<PAGE>
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended MARCH 31, 1998, 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 May 11, 1998, 20,101,396 shares of the Registrant's $.01 par value common
stock were outstanding, excluding treasury shares.
Exhibit Index is located on page 18.
<PAGE>
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...................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 (1) 1997 (2)
---------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 133,498 $ 117,974
Federal funds sold and other short term investments................................ 7,666 31,055
Mortgages held for sale............................................................ 44,365 26,857
Securities available for sale, at market value..................................... 1,072,764 974,467
Securities held to maturity, at amortized cost .................................... 26,720 20,323
Loans ............................................................................. 2,282,947 2,333,252
Reserve for loan losses............................................................ (35,822) (37,344)
--------------- ---------------
Net loans.......................................................................... 2,247,125 2,295,908
Premises, furniture and equipment.................................................. 58,807 59,219
Accrued interest receivable........................................................ 27,129 26,968
Investment in corporate owned life insurance....................................... 50,485 --
Other assets....................................................................... 60,388 61,402
--------------- --------------
TOTAL ASSETS....................................................................... $ 3,728,947 $ 3,614,173
=============== ==============
LIABILITIES
Demand deposits.................................................................... $ 487,809 $ 472,868
Savings deposits................................................................... 355,505 348,746
NOW accounts....................................................................... 304,045 318,413
Money market deposits.............................................................. 285,731 286,189
Time deposits...................................................................... 1,367,077 1,369,759
--------------- --------------
Total deposits..................................................................... 2,800,167 2,795,975
Short-term borrowings.............................................................. 548,345 438,032
Accrued interest payable........................................................... 14,620 15,447
Other liabilities.................................................................. 26,560 27,207
--------------- --------------
TOTAL LIABILITIES.................................................................. 3,389,692 3,276,661
--------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 1,000 shares authorized, none issued................ -- --
Common stock, $.01 par value: 30,000 shares authorized; 20,664 and 20,737 shares
issued at March 31, 1998 and December 31, 1997, respectfully; 20,088 and
20,072 outstanding at March 31, 1998 and December 31, 1997, respectively........ 201 201
Additional paid-in capital......................................................... 62,901 63,049
Retained earnings.................................................................. 288,675 281,770
Accumulated other comprehensive income............................................. 1,191 6,644
Treasury stock, at cost: 576 and 665 shares at March 31, 1998
and December 31, 1997, respectively............................................. (13,713) (14,152)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY......................................................... 339,255 337,512
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $ 3,728,947 $ 3,614,173
=============== ==============
</TABLE>
------------------------------------
See notes to consolidated financial statements.
(1) Unaudited
(2) Audited - See December 31, 1997 Form 10-K for Auditors' Report.
3
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (1)
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans...................................................................................... $ 51,957 $ 51,022
Securities available for sale........................................................... 15,360 14,031
Securities held to maturity................................................................ 334 352
Funds sold and other short-term investments................................................ 856 391
------------ ------------
TOTAL INTEREST INCOME................................................................... 68,507 65,796
------------ ------------
INTEREST EXPENSE
Deposits................................................................................... 25,565 25,858
Short-term borrowings...................................................................... 6,353 4,569
------------ ------------
TOTAL INTEREST EXPENSE.................................................................. 31,918 30,427
------------ ------------
NET INTEREST INCOME..................................................................... 36,589 35,369
PROVISION FOR LOAN LOSSES.................................................................. 1,118 2,108
------------ ------------
Net interest income after provision for loan losses..................................... 35,471 33,261
------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts........................................................ 2,901 2,860
Trust and investment management fees income................................................ 2,171 1,900
Other service charges, commissions and fees................................................ 1,700 1,730
Mortgage banking revenues.................................................................. 1,682 1,451
Security (losses) gains, net............................................................... (40) 362
Other income............................................................................... 1,357 1,031
------------ ------------
TOTAL NONINTEREST INCOME................................................................ 9,771 9,334
------------ ------------
NONINTEREST EXPENSE
Salaries and wages......................................................................... 12,102 11,257
Retirement and other employee benefits..................................................... 2,972 3,082
Occupancy expense of premises.............................................................. 2,192 2,254
Equipment expense.......................................................................... 1,725 1,669
Computer processing expense................................................................ 1,976 1,783
Advertising and promotions................................................................. 1,095 945
Professional services...................................................................... 1,445 920
Other expenses............................................................................. 4,937 4,528
------------ ------------
TOTAL NONINTEREST EXPENSE............................................................... 28,444 26,438
------------ ------------
Income before income tax expense........................................................... 16,798 16,157
Income tax expense......................................................................... 5,356 5,748
------------ ------------
Net Income.............................................................................. $ 11,442 $ 10,409
============ ============
PER SHARE DATA
Basic Earnings per share................................................................ $ .57 $ .52
Diluted Earnings per share.............................................................. $ .56 $ .52
Cash dividends declared per share....................................................... $ .225 $ .20
Weighted average shares outstanding..................................................... 20,077 19,998
Weighted average diluted shares outstanding............................................. 20,345 20,181
============ ============
</TABLE>
- ------------------------------------
See notes to consolidated financial statements.
