XNAS:MBFI MB Financial Inc Quarterly Report 10-Q Filing - 6/30/2012

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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 June 30, 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 54,616,071 shares of the registrant’s common stock as of July 27, 2012.

 

 

 



Table of Contents

 

MB FINANCIAL, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

June 30, 2012

 

INDEX

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2012 (Unaudited) and December 31, 2011

1

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

2 — 3

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

4

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2012 and 2011 (Unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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 — 59

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

59 — 62

 

 

 

Item 4.

Controls and Procedures

62

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

63

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

Item 6.

Exhibits

63

 

 

 

 

Signatures

64

 



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)

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

132,737

 

$

144,228

 

Interest earning deposits with banks

 

304,075

 

100,337

 

Total cash and cash equivalents

 

436,812

 

244,565

 

Investment securities:

 

 

 

 

 

Securities available for sale, at fair value

 

1,723,471

 

1,929,297

 

Securities held to maturity, at amortized cost ($526,382 and $511,022 fair value at June 30, 2012 and December 31, 2011, respectively)

 

497,800

 

499,283

 

Non-marketable securities - FHLB and FRB stock

 

61,462

 

80,832

 

Total investment securities

 

2,282,733

 

2,509,412

 

 

 

 

 

 

 

Loans held for sale

 

2,290

 

4,727

 

Loans:

 

 

 

 

 

Total loans, excluding covered loans

 

5,170,411

 

5,288,451

 

Covered loans

 

552,838

 

662,544

 

Total loans

 

5,723,249

 

5,950,995

 

Less: Allowance for loan loss

 

121,756

 

126,798

 

Net loans

 

5,601,493

 

5,824,197

 

Lease investment, net

 

111,122

 

135,490

 

Premises and equipment, net

 

214,935

 

210,705

 

Cash surrender value of life insurance

 

127,096

 

125,309

 

Goodwill, net

 

387,069

 

387,069

 

Other intangibles, net

 

26,986

 

29,494

 

Other real estate owned, net

 

49,690

 

78,452

 

Other real estate owned related to FDIC transactions

 

43,807

 

60,363

 

FDIC indemnification asset

 

56,637

 

80,830

 

Other assets

 

148,896

 

142,459

 

Total assets

 

$

9,489,566

 

$

9,833,072

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest bearing

 

$

1,946,468

 

$

1,885,694

 

Interest bearing

 

5,524,241

 

5,761,913

 

Total deposits

 

7,470,709

 

7,647,607

 

Short-term borrowings

 

261,729

 

219,954

 

Long-term borrowings

 

221,100

 

266,264

 

Junior subordinated notes issued to capital trusts

 

158,521

 

158,538

 

Accrued expenses and other liabilities

 

139,756

 

147,682

 

Total liabilities

 

8,251,815

 

8,440,045

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock, ($0.01 par value, authorized 1,000,000 shares at June 30, 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 June 30, 2012 and December 31, 2011; issued 54,851,003 shares at June 30, 2012 and 54,824,912 at December 31, 2011)

 

549

 

548

 

Additional paid-in capital

 

732,297

 

731,248

 

Retained earnings

 

466,812

 

427,956

 

Accumulated other comprehensive income

 

39,035

 

39,150

 

Less: 173,023 and 160,419 shares of Treasury stock, at cost, at June 30, 2012 and December 31, 2011, respectively

 

(3,353

)

(3,044

)

Controlling interest stockholders’ equity

 

1,235,340

 

1,390,577

 

Noncontrolling interest

 

2,411

 

2,450

 

Total stockholders’ equity

 

1,237,751

 

1,393,027

 

Total liabilities and stockholders’ equity

 

$

9,489,566

 

$

9,833,072

 

 

See accompanying Notes to Consolidated Financial Statements.

