-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, So2uOdXGzTUlzQOr2SHjWG2GjY7v0/goQVuySFXyEMwSez9US35oVdQNHma7V/MS NW+SwMnRXuOINaf8yrDDXA== 0000910650-96-000019.txt : 19961115 0000910650-96-000019.hdr.sgml : 19961115 ACCESSION NUMBER: 0000910650-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MIDWEST BANCORP INC CENTRAL INDEX KEY: 0000702325 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 363161078 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10967 FILM NUMBER: 96660491 BUSINESS ADDRESS: STREET 1: 300 PARK BLVD SUITE 405 STREET 2: P O BOX 459 CITY: ITASCA STATE: IL ZIP: 60143-0459 BUSINESS PHONE: 7088757450 MAIL ADDRESS: STREET 1: 300 PARK BLVD SUITE 405 STREET 2: P O BOOX 459 CITY: ITASCA STATE: IL ZIP: 60143-0459 10-Q 1 3RD QTR 10-Q SECURITIES AND EXCHANGE COMMISSION FORM 10-Q Washington, D.C. 20549 (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter ended SEPTEMBER 30, 1996, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ------ ------- COMMISSION FILE NUMBER 0-10967 FIRST MIDWEST BANCORP, INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-3161078 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 300 PARK BLVD., SUITE 405, P.O. BOX 459 ITASCA, ILLINOIS 60143-0459 (Address of principal executive offices) (zip code) (708) 875-7450 (Registrant's telephone number, including area code) COMMON STOCK, $.01 PAR VALUE PREFERRED SHARE PURCHASE RIGHTS (Securities Registered Pursuant to Section 12(g) of the Act) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 4, 1996, 13,659,471 shares of the Registrant's $.01 par value common stock were outstanding, excluding treasury shares. Exhibit Index is located on page 18. FIRST MIDWEST BANCORP, INC. FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Statements of Condition . . . . . . . . . . . . . . . . 3 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 17 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF CONDITION (Dollar amounts in thousands) SEPTEMBER 30, DECEMBER 31, 1996 (1) 1995 (2) ------------- ------------ ASSETS Cash and due from banks $ 142,369 $ 141,336 Funds sold and other short term investments 4,037 7,927 Mortgages held for sale 14,653 20,011 Securities available for sale, at market value 861,186 831,030 Securities held to maturity, at amortized cost 23,007 27,527 Loans 1,994,672 2,085,604 Reserve for loan losses (28,857) (29,194) ------------- ------------ Net loans 1,965,815 2,056,410 Premises, furniture and equipment 47,538 47,108 Accrued interest receivable 21,921 24,786 Other assets 55,779 51,162 ------------ ------------ TOTAL ASSETS $ 3,136,305 $ 3,207,297 ============ ============ LIABILITIES Demand deposits $ 355,385 $ 360,895 Savings deposits 285,595 251,468 NOW accounts 295,456 262,959 Money market deposits 244,906 285,058 Time deposits 1,116,416 1,111,678 ------------ ------------ Total deposits 2,297,758 2,272,058 Short-term borrowings 542,361 649,821 Accrued interest payable 10,342 12,262 Other liabilities 25,566 23,923 ------------ ------------ TOTAL LIABILITIES 2,876,027 2,958,064 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, no par value: 1,000,000 shares authorized, none issued --- --- Common stock, $.01 par value: 30,000,000 shares authorized 14,007,291 shares issued; 13,655,528 and 13,679,747 outstanding at September 30, 1996 and December 31, 1995, respectively 137 23,475 Additional paid-in capital 57,489 35,516 Retained earnings 211,949 195,853 Unrealized net appreciation (depreciation) on securities, net of tax (2,126) 486 Treasury stock, at cost - 351,763 and 327,544 shares at September 30, 1996 and December 31, 1995, respectively (7,171) (6,097) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 260,278 249,233 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,136,305 $ 3,207,297 ============ ============ See notes to consolidated financial statements. (1) Unaudited (2) Audited - See December 31, 1995 Form 10-K for Auditor's Report. FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollar amounts in thousands, except per share data)
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30, (1) SEPTEMBER 30, (1) ----------------------------- ----------------------------- 1996 1995 1996 1995 -------------- ------------ --------------- ---------- INTEREST INCOME Loans $ 44,968 $ 46,153 $ 135,138 $ 133,666 Securities available for sale 13,252 10,575 38,635 33,077 Securities held to maturity 538 4,540 1,377 12,785 Funds sold and other short-term investments 807 1,059 2,469 2,348 ----------- ----------- ---------- ---------- TOTAL INTEREST INCOME 59,565 62,327 177,619 181,876 ----------- ----------- ---------- ---------- INTEREST EXPENSE Deposits 21,556 22,208 64,087 60,184 Short-term borrowings 6,638 10,526 22,234 33,405 ----------- ----------- ---------- ---------- TOTAL INTEREST EXPENSE 28,194 32,734 86,321 93,589 ----------- ----------- ---------- ---------- NET INTEREST INCOME 31,371 29,593 91,298 88,287 PROVISION FOR LOAN LOSSES 1,561 3,811 4,188 8,003 ----------- ----------- ---------- ---------- Net interest income after provision for loan losses 29,810 25,782 87,110 80,284 ----------- ----------- ---------- ---------- NONINTEREST INCOME Service charges on deposit accounts 2,887 2,470 7,862 7,218 Trust and investment management fees 1,602 1,480 4,830 5,067 Other service charges, commissions and fees 1,629 1,512 4,485 4,049 Mortgage banking revenues 1,013 848 2,731 2,247 Other income 496 665 1,576 2,271 Security gains, net 14 222 558 1,263 ----------- ----------- ---------- ---------- TOTAL NONINTEREST INCOME 7,641 7,197 22,042 