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MB Financial, Inc. Reports Second Quarter 2012 Net Income Of $22.1 Million, Improved Return On Assets And Return On Equity And Improved Credit Metrics

Business Wire

07/17/12 - 06:49 PM EDT

MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A (“the Bank” or “MB Financial Bank”), announced today second quarter results for 2012. The words “MB Financial,” “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its consolidated subsidiaries, unless indicated otherwise. We had net income and net income available to common stockholders of $22.1 million for the second quarter of 2012 compared to a net loss of $7.4 million and net loss available to common stockholders of $10.0 million for the second quarter of 2011, and net income of $21.1 million and net income available to common stockholders of $17.8 million for the first quarter of 2012.

Key items for the quarter were as follows:

Improved Return on Assets and Return on Equity:

Improved Credit Metrics:

Balance Sheet Trends:

RESULTS OF OPERATIONS

Second Quarter Results

Net Interest Income

Net interest income on a fully tax equivalent basis decreased $2.7 million from the first quarter of 2012. The decrease from the first quarter of 2012 to the second quarter of 2012 was due primarily to a decrease in average interest earning assets of approximately $195 million and a four basis point decline in our net interest margin to 3.83% on a fully tax equivalent basis.

Net interest income on a fully tax equivalent basis decreased $9.0 million during the first six months of 2012 compared to the first six months of 2011. The decrease from the first six months of 2012 to the first six months of 2011 was due primarily to a decrease in average interest earning assets of approximately $382 million and a five basis point decline in our net interest margin to 3.85% on a fully tax equivalent basis.

See the supplemental net interest margin tables for further detail.

Other Income (in thousands):

    Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30, June 30,   June 30,
  2012       2012       2011       2011       2011       2012       2011  
Core other income:
Loan service fees $ 1,683 $ 1,339 $ 1,601 $ 2,159 $ 2,812 $ 3,022 $ 3,938
Deposit service fees 9,370 9,408 10,085 9,932 9,023 18,778 19,053
Lease financing, net 7,334 6,958 7,801 6,494 6,861 14,292 12,644
Brokerage fees 1,264 1,255 1,577 1,273 1,615 2,519 3,034
Trust and asset management fees 4,535 4,404 4,166 4,272 4,455 8,939 8,886
Increase in cash surrender value of life insurance 870 917 944 1,014 1,451 1,787 2,419
Accretion of FDIC indemnification asset 222 475 683 985 1,339 697 3,170
Card fees 2,429 2,044 1,096 2,071 2,062 4,473 3,850
Other operating income   1,832       2,162       1,632       1,690       1,979       3,994       3,577  
Total core other income   29,539       28,962       29,585       29,890       31,597       58,501       60,571  
 
Non-core other income: (1)
Net gain (loss) on investment securities (34 ) (3 ) 411 - 232 (37 ) 229
Net (loss) gain on sale of other assets (8 ) (17 ) (87 ) - 13 (25 ) 370
Net gain on sale of loans held for sale (A) - - - - 1,790 - 1,790
Net loss recognized on other real estate owned (B) (4,156 ) (4,348 ) (3,620 ) (2,354 ) (3,629 ) (8,504 ) (3,997 )
Net loss recognized on other real estate owned
related to FDIC transactions (B) (1,285 ) (2,241 ) (1,858 ) (764 ) (1,016 ) (3,526 ) (1,020 )
Increase (decrease) in market value of assets held
in trust for deferred compensation (A)   (149 )     501       20       (405 )     158       352       345  
Total non-core other income   (5,632 )     (6,108 )     (5,134 )     (3,523 )     (2,452 )     (11,740 )     (2,283 )
 
Total other income $ 23,907     $ 22,854     $ 24,451     $ 26,367     $ 29,145     $ 46,761     $ 58,288  

(1) Letter denotes the corresponding line items where these non-core other income items reside in the consolidated statements of income as follows: A – Other operating income, B – Net loss recognized on other real estate owned.

Core other income increased by $577 thousand from the first quarter of 2012 to the second quarter of 2012. Loan service fees increased due to an increase in loan prepayment fees. Net lease financing increased due to an increase in remarketing revenues. Accretion of FDIC indemnification asset decreased as accretion is recorded based on the FDIC indemnification asset balance, which has declined as we have received loss-share payments. Card fee income increased due primarily to fees earned on prepaid cards and credit cards. Non-core other income was primarily impacted by lower losses recognized on OREO.

Core other income decreased by $2.1 million from the first six months of 2011 to the first six months of 2012 primarily due to a $2.5 million decrease in accretion of FDIC indemnification asset. Accretion is recorded based on the FDIC indemnification asset balance which has declined as we have received loss-share payments. Loan service fees decreased in the first six months of 2012 compared to the same period in 2011 due to a decrease in loan prepayment and exit fees. Net lease financing increased primarily due to an increase in remarketing revenues. Cash surrender value of life insurance decreased as a result of a death benefit recorded in the first six months of 2011. Card fee income increased due primarily to fees earned on prepaid cards and credit cards. Non-core other income was primarily impacted by higher losses recognized on OREO.

Other Expense (in thousands):

    Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30, June 30,   June 30,
  2012       2012     2011     2011       2011     2012     2011
Core other expense:
Salaries and employee benefits $ 40,295 $ 39,928 $ 39,826 $ 38,827 $ 37,657 $ 80,223 $ 75,245
Occupancy and equipment expense 9,188 9,570 8,498 9,092 8,483 18,758 17,877
Computer services and telecommunication expense 3,909 3,653 4,382 3,488 3,570 7,562 7,015
Advertising and marketing expense 1,930 2,066 1,831 1,740 1,748 3,996 3,467
Professional and legal expense 1,503 1,413 1,422 1,647 1,853 2,916 3,078
Other intangible amortization expense 1,251 1,257 1,410 1,414 1,416 2,508 2,841
FDIC insurance premiums 2,010 2,643 2,662 2,272 3,502 4,653 6,930
Other real estate expense, net 424 1,243 1,464 1,181 1,251 1,667 1,649
Other operating expenses   6,473       5,057     7,324     7,352       7,090     11,530     14,145
Total core other expense   66,983       66,830     68,819     67,013       66,570     133,813     132,247
 
Non-core other expense: (1)
Branch impairment charges - - 594 - - - 1,000
Increase (decrease) in market value of assets held
in trust for deferred compensation (A)   (149 )     501     20     (405 )     158     352     345
Total non-core other expense   (149 )     501     614     (405 )     158     352     1,345
 
Total other expense $ 66,834     $ 67,331   $ 69,433   $ 66,608     $ 66,728   $ 134,165   $ 133,592

(1) Letters denote the corresponding line items where these non-core other expense items reside in the consolidated statements of income as follows: A – Salaries and employee benefits.

