-----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, DiP4xF6jFsL7rPwqx3N3ZjsQVvPd5Vwej1kTfhqx4t1qzPXnrfeadTPsPKxHogkd V/dqgze+Ej9oU1pTNMjqJw== 0000950131-97-005054.txt : 19970815 0000950131-97-005054.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950131-97-005054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660787 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 FIRST MIDWEST BANCORP, INC. ================================================================================ 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 JUNE 30, 1997, 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) (630) 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 August 8, 1997, 16,811,556 shares of the Registrant's $.01 par value common stock were outstanding, excluding treasury shares. Exhibit Index is located on page 17. FIRST MIDWEST BANCORP, INC. FORM 10-Q TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE ---- 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....................................................... 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF CONDITION (Dollar amounts in thousands except per share data)
JUNE 30, DECEMBER 31, 1997 /(1)/ 1996 /(2)/ ------------ ------------- ASSETS Cash and due from banks........................................................ $ 166,949 $ 107,595 Federal funds sold and other short term investments............................ 4,236 23,076 Mortgages held for sale........................................................ 8,103 13,492 Securities available for sale, at market value................................. 808,134 770,256 Securities held to maturity, at amortized cost................................. 19,856 21,336 Loans.......................................................................... 2,041,225 2,085,277 Reserve for loan losses........................................................ (33,292) (30,148) ----------- ----------- Net loans...................................................................... 2,007,933 2,055,129 Premises, furniture and equipment.............................................. 51,067 49,354 Accrued interest receivable.................................................... 23,292 22,634 Other assets................................................................... 61,095 56,366 ----------- ----------- TOTAL ASSETS................................................................... $ 3,150,665 $ 3,119,238 =========== =========== LIABILITIES Demand deposits................................................................ $ 387,725 $ 349,759 Savings deposits............................................................... 284,705 284,317 NOW accounts................................................................... 287,171 282,016 Money market deposits.......................................................... 234,398 239,027 Time deposits.................................................................. 1,083,202 1,105,548 ----------- ----------- Total deposits............................................................... 2,277,201 2,260,667 Short-term borrowings.......................................................... 565,165 493,142 Accrued interest payable....................................................... 10,013 10,430 Other liabilities.............................................................. 30,492 92,859 ----------- ----------- TOTAL LIABILITIES.............................................................. 2,882,871 2,857,098 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, no par value: 1,000,000 shares authorized, none issued........ --- --- Common stock, $.01 par value: 30,000,000 shares authorized; 17,506,385 shares issued; 16,640,775 and 16,906,540 outstanding at June 30, 1997 and December 31, 1996, respectively............................................. 167 169 Additional paid-in capital..................................................... 56,711 57,084 Retained earnings.............................................................. 228,572 217,522 Unrealized net appreciation/(depreciation) on securities, net of tax........... 2,670 (540) Treasury stock, at cost: 865,610 and 602,574 shares at June 30, 1997 and December 31, 1996, respectively.......................................... (20,326) (12,095) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY..................................................... 267,794 262,140 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $ 3,150,665 $ 3,119,238 =========== ===========
______________________________ See notes to consolidated financial statements. /(1)/ Unaudited /(2)/ Audited - See December 31, 1996 Form 10-K for Auditors' Report. 3 FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollar amounts in thousands, except per share data)
QUARTERS ENDED SIX MONTHS ENDED JUNE 30, /(1)/ JUNE 30, /(1)/ ------------------------ ------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ---------- ........................................................... INTEREST INCOME Loans......................................................... $ 46,079 $ 43,975 $ 91,604 $ 90,170 Securities available for sale................................. 11,689 13,578 23,357 25,383 Securities held to maturity................................... 308 416 629 839 Funds sold and other short-term investments................... 394 901 779 1,661 ---------- ---------- ---------- ---------- TOTAL INTEREST INCOME........................................ 58,470 58,870 116,369 118,053 ---------- ---------- ---------- ---------- INTEREST EXPENSE Deposits...................................................... 20,296 21,095 40,617 42,531 Short-term borrowings......................................... 6,145 7,249 12,432 15,596 ---------- ---------- ---------- ---------- TOTAL INTEREST EXPENSE....................................... 