First Midwest Bancorp, Inc. Announces 2017 First Q

ITASCA, Ill., April 25, 2017 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ: FMBI ), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the first quarter of 2017. Net income for the first quarter of 2017 was $22.9 million, or $0.23 per share. This compares to $20.7 million, or $0.25 per share, for the fourth quarter of 2016, and $18.0 million, or $0.23 per share, for the first quarter of 2016.

Reported results were impacted by certain significant transactions, which include: acquisition and integration related expenses associated with completed and pending acquisitions (all periods presented) and the lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation (fourth quarter of 2016).

Excluding these certain significant transactions, earnings per share ⁽¹⁾ was $0.34 for the first quarter of 2017, compared to $0.32 for the fourth quarter of 2016 and $0.27 for the first quarter of 2016.

SELECT FIRST QUARTER HIGHLIGHTS

• Generated earnings per share, excluding certain significant transactions ⁽¹⁾ , of $0.34, up 25% from the first quarter of 2016 and 6% from the fourth quarter of 2016.
• Grew fee-based revenues to $38 million, an increase of 13% from the first quarter of 2016 and 2% from the fourth quarter of 2016.
• Improved efficiency ratio ⁽¹⁾ to 61%, down from 65% for the first quarter of 2016 and 64% for the fourth quarter of 2016.
• Increased net interest income to $115 million, up 43% from the first quarter of 2016 and 31% from the fourth quarter of 2016.
• Reduced charge-offs net of recoveries, to average loans, annualized, to 12 basis points, down 45% from both the first and fourth quarters of 2016.
• Completed the acquisitions of Standard Bancshares, Inc. on January 6, 2017, adding $1.8 billion in loans and $2.0 billion in deposits, and Premier Asset Management LLC on February 28, 2017, adding approximately $550 million in trust assets under management.

"We’ve had a great start to 2017," said Michael L. Scudder, President and Chief Executive Officer of the Company. "The quarter closed with total assets of nearly $14 billion, 20% larger than we ended 2016, principally due to our successful combination with Standard Bank & Trust in early January. Excluding attendant integration and organizational costs, earnings per share for the quarter grew by 25% as compared to a year ago. While dominated by acquired growth, the quarter reflects the benefits of improved margins, lower credit costs, and solid legacy performance across our business lines."

Mr. Scudder continued, "Our accomplishments are a testament to an engaged team of colleagues. Through their efforts, we have greatly enhanced our balance sheet, infrastructure, and, most importantly, our ability to serve the financial needs of our clients. With operational and systems integration activities largely behind us, our underlying business momentum is building. This momentum, combined with our strong capital foundation, positions us well to pursue opportunities to grow and perform for our shareholders."

⁽¹⁾ These metrics are non-GAAP financial measures. For details on the calculation of these metrics, see the sections titled "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.

ACQUISITIONS

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. At the close of the acquisition, the Company acquired 35 banking offices located primarily in the southwest Chicago suburbs and adjacent markets in northwest Indiana, and added approximately $2.0 billion in deposits and $1.8 billion in loans. The merger consideration totaled $580.7 million and consisted of $533.6 million in Company common stock and $47.1 million in cash. All operating systems were converted during the first quarter of 2017.

Premier Asset Management LLC

On February 28, 2017, the Company completed its acquisition of Premier Asset Management LLC ("Premier"), a registered investment advisor based in Chicago, Illinois. At the close of the acquisition, the Company acquired approximately $550.0 million of trust assets under management. With this acquisition, the assets the Company collectively manages on behalf of its clients increased to nearly $10.0 billion, representing annualized revenues of approximately $40.0 million.

OPERATING PERFORMANCE

Net interest income increased by 30.9% from the fourth quarter of 2016 and 42.7% compared to the first quarter of 2016. The rise in net interest income from both prior periods resulted primarily from the acquisition of interest-earning assets and acquired loan accretion from the Standard transaction early in the first quarter of 2017. Higher interest rates combined with increased levels of interest-earning assets from securities purchases and loan growth also contributed to the increase in net interest income compared to the first quarter of 2016.

Acquired loan accretion contributed $11.3 million, $2.7 million, and $2.4 million to net interest income for the first quarter of 2017, the fourth quarter of 2016, and the first quarter of 2016, respectively.

