SOURCE: First Midwest Bancorp, Inc.

First Midwest Bancorp, Inc.

January 25, 2012 06:55 ET

First Midwest Bancorp, Inc. Announces 2011 Fourth Quarter and Full Year Results

Improved Fourth Quarter and Full Year Earnings -- Total Loans Stable -- Robust Capital -- Proactive Credit Remediation -- Organizational Realignment

ITASCA, IL--(Marketwire - Jan 25, 2012) - First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ: FMBI)

Operating Performance

  • Net income applicable to common shares of $3.9 million, or $0.05 per share, compared to a net loss of $30.3 million, or $0.41 per share, for fourth quarter 2010 and net income of $6.3 million, or $0.09 per share, for third quarter 2011.
  • Net income applicable to common shares of $25.4 million, or $0.35 per share, for full year 2011 up $45.1 million from a net loss of $19.7 million, or $0.27 per share, for full year 2010.
  • Total loans, excluding covered loans, of $5.1 billion, stable compared to both December 31, 2010 and September 30, 2011, reflecting almost 5% annualized growth in commercial and industrial and owner-occupied other commercial real estate loans from September 30, 2011.
  • Fee-based revenues of $23.9 million, up 6.6% from fourth quarter 2010 and seasonally down 2.3% from third quarter 2011.

Credit and Capital

  • Non-accrual loans, excluding covered loans and covered OREO, of $187.3 million, declined 11.5% from December 31, 2010 and up 9.4% from September 30, 2011.
  • Tier 1 common capital to risk-weighted assets of 10.26% as of December 31, 2011 compared to 9.81% at December 31, 2010 and 10.29% at September 30, 2011.

Significant Fourth Quarter Events

  • Organizational realignment, reflecting the elimination of some 100 positions, resulted in severance-related costs of $2.0 million.
  • Redeemed $193.0 million of TARP preferred shares and the related common stock warrant.
  • Acquired $106.7 million in deposits resulting in a gain of $1.1 million.
  • Recognized for second consecutive year in the Top 20 "Best Places to Work" in Chicago.

Today First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ: FMBI), the holding company of First Midwest Bank (the "Bank"), reported results of operations and financial condition for fourth quarter and full year 2011. Net income for the quarter was $6.9 million, before adjustments for preferred dividends and non-vested restricted shares, with net income of $3.9 million, or $0.05 per share, applicable to common shares after such adjustments. This compares to a net loss of $28.2 million and a net loss applicable to common shares of $30.3 million, or $0.41 per share, for fourth quarter 2010 and net income of $8.9 million and net income applicable to common shares of $6.3 million, or $0.09 per share, for third quarter 2011.

For full year 2011, net income was $36.6 million, before adjustments for preferred dividends and non-vested restricted shares, with net income of $25.4 million, or $0.35 per share, applicable to common shares after such adjustments. This compares to a net loss of $9.7 million and a net loss applicable to common shares of $19.7 million, or $0.27 per share, for full year 2010.

Quarters Ended Years Ended
December 31, 2011 September 30, 2011 December 31, 2010 December 31, 2011 December 31, 2010
Operating Performance (Dollar amounts in thousands)
Net income (loss) $ 6,924 $ 8,942 $ (28,159 ) $ 36,563 $ (9,684 )
Net income (loss) applicable to common shares $ 3,877 $ 6,263 $ (30,327 ) $ 25,437 $ (19,717 )
Diluted earnings (loss) per common share $ 0.05 $ 0.09 $ (0.41 ) $ 0.35 $ (0.27 )
Return on average common equity 1.60 % 2.60 % (12.49 %) 2.69 % (2.06 %)
Return on average assets 0.34 % 0.43 % (1.34 %) 0.45 % (0.12 %)
Pre-tax, pre-provision operating earnings (1) $ 31,581 $ 33,112 $ 34,998 $ 129,853 $ 136,406
Net interest margin 3.95 % 3.97 % 4.02 % 4.04 % 4.13 %
Efficiency ratio 64.76 % 60.57 % 59.08 % 62.12 % 58.84 %
Loans, including covered loans, at period end $ 5,348,615 $ 5,394,241 $ 5,472,289 $ 5,348,615 $ 5,472,289
Loans, excluding covered loans, at period end $ 5,088,113 $ 5,104,494 $ 5,100,560 $ 5,088,113 $ 5,100,560
Average transactional deposits (2) $ 4,866,776 $ 4,876,261 $ 4,590,489 $ 4,755,111 $ 4,322,136
(1) The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practice within the banking industry. As a supplement to GAAP, the Company has provided this non-GAAP performance result. The Company believes that this non-GAAP financial measure is useful because it allows investors to assess the Company's operating performance. Although this non-GAAP financial measure is intended to enhance investors' understanding of the Company's business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP. A reconciliation of this measure to GAAP is presented on the following page.
(2) Comprised of demand deposits and interest-bearing transactional accounts.

