First Midwest Bancorp, Inc. Announces 2021 Third Quarter Results – EPS Up 110% From a Year Ago

| Source: First Midwest Bancorp, Inc. First Midwest Bancorp, Inc.

CHICAGO, Oct. 19, 2021 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest"), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the third quarter of 2021. Net income applicable to common shares for the third quarter of 2021 was $50 million, or $0.44 per diluted common share, compared to $47 million, or $0.41 per diluted common share, for the second quarter of 2021, and $23 million, or $0.21 per diluted common share, for the third quarter of 2020.

Comparative results for the third and second quarters of 2021 and the third quarter of 2020 were, in certain cases, impacted by the timing of costs related to acquisitions, retail and balance sheet optimization strategies, and securities gains. Such results were also impacted by the Company’s response to the COVID-19 pandemic (the "pandemic"), as well as federal, state, and local responses to the pandemic. To facilitate comparisons between periods, adjustments to reported results have been made to reflect these impacts. For additional detail on these adjustments, see the "Non-GAAP Financial Information" section presented later in this release.

SELECT THIRD QUARTER HIGHLIGHTS

  • Improved diluted EPS to $0.44, up 7% and 110% from the second quarter of 2021 and third quarter of 2020, respectively.
    • Generated total revenue of $190 million, consistent with the linked quarter and up 14% over the prior year.
      • Net interest income totaled $145 million at a net margin of 2.91%, down approximately 5 basis points ("bps") from both prior periods, largely due to elevated liquidity.
      • Fee-based revenues increased to $42 million, up 1% and 11% from the second quarter of 2021 and third quarter of 2020, respectively, with record wealth management fees.
    • Controlled noninterest expense, adjusted, to average assets, excluding PPP loans, to 2.10%, down 12 and 9 bps from the second quarter of 2021 and third quarter of 2020, respectively.
  • Grew total loans to $15 billion, up 2% annualized from June 30, 2021 and 7% from September 30, 2020, excluding PPP loans, largely on the strength of 4% annualized commercial lending growth.
  • Increased total average deposits to $17.3 billion, up 2% from the prior quarter and 9% from the prior year quarter.
  • Established the allowance for credit losses ("ACL") at $215 million, or 1.49% of total loans, excluding PPP loans, compared to 1.56% at June 30, 2021 and 1.83% at September 30, 2020.
    • Lowered non-performing assets to total loans plus foreclosed assets to 0.78% compared to 1.01% and 1.11% as of June 30, 2021 and September 30, 2020, respectively.
    • Reduced net loan charge-offs ("NCOs") to $7 million, compared to $16 million and $9 million in the second quarter of 2021 and third quarter of 2020, respectively, excluding purchased credit deteriorated ("PCD") loans.
  • Increased Tier 1 capital to 12.0% of risk-weighted assets, up 28 bps from the linked quarter and 51 bps from a year ago as a result of higher retained earnings and the ongoing suspension of the Company's stock repurchase program.

"We were very pleased with our performance for the quarter," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "Operating performance once again profited from increasing business momentum, sales production and tight control of our operating costs. The quarter was further aided by no provision for loan losses, reflective of both the strengthening economy and improving credit metrics."

Mr. Scudder concluded, "We remain very encouraged and excited about what lies ahead for our Company. Our teams are highly engaged as we see continuing economic recovery and growing opportunities for business expansion. As we look to our future, our ongoing integration efforts relative to our announced business combination with Old National Bank are on pace and in line with our expectations. This combination will see us grow to become one of the Midwest’s largest commercial banks and position us well for continued growth, investment, and innovation in talent, capabilities, and services – all to the benefit of our clients, colleagues, communities and stockholders."

PENDING MERGER

First Midwest and Old National Bancorp

On June 1, 2021, the Company and Old National Bancorp ("Old National"), the holding company for Old National Bank, jointly announced that they entered into a definitive merger agreement to combine in an all-stock merger of equals transaction to create a premier Midwestern bank with approximately $45 billion of combined assets. The merger agreement provides for a fixed exchange ratio whereby holders of First Midwest common stock will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own. The merger agreement has been unanimously approved by the boards of directors, and has also been approved by approximately 99% of the votes cast at the shareholder meetings, of both companies.

As of the date of announcement, the overall transaction was valued at approximately $6.5 billion. On August 19, 2021, the Office of the Comptroller of the Currency approved the application for the merger of First Midwest Bank and Old National Bank. Completion of the merger remains subject to regulatory approval by the Board of Governors of the Federal Reserve System and certain other customary closing conditions set forth in the merger agreement.

(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
 September 30, 2021  June 30, 2021  September 30, 2020
 Average Balance Interest Yield/
Rate
(%)		  Average
Balance		 Interest Yield/
Rate
(%)		  Average
Balance		 Interest Yield/
Rate
(%)
Assets                   
Other interest-earning assets$1,672,005  $1,222  0.29   $1,185,187  $745  0.25   $1,234,948  $799  0.26 
Securities(1)3,265,812  16,189  1.98   3,226,974  16,752  2.08   3,291,724  19,721  2.40 
Federal Home Loan Bank ("FHLB") and        
Federal Reserve Bank ("FRB") stock		106,759  852  3.19   106,330  934  3.51   150,033  976  2.60 
Loans, excluding PPP loans(1)14,364,785  127,631  3.53   14,095,989  125,264  3.56   13,558,857  131,680  3.86 
PPP loans(1)549,380  9,772  7.06   1,035,386  11,258  4.36   1,194,808  7,001  2.33 
Total loans(1)14,914,165  137,403  3.66   15,131,375  136,522  3.62   14,753,665  138,681  3.74 
Total interest-earning assets(1)19,958,741  155,666  3.10   19,649,866  154,953  3.16   19,430,370  160,177  3.28 
Cash and due from banks277,720       268,450       284,730     
Allowance for loan losses(215,395)      (235,770)      (243,667)    
Other assets1,878,494       1,850,663       2,055,262     
Total assets$21,899,560       $21,533,209       $21,526,695     
Liabilities and Stockholders' Equity                   
Savings deposits$2,785,816  124  0.02   $2,740,893  121  0.02   $2,342,355  104  0.02 
NOW accounts3,213,637  275  0.03   3,048,990  261  0.03   2,744,034  307  0.04 
Money market deposits3,211,355  549  0.07   3,055,420  559  0.07   2,781,666  724  0.10 
Time deposits1,800,493  1,915  0.42   1,876,216  2,190  0.47   2,302,019  5,702  0.99 
Borrowed funds1,281,968  3,146  0.97   1,288,107  3,112  0.97   2,436,922  6,021  0.98 
Senior and subordinated debt235,284  3,467  5.85   235,080  3,469  5.92   234,464  3,498  5.94 
Total interest-bearing liabilities12,528,553  9,476  0.30   12,244,706  9,712  0.32   12,841,460  16,356  0.51 
Demand deposits6,272,903       6,254,791       5,631,355     
Total funding sources18,801,456    0.20   18,499,497    0.21   18,472,815    0.35 
Other liabilities364,576       347,178       378,786     
Stockholders' equity2,733,528       2,686,534       2,675,094     
Total liabilities and        
stockholders' equity		$21,899,560       $21,533,209       $21,526,695     
Tax-equivalent net interest         
income/margin(1)		  146,190  2.91     145,241  2.96     143,821  2.95 
Tax-equivalent adjustment  (994)      (953)      (1,092)  
Net interest income (GAAP)(1)  $145,196       $144,288       $142,729   
Impact of acquired loan accretion(1)  $6,231  0.12     $5,975  0.12     $7,960  0.16 
Tax-equivalent net interest income/        
margin, adjusted(1)		  $139,959  2.79     $139,266  2.84     $135,861  2.79 

(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 third quarter of 2021 was up 0.6% from the second quarter of 2021 and 1.7% from the third quarter of 2020. The increase in net interest income compared to the second quarter of 2021 resulted primarily from growth in loans, excluding PPP loans, an increase in the number of days, partially offset by lower fees on PPP loans. Compared to the third quarter of 2020, net interest income was impacted by loan growth, lower cost of funds, and an increase in interest income and fees on PPP loans, partially offset by lower interest rates and acquired loan accretion.