22,115 ----------- ----------- ---------- ---------- NONINTEREST EXPENSE Salaries and wages 10,476 10,172 30,665 30,354 Retirement and other employee benefits 2,461 2,018 7,385 7,712 Occupancy expense of premises 1,900 1,679 5,079 4,452 Equipment expense 1,365 1,483 4,194 4,438 Computer processing expense 1,483 1,867 4,746 4,942 Advertising and promotions 569 542 1,976 1,764 Professional services 1,378 826 4,155 3,458 FDIC insurance premiums 185 37 489 2,402 Special assessment for SAIF 1,603 --- 1,603 --- Restructure reserve adjustment --- (810) --- (810) Acquisition credit (992) --- (1,316) --- Other expenses 4,169 3,354 11,974 10,615 ----------- ----------- ---------- ---------- TOTAL NONINTEREST EXPENSE 24,597 21,168 70,950 69,327 ----------- ----------- ---------- ---------- Income before income tax expense 12,854 11,811 38,202 33,072 INCOME TAX EXPENSE 4,252 4,239 13,458 11,755 ----------- ----------- ---------- ---------- NET INCOME $ 8,602 $ 7,572 $ 24,744 $ 21,317 =========== =========== ========== ========== NET INCOME PER SHARE $ .63 $ .56 $ 1.81 $ 1.57 Cash dividends declared per share $ .21 $ .19 $ .63 $ .57 Weighted average shares outstanding 13,660,987 13,626,526 13,683,582 13,569,813 =========== =========== ========== ========== See notes to consolidated financial statements. (1) Unaudited
FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands) NINE MONTHS ENDED SEPTEMBER 30, (1) ------------------------- 1996 1995 --------- ------------ OPERATING ACTIVITIES Net income $ 24,744 $ 21,317 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,188 8,003 Provision for depreciation 4,963 4,251 Net (accretion) amortization of securities available for sale premiums and discounts (1,599) 1,324 Net accretion of securities held to maturity premiums and discounts (30) (1,976) Net gains on securities available for sale transactions (534) (1,263) Net gains on sales of premises, furniture and equipment (87) (117) Net increase (decrease) in deferred income taxes 3,287 (52) Net amortization of purchase accounting adjustments and goodwill 894 1,046 Changes in operating assets and liabilities: Net decrease (increase) in loans held for sale 5,358 (14,624) Net decrease (increase) in accrued interest receivable 2,865 (6,391) Net decrease (increase) in other assets (3,349) (482) Net increase (decrease) in accrued interest payable (1,920) 925 Net increase (decrease) in other liabilities (1,644) (4,142) --------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 37,136 7,819 --------- ---------- INVESTING ACTIVITIES Securities available for sale: Proceeds from sales 1,037,138 349,203 Proceeds from maturities, calls and paydowns 266,752 96,682 Purchases (1,195,030) (433,581) Securities held to maturity: Proceeds from maturities, calls and paydowns 6,985 224,801 Purchases (2,435) (176,710) Loans made to customers, net of principal collected (58,732) (136,103) Proceeds from sales of foreclosed real estate 2,843 5,309 Proceeds from sales of premises, furniture and equipment 161 162 Purchases of premises, furniture and equipment (4,828) (7,942) ---------- ----------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 52,854 (78,179) --------- ----------- FINANCING ACTIVITIES Net increase in deposit accounts 25,700 153,236 Net decrease in short-term borrowings (107,460) (21,028) Purchases of treasury stock (3,947) (78) Cash dividends (8,648) (7,007) Sale of treasury stock -- 2,697 Cash dividends paid by acquiree -- (616) Exercise of stock options 1,508 1,508 --------- ---------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (92,847) 128,712 ---------- ---------- Net increase (decrease) in cash and cash equivalents (2,857) 58,352 Cash and cash equivalents at beginning of period 149,263 130,394 --------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 146,406 $ 188,746 ========= ========== Supplemental disclosures: Interest paid to depositors and creditors $ 88,241 $ 92,664 Income taxes paid 13,202 11,929 Non-cash transfers to foreclosed real estate from loans 3,995 1,083 Non-cash transfers to securities available for sale from loans 141,164 -- ========= ========== See notes to consolidated financial statements. (1) Unaudited NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim consolidated financial statements of First Midwest Bancorp, Inc. ("First Midwest") have been prepared in accordance with generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements requires Management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. In addition, certain reclassifications have been made to the 1995 data to conform to the 1996 presentation. For further information with respect to significant accounting policies followed by First Midwest in the preparation of its consolidated financial statements, refer to First Midwest's Annual Report on Form 10-K for the year ended December 31, 1995. 