form10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
10-Q
(Mark
One)
|
[X]
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the quarterly period ended September 30,
2009
|
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
(State
or other jurisdiction of
incorporation
or organization)
|
36-3161078
(IRS
Employer Identification No.)
|
One
Pierce Place, Suite 1500
Itasca,
Illinois 60143-9768
(Address
of principal executive offices) (zip code)
_______________
Registrant’s
telephone number, including area code: (630)
875-7450
______________
|
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 [
].
|
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes [ ] No [ ].
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ].
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
|
As
of November 6, 2009, there were 54,799,534 shares of $.01 par value common
stock outstanding.
|
FIRST
MIDWEST BANCORP, INC.
FORM
10-Q
|
|
Page
|
Part
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8
|
|
|
9
|
Item
2.
|
|
30
|
Item
3.
|
|
|
Item
4.
|
|
53
|
Part
II.
|
OTHER
INFORMATION
|
|
Item
1.
|
|
|
Item
1A.
|
|
|
Item
2.
|
|
|
Item
3.
|
|
|
Item
4.
|
|
|
Item
5.
|
|
|
Item
6.
|
|
54
|
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 central and western Illinois. Our principal
subsidiary is First Midwest Bank, which provides a broad range of commercial and
retail banking services to consumer, commercial and industrial, and public or
governmental customers. 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.
AVAILABLE
INFORMATION
We file
annual, quarterly, and current reports; proxy statements; and other information
with the Securities and Exchange Commission (“SEC”), and we make this
information available free of charge on or through the investor relations
section of our web site at www.firstmidwest.com/aboutinvestor_overview.asp.
The following documents are also posted on our web site or are available in
print upon the request of any stockholder to our Corporate
Secretary:
·
|
Certificate
of Incorporation
|
·
|
Charters
for our Audit, Compensation, and Nominating and Corporate Governance
Committees
|
·
|
Related
Person Transaction Policies and
Procedures
|
·
|
Corporate
Governance Guidelines
|
·
|
Code
of Ethics and Standards of Conduct (the “Code”), which governs our
directors, officers, and employees
|
·
|
Code
of Ethics for Senior Financial
Officers.
|
Within
the time period required by the SEC and the Nasdaq Stock Market, we will post on
our web site any amendment to the Code and any waiver applicable to any
executive officer, director, or senior financial officer (as defined in the
Code). In addition, our web site includes information concerning purchases and
sales of our securities by our executive officers and directors, as well as any
disclosure relating to certain non-GAAP financial measures (as defined in the
SEC’s Regulation G) that we may make public orally, telephonically, by
webcast, by broadcast, or by similar means from time to time.
Our
Corporate Secretary can be contacted by writing to First Midwest Bancorp, Inc.,
One Pierce Place, Itasca, Illinois 60143, Attn: Corporate Secretary. The
Company’s Investor Relations Department can be contacted by telephone at (630)
875-7533 or by e-mail at [email protected].
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,” “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.
Forward-looking
statements are subject to known and unknown risks, uncertainties, and
assumptions and may include 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 our Annual Report on Form 10-K
for the year ended December 31, 2008 and the sections entitled “Risk Factors” in
Part II Item 1A of this report and “Management’s Discussion and Analysis of
Results of Operations,” as well as our subsequent periodic and current reports
filed with the SEC. These risks and uncertainties are not exhaustive however.
Other sections of this report describe additional factors that could adversely
impact our business and financial performance.
Since
mid-2007 the financial services industry and the securities markets in general
have been materially and adversely affected by significant declines in the
values of nearly all asset classes and by a serious lack of liquidity. While
liquidity has improved and market volatility has generally lessened, the overall
loss of investor confidence has brought a new level of risk to financial
institutions in addition to the risks normally associated with competition and
free market economies. The Company has attempted to list those risks elsewhere
in this report and consider them as it makes disclosures regarding
forward-looking statements. Nevertheless, given the uncertain economic times,
new risks and uncertainties may emerge very quickly and unpredictably, and it is
not possible to predict all risks and uncertainties. We cannot assess the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this report to conform our prior
statements to actual results or revised expectations, and we do not intend to do
so.
PART
1. FINANCIAL INFORMATION (Unaudited)
ITEM
1. FINANCIAL STATEMENTS
FIRST
MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
(Amounts
in thousands, except per share data)
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
115,905 |
|
|
$ |
106,082 |
|
Federal
funds sold and other short-term investments
|
|
|
81,693 |
|
|
|
8,226 |
|
Trading
account securities
|
|
|
13,231 |
|
|
|
12,358 |
|
Securities
available-for-sale, at fair value
|
|
|
1,349,669 |
|
|
|
2,216,186 |
|
Securities
held-to-maturity, at amortized cost
|
|
|
83,860 |
|
|
|
84,306 |
|
Federal
Home Loan Bank and Federal Reserve Bank stock, at cost
|
|
|
54,768 |
|
|
|
54,767 |
|
Loans
|
|
|
5,306,068 |
|
|
|
5,360,063 |
|
Reserve
for loan losses
|
|
|
(134,269 |
) |
|
|
(93,869 |
) |
Net
loans
|
|
|
5,171,799 |
|
|
|
5,266,194 |
|
Other
real estate owned
|
|
|
57,945 |
|
|
|
24,368 |
|
Premises,
furniture, and equipment
|
|
|
122,083 |
|
|
|
120,035 |
|
Accrued
interest receivable
|
|
|
34,939 |
|
|
|
43,247 |
|
Investment
in bank owned life insurance
|
|
|
197,681 |
|
|
|
198,533 |
|
Goodwill
|
|
|
262,886 |
|
|
|
262,886 |
|
Other
intangible assets
|
|
|
18,728 |
|
|
|
21,662 |
|
Other
assets
|
|
|
113,247 |
|
|
|
109,491 |
|
Total
assets
|
|
$ |
7,678,434 |
|
|
$ |
8,528,341 |
|
Liabilities
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$ |
1,069,870 |
|
|
$ |
1,040,763 |
|
Savings
deposits
|
|
|
739,577 |
|
|
|
747,079 |
|
NOW
accounts
|
|
|
980,127 |
|
|
|
915,691 |
|
Money
market deposits
|
|
|
1,043,693 |
|
|
|
754,421 |
|
Time
deposits
|
|
|
1,915,886 |
|
|
|
2,127,800 |
|
Total
deposits
|
|
|
5,749,153 |
|
|
|
5,585,754 |
|
Borrowed
funds
|
|
|
716,299 |
|
|
|
1,698,334 |
|
Subordinated
debt
|
|
|
157,717 |
|
|
|
232,409 |
|
Accrued
interest payable
|
|
|
8,620 |
|
|
|
10,550 |
|
Payable
for securities purchased
|
|
|
757 |
|
|
|
17,537 |
|
Other
liabilities
|
|
|
62,309 |
|
|
|
75,478 |
|
Total
liabilities
|
|
|
6,694,855 |
|
|
|
7,620,062 |
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; authorized 1,000 shares,
issued
and outstanding: 193 shares
|
|
|
190,076 |
|
|
|
189,617 |
|
Common
stock, $.01 par value; authorized 100,000 shares;
issued: September 30, 2009 – 66,969 shares
December 31, 2008 – 61,326 shares
outstanding:
September 30, 2009 – 54,800 shares
December 31, 2008 – 48,630 shares
|
|
|
670 |
|
|
|
613 |
|
Additional
paid-in capital
|
|
|
251,423 |
|
|
|
210,698 |
|
Retained
earnings
|
|
|
851,178 |
|
|
|
837,390 |
|
Accumulated
other comprehensive loss, net of tax
|
|
|
(16,217 |
) |
|
|
(18,042 |
) |
Treasury
stock, at cost: September 30, 2009 – 12,169 shares
December
31, 2008 – 12,696 shares
|
|
|
(293,551 |
) |
|
|
(311,997 |
) |
Total
stockholders’ equity
|
|
|
983,579 |
|
|
|
908,279 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
7,678,434 |
|
|
$ |
8,528,341 |
|
See
accompanying notes to unaudited consolidated financial
statements.
|
|
|
|
|
|
|
|
|
FIRST
MIDWEST BANCORP, INC.
(Amounts
in thousands, except per share data)
(Unaudited)
|
|
Quarters
Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
66,035 |
|
|
$ |
74,929 |
|
|
$ |
195,553 |
|
|
$ |
231,082 |
|
Securities
available-for-sale
|
|
|
15,277 |
|
|
|
25,072 |
|
|
|
59,644 |
|
|
|
75,507 |
|
Securities
held-to-maturity
|
|
|
1,001 |
|
|
|
1,068 |
|
|
|
2,994 |
|
|
|
3,358 |
|
Federal
Home Loan Bank and Federal Reserve Bank stock
|
|
|
310 |
|
|
|
329 |
|
|
|
907 |
|
|
|
999 |
|
Federal
funds sold and other short-term investments
|
|
|
139 |
|
|
|
88 |
|
|
|
283 |
|
|
|
328 |
|
Total
interest income
|
|
|
82,762 |
|
|
|
101,486 |
|
|
|
259,381 |
|
|
|
311,274 |
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
15,324 |
|
|
|
25,574 |
|
|
|
51,403 |
|
|
|
87,820 |
|
Borrowed
funds
|
|
|
2,768 |
|
|
|
9,451 |
|
|
|
11,293 |
|
|
|
30,776 |
|
Subordinated
debt
|
|
|
3,689 |
|
|
|
3,703 |
|
|
|
11,094 |
|
|
|
11,094 |
|
Total
interest expense
|
|
|
21,781 |
|
|
|
38,728 |
|
|
|
73,790 |
|
|
|
129,690 |
|
Net
interest income
|
|
|
60,981 |
|
|
|
62,758 |
|
|
|
185,591 |
|
|
|
181,584 |
|
Provision
for loan losses
|
|
|
38,000 |
|
|
|
13,029 |
|
|
|
122,672 |
|
|
|
27,869 |
|
Net
interest income after provision for loan losses
|
|
|
22,981 |
|
|
|
49,729 |
|
|
|
62,919 |
|
|
|
153,715 |
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
10,046 |
|
|
|
11,974 |
|
|
|
28,777 |
|
|
|
33,781 |
|
Trust
and investment advisory fees
|
|
|
3,555 |
|
|
|
3,818 |
|
|
|
10,355 |
|
|
|
11,710 |
|
Other
service charges, commissions, and fees
|
|
|
4,222 |
|
|
|
4,834 |
|
|
|
12,249 |
|
|
|
14,292 |
|
Card-based
fees
|
|
|
4,023 |
|
|
|
4,141 |
|
|
|
11,826 |
|
|
|
12,275 |
|
Bank
owned life insurance income
|
|
|
282 |
|
|
|
1,882 |
|
|
|
1,982 |
|
|
|
6,489 |
|
Securities
gains (losses), net
|
|
|
(6,975 |
) |
|
|
(1,746 |
) |
|
|
7,882 |
|
|
|
(1,396 |
) |
Gains
on early extinguishment of debt
|
|
|
13,991 |
|
|
|
- |
|
|
|
13,991 |
|
|
|
- |
|
Trading
gains (losses), net
|
|
|
1,359 |
|
|
|
(1,831 |
) |
|
|
2,097 |
|
|
|
(3,211 |
) |
Other
income
|
|
|
587 |
|
|
|
622 |
|
|
|
2,096 |
|
|
|
2,196 |
|
Total
noninterest income
|
|
|
31,090 |
|
|
|
23,694 |
|
|
|
91,255 |
|
|
|
76,136 |
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
22,274 |
|
|
|
20,805 |
|
|
|
60,940 |
|
|
|
59,972 |
|
Retirement
and other employee benefits
|
|
|
5,142 |
|
|
|
6,191 |
|
|
|
18,016 |
|
|
|
19,582 |
|
Federal
Deposit Insurance Corporation (“FDIC”) premiums
|
|
|
2,558 |
|
|
|
261 |
|
|
|
10,953 |
|
|
|
764 |
|
Net
occupancy expense
|
|
|
5,609 |
|
|
|
5,732 |
|
|
|
17,309 |
|
|
|
17,411 |
|
Equipment
expense
|
|
|
2,228 |
|
|
|
2,484 |
|
|
|
6,754 |
|
|
|
7,502 |
|
Technology
and related costs
|
|
|
2,230 |
|
|
|
1,990 |
|
|
|
6,612 |
|
|
|
5,581 |
|
Professional
services
|
|
|
3,769 |
|
|
|
2,516 |
|
|
|
10,428 |
|
|
|
7,421 |
|
Other
real estate expense, net
|
|
|
3,461 |
|
|
|
637 |
|
|
|
7,766 |
|
|
|
2,120 |
|
Advertising
and promotions
|
|
|
2,237 |
|
|
|
1,133 |
|
|
|
5,039 |
|
|
|
3,883 |
|
Merchant
card expense
|
|
|
1,729 |
|
|
|
1,949 |
|
|
|
4,901 |
|
|
|
5,375 |
|
Other
expenses
|
|
|
5,403 |
|
|
|
4,738 |
|
|
|
15,549 |
|
|
|
18,113 |
|
Total
noninterest expense
|
|
|
56,640 |
|
|
|
48,436 |
|
|
|
164,267 |
|
|
|
147,724 |
|
(Loss)
income before income tax (benefit) expense
|
|
|
(2,569 |
) |
|
|
24,987 |
|
|
|
(10,093 |
) |
|
|
82,127 |
|
Income
tax (benefit) expense
|
|
|
(5,920 |
) |
|
|
796 |
|
|
|
(21,834 |
) |
|
|
5,901 |
|
Net
income
|
|
|
3,351 |
|
|
|
24,191 |
|
|
|
11,741 |
|
|
|
76,226 |
|
Preferred
dividends
|
|
|
(2,567 |
) |
|
|
- |
|
|
|
(7,696 |
) |
|
|
- |
|
Net
income applicable to non-vested restricted shares
|
|
|
(11 |
) |
|
|
(42 |
) |
|
|
(54 |
) |
|
|
(176 |
) |
Net
income applicable to common shares
|
|
$ |
773 |
|
|
$ |
24,149 |
|
|
$ |
3,991 |
|
|
$ |
76,050 |
|
Per
Common Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.02 |
|
|
$ |
0.50 |
|
|
$ |
0.08 |
|
|
$ |
1.57 |
|
Diluted
earnings per share
|
|
$ |
0.02 |
|
|
$ |
0.50 |
|
|
$ |
0.08 |
|
|
$ |
1.57 |
|
Cash
dividends per share
|
|
$ |
0.01 |
|
|
$ |
0.31 |
|
|
$ |
0.03 |
|
|
$ |
0.93 |
|
Weighted
average shares outstanding
|
|
|
48,942 |
|
|
|
48,470 |
|
|
|
48,647 |
|
|
|
48,454 |
|
Weighted
average diluted shares outstanding
|
|
|
48,942 |
|
|
|
48,499 |
|
|
|
48,647 |
|
|
|
48,518 |
|
See
accompanying notes to unaudited consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(Amounts
in thousands, except per share data)
(Unaudited)
|
|
Common
Shares
Outstanding
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
|
|
Treasury
Stock
|
|
|
Total
|
|
Balance
at January 1, 2008
|
|
|
48,453 |
|
|
$ |
- |
|
|
|
613 |
|
|
$ |
207,851 |
|
|
$ |
844,972 |
|
|
$ |
(11,727 |
) |
|
$ |
(317,734 |
) |
|
$ |
723,975 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
76,226 |
|
|
|
- |
|
|
|
- |
|
|
|
76,226 |
|
Other
comprehensive loss: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(40,080 |
) |
|
|
- |
|
|
|
(40,080 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,146 |
|
Common
dividends declared ($0.93 per common
share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(45,251 |
) |
|
|
- |
|
|
|
- |
|
|
|
(45,251 |
) |
Purchase
of treasury stock
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(137 |
) |
|
|
(137 |
) |
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,916 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,916 |
|
Exercise
of stock options and restricted
stock activity
|
|
|
145 |
|
|
|
- |
|
|
|
- |
|
|
|
(3,242 |
) |
|
|
- |
|
|
|
- |
|
|
|
4,564 |
|
|
|
1,322 |
|
Treasury
stock (purchased for) issued
to benefit plans
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
(22 |
) |
|
|
- |
|
|
|
- |
|
|
|
(40 |
) |
|
|
(62 |
) |
Balance
at September 30, 2008
|
|
|
48,590 |
|
|
$ |
- |
|
|
$ |
613 |
|
|
$ |
207,503 |
|
|
$ |
875,947 |
|
|
$ |
(51,807 |
) |
|
$ |
(313,347 |
) |
|
$ |
718,909 |
|
Balance
at January 1, 2009
|
|
|
48,630 |
|
|
$ |
189,617 |
|
|
$ |
613 |
|
|
$ |
210,698 |
|
|
$ |
837,390 |
|
|
$ |
(18,042 |
) |
|
$ |
(311,997 |
) |
|
$ |
908,279 |
|
Cumulative
effect of change in accounting
for other-than-
temporary
impairment (2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,271 |
|
|
|
(11,271 |
) |
|
|
- |
|
|
|
- |
|
Adjusted
balance at January 1, 2009
|
|
|
48,630 |
|
|
|
189,617 |
|
|
|
613 |
|
|
|
210,698 |
|
|
|
848,661 |
|
|
|
(29,313 |
) |
|
|
(311,997 |
) |
|
|
908,279 |
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,741 |
|
|
|
- |
|
|
|
- |
|
|
|
11,741 |
|
Other
comprehensive income (loss)
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,102 |
|
|
|
- |
|
|
|
14,102 |
|
Unrealized
losses on funded status of pension plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,006 |
) |
|
|
- |
|
|
|
(1,006 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,837 |
|
Common
dividends declared ($0.03
per common share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,528 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,528 |
) |
Preferred
dividends declared ($37.50
per preferred share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,237 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7,237 |
) |
Accretion
on preferred stock
|
|
|
- |
|
|
|
459 |
|
|
|
- |
|
|
|
- |
|
|
|
(459 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance
of common stock
|
|
|
5,643 |
|
|
|
- |
|
|
|
57 |
|
|
|
56,754 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56,811 |
|
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,499 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,499 |
|
Restricted
stock activity
|
|
|
539 |
|
|
|
- |
|
|
|
- |
|
|
|
(18,430 |
) |
|
|
- |
|
|
|
- |
|
|
|
18,446 |
|
|
|
16 |
|
Treasury
stock (purchased for) issued
to benefit plans
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
|
(98 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(98 |
) |
Balance
at September 30, 2009
|
|
|
54,800 |
|
|
$ |
190,076 |
|
|
$ |
670 |
|
|
$ |
251,423 |
|
|
$ |
851,178 |
|
|
$ |
(16,217 |
) |
|
$ |
(293,551 |
) |
|
$ |
983,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net
of taxes and reclassification adjustments.
|
|
|
(2)
|
For
additional details of this adjustment, refer to Note 2, “Recent Accounting
Pronouncements,” and Note 3, “Securities.”
|
|
See
accompanying notes to unaudited consolidated financial
statements.
|
|
FIRST
MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollar
amounts in thousands)
(Unaudited)
|
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
Net
cash provided by operating activities
|
|
$
|
93,203
|
|
$
|
104,949
|
Investing
Activities
|
|
|
|
|
|
|
Proceeds
from maturities, repayments, and calls of securities
available-for-sale
|
|
|
236,083
|
|
|
226,231
|
Proceeds
from sales of securities available-for-sale
|
|
|
843,087
|
|
|
226,315
|
Purchases
of securities available-for-sale
|
|
|
(157,229)
|
|
|
(463,298)
|
Proceeds
from maturities, repayments, and calls of securities
held-to-maturity
|
|
|
51,037
|
|
|
40,870
|
Purchases
of securities held-to-maturity
|
|
|
(50,551)
|
|
|
(29,117)
|
Net
increase in loans
|
|
|
(111,159)
|
|
|
(302,029)
|
Proceeds
from claims on bank owned life insurance
|
|
|
2,834
|
|
|
2,634
|
Proceeds
from sales of other real estate owned
|
|
|
10,518
|
|
|
3,628
|
Proceeds
from sales of premises, furniture, and equipment
|
|
|
24
|
|
|
720
|
Purchases
of premises, furniture, and equipment
|
|
|
(3,440)
|
|
|
(3,957)
|
Net cash provided by (used in)
investing activities
|
|
|
821,204
|
|
|
(298,003)
|
Financing
Activities
|
|
|
|
|
|
|
Net
increase (decrease) in deposit accounts
|
|
|
163,399
|
|
|
(120,577)
|
Net
(decrease) increase in borrowed funds
|
|
|
(982,035)
|
|
|
290,475
|
Purchases
of treasury stock
|
|
|
-
|
|
|
(137)
|
Proceeds
from the issuance of treasury stock
|
|
|
-
|
|
|
(62)
|
Cash
dividends paid
|
|
|
(11,932)
|
|
|
(45,208)
|
Restricted
stock activity
|
|
|
(370)
|
|
|
411
|
Excess
tax expense related to share-based compensation
|
|
|
(179)
|
|
|
(48)
|
Net cash (used in) provided by
financing activities
|
|
|
(831,117)
|
|
|
124,854
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
83,290
|
|
|
(68,200)
|
Cash
and cash equivalents at beginning of period
|
|
|
114,308
|
|
|
194,837
|
Cash and cash equivalents at
end of period
|
|
$
|
197,598
|
|
$
|
126,637
|
Supplemental
Disclosures:
|
|
|
|
|
|
|
Non-cash
transfers of loans to other real estate owned
|
|
$
|
57,140
|
|
$
|
22,261
|
Dividends
declared but unpaid
|
|
$
|
549
|
|
$
|
15,088
|
Non-cash
transfer of loans to securities available-for-sale
|
|
$
|
25,742
|
|
$
|
-
|
Non-cash
transfers of other real estate owned to premises, furniture, and
equipment
|
|
$
|
6,860
|
|
$
|
-
|
Issuance
of common stock in exchange for the extinguishment of subordinated
debt
|
|
$
|
57,966
|
|
$
|
-
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited consolidated financial
statements.
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS
OF PRESENTATION
The
accompanying unaudited consolidated interim financial statements of First
Midwest Bancorp, Inc. (the “Company”), a Delaware corporation, have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include certain
information and footnote disclosures required by U.S. generally accepted
accounting principles (“GAAP”) for complete annual financial statements.
Accordingly, these financial statements should be read in conjunction with the
Company’s 2008 Annual Report on Form 10-K (“2008 10-K”).
The
accompanying unaudited consolidated interim financial statements have been
prepared in accordance with U.S. GAAP and reflect all adjustments that are, in
the opinion of management, necessary for the fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The results of operations for the
quarter and nine months ended September 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31,
2009.
The
consolidated financial statements include the accounts and results of operations
of the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions. Certain reclassifications have been made
to prior periods to conform to the current period presentation. U.S. GAAP
requires management to make certain estimates and assumptions. Although these
and other estimates and assumptions are based on the best available information,
actual results could be materially different from these estimates.
2. RECENT
ACCOUNTING PRONOUNCEMENTS
Measuring Liabilities at Fair
Value: In August 2009, the FASB issued accounting guidance, which the
Company adopted effective September 30, 2009, to address how to measure the fair
value of a liability when there is (1) a lack of observable market information
available to measure the liability, (2) a contractual restriction that may
prevent the liability from being transferred, or (3) the possibility that
nonperformance risk changes after a liability is transferred. In the last case,
an existing liability may be transferred to a new obligor, but the transferee
may not have the same nonperformance risk as the transferor. The guidance
indicates that if a quoted price in an active market for the identical liability
is available, the price represents a Level 1 measurement. In all other
circumstances, fair value would be measured using one of the following
techniques:
a.
|
A
valuation technique that uses:
|
1.
|
The
quoted price of the identical liability when traded as an
asset
|
2.
|
Quoted
prices for similar liabilities or similar liabilities when traded as
assets
|
b.
|
Another
valuation technique that is consistent with the fair value measurement
principles, such as an income approach (e.g., present value technique), or
a market approach, such as a technique based on the amount at the
measurement date that the entity would pay to transfer the identical
liability or would receive to enter into the identical
liability.
|
The
adoption of this guidance on September 30, 2009 did not result in a change to
the Company’s valuation techniques nor did it have a material impact on the
Company’s financial position, results of operations, or liquidity.
GAAP Codification: Effective
July 1, 2009, the FASB Accounting Standards Codification and its related
accounting guidance was released. The FASB Accounting Standards Codification
(“FASB ASC”) reorganizes U.S. GAAP pronouncements into approximately 90
accounting topics, includes relevant guidance from the SEC, and displays all
topics in a consistent format. FASB ASC is now the single official source of
non-governmental U.S. GAAP, superseding existing literature from the FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
(“EITF”) and related sources. All other non-grandfathered non-SEC accounting
literature not included in the FASB ASC is considered
non-authoritative.