(1) Unaudited
4
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (1)
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................... $ 11,442 $ 10,409
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses......................................................... 1,118 2,108
Provision for depreciation and amortization....................................... 1,766 1,723
Net (accretion of discount) amortization of premium of securities ................ 2,959 (346)
Net losses (gains) on securities available for sale from securities............... 40 (362)
Net (gains) losses on sales of premises, furniture and equipment.................. (4) (171)
Net increase (decrease) in deferred income taxes.................................. 1,190 (698)
Net amortization of purchase accounting adjustments, goodwill,
and other intangibles........................................................... 1,008 575
Changes in operating assets and liabilities:
Net (increase) decrease in loans held for sale.................................. (17,508) 6,006
Net (increase) decrease in accrued interest receivable.......................... (161) 3,573
Net decrease in other assets................................................... 1,611 7,784
Net (increase) in corporate owned life insurance................................ (50,485) --
Net (decrease) in accrued interest payable...................................... (827) (298)
Net (decrease) in other liabilities............................................. (647) (69,277)
------------- ------------
NET CASH (USED) BY OPERATING ACTIVITIES...................................... (48,498) (38,974)
------------- ------------
INVESTING ACTIVITIES Securities available for sale:
Proceeds from sales.................................................................. 90,520 122,541
Proceeds from maturities, calls and paydowns......................................... 78,291 82,451
Purchases............................................................................ (279,046) (128,196)
Securities held to maturity:
Proceeds from maturities, calls and paydowns......................................... 411 2,178
Purchases............................................................................ (6,808) (464)
Loans made to customers, net of principal collected..................................... 47,530 24,598
Proceeds from sales of foreclosed real estate........................................... 827 94
Proceeds from sales of premises, furniture and equipment................................ 99 102
Purchases of premises, furniture and equipment.......................................... (1,449) (2,320)
------------- ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES..................................... (69,625) 100,984
------------- ------------
FINANCING ACTIVITIES
Net increase in deposit accounts........................................................ 4,192 1,508
Net increase (decrease) in short-term borrowings........................................ 110,313 (47,470)
Purchases of treasury stock............................................................. -- (7,687)
Sales and issuance of treasury stock.................................................... 1 --
Cash dividends.......................................................................... (4,539) (3,328)
Exercise of stock options............................................................... 291 1,014
------------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES..................................... 110,258 (55,963)
------------- ------------
Net (decrease) increase in cash and cash equivalents................................. (7,865) 6,047
Cash and cash equivalents at beginning of period..................................... 149,029 142,238
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................... $ 141,164 $ 148,285
============= ============
Supplemental disclosures:
Interest paid to depositors and creditors............................................ $ 32,745 $ 30,726
Income taxes paid.................................................................... 250 1,530
Non-cash transfers to foreclosed real estate from loans.............................. 135 1,209
============= ============
</TABLE>
See notes to consolidated financial statements.
(1) Unaudited
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 1997 data to conform
to the 1998 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, 1997.
On October 1, 1997, First Midwest acquired SparBank, Incorporated ("SparBank"),
whose principal subsidiary was McHenry State Bank ("MSB"), 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 entities has been consolidated for all periods presented.
EARNINGS PER SHARE - Effective December 31, 1997, First Midwest adopted
Financial Accounting Standards Board ("FASB") Statement No. 128 ("FASB No.
128"), "Earnings Per Share" which establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. It replaces the presentation of primary
EPS with earnings per common share ("basic EPS") which is computed by dividing
net income by the weighted average number of common shares outstanding for the
period. The basic EPS computation excludes the dilutive effect of all common
stock equivalents. Further, FASB No. 128 requires additional disclosures
including dual presentation of basic and diluted EPS on the face of the
Statement of Income for all periods presented. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. First Midwest's
potential common shares represent shares issuable under its stock option plans.
Such common stock equivalents are computed based on the treasury stock method
using the average market price for the period. In accordance with FASB No. 128,
First Midwest has restated all prior period earnings per share. Further
disclosures are presented in Note 8: Earnings Per Common Share.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement No. 131 "Disclosures About Segments of
an Enterprise and Related Information" ("FASB No. 131") which establishes
standards for public companies to report certain financial information about
operating segments in interim and annual financial statements. Operating
segments are components of a business about which separate financial information
is available and that are evaluated regularly by company management in deciding
how to allocate resources and assessing performance. The statement also requires
public companies to report certain information about their products, services
and the geographic areas in which they operate. FASB No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
statement does not need to be applied to interim financial statements in the
initial year of its application, but such comparative information will be
required in interim statements the second year. At this time, Management is
assessing this statement for and has not determined whether the new reporting
provisions will require supplemental disclosures by First Midwest. If
applicable, however, First Midwest will begin reporting segment information in
the 1998 annual consolidated financial statements.
6
<PAGE>
2. ACQUISITION
The acquisition of SparBank was affected through a merger of First Midwest and
SparBank, that was structured as a tax-free exchange and accounted for as a
pooling-of-interests, and resulted in the issuance of 3,231 shares of First
Midwest common stock to SparBank stockholders. As a result of the merger,
SparBank's only subsidiary, McHenry State Bank ("MSB"), became a subsidiary of
First Midwest. On February 23, 1998, MSB was merged into First Midwest's
principal banking subsidiary First Midwest Bank, National Association.