2. ACQUISITION On December 20, 1995, First Midwest acquired CF Bancorp, Inc. ("CF"), whose principal subsidiary was Citizens Federal Savings Bank ("Citizens Federal"), in a transaction accounted for as a pooling of interests. Accordingly, prior period financial statements and other financial disclosures have been restated as if the combining companies had been consolidated for all periods presented. Pursuant to such acquisition, each share of common stock of CF was converted into 1.4545 shares of First Midwest, with 1,339,989 First Midwest shares being issued to CF stockholders. Coincident with the acquisition, First Midwest recorded $4,887 in acquisition- related costs consisting of $4,339 in acquisition expenses and $548 in provisions for loan losses incident to conforming Citizens Federal's credit policies to First Midwest's. The acquisition expenses, certain of which are nondeductible for income tax purposes, were recorded through the establishment of a reserve, the balance of which was $1,041 as of September 30, 1996. During the first nine months of 1996 the acquisition reserve was reduced by $3,298, comprised of $1,982 in payments for acquisition related expenses with the remaining $1,316 being reversed. Of the $1,316 reversal, $324 was primarily related to reduced severance payments to former Citizens Federal's executives and employees who either resigned or accepted renegotiated payouts during the first quarter of 1996; the balance of $992 was a direct result of federal legislation enacted during the third quarter which no longer requires that thrifts recapture (i.e. expense and record as a tax liability) pre-1988 bad debt reserves upon conversion to a bank. It is currently anticipated that Citizens Federal will convert to a bank and be merged with First Midwest Bank, N.A. before year end. Additional information with respect to the acquisition reserve can be found in First Midwest's Annual Report on Form 10-K for the year ended December 31, 1995 in Footnote 2 located on page 47. 3. SECURITIES SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of securities available for sale at September 30, 1996 and December 31, 1995 are as follows: Securities Available for Sale ---------------------------------------------------------------------------------- September 30, 1996 December 31, 1995 ----------------------------------------- ---------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value --------- --------- -------- --------- -------- --------- ---------- ------ U.S. Treasury securities . . $ 65,632 $ 99 $ (140) $ 65,591 $188,854 $ 803 $ - $ 189,657 U.S. Agency securities . . . 405,791 432 (2,484) 403,739 266,534 620 (279) 266,875 Mortgage-backed securities . 388,522 1,614 (3,005) 387,131 369,888 876 (1,248) 369,516 Other securities . . . . . . 4,683 42 - 4,725 4,958 24 - 4,982 --------- --------- -------- --------- -------- --------- -------- --------- Total . . . . . . . . . . $ 864,628 $ 2,187 $(5,629) $ 861,186 $830,234 $ 2,323 $(1,527) $ 831,030 ========= ========= ======== ========= ======== ========= ======== =========
SECURITIES HELD TO MATURITY - The amortized cost and market value of securities held to maturity at September 30, 1996 and December 31, 1995 are as follows: Securities Held to Maturity -------------------------------------------------------------------------------------- September 30, 1996 December 31, 1995 ------------------------------------------ ---------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value --------- --------- -------- --------- -------- --------- ---------- --------- U.S. Treasury securities . . $ 949 $ 3 $ - $ 952 $ 828 $ 8 $ - $ 836 State and municipal securities 10,882 148 (52) 10,978 14,403 320 (241) 14,482 Other securities . . . . . . 11,176 18 - 11,194 12,296 27 - 12,323 --------- --------- -------- --------- -------- --------- -------- ---------- Total . . . . . . . . . . $ 23,007 $ 169 $ (52) $ 23,124 $27,527 $ 355 $ (241) $ 27,641 ========= ========= ======== ========= ======== ========= ======== ==========
4. LOANS The following table provides the book value of loans, by major classification, as of the dates indicated: September 30, December 31, 1996 1995 --------- --------- Commercial and industrial . . . . . . . . . . $ 570,352 $ 575,210 Agricultural . . . . . . . . . . . . . . . . . 45,326 32,111 Consumer . . . . . . . . . . . . . . . . . . . 577,831 568,344 Real estate - 1-4 family . . . . . . . . . . . 195,339 325,056 Real estate - commercial . . . . . . . . . . . 476,920 472,073 Real estate - construction . . . . . . . . . . 117,624 98,688 Other . . . . . . . . . . . . . . . . . . . . 11,280 14,122 --------- ---------- Total . . . . . . . . . . . . . . . . . . . . $1,994,672 $2,085,604 ========= ========== During the first quarter of 1996, First Midwest securitized approximately $140,000 in 1-4 family real estate loans, retaining such assets in its securities available for sale portfolio as mortgage-backed securities. The December 31, 1995 loan balances for the Commercial and Industrial and Real estate - commercial categories reflect certain reclassifications which were made to conform to the September 30, 1996 presentation. 5. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS Transactions in the reserve for loan losses for the quarters and nine month periods ended September 30, 1996 and 1995 are summarized below: Quarters ended Nine months ended September 30, September 30, ---------------------- ----------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Balance at beginning of period . . . . . . . . . . . . . . $ 28,597 $ 25,901 $ 29,194 $ 25,154 Provision for loan losses . . . . . . . . . . . . . . . . . 1,561 3,811 4,188 8,003 Loans charged-off . . . . . . . . . . . . . . . . . . . (2,025) (2,663) (6,468) (7,205) Recoveries of loans previously charged-off . . . . . . . 724 787 1,943 1,884 ---------- ---------- ---------- ---------- Net loans charged-off . . . . . . . . . . . . . . . . . (1,301) (1,876) (4,525) (5,321) ---------- ---------- ---------- ---------- Balance at end of period . . . . . . . . . . . . . . . . . $ 28,857 $ 27,836 $ 28,857 $ 27,836 ========== ========== ========== ==========
