FMBI - First Midwest Bancorp Inc. Announces 2021 Second Quarter Results - EPS Up 156% From a Year Ago

CHICAGO, July 20, 2021 (GLOBE NEWSWIRE) -- First Midwest Bancorp, Inc. (the "Company" or "First Midwest"), the holding company of First Midwest Bank (the "Bank"), today reported results of operations and financial condition for the second quarter of 2021. Net income applicable to common shares for the second quarter of 2021 was $47 million, or $0.41 per diluted common share, compared to $41 million, or $0.36 per diluted common share, for the first quarter of 2021, and $18 million, or $0.16 per diluted common share, for the second quarter of 2020.

Comparative results for the second and first quarters of 2021 and the second quarter of 2020 were, in certain cases, impacted by the timing of costs related to acquisitions and branch consolidation. Such results were also impacted by the Company’s response to the COVID-19 pandemic (the "pandemic"), as well as governments' responses to the pandemic. To facilitate comparison between periods, adjustments to reported results have been made to reflect these impacts. For additional detail on these adjustments, see the "Non-GAAP Financial Information" section presented later in this release.

SELECT SECOND QUARTER HIGHLIGHTS

• Improved diluted EPS to $0.41, up 14% and 156% from the first quarter of 2021 and second quarter of 2020, respectively.
• Grew total loans to $15 billion, up 7% annualized from March 31, 2021 and 4% from June 30, 2020, excluding PPP.
• Generated total revenue of $191 million, up 2% from the linked quarter and 7% over the prior year.
  • Net interest income totaled $144 million at a net margin of 2.96% compared to 3.03% and 3.13% last quarter and a year ago, respectively. Overall, average interest-earning assets increased 14% annualized and 5% from the same periods.
  • Noninterest income improved to $46 million, up 1% and 40% from the first quarter of 2021 and second quarter of 2020, respectively, with record wealth management fees and increases across all categories compared to last year.
• Improved our efficiency ratio ⁽¹⁾ to 59% compared to 62% for the first quarter of 2021 and 64% for the second quarter of 2020.
• Established the allowance for credit losses ("ACL") at $223 million, or 1.56% of total loans, excluding PPP loans, compared to 1.73% at March 31, 2021 and 1.80% at June 30, 2020.
  • Incurred net loan charge-offs ("NCOs") of $16 million, compared to $8 million and $9 million in the first quarter of 2021 and second quarter of 2020, respectively, excluding purchased credit deteriorated ("PCD") loans, absorbing specific allowances for loan losses previously established.
  • Reduced non-performing assets by 14%, performing loans classified as substandard and special mention by 4%, and loans past due 30-89 days by 32% from the first quarter of 2021.
• Increased Tier 1 capital to 11.7% of risk-weighted assets, up 4 bps linked quarter and 52 bps from a year ago.

"We are very pleased with our performance for the quarter," said Michael L. Scudder, Chairman of the Board and Chief Executive Officer of the Company. "Operating performance once again profited from increasing business momentum, sales production and tight control of our operating costs. The quarter was also aided by lower provisioning for loan losses reflective of both the strengthening economy and proactive credit remediation."

Mr. Scudder concluded, "We are very encouraged and excited about what lies ahead for our Company. Economic recovery will provide continuing opportunities for business growth across our footprint. At the same time, our announced business combination with Old National will see us become one of the Midwest’s largest commercial banks, leaving us in an even stronger position to invest, grow and innovate in talent, capabilities, and services – all of which will meaningfully accrue to the benefit of our clients, colleagues, communities and stockholders."