Coincident with the acquisition, First Midwest recorded $6,742 in costs
consisting of $5,446 in acquisition expenses and $1,296 in provisions for loan
losses incident to conforming MSB'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 which is
comprised of the following components for the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Acquisition Expenses:
Employee severance, outplacement, retirement programs and related cost............ $ 1,402 $ 1,546
Contract termination fees and other related costs ............................... 897 920
Investment advisor fees .......................................................... 2 1,401
Legal, accounting and other professional fees .................................... 624 1,264
Other............................................................................. 72 315
---------- ---------
$ 2,997 $ 5,446
========== =========
</TABLE>
During the first quarter of 1998, the acquisition reserve was reduced by $2,449
with $2,039 of the reduction related to payments for investment advisor, legal
and other professional fees. Association.
3. PENDING ACQUISITION
On January 14, 1998, First Midwest, First Midwest Acquisition Corporation, a
wholly owned subsidiary of First Midwest ("Acquisition Corporation") and
Heritage Financial Services, Inc. ("Heritage") entered into an Agreement and
Plan of Merger ("Merger Agreement") whereby Heritage will be merged with and
into Acquisition Corporation (the "Merger"). Pursuant to the Merger Agreement,
the transaction will be structured as a tax-free exchange and accounted for as a
pooling-of-interests. Each outstanding share of Heritage common stock, no par
value, will be converted into .7695 shares of First Midwest common stock. A
one-time, pre-tax acquisition charge in the approximate amount of $15.4 million
will be taken in the quarter that the transaction is closed.
The Merger is conditioned upon, among other things, approval by the shareholders
of both First Midwest and Heritage on the issues put forth in the Joint
Proxy/Prospectus of First Midwest and Heritage dated April 28, 1998 and to be
voted upon at the June 17, 1998 Shareholders' meetings of both companies. The
Merger Agreement has been approved by the Boards of Directors of both companies
and the Merger has received all regulatory approvals. In conjunction with the
approval of the Merger Agreement, Heritage's Board of Directors rescinded the
balance of its stock repurchase program authorized in June 1996. It is
anticipated that the acquisition will be consummated early in the third quarter
of 1998.
Incident to the entry into the Merger Agreement, Heritage and First Midwest
executed a Stock Option Agreement (the "Option Agreement") pursuant to which
Heritage granted First Midwest an option to acquire up to 2,400 common shares
(representing 19.9% of Heritage's common shares) at a price of $21.25 per share
subject to certain terms and conditions set forth in the Option Agreement.
The pro forma consolidated statements of condition and income of First Midwest
and Heritage as of, and for the quarter ended, March 31, 1998 is included as
Exhibit 99 to this Form 10-Q.
7
<PAGE>
4. SECURITIES
SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of
securities available for sale at March 31, 1998 and December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Securities Available for Sale
------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997
-------------------------------------------- -------------------------------------------
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....... $ 110,490 $ 315 $ (1) $ 110,804 $ 122,557 $ 394 $ (7) $ 122,944
U.S. Agency securities......... 37,814 91 -- 37,905 62,183 87 -- 62,270
Mortgage-backed securities..... 763,588 770 (8,524) 755,834 632,854 2,664 (1,063) 634,455
State and municipal securities 154,606 9,294 (19) 163,881 142,616 8,793 (1) 151,408
Other securities............... 4,313 27 -- 4,340 3,364 26 -- 3,390
----------- --------- --------- ---------- --------- --------- --------- ---------
Total....................... $ 1,070,811 $ 10,497 $ (8,544) $1,072,764 $ 963,574 $ 11,964 $ (1,071) $ 974,467
=========== ========= ========= ========== ========= ========= ========= =========
</TABLE>
SECURITIES HELD TO MATURITY - The amortized cost and market value of securities
held to maturity at March 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity
------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997
-------------------------------------------- -------------------------------------------
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...... $ 874 $ 6 $ (1) $ 879 $ 1,099 $ 5 $ -- $ 1,104
State and municipal securities 5,803 311 -- 6,114 5,912 347 -- 6,259
Other securities.............. 20,043 24 -- 20,067 13,312 19 -- 13,331
--------- --------- --------- --------- --------- --------- --------- --------
Total...................... $ 26,720 $ 341 $ (1) $ 27,060 $ 20,323 $ 371 $ -- $ 20,694
========= ========= ========= ========= ========= ========= ========= ========
</TABLE>
5. LOANS
The following table provides the book value of loans, by major classification,
as of the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Commercial and industrial.......................... $ 569,890 $ 571,128
Agricultural....................................... 39,272 39,014
Direct home equity ................................ 178,328 173,730
Other direct installment........................... 82,554 91,499
Indirect installment............................... 372,865 386,226
Real estate - 1-4 family........................... 217,778 231,151
Real estate - commercial .......................... 680,049 701,411
Real estate - construction ........................ 127,572 117,102
Other.............................................. 14,639 21,991
--------------- ---------------
Total.............................................. $ 2,282,947 $ 2,333,252
=============== ================
</TABLE>
8
<PAGE>
6. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS
Transactions in the reserve for loan losses for the three months ended March 31,
1998 and 1997 are summarized below:
<TABLE>
<CAPTION>
Three months ended,
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Balance at beginning of period.......................................... $ 37,344 $ 32,202
Provision for loan losses............................................... 1,118 2,108
Loans charged-off..................................................... (3,455) (3,071)
Recoveries of loans previously charged-off............................ 815 4,606
-------- --------
Net loan (charge-offs)/recoveries (2,640) 1,535
-------- --------
Balance at end of period................................................ $ 35,822 $ 35,845
======== ========
</TABLE>
Information with respect to impaired loans at March 31, 1998 and 1997 is
provided below:
<TABLE>
<CAPTION>
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Recorded Investment in Impaired Loans:
Recorded investment requiring specific loan loss reserves (1)......... $ 7,253 $ 3,327
Recorded investment not requiring specific loan loss reserves......... 8,225 10,355
-------- --------
Total recorded investment in impaired loans....................... $ 15,478 $ 13,682
======== ========
Specific loan loss reserve related to impaired loans.................... $ 2,975 $ 2,113
======== ========
</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 three months ended March 31, 1998 and 1997, the average recorded
investment in impaired loans was approximately $12,746 and $14,293,
respectively.
