<PAGE>
================================================================================
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 MARCH 31, 1995, 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)
184 SHUMAN BLVD., SUITE 310, P.O. BOX 3086
NAPERVILLE, ILLINOIS 60566-7086
(Address of principal executive offices) (zip code)
(708) 778-8700
(Registrant's telephone number, including area code)
COMMON STOCK, NO 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 May 1, 1995, 12,263,278 shares of the Registrant's no par value common
stock were outstanding, exclusive of treasury shares.
Exhibit Index is located on page 19.
<PAGE>
FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Condition........................................................ 3
Consolidated Statements of Income........................................................... 4
Consolidated Statements of Cash Flows....................................................... 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................... 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 /(1)/ 1994 /(2)/
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks................................................... $ 114,118 $ 107,180
Bank time deposits, federal funds sold and resell agreements.............. 13,296 15,694
Securities available for sale, at market value............................ 709,470 696,384
Securities held to maturity, at amortized cost (market value of $137,898
and $165,536 at March 31, 1995 and December 31, 1994, respectively)..... 138,474 168,644
Loans, net of unearned discount........................................... 1,816,532 1,785,200
Reserve for loan losses................................................... (24,208) (24,083)
----------- -----------
Net loans................................................................. 1,792,324 1,761,117
Premises, furniture and equipment......................................... 41,503 40,329
Accrued interest receivable............................................... 20,409 18,358
Other assets.............................................................. 54,221 67,395
----------- -----------
TOTAL ASSETS.............................................................. $ 2,883,815 $ 2,875,101
=========== ===========
LIABILITIES
Demand deposits........................................................... $ 326,266 $ 346,864
Savings deposits.......................................................... 264,845 270,192
NOW accounts.............................................................. 255,098 292,570
Money market deposits..................................................... 204,403 194,548
Time deposits............................................................. 928,682 890,234
----------- -----------
Total deposits.......................................................... 1,979,294 1,994,408
Short-term borrowings..................................................... 672,237 665,500
Accrued interest payable.................................................. 9,573 9,120
Other liabilities......................................................... 22,217 19,958
----------- -----------
TOTAL LIABILITIES......................................................... 2,683,321 2,688,986
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 1,000 shares authorized, none issued....... --- ---
Common stock, no par value: 20,000 shares authorized; 12,551
issued; 12,221 and 12,197 outstanding at March 31, 1995
and December 31, 1994, respectively.................................... 23,465 23,465
Additional paid-in capital................................................ 25,891 25,913
Retained earnings......................................................... 169,545 165,893
Unrealized net depreciation on securities, net of tax..................... (10,645) (20,767)
Less: Treasury stock, at cost - 331 and 354 shares at
March 31, 1995 and December 31, 1994, respectively...................... (7,762) (8,389)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................................ 200,494 186,115
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $ 2,883,815 $ 2,875,101
=========== ===========
</TABLE>
- - ----------------------------
See notes to consolidated financial statements.
/(1)/ Unaudited
/(2)/ Audited - See December 31, 1994 Form 10-K for Auditor's Report.
3
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, /(1)/
------------------
1995 1994
------- -------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................... $39,743 $31,947
Interest on securities available for sale.................... 11,697 10,354
Interest on securities held to maturity...................... 2,363 573
Interest on short-term investments........................... 269 43
------- -------
TOTAL INTEREST INCOME....................................... 54,072 42,917
------- -------
INTEREST EXPENSE
Interest on deposits......................................... 16,025 12,676
Interest on short-term borrowings............................ 10,515 4,370
------- -------
TOTAL INTEREST EXPENSE...................................... 26,540 17,046
------- -------
NET INTEREST INCOME......................................... 27,532 25,871
PROVISION FOR LOAN LOSSES.................................... 1,632 1,512
------- -------
Net interest income after provision for loan losses......... 25,900 24,359
------- -------
NONINTEREST INCOME
Service charges on deposit accounts.......................... 2,245 2,266
Trust income................................................. 1,488 1,543
Other service charges, commissions and fees.................. 1,530 1,344
Net revenues on real estate loans held for sale.............. 98 499
Security transactions, net................................... 5 1,280
Other income................................................. 573 582
------- -------
TOTAL NONINTEREST INCOME.................................... 5,939 7,514
------- -------
NONINTEREST EXPENSE
Salaries and wages........................................... 9,425 9,017
Retirement and other employee benefits....................... 2,669 2,765
Occupancy expense of premises................................ 1,418 1,409
Equipment expense............................................ 1,450 1,231
Computer processing expense.................................. 1,521 1,195
FDIC insurance premiums...................................... 1,104 1,134
Advertising and promotions expense........................... 631 443
Foreclosed real estate expense, net.......................... 317 643
Other expenses............................................... 4,011 5,110
------- -------
TOTAL NONINTEREST EXPENSE................................... 22,546 22,947
------- -------
Income before income tax expense............................. 9,293 8,926
Income tax expense........................................... 3,314 3,411
------- -------
NET INCOME.................................................. $ 5,979 $ 5,515
======= =======
NET INCOME PER SHARE........................................ $ 0.49 $ 0.45
Cash dividends declared per share........................... $ 0.19 $ 0.17
Weighted average shares outstanding......................... 12,202 12,195
======= =======
</TABLE>
- - ------------------------------
See notes to consolidated financial statements.
/(1)/ Unaudited
4
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, /(1)/
--------------------
1995 1994
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 5,979 $ 5,515
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses......................................................... 1,632 1,512
Provision for depreciation........................................................ 1,361 1,217
Net amortization of securities available for sale premiums and discounts.......... 701 706
Net accretion of securities held to maturity premiums and discounts............... (133) (68)
Net gains on securities available for sale transactions........................... (5) (1,272)
Net gains on securities held to maturity transactions............................. --- (8)
Net gains on sales of premises, furniture and equipment........................... (7) (38)
Net decrease in deferred income taxes............................................. (1,093) (424)
Net amortization of purchase accounting adjustments and goodwill.................. 358 373
Changes in operating assets and liabilities:
Net (increase) decrease in loans held for sale................................... (2,484) 13
Net (increase) decrease in accrued interest receivable........................... (2,051) 754
Net decrease in other assets..................................................... 5,284 167
Net increase (decrease) in accrued interest payable.............................. 453 (722)
Net increase in other liabilities................................................ 3,352 3,139
-------- ---------
Net cash provided by operating activities....................................... 13,347 10,864
-------- ---------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales................................................................ 69,135 61,608
Proceeds from maturities and paydowns.............................................. 10,352 95,041
Purchases.......................................................................... (76,454) (148,312)
Securities held to maturity:
Proceeds from maturities and paydowns.............................................. 50,812 4,080
Purchases.......................................................................... (20,502) (948)
Loans made to customers, net of principal collected................................. (31,081) (21,301)
Proceeds from sales of foreclosed real estate....................................... 1,521 812
Proceeds from sales of premises, furniture and equipment............................ 34 61
Purchases of premises, furniture and equipment...................................... (2,532) (1,824)
-------- ---------
Net cash provided (used) by investing activities................................... 1,285 (10,783)
-------- ---------
FINANCING ACTIVITIES
Net decrease in deposit accounts.................................................... (15,114) (51,066)
Net increase in short-term borrowings............................................... 6,737 44,511
Purchases of treasury stock......................................................... (78) (963)
Cash dividends...................................................................... (2,320) (2,070)
Exercise of stock options........................................................... 683 ---
-------- ---------
Net cash used by financing activities.............................................. (10,092) (9,588)
-------- ---------
Net increase (decrease) in cash and cash equivalents............................... 4,540 (9,507)
Cash and cash equivalents at beginning of period................................... 122,874 118,301
-------- ---------
Cash and cash equivalents at end of period......................................... $127,414 $ 108,794
======== =========
Supplemental disclosures:
Interest paid to depositors and creditors.......................................... $ 26,087 $ 17,768
Income taxes paid.................................................................. 171 601
Non-cash transfers to foreclosed real estate from loans............................ 471 409
======== =========
</TABLE>
- - -------------------------------
See notes to consolidated financial statements.
