MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial
Bank, N.A., announced today first quarter results for 2008. The words "MB
Financial,” "the
Company,” "we,” "our” and "us”
refer to MB Financial, Inc. and its wholly owned subsidiaries, unless we
indicate otherwise. We had net income from continuing operations of $5.8
million for the first quarter of 2008 compared to $17.2 million for the
first quarter of 2007, and $7.9 million for the fourth quarter of 2007.
Fully diluted earnings per share from continuing operations for the
first quarter of 2008 were $0.17 per share as compared to $0.46 per
share for the first quarter of 2007, and $0.22 per share for the fourth
quarter of 2007.
Key items for the quarter were as follows: Credit Quality
Overall credit quality continues to be strong, and other than loans
described in the next paragraph, our portfolio (including construction
loans) is performing as expected. Excluding the issues discussed
below, our provision for loan losses was $5.5 million and net
charge-offs were $3.0 million. During the first quarter we experienced
a $20.5 million increase in non-performing loans for this portion of
the portfolio resulting primarily from one $12 million potential
problem construction loan migrating to non-performing status.
Two commercial customer loan frauds occurred which resulted in $5.9
million in partial charge-offs, with $5.9 million remaining in
non-performing loans. An extensive internal review revealed that with
regard to one of the frauds, an individual loan division was not
consistently following our established monitoring and reporting
procedures. Furthermore, all credits in this division’s
portfolio were reviewed and while no additional customer frauds were
identified, we downgraded to potential problem status three additional
commercial loans totaling $42.5 million. All three loans are current
with respect to their payments of principal and interest. The impact
of these events was to increase the provision for loan losses by $17.0
million.
The impact of the additional $17.0 million provision for loan losses,
as well as the impact of non-core other income and non-core other
expenses (detailed in our supplementary schedules) was to reduce net
income from continuing operations by $10.3 million or $0.29 per share.
Strong Balance Sheet Growth Continues
Strong commercial loan growth continued in the first quarter.
Commercial related loans increased by 18% compared to the first
quarter of 2007 and 16% annualized on a linked quarter basis driven by
strong commercial and lease loan growth. Furthermore, we are seeing
significantly better credit spreads on our new and renewed loans.
Our liquidity position improved as total deposits grew by 12% annually
on a linked quarter basis driven by strong customer and brokered
certificate of deposit growth.
Positive Operating Leverage, While Investment in Bankers Continues
Net interest income on a tax equivalent basis increased by $1.7
million, or 3.2% from the first quarter of 2007, and remained stable
on a linked quarter basis.
Fee income growth continues to be good. Core fee income increased by
$1.8 million or 8% compared to the first quarter of 2007 and 11% on an
annualized linked quarter basis. This increase was driven by robust
growth in loan and deposit service fees.
Core expenses increased by $1.9 million or 4% compared to the first
quarter of 2007 and declined slightly on a linked quarter basis, even
though we continued to hire bankers. We added 20 bankers in the first
quarter of 2008, primarily in commercial banking, in addition to the 7
bankers hired during the fourth quarter of 2007. This added
approximately $500 thousand of salary and employee benefits expense in
the first quarter of 2008.
We are pleased to announce that on April 18, 2008, we purchased an 80%
interest in Cedar Hill Associates, LLC, an asset management firm
located in Chicago, Illinois, with approximately $960 million in
assets under management. The purchase of Cedar Hill is expected to
complement and expand our wealth management product offerings and
revenues.
RESULTS OF OPERATIONS First Quarter Results Net Interest Income
Net interest income on a tax equivalent basis remained stable from the
fourth quarter of 2007 to the first quarter of 2008. The increase in
average interest earning assets was offset by a six basis point decrease
in the net interest margin. The decline in the net interest margin was
primarily due to our interest earning assets adjusting to the decrease
in market rates more rapidly than our interest bearing liabilities.
After remaining steady for approximately 15 months, the Fed Funds rate
declined 300 basis points from September 2007 to March 2008. As noted
earlier, while we are seeing much better credit spreads on new and
renewed loans, fierce competition for deposits continues and has
negatively impacted deposit pricing.
See the supplemental net interest margin table for further detail.
Other Income
Three Months Ended March 31,
December 31,
September 30,
June 30,
March 31, 2008 2007 2007 2007 2007
Core other income:
Loan service fees
$
2,470
$
2,080
$
1,253
$
1,388
$
1,537
Deposit service fees
6,530
6,635
6,501
5,624
5,158
Lease financing, net
3,867
4,155
3,952
3,744
3,996
Brokerage fees
985
1,399
2,067
2,716
2,452
Trust and asset management fees
2,220
2,101
2,490
2,666
2,281
Increase in cash surrender value of life insurance
1,606
1,225
1,288
1,269
1,221
Merchant card processing
4,530
4,293
4,131
4,045
3,878
Other operating income
1,605
1,282
1,507
1,303
1,449
Total core other income
23,813
23,170
23,189
22,755
21,972
Non-core other income (1):
Gain on sale of third party brokerage business (A)
-
447
-
500
-
Gain on sale of artwork (D)
-
733
-
1,634
-
Gain on sale of properties (D)
-
-
-
7,439
-
Net gain (loss) on sale of other assets (D)
(306
)
(10
)
293
(14
)
22
Net gain (loss) on sale of investment securities
1,105
(1,529
)
(114
)
(2,077
)
(24
)
Gain on sale of land trust business (B)
-
-
-
-
909
Increase (decrease) in market value of assets held in trust for
deferred compensation (C)
(75
)
170
(109
)
483
65
Total non-core other income
724
(189
)
70
7,965
972
Total other income
$
24,537
$
22,981
$
23,259
$
30,720
$
22,944
(1) Letters denote the corresponding line items where these
non-core other income items reside in the consolidated statements
of income as follows: A – Brokerage
fees, B – Trust and asset management
fees, C – Other Operating Income, and D –
Net gain (loss) on sale of other assets.
