FMBI - First Midwest Bancorp Inc. Announces 2020 First Quarter Results

CHICAGO, April 30, 2020 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest"), the holding company of First Midwest Bank (the "Bank") and Park Bank, today reported results of operations and financial condition for the first quarter of 2020. Net income for the first quarter of 2020 was $19.6 million, or $0.18 per share, compared to $52.1 million, or $0.47 per share, for the fourth quarter of 2019, and $46.1 million, or $0.43 per share, for the first quarter of 2019.

First quarter of 2020 results were impacted by the COVID-19 pandemic and governmental responses to it, resulting in a higher provision for loan losses, as well as lower net interest and noninterest income. In addition, the adoption of the current expected credit losses ("CECL") accounting standard on January 1, 2020 added to the allowance for credit losses ("ACL") and impacted certain asset quality metrics and comparability to prior periods. Reported results for all periods were impacted by acquisition and integration related expenses.

SELECT FIRST QUARTER HIGHLIGHTS

• Generated EPS of $0.18, compared to $0.47 and $0.43 for the fourth and first quarters of 2019, respectively. Comparability between quarters was impacted by:
  • $0.19 per share, or $28.0 million, of loan loss provision for the estimated impact of the COVID-19 pandemic on the ACL.
  • $0.04 per share, or $5.4 million, of acquisition and integration related expenses, compared to $0.04 and $0.03 in the  fourth and first quarters of 2019, respectively.
• Produced net interest income of $144 million at a net margin of 3.54%, down 18 and 50 basis points from the fourth and first quarters of 2019, respectively, reflective of lower interest rates.
• Grew loans to $14 billion, up 35%, annualized from December 31, 2019 and 21% from March 31, 2019.
• Consistent underlying credit performance, recognizing the comparative impact of the adoption of the CECL accounting standard, the acquisition of Park Bank, and the impact of COVID-19,
  • Expanded the ACL to 1.62% of total loans, compared to 0.85% and 0.91% as of December 31 and March 31, 2019, respectively.
    • $76 million, or 54 basis points, as a result of CECL adoption,
    • $28 million, or 20 basis points, due to the estimated impact of COVID-19, and
    • $16 million, or 11 basis points, resulting from the Park Bank acquisition.
  • Non-performing assets increased to $174 million, or 1.24% of total loans plus foreclosed assets, as compared to 0.85% and 0.79% at the end of the fourth and first quarters of 2019, respectively. This increase includes:
    • 0.33% attributed to the reclassification of acquired loans stemming from the adoption of CECL.
  • Incurred net loan charge-offs of 0.37% of average loans, up from 0.33% and 0.32% for the fourth and first quarters of 2019, respectively, with the increase due to the CECL impact of purchased credit deteriorated loans.
• Maintained total average deposits of $13 billion, consistent with the fourth quarter of 2019 and up 10% from the first quarter of 2019, respectively.
• Completed the acquisition of Park Bank on March 9, 2020, adding approximately $1.2 billion of assets, $1.0 billion of deposits, and $700 million of loans.

"I am very proud of how First Midwest has pulled together to help each other, our clients and communities," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "COVID-19 is a public health crisis and the environment we face is unprecedented. Governmental response has quickly evolved and asked us to do the same. There is a tremendous “can do” spirit across our team of 2,300 colleagues, as we have stood alongside our clients and communities to support them at a time when they need us the most."

Mr. Scudder concluded, "While no one can predict the path ahead, the economic ramifications of the crisis will be challenging for all of us. But, as one of the largest independent banks in the marketplace, our commitment to our mission – to help our clients achieve financial success – remains unwavering. Importantly, our financial position is strong with ample capital and liquidity, leaving us ready to deliver on that commitment as we move forward, all to the long-term benefit of our colleagues, clients, communities and stockholders."

