<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 JUNE 30, 1997, or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
___________________________ to ___________________________
COMMISSION FILE NUMBER 0-10967
- --------------------------------------------------------------------------------
FIRST MIDWEST BANCORP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3161078
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 PARK BLVD., SUITE 405, P.O. BOX 459
ITASCA, ILLINOIS 60143-0459
(Address of principal executive offices) (zip code)
(630) 875-7450
(Registrant's telephone number, including area code)
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Securities Registered Pursuant to Section 12(g) of the Act
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of August 8, 1997, 16,811,556 shares of the Registrant's $.01 par value
common stock were outstanding, excluding treasury shares.
Exhibit Index is located on page 17.
<PAGE>
FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Consolidated Statements of Condition........................................................ 3
Consolidated Statements of Income........................................................... 4
Consolidated Statements of Cash Flows....................................................... 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................... 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 /(1)/ 1996 /(2)/
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks........................................................ $ 166,949 $ 107,595
Federal funds sold and other short term investments............................ 4,236 23,076
Mortgages held for sale........................................................ 8,103 13,492
Securities available for sale, at market value................................. 808,134 770,256
Securities held to maturity, at amortized cost................................. 19,856 21,336
Loans.......................................................................... 2,041,225 2,085,277
Reserve for loan losses........................................................ (33,292) (30,148)
----------- -----------
Net loans...................................................................... 2,007,933 2,055,129
Premises, furniture and equipment.............................................. 51,067 49,354
Accrued interest receivable.................................................... 23,292 22,634
Other assets................................................................... 61,095 56,366
----------- -----------
TOTAL ASSETS................................................................... $ 3,150,665 $ 3,119,238
=========== ===========
LIABILITIES
Demand deposits................................................................ $ 387,725 $ 349,759
Savings deposits............................................................... 284,705 284,317
NOW accounts................................................................... 287,171 282,016
Money market deposits.......................................................... 234,398 239,027
Time deposits.................................................................. 1,083,202 1,105,548
----------- -----------
Total deposits............................................................... 2,277,201 2,260,667
Short-term borrowings.......................................................... 565,165 493,142
Accrued interest payable....................................................... 10,013 10,430
Other liabilities.............................................................. 30,492 92,859
----------- -----------
TOTAL LIABILITIES.............................................................. 2,882,871 2,857,098
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 1,000,000 shares authorized, none issued........ --- ---
Common stock, $.01 par value: 30,000,000 shares authorized; 17,506,385 shares
issued; 16,640,775 and 16,906,540 outstanding at June 30, 1997 and
December 31, 1996, respectively............................................. 167 169
Additional paid-in capital..................................................... 56,711 57,084
Retained earnings.............................................................. 228,572 217,522
Unrealized net appreciation/(depreciation) on securities, net of tax........... 2,670 (540)
Treasury stock, at cost: 865,610 and 602,574 shares at June 30, 1997
and December 31, 1996, respectively.......................................... (20,326) (12,095)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY..................................................... 267,794 262,140
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $ 3,150,665 $ 3,119,238
=========== ===========
</TABLE>
______________________________
See notes to consolidated financial statements.
/(1)/ Unaudited
/(2)/ Audited - See December 31, 1996 Form 10-K for Auditors' Report.
3
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30, /(1)/ JUNE 30, /(1)/
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S>........................................................... <C> <C> <C> <C>
INTEREST INCOME
Loans......................................................... $ 46,079 $ 43,975 $ 91,604 $ 90,170
Securities available for sale................................. 11,689 13,578 23,357 25,383
Securities held to maturity................................... 308 416 629 839
Funds sold and other short-term investments................... 394 901 779 1,661
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME........................................ 58,470 58,870 116,369 118,053
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits...................................................... 20,296 21,095 40,617 42,531
Short-term borrowings......................................... 6,145 7,249 12,432 15,596
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE....................................... 26,441 28,344 53,049 58,127
---------- ---------- ---------- ----------
NET INTEREST INCOME.......................................... 32,029 30,526 63,220 59,926
PROVISION FOR LOAN LOSSES..................................... 1,192 1,767 3,270 2,626
---------- ---------- ---------- ----------
Net interest income after provision for loan losses.......... 30,837 28,759 60,050 57,300
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts........................... 2,730 2,637 5,368 4,975
Trust and investment management fees.......................... 1,731 1,605 3,363 3,228
Other service charges, commissions and fees................... 1,554 1,469 3,135 2,856
Mortgage banking revenues..................................... 1,177 803 2,456 1,718
Security gains, net........................................... (152) 469 213 545
Other income.................................................. 738 509 1,704 1,080
---------- ---------- ---------- ----------
Total noninterest income..................................... 7,778 7,492 16,239 14,402
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and wages............................................ 10,367 10,235 20,550 20,189
Retirement and other employee benefits........................ 1,939 2,374 4,588 4,924
Occupancy expense of premises................................. 1,910 1,480 3,912 3,180
Equipment expense............................................. 1,487 1,370 3,002 2,829
Computer processing expense................................... 1,797 1,673 3,415 3,263
Advertising and promotions.................................... 771 672 1,657 1,407
Professional services......................................... 1,959 1,514 2,667 2,777
Acquisition credit............................................ --- --- --- (324)
