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FMBI > SEC Filings for FMBI > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for FIRST MIDWEST BANCORP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FIRST MIDWEST BANCORP INC


9-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

First Midwest Bancorp, Inc. (the "Company") is a bank holding company headquartered in the Chicago suburb of Itasca, Illinois with operations throughout the greater Chicago metropolitan area as well as northwest Indiana, central and western Illinois, and eastern Iowa. Our principal subsidiary is First Midwest Bank (the "Bank"), which provides a broad range of commercial and retail banking and wealth management services to consumer, commercial and industrial, commercial real estate, or municipal customers through approximately 90 banking offices. We are committed to meeting the financial needs of the people and businesses in the communities where we live and work by providing customized banking solutions, quality products, and innovative services that fulfill those financial needs.

The following discussion and analysis is intended to address the significant factors affecting our results of operations and financial condition for the quarters and six-months ended June 30, 2013 and 2012. When we use the terms "First Midwest," the "Company," "we," "us," and "our," we mean First Midwest Bancorp, Inc., a Delaware Corporation, and its consolidated subsidiaries. When we use the term "Bank," we are referring to our wholly owned banking subsidiary, First Midwest Bank. 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 in our 2012 Annual Report on Form 10-K ("2012 10-K"). The results of operations for the quarter and six months ended June 30, 2013 are not necessarily indicative of future results.

Our primary sources of revenue are net interest income and fees from financial services provided to our customers. Our largest expenses include interest expense, compensation expense, and various other noninterest expense items.

Our results of operations are affected by various factors, many of which are beyond our control, including interest rates, local and national economic conditions, business spending, consumer confidence, certain seasonal factors, legislative and regulatory changes, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:

Pre-Tax, Pre-Provision Operating Earnings - Pre-tax, pre-provision operating earnings, a non-GAAP financial measure, reflects our operating performance before the effects of credit-related charges, securities gains, losses, and impairments, and certain unusual, infrequent, or non-recurring revenues and expenses. We believe this metric is useful because it helps investors to assess the Company's operating performance. A reconciliation of pre-tax, pre-provision operating earnings to GAAP can be found in Table 1.

Net Interest Income - Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities.

Net Interest Margin - Net interest margin equals net interest income divided by total average interest-earning assets.

Noninterest Income - Noninterest income is the income we earn from fee-based revenues, BOLI and other income, and non-operating revenues.

Asset Quality - Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans.

Regulatory Capital - Our regulatory capital is classified in one of the following two tiers: (i) Tier 1 capital consists of common equity, retained earnings, and qualifying trust-preferred securities, less goodwill and most intangible assets and (ii) Tier 2 capital includes qualifying subordinated debt and the allowance for credit losses, subject to limitations.

Unless otherwise stated, all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a diluted basis.

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

We include or incorporate by reference in this Quarterly Report on Form 10-Q, and from time to time our management may make, statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but instead represent only management's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Although we believe the expectations reflected in any forward-looking statements are reasonable, it is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition


indicated in such statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "probable," "potential," or "continue," and the negative of these terms and other comparable terminology. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report or when made. We do not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date of this quarterly report or the date on which the forward-looking statement is made.

Forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions and may contain projections relating to our future financial performance including our growth strategies and anticipated trends in our business. For a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements, you should refer to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Results of Operations" in this report and in our 2012 Annual Report on Form 10-K as well as our subsequent periodic and current reports filed with the U.S. Securities and Exchange Commission ("SEC"). However, these risks and uncertainties are not exhaustive. Other sections of this report describe additional factors that could adversely impact our business and financial performance.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with GAAP and are consistent with general practices in the banking industry. Critical accounting policies are policies that management believes are the most important to our financial position and results of operations. Application of critical accounting policies requires management to make estimates, assumptions, and judgments based on information available as of the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which may affect amounts reported in the financial statements.

For additional information regarding critical accounting policies, refer to "Summary of Significant Accounting Policies," presented in Note 1 to the Consolidated Financial Statements and the section titled "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2012 10-K. There have been no significant changes in the Company's application of critical accounting policies related to the allowance for credit losses, valuation of securities, and income taxes since December 31, 2012.


PERFORMANCE OVERVIEW

                                    Table 1
                            Selected Financial Data
         (Dollar and share amounts in thousands, except per share data)

                               Quarters Ended                        Six Months Ended
                                  June 30,                               June 30,
                              2013         2012      % Change      2013           2012        % Change
Operating Results
Interest income            $   71,753   $   75,518     (5.0%)   $   142,798    $    150,786     (5.3%)
Interest expense              (6,823)      (8,814)    (22.6%)      (14,020)        (18,900)    (25.8%)
  Net interest income          64,930       66,704     (2.7%)       128,778         131,886     (2.4%)
Fee-based revenues             26,008       23,651      10.0%        51,766          46,243      11.9%
Other noninterest income
(1)                             1,217          235        N/M         3,034           3,019       0.5%
Noninterest expense (1)      (61,454)     (58,630)       4.8%     (123,757)       (120,625)       2.6%
Pre-tax, pre-provision
operating earnings (2)         30,701       31,960     (3.9%)        59,821          60,523     (1.2%)
Provision for loan and
covered loan losses           (5,813)     (22,458)    (74.1%)      (11,487)        (40,668)    (71.8%)
Net gains on securities
sales                             216        1,556    (86.1%)           216           1,350    (84.0%)
Securities impairment
losses                              -      (1,405)     100.0%             -         (2,142)     100.0%
Gain on early
extinguishment of debt              -            -          -             -             256   (100.0%)
OREO valuation
adjustments                      (19)      (1,824)    (99.0%)         (586)         (2,514)    (76.7%)
Net gains (losses) on
OREO sales                        307        (703)        N/M            93           (316)        N/M
Adjusted amortization of
FDIC indemnification
 asset                          (750)            -        N/M       (1,500)               -        N/M
Severance-related costs         (511)            -        N/M       (1,491)           (315)        N/M
  Income before income
tax                            24,131        7,126        N/M        45,066          16,174        N/M
Income tax expense            (7,955)        (761)        N/M      (14,248)         (1,917)        N/M
  Net income                   16,176        6,365        N/M        30,818          14,257        N/M
Net income applicable to
non-vested restricted
 shares                         (219)         (76)        N/M         (431)           (215)        N/M
  Net income applicable
to common shares           $   15,957   $    6,289        N/M   $    30,387     $    14,042        N/M
Weighted average diluted
common shares
 outstanding                   74,024       73,659                   73,950          73,582
Diluted earnings per
common share               $     0.22   $     0.09              $      0.41    $       0.19
Performance Ratios (3)
Return on average common
equity                          6.66%        2.59%                    6.42%           2.90%
Return on average assets        0.79%        0.32%                    0.76%           0.36%
Net interest margin -
tax equivalent                  3.70%        3.88%                    3.73%           3.88%
Efficiency ratio               64.27%       60.56%                   65.38%          62.58%

N/M - Not meaningful.

(1) Excludes certain non-operating noninterest items.
(2) Our accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, we provided this non-GAAP performance result, which we believe is useful because it assists investors in evaluating our operating performance. This non-GAAP financial measure should not be considered an alternative to GAAP and may not be comparable to similar non-GAAP measures used by other companies.
(3) All ratios are presented on an annualized basis.


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