PARK BANK ACQUISITION

On March 9, 2020, the Company completed its acquisition of Park Bank, based in Milwaukee, Wisconsin. At closing, the Company added approximately $1.2 billion of assets, $1.0 billion of deposits, and $700 million of loans. The merger consideration totaled $174.4 million and consisted of 4.9 million shares of Company common stock and $102.5 million of cash. All operating systems are expected to be converted to our operating platforms during the second quarter of 2020.

ADOPTION OF THE CURRENT EXPECTED CREDIT LOSSES STANDARD

On January 1, 2020, the Company adopted CECL, which requires the Company to present financial assets measured at amortized cost at the net amount expected to be collected, considering an entity's current estimate of all expected credit losses. Adoption of this standard increased the allowance for credit losses by $76 million, which includes $32 million attributable to loans and unfunded commitments and $44 million attributable to purchased credit deteriorated ("PCD") and non-PCD acquired loans.

COVID-19 PANDEMIC

As one of the largest independent banks in Chicago, our mission is to help clients achieve financial success. We are committed to using our strong capital levels and ample liquidity to provide maximum support to our clients and communities during this unprecedented time. The programs and services First Midwest is offering to clients include:

• Consumer, mortgage, auto loan payment deferrals
• Small business payment deferrals
• Consumer and small business fee assistance programs
• Suspension of foreclosure and repossession actions
• Wide range of financial accommodations for our Commercial clients based on individual circumstances
• Participation in the SBA's Paycheck Protection Program

In addition, First Midwest has committed $2.5 million from the First Midwest Charitable Foundation to support the immediate and long-term needs of the communities it serves.

OPERATING PERFORMANCE

Net Interest Income and Margin Analysis
(Dollar amounts in thousands)

⁽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 first quarter of 2020 was down 3.2% from the fourth quarter of 2019 and up 3.3% from the first quarter of 2019. The decrease in net interest income compared to the fourth quarter of 2019 resulted primarily from lower interest rates and lower acquired loan accretion, partially offset by lower cost of funds and the acquisition of interest-earning assets from the Park Bank transaction that closed in March 2020. Compared to the first quarter of 2019, the increase in net interest income was driven primarily by the acquisition of interest-earning assets from the Bridgeview Bank ("Bridgeview") transaction that closed in May 2019, growth in loans and securities, and lower cost of funds, significantly offset by lower interest rates.

Acquired loan accretion contributed $6.9 million, $9.7 million, and $6.4 million to net interest income for the first quarter of 2020, fourth quarter of 2019, and first quarter of 2019, respectively.

Tax-equivalent net interest margin for the current quarter was 3.54%, decreasing 18 and 50 basis points from the fourth and first quarters of 2019, respectively. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 3.37%, down 11 and 49 basis points from the fourth and first quarters of 2019, respectively. Compared to the fourth quarter of 2019, tax-equivalent net interest margin decreased as a result of lower interest rates on loans and securities, partially offset by lower cost of funds. The decline in tax-equivalent net interest margin compared to the first quarter of 2019 was due primarily to lower interest rates and actions taken to reduce rate sensitivity.

For the first quarter of 2020, total average interest-earning assets rose by $462.0 million and $2.4 billion from the fourth quarter of 2019 and first quarter of 2019, respectively. The increase compared to both prior periods resulted primarily from the Park Bank transaction in the first quarter of 2020, securities purchases, and loan growth. In addition, the increase in average interest-earning assets compared to the first quarter of 2019 was impacted by the assets acquired in the Bridgeview transaction.

Total average funding sources for the first quarter of 2020 increased by $424.5 million and $2.4 billion from the fourth quarter of 2019 and first quarter of 2019, respectively. The increase compared to both prior periods resulted primarily from the Park Bank transaction in the first quarter of 2020 and FHLB advances. In addition, the increase in average funding sources compared to the first quarter of 2019 was impacted by deposits assumed in the Bridgeview transaction and organic deposit growth.

Noninterest Income Analysis
(Dollar amounts in thousands)

N/M – Not meaningful.

Total noninterest income of $39.4 million was down 15.3% from the fourth quarter of 2019 and up 12.8% from the first quarter of 2019. The increase in wealth management fees compared to the first quarter of 2019 resulted from continued sales of fiduciary and investment advisory services to new and existing customers. The decrease in service charges on deposit accounts and net card-based fees compared to the fourth quarter of 2019 was due primarily to seasonality and the impact of the fee assistance programs offered to our clients as a result of COVID-19.

Capital market products income decreased compared to the record level of income achieved in the fourth quarter of 2019 and increased compared to the first quarter of 2019 as a result of higher sales to corporate clients reflecting the lower long-term rate environment.

Mortgage banking income for the first quarter of 2020 resulted from sales of $116.6 million of 1-4 family mortgage loans in the secondary market, compared to $173.0 million and $57.5 million in the fourth and first quarters of 2019, respectively. In addition, mortgage banking income for the first quarter of 2020 was impacted by negative changes in the fair value of mortgage servicing rights due to market conditions.

Net securities losses of $1.0 million were recognized during the first quarter of 2020 as a result of repositioning of the Company's securities portfolio due to market conditions.

Noninterest Expense Analysis
(Dollar amounts in thousands)

⁽¹⁾ Certain reclassifications were made to prior year amounts to conform to the current year presentation.

⁽²⁾ 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 consistent with the fourth quarter of 2019 and increased 14.9% from the first quarter of 2019. Noninterest expense for all periods presented was impacted by acquisition and integration related expenses and costs related to implementation of the Delivering Excellence initiative for the fourth and first quarters of 2019. Excluding these items, noninterest expense for the first quarter of 2020 was $111.9 million, consistent with the fourth quarter of 2019 and up 14.0% from the first quarter of 2019. Overall, noninterest expense, adjusted, to average assets was well controlled at 2.44% for the first quarter of 2020, down 1% and 4% from the fourth and first quarters of 2019, respectively.

Operating costs associated with the Park Bank transaction completed late in the first quarter of 2020 contributed to noninterest expense for the first quarter of 2020. In addition, operating costs associated with the Bridgeview transaction contributed to the increase in noninterest expense compared to the first quarter of 2019. These costs primarily occurred in salaries and employee benefits, net occupancy and equipment expense, professional services, technology and related costs, and other expenses.

Compared to both prior periods, salaries and employee benefits was also impacted by lower incentive compensation expenses and equity compensation valuations. This was partially offset by higher payroll tax due to timing compared to the fourth quarter of 2019 and more than offset by merit increases and commissions resulting from sales of 1-4 family mortgage loans in the secondary market compared to the first quarter of 2019. Higher costs related to winter weather conditions and utilities contributed to the increase in net occupancy and equipment expense from the fourth quarter of 2019. Technology and related costs compared to both prior periods was impacted by investments in technology. Professional services increased compared to the first quarter of 2019 due to process enhancements and expenses associated with higher capital market products income. Compared to the first quarter of 2019, other expenses increased as a result of higher servicing fees from purchases of consumer loans and other miscellaneous expenses associated with organizational growth.

Acquisition and integration related expenses for the first quarter of 2020 and fourth quarter of 2019 resulted from the acquisition of Park Bank and Bridgeview. For the first quarter of 2019, acquisition and integration related expenses resulted from the acquisition of NorStates Bank, Northern Oak Wealth Management, Inc., and Bridgeview.

Delivering Excellence implementation costs for the fourth quarter of 2019 and first quarter of 2019 resulted from certain actions initiated by the Company in connection with its Delivering Excellence initiative and include property valuation adjustments on locations identified for closure, employee severance, and general restructuring and advisory services.

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)

Loan growth was positively impacted by the Park Bank acquisition in the first quarter of 2020, which added loans of $737.7 million as of March 31, 2020. Excluding these loans, total loans grew 12.1% annualized from December 31, 2019. Excluding the loans acquired in both the Park Bank acquisition and Bridgeview acquisition in the second quarter of 2019, total loans grew 9.0% from March 31, 2019. In addition, total corporate loans compared to both prior periods benefited from growth in commercial and industrial loans as a result of both new production and existing line draws, primarily within our sector-based lending businesses. Strong production within commercial real estate loans was offset by the impact of certain customers selling their commercial business or investment real estate properties, as well as refinancing with institutions offering loan terms outside of our credit parameters.

