UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number: 0-29598
-------
---------------------------
MIDWEST BANC HOLDINGS, INC.
(Exact name of Registrant as specified in its charter.)
DELAWARE 36-3252484
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
501 W. NORTH AVE.
MELROSE PARK, ILLINOIS 60160
(Address of principal executive offices) (Zip code)
-------------------------------------------------------------------------------
(708) 865-1053
(Registrant's telephone number, including area code)
Indicate by checkmark 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 |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
===================================== =======================================
CLASS OUTSTANDING AT NOVEMBER 10, 2000
------------------------------------- ---------------------------------------
Common, par value $.01 10,740,392
===================================== =======================================
<PAGE>
MIDWEST BANC HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page Number
-----------
PART I
Item 1. Financial Statements.................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations... ...........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........20
PART II
Item 1. Legal Proceedings...................................................22
Item 2. Changes in Securities and Use of Proceeds...........................22
Item 3. Defaults upon Senior Securities.....................................22
Item 4. Submission of Matters to a Vote of Security Holders. ...............22
Item 5. Other Information... ...............................................22
Item 6. Exhibits and Reports on Form 8-K....................................22
Form 10-Q Signature Page......................................................23
i
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................ $ 38,367 $ 36,151
Securities available-for-sale............................ 505,133 503,442
Securities held-to-maturity.............................. 29,352 29,626
Loans.................................................... 792,592 646,455
Allowance for loan losses................................ (8,242) (7,567)
--------- ----------
Net loans.............................................. 784,350 638,888
Premises and equipment, net.............................. 21,687 21,668
Other real estate........................................ 1,496 2,651
Goodwill................................................. 4,008 4,426
Other assets............................................. 37,451 19,610
---------- ----------
Total assets........................................ $1,421,844 $1,256,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest-bearing................................... $ 125,143 $ 118,553
Interest-bearing....................................... 922,105 852,401
---------- ----------
Total deposits...................................... 1,047,248 970,954
Securities sold under agreements to repurchase
and federal funds purchased............................ 34,025 18,925
Advances from the Federal Home Loan Bank................. 228,500 169,500
Notes payable and other borrowings....................... 5,375 7,650
Guaranteed preferred beneficial interest in the
Company's junior subordinated debt..................... 20,000 --
Other liabilities........................................ 10,095 21,739
---------- ----------
Total liabilities................................... 1,345,243 1,188,768
========== ==========
STOCKHOLDERS' EQUITY:
Preferred stock.......................................... -- --
Common stock............................................. 114 114
Surplus.................................................. 29,654 29,704
Retained earnings........................................ 63,699 56,848
Accumulated other comprehensive loss..................... (7,721) (11,942)
Treasury stock, at cost (639,000 shares in 2000 and
494,346 shares in 1999)................................ (9,145) (7,030)
---------- ----------
Total stockholders' equity.......................... 76,601 67,694
========== ==========
Total liabilities and stockholders' equity.......... $1,421,844 $1,256,462
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
-------- --------
INTEREST INCOME
<S> <C> <C>
Loans.................................................... $ 19,186 $ 13,575
Securities:
Taxable................................................ 8,975 7,835
Exempt from federal income taxes....................... 482 393
Trading account securities............................... -- 25
Federal funds sold and other............................. 151 91
-------- --------
Total interest income............................... 28,794 21,919
======== ========
INTEREST EXPENSE
Deposits................................................. 12,684 9,301
Advances from the Federal Home Loan Bank................. 3,400 1,779
Notes payable and other borrowings....................... 678 240
Guaranteed preferred beneficial interest in the
Company's junior subordinated debt..................... 494 --
-------- --------
Total interest expense.............................. 17,256 11,320
======== ========
Net interest income...................................... 11,538 10,599
Provision for loan losses................................ 535 639
-------- --------
Net interest income after provision for loan losses...... 11,003 9,960
======== ========
OTHER INCOME
Service charges on deposits.............................. 955 875
Net gains on securities transactions..................... 80 51
Net trading account profits.............................. 17 91
Mortgage loan originations fees.......................... 63 141
Trust income............................................. 173 166
Insurance and brokerage commissions...................... 210 137
Other income............................................. 397 176
-------- --------
Total other income.................................. 1,895 1,637
======== ========
OTHER EXPENSES
Salaries and employee benefits........................... 4,087 3,751
Occupancy expense, net................................... 1,244 1,127
Professional services.................................... 468 442
Marketing................................................ 275 221
Other expenses........................................... 1,097 998
-------- --------
Total other expenses................................ 7,171 6,539
======== ========
Income before income taxes............................... 5,727 5,058
Provision for income taxes............................... 1,937 1,823
-------- --------
NET INCOME............................................... $ 3,790 $ 3,235
======== ========
Basic earnings per share................................. $ 0.35 $ 0.29
======== ========
Diluted earnings per share............................... $ 0.35 $ 0.29
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net Income................................................ $ 3,790 $ 3,235
======= =======
Net increase/(decrease) in fair value of securities
classified as available-for-sale, net of income taxes
and reclassification adjustments........................ 3,754 (2,629)
------- -------
Comprehensive Income...................................... $ 7,544 $ 606
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
2000 1999
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans....................................................... $ 51,818 $ 37,617
Securities
Taxable................................................... 26,862 21,935
Exempt from federal income taxes.......................... 1,402 864
Trading account securities.................................. 3 46
Federal funds sold and other................................ 499 259
-------- --------
Total interest income.................................. 80,584 60,721
INTEREST EXPENSE
Deposits.................................................... 34,362 26,954
Advances from the Federal Home Loan Bank.................... 9,163 4,319
Notes payable and other borrowings.......................... 2,068 694
Guaranteed preferred beneficial interest in the
Company's junior subordinated debt........................ 622 --
-------- --------
Total interest expense................................. 46,215 31,967
======== ========
Net interest income......................................... 34,369 28,754
Provision for loan losses................................... 1,425 1,518
-------- --------
Net interest income after provision for loan losses......... 32,944 27,236
======== ========
OTHER INCOME
Service charges on deposits................................. 2,702 2,475
Net gains on securities transactions........................ 371 258
Net trading account profits................................. 149 96
Mortgage loan origination fees.............................. 129 625
Trust income................................................ 500 470
Insurance and brokerage commissions......................... 558 421
