MB Financial, Inc. Reports First Quarter 2012 Net Income Of $21.1 Million, Strong Pre-Tax, Pre-Provision Operating Earnings And Improving Credit Costs

MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A (“the Bank” or “MB Financial Bank”), announced today first 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 of $21.1 million and net income available to common stockholders of $17.8 million for the first quarter of 2012 compared to net income of $6.9 million and net income available to common stockholders of $4.3 million for the first quarter of 2011, and net income of $19.5 million and net income available to common stockholders of $16.8 million for the fourth quarter of 2011.

Key items for the quarter were as follows:

“Shareholder Friendly” TARP Repayment:
  • On March 14, 2012, we repurchased all $196 million of preferred stock issued in 2008 to the U.S. Department of Treasury as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program. No equity or long term debt was issued in conjunction with the repurchase.
  • The repurchase resulted in a one-time, non-cash after-tax charge of approximately $1.2 million or $0.02 per common share in the first quarter of 2012, related to unaccreted discount recorded at the date of issuance.
  • The repurchase was made with cash on hand as of the repurchase date. Prior to the repurchase date, we entered into and fully utilized a $35.0 million unsecured line of credit agreement with a correspondent bank to supplement holding company cash.

Pre-Tax, Pre-Provision Operating Earnings Remain Strong:
  • Pre-tax, pre-provision operating earnings on a fully tax equivalent basis were $44.5 million, or 2.91% of risk-weighted assets, for the first quarter of 2012 compared to $46.0 million, or 2.87% of risk-weighted assets, for the fourth quarter of 2011.
  • Pre-tax, pre-provision operating earnings on a fully tax equivalent basis to average assets was 1.84% for the first quarter of 2012 compared to 1.85% for the fourth quarter of 2011.
  • Net interest margin on a fully tax equivalent basis was 3.87% for the first quarter of 2012 compared to 3.91% in the fourth quarter of 2011.

Credit Costs Continue to Improve:
  • Our provision for credit losses was $3.1 million for the first quarter of 2012, while our net charge-offs were $5.8 million. Our provision for credit losses and net charge-offs for the fourth quarter of 2011 were $8.0 million and $13.9 million, respectively.
  • Our non-performing loans were $124.7 million or 2.15% of total loans as of March 31, 2012, a decrease of $4.7 million from $129.4 million or 2.17% of total loans at December 31, 2011.
  • Our allowance for loan losses to non-performing loans was 100.59% as of March 31, 2012 compared to 98.00% as of December 31, 2011.
  • Our non-performing assets were $187.8 million or 1.94% of total assets as of March 31, 2012, a decrease of $20.2 million from $208.0 million or 2.12% of total assets as of December 31, 2011.
  • Other real estate owned decreased to $63.1 million as of March 31, 2012 compared to $78.5 million as of December 31, 2011, while losses recognized on other real estate owned increased by $1.1 million to $6.6 million for the first quarter of 2012 compared to the fourth quarter of 2011.

RESULTS OF OPERATIONS

First Quarter Results

Net Interest Income

Net interest income on a fully tax equivalent basis decreased $2.9 million from the fourth quarter of 2011 and decreased by $3.0 million from the first quarter of 2011 to the first quarter of 2012. The decrease from the fourth quarter of 2011 was due primarily to a decrease in average interest earning assets and a decrease in net interest margin. The decrease from the first quarter of 2011 to the first quarter of 2012 was due primarily to a decrease in average interest earning assets.

Our net interest margin, on a fully tax equivalent basis, was 3.87% for the first quarter of 2012 compared to 3.91% for the fourth quarter of 2011 and 3.88% for the first quarter of 2011. The net interest margin decreased from the fourth quarter of 2011 due to a decrease in loan yields, partially offset by an improved deposit mix and downward repricing of interest bearing deposits.

See the supplemental net interest margin tables for further detail.

Other Income (in thousands):
         
Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Core other income:
Loan service fees $ 1,339 $ 1,601 $ 2,159 $ 2,812 $ 1,126
Deposit service fees 9,408 10,085 9,932 9,023 10,030
Lease financing, net 6,958 7,801 6,494 6,861 5,783
Brokerage fees 1,255 1,577 1,273 1,615 1,419
Trust and asset management fees 4,404 4,166 4,272 4,455 4,431
Increase in cash surrender value of life insurance 917 944 1,014 1,451 968
Accretion of FDIC indemnification asset 475 683 985 1,339 1,831
Card fees 2,044 1,096 2,071 2,062 1,788
Other operating income   2,162       1,632       1,690       1,979       1,598  
Total core other income   28,962       29,585       29,890       31,597       28,974  
 
Non-core other income: (1)
Net gain (loss) on sale of investment securities (3 ) 411 - 232 (3 )
Net (loss) gain on sale of other assets (17 ) (87 ) - 13 357
Net gain on sale of loans held for sale (A) - - - 1,790 -
Net loss recognized on other real estate owned (B) (4,348 ) (3,620 ) (2,354 ) (3,629 ) (369 )

Net loss recognized on other real estate owned related to FDIC transactions (B)
(2,241 ) (1,858 ) (764 ) (1,016 ) (3 )

Increase (decrease) in market value of assets held in trust for deferred compensation (A)
  501       20       (405 )     158       187  
Total non-core other income   (6,108 )     (5,134 )     (3,523 )     (2,452 )     169  
 
Total other income $ 22,854     $ 24,451     $ 26,367     $ 29,145     $ 29,143  

(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 decreased by $623 thousand from the fourth quarter of 2011 to the first quarter of 2012. Deposit service fees decreased primarily due to decreases in NSF and overdraft fees. Net lease financing decreased due to a decrease in remarketing revenues, which were unusually robust during the fourth quarter of 2011. Accretion of indemnification asset decreased as a result of the corresponding decrease in the indemnification asset balance during the first quarter of 2012. Card fees increased due to restrictions of the Durbin Amendment to the Dodd-Frank Act on debit card interchange fees currently not applying to us as a result of total assets decreasing under $10 billion as of December 31, 2011. Non-core other income was primarily impacted by higher losses recognized on other real estate owned.

