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MB Financial, Inc. Reports Second Quarter Net Income Of $25.3 Million And Return On Assets Of 1.09%

Business Wire

07/15/13 - 01:46 AM EDT

MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2013 second quarter net income of $25.3 million.

"Our earnings were strong during the second quarter, driven by fee income and low credit costs," stated Mitchell Feiger, President and Chief Executive Officer of the Company. "Our return on assets increased to 1.09%. Net income available to common shareholders increased for the sixth consecutive quarter, while year to date net income increased 16.1% compared to the first half of 2012. In addition, revenues from our key fee initiatives for the first six months of 2013 increased 47% over the first six months of 2012."

Net income increased in the second quarter of 2013 compared to the first quarter of 2013 and second quarter of 2012. Fully diluted earnings per share were consistent with the first quarter of 2013, and increased from the second quarter of 2012 as follows (note that all linked quarter change percentages presented here and throughout this release are not annualized):

  2Q13   1Q13  

Change from 1Q13 to 2Q13

  2Q12  

Change from 2Q12 to 2Q13

(dollars in thousands, except per share data)
Net income $ 25,293 $ 24,906 +1.6 % $ 22,143 +14.2 %
Fully diluted earnings per share 0.46 0.46 0.41 +12.2
 

Net income, net income available to common stockholders and fully diluted earnings per share increased in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 as follows:

 

Six months ended June 30, 2013

 

Six months ended June 30, 2012

 

Change from 2012 to 2013

(dollars in thousands, except per share data)
Net income $ 50,199 $ 43,229 +16.1 %
Net income available to common stockholders 50,199 39,960 +25.6
Fully diluted earnings per share 0.92 0.73 +26.0
 

Key items for the quarter include:

Overall Fee Income Growth Continues:

Net Interest Margin Stable Compared to Prior Quarter:

Small Increase in Non-Performing Loans and Non-Performing Assets During the Quarter; Net Recoveries for the Quarter:

  2Q13   1Q13  

Change from 1Q13 to 2Q13

  2Q12  

Change from 2Q12 to 2Q13

 
Non-performing loans to total loans 2.03 % 2.00 % +0.03 % 1.98 % +0.05 %
Non-performing assets to total assets 1.59 1.56 +0.03 1.72 -0.13
Net loan (recoveries) charge-offs to average loans - annualized (0.02 ) 0.25 -0.27 0.31 -0.33

Improvement in Return on Assets During the Quarter and for the First Six Months of 2013:

  2Q13   1Q13  

Change from 1Q13 to 2Q13

  2Q12  

Change from 2Q12 to 2Q13

Annualized return on average assets 1.09 % 1.07 % +0.02 % 0.94 % +0.15 %
Annualized return on average common equity 7.82 7.89 -0.07 7.28 +0.54
Annualized cash return on average tangible common equity 12.31 12.53 -0.22 11.28 +1.03
 
 

Six months ended June 30, 2013

 

Six months ended June 30, 2012

 

Change from 2012 to 2013

Annualized return on average assets 1.08 % 0.90 % +0.18 %
Annualized return on average common equity 7.85 6.61 +1.24
Annualized cash return on average tangible common equity 12.42 10.33 +2.09
 

RESULTS OF OPERATIONS

Second Quarter Results

Net Interest Income

Net interest income on a fully tax equivalent basis decreased $166 thousand from the first quarter of 2013. Our net interest margin, on a fully tax equivalent basis for the second quarter of 2013 increased two basis points compared to the first quarter of 2013.

Net interest income on a fully tax equivalent basis decreased $6.1 million from the second quarter of 2012 due to lower average earning asset balances (as a result of a decrease in covered loans) as well as a decline in net interest margin. Our net interest margin, on a fully tax equivalent basis, declined to 3.61% for the second quarter of 2013 compared to 3.83% for the second quarter of 2012.

Net interest income on a fully tax equivalent basis decreased $14.7 million in the six months ended June 30, 2013 compared to the same period in 2012. The decrease from the six months ended June 30, 2012 was due to lower average earning asset balances (as a result of a decrease in covered loans) as well as a decline in net interest margin. Our net interest margin, on a fully tax equivalent basis, declined to 3.60% for the six months ended June 30, 2013 compared to 3.85% for the same period in 2012.

See the supplemental net interest margin tables for further detail.

Non-interest Income (dollars in thousands):

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Core non-interest income:
Key fee initiatives:
Capital markets and international banking service fees $ 939 $ 808 $ 2,386 $ 1,400 $ 788 $ 1,747 $ 1,300
Commercial deposit and treasury management fees 6,029 5,966 6,095 5,860 5,784 11,995 11,682
Lease financing, net 15,102 16,263 12,419 9,671 7,334 31,365 14,292
Trust and asset management fees 4,874 4,494 4,623 4,428 4,535 9,368 8,939
Card fees 2,735   2,695   2,505   2,388   2,429   5,430   4,473  
Total key fee initiatives 29,679 30,226 28,028 23,747 20,870 59,905 40,686
 
Loan service fees 1,911 1,011 2,436 1,075 1,267 2,922 2,334
Consumer and other deposit service fees 3,593 3,246 3,655 3,786 3,534 6,839 6,987
Brokerage fees 1,234 1,157 1,088 1,185 1,264 2,391 2,519
Increase in cash surrender value of life insurance 842 844 893 890 870 1,686 1,787
Accretion of FDIC indemnification asset 100 143 154 204 222 243 697
Net gain on sale of loans 506 639 822 575 554 1,145 928
Other operating income 1,039   955   1,325   405   958   1,994   2,563  
Total core non-interest income 38,904   38,221   38,401   31,867   29,539   77,125   58,501  
 
Non-core non-interest income: (1)
Net (loss) gain on investment securities 14 (1 ) 311 281 (34 ) 13 (37 )
Net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Net gain (loss) recognized on other real estate owned (A) 2,130 (319 ) (1,848 ) (4,151 ) (4,156 ) 1,811 (8,504 )
Net (loss) gain recognized on other real estate owned related to FDIC transactions (A) (115 ) (11 ) 222 213 (1,285 ) (126 ) (3,526 )
Increase (decrease) in market value of assets held in trust for deferred compensation (B) 21   483   104   355   (149 ) 504   352  
Total non-core non-interest income 2,050   152   (2,116 ) (3,314 ) (5,632 ) 2,202   (11,740 )
 
Total non-interest income $ 40,954   $ 38,373   $ 36,285   $ 28,553   $ 23,907   $ 79,327   $ 46,761  

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

Core non-interest income for the second quarter of 2013 increased approximately 2% from the first quarter of 2013.

