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8-K - 8-K - FIRST MIDWEST BANCORP INCfmbi12312016er8-k.htm

Exhibit 99.1


a3282014fmbilogoa11.jpg
 
 
 
 
 
FOR IMMEDIATE RELEASE
 
 

FIRST MIDWEST BANCORP, INC. ANNOUNCES
2016 FOURTH QUARTER AND FULL YEAR RESULTS
BEGINS 2017 40% LARGER THAN A YEAR AGO
ITASCA, IL, January 24, 2017 - First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ NGS: FMBI), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the fourth quarter and full year of 2016. Net income for the fourth quarter of 2016 was $20.7 million, or $0.25 per share, compared to $28.4 million, or $0.35 per share, for the third quarter of 2016, and $16.3 million, or $0.21 per share, for the fourth quarter of 2015.
Reported results included the following certain significant transactions: acquisition and integration related expenses associated with completed and pending acquisitions (all periods presented), the lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation (fourth quarter of 2016), the net gain on the sale-leaseback transaction (third quarter of 2016), and property valuation adjustments related to strategic branch initiatives (fourth quarter of 2015).
Excluding these certain significant transactions, earnings per share (1) was $0.32 for the fourth quarter of 2016, consistent with $0.32 the third quarter of 2016, and increased 10% compared to $0.29 for the fourth quarter of 2015.
FOURTH QUARTER HIGHLIGHTS
Generated earnings per share (1) of $0.32; up 10% from the fourth quarter of 2015, and consistent with a strong third quarter of 2016, excluding certain significant transactions.
Grew total loans 4% annualized from September 30, 2016.
Repaid $115 million of maturing senior notes with proceeds generated from the issuance of $150 million in subordinated notes late in the third quarter of 2016; absorbed approximately $1.5 million in overlapping interest costs.
Completed the acquisition of Standard Bancshares, Inc. on January 6, 2017, adding $1.9 billion in loans and $2.1 billion in deposits; absorbed $7.5 million in acquisition and integration related expenses in the fourth quarter of 2016.
Announced the decision to relocate corporate headquarters and consolidate certain centralized commercial sales platforms in 2018; absorbed approximately $1.0 million in lease cancellation fees.
FULL YEAR HIGHLIGHTS
Grew earnings per share to $1.14, up 9% from 2015.
Increased fee-based revenues 14% from 2015.
Expanded total loans 15% from 2015.
Increased average core deposits 11% from 2015.
"Strong performance in 2016 was capped by solid fourth quarter results, reflecting balanced business execution against a backdrop of substantial growth," said Michael L. Scudder, President and Chief Executive Officer. "Away from certain integration and organizational costs attendant to this growth, earnings per share improved 10% and 8% for the quarter and full year versus a year ago. This performance benefited from consistent sales success across major business lines as well as our acquisition of NI Bancshares Corporation in March of 2016. Further, we were very pleased to close on our acquisition of Standard Bancshares, Inc., a $2.3 billion asset financial institution, on January 6, 2017. As a result, we begin 2017 with $14 billion in assets, 40% larger than we began 2016, and having greatly strengthened our place as the premier commercial bank in metro Chicago."
Mr. Scudder concluded, "Our performance momentum is building amid optimism for improved operating conditions and a transition to higher rates. Continued focus on investing in our colleagues and infrastructure combined with our strong balance sheet leave us well positioned to capitalize on this momentum and operate as a larger more diverse company. As we do so, we remain centered on those actions which help our clients to achieve financial success, enhance the value of our franchise and inure to the long-term benefit of our shareholders."

(1) Earnings per share, excluding certain significant transactions, is a Non-GAAP financial measure. For details on the calculation, see the sections titled "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.

First Midwest Bancorp, Inc. | One Pierce Place | Suite 1500 | Itasca | Illinois | 60143



SIGNIFICANT RECENT EVENTS
Acquisition
Standard Bancshares, Inc.
On January 6, 2017, the Company completed its acquisition of Standard Bancshares, Inc. ("Standard"), the holding company for Standard Bank and Trust Company. With the acquisition, the Company acquired 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest Indiana, and added approximately $2.1 billion in deposits and $1.9 billion in loans. The merger consideration totaled $570.6 million and consisted of 21,057,085 shares of Company common stock and $47.1 million in cash. Operating systems are expected to be converted in the first quarter of 2017.
Headquarters Relocation to Chicago's Dynamic O'Hare Airport Corridor
On January 3, 2017, the Company announced its plan to relocate its corporate headquarters in early 2018 to Chicago's dynamic O'Hare airport corridor from its current location in Itasca, Illinois. The new headquarters, located at Triangle Plaza at 8750 W. Bryn Mawr Avenue, is expected to offer greater accessibility and collaboration opportunities for the Company's colleagues and a larger space to accommodate future growth. The Company recognized a $950,000 lease cancellation fee during the fourth quarter of 2016 as a result of its planned move.