Other expenses................................................ 4,824 3,883 9,032 8,109
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSE.................................... 25,054 23,201 48,823 46,354
---------- ---------- ---------- ----------
Income before income tax expense.............................. 13,561 13,050 27,466 25,348
INCOME TAX EXPENSE............................................ 4,559 4,833 9,738 9,206
---------- ---------- ---------- ----------
NET INCOME................................................... $ 9,002 $ 8,217 $ 17,728 $ 16,142
========== ========== ========== ==========
NET INCOME PER SHARE......................................... $ 0.54 $ 0.48 $ 1.06 $ 0.94
Cash dividends declared per share............................ $ 0.20 $ 0.17 $ 0.40 $ 0.34
Weighted average shares outstanding.......................... 16,662,570 17,117,488 16,714,702 17,118,755
========== ========== ========== ==========
</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>
SIX MONTHS ENDED
JUNE 30, /(1)/
-----------------------
1997 1996
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................................. $ 17,728 $ 16,142
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses............................................................. 3,270 2,626
Provision for depreciation............................................................ 3,065 3,390
Net amortization (accretion) of securities available for sale premiums and discounts.. 244 (1,611)
Net amortization (accretion) of securities held to maturity premiums and discounts.... 1 (30)
Net (gains) on securities available for sale transactions............................. (213) (545)
Net (gains) on sales of premises, furniture and equipment............................. (120) (74)
Net (decrease) increase in deferred income taxes...................................... (1,387) 1,120
Net amortization of purchase accounting adjustments, goodwill, and
other intangibles.................................................................... 1,147 559
Changes in operating assets and liabilities:
Net decrease (increase) in loans held for sale...................................... 5,389 (1,879)
Net (increase) decrease in accrued interest receivable.............................. (658) 2,066
Net (increase) decrease in other assets............................................. (6,579) 814
Net (decrease) in accrued interest payable.......................................... (417) (2,077)
Net (decrease) in other liabilities................................................. (62,367) (1,434)
--------- -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES................................... (40,897) 19,067
--------- -----------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales.................................................................... 209,151 929,584
Proceeds from maturities, calls and paydowns........................................... 315,354 218,254
Purchases.............................................................................. (557,153) (1,011,300)
Securities held to maturity:
Proceeds from maturities, calls and paydowns........................................... 3,356 4,447
Purchases.............................................................................. (1,876) (1,995)
Loans made to customers, net of principal collected..................................... 42,515 (40,930)
Proceeds from sales of foreclosed real estate........................................... 1,368 2,452
Proceeds from sales of premises, furniture and equipment................................ 244 138
Purchases of premises, furniture and equipment.......................................... (4,820) (3,092)
--------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES.............................................. 8,139 97,558
--------- -----------
FINANCING ACTIVITIES
Net increase in deposit accounts........................................................ 16,534 26,730
Net increase (decrease) in short-term borrowings........................................ 72,023 (118,633)
Purchases of treasury stock............................................................. (10,047) (2,447)
Sale of treasury stock.................................................................. 405 ---
Cash dividends.......................................................................... (6,681) (5,771)
Exercise of stock options............................................................... 1,038 1,207
--------- -----------
NET CASH USED BY FINANCING ACTIVITIES.................................................. 73,272 (98,914)
--------- -----------
Net increase in cash and cash equivalents.............................................. 40,514 17,711
Cash and cash equivalents at beginning of period....................................... 130,671 149,263
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................. $ 171,185 $ 166,974
========= ===========
Supplemental disclosures:
Interest paid to depositors and creditors.............................................. $ 53,466 $ 60,204
Income taxes paid...................................................................... 13,718 7,488
Non-cash transfers to foreclosed real estate from loans................................ 1,411 3,370
Non-cash transfers to securities available for sale from loans......................... --- 141,164
========= ===========
</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 accompanying unaudited interim consolidated financial statements of First
Midwest Bancorp, Inc. ("First Midwest") have been prepared in accordance with
generally accepted accounting principles and with the rules and regulations of
the Securities and Exchange Commission for interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all normal and recurring adjustments which are
necessary to fairly present the results for the interim periods presented have
been included. The preparation of financial statements requires Management to
make estimates and assumptions that affect the recorded amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates. In
addition, certain reclassifications have been made to the 1996 data to conform
to the 1997 presentation. All common stock and per share data have been adjusted
to reflect the 5-for-4 stock split affected in the form of a stock dividend
which was paid in December, 1996. For further information with respect to
significant accounting policies followed by First Midwest in the preparation of
its consolidated financial statements, refer to First Midwest's Annual Report on
Form 10-K for the year ended December 31, 1996.
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 128 ("FASB No. 128"), "Earnings Per Share" which
provides new accounting guidelines governing the computation of earnings per
share effective for financial statement periods ending after December 15, 1997.
At that time, all publicly-held companies will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements of FASB No. 128, the primary ("basic") earnings per
share calculation will exclude the dilutive effect of all common stock
equivalents. Further, FASB No. 128 requires additional disclosures including
dual presentation of basic and diluted earnings per share on the face of the
Statement of Income. Under FASB No. 128, First Midwest's calculation of basic
earnings per share for the quarters and six months ending June 30, 1997 and 1996
was $.54 and $.48 per share, and $1.06 and $.94 per share respectively,
reflecting no change from the current accounting guidelines. FASB No. 128 is not
anticipated to have a material effect on First Midwest's calculation of diluted
earnings per share for these periods.
