,430     193,337     196,923     188,811       357,219     188,811  
Total performing loans        
classified as substandard and        
special mention(8)
$ 766,302     $ 706,725     $ 449,710     $ 437,749     $ 377,514       $ 766,302     $ 377,514  
Asset quality ratios                            
Non-accrual loans to total loans 0.97 %   0.98 %   0.93 %   1.05 %   0.64 %     0.97 %   0.64 %
Non-accrual loans to total loans,        
excluding PPP loans(6)
1.02 %   1.07 %   1.01 %   1.05 %   0.64 %     1.02 %   0.64 %
Non-accrual loans to total loans,        
excluding PCD and PPP loans(6)
0.80 %   0.78 %   0.70 %   0.71 %   0.64 %     0.80 %   0.64 %
NPLs to total loans 1.00 %   1.01 %   0.95 %   1.09 %   0.68 %     1.00 %   0.68 %
NPLs to total loans, excluding        
PPP loans(6)
1.05 %   1.10 %   1.04 %   1.09 %   0.68 %     1.05 %   0.68 %
NPLs to total loans, excluding        
PCD and PPP loans(6)
0.83 %   0.81 %   0.72 %   0.75 %   0.68 %     0.83 %   0.68 %
NPAs to total loans plus        
foreclosed assets
1.11 %   1.11 %   1.09 %   1.24 %   0.85 %     1.11 %   0.85 %
NPAs to total loans plus        
foreclosed assets, excluding        
PPP loans(6)
1.18 %   1.21 %   1.18 %   1.24 %   0.85 %     1.18 %   0.85 %
NPAs to total loans plus        
foreclosed assets, excluding        
PCD and PPP loans(6)
0.96 %   0.93 %   0.87 %   0.91 %   0.85 %     0.96 %   0.85 %
NPAs to tangible common equity        
plus ACL
9.27 %   9.37 %   9.38 %   10.07 %   6.79 %     9.27 %   6.79 %
Non-accrual loans to total assets 0.68 %   0.68 %   0.66 %   0.74 %   0.46 %     0.68 %   0.46 %
Performing loans classified as        
substandard and special mention        
to corporate loans(8)
7.26 %   6.36 %   3.94 %   4.15 %   3.95 %     7.26 %   3.95 %
Performing loans classified as        
substandard and special mention        
to corporate loans, excluding        
PPP loans(6)(8)
7.84 %   7.13 %   4.40 %   4.15 %   3.95 %     7.84 %   3.95 %
Allowance for credit losses and net charge-off ratios          
ACL to total loans(7) 1.67 %   1.68 %   1.66 %   1.62 %   0.85 %     1.67 %   0.85 %
ACL to non-accrual loans 173.33 %   171.95 %   177.98 %   154.64 %   132.76 %     173.33 %   132.76 %
ACL to NPLs 168.15 %   167.54 %   173.93 %   149.49 %   125.15 %     168.15 %   125.15 %
NCOs to average loans(2) 0.29 %   0.42 %   0.36 %   0.37 %   0.33 %     0.36 %   0.31 %
NCOs to average loans,        
excluding PPP loans(2)(6)
0.31 %   0.46 %   0.38 %   0.37 %   0.33 %     0.38 %   0.31 %
NCOs to average loans,        
excluding PCD and PPP        
loans(2)(6)
0.12 %   0.26 %   0.27 %   0.32 %   0.33 %     0.24 %   0.31 %

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 of 21%.
   
(4) Cost of funds expresses total interest expense as a percentage of total average funding sources.
   
(5) Foreclosed assets consist of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statement of Financial Condition.
   
(6) This ratio excludes PPP loans that are expected to be forgiven. As a result, no allowance for credit losses is associated with these loans.
   
(7)  Prior to the adoption of CECL on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans, which incorporated credit risk as of the acquisition date with no ACL being established at that time. As the acquisition adjustment was accreted into income over future periods, an ACL on acquired loans was established as necessary to reflect credit deterioration. Subsequent to adoption, an ACL on acquired loans is established as of the acquisition date and the acquired loans are no longer recorded net of a credit-related acquisition adjustment.
   
(8) Performing loans classified as substandard and special mention excludes accruing TDRs.