At September 30, 1996, the recorded investment in loans considered impaired as defined by Financial Accounting Standards Board Statement No. 114, was $17,186 of which $11,618 have collateral values equal to or greater than the recorded investment in such loans; the $5,568 balance of impaired loans have collateral values less than the recorded investment in such loans for which a specific loan loss reserve of $1,238 is maintained. For the nine months ended September 30, 1996, the average recorded investment in impaired loans was approximately $17,470. 6. RESTATED CERTIFICATE OF INCORPORATION At its Annual Meeting of Shareholders held on April 16, 1996, First Midwest's Certificate of Incorporation was amended to increase the number of shares of authorized common stock and change the par value of such stock. The number of shares of authorized stock increased from 20,000,000 to 30,000,000, while First Midwest's no par value common stock was changed to $.01 par value. Incident to such change, the common stock component of the Company's stockholders' equity was adjusted to reflect the aggregate par value of the shares outstanding, with the balance of such component being transferred to additional paid-in capital. The amendments do not dilute the ownership interests of stockholders nor do they have any other impact on the rights and privileges of common stockholders. 7. CONTINGENT LIABILITIES AND OTHER MATTERS There are certain legal proceedings pending against First Midwest and its Subsidiaries in the ordinary course of business at September 30, 1996. In assessing these proceedings, including the advice of counsel, First Midwest believes that liabilities arising from these proceedings, if any, would not have a material adverse effect on the consolidated financial condition of First Midwest. During the second quarter of 1995 settlement discussions were initiated arising out of litigation brought by First Midwest relating to a claim against its fidelity bond insurance carrier. Such claim related to loans charged off by First Midwest in 1991. Incident to the claim the carrier informally communicated a settlement offer which was rejected by First Midwest. A bench trial commenced in February, 1996 with First Midwest presenting its case and the matter being continued until April, 1996. Because of the judge's health, the trial was again continued during which time the judge passed away. The case has been reassigned to another judge and is awaiting the scheduling of a new trial date. Neither the outcome of the trial nor the possibility of settlement can be reasonably quantified or determined at this time. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion presented below provides an analysis of First Midwest's results of operations and financial condition for the quarter and nine months ended September 30, 1996 as compared to the same periods in 1995. Management's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes presented elsewhere in this report as well as First Midwest's 1995 Annual Report on Form 10-K. Results of operations for the quarter and nine month periods ended September 30, 1996 are not necessarily indicative of results to be expected for the full year of 1996. The consolidated financial information for all periods presented herein have been restated to include First Midwest's 1995 acquisition of CF Bancorp, Inc. accounted for as a pooling of interests. All financial information is presented in thousands of dollars, except per share data. SUMMARY OF PERFORMANCE Net Income - ---------- Net income for the third quarter of 1996 increased to $8,602, or $.63 per share from $7,572, or $.56 per share in the same quarter of 1995, representing an increase of 13% on a per share basis. For the nine months ended September 30, 1996, net income totaled $24,744 or $1.81 per share from $21,317, or $1.57 per share for the same period in 1995, representing a 15% increase per share. Exclusive of certain nonrecurring items fully described in the section entitled "Noninterest Expense", net income from operations for the third quarter of 1996 was $8,572 or .63 cents per share, a 21% increase over 1995's like quarter of $7,078, or .52 cents per share. For the nine months ended September 30, 1996 net income from operations totaled $24,519 or $1.79 per share, a 17% increase over 1995's $20,823, or $1.53 per share. Return on Average Assets and Stockholders' Equity - ------------------------------------------------- Return on average assets was 1.11% for the third quarter of 1996 as compared to 0.93% for the same quarter in 1995. Return on average assets was 1.06% for the nine months ended September 30, 1996, as compared to 0.90% for the same period in 1995. Based on net income from operations, return on average assets was 1.11% for the third quarter of 1996 as compared to .87% for the same quarter in 1995. For the nine months ended September 30, 1996, return on average assets from operations was 1.05% as compared to .88% in 1995. Return on average stockholders' equity was 13.39% for the third quarter of 1996, as compared to 12.51% for the same quarter in 1995. Return on average stockholders' equity was 13.03% for the nine months ended September 30, 1996, as compared to 12.50% for the same period in 1995. Based on net income from operations, return on average stockholders equity was 13.35% for the third quarter of 1996 as compared to 11.69% for the same quarter in 1995. For the nine months ended September 30, 1996, return on average equity from operations was 12.91% as compared to 12.21% in 1995. NET INTEREST INCOME Net interest income on a tax equivalent basis totaled $31,902 