Core other expense in the second quarter of 2012 was consistent with first quarter of 2012. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012. Other real estate expense decreased as a result of lower holding costs related to OREO given we have fewer OREO properties. Other operating expenses were unusually low in the first quarter of 2012 as a result of recording a decrease during that period in the clawback liability related to our loss share agreements with the FDIC.

Core other expense increased by $1.6 million from the first six months of 2011 to the first six months of 2012. Salaries and employee benefits expense increased primarily due to annual salary increases and higher health insurance claims. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012 and the impact of improved credit quality on the computation. Other operating expenses were favorably impacted in the first half of 2012 by a decrease in the clawback liability related to our loss share agreements with the FDIC recorded during the period. Non-core other expense was primarily impacted by $1.0 million of fixed asset impairment charges due to our decision to close a branch in the first quarter of 2011.

Income Taxes

The Company had income tax expense of $9.0 million for the three months ended June 30, 2012 compared to $8.4 million for the three months ended March 31, 2012. Income tax expense was $17.5 million for the six months ended June 30, 2012 compared to a tax benefit of $11.5 million for the six months ended June 30, 2011. The change was due to the Company’s improvement in pre-tax income.

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):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012       2012       2011       2011       2011  
  % of   % of   % of   % of   % of
  Amount   Total     Amount   Total     Amount   Total     Amount   Total     Amount   Total
Commercial related credits:
Commercial loans $ 1,079,436 19 % $ 1,040,340 18 % $ 1,113,123 19 % $ 1,042,583 18 % $ 1,108,295 19 %
Commercial loans collateralized by
assignment of lease payments (lease loans) 1,221,199 21 % 1,209,942 21 % 1,208,575 20 % 1,067,191 18 % 1,031,677 17 %
Commercial real estate 1,794,777 31 % 1,877,380 32 % 1,853,788 31 % 1,844,894 32 % 1,863,223 32 %
Construction real estate 150,665   3 % 128,040   2 % 183,789   3 % 210,206   4 % 246,557   4 %
Total commercial related credits 4,246,077   74 % 4,255,702   73 % 4,359,275   73 % 4,164,874   72 % 4,249,752   72 %
Other loans:
Residential real estate 313,137 5 % 309,644 5 % 316,787 5 % 316,305 5 % 317,821 5 %
Indirect vehicle 198,848 3 % 186,736 3 % 187,481 3 % 189,033 4 % 182,536 3 %
Home equity 323,234 6 % 327,450 6 % 336,043 6 % 348,934 6 % 357,181 6 %
Consumer loans 89,115   2 % 89,705   2 % 88,865   2 % 76,025   1 % 75,069   1 %
Total other loans 924,334   16 % 913,535   16 % 929,176   16 % 930,297   16 % 932,607   15 %
Gross loans excluding covered loans 5,170,411 90 % 5,169,237 89 % 5,288,451 89 % 5,095,171 88 % 5,182,359 87 %
Covered loans (1) 552,838   10 % 620,528   11 % 662,544   11 % 718,566   12 % 755,670   13 %
Total loans $ 5,723,249 100 % $ 5,789,765 100 % $ 5,950,995 100 % $ 5,813,737 100 % $ 5,938,029 100 %

(1) Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.

ASSET QUALITY

The following table presents a summary of non-performing assets, excluding loans held for sale, credit-impaired loans that were acquired as part of our FDIC-assisted transactions and OREO related to assets acquired in FDIC-assisted transactions, as of the dates indicated (dollar amounts in thousands):

  June 30,   March 31,   December 31,   September 30,   June 30,
  2012       2012       2011       2011       2011  
Non-performing loans:
Non-accrual loans (1) $ 113,077 $ 124,011 $ 129,309 $ 140,979 $ 149,905
Loans 90 days or more past due, still accruing interest 453   679   82   -   1,121  
Total non-performing loans 113,530   124,690   129,391   140,979   151,026  
 
OREO 49,690 63,077 78,452 87,469 88,185
Repossessed vehicles 60   81   156   249   55  
Total non-performing assets $ 163,280   $ 187,848   $ 207,999   $ 228,697   $ 239,266  
 
Total allowance for loan losses $ 121,756 $ 125,431 $ 126,798 $ 128,610 $ 130,057
 
Accruing restructured loans (2) $ 16,536 $ 24,145 $ 37,996 $ 34,321 $ 35,037
 
Total non-performing loans to total loans 1.98 % 2.15 % 2.17 % 2.42 % 2.54 %
Total non-performing assets to total assets 1.72 % 1.94 % 2.12 % 2.30 % 2.40 %
Allowance for loan losses to non-performing loans 107.25 % 100.59 % 98.00 % 91.23 % 86.12 %

(1) Includes $32.7 million, $34.7 million, $42.5 million, $36.0 million and $22.5 million of restructured loans on non-accrual status at June 30, 2012, March 31, 2012, December 31, 2011, September 30, 2011 and June 30, 2011, respectively.

(2) Accruing restructured loans consists primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table represents a summary of OREO, excluding OREO related to assets acquired in FDIC-assisted transactions (in thousands):

  June 30,   March 31,   December 31,   September 30,   June 30,
2012   2012   2011   2011   2011  
 
Balance at the beginning of quarter $ 63,077 $ 78,452 $ 87,469 $ 88,185 $ 80,107
Transfers in at fair value less estimated costs to sell 1,877 2,110 4,209 15,658 15,761
Fair value adjustments (4,507 ) (4,764 ) (3,733 ) (2,524 ) (3,417 )
Net gains (losses) on sales of OREO 351 416 113 170 (212 )
Cash received upon disposition (11,108 ) (13,137 ) (9,606 ) (14,020 ) (4,054 )
Balance at the end of quarter $ 49,690   $ 63,077   $ 78,452   $ 87,469   $ 88,185  
 

The following table presents data related to non-performing loans, by dollar amount and category at June 30, 2012, excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):

                     
    Commercial and Lease Loans   Construction Real Estate Loans   Commercial Real Estate Loans   Consumer Loans   Total Loans
  Number of     Number of     Number of      
    Relationships     Amount   Relationships     Amount   Relationships     Amount     Amount     Amount
$10.0 million or more - $ - - $ - - $ - $ - $ -
$5.0 million to $9.9 million 1 6,182 - - 1 5,431 - 11,613
$1.5 million to $4.9 million 5 10,984 - - 11 30,324 - 41,308
Under $1.5 million 34     7,236     4     1,470     77     26,757       25,146       60,609  
40   $ 24,402     4   $ 1,470     89   $ 62,512     $ 25,146     $ 113,530  
 