Acquired loan accretion contributed $6.2 million, $6.0 million, and $8.0 million to net interest income for the third quarter of 2021, second quarter of 2021, and third quarter of 2020, respectively.

Tax-equivalent net interest margin for the current quarter was 2.91%, decreasing 5 and 4 basis points from the second quarter of 2021 and third quarter of 2020, respectively. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.79%, down 5 basis points from the second quarter of 2021 and consistent with the third quarter of 2020. Compared to the second quarter of 2021, tax-equivalent net interest margin decreased due primarily to a higher balance of other interest-earning assets from seasonal municipal deposits and higher demand deposits as a result of PPP loan funds and other government stimuli. Tax-equivalent net interest margin compared to the third quarter of 2020 was impacted positively by PPP loan income and lower cost of funds, offset by lower interest rates on loans and securities, 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.

For the third quarter of 2021, total average interest-earning assets rose by $308.9 million and $528.4 million from the second quarter of 2021 and third quarter of 2020, respectively. The increase compared to both prior periods resulted primarily from a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, as well as loan growth. In addition, the rise in other interest-earning assets was impacted by the normal seasonal increase in municipal deposits compared to the second quarter of 2021.

Total average funding sources for the third quarter of 2021 increased by $302.0 million from the second quarter of 2021 and $328.6 million from the third quarter of 2020. The increase compared to the second quarter of 2021 was impacted by seasonal municipal deposits whereas compared to the third quarter of 2020 the increase was driven primarily by deposit growth due to higher customer balances resulting from PPP funds and other government stimuli. In addition, average funding sources compared to the third quarter of 2020 were impacted by a decrease in FHLB advances.

Noninterest Income Analysis
(Dollar amounts in thousands)

  Quarters Ended September 30, 2021
Percent Change From
  September 30,
2021		 June 30, 
 2021		 September 30,
2020		 June 30, 
 2021		 September 30,
2020
Wealth management fees $14,820  $14,555  $12,837  1.8  15.4 
Service charges on deposit accounts 11,496  10,778  10,342  6.7  11.2 
Mortgage banking income 6,664  6,749  6,659  (1.3) 0.1 
Card-based fees, net 4,992  4,764  4,472  4.8  11.6 
Capital market products income 1,333  1,954  886  (31.8) 50.5 
Other service charges, commissions, and fees 2,832  2,823  2,823  0.3  0.3 
Total fee-based revenues 42,137  41,623  38,019  1.2  10.8 
Other income 3,043  4,647  2,523  (34.5) 20.6 
Swap termination costs —  —  (14,285) N/M N/M
Net securities gains —  —  14,328  N/M N/M
Total noninterest income $45,180   $46,270   $40,585   (2.4) 11.3  

N/M – Not meaningful.

Total noninterest income of $45.2 million was down 2.4% from the second quarter of 2021 and up 11.3% from the third quarter of 2020. Record wealth management fees resulted from continued sales of fiduciary and investment advisory services to new and existing customers compared to both prior periods. The increase in service charges on deposit accounts and net card-based fees compared to the second quarter of 2021 was due primarily to seasonality, whereas the increase from the third quarter of 2020 resulted from the impact of higher transaction volumes due to economic recovery since the onset of the pandemic. Capital market products income resulted from levels of sales to corporate clients in light of market conditions that were lower than the second quarter of 2021 and higher than the third quarter of 2020.

Mortgage banking income for the third quarter of 2021 resulted from sales of $199.9 million of 1-4 family mortgage loans in the secondary market compared to $207.8 million in the second quarter of 2021 and $251.8 million in the third quarter of 2020. Compared to the third quarter of 2020, mortgage banking income was impacted by an increase in market pricing on sales of 1-4 family mortgage loans.

Other income increased compared to the third quarter of 2020 due to net gains from the disposition of branch properties and other miscellaneous items. Other income for the second quarter of 2021 was elevated as a result of positive fair value adjustments on equity securities.

During the third quarter of 2020, the Company terminated longer term interest rate swaps with notional amounts of $1.1 billion due to excess liquidity and in response to market conditions. At the same time, the Company liquidated $160 million of securities. As a result of these transactions, $14.3 million of pre-tax securities gains was fully offset by $14.3 million of pre-tax loss on swap terminations.

Noninterest Expense Analysis
(Dollar amounts in thousands)

  Quarters Ended September 30, 2021
Percent Change From
  September 30,
2021		 June 30, 
 2021		 September 30,
2020		 June 30, 
 2021		 September 30,
2020
Salaries and employee benefits:          
Salaries and wages $51,503  $51,887  $53,385  (0.7) (3.5)
Retirement and other employee benefits 10,924  12,324  11,349  (11.4) (3.7)
Total salaries and employee benefits 62,427  64,211  64,734  (2.8) (3.6)
Net occupancy and equipment expense 14,198  13,654  13,736  4.0  3.4 
Technology and related costs 10,742  10,453  10,416  2.8  3.1 
Professional services 6,991  7,568  7,325  (7.6) (4.6)
Advertising and promotions 3,168  2,899  2,688  9.3  17.9 
Net other real estate owned ("OREO") expense (4) 160  544  (102.5) (100.7)
Other expenses 15,616  14,670  12,374  6.4  26.2 
Acquisition and integration related expenses 2,916  7,773  881  (62.5) 231.0 
Optimization costs —  31  18,376  N/M N/M
Total noninterest expense $116,054   $121,419   $131,074   (4.4) (11.5)
Acquisition and integration related expenses (2,916) (7,773) (881) (62.5) 231.0 
Optimization costs —  (31) (18,376) N/M N/M
Total noninterest expense, adjusted(1) $113,138  $113,615  $111,817  (0.4) 1.2 

N/M – Not meaningful.

(1) See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Total noninterest expense was down 4.4% and 11.5% from the second quarter of 2021 and third quarter of 2020, respectively. Noninterest expense for all periods presented was impacted by acquisition and integration related expenses. In addition, the second quarter of 2021 and third quarter of 2020 were impacted by optimization costs. Excluding these items, noninterest expense for the third quarter of 2021 was $113.1 million, consistent with the second quarter of 2021 and up 1.2% from the third quarter of 2020. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans, was 2.10% for the second quarter of 2021, down 12 and 9 basis points from the second quarter of 2021 and third quarter of 2020, respectively.

Salaries and employee benefits decreased compared to the second quarter of 2021 driven primarily by lower pension plan lump-sum payments to retired employees and lower commissions resulting from sales of 1-4 family mortgage loans in the secondary market. Compared to the third quarter of 2020, salaries and employee benefits decreased due mainly to ongoing benefits of optimization strategies, partially offset by higher compensation accruals and merit increases. Other expenses increased compared to both prior periods due to higher servicing fees from purchases of consumer loans and other miscellaneous expenses.

Optimization costs primarily include valuation adjustments related to locations identified for closure, modernization of our ATM network, advisory fees, employee severance, and other expenses associated with locations identified for closure.