Growth in consumer loans compared to both prior periods resulted primarily from purchases of home equity loans, as well as organic growth. In addition, compared to the first quarter of 2019, purchases of 1-4 family mortgages contributed to the increase.

Allowance for Credit Losses
(Dollar amounts in thousands)

⁽¹⁾ Prior to the adoption of CECL on January 1, 2020, this ratio included acquired loans that were recorded at fair value through an acquisition adjustment netted in loans, which incorporated credit risk as of the acquisition date with no allowance for credit losses being established at that time. As the acquisition adjustment was accreted into income over future periods, an allowance for credit losses on acquired loans was established as necessary to reflect credit deterioration. Subsequent to adoption, an allowance for credit losses on acquired loans is established as of the acquisition date and the acquired loans are no longer recorded net of a credit-related acquisition adjustment.

The Company adopted CECL on January 1, 2020, which impacted both the level of allowance for credit losses as well as other asset quality metrics due to the change in accounting for acquired PCD loans. As a result, certain metrics are presented excluding PCD loans to provide comparability to prior periods.

The allowance for credit losses was $226.7 million or 1.62% of total loans as of March 31, 2020, increasing $117.5 million and $121.9 million compared to December 31, 2019 and March 31, 2019, respectively. Adoption of the CECL standard increased the allowance for credit losses by $76 million, which includes $32 million attributable to loans and unfunded commitments, $36 million for PCD acquired loans, and $8 million for non-PCD acquired loans. As a result of COVID-19, a provision for loan losses of $28 million was recorded in the first quarter of 2020. In addition, $14.3 million in allowance for credit losses was established through acquisition accounting adjustments for PCD loans acquired in the Park Bank acquisition in the first quarter of 2020 along with an additional $1.7 million in provision for loan losses on non-PCD loans subsequent to acquisition.

Asset Quality
(Dollar amounts in thousands)

N/M – Not meaningful.

⁽¹⁾ Prior to the adoption of CECL on January 1, 2020, purchased credit impaired ("PCI") loans with an accretable yield were considered current and were not included in past due loan totals. In addition, PCI loans with an accretable yield were excluded from non-accrual loans. Subsequent to adoption, PCD loans, including those previously classified as PCI, are included in past due and non-accrual loan totals. In addition, an allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as PCI, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

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

⁽³⁾ 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.

Non-performing assets represented 1.24% of total loans and foreclosed assets at March 31, 2020 compared to 0.85% and 0.79% at December 31, 2019 and March 31, 2019, respectively. Excluding the impact of PCD loans, non-performing assets to total loans plus foreclosed assets was 0.91% at March 31, 2020, reflective of normal fluctuations that occur on a quarterly basis. These fluctuations occurred within non-accrual loans and foreclosed assets and are isolated to certain credits for which the Company has remediation plans in place.

Total 30-89 days past due loans, excluding PCD loans of $75.6 million increased by $43.6 million and $29.8 million compared to December 31, 2019 and March 31, 2019, respectively. Reported levels were elevated largely due to timing as renewal and payment activity on two loan relationships was delayed into in the first week of April 2020.

Charge-Off Data
 (Dollar amounts in thousands)

N/A – Not applicable.

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

⁽²⁾ Prior to the adoption of CECL on January 1, 2020, 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, an allowance for credit losses on PCD loans, including those previously identified as PCI, 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 allowance for credit losses.

⁽³⁾ See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

⁽⁴⁾ Annualized based on the actual number of days for each period presented.