Core non-interest income for the first six months of 2013 rose 32% compared to the first six months of 2012.

Non-core non-interest income for the second quarter and first six months of 2013 was primarily impacted by gains recognized on OREO in 2013, compared to losses recognized on OREO during 2012.

Non-interest Expense (dollars in thousands):

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Core non-interest expense:
Salaries and employee benefits $ 43,888 $ 43,031 $ 42,934 $ 41,728 $ 40,295 $ 86,919 $ 80,223
Occupancy and equipment expense 9,408 9,404 8,774 8,274 9,188 18,812 18,758
Computer services and telecommunication expense 4,617 3,887 4,160 3,777 3,909 8,504 7,562
Advertising and marketing expense 2,167 2,103 2,335 1,936 1,839 4,270 3,912
Professional and legal expense 1,353 1,295 1,640 1,554 1,503 2,648 2,916
Other intangible amortization expense 1,539 1,544 1,251 1,251 1,251 3,083 2,508
Other real estate expense, net 193 139 449 874 424 332 1,667
Other operating expenses 9,082   9,213   8,027   7,976   8,574   18,295   16,267
Total core non-interest expense 72,247   70,616   69,570   67,370   66,983   142,863   133,813
 
Non-core non-interest expense: (1)
Branch impairment charges 1,432 758
Prepayment fees on interest bearing liabilities 12,682
Increase (decrease) in market value of assets held in trust for deferred compensation (A) 21   483   104   355   (149 ) 504   352
Total non-core non-interest expense 21   483   1,536   13,795   (149 ) 504   352
 
Total non-interest expense $ 72,268   $ 71,099   $ 71,106   $ 81,165   $ 66,834   $ 143,367   $ 134,165

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

Core non-interest expense increased by $1.6 million (+2%) from the first quarter of 2013 to the second quarter of 2013.

Core non-interest expense increased by $9.1 million (+7%) from the first six months of 2012 to the first six months of 2013.

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):

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012  
Amount  

% of Total

Amount  

% of Total

Amount  

% of Total

Amount  

% of Total

Amount  

% of Total

Commercial related credits:
Commercial loans $ 1,198,862 21 % $ 1,207,638 21 % $ 1,220,472 21 % $ 1,073,981 19 % $ 1,079,436 19 %
Commercial loans collateralized by assignment of lease payments (lease loans) 1,422,901 25 % 1,347,666 24 % 1,303,020 23 % 1,219,361 22 % 1,221,199 21 %
Commercial real estate 1,710,964 30 % 1,743,329 30 % 1,761,832 30 % 1,770,261 31 % 1,794,777 31 %
Construction real estate 121,420   2 % 101,581   2 % 110,261   2 % 149,872   3 % 150,665   3 %
Total commercial related credits 4,454,147   79 % 4,400,214   77 % 4,395,585   76 % 4,213,475   75 % 4,246,077   74 %
Other loans:
Residential real estate 305,710 5 % 312,804 5 % 314,359 5 % 308,866 5 % 313,137 5 %
Indirect vehicle 242,964 4 % 220,739 4 % 208,633 4 % 206,973 3 % 198,848 3 %
Home equity 281,334 5 % 291,190 5 % 305,186 5 % 314,718 6 % 323,234 6 %
Consumer loans 75,476   1 % 81,932   2 % 93,317   2 % 84,651   2 % 89,115   2 %
Total other loans 905,484   16 % 906,665   16 % 921,495   16 % 915,208   16 % 924,334   16 %
Gross loans excluding covered loans 5,359,631 95 % 5,306,879 93 % 5,317,080 92 % 5,128,683 91 % 5,170,411 90 %
Covered loans (1) 308,556   5 % 400,789   7 % 449,850   8 % 496,162   9 % 552,838   10 %
Total loans $ 5,668,187   100 % $ 5,707,668   100 % $ 5,766,930   100 % $ 5,624,845   100 % $ 5,723,249   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 classified assets (excluding loans held for sale, credit-impaired loans and OREO that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Non-performing loans:
Non-accrual loans (1) $ 112,926 $ 108,765 $ 115,387 $ 104,813 $ 113,077
Loans 90 days or more past due, still accruing interest 2,322   5,193   1,599   470   453  
Total non-performing loans 115,248   113,958   116,986   105,283   113,530  
OREO 32,993 31,462 36,977 42,427 49,690
Repossessed assets 749   757   773   113   60  
Total non-performing assets 148,990   146,177   154,736   147,823   163,280  
Potential problem loans (2) 131,746   115,451   111,553   134,289   141,066  
Total classified assets $ 280,736   $ 261,628   $ 266,289   $ 282,112   $ 304,346  
 
Total allowance for loan losses $ 123,685 $ 121,802 $ 124,204 $ 121,182 $ 121,756
Accruing restructured loans (3) $ 28,270 $ 21,630 $ 21,256 $ 17,929 $ 16,536
Total non-performing loans to total loans 2.03 % 2.00 % 2.03 % 1.87 % 1.98 %
Total non-performing assets to total assets 1.59 % 1.56 % 1.62 % 1.56 % 1.72 %
Allowance for loan losses to non-performing loans 107.32 % 106.88 % 106.17 % 115.10 % 107.25 %

(1) Includes $20.9 million, $26.3 million, $28.4 million, $27.1 million and $32.7 million of restructured loans on non-accrual status at June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012 and June 30, 2012, respectively.

(2) 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 increase in potential problem loans in the second quarter of 2013 related primarily to one commercial related downgrade.

(3) 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 increase in accruing restructured loans in the second quarter of 2013 was primarily a result of non-accrual loans upgraded to accrual status due to continued performance.

The following table presents data related to non-performing loans by category (excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Commercial and lease $ 25,968 $ 22,247 $ 25,517 $ 22,648 $ 24,402
Commercial real estate 62,335 57,604 59,508 55,387 62,512
Construction real estate 519 1,025 1,028 1,225 1,470
Consumer related 26,426   33,082   30,933   26,023   25,146
Total non-performing loans $ 115,248   $ 113,958   $ 116,986   $ 105,283   $ 113,530
 

Consumer related non-performing loans decreased during the second quarter of 2013 due primarily to home equity and residential non-performing loans being upgraded to performing status.

