EX-99.1 2 c19608exv99w1.htm PRESS RELEASE exv99w1
 

(MIDWEST BANC HOLDINGS, INC. LOGO)
Press Release   October 23, 2007
For further information:
Daniel R. Kadolph
Chief Financial Officer
708-450-6759
ir@midwestbank.com
Midwest Banc (MBHI) 3Q07 EPS $.20
Midwest Banc Holdings, Inc. (MBHI) today reported diluted earnings per share of $.20 for the third quarter compared to $.21 in the second quarter.
Overview
Midwest’s performance during the third quarter reflected several positive developments:
  •   Net interest margin expanded to 3.10%, despite the Large Problem Credit’s continued negative impact on earnings and the net interest margin
 
  •   Continued progress on credit quality initiatives
  •   Enhanced early detection of borrower weaknesses
 
  •   Consumer loan risk-based pricing
 
  •   Reduction in exposure related to customer concentration risk
  •   Reduced total noninterest expenses for the second consecutive quarter
 
  •   Northwest Suburban acquisition completed as of October 1, with integration plans fully in place
Net income was $4.8 million for the quarter compared with $5.1 million in the second quarter and $4.4 million in the first quarter. Compared to the second quarter, the net interest margin expanded, average loans and earning assets increased, net interest income increased and noninterest expenses decreased. Noninterest income decreased marginally in the current quarter, primarily because of a lower level of residential mortgage loan sales than in the prior quarter. The provision for loan losses increased $764,000, even though net chargeoffs were down, due to updated assessments of impaired loans, the overall growth in the loan portfolio, weakening economic trends and the increasingly challenging environment for real estate related businesses. The larger provision helped to strengthen our balance sheet, as reflected by the resulting increase in the allowance as a percentage of loans and in the nonaccrual coverage ratio. Loan delinquencies were down from the prior quarter.
The carrying cost of the previously disclosed Large Problem Credit continues to have a substantial negative impact on earnings, reducing net income by approximately $.11 per share on an annualized basis.
On October 1, Midwest completed its acquisition of Northwest Suburban Bancorp, Inc. (Northwest Suburban). With approximately $550 million in assets, Northwest Suburban operated five banking offices in complementary locations to our existing franchise. Signs have been changed, the

 

 

technology conversion will be completed October 27 and all key sales professionals have been retained.
Loan Growth
Average loans increased by $27.7 million, or 5.6% on an annualized basis, from second to third quarter. This was in spite of selling $9.1 million of commercial loan participations during the quarter, as compared with $3.9 million in second quarter. Had we not sold loan participations in the third quarter, the annualized loan growth rate in the quarter would have been 6.8%.
“Our strategy behind selling loan participations in a period of modest loan growth is to diversify the mix in our portfolio and to reduce the risk and exposure to our largest credits,” stated CEO Jim Giancola.
We announced last quarter that we had outsourced our residential mortgage origination operations. This was done to eliminate the fixed costs associated with this very cyclical business, while also enabling us to offer our customers an even broader array of residential mortgage products.
Net Interest Margin Expansion
The net interest margin increased to 3.10% in the third quarter compared to 3.05% in the second quarter and 3.01% in the first quarter. Yields on average loans and securities increased by 5 and 14 basis points, respectively. Rates paid on interest-bearing liabilities remained flat during the quarter.
The securities portfolio has a low degree of inherent credit risk. Approximately 87% of the portfolio is rated AAA, 12% is rated AA and 1% is rated A. No securities are rated below A. In addition, the securities portfolio does not contain any sub-prime or Alt-A mortgage-backed securities.
Loan Quality Stable
Loan balances for the Large Problem Credit have remained at $28.9 million and represent 65% of our nonaccrual loans. The borrower’s corporate entities have filed for protection under chapter 11 of the Bankruptcy Code. Midwest continues to aggressively pursue collection through the court system and the liquidation of collateral to pay down these loans. While we believe that the current carrying value of these loans at September 30 reflects management’s best current estimate of net realizable value, there can be no assurance that additional losses may not be incurred.
The quality of the loan portfolio remained stable. Nonaccrual loans excluding the Large Problem Credit were .80% of loans, up from .75% at June 30 but down from the December 31 level of .89%. There were no loans over 90 days past due but accruing at September 30. Foreclosed properties decreased slightly from $2.3 million at June 30 to $2.2 million. There have been no additions to foreclosed properties in 2007. Loan delinquencies 30-89 days were .49% of loans at September 30, down from .63% at June 30. Total nonperforming assets, excluding the Large Problem Credit, were up 6% from June 30, and down 8% compared to December 31.
The allowance for loan losses grew by $1.2 million to 1.24% during the quarter from 1.20% of loans outstanding at June 30. The allowance for loan losses to nonaccrual loans increased to 56% at September 30 from 54% at both June 30 and December 31. Net chargeoffs for the quarter were $645,000 or .13% of average loans, down from $1.3 million or .27% of loans in the second quarter. Net chargeoffs were $1.8 million or .12% of average loans for the nine months of 2007. The provision for loan losses for the quarter was $1.8 million compared to $1.0 million in the June quarter. The provision for loan losses was $3.5 million for the nine months of 2007.

 

 

Given current market conditions, Midwest has further enhanced its process to detect early stage credit deterioration in the loan portfolio and address any such problems timely and aggressively. When significant stress or weaknesses are identified in a particular loan, Midwest takes a proactive approach to manage the associated risks. The actions taken might include, for example, seeking additional collateral and/or pursuing an early exit strategy whereby the borrower is encouraged to seek alternative financing arrangements.
Noninterest Income
Noninterest income decreased during the third quarter by $196,000 to $3.7 million compared to the prior quarter. As anticipated, gains on sales of residential mortgage loans decreased as a result of outsourcing the residential mortgage origination operations. Insurance and brokerage commissions increased by 27% during the quarter which was driven by higher variable rate annuity sales.
During the quarter, we launched an enhanced sales initiative aimed at increasing cross-selling to both new and existing customers. It has already begun to show positive results. Additional initiatives planned for the fourth quarter include a marketing campaign aimed at our community bank brand and risk-based pricing for consumer loans.
Noninterest Expense Control
On a linked-quarter basis, noninterest expenses were down by $399,000. This decrease was mainly attributed to the decrease of salaries and benefits expense, which was partly offset by increases in occupancy and equipment expense and professional services fees. The decrease in salaries and benefits expense is a result of outsourcing the residential mortgage origination operations and janitorial services as well as a reduction in incentive compensation. An adjustment related to Midwest’s recently filed 2006 income tax returns increased third quarter income tax expense by $159,000. Midwest’s effective tax rate increased to 19.4% in the third quarter from 17.4% in the second quarter. The core efficiency ratio modestly improved to 64% during the quarter compared to 66% from the prior quarter.
Northwest Suburban Merger Closed
On October 1, we completed the merger of Northwest Suburban; in addition, Mount Prospect National Bank, Northwest Suburban’s bank subsidiary, was merged into Midwest Bank and Trust Company, creating a 29-office bank with approximately $3.6 billion in assets. The overall mix of consideration paid for all outstanding shares of Northwest Suburban common stock was fixed so that 55% of the Northwest common stock was converted into cash and 45% of the Northwest common stock was converted into 3.8 million shares of our common stock. Total deal value was $135.4 million.
Based on deposits, the acquisition made Midwest Bank the 17th largest bank in the Chicago area. Northwest Suburban’s five offices in Des Plaines, Lakemoor, Lake Zurich, Mount Prospect and North Barrington, located in Cook, Lake and McHenry counties, complement Midwest Bank’s offices in northwest Cook and McHenry counties.
John Eilering, Chairman and CEO of Northwest Suburban, has become Area President — Northwest of Midwest Bank and Stephen Markovits, President of Northwest Suburban, has become an executive vice president of Midwest Bank. Dennis O’Hara, CPA, a partner in the accounting firm, Clifton Gunderson, LLP, and a director of Northwest Suburban, has joined the boards of both Midwest Banc Holdings and Midwest Bank.