for the third quarter of 1996, representing an increase of $1,983 or 6.6% over the year-ago quarter totaling $29,919. As shown in the Volume/Rate Analysis for the quarter ended September 30, 1996 located on page 11, the increase in net interest income is comprised of $2,556 in reduced interest income net of $4,539 in lower interest expense. The net interest margin for the third quarter of 1996 increased to 4.43% as compared to 3.95% for the same period in 1995. As shown in the Volume/Rate Analysis, the $2,556 decrease in interest income for the quarter is largely attributable to volume and interest rate variances on the securities portfolio, including held to maturity and available for sale securities, totaling to a net decline of $1,124. The majority of the securities portfolio interest income variance resulted from securities volumes, which decreased by $61,052 in the current quarter as compared to the like quarter last year. Such decrease, which in part reflects a reemployment of discretionary securities funding into higher yielding loans, would have approximated $200,000 if not for the first quarter 1996 securitization of $140,000 in one-to-four family residential real estate loans. Likewise factoring out the securitization, the $52,610 reduction in average loans in the third quarter of 1996 as compared to 1995's quarter would have reflected in increase in average loan levels of approximately $87,000, reflecting growth in core lending. The decrease in total interest expense of $4,540 in the third quarter of 1996 was largely due to decreases in both the volume and rates paid on short-term borrowings. Such short term borrowings primarily represent repurchase agreements which had been used to a greater extent in the 1995 quarter to fund certain discretionary securities purchases. For the nine month period ended September 30, 1996, net interest margin increased to 4.27% from 4.06% for 1995. The Volume/Rate Analysis for the nine months ended September 30, 1996 as compared to 1995 is presented on page 12. VOLUME/RATE ANALYSIS The table below summarizes the changes in average interest-earning assets and interest-bearing liabilities as well as the average rates earned and paid on these assets and liabilities, respectively, for the quarters ended September 30, 1996 and 1995. The table also details the increase and decrease in income and expense for each major category of assets and liabilities and analyzes the extent to which such variances are attributable to volume and rate changes. QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 ------------------------------------------------------------------------------------------- AVERAGE INTEREST INTEREST AVERAGE BALANCES RATES EARNED/PAID INCOME/EXPENSE -------------------------------- ------------------------- ------------------------------
BASIS INCREASE POINTS INCREASE 1996 1995 (DECREASE) 1996 1995 INC/(DEC) 1996 1995 (DECREASE) --------- --------- ---------- ------ ------ -------- ------ ------- ---------- Funds sold and other short-term investments $ 37,215 59,986 (22,771) 8.64 % 7.00 % 1.64 % $ 808 1,058 (250) Securities available for sale (1) 825,017 627,224 197,793 6.57 6.69 (0.12) 13,630 10,575 3,055 Securities held to maturity (1) 22,488 281,333 (258,845) 10.90 6.76 4.14 616 4,795 (4,179) Loans, net of unearned discount (2) 1,981,306 2,033,916 (52,610) 9.04 9.02 0.02 45,043 46,225 (1,182) --------- --------- --------- ------ ------ ------ -------- ------- --------- Total interest-earning assets (2) $2,866,026 3,002,459 (136,433) 8.34 % 8.28 % 0.06% $60,097 62,653 (2,556) ========= ========= ========= ====== ====== ====== ======== ======= ========= Savings deposits $ 290,489 256,969 33,520 2.40 % 2.18 % 0.22 % $ 1,756 1,411 345 NOW accounts 322,331 333,844 (11,513) 2.34 2.58 (0.24) 1,894 2,173 (279) Money market deposits 237,248 281,979 (44,731) 3.56 3.80 (0.24) 2,124 2,699 (575) Time deposits 1,122,246 1,076,410 45,836 5.59 5.87 (0.28) 15,783 15,925 (142) Short-term borrowings 491,779 681,236 (189,457) 5.37 6.13 (0.76) 6,638 10,526 (3,888) --------- --------- --------- ------ ------ ------ -------- ------ --------- Total interest-bearing liabilities $2,464,093 2,630,438 (166,345) 4.55 % 4.94 % (0.39)% $28,195 32,734 (4,539) ========= ========= ========= ====== ====== ====== ======== ====== ========= Net interest margin/income (2) 4.43 % 3.95 % 0.48 % $31,902 29,919 1,983 ====== ====== ====== ======== ====== ========= QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 continued -------------------- INCREASE/(DECREASE) IN INTEREST INCOME/EXPENSE DUE TO: -------------------------------- VOLUME RATE TOTAL ------- ------- ---------- Funds sold and other short-term investments $ (637) 387 (250) Securities available for sale (1) 3,263 (208) 3,055 Securities held to maturity (1) (12,284) 8,105 (4,179) Loans, net of unearned discount (2) (1,195) 13 (1,182) -------- ------- ---------- Total interest-earning assets (2) (10,853) 8,297 (2,556) ======== ======= ========== Savings deposits $ 194 151 345 NOW accounts (72) (207) (279) Money market deposits (408) (167) (575) Time deposits 890 (1,032) (142) Short-term borrowings (2,674) (1,214) (3,888) -------- ------- ---------- Total interest-bearing liabilities $(2,070) (2,469) (4,539) ======== ======= ========== Net interest margin/income (2) $(8,783) 10,766 1,983 ======== ======= ========== (1) In December 1995, a reclassification was made from securities held to maturity to securities available for sale. (2) Interest income and yields are presented on a tax-equivalent basis.