Net loan charge-offs to average loans, annualized were 0.37%, compared to 0.33% for the fourth quarter of 2019 and 0.32% for the first quarter of 2019. Excluding charge-offs on PCD loans, net loan charge-offs to average loans of 0.32% was consistent with both prior periods.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

Total average deposits were $13.4 billion for the first quarter of 2020, consistent with the fourth quarter of 2019 and up 10.0% from the first quarter of 2019. Compared to the fourth quarter of 2019, deposits acquired in the Park Bank transaction were offset by the normal seasonal decline in commercial and municipal deposits. The increase in total average deposits compared to the first quarter of 2019 was driven primarily by deposits assumed in the Park Bank and Bridgeview transactions in the first quarter of 2020 and second quarter of 2019, respectively, as well as organic growth.

CAPITAL MANAGEMENT

Capital Ratios

⁽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.

Capital ratios decreased compared to December 31, 2019 as earnings were more than offset by the approximately 50 basis point impact of the Park Bank acquisition, and the approximately 15 basis point impact of stock repurchases on all ratios, as well as the impact of loan growth and securities purchases on risk-weighted assets. The Company elected CECL transition relief for regulatory capital which retained approximately 20 basis points of CET1 and tier 1 capital.

During the first quarter of 2020, the Company announced a stock repurchase program authorizing the discretionary repurchase of up to $200 million of its common stock. This program replaced the Company's prior $180 million stock repurchase program, which was set to expire in March of 2020. The Company suspended repurchases in March as it shifted its capital deployment strategy in response to the COVID-19 pandemic. Prior to the suspension, the Company repurchased approximately 1.2 million shares of its common stock at a total cost of $22.6 million for the first quarter of 2020.

The Board of Directors approved a quarterly cash dividend of $0.14 per common share during the first quarter of 2020, which is consistent with the fourth quarter of 2019 and an increase of 17% from the first quarter of 2019. This dividend represents the 149^th consecutive cash dividend paid by the Company since its inception in 1983.

Conference Call

A conference call to discuss the Company's results, outlook, and related matters will be held on Friday, May 1, 2020 at 11 A.M. (ET). Members of the public who would like to listen to the conference call should dial (877) 507-0639 (U.S. domestic) or (412) 317-6003 (International) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (International) conference I.D. 10141463 beginning one hour after completion of the live call until 9:00 A.M. (ET) on May 15, 2020. Please direct any questions regarding obtaining access to the conference call to First Midwest Bancorp, Inc. Investor Relations, via e-mail, at investor.relations@firstmidwest.com.

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

This press release, the presentation materials to be discussed during the conference call, and the accompanying unaudited Selected Financial Information are available through the "Investor Relations" section of First Midwest's website at www.firstmidwest.com/investorrelations.

Forward-Looking Statements

This press release, as well as any oral statements made by or on behalf of First Midwest, 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," "outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. 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, including the related outlook for 2020, the performance of First Midwest's loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, acquisition transactions, estimated synergies, cost savings and financial benefits of announced and completed transactions, growth strategies, including possible future acquisitions, and the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity, loans 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, including its effects on our business, operations and employees, as well as on our 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, 2019, 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, 30-89 days past due loans, excluding PCD loans, non-accrual loans to total loans, excluding PCD loans, non-performing loans to total loans, excluding PCD loans, non-performing assets to total loans plus foreclosed assets, excluding PCD loans, net loan charge-offs, excluding PCD loans, and net loan charge-offs to average loans, excluding PCD loans.

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), net securities losses (first quarter of 2020), and Delivering Excellence implementation costs (all periods in 2019). 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.

The Company presents noninterest expense, adjusted, which excludes acquisition and integration related expenses and Delivering Excellence implementation costs. 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, 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 foreclosed assets, net loan charge-offs, and net loan charge-offs to average loans, all excluding PCD loans. Management believes excluding PCD loans is useful as it facilitates better comparability between periods as 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 allowance for credit losses 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 allowance for credit losses. Additionally, management believes excluding PCD 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 $20 billion of assets and an additional $11 billion of assets under management. First Midwest Bank, Park 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. First Midwest operates branches and other locations throughout metropolitan Chicago, southeast Wisconsin, and in other markets in the Midwest. Visit First Midwest at www.firstmidwest.com.

CONTACTS:

Accompanying Unaudited Selected Financial Information

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