 

 

“We have changed the signs and systems conversions are scheduled for the weekend of October 27. Completing the operational merger soon after the legal merger is absolutely the best way to go,” said Jim Giancola. “That brings our team closer together; makes the convenience of all our products, offices and ATMs available to all customers, and enables us to begin realizing planned efficiencies.”
Following the merger, key balance sheet statistics for MBHI were approximately (dollar amounts in millions, subject to purchase accounting adjustments):
         
    Pro Forma
Loans
   $ 2,450  
Earning assets
     3,250  
Deposits
     2,460  
Total assets
     3,580  
 
        
Shares outstanding
     28,160,000  
Financial Highlights
On July 1, 2006 Midwest Banc acquired Royal American Corporation. There were special merger-related charges incurred in the third quarter 2006. Therefore, comparisons involving prior periods may be affected by this merger and these merger-related charges.
Earnings
•   Diluted earnings per share was $.20 for third quarter and $.58 for nine months 2007
  •   Compared to $.24 for third quarter 2006, a 16.7% decrease
 
  •   Compared to $.21 for second quarter 2007, a 4.8% decrease
 
  •   Compared to $.64 for nine months 2006, a 9.4% decrease
•   Net income was $4.8 million for third quarter and $14.4 million for nine months 2007
  •   Compared to $6.0 million for third quarter 2006, a 19.2% decrease
 
  •   Compared to $5.1 million for second quarter 2007, a 5.3% decrease
 
  •   Compared to $14.8 million for nine months 2006, a 3.1% decrease
•   Core return on average assets was .64% for third quarter and .64% for nine months 2007
  •   Compared to .93% for third quarter 2006
 
  •   Compared to .68% for second quarter 2007
 
  •   Compared to .83% for nine months 2006
•   Core return on average equity was 6.75% for third quarter and 6.67% for nine months 2007
  •   Compared to 9.79% for third quarter 2006
 
  •   Compared to 7.07% for second quarter 2007
 
  •   Compared to 8.81% for nine months 2006

 

 

•   Net interest margin was 3.10% for third quarter and 3.05% for nine months 2007
  •   Compared to 3.40% for third quarter 2006
 
  •   Compared to 3.05% for second quarter 2007
 
  •   Compared to 3.41% for nine months 2006
•   Top line revenue increased
  •   $182,000 compared to second quarter 2007, a 3.1% annualized rate
 
  •   $3.8 million compared to nine months 2006
•   Core efficiency ratio was 64% for third quarter and 66% for nine months 2007
  •   Compared to 56% for third quarter 2006
 
  •   Compared to 66% for second quarter 2007
 
  •   Compared to 56% for nine months 2006
Loans and Loan Quality
•   Loans in third quarter increased
  •   $27.7 million on an average balance basis compared to second quarter 2007, a 5.6% annualized rate
 
  •   $24.8 million at September 30 compared to June 30, a 5.0% annualized rate
•   Annualized net charge-off rate was .13% for third quarter and .12 % for nine months 2007
  •   Compared to .03% for third quarter 2006
 
  •   Compared to .17% for nine months 2006
•   Nonaccrual loans at September 30 were $44.7 million or 2.23% of loans
  •   Compared to $43.6 million, or 2.20% at June 30
 
  •   Compared to $21.6 million, or 1.13% at September 30, 2006
•   Nonaccrual loans (excluding Large Problem Credit) at September 30 were $15.8 million or .80% of loans
  •   Compared to $14.7 million, or .75% at June 30
 
  •   Compared to $10.3 million, or .55% at September 30, 2006
•   Nonperforming assets at September 30 were $46.9 million, or 2.34% of loan-related assets
  •   Compared to $45.9 million, or 2.31% at June 30
 
  •   Compared to $24.4 million, or 1.28% at September 30, 2006
•   Nonperforming assets (excluding Large Problem Credit) at September 30 were $18.0 million, or .91% of loan-related assets
  •   Compared to $17.0 million, or .87% at June 30
 