VOLUME/RATE ANALYSIS The table below summarizes the changes in average interest-earning assets and interest-bearing liabilities as well as the average rates earned and paid on these assets and liabilities, respectively, for the nine months ended September 30, 1996 and 1995. The table also details the increase and decrease in income and expense for each major category of assets and liabilities and analyzes the extent to which such variances are attributable to volume and rate changes. NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 ------------------------------------------------------------------- AVERAGE INTEREST AVERAGE BALANCES RATES EARNED/PAID ---------------------------------- -----------------------------
BASIS INCREASE POINTS 1996 1995 (DECREASE) 1996 1995 INC/(DEC) ------------ --------- --------- ------- -------- --------- Funds sold and other short-term investments $ 39,747 43,208 (3,461) 8.30 % 7.27 % 1.03 % Securities available for sale (1) 827,451 663,374 164,077 6.43 6.67 (0.24) Securities held to maturity (1) 23,206 253,933 (230,727) 9.53 7.11 2.42 Loans, net of unearned discount (2) 2,016,556 1,977,132 39,424 8.97 9.05 (0.08) ------------ --------- --------- ------- -------- --------- Total interest-earning assets (2) $ 2,906,960 2,937,647 (30,687) 8.24 % 8.32 % (0.08)% ============ ========= ========= ======= ======== ========= Savings deposits $ 267,865 267,060 805 2.23 % 2.17 % (0.06)% NOW accounts 300,146 310,342 (10,196) 2.33 2.48 (0.15) Money market deposits 264,930 254,505 10,425 3.55 3.53 0.02 Time deposits 1,122,009 1,033,288 88,721 5.64 5.61 0.03 Short-term borrowings 549,629 699,539 (149,910) 5.40 6.38 (0.98) ------------ --------- --------- ------- -------- --------- Total interest-bearing liabilities $ 2,504,579 2,564,734 (60,155) 4.60 % 4.88 % (0.28)% ============ ========= ========= ======= ======== ========= Net interest margin/income (2) 4.27 % 4.06 % 0.21 % ======= ======== ========= NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 - CONTINUED ----------------------------------------- INTEREST INCREASE/(DECREASE) IN INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO: ------------------------------ ----------------------------- INCREASE 1996 1995 (DECREASE) VOLUME RATE TOTAL -------- -------- --------- -------- -------- -------- Funds sold and other short-term investments $ 2,469 2,348 121 $ (154) 275 121 Securities available for sale (1) 39,836 33,077 6,759 7,853 (1,094) 6,759 Securities held to maturity (1) 1,655 13,512 (11,857) (18,957) 7,100 (11,857) Loans, net of unearned discount (2) 135,369 133,872 1,497 2,629 (1,132) 1,497 -------- -------- --------- -------- -------- -------- Total interest-earning assets (2) $179,329 182,809 (3,480) $(8,629) 5,149 (3,480) ======== ======== ========= ======== ======== ======== Savings deposits $ 4,469 4,342 127 $ 13 114 127 NOW accounts 5,234 5,761 (527) (184) (343) (527) Money market deposits 7,032 6,725 307 277 30 307 Time deposits 47,352 43,356 3,996 3,743 253 3,996 Short-term borrowings 22,234 33,405 (11,171) (6,520) (4,651) (11,171) -------- -------- --------- -------- -------- -------- Total interest-bearing liabilities $ 86,321 93,589 (7,268) $(2,671) (4,597) (7,268) ======== ======== ========= ======== ======== ======== Net interest margin/income (2) $ 93,008 89,220 3,788 $(5,958) 9,746 3,788 ======== ======== ========= ======== ======== ======== (1) In December 1995, a reclassification was made from securities held to maturity to securities available for sale. (2) Interest income and yields are presented on a tax-equivalent basis.
NONINTEREST INCOME Noninterest income totaled $7,641 for the quarter ended September 30, 1996, as compared to $7,197 for the same quarter in 1995. Exclusive of net security gains which totaled $14 for the third quarter of 1996 as compared to $222 for the like period in 1995, noninterest income increased by $652 or 9.3% with every major component of operating income contributing to the increase. Service charges on deposit accounts increased by $417 as a result of fees assessed on generally lower compensating balances maintained by commercial customers. Trust and investment management fees increased by $122 due to new trust business while other service charges, commissions and fees added $117 from higher merchant credit card fees and annuity sales revenue. The $165 increase in mortgage banking revenues corresponded, in part, to growth in the mortgage loan servicing portfolio while the $169 decline in other income reflects the impact of certain gains on the sale of assets totaling $183 recorded by Citizens Federal in the 1995 quarter. Noninterest income totaled $22,042 for the nine months ended September 30, 1996, as compared to $22,115 for the like period in 1995. Factoring out net security gains totaling $558 for the 1996 nine month period as compared to $1,263 for the 1995 period, noninterest income increased by $632, or 3%. The reasons for the increase in noninterest income for the nine month period generally followed those described above for the third quarter. Other considerations in the comparison of the nine month period include certain nonrecurring transactions recorded in 1995. Trust and investment management fees reflect a $237 decrease in 1996 as compared to 1995 due to an approximate $400 accounting adjustment recorded in the prior year. The $705 decline in other income is due to a gain on the sale of $13 million in student loans as well as the gain on the sale of assets, both of which were recorded in 1995. NONINTEREST EXPENSE Noninterest expense totaled $24,597 for the quarter ended September 30, 1996, increasing by $3,429 from $21,168 for the same quarter in 1995. For the nine months ended September 30, 1996, noninterest expense totaled $70,950 as compared to $69,327 for the same period in 1995. Exclusive of certain nonrecurring adjustments recorded during the third quarters of 1996 and 1995, which are described later in this section, noninterest expense totaled $23,986 for the third quarter of 1996, increasing by $2,007 from $21,979 for the same quarter in 1995. Likewise, exclusive of the nonrecurring adjustments, noninterest