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 September 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)
Registrants 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 |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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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 54,786,857 shares of the registrants common stock as of October 29, 2012.
MB FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2012
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Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011 |
1 |
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2 3 | |
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4 | |
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5 | |
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6 7 | |
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8 39 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
40 59 | |
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59 62 | ||
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62 | ||
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63 | ||
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63 | ||
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63 | ||
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64 |
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
MB FINANCIAL, INC. & SUBSIDIARIES
(Amounts in thousands, except share and per share data) (Unaudited)
|
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September 30, |
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December 31, |
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|
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2012 |
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2011 |
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ASSETS |
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|
|
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Cash and due from banks |
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$ |
129,326 |
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$ |
144,228 |
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Interest earning deposits with banks |
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327,301 |
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100,337 |
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Total cash and cash equivalents |
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456,627 |
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244,565 |
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Investment securities: |
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|
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Securities available for sale, at fair value |
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1,814,972 |
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1,929,297 |
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Securities held to maturity, at amortized cost ($536,989 and $511,022 fair value at September 30, 2012 and December 31, 2011, respectively) |
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495,851 |
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499,283 |
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Non-marketable securities - FHLB and FRB stock |
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57,653 |
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80,832 |
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Total investment securities |
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2,368,476 |
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2,509,412 |
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Loans held for sale |
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7,221 |
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4,727 |
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Loans: |
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Total loans, excluding covered loans |
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5,128,683 |
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5,288,451 |
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Covered loans |
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496,162 |
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662,544 |
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Total loans |
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5,624,845 |
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5,950,995 |
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Less: Allowance for loan loss |
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121,182 |
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126,798 |
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Net loans |
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5,503,663 |
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5,824,197 |
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Lease investment, net |
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113,180 |
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135,490 |
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Premises and equipment, net |
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214,301 |
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210,705 |
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Cash surrender value of life insurance |
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127,985 |
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125,309 |
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Goodwill, net |
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387,069 |
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387,069 |
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Other intangibles, net |
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25,735 |
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29,494 |
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Other real estate owned, net |
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42,427 |
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78,452 |
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Other real estate owned related to FDIC transactions |
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32,607 |
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60,363 |
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FDIC indemnification asset |
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36,311 |
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80,830 |
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Other assets |
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147,943 |
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142,459 |
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Total assets |
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$ |
9,463,545 |
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$ |
9,833,072 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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LIABILITIES |
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Deposits: |
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Noninterest bearing |
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$ |
2,011,542 |
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$ |
1,885,694 |
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Interest bearing |
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5,467,805 |
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5,761,913 |
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Total deposits |
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7,479,347 |
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7,647,607 |
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Short-term borrowings |
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289,613 |
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219,954 |
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Long-term borrowings |
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118,798 |
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266,264 |
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Junior subordinated notes issued to capital trusts |
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152,065 |
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158,538 |
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Accrued expenses and other liabilities |
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162,892 |
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147,682 |
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Total liabilities |
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8,202,715 |
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8,440,045 |
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STOCKHOLDERS EQUITY |
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Preferred stock, ($0.01 par value, authorized 1,000,000 shares at September 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) |
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194,719 |
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Common stock, ($0.01 par value; authorized 70,000,000 shares at September 30, 2012 and December 31, 2011; issued 54,957,541 shares at September 30, 2012 and 54,824,912 at December 31, 2011) |
|
550 |
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548 |
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Additional paid-in capital |
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731,679 |
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731,248 |
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Retained earnings |
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489,426 |
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427,956 |
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Accumulated other comprehensive income |
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40,985 |
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39,150 |
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Less: 169,476 and 160,419 shares of Treasury stock, at cost, at September 30, 2012 and December 31, 2011, respectively |
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(3,304 |
) |
(3,044 |
) | ||
Controlling interest stockholders equity |
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1,259,336 |
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1,390,577 |
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Noncontrolling interest |
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1,494 |
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2,450 |
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Total stockholders equity |
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1,260,830 |
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1,393,027 |
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Total liabilities and stockholders equity |
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$ |
9,463,545 |
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$ |
9,833,072 |
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See accompanying Notes to Consolidated Financial Statements.
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except common share and per share data) (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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Interest income: |
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Loans |
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$ |
67,482 |
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$ |
78,046 |
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$ |
208,380 |
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$ |
249,327 |
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Investment securities: |
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Taxable |
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7,287 |
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11,699 |
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27,053 |
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29,741 |
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Nontaxable |
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7,582 |
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4,299 |
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21,624 |
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11,087 |
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Other interest earning accounts |
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312 |
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244 |
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639 |
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972 |
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Total interest income |
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82,663 |
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94,288 |
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257,696 |
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291,127 |
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Interest expense: |
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Deposits |
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7,374 |
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10,207 |
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24,192 |
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35,312 |
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Short-term borrowings |
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342 |
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204 |
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910 |
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660 |
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Long-term borrowings and junior subordinated notes |
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2,872 |
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3,461 |
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9,322 |
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10,127 |
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Total interest expense |
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10,588 |
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13,872 |
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34,424 |
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46,099 |
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Net interest income |
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72,075 |
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80,416 |
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223,272 |
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245,028 |
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Provision for credit losses |
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(13,000 |
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11,500 |
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(9,900 |
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112,750 |
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Net interest income after provision for credit losses |
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85,075 |
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68,916 |
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233,172 |
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132,278 |
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Other income: |
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Capital markets and international banking fees |
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1,344 |
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605 |
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2,631 |
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1,107 |
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Commercial deposit and treasury management fees |
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5,860 |
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6,157 |
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17,545 |
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17,643 |
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Lease financing, net |
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9,671 |
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6,494 |
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23,963 |
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19,138 |
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Trust and asset management fees |
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4,428 |
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4,272 |
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13,367 |
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13,158 |
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Card fees |
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2,385 |
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2,071 |
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6,858 |
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5,921 |
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Loan service fees |
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1,125 |
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1,706 |
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3,459 |
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5,286 |
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Retail and other deposit service fees |
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3,792 |
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4,123 |
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10,790 |
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12,373 |
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Brokerage fees |
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1,185 |
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1,273 |
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3,704 |
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4,307 |
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Net gain on investment securities |
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281 |
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244 |
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229 |
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Increase in cash surrender value of life insurance |
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890 |
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1,014 |
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2,677 |
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3,433 |
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Net (losses) gains on sale of assets |
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(12 |
) |
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(37 |
) |
370 |
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Accretion of FDIC indemnification asset |
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204 |
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985 |
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901 |
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4,155 |
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Net loss recognized on other real estate owned |
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(3,938 |
) |
(3,118 |
) |
(15,968 |
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(8,135 |
) | ||||
Net gain on sale of loans |
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575 |
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190 |
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1,503 |
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2,241 |
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Other operating income |
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763 |
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595 |
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3,677 |
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3,429 |
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Total other income |
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28,553 |
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26,367 |
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75,314 |
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84,655 |
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Other expense: |
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Salaries and employee benefits |
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42,083 |
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38,422 |
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122,658 |
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114,012 |
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Occupancy and equipment expense |
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8,274 |
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9,092 |
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27,032 |
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26,969 |
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Computer services and telecommunication expense |
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3,777 |
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3,488 |
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11,339 |
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10,503 |
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Advertising and marketing expense |
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2,025 |
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1,740 |
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6,021 |
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5,207 |
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Professional and legal expense |
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1,554 |
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1,647 |
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4,470 |
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4,725 |
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Other intangibles amortization expense |
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1,251 |
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1,414 |
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3,759 |
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4,255 |
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FDIC insurance premiums |
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1,545 |
|
2,272 |
|
6,198 |
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9,202 |
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Branch impairment charges |
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758 |
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|
758 |
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1,000 |
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Other real estate expense, net |
|
874 |
|
1,181 |
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2,541 |
|
2,830 |
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Prepayment fees on interest bearing liabilities |
|
12,682 |
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|
12,682 |
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Other operating expenses |
|
6,342 |
|
7,352 |
|
17,872 |
|
21,497 |
| ||||
Total other expense |
|
81,165 |
|
66,608 |
|
215,330 |
|
200,200 |
| ||||
Income before income taxes |
|
32,463 |
|
28,675 |
|
93,156 |
|
16,733 |
| ||||
Income tax expense (benefit) |
|
9,330 |
|
8,978 |
|
26,794 |
|
(2,542 |
) | ||||
Net income |
|
$ |
23,133 |
|
$ |
19,697 |
|
$ |
66,362 |
|
$ |
19,275 |
|
Dividends and discount accretion on preferred shares |
|
|
|
2,605 |
|
3,269 |
|
7,808 |
| ||||
Net income available to common stockholders |
|
$ |
23,133 |
|
$ |
17,092 |
|
$ |
63,093 |
|
$ |
11,467 |
|
|
|
Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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Common share data: |
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Basic earnings allocated to common stock per common share |
|
$ |
0.43 |
|
$ |
0.36 |
|
$ |
1.22 |
|
$ |
0.36 |
|
Impact of preferred stock dividends on basic earnings per common share |
|
|
|
(0.04 |
) |
(0.06 |
) |
(0.15 |
) | ||||
Basic earnings per common share |
|
0.43 |
|
0.32 |
|
1.16 |
|
0.21 |
| ||||
|
|
|
|
|
|
|
|
|
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Diluted earnings allocated to common stock per common share |
|
0.42 |
|
0.36 |
|
1.22 |
|
0.35 |
| ||||
Impact of preferred stock dividends on diluted earnings per common share |
|
|
|
(0.05 |
) |
(0.06 |
) |
(0.14 |
) | ||||
Diluted earnings per common share |
|
0.42 |
|
0.31 |
|
1.16 |
|
0.21 |
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|
|
|
|
|
|
|
|
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Weighted average common shares outstanding for basic earnings per common share |
|
54,346,827 |
|
54,121,156 |
|
54,226,241 |
|
54,029,023 |
| ||||
Weighted average common shares outstanding for diluted earnings per common share |
|
54,556,517 |
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54,323,320 |
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54,472,617 |
|
54,295,622 |
| ||||
See Accompanying Notes to Consolidated Financial Statements.
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands) (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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Net income |
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$ |
23,133 |
|
$ |
19,697 |
|
$ |
66,362 |
|
$ |
19,275 |
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|
|
|
|
|
|
|
|
|
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Unrealized holding gains on investment securities, net of tax |
|
2,118 |
|
5,000 |
|
1,981 |
|
10,226 |
| ||||
Reclassification adjustments for gains included in net income, net of tax |
|
(168 |
) |
|
|
(146 |
) |
(137 |
) | ||||
Other comprehensive income, net of tax |
|
1,950 |
|
5,000 |
|
1,835 |
|
10,089 |
| ||||
|
|
|
|
|
|
|
|
|
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Comprehensive income |
|
$ |
25,083 |
|
$ |
24,697 |
|
$ |
68,197 |
|
$ |
29,364 |
|
See Accompanying Notes to Consolidated Financial Statements.
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2012 and 2011
(Amounts in thousands, except per share data) (Unaudited)
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|
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|
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|
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Accumulated |
|
|
|
|
|
|
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|
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|
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|
|
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Other |
|
|
|
|
|
|
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|
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Additional |
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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 |
|
|
|
|
|
|
|
19,275 |
|
|
|
|
|
194 |
|
19,469 |
| ||||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
10,089 |
|
|
|
|
|
10,089 |
| ||||||||
Cash dividends declared on common shares ($0.03 per share) |
|
|
|
|
|
|
|
(1,636 |
) |
|
|
|
|
|
|
(1,636 |
) | ||||||||
Dividends and discount accretion on preferred shares |
|
458 |
|
|
|
|
|
(7,808 |
) |
|
|
|
|
|
|
(7,350 |
) | ||||||||
Restricted common stock activity, net of tax |
|
|
|
1 |
|
(148 |
) |
(968 |
) |
|
|
968 |
|
|
|
(147 |
) | ||||||||
Stock option activity, net of tax |
|
|
|
1 |
|
1,181 |
|
(14 |
) |
|
|
105 |
|
|
|
1,273 |
| ||||||||
Issuance of shares of common stock, net of issuance costs |
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
16 |
| ||||||||
Repurchase of common shares in connection with employee benefit plans and held in trust for deferred compensation plan |
|
|
|
|
|
77 |
|
|
|
|
|
(1,255 |
) |
|
|
(1,178 |
) | ||||||||
Stock-based compensation expense |
|
|
|
|
|
3,530 |
|
|
|
|
|
|
|
|
|
3,530 |
| ||||||||
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
(230 |
) |
(230 |
) | ||||||||
Balance at September 30, 2011 |
|
$ |
194,562 |
|
$ |
548 |
|
$ |
730,056 |
|
$ |
411,659 |
|
$ |
32,322 |
|
$ |
(3,010 |
) |
$ |
2,485 |
|
$ |
1,368,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at December 31, 2011 |
|
$ |
194,719 |
|
$ |
548 |
|
$ |
731,248 |
|
$ |
427,956 |
|
$ |
39,150 |
|
$ |
(3,044 |
) |
$ |
2,450 |
|
$ |
1,393,027 |
|
Net income |
|
|
|
|
|
|
|
66,362 |
|
|
|
|
|
184 |
|
66,546 |
| ||||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
1,835 |
|
|
|
|
|
1,835 |
| ||||||||
Cash dividends declared on common shares ($0.03 per share) |
|
|
|
|
|
|
|
(1,643 |
) |
|
|
|
|
|
|
(1,643 |
) | ||||||||
Dividends and discount accretion on preferred shares |
|
1,281 |
|
|
|
|
|
(3,269 |
) |
|
|
|
|
|
|
(1,988 |
) | ||||||||
Repurchase of preferred shares and warrant |
|
(196,000 |
) |
|
|
(1,518 |
) |
|
|
|
|
|
|
|
|
(197,518 |
) | ||||||||
Restricted common stock activity, net of tax |
|
|
|
2 |
|
(722 |
) |
17 |
|
|
|
1,774 |
|
|
|
1,071 |
| ||||||||
Stock option activity, net of tax |
|
|
|
|
|
(625 |
) |
3 |
|
|
|
345 |
|
|
|
(277 |
) | ||||||||
Repurchase of common shares in connection with employee benefit plans and held in trust for deferred compensation plan |
|
|
|
|
|
451 |
|
|
|
|
|
(2,379 |
) |
|
|
(1,928 |
) | ||||||||
Stock-based compensation expense |
|
|
|
|
|
3,581 |
|
|
|
|
|
|
|
|
|
3,581 |
| ||||||||
Additional investment in subsidiary |
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
(904 |
) |
(1,640 |
) | ||||||||
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
(236 |
) |
(236 |
) | ||||||||
Balance at September 30, 2012 |
|
$ |
|
|
$ |
550 |
|
$ |
731,679 |
|
$ |
489,426 |
|
$ |
40,985 |
|
$ |
(3,304 |
) |
$ |
1,494 |
|
$ |
1,260,830 |
|
See Accompanying Notes to Consolidated Financial Statements.
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2012 |
|
2011 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
| ||
Net income |
|
$ |
66,362 |
|
$ |
19,275 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation of premises and equipment |
|
11,450 |
|
9,983 |
| ||
Depreciation of leased equipment |
|
28,107 |
|
31,556 |
| ||
Impairment charges on branch facilities |
|
758 |
|
1,000 |
| ||
Stock-based compensation expense |
|
3,581 |
|
3,530 |
| ||
Gain on sales of premises and equipment and leased equipment |
|
(2,746 |
) |
(1,489 |
) | ||
Amortization of other intangibles |
|
3,759 |
|
4,255 |
| ||
Provision for credit losses |
|
(9,900 |
) |
112,750 |
| ||
Deferred income tax expense (benefit) |
|
19,763 |
|
(2,018 |
) | ||
Amortization of premiums and discounts on investment securities, net |
|
31,838 |
|
29,898 |
| ||
Accretion of premiums and discounts on loans, net |
|
(13,000 |
) |
(25,558 |
) | ||
Accretion of FDIC indemnification asset |
|
(901 |
) |
(4,155 |
) | ||
Net gain on investment securities |
|
(244 |
) |
(229 |
) | ||
Proceeds from sale of loans held for sale in the ordinary course of business |
|
64,124 |
|
30,989 |
| ||
Origination of loans held for sale |
|
(64,980 |
) |
(28,748 |
) | ||
Net gains on sale of loans held for sale |
|
(1,503 |
) |
(2,241 |
) | ||
Net gain on sales of other real estate owned |
|
(1,264 |
) |
(904 |
) | ||
Impairments on other real estate owned |
|
13,919 |
|
7,255 |
| ||
Net loss on other real estate owned related to FDIC-assisted transactions |
|
3,313 |
|
1,784 |
| ||
Increase in cash surrender value of life insurance |
|
(2,677 |
) |
(3,433 |
) | ||
(Increase) decrease in other assets, net |
|
(45,242 |
) |
15,740 |
| ||
Increase in other liabilities, net |
|
7,944 |
|
23,913 |
| ||
Net cash provided by operating activities |
|
112,461 |
|
223,153 |
| ||
Cash Flows From Investing Activities: |
|
|
|
|
| ||
Proceeds from sales of investment securities available for sale |
|
12,573 |
|
11,360 |
| ||
Proceeds from maturities and calls of investment securities available for sale |
|
432,162 |
|
269,053 |
| ||
Purchase of investment securities available for sale |
|
(350,669 |
) |
(582,677 |
) | ||
Proceeds from maturities and calls of investment securities held to maturity |
|
960 |
|
543 |
| ||
Purchase of investment securities held to maturity |
|
(1,923 |
) |
(499,840 |
) | ||
Purchase of non-marketable securities - FHLB and FRB stock |
|
(24 |
) |
(629 |
) | ||
Redemption of non-marketable securities - FHLB and FRB stock |
|
23,203 |
|
|
| ||
Net decrease in loans |
|
329,773 |
|
344,002 |
| ||
Proceeds from sale of loans held for sale |
|
|
|
205,740 |
| ||
Purchases of premises and equipment |
|
(16,952 |
) |
(12,147 |
) | ||
Purchases of leased equipment |
|
(19,836 |
) |
(42,270 |
) | ||
Proceeds from sales of premises and equipment |
|
1,498 |
|
1,358 |
| ||
Proceeds from sales of leased equipment |
|
11,108 |
|
3,569 |
| ||
Proceeds from sale of other real estate owned |
|
28,398 |
|
34,241 |
| ||
Capital improvements on other real estate owned |
|
(2,304 |
) |
(983 |
) | ||
Proceeds from sale of other real estate owned related to FDIC-assisted transactions |
|
29,008 |
|
16,227 |
| ||
Principal paid on lease investments |
|
(1,878 |
) |
(302 |
) | ||
Life insurance death benefit |
|
|
|
4,115 |
| ||
Net proceeds from FDIC related to covered assets |
|
79,247 |
|
123,469 |
| ||
Net cash provided by (used in) investing activities |
|
554,344 |
|
(125,171 |
) | ||
Cash Flows From Financing Activities: |
|
|
|
|
| ||
Net decrease in deposits |
|
(168,260 |
) |
(431,051 |
) | ||
Net increase (decrease) in short-term borrowings |
|
69,659 |
|
(11,426 |
) | ||
Proceeds from long-term borrowings |
|
5,740 |
|
12,235 |
| ||
Principal paid on long-term borrowings |
|
(153,206 |
) |
(22,930 |
) | ||
Redemption of junior subordinated notes issued to capital trusts |
|
(6,186 |
) |
|
| ||
Repurchase of preferred stock and warrant |
|
(197,518 |
) |
|
| ||
Treasury stock transactions, net |
|
(260 |
) |
(1,090 |
) | ||
Stock options exercised |
|
154 |
|
1,902 |
| ||
Excess tax benefits from share-based payment arrangements |
|
|
|
15 |
| ||
Dividends paid on preferred stock |
|
(3,239 |
) |
(7,350 |
) | ||
Dividends paid on common stock |
|
(1,627 |
) |
(1,636 |
) | ||
Net cash used in financing activities |
|
(454,743 |
) |
(461,331 |
) | ||
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents |
|
$ |
212,062 |
|
$ |
(363,349 |
) |
Cash and cash equivalents: |
|
|
|
|
| ||
Beginning of period |
|
244,565 |
|
844,159 |
| ||
End of period |
|
$ |
456,627 |
|
$ |
480,810 |
|
(Continued)
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in Thousands) (Unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash payments for: |
|
|
|
|
| ||
Interest paid to depositors and other borrowed funds |
|
$ |
36,156 |
|
$ |
47,411 |
|
Income tax payments (refunds), net |
|
4,230 |
|
(477 |
) | ||
|
|
|
|
|
| ||
Supplemental Schedule of Noncash Investing Activities: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Securities available for sale purchased not settled |
|
$ |
3,919 |
|
$ |
|
|
Loans transferred to other real estate owned |
|
2,724 |
|
55,603 |
| ||
Loans transferred to other real estate owned related to FDIC-assisted transactions |
|
17,923 |
|
49,072 |
| ||
Loans transferred to repossessed vehicles |
|
607 |
|
984 |
| ||
Loans transferred to loans held for sale |
|
|
|
205,740 |
| ||
Operating leases rewritten as direct finance leases included as loans |
|
7,593 |
|
2,126 |
| ||
Reclassification of reserves on unfunded credit commitments |
|
|
|
17,050 |
|
See Accompanying Notes to Consolidated Financial Statements.
MB FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 Companys 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 are issued until the settlement of such units, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Companys 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.
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 |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Distributed earnings allocated to common stock |
|
$ |
547 |
|
$ |
546 |
|
$ |
1,643 |
|
$ |
1,634 |
|
Undistributed earnings allocated to common stock |
|
22,585 |
|
19,149 |
|
64,717 |
|
17,621 |
| ||||
Net earnings allocated to common stock |
|
23,132 |
|
19,695 |
|
66,360 |
|
19,255 |
| ||||
Less: preferred stock dividends and discount accretion |
|
|
|
2,605 |
|
3,269 |
|
7,808 |
| ||||
Net earnings allocated to common stock |
|
23,132 |
|
17,090 |
|
63,091 |
|
11,447 |
| ||||
Net earnings allocated to participating securities |
|
1 |
|
2 |
|
2 |
|
20 |
| ||||
Net earnings allocated to common stock and participating securities |
|
$ |
23,133 |
|
$ |
17,092 |
|
$ |
63,093 |
|
$ |
11,467 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding for basic earnings per common share |
|
54,346,827 |
|
54,121,156 |
|
54,226,241 |
|
54,029,023 |
| ||||
Dilutive effect of equity awards |
|
209,690 |
|
202,164 |
|
246,376 |
|
266,599 |
| ||||
Weighted average shares outstanding for diluted earnings per common share |
|
54,556,517 |
|
54,323,320 |
|
54,472,617 |
|
54,295,622 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings allocated to common stock per common share |
|
$ |
0.43 |
|
$ |
0.36 |
|
$ |
1.22 |
|
$ |
0.36 |
|
Impact of preferred stock dividends on basic earnings per common share |
|
|
|
(0.04 |
) |
(0.06 |
) |
(0.15 |
) | ||||
Basic earnings per common share |
|
0.43 |
|
0.32 |
|
1.16 |
|
0.21 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings allocated to common stock per common share |
|
0.42 |
|
0.36 |
|
1.22 |
|
0.35 |
| ||||
Impact of preferred stock dividends on diluted earnings per common share |
|
|
|
(0.05 |
) |
(0.06 |
) |
(0.14 |
) | ||||
Diluted earnings per common share |
|
0.42 |
|
0.31 |
|
1.16 |
|
0.21 |
|
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 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
September 30, 2012: |
|
|
|
|
|
|
|
|
| ||||
Available for Sale |
|
|
|
|
|
|
|
|
| ||||
U.S. Government sponsored agencies and enterprises |
|
$ |
39,233 |
|
$ |
2,954 |
|
$ |
|
|
$ |
42,187 |
|
States and political subdivisions |
|
620,489 |
|
48,502 |
|
(25 |
) |
668,966 |
| ||||
Residential mortgage-backed securities |
|
1,009,509 |
|
17,019 |
|
(4,545 |
) |
1,021,983 |
| ||||
Commercial mortgage-backed securities |
|
51,156 |
|
2,823 |
|
|
|
53,979 |
| ||||
Corporate bonds |
|
16,617 |
|
10 |
|
(1 |
) |
16,626 |
| ||||
Equity securities |
|
10,644 |
|
587 |
|
|
|
11,231 |
| ||||
|
|
1,747,648 |
|
71,895 |
|
(4,571 |
) |
1,814,972 |
| ||||
Held to Maturity |
|
|
|
|
|
|
|
|
| ||||
States and political subdivisions |
|
238,211 |
|
21,739 |
|
|
|
259,950 |
| ||||
Residential mortgage-backed securities |
|
257,640 |
|
19,399 |
|
|
|
277,039 |
| ||||
|
|
495,851 |
|
41,138 |
|
|
|
536,989 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
2,243,499 |
|
$ |
113,033 |
|
$ |
(4,571 |
) |
$ |
2,351,961 |
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
Unrealized losses on investment securities and the fair value of the related securities at September 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 |
|
$ |
9,379 |
|
$ |
(25 |
) |
$ |
|
|
$ |
|
|
$ |
9,379 |
|
$ |
(25 |
) |
Residential mortgage-backed securities |
|
225,827 |
|
(4,105 |
) |
31,573 |
|
(440 |
) |
257,400 |
|
(4,545 |
) | ||||||
Corporate bonds |
|
5,260 |
|
(1 |
) |
|
|
|
|
5,260 |
|
(1 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
240,466 |
|
$ |
(4,131 |
) |
$ |
31,573 |
|
$ |
(440 |
) |
$ |
272,039 |
|
$ |
(4,571 |
) |
The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2012 was 34. 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 September 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 September 30, 2012, management believes the impairments detailed in the table above are temporary.