2. SECURITIES
SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of
securities available for sale at June 30, 1997 and December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Securities Available for Sale
------------------------------------------------------------------------------------------------------
June 30, 1997 December 31, 1996
-------------------------------------------------- --------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------------- ---------- ----------- -------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities...... $ 65,508 $ 157 $ (62) $ 65,603 $ 65,592 $ 314 $ (2) $ 65,904
U.S. Agency securities........ 195,971 45 (1,196) 194,820 356,491 607 (1,527) 355,571
Mortgage-backed securities.... 484,468 3,276 (826) 486,918 347,287 1,454 (1,731) 347,010
State and municipal securities 55,785 2,956 --- 58,741 --- --- --- ---
Other securities.............. 2,026 26 --- 2,052 1,771 --- --- 1,771
-------- ------ ------- -------- -------- ------ ------- --------
Total........................ $803,758 $6,460 $(2,084) $808,134 $771,141 $2,375 $(3,260) $770,256
======== ====== ======= ======== ======== ====== ======= ========
</TABLE>
SECURITIES HELD TO MATURITY - The amortized cost and market value of securities
held to maturity at June 30, 1997 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity
------------------------------------------------------------------------------------------------------
June 30, 1997 December 31, 1996
-------------------------------------------------- --------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
----------- ------------- ------------- ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities...... $ 1,002 $ --- $ --- $ 1,002 $ 929 $ - $ - $ 929
State and municipal securities 6,454 212 --- 6,666 9,135 132 (28) 9,239
Other securities.............. 12,400 22 (1) 12,421 11,272 16 - 11,288
------- ---------- ------------ ---------- --------- ----------- ---------- -------
Total........................ $19,856 $ 234 $ (1) $ 20,089 $21,336 $ 148 $ (28) $21,456
======= ========== ============ ========== ========= =========== ========== =======
</TABLE>
6
<PAGE>
3. LOANS
The following table provides the book value of loans, by major classification,
as of the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Commercial and industrial.................................... $ 576,531 $ 571,181
Agricultural................................................. 43,876 48,461
Direct home equity........................................... 165,277 157,174
Other direct installment..................................... 74,944 78,402
Indirect installment......................................... 387,455 413,680
Real estate - 1-4 family..................................... 136,155 189,000
Real estate - commercial..................................... 534,956 507,135
Real estate - construction................................... 112,368 110,204
Other........................................................ 9,663 10,040
----------- ------------
Total........................................................ $ 2,041,225 $ 2,085,277
=========== ============
</TABLE>
During the second quarter of 1997, First Midwest sold approximately $47,000 in
1-4 family real estate loans while retaining the mortgage servicing rights on
such loans.
4. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS
Transactions in the reserve for loan losses for the six months ended June 30,
1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
Quarters ended Six months ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period................................ $ 33,747 $ 28,076 $ 30,148 $ 29,195
Provision for loan losses..................................... 1,192 1,767 3,270 2,626
Loans charged-off............................................ (2,568) (1,773) (5,634) (4,443)
Recoveries of loans previously charged-off................... 921 527 5,508 1,220
-------- -------- -------- --------
Net loans charged-off...................................... (1,647) (1,246) (126) (3,223)
-------- -------- -------- --------
Balance at end of period...................................... $ 33,292 $ 28,597 $ 33,292 $ 28,597
======== ======== ======== ========
</TABLE>
Information with respect to impaired loans at June 30, 1997 and 1996 is provided
below:
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996
-------- ---------
<S> <C> <C>
Recorded Investment in Impaired Loans:
Recorded investment requiring specific loan loss reserves /(1)/..................... $ 8,106 $ 16,653
Recorded investment not requiring specific loan loss................................ (6,278) (10,133)
-------- --------
Total recorded investment in impaired loans....................................... $ 1,828 $ 6,520
======== ========
Specific loan loss reserve related to impaired loans.................................. $ 1,022 $ 1,874
======== ========
</TABLE>
_________________________
/(1)/ These impaired loans require a specific reserve allocation because the
value of the loans are less than the recorded investments in the loans.
For the six months ended June 30, 1997 and 1996, the average recorded investment
in impaired loans was approximately $10,362 and $17,734 respectively.
7
<PAGE>
5. PENDING ACQUISITION
On June 20, 1997 First Midwest announced that it had entered into a definitive
agreement to acquire SparBank, Incorporated, ("SparBank"). SparBank is the
holding company of McHenry State Bank ("MSB"), a 4-branch bank headquartered in
McHenry, Illinois. SparBank had total assets and stockholders' equity of
approximately $438 million and $52 million, respectively, as of June 30, 1997.
For the six months ended June 30, 1997, SparBank recorded net income of $3,134
resulting in return on average assets and stockholders equity of 1.41% and
12.38%, respectively.
Pursuant to the agreement, the transaction will be structured as a tax-free
exchange and accounted for as a pooling-of-interests. Each outstanding share of
SparBank's common stock, no par value, will be converted to 21.7234 shares of
First Midwest common stock, $.01 par value, resulting in the issuance of
3,230,769 shares of First Midwest common stock.
