SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
Washington, D.C. 20549
(Mark One)
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the fiscal year ended December 31, 2000 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] |
Commission File Number 0-10967
FIRST MIDWEST BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 36-3161078 |
300 Park Blvd., Suite 405, P.O. Box 459
Itasca, Illinois 60143-9768
(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. YesxNoo.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-Kx.
As of March 1, 2001, 40,866,991 shares of common stock of the Registrant were outstanding. The aggregate market value of the shares of common stock held by non-affiliates as of such date was approximately $986,977,752 based on the NASDAQ Stock Market closing price.
Documents incorporated by reference:
Registrant's Proxy Statement for the 2001 Annual Shareholders' Meeting - Parts I and III
FORM 10-K | |||
Page | |||
Part I | |||
Item 1. | 3 | ||
Item 2. | 9 | ||
Item 3. | 9 | ||
Item 4. | 9 | ||
Part II | |||
Item 5. | Market for the Registrant's Common Equity and Related Shareholder Matters | 10 | |
Item 6. | 11 | ||
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 | |
Item 7a. | 35 | ||
Item 8. | 36 | ||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 60 | |
Part III | |||
Item 10. | 60 | ||
Item 11. | 60 | ||
Item 12. | Security Ownership of Certain Beneficial Owners and Management | 61 | |
Item 13. | 61 | ||
Part IV | |||
Item 14. | Exhibits, Financial Statement Schedules and Reports on Form 8-K | 61 |
PART 1
First Midwest Bancorp, Inc.
First Midwest Bancorp, Inc. ("First Midwest" or the "Company") is a Delaware corporation that was incorporated in 1982 for the purpose of becoming a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "Act"). On February 28, 1983, the Company received approval from the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to become a bank holding company, and on March 31, 1983, the Company was formed through an exchange of common stock. The Company is Illinois' 3rd largest publicly traded banking company with assets of approximately $5.9 billion at year-end 2000 and is headquartered in the Chicago suburb of Itasca, Illinois. The Company and its 100%-owned subsidiaries (the "Affiliates") employed 1,518 full time equivalent employees at December 31, 2000.
The Company has responsibility for the overall conduct, direction and performance of its Affiliates hereinafter described. The Company provides specialized services to the Affiliates in various areas, establishes Company policies and procedures and serves as a source of strength in providing capital and other resources as needed. Responsibility for the management of the Affiliates rests with their respective Boards of Directors and Officers.
Strategic Realignment of Mortgage Banking Services
During 2000, First Midwest concluded a strategic review of the manner in which it delivers mortgage products to its customers. The primary purpose of the strategic review was to ensure satisfaction of customer needs through the appropriate delivery of this product, while enhancing revenue predictability from a product line that is significantly affected by the volatility in market interest rates. As a result of the review, First Midwest implemented certain strategic changes in its mortgage banking operations which included the discontinuation of operations of its mortgage banking subsidiary, First Midwest Mortgage Corporation ("FMMC"), the sale of FMMC's $1.8 billion mortgage loan servicing portfolio, the disposition of certain related assets and the transfer of all mortgage origination activities to its banking Affiliate, First Midwest Bank, National Association (the "Bank"). In conjunction with this realignment, First Midwest entered into a strategic alliance with a leading private label mortgage services provider pursuant to which administrative functions including loan processing, document preparation, secondary market activities and loan servicing were outsourced while the important customer contact function continues to be conducted by the Bank's loan origination sales group.
Banking Affiliate - First Midwest Bank, National Association
The Company's banking affiliate is the Bank. At December 31, 2000, the Bank had $5.9 billion in total assets, $4.3 billion in total deposits and operated 73 banking offices primarily in suburban metropolitan Chicago, as further discussed below.
The Bank is engaged in commercial and retail banking and offers a broad range of lending, depository and related financial services including accepting deposits; commercial and industrial, consumer and real estate lending; collections; safe deposit box operations; and other banking services tailored for individual, commercial and industrial, and governmental customers. The Bank has established an internet website(http://www.firstmidwest.com) providing the public additional information about its products and services. Structurally, the Bank is comprised of two divisions, a sales division in five geographical regions and a support division providing corporate, administrative and support services through various functional departments. In July 2000, the sales division was reorganized along commercial and retail product lines in order to further leverage customer relationships and enhance sales effectiveness. At year-end 2000, the Bank had 1,449 full time equivalent employees.
Approximately 86% of the Bank's assets are located in the suburban metropolitan Chicago area. Within the Chicago metropolitan area, the Bank operates in three of the fastest growing counties in Illinois: Lake and McHenry Counties, north and northwest of the City of Chicago, and Will County, southwest of the City. Lake County has both the highest average household income in the State of Illinois and the highest employment rate, with employment estimated to increase by 24% for the period 2000 through 2010. McHenry County, which is adjacent to Lake County on the West, has the third highest average household income and the second highest employment rate, with employment expected to increase by 23% for the same forward period. Will County ranks seventh and third, respectively, by each of the same measures, and expects a 21% increase in employment for the same forward period. The Bank has the largest share of bank deposits in the Will County market and the third largest in the Lake and McHenry markets, with an estimated 8.9% of Lake County, 8.5% of McHenry County and 21.2% of Will County.
Another approximate 10% of the Bank's assets are located in the "Quad Cities" area of Western Illinois and Eastern Iowa which includes the Illinois cities of Moline and Rock Island and the Iowa cities of Davenport and Bettendorf. The Quad Cities region has a population of approximately 360,000, employment in excess of 232,000 jobs, and annual retail sales of approximately $4 billion. Employment in this market area is projected to increase approximately 10% for the period 2000 through 2010. The Bank has an approximate 3.4% market share, or the fourth largest, in the Quad Cities.
The Bank maintains branch operations in downstate Illinois primarily in Vermilion and Champaign Counties, that represent approximately 4% of the Bank's total assets. Champaign, Illinois is the home of the University of Illinois. The Bank has approximately 3.4% of the total deposits in the Vermilion County market.
Trust, Investment Management and Insurance Affiliates
In addition to the Bank, the Company also operates two Affiliates that offer trust, investment advisory and insurance products. These Affiliates operate in the same markets served by the Bank.
First Midwest Trust Company, N.A. (the "Trust Company") provides trust and investment management services to its clients, acting as executor, administrator, trustee, agent, and in various other fiduciary capacities. As of December 31, 2000, the Trust Company had approximately $2 billion in assets under management and in nondiscretionary custody accounts, comprised of accounts ranging from small personal investment portfolios to large corporate employee benefit plans.
First Midwest Insurance Company operates as a reinsurer of credit life, accident and health insurance sold through the Bank, primarily in conjunction with the consumer lending operations.
Competition
Illinois, and more specifically the metropolitan Chicago area, is a highly competitive market for banking and related financial services. Competition is generally expressed in terms of interest rates charged on loans and paid on deposits, the ability to garner new deposits, the scope and type of services offered, extended banking hours, delivery of bank services through branches, ATMs and the Internet, and the offering of additional services such as fiduciary and brokerage services. The Bank competes with other banking institutions and savings and loan associations, personal loan and finance companies, and credit unions within its market areas. In addition, the Bank competes for deposits with money market mutual funds and investment brokers. The Bank is experiencing increased competition in its market areas from the acquisition of local financial institutions by out-of-state commercial banking institutions.
The Trust Company competes with retail and discount stock brokers, investment advisors, mutual funds, insurance companies, and to a lesser extent, financial institutions. Factors influencing the type of competition experienced by the Trust Company generally involve the variety of products and services that can be offered to clients. With the proliferation of investment management service companies such as mutual funds and discount brokerage services over the last several years, competition for the Trust Company comes not only from financial service providers within market areas served but also competitors outside of the geographic areas in which the Trust Company maintains offices.
Offering a broad array of products and services at competitive prices is an important element in competing for customers. However, the Company believes that delivering quality services, through a systematic approach in which a customer's financial needs are the object and measurement of sales activities, is the most important aspect in retaining and expanding its customer base and differentiates First Midwest from many of its competitors.
Supervision and Regulation
The Company and its Affiliates are subject to regulation and supervision by various governmental regulatory authorities including, but not limited to, the Federal Reserve Board, the Office of the Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance Corporation (the "FDIC"), the Illinois Commissioner of Banks and Real Estate Companies (the "Commissioner of Illinois"), the Arizona Department of Insurance, the Internal Revenue Service and state taxing authorities. Financial institutions and their holding companies are extensively regulated under federal and state law. The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial institutions, such as the Company and the Affiliates, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. This supervision and regulation is intended primarily for the protection of the FDIC's bank (the "BIF") and savings association (the "SAIF") insurance funds and the depositors, rather than the stockholders of a financial institution.
The following references to material statutes and regulations affecting the Company and its Affiliates are brief summaries thereof and are qualified in their entirety by reference to such statutes and regulations. Any change in applicable law or regulations may have a material effect on the business of the Company and its Affiliates.
Illinois Banking Law
Illinois bank holding companies are permitted to acquire banks and bank holding companies, and be acquired by bank holding companies, located in any state which authorizes such acquisitions under qualifications and conditions which are not unduly restrictive, as determined by the Commissioner of Illinois, when compared to those imposed under Illinois law.
Under interstate banking legislation, adequately capitalized and managed bank holding companies are permitted to acquire control of a bank in any state. States, however, may prohibit acquisitions of banks that have not been in existence for at least five years. The Federal Reserve Board is prohibited from approving an application if the applicant controls more than 10 percent of the total amount of deposits of insured depository institutions nationwide. In addition, interstate acquisitions may also be subject to statewide concentration limits.
The Federal Reserve Board would be prohibited from approving an application if, prior to consummation, the applicant controls any insured depository institution or branch in the home state of the target bank, and the applicant, following consummation, would control 30 percent or more of the total amount of deposits of insured depository institutions in that state. This legislation also provides that the provisions on concentration limits do not affect the authority of any state to limit the percentage of the total amount of deposits in the state which would be held or controlled by any bank or bank holding company to the extent the application of this limitation does not discriminate against out-of-state institutions. States may also waive the statewide concentration limit. The legislation authorizes the Federal Reserve Board to approve an application without regard to the 30 percent statewide concentration limit, if the state allows a greater percentage of total deposits to be so controlled, or the acquisition is approved by the state bank regulator and the standard on which such approval is based does not have the effect of discriminating against out-of-state institutions.
Interstate branching under the Interstate Banking and Branching Act (the "Branching Act") permits banks to merge across state lines, thereby creating a bank headquartered in one state with branches in other states. Approval of interstate bank mergers is subject to certain conditions including: adequate capitalization; adequate management; Community Reinvestment Act compliance; deposit concentration limits (as set forth above); and compliance with federal and state antitrust laws. An interstate merger transaction may involve the acquisition of a branch without the acquisition of the bank only if the law of the state in which the branch is located permits out-of-state banks to acquire a branch of a bank in that state without acquiring the bank. Following the consummation of an interstate transaction, the resulting bank may establish additional branches at any location where any bank involved in the transaction could have established a branch under applicable federal or state law, if such bank had not been a party to the merger transaction.
Interstate branching is required to comply with host state community reinvestment, consumer protection, fair lending, and intrastate branching laws, as if the branch were chartered by the host state. An exception is provided for national bank branches if federal law preempts the state requirements or if the OCC determines that the state law has a discriminatory effect on out-of-state banks. All other laws of the host state apply to the branch to the same extent as if the branch were a bank, the main office being located in the host state.
The interstate branching by merger provisions became effective on June 1, 1997, and allowed each state, prior to the effective date, the opportunity to "opt out", thereby prohibiting interstate branching within that state. Of those states in which First Midwest's banking subsidiaries are located (Illinois and Iowa), neither has adopted legislation to "opt out" of the interstate branching provisions. Furthermore, pursuant to the Branching Act, a bank is now able to add new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching.
The effects on the Company of the changes in interstate banking and branching laws cannot be accurately predicted, but it is likely that there will be increased competition from national and regional banking firms headquartered outside of Illinois.
Bank Holding Company Act of 1956, As Amended
A bank holding company is subject to regulation under the Act and is registered with the Federal Reserve Board under that Act. A bank holding company is required by the Act to file an annual report of its operations and such additional information as the Federal Reserve Board may require and is subject, along with its subsidiaries, to examination by the Federal Reserve Board. The Federal Reserve Board has jurisdiction to regulate the terms of certain debt issues of bank holding companies including the authority to impose reserve requirements.
The Act currently prohibits a bank holding company, or any subsidiary thereof, other than a bank, from acquiring all or substantially all the assets of any bank located outside of Illinois or for a bank holding company or any subsidiary from acquiring five percent (5%) or more of the voting shares of any bank located outside of Illinois unless such acquisition is specifically authorized by the laws of the state in which the bank is located and the acquirer receives prior approval from the Federal Reserve Board. The acquisition of five percent (5%) or more of the voting shares of any bank located in Illinois requires the prior approval of the Federal Reserve Board and is subject to state law limitations.
The Act also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than five percent (5%) of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks, or furnishing services to banks and their subsidiaries, except that bank holding companies may engage in, and may own shares of, companies engaged in certain businesses found by the Federal Reserve Board to be "so closely related to banking...as to be a proper incident thereto." Under current regulations of the Federal Reserve Board, a bank holding company and its nonbank subsidiaries are permitted, among other activities, to engage in such banking-related business ventures as sales and consumer finance, equipment leasing, computer service bureau and software operations, mortgage banking and brokerage, and sale and leaseback and other forms of real estate banking. The Act does not place territorial restrictions on the activities of a bank holding company or its nonbank subsidiaries.
Federal law prohibits acquisition of "control" of a bank or bank holding company without prior notice to certain federal bank regulators. "Control" is defined in certain cases as the acquisition of as little as 10% of the outstanding shares. Furthermore, under certain circumstances, a bank holding company may not be able to purchase its own stock where the gross consideration will equal 10% or more of the company's net worth without obtaining approval of the Federal Reserve Board.
Graham-Leach-Bliley Act of 1999
The enactment of the Graham-Leach-Bliley Act of 1999 (the "GLB Act") represented a pivotal point in the history of the financial services industry. The GLB Act swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. To further this goal, the GLB Act amends section 4 of the Act providing a new regulatory framework for regulation through the financial holding company ("FHC"), which will have as its umbrella regulator the Federal Reserve Board. Functional regulation of the FHC's separately regulated subsidiaries will be conducted by their primary functional regulator. Pursuant to the GLB Act, bank holding companies, subsidiary depository institutions thereof and foreign banks electing to qualify as a FHC must be "well managed", "well capitalized" and at least rated satisfactory under the Community Reinvestment Act in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy for non-public personal information of individual customers. First Midwest and its Affiliates are also subject to certain state laws that deal with the use and distribution of non-public personal information.
The GLB Act is expected, in time, to alter the competitive landscape of the product markets presently served by the Company. Companies that are presently engaged primarily in insurance activities or securities activities will be permitted to acquire banks and bank holding companies, such as First Midwest. First Midwest may, in the future, face increased competition from a broader range of larger, more diversified financial companies.
Financial Institutions Reform, Recovery and Enforcement Act of 1989
The passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") resulted in significant changes in the enforcement powers of federal banking agencies, and more significantly, the manner in which the thrift industry is regulated. While FIRREA's primary purpose was to address public concern over the financial crises of the thrift industry through the imposition of strict reforms on that industry, FIRREA grants bank holding companies more expansive rights of entry into "the savings institution" market through the acquisition of both healthy and failed savings institutions. Under the provisions of FIRREA, a bank holding company can expand its geographic market or increase its concentration in an existing market by acquiring a savings institution, but it cannot expand its product market by acquiring a savings institution.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act" or "FDICIA") introduced a comprehensive and fundamentally changed approach to banking supervision, generally subjecting banking institutions to significantly increased regulation and supervision. Some of the provisions contained in the FDIC Improvement Act include the implementation of a risk-related premium system for FDIC-insured deposits, revisions in the process of supervision and examination for depository institutions, and federal deposit insurance reforms. The FDIC Improvement Act has had, and is expected to continue to have, a broad and significant impact on the structure and condition of the banking industry.
Capital Guidelines
The Federal Reserve Board, the OCC and the FDIC have established risk-based capital guidelines to provide a framework for assessing the adequacy of the capital of national and state banks and their bank holding companies (collectively "banking institutions"). These guidelines apply to all banking institutions regardless of size and are used in the examination and supervisory process as well as in the analysis of applications to be acted upon by the regulatory authorities. These guidelines require banking institutions to maintain capital based on the credit risk of their operations, both on and off-balance sheet.
The minimum capital ratios established by the guidelines are based on both tier 1 and total capital to total risk-based assets. Total risk-based assets are calculated by assigning each on-balance sheet asset and off-balance sheet item to one of four risk categories depending on the nature of each item. The amount of the items in each category is then multiplied by the risk-weight assigned to that category (0%, 20%, 50% or 100%). Total risk-based assets equals the sum of the resulting amounts. At December 31, 2000, banking institutions were required to maintain a minimum ratio of tier 1 capital to total risk-based assets of 4.0%, with "tier 1 capital" generally defined as stockholders' equity less certain intangible assets. In addition, banking institutions are required to maintain a minimum ratio of total capital to total risk-based assets of 8.0%, with at least 50% of the risk-based capital requirement to be met with tier 1 capital. Total capital is generally defined to include tier 1 capital plus limited levels of the reserve for loan losses.
In addition to the risk-based capital requirements, the Federal Reserve Board, the OCC and the FDIC require banking institutions to maintain a minimum leveraged-capital ratio to supplement the risk-based capital guidelines. The leverage ratio is intended to ensure that adequate capital is maintained against risks other than credit risk. The leverage standards required by the regulators establish a minimum required ratio of tier 1 capital to total assets for a banking institution based on the regulatory rating assigned to the institution at on-site examinations conducted by its primary regulator. For banking institutions receiving the highest rating available from its primary regulator, a minimum ratio of 3% is required, assuming that the institution is not experiencing, or anticipating to experience, significant growth. All other banking institutions will be expected to maintain a ratio of tier 1 capital to total assets of at least 4% to 5%, depending upon their particular circumstances and risk profiles, as determined by their primary regulator.
