MB Financial, Inc. Reports Net Income, Strong Liquidity and Strong Capital Position
CHICAGO, Oct 21, 2009 (BUSINESS WIRE) --
Company: MB Financial, Inc. (MBFI)
MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A ("the Bank" or "MB Financial Bank"), announced today third quarter results for 2009. The words "MB Financial," "the Company," "we," "our" and "us" refer to MB Financial, Inc. and its wholly owned subsidiaries, unless indicated otherwise. We had net income of $7.4 million for the third quarter of 2009 compared to net income of $13.2 million in the third quarter of 2008, and net income of $4.3 million for the second quarter of 2009.
Mitchell Feiger, President and Chief Executive Officer of the Company said, "During the quarter we were pleased to complete two FDIC assisted acquisitions as well as a $201 million common stock capital raise. These transactions further enhance our strong liquidity and capital position, and position us for continued growth."
Key items for the quarter were as follows:
Significant Transactions During the Quarter:
-- On August 10, 2009, the Company sold its merchant card processing business. The Company recognized a pre-tax gain resulting from the sale of the merchant card processing business of $10.2 million in the third quarter of 2009. The Company also entered into a revenue sharing agreement with the purchaser to offer merchant card processing services to our bank customers on a going forward basis. In accordance with U.S. GAAP, the results of operations from the Company's merchant card processing business are reflected in the Company's statements of income as "discontinued operations." We expect that the impact of the sale of our merchant card processing business on our future earnings per share and operating results will be immaterial.
-- On September 4, 2009, MB Financial Bank assumed $136 million of in-market deposits of Oak Forest, Illinois-based InBank, and acquired loans of approximately $100 million, net of a $55.8 million discount, in a transaction facilitated by the FDIC. This transaction generated a pre-tax gain of $10.2 million, based on preliminary estimates.
-- On September 11, 2009, MB Financial Bank assumed $6.5 billion in deposits of Chicago-based Corus Bank ("Corus") in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC). For additional information regarding Corus deposits see "Funding Mix and Liquidity" section below.
-- On September 17, 2009, the Company announced that it completed a public offering of its common stock by issuing 12,578,125 shares of common stock for aggregate gross proceeds of $201.3 million. The net proceeds to the Company after deducting underwriting discounts and commissions and estimated offering expenses are expected to be approximately $190.9 million. With the proceeds from this offering and the proceeds received by the Company from issuances pursuant to its Dividend Reinvestment and Stock Purchase Plan, the Company has received aggregate gross proceeds from "Qualified Equity Offerings" in excess of the $196.0 million aggregate liquidation preference amount of its Series A preferred stock issued under the U.S. Treasury Department's Capital Purchase Program. As a result, the number of shares of the Company's common stock underlying the warrant issued to the Treasury under the Capital Purchase Program has been reduced by 50%, from 1,012,048 shares to 506,024 shares.
Acquisitions Further Enhanced Our Strong Liquidity Position:
-- Our loan to deposit ratio was approximately 57% as of September 30, 2009, compared to 103% as of June 30, 2009 and 96% as of December 31, 2008. We expect that this ratio will increase as out-of-market Corus related deposits are redeemed and run-off, but will remain well below historical levels. At September 30, 2009, the Company had approximately $1.9 billion remaining in out-of-market deposits assumed in the Corus transaction. Excluding the approximately $1.9 billion of out-of-market deposits, our loan to deposit ratio as of September 30, 2009 was 68%. We define "out-of-market" deposits as deposits held by customers who do not reside in zip codes inside or adjacent to our branch footprint.
-- Our percentage of core funding to total funding increased from 73% at September 30, 2008 to 89% at September 30, 2009, which includes the approximately $1.9 billion in out-of-market assumed Corus deposits in core funding.
Capital Raise Further Enhanced Our Strong Capital Position:
-- MB Financial Bank continues to significantly exceed the "Well-Capitalized" threshold established under the regulations of the Office of the Comptroller of the Currency. At September 30, 2009, MB Financial, Inc.'s total risk-based capital ratio was 15.36%, Tier 1 capital to risk-weighted assets ratio was 13.42%, Tier 1 capital to average asset ratio was 10.60% and Tier 1 common capital to risk-weighted assets was 8.72%, compared to 13.89%, 11.88%, 9.55%, and 6.66%, respectively, at June 30, 2009. Our common stock capital raise significantly increased our capital position. As of September 30, 2009, total capital was approximately $396.1 million in excess of the 10% "Well-Capitalized" threshold.
-- Our tangible common equity to risk weighted assets ratio was 9.01% at September 30, 2009, compared to 6.79% at June 30, 2009. At September 30, 2009, we consider our tangible common equity to risk weighted assets ratio to be more meaningful than our tangible common equity to tangible assets ratio, due to the large amount of out-of-market deposits and corresponding interest earning assets (in the form of cash on deposit with the Federal Reserve) that were outstanding as of September 30, 2009.
Credit Quality -- Increased Reserves, Strong Loss Reserve Coverage Ratios, Increased Loan Charge-Offs:
-- Our provision for loan losses was $45.0 million for the third quarter of 2009, while our net charge-offs were $37.1 million. For the second quarter of 2009, our provision for loan losses and net charge-offs were $27.1 million and $25.0 million, respectively.
-- Our non-performing loans to total loans increased to 4.41% as of September 30, 2009, compared to 3.54% as of June 30, 2009. The percentage of the allowance for loan losses to non-performing loans decreased from 79.65% as of June 30, 2009 to 66.02% as of September 30, 2009.
-- Our non-performing assets to total assets decreased to 2.19% as of September 30, 2009, compared to 2.92% as of June 30, 2009. The decrease was primarily a result of the significant increase to total assets as a result of the Corus transaction.
-- Our potential problem loans to total loans decreased to 3.94% as of September 30, 2009, compared to 4.05% as of June 30, 2009.
-- We increased our allowance for loan losses to total loans to 2.91% as of September 30, 2009, compared to 2.82% as of June 30, 2009.
For purposes of the second and third bullet points above, non-performing loans and non-performing assets exclude loans held for sale and certain purchased credit-impaired loans that we acquired in the InBank transaction, as well as credit-impaired loans that we acquired in the Heritage Community Bank transaction (an FDIC-assisted transaction completed in the first quarter of 2009). These purchased credit-impaired loans are accounted for on a pool basis, and the pools are considered to be performing. Additionally, non-performing assets excludes other real estate owned related to FDIC transactions.
RESULTS OF OPERATIONS
Third Quarter Results
Net Interest Income
Net interest income on a tax equivalent basis increased $1.4 million from the second quarter of 2009 to the third quarter of 2009. Our net interest margin, on fully tax equivalent basis, decreased from 3.21% in the second quarter of 2009 to 2.85% in the third quarter of 2009. Our assumption of Corus deposits and acquisition of interest earning Corus assets negatively impacted our net interest margin by approximately 60 basis points or $2.3 million. Excluding the Corus transaction, our net interest margin on a fully tax equivalent basis would have been approximately 3.45%, or 24 basis points greater than for the second quarter of 2009. At September 30, 2009, we had approximately $2.5 billion of excess interest earning deposits with banks (cash on deposit at the Federal Reserve). We expect to utilize this excess cash to clear the outstanding redemption checks issued for the out-of-market CDs assumed in the Corus transaction, and to fund anticipated withdrawals of out-of-market Corus money market accounts, as well as some in-market run-off of previously higher rate deposits assumed in the Corus and InBank transactions.
Our non-performing loans negatively impacted our net interest margin during the third quarter of 2009, the second quarter of 2009 and the third quarter of 2008 by approximately 17 basis points, 20 basis points and 10 basis points, respectively.
See the supplemental net interest margin table for further detail.
