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First Midwest Bancorp: Credit Cost Normalization, High Earning Assets To Help Earnings Recover

Sheen Bay Research profile picture
Sheen Bay Research


  • The increase in earning assets following the acquisition of Park Bank will likely drive earnings in the remainder of the year.
  • Provision expense will likely normalize in the second quarter. FMBI has limited exposure to COVID-19-sensitive industries.
  • The target price suggests a high upside from the current market price, which justifies a bullish rating.

Earnings of First Midwest Bancorp (NASDAQ:FMBI) plunged to $0.18 per share in the first quarter, down 62% from the last quarter of 2019. Earnings for the remainder of the year will likely improve from the first quarter, but decline on a year-over-year basis. The increase in earning assets following the acquisition of Park Bank in the first quarter will likely drive up earnings in the year ahead. Moreover, the provision expense will likely normalize in the second quarter, which will help earnings recover from the first quarter’s low. On the other hand, the net interest margin will likely decline in the second quarter following March’s interest rate cuts, which will pressurize earnings. For the full year, I’m expecting earnings per share to decline by 36% to $1.17. The December 2020 target price suggests a high upside from the current market price; therefore, I’m adopting a bullish rating on FMBI.

Loan Growth from Park Bank Acquisition to Counter Margin Decline

FMBI completed its acquisition of Park Bank in March, which increased FMBI’s loans by around $720 million, as mentioned in the press release. The increase in earning assets will likely help earnings recover in the remainder of the year. Further, FMBI’s participation in the Paycheck Protection Program (PPP) will boost loans in the second quarter. As mentioned in the first quarter’s investor presentation, FMBI has funded $1.2 billion of PPP loans, which will increase total loans in the second quarter. I’m expecting a majority of these loans to get forgiven by the third quarter; hence, the year-end loan balance will not reflect some of the loan growth during the year. Overall, I’m expecting net loans to stand at $13.9 billion at the end of 2020, up 8.8% from the end of 2019. The following table shows my estimates for loans and other balance sheet items.

This article was written by

Sheen Bay Research profile picture
Around 10 years of experience covering Banks and Macroeconomics. Passionate about discovering lucrative investments and generating alpha.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

Thank you for these articles, I enjoy these. Do you think that the Fed's new Main Street Lending program will have an impact on the banks? Will loan volume increase at the banks?
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