Net gains recognized on investment securities available for sale are summarized as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Realized gains |
|
$ |
282 |
|
$ |
|
|
$ |
472 |
|
$ |
232 |
|
Realized losses |
|
(1 |
) |
|
|
(4 |
) |
(3 |
) | ||||
Impairment charges |
|
|
|
|
|
(224 |
) |
|
| ||||
Net gains |
|
$ |
281 |
|
$ |
|
|
$ |
244 |
|
$ |
229 |
|
The amortized cost and fair value of investment securities as of September 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 |
|
$ |
26,437 |
|
$ |
26,857 |
|
Due after one year through five years |
|
226,619 |
|
246,211 |
| ||
Due after five years through ten years |
|
106,351 |
|
118,585 |
| ||
Due after ten years |
|
316,932 |
|
336,126 |
| ||
Equity securities |
|
10,644 |
|
11,231 |
| ||
Residential and commercial mortgage-backed securities |
|
1,060,665 |
|
1,075,962 |
| ||
|
|
1,747,648 |
|
1,814,972 |
| ||
Held to maturity: |
|
|
|
|
| ||
Due after one year through five years |
|
1,301 |
|
1,400 |
| ||
Due after five years through ten years |
|
10,573 |
|
11,331 |
| ||
Due after ten years |
|
226,337 |
|
247,219 |
| ||
Residential mortgage-backed securities |
|
257,640 |
|
277,039 |
| ||
|
|
495,851 |
|
536,989 |
| ||
Total |
|
$ |
2,243,499 |
|
$ |
2,351,961 |
|
Investment securities available for sale with carrying amounts of $1.1 billion and $924.9 million at September 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):
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Commercial loans |
|
$ |
1,073,981 |
|
$ |
1,113,123 |
|
Commercial loans collateralized by assignment of lease payments |
|
1,219,361 |
|
1,208,575 |
| ||
Commercial real estate |
|
1,770,261 |
|
1,853,788 |
| ||
Residential real estate |
|
308,866 |
|
316,787 |
| ||
Construction real estate |
|
149,872 |
|
183,789 |
| ||
Indirect vehicle |
|
206,973 |
|
187,481 |
| ||
Home equity |
|
314,718 |
|
336,043 |
| ||
Consumer loans |
|
84,651 |
|
88,865 |
| ||
Gross loans, excluding covered loans |
|
5,128,683 |
|
5,288,451 |
| ||
Covered loans |
|
496,162 |
|
662,544 |
| ||
Total loans(1) |
|
$ |
5,624,845 |
|
$ |
5,950,995 |
|
(1) Gross loan balances at September 30, 2012 and December 31, 2011 were net of unearned income, including net deferred loan fees of $955 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.
The Companys extension of credit is governed by its Credit Risk Policy which was established to control the quality of the Companys 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 principal 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 Moodys Investor Services or Standard & Poors 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 Companys Credit Risk Policy.
Consumer Loans. The Company originates direct and indirect consumer loans including primarily 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.
The following table presents the contractual aging of the recorded investment in past due loans by class of loans as of September 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 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
September 30, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
1,066,782 |
|
$ |
1,720 |
|
$ |
1,781 |
|
$ |
3,698 |
|
$ |
7,199 |
|
$ |
1,073,981 |
|
Commercial collateralized by assignment of lease payments |
|
1,206,547 |
|
10,654 |
|
2,129 |
|
31 |
|
12,814 |
|
1,219,361 |
| ||||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Healthcare |
|
180,429 |
|
|
|
|
|
4,738 |
|
4,738 |
|
185,167 |
| ||||||
Industrial |
|
416,478 |
|
614 |
|
1,963 |
|
3,622 |
|
6,199 |
|
422,677 |
| ||||||
Multifamily |
|
357,826 |
|
899 |
|
1,576 |
|
3,169 |
|
5,644 |
|
363,470 |
| ||||||
Retail |
|
392,608 |
|
469 |
|
375 |
|
5,077 |
|
5,921 |
|
398,529 |
| ||||||
Office |
|
172,388 |
|
287 |
|
|
|
1,125 |
|
1,412 |
|
173,800 |
| ||||||
Other |
|
223,397 |
|
1,949 |
|
693 |
|
579 |
|
3,221 |
|
226,618 |
| ||||||
Residential real estate |
|
301,660 |
|
296 |
|
1,910 |
|
5,000 |
|
7,206 |
|
308,866 |
| ||||||
Construction real estate |
|
146,926 |
|
99 |
|
|
|
2,847 |
|
2,946 |
|
149,872 |
| ||||||
Indirect vehicle |
|
204,909 |
|
1,307 |
|
475 |
|
282 |
|
2,064 |
|
206,973 |
| ||||||
Home equity |
|
302,218 |
|
4,632 |
|
1,436 |
|
6,432 |
|
12,500 |
|
314,718 |
| ||||||
Consumer |
|
84,591 |
|
55 |
|
2 |
|
3 |
|
60 |
|
84,651 |
| ||||||
Gross loans, excluding covered loans (1) |
|
5,056,759 |
|
22,981 |
|
12,340 |
|
36,603 |
|
71,924 |
|
5,128,683 |
| ||||||
Covered loans |
|
314,888 |
|
27,338 |
|
27,836 |
|
126,100 |
|
181,274 |
|
496,162 |
| ||||||
Total loans |
|
$ |
5,371,647 |
|
$ |
50,319 |
|
$ |
40,176 |
|
$ |
162,703 |
|
$ |
253,198 |
|
$ |
5,624,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nonperforming loan aging |
|
$ |
65,968 |
|
$ |
2,720 |
|
$ |
6,409 |
|
$ |
30,186 |
|
$ |
39,315 |
|
$ |
105,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-covered loans related to FDIC transactions (2) |
|
$ |
15,594 |
|
$ |
609 |
|
$ |
244 |
|
$ |
6,415 |
|
$ |
7,268 |
|
$ |
22,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
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.
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 September 30, 2012 and December 31, 2011 (in thousands):
|
|
September 30, |
|
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 |
|
$ |
21,536 |
|
$ |
36 |
|
$ |
34,813 |
|
$ |
|
|
Commercial collateralized by assignment of lease payments |
|
1,076 |
|
|
|
2,116 |
|
66 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Healthcare |
|
4,738 |
|
|
|
6,892 |
|
|
| ||||
Industrial |
|
12,271 |
|
410 |
|
29,637 |
|
|
| ||||
Multifamily |
|
5,868 |
|
|
|
9,145 |
|
|
| ||||
Retail |
|
18,123 |
|
|
|
15,333 |
|
|
| ||||
Office |
|
2,719 |
|
|
|
2,826 |
|
|
| ||||
Other |
|
11,258 |
|
|
|
12,718 |
|
|
| ||||
Residential real estate |
|
7,368 |
|
|
|
4,300 |
|
|
| ||||
Construction real estate |
|
1,225 |
|
|
|
1,145 |
|
|
| ||||
Indirect vehicles |
|
1,423 |
|
6 |
|
1,288 |
|
16 |
| ||||
Home equity |
|
17,204 |
|
18 |
|
9,087 |
|
|
| ||||
Consumer |
|
4 |
|
|
|
9 |
|
|
| ||||
Total |
|
$ |
104,813 |
|
$ |
470 |
|
$ |
129,309 |
|
$ |
82 |
|
The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Companys risk rating system, the Company classifies potential problem and problem loans as Special Mention, Substandard, and Doubtful. Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve managements close attention are deemed to be Special Mention. Risk ratings are updated at least annually and any time the situation warrants.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Loans listed as not rated are included in groups of homogeneous loans with similar risk and loss characteristics. The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of September 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
Special |
|
|
|
|
|
|
| |||||
|
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
September 30, 2012: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
973,284 |
|
$ |
41,175 |
|
$ |
58,620 |
|
$ |
902 |
|
$ |
1,073,981 |
|
Commercial collateralized by assignment of lease payments |
|
1,209,988 |
|
163 |
|
9,210 |
|
|
|
1,219,361 |
| |||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
| |||||
Healthcare |
|
158,510 |
|
21,919 |
|
|
|
4,738 |
|
185,167 |
| |||||
Industrial |
|
375,869 |
|
5,202 |
|
41,606 |
|
|
|
422,677 |
| |||||
Multifamily |
|
319,097 |
|
30,515 |
|
13,858 |
|
|
|
363,470 |
| |||||
Retail |
|
347,451 |
|
21,788 |
|
29,290 |
|
|
|
398,529 |
| |||||
Office |
|
144,360 |
|
6,459 |
|
22,981 |
|
|
|
173,800 |
| |||||
Other |
|
205,106 |
|
5,067 |
|
16,445 |
|
|
|
226,618 |
| |||||
Construction real estate |
|
131,418 |
|
5,814 |
|
12,640 |
|
|
|
149,872 |
| |||||
Total |
|
$ |
3,865,083 |
|
$ |
138,102 |
|
$ |
204,650 |
|
$ |
5,640 |
|
$ |
4,213,475 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
December 31, 2011: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
983,935 |
|
$ |
56,550 |
|
$ |
69,292 |
|
$ |
3,346 |
|
$ |
1,113,123 |
|
Commercial collateralized by assignment of lease payments |
|
1,203,933 |
|
|
|
4,642 |
|
|
|
1,208,575 |
| |||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
| |||||
Healthcare |
|
169,702 |
|
|
|
|
|
6,892 |
|
176,594 |
| |||||
Industrial |
|
370,760 |
|
26,294 |
|
62,330 |
|
|
|
459,384 |
| |||||
Multifamily |
|
328,617 |
|
43,256 |
|
15,732 |
|
3,292 |
|
390,897 |
| |||||
Retail |
|
384,590 |
|
4,031 |
|
38,938 |
|
|
|
427,559 |
| |||||
Office |
|
159,162 |
|
3,924 |
|
20,418 |
|
|
|
183,504 |
| |||||
Other |
|
183,490 |
|
3,822 |
|
28,538 |
|
|
|
215,850 |
| |||||
Construction real estate |
|
167,907 |
|
4,362 |
|
11,520 |
|
|
|
183,789 |
| |||||
Total |
|
$ |
3,952,096 |
|
$ |
142,239 |
|
$ |
251,410 |
|
$ |
13,530 |
|
$ |
4,359,275 |
|
Approximately $78.8 million and $114.7 million of the substandard and doubtful loans were non-performing as of September 30, 2012 and December 31, 2011, respectively.
For consumer, residential real estate, home equity, and indirect vehicle loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2012 and December 31, 2011 (in thousands):
|
|
Performing |
|
Non-performing |
|
Total |
| |||
|
|
|
|
|
|
|
| |||
September 30, 2012: |
|
|
|
|
|
|
| |||
Residential real estate |
|
$ |
301,498 |
|
$ |
7,368 |
|
$ |
308,866 |
|
Indirect vehicles |
|
205,544 |
|
1,429 |
|
206,973 |
| |||
Home equity |
|
297,496 |
|
17,222 |
|
314,718 |
| |||
Consumer |
|
84,647 |
|
4 |
|
84,651 |
| |||
Total |
|
$ |
889,185 |
|
$ |
26,023 |
|
$ |
915,208 |
|
|
|
|
|
|
|
|
| |||
December 31, 2011: |
|
|
|
|
|
|
| |||
Residential real estate |
|
$ |
312,487 |
|
$ |
4,300 |
|
$ |
316,787 |
|
Indirect vehicles |
|
186,177 |
|
1,304 |
|
187,481 |
| |||
Home equity |
|
326,956 |
|
9,087 |
|
336,043 |
| |||
Consumer |
|
88,856 |
|
9 |
|
88,865 |
| |||
Total |
|
$ |
914,476 |
|
$ |
14,700 |
|
$ |
929,176 |
|
Non-performing loans are those on nonaccrual or past due 90 days or more and still accruing interest.
The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011 (in thousands):
|
|
September 30, 2012 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||
|
|
Unpaid |
|
|
|
|
|
Allowance for |
|
Average |
|
Interest |
|
Average |
|
Interest |
| ||||||||
|
|
Principal |
|
Recorded |
|
Partial |
|
Loan Losses |
|
Recorded |
|
Income |
|
Recorded |
|
Income |
| ||||||||
|
|
Balance |
|
Investment |
|
Charge-offs |
|
Allocated |
|
Investment |
|
Recognized |
|
Investment |
|
Recognized |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial |
|
$ |
30,082 |
|
$ |
10,731 |
|
$ |
19,351 |
|
$ |
|
|
$ |
10,224 |
|
$ |
|
|
$ |
15,249 |
|
$ |
105 |
|
Commercial collateralized by assignment of lease payments |
|
94 |
|
94 |
|
|
|
|
|
263 |
|
|
|
224 |
|
2 |
| ||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Industrial |
|
12,778 |
|
10,702 |
|
2,076 |
|
|
|
11,295 |
|
|
|
17,005 |
|
29 |
| ||||||||
Multifamily |
|
1,642 |
|
1,642 |
|
|
|
|
|
884 |
|
14 |
|
1,519 |
|
14 |
| ||||||||
Retail |
|
10,105 |
|
9,650 |
|
455 |
|
|
|
10,738 |
|
|
|
10,402 |
|
|
| ||||||||
Office |
|
1,136 |
|
1,136 |
|
|
|
|
|
1,365 |
|
|
|
982 |
|
|
| ||||||||
Other |
|
4,866 |
|
4,866 |
|
|
|
|
|
5,605 |
|
|
|
6,288 |
|
|
| ||||||||
Residential real estate |
|
8,460 |
|
8,085 |
|
375 |
|
|
|
8,474 |
|
|
|
7,634 |
|
|
| ||||||||
Construction real estate |
|
1,147 |
|
1,147 |
|
|
|
|
|
1,150 |
|
|
|
771 |
|
|
| ||||||||
Indirect vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home equity |
|
10,280 |
|
10,280 |
|
|
|
|
|
10,338 |
|
|
|
11,130 |
|
|
| ||||||||
Consumer |
|
248 |
|
248 |
|
|
|
|
|
248 |
|
|
|
243 |
|
|
| ||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial |
|
10,810 |
|
10,806 |
|
4 |
|
2,570 |
|
11,295 |
|
|
|
6,950 |
|
|
| ||||||||
Commercial collateralized by assignment of lease payments |
|
1,074 |
|
1,074 |
|
|
|
180 |
|
932 |
|
16 |
|
1,270 |
|
66 |
| ||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Healthcare |
|
10,942 |
|
4,738 |
|
6,204 |
|
1,386 |
|
4,738 |
|
|
|
5,211 |
|
|
| ||||||||
Industrial |
|
2,633 |
|
1,569 |
|
1,064 |
|
320 |
|
1,445 |
|
|
|
1,972 |
|
|
| ||||||||
Multifamily |
|
6,398 |
|
5,055 |
|
1,343 |
|
1,302 |
|
5,079 |
|
16 |
|
5,562 |
|
78 |
| ||||||||
Retail |
|
9,706 |
|
8,704 |
|
1,002 |
|
2,474 |
|
9,288 |
|
|
|
8,279 |
|
|
| ||||||||
Office |
|
1,590 |
|
1,583 |
|
7 |
|
323 |
|
1,642 |
|
|
|
2,054 |
|
|
| ||||||||
Other |
|
6,535 |
|
6,392 |
|
143 |
|
1,762 |
|
6,574 |
|
4 |
|
6,691 |
|
12 |
| ||||||||
Residential real estate |
|
3,224 |
|
3,042 |
|
182 |
|
401 |
|
3,229 |
|
|
|
1,084 |
|
|
| ||||||||
Construction real estate |
|
3,605 |
|
1,225 |
|
2,380 |
|
582 |
|
1,332 |
|
|
|
4,242 |
|
|
| ||||||||
Indirect vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Home equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,826 |
|
|
| ||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
|
$ |
137,355 |
|
$ |
102,769 |
|
$ |
34,586 |
|
$ |
11,300 |
|
$ |
106,138 |
|
$ |
50 |
|
$ |
116,588 |
|
$ |
306 |
|
|
|
December 31, 2011 |
| ||||||||||||||||
|
|
Unpaid |
|
|
|
|
|
Allowance for |
|
Average |
|
Interest |
| ||||||
|
|
Principal |
|
Recorded |
|
Partial |
|
Loan Losses |
|
Recorded |
|
Income |
| ||||||
|
|
Balance |
|
Investment |
|
Charge-offs |
|
Allocated |
|
Investment |
|
Recognized |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
47,784 |
|
$ |
28,774 |
|
$ |
19,010 |
|
$ |
|
|
$ |
22,952 |
|
$ |
211 |
|
Commercial collateralized by assignment of lease payments |
|
107 |
|
107 |
|
|
|
|
|
696 |
|
32 |
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Healthcare |
|
|
|
|
|
|
|
|
|
1,818 |
|
|
| ||||||
Industrial |
|
35,338 |
|
25,865 |
|
9,473 |
|
|
|
37,436 |
|
64 |
| ||||||
Multifamily |
|
1,975 |
|
1,975 |
|
|
|
|
|
10,641 |
|
164 |
| ||||||
Retail |
|
23,656 |
|
23,652 |
|
4 |
|
|
|
26,783 |
|
|
| ||||||
Office |
|
779 |
|
779 |
|
|
|
|
|
5,755 |
|
|
| ||||||
Other |
|
6,901 |
|
6,901 |
|
|
|
|
|
16,303 |
|
|
| ||||||
Residential real estate |
|
7,157 |
|
7,157 |
|
|
|
|
|
6,580 |
|
|
| ||||||
Construction real estate |
|
|
|
|
|
|
|
|
|
56,846 |
|
|
| ||||||
Indirect vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home equity |
|
11,297 |
|
11,297 |
|
|
|
|
|
7,309 |
|
|
| ||||||
Consumer |
|
241 |
|
241 |
|
|
|
|
|
122 |
|
|
| ||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
10,016 |
|
6,038 |
|
3,978 |
|
1,711 |
|
10,025 |
|
80 |
| ||||||
Commercial collateralized by assignment of lease payments |
|
2,077 |
|
2,077 |
|
|
|
390 |
|
475 |
|
71 |
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Healthcare |
|
11,750 |
|
6,892 |
|
4,858 |
|
1,560 |
|
292 |
|
|
| ||||||
Industrial |
|
7,739 |
|
3,773 |
|
3,966 |
|
680 |
|
7,780 |
|
|
| ||||||
Multifamily |
|
14,387 |
|
7,720 |
|
6,667 |
|
1,757 |
|
10,614 |
|
208 |
| ||||||
Retail |
|
11,232 |
|
10,672 |
|
560 |
|
2,394 |
|
9,688 |
|
|
| ||||||
Office |
|
2,330 |
|
2,047 |
|
283 |
|
77 |
|
4,586 |
|
|
| ||||||
Other |
|
5,979 |
|
5,816 |
|
163 |
|
1,514 |
|
10,489 |
|
2 |
| ||||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction real estate |
|
3,519 |
|
1,145 |
|
2,374 |
|
721 |
|
20,259 |
|
|
| ||||||
Indirect vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
355 |
|
5 |
| ||||||
Total |
|
$ |
204,264 |
|
$ |
152,928 |
|
$ |
51,336 |
|
$ |
10,804 |
|
$ |
267,804 |
|
$ |
837 |
|
Impaired loans included accruing restructured loans of $17.9 million and $38.0 million that have been modified and are performing in accordance with those modified terms as of September 30, 2012 and December 31, 2011, respectively. In addition, impaired loans included $27.1 million and $42.5 million of non-performing, restructured loans as of September 30, 2012 and December 31, 2011, respectively.
Loans may be restructured in an effort to maximize collections from financially distressed borrowers. We use various restructuring techniques, including, but not limited to, deferral of past due interest or principal, implementing an A/B note structure, redeeming past due taxes, reduction of interest rates, extending maturities and modification of amortization schedules. Residential real estate loans are restructured in an effort to minimize losses while allowing borrowers to remain in their primary residences when possible. Programs that we offer to residential real estate borrowers include the Home Affordable Refinance Program (HARP) and a restructuring program similar to the Home Affordable Modification Program (HAMP) for first mortgage borrowers as well as the Second Lien Modification Program (2MP) and similar programs for home equity borrowers in keeping with the restructuring techniques discussed above.
Periodically, the Company will restructure a note into two separate notes (A/B structure), charging off the entire B portion of the note. The A note is structured with appropriate loan-to-value and cash flow coverage ratios that provide for a high likelihood of repayment. The A note is classified as a non-performing note until the borrower has displayed a historical payment performance for a reasonable time prior to and subsequent to the restructuring. A period of sustained repayment for at least six months generally is required to return the note to accrual status
provided that management has determined that the performance is reasonably expected to continue. The A note will be classified as a restructured note (either performing or nonperforming) through the calendar year of the restructuring that the historical payment performance has been established.
A loan classified as a troubled debt restructuring will no longer be included in the troubled debt restructuring disclosures in the years after the restructuring if the loan is not impaired based on the terms specified by the restructuring agreement and the interest rate specified in the restructuring agreement represents a market rate at the time of modification. The specified interest rate is considered a market rate when the interest rate is equal or greater than the rate the Company is willing to accept at the time of restructuring for a new loan with comparable risk. If there are concerns that the borrower would not be able to meet the modified terms of the loan, the loan would continue to be included in the troubled debt restructuring disclosures.
Impairment analyses on commercial-related loans classified as troubled debt restructurings are performed in conjunction with the normal allowance for loan loss process. See Note 1 of the notes to our audited consolidated financial statement contained in our Annual Report on Form 10-K for the year ended December 31, 2011 for additional information. Consumer loans classified as troubled debt restructurings are aggregated in two pools that share common risk characteristics, home equity and residential real estate loans, when impairment is measured on a quarterly basis based on historical default factors and loss given defaults.
The following tables present loans that have been restructured during the three and nine months ended September 30, 2012 (dollars in thousands):
|
|
Three Months Ended |
| |||||||||
|
|
September 30, 2012 |
| |||||||||
|
|
Number |
|
Pre-Modification |
|
Post-Modification |
|
|
| |||
|
|
of |
|
Recorded |
|
Recorded |
|
Charge-offs and |
| |||
|
|
Loans |
|
Investment |
|
Investment |
|
Specific Reserves |
| |||
|
|
|
|
|
|
|
|
|
| |||
Performing: |
|
|
|
|
|
|
|
|
| |||
Home equity |
|
7 |
|
$ |
401 |
|
$ |
325 |
|
$ |
76 |
|
Total |
|
7 |
|
$ |
401 |
|
$ |
325 |
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing: |
|
|
|
|
|
|
|
|
| |||
Commercial collateralized by assignment of lease payments |
|
1 |
|
$ |
202 |
|
$ |
202 |
|
$ |
168 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
| |||
Retail |
|
1 |
|
202 |
|
202 |
|
200 |
| |||
Residential real estate |
|
7 |
|
173 |
|
68 |
|
105 |
| |||
Home equity |
|
5 |
|
347 |
|
232 |
|
115 |
| |||
Total |
|
14 |
|
$ |
924 |
|
$ |
704 |
|
$ |
588 |
|
|
|
Nine Months Ended |
| |||||||||
|
|
September 30, 2012 |
| |||||||||
|
|
Number |
|
Pre-Modification |
|
Post-Modification |
|
|
| |||
|
|
of |
|
Recorded |
|
Recorded |
|
Charge-offs and |
| |||
|
|
Loans |
|
Investment |
|
Investment |
|
Specific Reserves |
| |||
|
|
|
|
|
|
|
|
|
| |||
Performing: |
|
|
|
|
|
|
|
|
| |||
Commercial real estate: |
|
|
|
|
|
|
|
|
| |||
Multifamily |
|
1 |
|
$ |
155 |
|
$ |
155 |
|
$ |
|
|
Retail |
|
1 |
|
236 |
|
236 |
|
|
| |||
Residential real estate |
|
2 |
|
808 |
|
808 |
|
|
| |||
Home equity |
|
38 |
|
6,009 |
|
5,933 |
|
76 |
| |||
Total |
|
42 |
|
$ |
7,208 |
|
$ |
7,132 |
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
| |||
Non-Performing: |
|
|
|
|
|
|
|
|
| |||
Commercial |
|
4 |
|
$ |
292 |
|
$ |
292 |
|
$ |
96 |
|
Commercial collateralized by assignment of lease payments |
|
1 |
|
202 |
|
202 |
|
168 |
| |||
Commercial real estate: |
|
|
|
|
|
|
|
|
| |||
Multifamily |
|
1 |
|
149 |
|
149 |
|
40 |
| |||
Retail |
|
4 |
|
923 |
|
923 |
|
232 |
| |||
Other |
|
1 |
|
157 |
|
157 |
|
50 |
| |||
Residential real estate |
|
13 |
|
637 |
|
401 |
|
236 |
| |||
Home equity |
|
34 |
|
5,324 |
|
4,899 |
|
425 |
| |||
Total |
|
58 |
|
$ |
7,684 |
|
$ |
7,023 |
|
$ |
1,247 |
|
Of the troubled debt restructurings entered into during the past twelve months, $305 thousand subsequently defaulted during the nine months ended September 30, 2012. Performing troubled debt restructurings are considered to have defaulted when they become 90 days or more past due post restructuring.