SUMMARY UPDATE

"I am very pleased with our overall performance for the year and in a very active fourth quarter," said Michael L. Scudder, President and Chief Executive Officer of First Midwest Bancorp, Inc. "The results for the quarter and the year reflect both a return to profitability as well as the steady advancement of our strategic priorities."

Mr. Scudder went on to say, "Net income improved by $45 million from 2010, as we benefited from continued, solid earnings and substantially lower credit costs. In a challenged business environment, consistent sales focus helped us to hold loan balances steady as we significantly reduced our exposure to troubled real estate lending categories. At the same time, transactional deposit growth has helped our margins remain near 4%, and our fee-based revenues expand. Our overall credit metrics are greatly improved from 2010 and, most notably, with actions taken during the quarter, we have reduced potential non-performing credits by almost 30% during this same period."

Mr. Scudder closed, "Over the course of 2011, we significantly invested in our business, aligning our sales resources to areas of growth and opportunity. Concurrently, we have and will continue to implement operating efficiencies as we transition to an improved credit environment and better leverage our operating systems and processes. With TARP behind us and economic recovery progressing, we are well positioned to pursue opportunities for growth, navigate the changing regulatory landscape, and, most importantly, help our clients achieve financial success in 2012."

REPAYMENT OF TARP

In November 2011, the Company redeemed all of the $193.0 million Series B preferred stock issued to the United States Department of the Treasury (the "Treasury") under the U.S. government's Troubled Asset Relief Program ("TARP"), which resulted in the acceleration of $1.5 million in discount accretion. The Company funded the redemption through a combination of existing liquid assets and proceeds from the completion of a $115.0 million senior debt offering. The notes, which have an interest rate of 5.875%, payable semi-annually, will mature in November 2016.

In a related transaction, the Company redeemed the Treasury's associated warrant to purchase up to 1,305,230 shares of the Company's common stock. In December 2011, the Company paid $900,000 to the Treasury to redeem the warrant, which concluded the Company's participation in TARP.

DEPOSIT ACQUISITION

In December 2011, the Company completed the purchase of certain Chicago-market deposits from Old National Bank of Evansville, Indiana ("Old National"). The transaction included $106.7 million in deposits (comprised of $70.6 million in transactional deposits and $36.1 in time deposits) and one banking facility located in our Chicago market. As a result of the transaction, the Company recorded a net gain of $1.1 million.

OPERATING PERFORMANCE

Pre-Tax, Pre-Provision Operating Earnings (1)
(Dollar amounts in thousands)
Quarters Ended Years Ended
December 31, 2011 September 30, 2011 December 31, 2010 December 31, 2011 December 31, 2010
Income (loss) before income tax $ 7,220 $ 10,525 $ (53,225 ) $ 41,071 $ (38,228 )
Provision for loan losses 21,902 20,425 73,897 80,582 147,349
Pre-tax, pre-provision earnings 29,122 30,950 20,672 121,653 109,121
Adjustments to Pre-Tax, Pre-Provision Earnings
Securities (losses) gains, net (110 ) 449 1,662 2,410 12,216
Gain on Federal Deposit InsuranceCorporation ("FDIC")-assisted transaction - - - - 4,303
Gain on acquisition of deposits 1,076 - - 1,076 -
Losses on sales and write-downs of OREO (1,425 ) (2,611 ) (15,412 ) (9,686 ) (40,480 )
Integration costs associated with FDIC-assisted transactions - - (576 ) - (3,324 )
Severance-related costs (2,000 ) - - (2,000 ) -
Total adjustments (2,459 ) (2,162 ) (14,326 ) (8,200 ) (27,285 )
Pre-tax, pre-provision operating earnings (1) $ 31,581 $ 33,112 $ 34,998 $ 129,853 $ 136,406
(1) The Company's accounting and reporting policies conform to GAAP and general practice within the banking industry. As a supplement to GAAP, the Company has provided this non-GAAP performance result. The Company believes that this non-GAAP financial measure is useful because it allows investors to assess the Company's operating performance. Although this non-GAAP financial measure is intended to enhance investors' understanding of the Company's business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP.

Pre-tax, pre-provision operating earnings decreased by $3.4 million from fourth quarter 2010 to fourth quarter 2011 driven by a decline in net interest income, which is discussed in the Net Interest Income and Margin Analysis section, and a $1.3 million correction of a 2010 actuarial pension expense calculation related to the valuation of future early retirement benefits, which was recorded in fourth quarter 2011.

