The following excerpt is from the company's SEC filing.
July 25, 2017
- First Midwest Bancorp, Inc. (the "Company" or "First Midwest")
(NASDAQ NGS: FMBI)
, the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the
. Net income for the
per share. This compares to $22.9 million, or $0.23 per share, for the
quarter of 2017, and $25.3 million, or $0.31 per share, for the
Reported results for all periods presented were impacted by certain significant transactions, which include acquisition and integ ration related expenses associated with completed and pending acquisitions. Excluding these certain significant transactions, earnings per share
, compared to $0.34 for the
quarter of 2017 and $0.32 for the
Increased earnings per share to
, up 9% from the second quarter of 2016 and 3%, or 12% annualized, from the first quarter of 2017, excluding certain significant transactions
Improved return on average tangible common equity to
, up from
for the second quarter of 2016.
Grew loans to
from June 30, 2016 and 7% annualized from March 31, 2017.
Expanded net interest income to
from the first quarter of 2017.
Increased net interest margin to
for the second quarter of 2016 and consistent with
for the first quarter of 2017. Excluding acquired loan accretion, net interest margin
grew 9 basis points to
Grew fee-based revenues to
, an increase of
Improved efficiency ratio
, down from
for both the second quarter of 2016 and the first quarter of 2017.
Increased dividends per share to
, up 11% from the second quarter of 2016 and the first quarter of 2017.
"Performance for the quarter was strong, reflective of balanced delivery across our business," said Michael L. Scudder, President and Chief Executive Officer of the Company. "Earnings per share of $0.34 stood 10% higher from a year ago, benefiting from the expected revenue growth and improved operating efficiency accompanying our successful acquisition of Standard Bancshares in early January. Lending activity was solid, with late quarter closings providing added earnings momentum. At the same time, targeted efforts to expand and diversify our fee-based revenues are also evident, up 9% compared to last quarter."
Mr. Scudder concluded, "As we look ahead, we continue to navigate the backdrop of a more favorable rate environment as well as elevated market competition. As we do so, our focus remains centered on those actions that accrue to the long-term benefit of our shareholders – helping our clients to achieve financial success."
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.
First Midwest Bancorp, Inc. | One Pierce Place | Suite 1500 | Itasca | Illinois | 60143
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
June 30, 2017
March 31, 2017
June 30, 2016
Other interest-earning assets
Federal Home Loan Bank ("FHLB") and
Federal Reserve Bank ("FRB") stock
Total interest-earning assets
Cash and due from banks
Allowance for loan losses
Liabilities and Stockholders' Equity:
Interest-bearing core deposits
Senior and subordinated debt
Total interest-bearing liabilities
Total funding sources
Stockholders' equity - common
Total liabilities and
Tax-equivalent net interest
Net interest income (GAAP)
Impact of acquired loan accretion
Tax-equivalent net interest income/
margin, excluding the impact of
acquired loan accretion
Interest income and yields on tax-exempt securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. The corresponding income tax impact related to tax-exempt items is recorded in income tax expense. These adjustments have no impact on net income. For further details on the calculation of tax-equivalent net interest income/margin, net interest income (GAAP), and tax-equivalent net interest income/margin, excluding the impact of acquired loan accretion, see the sections titled "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.
See the Deposit Composition table presented later in this release for average balance detail by category.
Net interest income increased by 2.1% from the first quarter of 2017 and 30.7% compared to the second quarter of 2016. The rise in net interest income compared to the first quarter of 2017 resulted primarily from higher interest rates and loan growth, partially offset by a decrease in acquired loan accretion. Compared to the second quarter of 2016, higher interest rates, combined with loan growth and the acquisition of interest-earning assets and acquired loan accretion from the Standard Bancshares, Inc. ("Standard") transaction early in the first quarter of 2017, contributed to the increase in net interest income.
Acquired loan accretion contributed
to net interest income for the second quarter of 2017, the first quarter of 2017, and the second quarter of 2016, respectively.
Tax-equivalent net interest margin for the current quarter was
, consistent with the first quarter of 2017 and increasing by 16 basis points from the second quarter of 2016. Tax-equivalent net interest margin compared to the first quarter of 2017 was impacted by a 10 basis point decrease in acquired loan accretion, which was mostly offset by the positive impact of higher interest rates. The cost of total average interest-bearing liabilities was consistent with the first quarter of 2017. The increase in tax-equivalent net interest margin compared to the second quarter of 2016 was driven primarily by an 8 basis point increase in acquired loan accretion and higher interest rates.