7. COMPREHENSIVE INCOME
Effective January 1, 1998, First Midwest adopted FASB Statement No. 130,
"Reporting Comprehensive Income" ("FASB No. 130") which establishes standards
for reporting and display of comprehensive income and its components in a full
set of financial statements. Comprehensive income is the total of income and all
other revenues, expenses, gains and losses, that, under generally accepted
accounting principles, bypass reported net income. FASB No. 130 requires First
Midwest's unrealized gains or losses (net of tax) on securities available for
sale to be included in other comprehensive income, which, prior to adoption,
were reported separately in stockholders' equity. Prior year financial
statements have been reclassified to conform to the requirements of FASB No.
130.
The components of comprehensive income, net of related taxes, for the three
months ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Net income........................................................................... $ 11,442 $ 10,409
Unrealized gains (losses) on securities, net of reclassification adjustment.......... (5,453) (3,437)
-------- --------
Comprehensive income................................................... $ 5,989 $ 6,972
======== ========
</TABLE>
<TABLE>
<CAPTION>
Disclosure of Reclassification Amount:
- --------------------------------------
<S> <C> <C>
Unrealized holding gains (losses) arising during the period.......................... $ (5,568) $ (3,619)
Less: Reclassification adjustment for (gains) losses included in net income......... 115 182
-------- --------
Net unrealized gains (losses) on securities............................ $ (5,453) $ (3,437)
======== ========
</TABLE>
9
<PAGE>
8. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
------- -------
<S> <C> <C>
Net Income.............................................................. $11,442 $10,409
======= =======
Weighted average common shares outstanding used in basic
earnings per share calculation..................................... 20,077 19,998
Diluted effect of employee stock options after application of
treasury stock method.............................................. 268 183
------- -------
Weighted average common shares outstanding adjusted for the
effect of diluted securities....................................... 20,345 20,181
======= =======
Basic earnings per share................................................ $ 0.57 $ 0.52
======= =======
Diluted earnings per share ............................................. $ 0.56 $ 0.52
======= =======
</TABLE>
9. CONTINGENT LIABILITIES AND OTHER MATTERS
There are certain legal proceedings pending against First Midwest and its
Subsidiaries in the ordinary course of business at March 31, 1998. 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.
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 three months ended March 31, 1998 as
compared to the same period in 1997. 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
1997 Annual Report on Form 10-K. Results of operations for the three months
ended March 31, 1998 are not necessarily indicative of results to be expected
for the full year of 1998.
The consolidated financial statements and financial information for all
previously reported periods presented herein have been restated to include
First Midwest's October 1997 acquisition of SparBank which was accounted for
as a pooling-of-interests. All financial information is presented in
thousands, except per share data.
SUMMARY OF PERFORMANCE
Net income for the first quarter increased to $11,442 or $.57 per share from
last year's first quarter of $10,409 or $.52 per share representing an increase
of 10% on a per share basis.
Return on average assets was 1.29% for the first quarter of 1998 as compared to
1.22% for the same quarter in 1997. Return on average stockholders' equity was
13.74% for the first quarter of 1998, as compared to 13.62% for the same 1997
quarter.
10
<PAGE>
NET INTEREST INCOME
Net interest income on a tax equivalent basis totaled $37,915 for the first
quarter of 1998, representing an increase of $1,403 or 4% over the year-ago
quarter totaling $36,512. As shown in the Volume/Rate Analysis on page 12, the
improvement in net interest income is attributable to increased interest income
of $2,894 net of higher interest expense of $1,491. Net interest margin for the
first quarter of 1998 decreased to 4.48% as compared to 4.55% for the same
period in 1997, but increased as compared to 4.44% in the fourth quarter of
1997. The reduction in net interest margin is primarily due to higher interest
costs for paying liabilities.