The following table presents the activity in the allowance for credit losses, balance in allowance for credit losses and recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012 and 2011 (in thousands):
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
collateralized by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
assignment of |
|
Commercial |
|
Residential |
|
Construction |
|
Indirect |
|
Home |
|
|
|
Unfunded |
|
|
| ||||||||||
|
|
Commercial |
|
lease payments |
|
real estate |
|
real estate |
|
real estate |
|
vehicles |
|
equity |
|
Consumer |
|
Commitments |
|
Total |
| ||||||||||
September 30, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
$ |
20,789 |
|
$ |
7,490 |
|
$ |
68,713 |
|
$ |
3,592 |
|
$ |
10,586 |
|
$ |
1,941 |
|
$ |
7,617 |
|
$ |
1,028 |
|
$ |
7,084 |
|
$ |
128,840 |
|
Transfer to (from) allowance for unfunded credit commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Charge-offs |
|
(75 |
) |
|
|
(2,994 |
) |
(474 |
) |
(71 |
) |
(433 |
) |
(1,209 |
) |
(332 |
) |
|
|
(5,588 |
) | ||||||||||
Recoveries |
|
306 |
|
111 |
|
12,893 |
|
8 |
|
752 |
|
224 |
|
303 |
|
77 |
|
|
|
14,674 |
| ||||||||||
Provision |
|
1,181 |
|
(149 |
) |
(12,253 |
) |
738 |
|
(393 |
) |
288 |
|
370 |
|
558 |
|
(3,340 |
) |
(13,000 |
) | ||||||||||
Ending balance |
|
$ |
22,201 |
|
$ |
7,452 |
|
$ |
66,359 |
|
$ |
3,864 |
|
$ |
10,874 |
|
$ |
2,020 |
|
$ |
7,081 |
|
$ |
1,331 |
|
$ |
3,744 |
|
$ |
124,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
$ |
21,106 |
|
$ |
7,561 |
|
$ |
68,695 |
|
$ |
3,935 |
|
$ |
15,639 |
|
$ |
1,834 |
|
$ |
7,333 |
|
$ |
695 |
|
$ |
9,177 |
|
$ |
135,975 |
|
Transfer to (from) allowance for unfunded credit commitments |
|
|
|
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
(1,132 |
) |
|
| ||||||||||
Charge-offs |
|
(2,065 |
) |
(1,720 |
) |
(8,412 |
) |
(1,876 |
) |
(3,951 |
) |
(1,636 |
) |
(3,157 |
) |
(864 |
) |
|
|
(23,681 |
) | ||||||||||
Recoveries |
|
2,730 |
|
460 |
|
16,116 |
|
230 |
|
1,458 |
|
835 |
|
423 |
|
280 |
|
|
|
22,532 |
| ||||||||||
Provision |
|
430 |
|
1,151 |
|
(10,040 |
) |
1,575 |
|
(3,404 |
) |
987 |
|
2,482 |
|
1,220 |
|
(4,301 |
) |
(9,900 |
) | ||||||||||
Ending balance |
|
$ |
22,201 |
|
$ |
7,452 |
|
$ |
66,359 |
|
$ |
3,864 |
|
$ |
10,874 |
|
$ |
2,020 |
|
$ |
7,081 |
|
$ |
1,331 |
|
$ |
3,744 |
|
$ |
124,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
2,570 |
|
$ |
180 |
|
$ |
7,567 |
|
$ |
401 |
|
$ |
582 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
1,726 |
|
$ |
13,026 |
|
Collectively evaluated for impairment |
|
19,345 |
|
7,272 |
|
56,851 |
|
3,144 |
|
10,292 |
|
2,020 |
|
7,081 |
|
1,331 |
|
2,018 |
|
109,354 |
| ||||||||||
Acquired and accounted for under ASC 310-30 (1) |
|
286 |
|
|
|
1,941 |
|
319 |
|
|
|
|
|
|
|
|
|
|
|
2,546 |
| ||||||||||
Total ending allowance balance |
|
$ |
22,201 |
|
$ |
7,452 |
|
$ |
66,359 |
|
$ |
3,864 |
|
$ |
10,874 |
|
$ |
2,020 |
|
$ |
7,081 |
|
$ |
1,331 |
|
$ |
3,744 |
|
$ |
124,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Individually evaluated for impairment |
|
$ |
21,537 |
|
$ |
1,168 |
|
$ |
56,037 |
|
$ |
11,127 |
|
$ |
2,372 |
|
$ |
|
|
$ |
10,280 |
|
$ |
248 |
|
$ |
|
|
$ |
102,769 |
|
Collectively evaluated for impairment |
|
1,033,534 |
|
1,218,193 |
|
1,714,224 |
|
293,787 |
|
147,500 |
|
206,973 |
|
304,438 |
|
84,403 |
|
|
|
5,003,052 |
| ||||||||||
Acquired and accounted for under ASC 310-30 (1) |
|
78,275 |
|
|
|
269,348 |
|
7,116 |
|
125,515 |
|
|
|
568 |
|
38,202 |
|
|
|
519,024 |
| ||||||||||
Total ending loans balance |
|
$ |
1,133,346 |
|
$ |
1,219,361 |
|
$ |
2,039,609 |
|
$ |
312,030 |
|
$ |
275,387 |
|
$ |
206,973 |
|
$ |
315,286 |
|
$ |
122,853 |
|
$ |
|
|
$ |
5,624,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
September 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
$ |
20,550 |
|
$ |
6,442 |
|
$ |
67,260 |
|
$ |
3,593 |
|
$ |
21,861 |
|
$ |
3,709 |
|
$ |
5,955 |
|
$ |
687 |
|
$ |
17,050 |
|
$ |
147,107 |
|
Transfer to (from) allowance for unfunded credit commitments |
|
|
|
|
|
5,516 |
|
|
|
|
|
|
|
|
|
|
|
(5,516 |
) |
|
| ||||||||||
Charge-offs |
|
(3,497 |
) |
|
|
(7,815 |
) |
(141 |
) |
(6,008 |
) |
(611 |
) |
(1,605 |
) |
(475 |
) |
|
|
(20,152 |
) | ||||||||||
Recoveries |
|
1,413 |
|
5 |
|
739 |
|
7 |
|
681 |
|
327 |
|
151 |
|
83 |
|
|
|
3,406 |
| ||||||||||
Provision |
|
(950 |
) |
191 |
|
7,920 |
|
322 |
|
(140 |
) |
(1,115 |
) |
3,231 |
|
324 |
|
1,717 |
|
11,500 |
| ||||||||||
Ending balance |
|
$ |
17,516 |
|
$ |
6,638 |
|
$ |
73,620 |
|
$ |
3,781 |
|
$ |
16,394 |
|
$ |
2,310 |
|
$ |
7,732 |
|
$ |
619 |
|
$ |
13,251 |
|
$ |
141,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
$ |
28,747 |
|
$ |
6,424 |
|
$ |
105,875 |
|
$ |
5,104 |
|
$ |
37,215 |
|
$ |
3,157 |
|
$ |
5,062 |
|
$ |
633 |
|
$ |
|
|
$ |
192,217 |
|
Reclassification to allowance for unfunded credit commitments |
|
(464 |
) |
|
|
(7,989 |
) |
|
|
(8,597 |
) |
|
|
|
|
|
|
17,050 |
|
|
| ||||||||||
Transfer to (from) allowance for unfunded credit commitments |
|
|
|
|
|
5,516 |
|
|
|
|
|
|
|
|
|
|
|
(5,516 |
) |
|
| ||||||||||
Charge-offs |
|
(14,639 |
) |
(93 |
) |
(92,840 |
) |
(11,783 |
) |
(45,928 |
) |
(1,882 |
) |
(9,005 |
) |
(1,363 |
) |
|
|
(177,533 |
) | ||||||||||
Recoveries |
|
4,736 |
|
224 |
|
2,585 |
|
40 |
|
5,071 |
|
1,021 |
|
218 |
|
532 |
|
|
|
14,427 |
| ||||||||||
Provision |
|
(864 |
) |
83 |
|
60,473 |
|
10,420 |
|
28,633 |
|
14 |
|
11,457 |
|
817 |
|
1,717 |
|
112,750 |
| ||||||||||
Ending balance |
|
$ |
17,516 |
|
$ |
6,638 |
|
$ |
73,620 |
|
$ |
3,781 |
|
$ |
16,394 |
|
$ |
2,310 |
|
$ |
7,732 |
|
$ |
619 |
|
$ |
13,251 |
|
$ |
141,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Individually evaluated for impairment |
|
$ |
2,544 |
|
$ |
83 |
|
$ |
6,326 |
|
$ |
|
|
$ |
2,463 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
13,251 |
|
$ |
24,667 |
|
Collectively evaluated for impairment |
|
14,972 |
|
6,555 |
|
67,137 |
|
3,781 |
|
13,931 |
|
2,310 |
|
7,732 |
|
619 |
|
|
|
117,037 |
| ||||||||||
Acquired and accounted for under ASC 310-30 (1) |
|
|
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
157 |
| ||||||||||
Total ending allowance balance |
|
$ |
17,516 |
|
$ |
6,638 |
|
$ |
73,620 |
|
$ |
3,781 |
|
$ |
16,394 |
|
$ |
2,310 |
|
$ |
7,732 |
|
$ |
619 |
|
$ |
13,251 |
|
$ |
141,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Individually evaluated for impairment |
|
$ |
37,069 |
|
$ |
631 |
|
$ |
106,728 |
|
$ |
5,842 |
|
$ |
2,913 |
|
$ |
|
|
$ |
8,602 |
|
$ |
241 |
|
$ |
|
|
$ |
162,026 |
|
Collectively evaluated for impairment |
|
982,672 |
|
1,066,560 |
|
1,738,165 |
|
303,776 |
|
207,293 |
|
189,032 |
|
340,333 |
|
75,785 |
|
|
|
4,903,616 |
| ||||||||||
Acquired and accounted for under ASC 310-30 (1) |
|
119,986 |
|
|
|
348,738 |
|
11,710 |
|
214,316 |
|
|
|
902 |
|
52,444 |
|
|
|
748,096 |
| ||||||||||
Total ending loans balance |
|
$ |
1,139,727 |
|
$ |
1,067,191 |
|
$ |
2,193,631 |
|
$ |
321,328 |
|
$ |
424,522 |
|
$ |
189,032 |
|
$ |
349,837 |
|
$ |
128,470 |
|
$ |
|
|
$ |
5,813,738 |
|
(1) Loans acquired in FDIC-assisted transactions and accounted for under ASC Subtopic 310-30 Receivables Loans and Debt Securities Acquired with Deteriorated Credit Quality.
Recoveries of $14.7 million were recorded in the three months ended September 30, 2012, prompting a negative provision for credit losses of $13.0 million. The provision for credit losses was $11.5 million for the three months ended September 30, 2011. The results for the nine months ended September 30, 2011 include a provision for credit losses of approximately $50 million in connection with the sale during the quarter ended June 30, 2011 of loans with an aggregate carrying amount of $281.6 million prior to the transfer to loans held for sale, including $156.3 million
in non-performing loans. The sale resulted in charge-offs of approximately $87.6 million, which impacted all loan types.
Purchased loans acquired in a business combination, including loans purchased in our FDIC-assisted transactions, are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include factors such as past due and non-accrual status. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reduction of the remaining portion of any allowance for loan losses previously established and/or a reclassification of the difference from non-accretable to accretable with a positive impact on interest income prospectively.
During the three and nine months ended September 30, 2012 there was a provision for credit losses of $658 thousand and $5.7 million, respectively, and net charge-offs of $422 thousand and $4.0 million, respectively, in relation to nine pools of purchased loans with a total carrying amount of $230.8 million as of September 30, 2012. There was $2.5 million in allowance for loan losses related to these purchased loans at September 30, 2012 and $827 thousand at December 31, 2011. The provision for credit losses and accompanying charge-offs are included in the table above.
Changes in the accretable yield for loans acquired in FDIC-assisted transactions and accounted for under ASC 310-30 were as follows for the three and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Balance at beginning of period |
|
$ |
9,411 |
|
$ |
28,298 |
|
$ |
18,703 |
|
$ |
44,103 |
|
Accretion |
|
(3,406 |
) |
(7,854 |
) |
(12,812 |
) |
(25,193 |
) | ||||
Other |
|
403 |
|
(600 |
) |
517 |
|
934 |
| ||||
Balance at end of period |
|
$ |
6,408 |
|
$ |
19,844 |
|
$ |
6,408 |
|
$ |
19,844 |
|
In our FDIC-assisted transactions, the fair value of purchased credit-impaired loans, on the acquisition date, was determined based on assigned risk ratings, expected cash flows and the fair value of loan collateral. The fair value of loans that were not credit-impaired was determined based on estimates of losses on defaults and other market factors. Due to the loss-share agreements with the FDIC, MB Financial Bank recorded a receivable (FDIC indemnification asset) from the FDIC equal to the present value of the corresponding reimbursement percentages on the estimated losses embedded in the loan portfolio.
When cash flow estimates are adjusted downward for a particular loan pool, the FDIC indemnification asset is increased. An allowance for loan losses is established for the impairment of the loans. A provision for loan losses is recognized for the difference between the increase in the FDIC indemnification asset and the decrease in cash flows.
When cash flow estimates are adjusted upward for a particular loan pool, the FDIC indemnification asset is decreased. The difference between the decrease in the FDIC indemnification asset and the increase in cash flows is accreted over the estimated life of the loan pool.
When cash flow estimates are adjusted downward for covered foreclosed real estate, the FDIC indemnification asset is increased. A charge is recognized for the difference between the increase in the FDIC indemnification asset and the decrease in cash flows.
When cash flow estimates are adjusted upward for covered foreclosed real estate, the FDIC indemnification asset is decreased. Any write-down after the transfer to covered foreclosed real estate is reversed.
In both scenarios, the clawback liability (the amount the FDIC requires MB Financial Bank to pay back if certain thresholds are met) will increase or decrease accordingly.
The carrying amount of covered loans and other purchased non-covered loans at September 30, 2012 consisted of purchased credit-impaired loans and non-credit-impaired loans as shown in the following table (in thousands):
|
|
Purchased |
|
Purchased Non- |
|
Total |
| |||
Covered loans: |
|
|
|
|
|
|
| |||
Commercial related (1) |
|
$ |
24,590 |
|
$ |
7,263 |
|
$ |
31,853 |
|
Commercial |
|
8,527 |
|
18,985 |
|
27,512 |
| |||
Commercial real estate |
|
108,073 |
|
161,275 |
|
269,348 |
| |||
Construction real estate |
|
108,571 |
|
16,944 |
|
125,515 |
| |||
Other |
|
4,420 |
|
37,514 |
|
41,934 |
| |||
Total covered loans |
|
$ |
254,181 |
|
$ |
241,981 |
|
$ |
496,162 |
|
|
|
|
|
|
|
|
| |||
Estimated receivable amount from the FDIC under the loss-share agreement (2) |
|
$ |
14,087 |
|
$ |
19,714 |
|
$ |
33,801 |
|
|
|
|
|
|
|
|
| |||
Non covered loans: |
|
|
|
|
|
|
| |||
Commercial related (3) |
|
$ |
3,480 |
|
$ |
15,431 |
|
$ |
18,911 |
|
Other |
|
65 |
|
3,886 |
|
3,951 |
| |||
Total non-covered loans |
|
$ |
3,545 |
|
$ |
19,317 |
|
$ |
22,862 |
|
(1) Covered commercial related loans include commercial, commercial real estate and construction real estate loans acquired in connection with the Heritage Community Bank (Heritage) and Benchmark Bank (Benchmark) FDIC-assisted transactions.
(2) Estimated reimbursable amounts from the FDIC under the loss-share agreement exclude $2.5 million in reimbursable amounts related to covered other real estate owned.
(3) Non covered commercial related loans include commercial, commercial real estate and construction real estate for InBank.
Outstanding balances on purchased loans from the FDIC were $561.7 million and $795.6 million as of September 30, 2012 and December 31, 2011, respectively. The related carrying amount on loans purchased from the FDIC was $519.0 million and $692.1 million as of September 30, 2012 and December 31, 2011, respectively.
NOTE 5. GOODWILL AND INTANGIBLES
The excess of the cost of an acquisition over the fair value of the net assets acquired consists of goodwill, and core deposit and client relationship intangibles. Under ASC Topic 350, goodwill is subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill and other intangible assets to determine potential impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired, by comparing the carrying value of the asset with the anticipated future cash flows.
The Companys annual assessment date is as of December 31. No impairment losses were recognized during the nine months ended September 30, 2012 or 2011. Goodwill is tested for impairment at the reporting unit level. All of our goodwill is allocated to MB Financial, Inc., which is the Companys only applicable reporting unit for purposes of testing goodwill impairment. The carrying amount of goodwill was $387.1 million at September 30, 2012 and December 31, 2011.
The Company has other intangible assets consisting of core deposit and client relationship intangibles that had, as of September 30, 2012, a remaining weighted average amortization period of approximately five years.
The following table presents the changes during the nine months ended September 30, 2012 in the carrying amount of core deposit and client relationship intangibles, gross carrying amount, accumulated amortization, and net book value as of September 30, 2012 (in thousands):
|
|
September 30, |
| |
|
|
2012 |
| |
Balance at beginning of period |
|
$ |
29,494 |
|
Amortization expense |
|
(3,759 |
) | |
Balance at end of period |
|
$ |
25,735 |
|
|
|
|
| |
Gross carrying amount |
|
$ |
71,560 |
|
Accumulated amortization |
|
(45,825 |
) | |
Net book value |
|
$ |
25,735 |
|
The following presents the estimated future amortization expense of other intangible assets (in thousands):
|
|
Amount |
| |
Year ending December 31, |
|
|
| |
2012 |
|
$ |
1,251 |
|
2013 |
|
4,530 |
| |
2014 |
|
3,514 |
| |
2015 |
|
3,090 |
| |
2016 |
|
2,747 |
| |
Thereafter |
|
10,603 |
| |
|
|
$ |
25,735 |
|
NOTE 6. NEW AUTHORITATIVE ACCOUNTING GUIDANCE
ASC Topic 860 Transfers and Servicing. New authoritative accounting guidance under ASC Topic 860, Transfers and Servicing amended prior guidance on the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new authoritative guidance removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and the collateral maintenance implementation guidance related to that criterion. The new guidance does not change any other existing criteria applicable to the assessment of effective control. The Company adopted this new authoritative guidance on January 1, 2012, and it did not have an impact on the Companys statements of operations and financial condition.
ASC Topic 820 Fair Value Measurement. New authoritative accounting guidance under ASC Topic 820, Fair Value Measurement amended prior guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The new authoritative guidance clarifies the highest and best use and valuation premise, measuring the fair value of an instrument classified in a reporting entitys shareholders equity, measuring the fair value of financial instruments that are managed within a portfolio, and the application of premiums and discounts in a fair value measurement. The new authoritative guidance also requires additional disclosures about fair value measurements. The Company adopted this new authoritative guidance on January 1, 2012, and it did not have an impact on the Companys statements of operations and financial condition. See Note 14 for the additional disclosures required by this new authoritative guidance.
ASC Topic 220 Comprehensive Income. New authoritative accounting guidance under ASC Topic 220, Comprehensive Income amended prior guidance to increase the prominence of items reported in other comprehensive income. The new guidance requires that all changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance does not change the items that must be reported in other comprehensive income. The Company adopted this new authoritative guidance on January 1, 2012, and it did not have an impact on the Companys statements of operations and financial condition. See the Consolidated Statements of Comprehensive Income included in the Consolidated Financial Statements.
ASC Topic 350 Intangibles Goodwill and Other. New authoritative accounting guidance under ASC Topic 350, Intangibles Goodwill and Other amended prior guidance to allow an entity to use a qualitative approach to test goodwill for impairment. The new guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not (having a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount as basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted this new authoritative guidance on January 1, 2012, and it did not have an impact on the Companys statements of operations and financial condition.
NOTE 7. STOCK-BASED COMPENSATION
ASC Topic 718 requires that the grant date fair value of equity awards to employees be recognized as compensation expense over the period during which an employee is required to provide service in exchange for such award.
The following table summarizes the impact of the Companys share-based payment plans in the financial statements for the periods shown (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total cost of share-based payment plans during the period |
|
$ |
1,080 |
|
$ |
1,451 |
|
$ |
3,581 |
|
$ |
3,530 |
|
|
|
|
|
|
|
|
|
|
| ||||
Amount of related income tax benefit recognized in income |
|
$ |
430 |
|
$ |
607 |
|
$ |
1,431 |
|
$ |
1,449 |
|
The Company adopted the Omnibus Incentive Plan (the Omnibus Plan) in 1997. In June 2011, the Companys stockholders approved an amendment and restatement of the Omnibus Plan to add 2,300,000 authorized shares for a total of 8,300,000 shares of common stock for issuance to directors, officers, and employees of the Company or any of its subsidiaries. Equity grants under the Omnibus Plan can be in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards. Shares awarded in the form of restricted stock, restricted stock units, performance shares, performance units, or other stock-based awards generally will reduce the shares available under the Omnibus Plan on a 2-for-1 basis. As of September 30, 2012, there were 2,195,608 shares available for future grants.
Annual equity-based incentive awards are typically granted to selected officers and employees mid-year. Options are granted with an exercise price equal to no less than the market price of the Companys shares at the date of grant; those option awards generally vest over four years of service and have 10-year contractual terms. Equity awards may also be granted at other times throughout the year in connection with the recruitment and retention of officers and employees. Restricted shares granted to officers and employees typically vest over a two to four year period. Directors currently may elect, in lieu of cash, to receive up to 70% of their fees in stock options with a five-year term which are fully vested on the grant date (provided that the director may not sell the underlying shares for at least six months after the grant date), and up to 100% of their fees in restricted stock, which vests one year after the grant date.
The following table summarizes stock options outstanding for the nine months ended September 30, 2012:
|
|
|
|
|
|
Weighted |
|
|
| ||
|
|
|
|
|
|
Average |
|
|
| ||
|
|
|
|
Weighted |
|
Remaining |
|
Aggregate |
| ||
|
|
|
|
Average |
|
Contractual |
|
Intrinsic |
| ||
|
|
Number of |
|
Exercise |
|
Term |
|
Value |
| ||
|
|
Options |
|
Price |
|
(In Years) |
|
(in thousands) |
| ||
|
|
|
|
|
|
|
|
|
| ||
Options outstanding as of December 31, 2011 |
|
2,935,810 |
|
$ |
27.64 |
|
|
|
|
| |
Granted |
|
240,569 |
|
20.42 |
|
|
|
|
| ||
Exercised |
|
(207,571 |
) |
20.79 |
|
|
|
|
| ||
Expired or cancelled |
|
(172,043 |
) |
31.32 |
|
|
|
|
| ||
Forfeited |
|
(24,986 |
) |
20.04 |
|
|
|
|
| ||
Options outstanding as of September 30, 2012 |
|
2,771,779 |
|
$ |
27.36 |
|
4.91 |
|
$ |
1,419 |
|
|
|
|
|
|
|
|
|
|
| ||
Options exercisable as of September 30, 2012 |
|
2,095,162 |
|
$ |
30.20 |
|
3.73 |
|
$ |
324 |
|
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Expected volatility is based on historical volatility and the expectations of future volatility of Company shares. The risk free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options is estimated based on historical employee behavior and represents the period of time that options granted are expected to remain outstanding.
The following assumptions were used for options granted during the nine months ended September 30, 2012:
|
|
September 30, |
| |
|
|
2012 |
| |
Risk-free interest rate |
|
1.03 |
% | |
Expected volatility of Companys stock |
|
27.40 |
% | |
Expected dividend yield |
|
2.00 |
% | |
Expected life of options |
|
5.7 years |
| |
|
|
|
| |
Weighted average fair value per option of options granted during the period |
|
$ |
4.30 |
|
The total intrinsic value of options exercised during the nine months ended September 30, 2012 and 2011 was $203 thousand and $314 thousand, respectively.