The agreement, which has been approved by the Board of Directors of both
companies and the shareholders of SparBank, is subject to customary regulatory
approvals. First Midwest shareholder approval is not necessary. It is
anticipated that the acquisition will be consummated in early fourth quarter
1997. A pre-tax merger related charge of approximately $6.5 million will be
recognized in the quarter the transaction is closed that includes costs related
to system conversions, elimination of excess operating capacity, professional
fees, and a one-time provision to bring MSB's loan loss reserves to First
Midwest's required levels. First Midwest anticipates merging MSB into its
principal banking subsidiary, First Midwest Bank, N.A., in late first quarter
1998.
6. CONTINGENT LIABILITIES AND OTHER MATTERS
There are certain legal proceedings pending against First Midwest and its
Subsidiaries in the ordinary course of business at June 30, 1997. In assessing
these proceedings, including the advice of counsel, First Midwest believes that
liabilities arising from these proceedings, if any, would not have a material
adverse effect on the consolidated financial condition of First Midwest.
8
<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 and six months ended June
30, 1997 as compared to the same periods in 1996. Management's discussion and
analysis should be read in conjunction with the consolidated financial
statements and accompanying notes presented elsewhere in this report as well as
First Midwest's 1996 Annual Report on Form 10-K. Results of operations for the
quarters and six months ended June 30, 1997 are not necessarily indicative of
results to be expected for the full year of 1997.
SUMMARY OF PERFORMANCE
Net Income
- ----------
Net income for the second quarter of 1997 increased to $9,002 or $.54 per share
from $8,217, or $.48 per share in the like quarter of 1996, representing an
increase of 12.5% on a per share basis. Net income for the six months ended
June 30, 1997, totaled $17,728, or $1.06 per share from $16,142, or $.94 per
share for the like period in 1996, representing a 12.8% increase per share.
Return on Average Assets and Stockholders' Equity
- -------------------------------------------------
Return on average assets was 1.21% for the second quarter of 1997 as compared to
1.06% for the same quarter in 1996. Return on average assets was 1.19% for the
six months ended June 30, 1997, as compared to 1.04% for the same period in
1996.
Return on average stockholders' equity was 13.79% for the second quarter of
1997, as compared to 13.03% for the same quarter in 1996. Return on average
stockholders equity was 13.71% for the six months ended June 30, 1997, as
compared to 12.85% for the same period in 1996.
NET INTEREST INCOME
Net interest income on a tax equivalent basis totaled $32,759 for the second
quarter of 1997, representing an increase of $1,680 or 5% over the year-ago
quarter totaling $31,079. As shown in the Volume/Rate Analysis on page 10, the
improvement in net interest income is comprised of reduced interest income of
$223 net of lower interest expense of $1,903. The net interest margin for the
second quarter of 1997 increased to 4.70% as compared to 4.33% for the same
period in 1996. The improvement in net interest margin is primarily due to a
combination of a more profitable asset mix with the yield on interest earning
assets improving by 22 basis points and a stable cost of fund with the rates
paid on interest bearing liabilities dropping by 3 basis points. Further,
declining dependance on wholesale funding as well as a reduction in higher rate
certificates of deposits contributed to the reduction in funding costs.
As shown in the Volume/Rate Analysis, the $223 decrease in interest income for
the quarter is largely attributable to volume variances in the securities
available for sale portfolio, which declined by $136,512 in the current quarter
as compared to the like quarter last year. Such decrease resulted in the re-
deployment of securities fundings into reductions of more expensive short term
borrowings. Offsetting the reduced volumes in the securities portfolio is the
increased volumes and interest rates on the loan portfolio, totaling to a net
improvement of $2,096 to interest income. Loans increased by $65 million and
represented 73% of total earning assets for the second quarter of 1997 as
compared to 68% for the 1996 quarter. Such volume growth contributed $1,484 of
the $2,096 in interest income with the remaining $612 being due to higher
average interest rates earned on the portfolio. Were it not for the second
quarter 1997 sale of $47,000 in 1-4 family residential loans, the current
quarter would have reflected an increase in average loan levels of approximately
$112,000, reflecting growth in core lending.
The $1,903 decrease in interest expense resulted from reduced volumes of
interest bearing liabilities which declined by $162 million for the second
quarter of 1997 as compared to the year-ago quarter. The most significant
changes impacting the decrease in interest expense occurred in lower volumes on
higher yielding money market, time deposits and short-term borrowings, which
were partly offset by higher rates on short-term borrowings. The change in
volume levels reflects a shift in deposit mix to lower cost savings deposits.
Short-term borrowing balances declined in the second quarter of 1997 by $103
million from year ago levels with reduced discretionary funding needs on which
the rates increased commensurate with short-term market interest rates.
For the six month period ended June 30, 1997, net interest margin increased to
4.64% from 4.23% for 1996. The Volume/Rate Analysis for the six months ended
June 30, 1997 as compared to the like 1996 period is presented on page 11.
9
<PAGE>
VOLUME/RATE ANALYSIS
The table below summarizes the changes in average interest-earning assets and
interest-bearing liabilities as well as the average rates earned and paid on
these assets and liabilities, respectively, for the quarters ended June 30, 1997
and 1996. The table also details the increase and decrease in income and
expense for each major category of assets and liabilities and analyzes the
extent to which such variances are attributable to volume and rate changes.