PENDING MERGER OF EQUALS

Old National Bancorp and First Midwest

On June 1, 2021, Old National Bancorp ("Old National"), the holding company for Old National Bank, and First Midwest, jointly announced they have entered into a definitive merger agreement to combine in an all-stock merger of equals transaction to create a premier Midwestern bank with $45 billion in combined assets. The merger agreement, which has been unanimously approved by the boards of directors of both companies, provides for a fixed exchange ratio whereby First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own. The new organization will operate under the Old National Bancorp and Old National Bank names, with dual headquarters in Evansville, Indiana and Chicago, Illinois. Upon completion of the transaction, Michael Scudder, Chairman and CEO of First Midwest, will serve as the Executive Chairman of the Board, and Jim Ryan, Chairman and CEO of Old National Bancorp, will maintain his role as CEO. As of the date of announcement, the overall transaction was valued at approximately $6.5 billion. The transaction is subject to customary regulatory and shareholder approvals and the completion of various closing conditions and is anticipated to close in late 2021 or early 2022.

⁽¹⁾ This metric is a non-GAAP financial measure. For details on the calculation of this metric, see the sections titled "Non-GAAP Financial Information" and "Non-GAAP Reconciliations" presented later in this release.

OPERATING PERFORMANCE

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

⁽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 second quarter of 2021 was up 2.2% from the first quarter of 2021 and down 0.7% from the second quarter of 2020. The increase in net interest income compared to the first quarter of 2021 resulted primarily from higher fees on PPP loans and an increase in the number of days, partially offset by lower acquired loan accretion. Compared to the second quarter of 2020, net interest income was impacted by lower interest rates, partially offset by an increase in interest income and fees on PPP loans, lower cost of funds, and growth in loans.

Acquired loan accretion contributed $6.0 million, $7.2 million, and $7.0 million to net interest income for the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively.

Tax-equivalent net interest margin for the current quarter was 2.96%, decreasing 7 and 17 basis points from the first quarter of 2021 and second quarter of 2020, respectively. Excluding the impact of acquired loan accretion, tax-equivalent net interest margin was 2.84%, down 4 and 14 basis points from the first quarter of 2021 and second quarter of 2020, respectively. Compared to the first quarter of 2021, tax-equivalent net interest margin decreased due primarily to a higher balance of other interest-earning assets from seasonal municipal deposits and higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by higher accelerated income on the forgiveness of PPP loans. Tax-equivalent net interest margin decreased compared to the second quarter of 2020 as a result of lower interest rates on loans and securities, as well as a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, partially offset by lower cost of funds and PPP loan income.

For the second quarter of 2021, total average interest-earning assets rose by $642.8 million and $873.1 million from the first quarter of 2021 and second quarter of 2020, respectively. The increase compared to both prior periods resulted primarily from a higher balance of other interest-earning assets due to higher demand deposits as a result of PPP loan funds and other government stimuli, as well as loan growth. In addition, the rise in other interest-earning assets was impacted by the normal seasonal increase in municipal deposits compared to the first quarter of 2021.

Total average funding sources for the second quarter of 2021 increased by $653.6 million from the first quarter of 2021 and $494.5 million from second quarter of 2020. The increase compared to both prior periods was driven primarily by deposit growth due to higher customer balances resulting from PPP funds and other government stimuli, partially offset by a decrease in FHLB advances. In addition, seasonal municipal deposits contributed to the increase compared to the first quarter of 2021.

Noninterest Income Analysis
(Dollar amounts in thousands)

Total noninterest income of $46.3 million was up 1.0% from the first quarter of 2021 and 40.3% from the second quarter of 2020. Record wealth management fees resulted from a higher market environment and continued sales of fiduciary and investment advisory services to new and existing customers compared to both prior periods. The increase in service charges on deposit accounts, net card-based fees, and other service charges, commissions and fees compared to the first quarter of 2021 was due primarily to seasonality, whereas the increase from the second quarter of 2020 resulted from the impact of higher transaction volumes due to economic recovery since the onset of the pandemic. Capital market products income resulted from levels of sales to corporate clients in light of market conditions that were higher than the second quarter of 2020.

Mortgage banking income for the second quarter of 2021 resulted from sales of $207.8 million of 1-4 family mortgage loans in the secondary market compared to a record $283.9 million in the first quarter of 2021 and $168.7 million in the second quarter of 2020. In addition, mortgage banking income in the first quarter of 2021 was impacted by an increase in the fair value of mortgage servicing rights.