The Company exceeds the minimum required capital guidelines for both risk-based capital ratios and the leverage ratio at December 31, 2000. The Company's capital structure and capital ratios relative to the regulatory guidelines are further detailed in the "Capital Management and Dividends" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" located on page 24.
Dividends
In addition to capital guidelines, there are various national and state banking regulations which limit the ability of the Affiliates to pay dividends to the Company. Since the Company is a legal entity, separate and distinct from its Affiliates, its dividends to stockholders are not subject to such bank regulatory guidelines.
The Bank and the Trust Company are national banking associations and as such are limited in the amount of dividends that they can pay to the Company under Sections 56 and 60 of the National Bank Act. Section 56 restricts a national bank from paying dividends if it would impair the institution's capital by barring any payments in excess of net profits then on hand. Section 56 further requires that a bank deduct losses and bad debts from "net profits then on hand." It also specifies that a portion of a bank's capital surplus account may be included as "net profits then on hand," to the extent that it represents earnings from prior periods. Dividends on preferred stock are not subject to the limitations set forth in Section 56. Section 60 requires OCC approval if the total of all dividends declared on common stock in any calendar year will exceed the institution's net profits of that year combined with its retained net profits of the preceding two years, less any required transfers to surplus. In calculating its net profits under Section 60, a national bank may not add back provisions made to its reserve for loan losses nor deduct net charge-offs. Unlike Section 56, dividends on preferred stock are subject to the limitations set forth in Section 60. As of December 31, 2000, the Bank and Trust Company could distribute dividends of approximately $27.4 million without approval from the OCC.
The appropriate Federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.
FDIC Insurance Premiums
The Bank's deposits are predominantly insured through the BIF with certain deposits held by the Bank are insured through the SAIF, both of which are administered by the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC.
The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums on deposits based upon their level of capital and supervisory evaluation. For 2001, the Bank will pay premium assessments on both its BIF and SAIF insured deposits in order to service the interest on the Financing Corporation ("FICO") bond obligations which were used to finance the cost of "thrift bailouts" in the 1980's. The FICO assessment rates for the first semi-annual period of 2001 were set at $.0196 per $100 of insured deposits each for BIF and SAIF assessable deposits. These rates may be adjusted quarterly to reflect changes in assessment basis for the BIF and SAIF.
Monetary Policy and Economic Conditions
The earnings of the Company are affected by general economic conditions in addition to the policies of various governmental regulatory authorities. In particular, the actions and policies of the Federal Reserve Board exert a major influence on interest rates charged on loans and paid on deposits, credit conditions and the growth of loans and the price of assets such as securities. Some of the methods used by the Federal Reserve Board to promote orderly economic growth by influencing interest rates and the supply of money and credit include open market operations in U.S. Government securities, changes in the discount rate on member-bank borrowings, and changes in the reserve requirements charged against member-bank deposits.
In addition to the actions of the Federal Reserve Board, the Company's earnings are also affected by FDIC insurance premiums and the annual fees charged by the OCC, which is responsible for the supervision of national banks. The effect of the various measures used by the Federal Reserve Board and other regulatory authorities on the future business and earnings of the Company cannot be reasonably predicted.
Affiliate | Markets Served | Property Type/Location | Ownership | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
The Company | Administrative Office: Itasca, Illinois | Leased | |||||||||||
First Midwest Bank, National Association | Cook, Champaign, DuPage, Grundy, Knox, Lake, LaSalle, McHenry, Rock Island, Vermilion and Will Counties, Illinois; Scott County, Iowa | Administrative office: Itasca, Illinois Seventy-three banking offices located in markets served. | Leased Fifty-five owned/ Eighteen leased | ||||||||||
First Midwest Trust Company, N.A. | Same markets served by the Bank | Main office:Joliet, Illinois Additional Trust offices located in Danville, Lake Forest, McHenry, Moline, Morris, Tinley Park, Illinois; Davenport, Iowa. | Owned |
2000 | 1999 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth | Third | Second | First | Fourth | Third | Second | First | |||||||||||||||||
Market price of common stock | ||||||||||||||||||||||||
High | $ 29.25 | $ 27.25 | $ 25.31 | $ 26.44 | $ 30.13 | $ 27.92 | $ 27.67 | $ 26.50 | ||||||||||||||||
Low | $ 22.00 | $ 23.19 | $ 22.25 | $ 21.00 | $ 24.38 | $ 24.83 | $ 24.33 | $ 23.04 | ||||||||||||||||
Quarter-end | $ 28.75 | $ 26.63 | $ 23.25 | $ 24.25 | $ 26.50 | $ 25.46 | $ 26.50 | $ 25.33 | ||||||||||||||||
Cash dividends per share | $ 0.20 | $ 0.18 | $ 0.18 | $ 0.18 | $ 0.18 | $ 0.16 | $ 0.16 | $ 0.16 | ||||||||||||||||
Dividend yield at quarter- end(1) | 2.78 | % | 2.70 | % | 3.10 | % | 2.97 | % | 2.72 | % | 2.51 | % | 2.42 | % | 2.53 | % | ||||||||
Book value per share at Quarter-end | $ 10.93 | $ 10.21 | $ 9.63 | $ 9.34 | $ 8.98 | $ 9.10 | $ 9.57 | $ 10.14 | ||||||||||||||||
Number of shares traded | 5,025,038 | 5,592,177 | 4,009,992 | 6,303,656 | 5,210,606 | 4,141,575 | 5,352,570 | 4,829,280 |
(1) Ratios are presented on an annualized basis.
Years ended December 31, | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||||||||||||
Operating Results (Amounts in thousands) | |||||||||||||||||||||||||||||||
Interest income | $ 421,517 | $ 361,279 | $ 364,597 | $ 361,661 | $ 352,617 | ||||||||||||||||||||||||||
Interest expense | 231,906 | 168,615 | 177,016 | 168,518 | 168,975 | ||||||||||||||||||||||||||
Net interest income | 189,611 | 192,664 | 187,581 | 193,143 | 183,642 | ||||||||||||||||||||||||||
Provision for loan losses(1) | 9,094 | 5,760 | 5,542 | 9,365 | 8,189 | ||||||||||||||||||||||||||
Noninterest income | 63,198 | 58,334 | 55,462 | 47,372 | 42,554 | ||||||||||||||||||||||||||
Noninterest expense | 144,416 | 149,809 | 142,654 | 140,671 | 135,763 | ||||||||||||||||||||||||||
Special charge, net of (credits)(2) | — | — | 16,148 | 5,446 | 300 | ||||||||||||||||||||||||||
Income tax expense | 23,759 | 24,520 | 23,995 | 28,425 | 27,234 | ||||||||||||||||||||||||||
Net income(3) | $ 75,540 | $ 70,909 | $ 54,704 | $ 56,608 | $ 54,710 | ||||||||||||||||||||||||||
Per Share Data | |||||||||||||||||||||||||||||||
Basic earnings per share | $ 1.84 | $ 1.68 | $ 1.24 | $ 1.29 | $ 1.24 | ||||||||||||||||||||||||||
Diluted earnings per share(3) | 1.83 | 1.67 | 1.22 | 1.26 | 1.21 | ||||||||||||||||||||||||||
Cash dividends declared | 0.740 | 0.660 | 0.610 | 0.549 | 0.469 | ||||||||||||||||||||||||||
Book value at period end | 10.93 | 8.98 | 10.40 | 10.43 | 9.53 | ||||||||||||||||||||||||||
Market value at period end | 28.75 | 26.50 | 25.38 | 29.17 | 21.75 | ||||||||||||||||||||||||||
Performance Ratios | |||||||||||||||||||||||||||||||
Return on average equity(3) | 19.17 | % | 17.39 | % | 11.78 | % | 13.16 | % | 13.55 | % | |||||||||||||||||||||
Return on average assets(3) | 1.30 | % | 1.34 | % | 1.07 | % | 1.18 | % | 1.15 | % | |||||||||||||||||||||
Net interest margin—tax equivalent | 3.76 | % | 4.24 | % | 4.21 | % | 4.52 | % | 4.33 | % | |||||||||||||||||||||
Dividend payout ratio | 40.44 | % | 39.52 | % | 50.00 | % | 43.57 | % | 38.76 | % | |||||||||||||||||||||
Average equity to average asset ratio | 6.79 | % | 7.71 | % | 9.12 | % | 8.98 | % | 8.51 | % | |||||||||||||||||||||
Balance Sheet Highlights (Amounts in thousands) | As of December 31, | ||||||||||||||||||||||||||||||
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||||||||||||
Total assets | $5,906,484 | $5,511,588 | $5,192,887 | $4,933,495 | $4,804,020 | ||||||||||||||||||||||||||
Loans | 3,233,196 | 2,962,487 | 2,664,417 | 3,044,794 | 2,991,229 | ||||||||||||||||||||||||||
Deposits | 4,252,205 | 4,001,183 | 4,050,451 | 3,935,607 | 3,690,242 | ||||||||||||||||||||||||||
Stockholders’ equity | 446,723 | 369,261 | 452,898 | 459,719 | 418,130 | ||||||||||||||||||||||||||
(1) | 1998 and 1997 include $650 and $1,293, respectively, in provisions for loan losses incident to conforming the credit policies of an acquiree to those of First Midwest. | |||||||||||||||
(2) | Special charges in 1998 and 1997 include merger-related costs and expenses. 1996 includes a special assessment expense for SAIF of $1,640, net of merger credits of $1,340. | |||||||||||||||
(3) | Net income, diluted earnings per share, return on average equity and return on average assets on a pro- forma basis excluding the after-tax effect of the provisions for loan losses and special charges described in (1) and (2) above are as follows: |
Pro Forma Selected Financial Data | |||||||||||||||
Years ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||
Pro Forma (in thousands) | |||||||||||||||
Net income | $ 75,540 | $ 70,909 | $ 67,237 | $ 61,690 | $ 54,504 | ||||||||||
Diluted earnings per share | $ 1.83 | $ 1.67 | $ 1.50 | $ 1.38 | $ 1.21 | ||||||||||
Return on average equity | 19.17 | % | 17.39 | % | 14.48 | % | 14.34 | % | 13.50 | % | |||||
Return on average assets | 1.30 | % | 1.34 | % | 1.32 | % | 1.29 | % | 1.15 | % |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis is intended to address the significant factors affecting First Midwest's consolidated income statements for the years 1998 through 2000 and statements of condition as of December 31, 1999 and 2000. The discussion is designed to provide stockholders with a more comprehensive review of the operating results and financial condition than could be obtained from a review of the consolidated financial statements alone and should be read in conjunction with the consolidated financial statements, accompanying notes thereto and other financial information presented in this Form 10-K.
A condensed review of operations for the fourth quarter of 2000 is included beginning on page 34. The review provides an analysis of the quarterly earnings performance for the fourth quarter of 2000 as compared to the same period in 1999.
All dollar amounts are presented in thousands, except per share data. Unless otherwise stated, all earnings per share data included in this section and through the remainder of this discussion are presented on a diluted basis.
SUMMARY OF RESULTS FROM OPERATIONS
Net Income
Net income for 2000 totaled $75,540, or $1.83 per share, as compared to $70,909, or $1.67 per share, in 1999 and $54,704, or $1.22 per share, in 1998. In connection with the discontinuation of operations of its mortgage banking subsidiary (as described under Item 1 on page 3 of this Form 10-K), First Midwest recognized nonrecurring expenses totaling $1,702 ($1,021 after tax, or $.025 per diluted share), which consisted primarily of losses on asset dispositions and severance and related costs. Additionally, 1998 included special charges of $12,533, net of tax, incurred in connection with the Heritage Financial Services, Inc. merger consummated on July 1, 1998. Exclusive of these changes, pro forma net income before special items for 1998 totaled $67,237, or $1.50 per share.
Net income per share increased by 9.6% from 1999 to 2000 and followed an increase of 36.9% in 1999 from 1998. On a pro forma basis from operations, net income increased by 11.3% in 1999 from 1998. The improvement in 2000 from 1999 resulted primarily from increased noninterest income in fee based services and lower noninterest expense, while the increase in 1999 from 1998 resulted primarily from a similar increase in noninterest income and net interest income.
Performance Ratios
Return on average stockholders' equity for 2000 was 19.17% as compared to 17.39% in 1999 and 11.78% (14.48% on a pro forma basis) in 1998. Return on average assets for 2000 was 1.30% as compared to 1.34% in 1999 and 1.07% (1.32% on a pro forma basis) in 1998.
Credit Quality
Nonperforming loans totaled $19,849, or .61% of total loans at December 31, 2000, as compared to $20,278, or .68% of total loans at December 31, 1999. Foreclosed real estate increased 15.6% to $1,337 at December 31, 2000 as compared to $1,157 at December 31, 1999. Nonperforming assets totaled $21,186, or .65% of loans plus foreclosed real estate, at December 31, 2000 as compared to $21,435, or .72%, at the prior year-end.
Capital and Dividends
First Midwest continued to maintain a strong capital structure at December 31, 2000, with tier 1 and total capital to risk-based assets ratios of 10.51% and 11.61%, respectively. The capital levels of First Midwest are in excess of those designated as "well-capitalized" by the FDIC Improvement Act with such levels having been maintained consistently as of each quarter-end since inception of the capital ratios required by the FDIC Improvement Act beginning in 1989.
The Company's capital position and earnings have allowed it to increase its dividend in 2000, for the eighth straight year, to an indicated annual rate of $.80 per share, from $.72 in 1999 and $.64 in 1998. First Midwest repurchased 485 shares of its stock during 2000.
MANAGEMENT OF NET INTEREST MARGIN
Net Interest Income
Net interest income represents the difference between interest income and fees earned on loans, securities and other earning assets and interest expense paid for the funding sources used to finance these assets. Changes in net interest income generally occur due to fluctuations in the volume of earning assets and paying liabilities and the rates earned and paid, respectively, on these assets and liabilities. Net interest margin represents net interest income as a percentage of total interest earning assets. For purposes of this discussion, both net interest income and margin have been adjusted to a fully tax equivalent basis for certain tax-exempt loans and securities.
Net interest income on a tax equivalent basis decreased by 1.0%, or $2,064, in 2000 from 1999 after increasing by 4.2%, or $8,363, in 1999 as compared to 1998. The tax equivalent interest margin declined to 3.76% for 2000, as compared to 4.24% in 1999 and 4.21% in 1998.
The decrease in both net interest margin and net interest income in 2000 is due primarily to higher levels of wholesale funding that were necessary to support loan volume increases that were experienced across all loan categories. Additionally, due to a liability sensitive interest rate structure at the end of 1999, the general rise in market interest rates likewise increased the cost of funding at a rate faster than earning assets could reprice. As a result, net interest margin declined by 48 basis points in 2000 from 1999 levels. Importantly, however, the drop in net interest margin which began in the third quarter of 1999 decelerated with the fourth quarter of 2000 showing a 5 basis point decline from the third quarter, as contrasted to declines of 18, 12 and 10 basis points in the third, second and first quarters of 2000, respectively.
Table 1 summarizes First Midwest's average earning assets and funding sources over the last three years, as well as interest income and interest expense related to each category of assets and funding sources and the yields earned and rates paid on each. The table also shows the trend in net interest margin on a quarterly basis for 2000 and 1999, including the tax equivalent yields on earning assets and rates paid on interest bearing liabilities.
Table 1
Net Interest Income and Margin Analysis
2000 | 1999 | 1998 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance | Interest | Yield/ Rate (%) | Average Balance | Interest | Yield/ Rate (%) | Average Balance | Interest | Yield/ Rate (%) | |||||||||||||
Assets: | |||||||||||||||||||||
Interest bearing deposits with banks | $ 2,812 | $ 181 | 6.44 | $ 1,217 | $ 85 | 6.98 | $ 1,431 | $ 195 | 13.63 | ||||||||||||
Securities: | |||||||||||||||||||||
Available for sale—taxable | 1,720,841 | 114,779 | 6.67 | 1,522,684 | 97,061 | 6.37 | 1,307,950 | 78,986 | 6.04 | ||||||||||||
Available for sale—nontaxable(1) | 485,785 | 37,045 | 7.63 | 485,840 | 36,535 | 7.52 | 262,809 | 18,421 | 7.01 | ||||||||||||
Held to maturity—taxable | 22,631 | 1,620 | 7.16 | 27,141 | 1,418 | 5.22 | 27,291 | 1,451 | 5.32 | ||||||||||||
Held to maturity—nontaxable(1) | 21,478 | 1,810 | 8.43 | 25,369 | 2,012 | 7.93 | 87,933 | 10,231 | 11.63 | ||||||||||||
Total securities | 2,250,735 | 155,254 | 6.90 | 2,061,034 | 137,026 | 6.65 | 1,685,983 | 109,089 | 6.47 | ||||||||||||
Federal funds sold and securities purchased under agreements to resell | 14,376 | 930 | 6.47 | 16,901 | 847 | 5.01 | 48,314 | 2,649 | 5.48 | ||||||||||||
Mortgages held for sale | 5,016 | 413 | 8.23 | 41,700 | 3,034 | 7.28 | 43,950 | 3,377 | 7.68 | ||||||||||||
Loans, net of unearned discount(1)(2)(3) | 3,173,883 | 280,110 | 8.83 | 2,763,200 | 234,669 | 8.49 | 2,945,126 | 260,389 | 8.84 | ||||||||||||
Total interest earning assets(1)(2) | 5,446,822 | 436,888 | 8.02 | 4,884,052 | 375,661 | 7.69 | 4,724,804 | 375,699 | 7.95 | ||||||||||||
Cash and due from banks | 151,614 | 158,431 | 157,992 | ||||||||||||||||||
Reserve for loan losses | (43,784 | ) | (42,876 | ) | (45,715 | ) | |||||||||||||||
Other assets | 252,456 | 288,029 | 256,048 | ||||||||||||||||||
Total assets | $5,807,108 | $5,287,636 | $5,093,129 | ||||||||||||||||||
Liabilities and Stockholders Equity: | |||||||||||||||||||||
Savings deposits | $ 467,746 | 9,158 | 1.96 | $ 514,976 | 9,969 | 1.94 | $ 533,078 | 13,696 | 2.57 | ||||||||||||
NOW accounts | 474,108 | 9,367 | 1.98 | 453,383 | 8,234 | 1.82 | 430,272 | 9,798 | 2.28 | ||||||||||||
Money market deposits | 489,589 | 21,712 | 4.43 | 477,701 | 16,482 | 3.45 | 493,700 | 19,241 | 3.90 | ||||||||||||
Time deposits | 2,019,914 | 115,650 | 5.73 | 1,895,488 | 94,492 | 4.99 | 1,882,182 | 103,477 | 5.50 | ||||||||||||
Borrowed funds | 1,240,540 | 76,019 | 6.13 | 794,272 | 39,438 | 4.97 | 597,630 | 30,804 | 5.15 | ||||||||||||
Total Interest bearing Liabilities | 4,691,897 | 231,906 | 4.94 | 4,135,820 | 168,615 | 4.08 | 3,936,862 | 177,016 | 4.50 | ||||||||||||
Demand deposits | 664,683 | 677,298 | 642,201 | ||||||||||||||||||
Other liabilities | 56,447 | 66,708 | 49,584 | ||||||||||||||||||
Stockholders’ equity | 394,081 | 407,810 | 464,482 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $5,807,108 | $5,287,636 | $5,093,129 | ||||||||||||||||||
Net interest income/margin(1) | $204,982 | 3.76 | $207,046 | 4.24 | $198,683 | 4.21 | |||||||||||||||
2000 | 1999 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth | Third | Second | First | Fourth | Third | Second | First | |||||||||||||||||
Yield on interest earning assets | 8.12 | % | 8.13 | % | 7.97 | % | 7.86 | % | 7.76 | % | 7.69 | % | 7.68 | % | 7.69 | % | ||||||||
Rates paid on interest bearing liabilities | 5.26 | % | 5.16 | % | 4.79 | % | 4.54 | % | 4.31 | % | 4.09 | % | 3.88 | % | 4.01 | % | ||||||||
Net interest margin(1) | 3.61 | % | 3.66 | % | 3.84 | % | 3.96 | % | 4.06 | % | 4.21 | % | 4.42 | % | 4.23 | % |
(1) | Interest income and yields are presented on a tax equivalent basis, assuming a federal tax rate of 35%. | ||
(2) | Loans on a nonaccrual basis for the recognition of interest income totaling $19,849, $20,278, and $20,638, as of December 31, 2000, 1999 and 1998, respectively, and are included in loans, net of unearned discount, for purposes of this analysis. | ||
(3) | The amount of loan fees is not material to total interest and fees on loans in any of the years presented. | ||
Table 2 analyzes the changes in interest income, interest expense and net interest income that result from changes in volumes of earning assets and funding sources, as well as fluctuations in interest rates.