Other Income (in thousands):
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Core other income:
Loan service fees $ 1,565 $ 1,782 $ 1,843 $ 1,850 $ 2,385 $ 5,190 $ 7,330
Deposit service fees 7,912 6,978 6,399 7,478 7,330 21,289 20,747
Lease financing, net 3,937 4,473 4,319 4,604 4,533 12,729 12,369
Brokerage fees 1,004 1,252 1,078 968 1,177 3,334 3,349
Trust and asset management fees 3,169 3,262 2,815 2,784 3,276 9,246 9,085
Increase in cash surrender value of life insurance 664 670 456 570 1,995 1,790 4,729
Other operating income 2,078 1,851 2,323 1,442 1,553 6,252 4,719
Total core other income 20,329 20,268 19,233 19,696 22,249 59,830 62,328
Non-core other income(1)
Net gain on sale of investment securities 3 4,093 9,694 24 - 13,790 1,106
Net gain (loss) on sale of other assets 12 (38) 1 (874) 26 (25) (230)
Acquisition related gains 10,222 - - - - 10,222 -
Increase (decrease) in market value of assets held in
trust for deferred compensation(A) 334 602 (526) (1,243) (395) 410 (415)
Total non-core other income 10,571 4,657 9,169 (2,093) (369) 24,397 461
Total other income(2) $ 30,900 $ 24,925 $ 28,402 $ 17,603 $ 21,880 $ 84,227 $ 62,789
(1) Letters denote the corresponding line items where these non-core other income items reside in the consolidated statements of income as follows: A -- Other operating income.
(2) During the third quarter of 2009, the Company sold its merchant card processing business. In accordance with U.S. GAAP, the results of operations from the Company's merchant card processing business are reflected in the Company's statements of income as discontinued operations. Therefore, income from this business is excluded from the table above.
Core other income remained consistent with the second quarter of 2009. Core deposit service fees increased during the quarter primarily due an increase in commercial deposit fees mostly due to the Corus transaction, and increases in NSF and overdraft fees as a result of changes in customer behavior. Non-core other income was impacted by a $10.2 million gain recorded on the InBank transaction as a result of assets acquired exceeding liabilities assumed, based on preliminary estimates.
Core other income decreased by $2.5 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Core loan service fees decreased, primarily due to a decrease in letter of credit and prepayment fees. The decrease in cash surrender value of life insurance was primarily due to a decrease in overall interest rates from the nine months ended September 30, 2008 to the nine months ended September 30, 2009, and $1.4 million of death benefits on bank owned life insurance policies that we recognized during the nine months ended September 30, 2008. Core other operating income increased primarily due to an increase in gains recognized on the sale of loans and other real estate owned during the nine months ended September 30, 2009. As in the three-month period, non-core other income also was impacted during the nine months ended September 30, 2009 by the $10.2 million gain generated by the InBank transaction, as well a net gain on sale of investment securities of $13.8 million compared with a net gain on sale of investment securities of $1.1 million during the nine months ended September 30, 2008.
Other Expense (in thousands):
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Core other expense:
Salaries and employee benefits $ 30,862 $ 28,586 $ 27,405 $ 25,300 $ 29,534 $ 86,853 $ 85,193
Occupancy and equipment expense 7,803 7,151 7,682 7,298 7,107 22,636 21,574
Computer services expense 2,829 2,013 2,287 1,973 1,840 7,129 5,419
Advertising and marketing expense 1,296 892 1,314 903 1,451 3,502 4,186
Professional and legal expense 1,126 1,120 969 1,117 884 3,215 1,993
Brokerage fee expense 478 575 393 476 564 1,446 1,453
Telecommunication expense 812 744 750 664 620 2,306 2,154
Other intangibles amortization expense 966 997 878 913 913 2,841 2,641
FDIC insurance premiums 3,206 2,939 2,668 1,188 292 8,813 689
Other operating expenses 5,446 5,039 5,192 5,422 4,963 15,677 14,492
Total core other expense 54,824 50,056 49,538 45,254 48,168 154,418 139,794
Non-core other expense (1)
FDIC special assessment(A) - 3,850 - - - 3,850 -
Impairment charges 4,000 - - - - 4,000 -
Increase in market value of assets held in
trust for deferred compensation(B) 334 602 (526) (1,243) (395) 410 (415)
Total non-core other expense 4,334 4,452 (526) (1,243) (395) 8,260 (415)
Total other expense(2) $ 59,158 $ 54,508 $ 49,012 $ 44,011 $ 47,773 $ 162,678 $ 139,379
(1) Letters denote the corresponding line items where these non-core other expense items reside in the consolidated statements of income as follows: A -- FDIC insurance premiums, B -- Salaries and employee benefits.
(2) During the third quarter of 2009, the Company sold its merchant card processing business. In accordance with U.S. GAAP, the results of operations from the Company's merchant card processing business are reflected in the Company's statements of income as discontinued operations. Therefore, expenses from this business are excluded from the table above.
Core other expense increased $4.8 million from the second quarter of 2009 to the third quarter of 2009. Our InBank and Corus Bank transactions increased core salaries and employee benefits expense, core occupancy and equipment expense, core computer services expense, and core FDIC insurance premiums by approximately $1.4 million, $384 thousand, $765 thousand and $520 thousand, respectively. Additionally, salaries and employee benefits expense increased from the second quarter of 2009 due to one additional day during the third quarter compared to the second quarter and annual hourly employee pay increases during the third quarter. Non-core other expense was impacted by an impairment charge related to certain branch facilities. During the third quarter of 2009, the Company conducted an impairment review of branch office locations to be consolidated due to the Company's recent acquisitions. As a result, the Company recognized a $4.0 million impairment charge related to three branches in the third quarter of 2009.
Core other expense increased $14.6 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due to an $8.1 million increase in FDIC insurance premiums. This was due to our FDIC credits being fully utilized during the fourth quarter of 2008 combined with the FDIC increasing its assessment rate during the nine months ended September 30, 2009. Our Heritage Community Bank, InBank and Corus Bank transactions increased core salaries and employee benefits expense, core occupancy and equipment expense, and core computer services expense by approximately $2.4 million, $808 thousand and $1.2 million, respectively. Professional and legal expense increased primarily due to loan collection costs during the nine months ended September 30, 2009. As in the three-month period, non-core other expense also was impacted during the nine months ended September 30, 2009 by the $4.0 million impairment charge relating to the consolidation of the three branch offices.
Income Taxes
In the third quarter of 2009, the Company increased the amount of benefit recognized with respect to certain previously identified uncertain tax positions as a result of certain developments in pending tax audits. The increase in recognized tax benefit resulted in a $7.8 million increase in income tax benefit in the third quarter of 2009.
LOAN PORTFOLIO
The following table sets forth the composition of the loan portfolio, excluding loans held for sale, as of the dates indicated (dollars in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Commercial related credits:
Commercial loans $ 1,422,989 22% $ 1,411,520 22% $ 1,507,616 23% $ 1,522,380 24% $ 1,510,620 25%
Commercial loans collateralized by assign-
ment of lease payments (lease loans) 881,963 13% 853,981 13% 738,527 12% 649,918 11% 609,101 10%
Commercial real estate 2,446,909 38% 2,420,227 38% 2,359,868 37% 2,353,261 38% 2,275,183 37%
Construction real estate 697,232 11% 722,399 11% 764,876 12% 757,900 12% 756,694 12%
Total commercial related credits 5,449,093 84% 5,408,127 84% 5,370,887 84% 5,283,459 85% 5,151,598 84%
Other loans:
Residential real estate 291,889 4% 273,196 4% 287,256 5% 295,336 5% 300,223 5%
Indirect motorcycle 159,273 2% 160,364 2% 157,081 2% 153,277 2% 155,045 3%
Indirect automobile 26,226 1% 29,341 1% 32,731 1% 35,950 1% 38,844 1%
Home equity 408,184 7% 409,147 6% 411,527 6% 401,029 6% 383,399 6%
Consumer loans 66,600 1% 61,385 1% 56,654 1% 59,512 1% 66,938 1%
Total other loans 952,172 15% 933,433 14% 945,249 15% 945,104 15% 944,449 16%
Gross loans excluding covered loans 6,401,265 99% 6,341,560 98% 6,316,136 99% 6,228,563 100% 6,096,047 100%
Covered loans (1) 91,230 1% 96,629 2% 91,586 1% - - - -
Gross loans 6,492,495 100% 6,438,189 100% 6,407,722 100% 6,228,563 100% 6,096,047 100%
Allowance for loan losses (189,232) (181,356) (179,273) (144,001) (88,863)
Net loans $ 6,303,263 $ 6,256,833 $ 6,228,449 $ 6,084,562 $ 6,007,184
(1) Covered loans refer to loans we acquired during the first quarter of 2009 in the Heritage Community Bank transaction that are subject to a loss-sharing agreement with the FDIC.