  •   Compared to $13.2 million, or .70% at September 30, 2006
•   Allowance for loan losses at September 30 was 1.24% of loans
  •   Compared to 1.20% at June 30
 
  •   Compared to 1.34% at September 30, 2006
•   Allowance for loan losses to nonaccrual loans was 56% at September 30
  •   Compared to 54% at June 30
 
  •   Compared to 118% at September 30, 2006

 

 

•   Delinquencies 30-89 days to loans were .49% at September 30
  •   Compared to .63% at June 30
 
  •   Compared to 1.98% at September 30, 2006
Capital Ratios
•   Capital ratios at September 30
                     
 
   •   Tier 1 risk-based     11.42 %    
 
 
   •   Total risk-based     12.51 %    
 
 
   •   Tier 1 leverage     8.99 %    
 
 
   •   Equity to assets     9.41 %    
Additional financial data are contained in the accompanying statements, tables and schedules.
Hosting a Conference Call
Management will host a conference call and webcast to discuss earnings results on October 24 at 11:00 am eastern/10:00 am central. We will provide a brief discussion of results and trends followed by responding to questions from investors and analysts who call in.
To participate in the call, dial 877-407-0778 or 201-689-8565 for international callers. Alternatively, participants can listen by going to our web site www.midwestbank.com.
Replays will be available on the web site through January 24. The audio replay can be accessed through November 1 at 877-660-6853 or 201-612-7415 for international callers. Use account number 286 and conference ID number 257541.
Franchise
Midwest Banc Holdings, Inc., headquartered in Melrose Park, IL, provides a wide range of retail and commercial banking services, personal and corporate trust services, securities services and insurance brokerage services in the greater Chicago area. We have 29 banking offices and operate 32 ATMs. Our principal operating subsidiaries are Midwest Bank and Trust Company, Midwest Financial and Investment Services, Inc., and Midwest Insurance Services, LLC.
Information on our products and services and locations is available at www.midwestbank.com.
Forward-Looking Statements
This news release contains “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and should be reviewed in conjunction with the company’s Annual Report on Form 10-K and other publicly available information regarding the company, copies of which are available from the company upon request. Such publicly available information sets for the certain risks and uncertainties related to the company’s business, which should be considered in evaluating “Forward-Looking Statements.”
# # #

 

 

Financial Highlights
Midwest Banc Holdings, Inc.
(In thousands)
                                         
    Three Months Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
    2007   2007   2007   2006   2006
Income Statement Data:
                                        
Net income
   $ 4,836     $ 5,107     $ 4,412     $ 2,933     $ 5,982  
Core net income(1)
     4,836       5,107       4,412       2,933       6,943  
 
                                        
Per Share Data:
                                        
Basic and diluted earnings
   $ .20     $ .21     $ .18     $ .12     $ .24  
Cash dividends declared
     .13       .13       .13       .13       .13  
Book value
     11.69       11.55       11.76       11.65       11.67  
Tangible book value(2)
     8.02       7.91       8.12       7.97       8.03  
Stock price at period end
     14.77       14.50       17.71       23.75       24.42  
Average stock price
     14.54       16.35       20.25       23.66       23.03  
 
                                        
Selected Financial Ratios:
                                        
Return on average assets
     .64 %     .68 %     .60 %     .39 %     .80 %
Core return on average assets(1)
     .64       .68       .60       .39       .93  
Return on average equity
     6.75       7.07       6.20       4.01       8.43  
Core return on average equity(1)
     6.75       7.07       6.20       4.01       9.79  
Net interest margin (tax equivalent)
     3.10       3.05       3.01       3.08       3.40  
Core efficiency ratio(1)(3)(4)
     64       66       70       66       56  
Dividend payout
     67       64       74       111       55  
Loans to deposits at period end
     101       96       97       99       94  
Loans to assets at period end
     66       66       65       66       65  
Average equity to average assets
     9.41       9.62       9.74       9.84       9.48  
Equity to assets at period end
     9.41       9.38       9.75       9.76       9.84  
Tangible equity to tangible assets at period end(2)(5)
     6.65       6.62       6.94       6.89       6.99  
Tier 1 capital to risk-weighted assets
     11.42       11.76       12.02       11.92       12.64  
Total capital to risk-weighted assets
     12.51       12.81       13.10       12.97       13.84  
Tier 1 leverage ratio
     8.99       9.13       9.38       9.34       9.38  
 