Core other income has grown steadily over the past year. Core other
income increased by 8% compared to the first quarter of 2007 and 11%
annualized on a linked quarter basis, driven by higher amounts of loan
service and deposit service fees.
Our core business loan service fees increased from the fourth quarter of
2007 to the first quarter of 2008, primarily due to an increase in
letter of credit fees and prepayment fees recognized during the first
quarter of 2008 compared to the fourth quarter of 2007. The increase in
cash surrender value of life insurance from the fourth quarter of 2007
to the first quarter of 2008 was primarily due to a $436 thousand death
benefit on a bank owned life insurance policy that we recognized during
the first quarter of 2008. Our core other operating income increased,
primarily due to an increase in ATM and debit card fees. The decrease in
our core business brokerage fee income was primarily due to decreased
investment representative production during the first quarter of 2008
compared to the fourth quarter of 2007.
Our core business loan service fees increased from the first quarter of
2007 to the first quarter of 2008, primarily due to an increase in
letter of credit fees and prepayment fees recognized during the first
quarter of 2008 compared to the first quarter of 2007. Our core business
deposit service fees increased from the first quarter of 2007 to the
first quarter of 2008, primarily due to enhancements made to our
courtesy overdraft program and a fee increase that was implemented
during the second quarter of 2007. The decrease in our core business
brokerage fee income from the first quarter of 2007 to the first quarter
of 2008 was primarily due to the sale of our third party brokerage
business during the second quarter of 2007. This decrease was offset by
a corresponding reduction this quarter in brokerage expense.
During the first quarter of 2008, we recorded an $832 thousand gain on
sale of investment securities related to the partial redemption of our
equity interest in Visa. This redemption was approximately 39% of our
interest in Visa and is reflected within the non-core other income
schedule.
Other Expense
Three Months Ended March 31,
December 31,
September 30,
June 30,
March 31, 2008 2007 2007 2007 2007
Core other expense:
Salaries and employee benefits
$
26,994
$
26,759
$
27,507
$
26,130
$
24,934
Occupancy and equipment expense
7,525
7,239
6,928
7,054
7,200
Computer services expense
1,916
1,949
1,846
1,857
1,817
Advertising and marketing expense
1,316
962
1,214
1,444
1,410
Professional and legal expense
306
862
593
656
530
Brokerage fee expense
209
432
918
1,403
1,271
Telecommunication expense
762
757
681
689
681
Other intangibles amortization expense
815
871
874
878
881
Merchant card processing
3,926
3,815
3,487
3,474
3,270
Other operating expenses
4,872
5,156
4,888
4,805
4,747
Total core other expense
48,641
48,802
48,936
48,390
46,741
Non-core other expense (1):
Vision severance payments (E)
-
-
-
200
-
Executive separation agreement expense (E)
-
5,908
-
-
-
Contribution to MB Financial Charitable Foundation (F)
-
1,500
-
3,000
-
Unamortized issuance costs related to redemption of
trust preferred securities (G)
-
1,914
-
-
-
Rent expense (H)
-
494
-
-
-
Visa litigation expense (F)
(342
)
342
-
-
-
Increase in market value of assets held in trust for deferred
compensation (E)
(75
)
170
(109
)
483
65
Total non-core other expense
(417
)
10,328
(109
)
3,683
65
Total other expense
$
48,224
$
59,130
$
48,827
$
52,073
$
46,806
(1) Letters denote the corresponding line items where the non-core
other expense items reside in the consolidated statements of
income as follows: E – Salaries and
employee benefits, F – Other Operating
Expenses, G – Professional and legal
expense and H – Occupancy and
equipment expense.
Core other expense has grown modestly over the past year, even though we
have continued to invest in personnel. Core other expense increased by
4% compared to the first quarter of 2007 and declined slightly on a
linked quarter basis.
Salaries and employee benefits expense increased as we hired 27 bankers
from the third quarter of 2007 through the first quarter of 2008. As a
result, we incurred approximately $500 thousand of salary and employee
benefits expense (including salaries, signing bonuses, and recruiting
fees) during the first quarter of 2008. In addition, we award officer
salary increases at the beginning of each year. We estimate that our
core business salary and employee benefits expense will increase during
the second quarter of 2008 by an additional $800 thousand, as many of
the bankers were hired towards the end of the first quarter of 2008. Our
core business occupancy and equipment expense increased from the first
quarter of 2007 to the first quarter of 2008, primarily due to an
increase in snow removal expense during the first quarter of 2008
compared to the first quarter of 2007. As noted earlier, the decrease in
our core business brokerage fee expense from the first quarter of 2007
to the first quarter of 2008 was primarily due to the sale of our third
party brokerage business during the second quarter of 2007.
As a result of Visa’s successful initial
public offering and establishment of litigation reserves during the
first quarter of 2008, we reversed approximately $342 thousand of
previously established indemnification liabilities related to Visa
litigation.