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, 1997 AND 1996
----------------------------------------------------------------------------
AVERAGE INTEREST
AVERAGE BALANCES RATES EARNED/PAID
-------------------------------------- -----------------------------------
BASIS
INCREASE POINTS
1997 1996 (DECREASE) 1997 1996 INC/(DEC)
------------ ----------- ------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other short-term investments.. $ 14,452 18,082 (3,630) 5.58% 6.78% (1.20)%
Mortgages held for sale.............................. 9,651 22,757 (13,106) 8.02% 10.53% (2.51)%
Securities available for sale (1).................... 722,945 859,457 (136,512) 6.83% 6.53% 0.30 %
Securities held to maturity (1)...................... 18,513 24,879 (6,366) 7.47% 8.34% (0.87)%
Loans, net of unearned discount (1).................. 2,027,895 1,962,445 65,450 9.13% 9.03% 0.10 %
---------- --------- ---------- --------- ---------- ---------
Total interest-earning assets (1)................... $2,793,456 2,887,620 (94,164) 8.50% 8.28% 0.22 %
========== ========= ========== ========= ========== =========
Savings deposits..................................... $ 285,809 259,450 26,359 2.52% 2.18% 0.34 %
NOW accounts......................................... 302,292 314,262 (11,970) 2.32% 2.34% (0.02)%
Money market deposits................................ 228,296 266,683 (38,387) 3.57% 3.56% 0.01 %
Time deposits........................................ 1,073,934 1,108,726 (34,792) 5.50% 5.62% (0.12)%
Short-term borrowings................................ 439,718 542,598 (102,880) 5.61% 5.37% 0.24 %
---------- --------- ---------- --------- ---------- ---------
Total interest-bearing liabilities.................. $2,330,049 2,491,719 (161,670) 4.55% 4.58% (0.03)%
========== ========= ========== ========= ========== =========
Net interest margin/income /(1)/.................... 4.70% 4.33% 0.37%
========= ========== =========
<CAPTION>
---------------------------------------------------------------------------
INTEREST INCREASE/(DECREASE) IN
INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO:
-------------------------------- ----------------------------------------
INCREASE
1997 1996 (DECREASE) VOLUME RATE TOTAL
--------- -------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other short-term investments... $ 201 305 (104) $ (55) (49) (104)
Mortgages held for sale............................... 193 596 (403) (286) (117) (403)
Securities available for sale (1)..................... 12,314 13,955 (1,641) (2,374) 733 (1,641)
Securities held to maturity (1)....................... 345 516 (171) (123) (48) (171)
Loans, net of unearned discount (1)................... 46,147 44,051 2,096 1,484 612 2,096
------- ------- ------- ------- ------ -------
Total interest-earning assets (1)................... $59,200 59,423 (223) $(1,354) 1,131 (223)
======== ======= ======= ======= ====== =======
Savings deposits...................................... $ 1,793 1,404 389 $ 152 237 389
NOW accounts.......................................... 1,746 1,828 (82) (70) (12) (82)
Money market deposits................................. 2,031 2,360 (329) (342) 13 (329)
Time deposits......................................... 14,726 15,502 (776) (480) (296) (776)
Short-term borrowings................................. 6,145 7,250 (1,105) (1,458) 353 (1,105)
------- ------- ------- ------- ------ -------
Total interest-bearing liabilities.................. $26,441 28,344 (1,903) $(2,198) 295 (1,903)
======== ======= ======= ======= ====== =======
Net interest margin/income /(1)/.................... $32,759 31,079 1,680 $ 844 836 1,680
======== ======= ======= ======= ====== =======
</TABLE>
(1) Interest income and yields are presented on a tax-equivalent basis.