Other income................................................ 991 802
-------- --------
Total other income..................................... 5,400 5,147
======== ========
OTHER EXPENSES
Salaries and employee benefits.............................. 12,327 11,075
Occupancy expense, net...................................... 3,635 3,271
Professional services....................................... 1,316 1,217
Marketing................................................... 857 606
Other expenses.............................................. 3,454 2,941
-------- --------
Total other expenses................................... 21,589 19,110
======== ========
Income before income taxes.................................. 16,755 13,273
Provision for income taxes.................................. 5,869 4,736
-------- --------
NET INCOME.................................................. $ 10,886 $ 8,537
======== ========
Basic earnings per share.................................... $ 1.01 $ 0.77
======== ========
Diluted earnings per share.................................. $ 1.01 $ 0.77
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Net Income........................................................... $ 10,886 $ 8,537
======== =======
Net increase/(decrease) in fair value of securities
classified as available-for-sale, net of income taxes
and reclassification adjustments................................... 4,221 (7,757)
-------- -------
Comprehensive Income................................................. $ 15,107 $ 780
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS LOSS STOCK EQUITY
------ ------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999................. $ 114 $ 29,704 $ 48,795 $ (522) $ (462) $ 77,629
Cash dividends declared ($0.225
per share)............................. -- -- (2,477) -- -- (2,477)
Purchase of 352,346 shares of
treasury stock......................... -- -- -- -- (5,894) (5,894)
Issuance of stock in connection
with the exercise of 512 stock
options................................ -- -- -- -- 1 1
Net income............................. -- -- 8,537 -- -- 8,537
Net decrease in fair value of
securities classified as
available-for-sale, net of
income taxes and reclassification
adjustments.......................... -- -- -- (7,757) -- (7,757)
----- -------- -------- --------- -------- --------
Balance, September 30, 1999.............. $ 114 $ 29,704 $ 54,855 $ (8,279) $ (6,355) $ 70,039
===== ======== ======== ========= ======== ========
Balance, January 1, 2000................. $ 114 $ 29,704 $ 56,848 $ (11,942) $ (7,030) $ 67,694
Cash dividends declared ($0.375
per share)............................. -- -- (4,035) -- -- (4,035)
Purchase of 155,654 shares of
treasury stock......................... -- -- -- -- (2,271) (2,271)
Issuance of stock in connection
with the exercise of 11,000
stock options.......................... -- (50) -- -- 156 106
Net income............................... -- -- 10,886 -- -- 10,886
Net increase in fair value of
securities classified as
available-for-sale, net of
income taxes and reclassification
adjustments............................ -- -- -- 4,221 -- 4,221
------ -------- -------- ----------- -------- --------
Balance, September 30, 2000.............. $ 114 $ 29,654 $ 63,699 $ (7,721) $ (9,145) $ 76,601
====== ======== ======== =========== ========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 10,886 $ 8,537
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation............................................................... 1,984 1,704
Provision for loan losses.................................................. 1,425 1,518
Proceeds from sales of trading account securities, net..................... 149 96
Net gain on sale of securities............................................. (371) (258)
Net trading account profits................................................ (149) (96)
Net proceeds from sales of real estate loans originated for sale........... (776) 3,332
Gain on sale of other real estate.......................................... (227) (309)
Increase in other assets................................................... (20,093) (58)
Increase/(decrease) in other liabilities................................... (9,766) 837
--------- ---------
Net cash from operating activities....................................... (16,938) 15,303
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities available-for-sale........ 86,269 117,725
Principal payments on securities available-for-sale........................ 53,847 86,468
Purchase of securities available-for-sale.................................. (135,504) (240,576)
Purchase of securities held-to-maturity.................................... (870) (6,885)
Maturities of securities held-to-maturity.................................. 1,144 1,081
Net increase in loans...................................................... (146,771) (101,710)
Proceeds from sale of other real estate.................................... 2,042 1,546
Property and equipment expenditures, net................................... (2,003) (3,292)
--------- ---------
Net cash from investing activities....................................... (141,846) (145,643)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits................................................... 76,294 77,378
Issuance of guaranteed beneficial interest in the Company's
junior subordinated debt, net of debt issuance costs..................... 19,100 --
Net bank borrowings........................................................ 56,725 56,925
Dividends paid............................................................. (4,054) (2,477)
Securities sold under agreements to repurchase and federal funds
purchased................................................................ 15,100 3,350
Treasury stock activity, net............................................... (2,165) (5,893)
--------- ---------
Net cash from financing activities....................................... 161,000 129,283
--------- ---------
Increase (decrease) in cash and cash equivalents........................... 2,216 (1,057)
Cash and cash equivalents at beginning of period........................... 36,151 40,253
--------- ---------
Cash and cash equivalents at end of period................................. $ 38,367 $ 39,196
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial information of Midwest Banc Holdings, Inc. ("the
Company") included herein is unaudited; however, such information reflects all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation for the interim
periods. The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
The annualized results of operations for the three months and nine months
ended September 30, 2000 are not necessarily indicative of the results expected
for the full year ending December 31, 2000.
NOTE 2 - EARNINGS PER SHARE
For purposes of per share calculations, the Company had 10,740,392 and
10,927,046 shares of common stock outstanding at September 30, 2000 and 1999,
respectively, and 10,885,046 shares outstanding at December 31, 1999. Basic
earnings per share for the three months and nine months ended September 30, 2000
and 1999 were computed by dividing net income by the weighted average number of
shares outstanding. Diluted earnings per share for the three and nine months
ended September 30, 2000 and 1999 were computed by dividing net income by the
weighted average number of shares outstanding, adjusted for the dilutive effect
of the outstanding stock options. Computations for basic and diluted earnings
per share are provided below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
---------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC
Net income................................... $ 3,790 $ 3,235 $ 10,886 $ 8,537
======= ======= ======== =======
Weighted average common shares
outstanding................................ 10,740 10,972 10,775 11,067
======= ======= ======== =======
Basic earnings per common share.............. $ 0.35 $ 0.29 $ 1.01 $ 0.77
======= ======= ======== =======
DILUTED
Net income................................... $ 3,790 $ 3,235 $ 10,886 $ 8,537
======= ======= ======== =======
Weighted average common shares
outstanding................................ 10,740 10,972 10,775 11,067
Diluted effect of stock options.............. 24 60 28 53
------- ------- -------- -------
Dilutive average common shares............... 10,764 11,032 10,803 11,120
======= ======= ======== =======
Diluted earnings per common share............ $ 0.35 $ 0.29 $ 1.01 $ 0.77
======= ======= ======== =======
</TABLE>
Options to purchase 136,500 shares at a price of $17.88, 38,000 shares at a
price of $16.13 and 56,795 shares at a price of $15.88 were outstanding at
September 30, 2000. These options were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common stock and were, therefore, antidilutive.