Core other income was consistent from the first quarter of 2011 to the first quarter of 2012. Deposit service fees decreased due to decreases in NSF and overdraft fees. Net lease financing increased primarily due to an increase in the sales of third party equipment maintenance contracts and related income. Accretion of indemnification asset decreased as a result of corresponding decrease in the indemnification asset balance during the first quarter of 2012. Non-core other income was primarily impacted by higher losses recognized on other real estate owned.

Other Expense (in thousands):
         
Three Months Ended

March 31,
  December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Core other expense:
Salaries and employee benefits $ 39,928 $ 39,826 $ 38,827 $ 37,657 $ 37,588
Occupancy and equipment expense 9,570 8,498 9,092 8,483 9,394
Computer services and telecommunication expense 3,653 4,382 3,488 3,570 3,445
Advertising and marketing expense 2,066 1,831 1,740 1,748 1,719
Professional and legal expense 1,413 1,422 1,647 1,853 1,225
Other intangible amortization expense 1,257 1,410 1,414 1,416 1,425
FDIC insurance premiums 2,643 2,662 2,272 3,502 3,428
Other real estate expense, net 1,243 1,464 1,181 1,251 398
Other operating expenses   5,057     7,324     7,352       7,090     7,055
Total core other expense   66,830     68,819     67,013       66,570     65,677
 
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)
  501     20     (405 )     158     187
Total non-core other expense   501     614     (405 )     158     1,187
 
Total other expense $ 67,331   $ 69,433   $ 66,608     $ 66,728   $ 66,864

(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 decreased by $2.0 million in the first quarter of 2012 compared with the fourth quarter of 2011. Occupancy and equipment expense increased as a result of higher maintenance costs. Computer services and telecommunication expense decreased primarily due to product and system enhancement activities completed in the fourth quarter of 2011. The decrease in other operating expenses was primarily due to a $1.7 million decrease in the clawback liability related to our loss share agreements with the FDIC.

Core other expense increased by $1.2 million from the first quarter of 2011 to the first quarter of 2012. Salaries and employee benefits expense increased due to officer raises, higher health insurance claims and one extra day in the first quarter of 2012. FDIC insurance premiums decreased due to lower deposits, a change in the assessment computation during the second quarter of 2011, and the impact of improved credit quality on the computation. Other real estate expense increased as a result of increased holding costs related to other real estate owned. The decrease in other operating expenses was primarily due to a $1.7 million decrease in the clawback liability related to our loss share agreements with the FDIC. 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 $8.4 million for the three months ended March 31, 2012. Tax expense in the first quarter of 2011 included $2.1 million of income tax benefit due to an increase in deferred tax assets as a result of an increase in the Illinois corporate income tax rate enacted in the first quarter of 2011.

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):
                     

 
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
% of % of % of % of % of
  Amount   Total     Amount   Total     Amount   Total     Amount   Total     Amount   Total
Commercial related credits:
Commercial loans $ 1,040,340 18 % $ 1,113,123 19 % $ 1,042,583 18 % $ 1,108,295 19 % $ 1,154,451 18 %

Commercial loans collateralized by assignment of lease payments (lease loans)
1,209,942 21 % 1,208,575 20 % 1,067,191 18 % 1,031,677 17 % 1,038,507 16 %
Commercial real estate 1,877,380 32 % 1,853,788 31 % 1,844,894 32 % 1,863,223 32 % 2,084,651 33 %
Construction real estate 128,040   2 % 183,789   3 % 210,206   4 % 246,557   4 % 356,579   6 %
Total commercial related credits 4,255,702   73 % 4,359,275   73 % 4,164,874   72 % 4,249,752   72 % 4,634,188   73 %
Other loans:
Residential real estate 309,644 5 % 316,787 5 % 316,305 5 % 317,821 5 % 335,423 5 %
Indirect vehicle 186,736 3 % 187,481 3 % 189,033 4 % 182,536 3 % 175,058 3 %
Home equity 327,450 6 % 336,043 6 % 348,934 6 % 357,181 6 % 371,108 6 %
Consumer loans 89,705   2 % 88,865   2 % 76,025   1 % 75,069   1 % 74,585   1 %
Total other loans 913,535   16 % 929,176   16 % 930,297   16 % 932,607   15 % 956,174   15 %
Gross loans excluding covered loans 5,169,237 89 % 5,288,451 89 % 5,095,171 88 % 5,182,359 87 % 5,590,362 88 %
Covered loans (1) 620,528   11 % 662,544   11 % 718,566   12 % 755,670   13 % 777,634   12 %
Total loans $ 5,789,765 100 % $ 5,950,995 100 % $ 5,813,737 100 % $ 5,938,029 100 % $ 6,367,996 100 %

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

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, which was comprised of $160.8 million in commercial real estate loans, $73.7 million in construction real estate loans, $14.5 million in commercial loans and $32.6 million in residential real estate and home equity loans.