 

1



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

69,250

 

$

84,114

 

$

140,898

 

$

171,281

 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

8,882

 

10,290

 

19,766

 

18,042

 

Nontaxable

 

7,303

 

3,443

 

14,042

 

6,788

 

Other interest bearing accounts

 

158

 

258

 

327

 

728

 

Total interest income

 

85,593

 

98,105

 

175,033

 

196,839

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

8,058

 

11,746

 

16,818

 

25,105

 

Short-term borrowings

 

362

 

239

 

568

 

456

 

Long-term borrowings and junior subordinated notes

 

3,069

 

3,713

 

6,450

 

6,666

 

Total interest expense

 

11,489

 

15,698

 

23,836

 

32,227

 

Net interest income

 

74,104

 

82,407

 

151,197

 

164,612

 

Provision for credit losses

 

 

61,250

 

3,100

 

101,250

 

Net interest income after provision for credit losses

 

74,104

 

21,157

 

148,097

 

63,362

 

Other income:

 

 

 

 

 

 

 

 

 

Loan service fees

 

1,683

 

2,812

 

3,022

 

3,938

 

Deposit service fees

 

9,370

 

9,023

 

18,778

 

19,053

 

Lease financing, net

 

7,334

 

6,861

 

14,292

 

12,644

 

Brokerage fees

 

1,264

 

1,615

 

2,519

 

3,034

 

Trust and asset management fees

 

4,535

 

4,455

 

8,939

 

8,886

 

Net gain (loss) on investment securities

 

(34

)

232

 

(37

)

229

 

Increase in cash surrender value of life insurance

 

870

 

1,451

 

1,787

 

2,419

 

Net gains (losses) on sale of assets

 

(8

)

13

 

(25

)

370

 

Accretion of FDIC indemnification asset

 

222

 

1,339

 

697

 

3,170

 

Card fees

 

2,429

 

2,062

 

4,473

 

3,850

 

Net loss recognized on other real estate owned

 

(5,441

)

(4,645

)

(12,030

)

(5,017

)

Net gain on sale of loans

 

554

 

1,912

 

928

 

2,051

 

Other operating income

 

1,129

 

2,015

 

3,418

 

3,661

 

Total other income

 

23,907

 

29,145

 

46,761

 

58,288

 

Other expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

40,146

 

37,815

 

80,575

 

75,590

 

Occupancy and equipment expense

 

9,188

 

8,483

 

18,758

 

17,877

 

Computer services and telecommunication expense

 

3,909

 

3,570

 

7,562

 

7,015

 

Advertising and marketing expense

 

1,930

 

1,748

 

3,996

 

3,467

 

Professional and legal expense

 

1,503

 

1,853

 

2,916

 

3,078

 

Other intangibles amortization expense

 

1,251

 

1,416

 

2,508

 

2,841

 

FDIC insurance premiums

 

2,010

 

3,502

 

4,653

 

6,930

 

Branch impairment charges

 

 

 

 

1,000

 

Other real estate expense, net

 

424

 

1,251

 

1,667

 

1,649

 

Other operating expenses

 

6,473

 

7,090

 

11,530

 

14,145

 

Total other expense

 

66,834

 

66,728

 

134,165

 

133,592

 

Income (loss) before income taxes

 

31,177

 

(16,426

)

60,693

 

(11,942

)

Income tax expense (benefit)

 

9,034

 

(9,060

)

17,464

 

(11,520

)

Net income (loss)

 

$

22,143

 

$

(7,366

)

$

43,229

 

$

(422

)

Dividends and discount accretion on preferred shares

 

 

2,602

 

3,269

 

5,203

 

Net income (loss) available to common stockholders

 

$

22,143

 

$

(9,968

)

$

39,960

 

$

(5,625

)

 

2



Table of Contents

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Common share data:

 

 

 

 

 

 

 

 

 

Basic earnings (loss) allocated to common stock per common share

 

$

0.41

 

$

(0.14

)

$

0.80

 

$

(0.01

)

Impact of preferred stock dividends on basic earnings (loss) per common share

 

 

(0.04

)

(0.06

)

(0.09

)

Basic earnings (loss) per common share

 

0.41

 

(0.18

)

0.74

 

(0.10

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) allocated to common stock per common share

 

0.41

 

(0.14

)

0.79

 

(0.01

)

Impact of preferred stock dividends on diluted earnings (loss) per common share

 

 

(0.04

)

(0.06

)

(0.09

)