The following is a summary of changes in restricted shares and units for the nine months ended September 30, 2012:
|
|
Number of |
|
Weighted |
| |
|
|
|
|
|
| |
Shares and Units Outstanding at December 31, 2011 |
|
664,502 |
|
$ |
14.37 |
|
Granted |
|
295,681 |
|
20.68 |
| |
Vested |
|
(294,660 |
) |
10.86 |
| |
Forfeited |
|
(13,377 |
) |
16.65 |
| |
Shares and Units Outstanding at September 30, 2012 |
|
652,146 |
|
$ |
18.78 |
|
During the nine months ended September 30, 2012, the Company issued 65,333 performance-based restricted stock units which entitle recipients to shares of common stock at the end of a three year vesting period. Recipients will earn shares, totaling between 0% and 175% of the number of units issued, based on the Companys total stockholder return relative to a specified peer group of financial institutions over the three year period. The performance-based restricted stock units are included in the preceding table as if the recipients earned shares equal to 100% of the units issued. A Monte Carlo simulation model was used to value the performance-based restricted stock units at the time of issuance.
The Company issued 92,717 shares, 66,193 shares and 164,401 shares of market-based restricted stock in 2011, 2010 and 2009, respectively. The market component of the vesting terms for each award requires that, for ten consecutive trading days, the closing price of the Companys stock be at least $27.00 for awards issued in 2011, $25.80 for awards issued in 2010 and $18.14 for awards issued in 2009. The market components for awards issued in 2011 and 2010 have not been satisfied as of September 30, 2012. The market component for awards issued in 2009 has been satisfied; therefore, the 2009 awards vested in full in 2012, on the third anniversary of the grant date. A Monte Carlo simulation model was used to value the market-based restricted stock awards at the time of issuance.
Effective January 1, 2010, the Company began issuing shares of common stock under the Omnibus Plan as Salary Stock, classified as other stock-based awards, to certain executive officers. This stock is fully vested as of the grant date and the related expense is included in salaries and employee benefits on the Consolidated Statements of Operations. Holders of Salary Stock have all of the rights of a stockholder, including the right to vote the shares and the right to receive any dividends that may be paid thereon. As a condition of receiving the Salary Stock, the holders entered into agreements with the Company providing that they may not sell or otherwise transfer the shares of Salary Stock for two years, except in the event of disability or death. During the nine months ended September 30, 2012, the Company issued 13,647 shares of Salary Stock at a weighted average issuance price of $20.16.
As of September 30, 2012, there was $11.0 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Omnibus Plan. At September 30, 2012, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 2.9 years.
NOTE 8. DEPOSITS
The following table sets forth the composition of our deposits at the dates indicated (dollars in thousands):
|
|
September 30, |
|
December 31, |
| ||||||
|
|
2012 |
|
2011 |
| ||||||
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
| ||
Demand deposit accounts, noninterest bearing |
|
$ |
2,011,542 |
|
27 |
% |
$ |
1,885,694 |
|
25 |
% |
NOW and money market accounts |
|
2,682,608 |
|
36 |
% |
2,645,334 |
|
34 |
% | ||
Savings accounts |
|
797,741 |
|
10 |
% |
753,610 |
|
10 |
% | ||
Certificates of deposit |
|
1,632,370 |
|
22 |
% |
1,925,608 |
|
25 |
% | ||
Brokered deposit accounts |
|
355,086 |
|
5 |
% |
437,361 |
|
6 |
% | ||
Total |
|
$ |
7,479,347 |
|
100 |
% |
$ |
7,647,607 |
|
100 |
% |
During 2012, the Company prepaid brokered certificates of deposit and recorded expense of $1.2 million related to the prepayment.
NOTE 9. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows as of September 30, 2012 and December 31, 2011 (dollars in thousands):
|
|
September 30, |
|
December 31, |
| ||||||
|
|
2012 |
|
2011 |
| ||||||
|
|
Weighted |
|
Amount |
|
Weighted |
|
Amount |
| ||
Customer repurchase agreements |
|
0.28 |
% |
$ |
270,245 |
|
0.30 |
% |
$ |
216,439 |
|
Federal Home Loan Bank advances |
|
3.56 |
% |
19,368 |
|
3.66 |
% |
3,515 |
| ||
Line of credit |
|
0.00 |
% |
|
|
0.00 |
% |
|
| ||
|
|
0.50 |
% |
$ |
289,613 |
|
0.35 |
% |
$ |
219,954 |
|
Repurchase agreements are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All assets sold under agreements to repurchase are recorded on the face of the balance sheet.
The Company had fixed-rate Federal Home Loan Bank advances with maturity dates less than one year totaling $19.4 million at September 30, 2012 and $3.5 million at December 31, 2011. At September 30, 2012, the Company had fixed rate advances with effective interest rates ranging from 3.26% to 3.98%. At September 30, 2012, these advances had maturities ranging from April 2013 to July 2013.
On March 9, 2012, the Company entered into a $35.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of one month LIBOR + 2.00%. As of September 30, 2012, no amount was outstanding. The line matures on March 8, 2013.
NOTE 10. LONG-TERM BORROWINGS
During September 2012, the Company retired a $100.0 million Federal Home Loan Bank advance with an interest rate of 3.85% and recorded prepayment fees of $11.5 million on the early extinguishment of this advance. The Company had Federal Home Loan Bank advances with original contractual maturities greater than one year of $4.5 million and $144.6 million at September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012, the advances had fixed terms with effective interest rates, net of discounts, ranging from 3.23% to 5.87%. At September 30, 2012, the advances had maturities ranging from April 2021 to April 2035.
A collateral pledge agreement exists whereby at all times, the Company must keep on hand, free of all other pledges, liens, and encumbrances, first mortgage loans and home equity loans with unpaid principal balances aggregating no less than 133% for first mortgage loans and 250% for home equity loans of the outstanding advances from the Federal Home Loan Bank. The Company may also pledge certain investment securities as collateral for advances based on market value. As of September 30, 2012 and December 31, 2011, the Company had $31.8 million and $197.4 million, respectively, of loans pledged as collateral for long-term Federal Home Loan Bank advances. Additionally, as of September 30, 2012 and December 31, 2011, the Company had $33.0 million and $33.8 million, respectively, of investment securities pledged as collateral for long-term advances from the Federal Home Loan Bank. The Company could borrow an additional amount of approximately $532.9 million and $319.4 million from the Federal Home Loan Bank as of September 30, 2012 and December 31, 2011, respectively.
The Company had notes payable to banks totaling $23.8 million and $31.0 million at September 30, 2012 and December 31, 2011, respectively, which as of September 30, 2012, were accruing interest at rates ranging from 2.88% to 12.00%. Lease investments includes equipment with an amortized cost of $32.7 million and $42.6 million at September 30, 2012 and December 31, 2011, respectively, that is pledged as collateral on these notes.
The Company had a $40.0 million ten-year structured repurchase agreement as of September 30, 2012, which bears interest at a fixed rate borrowing of 4.75% and expires in 2016.
As of September 30, 2012, MB Financial Bank had a $50.0 million outstanding subordinated debt facility. Interest is payable at a rate of three month LIBOR + 1.70%. The debt matures on October 1, 2017.
NOTE 11. JUNIOR SUBORDINATED NOTES ISSUED TO CAPITAL TRUSTS
The Company has established statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities. The proceeds from such issuances were used by the trusts to purchase junior subordinated notes of the Company, which are the sole assets of each trust. Concurrently with the issuance of the trust preferred securities, the Company issued guarantees for the benefit of the holders of the trust preferred securities. The Companys outstanding trust preferred securities currently qualify, and are treated by the Company, as Tier 1 regulatory capital. The Company owns all of the common securities of each trust. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.
The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of September 30, 2012 (in thousands):
|
|
Coal City |
|
MB Financial |
|
MB Financial |
|
MB Financial |
|
|
|
Capital Trust I |
|
Capital Trust II |
|
Capital Trust III |
|
Capital Trust IV |
|
Junior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
Principal balance |
|
$25,774 |
|
$36,083 |
|
$10,310 |
|
$20,619 |
|
Annual interest rate |
|
3-mo LIBOR +1.80% |
|
3-mo LIBOR +1.40% |
|
3-mo LIBOR +1.50% |
|
3-mo LIBOR +1.52% |
|
Stated maturity date |
|
September 1, 2028 |
|
September 15, 2035 |
|
September 23, 2036 |
|
September 15, 2036 |
|
Call date |
|
September 1, 2008 |
|
December 15, 2010 |
|
September 23, 2011 |
|
September 15, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities: |
|
|
|
|
|
|
|
|
|
Face Value |
|
$25,000 |
|
$35,000 |
|
$10,000 |
|
$20,000 |
|
Annual distribution rate |
|
3-mo LIBOR +1.80% |
|
3-mo LIBOR +1.40% |
|
3-mo LIBOR +1.50% |
|
3-mo LIBOR +1.52% |
|
Issuance date |
|
July 1998 |
|
August 2005 |
|
July 2006 |
|
August 2006 |
|
Distribution dates (1) |
|
Quarterly |
|
Quarterly |
|
Quarterly |
|
Quarterly |
|
|
|
MB Financial |
|
MB Financial |
|
FOBB |
|
|
|
|
|
Capital Trust V |
|
Capital Trust VI |
|
Statutory Trust III (2) |
|
|
|
Junior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
Principal balance |
|
$30,928 |
|
$23,196 |
|
$5,155 |
|
|
|
Annual interest rate |
|
3-mo LIBOR +1.30% |
|
3-mo LIBOR +1.30% |
|
3-mo LIBOR +2.80% |
|
|
|
Stated maturity date |
|
December 15, 2037 |
|
October 30, 2037 |
|
January 23, 2034 |
|
|
|
Call date |
|
December 15, 2012 |
|
October 30, 2012 |
|
January 23, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities: |
|
|
|
|
|
|
|
|
|
Face Value |
|
$30,000 |
|
$22,500 |
|
$5,000 |
|
|
|
Annual distribution rate |
|
3-mo LIBOR +1.30% |
|
3-mo LIBOR +1.30% |
|
3-mo LIBOR +2.80% |
|
|
|
Issuance date |
|
September 2007 |
|
October 2007 |
|
December 2003 |
|
|
|
Distribution dates (1) |
|
Quarterly |
|
Quarterly |
|
Quarterly |
|
|
|
(1) All distributions are cumulative and paid in cash.
(2) FOBB Statutory Trust III was established by First Oak Brook Bancshares, Inc. (FOBB) prior to the Companys acquisition of FOBB, and the junior subordinated note issued by FOBB to FOBB Statutory Trust III was assumed by the Company upon completion of the acquisition.
The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption on a date no earlier than the call dates noted in the table above. Prior to these respective redemption dates, the junior subordinated notes may be redeemed by the Company (in which case the trust preferred securities would also be redeemed) after the occurrence of certain events that would have a negative tax effect on the Company or the trusts, would cause the trust preferred securities to no longer qualify as Tier 1 capital, or would result in a trust being treated as an investment company. Each trusts ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Companys obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trusts obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period the Company may not pay cash dividends on its stock and generally may not repurchase its stock.
During the third quarter of 2012, the Company redeemed the $6.2 million of junior subordinated notes issued to FOBB Statutory Trust I, which resulted in the redemption of the trust preferred securities issued by FOBB Statutory Trust I. The junior subordinated note had a rate of 10.60% and a maturity date of September 7, 2030. The Company assumed this obligation upon the completion of the acquisition of FOBB.
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company offers various derivatives, including interest rate swaps and foreign currency forward contracts, to our customers which can mitigate our exposure to market risk through the execution of off-setting positions with inter-bank dealer counterparties. This also permits the Company to offer customized risk management solutions to our customers. These customer accommodations and any offsetting financial contracts are treated as stand-alone derivative instruments which do not qualify for hedge accounting.
Interest rate swap and foreign currency forward contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. The net amount payable or receivable under interest rate swaps is accrued as an adjustment to interest income. The net amount payable for September 30, 2012 was approximately $22 thousand, and the net amount payable for December 31, 2011 was approximately $23 thousand. The Companys credit exposure on interest rate swaps is limited to the Companys net favorable value and interest payments of all swaps to each counterparty. In such cases, collateral is generally required from the counterparties involved if the net value of the swaps exceeds a nominal amount. At September 30, 2012, the Companys credit exposure relating to interest rate swaps was approximately $28.9 million, which is secured by the underlying collateral on customer loans.
The Company also enters into mortgage banking derivatives which are designated as stand-alone derivatives. These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Companys practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale.
The Company had fair value commercial loan interest rate swaps, to hedge its interest rate risk, with an aggregate notional amount of $6.9 million at September 30, 2012. For fair value hedges, the changes in fair values of both the hedging derivative and the hedged item were recorded in current earnings as other income and other expense.
The Companys derivative financial instruments are summarized below as of September 30, 2012 and December 31, 2011 (in thousands):
|
|
Asset Derivatives |
|
Liability Derivatives |
| ||||||||||||||||||||
|
|
September 30, 2012 |
|
December 31, 2011 |
|
September 30, 2012 |
|
December 31, 2011 |
| ||||||||||||||||
|
|
Notional |
|
Estimated |
|
Notional |
|
Estimated |
|
Notional |
|
Estimated |
|
Notional |
|
Estimated |
| ||||||||
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
| ||||||||
Derivative instruments designated as hedges of fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate swap contracts (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
6,916 |
|
$ |
(137 |
) |
$ |
7,204 |
|
$ |
(315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stand-alone derivative instruments (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate swap contracts |
|
382,865 |
|
28,819 |
|
343,132 |
|
25,931 |
|
383,948 |
|
(28,922 |
) |
344,294 |
|
(26,053 |
) | ||||||||
Interest rate options contracts |
|
75,780 |
|
159 |
|
4,287 |
|
32 |
|
75,780 |
|
(159 |
) |
4,287 |
|
(32 |
) | ||||||||
Foreign exchange contracts |
|
16,714 |
|
998 |
|
8,567 |
|
240 |
|
16,407 |
|
(920 |
) |
8,498 |
|
(206 |
) | ||||||||
Mortgage banking derivatives |
|
7,720 |
|
210 |
|
2,626 |
|
48 |
|
6,007 |
|
(101 |
) |
2,000 |
|
(18 |
) | ||||||||
Total stand-alone derivative instruments |
|
483,079 |
|
30,186 |
|
358,612 |
|
26,251 |
|
482,142 |
|
(30,102 |
) |
359,079 |
|
(26,309 |
) | ||||||||
Total |
|
$ |
483,079 |
|
$ |
30,186 |
|
$ |
358,612 |
|
$ |
26,251 |
|
$ |
489,058 |
|
$ |
(30,239 |
) |
$ |
366,283 |
|
$ |
(26,624 |
) |
(1) Hedged fixed-rate commercial real estate loans
(2) These portfolio swaps are not designated as hedging instruments under ASC Topic 815.
Amounts included in the other income in the consolidated statements of operations related to derivative financial instruments were as follows (dollars in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Derivative instruments designated as hedges of fair value: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swap contracts |
|
$ |
1 |
|
$ |
1 |
|
$ |
(36 |
) |
$ |
(74 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Stand-alone derivative instruments: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swap contracts |
|
6 |
|
18 |
|
19 |
|
108 |
| ||||
Interest rate options contracts |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts |
|
14 |
|
12 |
|
44 |
|
(2 |
) | ||||
Mortgage banking derivatives |
|
9 |
|
121 |
|
79 |
|
121 |
| ||||
Total stand-alone derivative instruments |
|
29 |
|
151 |
|
142 |
|
227 |
| ||||
Total |
|
$ |
30 |
|
$ |
152 |
|
$ |
106 |
|
$ |
153 |
|
Methods and assumptions used by the Company in estimating the fair value of its interest rate swaps are discussed in Note 14 below.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Commitments: The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Companys exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.
At September 30, 2012 and December 31, 2011, the following financial instruments were outstanding, the contractual amounts of which represent off-balance sheet credit risk (in thousands):
|
|
Contractual Amount |
| ||||
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Commitments to extend credit: |
|
|
|
|
| ||
Home equity lines |
|
$ |
253,216 |
|
$ |
275,357 |
|
Other commitments |
|
826,411 |
|
741,815 |
| ||
|
|
|
|
|
| ||
Letters of credit: |
|
|
|
|
| ||
Standby |
|
63,275 |
|
67,720 |
| ||
Commercial |
|
6,067 |
|
818 |
| ||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. The commitments for home equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on managements credit evaluation of the customer.
The Company, in the normal course of its business, regularly offers standby and commercial letters of credit to its customers. Standby and commercial letters of credit are a conditional but irrevocable form of guarantee. Under
letters of credit, the Company typically guarantees payment to a third party beneficiary upon the default of payment or nonperformance by the customer and upon receipt of complying documentation from that beneficiary.
Both standby and commercial letters of credit may be issued for any length of time, but normally do not exceed a period of five years. These letters of credit may also be extended or amended from time to time depending on the bank customers needs. As of September 30, 2012, the maximum remaining term for any standby letters of credit was December 31, 2017. A fee is charged to the customer and is recognized as income over the life of the letter of credit, unless considered non-rebatable under the terms of a letter of credit application.
At September 30, 2012, the aggregate contractual amount of these letters of credit, which represents the maximum potential amount of future payments that the Company would be obligated to pay, decreased $804 thousand to $69.3 million from $68.5 million at December 31, 2011. Of the $69.3 million in commitments outstanding at September 30, 2012, approximately $52.6 million of the letters of credit have been issued or renewed since December 31, 2011.
Letters of credit issued on behalf of customers may be done on either a secured, partially secured or an unsecured basis. If a letter credit is secured or partially secured, the collateral can take various forms including bank accounts, investments, fixed assets, inventory, accounts receivable or real estate, among other things. The Company takes the same care in making credit decisions and obtaining collateral when it issues letters of credit on behalf of its customers, as it does when making other types of loans.
As of September 30, 2012, the Company had approximately $2.5 million in capital expenditure commitments outstanding which relate to various projects to renovate existing branches.
Concentrations of credit risk: The majority of the loans, commitments to extend credit and standby letters of credit have been granted to customers in the Companys market area. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers.
Contingencies: In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from pending proceedings would not be expected to have a material adverse effect on the Companys consolidated financial statements.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert expected future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Companys creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Companys valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Companys monthly and/or quarterly valuation process.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Securities Available for Sale. The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level 1. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt
securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities and classified as Level 2. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as Level 3 inputs.
Loans Held for Sale. Mortgage loans originated and held for sale in the secondary market are carried at fair value. The fair value of loans held for sale is determined using quoted secondary market prices and classified as level 2.
Assets Held in Trust for Deferred Compensation and Associated Liabilities. Assets held in trust for deferred compensation are recorded at fair value and included in Other Assets on the consolidated balance sheets. These assets are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.
Derivatives. Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative and classified as Level 2. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including LIBOR rate curves. We also obtain dealer quotations for these derivatives for comparative purposes to assess the reasonableness of the model valuations. We also offer other derivatives, including foreign currency forward contracts and interest rate lock commitments, to our customers and offset our exposure from such contracts by purchasing other financial contracts, which are valued using market consensus prices.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
September 30, 2012 |
|
|
|
|
|
|
|
|
| ||||
Financial assets |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
U.S Government sponsored agencies and enterprises |
|
$ |
42,187 |
|
$ |
|
|
$ |
42,187 |
|
$ |
|
|
States and political subdivisions |
|
668,966 |
|
|
|
668,966 |
|
|
| ||||
Residential mortgage-backed securities |
|
1,021,983 |
|
|
|
1,021,096 |
|
887 |
| ||||
Commercial mortgage-backed securities |
|
53,979 |
|
|
|
53,979 |
|
|
| ||||
Corporate bonds |
|
16,626 |
|
|
|
11,395 |
|
5,231 |
| ||||
Equity securities |
|
11,231 |
|
11,231 |
|
|
|
|
| ||||
Loans held for sale |
|
7,221 |
|
|
|
7,221 |
|
|
| ||||
Assets held in trust for deferred compensation |
|
7,802 |
|
7,802 |
|
|
|
|
| ||||
Derivative financial instruments |
|
30,186 |
|
|
|
30,186 |
|
|
| ||||
Financial liabilities |
|
|
|
|
|
|
|
|
| ||||
Other liabilities (1) |
|
7,802 |
|
7,802 |
|
|
|
|
| ||||
Derivative financial instruments |
|
30,239 |
|
|
|
30,239 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2011 |
|
|
|
|
|
|
|
|
| ||||
Financial assets |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
U.S Government sponsored agencies and enterprises |
|
$ |
42,401 |
|
$ |
|
|
$ |
42,401 |
|
$ |
|
|
States and political subdivisions |
|
535,660 |
|
|
|
535,660 |
|
|
| ||||
Residential mortgage-backed securities |
|
1,281,806 |
|
|
|
1,280,713 |
|
1,093 |
| ||||
Commercial mortgage-backed securities |
|
52,685 |
|
|
|
52,685 |
|
|
| ||||
Corporate bonds |
|
5,899 |
|
|
|
|
|
5,899 |
| ||||
Equity securities |
|
10,846 |
|
10,846 |
|
|
|
|
| ||||
Loans held for sale |
|
4,727 |
|
|
|
4,727 |
|
|
| ||||
Assets held in trust for deferred compensation |
|
6,808 |
|
6,808 |
|
|
|
|
| ||||
Derivative financial instruments |
|
26,251 |
|
|
|
26,251 |
|
|
| ||||
Financial liabilities |
|
|
|
|
|
|
|
|
| ||||
Other liabilities (1) |
|
6,808 |
|
6,808 |
|
|
|
|
| ||||
Derivative financial instruments |
|
26,624 |
|
|
|
26,624 |
|
|
|
(1) Liabilities associated with assets held in trust for deferred compensation
The significant unobservable inputs used in the Level 3 fair value measurements of the Companys residential mortgage-backed securities and corporate bonds included in the table above primarily relate to the constant pre-payment rates and credit assumptions used in the discounted cash flows valuation, respectively. As of September 30, 2012, those constant pre-payment rates ranged from 6% to 12% and the credit assumption averaged a 25% loss.
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2012. The Companys policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.
The following table presents additional information about financial assets measured at fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3):
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
(in thousands) |
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Balance, beginning of period |
|
$ |
6,992 |
|
$ |
7,476 |
|
Other comprehensive income |
|
89 |
|
42 |
| ||
Principal payments |
|
(846 |
) |
(485 |
) | ||
Impairment charge |
|
(117 |
) |
|
| ||
|
|
$ |
6,118 |
|
$ |
7,033 |
|
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.
Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria. For a majority of impaired real estate loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.
Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include foreclosed assets and non-financial long-lived assets.
Other Real Estate and Repossessed Vehicles Owned (Foreclosed Assets). Foreclosed assets, upon initial recognition, are measured and reported at fair value through a charge-off to the allowance for possible loan losses based upon the fair value of the foreclosed asset. The fair value of foreclosed assets, upon initial recognition, are estimated using Level 3 inputs based on customized discounting criteria.
Non-Financial Long-Lived Assets. During the nine months ended September 30, 2012 and 2011, the Company recognized impairments of $758 thousand and $1.0 million, respectively, caused by the decision to close a branch in each of those years. The fair value of the branches was estimated using Level 3 inputs based on internal appraisals.
Assets measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011 are included in the table below (in thousands):
|
|
Total |
|
Quoted Prices in Active |
|
Significant Other |
|
Significant |
| ||||
September 30, 2012 |
|
|
|
|
|
|
|
|
| ||||
Financial assets: |
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
|
$ |
66,435 |
|
$ |
|
|
$ |
|
|
$ |
66,435 |
|
Foreclosed assets |
|
75,147 |
|
|
|
|
|
75,147 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2011 |
|
|
|
|
|
|
|
|
| ||||
Financial assets: |
|
|
|
|
|
|
|
|
| ||||
Impaired loans |
|
$ |
96,089 |
|
$ |
|
|
$ |
|
|
$ |
96,089 |
|
Foreclosed assets |
|
138,971 |
|
|
|
|
|
138,971 |
| ||||
Non-financial long-lived assets |
|
2,901 |
|
|
|
|
|
2,901 |
|
The significant unobservable inputs used in the Level 3 fair value measurements of the Companys impaired loans and foreclosed assets included in the table above primarily relate to internal valuations or analyses.
ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies. The methodologies for other financial assets and financial liabilities are discussed below:
The following methods and assumptions were used by the Company in estimating the fair values of its other financial instruments:
Cash and due from banks and interest bearing deposits with banks: The carrying amounts reported in the balance sheet approximate fair value.
