First Midwest Bancorp, Inc. Announces 2012 Fourth Quarter and
First Midwest Bancorp, Inc. Announces 2012 Fourth Quarter and Full Year Results
Significant Increase in Quarterly Earnings; Substantially Improved Credit Quality; Stable Net Interest Margin; Strong Fee-Based Revenue Growth
ITASCA, IL -- (Marketwire) -- 01/23/13 -- Today, First Midwest Bancorp, Inc. (the "Company" or "First Midwest") (NASDAQ: FMBI), the holding company of First Midwest Bank (the "Bank"), reported results of operations and financial condition for the fourth quarter of 2012. Net income applicable to common shares for the fourth quarter of 2012 was $13.0 million, or $0.18 per share. This compares to a net loss applicable to common shares of $47.8 million, or $0.65 per share, for the third quarter of 2012 and net income applicable to common shares of $3.9 million, or $0.05 per share, for the fourth quarter of 2011.
For the full year of 2012, the Company had a net loss applicable to common shares of $20.7 million, or $0.28 per share. This compares to net income applicable to common shares of $25.4 million, or $0.35 per share, for the year ended December 31, 2011.
"2012 was a year of transition," said Michael L. Scudder, President and Chief Executive Officer of First Midwest Bancorp, Inc. "Through aggressive remediation, we met our goal of substantially reducing problem assets. While impactful to earnings, these steps greatly improved our credit risk profile. At the same time, core earnings remained solid in a tough business environment. Investments made to enhance and align our sales and operations teams contributed to diversified, underlying loan growth, significantly greater fee-based revenues, and balanced expense control."
Mr. Scudder continued, "As a result of these actions, we enter 2013 a much stronger company. Continued business momentum, lower credit costs, and control of spending will serve to strengthen earnings. While evolving regulatory expectations and low interest rates will present challenges, our strong capital base, augmented by improved earnings, leaves us well positioned to pursue opportunities for growth and return value to our shareholders."
SELECT HIGHLIGHTS
Operating Performance for the Fourth Quarter
-- Net income applicable to common shares of $13.0 million, or $0.18 per
share, compared to a net loss of $0.65 per share for the third quarter
of 2012, and net income of $0.05 per share for the fourth quarter of
2011.
-- Fee-based revenues of $26.7 million, up 9.8% from the third quarter of
2012 and 12.0% from the fourth quarter of 2011.
-- Net interest margin of 3.84%, stable compared to the third quarter of
2012.
-- Total loans, excluding covered loans, of $5.2 billion, grew by $101.6
million from December 31, 2011.
Credit and Capital as of December 31, 2012
-- Non-accrual loans of $84.5 million declined 15.1% from September 30,
2012 and 54.9% from December 31, 2011.
-- Allowance for credit losses to loans, including covered loans, of
1.91%, compared to 1.93% at September 30, 2012.
-- Allowance for credit losses to non-accrual loans, excluding covered
loans, of 107%, up from 96% at September 30, 2012.
-- Tier 1 common capital to risk-weighted assets of 9.33%, an increase of
40 basis points from September 30, 2012.
Significant Fourth Quarter Events
-- Completed bulk loan sales, resulting in a gain, less commissions and
other selling expenses, of $2.6 million.
-- Repurchased $4.3 million of 6.95% junior subordinated debentures and
$12.0 million of 5.85% subordinated notes.
-- Recognized as a Chicago Tribune Top Workplace for the third
consecutive year.
OPERATING PERFORMANCE
Operating Performance Highlights
(Dollar amounts in thousands)
Quarters Ended Years Ended
--------------------------------- ----------------------
December September December December December
31, 2012 30, 2012 31, 2011 31, 2012 31, 2011
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 13,216 $ (48,527) $ 6,924 $ (21,054) $ 36,563
Net income (loss)
applicable to
common shares $ 13,022 $ (47,812) $ 3,877 $ (20,748) $ 25,437
Diluted earnings
(loss) per common
share $ 0.18 $ (0.65) $ 0.05 $ (0.28) $ 0.35
Return on average
common equity 5.50% (19.36%) 1.60% (2.14%) 2.69%
Return on average
assets 0.65% (2.35%) 0.34% (0.26%) 0.45%
Net interest margin 3.84% 3.83% 3.95% 3.86% 4.04%
Loans, excluding
covered loans, at
period end $5,189,676 $5,218,345 $5,088,113 $5,189,676 $5,088,113
Average
transactional
deposits (1) $5,276,919 $5,247,485 $4,866,800 $5,107,966 $4,755,111
(1) Comprised of demand deposits and interest-bearing transactional
accounts.
SIGNIFICANT FOURTH QUARTER EVENTS
Loan Sales
During the fourth quarter of 2012, the Company disposed of $172.5 million in original carrying value of certain non-performing and performing potential problem loans through multiple bulk loan sales. These transactions resulted in proceeds of $94.5 million and a gain, less commissions and other selling expenses, of $2.6 million.
Retirement of Debt
During the fourth quarter of 2012, the Company repurchased and retired $4.3 million of 6.95% junior subordinated debentures at a premium of 3.0% and $12.0 million of 5.85% subordinated notes at a premium of 5.0%. These transactions resulted in the recognition of a pre-tax loss of $814,000 and will reduce future annual interest expense by approximately $1.0 million.
