XNAS:MBFI MB Financial Inc Quarterly Report 10-Q Filing - 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission file number 0-24566-01

 

MB FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

(State or other jurisdiction of incorporation or organization)

 

36-4460265

(I.R.S. Employer Identification No.)

 

800 West Madison Street, Chicago, Illinois 60607

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (888) 422-6562

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x

 

There were outstanding 54,676,487 shares of the registrant’s common stock as of May 2, 2012.

 

 

 



Table of Contents

 

MB FINANCIAL, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

March 31, 2012

 

INDEX

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2012 (Unaudited) and December 31, 2011

1

 

 

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

2 — 3

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

4

 

 

 

 

Consolidated Statements of Changes in Stockhodlers’ Equity for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

6 — 7

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8 — 39

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

40 — 56

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

56 — 59

 

 

 

Item 4.

Controls and Procedures

59

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

60

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

 

 

 

Item 6.

Exhibits

60

 

 

 

 

Signatures

61

 



Table of Contents

 

PART I. - FINANCIAL INFORMATION

 

Item 1. - Financial Statements

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data) (Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

128,411

 

$

144,228

 

Interest earning deposits with banks

 

272,553

 

100,337

 

Total cash and cash equivalents

 

400,964

 

244,565

 

Investment securities:

 

 

 

 

 

Securities available for sale, at fair value

 

1,833,611

 

1,929,297

 

Securities held to maturity, at amortized cost ($515,644 and $511,022 fair value at March 31, 2012 and December 31, 2011, respectively)

 

498,767

 

499,283

 

Non-marketable securities - FHLB and FRB stock

 

65,541

 

80,832

 

Total investment securities

 

2,397,919

 

2,509,412

 

 

 

 

 

 

 

Loans held for sale

 

3,364

 

4,727

 

Loans:

 

 

 

 

 

Total loans, excluding covered loans

 

5,169,237

 

5,288,451

 

Covered loans

 

620,528

 

662,544

 

Total loans

 

5,789,765

 

5,950,995

 

Less: Allowance for loan loss

 

125,431

 

126,798

 

Net loans

 

5,664,334

 

5,824,197

 

Lease investment, net

 

124,748

 

135,490

 

Premises and equipment, net

 

212,589

 

210,705

 

Cash surrender value of life insurance

 

126,226

 

125,309

 

Goodwill, net

 

387,069

 

387,069

 

Other intangibles, net

 

28,237

 

29,494

 

Other real estate owned, net

 

63,077

 

78,452

 

Other real estate owned related to FDIC transactions

 

53,703

 

60,363

 

FDIC indemnification asset

 

72,161

 

80,830

 

Other assets

 

137,209

 

142,459

 

Total assets

 

$

9,671,600

 

$

9,833,072

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest bearing

 

$

1,874,028

 

$

1,885,694

 

Interest bearing

 

5,760,674

 

5,761,913

 

Total deposits

 

7,634,702

 

7,647,607

 

Short-term borrowings

 

269,691

 

219,954

 

Long-term borrowings

 

256,456

 

266,264

 

Junior subordinated notes issued to capital trusts

 

158,530

 

158,538

 

Accrued expenses and other liabilities

 

136,791

 

147,682

 

Total liabilities

 

8,456,170

 

8,440,045

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock, ($0.01 par value, authorized 1,000,000 shares at March 31, 2012 and December 31, 2011; series A, 5% cumulative perpetual, 196,000 shares issued and outstanding at December 31, 2011, $1,000 liquidation value)

 

 

194,719

 

Common stock, ($0.01 par value; authorized 70,000,000 shares at March 31, 2012 and December 31, 2011; issued 54,852,275 shares at March 31, 2012 and 54,824,912 at December 31, 2011)

 

549

 

548

 

Additional paid-in capital

 

732,613

 

731,248

 

Retained earnings

 

445,233

 

427,956

 

Accumulated other comprehensive income

 

37,935

 

39,150

 

Less:175,253 and 160,419 shares of Treasury stock, at cost, at March 31, 2012 and December 31, 2011, respectively

 

(3,326

)

(3,044

)

Controlling interest stockholders’ equity

 

1,213,004

 

1,390,577

 

Noncontrolling interest

 

2,426

 

2,450

 

Total stockholders’ equity

 

1,215,430

 

1,393,027

 

Total liabilities and stockholders’ equity

 

$

9,671,600

 

$

9,833,072

 

 

See accompanying Notes to Consolidated Financial Statements.