/(1)/ Unaudited
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim consolidated financial statements of First Midwest
Bancorp, Inc. ("First Midwest") included in this report reflect all normal and
recurring adjustments which are, in the opinion of Management, necessary to
fairly present the results for the interim periods presented. Certain
reclassifications have been made to the 1994 data to conform to the 1995
presentation, and the results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full year
1995. The accounting and reporting policies of First Midwest conform to
generally accepted accounting principles and general practice within the banking
industry. For detail of significant accounting policies and practices, in
addition to that which follows, refer to First Midwest's Annual Report on Form
10-K for the year ended December 31, 1994.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - In May, 1993, the Financial
Accounting Standards Board ("FASB") issued Statement No. 114 "Accounting by
Creditors for Impairment of a Loan", and in 1994 issued Statement No. 118, which
amends Statement No. 114. First Midwest adopted both Statements effective as of
January 1, 1995. These Statements address the accounting by creditors for an
impaired loan by specifying how the reserve for loan losses related to such loan
should be determined. The Statements require that creditors measure an impaired
loan based upon the present value of expected future cash flows from such loan
discounted at such loan's effective interest rate or, as a practical expedient,
at either such loan's observable market price or the fair market value of the
collateral supporting such loan. In addition, these Statements prescribe the
accounting treatment for certain loans that are restructured in a troubled debt
restructuring and impose new rules with respect to the classification of in-
substance foreclosed loans. First Midwest's disclosure with respect to the
Statements is provided in the accounting policies that follow entitled "Loans"
and "Foreclosed Real Estate", and in note 4, located on page 9 of this Form
10-Q.
LOANS - Loans are carried at the principal amount outstanding, net of unearned
income, including certain deferred loan fees. Unearned discount on certain
consumer installment loans is credited to income over the term of the loan using
the sum-of-the-month's digits method which approximates the level yield method.
Interest income on loans is accrued based on principal amounts outstanding.
Generally a loan, including an impaired loan as defined by FASB Statement No.
114 is classified as nonaccrual and the accrual of interest on such loans is
discontinued when, in the opinion of Management, there is reasonable doubt as to
the timely collection of interest or principal. When a loan is placed on
nonaccrual status, unpaid interest credited to income in the current year is
reversed and unpaid interest accrued in prior years is charged against the
reserve for loan losses. Interest received on nonaccrual loans is either
applied against principal or reported as interest income, according to
management's judgment as to the collectibility of principal. Nonaccrual loans
are returned to an accrual status when, in the opinion of Management, the
financial position of the borrower and other relevant factors indicate there is
no longer any reasonable doubt as to the timely payment of principal or
interest.
FORECLOSED REAL ESTATE - Foreclosed real estate, including certain in-substance
foreclosures, includes properties acquired in partial or total satisfaction of
certain loans and is included in other assets in the accompanying consolidated
statements of condition.
In accordance with FASB Statement No. 114, a loan is classified as an in-
substance foreclosure when First Midwest takes possession of loan collateral
regardless of whether a formal foreclosure proceeding take place. Loans
previously classified as in-substance foreclosure but for which First Midwest
had not taken possession of the collateral have been reclassified to loans
effective January 1, 1995. This reclassification did not impact First Midwest's
financial condition or results of operations.
GOODWILL AND OTHER INTANGIBLES - Goodwill, representing the excess of the
purchase price over the fair value of net assets acquired using the purchase
method of accounting, is being amortized using the straight-line method over
periods not exceeding twenty years. At March 31, 1995, goodwill totaling
$14,469 is included in other assets in the accompanying consolidated statements
of condition.
Other intangibles included in other assets in the accompanying consolidated
statement of condition at March 31, 1995 are core deposit premiums,
organizational costs and entrance and exit fees totaling $1,079, $543, and $217,
respectively.
6
<PAGE>
First Midwest assesses the recoverability of its goodwill and other intangibles
on a periodic basis through review of various economic factors in determining
whether impairment, if any, exists.
2. SECURITIES
SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of
securities available for sale at March 31, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
Securities Available for Sale
-----------------------------------------------------------------------------------------
March 31, 1995 December 31, 1994
------------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities.......... $209,963 $648 $ (956) $209,655 $134,204 $--- $ (2,666) $131,538
U.S. Agency securities............ 474,415 --- (13,376) 461,039 536,950 87 (26,966) 510,071
Other securities.................. 40,053 22 (1,299) 38,776 57,037 24 (2,286) 54,775
-------- ---- -------- -------- -------- ---- -------- --------
Total............................ $724,431 $670 $(15,631) $709,470 $728,191 $111 $(31,918) $696,384
======== ==== ======== ======== ======== ==== ======== ========
</TABLE>
U.S. Treasury Securities - Since December 31, 1994 approximately $76 million in
U.S. Treasury securities were purchased. Such purchase was funded from the
proceeds of paydowns and sales of agency and other securities classified as
available for sale in addition to proceeds from maturities of agency securities
classified as held to maturity. A decline in general market interest rates
during the first quarter of 1995 resulted in a reduction in gross unrealized
losses from ($2,666) at year-end 1994 to gross unrealized gains and losses of
$648 and ($956), respectively as of March 31, 1995.
U.S. Agency Securities - The majority of agency securities represent
collateralized mortgage obligation bonds (CMOs) and mortgage-backed pass-
through securities. These securities are primarily normal pass-through
certificates issued by agencies of the U.S. government or are AAA-rated agency-
backed CMOs with specific tranches selected for their cashflow and prepayment
characteristics. The approximate $63 million reduction in the amortized cost
since year-end 1994 reflects the paydowns and sales of securities during the
first quarter of 1995.
Gross unrealized losses in this security category totaled $13,376 at March 31,
1995 of which approximately $11 million is attributable to CMOs that were
purchased in conjunction with the arbitrage transaction discussed in
Management's Discussion and Analysis under the section entitled "Net Interest
Income" located on page 11 of this Form 10-Q. Interest rates on these CMOs
reset monthly and are indexed to one-month LIBOR, plus a spread of
approximately 125 basis points. These CMOs are subject to lifetime interest
rate caps which represent ceilings set on the interest coupons of the
securities, which are in the range of 9-9 1/2%. The general decline in
interest rates since the end of 1994 has positively affected the market value
of the caps imbedded within such CMOs. As a result, the $11 million in
unrealized losses on the CMOs as of March 31, 1995 represents a reduction from
such unrealized loss outstanding at year-end 1994 which totaled $18.4 million.
Other Securities - Other securities totaled approximately $40 million as of
March 31, 1995, representing an approximate $17 million reduction since year-
end 1994. This reduction represents the paydowns and sales of whole-loan
mortgage-backed securities during the first quarter of 1995 with the proceeds
reinvested in higher-yielding U.S. Treasury securities with durations similar
to the securities sold.