Income Taxes
Income tax expense from continuing operations for the three months ended
March 31, 2008, decreased $478 thousand to $1.4 million compared to $1.9
million for the three months ended December 31, 2007. The effective tax
rate was 19.5% and 19.2% for the quarters ended March 31, 2008 and
December 31, 2007, respectively.
LOAN PORTFOLIO
The following table sets forth the composition of the loan portfolio as
of the dates indicated (dollars in thousands):
March 31,
December 31,
September 30,
June 30,
March 31, 2008
2007
2007
2007
2007
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
Commercial related credits:
Commercial loans
$
1,433,114
25
%
$
1,323,455
24
%
$
1,261,995
23
%
$
1,161,268
22
%
$
1,106,806
22
%
Commercial loans colla-teralized by assignment of lease
payments (lease loans)
581,502
10
%
553,138
10
%
453,340
8
%
437,581
8
%
375,763
7
%
Commercial real estate (1)
2,048,123
35
%
1,994,312
36
%
1,915,845
36
%
1,819,388
36
%
1,819,098
36
%
Construction real estate
822,312
14
%
825,216
14
%
849,914
16
%
884,560
17
%
841,065
17
%
Total commercial related credits
4,885,051
84
%
4,696,121
84
%
4,481,094
83
%
4,302,797
83
%
4,142,732
82
%
Other loans:
Residential real estate (1)
379,279
6
%
372,787
6
%
362,963
7
%
354,763
6
%
350,100
8
%
Indirect vehicle
162,348
3
%
146,311
3
%
142,827
3
%
131,308
3
%
120,342
2
%
Home equity
347,752
6
%
347,676
6
%
344,116
6
%
348,336
7
%
363,967
7
%
Consumer loans
54,671
1
%
52,732
1
%
51,532
1
%
52,302
1
%
63,265
1
%
Total other loans
944,050
16
%
919,506
16
%
901,438
17
%
886,709
17
%
897,674
18
%
Gross loans
5,829,101
100
%
5,615,627
100
%
5,382,532
100
%
5,189,506
100
%
5,040,406
100
%
Allowance for loan losses
(78,764
)
(65,103
)
(61,122
)
(59,058
)
(58,705
)
Net loans
$
5,750,337
$
5,550,524
$
5,321,410
$
5,130,448
$
4,981,701
(1) During the third quarter of 2007, multifamily residential real
estate loans were reclassified from residential real estate loans
to commercial real estate loans. Prior periods have been
reclassified to conform to the current period’s
presentation.
Commercial related credits increased by 16% on an annualized basis from
December 31, 2007 to March 31, 2008. Total loans increased by 15% on an
annualized basis over the same period. From March 31, 2007 to March 31,
2008, commercial related credits increased by approximately 18% and
total loans increased by approximately 16%. Our strong loan growth was
primarily due to growth in both new and existing customer demand.
ASSET QUALITY
The following table presents a summary of non-performing assets as of
the dates indicated (dollar amounts in thousands):
March 31, 2008
December 31, 2007
September 30, 2007
June 30, 2007
March 31, 2007
Non-performing loans:
Non-accrual loans (1)
$
46,666
$
24,459
$
23,901
$
21,799
$
23,222
Loans 90 days or more past due, still accruing interest
4,218
-
-
-
-
Total non-performing loans
50,884
24,459
23,901
21,799
23,222
Other real estate owned
1,770
1,120
566
111
319
Repossessed vehicles
225
179
288
188
61
Total non-performing assets
$
52,879
$
25,758
$
24,755
$
22,098
$
23,602
Total non-performing loans to total loans
0.87
%
0.44
%
0.44
%
0.42
%
0.46
%
Allowance for loan losses to non-performing loans
154.79
%
266.17
%
255.73
%
270.92
%
252.80
%
Total non-performing assets to total assets
0.65
%
0.33
%
0.31
%
0.28
%
0.30
%
(1) There were no restructured loans in any period presented.
The following table presents data related to non-performing loans by
Dollar amount and category at March 31, 2008 (dollar amounts in
thousands):
Commercial and Lease Loans
Construction Real Estate Loans
Commercial Real Estate Loans
Consumer Loans
Total Loans Dollar Range
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
Amount
Amount
$5.0 million or more
-
$
-
2
$
20,476
-
$
-
$
-
$
20,476
$3.0 million to $4.9 million
1
3,066
-
-
1
3,037
-
6,103
$1.5 million to $2.9 million
-
-
-
-
1
1,815
-
1,815
Under $1.5 million
21
5,652
1
256
22
9,384
7,198
22,490
22
$
8,718
3
$
20,732
24
$
14,236
$
7,198
$
50,884
Below is a reconciliation of the activity in our allowance for loan
losses for the periods indicated (dollar amounts in thousands):
Three Months Ended
March 31, 2008
December 31, 2007
September 30, 2007
June 30, 2007
March 31, 2007
Balance at beginning of period
$
65,103
$
61,122
$
59,058
$
58,705
$
58,983
Provision for loan losses
22,540
8,000
4,500
3,000
3,813
Charge-offs
(10,085
)
(4,512
)
(3,395
)
(4,046
)
(4,354
)
Recoveries
1,206
493
959
1,399
263
Net charge-offs
(8,879
)
(4,019
)
(2,436
)
(2,647
)
(4,091
)
Balance
$
78,764
$
65,103
$
61,122
$
59,058
$
58,705
Total loans
$
5,829,101
$
5,615,627
$
5,382,532
$
5,189,506
$
5,040,406
Average loans
$
5,687,646
$
5,459,430
$
5,275,376
$
5,099,822
$
4,989,817
Ratio of allowance for loan losses to total loans
1.35
%
1.16
%
1.14
%
1.14
%
1.16
%
Net loan charge-offs to average loans (annualized)
0.63
%
0.29
%
0.18
%
0.21
%
0.33
%
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.
