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Calumet Investment Corporation

Catalyst operates in the same offices as the Bank and, manages a portion of the Company's non-performing assets. The Company established Catalyst in first quarter 2010. In March of 2010, the Company purchased $168.1 million of non-performing assets from the Bank and transferred them to Catalyst in the form of a capital injection. Catalyst had $6.7 million in non-performing assets totaling $45.2 millionremaining as of December 31, 2011 and $93.1 million as of December 31, 2010. This transaction did not change the presentation of these non-performing assets in the Company's consolidated financial statements and did not impact the Company's consolidated financial position, results of operations, or regulatory capital ratios. However, the transaction improved the Bank's asset quality ratios, capital ratios, and liquidity.

2014.

Parasol, began operations in 2011 and is a registered investment advisor under the Investment Advisors Act of 1940 (the "IAA"), which began operations on July 1, 2011.1940. Parasol conducts its business in one of the Bank's offices and provides wealth management services to the Bank's trustwealth management division and to individual and institutional clients, such as corporate and public retirement plans, foundations and endowments, high net worth individuals, and multi-employer trust funds. A description of the IAA can be found in the section titled "Supervision and Regulation" of this Item 1.

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Company guarantees payments of distributions on the trust-preferred securities and payments on redemption of the trust-preferred securities on a limited basis.

assessing performance.

When comparing large national metropolitan areas (defined as metropolitan areas with populations exceeding one million), the Chicago metropolitan area currently ranks as follows:

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Third in the nation with respect to total businesses,

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Third in total population,

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Twelfth in average household income, and

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Eleventh in median income producing assets.

activities.

at December 31, 2014.

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The Company'sBank's Asset Liability Committee implements the investment policy based on the established guidelines within the written policy.

1934, as amended (the "Exchange Act").

Federal Reserve System

The Federal Reserve System serves as the nation's central bank and is responsible for monetary policy. It consists of a seven member Board of Governors in Washington, D.C. and twelve reserve banks located in major cities throughout the U.S. Through the Federal Reserve Act and the this Form 10-K.

Bank Holding Company Act of 1956, As Amended (the "Act")

Generally, theBHC Act governs the acquisition and control of banks and non-banking companies by bank holding companies and requires bank holding companies to register with the Federal Reserve. The BHC Act requires a bank

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holding company to file an annual report of its operations and such additional information as the Federal Reserve may require. A bank holding company and its subsidiaries are subject to examination by the Federal Reserve.

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commercial banks. The Federal Reserve's jurisdiction to regulate the terms of certain debt issues of bank holding companies, including the authority to impose reserve requirements.

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The acquisition of 5% or more of the voting shares of any bank or bank holding company, which generallyBHC Act requires the prior approval of the Federal Reserve for the direct or indirect acquisition by a bank holding company of more than 5.0% of the voting shares of a commercial bank or its parent holding company. Under the Bank Merger Act, the prior approval of the Federal Reserve or other appropriate bank regulatory authority is required for a member bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and is subjectacquisition transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to applicable federalthe stability of the U.S. banking or financial system, the applicant's managerial and state law, includingfinancial resources, the Riegle-Neal Interstate Bankingapplicant's performance record under the Community Reinvestment Act and Branching Efficiencyfair housing laws, and the effectiveness of the banks in combating money laundering activities.

Federal Reserve Act

Bank

The CRA, requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practices. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low-income and moderate-income individuals and communities. The applicable federalFederal regulators regularly conduct CRA examinations on a regular basis to assess the performance of financial institutions and assign one of four ratings to the institution's record of meeting the credit needs of its community. Banking regulators take into account CRA ratings when considering approval of a proposed transaction. During its last examination in August of 2012, the Bank received a rating of "outstanding," the highest rating available.

The GLB, allows for banks and certain otherbank holding companies to elect to be treated as a financial institutions to enter into combinationsholding company (an "FHC") that permit a single financial services organization tomay offer customers a more comprehensive array of financial products and services. Such products and services may include insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities. Activities that are "complementary" to financial activities are also authorized. Under the GLB Act, the Federal Reserve may not permit a company to form a financial holdingregister or maintain status as an FHC if the company ifor any of its insured depository institution subsidiaries (i) are not well-capitalized and well managedmanaged. The Federal Reserve may prohibit an FHC from engaging in otherwise permissible activities at its supervisory discretion. In addition, for an FHC to commence any new activity permitted by the BHC Act or (ii) did not receiveto acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the FHC must have received a rating of at least a satisfactory rating"satisfactory" in theirits most recent CRA exam.