Percentage of individual loan category 1.06 % 0.98 % 3.48 % 2.72 % 1.98 %
 

The following table presents data related to non-performing loans, by dollar amount and category at March 31, 2012, excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):

                         
    Commercial and Lease Loans   Construction Real Estate Loans   Commercial Real Estate Loans     Consumer Loans     Total Loans
  Number of     Number of     Number of      
    Relationships     Amount   Relationships     Amount   Relationships     Amount     Amount     Amount
$10.0 million or more - $ - - $ - - $ - $ - $ -
$5.0 million to $9.9 million 3 21,476 - - 1 5,431 - 26,907
$1.5 million to $4.9 million 2 3,577 - - 15 40,603 1,603 45,783
Under $1.5 million 43     9,418     4     1,553     68     24,905       16,124       52,000  
48   $ 34,471     4   $ 1,553     84   $ 70,939     $ 17,727     $ 124,690  
 
Percentage of individual loan category 1.53 % 1.21 % 3.78 % 1.94 % 2.15 %
 

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). Potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amount of potential problem loans was $141.0 million, or 2.46% of total loans, as of June 30, 2012, compared to $159.4 million, or 2.75% of total loans, as of March 31, 2012.

Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollar amounts in thousands):

      Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
  2012       2012       2011       2011       2011       2012       2011  
 
Allowance for credit losses, balance at the beginning of period $ 133,255 $ 135,975 $ 141,861 $ 147,107 $ 178,410 $ 135,975 $ 192,217
Provision for credit losses - 3,100 8,000 11,500 61,250 3,100 101,250
Charge-offs:
Commercial loans (1,451 ) (539 ) (2,932 ) (3,497 ) (7,991 ) (1,990 ) (11,142 )
Commercial loans collateralized by
assignment of lease payments (lease loans) (1,720 ) - (1,373 ) - (93 ) (1,720 ) (93 )
Commercial real estate loans (2,415 ) (3,003 ) (3,793 ) (7,815 ) (55,250 ) (5,418 ) (85,025 )
Construction real estate (444 ) (3,436 ) (6,989 ) (6,008 ) (18,826 ) (3,880 ) (39,920 )
Residential real estate (1,108 ) (294 ) (860 ) (141 ) (8,080 ) (1,402 ) (11,642 )
Indirect vehicle (488 ) (715 ) (954 ) (611 ) (553 ) (1,203 ) (1,271 )
Home equity (876 ) (1,072 ) (2,061 ) (1,605 ) (5,493 ) (1,948 ) (7,400 )
Consumer loans (274 ) (258 ) (285 ) (475 ) (344 ) (532 ) (888 )
Total charge-offs (8,776 ) (9,317 ) (19,247 ) (20,152 ) (96,630 ) (18,093 ) (157,381 )
Recoveries:
Commercial loans 386 2,038 634 1,413 758 2,424 3,323
Commercial loans collateralized by
assignment of lease payments (lease loans) 93 256 1 5 153 349 219
Commercial real estate loans 3,061 162 747 739 312 3,223 1,846
Construction real estate 141 565 3,519 681 2,364 706 4,390
Residential real estate 188 34 9 7 26 222 33
Indirect vehicle 300 311 378 327 369 611 694
Home equity 100 20 6 151 19 120 67
Consumer loans 92   111   67   83   76   203   449  
Total recoveries 4,361   3,497   5,361   3,406   4,077   7,858   11,021  
 
Total net charge-offs (4,415 ) (5,820 ) (13,886 ) (16,746 ) (92,553 ) (10,235 ) (146,360 )
 
Allowance for credit losses 128,840 133,255 135,975 141,861 147,107 128,840 147,107
 
Allowance for unfunded credit commitments (7,084 ) (7,824 ) (9,177 ) (13,251 ) (17,050 ) (7,084 ) (17,050 )
 
Allowance for loan losses $ 121,756   $ 125,431   $ 126,798   $ 128,610   $ 130,057   $ 121,756   $ 130,057  
 
Total loans, excluding loans held for sale $ 5,723,249 $ 5,789,765 $ 5,950,995 $ 5,813,737 $ 5,938,029 $ 5,723,249 $ 5,938,029
Average loans, excluding loans held for sale $ 5,712,630 $ 5,802,037 $ 5,818,425 $ 5,827,181 $ 6,293,073 $ 5,757,333 $ 6,376,329
 
Ratio of allowance for loan losses to total loans, excluding loans held for sale 2.13 % 2.17 % 2.13 % 2.21 % 2.19 % 2.13 % 2.19 %
 
Net loan charge-offs to average loans, excluding loans held for sale (annualized) 0.31 % 0.40 % 0.95 % 1.14 % 5.90 % 0.36 % 4.63 %

During the second quarter of 2011, we sold certain performing, sub-performing and non-performing loans. The loans sold had an aggregate carrying amount of $281.6 million prior to the transfer to loans held for sale. This sale resulted in approximately $87.6 million in charge-offs and an increase in the provision for credit losses of approximately $50 million in the second quarter of 2011.

Our allowance for loan losses is comprised of three elements: a general loss reserve, a specific reserve for impaired loans and a reserve for smaller-balance homogenous loans. The following table presents these three elements of our allowance for loan losses (in thousands):

  June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
 
General loss reserve $ 93,904 $ 98,673 $ 102,196 $ 102,752 $ 104,002
Specific reserve 13,674 13,734 10,804 11,416 12,111
Smaller-balance homogenous loans reserve 14,178 13,024 13,798 14,442 13,944
Total allowance for loan losses $ 121,756 $ 125,431 $ 126,798 $ 128,610 $ 130,057
 

Although management believes that adequate general, specific and smaller-balance homogenous loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of general, specific and smaller-balance homogenous loan loss allowances may become necessary.