                                        
Full time equivalent employees
     460       489       491       494       498  
 
                                        
Balance Sheet Data:
                                        
Total earning assets
   $ 2,750,334     $ 2,698,762     $ 2,685,977     $ 2,617,894     $ 2,628,847  
Average earning assets
     2,736,154       2,731,527       2,665,044       2,645,898       2,659,420  
Average assets
     3,020,254       3,013,039       2,966,039       2,946,366       2,967,572  
Average loans
     1,989,119       1,961,437       1,946,460       1,918,376       1,918,941  
Average securities
     698,541       726,534       677,001       697,577       703,922  
Average deposits
     2,022,709       2,021,256       1,995,721       1,996,864       2,062,014  
Tangible shareholders’ equity(2)
     195,790       194,138       200,711       196,481       199,233  
Average equity
     284,231       289,760       288,783       289,864       281,367  
 
                                        
Share Data:
                                        
Common shares outstanding — at period end
     24,406       24,547       24,705       24,663       24,796  
Basic — average
     24,454       24,638       24,693       24,725       24,811  
Diluted — average
     24,647       24,828       24,950       25,083       25,176  
See footnotes at end of statements, tables and schedules.

 

 

Financial Highlights
Midwest Banc Holdings, Inc.
(In thousands)
                 
    Nine Months Ended
    September 30,   September 30,
    2007   2006
Income Statement Data:
                
Net income
   $ 14,355     $ 14,813  
Core net income(1)
     14,355       15,774  
 
                
Per Share Data:
                
Basic earnings
   $ .58     $ .65  
Diluted earnings
     .58       .64  
Cash dividends declared
     .39       .38  
Book value
     11.69       11.67  
Tangible book value(2)
     8.02       8.51  
Stock price at period end
     14.77       24.42  
Average stock price
     17.01       23.37  
 
                
Selected Financial Ratios:
                
Return on average assets
     .64 %     .78 %
Core return on average assets(1)
     .64       .83  
Return on average equity
     6.67       8.27  
Core return on average equity(1)
     6.67       8.81  
Net interest margin (tax equivalent)
     3.05       3.41  
Core efficiency ratio(1)(3)(4)
     66       56  
Dividend payout
     68       59  
Loans to deposits at period end
     101       94  
Loans to assets at period end
     66       65  
Average equity to average assets
     9.59       9.46  
Equity to assets at period end
     9.41       9.84  
Tangible capital to tangible assets at period end(2)(5)
     6.65       7.17  
Tier 1 capital to risk-weighted assets
     11.42       12.64  
Total capital to risk-weighted assets
     12.51       13.84  
Tier 1 leverage ratio
     8.99       9.38  
 
                
Full time equivalent employees
     460       498  
 
                
Balance Sheet Data:
                
Total earning assets
   $ 2,750,334     $ 2,628,847  
Average earning assets
     2,711,169       2,311,644  
Average assets
     2,999,877       2,532,571  
Average loans
     1,965,828       1,571,484  
Average securities
     700,778       709,951  
Average deposits
     2,013,327       1,741,389  
Tangible shareholders’ equity(2)
     195,790       210,910  
Average equity
     287,575       239,476  
 
                
Share Data:
                
Common shares outstanding — at period end
     24,406       24,796  
Basic — average
     24,594       22,886  
Diluted — average
     24,821       23,279  
See footnotes at end of statements, tables and schedules.