8
<PAGE>
NOTE 3 - STOCK OPTIONS
During the first quarter of 2000, 100,276 stock options were granted at an
exercise price of $13.63. During the third quarter of 2000, 142,000 stock
options were granted at an exercise price of $13.25. 11,000 stock options were
exercised during the second quarter of 2000. 7,500 of the exercised options were
granted at an exercise price of $8.13, and 3,500 of the options exercised of
2000 were granted at an exercise price of $12.75. 37,005 options were forfeited
during the second quarter of 2000. The total stock options outstanding were
556,472 at September 30, 2000 with exercise prices ranging between $8.13 and
$17.88 and expiration dates between 2006 and 2010.
NOTE 4 - ISSUANCE OF TRUST PREFERRED SECURITIES
In May 2000, the Company formed MBHI Capital Trust I ("the Trust"). The
Trust is a statutory business trust formed under the laws of the State of
Delaware and is wholly-owned by the Company. In June 2000, the Trust issued 10%
preferred securities with an aggregate liquidation amount of $20,000,000 ($25
per preferred security) to third-party investors. The Company then issued 10%
junior subordinated debentures aggregating $20,000,000 to the Trust. The junior
subordinated debentures are the sole assets of the Trust. The junior
subordinated debentures and the preferred securities pay distributions and
dividends, respectively, on a quarterly basis, which are included in interest
expense. The junior subordinated debentures will mature on June 7, 2030, at
which time the preferred securities must be redeemed. The junior subordinated
debentures and preferred securities can be redeemed contemporaneously, in whole
or in part, beginning June 7, 2005 at a redemption price of $25 per preferred
security. The Company has provided a full, irrevocable and unconditional
guarantee on a subordinated basis of the obligations of the Trust under the
preferred securities in the event of the occurrence of an event of default, as
defined in such guarantee. Debt issuance costs totaling $200,000 were
capitalized related to the offering and are being amortized over the estimated
life of the junior subordinated debentures.
NOTE 5 - NEW ACCOUNTING STANDARDS
Beginning January 1, 2001, Statement on Financial Accounting Standards No.
133 (the "Statement") on derivatives will require all derivatives to be recorded
at fair value in the balance sheet. Unless designated as hedges, changes in
these fair values will be recorded in the income statement. Fair value changes
involving hedges will generally be recorded by offsetting gains and losses on
the hedge and on the hedged item, even if fair value of the hedged item is not
otherwise recorded. Since the Company has no significant derivative instruments
and does not engage in hedging activities, adoption of the Statement is not
expected to have a material effect on the Company's financial statements, but
the effect will depend on the Company's derivative holdings when this standard
applies, if any.
NOTE 6 - RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted. The GLB Act amended or repealed certain provisions of the
Glass-Steagall Act and other legislation that restricted the ability of bank
holding companies, securities firms, and insurance companies from affiliating
with one another. Further, the GLB Act expanded the kinds of activities in which
bank holding companies may engage by allowing well-managed and well-capitalized
bank holding companies to be designated as "financial holding companies." In
addition, the GLB Act contains provisions intended to safeguard consumer
financial information in the hands of financial service providers. Among other
things, it will require such entities to disclose their privacy policies to
their customers and allow customers to "opt out" of having their financial
service providers disclose their confidential financial information to third
parties, subject to certain exceptions. As of September 30, 2000, the federal
regulatory agencies have issued certain final regulations under the GLB Act,
although other regulations remain in draft form. However, it is not anticipated
that the GLB Act will have a material adverse effect on the operations or
prospects of the Company and its subsidiaries.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
Consolidated net income for the third quarter of 2000 was $3.8 million, or
$0.35 per share, a 17.2% increase compared to $3.2 million, or $0.29 per share,
for the third quarter of 1999. Earnings per share for the three months ended
September 30, 2000 was 20.7% higher than for the comparable period in 1999.
Consolidated net income for the nine months ended September 30, 2000 was $10.9
million, or $1.01 per diluted share, a 27.5% increase compared to $8.5 million
for the similar period in 1999. Diluted earnings per share for the nine months
ended September 30, 2000 was 31.2% higher than for the comparable period in
1999.
Net interest income increased 8.9% to $11.5 million in the third quarter of
2000 compared to $10.6 million in the third quarter of 1999. During the nine
months ended September 30, 2000, net interest income increased 19.5% to $34.4
million compared to $28.8 million for the comparable period in 1999. Noninterest
income increased 15.8% to $1.9 million and noninterest expense increased 9.7% to
$7.2 million in the third quarter of 2000. Noninterest income increased 4.9% to
$5.4 million for the nine months ended September 30, 2000 compared to $5.1
million for the similar period in 1999. Noninterest expense for the nine months
ended September 30, 2000 was $21.6 million compared to $19.1 million for the
similar period in 1999, an increase of $2.5 million or 13.0%.
Net Interest Income
-------------------
Net interest income was $11.5 million and $10.6 million during the three
months ended September 30, 2000 and 1999, respectively, an increase of 8.9%.
During the nine months ended September 30, 2000, net interest income increased
$5.6 million, or 19.5%, to $34.4 million in 2000 compared to $28.8 million for
the similar period in 1999. The Company's net interest margin (tax equivalent
net interest income as a percentage of earning assets) was 3.57% for the three
months ended September 30, 2000 compared to 3.88% for the comparable period in
1999. During the nine months ended September 30, 2000, the net interest margin
was 3.70% compared to 3.67% for the similar period in 1999. Net interest income
increased due to the growth in average earning assets from $1.11 billion during
the third quarter of 1999 to $1.33 billion for the three months ended September
30, 2000. This increase was offset in part by an increase in interest-bearing
liabilities of $225.0 million. During the nine months ended September 30, 2000,
average earning assets increased 19.4% to $1.27 billion at September 30, 2000
from $1.07 billion at September 30, 1999. In addition, interest-bearing
liabilities increased by $226.7 million compared to the similar period in 1999.