Pre-Tax, Pre-Provision Operating Earnings (1)
(Dollar amounts in thousands)
Quarters Ended Years Ended
------------------------------- ---------------------
December September December December December
31, 2012 30, 2012 31, 2011 31, 2012 31, 2011
-------- ---------- ---------- --------- ----------
Income (loss) before
income tax expense $ 19,410 $ (85,520) $ 7,220 $ (49,936) $ 41,071
Provision for loan
losses 5,593 111,791 21,902 158,052 80,582
-------- ---------- ---------- --------- ----------
Pre-tax, pre-
provision earnings 25,003 26,271 29,122 108,116 121,653
-------- ---------- ---------- --------- ----------
Adjustments to Pre-
Tax, Pre-Provision
Earnings
Net securities gains
(losses) 88 (217) (110) (921) 2,410
Net losses on sales
and valuation
adjustments of other
real estate owned
("OREO"), excess
properties, assets
held-for sale, and
other (1,864) (3,280) (1,425) (7,974) (10,797)
Gain, less related
expenses, on bulk
loan sales 2,639 - - 2,639 -
Accelerated
amortization of FDIC
indemnification asset (2,705) (4,000) - (6,705) -
Gains on acquisitions,
net of integration
costs (588) 3,074 1,076 2,486 1,076
Losses on early
extinguishment of
debt (814) - - (558) -
Severance-related
costs - (840) (2,000) (1,155) (2,269)
-------- ---------- ---------- --------- ----------
Total adjustments (3,244) (5,263) (2,459) (12,188) (9,580)
-------- ---------- ---------- --------- ----------
Pre-tax, pre-
provision operating
earnings $ 28,247 $ 31,534 $ 31,581 $ 120,304 $ 131,233
======== ========== ========== ========= ==========
(1) The Company's accounting and reporting policies conform to U.S.
generally accepted accounting principles ("GAAP") and general practice
within the banking industry. As a supplement to GAAP, the Company
provided this non-GAAP performance result, which the Company believes is
useful because it assists investors in assessing the Company's operating
performance. Although it is intended to enhance investors' understanding
of the Company's business and performance, this non-GAAP financial
measure should not be considered an alternative to GAAP.
Pre-tax, pre-provision operating earnings of $28.2 million for the fourth quarter of 2012 decreased from the third quarter of 2012 and the fourth quarter of 2011. These reductions were driven mainly by lower net interest income and higher noninterest expense, excluding certain non-operating items, which was partially offset by gains on mortgage loan sales and an increase in other fee-based revenues.
For the full year of 2012, pre-tax, pre-provision operating earnings declined $10.9 million compared to 2011, resulting primarily from a reduction in net interest income, and was partially mitigated by an increase in fee-based revenues, gains on mortgage loan sales, and the recognition of net trading income for 2012 compared to losses for 2011.
Further discussion of net interest income and noninterest income and expense is presented in later sections of this release.
Net Interest Income and Margin Analysis
(Dollar amounts in thousands)
Quarters Ended
-----------------------------------------
December 31, 2012
-----------------------------------------
Yield/
Average Interest Rate
Balance Earned/Paid (%)
------------- ------------- ------------
Assets:
Federal funds sold and other
interest-earning assets $ 562,288 $ 345 0.24
Trading securities 15,597 94 2.41
Investment securities (1) 1,144,997 10,154 3.55
Federal Home Loan Bank and Federal
Reserve Bank stock 47,232 349 2.96
Loans held-for-sale 53,808 323 2.39
Loans, excluding covered loans (1) 5,160,576 62,192 4.79
Covered interest-earning assets (2) 248,971 3,975 6.35
------------- ------------- ------------
Total interest-earning assets (1) 7,233,469 77,432 4.26
------------- ------------
Cash and due from banks 122,328
Allowance for loan losses (103,302)
Other assets
886,748
-------------
Total assets $ 8,139,243
=============
Liabilities and Stockholders'
Equity:
Interest-bearing transaction
deposits $ 3,468,397 903 0.10
Time deposits 1,447,918 2,832 0.78
Borrowed funds 185,390 497 1.07
Senior and subordinated debt 214,764 3,445 6.38
------------- ------------- ------------
Total interest-bearing liabilities 5,316,469 7,677 0.57
------------- ------------
Demand deposits 1,808,522
-------------
Total funding sources 7,124,991
Other liabilities 73,077
Stockholders' equity - common 941,175
Stockholders' equity - preferred -
-------------
Total liabilities and stockholders'
equity $ 8,139,243
=============
Net interest income/margin (1) $ 69,755 3.84
============= ============
Quarters Ended
----------------------------------------
September 30, 2012
----------------------------------------
Yield/
Average Interest Rate
Balance Earned/Paid (%)
------------- ------------- ------------
Assets:
Federal funds sold and other
interest-earning assets $ 435,528 $ 265 0.24
Trading securities 15,389 25 0.65
Investment securities (1) 1,220,654 10,841 3.55
Federal Home Loan Bank and Federal
Reserve Bank stock 47,111 341 2.90
Loans held-for-sale - - -
Loans, excluding covered loans (1) 5,353,911 64,289 4.78
Covered interest-earning assets (2) 276,180 3,223 4.64
------------- ------------- ------------
Total interest-earning assets (1) 7,348,773 78,984 4.28
------------- ------------
Cash and due from banks 128,714
Allowance for loan losses (118,925)
Other assets 868,551
-------------
Total assets $ 8,227,113
=============
Liabilities and Stockholders'
Equity:
Interest-bearing transaction
deposits $ 3,394,675 898 0.11
Time deposits 1,498,993 3,228 0.86
Borrowed funds 189,835 507 1.06
Senior and subordinated debt 231,156 3,691 6.35
------------- ------------- ------------
Total interest-bearing liabilities 5,314,659 8,324 0.62
------------- ------------
Demand deposits 1,852,810
-------------
Total funding sources 7,167,469
Other liabilities 77,062
Stockholders' equity - common 982,582
Stockholders' equity - preferred -