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):
         
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Non-performing loans:
Non-accrual loans (1) $ 124,011 $ 129,309 $ 140,979 $ 149,905 $ 318,923
Loans 90 days or more past due, still accruing interest 679   82   -   1,121   -  
Total non-performing loans 124,690   129,391   140,979   151,026   318,923  
 
OREO 63,077 78,452 87,469 88,185 80,107
Repossessed vehicles 81   156   249   55   139  
Total non-performing assets $ 187,848   $ 207,999   $ 228,697   $ 239,266   $ 399,169  
 
Total allowance for loan losses (2) $ 125,431 $ 126,798 $ 128,610 $ 130,057 $ 178,410
 
Accruing restructured loans (3) $ 24,145 $ 37,996 $ 34,321 $ 35,037 $ 31,819
 
Total non-performing loans to total loans 2.15 % 2.17 % 2.42 % 2.54 % 5.01 %
Total non-performing assets to total assets 1.94 % 2.12 % 2.30 % 2.40 % 3.96 %
Allowance for loan losses to non-performing loans 100.59 % 98.00 % 91.23 % 86.12 % 55.94 %

(1) Includes $34.7 million, $42.5 million, $36.0 million, $22.5 million and $60.9 million of restructured loans on non-accrual status at March 31, 2012, December 31, 2011, September 30, 2011, June 30, 2011 and March 31, 2011, respectively.

(2) Includes $12.7 million for unfunded credit commitments at March 31, 2011.

(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.

The decreases in total non-performing loans and total non-performing assets from March 31, 2011 to June 30, 2011 were primarily due to the sale during the second quarter of 2011 of loans with an aggregate carrying amount of $281.6 million prior to the transfer to loans held for sale, $156.3 million of which were non-performing.

The following table represents a summary of OREO, excluding OREO related to assets acquired in FDIC-assisted transactions (in thousands):
  March 31,   December 31,   September 30,   June 30,   March 31,
2012 2011 2011 2011 2011
 
Balance at the beginning of quarter $ 78,452 $ 87,469 $ 88,185 $ 80,107 $ 71,476
Transfers in at fair value less estimated costs to sell 2,110 4,209 15,658 15,761 25,167
Fair value adjustments (4,764 ) (3,733 ) (2,524 ) (3,417 ) (1,314 )
Net gains (losses) on sales of OREO 416 113 170 (212 ) 945
Cash received upon disposition (13,137 ) (9,606 ) (14,020 ) (4,054 ) (16,167 )
Balance at the end of quarter $ 63,077   $ 78,452   $ 87,469   $ 88,185   $ 80,107  
 

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):
                                           
   

Construction Real Estate
  Commercial Real Estate   Consumer  
    Commercial and Lease Loans   Loans   Loans     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 %

The following table presents data related to non-performing loans, by dollar amount and category at December 31, 2011, excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):
                                           
    Construction Real Estate   Commercial Real Estate   Consumer  
    Commercial and Lease Loans   Loans   Loans     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 2 14,322 - - 2 15,435 - 29,757
$1.5 million to $4.9 million 5 12,031 - - 13 37,509 - 49,540
Under $1.5 million 42     10,642   3     1,145   61     23,607     14,700     50,094
49   $ 36,995   3   $ 1,145   76   $ 76,551   $ 14,700   $ 129,391
 
Percentage of individual loan category 1.59% 0.62% 4.13% 1.58% 2.17%

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 $159.4 million, or 2.75% of total loans, as of March 31, 2012, compared to $149.8 million, or 2.51% of total loans, as of December 31, 2011.

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
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
 
Allowance for credit losses, balance at the beginning of period $ 135,975 $ 141,861 $ 147,107 $ 178,410 $ 192,217
Provision for credit losses 3,100 8,000 11,500 61,250 40,000
Charge-offs:
Commercial loans (539 ) (2,932 ) (3,497 ) (7,991 ) (3,151 )

Commercial loans collateralized by assignment of lease payments (lease loans)
- (1,373 ) - (93 ) -
Commercial real estate loans (3,003 ) (3,793 ) (7,815 ) (55,250 ) (29,775 )
Construction real estate (3,436 ) (6,989 ) (6,008 ) (18,826 ) (21,094 )
Residential real estate (294 ) (860 ) (141 ) (8,080 ) (3,562 )
Indirect vehicle (715 ) (954 ) (611 ) (553 ) (718 )
Home equity (1,072 ) (2,061 ) (1,605 ) (5,493 ) (1,907 )
Consumer loans (258 ) (285 ) (475 ) (344 ) (544 )
Total charge-offs (9,317 ) (19,247 ) (20,152 ) (96,630 ) (60,751 )
Recoveries:
Commercial loans 2,038 634 1,413 758 2,565

Commercial loans collateralized by assignment of lease payments (lease loans)
256 1 5 153 66
Commercial real estate loans 162 747 739 312 1,534
Construction real estate 565 3,519 681 2,364 2,026
Residential real estate 34 9 7 26 7
Indirect vehicle 311 378 327 369 325
Home equity 20 6 151 19 48
Consumer loans 111   67   83   76   373  
Total recoveries 3,497   5,361   3,406   4,077   6,944  
 
Total net charge-offs (5,820 ) (13,886 ) (16,746 ) (92,553 ) (53,807 )
 
Allowance for credit losses 133,255 135,975 141,861 147,107 178,410
 
Allowance for unfunded credit commitments (1) (7,824 ) (9,177 ) (13,251 ) (17,050 ) -  
 
Allowance for loan losses (2) $ 125,431   $ 126,798   $ 128,610   $ 130,057   $ 178,410  
 
Total loans, excluding loans held for sale $ 5,789,765 $ 5,950,995 $ 5,813,737 $ 5,938,029 $ 6,367,996
Average loans, excluding loans held for sale $ 5,802,037 $ 5,818,425 $ 5,827,181 $ 6,293,073 $ 6,460,508
 
Ratio of allowance for loan losses to total loans, excluding loans held for sale 2.17 % 2.13 % 2.21 % 2.19 % 2.80 %
 
Ratio of allowance for credit losses to total loans, excluding loans held for sale, and unfunded credit commitments 2.27 % 2.26 % 2.40 % 2.43 % 2.75 %
 
Net loan charge-offs to average loans, excluding loans held for sale (annualized) 0.40 % 0.95 % 1.14 % 5.90 % 3.38 %

(1) The reserve for unfunded credit commitments (primarily letters of credit) was reclassified from the allowance for loan losses to other liabilities as of June 30, 2011.

