First Midwest Bancorp, Inc. Announces 2020 Second Quarter Results

CHICAGO, July 21, 2020 (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 second quarter of 2020. Net income applicable to common shares for the second quarter of 2020 was $17.8 million, or $0.16 per share, compared to $19.4 million, or $0.18 per share, for the first quarter of 2020, and $46.6 million, or $0.43 per share, for the second quarter of 2019.

Results for the second and first quarters of 2020 were impacted by the COVID-19 pandemic (the "pandemic") and governmental responses to it, resulting in higher provision for loan losses, as well as lower net interest and noninterest income. In addition, the adoption of the current expected credit losses ("CECL") accounting standard on January 1, 2020 added to the allowance for credit losses ("ACL") and impacted certain asset quality metrics and comparability to prior periods. Reported results for all periods were impacted by the Park Bank and Bridgeview Bank transactions in the first quarter of 2020 and the second quarter of 2019, respectively, including acquisition and integration related expenses, as well as operating income and expense.

SELECT SECOND QUARTER VS. FIRST QUARTER HIGHLIGHTS

  • Generated EPS of $0.16, compared to $0.18 for the prior quarter, impacted by:
    • $0.17 per share, or $25 million, for the second quarter of 2020 and $0.19 per share, or $28 million, for the prior quarter of loan loss provision for the estimated impact of the pandemic on the ACL.
    • $0.02 per share, or $3 million, of pandemic expenses and fee assistance programs compared to $0.01 in the prior quarter.
    • $0.01 per share, or $1 million, for dividends on preferred stock issued in the second quarter of 2020.
    • $0.03 per share, or $5 million, of acquisition and integration related expenses, compared to $0.04 in the prior quarter.
  • Reported pre-tax, pre-provision earnings, adjusted(1) of $63 million, down 12% from the prior quarter due primarily to the full quarter impact of the pandemic on noninterest income and noninterest expenses.
  • Produced net interest income of $145 million at a net margin of 3.13%, down 41 basis points from the prior quarter, reflective of lower interest rates and the impact of the Paycheck Protection Program ("PPP") loans.
  • Noninterest income decreased to $33 million, down 16% from the prior quarter, reflective of the impact of the pandemic on transaction volumes and fee assistance programs offered to clients.
  • Controlled noninterest expense to average assets of 2.32%, down 24 basis points from the prior quarter.
  • Grew loans to $15 billion, up 7% from March 31, 2020, impacted by $1.2 billion of PPP loans at June 30, 2020.
  • Consistent underlying credit performance compared to the prior quarter:
    • Expanded the ACL to 1.66% of total loans, 1.80% excluding PPP loans, compared to 1.62% as of March 31, 2020.
    • Non-performing assets ("NPAs") to total loans plus foreclosed assets of 1.09%, compared to 1.24% at March 31, 2020.
    • Net loan charge-offs, ("NCOs"), of 0.36% of average loans, compared to 0.37% for the prior quarter.
  • Increased total average deposits to $15 billion, up 14% from the prior quarter.
  • Increased total capital to 13.70% of risk-weighted assets, up 170 basis points from the prior quarter, which benefited from the issuance of $230.5 million of 7.000% fixed rate preferred stock.
  • Completed the conversion of Park Bank operating systems to the Company's operating platform.

"Performance for the quarter reflects the enormity of the times and the magnitude of underlying governmental policy response," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "This includes the adverse impact on revenues resulting from reduced business demand and lower rates as well as the cost of prudently building our allowance for credit losses and capital given the more challenged and volatile economic outlook."

Mr. Scudder continued, "The character of our Company and our industry has shone throughout this crisis. I am proud of how our teams have risen to the challenge, working tirelessly to quickly adopt and modify products and services to help thousands of individuals and businesses to gain relief and access to governmental assistance, including more than $1.2 billion of PPP loans."

Mr. Scudder concluded, "It remains unclear how the duration and severity of the downturn, as well as the effectiveness of fiscal support, will shape future demand and asset quality. Importantly, with the support of a talented and engaged team and a strong capital foundation, we are well-positioned to deliver on our ongoing commitment to the financial success of our clients. As always, we remain focused on strategically investing in our infrastructure, processes and capabilities to continue to better and more efficiently serve our clients for the long-term benefit of our shareholders."

ISSUANCE OF PREFERRED STOCK

During the second quarter of 2020, the Company completed the issuance of $230.5 million of its 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A and C. The Company received proceeds of $221.3 million, net of underwriting discounts and commissions and issuance costs. The Company expects to use the net proceeds for general corporate purposes.

COVID-19 PANDEMIC

As one of the largest independent banks in Chicago, our mission is to help clients achieve financial success. We are committed to using our strong capital levels and ample liquidity to provide maximum support to our clients and communities during this unprecedented time. The programs and services First Midwest is offering to clients include:

  • Consumer, mortgage, and auto loan payment deferrals
  • Small business payment deferrals
  • Consumer and small business fee assistance programs
  • Suspension of foreclosure and repossession actions
  • Wide range of financial accommodations for our Commercial clients based on individual circumstances
  • Ongoing participation in the PPP with $1.2 billion of loans funded to over 6,500 clients

In addition, First Midwest has committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of the communities it serves.

 (1) This metric is a non-GAAP financial measure. For details on the calculation of this metric, 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
 June 30, 2020  March 31, 2020  June 30, 2019
 Average
Balance
 Interest Yield/
Rate
(%)
  Average
Balance
 Interest Yield/
Rate
(%)
  Average
Balance
 Interest Yield/
Rate
(%)
Assets                   
Other interest-earning assets$646,887  $471  0.29   $164,351  $816  2.00   $210,322  $1,240  2.36 
Securities(1)3,357,984  21,040  2.51   3,066,574  20,757  2.71   2,631,437  18,423  2.80 
Federal Home Loan Bank ("FHLB") and
  Federal Reserve Bank ("FRB") stock
154,678  368  0.95   126,643  1,387  4.38   87,815  757  3.45 
Loans, excluding PPP loans(1)13,729,250  135,952  3.98   13,073,752  148,420  4.57   12,022,470  158,442  5.29 
PPP loans(1)887,997  5,368  2.43               
Total loans(1)14,617,247  141,320  3.89   13,073,752  148,420  4.57   12,022,470  158,442  5.29 
Total interest-earning assets(1)18,776,796  163,199  3.49   16,431,320  171,380  4.19   14,952,044  178,862  4.80 
Cash and due from banks275,696       261,336       215,464     
Allowance for loan losses(224,519)      (179,392)      (108,698)    
Other assets2,040,133       1,891,557       1,681,240     
Total assets$20,868,106       $18,404,821       $16,740,050     
Liabilities and Stockholders' Equity                   
Savings deposits$2,246,643  99  0.02   $2,069,163  164  0.03   $2,079,852  346  0.07 
NOW accounts2,549,088  637  0.10   2,273,156  1,630  0.29   2,261,103  2,776  0.49 
Money market deposits2,663,622  1,157  0.17   2,227,707  3,099  0.56   1,907,766  3,041  0.64 
Time deposits2,539,996  8,184  1.30   2,932,466  12,224  1.68   2,849,930  13,153  1.85 
Borrowed funds2,466,300  3,156  0.51   2,007,700  5,841  1.17   1,025,351  4,459  1.74 
Senior and subordinated debt234,259  3,577  6.14   234,053  3,694  6.35   220,756  3,595  6.53 
Total interest-bearing liabilities12,699,908  16,810  0.53   11,744,245  26,652  0.91   10,344,758  27,370  1.06 
Demand deposits5,305,109       3,884,015       3,835,567     
Total funding sources18,005,017    0.38   15,628,260    0.69   14,180,325    0.77 
Other liabilities361,311       361,404       318,156     
Stockholders' equity2,501,778       2,415,157       2,241,569     
Total liabilities and
  stockholders' equity
$20,868,106       $18,404,821       $16,740,050     
Tax-equivalent net interest
  income/margin(1)
  146,389  3.13     144,728  3.54     151,492  4.06 
Tax-equivalent adjustment  (1,155)      (1,153)      (1,180)  
Net interest income (GAAP)(1)  $145,234       $143,575       $150,312   
Impact of acquired loan accretion(1)  $6,999  0.15     $6,946  0.17     $10,308  0.28 
Tax-equivalent net interest income/
  margin, adjusted(1)
  $139,390  2.98     $137,782  3.37     $141,184  3.78 