-------------
Total liabilities and stockholders'
equity $ 8,227,113
=============
Net interest income/margin (1) $ 70,660 3.83
============= ============
Quarters Ended
----------------------------------------
December 31, 2011
----------------------------------------
Yield/
Average Interest Rate
Balance Earned/Paid (%)
------------- ------------- ------------
Assets:
Federal funds sold and other
interest-earning assets $ 718,631 $ 450 0.25
Trading securities 13,420 92 2.74
Investment securities (1) 1,069,844 11,224 4.20
Federal Home Loan Bank and Federal
Reserve Bank stock 58,187 341 2.34
Loans held-for-sale - - -
Loans, excluding covered loans (1) 5,085,792 63,202 4.93
Covered interest-earning assets (2) 343,479 6,787 7.84
------------- ------------- ------------
Total interest-earning assets (1) 7,289,353 82,096 4.47
------------- ------------
Cash and due from banks 116,166
Allowance for loan losses (133,824)
Other assets 870,808
-------------
Total assets $ 8,142,503
=============
Liabilities and Stockholders'
Equity:
Interest-bearing transaction
deposits $ 3,253,579 1,029 0.13
Time deposits 1,688,971 4,933 1.16
Borrowed funds 252,839 670 1.05
Senior and subordinated debt 187,488 3,047 6.45
------------- ------------- ------------
Total interest-bearing liabilities 5,382,877 9,679 0.71
------------- ------------
Demand deposits 1,613,221
-------------
Total funding sources 6,996,098
Other liabilities 73,721
Stockholders' equity - common 961,500
Stockholders' equity - preferred 111,184
-------------
Total liabilities and stockholders'
equity $ 8,142,503
=============
Net interest income/margin (1) $ 72,417 3.95
============= ============
(1) Revenue from tax-exempt securities and investments that receive tax
credits is presented on a basis comparable to taxable securities and
investments. Consequently, interest income and yields are presented on a
tax-equivalent basis, assuming a federal income tax rate of 35%. This
non-GAAP financial measure assists management in assessing the
comparability of revenue arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to tax-exempt items
is recorded within income tax expense. These adjustments have no impact
on net income.
(2) Covered interest-earning assets consist of loans acquired through the
Company's Federal Deposit Insurance Corporation ("FDIC")-assisted
transactions subject to loss sharing agreements and the related FDIC
indemnification asset.
For the fourth quarter of 2012, average interest-earning assets declined $115.3 million from the third quarter of 2012 and $55.9 million from the fourth quarter of 2011. The linked-quarter decline in average loans was impacted by the transfer of loans to held-for-sale at the end of the third quarter of 2012 and the accelerated resolution of certain credits in the fourth quarter of 2012. In addition, $37.1 million of mortgage loans outstanding at September 30, 2012 were sold during the fourth quarter of 2012. Compared to December 31, 2011, a reduction in federal funds sold and other interest-earning assets and covered interest-earning assets more than offset a rise in investment securities and increased loan balances.
Average funding sources for the fourth quarter of 2012 were $42.5 million lower than the third quarter of 2012 and up $128.9 million from the fourth quarter of 2011. Seasonal declines in public demand deposits primarily contributed to the decrease in average funding sources from the third quarter of 2012. Compared to the fourth quarter of 2011, the increase in average demand and interest-bearing transaction deposits reflects acquisition activity that occurred in December 2011 and August 2012.
Tax-equivalent net interest margin for the current quarter was 3.84%, remaining stable compared to the third quarter of 2012 and declining 11 basis points compared to the fourth quarter of 2011. The decrease compared to December 31, 2011 was driven by a decline in market interest rates, which contributed to lower yields earned on investment securities and loans, and was mitigated by a reduction in rates paid on retail time deposits.
Interest earned on covered assets is generally recognized through the accretion of the discount taken on expected future cash flows. Changes in the yield on covered interest-earning assets from the third quarter of 2012 and the fourth quarter of 2011 were driven by revised estimates of future cash flows and accelerated amortization of the FDIC indemnification asset. In addition, the yield for the fourth quarter of 2011 benefited from the resolution of certain loans where the cash proceeds exceeded estimates.
Noninterest Income Analysis
(Dollar amounts in thousands)
December 31, 2012
Quarters Ended Percent Change From
----------------------------- ------------------------
December September December September December
31, 2012 30, 2012 31, 2011 30, 2012 31, 2011
---------- --------- -------- ------------ -----------
Service charges on
deposit accounts $ 9,689 $ 9,502 $ 9,957 2.0 (2.7)
Wealth management
fees 5,590 5,415 5,052 3.2 10.6
Other service
charges,
commissions, and
fees 6,177 4,187 3,877 47.5 59.3
Card-based fees 5,274 5,246 4,971 0.5 6.1
---------- --------- -------- ------------ -----------
Total fee-based
revenues 26,730 24,350 23,857 9.8 12.0
Net trading gains (1) 116 685 919 (83.1) (87.4)
Bank-owned life
insurance ("BOLI")
and other income 815 1,027 893 (20.6) (8.7)
---------- --------- -------- ------------ -----------
Total operating
revenues 27,661 26,062 25,669 6.1 7.8
Net securities gains
(losses) 88 (217) (110) N/M N/M
Gain on bulk loan
sales 5,153 - - 100.0 100.0
Losses on early
extinguishment of
debt (814) - - (100.0) (100.0)
Gains on acquisitions - 3,289 1,076 (100.0) (100.0)
---------- --------- -------- ------------ -----------
Total noninterest
income $ 32,088 $ 29,134 $ 26,635 10.1 20.5
========== ========= ======== ============ ===========
N/M - Not meaningful.