We define potential problem loans as performing loans rated substandard
or doubtful, 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 amounts of
potential problem loans were $123.0 million, or 2.11% of total loans as
of March 31, 2008, and approximately $87.6 million, or 1.56% of total
loans as of December 31, 2007. The increase in potential problem loans
was primarily due to the addition of the three commercial credits
discussed earlier totaling $42.5 million.
The following table presents data related to potential problem loans by
dollar amount and category at March 31, 2008 (dollar amounts in
thousands):
Commercial and Lease Loans
Construction Real Estate Loans
Commercial Real Estate Loans
Total Dollar Range
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
$5.0 million or more
4
$
51,407
3
$
35,021
-
$
-
7
$
86,428
$3.0 million to $4.9 million
2
8,715
4
12,644
-
-
6
21,359
$1.5 million to $2.9 million
2
3,742
1
1,603
1
1,680
4
7,025
Under $1.5 million
10
2,276
1
718
10
5,184
21
8,178
18
$
66,140
9
$
49,986
11
$
6,864
38
$
122,990
The following is a summary of charge-offs and non-performing loans for
the prior twenty-one quarters (in thousands):
Net Charge-Offs
Annualized Net Charge-Offs to Average Loans
End of Period Non-Performing Loans
Non-Performing Loans to Total Loans
Potential Problem Loans to Total Loans
Total Non-Performing Loans and Potential Problem Loans to Total
Loans
2003 – 1st Qtr
$
1,219
0.20
%
$
22,384
0.86
%
1.56
%
2.42
%
2003 – 2nd Qtr
2,872
0.44
%
$
21,503
0.84
%
1.15
%
1.99
%
2003 – 3rd Qtr
4,538
0.69
%
$
25,519
0.98
%
1.04
%
2.02
%
2003 – 4th Qtr
1,524
0.23
%
$
21,073
0.79
%
0.89
%
1.68
%
2003 – Full Year
$
10,153
0.39
%
2004 – 1st Qtr
$
1,317
0.20
%
$
25,922
0.96
%
1.45
%
2.40
%
2004 – 2nd Qtr
1,962
0.28
%
$
28,789
0.95
%
1.34
%
2.29
%
2004 – 3rd Qtr
1,632
0.21
%
$
25,228
0.84
%
1.45
%
2.28
%
2004 – 4th Qtr
2,416
0.31
%
$
22,571
0.71
%
1.28
%
1.99
%
2004 – Full Year
$
7,327
0.25
%
2005 – 1st Qtr
$
2,890
0.36
%
$
25,623
0.79
%
0.81
%
1.60
%
2005 – 2nd Qtr
2,074
0.25
%
$
22,883
0.67
%
0.59
%
1.26
%
2005 – 3rd Qtr
1,805
0.21
%
$
18,212
0.53
%
0.67
%
1.20
%
2005 – 4th Qtr
1,346
0.16
%
$
20,171
0.58
%
0.61
%
1.19
%
2005 – Full Year
$
8,115
0.24
%
2006 – 1st Qtr
$
1,035
0.12
%
$
19,685
0.55
%
0.66
%
1.21
%
2006 – 2nd Qtr
866
0.10
%
$
15,887
0.43
%
0.88
%
1.31
%
2006 – 3rd Qtr
4,975
0.46
%
$
19,912
0.41
%
0.45
%
0.86
%
2006 – 4th Qtr
2,956
0.24
%
$
21,468
0.43
%
0.48
%
0.91
%
2006 – Full Year
$
9,832
0.24
%
2007 – 1st Qtr
$
4,091
0.33
%
$
23,222
0.46
%
0.63
%
1.09
%
2007 – 2nd Qtr
2,647
0.21
%
$
21,799
0.42
%
0.41
%
0.83
%
2007 – 3rd Qtr
2,436
0.18
%
$
23,901
0.44
%
0.85
%
1.29
%
2007 – 4th Qtr
4,019
0.29
%
$
24,459
0.44
%
1.56
%
2.00
%
2007 – Full Year
$
13,193
0.25
%
2008 – 1st Qtr
$
8,879
0.63
%
$
50,884
0.87
%
2.11
%
2.98
%
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 March 31,
At December 31,
At September 30,
At June 30,
At March 31, 2008 2007 2007
2007
2007
Fair value
U.S. Treasury securities
$
-
$
-
$
-
$
1,274
$
7,280
Government sponsored agencies and enterprises
274,217
310,538
328,040
414,620
540,141
States and political subdivisions
417,609
412,302
397,807
386,040
366,865
Mortgage-backed securities
479,383
438,056
487,747
489,345
468,092
Corporate bonds
11,123
13,057
22,006
27,643
30,215
Equity securities
3,520
3,460
9,892
6,222
6,531
Debt securities issued by foreign governments
301
301
298
298
547
Total fair value
1,186,153
1,177,714
1,245,790
1,325,442
1,419,671
Amortized cost
U.S. Treasury securities
-
-
-
1,290
7,302
Government sponsored agencies and enterprises
266,276
305,768
326,504
417,647
538,836
States and political subdivisions
408,969
407,973
396,896
392,378
365,600
Mortgage-backed securities
472,482
435,743
489,219
496,675
475,335
Corporate bonds
10,779
12,797
22,120
28,024
30,327
Equity securities
3,484
3,446
9,950
6,434
6,590
Debt securities issued by foreign governments
301
299
298
298
547
Total amortized cost
1,162,291
1,166,026
1,244,987
1,342,746
1,424,537
Unrealized gain (loss)
U.S. Treasury securities
-
-
-
(16
)
(22
)
Government sponsored agencies and enterprises
7,941
4,770
1,536
(3,027
)
1,305
States and political subdivisions
8,640
4,329
911
(6,338
)
1,265
Mortgage-backed securities
6,901
2,313
(1,472
)
(7,330
)
(7,243
)
Corporate bonds
344
260
(114
)
(381
)
(112
)
Equity securities
36
14
(58
)
(212
)
(59
)
Debt securities issued by foreign governments
-
2
-
-
-
Total unrealized gain (loss)
$
23,862
$
11,688
$
803
$
(17,304
)
$
(4,866
)
We do not have any meaningful direct or indirect holdings of subprime
residential mortgage loans or home equity lines of credit in our
investment portfolio.