Diluted earnings (loss) per common share

 

0.41

 

(0.18

)

0.73

 

(0.10

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

54,174,717

 

54,002,979

 

54,165,286

 

53,982,193

 

Weighted average common shares outstanding for diluted earnings per common share

 

54,448,709

 

54,002,979

 

54,431,491

 

53,982,193

 

 

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

22,143

 

$

(7,366

)

$

43,229

 

$

(422

)

 

 

 

 

 

 

 

 

 

 

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

 

1,080

 

4,895

 

(137

)

5,226

 

Reclassification adjustments for (gains) losses included in net income, net of tax

 

20

 

(139

)

22

 

(137

)

Other comprehensive income (loss), net of tax

 

1,100

 

4,756

 

(115

)

5,089

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

23,243

 

$

(2,610

)

$

43,114

 

$

4,667

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 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 loss

 

 

 

 

(422

)

 

 

144

 

(278

)

Other comprehensive income, net of tax

 

 

 

 

 

5,089

 

 

 

5,089

 

Cash dividends declared on common shares ($0.02 per share)

 

 

 

 

(1,090

)

 

 

 

(1,090

)

Dividends and discount accretion on preferred shares

 

303

 

 

 

(5,203

)

 

 

 

(4,900

)

Restricted common stock activity, net of tax

 

 

 

(142

)

 

 

 

 

(142

)

Stock option activity, net of tax

 

 

 

793

 

(14

)

 

 

104

 

 

 

883

 

Issuance of shares of common stock, net of issuance costs

 

 

 

14

 

 

 

 

 

14

 

Repurchase of common shares in connection with employee benefit plans

 

 

 

 

 

 

(947

)

 

(947

)

Repurchase of common shares held in trust for deferred compensation plan

 

 

 

100

 

 

 

(100

)

 

 

Stock-based compensation expense

 

 

 

2,079

 

 

 

 

 

2,079

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

(150

)

(150

)

Balance at June 30, 2011

 

$

194,407

 

$

546

 

$

728,244

 

$

396,081

 

$

27,322

 

$

(3,771

)

$

2,515

 

$

1,345,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

194,719

 

$

548

 

$

731,248

 

$

427,956

 

$

39,150

 

$

(3,044

)

$

2,450

 

$

1,393,027

 

Net income

 

 

 

 

43,229

 

 

 

141

 

43,370

 

Other comprehensive loss, net of tax

 

 

 

 

 

(115

)

 

 

(115

)

Cash dividends declared on common shares ($0.02 per share)

 

 

 

 

(1,096

)

 

 

 

(1,096

)

Dividends and discount accretion on preferred shares

 

1,281

 

 

 

(3,269

)

 

 

 

(1,988

)

Repurchase of preferred shares

 

(196,000

)

 

 

 

 

 

 

(196,000

)

Repurchase of warrant

 

 

 

(1,518

)

 

 

 

 

(1,518

)

Restricted common stock activity, net of tax

 

 

1

 

(175

)

8

 

 

171

 

 

5

 

Stock option activity, net of tax

 

 

 

(62

)

(16

)

 

148

 

 

70

 

Repurchase of common shares in connection with employee benefit plans

 

 

 

 

 

 

(325

)

 

(325

)

Repurchase of common shares held in trust for deferred compensation plan

 

 

 

303

 

 

 

(303

)

 

 

Stock-based compensation expense

 

 

 

2,501

 

 

 

 

 

2,501

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

(180

)

(180

)

Balance at June 30, 2012

 

$

 

$

549

 

$

732,297

 

$

466,812

 

$

39,035

 

$

(3,353

)

$

2,411

 

$

1,237,751

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

43,229

 

$

(422

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation of premises and equipment

 

7,538

 

6,500

 

Depreciation of leased equipment

 

19,549

 

20,796

 

Impairment charges on branch facilities

 

 

1,000

 

Compensation expense for restricted stock awards

 

1,756

 

1,406

 

Compensation expense for stock option grants

 

745

 

636

 

Gain on sales of premises and equipment and leased equipment

 

(1,269

)

(941

)

Amortization of other intangibles

 

2,508

 