As shown in the Volume/Rate Analysis, the $2,894 increase in interest income for
the quarter is partially attributable to negative volume and positive interest
rate variances on the loan portfolio, totaling to a net improvement of $961. The
majority of the securities portfolio interest income variance resulted from
securities volumes, which increased by $106,582 in the current quarter as
compared to the like quarter last year and was partially offset by lower
effective rates. Such volume increase resulted from a combination of the
decrease in loan volume and the increase in time deposits. The decrease in
security rate is the result of the overall low rate environment and its impact
on mortgage refinancings generally. As a result of the trend in refinancings,
mortgage loan prepayments, and the resulting prepayments on the collateralized
mortgage obligation portfolio of mortgage backed securities to increase, the
overall yield on investments is lower. The yield reduction has also resulted in
a net decrease in the market value of the mortgages backed securities portfolio
at March 31, 1998 from December 31, 1997. This decrease is detailed in Note 4 to
the consolidated financial statements on page 8 of this Form 10-Q.
The $1,491 increase in interest expense resulted from increases in both volumes
of and rates on interest bearing liabilities. A major contributor to the
increase in interest expense occurred in higher volumes and rates on time
deposits. The increase in volume and rate on time deposits resulted from
promotional efforts to attract certain deposit maturities to better match and
fund term assets. Short term borrowing balances decreased in the first quarter
of 1998 by $30,527 from year ago levels due a shift of funding into time
deposits.
11
<PAGE>
VOLUME/RATE ANALYSIS
The table below summarizes the changes in average interest-bearing assets and
interest-bearing liabilities as well as the average rates earned and paid on
these assets and liabilities, respectively, for the quarters ended March 31,
1998 and 1997. 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>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
-----------------------------------------------------------------
AVERAGE INTEREST
AVERAGE BALANCES RATES EARNED/PAID
----------------------------------- ---------------------------
Basis
Increase/ Points
1998 1997 (Decrease) 1998 1997 Inc/(Dec)
---------- ---------- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other $ 21,445 $ 15,634 $ 5,811 5.67% 5.76% (0.09)%
short-term investments............
Mortgages held for sale........... 27,676 8,749 18,927 8.15% 7.83% 0.32%
Securities available for sale (1) 982,011 877,496 104,515 6.46% 6.94% (0.48)%
Securities held to maturity (1)... 21,656 19,589 2,067 7.06% 8.45% (1.39)%
Loans, net of unearned
discount (1)...................... 2,300,015 2,333,317 (33,302) 9.19% 8.89% 0.30%
---------- ---------- -------- ---- ---- ------
Total interest-earning assets (1) $3,352,803 $3,254,785 $98,018 8.34% 8.34% 0.00%
========== ========== ======== ==== ==== ======
Savings deposits.................. $ 353,595 $ 362,688 $(9,093) 2.66% 2.62% 0.04%
NOW accounts...................... 312,698 302,145 10,553 2.38% 2.33% 0.05%
Money market deposits............. 279,126 279,139 (13) 3.64% 3.46% 0.18%
Time deposits..................... 1,359,456 1,270,497 88,959 5.64% 5.55% 0.09%
Short-term borrowings............. 472,190 502,717 (30,527) 5.46% 5.30% 0.16%
---------- ---------- -------- ---- ---- ------
Total interest-bearing liabilities $2,777,065 $2,717,186 $ 59,879 4.66% 4.54% 0.12%
========== ========== ======== ==== ==== ======
Net interest margin/income (1) 4.48% 4.55% (0.07)%
==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
-----------------------------------------------------------
INCREASE/(DECREASE) IN
INTEREST INTEREST INCOME/EXPENSE
INCOME/EXPENSE DUE TO:
------------------------------- --------------------------
Increase
1998 1997 (Decrease) Volume Rate Total
------- ------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other $ 300 $ 222 $ 78 $ 82 $ (4) $ 78
short-term investments............
Mortgages held for sale........... 556 169 387 381 6 387
Securities available for sale (1) 16,507 15,008 1,499 1,751 (252) 1,499
Securities held to maturity (1)... 377 408 (31) 56 (87) (31)
Loans, net of unearned
discount (1)...................... 52,093 51,132 961 (713) 1,674 961
------- ------- ------ ------ ------ ------
Total interest-earning assets (1) $69,833 $66,939 $2,894 $1,557 $1,337 $2,894
======= ======= ====== ====== ====== ======
Savings deposits.................. $ 2,320 $ 2,344 $ (24) $ (64) $ 40 $ (24)
NOW accounts...................... 1,838 1,733 105 61 44 105
Money market deposits............. 2,506 2,379 127 0 127 127
Time deposits..................... 18,902 17,401 1,501 1,234 267 1,501
Short-term borrowings............. 6,352 6,570 (218) (422) 204 (218)
------- ------- ------ ------ ------ ------
Total interest-bearing liabilities $31,918 $30,427 $1,491 $ 809 $ 682 $1,491
======= ======= ====== ====== ====== ======
Net interest margin/income (1) $37,915 $36,512 $1,403 $ 748 $ 655 $1,403
======= ======= ====== ====== ====== ======
</TABLE>
(1) Interest income and yields are presented on a tax-equivalent basis.
12
<PAGE>
NONINTEREST INCOME
Noninterest income totaled $9,771 for the quarter ended March 31,1998, as
compared to $9,334 for the same period in 1997. Exclusive of net security losses
which totaled $40 for the three months as compared to net security gains of $362
for the like period in 1997, noninterest income increased by $839 or 9% with
most components of operating income contributing to the increase.