 

1



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except common share and per share data) (Unaudited)

 

 

 

Three months ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans

 

$

71,648

 

$

87,167

 

Investment securities:

 

 

 

 

 

Taxable

 

10,884

 

7,752

 

Nontaxable

 

6,739

 

3,345

 

Other interest earning accounts

 

169

 

470

 

Total interest income

 

89,440

 

98,734

 

Interest expense:

 

 

 

 

 

Deposits

 

8,760

 

13,359

 

Short-term borrowings

 

206

 

217

 

Long-term borrowings and junior subordinated notes

 

3,381

 

2,953

 

Total interest expense

 

12,347

 

16,529

 

Net interest income

 

77,093

 

82,205

 

Provision for credit losses

 

3,100

 

40,000

 

Net interest income after provision for credit losses

 

73,993

 

42,205

 

Other income:

 

 

 

 

 

Loan service fees

 

1,339

 

1,126

 

Deposit service fees

 

9,408

 

10,030

 

Lease financing, net

 

6,958

 

5,783

 

Brokerage fees

 

1,255

 

1,419

 

Trust and asset management fees

 

4,404

 

4,431

 

Net loss on sale of investment securities available for sale

 

(3

)

(3

)

Increase in cash surrender value of life insurance

 

917

 

968

 

Net (loss) gain on sale of assets

 

(17

)

357

 

Accretion of FDIC indemnification asset

 

475

 

1,831

 

Card fees

 

2,044

 

1,788

 

Net loss recognized on other real estate owned

 

(6,589

)

(372

)

Other operating income

 

2,663

 

1,785

 

Total other income

 

22,854

 

29,143

 

Other expenses:

 

 

 

 

 

Salaries and employee benefits

 

40,429

 

37,775

 

Occupancy and equipment expense

 

9,570

 

9,394

 

Computer services and telecommunication expense

 

3,653

 

3,445

 

Advertising and marketing expense

 

2,066

 

1,719

 

Professional and legal expense

 

1,413

 

1,225

 

Other intangibles amortization expense

 

1,257

 

1,425

 

FDIC insurance premiums

 

2,643

 

3,428

 

Branch impairment charges

 

 

1,000

 

Other real estate expense, net

 

1,243

 

398

 

Other operating expenses

 

5,057

 

7,055

 

Total other expenses

 

67,331

 

66,864

 

Income before income taxes

 

29,516

 

4,484

 

Income taxes

 

8,430

 

(2,460

)

Net income

 

21,086

 

6,944

 

Dividends and discount accretion on preferred shares

 

3,269

 

2,601

 

Net income available to common stockholders

 

$

17,817

 

$

4,343

 

 

2



Table of Contents

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Common share data:

 

 

 

 

 

Basic earnings allocated to common stock per common share

 

$

0.39

 

$

0.13

 

Impact of preferred stock dividends on basic earnings per common share

 

(0.06

)

(0.05

)

Basic earnings per common share

 

0.33

 

0.08

 

 

 

 

 

 

 

Diluted earnings allocated to common stock per common share

 

0.39

 

0.13

 

Impact of preferred stock dividends on diluted earnings per common share

 

(0.06

)

(0.05

)

Diluted earnings per common share

 

0.33

 

0.08

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

54,155,856

 

53,961,176

 

Weighted average common shares outstanding for diluted earnings per common share

 

54,411,916

 

54,254,876

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands) (Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income

 

$

21,086

 

$

6,944

 

 

 

 

 

 

 

Unrealized holding (losses) gains on investment securities, net of tax

 

(1,217

)

331

 

Reclassification adjustments for losses included in net income, net of tax

 

2

 

2

 

Other comprehensive (loss) income, net of tax

 

(1,215

)

333

 

 

 

 

 

 

 

Comprehensive income

 

$

19,871

 

$

7,277

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2012 and 2011

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

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Comprehensive

 

 

 

 

 

Total Stock-

 

 

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Income,

 

Treasury

 

Noncontrolling

 

holders’

 

 

 

Stock

 

Stock

 

Capital

 

Earnings

 

Net of Tax

 

Stock

 

Interest

 

Equity

 

Balance at December 31, 2010

 

$

194,104

 

$

546

 

$

725,400

 

$

402,810

 

$

22,233

 

$

(2,828

)

$

2,521

 