Other income increased compared to both prior periods as a result of fair value adjustments on equity securities.

Noninterest Expense Analysis
(Dollar amounts in thousands)

N/M – Not meaningful.
⁽¹⁾ See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

Total noninterest expense was up 2.5% from the first quarter of 2021 and up 0.9% from the second quarter of 2020. Noninterest expense for all periods presented was impacted by acquisition and integration related expenses. In addition, the second and first quarters of 2021 were impacted by optimization costs. Excluding these items, noninterest expense for the second quarter of 2021 was $113.6 million, down 2.6% from the first quarter of 2021 and 1.3% from the second quarter of 2020. Overall, noninterest expense, adjusted, to average assets, excluding PPP loans, was 2.22% for the second quarter of 2021, down 16 basis points and 10 basis points from the first quarter of 2021 and second quarter of 2020, respectively.

Salaries and employee benefits decreased compared to the first quarter of 2021 driven primarily by lower equity compensation valuations and payroll tax timing, partially offset by the distribution of higher pension plan lump-sum payments to retired employees. Compared to the second quarter of 2020, salaries and employee benefits increased due mainly to higher compensation accruals and pension plan lump-sum payments to retired employees, as well as merit increases, partially offset by ongoing benefits of optimization strategies. Net occupancy and equipment expense in the first quarter of 2021 was impacted by higher costs related to winter weather conditions. Compared to the second quarter of 2020, net occupancy and equipment expenses decreased due to ongoing benefits of optimization strategies and lower levels of expense associated with the pandemic. Professional services expenses were elevated for the second quarter of 2020 due to pandemic related expenses. Advertising and promotions expense increased compared to the first quarter of 2021 due to the timing of certain costs related to marketing campaigns.

Optimization costs primarily include advisory fees, employee severance, and other expenses associated with locations identified for closure.

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

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio Composition
(Dollar amounts in thousands)

Total loans includes loans originated under the PPP loan programs beginning in the second quarter of 2020, which totaled $705.9 million, $1.1 billion, and $1.2 billion as of June 30, 2021, March 31, 2021, and June 30, 2020, respectively. Excluding these loans, total loans were up 7% annualized from March 31, 2021 and 4% from June 30, 2020. Strong production and line usage within our middle market and sector-based lending businesses drove the 4.0% annualized total corporate loan growth, excluding PPP loans compared to the first quarter of 2021. Compared to the second quarter of 2020, corporate loans, excluding PPP loans, decreased 4.1%, reflective of the pandemics impact on economic conditions resulting in higher paydowns, as well as lower production and line usage.

Growth in consumer loans compared to both prior periods resulted primarily from purchases of 1-4 family mortgages and installment loans, as well as strong production in the 1-4 family mortgages portfolio, which more than offset higher prepayments.

Allowance for Credit Losses
(Dollar amounts in thousands)

⁽¹⁾ This ratio excludes PPP loans that are fully guaranteed by the Small Business Administration ("SBA"). As a result, no allowance for credit losses is associated with these loans. See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.

The ACL was $223.2 million or 1.48% of total loans as of June 30, 2021, decreasing $20.2 million from March 31, 2021 and $24.5 million compared to June 30, 2020. Excluding the impact of PPP loans, ACL to total loans was 1.56% as of June 30, 2021, compared to 1.73% and 1.80% as of March 31, 2021 and June 30, 2020, respectively. The decrease from both prior periods reflects net charge-offs on PCD loans that previously had an ACL established upon acquisition, net charge-offs on loans that previously had specific allowance for loan losses established, and an improving credit environment.

Asset Quality
(Dollar amounts in thousands)

⁽¹⁾ See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
⁽²⁾ Foreclosed assets consists of OREO and other foreclosed assets acquired in partial or total satisfaction of defaulted loans. Other foreclosed assets are included in other assets in the Consolidated Statements of Financial Condition.
⁽³⁾ Performing loans classified as substandard and special mention excludes accruing TDRs.
⁽⁴⁾ This ratio excludes PPP loans that are fully guaranteed by the SBA. As a result, no allowance for credit losses is associated with these loans.