For the three months ended March 31, 1995, proceeds from sales and paydowns of
securities available for sale totaled $69,135 and $10,352, respectively, with
gross gains and losses realized on such sales totaling $387 and ($382),
respectively. For the year ended December 31, 1994, proceeds from the sale of
securities available for sale totaled $206,388. Gross gains and losses realized
on sales for the year ended December 31, 1994 were $1,780 and ($541),
respectively.
7
<PAGE>
SECURITIES HELD TO MATURITY - The amortized cost and market value of securities
held to maturity at March 31, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity
-----------------------------------------------------------------------------------------
March 31, 1995 December 31, 1994
------------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............ $ 821 $ 4 $ (2) $ 823 $ 721 $--- $ (9) $ 712
U.S. Agency securities.............. 90,676 --- (818) 89,858 131,950 --- (3,069) 128,881
State and municipal securities...... 36,779 354 (124) 37,009 25,731 324 (351) 25,704
Other securities.................... 10,198 10 --- 10,208 10,242 --- (3) 10,239
-------- ---- ----- -------- -------- ---- ------- --------
Total.............................. $138,474 $368 $(944) $137,898 $168,644 $324 $(3,432) $165,536
======== ==== ===== ======== ======== ==== ======= ========
</TABLE>
The decrease in the securities held to maturity portfolio since December 31,
1994 is attributable to maturities of U.S. Agency securities in the first
quarter of 1995. These funds were primarily reinvested in U.S. Treasury
securities, classified as available for sale, as discussed in the previous
section entitled "Securities Available for Sale". Such decrease in the
portfolio was partially offset by the purchase of short-term tax anticipation
warrants ("TAWs") classified as State and municipal securities, due to the
seasonal fluctuation of tax receipts.
Included in U.S. Agency securities in the table above are approximately $89,000
in CMOs that were purchased in conjunction with the arbitrage transaction
discussed in Management's Discussion and Analysis under the section entitled
"Net Interest Income" located on page 11 of this Form 10-Q. Interest rates on
these CMOs reset monthly and are indexed to one month LIBOR, plus a spread of
approximately 125 basis points. These CMOs are subject to lifetime interest
rate caps which represent ceilings set on the interest coupons of the
securities. Of the total approximate $89,000 in securities, $29,000 have a 10%
cap and the remaining $60,000 have a 9% cap. The general decline in interest
rates since the end of 1994 has positively affected the market value of the caps
imbedded within such CMOs. As a result, the $805 unrealized losses on the CMOs
as of March 31, 1995 represent a reduction from such unrealized loss outstanding
at year-end 1994 which totaled $3,033.
Proceeds from calls of securities held to maturity for the year ended December
31, 1994 totaled $41,722. Gross gains and losses realized on those calls
totaled $22 and ($1), respectively. There were no securities called for the
three months ended March 31, 1995.
3. LOANS
The following table provides the book value of loans, by major classification,
as of the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Commercial and industrial........... $ 519,553 $ 514,628
Agricultural........................ 28,850 33,546
Consumer............................ 516,960 499,313
Real estate - 1-4 family............ 227,291 215,821
Real estate - commercial............ 440,233 441,570
Real estate - construction.......... 73,095 67,356
Tax-exempt.......................... 8,942 9,014
Other............................... 1,608 3,952
---------- ----------
Loans, net of unearned discount.. $1,816,532 $1,785,200
========== ==========
</TABLE>
Real estate 1-4 family loans in the table above include loans held for sale
totaling $6,547 and $4,063, at March 31, 1995 and December 31, 1994,
respectively.
8
<PAGE>
4. RESERVE FOR LOAN LOSSES AND IMPAIRED LOANS
The following table presents changes in the reserve for loan losses for the
three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months ended
March 31,
------------------
1995 1994
-------- -------
<S> <C> <C>
Balance at beginning of period............... $24,083 $21,654
Provision for loan losses................... 1,632 1,512
Loans charged-off........................... (1,952) (1,980)
Recoveries of loans previously charged-off.. 445 506
------- -------
Net loans charged-off...................... (1,507) (1,474)
------- -------
Balance at end of period..................... $24,208 $21,692
======= =======
</TABLE>
The recorded investment in loans that were determined to be impaired in
accordance with FASB Statement No. 114 totaled $20,185 at March 31, 1995. A
loan is considered impaired when it is probable that a creditor will be unable
to collect all contractual principal and interest due according to the
contractual terms of the loan agreement. The amount of impairment is the
difference between a creditor's recorded investment in a loan and the present
value of expected future cash flows from such loan or, as a practical expedient,
at either such loan's observable market price or the fair value of the
collateral supporting such loan. Of the $20,185 in impaired loans, $15,891 have
collateral values less than First Midwest's recorded value in such loans for
which, in accordance with FASB Statement No. 114, a specific loan loss reserve
of $4,983 is maintained; the $4,294 balance of impaired loans have collateral
values equal to or greater than First Midwest's recorded investment in such
loans. Of the $20,185 in impaired loans, $12,481 were nonaccruing and $7,704
were renegotiated.
At March 31, 1995 the reserve for loan losses totaled $24,208 and consisted of
specific reserves for impaired loans of $4,983, general allocated reserves of
$8,770 and unallocated reserves of $10,455. An explanation of the methodology
used to determine the level of the reserve for loan losses is provided in
Management's Discussion and Analysis under the section entitled "Provision and
Reserve for Loan Losses" located on page 15 of this Form 10-Q.
The average recorded investment in impaired loans during the three months ended
March 31, 1995 was approximately $18,961. First Midwest recognized interest
income on the impaired loans of $170 during the three months ended March 31,
1995 of which $133 was recognized under the cash basis method of income
recognition.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, First Midwest is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These instruments include commitments to extend credit, standby letters of
credit, commercial letters of credit, forward sales contracts and interest rate
swap transactions. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of condition. The contract or notional amounts of those instruments
reflect the extent of involvement that First Midwest has in particular classes
of financial instruments.
As of March 31, 1995, the contractual amount of commitments to extend credit
totaled $353,961, $68,380 of which represents unused home equity lines of
credit. The contractual amount of standby letters of credit totaled $49,396 and
commercial letters of credit were $354.
First Midwest enters into certain sales contracts for the future delivery of
loans at a specified price and date. These contracts, in the form of forward
sales agreements, are entered into to limit exposure to fluctuation in interest
rates in First Midwest's mortgage loan sales operations. As part of such loan
sales operations, First Midwest generally contracts for the sale of loans
without recourse. Forward sales agreements outstanding as of March 31, 1995
totaled $7,000.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. First Midwest enters into interest rate swaps
with third parties in order to limit variations in net interest income. First
Midwest has also utilized interest rate swaps referred to as "basis" swaps to
lock in spreads on its prime rate-based loan portfolios. Credit exposure on the
interest rate swaps is
9
<PAGE>
comprised of the aggregate net interest payable to First Midwest by the
counterparty in addition to the aggregate unrealized gain on the interest rate
swap position. First Midwest maintains a policy limiting credit exposure to any
counterparty to not more than 2.5% of consolidated stockholders' equity. In
addition, First Midwest's interest rate swaps generally require the
establishment of a mutual mark-to-market arrangement whereby cash collateral may
be required to be on deposit with First Midwest and/or the agreement's
counterparty.