(1)  Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 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 second quarter of 2020 was up 1.2% from the first quarter of 2020 and down 3.4% from the second quarter of 2019. The increase in net interest income compared to the first quarter of 2020 resulted primarily from the acquisition of interest-earning assets from the Park Bank transaction that closed in March 2020, interest income and fees on PPP loans, and lower costs of funds, partially offset by lower interest rates. Compared to the second quarter of 2019, the decrease in net interest income was driven primarily by lower interest rates, partially offset by growth in loans and securities, the acquisition of interest-earning assets from the Bridgeview Bank ("Bridgeview") transaction that closed in May 2019 and the Park transaction that closed in March 2020, and lower cost of funds.

Acquired loan accretion contributed $7.0 million, $6.9 million, and $10.3 million to net interest income for the second quarter of 2020, first quarter of 2020, and second quarter of 2019, respectively.

Tax-equivalent net interest margin for the current quarter was 3.13%, decreasing 41 and 93 basis points from the first quarter of 2020 and second quarter of 2019, respectively. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.98%, down 39 and 80 basis points from the first quarter of 2020 and second quarter of 2019, respectively. Compared to both prior periods, tax-equivalent net interest margin decreased as a result of lower interest rates on loans and securities, origination of PPP loans, as well as a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by lower cost of funds. Compared to the first quarter of 2020 the seasonal increase in municipal deposits contributed to the decline. In addition, the decrease in tax-equivalent net interest margin compared to the second quarter of 2019 was impacted by actions taken to reduce rate sensitivity.

For the second quarter of 2020, total average interest-earning assets rose by $2.3 billion and $3.8 billion from the first quarter of 2020 and second quarter of 2019, respectively. The increase compared to both prior periods resulted primarily from PPP loans, securities purchases, the Park Bank transaction, and a higher balance of other interest-earning assets. In addition, the increase in average interest-earning assets compared to the second quarter of 2019 was impacted by the assets acquired in the Bridgeview transaction, as well as loan growth.

Total average funding sources for the second quarter of 2020 increased by $2.4 billion and $3.8 billion from the first quarter of 2020 and second quarter of 2019, respectively. The increase compared to both prior periods resulted primarily from FHLB advances and deposit growth due to the Park Bank transaction as well as higher customer balances resulting from PPP funds and other government stimuli. In addition, the increase compared to the second quarter of 2019 was impacted by deposits assumed in the Bridgeview transaction.

Noninterest Income Analysis
(Dollar amounts in thousands)

  Quarters Ended June 30, 2020
Percent Change From
  June 30,
2020
 March 31,
2020
 June 30,
2019
 March 31,
2020
 June 30,
2019
Wealth management fees $11,942  $12,361  $12,190  (3.4) (2.0)
Service charges on deposit accounts 9,125  11,781  12,196  (22.5) (25.2)
Mortgage banking income 3,477  1,788  1,901  94.5  82.9 
Card-based fees, net 3,180  3,968  4,549  (19.9) (30.1)
Capital market products income 694  4,722  2,154  (85.3) (67.8)
Other service charges, commissions, and fees 2,078  2,682  2,783  (22.5) (25.3)
Total fee-based revenues 30,496  37,302  35,773  (18.2) (14.8)
Other income 2,495  3,065  2,753  (18.6) (9.4)
Net securities losses   (1,005)   N/M  N/M 
Total noninterest income $32,991  $39,362  $38,526  (16.2) (14.4)
                   

N/M – Not meaningful.

Total noninterest income of $33.0 million was down 16.2% from the first quarter of 2020 and 14.4% from the second quarter of 2019. Compared to both prior periods, the decrease in wealth management fees was driven primarily by lower market conditions. The decrease in service charges on deposit accounts, net card-based fees, and other service charges, commissions, and fees compared to both prior periods was due primarily to the impact of lower transaction volumes and the fee assistance programs offered to our clients as a result of the pandemic.

Capital market products income decreased compared to both prior periods as a result of lower levels of sales to corporate clients in light of market conditions.

Mortgage banking income for the second quarter of 2020 resulted from sales of $168.7 million of 1-4 family mortgage loans in the secondary market, compared to $116.6 million and $93.5 million in the first quarter of 2020 and second quarter of 2019, respectively. In addition, compared to the first quarter of 2020 mortgage banking income was impacted by a lower level of decline in the fair value of mortgage servicing rights.

Net securities losses of $1.0 million were recognized during the first quarter of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.

Noninterest Expense Analysis
(Dollar amounts in thousands)

  Quarters Ended June 30, 2020
Percent Change From
  June 30,
2020
 March 31,
2020
 June 30,
2019
 March 31,
2020
 June 30,
2019
Salaries and employee benefits:          
Salaries and wages $52,592  $49,990  $47,776  5.2  10.1 
Retirement and other employee benefits 11,080  12,869  10,916  (13.9) 1.5 
Total salaries and employee benefits 63,672  62,859  58,692  1.3  8.5 
Net occupancy and equipment expense(1) 15,116  14,227  12,294  6.2  23.0 
Technology and related costs(1) 9,853  8,548  7,128  15.3  38.2 
Professional services(1) 8,880  10,390  9,624  (14.5) (7.7)
Advertising and promotions 2,810  2,761  3,167  1.8  (11.3)
Net other real estate owned ("OREO") expense 126  420  294  (70.0) (57.1)
Other expenses 14,624  12,654  12,987  15.6  12.6 
Acquisition and integration related expenses 5,249  5,472  9,514  (4.1) (44.8)
Delivering Excellence implementation costs     442    (100.0)
Total noninterest expense $120,330  $117,331  $114,142  2.6  5.4 
Acquisition and integration related expenses (5,249) (5,472) (9,514) (4.1) (44.8)
Delivering Excellence implementation costs     (442)   (100.0)
Total noninterest expense, adjusted(2) $115,081  $111,859  $104,186  2.9  10.5 

(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 increased 2.6% from the first quarter of 2020 and 5.4% from the second quarter of 2019. Noninterest expense for all periods presented was impacted by acquisition and integration related expenses and the second quarter of 2019 was impacted by costs related to implementation of the Delivering Excellence initiative. Excluding these items, noninterest expense for the second quarter of 2020 was $115.1 million, up 2.9% from the first quarter of 2020 and 10.5% from the second quarter of 2019. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans was well controlled at 2.32% for the second quarter of 2020, down 5% and 7% from the first quarter of 2020 and second quarter of 2019, respectively.