2



OPERATING PERFORMANCE
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
 
Quarters Ended
 
December 31, 2016
 
 
September 30, 2016
 
 
December 31, 2015
 
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
$
177,974

 
$
362

 
0.81
 
 
$
282,101

 
$
472

 
0.67
 
 
$
587,112

 
$
530

 
0.36
Securities (1)
2,016,588

 
11,088

 
2.20
 
 
1,896,195

 
10,752

 
2.27
 
 
1,260,167

 
9,855

 
3.13
Federal Home Loan Bank ("FHLB") and
  Federal Reserve Bank ("FRB") stock
54,093

 
421

 
3.11
 
 
51,451

 
261

 
2.03
 
 
38,926

 
371

 
3.81
Loans (1)(2)
8,177,036

 
86,520

 
4.21
 
 
8,067,900

 
88,500

 
4.36
 
 
7,013,586

 
76,405

 
4.32
Total interest-earning assets (1)
10,425,691

 
98,391

 
3.76
 
 
10,297,647

 
99,985

 
3.87
 
 
8,899,791

 
87,161

 
3.89
Cash and due from banks
145,807

 
 
 
 
 
 
150,467

 
 
 
 
 
 
131,589

 
 
 
 
Allowance for loan losses
(89,401
)
 
 
 
 
 
 
(84,088
)
 


 
 
 
 
(74,823
)
 

 
 
Other assets
898,011

 
 
 
 
 
 
958,299

 


 
 
 
 
865,873

 

 
 
Total assets
$
11,380,108

 
 
 
 
 
 
$
11,322,325

 
 
 
 
 
 
$
9,822,430

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing core deposits (3)
$
4,971,630

 
1,049

 
0.08
 
 
$
5,090,820

 
1,086

 
0.08
 
 
$
4,471,645

 
930

 
0.08
Time deposits
1,213,048

 
1,426

 
0.47
 
 
1,248,425

 
1,434

 
0.46
 
 
1,152,895

 
1,341

 
0.46
Borrowed funds
617,975

 
1,716

 
1.10
 
 
605,177

 
1,782

 
1.17
 
 
167,120

 
1,250

 
2.97
Senior and subordinated debt
259,531

 
4,112

 
6.30
 
 
166,101

 
2,632

 
6.30
 
 
201,168

 
3,134

 
6.18
Total interest-bearing liabilities
7,062,184

 
8,303

 
0.47
 
 
7,110,523

 
6,934

 
0.39
 
 
5,992,828

 
6,655

 
0.44
Demand deposits (3)
2,803,016

 
 
 
 
 
 
2,806,851

 
 
 
 
 
 
2,560,604

 
 
 
 
Total funding sources
9,865,200

 
 
 
 
 
 
9,917,374

 


 
 
 
 
8,553,432

 

 
 
Other liabilities
244,915

 
 
 
 
 
 
143,249

 
 
 
 
 
 
114,492

 
 
 
 
Stockholders' equity - common
1,269,993

 
 
 
 
 
 
1,261,702

 
 
 
 
 
 
1,154,506

 
 
 

Total liabilities and
  stockholders' equity
$
11,380,108

 
 
 
 
 
 
$
11,322,325

 
 
 
 
 
 
$
9,822,430

 
 
 
 
Tax-equivalent net interest
  income/margin (1) 
 
 
90,088

 
3.44
 
 
 
 
93,051

 
3.60
 
 
 
 
80,506

 
3.59
Tax-equivalent adjustment
 
 
(2,064
)
 
 
 
 
 
 
(2,079
)
 
 
 
 
 
 
(2,494
)
 
 
Net interest income (GAAP)
 
 
$
88,024

 
 
 
 
 
 
$
90,972

 
 
 
 
 
 
$
78,012

 
 

(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 35%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. For details on the calculation of tax-equivalent net interest income, see the sections titled, "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.
(2) Includes loans acquired through Federal Deposit Insurance Corporation ("FDIC")-assisted transactions subject to loss sharing agreements ("covered loans"), which totaled $23.3 million at December 31, 2016, $24.3 million at September 30, 2016, and $30.8 million at December 31, 2015.
(3) See the Deposit Composition table presented later in this release for average balance detail by category.
Net interest income decreased by 3.2% from the third quarter of 2016 and increased by 12.8% compared to the fourth quarter of 2015. Compared to the third quarter of 2016, the decrease in net interest income resulted mainly from lower acquired loan accretion and higher funding costs related to the issuance of $150.0 million of subordinated notes late in the third quarter of 2016 and the subsequent repayment of $115.0 million of maturing senior notes late in the fourth quarter of 2016. The increase in net interest income compared to the fourth quarter of 2015 was driven primarily by organic loan growth and the acquisition of interest-earning assets from the NI Bancshares Corporation ("NI Bancshares") transaction, partially offset by higher senior and subordinated debt costs.
Acquired loan accretion contributed $1.8 million, $3.8 million, and $1.3 million to net interest income for the fourth quarter of 2016, the third quarter of 2016, and the fourth quarter of 2015, respectively.
Tax-equivalent net interest margin for the current quarter was 3.44%, decreasing 16 basis points from the third quarter of 2016 and 15 basis points from the fourth quarter of 2015. The decrease in tax-equivalent net interest margin compared to the third quarter of 2016 was due primarily to the decline in acquired loan accretion, temporarily higher funding costs related to the timing