Securities held to maturity: The fair values of securities held to maturity are determined by quoted prices in active markets, when available. If quoted market prices are not available, the fair value is determined by a matrix pricing.
Non-marketable securities FHLB and FRB Stock: The carrying amounts reported in the balance sheet approximate fair value.
Loans: The fair values for loans are estimated using discounted cash flow analyses, using the corporate bond curve adjusted for liquidity for commercial loans and the swap curve adjusted for liquidity for retail loans.
Non-interest bearing deposits: The fair values disclosed are equal to their balance sheet carrying amounts, which represent the amount payable on demand.
Interest bearing deposits: The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amounts payable on demand. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies the Companys current incremental borrowing rates for similar terms.
Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings with maturities of 90 days or less approximate their fair values. The fair value of short-term borrowings greater than 90 days is based on the discounted value of contractual cash flows.
Long-term borrowings: The fair values of the Companys long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements.
Junior subordinated notes issued to capital trusts: The fair values of the Companys junior subordinated notes issued to capital trusts are estimated based on the quoted market prices, when available, of the related trust preferred security instruments, or are estimated based on the quoted market prices of comparable trust preferred securities.
Accrued interest: The carrying amount of accrued interest receivable and payable approximate their fair values.
The estimated fair values of financial instruments are as follows (in thousands):
|
|
September 30, 2012 |
| |||||||||||||
|
|
Carrying |
|
Estimated |
|
Quoted Prices |
|
Significant |
|
Significant |
| |||||
|
|
Amount |
|
Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| |||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks |
|
$ |
129,326 |
|
$ |
129,326 |
|
$ |
129,326 |
|
$ |
|
|
$ |
|
|
Interest earning deposits with banks |
|
327,301 |
|
327,301 |
|
327,301 |
|
|
|
|
| |||||
Investment securities available for sale |
|
1,814,972 |
|
1,814,972 |
|
11,231 |
|
1,797,623 |
|
6,118 |
| |||||
Investment securities held to maturity |
|
495,851 |
|
536,989 |
|
|
|
536,989 |
|
|
| |||||
Non-marketable securities - FHLB and FRB stock |
|
57,653 |
|
57,653 |
|
|
|
|
|
57,653 |
| |||||
Loans held for sale |
|
7,221 |
|
7,221 |
|
|
|
7,221 |
|
|
| |||||
Loans, net |
|
5,503,663 |
|
5,512,768 |
|
|
|
|
|
5,512,768 |
| |||||
Accrued interest receivable |
|
35,233 |
|
35,233 |
|
35,233 |
|
|
|
|
| |||||
Derivative financial instruments |
|
30,186 |
|
30,186 |
|
|
|
30,186 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Non-interest bearing deposits |
|
$ |
2,011,542 |
|
$ |
2,011,542 |
|
$ |
2,011,542 |
|
$ |
|
|
$ |
|
|
Interest bearing deposits |
|
5,467,805 |
|
5,494,724 |
|
|
|
|
|
5,494,724 |
| |||||
Short-term borrowings |
|
289,613 |
|
289,824 |
|
|
|
|
|
289,824 |
| |||||
Long-term borrowings |
|
118,798 |
|
123,152 |
|
|
|
|
|
123,152 |
| |||||
Junior subordinated notes issued to capital trusts |
|
152,065 |
|
97,028 |
|
|
|
|
|
97,028 |
| |||||
Accrued interest payable |
|
3,250 |
|
3,250 |
|
3,250 |
|
|
|
|
| |||||
Derivative financial instruments |
|
30,239 |
|
30,239 |
|
|
|
30,239 |
|
|
|
|
|
December 31, |
| ||||
|
|
2011 |
| ||||
|
|
Carrying |
|
Estimated |
| ||
|
|
Amount |
|
Fair Value |
| ||
Financial Assets: |
|
|
|
|
| ||
Cash and due from banks |
|
$ |
144,228 |
|
$ |
144,228 |
|
Interest bearing deposits with banks |
|
100,337 |
|
100,337 |
| ||
Investment securities available for sale |
|
1,929,297 |
|
1,929,297 |
| ||
Investment securities held to maturity |
|
499,283 |
|
511,022 |
| ||
Non-marketable securities - FHLB and FRB stock |
|
80,832 |
|
80,832 |
| ||
Loans held for sale |
|
4,727 |
|
4,727 |
| ||
Loans, net |
|
5,824,197 |
|
5,734,017 |
| ||
Accrued interest receivable |
|
35,870 |
|
35,870 |
| ||
Derivative financial instruments |
|
26,251 |
|
26,251 |
| ||
|
|
|
|
|
| ||
Financial Liabilities: |
|
|
|
|
| ||
Non-interest bearing deposits |
|
$ |
1,885,694 |
|
$ |
1,885,694 |
|
Interest bearing deposits |
|
5,761,913 |
|
5,790,963 |
| ||
Short-term borrowings |
|
219,954 |
|
219,983 |
| ||
Long-term borrowings |
|
266,264 |
|
279,124 |
| ||
Junior subordinated notes issued to capital trusts |
|
158,538 |
|
113,635 |
| ||
Accrued interest payable |
|
4,518 |
|
4,518 |
| ||
Derivative financial instruments |
|
26,624 |
|
26,624 |
|
NOTE 15. COMMON AND PREFERRED STOCK
The Series A Preferred Stock was issued on December 5, 2008 as part of the Troubled Asset Relief Program (TARP) Capital Purchase Program of the United States Department of the Treasury (Treasury). The Series A Preferred Stock qualified as Tier 1 capital and provided for cumulative dividends on the liquidation preference amount on a quarterly basis at a rate of 5% per annum for the first five years, and 9% per annum thereafter. Concurrent with issuing the Series A Preferred Stock, the Company issued to the Treasury a ten year warrant (the Warrant) to purchase 1,012,048 shares (subsequently reduced to 506,024 shares, as described below) of the Companys Common Stock at an exercise price of $29.05 per share.
On September 17, 2009, the Company completed a public offering of its common stock by issuing 12,578,125 shares of common stock for aggregate gross proceeds of $201.3 million. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $190.9 million. With the proceeds from this offering and the proceeds received by the Company from issuances pursuant to its Dividend Reinvestment and Stock Purchase Plan, the Company received aggregate gross proceeds from Qualified Equity Offerings in excess of the $196.0 million aggregate liquidation preference amount of the Series A Preferred Stock. As a result, the number of shares of the Companys common stock underlying the Warrant was reduced by 50%, from 1,012,048 shares to 506,024 shares.
On March 14, 2012, the Company repurchased all $196.0 million of the Series A Preferred Stock. On May 2, 2012, the Company repurchased the Warrant in full for approximately $1.5 million.
Item 2. - Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of MB Financial, Inc.s financial condition and results of operations and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. The words the Company, we, our and us refer to MB Financial, Inc. and its majority owned subsidiaries, unless we indicate otherwise.
Overview
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. The provision for credit losses is dependent on changes in our loan portfolio and managements assessment of the collectability of our loan portfolio as well as prevailing economic and market conditions. Our net income is also affected by other (non-interest) income and other expenses. During the periods under report, other income consisted of capital markets and international banking fees, commercial deposit and treasury management fees, net lease financing income, trust and asset management fees, card fees, loan service fees, retail and other deposit service fees, brokerage fees, net gain (loss) on investment securities, increase in cash surrender value of life insurance, net (loss) gain on sale of assets, accretion of the FDIC indemnification asset, net loss recognized on other real estate owned, net gain on sale of loans and other operating income. During the periods under report, other expenses included salaries and employee benefits, occupancy and equipment expense, computer services and telecommunication expense, advertising and marketing expense, professional and legal expense, other intangibles amortization expense, FDIC insurance premiums, branch impairment charges, other real estate expenses (net of rental income), prepayment fees on interest bearing liabilities and other operating expenses. Additionally, dividends and discount accretion on preferred shares reduced net income available to common stockholders through the first quarter of 2012.
Net interest income is affected by changes in the volume and mix of interest earning assets, interest earned on those assets, the volume and mix of interest bearing liabilities and interest paid on interest bearing liabilities. Other income and other expenses are impacted by growth of operations and changes in the number of loan and deposit accounts through both acquisitions and dispositions and core banking business growth. Growth in operations affects other expenses primarily as a result of additional employees, branch facilities and promotional marketing expense. Changes in the number of loan and deposit accounts affects other income, including service fees as well as other expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses. Changes in the levels of non-performing assets affect salaries and benefits because of changes in problem loan remediation staffing needs. Changes in the levels of non-performing assets also affect legal expenses and other real estate owned expenses.
The Company had net income and net income available to common stockholders of $23.1 million for the third quarter of 2012 compared to net income of $19.7 million and net income available to common stockholders of $17.1 million for the third quarter of 2011. Our 2012 third quarter results generated an annualized return on average assets of 0.97% and an annualized return on average common equity of 7.38% compared to 0.80% and 5.86%, respectively, for the same period in 2011. Fully diluted earnings per common share for the third quarter of 2012 were $0.42 compared to $0.31 for the third quarter of 2011.
On March 14, 2012, we repurchased all $196.0 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 Company recorded $12.7 million in prepayment fees on interest bearing liabilities as a result of the prepayment of certain brokered certificates of deposits and an FHLB advance in efforts to lower our future funding costs and improve our funding mix. We also repaid $6.2 million of junior subordinated notes related to the FOBB Statutory Trust I with a 10.6% interest rate.
Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which we operate. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following policies are both important to the portrayal of our financial condition and results of operations and require subjective or complex judgments; therefore, management considers the following to be critical accounting policies. Management has reviewed the application of these polices with the Audit Committee of our Board of Directors.
Allowance for Loan Losses. Subject to the use of estimates, assumptions, and judgments in managements evaluation process used to determine the adequacy of the allowance for loan losses, which combines several factors: managements ongoing review and grading of the loan portfolio, consideration of past loan loss experience, trends in past due and nonperforming loans, risk characteristics of the various classifications of loans, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management or require that adjustments be made to the allowance for loan losses, based on their judgments about information available to them at the time of their examination. We believe the allowance for loan losses is adequate and properly recorded in the financial statements. See Allowance for Loan Losses section below for further analysis.
Residual Value of Our Direct Finance, Leveraged, and Operating Leases. Lease residual value represents the present value of the estimated fair value of the leased equipment at the termination date of the lease. Realization of these residual values depends on many factors, including managements use of estimates, assumptions, and judgment to determine such values. Several other factors outside of managements control may reduce the residual values realized, including general market conditions at the time of expiration of the lease, whether there has been technological or economic obsolescence or unusual wear and tear on, or use of, the equipment and the cost of comparable equipment. If, upon the expiration of a lease, we sell the equipment and the amount realized is less than the recorded value of the residual interest in the equipment, we will recognize a loss reflecting the difference. On a quarterly basis, management reviews the lease residuals for potential impairment. If we fail to realize our aggregate recorded residual values, our financial condition and profitability could be adversely affected. At September 30, 2012, the aggregate residual value of the equipment leased under our direct finance, leveraged, and operating leases totaled $48.2 million. See Note 1 and Note 7 of the notes to our December 31, 2011 audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2011 for additional information.
Income Tax Accounting. ASC Topic 740 provides guidance on accounting for income taxes by prescribing the minimum recognition threshold that a tax position must meet to be recognized in the financial statements. ASC Topic 740 also provides guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of September 30, 2012, the Company had $93 thousand of uncertain tax positions. The Company elects to treat interest and penalties recognized for the underpayment of income taxes as income tax expense. However, interest and penalties imposed by taxing authorities on issues specifically addressed in ASC Topic 740 will be taken out of the tax reserves up to the amount allocated to interest and penalties. The amount of interest and penalties exceeding the amount allocated in the tax reserves will be treated as income tax expense. As of September 30, 2012, the Company had $10 thousand of accrued interest related to tax reserves. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations.
Fair Value of Assets and Liabilities. ASC Topic 820 defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date.
The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, the Company would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.
Goodwill. The excess of the cost of an acquisition over the fair value of the net assets acquired consists of goodwill, and core deposit and client relationship intangibles. See Note 9 of the notes to our audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2011 for additional information regarding core deposit and client relationship intangibles. The Company reviews goodwill and other intangible assets to determine potential impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired, by comparing the carrying value of the asset with the anticipated future cash flows.
The Companys annual assessment date is December 31. No impairment losses were recognized during the nine months ended September 30, 2012 and 2011.
Goodwill is tested for impairment at the reporting unit level. All of our goodwill is allocated to MB Financial, Inc., which is the Companys only applicable reporting unit for purposes of testing goodwill impairment. Fair value was computed by estimating the future cash flows of the Company and present valuing those cash flows at an interest rate equal to our cost of capital. In addition, we compared our fair value calculation with our stock price adjusted for a control premium for reasonableness relative to our fair value calculation. Key assumptions used in estimating future cash flows included loan and deposit growth, the interest rate environment, credit spreads on new and renewed loans, future deposit pricing, loan charge-offs, provision for loan losses, fee income growth and operating expense growth. Our future cash flows estimates assumed similar credit performance to what we experienced in the last two quarters of 2011.
Results of Operations
Third Quarter Results
The Company had net income and net income available to common stockholders of $23.1 million for the third quarter of 2012 compared to net income of $19.7 million and a net income available to common stockholders of $17.1 million for the third quarter of 2011. The results for the third quarter of 2012 generated an annualized return on average assets of 0.97% and an annualized return on average common equity of 7.38% compared to 0.80% and 5.86%, respectively, for the same period in 2011.
Net interest income on a tax equivalent basis was $77.3 million for the three months ended September 30, 2012, a decrease of $6.4 million, or 7.6%, from $83.7 million for the comparable period in 2011. The decrease was primarily due to a decline in the level of interest earning assets of $138.5 million and a 23 basis point decline in the net interest margin on a fully tax equivalent basis. See Net Interest Margin section below for further analysis.
Gross recoveries of $14.7 million were recorded in the third quarter of 2012, prompting a negative provision for credit losses of $13.0 million. The provision for credit losses for the third quarter of 2011 was $11.5 million. See Asset Quality below for further analysis of the allowance for loan losses.
The Company also recorded prepayment fees on the early retirement of several interest bearing liabilities during the third quarter of 2012. See Overview above.
Net income available to common stockholders was also impacted by the repurchase in the first quarter of 2012 of all $196 million of preferred stock issued in 2008 to the U.S. Department of Treasury as part of TARP. As a result, there were no dividends and discount accretion on preferred shares in the third quarter of 2012 compared to $2.6 million in the third quarter of 2011.
Other Income (in thousands):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Increase/ |
|
Percentage |
| |||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
| |||
Other income: |
|
|
|
|
|
|
|
|
| |||
Capital markets and international banking fees |
|
$ |
1,344 |
|
$ |
605 |
|
$ |
739 |
|
122 |
% |
Commercial deposit and treasury management fees |
|
5,860 |
|
6,157 |
|
(297 |
) |
(5 |
)% | |||
Lease financing, net |
|
9,671 |
|
6,494 |
|
3,177 |
|
49 |
% | |||
Trust and asset management fees |
|
4,428 |
|
4,272 |
|
156 |
|
4 |
% | |||
Card fees |
|
2,385 |
|
2,071 |
|
314 |
|
15 |
% | |||
Loan service fees |
|
1,125 |
|
1,706 |
|
(581 |
) |
(34 |
)% | |||
Retail and other deposit service fees |
|
3,792 |
|
4,123 |
|
(331 |
) |
(8 |
)% | |||
Brokerage fees |
|
1,185 |
|
1,273 |
|
(88 |
) |
(7 |
)% | |||
Net gain on investment securities |
|
281 |
|
|
|
281 |
|
NM |
| |||
Increase in cash surrender value of life insurance |
|
890 |
|
1,014 |
|
(124 |
) |
(12 |
)% | |||
Net loss on sale of assets |
|
(12 |
) |
|
|
(12 |
) |
NM |
| |||
Accretion of FDIC indemnification asset |
|
204 |
|
985 |
|
(781 |
) |
(79 |
)% | |||
Net loss recognized on other real estate owned |
|
(3,938 |
) |
(3,118 |
) |
(820 |
) |
26 |
% | |||
Net gain on sale of loans |
|
575 |
|
190 |
|
385 |
|
203 |
% | |||
Other operating income |
|
763 |
|
595 |
|
168 |
|
28 |
% | |||
Total other income |
|
$ |
28,553 |
|
$ |
26,367 |
|
$ |
2,186 |
|
8 |
% |
NM Not meaningful
Other income increased by $2.2 million for the third quarter of 2012 compared to the third quarter of 2011. Net lease financing income increased as a result of higher promotional and remarketing income as well as increased sales of equipment maintenance contracts. Capital markets and international banking fees increased due to an increase in interest rate swap fees. These increases were partly offset by the decreases in accretion of FDIC indemnification asset and loan service fees as well as an increase in the net loss recognized on other real estate. Accretion of FDIC indemnification asset decreased as accretion is recorded based on the FDIC indemnification asset balance, which has declined as we have received loss-share payments. Loan service fees decreased due to a decrease in prepayment and exit fees. Net loss recognized on other real estate owned increased due to updated appraisals with lower valuations on land and construction projects.
Other Expenses (in thousands):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Increase / |
|
Percentage |
| |||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Other expense: |
|
|
|
|
|
|
|
|
| |||
Salaries and employee benefits |
|
$ |
42,083 |
|
$ |
38,422 |
|
$ |
3,661 |
|
10 |
% |
Occupancy and equipment expense |
|
8,274 |
|
9,092 |
|
(818 |
) |
(9 |
)% | |||
Computer services and telecommunication expense |
|
3,777 |
|
3,488 |
|
289 |
|
8 |
% | |||
Advertising and marketing expense |
|
2,025 |
|
1,740 |
|
285 |
|
16 |
% | |||
Professional and legal expense |
|
1,554 |
|
1,647 |
|
(93 |
) |
(6 |
)% | |||
Other intangibles amortization expense |
|
1,251 |
|
1,414 |
|
(163 |
) |
(12 |
)% | |||
FDIC insurance premiums |
|
1,545 |
|
2,272 |
|
(727 |
) |
(32 |
)% | |||
Branch impairment charges |
|
758 |
|
|
|
758 |
|
NM |
| |||
Other real estate expense, net |
|
874 |
|
1,181 |
|
(307 |
) |
(26 |
)% | |||
Prepayment fees on interest bearing liabilities |
|
12,682 |
|
|
|
12,682 |
|
NM |
| |||
Other operating expenses |
|
6,342 |
|
7,352 |
|
(1,010 |
) |
(14 |
)% | |||
Total other expense |
|
$ |
81,165 |
|
$ |
66,608 |
|
$ |
14,557 |
|
22 |
% |
NM Not meaningful
Other expense increased by $14.6 million for the third quarter of 2012 compared to the third quarter of 2011. The Company recorded $12.7 million in prepayment fees on interest bearing liabilities as a result of the prepayment of certain brokered certificates of deposit and an FHLB advance in efforts to lower our future funding costs and improve our funding mix. Salaries and employee benefits expense increased due to annual salary increases and an increase in incentive compensation. An impairment charge of $758 thousand was recorded in third quarter of 2012 due to our decision to close a branch. Occupancy and equipment expense decreased due to decreases in real estate taxes and equipment maintenance costs. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012 and the impact of improved credit quality on the computation. Other real estate expense decreased as a result of decreased holding costs related to other real estate owned given we have fewer properties. The decrease in other operating expenses was primarily due to a decrease in the clawback liability related to our loss share agreements with the FDIC.
Income Taxes
The Company had income tax expense of $9.3 million for the three months ended September 30, 2012 compared to income tax expense of $9.0 million for the same period in 2011 due to the Companys primarily due to improvement in pre-tax income.
Year-To-Date Results
The Company had net income of $66.4 million and net income available to common stockholders of $63.1 million in the nine months ended September 30, 2012 compared to net income of $19.3 and net income available to common stockholders of $11.5 million in the nine months ended September 30, 2011. The results for the nine months ended September 30, 2012 generated an annualized return on average assets of 0.93% and an annualized return on average common equity of 6.87% compared to 0.26% and 1.32%, respectively, for the same period in 2011. The results for the nine months ended September 30, 2011 included a provision for credit losses of approximately $50 million in connection with 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, including $156.3 million in non-performing loans. The remaining decrease in provision for credit losses was primarily due to the decrease in non-performing and potential problem loan inflows as well as more recoveries in 2012.
Net interest income on a tax equivalent basis was $238.3 million for the nine months ended September 30, 2012, a decrease of $15.4 million, or 6.1%, from $253.7 million for the comparable period in 2011. The decrease was primarily due to a decline in the level of interest earning assets of $300.1 million and an 11 basis point decline in the net interest margin on a fully tax equivalent basis. See Net Interest Margin section below for further analysis.
The Company recorded a negative provision for credit losses of $9.9 million in the nine months ended September 30, 2012 compared to a provision for credit losses of $112.8 million in the nine months ended September 30, 2011. Net charge-offs were $1.1 million in the nine months ended September 30, 2012 compared to $163.1 million in the nine months ended September 30, 2011. Our provision for credit losses and net charge-offs for the nine months ended September 30, 2011 were impacted by the loan sale in the second quarter of 2011 noted earlier. See Asset Quality below for further analysis of the allowance for loan losses.
Net income available to common stockholders was also impacted by the repurchase in the first quarter of 2012 of all $196 million of preferred stock issued in 2008 to the U.S. Department of Treasury as part of the TARP. As a result, dividends and discount accretion on preferred shares decreased to $3.3 million in the nine months ended September 30, 2012 from $7.8 million in the nine months ended September 30, 2011.
Other Income (in thousands):
|
|
Nine Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Increase/ |
|
Percentage |
| |||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
| |||
Other income: |
|
|
|
|
|
|
|
|
| |||
Capital markets and international banking fees |
|
$ |
2,631 |
|
$ |
1,107 |
|
$ |
1,524 |
|
138 |
% |
Commercial deposit and treasury management fees |
|
17,545 |
|
17,643 |
|
(98 |
) |
(1 |
)% | |||
Lease financing, net |
|
23,963 |
|
19,138 |
|
4,825 |
|
25 |
% | |||
Trust and asset management fees |
|
13,367 |
|
13,158 |
|
209 |
|
2 |
% | |||
Card fees |
|
6,858 |
|
5,921 |
|
937 |
|
16 |
% | |||
Loan service fees |
|
3,459 |
|
5,286 |
|
(1,827 |
) |
(35 |
)% | |||
Retail and other deposit service fees |
|
10,790 |
|
12,373 |
|
(1,583 |
) |
(13 |
)% | |||
Brokerage fees |
|
3,704 |
|
4,307 |
|
(603 |
) |
(14 |
)% | |||
Net gain on investment securities |
|
244 |
|
229 |
|
15 |
|
7 |
% | |||
Increase in cash surrender value of life insurance |
|
2,677 |
|
3,433 |
|
(756 |
) |
(22 |
)% | |||
Net (loss) gain on sale of assets |
|
(37 |
) |
370 |
|
(407 |
) |
(110 |
)% | |||
Accretion of FDIC indemnification asset |
|
901 |
|
4,155 |
|
(3,254 |
) |
(78 |
)% | |||
Net loss recognized on other real estate owned |
|
(15,968 |
) |
(8,135 |
) |
(7,833 |
) |
96 |
% | |||
Net gain on sale of loans |
|
1,503 |
|
2,241 |
|
(738 |
) |
(33 |
)% | |||
Other operating income |
|
3,677 |
|
3,429 |
|
248 |
|
7 |
% | |||
Total other income |
|
$ |
75,314 |
|
$ |
84,655 |
|
$ |
(9,341 |
) |
(11 |
)% |
Other income decreased by $9.3 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Other income was primarily impacted by higher losses recognized on other real estate owned and a decrease in accretion of the FDIC indemnification asset, loan service fees and retail and other deposit service fees. Net loss recognized on other real estate owned increased due to updated appraisals with lower valuations on land and construction projects. Accretion of the FDIC indemnification asset is recorded based on the FDIC indemnification asset balance which has declined as we have received loss-share payments. Loan service fees decreased in the nine months ended September 30, 2012 compared to the same period in 2011 due to a decrease in loan prepayment and exit fees. Retail and other deposit service fees decreased due to a decrease in NSF fees. Net gain on sale of loans decreased due to the gain recognized during the nine months ended September 30, 2011 on several commercial real estate loans held for sale. Cash surrender value of life insurance decreased as a result of a death benefit recorded in the nine months ended September 30, 2011. These decreases were offset by increases in net lease financing, capital markets and international banking fees and card fee income. Net lease financing income increased primarily due to an increase in promotional and remarketing income as well as increased sales of equipment maintenance contracts. Capital markets and international banking fees increased due to an increase in interest rate swap fees. Card fee income increased due primarily to fees earned on prepaid cards and credit cards.