2000 as Compared to 1999 | Interest Income/Expense | Increase/(Decrease) due to: (1) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | Increase (Decrease) | Volume | Rate | Total | |||||||||||||||||
Interest bearing deposits with banks | $ | 181 | $ | 85 | $ | 96 | $ | 102 | $ | (6 | ) | $ | 96 | |||||||||
Securities: | ||||||||||||||||||||||
Available for sale—taxable | 114,779 | 97,061 | 17,718 | 13,063 | 4,655 | 17,718 | ||||||||||||||||
Available for sale—nontaxable(2) | 37,045 | 36,535 | 510 | (4 | ) | 514 | 510 | |||||||||||||||
Held to maturity—taxable | 1,620 | 1,418 | 202 | (165 | ) | 367 | 202 | |||||||||||||||
Held to maturity—nontaxable(2) | 1,810 | 2,012 | (202 | ) | (341 | ) | 139 | (202 | ) | |||||||||||||
Total securities | 155,254 | 137,026 | 18,228 | 12,553 | 5,675 | 18,228 | ||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 930 | 847 | 83 | (89 | ) | 172 | 83 | |||||||||||||||
Mortgages held for sale | 413 | 3,034 | (2,621 | ) | (3,082 | ) | 461 | (2,621 | ) | |||||||||||||
Loans, net of unearned discount(2) | 280,110 | 234,669 | 45,441 | 35,960 | 9,481 | 45,441 | ||||||||||||||||
Total interest income(2) | 436,888 | 375,661 | 61,227 | 45,444 | 15,783 | 61,227 | ||||||||||||||||
Savings deposits | 9,158 | 9,969 | (811 | ) | (927 | ) | 116 | (811 | ) | |||||||||||||
NOW accounts | 9,367 | 8,234 | 1,133 | 387 | 746 | 1,133 | ||||||||||||||||
Money market deposits | 21,712 | 16,482 | 5,230 | 419 | 4,811 | 5,230 | ||||||||||||||||
Time deposits | 115,650 | 94,492 | 21,158 | 6,485 | 14,673 | 21,158 | ||||||||||||||||
Borrowed funds | 76,019 | 39,438 | 36,581 | 25,821 | 10,760 | 36,581 | ||||||||||||||||
Total interest expense | 231,906 | 168,615 | 63,291 | 32,185 | 31,106 | 63,291 | ||||||||||||||||
Net interest income(2) | $ | 204,982 | $ | 207,046 | $ | (2,064 | ) | $ | 13,259 | $ | (15,323 | ) | $ | (2,064 | ) | |||||||
1999 as Compared to 1998 | Interest Income/Expense | Increase/(Decrease) due to: (1) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1999 | 1998 | Increase (Decrease) | Volume | Rate | Total | |||||||||||||||||
Interest bearing deposits with banks: | $ | 85 | $ | 195 | $ | (110 | ) | $ | (26 | ) | $ | (84 | ) | $ | (110 | ) | ||||||
Securities: | ||||||||||||||||||||||
Available for sale—taxable | 97,061 | 78,986 | 18,075 | 13,506 | 4,569 | 18,075 | ||||||||||||||||
Available for sale—nontaxable(2) | 36,535 | 18,421 | 18,114 | 16,682 | 1,432 | 18,114 | ||||||||||||||||
Held to maturity—taxable | 1,418 | 1,451 | (33 | ) | (8 | ) | (25 | ) | (33 | ) | ||||||||||||
Held to maturity—nontaxable(2) | 2,012 | 10,231 | (8,219 | ) | (5,678 | ) | (2,541 | ) | (8,219 | ) | ||||||||||||
Total securities | 137,026 | 109,089 | 27,937 | 24,502 | 3,435 | 27,937 | ||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 847 | 2,649 | (1,802 | ) | (1,591 | ) | (211 | ) | (1,802 | ) | ||||||||||||
Mortgages held for sale | 3,034 | 3,377 | (343 | ) | (169 | ) | (174 | ) | (343 | ) | ||||||||||||
Loans, net of unearned discount(2) | 234,669 | 260,389 | (25,720 | ) | (15,697 | ) | (10,023 | ) | (25,720 | ) | ||||||||||||
Total interest income(2) | 375,661 | 375,699 | (38 | ) | 7,019 | (7,057 | ) | (38 | ) | |||||||||||||
Savings deposits | 9,969 | 13,696 | (3,727 | ) | (451 | ) | (3,276 | ) | (3,727 | ) | ||||||||||||
NOW accounts | 8,234 | 9,798 | (1,564 | ) | 564 | (2,128 | ) | (1,564 | ) | |||||||||||||
Money market deposits | 16,482 | 19,241 | (2,759 | ) | (608 | ) | (2,151 | ) | (2,759 | ) | ||||||||||||
Time deposits | 94,492 | 103,477 | (8,985 | ) | 738 | (9,723 | ) | (8,985 | ) | |||||||||||||
Borrowed funds | 39,438 | 30,804 | 8,634 | 9,717 | (1,083 | ) | 8,634 | |||||||||||||||
Total interest expense | 168,615 | 177,016 | (8,401 | ) | 9,960 | (18,361 | ) | (8,401 | ) | |||||||||||||
Net interest income(2) | $ | 207,046 | $ | 198,683 | $ | 8,363 | $ | (2,941 | ) | $ | 11,304 | $ | 8,363 | |||||||||
(1) | For purposes of this table, changes which are not due solely to volume changes or rate changes are allocated to such categories on the basis of the percentage relationship of each to the sum of the two. |
(2) | Interest income is presented on a tax equivalent basis. |
1-31 Days | 31-90 Days | 91-180 Days | 181-365 Days | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Rate Sensitive Assets (RSA) | $1,631,442 | $ 195,352 | $ 195,909 | $ 381,044 | ||||||||
Rate Sensitive Liabilities (RSL) | $2,708,712 | $ 566,404 | $ 663,067 | $ 559,365 | ||||||||
Interest Sensitivity Gap (GAP) | ||||||||||||
(RSA less RSL): | ||||||||||||
Incremental | $(1,077,270 | ) | $ (371,052 | ) | $ (467,158 | ) | $ (178,321 | ) | ||||
Cumulative | $(1,077,270 | ) | $(1,448,322 | ) | $(1,915,480 | ) | $(2,093,801 | ) | ||||
Cumulative, excluding savings, money markets and NOW accounts | $ (209,407 | ) | $ (580,459 | ) | $(1,047,617 | ) | $(1,225,938 | ) | ||||
RSA/RSL (Ratio) | 60.2 | % | 34.5 | % | 29.5 | % | 68.1 | % | ||||
GAP/Total Assets (Cumulative) | (18.2 | )% | (24.5 | )% | (32.4 | )% | (35.4 | )% | ||||
GAP/Total Assets (Cumulative, excluding savings, money markets, and NOW accounts) | (3.5 | )% | (9.8 | )% | (17.7 | )% | (20.8 | )% | ||||
As a part of its approach to controlling the interest rate risk within its balance sheet, First Midwest has utilized interest rate swaps with third parties in order to limit variations in net interest income. The advantages of using interest rate swaps include the ability to maintain or increase liquidity, lower capital requirements as compared to cash instruments, enhance net interest margin and to customize interest rate swap agreements to meet desired risk parameters. Interest rate swap transactions involve exchanges of fixed and floating rate interest payments without the exchange of the underlying notional (i.e., principal) amount on which the interest payments are calculated. The net cash flow paid or received by First Midwest on these transactions is treated as an adjustment to interest income and expense on the underlying earning asset or funding source to which the swap relates. The primary risk associated with interest rate swap transactions is credit risk, defined as the ability of the swap counterparty to perform its interest payment obligation under the terms of the agreement. Credit risk on interest rate swap transactions consists of the aggregate net interest payable to First Midwest by the counterparty in addition to the aggregate unrealized gain on the swap position. First Midwest controls this credit risk by maintaining a policy limiting credit exposure to any one counterparty to not more than 2.5% of consolidated stockholders' equity. In addition, First Midwest's interest rate swap transactions generally require the establishment of a mutual mark-to-market arrangement whereby cash collateral may be required to be on deposit with First Midwest and/or the counterparty. First Midwest does not act as an intermediary in arranging interest rate swaps for customers.
As of December 31, 1999, First Midwest had total interest rate swaps with an aggregate notional amount of $357,900 in place, hedging various balance sheet categories. The specific terms of these interest rate swaps are discussed in Note 17 to "Notes to Consolidated Financial Statements" beginning on page 54. During the fourth quarter of 2000, First Midwest liquidated its entire interest rate swap position, which had a weighted average maturity of less than six months, as a result of market values having reached levels that First Midwest believed fully discounted further reductions in interest rates by the Federal Reserve over the short forward period. The interest rate swap liquidation resulted in the gain of approximately $1.95 million which will be amortized over the remaining lives of the liquidated interest rate swaps.
Funding and Liquidity Management
Liquidity management is the ability to provide funding sources at a minimum cost to meet fluctuating deposit, withdrawal and loan demand needs. First Midwest's liquidity policy establishes parameters as to how liquidity should be managed to maintain flexibility in responding to changes in liquidity needs over a 12-month forward period, including the requirement to formulate a quarterly liquidity compliance plan for review by the Board of Directors.
While asset liquidity provides funds through the maturity and sale of loans, securities, and other interest earning assets, another source of liquidity is liability liquidity, consisting primarily of interest bearing and noninterest bearing deposits as well as repurchase agreements. Other liability funding sources potentially include funds purchased facilities available through certain correspondent banks and funding through the discount window borrowing facilities of the Federal Reserve System.
2000 | % of Total | 1999 | % of Total | 1998 | % of Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Demand Deposits | $ 664,683 | 12.41 | $ 677,298 | 14.07 | $ 642,201 | 14.03 | ||||||
Savings Deposits | 467,746 | 8.73 | 514,976 | 10.70 | 533,078 | 11.64 | ||||||
NOW accounts | 474,108 | 8.85 | 453,383 | 9.42 | 430,272 | 9.40 | ||||||
Money market accounts | 489,589 | 9.14 | 477,701 | 9.92 | 493,700 | 10.78 | ||||||
Time deposits | 2,019,914 | 37.71 | 1,895,488 | 39.38 | 1,882,182 | 41.10 | ||||||
Core deposits | 4,116,040 | 76.84 | 4,018,846 | 83.50 | 3,981,433 | 86.95 | ||||||
Repurchase agreements | 1,006,133 | 18.78 | 605,527 | 12.58 | 451,620 | 9.86 | ||||||
Funds purchased and other borrowed funds | 234,407 | 4.38 | 188,745 | 3.92 | 146,010 | 3.19 | ||||||
Total funding sources | $5,356,580 | 100.00 | $4,813,118 | 100.00 | $4,579,063 | 100.00 | ||||||
As of December 31, 2000 | ||
---|---|---|
Maturing within 3 months | $334,816 | |
After 3 but within 6 months | 212,236 | |
After 6 but within 12 months | 126,789 | |
After 12 months | 56,834 | |
Total | $730,675 | |
2000 | 1999 | 1998 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount | Rate (%) | Amount | Rate (%) | Amount | Rate (%) | |||||||
At year end: | ||||||||||||
Securities sold under agreements to repurchase | $ 911,872 | 6.37 | $ 788,432 | 5.61 | $457,103 | 4.56 | ||||||
Federal funds purchased | 124,000 | 6.43 | 133,000 | 5.44 | 40,000 | 4.53 | ||||||
Federal Home Loan Bank advances | 110,000 | 6.90 | 150,000 | 5.46 | 100,000 | 5.14 | ||||||
Other borrowed funds | — | — | 6,300 | 6.96 | 26,796 | 5.56 | ||||||
Total borrowed funds | $1,145,872 | 6.43 | $1,077,732 | 5.58 | $623,899 | 4.70 | ||||||
Average for the year: | ||||||||||||
Securities sold under agreements to repurchase | $1,006,133 | 6.08 | $ 605,527 | 4.89 | $451,620 | 5.09 | ||||||
Federal funds purchased | 84,582 | 6.42 | 38,348 | 5.23 | 27,974 | 5.39 | ||||||
Federal Home Loan Bank advances | 149,426 | 6.30 | 142,603 | 5.15 | 108,384 | 5.28 | ||||||
Other borrowed funds | 399 | 6.77 | 7,794 | 5.93 | 9,652 | 6.19 | ||||||
Total borrowed funds | $1,240,540 | 6.13 | $ 794,272 | 4.97 | $597,630 | 5.15 | ||||||
Maximum month-end balance: | ||||||||||||
Securities sold under agreements to repurchase | $1,162,484 | $ 844,534 | $555,778 | |||||||||
Federal funds purchased | 170,000 | 133,000 | 92,000 | |||||||||
Federal Home Loan Bank advances | 180,000 | 170,000 | 160,000 | |||||||||
Other borrowed funds | 5,000 | 16,801 | 29,906 |
% Change | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 2000-1999 | 1999-1998 | ||||||||
Service charges on deposit accounts | $21,341 | $18,720 | $17,100 | 14.0 | % | 9.5 | % | |||||
Trust and investment management fees | 10,671 | 10,135 | 9,134 | 5.3 | 11.0 | |||||||
Other service charges, commissions and fees | 16,282 | 11,825 | 10,197 | 37.7 | 16.0 | |||||||
Mortgage banking revenues | 395 | 5,646 | 8,535 | (93.0 | ) | (33.8 | ) | |||||
Corporate owned life insurance | 6,517 | 5,209 | 3,135 | 25.1 | 66.2 | |||||||
Other income | 6,754 | 6,702 | 5,704 | 0.8 | 17.5 | |||||||
Total noninterest income | $61,960 | $58,237 | $53,805 | 6.4 | % | 8.2 | % | |||||
(1) | For a discussion of Security Gains, refer to the “Investment Management” section located on page 26. |
2000 | 1999 | 1998 | ||||
---|---|---|---|---|---|---|
Residential real estate mortgage loans: | ||||||
Originated | $103,907 | $445,178 | $522,081 | |||
Sold to third parties | $110,684 | $404,687 | $470,284 | |||
2000 | 1999 | 1998 | ||||
---|---|---|---|---|---|---|
Residential real estate mortgage loans: | ||||||
Serviced for third parties | $— | $1,543,094 | $1,474,206 | |||
Serviced for First Midwest’s Portfolio | — | 264,019 | 276,134 | |||
Total loans serviced | $— | $1,807,113 | $1,750,340 | |||
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Loan production income | $113 | $2,705 | $3,276 | ||||||
Servicing fee income | 919 | 4,603 | 4,084 | ||||||
Less: Amortization of mortgage servicing rights | (255 | ) | (3,748 | ) | (4,047 | ) | |||
(Losses) gains on sales of mortgage loans | (160 | ) | 2,086 | 5,222 | |||||
(Losses) on sales of mortgage servicing rights | (222 | ) | — | — | |||||
Total mortgage banking revenues | $395 | $5,646 | $8,535 | ||||||
% Change | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 2000-1999 | 1999-1998 | |||||||||||
Compensation expense | $ 75,707 | $ 79,015 | $ 77,294 | (4.2 | ) | 2.2 | |||||||||
Occupancy expense | 13,635 | 13,366 | 12,039 | 2.0 | 11.0 | ||||||||||
Equipment expense | 7,900 | 8,479 | 8,354 | (6.8 | ) | 1.5 | |||||||||
Technology and related costs | 10,894 | 10,113 | 9,846 | 7.7 | 2.7 | ||||||||||
Professional services | 7,671 | 8,527 | 7,849 | (10.0 | ) | 8.6 | |||||||||
Advertising and promotions | 3,859 | 3,822 | 4,576 | 1.0 | (16.5 | ) | |||||||||
Other expenses | 24,750 | 26,487 | 22,696 | (6.6 | ) | 16.7 | |||||||||
Subtotal | 144,416 | 149,809 | 142,654 | (3.6 | ) | 5.0 | |||||||||
Special items: | |||||||||||||||
Merger expense | — | — | 16,148 | N/M | N/M | ||||||||||
Total noninterest expense | $144,416 | $149,809 | $158,802 | (3.6 | ) | (5.7 | ) | ||||||||
Efficiency ratio(1) | 53.1 | % | 55.7 | % | 56.1 | % | |||||||||
(1) | Excludes special charges in 1998. |
% Change | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 2000-1999 | 1999-1998 | ||||||||
Salaries and wages | $59,528 | $63,697 | $61,872 | (6.5 | ) | 2.9 | ||||||
Retirement and other employee benefits | 14,702 | 13,587 | 14,026 | 8.2 | (3.1 | ) | ||||||
Temporary personnel expense | 1,477 | 1,731 | 1,396 | (14.7 | ) | 24.0 | ||||||
Total compensation expense | $75,707 | $79,015 | $77,294 | (4.2 | ) | 2.2 | ||||||
Average full-time equivalent (FTE) employees | 1,583 | 1,709 | 1,746 | (7.4 | ) | (2.1 | ) | |||||
severance-related retirement benefits to the terminated mortgage banking staff. The $439 decrease in 1999 is due to a combination of merger-related efficiencies from staff reductions from the Heritage acquisitions and a restructuring of retirement benefits which had been found to be in excess of market levels. First Midwest continues to maintain staffing efficiency by utilizing temporary personnel to staff short-term projects and saw temporary personnel expense return to more normalized levels in 2000 as compared to 1999. The 24% increase in 1999 over 1998 was related to the contracting of temporary personnel to assist in post-merger integration activities from the Heritage acquisition. A discussion of First Midwest's retirement benefits and the expenses related thereto is included in Note 12 to "Notes to Consolidated Financial Statements" located on page 49.
Occupancy expense increased by 2% in 2000 over 1999 following a 11.0% increase in 1999 over 1998. The 2% increase in 2000 reflects the efficiencies realized from the utilization of an outsourced facilities management program and the elimination of costs associated with the operation of three overlapping branches from the Heritage acquisition that were closed in the fourth quarter of 1999. The 1999 increase is primarily attributable to the implementation of the program to outsource facilities management, which saw costs increase in the short term because First Midwest maintained its then-current maintenance staff through completion of the program. This program resulted in increased occupancy costs through payments to a third party vendor but also reduced permanent FTE levels.
Equipment expense decreased by 6.8% in 2000 following a modest increase of 1.5% in 1999. Lower depreciation on equipment sold or disposed of due to the discontinuation of FMMC operations led the 2000 reduction.
Technology and related costs increased by 7.7% in 2000 over 1999 and followed a 2.7% increase in 1999 over 1998. Increased use of technology to enhance delivery systems, customer service and product offerings, as well as higher activity volumes primarily accounts for the 2000 increase. Increased costs were also attributable to contract termination fees and conversion of data records with the sale of the mortgage loan servicing portfolio in connection with the winding down of FMMC operations. 1999 reflects a slower rate of increase due to post-merger savings from the Heritage acquisition.
Professional services decreased 10% in 2000 following an 8.6% increase in 1999. The decrease in 2000 is primarily due to loan related expenses which were influenced by two factors: (i) the reduction of certain costs experienced in the prior year relating to a home equity promotion, and (ii) a reduction in professional services incident to FMMC's lending and recordkeeping operations. The increase in professional services during 1999 was largely due to loan-related costs associated with a 1999 home equity loan promotion, in addition to consultancy fees applicable to outsourcing participant recordkeeping services by the Trust Company.
Advertising and promotions expense increased by 1.0% in 2000 following a decrease of 16.5% in 1999. The increase in 2000 reflects First Midwest's tightened expense controls over this area. The 1999 decrease saw a return to more normalized levels as 1998 expense levels included the introduction of a new multi-media advertising campaign in metropolitan Chicago and higher advertising costs related to the Heritage merger in order to maximize customer retention.
Other expenses decreased 6.6% in 2000 as compared to 1999 after increasing 16.7% in 1999 as compared to 1998. Other expenses include various categories such as freight and courier costs, merchant credit card expense, supplies and printing, and miscellaneous losses and expenses. The decrease in 2000 resulted from the general emphasis on cost control implemented during the year which saw reductions of $431 in freight and courier costs, $289 in supplies and printing, $236 in postage with the balance of the decrease being spread amongst various expense categories. The increase in 1999 is attributable to higher freight and courier costs resulting from additional courier routes amongst the branches and operation centers, higher merchant credit card expense as well as costs applicable to review of certain branch operations that resulted in the closing of redundant Heritage branches previously discussed. Additionally, 1998 included certain expense reimbursements and cost recoveries from vendors credited to this category that were not duplicated in 1999.
Merger expenses related to the Heritage merger were recorded in 1998, and included customary investment banking and professional fees and anticipated severance and related benefits due to staff reductions.
INCOME TAXES
First Midwest annually develops an income tax plan which focuses on the maximization of long term, after-tax profitability on a consolidated basis. First Midwest's provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes and the effective income tax rates for the periods 1998 through 2000 are detailed in Table 13.
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Income before income tax expense | $99,299 | $95,429 | $78,699 | ||||||
Income tax expense | $23,759 | $24,520 | $23,995 | ||||||
Effective income tax rate | 23.9 | % | 25.7 | % | 30.5 | % | |||
First Midwest Actual | For Capital Adequacy Purposes | Well Capitalized for FDICIA | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Capital | Ratio | Capital | Ratio | Capital | Ratio | |||||||||||
As of December 31, 2000: | ||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||
First Midwest Bancorp, Inc | $478,703 | 11.61 | % | $329,908 | 8.00 | % | $412,385 | 10.00 | % | |||||||
First Midwest Bank, N.A | 436,088 | 10.67 | 326,952 | 8.00 | 408,690 | 10.00 | ||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||
First Midwest Bancorp, Inc | 433,610 | 10.51 | 164,954 | 4.00 | 247,431 | 6.00 | ||||||||||
First Midwest Bank, N.A | 390,995 | 9.57 | 163,476 | 4.00 | 245,214 | 6.00 | ||||||||||
Tier 1 leverage (to average assets): | ||||||||||||||||
First Midwest Bancorp, Inc | 433,610 | 7.36 | 176,773 | 3.00 | 294,621 | 5.00 | ||||||||||
First Midwest Bank, N.A. | 390,995 | 6.67 | 175,891 | 3.00 | 293,152 | 5.00 | ||||||||||
As of December 31, 1999: | ||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||
First Midwest Bancorp, Inc. | $437,951 | 11.32 | % | $309,604 | 8.00 | % | $387,005 | 10.00 | % | |||||||
First Midwest Bank, N.A. | 392,071 | 10.26 | 305,053 | 8.00 | 381,316 | 10.00 | ||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||
First Midwest Bancorp, Inc. | 395,306 | 10.21 | 154,802 | 4.00 | 232,203 | 6.00 | ||||||||||
First Midwest Bank, N.A. | 349,426 | 9.16 | 152,526 | 4.00 | 228,790 | 6.00 | ||||||||||
Tier 1 leverage (to average assets): | ||||||||||||||||
First Midwest Bancorp, Inc. | 395,306 | 7.19 | 164,876 | 3.00 | 274,793 | 5.00 | ||||||||||
First Midwest Bank, N.A. | 349,426 | 6.45 | 162,502 | 3.00 | 270,836 | 5.00 | ||||||||||
Date | Quarterly Rate Per Share | % Increase | |||
---|---|---|---|---|---|
November 2000 | $0.200 | 11 | % | ||
November 1999 | 0.180 | 13 | % | ||
November 1998 | 0.160 | 7 | % | ||
November 1997 | 0.150 | 13 | % | ||
November 1996 | 0.133 | 18 | % | ||
February 1996 | 0.113 | 13 | % | ||
February 1995 | 0.100 | 15 | % | ||
February 1994 | 0.087 | 13 | % |
2000 | 1999 | |||
---|---|---|---|---|
Shares repurchased | 465 | 2,339 | ||
Cost | $11,691 | $61,369 |
December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | ||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | |||||||
By Type: | ||||||||||||
U.S. Treasury | $ 2,425 | 0.1 | $ 3,252 | 0.2 | $ 20,627 | 1.0 | ||||||
U.S. Agency | 422,764 | 19.1 | 637,319 | 30.7 | 284,262 | 14.0 | ||||||
Mortgage-backed | 1,166,524 | 52.7 | 904,522 | 43.5 | 1,258,336 | 62.0 | ||||||
State and Municipal | 538,911 | 24.3 | 478,886 | 23.1 | 434,944 | 21.4 | ||||||
Other | 84,321 | 3.8 | 52,811 | 2.5 | 29,910 | 1.6 | ||||||
Total | $2,214,945 | 100.0 | $2,076,790 | 100.0 | $2,028,079 | 100.0 | ||||||
By Classification: | ||||||||||||
Available for sale | $2,130,148 | 96.2 | $2,033,247 | 97.9 | $1,979,115 | 97.6 | ||||||
Held to maturity | 84,797 | 3.8 | 43,543 | 2.1 | 48,964 | 2.4 | ||||||
Total | $2,214,945 | 100.0 | $2,076,790 | 100.0 | $2,028,079 | 100.0 | ||||||
December 31, 2000 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
U.S. Treasury | U.S. Agency | Mortgage— Backed | State and Municipal(1) | Other | Total | |||||||
One year or less: | ||||||||||||
Market Value | $402 | $154,167 | $ 69,094 | $ 4,414 | $ 7,623 | $ 235,700 | ||||||
Amortized Cost | 401 | 154,287 | 69,541 | 4,431 | 7,623 | 236,283 | ||||||
Yield (%) | 5.97 | 6.38 | 7.50 | 5.54 | 3.20 | 6.59 | ||||||
One year to five years: | ||||||||||||
Market Value | 202 | 100,477 | 351,978 | 15,244 | — | 467,901 | ||||||
Amortized Cost | 201 | 100,593 | 355,207 | 20,415 | — | 476,416 | ||||||
Yield (%) | 5.66 | 5.97 | 6.98 | 4.90 | — | 6.68 | ||||||
Five years to ten years: | ||||||||||||
Market Value | — | 168,045 | 259,980 | 102,681 | 24,077 | 554,783 | ||||||
Amortized Cost | — | 168,331 | 261,684 | 161,097 | 27,325 | 618,437 | ||||||
Yield (%) | — | 7.63 | 6.94 | 4.79 | 7.19 | 6.58 | ||||||
After ten years:: | ||||||||||||
Market Value | — | — | 485,472 | 356,180 | 30,112 | 871,764 | ||||||
Amortized Cost | — | — | 485,755 | 294,787 | 30,010 | 810,552 | ||||||
Yield (%) | — | — | 7.54 | 4.92 | 6.02 | 6.53 | ||||||
Total: | ||||||||||||
Market Value | $604 | $422,689 | $1,166,524 | $478,519 | $61,812 | $2,130,148 | ||||||
Amortized Cost | $602 | $423,211 | $1,172,187 | $480,730 | $64,958 | $2,141,688 | ||||||
Yield (%) | 5.87 | 6.78 | 7.23 | 4.88 | 6.18 | 6.58 | ||||||
(1) | Yields on state and municipal securities are reflected on a tax equivalent basis, assuming a federal tax rate of 35%. |
December 31, 2000 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
U.S. Treasury | U.S. Agency | State and Municipal(1) | Other | Total | Market Value as a % of Amortized Cost | |||||||
One year or less: | ||||||||||||
Market Value | $ 926 | $74 | $ 4,849 | $ 24 | $ 5,873 | 100.14 | ||||||
Amortized Cost | 923 | 75 | 4,843 | 24 | 5,865 | |||||||
Yield (%) | 5.74 | 4.97 | 5.39 | 4.17 | 5.43 | |||||||
One year to five years: | ||||||||||||
Market Value | 912 | — | 11,585 | — | 12,497 | 103.84 | ||||||
Amortized Cost | 898 | — | 11,137 | — | 12,035 | |||||||
Yield (%) | 5.89 | — | 6.21 | — | 6.19 | |||||||
Five years to ten years: | ||||||||||||
Market Value | — | — | 27,318 | — | 27,318 | 100.38 | ||||||
Amortized Cost | — | — | 27,215 | — | 27,215 | |||||||
Yield (%) | — | — | 6.67 | — | 6.67 | |||||||
After ten years:: | ||||||||||||
Market Value | — | — | 17,344 | 22,485 | 39,829 | 100.37 | ||||||
Amortized Cost | — | — | 17,197 | 22,485 | 39,682 | |||||||
Yield (%) | — | — | 6.21 | 7.19 | 6.77 | |||||||
Total: | ||||||||||||
Market Value | $1,838 | $74 | $61,096 | $22,509 | $85,517 | 100.85 | ||||||
Amortized Cost | $1,821 | $75 | $60,392 | $22,509 | $84,797 | |||||||
Yield (%) | 5.81 | 4.97 | 6.35 | 7.19 | 6.56 | |||||||
(1) | Yields on state and municipal securities are reflected on a tax equivalent basis, assuming a federal tax rate of 35%. |
Portfolio Composition |
As of December 31, | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | % of Total | 1999 | % of Total | 1998 | % of Total | 1997 | % of Total | 1996 | % of Total | |||||||||||||||||||||
Commercial and industrial | $ 788,443 | 24.4 | % | $ 714,305 | 24.1 | % | $ 721,599 | 27.1 | % | $ 723,425 | 23.8 | % | $ 721,989 | 24.1 | % | |||||||||||||||
Agricultural | 67,736 | 2.1 | % | 56,852 | 1.9 | % | 49,397 | 1.9 | % | 39,014 | 1.3 | % | 48,461 | 1.6 | % | |||||||||||||||
Consumer | 924,189 | 28.6 | % | 847,997 | 28.6 | % | 688,774 | 25.8 | % | 754,727 | 24.8 | % | 765,256 | 25.6 | % | |||||||||||||||
Real estate—1-4 family | 250,635 | 7.7 | % | 253,268 | 8.6 | % | 257,307 | 9.7 | % | 506,077 | 16.6 | % | 537,785 | 18.0 | % | |||||||||||||||
Real estate—commercial | 900,781 | 27.9 | % | 834,852 | 28.2 | % | 769,514 | 28.8 | % | 858,627 | 28.2 | % | 755,584 | 25.3 | % | |||||||||||||||
Real estate—construction | 272,647 | 8.4 | % | 189,018 | 6.4 | % | 148,469 | 5.6 | % | 129,290 | 4.2 | % | 136,019 | 4.5 | % | |||||||||||||||
Other | 28,765 | 0.9 | % | 66,195 | 2.2 | % | 29,357 | 1.1 | % | 33,634 | 1.1 | % | 26,135 | 0.9 | % | |||||||||||||||
Total | $3,233,196 | 100.0 | % | $2,962,487 | 100.0 | % | $2,664,417 | 100.0 | % | $3,044,794 | 100.0 | % | $2 ,991,229 | 100.0 | % | |||||||||||||||
Growth vs. Prior Year | 9.1 | % | 11.2 | % | (12.5 | %) | 1.8 | % | 2.0 | % | ||||||||||||||||||||
Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | |||||
---|---|---|---|---|---|---|---|---|
Commercial, industrial, and agricultural | $535,160 | $ 295,895 | $ 25,124 | $ 856,179 | ||||
Real estate—commercial | 181,198 | 613,220 | 106,363 | 900,781 | ||||
Real estate—construction | 179,835 | 92,812 | — | 272,647 | ||||
Total | $896,193 | $1,001,927 | $131,487 | $2,029,607 | ||||
Fixed Rate | Floating Rate | |||
---|---|---|---|---|
Commercial, industrial, and agricultural | $257,246 | 63,773 | ||
Real estate—commercial | 589,361 | 130,222 | ||
Real estate—construction | 29,484 | 63,328 | ||
Total | $876,091 | $257,323 | ||
First Midwest maintains a reserve for loan losses to absorb inherent losses in the loan portfolio. The appropriate level of the reserve for loan losses is determined by systematically performing a review of the loan portfolio quality as required by the credit administration policy and procedures described above. The reserve for loan losses consists of three elements; (i) specific reserves established for any impaired commercial, real commercial and real estate construction loan for which the recorded investment in the loan exceeds the measured value of the loan; (ii) reserves based on historical loan loss experience; and, (iii) reserves based on general economic conditions as well as specific economic factors in the markets in which First Midwest operates.
Loans within the portfolio that are selected for review to determine whether specific reserves are required include both loans over a specified dollar limit as well as loans where the internal credit rating is below a predetermined classification. Loans subject to this review process generally include commercial and agricultural loans, real estate commercial and real estate construction loans. Specific reserves for these loans are determined in accordance with the provisions of Financial Accounting Standards Board Statements 114 and 118, "Accounting by Creditors for Impairment of a Loan." Consumer and other retail loan reserve allocations are based upon the evaluation of pools or groups of such loans. The portion of the reserve based on historical loan loss experience is determined statistically using a loss migration analysis that examines loss experience and the related internal rating of loans charged off. The loss migration analysis is performed quarterly and loss factors are periodically updated based on actual experience. The portion of the reserve based on general economic conditions and other factors is considered the unallocated portion of the reserve. This portion is determined based upon general economic conditions and involves a higher degree of subjectivity in its determination. This segment of the reserve considers risk factors that may not have not manifested themselves in First Midwest's historical loss experience which is used to determine the allocated component of the reserve.
Table 22 shows the allocation of the reserve for loan losses by loan category as well as charge-off and recovery information for the last 5 years. In 1998, First Midwest refined its allocation methodology to more closely align the projected losses in each category of the loan portfolio with the specific reserve migration analysis and historical loan loss experience methodology discussed above. Accordingly, First Midwest has allocated a larger portion of its reserve for loan losses in 1998 through 2000 than in prior years. Information regarding the methodology underlying specific reserves applicable to impaired loans is included in Note 1 under "Reserve for Loan Losses" and Note 4 of the "Notes to the Consolidated Financial Statements" (on pages 40 and 45, respectively, of this Form 10-K).
The provision for loan losses charged to operating expense in any given year is dependent on factors including loan growth and changes in the composition of the loan portfolio, net charge-off levels and Management's assessment of the reserve for loan losses based upon the credit administration policies and procedures discussed above. In 2000, total loans charged off, net of recoveries, were $6,646, or .21%, of average loans which was lower as a percent of average loans than both 1999's level of $6,405, or .23%, and 1998's level of $9,217, or .31%. At this level, net charge-offs as a percent of average loans were the lowest since 1997 and the second lowest in First Midwest's history. The provision for loan losses increased in 2000 and totaled $9,094 as compared to $5,760 in 1999 and $5,542 in 1998. The 2000 provision for loan losses exceeded the year's net charge-offs resulting in a ratio of reserve for loan losses to total loans at year-end 2000 of 1.39%, consistent with levels maintained throughout the year and appropriate to the loan growth experienced in 2000.
Years ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||
Change in reserve for loan losses: | |||||||||||||||||||||
Balance at beginning of year | $ | 42,645 | $ | 43,290 | $ | 6,965 | $ | 41,609 | $ | 39,729 | |||||||||||
Loans charged-off | (9,149 | ) | (9,141 | ) | (12,955 | ) | (12,060 | ) | (10,576 | ) | |||||||||||
Recoveries on loans previously charged-off | 2,503 | 2,736 | 3,738 | 8,051 | 3,088 | ||||||||||||||||
Net loans charged-off | (6,646 | ) | (6,405 | ) | (9,217 | ) | (4,009 | ) | (7,488 | ) | |||||||||||
Provisions charged to operating expense | 9,094 | 5,760 | 5,542 | 9,365 | 8,189 | ||||||||||||||||
Reserve of acquired bank | — | — | — | — | 1,179 | ||||||||||||||||
Balance at end of year | $ | 45,093 | $ | 42,645 | $ | 43,290 | $ | 46,965 | $ | 41,609 | |||||||||||
Allocation of reserve for loan losses by loan category: | |||||||||||||||||||||
Commercial and industrial | $ | 8,451 | $ | 7,683 | $ | 6,214 | $ | 4,409 | $ | 4,671 | |||||||||||
Agricultural | 2,338 | 2,351 | 2,634 | 113 | 115 | ||||||||||||||||
Consumer | 10,238 | 8,542 | 8,407 | 6,057 | 4,347 | ||||||||||||||||
Real estate—1—4 family | 1,204 | 1,151 | 1,205 | 2,859 | 3,257 | ||||||||||||||||
Real estate—commercial | 4,957 | 5,332 | 3,130 | 3,640 | 3,155 | ||||||||||||||||
Real estate—construction | 1,472 | 841 | 1,004 | 218 | 290 | ||||||||||||||||
Other | 1,742 | 950 | 686 | 309 | 300 | ||||||||||||||||
Unallocated | 14,691 | 15,795 | 20,010 | 29,360 | 25,474 | ||||||||||||||||
Total | $ | 45,093 | $ | 42,645 | $ | 43,290 | $ | 46,965 | $ | 41,609 | |||||||||||
Reserve as a percent of loans at year-end | 1.39 | % | 1.44 | % | 1.62 | % | 1.54 | % | 1.39 | % | |||||||||||
Loans charged-off: | |||||||||||||||||||||
Commercial and industrial | $ | (1,632 | ) | $ | (1,552 | ) | $ | (4,551 | ) | $ | (2,454 | ) | $ | (3,033 | ) | ||||||
Agricultural | — | (54 | ) | (35 | ) | (5 | ) | (1 | ) | ||||||||||||
Consumer | (6,253 | ) | (6,358 | ) | (7,458 | ) | (8,437 | ) | (6,197 | ) | |||||||||||
Real estate—1—4 family | (177 | ) | (69 | ) | (56 | ) | (169 | ) | (167 | ) | |||||||||||
Real estate—commercial | (159 | ) | (513 | ) | (215 | ) | (710 | ) | (732 | ) | |||||||||||
Real estate—construction | — | — | (12 | ) | (52 | ) | — | ||||||||||||||
Other | (928 | ) | (595 | ) | (628 | ) | (233 | ) | (446 | ) | |||||||||||
Total | $ | (9,149 | ) | $ | (9,141 | ) | $ | (12,955 | ) | $ | (12,060 | ) | $ | (10,576 | ) | ||||||
Recoveries on loans previously charged-off: | |||||||||||||||||||||
Commercial and industrial | $ | 391 | $ | 477 | $ | 945 | $ | 4,733 | $ | 799 | |||||||||||
Agricultural | — | 14 | — | — | — | ||||||||||||||||
Consumer | 1,957 | 2,137 | 2,625 | 3,049 | 2,033 | ||||||||||||||||
Real estate—1—4 family | — | 1 | — | 28 | 52 | ||||||||||||||||
Real estate—commercial | 15 | 16 | 150 | 220 | 157 | ||||||||||||||||
Real estate—construction | — | — | — | — | — | ||||||||||||||||
Other | 140 | 91 | 18 | 21 | 47 | ||||||||||||||||
Total | $ | 2,503 | $ | 2,736 | $ | 3,738 | $ | 8,051 | $ | 3,088 | |||||||||||
Net loans charged-off: | |||||||||||||||||||||
Commercial and industrial | $ | (1,241 | ) | $ | (1,075 | ) | $ | (3,606 | ) | $ | 2,279 | $ | (2,234 | ) | |||||||
Agricultural | — | (40 | ) | (35 | ) | (5 | ) | (1 | ) | ||||||||||||
Consumer | (4,296 | ) | (4,221 | ) | (4,833 | ) | (5,388 | ) | (4,164 | ) | |||||||||||
Real estate—1—4 family | (177 | ) | (68 | ) | (56 | ) | (141 | ) | (115 | ) | |||||||||||
Real estate—commercial | (144 | ) | (497 | ) | (65 | ) | (490 | ) | (575 | ) | |||||||||||
Real estate—construction | — | — | (12 | ) | (52 | ) | — | ||||||||||||||
Other | (788 | ) | (504 | ) | (610 | ) | (212 | ) | (399 | ) | |||||||||||
Total | $ | (6,646 | ) | $ | (6,405 | ) | $ | (9,217 | ) | $ | (4,009 | ) | $ | (7,488 | ) | ||||||
Ratio of net loans charged-off to average loans outstanding for the period | 0.21 | % | 0.23 | % | 0.31 | % | 0.13 | % | 0.26 | % | |||||||||||
Years ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||
Nonaccrual loans | $19,849 | $20,278 | $20,638 | $11,699 | $16,974 | ||||||||||
Restructured loans | — | — | — | 139 | — | ||||||||||
Total nonperforming loans | 19,849 | 20,278 | 20,638 | 11,838 | 16,974 | ||||||||||
Foreclosed real estate | 1,337 | 1,157 | 1,015 | 5,119 | 6,589 | ||||||||||
Total nonperforming assets | $21,186 | $21,435 | $21,653 | $16,957 | $23,563 | ||||||||||
90 days past due loans | $ 7,045 | $ 5,286 | $ 5,342 | $ 5,736 | $ 5,498 | ||||||||||
Nonperforming loans to total loans | 0.61 | % | 0.68 | % | 0.77 | % | 0.39 | % | 0.57 | % | |||||
Nonperforming assets to total loans plus foreclosed real estate | 0.65 | % | 0.72 | % | 0.81 | % | 0.56 | % | 0.79 | % | |||||
Nonperforming assets to total assets | 0.36 | % | 0.39 | % | 0.42 | % | 0.34 | % | 0.49 | % | |||||
Reserve for loan losses as a percent of: | |||||||||||||||
Total loans at year end | 1.39 | % | 1.44 | % | 1.62 | % | 1.54 | % | 1.39 | % | |||||
Nonperforming loans | 227 | % | 210 | % | 210 | % | 397 | % | 245 | % |
The effect of nonaccrual and restructured loans on interest income for 2000 is presented below: | 2000 | ||
---|---|---|---|
Interest which would have been included at the normal contract rates | $2,157 | ||
Interest included in income during the year | (421 | ) | |
Interest income not recognized in the financial statements | $1,736 | ||
2000 | 1999 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||
Interest income | $108,255 | $109,072 | $104,717 | $99,473 | $94,853 | $91,795 | $87,202 | $87,429 | |||||||||||||||||
Interest expense | 62,264 | 62,044 | 56,317 | 51,281 | 47,063 | 43,335 | 38,550 | 39,667 | |||||||||||||||||
Net interest income | 45,991 | 47,028 | 48,400 | 48,192 | 47,790 | 48,460 | 48,652 | 47,762 | |||||||||||||||||
Provision for loan losses | 1,995 | 2,625 | 2,512 | 1,962 | 1,484 | 1,784 | 1,205 | 1,287 | |||||||||||||||||
Noninterest income | 16,668 | 16,263 | 15,559 | 14,708 | 15,240 | 14,340 | 14,503 | 14,251 | |||||||||||||||||
Noninterest expense | 35,047 | 35,036 | 37,200 | 37,133 | 37,343 | 37,209 | 37,781 | 37,476 | |||||||||||||||||
Income tax expense | 6,182 | 6,228 | 5,684 | 5,665 | 6,072 | 5,805 | 6,284 | 6,359 | |||||||||||||||||
Net income | 19,435 | 19,402 | 18,563 | 18,140 | 18,131 | 18,002 | 17,885 | 16,891 | |||||||||||||||||
Basic earnings per share(2) | $ 0.48 | $ 0.47 | $ 0.45 | $ 0.44 | $ 0.44 | $ 0.43 | $ 0.42 | $ 0.39 | |||||||||||||||||
Diluted earnings per share (2) | $ 0.47 | $ 0.47 | $ 0.45 | $ 0.44 | $ 0.44 | $ 0.43 | $ 0.42 | $ 0.39 | |||||||||||||||||
Return on average equity | 18.25 | % | 19.10 | % | 19.62 | % | 19.85 | % | 19.49 | % | 18.33 | % | 16.85 | % | 15.30 | % | |||||||||
Return on average assets | 1.31 | % | 1.30 | % | 1.29 | % | 1.30 | % | 1.31 | % | 1.33 | % | 1.40 | % | 1.34 | % | |||||||||
Net interest margin—tax equivalent | 3.61 | % | 3.66 | % | 3.84 | % | 3.96 | % | 4.06 | % | 4.21 | % | 4.24 | % | 4.23 | % | |||||||||
(1) | All ratios are presented on an annualized basis. |
(2) | The sum of the 1999 quarterly earnings per share amounts do not equal the full year earnings per share by $.01 due to a change in weighted shares outstanding resulting from 1999 share repurchases and the 3-for-2 stock split paid in December 1999. |
The provision for loan losses of $1,995 recorded during fourth quarter 2000 exceeded both the quarter's net charge-offs and the provision recorded in fourth quarter 1999 resulting in a ratio of reserve for loan losses to total loans at year-end 2000 of 1.39%, which was consistent with the levels maintained throughout the year and appropriate to the loan growth experienced in 2000.
Total noninterest income for fourth quarter 2000 grew 9.4% over 1999's like quarter. Factoring out mortgage banking revenues (which were eliminated incident to the realignment of residential mortgage banking operations in the second quarter of 2000), total noninterest income for the fourth quarter 2000 increased over 1999 levels by 16.8%. Furthermore, the three major categories of service charges and fees increased for the quarter by 17.6% over the 1999 like quarter. The significant improvement realized in noninterest income during 2000 was the direct result of a variety of initiatives put in place during 1999. Although the benefits of these initiatives are expected to continue, First Midwest anticipates that the levels of increase next year will moderate in 2001.
Noninterest expenses for fourth quarter 2000 continued to be well controlled and declined 6.1% as compared to fourth quarter 1999 following declines of 5.8% and 1.5% in third quarter and second quarter 2000, respectively. The reduction in noninterest expenses for the current quarter is related to both the residential mortgage banking realignment described above (which saw the elimination of approximately 100 full-time equivalent positions) as well as First Midwest's enhanced expense control practices.
FORWARD LOOKING STATEMENTS
The preceding "Business", "Legal Proceeding" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this Form 10-K contain various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represents First Midwest's expectations and beliefs concerning future events including, without limitation, the following: the Company's efforts in retaining and expanding its customer base and differentiating it from its competition; the FDIC insurance premium assessments for 2001; the impact from liabilities arising from legal proceedings on its financial condition; the impact of interest rates in general on the volatility of its net interest income; the impact of policy guidelines and strategies on net interest income based on future interest rate projections; the ability to provide funding sources for both the Bank and the Parent Company; the payment of future dividends based upon Company performance and prospects; the impact of portfolio diversification and the real estate lending practices on future levels of loan losses; the effect of loan growth generally on the improvement in net interest income; and the 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 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 limitation, the following: dynamics of the markets served in terms of competition from traditional and nontraditional financial service providers can effect both the funding capabilities of the Company in terms of deposit garnering as well as the ability to compete for loans and generate the higher yielding assets necessary to improve net interest income; future legislation and actions by the Federal Reserve Board may result in the imposition of costs and constraints on the Company through higher FDIC insurance premiums, significant fluctuations in market interest rates and operational limitations; significant fluctuations in market interest rates may affect the ability to reinvest proceeds from the maturities and prepayments on certain categories of securities and affect the overall yield of the portfolio; business expansion activities and other efforts to retain customers may increase the need for staffing and the resulting personnel expense in future periods; and 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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
Discussions regarding qualitative and quantitative disclosures about market risk is located starting on page 16 of this report.
December 31, | ||||||
---|---|---|---|---|---|---|
2000 | 1999 | |||||
Assets | ||||||
Cash and due from banks | $ 166,423 | $ 155,407 | ||||
Federal funds sold and other short-term investments | 18,070 | 1,566 | ||||
Mortgages held for sale | 5,438 | 12,215 | ||||
Securities available for sale, at market value | 2,130,148 | 2,033,247 | ||||
Securities held to maturity, at amortized cost (market value 2000 — $85,517 and 1999—$44,244) | 84,797 | 43,543 | ||||
Loans, net of unearned discount | 3,233,196 | 2,962,487 | ||||
Reserve for loan losses | (45,093 | ) | (42,645 | ) | ||
Net loans | 3,188,103 | 2,919,842 | ||||
Premises furniture and equipment | 81,840 | 80,408 | ||||
Accrued interest receivable | 41,589 | 43,181 | ||||
Investment in corporate owned life insurance | 126,860 | 105,343 | ||||
Other assets | 63,216 | 116,836 | ||||
Total assets | $5,906,484 | $5,511,588 | ||||
Liabilities | ||||||
Demand deposits | $ 705,404 | $ 663,306 | ||||
Savings deposits | 447,455 | 479,618 | ||||
NOW accounts | 450,503 | 451,269 | ||||
Money market deposits | 535,391 | 465,354 | ||||
Time deposits | 2,113,452 | 1,941,636 | ||||
Total deposits | 4,252,205 | 4,001,183 | ||||
Borrowed funds | 1,145,872 | 1,077,732 | ||||
Accrued interest payable | 20,568 | 21,722 | ||||
Other liabilities | 41,116 | 41,690 | ||||
Total liabilities | 5,459,761 | 5,142,327 | ||||
Stockholders’ equity | ||||||
Preferred stock, no par value; 1,000 shares authorized, none issued | — | — | ||||
Common stock, $.01 par value; authorized 60,000 shares; issued 45,548 shares; Outstanding: 2000—40,866 shares; 1999—41,113 shares | 455 | 455 | ||||
Additional paid-in capital | 78,269 | 81,845 | ||||
Retained earnings | 487,878 | 442,711 | ||||
Accumulated other comprehensive loss, net of tax | (7,039 | ) | (49,072 | ) | ||
Treasury stock, at cost; 2000—4,682 shares and 1999—4,435 shares | (112,840 | ) | (106,678 | ) | ||
Total stockholders’ equity | 446,723 | 369,261 | ||||
Total liabilities and stockholders’ equity | $5,906,484 | $5,511,588 | ||||
Years ended December 31, | ||||||
---|---|---|---|---|---|---|
2000 | 1999 | 1998 | ||||
Interest Income | ||||||
Loans | $278,907 | $233,744 | $259,495 | |||
Securities: | ||||||
Available for sale—taxable | 114,779 | 97,061 | 78,986 | |||
Available for sale—nontaxable | 23,442 | 23,626 | 9,918 | |||
Held to maturity—taxable | 1,620 | 1,418 | 1,451 | |||
Held to maturity—nontaxable | 1,245 | 1,464 | 8,526 | |||
Total interest on securities | 141,086 | 123,569 | 98,881 | |||
Federal funds sold and other short-term investments | 1,524 | 3,966 | 6,221 | |||
Total interest income | 421,517 | 361,279 | 364,597 | |||
Interest Expense | ||||||
Savings deposits | 9,158 | 9,969 | 13,696 | |||
NOW accounts | 9,367 | 8,234 | 9,798 | |||
Money market deposits | 21,712 | 16,482 | 19,241 | |||
Time deposits | 115,650 | 94,492 | 103,477 | |||
Borrowed funds | 76,019 | 39,438 | 30,804 | |||
Total interest expense | 231,906 | 168,615 | 177,016 | |||
Net interest income | 189,611 | 192,664 | 187,581 | |||
Provision for loan losses | 9,094 | 5,760 | 5,542 | |||
Net interest income after provision for loan losses | 180,517 | 186,904 | 182,039 | |||
Noninterest Income | ||||||
Service charges on deposit accounts | 21,341 | 18,720 | 17,100 | |||
Trust and investment management fees | 10,671 | 10,135 | 9,134 | |||
Other service charges, commissions, and fees | 16,282 | 11,825 | 10,197 | |||
Mortgage banking revenues | 395 | 5,646 | 8,535 | |||
Corporate owned life insurance income | 6,517 | 5,209 | 3,135 | |||
Security gains, net | 1,238 | 97 | 1,657 | |||
Other income | 6,754 | 6,702 | 5,704 | |||
Total noninterest income | 63,198 | 58,334 | 55,462 | |||
Noninterest Expense | ||||||
Salaries and wages | 59,528 | 63,697 | 63,268 | |||
Retirement and other employee benefits | 16,179 | 15,318 | 14,026 | |||
Occupancy expense of premises | 13,635 | 13,366 | 12,039 | |||
Equipment expense | 7,900 | 8,479 | 8,354 | |||
Technology and related costs | 10,894 | 10,113 | 9,846 | |||
Professional services | 7,671 | 8,527 | 7,849 | |||
Advertising and promotions | 3,859 | 3,822 | 4,576 | |||
Acquisition charges | — | — | 16,148 | |||
Other expenses | 24,750 | 26,487 | 22,696 | |||
Total noninterest expense | 144,416 | 149,809 | 158,802 | |||
Income before income tax expense | 99,299 | 95,429 | 78,699 | |||
Income tax expense | 23,759 | 24,520 | 23,995 | |||
Net income | $ 75,540 | $ 70,909 | $ 54,704 | |||
Per Share Data | ||||||
Basic earnings per share | $ 1.84 | $ 1.68 | $ 1.24 | |||
Diluted earnings per share | $ 1.83 | $ 1.67 | $ 1.22 | |||
Weighted average shares outstanding | 41,051 | 42,135 | 43,996 | |||
Weighted average diluted shares outstanding | 41,283 | 42,457 | 44,705 |
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 1997 | $455 | $86,976 | $375,117 | $ (14,840 | ) | $ 12,011 | $459,719 | ||||||||||
Comprehensive Income: | |||||||||||||||||
Net income | — | — | 54,704 | — | — | 54,704 | |||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||
Unrealized (losses) on securities, net of reclassification adjustment | — | — | — | — | (2,136 | ) | (2,136 | ) | |||||||||
Total comprehensive income | 52,568 | ||||||||||||||||
Dividends declared ($.61 per share) | — | — | (24,829 | ) | — | — | (24,829 | ) | |||||||||
Cash dividends paid be acquiree prior to Combination | — | — | (2,715 | ) | — | (2,715 | ) | ||||||||||
Purchase of treasury stock | — | (1,081 | ) | 9 | (34,362 | ) | — | (35,434 | ) | ||||||||
Treasury stock issued to (purchased for) benefit plans | — | 88 | — | 1,409 | — | 1,497 | |||||||||||
Exercise of stock options | — | (123 | ) | (2,840 | ) | 5,103 | — | 2,140 | |||||||||
Fair value adjustment to treasury stock held in grantor trust | — | 29 | — | (77 | ) | — | (48 | ) | |||||||||
Balance at December 31, 1998 | 455 | 85,889 | 399,446 | (42,767 | ) | 9,875 | 452,898 | ||||||||||
Comprehensive Income: | |||||||||||||||||
Net income | — | — | 70,909 | — | — | 70,909 | |||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||
Unrealized (losses) on securities, net of Reclassification adjustment | — | — | — | — | (58,947 | ) | (58,947 | ) | |||||||||
Total comprehensive income | 11,962 | ||||||||||||||||
Dividends declared ($.66 per share) | — | — | (27,644 | ) | — | — | (27,644 | ) | |||||||||
Purchase of treasury stock | — | — | — | (70,043 | ) | — | (70,043 | ) | |||||||||
Treasury stock issued to (purchased for) benefit plans | — | (14 | ) | — | 413 | — | 399 | ||||||||||
Exercise of stock options | — | (4,050 | ) | — | 5,770 | — | 1,720 | ||||||||||
Fair value adjustment to treasury Stock held in grantor trust | — | 20 | — | (51 | ) | — | (31 | ) | |||||||||
Balance at December 31, 1999 | 455 | 81,845 | 442,711 | (106,678 | ) | (49,072 | ) | 369,261 | |||||||||
Comprehensive Income: | |||||||||||||||||
Net income | — | — | 75,540 | — | — | 75,540 | |||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||
Unrealized gains on securities, net of reclassification adjustment | — | — | — | — | 42,033 | 42,033 | |||||||||||
Total comprehensive income | 117,573 | ||||||||||||||||
Dividends declared ($.74 per share) | — | — | (30,373 | ) | — | (30,373 | ) | ||||||||||
Purchase of treasury stock | — | — | — | (12,195 | ) | — | (12,195 | ) | |||||||||
Treasury stock issued to (purchased for) benefit plans | — | (1 | ) | — | (217 | ) | — | (218 | ) | ||||||||
Exercise of stock options | — | (3,569 | ) | — | 6,228 | — | 2,659 | ||||||||||
Fair value adjustment to treasury stock held in grantor trust | — | (6 | ) | — | 22 | — | 16 | ||||||||||
Balance at December 31, 2000 | $455 | $78,269 | $487,878 | $(112,840 | ) | $(7,039 | ) | $446,723 | |||||||||
See notes to consolidated financial statements.
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | |||||||
Operating Activities | |||||||||
Net income | $ 75,540 | $ 70,909 | $ 54,704 | ||||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: | |||||||||
Provision for loan losses | 9,094 | 5,760 | 5,542 | ||||||
Depreciation of premises, furniture, and equipment | 8,696 | 8,988 | 8,875 | ||||||
Net (accretion) amortization of (discount) premium on securities | (3,598 | ) | 74 | 12,078 | |||||
Net (gains) on sales of securities | (1,238 | ) | (97 | ) | (1,657 | ) | |||
Net (gains) on sales of other real estate owned | (481 | ) | (618 | ) | (561 | ) | |||
Net (gains) on sales of premises, furniture, and equipment | (11 | ) | (615 | ) | (454 | ) | |||
Net loss on sale of mortgage servicing rights | 222 | — | — | ||||||
Net pension cost | 2,208 | 1,922 | 1,613 | ||||||
Tax benefit from employee exercises of nonqualified stock options | 715 | 571 | 1,779 | ||||||
Net (increase) decrease in deferred income taxes | (2,642 | ) | 3,296 | (1,448 | ) | ||||
Net amortization of goodwill and other intangibles | 3,034 | 3,034 | 3,759 | ||||||
Originations and purchases of mortgage loans held for sale | (103,907 | ) | (445,179 | ) | (552,081 | ) | |||
Proceeds from sales of mortgage loans held for sale | 110,684 | 508,199 | 503,703 | ||||||
Net (increase) in corporate owned life insurance | (21,517 | ) | (5,208 | ) | (100,135 | ) | |||
Net decrease (increase) in accrued interest receivable | 1,592 | (6,819 | ) | (1,472 | ) | ||||
Net (decrease) increase in accrued interest payable | (1,154 | ) | 4,477 | (1,690 | ) | ||||
Net decrease (increase) in other assets | 3,090 | 4,920 | (21,605 | ) | |||||
Net (decrease) increase in other liabilities | (3,782 | ) | (2,873 | ) | 2,029 | ||||
Net cash provided (used) by operating activities | 76,545 | 150,741 | (87,021 | ) | |||||
Investing Activities | |||||||||
Securities available for sale: | |||||||||
Proceeds from maturities, repayments, and calls | 206,408 | 433,469 | 1,668,965 | ||||||
Proceeds from sales | 544,459 | 380,216 | 823,029 | ||||||
Purchases | (774,031 | ) | (964,329 | ) | (2,770,758 | ) | |||
Securities held to maturity: | |||||||||
Proceeds from maturities, repayments, and calls | 10,037 | 11,229 | 15,529 | ||||||
Purchases | (51,286 | ) | (5,921 | ) | (11,293 | ) | |||
Net increase in loans | (281,098 | ) | (309,691 | ) | 124,706 | ||||
Proceeds from sales of other real estate owned | 4,044 | 5,692 | 5,177 | ||||||
Proceeds from sales of premises, furniture, and equipment | 837 | 1,239 | 363 | ||||||
Purchases of premises, furniture, and equipment | (10,994 | ) | (11,852 | ) | (10,787 | ) | |||
Proceeds from sale of mortgage servicing rights | 22,564 | — | — | ||||||
Net cash used by investing activities | (329,060 | ) | (459,948 | ) | (155,069 | ) | |||
Financing Activities | |||||||||
Net increase (decrease) in deposit accounts | 251,022 | (49,268 | ) | 115,033 | |||||
Net increase in borrowed funds | 68,140 | 453,833 | 140,298 | ||||||
Purchase of treasury stock | (12,195 | ) | (70,043 | ) | (35,434 | ) | |||
Proceeds from issuance of treasury stock | 7 | 610 | 1,585 | ||||||
Cash dividends paid | (29,598 | ) | (27,208 | ) | (25,103 | ) | |||
Exercise of stock options | 2,659 | 1,720 | 2,140 | ||||||
Net cash provided by financing activities | 280,035 | 309,644 | 198,519 | ||||||
Net increase (decrease) in cash and cash equivalents | 27,520 | 437 | (43,571 | ) | |||||
Cash and cash equivalents at beginning of period | 156,973 | 156,536 | 200,107 | ||||||
Cash and cash equivalents at end of period | $ 184,493 | $ 156,973 | $ 156,536 | ||||||
See notes to consolidated financial statements. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations - First Midwest Bancorp, Inc. ("First Midwest" or the "Company") is a Delaware corporation that was incorporated in 1982, began operations on March 31, 1983 and was formed through an exchange of common stock. First Midwest, the third largest Illinois based publicly-traded banking company, has operations primarily located in Northern Illinois with approximately 86% of its banking assets in the suburban metropolitan Chicago area. First Midwest is engaged in commercial and retail banking and offers a broad array of lending, depository and related financial services tailored for individual, commercial and industrial and governmental customers. Additionally, First Midwest offers trust, investment management, mortgage banking and insurance services in the same markets served by its banking operations.
Principles of Consolidation- The consolidated financial statements include the accounts and results of operations of First Midwest after elimination of all significant intercompany accounts and transactions. Assets held by its subsidiaries (the "Affiliates") in a fiduciary or agency capacity are not assets of the Affiliates and, accordingly, are not included in the consolidated financial statements.
Basis of Presentation - Certain reclassifications have been made to prior year amounts to conform with the current year presentation. For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents have been defined by Management to include cash and due from banks, funds sold and other short-term investments. First Midwest uses the accrual basis of accounting for financial reporting purposes, except for immaterial sources of income and expense which are recorded when received or paid.
Use of Estimates - The accounting and reporting policies of First Midwest and its Affiliates conform to generally accepted accounting principles and general practice within the banking industry. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed in the preparation of the consolidated financial statements.
Securities - Securities which Management believes could be sold prior to maturity in order to manage interest rate risk, prepayment or liquidity risk are classified as securities available for sale and are carried at fair market value with unrealized gains and losses reported in Accumulated Other Comprehensive Income. Held to maturity securities, which include any security for which First Midwest has the positive intent and ability to hold until maturity, are valued at historical cost adjusted for amortization of premium and accretion of discount computed principally using the interest method, adjusted for actual prepayments, if any. A decline in the market value of any available for sale or held to maturity security below cost that is deemed to be other than temporary results in a charge to earnings thereby establishing a new cost basis for such security. Gain or loss on the sale of securities is determined based on the adjusted cost of the specific security sold. First Midwest has no trading account securities.
Loans - Loans are carried at the principal amount outstanding, net of unearned discount, including certain net deferred loan origination fees. Residential real estate mortgage loans held for sale are carried at the lower of aggregate cost or market value. Unearned discount on certain consumer installment loans is credited to income over the term of the loan using the level yield method. Interest income on loans is accrued based on principal amounts outstanding. Loan and lease origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans or commitments as a yield adjustment.
Generally a loan, including an impaired loan, is classified as nonaccrual and the accrual of interest thereon discontinued when, in the opinion of Management, there is reasonable doubt as to the timely collection of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the reserve for loan losses. Interest received on nonaccrual loans is either applied against principal or reported as interest income, according to Management's judgment as to the collectability of principal. Nonaccrual loans are returned to an accrual status when, in the opinion of Management, the financial condition of the borrower and other relevant factors indicate there is no longer reasonable doubt as to the timely payment of principal or interest.
Reserve for Loan Losses - The reserve for loan losses is increased by provisions charged to operating expenses, decreased by charge-offs, net of recoveries, and is available for losses incurred on loans, including certain accrued interest receivable.
The reserve for loan losses is maintained in an amount that Management believes is adequate to absorb loan losses inherent in the portfolio. The provision for loan losses is based on Management's judgment as to the adequacy of the reserve for loan losses, after considering such factors as the volume and character of the portfolio, present and prospective financial condition of the borrowers, general economic conditions and past loan loss experience.
Specific reserves are established for any impaired commercial, real estate commercial and real estate construction loans for which the recorded investment in the loan exceeds the measured value of the loan. A loan is considered impaired when it is probable that a creditor will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. Loans subject to impairment valuation are defined as nonaccrual and restructured loans exclusive of smaller balance homogeneous loans such as home equity, installment and 1-4 family residential loans. The value of the loan is determined based on the present value of expected future cash flows discounted at the loan's effective interest rate, the market price of the loan or the fair value of the underlying collateral less costs to sell, if the loan is collateral dependent.
Foreclosed Real Estate - Foreclosed real estate includes properties acquired in partial or total satisfaction of certain loans and is included in other assets in the accompanying consolidated statements of condition. Properties are recorded at the lower of the recorded investment in the loans for which the properties previously served as collateral or the fair value, which represents the estimated sales price of the properties on the date acquired less estimated selling costs. Any writedowns in the carrying value of a property at the time of acquisition are charged against the reserve for loan losses. The carrying value of foreclosed real estate properties is periodically reviewed by Management. Any write-downs of the properties subsequent to acquisition, as well as gains or losses on disposition and income or expense from the operations of foreclosed real estate, are recognized in operating results in the period they are realized.
Premises, Furniture and Equipment - Premises, furniture and equipment are stated at cost less accumulated depreciation. Depreciation expense is determined by the straight-line method over the estimated useful lives of the assets. Rates of depreciation are generally based on the following useful lives: building - 25 to 40 years; building improvements, furniture and equipment - 3 to 5 years. Gains and losses on dispositions are reflected in other income and other expense, respectively. Maintenance and repairs are charged to operating expenses as incurred.
Long-lived assets to be held and those to be disposed of and certain intangibles are evaluated for impairment using the guidance provided by Financial Accounting Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Goodwill and Other Intangibles - Goodwill, representing the excess of purchase price over the fair value of net assets acquired using the purchase method of accounting, is being amortized using the straight-line method over periods not exceeding 20 years. Core deposit intangibles, representing the premium associated with the acquisition of certain deposit liabilities, are being amortized to operating expense on an accelerated basis over the average lives of such deposit liabilities.
Goodwill and other intangibles, which collectively represent less than 1% of total assets, are periodically assessed for recoverability through review of various economic factors to determine whether any impairment exists.
Advertising Costs - All advertising costs incurred by First Midwest are expensed in the period in which they are incurred.
Derivative Financial Instruments - As part of managing First Midwest's interest rate risk, derivative financial instruments are used to hedge market values and to alter the cash flow characteristics of certain on-balance sheet assets and liabilities. The derivative financial instruments used to manage interest rate risk consist of interest rate swaps. The derivative instruments used to manage interest rate risk are linked with a specific asset or liability or a group of related assets or liabilities at the inception of the derivative contract and have a high degree of correlation with the associated balance sheet item during the hedge period. Net interest income or expense on derivative contracts used for interest rate risk management is accrued to the income or expense related to the asset or liability, or group, being hedged. Realized gains and losses on contracts, either settled or terminated, are deferred and are recorded as either an adjustment to the carrying value of the related on-balance sheet asset or liability or are amortized into interest income or expense over either the remaining original life of the derivative instrument or the expected life of the associated asset or liability. Unrealized gains or losses on these contracts are not recognized on the balance sheet. First Midwest does not hold or issue derivative financial instruments for trading purposes.
Income Taxes - First Midwest's deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change during the period in deferred tax assets and liabilities.
First Midwest and its subsidiaries file a consolidated federal income tax return. The intercompany settlement of taxes paid is based on tax sharing agreements which generally allocate taxes to each entity on a separate return basis.
Earnings Per Share - Basic earnings per share ("EPS") 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. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding plus all potential common shares. 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 long-term incentive compensation plans. Such common stock equivalents are computed based on the treasury stock method using the average market price for the period.
Stock-Based Compensation - Pursuant to FASB No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based compensation plans, First Midwest has elected to continue accounting for stock-based employee compensation plans in accordance with Accounting Principles Board ("APB") Opinion 25 and related interpretations. Under APB 25, no compensation expense is recognized as the exercise price of First Midwest's stock options is equal to the fair market value of its common stock on the date of the grant. Accordingly, pro forma net income, pro forma earnings per share, and stock-based compensation plan disclosure requirements as set forth in FASB No. 123 are presented in Note 14 Stock Option Plans.
Accounting for Transfers and Servicing of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Comprehensive Income- Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles bypass reported net income. First Midwest includes unrealized gains or losses, net of tax, on securities available for sale in other comprehensive income.
Segment Disclosures - Operating segments are components of a business about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. Public companies are required to report certain financial information about operating segments in interim and annual financial statements. First Midwest's chief operating decision maker evaluates the operations of the Company as one operating segment, commercial banking, due to the materiality of the commercial banking operation to the Company's financial condition and results of operations, taken as a whole, and as a result separate segment disclosures are not required. First Midwest offers the following products and services to external customers: deposits, loans and trust services. Revenues for each of these products and services are disclosed separately in the Consolidated Statements of Income.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities - In June 1998, FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by FASB Nos. 137 and 138 in June 1999 and June 2000, respectively. The Statement establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either assets or liabilities measured at fair value. FASB No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives that are considered to be effective, as defined, will either offset the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or will be recorded in other comprehensive income until the hedged item is recorded in earnings. Any portion of a change in a derivative's fair value that is considered to be ineffective, as defined, may have to be immediately recorded in earnings. The effective date for adoption by First Midwest will be January 1, 2001. The adoption of FASB No. 133 did not have a material impact on the financial position or results of operations of the Company.
2000 | 1999 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortized Cost | Gross Unrealized | Market Value | Amortized Cost | Gross Unrealized | Market Value | |||||||||||||
Gains | Losses | Gains | Losses | |||||||||||||||
Securities Available for Sale | ||||||||||||||||||
U.S. Treasury | $ 602 | $ 2 | $ — | $ 604 | $ 2,136 | $ 1 | $ (5 | ) | $ 2,132 | |||||||||
U.S. Agency | 423,211 | 546 | (1,068 | ) | 422,689 | 644,151 | 309 | (7,542 | ) | 636,918 | ||||||||
Mortgage-backed | 1,172,187 | 5,648 | (11,311 | ) | 1,166,524 | 943,949 | 611 | (40,038 | ) | 904,522 | ||||||||
State and Municipal | 480,730 | 6,202 | (8,413 | ) | 478,519 | 488,793 | 1,150 | (31,676 | ) | 458,267 | ||||||||
Other | 64,958 | 102 | (3,248 | ) | 61,812 | 34,664 | 23 | (3,279 | ) | 31,408 | ||||||||
Total | $2,141,688 | $12,500 | $(24,040 | ) | $2,130,148 | $2,113,693 | $2,094 | $(82,540 | ) | $2,03 3,247 | ||||||||
Securities Held to Maturity | ||||||||||||||||||
U.S. Treasury | $ 1,821 | $ 17 | $ — | $ 1,838 | $ 1,120 | $ — | $ — | $ 1,120 | ||||||||||
U.S. Agency | 75 | — | (1 | ) | 74 | 401 | — | — | 401 | |||||||||
State and Municipal | 60,392 | 709 | (5 | ) | 61,096 | 20,619 | 729 | (28 | ) | 21,320 | ||||||||
Other | 22,509 | — | — | 22,509 | 21,403 | — | — | 21,403 | ||||||||||
Total | $ 84,797 | $ 726 | $ (6 | ) | $ 85,517 | $ 43,543 | $ 729 | $ (28 | ) | $ 44,244 | ||||||||
Available for Sale | Held to Maturity | |||||||
---|---|---|---|---|---|---|---|---|
Amortized Cost | Market Value | Amortized Cost | Market Value | |||||
One year or less | $ 236,283 | $ 235,700 | $ 5,865 | $ 5,873 | ||||
One year to five years | 476,416 | 467,901 | 12,035 | 12,497 | ||||
Five years to ten years | 618,437 | 554,783 | 27,215 | 27,318 | ||||
After ten years | 810,552 | 871,764 | 39,682 | 39,829 | ||||
Total | $2,141,688 | $2,130,148 | $84,797 | $85,517 | ||||
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Proceeds from sales | $544,459 | $380,216 | $823,029 | ||||||
Gross realized gains | $ 2,659 | $ 2,597 | $ 10,062 | ||||||
Gross realized losses | (1,421 | ) | (2,500 | ) | (8,405 | ) | |||
Net realized gains | $ 1,238 | $ 97 | $ 1,657 | ||||||
Income taxes on net realized gains | $ 483 | $ 38 | $ 625 |
2000 | 1999 | |||
---|---|---|---|---|
Commercial and industrial | $ 788,443 | $ 714,305 | ||
Agricultural | 67,736 | 56,852 | ||
Consumer | 924,189 | 847,997 | ||
Real estate—1-4 family | 250,635 | 253,268 | ||
Real estate—commercial | 900,781 | 834,852 | ||
Real estate—construction | 272,647 | 189,018 | ||
Other | 28,765 | 66,195 | ||
Total loans, net of unearned discount | $3,233,196 | $2,962,487 | ||
2000 | 1999 | |||
---|---|---|---|---|
Loans Pledged to Secure: | ||||
Deposits | $ 53,577 | $ 66,657 | ||
Federal Home Loan Bank Advances | 188,333 | 250,000 | ||
Total | $241,910 | $316,657 | ||
2000 | 1999 | 1998 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at beginning of period | $ | 42,645 | $ | 43,290 | $ | 46,965 | ||||||
Loans charged-off | (9,149 | ) | (9,141 | ) | (12,955 | ) | ||||||
Recoveries of loans previously charged-off | 2,503 | 2,736 | 3,738 | |||||||||
Net loans charged-off | (6,646 | ) | (6,405 | ) | (9,217 | ) | ||||||
Provision for loan losses | 9,094 | 5,760 | 5,542 | |||||||||
Balance at end of period | $ | 45,093 | $ | 42,645 | $ | 43,290 | ||||||
Impaired loans: | ||||||||||||
With valuation reserve required(1) | $ | 2,206 | $ | 348 | $ | 325 | ||||||
With no valuation reserve required | 12,145 | 16,193 | 15,890 | |||||||||
Total impaired loans | $ | 14,351 | $ | 16,541 | $ | 16,215 | ||||||
Valuation reserve related to impaired loans | $ | 667 | $ | 333 | $ | 232 | ||||||
Average impaired loans | $ | 15,433 | $ | 15,544 | $ | 15,552 | ||||||
Interest income recognized on impaired loans | $ | — | $ | — | $ | 52 |
(1) | These impaired loans require a valuation reserve because the value of the loans is less than the recorded investment in the loans. |
2000 | 1999 | 1998 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at beginning of year | $ | 22,924 | $ | 15,006 | $ | 9,529 | ||||||
Amount capitalized | 15 | 5,007 | 9,671 | |||||||||
Amortization | (299 | ) | (3,789 | ) | (4,047 | ) | ||||||
Hedge value | 128 | 6,858 | (346 | ) | ||||||||
Change in valuation allowance | 3 | 41 | — | |||||||||
Sales | (22,771 | ) | — | — | ||||||||
Other | — | (199 | ) | 199 | ||||||||
Balance at end of year | $ | — | $ | 22,924 | $ | 15,006 | ||||||
Fair value | $ | — | $ | 22,958 | $ | 16,113 | ||||||
Valuation allowance | $ | — | $ | 202 | $ | 243 |
2000 | 1999 | |||||||
---|---|---|---|---|---|---|---|---|
Land | $ | 23,509 | $ | 23,310 | ||||
Premises | 85,547 | 81,597 | ||||||
Furniture and equipment | 55,873 | 51,410 | ||||||
Total cost | 164,929 | 156,317 | ||||||
Accumulated depreciation | (83,089 | ) | (75,909 | ) | ||||
Net book value | $ | 81,840 | $ | 80,408 | ||||
Total | |||
---|---|---|---|
Year ended December 31, | |||
2001 | $ | 1,587 | |
2002 | 1,436 | ||
2003 | 1,217 | ||
2004 | 1,172 | ||
2005 | 630 | ||
2006 and thereafter | 900 | ||
Total minimum lease payments | $ | 6,942 | |
2000 | 1999 | |||||
---|---|---|---|---|---|---|
Intangibles from acquisitions: | ||||||
Goodwill | $ | 18,557 | $ | 20,716 | ||
Core deposit premiums | 1,839 | 2,644 | ||||
Other identified intangibles | 276 | 345 | ||||
Mortgage servicing rights | — | 22,924 | ||||
Total intangible assets | $ | 20,672 | $ | 46,629 | ||
2000 | 1999 | ||||||
---|---|---|---|---|---|---|---|
Demand deposits | $ | 705,404 | $ | 663,306 | |||
Savings deposits | 447,455 | 479,618 | |||||
NOW accounts | 450,503 | 451,269 | |||||
Money market deposits | 535,391 | 465,354 | |||||
Time deposits less than $100 | 1,382,777 | 1,302,442 | |||||
Time deposits of $100 or more | 730,675 | 639,194 | |||||
Total deposits | $ | 4,252,205 | $ | 4,001,183 | |||
2000 | 1999 | 1998 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount | Rate (%) | Amount | Rate (%) | Amount | Rate (%) | ||||||||||
At year end: | |||||||||||||||
Securities sold under agreements to repurchase | $ | 911,872 | 6.37 | $ | 788,432 | 5.61 | $ | 457,103 | 4.56 | ||||||
Federal funds purchased | 124,000 | 6.43 | 133,000 | 5.44 | 40,000 | 4.53 | |||||||||
Federal Home Loan Bank advances | 110,000 | 6.90 | 150,000 | 5.46 | 100,000 | 5.14 | |||||||||
Other borrowed funds | — | — | 6,300 | 6.96 | 26,796 | 5.56 | |||||||||
Total borrowed funds | $ | 1,145,872 | 6.43 | $ | 1,077,732 | 5.58 | $ | 623,899 | 4.70 | ||||||
Average for the year: | |||||||||||||||
Securities sold under agreements to repurchase | $ | 1,006,133 | 6.08 | $ | 605,527 | 4.89 | $ | 451,620 | 5.09 | ||||||
Federal funds purchased | 84,582 | 6.42 | 38,348 | 5.23 | 27,974 | 5.39 | |||||||||
Federal Home Loan Bank advances | 149,426 | 6.30 | 142,603 | 5.15 | 108,384 | 5.28 | |||||||||
Other borrowed funds | 399 | 6.77 | 7,794 | 5.93 | 9,652 | 6.19 | |||||||||
Total borrowed funds | $ | 1,240,540 | 6.13 | $ | 794,272 | 4.97 | $ | 597,630 | 5.15 | ||||||
Maximum month-end balance: | |||||||||||||||
Securities sold under agreements to repurchase | $ | 1,162,484 | $ | 844,534 | $ | 555,778 | |||||||||
Federal funds purchased | 170,000 | 133,000 | 92,000 | ||||||||||||
Federal Home Loan Bank advances | 180,000 | 170,000 | 160,000 | ||||||||||||
Other borrowed funds | 5,000 | 16,801 | 29,906 |
Advance Amount | Maturity | Callable | ||
---|---|---|---|---|
$ 50,000 | Jan. 16, 2001 | January 16, 2001 | ||
30,000 | Jan. 31, 2001 | January 31, 2001 | ||
30,000 | Mar. 20, 2002 | March 2001 and quarterly thereafter | ||
$110,000 | ||||
2000 | 1999 | 1998 | ||||
---|---|---|---|---|---|---|
Basic earnings per share: | ||||||
Net income | $75,540 | $70,909 | $54,704 | |||
Average common shares outstanding | 41,051 | 42,135 | 43,996 | |||
Basic earnings per share | $ 1.84 | $ 1.68 | $ 1.24 | |||
Diluted earnings per share: | ||||||
Net income | $75,540 | $70,909 | $54,704 | |||
Average common shares outstanding | 41,051 | 42,135 | 43,996 | |||
Dilutive effect of stock options | 232 | 322 | 709 | |||
Diluted average common shares outstanding | 41,283 | 42,457 | 44,705 | |||
Diluted earnings per share | $ 1.83 | $ 1.67 | $ 1.22 |
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Unrealized holding gains (losses) on available for sale securities arising during the period: | |||||||||
Unrealized net gains (losses) | $ 70,152 | $(96,748 | ) | $(2,483 | ) | ||||
Related tax (expense) benefit | (27,359 | ) | 37,736 | 1,030 | |||||
Net after tax unrealized gains (losses) on available for sale securities | 42,793 | (59,012 | ) | (1,453 | ) | ||||
Less: Reclassification adjustment for net gains (losses) realized during the period: | |||||||||
Realized net gains (losses) on sales of available for sale securities | 1,246 | (107 | ) | 1,119 | |||||
Related tax (expense) benefit | (486 | ) | 42 | (436 | ) | ||||
Net after tax reclassification adjustment | 760 | (65 | ) | 683 | |||||
Total other comprehensive income (loss) | $ 42,033 | $(58,947 | ) | $(2,136 | ) | ||||
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Beginning balance | $(49,072 | ) | $ 9,875 | $12,011 | |||||
Current year change | 42,033 | (58,947 | ) | (2,136 | ) | ||||
Ending balance | $ (7,039 | ) | $(49,072 | ) | $ 9,875 | ||||
2000 | 1999 | |||||
---|---|---|---|---|---|---|
Change in benefit obligation: | ||||||
Projected benefit obligation at beginning of year | $12,686 | $14,855 | ||||
Service cost | 2,236 | 2,244 | ||||
Interest cost | 1,149 | 942 | ||||
Actuarial losses/(gains) | 2,331 | (3,244 | ) | |||
Benefits paid | (1,892 | ) | (2,111 | ) | ||
Projected benefit obligation at end of year | $16,510 | $12,686 | ||||
Change in plan assets: | ||||||
Fair value of plan assets at beginning of year | $12,709 | $13,387 | ||||
Actual return on plan assets | 48 | 657 | ||||
Employer contributions | 2,071 | 776 | ||||
Benefits paid | (1,892 | ) | (2,111 | ) | ||
Fair value of plan assets at end of year | $12,936 | $12,709 | ||||
Reconciliation of funded status: | ||||||
(Under)/Over funded | $ (3,574 | ) | $ 23 | |||
Unrecognized transition obligation (asset) | — | (5 | ) | |||
Unamortized prior service cost | (97 | ) | (177 | ) | ||
Unrecognized net actuarial losses/(gains) | 783 | (2,591 | ) | |||
Net accrued benefit cost recognized | $ (2,888 | ) | $ (2,750 | ) | ||
Amounts recognized in the consolidated statements of condition consist of: | ||||||
Accrued benefit liability | $ (2,888 | ) | $ (2,750 | ) | ||
Net accrued benefit cost recognized | $ (2,888 | ) | $ (2,750 | ) | ||
Years ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | ||||||||||
Components of net periodic benefit cost: | ||||||||||||
Service cost | $ | 2,236 | $ | 2,244 | $ | 1,530 | ||||||
Interest cost | 1,149 | 942 | 878 | |||||||||
Expected return on plan assets | (1,091 | ) | (967 | ) | (1,021 | ) | ||||||
Recognized transition (asset) | (5 | ) | (216 | ) | (216 | ) | ||||||
Amortization of prior service cost | (81 | ) | (81 | ) | (81 | ) | ||||||
Settlements | — | — | (59 | ) | ||||||||
Special termination benefits | — | — | 582 | |||||||||
Net periodic cost | $ | 2,208 | $ | 1,922 | $ | 1,613 | ||||||
Weighted-average assumptions: | ||||||||||||
Discount rate | 7.75 | % | 7.75 | % | 7.00 | % | ||||||
Expected return on plan assets | 9.00 | % | 8.50 | % | 8.00 | % | ||||||
Rate of compensation increase | 4.50 | % | 4.50 | % | 4.50 | % |
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | |||||||
Profit Sharing Plan | $ | 3,175 | $ | 2,784 | $ | 2,874 | |||
Pension Plan | 2,208 | 1,922 | 1,613 | ||||||
Total | $ | 5,383 | $ | 4,706 | $ | 4,487 | |||
2000 | 1999 | 1998 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Current tax expense (benefit): | ||||||||||||
Federal | $ | 26,462 | $ | 21,597 | $ | 24,026 | ||||||
State | (61 | ) | (373 | ) | 1,417 | |||||||
Total | 26,401 | 21,224 | 25,443 | |||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | (2,155 | ) | 2,705 | (1,191 | ) | |||||||
State | (487 | ) | 591 | (257 | ) | |||||||
Total | (2,642 | ) | 3,296 | (1,448 | ) | |||||||
Total income tax expense | $ | 23,759 | $ | 24,520 | $ | 23,995 | ||||||
2000 | 1999 | |||||||
---|---|---|---|---|---|---|---|---|
Deferred tax assets: | ||||||||
Reserve for loan losses | $ | 15,782 | $ | 14,890 | ||||
Depreciable assets | 946 | 782 | ||||||
Accrued retirement benefits | 2,084 | 2,482 | ||||||
Acquisition charge | — | 692 | ||||||
State tax benefits | 2,028 | 1,711 | ||||||
Other | 897 | 1,378 | ||||||
Total deferred tax assets | 21,737 | 21,935 | ||||||
Deferred tax liabilities: | ||||||||
Mortgage servicing rights | — | (3,363 | ) | |||||
Purchase accounting adjustments | (1,847 | ) | (2,068 | ) | ||||
Other | (2,855 | ) | (2,111 | ) | ||||
Total deferred tax liabilities | (4,702 | ) | (7,542 | ) | ||||
Net deferred tax assets | 17,035 | 14,393 | ||||||
Tax effect of adjustment related to available for sale securities | 4,545 | 31,424 | ||||||
Net deferred tax assets including adjustments | $ | 21,580 | �� | $ | 45,817 | |||
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
Tax exempt income, net of interest expense disallowance | (7.9 | )% | (8.4 | )% | (7.9 | )% | |||
State income tax, net of federal tax effect | (0.4 | )% | 0.1 | % | 1.0 | % | |||
Other, net | (2.8 | )% | (1.0 | )% | 2.4 | % | |||
Effective tax rate | 23.9 | % | 25.7 | % | 30.5 | % | |||
Years ended December 31, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | ||||||||||||||||
Options | Average Exercise Price | Options | Average Exercise Price | Options | Average Exercise Price | |||||||||||||
Outstanding at beginning of year | 1,479 | $ | 19.12 | 1,446 | $ | 16.25 | 2,091 | $ | 9.61 | |||||||||
Granted | 584 | 24.33 | 436 | 24.49 | 278 | 27.52 | ||||||||||||
Cancelled | (138 | ) | 25.15 | (91 | ) | 25.96 | (23 | ) | 22.59 | |||||||||
Exercised | (400 | ) | 15.66 | (312 | ) | 11.32 | (900 | ) | 6.19 | |||||||||
Outstanding at end of year | 1,525 | 21.48 | 1,479 | 19.12 | 1,446 | 15.79 | ||||||||||||
Exercisable at end of year | 634 | $ | 17.03 | 869 | $ | 15.07 | 926 | $ | 17.62 | |||||||||
Options Outstanding | Exercisable Options | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Number Outstanding | Average Life (1) | Average Exercise Price | Number Exercisable | Average Exercise Price | |||||||
$8.73—$15.20 | 410 | 3.5 | $ | 13.06 | 410 | $ | 13.06 | |||||
$21.38—$23.00 | 491 | 8.5 | 22.63 | 111 | 21.38 | |||||||
$23.19—$27.13 | 398 | 7.7 | 24.70 | 92 | 26.41 | |||||||
$27.25—$30.72 | 226 | 5.7 | 28.54 | 21 | 29.98 | |||||||
Total | 1,525 | 6.5 | $ | 21.48 | 634 | $ | 17.03 | |||||
(1) | Average contractual life remaining in years. |
2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|
Risk-free interest rate | 6.45 | % | 5.42 | % | 5.40 | % | |||
Dividend yield | 2.57 | % | 2.34 | % | 2.38 | % | |||
Expected stock volatility | 22 | % | 21 | % | 23 | % | |||
Expected years until exercise | 7.8 | 7.5 | 5.0 |
Years ended December 31, | ||||||
---|---|---|---|---|---|---|
2000 | 1999 | 1998 | ||||
Net Income: | ||||||
As reported | $75,540 | $70,909 | $54,704 | |||
Pro Forma | $74,150 | $69,783 | $54,059 | |||
Basic Earnings Per Share: | ||||||
As reported | $ 1.84 | $ 1.68 | $ 1.24 | |||
Pro forma | $ 1.81 | $ 1.66 | $ 1.23 | |||
Diluted Earnings Per Share: | ||||||
As reported | $ 1.83 | $ 1.67 | $ 1.22 | |||
Pro forma | $ 1.80 | $ 1.64 | $ 1.21 |
First Midwest Actual | For Capital Adequacy Purposes | Well Capitalized for FDICIA | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Capital | Ratio | Capital | Ratio | Capital | Ratio | ||||||||||
As of December 31,2000: | |||||||||||||||
Total capital (to risk-weighted assets): | |||||||||||||||
First Midwest Bancorp, Inc | $478,703 | 11.61 | % | $329,908 | 8.00 | % | $412,385 | 10.00 | % | ||||||
First Midwest Bank, N.A | 436,088 | 10.67 | 326,952 | 8.00 | 408,690 | 10.00 | |||||||||
Tier 1 capital (to risk-weighted assets): | |||||||||||||||
First Midwest Bancorp, Inc | 433,610 | 10.51 | 164,954 | 4.00 | 247,431 | 6.00 | |||||||||
First Midwest Bank, N.A | 390,995 | 9.57 | 163,476 | 4.00 | 245,214 | 6.00 | |||||||||