First Midwest had interest rate swaps with an aggregate notional amount totaling
$441,044 in place, hedging various balance sheet categories, as of March 31,
1995. Further information with respect to these interest rate swap contracts is
presented below:
<TABLE>
<CAPTION>
Weighted Weighted Average Rate
Average Fair Value ---------------------
Notional Maturity as of Interest Interest
Type of Interest Rate Swap Amount (in years) 3/31/95 Received Paid
- - -------------------------------------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Receive fixed rate/Pay variable rate.. $121,044 1.1 $ (504) 6.29% 6.19%
Pay fixed rate/Receive variable rate.. $120,000 0.2 $ (82) 6.13% 6.54%
Basis swaps $200,000 3.5 $ (7,670) 4.81% 6.63%
======== === ======== ==== =======
</TABLE>
The fair value of interest rate swaps is the estimated amount that First Midwest
would pay to terminate the swap agreements at the reporting date, taking into
account current interest rates and the creditworthiness of the swap counter-
parties.
10
<PAGE>
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 ended March 31, 1995 as
compared to the same period in 1994. Management's discussion and analysis
should be read in conjunction with the consolidated financial statements and
accompanying notes presented elsewhere in this Form 10-Q. Amounts are presented
in thousands, except for per share data.
SUMMARY OF PERFORMANCE
Net Income
- - ----------
Net income for the first quarter of 1995 increased to $5,979, or $.49 per share
from $5,515, or $.45 per share in the first quarter of 1994 representing an
increase of 9% on a per share basis. Included in net income for the first
quarter of 1994 were security gains totaling $1,280, or $.06 per share. After
factoring out such gains, 1995's first quarter net income exceeded the year
ago's quarter by approximately $.10 per share, or 26%.
Presented in the table below is an income statement analysis, presented on a per
share basis, comparing the after-tax change in the components of net income for
the periods ended March 31, 1995 and 1994. The increase or decrease in each net
income component is further detailed in the management discussion and analysis
that follows.
<TABLE>
<CAPTION>
Quarter
-----------
<S> <C>
Net income per share - Period ended March 31, 1994........................ $0.45
Increase (decrease) in after-tax net income in 1995 as compared to 1994
resulting from changes in:
Net interest income (tax equivalent).................................. .08
Provision for loan losses............................................. (.01)
Noninterest income.................................................... (.01)
Securities gains...................................................... (.06)
Noninterest expense................................................... .02
Income tax expense*................................................... .02
-----
Net increase.............................................................. 0.04
-----
Net income per share - Period ended March 31, 1995........................ $0.49
=====
</TABLE>
* Refer to the discussion on page 14, entitled "Income Tax Expense".
Return on Average Assets and Stockholders' Equity
- - -------------------------------------------------
Return on average assets was .85% for both the first quarter of 1995 and 1994.
Return on average stockholders' equity for the first quarter of 1995 was 12.61%,
as compared to 11.18% for the 1994 quarter.
NET INTEREST INCOME
Net interest income is the principal source of earnings for First Midwest and
represents the difference between interest income and fees earned on loans,
securities and other earning assets and the interest expense paid for the
funding sources used to finance those assets. Net interest income is impacted
by both the volume of earning assets and paying liabilities and the rates earned
and paid, respectively, on those assets and liabilities. Net interest margin
represents net interest income as a percentage of total interest earning assets.
11
<PAGE>
For purposes of the following discussion, both net interest income and margin
have been adjusted to a fully tax-equivalent basis for certain tax-exempt loans
and securities. The following summarizes net interest income and margin for the
quarters ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Quarters ended
March 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Interest income, as reported............... $ 54,072 $ 42,917
Tax equivalent adjustment................. 290 350
-------- --------
Tax equivalent interest income............. 54,362 43,267
Interest expense........................... 26,540 17,046
------- --------
Tax equivalent net interest income........ $ 27,822 $ 26,221
======== ========
Tax equivalent net interest margin........ 4.26% 4.34%
======== ========
Tax equivalent net interest margin
- excluding arbitrage transaction/(1)/.. 4.63% 4.73%
======== ========
</TABLE>
/(1)/ Refer to the following discussion for a description of the arbitrage.
Net interest income, on a tax equivalent basis, increased by $1,601, or 6.1% in
the first quarter of 1995 to $27,822 as compared to $26,221 in 1994. Net
interest margin decreased to 4.26% for the 1995 quarter as compared to 4.34% for
the same quarter in 1994. As noted in the Volume/Rate Variance Analysis on page
13, the improvement in net interest income is attributable to increased
interest income totaling $11,095 net of increased interest expense totaling
$9,494. The increase in interest income resulted predominantly from higher
volumes and interest rates on loans, while the increase in interest expense was
a result of higher volumes and interest rates on time deposits and short-term
borrowings.
Included in average earning assets during the first quarter of 1995 was
approximately $293,000 in securities purchased incident to an arbitrage
transaction; the average balance of such securities for the first quarter of
1994 was approximately $299,000. The arbitrage involves the purchase of
floating rate securities and the simultaneous financing of this purchase through
repurchase agreements with investment banks who are primary dealers in U.S.
Government securities. The arbitrage adds to net interest income as a result of
the spread between the rate of interest earned on the securities and that paid
on the underlying funding source. The average interest rate earned on the
securities during the first quarter of 1995 was 7.76% while the average interest
rate paid on the underlying funding source was 6.16% for a net positive interest
rate spread of 1.60%. The average interest rates earned and paid on the
arbitrage investment in the first quarter of 1994 were 4.79% and 3.47%,
respectively, for a positive net interest spread of 1.32%. Excluding the effect
of the arbitrage, which reduces the net interest margin due to the addition of a
significant volume of lower-yielding securities, tax equivalent net interest
margin would have been 4.63% for the 1995 quarter and 4.73% for the 1994
quarter.
As noted in the Volume/Rate Variance Analysis on page 13, volume and interest
rate variances on loans totaling $7,791 contributed to the $11,095 increase in
interest income in the 1995 quarter. Slightly more than half of the loan
interest income variance resulted from loan volumes. Loan volumes increased by
$208,261 in the current quarter over the like quarter last year, primarily
attributable to growth in the commercial, real estate, and indirect consumer
loan portfolios. The remaining loan interest income variance resulted from
interest rates, on which average rates increased to 8.99% for the 1995 quarter
from 8.18% in 1994.
Interest expense increased by $9,494 for the first quarter of 1995 as compared
to the same period in 1994. Interest rates paid on short-term borrowings was
the primary cause for the increase in interest expense ($6,144) and the net
interest margin narrowing. Such borrowings, in the form of federal funds
purchased and repurchase agreements, are externally priced liabilities, the
average quarterly rate on which increased to 6.45% in 1995 from 3.44% in 1994.
Seasonal cash needs were a primary cause for the increase in short-term
borrowings. The higher general interest rate environment, as compared to the
1994 quarter, contributed to the higher volume and interest rates on time
deposits, accounting for $3,429 of the interest expense increase.
First Midwest manages interest rate risk by conducting simulations that
demonstrate the changes that would occur in net interest income under different
interest rate scenarios and balance sheet structures. This form of modeling is
conducted monthly, involves adjustments to balance sheet volumes over a 24 month
forward period, incorporates a repricing analysis of earning assets and funding
sources and considers certain other balance sheet hedging vehicles such as
interest rate swaps. First Midwest has generally followed a policy of
maintaining a balanced mix of rate-sensitive assets and liabilities, making each
side of the balance sheet equally flexible in reacting to changes in market
interest rates so that net interest income will not be adversely affected by
more than 1-3%, regardless of whether rates rise or fall rapidly.
12
<PAGE>
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 March 31,
1995 and 1994. 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.