Operating costs associated with the Park Bank transaction completed late in the first quarter of 2020 contributed to the increase in noninterest expense compared to both prior periods. In addition, operating costs associated with the Bridgeview transaction contributed to the increase in noninterest expense compared to the second 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.

Compared to both prior periods, salaries and employee benefits was also impacted by merit increases and commissions resulting from sales of 1-4 family mortgage loans in the secondary market, partially offset by lower incentive compensation expenses. The increase in occupancy and equipment costs compared to both prior periods was also driven by expenses resulting from the pandemic. Technology and related costs compared to both prior periods was impacted by investments in technology, including the origination of PPP loans. Professional services decreased compared to both prior periods due to lower loan remediation expenses and higher prior period expenses associated with process enhancements and organizational growth. Compared to both prior periods, other expenses increased as a result of a valuation adjustment on a foreclosed asset.

Acquisition and integration related expenses for the second quarter of 2020 and first quarter of 2020 resulted from the acquisition of Park Bank and Bridgeview. For the second quarter of 2019, acquisition and integration related expenses resulted primarily from the acquisition of Bridgeview.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition(1)
(Dollar amounts in thousands)

  As of June 30, 2020
Percent Change From
  June 30, 
 2020
 March 31, 
 2020
 June 30, 
 2019
 March 31, 
 2020
 June 30, 
 2019
Commercial and industrial $4,789,556  $5,064,295  $4,524,401  (5.4) 5.9 
Agricultural 381,124  393,063  430,589  (3.0) (11.5)
Commercial real estate:          
Office, retail, and industrial 2,020,318  2,092,097  1,936,577  (3.4) 4.3 
Multi-family 874,861  918,944  787,155  (4.8) 11.1 
Construction 687,063  661,363  654,607  3.9  5.0 
Other commercial real estate 1,475,937  1,415,892  1,447,673  4.2  2.0 
Total commercial real estate 5,058,179  5,088,296  4,826,012  (0.6) 4.8 
Total corporate loans, excluding PPP
  loans
 10,228,859  10,545,654  9,781,002  (3.0) 4.6 
PPP loans 1,179,403      N/M  N/M 
Total corporate loans 11,408,262  10,545,654  9,781,002  8.2  16.6 
Home equity 892,867  973,658  874,686  (8.3) 2.1 
1-4 family mortgages 2,175,322  1,957,037  1,391,814  11.2  56.3 
Installment 457,207  488,668  472,102  (6.4) (3.2)
Total consumer loans 3,525,396  3,419,363  2,738,602  3.1  28.7 
Total loans $14,933,658  $13,965,017  $12,519,604  6.9  19.3 
           

N/M – Not meaningful.

(1) Certain reclassifications were made to prior period amounts to conform to the current presentation.

Loan growth was positively impacted by the PPP loan program in the second quarter of 2020, which added $1.2 billion as of June 30, 2020. Excluding these loans, total loans decreased 1.5% from March 31, 2020. Excluding PPP loans and the loans acquired in the Park Bank acquisition in the first quarter of 2020, total loans grew 4.1% from June 30, 2019. Compared to both prior periods, 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.

Growth in consumer loans compared to both prior periods resulted primarily from strong production and purchases of 1-4 family mortgages, which more than offset higher prepayments. In addition, compared to the second quarter of 2019, purchases of home equity loans contributed to the increase.

Allowance for Credit Losses
(Dollar amounts in thousands)

  As of June 30, 2020
Percent Change From
  June 30,
2020
 March 31,
2020
 June 30,
2019
 March 31,
2020
 June 30,
2019
Allowance for credit losses          
ACL, excluding PCD loans $203,243  $176,478  $106,929  15.2   90.1 
PCD loan ACL 44,434  50,223    (11.5)  100.0 
Total ACL $247,677  $226,701  $106,929  9.3   131.6 
Provision for credit losses $32,649  $39,532  $11,491  (17.4)  184.1 
ACL to total loans(1) 1.66% 1.62% 0.85%    
ACL to total loans, excluding PPP loans(1)(2) 1.80% 1.62% 0.85%    
ACL to non-accrual loans 177.98% 154.64% 168.45%    

(1) 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. 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 if employee retention criteria are met and funds are used for eligible expenses. 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 purchased credit deteriorated ("PCD") loans. In addition, the Company participated in the PPP program, which resulted in $1.2 billion of loans originated in the second quarter of 2020 that are expected to be forgiven by the SBA. As a result, certain metrics are presented excluding PCD and PPP loans to provide comparability to prior periods.

The ACL was $247.7 million or 1.66% of total loans as of June 30, 2020, increasing $21.0 million and $140.7 million compared to March 31, 2020 and June 30, 2019, respectively. Excluding the impact of PPP loans, ACL to total loans was 1.80% as of June 30, 2020, up from 1.62% and 0.85% as of March 31, 2020 and June 30, 2019, respectively. As a result of the pandemic, a provision for loan losses of $25 million and $28 million was recorded in the second quarter and first quarter of 2020, respectively. Compared to June 30, 2019, adoption of the CECL accounting standard increased the ACL by $76 million, which included $32 million attributable to loans and unfunded commitments, $36 million for PCD acquired loans, and $8 million for non-PCD acquired loans. In addition, in the first quarter of 2020, $14.3 million in allowance for credit losses was established through the acquisition accounting adjustments for PCD loans acquired in the Park Bank acquisition along with an additional $1.7 million in provision for loan losses on non-PCD loans.

Asset Quality
(Dollar amounts in thousands)

  As of June 30, 2020
Percent Change From
  June 30,
2020
 March 31,
2020
 June 30,
2019
 March 31,
2020
 June 30,
2019
Asset quality          
Non-accrual loans, excluding PCD loans(1)(2) $94,044  $97,649  $63,477  (3.7) 48.2 
Non-accrual PCD loans(1) 45,116  48,950    (7.8) N/M 
Total non-accrual loans 139,160  146,599  63,477  (5.1) 119.2 
90 days or more past due loans, still accruing
  interest(1)
 3,241  5,052  2,615  (35.8) 23.9 
Total non-performing loans, ("NPLs") 142,401  151,651  66,092  (6.1) 115.5 
Accruing troubled debt restructurings
  ("TDRs")
 1,201  1,216  1,441  (1.2) (16.7)
Foreclosed assets(3) 19,024  21,027  28,488  (9.5) (33.2)
Total NPAs $162,626  $173,894  $96,021  (6.5) 69.4 
30-89 days past due loans(1) $36,342  $81,127  $34,460     
30-89 days past due loans, excluding PCD
  loans(1)(2)
 $34,872  $75,581  $34,460     
Non-accrual loans to total loans:          
Non-accrual loans to total loans 0.93% 1.05% 0.51%    
Non-accrual loans to total loans, excluding
  PPP loans(1)(2)(4)
 1.01% 1.05% 0.51%    
Non-accrual loans to total loans, excluding
  PCD and PPP loans(1)(2)(4)
 0.70% 0.71% 0.51%    
Non-performing loans to total loans:          
NPLs to total loans 0.95% 1.09% 0.53%    
NPLs to total loans, excluding PPP loans(1)(2)(4) 1.04% 1.09% 0.53%    
NPLs to total loans, excluding PCD and PPP
  loans(1)(2)(4)
 0.72% 0.75% 0.53%    
Non-performing assets to total loans plus foreclosed assets:        
NPAs to total loans plus foreclosed assets 1.09% 1.24% 0.77%    
NPAs to total loans plus foreclosed assets,
  excluding PPP loans(1)(2)(4)
 1.18% 1.24% 0.77%    
NPAs to total loans plus foreclosed assets,
  excluding PCD and PPP loans(1)(2)(4)
 0.87% 0.91% 0.77%    

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) This ratio excludes PPP loans that are expected to be forgiven if employee retention criteria are met and funds are used for eligible expenses. 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.