The average loan yield was 9.92% during the third quarter of 2000, an
increase of 9.3% from 9.08% during the comparable period in 1999. For the nine
months ended September 30, 2000, the average loan yield was 9.59%, an increase
of 8.0% from 8.88% during the comparable period 1999.
Yields on securities were 7.16%, an increase of 7.2% from 6.68% during the
comparable period in 1999. During the nine months ended September 30, 2000,
securities' yields increased 13.7% to 7.20% from 6.33% during the comparable
period 1999.
10
<PAGE>
Yields on earning assets increased 10.1% to 8.76% during the third quarter
of 2000 compared to 7.96% for the third quarter of 1999. The increase in yields
on earning assets was offset by an increase of 23.5% in average rates on
deposits and borrowings. Average rates on deposits increased 22.3% to 5.48% for
the three months ended September 30, 2000 from 4.48% for the comparable period
in 1999. For the nine months ended September 30, 2000, average rates on deposits
increased 14.5% to 5.13% compared to 4.48% for the comparable period in 1999.
Average rates on borrowings were 6.36% for the third quarter of 2000 compared to
5.04% in the comparable period in 1999. For the nine months ended September 30,
2000, the average rates on borrowings were 5.95% compared to 5.15% for the
similar period in 1999. Based on the current economic conditions and interest
rate trends, it is anticipated that yields on interest-earning assets and
interest-bearing liabilities may continue to increase during the fourth quarter
of 2000.
The net interest margin calculation for the three months ended September
30, 2000 and 1999 is shown below (interest income and average rate on non
taxable securities and loans are reflected on a tax equivalent basis):
<TABLE>
<CAPTION>
2000 1999
---------------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- --------- ----------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
-----------------------
Federal Funds Sold..................... $ 9,581 $ 151 6.30% $ 7,543 $ 91 4.83%
Securities Tax......................... 499,934 8,975 7.18 470,493 7,859 6.68
Securities T/E......................... 42,159 742 7.04 35,743 597 6.68
Commercial Loans....................... 195,734 4,945 10.11 176,460 3,865 8.76
Commercial R/E......................... 413,011 10,499 10.17 268,917 6,393 9.51
Agriculture............................ 46,820 1,029 8.79 39,391 820 8.33
Consumer R/E........................... 108,074 2,460 9.10 98,113 2,009 8.19
Consumer Installment................... 14,062 336 9.56 15,843 488 12.32
----------- ---------- ----- ----------- -------- -----
$ 1,329,375 $ 29,137 8.76% $ 1,112,503 $ 22,122 7.96%
=========== ========== ===== =========== ======== =====
INTEREST-BEARING LIABILITIES
----------------------------
Interest Bearing DDA................... $ 110,642 $ 994 3.59% $ 100,474 $ 794 3.16%
MMDA/Savings........................... 247,206 2,825 4.57 245,339 2,298 3.75
CDs < 100.............................. 451,593 7,020 6.22 355,185 4,657 5.24
CD>100................................. 56,920 889 6.25 71,924 869 4.83
Public Funds........................... 59,433 956 6.43 54,722 682 4.99
FF and Repos........................... 35,036 559 6.38 10,177 137 5.38
FHLB Advances.......................... 226,500 3,400 6.00 144,006 1,779 4.94
Notes & Debentures..................... 25,565 613 9.59 6,043 104 6.88
----------- ---------- ----- ----------- -------- -----
$ 1,212,895 $ 17,256 5.68% $ 987,870 $ 11,320 4.60%
=========== ========== ===== =========== ======== =====
Net Interest/Spread.................... 11,881 3.08% 10,802 3.36%
========== ===== ======== =====
Margin................................. 3.57% 3.88%
===== =====
</TABLE>
11
<PAGE>
The net interest margin calculation for the nine months ended September
30, 2000 and 1999 is shown below (interest income and average rate on non
taxable securities and loans are reflected on a tax equivalent basis):
<TABLE>
<CAPTION>
2000 1999
----------------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ---------- --------- ------------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
-----------------------
Federal Funds Sold........................ $ 10,730 $ 499 6.19% $ 7,057 $ 259 4.89%
Securities Tax............................ 496,648 26,865 7.21 460,150 21,758 6.30
Securities T/E............................ 41,125 2,157 6.99 32,811 1,647 6.69
Commercial Loans.......................... 191,345 13,940 9.71 165,521 10,626 8.56
Commercial R/E............................ 367,526 27,172 9.86 252,934 17,423 9.18
Agriculture............................... 44,959 2,913 8.64 35,855 2,239 8.33
Consumer R/E.............................. 105,783 7,042 8.88 95,297 5,849 8.18
Consumer Installment...................... 13,875 970 9.32 15,637 1,480 12.62
---------- --------- ---- ----------- -------- -----
$1,271,991 $ 81,558 8.55% $ 1,065,262 $ 61,281 7.67%
========== ========= ===== =========== ======== =====
INTEREST-BEARING LIABILITIES
----------------------------
Interest Bearing DDA...................... $ 109,256 $ 2,794 3.41% $ 95,675 $ 2,100 2.93%
MMDA/Savings.............................. 245,795 8,096 4.39 227,267 6,130 3.60
CDs < 100................................. 417,627 18,168 5.80 370,960 14,748 5.30
CD>100.................................... 61,544 2,723 5.90 65,178 2,449 5.01
Public Funds.............................. 58,413 2,581 5.89 41,969 1,526 4.85
FF and Repos.............................. 33,619 1,524 6.04 10,980 418 5.08
FHLB Advances............................. 213,772 9,163 5.72 113,535 4,319 5.07
Notes & Debentures........................ 17,786 1,166 8.74 5,528 277 6.68
---------- ------- ---- ----------- -------- ----
$1,157,812 $ 46,215 5.32% $ 931,092 $ 31,967 4.57%
========== ========= ==== =========== ======== =====
Net Interest/Spread...................... $ 35,343 3.23% $ 29,314 3.09%
========= ==== ======== =====
Margin................................... 3.70% 3.67%
==== =====
</TABLE>
Provision for Loan Losses
-------------------------
The Company's provision for loan losses was $535,000 for the third quarter
of 2000 compared to $639,000 for the similar period in 1999. For the nine months
ended September 30, 2000, the provision for loan losses was $1,425,000 compared
to $1,518,000 for the comparable period in 1999.