Compared to third quarter 2011, pre-tax, pre-provision operating earnings were down $1.5 million due primarily to the correction of the 2010 actuarial pension expense calculation.

For full year 2011, pre-tax, pre-provision operating earnings were down $6.6 million, or 4.8%, compared to 2010 as a result of higher loan remediation costs, increased salaries related to the expansion of commercial, retail, and wealth management sales staff, and the correction of the 2010 actuarial pension expense calculation, partially offset by a $7.4 million increase in fee-based revenues.

A more detailed discussion of net interest income and noninterest income and expense is presented in later sections of this release.

Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
Quarters Ended
December 31, 2011 September 30, 2011 December 31, 2010
Average Balance Interest Yield/
Rate (%)
Average Balance Interest Yield/
Rate (%)
Average Balance Interest Yield/ Rate (%)
Assets:
Federal funds sold and othershort-term investments $ 718,631 $ 450 0.25 $ 741,782 $ 463 0.25 $ 595,509 $ 386 0.26
Trading securities 13,420 92 2.74 16,248 23 0.57 13,882 99 2.85
Investment securities (1) 1,069,844 11,224 4.20 1,057,075 11,604 4.39 1,139,127 13,568 4.76
Federal Home Loan Bank ("FHLB")and Federal Reserve Bank stock 58,187 341 2.34 58,187 331 2.28 61,703 347 2.25
Loans, excluding covered loans (1) 5,085,792 63,202 4.93 5,136,130 64,509 4.98 5,155,416 64,387 4.95
Covered interest-earning assets (2) 343,479 6,787 7.84 387,635 6,640 6.80 480,612 7,431 6.13
Total loans 5,429,271 69,989 5.11 5,523,765 71,149 5.11 5,636,028 71,818 5.06
Total interest-earning assets (1) 7,289,353 82,096 4.47 7,397,057 83,570 4.49 7,446,249 86,218 4.60
Cash and due from banks 116,166 120,624 128,919
Allowance for loan losses (133,824 ) (143,443 ) (157,145 )
Other assets 870,808 855,542 896,611
Total assets $ 8,142,503 $ 8,229,780 $ 8,314,634
Liabilities and Stockholders' Equity:
Interest-bearing transaction deposits $ 3,253,555 1,029 0.13 $ 3,306,590 1,361 0.16 $ 3,242,301 1,930 0.24
Time deposits 1,688,995 4,933 1.16 1,731,413 5,293 1.21 2,069,389 5,977 1.15
Borrowed funds 252,839 670 1.05 262,001 706 1.07 281,050 711 1.00
Senior and subordinated debt 187,488 3,047 6.45 137,749 2,280 6.57 137,743 2,279 6.56
Total interest-bearing liabilities 5,382,877 9,679 0.71 5,437,753 9,640 0.70 5,730,483 10,897 0.75
Demand deposits 1,613,221 1,569,671 1,348,188
Total funding sources 6,996,098 7,007,424 7,078,671
Other liabilities 73,721 73,808 79,700
Stockholders' equity - common 961,500 955,548 963,263
Stockholders' equity - preferred 111,184 193,000 193,000
Total liabilities and stockholders' equity $ 8,142,503 $ 8,229,780 $ 8,314,634
Net interest income/margin (1) $ 72,417 3.95 $ 73,930 3.97 $ 75,321 4.02
(1) Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%.
(2) Covered interest-earning assets consist of loans acquired through the Company's FDIC-assisted transactions and the related FDIC indemnification asset.

Average interest-earning assets for fourth quarter 2011 decreased $156.9 million, or 2.1%, from fourth quarter 2010 and $107.7 million, or 1.5%, compared to third quarter 2011. The decline for both periods was due to a decline in average loans and covered interest-earning assets.

Average funding sources for fourth quarter 2011 was $82.6 million, or 1.2%, lower than fourth quarter 2010 and $11.3 million, or 0.2%, lower than third quarter 2011. The declines for both periods resulted from a drop in average time deposits. However, demand deposits increased from both prior periods presented, including approximately $23 million of average deposits acquired in a December 2011 transaction, which resulted in a more favorable product mix.

The growth in average senior and subordinated debt for fourth quarter 2011 compared to both the prior year and prior quarter periods reflects the issuance of senior debt, which was used to redeem the Series B preferred stock issued to the Treasury. Interest paid on the new senior debt reduced net interest margin by 4 basis points.