NPAs represented 1.09% of total loans and foreclosed assets at June 30, 2020 compared to 1.24% and 0.77% at March 31, 2020 and June 30, 2019, respectively. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.87% at June 30, 2020, compared to 0.91% at March 31, 2020 and 0.77% at June 30, 2019, reflective of normal fluctuations that occur on a quarterly basis. The increase from June 30, 2019 occurred within non-accrual loans and is isolated to certain credits for which the Company has remediation plans in place.

Total 30-89 days past due loans, excluding PCD loans of $34.9 million decreased by $40.7 million from March 31, 2020 and were consistent with June 30, 2019. Reported levels at March 31, 2020 were elevated largely due to timing as renewal and payment activity on two loan relationships was delayed into the first week of April 2020.

Charge-Off Data
 (Dollar amounts in thousands)

  Quarters Ended
  June 30,
2020
 % of
Total
 March 31,
2020
 % of
Total
 June 30,
2019
 % of
Total
Net loan charge-offs(1)            
Commercial and industrial $4,735   36.6  $4,680   38.7  $4,600   49.3 
Agricultural 118   0.9  1,227   10.1  658   7.0 
Commercial real estate:            
Office, retail, and industrial 3,086   23.9  329   2.7  1,454   15.6 
Multi-family 9   0.1  5         
Construction 798   6.2  1,808   14.9  (10)  (0.1)
Other commercial real estate 19   0.1  164   1.4  284   3.0 
Consumer 4,158   32.2  3,901   32.2  2,355   25.2 
Total NCOs $12,923   100.0  $12,114   100.0  $9,341   100.0 
Less: NCOs on PCD loans(2)(3) (3,833)  29.7  (1,720)  14.2     N/A 
Total NCOs, excluding PCD loans(2)(3) $9,090     $10,394     $9,341    
Recoveries included in total NCOs $1,311     $1,816     $2,083    
Quarter-to-date(1)(4):            
Net loan charge-offs to average loans 0.36 %   0.37 %   0.31 %  
Net loan charge-offs to average loans,
  excluding PPP loans(3)(5)
 0.38 %   0.37 %   0.31 %  
Net loan charge-offs to average loans,
  excluding PCD and PPP loans(3)(5)
 0.27 %   0.32 %   0.31 %  
Year-to-date(1)(4):            
Net loan charge-offs to average loans 0.36 %   0.37 %   0.32 %  
Net loan charge-offs to average loans,
  excluding PPP loans(3)(5)
 0.38 %   0.32 %   0.32 %  
Net loan charge-offs to average loans,
  excluding PCD and PPP loans(3)(5)
 0.30 %   0.32 %   0.32 %  

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 if employee retention criteria are met and funds are used for eligible expenses. 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.

NCOs to average loans, annualized was 0.36%, compared to 0.37% for the first quarter of 2020 and 0.31% for the second quarter of 2019. Excluding charge-offs on PCD and the impact of PPP loans on this metric, NCOs to average loans was 0.27% for the second quarter of 2020, down from 0.32% for the first quarter of 2020 and 0.31% for the second quarter of 2019.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

  Average for the Quarters Ended June 30, 2020
Percent Change From
  June 30,
2020
 March 31,
2020
 June 30,
2019
 March 31,
2020
 June 30,
2019
Demand deposits $5,305,109  $3,884,015  $3,835,567  36.6  38.3 
Savings deposits 2,246,643  2,069,163  2,079,852  8.6  8.0 
NOW accounts 2,549,088  2,273,156  2,261,103  12.1  12.7 
Money market accounts 2,663,622  2,227,707  1,907,766  19.6  39.6 
Core deposits 12,764,462  10,454,041  10,084,288  22.1  26.6 
Time deposits 2,539,996  2,932,466  2,849,930  (13.4) (10.9)
Total deposits $15,304,458  $13,386,507  $12,934,218  14.3  18.3 
                   

Total average deposits were $15.3 billion for the second quarter of 2020, up 14.3% from the first quarter of 2020 and 18.3% from the second quarter of 2019. Compared to both prior periods, the rise in total average deposits was impacted by higher deposits due to the Park Bank transaction in March 2020 as well as higher customer balances resulting from PPP funds and other government stimuli. The increase in total average deposits compared to the first quarter of 2020 was also impacted by the normal seasonal increase in municipal deposits. In addition, the increase compared to the second quarter of 2019 was impacted by deposits assumed in the Bridgeview transaction in May 2019.

CAPITAL MANAGEMENT

Capital Ratios

  As of
  June 30,
2020
 March 31,
2020
 December 31,
2019
 June 30,
2019
Company regulatory capital ratios:        
Total capital to risk-weighted assets 13.70% 12.00% 12.96% 12.57%
Tier 1 capital to risk-weighted assets 11.19% 9.64% 10.52% 10.11%
Common equity Tier 1 ("CET1") to risk-weighted assets 9.70% 9.64% 10.52% 10.11%
Tier 1 capital to average assets 8.70% 8.60% 8.81% 8.96%
Company tangible common equity ratios(1)(2):      
Tangible common equity to tangible assets 7.32% 7.97% 8.81% 8.57%
Tangible common equity to tangible assets, excluding PPP loans 7.77% 7.97% 8.81% 8.57%
Tangible common equity, excluding accumulated other comprehensive
  income ("AOCI"), to tangible assets
 7.17% 7.79% 8.82% 8.59%
Tangible common equity, excluding accumulated other comprehensive
  income ("AOCI"), to tangible assets, excluding PPP loans
 7.62% 7.79% 8.82% 8.59%
Tangible common equity to risk-weighted assets 9.61% 9.63% 10.51% 10.11%

(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 ratios increased compared to March 31, 2020 and June 30, 2019 as earnings and the issuance of preferred stock more than offset the impact of loan growth and securities purchases on risk-weighted assets. In addition, compared to June 30, 2019, all capital ratios were impacted by the approximately 50 basis point decrease due to the Park Bank acquisition, and 15 basis point decrease due to stock repurchases. The Company elected the five year CECL transition relief for regulatory capital which retained approximately 25 basis points of CET1 and tier 1 capital at June 30, 2020.

During the second quarter of 2020, the Company completed the issuance of $230.5 million of 7.000% Fixed Rate Non-Cumulative Perpetual Preferred Stock through a Series A and Series C issuance. The Company received proceeds of $221.3 million, net of underwriting discounts and commissions and issuance costs.