INVESTMENT SECURITIES

The following table sets forth the fair value, amortized cost, and total unrealized gain of our investment securities, by type (in thousands):

  June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
 
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $ 42,175 $ 42,070 $ 42,401 $ 56,007 $ 55,656
States and political subdivisions 629,173 581,720 535,660 394,279 392,670
Mortgage-backed securities 1,035,473 1,193,248 1,334,491 1,421,789 1,424,302
Corporate bonds 5,569 5,686 5,899 5,899 6,019
Equity securities 11,081 10,887 10,846 10,764 10,435
Total fair value $ 1,723,471 $ 1,833,611 $ 1,929,297 $ 1,888,738 $ 1,889,082
 
Amortized cost
Government sponsored agencies and enterprises $ 39,366 $ 39,503 $ 39,640 $ 53,016 $ 54,423
States and political subdivisions 589,654 547,262 500,979 366,651 371,598
Mortgage-backed securities 1,014,186 1,168,340 1,308,020 1,399,801 1,401,975
Corporate bonds 5,569 5,686 5,899 5,899 6,019
Equity securities 10,584 10,520 10,457 10,324 10,246
Total amortized cost $ 1,659,359 $ 1,771,311 $ 1,864,995 $ 1,835,691 $ 1,844,261
 
Unrealized gain
Government sponsored agencies and enterprises $ 2,809 $ 2,567 $ 2,761 $ 2,991 $ 1,233
States and political subdivisions 39,519 34,458 34,681 27,628 21,072
Mortgage-backed securities 21,287 24,908 26,471 21,988 22,327
Corporate bonds - - - - -
Equity securities 497 367 389 440 189
Total unrealized gain $ 64,112 $ 62,300 $ 64,302 $ 53,047 $ 44,821
 
Securities held to maturity, at cost:
States and political subdivisions $ 238,869 $ 239,526 $ 240,183 $ 240,839 $ -
Mortgage-backed securities 258,931 259,241 259,100 258,199 230,154
Total amortized cost $ 497,800 $ 498,767 $ 499,283 $ 499,038 $ 230,154
 

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 securities portfolio. Additionally, more than 99% of our mortgage-backed securities are agency guaranteed.

DEPOSIT MIX

The following table shows the composition of deposits as of the dates indicated (dollars in thousands):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012       2012       2011       2011       2011  
  % of   % of   % of   % of   % of
  Amount   Total     Amount   Total     Amount   Total     Amount   Total     Amount   Total
Low cost deposits:
Noninterest bearing deposits $ 1,946,468 26 % $ 1,874,028 25 % $ 1,885,694 25 % $ 1,803,141 23 % $ 1,776,873 23 %
Money market and NOW accounts 2,564,493 34 % 2,702,636 35 % 2,645,334 34 % 2,722,162 35 % 2,645,953 34 %
Savings accounts 790,350   11 % 786,357   10 % 753,610   10 % 751,062   10 % 729,222   9 %
Total low cost deposits 5,301,311   71 % 5,363,021   70 % 5,284,638   69 % 5,276,365   68 % 5,152,048   66 %
 
Certificates of deposit:
Certificates of deposit 1,718,266 23 % 1,820,266 24 % 1,925,608 25 % 2,001,210 26 % 2,124,815 28 %
Brokered deposit accounts 451,132   6 % 451,415   6 % 437,361   6 % 444,332   6 % 441,720   6 %
Total certificates of deposit 2,169,398   29 % 2,271,681   30 % 2,362,969   31 % 2,445,542   32 % 2,566,535   34 %
 
Total deposits $ 7,470,709   100 % $ 7,634,702   100 % $ 7,647,607   100 % $ 7,721,907   100 % $ 7,718,583   100 %
 

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 revenues, 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 FDIC-assisted transactions we previously completed will not be realized; (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 the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations adopted thereunder, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (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)
 
June 30, March 31, December 31, September 30, June 30,
  2012       2012       2011       2011       2011  
ASSETS
Cash and due from banks $ 132,737 $ 128,411 $ 144,228 $ 133,755 $ 129,942
Interest earning deposits with banks   304,075       272,553       100,337       347,055       513,378  
Total cash and cash equivalents 436,812 400,964 244,565 480,810 643,320
Investment securities:
Securities available for sale, at fair value 1,723,471 1,833,611 1,929,297 1,888,738 1,889,082
Securities held to maturity, at amortized cost 497,800 498,767 499,283 499,038 230,154
Non-marketable securities - FHLB and FRB Stock   61,462       65,541       80,832       80,815       80,815  
Total investment securities 2,282,733 2,397,919 2,509,412 2,468,591 2,200,051
Loans held for sale 2,290 3,364 4,727 - -
Loans:
Total loans, excluding covered loans 5,170,411 5,169,237 5,288,451 5,095,171 5,182,359
Covered loans   552,838       620,528       662,544       718,566       755,670  
Total loans 5,723,249 5,789,765 5,950,995 5,813,737 5,938,029
Less: Allowance for loan losses   121,756       125,431       126,798       128,610       130,057  
Net loans 5,601,493 5,664,334 5,824,197 5,685,127 5,807,972
Lease investments, net 111,122 124,748 135,490 133,345 139,391
Premises and equipment, net 214,935 212,589 210,705 211,062 210,901
Cash surrender value of life insurance 127,096 126,226 125,309 124,364 126,938
Goodwill, net 387,069 387,069 387,069 387,069 387,069
Other intangibles, net 26,986 28,237 29,494 30,904 32,318
Other real estate owned, net 49,690 63,077 78,452 87,469 88,185
Other real estate owned related to FDIC transactions 43,807 53,703 60,363 69,311 69,920
FDIC indemnification asset 56,637 72,161 80,830 94,542 119,837
Other assets   148,896       137,209       142,459       149,767       151,833  
Total assets $ 9,489,566     $ 9,671,600     $ 9,833,072     $ 9,922,361     $ 9,977,735  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 1,946,468 $ 1,874,028 $ 1,885,694 $ 1,803,141 $ 1,776,873
Interest bearing   5,524,241       5,760,674       5,761,913       5,918,766       5,941,710  
Total deposits 7,470,709 7,634,702 7,647,607 7,721,907 7,718,583
Short-term borrowings 261,729 269,691 219,954 257,418 235,733
Long-term borrowings 221,100 256,456 266,264 274,378 275,559
Junior subordinated notes issued to capital trusts 158,521 158,530 158,538 158,546 158,554
Accrued expenses and other liabilities   139,756       136,791       147,682       141,490       243,962  
Total liabilities   8,251,815       8,456,170       8,440,045       8,553,739       8,632,391  
Stockholders' Equity
Preferred stock - - 194,719 194,562 194,407
Common stock 549 549 548 548 546
Additional paid-in capital 732,297 732,613 731,248 730,056 728,244
Retained earnings 466,812 445,233 427,956 411,659 396,081
Accumulated other comprehensive income 39,035 37,935 39,150 32,322 27,322
Treasury stock   (3,353 )     (3,326 )     (3,044 )     (3,010 )     (3,771 )
Controlling interest stockholders' equity 1,235,340 1,213,004 1,390,577 1,366,137 1,342,829
Noncontrolling interest   2,411       2,426       2,450       2,485       2,515  
Total stockholders' equity   1,237,751       1,215,430       1,393,027       1,368,622       1,345,344  
Total liabilities and stockholders' equity $ 9,489,566     $ 9,671,600     $ 9,833,072     $ 9,922,361     $ 9,977,735  