Tax-equivalent net interest margin for fourth quarter 2011 was 3.95%, a decline of 7 basis points from fourth quarter 2010 and 2 basis points from third quarter 2011. The drop from the prior year was primarily due to the impact of lower average loans and deposits invested in low-yielding short-term investments. The linked-quarter variance was due to funding costs associated with the new senior debt.

Interest earned on covered loans is generally recognized through the accretion of the discount taken on expected future cash flows. The increase in the yields on covered interest-earning assets for the 2011 periods compared to 2010 was due to adjustments in accretable income based upon (i) revised cash flow estimates subsequent to acquisition and (ii) actual cash realized in excess of estimates upon final settlement of certain covered loans.

Noninterest Income Analysis
(Dollar amounts in thousands)
Quarters Ended December 31, 2011
Percent Change From
December 31, 2011 September 30, 2011 December 31, 2010 September 30, 2011 December 31, 2010
Service charges on deposit accounts $ 9,957 $ 10,215 $ 9,202 (2.5 ) 8.2
Trust and investment advisory fees 4,044 3,946 4,040 2.5 0.1
Other service charges, commissions, and fees 4,885 5,325 4,506 (8.3 ) 8.4
Card-based fees 4,971 4,931 4,640 0.8 7.1
Total fee-based revenues 23,857 24,417 22,388 (2.3 ) 6.6
Bank-owned life insurance ("BOLI") income 241 1,479 696 (83.7 ) (65.4 )
Other income 652 598 451 9.0 44.6
Total operating revenues 24,750 26,494 23,535 (6.6 ) 5.2
Trading gains (losses), net 919 (2,352 ) 970 N/M N/M
Gains on securities sales, net 649 626 1,718 N/M N/M
Securities impairment losses (759 ) (177 ) (56 ) N/M N/M
Gain on acquisition of deposits 1,076 - - N/M N/M
Total noninterest income $ 26,635 $ 24,591 $ 26,167 8.3 1.8
N/M - Not meaningful.

Fee-based revenues for fourth quarter 2011 grew 6.6% compared to fourth quarter 2010 and declined 2.3% compared to third quarter 2011, reflecting normal seasonality. For full year 2011, fee-based revenues grew by $7.4 million, or 8.6%.

BOLI income decreased for fourth quarter 2011 compared to both prior periods presented as the Company received benefit settlements of $1.2 million during third quarter 2011 and $417,000 during fourth quarter 2010.

Trading gains (losses), net result from the change in fair value of diversified asset securities held in a grantor trust under deferred compensation agreements. These net trading gains (losses) are substantially offset by an adjustment to salaries and wages for each period presented.

Noninterest Expense Analysis
(Dollar amounts in thousands)
Quarters Ended December 31, 2011
Percent Change From
December 31, 2011 September 30, 2011 December 31, 2010 September 30, 2011 December 31, 2010
Salaries and wages (1) $ 27,588 $ 22,957 $ 26,517 20.2 4.0
Retirement and other employee benefits(1)(2) 7,632 6,225 4,511 22.6 69.2
Total compensation expense 35,220 29,182 31,028 20.7 13.5
Write-downs of OREO 476 674 11,957 (29.4 ) (96.0 )
Losses on sales of OREO, net 949 1,937 3,455 (51.0 ) (72.5 )
OREO operating expense, net 1,540 1,563 2,408 (1.5 ) (36.0 )
Total OREO expense 2,965 4,174 17,820 (29.0 ) (83.4 )
Loan remediation costs 4,846 4,638 2,330 4.5 108.0
Other professional services (1) 3,180 2,933 2,194 8.4 44.9
Total professional services 8,026 7,571 4,524 6.0 77.4
Net occupancy and equipment expense 7,681 8,157 7,916 (5.8 ) (3.0 )
Technology and related costs 2,876 2,709 3,209 6.2 (10.4 )
FDIC premiums 1,758 1,799 2,967 (2.3 ) (40.7 )
Advertising and promotions 1,239 2,502 1,637 (50.5 ) (24.3 )
Other expenses 6,826 8,082 7,973 (15.5 ) (14.4 )
Total noninterest expense $ 66,591 $ 64,176 $ 77,074 3.8 (13.6 )
(1) In fourth quarter 2011, the Company recorded a $2.0 million charge for severance-related costs from an organizational realignment that included $1.6 million in salaries and wages, $96,000 in retirement and other employee benefits, and $274,000 in other professional services.
(2) Retirement and other employee benefits include the $1.3 million correction of a 2010 actuarial pension expense calculation related to the valuation of future early retirement benefits.

Total noninterest expense for fourth quarter 2011 declined 13.6% from fourth quarter 2010 and increased 3.8% compared to third quarter 2011.