3



of the issuance of the aforementioned subordinated notes and the subsequent repayment of the maturing senior notes, and certain leveraging strategies initiated during the second half of 2016 in anticipation of additional liquidity from the January of 2017 closing of the Standard acquisition. Compared to the fourth quarter of 2015, the decline in net interest margin resulted primarily from organic growth in floating rate loans and higher senior and subordinated debt costs.
For the fourth quarter of 2016, total average interest-earning assets rose $128.0 million from the third quarter of 2016 and $1.5 billion from the fourth quarter of 2015. The increase from both prior periods presented resulted from organic loan growth and security purchases. In addition, the rise in average interest-earning assets compared to the fourth quarter of 2015 was impacted by interest-earning assets acquired in the NI Bancshares transaction late in the first quarter of 2016 and the Peoples Bancorp, Inc. ("Peoples") transaction late in the fourth quarter of 2015.
Average funding sources decreased by $52.2 million from the third quarter of 2016 and increased $1.3 billion from the fourth quarter of 2015. Compared to the third quarter of 2016, average funding sources were impacted by the normal seasonal reduction in interest-bearing core deposits, partly offset by the issuance of $150.0 million of subordinated notes late in the third quarter of 2016 in connection with the repayment of $115.0 million of maturing senior notes late in the fourth quarter of 2016. Deposits acquired in the NI Bancshares and Peoples transactions and the addition of $740.1 million of FHLB advances contributed to the increase in average funding sources compared to the fourth quarter of 2015.

Fee-based Revenues and Total Noninterest Income Analysis
(Dollar amounts in thousands)
 
 
Quarters Ended
 
December 31, 2016
Percent Change From
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Service charges on deposit accounts
 
$
10,315

 
$
10,708

 
$
10,303

 
(3.7
)
 
0.1

Wealth management fees
 
8,375

 
8,495

 
7,493

 
(1.4
)
 
11.8

Card-based fees
 
7,462

 
7,332

 
6,761

 
1.8

 
10.4

Merchant servicing fees
 
3,016

 
3,319

 
2,929

 
(9.1
)
 
3.0

Mortgage banking income
 
3,537

 
3,394

 
1,777

 
4.2

 
99.0

Other service charges, commissions, and fees
 
4,402

 
5,218

 
4,664

 
(15.6
)
 
(5.6
)
Total fee-based revenues
 
37,107

 
38,466

 
33,927

 
(3.5
)
 
9.4

Net securities gains
 
323

 
187

 
822

 
72.7

 
(60.7
)
Net gain on sale-leaseback transaction
 

 
5,509

 

 
(100.0
)
 

Other income
 
2,281

 
1,691

 
1,729

 
34.9

 
31.9

Total noninterest income
 
$
39,711

 
$
45,853

 
$
36,478

 
(13.4
)
 
8.9


Total fee-based revenues of $37.1 million decreased by 3.5% from the third quarter of 2016 and grew by 9.4% compared to the fourth quarter of 2015. The decrease in fee-based revenues from the third quarter of 2016 was driven primarily by a seasonal decline in service charges on deposit accounts and lower sales of capital market products to commercial clients within other service charges, commissions, and fees. Mortgage banking income for the fourth quarter of 2016 resulted from sales of $85.3 million of 1-4 family mortgage loans in the secondary market, compared to $107.3 million in the third quarter of 2016 and $51.4 million in the fourth quarter of 2015. In addition, mortgage banking income for the fourth quarter of 2016 was positively impacted by changes in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter.
Compared to the fourth quarter of 2015, services provided to customers acquired in the NI Bancshares transaction contributed to the majority of the increase in wealth management fees. The rise in card-based fees compared to the fourth quarter of 2015 resulted from higher transaction volumes and services provided to customers acquired in the NI Bancshares transaction.
Total noninterest income of $39.7 million grew 8.9% from the fourth quarter of 2015 and decreased 13.4% from the third quarter of 2016. Other income for the fourth quarter of 2016 includes a net gain of $630,000 from the disposition of a branch property. For the third quarter of 2016, total noninterest income benefitted from a $5.5 million gain recognized as a result of the Company's sale-leaseback transaction.


4



Noninterest Expense Analysis
(Dollar amounts in thousands)
 
 
Quarters Ended
 
December 31, 2016
Percent Change From
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Salaries and employee benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
39,257

 
$
37,872

 
$
34,295

 
3.7

 
14.5

Retirement and other employee benefits
 
8,160

 
8,500

 
8,925

 
(4.0
)
 
(8.6
)
Total salaries and employee benefits
 
47,417

 
46,372

 
43,220

 
2.3

 
9.7

Net occupancy and equipment expense
 
10,774

 
10,755

 
9,256

 
0.2

 
16.4

Professional services
 
7,138

 
6,772

 
6,117

 
5.4

 
16.7

Technology and related costs
 
3,514

 
3,881

 
3,694

 
(9.5
)
 
(4.9
)
Merchant card expense
 
2,603

 
2,857

 
2,495

 
(8.9
)
 
4.3

Advertising and promotions
 
2,330

 
1,941

 
2,211

 
20.0

 
5.4

Cardholder expenses
 
1,426

 
1,515

 
1,329

 
(5.9
)
 
7.3

Net other real estate owned ("OREO")
  expense
 
925

 
313

 
926

 
195.5

 
(0.1
)
Other expenses
 
8,050

 
7,310

 
7,525

 
10.1

 
7.0

Total noninterest expense, excluding certain significant transactions (1)
 
84,177

 
81,716

 
76,773

 
3.0

 
9.6

Acquisition and integration related expenses
 
7,542

 
1,172

 
1,389

 
543.5

 
443.0

Lease cancellation fee
 
950

 

 

 
100.0

 
100.0

Property valuation adjustments
 

 

 
8,581

 