The Board of Directors approved a quarterly cash dividend of $0.14 per common share during the second quarter of 2020, which is consistent with the first quarter of 2020 and the second quarter of 2019. This dividend represents the 150th consecutive cash dividend paid by the Company since its inception in 1983.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, July 22, 2020 at 11 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. 10145988 beginning one hour after completion of the live call until 9:00 A.M. (ET) on August 5, 2020. 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 2020, 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, anticipated trends in First Midwest's business, regulatory developments, acquisition transactions, estimated synergies, cost savings and financial benefits of announced and completed transactions, growth strategies, including possible future acquisitions, and the continued or potential effects of the pandemic on our business, financial condition, liquidity, 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, including its effects on our business, operations and employees, as well as on our customers 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, 30-89 days past due 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, 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, return on average tangible common equity and pre-tax, pre-provision earnings, all adjusted for certain significant transactions. These transactions include acquisition and integration related expenses associated with completed and pending acquisitions (all periods), net securities losses (first quarter of 2020), and Delivering Excellence implementation costs (all periods in 2019). In addition, income tax expense and provision for loan losses 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 excluding these transactions from EPS, the efficiency ratio, return on average assets, return on average common equity, return on average tangible common equity, and pre-tax, pre-provision earnings 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 expense, adjusted, which excludes 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, 30-89 days past due loans, non-accrual loans to total loans, NPLs to total loans, NPAs to total loans plus foreclosed assets, 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 Small Business Administration ("SBA") if employee retention criteria are met and funds are used for eligible expenses. 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 First Midwest

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 $13 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:

InvestorsMedia
Patrick S. BarrettMaurissa Kanter
EVP, Chief Financial OfficerSVP, Director of Corporate Communications
708.831.7231708.831.7345
pat.barrett@firstmidwest.com 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
 June 30, March 31, December 31, September 30, June 30,
 2020 2020 2019 2019 2019
Period-End Balance Sheet         
Assets         
Cash and due from banks$304,445  $252,138  $214,894  $273,613  $199,684 
Interest-bearing deposits in other banks637,856  229,474  84,327  202,054  126,966 
Equity securities, at fair value43,954  40,098  42,136  40,723  40,690 
Securities available-for-sale, at fair value3,435,862  3,382,865  2,873,386  2,905,738  2,793,316 
Securities held-to-maturity, at amortized cost19,628  19,825  21,997  22,566  23,277 
FHLB and FRB stock148,512  154,357  115,409  112,845  109,466 
Loans:         
Commercial and industrial4,789,556  5,064,295  4,481,525  4,570,361  4,524,401 
Agricultural381,124  393,063  405,616  417,740  430,589 
Commercial real estate:         
Office, retail, and industrial2,020,318  2,092,097  1,848,718  1,892,877  1,936,577 
Multi-family874,861  918,944  856,553  817,444  787,155 
Construction687,063  661,363  593,093  637,256  654,607 
Other commercial real estate1,475,937  1,415,892  1,383,708  1,425,292  1,447,673 
PPP loans1,179,403         
Home equity892,867  973,658  851,454  833,955  874,686 
1-4 family mortgages2,175,322  1,957,037  1,927,078  1,686,967  1,391,814 
Installment457,207  488,668  492,585  491,427  472,102 
Total loans14,933,658  13,965,017  12,840,330  12,773,319  12,519,604 
Allowance for loan losses(240,052) (219,948) (108,022) (109,028) (105,729)
Net loans14,693,606  13,745,069  12,732,308  12,664,291  12,413,875 
OREO9,947  9,814  8,750  12,428  15,313 
Premises, furniture, and equipment, net143,001  145,844  147,996  147,064  148,347 
Investment in bank-owned life insurance ("BOLI")299,649  298,827  296,351  297,610  297,118 
Goodwill and other intangible assets940,182  935,241  875,262  876,219  878,802 
Accrued interest receivable and other assets568,239  539,748  437,581  458,303  415,379 
Total assets$21,244,881  $19,753,300  $17,850,397  $18,013,454  $17,462,233 
Liabilities and Stockholders' Equity         
Noninterest-bearing deposits$5,602,016  $4,222,523  $3,802,422  $3,832,744  $3,748,316 
Interest-bearing deposits10,055,640  9,876,427  9,448,856  9,608,183  9,440,272 
Total deposits15,657,656  14,098,950  13,251,278  13,440,927  13,188,588 
Borrowed funds2,305,195  2,648,210  1,658,758  1,653,490  1,407,378 
Senior and subordinated debt234,358  234,153  233,948  233,743  233,538 
Accrued interest payable and other liabilities391,461  336,280  335,620  345,695  332,156 
Stockholders' equity2,656,211  2,435,707  2,370,793  2,339,599  2,300,573 
Total liabilities and stockholders' equity$21,244,881  $19,753,300  $17,850,397  $18,013,454  $17,462,233 
Stockholders' equity, excluding AOCI$2,627,484  $2,400,384  $2,372,747  $2,332,861  $2,303,383 
Stockholders' equity, common2,425,711  2,435,707  2,370,793  2,339,599  2,300,573 


First Midwest Bancorp, Inc.     
Condensed Consolidated Statements of Income (Unaudited)
(Dollar amounts in thousands)
     
               
 Quarters Ended  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
Income Statement              
Interest income$162,044  $170,227  $176,604  $181,963  $177,682   $332,271  $340,172 
Interest expense16,810  26,652  28,245  31,176  27,370   43,462  50,836 
Net interest income145,234  143,575  148,359  150,787  150,312   288,809  289,336 
Provision for loan losses32,649  39,532  9,594  12,498  11,491   72,181  21,935 
Net interest income after
  provision for credit losses
112,585  104,043  138,765  138,289  138,821   216,628  267,401 
Noninterest Income              
Service charges on deposit
  accounts
9,125  11,781  12,664  13,024  12,196   20,906  23,736 
Wealth management fees11,942  12,361  12,484  12,063  12,190   24,303  23,790 
Card-based fees, net3,180  3,968  4,512  4,694  4,549   7,148  8,927 
Capital market products
  income
694  4,722  6,337  4,161  2,154   5,416  3,433 
Mortgage banking income3,477  1,788  4,134  3,066  1,901   5,265  2,905 
Other service charges,
  commissions, and fees
2,078  2,682  2,946  3,023  2,783   4,760  5,394 
Total fee-based revenues30,496  37,302  43,077  40,031  35,773   67,798  68,185 
Other income2,495  3,065  3,419  2,920  2,753   5,560  5,247 
Net securities losses  (1,005)        (1,005)  
Total noninterest
  income
32,991  39,362  46,496  42,951  38,526   72,353  73,432 
Noninterest Expense              
Salaries and employee benefits:             
Salaries and wages52,592  49,990  53,043  50,686  47,776   102,582  93,911 
Retirement and other
  employee benefits
11,080  12,869  9,930  10,795  10,916   23,949  22,154 
Total salaries and
  employee benefits
63,672  62,859  62,973  61,481  58,692   126,531  116,065 
Net occupancy and
  equipment expense
15,116  14,227  12,940  12,787  12,294   29,343  26,091 
Professional services8,880  10,390  10,949  8,768  9,624   19,270  16,711 
Technology and related costs9,853  8,548  7,429  6,960  7,128   18,401  13,398 
Advertising and promotions2,810  2,761  2,896  2,955  3,167   5,571  5,539 
Net OREO expense126  420  1,080  381  294   546  975 
Other expenses14,624  12,654  13,000  11,432  12,987   27,278  23,568 
Acquisition and integration
  related expenses
5,249  5,472  5,258  3,397  9,514   10,721  13,205 
Delivering Excellence
  implementation costs
    223  234  442     700 
Total noninterest expense120,330  117,331  116,748  108,395  114,142   237,661  216,252 
Income before income tax
  expense
25,246  26,074  68,513  72,845  63,205   51,320  124,581 
Income tax expense6,182  6,468  16,392  18,300  16,191   12,650  31,509 
Net income$19,064  $19,606  $52,121  $54,545  $47,014   $38,670  $93,072 
Preferred dividends(1,037)          (1,037)  
Net income applicable to
  non-vested restricted shares
(187) (192) (424) (465) (389)  (379) (792)
Net income applicable
  to common shares
$17,840  $19,414  $51,697  $54,080  $46,625   $37,254  $92,280 
Net income applicable to
  common shares, adjusted(1)
21,777  24,272  55,807  56,803  54,091   46,049  102,709 