Total loans grew by 3% on an annualized basis from the second quarter of 2009 to the third quarter of 2009, and 7% from September 30, 2008.
The following table sets forth the composition of construction real estate loans by geographic location, excluding covered loans and loans held for sale, as of September 30, 2009 (dollars in thousands):
Geographical Location
Suburban Illinois
Chicago and Northwest Indiana Other States Total
% of Total % of Total % of Total % of Total
Amount Loans Amount Loans Amount Loans Amount Loans
Residential construction related credits
Unimproved land $ - - $ 9,451 0.1% $ 3,885 0.0% $ 13,336 0.1%
Improved lots and single family construction 39,448 0.6% 91,552 1.4% 7,599 0.1% 138,599 2.1%
Condominiums 100,378 1.5% 52,108 0.8% 2,835 0.0% 155,321 2.3%
Apartments 28,983 0.4% 11,941 0.2% 280 0.0% 41,204 0.6%
Townhomes 5,141 0.1% 27,716 0.4% 7,661 0.1% 40,518 0.6%
Total residential construction related credits 173,950 2.6% 192,768 2.9% 22,260 0.2% 388,978 5.9%
Commercial construction related credits
Unimproved land $ - 0.0% $ 2,487 0.0% $ - - $ 2,487 0.0%
Improved lots and construction 7,769 0.1% 56,452 0.9% - - 64,221 1.0%
Industrial 7,500 0.1% 12,701 0.2% 11,475 0.2% 31,676 0.5%
Office, retail and hotel 14,832 0.2% 91,587 1.4% 21,255 0.3% 127,674 1.9%
Schools 16,000 0.2% 17,700 0.3% - - 33,700 0.5%
Medical - - 15,000 0.00 15,405 0.2% 30,405 0.4%
Total commercial construction related credits 46,101 0.6% 195,927 3.0% 48,135 0.7% 290,163 4.5%
Total construction loans, excluding loans acquired
in the InBank transaction $ 220,051 3.2% $ 388,695 5.9% $ 70,395 0.9% $ 679,141 10.4%
Construction loans acquired in the InBank transaction 18,091 0.3%
Total construction loans $ 697,232 10.7%
The following table sets forth the composition of construction real estate loans by risk category, excluding covered loans and loans held for sale, as of September 30, 2009 (dollars in thousands):
Risk Category
Potential Problem and
Non-Performing and Other Watch
Loans (NPLs) List Loans Pass Loans Total
% of Loan % of Loan % of Loan % of Loan
Balance Balance Balance Balance
Amount Reserved Amount Reserved Amount Reserved Amount Reserved
Residential construction related credits
Unimproved land $ 6,151 44% $ 3,364 2% $ 3,821 1% $ 13,336 21%
Improved lots and single family construction 64,357 31% 36,748 7% 37,494 1% 138,599 16%
Condominiums 52,039 24% 46,904 5% 56,378 1% 155,321 10%
Apartments 4,140 31% 12,986 6% 24,078 1% 41,204 6%
Townhomes 26,706 37% 2,038 2% 11,774 1% 40,518 25%
Total residential construction related credits 153,393 30% 102,040 6% 133,545 1% 388,978 14%
Commercial construction related credits
Unimproved land $ 1,493 40% $ - - $ 994 1% $ 2,487 24%
Improved lots and construction 22,897 19% 9,370 6% 31,954 1% 64,221 8%
Industrial 1,875 - 8,640 6% 21,161 2% 31,676 3%
Office, retail and hotel 23,686 34% 25,161 7% 78,827 1% 127,674 9%
Schools - - - - 33,700 2% 33,700 2%
Medical - - - - 30,405 4% 30,405 4%
Total commercial construction related credits 49,951 26% 43,171 7% 197,041 2% 290,163 7%
Total construction loans, excluding loans acquired
in the InBank acquisition $ 203,344 29% $ 145,211 6% $ 330,586 1% $ 679,141 11%
Construction loans acquired in the InBank acquisition(1) 18,091 0%
Total construction loans $ 697,232 11%
(1) Net of loan discount of $9.6 million.
After factoring in partial charge-offs taken on non-performing residential construction loans, the percentage of loan balance reserved increases from 30% to 35%. Factoring in partial charge-offs taken on non-performing construction loans in total, the percentage of loan balance reserved increases from 29% to 34%.
ASSET QUALITY
The following table presents a summary of total performing loans, excluding covered loans and loans held for sale, greater than 30 days and less than 90 days past due as of the dates indicated (dollars in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
30 - 59 Days Past Due $ 35,943 $ 15,574 $ 21,600 $ 14,372 $ 22,583
60 - 89 Days Past Due 15,109 4,838 4,809 8,575 14,043
$ 51,052 $ 20,412 $ 26,409 $ 22,947 $ 36,626
Approximately $22.6 million of performing loans past due are classified as potential problem loans (defined below) as of September 30, 2009, compared to $5.1 million as of June 30, 2009.
The following table presents a summary of non-performing assets, excluding loans held for sale, as of the dates indicated (dollar amounts in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
Non-performing loans:
Non-accrual loans (1) $ 286,623 $ 227,681 $ 229,537 $ 145,936 $ 115,716
Loans 90 days or more past due, still accruing interest - - - - 1,490
Total non-performing loans 286,623 227,681 229,537 145,936 117,206
Other real estate owned (2) 22,612 17,111 2,500 4,366 3,821
Repossessed vehicles 271 203 245 356 108
Total non-performing assets $ 309,506 $ 244,995 $ 232,282 $ 150,658 $ 121,135
Specific allowance on non-performing loans $ 83,650 $ 77,186 $ 81,540 $ 52,112 $ 30,357
Partial charge-offs taken on non-performing loans 46,258 30,995 23,706 17,429 13,477
Total specific allowance and partial charge-offs taken
on non-performing loans $ 129,908 $ 108,181 $ 105,246 $ 69,541 $ 43,834
Specific allowance and partial charge-offs taken as a
percentage of non-performing loans plus partial
charge-offs taken 39.03% 41.82% 41.56% 42.57% 33.54%
Total non-performing loans to total loans 4.41% 3.54% 3.58% 2.34% 1.92%
Total non-performing assets to total assets 2.19% 2.92% 2.57% 1.71% 1.45%
Allowance for loan losses to non-performing loans(1) 66.02% 79.65% 78.10% 98.67% 75.82%
Allowance for loan losses to non-performing loans,
including partial charge-offs taken(1) 70.74% 82.09% 80.15% 98.82% 78.31%
(1) Excludes purchased credit-impaired loans that were acquired as part of our InBank and Heritage Community Bank transactions. See definition of "purchased credit-impaired loans" below.
(2) Excludes other real estate owned that is related to FDIC transactions.
Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.
At September 30, 2009, the composition of other real estate owned was primarily improved lots and single family construction projects.
