DBRS Confirms First Midwest Bancorp, Inc. at BBB (low); Maintains Stable Trend and Withdraws Ratings

DBRS, Inc. (DBRS) has today confirmed the ratings of First Midwest Bancorp, Inc. (First Midwest or the Company) and its rated subsidiaries, including First Midwest’s Issuer & Senior Debt rating of BBB (low). At the same time, DBRS maintained the Stable trend on all ratings. Subsequent to the confirmation, DBRS withdrew the ratings of First Midwest. The decision to withdraw the ratings was made at DBRS’s discretion.

First Midwest’s ratings and Stable trend reflect its solid community banking franchise located primarily in the suburban Chicago metropolitan area that is underpinned by a stable, low cost deposit base. Additionally, despite losses in three of the last five years, the Company has maintained solid capital metrics, which support both organic growth as well as acquisitions. The ratings also consider First Midwest’s still elevated, albeit vastly improved, asset quality problems and a loan portfolio that is heavily concentrated in commercial real estate.

DBRS notes that the Company has made progress in diversifying its loan portfolio, working through problem assets and making investments in building the franchise. These investments included re-launching First Midwest’s mortgage banking platform and the build out of its commercial and industrial lending platform including several asset-based lending niches.

For 2013, First Midwest reported net income applicable to common shares of $78.2 million, up from a net loss applicable to common shares of $20.7 million in 2012, which reflected a large loan loss provision related to a more aggressive problem asset remediation to improve the risk profile of the Company. Positively, adjusting for non-core items, the DBRS calculated income before provision and taxes (IBPT) showed 3% growth as the Company generated positive operating leverage. For 2013, First Midwest’s efficiency ratio was 64%, improved from 2012, as it works to achieve its long-term goal of returning the efficiency ratio to below 60%.

Although vastly improved, asset quality metrics remain weaker than historical levels. Specifically, non-accrual loans declined 29% year-on-year (YoY) and non-performing assets are at their lowest point since 2007. Additionally, net charge-offs were a manageable 0.48% of average loans. The allowance for credit losses was a sufficient 1.50% of loans.

Capital remains solid and helps support the rating. The return to profitability in 2013 contributed to higher YoY capital metrics, despite balance sheet growth and an increased dividend. At year-end, the Company’s Tier 1 common capital to risk-weighted assets ratio and the tangible common equity to tangible assets ratio were a solid 10.37% and 9.09%, respectively.

First Midwest Bancorp, Inc., a bank holding company headquartered in Itasca, Illinois, reported $8.3 billion in assets at December 31, 2013.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria Criteria: Support Assessment for Banks and Banking Organisations and DBRS Criteria: Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. All DBRS methodologies and criteria can be found on DBRS website under Methodologies.

The sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer. This rating was assigned without participation by the issuer or any related third party.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: John Mackerey
Rating Committee Chair: William Schwartz
Initial Rating Date: 27 May 2010
Most Recent Rating Update: 18 March 2013

For additional information on this rating, please refer to the linking document under Related Research.