(1) Net trading gains result from changes in the fair value of diversified
investment securities held in a grantor trust under deferred
compensation agreements and are substantially offset by nonqualified
plan expense for each period presented.
Total fee-based revenues for the fourth quarter of 2012 grew 9.8% compared to the third quarter of 2012 and 12.0% from the fourth quarter of 2011. The increase in fee-based revenues from both prior periods presented was attributed primarily to gains on mortgage loan sales, an increase in service charges on business checking accounts, and higher debit card income. An increase in merchant fees driven by higher processing volumes also contributed to the growth compared to December 31, 2011.
As described in the "Significant Quarter Events" section, the Company completed bulk loan sales of certain non-performing and performing potential problem loans, which resulted in a gain, before commissions and other selling expenses, of $5.2 million. In addition, a pre-tax loss of $814,000 was recognized on the repurchase and retirement of junior subordinated debentures and subordinated notes during the fourth quarter of 2012.
Noninterest Expense Analysis
(Dollar amounts in thousands)
December 31, 2012
Quarters Ended Percent Change From
----------------------------------- -----------------------
December September December September December
31,2012 30,2012 31,2011 30,2012 31,2011
----------- ----------- ----------- ----------- -----------
Salaries and
wages $ 27,036 $ 26,064 $ 26,380 3.7 2.5
Nonqualified
plan expense
(1) 205 817 1,208 (74.9) (83.0)
Retirement and
other employee
benefits 6,787 6,230 7,632 8.9 (11.1)
----------- ----------- ----------- ----------- -----------
Total
compensation
expense 34,028 33,111 35,220 2.8 (3.4)
----------- ----------- ----------- ----------- -----------
Net losses on
sales and
valuation
adjustments of
OREO 31 2,025 1,425 (98.5) (97.8)
Net OREO
operating
expense 1,294 1,183 1,540 9.4 (16.0)
----------- ----------- ----------- ----------- -----------
Total OREO
expense 1,325 3,208 2,965 (58.7) (55.3)
----------- ----------- ----------- ----------- -----------
Loan remediation
costs 5,654 3,206 4,846 76.4 16.7
Other
professional
services 4,761 3,459 3,180 37.6 49.7
----------- ----------- ----------- ----------- -----------
Total
professional
services 10,415 6,665 8,026 56.3 29.8
----------- ----------- ----------- ----------- -----------
Net occupancy
and equipment
expense 8,747 8,108 7,681 7.9 13.9
Technology and
related costs 3,231 2,906 2,876 11.2 12.3
FDIC premiums 1,763 1,785 1,758 (1.2) 0.3
Advertising and
promotions 1,744 1,427 1,239 22.2 40.8
Merchant card
expense 2,192 2,272 1,849 (3.5) 18.6
Other expenses 7,457 6,641 4,977 12.3 49.8
Accelerated
amortization of
FDIC
indemnification
asset 2,705 4,000 - (32.4) 100.0
----------- ----------- ----------- ----------- -----------
Total
noninterest
expense $ 73,607 $ 70,123 $ 66,591 5.0 10.5
=========== =========== =========== =========== ===========
(1) Nonqualified plan expense results from changes in the Company's
obligation to participants under deferred compensation agreements.
Total noninterest expense for the fourth quarter of 2012 increased 5.0% compared to the third quarter of 2012 and 10.5% compared to the fourth quarter of 2011.
Salaries and wages increased from the third quarter of 2012 due to a decrease in deferred salaries resulting from lower new loan volume, short-term staffing c osts associated with the FDIC-assisted acquisition of Waukegan Savings Bank ("Waukegan Savings"), and higher short-term incentive compensation expense. This was partially mitigated by a reduction in general salaries expense from fewer full time employees.
For the quarter ended December 31, 2011, a $1.3 million correction of the 2010 actuarial pension expense calculation drove higher retirement and employee benefit expenses compared to December 31, 2012. The fourth quarter of 2012 also reflects an increase in post-employment benefits expense.
OREO expenses declined from both prior periods presented due to a gain on the sale of a vacant commercial lot during the fourth quarter of 2012. In addition, the elevated levels of valuation adjustments during the third quarter of 2012 resulted from declines in the values of one commercial property and one vacant land parcel.
Fourth quarter 2012 loan remediation costs were elevated due to expenses of $2.5 million related to the previously discussed bulk loan sales. This increase in expense was partially mitigated by declines in real estate taxes paid on non-performing loans in the fourth quarter of 2012.
Other professional services increased compared to the third quarter of 2012 and the fourth quarter of 2011 due to higher personnel recruitment expenses, the acceleration of certain capitalized costs, and increased attorney fees related to various legal proceedings.
Net occupancy and equipment expense increased from both prior periods presented driven by the timing of general improvements to facilities and equipment, operating expenses for former Waukegan Savings branches prior to conversion, and increased real estate tax expenses. These expenses were partially offset by lower utilities costs from mild weather conditions.
Higher technology and related costs for the fourth quarter of 2012 resulted from conversion expenses related to Waukegan Savings.