The allowance for loan losses as a percentage of total loans was 1.04% at
September 30, 2000 and 1.17% at December 31, 1999.
Other Income
------------
Other income, excluding securities gains, was $1.8 million for the three
months ended September 30, 2000, an increase of $303,000, or 20.3%, over the
comparable period in 1999. For the nine months ended September 30, 2000, other
income, excluding securities gains, was $4.9 million, an increase of $87,000, or
1.8%, compared to $4.8 million for the comparable period in 1999. Gains on the
sale of other real estate were $227,000 and $309,000 for the nine months ended
September 30, 2000 and 1999, respectively.
12
<PAGE>
Service charges and fees increased 9.1%, or $80,000, to $955,000 in the
third quarter of 2000 from $875,000 in the third quarter of 1999. For the nine
months ended September 30, 2000, service charges and fees increased 9.2%, or
$227,000, to $2.7 million compared to $2.5 million for the comparable period in
1999. Service charges and fees include service charges on deposit accounts which
are expected to increase with future deposit growth.
Insurance and investment brokerage commissions increased $73,000 from
$137,000 for the third quarter of 1999 to $210,000 for the third quarter of
2000. For the nine months ended September 30, 2000, insurance and investment
brokerage commissions increased $137,000 to $558,000 compared to $421,000 for
the first nine months of 1999. During the third quarter of 2000, the Company
entered into a definitive agreement to acquire the book of business and other
assets of an investment brokerage firm. This transaction is expected to close
during the fourth quarter of 2000, following the receipt of necessary regulatory
approval and will be accounted for using the purchase method of accounting. The
Company will conduct brokerage operations through a newly incorporated wholly
owned subsidiary. The owner of the former firm will be retained as president of
this subsidiary. This individual has been operating his brokerage firm within
the Company's flagship bank, Midwest Bank and Trust Company for the past eleven
years, and the Company has received a percentage of the investment brokerage
commissions. Investment brokerage activities are expected to be expanded to many
of the Company's banking center locations in the near future. No guaranty can be
made on whether the projected commission growth will be realized under the
expansion strategy.
Mortgage loan origination fees decreased 55.3% to $63,000 during the third
quarter of 2000 from the comparable period in 1999. For the nine months ended
September 30, 2000, mortgage loan origination fees decreased $496,000 from the
comparable period in 1999. This is primarily a result of the Company's decision
in September of 1999 to dissolve its unprofitable mortgage banking subsidiary.
Currently, the Company's subsidiary banks market secondary mortgage products
directly to their respective customers.
Sales of securities available-for-sale resulted in net gains of $80,000 in
the third quarter of 2000 compared to $51,000 for the comparable period in 1999.
For the nine months ended September 30, 2000, gains on the sale of securities
were $371,000 compared to $258,000 for the first nine months of 1999. Securities
available-for-sale are held in a manner which allows for their sale in response
to changes in interest rates, liquidity needs, or significant prepayment risk.
Net trading account profits were $17,000 and $91,000 during the third quarters
of 2000 and 1999, respectively. For the nine months ended September 30, 2000,
net trading account profits were $149,000 and $96,000 in 2000 and 1999,
respectively.
Other Expenses
--------------
Total other expenses increased 9.7%, or $632,000, to $7.2 million during
the third quarter of 2000 compared to $6.5 million for the comparable period in
1999. For the nine months ended September 30, 2000, total other expenses
increased 13.0%, or $2.5 million, to $21.6 million from $19.1 million in 1999.
Salary and benefit expenses increased 9.0%, or $336,000, to approximately
$4.1 million for the third quarter of 2000 compared to $3.8 million for the
similar period in 1999. For the nine months ended September 30, 2000, salary and
benefit expenses increased $1.3 million, or 11.3%, to $12.3 million from $11.1
million for the comparable period in 1999. The number of full-time equivalent
employees was 344 at September 30, 2000 compared to 327 as of September 30,
1999. The increase in the number of full-time equivalent employees, as well as
salaries and benefits, was primarily due to the initial staffing and related
compensation costs attributable to a new banking centers in Roselle, Illinois in
February 2000 and
13
<PAGE>
Aledo, Illinois in December 1999.
Occupancy expenses increased $117,000, or 10.4%, to $1.2 million during the
third quarter of 2000 compared to $1.1 million for the comparable period in
1999. For the nine months ended September 30, 2000, occupancy expenses increased
$364,000, or 11.1%, to $3.6 million from $3.3 million in the first nine months
of 1999. Midwest Bank of Western Illinois constructed a new facility, which
opened in January 2000. In February 2000, the Roselle, Illinois banking center
opened.
Expenses, other than salary and employee benefits and occupancy, increased
$179,000, or 10.8%, to $1.8 million in the third quarter of 2000 from $1.7
million for the similar period in 1999. Other expenses increased $863,000, or
18.1%, to $5.6 million for the nine months ended September 30, 2000 from $4.8
million for the comparable period in 1999. The increase in expenses was due
primarily to start-up promotional expenses for new banking locations,
outsourcing arrangements, deposit premium amortization expense, and general
operating costs. In addition, other expenses for the nine months ended September
30, 2000 included an expense of $110,000 for the remaining undepreciated amount
related to the original headquarters of Midwest Bank of Western Illinois, which
was donated to the City of Monmouth, Illinois as a new City Hall in March 2000.
Income Taxes
------------
The Company recorded income tax expense of $1.9 million and $1.8 million
for quarters ended September 30, 2000 and 1999, respectively. For the nine
months ended September 30, 2000, the provision for income taxes increased $1.1
million, or 24.0%. The increase in income taxes was due to the growth in pre-tax
income for the nine months ended September 30, 2000.