CAPITAL MANAGEMENT
The Company did not repurchase any shares during the quarter.
At March 31, 2008, our total risk-based capital ratio was 11.81%, Tier 1
capital to risk-weighted assets ratio was 9.78% and Tier 1 capital to
average asset ratio was 8.29%, compared to 11.58%, 9.75% and 8.18%,
respectively, at December 31, 2007. MB Financial Bank, N.A. was
categorized as "Well-Capitalized”
under Federal Deposit Insurance Corporation regulations at March 31,
2008.
FORWARD-LOOKING STATEMENTS
When used in this press release and in filings with the Securities and
Exchange Commission, in other press releases or other public shareholder
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 and synergies from our
merger and acquisition activities, including our recently completed
acquisition of Cedar Hill Associates, might not be realized within the
expected time frames; (2) 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; (3) competitive pressures among depository institutions;
(4) interest rate movements and their impact on customer behavior and
net interest margin; (5) the impact of repricing and competitors'
pricing initiatives on loan and deposit products; (6) the ability to
adapt successfully to technological changes to meet customers' needs and
developments in the market place; (7) our ability to realize the
residual values of our direct finance, leveraged, and operating leases;
(8) our ability to access cost-effective funding; (9) changes in
financial markets; (10) changes in economic conditions in general and in
the Chicago metropolitan area in particular; (11) the costs, effects and
outcomes of litigation; (12) new legislation or regulatory changes,
including but not limited to changes in federal and/or state tax laws or
interpretations thereof by taxing authorities; (13) changes in
accounting principles, policies or guidelines; (14) our future
acquisitions of other depository institutions or lines of business.
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.
MB FINANCIAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2008, December 31, 2007, September 30, 2007, June 30, 2007, and March 31, 2007 (Amounts in thousands, except common share data) (Unaudited)
March 31, December 31, September 30, June 30, March 31, 2008 2007
2007
2007
2007
ASSETS
Cash and due from banks
$
187,116
$
141,248
$
119,961
$
153,496
$
96,541
Interest bearing deposits with banks
16,054
9,093
7,582
3,622
4,576
Federal funds sold
-
-
-
-
45,000
Investment securities:
Securities available for sale, at fair value
1,186,153
1,177,714
1,245,790
1,325,442
1,419,671
Non-marketable securities - FHLB and FRB Stock
63,671
63,671
63,634
63,634
51,558
Total investment securities
1,249,824
1,241,385
1,309,424
1,389,076
1,471,229
Loans (net of allowance for loan losses of $78,764 at March 31,
2008, $65,103 at December 31, 2007, $61,122 at September 30, 2007,
$59,058 at June 30, 2007, and $58,705 at March 31, 2007)
5,750,337
5,550,524
5,321,410
5,130,448
4,981,701
Assets held for sale
-
-
353,028
375,149
410,840
Lease investments, net
91,675
97,321
90,670
80,353
71,308
Premises and equipment, net
184,257
183,722
183,506
184,090
196,525
Cash surrender value of life insurance
118,296
116,690
117,900
116,624
115,354
Goodwill, net
379,047
379,047
379,047
379,047
379,047
Other intangibles, net
24,537
25,352
26,223
27,097
27,975
Other assets
89,213
90,321
91,745
82,306
87,691
Total assets
$
8,090,356
$
7,834,703
$
8,000,496
$
7,921,308
$
7,887,787
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities
Deposits:
Noninterest bearing
$
865,665
$
875,491
$
846,699
$
879,338
$
856,106
Interest bearing
4,814,621
4,638,292
4,703,589
4,643,906
4,646,703
Total deposits
5,680,286
5,513,783
5,550,288
5,523,244
5,502,809
Short-term borrowings
922,985
977,721
809,935
783,153
722,416
Long-term borrowings
354,010
208,865
187,577
186,322
175,006
Junior subordinated notes issued to capital trusts
158,968
159,016
197,537
166,657
179,096
Liabilities held for sale
-
-
321,144
344,643
379,294
Accrued expenses and other liabilities
102,060
112,949
79,112
74,972
72,464
Total liabilities
7,218,309
6,972,334
7,145,593
7,078,991
7,031,085
Stockholders' Equity
Common stock, ($0.01 par value; authorized 43,000,000 shares at
March, 31, 2008, December 31, 2007, September 30, 2007, and June 30,
2007, and 40,000,000 at March 31, 2007; issued 37,414,091,
37,401,023, 37,404,087, 37,345,661 and 37,342,031 shares at March