The FASB
will no longer issue new standards in the form of Statements, FASB Staff
Positions (“FSPs”), or EITF abstracts. Instead, it will issue Accounting
Standards Updates and will consider them authoritative in their own right. Since
the FASB ASC does not change GAAP, the release of the FASB ASC and its related
accounting guidance will not impact the Company’s financial position, results of
operations, or liquidity. However, it has changed how users research accounting
issues and how the Company references accounting literature within its quarterly
and annual SEC filings.
Consolidation of Variable Interest
Entities: In June 2009, the FASB issued accounting guidance that changes
how a company determines when a variable interest entity (“VIE”) – an entity
that is insufficiently capitalized or is not controlled through voting or
similar rights – should be consolidated. This guidance replaces the quantitative
approach for determining which company, if any, has a controlling financial
interest in a VIE with a more qualitative approach focused on identifying which
company has the power to direct the activities of a VIE that most significantly
impact the entity’s economic performance. Prior to issuance of this standard, a
troubled debt restructuring was not an event that required reconsideration of
whether an entity is a VIE and whether the company is the primary beneficiary of
the VIE. This guidance eliminates that exception and requires ongoing
reassessment of troubled debt restructurings and whether a company is the
primary beneficiary of a VIE. In addition, it requires a company to disclose how
its involvement with a VIE affects the company’s financial statements. This
guidance is effective for annual and interim periods beginning after November
15, 2009 (or January 1, 2010 for calendar-year companies) and is applicable to
VIEs formed before and after the effective date. The Company is currently
evaluating the impact of adopting this standard on its financial position,
results of operations, and liquidity.
Transfers of Financial Assets:
In June 2009, the FASB issued accounting guidance that requires a company to
disclose more information about transfers of financial assets, including
securitization transactions. It eliminates the concept of a “qualifying
special-purpose entity” (“QSPE”) from U.S. GAAP, changes the criteria for
removing transferred assets from the balance sheet, and requires additional
disclosures about a transferor’s continuing involvement in transferred assets.
This guidance is effective for financial asset transfers occurring after January
1, 2010 for calendar-year companies. The effect of these new requirements on the
Company’s financial position, results of operations, and liquidity will depend
on the types and terms of financial asset transfers (including securitizations)
executed by the Company in 2010 and beyond.
Fair Value Measurements:
Effective January 1, 2008, the Company adopted FASB accounting guidance that
provides a single definition of fair value, establishes a framework for
measuring fair value, and requires additional disclosures about fair value
measurements. This guidance applies whenever an entity is measuring fair value
under other accounting standards that require or permit fair value measurements.
On October 10, 2008, the FASB issued additional guidance that addressed the use
of broker quotes and pricing services and how an entity’s own input assumptions
(such as discount rates used in cash flow projections) should be considered when
measuring fair value when relevant observable market data does not exist. On
April 9, 2009, the FASB provided further fair value measurement guidance that
concludes that if there has been a significant decrease in the volume and level
of activity in relation to the normal market activity, transactions or quoted
prices may not be the best indicator of fair value. Further analysis of the
transactions or quoted prices may be needed, and a significant adjustment to the
transactions or quoted prices may be necessary to estimate fair value. This
guidance also expands disclosures by requiring entities to disclose its inputs
and valuation assumptions for both interim and annual periods. In addition, the
disclosures must be presented by major security type (such as mortgage-backed
securities or collateralized debt obligations), rather than disclosure by major
category (such as trading securities and available-for-sale
securities).
The fair
value guidance was effective for financial assets and liabilities on January 1,
2008 and for non-financial assets and liabilities on January 1, 2009. The
guidance that addresses estimating fair value when the volume and level of
activity in the market have decreased significantly was effective for interim
and annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. The Company elected to early
adopt effective for first quarter 2009. The adoption of these standards did not
have a material impact on the Company’s financial position, results of
operations, or liquidity. Refer to Note 16, “Fair Value,” for the Company’s fair
value measurement disclosures.
Subsequent Events: Effective
July 1, 2009, the Company adopted FASB accounting guidance that establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or available
to be issued. This guidance defines (i) the period after the balance sheet date
during which a reporting entity’s management should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and (iii) the disclosures an entity should make about
events or transactions that occurred after the balance sheet date. The adoption
of this standard did not have a material impact on the Company’s financial
position, results of operations, or liquidity. Refer to Note 17, “Subsequent
Events,” for the Company’s subsequent events disclosures.
Interim Period Fair Value
Disclosures: Effective April 1, 2009, the Company adopted FASB accounting
guidance that requires disclosures about fair value of financial instruments for
interim reporting periods as well as in annual financial statements. Since this
guidance affects only disclosures, it did not impact the Company’s financial
position, results of operations, or liquidity upon adoption.
Other-Than-Temporary
Impairment: Effective January 1, 2009, the Company adopted FASB
accounting guidance related to the presentation and disclosure of
other-than-temporary impairments on debt securities in its financial statements.
Under the prior impairment guidance, an entity was required to assess whether it
has the intent and ability to hold a security to recovery when determining
whether the impairment is other-than-temporary. This guidance amends prior
guidance, and, once an impairment has been determined, requires an entity to
recognize only the credit portion of the other-than-temporary impairment in
earnings for those debt securities where there is no intent to sell or it is
more likely than not the entity would not be required to sell the security prior
to expected recovery. The remaining portion of the other-than-temporary
impairment is to be included in other comprehensive income.
This
guidance was effective for interim and annual reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company elected to early adopt during first quarter 2009. Refer to
Note 3, “Securities,” for the impact of adopting this guidance and Note 16,
“Fair Value,” for the Company’s fair value measurement disclosures.
Business Combinations:
Effective January 1, 2009, the Company adopted FASB accounting guidance that
significantly changes how entities apply the acquisition method to business
combinations. The guidance requires assets acquired, liabilities assumed, and
noncontrolling interests in the acquiree to be measured at fair value on the
acquisition date. This guidance requires the value of consideration paid,
including any future contingent consideration, to be measured at fair value at
the closing date of the transaction. Transaction costs and acquisition-related
restructuring costs that do not meet certain criteria will be expensed as
incurred rather than included in the cost of the acquisition. The acquirer also
is not permitted to recognize at the acquisition date a reserve for loan losses.
In addition, this guidance requires new and modified disclosures about
subsequent changes to acquisition-related contingencies, contingent
consideration, noncontrolling interests, acquisition-related transaction costs,
fair values, cash flows not expected to be collected for acquired loans, and an
enhanced goodwill rollforward. The effect of these new requirements on the
Company’s financial position, results of operations, or liquidity will depend on
the volume and terms of acquisitions in 2009 and beyond, but will likely
increase the amount and change the timing of recognizing expenses related to
acquisition activities.
Derivative Disclosures:
Effective January 1, 2009, the Company adopted FASB accounting guidance that
requires an entity to provide greater transparency about how its derivative and
hedging activities affect its financial statements. This guidance requires
enhanced disclosures about: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for; and (iii) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations, and cash flows.
Since this guidance affects only disclosures, it did not impact the Company’s
financial position, results of operations, or liquidity upon adoption. Refer to
Note 15, “Derivative Instruments and Hedging Activities,” for the Company’s
derivative disclosures.
Disclosures about Pension Plan
Assets: Effective January 1, 2009, the Company adopted FASB accounting
guidance that requires additional disclosures about plan assets of a defined
benefit pension or other postretirement plan. The guidance has two main
objectives. First, it requires additional disclosures about major categories of
plan assets and concentrations of risk within plan assets. Second, it applies to
defined benefit plans by requiring disclosure of the inputs and valuation
techniques used to measure the fair value of plan assets and the effect of fair
value measurements using unobservable inputs on changes in plan assets for the
period. Adoption of this guidance affects disclosures only and therefore had no
impact on the Company’s financial position, results of operations, or liquidity.
The adoption of this guidance will impact future annual disclosures related to
the Company’s defined benefit pension plan.
Earnings Per Share Under Two-Class
Method: Effective January 1, 2009, the Company adopted FASB accounting
guidance that requires an entity to include participating share-based payment
transactions, prior to vesting, in the earnings allocation in computing earnings
per share. Participating share-based payment awards are those that contain
nonforfeitable rights to dividends, even if granted prior to when an award
vests. For the Company, participating share-based payment awards include
restricted stock awards that have a right to receive dividends prior to vest.
The adoption of this guidance did not have a material impact on the Company’s
earnings per share computations. Refer to Note 11, “Earnings Per Common Share,”
for the Company’s earnings per share disclosures.
3. SECURITIES
As
discussed in Note 2, “Recent Accounting Pronouncements,” effective January 1,
2009, the Company adopted accounting guidance related to the recognition of
other-than-temporary impairment. The effect of the adoption as of January 1,
2009 is presented in the table below.
Incremental
Effect on Individual Line Items
in
the Consolidated Statements of Financial Condition
(Dollar
amounts in thousands)
|
|
Before
Application of New Guidance
|
|
Adjustments
|
|
After
Application of New Guidance
|
Securities
available-for-sale, at amortized cost
|
|
$
|
2,219,504
|
|
$
|
18,477
|
|
$
|
2,237,981
|
Unrealized
(losses) on securities
|
|
|
(3,318)
|
|
|
(18,477)
|
|
|
(21,795)
|
Securities
available-for-sale, at fair value
|
|
|
2,216,186
|
|
|
-
|
|
|
2,216,186
|
Prepaid
income taxes (included in other assets)
|
|
|
-
|
|
|
(7,206)
|
|
|
(7,206)
|
Deferred
income taxes (included in other assets)
|
|
|
1,290
|
|
|
7,206
|
|
|
8,496
|
Total
assets
|
|
|
8,528,341
|
|
|
-
|
|
|
8,528,341
|
Retained
earnings
|
|
|
837,390
|
|
|
11,271
|
|
|
848,661
|
Accumulated
other comprehensive (loss)
|
|
|
(18,042)
|
|
|
(11,271)
|
|
|
(29,313)
|
Total
stockholders’ equity
|
|
|
908,279
|
|
|
-
|
|
|
908,279
|
Securities
Portfolio
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Securities
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,039 |
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
1,041 |
|
U.S.
Agency
|
|
|
757 |
|
|
|
- |
|
|
|
- |
|
|
|
757 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Collateralized mortgage obligations
|
|
|
322,780 |
|
|
|
10,651 |
|
|
|
(2,224 |
) |
|
|
331,207 |
|
|
|
694,285 |
|
|
|
7,668 |
|
|
|
(3,114 |
) |
|
|
698,839 |
|
Other
mortgage-backed securities
|
|
|
233,396 |
|
|
|
10,782 |
|
|
|
(3 |
) |
|
|
244,175 |
|
|
|
504,918 |
|
|
|
13,421 |
|
|
|
(74 |
) |
|
|
518,265 |
|
State
and municipal
|
|
|
680,216 |
|
|
|
29,176 |
|
|
|
(1,078 |
) |
|
|
708,314 |
|
|
|
907,036 |
|
|
|
12,606 |
|
|
|
(12,895 |
) |
|
|
906,747 |
|
Collateralized debt obligations
|
|
|
60,290 |
|
|
|
- |
|
|
|
(44,747 |
) |
|
|
15,543 |
|
|
|
78,883 |
|
|
|
- |
|
|
|
(36,797 |
) |
|
|
42,086 |
|
Corporate
debt
|
|
|
35,787 |
|
|
|
244 |
|
|
|
(1,638 |
) |
|
|
34,393 |
|
|
|
35,731 |
|
|
|
180 |
|
|
|
(2,586 |
) |
|
|
33,325 |
|
Equity
|
|
|
15,142 |
|
|
|
334 |
|
|
|
(196 |
) |
|
|
15,280 |
|
|
|
16,089 |
|
|
|
33 |
|
|
|
(239 |
) |
|
|
15,883 |
|
Total
|
|
$ |
1,348,368 |
|
|
$ |
51,187 |
|
|
$ |
(49,886 |
) |
|
$ |
1,349,669 |
|
|
$ |
2,237,981 |
|
|
$ |
33,910 |
|
|
$ |
(55,705 |
) |
|
$ |
2,216,186 |
|
|
September
30, 2009
|
|
December
31, 2008
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Securities
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal
|
$
|
83,860
|
|
$
|
370
|
|
$
|
-
|
|
$
|
84,230
|
|
$
|
84,306
|
|
$
|
286
|
|
$
|
-
|
|
$
|
84,592
|
Trading Securities (1)
|
|
|
|
|
|
|
|
$
|
13,231
|
|
|
|
|
|
|
|
|
|
|
$
|
12,358
|
(1)
|
Trading
securities held by the Company represent diversified investment securities
held in a grantor trust under deferred compensation arrangements in which
plan participants may direct amounts earned to be invested in securities
other than Company stock.
|
Remaining
Contractual Maturity of Securities
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
One
year or less
|
|
$
|
9,515
|
|
$
|
9,294
|
|
$
|
11,348
|
|
$
|
11,398
|
One
year to five years
|
|
|
147,260
|
|
|
143,841
|
|
|
26,337
|
|
|
26,453
|
Five
years to ten years
|
|
|
499,022
|
|
|
487,435
|
|
|
18,925
|
|
|
19,009
|
After
ten years
|
|
|
121,253
|
|
|
118,437
|
|
|
27,250
|
|
|
27,370
|
Collateralized
mortgage obligations
|
|
|
322,780
|
|
|
331,207
|
|
|
-
|
|
|
-
|
Other
mortgage-backed securities
|
|
|
233,396
|
|
|
244,175
|
|
|
-
|
|
|
-
|
Equity
securities
|
|
|
15,142
|
|
|
15,280
|
|
|
-
|
|
|
-
|
Total
|
|
$
|
1,348,368
|
|
$
|
1,349,669
|
|
$
|
83,860
|
|
$
|
84,230
|
Purchases
and sales of securities are recognized on a trade date basis. Realized
securities gains or losses are reported in securities gains (losses), net in the
Consolidated Statements of Income. The cost of securities sold is based on the
specific identification method.
Securities
Gains (Losses)
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Proceeds
from sales
|
|
$
|
119,566
|
|
$
|
6,191
|
|
$
|
843,087
|
|
$
|
226,315
|
Gains
(losses) on sales of securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
realized gains
|
|
|
4,532
|
|
|
48
|
|
|
26,461
|
|
|
8,644
|
Gross
realized losses
|
|
|
(7)
|
|
|
-
|
|
|
(8)
|
|
|
(3)
|
Net
realized gains on securities sales
|
|
|
4,525
|
|
|
48
|
|
|
26,453
|
|
|
8,641
|
Non-cash
impairment charges
|
|
|
(11,500)
|
|
|
(1,794)
|
|
|
(18,571)
|
|
|
(10,037)
|
Net
realized (losses) gains
|
|
$
|
(6,975)
|
|
$
|
(1,746)
|
|
$
|
7,882
|
|
$
|
(1,396)
|
Income
tax (benefit) expense on net realized (losses) gains
|
|
$
|
(2,720)
|
|
$
|
(681)
|
|
$
|
3,074
|
|
$
|
(544)
|
Trading
gains (losses), net (1)
|
|
$
|
1,359
|
|
$
|
(1,831)
|
|
$
|
2,097
|
|
$
|
(3,211)
|
(1)
|
Trading
gains (losses), net, representing changes in the fair value of the trading
securities portfolio, are included as a component of noninterest income in
the Consolidated Statements of
Income.
|
During
the first nine months of 2008, the Company recorded other-than-temporary
impairments (“OTTI”) of $10.0 million related to six asset-backed collateralized
debt obligations (“CDO”). During the first nine months of 2009, the Company
recorded OTTI of $18.6 million related to five trust preferred CDOs. Accounting
guidance requires that only the credit portion of an OTTI be recognized through
income beginning first quarter 2009. In deriving the credit component of the
impairment on these five CDOs, future projected cash flows were discounted at
the contractual rate ranging from LIBOR plus 125 basis points to LIBOR plus 160
basis points. If a decline in fair value below carrying value was not
attributable to credit loss and the Company did not intend to sell the security
or believe it would be more likely than not required to sell the security prior
to recovery, the Company recorded the decline in fair value in accumulated other
comprehensive income.
Changes
in the amount of credit losses recognized in earnings on trust preferred CDOs
are summarized in the following table.
Changes
in Credit Losses Recognized in Earnings
(Dollar
amounts in thousands)
|
|
Quarter
Ended
September
30, 2009
|
|
Nine
Months Ended
September
30, 2009
|
Balance
at beginning of period
|
|
$
|
13,402
|
|
$
|
6,331
|
Credit
losses included in earnings (1)
|
|
|
|
|
|
|
Losses
recognized on securities that previously had credit losses
|
|
|
5,594
|
|
|
10,364
|
Losses
recognized on securities that did not previously have credit
losses
|
|
|
5,906
|
|
|
8,207
|
Cash
collections
|
|
|
-
|
|
|
-
|
Changes
in credit losses due to securities sales
|
|
|
-
|
|
|
-
|
Changes
in credit losses due to a change in intention to sell
|
|
|
-
|
|
|
-
|
Balance
at end of period
|
|
$
|
24,902
|
|
$
|
24,902
|
(1)
|
Included
in securities gains (losses), net in the Consolidated Statements of
Income.
|
Securities In an Unrealized Loss
Position
(Dollar
amounts in thousands)
|
|
Less
Than 12 Months
|
|
12
Months or Longer
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
As
of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
87
|
|
$
|
-
|
|
$
|
17,380
|
|
$
|
2,224
|
|
$
|
17,467
|
|
$
|
2,224
|
Other
mortgage-backed securities
|
|
|
-
|
|
|
-
|
|
|
316
|
|
|
3
|
|
|
316
|
|
|
3
|
State
and municipal
|
|
|
1,727
|
|
|
2
|
|
|
25,750
|
|
|
1,076
|
|
|
27,477
|
|
|
1,078
|
Collateralized
debt obligations
|
|
|
-
|
|
|
-
|
|
|
15,543
|
|
|
44,747
|
|
|
15,543
|
|
|
44,747
|
Corporate
debt securities
|
|
|
-
|
|
|
-
|
|
|
26,755
|
|
|
1,638
|
|
|
26,755
|
|
|
1,638
|
Equity
securities
|
|
|
-
|
|
|
-
|
|
|
109
|
|
|
196
|
|
|
109
|
|
|
196
|
Total
|
|
$
|
1,814
|
|
$
|
2
|
|
$
|
85,853
|
|
$
|
49,884
|
|
$
|
87,667
|
|
$
|
49,886
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
27,142
|
|
$
|
49
|
|
$
|
39,923
|
|
$
|
3,065
|
|
$
|
67,065
|
|
$
|
3,114
|
Other
mortgage-backed securities
|
|
|
113
|
|
|
1
|
|
|
6,246
|
|
|
73
|
|
|
6,359
|
|
|
74
|
State
and municipal
|
|
|
144,997
|
|
|
5,783
|
|
|
174,141
|
|
|
7,112
|
|
|
319,138
|
|
|
12,895
|
Collateralized
debt obligations
|
|
|
-
|
|
|
-
|
|
|
28,004
|
|
|
36,797
|
|
|
28,004
|
|
|
36,797
|
Corporate
debt securities
|
|
|
23,092
|
|
|
2,586
|
|
|
-
|
|
|
-
|
|
|
23,092
|
|
|
2,586
|
Equity
securities
|
|
|
-
|
|
|
-
|
|
|
1,065
|
|
|
239
|
|
|
1,065
|
|
|
239
|
Total
|
|
$
|
195,344
|
|
$
|
8,419
|
|
$
|
249,379
|
|
$
|
47,286
|
|
$
|
444,723
|
|
$
|
55,705
|
Collateralized
mortgage obligations and other mortgage-backed securities are either backed by
U.S. Government-owned agencies or issued by U.S. Government-sponsored
enterprises. State and municipal securities are issuances by state and municipal
authorities, all of which carry investment grade ratings, with the majority
supported by third-party insurance. Management does not believe any individual
unrealized loss as of September 30, 2009 represents an other-than-temporary
impairment. The unrealized losses associated with these securities are not
believed to be attributable to credit quality, but rather to changes in interest
rates and temporary market movements. In addition, the Company has both the
intent and ability to hold the securities with unrealized losses for a period of
time necessary to recover the amortized cost, or to maturity and more than
likely will not be forced to sell them before recovering its cost
basis.
The
unrealized loss on CDOs as of September 30, 2009 of $44.7 million reflects the
market’s negative bias toward structured investment vehicles given the current
interest rate and liquidity environment. The Company does not believe this loss
is an other-than-temporary impairment. The Company expects no further reduction
in its net cash flows from these investments from what has already been
recognized, and the Company has both the intent and ability to hold them until
maturity or recovery and more than likely will not be forced to sell them before
recovering its cost basis. The Company’s estimation of cash flows for these
investments and resulting fair values were based upon cash flow modeling, as
described in Note 16, “Fair Value.”
The
unrealized losses in the Company’s investment in other securities consist of
unrealized losses on corporate bonds and equity securities and relate to
temporary movements in the financial markets. Management does not
believe any individual unrealized loss as of December 31, 2009 represents an
other-than-temporary impairment.
4. LOANS
Loan
Portfolio
(Dollar
amounts in thousands)
|
|
September
30,
2009
|
|
December
31,
2008
|
Commercial
and industrial
|
|
$
|
1,484,601
|
|
$
|
1,490,101
|
Agricultural
|
|
|
200,955
|
|
|
216,814
|
Commercial
real estate:
|
|
|
|
|
|
|
Office,
retail, and industrial
|
|
|
1,151,276
|
|
|
1,025,241
|
Residential
construction
|
|
|
400,502
|
|
|
509,059
|
Commercial
construction
|
|
|
196,198
|
|
|
258,253
|
Commercial
land
|
|
|
105,264
|
|
|
98,322
|
Multi-family
|
|
|
342,807
|
|
|
286,963
|
Investor-owned
rental property
|
|
|
117,276
|
|
|
131,635
|
Other
commercial real estate
|
|
|
636,153
|
|
|
597,694
|
Total
commercial real estate
|
|
|
2,949,476
|
|
|
2,907,167
|
Consumer
|
|
|
532,174
|
|
|
547,784
|
Real
estate – 1-4 family
|
|
|
138,862
|
|
|
198,197
|
Total
loans
|
|
$
|
5,306,068
|
|
$
|
5,360,063
|
Deferred
loan fees included in total loans
|
|
$
|
8,309
|
|
$
|
8,503
|
Overdrawn
demand deposits included in total loans
|
|
$
|
3,835
|
|
$
|
7,702
|
The
Company primarily lends to small to mid-sized businesses, commercial real estate
customers, and consumers in the market areas in which the Company operates.
Within these areas, the Company diversifies its loan portfolio by loan type,
industry, and borrower.
It is the
Company’s policy to review each prospective credit in order to determine the
appropriateness and, when required, the adequacy of security or collateral to
obtain prior to making a loan. In the event of borrower default, the Company
seeks recovery in compliance with state lending laws and the Company’s lending
standards and credit monitoring procedures.
5. SECURITIZATIONS
AND MORTGAGE SERVICING RIGHTS
In
September 2009, the Company securitized $25.7 million of real estate 1-4 family
loans, converting the loans into mortgage-backed securities issued through the
Federal National Mortgage Association. The Company retained servicing
responsibilities for the mortgages supporting these securities and collects
servicing fees equal to a percentage of the outstanding principal balance of the
loans being serviced. The Company also services loans from prior securitizations
and services loans for which the servicing was acquired as part of a 2006 bank
acquisition. Mortgage loans serviced for and owned by third parties are not
included in the Consolidated Statements of Financial Condition. The unpaid
principal balance of these loans totaled $131.5 million as of September 30, 2009
and $130.7 million as of December 31, 2008. The Company has no recourse for
credit losses on the loans securitized in 2009 or the loans previously serviced
by the acquired bank, but retains limited recourse for credit losses on $8.4
million of loans securitized during 2004. For a discussion of the recourse
obligation, refer to Note 14, “Commitments, Guarantees, and Contingent
Liabilities.”
Carrying
Value of Mortgage Servicing Rights
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Balance
at beginning of period
|
|
$
|
1,005
|
|
$
|
1,632
|
|
$
|
1,461
|
|
$
|
1,877
|
New
servicing assets
|
|
|
237
|
|
|
-
|
|
|
237
|
|
|
-
|
Total
losses included in earnings (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
to changes in valuation inputs and assumptions (2)
|
|
|
(74)
|
|
|
(68)
|
|
|
(350)
|
|
|
(122)
|
Other
changes in fair value (3)
|
|
|
(69)
|
|
|
(64)
|
|
|
(249)
|
|
|
(255)
|
Balance
at end of period
|
|
$
|
1,099
|
|
$
|
1,500
|
|
$
|
1,099
|
|
$
|
1,500
|
Contractual
servicing fees earned during the period (1)
|
|
$
|
72
|
|
$
|
93
|
|
$
|
235
|
|
$
|
298
|
(1)
|
Included
in other service charges, commissions, and fees in the Consolidated
Statements of Income.
|
(2)
|
Principally
reflects changes in prepayment speed assumptions.
|
(3)
|
Primarily
represents changes in expected cash flows over time due to payoffs and
paydowns.
|
The
Company records its mortgage servicing rights at fair value. Under
the fair value method, the Company initially records any mortgage servicing
rights at their estimated fair value in other assets in the Consolidated
Statements of Financial Condition. Fair value is subsequently determined by
estimating the present value of the future cash flows associated with the
mortgage loans serviced. Key economic assumptions used in measuring the fair
value of mortgage servicing rights at September 30, 2009 included a
weighted-average prepayment speed of 24.8% and a weighted-average discount rate
of 11.6%. The Company uses market-based data for assumptions related to the
valuation of mortgage servicing rights.