 
(100.0
)
Total noninterest expense
 
$
92,669

 
$
82,888

 
$
86,743

 
11.8

 
6.8


(1) Total noninterest expense, excluding certain significant transactions, is a Non-GAAP metric. See the Non-GAAP Financial Information discussion for detail.
Total noninterest expense increased by 11.8% and 6.8% compared to the third quarter of 2016 and the fourth quarter of 2015, respectively. Excluding certain significant transactions, total noninterest expense increased by 3.0% from the third quarter of 2016 and 9.6% from the fourth quarter of 2015.
Compared to the third quarter of 2016, approximately half of the increase in salaries and wages was due to the rise in the Company's stock price, which resulted in higher expenses related to the Company's nonqualified retirement plan, and timing of certain compensation accruals. The rise in advertising and promotions expense from the third quarter of 2016 resulted from the timing of certain advertising costs. Net OREO expense increased from the third quarter of 2016 due primarily to a higher level of valuation adjustments. For the third quarter of 2016, a $400,000 reduction in the reserve for unfunded commitments resulted in lower other expenses compared to the fourth quarter of 2016.
Operating costs associated with the NI Bancshares and Peoples transactions contributed nearly two thirds of the increase in total noninterest expense, excluding certain significant transactions, from the fourth quarter of 2015. These costs primarily occurred within salaries and employee benefits, net occupancy and equipment expense, professional services, advertising and promotions, and other expenses. In addition, compensation costs associated with merit increases, investments in additional talent to support organizational growth, and higher loan remediation costs contributed to the rise compared to the fourth quarter of 2015.
During the fourth quarter of 2016, a lease cancellation fee of $950,000 was recognized as a result of the Company's planned 2018 corporate headquarters relocation.
Property valuation adjustments of $8.6 million were recognized during the fourth quarter of 2015 on twelve closed branches and seven parcels of land as part of the Company's strategic branch initiatives.

5



LOAN PORTFOLIO AND ASSET QUALITY
Loan Portfolio Composition
(Dollar amounts in thousands)
 
 
As of
 
December 31, 2016
Percent Change From
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Commercial and industrial
 
$
2,827,658

 
$
2,849,399

 
$
2,524,726

 
(0.8
)
 
12.0

Agricultural
 
389,496

 
409,571

 
387,440

 
(4.9
)
 
0.5

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
 
1,581,827

 
1,537,038

 
1,395,454

 
2.9

 
13.4

Multi-family
 
614,034

 
625,305

 
528,324

 
(1.8
)
 
16.2

Construction
 
451,540

 
401,857

 
216,882

 
12.4

 
108.2

Other commercial real estate
 
979,359

 
970,855

 
931,190

 
0.9

 
5.2

Total commercial real estate
 
3,626,760

 
3,535,055

 
3,071,850

 
2.6

 
18.1

Total corporate loans
 
6,843,914

 
6,794,025

 
5,984,016

 
0.7

 
14.4

Home equity
 
732,604

 
733,260

 
653,468

 
(0.1
)
 
12.1

1-4 family mortgages
 
416,354

 
388,145

 
355,854

 
7.3

 
17.0

Installment
 
237,999

 
232,030

 
137,602

 
2.6

 
73.0

Total consumer loans
 
1,386,957

 
1,353,435

 
1,146,924

 
2.5

 
20.9

Covered loans
 
23,274

 
24,322

 
30,775

 
(4.3
)
 
(24.4
)
Total loans
 
$
8,254,145

 
$
8,171,782

 
$
7,161,715

 
1.0

 
15.3


Total loans grew by 4.0% on an annualized basis from September 30, 2016, and 15.3% from December 31, 2015 including loans acquired in the NI Bancshares transaction of $279.7 million, or 11.3% excluding these acquired loans. Compared to the third quarter of 2016, the increase in loans was driven primarily by commercial real estate and 1-4 family mortgages. The rise in construction loans compared to both prior periods was driven primarily by select commercial projects for which permanent financing is expected upon their completion.
Compared to the fourth quarter of 2015, the increase in commercial and industrial loans resulted primarily from broad-based increases within our middle market and sector-based lending business units. Office, retail, and industrial and multi-family loans increased compared to the fourth quarter of 2015 due to organic growth. The rise in consumer loans compared to the fourth quarter of 2015 resulted from the continued expansion of mortgage and installment loans and the addition of shorter-duration, floating rate home equity loans.



6



Asset Quality
(Dollar amounts in thousands)
 
 
As of
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
Asset Quality, Excluding Covered
Loans and Covered OREO
 
 
 
 
 
 
Non-accrual loans
 
$
58,810

 
$
43,797

 
$
28,875

90 days or more past due loans, still accruing interest
 
4,876

 
4,318

 
2,883

Total non-performing loans
 
63,686

 
48,115

 
31,758

Accruing troubled debt restructurings ("TDRs")
 
2,291

 
2,368

 
2,743

OREO
 
26,020

 
27,986

 
27,349

Total non-performing assets
 
$
91,997

 
$
78,469

 
$
61,850

30-89 days past due loans
 
$
20,125

 
$
25,849

 
$
16,329

Non-accrual loans to total loans
 
0.71
%
 
0.54
%
 
0.40
%
Non-performing loans to total loans
 
0.77
%
 
0.59
%
 
0.45
%
Non-performing assets to total loans plus OREO
 
1.11
%
 
0.96
%
 
0.86
%
Allowance for Credit Losses
 
 
 
 
 