Acquisition and integration related expenses for the third and second quarters of 2021 resulted primarily from the pending merger with Old National and for the third quarter of 2020 resulted from the acquisition of Park Bank.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)

  As of September 30, 2021
Percent Change From
  September 30, 
 2021		 June 30, 
 2021		 September 30, 
 2020		 June 30, 
 2021		 September 30, 
 2020
Commercial and industrial $4,705,458  $4,608,148  $4,635,571  2.1  1.5 
Agricultural 349,159  342,834  377,466  1.8  (7.5)
Commercial real estate:          
Office, retail, and industrial 1,765,592  1,807,428  1,950,406  (2.3) (9.5)
Multi-family 1,082,941  1,012,722  868,293  6.9  24.7 
Construction 595,204  577,338  631,607  3.1  (5.8)
Other commercial real estate 1,408,955  1,461,370  1,452,994  (3.6) (3.0)
Total commercial real estate 4,852,692  4,858,858  4,903,300  (0.1) (1.0)
Total corporate loans, excluding PPP        
loans		 9,907,309  9,809,840  9,916,337  1.0  (0.1)
PPP loans 384,100  705,915  1,196,538  (45.6) (67.9)
Total corporate loans 10,291,409  10,515,755  11,112,875  (2.1) (7.4)
Home equity 591,126  629,367  827,746  (6.1) (28.6)
1-4 family mortgages 3,332,732  3,287,773  2,287,555  1.4  45.7 
Installment 573,465  602,324  425,012  (4.8) 34.9 
Total consumer loans 4,497,323  4,519,464  3,540,313  (0.5) 27.0 
Total loans $14,788,732  $15,035,219  $14,653,188  (1.6) 0.9 
           

Total loans includes loans originated under the PPP loan programs, which totaled $384.1 million, $705.9 million, and $1.2 billion as of September 30, 2021, June 30, 2021, and September 30, 2020, respectively. Excluding these loans, total loans were up 2% annualized from June 30, 2021 and 7% from September 30, 2020. Strong production and line usage within our sector-based lending businesses drove the 3.9% annualized total corporate loan growth, excluding PPP loans, compared to the second quarter of 2021. Compared to the third quarter of 2020, strong production and line usage in corporate loans, excluding PPP loans, was offset by higher paydowns.

Consumer loans compared to both prior periods were impacted by purchases of 1-4 family mortgages, as well as strong production in the 1-4 family mortgages portfolio, which offset higher prepayments. In addition, consumer loans compared to the third quarter of 2020 were impacted by purchases of installment loans.

Allowance for Credit Losses
(Dollar amounts in thousands)

  As of or for the Quarters Ended September 30, 2021
Percent Change From
  September 30,
2021		 June 30, 
 2021		 September 30,
2020		 June 30, 
 2021		 September 30,
2020
ACL, excluding PCD loans $195,903  $200,640  $209,988  (2.4) (6.7)
PCD loan ACL 18,963  22,586  36,885  (16.0) (48.6)
Total ACL $214,866  $223,226  $246,873  (3.7) (13.0)
Provision for credit losses $—  $—  $15,927  N/M N/M
ACL to total loans 1.45% 1.48% 1.68%    
ACL to total loans, excluding PPP loans(1) 1.49% 1.56% 1.83%    
ACL to non-accrual loans 243.94% 179.32% 171.95%    

N/M – Not meaningful.

(1) This ratio excludes PPP loans that are fully guaranteed by the Small Business Administration ("SBA"). 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 ACL was $214.9 million or 1.45% of total loans as of September 30, 2021, decreasing $8.4 million from June 30, 2021 and $32.0 million compared to September 30, 2020. Excluding the impact of PPP loans, ACL to total loans was 1.49% as of September 30, 2021, compared to 1.56% and 1.83% as of June 30, 2021 and September 30, 2020, respectively. The decrease from both prior periods reflects net charge-offs on PCD loans that previously had an ACL established upon acquisition, net charge-offs on loans that previously had specific allowances for loan losses established, and an improving credit environment.

Asset Quality
(Dollar amounts in thousands)

  As of September 30, 2021
Percent Change From
  September 30,
2021		 June 30, 
 2021		 September 30,
2020		 June 30, 
 2021		 September 30,
2020
Non-accrual loans, excluding PCD loans(1) $64,166  $101,381  $103,582  (36.7) (38.1)
Non-accrual PCD loans 23,917  23,101  39,990  3.5  (40.2)
Total non-accrual loans 88,083  124,482  143,572  (29.2) (38.6)
90 days or more past due loans, still accruing        
interest(1)		 1,293  878  3,781  47.3  (65.8)
Total non-performing loans, ("NPLs") 89,376  125,360  147,353  (28.7) (39.3)
Accruing troubled debt restructurings        
("TDRs")		 539  782  841  (31.1) (35.9)
Foreclosed assets(2) 26,375  26,732  15,299  (1.3) 72.4 
Total non-performing assets ("NPAs") $116,290  $152,874  $163,493  (23.9) (28.9)
30-89 days past due loans $30,718  $21,051  $21,551  45.9  42.5 
Special mention loans(3) $330,218  $343,547  $395,295  (3.9) (16.5)
Substandard loans(3) 351,192  325,727  311,430  7.8  12.8 
Total performing loans classified as        
substandard and special mention(3)		 $681,410  $669,274  $706,725  1.8  (3.6)
Non-accrual loans to total loans:          
Non-accrual loans to total loans 0.60% 0.83% 0.98%    
Non-accrual loans to total loans, excluding        
PPP loans(1)(4)		 0.61% 0.87% 1.07%    
Non-accrual loans to total loans, excluding        
PCD and PPP loans(1)(4)		 0.45% 0.72% 0.78%    
Non-performing loans to total loans:          
NPLs to total loans 0.60% 0.83% 1.01%    
NPLs to total loans, excluding PPP loans(1)(4) 0.62% 0.87% 1.10%    
NPLs to total loans, excluding PCD and PPP         
loans(1)(4)		 0.46% 0.72% 0.81%    
Non-performing assets to total loans plus foreclosed assets:        
NPAs to total loans plus foreclosed assets 0.78% 1.01% 1.11%    
NPAs to total loans plus foreclosed assets,         
excluding PPP loans(1)(4)		 0.81% 1.06% 1.21%    
NPAs to total loans plus foreclosed assets,         
excluding PCD and PPP loans(1)(4)		 0.65% 0.92% 0.93%    
Performing loans classified as substandard and special mention to corporate loans:   
Performing loans classified as substandard and        
special mention to corporate loans(3)		 6.62% 6.36% 6.36%    
Performing loans classified as substandard and        
special mention to corporate loans, excluding        
PPP loans(3)		 6.88% 6.82% 7.13%    

(1) See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

(2) 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.

(3) Performing loans classified as substandard and special mention excludes accruing TDRs.

(4) This ratio excludes PPP loans that are fully guaranteed by the SBA. As a result, no allowance for credit losses is associated with these loans.

NPAs represented 0.78% of total loans and foreclosed assets at September 30, 2021 compared to 1.01% and 1.11% at June 30, 2021 and September 30, 2020, respectively. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.65% at September 30, 2021, compared to 0.92% at June 30, 2021 and 0.93% at September 30, 2020, reflective of the final resolution of certain corporate credits and normal fluctuations that occur on a quarterly basis. In addition, one corporate loan relationship was transferred from non-accrual loans to foreclosed assets during the first nine months of 2021.

Performing loans classified as substandard and special mention were $681 million for the third quarter of 2021 compared to $669 million and $707 million at June 30, 2021 and September 30, 2020, respectively. The increase from the second quarter of 2021 resulted from normal fluctuations that occur on a quarterly basis. The decrease from the third quarter of 2020 was due primarily to the payoff of certain corporate credits in addition to upgrade and downgrade activity.