Reserve
for Loan Losses
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Balance
at beginning of period
|
|
$
|
127,528
|
|
$
|
66,104
|
|
$
|
93,869
|
|
$
|
61,800
|
Loans
charged-off
|
|
|
(32,118)
|
|
|
(9,721)
|
|
|
(84,301)
|
|
|
(21,453)
|
Recoveries
of loans previously charged-off
|
|
|
859
|
|
|
399
|
|
|
2,029
|
|
|
1,595
|
Net
loans charged-off
|
|
|
(31,259)
|
|
|
(9,322)
|
|
|
(82,272)
|
|
|
(19,858)
|
Provision
for loan losses
|
|
|
38,000
|
|
|
13,029
|
|
|
122,672
|
|
|
27,869
|
Balance
at end of period
|
|
$
|
134,269
|
|
$
|
69,811
|
|
$
|
134,269
|
|
$
|
69,811
|
Impaired,
Non-accrual, and Past Due Loans
(Dollar
amounts in thousands)
|
|
September
30,
2009
|
|
December
31,
2008
|
Impaired
loans:
|
|
|
|
|
|
|
Impaired
loans with valuation reserve required (1)
|
|
$
|
157,241
|
|
$
|
58,439
|
Impaired
loans with no valuation reserve required
|
|
|
113,054
|
|
|
72,397
|
Total
impaired loans
|
|
$
|
270,295
|
|
$
|
130,836
|
Non-accrual
loans:
|
|
|
|
|
|
|
Impaired
loans on non-accrual
|
|
$
|
243,577
|
|
$
|
123,492
|
Other
non-accrual loans
(2)
|
|
|
13,228
|
|
|
4,276
|
Total
non-accrual loans
|
|
$
|
256,805
|
|
$
|
127,768
|
|
|
September
30,
2009
|
|
December
31,
2008
|
Restructured
loans
|
|
$
|
26,718
|
|
$
|
7,344
|
Loans
past due 90 days or more and still accruing interest
|
|
$
|
5,960
|
|
$
|
36,999
|
Valuation
reserve related to impaired loans
|
|
$
|
36,334
|
|
$
|
10,177
|
(1)
|
These
impaired loans require a valuation reserve because the estimated value of
the loans or related collateral less estimated selling costs is less than
the recorded investment in the loans.
|
(2)
|
These
loans are not considered for impairment since they are part of a small
balance, homogeneous portfolio.
|
The
average total recorded investment in impaired loans was $207.0 million for the
nine months ended September 30, 2009 and $27.5 million for the nine months ended
September 30, 2008. Interest income recognized on impaired loans was $99,000 for
the nine months ended September 30, 2009 and $53,000 for the nine months ended
September 30, 2008. Interest income recognized on impaired loans is recorded
using the cash basis of accounting. As of September 30, 2009, the Company had
$39.9 million of additional funds committed to be advanced in connection with
impaired loans.
7. ASSETS
HELD FOR SALE
During
first quarter 2009, the Company classified ten parcels of vacant land as held
for sale. During third quarter 2009, the Company reclassified these lots as held
for use since the Company no longer expects that it will be able to sell the
properties within one year due to a declining real estate market. The total
carrying value of $1.8 million as of September 30, 2009 is included in premises,
furniture, and equipment in the Consolidated Statements of Financial Condition.
The estimated fair value of these parcels is greater than the book value as of
September 30, 2009. Therefore, no impairment loss was required to be recognized
related to these properties. The Company had no assets classified as held for
sale as of December 31, 2008.
8. SUBORDINATED
DEBT
Subordinated
Debt
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
December
31, 2008
|
6.95%
junior subordinated debentures due in 2033
|
|
|
|
|
|
|
Principal
amount
|
|
$
|
87,350
|
|
$
|
128,866
|
Discount
|
|
|
(82)
|
|
|
(125)
|
Basis
adjustment related to fair value hedges (1)
|
|
|
-
|
|
|
3,749
|
Total
junior subordinated debentures
|
|
|
87,268
|
|
|
132,490
|
5.85%
subordinated debt due in 2016
|
|
|
|
|
|
|
Principal
amount
|
|
|
70,500
|
|
|
100,000
|
Discount
|
|
|
(51)
|
|
|
(81)
|
Total
subordinated debt due in 2016
|
|
|
70,449
|
|
|
99,919
|
Total
subordinated debt
|
|
$
|
157,717
|
|
$
|
232,409
|
(1)
|
For
additional discussion regarding the fair value hedges, refer to Note 15,
“Derivative Instruments and Hedging
Activities.”
|
In 2006,
the Company issued $100.0 million of 10-year subordinated notes (the “Notes”).
The notes were issued at a discount and have a fixed coupon interest rate of
5.85%, per annum, payable semi-annually. The notes are redeemable prior to
maturity only at the Company’s option and are junior and subordinate to the
Company’s senior indebtedness. For regulatory capital purposes, the notes
qualify as Tier 2 Capital.
In 2003,
the Company formed First Midwest Capital Trust (“FMCT”), a statutory business
trust, organized for the sole purpose of issuing trust securities and investing
the proceeds thereof in junior subordinated debentures of the Company, the sole
assets of the trust. The trust preferred securities of the trust represent
preferred beneficial interests in the assets of the trust and are subject to
mandatory redemption, in whole or in part, upon payment of the junior
subordinated debentures held by the trust. The common securities of the trust
are wholly owned by the Company. The trust’s ability to pay amounts due on the
trust preferred securities is solely dependent upon the Company making payment
on the related junior subordinated debentures. The Company’s obligations under
the junior subordinated debentures and other relevant trust agreements, in
aggregate, constitute a full and unconditional guarantee by the Company of the
trust’s obligations under the trust securities issued by the trust. The
guarantee covers the distributions and payments on liquidation or redemption of
the trust preferred securities, but only to the extent of funds held by the
trust. Upon its formation, FMCT I issued $125.0 million of capital securities
(the “Capital Securities”). The Capital Securities notes were issued at a
discount and have a fixed coupon interest rate of 6.95%, per annum, payable
semi-annually. The Capital Securities are redeemable prior to maturity only at
the Company’s option and are junior and subordinate to the Company’s senior
indebtedness. For regulatory capital purposes, the Capital Securities qualify as
Tier 1 Capital.
In
September 2009, the Company completed an offer to exchange a portion of the
Notes and a separate offer to exchange a portion of the Capital Securities for
newly issued shares of common stock of the Company. The exchanges strengthened
the composition of First Midwest’s capital base by increasing its Tier 1 common
and tangible common equity ratios, while also reducing the interest expense
associated with the debt securities.
As a
result of the exchange offers, $39.3 million of Capital Securities were retired
at a discount of 20% in exchange for 3,058,410 shares of common stock of the
Company, and $29.5 million of Notes were retired at a discount of 10% in
exchange for 2,584,695 shares of common stock of the Company. The number of
shares issued was based on a price of $10.272 per share. This price was
calculated as the simple arithmetic average of the daily per share volume
weighted average price of First Midwest’s common stock for each of the five
consecutive trading days ending on the second trading day immediately preceding
the Expiration Date of the exchange offers, or September 22, 2009.
In the
aggregate, the exchange offers resulted in recognition of $14.0 million in
pre-tax gains by the Company. These gains are shown as a separate component of
noninterest income in the Consolidated Statements of Income.
9. MATERIAL
TRANSACTIONS AFFECTING STOCKHOLDERS’ EQUITY
As
referred to above, in September 2009, the Company issued a total of 5,643,105
shares of common stock at a price of $10.272 per share, a $58.0 million increase
in stockholders’ equity.
On March
16, 2009, the Company’s Board of Directors announced a reduction in its
quarterly common stock dividend from $0.225 per share to $0.010 per share. This
reduction approximates $42 million in retained capital over the course of a
year.
On May
27, 2009 and on August 31, 2009, the Company’s Board of Directors announced
additional quarterly common stock dividends of $0.010 per share
each.
10. COMPREHENSIVE
INCOME
Comprehensive
income is the total of reported net income and all other revenues, expenses,
gains, and losses that bypass reported net income under U.S. GAAP. The Company
includes the following items, net of tax, in other comprehensive income in the
Consolidated Statements of Changes in Stockholders’ Equity: changes in
unrealized gains or losses on securities available-for-sale, changes in the fair
value of derivatives designated under cash flow hedges, and changes in the
funded status of the Company’s pension plan.
Components
of Other Comprehensive Income
(Dollar
amounts in thousands)
|
|
Nine
Months Ended September 30, 2009
|
|
Nine
Months Ended September 30, 2008
|
|
|
Before
Tax
|
|
|
Tax
Effect
|
|
Net
of
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
Net
of
Tax
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains
(losses)
|
|
$
|
30,978
|
|
$
|
12,069
|
|
$
|
18,909
|
|
$
|
(67,096)
|
|
$
|
(26,164)
|
|
$
|
(40,932)
|
Less:
Reclassification of net gains
(losses)
included in net income
|
|
|
7,882
|
|
|
3,075
|
|
|
4,807
|
|
|
(1,396)
|
|
|
(544)
|
|
|
(852)
|
Net
unrealized holding gains (losses)
|
|
|
23,096
|
|
|
8,994
|
|
|
14,102
|
|
|
(65,700)
|
|
|
(25,620)
|
|
|
(40,080)
|
Funded
status of pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses
|
|
|
(1,650)
|
|
|
(644)
|
|
|
(1,006)
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
other comprehensive
income
(loss)
|
|
$
|
21,446
|
|
$
|
8,350
|
|
$
|
13,096
|
|
$
|
(65,700)
|
|
$
|
(25,620)
|
|
$
|
(40,080)
|
Activity
in Accumulated Other Comprehensive (Loss) Income
(Dollar
amounts in thousands)
|
|
Accumulated
Unrealized
Losses
on Securities
Available-for-Sale
|
|
Accumulated
Unrealized
Losses
on Under-funded Pension
Obligation
|
|
Total
Accumulated
Other
Comprehensive
Loss
|
Balance
at January 1, 2008
|
|
$
|
(4,645)
|
|
$
|
(7,082)
|
|
$
|
(11,727)
|
2008
other comprehensive loss
|
|
|
(40,080)
|
|
|
-
|
|
|
(40,080)
|
Balance
at September 30, 2008
|
|
$
|
(44,725)
|
|
$
|
(7,082)
|
|
$
|
(51,807)
|
Balance
at January 1, 2009
|
|
$
|
(2,028)
|
|
$
|
(16,014)
|
|
$
|
(18,042)
|
Cumulative
effect of change in accounting for other-than-temporary
impairment
|
|
|
(11,271)
|
|
|
-
|
|
|
(11,271)
|
Adjusted
balance at January 1, 2009
|
|
|
(13,299)
|
|
|
(16,014)
|
|
|
(29,313)
|
2009
other comprehensive income (loss)
|
|
|
14,102
|
|
|
(1,006)
|
|
|
13,096
|
Balance
at September 30, 2009
|
|
$
|
803
|
|
$
|
(17,020)
|
|
$
|
(16,217)
|
11.
EARNINGS PER COMMON SHARE
Basic
and Diluted Earnings per Common Share
(Amounts
in thousands, except per share data)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Net
income
|
|
$
|
3,351
|
|
$
|
24,191
|
|
$
|
11,741
|
|
$
|
76,226
|
Preferred
dividends
|
|
|
(2,412)
|
|
|
-
|
|
|
(7,237)
|
|
|
-
|
Accretion
on preferred stock
|
|
|
(155)
|
|
|
-
|
|
|
(459)
|
|
|
-
|
Net
income applicable to non-vested restricted shares
|
|
|
(11)
|
|
|
(42)
|
|
|
(54)
|
|
|
(176)
|
Net
income applicable to common shares
|
|
$
|
773
|
|
$
|
24,149
|
|
$
|
3,991
|
|
$
|
76,050
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (basic)
|
|
|
48,942
|
|
|
48,470
|
|
|
48,647
|
|
|
48,454
|
Dilutive
effect of stock options
|
|
|
-
|
|
|
29
|
|
|
-
|
|
|
64
|
Weighted-average
diluted common shares outstanding
|
|
|
48,942
|
|
|
48,499
|
|
|
48,647
|
|
|
48,518
|
Basic
earnings per share
|
|
$
|
0.02
|
|
$
|
0.50
|
|
$
|
0.08
|
|
$
|
1.57
|
Diluted
earnings per share
|
|
$
|
0.02
|
|
$
|
0.50
|
|
$
|
0.08
|
|
$
|
1.57
|
Anti-dilutive
shares not included in the computation of
diluted
earnings per share (1)
|
|
|
3,964
|
|
|
2,698
|
|
|
4,009
|
|
|
2,484
|
(1)
|
Represents
stock options and common stock warrants for which the exercise price is
greater than the average market price of the Company’s common
stock.
|
12. PENSION
PLAN
Net
Periodic Benefit Pension Expense
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
667
|
|
$
|
827
|
|
$
|
2,771
|
|
$
|
2,854
|
Interest
cost
|
|
|
653
|
|
|
822
|
|
|
2,727
|
|
|
2,836
|
Expected
return on plan assets
|
|
|
(893)
|
|
|
(1,146)
|
|
|
(3,419)
|
|
|
(3,956)
|
Recognized
net actuarial loss
|
|
|
226
|
|
|
132
|
|
|
1,159
|
|
|
458
|
Amortization
of prior service cost
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
Net
periodic cost
|
|
$
|
654
|
|
$
|
636
|
|
$
|
3,241
|
|
$
|
2,195
|
The
Company contributed $8.0 million to its pension plan in April 2009.
13. INCOME
TAXES
Income
Tax Expense
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
(Loss)
income before income tax (benefit) expense
|
|
$
|
(2,569)
|
|
$
|
24,987
|
|
$
|
(10,093)
|
|
$
|
82,127
|
Income
tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
income tax (benefit) expense
|
|
$
|
(4,285)
|
|
$
|
2,770
|
|
$
|
(15,079)
|
|
$
|
13,824
|
State
income tax (benefit)
|
|
|
(1,635)
|
|
|
(1,974)
|
|
|
(6,755)
|
|
|
(7,923)
|
Total
income tax (benefit) expense
|
|
$
|
(5,920)
|
|
$
|
796
|
|
$
|
(21,834)
|
|
$
|
5,901
|
Effective
income tax rate
|
|
|
N/M
|
|
|
3.2%
|
|
|
N/M
|
|
|
7.2%
|
N/M – Not
meaningful.
Federal
income tax expense, and the related effective income tax rate, is primarily
influenced by the amount of tax-exempt income derived from investment securities
and bank owned life insurance (“BOLI”) in relation to pre-tax income. State
income tax expense, and the related effective tax rate, is influenced by the
amount of state tax-exempt income in relation to pre-tax income, and state tax
rules relating to consolidated/combined reporting and sourcing of income and
expense.
The
decrease in income tax expense from third quarter 2008 to third quarter 2009 was
primarily attributable to a decrease in pre-tax income for those periods. This
decrease was offset in part by a decrease in tax-exempt income from investment
securities and BOLI, and an increase in state taxable income attributable to
changes in Illinois tax law effective in 2009. The decrease in income tax
expense for the first nine months of 2009 in comparison to the same period in
2008 was attributable to the same factors as for the quarter.
14. COMMITMENTS,
GUARANTEES, AND CONTINGENT LIABILITIES
Credit
Extension Commitments and Guarantees
In the
normal course of business, the Company enters into a variety of financial
instruments with off-balance sheet risk to meet the financing needs of its
customers, to reduce its exposure to fluctuations in interest rates, and to
conduct lending activities. These instruments principally include commitments to
extend credit, standby letters of credit, and commercial letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the Consolidated Statements of
Financial Condition.
Contractual
or Notional Amounts of Financial Instruments
(Dollar
amounts in thousands)
|
|
September
30,
2009
|
|
December
31,
2008
|
Commitments
to extend credit:
|
|
|
|
|
Home
equity lines
|
|
$
|
271,338
|
|
$
|
293,221
|
Credit
card lines to businesses
|
|
|
11,834
|
|
|
12,417
|
1-4
family real estate construction
|
|
|
52,097
|
|
|
87,050
|
Commercial
real estate
|
|
|
181,163
|
|
|
286,368
|
All
other commitments
|
|
|
701,031
|
|
|
844,226
|
Letters
of credit:
|
|
|
|
|
|
|
1-4
family real estate construction
|
|
|
19,850
|
|
|
21,301
|
Commercial
real estate
|
|
|
37,830
|
|
|
35,536
|
All
other
|
|
|
73,234
|
|
|
89,175
|
Recourse
on assets securitized
|
|
|
8,420
|
|
|
9,344
|
Letters
of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Standby letters of credit generally
are contingent upon the failure of the customer to perform according to the
terms of the underlying contract with the third party and are most often issued
in favor of a municipality where construction is taking place to ensure the
borrower adequately completes the construction.
The
maximum potential future payments guaranteed by the Company under standby
letters of credit arrangements are equal to the contractual amount of the
commitment. The unamortized fees associated with the Company’s standby letters
of credit, which are included in other liabilities in the Consolidated
Statements of Financial Condition, totaled $740,000 as of September 30, 2009 and
$700,000 as of December 31, 2008. The Company will amortize these amounts into
income over the commitment period. As of September 30, 2009, standby letters of
credit had a remaining weighted-average term of approximately 12.6 months, with
remaining actual lives ranging from less than one year to 5.8 years. If a
commitment is funded, the Company may seek recourse through the liquidation of
the underlying collateral provided including real estate, physical plant and
property, marketable securities, or cash.
Pursuant
to the securitization of certain 1-4 family mortgage loans in fourth quarter
2004, the Company is obligated by agreement to repurchase at recorded value any
non-performing loans, defined as loans past due greater than 90 days. The
Company repurchased $336,000 of non-performing loans during the nine months
ended September 30, 2009 and $686,000 of non-performing loans during the nine
months ended September 30, 2008. During the first nine months of 2009, the
Company received $183,000 in satisfaction for one of the loans repurchased in
2008 and charged-off $66,000 related to a loan repurchased in 2008. During the
first nine months of 2008, the Company charged-off $28,000 related to two loans
repurchased in 2008. The aggregate outstanding balance of securitized loans
subject to this recourse obligation was $8.4 million as of September 30, 2009
and $9.3 million as of December 31, 2008. Per its agreement, the Company’s
recourse obligations will end on November 30, 2011. The carrying value of the
Company’s recourse liability, which is included in other liabilities in the
Consolidated Statements of Financial Condition, totaled approximately $150,000
as of September 30, 2009 and December 31, 2008.
Visa
Litigation
In 2007,
Visa completed a restructuring and issued shares of Visa common stock to its
member banks in contemplation of its initial public offering (“IPO”) completed
in 2008. As part of that Visa reorganization, the Company received its
proportionate share of Class U.S.A. shares. In addition, Visa was named as a
defendant in several antitrust lawsuits (“Visa litigation”). The terms of the
Visa reorganization stipulated that the Visa member banks (including the
Company) have a contingent obligation to indemnify Visa for potential losses
arising from the Visa litigation.
In 2008,
Visa completed its IPO, redeemed a portion of the Class U.S.A. shares, converted
the remaining Class U.S.A. shares to Class B shares, and set aside $4.1 billion
of the proceeds of the IPO in an escrow account to fund the expenses of the Visa
litigation, as well as the members’ proportionate share of any judgments or
settlements that may arise out of the Visa litigation. The Class B shares are
not transferable (other than to another member bank) until the later of the
third anniversary of the IPO closing, or the date in which the Visa litigation
is resolved; therefore, the Company’s Class B shares were accounted for at their
carryover basis of zero. The Company’s proportionate share of the Visa escrow
account is accounted for as a receivable and is classified in other assets as an
offset to the related Visa litigation liability, which is classified in other
liabilities in the Consolidated Statements of Financial Condition. Both the
Company’s receivable and liability balances related to the Visa litigation
totaled $552,000 at September 30, 2009 and will decline as amounts are paid out
of the escrow account.
In
September 2009, the Company sold its 35,605 Class B shares to another financial
institution (“the Counterparty”) for $1.2 million and recognized a gain of $1.2
million. In addition, the Company executed a derivative agreement with the
Counterparty that allows the Counterparty to pass back the impact of changes in
the conversion ratio used to convert Class B shares to Class A shares to the
Company. Accordingly, the Company continues to bear the risk of a reduction in
the conversion ratio due to the outcome of the Visa litigation.
Legal
Proceedings
As of
September 30, 2009, there were certain legal proceedings pending against the
Company and its subsidiaries in the ordinary course of business. The Company
does not believe that liabilities, individually or in the aggregate, arising
from these proceedings, if any, would have a material adverse effect on the
consolidated financial condition of the Company as of September 30,
2009.
15. DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
Accounting
Policy for Derivative Financial Instruments
In the
ordinary course of business, the Company enters into derivative transactions as
part of its overall interest rate risk management strategy to minimize
significant unplanned fluctuations in earnings and cash flows caused by interest
rate volatility. All derivative instruments are recorded at fair value as either
other assets or other liabilities. Subsequent changes in a derivative’s fair
value are recognized in earnings unless specific hedge accounting criteria are
met.
On the
date the Company enters into a derivative contract, it designates the derivative
instrument as either a fair value hedge, cash flow hedge, or as a non-hedge
derivative instrument. Derivative instruments designated in a hedge relationship
to mitigate exposure to changes in the fair value of an asset or liability
attributable to a particular risk, such as interest rate risk, are considered to
be fair value hedges. Derivative instruments designated in a hedge relationship
to mitigate exposure to variability in expected future cash flows to be received
or paid related to an asset or liability or other types of forecasted
transactions are considered to be cash flow hedges. The Company formally
documents all relationships between hedging instruments and hedged items as well
as its risk management objective and strategy for undertaking each hedge
transaction.
For
effective derivative instruments that are designated and qualify as a fair value
hedge, the gain or loss on the derivative instrument, as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk, are recognized
in current earnings during the period of the change in fair values. For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income. The unrealized gain or loss is
reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings (for example, when a hedged item is terminated or
redesignated). For all hedge relationships, derivative gains and losses not
effective in hedging the change in fair value or expected cash flows of the
hedged item are recognized immediately in current earnings during the period of
change.
At the
hedge’s inception and at least quarterly thereafter, a formal assessment is
performed to determine whether changes in the fair values or cash flows of the
derivative instruments have been highly effective in offsetting changes in the
fair values or cash flows of the hedged item and whether they are expected to be
highly effective in the future. If a derivative instrument designated as a hedge
is terminated or ceases to be highly effective, hedge accounting is discontinued
prospectively and the gain or loss is amortized to earnings. For fair value
hedges, the gain or loss is amortized over the remaining life of the hedged
asset or liability. For cash flow hedges, the gain or loss is amortized over the
same period(s) that the forecasted hedged transactions impact earnings. If the
hedged item is disposed of, or the forecasted transaction is no longer probable,
any fair value adjustments are included in the gain or loss from the disposition
of the hedged item. In the case of a forecasted transaction that is no longer
probable, the gain or loss is included in earnings immediately.
Hedging
Strategy
The
Company maintains an overall interest rate risk management strategy that
incorporates the use of derivative instruments to minimize significant unplanned
fluctuations in earnings and cash flows caused by interest rate volatility. The
Company usually designates derivative instruments used to manage interest rate
risk into hedge relationships with the specific assets, liabilities, or cash
flows being hedged. Some derivative instruments used for interest rate risk
management may not be designated as part of a hedge relationship if the
derivative instrument has been moved out of a hedge relationship because the
hedge was deemed not effective or if operational or cost constraints make it
prohibitive to apply hedge accounting.
Management
uses derivative instruments to protect against the risk of interest rate
movements on the value of certain assets and liabilities and on future cash
flows. The derivative instruments the Company primarily uses are interest rate
swaps with indices that relate to the pricing of specific assets and
liabilities. The nature and volume of the derivative instruments used to manage
interest rate risk depend on the level and type of assets and liabilities held
and the risk management strategies for the current and anticipated interest rate
environment.
As with
any financial instrument, derivative instruments have inherent risks, primarily
market and credit risk. Market risk is the adverse effect a change in interest
rates, currency, equity prices, or implied volatility has on the value of a
financial instrument. Market risk associated with changes in interest rates is
managed by establishing and monitoring limits as to the degree of risk that may
be undertaken as part of the Company’s overall market risk monitoring process,
which includes the use of net interest income and economic value of equity
simulation methodologies. This process is carried out by the Company’s Asset
Liability Management Committee. See further discussion of this process in Item
3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form
10-Q.