         
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data) (Unaudited)
 
Three Months Ended   Six Months Ended
June 30,   March 31,   December 31, September 30, June 30, June 30,   June 30,
  2012       2012       2011       2011       2011       2012       2011  
Interest income:
Loans $ 69,250 $ 71,648 $ 75,466 $ 78,046 $ 84,114 $ 140,898 $ 171,281
Investment securities:
Taxable 8,882 10,884 11,608 11,699 10,290 19,766 18,042
Nontaxable 7,303 6,739 6,178 4,299 3,443 14,042 6,788
Other interest earning accounts   158       169       181       244       258       327       728  
Total interest income   85,593       89,440       93,433       94,288       98,105       175,033       196,839  
Interest expense:
Deposits 8,058 8,760 9,569 10,207 11,746 16,818 25,105
Short-term borrowings 362 206 189 204 239 568 456
Long-term borrowings and junior subordinated notes   3,069       3,381       3,430       3,461       3,713       6,450       6,666  
Total interest expense   11,489       12,347       13,188       13,872       15,698       23,836       32,227  
Net interest income 74,104 77,093 80,245 80,416 82,407 151,197 164,612
Provision for credit losses   -       3,100       8,000       11,500       61,250       3,100       101,250  
Net interest income after
provision for credit losses   74,104       73,993       72,245       68,916       21,157       148,097       63,362  
Other income:
Loan service fees 1,683 1,339 1,601 2,159 2,812 3,022 3,938
Deposit service fees 9,370 9,408 10,085 9,932 9,023 18,778 19,053
Lease financing, net 7,334 6,958 7,801 6,494 6,861 14,292 12,644
Brokerage fees 1,264 1,255 1,577 1,273 1,615 2,519 3,034
Trust and asset management fees 4,535 4,404 4,166 4,272 4,455 8,939 8,886
Net gain (loss) on investment securities (34 ) (3 ) 411 - 232 (37 ) 229
Increase in cash surrender value of life insurance 870 917 944 1,014 1,451 1,787 2,419
Net gain (loss) on sale of assets (8 ) (17 ) (87 ) - 13 (25 ) 370
Accretion of FDIC indemnification asset 222 475 683 985 1,339 697 3,170
Card fees 2,429 2,044 1,096 2,071 2,062 4,473 3,850
Net loss recognized on other real estate owned (5,441 ) (6,589 ) (5,478 ) (3,118 ) (4,645 ) (12,030 ) (5,017 )
Other operating income   1,683       2,663       1,652       1,285       3,927       4,346       5,712  
Total other income   23,907       22,854       24,451       26,367       29,145       46,761       58,288  
Other expenses:
Salaries and employee benefits 40,146 40,429 39,846 38,422 37,815 80,575 75,590
Occupancy and equipment expense 9,188 9,570 8,498 9,092 8,483 18,758 17,877
Computer services and telecommunication expense 3,909 3,653 4,382 3,488 3,570 7,562 7,015
Advertising and marketing expense 1,930 2,066 1,831 1,740 1,748 3,996 3,467
Professional and legal expense 1,503 1,413 1,422 1,647 1,853 2,916 3,078
Other intangible amortization expense 1,251 1,257 1,410 1,414 1,416 2,508 2,841
FDIC insurance premiums 2,010 2,643 2,662 2,272 3,502 4,653 6,930
Branch impairment charges - - 594 - - - 1,000
Other real estate expense, net 424 1,243 1,464 1,181 1,251 1,667 1,649
Other operating expenses   6,473       5,057       7,324       7,352       7,090       11,530       14,145  
Total other expense   66,834       67,331       69,433       66,608       66,728       134,165       133,592  
Income (loss) before income taxes 31,177 29,516 27,263 28,675 (16,426 ) 60,693 (11,942 )
Income tax expense (benefit)   9,034       8,430       7,810       8,978       (9,060 )     17,464       (11,520 )
Net income (loss) 22,143 21,086 19,453 19,697 (7,366 ) 43,229 (422 )
Dividends and discount accretion on preferred shares   -       3,269       2,606       2,605       2,602       3,269       5,203  
Net income (loss) available to
common stockholders $ 22,143     $ 17,817     $ 16,847     $ 17,092     $ (9,968 )   $ 39,960     $ (5,625 )
   
Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30, June 30,   June 30,
  2012     2012       2011       2011       2011       2012       2011  
Common share data:
Basic earnings allocated to common stock per common share $ 0.41 $ 0.39 $ 0.36 $ 0.36 $ (0.14 ) $ 0.80 $ (0.01 )
Impact of preferred stock dividends on basic
earnings (loss) per common share - (0.06 ) (0.05 ) (0.04 ) (0.04 ) (0.06 ) (0.09 )
Basic earnings (loss) per common share 0.41 0.33 0.31 0.32 (0.18 ) 0.74 (0.10 )
 
Diluted earnings allocated to common stock per common share 0.41 0.39 0.36 0.36 (0.14 ) 0.79 (0.01 )
Impact of preferred stock dividends on diluted
earnings (loss) per common share - (0.06 ) (0.05 ) (0.05 ) (0.04 ) (0.06 ) (0.09 )
Diluted earnings (loss) per common share 0.41 0.33 0.31 0.31 (0.18 ) 0.73 (0.10 )
 
Weighted average common shares outstanding for
basic earnings per common share 54,174,717 54,155,856 54,140,646 54,121,156 54,002,979 54,165,286 53,982,193
 
Weighted average common shares outstanding for
diluted earnings per common share 54,448,709 54,411,916 54,360,178 54,323,320 54,002,979 54,431,491 53,982,193
             
Selected Financial Data:
 