 
Allowance for loan losses
 
$
86,083

 
$
85,308

 
$
73,630

Reserve for unfunded commitments
 
1,000

 
1,000

 
1,225

Total allowance for credit losses
 
$
87,083

 
$
86,308

 
$
74,855

Allowance for credit losses to total loans (1)
 
1.06
%
 
1.06
%
 
1.05
%
Allowance for credit losses to loans, excluding acquired loans
 
1.11
%
 
1.13
%
 
1.11
%
Allowance for credit losses to non-accrual loans, excluding covered loans
 
146.51
%
 
194.11
%
 
253.57
%
(1) This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk, as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established as necessary to reflect credit deterioration.
Total non-performing assets represented 1.11% of total loans and OREO at December 31, 2016, compared to 0.96% at September 30, 2016 and 0.86% at December 31, 2015. Non-accrual loans increased by $15.0 million from September 30, 2016, due primarily to the transfer of a single corporate relationship to non-accrual status during the fourth quarter of 2016. The Company has recorded the expected loss and implemented a remediation plan associated with this credit.




7



Charge-Off Data
(Dollar amounts in thousands)
 
 
Quarters Ended
 
Years Ended
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31, 2016
 
December 31, 2015
Net Loan Charge-offs (1):
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
3,402

 
$
1,145

 
$
1,781

 
$
7,393

 
$
13,312

Agricultural
 

 

 

 

 

Office, retail, and industrial
 
165

 
2,151

 
267

 
4,370

 
2,420

Multi-family
 
17

 
(69
)
 
(27
)
 
210

 
530

Construction
 
(12
)
 
(9
)
 
105

 
78

 
(214
)
Other commercial real estate
 
(111
)
 
415

 
110

 
2,408

 
650

Consumer
 
933

 
1,162

 
1,134

 
3,931

 
3,004

Covered
 
138

 

 

 
140

 
514

Total net loan charge-offs
 
$
4,532

 
$
4,795

 
$
3,370

 
$
18,530

 
$
20,216

 
 
 
 
 
 
 
 
 
 
 
Net loan charge-offs to average loans
 
0.22
%
 
0.24
%
 
0.19
%
 
0.24
%
 
0.29
%

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

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)
 
 
Average for Quarters Ended
 
December 31, 2016
Percent Change From
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
September 30, 2016
 
December 31, 2015
Demand deposits
 
$
2,803,016

 
$
2,806,851

 
$
2,560,604

 
(0.1
)
 
9.5
Savings deposits
 
1,633,010

 
1,655,604

 
1,483,962

 
(1.4
)
 
10.0
NOW accounts
 
1,715,228

 
1,754,330

 
1,411,425

 
(2.2
)
 
21.5
Money market accounts
 
1,623,392

 
1,680,886

 
1,576,258

 
(3.4
)
 
3.0
Core deposits
 
7,774,646

 
7,897,671

 
7,032,249

 
(1.6
)
 
10.6
Time deposits
 
1,213,048

 
1,248,425

 
1,152,895

 
(2.8
)
 
5.2
Total deposits
 
$
8,987,694

 
$
9,146,096

 
$
8,185,144

 
(1.7
)
 
9.8

Average core deposits were $7.8 billion for the fourth quarter of 2016 compared to $7.9 billion and $7.0 billion for the third quarter of 2016 and fourth quarter of 2015, respectively. The slight decrease in core deposits compared to the third quarter of 2016 resulted from a normal seasonal decline in average municipal deposits. Compared to the fourth quarter of 2015, the rise in average core deposits reflects the impact of the $500.5 million of core deposits assumed in the NI Bancshares and Peoples transactions and organic growth.


8



CAPITAL MANAGEMENT

Capital Ratios
 
 
As of
 
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
Company regulatory capital ratios :
Total capital to risk-weighted assets
 
12.23
%
 
12.25
%
 
11.15
%
Tier 1 capital to risk-weighted assets
 
9.90
%
 
9.89
%
 
10.28
%
Common equity Tier 1 ("CET1") to risk-weighted assets
 
9.39
%
 
9.38
%
 
9.73
%
Tier 1 capital to average assets
 
8.99
%
 
8.90
%
 
9.40
%
Company tangible common equity ratios (1)(2):
 
 
 
 
Tangible common equity to tangible assets
 
8.05
%
 
8.04
%
 
8.59
%
Tangible common equity, excluding accumulated other
  comprehensive income ("AOCI"), to tangible assets
 
8.42
%
 
8.16
%
 
8.89
%
Tangible common equity to risk-weighted assets
 
8.88
%
 
9.13
%
 
9.29
%

(1) These ratios are not subject to formal Federal Reserve regulatory guidance.
(2) Tangible common equity represents common stockholders' equity less goodwill and identifiable intangible assets. For details of the calculation of these ratios, see the sections titled, "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.
Overall, the Company's regulatory capital ratios modestly improved compared to September 30, 2016. The reduction in the Company's Tier 1 and CET1 capital ratios compared to December 31, 2015 resulted mainly from the impact of the NI Bancshares transaction in the first quarter of 2016. The increase in total capital to risk-weighted assets compared to December 31, 2015 resulted primarily from the issuance of $150.0 million of subordinated notes during the third quarter of 2016, which more than offset the impact of the NI Bancshares transaction.
The Board of Directors approved a quarterly cash dividend of $0.09 per common share during the fourth quarter of 2016, which is consistent with the third quarter of 2016. The dividend increased from $0.08 to $0.09 per common share during the first quarter of 2015.