Fourth quarter 2011 salaries and wages increased by $4.6 million compared to third quarter 2011 as a result of a $3.9 million variance related to changes in the fair value of trading securities held on behalf of plan participants and the compensation costs from an organizational realignment, partially offset by reductions in short-term incentive and share-based compensation. The organizational realignment reduced some 100 positions across the Company. Specifically, about 50 open positions were closed and another 50 filled positions were eliminated.

The $1.3 million correction of the 2010 actuarial pension expense calculation drove the increase in retirement and other employee benefits from third quarter 2011 to fourth quarter 2011.

The increase in retirement and other employee benefits from fourth quarter 2010 to fourth quarter 2011 was impacted by higher profit sharing expense, employee insurance, and payroll taxes attributed to increased sales staff, and the correction of the 2010 actuarial pension expense calculation.

OREO expenses for fourth quarter 2011 declined 83.4% from fourth quarter 2010 and 29.0% from third quarter 2011 due to continued remediation efforts. Fourth quarter 2010 OREO expenses were elevated due to higher levels of write-downs and losses on sales of OREO and related operating expenses.

An increase in real estate taxes paid to preserve our rights to collateral associated with problem loans, as well as higher legal fees incurred to remediate problem credits, drove higher levels of loan remediation costs compared to both prior periods presented.

FDIC premiums decreased compared to fourth quarter 2010 primarily due to a change in regulatory requirements for calculating the premium.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)
As Of December 31, 2011
Percent Change From
December 31, 2011 September 30, 2011 December 31, 2010 September 30, 2011 December 31, 2010
Corporate:
Commercial and industrial $ 1,458,446 $ 1,476,034 $ 1,465,903 (1.2 ) (0.5 )
Agricultural 243,776 250,436 227,756 (2.7 ) 7.0
Commercial real estate:
Office 444,368 440,641 396,836 0.8 12.0
Retail 334,034 330,160 328,751 1.2 1.6
Industrial 520,680 492,514 478,026 5.7 8.9
Multi-family 288,336 317,313 349,862 (9.1 ) (17.6 )
Residential construction 105,836 116,283 174,690 (9.0 ) (39.4 )
Commercial construction 144,909 145,889 164,472 (0.7 ) (11.9 )
Other commercial real estate 888,146 877,241 856,357 1.2 3.7
Total commercial real estate 2,726,309 2,720,041 2,748,994 0.2 (0.8 )
Total corporate loans 4,428,531 4,446,511 4,442,653 (0.4 ) (0.3 )
Consumer:
Home equity loans 416,194 424,986 445,243 (2.1 ) (6.5 )
1-4 family mortgages 201,099 189,587 160,890 6.1 25.0
Installment loans 42,289 43,410 51,774 (2.6 ) (18.3 )
Total consumer loans 659,582 657,983 657,907 0.2 0.3
Total loans, excluding covered loans 5,088,113 5,104,494 5,100,560 (0.3 ) (0.2 )
Covered loans 260,502 289,747 371,729 (10.1 ) (29.9 )
Total loans $ 5,348,615 $ 5,394,241 $ 5,472,289 (0.8 ) (2.3 )

A lower balance of covered loans acquired through the Company's previous FDIC-assisted transactions drove the decline in total loans of $123.7 million, or 2.3%, from December 31, 2010 to December 31, 2011.

Total loans, excluding covered loans, as of December 31, 2011 were stable compared to December 31, 2010. The office, retail, and industrial and other commercial real estate portfolios exhibited 6.2% growth during this period, substantially in the form of owner-occupied business relationships. Offsetting this progress, efforts to reduce lending exposure to more troubled real estate categories contributed to declines in the multi-family and construction loan portfolios.

Total loans, including covered loans, of $5.3 billion as of December 31, 2011 were consistent with September 30, 2011. Annualized growth of 10% in office, retail, and industrial and other commercial real estate loans was offset by a decline in the commercial and industrial, multi-family, and residential construction loan portfolios as well as a decline in covered loans. Approximately two-thirds of the growth in office, retail, and industrial loans represents owner-occupied credits.