26,441 28,344 53,049 58,127 ---------- ---------- ---------- ---------- NET INTEREST INCOME.......................................... 32,029 30,526 63,220 59,926 PROVISION FOR LOAN LOSSES..................................... 1,192 1,767 3,270 2,626 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses.......... 30,837 28,759 60,050 57,300 ---------- ---------- ---------- ---------- NONINTEREST INCOME Service charges on deposit accounts........................... 2,730 2,637 5,368 4,975 Trust and investment management fees.......................... 1,731 1,605 3,363 3,228 Other service charges, commissions and fees................... 1,554 1,469 3,135 2,856 Mortgage banking revenues..................................... 1,177 803 2,456 1,718 Security gains, net........................................... (152) 469 213 545 Other income.................................................. 738 509 1,704 1,080 ---------- ---------- ---------- ---------- Total noninterest income..................................... 7,778 7,492 16,239 14,402 ---------- ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and wages............................................ 10,367 10,235 20,550 20,189 Retirement and other employee benefits........................ 1,939 2,374 4,588 4,924 Occupancy expense of premises................................. 1,910 1,480 3,912 3,180 Equipment expense............................................. 1,487 1,370 3,002 2,829 Computer processing expense................................... 1,797 1,673 3,415 3,263 Advertising and promotions.................................... 771 672 1,657 1,407 Professional services......................................... 1,959 1,514 2,667 2,777 Acquisition credit............................................ --- --- --- (324) Other expenses................................................ 4,824 3,883 9,032 8,109 ---------- ---------- ---------- ---------- TOTAL NONINTEREST EXPENSE.................................... 25,054 23,201 48,823 46,354 ---------- ---------- ---------- ---------- Income before income tax expense.............................. 13,561 13,050 27,466 25,348 INCOME TAX EXPENSE............................................ 4,559 4,833 9,738 9,206 ---------- ---------- ---------- ---------- NET INCOME................................................... $ 9,002 $ 8,217 $ 17,728 $ 16,142 ========== ========== ========== ========== NET INCOME PER SHARE......................................... $ 0.54 $ 0.48 $ 1.06 $ 0.94 Cash dividends declared per share............................ $ 0.20 $ 0.17 $ 0.40 $ 0.34 Weighted average shares outstanding.......................... 16,662,570 17,117,488 16,714,702 17,118,755 ========== ========== ========== ==========
_________________________ See notes to consolidated financial statements. /(1)/ Unaudited 4 FIRST MIDWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
SIX MONTHS ENDED JUNE 30, /(1)/ ----------------------- 1997 1996 --------- ----------- OPERATING ACTIVITIES Net income............................................................................. $ 17,728 $ 16,142 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................................................. 3,270 2,626 Provision for depreciation............................................................ 3,065 3,390 Net amortization (accretion) of securities available for sale premiums and discounts.. 244 (1,611) Net amortization (accretion) of securities held to maturity premiums and discounts.... 1 (30) Net (gains) on securities available for sale transactions............................. (213) (545) Net (gains) on sales of premises, furniture and equipment............................. (120) (74) Net (decrease) increase in deferred income taxes...................................... (1,387) 1,120 Net amortization of purchase accounting adjustments, goodwill, and other intangibles.................................................................... 1,147 559 Changes in operating assets and liabilities: Net decrease (increase) in loans held for sale...................................... 5,389 (1,879) Net (increase) decrease in accrued interest receivable.............................. (658) 2,066 Net (increase) decrease in other assets............................................. (6,579) 814 Net (decrease) in accrued interest payable.......................................... (417) (2,077) Net (decrease) in other liabilities................................................. (62,367) (1,434) --------- ----------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES................................... (40,897) 19,067 --------- ----------- INVESTING ACTIVITIES Securities available for sale: Proceeds from sales.................................................................... 209,151 929,584 Proceeds from maturities, calls and paydowns........................................... 315,354 218,254 Purchases.............................................................................. (557,153) (1,011,300) Securities held to maturity: Proceeds from maturities, calls and paydowns........................................... 3,356 4,447 Purchases.............................................................................. (1,876) (1,995) Loans made to customers, net of principal collected..................................... 42,515 (40,930) Proceeds from sales of foreclosed real estate........................................... 1,368 2,452 Proceeds from sales of premises, furniture and equipment................................ 244 138 Purchases of premises, furniture and equipment.......................................... (4,820) (3,092) --------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES.............................................. 8,139 97,558 --------- ----------- FINANCING ACTIVITIES Net increase in deposit accounts........................................................ 