Fair Value Hedges - During
2008 and 2009, the Company hedged the fair value of fixed rate commercial real
estate loans through the use of pay fixed, receive variable interest rate swaps.
In 2008, the Company also hedged the fair value of fixed rate, junior
subordinated debentures through the use of pay variable, receive fixed interest
rate swaps.
Derivative
contracts are valued using observable market prices, if available, or cash flow
projection models acquired from third parties. Pricing models used for valuing
derivative instruments are regularly validated by testing through comparison
with other third parties. The valuations and expected lives presented in the
following table are based on yield curves, forward yield curves, and implied
volatilities that were observable in the cash and derivatives markets on
September 30, 2009 and December 31, 2008.
Other Derivative Activities -
The Company had no other derivative instruments as of September 30, 2009 or
December 31, 2008. The Company does not enter into derivative transactions for
purely speculative purposes.
Interest Rate Derivatives
Portfolio
(Dollar
amounts in thousands)
|
|
September
30,
2009
|
|
December
31,
2008
|
Fair
Value Hedges
|
|
|
|
|
|
|
Related
to fixed rate commercial loans
|
|
|
|
|
|
|
Notional
amount outstanding
|
|
$
|
19,252
|
|
$
|
19,982
|
Weighted-average
interest rate received
|
|
|
2.16%
|
|
|
3.16%
|
Weighted-average
interest rate paid
|
|
|
6.39%
|
|
|
6.39%
|
Weighted-average
maturity (in years)
|
|
|
8.01
|
|
|
8.76
|
Derivative
liability fair value
|
|
$
|
(1,655)
|
|
$
|
(2,628)
|
|
|
Quarters
Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Gains
(losses) on hedged items recognized in
noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses) on swaps
|
|
$
|
(320)
|
|
$
|
(96)
|
|
$
|
973
|
|
$
|
(82)
|
(Losses)
gains on loans
|
|
|
317
|
|
|
93
|
|
|
(981)
|
|
|
87
|
Net
hedge ineffectiveness (1)
|
|
$
|
(3)
|
|
$
|
(3)
|
|
$
|
(8)
|
|
$
|
5
|
Gains
recognized in net interest income (2)
|
|
$
|
40
|
|
$
|
40
|
|
$
|
120
|
|
$
|
85
|
|
(1)
|
Included
in other noninterest income in the Consolidated Statements of
Income.
|
|
(2)
|
The
gain represents the fair value adjustments on discontinued fair value
hedges in connection with our subordinated fixed rate debt that were being
amortized through earnings over the remaining life of the hedged item
(debt). In addition to these amounts, interest accruals on fair value
hedges are also reported in net interest
income.
|
Credit
Risk
Credit
risk occurs when the counterparty to a derivative contract with an unrealized
gain fails to perform according to the terms of the agreement. Credit risk is
managed by limiting the aggregate amount of net unrealized gains in agreements
outstanding, monitoring the size and the maturity structure of the derivatives,
applying uniform credit standards maintained for all activities with credit
risk, and collateralizing gains. The Company maintains a policy limiting credit
exposure to any one counterparty to not more than 2.5% of stockholders’ equity.
In addition, the Company has established bilateral collateral agreements with
its major derivative dealer counterparties that provide for exchanges of
marketable securities or cash to collateralize either party’s net gains above an
agreed-upon minimum threshold. On September 30, 2009, these collateral
agreements covered 100% of the fair value of the Company’s interest rate swaps
outstanding. Net losses with counterparties must be collateralized with either
cash or U.S. Government and U.S. Government-sponsored agency securities. The
Company pledged cash of $1.6 million as of September 30, 2009 and $2.7 million
as of December 31, 2008 to collateralize net losses with counterparties. No
other collateral was required to be pledged as of September 30, 2009 or December
31, 2008.
As of
September 30, 2009 and December 31, 2008, all of the Company’s derivative
instruments contained provisions that require the Company’s debt to remain above
a certain credit rating by each of the major credit rating agencies. If the
Company’s debt were to fall below that credit rating, it would be in violation
of those provisions, and the counterparties to the derivative instruments could
terminate the swap transaction and demand cash settlement of the derivative
instrument.
16. FAIR
VALUE
The
Company measures, monitors, and discloses certain of its assets and liabilities
on a fair value basis. Fair value is used on a recurring basis to account for
trading securities, securities available-for-sale, mortgage servicing rights,
derivative assets, and derivative liabilities. In addition, fair value is used
on a non-recurring basis to apply lower-of-cost-or-market accounting to other
real estate owned (“OREO”); evaluate assets or liabilities for impairment,
including collateral-dependent impaired loans, goodwill, and other intangibles;
and for disclosure purposes. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The
Company measures fair value in accordance with accounting guidance that was
effective for the Company on January 1, 2008 for financial assets and
liabilities and on January 1, 2009 for non-financial assets and liabilities.
Depending upon the nature of the asset or liability, the Company uses various
valuation techniques and input assumptions when estimating fair
value.
The
Company maximizes the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The new fair value guidance
establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value into three broad levels based on the reliability of the input
assumptions. The hierarchy gives the highest priority to level 1 measurements
and the lowest priority to level 3 measurements. The three levels of the fair
value hierarchy are defined as follows:
·
|
Level
1 – Unadjusted quoted prices for identical assets or liabilities traded in
active markets.
|
·
|
Level
2 – Observable inputs other than level 1 prices, such as quoted prices for
similar instruments; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the asset or
liability.
|
·
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
The
categorization of where an asset or liability falls within the hierarchy is
based on the lowest level of input that is significant to the fair value
measurement.
Assets
and Liabilities Measured at Fair Value
The
following table provides the hierarchy level and fair value for each major type
of assets and liabilities measured at fair value as of September 30,
2009.
Fair
Value Measurements
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
|
Quoted
Prices in
Active
Markets
for
Identical Assets
(Level
1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Total
|
Assets
and liabilities measured at fair value on a recurring
basis
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
|
$
|
13,231
|
|
$
|
-
|
|
$
|
-
|
|
$
|
13,231
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agency securities
|
|
|
-
|
|
|
757
|
|
|
-
|
|
|
757
|
Collateralized
mortgage obligations
(1)
|
|
|
-
|
|
|
331,207
|
|
|
-
|
|
|
331,207
|
Other
mortgage-backed securities
(1)
|
|
|
-
|
|
|
228,569
|
|
|
15,606
|
|
|
244,175
|
State
and municipal securities
|
|
|
-
|
|
|
708,314
|
|
|
-
|
|
|
708,314
|
Collateralized
debt obligations
|
|
|
-
|
|
|
-
|
|
|
15,543
|
|
|
15,543
|
Corporate
debt securities
|
|
|
-
|
|
|
34,393
|
|
|
-
|
|
|
34,393
|
Equity
securities
|
|
|
9,971
|
|
|
5,309
|
|
|
-
|
|
|
15,280
|
Total
securities available-for-sale
|
|
|
9,971
|
|
|
1,308,549
|
|
|
31,149
|
|
|
1,349,669
|
Mortgage
servicing rights (2)
|
|
|
-
|
|
|
-
|
|
|
1,099
|
|
|
1,099
|
Total
assets
|
|
$
|
23,202
|
|
$
|
1,308,549
|
|
$
|
32,248
|
|
$
|
1,363,999
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities (2)
|
|
$
|
-
|
|
$
|
1,655
|
|
$
|
-
|
|
$
|
1,655
|
Assets
measured at fair value on a non-recurring basis
|
|
|
|
|
|
|
|
|
|
Collateral-dependent
impaired loans (3)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
76,648
|
|
$
|
76,648
|
Other
real estate owned (4)
|
|
|
-
|
|
|
-
|
|
|
57,945
|
|
|
57,945
|
Total
assets
|
|
$
|
-
|
|
$
|
-
|
|
$
|
134,593
|
|
$
|
134,593
|
(1)
|
These
securities are backed by residential mortgages.
|
(2)
|
Mortgage
servicing rights are included in other assets, and derivative liabilities
are included in other liabilities in the Consolidated Statements of
Financial Condition.
|
(3)
|
Represents
the carrying value of loans for which adjustments are based on the
appraised or market-quoted value of the collateral.
|
(4)
|
Represents
the estimated fair value, net of selling costs, based on appraised
value.
|
Valuation
Methodology
The
following describes the valuation methodologies used by the Company for assets
and liabilities measured at fair value, including the general classification of
the assets and liabilities pursuant to the valuation hierarchy.
Trading
Securities – Trading securities represent diversified investment
securities held in a grantor trust under deferred compensation arrangements in
which plan participants may direct amounts earned to be invested in securities
other than Company common stock. Trading securities are reported at fair value,
with unrealized gains and losses included in noninterest income. The fair value
of trading securities is based on quoted market prices in active exchange
markets and, therefore, is classified in level 1 of the valuation
hierarchy.
Securities
Available-for-Sale – Substantially all available-for-sale securities are
fixed income instruments that are not quoted on an exchange, but may be traded
in active markets. The fair value of these securities is based on quoted market
prices obtained from external pricing services or dealer market participants
where trading in an active market exists. In obtaining such data from external
pricing services, the Company has evaluated the methodologies used to develop
the fair values in order to determine whether such valuations are representative
of an exit price in the Company’s principal markets. The Company’s principal
markets for its securities portfolio are the secondary institutional markets,
with an exit price that is based on bid level pricing in those markets. Examples
of such securities measured at fair value are U.S. Treasury and Agency
securities, municipal bonds, collateralized mortgage obligations, and other
mortgage-backed securities. These securities are generally classified in level 2
of the valuation hierarchy. In certain cases where there is limited activity or
less transparency for inputs to the valuation, securities are classified in
level 3 of the valuation hierarchy. For instance, in the valuation of certain
collateralized mortgage and debt obligations and high-yield debt securities, the
determination of fair value may require benchmarking to similar instruments or
analyzing default and recovery rates.
Due to
the illiquidity in the secondary market for the Company’s seven trust-preferred
CDOs, especially since the disruption in the credit markets, the Company
determined that dealer quotes did not reflect the best estimate of fair value.
Therefore, the Company, with the assistance of a structured credit valuation
firm, estimated the value of these securities using discounted cash flows and
has classified these investments in level 3 of the valuation
hierarchy.
The
valuation for each of the seven CDOs relies on independently verifiable
historical financial data. The valuation firm performs a credit analysis of each
of the entities comprising the collateral underlying each CDO in order to
estimate the likelihood of default by any of these entities on their
trust-preferred obligation. Cash flows are modeled based upon the contractual
terms of the CDO, discounted to their present values, and used to derive the
estimated fair value of the individual CDO, as well as any credit loss or
impairment.
The
component of loss for any CDO that is deemed to be an other-than-temporary
impairment, if any, is determined by comparing the current amortized cost to the
discounted cash flows for each CDO using each CDO’s specific contractual yield.
The contractual yields for these CDOs range from the London Interbank Offered
Rate (“LIBOR”) plus 125 to 160 basis points.
The fair
value for each CDO is determined by discounting the estimated cash flows by a
rate ranging from LIBOR plus 1,000 to 1,500 basis points, depending upon the
specific CDO. The discount rate used is intended to reflect the higher risk
inherent in these securities given the current market. Currently, five of these
CDOs are deferring interest payments. The Company has ceased accruing interest
on these securities.
Carrying
Value of Level 3 Securities Available-for-Sale
(Dollar
amounts in thousands)
|
|
Quarter
Ended September 30, 2009
|
|
Nine
Months Ended September 30, 2009
|
|
|
Other
Mortgage-
Backed
Securities
|
|
Collateralized
Debt
Obligations
|
|
Total
|
|
Other
Mortgage-
Backed
Securities
|
|
Collateralized
Debt
Obligations
|
|
Total
|
Balance
at beginning of period
|
|
$
|
16,222
|
|
$
|
20,315
|
|
$
|
36,537
|
|
$
|
16,632
|
|
$
|
42,086
|
|
$
|
58,718
|
Total
income (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings (1)
|
|
|
-
|
|
|
(11,500)
|
|
|
(11,500)
|
|
|
-
|
|
|
(18,571)
|
|
|
(18,571)
|
Included
in other comprehensive
income (loss)
|
|
|
250
|
|
|
6,727
|
|
|
6,977
|
|
|
566
|
|
|
(7,950)
|
|
|
(7,384)
|
Purchases,
sales, issuances, and settlements
|
|
|
(866)
|
|
|
1
|
|
|
(865)
|
|
|
(1,592)
|
|
|
(22)
|
|
|
(1,614)
|
Balance
at end of period
|
|
$
|
15,606
|
|
$
|
15,543
|
|
$
|
31,149
|
|
$
|
15,606
|
|
$
|
15,543
|
|
$
|
31,149
|
Change
in unrealized losses recognized
in earnings relating
to securities
still held at end of period
|
|
$
|
-
|
|
$
|
(11,500)
|
|
$
|
(11,500)
|
|
$
|
-
|
|
$
|
(18,571)
|
|
$
|
(18,571)
|
(1)
|
Included
in securities gains, net in the Consolidated Statements of
Income.
|
In the
table above, the net losses recognized in earnings represent non-cash impairment
charges recognized on certain CDOs that were deemed to be other-than-temporarily
impaired.
Mortgage
Servicing Rights – The Company records its mortgage servicing rights at
fair value. Mortgage servicing rights do not trade in an active market with
readily observable prices. Accordingly, the Company determines the fair value of
mortgage servicing rights by estimating the present value of the future cash
flows associated with the mortgage loans being serviced. Mortgage servicing
rights are included in other assets in the Consolidated Statements of Financial
Condition. Key economic assumptions used in measuring the fair value of mortgage
servicing rights include weighted-average prepayment speeds and weighted-average
discount rates. While market-based data is used to determine the input
assumptions, the Company incorporates its own estimates of assumptions market
participants would use in determining the fair value of mortgage servicing
rights and classifies them in level 3 of the valuation hierarchy.
A
rollforward of the carrying value of mortgage servicing rights was provided in
Note 5, “Securitizations and Mortgage Servicing Rights.”
Derivative Assets
and Derivative Liabilities – The interest rate swaps entered into by the
Company are executed in the dealer market and priced based on market quotes
obtained from the counterparty that transacted the derivative contract. The
market quotes were developed by the counterparty using market observable inputs,
which primarily include LIBOR for swaps. As the fair value estimates for
interest rate swaps are primarily based on LIBOR, which is a market observable
input, derivatives are classified in level 2 of the valuation hierarchy. For its
derivative assets and liabilities, the Company also considers non-performance
risk, including the likelihood of default by itself and its counterparties, when
evaluating whether the market quotes from the counterparty are representative of
an exit price. The Company has a policy of executing derivative transactions
only with counterparties above a certain credit rating. Credit risk is also
mitigated through the pledging of collateral when certain thresholds are
reached. The likelihood of the Company’s default is considered remote. For this
reason, non-performance risk is considered extremely low, and accordingly, any
such credit risk adjustments to the Company’s derivative assets and liabilities
would be immaterial.
Collateral-Dependent
Impaired Loans – The carrying value of impaired loans is disclosed in
Note 6, “Reserve for Loan Losses and Impaired Loans.” The Company does not
record loans at fair value on a recurring basis. However, from time to time,
fair value adjustments are recorded on these loans to reflect (1) partial
write-downs that are based on the current appraised or market-quoted value of
the underlying collateral or (2) the full charge-off of the loan carrying value.
In some cases, the properties for which market quotes or appraised values have
been obtained are located in areas where comparable sales data is limited,
outdated, or unavailable. Accordingly, fair value estimates, including those
obtained from real estate brokers or other third-party consultants, for
collateral-dependent impaired loans are classified in level 3 of the valuation
hierarchy.
During
the first nine months of 2009, collateral-dependent impaired loans with a
carrying value of $182.4 million, less transfers to OREO of $47.5 million, were
written down to their fair value of $76.6 million, resulting in a charge to the
reserve for loan losses of $58.3 million, which was included in
earnings.
Other Real Estate
Owned – OREO includes properties acquired in partial or total
satisfaction of certain loans. Properties are recorded at the lower of the
recorded investment in the loans for which the properties previously served as
collateral or the fair value, which represents the estimated sales price of the
properties on the date acquired less estimated selling costs. Fair value assumes
an orderly disposition except where a specific disposition strategy is expected.
Any write-downs in the carrying value of a property at the time of acquisition
are charged against the reserve for loan losses. Management periodically reviews
the carrying value of OREO properties. Any write-downs of the properties
subsequent to acquisition, as well as gains or losses on disposition and income
or expense from the operations of OREO, are recognized in operating results in
the period they occur. Fair value is generally based on third party appraisals
and internal estimates and is therefore considered a Level 3
valuation.
During
the first nine months of 2009, OREO properties with a carrying value of $24.7
million were written down to their fair value of $19.6 million, resulting in a
charge to earnings of $3.4 million and a charge to the reserve for loan losses
of $1.7 million.
Goodwill and
Other Intangible Assets – Goodwill represents the excess of purchase
price over the fair value of net assets acquired using the purchase method of
accounting. Other intangible assets represent purchased assets that also lack
physical substance but can be distinguished from goodwill because of contractual
or other legal rights or because the asset is capable of being sold or exchanged
either on its own or in combination with a related contract, asset, or
liability.
Goodwill
and other intangible assets are subject to impairment testing, which requires a
significant degree of management judgment. Goodwill is tested at least annually
for impairment or more often if events or circumstances between annual tests
indicate that there may be impairment. The testing is performed using the market
capitalization method and, if necessary, by comparing the carrying value of
goodwill with the anticipated future cash flows.
Identified
intangible assets that have a finite useful life are amortized over that life in
a manner that reflects the estimated decline in the economic value of the
identified intangible asset. Identified intangible assets that have a finite
useful life are reviewed annually to determine whether there have been any
events or circumstances to indicate that the recorded amount is not recoverable
from projected undiscounted net operating cash flows.
The
annual test of goodwill and identified intangible assets performed as of October
1, 2008 did not indicate that an impairment charge was required. Additional
goodwill impairment testing was conducted in first quarter 2009, when general
economic conditions deteriorated significantly and the Company experienced a
substantial decline in market capitalization. The additional testing did not
indicate that an impairment charge was required. The Company is in
the process of completing its annual test of goodwill and identified intangible
assets as of October 1, 2009, and does not believe that impairment
exists.
If the
testing had resulted in impairment, the Company would have classified goodwill
and other intangible assets subjected to nonrecurring fair value adjustments as
Level 3. Additional information regarding goodwill, other intangible assets, and
impairment policies can be found in Note 7 of “Notes to Consolidated Financial
Statements” in Item 8 of the Company’s 2008 10-K.
Fair
Value Disclosure of Other Assets and Liabilities
U.S. GAAP
requires disclosure of the estimated fair values of certain financial
instruments, both assets and liabilities, on and off-balance sheet, for which it
is practical to estimate the fair value. Because the estimated fair values
provided herein exclude disclosure of the fair value of certain other financial
instruments and all non-financial instruments, any aggregation of the estimated
fair value amounts presented would not represent the underlying value of the
Company. Examples of non-financial instruments having significant value include
the future earnings potential of significant customer relationships and the
value of the Company’s trust division operations and other fee-generating
businesses. In addition, other significant assets including property, plant, and
equipment and goodwill are not considered financial instruments and, therefore,
have not been valued.
Various
methodologies and assumptions have been utilized in management’s determination
of the estimated fair value of the Company’s financial instruments, which are
detailed below. The fair value estimates are made at a discrete point in time
based on relevant market information. Because no market exists for a significant
portion of these financial instruments, fair value estimates are based on
judgments regarding future expected economic conditions, loss experience, and
risk characteristics of the financial instruments. These estimates are
subjective, involve uncertainties, and cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
In
addition to the valuation methodology explained above for financial instruments
recorded at fair value, the following methods and assumptions were used in
estimating the fair value of financial instruments that are carried at cost in
the Consolidated Statements of Financial Condition.
Short-Term Financial Assets and
Liabilities – For financial instruments with a shorter-term or with no
stated maturity, prevailing market rates, and limited credit risk, the carrying
amounts approximate fair value. Those financial instruments include cash and due
from banks, funds sold and other short-term investments, mortgages held for
sale, bank owned life insurance, accrued interest receivable, and accrued
interest payable.
Securities Held-to-Maturity -
The fair value of securities held-to-maturity is based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans - The fair value of
loans was estimated using present value techniques by discounting the future
cash flows of the remaining maturities of the loans, and, when applicable,
prepayment assumptions were considered based on historical experience and
current economic and lending conditions. The discount rate was based on the
LIBOR yield curve, with rate adjustments for liquidity and credit risk. The
primary impact of credit risk on the present value of the loan portfolio,
however, was accommodated through the use of the reserve for loan losses, which
is believed to represent the current fair value of probable incurred losses for
purposes of the fair value calculation.
Deposit Liabilities - The
fair values disclosed for demand deposits, savings deposits, NOW accounts, and
money market deposits are, by definition, equal to the amount payable on demand
at the reporting date (i.e., their carrying amounts). The fair value for
fixed-rate time deposits was estimated using present value techniques by
discounting the future cash flows based on the LIBOR yield curve, plus or minus
the spread associated with current pricing.
Borrowed Funds - The fair
value of repurchase agreements and FHLB advances is estimated by discounting the
agreements based on maturities using the rates currently offered for repurchase
agreements of similar remaining maturities. The carrying amounts of federal
funds purchased, federal term auction facilities, and other borrowed funds
approximate their fair value due to their short-term nature.
Subordinated Debt - The fair
value of subordinated debt was determined using available market
quotes.
Standby Letters of Credit –
The fair value of standby letters of credit represent deferred fees arising from
the related off-balance sheet financial instruments. These deferred fees
approximate the fair value of these instruments and are based on several
factors, including the remaining terms of the agreement and the credit standing
of the customer.
Commitments - Given the
limited interest rate exposure posed by the commitments outstanding at year-end
due to their general variable nature, combined with the general short-term
nature of the commitment periods entered into, termination clauses provided in
the agreements, and the market rate of fees charged, the Company has estimated
the fair value of commitments outstanding to be immaterial.
Financial
Instruments
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
115,905
|
|
$
|
115,905
|
|
$
|
106,082
|
|
$
|
106,082
|
Funds
sold and other short-term investments
|
|
|
81,693
|
|
|
81,692
|
|
|
8,226
|
|
|
8,226
|
Trading
account securities
|
|
|
13,231
|
|
|
13,231
|
|
|
12,358
|
|
|
12,358
|
Securities
available-for-sale
|
|
|
1,349,669
|
|
|
1,349,669
|
|
|
2,216,186
|
|
|
2,216,186
|
Securities
held-to-maturity
|
|
|
83,860
|
|
|
84,230
|
|
|
84,306
|
|
|
84,592
|
Loans,
net of reserve for loan losses
|
|
|
5,171,799
|
|
|
5,151,895
|
|
|
5,266,194
|
|
|
5,231,925
|
Accrued
interest receivable
|
|
|
34,939
|
|
|
34,939
|
|
|
43,247
|
|
|
43,247
|
Investment
in bank owned life insurance
|
|
|
197,681
|
|
|
197,681
|
|
|
198,533
|
|
|
198,533
|
Derivative
assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
5,749,153
|
|
$
|
5,749,972
|
|
$
|
5,585,754
|
|
$
|
5,583,943
|
Borrowed
funds
|
|
|
716,299
|
|
|
717,182
|
|
|
1,698,334
|
|
|
1,703,940
|
Subordinated
debt
|
|
|
157,717
|
|
|
133,330
|
|
|
232,409
|
|
|
171,307
|
Accrued
interest payable
|
|
|
8,620
|
|
|
8,620
|
|
|
10,550
|
|
|
10,550
|
Derivative
liabilities
|
|
|
1,655
|
|
|
1,655
|
|
|
2,628
|
|
|
2,628
|
Standby
letters of credit
|
|
|
740
|
|
|
740
|
|
|
700
|
|
|
700
|
17. SUBSEQUENT
EVENTS
We have
evaluated subsequent events through the date our financial statements were
issued, or November 6, 2009.
On
October 23, 2009, First Midwest Bank, a wholly-owned banking subsidiary of the
Company, acquired certain deposits and loans of First DuPage Bank, a single
branch located in the Chicago suburb of Westmont, IL with approximately $250
million in assets (“First DuPage”). The acquisition of First DuPage was
facilitated by the FDIC, and we entered into a loss share agreement with the
FDIC to mitigate the risk of losses from problem loans. First DuPage was closed
by the Illinois Department of Financial & Professional Regulations.
Subsequently, the FDIC was named Receiver, and all loans and deposit accounts,
excluding certain brokered deposits, were transferred to First Midwest
Bank.
Results
of operations arising from this transaction will be included in the Company’s
Consolidated Statement of Income beginning with fourth quarter
2009.
We do not
believe any additional subsequent events have occurred that would require
further disclosure or adjustment to
our financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
discussion presented below provides an analysis of our results of operations and
financial condition for the quarters ended September 30, 2009 and 2008. 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 2008
Annual Report on Form 10-K (“2008 10-K”). Results of operations for the quarter
and nine months ended September 30, 2009 are not necessarily indicative of
results to be expected for the year ending December 31, 2009. 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.