$

1,344,786

 

Net income

 

 

 

 

 

 

 

6,944

 

 

 

 

 

66

 

7,010

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

333

 

 

 

 

 

333

 

Cash dividends declared on common shares ($0.01 per share)

 

 

 

 

 

 

 

(544

)

 

 

 

 

 

 

(544

)

Dividends and discount accretion on preferred shares

 

151

 

 

 

 

 

(2,601

)

 

 

 

 

 

 

(2,450

)

Restricted common stock activity, net of tax

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

43

 

Stock option activity, net of tax

 

 

 

 

 

(109

)

(15

)

 

 

103

 

 

 

(21

)

Repurchase of common shares in connection with employee benefit plans

 

 

 

 

 

 

 

 

 

 

 

(79

)

 

 

(79

)

Repurchase of common shares held in trust for deferred compensation plan

 

 

 

 

 

41

 

 

 

 

 

(41

)

 

 

 

Stock-based compensation expense

 

 

 

 

 

1,229

 

 

 

 

 

 

 

 

 

1,229

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(71

)

(71

)

Balance at March 31, 2011

 

$

194,255

 

$

546

 

$

726,604

 

$

406,594

 

$

22,566

 

$

(2,845

)

$

2,516

 

$

1,350,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

194,719

 

$

548

 

$

731,248

 

$

427,956

 

$

39,150

 

$

(3,044

)

$

2,450

 

$

1,393,027

 

Net income

 

 

 

 

 

 

 

21,086

 

 

 

 

 

66

 

21,152

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

(1,215

)

 

 

 

 

(1,215

)

Cash dividends declared on common shares ($0.01 per share)

 

 

 

 

 

 

 

(548

)

 

 

 

 

 

 

(548

)

Dividends and discount accretion on preferred shares

 

1,281

 

 

 

 

 

(3,269

)

 

 

 

 

 

 

(1,988

)

Repurchase of preferred shares

 

(196,000

)

 

 

 

 

 

 

 

 

 

 

 

 

(196,000

)

Restricted common stock activity, net of tax

 

 

 

1

 

(169

)

8

 

 

 

172

 

 

 

12

 

Stock option activity, net of tax

 

 

 

 

 

103

 

 

 

 

 

 

 

 

 

103

 

Repurchase of common shares in connection with employee benefit plans

 

 

 

 

 

 

 

 

 

 

 

(288

)

 

 

(288

)

Repurchase of common shares held in trust for deferred compensation plan

 

 

 

 

 

166

 

 

 

 

 

(166

)

 

 

 

Stock-based compensation expense

 

 

 

 

 

1,265

 

 

 

 

 

 

 

 

 

1,265

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(90

)

(90

)

Balance at March 31, 2012

 

$

 

$

549

 

$

732,613

 

$

445,233

 

$

37,935

 

$

(3,326

)

$

2,426

 

$

1,215,430

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)

 

 

 

Three months ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

21,086

 

$

6,944

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation of premises and equipment

 

3,736

 

3,154

 

Depreciation of leased equipment

 

10,134

 

10,001

 

Impairment charges on branch facilities

 

 

1,000

 

Compensation expense for restricted stock awards

 

882

 

781

 

Compensation expense for stock option grants

 

383

 

456

 

Gain on sales of premises and equipment and leased equipment

 

(186

)

(624

)

Amortization of other intangibles

 

1,257

 

1,425

 

Provision for credit losses

 

3,100

 

40,000

 

Deferred income tax expense (benefit)

 

7,118

 

(2,259

)

Amortization of premiums and discounts on investment securities, net

 

10,315

 

8,937

 

Accretion of premiums and discounts on loans, net

 

(61

)

(123

)

Accretion of FDIC indemnification asset

 

(475

)

(1,831

)

Net loss on sale of investment securities available for sale

 

3

 

3

 

Proceeds from sale of loans held for sale

 

19,076

 

11,201

 

Origination of loans held for sale

 

(17,328

)

(11,062

)

Net gain on sale of loans held for sale

 

(373

)

(139

)

Net gain on sales of other real estate owned

 

(416

)

(945

)

Fair value adjustments on other real estate owned

 

4,764

 

1,314

 

Net loss on sales of other real estate owned related to FDIC-assisted transactions

 

2,241

 

3

 

Increase in cash surrender value of life insurance

 

(917

)

(968

)

Increase in other assets, net

 