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31, 1995 AND 1994
------------------------------------------------------------------------
AVERAGE INTEREST
AVERAGE BALANCES RATES EARNED/PAID
------------------------------------------------------------------------
BASIS
INCREASE POINTS
1995 1994 (DECREASE) 1995 1994 INC/(DEC)
---------- --------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other
short-term investments................. $ 14,860 5,045 9,815 7.34% 3.46 3.88
Securities available for sale............ 704,114 823,324 (119,210) 6.74 5.10 1.64
Securities held to maturity:
Taxable................................ 107,401 3,823 103,578 7.37 6.15 1.22
Nontaxable (1)......................... 26,503 32,790 (6,287) 9.70 9.80 (0.10)
Loans, net of unearned discount (1)..... 1,795,733 1,587,472 208,261 8.99 8.18 0.81
---------- --------- ----------- -------- -------- -----------
Total interest-earning assets (1)...... $2,648,611 2,452,454 196,157 8.32% 7.14 1.18
========== ======== =========== ======== ======== ===========
NOW accounts............................. $ 275,936 277,366 (1,430) 2.39% 2.10 0.29
Money market deposits.................... 197,468 236,382 (38,914) 2.80 2.44 0.36
Savings deposits......................... 265,657 277,989 (12,332) 2.17 2.39 (0.22)
Time deposits............................ 897,883 782,544 115,339 5.24 4.24 1.00
Short-term borrowings.................... 661,126 514,725 146,401 6.45 3.44 3.01
---------- --------- ----------- -------- -------- -----------
Total interest-bearing liabilities..... $2,298,070 2,089,006 209,064 4.68% 3.31 1.37
========== ========= =========== ======== ======== ===========
Net interest margin/income (1)......... 4.26% 4.34 (0.08)
======== ======== ===========
Net interest income/margin - excluding
arbitrage transaction (1) (2)........ 4.63% 4.73% (0.10)
======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
INTEREST INCREASE/(DECREASE) IN
INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO:
------------------------------------------------------------------------------------
INCREASE VOLUME/
1995 1994 (DECREASE) VOLUME RATE RATE TOTAL
---------- --------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold and other
short-term investments................. $ 269 43 226 $ 84 48 94 226
Securities available for sale............ 11,697 10,354 1,343 (1,499) 3,323 (481) 1,343
Securities held to maturity:
Taxable................................ 1,951 58 1,893 1,571 11 311 1,893
Nontaxable (1)......................... 634 792 (158) (152) (8) 2 (158)
Loans, net of unearned discount (1)..... 39,811 32,020 7,791 4,201 3,175 415 7,791
---------- --------- ----------- -------- -------- ----------- -------
Total interest-earning assets (1)...... $ 54,362 43,267 11,095 $ 4,205 6,549 341 11,095
========== ======== =========== ======== ======== =========== =======
NOW accounts............................. $ 1,628 1,437 191 $ (7) 199 (1) 191
Money market deposits.................... 1,365 1,421 (56) (234) 213 (35) (56)
Savings deposits......................... 1,422 1,636 (214) (73) (148) 7 (214)
Time deposits............................ 11,610 8,181 3,429 1,206 1,938 285 3,429
Short-term borrowings.................... 10,515 4,371 6,144 1,243 3,816 1,085 6,144
---------- --------- ----------- -------- -------- ----------- -------
Total interest-bearing liabilities..... $ 26,540 17,046 9,494 $ 2,135 6,018 1,341 9,494
========== ========= =========== ======== ======== =========== =======
Net interest margin/income (1)......... $ 27,822 26,221 1,601 $ 2,070 532 (1,000) 1,601
========== ========= =========== ======== ======== =========== =======
Net interest income/margin - excluding
arbitrage transaction (1) (2)........ $ 26,868 25,236 1,632 $ 1,999 (250) (117) 1,632
========== ========= =========== ======== ======== =========== =======
</TABLE>
(1) Presented on a tax-equivalent basis assuming statutory federal income tax
rates of 35%.
(2) Refer to the discussion contained in "Net Interest Income" for a description
of the arbitrage transaction.
13
<PAGE>
NONINTEREST INCOME
Noninterest income totaled $5,939 for the quarter ended March 31, 1995,
decreasing from $7,514 for the same quarter in 1994. The majority of the $1,575
reduction in noninterest income was attributable to net security transactions.
In the first quarter of 1995 nominal net security gains of $5 were recorded as
compared to net gains of $1,280 in the like 1994 quarter. Also contributing to
the decrease were revenues on real estate loans held for sale which totaled $98
in the 1995 quarter as compared to $499 in the like 1994 quarter. These
revenues, which include origination and other fees received at closing and
realized net gains on the sale of real estate loans, have declined in 1995 as a
result of reduced demand for mortgage loan originations and refinancings due to
the increase in general market interest rates since the same quarter a year ago.
Real estate loan originations for the three months ended March 31, 1995 totaled
$23,500 as compared to $38,000 for the like 1994 period.
Other service charges, commissions and fees which totaled $1,530 for the 1995
quarter, increased by $186, or 13.8% from $1,344 for the same quarter in 1994.
Included in this category of noninterest income are fees earned on various
revenue-producing products and services including merchant fees on credit card
sales, mutual fund and annuity sales commissions and debit card fees, each of
which increased over 1994 levels.
NONINTEREST EXPENSE
Noninterest expense totaled $22,546 for the quarter ended March 31, 1995,
decreasing by $401, or 1.7% from $22,947 for the like quarter in 1994. The
major categories of noninterest expense which declined in the first quarter of
1995 as compared to 1994 include retirement and other employee benefits expense,
foreclosed real estate expense, FDIC insurance premiums and other expenses,
while salaries and wages, computer processing and equipment expense increased
over 1994 levels.
Retirement and other employee benefits expense declined by $96, or 3.5% due to
fewer retirement plan participants projected for 1995 as a result of the
companywide restructuring initiative currently in process. Foreclosed real
estate expense decreased in the first quarter of 1995 by $326, or 50.7% and
represents reduced carrying costs and principal valuation writedowns for
foreclosed real estate properties. Such reduction is attributable to the
reduced principal balance of foreclosed real estate, which totaled $8,542 at
March 31, 1995 as compared to $16,030 as of March 31, 1994.
FDIC insurance premiums declined nominally to $1,104 for the 1995 quarter as
compared to $1,134 for the quarter due to slight declines in the 1995 insured
deposit balances for the period such deposit premiums were determined. FDIC
premium rates are currently in the range of $.23 to $.31 per $100 in issued
deposits. For each $.01 reduction in FDIC insurance premiums, First Midwest
would realize a savings of approximately $200 on an annualized basis.
Other expenses declined to $4,011 for the first quarter of 1995 as compared to
$5,110 for the same period in 1994. Of the $1,099 reduction, approximately half
is attributable to reduced professional services, predominantly legal fees. In
the first quarter of 1994 legal fees totaled $471 and were related, in large
part, to loan remediation activities. Legal fees in the first quarter of 1995
totaled $133, of which only $49 related to such remediation activities. Also
included in other expenses is professional and fidelity bond insurance expense
which was $300 less in 1995 as compared to 1994.
Salaries and wages expense increased to $9,425 for the first quarter of 1995
from $9,017 for the same period in 1994 for an increase of $408, or 4.5%. The
majority of such increase is attributable to general merit raises in 1995, which
approximated 4.0% on average.
