First Midwest Finally Cleans House

NEW YORK ( TheStreet) -- First Midwest Bancorp ( FMBI) has moved aggressively to trim it stubbornly high level of problem loans and move on.

As expected by FIG Partners analyst John Rodis, who said in August that there was a "pretty good chance of a bulk loan sale between now and year-end," First Midwest of Itasca, Ill., in the third quarter reduced its nonperforming loans by 46% by targeting "$223 million of select non-performing and performing potential problem loans for accelerated resolution, resulting in charge-offs of $99 million."

First Midwest had $8.2 billion in total assets as of Sept. 30. The Chicago-area lender last Wednesday reported a third-quarter net loss applicable to common shares of $47.8 million, or 65 cents a share, compared to second-quarter earnings of $6.3 million, or nine cents a share, both in the second quarter and during the third quarter of 2011.

During the most recent quarter, the company transferred $171.1 million in nonperforming or potential problem loans to held-for-sale, and modified its disposition strategy for $52.4 million in nonperforming or potential problem loans, while charging-off 44.4% of the total.

This left the company with $112.2 million in nonperforming loans as of Sept. 30, declining from $206.7 million the previous quarter. First Midwest had $155.0 million in total assets as of Sept. 30, or 1.88% of total assets, improving from 2.99% the previous quarter, and 2.53% a year earlier.

First Midwest on Oct. 26 agreed "to sell $64.0 million of loans held-for-sale, which represents 71% of the total loans held-for-sale at September 30, 2012." The loan sale is expected to close during the fourth quarter, with the loans being sold close to their carrying value.

The company's total third-quarter provision for loan losses -- the addition to loan loss reserves -- totaled $111.8 million. Following the third-quarter credit actions, First Midwest was left with loan loss reserves totaling $105.0 million, covering 2.01% of total loans, and 105% of nonaccrual loans -- excluding balances covered by Federal Deposit Insurance Corp. loss-sharing agreements -- making it appear that reserve provisioning over the next few quarters could remain somewhat elevated.

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