The accelerated amortization of the FDIC indemnification asset results from an adjustment in the timing and amount of future cash flows expected to be received from the FDIC under the loss sharing agreements based on management's periodic estimates of future cash flows from covered loans. This charge benefited the yield on covered interest earning assets in the fourth quarter of 2012 and is expected to result in higher interest income on covered assets in future periods.
Valuation adjustments of $1.3 million on a former banking office transferred to OREO in the fourth quarter of 2012 contributed to the variance from both prior periods presented.
LOAN PORTFOLIO AND ASSET QUALITY
Loan Portfolio Composition
(Dollar amounts in thousands)
December 31, 2012
Percent Change
As Of From
------------------------------------ ------------------
December September December September December
31, 30, 31, 30, 31,
2012 2012 2011 2012 2011
----------- ------------ ----------- --------- --------
Corporate:
Commercial and
industrial $ 1,631,474 $ 1,610,169 $ 1,458,446 1.3 11.9
Agricultural 268,618 259,787 243,776 3.4 10.2
Commercial real
estate:
Office 474,717 484,215 444,368 (2.0) 6.8
Retail 368,796 356,093 334,034 3.6 10.4
Industrial 489,678 490,023 520,680 (0.1) (6.0)
Multi-family 285,481 309,509 288,336 (7.8) (1.0)
Residential
construction 61,462 61,920 105,836 (0.7) (41.9)
Commercial
construction 124,954 136,509 144,909 (8.5) (13.8)
Other commercial
real estate 773,121 780,712 888,146 (1.0) (13.0)
----------- ------------ ----------- --------- --------
Total
commercial
real estate 2,578,209 2,618,981 2,726,309 (1.6) (5.4)
----------- ------------ ----------- --------- --------
Total
corporate
loans 4,478,301 4,488,937 4,428,531 (0.2) 1.1
----------- ------------ ----------- --------- --------
Consumer:
Home equity loans 390,033 397,506 416,194 (1.9) (6.3)
1-4 family
mortgages 282,948 292,908 201,099 (3.4) 40.7
Installment loans 38,394 38,994 42,289 (1.5) (9.2)
----------- ------------ ----------- --------- --------
Total
consumer
loans 711,375 729,408 659,582 (2.5) 7.9
----------- ------------ ----------- --------- --------
Total loans,
excluding
covered loans 5,189,676 5,218,345 5,088,113 (0.5) 2.0
Covered loans 197,894 216,610 260,502 (8.6) (24.0)
----------- ------------ ----------- --------- --------
Total loans $ 5,387,570 $ 5,434,955 $ 5,348,615 (0.9) 0.7
=========== ============ =========== ========= ========
Total loans, excluding covered loans, of $5.2 billion declined modestly compared to September 30, 2012, as continued growth in the commercial and industrial ("C&I") and agricultural portfolios was more than offset by the accelerated resolution of certain credits. In addition, $37.1 million of mortgage loans outstanding at September 30, 2012 were sold during the fourth quarter of 2012.
Compared to December 31, 2011, total loans, excluding covered loans, increased $101.6 million, reflecting growth primarily in the C&I, agricultural, and 1-4 family portfolios. Loans acquired in the Waukegan Savings transaction during the third quarter of 2012 and continued origination efforts drove the rise in 1-4 family mortgages. During the previous twelve months, decreases in the construction portfolios were mostly driven by efforts to reduce lending exposure to less favorable categories. The completion of the bulk loan sales during the fourth quarter of 2012 resulted in the disposition of $172.5 million in original carrying value of certain non-performing and performing potential problem loans, which also contributed to declines across the loan portfolio.
Asset Quality Indicators by Category
(Dollar amounts in thousands)
Performing Loans
--------------------------------------------------
Special
Pass Mention Substandard Total
----------- ----------- ----------- -----------
December 31, 2012
Commercial and
industrial $ 1,558,932 $ 37,833 $ 8,768 $ 1,605,533
Agricultural 267,114 331 - 267,445
Commercial real
estate:
Office, retail, and
industrial 1,235,950 57,271 16,746 1,309,967
Multi-family 282,126 1,921 - 284,047
Residential
construction 33,392 11,870 11,588 56,850
Commercial
construction 95,567 14,340 14,174 124,081
Other commercial
real estate 712,702 14,056 30,149 756,907
----------- ----------- ----------- -----------
Total commercial
real estate 2,359,737 99,458 72,657 2,531,852
----------- ----------- ----------- -----------
Total corporate
loans 4,185,783 137,622 81,425 4,404,830
Consumer loans 700,312 - - 700,312
----------- ----------- ----------- -----------
Total loans $ 4,886,095 $ 137,622 $ 81,425 $ 5,105,142
=========== =========== =========== ===========
Changes from:
September 30, 2012 (0.3%) (4.9%) 14.4% (0.3%)
December 31, 2011 8.6% (50.2%) (35.7%) 4.2%
Asset Quality Indicators by Category
(Dollar amounts in thousands)
Non-accrual Total
Loans Loans
----------- -----------
December 31, 2012
Commercial and
industrial $ 25,941 $ 1,631,474
Agricultural 1,173 268,618
Commercial real
estate:
Office, retail, and
industrial 23,224 1,333,191
Multi-family 1,434 285,481
Residential
construction 4,612 61,462
Commercial
construction 873 124,954
Other commercial
real estate 16,214 773,121
----------- -----------
Total commercial
real estate 46,357 2,578,209
----------- -----------
Total corporate
loans 73,471 4,478,301
Consumer loans 11,063 711,375
----------- -----------
Total loans $ 84,534 $ 5,189,676
=========== ===========
Changes from:
September 30, 2012 (15.1%) (0.5%)
December 31, 2011 (54.9%) 2.0%
The combination of special mention loans and substandard loans was consistent with September 30, 2012 and declined $184.2 million, or 45.7%, from December 31, 2011. The improvement from December 31, 2011 was driven by the completion of the bulk loan sales during the fourth quarter of 2012, in addition to ongoing remediation activities. As of December 31, 2012, special mention, substandard, and non-accrual loans totaled $303.6 million, compared to $577.8 million at December 31, 2011.