16,534 26,730 Net increase (decrease) in short-term borrowings........................................ 72,023 (118,633) Purchases of treasury stock............................................................. (10,047) (2,447) Sale of treasury stock.................................................................. 405 --- Cash dividends.......................................................................... (6,681) (5,771) Exercise of stock options............................................................... 1,038 1,207 --------- ----------- NET CASH USED BY FINANCING ACTIVITIES.................................................. 73,272 (98,914) --------- ----------- Net increase in cash and cash equivalents.............................................. 40,514 17,711 Cash and cash equivalents at beginning of period....................................... 130,671 149,263 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................. $ 171,185 $ 166,974 ========= =========== Supplemental disclosures: Interest paid to depositors and creditors.............................................. $ 53,466 $ 60,204 Income taxes paid...................................................................... 13,718 7,488 Non-cash transfers to foreclosed real estate from loans................................ 1,411 3,370 Non-cash transfers to securities available for sale from loans......................... --- 141,164 ========= ===========
_____________________________________ See notes to consolidated financial statements. /(1)/ Unaudited 5 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. In the opinion of Management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included. 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 1996 data to conform to the 1997 presentation. All common stock and per share data have been adjusted to reflect the 5-for-4 stock split affected in the form of a stock dividend which was paid in December, 1996. 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, 1996. EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128 ("FASB No. 128"), "Earnings Per Share" which provides new accounting guidelines governing the computation of earnings per share effective for financial statement periods ending after December 15, 1997. At that time, all publicly-held companies will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements of FASB No. 128, the primary ("basic") earnings per share calculation will exclude the dilutive effect of all common stock equivalents. Further, FASB No. 128 requires additional disclosures including dual presentation of basic and diluted earnings per share on the face of the Statement of Income. Under FASB No. 128, First Midwest's calculation of basic earnings per share for the quarters and six months ending June 30, 1997 and 1996 was $.54 and $.48 per share, and $1.06 and $.94 per share respectively, reflecting no change from the current accounting guidelines. FASB No. 128 is not anticipated to have a material effect on First Midwest's calculation of diluted earnings per share for these periods. 2. SECURITIES SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of securities available for sale at June 30, 1997 and December 31, 1996 are as follows:
Securities Available for Sale ------------------------------------------------------------------------------------------------------ June 30, 1997 December 31, 1996 -------------------------------------------------- -------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value --------------- ---------- ----------- -------- --------- ---------- ----------- -------------- U.S. Treasury securities...... $ 65,508 $ 157 $ (62) $ 65,603 $ 65,592 $ 314 $ (2) $ 65,904 U.S. Agency securities........ 195,971 45 (1,196) 194,820 356,491 607 (1,527) 355,571 Mortgage-backed securities.... 484,468 3,276 (826) 486,918 347,287 1,454 (1,731) 347,010 State and municipal securities 55,785 2,956 --- 58,741 --- --- --- --- Other securities.............. 2,026 26 --- 2,052 1,771 --- --- 1,771 -------- ------ ------- -------- -------- ------ ------- -------- Total........................ $803,758 $6,460 $(2,084) $808,134 $771,141 $2,375 $(3,260) $770,256 ======== ====== ======= ======== ======== ====== ======= ========
SECURITIES HELD TO MATURITY - The amortized cost and market value of securities held to maturity at June 30, 1997 and December 31, 1997 are as follows:
Securities Held to Maturity ------------------------------------------------------------------------------------------------------ June 30, 1997 December 31, 1996 -------------------------------------------------- -------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value ----------- ------------- ------------- ----------- --------- ------------ ----------- -------- U.S. Treasury securities...... $ 1,002 $ --- $ --- $ 1,002 $ 929 $ - $ - $ 929 State and municipal securities 6,454 212 --- 6,666 9,135 132 (28) 9,239 Other securities.............. 12,400 22 (1) 12,421 11,272 16 - 11,288 ------- ---------- ------------ ---------- --------- ----------- ---------- ------- Total........................ $19,856 $ 234 $ (1) $ 20,089 $21,336 $ 148 $ (28) $21,456 ======= ========== ============ ========== ========= =========== ========== =======
6 3. LOANS The following table provides the book value of loans, by major classification, as of the dates indicated:
June 30, December 31, 1997 1996 ----------- ------------ Commercial and industrial.................................... $ 576,531 $ 571,181 Agricultural................................................. 43,876 48,461 Direct home equity........................................... 165,277 157,174 Other direct installment..................................... 74,944 78,402 Indirect installment......................................... 387,455 413,680 Real estate - 1-4 family..................................... 136,155 189,000 Real estate - commercial..................................... 534,956 507,135 Real estate - construction................................... 112,368 110,204 Other........................................................ 9,663 10,040 ----------- ------------ Total........................................................ $ 2,041,225 $ 2,085,277 =========== ============
During the second quarter of 1997, First Midwest sold approximately $47,000 in 1-4 family real estate loans while retaining the mortgage servicing rights on such loans. 4. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS Transactions in the reserve for loan losses for the six months ended June 30, 1997 and 1996 are summarized below:
Quarters ended Six months ended June 30, June 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Balance at beginning of period................................ $ 33,747 $ 28,076 $ 30,148 $ 29,195 Provision for loan losses..................................... 1,192 1,767 3,270 2,626 Loans charged-off............................................ (2,568) (1,773) (5,634) (4,443) Recoveries of loans previously charged-off................... 921 527 5,508 1,220 -------- -------- -------- -------- Net loans charged-off...................................... (1,647) (1,246) (126) (3,223) -------- -------- -------- -------- Balance at end of period...................................... $ 33,292 $ 28,597 $ 33,292 $ 28,597 ======== ======== ======== ========
Information with respect to impaired loans at June 30, 1997 and 1996 is provided below:
June 30, ---------------------- 1997 1996 -------- --------- Recorded Investment in Impaired Loans: Recorded investment requiring specific loan loss reserves /(1)/..................... $ 8,106 $ 16,653 Recorded investment not requiring specific loan loss................................ (6,278) (10,133) -------- -------- Total recorded investment in impaired loans....................................... $ 1,828 $ 6,520 ======== ======== Specific loan loss reserve related to impaired loans.................................. $ 1,022 $ 1,874 ======== ========
_________________________ /(1)/ These impaired loans require a specific reserve allocation because the value of the loans are less than the recorded investments in the loans. For the six months ended June 30, 1997 and 1996, the average recorded investment in impaired loans was approximately $10,362 and $17,734 respectively. 7 5. PENDING ACQUISITION On June 20, 1997 First Midwest announced that it had entered into a definitive agreement to acquire SparBank, Incorporated, ("SparBank"). SparBank is the holding company of McHenry State Bank ("MSB"), a 4-branch bank headquartered in McHenry, Illinois. SparBank had total assets and stockholders' equity of approximately $438 million and $52 million, respectively, as of June 30, 1997. For the six months ended June 30, 1997, SparBank recorded net income of $3,134 resulting in return on average assets and stockholders equity of 1.41% and 12.38%, respectively. Pursuant to the agreement, the transaction will be structured as a tax-free exchange and accounted for as a pooling-of-interests. Each outstanding share of SparBank's common stock, no par value, will be converted to 21.7234 shares of First Midwest common stock, $.01 par value, resulting in the issuance of 3,230,769 shares of First Midwest common stock. The agreement, which has been approved by the Board of Directors of both companies and the shareholders of SparBank, is subject to customary regulatory approvals. First Midwest shareholder approval is not necessary. It is anticipated that the acquisition will be consummated in early fourth quarter 1997. A pre-tax merger related charge of approximately $6.5 million will be recognized in the quarter the transaction is closed that includes costs related to system conversions, elimination of excess operating capacity, professional fees, and a one-time provision to bring MSB's loan loss reserves to First Midwest's required levels. First Midwest anticipates merging MSB into its principal banking subsidiary, First Midwest Bank, N.A., in late first quarter 1998. 6. CONTINGENT LIABILITIES AND OTHER MATTERS There are certain legal proceedings pending against First Midwest and its Subsidiaries in the ordinary course of business at June 30, 1997. 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. 8 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 six months ended June 30, 1997 as compared to the same periods in 1996. 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 1996 Annual Report on Form 10-K. Results of operations for the quarters and six months ended June 30, 1997 are not necessarily indicative of results to be expected for the full year of 1997. SUMMARY OF PERFORMANCE Net Income - ---------- Net income for the second quarter of 1997 increased to $9,002 or $.54 per share from $8,217, or $.48 per share in the like quarter of 1996, representing an increase of 12.5% on a per share basis. Net income for the six months ended June 30, 1997, totaled $17,728, or $1.06 per share from $16,142, or $.94 per share for the like period in 1996, representing a 12.8% increase per share. Return on Average Assets and Stockholders' Equity - ------------------------------------------------- Return on average assets was 1.21% for the second quarter of 1997 as compared to 1.06% for the same quarter in 1996. Return on average assets was 1.19% for the six months ended June 30, 1997, as compared to 1.04% for the same period in 1996. Return on average