The following table represents a summary of OREO (excluding OREO related to assets acquired in FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Balance at the beginning of quarter $ 31,462 $ 36,977 $ 42,427 $ 49,690 $ 63,077
Transfers in at fair value less estimated costs to sell 3,503 711 1,811 63 910
Capitalized OREO costs 8 505 978 967
Fair value adjustments 1,170 (349 ) (1,982 ) (4,648 ) (4,507 )
Net gains on sales of OREO 960 30 134 497 351
Cash received upon disposition (4,110 ) (5,907 ) (5,918 ) (4,153 ) (11,108 )
Balance at the end of quarter $ 32,993   $ 31,462   $ 36,977   $ 42,427   $ 49,690  
 

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

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Allowance for credit losses, balance at the beginning of period $ 124,733 $ 128,279 $ 124,926 $ 128,840 $ 133,255 $ 128,279 $ 135,975
Provision for credit losses 500 1,000 (13,000 ) 500 3,100
Charge-offs:
Commercial loans 433 911 343 75 1,451 1,344 1,990
Commercial loans collateralized by assignment of lease payments (lease loans) 1 1,720 1,720
Commercial real estate loans 1,978 1,917 2,965 2,994 2,415 3,895 5,418
Construction real estate 747 82 56 71 444 829 3,880
Residential real estate 399 962 1,068 474 1,108 1,361 1,402
Home equity 1,323 787 1,394 1,209 876 2,110 1,948
Indirect vehicle 629 729 623 433 488 1,358 1,203
Consumer loans 451   565   485   332   274   1,016   532  
Total charge-offs 5,960   5,953   6,935   5,588   8,776   11,913   18,093  
Recoveries:
Commercial loans 777 452 745 306 386 1,229 2,424
Commercial loans collateralized by assignment of lease payments (lease loans) 987 144 6,260 111 93 1,131 349
Commercial real estate loans 3,647 740 871 12,893 3,061 4,387 3,223
Construction real estate 131 276 561 752 141 407 706
Residential real estate 199 214 271 8 188 413 222
Home equity 100 114 248 303 100 214 120
Indirect vehicle 324 415 261 224 300 739 611
Consumer loans 59   52   71   77   92   111   203  
Total recoveries 6,224   2,407   9,288   14,674   4,361   8,631   7,858  
Total net charge-offs (recoveries) (264 ) 3,546   (2,353 ) (9,086 ) 4,415   3,282   10,235  
Allowance for credit losses 125,497 124,733 128,279 124,926 128,840 125,497 128,840
Allowance for unfunded credit commitments (1,812 ) (2,931 ) (4,075 ) (3,744 ) (7,084 ) (1,812 ) (7,084 )
Allowance for loan losses $ 123,685   $ 121,802   $ 124,204   $ 121,182   $ 121,756   $ 123,685   $ 121,756  
 
Total loans, excluding loans held for sale $ 5,668,187 $ 5,707,668 $ 5,766,930 $ 5,624,845 $ 5,723,249 $ 5,668,187 $ 5,723,249
Average loans, excluding loans held for sale $ 5,628,415 $ 5,668,359 $ 5,604,837 $ 5,630,232 $ 5,712,630 $ 5,648,277 $ 5,757,333
Ratio of allowance for loan losses to total loans, excluding loans held for sale 2.18 % 2.13 % 2.15 % 2.15 % 2.13 % 2.18 % 2.13 %
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) (0.02 )% 0.25 % (0.17 )% (0.64 )% 0.31 % 0.12 % 0.36 %
 

The following table presents the three elements of our allowance for loan losses (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Commercial related loans:
General reserve $ 87,836 $ 92,433 $ 91,745 $ 95,586 $ 93,904
Specific reserve 16,679 12,137 13,231 11,300 13,674
Consumer related reserve 19,170   17,232   19,228   14,296   14,178
Total allowance for loan losses $ 123,685   $ 121,802   $ 124,204   $ 121,182   $ 121,756
 

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

INVESTMENT SECURITIES

The following table sets forth, by type, the fair value and amortized cost of our investment securities, excluding FHLB and FRB stock, as well as the unrealized gain of our investment securities available for sale (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $ 33,935 $ 40,949 $ 41,315 $ 42,187 $ 42,175
States and political subdivisions 684,710 719,761 725,019 668,966 629,173
Mortgage-backed securities 701,201 842,605 993,328 1,075,962 1,035,473
Corporate bonds 215,256 197,675 96,674 16,626 5,569
Equity securities 10,570   11,179   11,835   11,231   11,081
Total fair value $ 1,645,672   $ 1,812,169   $ 1,868,171   $ 1,814,972   $ 1,723,471
 
Amortized cost
Government sponsored agencies and enterprises $ 32,050 $ 38,478 $ 38,605 $ 39,233 $ 39,366
States and political subdivisions 669,791 680,978 679,991 620,489 589,654
Mortgage-backed securities 690,681 827,384 981,513 1,060,665 1,014,186
Corporate bonds 219,362 197,162 97,014 16,617 5,569
Equity securities 10,560   10,820   11,398   10,644   10,584
Total amortized cost $ 1,622,444   $ 1,754,822   $ 1,808,521   $ 1,747,648   $ 1,659,359
 
Unrealized gain
Government sponsored agencies and enterprises $ 1,885 $ 2,471 $ 2,710 $ 2,954 $ 2,809
States and political subdivisions 14,919 38,783 45,028 48,477 39,519
Mortgage-backed securities 10,520 15,221 11,815 15,297 21,287
Corporate bonds (4,106 ) 513 (340 ) 9
Equity securities 10   359   437   587   497
Total unrealized gain $ 23,228   $ 57,347   $ 59,650   $ 67,324   $ 64,112
 
Securities held to maturity, at cost:
States and political subdivisions $ 282,655 $ 262,310 $ 237,563 $ 238,211 $ 238,869
Mortgage-backed securities 253,779   255,475   255,858   257,640   258,931
Total amortized cost $ 536,434   $ 517,785   $ 493,421   $ 495,851   $ 497,800

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):

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012  
Amount  

% of Total

Amount  

% of Total

Amount  

% of Total

Amount

 