Mortgage banking revenues improved $231 as a result of growth in real estate
loan originations and their subsequent sale into the secondary market.
Originations totaled $110,000 in the first quarter of 1998 compared with $37,000
in the same period of 1997. Growth in trust business produced $271 in higher
trust and investment management fees. Other income increased $326 primarily from
the investment in corporate owned life insurance revenues.
NONINTEREST EXPENSE
Noninterest expense totaled $28,444 for the quarter ended March 31, 1998,
increasing by $2,006 or 8% from the same period in 1997.
Salaries and wages and retirement and other employee benefits increased to a
combined $15,074 for the first quarter of 1998 from the same period in 1997 for
an increase of $735, or 5%. The majority of such increase is attributable to
general 4% merit raises effective January 1998 and incentive payments offset by
decreases in pension, profit sharing and ESOP expenses.
Occupancy expense decreased to $62 from the first quarter of 1997 due in part to
lower utility expenses resulting from a mild Midwest winter.
Equipment expense and computer processing expense increased by $249 or 7% in the
first quarter of 1998 as compared to the like period in 1997. Such increase
primarily reflects computer conversion costs associated with the MSB merger into
First Midwest Bank, N.A.
An increase in professional services of $525 in the first quarter of 1998
resulted from legal and professional fees incurred primarily related to the
resolution of litigation on problem loans. Advertising and promotional expenses
rose $150 in part due to the MSB consolidation into First Midwest Bank, N. A.
and the attendant costs related to customer retention and communication. The
$409 increase in other expenses is attributable to a number of categories
including supplies and printing, repossession expense, freight and postage, and
other miscellaneous losses.
The efficiency ratio for the quarter ended March 31, 1998 was 59.81% as compared
to the 1997 first quarter ratio of 57.83%. The 1998 efficiency ratio reflects
the assimilation expenses associated with MSB (i.e. computer conversions,
advertising, supplies and printing, etc.).
INCOME TAX EXPENSE
Income tax expense totaled $5,356 for the quarter ended March 31,1998,dereasing
from $5,748 for the same period in 1997 and reflects effective income tax rates
of 31.9% and 35.6% respectively. The decrease in effective tax rate is primarily
attributable to increases in federal and state tax exempt income in the 1998
quarter.
13
<PAGE>
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
At March 31, 1998, nonperforming assets totaled $22,802 and loans past due 90
days or more and still accruing interest totaled $9,080. 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>
Nonperforming Assets and 1998 1997
----------- -----------------------------------------------------
90 Day Past Due Loans March 31 Dec. 31 Sept. 30 June 30 March 31
- ---------------------------------------------------- ----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.................................... $ 19,272 $ 10,796 $ 11,284 $ 13,812 $ 15,937
Renegotiated loans.................................. --- --- --- --- ---
----------- ------------ ------------ ----------- -----------
Total nonperforming loans........................... 19,272 10,796 11,284 13,812 15,937
Foreclosed real estate.............................. 3,530 4,397 5,035 5,739 6,964
----------- ------------ ------------ ----------- -----------
Total nonperforming assets....................... $ 22,802 $ 15,193 $ 16,319 $ 19,551 $ 22,901
=========== ============ ============ =========== ===========
% of total loans plus foreclosed real estate..... 1.00% 0.65% 0.70% 0.85% 0.98%
=========== ============ ============ =========== ===========
90 days past due loans accruing interest............ $ 9,080 $ 5,520 $ 4,294 $ 5,841 $ 5,539
=========== ============ ============ =========== ===========
</TABLE>
Nonaccrual loans, totaling $19,272 at March 31, 1998 are comprised of commercial
and agricultural loans (67%), real estate loans (26%) and consumer loans (7%).
The increase in nonaccrual loans in the first quarter of 1998 is attributable to
2 commercial loan customers, each comprising approximately one-half of the
increase. Foreclosed real estate, totaling $3,530 at March 31, 1998, primarily
represents commercial real estate properties.
First Midwest's disclosure with respect to impaired loans is contained in Note 6
to the consolidated financial statements, located on page 8.
PROVISION AND RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses during the three months ended March
31, 1998 and 1996 are summarized in the following table:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Balance at beginning period..................................................... $ 37,344 $ 32,202
Provision for loan process.................................................. 1,118 2,108
Loans charged of............................................................ (3,455) (3,071)
Recoveries of loans previously charged-off.................................. 815 4,605
-------- --------
Net loan (charge-offs)/recoveries......................................... (2,640) 1,534
-------- --------
Balance at end of period........................................................ $ 35,822 $ 35,844
======== ========
</TABLE>
The provision for loan losses charged to operating expense for the first quarter
of 1998 totaled $1,118 as compared to $2,108 for the same quarter in 1997. 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. Loan
charge-offs, net of recoveries, for the quarter totaled $2,640, or .47% of
average loans in 1998 as compared to 1997 net recoveries of $1,534, or 0.27%. A
major component of loan recoveries for the first quarter of 1997 were proceeds
totaling $4,050 received in settlement of a 1993 lawsuit related to loans
charged off in 1992.