Charge-Off Data
(Dollar amounts in thousands)

  Quarters Ended
  September 30,
2021		 % of
Total		 June 30, 
 2021		 % of
Total		 September 30,
2020		 % of
Total
Net loan charge-offs(1)            
Commercial and industrial $5,002  59.8  $14,733  71.0  $5,470  34.7 
Agricultural (37) (0.4) —  —  265  1.7 
Commercial real estate:            
Office, retail, and industrial 556  6.7  3,878  18.7  1,339  8.5 
Multi-family 1  —  2  —  —  — 
Construction 986  11.8  208  1.0  4,889  31.1 
Other commercial real estate 829  9.9  459  2.2  1,753  11.1 
Consumer 1,023  12.2  1,478  7.1  2,027  12.9 
Total NCOs $8,360   100.0   $20,758   100.0   $15,743   100.0  
Less: NCOs on PCD loans(2) (1,757) 21.0  (4,337) 20.9  (6,923) 44.0 
Total NCOs, excluding PCD loans(2) $6,603    $16,421    $8,820   
Recoveries included above $3,397    $2,869    $1,795   
Quarter-to-date(1)(3):            
Net loan charge-offs to average loans 0.22%   0.55%   0.42%  
Net loan charge-offs to average loans,        
excluding PPP loans(2)(4)		 0.23%   0.59%   0.46%  
Net loan charge-offs to average loans,        
excluding PCD and PPP loans(2)(4)		 0.18%   0.47%   0.26%  
Year-to-date(1)(3):            
Net loan charge-offs to average loans 0.35%   0.41%   0.38%  
Net loan charge-offs to average loans,        
excluding PPP loans(2)(4)		 0.37%   0.44%   0.40%  
Net loan charge-offs to average loans,        
excluding PCD and PPP loans(2)(4)		 0.29%   0.35%   0.29%  

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

(2) See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

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

(4) This ratio excludes PPP loans that are fully guaranteed by the SBA. As a result, no allowance for credit losses is associated with these loans.

NCOs to average loans, annualized was 0.22%, down from 0.55% and 0.42% for the second quarter of 2021 and third quarter of 2020, respectively. Excluding charge-offs on PCD loans and the impact of PPP loans, NCOs to average loans was 0.18% for the third quarter of 2021, compared to 0.47% and 0.26% for the second quarter of 2021 and third quarter of 2020, respectively. Net loan charge-offs for the second quarter of 2021 were elevated, largely as a result of expected losses for which specific allowances for loan losses were established on certain corporate relationships based upon circumstances unique to those borrowers.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

  Average for the Quarters Ended September 30, 2021
Percent Change From
  September 30,
2021		 June 30, 
 2021		 September 30,
2020		 June 30, 
 2021		 September 30,
2020
Demand deposits $6,272,903  $6,254,791  $5,631,355  0.3  11.4 
Savings deposits 2,785,816  2,740,893  2,342,355  1.6  18.9 
NOW accounts 3,213,637  3,048,990  2,744,034  5.4  17.1 
Money market accounts 3,211,355  3,055,420  2,781,666  5.1  15.4 
Core deposits 15,483,711  15,100,094  13,499,410  2.5  14.7 
Time deposits 1,800,493  1,876,216  2,302,019  (4.0) (21.8)
Total deposits $17,284,204  $16,976,310  $15,801,429  1.8  9.4 

Total average deposits were $17.3 billion for the third quarter of 2021, up 1.8% from the second quarter of 2021 and 9.4% from the third quarter of 2020. The increase in total average deposits compared to the second quarter of 2021 was impacted by the normal seasonal increase in municipal deposits. Compared to the third quarter of 2020, the increase in total average deposits was due to higher customer balances resulting from PPP funds and other government stimuli.

CAPITAL MANAGEMENT

Capital Ratios

  As of
  September 30,
2021		 June 30, 
 2021		 December 31,
2020		 September 30,
2020
Company regulatory capital ratios:        
Total capital to risk-weighted assets 14.26% 14.19% 14.14% 14.06%
Tier 1 capital to risk-weighted assets 11.99% 11.71% 11.55% 11.48%
Common equity Tier 1 ("CET1") to risk-weighted assets 10.51% 10.23% 10.06% 9.97%
Tier 1 capital to average assets 8.89% 8.85% 8.91% 8.50%
Company tangible common equity ratios(1)(2):      
Tangible common equity to tangible assets 7.53% 7.48% 7.67% 7.43%
Tangible common equity to tangible assets, excluding PPP loans 7.67% 7.74% 7.98% 7.90%
Tangible common equity, excluding accumulated other comprehensive        
income ("AOCI"), to tangible assets		 7.65% 7.50% 7.54% 7.30%
Tangible common equity, excluding AOCI, to tangible assets,        
excluding PPP loans		 7.79% 7.77% 7.85% 7.77%
Tangible common equity to risk-weighted assets 10.08% 9.92% 9.93% 9.84%

(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.

Risk-weighted regulatory capital ratios compared to all prior periods were impacted by retained earnings and the mix of risk-weighted assets. Total capital to risk-weighted assets was impacted by the beginning of the five-year phase-out of Tier 2 treatment of the Company's subordinated debt. The Company elected the five-year current expected credit losses ("CECL") transition relief for regulatory capital, which retained approximately 30 basis points of CET1 and Tier 1 capital at September 30, 2021.

The Board of Directors approved a quarterly cash dividend of $0.14 per common share during the third quarter of 2021, which is consistent with the second quarter of 2021 and third quarter of 2020. This dividend represents the 155th consecutive cash dividend paid by the Company since its inception in 1983.

Press Release, Presentation Materials, and Additional Information Available on Website

This press release, the presentation materials, 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 communication may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of First Midwest. 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," "forecast," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. 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, the performance of First Midwest's loan or securities portfolio, the expected amount of future credit allowances or charge-offs, delays in completing the pending merger of First Midwest and Old National, the failure to obtain necessary regulatory approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, estimated synergies, cost savings and financial benefits of completed transactions, growth strategies, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger and the continued or potential effects of the COVID-19 pandemic and related variants and mutations on First Midwest's 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 COVID-19 pandemic and related variants and mutations, including the continued effects on First Midwest's business, operations and employees, as well as on First Midwest's 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, 2020, and in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these reports describe additional factors that could adversely impact First Midwest's business and financial performance.

Non-GAAP Financial Information

The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. These non-GAAP financial measures include EPS, adjusted, the efficiency ratio, return on average assets, adjusted, tax-equivalent net interest income (including its individual components), tax-equivalent net interest margin, tax-equivalent net interest margin, adjusted, noninterest expense, adjusted, tangible common equity to tangible assets, tangible common equity, excluding AOCI, to tangible assets, tangible common equity to risk-weighted assets, return on average common equity, adjusted, return on average tangible common equity, return on average tangible common equity, adjusted, non-accrual loans, excluding PCD loans, non-accrual loans to total loans, excluding PPP loans, non-accrual loans to total loans, excluding PCD and PPP loans, NPLs to total loans, excluding PPP loans, NPLs to total loans, excluding PCD and PPP loans, NPAs to total loans plus foreclosed assets, excluding PPP loans, NPAs to total loans plus foreclosed assets, excluding PCD and PPP loans, performing loans classified as substandard and special mention to corporate loans, excluding PPP loans, NCOs, excluding PCD loans, NCOs to average loans, excluding PPP loans, NCOs to average loans, excluding PCD and PPP loans, and pre-tax, pre-provision earnings, adjusted.