stockholders' equity was 13.79% for the second quarter of 1997, as compared to 13.03% for the same quarter in 1996. Return on average stockholders equity was 13.71% for the six months ended June 30, 1997, as compared to 12.85% for the same period in 1996. NET INTEREST INCOME Net interest income on a tax equivalent basis totaled $32,759 for the second quarter of 1997, representing an increase of $1,680 or 5% over the year-ago quarter totaling $31,079. As shown in the Volume/Rate Analysis on page 10, the improvement in net interest income is comprised of reduced interest income of $223 net of lower interest expense of $1,903. The net interest margin for the second quarter of 1997 increased to 4.70% as compared to 4.33% for the same period in 1996. The improvement in net interest margin is primarily due to a combination of a more profitable asset mix with the yield on interest earning assets improving by 22 basis points and a stable cost of fund with the rates paid on interest bearing liabilities dropping by 3 basis points. Further, declining dependance on wholesale funding as well as a reduction in higher rate certificates of deposits contributed to the reduction in funding costs. As shown in the Volume/Rate Analysis, the $223 decrease in interest income for the quarter is largely attributable to volume variances in the securities available for sale portfolio, which declined by $136,512 in the current quarter as compared to the like quarter last year. Such decrease resulted in the re- deployment of securities fundings into reductions of more expensive short term borrowings. Offsetting the reduced volumes in the securities portfolio is the increased volumes and interest rates on the loan portfolio, totaling to a net improvement of $2,096 to interest income. Loans increased by $65 million and represented 73% of total earning assets for the second quarter of 1997 as compared to 68% for the 1996 quarter. Such volume growth contributed $1,484 of the $2,096 in interest income with the remaining $612 being due to higher average interest rates earned on the portfolio. Were it not for the second quarter 1997 sale of $47,000 in 1-4 family residential loans, the current quarter would have reflected an increase in average loan levels of approximately $112,000, reflecting growth in core lending. The $1,903 decrease in interest expense resulted from reduced volumes of interest bearing liabilities which declined by $162 million for the second quarter of 1997 as compared to the year-ago quarter. The most significant changes impacting the decrease in interest expense occurred in lower volumes on higher yielding money market, time deposits and short-term borrowings, which were partly offset by higher rates on short-term borrowings. The change in volume levels reflects a shift in deposit mix to lower cost savings deposits. Short-term borrowing balances declined in the second quarter of 1997 by $103 million from year ago levels with reduced discretionary funding needs on which the rates increased commensurate with short-term market interest rates. For the six month period ended June 30, 1997, net interest margin increased to 4.64% from 4.23% for 1996. The Volume/Rate Analysis for the six months ended June 30, 1997 as compared to the like 1996 period is presented on page 11. 9 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 June 30, 1997 and 1996. 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 JUNE 30, 1997 AND 1996 ---------------------------------------------------------------------------- AVERAGE INTEREST AVERAGE BALANCES RATES EARNED/PAID -------------------------------------- ----------------------------------- BASIS INCREASE POINTS 1997 1996 (DECREASE) 1997 1996 INC/(DEC) ------------ ----------- ------------- --------- --------- --------------- Federal funds sold and other short-term investments.. $ 14,452 18,082 (3,630) 5.58% 6.78% (1.20)% Mortgages held for sale.............................. 9,651 22,757 (13,106) 8.02% 10.53% (2.51)% Securities available for sale (1).................... 722,945 859,457 (136,512) 6.83% 6.53% 0.30 % Securities held to maturity (1)...................... 18,513 24,879 (6,366) 7.47% 8.34% (0.87)% Loans, net of unearned discount (1).................. 2,027,895 1,962,445 65,450 9.13% 9.03% 0.10 % ---------- --------- ---------- --------- ---------- --------- Total interest-earning assets (1)................... $2,793,456 2,887,620 (94,164) 8.50% 8.28% 0.22 % ========== ========= ========== ========= ========== ========= Savings deposits..................................... $ 285,809 259,450 26,359 2.52% 2.18% 0.34 % NOW accounts......................................... 302,292 314,262 (11,970) 2.32% 2.34% (0.02)% Money market deposits................................ 228,296 266,683 (38,387) 3.57% 3.56% 0.01 % Time deposits........................................ 1,073,934 1,108,726 (34,792) 5.50% 5.62% (0.12)% Short-term borrowings................................ 439,718 542,598 (102,880) 5.61% 5.37% 0.24 % ---------- --------- ---------- --------- ---------- --------- Total interest-bearing liabilities.................. $2,330,049 2,491,719 (161,670) 4.55% 4.58% (0.03)% ========== ========= ========== ========= ========== ========= Net interest margin/income /(1)/.................... 4.70% 4.33% 0.37% ========= ========== ========= --------------------------------------------------------------------------- INTEREST INCREASE/(DECREASE) IN INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO: -------------------------------- ---------------------------------------- INCREASE 1997 1996 (DECREASE) VOLUME RATE TOTAL --------- -------- ------------- ------------ ---------- ------------- Federal funds sold and other short-term investments... $ 201 305 (104) $ (55) (49) (104) Mortgages held for sale............................... 193 596 (403) (286) (117) (403) Securities available for sale (1)..................... 