Asset Quality
(Dollar amounts in thousands)
December 31, 2012
As Of Percent Change From
-------------------------------- ------------------------
December September December September December
31, 2012 30, 2012 31, 2011 30, 2012 31, 2011
---------- ---------- ---------- ------------ -----------
Asset quality,
excluding
covered loans
and covered
OREO(1)
Non-accrual loans $ 84,534 $ 99,579 $ 187,325 (15.1) (54.9)
90 days or more
past due loans 8,689 12,582 9,227 (30.9) (5.8)
---------- ---------- ---------- ------------ -----------
Total non-
performing
loans 93,223 112,161 196,552 (16.9) (52.6)
Troubled debt
restructurings
(still accruing
interest) 6,867 6,391 17,864 7.4 (61.6)
OREO 39,953 36,487 33,975 9.5 17.6
---------- ---------- ---------- ------------ -----------
Total non-
performing
assets $ 140,043 $ 155,039 $ 248,391 (9.7) (43.6)
========== ========== ========== ============ ===========
30-89 days past
due loans $ 22,666 $ 20,088 $ 27,495 12.8 (17.6)
Allowance for
credit losses $ 90,750 $ 95,548 $ 120,973 (5.0) (25.0)
Non-accrual loans
to total loans 1.63% 1.91% 3.68%
Non-performing
loans to total
loans 1.80% 2.15% 3.86%
Non-performing
assets to loans
plus OREO 2.68% 2.95% 4.85%
Allowance for
credit losses to
loans 1.75% 1.83% 2.38%
Allowance for
credit losses to
non-accrual
loans 107% 96% 65%
Allowance for
credit losses,
including
covered loans $ 102,812 $ 104,995 $ 121,962 (2.1) (15.7)
Allowance for
credit losses to
loans, including
covered loans 1.91% 1.93% 2.28%
(1) Covered loans and covered OREO were acquired through transactions with
the FDIC and are subject to loss sharing agreements with the FDIC
whereby the Company is indemnified against the majority of any losses
incurred on these assets.
Non-performing assets, excluding covered loans and covered OREO, were $140.0 million at December 31, 2012, decreasing $15.0 million from September 30, 2012 and $108.3 million from December 31, 2011.
Charge-Off Data
(Dollar amounts in thousands)
Quarters Ended
----------------------------------------------------
December % of September % of December % of
31, 2012 Total 30, 2012 Total 31, 2011 Total
-------- ------- --------- ---------------- --------
Net loan charge-offs
(1):
Commercial and
industrial $ 1,778 28.4 $ 41,781 33.4$ 8,910 32.3
Agricultural (177) (2.8) 4,531 3.6 484 1.8
Office, retail, and
industrial 95 1.5 29,368 23.5 3,779 13.7
Multi-family 9 0.1 2,755 2.2 4,803 17.4
Residential
construction 134 2.1 9,242 7.4 2,498 9.1
Commercial
construction 100 1.6 11,037 8.8 1,673 6.1
Other commercial real
estate 1,786 28.5 23,452 18.7 3,002 10.9
Consumer 2,536 40.6 2,920 2.4 2,395 8.7
-------- ------- --------- -------- ------- --------
Total net loan
charge-offs,
excluding covered
loans 6,261 100.0 125,086 100.0 27,544 100.0
======= ======== ========
Net covered loan
charge-offs (1) 1,465 442 3,687
-------- --------- --------
Total net loan
charge-offs $ 7,726 $ 125,528 $ 31,231
======== ========= ========
Net loan charge-offs to
average loans,
excluding covered
loans, annualized:
Quarter-to-date 0.48% 9.29% 2.15%
Year-to-date 3.32% 4.26% 1.84%
(1) Amounts represent charge-offs, net of recoveries.
Net loan charge-offs for the fourth quarter of 2012 were $7.7 million, down $117.8 million, or 93.8%, from the third quarter of 2012 and $23.5 million, or 75.3%, from December 31, 2011. The higher level of charge-offs in the third quarter of 2012 resulted from accelerated credit remediation actions taken by management for select credits.
CAPITAL MANAGEMENT
Capital Ratios
(Dollar amounts in thousands)
Regulatory
Minimum Excess Over
December September December For Required Minimums
31, 30, 31, "Well- at December 31,
2012 2012 2011 Capitalized" 2012
-------- --------- -------- ------------ -----------------
Regulatory capital
ratios:
Total capital to
risk-weighted
assets 11.90% 11.65% 13.68% 10.00% 19% $120,412
Tier 1 capital
to risk-
weighted assets 10.28% 9.92% 11.61% 6.00% 71% $271,569
Tier 1 leverage
to average
assets 8.40% 8.13% 9.28% 5.00% 68% $264,032
Tier 1 common
capital to risk-
weighted assets
(1) 9.33% 8.93% 10.26% N/A (2) N/A (2) N/A (2)
Tangible common
equity ratios
(3):
Tangible common
equity to
tangible assets 8.44% 8.26% 8.83% N/A (2) N/A (2) N/A (2)
Tangible common
equity,
excluding other
comprehensive
loss, to
tangible assets 8.64% 8.38% 9.00% N/A (2) N/A (2) N/A (2)
Tangible common
equity to risk-
weighted assets 10.39% 10.12% 10.88% N/A (2) N/A (2) N/A (2)
Non-performing
assets to
tangible common
equity and
allowance for
credit losses 18.36% 20.50% 31.01% N/A (2) N/A (2) N/A (2)
(1) Excludes the impact of trust-preferred securities.