The Company presents EPS, the efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity, all adjusted for certain significant transactions. These transactions include acquisition and integration related expenses associated with completed and pending acquisitions (all periods), optimization costs (second and first quarters of 2021 and fourth and third quarters of 2020), swap termination costs (fourth and third quarters of 2020), income tax benefits (fourth quarter of 2020), and net securities gains (third quarter of 2020). In addition, net OREO expense is excluded from the calculation of the efficiency ratio. Management believes excluding these transactions from EPS, the efficiency ratio, return on average assets, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these transactions do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding acquisition and integration related expenses from these metrics may be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these transactions from these metrics may enhance comparability for peer comparison purposes.

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

The Company presents noninterest expense, adjusted, which excludes optimization costs and acquisition and integration related expenses. Management believes that excluding these items from noninterest expense may be useful in assessing the Company’s underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate better comparability between periods and for peer comparison purposes.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes. In addition, management believes that presenting tax-equivalent net interest margin, adjusted, may enhance comparability for peer comparison purposes and is useful to the Company, as well as analysts and investors, since acquired loan accretion income may fluctuate based on the size of each acquisition, as well as from period to period.

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

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

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and the following reconciliations in the "Non-GAAP Reconciliations" section for details on the calculation of these measures to the extent presented herein.

About 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 $22 billion of assets and an additional $15 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. The primary footprint of First Midwest's branch network and other locations is in metropolitan Chicago, southeast Wisconsin, northwest Indiana, central and western Illinois, and eastern Iowa. Visit First Midwest at www.firstmidwest.com.

CONTACTS:

Investors
Patrick S. Barrett
EVP, Chief Financial Officer
(708) 831-7231
pat.barrett@firstmidwest.com		Media

Maurissa Kanter
SVP, Director of Corporate Communications
(708) 831-7345
maurissa.kanter@firstmidwest.com


Accompanying Unaudited Selected Financial Information

Consolidated Statements of Financial Condition (Unaudited)
(Dollar amounts in thousands)
  
 As of
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Period-End Balance Sheet         
Assets         
Cash and due from banks$270,020  $232,989  $223,713  $196,364  $254,212 
Interest-bearing deposits in other banks1,654,917  1,312,412  786,814  920,880  936,528 
Equity securities, at fair value114,848  112,977  96,983  76,404  55,021 
Securities available-for-sale, at fair value3,212,908  3,156,194  3,195,405  3,096,408  3,279,884 
Securities held-to-maturity, at amortized cost10,853  11,593  11,711  12,071  22,193 
FHLB and FRB stock106,090  106,890  106,170  117,420  138,120 
Loans:         
Commercial and industrial4,705,458  4,608,148  4,546,317  4,578,254  4,635,571 
Agricultural349,159  342,834  355,883  364,038  377,466 
Commercial real estate:         
Office, retail, and industrial1,765,592  1,807,428  1,827,116  1,861,768  1,950,406 
Multi-family1,082,941  1,012,722  906,124  872,813  868,293 
Construction595,204  577,338  614,021  612,611  631,607 
Other commercial real estate1,408,955  1,461,370  1,463,582  1,481,976  1,452,994 
PPP loans384,100  705,915  1,109,442  785,563  1,196,538 
Home equity591,126  629,367  690,030  761,725  827,746 
1-4 family mortgages3,332,732  3,287,773  3,187,066  3,022,413  2,287,555 
Installment573,465  602,324  483,945  410,071  425,012 
Total loans14,788,732  15,035,219  15,183,526  14,751,232  14,653,188 
Allowance for loan losses(206,241) (214,601) (235,359) (239,017) (239,048)
Net loans14,582,491  14,820,618  14,948,167  14,512,215  14,414,140 
OREO5,106  5,289  6,273  8,253  6,552 
Premises, furniture, and equipment, net123,413  125,837  129,514  132,045  132,267 
Investment in bank-owned life insurance ("BOLI")300,387  300,537  301,365  301,101  300,429 
Goodwill and other intangible assets923,383  926,176  928,974  932,764  935,801 
Accrued interest receivable and other assets473,764  513,912  473,502  532,753  612,996 
Total assets$21,778,180  $21,625,424  $21,208,591  $20,838,678  $21,088,143 
Liabilities and Stockholders' Equity         
Noninterest-bearing deposits$6,097,698  $6,187,478  $6,156,145  $5,797,899  $5,555,735 
Interest-bearing deposits11,100,704  10,845,405  10,455,309  10,214,565  10,215,838 
Total deposits17,198,402  17,032,883  16,611,454  16,012,464  15,771,573 
Borrowed funds1,274,572  1,299,424  1,295,737  1,546,414  1,957,180 
Senior and subordinated debt235,383  235,178  234,973  234,768  234,563 
Accrued interest payable and other liabilities346,600  353,791  413,112  355,026  460,656 
Stockholders' equity2,723,223  2,704,148  2,653,315  2,690,006  2,664,171 
Total liabilities and stockholders' equity$21,778,180  $21,625,424  $21,208,591  $20,838,678  $21,088,143 
Stockholders' equity, excluding AOCI$2,748,604  $2,710,089  $2,675,411  $2,663,627  $2,638,422 
Stockholders' equity, common2,492,723  2,473,648  2,422,815  2,459,506  2,433,671 


Condensed Consolidated Statements of Income (Unaudited)
(Dollar amounts in thousands)		     
               
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
Income Statement              
Interest income$154,672  $154,000  $151,150  $159,962  $159,085   $459,822  $491,356 
Interest expense9,476  9,712  10,035  11,851  16,356   29,223  59,818 
Net interest income145,196  144,288  141,115  148,111  142,729   430,599  431,538 
Provision for loan losses—  —  6,098  10,507  15,927   6,098  88,108 
Net interest income after        
provision for loan losses		145,196  144,288  135,017  137,604  126,802   424,501  343,430 
Noninterest Income              
Wealth management fees14,820  14,555  14,149  13,548  12,837   43,524  37,140 
Service charges on deposit        
accounts		11,496  10,778  9,980  10,811  10,342   32,254  31,248 
Mortgage banking income6,664  6,749  10,187  9,191  6,659   23,600  11,924 
Card-based fees, net4,992  4,764  4,556  4,530  4,472   14,312  11,620 
Capital market products        
income		1,333  1,954  2,089  659  886   5,376  6,302 
Other service charges,        
commissions, and fees		2,832  2,823  2,761  2,993  2,823   8,416  7,583 
Total fee-based revenues42,137  41,623  43,722  41,732  38,019   127,482  105,817 
Other income3,043  4,647  2,081  3,550  2,523   9,771  8,083 
Swap termination costs—  —  —  (17,567) (14,285)  —  (14,285)
Net securities gains (losses)—  —  —  —  14,328   —  13,323 
Total noninterest        
income		45,180  46,270  45,803  27,715  40,585   137,253  112,938 
Noninterest Expense              
Salaries and employee benefits:             
Salaries and wages51,503  51,887  53,693  55,950  53,385   157,083  155,967 
Retirement and other        
employee benefits		10,924  12,324  12,708  10,430  11,349   35,956  35,298 
Total salaries and        
employee benefits		62,427  64,211  66,401  66,380  64,734   193,039  191,265 
Net occupancy and        
equipment expense		14,198  13,654  14,752  14,002  13,736   42,604  43,079 
Technology and related costs10,742  10,453  10,284  11,005  10,416   31,479  28,817 
Professional services6,991  7,568  8,059  8,424  7,325   22,618  26,595 
Advertising and promotions3,168  2,899  1,835  1,850  2,688   7,902  8,259 
Net OREO expense(4) 160  589  106  544   745  1,090 
Other expenses15,616  14,670  14,735  12,851  12,374   45,021  39,652 
Acquisition and integration        
related expenses		2,916  7,773  245  1,860  881   10,934  11,602 
Optimization costs—  31  1,525  1,493  18,376   1,556  18,376 
Total noninterest expense116,054  121,419  118,425  117,971  131,074   355,898  368,735 
Income before income tax        
expense		74,322  69,139  62,395  47,348  36,313   205,856  87,633 
Income tax expense19,459  18,018  17,372  5,743  8,690   54,849  21,340 
Net income$54,863  $51,121  $45,023  $41,605  $27,623   $151,007  $66,293 
Preferred dividends(4,033) (4,034) (4,034) (4,049) (4,033)  (12,101) (5,070)
Net income applicable to        
non-vested restricted shares		(517) (521) (486) (369) (236)  (1,524) (615)
Net income applicable        
to common shares		$50,313  $46,566  $40,503  $37,187  $23,354   $137,382  $60,608 
Net income applicable to        
common shares, adjusted(1)		52,500  52,419  41,831  49,238  37,765   146,749  83,814 