Computer processing expense increased to $1,521 for the first quarter of 1995
from $1,195 for the same quarter in 1994 and reflects the cost of additional
digital circuits to transmit voice and data communications between Affiliate
computer networks to support the restructuring of operations centers as well as
to enhance the efficiency and effectiveness of sales and support activities.
Equipment expense increased to $1,450 from $1,231 and represents depreciation
costs resulting from computer hardware and software purchases.
INCOME TAX EXPENSE
Income tax expense totaled $3,314 for the first quarter of 1995, decreasing from
$3,411 for the same period in 1994 and reflects effective income tax rates of
35.7% and 38.2%, respectively. The effective tax rate for the first quarter of
1995
14
<PAGE>
reflected certain tax credits totaling $249 including $149 in previously
unrecognized state enterprise zone income exclusions and certain other federal
income tax accrual adjustments totaling $100.
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
At March 31, 1995, nonperforming assets totaled $20,185 and loans past due 90
days or more and still accruing totaled $5,894. 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:
<TABLE>
<CAPTION>
1995 1994
Nonperforming Assets and -------- ---------------------------------------
90 Day Past Due Loans Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
- - ----------------------------------------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................... $12,481 $10,214 $16,385 $16,999 $16,021
Renegotiated loans............................. 7,704 8,317 3 62 740
------- ------- ------- ------- -------
Total nonperforming loans..................... 20,185 18,531 16,388 17,061 16,761
Foreclosed real estate......................... 8,542 9,483 7,580 9,074 16,030
------- ------- ------- ------- -------
Total nonperforming assets.................... $28,727 $28,014 $23,968 $26,135 $32,791
======= ======= ======= ======= =======
% of total loans plus foreclosed real estate.. 1.57% 1.56% 1.38% 1.55% 2.02%
======= ======= ======= ======= =======
90 Day past due loans accruing interest........ $ 5,894 $ 3,888 $ 6,571 $ 4,233 $10,423
======= ======= ======= ======= =======
</TABLE>
Nonaccrual loans increased by $2,267 since December 31, 1994 which reflected the
addition of two commercial credits. Renegotiated loans declined by $613 and
reflect payments recorded on such loans since year-end 1994 while foreclosed
real estate declined by $941 primarily due to the sale of several single-family
homes.
First Midwest's discussion of FASB Statement No. 114 and the disclosure with
respect to impaired loans is contained in notes 1 and 4 to the consolidated
financial statements, located on pages 6 and 9, respectively.
PROVISION AND RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses during the quarters ended March 31,
1995 and 1994 are summarized in the following table:
<TABLE>
<CAPTION>
Quarters ended
March 31,
-------------------------
1995 1994
--------- -----------
<S> <C> <C>
Balance at beginning of period................ $ 24,083 $ 21,654
Provision for loan losses................... 1,632 1,512
Loans charged-off........................... (1,952) (1,980)
Recoveries of loans previously charged-off.. 445 506
-------- --------
Net loans charged-off.................... (1,507) (1,474)
-------- --------
Balance at end of period...................... $ 24,208 $ 21,692
======== ========
</TABLE>
The provision for loan losses is the cost of providing a reserve for anticipated
future loan losses. The provision charged to operating expense for the first
quarter of 1995 totaled $1,632 as compared to $1,512 for the same quarter in
1994. Loans charged off, net of recoveries totaled $1,507, or .34% of average
loans in 1995 as compared to $1,474, or .38% in 1994. The level of the
provision for loan losses charged to operating expense in any given period is
dependent upon many factors, including loan growth and 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 in First Midwest's primary market areas.
At March 31, 1995, the reserve for loan losses totaled $24,208, or 1.33% of
loans. The reserve for loan losses is maintained at a level which is considered
adequate in relation to the risk of future losses within the loan portfolio.
The reserve is comprised of specific allocations for impaired loans, general
allocations and unallocated reserves. The reserve for impaired loans is
discussed in note 4 to the consolidated financial statements located on page 9.
The general reserve, which is allocated to specific categories of the loan
portfolio, represents First Midwest's judgement as to potential loss exposure
based on both actual loan losses experienced over the preceding three years as
well as the results of independent loan ratings and credit reviews performed for
loans identified to have unfavorable credit characteristics.
15
<PAGE>
The unallocated portion of the reserve is that part that is not specifically
allocated to either a particular loan on which a loss is anticipated or
allocated to a general loan category based upon historical loan loss experience.
The unallocated portion of the reserve for loan losses totaled $10,455.
ANALYSIS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Period Ended
------------------------ Change
March 31, December 31, --------------------
1995 1994 $ %
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Total assets..................... $2,883,815 $2,875,101 8,714 0.30
Loans, net of unearned discount.. 1,816,532 1,785,200 31,332 1.76
Securities available for sale.... 709,470 696,384 13,086 1.88
Securities held to maturity...... 138,474 168,644 (30,170) (17.89)
Deposits......................... 1,979,294 1,994,408 (15,114) (0.76)
Short-term borrowings............ 672,237 665,500 6,737 1.01
Stockholders' equity............. 200,494 186,115 14,379 7.73
========== ========== ======== ======
</TABLE>
At March 31, 1995, assets totaled $2,883,815 and were $8,714, or .3% in excess
of the December 31, 1994 level of $2,875,101. Loans, net of unearned discount,
increased by $31,332 to $1,816,532 at March 31, 1995, from $1,785,200 at
December 31, 1994. The growth was experienced throughout the loan portfolio,
$18,000 of which occurred in the consumer loan category. Indirect consumer and
consumer home equity loans represented the majority of the growth in the total
portfolio. The remaining loan growth included $12,000 in real estate mortgage
loans, $5,000 in commercial loans and $6,000 in real estate construction loans;
agricultural loans declined by $5,000.
A discussion regarding changes in the period-end balances of securities
available for sale and held to maturity is provided in note 2 to the
consolidated financial statements located on pages 7 and 8.
Stockholders' equity increased to $200,494 at March 31, 1995 from $186,115 at
December 31, 1994. The increase is attributable to a $10,122 after-tax
reduction of the net unrealized loss on securities since December 31, 1994,
which is recorded as a separate component of stockholders' equity pursuant to
Financial Accounting Standards Board Statement No. 115. Footnote 2, located on
page 7 of this Form 10-Q, provides additional information with respect to the
gross unrealized gains and losses in the securities portfolios. Also increasing
stockholders' equity as of March 31, 1995 was first quarter net income of
$5,979, net of dividends paid of $2,320.
CAPITAL ANALYSIS
First Midwest and its Bank Affiliates are subject to risk-based capital
guidelines promulgated by their respective regulatory authority. These
guidelines are used to evaluate capital adequacy and are based on an
institution's asset risk profile and off-balance sheet exposure. Capital ratios
in excess of the minimum required regulatory ratios must be maintained in order
for financial institutions to take advantage of more favorable risk-based
deposit insurance assessments and to receive favorable regulatory treatment
incident to acquisition and other expansion activities. The table below
compares First Midwest's capital structure to the minimum capital ratios
required by the Federal Reserve Board ("FRB") and the minimum capital ratios
defined by banking regulators pursuant to the FDIC Improvement Act ("FDICIA").
First Midwest's capital measurements are well in excess of the minimums required
by bank regulatory authorities to be considered "well-capitalized" which is the
highest capital category established under the FDICIA.