Tax-equivalent net interest margin for the current quarter was 3.89%, increasing 45 basis points from the fourth quarter of 2016 and 23 basis points from the first quarter of 2016. The rise in tax-equivalent net interest margin was impacted by a 28 basis point and 27 basis point increase in acquired loan accretion compared to the fourth and first quarters of 2016, respectively, due primarily to the Standard transaction. In addition, the impact of adding a greater mix of higher-yielding fixed-rate loans acquired from Standard contributed to the increase compared to both prior periods. Compared to the fourth quarter of 2016, tax-equivalent net interest margin also benefited from higher interest rates and a normalized level of senior and subordinated debt costs. Senior and subordinated debt costs were elevated in the fourth quarter of 2016 due to the timing of the issuance of subordinated notes and the subsequent repayment of maturing senior notes during the second half of 2016. Compared to the first quarter of 2016, the increases previously noted from Standard were partly offset by growth in the securities portfolio and the continued shift of loan originations and mix to lower-yielding floating rate loans.

For the first quarter of 2017, total average interest-earning assets rose $1.8 billion from the fourth quarter of 2016 and $3.1 billion from the first quarter of 2016. The increase compared to both prior periods resulted from interest-earning assets acquired in the Standard transaction early in the first quarter of 2017. In addition, the rise in average interest-earning assets compared to the first quarter of 2016 was impacted by organic loan growth, security purchases, and interest-earning assets acquired in the NI Bancshares Corporation ("NI Bancshares") transaction late in the first quarter of 2016.

Average funding sources increased by $1.8 billion from the fourth quarter of 2016 and $2.9 billion from the first quarter of 2016. The increase from both prior periods was impacted by deposits acquired in the Standard transaction early in the first quarter of 2017. Deposits acquired in the NI Bancshares transaction late in the first quarter of 2016 and the addition of FHLB advances during the second half of 2016 also contributed to the rise in average funding sources compared to the first quarter of 2016.

Total fee-based revenues of $37.8 million grew by $740,000, or 2.0%, compared to the fourth quarter of 2016 and by $4.3 million, or 12.7%, compared to the first quarter of 2016. Compared to the fourth quarter of 2016, growth in income resulted primarily from services provided to customers acquired in the Standard transaction, partially offset by a normal seasonal decline in service charges on deposit accounts and a reduction in mortgage banking and capital market products income. The increase in fee-based revenues compared to the first quarter of 2016 resulted primarily from services provided to customers acquired in the Standard transaction and the full-quarter impact of services provided to customers acquired in the NI Bancshares transaction late in the first quarter of 2016.

Mortgage banking income resulted from sales of $54.6 million of 1-4 family mortgage loans in the secondary market during the first quarter of 2017, down seasonally compared to $85.3 million in the fourth quarter of 2016, but up from sales of $38.7 million in the first quarter of 2016. In addition, mortgage banking income for the fourth quarter of 2016 benefited from an increase in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter.

The decline in capital market products income compared to both prior periods was consistent with loan production during the first quarter of 2017.

Total noninterest expense increased by 25.9% and 41.2% compared to the fourth and first quarters of 2016, respectively. Excluding certain significant transactions, total noninterest expense increased by 16.5% from the fourth quarter of 2016 and 26.4% compared to the first quarter of 2016.

Operating costs associated with the Standard transaction contributed more than two-thirds of the increase in total noninterest expense, excluding certain significant transactions, from the fourth quarter of 2016. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, technology and related costs, professional services, cardholder expenses, and other expenses. Net OREO expense increased from the fourth quarter of 2016 due to higher resolutions of OREO properties that resulted in an increase in losses on sales of OREO and expenses.

Compared to the first quarter of 2016, approximately half of the increase in total noninterest expense, excluding certain significant transactions, resulted from operating costs associated with the Standard transaction and the full quarter impact of the NI Bancshares transaction completed late in the first quarter of 2016. Net OREO expense increased from the first quarter of 2016 due to higher valuation adjustments and a rise in expenses related to the resolution of certain properties.

Compared to both prior periods, compensation costs associated with merit increases, investments in additional talent to support growth, and higher loan remediation expenses contributed to the rise in salaries and employee benefits and professional services. The decrease in advertising and promotions expense from both prior periods resulted from the timing of certain advertising costs.