Footnotes to Condensed Consolidated Statements of Income
(1)   See the "Non-GAAP Reconciliations" section for the detailed calculation.

      
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
               
 As of or for the
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
EPS              
Basic EPS$0.45  $0.41  $0.36  $0.33  $0.21   $1.22  $0.54 
Diluted EPS$0.44  $0.41  $0.36  $0.33  $0.21   $1.21  $0.54 
Diluted EPS, adjusted(1)$0.46  $0.46  $0.37  $0.43  $0.33   $1.29  $0.75 
Common Stock and Related Per Common Share Data     
Book value$21.83  $21.67  $21.22  $21.52  $21.29   $21.83  $21.29 
Tangible book value$13.75  $13.55  $13.08  $13.36  $13.11   $13.75  $13.11 
Dividends declared per share$0.14  $0.14  $0.14  $0.14  $0.14   $0.42  $0.42 
Closing price at period end$19.01  $19.83  $21.91  $15.92  $10.78   $19.01  $10.78 
Closing price to book value0.9  0.9  1.0  0.7  0.5   0.9  0.5 
Period end shares outstanding114,167  114,177  114,196  114,296  114,293   114,167  114,293 
Period end treasury shares11,213  11,199  11,176  11,071  11,067   11,213  11,067 
Common dividends$15,974  $15,979  $15,997  $16,017  $16,011   $47,950  $48,028 
Dividend payout ratio31.11% 34.15% 38.89% 42.42% 66.67%  34.43% 77.78%
Dividend payout ratio, adjusted(1)30.43% 30.43% 37.84% 32.56% 42.42%  32.56% 56.00%
Key Ratios/Data              
Return on average common        
equity(2)		7.97% 7.60% 6.70% 6.05% 3.80%  7.43% 3.33%
Return on average common        
equity, adjusted(1)(2)		8.32% 8.56% 6.92% 8.01% 6.15%  7.94% 4.60%
Return on average tangible        
common equity(2)		13.17% 12.77% 11.35% 10.35% 6.73%  12.45% 5.90%
Return on average tangible        
common equity, adjusted(1)(2)		13.72% 14.31% 11.71% 13.53% 10.53%  13.26% 7.95%
Return on average assets(2)0.99% 0.95% 0.87% 0.79% 0.51%  0.94% 0.44%
Return on average assets,        
adjusted(1)(2)		1.03% 1.06% 0.90% 1.02% 0.78%  1.00% 0.59%
Loans to deposits85.99% 88.27% 91.40% 92.12% 92.91%  85.99% 92.91%
Efficiency ratio(1)59.12% 59.24% 61.77% 58.90% 60.36%  60.03% 61.52%
Net interest margin(2)(3)2.91% 2.96% 3.03% 3.14% 2.95%  2.97% 3.19%
Yield on average interest-earning        
assets(2)(3)		3.10% 3.16% 3.24% 3.39% 3.28%  3.17% 3.63%
Cost of funds(2)(4)0.20% 0.21% 0.23% 0.26% 0.35%  0.21% 0.46%
Noninterest expense to average        
assets(2)		2.10% 2.26% 2.30% 2.25% 2.42%  2.22% 2.43%
Noninterest expense, adjusted to        
average assets, excluding PPP        
loans(1)(2)		2.10% 2.22% 2.38% 2.29% 2.19%  2.23% 2.31%
Effective income tax rate26.18% 26.06% 27.84% 12.13% 23.93%  26.64% 24.35%
Capital Ratios              
Total capital to risk-weighted        
assets(1)		14.26% 14.19% 14.26% 14.14% 14.06%  14.26% 14.06%
Tier 1 capital to risk-weighted        
assets(1)		11.99% 11.71% 11.67% 11.55% 11.48%  11.99% 11.48%
CET1 to risk-weighted assets(1)10.51% 10.23% 10.17% 10.06% 9.97%  10.51% 9.97%
Tier 1 capital to average assets(1)8.89% 8.85% 8.96% 8.91% 8.50%  8.89% 8.50%
Tangible common equity to        
tangible assets(1)		7.53% 7.48% 7.37% 7.67% 7.43%  7.53% 7.43%
Tangible common equity,        
excluding AOCI, to tangible        
assets(1)		7.65% 7.50% 7.48% 7.54% 7.30%  7.65% 7.30%
Tangible common equity to risk-        
weighted assets(1)		10.08% 9.92% 9.93% 9.93% 9.84%  10.08% 9.84%
Note: Selected Financial Information footnotes are located at the end of this section.     


Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
               
 As of or for the
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
Asset Quality Performance Data             
Non-performing assets               
Commercial and industrial$9,952  $42,036  $59,723  $38,314  $40,781   $9,952  $40,781 
Agricultural6,682  7,135  8,684  10,719  13,293   6,682  13,293 
Commercial real estate:              
Office, retail, and industrial13,450  17,367  23,339  27,382  26,406   13,450  26,406 
Multi-family2,672  2,622  3,701  1,670  1,547   2,672  1,547 
Construction1,154  1,154  1,154  1,155  2,977   1,154  2,977 
Other commercial real estate13,083  14,200  15,406  15,219  4,690   13,083  4,690 
Consumer17,173  16,867  16,643  15,498  13,888   17,173  13,888 
Non-accrual, excluding PCD        
loans		64,166  101,381  128,650  109,957  103,582   64,166  103,582 
Non-accrual PCD loans23,917  23,101  29,734  32,568  39,990   23,917  39,990 
Total non-accrual loans88,083  124,482  158,384  142,525  143,572   88,083  143,572 
90 days or more past due loans,        
still accruing interest		1,293  878  5,354  4,395  3,781   1,293  3,781 
Total NPLs89,376  125,360  163,738  146,920  147,353   89,376  147,353 
Accruing TDRs539  782  798  813  841   539  841 
Foreclosed assets(5)26,375  26,732  13,228  16,671  15,299   26,375  15,299 
Total NPAs$116,290  $152,874  $177,764  $164,404  $163,493   $116,290  $163,493 
30-89 days past due loans$30,718  $21,051  $30,973  $40,656  $21,551   $30,718  $21,551 
Allowance for credit losses              
Allowance for loan losses$206,241  $214,601  $235,359  $239,017  $239,048   $206,241  $239,048 
Allowance for unfunded        
commitments		8,625  8,625  8,025  8,025  7,825   8,625  7,825 
Total ACL$214,866  $223,226  $243,384  $247,042  $246,873   $214,866  $246,873 
Provision for loan losses$—  $—  $6,098  $10,507  $15,927   $6,098  $88,108 
Net charge-offs by category              
Commercial and industrial$5,002  $14,733  $1,740  $3,536  $5,470   $21,475  $14,885 
Agricultural(37) —  363  1,779  265   326  1,610 
Commercial real estate:              
Office, retail, and industrial556  3,878  4,377  1,701  1,339   8,811  4,754 
Multi-family1  2  (5) 19  —   (2) 14 
Construction986  208  —  140  4,889   1,194  7,495 
Other commercial real estate829  459  371  916  1,753   1,659  1,936 
Consumer1,023  1,478  2,910  2,448  2,027   5,411  10,086 
Total NCOs$8,360  $20,758  $9,756  $10,539  $15,743   $38,874  $40,780 
Less: NCOs on PCD loans(1,757) (4,337) (2,107) (6,488) (6,923)  (8,201) (12,476)
Total NCOs, excluding        
PCD loans		$6,603  $16,421  $7,649  $4,051  $8,820   $30,673  $28,304 
Total recoveries included above$3,397  $2,869  $1,561  $2,588  $1,795   $7,827  $4,922 
Note: Selected Financial Information footnotes are located at the end of this section.     