2,841

 

Provision for credit losses

 

3,100

 

101,250

 

Deferred income tax expense (benefit)

 

13,341

 

(10,473

)

Amortization of premiums and discounts on investment securities, net

 

21,007

 

18,896

 

Accretion of premiums and discounts on loans, net

 

(9,528

)

(17,630

)

Accretion of FDIC indemnification asset

 

(697

)

(3,170

)

Net loss (gain) on investment securities

 

37

 

(229

)

Proceeds from sale of loans held for sale

 

44,686

 

18,039

 

Origination of loans held for sale

 

(41,281

)

(17,778

)

Net gains on sale of loans held for sale

 

(928

)

(2,051

)

Net gain on sales of other real estate owned

 

(767

)

(734

)

Impairments on other real estate owned

 

9,271

 

4,731

 

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

 

3,526

 

1,020

 

Increase in cash surrender value of life insurance

 

(1,787

)

(1,892

)

(Increase) decrease in other assets, net

 

(40,987

)

17,093

 

(Decrease) increase in other liabilities, net

 

(6,819

)

1,994

 

Net cash provided by operating activities

 

66,230

 

140,882

 

Cash Flows From Investing Activities:

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

4,637

 

11,360

 

Proceeds from maturities and calls of investment securities available for sale

 

284,934

 

176,599

 

Purchase of investment securities available for sale

 

(102,097

)

(442,678

)

Proceeds from maturities and calls of investment securities held to maturity

 

83

 

298

 

Purchase of investment securities held to maturity

 

(1,484

)

(164,987

)

Purchase of non-marketable securities - FHLB and FRB stock

 

(24

)

(628

)

Redemption of non-marketable securities - FHLB and FRB stock

 

19,394

 

 

Net decrease in loans

 

223,793

 

268,377

 

Proceeds from sale of loans held for sale

 

 

207,530

 

Purchases of premises and equipment

 

(11,818

)

(8,501

)

Purchases of leased equipment

 

(9,838

)

(34,760

)

Proceeds from sales of premises and equipment

 

24

 

1,357

 

Proceeds from sales of leased equipment

 

7,955

 

417

 

Proceeds from sale of other real estate owned

 

24,246

 

20,221

 

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

 

11,163

 

7,604

 

Principal paid on lease investments

 

(1,483

)

(211

)

Net proceeds from FDIC related to covered assets

 

58,758

 

98,793

 

Net cash provided by investing activities

 

508,243

 

140,791

 

Cash Flows From Financing Activities:

 

 

 

 

 

Net decrease in deposits

 

(176,898

)

(434,375

)

Net increase (decrease) in short-term borrowings

 

41,775

 

(33,111

)

Proceeds from long-term borrowings

 

1,735

 

2,726

 

Principal paid on long-term borrowings

 

(46,899

)

(12,240

)

Repurchase of preferred stock

 

(196,000

)

 

Repurchase of warrant

 

(1,518

)

 

Treasury stock transactions, net

 

(300

)

(858

)

Stock options exercised

 

202

 

1,300

 

Excess tax benefits from share-based payment arrangements

 

 

36

 

Dividends paid on preferred stock

 

(3,239

)

(4,900

)

Dividends paid on common stock

 

(1,084

)

(1,090

)

Net cash used in financing activities

 

(382,226

)

(482,512

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$

192,247

 

$

(200,839

)

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

244,565

 

844,159

 

End of period

 

$

436,812

 

$

643,320

 

 

(Continued)

 

6



Table of Contents

 

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Amounts in Thousands) (Unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

Interest paid to depositors and other borrowed funds

 

$

24,468

 

$

32,943

 

Income tax payments, net

 

2,401

 

458

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale purchased not settled

 

$

 

$

45,926

 

Securities held to maturity purchased not settled

 

 

64,919

 

Loans transferred to other real estate owned

 

3,987

 

40,928

 

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

 

10,387

 

37,238

 

Loans transferred to repossessed vehicles

 

443

 

612

 

Loans transferred to loans held for sale

 

 

205,740

 

Operating leases rewritten as direct finance leases included as loans

 

9,479

 

1,843

 

Reclassification of reserves on unfunded credit commitments

 

 

17,050

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

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Table of Contents

 

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 and six months ended June 30, 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. generally accepted accounting principles (“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 (LOSS) PER COMMON SHARE

 

Earnings (loss) per common share is computed using the two-class method.  Basic earnings (loss) 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 common 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.  Due to the net loss available to common stockholders for the three and six months ended June 30, 2011, all of the dilutive stock based awards are considered anti-dilutive and not included in the computation of diluted earnings (loss) per common share for those periods.