% of Total

Amount  

% of Total

Low cost deposits:
Noninterest bearing deposits $ 2,230,384 30 % $ 2,067,310 28 % $ 2,164,547 29 % $ 2,011,542 27 % $ 1,946,468 26 %
Money market and NOW accounts 2,718,989 37 % 2,778,916 37 % 2,747,273 36 % 2,682,608 36 % 2,564,493 34 %
Savings accounts 845,742   11 % 833,251   11 % 811,333   11 % 797,741   10 % 790,350   11 %
Total low cost deposits 5,795,115   78 % 5,679,477   76 % 5,723,153   76 % 5,491,891   73 % 5,301,311   71 %
Certificates of deposit:
Certificates of deposit 1,357,777 18 % 1,478,039 20 % 1,525,366 20 % 1,632,370 22 % 1,718,266 23 %
Brokered deposit accounts 292,504   4 % 294,390   4 % 294,178   4 % 355,086   5 % 451,132   6 %
Total certificates of deposit 1,650,281   22 % 1,772,429   24 % 1,819,544   24 % 1,987,456   27 % 2,169,398   29 %
 
Total deposits $ 7,445,396   100 % $ 7,451,906   100 % $ 7,542,697   100 % $ 7,479,347   100 % $ 7,470,709   100 %

Our deposit mix improved over the past twelve months as low cost deposits increased 9% and comprised 78% of total deposits at June 30, 2013 compared to 71% at June 30, 2012, driven by noninterest bearing deposit inflows.

CAPITAL

Tangible book value per common share increased to $15.60 at June 30, 2013 compared to $15.24 a year ago primarily due to retained net income. Our regulatory capital ratios remain strong and MB Financial Bank, N.A. was categorized as “well capitalized” at June 30, 2013 under the Prompt Corrective Action (“PCA”) provisions.

FORWARD-LOOKING STATEMENTS

When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission, in other 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 and other 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, the Board of Governors of the Federal Reserve System 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 Act and regulations adopted thereunder, any changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, 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

(Dollars in thousands)

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
ASSETS
Cash and due from banks $ 152,302 $ 131,146 $ 176,010 $ 129,326 $ 132,737
Interest earning deposits with banks 280,618   108,885   111,533   327,301   304,075  
Total cash and cash equivalents 432,920 240,031 287,543 456,627 436,812
Federal funds sold 7,500
Investment securities:
Securities available for sale, at fair value 1,645,672 1,812,169 1,868,171 1,814,972 1,723,471
Securities held to maturity, at amortized cost 536,434 517,785 493,421 495,851 497,800
Non-marketable securities - FHLB and FRB Stock 50,870   52,434   55,385   57,653   61,462  
Total investment securities 2,232,976 2,382,388 2,416,977 2,368,476 2,282,733
Loans held for sale 2,528 3,030 7,492 7,221 2,290
Loans:
Total loans, excluding covered loans 5,359,631 5,306,879 5,317,080 5,128,683 5,170,411
Covered loans 308,556   400,789   449,850   496,162   552,838  
Total loans 5,668,187 5,707,668 5,766,930 5,624,845 5,723,249
Less: Allowance for loan losses 123,685   121,802   124,204   121,182   121,756  
Net loans 5,544,502 5,585,866 5,642,726 5,503,663 5,601,493
Lease investments, net 113,958 117,744 129,823 113,180 111,122
Premises and equipment, net 219,783 219,662 221,533 214,301 214,935
Cash surrender value of life insurance 130,565 129,723 128,879 127,985 127,096
Goodwill 423,369 423,369 423,369 387,069 387,069
Other intangibles 26,430 27,968 29,512 25,735 26,986
Other real estate owned, net 32,993 31,462 36,977 42,427 49,690
Other real estate owned related to FDIC transactions 19,014 20,011 22,478 32,607 43,807
FDIC indemnification asset 16,337 29,197 39,345 36,311 56,637
Other assets 166,784   175,379   185,151   147,943   148,896  
Total assets $ 9,369,659   $ 9,385,830   $ 9,571,805   $ 9,463,545   $ 9,489,566  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 2,230,384 $ 2,067,310 $ 2,164,547 $ 2,011,542 $ 1,946,468
Interest bearing 5,215,012   5,384,596   5,378,150   5,467,805   5,524,241  
Total deposits 7,445,396 7,451,906 7,542,697 7,479,347 7,470,709
Short-term borrowings 230,547 224,379 220,602 289,613 261,729
Long-term borrowings 62,786 64,019 116,050 118,798 221,100
Junior subordinated notes issued to capital trusts 152,065 152,065 152,065 152,065 158,521
Accrued expenses and other liabilities 182,784   198,658   264,621   162,892   139,756  
Total liabilities 8,073,578   8,091,027   8,296,035   8,202,715   8,251,815  
Stockholders' Equity
Common stock 550 550 550 550 549
Additional paid-in capital 736,281 734,057 732,771 731,679 732,297
Retained earnings 547,116 527,332 507,933 489,426 466,812
Accumulated other comprehensive income 14,231 34,928 36,326 40,985 39,035
Treasury stock (3,558 ) (3,529 ) (3,293 ) (3,304 ) (3,353 )
Controlling interest stockholders' equity 1,294,620 1,293,338 1,274,287 1,259,336 1,235,340
Noncontrolling interest 1,461   1,465   1,483   1,494   2,411  
Total stockholders' equity 1,296,081   1,294,803   1,275,770   1,260,830   1,237,751  
Total liabilities and stockholders' equity $ 9,369,659   $ 9,385,830   $ 9,571,805   $ 9,463,545   $ 9,489,566  
 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data) (Unaudited)