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Alsoexamination under the GLB,CRA.

reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

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Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor on the size of the DIF. This change generally requires an increase in the level of assessments for financial institutions with assets in excess of $10 billion effective April 1, 2011.

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Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions.

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Repeal the federal prohibitions on the ability of financial institutions to pay interest on business demand deposit accounts, thereby permitting depository institutions to pay interest on business transactional and other accounts effective July 21, 2011. As a result,banks, including the Company beganand the Bank, some of which are described in more detail below. We are monitoring developments with respect to pay interest on a limited number of business checking accounts in December 2011.

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Centralize responsibility for consumer financial protection (discussed below) by creating a new agency within the Federal Reserve.

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Apply the same leverage and risk-based capital requirements that applyprovisions applicable to insured depository institutions to most bank holding companies. One of these requirements will preclude financial institutions from including in Tier 1 capital any trust-preferred securities or cumulative preferred stock, issued on or after May 19, 2010. The Company's currently outstanding trust-preferred securities were grandfatheredcompanies and continue to qualify as Tier 1 capital. Therefore, this portion of the Dodd-Frank Act is not applicable to the Company as of December 31, 2011.

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Amend the Electronic Fund Transfer Act to give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion (discussed below).

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Establish enhanced prudential standards for risk-based capital, leverage limits, stress testing, liquidity, risk management, and concentration/credit exposure limits for institutionsbanks with total consolidated assets of $50$10 billion or more.

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In February 2012, regulatory agencies issued proposed rules to implement requirements undermore in the Dodd-Frank Actevent that will require banks with assets over $10 billion to conduct annual stress tests under regulations prescribed by the FDIC. The stress tests will be used to assess the potential impact of economic and financial conditions on the earnings, losses, and capital of a bank over a nine-quarter planning horizon, taking into account the current condition of the bank and its risks, exposures, strategies, and activities.

Company or Bank reaches that size.

the Company.

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Some uncertainty has arisen related to confidential treatment and privilege and the CFPB's ability to require reports from financial institutions. Banks currently have express legal protection that gives them the confidence and legal certainty to provide confidential "privileged" documents at the request of the federal banking agencies, and the current law provides that a bank does not "waive" confidentiality and risk disclosure of the information to an outside party, potentially involved in litigation with the bank, by providing the information to its regulator. The CFPB does not have the same express statutory protections relating to privilege that the other banking agencies are given.

The full extent of the CFPB's authority and potential impact on the Company is unclear at this time, but the Company continues to monitor the CFPB's activities on an ongoing basis.

Secure and Fair Enforcement for Mortgage Licensing Act ("SAFE Act")

The SAFE Act requires the registration of residential mortgage loan originators employed by banks, savings associations, credit unions, Farm Credit System institutions, and certain subsidiaries of these financial institutionsapprove merger or acquisition transactions when regulatory approval is required or to register with the Nationwide Mortgage Licensing System and Registry, obtain a unique identifier from the registry, and maintain this registration.

prohibit such transactions even if approval is not required.

product.

Inframework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 the Basel Committee released its final framework commonly known as "Basel III" for strengthening international capital and liquidity regulation, now officially identified bystandards as well as certain provisions of the Basel Committee as "Basel III".Dodd-Frank Act. The Basel III replaces Basel II, which was introduced byCapital Rules substantially revise the Basel Committee in 2004 and did not impact the Company. Basel III, when implemented by the U.S. banking agencies and fully phased-in, will requirerisk-based capital requirements applicable to bank holding companies and their bank subsidiariesdepository institutions, including the Company and the Bank, compared to maintain substantially morethe current U.S. risk-based capital with a greater emphasis on common equity.rules. The Basel III finalCapital Rules define the components of capital framework, amongand address other things:

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Introducesissues impacting the numerator in banks’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues impacting the denominator in regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. In addition, the Basel III Capital Rules implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period).