The following table presents data related to non-performing loans, by dollar amount and category at September 30, 2009 (dollar amounts in thousands):
Commercial and Lease Construction Real Estate Commercial Real Estate Consumer
Loans Loans Loans Loans Total Loans
Number of Number of Number of
Borrowers Amount Borrowers Amount Borrowers Amount Amount Amount
$10.0 million or more - $ - 5 $ 81,073 1 $ 10,297 $ - $ 91,370
$5.0 million to $9.9 million - - 9 68,237 1 7,216 - 75,453
$1.5 million to $4.9 million 2 6,002 15 41,065 5 12,688 1,703 61,458
Under $1.5 million 38 11,894 21 12,969 48 18,227 15,252 58,342
40 $ 17,896 50 $ 203,344 55 $ 48,428 $ 16,955 $ 286,623
Percentage of individual loan category 0.78% 29.16% 1.98% 1.78% 4.41%
The following table presents data related to non-performing loans, by dollar amount and category at June 30, 2009 (dollar amounts in thousands):
Commercial and Lease Construction Real Estate Commercial Real Estate Consumer
Loans Loans Loans Loans Total Loans
Number of Number of Number of
Borrowers Amount Borrowers Amount Borrowers Amount Amount Amount
$10.0 million or more - $ - 2 $ 32,456 1 $ 13,627 $ - $ 46,083
$5.0 million to $9.9 million 1 7,530 8 60,824 - - - 68,354
$1.5 million to $4.9 million 6 18,571 12 42,950 2 6,103 1,875 69,499
Under $1.5 million 29 10,086 15 11,220 33 10,558 11,881 43,745
36 $ 36,187 37 $ 147,450 36 $ 30,288 $ 13,756 $ 227,681
Percentage of individual loan category 1.60% 20.41% 1.25% 1.47% 3.54%
The increase in non-performing loans from the second quarter of 2009 to the third quarter of 2009 was primarily due to non-performing construction real estate loans and non-performing commercial real estate loans. Non-performing commercial real estate loans increased primarily due to three credits migrating to non-performing loans from potential problem loans. Non-performing construction real estate loans increased primarily due to four credits migrating to non-performing loans from potential problem loans. Additions to non-performing loans were partially offset by paydowns, and charge-offs during the third quarter.
We define potential problem loans as performing loans rated substandard that do not meet the definition of a non-performing loan (See "Asset Quality" section above for non-performing loans). We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amount of potential problem loans was $255.6 million, or 3.94% of total loans, as of September 30, 2009, compared to $261.0 million, or 4.05% of total loans, as of June 30, 2009.
"Purchased credit-impaired loans" refer to certain loans acquired in the InBank and Heritage Community Bank transactions, discussed above, for which deterioration in credit quality occurred before the Company's acquisition date. Upon acquisition, these loans were recorded at fair value and accrete interest income over the estimated life of the loan when cash flows are reasonably estimable, even if the underlying loans are contractually past due. Acquisition fair value incorporates the Company's estimate, as of the acquisition date, of credit losses over the remaining life of the portfolio. No allowance for loan losses has been recorded for these loans.
Below is a reconciliation of the activity in our allowance for loan losses for the periods indicated (dollar amounts in thousands):
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
Balance at the beginning of period $ 181,356 $ 179,273 $ 144,001 $ 88,863 $ 82,544
Provision for loan losses 45,000 27,100 89,700 72,581 18,400
Charge-offs:
Commercial loans (20,037) (6,636) (10,548) (1,914) (6,231)
Commercial loans collateralized by assignment
of lease payments (lease loans) (269) (1,385) (3,420) (440) (482)
Commercial real estate loans (2,006) (817) (24,190) (7,076) (2,292)
Construction real estate (14,914) (14,743) (14,697) (7,144) (2,110)
Residential real estate (290) (358) (178) (117) (315)
Indirect vehicle (937) (759) (1,065) (615) (499)
Home equity (650) (953) (604) (503) (628)
Consumer loans (358) (132) (155) (216) (167)
Total charge-offs (39,461) (25,783) (54,857) (18,025) (12,724)
Recoveries:
Commercial loans 71 45 31 354 132
Commercial loans collateralized by assignment
of lease payments (lease loans) - - - 67 -
Commercial real estate loans 5 5 18 - 257
Construction real estate 2,042 511 250 - 40
Residential real estate 9 28 3 17 1
Indirect vehicle 194 151 111 116 152
Home equity 13 20 11 17 48
Consumer loans 3 6 5 11 13
Total recoveries 2,337 766 429 582 643
Total net charge-offs (37,124) (25,017) (54,428) (17,443) (12,081)
Balance $ 189,232 $ 181,356 $ 179,273 $ 144,001 $ 88,863
Total loans excluding loans held for sale $ 6,492,495 $ 6,438,189 $ 6,407,722 $ 6,228,563 $ 6,096,047
Average loans, excluding loans held for sale $ 6,452,094 $ 6,441,050 $ 6,307,496 $ 6,166,152 $ 6,026,179
Ratio of allowance for loan losses to total loans, excluding loans 2.91% 2.82% 2.80% 2.31% 1.46%
held for sale
Net loan charge-offs to average loans, excluding loans held for sale 2.28% 1.54% 3.42% 1.13% 0.80%
(annualized)
INVESTMENT SECURITIES AVAILABLE FOR SALE
The following table sets forth the fair value, amortized cost, and total unrealized gain (loss) of our investment securities available for sale, by type (in thousands):
At September 30, At June 30, At March 31, At December 31, At September 30,
2009 2009 2009 2008 2008
Fair Value
U.S. Treasury securities $ - $ - $ 11,545 $ - $ -
Government sponsored agencies and enterprises 323,969 51,088 108,227 179,373 209,350
Bank notes issued through the TLGP(1) 1,578,174 - - - -
States and political subdivisions 396,124 394,343 424,541 427,986 430,120
Mortgage-backed securities 1,636,275 428,962 539,953 690,298 569,947
Corporate bonds 56,599 6,370 30,726 34,565 6,990
Equity securities 3,839 3,707 3,681 3,607 3,524
Debt securities issued by foreign governments - 250 302 301 298
Total fair value $ 3,994,980 $ 884,720 $ 1,118,975 $ 1,336,130 $ 1,220,229
Amortized cost
U.S. Treasury securities $ - $ - $ 11,546 $ - $ -
Government sponsored agencies and enterprises 322,620 49,753 105,354 171,385 206,429
Bank notes issued through the TLGP(1) 1,578,203 - - - -
States and political subdivisions 372,772 389,041 416,329 417,595 428,610
Mortgage-backed securities 1,625,378 421,172 531,547 682,692 568,054
Corporate bonds 56,655 6,370 31,487 34,546 7,764
Equity securities 3,742 3,668 3,631 3,595 3,557
Debt securities issued by foreign governments - 250 302 301 301
Total amortized cost $ 3,959,370 $ 870,254 $ 1,100,196 $ 1,310,114 $ 1,214,715
Unrealized gain (loss)
U.S. Treasury securities $ - $ - $ (1) $ - $ -
Government sponsored agencies and enterprises 1,349 1,335 2,873 7,988 2,921
Bank notes issued through the TLGP(1) (29) - - - -
States and political subdivisions 23,352 5,302 8,212 10,391 1,510
Mortgage-backed securities 10,897 7,790 8,406 7,606 1,893
Corporate bonds (56) - (761) 19 (774)
Equity securities 97 39 50 12 (33)
Debt securities issued by foreign governments - - - - (3)
Total unrealized gain $ 35,610 $ 14,466 $ 18,779 $ 26,016 $ 5,514
(1) Represents bank notes that are guaranteed by the FDIC under the Temporary Liquidity Guarantee Program (TLGP).
The increase in government sponsored agencies and the addition of bank notes issued through the TLGP was a result of the acquisition of certain assets of Corus. A majority of these investment securities are expected to be sold to fund the redemption/run-off of the remaining out-of-market Corus certificates of deposit and money market accounts. The increase in mortgage-backed securities was a result of deploying cash acquired in the Corus transaction.
We do not have any meaningful direct or indirect holdings of subprime residential mortgage loans, home equity lines of credit, or any Fannie Mae or Freddie Mac preferred or common equity securities in our investment portfolio. Additionally, more than 99% of our mortgage-backed securities are agency guaranteed.
We have maintained our disciplined investment management philosophy and have avoided the types of problem securities that have caused many financial institutions to incur large losses.