9



Conference Call
A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, January 25, 2017 at 11:00 A.M. (ET). Members of the public who would like to listen to the conference call should dial (877) 507-0639 (U.S. domestic) or (412) 317-6003 (International) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (International) conference I.D. 10099063 beginning one hour after completion of the live call until 9:00 A.M. (ET) on February 1, 2017. 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 and Additional Information Available on Website
This press release and the accompanying unaudited Selected Financial Information are available through the "Investor Relations" section of First Midwest's website at www.firstmidwest.com/investorrelations.
Forward-Looking Statements
This press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and First Midwest cautions you not to place undue reliance on these statements. Forward-looking statements are made only as of the date of this press release, and First Midwest undertakes no obligation to update any forward-looking statements contained in this press release to reflect new information or events or conditions after the date hereof.
Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, anticipated trends in our business, regulatory developments, acquisition transactions, including estimated synergies, cost savings and financial benefits of pending or consummated transactions, including First Midwest's acquisition of Standard Bancshares, Inc., and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and assumptions. For a discussion of these risks, uncertainties and assumptions, you should refer to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2015, as well as our subsequent filings made with the Securities and Exchange Commission. However, these risks and uncertainties are not exhaustive. Other sections of such reports describe additional factors that could adversely impact our business and financial performance.
Non-GAAP Financial Information
The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These non-GAAP financial measures include earnings per share ("EPS"), excluding certain significant transactions, the efficiency ratio, total non-interest expense, excluding certain significant transactions, return on average assets, excluding certain significant transactions, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, tangible common equity to tangible assets, tangible common equity, excluding accumulated other comprehensive loss, to tangible assets, tangible common equity to risk-weighted assets, return on average tangible common equity, and return on average tangible common equity, excluding certain significant transactions.

10



The Company presents EPS, the efficiency ratio, total noninterest expense, return on average assets, and return on average tangible common equity, all excluding certain significant transactions. All of these metrics exclude acquisition and integration related expenses, the net gain on the sale-leaseback transaction, the lease cancellation fee, and property valuation adjustments. Management believes excluding these transactions from EPS, the efficiency ratio, total noninterest expense, return on average assets, and return on average tangible common equity are useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion facilitates better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics is useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics enhances comparability for peer comparison purposes.
The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it enhances comparability for peer comparison purposes.
In management's view, tangible common equity measures are capital adequacy metrics meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.
Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. See the previously provided tables and the following reconciliations in the "Non-GAAP Reconciliations" section for details on the calculation of these measures to the extent presented herein.
About the Company
First Midwest is a relationship-based financial institution and one of the largest independent publicly-traded bank holding companies based on assets headquartered in the Midwest, with approximately $14 billion in assets and $8.5 billion in trust assets under management. First Midwest's principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, leasing, retail, wealth management, trust and private banking products and services through over 130 locations in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. First Midwest's common stock is traded on the NASDAQ Stock Market under the symbol FMBI. First Midwest's website is www.firstmidwest.com.
Contact Information
Investors:
Patrick S. Barrett
EVP, Chief Financial Officer
(630) 875-7273
pat.barrett@firstmidwest.com
Media:
James M. Roolf
SVP and Corporate Relations Officer
(630) 875-7533
jim.roolf@firstmidwest.com




11



Accompanying Unaudited Selected Financial Information
a3282014fmbilogoa11.jpg
Consolidated Statements of Financial Condition (Unaudited)
(Dollar amounts in thousands)
 
 
 
As of
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
2016
 
2016
 
2016
 
2016
 
2015
Period-End Balance Sheet
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
155,055

 
$
139,538

 
$
149,957

 
$
135,049

 
$
114,587

Interest-bearing deposits in other banks
107,093

 
362,153

 
105,432

 
171,312

 
266,615

Trading securities, at fair value
17,920

 
18,351

 
17,693

 
17,408

 
16,894

Securities available-for-sale, at fair value
1,919,450

 
1,964,030

 
1,773,759

 
1,625,579

 
1,306,636

Securities held-to-maturity, at amortized cost
22,291

 
20,337

 
20,672

 
21,051

 
23,152

FHLB and FRB stock
59,131

 
53,506


44,506

 
40,916

 
39,306

Loans:
 
 
 
 
 
 
 
 
 
Commercial and industrial
2,827,658

 
2,849,399

 
2,699,742

 
2,634,391

 
2,524,726

Agricultural
389,496

 
409,571

 
401,858

 
422,231

 
387,440

Commercial real estate:
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
1,581,827

 
1,537,038

 
1,529,675

 
1,566,395

 
1,395,454

Multi-family
614,034

 
625,305

 
587,104

 
562,065

 
528,324

Construction
451,540

 
401,857

 
371,016

 
260,743

 
216,882

Other commercial real estate
979,359

 
970,855


1,000,655

 
1,060,302

 
931,190

Home equity
732,604

 
733,260

 
722,881

 
683,171

 
653,468

1-4 family mortgages
416,354

 
388,145

 
415,581

 
390,887

 
355,854

Installment
237,999

 
232,030

 
223,845

 
213,979

 
137,602

Covered loans
23,274

 
24,322


27,180

 
28,391

 
30,775

Total loans
8,254,145

 
8,171,782

 
7,979,537

 
7,822,555

 
7,161,715

 Allowance for loan losses
(86,083
)
 