14
<PAGE>
The reserve for loan losses at March 31, 1998 was comprised of three parts:
allocated for specific impaired loans, $2,975; allocated for general segments of
unimpaired loans, $8,335; and unallocated, $24,512. That part of the reserve
allocated for specific impaired loans is discussed in Note 6 to the consolidated
financial statements located on page 9. 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.
At March 31, 1998, the reserve for loan losses totaled $35,822, or 1.57% of
total loans outstanding as compared to $35,844, or 1.54% at March 31, 1997. 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 5 to the
consolidated financial statement located on page 8. 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. ("FMB, 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 in excess of the levels required by their respective bank
regulatory authorities to be considered "well-capitalized" which is the highest
capital category established under the FDICIA.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------------------------------------------------------------------------
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... 12.04% 4.00% 10.26% 4.00% 6.00%
Total capital to risk-based assets 13.30% 8.00% 11.51% 8.00% 10.00%
Leverage ratio........................ 9.09% 3.00% 7.74% 3.00% 5.00%
============ ============= ============== ============= ==================
</TABLE>
DIVIDENDS
First Midwest's strong capital position as well as a result of improved
performance from operations has allowed the Board of Directors to increase the
quarterly dividend every year since 1993. The following table summarizes the
dividend increases declared during the years 1994 through 1997:
<TABLE>
<CAPTION>
Quarterly Rate
Date Per Share % Increase
---------------- -------------- ----------
<S> <C> <C>
November 1997 $.23 13%
November 1996 $.20 18%
February 1996 $.17 13%
February 1995 $.15 15%
February 1994 $.13 13%
</TABLE>
15
<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 21E of the Securities Exchange Act of 1934, as
amended, which represents First Midwest's expectations and benefits concerning
future events including, but not limited to, the following: the loan loss
reserve levels going forward; 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.
First Midwest cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those set
forth 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; limitations on the First Midwest's
ability to increase fee-based income without negatively impacting customer
relationships and related account balances; operational limitations and costs
related to changing technologies; deviations from the assumptions used to
evaluate the appropriate level of the reserve for loan losses; and, the trend in
mortgage refinancings and the related impact on the yield and market value of
the mortgage-backed securities portfolio.
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.
16
<PAGE>
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 January 23, 1998, First Midwest filed a report on Form 8-K
announcing that First Midwest through a wholly owned subsidiary, entered
into an Agreement and Plan of Merger whereby Heritage will be merged
with an into a wholly owned subsidiary of the First Midwest. Heritage is
a $1.3 billion bank holding company headquartered in Tinley Park,
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.
-------------------------------
DONALD J. SWISTOWICZ
-------------------------------
Date: May 12, 1998 Donald J. Swistowicz
Executive Vice President *
* Duly authorized to sign on behalf of the Registrant.
17
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description of Documents Page Number
- ------- ------------------------ -----------
27 Financial Data Schedule 19
99 Pro forma Financial Statements 21
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 133,498
<INT-BEARING-DEPOSITS> 1,795
<FED-FUNDS-SOLD> 5,871
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,072,764
<INVESTMENTS-CARRYING> 26,720
<INVESTMENTS-MARKET> 27,060
<LOANS> 2,282,947
<ALLOWANCE> 35,822
<TOTAL-ASSETS> 3,728,947
<DEPOSITS> 2,800,167
<SHORT-TERM> 548,345
<LIABILITIES-OTHER> 41,180
<LONG-TERM> 0
0
0
<COMMON> 201
<OTHER-SE> 339,054
<TOTAL-LIABILITIES-AND-EQUITY> 3,728,947
<INTEREST-LOAN> 51,957
<INTEREST-INVEST> 15,694
<INTEREST-OTHER> 856
<INTEREST-TOTAL> 68,507
<INTEREST-DEPOSIT> 25,565
<INTEREST-EXPENSE> 31,918
<INTEREST-INCOME-NET> 36,589
<LOAN-LOSSES> 1,118
<SECURITIES-GAINS> (40)
<EXPENSE-OTHER> 28,444
<INCOME-PRETAX> 16,798
<INCOME-PRE-EXTRAORDINARY> 11,442
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,442
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
<YIELD-ACTUAL> 4.48
<LOANS-NON> 19,272
<LOANS-PAST> 9,080
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 20,256
<ALLOWANCE-OPEN> 37,344
<CHARGE-OFFS> 3,455
<RECOVERIES> 815
<ALLOWANCE-CLOSE> 35,822
<ALLOWANCE-DOMESTIC> 11,310
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,512
</TABLE>
<PAGE>
Exhibit 99
First Midwest Bancorp, Inc. and Heritage Financial Services, Inc.
Pro forma Statement of Condition
(unaudited)
and
Pro forma Statement of Income
(unaudited)
as of, and for the period ended,
March 31, 1998
(Amounts in thousands except per share data)
**********
The accompanying financial information presents the statement of condition and
statement of income of First Midwest and Heritage on a pro forma basis as if
the transition had been consummated on January 1, 1998, with all prior periods
being re-stated.