FUNDING MIX AND LIQUIDITY
The following table shows the composition of our core and wholesale funding resources as of the dates indicated (dollars in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Core funding:
Non-interest bearing deposits $ 2,925,714 24% $ 1,152,274 16% $ 1,018,849 13% $ 960,117 13% $ 935,153 13%
Money market and NOW accounts 3,269,505 26% 1,531,149 21% 1,762,340 22% 1,465,436 19% 1,326,474 18%
Savings accounts 570,974 5% 447,670 6% 440,326 6% 367,684 5% 375,567 5%
Certificates of deposit 3,968,177 32% 2,383,717 33% 2,690,087 33% 2,604,565 34% 2,523,198 34%
Customer repurchase agreements 236,162 2% 248,494 4% 273,718 4% 282,831 4% 260,087 3%
Total core funding 10,970,532 89% 5,763,304 80% 6,185,320 78% 5,680,633 75% 5,420,479 73%
Wholesale funding:
Public funds deposits 112,554 1% 107,752 1% 166,501 2% 232,994 3% 211,250 3%
Brokered deposit accounts 583,143 5% 610,963 8% 818,604 10% 864,775 11% 997,767 13%
Other short-term borrowings 200,842 2% 251,773 4% 200,780 3% 205,787 2% 125,000 2%
Long-term borrowings 291,315 2% 301,691 4% 312,246 4% 421,466 6% 429,548 6%
Subordinated debt 50,000 0% 50,000 1% 50,000 1% 50,000 1% 50,000 1%
Junior subordinated notes issued
to capital trusts 158,712 1% 158,748 2% 158,784 2% 158,824 2% 158,872 2%
Total wholesale funding 1,396,566 11% 1,480,927 20% 1,706,915 22% 1,933,846 25% 1,972,437 27%
Total funding $ 12,367,098 100% $ 7,244,231 100% $ 7,892,235 100% $ 7,614,479 100% $ 7,392,916 100%
The increase in deposit balances from June 30, 2009 to September 30, 2009 was primarily a result of assuming the deposits of Corus and InBank. The following table presents by deposit category, the amounts of deposits assumed in the Corus transaction as of the dates indicated (dollar amounts in thousands):
September 11, September 30, October 19,
2009 2009 2009
Non-interest bearing deposits $ 367,414 $ 1,699,913 $ 502,798
NOW and money market accounts 1,536,315 1,407,440 1,301,227
Savings deposits 132,407 96,813 96,380
Certificates of deposit 4,440,320 1,641,898 1,448,137
Contractual balance of deposits acquired $ 6,476,456 $ 4,846,064 $ 3,348,542
Shortly after the transaction closing on September 11, 2009, we issued checks to almost all out-of-market Corus certificate of deposit holders of approximately $2.4 billion for the redemption of these deposits. Approximately $1.0 billion of the holders cashed their redemption checks prior to September 30, 2009, with an additional $1.2 billion cashed through October 19, 2009. Interest rates on some in-market Corus certificates of deposits were reduced shortly after the transaction closing, resulting in additional run-off of certificates of deposit. Additionally, interest rates on out-of-market Corus money market accounts were reduced to 5 basis points in September 2009. Run-off of these accounts through October 16, 2009 has been approximately $200 million. We estimate that an additional $300 million in out-of-market Corus money market accounts will run-off during the fourth quarter of 2009.
FORWARD-LOOKING STATEMENTS
When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission, in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "believe," "will," "should," "will likely result," "are expected to," "will continue" "is anticipated," "estimate," "project," "plans," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.
Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected cost savings, synergies and other benefits from our merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the possibility that the expected benefits of the Corus Bank and InBank transactions will not be realized, whether because of the possibility that the planned run-off of deposits and balance sheet shrinkage following the Corus Bank transaction might not occur under the time frames we anticipate or at all, or due to other factors; (3) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans we originate and loans we acquire from other financial institutions; (4) results of examinations by the Office of Comptroller of Currency and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (10) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (11) our ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation; (15) new legislation or regulatory changes, including but not limited to changes in federal and/or state tax laws or interpretations thereof by taxing authorities and other governmental initiatives affecting the financial services industry; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.
We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.
TABLES TO FOLLOW
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
As of the dates indicated
(Amounts in thousands, except per share data)
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
ASSETS
Cash and due from banks $ 125,010 $ 103,276 $ 108,416 $ 79,824 $ 118,191
Interest earning deposits with banks 2,549,562 13,440 416,404 261,834 6,043
Total cash and cash equivalents 2,674,572 116,716 524,820 341,658 124,234
Investment securities:
Securities available for sale, at fair value 3,994,980 884,720 1,118,975 1,336,130 1,220,229
Non-marketable securities - FHLB and FRB Stock 70,031 66,994 65,752 64,246 63,913
Total investment securities 4,065,011 951,714 1,184,727 1,400,376 1,284,142
Loans held for sale 6,250 4,008 18,406 - -
Loans:
Total loans excluding covered loans 6,401,265 6,341,560 6,316,136 6,228,563 6,096,047
Covered loans(1) 91,230 96,629 91,586 - -
Total loans 6,492,495 6,438,189 6,407,722 6,228,563 6,096,047
Less allowance for loan loss 189,232 181,356 179,273 144,001 88,863
Net loans 6,303,263 6,256,833 6,228,449 6,084,562 6,007,184
Lease investments, net 135,201 114,570 117,648 125,034 117,474
Premises and equipment, net 178,586 184,129 185,941 186,474 185,556
Cash surrender value of life insurance 121,278 120,614 119,943 119,526 120,481
Goodwill, net 387,069 387,069 387,069 387,069 387,069
Other intangibles, net 39,357 25,996 26,993 25,776 26,689
Other real estate owned 22,612 17,111 2,500 4,366 3,821
Other real estate owned related to FDIC transactions 7,695 1,891 1,197 - -
FDIC indemnification asset(1) 31,353 43,162 65,565 - -
Other assets 162,965 178,252 161,874 144,922 101,959
Total assets $ 14,135,212 $ 8,402,065 $ 9,025,132 $ 8,819,763 $ 8,358,609
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 2,925,714 $ 1,152,274 $ 1,018,849 $ 960,117 $ 935,153
Interest bearing 8,504,353 5,081,251 5,877,859 5,535,454 5,434,256
Total deposits 11,430,067 6,233,525 6,896,708 6,495,571 6,369,409
Short-term borrowings 437,004 500,267 474,498 488,619 385,087
Long-term borrowings 341,315 351,691 362,246 471,466 479,548
Junior subordinated notes issued to capital trusts 158,712 158,748 158,784 158,824 158,872
Investment securities purchased but not yet settled 348,632 - 2,031 27,218 -
Accrued expenses and other liabilities 147,605 108,451 96,283 109,241 76,172
Total liabilities 12,863,335 7,352,682 7,990,550 7,750,939 7,469,088
Stockholders' Equity
Preferred stock 193,381 193,242 193,105 193,025 -
Common stock 507 375 375 375 375
Additional paid-in capital 648,230 447,770 446,909 445,692 443,380
Retained earnings 408,048 419,373 450,983 495,505 527,453
Accumulated other comprehensive income 21,723 8,824 11,456 16,910 3,584
Treasury stock (2,603) (22,795) (70,831) (85,312) (87,866)
Controlling interest stockholders' equity 1,269,286 1,046,789 1,031,997 1,066,195 886,926
Noncontrolling interest 2,591 2,594 2,585 2,629 2,595
Total stockholders' equity 1,271,877 1,049,383 1,034,582 1,068,824 889,521
Total liabilities and stockholders' equity $ 14,135,212 $ 8,402,065 $ 9,025,132 $ 8,819,763 $ 8,358,609
(1) "Covered loans" and "FDIC indemnification asset" refer to assets MB
Financial Bank acquired during the first quarter of 2009 in a
loss-share transaction facilitated by the Federal Deposit Insurance
Corporation. The "FDIC indemnification asset" represents amounts the
Company expects to collect from the FDIC under the loss-share
agreement.