Asset Quality, Excluding Covered Loans and Covered OREO (1)
(Dollar amounts in thousands)
As Of December 31, 2011
Percent Change From
December 31, 2011 September 30, 2011 December 31, 2010 September 30, 2011 December 31, 2010
Non-accrual loans (2) $ 187,325 $ 171,189 $ 211,782 9.4 (11.5 )
90 days or more past due loans 9,227 6,008 4,244 53.6 117.4
Total non-performing loans 196,552 177,197 216,026 10.9 (9.0 )
Troubled debt restructurings (still accruing interest) 17,864 7,033 22,371 154.0 (20.1 )
Other real estate owned 33,975 23,863 31,069 42.4 9.4
Total non-performing assets $ 248,391 $ 208,093 $ 269,466 19.4 (7.8 )
30-89 days past due loans $ 27,495 $ 34,061 $ 23,646 (19.3 ) 16.3
Allowance for credit losses $ 121,962 $ 131,291 $ 145,072 (7.1 ) (15.9 )
Non-accrual loans to total loans 3.68 % 3.35 % 4.15 %
Non-performing loans to total loans 3.86 % 3.47 % 4.24 %
Non-performing assets to loans plus OREO 4.85 % 4.06 % 5.25 %
Allowance for credit losses to loans 2.40 % 2.57 % 2.84 %
Allowance for credit losses to non-performing loans 62 % 74 % 67 %
(1) Covered loans and covered OREO were acquired through transactions with the FDIC and are subject to loss sharing agreements with the FDIC whereby the Company is indemnified against the majority of any losses incurred on these assets.
(2) Includes $15.8 million in troubled debt restructurings with non-accrual status as of December 31, 2011.

Non-performing assets, excluding covered loans and covered OREO, were $248.4 million at December 31, 2011, dropping $21.1 million, or 7.8%, from December 31, 2010 and increasing $40.3 million, or 19.4%, from September 30, 2011. The reduction in non-performing assets from December 31, 2010 to December 31, 2011 was largely due to management's remediation activities. During the year ended December 31, 2011, the Company had gross reductions of non-performing assets totaling $110.8 million, consisting of $80.3 million in non-accrual loans that were sold, paid off, or transferred to held-for-sale and $30.5 million in OREO properties that were sold.

The linked quarter increase in non-performing assets was largely attributed to two borrower relationships aggregating $48.0 million. After careful monitoring of borrower financial condition, these credits, both of which were performing in accordance with contractual terms, were positioned for accelerated resolution in an effort to mitigate loss exposure. In one circumstance, a commercial borrowing relationship totaling $33.9 million was transferred to non-accrual. In the other situation, a performing $14.1 million multi-family credit was modified in a troubled debt restructuring. In combination, these actions resulted in charge-offs totaling $7.0 million during the fourth quarter.

Potential non-performing loans, consisting of special mention and substandard loans, totaled $403.2 million as of December 31, 2011, down $152.7 million, or 27.5%, from $556.0 million as of December 31, 2010 and $91.6 million, or 18.5%, from $494.8 million as of September 30, 2011. The declines from both periods presented reflect management's progress in remediating problem loans and the overall improvement in the quality of the loan portfolio.

Charge-off Data
(Dollar amounts in thousands)
Quarters Ended
December 31, 2011 % of
Total
September 30, 2011 % of
Total
December 31, 2010 % of
Total
Net loans charged-off:
Commercial and industrial $ 8,910 32.3 $ 10,165 36.4 $ 10,198 13.9
Agricultural 484 1.8 177 0.6 125 0.2
Office, retail, and industrial 3,779 13.7 2,543 9.1 2,888 4.0
Multi-family 4,803 17.4 2,170 7.8 1,206 1.7
Residential construction 2,498 9.1 2,250 8.1 35,935 49.3
Commercial construction 1,673 6.1 4,115 14.7 7,743 10.6
Other commercial real estate 3,002 10.9 4,421 15.8 12,202 16.7
Consumer 2,395 8.7 2,100 7.5 2,612 3.6
Total net loans charged-off, excluding covered loans 27,544 100.0 27,941 100.0 72,909 100.0
Net charge-offs on covered loans 3,687 1,024 935
Total net charge-offs $ 31,231 $ 28,965 $ 73,844
Net loan charge-offs to average loans, excluding covered loans, annualized:
Quarter-to-date 2.15 % 2.16 % 5.61 %
Year-to-date 1.84 % 1.73 % 2.80 %

Net charge-offs for fourth quarter 2011, excluding charge-offs related to covered loans, were $27.5 million, down 62.2% from $72.9 million for fourth quarter 2010 and relatively flat compared to $27.9 million for third quarter 2011. The elevated level of charge-offs for fourth quarter 2010 related to a shift in disposition strategy primarily for certain construction loans to more aggressively pursue disposition.