PERFORMANCE
OVERVIEW
General
Overview
Our
banking network is located primarily in suburban metropolitan Chicago and
provides a full range of business and retail banking and trust and advisory
services through 93 banking branches, one operational facility, and one
dedicated lending office. The primary sources of our revenue are net interest
income and fees from financial services provided to customers. Business volumes
tend to be influenced by overall economic factors including market interest
rates, business spending, consumer confidence, and competitive conditions within
the marketplace.
Third
Quarter and Nine-Month Periods Ended September 30, 2009 and 2008
Table
1
Selected
Financial Data (1)
(Dollar
amounts in thousands, except per share data)
|
|
Quarters
Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
2008
|
|
%
Change
|
|
2009
|
|
2008
|
|
%
Change
|
Operating
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
82,762
|
|
$
|
101,486
|
|
(18.4)
|
|
$
|
259,381
|
|
$
|
311,274
|
|
(16.7)
|
Interest
expense
|
|
|
21,781
|
|
|
38,728
|
|
(43.8)
|
|
|
73,790
|
|
|
129,690
|
|
(43.1)
|
Net
interest income
|
|
|
60,981
|
|
|
62,758
|
|
(2.8)
|
|
|
185,591
|
|
|
181,584
|
|
2.2
|
Fee-based
revenues
|
|
|
21,846
|
|
|
24,767
|
|
(11.8)
|
|
|
63,207
|
|
|
72,058
|
|
(12.3)
|
Other
noninterest income
|
|
|
2,228
|
|
|
673
|
|
231.1
|
|
|
6,175
|
|
|
5,474
|
|
12.8
|
Noninterest
expense
|
|
|
(56,640)
|
|
|
(48,436)
|
|
16.9
|
|
|
(164,267)
|
|
|
(147,724)
|
|
11.2
|
Pre-tax
earnings, excluding provision for
loan losses and net market-
related
gains (2)
|
|
|
28,415
|
|
|
39,762
|
|
(28.5)
|
|
|
90,706
|
|
|
111,392
|
|
(18.6)
|
Provision
for loan losses
|
|
|
(38,000)
|
|
|
(13,029)
|
|
191.7
|
|
|
(122,672)
|
|
|
(27,869)
|
|
340.2
|
Gains
on securities sales, net
|
|
|
4,525
|
|
|
48
|
|
9,327.1
|
|
|
26,453
|
|
|
8,641
|
|
206.1
|
Securities
impairment losses
|
|
|
(11,500)
|
|
|
(1,794)
|
|
541.0
|
|
|
(18,571)
|
|
|
(10,037)
|
|
85.0
|
Gains
on early extinguishment of debt
|
|
|
13,991
|
|
|
-
|
|
-
|
|
|
13,991
|
|
|
-
|
|
-
|
(Loss)
income before income tax benefit
(expense)
|
|
|
(2,569)
|
|
|
24,987
|
|
(110.3)
|
|
|
(10,093)
|
|
|
82,127
|
|
(112.3)
|
Income
tax benefit (expense)
|
|
|
5,920
|
|
|
(796)
|
|
(843.7)
|
|
|
21,834
|
|
|
(5,901)
|
|
(470.0)
|
Net
income
|
|
|
3,351
|
|
|
24,191
|
|
(86.1)
|
|
|
11,741
|
|
|
76,226
|
|
(84.6)
|
Preferred
dividends
|
|
|
(2,567)
|
|
|
-
|
|
-
|
|
|
(7,696)
|
|
|
-
|
|
-
|
Net
income applicable to non-vested restricted
shares
|
|
|
(11)
|
|
|
(42)
|
|
(73.8)
|
|
|
(54)
|
|
|
(176)
|
|
(69.3)
|
Net
income applicable to common shares
|
|
$
|
773
|
|
$
|
24,149
|
|
(96.8)
|
|
$
|
3,991
|
|
$
|
76,050
|
|
(94.8)
|
Diluted
earnings per common share
|
|
$
|
0.02
|
|
$
|
0.50
|
|
(96.0)
|
|
$
|
0.08
|
|
$
|
1.57
|
|
(94.9)
|
|
|
Quarters
Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
2008
|
|
%
Change
|
|
2009
|
|
2008
|
|
%
Change
|
Performance
Ratios
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average common equity
|
|
|
0.43%
|
|
|
13.07%
|
|
|
|
|
0.75%
|
|
|
13.77%
|
|
|
Return
on average assets
|
|
|
0.17%
|
|
|
1.16%
|
|
|
|
|
0.19%
|
|
|
1.24%
|
|
|
Net
interest margin – tax equivalent
|
|
|
3.66%
|
|
|
3.63%
|
|
|
|
|
3.62%
|
|
|
3.58%
|
|
|
Efficiency
ratio
|
|
|
59.13%
|
|
|
50.30%
|
|
|
|
|
57.64%
|
|
|
51.97%
|
|
|
(1)
|
All
ratios are presented on an annualized basis.
|
(2)
|
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 has provided this
non-GAAP performance result. The Company believes that this non-GAAP
financial measure is useful because it allows investors to assess the
Company’s operating performance. Although this non-GAAP financial measure
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.
|
|
|
September
30,
2009
|
|
December
31,
2008
|
|
September
30,
2008
|
|
September
30, 2009 Change From
|
December
31, 2008
|
|
September
30, 2008
|
Balance
Sheet Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,678,434
|
|
$
|
8,528,341
|
|
$
|
8,246,655
|
|
$
|
(849,907)
|
|
$
|
(568,221)
|
Total
loans
|
|
|
5,306,068
|
|
|
5,360,063
|
|
|
5,223,582
|
|
|
(53,995)
|
|
|
82,486
|
Total
deposits
|
|
|
5,749,153
|
|
|
5,585,754
|
|
|
5,658,284
|
|
|
163,399
|
|
|
90,869
|
Transactional
deposits
|
|
|
3,833,267
|
|
|
3,457,954
|
|
|
3,462,867
|
|
|
375,313
|
|
|
370,400
|
Loans
to deposits ratio
|
|
|
92.3%
|
|
|
96.0%
|
|
|
92.3%
|
|
|
|
|
|
|
Transactional
deposits to total
deposits
|
|
|
66.7%
|
|
|
61.9%
|
|
|
61.2%
|
|
|
|
|
|
|
|
|
September
30,
2009
|
|
June
30,
2009
|
|
December
31,
2008
|
Asset
Quality Highlights
|
|
|
|
|
|
|
|
|
|
Non-accrual
loans plus 90 days or more past due loans
|
|
$
|
262,765
|
|
$
|
263,324
|
|
$
|
164,767
|
Restructured
loans (still accruing interest)
|
|
|
26,718
|
|
|
18,877
|
|
|
7,344
|
30-89
days past due loans
|
|
|
44,346
|
|
|
38,128
|
|
|
116,206
|
Reserve
for loan losses as a percent of loans
|
|
|
2.53%
|
|
|
2.39%
|
|
|
1.75%
|
Net
income was $3.4 million, before adjustment for preferred dividends and
non-vested restricted shares, with $773,000, or $0.02 per share, available to
common shareholders after such adjustments. This compares to net income
available to common shareholders of $24.1 million, or $0.50 per share, for third
quarter 2008, with the difference largely due to higher provision for loan
losses, FDIC insurance premiums, and loan remediation expenses, partially offset
by an increase in net securities and debt extinguishment gains.
Pre-tax
earnings, excluding the provision for loan losses, net securities losses, and
debt extinguishment gains, was $28.4 million for third quarter 2009, compared to
$39.8 million for third quarter 2008, with the decline substantially due to
increases in FDIC insurance premiums and expenses to remediate loans and
maintain other real estate owned (“OREO”).
Despite
the continuing economic challenges during the quarter, we again generated solid
core performance, as evidenced by annualized commercial and industrial loan
growth of 7.5%, year over year growth in average core transactional deposits of
7.6%, and improved net interest margin of 13 basis points. Concurrently, we
increased our loan loss reserve and continued to proactively remediate problem
credits.
During
the quarter, we also notably improved the quality of our capital composition by
increasing our level of tangible common equity. We did so through the successful
exchange of $68.8 million of subordinated and trust preferred debt for common
stock at a discount from the par value of the debt securities, with a resulting
pre-tax gain of $14.0 million.
During
third quarter 2009, we delevered our balance sheet by using proceeds from
securities sales and maturities to reduce our level of borrowed funds and time
deposits while increasing our net interest margin.
Outstanding
loans totaled $5.31 billion as of September 30, 2009, an annualized decrease of
1.3% from December 31, 2008. During the nine-month period ended September 30,
2009, we extended approximately $90 million in new credit, net of paydowns,
which was more than offset by net charge-offs, conversion of loans to OREO, and
the securitization of $25.7 million of real estate 1-4 family loans, which are
now included in the securities available-for-sale portfolio.
Average
core transactional deposits for third quarter 2009 were $3.86 billion, an
increase of $271.5 million, or 7.6% from third quarter 2008. The increase from
prior year was due primarily to growth in money market account balances as a
result of a successful promotional campaign.
Tax-equivalent
net interest margin was 3.66% for third quarter 2009, an increase from 3.53% for
second quarter 2009 and 3.63% for third quarter 2008. For the nine
months ended September 30, 2009, net interest margin increased 4 basis points to
3.62% from 3.58% for the same period in 2008.
Fee-based
revenues for the quarter and nine-month periods ended September 30, 2009
decreased from the same periods in 2008, and reflected the impact of lower
transaction volumes caused by reduced consumer spending.
Noninterest
expense increased $8.2 million for third quarter 2009 compared to third quarter
2008 and $16.5 million for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008. The increases from 2008 to 2009 are
due to higher loan remediation costs, including costs associated with
maintaining foreclosed real estate, and higher FDIC insurance
premiums.
During
third quarter 2009, we increased our reserve for loan losses $6.7 million from
June 30, 2009 and $40.4 million from December 31, 2008. The reserve for loan
losses represented 2.53% of total loans outstanding at September 30, 2009,
compared to 2.39% at June 30, 2009 and 1.75% at December 31, 2008.
Net
securities losses were $7.0 million for third quarter 2009. Gains totaling $4.5
million on sales of collateralized mortgage-backed, municipal, and other
securities were more than offset by an other-than-temporary impairment charge of
$11.5 million associated with our portfolio of trust-preferred collateralized
debt obligations.
On
October 23, 2009, the Bank acquired certain deposits and loans of First DuPage
Bank, a single branch located in the Chicago suburb of Westmont, IL with
approximately $250 million in assets (“First DuPage”). The acquisition of First
DuPage was facilitated by the FDIC, and we entered into a loss share agreement
with the FDIC to mitigate the risk of losses from problem loans. The acquisition
of First DuPage enables us to expand into DuPage County and fits within our
strategic growth plans.
EARNINGS
PERFORMANCE
Net
Interest Income
Net
interest income equals the difference between interest income plus fees earned
on interest-earning assets and interest expense incurred on interest-bearing
liabilities. The level of interest rates and the volume and mix of
interest-earning assets and interest-bearing liabilities impact net interest
income. Net interest margin represents net interest income as a percentage of
total average interest-earning assets. The accounting policies underlying the
recognition of interest income on loans, securities, and other interest-earning
assets are included in the “Notes to Consolidated Financial Statements”
contained in our 2008 10-K.
Our
accounting and reporting policies conform to U.S. generally accepted accounting
principles (“GAAP”) and general practice within the banking industry. For
purposes of this discussion, both net interest income and net interest margin
have been adjusted to a fully tax-equivalent basis to more appropriately compare
the returns on certain tax-exempt loans and securities to those on taxable
interest-earning assets. Although we believe that these non-GAAP financial
measures enhance investors’ understanding of our business and performance, these
non-GAAP financial measures should not be considered an alternative to GAAP. The
effect of such adjustment is presented in the following table.
Table
2
Effect
of Tax-Equivalent Adjustment
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
2008
|
|
%
Change
|
|
2009
|
|
2008
|
|
%
Change
|
Net
interest income (GAAP)
|
|
$
|
60,981
|
|
$
|
62,758
|
|
(2.8)
|
|
$
|
185,591
|
|
$
|
181,584
|
|
2.2
|
Tax-equivalent
adjustment
|
|
|
4,691
|
|
|
5,572
|
|
(15.8)
|
|
|
15,210
|
|
|
16,729
|
|
(9.1)
|
Tax-equivalent
net interest income
|
|
$
|
65,672
|
|
$
|
68,330
|
|
(3.9)
|
|
$
|
200,801
|
|
$
|
198,313
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 3
summarizes changes in our average interest-earning assets and interest-bearing
liabilities as well as interest income and interest expense related to each
category of assets and funding sources and the average interest rates earned and
paid on each. The table also shows the trend in net interest margin on a
quarterly basis for 2009 and 2008, including the tax-equivalent yields on
interest-earning assets and rates paid on interest-bearing liabilities. Table 3
also details increases in income and expense for each of the major categories of
interest-earning assets and analyzes the extent to which such variances are
attributable to volume and rate changes. Interest income and yields are
presented on a tax-equivalent basis assuming a federal income tax rate of 35%,
which includes the tax-equivalent adjustment as presented in Table 2
above.
Tax-equivalent
net interest margin was 3.66% for third quarter 2009, an increase from 3.53% for
second quarter 2009 and 3.63% for third quarter 2008. The yield on
interest-earning assets for third quarter 2009 improved 2 basis points compared
to second quarter 2009, while our cost of funds declined 13 basis points
compared to second quarter 2009.
For the
nine months ended September 30, 2009, tax-equivalent net interest margin was
3.62%, up 4 basis points from 3.58% for first nine months of 2008. As of
September 30, 2009, our loan-to-deposit ratio is 92.3%, with two-thirds of our
customer deposits consisting of demand, NOW, money market, and savings
transactional accounts.
Third
quarter and year-to-date 2009 net interest margins reflect our strong core
deposit base and our ability to effectively manage our cost of funds. During
third quarter 2009, we delevered our balance sheet by using proceeds from
securities sales and maturities to reduce our level of borrowed funds and time
deposits. Interest rates began declining in September 2007 and continued through
fourth quarter 2008, resulting in a reduction in interest rates for both fixed
and floating interest rates on our loan portfolio in 2009. The decline in
interest-earning asset yields was offset by a shift in funding toward less
expensive transactional deposits.
As shown
in Table 3, third quarter 2009 tax-equivalent interest income declined $19.6
million compared to third quarter 2008. The decrease in interest-earning assets
reduced interest income by $6.3 million, and a decline in the average rate
earned on interest-earning assets reduced interest income by $13.3 million. The
corresponding decline in wholesale funding and drop in interest rates reduced
interest expense by $16.9 million
As shown
in Table 4, tax-equivalent interest income for the nine months ended September
30, 2009 declined $53.4 million compared to the same period in 2008. A decline
in the average rate earned on interest-earning assets reduced interest income by
$55.4 million, while an increase in interest-earning assets increased interest
income by $2.0 million. Interest expense for the first nine months of 2009
declined $55.9 million compared to the nine months ended September 30, 2008. The
decrease in interest-bearing liabilities as a result of delevering our balance
sheet reduced interest expense by $5.3 million, while the decrease in the
average rate paid on interest-bearing liabilities reduced interest expense by
$50.6 million.
We
continue to use multiple interest rate scenarios to rigorously assess the
direction and magnitude of changes in interest rates and their impact on net
interest income. A description and analysis of our market risk and interest rate
sensitivity profile and management policies is included in Item 3, “Quantitative
and Qualitative Disclosures About Market Risk,” of this Form
10-Q.
Table
3
Net
Interest Income and Margin Analysis
(Dollar
amounts in thousands)
|
|
|
Quarters
Ended September 30,
|
|
Attribution
of Change
in
Net Interest Income (1)
|
|
|
2009
|
|
2008
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Rate
(%)
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Rate
(%)
|
|
Volume
|
|
Yield/
Rate
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other
short-term
investments
|
$ |
198,365 |
|
$ |
106 |
|
|
0.21 |
|
$ |
7,430 |
|
$ |
37 |
|
|
1.98 |
|
$ |
71 |
|
$ |
(2 |
) |
$ |
69 |
|
Trading
account securities
|
|
12,302 |
|
|
33 |
|
|
1.07 |
|
|
17,438 |
|
|
51 |
|
|
1.17 |
|
|
(14 |
) |
|
(4 |
) |
|
(18 |
) |
Securities
available-for-sale
(2)
|
|
1,433,424 |
|
|
19,135 |
|
|
5.34 |
|
|
2,124,464 |
|
|
29,862 |
|
|
5.62 |
|
|
(9,290 |
) |
|
(1,437 |
) |
|
(10,727 |
) |
Securities
held-to-maturity
|
|
84,866 |
|
|
1,463 |
|
|
6.90 |
|
|
89,860 |
|
|
1,525 |
|
|
6.79 |
|
|
(86 |
) |
|
24 |
|
|
(62 |
) |
Federal
Home Loan Bank and
Federal
Reserve Bank stock
|
|
54,768 |
|
|
310 |
|
|
2.26 |
|
|
54,767 |
|
|
329 |
|
|
2.40 |
|
|
- |
|
|
(19 |
) |
|
(19 |
) |
Loans
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
1,486,582 |
|
|
18,472 |
|
|
4.93 |
|
|
1,469,710 |
|
|
21,395 |
|
|
5.79 |
|
|
249 |
|
|
(3,172 |
) |
|
(2,923 |
) |
Agricultural
|
|
121,040 |
|
|
1,344 |
|
|
4.41 |
|
|
175,491 |
|
|
2,106 |
|
|
4.77 |
|
|
(614 |
) |
|
(148 |
) |
|
(762 |
) |
Commercial
real estate
|
|
3,047,847 |
|
|
38,159 |
|
|
4.97 |
|
|
2,806,394 |
|
|
40,952 |
|
|
5.81 |
|
|
4,291 |
|
|
(7,084 |
) |
|
(2,793 |
) |
Consumer
|
|
532,642 |
|
|
6,221 |
|
|
4.63 |
|
|
544,035 |
|
|
7,603 |
|
|
5.56 |
|
|
(156 |
) |
|
(1,226 |
) |
|
(1,382 |
) |
Real
estate - 1-4 family
|
|
158,658 |
|
|
2,210 |
|
|
5.53 |
|
|
209,558 |
|
|
3,198 |
|
|
6.07 |
|
|
(727 |
) |
|
(261 |
) |
|
(988 |
) |
Total
loans
|
|
5,346,769 |
|
|
66,406 |
|
|
4.93 |
|
|
5,205,188 |
|
|
75,254 |
|
|
5.75 |
|
|
3,043 |
|
|
(11,891 |
) |
|
(8,848 |
) |
Total
interest-earning assets (2)
|
|
7,130,494 |
|
|
87,453 |
|
|
4.88 |
|
|
7,499,147 |
|
|
107,058 |
|
|
5.69 |
|
|
(6,276 |
) |
|
(13,329 |
) |
|
(19,605 |
) |
Cash
and due from banks
|
|
121,378 |
|
|
|
|
|
|
|
|
142,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for loan losses
|
|
(140,065 |
) |
|
|
|
|
|
|
|
(66,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
765,248 |
|
|
|
|
|
|
|
|
700,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$ |
7,877,055 |
|
|
|
|
|
|
|
$ |
8,275,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
$ |
749,995 |
|
|
726 |
|
|
0.38 |
|
$ |
784,646 |
|
|
1,574 |
|
|
0.80 |
|
|
(67 |
) |
|
(781 |
) |
|
(848 |
) |
NOW
accounts
|
|
1,062,708 |
|
|
729 |
|
|
0.27 |
|
|
983,364 |
|
|
2,646 |
|
|
1.07 |
|
|
232 |
|
|
(2,149 |
) |
|
(1,917 |
) |
Money
market deposits
|
|
995,132 |
|
|
2,457 |
|
|
0.98 |
|
|
770,967 |
|
|
2,964 |
|
|
1.53 |
|
|
2,207 |
|
|
(2,714 |
) |
|
(507 |
) |
Time
deposits
|
|
1,938,445 |
|
|
11,412 |
|
|
2.34 |
|
|
2,170,030 |
|
|
18,390 |
|
|
3.37 |
|
|
(1,808 |
) |
|
(5,170 |
) |
|
(6,978 |
) |
Borrowed
funds
|
|
870,397 |
|
|
2,768 |
|
|
1.26 |
|
|
1,476,403 |
|
|
9,451 |
|
|
2.55 |
|
|
(3,002 |
) |
|
(3,681 |
) |
|
(6,683 |
) |
Subordinated
debt
|
|
226,693 |
|
|
3,689 |
|
|
6.46 |
|
|
232,458 |
|
|
3,703 |
|
|
6.34 |
|
|
(107 |
) |
|
93 |
|
|
(14 |
) |
Total
interest-bearing liabilities
|
|
5,843,370 |
|
|
21,781 |
|
|
1.48 |
|
|
6,417,868 |
|
|
38,728 |
|
|
2.40 |
|
|
(2,545 |
) |
|
(14,402 |
) |
|
(16,947 |
) |
Demand
deposits
|
|
1,056,188 |
|
|
|
|
|
|
|
|
1,053,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
72,150 |
|
|
|
|
|
|
|
|
69,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity - common
|
|
712,347 |
|
|
|
|
|
|
|
|
735,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity - preferred
|
|
193,000 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’equity
|
$ |
7,877,055 |
|
|
|
|
|
|
|
$ |
8,275,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/margin (2)
|
|
|
|
$ |
65,672 |
|
|
3.66 |
|
|
|
|
$ |
68,330 |
|
|
3.63 |
|
$ |
(3,731 |
) |
$ |
1,073 |
|
$ |
(2,658 |
) |
Quarterly
Net Interest Margin Trend
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
3rd
|
|
2nd
|
|
1st
|
|
4th
|
|
3rd
|
|
2nd
|
|
1st
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on interest-earning assets
|
|
4.88%
|
|
4.86%
|
|
5.12%
|
|
5.43%
|
|
5.69%
|
|
5.81%
|
|
6.29%
|
Rates
paid on interest-bearing liabilities
|
|
1.48%
|
|
1.61%
|
|
1.73%
|
|
2.03%
|
|
2.40%
|
|
2.61%
|
|
3.23%
|
Net
interest margin (2)
|
|
3.66%
|
|
3.53%
|
|
3.67%
|
|
3.71%
|
|
3.63%
|
|
3.58%
|
|
3.53%
|
(1)
|
For
purposes of this table, changes which are not due solely to volume changes
or rate changes are allocated to such categories on the basis of the
percentage relationship of each to the sum of the two.
|
(2)
|
Interest
income and yields are presented on a tax-equivalent basis, assuming a
federal income tax rate of 35%.