Acquisition and integration related expenses resulted from the acquisition of Standard and Premier during the first quarter of 2017 and NI Bancshares during the first quarter of 2016. These expenses fluctuate based on the size and timing of each transaction.

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.

LOAN PORTFOLIO AND ASSET QUALITY

Total loans of $10.1 billion grew 21.8% and 28.5% from December 31, 2016 and March 31, 2016, respectively. Excluding loans acquired in the Standard transaction of $1.7 billion, total loans grew modestly from December 31, 2016 and 6.6% from March 31, 2016. The addition of shorter-duration, floating rate home equity loans and the expansion of mortgage and installment loans drove the increase compared to December 31, 2016.

Compared to March 31, 2016, the increase in commercial and industrial loans resulted primarily from broad-based increases within our middle market and sector-based lending business units and multi-family loans increased due to organic growth. The rise in construction loans compared to March 31, 2016 was driven primarily by select commercial projects for which permanent financing is expected upon their completion. Growth in consumer loans compared to the first quarter of 2016 resulted from the continued expansion of mortgage and installment loans and the addition of shorter-duration, floating rate home equity loans.

Total non-performing assets represented 0.87% of total loans and OREO at March 31, 2017, down from 1.12% at December 31, 2016 and 0.89% at March 31, 2016. Included in non-performing assets as of March 31, 2017 was $8.4 million of OREO acquired in the Standard transaction. 

Net loan charge-offs to average loans, annualized were 0.12%, down from 0.22% for both quarters ended December 31, 2016 and March 31, 2016. Net loan charge-offs for the first quarter of 2017 include $3.4 million in recoveries, which relate primarily to three corporate loan relationships that were charged-off in prior periods.

DEPOSIT PORTFOLIO

Average core deposits of $9.2 billion for the first quarter of 2017 increased by 18.2% and 30.0% compared to the fourth and first quarters of 2016, respectively. The rise in average core deposits compared to both prior periods resulted from $1.5 billion in average core deposits assumed in the Standard transaction in the first quarter of 2017. This increase more than offset the normal seasonal decline in commercial and municipal deposits compared to the fourth quarter of 2016. In addition, compared to the first quarter of 2016, organic growth and the full-quarter impact of deposits assumed in the NI Bancshares transaction contributed to the increase.

CAPITAL MANAGEMENT

Overall, the Company's regulatory capital ratios decreased compared to both prior periods due primarily to the Standard and Premier acquisitions. The issuance of $150.0 million of subordinated notes during the second half of 2016 more than offset the impact of these acquisitions and drove the increase in total capital to risk-weighted assets compared to March 31, 2016.

The Board of Directors approved a quarterly cash dividend of $0.09 per common share during the first quarter of 2017, which is consistent with the fourth quarter of 2016.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, April 26, 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 ID 10103765 beginning one hour after completion of the live call until 9:00 A.M. (ET) on May 3, 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, 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 titled "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, 2016, 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, tax-equivalent net interest margin, excluding the impact of acquired loan accretion, 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.

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. Certain significant transactions include acquisition and integration related expenses (all periods presented), a net gain related to a sale-leaseback transaction (third quarter of 2016), and the lease cancellation fee (fourth quarter of 2016). 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 addition, management believes that the tax-equivalent net interest margin, excluding the impact of acquired loan accretion, enhances comparability for peer comparison purposes and is useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate significantly based on the size of each acquisition.

In management's view, tangible common equity measures are capital adequacy metrics meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. See the previously provided tables and the following reconciliations in the "Non-GAAP Reconciliations" section for details on the calculation of these measures to the extent presented herein.

About the Company

First Midwest is a relationship-focused financial institution and one of the largest independent publicly-traded bank holding companies based on assets headquartered in the Midwest, with approximately $14 billion in assets and an additional $9.5 billion in trust assets under management. First Midwest's principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, equipment leasing, retail, wealth management, trust and private banking products and services through over 130 locations in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. First Midwest's common stock is traded on the NASDAQ Stock Market under the symbol FMBI. First Midwest's website is www.firstmidwest.com .

Accompanying Unaudited Selected Financial Information

Contact Information Investors: Patrick S. Barrett EVP, Chief Financial Officer (630) 875-7273 pat.barrett@firstmidwest.com Media: James M. Roolf SVP, Corporate Relations Officer (630) 875-7533 jim.roolf@firstmidwest.com