The implementation of1 capital.

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soundness principles. Under these rules, financial organizations must review their compensation programs to insureensure that they: (i) provide employees with incentives that appropriately balance risk and reward and that do not encourage imprudent risk; (ii) are compatible with effective controls and risk management; and (iii) are supported by strong corporate governance including active and effective oversight by the banking organization's board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation.

and Regulation

by e-mail at investor.relations@firstmidwest.com.

Company and other actions.

business, financial condition, and results of operations.

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financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The Company seeks to ensure its funding needs are met by maintaining aan adequate level of liquidity through asset and liability management. If the Company becomes unable to obtain funds when needed, it could have a material adverse effect on the Company's business, financial condition, and results of operations.

If the Company's debt ratings are downgraded below investment grade, the interest rate applicable to the Company's senior notes will be increased ratably depending upon each agency's rating, however, the aggregate amount of any increase shall not exceed 2.00 percentage points.

discussion.

Changes in these

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relationship management, general ledger, deposit, loan, or other systems)systems or the occurrence of a cyber incident (such as unauthorized access to the Company's systems).incidents also increases. Cyber incidents can result from deliberate attacks or unintentional events including, among other things, (i) gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing potentially debilitating operational disruptions; (ii) causing denial-of-service attacks on websites; or (iii) intelligence gathering and social engineering aimed at obtaining information. The occurrence of operational interruption, cyber incident, or a deficiency in the cyber security of the Company's technology systems (internal or outsourced) could negatively impact the Company's financial condition or results of operations.

Improper and fraudulent mortgage servicing and foreclosure documentation could result in liability for losses.

The financial industry has identified circumstances of improper and fraudulent mortgage servicing and foreclosure practices and documentation, such as "robo signing," among some of the nation's largest lenders. This has resulted in lengthy legal investigations and lawsuits brought by the various state attorneys general relating to the foreclosure practices of several financial institutions and their service providers and the suspension of foreclosures of single-family homes nationwide, including the Bank's service areas. Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") also have stated that their mortgage servicers will be held liable for losses incurred by the government-sponsored enterprises as a result of flawed foreclosure processes. Further, the SEC has issued a request for information about accounting and disclosure issues related to potential risks and costs associated with mortgage and foreclosure related activities.

In February 2012, these lenders entered into a $25 billion joint state-federal agreement under which the lenders promise to send direct payments to people who were victims of foreclosure servicing abuse and adhere to certain servicing processes and procedures going forward. Homeowners that borrowed through Fannie Mae and Freddie

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Mac, however, are not covered under the settlement. The Company was not a party to this litigation and is not a party to the joint settlement agreement.

The Company has a centralized foreclosure process within a single department of the Bank, including foreclosures relating to all residential, home equity, commercial, and serviced loans. As of December 31, 2011, the Bank serviced $78.5 million in loans guaranteed by Fannie Mae or Freddie Mac as part of various securitization transactions. In addition, the Company engages a loan servicer to support the administration and the resolution of certain covered assets, including single-family covered assets acquired by the Bank in FDIC-assisted transactions. Failure to comply with the applicable mortgage servicing and foreclosure requirements could have an adverse impact on the Company's reputation and results of operations.

New lines of business or new products and services may subject the Company to additional risks.

From time to time, the Company may implement new lines of business or offer new products or services within existing lines of business. There can be substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products or services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company's business, financial condition, and results of operations.

value hierarchies.

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Third-party sources also use assumptions, judgments, and estimates in determining securities values, and different third parties use different methodologies or provide different prices for similar securities. In addition, the nature of the business of the third party source that is valuing the securities at any given time could impact the valuation of the securities.

The Company's investment in bank-owned life insurance ("BOLI") may decline in value.