<TABLE>
<CAPTION>
As of March 31, 1995
-------------------------------------------
Minimum
Minimum Well-
Required Capitalized
First Midwest FRB FDICIA
------------- ------- -----------
<S> <C> <C> <C>
Tier 1 capital to risk-based assets................... 9.82% 4.00% 6.00%
Total capital to risk-based assets.................... 11.03% 8.00% 10.00%
Leverage ratio........................................ 6.90% 3.00% 5.00%
Average stockholders' equity to average total assets.. 6.77% ** **
Dividend payout ratio *............................... 36.6% ** **
======= ======= ========
</TABLE>
* Based on per share data for the trailing four quarters, excluding the 1994
restructure charge of $2,379, or $.20 per share, after tax.
** Not applicable.
16
<PAGE>
As of March 31, 1995 all four First Midwest Banking Affiliates have capital
ratios at or in excess of the minimum levels required by both the Office of the
Comptroller of the Currency ("OCC"), their primary regulator, and the "Well
Capitalized" designation of the FDICIA, as follows:
<TABLE>
<CAPTION>
As of March 31, 1995
-------------------------------------------------------------------
Minimum
FMB/ Minimum Well-
FMB/ Western FMB/ Required Capitalized
Illinois FMB, N.A. Illinois Danville OCC FDICIA
--------- -------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital to risk-based assets.. 9.24% 9.13% 9.41% 9.23% 4.00% 6.00%
Total capital to risk-based assets... 10.49% 10.27% 10.66% 10.48% 8.00% 10.00%
Leverage ratio....................... 6.45% 7.81% 7.10% 6.41% 3.00% 5.00%
====== ====== ====== ====== ===== ======
</TABLE>
First Midwest believes that it has a responsibility to reward its stockholders
with a meaningful current return on their investment and, as part of the
Company's dividend policy, First Midwest's Board of Directors reviews the
Company's dividend payout ratio periodically to ensure that it is consistent
with internal capital guidelines and industry standards. As a result of such
review, in February, 1995, First Midwest's Board of Directors authorized a
quarterly dividend increase to $0.19 per share representing a 12% increase
compared to the previous quarterly dividend of $0.17.
COMMON STOCK REPURCHASE PROGRAM
On November 17, 1993 First Midwest's Board of Directors authorized the Company
to purchase up to 600 shares of its common stock on the open market or in
private transactions. During the first quarter of 1995, approximately 3 shares
of treasury stock were purchased at a cost of $78. The purchases, in part, are
being used to fund the exercise of stock options by employees, with 26 shares of
treasury stock issued in the first quarter of 1995 for such purpose. First
Midwest intends to continue to utilize its common stock repurchase program as
market conditions warrant to enhance long-term stockholder value.
COMPANY RESTRUCTURING
In August 1994, First Midwest announced a major plan of restructuring intended
to improve its financial performance and better position it for the accelerated
growth that the Company anticipates in its fast-growing markets. The
restructuring will result in the merger of First Midwest's four national Bank
Affiliates into a single Bank together with the consolidation of support,
administrative and clerical functions currently spread across the Company. The
support structure consolidation is designed to achieve greater efficiency and,
more importantly, is expected to result in a significant enhancement of customer
service and satisfaction.
A pretax restructure charge in the amount of $3,900 was recorded during the
fourth quarter of 1994 to establish an accrual for various restructuring
expenses incident to this consolidation. For the three months ended March 31,
1995, approximately $143 in restructure expenses have been paid, resulting in a
restructure accrual balance as of such date of $3,757. The majority of the
restructure expenses are expected to be paid in the second and third quarters of
1995, with the entire accrual expected to be paid out by the end of 1995.
The consolidation activities giving rise to the restructure charge are
proceeding and are expected to be fully implemented by September 30, 1995. When
fully implemented, the consolidation is anticipated to result in permanent
annualized pretax savings of approximately $7 million, such savings being
primarily related to compensation and benefit expense saved on the approximate
180 positions eliminated. Since the majority of the savings will not be
realized until the merger of the Banks have concluded, it is expected that First
Midwest will begin realizing such savings during the 4th quarter of 1995.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index appearing on page 19.
(b) Form 8-K - A Report on Form 8-K was filed during the first quarter of
1995 as follows:
On February 1, 1995, First Midwest filed a Report on Form 8-K under
Item 5 announcing a companywide restructuring initiative.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Midwest Bancorp, Inc.
---------------------------------
Date: May 8, 1995 DONALD J. SWISTOWICZ
Donald J. Swistowicz
Senior Vice President*
* Duly authorized to sign on behalf of the Registrant.
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Documents Page Number
- - ------ ------------------------ -----------
<S> <C> <C>
19 Quarterly Report to Shareholders for 20
the Quarter ended March 31, 1995
27 Financial Data Schedule 24
</TABLE>
19
<PAGE>
Exhibit 19
FIRST MIDWEST BANCORP, INC.
-------------------------------
QUARTERLY REPORT - MARCH 31, 1995
LETTER TO SHAREHOLDERS:
We are pleased to report that net income for the quarter ended March 31, 1995
increased to $6.0 million, or 49 cents per share, from last year's first quarter
of $5.5 million, or 45 cents per share, an increase on a per share basis of 9%.
Importantly, the $6 million earned in the quarter just ended included only an
inconsequential $5 thousand of gains on securities transactions whereas last
year's first quarter income of $5.5 million included $1.3 million, or 6.5 cents
per share (after tax), in such gains.
The higher first quarter earnings were primarily the result of increased net
interest income related to broad-based loan growth. Factoring out components
related to securities gains and residential mortgage loan activities,
noninterest income approximated the levels of a year ago. Total noninterest
expense was modestly lower than the year earlier period but is not yet
reflective of the savings that will flow from the restructuring underway
commencing late in 1995.
The restructuring initiative announced last year and discussed at length in the
1994 Annual Report is proceeding as planned with the merger of our current four
banks into a single bank to be completed by mid-year and the restructuring to be
fully implemented by the end of the third quarter. The fourth quarter will see
the beginning of the realization of the cost savings to flow from the
restructuring estimated to be $7 million annually.
On February 15 the Board approved a 12% increase in the quarterly cash dividend
on our common stock. First paid on April 5, the new quarterly dividend of 19
cents per share indicates a new annual rate of 76 cents per share as compared to
the previous quarterly and annual rates of 17 cents and 68 cents, respectively.
This represents the third cash dividend increase in as many years and is
indicative of both our improved performance and confidence in our future
prospects.
Our Annual Shareholders Meeting held on April 12 was attended by approximately
200 shareholders, analysts, market makers and other interested parties. Present
at the meeting in person or by proxy were approximately 10.5 million shares, or
85% of the total shares outstanding. The slate of directors elected to serve
until 1998 were: Bruce S. Chelberg, C.D. Oberwortmann, John M. O'Meara and
Robert P. O'Meara, each director receiving at least 99% of the shares voted.
As always, we thank you for your support and look forward to reporting to you on
further performance improvement as the year unfolds.