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  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
EPS              
Basic EPS$0.16  $0.18  $0.47  $0.49  $0.43   $0.33  $0.86 
Diluted EPS$0.16  $0.18  $0.47  $0.49  $0.43   $0.33  $0.86 
Diluted EPS, adjusted(1)$0.19  $0.22  $0.51  $0.52  $0.50   $0.41  $0.96 
Common Stock and Related Per Common Share Data     
Book value$21.23  $21.33  $21.56  $21.27  $20.80   $21.23  $20.80 
Tangible book value$13.00  $13.14  $13.60  $13.31  $12.86   $13.00  $12.86 
Dividends declared per share$0.14  $0.14  $0.14  $0.14  $0.14   $0.28  $0.26 
Closing price at period end$13.35  $13.24  $23.06  $19.48  $20.47   $13.35  $20.47 
Closing price to book value0.6  0.6  1.1  0.9  1.0   0.6  1.0 
Period end shares outstanding114,276  114,213  109,972  109,970  110,589   114,276  110,589 
Period end treasury shares11,079  11,136  10,443  10,441  9,818   11,079  9,818 
Common dividends$16,015  $16,002  $15,404  $15,406  $15,503   $32,017  $28,340 
Dividend payout ratio87.50% 77.78% 29.79% 28.57% 32.56%  84.85% 30.23%
Dividend payout ratio, adjusted(1)73.68% 63.64% 27.45% 26.92% 28.00%  68.29% 27.08%
Key Ratios/Data              
Return on average common
  equity(2)
2.94% 3.23% 8.69% 9.22% 8.34%  3.08% 8.50%
Return on average common
  equity, adjusted(1)(2)
3.58% 4.04% 9.38% 9.68% 9.68%  3.81% 9.46%
Return on average tangible
  common equity(2)
5.32% 5.66% 14.37% 15.36% 13.83%  5.49% 14.11%
Return on average tangible
  common equity, adjusted(1)(2)
6.37% 6.94% 15.47% 16.10% 15.95%  6.65% 15.64%
Return on average assets(2)0.37% 0.43% 1.16% 1.22% 1.13%  0.40% 1.16%
Return on average assets,
  adjusted(1)(2)
0.44% 0.53% 1.25% 1.28% 1.31%  0.49% 1.29%
Loans to deposits95.38% 99.05% 96.90% 95.03% 94.93%  95.38% 94.93%
Efficiency ratio(1)64.08% 60.21% 56.16% 53.54% 54.67%  62.12% 55.16%
Net interest margin(2)(3)3.13% 3.54% 3.72% 3.82% 4.06%  3.33% 4.05%
Yield on average interest-earning
  assets(2)(3)
3.49% 4.19% 4.43% 4.60% 4.80%  3.82% 4.76%
Cost of funds(2)(4)0.38% 0.69% 0.74% 0.82% 0.77%  0.52% 0.75%
Noninterest expense to average
  assets(2)
2.32% 2.56% 2.59% 2.43% 2.73%  2.43% 2.69%
Noninterest expense, adjusted to
  average assets, excluding PPP
  loans(1)(2)
2.32% 2.44% 2.47% 2.35% 2.50%  2.32% 2.52%
Effective income tax rate24.49% 24.81% 23.93% 25.12% 25.62%  24.65% 25.29%
Capital Ratios              
Total capital to risk-weighted
  assets(1)
13.70% 12.00% 12.96% 12.62% 12.57%  13.70% 12.57%
Tier 1 capital to risk-weighted
  assets(1)
11.19% 9.64% 10.52% 10.18% 10.11%  11.19% 10.11%
CET1 to risk-weighted assets(1)9.70% 9.64% 10.52% 10.18% 10.11%  9.70% 10.11%
Tier 1 capital to average assets(1)8.70% 8.60% 8.81% 8.67% 8.96%  8.70% 8.96%
Tangible common equity to
  tangible assets(1)
7.32% 7.97% 8.81% 8.54% 8.57%  7.32% 8.57%
Tangible common equity, excluding AOCI, to tangible
  assets(1)
7.17% 7.79% 8.82% 8.50% 8.59%  7.17% 8.59%
Tangible common equity to risk-
  weighted assets(1)
9.61% 9.63% 10.51% 10.24% 10.11%  9.61% 10.11%
Note: Selected Financial Information footnotes are located at the end of this section.     


First Midwest Bancorp, Inc.     
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
               
