Regulatory and Capital Matters

12 Months Ended

Dec. 31, 2020

Regulatory Capital Requirements under Banking Regulations [Abstract]

Regulatory and Capital Matters

REGULATORY AND CAPITAL MATTERS

The Company and its subsidiaries are subject to various regulatory requirements that impose restrictions on cash, loans or advances, dividends, and other matters. The Bank may also be required to maintain reserves against deposits. Reserves are held either in the form of vault cash or noninterest-bearing balances maintained with the FRB and are based on the average daily balances and statutory reserve ratios prescribed by the type of deposit account. There were no reserve balances as of December 31, 2020 and $135.4 million as of December 31, 2019 were maintained in accordance with these requirements.

Under current Federal Reserve regulations, the Bank is limited in the amount it may loan or advance to First Midwest Bancorp, Inc. on an unconsolidated basis (the "Parent Company") and its non-bank subsidiaries. Loans or advances to a single subsidiary may not exceed 10%, and loans to all subsidiaries may not exceed 20%, of the Bank's capital stock and surplus. Loans from subsidiary banks to non-bank subsidiaries, including the Parent Company, are also required to be collateralized.

The principal source of cash flow for the Parent Company is dividends from the Bank. Various federal and state banking regulations and capital guidelines limit the amount of dividends that the Bank may pay to the Parent Company. Without prior regulatory approval and while maintaining its well-capitalized status, the Bank can initiate aggregate dividend payments in 2021 of $79.3 million plus its net profits for 2021, as defined by statute, up to the date of any such dividend declaration. Future payment of dividends by the Bank depends on individual regulatory capital requirements and levels of profitability.

The Company and the Bank are also subject to various capital requirements set up and administered by federal banking agencies. Under capital adequacy guidelines, the Company and the Bank must meet specific guidelines that involve quantitative measures given the risk levels of assets and certain off-balance sheet items calculated under regulatory accounting practices ("risk-weighted assets"). The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components of capital and assets, risk weightings, and other factors.

The Federal Reserve, the primary regulator of the Company and the Bank, establishes minimum capital requirements that must be met by the Company and the Bank. As defined in the regulations, quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, common equity Tier 1 capital ("CET1") to risk-weighted assets, and Tier 1 capital to adjusted average assets. Failure to meet minimum capital requirements could result in actions by regulators that could have a material adverse effect on the Company's financial statements.

As of December 31, 2020, the Company and the Bank met all capital adequacy requirements. As of December 31, 2020, the Bank was "well-capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that management believes would change the Bank's classification.

The following table outlines the Company's and the Bank's measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve for the Company and the Bank to be categorized as adequately capitalized and avoid limitations on certain distributions, as well as for the Bank to be categorized as "well-capitalized."

Summary of Regulatory Capital Ratios

(Dollar amounts in thousands)

	Actual			Adequately Capitalized			To Be Well-Capitalized Under Applicable Capital Rules(1)
	Capital		Ratio %	Capital		Ratio %	Capital		Ratio %
As of December 31, 2020
Total capital to risk-weighted assets:
First Midwest Bancorp, Inc.	$	2,175,253	14.14	$	1,614,925	10.500	$	1,538,024	10.00
First Midwest Bank	1,721,390		11.24	1,608,360		10.500	1,531,771		10.00
Tier 1 capital to risk-weighted assets:
First Midwest Bancorp, Inc.	1,777,150		11.55	1,307,320		8.500	922,814		6.00
First Midwest Bank	1,561,968		10.20	1,302,006		8.500	1,225,417		8.00
CET1 to risk-weighted assets:
First Midwest Bancorp, Inc.	1,547,154		10.06	1,076,617		7.000	N/A		N/A
First Midwest Bank	1,561,968		10.20	1,072,240		7.000	995,651		6.50
Tier 1 capital to average assets:
First Midwest Bancorp, Inc.	1,777,150		8.91	797,500		4.000	N/A		N/A
First Midwest Bank	1,561,968		7.86	794,688		4.000	993,361		5.00
As of December 31, 2019
Total capital to risk-weighted assets:
First Midwest Bancorp, Inc.	$	1,843,597	12.96	$	1,493,672	10.500	$	1,422,545	10.00
First Midwest Bank	1,598,886		11.28	1,488,796		10.500	1,417,901		10.00
Tier 1 capital to risk-weighted assets:
First Midwest Bancorp, Inc.	1,496,048		10.52	1,209,163		8.500	853,527		6.00
First Midwest Bank	1,489,664		10.51	1,205,215		8.500	1,134,320		8.00
CET1 to risk-weighted assets:
First Midwest Bancorp, Inc.	1,496,048		10.52	995,781		7.000	N/A		N/A
First Midwest Bank	1,489,664		10.51	992,530		7.000	921,635		6.50
Tier 1 capital to average assets:
First Midwest Bancorp, Inc.	1,496,048		8.81	679,365		4.000	N/A		N/A
First Midwest Bank	1,489,664		8.79	677,570		4.000	846,963		5.00

N/A – Not applicable.

(1)"Well-capitalized" minimum CET1 to risk-weighted assets and Tier 1 capital to average assets ratios are not formally defined under applicable banking regulations for bank holding companies.

The Company and the Bank are each required to comply with certain risk-based capital and leverage requirements under capital rules (the "Basel III Capital Rules") adopted by the Federal Reserve. These rules implement the Basel III framework set forth by the Basel Committee on Banking Supervision (the "Basel Committee") as well as certain provisions of the Dodd-Frank Act.

Under the Basel III Capital Rules, the Company and the Bank are required to maintain the following:

•A minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" that is composed entirely of CET1 capital (resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%).

•A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%).

•A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (resulting in a minimum total capital ratio of 10.5%).

•A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum, but below the conservation buffer, will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall and the institution's "eligible retained income" (since March 2020, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income and (ii) average net income over the preceding four quarters).

The Basel III Capital Rules also provide for a number of deductions from and adjustments to CET1 that include, for example, goodwill, other intangible assets and deferred tax assets that arise from net operating loss and tax credit carryforwards net of any related valuation allowance. Mortgage servicing rights and deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and investments in non-consolidated financial institutions must also be deducted from CET1 to the extent that they exceed certain thresholds. The Company and the Bank, as non-advanced approaches banking organizations, made a one-time permanent election to exclude the effects of certain AOCI items included in shareholders' equity under U.S. GAAP in determining regulatory capital ratios.

In November 2017, the federal bank regulators issued a final rule that extended certain transition provisions related to the capital treatment for certain deferred tax assets, mortgage servicing rights, investments in non-consolidated financial entities, and minority interests for banking organizations that are not subject to the advanced approaches framework, such as the Company and the Bank, until January 1, 2020 when final rules to simplify the regulatory treatment of those items took effect (the "Capital Simplification Rules").

In December of 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as "Basel IV"). Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including the recalibration of risk weights and introducing new capital requirements for certain "unconditionally cancellable commitments," such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches banking organizations and not to the Company or the Bank. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulators.