SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended MARCH 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
COMMISSION FILE NUMBER 0-10967
FIRST MIDWEST BANCORP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3161078
(State or other jurisdiction of (IRS Employer
Identification No.)
incorporation or organization)
300 PARK BLVD., SUITE 405, P.O. BOX 459
ITASCA, ILLINOIS 60143-0459
(Address of principal executive offices) (zip code)
(708) 875-7450
(Registrant's telephone number, including area code)
COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Securities Registered Pursuant to Section 12(g) of the Act
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [
]
As of May 8, 1996, 13,690,997 shares of the Registrant's $.01 par value
common stock were outstanding, excluding treasury shares. (Refer to
footnote (1) under Item 4 located on page 14 for April, 1996 change made
to par value of common stock.)
Exhibit Index is located on page 15.
FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Condition . . . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Dollar amounts in thousands except per share data)
MARCH 31, DECEMBER 31,
1996 (1) 1995 (2)
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,908 $ 141,336
Funds sold and other short term investments . . . . . . . . . . . . . . . . . 7,403 7,927
Mortgages held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,919 20,011
Securities available for sale, at market value . . . . . . . . . . . . . . . . 920,639 831,030
Securities held to maturity, at amortized cost (market value of $26,733 and
$27,641 at March 31, 1996 and December 31, 1995, respectively) . . . . . . 26,511 27,527
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939,500 2,085,604
Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,076) (29,194)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,911,424 2,056,410
Premises, furniture and equipment . . . . . . . . . . . . . . . . . . . . . . 46,851 47,108
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 20,396 24,786
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,160 51,162
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,147,211 $ 3,207,297
LIABILITIES
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 349,447 $ 360,895
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,219 251,468
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,960 262,959
Money market deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,424 285,058
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,107,927 1,111,678
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,248,977 2,272,058
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610,302 649,821
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,978 12,262
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,169 23,923
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,895,426 2,958,064
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 1,000,000 shares authorized, none issued . . . ---
Common stock, no par value: 20,000,000 shares authorized (3); 14,007,291 shares
issued; 13,689,424 and 13,679,747 outstanding at March 31, 1996 and
December 31, 1995, respectively . . . . . . . . . . . . . . . . . . . . . 23,475 23,475
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 34,368 35,516
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,888 195,853
Unrealized net appreciation (depreciation) on securities, net of tax . . . . . (691) 486
Treasury stock, at cost - 317,867 and 327,544 shares at March 31, 1996
and December 31, 1995, respectively . . . . . . . . . . . . . . . . . . . . (6,255) (6,097)
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . 251,785 249,233
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $ 3,147,211 $ 3,207,297
See notes to consolidated financial statements.
<FN>
(1) Unaudited
(2) Audited - See December 31, 1995 Form 10-K for Auditor's Report.
(3) Refer to footnote (1) under Item 4 located on page 14 for April, 1996 change made to par value and authorized number of
shares of common stock.
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31, (1)
1996 1995
INTEREST INCOME
Loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,759 $ 42,347
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,805 11,728
Securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 3,966
Funds sold and other short-term investments . . . . . . . . . . . . . . . . . . . . . 196 293
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,183 58,334
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,436 17,585
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,347 11,524
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,783 29,109
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,400 29,225
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859 1,648
Net interest income after provision for loan losses . . . . . . . . . . . . . . . 28,541 27,577
NONINTEREST INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . 2,338 2,356
Trust and investment management fees . . . . . . . . . . . . . . . . . . . . . . . . 1,623 1,488
Other service charges, commissions and fees . . . . . . . . . . . . . . . . . . . . . 1,387 1,231
Mortgage banking revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 547
Security gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 183
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571 602
TOTAL NONINTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,910 6,407
NONINTEREST EXPENSE
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,955 9,960
Retirement and other employee benefits . . . . . . . . . . . . . . . . . . . . . . . 2,550 2,760
Occupancy expense of premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1,488
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459 1,518
Computer processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,590 1,584
FDIC insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 1,182
Acquisition credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (324) -
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,074 5,134
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,153 23,626
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . 12,298 10,358
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,373 3,650
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,925 $ 6,708
NET INCOME PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.58 $ 0.49
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . $ 0.21 $ 0.19
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . 13,696,018 13,518,207
See notes to consolidated financial statements.
<FN>
(1) Unaudited
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
THREE MONTHS ENDED
MARCH 31, (1)
1996 1995
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,925 $ 6,708
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 859 1,648
Provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 1,522 1,409
Net (accretion) amortization of securities
available for sale premiums and discounts . . . . . . . . . . . . . . . . . (1,378) 701
Net accretion of securities held to maturity premiums and discounts . . . . . (15) (130)
Net gains on securities available for sale transactions . . . . . . . . . . . (76) (183)
Net gains on sales of premises, furniture and equipment . . . . . . . . . . . (28) (12)
Net decrease in deferred income taxes . . . . . . . . . . . . . . . . . . . . (174) (1,161)
Net amortization of purchase accounting adjustments and goodwill . . . . . . 457 358
Changes in operating assets and liabilities:
Net increase in loans held for sale . . . . . . . . . . . . . . . . . . . . (2,908) (2,896)
Net decrease (increase) in accrued interest receivable . . . . . . . . . . 4,390 (2,030)
Net (increase) decrease in other assets . . . . . . . . . . . . . . . . . . (2,672) 5,095
Net (decrease) increase in accrued interest payable . . . . . . . . . . . . (1,284) 403
Net increase in other liabilities . . . . . . . . . . . . . . . . . . . . . 1,420 3,054
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 8,038 12,964
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,430 71,540
Proceeds from maturities, calls and paydowns . . . . . . . . . . . . . . . . . . 209,700 10,352
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (572,926) (79,302)
Securities held to maturity:
Proceeds from maturities, calls and paydowns . . . . . . . . . . . . . . . . . . 2,707 51,173
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,676) (20,502)
Loans made to customers, net of principal collected . . . . . . . . . . . . . . . . 625 (31,869)
Proceeds from sales of foreclosed real estate . . . . . . . . . . . . . . . . . . . 1,185 1,973
Proceeds from sales of premises, furniture and equipment . . . . . . . . . . . . . 64 38
Purchases of premises, furniture and equipment . . . . . . . . . . . . . . . . . . (1,301) (2,542)
NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . 53,808 861
FINANCING ACTIVITIES
Net decrease in deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . (23,081) (16,877)
Net (decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . . (39,519) 8,337
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,266) (78)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,890) (2,320)
Cash dividends paid by acquiree . . . . . . . . . . . . . . . . . . . . . . . . . . - (181)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958 713
NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (66,798) (10,406)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . (4,952) 3,419
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 149,263 130,394
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 144,311 $ 133,813
Supplemental disclosures:
Interest paid to depositors and creditors . . . . . . . . . . . . . . . . . . . $ 31,066 $ 28,627
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,402 575
Non-cash transfers to foreclosed real estate from loans . . . . . . . . . . . . 2,350 596
Non-cash transfers to securities available for sale from loans . . . . . . . . . $ 141,164 $ -
See notes to consolidated financial statements.
<FN>
(1) Unaudited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of
First Midwest Bancorp, Inc. ("First Midwest") have been prepared in
accordance with generally accepted accounting principals and with the
rules and regulations of the Securities and Exchange Commission for
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principals for complete financial statements. The preparation of
financial statements requires Management to make estimates and assumptions
that affect the recorded amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
recorded period. Actual results could differ from those estimates. In
addition, certain reclassifications have been made to the 1995 data to
conform to the 1996 presentation. For further information with respect to
significant accounting policies followed by First Midwest in the
preparation of its consolidated financial statements, refer to First
Midwest's Annual Report on Form 10-K for the ended December 31, 1995.
On December 20, 1995, First Midwest acquired CF Bancorp, Inc. ("CF"),
whose principal subsidiary was Citizens Federal Savings Bank ("Citizens
Federal"), in a transaction accounted for as a pooling of interests.
Accordingly, prior period financial statements and other financial
disclosures have been restated as if the combining companies had been
consolidated for all periods presented.
2. ACQUISITION
Pursuant to the acquisition of CF on December 20, 1995, each share of
common stock of CF was converted into 1.4545 shares of First Midwest, with
1,339,989 First Midwest shares being issued to CF stockholders.
Coincident with the acquisition, First Midwest recorded $4,887 in
acquisition-related costs consisting of $4,339 in acquisition expenses and
$548 in provisions for loan losses incident to conforming Citizens
Federal's credit policies to First Midwest's. The acquisition expenses,
certain of which are nondeductible for income tax purposes, were recorded
through the establishment of a reserve which is comprised of the following
components for the dates indicated:
March 31, December 20,
Acquisition Reserve: 1996 1995
Executive severance agreements $ 923 $ 1,290
Employee severance 416 545
Outplacement and other employee costs 112 275
Bad debt reserve recapture 992 992
Investment advisor fees - 410
Legal, accounting and other professional fees 197 827
$ 2,640 $ 4,339
During the first quarter of 1996, the acquisition reserve was reduced by
$1,699 as a result of $1,375 in acquisition related expenses being paid
out and $324 of the reserve being reversed. The reversal was primarily
related to lesser severance being paid to former Citizens Federal
executives and employees who resigned or accepted reduced payouts during
the first quarter of 1996.
The bad debt reserve recapture totaling $992 in the above table represents
the after-tax cost incident to Citizens Federal's converting from a thrift
institution to a national bank. Upon conversion, the institution becomes
subject to recapture of all or a portion of its bad debt reserve and would
be required to immediately record, for financial accounting purposes, a
current or deferred tax liability for the amount of recaptured taxes for
which liabilities previously have not been recorded. Citizens Federal's
conversion from a thrift to a national bank, as contemplated by the
acquisition contract and as currently planned, will take place in 1996
prior to its merger with the Bank. In late 1995, legislation was
introduced in Congress under which pre-1988 bad debt reserves of thrifts
would not be subject to recapture upon conversion to a national bank. The
legislation was a part of the budget reconciliation bill which was vetoed
by President Clinton in December, 1995. The bad debt legislation is
currently under consideration as part of both the House and Senate health
care reform bills. The likelihood of passage of the thrift bad debt tax
relief legislation is unknown at this time and is difficult to predict
because the outcome of the health care reform rests largely on the
reconciliation of several controversial provisions. Importantly,
enactment of the thrift bad debt relief legislation would eliminate the
need for the bad debt reserve recapture portion of the acquisition
expenses and permit its reversal.
Additional information with respect to the components of the acquisition
reserve can be found in First Midwest's Annual Report on Form 10-K for the
year ended December 31, 1995 in Footnote 2 located on page 47.
3. SECURITIES
SECURITIES AVAILABLE FOR SALE - The amortized cost and market value of
securities available for sale at March 31, 1996 and December 31, 1995 are
as follows:
Securities Available for Sale
March 31, 1996 December 31, 1995
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
U.S. Treasury securities . . $ 115,835 $ 62 $ (177) $ 115,720 $188,854 $ 803 $ - $ 189,657
U.S. Agency securities . . . 276,888 137 (1,285) 275,740 266,534 620 (279) 266,875
Mortgage-backed securities . 524,050 2,733 (2,537) 524,246 369,888 876 (1,248) 369,516
Other securities . . . . . . 4,931 2 - 4,933 4,958 24 - 4,982
Total . . . . . . . . . . $ 921,704 $ 2,934 $(3,999) $ 920,639 $830,234 $ 2,323 $(1,527) $ 831,030
SECURITIES HELD TO MATURITY - The amortized cost and market value of
securities held to maturity at March 31, 1996 and December 31, 1995 are as
follows:
Securities Held to Maturity
March 31, 1996 December 31, 1995
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
U.S. Treasury securities . . $ 902 $ 4 $ - $ 906 $ 828 $ 8 $ - $ 836
State and
municipal securities . . . 14,301 227 (35) 14,493 14,403 320 (241) 14,482
Other securities . . . . . . 11,308 26 - 11,334 12,296 27 - 12,323
Total . . . . . . . . . . $ 26,511 $ 257 $ (35) $ 26,733 $ 27,527 $ 355 $ (241) $ 27,641
4. LOANS
The following table provides the book value of loans, by major
classification, as of the dates indicated:
March 31, December 31,
1996 1995
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . $ 585,138 $ 525,210
Agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,055 32,111
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,540 568,344
Real estate - 1-4 family . . . . . . . . . . . . . . . . . . . . . 186,204 325,056
Real estate - commercial . . . . . . . . . . . . . . . . . . . . . 446,079 422,073
Real estate - construction . . . . . . . . . . . . . . . . . . . . 112,576 98,688
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,908 17,122
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,939,500 $ 2,085,604
During the first quarter of 1996, First Midwest securitized approximately
$140,000 in 1-4 family real estate loans, retaining such assets in its
securities available for sale portfolio as mortgage-backed securities.
5. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS
Transactions in the reserve for loan losses for the quarters ended March
31, 1996 and 1995 are summarized below:
Quarters ended
March 31,
1996 1995
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . $ 29,194 $ 25,154
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . 859 1,648
Loans charged-off . . . . . . . . . . . . . . . . . . . . . . . . . . (2,670) (1,979)
Recoveries of loans previously charged-off . . . . . . . . . . . . . . 693 447
Net loans charged-off . . . . . . . . . . . . . . . . . . . . . . . (1,977) (1,532)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 28,076 $ 25,270
The recorded investment in loans considered impaired at March 31, 1996, as
defined by Financial Accounting Standards Board Statement No. 114, was
$17,476 of which $9,709 have collateral values equal to or greater than
the recorded investment in such loans; the $7,767 balance of impaired
loans have collateral values less than the recorded investment in such
loans for which a specific loan loss reserve of $2,200 is maintained. For
the three months ended March 31, 1996, the average recorded investment in
impaired loans was approximately $17,700.
6. CONTINGENT LIABILITIES AND OTHER MATTERS
There are certain legal proceedings pending against First Midwest and its
Affiliates in the ordinary course of business at March 31, 1996. In
assessing these proceedings, including the advise of counsel, First
Midwest believes that liabilities arising from these proceedings, if any,
would not have a material adverse effect on the consolidated financial
condition of First Midwest.
During the second quarter of 1995 settlement discussions were initiated
arising out of litigation brought by First Midwest relating to a claim
against its fidelity bond insurance carrier. Incident thereto the carrier
informally communicated a settlement offer which was rejected by First
Midwest. A bench trial commenced on February 26, 1996 with First Midwest
presenting its case over the ensuing five days with the trial being
continued to late June, 1996 when the insurance carrier will present its
defense. Neither the outcome of the trial nor the possibility of
settlement can be reasonably quantified or determined at this time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion presented below provides an analysis of First Midwest's
results of operations and financial condition for three months ended March
31, 1996 as compared to the same period in 1995. Management's discussion
and analysis should be read in conjunction with the consolidated financial
statements and accompanying notes presented elsewhere in this report as
well as First Midwest's 1995 Annual Report on Form 10-K. Results of
operations for the three month period ended March 31, 1996 are not
necessarily indicative of results to be expected for the full year of
1996.
The consolidated financial information for all periods presented herein
have been restated to include First Midwest's 1995 acquisition of CF
Bancorp, Inc. accounted for as a pooling of interests. All financial
information is presented in thousands of dollars, except per share data.
ACQUISITION
On December 20, 1995, First Midwest consummated the acquisition of CF
Bancorp, Inc. ("CF"), the holding company for Citizens Federal Savings
Bank ("Citizens Federal"). Pursuant to the acquisition, each share of
common stock of CF was converted into 1.4545 shares of First Midwest,
resulting in 1,339,989 First Midwest shares being issued to CF
stockholders. Citizens Federal, with assets of $220 million and offices
in Davenport and Bettendorf, Iowa, is currently planned to be converted to
a national bank and merged into First Midwest Bank, N.A. in 1996.
SUMMARY OF PERFORMANCE
Net Income
Net income for the first quarter of 1996 increased to $7,925 , or $.58 per
share from $6,708, or $.49 per share in the first quarter of 1995,
representing an increase of 18% on a per share basis.
Presented in the table below is an income statement analysis comparing the
change in the components of net income for the periods ended March 31,
1996 and 1995. The increase or decrease in each category is further
detailed in the discussion and analysis that follows.
Three Months Ended
March 31, Change
1996 1995 $ %
Net interest income (tax equivalent) . . . . . . . . . . . . . . $ 30,026 $ 29,515 $ 511 1.7%
Provision for loan losses . . . . . . . . . . . . . . . . . . . . 859 1,648 (789) (47.9)
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . 6,910 6,407 503 7.9
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . 23,153 23,626 (473) (2.0)
Income before income taxes . . . . . . . . . . . . . . . . . . . 12,924 10,648 2,276
Income tax expense/tax equivalent adjustment . . . . . . . . . . 4,999 3,940 1,059 26.9
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,925 $ 6,708 $ 1,217 18.1%
Net Income per share . . . . . . . . . . . . . . . . . . . . . . $ 0.58 $ 0.49 $ 0.09 18.4%
Return on Average Assets and Stockholders' Equity
Return on average assets was 1.02% for the first quarter of 1996 as
compared to 0.89% for the same quarter in 1995. Return on average
stockholders' equity for the first quarter of 1996 was 12.66%, as compared
to 12.67% for the 1995 quarter.
NET INTEREST INCOME
Net interest income on a tax equivalent totaled $30,026 for the first
quarter of 1996, representing an increase of $511 over the year ago
quarter totaling $29,515. As shown in the Volumes/Rate Analysis located
on page 11, the increase in net interest income is comprised of $1,185 in
interest income, net of $674 in interest expense. Interest income
increased as a result of volume growth, with average interest earning
assets totaling $2,922,622 for the first quarter of 1996 as compared to
$2,864,443 for the same quarter 1995, for an increase of $58,219.
Loans increased by $160 million and represented 71% of total earning
assets for the first quarter of 1996 as compared to 67% for the 1995
quarter. Interest income on loans increased by $3,860 due to the volume
growth as average interest rates were unchanged between periods.
Securities held to maturity declined by $202 million in the first quarter
of 1996 as compared to 1995 resulting primarily from a December, 1995
reclassification to the available for sale portfolio. The
reclassification stemmed from both a Financial Accounting Standards Board-
allowed redesignation between securities classifications and to conforming
CF's acquired securities portfolio to First Midwest's. The total
securities portfolio, including held to maturity and available for sale
securities, declined by $124 million and represented 28% of earning assets
for 1996 as compared to 33% in 1995. Such decline reduced interest income
by $3,142 in the first quarter of 1996 as compared to 1995 and reflects a
redeployment of available funds into higher-yielding loans.
Funds sold and other short-term investments, representing the smallest
component of earning assets, increased by $21 million in the first quarter
of 1996, resulting in increased interest income of $467.
The $674 increase in interest expense resulted from increases in both
volumes of and rates on interest bearing liabilities. The most
significant changes occurred in higher volumes and rates on money market
and time deposits, which were partly offset by lower volumes and rates on
short-term borrowings. New product offerings resulted in the growth in
deposits, with certain new money market deposits being tied to the prime
rate while the time deposit promotions offered high introductory interest
rates. Short-term borrowing balances declined with discretionary funding
needs, the rates on which dropped commensurate with short-term market
interest rates.
The net interest margin declined by five basis points for the first
quarter of 1996 to 4.13% from 4.18% in 1995. As shown in the Volume/Rate
Analysis, although interest rates on average earning assets decreased by
seven basis points from 8.30% in 1995 to 8.23% in 1996, rates on average
interest bearing liabilities increased by three basis points, resulting in
a cost of funds of 4.77% in 1996 as compared to 4.74% in 1995. The
decline in the yield on average earning assets resulted primarily from the
securities available for sale portfolio, and is reflective of the
relatively short effective duration of First Midwest's securities
portfolio which approximates 1.8 years as of March 31, 1996. The average
interest rate on interest bearing liabilities increased due to higher
rates on money market and time deposits, due to the new product offerings
at higher rates previously described.
VOLUME/RATE ANALYSIS
The table below summarizes the changes in average interest-earning assets
and interest-bearing liabilities as well as the average rates earned and
paid on these assets and liabilities, respectively, for the quarters ended
March 31, 1996 and 1995. The table also details the increase and decrease
in income and expense for each major category of assets and liabilities
and analyzes the extent to which such variances are attributable to volume
and rate changes.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AVERAGE INTEREST
AVERAGE BALANCES RATES EARNED/PAID
BASIS
INCREASE POINTS
1996 1995 (DECREASE) 1996 1995 INC/(DEC)
Funds sold and other
short-term investments . . . . . . $ 37,624 16,319 21,305 8.12% 7.28% 0.84%
Securities available for sale . . . . 785,134 706,664 78,470 6.28 6.73 (0.45)
Securities held to maturity . . . . . 26,971 228,984 (202,013) 7.80 7.42 0.38
Loans, net of unearned discount (1) . 2,072,933 1,912,476 160,457 8.98 8.99 (0.01)
Total interest-earning assets (1) . $2,922,662 2,864,443 58,219 8.23 % 8.30% (0.07)%
Savings deposits . . . . . . . . . . $ 247,121 276,994 (29,873) 2.13 2.16 (0.03)
NOW accounts . . . . . . . . . . . . 261,473 283,829 (22,356) 2.32 2.38 (0.06)
Money market deposits . . . . . . . . 278,943 228,580 50,363 3.67 3.18 0.49
Time deposits . . . . . . . . . . . . 1,115,611 976,636 138,975 5.79 5.26 0.53
Short-term borrowings . . . . . . . . 610,245 723,124 (112,879) 5.50 6.46 (0.96)
Total interest-bearing liabilities $2,513,393 2,489,163 24,230 4.77% 4.74% 0.03%
Net interest margin/income (1) . . 4.13% 4.18% (0.05)%
<FN>
(1) Interest income and yields are presented on a tax-equivalent basis.
INTEREST INCREASE/(DECREASE) IN
INCOME/EXPENSE INTEREST INCOME/EXPENSE DUE TO:
INCREASE
1996 1995 (DECREASE) VOLUME RATE TOTAL
Funds sold and other
short-term investments . . . . . . . . . . . $ 760 293 467 $ 427 40 467
Securities available for sale . . . . . . . . . 12,251 11,728 523 1,133 (610) 523
Securities held to maturity . . . . . . . . . . 523 4,188 (3,665) (3,934) 269 (3,665)
Loans, net of unearned discount (1) . . . . . . 46,275 42,415 3,860 3,582 278 3,860
Total interest-earning assets (1) . . . . . . $ 59,809 58,624 1,185 1,208 (23) 1,185
Savings deposits . . . . . . . . . . . . . . . $ 1,309 1,475 (166) (159) (7) (166)
NOW accounts . . . . . . . . . . . . . . . . . 1,511 1,663 (152) (129) (23) (152)
Money market deposits . . . . . . . . . . . . . 2,548 1,792 756 432 324 756
Time deposits . . . . . . . . . . . . . . . . . 16,067 12,655 3,412 1,914 1,498 3,412
Short-term borrowings . . . . . . . . . . . . . 8,348 11,524 (3,176) (1,665) (1,511) (3,176)
Total interest-bearing liabilities . . . . . $ 29,783 29,109 674 $ 393 281 674
Net Interest margin/income (1) . . . . . . . $ 30,026 29,515 511 $ 814 (303) 511
<FN>
(1) Interest income and yields are presented on a tax-equivalent basis.
NONINTEREST INCOME
Noninterest income totaled $6,910 for the quarter ended March 31, 1996, as
compared to $6,407 for the same quarter in 1995. Exclusive of net
security gains which totaled $76 for the first quarter of 1996 as compared
to $183 for the same quarter of 1995, noninterest income increased by
$610. The largest component of this increase was $368 in mortgage banking
revenues resulting from growth in real estate loan originations which
totaled $58,000 in the 1996 quarter as compared to $34,000 for the same
quarter in 1995. Other service charges, commissions and fees contributed
$156 of the increase primarily due to revenues on merchants fees on credit
card sales and annuity sales revenues. Growth in new trust business
resulted in an increase in trust income of $135, while decreases between
quarters were realized in service charges on deposits accounts totaling
$18 and other income totaling $31.
NONINTEREST EXPENSE
Noninterest expense totaled $23,153 for the quarter ended March 31, 1996,
decreasing by $473 from $23,626 for the same quarter 1995. The largest
component of the decline in expense was FDIC insurance premiums, which
decreased by $1,033 in the first quarter of 1996 as compared to the like
1995 period, reflective of a reduced premium assessment to approximately
.04 cents per $100 of deposits in 1996 as compared to .23 cents per $100
of deposits in 1995. Retirement and other employee benefits expense
decreased by $210 primarily as a result of the Company's 1995
restructuring initiative, and foreclosed real estate expense decreased by
$216 due to a $3.3 million reduction in principal balances of foreclosed
property held from period to period. An acquisition credit of $324 was
recorded in the first quarter of 1996 due to forfeited severance resulting
from voluntary resignations during the first quarter of 1996 at Citizens
Federal. Note 2 to the consolidated financial statements provides
additional information with respect to acquisition expenses/credits.
In part offsetting the impact of the above referenced expense reductions
was an increase in occupancy expenses of $212 in the first quarter of 1996
resulting from rental expense incurred on a new operations center which
began in mid-1995. Additionally, other expenses increased by $940, $260
of which was due to insurance expense and reflects the affect of a one-
time credit recorded in the 1995 quarter, and $230 of which resulted from
legal and professional fees primarily related to the litigation referred
to in note 6 to the consolidated financial statements. Also incurred were
increases totaling $110 in repossession expense and $90 in advertising and
promotions, with the remaining $250 increase in other expense spread among
various categories of miscellaneous expense.
INCOME TAX EXPENSE
Income tax expense totaled $4,373 for the first quarter of 1996,
increasing from $3,650 for the same period in 1995 and reflects effective
income tax rates of 35.6% and 35.2%, respectively.
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
At March 31, 1996, nonperforming assets totaled $25,170 and loans past due
90 days or more and still accruing totaled $8,206. The following table
summarizes nonperforming assets and loans past due 90 days or more and
still accruing, as of the close of the last five calendar quarters:
Nonperforming Assets and 1996 1995
90 Day Past Due Loans March 31 Dec. 31 Sept. 30 June 30 March 31
Nonaccrual loans . . . . . . . . . . . . . . . $ 11,428 $ 11,219 $ 9,208 $ 11,924 $ 12,558
Renegotiated loans . . . . . . . . . . . . . . 7,963 7,917 7,942 7,779 7,704
Total nonperforming loans . . . . . . . . . 19,391 19,136 17,150 19,703 20,262
Foreclosed real estate . . . . . . . . . . . . 5,779 4,752 5,664 7,746 9,089
Total nonperforming assets . . . . . . . . . $ 25,170 $ 23,888 $ 22,814 $ 27,449 $ 29,351
% of total loans plus foreclosed real estate 1.29% 1.13% 1.11% 1.36% 1.51%
90 Day past due loans accruing interest . . . . $ 8,206 $ 3,626 $ 8,676 $ 3,800 $ 5,980
The $1,027 increase in foreclosed real estate is primarily due to the
addition of a commercial property totaling $1,500, which was partially
offset by dispositions in 1-4 family properties of approximately $500.
First Midwest's disclosure with respect to impaired loans is
contained in note 5 to the consolidated financial statements,
located on page 8.
PROVISION AND RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses during the three months ended
March 31, 1996 and 1995 are summarized in the following table:
Three months ended
March 31,
1996 1995
Balance at beginning period . . . . . . . . . . . . . . . . . . . . . . . $ 29,194 $ 25,154
Provision for loan process . . . . . . . . . . . . . . . . . . . . . . 859 1,648
Loans charged of . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,670) (1,979)
Recoveries of loans previously charged-off . . . . . . . . . . . . . . 693 447
Net loans charged-off . . . . . . . . . . . . . . . . . . . . . . . (1,977) (1,532)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,076 $ 25,270
The provision for loan losses charged to operating expense for the first
quarter of 1996 totaled $859 as compared to $1,648 for the same quarter in
1995. Loans charged off, net of recoveries, for the quarter totaled
$1,977, or .38% of average loans in 1996 as compared to $1,532, or .33% in
1995. The level of the provision for loan losses charged to operating
expense in any given period is dependent upon many factors, including loan
growth and changes in the composition of the loan portfolio, net charge-
off levels, delinquencies, collateral values, and Management's assessment
of current and prospective economic conditions in First Midwest's primary
market areas.
At March 31, 1996, the reserve for loan losses totaled $28,076, or 1.45%
of loans, a level which is considered adequate in relation to the risk of
future losses within the loan portfolio. The reserve is comprised of
three parts: allocated for specific impaired loans, $2,200; allocated for
general segments of unimpaired loans, $9,143; and unallocated, $16,733.
That part of the reserve allocated for specific impaired loans is
discussed in note 5 to the consolidated financial statements located on
page 8. That part of the reserve allocated for general unimpaired loan
segments represents First Midwest's best judgment as to potential loss
exposure based upon both historical loss trends as well as loan ratings
and qualitative evaluations of such segments. The unallocated portion of
the reserve is that part not allocated to either a specific loan on which
loss is anticipated or allocated to general segments of the unimpaired
loan portfolio.
CAPITAL ANALYSIS
The table below compares First Midwest's capital structure to the minimum
capital ratios required by its primary regulator, the Federal Reserve
Board ("FRB"). Also provided is a comparison of capital ratios for First
Midwest's national banking subsidiary, First Midwest Bank, N.A., to its
primary regulator, the Office of the Comptroller of the Currency ("OCC").
Both First Midwest and First Midwest Bank, N.A. are subject to the minimum
capital ratios defined by banking regulators pursuant to the FDIC
Improvement Act ("FDICIA") and have capital measurements well in excess of
the minimums required by their respective bank regulatory authorities to
be considered "well-capitalized" which is the highest capital category
established under the FDICIA.
CAPITAL MEASUREMENTS - FRB/OCC
As of March 31, 1996
Bank Holding Company National Bank Minimum
Minimum Minimum Well-
First Required Required Capitalized
Midwest FRB FMB, N.A. OCC FDICIA
Tier 1 capital to risk-based assets . . . . . . . . 10.81% 4.00% 8.83% 4.00% 6.00%
Total capital to risk-based assets . . . . . . . . 12.06% 8.00% 10.07% 8.00% 10.00%
Leverage ratio . . . . . . . . . . . . . . . . . . 7.61% 3.00% 6.28% 3.00% 5.00%
Citizens Federal's primary regulator is the Office of Thrift Supervisions
("OTS"). As of March 31, 1996, Citizens Federal exceeded all applicable
capital ratio requirements of the OTS.
First Midwest believes that it has a responsibility to reward its
stockholders with a meaningful current return on their investment and, as
part of the Company's dividend policy, First Midwest's Board of Directors
reviews the Company's dividend payout ratio periodically to ensure that it
is consistent with internal capital guidelines and industry standards. As
a result of such review, in February, 1996, First Midwest's Board of
Directors authorized a quarterly dividend increase to $0.21 per share
representing a 10.5% increase over the previous quarterly dividend of
$0.19. As of March 31, 1996, the dividend payout ratio was 35.3% based on
net income from operations for the trailing four quarters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At First Midwest's Annual Meeting of Shareholders held on April 16, 1996,
the following matters were submitted to vote:
Number of Shares Voted:
For Against Abstain
- Approving two proposals to amend
the Company's Restated Certificate
of Incorporation (1) . . . . . . . . . . . . . . . . . . . . . . 9,887,000(2) 1,169,000 137,000
- Approving a proposal to amend
the Company's 1989 Omnibus
Stock and Incentive Plan (3) . . . . . . . . . . . . . . . . . . 8,515,000(4) 1,479,000 217,000
- Election of four directors . . . . . . . . . . . . . . . . . . . . . ---(5) --- ---
<FN>
(1) The proposals to amend the Company's Restated Certificate of Incorporation increased the number of
shares of Common Stock which the Company is authorized to issue from 20 million to 30 million and
changed the par value per share of such stock from no stated par value to a par value of $0.01. A
copy of the approved Restated Certificate of Incorporation is provided herein as Exhibit 3.
(2) Represents 72.3% of shares outstanding.
(3) The proposal to amend the Company's 1989 Omnibus Stock and Incentive Plan is fully described in the
Company's Proxy Statement filed with the Securities and Exchange Commission on March 8, 1996.
(4) Represents 76.1% of shares voted.
(5) Each of the four directors received votes in favor of at least 94% of shares voted.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index appearing on page 15.
(b) Form 8-K - On January 4, 1996 First Midwest filed a report on
Form 8-K announcing the consummation of the acquisition of CF
Bancorp, Inc. on December 20, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Midwest Bancorp, Inc.
Date: May 14, 1996 DONALD J. SWISTOWICZ
Donald J. Swistowicz
Executive Vice President*
* Duly authorized to sign on behalf of the Registrant.
EXHIBIT INDEX
Exhibit Sequential
Number Description of Documents Page Number
3 Restated Articles of Incorporation, as amended 16
27 Financial Data Schedule 26