(12,783

)

(7,832

)

Decrease in other liabilities, net

 

(23,551

)

(10,426

)

Net cash provided by operating activities

 

28,005

 

49,010

 

Cash Flows From Investing Activities:

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

6

 

 

Proceeds from maturities and calls of investment securities available for sale

 

134,979

 

102,598

 

Purchase of investment securities available for sale

 

(35,537

)

(231,294

)

Purchase of investment securities held to maturity

 

(908

)

(102,215

)

Redemption of non-marketable securities - FHLB and FRB stock

 

15,291

 

 

Net decrease in loans

 

146,403

 

138,148

 

Purchases of premises and equipment

 

(5,637

)

(3,511

)

Re-writes (purchases) of leased equipment

 

1,149

 

(12,606

)

Proceeds from sales of premises and equipment

 

 

1,343

 

Proceeds from sales of leased equipment

 

630

 

693

 

Proceeds from sale of other real estate owned

 

13,137

 

16,167

 

Proceeds from sale of other real estate owned related to FDIC-assisted transactions

 

5,249

 

4,504

 

Principal paid on lease investments

 

(969

)

(98

)

Net proceeds from FDIC related covered assets

 

27,528

 

68,977

 

Net cash provided by (used in) investing activities

 

301,321

 

(17,294

)

Cash Flows From Financing Activities:

 

 

 

 

 

Net decrease in deposits

 

(12,905

)

(260,952

)

Net increase in short-term borrowings

 

49,738

 

26,336

 

Proceeds from long-term borrowings

 

1,160

 

867

 

Principal paid on long-term borrowings

 

(10,968

)

(10,613

)

Treasury stock transactions, net

 

(274

)

10

 

Repurchase of preferred stock

 

(196,000

)

 

Stock options exercised

 

103

 

38

 

Excess tax deficits from share-based payment arrangements

 

 

(8

)

Dividends paid on preferred stock

 

(3,239

)

(2,450

)

Dividends paid on common stock

 

(542

)

(544

)

Net cash used in financing activities

 

(172,927

)

(247,316

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$

156,399

 

$

(215,600

)

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

244,565

 

844,159

 

End of period

 

$

400,964

 

$

628,559

 

 

(Continued)

 

6



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Amounts in Thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

Interest paid to depositors and other borrowed funds

 

$

12,701

 

$

17,009

 

Income tax payments, net

 

70

 

233

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Loans transferred to other real estate owned

 

$

2,110

 

$

25,167

 

Loans transferred to other real estate owned related to FDIC-assisted transactions

 

8,054

 

21,282

 

Loans transferred to repossessed vehicles

 

256

 

336

 

Loans transferred to loans held for sale

 

 

11,533

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

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MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012 and 2011

(Unaudited)

 

NOTE 1.               BASIS OF PRESENTATION

 

These unaudited consolidated financial statements include the accounts of MB Financial, Inc., a Maryland corporation (the “Company”), and its subsidiaries, including its wholly owned national bank subsidiary, MB Financial Bank, N.A. (“MB Financial Bank”), based in Chicago, Illinois.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been made.  The results of operations for the three months months ended March 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

These unaudited interim financial statements have been prepared in conformity with U.S. GAAP and industry practice.  Certain information in footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP and industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission.  These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2011 audited financial statements filed on Form 10-K.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.  Actual results could differ from those estimates.

 

Certain prior period amounts have been reclassified to conform to current period presentation.  These reclassifications did not result in any changes to previously reported net income or stockholders’ equity.

 

NOTE 2.               EARNINGS PER COMMON SHARE

 

Earnings per common share is computed using the two-class method.  Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities.  Participating securities include non-vested restricted stock awards and restricted stock units, though no actual shares of common stock related to restricted stock units have been issued, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company’s common stock.  Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

 

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Table of Contents

 

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share (amounts in thousands, except common share data).