CAPITAL MANAGEMENT

Capital Ratios
(Dollar amounts in thousands)
December 31, 2011 September 30, 2011 December 31, 2010 Regulatory
Minimum
For
"Well-
Capitalized
Excess Over
Required Minimums
at December 31, 2011
Regulatory capital ratios:
Total capital to risk-weighted assets 13.68% 16.81% 16.27% 10.00% 37% $ 229,842
Tier 1 capital to risk-weighted assets 11.61% 14.74% 14.20% 6.00% 94% $ 350,392
Tier 1 leverage to average assets 9.28% 11.64% 11.21% 5.00% 86% $ 334,181
Regulatory capital ratios, excluding preferred stock (1):
Total capital to risk-weighted assets 13.68% 13.72% 13.21% 10.00% 37% $ 229,842
Tier 1 capital to risk-weighted assets 11.61% 11.65% 11.15% 6.00% 94% $ 350,392
Tier 1 leverage to average assets 9.28% 9.20% 8.80% 5.00% 86% $ 334,181
Tier 1 common capital to risk-weighted assets (2)(3) 10.26% 10.29% 9.81% N/A(3) N/A(3) N/A(3)
Tangible common equity ratios:
Tangible common equity to tangible assets 8.83% 8.35% 8.06% N/A(3) N/A(3) N/A(3)
Tangible common equity, excluding other comprehensive loss, to tangible assets 9.00% 8.49% 8.41% N/A(3) N/A(3) N/A(3)
Tangible common equity to risk- weighted assets 10.88% 10.83% 10.02% N/A(3) N/A(3) N/A(3)
(1) These ratios exclude the impact of $193.0 million in preferred stock issued to the Treasury.
(2) Excludes the impact of preferred shares and trust-preferred securities.
(3) Ratio is not subject to formal Federal Reserve regulatory guidance.

The Company's regulatory ratios as of December 31, 2011 exceeded all regulatory mandated ratios for characterization as "well-capitalized."

About the Company

First Midwest is the premier relationship-based banking franchise in the dynamic Chicagoland banking market. As one of the Chicago metropolitan area's largest independent bank holding companies, First Midwest provides the full range of business and retail banking and wealth management services through approximately 100 offices located in communities in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. First Midwest was recently recognized as having the "Highest Customer Satisfaction with Retail Banking in the Midwest" according to the J.D. Power and Associates 2011 Retail Banking Satisfaction Study(SM). The Bank was also recognized by the Chicago Tribune for the second straight year as one of the top 20 best places to work in Chicago among large employers.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. It is possible that actual results and the Company's financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the Company's future results, see "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and other reports filed with the Securities and Exchange Commission. Forward-looking statements represent management's best judgment as of the date hereof based on currently available information. Except as required by law, the Company undertakes no duty to update the contents of this press release after the date hereof.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, January 25, 2012 at 10:00 A.M. (ET). Members of the public who would like to listen to the conference call should dial (877) 317-6789 (U.S. domestic) or (412) 317-6789 (international) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (international) conference I.D. 10008878 beginning one hour after completion of the live call until 8:00 A.M. (ET) on February 1, 2012. Please direct any questions regarding obtaining access to the conference call to First Midwest Bancorp, Inc. Investor Relations, via e-mail, at investor.relations@firstmidwest.com.

Accompanying Financial Statements and Tables

Accompanying this press release is the following unaudited financial information:

  • Condensed Consolidated Statements of Financial Condition
  • Condensed Consolidated Statements of Income

Press Release and Additional Information Available on Website

This press release, the accompanying financial statements and tables, and certain additional unaudited Selected Financial Information are available through the "Investor Relations" section of First Midwest's website at www.firstmidwest.com/investorrelations.