expense totaled $69,347 for the first nine months of 1996, decreasing by $790 from $70,137 for the same nine months in 1995. Salaries and wages increased by $304 in the third quarter of 1996 over 1995's like quarter primarily due to both merit increases given to hourly employees based upon annual evaluations conducted in August and an increase in full time equivalent personnel dominantly to staff branch expansion. Retirement and other employee benefits increased by $443 due to profit sharing and pension plan accrual adjustments recorded in the 1995 third quarter. Such adjustments resulted primarily from employee forfeitures in the profit sharing plan in addition to fewer overall participants in the retirements plans as a result of the companywide restructuring initiative which was concluded during the third quarter of 1995. Occupancy expense increased by $221 in the third quarter of 1996 resulting from rental expense incurred on a new operation center which began in mid 1995 as well as the cost of new branch expansion in Champaign, Illinois which opened in June 1996. Other expense increased by $814 in the third quarter of 1996 as compared to the 1995 quarter due to legal and other professional fees expense reversals recorded in 1995 which was predicated on a reduction in contracted services. Noninterest expense for the third quarter of 1996 included two nonrecurring adjustments resulting from federal legislation enacted during the quarter that repealed the thrift bad debt recapture regulation and recapitalized the Savings Association Insurance Fund (SAIF). The bad debt recapture repeal permitted the reversal of a $992 nondeductible charge recorded in the fourth quarter of 1995 related to the acquisition of Citizens Federal while the SAIF recapitalization required a one time charge of $1,603. For the nine months ended September 30, 1996, in addition to the two third quarter nonrecurring adjustments just discussed, included in noninterest expense was a nonrecurring acquisition credit of $324 that was recorded in the first quarter of 1996. Correspondingly, 1995's third quarter and nine months included a nonrecurring restructure reserve credit of $810. Exclusive of the nonrecurring adjustment just described, the efficiency ratio for the quarter ended September 30, 1996 was 60.45%, as compared to 1995 third quarter ratio of 59.38%, while the efficiency ratio for the nine months ended September 30, 1996 was 61.39%, as compared to the prior year's nine month ratio of 62.91%. INCOME TAX EXPENSE Income tax expense totaled $4,252 for the third quarter of 1996, increasing from $4,239 for the same period in 1995 and reflects effective income tax rates of 29.41% and 35.89%, respectively. Income tax expense totaled $13,458 for the nine months ended September 30, 1996 increasing from $11,755 for the 1995 nine month period and reflects effective income tax rates of 35.23% and 35.54%, respectively. Factoring out the nonrecurring adjustments discussed in the "Noninterest Expense" section above, the effective tax rate for the third quarter and nine months of 1996 was 36.22% and 35.26% respectfully. NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS The following table summarizes nonperforming assets and loans past due 90 days or more and still accruing, as of the close of the last five calendar quarters: Nonperforming Assets and 1996 1995 --------------------------------- ----------------------- 90 Day Past Due - --------------- Loans Sept. 30 June 30 March 31 Dec. 31 Sept. 30 ----------- ----------- ------- ----------- ---------- Nonaccrual loans $ 11,435 $ 10,790 $11,428 $ 11,219 $ 9,208 Renegotiated loans 7,876 7,760 7,963 7,917 7,942 ----------- ----------- ------- ----------- ---------- Total nonperforming loans 19,311 18,550 19,391 19,136 17,150 Foreclosed real estate 5,587 5,393 5,779 4,752 5,664 ----------- ----------- ------- ----------- ---------- Total nonperforming assets $ 24,898 $ 23,943 $25,170 $ 23,888 $ 22,814 =========== =========== ======= =========== ========== % of total loans plus foreclosed real estate 1.24% 1.21% 1.29% 1.13% 1.11% =========== =========== ======= =========== ========== 90 Day past due loans accruing interest $ 4,998 $ 4,318 $ 8,206 $ 3,626 $ 8,676 =========== =========== ======= =========== ==========
Nonaccrual loans, totaling $11,435 at September 30, 1996, is comprised of commercial loans (61%), real estate loans (32%) and agricultural and consumer loans (7%). The renegotiated loan balance of $7,876 represents loans to certain related borrowers that have performed in compliance with all contractual loan terms since the loan was renegotiated in December, 1984. Foreclosed real estate, totaling $5,587 at September 30, 1996, primarily represents commercial real estate properties. First Midwest's disclosure with respect to impaired loans is contained in note 5 to the consolidated financial statements, located on page 8. PROVISION AND RESERVE FOR LOAN LOSSES Transactions in the reserve for loan losses during the quarters and nine months ended September 30, 1996 and 1995 are summarized below: Quarters ended Nine months ended September 30, September 30, ------------------------ ------------------------ 1996 1995 1996 1995 ---------- ----------- ---------- ----------- Balance at beginning of period . . . . . . . . . . . . . . $ 28,597 $ 25,901 $ 29,194 $ 25,154 Provision for loan losses . . . . . . . . . . . . . . . . . 1,562 3,811 4,188 8,003 Loans charged-off . . . . . . . . . . . . . . . . . . . (2,025) (2,663) (6,468) (7,205) Recoveries of loans previously charged-off . . . . . . . 723 787 1,943 1,884 ---------- ----------- ---------- ----------- Net loans charged-off . . . . . . . . . . . . . . . . . (1,302) (1,876) (4,525) (5,321) ---------- ----------- ---------- ----------- Balance at end of period . . . . . . . . . . . . . . . . . $ 28,857 $ 27,836 $ 28,857 $ 27,836 ========== =========== ========== =========== Reserve as a % of loans at period end . . . . . . . . . . . 1.45% 1.36% ========== ===========