(2) Includes $12.7 million for unfunded credit commitments at March 31, 2011.

The activity in the second quarter of 2011 reflects the previously disclosed sale of certain performing, sub-performing and non-performing loans, which resulted in approximately $87.6 million in charge-offs and an increase in the provision for credit losses of approximately $50 million.

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):
         
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
 
General loss reserve $ 98,985 $ 102,196 $ 102,752 $ 104,002 $ 126,423
Specific reserve (1) 13,422 10,804 11,416 12,111 38,054
Smaller-balance homogenous loans reserve 13,024 13,798 14,442 13,944 13,933
Total allowance for loan losses $ 125,431 $ 126,798 $ 128,610 $ 130,057 $ 178,410

(1) The specific reserve as of March 31, 2011 includes reserves on unfunded credit commitments of approximately $12.7 million. Beginning as of June 30, 2011, reserves on unfunded credit commitments are recorded as liabilities.

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

INVESTMENT SECURITIES

The following table sets forth the fair value, amortized cost, and total unrealized gain of our investment securities, by type (in thousands):
         
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
 
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $ 42,070 $ 42,401 $ 56,007 $ 55,656 $ 56,971
States and political subdivisions 581,720 535,660 394,279 392,670 365,481
Mortgage-backed securities 1,193,248 1,334,491 1,421,789 1,424,302 1,279,968
Corporate bonds 5,686 5,899 5,899 6,019 6,019
Equity securities 10,887 10,846 10,764 10,435 10,215
Total fair value $ 1,833,611 $ 1,929,297 $ 1,888,738 $ 1,889,082 $ 1,718,654
 
Amortized cost
Government sponsored agencies and enterprises $ 39,503 $ 39,640 $ 53,016 $ 54,423 $ 56,452
States and political subdivisions 547,262 500,979 366,651 371,598 350,851
Mortgage-backed securities 1,168,340 1,308,020 1,399,801 1,401,975 1,258,171
Corporate bonds 5,686 5,899 5,899 6,019 6,019
Equity securities 10,520 10,457 10,324 10,246 10,169
Total amortized cost $ 1,771,311 $ 1,864,995 $ 1,835,691 $ 1,844,261 $ 1,681,662
 
Unrealized gain
Government sponsored agencies and enterprises $ 2,567 $ 2,761 $ 2,991 $ 1,233 $ 519
States and political subdivisions 34,458 34,681 27,628 21,072 14,630
Mortgage-backed securities 24,908 26,471 21,988 22,327 21,797
Corporate bonds - - - - -
Equity securities 367 389 440 189 46
Total unrealized gain $ 62,300 $ 64,302 $ 53,047 $ 44,821 $ 36,992
 
Securities held to maturity, at cost:
States and political subdivisions $ 239,526 $ 240,183 $ 240,839 $ - $ -
Mortgage-backed securities 259,241 259,100 258,199 230,154 102,206
Total amortized cost $ 498,767 $ 499,283 $ 499,038 $ 230,154 $ 102,206

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):
                 
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
% of   % of   % of % of % of
  Amount   Total     Amount   Total     Amount   Total     Amount   Total     Amount   Total
Low cost deposits:
Noninterest bearing deposits $ 1,874,028 25 % $ 1,885,694 25 % $ 1,803,141 23 % $ 1,776,873 23 % $ 1,666,868 22 %
Money market and NOW accounts 2,702,636 35 % 2,645,334 34 % 2,722,162 35 % 2,645,953 34 % 2,712,314 34 %
Savings accounts 786,357   10 % 753,610   10 % 751,062   10 % 729,222   9 % 718,896   9 %
Total low cost deposits 5,363,021   70 % 5,284,638   69 % 5,276,365   68 % 5,152,048   66 % 5,098,078   65 %
 
Certificates of deposit:
Certificates of deposit 1,820,266 24 % 1,925,608 25 % 2,001,210 26 % 2,124,815 28 % 2,326,591 29 %
Brokered deposit accounts 451,415   6 % 437,361   6 % 444,332   6 % 441,720   6 % 467,337   6 %
Total certificates of deposit 2,271,681   30 % 2,362,969   31 % 2,445,542   32 % 2,566,535   34 % 2,793,928   35 %
 
Total deposits $ 7,634,702   100 % $ 7,647,607   100 % $ 7,721,907   100 % $ 7,718,583   100 % $ 7,892,006   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)
 