Selected Financial Information (Unaudited)
               
 As of or for the
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
Performing loans classified as substandard and special mention           
Special mention loans(7)$330,218  $343,547  $355,563  $409,083  $395,295   $330,218  $395,295 
Substandard loans(7)351,192  325,727  342,600  357,219  311,430   351,192  311,430 
Total performing loans        
classified as substandard and        
special mention(7)		$681,410  $669,274  $698,163  $766,302  $706,725   $681,410  $706,725 
Asset quality ratios               
Non-accrual loans to total loans0.60% 0.83% 1.04% 0.97% 0.98%  0.60% 0.98%
Non-accrual loans to total loans,        
excluding PPP loans(6)		0.61% 0.87% 1.13% 1.02% 1.07%  0.61% 1.07%
Non-accrual loans to total loans,        
excluding PCD and PPP loans(6)		0.45% 0.72% 0.93% 0.80% 0.78%  0.45% 0.78%
NPLs to total loans0.60% 0.83% 1.08% 1.00% 1.01%  0.60% 1.01%
NPLs to total loans, excluding        
PPP loans(6)		0.62% 0.87% 1.16% 1.05% 1.10%  0.62% 1.10%
NPLs to total loans, excluding        
PCD and PPP loans(6)		0.46% 0.72% 0.97% 0.83% 0.81%  0.46% 0.81%
NPAs to total loans plus        
foreclosed assets		0.78% 1.01% 1.17% 1.11% 1.11%  0.78% 1.11%
NPAs to total loans plus        
foreclosed assets, excluding        
PPP loans(6)		0.81% 1.06% 1.26% 1.18% 1.21%  0.81% 1.21%
NPAs to total loans plus        
foreclosed assets, excluding        
PCD and PPP loans(6)		0.65% 0.92% 1.07% 0.96% 0.93%  0.65% 0.93%
NPAs to tangible common equity        
plus ACL		6.52% 8.63% 10.23% 9.27% 9.37%  6.52% 9.37%
Non-accrual loans to total assets0.40% 0.58% 0.75% 0.68% 0.68%  0.40% 0.68%
Performing loans classified as        
substandard and special        
mention to corporate loans(6)(7)		6.62% 6.36% 6.45% 7.26% 6.36%  6.62% 6.36%
Performing loans classified as        
substandard and special        
mention to corporate loans,        
excluding PPP loans(6)(7)		6.88% 6.82% 7.19% 7.84% 7.13%  6.88% 7.13%
Allowance for credit losses and net charge-off ratios     
ACL to total loans1.45% 1.48% 1.60% 1.67% 1.68%  1.45% 1.68%
ACL to non-accrual loans243.94% 179.32% 153.67% 173.33% 171.95%  243.94% 171.95%
ACL to NPLs240.41% 178.07% 148.64% 168.15% 167.54%  240.41% 167.54%
NCOs to average loans(2)0.22% 0.55% 0.26% 0.29% 0.42%  0.35% 0.38%
NCOs to average loans,        
excluding PPP loans(2)		0.23% 0.59% 0.28% 0.31% 0.46%  0.37% 0.40%
NCOs to average loans,        
excluding PCD and PPP loans(2)		0.18% 0.47% 0.22% 0.12% 0.26%  0.29% 0.29%

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 fully guaranteed by the SBA. As a result, no allowance for credit losses is associated with these loans.
(7)   Performing loans classified as substandard and special mention excludes accruing TDRs.

      
Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)		     
               
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
EPS              
Net income$54,863  $51,121  $45,023  $41,605  $27,623   $151,007  $66,293 
Dividends and accretion on        
preferred stock		(4,033) (4,034) (4,034) (4,049) (4,033)  (12,101) (5,070 
Net income applicable to non-        
vested restricted shares		(517) (521) (486) (369) (236)  (1,524) (615 
Net income applicable to        
common shares		50,313  46,566  40,503  37,187  23,354   137,382  60,608 
Adjustments to net income:              
Acquisition and integration        
related expenses		2,916  7,773  245  1,860  881   10,934  11,602 
Tax effect of acquisition and        
integration related expenses		(729) (1,943) (61) (465) (220)  (2,734) (2,900 
Optimization costs—  31  1,525  1,493  18,376   1,556  18,376 
Tax effect of optimization        
costs		—  (8) (381) (373) (4,594)  (389) (4,594 
Swap termination costs—  —  —  17,567  14,285   —  14,285 
Tax effect of swap termination        
costs		—  —  —  (4,392) (3,571)  —  (3,571 
Income tax benefits—  —  —  (3,639) —   —  — 
Net securities gains—  —  —  —  (14,328)  —  (13,323 
Tax effect of net securities        
gains		—  —  —  —  3,582   —  3,331 
Total adjustments to net        
income, net of tax		2,187  5,853  1,328  12,051  14,411   9,367  23,206 
Net income applicable to        
common shares,        
adjusted(1)		$52,500  $52,419  $41,831  $49,238  $37,765   $146,749  $83,814 
Weighted-average common shares outstanding:             
Weighted-average common        
shares outstanding (basic)		112,898  112,865  113,098  113,174  113,160   112,953  112,079 
Dilutive effect of common        
stock equivalents		878  775  773  430  276   789  322 
Weighted-average diluted        
common shares        
outstanding		113,776  113,640  113,871  113,604  113,436   113,742  112,401 
Basic EPS$0.45  $0.41  $0.36  $0.33  $0.21   $1.22  $0.54 
Diluted EPS$0.44  $0.41  $0.36  $0.33  $0.21   $1.21  $0.54 
Diluted EPS, adjusted(1)$0.46  $0.46  $0.37  $0.43  $0.33   $1.29  $0.75 
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   $0.42  $0.42 
Dividend payout ratio31.11% 34.15% 38.89% 42.42% 66.67%  34.43% 77.78%
Dividend payout ratio, adjusted(1)30.43% 30.43% 37.84% 32.56% 42.42%  32.56% 56.00%
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)		     
               