            Six Months Ended
June 30,
2Q13 1Q13   4Q12 3Q12 2Q12 2013   2012
Interest income:
Loans $ 59,581 $ 60,793 $ 63,328 $ 67,482 $ 69,250 $ 120,374 $ 140,898
Investment securities:
Taxable 6,280 6,140 6,371 7,287 8,882 12,419 19,766
Nontaxable 8,163 8,060 7,687 7,582 7,303 16,224 14,042
Federal funds sold 2 2
Other interest earning accounts 92   135     228   312   158   227   327  
Total interest income 74,118   75,128     77,614   82,663   85,593   149,246   175,033  
Interest expense:
Deposits 5,132 5,709 6,066 7,374 8,058 10,841 16,818
Short-term borrowings 116 167 294 342 362 283 568
Long-term borrowings and junior subordinated notes 1,390   1,567     1,738   2,872   3,069   2,957   6,450  
Total interest expense 6,638   7,443     8,098   10,588   11,489   14,081   23,836  
Net interest income 67,480 67,685 69,516 72,075 74,104 135,165 151,197
Provision for credit losses 500       1,000   (13,000 )   500   3,100  
Net interest income after provision for credit losses 66,980   67,685     68,516   85,075   74,104   134,665   148,097  
Non-interest income:
Capital markets and international banking service fees 939 808 2,386 1,400 788 1,747 1,300
Commercial deposit and treasury management fees 6,029 5,966 6,095 5,860 5,784 11,995 11,682
Lease financing, net 15,102 16,263 12,419 9,671 7,334 31,365 14,292
Trust and asset management fees 4,874 4,494 4,623 4,428 4,535 9,368 8,939
Card fees 2,735 2,695 2,505 2,388 2,429 5,430 4,473
Loan service fees 1,911 1,011 2,436 1,075 1,267 2,922 2,334
Consumer and other deposit service fees 3,593 3,246 3,655 3,786 3,534 6,839 6,987
Brokerage fees 1,234 1,157 1,088 1,185 1,264 2,391 2,519
Net gain (loss) on securities available for sale 14 (1 ) 311 281 (34 ) 13 (37 )
Increase in cash surrender value of life insurance 842 844 893 890 870 1,686 1,787
Net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Accretion of FDIC indemnification asset 100 143 154 204 222 243 697
Net gain (loss) recognized on other real estate owned 2,015 (330 ) (1,626 ) (3,938 ) (5,441 ) 1,685 (12,030 )
Net gain on sale of loans 506 639 822 575 554 1,145 928
Other operating income 1,060   1,438     1,429   760   809   2,498   2,915  
Total non-interest income 40,954   38,373     36,285   28,553   23,907   79,327   46,761  
Non-interest expense:
Salaries and employee benefits 43,909 43,514 43,038 42,083 40,146 87,423 80,575
Occupancy and equipment expense 9,408 9,404 8,774 8,274 9,188 18,812 18,758
Computer services and telecommunication expense 4,617 3,887 4,160 3,777 3,909 8,504 7,562
Advertising and marketing expense 2,167 2,103 2,335 1,936 1,839 4,270 3,912
Professional and legal expense 1,353 1,295 1,640 1,554 1,503 2,648 2,916
Other intangible amortization expense 1,539 1,544 1,251 1,251 1,251 3,083 2,508
Branch impairment charges 1,432 758
Other real estate expense, net 193 139 449 874 424 332 1,667
Prepayment fees on interest bearing liabilities 12,682
Other operating expenses 9,082   9,213     8,027   7,976   8,574   18,295   16,267  
Total non-interest expense 72,268   71,099     71,106   81,165   66,834   143,367   134,165  
Income before income taxes 35,666 34,959 33,695 32,463 31,177 70,625 60,693
Income tax expense 10,373   10,053     9,683   9,330   9,034   20,426   17,464  
Net income 25,293 24,906 24,012 23,133 22,143 50,199 43,229
Dividends and discount accretion on preferred shares               3,269  
Net income available to common stockholders $ 25,293   $ 24,906     $ 24,012   $ 23,133   $ 22,143   $ 50,199   $ 39,960  
 
            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Common share data:
Basic earnings per common share $ 0.46 $ 0.46 $ 0.44 $ 0.43 $ 0.41 $ 0.92 $ 0.74
Diluted earnings per common share 0.46 0.46 0.44 0.42 0.41 0.92 0.73
Weighted average common shares outstanding for basic earnings per common share 54,436,043 54,411,806 54,401,504 54,346,827 54,174,717 54,423,992 54,165,286
Weighted average common shares outstanding for diluted earnings per common share 54,868,075 54,736,644 54,597,737 54,556,517 54,448,709 54,802,427 54,431,491
 
Selected Financial Data:              
Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013 2012
Performance Ratios:
Annualized return on average assets 1.09 % 1.07 % 1.01 % 0.97 % 0.94 % 1.08 % 0.90 %
Annualized return on average equity 7.82 7.89 7.55 7.38 7.28 7.85 6.61
Annualized cash return on average tangible equity (1) 12.31 12.53 11.47 11.29 11.28 12.42 10.33
Net interest rate spread 3.46 3.44 3.41 3.48 3.65 3.45 3.66
Cost of funds (2) 0.34 0.38 0.40 0.52 0.57 0.36 0.59
Efficiency ratio (3) 64.26 63.10 61.16 61.43 61.36 63.68 60.69
Annualized net non-interest expense to average assets (4) 1.42 1.37 1.29 1.46 1.57 1.40 1.56
Core non-interest income to revenues (5) 35.01 34.56 34.18 29.49 27.49 34.78 26.97
Net interest margin 3.33 3.32 3.31 3.42 3.59 3.33 3.62
Tax equivalent effect 0.28 0.27 0.26 0.25 0.24 0.27 0.23
Net interest margin - fully tax equivalent basis (6) 3.61 3.59 3.57 3.67 3.83 3.60 3.85
Asset Quality Ratios:
Non-performing loans (7) to total loans 2.03 % 2.00 % 2.03 % 1.87 % 1.98 % 2.03 % 1.98 %
Non-performing assets (7) to total assets 1.59 1.56 1.62 1.56 1.72 1.59 1.72
Allowance for loan losses to non-performing loans (7) 107.32 106.88 106.17 115.10 107.25 107.32 107.25
Allowance for loan losses to total loans 2.18 2.13 2.15 2.15 2.13 2.18 2.13
Net loan charge-offs (recoveries) to average loans (annualized) (0.02 ) 0.25 (0.17 ) (0.64 ) 0.31 0.12 0.36
Capital Ratios:
Tangible equity to tangible assets (8) 9.58 % 9.54 % 9.13 % 9.46 % 9.17 % 9.58 % 9.17 %
Tangible common equity to risk weighted assets (9) 13.20 13.29 13.07 14.16 13.67 13.20 13.67
Book value per common share (10) $ 23.63 $ 23.63 $ 23.29 $ 23.01 $ 22.64 $ 23.63 $ 22.64
Less: goodwill and other intangible assets, net of benefit, per common share 8.03   8.06   8.08   7.37   7.40   8.03   7.40  
Tangible book value per common share (11) $ 15.60 $ 15.57 $ 15.21 $ 15.64 $ 15.24 $ 15.60 $ 15.24
 
Total capital (to risk-weighted assets) 16.45 % 16.22 % 16.62 % 17.91 % 17.53 % 16.45 % 17.53 %
Tier 1 capital (to risk-weighted assets) 15.19 14.96 14.73 15.83 15.45 15.19 15.45
Tier 1 capital (to average assets) 11.19 10.74 10.50 10.60 10.46 11.19 10.46
Tier 1 common capital (to risk-weighted assets) 12.91 12.66 12.42 13.39 12.93 12.91 12.93
 

(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 equity (average 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 non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.