March 31, December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
ASSETS
Cash and due from banks $ 128,411 $ 144,228 $ 133,755 $ 129,942 $ 123,794
Interest earning deposits with banks   272,553       100,337       347,055       513,378       504,765  
Total cash and cash equivalents 400,964 244,565 480,810 643,320 628,559
Investment securities:
Securities available for sale, at fair value 1,833,611 1,929,297 1,888,738 1,889,082 1,718,654
Securities held to maturity, at amortized cost 498,767 499,283 499,038 230,154 102,206
Non-marketable securities - FHLB and FRB Stock 65,541       80,832       80,815       80,815       80,186  
Total investment securities 2,397,919 2,509,412 2,468,591 2,200,051 1,901,046
Loans held for sale 3,364 4,727 - - 11,533
Loans:
Total loans, excluding covered loans 5,169,237 5,288,451 5,095,171 5,182,359 5,590,362
Covered loans   620,528       662,544       718,566       755,670       777,634  
Total loans 5,789,765 5,950,995 5,813,737 5,938,029 6,367,996
Less: Allowance for loan losses   125,431       126,798       128,610       130,057       178,410  
Net loans 5,664,334 5,824,197 5,685,127 5,807,972 6,189,586
Lease investments, net 124,748 135,490 133,345 139,391 129,182
Premises and equipment, net 212,589 210,705 211,062 210,901 209,257
Cash surrender value of life insurance 126,226 125,309 124,364 126,938 126,014
Goodwill, net 387,069 387,069 387,069 387,069 387,069
Other intangibles, net 28,237 29,494 30,904 32,318 33,734
Other real estate owned, net 63,077 78,452 87,469 88,185 80,107
Other real estate owned related to FDIC transactions 53,703 60,363 69,311 69,920 61,461
FDIC indemnification asset 72,161 80,830 94,542 119,837 148,314
Other assets   137,209       142,459       149,767       151,833       165,481  
Total assets $ 9,671,600     $ 9,833,072     $ 9,922,361     $ 9,977,735     $ 10,071,343  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 1,874,028 $ 1,885,694 $ 1,803,141 $ 1,776,873 $ 1,666,868
Interest bearing   5,760,674       5,761,913       5,918,766       5,941,710       6,225,138  
Total deposits 7,634,702 7,647,607 7,721,907 7,718,583 7,892,006
Short-term borrowings 269,691 219,954 257,418 235,733 295,180
Long-term borrowings 256,456 266,264 274,378 275,559 275,327
Junior subordinated notes issued to capital trusts 158,530 158,538 158,546 158,554 158,563
Accrued expenses and other liabilities   136,791       147,682       141,490       243,962       100,031  
Total liabilities   8,456,170       8,440,045       8,553,739       8,632,391       8,721,107  
Stockholders' Equity
Preferred stock - 194,719 194,562 194,407 194,255
Common stock 549 548 548 546 546
Additional paid-in capital 732,613 731,248 730,056 728,244 726,604
Retained earnings 445,233 427,956 411,659 396,081 406,594
Accumulated other comprehensive income 37,935 39,150 32,322 27,322 22,566
Treasury stock   (3,326 )     (3,044 )     (3,010 )     (3,771 )     (2,845 )
Controlling interest stockholders' equity 1,213,004 1,390,577 1,366,137 1,342,829 1,347,720
Noncontrolling interest   2,426       2,450       2,485       2,515       2,516  
Total stockholders' equity   1,215,430       1,393,027       1,368,622       1,345,344       1,350,236  
Total liabilities and stockholders' equity $ 9,671,600     $ 9,833,072     $ 9,922,361     $ 9,977,735     $ 10,071,343  
         
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data) (Unaudited)
 
Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
2012   2011   2011   2011   2011
Interest income:
Loans $ 71,648 $ 75,466 $ 78,046 $ 84,114 $ 87,167
Investment securities:
Taxable 10,884 11,608 11,699 10,290 7,752
Nontaxable 6,739 6,178 4,299 3,443 3,345
Other interest earning accounts   169       181       244       258       470  
Total interest income   89,440       93,433       94,288       98,105       98,734  
Interest expense:
Deposits 8,760 9,569 10,207 11,746 13,359
Short-term borrowings 206 189 204 239 217
Long-term borrowings and junior subordinated notes   3,381       3,430       3,461       3,713       2,953  
Total interest expense   12,347       13,188       13,872       15,698       16,529  
Net interest income 77,093 80,245 80,416 82,407 82,205
Provision for credit losses   3,100       8,000       11,500       61,250       40,000  
Net interest income after provision for credit losses   73,993       72,245       68,916       21,157       42,205  
Other income:
Loan service fees 1,339 1,601 2,159 2,812 1,126
Deposit service fees 9,408 10,085 9,932 9,023 10,030
Lease financing, net 6,958 7,801 6,494 6,861 5,783
Brokerage fees 1,255 1,577 1,273 1,615 1,419
Trust and asset management fees 4,404 4,166 4,272 4,455 4,431
Net gain (loss) on sale of securities available for sale (3 ) 411 - 232 (3 )
Increase in cash surrender value of life insurance 917 944 1,014 1,451 968
Net (loss) gain on sale of assets (17 ) (87 ) - 13 357
Accretion of FDIC indemnification asset 475 683 985 1,339 1,831
Card fees 2,044 1,096 2,071 2,062 1,788
Net loss recognized on other real estate owned (6,589 ) (5,478 ) (3,118 ) (4,645 ) (372 )
Other operating income   2,663       1,652       1,285       3,927       1,785  
Total other income   22,854       24,451       26,367       29,145       29,143  
Other expenses:
Salaries and employee benefits 40,429 39,846 38,422 37,815 37,775
Occupancy and equipment expense 9,570 8,498 9,092 8,483 9,394
Computer services and telecommunication expense 3,653 4,382 3,488 3,570 3,445
Advertising and marketing expense 2,066 1,831 1,740 1,748 1,719
Professional and legal expense 1,413 1,422 1,647 1,853 1,225
Other intangible amortization expense 1,257 1,410 1,414 1,416 1,425
FDIC insurance premiums 2,643 2,662 2,272 3,502 3,428
Branch impairment charges - 594 - - 1,000
Other real estate expense, net 1,243 1,464 1,181 1,251 398
Other operating expenses   5,057       7,324       7,352       7,090       7,055  
Total other expense   67,331       69,433       66,608       66,728       66,864  
Income (loss) before income taxes 29,516 27,263 28,675 (16,426 ) 4,484
Income taxes   8,430       7,810       8,978       (9,060 )     (2,460 )
Net income (loss) 21,086 19,453 19,697 (7,366 ) 6,944
Dividends and discount accretion on preferred shares   3,269       2,606       2,605       2,602       2,601  
Net income (loss) available to common stockholders $ 17,817     $ 16,847     $ 17,092     $ (9,968 )   $ 4,343  
       
Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Common share data:
Basic earnings allocated to common stock per common share $ 0.39 $ 0.36 $ 0.36 $ (0.14 ) $ 0.13

Impact of preferred stock dividends on basic earnings (loss) per common share
(0.06 ) (0.05 ) (0.04 ) (0.04 ) (0.05 )
Basic earnings (loss) per common share 0.33 0.31 0.32 (0.18 ) 0.08
 
