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FMBI > SEC Filings for FMBI > Form 10-Q on 4-Aug-2014All Recent SEC Filings

Show all filings for FIRST MIDWEST BANCORP INC

Form 10-Q for FIRST MIDWEST BANCORP INC


4-Aug-2014

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, and 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, 2014 and 2013. 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 2013 Annual Report on Form 10-K ("2013 10-K"). The results of operations for the quarter and six months ended June 30, 2014 are not necessarily indicative of future results.

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:

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, investment in bank-owned life insurance ("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 currently 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 REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "probable," "potential," "possible," or "continue" and words of similar import. Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and we caution you not to place undue reliance on these statements. Forward-looking statements are made only as of the date of this report, and we undertake no obligation to update any forward-looking statements contained in this report to reflect new information or events or conditions after the date hereof.

Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, anticipated trends in our business, regulatory developments, pending acquisition transactions, and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and assumptions. For a discussion of these risks, uncertainties and assumptions, you should refer to the sections entitled "Risk Factors" and "Management's Discussion


and Analysis of Financial Condition and Results of Operations" in this report and in our 2013 10-K, as well as our subsequent filings made with the 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 U.S. Generally Accepted Accounting Principles ("GAAP") and are consistent with predominant practices in the financial services industry. Critical accounting policies are those 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 the 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 Condensed 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 2013 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, 2013.

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,
                                             2014          2013          2014          2013
Operating Results
Interest income                           $  72,003     $  71,753     $ 141,693     $ 142,798
Interest expense                              5,696         6,823        11,691        14,020
Net interest income                          66,307        64,930       130,002       128,778
Provision for loan and covered loan
losses                                        5,341         5,813         6,782        11,487
Noninterest income                           31,193        27,441        58,443        55,016
Noninterest expense                          65,017        62,427       128,685       127,241
Income before income tax expense             27,142        24,131        52,978        45,066
Income tax expense                            8,642         7,955        16,814        14,248
Net income                                $  18,500     $  16,176     $  36,164     $  30,818
Weighted-average diluted common shares
outstanding                                  74,333        74,024        74,247        73,950
Diluted earnings per common share         $    0.25     $    0.22     $    0.48     $    0.41
Performance Ratios (1)
Return on average common equity                7.08 %        6.66 %        7.03 %        6.42 %
Return on average assets                       0.88 %        0.79 %        0.87 %        0.76 %
Net interest margin - tax equivalent           3.65 %        3.70 %        3.63 %        3.73 %
Efficiency ratio (2)                          63.60 %       64.27 %       65.09 %       65.38 %

(1) All ratios are presented on an annualized basis.

(2) The efficiency ratio expresses noninterest expense, excluding other real estate owned ("OREO") expense, as a percentage of tax-equivalent net interest income plus total fee-based revenues, other income, net trading gains, and tax-equivalent adjusted BOLI income. Net securities gains are excluded from the efficiency ratio. The $2.1 million loss on the prepayment of Federal Home Loan Bank ("FHLB") advances and $830,000 of acquisition-related expenses are excluded from the efficiency ratio for the quarter and six months ended June 30, 2014.


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