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Interest income:
Loans $ 82,820 $ 82,941 $ 81,494 $ 87,474 $ 88,266 $ 247,255 $ 269,601
Investment securities available for sale:
Taxable 6,444 6,978 10,316 9,927 10,569 23,738 30,541
Nontaxable 3,585 3,796 3,875 3,944 3,977 11,256 11,558
Federal funds sold - - - 2 165 - 274
Other interest bearing accounts 760 149 130 188 84 1,039 279
Total interest income 93,609 93,864 95,815 101,535 103,061 283,288 312,253
Interest expense:
Deposits 27,662 28,977 33,579 38,996 37,216 90,218 112,374
Short-term borrowings 1,222 1,256 1,546 1,406 2,966 4,024 16,184
Long-term borrowings & junior subordinated notes 3,791 4,242 4,662 6,387 6,273 12,695 17,553
Total interest expense 32,675 34,475 39,787 46,789 46,455 106,937 146,111
Net interest income 60,934 59,389 56,028 54,746 56,606 176,351 166,142
Provision for loan losses 45,000 27,100 89,700 72,581 18,400 161,800 53,140
Net interest income (loss) after provision for loan losses 15,934 32,289 (33,672) (17,835) 38,206 14,551 113,002
Other income:
Loan service fees 1,565 1,782 1,843 1,850 2,385 5,190 7,330
Deposit service fees 7,912 6,978 6,399 7,478 7,330 21,289 20,747
Lease financing, net 3,937 4,473 4,319 4,604 4,533 12,729 12,369
Brokerage fees 1,004 1,252 1,078 968 1,177 3,334 3,349
Trust & asset management fees 3,169 3,262 2,815 2,784 3,276 9,246 9,085
Net gain on sale of investment securities 3 4,093 9,694 24 - 13,790 1,106
Increase in cash surrender value of life insurance 664 670 456 570 1,995 1,790 4,729
Net gain (loss) on sale of other assets 12 (38) 1 (874) 26 (25) (230)
Acquisition related gains 10,222 - - - - 10,222 -
Other operating income 2,412 2,453 1,797 199 1,158 6,662 4,304
Total other income 30,900 24,925 28,402 17,603 21,880 84,227 62,789
Other expense:
Salaries & employee benefits 31,196 29,188 26,879 24,057 29,139 87,263 84,778
Occupancy & equipment expense 7,803 7,151 7,682 7,298 7,107 22,636 21,574
Computer services expense 2,829 2,013 2,287 1,973 1,840 7,129 5,419
Advertising & marketing expense 1,296 892 1,314 903 1,451 3,502 4,186
Professional & legal expense 1,126 1,120 969 1,117 884 3,215 1,993
Brokerage fee expense 478 575 393 476 564 1,446 1,453
Telecommunication expense 812 744 750 664 620 2,306 2,154
Other intangible amortization expense 966 997 878 913 913 2,841 2,641
FDIC insurance premiums 3,206 6,789 2,668 1,188 292 12,663 689
Impairment charges 4,000 - - - - 4,000 -
Other operating expenses 5,446 5,039 5,192 5,422 4,963 15,677 14,492
Total other expense 59,158 54,508 49,012 44,011 47,773 162,678 139,379
Income (loss) before income taxes (12,324) 2,706 (54,282) (44,243) 12,313 (63,900) 36,412
Income tax benefit (15,183) (1,480) (26,025) (19,374) (743) (42,688) (4,181)
Income (loss) from continuing operations 2,859 4,186 (28,257) (24,869) 13,056 (21,212) 40,593
Income from discontinued operations, net of tax 4,585 129 152 48 98 4,866 392
Net income (loss) 7,444 4,315 (28,105) (24,821) 13,154 (16,346) 40,985
Preferred stock dividends and discount accretion 2,589 2,587 2,531 789 - 7,707 -
Net income (loss) available to common shareholders $ 4,855 $ 1,728 $ (30,636) $ (25,610) $ 13,154 $ (24,053) $ 40,985
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Common share data:
Basic earnings (loss) per common share from continuing operations $ 0.07 $ 0.12 $ (0.81) $ (0.72) $ 0.38 $ (0.58) $ 1.17
Basic earnings (loss) per common share from discontinued operations $ 0.12 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.13 $ 0.01
Impact of preferred stock dividends on basic earnings (loss) per $ (0.07) $ (0.07) $ (0.07) $ (0.02) $ 0.00 $ (0.21) $ 0.00
common share
Basis earnings (loss) per common share $ 0.12 $ 0.05 $ (0.88) $ (0.74) $ 0.38 $ (0.65) $ 1.18
Diluted earnings (loss) per common share from continuing operations $ 0.07 $ 0.12 $ (0.81) $ (0.72) $ 0.38 $ (0.57) $ 1.16
Diluted earnings (loss) per common share from discontinued operations $ 0.12 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.13 $ 0.01
Impact of preferred stock dividends on diluted earnings (loss) per $ (0.07) $ (0.07) $ (0.07) $ (0.02) $ 0.00 $ (0.21) $ 0.00
common share
Diluted earnings (loss) per common share $ 0.12 $ 0.05 $ (0.88) $ (0.74) $ 0.38 $ (0.65) $ 1.17
Weighted average common shares outstanding 39,104,894 35,726,879 34,914,012 34,777,651 34,732,633 36,597,280 34,682,065
Diluted weighted average common shares outstanding 39,299,168 35,876,483 35,053,352 35,164,585 35,074,297 36,751,738 35,060,745
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Performance Ratios:
Annualized return on average assets 0.30% 0.20% (1.30%) (1.15%) 0.63% (0.24%) 0.67%
Annualized return on average common equity 2.13 0.81 (14.01) (11.38) 5.91 (3.65) 6.22
Annualized cash return on average tangible common equity(1) 4.33 2.12 (25.25) (20.14) 11.31 (6.21) 11.86
Net interest rate spread 2.51 2.82 2.64 2.63 2.82 2.66 2.82
Cost of funds(2) 1.50 1.83 2.12 2.47 2.50 1.80 2.72
Efficiency ratio(3) 62.79 61.24 63.42 58.74 58.92 62.48 59.28
Annualized net non-interest expense to average assets(4) 1.14 1.37 1.40 1.28 1.23 1.30 1.28
Net interest margin 2.74 3.05 2.88 2.86 3.04 2.89 3.08
Tax equivalent effect 0.11 0.13 0.13 0.14 0.14 0.13 0.14
Net interest margin - fully tax equivalent basis(5) 2.85 3.18 3.01 3.00 3.18 3.02 3.22
Asset Quality Ratios:
Non-performing loans(6) to total loans 4.41% 3.54% 3.58% 2.34% 1.92% 4.41% 1.92%
Non-performing assets(6) to total assets 2.19 2.92 2.57 1.71 1.45 2.19 1.45
Allowance for loan losses to non-performing loans(6) 66.02 79.65 78.10 98.67 75.82 66.02 75.82
Allowance for loan losses to total loans 2.91 2.82 2.80 2.31 1.46 2.91 1.46
Net loan charge-offs to average loans (annualized) 2.28 1.54 3.42 1.13 0.80 2.43 0.67
Capital Ratios:
Tangible equity to assets(7) 6.26% 8.07% 7.31% 7.90% 6.10% 6.26% 6.10%
Tangible common equity to risk weighted assets(8) 9.01 6.79 6.49 7.10 7.36 9.01 7.36
Tangible common equity to assets(9) 4.85 5.65 5.07 5.65 6.10 4.85 6.10
Book value per common share(10) $21.48 $23.30 $23.82 $25.17 $25.51 $21.48 $25.51
Less: goodwill and other intangible assets, net of tax
benefit, per common share 8.22 10.99 11.45 11.56 11.60 8.22 11.60
Tangible book value per share(11) 13.26 12.30 12.37 13.61 13.91 13.26 13.91
Total capital (to risk-weighted assets) 15.36% 13.89% 13.48% 14.07% 11.65% 15.36% 11.65%
Tier 1 capital (to risk-weighted assets) 13.42 11.88 11.48 12.06 9.64 13.42 9.64
Tier 1 capital (to average assets) 10.60 9.55 9.25 9.85 8.00 10.60 8.00
Tier 1 common capital (to risk-weighted assets) 8.72 6.66 6.32 6.85 7.30 8.72 7.30
(1) Net cash flow available to common stockholders (net income available
to common stockholders or net income, as appropriate, plus other
intangibles amortization expense, net of tax benefit) / Average
tangible common equity (average common equity less average goodwill
and average other intangibles, net of tax benefit).