31, 2008, December 31, 2007, September 30, 2007, June 30, 2007, and
March 31, 2007, respectively)
374
374
374
373
373
Additional paid-in capital
441,405
441,201
440,655
439,450
439,164
Retained earnings
504,861
505,260
475,208
463,359
448,855
Accumulated other comprehensive income (loss)
15,511
7,597
120
(12,028
)
(3,690
)
Less: 2,734,281, 2,785,573, 1,809,035, 1,442,588 and 818,372 shares
of treasury stock, at cost, at March 31, 2008, December 31, 2007,
September 30,2007, June 30, 2007 and March 31, 2007, respectively
(90,104
)
(92,063
)
(61,454
)
(48,837
)
(28,000
)
Total stockholders' equity
872,047
862,369
854,903
842,317
856,702
Total liabilities and stockholders' equity
$
8,090,356
$
7,834,703
$
8,000,496
$
7,921,308
$
7,887,787
MB FINANCIAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except common share data) (Unaudited)
Three months ended
March 31,
December 31,
September 30, June 30, March 31,
2008
2007
2007
2007
2007
Interest income:
Loans
$
93,877
$
100,802
$
101,488
$
96,793
$
93,933
Investment securities available for sale:
Taxable
9,971
10,181
11,983
13,163
14,348
Nontaxable
3,753
3,649
3,586
3,325
3,302
Federal funds sold
95
95
52
67
235
Other interest bearing accounts
106
102
63
49
50
Total interest income
107,802
114,829
117,172
113,397
111,868
Interest expense:
Deposits
40,849
45,917
47,942
46,337
45,453
Short-term borrowings
7,867
9,729
9,617
9,390
8,618
Long-term borrowings and junior subordinated notes
5,623
5,211
5,530
5,316
5,900
Total interest expense
54,339
60,857
63,089
61,043
59,971
Net interest income
53,463
53,972
54,083
52,354
51,897
Provision for loan losses
22,540
8,000
4,500
3,000
3,813
Net interest income after provision for loan losses
30,923
45,972
49,583
49,354
48,084
Other income:
Loan service fees
2,470
2,080
1,253
1,388
1,537
Deposit service fees
6,530
6,635
6,501
5,624
5,158
Lease financing, net
3,867
4,155
3,952
3,744
3,996
Brokerage fees
985
1,846
2,067
3,216
2,452
Trust and asset management fees
2,220
2,101
2,490
2,666
3,190
Net (loss) gain on sale of investment securities
1,105
(1,529
)
(114
)
(2,077
)
(24
)
Increase in cash surrender value of life insurance
1,606
1,225
1,288
1,269
1,221
Net gain (loss) on sale of other assets
(306
)
723
293
9,059
22
Merchant card processing
4,530
4,293
4,131
4,045
3,878
Other operating income
1,530
1,452
1,398
1,786
1,514
24,537
22,981
23,259
30,720
22,944
Other expense:
Salaries and employee benefits
26,994
32,837
27,398
26,813
24,999
Occupancy and equipment expense
7,525
7,733
6,928
7,054
7,200
Computer services expense
1,916
1,949
1,846
1,857
1,817
Advertising and marketing expense
1,316
962
1,214
1,444
1,410
Professional and legal expense
306
2,776
593
656
530
Brokerage fee expense
209
432
918
1,403
1,271
Telecommunication expense
762
757
681
689
681
Other intangibles amortization expense
815
871
874
878
881
Merchant card processing
3,926
3,815
3,487
3,474
3,270
Charitable contributions
15
1,512
31
3,034
109
Other operating expenses
4,440
5,486
4,857
4,771
4,638
48,224
59,130
48,827
52,073
46,806
Income before income taxes
7,236
9,823
24,015
28,001
24,222
Income taxes
1,412
1,890
6,709
8,394
7,043
Income from continuing operations
$
5,824
$
7,933
$
17,306
$
19,607
$
17,179
Discontinued operations
Income (loss) from discontinued operations before income taxes
-
(741
)
1,499
1,803
1,429
Gain on disposal of discontinued operations before income taxes
-
46,485
-
-
-
Income before income taxes
-
45,744
1,499
1,803
1,429
Income taxes
-
17,281
500
369
487
Income from discontinued operations
-
28,463
999
1,434
942
Net income
$
5,824
$
36,396
$
18,305
$
21,041
$
18,121
Three months ended March 31,
December 31,
September 30,
June 30,
March, 31 2008 2007 2007 2007
2007 Common share data:
Basic earnings per common share from continuing operations
$
0.17
$
0.23
$
0.48
$
0.54
$
0.47
Basic earnings per common share from discontinued operations
$
-
$
0.81
$
0.03
$
0.04
$
0.02
Basic earnings per common share
$
0.17
$
1.04
$
0.51
$
0.58
$
0.49
Diluted earnings per common share from continuing operations
$
0.17
$
0.22
$
0.48
$
0.53
$
0.46
Diluted earnings per common share from discontinued operations
$
-
$
0.80
$
0.03
$
0.04
$
0.03
Diluted earnings per common share
$
0.17
$
1.02
$
0.51
$
0.57
$
0.49
Weighted average common shares outstanding
34,620,435
35,095,301
35,733,165
36,239,731
36,630,323
Diluted weighted average common shares outstanding
34,994,731
35,536,449
36,213,532
36,744,473
37,180,928
Three months ended March 31, December 31, September 30, June 30, March 31, 2008