Condensed Consolidated Statements of Financial Condition
Unaudited
(Amounts in thousands)
December 31,
2011
September 30,
2011
December 31,
2010
Assets
Cash and due from banks $ 123,354 $ 116,003 $ 102,495
Interest-bearing deposits in other banks 518,176 946,330 483,281
Trading securities, at fair value 14,469 13,308 15,282
Securities available-for-sale, at fair value 1,013,006 970,430 1,057,802
Securities held-to-maturity, at amortized cost 60,458 74,375 81,320
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 58,187 58,187 61,338
Loans, excluding covered loans 5,088,113 5,104,494 5,100,560
Covered loans 260,502 289,747 371,729
Allowance for loan losses (119,462 ) (128,791 ) (142,572 )
Net loans 5,229,153 5,265,450 5,329,717
Other real estate owned ("OREO"), excluding covered OREO 33,975 23,863 31,069
Covered OREO 23,455 21,594 22,370
Federal Deposit Insurance Corporation ("FDIC") indemnification asset 65,609 63,508 95,899
Premises, furniture, and equipment 134,977 132,425 140,907
Investment in bank-owned life insurance 206,235 205,886 197,644
Goodwill and other intangible assets 283,650 283,163 286,033
Accrued interest receivable and other assets 208,890 205,652 233,145
Total assets $ 7,973,594 $ 8,380,174 $ 8,138,302
Liabilities and Stockholders' Equity
Deposits
Transactional deposits $ 4,820,058 $ 4,899,216 $ 4,519,492
Time deposits 1,659,117 1,727,392 1,991,984
Total deposits 6,479,175 6,626,608 6,511,476
Borrowed funds 205,371 386,429 303,974
Senior and subordinated debt 252,153 137,751 137,744
Accrued interest payable and other liabilities 74,308 76,953 73,063
Total liabilities 7,011,007 7,227,741 7,026,257
Preferred stock - 191,393 190,882
Common stock 858 858 858
Additional paid-in capital 428,001 425,647 437,550
Retained earnings 810,487 807,857 787,678
Accumulated other comprehensive loss, net of tax (13,276 ) (11,413 ) (27,739 )
Treasury stock, at cost (263,483 ) (261,909 ) (277,184 )
Total stockholders' equity 962,587 1,152,433 1,112,045
Total liabilities and stockholders' equity $ 7,973,594 $ 8,380,174 $ 8,138,302
Condensed Consolidated Statements of Income
Unaudited
(Amounts in thousands, except per share data)
Quarters Ended Years Ended
December 31, 2011 September 30, 2011 December 31, 2010 December 31, 2011 December 31, 2010
Interest Income
Loans $ 62,774 $ 64,085 $ 63,983 $ 252,865 $ 259,318
Investment securities 8,313 8,633 10,230 36,659 49,801
Covered loans 6,787 6,640 7,431 28,904 17,285
Federal funds sold and other short-term investments 883 817 832 3,083 2,463
Total interest income 78,757 80,175 82,476 321,511 328,867
Interest Expense
Deposits 5,962 6,654 7,907 27,256 37,127
Borrowed funds 670 706 711 2,743 3,267
Senior and subordinated debt 3,047 2,280 2,279 9,892 9,124
Total interest expense 9,679 9,640 10,897 39,891 49,518
Net interest income 69,078 70,535 71,579 281,620 279,349
Provision for loan losses 21,902 20,425 73,897 80,582 147,349
Net interest income after provision for loan losses 47,176 50,110 (2,318 ) 201,038 132,000
Noninterest Income
Service charges on deposit accounts 9,957 10,215 9,202 37,879 35,884
Trust and investment advisory fees 4,044 3,946 4,040 16,224 15,063
Other service charges, commissions, and fees 4,885 5,325 4,506 20,486 18,238
Card-based fees 4,971 4,931 4,640 19,593 17,577
Total fee-based revenues 23,857 24,417 22,388 94,182 86,762
Bank-owned life insurance income 241 1,479 696 2,231 1,560
Securities (losses) gains, net (110 ) 449 1,662 2,410 12,216
Other 2,647 (1,754 ) 1,421 3,114 8,013
Total noninterest income 26,635 24,591 26,167 101,937 108,551
Noninterest Expense
Salaries and employee benefits 35,220 29,182 31,028 128,774 114,378
OREO expense, net 2,965 4,174 17,820 16,293 50,034
Net occupancy and equipment expense 7,681 8,157 7,916 32,953 32,218
Technology and related costs 2,876 2,709 3,209 10,905 11,070
Professional services 8,026 7,571 4,524 26,356 22,903
FDIC premiums 1,758 1,799 2,967 7,990 10,880
Other 8,065 10,584 9,610 38,633 37,296
Total noninterest expense 66,591 64,176 77,074 261,904 278,779
Income (loss) before income tax expense (benefit) 7,220 10,525 (53,225 ) 41,071 (38,228 )
Income tax expense (benefit) 296 1,583 (25,066 ) 4,508 (28,544 )
Net income (loss) 6,924 8,942 (28,159 ) 36,563 (9,684 )
Preferred dividends (3,027 ) (2,586 ) (2,579 ) (10,776 ) (10,299 )
Net (income) loss applicable to non-vested restricted shares (20 ) (93 ) 411 (350 ) 266
Net income (loss) applicable to common shares $ 3,877 $ 6,263 $ (30,327 ) $ 25,437 $ (19,717 )
Diluted earnings (loss) per common share $ 0.05 $ 0.09 $ (0.41 ) $ 0.35 $
(0.27
)
Dividends declared per common share $ 0.01 $ 0.01 $ 0.01 $ 0.04 $ 0.04
Weighted average diluted common shares outstanding 73,382 73,361 73,085 73,289 72,422

Contact Information