SHARE-BASED COMPENSATION

The Company maintains various equity-based compensation plans in order to grant equity awards to certain key employees and non-employee directors.

Share-Based Plans

First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan ("2018 Stock and Incentive Plan") – In May of 2018, the Company's stockholders approved the 2018 Stock and Incentive Plan which succeeds the Omnibus Stock and Incentive Plan ("Omnibus Plan") described below, under which the Company has ceased making new awards. The Company's stockholders authorized an additional 2,000,000 shares of the Company's common stock for award under the plan, with the remaining shares eligible for issuance under the Omnibus Plan now being eligible for issuance under the 2018 Stock and Incentive Plan. The 2018 Stock and Incentive Plan allows for the grant of both incentive and non-statutory ("nonqualified") stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and performance shares to certain key employees.

The Company's current equity compensation program for key employees includes restricted stock, restricted stock units, and performance shares. Both restricted stock and restricted stock unit awards vest over three years, with 50% vesting on the second anniversary of the grant date and the remaining 50% vesting on the third anniversary of the grant date, provided the employee remains employed by the Company during this period (subject to accelerated vesting under certain circumstances in the event of a change-in-control or upon certain terminations of employment, as set forth in the applicable award agreement). The fair value of the awards is determined based on the average of the high and low price of the Company's common stock on the grant date.

For participants who are granted performance shares, they may earn performance shares totaling between 0% and 200% of the number of performance shares granted based on achieving certain performance metrics. Performance shares may be earned based on achieving an internal metric (core return on average tangible common equity) and an external metric (relative total shareholder return) over a three year period. Each metric is weighted at 50% of the total award opportunity. If earned, and assuming continued employment, the performance shares vest one-third on the March 15th immediately following the end of the performance period, one-third vest the following March 15th and the remaining one-third vest on the second March 15th. Beginning with awards granted in 2018, the performance shares will vest completely, to the extent earned and assuming continued employment, on the March 15th immediately following the end of the performance period. The fair value of the performance shares that are dependent on the internal metric is determined based on the average of the high and low stock price on the grant date. An estimate is made as to the number of shares expected to vest as a result of actual performance against the internal metric to determine the amount of compensation expense to be recognized, which is re-evaluated quarterly. The fair value of the performance shares that are dependent on the external metric is determined using a Monte Carlo simulation model on the grant date assuming 100% of the shares are earned and issued.

The Company has not granted stock options since 2008. Through the end of 2008, certain key employees were granted nonqualified stock options. The option exercise price is the average of the high and low price of the Company's common stock on the grant date. There are no outstanding stock options as of December 31, 2018.

Omnibus Stock and Incentive Plan (the "Omnibus Plan") – In 1989, the Board adopted the Omnibus Plan, which allowed for the grant of both incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other awards to certain key employees. Effective May 16, 2018, the Omnibus Plan has been succeeded by the 2018 Stock and Incentive Plan and the Company no longer makes awards under the Omnibus Plan. All outstanding equity awards granted prior to the approval of the 2018 Stock and Incentive Plan will continue to be governed by the Omnibus Plan.

Nonemployee Directors Stock Plan (the "Directors Plan") – In 1997, the Board adopted the Directors Plan, which provided for the grant of equity awards to non-management Board members. Until 2008, only nonqualified stock options were issued under the Directors Plan. There are no outstanding stock options as of December 31, 2018.

In 2008, the Company amended the Directors Plan to allow for the grant of restricted stock awards, among other items. Since 2015, non-management members receive fully vested shares of the Company's common stock rather than restricted stock.

The 2018 Stock and Incentive Plan, the Omnibus Plan, and the Directors Plan, and material amendments, were submitted to and approved by the stockholders of the Company. The Company issues treasury shares to satisfy stock option exercises and the vesting of restricted stock, restricted stock units, and performance share awards.

Shares of Common Stock Available Under Share-Based Plans


⁽¹⁾	The shares of the Company's Common Stock underlying all outstanding equity awards governed by the Omnibus Plan that are canceled, forfeited, or expire will be available for issuance under the 2018 Stock and Incentive Plan.

Stock Options

Nonqualified Stock Option Transactions

(Amounts in thousands, except per share data)



	Year Ended December 31, 2018
	Number of Options		Weighted Average Exercise Price
Options outstanding beginning balance	232		$	25.19
Exercised	(42	)	12.17
Expired	(190	)	28.10
Options outstanding ending balance	—		$	—

Stock Option Valuation Assumptions – The Company estimates the fair value of stock options at the grant date using a Black-Scholes option-pricing model. No stock options were granted and no stock option award modifications were made during the three years ended December 31, 2018.

Restricted Stock, Restricted Stock Unit, and Performance Share Awards

Restricted Stock, Restricted Stock Unit, and Performance Share Award Transactions

(Amounts in thousands, except per share data)



	Year Ended December 31, 2018
	Restricted Stock/Unit Awards				Performance Shares
	Number of Shares/Units		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Non-vested awards beginning balance	1,053		$	20.36	466		$	18.16
Granted	427		24.96		133		24.96
Vested	(454	)	17.54		(97	)	17.54
Forfeited	(79	)	22.86		(34	)	22.86
Non-vested awards ending balance	947		$	23.32	468		$	19.88

In addition, non-management board members received, in the aggregate, 14,000 shares and 16,000 shares of common stock during the years ended December 31, 2018 and 2017, respectively.

Other Restricted Stock, Restricted Stock Unit, and Performance Share Award Information

(Amounts in thousands, except per share data)



	Years Ended December 31,
	2018		2017		2016
Weighted-average grant date fair value of restricted stock, restricted stock unit, and performance share awards granted during the year	$	24.96	$	24.71	$	17.28
Total fair value of restricted stock, restricted stock unit, and performance share awards vested during the year	10,870		13,760		12,231
Income tax benefit realized from the vesting/release of restricted stock, restricted stock unit, and performance share awards	2,970		4,007		2,529

No restricted stock, restricted stock unit, or performance share award modifications were made during the periods presented.

Compensation Expense

The Company recognizes share-based compensation expense based on the estimated fair value of the option or award at the grant or modification date. Share-based compensation expense is included in salaries and wages in the Consolidated Statements of Income.

Effect of Recording Share-Based Compensation Expense

(Dollar amounts in thousands)



	Years ended December 31,
	2018		2017		2016
Total share-based compensation expense⁽¹⁾	$	12,062	$	11,223	$	7,879
Income tax benefit	3,365		4,601		3,152
Share-based compensation expense, net of tax	$	8,697	$	6,622	$	4,727
Unrecognized compensation expense	$	13,982	$	13,266	$	9,990
Weighted-average amortization period remaining (in years)	1.2		1.3		1.3


⁽¹⁾	Comprised of restricted stock, restricted stock unit, and performance share awards expense.

As of December 31, 2018

Shares
Authorized

Shares Available
For Grant

2018 Stock and Incentive Plan⁽¹⁾

Directors Plan