10
<PAGE>
VOLUME/RATE ANALYSIS
The table below summarizes the changes in average interest-earning assets and
interest-bearing liabilities as well as the average rates earned and paid on
these assets and liabilities, respectively, for the six months ended June 30,
1997 and 1996. The table also details the increase and decrease in income and
expense for each major category of assets and liabilities and analyzes the
extent to which such variances are attributable to volume and rate changes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-----------------------------------------------------------------------
AVERAGE INTEREST
AVERAGE BALANCES RATES EARNED/PAID
----------------------------------- ---------------------------------
BASIS
INCREASE POINTS
1997 1996 (DECREASE) 1997 1996 INC/(DEC)
----------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other
short-term investments.............. $ 14,810 14,322 488 5.69% 7.05% (1.36)%
Mortgages held for sale.............. 9,202 23,887 (14,685) 7.91% 9.77% (1.86)%
Securities available for sale (1).... 721,636 823,560 (101,924) 6.83% 6.40% 0.43%
Securities held to maturity (1)...... 18,540 25,916 (7,376) 7.85% 8.05% (0.20%)
Loans, net of unearned discount (1).. 2,047,363 2,018,863 28,500 9.04% 9.00% 0.04%
----------- --------- ---------- --------- --------- ---------
Total interest-earning assets (1)... $ 2,811,551 2,906,548 (94,997) 8.44% 8.25% 0.19 %
=========== ========= ========== ========= ========= =========
Savings deposits..................... $ 285,897 254,090 31,807 2.51% 2.15% 0.36 %
NOW accounts......................... 289,416 287,817 1,599 2.32% 2.33% (0.01)%
Money market deposits................ 231,029 272,134 (41,105) 3.50% 3.63% (0.13)%
Time deposits........................ 1,084,596 1,112,223 (27,627) 5.53% 5.71% (0.18)%
Short-term borrowings................ 460,708 577,547 (116,839) 5.44% 5.43% 0.01 %
----------- --------- ---------- --------- --------- ---------
Total interest-bearing
liabilities........................ $ 2,351,646 2,503,811 (152,165) 4.55% 4.67% (0.12)%
=========== ========= ========== ========= ========= =========
Net interest margin/income /(1)/.... 4.64% 4.23% 0.41 %
========= ========= =========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-----------------------------------------------------------------------
INTEREST INCREASE/(DECREASE) IN
INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO:
----------------------------------- ---------------------------------
INCREASE
1997 1996 (DECREASE) VOLUME RATE TOTAL
----------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other
short-term investments.............. $ 418 502 (84) $ 18 (102) (84)
Mortgages held for sale.............. 361 1,160 (799) (609) (190) (799)
Securities available for
sale (1)............................ 24,459 26,206 (1,747) (3,691) 1,944 (1,747)
Securities held to
maturity (1)........................ 722 1,038 (316) (288) (28) (316)
Loans, net of unearned
discount (1)........................ 91,737 90,326 1,411 1,278 133 1,411
----------- --------- ---------- --------- --------- ---------
Total interest-earning
assets (1)......................... $ 117,697 119,232 (1,535) $ (3,292) 1,757 (1,535)
=========== ========= ========== ========= ========= =========
Savings deposits..................... $ 3,555 2,714 841 $ 364 477 841
NOW accounts......................... 3,326 3,339 (13) 21 (34) (13)
Money market deposits................ 4,010 4,908 (898) (719) (179) (898)
Time deposits........................ 29,726 31,569 (1,843) (772) (1,071) (1,843)
Short-term borrowings................ 12,432 15,596 (3,164) (3,153) (11) (3,164)
----------- --------- ---------- --------- --------- ---------
Total interest-bearing
liabilities........................ $ 53,049 58,126 (5,077) $ (4,259) (818) (5,077)
----------- --------- ---------- --------- --------- ---------
Net interest margin/income /(1)/.... $ 64,648 61,106 3,542 $ 967 2,575 3,542
=========== ========= ========== ========= ========= =========
</TABLE>
(1) Interest income and yields are presented on a tax-equivalent basis.
11
<PAGE>
NONINTEREST INCOME
Noninterest income totaled $7,778 for the quarter ended June 30, 1997, as
compared to $7,492 for the same quarter in 1996. Exclusive of net security
gains/(losses) which totaled ($152) for the second quarter of 1997 as compared
to $469 for the like period in 1996, noninterest income increased by $907 or 13%
with every major component of operating income contributing to the increase.
Service charges on deposit accounts increased by $93 as a result of a higher
volume of fees on business checking accounts. Trust and investment management
fees increased by $126 due to growth in business. Other service charges,
commissions and fees added $85 from higher merchant credit card fees and credit
life insurance premiums. The $374 increase in mortgage banking revenues was
primarily attributable to higher volumes of sales of loans into the secondary
market. Growth in ATM revenues contributed to the increase of $229 in other
income for the second quarter ending June 30, 1997.
Noninterest income totaled $16,239 for the six months ended June 30, 1997, as
compared to $14,402 for the same period in 1996. Factoring out net securities
gains totaling $213 for the 1997 six month period as compared to $545 for the
1996 period, noninterest income increased by $2,169, or 16%. The reasons for
the increase in noninterest income for the six month period generally followed
those described above for the second quarter.
NONINTEREST EXPENSE
Noninterest expense totaled $25,054 for the quarter ended June 30, 1997,
increasing by $1,853 from $23,201 for the same quarter in 1996. For the six
months ended June 30, 1997, noninterest expense totaled $48,823 as compared to
$46,354 for the same period in 1996, increasing $2,469, or 5%. Contributing to
the six month variance was a nonrecurring acquisition credit of $324 recorded in
the first quarter of 1996. Explanations for the six month noninterest expense
increase generally follow the second quarter's variance discussions, as detailed
below.
Occupancy expense increased $430 in the second quarter of 1997 from the same
period in 1996 and reflects the operational costs of four additional branches
which were established in the second half of 1996. Equipment expense and
computer processing expense increased by a combined total of $241 in the second
quarter of 1997 as compared to the like period in 1996. This increase reflects
higher equipment depreciation expense as a result of Companywide computer
hardware upgrades and capitalized purchases of furniture and equipment for the
additional branches. Also contributing to this increase was $100 in computer
processing costs related to implementation of a wide area network.
Professional services for the 1997 quarter was $445 or 29% in excess of the like
1996 quarter primarily due to consulting services related to the second quarter
$47 million sale of 1-4 family real estate loans, in addition to costs for a
compensation study and personnel recruitment expense. Additionally, other
expenses increased by $941 which was spread among various categories of
miscellaneous expense.
Partially offsetting the above increases in noninterest income was reduced
salaries and wages and retirement and other employee benefits, which decreased
by $303 as compared to the same period in 1996, due to reduced profit sharing
and pension plan expenses.