 As of or for the
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
Return on Average Common and Tangible Common Equity           
Net income applicable to        
common shares		$50,313  $46,566  $40,503  $37,187  $23,354   $137,382  $60,608 
Intangibles amortization2,793  2,798  2,807  2,807  2,810   8,398  8,400 
Tax effect of intangibles        
amortization		(698) (700) (702) (702) (703)  (2,100) (2,100)
Net income applicable to        
common shares, excluding        
intangibles amortization		52,408  48,664  42,608  39,292  25,461   143,680  66,908 
Total adjustments to net income,        
net of tax(1)		2,187  5,853  1,328  12,051  14,411   9,367  23,206 
Net income applicable to        
common shares, adjusted(1)		$54,595  $54,517  $43,936  $51,343  $39,872   $153,047  $90,114 
Average stockholders' common        
equity		$2,503,028  $2,456,034  $2,453,253  $2,444,911  $2,444,594   $2,470,955  $2,434,358 
Less: average intangible assets(924,743) (927,522) (931,322) (934,347) (938,712)  (927,838) (920,180)
Average tangible common        
equity		$1,578,285  $1,528,512  $1,521,931  $1,510,564  $1,505,882   $1,543,117  $1,514,178 
Return on average common        
equity(2)		7.97% 7.60% 6.70% 6.05% 3.80%  7.43% 3.33%
Return on average common        
equity, adjusted(1)(2)		8.32% 8.56% 6.92% 8.01% 6.15%  7.94% 4.60%
Return on average tangible common equity(2)13.17% 12.77% 11.35% 10.35% 6.73%  12.45% 5.90%
Return on average tangible        
common equity, adjusted(1)(2)		13.72% 14.31% 11.71% 13.53% 10.53%  13.26% 7.95%
Return on Average Assets           
Net income$54,863  $51,121  $45,023  $41,605  $27,623   $151,007  $66,293 
Total adjustments to net income,        
net of tax(1)		2,187  5,853  1,328  12,051  14,411   9,367  23,206 
Net income, adjusted(1)$57,050  $56,974  $46,351  $53,656  $42,034   $160,374  $89,499 
Average assets$21,899,560  $21,533,209  $20,919,040  $20,882,325  $21,526,695   $21,454,195  $20,271,140 
Return on average assets(2)0.99% 0.95% 0.87% 0.79% 0.51%  0.94% 0.44%
Return on average assets,        
adjusted(1)(2)		1.03% 1.06% 0.90% 1.02% 0.78%  1.00% 0.59%
Noninterest Expense to Average Assets           
Noninterest expense$116,054  $121,419  $118,425  $117,971  $131,074   $355,898  $368,735 
Less:              
Acquisition and integration        
related expenses		(2,916) (7,773) (245) (1,860) (881)  (10,934) (11,602)
Optimization costs—  (31) (1,525) (1,493) (18,376)  (1,556) (18,376)
Total$113,138  $113,615  $116,655  $114,618  $111,817   $343,408  $338,757 
Average assets$21,899,560  $21,533,209  $20,919,040  $20,882,325  $21,526,695   $21,454,195  $20,271,140 
Less: average PPP loans(549,380) (1,035,386) (1,014,798) (1,013,511) (1,194,808)  (864,816) (696,095)
Average assets, excluding PPP        
loans		$21,350,180  $20,497,823  $19,904,242  $19,868,814  $20,331,887   $20,589,379  $19,575,045 
Noninterest expense to average        
assets(2)		2.10% 2.26% 2.30% 2.25% 2.42%  2.22% 2.43%
Noninterest expense, adjusted to        
average assets, excluding PPP        
loans(2)		2.10% 2.22% 2.38% 2.29% 2.19%  2.23% 2.31%
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)		     
               
 As of or for the
 Quarters Ended  Nine Months Ended
 September 30, June 30, March 31, December 31, September 30,  September 30, September 30,
 2021 2021 2021 2020 2020  2021 2020
Efficiency Ratio Calculation             
Noninterest expense$116,054  $121,419  $118,425  $117,971  $131,074   $355,898  $368,735 
Less:              
Acquisition and integration        
related expenses		(2,916) (7,773) (245) (1,860) (881)  (10,934) (11,602)
Net OREO expense4  (160) (589) (106) (544)  (745) (1,090)
Optimization costs—  (31) (1,525) (1,493) (18,376)  (1,556) (18,376)
Total$113,142  $113,455  $116,066  $114,512  $111,273   $342,663  $337,667 
Tax-equivalent net interest        
income(3)		$146,190  $145,241  $142,098  $149,141  $143,821   $433,529  $434,938 
Noninterest income45,180  46,270  45,803  27,715  40,585   137,253  112,938 
Less:              
Swap termination costs—  —  —  17,567  14,285   —  14,285 
Net securities gains—  —  —  —  (14,328)  —  (13,323)
Total$191,370  $191,511  $187,901  $194,423  $184,363   $570,782  $548,838 
Efficiency ratio59.12% 59.24% 61.77% 58.90% 60.36%  60.03% 61.52%
Pre-Tax, Pre-Provision Earnings             
Net Income$54,863  $51,121  $45,023  $41,605  $27,623   $151,007  $66,293 
Income tax expense19,459  18,018  17,372  5,743  8,690   54,849  21,340 
Provision for credit losses—  —  6,098  10,507  15,927   6,098  88,108 
Pre-Tax, Pre-Provision        
Earnings		$74,322  $69,139  $68,493  $57,855  $52,240   $211,954  $175,741 
Adjustments to pre-tax, pre-provision earnings:             
Acquisition and integration        
related expenses		$2,916  $7,773  $245  $1,860  $881   $10,934  $11,602 
Optimization costs—  31  1,525  1,493  18,376   1,556  18,376 
Swap termination costs—  —  —  17,567  14,285   —  14,285 
Net securities gains—  —  —  —  (14,328)  —  (13,323)
Total adjustments2,916  7,804  1,770  20,920  19,214   12,490  30,940 
Pre-Tax, Pre-Provision        
Earnings, adjusted		$77,238  $76,943  $70,263  $78,775  $71,454   $224,444  $206,681 
               
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.     


Non-GAAP Reconciliations (Unaudited)
(Amounts in thousands, except per share data)
          
 As of or for the
 Quarters Ended
 September 30, June 30, March 31, December 31, September 30,
 2021 2021 2021 2020 2020
Tangible Common Equity         
Stockholders' equity, common$2,492,723  $2,473,648  $2,422,815  $2,459,506  $2,433,671 
Less: goodwill and other intangible assets(923,383) (926,176) (928,974) (932,764) (935,801)
Tangible common equity1,569,340  1,547,472  1,493,841  1,526,742  1,497,870 
Less: AOCI25,381  5,941  22,096  (26,379) (25,749)
Tangible common equity, excluding AOCI$1,594,721  $1,553,413  $1,515,937  $1,500,363  $1,472,121 
Total assets$21,778,180  $21,625,424  $21,208,591  $20,838,678  $21,088,143 
Less: goodwill and other intangible assets(923,383) (926,176) (928,974) (932,764) (935,801)
Tangible assets20,854,797  20,699,248  20,279,617  19,905,914  20,152,342 
Less: PPP loans(384,100) (705,915) (1,109,442) (785,563) (1,196,538)
Tangible assets, excluding PPP loans$20,470,697  $19,993,333  $19,170,175  $19,120,351  $18,955,804 
Tangible common equity to tangible assets7.53% 7.48% 7.37% 7.67% 7.43%
Tangible common equity to tangible assets, excluding PPP loans7.67% 7.74% 7.79% 7.98% 7.90%
Tangible common equity, excluding AOCI, to tangible assets7.65% 7.50% 7.48% 7.54% 7.30%
Tangible common equity, excluding AOCI, to tangible assets,        
excluding PPP loans		7.79% 7.77% 7.91% 7.85% 7.77%
Tangible common equity to risk-weighted assets10.08% 9.92% 9.73% 9.93% 9.84%
          

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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Earnings First Midwest Bancorp Inc. First Midwest Bank First Midwest FMBI