For the second quarter of 2017, total average interest-earning assets rose by $154.9 million from the first quarter of 2017 and $2.4 billion from the second quarter of 2016. The increase compared to the first quarter of 2017 resulted from loan growth while the increase from the second quarter of 2016 reflected the impact of the Standard transaction, loan growth, and security purchases.
Total average funding sources increased by $212.7 million from the first quarter of 2017 and $2.2 billion from the second quarter of 2016. The increase compared to the first quarter of 2017 resulted from growth in core deposits which was partially offset by a decrease in FHLB advances. Compared to the second quarter of 2016, the rise in average funding sources was impacted by deposits acquired in the Standard transaction and the addition of FHLB advances.
Fee-based Revenues and Total Noninterest Income Analysis
June 30, 2017 Percent Change From
Service charges on deposit accounts
Wealth management fees
Merchant servicing fees
Mortgage banking income
Capital market products income
Other service charges, commissions, and fees
Total fee-based revenues
Net securities gains
Total noninterest income
N/M - Not meaningful.
Total fee-based revenues of
grew by $3.4 million, or
, compared to the first quarter of 2017 and by $5.3 million, or
, compared to the second quarter of 2016. The increase in fee-based revenues compared to the second quarter of 2016 resulted primarily from services provided to customers acquired in the Standard and Premier Asset Management LLC ("Premier") transactions completed in the first quarter of 2017.
Compared to the first quarter of 2017, the increase in service charges on deposit accounts was impacted by growth and seasonality in treasury management services and other consumer deposit transactions. The increase in wealth management fees benefited from the full quarter impact of the Premier acquisition completed late in the first quarter of 2017. The rise in card-based fees from the first quarter of 2017 reflects seasonally higher transaction volumes.
Mortgage banking income resulted primarily from sales of $59.5 million of 1-4 family mortgage loans in the secondary market during the second quarter of 2017, compared to $54.6 million in the first quarter of 2017 and $52.1 million in the second quarter of 2016. In addition, mortgage banking income for the second quarter of 2017 was impacted by a decrease in the fair value of mortgage servicing rights, which fluctuate from quarter to quarter. Growth in capital market products income for the second quarter of 2017 compared to both prior periods was driven by increased sales to commercial clients.
Total noninterest income of
from the first quarter of 2017 and the second quarter of 2016, respectively. Other income increased in the second quarter of 2017 due to net gains from the disposition of branch properties and other miscellaneous items.
Noninterest Expense Analysis
Salaries and employee benefits:
Salaries and wages
Retirement and other employee benefits
Total salaries and employee benefits
Net occupancy and equipment expense
Technology and related costs
Merchant card expense
Advertising and promotions
Net other real estate owned ("OREO") expense
Total noninterest expense excluding
certain significant transactions
Acquisition and integration related expenses
Total noninterest expense, excluding certain significant transactions, is a non-GAAP financial measure. See the Non-GAAP Financial Information discussion for detail.
Total noninterest expense decreased by
compared to the first quarter of 2017 and increased by
compared to the second quarter of 2016. Excluding certain significant transactions, total noninterest expense was consistent with the first quarter of 2017 and increased by
The decrease in salaries and employee benefits compared to the first quarter of 2017 was driven primarily by higher levels of deferred salaries due to loan growth and a reduction in other salaries and benefits that fluctuate with organizational needs. Professional services increased compared to the first quarter of 2017 as a result of certain costs associated with organizational growth. The increase in advertising and promotions expense compared to the first quarter of 2017 resulted from the timing of certain advertising costs.
Compared to the second quarter of 2016, the increase in total noninterest expense, excluding certain significant transactions, largely resulted from operating costs associated with the Standard and Premier transactions, which impacted most expense categories. In addition, compensation costs associated with merit increases and investments in additional talent to support growth contributed to the rise in salaries and employee benefits. Professional services was impacted by higher loan remediation expenses and certain costs associated with organizational growth. The increase in net OREO expense compared to the second quarter of 2016 resulted primarily from higher valuation adjustments.
Acquisition and integration related expenses for the first and second quarters of 2017 resulted from the acquisitions of Standard and Premier completed during the first quarter of 2017. For the second quarter of 2016, acquisition and integration related expenses resulted from the acquisition of NI Bancshares Corporation completed during the first quarter of 2016. These expenses fluctuate based on the size and timing of each transaction.