2007
2007
2007
2007
Performance Ratios (continuing operations):
Annualized return on average assets
0.30
%
0.40
%
0.86
%
1.00
%
0.88
%
Annualized return on average equity
2.66
3.68
8.10
9.25
8.18
Annualized return on average tangible equity (1)
5.28
7.32
15.72
17.87
15.85
Net interest rate spread
2.75
2.76
2.81
2.79
2.80
Efficiency ratio (2)
61.07
73.46
61.47
59.86
60.98
Net interest margin
3.10
3.16
3.22
3.20
3.21
Tax equivalent effect
0.12
0.12
0.12
0.11
0.12
Net interest margin – fully tax
equivalent basis (3)
3.22
3.28
3.34
3.31
3.33
Performance Ratios (total):
Annualized return on average assets
0.30
%
1.82
%
0.91
%
1.07
%
0.93
%
Annualized return on average equity
2.66
16.86
8.57
9.93
8.63
Annualized return on average tangible equity (1)
5.28
31.83
16.60
19.14
16.69
Net interest rate spread
2.75
2.76
2.81
2.80
2.82
Efficiency ratio (2)
61.07
47.60
61.29
59.44
60.71
Net interest margin
3.10
3.17
3.24
3.22
3.24
Tax equivalent effect
0.12
0.12
0.12
0.12
0.11
Net interest margin – fully tax
equivalent basis (3)
3.22
3.29
3.36
3.34
3.35
Asset Quality Ratios:
Non-performing loans to total loans
0.87
%
0.44
%
0.44
%
0.42
%
0.46
%
Non-performing assets to total assets
0.65
0.33
0.31
0.28
0.30
Allowance for loan losses to total loans
1.35
1.16
1.14
1.14
1.16
Allowance for loan losses to non-performing loans
154.79
266.17
255.73
270.92
252.80
Net loan charge-offs to average loans (annualized)
0.63
0.29
0.18
0.21
0.33
Capital Ratios:
Tangible equity to assets (4)
6.20
%
6.28
%
6.03
%
5.92
%
6.13
%
Equity to total assets
10.78
11.01
10.69
10.63
10.86
Book value per share (5)
25.15
24.91
24.02
23.46
23.46
Less: goodwill and other intangible assets, net of
tax benefit, per common share
11.39
11.43
11.13
11.05
10.88
Tangible book value per share (6)
13.76
13.48
12.89
12.41
12.58
Total capital (to risk–weighted assets)
11.81
%
11.58
%
11.83
%
11.62
%
11.89
%
Tier 1 capital (to risk-weighted assets)
9.78
9.75
10.31
10.09
10.58
Tier 1 capital (to average assets)
8.29
8.18
8.61
8.25
8.50
(1) Net cash flow available to stockholders (net income or net
income on continuing operations, as appropriate, plus other
intangibles amortization expense, net of tax benefit) / Average
tangible equity (average equity less average goodwill and average
other intangibles, net of tax benefit).
(2) Equals total other expense 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.
(3) Represents net interest income, on a fully tax equivalent
basis assuming a 35% tax rate, as a percentage of average interest
earning assets.
(4) 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.
(5) Equals total ending stockholders’
equity divided by common shares outstanding.
(6) Equals total ending 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, tangible equity to assets ratio,
tangible book value per share, and annualized cash return on average
tangible 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. 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
stockholders’ equity (in thousands):
March 31,
December 31,
September 30,
June 30,
March 31,
2008
2007
2007
2007
2007
Stockholders’ equity –
as reported
$
872,047
$
862,369
$
854,903
$
842,317
$
856,702
Less: goodwill
379,047
379,047
379,047
379,047
379,047
Less: other intangible assets, net of tax benefit
15,949
16,479
17,045
17,613
18,184
Tangible equity
$
477,051
$
466,843
$
458,811
$
445,657
$
459,471
The following table presents a reconciliation of average tangible equity
to average stockholders’ equity (in
thousands):
Three months ended March 31,
December 31,
September 30,
June 30,
March 31,
2008
2007
2007
2007
2007
Average Stockholders’ equity –
as reported
$
879,056
$
856,362
$
847,326
$
849,816
$
851,785
Less: average goodwill
379,047
379,047
379,047
379,047
379,047
Less: average other intangible assets, net of tax benefit
16,131
16,671
17,245
17,805
18,396
Average tangible equity
$
483,878
$
460,644
$
451,034
$
452,964
$
454,342
The following table presents a reconciliation of net cash flow available
to stockholders to net income from continuing operations (in thousands):
Three months ended March 31,
December 31,
September 30,
June 30,
March 31,
2008
2007
2007
2007
2007
Net income – as reported
$
5,824
$
7,933
$
17,306
$
19,607
$
17,179
Add: other intangible amortization
expense, net of tax benefit
530
566
568
571
573
Net cash flow available to stockholders
$
6,354
$
8,499
$
17,874
$
20,178
$
17,752