12,314 13,955 (1,641) (2,374) 733 (1,641) Securities held to maturity (1)....................... 345 516 (171) (123) (48) (171) Loans, net of unearned discount (1)................... 46,147 44,051 2,096 1,484 612 2,096 ------- ------- ------- ------- ------ ------- Total interest-earning assets (1)................... $59,200 59,423 (223) $(1,354) 1,131 (223) ======== ======= ======= ======= ====== ======= Savings deposits...................................... $ 1,793 1,404 389 $ 152 237 389 NOW accounts.......................................... 1,746 1,828 (82) (70) (12) (82) Money market deposits................................. 2,031 2,360 (329) (342) 13 (329) Time deposits......................................... 14,726 15,502 (776) (480) (296) (776) Short-term borrowings................................. 6,145 7,250 (1,105) (1,458) 353 (1,105) ------- ------- ------- ------- ------ ------- Total interest-bearing liabilities.................. $26,441 28,344 (1,903) $(2,198) 295 (1,903) ======== ======= ======= ======= ====== ======= Net interest margin/income /(1)/.................... $32,759 31,079 1,680 $ 844 836 1,680 ======== ======= ======= ======= ====== =======
(1) Interest income and yields are presented on a tax-equivalent basis. 10 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 six months ended June 30, 1997 and 1996. 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.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 ----------------------------------------------------------------------- AVERAGE INTEREST AVERAGE BALANCES RATES EARNED/PAID ----------------------------------- --------------------------------- BASIS INCREASE POINTS 1997 1996 (DECREASE) 1997 1996 INC/(DEC) ----------- --------- ---------- --------- --------- --------- Federal funds sold and other short-term investments.............. $ 14,810 14,322 488 5.69% 7.05% (1.36)% Mortgages held for sale.............. 9,202 23,887 (14,685) 7.91% 9.77% (1.86)% Securities available for sale (1).... 721,636 823,560 (101,924) 6.83% 6.40% 0.43% Securities held to maturity (1)...... 18,540 25,916 (7,376) 7.85% 8.05% (0.20%) Loans, net of unearned discount (1).. 2,047,363 2,018,863 28,500 9.04% 9.00% 0.04% ----------- --------- ---------- --------- --------- --------- Total interest-earning assets (1)... $ 2,811,551 2,906,548 (94,997) 8.44% 8.25% 0.19 % =========== ========= ========== ========= ========= ========= Savings deposits..................... $ 285,897 254,090 31,807 2.51% 2.15% 0.36 % NOW accounts......................... 289,416 287,817 1,599 2.32% 2.33% (0.01)% Money market deposits................ 231,029 272,134 (41,105) 3.50% 3.63% (0.13)% Time deposits........................ 1,084,596 1,112,223 (27,627) 5.53% 5.71% (0.18)% Short-term borrowings................ 460,708 577,547 (116,839) 5.44% 5.43% 0.01 % ----------- --------- ---------- --------- --------- --------- Total interest-bearing liabilities........................ $ 2,351,646 2,503,811 (152,165) 4.55% 4.67% (0.12)% =========== ========= ========== ========= ========= ========= Net interest margin/income /(1)/.... 4.64% 4.23% 0.41 % ========= ========= ========= SIX MONTHS ENDED JUNE 30, 1997 AND 1996 ----------------------------------------------------------------------- INTEREST INCREASE/(DECREASE) IN INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO: ----------------------------------- --------------------------------- INCREASE 1997 1996 (DECREASE) VOLUME RATE TOTAL ----------- --------- ---------- --------- --------- --------- Federal funds sold and other short-term investments.............. $ 418 502 (84) $ 18 (102) (84) Mortgages held for sale.............. 361 1,160 (799) (609) (190) (799) Securities available for sale (1)............................ 24,459 26,206 (1,747) (3,691) 1,944 (1,747) Securities held to maturity (1)........................ 722 1,038 (316) (288) (28) (316) Loans, net of unearned discount (1)........................ 91,737 90,326 1,411 1,278 133 1,411 ----------- --------- ---------- --------- --------- --------- Total interest-earning assets (1)......................... $ 117,697 119,232 (1,535) $ (3,292) 1,757 (1,535) =========== ========= ========== ========= ========= ========= Savings deposits..................... $ 3,555 2,714 841 $ 364 477 841 NOW accounts......................... 3,326 3,339 (13) 21 (34) (13) Money market deposits................ 4,010 4,908 (898) (719) (179) (898) Time deposits........................ 29,726 31,569 (1,843) (772) (1,071) (1,843) Short-term borrowings................ 12,432 15,596 (3,164) (3,153) (11) (3,164) ----------- --------- ---------- --------- --------- --------- Total interest-bearing liabilities........................ $ 53,049 58,126 (5,077) $ (4,259) (818) (5,077) ----------- --------- ---------- --------- --------- --------- Net interest margin/income /(1)/.... $ 64,648 61,106 3,542 $ 967 2,575 3,542 =========== ========= ========== ========= ========= =========