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Distributed earnings allocated to common stock

 

$

548

 

$

543

 

Undistributed earnings allocated to common stock

 

20,537

 

6,387

 

Net earnings allocated to common stock

 

21,085

 

6,930

 

Less: preferred stock dividends and discount accretion

 

3,269

 

2,601

 

Net earnings allocated to common stock

 

17,816

 

4,329

 

Net earnings allocated to participating securities

 

1

 

14

 

Net earnings allocated to common stock and participating securities

 

$

17,817

 

$

4,343

 

 

 

 

 

 

 

Weighted average shares outstanding for basic earnings per common share

 

54,155,856

 

53,961,176

 

Dilutive effect of stock compensation

 

256,060

 

293,700

 

Weighted average shares outstanding for diluted earnings per common share

 

54,411,916

 

54,254,876

 

 

 

 

 

 

 

Basic earnings allocated to common stock per common share

 

$

0.39

 

$

0.13

 

Impact of preferred stock dividends on basic earnings per common share

 

(0.06

)

(0.05

)

Basic earnings per common share

 

0.33

 

0.08

 

 

 

 

 

 

 

Diluted earnings allocated to common stock per common share

 

0.39

 

0.13

 

Impact of preferred stock dividends on diluted earnings per common share

 

(0.06

)

(0.05

)

Diluted earnings per common share

 

0.33

 

0.08

 

 

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Table of Contents

 

NOTE 3.               INVESTMENT SECURITIES

 

Carrying amounts and fair values of investment securities are summarized as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

U.S. Government sponsored agencies and enterprises

 

$

39,503

 

$

2,567

 

$

 

$

42,070

 

States and political subdivisions

 

547,262

 

34,920

 

(462

)

581,720

 

Residential mortgage-backed securities

 

1,117,065

 

24,457

 

(964

)

1,140,558

 

Commercial mortgage-backed securities

 

51,275

 

1,415

 

 

52,690

 

Corporate bonds

 

5,686

 

 

 

5,686

 

Equity securities

 

10,520

 

368

 

(1

)

10,887

 

 

 

1,771,311

 

63,727

 

(1,427

)

1,833,611

 

Held to Maturity

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

239,526

 

9,826

 

 

249,352

 

Residential mortgage-backed securities

 

259,241

 

7,051

 

 

266,292

 

 

 

498,767

 

16,877

 

 

515,644

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,270,078

 

$

80,604

 

$

(1,427

)

$

2,349,255

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

U.S. Government sponsored agencies and enterprises

 

$

39,640

 

$

2,761

 

$

 

$

42,401

 

States and political subdivisions

 

500,979

 

34,922

 

(241

)

535,660

 

Residential mortgage-backed securities

 

1,256,696

 

26,483

 

(1,373

)

1,281,806

 

Commercial mortgage-backed securities

 

51,324

 

1,361

 

 

52,685

 

Corporate bonds

 

5,899

 

 

 

5,899

 

Equity securities

 

10,457

 

389

 

 

10,846

 

 

 

1,864,995

 

65,916

 

(1,614

)

1,929,297

 

Held to Maturity

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

240,183

 

7,489

 

(8

)

247,664

 

Residential mortgage-backed securities

 

259,100

 

5,032

 

(774

)

263,358

 

 

 

499,283

 

12,521

 

(782

)

511,022

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,364,278

 

$

78,437

 

$

(2,396

)

$

2,440,319

 

 

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Table of Contents

 

Unrealized losses on investment securities and the fair value of the related securities at March 31, 2012 are as follows (in thousands):

 

 

 

Less Than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

$

28,517

 

$

(254

)

$

659

 

$

(208

)

$

29,176

 

$

(462

)

Residential mortgage-backed securities

 

101,491

 

(963

)

284

 

(1

)

101,775

 

(964

)

Equity securities

 

39

 

(1

)

 

 

39

 

(1

)

Total

 

$

130,047

 

$

(1,218

)

$

943

 

$

(209

)

$

130,990

 

$

(1,427

)

 

The total number of security positions in the investment portfolio in an unrealized loss position at March 31, 2012 was 46.  Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) whether or not the Company is more likely than not to sell the security before recovery of its cost basis.

 

As of March 31, 2012, management does not have the intent to sell any of the securities in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.  The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2012, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated income statement.

 

Realized net losses on the sale of investment securities available for sale are summarized as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Realized gains

 

$

 

$

 

Realized losses

 

(3

)

(3

)

Net losses

 

$

(3

)

$

(3

)

 

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Table of Contents

 

The amortized cost and fair value of investment securities as of March 31, 2012 by contractual maturity are shown below.  Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.  Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.