(4) Equals total non-interest expense excluding non-core items less total non-interest 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) Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.

(6) Represents net interest income, on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.

(7) 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.

(8) 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.

(9) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total risk-weighted assets.

(10) Equals total ending stockholders’ equity divided by common shares outstanding.

(11) 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 core non-interest income, core non-interest income to revenues (with non-core items excluded from both core non-interest income and revenues), core non-interest expense, non-core non-interest income and non-core non-interest 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 losses on sale of other assets, net gains (losses) on other real estate owned, and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, prepayment fees on interest bearing liabilities, 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 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 non-interest income and non-interest expense are useful in assessing our core operating performance and in understanding the primary drivers of our non-interest income and non-interest 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 losses on sale of other assets, net losses on other real estate owned and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding prepayment fees on interest bearing liabilities, 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.

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

The following table presents a reconciliation of tangible equity to equity (dollars in thousands):

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Stockholders' equity - as reported $ 1,296,081 $ 1,294,803 $ 1,275,770 $ 1,260,830 $ 1,237,751
Less: goodwill 423,369 423,369 423,369 387,069 387,069
Less: other intangible assets, net of tax benefit 17,180   18,179   19,183   16,728   17,541
Tangible equity $ 855,532   $ 853,255   $ 833,218   $ 857,033   $ 833,141
 

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

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Total assets - as reported $ 9,369,659 $ 9,385,830 $ 9,571,805 $ 9,463,545 $ 9,489,566
Less: goodwill 423,369 423,369 423,369 387,069 387,069
Less: other intangible assets, net of tax benefit 17,180   18,179   19,183   16,728   17,541
Tangible assets $ 8,929,110   $ 8,944,282   $ 9,129,253   $ 9,059,748   $ 9,084,956
 

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

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Average common stockholders' equity - as reported $ 1,297,364 $ 1,280,921 $ 1,264,772 $ 1,247,846 $ 1,223,667 $ 1,289,187 $ 1,215,026
Less: average goodwill 423,369 423,369 387,464 387,069 387,069 423,369 387,069
Less: average other intangible assets, net of tax benefit 17,605   18,611   16,238   17,018   17,903   18,106   18,312
Average tangible common equity $ 856,390   $ 838,941   $ 861,070   $ 843,759   $ 818,695   $ 847,712   $ 809,645
 

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

                Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Net income available to common stockholders - as reported $ 25,293 $ 24,906 $ 24,012 $ 23,133 $ 22,143 $ 50,199 $ 39,960
Add: other intangible amortization expense, net of tax benefit 1,000   1,004   813   813   813   2,004   1,630
Net cash flow available to common stockholders $ 26,293   $ 25,910   $ 24,825   $ 23,946   $ 22,956   $ 52,203   $ 41,590
 

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

  6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012
Tier 1 capital - as reported $ 983,997 $ 960,803 $ 939,087 $ 958,123 $ 941,888
Less: qualifying trust preferred securities 147,500   147,500   147,500   147,500   153,500
Tier 1 common capital $ 836,497   $ 813,303   $ 791,587   $ 810,623   $ 788,388
 

Efficiency Ratio Calculation (Dollars in Thousands)

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Non-interest expense $ 72,268 $ 71,099 $ 71,106 $ 81,165 $ 66,834 $ 143,367 $ 134,165
Adjustment for prepayment fees on interest bearing liabilities 12,682
Adjustment for impairment charges 1,432 758
Adjustment for increase (decrease) in market value of assets held in trust for deferred compensation 21   483   104   355   (149 ) 504   352  
Non-interest expense - as adjusted $ 72,247   $ 70,616   $ 69,570   $ 67,370   $ 66,983   $ 142,863   $ 133,813  
 
Net interest income $ 67,480 $ 67,685 $ 69,516 $ 72,075 $ 74,104 $ 135,165 $ 151,197
Tax equivalent adjustment 5,594   5,555   5,360   5,256   5,057   11,149   9,813  
Net interest income on a fully tax equivalent basis 73,074 73,240 74,876 77,331 79,161 146,314 161,010
Tax equivalent adjustment on the increase in cash surrender value of life insurance 454 454 481 479 468 908 962
Plus non-interest income 40,954 38,373 36,285 28,553 23,907 79,327 46,761
Less net gain (loss) on other real estate owned 2,015 (330 ) (1,626 ) (3,938 ) (5,441 ) 1,685 (12,030 )
Less net (loss) gain on investment securities 14 (1 ) 311 281 (34 ) 13 (37 )
Less net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Less increase (decrease) in market value of assets held in trust for deferred compensation 21   483   104   355   (149 ) 504   352  
Net interest income plus non-interest income - as adjusted $ 112,432   $ 111,915   $ 113,758   $ 109,677   $ 109,168   $ 224,347   $ 220,473  
 
Efficiency ratio 64.26 % 63.10 % 61.16 % 61.43 % 61.36 % 63.68 % 60.69 %
Efficiency ratio (without adjustments) 66.65 % 67.04 % 67.21 % 80.66 % 68.19 % 66.84 % 67.77 %
 

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

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Non-interest expense $ 72,268 $ 71,099 $ 71,106 $ 81,165 $ 66,834 $ 143,367 $ 134,165
Adjustment for prepayment fees on interest bearing liabilities 12,682
Adjustment for impairment charges 1,432 758
Adjustment for increase (decrease) in market value of assets held in trust for deferred compensation 21   483   104   355   (149 ) 504   352  
Non-interest expense - as adjusted 72,247   70,616   69,570   67,370   66,983   142,863   133,813  
 