21
<PAGE>
PRO FORMA CONDENSED STATEMENT OF CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
As of March 31, 1998
-------------------------------------------------------
First Pro Forma
Midwest Heritage Pro Forma Consolidated
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............................... $ 133,498 $ 35,088 $(15,400) (1) $ 153,186
Funds sold and other short-term investments........... 7,666 43,255 --- 50,921
Mortgages held for sale............................... 44,365 -- --- 44,365
Securities available for sale......................... 1,072,764 380,516 --- 1,453,280
Securities held to maturity........................... 26,720 111,393 --- 138,113
Trading account securities............................ --- 471 --- 471
Loans................................................. 2,282,947 718,533 --- 3,001,480
Reserve for loan losses............................... (35,822) (9,801) --- (45,623)
---------- ---------- -------- ----------
Net loans.......................................... 2,247,125 708,732 --- 2,955,857
---------- ---------- -------- ----------
Premises, furniture and equipment..................... 58,807 19,352 --- 78,159
Accrued interest receivable and other assets.......... 138,002 26,286 --- 164,288
---------- ---------- -------- ----------
Total Assets....................................... $3,728,947 $1,325,093 $(15,400) $5,038,640
========== ========== ======== ==========
LIABILITIES
Deposits.............................................. $2,800,167 $1,134,409 $ --- $3,934,576
Short-term borrowings................................. 548,345 52,442 --- 600,787
Accrued interest payable and other liabilities........ 41,180 12,364 (3,850) (1) 49,694
---------- ---------- -------- ----------
Total liabilities.................................. 3,389,692 1,199,215 (3,850) 4,585,057
---------- ---------- -------- ----------
STOCKHOLDERS' EQUITY
Common Stock.......................................... 201 -- 93 (2) 294
Additional paid-in capital............................ 62,901 24,260 (93) (2) 87,068
Retained earnings..................................... 288,675 96,130 (11,550) (1) 373,255
Accumulated other comprehensive income................ 1,191 5,579 --- 6,770
Less: Treasury stock.................................. (13,713) (91) --- (13,804)
---------- ---------- -------- ----------
Total stockholders' equity......................... 339,255 125,878 (11,550) 453,583
---------- ---------- -------- ----------
Total Liabilities and Stockholders' Equity......... $3,728,947 $1,325,093 $(15,400) $5,038,640
========== ========== ======== ==========
</TABLE>
22
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------
First Pro Forma
Midwest Heritage Consolidated
-------- --------- ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................... $ 51,957 $ 14,913 $ 66,870
Interest on securities................................................... 15,694 8,133 23,827
Interest on funds sold and other short-term investments.................. 856 303 1,159
-------- -------- --------
Total interest income................................................ 68,507 23,349 91,856
-------- -------- --------
INTEREST EXPENSE
Interest on deposits..................................................... 25,565 10,454 36,019
Interest on short-term borrowings........................................ 6,353 478 6,831
-------- -------- --------
Total interest expense............................................... 31,918 10,932 42,850
-------- -------- --------
Net interest income.................................................. 36,589 12,417 49,006
PROVISION FOR LOAN LOSSES 1,118 150 1,268
-------- -------- --------
Net interest income after provision for loan losses.................. 35,471 12,267 47,738
NONINTEREST INCOME....................................................... 9,771 2,621 12,392
NONINTEREST EXPENSE...................................................... 28,444 8,016 36,460
-------- -------- --------
Income before income tax expense..................................... 16,798 6,872 23,670
INCOME TAX EXPENSE....................................................... 5,356 2,127 7,483
-------- -------- --------
Net Income............................................................ $ 11,442 $ 4,745 $ 16,187
======== ======== ========
Basic Earnings Per Share (3).......................................... $ 0.57 $ 0.39 $ 0.55
======== ======== ========
Diluted Earnings Per Share(4)......................................... $ 0.56 $ 0.38 $ 0.54
======== ======== ========
Average Shares Outstanding (3)........................................ 20,077 12,127 29,409
======== ======== ========
Average Diluted Shares Outstanding (4)................................ 20,345 12,522 29,981
======== ======== ========
</TABLE>
- --------------------------------------------
FOOTNOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS:
(1) Reflects the estimated acquisition charge ($15,400) and related tax
benefit ($3,850) to be recorded incident to First Midwest's pending
acquisition of Heritage. Such estimated charge includes severance and
related personnel exit costs, contract termination fees, legal and
accountant fees and other costs necessary to consummate the acquisition.
These costs result directly from the Merger and are expected to be
incurred within 12 months of the consummation date.
(2) Reflects the increase in First Midwest Common Stock, $.01 par value and
related reduction in additional paid-in capital for the issuance of
approximately 9,342 shares in the exchange for 12,141 shares of Heritage
Common Stock outstanding at March 31, 1998.
(3) The pro forma combined basic earnings per share and average shares
outstanding are based upon net income for First Midwest and Heritage
divided by the total pro forma average shares of the combined entity
assuming conversion of the Heritage Common Stock at the 0.7695 exchange
ratio.
(4) The pro forma combined diluted earnings per share and average diluted
shares outstanding are based upon net income of First Midwest and Heritage
divided by the total pro forma average shares of the combined entity,
adjusted for the potential dilutive effect of shares issued under the
entities stock option plans, assuming conversion of the Heritage Common
Stock at the 0.7695 exchange ratio.
23