 

 

 

Amortized

 

Fair

 

(In thousands)

 

Cost

 

Value

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

Due in one year or less

 

$

15,050

 

$

15,286

 

Due after one year through five years

 

200,465

 

216,167

 

Due after five years through ten years

 

142,154

 

156,360

 

Due after ten years

 

234,782

 

241,663

 

Equity securities

 

10,520

 

10,887

 

Residential and commercial mortgage-backed securities

 

1,168,340

 

1,193,248

 

 

 

1,771,311

 

1,833,611

 

Held to maturity:

 

 

 

 

 

Due after five years through ten years

 

10,422

 

10,811

 

Due after ten years

 

229,104

 

238,541

 

Residential mortgage-backed securities

 

259,241

 

266,292

 

 

 

498,767

 

515,644

 

Total

 

$

2,270,078

 

$

2,349,255

 

 

Investment securities available for sale with carrying amounts of $962.8 million and $924.9 million at March 31, 2012 and December 31, 2011, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

 

NOTE 4.               LOANS

 

Loans consist of the following at (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Commercial loans

 

$

1,040,340

 

$

1,113,123

 

Commercial loans collateralized by assignment of lease payments

 

1,209,942

 

1,208,575

 

Commercial real estate

 

1,877,380

 

1,853,788

 

Residential real estate

 

309,644

 

316,787

 

Construction real estate

 

128,040

 

183,789

 

Indirect vehicle

 

186,736

 

187,481

 

Home equity

 

327,450

 

336,043

 

Consumer loans

 

89,705

 

88,865

 

Gross loans, excluding covered loans

 

5,169,237

 

5,288,451

 

Covered loans

 

620,528

 

662,544

 

Total loans(1)

 

$

5,789,765

 

$

5,950,995

 

 


(1)         Gross loan balances at March 31, 2012 and December 31, 2011 were net of unearned income, including net deferred loan fees of $934 thousand and $1.0 million, respectively.

 

Loans are made to individuals as well as commercial and tax exempt entities.  Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower.  Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by MB Financial Bank.

 

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Table of Contents

 

The Company’s extension of credit is governed by its Credit Risk Policy which was established to control the quality of the Company’s loans.  These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

 

Commercial and Industrial Loans.  Commercial credit is extended primarily to middle market customers.  Such credits typically comprise working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors.  Minimum standards and underwriting guidelines have been established for all commercial loan types.

 

Lease Loans.  The Company makes lease loans to both investment grade and non-investment grade companies.  Investment grade lessees are companies who are rated in one of the four highest categories by Moody’s Investor Services or Standard & Poor’s Rating Services or, in the event the related lessee has not received any such rating, where the related lessee would be viewed under the underwriting polices of the company as an investment grade company. Whether or not companies fall into this category, each lease loan is considered on its individual merit based on financial information available at the time of underwriting.

 

Commercial Real Estate Loans.  The Company’s goal is to create and maintain a high quality portfolio of commercial real estate loans.  Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans.  These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property.  Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

 

Construction Real Estate Loans.  The Company defines construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement of real estate in which the Company holds a mortgage.  Due to the inherent risk in this type of loan, they are subject to other industry specific policy guidelines outlined in the Company’s Credit Risk Policy and are monitored closely.

 

Consumer Loans.  The Company originates direct and indirect consumer loans including principally residential real estate, home equity lines and loans, credit cards, and indirect motorcycle loans using a matrix-based credit analysis as part of the underwriting process. Each loan type has a separate specified matrix which consists of several factors including debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower.  Indirect loan and credit card underwriting use risk-based pricing in the underwriting process.

 

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Table of Contents

 

The following table presents the contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

 

 

30-59 Days

 

60-89 Days

 

Loans past due

 

Total

 

 

 

 

 

Current

 

Past Due

 

Past Due

 

90 days or more

 

Past Due

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,031,865

 

$

4,159

 

$

281

 

$

4,035

 

$

8,475

 

$

1,040,340

 

Commercial collateralized by assignment of lease payments

 

1,196,112

 

12,380

 

1,398

 

52

 

13,830

 

1,209,942

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare

 

181,375

 

 

 

5,431

 

5,431

 

186,806

 

Industrial

 

469,884

 

780

 

 

7,078

 

7,858

 

477,742

 

Multifamily

 

378,482

 

1,446

 

1,668

 

4,665

 

7,779

 

386,261

 

Retail

 

409,773

 

4,137

 

1,769

 

3,773

 

9,679

 

419,452

 

Office

 

181,407

 

438

 

 

2,083

 

2,521

 

183,928

 

Other

 

218,337

 

677

 

3,548

 