NPAs represented 1.01% of total loans and foreclosed assets at June 30, 2021 compared to 1.17% and 1.09% at March 31, 2021 and June 30, 2020, respectively. Excluding the impact of PCD and PPP loans, NPAs to total loans plus foreclosed assets was 0.92% at June 30, 2021, compared to 1.07% at March 31, 2021 and 0.87% at June 30, 2020, reflective of the final resolution of certain corporate credits and normal fluctuations that occur on a quarterly basis. In addition, one corporate loan relationship was transferred from non-accrual loans to foreclosed assets during the second quarter of 2021.

Performing loans classified as substandard and special mention were $669 million for the second quarter of 2021 compared to $698 million and $450 million at March 31, 2021 and June 30, 2020, respectively. The decrease from the first quarter of 2021 was due primarily to the payoff of certain corporate credits in addition to upgrade and downgrade activity. The increase from the second quarter of 2020, is a result of the pandemic's impact on certain borrowers primarily focused in elevated risk sectors that the Company has determined require additional monitoring. These loans exhibit potential or well-defined weaknesses but continue to accrue interest because they are well secured, and collection of principal and interest is expected.

Charge-Off Data
(Dollar amounts in thousands)

⁽¹⁾ Amounts represent charge-offs, net of recoveries.
⁽²⁾ See the "Non-GAAP Financial Information" section presented later in this release for a discussion of this non-GAAP financial measure.
⁽³⁾ Annualized based on the actual number of days for each period presented.
⁽⁴⁾ This ratio excludes PPP loans that are fully guaranteed by the SBA. As a result, no allowance for credit losses is associated with these loans.

NCOs to average loans, annualized was 0.55%, up from 0.26% and 0.36% for the first quarter of 2021 and second quarter of 2020, respectively. Excluding charge-offs on PCD loans and the impact of PPP loans, NCOs to average loans was 0.47% for the second quarter of 2021, compared to 0.22% and 0.27% for the first quarter of 2021 and second quarter of 2020, respectively. The increase in net loan charge-offs compared to both prior periods resulted largely from expected losses for which specific allowance for loan losses were established on certain corporate relationships based upon circumstances unique to these borrowers.

DEPOSIT PORTFOLIO

Deposit Composition
(Dollar amounts in thousands)

Total average deposits were $17.0 billion for the second quarter of 2021, up 4.3% from the first quarter of 2021 and 10.9% from the second quarter of 2020. The increase in total average deposits compared to both prior periods was impacted by higher customer balances resulting from PPP funds and other government stimuli. In addition, the increase in total average deposits compared to the first quarter of 2021 was impacted by the normal seasonal increase in municipal deposits.

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.

Risk-weighted regulatory capital ratios compared to all prior periods were impacted by retained earnings and the mix of risk-weighted assets. The Company elected the five-year current expected credit losses ("CECL") transition relief for regulatory capital, which retained approximately 30 basis points of CET1 and Tier 1 capital at June 30, 2021.

During the first quarter of 2021, the Company announced that it would restart repurchases of its outstanding shares of common stock under its stock repurchase program after suspending repurchases in March 2020 as it shifted its capital deployment strategy in response to the COVID-19 pandemic. The Company did not repurchase any shares of its common stock during the second quarter of 2021 and repurchased approximately 715,000 shares of its common stock at a total cost of $14.9 million during the first quarter of 2021.

The Board of Directors approved a quarterly cash dividend of $0.14 per common share during the second quarter of 2021, which is consistent with the first quarter of 2021 and second quarter of 2020. This dividend represents the 154 ^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 Tuesday, July 20, 2021 at 10 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, investor.firstmidwest.com . 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. 10158514 beginning one hour after completion of the live call until 8:00 A.M. (ET) on October 19 2021. 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 investor.firstmidwest.com .