|
Table
4
Net
Interest Income and Margin Analysis
(Dollar
amounts in thousands)
|
|
Nine
Months Ended September 30,
|
|
|
Attribution
of Change
in
Net Interest Income (1)
|
|
2009
|
|
|
2008
|
|
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Rate
(%)
|
|
|
Average
Balance
|
|
Interest
|
|
Yield/
Rate
(%)
|
|
|
Volume
|
|
Yield/
Rate
|
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other
short-term
investments
|
|
$
|
107,913
|
|
$
|
175
|
|
0.22
|
|
|
$
|
9,813
|
|
$
|
161
|
|
2.19
|
|
|
$
|
15
|
|
$
|
(1)
|
|
$
|
14
|
Trading
account securities
|
|
|
11,899
|
|
|
108
|
|
1.21
|
|
|
|
17,800
|
|
|
167
|
|
1.25
|
|
|
|
(54)
|
|
|
(5)
|
|
|
(59)
|
Securities
available-for-sale
(2)
|
|
|
1,778,772
|
|
|
72,453
|
|
5.43
|
|
|
|
2,106,475
|
|
|
89,850
|
|
5.69
|
|
|
|
(13,490)
|
|
|
(3,907)
|
|
|
(17,397)
|
Securities
held-to-maturity
|
|
|
84,813
|
|
|
4,357
|
|
6.85
|
|
|
|
94,646
|
|
|
4,782
|
|
6.74
|
|
|
|
(507)
|
|
|
82
|
|
|
(425)
|
Federal
Home Loan Bank and
Federal
Reserve Bank stock
|
|
|
54,768
|
|
|
907
|
|
2.21
|
|
|
|
54,767
|
|
|
999
|
|
2.43
|
|
|
|
-
|
|
|
(92)
|
|
|
(92)
|
Loans
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
1,484,758
|
|
|
52,977
|
|
4.77
|
|
|
|
1,416,879
|
|
|
64,747
|
|
6.10
|
|
|
|
3,292
|
|
|
(15,062)
|
|
|
(11,770)
|
Agricultural
|
|
|
132,073
|
|
|
4,004
|
|
4.05
|
|
|
|
187,106
|
|
|
7,196
|
|
5.14
|
|
|
|
(1,856)
|
|
|
(1,336)
|
|
|
(3,192)
|
Commercial
real estate
|
|
|
3,031,122
|
|
|
112,783
|
|
4.97
|
|
|
|
2,736,878
|
|
|
125,433
|
|
6.12
|
|
|
|
16,868
|
|
|
(29,518)
|
|
|
(12,650)
|
Consumer
|
|
|
539,859
|
|
|
19,109
|
|
4.73
|
|
|
|
548,298
|
|
|
24,553
|
|
5.98
|
|
|
|
(373)
|
|
|
(5,071)
|
|
|
(5,444)
|
Real
estate - 1-4 family
|
|
|
176,093
|
|
|
7,718
|
|
5.86
|
|
|
|
218,377
|
|
|
10,115
|
|
6.19
|
|
|
|
(1,876)
|
|
|
(521)
|
|
|
(2,397)
|
Total
loans
|
|
|
5,363,905
|
|
|
196,591
|
|
4.90
|
|
|
|
5,107,538
|
|
|
232,044
|
|
6.07
|
|
|
|
16,055
|
|
|
(51,508)
|
|
|
(35,453)
|
Total
interest-earning assets (2)
|
|
|
7,402,070
|
|
|
274,591
|
|
4.96
|
|
|
|
7,391,039
|
|
|
328,003
|
|
5.92
|
|
|
|
2,019
|
|
|
(55,431)
|
|
|
(53,412)
|
Cash
and due from banks
|
|
|
118,699
|
|
|
|
|
|
|
|
|
136,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for loan losses
|
|
|
(120,764)
|
|
|
|
|
|
|
|
|
(64,598)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
765,182
|
|
|
|
|
|
|
|
|
715,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,165,187
|
|
|
|
|
|
|
|
$
|
8,178,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
753,580
|
|
|
2,387
|
|
0.42
|
|
|
$
|
807,452
|
|
|
6,000
|
|
0.99
|
|
|
|
(376)
|
|
|
(3,237)
|
|
|
(3,613)
|
NOW
accounts
|
|
|
994,895
|
|
|
2,551
|
|
0.34
|
|
|
|
939,387
|
|
|
7,923
|
|
1.13
|
|
|
|
498
|
|
|
(5,870)
|
|
|
(5,372)
|
Money
market deposits
|
|
|
889,852
|
|
|
7,188
|
|
1.08
|
|
|
|
803,858
|
|
|
10,752
|
|
1.79
|
|
|
|
1,318
|
|
|
(4,882)
|
|
|
(3,564)
|
Time
deposits
|
|
|
1,998,673
|
|
|
39,277
|
|
2.63
|
|
|
|
2,168,944
|
|
|
63,145
|
|
3.89
|
|
|
|
(4,644)
|
|
|
(19,224)
|
|
|
(23,868)
|
Borrowed
funds
|
|
|
1,272,738
|
|
|
11,293
|
|
1.19
|
|
|
|
1,372,048
|
|
|
30,776
|
|
3.00
|
|
|
|
(2,084)
|
|
|
(17,399)
|
|
|
(19,483)
|
Subordinated
debt
|
|
|
230,460
|
|
|
11,094
|
|
6.44
|
|
|
|
231,805
|
|
|
11,094
|
|
6.39
|
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
interest-bearing liabilities
|
|
|
6,140,198
|
|
|
73,790
|
|
1.61
|
|
|
|
6,323,494
|
|
|
129,690
|
|
2.74
|
|
|
|
(5,288)
|
|
|
(50,612)
|
|
|
(55,900)
|
Demand
deposits
|
|
|
1,043,047
|
|
|
|
|
|
|
|
|
1,044,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
73,114
|
|
|
|
|
|
|
|
|
73,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity - common
|
|
|
715,828
|
|
|
|
|
|
|
|
|
737,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity - preferred
|
|
|
193,000
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’
equity
|
|
$
|
8,165,187
|
|
|
|
|
|
|
|
$
|
8,178,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/margin (2)
|
|
|
|
|
$
|
200,801
|
|
3.62
|
|
|
|
|
|
$
|
198,313
|
|
3.58
|
|
|
$
|
7,307
|
|
$
|
(4,819)
|
|
$
|
2,488
|
(1)
|
For
purposes of this table, changes which are not due solely to volume changes
or rate changes are allocated to such categories on the basis of the
percentage relationship of each to the sum of the two.
|
(2)
|
Interest
income and yields are presented on a tax-equivalent basis, assuming a
federal income tax rate of 35%.
|
Noninterest
Income
Table
5
Noninterest Income
Analysis
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
2008
|
|
%
Change
|
|
2009
|
|
2008
|
|
%
Change
|
Service
charges on deposit accounts
|
|
$
|
10,046
|
|
$
|
11,974
|
|
(16.1)
|
|
$
|
28,777
|
|
$
|
33,781
|
|
(14.8)
|
Trust
and investment advisory fees
|
|
|
3,555
|
|
|
3,818
|
|
(6.9)
|
|
|
10,355
|
|
|
11,710
|
|
(11.6)
|
Other
service charges, commissions, and fees
|
|
|
4,222
|
|
|
4,834
|
|
(12.7)
|
|
|
12,249
|
|
|
14,292
|
|
(14.3)
|
Card-based
fees
|
|
|
4,023
|
|
|
4,141
|
|
(2.8)
|
|
|
11,826
|
|
|
12,275
|
|
(3.7)
|
Subtotal
fee-based revenues
|
|
|
21,846
|
|
|
24,767
|
|
(11.8)
|
|
|
63,207
|
|
|
72,058
|
|
(12.3)
|
Bank
owned life insurance (“BOLI”) income
|
|
|
282
|
|
|
1,882
|
|
(85.0)
|
|
|
1,982
|
|
|
6,489
|
|
(69.5)
|
Other
income
|
|
|
587
|
|
|
622
|
|
(5.6)
|
|
|
2,096
|
|
|
2,196
|
|
(4.6)
|
Subtotal
operating revenues
|
|
|
22,715
|
|
|
27,271
|
|
(16.7)
|
|
|
67,285
|
|
|
80,743
|
|
(16.7)
|
Trading
gains (losses), net
|
|
|
1,359
|
|
|
(1,831)
|
|
(174.2)
|
|
|
2,097
|
|
|
(3,211)
|
|
(165.3)
|
Gains
on securities sales, net
|
|
|
4,525
|
|
|
48
|
|
9,327.1
|
|
|
26,453
|
|
|
8,641
|
|
206.1
|
Securities
impairment losses
|
|
|
(11,500)
|
|
|
(1,794)
|
|
541.0
|
|
|
(18,571)
|
|
|
(10,037)
|
|
85.0
|
Gains
on early extinguishment of debt
|
|
|
13,991
|
|
|
-
|
|
-
|
|
|
13,991
|
|
|
-
|
|
-
|
Total
noninterest income
|
|
$
|
31,090
|
|
$
|
23,694
|
|
31.2
|
|
$
|
91,255
|
|
$
|
76,136
|
|
19.9
|
Our total
noninterest income increased $7.4 million and $15.1 million for third quarter
and year-to-date 2009, respectively, compared to the same periods in 2008. The
increases were driven largely by significantly higher securities and debt
extinguishment gains, which offset declines for the quarter and nine-month
periods in fee-based revenues from the same periods in 2008.
Fee-based
revenues decreased 11.8% and 12.3% for third quarter and year-to-date 2009,
respectively, from the same periods in 2008. These decreases reflected the
impact of lower transaction volumes caused by reduced consumer spending. All
major fee categories decreased from third quarter 2008.
Service
charges on deposit accounts declined 16.1% for third quarter 2009 compared to
third quarter 2008 and 14.8% for the nine months ended September 30, 2009
compared to the same period in 2008 due to lower transaction volumes caused by
reduced consumer spending.
Other
service charges, commissions, and fees declined 12.7% for third quarter 2009 and
14.3% year-to-date compared to the same periods in 2008. The declines were due
to reduced merchant fees generated from processing consumer transactions and
lower sales of third-party annuity and investment products.
BOLI
income represents benefit payments received and the change in cash surrender
value (“CSV”) of the policies, net of premiums paid. The change in CSV is
attributable to earnings or losses credited to policies, based on investments
made by the insurer. In 2009, BOLI income declined $1.6 million and $4.5 million
from third quarter and year-to-date periods in 2008, respectively. In fourth
quarter 2008, management elected to accept lower market returns in order to
reduce its risk to market volatility through investment in shorter-duration,
lower-yielding money market instruments. See the section titled “Investment in
Bank Owned Life Insurance” for a discussion of our investment in
BOLI.
Other
income, which consists primarily of safe deposit box rentals and miscellaneous
recoveries, were down slightly from the same periods in 2008.
Trading
gains (losses) result from the change in fair value of trading securities. Such
trading securities represent diversified investment securities held in a grantor
trust under deferred compensation arrangements in which plan participants may
direct amounts earned to be invested in securities other than Company stock. The
change is substantially offset by an adjustment to salaries and benefits
expense.
We
recognized net securities gains and securities impairment losses for each period
presented. For a discussion of these items, see the section titled “Investment
Portfolio Management.”
Gains on
early extinguishment of debt of $14.0 million for third quarter 2009 resulted
from the retirement of $39.3 million of trust preferred debt and $29.5 million
of subordinated debt at a discount to par in exchange for approximately 5.6
million shares of the Company’s common stock.
Noninterest
Expense
Table
6
Noninterest Expense
Analysis
(Dollar
amounts in thousands)
|
|
Quarters
Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
2008
|
|
%
Change
|
|
2009
|
|
2008
|
|
%
Change
|
Compensation
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
$
|
22,274
|
|
$
|
20,805
|
|
7.1
|
|
$
|
60,940
|
|
$
|
59,972
|
|
1.6
|
Retirement
and other employee benefits
|
|
|
5,142
|
|
|
6,191
|
|
(16.9)
|
|
|
18,016
|
|
|
19,582
|
|
(8.0)
|
Total
compensation expense
|
|
|
27,416
|
|
|
26,996
|
|
1.6
|
|
|
78,956
|
|
|
79,554
|
|
(0.8)
|
FDIC
insurance premiums
|
|
|
2,558
|
|
|
261
|
|
880.1
|
|
|
10,953
|
|
|
764
|
|
1,333.6
|
Net
occupancy expense
|
|
|
5,609
|
|
|
5,732
|
|
(2.1)
|
|
|
17,309
|
|
|
17,411
|
|
(0.6)
|
Other
real estate owned (“OREO”) expense,
net
|
|
|
3,461
|
|
|
637
|
|
443.3
|
|
|
7,766
|
|
|
2,120
|
|
266.3
|
Loan
remediation costs
|
|
|
1,158
|
|
|
174
|
|
565.5
|
|
|
2,672
|
|
|
519
|
|
414.8
|
Other
professional services
|
|
|
2,611
|
|
|
2,342
|
|
11.5
|
|
|
7,756
|
|
|
6,902
|
|
12.4
|
Equipment
expense
|
|
|
2,228
|
|
|
2,484
|
|
(10.3)
|
|
|
6,754
|
|
|
7,502
|
|
(10.0)
|
Technology
and related costs
|
|
|
2,230
|
|
|
1,990
|
|
12.1
|
|
|
6,612
|
|
|
5,581
|
|
18.5
|
Advertising
and promotions
|
|
|
2,237
|
|
|
1,133
|
|
97.4
|
|
|
5,039
|
|
|
3,883
|
|
29.8
|
Merchant
card expense
|
|
|
1,729
|
|
|
1,949
|
|
(11.3)
|
|
|
4,901
|
|
|
5,375
|
|
(8.8)
|
Other
expenses
|
|
|
5,403
|
|
|
4,738
|
|
14.0
|
|
|
15,549
|
|
|
18,113
|
|
(14.2)
|
Total
noninterest expense
|
|
$
|
56,640
|
|
$
|
48,436
|
|
16.9
|
|
$
|
164,267
|
|
$
|
147,724
|
|
11.2
|
Full-time
equivalent (“FTE”) employees
|
|
|
1,751
|
|
|
1,792
|
|
(2.3)
|
|
|
1,761
|
|
|
1,818
|
|
(3.1)
|
Efficiency
ratio
|
|
|
59.13%
|
|
|
50.30%
|
|
|
|
|
57.64%
|
|
|
51.97%
|
|
|
Noninterest
expense increased $8.2 million for third quarter 2009 compared to third quarter
2008 and $16.5 million for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008. The increases from 2008 to 2009 are
due to higher loan remediation costs, including costs associated with
maintaining OREO, and higher FDIC insurance premiums. The increase for the
nine-month period also included a special deposit premium assessed by the FDIC
during second quarter 2009 of $3.5 million. Year over year changes in
other categories were generally due to the timing of expenses.
In May
2009, the FDIC issued a final rule which levied a special assessment applicable
to all insured depository institutions totaling 5 basis points of each
institution’s total assets less Tier 1 capital as of June 30, 2009, not to
exceed 10 basis points of domestic deposits. The special assessment was part of
the FDIC’s efforts to rebuild the Deposit Insurance Fund (“DIF”). During third
quarter 2009, the FDIC announced a proposal that all financial institutions
would be required to prepay their next three years’ deposit premiums during the
fourth quarter of 2009. If adopted as proposed, our estimated three-year
assessment is approximately $35 million. This prepayment will be capitalized
initially and expensed as we incur FDIC insurance premiums in future
periods.
Salaries
and wages increased in third quarter and year-to-date 2009 compared to the same
periods in 2008 due to an increase in the obligation to participants under
deferred compensation plans resulting from changes in the fair value of trading
securities held on behalf of plan participants. Such increases were partially
offset by declines in incentive compensation and share-based compensation
expense.
The
declines in retirement and other employee benefits of $1.0 million for third
quarter 2009 and $1.5 million for the nine-month periods in 2009 compared to the
same periods in 2008 resulted from reductions in the accrual for profit
sharing.
The 12.1%
increase in technology and related costs from third quarter 2008 to third
quarter 2009 was due to upgrade of technology for the delivery of voice
communications over networks such as the Internet. This investment in
technology, which we expect will be more than offset by future savings,
positions us for the future by providing us with a much more cost-effective
means of communicating and transferring data. This cost also provides a savings
in telephone expense, which is included in other expenses. The remaining
variance in technology and related costs resulted from standard contractual
increases.
OREO
expense, net, consists of real estate taxes, insurance, maintenance, and further
write downs of carrying value to reflect declines in estimated value during the
period, net of any rental income. Of the amounts separately shown as OREO
expense, net, $1.1 million and $3.4 million represent further writedowns of OREO
during third quarter and year-to-date 2009 periods, respectively. The balance of
OREO properties increased from $23.7 million at September 30, 2008 to $57.9
million at September 30, 2009.
Advertising
and promotions increased in third quarter and year-to-date 2009 compared to the
same periods in 2008 due to the timing of marketing expenditures as 2008
expenditures were concentrated in the fourth quarter.
The
decline in other expenses for the nine months ended September 30, 2009 compared
to the same period in 2008 was spread over various noninterest expense
categories including freight and courier expense, telephone, supplies, and
amortization expense.
The
efficiency ratio expresses noninterest expense as a percentage of tax-equivalent
net interest income plus total fees, BOLI, and other income. Operating
efficiency for third quarter 2009 was 59.13% compared to 50.3% for third quarter
2008.
Income
Taxes
Our
accounting policies underlying the recognition of income taxes in the
Consolidated Statements of Financial Condition and Income are included in Notes
1 and 15 to the Consolidated Financial Statements of our 2008 10-K.
Federal
income tax expense, and the related effective income tax rate, is primarily
influenced by the amount of tax-exempt income derived from investment securities
and bank owned life insurance (“BOLI”) in relation to pre-tax income. State
income tax expense, and the related effective tax rate, is influenced by the
amount of state tax-exempt income in relation to pre-tax income, and state tax
rules relating to consolidated/combined reporting and sourcing of income and
expense.
Income
tax benefits totaled $5.9 million in third quarter 2009 compared to income tax
expense of $796,000 in third quarter 2008. Income tax benefits totaled $21.8
million for the nine months ended September 30, 2009 compared to income tax
expense of $5.9 million for the nine months ended September 30, 2008. The
decrease in income tax expense from third quarter 2008 to third quarter 2009 was
primarily attributable to a decrease in pre-tax income for those periods. This
decrease was offset in part by a decrease in tax-exempt income from investment
securities and BOLI, and an increase in state taxable income attributable to
changes in Illinois tax law effective in 2009. The decrease in income tax
expense for the first nine months of 2009 in comparison to the same period in
2008 was attributable to the same factors as for the quarter.
FINANCIAL
CONDITION
Investment
Portfolio Management
We manage
our investment portfolio to maximize the return on invested funds within
acceptable risk guidelines, to meet pledging and liquidity requirements, and to
adjust balance sheet interest rate sensitivity to insulate net interest income
against the impact of changes in interest rates.
We adjust
the size and composition of our securities portfolio according to a number of
factors, including expected loan growth, anticipated changes in collateralized
public funds on account, the interest rate environment, and the related value of
various segments of the securities markets. The following provides a valuation
summary of our investment portfolio.
Table
7
Investment
Portfolio Valuation Summary
(Dollar
amounts in thousands)
|
As
of September 30, 2009
|
|
As
of December 31, 2008
|
|
Fair
Value
|
|
Amortized
Cost
|
|
%
of
Total
|
|
Fair
Value
|
|
Amortized
Cost
|
|
%
of
Total
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
$
|
-
|
|
$
|
-
|
|
-
|
|
$
|
1,041
|
|
$
|
1,039
|
|
0.1
|
U.S.
Agency securities
|
|
|
757
|
|
|
757
|
|
0.1
|
|
|
-
|
|
|
-
|
|
-
|
Collateralized
mortgage obligations
|
|
|
331,207
|
|
|
322,780
|
|
22.5
|
|
|
698,839
|
|
|
694,285
|
|
29.9
|
Other
mortgage-backed securities
|
|
|
244,175
|
|
|
233,396
|
|
16.3
|
|
|
518,265
|
|
|
504,918
|
|
21.7
|
State
and municipal securities
|
|
|
708,314
|
|
|
680,216
|
|
47.5
|
|
|
906,747
|
|
|
907,036
|
|
39.1
|
Collateralized
debt obligations
|
|
|
15,543
|
|
|
60,290
|
|
4.2
|
|
|
42,086
|
|
|
78,883
|
|
3.4
|
Corporate
debt securities
|
|
|
34,393
|
|
|
35,787
|
|
2.5
|
|
|
33,325
|
|
|
35,731
|
|
1.5
|
Equity
securities
|
|
|
15,280
|
|
|
15,142
|
|
1.0
|
|
|
15,883
|
|
|
16,089
|
|
0.7
|
Total
available-for-sale
|
|
|
1,349,669
|
|
|
1,348,368
|
|
94.1
|
|
|
2,216,186
|
|
|
2,237,981
|
|
96.4
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal securities
|
|
|
84,230
|
|
|
83,860
|
|
5.9
|
|
|
84,592
|
|
|
84,306
|
|
3.6
|
Total
securities
|
|
$
|
1,433,899
|
|
$
|
1,432,228
|
|
100.0
|
|
$
|
2,300,778
|
|
$
|
2,322,287
|
|
100.0
|
|
|
At
September 30, 2009
|
|
At
December 31, 2008
|
|
|
Effective
Duration
(1)
|
|
Average
Life
(2)
|
|
Yield
to
Maturity
|
|
Effective
Duration
(1)
|
|
Average
Life
(2)
|
|
Yield
to
Maturity
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
-
|
|
-
|
|
-
|
|
1.35%
|
|
1.50
|
|
0.89%
|
U.S.
Agency securities
|
|
1.53%
|
|
1.40
|
|
0.78%
|
|
-
|
|
-
|
|
-
|
Collateralized
mortgage obligations
|
|
1.07%
|
|
1.90
|
|
4.66%
|
|
1.25%
|
|
1.80
|
|
5.25%
|
Other
mortgage-backed securities
|
|
1.48%
|
|
2.61
|
|
5.00%
|
|
1.75%
|
|
1.95
|
|
5.52%
|
State
and municipal securities
|
|
5.23%
|
|
5.61
|
|
6.17%
|
|
5.26%
|
|
7.61
|
|
6.15%
|
Collateralized
debt obligations
|
|
0.25%
|
|
7.21
|
|
0.91%
|
|
0.25%
|
|
5.84
|
|
3.26%
|
Other
securities
|
|
4.77%
|
|
11.15
|
|
4.45%
|
|
6.03%
|
|
12.61
|
|
5.06%
|
Total
available-for-sale
|
|
3.33%
|
|
4.41
|
|
5.31%
|
|
3.07%
|
|
4.51
|
|
5.62%
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal securities
|
|
6.38%
|
|
8.76
|
|
6.89%
|
|
7.00%
|
|
9.26
|
|
7.10%
|
Total
securities
|
|
3.51%
|
|
4.66
|
|
5.40%
|
|
3.21%
|
|
4.69
|
|
5.67%
|
|
(1)
|
The
effective duration of the securities portfolio represents the estimated
percentage change in the fair value of the securities portfolio given a
100 basis point change up or down in the level of interest rates. This
measure is used as a gauge of the portfolio’s price volatility at a single
point in time and is not intended to be a precise predictor of future fair
values, as such values will be influenced by a number of
factors.
|
|
(2)
|
Average
life is presented in years and represents the weighted-average time to
receive all future cash flows, using the dollar amount of
principal
paydowns, including estimated principal prepayments, as the weighting
factor.
|
As of
September 30, 2009, our securities portfolio totaled $1.4 billion, decreasing
37.7% from December 31, 2008, as we took advantage of opportunities in the
market to sell securities at a net gain. During the first nine months of 2009,
we sold $843.1 million of mortgage-backed, municipal, and other securities that
generated $26.5 million of gains. These gains were partly offset by
other-than-temporary impairment charges of $18.6 million related to our trust
preferred CDOs.
Net
securities losses were $7.0 million for third quarter 2009. During the quarter,
we sold $120.0 million of collateralized mortgage-backed, municipal, and other
securities at a net gain of $4.5 million, which was more than offset by an
other-than-temporary impairment charge of $11.5 million associated with our
portfolio of trust-preferred collateralized debt obligations. Included in this
amount was an aggregate $1.2 million gain on the sale of Visa, Inc. Class B
shares. During third quarter 2009, we securitized $25.7 million of real estate
1-4 family loans, which are now included in the securities available-for-sale
portfolio.
Our
investments in trust preferred CDOs are supported by the credit of the
underlying banks and insurance companies. The $8.0 million increase in
unrealized loss on these securities since December 31, 2008 reflects the
market’s perception of the overall deterioration in the strength of the
financial sector and its negative bias toward structured investment vehicles
given the current interest rate and liquidity environment. We do not believe
this loss is an other-than-temporary impairment. We expect no further reduction
in net cash flows from these investments from what has already been recognized,
and we have both the intent and ability to hold them until maturity or recovery
and more than likely will not be forced to sell them before recovering our cost
basis. Our estimation of cash flows for these investments and resulting fair
values were based upon cash flow modeling, as described in Note 16 of “Notes to
the Consolidated Financial Statements.”
As of
September 30, 2009 gross unrealized gains in the state and municipal securities
portfolio totaled $29.2 million, and gross unrealized losses totaled $1.1
million, resulting in a net unrealized gain of $28.1 million at September 30,
2009 compared to an unrealized loss of $289,000 at December 31, 2008. The change
in fair value of municipal securities reflects a decline in market interest
rates and a tightening of spreads, which drove the increase in fair values. The
$1.1 million in unrealized loss in the portfolio relates to securities that
carry investment grade ratings, with the bulk of them supported by the general
revenues of the issuing governmental entity and supported by third-party
insurance. We do not believe the unrealized loss on any of these securities is
other-than-temporary.
Other
securities include corporate bonds and other miscellaneous equity securities. We
do not believe the unrealized loss on any of these securities is
other-than-temporary.
Securities
that we have the ability and intent to hold until maturity are classified as
securities held-to-maturity and are accounted for using historical cost,
adjusted for amortization of premium and accretion of discount. Our
held-to-maturity portfolio consists of state and municipal securities
exclusively with customers with which we have longer-term
relationships.