Non-interest income 40,954 38,373 36,285 28,553 23,907 79,327 46,761
Less net gain (loss) on other real estate owned 2,015 (330 ) (1,626 ) (3,938 ) (5,441 ) 1,685 (12,030 )
Less net gain (loss) on investment securities 14 (1 ) 311 281 (34 ) 13 (37 )
Less net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Less increase (decrease) in market value of assets held in trust for deferred compensation 21   483   104   355   (149 ) 504   352  
Non-interest income - as adjusted 38,904   38,221   38,401   31,867   29,539   77,125   58,501  
Less tax equivalent adjustment on the increase in cash surrender value of life insurance 454   454   481   479   468   908   962  
Net non-interest expense $ 32,889   $ 31,941   $ 30,688   $ 35,024   $ 36,976   $ 64,830   $ 74,350  
 
Average assets $ 9,289,382 $ 9,449,588 $ 9,461,895 $ 9,516,159 $ 9,478,480 $ 9,369,042 $ 9,607,591
 
Annualized net non-interest expense to average assets 1.42 % 1.37 % 1.29 % 1.46 % 1.57 % 1.40 % 1.56 %
 
Annualized net non-interest expense to average assets (without adjustments) 1.35 % 1.40 % 1.46 % 2.20 % 1.82 % 1.38 % 1.83 %
 

Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)

            Six Months Ended
June 30,
2Q13 1Q13 4Q12 3Q12 2Q12 2013   2012
Non-interest income $ 40,954 $ 38,373 $ 36,285 $ 28,553 $ 23,907 $ 79,327 $ 46,761
Less net gain (loss) on other real estate owned 2,015 (330 ) (1,626 ) (3,938 ) (5,441 ) 1,685 (12,030 )
Less net (loss) gain on investment securities 14 (1 ) 311 281 (34 ) 13 (37 )
Less net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Less increase (decrease) in market value of assets held in trust for deferred compensation 21 483 104 355 (149 ) 504 352
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 454   454   481   479   468   908   962  
Non-interest income - as adjusted $ 39,358   $ 38,675   $ 38,882   $ 32,346   $ 30,007   $ 78,033   $ 59,463  
 
Net interest income $ 67,480 $ 67,685 $ 69,516 $ 72,075 $ 74,104 $ 135,165 $ 151,197
Tax equivalent adjustment 5,594   5,555   5,360   5,256   5,057   11,149   9,813  
Net interest income on a fully tax equivalent basis 73,074 73,240 74,876 77,331 79,161 146,314 161,010
Tax equivalent adjustment on the increase in cash surrender value of life insurance 454 454 481 479 468 908 962
Plus non-interest income 40,954 38,373 36,285 28,553 23,907 79,327 46,761
Less net gain (loss) on other real estate owned 2,015 (330 ) (1,626 ) (3,938 ) (5,441 ) 1,685 (12,030 )
Less net (loss) gain on investment securities 14 (1 ) 311 281 (34 ) 13 (37 )
Less net loss on sale of other assets (905 ) (12 ) (8 ) (25 )
Less increase (decrease) in market value of assets held in trust for deferred compensation 21   483   104   355   (149 ) 504   352  
Total revenue - as adjusted and on a fully tax equivalent basis $ 112,432   $ 111,915   $ 113,758   $ 109,677   $ 109,168   $ 224,347   $ 220,473  
 
Total revenue - unadjusted $ 108,434 $ 106,058 $ 105,801 $ 100,628 $ 98,011 $ 214,492 $ 197,958
 
Core non-interest income to revenues ratio 35.01 % 34.56 % 34.18 % 29.49 % 27.49 % 34.78 % 26.97 %
 
Core non-interest income to revenues ratio (without adjustments) 37.77 % 36.18 % 34.30 % 28.37 % 24.39 % 36.98 % 23.62 %
 

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):

  2Q13     2Q12     1Q13  
Average

Balance

  Interest   Yield/

Rate

Average

Balance

  Interest   Yield/

Rate

Average

Balance

  Interest   Yield/

Rate

Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,206,740 $ 12,613 4.18 % $ 1,071,199 12,926 4.77 % $ 1,205,903 $ 12,559 4.17 %
Commercial loans collateralized by assignment of lease payments 1,340,854 12,987 3.87 % 1,177,052 13,346 4.54 % 1,300,818 12,799 3.94 %
Real estate commercial 1,718,979 19,736 4.54 % 1,845,949 23,840 5.11 % 1,735,082 20,744 4.78 %
Real estate construction 133,705   1,270   3.76 % 139,487   1,404   3.98 % 113,573   1,120   3.94 %
Total commercial related credits 4,400,278   46,606   4.19 % 4,233,687   51,516   4.81 % 4,355,376   47,222   4.34 %
Other loans
Real estate residential 306,978 3,042 3.96 % 309,989 3,541 4.57 % 312,748 3,285 4.20 %
Home equity 286,640 3,076 4.30 % 324,675 3,574 4.43 % 298,061 3,190 4.34 %
Indirect 231,577 3,176 5.50 % 193,155 2,946 6.13 % 212,153 3,022 5.78 %
Consumer loans 70,603   624   3.54 % 69,690   551   3.18 % 70,364   607   3.50 %
Total other loans 895,798   9,918   4.44 % 897,509   10,612   4.76 % 893,326   10,104   4.59 %
Total loans, excluding covered loans 5,296,076 56,524 4.28 % 5,131,196 62,128 4.87 % 5,248,702 57,326 4.43 %
Covered loans 335,148   4,255   5.09 % 585,014   8,247   5.67 % 424,688   4,682   4.47 %
Total loans 5,631,224   60,779   4.33 % 5,716,210   70,375   4.95 % 5,673,390   62,008   4.43 %
Taxable investment securities 1,377,368 6,280 1.82 % 1,542,905 8,882 2.30 % 1,484,300 6,140 1.65 %
Investment securities exempt from federal income taxes (3) 933,442 12,559 5.38 % 809,005 11,235 5.55 % 911,742 12,400 5.44 %
Federal funds sold 2,879 2 0.27 % % %
Other interest earning deposits 183,010   92   0.20 % 244,087   158   0.26 % 197,057   135   0.28 %
Total interest earning assets $ 8,127,923 $ 79,712   3.93 % $ 8,312,207 $ 90,650   4.39 % $ 8,266,489 $ 80,683   3.96 %
Non-interest earning assets 1,161,459   1,166,273   1,183,099  
Total assets $ 9,289,382   $ 9,478,480   $ 9,449,588  
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,675,189 $ 833 0.12 % $ 2,607,238 $ 1,045 0.16 % $ 2,737,494 $ 927 0.14 %
Savings accounts 840,154 136 0.06 % 785,427 213 0.11 % 822,214 136 0.07 %
Certificates of deposit 1,406,693 1,893 0.55 % 1,765,578 3,261 0.77 % 1,512,600 2,397 0.66 %
Customer repurchase agreements 187,496   101   0.22 % 194,804   126   0.26 % 181,658   98   0.22 %
Total core funding 5,109,532   2,963   0.23 % 5,353,047   4,645   0.35 % 5,253,966   3,558   0.27 %
Wholesale funding:
Brokered accounts (includes fee expense) 294,277 2,271 3.10 % 456,735 3,539 3.12 % 294,295 2,249 3.10 %
Other borrowings 216,372   1,404   2.57 % 424,842   3,305   3.08 % 259,135   1,636   2.53 %
Total wholesale funding 510,649   3,675   2.55 % 881,577   6,844   2.77 % 553,430   3,885   2.52 %
Total interest bearing liabilities $ 5,620,181 $ 6,638   0.47 % $ 6,234,624 $ 11,489   0.74 % $ 5,807,396 $ 7,443   0.52 %
Non-interest bearing deposits 2,179,284 1,900,937 2,145,058
Other non-interest bearing liabilities 192,553 119,252 216,213
Stockholders' equity 1,297,364   1,223,667   1,280,921  
Total liabilities and stockholders' equity $ 9,289,382   $ 9,478,480   $ 9,449,588  
Net interest income/interest rate spread (4) $ 73,074   3.46 % $ 79,161   3.65 % $ 73,240   3.44 %
Taxable equivalent adjustment 5,594   5,057   5,555  
Net interest income, as reported $ 67,480   $ 74,104   $ 67,685  
Net interest margin (5) 3.33 % 3.59 % 3.32 %
Tax equivalent effect 0.28 % 0.24 % 0.27 %
Net interest margin on a fully tax equivalent basis (5) 3.61 % 3.83 % 3.59 %
 