Diluted earnings allocated to common stock per common share 0.39 0.36 0.36 (0.14 ) 0.13

Impact of preferred stock dividends on diluted earnings (loss) per common share
(0.06 ) (0.05 ) (0.05 ) (0.04 ) (0.05 )
Diluted earnings (loss) per common share 0.33 0.31 0.31 (0.18 ) 0.08
 
Weighted average common shares outstanding for
basic earnings per common share 54,155,856 54,140,646 54,121,156 54,002,979 53,961,176
 
Weighted average common shares outstanding for
diluted earnings per common share 54,411,916 54,360,178 54,323,320 54,002,979 54,254,876
 
Selected Financial Data:
  Three Months Ended
March 31, December 31, September 30, June 30, March 31,
  2012   2011   2011   2011   2011
Performance Ratios:
Annualized return on average assets 0.87 % 0.78 % 0.80 % (0.30 ) % 0.28 %
Annualized return on average common equity 5.94 5.66 5.86 (3.43 ) 1.53

Annualized cash return on average tangible common equity (1)
9.36 9.09 9.52 (4.80 ) 2.88
Net interest rate spread 3.67 3.71 3.71 3.71 3.68
Cost of funds (2) 0.60 0.63 0.66 0.74 0.77
Efficiency ratio (3) 60.04 59.94 58.69 56.63 57.45

Annualized net non-interest expense to average assets (4)
1.54 1.56 1.48 1.38 1.44

Pre-tax pre-provision operating earnings to risk-weighted assets (5)
2.91 2.87 3.03 3.30 3.00

Pre-tax pre-provision operating earnings to average assets (5)
1.84 1.85 1.91 2.05 1.93
Net interest margin 3.64 3.71 3.74 3.79 3.76
Tax equivalent effect 0.23 0.20 0.16 0.13 0.12
Net interest margin - fully tax equivalent basis (6) 3.87 3.91 3.90 3.92 3.88
Asset Quality Ratios:
Non-performing loans (7) to total loans 2.15 % 2.17 % 2.42 % 2.54 % 5.01 %
Non-performing assets (7) to total assets 1.94 2.12 2.30 2.40 3.96
Allowance for loan losses to non-performing loans (7) 100.59 98.00 91.23 86.12 55.94
Allowance for loan losses to total loans 2.17 2.13 2.21 2.19 2.80

Allowance for credit losses to total loans and unfunded credit commitments
2.27 2.26 2.40 2.43 2.75
Net loan charge-offs to average loans (annualized) 0.40 0.95 1.14 5.90 3.38
Capital Ratios:
Tangible equity to tangible assets (8) 8.74 % 10.47 % 10.10 % 9.79 % 9.74 %
Tangible common equity to risk weighted assets (9) 13.17 12.48 12.42 11.97 11.36
Tangible common equity to tangible assets (10) 8.74 8.40 8.06 7.76 7.73
Book value per common share (11) $ 22.23 $ 21.92 $ 21.48 $ 21.14 $ 21.24

Less: goodwill and other intangible assets, net of benefit, per common share
7.41 7.43 7.45 7.49 7.52
Tangible book value per common share (12) 14.81 14.49 14.03 13.64 13.73
 
Total capital (to risk-weighted assets) 17.11 % 19.41 % 19.61 % 19.18 % 18.33 %
Tier 1 capital (to risk-weighted assets) 15.04 17.36 17.54 17.11 16.31
Tier 1 capital (to average assets) 9.99 11.73 11.59 11.16 11.00
Tier 1 common capital (to risk-weighted assets) 12.54 11.87 11.90 11.50 11.01
 
(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) Equals net income before taxes, on a fully tax equivalent basis, excluding loan loss provision expense, non-core other income items, and non-core other expense items, including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by risk-weighted assets or average assets.
(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 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.
(11) Equals total ending common stockholders’ equity divided by common shares outstanding.
(12) 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 pre-tax, pre-provision operating earnings; 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, ratio of annualized net non-interest expense to average assets, ratio of pre-tax, pre-provision operating earnings to risk-weighted assets and ratio of pre-tax, pre-provision operating earnings to average assets, with net gains and losses on securities available for sale, net losses on sale of other assets, net gains and 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 pre-tax, pre-provision operating earnings are a useful measure in assessing our core operating performance, particularly during times of economic stress. In recent periods, our results of operations have been negatively impacted by adverse economic conditions, as seen in our elevated levels of loan charge-offs and provision for credit losses. Management believes that measuring earnings before the impact of the provision for loan losses makes our financial data more comparable between reporting periods so that investors can better understand our operating performance trends. Management also believes that this is a standard figure used in the banking industry to measure performance.

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 securities available for sale, 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, the ratio of annualized net non-interest expense to average assets, the ratio of pre-tax, pre-provision operating earnings to risk-weighted assets and the ratio of pre-tax, pre-provision operating earnings 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):
    March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
Stockholders' equity - as reported $ 1,215,430 $ 1,393,027 $ 1,368,622 $ 1,345,344 $ 1,350,236
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit 18,354 19,171 20,088 21,007 21,927
Tangible equity $ 810,007 $ 986,787 $ 961,465 $ 937,268 $ 941,240
 

The following table presents a reconciliation of tangible assets to total assets (in thousands):
    March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
Total assets - as reported $ 9,671,600 $ 9,833,072 $ 9,922,361 $ 9,977,735 $ 10,071,343
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit 18,354 19,171 20,088 21,007 21,927
Tangible assets $ 9,266,177 $ 9,426,832 $ 9,515,204 $ 9,569,659 $ 9,662,347
 

The following table presents a reconciliation of tangible common equity to stockholders’ common equity (in thousands):
    March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
Common stockholders' equity - as reported $ 1,215,430 $ 1,198,308 $ 1,174,060 $ 1,150,937 $ 1,155,981
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit 18,354 19,171 20,088 21,007 21,927
Tangible common equity $ 810,007 $ 792,068 $ 766,903 $ 742,861 $ 746,985
 