(2) Equals total interest expense divided by the sum of average interest
bearing liabilities and noninterest bearing deposits.
(3) Equals total other expense excluding FDIC special assessment divided
by the sum of net interest income on a fully tax equivalent basis
and total other income less net gains (losses) on securities
available for sale.
(4) Equals total other expense excluding FDIC special assessment less
total other income excluding net gains (losses) on securities
available for sale divided by average assets.
(5) Represents net interest income, on a fully tax equivalent basis
assuming a 35% tax rate, as a percentage of average interest earning
assets.
(6) Excludes purchased credit-impaired loans and loans held for sale.
Non-performing assets excludes other real estate owned related to
FDIC transactions.
(7) Equals total ending stockholders' equity less goodwill and other
intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax benefit.
(8) Equals total ending common stockholders' equity less goodwill and
other intangibles, net of tax benefit, divided by total risk
weighted assets.
(9) Equals total ending common stockholders' equity less goodwill and
other intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax benefit.
(10) Equals total ending common stockholders' equity divided by common
shares outstanding.
(11) Equals total ending common stockholders' equity less goodwill and
other intangibles, net of tax benefit, divided by common shares
outstanding.
NON-GAAP FINANCIAL INFORMATION
This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis; efficiency ratio and ratio of annualized net non-interest expense to average assets, with net gains and losses on securities available for sale excluded from the non-interest income components and the FDIC special assessment expense excluded from the non-interest expense components of these ratios; ratios of tangible equity to assets, tangible common equity to risk weighted assets and tangible common equity to assets ratio; tangible book value per common share; and annualized cash return on average tangible common equity. Our management uses these non-GAAP measures in its analysis of our performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. Management also believes that by excluding net gains and losses on securities available for sale from the non-interest income component and excluding the FDIC special assessment expense from other non-interest expense of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance. The other measures exclude the ending balances of acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible stockholders' equity. Management believes the presentation of these other financial measures excluding the impact of such items provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management's success in utilizing our tangible capital. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
The following table presents a reconciliation of tangible equity to equity (in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
Stockholders' equity - as reported $ 1,271,877 $ 1,049,383 $ 1,034,582 $ 1,068,824 $ 889,521
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit 25,582 16,897 17,545 16,754 17,348
Tangible equity $ 859,226 $ 645,417 $ 629,968 $ 665,001 $ 485,104
The following table presents a reconciliation of tangible common equity to stockholders' common equity (in thousands):
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
Common stockholders' equity - as reported $ 1,078,496 $ 856,141 $ 841,477 $ 875,799 $ 889,521
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit 25,582 16,897 17,545 16,754 17,348
Tangible common equity $ 665,845 $ 452,175 $ 436,863 $ 471,976 $ 485,104
The following table presents a reconciliation of average tangible common equity to average common stockholders' equity (in thousands):
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Average common stockholders' equity - as reported $ 905,897 $ 853,782 $ 886,740 $ 898,246 $ 888,206 $ 882,200 $ 881,594
Less: average goodwill 387,069 387,069 387,069 387,069 387,069 387,069 383,676
Less: average other intangible assets, net of tax benefit 16,630 17,186 16,872 16,999 17,582 16,897 17,068
Average tangible common equity $ 502,198 $ 449,527 $ 482,799 $ 494,178 $ 483,555 $ 478,234 $ 480,850
The following table presents a reconciliation of net cash flow available to common stockholders to net (loss) income available to common stockholders (in thousands):
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Net (loss) income available to common shareholders - as reported $ 4,855 $ 1,728 $ (30,636) $ (25,610) $ 13,154 $ (24,053) $ 40,985
Add: other intangible amortization expense, net of tax benefit 628 648 571 593 593 1,847 1,717
Net cash flow available to common shareholders $ 5,483 $ 2,376 $ (30,065) $ (25,017) $ 13,747 $ (22,206) $ 42,702
Efficiency Ratio Calculation (Dollars in Thousands)
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Non-interest expense $ 59,158 $ 54,508 $ 49,012 $ 44,011 $ 47,773 $ 162,678 $ 139,379
Adjustment for FDIC special assessment - 3,850 - - - 3,850 -
Non-interest expense - as adjusted $ 59,158 $ 50,658 $ 49,012 $ 44,011 $ 47,773 $ 158,828 $ 139,379
Net interest income $ 60,934 $ 59,389 $ 56,028 $ 54,746 $ 56,606 $ 176,351 $ 166,142
Tax equivalent adjustment 2,383 2,496 2,551 2,606 2,596 7,430 7,284
Net interest income on a fully tax equivalent basis 63,317 61,885 58,579 57,352 59,202 183,781 173,426
Plus other income 30,900 24,925 28,402 17,603 21,880 84,227 62,789
Less net gains (losses) on securities available for sale 3 4,093 9,694 24 - 13,790 1,106
Net interest income plus non-interest income - as adjusted $ 94,214 $ 82,717 $ 77,287 $ 74,931 $ 81,082 $ 254,218 $ 235,109
Efficiency ratio 62.79% 61.24% 63.42% 58.74% 58.92% 62.48% 59.28%
Efficiency ratio (without adjustments) 64.42% 64.65% 58.05% 60.83% 60.87% 62.43% 60.88%
Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)
Three months ended Nine months ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2009 2009 2009 2008 2008 2009 2008
Non-interest expense $ 59,158 $ 54,508 $ 49,012 $ 44,011 $ 47,773 $ 162,678 $ 139,379
Adjustment for FDIC special assessment - 3,850 - - - 3,850 -
Non-interest expense - as adjusted 59,158 50,658 49,012 44,011 47,773 158,828 139,379
Other income 30,900 24,925 28,402 17,603 21,880 84,227 62,789
Less net gains on securities available for sale 3 4,093 9,694 24 - 13,790 1,106
Other income - as adjusted 30,897 20,832 18,708 17,579 21,880 70,437 61,683
Net non-interest expense $ 28,261 $ 29,826 $ 30,304 $ 26,432 $ 25,893 $ 88,391 $ 77,696
Average assets 9,795,125 8,701,857 8,792,275 8,240,344 8,357,985 9,100,092 8,134,395
Annualized net non-interest expense to average assets 1.14% 1.37% 1.40% 1.28% 1.23% 1.30% 1.28%
Annualized net non-interest expense to average assets (without 1.14% 1.36% 0.95% 1.27% 1.23% 1.15% 1.26%
adjustments)
A reconciliation of net interest margin on a fully tax equivalent basis to net interest margin is contained in the tables under "Net Interest Margin." A reconciliation of tangible book value per common share to book value per common share is contained in the "Selected Financial Ratios" table.