(2) Ratio is not subject to formal Federal Reserve regulatory guidance.
(3) Tangible common equity ("TCE") represents common stockholders' equity
(i.e., total stockholders' equity less preferred stock) less goodwill
and identifiable intangible assets, net of related deferred tax
liabilities. Return on TCE measures the Company's earnings as a
percentage of TCE. In management's view, Tier 1 common and TCE measures
are meaningful to the Company, as well as analysts and investors, in
assessing the Company's use of equity and in facilitating comparisons
with competitors.
The Company's regulatory capital ratios increased compared to the third quarter of 2012 due to increased earnings, which more than offset the impact of the repurchase and retirement of $16.3 million of junior subordinated debentures and subordinated notes.
As of December 31, 2012, the Company's regulatory ratios exceeded all regulatory mandated ratios for characterization as "well-capitalized." The Board of Directors reviews the Company's capital plan each quarter, giving consideration to the current and expected operating environment as well as an evaluation of various capital alternatives.
About the Company
First Midwest is the premier relationship-based banking franchise in the dynamic Chicagoland banking market. As one of the Chicago metropolitan area's largest independent bank holding companies, First Midwest provides the full range of business and retail banking and wealth management services through approximately 95 offices located in communities in metropolitan Chicago, northwest Indiana, central and western Illinois, and eastern Iowa. First Midwest has been recognized by the Chicago Tribune as one of Chicago's Top Workplaces for the third consecutive year by being named a National Standard Top Workplace. Additionally, Forbes has recognized First Midwest as one of America's Most Trustworthy Companies for 2012.
Safe Harbor Statement
This press release may contain "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 the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. It is possible that actual results and the Company's financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the Company's future results, see "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and other reports filed with the Securities and Exchange Commission. Forward-looking statements represent management's best judgment as of the date hereof based on currently available information. The Company undertakes no duty to update any forward-looking statements contained in this press release after the date hereof.
Conference Call
A conference call to discuss the Company's results, outlook, and related matters will be held on Wednesday, January 23, 2013 at 10:00 AM (ET). Members of the public who would like to listen to the conference call should dial (888) 317-6016 (U.S. domestic) or (412) 317-6016 (international) and ask for the First Midwest Bancorp, Inc. Earnings Conference Call. The number should be dialed 10 to 15 minutes prior to the start of the conference call. There is no charge to access the call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the Company's website, www.firstmidwest.com/investorrelations. For those unable to listen to the live broadcast, a replay will be available on the Company's website or by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (international) conference I.D. 10022875 beginning one hour after completion of the live call until 9:00 A.M. (ET) on January 31, 2013. Please direct any questions regarding obtaining access to the conference call to First Midwest Bancorp, Inc. Investor Relations, via e-mail, at investor.relations@firstmidwest.com.
Accompanying Financial Statements and Tables
Accompanying this press release is the following unaudited financial information:
-- Condensed Consolidated Statements of Financial Condition -- Condensed Consolidated Statements of Income
Press Release and Additional Information Available on Website
This press release, the accompanying financial statements and tables, and certain additional unaudited Selected Financial Information are available through the "Investor Relations" section of First Midwest's website at www.firstmidwest.com/investorrelations.
Condensed Consolidated Statements of Financial Condition
Unaudited
(Amounts in thousands)
December 31, September 30, December 31,
2012 2012 2011
------------ -------------- ------------
Assets
Cash and due from banks $ 149,420 $ 124,447 $ 123,354
Interest-bearing deposits in
other banks 566,846 393,927 518,176
Trading securities, at fair
value 14,162 15,512 14,469
Securities available-for-sale,
at fair value 1,082,403 1,191,582 1,013,006
Securities held-to-maturity, at
amortized cost 34,295 41,944 60,458
Federal Home Loan Bank and
Federal Reserve Bank stock, at
cost 47,232 47,232 58,187
Loans held-for-sale - 90,011 4,200
Loans, excluding covered loans 5,189,676 5,218,345 5,088,113
Covered loans 197,894 216,610 260,502
Allowance for loan and covered
loan losses (99,446) (102,445) (119,462)
------------ -------------- ------------
Net loans 5,288,124 5,332,510 5,229,153
------------ -------------- ------------
OREO, excluding covered OREO 39,953 36,487 33,975
Covered OREO 13,123 8,729 23,455
FDIC indemnification asset 37,051 47,191 65,609
Premises, furniture, and
equipment 121,596 132,005 134,977