LOAN
PORTFOLIO AND CREDIT QUALITY
Portfolio
Composition
Table
8
Loan
Portfolio
(Dollar
amounts in thousands)
|
September
30,
2009
|
|
%
of
Total
|
|
December
31,
2008
|
|
%
of
Total
|
|
Annualized
%
Change
|
Commercial
and industrial
|
|
$
|
1,484,601
|
|
28.0
|
|
$
|
1,490,101
|
|
27.8
|
|
(0.5)
|
Agricultural
|
|
|
200,955
|
|
3.8
|
|
|
216,814
|
|
4.1
|
|
(9.7)
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
376,897
|
|
7.1
|
|
|
339,912
|
|
6.3
|
|
14.5
|
Retail
|
|
|
314,586
|
|
5.9
|
|
|
265,568
|
|
5.0
|
|
24.7
|
Industrial
|
|
|
459,793
|
|
8.7
|
|
|
419,761
|
|
7.8
|
|
12.7
|
Total
office, retail, and industrial
|
|
|
1,151,276
|
|
21.7
|
|
|
1,025,241
|
|
19.1
|
|
16.4
|
Residential
construction
|
|
|
400,502
|
|
7.5
|
|
|
509,059
|
|
9.5
|
|
(28.4)
|
Commercial
construction
|
|
|
196,198
|
|
3.7
|
|
|
258,253
|
|
4.8
|
|
(32.0)
|
Commercial
land
|
|
|
105,264
|
|
2.0
|
|
|
98,322
|
|
1.8
|
|
9.5
|
Multi-family
|
|
|
342,807
|
|
6.5
|
|
|
286,963
|
|
5.4
|
|
26.0
|
Investor-owned
rental property
|
|
|
117,276
|
|
2.2
|
|
|
131,635
|
|
2.4
|
|
(14.5)
|
Other
commercial real estate
|
|
|
636,153
|
|
12.0
|
|
|
597,694
|
|
11.2
|
|
8.5
|
Total
commercial real estate
|
|
|
2,949,476
|
|
55.6
|
|
|
2,907,167
|
|
54.2
|
|
2.0
|
Subtotal
– corporate loans
|
|
|
4,635,032
|
|
87.4
|
|
|
4,614,082
|
|
86.1
|
|
0.7
|
Direct
installment
|
|
|
47,363
|
|
0.9
|
|
|
58,135
|
|
1.1
|
|
(24.7)
|
Home
equity
|
|
|
478,204
|
|
9.0
|
|
|
477,105
|
|
8.9
|
|
0.3
|
Indirect
installment
|
|
|
6,607
|
|
0.1
|
|
|
12,544
|
|
0.2
|
|
(63.1)
|
Real
estate – 1-4 family
|
|
|
138,862
|
|
2.6
|
|
|
198,197
|
|
3.7
|
|
(39.9)
|
Subtotal
– consumer loans
|
|
|
671,036
|
|
12.6
|
|
|
745,981
|
|
13.9
|
|
(13.3)
|
Total
loans
|
|
$
|
5,306,068
|
|
100.0
|
|
$
|
5,360,063
|
|
100.0
|
|
(1.3)
|
Outstanding
loans totaled $5.31 billion as of September 30, 2009, an annualized decrease of
1.3% from December 31, 2008. During the nine-month period ended September 30,
2009, we extended approximately $90 million in new credit, net of paydowns,
which was more than offset by net charge-offs, conversion of loans to OREO, and
the securitization of $25.7 million of 1-4 family real estate
loans.
Non-performing
Assets
Generally
loans are placed on non-accrual status if principal or interest payments become
90 days or more past due and/or management deems the collectibility of the
principal and/or interest to be in question. Loans to customers whose financial
condition has deteriorated are considered for non-accrual status whether or not
the loan is 90 days or more past due.
Once
interest accruals are discontinued, accrued but uncollected interest is charged
to current year operations. Subsequent receipts on non-accrual loans are
recorded as a reduction of principal, and interest income is recorded only after
principal recovery is reasonably assured. Classification of a loan as
non-accrual does not preclude the ultimate collection of loan principal or
interest.
We
continue to accrue interest on certain loans 90 days or more past due when such
loans are well secured and collection of principal and interest is expected
within a reasonable period.
Restructured
loans are loans on which, due to deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or
either principal or interest has been forgiven. Restructured loans generally
result in lower payments than originally required and therefore, have a lower
risk of loss due to nonperformance than loans classified as non-accrual. We do
not accrue interest on any restructured loan until such time as we believe all
principal and interest under its modified terms are reasonably assured. Until
such time, these loans continue to be reported as non-accrual
loans.
Once the
borrower demonstrates the ability to meet the modified terms of the restructured
loan, we once again accrue interest. However, by regulation, such restructured
loans continue to be separately reported as restructured until after the
calendar year in which the restructuring occurred, providing the loan was
restructured at market rate and terms.
OREO
represents property acquired as the result of borrower defaults on loans. OREO
properties are recorded at the lower of the recorded investment in the loans for
which the properties served as collateral or estimated fair value, less
estimated selling costs. Write-downs occurring at foreclosure are charged
against the reserve for loan losses. On an ongoing basis, the carrying values of
these properties may be reduced based upon new appraisals and/or market
indications. Write-downs are recorded for subsequent declines in value and are
included in other noninterest expense along with other expenses related to
maintaining the properties.
The
following table provides a comparison of our non-performing assets and past due
loans to prior periods.
Table
9
Non-performing
Assets and Past Due Loans
(Dollar
amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
September
30
|
|
%
of Loan
Category
|
|
June
30
|
|
March
31
|
|
|
December
31
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
$
|
45,134
|
|
3.04%
|
|
$
|
41,542
|
|
$
|
33,245
|
|
|
$
|
15,586
|
Agricultural
|
|
|
2,384
|
|
1.19%
|
|
|
452
|
|
|
12
|
|
|
|
12
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
1,882
|
|
0.50%
|
|
|
2,821
|
|
|
7,566
|
|
|
|
-
|
Retail
|
|
|
11,654
|
|
3.70%
|
|
|
9,855
|
|
|
4,811
|
|
|
|
1,964
|
Industrial
|
|
|
2,202
|
|
0.48%
|
|
|
382
|
|
|
392
|
|
|
|
569
|
Total
office, retail, and industrial
|
|
|
15,738
|
|
1.37%
|
|
|
13,058
|
|
|
12,769
|
|
|
|
2,533
|
Residential
construction
|
|
|
138,593
|
|
34.60%
|
|
|
143,231
|
|
|
107,766
|
|
|
|
97,060
|
Commercial
construction
|
|
|
-
|
|
0.00%
|
|
|
-
|
|
|
-
|
|
|
|
-
|
Commercial
land
|
|
|
2,908
|
|
2.76%
|
|
|
3,833
|
|
|
8,984
|
|
|
|
2,080
|
Multi-family
|
|
|
15,910
|
|
4.64%
|
|
|
10,632
|
|
|
6,989
|
|
|
|
1,387
|
Investor-owned
rental property
|
|
|
4,069
|
|
3.47%
|
|
|
2,787
|
|
|
2,536
|
|
|
|
270
|
Other
commercial real estate
|
|
|
18,841
|
|
2.96%
|
|
|
14,642
|
|
|
4,493
|
|
|
|
4,564
|
Total
commercial real estate
|
|
|
196,059
|
|
6.65%
|
|
|
188,183
|
|
|
143,537
|
|
|
|
107,894
|
Total
corporate loans
|
|
|
243,577
|
|
5.26%
|
|
|
230,177
|
|
|
176,794
|
|
|
|
123,492
|
Consumer
|
|
|
8,253
|
|
1.55%
|
|
|
6,042
|
|
|
4,991
|
|
|
|
3,419
|
Real
estate – 1-4 family
|
|
|
4,975
|
|
3.58%
|
|
|
1,034
|
|
|
1,756
|
|
|
|
857
|
Total
non-accrual loans
|
|
|
256,805
|
|
4.84%
|
|
|
237,253
|
|
|
183,541
|
|
|
|
127,768
|
90
days or more past due loans (still accruing
interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
3,216
|
|
0.22%
|
|
|
7,174
|
|
|
16,208
|
|
|
|
6,818
|
Agricultural
|
|
|
-
|
|
0.00%
|
|
|
1,931
|
|
|
1,751
|
|
|
|
1,751
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
349
|
|
0.09%
|
|
|
-
|
|
|
10,746
|
|
|
|
689
|
Retail
|
|
|
271
|
|
0.09%
|
|
|
1,013
|
|
|
1,366
|
|
|
|
1,912
|
Industrial
|
|
|
416
|
|
0.09%
|
|
|
-
|
|
|
607
|
|
|
|
613
|
Total
office, retail, and industrial
|
|
|
1,036
|
|
0.09%
|
|
|
1,013
|
|
|
12,719
|
|
|
|
3,214
|
Residential
construction
|
|
|
66
|
|
0.02%
|
|
|
5,022
|
|
|
20,593
|
|
|
|
8,489
|
Commercial
construction
|
|
|
-
|
|
0.00%
|
|
|
689
|
|
|
-
|
|
|
|
-
|
Commercial
land
|
|
|
-
|
|
0.00%
|
|
|
192
|
|
|
2,942
|
|
|
|
2,092
|
Multi-family
|
|
|
238
|
|
0.07%
|
|
|
699
|
|
|
3,356
|
|
|
|
1,881
|
Investor-owned
rental property
|
|
|
338
|
|
0.29%
|
|
|
592
|
|
|
524
|
|
|
|
541
|
Other
commercial real estate
|
|
|
-
|
|
0.00%
|
|
|
1,154
|
|
|
5,434
|
|
|
|
3,953
|
Total
commercial real estate
|
|
|
1,678
|
|
0.06%
|
|
|
9,361
|
|
|
45,568
|
|
|
|
20,170
|
Total
corporate loans
|
|
|
4,894
|
|
0.11%
|
|
|
18,466
|
|
|
63,527
|
|
|
|
28,739
|
Consumer
|
|
|
729
|
|
0.14%
|
|
|
5,447
|
|
|
8,124
|
|
|
|
4,977
|
Real
estate – 1-4 family
|
|
|
337
|
|
0.24%
|
|
|
2,158
|
|
|
2,278
|
|
|
|
3,283
|
Total
90 days or more past due loans
|
|
|
5,960
|
|
0.11%
|
|
|
26,071
|
|
|
73,929
|
|
|
|
36,999
|
Total
non-accrual and 90 days or more past
due loans
|
|
|
262,765
|
|
|
|
|
263,324
|
|
|
257,470
|
|
|
|
164,767
|
Restructured
loans (still accruing interest)
|
|
|
26,718
|
|
|
|
|
18,877
|
|
|
1,063
|
|
|
|
7,344
|
Total
non-performing loans
|
|
$
|
289,483
|
|
|
|
$
|
282,201
|
|
$
|
258,533
|
|
|
$
|
172,111
|
Other
real estate owned (“OREO”)
|
|
$
|
57,945
|
|
|
|
$
|
50,640
|
|
$
|
38,984
|
|
|
$
|
24,368
|
Non-accrual
loans to total loans
|
|
|
4.84%
|
|
|
|
|
4.44%
|
|
|
3.41%
|
|
|
|
2.38%
|
Non-accrual
loans plus 90 days or more past
due loans to total loans
|
|
|
4.95%
|
|
|
|
|
4.93%
|
|
|
4.78%
|
|
|
|
3.07%
|
Non-performing
loans to total loans
|
|
|
5.46%
|
|
|
|
|
5.28%
|
|
|
4.80%
|
|
|
|
3.21%
|
|
|
2009
|
|
|
2008
|
|
|
September
30
|
|
%
of Loan
Category
|
|
June
30
|
|
March
31
|
|
|
December
31
|
30-89
days past due loans (still accruing
interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
$
|
11,503
|
|
0.77%
|
|
$
|
14,690
|
|
$
|
10,431
|
|
|
$
|
36,820
|
Agricultural
|
|
|
3
|
|
-
|
|
|
113
|
|
|
-
|
|
|
|
2,548
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
1,379
|
|
0.37%
|
|
|
349
|
|
|
428
|
|
|
|
22,106
|
Retail
|
|
|
454
|
|
0.14%
|
|
|
915
|
|
|
4,056
|
|
|
|
770
|
Industrial
|
|
|
466
|
|
0.10%
|
|
|
2,226
|
|
|
1,821
|
|
|
|
543
|
Total
office, retail, and industrial
|
|
|
2,299
|
|
0.20%
|
|
|
3,490
|
|
|
6,305
|
|
|
|
23,419
|
Residential
construction
|
|
|
1,940
|
|
0.48%
|
|
|
626
|
|
|
5,589
|
|
|
|
19,504
|
Commercial
construction
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
7,861
|
Commercial
land
|
|
|
-
|
|
-
|
|
|
1,593
|
|
|
1,189
|
|
|
|
2,811
|
Multi-family
|
|
|
1,842
|
|
0.54%
|
|
|
1,843
|
|
|
2,853
|
|
|
|
4,406
|
Investor-owned
rental property
|
|
|
3,456
|
|
2.95%
|
|
|
2,827
|
|
|
2,659
|
|
|
|
747
|
Other
commercial real estate
|
|
|
13,179
|
|
2.07%
|
|
|
1,229
|
|
|
12,366
|
|
|
|
3,933
|
Total
commercial real estate
|
|
|
22,716
|
|
0.77%
|
|
|
11,608
|
|
|
30,961
|
|
|
|
62,681
|
Total
corporate loans
|
|
|
34,222
|
|
0.74%
|
|
|
26,411
|
|
|
41,392
|
|
|
|
102,049
|
Consumer
|
|
|
6,629
|
|
1.25%
|
|
|
7,891
|
|
|
8,453
|
|
|
|
9,748
|
Real
estate – 1-4 family
|
|
|
3,495
|
|
2.52%
|
|
|
3,826
|
|
|
4,466
|
|
|
|
4,409
|
Total
30-89 days past due loans
|
|
$
|
44,346
|
|
0.84%
|
|
$
|
38,128
|
|
$
|
54,311
|
|
|
$
|
116,206
|
Non-accrual
loans plus loans 90 days or more past due were $262.8 million as of September
30, 2009 compared to $263.3 million at June 30, 2009 and $164.8 million at
December 31, 2008. In the past two quarters, we employed certain strategies to
improve the overall composition of non-performing assets, such as restructuring
loans, reducing early stage delinquencies, and accelerating efforts to control
and facilitate sales of OREO properties. These strategies may improve the
ultimate collection of delinquent loans as well as reduce the time required to
convert assets to cash.
Non-accrual
loans increased from $127.8 million at December 31, 2008 to $256.8 million at
September 30, 2009. This increase reflects the adverse impact on borrowers of
the weakening economy and, in particular, declining real estate values and
rising unemployment.
Total
loans 30-89 days past due increased $6.2 million from June 30, 2009 but declined
$71.9 million, or 61.8%, from December 31, 2008.
At
September 30, 2009, we had restructured loans totaling $41.0 million, an
increase of $10.9 million from June 30, 2009 and $33.7 million from December 31,
2009. Included in this total at September 30, 2009 were loans totaling $26.7
million that were restructured at market terms. To the extent these loans
continue to perform, they will no longer be classified as non-performing
subsequent to December 31, 2009.
Table
10
Restructured
Loans by Type
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
June
30, 2009
|
|
March
31, 2009
|
|
December
31, 2008
|
|
|
Number
of
Loans
|
|
Amount
|
|
Number
of
Loans
|
|
Amount
|
|
Number
of
Loans
|
|
Amount
|
|
Number
of
Loans
|
|
Amount
|
Commercial
loans
|
|
21
|
|
$
|
6,567
|
|
13
|
|
$
|
5,474
|
|
2
|
|
$
|
3,244
|
|
2
|
|
$
|
2,099
|
Commercial
real estate loans
|
|
10
|
|
|
15,928
|
|
6
|
|
|
16,335
|
|
2
|
|
|
121
|
|
3
|
|
|
3,515
|
Multi-family
loans
|
|
10
|
|
|
11,829
|
|
8
|
|
|
4,575
|
|
7
|
|
|
4,472
|
|
1
|
|
|
1,472
|
Consumer
loans
|
|
61
|
|
|
6,707
|
|
35
|
|
|
3,733
|
|
10
|
|
|
958
|
|
2
|
|
|
258
|
Total
restructured loans
|
|
102
|
|
$
|
41,031
|
|
62
|
|
$
|
30,117
|
|
21
|
|
$
|
8,795
|
|
8
|
|
$
|
7,344
|
OREO
totaled $57.9 million compared to $50.6 million at June 30, 2009, and is
comprised of 107 properties. For a number of loans where foreclosure was deemed
appropriate, we sought to shorten the foreclosure process by seeking
deeds-in-lieu of foreclosure for the underlying collateral.
Table
11
OREO
Properties by Type
(Dollar
amounts in thousands)
|
|
September
30, 2009
|
|
June
30, 2009
|
|
March
31, 2009
|
|
December
31, 2008
|
|
|
Number
of
Properties
|
|
Amount
|
|
Number
of
Properties
|
|
Amount
|
|
Number
of
Properties
|
|
Amount
|
|
Number
of
Properties
|
|
Amount
|
Single
family homes
|
|
62
|
|
$
|
13,783
|
|
46
|
|
$
|
9,724
|
|
38
|
|
$
|
9,486
|
|
34
|
|
$
|
6,967
|
Land
parcels
|
|
21
|
|
|
37,013
|
|
15
|
|
|
25,914
|
|
11
|
|
|
21,286
|
|
7
|
|
|
10,672
|
Multi-family
units
|
|
11
|
|
|
1,882
|
|
13
|
|
|
2,210
|
|
13
|
|
|
4,778
|
|
11
|
|
|
3,682
|
Commercial
properties
|
|
13
|
|
|
5,267
|
|
9
|
|
|
12,792
|
|
9
|
|
|
3,434
|
|
8
|
|
|
3,047
|
Total
OREO properties
|
|
107
|
|
$
|
57,945
|
|
83
|
|
$
|
50,640
|
|
71
|
|
$
|
38,984
|
|
60
|
|
$
|
24,368
|
During
third quarter 2009, we sold 16 OREO properties for a total of $6.0 million,
resulting in a net loss on sales of $712,000. Our remaining properties are
recorded at estimated fair values consistent with current disposition
strategies.
As we
look to dispose of non-performing assets, our efforts could be impacted by a
number of factors, including but not limited to, the pace and timing of the
overall recovery of the economy, instability in the real estate market, higher
levels of real estate coming into the market, and planned liquidation
strategies. Accordingly, the future carrying value of these assets may be
influenced by these same factors.
Construction
Portfolio
Total
construction loans of $702.0 million consist of residential construction,
commercial construction, and commercial land. Our residential construction
portfolio accounts for 52.8% of the total non-accrual loans plus loans 90 days
or more past due at September 30, 2009. Approximately one-third of all
residential construction loans fall within one of these two problem loan
categories. This $400.5 million portfolio represents loans to developers of
residential properties and, as such, is particularly susceptible to declining
real estate values.
The
following table provides details on the nature of these construction
portfolios.
Table
12
Construction
Loans by Type
(Dollar
amounts in thousands)
|
Residential
Construction
|
|
Commercial
Construction
|
|
Commercial
Land
|
|
Combined
|
|
Non-accrual
Plus
90 Days
Past
Due
Loans
|
|
Amount
|
|
Percent
of
Total
|
|
Amount
|
|
Percent
of
Total
|
|
Amount
|
|
Percent
of
Total
|
|
Amount
|
|
Percent
of
Total
|
|
As
of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
Land
|
$
|
78,363
|
|
19.6
|
|
$
|
5,239
|
|
2.7
|
|
$
|
49,483
|
|
47.0
|
|
$
|
133,085
|
|
19.0
|
|
$
|
17,803
|
Developed
Land
|
|
164,140
|
|
41.0
|
|
|
19,737
|
|
10.1
|
|
|
55,781
|
|
53.0
|
|
|
239,658
|
|
34.1
|
|
|
65,744
|
Construction
|
|
31,203
|
|
7.8
|
|
|
10,060
|
|
5.1
|
|
|
-
|
|
-
|
|
|
41,263
|
|
5.9
|
|
|
12,828
|
Substantially
completed structures
|
|
106,228
|
|
26.5
|
|
|
160,669
|
|
81.9
|
|
|
-
|
|
-
|
|
|
266,897
|
|
38.0
|
|
|
25,125
|
Mixed
and other
|
|
20,568
|
|
5.1
|
|
|
493
|
|
0.2
|
|
|
-
|
|
-
|
|
|
21,061
|
|
3.0
|
|
|
20,067
|
Total
|
$
|
400,502
|
|
100.0
|
|
$
|
196,198
|
|
100.0
|
|
$
|
105,264
|
|
100.0
|
|
$
|
701,964
|
|
100.0
|
|
$
|
141,567
|
Non-accrual
plus 90-days or
more past due loans
|
$
|
138,659
|
|
|
|
$
|
-
|
|
|
|
$
|
2,908
|
|
|
|
$
|
141,567
|
|
|
|
|
Non-accrual
plus 90-days or
more past due loans as
a percent of total loans
|
|
34.6%
|
|
|
|
|
-
|
|
|
|
|
2.8%
|
|
|
|
|
20.2%
|
|
|
|
|
|
Our
disclosure with respect to impaired loans is contained in Note 5 of “Notes to
Consolidated Financial Statements” in Item 8 of this our 2008 Form
10-K.
Reserve
for Loan Losses
The
reserve for loan losses is a reserve established through a provision for
probable loan losses charged to expense, which represents management’s best
estimate of probable losses that have been incurred within the existing
portfolio of loans. The reserve, in the judgment of management, is necessary to
provide for estimated loan losses and risks inherent in the loan portfolio. The
reserve for loan losses consists of three components: (i) specific reserves
established for expected losses on individual loans for which the recorded
investment in the loan exceeds the value of the loan; (ii) reserves based on
historical loan loss experience for each loan category; and (iii) reserves based
on general, current economic conditions as well as specific economic factors
believed to be relevant to the markets in which we operate. Management evaluates
the sufficiency of the reserve for loan losses based on the combined total of
the specific, historical loss, and general components. Management believes that
the reserve for loan losses of $134.3 million is an appropriate estimate of
credit losses inherent in the loan portfolio as of September 30,
2009.
Portions
of the reserve may be allocated for specific credits. However, the entire
reserve is available for any credit that, in management’s judgment, should be
charged off. While management utilizes its best judgment and information
available, the ultimate adequacy of the reserve is dependent upon a variety of
factors beyond our control, including the performance of our loan portfolio, the
economy, changes in interest rates, and the interpretation by regulatory
authorities of loan classifications.
Table
13
Reserve
for Loan Losses and
Summary
of Loan Loss Experience
(Dollar
amounts in thousands)
|
|
Quarters
Ended
|
|
|
2009
|
|
|
2008
|
|
|
September
30
|
|
June
30
|
|
March
31
|
|
|
December
31
|
|
September
30
|
Change
in reserve for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of quarter
|
|
$
|
127,528
|
|
$
|
116,001
|
|
$
|
93,869
|
|
|
$
|
69,811
|
|
$
|
66,104
|
Loans
charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
(13,023)
|
|
|
(7,157)
|
|
|
(12,785)
|
|
|
|
(5,920)
|
|
|
(2,169)
|
Agricultural
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Office,
retail, and industrial
|
|
|
(3,496)
|
|
|
(220)
|
|
|
(889)
|
|
|
|
(819)
|
|
|
(2)
|
Residential
construction
|
|
|
(5,315)
|
|
|
(8,442)
|
|
|
(10,729)
|
|
|
|
(9,227)
|
|
|
(5,856)
|
Commercial
construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Commercial
land
|
|
|
(38)
|
|
|
(734)
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Multi-family
|
|
|
(29)
|
|
|
(1,088)
|
|
|
(43)
|
|
|
|
(164)
|
|
|
40
|
Investor-owned
rental property
|
|
|
(624)
|
|
|
(12)
|
|
|
(120)
|
|
|
|
(161)
|
|
|
-
|
Other
commercial real estate
|
|
|
(6,006)
|
|
|
(2,358)
|
|
|
(100)
|
|
|
|
(236)
|
|
|
(62)
|
Consumer
|
|
|
(3,369)
|
|
|
(4,602)
|
|
|
(2,356)
|
|
|
|
(2,300)
|
|
|
(1,433)
|
Real
estate - 1-4 family
|
|
|
(218)
|
|
|
(327)
|
|
|
(221)
|
|
|
|
(57)
|
|
|
(239)
|
Total
loans charged-off
|
|
|
(32,118)
|
|
|
(24,940)
|
|
|
(27,243)
|
|
|
|
(18,884)
|
|
|
(9,721)
|
Recoveries
on loans previously charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
438
|
|
|
151
|
|
|
692
|
|
|
|
319
|
|
|
270
|
Agricultural
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
4
|
Office,
retail, and industrial
|
|
|
-
|
|
|
3
|
|
|
11
|
|
|
|
120
|
|
|
-
|
Residential
construction
|
|
|
134
|
|
|
15
|
|
|
10
|
|
|
|
-
|
|
|
-
|
Commercial
construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Commercial
land
|
|
|
266
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Multi-family
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Investor-owned
rental property
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Other
commercial real estate
|
|
|
-
|
|
|
(93)
|
|
|
151
|
|
|
|
-
|
|
|
-
|
Consumer
|
|
|
17
|
|
|
126
|
|
|
100
|
|
|
|
118
|
|
|
125
|
Real
estate - 1-4 family
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
|
-
|
|
|
-
|
Total
recoveries on loans previously
charged-off
|
|
|
859
|
|
|
205
|
|
|
965
|
|
|
|
557
|
|
|
399
|
Net
loans charged-off
|
|
|
(31,259)
|
|
|
(24,735)
|
|
|
(26,278)
|
|
|
|
(18,327)
|
|
|
(9,322)
|
Provisions
charged to operating expense
|
|
|
38,000
|
|
|
36,262
|
|
|
48,410
|
|
|
|
42,385
|
|
|
13,029
|
Balance
at end of quarter
|
|
$
|
134,269
|
|
|
127,528
|
|
$
|
116,001
|
|
|
$
|
93,869
|
|
$
|
69,811
|
Average
loans
|
|
$
|
5,346,769
|
|
$
|
5,366,393
|
|
$
|
5,378,905
|
|
|
$
|
5,275,981
|
|
$
|
5,205,188
|
Net
loans charged-off to average loans, annualized
|
|
|
2.32%
|
|
|
1.85%
|
|
|
1.98%
|
|
|
|
1.38%
|
|
|
0.71%
|
Table
14
Allocation
of Reserve for Loan Losses
(Dollar
amounts in thousands)
|
|
September
30,
2009
|
|
%
of
Loans
|
|
December
31,
2008
|
|
%
of
Loans
|
Allocation
of reserve for loan losses by loan category at period
end:
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
$
|
42,200
|
|
2.84
|
|
$
|
20,968
|
|
1.41
|
Agricultural
|
|
|
250
|
|
0.12
|
|
|
1,221
|
|
0.56
|
Office,
retail, and industrial
|
|
|
22,000
|
|
1.91
|
|
|
22,048
|
|
2.15
|
Residential
construction
|
|
|
46,000
|
|
11.49
|
|
|
32,910
|
|
6.46
|
Multi-family
|
|
|
5,000
|
|
1.46
|
|
|
2,680
|
|
0.93
|
Other
commercial real estate (1)
|
|
|
10,000
|
|
0.95
|
|
|
7,927
|
|
0.73
|
Consumer
|
|
|
7,919
|
|
1.49
|
|
|
5,456
|
|
1.00
|
Real
estate – 1-4 family
|
|
|
900
|
|
0.65
|
|
|
659
|
|
0.33
|
Total
|
|
$
|
134,269
|
|
2.53
|
|
$
|
93,869
|
|
1.75
|
Total
loans
|
|
$
|
5,306,068
|
|
|
|
$
|
5,360,063
|
|
|
Reserve
for loan losses to loans
|
|
|
2.53%
|
|
|
|
|
1.75%
|
|
|
Reserve
for loan losses to non-accrual loans
|
|
|
52%
|
|
|
|
|
73%
|
|
|
Reserve
for loan losses to non-accrual loans plus loans
90 days or more past due
|
|
|
51%
|
|
|
|
|
57%
|
|
|
Reserve
for loan losses to non-performing loans
|
|
|
46%
|
|
|
|
|
55%
|
|
|
(1)
|
Includes
commercial construction and commercial
land.
|
We
increased our reserve for loan losses to $134.3 million as of September 30,
2009, up $6.7 million from June 30, 2009 and $40.4 million from December 31,
2008. The reserve for loan losses as a percent of loans was 2.53% as of
September 30, 2009, up from 2.39% at June 30, 2009 and 1.75% as of December 31,
2008. Total loans charged-off, net of recoveries, in third quarter 2009 were
2.32% of average loans compared to 1.85% and 1.98% for second quarter 2009 and
first quarter 2009, respectively. Approximately one-third of the reserve at
September 30, 2009 is allocated to residential construction loans.