The Company has bank-owned life insurance contracts with a cash surrender value ("CSV") of $206.2 million as of December 31, 2011. A majority of these contracts are separate account contracts. These contracts are supported by underlying investments whose fair values are subject to volatility in the market. The Company has limited its risk of loss in value of the securities through the use of stable value contracts that provide protection from a decline in fair value down to 80% of the CSV of the insurance policies. To the extent fair values on individual contracts fall below 80% of book value, the CSV of specific contracts may be reduced or the underlying assets transferred to short-duration investments, resulting in lower earnings. As of December 31, 2011, the fair value for all contracts exceeded 80% of book value, but turmoil in the market could result in declines that could have a material adverse effect on the Company's financial condition and results of operations.

While economic conditions beganmay be taken to improve in 2011, the recent depressed business environment had an adverse effect on the Company's business.address that debt. There can be no assurance that the current improvementeconomic conditions will continue to improve, and future economic deterioration would likely exacerbate the adverse effectsthese conditions could worsen. Periods of recent difficult market conditionsincreased volatility in financial and other markets, such as those experienced recently with regard to oil and other commodity prices and current rates, and those that may arise from global political tensions and re-emerging concerns over European sovereign debt risk, can have a direct or indirect negative impact on the Company and othersour customers and introduce greater uncertainty into credit evaluation decisions and prospects for growth. Economic pressure on consumers and uncertainty regarding continuing economic improvement may also result in the financial institutions industry. Market stresschanges in consumer and business spending, borrowing and saving habits.

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that the Company will not experience an adverse effect, which may be material, on its ability to access capital and on the Company's business, financial condition, and results of operations.

Concerns about the European Union's sovereign debt crisis have also caused uncertainty for financial markets globally. Although the Company does not have direct exposure to European sovereign debt, these circumstances could indirectly affect the Company through general disruption in the global markets and the related effects on national and local economies, perceived weakness or market concerns about bank stocks generally, the Bank's hedging activities, customers with European businesses or assets denominated in the Euro, or companies in the Company's market with European businesses or affiliates.

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environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company's business, financial condition, results of operations, and liquidity.

Recent and/or future

Despite

The Company's business, may be adversely affected by the impact of uncertainty about the financial stability of troubled European Union member economies.

Certain European Union member countries have fiscal obligations greater than their fiscal revenue, which has caused investor concern over such countries' ability to continue to service their debt and foster economic growth. Federal regulators are closely monitoring U.S. money market funds' exposure to commercial paper issued by European banks. Approximately one-half of all prime money market funds are invested in European bank commercial paper and those European banks are heavily invested in government bonds issued by the troubled economies of Greece, Portugal, and Spain. A default by any of those countries could have a broad negative effect on U.S. and world economies.

In addition, the European debt crisis has caused credit spreads to widen in the fixed income debt markets and liquidity to be less abundant. A weaker European economy may transcend Europe, cause investors to lose confidence in the safety and soundness of European financial institutions and the stability of European member economies, and likewise impact U.S.-based financial institutions, the stability of the global financial markets, and the economic recovery underway in the U.S. The Company cannot predict the current or future impact this uncertainty may have on its financial condition, or results of operations.

On July 21, 2010, President Obama signed into law the

Act, including the Volcker Rule.

On June 29, 2011, the

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adjustment" to the interchange fee is available to those issuers that comply with certain standards outlined by the Federal Reserve. The effective date for the cap on interchange fees was October 1, 2011.

The short-term and long-term impact of the new Basel III final framework on capital and liquidity ratio requirements is uncertain.

The Basel III final framework introduces a new capital measure and specifies adjustments to the instruments that comprise Tier 1 capital. In addition, the Basel III final framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required by regulation. For a more detailed description of this proposal, refer to the section titled "Supervision and Regulation" in Item 1, "Business" of this Form 10-K. The U.S. banking agencies have indicated informally that they expect to implement regulations in mid-2012. These new standards are subject to further rulemaking and their terms may well change before implementation. The resulting impact of Basel III on the Company's capital and liquidity ratios and compliance costs is unknown, and could negatively affect the costs and availability of capital alternatives. In addition, requirements to maintain higher levels of capital or liquid assets could adversely impact the Company's net income and return on equity.

The Company is subject to claims and litigation pertaining to fiduciary responsibility.

From time to time, customers make claims and take legal action pertaining to the Company's performance of its fiduciary responsibilities. Whether customer claims and legal action related to the Company's performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal action are not resolved in a manner favorable to the Company, they may result in significant financial liability and/or adversely affect the market perception of the Company and its products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on the Company's business, which, in turn, could have a material adverse impact on its financial condition and results of operations.