Tier 1 leverage (to average assets): | |||||||||||||||
First Midwest Bancorp, Inc | 433,610 | 7.36 | 176,773 | 3.00 | 294,621 | 5.00 | |||||||||
First Midwest Bank, N.A. | 390,995 | 6.67 | 175,891 | 3.00 | 293,152 | 5.00 | |||||||||
As of December 31,1999: | |||||||||||||||
Total capital (to risk-weighted assets): | |||||||||||||||
First Midwest Bancorp, Inc. | $437,951 | 11.32 | % | $309,604 | 8.00 | % | $387,005 | 10.00 | % | ||||||
First Midwest Bank, N.A. | 392,071 | 10.26 | 305,053 | 8.00 | 381,316 | 10.00 | |||||||||
Tier 1 capital (to risk-weighted assets): | |||||||||||||||
First Midwest Bancorp, Inc. | 395,306 | 10.21 | 154,802 | 4.00 | 232,203 | 6.00 | |||||||||
First Midwest Bank, N.A. | 349,426 | 9.16 | 152,526 | 4.00 | 228,790 | 6.00 | |||||||||
Tier 1 leverage (to average assets): | |||||||||||||||
First Midwest Bancorp, Inc. | 395,306 | 7.19 | 164,876 | 3.00 | 274,793 | 5.00 | |||||||||
First Midwest Bank, N.A. | 349,426 | 6.45 | 162,502 | 3.00 | 270,836 | 5.00 | |||||||||
2000 | 1999 | |||
---|---|---|---|---|
Commitments to extend credit | $799,427 | $773,688 | ||
Letters of credit: | ||||
Standby | 71,425 | 51,481 | ||
Commercial | 2,555 | 610 | ||
Recourse on assets sold | 9,238 | 11,641 | ||
Interest rate swap contracts: | ||||
Receive fixed/pay floating | — | 157,900 | ||
Receive floating/pay fixed | — | 200,000 |
2000 | 1999 | 1998 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Notional amount outstanding at beginning of year | $ | 357,900 | $ | 467,600 | $ | 342,600 | |||||||
Additions | 619,000 | 317,900 | 350,000 | ||||||||||
Maturities | (220,000 | ) | (427,600 | ) | (225,000 | ) | |||||||
Terminations | (756,900 | ) | — | — | |||||||||
Notional amount outstanding at end of year | $ | — | $ | 357,900 | $ | 467,600 | |||||||
At December 31: | |||||||||||||
Weighted average interest rate paid | — | 5.97 | % | 5.31 | % | ||||||||
Weighted average interest rate received | — | 5.98 | % | 5.82 | % | ||||||||
Weighted average maturity (in years) | — | 0.71 | 0.11 | ||||||||||
Fair value | — | 299 | 1,542 |
2000 | 1999 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||
Financial Assets: | ||||||||||||
Cash and due from banks | $ | 166,423 | $ | 166,423 | $ | 155,407 | $ | 155,407 | ||||
Funds sold and other short-term investments | 18,070 | 18,074 | 1,566 | 1,566 | ||||||||
Mortgages held for sale | 5,438 | 5,438 | 12,215 | 12,215 | ||||||||
Securities available for sale | 2,130,148 | 2,130,148 | 2,033,247 | 2,033,247 | ||||||||
Securities held to maturity | 84,797 | 85,517 | 43,543 | 44,244 | ||||||||
Loans, net of reserve for loan losses | 3,188,103 | 3,164,763 | 2,919,842 | 2,865,989 | ||||||||
Accrued interest receivable | 41,589 | 41,589 | 43,181 | 43,181 | ||||||||
Investment in corporate owned life insurance | 126,860 | 126,860 | 105,343 | 105,343 | ||||||||
Financial Liabilities: | ||||||||||||
Deposits | $ | 4,252,205 | $ | 4,019,529 | $ | 4,001,183 | $ | 3,992,845 | ||||
Borrowed funds | 1,145,872 | 1,146,435 | 1,077,732 | 1,078,823 | ||||||||
Accrued interest payable | 20,568 | 20,568 | 21,722 | 21,722 | ||||||||
Off-Balance Sheet Financial Instruments: | ||||||||||||
Interest rate swaps | $ | — | $ | — | $ | — | $ | 299 | ||||
Future contracts | — | — | — | 247 |
2000 | 1999 | 1998 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Income taxes paid | $ | 29,054 | $ | 19,984 | $ | 23,016 | ||||||
Interest paid to depositors and creditors | 233,060 | 164,138 | 178,894 | |||||||||
Non-cash transfers of loans to foreclosed real estate | 3,743 | 5,216 | 1,534 | |||||||||
Non-cash transfers to securities available for sale from loans | — | — | 245,000 | |||||||||
Non-cash transfers to securities available for sale from securities held to maturity | — | 113 | 85,519 | |||||||||
Dividends declared but unpaid | 8,184 | 7,409 | 6,973 |
20. RELATED PARTY TRANSACTIONS
The Company, through certain of its subsidiaries, has made loans and had transactions with certain of its directors and executive officers. However, all such loans and transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. The Securities and Exchange Commission has determined that, with respect to the Company and significant subsidiaries, disclosure of borrowings by directors and executive officers and certain of their related interests should be made if the loans are greater than 5% of stockholders' equity, in the aggregate. These loans in aggregate were not greater than 5% of stockholders' equity at December 31, 2000 or 1999.
21. CONTINGENT LIABALITIES AND OTHER MATTERS
There are certain legal proceedings pending against First Midwest and its Affiliates in the ordinary course of business at December 31, 2000. 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.
December 31, | ||||
---|---|---|---|---|
2000 | 1999 | |||
Assets | ||||
Cash and interest bearing deposits | $ 35,774 | $ 7,932 | ||
Investment in and advances to Affiliates | 409,899 | 368,849 | ||
Other assets | 21,540 | 21,199 | ||
Total assets | $467,213 | $397,980 | ||
Liabilities and Stockholders’ Equity | ||||
Accrued expenses and other liabilities | $ 20,490 | $ 22,419 | ||
Borrowed funds | — | 6,300 | ||
Stockholders’ equity | 446,723 | 369,261 | ||
Total liabilities and stockholders’ equity | $467,213 | $397,980 | ||
Years ended December 31, | |||||||
---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | |||||
Income | |||||||
Dividends from Affiliates | $48,709 | $65,781 | $92,864 | ||||
Interest income | 1,485 | 2,533 | 2,994 | ||||
Security transactions and other income | 363 | 406 | 502 | ||||
Total income | 50,557 | 68,720 | 96,360 | ||||
Expenses | |||||||
Interest expense | 27 | 462 | 598 | ||||
Salaries and employee benefits | 2,045 | 1,973 | 2,585 | ||||
Acquisition charges | — | — | 16,148 | ||||
Other expenses | 2,363 | 3,139 | 3,316 | ||||
Total expenses | 4,435 | 5,574 | 22,647 | ||||
Income before income tax expense and equity in undistributed income of Affiliates | 46,122 | 63,146 | 73,713 | ||||
Income tax benefit | 1,668 | 717 | 5,122 | ||||
Income before undistributed income of Affiliates | 47,790 | 63,863 | 78,835 | ||||
Equity in undistributed income of Affiliates | 27,750 | 7,046 | (24,131 | ) | |||
Net income | $75,540 | $70,909 | $54,704 | ||||
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | |||||||
Operating Activities | |||||||||
Net income | $ 75,540 | $ 70,909 | $ 54,704 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Equity in undistributed income from Affiliates | (27,750 | ) | (7,046 | ) | 24,131 | ||||
Net (increase) decrease in other assets | (5,176 | ) | 6,470 | (12,046 | ) | ||||
Net (decrease) increase in other liabilities | (1,817 | ) | 125 | 6,578 | |||||
Net cash provided by operating activities | 40,797 | 70,458 | 73,367 | ||||||
Investing Activities | |||||||||
Purchases of securities net of proceeds from sales and maturities of securities | (43 | ) | 1,341 | (3,840 | ) | ||||
Purchase of other assets, net of sales | (343 | ) | (4,013 | ) | 4,569 | ||||
Net cash (used) provided by investing activities | (386 | ) | (2,672 | ) | 729 | ||||
Financing Activities | |||||||||
Net (decrease) increase in borrowed funds | (6,300 | ) | (20,700 | ) | 27,000 | ||||
Net purchases of treasury stock | (12,413 | ) | (69,644 | ) | (33,937 | ) | |||
Exercise of stock options | 2,659 | 1,720 | 2,140 | ||||||
Cash dividends paid | (29,598 | ) | (27,208 | ) | (25,103 | ) | |||
Capital contributions and other advances and repayments (to) from Affiliates | 33,083 | 54,333 | (52,130 | ) | |||||
Net cash (used) by financing activities | (12,569 | ) | (61,499 | ) | (82,030 | ) | |||
Net increase (decrease) in cash and cash equivalents | 27,842 | 6,287 | (7,934 | ) | |||||
Cash and cash equivalents at beginning of year | 7,932 | 1,645 | 9,579 | ||||||
Cash and cash equivalents at end of year | $ 35,774 | $ 7,932 | $ 1,645 | ||||||
Consolidated Statements of Condition—December 31, 2000 and 1999 | |
Consolidated Statements of Income—Years ended December 31, 2000, 1999 and 1998 | |
Consolidated Statements of Changes in Stockholders’ Equity—Years ended December 31, 2000, 1999 and 1998 | |
Consolidated Statements of Cash Flows—Years ended December 31, 2000, 1999 and 1998 | |
Notes to Consolidated Financial Statements | |
Report of Independent Auditors |
(b) | Reports on Form 8-K—Reports on Form 8-K were filed during the period covered by this report as follows: |
On November 22, 2000, First Midwest filed a report on Form 8-K announcing an 11% quarterly cash dividend increase to $.20 per share. |
Management's Report
To Our Stockholders:
The accompanying consolidated financial statements were prepared by Management, which is responsible for the integrity and objectivity of the data presented. In the opinion of Management, the financial statements, which necessarily include amounts based on Management's estimates and judgments, have been prepared in conformity with generally accepted accounting principles appropriate to the circumstances.
Management depends upon First Midwest's system of internal controls in meeting its responsibilities for reliable financial statements. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with Management's authorization. Judgments are required to assess and balance the relative cost and the expected benefits of these controls. As an integral part of the system of internal controls, First Midwest relies upon a professional Internal Audit function that conducts operational, financial, and special audits, and coordinates audit coverage with the Independent Auditors.
The consolidated financial statements have been audited by the Independent Auditors, Ernst and Young LLP, who render an independent professional opinion on Management's financial statements.
The Audit Committee of First Midwest's Board of Directors, composed solely of outside directors, meets regularly with the Internal Auditors, the Independent Auditors and Management to assess the scope of the annual examination plan and to discuss audit, internal control and financial reporting issues, including major changes in accounting policies and reporting practices. The Internal Auditors and the Independent Auditors have free access to the Audit Committee, without Management present, to discuss the results of their audit work and their evaluations of the adequacy of internal controls and the quality of financial reporting.
/s/ ROBERT P. O'MEARA | /s/ DONALD J. SWISTOWICZ |
January 16, 2001
Reports of Independent Auditors
The Board of Directors and Stockholders
First Midwest Bancorp, Inc:
We have audited the accompanying consolidated statements of condition of First Midwest Bancorp, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Midwest Bancorp, Inc. as of December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
January 16, 2001
EXHIBIT INDEX | |||
Exhibit | Description of Documents | ||
3 | Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3 to the Quarterly Report on Form 10-Q dated September 30, 2000. | ||
3.1 | Restated Bylaws of the Company is incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q dated September 30, 2000 | ||
4 | Amended and Restated Rights Agreement, Form of Rights Certificate and Designation of Series A Preferred Stock of the Company, dated November 15, 1995, is incorporated herein by reference to Exhibits (1) through (3) of the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on November 21, 1995. | ||
4.1 | First Amendment to Rights Agreements, dated June 18, 1998, is incorporated herein by reference to Exhibit 4 of First Midwest's Amendment No. 2 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on June 30, 1997. | ||
10 | Restated 1989 Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10 to the Company's Annual Report on Form 10-K dated December 31, 1999. | ||
10.1 | Amendment to the Restated 1989 Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q dated September 30, 2000. | ||
10.2 | Non-Employee Directors' 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q dated September 30, 2000. | ||
10.3 | Restated Nonqualified Stock Option-Gain Deferral Plan is incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K dated December 31, 1999. | ||
10.4 | Restated Deferred Compensation Plan for Nonemployee Directors is incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K dated December 31, 1999. | ||
10.5 | Restated Nonqualified Retirement Plan is incorporated herein by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K dated December 31, 1999. | ||
10.6 | Restated Savings and Profit Sharing Plan is incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K dated December 31, 1999. | ||
10.7 | Form of Letter Agreement for Nonqualified Stock Options Grant executed between the Company and the executive officers of the Company pursuant to the Company's Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q dated September 30, 2000. | ||
10.8 | Form of Letter Agreement for Nonqualified Stock Options Grant executed between the Company and the directors of the Company pursuant to the Company's Non-Employee Directors' 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q dated September 30, 2000. | ||
10.9 | Form of Indemnification Agreements executed between the Company and executive officers and directors of the Company is incorporated herein by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K dated December 31, 1991. | ||
10.10 | Form of Employment Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K dated December 31, 1997. | ||
10.11 | Form of Split-Dollar Life Insurance Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K dated December 31, 1991. | ||
10.12 | Form of Amendment to Split-Dollar Life Insurance Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K dated December 31, 1992. | ||
10.13 | Form of Right of First Refusal Agreement executed between the company and certain Shareholders of the Company is incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K dated December 31, 1994. | ||
10.14 | Investment Agreement dated June 18, 1999 between the Company and all of the Stockholders of SparBank, Incorporated is incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-37809), filed with the Securities Exchange Commission on October 14, 1997. | ||
11 | Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per share is described in Note 1 of the Company's Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Date" of this document. | ||
13 | Quarterly Report to Security Holders for the quarter ended December 31, 2000. | ||
21 | Subsidiaries of the Registrant. | ||
23 | Consents of Experts and Counsel. | ||
Exhibits 10 through 10.5 and 10.7 through 10.12 are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to item 14(a)3. | |||
All other Exhibits which are required to be filed with this form are not applicable. | |||
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undesigned, thereunto duly authorized.
FIRST MIDWEST BANCORP, INC. Registrant | ||
By | /s/ ROBERT P. O'MEARA | |
Robert P. O'Meara | ||
Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrat and in their capacities on March 5, 2001.
Signatures | ||
/s/ ROBERT P. O'MEARA | ||
Robert P. O'Meara | Chairman of the Board and Chief Executive Officer | |
/s/ JOHN M. O'MEARA | ||
John M. O'Meara | President, Chief Operating Officer and Director | |
/s/ DONALD J. SWISTOWICZ | ||
Donald J. Swistowicz | Executive Vice President, Chief Financial and Accounting Officer | |
/s/ VERNON A. BRUNNER | ||
Vernon A. Brunner | Director | |
/s/ WILLIAM J. COWLIN | ||
William J. Cowlin | Director | |
/s/ BRUCE S. CHELBERG | ||
Bruce S. Chelberg | Director | |
/s/ O. RALPH EDWARDS | ||
O. Ralph Edwards | Director | |
/s/ JOSEPH W. ENGLAND | ||
Joseph W. England | Director | |
/s/ BROTHER JAMES GAFFNEY | ||
Brother James Gaffney, FSC | Director | |
/s/ THOMAS M. GARVIN | ||
Thomas M. Garvin | Director | |
/s/ JOHN L. STERLING | ||
John L. Sterling | Director | |
/s/ J. STEPHEN VANDERWOUDE | ||
J. Stephen Vanderwoude | Director | |
/s/ RICHARD T. WOJCIK | ||
Richard T. Wojcik | Director |