The efficiency ratio for the quarter ended June 30, 1997 was 60.71% as compared
to the 1996 second quarter ratio of 60.41%, while the efficiency ratio for the
six months ended June 30, 1997 was 59.91% as compared to the prior year's like
period of 61.45%. The slight increase in the 1997 efficiency ratio reflects
well-controlled noninterest expenses and the continued realization of cost
benefits from the 1995 Companywide restructuring.
12
<PAGE>
INCOME TAX EXPENSE
Income tax expense totaled $4,559 for the quarter ended June 30, 1997,
decreasing from $4,833 for the same period in 1996 and reflects effective income
tax rates of 33.6% and 37.0% respectively. Income tax expense totaled $9,738
for the six months ended June 30, 1997 increasing from $9,206 for the 1996 six
month period and reflects effective tax rates of 35.5% and 36.3%, respectively.
The decrease in effective tax rate is primarily attributable to higher state tax
exempt income in 1997.
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
----------------------------------------------
At June 30, 1997, nonperforming assets totaled $16,208 and loans past due 90
days or more and still accruing totaled $4,470. The following table summarizes
nonperforming assets and loans past due 90 days or more and still accruing, as
of the close of the last five calendar quarters:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nonperforming Assets and 1997 1996
------------------ ---------------------------
90 Day Past Due Loans June 30 March 31 Dec. 31 Sept. 30 June 30
- --------------------------- ------- -------- ------- -------- --------
Nonaccrual loans................................. 10,723 $12,830 $10,448 $11,435 $10,790
Renegotiated loans................................... --- --- --- 7,876 7,760
Total nonperforming loans.......................... 10,723 12,830 10,448 19,311 18,550
------- -------- ------- ------- --------
Foreclosed real estate............................... 5,485 6,801 5,811 5,587 5,393
------- -------- ------- ------- --------
Total nonperforming assets.......................... $16,208 $19,631 $16,259 $24,898 $23,943
======= ======== ======= ======= =======
% of total loans plus foreclosed real estate........ 0.79% 0.95% 0.78% 1.24% 1.21%
======= ======= ======= ======= =======
90 days past due loans accruing interest............. $ 4,470 $ 3,720 $ 3,982 $ 4,998 $4,318
======= ======= ======= ======= ======
</TABLE>
Nonaccrual loans, totaling $10,723 at June 30, 1997 are comprised of commercial
and agricultural loans (58%), real estate loans (34%) and consumer loans (8%).
Foreclosed real estate, totaling $5,485 at June 30, 1997, primarily represents
commercial real estate properties.
Information with respect to impaired loans is contained in Note 4 to the
consolidated financial statements, located on page 7.
PROVISION AND RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses during the quarters and six months
ended June 30, 1997 and 1996 are summarized in the following table:
<TABLE>
<CAPTION>
Quarters ended Six months ended
June 30, June 30,
--------- -------- -------- --------
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period............................ $ 33,747 $ 28,076 $ 30,148 $ 29,194
Provision for loan losses.............................. 1,192 1,767 3,270 2,626
Loans charged-off...................................... (2,568) (1,773) (5,634) (4,443)
Recoveries of loans previously charged-off............. 921 527 5,508 1,220
--------- -------- -------- --------
Net loans charged-off.................................. (1,647) (1,246) (126) (3,223)
--------- -------- -------- --------
Balance at end of period.................................. $ 33,292 $ 28,597 $ 33,292 $ 28,597
======== ======== ======== ========
</TABLE>
The provision for loan losses charged to operating expense for the second
quarter of 1997 totaled $1,192 as compared to $1,767 for the same quarter in
1996. The amount of the provision for loan losses in any given period is
dependent upon many factors, including loan growth, changes in the composition
of the loan portfolio, net charge-off levels, delinquencies, collateral values,
and Management's assessment of current and prospective economic conditions. Net
loan charge-offs for the quarter totaled $1,647, or 0.33% of average loans in
1997 as compared to net charge-offs of $1,246, or 0.26% recorded in 1996.
13
<PAGE>
The reserve for loan losses at June 30, 1997 was comprised of three parts:
allocated for specific impaired loans, $2,022; allocated for general segments of
unimpaired loans, $7,176; and unallocated, $24,094. That part of the reserve
allocated for specific impaired loans is discussed in Note 4 to the consolidated
financial statements located on page 7. That part of the reserve allocated for
unimpaired general loan segments represents First Midwest's best judgement as to
potential loss exposure based upon both historical loss trends as well as loan
ratings and qualitative evaluations of such segments. The unallocated portion
of the reserve is that part not allocated to either a specific loan on which
loss is anticipated or allocated to general segments of the unimpaired loan
portfolio.
The reserve for loan losses as a percentage of total loans outstanding increased
to 1.63% at June 30, 1997 as compared to 1.44% at June 30, 1996. Such reserve
level is considered adequate in relation to the estimated risk of future losses
within the loan portfolio.
The distribution of the loan portfolio is presented in Note 3 to the
consolidated financial statement located on page 7. The loan portfolio consists
dominantly of loans originated by First Midwest from its primary markets and
generally represents credit extension to multi-relationship customers.