 As of or for the
 Quarters Ended  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
Asset Quality Performance Data                
Non-performing assets               
Commercial and industrial$19,475  $24,944  $29,995  $26,739  $19,809   $19,475  $19,809 
Agricultural8,494  5,823  5,954  6,242  6,712   8,494  6,712 
Commercial real estate:              
Office, retail, and industrial26,342  26,107  25,857  26,812  17,875   26,342  17,875 
Multi-family2,132  2,688  2,697  2,152  5,322   2,132  5,322 
Construction18,640  18,764  152  152  152   18,640  152 
Other commercial real estate5,304  4,562  4,729  4,680  3,982   5,304  3,982 
Consumer13,657  14,761  12,885  10,915  9,625   13,657  9,625 
Non-accrual, excluding PCD
  loans
94,044  97,649  82,269  77,692  63,477   94,044  63,477 
Non-accrual PCD loans45,116  48,950            
Total non-accrual loans139,160  146,599  82,269  77,692  63,477   94,044  63,477 
90 days or more past due loans,
  still accruing interest
3,241  5,052  5,001  4,657  2,615   3,241  2,615 
Total NPLs142,401  151,651  87,270  82,349  66,092   97,285  66,092 
Accruing TDRs1,201  1,216  1,233  1,422  1,441   1,201  1,441 
Foreclosed assets(5)19,024  21,027  20,458  25,266  28,488   19,024  28,488 
Total NPAs$162,626  $173,894  $108,961  $109,037  $96,021   $117,510  $96,021 
30-89 days past due loans$36,342  $81,127  $31,958  $46,171  $34,460   $36,342  $34,460 
Allowance for credit losses              
Allowance for loan losses$240,052  $219,948  $108,022  $109,028  $105,729   $240,052  $105,729 
Reserve for unfunded
  commitments
7,625  6,753  1,200  1,200  1,200   7,625  1,200 
Total ACL$247,677  $226,701  $109,222  $110,228  $106,929   $247,677  $106,929 
Provision for loan losses$32,649  $39,532  $9,594  $12,498  $11,491   $72,181  $21,935 
Net charge-offs by category              
Commercial and industrial$4,735  $4,680  $6,799  $5,532  $4,600   $9,415  $9,661 
Agricultural118  1,227  15  439  658   1,345  747 
Commercial real estate:              
Office, retail, and industrial3,086  329  256  219  1,454   3,415  2,072 
Multi-family9  5  (439) (38)    14  339 
Construction798  1,808  3  (2) (10)  2,606  (10)
Other commercial real estate19  164  13  (43) 284   183  473 
Consumer4,158  3,901  3,953  3,092  2,355   8,059  5,143 
Total NCOs$12,923  $12,114  $10,600  $9,199  $9,341   $25,037  $18,425 
Less: NCOs on PCD loans(3,833) (1,720)        (5,553)  
Total NCOs, excluding PCD
  loans
$9,090  $10,394  $10,600  $9,199  $9,341   $19,484  $18,425 
Total recoveries included above$1,311  $1,816  $2,153  $2,073  $2,083   $3,127  $3,776 
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  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
Asset quality ratios               
Non-accrual loans to total loans0.93% 1.05% 0.64% 0.61% 0.51%  0.93% 0.51%
Non-accrual loans to total loans,
  excluding PPP loans(6)
1.01% 1.05% 0.64% 0.61% 0.51%  1.01% 0.51%
Non-accrual loans to total loans,
  excluding PCD and PPP loans(6)
0.70% 0.71% 0.64% 0.61% 0.51%  0.70% 0.51%
NPLs to total loans0.95% 1.09% 0.68% 0.64% 0.53%  0.95% 0.53%
NPLs to total loans, excluding
  PPP loans(6)
1.04% 1.09% 0.68% 0.64% 0.53%  1.04% 0.53%
NPLs to total loans, excluding
  PCD and PPP loans(6)
0.72% 0.75% 0.68% 0.64% 0.53%  0.72% 0.53%
NPAs to total loans plus
  foreclosed assets
1.09% 1.24% 0.85% 0.85% 0.77%  1.09% 0.77%
NPAs to total loans plus
  foreclosed assets, excluding
  PPP loans(6)
1.18% 1.24% 0.85% 0.85% 0.77%  1.18% 0.77%
NPAs to total loans plus
  foreclosed assets, excluding
  PCD and PPP loans(6)
0.87% 0.91% 0.85% 0.85% 0.77%  0.87% 0.77%
NPAs to tangible common equity
  plus ACL
9.38% 10.07% 6.79% 6.93% 6.28%  9.38% 6.28%
Non-accrual loans to total assets0.66% 0.74% 0.46% 0.43% 0.36%  0.66% 0.36%
Allowance for credit losses and net charge-off ratios     
ACL to total loans(7)1.66% 1.62% 0.85% 0.86% 0.85%  1.66% 0.85%
ACL to non-accrual loans177.98% 154.64% 132.76% 141.88% 168.45%  263.36% 168.45%
ACL to NPLs173.93% 149.49% 125.15% 133.85% 161.79%  254.59% 161.79%
NCOs to average loans(2)0.36% 0.37% 0.33% 0.29% 0.31%  0.36% 0.32%
NCOs to average loans,
  excluding PPP loans(2)
0.38% 0.37% 0.33% 0.29% 0.31%  0.38% 0.32%
NCOs to average loans,
  excluding PCD and PPP loans(2)
0.27% 0.32% 0.33% 0.29% 0.31%  0.30% 0.32%

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 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.
(6) This ratio excludes PPP loans that are expected to be forgiven if employee retention criteria are met and funds are used for eligible expenses. 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.


First Midwest Bancorp, Inc.     
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
     
               
 Quarters Ended  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
EPS              
Net income$19,064   $19,606   $52,121   $54,545   $47,014    $38,670   $93,072  
Dividends and accretion on
  preferred stock
(1,037)               (1,037)    
Net income applicable to non-
  vested restricted shares
(187)  (192)  (424)  (465)  (389)   (379)  (792) 
Net income applicable to
  common shares
17,840   19,414   51,697   54,080   46,625    37,254   92,280  
Adjustments to net income:              
Acquisition and integration
  related expenses
5,249   5,472   5,258   3,397   9,514    10,721   13,205  
Tax effect of acquisition and
  integration related expenses
(1,312)  (1,368)  (1,315)  (849)  (2,379)   (2,680)  (3,301) 
Net securities losses   1,005             1,005     
Tax effect of net securities
  losses
   (251)            (251)    
Delivering Excellence
  implementation costs
      223   234   442       700  
Tax effect of Delivering
  Excellence implementation
  costs
      (56)  (59)  (111)      (175) 
Total adjustments to net
  income, net of tax
3,937   4,858   4,110   2,723   7,466    8,795   10,429  
Net income applicable to
  common shares,
  adjusted(1)
$21,777   $24,272   $55,807   $56,803   $54,091    $46,049   $102,709  
Weighted-average common shares outstanding:             
Weighted-average common
  shares outstanding (basic)
113,145   109,922   109,059   109,281   108,467    111,533   107,126  
Dilutive effect of common
  stock equivalents
191   443   519   381       339     
Weighted-average diluted
  common shares
  outstanding
113,336   110,365   109,578   109,662   108,467    111,872   107,126  
Basic EPS$0.16   $0.18   $0.47   $0.49   $0.43    $0.33   $0.86  
Diluted EPS$0.16   $0.18   $0.47   $0.49   $0.43    $0.33   $0.86  
Diluted EPS, adjusted(1)$0.19   $0.22   $0.51   $0.52   $0.50    $0.41   $0.96  
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    $0.28   $0.26  
Dividend payout ratio87.50 % 77.78 % 29.79 % 28.57 % 32.56 %  84.85 % 30.23 %
Dividend payout ratio, adjusted(1)73.68 % 63.64 % 27.45 % 26.92 % 28.00 %  68.29 % 27.08 %
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


First Midwest Bancorp, Inc.     
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
     