In August 2011, the Bank was named in a purported class action lawsuit filed in the Circuit Court of Cook County, Illinois on behalf of certain of the Bank's customers who incurred overdraft fees. The lawsuit is based on the Bank's practices pursuant to debit card transactions, and alleges, among other things, that these practices have resulted in customers being unfairly assessed overdraft fees. The lawsuit seeks an unspecified amount of damages and other relief, including restitution.

The Company believes that the complaint contains significant inaccuracies and factual misstatements and that the Bank has meritorious defenses. As a result, the Bank intends to vigorously defend itself against the allegations in

In the past, the

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In addition, from time to time, banking regulators may restrict the Company from making acquisitions. See "History" and "Supervision and Regulation" in Item 1, "Business," of this Form 10-K for additional detail and further discussion of these matters.

Competition for acquisitions is intense.

The Company has engaged in FDIC-assisted transactions and may engage in future FDIC-assisted transactions, which could present additional risks to its business.

In the current economic environment, the Company may be presented with opportunities to acquire the assets and liabilities of failed banks in FDIC-assisted transactions. These acquisitions involve risks similar to acquiring

In 2009 and 2010, the Company acquired the majority of the assets of three financial institutions inhas completed four FDIC-assisted transactions. MostIn three of those transactions, most loans and OREO acquired in the acquisitions are covered by the FDIC Agreements. Under the FDIC Agreements, under which the FDIC will reimburse the Bank for a portion of the losses and eligible expenses arising from certain assets of the acquired institutions.

The FDIC Agreements have specific and detailed compliance, servicing, notification, and reporting requirements. The Company has engaged a third party loan servicing vendor to administer a portion of the assets subject to the FDIC Agreements, and may engage this or another vendor to provide similar services in the future if the Company engages in future FDIC-assisted transactions. As a result, the Company is, and may increasingly become, dependent upon this vendor to provide key services to the Bank. While the Company carefully selected this vendor, the Company may not control the vendor's actions. Any failure by the vendor to complyNon-compliance with the terms of any loss share arrangement the Bank has with the FDIC or to properly serviceAgreements could result in the loans and OREO covered by any loss share arrangement, may causeof reimbursement on individual loans, or large pools of loans, to lose eligibility for reimbursement to the Bank from the FDIC. Thisor OREO and could result in material losses that are currently not anticipated and could adversely affect the Company's business or financial condition.

Furthermore,

The Companyestimates that may not realize all of the expected benefits of its FDIC-assisted transactions.

be inaccurate.

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On March 16, 2009, the Board of Directors of First Midwest Bancorp, Inc. ("the Board") announced a reduction in the

Theconducts business through 109 banking offices arelocations largely located in various communities throughout northern Illinois and northwestern Indiana, primarily the greater Chicago metropolitan suburban area. The Company also has banking offices inarea, as well as northwest Indiana, central and western Illinois, and eastern Iowa. At certain Bank locations, excess space is leased to third parties. MostThe majority, approximately 80%, of the Company's banking locations are owned and 20% are leased.

In August 2011, the Bank was named in a purported class action lawsuit filed in the Circuit Court of Cook County, Illinois on behalf of certain of the Bank's customers who incurred overdraft fees. The lawsuit is based on the Bank's practices pursuant to debit card transactions, and alleges, among other things, that these practices have resulted in customers being unfairly assessed overdraft fees. The lawsuit seeks an unspecified amount of damages and other relief, including restitution.

The Company believes that the complaint contains significant inaccuracies and factual misstatements and that the Bank has meritorious defenses. As a result, the Bank intends to vigorously defend itself against the allegations in

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the lawsuit. The Bank filed a motion to dismiss this claim in November 2011, and the plaintiff filed an amended complaint in February 2012.

Currently, there are certain other legal proceedings pending against the Company and its subsidiaries in the ordinary course of business.at December 31, 2014. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company's management believes thatdoes not expect any liabilities arising from pending legal matters are not expected to have a material adverse effect on the Company's business, financial position,condition, results of operations, or cash flows.