NET INTEREST MARGIN
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):
Three Months Ended September 30, Three Months Ended June 30,
2009 2008 2009
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Loans (1) (2):
Commercial related credits
Commercial $ 1,345,899 $ 15,993 4.65% $ 1,409,936 $ 20,377 5.66% $ 1,375,433 $ 15,867 4.56%
Commercial - nontaxable (3) 80,486 1,293 6.29 70,868 1,299 7.17 79,166 1,290 6.45
Commercial loans collateralized by assignment
of lease payments 847,667 12,769 6.03 600,345 9,971 6.64 812,494 12,660 6.23
Real estate commercial 2,436,157 32,926 5.29 2,247,768 34,022 5.92 2,373,304 32,029 5.34
Real estate construction 712,937 6,251 3.43 768,467 10,044 5.11 771,269 7,100 3.64
Total commercial related credits 5,423,146 69,232 5.00 5,097,384 75,713 5.81 5,411,666 68,946 5.04
Other loans
Real estate residential 282,523 3,904 5.53 322,421 4,748 5.89 279,863 3,938 5.63
Home equity 407,728 4,526 4.40 360,618 4,305 4.75 410,626 4,509 4.40
Indirect 188,300 3,225 6.79 191,533 3,413 7.09 190,010 3,210 6.78
Consumer loans 56,841 571 3.99 54,223 542 3.98 56,246 576 4.11
Total other loans 935,392 12,226 5.19 928,795 13,008 5.57 936,745 12,233 5.24
Total loans, excluding covered loans 6,358,538 81,458 5.08 6,026,179 88,721 5.86 6,348,411 81,179 5.13
Covered loans 93,556 1,814 7.69 - - - 92,639 2,214 9.59
Total loans 6,452,094 83,272 5.12 6,026,179 88,721 5.86 6,441,050 83,393 5.19
Taxable investment securities 1,032,410 6,444 2.50 911,034 10,569 4.64 695,449 6,978 4.01
Investment securities exempt from federal income taxes (3) 379,056 5,516 5.69 425,120 6,118 5.63 405,748 5,840 5.69
Federal funds sold - - 0.00 32,420 165 1.99 - - 0.00
Other interest bearing deposits 965,276 760 0.31 16,065 84 2.08 197,218 149 0.30
Total interest earning assets $ 8,828,836 95,992 4.31 $ 7,410,818 105,657 5.67 $ 7,739,465 96,360 4.99
Non-interest earning assets 966,289 947,167 962,392
Total assets $ 9,795,125 $ 8,357,985 $ 8,701,857
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,118,024 $ 4,461 0.84% $ 1,285,293 $ 5,492 1.70% $ 1,691,868 $ 3,841 0.91%
Savings accounts 477,048 447 0.37 384,059 270 0.28 447,392 461 0.41
Certificate of deposit 3,019,701 17,422 2.29 2,485,198 20,789 3.33 2,488,905 17,334 2.79
Customer repurchase agreements 226,972 293 0.51 271,718 977 1.43 277,896 336 0.48
Total core funding 5,841,745 22,623 1.54 4,426,268 27,528 2.47 4,906,061 21,972 1.80
Whole sale funding:
Public funds 102,119 314 1.22 207,389 1,514 2.90 133,362 513 1.54
Brokered accounts (includes fee expense) 566,071 5,019 3.52 947,462 9,151 3.84 728,378 6,828 3.76
Other short-term borrowings 201,643 929 1.83 269,795 1,989 2.93 202,137 920 1.83
Long-term borrowings 504,218 3,790 2.94 640,096 6,273 3.83 514,810 4,242 3.26
Total wholesale funding 1,374,051 10,052 2.91 2,064,742 18,927 3.65 1,578,687 12,503 3.18
Total interest bearing liabilities $ 7,215,796 $ 32,675 1.80 $ 6,491,010 $ 46,455 2.85 $ 6,484,748 $ 34,475 2.13
Non-interest bearing deposits 1,445,937 904,571 1,074,567
Other non-interest bearing liabilities 34,182 76,763 95,592
Stockholders' equity 1,099,210 885,641 1,046,950
Total liabilities and stockholders' equity $ 9,795,125 $ 8,357,985 $ 8,701,857
Net interest income/interest rate spread (4) $ 63,317 2.51% $ 59,202 2.82% $ 61,885 2.86%
Taxable equivalent adjustment 2,383 2,596 2,496
Net interest income, as reported $ 60,934 $ 56,606 $ 59,389
Net interest margin (5) 2.74% 3.04% 3.08%
Tax equivalent effect 0.11% 0.14% 0.13%
Net interest margin on a fully equivalent basis (5) 2.85% 3.18% 3.21%
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination
fees of $1.2 million, $1.8 million and $1.4 million for the three
months ended September 30, 2009, September 30, 2008, and June 30,
2009, respectively.
(3) Non-taxable loan and investment income is presented on a fully tax
equivalent basis assuming a 35% tax rate.
(4) Interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest
bearing liabilities and is presented on a fully tax equivalent basis.
(5) Net interest margin represents net interest income as a percentage
of average interest earning assets.
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):
Nine Months Ended September 30,
2009 2008
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Loans (1) (2):
Commercial related credits
Commercial $ 1,385,503 $ 48,820 4.65% $ 1,377,257 $ 62,503 5.96%
Commercial - nontaxable (3) 80,039 3,911 6.44 54,746 3,031 7.27
Commercial loans collateralized by assignment
of lease payments 780,442 36,306 6.20 577,574 28,906 6.67
Real estate commercial 2,390,861 96,913 5.35 2,132,481 99,584 6.14
Real estate construction 751,192 21,287 3.74 800,095 35,178 5.78
Total commercial related credits 5,388,037 207,237 5.07 4,942,153 229,202 6.09
Other loans
Real estate residential 284,962 11,962 5.60 358,061 15,900 5.92
Home equity 408,046 13,451 4.41 353,897 13,660 5.16
Indirect 189,091 9,562 6.76 173,064 9,836 7.59
Consumer loans 57,721 1,755 4.07 53,710 2,064 5.13
Total other loans 939,820 36,730 5.23 938,732 41,460 5.90
Total loans, excluding covered assets 6,327,857 243,967 5.15 5,880,885 270,662 6.15
Covered assets 72,886 4,656 8.54 - - -
Total loans 6,400,743 248,623 5.19 5,880,885 270,662 6.15
Taxable investment securities 891,142 23,738 3.55 872,679 30,541 4.67
Investment securities exempt from federal income taxes (3) 398,897 17,318 5.73 411,954 17,781 5.67
Federal funds sold - - - 16,907 274 2.13
Other interest bearing deposits 455,354 1,039 0.31 16,597 279 2.25
Total interest earning assets $ 8,146,136 $ 290,718 4.77 $ 7,199,022 $ 319,537 5.93
Non-interest earning assets 953,956 935,373
Total assets $ 9,100,092 $ 8,134,395
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 1,778,656 $ 12,250 0.92% $ 1,249,186 $ 16,857 1.80%
Savings accounts 439,674 1,222 0.37 388,217 982 0.34
Certificate of deposit 2,720,074 55,191 2.71 2,335,131 66,334 3.79
Customer repurchase agreements 257,289 879 0.46 299,030 3,840 1.72
Total core funding 5,195,693 69,542 1.79 4,271,564 88,013 2.75
Whole sale funding:
Public funds 144,769 1,770 1.63 245,240 6,483 3.53
Brokered accounts (includes fee expense) 708,372 19,786 3.73 733,991 21,718 3.95
Other short-term borrowings 222,838 3,145 1.89 468,784 12,344 3.52
Long-term borrowings 518,288 12,694 3.23 563,311 17,553 4.09
Total wholesale funding 1,594,267 37,395 3.14 2,011,326 58,098 3.86
Total interest bearing liabilities $ 6,789,960 $ 106,937 2.11 $ 6,282,890 $ 146,111 3.11
Non-interest bearing deposits 1,162,003 883,131
Other non-interest bearing liabilities 73,456 88,243
Stockholders' equity 1,074,673 880,131
Total liabilities and stockholders' equity $ 9,100,092 $ 8,134,395
Net interest income/interest rate spread (4) $ 183,781 2.66% $ 173,426 2.82%
Taxable equivalent adjustment 7,430 7,284
Net interest income, as reported $ 176,351 $ 166,142
Net interest margin (5) 2.89% 3.08%
Tax equivalent effect 0.13% 0.14%
Net interest margin on a fully equivalent basis (5) 3.02% 3.22%
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination
fees of $3.9 million and $5.3 million for the nine months ended
September 30, 2009, and September 30, 2008, respectively.
(3) Non-taxable loan and investment income is presented on a fully tax
equivalent basis assuming a 35% tax rate.
(4) Interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest
bearing liabilities and is presented on a fully tax equivalent basis.
(5) Net interest margin represents net interest income as a percentage
of average interest earning assets.
SOURCE: MB Financial, Inc.
MB Financial, Inc. Jill York - Vice President and Chief Financial Officer E-Mail: jyork@mbfinancial.com (888) 422-6562
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Company: MB Financial, Inc. (MBFI)
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