The
reserve for loan losses as a percent of non-accrual loans plus loans 90 days or
more past due was 51% at September 30, 2009 compared to 48% at June 30, 2009 and
57% at December 31, 2008.
The
accounting policies underlying the establishment and maintenance of the reserve
for loan losses are discussed in Notes 1 and 5 to the Consolidated Financial
Statements of our 2008 10-K.
We
purchase life insurance policies on the lives of certain directors and officers
and are the sole owner and beneficiary of the policies. We invest in these
policies, known as BOLI, to provide an efficient form of funding for long-term
retirement and other employee benefit costs. Therefore, our BOLI policies are
intended to be long-term investments to provide funding for long-term
liabilities. We record these BOLI policies as a separate line item in the
Consolidated Statements of Financial Condition at each policy’s respective CSV,
with changes recorded in noninterest income in the Consolidated Statements of
Income. As of September 30, 2009, the CSV of BOLI assets totaled $197.7 million
compared to $198.5 million as of December 31, 2008.
Of our
total BOLI portfolio as of September 30, 2009, 24.2% is in general account life
insurance distributed between 10 insurance carriers, all of which carry
investment grade ratings. This general account life insurance typically includes
a feature guaranteeing minimum returns. The remaining 75.8% is in separate
account life insurance, which is managed by third party investment advisors
under pre-determined investment guidelines. Stable value protection is a feature
available with respect to separate account life insurance policies that is
designed to protect, within limits, a policy’s CSV from market fluctuations on
underlying investments. Our entire separate account portfolio has stable value
protection, purchased from a highly rated financial institution. To the extent
fair values on individual contracts fall below 80%, the CSV of the specific
contracts may be reduced or the underlying assets transferred to short-duration
investments, resulting in lower earnings.
BOLI
income for third quarter 2009 declined $1.6 million from third quarter 2008.
Since fourth quarter 2008, management has elected to accept lower market returns
in order to improve our regulatory capital ratios by reducing risk-weighted
assets and reducing our risk to market volatility through investment in
shorter-duration, lower yielding money market instruments.
GOODWILL
We record
goodwill as a separate line item in the Consolidated Statements of Financial
Condition. The carrying value of goodwill was $262.9 million as of both
September 30, 2009 and December 31, 2008. As described in Note 16 to the
Financial Statements in Item 1 of this Form 10-Q, goodwill is tested at least
annually for impairment or more often if events or circumstances between annual
tests indicate that there may be impairment. The testing is performed using the
market capitalization method and, if necessary, by comparing the carrying value
of goodwill with the anticipated future cash flows. We do not believe that we
are at risk of failing these impairment tests.
FUNDING
AND LIQUIDITY MANAGEMENT
The
following table provides a comparison of average funding sources for the quarter
ended September 30, 2009, December 31, 2008, and September 30, 2008. We believe
that average balances, rather than period-end balances, are more meaningful in
analyzing funding sources because of the inherent fluctuations that may occur on
a monthly basis within most funding categories.
Table
15
Funding
Sources – Average Balances
(Dollar
amounts in thousands)
|
|
Quarters
Ended
|
|
|
Third
Quarter 2009
%
Change From
|
|
|
September
30,
2009
|
|
December
31,
2008
|
|
September
30,
2008
|
|
|
Fourth
Quarter
2008
|
|
Third
Quarter
2008
|
Demand
deposits
|
|
$
|
1,056,188
|
|
$
|
1,043,596
|
|
$
|
1,053,530
|
|
|
1.2%
|
|
0.3%
|
Savings
deposits
|
|
|
749,995
|
|
|
748,065
|
|
|
784,646
|
|
|
0.3%
|
|
(4.4%)
|
NOW
accounts
|
|
|
1,062,708
|
|
|
923,643
|
|
|
983,364
|
|
|
15.1%
|
|
8.1%
|
Money
market accounts
|
|
|
995,132
|
|
|
737,658
|
|
|
770,967
|
|
|
34.9%
|
|
29.1%
|
Transactional
deposits
|
|
|
3,864,023
|
|
|
3,452,962
|
|
|
3,592,507
|
|
|
11.9%
|
|
7.6%
|
Time
deposits
|
|
|
1,923,314
|
|
|
2,006,080
|
|
|
2,118,445
|
|
|
(4.1%)
|
|
(9.2%)
|
Brokered
deposits
|
|
|
15,131
|
|
|
176,526
|
|
|
51,585
|
|
|
(91.4%)
|
|
(70.7%)
|
Total
time deposits
|
|
|
1,938,445
|
|
|
2,182,606
|
|
|
2,170,030
|
|
|
(11.2%)
|
|
(10.7%)
|
Total
deposits
|
|
|
5,802,468
|
|
|
5,635,568
|
|
|
5,762,537
|
|
|
3.0%
|
|
0.7%
|
Repurchase
agreements
|
|
|
442,022
|
|
|
487,937
|
|
|
443,837
|
|
|
(9.4%)
|
|
(0.4%)
|
Federal
funds purchased
|
|
|
93,123
|
|
|
328,146
|
|
|
362,232
|
|
|
(71.6%)
|
|
(74.3%)
|
Federal
Home Loan Bank (“FHLB”) advances
|
|
|
131,089
|
|
|
513,802
|
|
|
515,008
|
|
|
(74.5%)
|
|
(74.5%)
|
Federal
term auction facilities
|
|
|
204,163
|
|
|
308,152
|
|
|
155,326
|
|
|
(33.7%)
|
|
31.4%
|
Total
borrowed funds
|
|
|
870,397
|
|
|
1,638,037
|
|
|
1,476,403
|
|
|
(46.9%)
|
|
(41.0%)
|
Subordinated
debt
|
|
|
226,693
|
|
|
232,425
|
|
|
232,458
|
|
|
(2.5%)
|
|
(2.5%)
|
Total
funding sources
|
|
$
|
6,899,558
|
|
$
|
7,506,030
|
|
$
|
7,471,398
|
|
|
(8.1%)
|
|
(7.7%)
|
Average
interest rate paid on borrowed funds
|
|
|
1.26%
|
|
|
1.56%
|
|
|
2.55%
|
|
|
|
|
|
|
Weighted-average
maturity of FHLB advances
|
|
|
1.7
months
|
|
|
5.4
months
|
|
|
4.4
months
|
|
|
|
|
|
Weighted-average
interest rate of FHLB advances
|
|
|
4.05%
|
|
|
2.68%
|
|
|
2.27%
|
|
|
|
|
|
Total
average deposits for third quarter 2009 increased 3.0% from fourth quarter 2008
and 0.7% from third quarter 2008, with a decline in time deposits being offset
by increases in transactional deposits.
Average
transactional deposits for third quarter 2009 were $3.9 billion, an increase of
$411.1 million from fourth quarter 2008 and $271.5 million from third quarter
2008. The increase from December 31, 2008 is due in part to seasonality
reflecting the normal build up of deposits of tax receipts by our municipal
customers during the second and third quarters of each year. The year-over year
increase is due largely to growth in money market account balances as a result
of a successful promotional campaign.
Securities
sold under agreements to repurchase, federal funds purchased, and term auction
facilities generally mature within 1 to 90 days from the transaction
date.
MANAGEMENT
OF CAPITAL
Capital
Measurements
The
Federal Reserve Board (“FRB”), the primary regulator of the Company and the
Bank, establishes minimum capital requirements that must be met by member
institutions. We have managed our capital ratios to consistently maintain such
measurements in excess of the FRB minimum levels to be considered
“well-capitalized,” which is the highest capital category
established.
Capital
resources of financial institutions are also regularly measured by tangible
equity ratios, which are non-GAAP measures. Tangible common equity equals total
shareholders’ equity as defined by GAAP less goodwill and other intangible
assets and preferred stock, which does not benefit common shareholders. Tangible
assets equals total assets as defined by GAAP less goodwill and other intangible
assets. The tangible equity ratios are a valuable indicator of a financial
institution’s capital strength since they eliminate intangible assets from
shareholders’ equity.
The
following table presents our consolidated measures of capital as of the dates
presented and the capital guidelines established by the FRB to be considered
“well-capitalized.”
Table
16
Capital
Measurements
(Dollar
amounts in thousands)
|
|
|
|
|
|
Regulatory
Minimum
For
“Well-
Capitalized”
|
|
Excess
Over
Required
Minimums
at
September 30, 2009
|
|
|
|
|
|
|
September
30,
|
December
31,
|
2009
|
|
2008
|
|
2008
|
Regulatory
capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk-weighted assets
|
|
15.27%
|
|
12.04%
|
|
14.36%
|
|
10.00%
|
|
53%
|
|
$
|
329
|
|
Tier
1 capital to risk-weighted assets
|
|
12.88%
|
|
9.42%
|
|
11.60%
|
|
6.00%
|
|
115%
|
|
$
|
429
|
|
Tier
1 leverage to average assets
|
|
10.52%
|
|
7.59%
|
|
9.41%
|
|
5.00%
|
|
110%
|
|
$
|
421
|
Regulatory
capital ratios, excluding preferred stock
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk-weighted assets
|
|
12.18%
|
|
12.04%
|
|
11.44%
|
|
10.00%
|
|
22%
|
|
$
|
136
|
|
Tier
1 capital to risk-weighted assets
|
|
9.78%
|
|
9.42%
|
|
8.68%
|
|
6.00%
|
|
63%
|
|
$
|
236
|
|
Tier
1 leverage to average assets
|
|
7.99%
|
|
7.59%
|
|
7.04%
|
|
5.00%
|
|
60%
|
|
$
|
228
|
|
Tier
1 common capital to risk-weighted assets
(2)
(3)
|
|
8.43%
|
|
7.49%
|
|
6.79%
|
|
N/A
(3)
|
|
N/A
(3)
|
|
|
N/A
(3)
|
Tangible
equity ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
common equity to tangible assets
|
|
6.88%
|
|
5.44%
|
|
5.23%
|
|
N/A
(3)
|
|
N/A
(3)
|
|
|
N/A
(3)
|
|
Tangible
common equity, excluding other comprehensive
loss, to tangible assets
|
|
7.10%
|
|
6.09%
|
|
5.45%
|
|
N/A
(3)
|
|
N/A
(3)
|
|
|
N/A
(3)
|
|
Tangible
common equity to risk-weighted assets
|
|
8.16%
|
|
6.69%
|
|
6.53%
|
|
N/A
(3)
|
|
N/A
(3)
|
|
|
N/A
(3)
|
|
(1)
|
These
ratios exclude the impact of $193.0 million in preferred shares issued to
the U.S. Treasury in December 2008 as part of its Capital Purchase Plan
(“CPP”). For additional discussion of the preferred share issuance and the
CPP, refer to Note 12 to the Consolidated Financial Statements of our 2008
Form 10-K.
|
|
(2)
|
Excludes
the impact of preferred shares and trust preferred
securities.
|
|
(3)
|
Ratio
is not subject to formal FRB regulatory
guidance.
|
Regulatory
and tangible common equity ratios were improved in comparison to December 31,
2008. The notable improvements in the Tier 1 and tangible capital ratios
primarily reflect the exchange of trust preferred debt and subordinated debt
classified as Tier 1 and Tier 2 debt, respectively, for common
stock.
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.
As part
of a larger commitment to grow the tangible common equity component of total
capital, on March 16, 2009, our Board of Directors announced a reduction in our
quarterly dividend from $0.225 per share to $0.01 per share. This reduction
equates to approximately $42 million in retained capital over the course of a
year.
On May
27, 2009 and on August 31, 2009, the Company’s Board of Directors announced
quarterly common stock dividends of $0.010 per share.
Since we
elected to participate in the U.S. Treasury’s Capital Purchase Program in fourth
quarter 2008, our ability to increase quarterly common stock dividends above
$0.310 per share will be subject to the applicable restrictions of this program
for three years following the sale of the preferred stock.
CRITICAL
ACCOUNTING POLICIES
Our
consolidated financial statements are prepared in accordance with 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 at 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, in turn, may affect amounts
reported in the financial statements.
We have
numerous accounting policies, of which the most significant are presented in
Note 1, “Summary of Significant Accounting Policies,” to the Consolidated
Financial Statements of our 2008 10-K. These policies, along with the
disclosures presented in the other financial statement notes and in this
discussion, provide information on how significant assets and liabilities are
valued in the financial statements and how those values are determined. Based on
the valuation techniques used and the sensitivity of financial statement amounts
to the methods, assumptions, and estimates underlying those amounts, management
has determined that our accounting policies with respect to the reserve for loan
losses, evaluation of impairment of securities, and income taxes are the
accounting areas requiring subjective or complex judgments that are most
important to our financial position and results of operations, and, as such, are
considered to be critical accounting policies, as discussed in our 2008
10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES
ABOUT MARKET RISK
Market
risk is the risk of loss arising from adverse changes in the fair value of
financial instruments due to changes in interest rates, exchange rates, and
equity prices. Interest rate risk is our primary market risk and is the result
of repricing, basis, and option risk. A description and analysis of our interest
rate risk management policies is included in Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” contained in our 2008
10-K.
We seek
to achieve consistent growth in net interest income and net income while
managing volatility that arises from shifts in interest rates. The Bank’s Asset
and Liability Management Committee (“ALCO”) oversees financial risk management
by developing programs to measure and manage interest rate risks within
authorized limits set by the Bank’s Board of Directors. ALCO also approves the
Bank’s asset/liability management policies, oversees the formulation and
implementation of strategies to improve balance sheet positioning and earnings,
and reviews the Bank’s interest rate sensitivity position. Management uses net
interest income and economic value of equity simulation modeling tools to
analyze and capture short-term and long-term interest rate
exposures.
Net
Interest Income Sensitivity
The
analysis of net interest income sensitivities assesses the magnitude of changes
in net interest income resulting from changes in interest rates over a 12-month
horizon using multiple rate scenarios. These scenarios include, but are not
limited to, a “most likely” forecast, a flat to inverted or unchanged rate
environment, a gradual increase and decrease of 200 basis points that occur in
equal steps over a six-month time horizon, and immediate increases and decreases
of 200 and 300 basis points.
This
simulation analysis is based on actual cash flows and repricing characteristics
for balance sheet and off-balance sheet instruments and incorporates
market-based assumptions regarding the effect of changing interest rates on the
prepayment rates of certain assets and liabilities. This simulation analysis
includes management’s projections for activity levels in each of the product
lines we offer. The analysis also incorporates assumptions based on the
historical behavior of deposit rates and balances in relation to interest rates.
Because these assumptions are inherently uncertain, the simulation analysis
cannot definitively measure net interest income or predict the impact of the
fluctuation in interest rates on net interest income. Actual results may differ
from simulated results due to timing, magnitude, and frequency of interest rate
changes as well as changes in market conditions and management
strategies.
We
monitor and manage interest rate risk within approved policy limits. Our current
interest rate risk policy limits are determined by measuring the change in net
interest income over a 12-month horizon assuming a 200 basis point gradual
increase and decrease in all interest rates compared to net interest income in
an unchanging interest rate environment. Current policy limits this exposure to
plus or minus 8% of the anticipated level of net interest income over the
corresponding 12-month horizon assuming no change in current interest rates. As
of September 30, 2009, the percent change expected assuming a gradual decrease
in interest rates was outside of policy by 0.2%, which was an improvement from
December 31, 2008. Given the current market conditions as of September 30, 2009
and December 31, 2008, the Bank’s Board of Directors temporarily authorized
operations outside of policy limits.
Analysis
of Net Interest Income Sensitivity
(Dollar
amounts in thousands)
|
Gradual
Change in Rates
(1)
|
|
Immediate
Change in Rates
|
|
-200
|
|
+200
|
|
-200
|
|
+200
|
|
-300
(2)
|
|
+300
|
September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
change
|
$
|
(22,029)
|
|
$
|
(6,587)
|
|
$
|
(33,505)
|
|
$
|
(7,541)
|
|
$
|
N/M
|
|
$
|
(5,270)
|
Percent
change
|
|
-8.2%
|
|
|
-2.4%
|
|
|
-12.4%
|
|
|
-2.8%
|
|
|
N/M
|
|
|
-2.0%
|
December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
change
|
$
|
(28,797)
|
|
$
|
(21,942)
|
|
$
|
(43,001)
|
|
$
|
(24,416)
|
|
$
|
N/M
|
|
$
|
(30,604)
|
Percent
change
|
|
-10.4%
|
|
|
-7.9%
|
|
|
-15.5%
|
|
|
-8.8
|
|
|
N/M
|
|
|
-11.0
|
|
(1)
|
Reflects
an assumed uniform change in interest rates across all terms that occurs
in equal steps over a six-month horizon.
|
|
(2)
|
N/M
– Due to the low level of interest rates as of September 30, 2009 and
December 31, 2008, in management’s judgment, an assumed 300 basis point
drop in interest rates was deemed not meaningful in the existent interest
rate environment.
|
Overall,
the change in interest rate risk volatility from December 31, 2008 under both
rising and declining interest rate assumptions is less negative. The securities
sales of approximately $840 million during the nine months ended September 30,
2009 reduced the volume of longer dated assets, and allowed for a reduction in
shorter-term liabilities, thus improving the interest rate risk volatility under
rising interest rates. In addition, during third quarter 2009, we revised
certain assumptions in our model to better reflect the impact of interest rate
floors on loans and assumed repricing on transaction accounts. The decrease in
earnings at risk volatility under declining rates is due to the positive impact
of the interest rate floors, which will keep loan yields from declining as
significantly.
Economic
Value of Equity
In
addition to the simulation analysis, management uses an economic value of equity
sensitivity technique to understand the risk in both shorter- and longer-term
positions and to study the impact of longer-term cash flows on earnings and
capital. In determining the economic value of equity, we discount present values
of expected cash flows on all assets, liabilities, and off-balance sheet
contracts under different interest rate scenarios. The discounted present value
of all cash flows represents our economic value of equity. Economic value of
equity does not represent the true fair value of asset, liability, or derivative
positions because certain factors are not considered, such as credit risk,
liquidity risk, and the impact of future changes to the balance sheet. Our
policy guidelines call for preventative measures to be taken in the event that
an immediate increase or decrease in interest rates of 200 basis points is
estimated to reduce the economic value of equity by more than 20%.
Analysis
of Economic Value of Equity
(Dollar
amounts in thousands)
|
|
Immediate
Change in Rates
|
|
|
-200
|
|
+200
|
September
30, 2009:
|
|
|
|
|
Dollar
change
|
|
$
|
(104,120)
|
|
$
|
15,717%
|
Percent
change
|
|
|
-7.0%
|
|
|
1.1%
|
December
31, 2008:
|
|
|
|
|
|
|
Dollar
change
|
|
$
|
(89,123)
|
|
$
|
(54,136)
|
Percent
change
|
|
|
-6.8%
|
|
|
-4.1%
|
As of
September 30, 2009, the estimated sensitivity of the economic value of equity to
changes in interest rates reflected more negative exposure to lower interest
rates compared to that existing at December 31, 2008 and a positive exposure to
rising interest rates compared to a negative exposure to rising interest rates
at December 31, 2008. The changes from year-end 2008 are driven by the sale of
longer-dated securities. In addition, during third quarter 2009, we revised
certain assumptions to better reflect the impact of interest rate floors on our
model. The switch to a positive exposure under rising interest rates is due to
the positive impact of the interest rate floors, since, as the rates on
transaction accounts are kept lower, the market value of the liability
increases, thus reducing our exposure. These positive impacts were partially
offset by the retirement of $68.8 in subordinated debt in exchange for common
shares of the Company. This reduced the positive impact longer-term debt has on
equity volatility under rising interest rates.
ITEM 4. CONTROLS AND PROCEDURES
At the
end of the period covered by this report, (the “Evaluation Date”), the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s President and Chief Executive
Officer and its Executive Vice President and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15 of the Securities and Exchange
Act of 1934 (the “Exchange Act”). Based on that evaluation, the President and
Chief Executive Officer and Executive Vice President and Chief Financial Officer
concluded that as of the Evaluation Date, the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms. There were no changes in
the Company’s internal control over financial reporting during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The
Company disclosed any material pending litigation matters relating to the
Company in Item 3 of Part I of its Annual Report on Form 10-K for the year ended
December 31, 2008. For the nine months ended September 30, 2009, there were no
material developments with regard to any previously disclosed matters, and no
other matters were reported during the period, although there were certain legal
proceedings pending against the Company and its subsidiaries in the ordinary
course of business at September 30, 2009. Based on presently available
information, the Company believes that any liabilities arising from these
proceedings would not have a material adverse effect on the consolidated
financial position of the Company.
The
Company provided a discussion of certain risks and uncertainties faced by the
Company in its Annual Report on Form 10-K for the year ended December 31, 2008.
However, these factors may not be the only risks or uncertainties the Company
faces. Additional risks that the Company does not yet know of or that it
currently thinks are immaterial may also impair its business
operations.
Based on
currently available information, the Company has not identified any new or
material changes in the Company’s risk factors as previously
disclosed.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
Exhibit
Number
|
Description of Documents
|
Sequential
Page #
|
3.1
|
Restated
Certificate of Incorporation is incorporated herein by reference to
Exhibit 3 to the Annual Report on Form 10-K dated December 31,
2008.
|
|
3.2
|
Restated
Bylaws of the Company is incorporated herein by reference to Exhibit 3 to
the Annual Report on Form 10-K dated December 31, 2008.
|
|
11
|
Statement
re: Computation of Per Share Earnings - The computation of basic
and diluted earnings per share is included in Note 11 of the
Company's Notes to Consolidated Financial Statements included in “ITEM 1.
FINANCIAL STATEMENTS” of this document.
|
|
15
|
Acknowledgment
of Independent Registered Public Accounting Firm.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
(1)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
(1)
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
99
|
Report
of Independent Registered Public Accounting Firm.
|
|
|
(1)
|
Furnished,
not filed
|
|
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.
|
|
|
|
/s/
PAUL: F. CLEMENS
|
|
Paul
F. Clemens
Executive
Vice President, Chief Financial Officer, and Principal Accounting
Officer*
|
|
Date:
November 6, 2009
* Duly
authorized to sign on behalf of the Registrant.