Other Expenses (in thousands):
|
|
Nine Months Ended |
|
|
|
|
| |||||
|
|
September 30, |
|
Increase / |
|
Percentage |
| |||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Other expense: |
|
|
|
|
|
|
|
|
| |||
Salaries and employee benefits |
|
$ |
122,658 |
|
$ |
114,012 |
|
$ |
8,646 |
|
8 |
% |
Occupancy and equipment expense |
|
27,032 |
|
26,969 |
|
63 |
|
0 |
% | |||
Computer services and telecommunication expense |
|
11,339 |
|
10,503 |
|
836 |
|
8 |
% | |||
Advertising and marketing expense |
|
6,021 |
|
5,207 |
|
814 |
|
16 |
% | |||
Professional and legal expense |
|
4,470 |
|
4,725 |
|
(255 |
) |
(5 |
)% | |||
Other intangibles amortization expense |
|
3,759 |
|
4,255 |
|
(496 |
) |
(12 |
)% | |||
FDIC insurance premiums |
|
6,198 |
|
9,202 |
|
(3,004 |
) |
(33 |
)% | |||
Branch impairment charges |
|
758 |
|
1,000 |
|
(242 |
) |
(24 |
)% | |||
Other real estate expense, net |
|
2,541 |
|
2,830 |
|
(289 |
) |
(10 |
)% | |||
Penalty on prepayment of borrowings |
|
12,682 |
|
|
|
12,682 |
|
NM |
| |||
Other operating expenses |
|
17,872 |
|
21,497 |
|
(3,625 |
) |
(17 |
)% | |||
Total other expense |
|
$ |
215,330 |
|
$ |
200,200 |
|
$ |
15,130 |
|
8 |
% |
NM Not meaningful
Other expense increased $15.1 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. The Company recorded $12.7 million in prepayment fees on interest bearing liabilities during the nine months ended September 30, 2012 as a result of the prepayment of certain brokered certificates of deposit and an FHLB advance in efforts to lower our future funding costs and improve our funding mix. Salaries and employee benefits expense increased primarily due to annual salary increases, higher health insurance claims and an increase in incentive compensation. Other operating expenses were favorably impacted in the nine months ended September 30, 2012 by a decrease in the clawback liability related to our loss share agreements with the FDIC. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012 and the impact of improved credit quality on the computation.
Income Taxes
The Company had income tax expense of $26.8 million for the nine months ended September 30, 2012 compared to an income tax benefit of $2.5 million for the same period in 2011 primarily due to the Companys improvement in pre-tax income.
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 September 30, |
| ||||||||||||||
|
|
2012 |
|
2011 |
| ||||||||||||
|
|
Average |
|
|
|
Yield / |
|
Average |
|
|
|
Yield / |
| ||||
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
| ||||
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans (1) (2) (3) |
|
$ |
5,350,911 |
|
$ |
65,301 |
|
4.85 |
% |
$ |
5,588,053 |
|
$ |
76,179 |
|
5.41 |
% |
Loans exempt from federal income taxes (4) |
|
284,196 |
|
3,354 |
|
4.62 |
|
239,128 |
|
2,872 |
|
4.70 |
| ||||
Taxable investment securities |
|
1,418,549 |
|
7,287 |
|
2.05 |
|
1,869,961 |
|
11,699 |
|
2.50 |
| ||||
Investment securities exempt from federal income taxes (4) |
|
843,908 |
|
11,665 |
|
5.53 |
|
456,777 |
|
6,614 |
|
5.67 |
| ||||
Other interest earning deposits |
|
483,622 |
|
312 |
|
0.26 |
|
365,723 |
|
244 |
|
0.26 |
| ||||
Total interest earning assets |
|
8,381,186 |
|
$ |
87,919 |
|
4.17 |
|
8,519,642 |
|
$ |
97,608 |
|
4.55 |
| ||
Non-interest earning assets |
|
1,134,973 |
|
|
|
|
|
1,287,919 |
|
|
|
|
| ||||
Total assets |
|
$ |
9,516,159 |
|
|
|
|
|
$ |
9,807,561 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW and money market deposit accounts |
|
$ |
2,601,181 |
|
$ |
1,026 |
|
0.16 |
% |
$ |
2,656,490 |
|
$ |
1,731 |
|
0.26 |
% |
Savings deposits |
|
796,229 |
|
181 |
|
0.09 |
|
742,334 |
|
321 |
|
0.17 |
| ||||
Time deposits |
|
2,105,389 |
|
6,167 |
|
1.17 |
|
2,461,270 |
|
8,155 |
|
1.31 |
| ||||
Short-term borrowings |
|
233,780 |
|
342 |
|
0.58 |
|
225,580 |
|
204 |
|
0.36 |
| ||||
Long-term borrowings and junior subordinated notes |
|
371,057 |
|
2,872 |
|
3.03 |
|
435,414 |
|
3,461 |
|
3.11 |
| ||||
Total interest bearing liabilities |
|
6,107,636 |
|
$ |
10,588 |
|
0.69 |
|
6,521,088 |
|
$ |
13,872 |
|
0.84 |
| ||
Non-interest bearing deposits |
|
2,020,762 |
|
|
|
|
|
1,810,501 |
|
|
|
|
| ||||
Other non-interest bearing liabilities |
|
139,915 |
|
|
|
|
|
123,391 |
|
|
|
|
| ||||
Stockholders equity |
|
1,247,846 |
|
|
|
|
|
1,352,581 |
|
|
|
|
| ||||
Total liabilities and stockholders equity |
|
$ |
9,516,159 |
|
|
|
|
|
$ |
9,807,561 |
|
|
|
|
| ||
Net interest income/interest rate spread (5) |
|
|
|
$ |
77,331 |
|
3.48 |
% |
|
|
$ |
83,736 |
|
3.71 |
% | ||
Taxable equivalent adjustment |
|
|
|
5,256 |
|
|
|
|
|
3,320 |
|
|
| ||||
Net interest income, as reported |
|
|
|
$ |
72,075 |
|
|
|
|
|
$ |
80,416 |
|
|
| ||
Net interest margin (6) |
|
|
|
|
|
3.42 |
% |
|
|
|
|
3.74 |
% | ||||
Tax equivalent effect |
|
|
|
|
|
0.25 |
% |
|
|
|
|
0.16 |
% | ||||
Net interest margin on a fully tax equivalent basis (6) |
|
|
|
|
|
3.67 |
% |
|
|
|
|
3.90 |
% |
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $749 thousand and $972 thousand for the three months ended September 30, 2012 and 2011, respectively.
(3) Loans held for sale are included in the average loan balance listed. Related interest income is included in loan interest income.
(4) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(5) 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.
(6) Net interest margin represents net interest income as a percentage of average interest earning assets.
Net interest income on a tax equivalent basis was $77.3 million for the three months ended September 30, 2012, a decrease of $6.4 million, or 7.6%, from $83.7 million for the comparable period in 2011. The decrease in net interest income was due to a lower level of average interest earning assets, which declined $138.5 million from September 30, 2011, and a 23 basis point decrease in net interest margin on a fully tax equivalent basis. The decrease in average interest earning assets was due to soft loan demand and paydowns as a result of credit remediations during the nine months ended September 30, 2012. The net interest margin on a fully tax equivalent basis during the third quarter of 2012 was 3.67% compared to 3.90% during the third quarter of 2011. The decrease in the margin was a result of lower yields on interest earning assets, as balances shifted from loans (both covered and non-covered) to cash balances maintained at the Federal Reserve and yields on covered loans declined. The decrease was offset by lower cost of funds as a result of a favorable change in the funding mix and repricing of
certificates of deposit.
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):
|
|
Nine Months Ended September 30, |
| ||||||||||||||
|
|
2012 |
|
2011 |
| ||||||||||||
|
|
Average |
|
|
|
Yield / |
|
Average |
|
|
|
Yield / |
| ||||
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
| ||||
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans (1) (2) (3) |
|
$ |
5,446,682 |
|
$ |
202,017 |
|
4.95 |
% |
$ |
5,971,977 |
|
$ |
244,219 |
|
5.47 |
% |
Loans exempt from federal income taxes (4) |
|
271,297 |
|
9,788 |
|
4.74 |
|
221,609 |
|
7,858 |
|
4.68 |
| ||||
Taxable investment securities |
|
1,554,243 |
|
27,053 |
|
2.32 |
|
1,619,182 |
|
29,741 |
|
2.45 |
| ||||
Investment securities exempt from federal income taxes (4) |
|
798,660 |
|
33,268 |
|
5.55 |
|
388,208 |
|
17,057 |
|
5.79 |
| ||||
Other interest earning deposits |
|
329,252 |
|
639 |
|
0.26 |
|
499,286 |
|
972 |
|
0.26 |
| ||||
Total interest earning assets |
|
8,400,134 |
|
$ |
272,765 |
|
4.34 |
|
8,700,262 |
|
$ |
299,847 |
|
4.61 |
| ||
Non-interest earning assets |
|
1,176,758 |
|
|
|
|
|
1,289,334 |
|
|
|
|
| ||||
Total assets |
|
$ |
9,576,892 |
|
|
|
|
|
$ |
9,989,596 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW and money market deposit accounts |
|
$ |
2,619,297 |
|
$ |
3,278 |
|
0.17 |
% |
$ |
2,686,327 |
|
$ |
6,139 |
|
0.31 |
% |
Savings deposits |
|
784,706 |
|
642 |
|
0.11 |
|
726,316 |
|
1,052 |
|
0.19 |
| ||||
Time deposits |
|
2,219,554 |
|
20,272 |
|
1.22 |
|
2,678,118 |
|
28,121 |
|
1.40 |
| ||||
Short-term borrowings |
|
225,390 |
|
910 |
|
0.54 |
|
246,201 |
|
660 |
|
0.36 |
| ||||
Long-term borrowings and junior subordinated notes |
|
393,464 |
|
9,322 |
|
3.11 |
|
443,115 |
|
10,127 |
|
3.01 |
| ||||
Total interest bearing liabilities |
|
6,242,411 |
|
$ |
34,424 |
|
0.74 |
|
6,780,077 |
|
$ |
46,099 |
|
0.91 |
| ||
Non-interest bearing deposits |
|
1,924,656 |
|
|
|
|
|
1,736,152 |
|
|
|
|
| ||||
Other non-interest bearing liabilities |
|
131,890 |
|
|
|
|
|
120,639 |
|
|
|
|
| ||||
Stockholders equity |
|
1,277,935 |
|
|
|
|
|
1,352,728 |
|
|
|
|
| ||||
Total liabilities and stockholders equity |
|
$ |
9,576,892 |
|
|
|
|
|
$ |
9,989,596 |
|
|
|
|
| ||
Net interest income/interest rate spread (5) |
|
|
|
$ |
238,341 |
|
3.60 |
% |
|
|
$ |
253,748 |
|
3.70 |
% | ||
Taxable equivalent adjustment |
|
|
|
15,069 |
|
|
|
|
|
8,720 |
|
|
| ||||
Net interest income, as reported |
|
|
|
$ |
223,272 |
|
|
|
|
|
$ |
245,028 |
|
|
| ||
Net interest margin (6) |
|
|
|
|
|
3.55 |
% |
|
|
|
|
3.77 |
% | ||||
Tax equivalent effect |
|
|
|
|
|
0.24 |
% |
|
|
|
|
0.13 |
% | ||||
Net interest margin on a fully tax equivalent basis (6) |
|
|
|
|
|
3.79 |
% |
|
|
|
|
3.90 |
% |
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $2.5 million and $3.5 million for the nine months ended September 30, 2012 and 2011, respectively.
(3) Loans held for sale are included in the average loan balance listed. Related interest income is included in loan interest income.
(4) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(5) 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.
(6) Net interest margin represents net interest income as a percentage of average interest earning assets.
Net interest income on a tax equivalent basis was $238.3 million for the nine months ended September 30, 2012, a decrease of $15.4 million, or 6.1%, from $253.7 million for the comparable period in 2011. The decrease in net interest income was due to a lower level of average interest earning assets which declined $300.1 million from September 30, 2011, and an 11 basis point decrease in the net interest margin on a fully tax equivalent basis. The net interest margin on a fully tax equivalent basis during the nine months ended September 30, 2012 was 3.79% compared to 3.90% during the nine months ended September 30, 2011. The decrease in the margin was a result of lower yields on interest earning assets, as balances shifted from loans (both covered and non-covered) to investment securities and yields on covered loans declined. The decrease was offset by lower cost of funds as a result of a favorable change in the funding mix and repricing of certificates of deposit. In addition, our non-performing loans reduced our net interest margin during the nine months ended September 30, 2012 and the nine months ended September 30, 2011 by approximately eight basis points and 15 basis points, respectively.
Balance Sheet
Total assets decreased $369.5 million, or 3.8%, from $9.8 billion at December 31, 2011 to $9.5 billion at September 30, 2012. Interest earning cash increased $227.0 million to $327.3 million at September 30, 2012 compared to $100.3 million at December 31, 2011. Investment securities decreased $140.9 million from December 31, 2011 to September 30, 2012 primarily due to cash flows on mortgage-backed securities. Total loans, excluding covered loans and loans held for sale decreased by $159.8 million, or 3.0%, to $5.1 billion at September 30, 2012 from $5.3 billion at December 31, 2011 due to soft loan demand coupled with intense competition for new loans. In addition, there were paydowns on construction and commercial real estate loans as a result of successful credit remediation.
Total liabilities decreased by $237.3 million from $8.4 billion at December 31, 2011 to $8.2 billion at September 30, 2012. Total deposits decreased by $168.3 million at September 30, 2012 from $7.6 billion at December 31, 2011. Noninterest bearing deposits increased approximately $125.8 million from December 31, 2011 to September 30, 2012 due primarily to the addition of new customers. Money market and NOW accounts increased $37.3 million and savings accounts increased $44.1 million while customer certificates of deposit balances decreased $293.2 million from the December 31, 2011 as we continued our efforts to lower our funding costs and improve our deposit mix. Part of those efforts also include the prepayment during September 2012 of $101 million in brokered certificates of deposit with a 3.16% average interest rate, a $100 million FHLB advance with a 3.85% interest rate and $6.2 million in junior subordinated notes issued to capital trust with a 10.6% interest rate.
Total stockholders equity decreased $132.2 million to $1.3 billion at September 30, 2012 compared to $1.4 billion at December 31, 2011 as a result of the repurchase of all $196.0 million of preferred stock issued as part of TARP in the first quarter of 2012. During the second quarter of 2012, we repurchased in full the ten-year warrant held by the U.S. Department of Treasury to purchase 506,024 shares of the Companys common stock issued to the Treasury as part of TARP. The price paid by the Company to repurchase the warrant was $1.5 million. Theses repurchases were partly offset by earnings of $66.4 million for the nine months ended September 30, 2012.
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):
|
|
September 30, |
|
December 31, |
|
September 30, |
| |||||||||
|
|
2012 |
|
2011 |
|
2011 |
| |||||||||
|
|
Amount |
|
% of |
|
Amount |
|
% of |
|
Amount |
|
% of |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Commercial related credits: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Commercial loans |
|
$ |
1,073,981 |
|
19 |
% |
$ |
1,113,123 |
|
19 |
% |
$ |
1,042,583 |
|
18 |
% |
Commercial loans collateralized by assignment of lease payments |
|
1,219,361 |
|
22 |
% |
1,208,575 |
|
20 |
% |
1,067,191 |
|
18 |
% | |||
Commercial real estate |
|
1,770,261 |
|
31 |
% |
1,853,788 |
|
31 |
% |
1,844,894 |
|
32 |
% | |||
Construction real estate |
|
149,872 |
|
3 |
% |
183,789 |
|
3 |
% |
210,206 |
|
4 |
% | |||
Total commercial related credits |
|
4,213,475 |
|
75 |
% |
4,359,275 |
|
73 |
% |
4,164,874 |
|
72 |
% | |||
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Residential real estate |
|
308,866 |
|
5 |
% |
316,787 |
|
5 |
% |
316,305 |
|
5 |
% | |||
Indirect vehicle |
|
206,973 |
|
3 |
% |
187,481 |
|
3 |
% |
189,033 |
|
4 |
% | |||
Home equity |
|
314,718 |
|
6 |
% |
336,043 |
|
6 |
% |
348,934 |
|
6 |
% | |||
Consumer loans |
|
84,651 |
|
2 |
% |
88,865 |
|
2 |
% |
76,025 |
|
1 |
% | |||
Total other loans |
|
915,208 |
|
16 |
% |
929,176 |
|
16 |
% |
930,297 |
|
16 |
% | |||
Gross loans excluding covered loans |
|
5,128,683 |
|
91 |
% |
5,288,451 |
|
89 |
% |
5,095,171 |
|
88 |
% | |||
Covered loans (1) |
|
496,162 |
|
9 |
% |
662,544 |
|
11 |
% |
718,566 |
|
12 |
% | |||
Total loans (2) |
|
$ |
5,624,845 |
|
100 |
% |
$ |
5,950,995 |
|
100 |
% |
$ |
5,813,737 |
|
100 |
% |
(1) Loans subject to loss-share with the FDIC are referred to as covered loans.
(2) Gross loan balances at September 30, 2012, December 31, 2011 and September 30, 2011 are net of unearned income, including net deferred loan fees of $955 thousand, $1.0 million, and $1.4 million, respectively.
Asset Quality
The following table presents a summary of non-performing assets, excluding purchased credit-impaired loans and loans held for sale, as of the dates indicated (dollar amounts in thousands):
|
|
September 30, |
|
December 31, |
|
September 30, |
| |||
|
|
2012 |
|
2011 |
|
2011 |
| |||
Non-performing loans:(1) |
|
|
|
|
|
|
| |||
Non-accrual loans |
|
$ |
104,813 |
|
$ |
129,309 |
|
$ |
140,979 |
|
Loans 90 days or more past due, still accruing interest |
|
470 |
|
82 |
|
|
| |||
Total non-performing loans |
|
105,283 |
|
129,391 |
|
140,979 |
| |||
|
|
|
|
|
|
|
| |||
Other real estate owned(2) |
|
42,427 |
|
78,452 |
|
87,469 |
| |||
Repossessed vehicles |
|
113 |
|
156 |
|
249 |
| |||
Total non-performing assets |
|
$ |
147,823 |
|
$ |
207,999 |
|
$ |
228,697 |
|
|
|
|
|
|
|
|
| |||
Total allowance for loan losses |
|
$ |
121,182 |
|
$ |
126,798 |
|
$ |
128,610 |
|
|
|
|
|
|
|
|
| |||
Accruing restructured loans (3) |
|
$ |
17,929 |
|
$ |
37,996 |
|
$ |
34,321 |
|
|
|
|
|
|
|
|
| |||
Total non-performing loans to total loans |
|
1.87 |
% |
2.17 |
% |
2.42 |
% | |||
Total non-performing assets to total assets |
|
1.56 |
% |
2.12 |
% |
2.30 |
% | |||
Allowance for loan losses to non-performing loans(1) |
|
115.10 |
% |
98.00 |
% |
91.23 |
% |
(1) This table excludes purchased credit-impaired loans that were acquired as part of the Heritage (completed in 2009), InBank (completed in 2009), Benchmark (completed in 2009), Broadway Bank (completed in 2010), and New Century Bank (completed in 2010) FDIC-assisted transactions. Purchased credit-impaired loans have evidence of deterioration in credit quality prior to acquisition. This table also excludes loans held for sale.
(2) This table excludes other real estate owned that related to FDIC-assisted transactions. Other real estate owned related to these transactions totaled $32.6 million at September 30, 2012, $60.4 million at December 31, 2011, and $69.3 million at September 30, 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 decrease in accruing restructured loans from December 31, 2011 to September 30, 2012 related primarily to a significant paydown on a commercial real estate loan.
A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that leads to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. A loan that is modified at a market rate of interest may no longer be classified as troubled debt restructuring in the calendar year subsequent to the restructuring if it is in compliance with the modified terms. Payment performance prior and subsequent to the restructuring is taken into account in assessing whether it is likely that the borrower can meet the new terms. This may result in the loan being returned to accrual at the time of restructuring. A period of sustained repayment for at least six months generally is required for return to accrual status.
The following table represents a summary of other real estate owned (OREO), excluding assets acquired in FDIC-assisted transactions, for the nine months ended September 30, 2012 and 2011 (in thousands):
|
|
September 30, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Balance at beginning of period |
|
$ |
78,452 |
|
$ |
71,476 |
|
Transfers in at fair value less estimated costs to sell |
|
2,724 |
|
55,604 |
| ||
Capitalized OREO costs |
|
2,304 |
|
982 |
| ||
Fair value adjustments |
|
(13,919 |
) |
(7,255 |
) | ||
Net gains on sales of OREO |
|
1,264 |
|
903 |
| ||
Cash received upon disposition |
|
(28,398 |
) |
(34,241 |
) | ||
Balance at end of period |
|
$ |
42,427 |
|
$ |
87,469 |
|
The following table presents data related to non-performing loans, excluding purchased credit-impaired loans, by dollar amount and category at September 30, 2012 (dollar amounts in thousands):
|
|
Commercial and Lease |
|
Construction Real Estate |
|
Commercial Real Estate |
|
Consumer |
|
Total Loans |
| |||||||||||
|
|
Number of |
|
Amount |
|
Number of |
|
Amount |
|
Number of |
|
Amount |
|
Amount |
|
Amount |
| |||||
$10.0 million or more |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$5.0 million to $9.9 million |
|
1 |
|
6,022 |
|
|
|
|
|
|
|
|
|
|
|
6,022 |
| |||||
$1.5 million to $4.9 million |
|
3 |
|
6,996 |
|
|
|
|
|
10 |
|
28,920 |
|
|
|
35,916 |
| |||||
Under $1.5 million |
|
36 |
|
9,630 |
|
4 |
|
1,225 |
|
83 |
|
26,467 |
|
26,023 |
|
63,345 |
| |||||
|
|
40 |
|
$ |
22,648 |
|
4 |
|
$ |
1,225 |
|
93 |
|
$ |
55,387 |
|
$ |
26,023 |
|
$ |
105,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Percentage of individual loan category |
|
|
|
0.99 |
% |
|
|
0.82 |
% |
|
|
3.13 |
% |
2.84 |
% |
1.87 |
% |
Consumer non-performing loans increased $11.3 million to $26.0 million at September 30, 2012 compared to December 31, 2011, which was primarily due to the increase in restructured consumer loans.
The following table presents data related to non-performing loans, excluding purchased credit-impaired loans, by dollar amount and category at December 31, 2011 (dollar amounts in thousands):
|
|
Commercial and Lease |
|
Construction Real Estate |
|
Commercial Real Estate |
|
Consumer |
|
Total Loans |
| |||||||||||
|
|
Number of |
|
Amount |
|
Number of |
|
Amount |
|
Number of |
|
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 |
% |
Allowance for Loan Losses
Management believes the allowance for loan losses accounting policy is critical to the portrayal and understanding of our financial condition and results of operations. Selection and application of this critical accounting policy involves judgments, estimates, and uncertainties that are subject to change. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable possibility.
We maintain our allowance for loan losses at a level that management believes is appropriate to absorb probable losses on existing loans based on an evaluation of the collectability of loans, underlying collateral and prior loss experience.
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. Each element is discussed below.
General Loss Reserve. We maintain a general loan loss reserve for the four categories of commercial-related loans in our portfolio - commercial loans, commercial loans collateralized by the assignment of lease payments (lease loans), commercial real estate loans and construction real estate loans. Under our loan risk rating system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is risk rated between one and nine by the originating loan officer, Senior Credit Management, Loan Review or any loan committee. Loans rated one represent those loans least likely to default and a loan rated nine represents a loss. The probability of loans defaulting for each risk rating, sometimes referred to as default factors, are estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time. We use a loan loss reserve model that incorporates the migration of loan risk ratings and historical default data over a multi-year period to develop our estimated default factors (EDFs). The model tracks annual loan rating migrations by loan type and currently uses loan risk rating migrations for ten years. The migration data is adjusted by using average losses for an economic cycle to develop EDFs by loan type, risk rating and maturity. EDFs are updated annually in December. During 2011, we shortened the period of time used in computing average losses for an economic cycle to ten years.
Estimated loan default factors are multiplied by individual loan balances in each risk-rating category and again multiplied by an historical loss given default estimate for each loan type (which incorporates estimated recoveries) to determine an appropriate level of allowance by loan type. This approach is applied to the commercial, lease, commercial real estate, and construction real estate components of the portfolio.
To account for current economic conditions, the general allowance for loan and lease losses (ALLL) also includes adjustments for macroeconomic factors. Macroeconomic factors adjust the ALLL upward or downward based on the current point in the economic cycle using predictive economic data and are applied to the loan loss model through a separate allowance element for the commercial, commercial real estate, construction real estate and lease loan components. Our macroeconomic factors are developed using regression analyses to select economic indicators that have a high correlation with industry-wide charge-off rates. The correlation of over 25 indicators to charge-offs were tested (change in fed funds rate, change in personal income, durable goods orders, etc.). We annually review this data to determine that such a correlation continues to exist. We currently use the following macroeconomic indicators in our macroeconomic factor computation:
Commercial and industrial loans and lease loans: Crude oil prices, our prior period charge-off rates and the manufacturing index.