C. D. OBERWORTMANN ROBERT P. O'MEARA
C. D. Oberwortmann Robert P. O'Meara
Chairman of the Board President and Chief Executive Officer
April 17, 1995
20
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) March 31,
- - -----------------------------------------------------------------------------------------------------------
(Amounts in thousands except per share data) 1995 1994
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.......................................... $ 39,743 $ 31,947
Interest on securities.............................................. 14,060 10,927
Interest on funds sold and other short-term investments............. 269 43
- - -----------------------------------------------------------------------------------------------------------
Total interest income............................................. 54,072 42,917
- - -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................ 16,025 12,676
Interest on short-term borrowings................................... 10,515 4,370
- - -----------------------------------------------------------------------------------------------------------
Total interest expense............................................ 26,540 17,046
- - -----------------------------------------------------------------------------------------------------------
Net interest income............................................... 27,532 25,871
PROVISION FOR LOAN LOSSES........................................... 1,632 1,512
- - -----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses............... 25,900 24,359
- - -----------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts................................. 2,245 2,266
Trust fees.......................................................... 1,488 1,543
Other service charges, commissions and fees......................... 1,530 1,344
Net revenues on real estate loans held for sale..................... 98 499
Securities transactions, net........................................ 5 1,280
Other income........................................................ 573 582
- - -----------------------------------------------------------------------------------------------------------
Total noninterest income.......................................... 5,939 7,514
- - -----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages.................................................. 9,425 9,017
Retirement and other employee benefits.............................. 2,669 2,765
Occupancy expenses.................................................. 1,418 1,409
Equipment expenses.................................................. 1,450 1,231
Computer processing costs........................................... 1,521 1,195
FDIC insurance premiums............................................. 1,104 1,134
Other expense....................................................... 4,959 6,196
- - -----------------------------------------------------------------------------------------------------------
Total noninterest expense......................................... 22,546 22,947
- - -----------------------------------------------------------------------------------------------------------
Income before income tax expense.................................. 9,293 8,926
Income tax expense.................................................. 3,314 3,411
- - -----------------------------------------------------------------------------------------------------------
NET INCOME........................................................ $ 5,979 $ 5,515
- - -----------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE.............................................. $ 0.49 $ 0.45
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (unaudited) March 31,
- - --------------------------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................. $ 114,118 $ 103,940
Funds sold and other short-term investments......................... 13,296 4,854
Securities available for sale....................................... 709,470 839,641
Securities held to maturity......................................... 138,474 35,740
Loans............................................................... 1,816,532 1,608,744
Reserve for loan losses............................................. (24,208) (21,692)
- - --------------------------------------------------------------------------------------------------
Net loans......................................................... 1,792,324 1,587,052
- - --------------------------------------------------------------------------------------------------
Premises, furniture and equipment................................... 41,503 39,578
Accrued interest receivable and other assets........................ 74,630 67,287
- - --------------------------------------------------------------------------------------------------
Total assets........................................................ $ 2,883,815 $ 2,678,092
- - --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits............................................................ $ 1,979,294 $ 1,882,930
Short-term borrowings............................................... 672,237 569,253
Accrued interest payable and other liabilities...................... 31,790 27,844
- - --------------------------------------------------------------------------------------------------
Total liabilities................................................. 2,683,321 2,480,027
- - --------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock........................................................ 23,465 23,465
Additional paid-in capital.......................................... 25,891 26,296
Retained earnings................................................... 169,545 157,247
Unrealized net depreciation on securities available for sale /(1)/.. (10,645) (24)
Treasury stock, at cost............................................. (7,762) (8,919)
- - --------------------------------------------------------------------------------------------------
Total stockholders' equity........................................ 200,494 198,065
Total liabilities and stockholders' equity.......................... $ 2,883,815 $ 2,678,092
- - --------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Represents the difference, after tax, between the amortized cost and
market value of securities available for sale; this difference will
fluctuate as the market value of such securities changes.
<TABLE>
<CAPTION>
CREDIT QUALITY (unaudited) March 31,
- - --------------------------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans.................................................... $ 12,481 $ 16,021
Renegotiated loans.................................................. $ 7,704 $ 740
Foreclosed real estate.............................................. $ 8,542 $ 16,030
Loans past due 90 days and still accruing........................... $ 5,894 $ 10,423
Nonperforming loans to loans........................................ 1.11% 1.04%
Nonperforming assets to loans plus foreclosed real estate........... 1.57% 2.02%
Reserve for loan losses to loans.................................... 1.33% 1.35%
Reserve for loan losses to nonperforming loans...................... 119.93% 129.42%
- - --------------------------------------------------------------------------------------------------
Net loan charge-offs................................................ $ 1,507 $ 1,474
- - --------------------------------------------------------------------------------------------------
Net loan charge-offs to average loans............................... 0.34% 0.38%
- - --------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited) March 31,
- - ---------------------------------------------------------------------------
(Amounts in thousands except per share data) 1995 1994
- - ---------------------------------------------------------------------------
<S> <C> <C>
Net income......................................... $ 5,979 $ 5,515
Net income per share............................... $ 0.49 $ 0.45
Return on average equity........................... 12.61% 11.18%
Return on average assets........................... 0.85% 0.85%
- - ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
STOCK PERFORMANCE (unaudited) March 31,
- - ---------------------------------------------------------------------------
1995 1994
- - ---------------------------------------------------------------------------
<S> <C> <C>
Market price:
At period end..................................... $ 24.25 $ 26.00
High.............................................. $ 25.50 $ 26.50
Low............................................... $ 23.25 $ 24.75
Book value per share at period end................. $ 16.41 $ 16.27
Market price to book value multiple at period end.. 1.5X 1.6x
Dividends paid per share........................... $ 0.19 $ 0.17
- - ---------------------------------------------------------------------------
</TABLE>
INVESTOR INFORMATION
SHAREHOLDER ASSISTANCE
Inquiries related to shareholder records, change of name, address or ownership
of stock and lost stock certificates as well as requests for Dividend
Reinvestment and Dividend Direct Deposit information should be directed to:
American Stock Transfer
40 Wall Street
New York, New York 10005
1-800-937-5449
DIVIDEND PAYMENTS
Subject to approval of the Board of Directors, dividends will be paid on First
Midwest's common stock on or about July 6, 1995, October 4, 1995 and January 4,
1996.
SEC REPORTS AND GENERAL INFORMATION
First Midwest files an annual report to the Securities and Exchange Commission
on Form 10-K and three quarterly reports on Form 10-Q. Requests for such
reports and general inquiries should be directed to James M. Roolf, Corporate
Communications Director, at the Corporate Offices or by telephone at
(708) 778-8700.
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 114,118
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 13,196
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 709,470
<INVESTMENTS-CARRYING> 138,474
<INVESTMENTS-MARKET> 137,898
<LOANS> 1,816,532
<ALLOWANCE> 24,208
<TOTAL-ASSETS> 2,883,815
<DEPOSITS> 1,979,294
<SHORT-TERM> 672,237
<LIABILITIES-OTHER> 22,217
<LONG-TERM> 0
<COMMON> 23,465
0
0
<OTHER-SE> 177,029
<TOTAL-LIABILITIES-AND-EQUITY> 2,883,815
<INTEREST-LOAN> 39,743
<INTEREST-INVEST> 14,060
<INTEREST-OTHER> 269
<INTEREST-TOTAL> 54,072
<INTEREST-DEPOSIT> 16,025
<INTEREST-EXPENSE> 26,540
<INTEREST-INCOME-NET> 27,532
<LOAN-LOSSES> 1,632
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 22,546
<INCOME-PRETAX> 9,293
<INCOME-PRE-EXTRAORDINARY> 5,979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,979
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<YIELD-ACTUAL> 4.26
<LOANS-NON> 12,481
<LOANS-PAST> 5,894
<LOANS-TROUBLED> 7,704
<LOANS-PROBLEM> 26,631
<ALLOWANCE-OPEN> 24,083
<CHARGE-OFFS> 1,952
<RECOVERIES> 445
<ALLOWANCE-CLOSE> 24,208
<ALLOWANCE-DOMESTIC> 13,753
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,455
</TABLE>