(1) Non-accrual loans are included in average loans.

(2) Interest income includes amortization of deferred loan origination fees of $817 thousand, $839 thousand, and $981 thousand for the three months ended June 30, 2013, June 30, 2012, and March 31, 2013, respectively.

(3) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.

(4) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.

(5) Net interest margin represents net interest income as a percentage of average interest earning assets.

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):

  Six Months Ended June 30,
2013     2012  
Average

Balance

  Interest   Yield/

Rate

Average

Balance

  Interest   Yield/

Rate

Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,206,324 $ 25,172 4.15 % $ 1,066,722 25,700 4.77 %
Commercial loans collateralized by assignment of lease payments 1,320,946 25,786 3.90 % 1,176,977 27,103 4.61 %
Real estate commercial 1,726,986 40,480 4.66 % 1,854,920 47,745 5.09 %
Real estate construction 123,694   2,390   3.84 % 142,607   2,944   4.08 %
Total commercial related credits 4,377,950   93,828   4.26 % 4,241,226   103,492   4.83 %
Other loans
Real estate residential 309,847 6,327 4.08 % 311,637 7,191 4.61 %
Home equity 292,319 6,266 4.32 % 328,951 7,245 4.43 %
Indirect 221,919 6,198 5.63 % 189,757 5,881 6.23 %
Consumer loans 70,484   1,231   3.52 % 69,718   1,080   3.12 %
Total other loans 894,569   20,022   4.51 % 900,063   21,397   4.78 %
Total loans, excluding covered loans 5,272,519 113,850 4.35 % 5,141,289 124,889 4.88 %
Covered loans 379,671   8,937   4.75 % 618,580   18,261   5.94 %
Total loans 5,652,190   122,787   4.38 % 5,759,869   143,150   5.00 %
Taxable investment securities 1,430,539 12,419 1.74 % 1,622,835 19,766 2.44 %
Investment securities exempt from federal income taxes (3) 922,652 24,960 5.41 % 775,788 21,603 5.57 %
Federal funds sold 1,448 2 0.27 % %
Other interest earning deposits 189,994   227   0.24 % 251,219   327   0.26 %
Total interest earning assets $ 8,196,823 $ 160,395   3.95 % $ 8,409,711 $ 184,846   4.42 %
Non-interest earning assets 1,172,219   1,197,880  
Total assets $ 9,369,042   $ 9,607,591  
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,706,169 $ 1,760 0.13 % $ 2,628,455 $ 2,252 0.17 %
Savings accounts 831,233 272 0.07 % 778,881 461 0.12 %
Certificates of deposit 1,459,354 4,290 0.61 % 1,828,953 7,144 0.82 %
Customer repurchase agreements 184,593   199   0.22 % 198,903   260   0.26 %
Total core funding 5,181,349   6,521   0.25 % 5,435,192   10,117   0.37 %
Wholesale funding:
Brokered accounts (includes fee expense) 294,286 4,520 3.10 % 448,312 6,961 3.12 %
Other borrowings 237,636   3,040   2.54 % 427,037   6,758   3.13 %
Total wholesale funding 531,922   7,560   2.53 % 875,349   13,719   2.77 %
Total interest bearing liabilities $ 5,713,271 $ 14,081   0.50 % $ 6,310,541 $ 23,836   0.76 %
Non-interest bearing deposits 2,162,266 1,876,074
Other non-interest bearing liabilities 204,318 127,832
Stockholders' equity 1,289,187   1,293,144  
Total liabilities and stockholders' equity $ 9,369,042   $ 9,607,591  
Net interest income/interest rate spread (4) $ 146,314   3.45 % $ 161,010   3.66 %
Taxable equivalent adjustment 11,149   9,813  
Net interest income, as reported $ 135,165   $ 151,197  
Net interest margin (5) 3.33 % 3.62 %
Tax equivalent effect 0.27 % 0.23 %
Net interest margin on a fully tax equivalent basis (5) 3.60 % 3.85 %

(1) Non-accrual loans are included in average loans.

(2) Interest income includes amortization of deferred loan origination fees of $1.8 thousand and $1.7 million for the six months ended June 30, 2013 and June 30, 2012, 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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