The following table presents a reconciliation of average tangible common equity to average common stockholders’ equity (in thousands):
      Three Months Ended
March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
Average common stockholders' equity - as reported $ 1,206,364 $ 1,181,820 $ 1,158,119 $ 1,165,022 $ 1,152,119
Less: average goodwill 387,069 387,069 387,069 387,069 387,069
Less: average other intangible assets, net of tax benefit 18,721 19,494 20,414 21,331 22,254
Average tangible common equity $ 800,574 $ 775,257 $ 750,636 $ 756,622 $ 742,796
 

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
March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
 
Net income (loss) available to common stockholders - as reported $ 17,817 $ 16,847 $ 17,092 $ (9,968 ) $ 4,343
Add: other intangible amortization expense, net of tax benefit 817 917 919 920   926
Net cash flow available to common stockholders $ 18,634 $ 17,764 $ 18,011 $ (9,048 ) $ 5,269
 

The following table presents a reconciliation of Tier 1 common capital to Tier 1 capital (in thousands):
    March 31,   December 31,   September 30,   June 30,   March 31,
  2012     2011     2011     2011     2011
Tier 1 capital - as reported $ 925,089 $ 1,101,538 $ 1,083,020 $ 1,061,482 $ 1,072,537
Less: preferred stock - 194,719 194,562 194,407 194,255
Less: qualifying trust preferred securities 153,500 153,787 153,795 153,803 153,812
Tier 1 common capital $ 771,589 $ 753,032 $ 734,663 $ 713,272 $ 724,470
 
       

Efficiency Ratio Calculation (Dollars in Thousands)
 
  Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Non-interest expense $ 67,331 $ 69,433 $ 66,608 $ 66,728 $ 66,864
Adjustment for impairment charges - 594 - - 1,000

Adjustment for increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
Non-interest expense - as adjusted $ 66,830   $ 68,819   $ 67,013   $ 66,570   $ 65,677  
 
Net interest income $ 77,093 $ 80,245 $ 80,416 $ 82,407 $ 82,205
Tax equivalent adjustment 4,756   4,468   3,320   2,775   2,625  
Net interest income on a fully tax equivalent basis 81,849 84,713 83,736 85,182 84,830

Tax equivalent adjustment on the increase in cash surrender value of life insurance
494 508 546 781 521
Plus other income 22,854 24,451 26,367 29,145 29,143
Less net losses on other real estate owned (6,589 ) (5,478 ) (3,118 ) (4,645 ) (372 )
Less net gains (losses) on securities available for sale (3 ) 411 - 232 (3 )
Less net (losses) gains on sale of other assets (17 ) (87 ) - 13 357
Less net gain on sale of loans held for sale - - - 1,790 -

Less increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
 
Net interest income plus non-interest income - as adjusted $ 111,305   $ 114,806   $ 114,172   $ 117,560   $ 114,325  
 
Efficiency ratio 60.04 % 59.94 % 58.69 % 56.63 % 57.45 %
 
Efficiency ratio (without adjustments) 67.37 % 66.32 % 62.38 % 59.82 % 60.05 %
         

Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)
 
  Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Non-interest expense $ 67,331 $ 69,433 $ 66,608 $ 66,728 $ 66,864
Adjustment for impairment charges - 594 - - 1,000

Adjustment for increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
Non-interest expense - as adjusted 66,830   68,819   67,013   66,570   65,677  
 
Other income 22,854 24,451 26,367 29,145 29,143
Less net losses on other real estate owned (6,589 ) (5,478 ) (3,118 ) (4,645 ) (372 )
Less net gains (losses) on securities available for sale (3 ) 411 - 232 (3 )
Less net (losses) gains on sale of other assets (17 ) (87 ) - 13 357
Less net gain on sale of loans held for sale - - - 1,790 -

Less increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
Other income - as adjusted 28,962   29,585   29,890   31,597   28,974  

Less tax equivalent adjustment on the increase in cash surrender value of life insurance
494   508   546   781   521  
 
Net non-interest expense $ 37,374   $ 38,726   $ 36,577   $ 34,192   $ 36,182  
 
Average assets $ 9,736,702 $ 9,856,835 $ 9,807,561 $ 9,966,898 $ 10,198,626
 
Annualized net non-interest expense to average assets 1.54 % 1.56 % 1.48 % 1.38 % 1.44 %
 

Annualized net non-interest expense to average assets (without adjustments)
1.84 % 1.81 % 1.63 % 1.51 % 1.50 %
         

Calculation of Pre-Tax, Pre-Provision Operating Earnings (Dollars in Thousands)
 
  Three Months Ended
March 31,   December 31, September 30, June 30, March 31,
  2012     2011     2011     2011     2011
Income (loss) before income taxes $ 29,516 $ 27,263 $ 28,675 $ (16,426 ) $ 4,484
Provision for credit losses 3,100   8,000   11,500   61,250   40,000  
Pre-tax, pre-provision earnings 32,616   35,263   40,175   44,824   44,484  
 
Tax equivalent adjustment on tax-exempt interest income 4,756 4,468 3,320 2,775 2,625

Tax equivalent adjustment on the increase in cash surrender value of life insurance
494   508   546   781   521  
Pre-tax, pre-provision earnings on a fully tax equivalent basis 37,866   40,239   44,041   48,380   47,630  
 
Non-core other income
Net losses on other real estate owned (6,589 ) (5,478 ) (3,118 ) (4,645 ) (372 )
Net gains (losses) on securities available for sale (3 ) 411 - 232 (3 )
Net (losses) gain on sale of other assets (17 ) (87 ) - 13 357
Net gain on sale of loans held for sale - - - 1,790 -

Increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
Total non-core other income (6,108 ) (5,134 ) (3,523 ) (2,452 ) 169  
 
Non-core other expense
Impairment charges - 594 - - 1,000

Increase (decrease) in market value of assets held in trust for deferred compensation
501   20   (405 ) 158   187  
Total non-core other expense 501   614   (405 ) 158   1,187  
Pre-tax, pre-provision operating earnings $ 44,475   $ 45,987   $ 47,159   $ 50,990   $ 48,648  
 
Risk-weighted assets $ 6,150,910 $ 6,346,201 $ 6,174,508 $ 6,203,587 $ 6,577,477
 
Average assets $ 9,736,702 $ 9,856,835 $ 9,807,561 $ 9,966,898 $ 10,198,626
 

Annualized pre-tax, pre-provision operating earnings to risk-weighted assets
2.91 % 2.87 % 3.03 % 3.30 % 3.00 %
 

Annualized pre-tax, pre-provision operating earnings to risk-weighted assets (without adjustments)
2.13 % 2.20 % 2.58 % 2.90 % 2.74 %
 

Annualized pre-tax, pre-provision operating earnings to average assets
1.84 % 1.85 % 1.91 % 2.05 % 1.93 %
 

Annualized pre-tax, pre-provision operating earnings to average assets (without adjustments)
1.35 % 1.42 % 1.63 % 1.80 % 1.77 %

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—Fourth 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 March 31, Three Months Ended December 31,
  2012   2011           2011
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 $ 1,062,246 $ 12,774 4.76 % $ 1,164,698 14,331 4.99 % $ 1,051,065 $ 12,989 4.90 %

Commercial loans collateralized by assignment of lease payments
1,176,901 13,757 4.68 1,003,872 14,090 5.61 1,102,220 14,167 5.14
Real estate commercial 1,863,892 23,906 5.07 2,139,597 28,235 5.28 1,839,689 25,132 5.35
Real estate construction 145,728 1,540 4.18 407,148 3,519 3.46 209,098 2,443 4.57
Total commercial related credits 4,248,767 51,977 4.84 4,715,315 60,175 5.10 4,202,072 54,731 5.10
Other loans
Real estate residential 313,602 3,650 4.66 332,856 4,467 5.37 316,087 3,719 4.71
Home equity 332,909 3,670 4.43 376,361 4,003 4.31 342,011 3,701 4.29
Indirect 186,359 2,935 6.33 174,362 2,940 6.84 188,562 3,080 6.48
Consumer loans 69,747 529 3.05 57,468 600 4.23 62,703 482 3.05
Total other loans 902,617 10,784 4.81 941,047 12,010 5.18 909,363 10,982 4.79
Total loans, excluding covered loans 5,151,384 62,761 4.90 5,656,362 72,185 5.18 5,111,435 65,713 5.10
Covered loans 652,146 10,014 6.18 804,275 15,805 7.97 707,039 10,894 6.11
Total loans 5,803,530 72,775 5.04 6,460,637 87,990 5.52 5,818,474 76,607 5.22
Taxable investment securities 1,702,766 10,884 2.56 1,313,061 7,752 2.36 1,820,680 11,608 2.55

Investment securities exempt from federal income taxes (3)
742,568 10,368 5.58 348,831 5,146 5.90 676,893 9,505 5.49
Other interest earning deposits 258,351 169 0.26 747,013 471 0.26 272,762 181 0.26
Total interest earning assets $ 8,507,215 $ 94,196 4.45 $ 8,869,542 $ 101,359 4.63 $ 8,588,809 $ 97,901 4.52
Non-interest earning assets 1,229,487 1,329,084 1,268,026
Total assets $ 9,736,702 $ 10,198,626 $ 9,856,835
 
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,649,671 $ 1,207 0.18 % $ 2,726,599 $ 2,486 0.37 % $ 2,653,486 $ 1,498 0.22 %
Savings accounts 772,335 248 0.13 710,455 420 0.24 751,766 327 0.17
Certificates of deposit 1,892,328 3,883 0.86 2,429,280 6,520 1.09 1,971,473 4,294 0.89
Customer repurchase agreements 203,003 134 0.27 262,578 187 0.29 235,666 151 0.25
Total core funding 5,517,337 5,472 0.40 6,128,912 9,613 0.64 5,612,391 6,270 0.44
Wholesale funding:
Brokered accounts (includes fee expense) 439,890 3,422 3.13 467,417 3,933 3.41 438,123 3,450 3.12
Other borrowings 429,231 3,453 3.18 440,241 2,983 2.71 431,165 3,468 3.15
Total wholesale funding 869,121 6,875 2.76 907,658 6,916 3.09 869,288 6,918 2.88
Total interest bearing liabilities $ 6,386,458 $ 12,347 0.78 $ 7,036,570 $ 16,529 0.95 $ 6,481,679 $ 13,188 0.81
Non-interest bearing deposits 1,851,211 1,672,003 1,878,049
Other non-interest bearing liabilities 136,412 143,775 120,671
Stockholders' equity 1,362,621 1,346,278 1,376,436
Total liabilities and stockholders' equity $ 9,736,702 $ 10,198,626 $ 9,856,835
Net interest income/interest rate spread (4) $ 81,849 3.67 % $ 84,830 3.68 % $ 84,713 3.71 %
Taxable equivalent adjustment 4,756 2,625 4,468
Net interest income, as reported $ 77,093 $ 82,205 $ 80,245
Net interest margin (5) 3.64 % 3.76 % 3.71 %
Tax equivalent effect 0.23 % 0.12 % 0.20 %

Net interest margin on a fully tax equivalent basis (5)
3.87 % 3.88 % 3.91 %
 
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $877 thousand, $1.2 million, and $1.3 million for the three months ended March 31, 2012, December 31, 2011, and March 31, 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.

Copyright Business Wire 2010