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,
  2020   2020   2020   2020   2019     2020   2019
EPS                            
Net income $ 41,605     $ 27,623     $ 19,064     $ 19,606     $ 52,121       $ 107,898     $ 199,738  
Dividends and accretion on         
preferred stock
(4,034 )   (4,033 )   (1,037 )             (9,104 )    
Net income applicable to non-        
vested restricted shares
(369 )   (236 )   (187 )   (192 )   (424 )     (984 )   (1,681 )
Net income applicable to        
common shares
37,202     23,354     17,840     19,414     51,697       97,810     198,057  
Adjustments to net income:                            
Swap termination costs 17,567     14,285                   31,852      
Tax effect of swap termination        
costs
(4,392 )   (3,571 )                 (7,963 )    
Income tax benefits (3,639 )                     (3,639 )    
Optimization costs 1,493     18,376                   19,869      
Tax effect of optimization        
costs
(373 )   (4,594 )                 (4,967 )    
Acquisition and integration related expenses 1,860     881     5,249     5,472     5,258       13,462     21,860  
Tax effect of acquisition and        
integration related expenses
(465 )   (220 )   (1,312 )   (1,368 )   (1,315 )     (3,365 )   (5,466 )
Net securities (gains) losses     (14,328 )       1,005           (13,323 )    
Tax effect of net securities        
(gains) losses
    3,582         (251 )         3,331      
Delivering Excellence        
implementation costs
                223           1,157  
Tax effect of Delivering        
Excellence implementation        
costs
                (56 )         (291 )
Total adjustments to net        
income, net of tax
12,051     14,411     3,937     4,858     4,110       35,257     17,260  
Net income applicable to        
common shares,        
adjusted(1)
$ 49,253     $ 37,765     $ 21,777     $ 24,272     $ 55,807       $ 133,067     $ 215,317  
Weighted-average common shares outstanding:                          
Weighted-average common        
shares outstanding (basic)
113,174     113,160     113,145     109,922     109,059       112,355     108,156  
Dilutive effect of common        
stock equivalents
430
    276     191     443     519       347
    428  
Weighted-average diluted        
common shares        
outstanding
113,604     113,436     113,336     110,365     109,578       112,702     108,584  
Basic EPS $ 0.33     $ 0.21     $ 0.16     $ 0.18     $ 0.47       $ 0.87     $ 1.83  
Diluted EPS $ 0.33     $ 0.21     $ 0.16     $ 0.18     $ 0.47       $ 0.87     $ 1.82  
Diluted EPS, adjusted(1) $ 0.43     $ 0.33     $ 0.19     $ 0.22     $ 0.51       $ 1.18     $ 1.98  
Anti-dilutive shares not included        
in the computation of diluted        
EPS
                           
Dividend Payout Ratio                            
Dividends declared per share $ 0.14     $ 0.14     $ 0.14     $ 0.14     $ 0.14       $ 0.56     $ 0.54  
Dividend payout ratio 42.42 %   66.67 %   87.50 %   77.78 %   29.79 %     64.37 %   29.51 %
Dividend payout ratio, adjusted(1) 32.56 %   42.42 %   73.68 %   63.64 %   27.45 %     47.46 %   27.27 %
                             
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,
  2020   2020   2020   2020   2019     2020   2019
Return on Average Common and Tangible Common Equity                      
Net income applicable to        
common shares
$ 37,202     $ 23,354     $ 17,840     $ 19,414     $ 51,697       $ 97,810     $ 198,057  
Intangibles amortization 2,807     2,810     2,820     2,770     2,744       11,207     10,481  
Tax effect of intangibles        
amortization
(702 )   (703 )   (705 )   (693 )   (686 )     (2,803 )   (2,621 )
Net income applicable to        
common shares, excluding        
intangibles amortization
39,307     25,461     19,955     21,491     53,755       106,214     205,917  
Total adjustments to net        
income, net of tax(1)
12,051     14,411     3,937     4,858     4,110       35,257     17,260  
Net income applicable to        
common shares, adjusted(1)
$ 51,358     $ 39,872     $ 23,892     $ 26,349     $ 57,865       $ 141,471     $ 223,177  
Average stockholders' common        
equity
$ 2,444,911     $ 2,444,594     $ 2,443,212     $ 2,415,157     $ 2,359,197       $ 2,437,011     $ 2,267,353  
Less: average intangible assets (934,347 )   (938,712 )   (934,022 )   (887,600 )   (874,829 )     (923,741 )   (847,171 )
Average tangible common        
equity
$ 1,510,564     $ 1,505,882     $ 1,509,190     $ 1,527,557     $ 1,484,368       $ 1,513,270     $ 1,420,182  
Return on average common        
equity(2)
6.05 %   3.80 %   2.94 %   3.23 %   8.69 %     4.01 %   8.74 %
Return on average common        
equity, adjusted(1)(2)
8.01 %   6.15 %   3.58 %   4.04 %   9.38 %     5.46 %   9.50 %
Return on average tangible        
common equity(2)
10.35 %   6.73 %   5.32 %   5.66 %   14.37 %     7.02 %   14.50 %
Return on average tangible        
common equity, adjusted(1)(2)
13.53 %   10.53 %   6.37 %   6.94 %   15.47 %     9.36 %   15.71 %
Return on Average Assets                      
Net income $ 41,605     $ 27,623     $ 19,064     $ 19,606     $ 52,121       $ 107,898     $ 199,738  
Total adjustments to net        
income, net of tax(1)
12,051     14,411     3,937     4,858     4,110       35,257     17,260  
Net income, adjusted(1) $ 53,656     $ 42,034     $ 23,001     $ 24,464     $ 56,231       $ 143,155     $ 216,998  
Average assets $ 20,882,325     $ 21,526,695     $ 20,868,106     $