LOAN PORTFOLIO AND ASSET QUALITY
Loan Portfolio Composition
Commercial and industrial
Commercial real estate:
Office, retail, and industrial
Other commercial real estate
Total commercial real estate
Total corporate loans
1-4 family mortgages
Total consumer loans
Total loans of
increased by 7.1% annualized, from March 31, 2017, and
from June 30, 2016. Excluding loans acquired in the Standard transaction of
as of June 30, 2017, total loans grew by 8.1% from June 30, 2016. The addition of 1-4 family mortgages and installment loans contributed to the increase in total loans compared to both prior periods. Growth in consumer loans was also impacted by the addition of shorter-duration, floating rate home equity loans compared to June 30, 2016.
Compared to both prior periods, growth in commercial and industrial loans, primarily within our sector-based lending business units, and multi-family loans contributed to the rise in total loans. Construction loans increased compared to June 30, 2016, driven primarily by select commercial projects for which permanent financing is expected upon their completion.
90 days or more past due loans, still accruing
Total non-performing loans
Accruing troubled debt restructurings
Total non-performing assets
30-89 days past due loans
Non-accrual loans to total loans
Non-performing loans to total loans
Non-performing assets to total loans plus
Allowance for credit losses
Reserve for unfunded commitments
Total allowance for credit losses
Allowance for credit losses to total loans
Allowance for credit losses to loans, excluding
Allowance for credit losses to non-accrual
Purchased credit impaired loans with an accretable yield are considered current and are not included in past due loan totals.
This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses on acquired loans is established as necessary to reflect credit deterioration.
Total non-performing assets represented
of total loans and OREO at June 30, 2017, up from
at March 31, 2017 and
at June 30, 2016. Total OREO includes $6.9 million and $8.4 million as of June 30, 2017 and March 31, 2017, respectively, that was acquired in the Standard transaction during the first quarter of 2017.
Non-accrual loans increased by $24.9 million from March 31, 2017, due primarily to the transfer of two loan relationships from corporate performing potential problem loans to non-accrual status during the second quarter of 2017, driven by operating pressures unique to these borrowers. The Company has established specific reserves and implemented remediation plans associated with these borrowers.
(Dollar amounts in thousands)
Net loan charge-offs
Total net loan charge-offs
Total recoveries included above
Net loan charge-offs to average
Amounts represent charge-offs, net of recoveries.
Net loan charge-offs to average loans, annualized were
, up from 0.12% for the first quarter of 2017 and down from 0.26% for the second quarter of 2016.
Average for the Quarters Ended
Money market accounts
Average core deposits of
for the second quarter of 2017 increased by
compared to the first quarter of 2017 and second quarter of 2016, respectively. The rise in average core deposits compared to the first quarter of 2017 resulted primarily from the seasonal increase in average municipal deposits of nearly $220.0 million and organic growth. Compared to the second quarter of 2016, the rise in average core deposits was primarily driven by deposits assumed in the Standard transaction which contributed $1.6 billion to average core deposits in the second quarter of 2017.
Company regulatory capital ratios:
Total capital to risk-weighted assets
Tier 1 capital to risk-weighted assets
Common equity Tier 1 ("CET1") to risk-weighted assets
Tier 1 capital to average assets
Company tangible common equity ratios
Tangible common equity to tangible assets
Tangible common equity, excluding accumulated other comprehensive
income ("AOCI"), to tangible assets
Tangible common equity to risk-weighted assets
These ratios are not subject to formal Federal Reserve regulatory guidance.
Tangible common equity ("TCE") 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-GAPP Reconciliations" presented later in this release.
The Company's regulatory capital ratios improved compared to March 31, 2017 as a result of an increase in retained earnings, offset partly by the impact of loan growth on risk-weighted assets. Overall, the Company's regulatory capital ratios decreased compared to December 31, 2016 and June 30, 2016 due 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 June 30, 2016.
The Board of Directors approved a quarterly cash dividend of $0.10 per common share during the second quarter of 2017, an increase from $0.09 per common share during the first quarter of 2017.
A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, July 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,
. 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 10110139 beginning one hour after completion of the live call until 9:00 A.M. (ET) on August 9, 2017. Please direct any questions regarding obtaining access to the conference call to First Midwest Bancorp, Inc. Investor Relations, via e-mail, at
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
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.