(85,308
)
 
(80,105
)
 
(77,150
)
 
(73,630
)
Net loans
8,168,062

 
8,086,474

 
7,899,432

 
7,745,405

 
7,088,085

OREO
26,083

 
28,049

 
29,990

 
29,649

 
27,782

Premises, furniture, and equipment, net
82,577

 
82,443

 
140,554

 
141,323

 
122,278

Investment in BOLI
219,746

 
219,064

 
218,133

 
218,873

 
209,601

Goodwill and other intangible assets
366,876

 
367,961

 
369,962

 
369,979

 
339,277

Accrued interest receivable and other assets
278,271

 
236,291

 
225,720

 
212,378

 
178,463

Total assets
$
11,422,555

 
$
11,578,197

 
$
10,995,810

 
$
10,728,922

 
$
9,732,676

Liabilities and Stockholders' Equity
 

 

 
 
 
 
 
Noninterest-bearing deposits
$
2,766,748


$
2,766,265


$
2,683,495

 
$
2,627,530

 
$
2,414,454

Interest-bearing deposits
6,061,855

 
6,339,839

 
6,287,821

 
6,153,288

 
5,683,284

Total deposits
8,828,603

 
9,106,104

 
8,971,316

 
8,780,818

 
8,097,738

Borrowed funds
879,008

 
639,539

 
449,744

 
387,411

 
165,096

Senior and subordinated debt
194,603

 
309,444

 
162,876

 
201,293

 
201,208

Accrued interest payable and other liabilities
263,261

 
253,846

 
160,985

 
134,835

 
122,366

Stockholders' equity
1,257,080

 
1,269,264

 
1,250,889

 
1,224,565

 
1,146,268

Total liabilities and stockholders' equity
$
11,422,555

 
$
11,578,197

 
$
10,995,810

 
$
10,728,922

 
$
9,732,676

Stockholders' equity, excluding AOCI
$
1,297,990

 
$
1,282,666

 
$
1,259,692

 
$
1,239,606

 
$
1,174,657

Stockholders' equity, common
1,257,080

 
1,269,264

 
1,250,889

 
1,224,565

 
1,146,268


12



a3282014fmbilogoa11.jpg
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,
 
2016
 
2016
 
2016
 
2016
 
2015
 
 
2016
 
2015
Income Statement
 
 
 

 
 
 
 
 
 
 
 
 
 
Interest income
$
96,328

 
$
97,906

 
$
96,550

 
$
87,548

 
$
84,667

 
 
$
378,332

 
$
335,984

Interest expense
8,304

 
6,934

 
6,569

 
6,834

 
6,655

 
 
28,641

 
24,386

Net interest income
88,024

 
90,972

 
89,981

 
80,714

 
78,012

 
 
349,691

 
311,598

Provision for loan losses
5,307

 
9,998

 
8,085

 
7,593

 
4,500

 
 
30,983

 
21,152

Net interest income after
provision for loan losses
82,717

 
80,974

 
81,896

 
73,121

 
73,512

 
 
318,708

 
290,446

Noninterest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit
  accounts
10,315

 
10,708


10,169

 
9,473

 
10,303

 
 
40,665

 
39,979

Wealth management fees
8,375

 
8,495


8,642

 
7,559

 
7,493

 
 
33,071

 
29,162

Card-based fees
7,462

 
7,332

 
7,592

 
6,718

 
6,761

 
 
29,104

 
26,984

Merchant servicing fees
3,016

 
3,319

 
3,170

 
3,028

 
2,929

 
 
12,533

 
11,739

Mortgage banking income
3,537

 
3,394


1,863

 
1,368

 
1,777

 
 
10,162

 
5,741

Other service charges,
  commissions, and fees
4,402

 
5,218

 
4,498

 
5,448

 
4,664

 
 
19,566

 
13,654

Total fee-based revenues
37,107

 
38,466

 
35,934

 
33,594

 
33,927

 
 
145,101

 
127,259

Net securities gains
323

 
187

 
23

 
887

 
822

 
 
1,420

 
2,373

Net gain on sale-leaseback
transaction

 
5,509

 

 

 

 
 
5,509

 

Other income
2,281

 
1,691

 
1,865

 
1,445

 
1,729

 
 
7,282

 
6,949

Total noninterest income
39,711

 
45,853

 
37,822

 
35,926

 
36,478

 
 
159,312

 
136,581

Noninterest Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee
benefits:
 
 
 
 
 
 
 
 
 
 
 


 
 
Salaries and wages
39,257

 
37,872

 
37,916

 
36,296

 
34,295

 
 
151,341

 
133,739

Retirement and other
  employee benefits
8,160

 
8,500

 
8,351

 
8,298

 
8,925

 
 
33,309

 
31,852

Total salaries and
  employee benefits
47,417

 
46,372

 
46,267

 
44,594

 
43,220

 
 
184,650

 
165,591

Net occupancy and
  equipment expense
10,774

 
10,755

 
9,928

 
9,697

 
9,256

 
 
41,154

 
38,720

Professional services
7,138

 
6,772

 
5,292

 
5,920

 
6,117

 
 
25,122

 
22,720

Technology and related costs
3,514

 
3,881

 
3,669

 
3,701

 
3,694

 
 
14,765

 
14,581

Merchant card expense
2,603

 
2,857


2,724

 
2,598

 
2,495

 
 