FINANCIAL CONDITION
Loans
-----
Total loans increased $146.1 million, or 22.6%, to $792.6 million at
September 30, 2000 from $646.5 million at December 31, 1999. Loan demand has
been strong during the first nine months of 2000, but there is no guarantee that
loan demand will continue to be robust in future periods. Commercial loans
increased $4.8 million, or 2.5%, to $192.6 million at September 30, 2000
compared to $187.8 million at December 31, 1999. Commercial real estate loans
increased 43.1%, or $129.5 million, to $429.5 million at September 30, 2000 from
$300.1 million at December 31, 1999. Agricultural loans increased 14.8%, or $6.2
million, to $47.9 million at September 30, 2000 from $41.7 million at December
31, 1999.
Consumer real estate loans increased $5.4 million, or 5.2%, to $109.1
million at September 30, 2000 from $103.7 million at December 31, 1999. Consumer
loans increased 3.8% to $14.4 million at September 30, 2000 compared to $13.9
million at December 31, 1999.
Consumer mortgage loans have previously been originated by the Company's
mortgage banking subsidiary, Midwest One Mortgage Services, Inc. ("Midwest One
Mortgage"). As of September 15, 1999, the operations and activities of Midwest
One Mortgage were transferred to the Company's subsidiary banks which now handle
all mortgage services. Most mortgage loans the Company originates are sold in
the secondary market. At any point in time, loans will be at various stages of
the mortgage banking process. Included as part of consumer real estate loans are
loans held for sale, which were $449,000 at December 31, 1999 and $776,000 at
September 30, 2000. The carrying value of these loans approximated their market
value at that time.
Based upon the Company's business strategy to increase loans, it is
anticipated that commercial
14
<PAGE>
and commercial real estate loans will continue to represent an increasing
percentage of earning assets during the rest of 2000.
Allowance for Loan Losses
-------------------------
An allowance for loan losses has been established to provide for those
loans that may not be repaid in their entirety for a variety of reasons. The
allowance is maintained at a level considered by management to be adequate to
provide for potential loan losses. The allowance is increased by provisions
charged to earnings and is reduced by chargeoffs, net of recoveries. The
provision for loan losses is based upon past loan loss experience and
management's evaluation of the loan portfolio under current economic conditions.
Loans are charged to the allowance for loan losses when, and to the extent, they
are deemed by management to be uncollectible. The allowance for loan losses is
composed of allocations for specific loans and a historical portion for all
other loans.
Following is a summary of changes in the allowance for loan losses for the
nine months ended September 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, January 1............................. $ 7,567 $ 6,576
Provision charged to operations................ 1,425 1,518
Loans charged-off.............................. (826) (1,097)
Recoveries..................................... 76 168
------- -------
Balance, September 30........................ $ 8,242 7,165
======= =======
</TABLE>
On a quarterly basis, the management of each subsidiary bank and the board
of directors of the Company, on a consolidated basis, meet to review the
adequacy of the allowance for loan losses. The Company maintains an internal
loan review function, which reviews commercial and consumer credits with the
individual loan officers and assigns a risk rating grade. The grading system is
in compliance with regulatory classifications, and the allowance is allocated to
the loans based upon regulatory grading, except in instances where there are
known differences (i.e., collateral value is minimal, etc.). Once the specific
portion of the allocation is calculated, management then calculates a percentage
of each category based upon the past five years of loan loss history.
The allowance for loan losses as a percentage of total loans was 1.04% as
of September 30, 2000 and 1.17% at December 31, 1999. In management's judgment,
an adequate allowance for loan losses has been established.
Nonaccrual and Nonperforming Loans
----------------------------------
Nonaccrual loans are those loans of which the accrual of interest income
has been stopped due typically to a problem situation. Nonaccrual loans
decreased to $1.1 million at September 30, 2000 from $1.6 million at December
31, 1999. Most of the nonaccrual loans are related to several commercial loans
which are being addressed by specific workout plans at this time.
Nonperforming loans include nonaccrual loans and accruing loans which are
90 days or more delinquent. Typically, these loans have adequate collateral
protection or personal guaranty to provide a source of repayment to the bank.
Nonperforming loans were $3.5 million at September 30, 2000 compared to $2.4
million at December 31, 1999 and $4.8 million at September 30, 1999.
Nonperforming loans were 0.44%, 0.37%, and 0.78% of total loans at September 30,
2000, December 31, 1999, and
15
<PAGE>
September 30, 1999, respectively. Nonperforming loans were 0.24%, 0.19%, and
0.40% of total assets at September 30, 2000, December 31, 1999, and September
30, 1999, respectively.
Other real estate owned was $1.5 million and $2.7 million at September 30,
2000 and December 31, 1999, respectively. Other real estate owned was 0.11% and
0.21% of total assets at September 30, 2000 and December 31, 1999, respectively.
Securities
----------
Securities are classified as available-for-sale if they may be sold as part
of the Company's asset/liability management strategy in response to changes in
interest rates, liquidity needs, or significant prepayment risk. Securities
available-for-sale are carried at fair value, with related unrealized net gains
or losses, net of deferred income taxes, recorded as an adjustment to equity
capital. At September 30, 2000, unrealized losses, net of taxes on securities
available-for-sale were $7.7 million compared to $11.9 million at December 31,
1999. The decrease in net unrealized losses on securities available-for-sale
resulted in a $4,221,000 increase in book equity.
Securities available-for-sale increased to $505.1 million at September 30,
2000 from $503.4 million at December 31, 1999. U.S. Treasury and agency
securities decreased by $985,000 to $920,000 at September 30, 2000 from $1.9
million at December 31, 1999. U.S. government agency mortgage-backed securities
and collateralized mortgage obligations decreased 10.2%, or $48.3 million, from
$475.1 million at December 31, 1999 to $426.8 million at September 30, 2000.
Equity securities increased $32.1 million from $18.1 million at December 31,
1999 to $50.2 million at September 30, 2000. Equity securities included capital
securities of bond-rated or credit equivalent community banks, Federal Home Loan
Bank and Federal Reserve Bank stock at September 30, 2000. Rated other corporate
bonds increased to $14.3 million at the end of the third quarter of 2000.
Securities held-to-maturity decreased $274,000, or .92%, from $29.6 million
at December 31, 1999 to September 30, 2000.
There were no trading account securities held at September 30, 2000 or
December 31, 1999. The Company holds trading account securities on a short-term
basis based on market and liquidity conditions.
Other Assets
------------
The Company has made a $14.7 million investment in Bank-Owned Life
Insurance (BOLI). The BOLI will provide funding for future employee benefit
expense. It is anticipated that additional amounts will be invested in BOLI
prior to the end of 2000.