  Three Months Ended   Six Months Ended
June 30, March 31, December 31, September 30, June 30, June 30, June 30,
  2012       2012       2011       2011       2011         2012       2011    
Performance Ratios:
Annualized return on average assets 0.94 % 0.87 % 0.78 % 0.80 % (0.30 ) % 0.90 % (0.01 ) %
Annualized return on average common equity 7.28 5.94 5.66 5.86 (3.43 ) 6.61 (0.98 )
Annualized cash return on average tangible
common equity (1) 11.28 9.36 9.09 9.52 (4.80 ) 10.33 (1.02 )
Net interest rate spread 3.65 3.67 3.71 3.71 3.71 3.66 3.70
Cost of funds (2) 0.57 0.60 0.63 0.66 0.74 0.59 0.76
Efficiency ratio (3) 61.36 60.04 59.94 58.69 56.63 60.69 57.03
Annualized net non-interest expense to
average assets (4) 1.57 1.54 1.56 1.48 1.38 1.56 1.41
Net interest margin 3.59 3.64 3.71 3.74 3.79 3.62 3.78
Tax equivalent effect 0.24 0.23 0.20 0.16 0.13 0.23 0.12
Net interest margin - fully tax equivalent basis (5) 3.83 3.87 3.91 3.90 3.92 3.85 3.90
Asset Quality Ratios:
Non-performing loans (6) to total loans 1.98 % 2.15 % 2.17 % 2.42 % 2.54 % 1.98 % 2.54 %
Non-performing assets (6) to total assets 1.72 1.94 2.12 2.30 2.40 1.72 2.40
Allowance for loan losses to non-performing loans (6) 107.25 100.59 98.00 91.23 86.12 107.25 86.12
Allowance for loan losses to total loans 2.13 2.17 2.13 2.21 2.19 2.13 2.19
Net loan charge-offs to average loans (annualized) 0.31 0.40 0.95 1.14 5.90 0.36 4.63
Capital Ratios:
Tangible equity to tangible assets (7) 9.17 % 8.74 % 10.47 % 10.10 % 9.79 % 9.17 % 9.79 %
Tangible common equity to risk weighted assets (8) 13.67 13.17 12.48 12.42 11.97 13.67 11.97
Tangible common equity to tangible assets (9) 9.17 8.74 8.40 8.06 7.76 9.17 7.76
Book value per common share (10) $ 22.64 $ 22.23 $ 21.92 $ 21.48 $ 21.14 $ 22.64 $ 21.14
Less: goodwill and other intangible assets,
net of benefit, per common share 7.40 7.41 7.43 7.45 7.49 7.40 7.49
Tangible book value per common share (11) 15.24 14.81 14.49 14.03 13.64 15.24 13.64
 
Total capital (to risk-weighted assets) 17.53 % 17.11 % 19.41 % 19.61 % 19.18 % 17.53 % 19.18 %
Tier 1 capital (to risk-weighted assets) 15.45 15.04 17.36 17.54 17.11 15.45 17.11
Tier 1 capital (to average assets) 10.46 9.99 11.73 11.59 11.16 10.46 11.16
Tier 1 common capital (to risk-weighted assets) 12.93 12.54 11.87 11.90 11.50 12.93 11.50
(1)   Net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) divided by 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 non-core items divided by the sum of net interest income on a fully tax equivalent basis, total other income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(4) Equals total other expense excluding non-core items less total other income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance 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) Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and 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 core other income, core other expense, non-core other income and non-core other expense, net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net gains and losses on sale of other assets, net losses on other real estate owned, net gain on sale of loans held for sale and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, impairment charges and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to risk-weighted assets, tangible common equity to tangible assets and Tier 1 common capital to risk-weighted assets; tangible book value per common share; and annualized cash return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

Management believes that core and non-core other income and other expense are useful in assessing our core operating performance and in understanding the primary drivers of our other income and other expense when comparing periods.

The tax equivalent adjustment to net interest income, net interest margin, tax-exempt interest income and increase in cash surrender value of life insurance 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. For the same reasons, management believes the tax equivalent adjustments to tax-exempt interest income and increase in cash surrender value of life insurance are useful.

Management also believes that by excluding net gains and losses on investment securities, net gains and losses on sale of other assets, net losses on other real estate owned, net gain on sale of loans held for sale and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding impairment changes and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

In addition, management believes that presenting the ratio of Tier 1 common equity to risk-weighted assets is useful for assessing our capital strength and for peer comparison purposes. The other measures exclude the acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible assets, tangible equity, tangible common equity and average tangible common equity and exclude other intangible amortization expense, net of tax benefit, in determining net cash flow available to common stockholders. 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 as well as our capital strength. Management also believes that providing measures that exclude balances of acquisition-related goodwill and other intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

The non-GAAP disclosures contained herein 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):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
Stockholders' equity - as reported $ 1,237,751 $ 1,215,430 $ 1,393,027 $ 1,368,622 $ 1,345,344
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible assets, net of tax benefit 17,541 18,354 19,171 20,088 21,007
Tangible equity $ 833,141 $ 810,007 $ 986,787 $ 961,465 $ 937,268
 

The following table presents a reconciliation of tangible assets to total assets (in thousands):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
Total assets - as reported $ 9,489,566 $ 9,671,600 $ 9,833,072 $ 9,922,361 $ 9,977,735
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible assets, net of tax benefit 17,541 18,354 19,171 20,088 21,007
Tangible assets $ 9,084,956 $ 9,266,177 $ 9,426,832 $ 9,515,204 $ 9,569,659
 

The following table presents a reconciliation of tangible common equity to stockholders’ common equity (in thousands):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
Common stockholders' equity - as reported $ 1,237,751 $ 1,215,430 $ 1,198,308 $ 1,174,060 $ 1,150,937
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible assets, net of tax benefit 17,541 18,354 19,171 20,088 21,007
Tangible common equity $ 833,141 $ 810,007 $ 792,068 $ 766,903 $ 742,861
 

The following table presents a reconciliation of average tangible common equity to average common stockholders’ equity (in thousands):

      Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
  2012     2012     2011     2011     2011     2012     2011
Average common stockholders' equity - as reported $ 1,223,667 $ 1,206,364 $ 1,181,820 $ 1,158,119 $ 1,165,022 $ 1,215,026 $ 1,158,565
Less: average goodwill 387,069 387,069 387,069 387,069 387,069 387,069 387,069
Less: average other intangible assets, net of tax benefit 17,903 18,721 19,494 20,414 21,331 18,312 21,790
Average tangible common equity $ 818,695 $ 800,574 $ 775,257 $ 750,636 $ 756,622 $ 809,645 $ 749,706
 

The following table presents a reconciliation of net cash flow available to common stockholders to net income (loss) available to common stockholders (in thousands):

      Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
  2012     2012     2011     2011     2011       2012     2011  
 
Net income (loss) available to common stockholders - as reported $ 22,143 $ 17,817 $ 16,847 $ 17,092 $ (9,968 ) $ 39,960 $ (5,625 )
Add: other intangible amortization expense, net of tax benefit 813 817 917 919 920   1,630 1,846  
Net cash flow available to common stockholders $ 22,956 $ 18,634 $ 17,764 $ 18,011 $ (9,048 ) $ 41,590 $ (3,779 )
 