               
 As of or for the
 Quarters Ended  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
Return on Average Common and Tangible Common Equity           
Net income applicable to
  common shares
$17,840   $19,414   $51,697   $54,080   $46,625    $37,254   $92,280  
Intangibles amortization2,820   2,770   2,744   2,750   2,624    5,590   4,987  
Tax effect of intangibles
  amortization
(705)  (693)  (686)  (688)  (656)   (1,398)  (1,247) 
Net income applicable to
  common shares, excluding
  intangibles amortization
19,955   21,491   53,755   56,142   48,593    41,446   96,020  
Total adjustments to net income,
  net of tax(1)
3,937   4,858   4,110   2,723   7,466    8,795   10,429  
Net income applicable to
  common shares, adjusted(1)
$23,892   $26,349   $57,865   $58,865   $56,059    $50,241   $106,449  
Average stockholders' common
  equity
$2,443,212   $2,415,157   $2,359,197   $2,327,279   $2,241,569    $2,429,184   $2,190,210  
Less: average intangible assets(934,022)  (887,600)  (874,829)  (877,069)  (832,263)   (910,811)  (817,915) 
Average tangible common
  equity
$1,509,190   $1,527,557   $1,484,368   $1,450,210   $1,409,306    $1,518,373   $1,372,295  
Return on average common
  equity(2)
2.94 % 3.23 % 8.69 % 9.22 % 8.34 %  3.08 % 8.50 %
Return on average common
  equity, adjusted(1)(2)
3.58 % 4.04 % 9.38 % 9.68 % 9.68 %  3.81 % 9.46 %
Return on average tangible
  common equity(2)
5.32 % 5.66 % 14.37 % 15.36 % 13.83 %  5.49 % 14.11 %
Return on average tangible
  common equity, adjusted(1)(2)
6.37 % 6.94 % 15.47 % 16.10 % 15.95 %  6.65 % 15.64 %
Return on Average Assets           
Net income$19,064   $19,606   $52,121   $54,545   $47,014    $38,670   $93,072  
Total adjustments to net income,
  net of tax(1)
3,937   4,858   4,110   2,723   7,466    8,795   10,429  
Net income, adjusted(1)$23,001   $24,464   $56,231   $57,268   $54,480    $47,465   $103,501  
Average assets$20,868,106   $18,404,821   $17,889,158   $17,699,180   $16,740,050    $19,636,463   $16,206,906  
Return on average assets(2)0.37 % 0.43 % 1.16 % 1.22 % 1.13 %  0.40 % 1.16 %
Return on average assets,
  adjusted(1)(2)
0.44 % 0.53 % 1.25 % 1.28 % 1.31 %  0.49 % 1.29 %
Noninterest Expense to Average Assets           
Noninterest expense$120,330   $117,331   $116,748   $108,395   $114,142    $237,661   $216,252  
Less:              
Delivering Excellence
  implementation costs
      (223)  (234)  (442)      (700) 
Acquisition and integration
  related expenses
(5,249)  (5,472)  (5,258)  (3,397)  (9,514)   (10,721)  (13,205) 
Total$115,081   $111,859   $111,267   $104,764   $104,186    $226,940   $202,347  
Average assets$20,868,106   $18,404,821   $17,889,158   $17,699,180   $16,740,050    $19,636,463   $16,206,906  
Less: average PPP loans(887,977)                    
Average assets, excluding PPP
  loans
$19,980,129   $18,404,821   $17,889,158   $17,699,180   $16,740,050    $19,636,463   $16,206,906  
Noninterest expense to average
  assets(2)
2.32 % 2.56 % 2.59 % 2.43 % 2.73 %  2.43 % 2.69 %
Noninterest expense, adjusted to
  average assets, excluding PPP
  loans(2)
2.32 % 2.44 % 2.47 % 2.35 % 2.50 %  2.32 % 2.52 %
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


First Midwest Bancorp, Inc.     
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
     
               
 As of or for the
 Quarters Ended  Six Months Ended
 June 30, March 31, December 31, September 30, June 30,  June 30, June 30,
 2020 2020 2019 2019 2019  2020 2019
Efficiency Ratio Calculation             
Noninterest expense$120,330   $117,331   $116,748   $108,395   $114,142    $237,661   $216,252  
Less:              
Net OREO expense(126)  (420)  (1,080)  (381)  (294)   (546)  (975) 
Acquisition and integration
  related expenses
(5,249)  (5,472)  (5,258)  (3,397)  (9,514)   (10,721)  (13,205) 
Delivering Excellence
  implementation costs
      (223)  (234)  (442)      (700) 
Total$114,955   $111,439   $110,187   $104,383   $103,892    $226,394   $201,372  
Tax-equivalent net interest
  income(3)
$146,389   $144,728   $149,711   $152,019   $151,492    $291,117   $291,624  
Noninterest income32,991   39,362   46,496   42,951   38,526    72,353   73,432  
Less: net securities losses   1,005             1,005     
Total$179,380   $185,095   $196,207   $194,970   $190,018    $364,475   $365,056  
Efficiency ratio64.08 % 60.21 % 56.16 % 53.54 % 54.67 %  62.12 % 55.16 %
Pre-Tax, Pre-Provision Earnings             
Net Income$19,064   $19,606   $52,121   $54,545   $47,014    $38,670   $93,072  
Income tax expense6,182   6,468   16,392   18,300   16,191    12,650   31,509  
Provision for credit losses32,649   39,532   9,594   12,498   11,491    72,181   21,935  
Pre-Tax, Pre-Provision
  Earnings
$57,895   $65,606   $78,107   $85,343   $74,696    $123,501   $146,516  
Adjustments to pre-tax, pre-
  provision earnings:
              
Net securities losses   1,005             1,005     
A&I related expenses5,249   5,472   5,258   3,397   9,514    10,721   13,205  
Delivering Excellence
  implementation costs(5)
      223   234   442       700  
Total adjustments5,249   6,477   5,481   3,631   9,956    11,726   13,905  
Pre-Tax, Pre-Provision
  Earnings, adjusted
$63,144   $72,083   $83,588   $88,974   $84,652    $135,227   $160,421  
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


First Midwest Bancorp, Inc.
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
          
 As of or for the
 Quarters Ended
 June 30, March 31, December 31, September 30, June 30,
 2020 2020 2019 2019 2019
Tangible Common Equity         
Stockholders' equity, common$2,425,711   $2,435,707   $2,370,793   $2,339,599   $2,300,573  
Less: goodwill and other intangible assets(940,182)  (935,241)  (875,262)  (876,219)  (878,802) 
Tangible common equity1,485,529   1,500,466   1,495,531   1,463,380   1,421,771  
Less: AOCI(28,727)  (35,323)  1,954   (6,738)  2,810  
Tangible common equity, excluding AOCI$1,456,802   $1,465,143   $1,497,485   $1,456,642   $1,424,581  
Total assets$21,244,881   $19,753,300   $17,850,397   $18,013,454   $17,462,233  
Less: goodwill and other intangible assets(940,182)  (935,241)  (875,262)  (876,219)  (878,802) 
Tangible assets$20,304,699   $18,818,059   $16,975,135   $17,137,235   $16,583,431  
Less: PPP loans(1,179,403)             
Tangible assets, excluding PPP loans$19,125,296   $18,818,059   $16,975,135   $17,137,235   $16,583,431  
Risk-weighted assets$15,458,361   $15,573,684   $14,225,444   $14,294,011   $14,056,482  
Tangible common equity to tangible assets7.32 % 7.97 % 8.81 % 8.54 % 8.57 %
Tangible common equity to tangible assets, excluding PPP loans7.77 % 7.97 % 8.81 % 8.54 % 8.57 %
Tangible common equity, excluding AOCI, to tangible assets7.17 % 7.79 % 8.82 % 8.50 % 8.59 %
Tangible common equity, excluding AOCI, to tangible assets,
  excluding PPP loans
7.62 % 7.79 % 8.82 % 8.50 % 8.59 %
Tangible common equity to risk-weighted assets9.61 % 9.63 % 10.51 % 10.24 % 10.11 %
          

Footnotes to Non-GAAP Reconciliations
(1) Adjustments to net income for each period presented are detailed in the EPS non-GAAP reconciliation above. For additional discussion of adjustments, see the "Non-GAAP Financial Information" section.
(2) Annualized based on the actual number of days for each period presented.
(3) Presented on a tax-equivalent basis, assuming the applicable federal income tax rate of 21%.

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