 

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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 (loss) per common share (amounts in thousands, except common share data).

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Distributed earnings allocated to common stock

 

$

548

 

$

545

 

$

1,096

 

$

1,088

 

Undistributed earnings (loss) allocated to common stock

 

21,594

 

(7,903

)

42,131

 

(1,509

)

Net earnings (loss) allocated to common stock

 

22,142

 

(7,358

)

43,227

 

(421

)

Less: preferred stock dividends and discount accretion

 

 

2,602

 

3,269

 

5,203

 

Net earnings (loss) allocated to common stock

 

22,142

 

(9,960

)

39,958

 

(5,624

)

Net earnings (loss) allocated to participating securities

 

1

 

(8

)

2

 

(1

)

Net earnings (loss) allocated to common stock and participating securities

 

$

22,143

 

$

(9,968

)

$

39,960

 

$

(5,625

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic earnings per common share

 

54,174,717

 

54,002,979

 

54,165,286

 

53,982,193

 

Dilutive effect of stock compensation

 

273,992

 

 

266,205

 

 

Weighted average shares outstanding for diluted earnings per common share

 

54,448,709

 

54,002,979

 

54,431,491

 

53,982,193

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) allocated to common stock per common share

 

$

0.41

 

$

(0.14

)

$

0.80

 

$

(0.01

)

Impact of preferred stock dividends on basic earnings (loss) per common share

 

 

(0.04

)

(0.06

)

(0.09

)

Basic earnings (loss) per common share

 

0.41

 

(0.18

)

0.74

 

(0.10

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) allocated to common stock per common share

 

0.41

 

(0.14

)

0.79

 

(0.01

)

Impact of preferred stock dividends on diluted earnings (loss) per common share

 

 

(0.04

)

(0.06

)

(0.09

)

Diluted earnings (loss) per common share

 

0.41

 

(0.18

)

0.73

 

(0.10

)

 

9



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

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

U.S. Government sponsored agencies and enterprises

 

$

39,366

 

$

2,809

 

$

 

$

42,175

 

States and political subdivisions

 

589,654

 

39,856

 

(337

)

629,173

 

Residential mortgage-backed securities

 

962,967

 

19,820

 

(885

)

981,902

 

Commercial mortgage-backed securities

 

51,219

 

2,352

 

 

53,571

 

Corporate bonds

 

5,569

 

 

 

5,569

 

Equity securities

 

10,584

 

500

 

(3

)

11,081

 

 

 

1,659,359

 

65,337

 

(1,225

)

1,723,471

 

Held to Maturity

 

 

 

 

 

 

 

 

 

States and political subdivisions

 

238,869

 

13,993

 

 

252,862

 

Residential mortgage-backed securities

 

258,931

 

14,589

 

 

273,520

 

 

 

497,800

 

28,582

 

 

526,382

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,157,159

 

$

93,919

 

$

(1,225

)

$

2,249,853

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 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

 

$

42,011

 

$

(251

)

$

672

 

$

(86

)

$

42,683

 

$

(337

)

Residential mortgage-backed securities

 

75,938

 

(767

)

13,641

 

(118

)

89,579

 

(885

)

Equity securities

 

37

 

(3

)

 

 

37

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

117,986

 

$

(1,021

)

$

14,313

 

$

(204

)

$

132,299

 

$

(1,225

)

 

The total number of security positions in the investment portfolio in an unrealized loss position at June 30, 2012 was 56.  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 June 30, 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. Accordingly, as of June 30, 2012, management believes the impairments detailed in the table above are temporary.

