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