Commercial real estate loans and construction loans: Crude oil prices, our prior period charge-off rates and the consumer confidence index.
Using the indicators noted above, a predicted industry wide charge-off rate is calculated. The predicted charge-off percentage is then compared to the cycle average charge-off percentage used in our EDF computation discussed above, and a macroeconomic adjustment factor is calculated. The macroeconomic adjustment factor is applied to each commercial loan type. Each year, we review the predictive nature of the macroeconomic factors by comparing actual charge-offs to the predicted model charge-offs, re-run our regression analysis and re-calibrate the macroeconomic factors as appropriate.
The general loss reserve was $95.6 million as of September 30, 2012 and $102.2 million as of December 31, 2011. The decrease in the general reserve was primarily the result of improving overall credit quality in the portfolio. Reserves on impaired loans are included in the Specific Reserve section below.
Specific Reserves. Our allowance for loan losses also includes specific reserves on impaired loans. A loan is considered to be impaired when management believes, after considering collection efforts and other factors, the borrowers financial condition is such that the collection of all contractual principal and interest payments due is doubtful.
At each quarter-end, impaired loans are reviewed individually, with adjustments made to the general calculated reserve for each loan as deemed necessary. Specific adjustments are made depending on expected cash flows and/or the value of the collateral securing each loan. Generally, the Company obtains a current external appraisal (within 12 months) on real estate secured impaired loans. Our appraisal policy is designed to comply with the Interagency Appraisal and Evaluation Guidelines, most recently updated on December 2010. As part of our compliance with these other regulations, we maintain an internal Appraisal Review Department that engages and reviews all third party appraisals.
For impaired loans with real estate as all or part of the collateral, third party appraisals are obtained at least annually. The only exception occurs where we are in a junior position and it is determined that the amount of the senior mortgage (when known) far exceeds a reasonable value for the property. The real estate portion of the collateral is estimated to have no value under this exception. Other valuation techniques are used as well, including internal valuations, comparable property analyses and contractual sales information.
In addition, each impaired loan with real estate collateral is reviewed quarterly by the Chief Real Estate Appraiser to determine that the most recent valuation remains appropriate during subsequent quarters until the next appraisal is received. If considered necessary by the Chief Real Estate Appraiser, the appraised value may be further discounted by internally applying accepted appraisal methodologies to an older appraisal. Accepted appraisal methodologies include: income capitalization approach adjusting for changes in underlying leases, adjustments related to condominium projects with units sales, adjustments for loan fundings, and As is compared to As Stabilized valuations. As of September 30, 2012, almost all appraisals were completed within the previous 12 months.
Other valuation techniques are also used to value non-real estate assets. Discounts may be applied in the impairment analysis used for general business assets (GBA). Examples of GBA include accounts receivable, inventory, and any marketable securities pledged. The discount is used to reflect collection risk in the event of default that may not have been included in the valuation of the asset.
The total specific reserve component of the allowance was $11.3 million as of September 30, 2012 and $10.8 million as of December 31, 2011.
Smaller Balance Homogenous Loans. Pools of homogeneous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include consumer, residential real estate, home equity and indirect vehicle loans. Migration probabilities obtained from past due roll rate analyses are applied to current balances to forecast charge-offs over a one-year time horizon. The reserves for smaller balance homogenous loans totaled $14.3 million at September 30, 2012 and $13.8 million at December 31, 2011.
We consistently apply our methodology for determining the appropriateness of the allowance for loan losses, but may adjust our methodologies and assumptions based on historical information related to charge-offs and managements evaluation of the loan portfolio. In this regard, we periodically review the following in order to validate our allowance for loan losses: historical net charge-offs as they relate to prior allowance for loan loss, comparison of historical loan migration in past years compared to the current year, overall credit trends and ratios and any significant changes in loan concentrations. In reviewing this data, we adjust qualitative factors within our allowance methodology to appropriately reflect any changes warranted by the validation process.
A reconciliation of the activity in the allowance for credit and loan losses follows (dollar amounts in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Balance at the beginning of period |
|
$ |
128,840 |
|
$ |
147,107 |
|
$ |
135,975 |
|
$ |
192,217 |
|
Provision for credit losses |
|
(13,000 |
) |
11,500 |
|
(9,900 |
) |
112,750 |
| ||||
Charge-offs: |
|
|
|
|
|
|
|
|
| ||||
Commercial loans |
|
(75 |
) |
(3,497 |
) |
(2,065 |
) |
(14,639 |
) | ||||
Commercial loans collateralized by assignment of lease payments (lease loans) |
|
|
|
|
|
(1,720 |
) |
(93 |
) | ||||
Commercial real estate loans |
|
(2,994 |
) |
(7,815 |
) |
(8,412 |
) |
(92,840 |
) | ||||
Construction real estate |
|
(71 |
) |
(6,008 |
) |
(3,951 |
) |
(45,928 |
) | ||||
Residential real estate |
|
(474 |
) |
(141 |
) |
(1,876 |
) |
(11,783 |
) | ||||
Indirect vehicle |
|
(433 |
) |
(611 |
) |
(1,636 |
) |
(1,882 |
) | ||||
Home equity |
|
(1,209 |
) |
(1,605 |
) |
(3,157 |
) |
(9,005 |
) | ||||
Consumer loans |
|
(332 |
) |
(475 |
) |
(864 |
) |
(1,363 |
) | ||||
Total charge-offs |
|
(5,588 |
) |
(20,152 |
) |
(23,681 |
) |
(177,533 |
) | ||||
Recoveries: |
|
|
|
|
|
|
|
|
| ||||
Commercial loans |
|
306 |
|
1,413 |
|
2,730 |
|
4,736 |
| ||||
Commercial loans collateralized by assignment of lease payments (lease loans) |
|
111 |
|
5 |
|
460 |
|
224 |
| ||||
Commercial real estate loans |
|
12,893 |
|
739 |
|
16,116 |
|
2,585 |
| ||||
Construction real estate |
|
752 |
|
681 |
|
1,458 |
|
5,071 |
| ||||
Residential real estate |
|
8 |
|
7 |
|
230 |
|
40 |
| ||||
Indirect vehicle |
|
224 |
|
327 |
|
835 |
|
1,021 |
| ||||
Home equity |
|
303 |
|
151 |
|
423 |
|
218 |
| ||||
Consumer loans |
|
77 |
|
83 |
|
280 |
|
532 |
| ||||
Total recoveries |
|
14,674 |
|
3,406 |
|
22,532 |
|
14,427 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total net recoveries (charge-offs) |
|
9,086 |
|
(16,746 |
) |
(1,149 |
) |
(163,106 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Allowance for credit losses |
|
124,926 |
|
141,861 |
|
124,926 |
|
141,861 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Allowance for unfunded credit commitments |
|
(3,744 |
) |
(13,251 |
) |
(3,744 |
) |
(13,251 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Allowance for loan losses |
|
$ |
121,182 |
|
$ |
128,610 |
|
$ |
121,182 |
|
$ |
128,610 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total loans, excluding loans held for sale |
|
$ |
5,624,845 |
|
$ |
5,813,737 |
|
$ |
5,624,845 |
|
$ |
5,813,737 |
|
Average loans, excluding loans held for sale |
|
$ |
5,630,232 |
|
$ |
5,827,181 |
|
$ |
5,714,657 |
|
$ |
6,191,268 |
|
|
|
|
|
|
|
|
|
|
| ||||
Ratio of allowance for loan losses to total loans, excluding loans held for sale |
|
2.15 |
% |
2.21 |
% |
2.15 |
% |
2.21 |
% | ||||
Net loan charge-offs to average loans, excluding loans held for sale (annualized) |
|
-0.64 |
% |
1.14 |
% |
0.03 |
% |
3.52 |
% |
Gross recoveries of $14.7 million were recorded in the three months ended September 30, 2012, prompting a negative provision for credit losses of $13.0 million. The provision for credit losses was $11.5 million for the three months ended September 30, 2011. The results for the nine months ended September 30, 2011 include a provision for credit losses of approximately $50 million in connection with the sale, as noted earlier, during the quarter ended June 30, 2011 of loans with an aggregate carrying amount of $281.6 million prior to the transfer to loans held for sale, including $156.3 million in non-performing loans. The sale resulted in charge-offs of approximately $87.6 million, which impacted all loan types. The remaining decrease in provision for credit losses was primarily due to the decrease in non-performing and potential problem loan inflows as well as more recoveries in 2012.
Additions to the allowance for loan losses, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including specific reserves, current loan risk ratings, delinquent loans, historical loss experience and economic conditions in our market area. In addition, federal regulatory authorities, as part of the examination process, periodically review our allowance for loan losses. The regulators may require us to record adjustments to the allowance level based upon their assessment of the information available to them at the time of examination. Although management believes the allowance for loan losses is sufficient to cover probable
losses inherent in the loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan losses.
We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At scheduled meetings of the board of directors of MB Financial Bank, a watch list is presented, showing significant loan relationships listed as Special Mention, Substandard, and Doubtful. An asset is classified Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and viewed as valueless assets and have been charged-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve managements close attention are deemed to be Special Mention.
Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Office of the Comptroller of the Currency, MB Financial Banks primary regulator, which can order the establishment of additional general or specific loss allowances. There can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially adjust our allowance for loan losses. The Office of the Comptroller of the Currency, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (1) institutions have effective systems and controls to identify, monitor and address asset quality problems; (2) management has analyzed all significant factors that affect the collectability of the portfolio in a reasonable manner; and (3) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. We analyze our process regularly, with modifications made if needed, and report those results four times per year at meetings of our board of directors. However, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially adjust our allowance for loan losses at the time of their examination.
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.
Potential Problem Loans
We define potential problem loans as performing loans rated substandard and that do not meet the definition of a non-performing loan (See Asset Quality section above for non-performing loans). We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amounts of potential problem loans as of September 30, 2012 and December 31, 2011 were approximately $134.3 million and $149.8 million, respectively. As of September 30, 2012, potential problem loans included $73.9 million and $37.9 million in commercial real estate and commercial loans, respectively. Management believes it has established an adequate allowance for probable loan losses as appropriate under GAAP.
Lease Investments
The lease portfolio is comprised of various types of equipment, generally technology related, including computer systems and satellite equipment, material handling and general manufacturing equipment. The credit quality of the lessee is often an investment grade public debt rating by Moodys or Standard & Poors, or the equivalent as determined by us, and at times below investment grade.
Lease investments by categories follow (in thousands):
|
|
September 30, |
|
December 31, |
|
September 30, |
| |||
|
|
2012 |
|
2011 |
|
2011 |
| |||
Direct finance leases: |
|
|
|
|
|
|
| |||
Minimum lease payments |
|
$ |
49,395 |
|
$ |
56,744 |
|
$ |
55,561 |
|
Estimated unguaranteed residual values |
|
5,919 |
|
6,681 |
|
6,397 |
| |||
Less: unearned income |
|
(4,538 |
) |
(5,349 |
) |
(5,308 |
) | |||
Direct finance leases (1) |
|
$ |
50,776 |
|
$ |
58,076 |
|
$ |
56,650 |
|
|
|
|
|
|
|
|
| |||
Leveraged leases: |
|
|
|
|
|
|
| |||
Minimum lease payments |
|
$ |
27,072 |
|
$ |
21,907 |
|
$ |
20,468 |
|
Estimated unguaranteed residual values |
|
2,606 |
|
2,702 |
|
2,853 |
| |||
Less: unearned income |
|
(2,397 |
) |
(2,004 |
) |
(2,051 |
) | |||
Less: related non-recourse debt |
|
(25,655 |
) |
(20,629 |
) |
(19,251 |
) | |||
Leveraged leases (1) |
|
$ |
1,626 |
|
$ |
1,976 |
|
$ |
2,019 |
|
|
|
|
|
|
|
|
| |||
Operating leases: |
|
|
|
|
|
|
| |||
Equipment, at cost |
|
$ |
206,798 |
|
$ |
242,453 |
|
$ |
240,444 |
|
Less: accumulated depreciation |
|
(93,618 |
) |
(106,963 |
) |
(107,099 |
) | |||
Lease investments, net |
|
$ |
113,180 |
|
$ |
135,490 |
|
$ |
133,345 |
|
(1) Direct finance and leveraged leases are included as commercial loans collateralized by assignment of lease payments for financial statement purposes.
Leases that transfer substantially all of the benefits and risk related to the equipment ownership to the lessee are classified as direct financing. If these direct finance leases have non-recourse debt associated with them, they are further classified as leveraged leases, and the associated debt is netted with the outstanding balance in the consolidated financial statements. Interest income on direct finance and leveraged leases is recognized using methods which approximate a level yield over the term of the lease.
Operating leases are investments in equipment leased to other companies, where the residual component makes up more than 10% of the investment. The Company funds most of the lease equipment purchases internally, but has some loans at other banks which totaled $23.8 million at September 30, 2012, $31.0 million at December 31, 2011 and $32.3 million at September 30, 2011.
The lease residual value represents the present value of the estimated fair value of the leased equipment at the termination of the lease. Lease residual values are reviewed quarterly and any write-downs, or charge-offs deemed necessary are recorded in the period in which they become known. Gains on leased equipment periodically result when a lessee renews a lease or purchases the equipment at the end of a lease, or the equipment is sold to a third party at a profit. Individual lease transactions can, however, result in a loss. This generally happens when, at the end of a lease, the lessee does not renew the lease or purchase the equipment. To mitigate this risk of loss, we usually limit individual leased equipment residuals (expected lease book values at the end of initial lease terms) to approximately $500 thousand per transaction and seek to diversify both the type of equipment leased and the industries in which the lessees to whom such equipment is leased participate. Often times, there are several individual lease schedules under one master lease. There were 2,357 leases at September 30, 2012 compared to 2,668 leases at December 31, 2011 and 2,621 leases at September 30, 2011. The average residual value per lease schedule was approximately $20 thousand at September 30, 2012 compared to $21 thousand at December 31, 2011 and $21 thousand at September 30, 2011. The average residual value per master lease schedule was approximately $159 thousand at September 30, 2012, $166 thousand at December 31, 2011 and $176 thousand at September 30, 2011.
At September 30, 2012, the following reflects the residual values for leases by category in the year the initial lease term ends (in thousands):
|
|
Residual Values |
| ||||||||||
|
|
Direct |
|
|
|
|
|
|
| ||||
|
|
Finance |
|
Leveraged |
|
Operating |
|
|
| ||||
|
|
Leases |
|
Leases |
|
Leases |
|
Total |
| ||||
End of initial lease term December 31, |
|
|
|
|
|
|
|
|
| ||||
2012 |
|
$ |
785 |
|
$ |
44 |
|
$ |
5,457 |
|
$ |
6,286 |
|
2013 |
|
1,684 |
|
633 |
|
6,451 |
|
8,768 |
| ||||
2014 |
|
2,002 |
|
880 |
|
10,662 |
|
13,544 |
| ||||
2015 |
|
796 |
|
891 |
|
7,388 |
|
9,075 |
| ||||
2016 |
|
331 |
|
158 |
|
6,887 |
|
7,376 |
| ||||
Thereafter |
|
321 |
|
|
|
2,796 |
|
3,117 |
| ||||
|
|
$ |
5,919 |
|
$ |
2,606 |
|
$ |
39,641 |
|
$ |
48,166 |
|
Investment Securities
The following table sets forth the amortized cost and fair value of our investment securities, by type of security as indicated (in thousands):
|
|
September 30, 2012 |
|
December 31, 2011 |
|
September 30, 2011 |
| ||||||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
| ||||||
|
|
Cost |
|
Value |
|
Cost |
|
Value |
|
Cost |
|
Value |
| ||||||
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government sponsored agencies and enterprises |
|
$ |
39,233 |
|
$ |
42,187 |
|
$ |
39,640 |
|
$ |
42,401 |
|
$ |
53,016 |
|
$ |
56,007 |
|
States and political subdivisions |
|
620,489 |
|
668,966 |
|
500,979 |
|
535,660 |
|
366,651 |
|
394,279 |
| ||||||
Residential mortgage-backed securities |
|
1,009,509 |
|
1,021,983 |
|
1,256,696 |
|
1,281,806 |
|
1,348,460 |
|
1,369,967 |
| ||||||
Commercial mortgage-backed securities |
|
51,156 |
|
53,979 |
|
51,324 |
|
52,685 |
|
51,341 |
|
51,822 |
| ||||||
Corporate bonds |
|
16,617 |
|
16,626 |
|
5,899 |
|
5,899 |
|
5,899 |
|
5,899 |
| ||||||
Equity securities |
|
10,644 |
|
11,231 |
|
10,457 |
|
10,846 |
|
10,324 |
|
10,764 |
| ||||||
|
|
1,747,648 |
|
1,814,972 |
|
1,864,995 |
|
1,929,297 |
|
1,835,691 |
|
1,888,738 |
| ||||||
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
States and political subdivisions |
|
238,211 |
|
259,950 |
|
240,183 |
|
247,664 |
|
240,839 |
|
243,487 |
| ||||||
Residential mortgage-backed securities |
|
257,640 |
|
277,039 |
|
259,100 |
|
263,358 |
|
258,199 |
|
263,867 |
| ||||||
|
|
495,851 |
|
536,989 |
|
499,283 |
|
511,022 |
|
499,038 |
|
507,354 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
2,243,499 |
|
$ |
2,351,961 |
|
$ |
2,364,278 |
|
$ |
2,440,319 |
|
$ |
2,334,729 |
|
$ |
2,396,092 |
|
Liquidity and Sources of Capital
Our cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.
Cash flows from operating activities primarily include results of operations for the period, adjusted for items in net income that did not impact cash. Net cash provided by operating activities decreased by $110.7 million to $112.5 million for the nine months ended September 30, 2012 from the nine months ended September 30, 2011, primarily as a result of lower provision for credit losses.
Cash flows from investing activities reflects the impact of loans and investments acquired for the Companys interest-earning asset portfolios, as well as cash flows from asset sales. For the nine months ended September 30, 2012, the Company had net cash flows provided by investing activities of $554.3 million compared to net cash flows used in investing activities $125.2 million for the nine months ended September 30, 2011. This change in cash flows was mainly the result of fewer purchases of investment securities in the nine months ended September 30, 2012 compared to the same period in the prior year.
Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. For the nine months ended September 30, 2012, the Company had net cash flows used in financing activities of $454.7 million compared to $461.3 million for the nine months ended September 30, 2011. The change in cash flows from financing activities was primarily due to less of a decrease in deposits partially offset
by the repurchase in the first quarter of 2012 of the preferred stock issued to the U.S. Department of Treasury as part of the TARP Capital Purchase Program and the prepayment of the $100.0 million FHLB advance.
We expect to have adequate cash to meet our liquidity needs. Liquidity management is monitored by an Asset/Liability Management Committee, consisting of members of management, which review historical funding requirements, current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.
The Company has numerous sources of liquidity including readily marketable investment securities, shorter-term loans within the loan portfolio, principal and interest cash flows from investments and loans, the ability to attract retail and public fund time deposits and to purchase brokered time deposits.
In the event that additional short-term liquidity is needed or the Company is unable to retain brokered deposits, MB Financial Bank has established relationships with several large regional banks to provide short-term borrowings in the form of federal funds purchases. While at September 30, 2012, there were no firm lending commitments in place, management believes that MB Financial Bank could borrow approximately $255.0 million for a short time from these banks on a collective basis. MB Financial Bank is a member of Federal Home Loan Bank of Chicago (FHLB). As of September 30, 2012, MB Financial Bank had $23.8 million outstanding in FHLB advances and could borrow an additional amount of approximately $532.9 million. As a contingency plan for significant funding needs, the Asset/Liability Management Committee may also consider the sale of investment securities, selling securities under agreement to repurchase, or the temporary curtailment of lending activities. As of September 30, 2012, the Company had approximately $1.2 billion of unpledged securities, excluding securities available for pledge at the FHLB.
See Notes 9 and 10 of the Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. There were no material changes outside the ordinary course of business in the Companys contractual obligations at September 30, 2012 as compared to December 31, 2011.
At September 30, 2012, the Companys total risk-based capital ratio was 17.91%; Tier 1 capital to risk-weighted assets ratio was 15.83% and Tier 1 capital to average asset ratio was 10.60%. MB Financial Banks total risk-based capital ratio was 17.13%; Tier 1 capital to risk-weighted assets ratio was 15.04% and Tier 1 capital to average asset ratio was 10.07%. MB Financial Bank, N.A. was categorized as Well-Capitalized at September 30, 2012 under the regulations of the Office of the Comptroller of the Currency.
Non-GAAP Financial Information
This report 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 net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. 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. The tax equivalent adjustment to net interest income 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. These disclosures 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. Reconciliations of net interest income on a fully tax equivalent basis to net interest income and net interest margin on a fully tax equivalent basis to net interest margin are contained in the tables under Net Interest Margin.
Forward-Looking Statements
When used in this Quarterly Report on Form 10-Q and in other filings with the Securities and Exchange Commission, in press releases or other public shareholder 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 MB Financial, Inc.s 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 (the Dodd-Frank Act) and regulations adopted thereunder, any changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.
We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
Market Risk. Market risk is the risk that the market value or estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes. Market risk is managed operationally in our Treasury Group, and is addressed through a selection of funding and hedging instruments supporting balance sheet assets, as well as monitoring our asset investment strategies.
Asset Liability Management. Management and our Treasury Group continually monitor our sensitivity to interest rate changes. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The strategy we employ to manage our interest rate risk is to measure our risk using an asset/liability simulation model. The model considers several factors to determine our potential exposure to interest rate risk, including measurement of repricing gaps, duration, convexity, value at risk, and the market value of portfolio equity under assumed changes in the level of interest rates, shape of the yield curves, and general market volatility. Management controls our interest rate exposure using several strategies, which include adjusting the maturities of securities in our investment portfolio, and limiting fixed rate loans or fixed rate deposits with terms of more than five years. We also use derivative
instruments, principally interest rate swaps, to manage our interest rate risk. See Note 12 to the Consolidated Financial Statements.
Interest Rate Risk. Interest rate risk can come in a variety of forms, including repricing risk, yield curve risk, basis risk, and prepayment risk. We experience repricing risk when the change in the average yield of either our interest earning assets or interest bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of our assets and liabilities.
In the event that yields on our assets and liabilities do adjust to changes in market rates to the same extent, we may still be exposed to yield curve risk. Yield curve risk reflects the possibility the changes in the shape of the yield curve could have different effects on our assets and liabilities.
Variable or floating rate, assets and liabilities that reprice at similar times and have base rates of similar maturity may still be subject to interest rate risk. If financial instruments have different base rates, we are subject to basis risk reflecting the possibility that the spread from those base rates will deviate.
We hold mortgage-related investments, including mortgage loans and mortgage-backed securities. Prepayment risk is associated with mortgage-related investments and results from homeowners ability to pay off their mortgage loans prior to maturity. We limit this risk by restricting the types of mortgage-backed securities we may own to those with limited average life changes under certain interest-rate shock scenarios, or securities with embedded prepayment penalties. We also limit the fixed rate mortgage loans held with maturities greater than five years.
Measuring Interest Rate Risk. As noted above, interest rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The following table sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at September 30, 2012 that we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined based on the earlier of the term to repricing or the term to repayment of the asset or liability. The table is intended to provide an approximation of the projected repricing of assets and liabilities at September 30, 2012 based on contractual maturities and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be reinvested and/or repriced because of contractual amortization and rate adjustments on adjustable-rate loans. Loan and investment securities contractual maturities and amortization reflect expected prepayment assumptions. While NOW, money market and savings deposit accounts have adjustable rates, it is assumed that the interest rates on some of the accounts will not adjust immediately to changes in other interest rates.