Forward-Looking Statements

This communication may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of First Midwest. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "outlook," "forecast,"   "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and words of similar import. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict.   Forward-looking statements are not historical facts or guarantees of future performance but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. First Midwest cautions you not to place undue reliance on these statements. Forward-looking statements speak only as of the date made, and First Midwest undertakes no obligation to update any forward-looking statements.

Forward-looking statements may be deemed to include, among other things, statements relating to First Midwest's future financial performance the performance of First Midwest's loan or securities portfolio, the expected amount of future credit allowances or charge-offs, delays in completing the pending merger of First Midwest and Old National, the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in First Midwest's business, regulatory developments, estimated synergies, cost savings and financial benefits of completed transactions, growth strategies, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger and the continued or potential effects of the COVID-19 pandemic and related variants and mutations on First Midwest's business, financial condition, liquidity, loans, asset quality and results of operations. These statements are subject to certain risks, uncertainties and assumptions, including the duration, extent and severity of the COVID-19 pandemic and related variants and mutations, including the continued effects on First Midwest's business, operations and employees, as well as on First Midwest's customers and service providers, and on economies and markets more generally and other risks, uncertainties and assumptions that are discussed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in First Midwest's Annual Report on Form 10-K for the year ended December 31, 2020, and in First Midwest's subsequent filings made with the Securities and Exchange Commission ("SEC"). These risks and uncertainties are not exhaustive, and other sections of these reports describe additional factors that could adversely impact First Midwest's business and financial performance.

Additional Information and Where to Find It

In connection with the proposed transaction, Old National filed a registration statement on Form S?4 with the SEC on June 30, 2021. The registration statement includes a joint proxy statement/prospectus of First Midwest and Old National. The registration statement has not yet become effective. After the Form S-4 is effective, a definitive joint proxy statement/prospectus will be sent to First Midwest's and Old National's shareholders seeking certain approvals related to the proposed transaction.

The information contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. INVESTORS AND SECURITY HOLDERS OF FIRST MIDWEST AND OLD NATIONAL AND THEIR RESPECTIVE AFFILIATES ARE URGED TO READ, WHEN AVAILABLE, THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS TO BE INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST MIDWEST, OLD NATIONAL AND THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain a free copy of the registration statement, including the joint proxy statement/prospectus, as well as other relevant documents filed with the SEC containing information about First Midwest and Old National, without charge, at the SEC's website ( http://www.sec.gov ). Copies of documents filed with the SEC by First Midwest will be made available free of charge in the "Investor Relations" section of First Midwest's website, https://firstmidwest.com/ , under the heading "SEC Filings." Copies of documents filed with the SEC by Old National will be made available free of charge in the "Investor Relations" section of Old National's website, https://www.oldnational.com/ , under the heading "Financial Information."

Participants in Solicitation

First Midwest, Old National, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction under the rules of the SEC. Information regarding First Midwest's directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on April 13, 2021, and certain other documents filed by First Midwest with the SEC. Information regarding Old National"s directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on March 8, 2021, and certain other documents filed by Old National with the SEC. Other information regarding the participants in the solicitation of proxies in respect of the proposed transaction and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC. Free copies of these documents, when available, may be obtained as described in the preceding paragraph.

Non-GAAP Financial Information

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

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

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

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

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

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

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

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

About First Midwest

First Midwest (NASDAQ: FMBI) is a relationship-focused financial institution and one of the largest independent publicly traded bank holding companies based on assets headquartered in Chicago and the Midwest, with approximately $22 billion of assets and an additional $15 billion of assets under management. First Midwest Bank and First Midwest's other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust and private banking products and services. The primary footprint of First Midwest's branch network and other locations is in metropolitan Chicago, southeast Wisconsin, northwest Indiana, central and western Illinois, and eastern Iowa. Visit First Midwest at www.firstmidwest.com .

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Accompanying Unaudited Selected Financial Information