Deposits and Borrowed Funds
---------------------------
Total deposits of $1.05 billion at September 30, 2000 represented an
increase of $76.3 million, or 7.9%, from $971.0 million at December 31, 1999.
Non-interest-bearing deposits were $125.1 million at September 30, 2000,
approximately $6.6 million higher than the $118.6 million level at December 31,
1999. Over the same period, interest-bearing deposits increased 8.2%, or $69.7
million. Certificates of deposit under $100,000 increased $69.5 million from
December 31, 1999 to September 30, 2000.
The Company's membership in the Federal Home Loan Bank System gives it the
ability to borrow funds from the Federal Home Loan Bank of Chicago for short- or
long-term purposes under a variety of programs. The loans were used to fund
growth and permit the Company's bank subsidiaries to extend term maturities,
reduce funding costs and manage interest rate risk exposures more effectively.
16
<PAGE>
Federal Home Loan Bank advances were $228.5 million at September 30, 2000
and $169.5 million at December 31, 1999. The weighted average rate for Federal
Home Loan Bank advances was 5.72% during the nine months ended September 30,
2000 with a range of maturities between one and ten years. This rate compares
favorably to the average 2000 rate of 5.80% for the Company's certificates of
deposit under $100,000.
Borrowed funds at September 30, 2000 and December 31, 1999 are listed
below:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank (FHLB) advances to
bank subsidiaries........................... $ 228,500 $ 169,500
Revolving line of credit ($25,000,000)
available).................................. 5,300 7,500
Mortgage payable.............................. -- 75
Note issued to acquire Porter Insurance
Agency, Inc................................. 75 75
---------- ---------
Total notes payable......................... $ 233,875 $ 177,150
========== =========
</TABLE>
The Company also utilizes securities sold under repurchase agreements as a
source of funds. Most local municipalities and some other organizations must
have funds insured or collateralized as a matter of their own policies.
Repurchase agreements provide a source of funds and do not increase the
Company's reserve requirement. Although the balance of repurchase agreements is
subject to variation, particularly seasonal variation, the account relationships
represented by these balances are principally local and have been maintained for
relatively long periods of time. The Company had $19.2 in securities sold under
repurchase agreements at September 30, 2000.
In addition, the Company issued 10% junior subordinated debentures
aggregating $20,000,000 to MBHI Capital Trust I, a wholly-owned subsidiary of
the Company. The junior subordinated debentures pay interest on a quarterly
basis and will mature on June 7, 2030. The junior subordinated debentures can be
redeemed in whole or in part, beginning June 7, 2005.
Capital Resources
-----------------
Stockholders' equity increased $8.9 million, or 13.2%, from $67.7 million
at December 31, 1999 to $76.6 million at September 30, 2000. The increase was
due to 2000 cumulative earnings exceeding dividends declared and amounts used to
repurchase the Company's outstanding common stock, as well as a $4.2 million
decrease in accumulated other comprehensive loss.
Under a previously announced plan, the Company completed its repurchase
plan in May 2000 with the repurchase of 144,654 shares at prevailing market
prices. The weighted average purchase price was $14.62 for stock repurchases
year to date in 2000. The number of shares repurchased completed the planned
objective to repurchase 150,000 shares during 2000. The amount repurchased was
approximately $2.1 million and represented 2.8% of the total dollar amount of
stockholders' equity at September 30, 2000.
17
<PAGE>
The Company and its four subsidiary banks ("the Banks") are subject to
regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weightings and other factors, and the regulators can lower
classifications in certain areas. Failure to meet various capital requirements
can initiate regulatory action that could have a direct material effect on the
financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, however these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
The Company and the Banks were categorized as well capitalized as of
September 30, 2000. Management is not aware of any conditions or events since
the most recent regulatory notification that would change the Company's or the
Banks' categories.
Capital levels and minimum required levels (dollars in thousands):
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
-----------------------------------------------------------------------
MINIMUM REQUIRED MINIMUM REQUIRED
ACTUAL FOR CAPITAL ADEQUACY TO BE WELL CAPITALIZED
---------------------- --------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- ---------- ------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets
Company..................................... $ 108,035 12.2% $ 70,784 8.0% $ 88,480 10.0%
Midwest Bank and Trust Company................ 48,267 12.5 30,932 8.0 38,665 10.0
Midwest Bank of Hinsdale...................... 23,946 11.5 16,675 8.0 20,843 10.0
Midwest Bank of McHenry County................ 22,439 13.4 13,404 8.0 16,755 10.0
Midwest Bank of Western Illinois.............. 13,547 11.3 9,555 8.0 11,944 10.0
Tier I capital to risk-weighted assets
Company..................................... 99,794 11.3 35,392 4.0 53,088 6.0
Midwest Bank and Trust Company................ 44,455 11.5 15,466 4.0 23,199 6.0
Midwest Bank of Hinsdale...................... 22,179 10.6 8,337 4.0 12,506 6.0
Midwest Bank of McHenry County................ 20,868 12.5 6,702 4.0 10,053 6.0
Midwest Bank of Western Illinois.............. 12,456 10.4 4,778 4.0 7,167 6.0
Tier I capital to average assets
Company..................................... 99,794 7.0 56,641 4.0 70,801 5.0
Midwest Bank and Trust Company................ 44,455 7.2 24,617 4.0 30,771 5.0
Midwest Bank of Hinsdale...................... 22,179 7.2 12,292 4.0 15,365 5.0
Midwest Bank of McHenry County................ 20,868 7.3 11,399 4.0 14,248 5.0
Midwest Bank of Western Illinois............. 12,456 6.2 8,069 4.0 10,087 5.0
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------------------------------------------
MINIMUM REQUIRED MINIMUM REQUIRED
ACTUAL FOR CAPITAL ADEQUACY TO BE WELL CAPITALIZED
------------------ -------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- ---------- -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets
Company...................................... $ 84,829 12.2% $ 55,643 8.0% $ 69,553 10.0%
Midwest Bank and Trust Company................. 41,080 13.0 25,292 8.0 31,615 10.0
Midwest Bank of Hinsdale....................... 17,851 11.4 12,573 8.0 15,716 10.0
Midwest Bank of McHenry County................. 17,581 14.2 9,921 8.0 12,401 10.0
Midwest Bank of Western Illinois............... 12,952 13.5 7,670 8.0 9,588 10.0
Tier I capital to risk-weighted assets
Company...................................... 77,263 11.1 27,821 4.0 41,732 6.0
Midwest Bank and Trust Company................. 37,487 11.9 12,646 4.0 18,969 6.0
Midwest Bank of Hinsdale....................... 16,297 10.4 6,286 4.0 9,430 6.0
Midwest Bank of McHenry County................. 16,217 13.1 4,960 4.0 7,441 6.0
Midwest Bank of Western Illinois............... 11,897 12.4 3,835 4.0 5,753 6.0
Tier I capital to average assets
Company...................................... 77,263 6.7 49,166 4.0 61,457 5.0
Midwest Bank and Trust Company................. 37,487 6.7 22,432 4.0 28,039 5.0
Midwest Bank of Hinsdale....................... 16,297 6.5 10,005 4.0 12,506 5.0
Midwest Bank of McHenry County................. 16,217 6.6 9,867 4.0 12,232 5.0
Midwest Bank of Western Illinois............... 11,897 7.1 6,689 4.0 8,362 5.0
</TABLE>
Liquidity
---------
Liquidity measures the ability of the Company to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund its operations, and to provide for customers' credit needs. The liquidity
of the Company principally depends on cash flows from operating activities,
investment in and maturity of assets, changes in balances of deposits and
borrowings, and its ability to borrow funds in the money or capital markets.