The provision for loan losses charged to operating expense for the third quarter of 1996 totaled $1,561 as compared to $3,811 for the same quarter in 1995. Included in the provision for loan losses for the third quarter of 1995 was $1,400 recorded as of result of Management's decision to increase the reserve for loan losses to be a level more closely approximating peer. The amount of the provision for loan losses in any given period is dependent upon many factors, including loan growth, changes in the composition of the loan portfolio, net charge-off levels, delinquencies, collateral values, and Management's assessment of current and prospective economic conditions. Loans charged off, net of recoveries, for the quarter totaled $1,301, or .26% of average loans in 1996 as compared to $1,876, or .37% in 1995. The reserve for loan losses at September 30, 1996 was comprised of three parts: allocated for specific impaired loans, $1,238; allocated for general segments of unimpaired loans, $6,499; and unallocated, $21,120. That part of the reserve allocated for specific impaired loans is discussed in Note 5 to the consolidated financial statements located on page 8. That part of the reserve allocated for unimpaired general loan segments represents First Midwest's best judgment as to potential loss exposure based upon both historical loss trends as well as loan ratings and qualitative evaluations of such segments. The unallocated portion of the reserve is that part not allocated to either a specific loan on which loss is anticipated or allocated to general segments of the unimpaired loan portfolio. At September 30, 1996, the reserve for loan losses totaled $28,857, or 1.45% of total loans outstanding as compared to $27,836, or 1.36% at September 30, 1995. Such reserve level is considered adequate in relation to the estimated risk of future losses within the loan portfolio. The distribution of the loan portfolio is presented in Note 4 to the consolidated financial statement located on page 7. The loan portfolio, which contains no sub prime credit nor consumer credit card loans, consists dominantly of loans orginated by First Midwest from its primary markets and generally represents credit extension to multi-relationship customers. CAPITAL The table below compares First Midwest's capital structure to the minimum capital ratios required by its primary regulator, the Federal Reserve Board ("FRB"). Also provided is a comparison of capital ratios for First Midwest's national banking subsidiary, First Midwest Bank, N.A., to its primary regulator, the Office of the Comptroller of the Currency ("OCC"). Both First Midwest and First Midwest Bank, N.A. are subject to the minimum capital ratios defined by banking regulators pursuant to the FDIC Improvement Act ("FDICIA") and have capital measurements well in excess of the minimums required by their respective bank regulatory authorities to be considered "well-capitalized" which is the highest capital category established under the FDICIA. As of September 30, 1996 --------------------------------------------------------------------- Bank Holding Company National Bank Minimum -------------------------- -------------------------- CAPITAL MEASUREMENTS - FRB/OCC Minimum First Minimum Well- First Required Midwest Bank Required Capitalized Midwest FRB N.A. OCC FDICIA ------------ ------------ ------------ ------------ ------------ Tier 1 capital to risk-based assets 10.95% 4.00% 9.11% 4.00% 6.00% Total capital to risk-based assets 12.20% 8.00% 10.35% 8.00% 10.00% Leverage ratio 8.09% 3.00% 6.79% 3.00% 5.00% ============== ====== ============ ============ ============
Citizens Federal's primary regulator is the Office of Thrift Supervisions ("OTS"). As of September 30, 1996, Citizens Federal exceeded all applicable capital ratio requirements of the OTS. DIVIDENDS First Midwest's strong capital position has allowed it to increase its quarterly dividend in 1996, for the fourth consecutive year, to the following indicated annual rates: Dividends Annual % Increase Paid in Rate over Prior year --------- ------ --------------- 1996 $ .84 11% 1995 $ .76 12% 1994 $ .68 13% 1993 $ .60 15% ===== ==== SPECIAL NOTE: Certain statements contained within Item 2 of Part I of this Report which are not historical facts, including statements relating to First Midwest's plans, objectives and expectations of future performance and occurrences may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are found in, but are not limited to, the section captioned PROVISION AND RESERVE FOR LOAN LOSSES. Actual results may differ materially from those set forth in the forward-looking statements due to market, economic and other business-related risks and uncertainties affecting the realization of such statements. These risks and uncertainties are discussed by First Midwest in the Company's periodic filings with the Securities and Exchange Commission. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - See Exhibit Index appearing on page 18. (b) Form 8-K - On August 21, 1996, First Midwest filed a report on Form 8-K announcing recommendation of the Audit Committee and the Board of Directors of First Midwest Bancorp, Inc. to engage the accounting firm of Ernst & Young LLP as its certified public accountants for 1996, replacing KPMG Peat Marwick LLP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. First Midwest Bancorp, Inc. -------------------------------- Date: November 12, 1996 DONALD J. SWISTOWICZ -------------------------------- Donald J. Swistowicz Executive Vice President* * Duly authorized to sign on behalf of the Registrant. EXHIBIT INDEX Exhibit Sequential Number Description of Documents Page Number - ------ ------------------------ ----------- 27 Financial Data Schedule 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from First Midwest Bancorp, Inc. third quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 1,000 9-MOS DEC-31-1995 SEP-30-1996 142,369 3,883 154 0 861,186 23,007 23,124 1,994,672 28,857 3,136,305 2,297,758 542,361 35,908 0 0 0 137 260,141 3,136,305 135,138 40,012 2,469 177,619 64,087 86,321 91,298 4,188 558 70,950 38,202 24,744 0 0 24,744 1.81 1.81 4.27 11,435 4,998 7,876 22,709 29,194 6,468 1,943 28,857 7,737 0 21,120
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