629

 

4,854

 

223,191

 

Residential real estate

 

304,430

 

365

 

152

 

4,697

 

5,214

 

309,644

 

Construction real estate

 

123,822

 

1,158

 

1,329

 

1,731

 

4,218

 

128,040

 

Indirect vehicle

 

185,448

 

702

 

249

 

337

 

1,288

 

186,736

 

Home equity

 

315,695

 

4,486

 

2,018

 

5,251

 

11,755

 

327,450

 

Consumer

 

89,691

 

7

 

 

7

 

14

 

89,705

 

Gross loans, excluding covered loans (1)

 

5,086,321

 

30,735

 

12,412

 

39,769

 

82,916

 

5,169,237

 

Covered loans

 

402,249

 

12,029

 

17,900

 

188,350

 

218,279

 

620,528

 

Total loans

 

$

5,488,570

 

$

42,764

 

$

30,312

 

$

228,119

 

$

301,195

 

$

5,789,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loan aging

 

$

74,323

 

$

9,023

 

$

6,993

 

$

34,351

 

$

50,367

 

$

124,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-covered loans related to FDIC transactions (2)

 

$

17,736

 

$

257

 

$

3,020

 

$

5,419

 

$

8,696

 

$

26,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,105,139

 

$

2,178

 

$

188

 

$

5,618

 

$

7,984

 

$

1,113,123

 

Commercial collateralized by assignment of lease payments

 

1,202,323

 

3,409

 

2,463

 

380

 

6,252

 

1,208,575

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare

 

176,594

 

 

 

 

 

176,594

 

Industrial

 

450,029

 

1,013

 

1,700

 

6,642

 

9,355

 

459,384

 

Multifamily

 

383,882

 

2,398

 

1,845

 

2,772

 

7,015

 

390,897

 

Retail

 

421,079

 

2,376

 

480

 

3,624

 

6,480

 

427,559

 

Office

 

181,960

 

 

 

1,544

 

1,544

 

183,504

 

Other

 

214,137

 

457

 

595

 

661

 

1,713

 

215,850

 

Residential real estate

 

311,256

 

1,231

 

767

 

3,533

 

5,531

 

316,787

 

Construction real estate

 

180,471

 

 

 

3,318

 

3,318

 

183,789

 

Indirect vehicle

 

185,363

 

1,376

 

386

 

356

 

2,118

 

187,481

 

Home equity

 

325,173

 

2,812

 

2,314

 

5,744

 

10,870

 

336,043

 

Consumer

 

88,854

 

3

 

3

 

5

 

11

 

88,865

 

Gross loans, excluding covered loans (1)

 

5,226,260

 

17,253

 

10,741

 

34,197

 

62,191

 

5,288,451

 

Covered loans

 

443,332

 

14,332

 

12,618

 

192,262

 

219,212

 

662,544

 

Total loans

 

$

5,669,592

 

$

31,585

 

$

23,359

 

$

226,459

 

$

281,403

 

$

5,950,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loan aging

 

$

91,752

 

$

5,916

 

$

5,142

 

$

26,581

 

$

37,639

 

$

129,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-covered loans related to FDIC transactions (2)

 

$

19,656

 

$

1,958

 

$

283

 

$

7,617

 

$

9,858

 

$

29,514

 

 


(1)         Includes loans related to the InBank FDIC-assisted transaction completed by MB Financial Bank in 2009.

(2)         Loans related to the InBank FDIC-assisted transaction completed by MB Financial Bank in 2009.

 

14



Table of Contents

 

The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing by class of loans as of March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

Loans past due

 

 

 

Loans past due

 

 

 

 

 

90 days or more

 

 

 

90 days or more

 

 

 

Nonaccrual

 

and still accruing

 

Nonaccrual

 

and still accruing

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

32,468

 

$

 

$

34,813

 

$

 

Commercial collateralized by assignment of lease payments

 

1,951

 

52

 

2,116

 

66

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Healthcare

 

5,431

 

 

6,892

 

 

Industrial

 

23,279

 

 

29,637

 

 

Multifamily

 

9,294

 

 

9,145

 

 

Office

 

17,057

 

 

2,826

 

 

Retail

 

3,219

 

 

15,333

 

 

Other

 

12,607

 

52

 

12,718

 

 

Residential real estate

 

5,220

 

574

 

4,300

 

 

Construction real estate

 

1,553

 

 

1,145