The following table presents a reconciliation of Tier 1 common capital to Tier 1 capital (in thousands):

    June 30,   March 31,   December 31,   September 30,   June 30,
  2012     2012     2011     2011     2011
Tier 1 capital - as reported $ 941,888 $ 925,089 $ 1,101,538 $ 1,083,020 $ 1,061,482
Less: preferred stock - - 194,719 194,562 194,407
Less: qualifying trust preferred securities 153,500 153,500 153,787 153,795 153,803
Tier 1 common capital $ 788,388 $ 771,589 $ 753,032 $ 734,663 $ 713,272
 

Efficiency Ratio Calculation (Dollars in Thousands)

    Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
  2012       2012       2011       2011       2011       2012       2011  
Non-interest expense $ 66,834 $ 67,331 $ 69,433 $ 66,608 $ 66,728 $ 134,165 $ 133,592
Adjustment for impairment charges - - 594 - - - 1,000
Adjustment for increase (decrease) in market value of
assets held in trust for deferred compensation (149 ) 501   20   (405 ) 158   352   345  
Non-interest expense - as adjusted $ 66,983   $ 66,830   $ 68,819   $ 67,013   $ 66,570   $ 133,813   $ 132,247  
 
Net interest income $ 74,104 $ 77,093 $ 80,245 $ 80,416 $ 82,407 $ 151,197 164,612
Tax equivalent adjustment 5,057   4,756   4,468   3,320   2,775   9,813   5,400  
Net interest income on a fully tax equivalent basis 79,161 81,849 84,713 83,736 85,182 161,010 170,012
Tax equivalent adjustment on the increase in cash
surrender value of life insurance 468 494 508 546 781 962 1,302
Plus other income 23,907 22,854 24,451 26,367 29,145 46,761 58,288
Less net losses on other real estate owned (5,441 ) (6,589 ) (5,478 ) (3,118 ) (4,645 ) (12,030 ) (5,017 )
Less net gains (losses) on investment securities (34 ) (3 ) 411 - 232 (37 ) 229
Less net (losses) gains on sale of other assets (8 ) (17 ) (87 ) - 13 (25 ) 370
Less net gain on sale of loans held for sale - - - - 1,790 - 1,790
Less increase (decrease) in market value of
assets held in trust for deferred compensation (149 ) 501   20   (405 ) 158   352   345  
 
Net interest income plus non-interest income - as adjusted $ 109,168   $ 111,305   $ 114,806   $ 114,172   $ 117,560   $ 220,473   $ 231,885  
 
Efficiency ratio 61.36 % 60.04 % 59.94 % 58.69 % 56.63 % 60.69 % 57.03 %
 
Efficiency ratio (without adjustments) 68.19 % 67.37 % 66.32 % 62.38 % 59.82 % 67.77 % 59.93 %
 

Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)

    Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
  2012       2012       2011       2011       2011       2012       2011  
Non-interest expense $ 66,834 $ 67,331 $ 69,433 $ 66,608 $ 66,728 $ 134,165 $ 133,592
Adjustment for impairment charges - - 594 - - - 1,000
Adjustment for increase (decrease) in market value of assets
held in trust for deferred compensation (149 ) 501   20   (405 ) 158   352   345  
Non-interest expense - as adjusted 66,983   66,830   68,819   67,013   66,570   133,813   132,247  
 
Other income 23,907 22,854 24,451 26,367 29,145 46,761 58,288
Less net losses on other real estate owned (5,441 ) (6,589 ) (5,478 ) (3,118 ) (4,645 ) (12,030 ) (5,017 )
Less net gains (losses) on investment securities (34 ) (3 ) 411 - 232 (37 ) 229
Less net (losses) gains on sale of other assets (8 ) (17 ) (87 ) - 13 (25 ) 370
Less net gain on sale of loans held for sale - - - - 1,790 - 1,790
Less increase (decrease) in market value of assets held in
trust for deferred compensation (149 ) 501   20   (405 ) 158   352   345  
Other income - as adjusted 29,539   28,962   29,585   29,890   31,597   58,501   60,571  
Less tax equivalent adjustment on the increase in cash
surrender value of life insurance 468   494   508   546   781   962   1,302  
 
Net non-interest expense $ 36,976   $ 37,374   $ 38,726   $ 36,577   $ 34,192   $ 74,350   $ 70,374  
 
Average assets $ 9,478,480 $ 9,736,702 $ 9,856,835 $ 9,807,561 $ 9,966,898 $ 9,607,591 $ 10,082,121
 
Annualized net non-interest expense to average assets 1.57 % 1.54 % 1.56 % 1.48 % 1.38 % 1.56 % 1.41 %
 
Annualized net non-interest expense to average
assets (without adjustments) 1.82 % 1.84 % 1.81 % 1.63 % 1.51 % 1.83 % 1.51 %
 

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. Reconciliations of core and non-core other income and other expense to other income and other expense are contained in the tables under “Results of Operations—Second Quarter Results.”

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 June 30,   Three Months Ended March 31,
  2012     2011     2012
Average     Yield/   Average     Yield/ Average     Yield/
  Balance     Interest   Rate       Balance     Interest   Rate       Balance     Interest   Rate  
Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,071,199 $ 12,926 4.77 % $ 1,147,173 13,578 4.68 % $ 1,062,246 $ 12,774 4.76 %
Commercial loans collateralized by
assignment of lease payments 1,177,052 13,346 4.54 1,041,311 14,502 5.57 1,176,901 13,757 4.68
Real estate commercial 1,845,949 23,840 5.11 2,051,711 26,745 5.16 1,863,892 23,906 5.07
Real estate construction 139,487 1,404 3.98 349,367 3,789 4.29 145,728 1,540 4.18
Total commercial related credits 4,233,687 51,516 4.81 4,589,562 58,614 5.05 4,248,767 51,977 4.84
Other loans
Real estate residential 309,989 3,541 4.57 339,048 3,989 4.71 313,602 3,650 4.66
Home equity 324,675 3,574 4.43 367,829 3,949 4.31 332,909 3,670 4.43
Indirect 193,155 2,946 6.13 178,978 3,046 6.83 186,359 2,935 6.33
Consumer loans 69,690 551 3.18 56,356 436 3.10 69,747 529 3.05
Total other loans 897,509 10,612 4.76 942,211 11,420 4.86 902,617 10,784 4.81
Total loans, excluding covered loans 5,131,196 62,128 4.87 5,531,773 70,034 5.08 5,151,384 62,761 4.90
Covered loans 585,014 8,247 5.67 768,127 15,003 7.83 652,146 10,014 6.18
Total loans 5,716,210 70,375 4.95 6,299,900 85,037 5.41 5,803,530 72,775 5.04
Taxable investment securities 1,542,905 8,882 2.30 1,668,406 10,290 2.47 1,702,766 10,884 2.56
Investment securities exempt from
federal income taxes (3) 809,005 11,235 5.55 357,828 5,297 5.86 742,568 10,368 5.58
Other interest earning deposits 244,087 158 0.26 389,311 257 0.26 258,351 169 0.26
Total interest earning assets $ 8,312,207 $ 90,650 4.39 $ 8,715,445 $ 100,881 4.64 $ 8,507,215 $ 94,196 4.45
Non-interest earning assets 1,166,273 1,251,453 1,229,487
Total assets $ 9,478,480 $ 9,966,898 $ 9,736,702
 