(1) Interest income and yields are presented on a tax-equivalent basis. 11 NONINTEREST INCOME Noninterest income totaled $7,778 for the quarter ended June 30, 1997, as compared to $7,492 for the same quarter in 1996. Exclusive of net security gains/(losses) which totaled ($152) for the second quarter of 1997 as compared to $469 for the like period in 1996, noninterest income increased by $907 or 13% with every major component of operating income contributing to the increase. Service charges on deposit accounts increased by $93 as a result of a higher volume of fees on business checking accounts. Trust and investment management fees increased by $126 due to growth in business. Other service charges, commissions and fees added $85 from higher merchant credit card fees and credit life insurance premiums. The $374 increase in mortgage banking revenues was primarily attributable to higher volumes of sales of loans into the secondary market. Growth in ATM revenues contributed to the increase of $229 in other income for the second quarter ending June 30, 1997. Noninterest income totaled $16,239 for the six months ended June 30, 1997, as compared to $14,402 for the same period in 1996. Factoring out net securities gains totaling $213 for the 1997 six month period as compared to $545 for the 1996 period, noninterest income increased by $2,169, or 16%. The reasons for the increase in noninterest income for the six month period generally followed those described above for the second quarter. NONINTEREST EXPENSE Noninterest expense totaled $25,054 for the quarter ended June 30, 1997, increasing by $1,853 from $23,201 for the same quarter in 1996. For the six months ended June 30, 1997, noninterest expense totaled $48,823 as compared to $46,354 for the same period in 1996, increasing $2,469, or 5%. Contributing to the six month variance was a nonrecurring acquisition credit of $324 recorded in the first quarter of 1996. Explanations for the six month noninterest expense increase generally follow the second quarter's variance discussions, as detailed below. Occupancy expense increased $430 in the second quarter of 1997 from the same period in 1996 and reflects the operational costs of four additional branches which were established in the second half of 1996. Equipment expense and computer processing expense increased by a combined total of $241 in the second quarter of 1997 as compared to the like period in 1996. This increase reflects higher equipment depreciation expense as a result of Companywide computer hardware upgrades and capitalized purchases of furniture and equipment for the additional branches. Also contributing to this increase was $100 in computer processing costs related to implementation of a wide area network. Professional services for the 1997 quarter was $445 or 29% in excess of the like 1996 quarter primarily due to consulting services related to the second quarter $47 million sale of 1-4 family real estate loans, in addition to costs for a compensation study and personnel recruitment expense. Additionally, other expenses increased by $941 which was spread among various categories of miscellaneous expense. Partially offsetting the above increases in noninterest income was reduced salaries and wages and retirement and other employee benefits, which decreased by $303 as compared to the same period in 1996, due to reduced profit sharing and pension plan expenses. The efficiency ratio for the quarter ended June 30, 1997 was 60.71% as compared to the 1996 second quarter ratio of 60.41%, while the efficiency ratio for the six months ended June 30, 1997 was 59.91% as compared to the prior year's like period of 61.45%. The slight increase in the 1997 efficiency ratio reflects well-controlled noninterest expenses and the continued realization of cost benefits from the 1995 Companywide restructuring. 12 INCOME TAX EXPENSE Income tax expense totaled $4,559 for the quarter ended June 30, 1997, decreasing from $4,833 for the same period in 1996 and reflects effective income tax rates of 33.6% and 37.0% respectively. Income tax expense totaled $9,738 for the six months ended June 30, 1997 increasing from $9,206 for the 1996 six month period and reflects effective tax rates of 35.5% and 36.3%, respectively. The decrease in effective tax rate is primarily attributable to higher state tax exempt income in 1997. NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS ---------------------------------------------- At June 30, 1997, nonperforming assets totaled $16,208 and loans past due 90 days or more and still accruing totaled $4,470. 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 1997 1996 ------------------ --------------------------- 90 Day Past Due Loans June 30 March 31 Dec. 31 Sept. 30 June 30 - --------------------------- ------- -------- ------- -------- -------- Nonaccrual loans................................. 10,723 $12,830 $10,448 $11,435 $10,790 Renegotiated loans................................... --- --- --- 7,876 7,760 Total nonperforming loans.......................... 10,723 12,830 10,448 19,311 18,550 ------- -------- ------- ------- -------- Foreclosed real estate............................... 5,485 6,801 5,811 5,587 5,393 ------- -------- ------- ------- -------- Total nonperforming assets.......................... $16,208 $19,631 $16,259 $24,898 $23,943 ======= ======== ======= ======= ======= % of total loans plus foreclosed real estate........ 0.79% 0.95% 0.78% 1.24% 1.21% ======= ======= ======= ======= ======= 90 days past due loans accruing interest............. $ 4,470 $ 3,720 $ 3,982 $ 4,998 $4,318 ======= ======= ======= ======= ======
Nonaccrual loans, totaling $10,723 at June 30, 1997 are comprised of commercial and agricultural loans (58%), real estate loans (34%) and consumer loans (8%). Foreclosed real estate, totaling $5,485 at June 30, 1997, primarily represents commercial real estate properties. Information with respect to impaired loans is contained in Note 4 to the consolidated financial statements, located on page 7. PROVISION AND RESERVE FOR LOAN LOSSES Transactions in the reserve for loan losses during the quarters and six months ended June 30, 1997 and 1996 are summarized in the following table:
Quarters ended Six months ended June 30, June 30, --------- -------- -------- -------- 1997 1996 1997 1996 --------- -------- -------- -------- Balance at beginning of period............................ $ 33,747 $ 28,076 $ 30,148 $ 29,194 Provision for loan losses.............................. 1,192 1,767 3,270 2,626 Loans charged-off...................................... (2,568) (1,773) (5,634) (4,443) Recoveries of loans previously charged-off............. 921 527 5,508 1,220 --------- -------- -------- -------- Net loans charged-off.................................. (1,647) (1,246) (126) (3,223) --------- -------- -------- -------- Balance at end of period.................................. $ 33,292 $ 28,597 $ 33,292 $ 28,597 ======== ======== ======== ========
The provision for loan losses charged to operating expense for the second quarter of 1997 totaled $1,192 as compared to $1,767 for the same quarter in 1996. 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. Net loan charge-offs for the quarter totaled $1,647, or 0.33% of average loans in 1997 as compared to net charge-offs of $1,246, or 0.26% recorded in 1996. 13 The reserve for loan losses at June 30, 1997 was comprised of three parts: allocated for specific impaired loans, $2,022; allocated for general segments of unimpaired loans, $7,176; and unallocated, $24,094. That part of the reserve allocated for specific impaired loans is discussed in Note 4 to the consolidated financial statements located on page 7. That part of the reserve allocated for unimpaired general loan segments represents First Midwest's best judgement 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. The reserve for loan losses as a percentage of total loans outstanding increased to 1.63% at June 30, 1997 as compared to 1.44% at June 30, 1996. 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 3 to the consolidated financial statement located on page 7. The loan portfolio consists dominantly of loans originated 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 ("FMB, 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. Capital Measurements - FRB/OCC - -------------------------------
As of June 30, 1997 ---------------------------------------------------------------- Bank Holding Company National Bank Minimum ------------------------ --------------------- ----------- Minimum Minimum Well- First Required Required Capitalized Midwest FRB FMB, N.A. OCC FDICIA ----------- ---------- --------- -------- ----------- Tier 1 capital to risk-based assets 10.59% 4.00% 8.94% 4.00% 6.00% Total capital to risk-based assets 11.85% 8.00% 10.19% 8.00% 10.00% Leverage ratio 8.47% 3.00% 7.12% 3.00% 5.00% ===== ==== ===== ==== =====
DIVIDENDS First Midwest's strong capital position has allowed it to increase its quarterly dividend five times during the last four years including twice in 1996. The following table summarizes the dividend increases declared during the years 1994 through 1996:
Quarterly Rate Date Per Share * % Increase ------------------------ ------------------------------ ---------------------- November 1996 $.20 18% February 1996 $.17 13% February 1995 $.15 15% February 1994 $.13 13% *Adjusted for the 5-for-4 stock split paid in December 1996
14 FORWARD LOOKING STATEMENTS The preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this Form 10-Q contain various "forward looking statements" within the meaning of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended, which represents First Midwest's expectations and beliefs concerning future events including, but not limited to, the following: the loan loss reserve levels going forward; the impact of the 1995 plan of restructuring on its financial performance and future growth; Management's assessment of its provision and reserve for loan loss levels based upon future changes in the composition of its loan portfolio, loan losses, collateral value and economic conditions. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those setforth in the forward looking statements due to market, economic and other business related risks and uncertainties effecting the realization of such statements. Certain of these risks and uncertainties included in such forward looking statements include, without limitations, the following: significant fluctuations in market interest rates and operational limitations; deviations from the assumptions used to evaluate the appropriate level of the reserve for loan losses as well as future purchases and sales of loans may affect the appropriate level of the reserve for loan losses and thereby affect the future levels of provisioning. Accordingly, results actually achieved may differ materially from expected results in these statements. First Midwest does not undertake, and specifically disclaims, any obligation to update any forward looking statements to reflect events or circumstances occurring after the date of such statements. 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - See Exhibit Index appearing on page 17. (b) Form 8-K - On June 30, 1997, First Midwest filed a report on Form 8-K announcing a definitive agreement to acquire SparBank, Incorporated, the holding company of McHenry State Bank located in McHenry, Illinois. 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. ----------------------------------------- /S/ DONALD J. SWISTOWICZ ----------------------------------------- Date: August 12, 1997 Donald J. Swistowicz Executive Vice President * * Duly authorized to sign on behalf of the Registrant. 16 EXHIBIT INDEX
Exhibit Sequential Number Description of Documents Page Number - --------- ------------------------------ ---------- 27 Financial Data Schedule
17 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 166,949 4,082 154 0 808,134 19,856 20,089 2,041,225 33,292 3,150,665 2,277,201 565,165 40,505 0 0 0 167 267,627 3,150,665 91,604 23,986 779 116,369 40,617 53,049 63,320 3,270 213 48,823 27,466 17,728 0 0 17,728 1.06 1.06 4.64 10,723 4,470 0 28,710 30,148 5,634 5,508 33,292 9,198 0 24,094
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