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 noninterest 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 $10 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
Patrick S. Barrett
EVP, Chief Financial Officer
James M. Roolf
SVP, Corporate Relations Officer
Accompanying Unaudited Selected Financial Information
Consolidated Statements of Financial Condition (Unaudited)
Period-End Balance Sheet
Interest-bearing deposits in other banks
Trading securities, at fair value
Securities available-for-sale, at fair value
Securities held-to-maturity, at amortized cost
FHLB and FRB stock
Premises, furniture, and equipment, net
Investment in bank-owned life insurance ("BOLI")
Goodwill and other intangible assets
Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Total liabilities and stockholders' equity
Stockholders' equity, excluding accumulated other
comprehensive income ("AOCI")
Stockholders' equity, common
Condensed Consolidated Statements of Income (Unaudited)
Six Months Ended
Provision for loan losses
Net interest income after
provision for loan losses
commissions, and fees
Net gain on sale-leaseback
Net OREO expense
Lease cancellation fee
Income before income tax
Income tax expense
Net income applicable to
common shares, excluding
Footnotes to Condensed Consolidated Statements of Income
Certain significant transactions that are recorded in various periods presented include acquisition and integration related expenses associated with completed and pending acquisitions, the lease cancellation fee recognized as a result of the Company's planned 2018 corporate headquarters relocation, and a net gain on a sale-leaseback transaction.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share data)
As of or for the
Earnings Per Share
Basic earnings per common
Diluted EPS, excluding certain
Common Stock and Related Per Common Share Data
Tangible book value
Dividends declared per share
Closing price at period end
Closing price to book value
Period end shares outstanding
Period end treasury shares
Return on average common
Return on average tangible
common equity, excluding
(1) (2) (5)
Return on average assets
Return on average assets,
excluding certain significant
Loans to deposits
Net interest margin
Yield on average interest-earning
Cost of funds
Net noninterest expense to
Effective income tax rate
CET1 to risk-weighted assets
Tier 1 capital to average assets
excluding AOCI, to tangible
Note: Selected Financial Information footnotes are located at the end of this section.
Asset Quality Performance Data
Total non-accrual loans
still accruing interest
Net charge-offs by category
Total net charge-offs
Asset Quality ratios
Non-performing assets to total loans plus OREO
Non-performing assets to tangible common equity plus allowance
for credit losses
Non-accrual loans to total assets
Allowance for credit losses and net charge-off ratios
Allowance for credit losses to loans, excluding acquired loans
Allowance for credit losses to non-accrual loans
Allowance for credit losses to non-performing loans
Net charge-offs to average loans
Footnotes to Selected Financial Information
See the Non-GAAP Reconciliations section for the detailed calculation.
Annualized based on the actual number of days for each period presented.
Presented on a tax-equivalent basis, which reflects federal and state tax benefits.
This ratio includes acquired loans that are recorded at fair value through an acquisition adjustment, which incorporates credit risk, as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses is established on acquired loans as necessary to reflect credit deterioration.
Non-GAAP Reconciliations (Unaudited)
Net income applicable to non-
vested restricted shares
Tax effect of acquisition and
integration related expenses
Tax effect of lease cancellation
Tax effect of net gain on sale-
Weighted-average common shares outstanding:
shares outstanding (basic)
Dilutive effect of common
Anti-dilutive shares not included
in the computation of diluted
Efficiency Ratio Calculation
Other income, excluding
Note: Non-GAAP Reconciliations footnotes are located at the end of this section.
Tax-Equivalent Net Interest Income
Less: acquired loan accretion
income, excluding the
impact of acquired loan
Average interest-earning assets
Net interest margin (GAAP)
margin, excluding the impact of
acquired loan accretion
Risk-Based Capital Data
Additional paid-in capital
Treasury stock, at cost
assets, net of deferred tax
Disallowed deferred tax assets
Other disallowed deferred tax
Tier 2 capital
Adjusted average assets
Tangible Common Equity
Less: goodwill and other
Return on Average Common and Tangible Common Equity
Tax effect of intangibles
and certain significant
Average stockholders' equity
Less: average intangible assets
Average tangible common
Return on Average Assets
Net income, excluding
excluding certain significant
Footnotes to Non-GAAP Reconciliations
Presented on a tax-equivalent basis, which reflects federal and state tax benefits.
Annualized based on the actual number of days for each period presented.
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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