 

Net (losses) gains recognized on investment securities available for sale are summarized as follows (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Realized gains

 

$

190

 

$

232

 

$

190

 

$

232

 

Realized losses

 

 

 

(3

)

(3

)

Impairment charges

 

(224

)

 

(224

)

 

Net (losses) gains

 

$

(34

)

$

232

 

$

(37

)

$

229

 

 

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Table of Contents

 

The amortized cost and fair value of investment securities as of June 30, 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

 

$

24,685

 

$

25,210

 

Due after one year through five years

 

204,637

 

222,123

 

Due after five years through ten years

 

120,021

 

132,892

 

Due after ten years

 

285,246

 

296,692

 

Equity securities

 

10,584

 

11,081

 

Residential and commercial mortgage-backed securities

 

1,014,186

 

1,035,473

 

 

 

1,659,359

 

1,723,471

 

Held to maturity:

 

 

 

 

 

Due after five years through ten years

 

10,387

 

10,925

 

Due after ten years

 

228,482

 

241,937

 

Residential mortgage-backed securities

 

258,931

 

273,520

 

 

 

497,800

 

526,382

 

Total

 

$

2,157,159

 

$

2,249,853

 

 

Investment securities available for sale with carrying amounts of $864.9 million and $924.9 million at June 30, 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):

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Commercial loans

 

$

1,079,436

 

$

1,113,123

 

Commercial loans collateralized by assignment of lease payments

 

1,221,199

 

1,208,575

 

Commercial real estate

 

1,794,777

 

1,853,788

 

Residential real estate

 

313,137

 

316,787

 

Construction real estate

 

150,665

 

183,789

 

Indirect vehicle

 

198,848

 

187,481

 

Home equity

 

323,234

 

336,043

 

Consumer loans

 

89,115

 

88,865

 

Gross loans, excluding covered loans

 

5,170,411

 

5,288,451

 

Covered loans

 

552,838

 

662,544

 

Total loans(1)

 

$

5,723,249

 

$

5,950,995

 

 


(1)          Gross loan balances at June 30, 2012 and December 31, 2011 were net of unearned income, including net deferred loan fees of $790 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

 

12



Table of Contents

 

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.

 

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 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.  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.

 

13



Table of Contents

 

The following table presents the contractual aging of the recorded investment in past due loans by class of loans as of June 30, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,074,463

 

$

1,116

 

$

4

 

$

3,853

 

$

4,973

 

$

1,079,436

 

Commercial collateralized by assignment of lease payments

 

1,210,721

 

9,790

 

608

 

80

 

10,478

 

1,221,199

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare

 

165,158

 

 

 

5,430

 

5,430

 

170,588

 

Industrial

 

438,843

 

744

 

 

8,552

 

9,296

 

448,139

 

Multifamily

 

363,811

 

381

 

609

 

4,954

 

5,944

 

369,755

 

Retail

 

406,110

 

2,754

 

163

 

5,464

 

8,381

 

414,491

 

Office

 

179,259

 

 

473

 

1,176

 

1,649

 

180,908

 

Other

 

203,835

 

2,477

 

 

4,584

 

7,061

 

210,896

 

Residential real estate

 

307,668

 

213

 

953

 

4,303

 

5,469

 

313,137

 

Construction real estate

 

147,542

 

 

 

3,123

 

3,123

 

150,665

 

Indirect vehicle

 

197,453

 

996

 

234

 

165

 

1,395

 

198,848

 

Home equity

 

312,321

 

3,782

 

1,431

 

5,700

 

10,913

 

323,234

 

Consumer

 

89,101

 

7

 

 

7

 

14

 

89,115

 

Gross loans, excluding covered loans (1)

 

5,096,285

 

22,260

 

4,475

 

47,391

 

74,126

 

5,170,411

 

Covered loans

 

356,587

 

19,744

 

8,761

 

167,746

 

196,251

 

552,838

 

Total loans

 

$

5,452,872

 

$

42,004

 

$

13,236

 

$

215,137

 

$

270,377

 

$

5,723,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loan aging

 

$

67,109

 

$

4,098

 

$

2,197

 

$

40,126

 

$

46,421

 

$

113,530