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,607,238 $ 1,045 0.16 % $ 2,676,663 $ 1,922 0.29 % $ 2,649,671 $ 1,207 0.18 %
Savings accounts 785,427 213 0.11 725,810 312 0.17 772,335 248 0.13
Certificates of deposit 1,765,578 3,261 0.77 2,219,170 5,589 1.01 1,892,328 3,883 0.86
Customer repurchase agreements 194,804 126 0.26 242,939 155 0.26 203,003 134 0.27
Total core funding 5,353,047 4,645 0.35 5,864,582 7,978 0.55 5,517,337 5,472 0.40
Wholesale funding:
Brokered accounts (includes fee expense) 456,735 3,539 3.12 462,003 3,924 3.41 439,890 3,422 3.13
Other borrowings 424,842 3,305 3.08 461,653 3,796 3.25 429,231 3,453 3.18
Total wholesale funding 881,577 6,844 2.77 923,656 7,720 3.35 869,121 6,875 2.76
Total interest bearing liabilities $ 6,234,624 $ 11,489 0.74 $ 6,788,238 $ 15,698 0.93 $ 6,386,458 $ 12,347 0.78
Non-interest bearing deposits 1,900,937 1,724,429 1,851,211
Other non-interest bearing liabilities 119,252 94,976 136,412
Stockholders' equity 1,223,667 1,359,255 1,362,621
Total liabilities and stockholders' equity $ 9,478,480 $ 9,966,898 $ 9,736,702
Net interest income/interest rate spread (4) $ 79,161   3.65 % $ 85,183   3.71 % $ 81,849   3.67 %
Taxable equivalent adjustment 5,057 2,775 4,756
Net interest income, as reported $ 74,104 $ 82,408 $ 77,093
Net interest margin (5) 3.59 % 3.79 % 3.64 %
Tax equivalent effect 0.24 % 0.13 % 0.23 %
Net interest margin on a fully tax
equivalent basis (5) 3.83 % 3.92 % 3.87 %
(1)   Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $839 thousand, $877 thousand, and $1.3 million for the three months ended June 30, 2012, March 31, 2012, and June 30, 2011, 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.
 

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):

      Six Months Ended June 30,
  2012     2011  
Average     Yield/   Average     Yield/
  Balance     Interest   Rate       Balance     Interest   Rate  
Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,066,722 $ 25,700 4.77 % $ 1,155,886 27,909 4.80 %
Commercial loans collateralized by
assignment of lease payments 1,176,977 27,103 4.61 1,022,695 28,592 5.59
Real estate commercial 1,854,920 47,745 5.09 2,095,411 54,980 5.22
Real estate construction 142,607 2,944 4.08 378,098 7,308 3.84
Total commercial related credits 4,241,226 103,492 4.83 4,652,090 118,789 5.08
Other loans
Real estate residential 311,637 7,191 4.61 335,969 8,455 5.03
Home equity 328,951 7,245 4.43 372,072 7,952 4.31
Indirect 189,757 5,881 6.23 176,683 5,986 6.83
Consumer loans 69,718 1,080 3.12 56,909 1,036 3.67
Total other loans 900,063 21,397 4.78 941,633 23,429 5.02
Total loans, excluding covered loans 5,141,289 124,889 4.88 5,593,723 142,218 5.13
Covered loans 618,580 18,261 5.94 786,101 30,808 7.90
Total loans 5,759,869 143,150 5.00 6,379,824 173,026 5.47
Taxable investment securities 1,622,835 19,766 2.44 1,491,715 18,042 2.42
Investment securities exempt from
federal income taxes (3) 775,788 21,603 5.57 353,355 10,443 5.88
Other interest earning deposits 251,219 327 0.26 567,174 728 0.26
Total interest earning assets $ 8,409,711 $ 184,846 4.42 $ 8,792,068 $ 202,239 4.64
Non-interest earning assets 1,197,880 1,290,053
Total assets $ 9,607,591 $ 10,082,121
 
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,628,455 $ 2,252 0.17 % $ 2,701,493 $ 4,408 0.33 %
Savings accounts 778,881 461 0.12 718,175 732 0.21
Certificates of deposit 1,828,953 7,144 0.82 2,323,644 12,109 1.05
Customer repurchase agreements 198,903 260 0.26 252,704 342 0.27
Total core funding 5,435,192 10,117 0.37 5,996,016 17,591 0.59
Wholesale funding:
Brokered accounts (includes fee expense) 448,312 6,961 3.12 464,695 7,857 3.41
Other borrowings 427,037 6,758 3.13 451,006 6,779 2.99
Total wholesale funding 875,349 13,719 2.77 915,701 14,636 3.22
Total interest bearing liabilities $ 6,310,541 $ 23,836 0.76 $ 6,911,717 $ 32,227 0.94
Non-interest bearing deposits 1,876,074 1,698,361
Other non-interest bearing liabilities 127,832 119,241
Stockholders' equity 1,293,144 1,352,802
Total liabilities and stockholders' equity $ 9,607,591 $ 10,082,121
Net interest income/interest rate spread (4) $ 161,010   3.66 % $ 170,012   3.70 %
Taxable equivalent adjustment 9,813 5,400
Net interest income, as reported $ 151,197 $ 164,612
Net interest margin (5) 3.62 % 3.78 %
Tax equivalent effect 0.23 % 0.12 %
Net interest margin on a fully tax
equivalent basis (5) 3.85 % 3.90 %
(1)   Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $1.7 million and $2.6 million for the six months ended June 30, 2012 and June 30, 2011, 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.


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