Therefore, the information in the table is calculated assuming that NOW, money market and savings deposits will reprice as follows: 4%, 10% and 5%, respectively, in the first three months, 12%, 26% and 15%, respectively, in the next nine months, 52%, 58% and 57%, respectively, from one year to five years, and 32%, 6% and 23%, respectively over five years (dollars in thousands):
|
|
Time to Maturity or Repricing |
| |||||||||||||
|
|
0 - 90 |
|
91 - 365 |
|
1 - 5 |
|
Over 5 |
|
|
| |||||
|
|
Days |
|
Days |
|
Years |
|
Years |
|
Total |
| |||||
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest earning deposits with banks |
|
$ |
325,648 |
|
$ |
478 |
|
$ |
1,175 |
|
$ |
|
|
$ |
327,301 |
|
Investment securities |
|
267,502 |
|
384,571 |
|
1,031,159 |
|
685,244 |
|
2,368,476 |
| |||||
Loans held for sale |
|
7,221 |
|
|
|
|
|
|
|
7,221 |
| |||||
Loans, including covered loans |
|
2,397,647 |
|
1,250,417 |
|
1,900,456 |
|
76,325 |
|
5,624,845 |
| |||||
Total interest earning assets |
|
$ |
2,998,018 |
|
$ |
1,635,466 |
|
$ |
2,932,790 |
|
$ |
761,569 |
|
$ |
8,327,843 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
NOW and money market deposits accounts |
|
$ |
209,602 |
|
$ |
565,024 |
|
$ |
1,491,798 |
|
$ |
416,184 |
|
$ |
2,682,608 |
|
Savings deposits |
|
43,698 |
|
123,187 |
|
453,080 |
|
177,776 |
|
797,741 |
| |||||
Time deposits |
|
493,988 |
|
908,954 |
|
520,054 |
|
64,460 |
|
1,987,456 |
| |||||
Short-term borrowings |
|
46,065 |
|
70,629 |
|
155,789 |
|
17,130 |
|
289,613 |
| |||||
Long-term borrowings |
|
80,662 |
|
20,147 |
|
15,291 |
|
2,698 |
|
118,798 |
| |||||
Junior subordinated notes issued to capital trusts |
|
152,065 |
|
|
|
|
|
|
|
152,065 |
| |||||
Total interest bearing liabilities |
|
$ |
1,026,080 |
|
$ |
1,687,941 |
|
$ |
2,636,012 |
|
$ |
678,248 |
|
$ |
6,028,281 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rate sensitive assets (RSA) |
|
$ |
2,998,018 |
|
$ |
4,633,484 |
|
$ |
7,566,274 |
|
$ |
8,327,843 |
|
$ |
8,327,843 |
|
Rate sensitive liabilities (RSL) |
|
$ |
1,026,080 |
|
$ |
2,714,021 |
|
$ |
5,350,033 |
|
$ |
6,028,281 |
|
$ |
6,028,281 |
|
Cumulative GAP (GAP=RSA-RSL) |
|
$ |
1,971,938 |
|
$ |
1,919,463 |
|
$ |
2,216,241 |
|
$ |
2,299,562 |
|
$ |
2,299,562 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
RSA/Total assets |
|
31.68 |
% |
48.96 |
% |
79.95 |
% |
88.00 |
% |
88.00 |
% | |||||
RSL/Total assets |
|
10.84 |
% |
28.68 |
% |
56.53 |
% |
63.70 |
% |
63.70 |
% | |||||
GAP/Total assets |
|
20.84 |
% |
20.28 |
% |
23.42 |
% |
24.30 |
% |
24.30 |
% | |||||
GAP/RSA |
|
65.77 |
% |
41.43 |
% |
29.29 |
% |
27.61 |
% |
27.61 |
% |
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Therefore, we do not rely on a gap analysis to manage our interest rate risk, but rather we use what we believe to be the more reliable simulation model relating to changes in net interest income.
Based on simulation modeling which assumes gradual changes in interest rates over a one-year period, we believe that our net interest income would change due to changes in interest rates as follows (dollars in thousands):
Gradual |
|
Changes in Net Interest Income Over Once Year Horizon |
| ||||||||
Changes in |
|
At September 30, 2012 |
|
At December 31, 2011 |
| ||||||
Levels of |
|
Dollar |
|
Percentage |
|
Dollar |
|
Percentage |
| ||
Interest Rates |
|
Change |
|
Change |
|
Change |
|
Change |
| ||
+ 2.00% |
|
$ |
8,695 |
|
2.86 |
% |
$ |
9,221 |
|
2.90 |
% |
+ 1.00% |
|
$ |
2,740 |
|
0.90 |
% |
$ |
3,538 |
|
1.10 |
% |
In the interest rate sensitivity table above, changes in net interest income between September 30, 2012 and December 31, 2011 reflect changes in the composition of interest earning assets and interest bearing liabilities, related interest rates, repricing frequencies, and the fixed or variable characteristics of the interest earning assets and interest bearing liabilities. The changes in net interest income incorporate the impact of loan floors as well as shifts from low cost deposits to certificates of deposit in a rising rate environment.
The assumptions used in our interest rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income. Our model assumes that a portion of our variable rate loans that have minimum interest rates will remain in our portfolio regardless of changes in the interest rate environment. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.
As a result of the current interest rate environment, the Company does not anticipate any significant declines in interest rates over the next twelve months. For this reason, we did not use an interest rate sensitivity simulation that assumes a gradual decline in the level of interest rates over the next twelve months.
Item 4. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Act)) was carried out as of September 30, 2012 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.
Changes in Internal Control Over Financial Reporting: There were no changes in the Companys internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information for the three months ended September 30, 2012 with respect to our repurchases of our outstanding common shares:
|
|
|
|
|
|
Number of Shares |
|
Maximum Number of |
| |
|
|
|
|
|
|
Purchased as Part |
|
Shares that May Yet Be |
| |
|
|
Total Number of |
|
Average Price |
|
Publicly Announced |
|
Purchased Under the |
| |
|
|
Shares Purchased (1) |
|
Paid per Share |
|
Plans or Programs |
|
Plans or Programs |
| |
|
|
|
|
|
|
|
|
|
| |
July 1, 2012 - July 31, 2012 |
|
78,316 |
|
$ |
20.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
August 1, 2012 - August 31, 2012 |
|
714 |
|
$ |
20.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
September 1, 2012 - September 30, 2012 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Totals |
|
79,030 |
|
|
|
|
|
|
|
(1) Represents shares withheld to satisfy tax withholding obligations upon the exercise of stock options and vesting of restricted stock awards.
Subsequent to September 30, 2012, our board of directors authorized us to purchase up to one million shares of common stock from time to time over the next two years, subject to market conditions and other factors.
See Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
MB FINANCIAL, INC. | |||
|
| |||
Date: |
October 29, 2012 |
|
By: |
/s/ Mitchell Feiger |
|
|
|
Mitchell Feiger | |
|
|
|
President and Chief Executive Officer | |
|
|
|
(Principal Executive Officer) | |
|
|
|
|
|
Date: |
October 29, 2012 |
|
By: |
/s/ Jill E. York |
|
|
|
Jill E. York | |
|
|
|
Vice President and Chief Financial Officer | |
|
|
|
(Principal Financial and Principal Accounting Officer) |
Exhibit Number |
|
Description |
|
|
|
2.2 |
|
Agreement and Plan of Merger, dated as of May 1, 2006, by and among the Registrant, MBFI Acquisition Corp. and First Oak Brook Bancshares, Inc. (First Oak Brook)(incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed on May 2, 2006 (File No.0-24566-01)) |
|
|
|
2.3 |
|
Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Corus Bank, National Association, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of September 11, 2009 (incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed on September 17, 2010 (File No.0-24566-01)) |
|
|
|
2.4 |
|
Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Broadway Bank, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of April 23, 2010 (incorporated herein by reference to Exhibit 2.6 to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 0-24566-01)) |
|
|
|
2.5 |
|
Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of New Century Bank, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of April 23, 2010 (incorporated herein by reference to Exhibit 2.7 to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 0-24566-01)) |
|
|
|
3.1 |
|
Charter of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (File No. 0-24566-01)) |
|
|
|
3.1A |
|
Articles Supplementary to the Charter of the Registrant for the Registrants Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01)) |
|
|
|
3.2 |
|
By-laws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed on April 2, 2012 (File No. 0-24566-01)) |
|
|
|
4.1 |
|
The Registrant hereby agrees to furnish to the Commission, upon request, the instruments defining the rights of the holders of each issue of long-term debt of the Registrant and its consolidated subsidiaries |
|
|
|
4.2 |
|
Certificate of Registrants Common Stock (incorporated herein by reference to Exhibit 4.1 to Amendment No. One to the Registrants Registration Statement on Form S-4 (No. 333-64584)) |
|
|
|
4.3 |
|
Warrant to purchase shares of the Registrants Common Stock (incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01)) |
|
|
|
10.1 |
|
Letter Agreement, dated as of December 5, 2008, between the Registrant and the United States Department of the Treasury (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01)) |
|
|
|
10.2 |
|
Amended and Restated Employment Agreement between the Registrant and Mitchell Feiger (incorporated herein by reference to Exhibit 10.2 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.3 |
|
Employment Agreement between MB Financial Bank, N.A. and Burton J. Field (incorporated herein by reference to Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 0-24566-01)) |
|
|
|
10.4 |
|
Form of Change and Control Severance Agreement between MB Financial Bank, National Association and Jill E. York (incorporated herein by reference to Exhibit 10.4 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
Exhibit Number |
|
Description |
|
|
|
10.4B |
|
Form of Change and Control Severance Agreement between MB Financial Bank, National Association and each of Burton Field, Larry J. Kallembach, Brian Wildman, Rosemarie Bouman and Susan Peterson (incorporated herein by reference to Exhibit 10.4B to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.4C |
|
Form of Change in Control Severance Agreement between MB Financial Bank, National Association and each of Mark A. Heckler and Edward F. Milefchik (incorporated herein by reference to Exhibit 10.4C to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 0-24566-01)) |
|
|
|
10.5 |
|
Form of Letter Agreement dated December 4, 2008 between MB Financial, Inc. and each of Mitchell Feiger, Jill E. York, Burton Field, Larry J. Kallembach, Brian Wildman, Rosemarie Bouman, and Susan Peterson relating to the TARP Capital Purchase Program (incorporated herein by reference to Exhibit 10.5 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.5A |
|
Form of Compensation Amendment and Waiver Agreement under the TARP Capital Purchase Program between MB Financial, Inc. and certain employees (incorporated herein by reference to Exhibit 10.5A to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 0-24566-01)) |
|
|
|
10.5B |
|
Form of Compensation Amendment and Waiver Agreement under the TARP Capital Purchase Program between MB Financial, Inc. and each of Mark A. Heckler and Edward F. Milefchik (incorporated herein by reference to Exhibit 10.5B to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 0-24566-01)) |
|
|
|
10.6 |
|
Coal City Corporation 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.6 to the Registrants Registration Statement on Form S-4 (No. 333-64584)) |
|
|
|
10.6A |
|
Amendment to Coal City Corporation 1995 Stock Option Plan ((incorporated herein by reference to Exhibit 10.6A to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.7 |
|
MB Financial, Inc. Second Amended and Restated Omnibus Incentive Plan (the Omnibus Incentive Plan) (incorporated herein by reference to Appendix A to the Registrants definitive proxy statement filed on April 27, 2011 (File No. 0-24566-01)) |
|
|
|
10.8 |
|
MB Financial Stock Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.9 |
|
MB Financial Non-Stock Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.10 |
|
Avondale Federal Savings Bank Supplemental Executive Retirement Plan Agreement (incorporated herein by reference to Exhibit 10.2 to Old MB Financial s (then known as Avondale Financial Corp.) Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 0-24566)) |
|
|
|
10.11 |
|
Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock, dated as of December 21, 2009, between MB Financial, Inc. and Mitchell Feiger (incorporated herein by reference to Exhibit 10.11 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 0-24566-01)) |
Exhibit Number |
|
Description |
|
|
|
10.11A |
|
Form of Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock between MB Financial, Inc. and Rosemarie Bouman, Burton J. Field, Mark A. Heckler, Larry J. Kallembach, Edward F. Milefchik, Susan G. Peterson and Brian J. Wildman (incorporated herein by reference to Exhibit 10.11A to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 0-24566-01)) |
|
|
|
10.12 |
|
Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock, dated as of December 21, 2009, between MB Financial, Inc. and Jill E. York (incorporated herein by reference to Exhibit 10.12 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 0-24566-01)) |
|
|
|
10.13 |
|
Amended and Restated Employment Agreement between MB Financial Bank, N.A. and Ronald D. Santo (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on December 14, 2004 (File No. 0-24566-01)) |
|
|
|
10.13A |
|
Amendment to Amended and Restated Employment Agreement between MB Financial Bank, N.A. and Ronald D. Santo ((incorporated herein by reference to Exhibit 10.13A to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.15 |
|
Tax Gross Up Agreements between the Registrant and each of Mitchell Feiger, Burton J. Field, Jill E. York, Larry J. Kallembach, Brian Wildman, and Susan Peterson (incorporated herein by reference to Exhibit 10.15 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.15A |
|
Tax Gross Up Agreement between the Registrant and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.15A to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.16 |
|
Form of Incentive Stock Option Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01)) |
|
|
|
10.17 |
|
Form of Non-Qualified Stock Option Agreement for Directors under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01)) |
|
|
|
10.18 |
|
Form of Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01)) |
|
|
|
10.18A |
|
Amendment to Form of Incentive Stock Option Agreement and Form of Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.18A to the Registrants Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01)) |
|
|
|
10.18B |
|
Form of Performance-Based Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.18B to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 0-24566-01)) |
|
|
|
10.18C |
|
Form of Restricted Stock Agreement for grants on December 2, 2009 to Mitchell Feiger, Jill E. York and Burton J. Field (incorporated herein by reference to Exhibit 10.18C to the Registrants Current Report on Form 8-K filed on December 7, 2009 (File No. 0-24566-01)) |
Exhibit Number |
|
Description |
|
|
|
10.19 |
|
Form of Restricted Stock Agreement for Directors under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01)) |
|
|
|
10.20 |
|
First Oak Brook Bancshares, Inc. Incentive Compensation Plan (incorporated herein by reference to Appendix A to the definitive proxy statement filed by First Oak Brook on March 30, 2004 (File No. 0-14468)) |
|
|
|
10.20A |
|
Amendment to First Oak Brook Bancshares, Inc. Incentive Compensation Plan ((incorporated herein by reference to Exhibit 10.20A to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.21 |
|
First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan (incorporated herein by reference to Appendix A to the definitive proxy statement filed by First Oak Brook on April 2, 2001 (File No. 0-14468)) |
|
|
|
10.21A |
|
Amendment to First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan ((incorporated herein by reference to Exhibit 10.21A to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.22 |
|
First Oak Brook Bancshares, Inc. Directors Stock Plan (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed by First Oak Brook on October 25, 1999 (File No. 333-89647)) |
|
|
|
10.22A |
|
Amendment to First Oak Brook Bancshares, Inc. Directors Stock Plan (incorporated herein by reference to Exhibit 10.22A to the Registrants Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007 filed on May 15, 2007 (File No. 0-24566-01)) |
|
|
|
10.23 |
|
Reserved. |
|
|
|
10.24 |
|
Reserved. |
|
|
|
10.25 |
|
Reserved. |
|
|
|
10.26 |
|
Reserved. |
|
|
|
10.27 |
|
First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to First Oak Brooks Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-14468)) |
|
|
|
10.27A |
|
Amendment to First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.27A to the Registrants Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007 filed on May 15, 2007) |
|
|
|
10.29 |
|
Form of Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.10 to First Oak Brooks Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-14468)) |
Exhibit Number |
|
Description |
|
|
|
10.29A |
|
First Amendment to Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.28A to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.29B |
|
Second Amendment to Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.28B to the Registrants Annual Report on Form 10-K/A for the year ended December 31, 2006, filed March 2, 2007 (File No. 0-24566-01)) |
|
|
|
10.30 |
|
Form of Performance Share Unit Award Agreement (incorporated herein by reference to Exhibit 10.30 to the Registrants Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01)) |
|
|
|
10.31 |
|
Form of Incentive Stock Option Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.31 to the Registrants Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01)) |
|
|
|
10.31A |
|
Form of Non-Qualified Stock Option Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.31A to the Registrants Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01)) |
|
|
|
10.32 |
|
Form of Restricted Stock Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.32 to the Registrants Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01)) |
|
|
|
10.32A |
|
Form of Restricted Stock Unit Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.32A to the Registrants Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01)) |
|
|
|
31.1 |
|
Rule 13a 14(a)/15d 14(a) Certification (Chief Executive Officer)* |
|
|
|
31.2 |
|
Rule 13a 14(a)/15d 14(a) Certification (Chief Financial Officer)* |
|
|
|
32 |
|
Section 1350 Certifications* |
|
|
|
101 |
|
The following financial statements from the MB Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows and (iv) the notes to consolidated financial statements* |
* Filed herewith.
Exhibit 31.1
CERTIFICATION
I, Mitchell Feiger, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of MB Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
October 29, 2012 |
|
|
|
|
|
|
|
/s/Mitchell Feiger |
| |
Mitchell Feiger |
| |
President and Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION
I, Jill E. York, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of MB Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
October 29, 2012 |
|
|
|
|
|
| |
/s/ Jill E. York |
| |
Jill E. York |
| |
Vice President and Chief Financial Officer |
|
Exhibit 32
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his or her capacity as an officer of MB Financial, Inc. (the Company) that the Annual Report of the Company on Form 10-Q for the quarter ended September 30, 2012 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.
Date: |
October 29, 2012 |
|
/s/ Mitchell Feiger |
|
|
|
Mitchell Feiger |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date: |
October 29, 2012 |
|
/s/ Jill E. York |
|
|
|
Jill E. York |
|
|
|
Vice President and Chief Financial Officer |
COMMITMENTS AND CONTINGENCIES (Details) (USD $)
|
9 Months Ended | |
---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
|
Commitments: | ||
Maximum maturity period for letters of credit | 5 years | |
Decrease in maximum potential amount of future payments under letters of credit | $ 804,000 | |
Dollar amount of letters of credit outstanding | 69,300,000 | 68,500,000 |
Letters of credit issued or renewed | 52,600,000 | |
Capital expenditure commitments outstanding | 2,500,000 | |
Home equity
|
||
Commitments and contingencies | ||
Dollar amount of line of credit outstanding | 253,216,000 | 275,357,000 |
Other commitments to extend credit
|
||
Commitments and contingencies | ||
Dollar amount of line of credit outstanding | 826,411,000 | 741,815,000 |
Standby letters of credit outstanding
|
||
Commitments and contingencies | ||
Dollar amount of line of credit outstanding | 63,275,000 | 67,720,000 |
Commercial letters of credit outstanding
|
||
Commitments and contingencies | ||
Dollar amount of line of credit outstanding | $ 6,067,000 | $ 818,000 |
DEPOSITS (Details) (USD $)
|
1 Months Ended | |
---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
|
Composition of deposits | ||
Demand deposit accounts, noninterest bearing | $ 2,011,542,000 | $ 1,885,694,000 |
NOW and money market accounts | 2,682,608,000 | 2,645,334,000 |
Savings accounts | 797,741,000 | 753,610,000 |
Certificates of deposit | 1,632,370,000 | 1,925,608,000 |
Brokered deposit accounts | 355,086,000 | 437,361,000 |
Total deposits | 7,479,347,000 | 7,647,607,000 |
Percentage of interest bearing and noninterest bearing deposits to total deposits | ||
Demand deposit accounts, noninterest bearing (as a percent) | 27.00% | 25.00% |
NOW and money market accounts (as a percent) | 36.00% | 34.00% |
Savings accounts (as a percent) | 10.00% | 10.00% |
Certificates of deposit (as a percent) | 22.00% | 25.00% |
Brokered deposit accounts (as a percent) | 5.00% | 6.00% |
Total (as a percent) | 100.00% | 100.00% |
Recorded expense related to the prepayment | $ 1,200,000 |
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Financial assets | ||
Loans held for sale | $ 7,221 | $ 4,727 |
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
||
Financial assets | ||
Securities available for sale | 11,231 | |
Significant Other Observable Inputs (Level 2)
|
||
Financial assets | ||
Securities available for sale | 1,797,623 | |
Loans held for sale | 7,221 | |
Derivative financial instruments, assets | 30,186 | |
Financial liabilities | ||
Derivative financial instrument, liabilities | 30,239 | |
Significant Unobservable Inputs (Level 3)
|
||
Financial assets | ||
Securities available for sale | 6,118 | |
Recurring basis | Total Fair Value
|
||
Financial assets | ||
Loans held for sale | 7,221 | 4,727 |
Assets held in trust for deferred compensation | 7,802 | 6,808 |
Derivative financial instruments, assets | 30,186 | 26,251 |
Financial liabilities | ||
Other liabilities | 7,802 | 6,808 |
Derivative financial instrument, liabilities | 30,239 | 26,624 |
Recurring basis | Total Fair Value | U.S. Government sponsored agencies and enterprises
|
||
Financial assets | ||
Securities available for sale | 42,187 | 42,401 |
Recurring basis | Total Fair Value | States and political subdivisions
|
||
Financial assets | ||
Securities available for sale | 668,966 | 535,660 |
Recurring basis | Total Fair Value | Residential mortgage-backed securities
|
||
Financial assets | ||
Securities available for sale | 1,021,983 | 1,281,806 |
Recurring basis | Total Fair Value | Commercial mortgage-backed securities
|
||
Financial assets | ||
Securities available for sale | 53,979 | 52,685 |
Recurring basis | Total Fair Value | Corporate bonds
|
||
Financial assets | ||
Securities available for sale | 16,626 | 5,899 |
Recurring basis | Total Fair Value | Equity securities
|
||
Financial assets | ||
Securities available for sale | 11,231 | 10,846 |
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
|
||
Financial assets | ||
Assets held in trust for deferred compensation | 7,802 | 6,808 |
Financial liabilities | ||
Other liabilities | 7,802 | 6,808 |
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Equity securities
|
||
Financial assets | ||
Securities available for sale | 11,231 | 10,846 |
Recurring basis | Significant Other Observable Inputs (Level 2)
|
||
Financial assets | ||
Loans held for sale | 7,221 | 4,727 |
Derivative financial instruments, assets | 30,186 | 26,251 |
Financial liabilities | ||
Derivative financial instrument, liabilities | 30,239 | 26,624 |
Recurring basis | Significant Other Observable Inputs (Level 2) | U.S. Government sponsored agencies and enterprises
|
||
Financial assets | ||
Securities available for sale | 42,187 | 42,401 |
Recurring basis | Significant Other Observable Inputs (Level 2) | States and political subdivisions
|
||
Financial assets | ||
Securities available for sale | 668,966 | 535,660 |
Recurring basis | Significant Other Observable Inputs (Level 2) | Residential mortgage-backed securities
|
||
Financial assets | ||
Securities available for sale | 1,021,096 | 1,280,713 |
Recurring basis | Significant Other Observable Inputs (Level 2) | Commercial mortgage-backed securities
|
||
Financial assets | ||
Securities available for sale | 53,979 | 52,685 |
Recurring basis | Significant Other Observable Inputs (Level 2) | Corporate bonds
|
||
Financial assets | ||
Securities available for sale | 11,395 | |
Recurring basis | Significant Unobservable Inputs (Level 3) | Residential mortgage-backed securities
|
||
Financial assets | ||
Securities available for sale | 887 | 1,093 |
Recurring basis | Significant Unobservable Inputs (Level 3) | Corporate bonds
|
||
Financial assets | ||
Securities available for sale | $ 5,231 | $ 5,899 |
GOODWILL AND INTANGIBLES (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Dec. 31, 2011
|
|
GOODWILL AND INTANGIBLES | |||||
Carrying amount of goodwill | $ 387,069 | $ 387,069 | $ 387,069 | ||
Weighted average amortization period | P5Y | ||||
Changes in the carrying amount of core deposit and client relationship intangibles | |||||
Balance at beginning of period | 29,494 | ||||
Amortization expense | (1,251) | (1,414) | (3,759) | (4,255) | |
Balance at end of period | 25,735 | 25,735 | |||
Gross carrying amount | 71,560 | 71,560 | |||
Accumulated amortization | (45,825) | (45,825) | |||
Net book value | 25,735 | 25,735 | |||
Estimated future amortization expense | |||||
2012 | 1,251 | 1,251 | |||
2013 | 4,530 | 4,530 | |||
2014 | 3,514 | 3,514 | |||
2015 | 3,090 | 3,090 | |||
2016 | 2,747 | 2,747 | |||
Thereafter | 10,603 | 10,603 | |||
Total estimated future amortization expense | $ 25,735 | $ 25,735 |
COMMITMENTS AND CONTINGENCIES (Tables)
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of outstanding financial instruments, contractual amounts of off-balance sheet credit risk |
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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) (Discounted cash flow)
|
9 Months Ended |
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Sep. 30, 2012
|
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Minimum
|
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Unobservable inputs used in the fair value measurement of financial assets measured on a recurring basis | |
Constant pre-payment rates (as a percent) | 6.00% |
Maximum
|
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Unobservable inputs used in the fair value measurement of financial assets measured on a recurring basis | |
Constant pre-payment rates (as a percent) | 12.00% |
Weighted Average
|
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Unobservable inputs used in the fair value measurement of financial assets measured on a recurring basis | |
Credit assumption (as a percent) | 25.00% |
INVESTMENT SECURITIES (Tables)
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Sep. 30, 2012
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INVESTMENT SECURITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of amortized cost, gross unrealized gains and losses, and fair value of investment securities |
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Unrealized losses on investment securities and the fair value of the related securities |
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Summary of realized gains on the sale of investment securities available for sale |
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Schedule of remaining contractual maturities of securities included in the securities portfolio |
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BASIS OF PRESENTATION
|
9 Months Ended | |
---|---|---|
Sep. 30, 2012
|
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BASIS OF PRESENTATION | ||
BASIS OF PRESENTATION |
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