CAPITAL
The table below compares First Midwest's capital structure to the minimum
capital ratios required by its primary regulator, the Federal Reserve Board
("FRB"). Also provided is a comparison of capital ratios for First Midwest's
national banking subsidiary, First Midwest Bank, N.A., to its primary regulator,
the Office of the Comptroller of the Currency ("OCC)". Both First Midwest and
("FMB, N.A.") are subject to the minimum capital ratios defined by banking
regulators pursuant to the FDIC Improvement Act ("FDICIA") and have capital
measurements well in excess of the minimums required by their respective bank
regulatory authorities to be considered "well-capitalized" which is the highest
capital category established under the FDICIA.
Capital Measurements - FRB/OCC
- -------------------------------
<TABLE>
<CAPTION>
As of June 30, 1997
----------------------------------------------------------------
Bank Holding Company National Bank Minimum
------------------------ --------------------- -----------
Minimum Minimum Well-
First Required Required Capitalized
Midwest FRB FMB, N.A. OCC FDICIA
----------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Tier 1 capital to risk-based assets 10.59% 4.00% 8.94% 4.00% 6.00%
Total capital to risk-based assets 11.85% 8.00% 10.19% 8.00% 10.00%
Leverage ratio 8.47% 3.00% 7.12% 3.00% 5.00%
===== ==== ===== ==== =====
</TABLE>
DIVIDENDS
First Midwest's strong capital position has allowed it to increase its
quarterly dividend five times during the last four years including twice in
1996. The following table summarizes the dividend increases declared during the
years 1994 through 1996:
<TABLE>
<CAPTION>
Quarterly Rate
Date Per Share * % Increase
------------------------ ------------------------------ ----------------------
<S> <C> <C>
November 1996 $.20 18%
February 1996 $.17 13%
February 1995 $.15 15%
February 1994 $.13 13%
*Adjusted for the 5-for-4 stock split paid in December 1996
</TABLE>
14
<PAGE>
FORWARD LOOKING STATEMENTS
The preceding "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections of this Form 10-Q contain various "forward
looking statements" within the meaning of Section 27 A of the Securities Act of
1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as
amended, which represents First Midwest's expectations and beliefs concerning
future events including, but not limited to, the following: the loan loss
reserve levels going forward; the impact of the 1995 plan of restructuring on
its financial performance and future growth; Management's assessment of its
provision and reserve for loan loss levels based upon future changes in the
composition of its loan portfolio, loan losses, collateral value and economic
conditions.
The Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those setforth
in the forward looking statements due to market, economic and other business
related risks and uncertainties effecting the realization of such statements.
Certain of these risks and uncertainties included in such forward looking
statements include, without limitations, the following: significant
fluctuations in market interest rates and operational limitations; deviations
from the assumptions used to evaluate the appropriate level of the reserve for
loan losses as well as future purchases and sales of loans may affect the
appropriate level of the reserve for loan losses and thereby affect the future
levels of provisioning.
Accordingly, results actually achieved may differ materially from expected
results in these statements. First Midwest does not undertake, and specifically
disclaims, any obligation to update any forward looking statements to reflect
events or circumstances occurring after the date of such statements.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index appearing on page 17.
(b) Form 8-K - On June 30, 1997, First Midwest filed a report on Form 8-K
announcing a definitive agreement to acquire SparBank, Incorporated, the
holding company of McHenry State Bank located in McHenry, Illinois.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Midwest Bancorp, Inc.
-----------------------------------------
/S/ DONALD J. SWISTOWICZ
-----------------------------------------
Date: August 12, 1997 Donald J. Swistowicz
Executive Vice President *
* Duly authorized to sign on behalf of the Registrant.
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Documents Page Number
- --------- ------------------------------ ----------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 166,949
<INT-BEARING-DEPOSITS> 4,082
<FED-FUNDS-SOLD> 154
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 808,134
<INVESTMENTS-CARRYING> 19,856
<INVESTMENTS-MARKET> 20,089
<LOANS> 2,041,225
<ALLOWANCE> 33,292
<TOTAL-ASSETS> 3,150,665
<DEPOSITS> 2,277,201
<SHORT-TERM> 565,165
<LIABILITIES-OTHER> 40,505
<LONG-TERM> 0
0
0
<COMMON> 167
<OTHER-SE> 267,627
<TOTAL-LIABILITIES-AND-EQUITY> 3,150,665
<INTEREST-LOAN> 91,604
<INTEREST-INVEST> 23,986
<INTEREST-OTHER> 779
<INTEREST-TOTAL> 116,369
<INTEREST-DEPOSIT> 40,617
<INTEREST-EXPENSE> 53,049
<INTEREST-INCOME-NET> 63,320
<LOAN-LOSSES> 3,270
<SECURITIES-GAINS> 213
<EXPENSE-OTHER> 48,823
<INCOME-PRETAX> 27,466
<INCOME-PRE-EXTRAORDINARY> 17,728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,728
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 4.64
<LOANS-NON> 10,723
<LOANS-PAST> 4,470
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 28,710
<ALLOWANCE-OPEN> 30,148
<CHARGE-OFFS> 5,634
<RECOVERIES> 5,508
<ALLOWANCE-CLOSE> 33,292
<ALLOWANCE-DOMESTIC> 9,198
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,094
</TABLE>