The following table presents a reconciliation of net cash flow available
to stockholders to net income (in thousands):
Three months ended March 31,
December 31,
September 30,
June 30,
March 31,
2008
2007
2007
2007
2007
Net income – as reported
$
5,824
$
36,396
$
18,305
$
21,041
$
18,121
Add: other intangible amortization
expense, net of tax benefit
530
566
568
571
573
Net cash flow available to stockholders
$
6,354
$
36,962
$
18,873
$
21,612
$
18,694
Reconciliations of net interest income on a fully tax equivalent basis
to net interest income and net interest margin on a fully tax equivalent
basis to net interest margin are contained in the tables under "Net
Interest Margin.” A reconciliation of
tangible book value per share to book value per 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 March 31,
Three Months Ended December 31, 2008
2007
2007
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
Interest Earning Assets: Loans (1) (2): Commercial related credits
Commercial
$
1,365,694
$
22,771
6.60
%
$
1,031,079
$
20,406
7.92
%
$
1,270,259
$
24,523
7.55
%
Commercial – nontaxable (3)
7,560
141
7.38
15,168
336
8.86
7,237
136
7.35
Commercial loans collateralized by assignment of lease payments
555,076
9,411
6.78
387,006
6,613
6.84
482,851
8,214
6.80
Real estate commercial
2,003,039
32,969
6.51
1,811,729
32,944
7.27
1,954,755
35,022
7.01
Real estate construction
827,220
14,124
6.75
853,203
18,186
8.53
837,266
17,367
8.12
Total commercial related credits
4,758,589
79,416
6.60
4,098,185
78,485
7.66
4,552,368
85,262
7.33
Other loans
Real estate residential
373,989
5,587
5.98
351,668
5,294
6.02
365,441
5,553
6.08
Home equity
348,789
5,082
5.86
370,708
7,044
7.71
345,278
6,105
7.01
Indirect
152,774
3,028
7.97
114,317
2,214
7.85
144,939
3,016
8.26
Consumer loans
53,505
813
6.11
54,939
1,014
7.49
51,404
914
7.05
Total other loans
929,057
14,510
6.28
891,632
15,566
7.08
907,062
15,588
6.82
Total loans
5,687,646
93,926
6.64
4,989,817
94,051
7.64
5,459,430
100,850
7.33
Taxable investment securities
819,845
9,971
4.86
1,183,744
14,348
4.85
896,613
10,181
4.54
Investments securities exempt from federal income taxes (3)
401,207
5,774
5.69
360,015
5,080
5.64
391,272
5,614
5.61
Federal funds sold
15,220
95
2.47
18,003
235
5.22
8,253
95
4.50
Other interest bearing deposits
15,387
106
2.77
6,579
50
3.08
11,075
102
3.65
Total interest earning assets
6,939,305
109,872
6.37
6,558,158
113,764
7.04
6,766,643
116,842
6.85
Assets held for sale
-
387,919
220,281
Non-interest earning assets
925,512
933,684
931,324
Total assets
$
7,864,817
$
7,879,761
$
7,918,248
Interest Bearing Liabilities: Core funding:
Money market and NOW accounts
1,234,965
6,602
2.15
1,070,252
7,730
2.93
1,299,002
9,615
2.94
Savings accounts
388,956
443
0.46
459,109
864
0.76
398,589
611
0.61
Certificates of deposit
2,218,570
24,899
4.51
2,325,728
27,582
4.81
2,194,238
25,953
4.69
Customer repos
334,464
1,830
2.20
309,051
2,893
3.80
361,524
2,932
3.22
Total core funding
4,176,955
33,774
3.25
4,164,140
39,069
3.81
4,253,353
39,111
3.65
Wholesale funding:
Public funds
282,793
3,013
4.29
257,445
3,320
5.23
302,206
3,834
5.03
Brokered accounts (includes fee expense)
516,841
5,892
4.59
489,449
5,957
4.94
458,278
5,904
5.11
Other short-term borrowings
605,282
6,037
4.01
435,620
5,725
5.33
532,206
6,797
5.07
Long-term borrowings
461,053
5,623
4.82
394,780
5,900
5.98
354,309
5,211
5.76
Total wholesale funding
1,865,969
20,565
4.43
1,577,294
20,902
5.37
1,646,999
21,746
5.24
Total interest bearing liabilities
$
6,042,924
54,339
3.62
$
5,741,434
59,971
4.24
$
5,900,352
60,857
4.09
Non-interest bearing deposits
839,386
859,141
870,300
Liabilities held for sale
-
356,299
200,462
Other non-interest bearing liabilities
103,451
71,102
90,772
Stockholders’ equity
879,056
851,785
856,362
Total liabilities and stockholders’ equity
$
7,864,817
$
7,879,761
$
7,918,248
Net interest income/interest rate spread (4)
$
55,533
2.75
%
$
53,793
2.80
%
$
55,985
2.76
%
Taxable equivalent adjustment
2,070
1,896
2,013
Net interest income, as reported
$
53,463
$
51,897
$
53,972
Net interest margin (5)
3.10
%
3.21
%
3.16
%
Tax equivalent effect
0.12
%
0.12
%
0.12
%
Net interest margin on a fully tax equivalent basis (5)
3.22
%
3.33
%
3.28
%
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan
origination fees of $2.0 million, $1.7 million and $2.0 million
for the three months ended March 31, 2008, March 31, 2007, and
December 31, 2007, 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.