Investment in BOLI 206,405 206,043 206,235
Goodwill and other intangible
assets 281,059 281,914 283,650
Accrued interest receivable and
other assets 218,170 217,642 204,690
------------ -------------- ------------
Total assets $ 8,099,839 $ 8,167,176 $ 7,973,594
============ ============== ============
Liabilities and Stockholders'
Equity
Deposits
Transactional deposits $ 5,272,307 $ 5,253,658 $ 4,820,058
Time deposits 1,399,948 1,495,397 1,659,117
------------ -------------- ------------
Total deposits 6,672,255 6,749,055 6,479,175
Borrowed funds 185,984 183,691 205,371
Senior and subordinated debt 214,779 231,171 252,153
Accrued interest payable and
other liabilities 85,928 69,824 74,308
------------ -------------- ------------
Total liabilities 7,158,946 7,233,741 7,011,007
------------ -------------- ------------
Common stock 858 858 858
Additional paid-in capital 418,318 417,245 428,001
Retained earnings 786,453 773,976 810,487
Accumulated other comprehensive
loss, net of tax (15,660) (9,248) (13,276)
Treasury stock, at cost (249,076) (249,396) (263,483)
------------ -------------- ------------
Total stockholders' equity 940,893 933,435 962,587
------------ -------------- ------------
Total liabilities and
stockholders' equity $ 8,099,839 $ 8,167,176 $ 7,973,594
============ ============== ============
Condensed Consolidated Statements of Income
Unaudited
(Amounts in thousands, except per share data)
Quarters Ended Years Ended
-------------------------------- ---------------------
December September December December December
31, 2012 30, 2012 31, 2011 31, 2012 31, 2011
---------- ---------- ---------- ---------- ----------
Interest Income
Loans $ 61,596 $ 63,672 $ 62,774 $ 248,752 $ 252,865
Investment
securities 7,517 8,058 8,313 32,923 36,659
Covered loans 3,975 3,223 6,787 15,873 28,904
Federal funds sold
and other short-
term investments 1,111 631 883 3,021 3,083
---------- ---------- ---------- ---------- ----------
Total interest
income 74,199 75,584 78,757 300,569 321,511
---------- ---------- ---------- ---------- ----------
Interest Expense
Deposits 3,735 4,126 5,962 18,052 27,256
Borrowed funds 497 507 670 2,009 2,743
Senior and
subordinated debt 3,445 3,691 3,047 14,840 9,892
---------- ---------- ---------- ---------- ----------
Total interest
expense 7,677 8,324 9,679 34,901 39,891
---------- ---------- ---------- ---------- ----------
Net interest
income 66,522 67,260 69,078 265,668 281,620
Provision for loan
and covered loan
losses 5,593 111,791 21,902 158,052 80,582
---------- ---------- ---------- ---------- ----------
Net interest
income after
provision for
loan and covered
loan losses 60,929 (44,531) 47,176 107,616 201,038
---------- ---------- ---------- ---------- ----------
Noninterest Income
Service charges on
deposit accounts 9,689 9,502 9,957 36,699 37,879
Wealth management
fees 5,590 5,415 5,052 21,791 20,324
Other service
charges,
commissions, and
fees 6,177 4,187 3,877 17,981 16,386
Card-based fees 5,274 5,246 4,971 20,852 19,593
---------- ---------- ---------- ---------- ----------
Total fee-based
revenues 26,730 24,350 23,857 97,323 94,182
Net securities gains
(losses) 88 (217) (110) (921) 2,410
Gain on bulk loan
sales 5,153 - - 5,153 -
Gains on
acquisitions - 3,289 1,076 3,289 1,076
Net trading gains
(losses) 116 685 919 1,627 (691)
Other 1 1,027 893 3,477 4,960
---------- ---------- ---------- ---------- ----------
Total noninterest
income 32,088 29,134 26,635 109,948 101,937
---------- ---------- ---------- ---------- ----------
Noninterest Expense
Salaries and
employee benefits 34,028 33,111 35,220 130,755 128,774
Net OREO expense 1,325 3,208 2,965 10,521 16,293
Net occupancy and
equipment expense 8,747 8,108 7,681 32,699 32,953
Professional
services 10,415 6,665 8,026 29,614 26,356
Technology and
related costs 3,231 2,906 2,876 11,846 10,905
FDIC premiums 1,763 1,785 1,758 6,926 7,990
Accelerated
amortization of
FDIC
indemnification
asset 2,705 4,000 - 6,705 -
Other 11,393 10,340 8,065 38,434 38,633
---------- ---------- ---------- ---------- ----------
Total noninterest
expense 73,607 70,123 66,591 267,500 261,904
---------- ---------- ---------- ---------- ----------
Income (loss) before
income tax expense 19,410 (85,520) 7,220 (49,936) 41,071
Income tax expense
(benefit) 6,194 (36,993) 296 (28,882) 4,508
---------- ---------- ---------- ---------- ----------
Net income (loss) 13,216 (48,527) 6,924 (21,054) 36,563
Preferred dividends - - (3,027) - (10,776)
Net (income) loss
applicable to non-
vested restricted
shares (194) 715 (20) 306 (350)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to
common shares $ 13,022 $ (47,812)$ 3,877 $ (20,748)$ 25,437
========== ========== ========== ========== ==========
Diluted earnings
(loss) per common
share $ 0.18 $ (0.65)$ 0.05 $ (0.28)$ 0.35
Dividends declared
per common share $ 0.01 $ 0.01 $ 0.01 $ 0.04 $ 0.04
Weighted average
diluted common
shares outstanding 73,758 73,742 73,382 73,666 73,289
CONTACT: Paul F. Clemens (Investors) EVP and Chief Financial Officer (630) 875-7347 paul.clemens@firstmidwest.com
James M. Roolf (Media) SVP and Corporate Relations Officer (630) 875-7533 jim.roolf@firstmidwest.com
First Midwest Bancorp, Inc. One Pierce Place, Suite 1500 Itasca, Illinois 60143-9768 (630) 875-7450 www.firstmidwest.com
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