10,782

 
9,886

Advertising and promotions
2,330

 
1,941

 
1,927

 
1,589

 
2,211

 
 
7,787

 
7,606

Cardholder expenses
1,426

 
1,515

 
1,512

 
1,359

 
1,329

 
 
5,812

 
5,243

Net OREO expense
925

 
313

 
1,122

 
664

 
926

 
 
3,024

 
5,281

Other expenses
8,050

 
7,310

 
8,295

 
7,447

 
7,525

 
 
31,102

 
27,618

Acquisition and integration
related expenses
7,542

 
1,172

 
618

 
5,020

 
1,389

 
 
14,352

 
1,389

Lease cancellation fee
950

 

 

 

 

 
 
950

 

Property valuation adjustments

 

 

 

 
8,581

 
 

 
8,581

Total noninterest expense
92,669

 
82,888

 
81,354

 
82,589

 
86,743

 
 
339,500

 
307,216

Income before income
  tax expense
29,759

 
43,939

 
38,364

 
26,458

 
23,247

 
 
138,520

 
119,811

Income tax expense
9,041

 
15,537

 
13,097

 
8,496

 
6,923

 
 
46,171

 
37,747

Net income
$
20,718

 
$
28,402

 
$
25,267

 
$
17,962

 
$
16,324

 
 
$
92,349

 
$
82,064

Net income applicable to
  common shares
$
20,501

 
$
28,078

 
$
24,977

 
$
17,750

 
$
16,145

 
 
$
91,306

 
$
81,182

Net income applicable to
common shares, excluding
certain significant
transactions
(1)
$
25,596

 
$
25,476

 
$
25,348

 
$
20,762

 
$
22,127

 
 
$
97,182

 
$
87,164

Footnotes to Condensed Consolidated Statements of Income
(1) 
Certain significant transactions include acquisition and integration related expenses associated with completed and pending acquisitions, the lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation, the net gain on the sale-leaseback transaction, and property valuation adjustments related to strategic branch initiatives.

13






a3282014fmbilogoa11.jpg
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,
 
2016
 
2016
 
2016
 
2016
 
2015
 
 
2016
 
2015
Earnings Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS (1)
$
0.25

 
$
0.35

 
$
0.31

 
$
0.23

 
$
0.21

 
 
$
1.14

 
$
1.05

Diluted EPS (1)
$
0.25

 
$
0.35

 
$
0.31

 
$
0.23

 
$
0.21

 
 
$
1.14

 
$
1.05

Diluted EPS, excluding
certain significant
transactions
(1)(6)
$
0.32

 
$
0.32

 
$
0.32

 
$
0.27

 
$
0.29

 
 
$
1.22

 
$
1.13

Common Stock and Related Per Common Share Data
 
 
 
 
 
Book value
$
15.46

 
$
15.61

 
$
15.38

 
$
15.06

 
$
14.70

 
 
$
15.46

 
$
14.70

Tangible book value
$
10.95

 
$
11.08

 
$
10.83

 
$
10.51

 
$
10.35

 
 
$
10.95

 
$
10.35

Dividends declared per share
$
0.09

 
$
0.09

 
$
0.09

 
$
0.09

 
$
0.09

 
 
$
0.36

 
$
0.36

Closing price at period end
$
25.23

 
$
19.36

 
$
17.56

 
$
18.02

 
$
18.43

 
 
$
25.23

 
$
18.43

Closing price to book value
1.6

 
1.2

 
1.1

 
1.2

 
1.3

 
 
1.6

 
1.3

Period end shares outstanding
81,325

 
81,324

 
81,312

 
81,298

 
77,952

 
 
81,325

 
77,952

Period end treasury shares
9,959

 
9,957

 
9,965

 
9,976

 
10,276

 
 
9,959

 
10,276

Common dividends
$
7,315

 
$
7,408

 
$
7,240

 
$
7,228

 
$
7,017

 
 
$
29,191

 
$
28,064

Key Ratios/Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average common
equity
(1)(2)
6.42
%
 
8.85
%
 
8.13
%
 
6.06
%
 
5.55
%
 
 
7.38
%
 
7.17
%
Return on average tangible
common equity
(1)(2)
9.35
%
 
12.85
%
 
11.94
%
 
8.87
%
 
8.06
%
 
 
10.77
%
 
10.44
%
Return on average tangible
common equity, excluding
certain significant
transactions
(1)(2)(6)
11.60
%
 
11.69
%
 
12.11
%
 
10.32
%
 
10.94
%
 
 
11.45
%
 
11.19
%
Return on average assets (2)
0.72
%
 
1.00
%
 
0.93
%
 
0.72
%
 
0.66
%
 
 
0.84
%
 
0.85
%
Return on average assets,
excluding certain significant
transactions
(1)(2)(6)
0.90
%
 
0.91
%
 
0.94
%
 
0.84
%
 
0.90
%
 
 
0.90
%
 
0.91
%
Loans to deposits
93.49
%
 
89.74
%
 
88.94
%
 
89.09
%
 
88.44
%
 
 
93.49
%
 
88.44
%
Efficiency ratio (1)
63.98
%
 
60.83
%
 
60.98
%
 
64.82
%
 
64.95
%
 
 
62.59
%
 
63.57
%
Net interest margin (3)
3.44
%
 
3.60
%
 
3.72
%
 
3.66
%
 
3.59
%
 
 
3.60
%