Net cash outflows provided by operations were $16.9 million for the nine
months ended September 30, 2000 compared to inflows of $15.3 million a year
earlier. Net cash outflows from investing activities were $141.8 million in the
first nine months of 2000 compared to a net cash outflow of $145.6 million a
year earlier. Cash inflows from financing activities for the nine months ended
September 30, 2000 were $161.0 million compared to a net inflow of $129.3
million in the comparable period 1999.
In the event of short-term liquidity needs, the Banks may purchase federal
funds from correspondent banks. In addition, the Company has established
repurchase agreements and brokered certificates of deposit arrangements with
various financial sources. The Company's membership in the Federal Home Loan
Bank System gives it the ability to borrow funds from the Federal Home Loan Bank
of Chicago for short- or long-term purposes under a variety of programs.
Interest received net of interest paid was a principal source of operating
cash inflows for the three months ended September 30, 2000 and September 30,
1999, respectively. Management of investing and financing activities and market
conditions determine the level and the stability of net interest cash flows.
Management's policy is to mitigate the impact of changes in market interest
rates to the extent possible so that balance sheet growth is the principal
determinant of growth in net interest cash flows.
19
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Sensitivity Analysis
----------------------------------
The Company's overall interest rate sensitivity is demonstrated by net
interest income analysis. Net interest income analysis measures the change in
net interest income in the event of hypothetical changes in interest rates. This
analysis assesses the risk of change in net interest income in the event of
sudden and sustained 1.0% to 2.0% increases and decreases in market interest
rates. The table below presents the Company's projected changes in net interest
income for the various rate shock levels at September 30, 2000.
<TABLE>
<CAPTION>
NET INTEREST INCOME
-------------------------------------
AMOUNT $ CHANGE % CHANGE
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
-200 bp............................. $ 43,650 $ 124 0.28%
-100 bp............................. 44,140 613 1.41
Base................................ 43,527 -- --
+100 bp............................. 42,807 (720) (1.65)
+200 bp............................. 41,909 (1,618) (3.72)
</TABLE>
As shown above, at September 30, 2000, the effect of an immediate 200 basis
point increase in interest rates would decrease the Company's net interest
income by 3.72%, or $1.6 million. The effect of an immediate 200 basis point
reduction in rates would increase the Company's net interest income by 0.28%, or
$124,000.
The projected changes in the Company's net interest income for the various
rate shock levels at September 30, 1999 were the following:
<TABLE>
<CAPTION>
NET INTEREST INCOME
-------------------------------------
AMOUNT $ CHANGE % CHANGE
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
-200 bp............................. $ 40,707 $ 16 0.04%
-100 bp............................. 40,820 129 0.32
Base................................ 40,691 -- --
+100 bp............................. 40,534 (157) (0.39)
+200 bp............................. 40,169 (522) (1.28)
</TABLE>
Changes in the mix of earning assets and interest-bearing liabilities
increased the Company's liability sensitivity during the past twelve months.
Computations of the prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments, and deposit decay rates, and should not be
relied upon as indicative of actual results. Actual values may differ from those
projections set forth above, should market conditions vary from assumptions used
in preparing the analyses. Further, the computations do not contemplate any
actions the Company may undertake in response to changes in interest rates.
20
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995 and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies, and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Important factors which could cause actual events to
differ from the Company's expectations include, but are not limited to,
fluctuations in interest rates, and loan and deposit pricing, which could reduce
the Company's net interest margins, asset valuations and expense expectations; a
deterioration in the economy or business conditions, either nationally or in the
Company's market areas, that could increase credit-related losses and expenses;
increases in defaults by borrowers and other loan delinquencies resulting in
increases in the Company's provision for loan losses and related expenses;
higher than anticipated costs related to the Company's new banking centers or
slower than expected earning assets growth which could extend anticipated
breakeven periods at these locations; significant increases in competition;
legislative or regulatory changes applicable to bank holding companies or the
Company's banking or other subsidiaries; and possible changes in tax rates, tax
laws, or tax law interpretation.
21
<PAGE>
PART II
MIDWEST BANC HOLDINGS, INC.
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiaries are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrant's Registration Statement on
Form S-1, Registration No. 333-42827).
Exhibit 3.2 Restated By-Laws, as amended (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarters ended June
30, 1998 and June 30, 2000, File No. 0-29598).
Exhibit 27 Financial Data Schedule
(b) Current Report on Form 8-K dated September 12, 2000, filed with the
SEC on September 20, 2000.
22
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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.
Date: November 13, 2000
MIDWEST BANC HOLDINGS, INC.
(Registrant)
By: /s/ Brad A. Luecke
--------------------------------------
Brad A. Luecke,
President and Chief Executive Officer
By: /s/ Daniel R. Kadolph
--------------------------------------
Daniel R. Kadolph,
Chief Financial Officer
23