 

 

Statement of Income
Midwest Banc Holdings, Inc.
(In thousands)
                                         
    Three Months Ended  
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
Interest Income
                                        
Loans
   $ 37,566     $ 36,822     $ 36,058     $ 35,970     $ 36,874  
Loans held for sale
     11       48       30       41       44  
Securities
                                        
Taxable
     8,611       8,729       7,563       7,450       7,673  
Exempt from fed income taxes
     462       462       700       962       956  
Dividends from FRB and FHLB stock
     227       226       228       218       199  
Short-term investments
     297       205       187       69       157  
 
                              
Total interest income
     47,174       46,492       44,766       44,710       45,903  
 
                              
Interest Expense
                                        
Deposits
     18,634       18,582       17,899       17,495       16,963  
Federal funds purchased
     64       393       699       776       352  
Securities sold under repurchase agreements
     3,137       2,563       2,159       2,651       2,857  
Advances from the FHLB
     3,640       3,670       3,648       3,286       3,001  
Junior subordinated debentures
     1,334       1,315       1,301       1,327       1,337  
Note payable
     18       —       —       —       —  
 
                              
Total interest expense
     26,827       26,523       25,706       25,535       24,510  
 
                              
Net interest income
     20,347       19,969       19,060       19,175       21,393  
 
                              
Provision for loan losses
     1,800       1,036       645       5,500       1,550  
 
                              
Net interest income after provision for loan losses
     18,547       18,933       18,415       13,675       19,843  
Noninterest Income
                                        
Service charges on deposit accounts
     1,535       1,575       1,634       1,572       1,543  
Gains (losses) on securities transactions
     6       31       (14 )     42       —  
Net trading profits
     —       —       —       —       624  
Gains on sale of loans
     41       225       176       270       194  
Insurance and brokerage commissions
     685       541       573       514       478  
Trust
     453       503       393       399       357  
Increase in CSV of life insurance
     736       703       753       694       676  
Gain on extinguishment of debt
     —       —       —       —       —  
Other
     244       318       205       299       275  
 
                              
Total noninterest income
     3,700       3,896       3,720       3,790       4,147  
 
                              
Noninterest Expenses
                                        
Salaries and employee benefits
     9,740       10,363       10,447       10,058       9,318  
Occupancy and equipment
     2,362       2,190       2,190       2,088       1,885  
Professional services
     1,297       1,087       1,208       1,172       1,452  
Marketing
     538       478       679       591       418  
Foreclosed properties
     4       7       25       75       47  
Amortization of intangible assets
     409       409       456       461       461  
Merger related charges
     —       —       —       —       1,595  
Other
     1,896       2,110       2,076       2,050       2,018  
 
                              
Total noninterest expenses
     16,245       16,644       17,081       16,495       17,194  
 
                              
Income before income taxes
     6,002       6,185       5,054       970       6,796  
Provision (benefit) for income taxes
     1,166       1,078       642       (1,963 )     814  
 
                              
Net Income
   $ 4,836     $ 5,107     $ 4,412     $ 2,933     $ 5,982  
 
                              
 
                                        
Basic and diluted earnings per share
   $ .20     $ .21     $ .18     $ .12     $ .24  
 
                              
Cash dividends declared per share
   $ .13     $ .13     $ .13     $ .13     $ .13  
 
                              
 
                                        
Top line revenue (6)
   $ 24,047     $ 23,865     $ 22,780     $ 22,965     $ 25,540  
Noninterest income to top line revenue
     15 %     16 %     16 %     17 %     16 %

 

 

Statement of Income
Midwest Banc Holdings, Inc.
(In thousands)
                         
    Nine Months Ended  
    September 30,     September 30,     Increase  
    2007     2006     (Decrease)  
Interest Income
                        
Loans
   $ 110,447     $ 87,884     $ 22,563  
Loans held for sale
     89       84       5  
Securities
                        
Taxable
     24,903       23,064       1,839  
Exempt from federal income taxes
     1,624       2,608       (984 )
Dividends from Fed Res and FHLB stock
     681       475       206  
Short-term investments
     688       437       251  
 
                  
Total interest income
     138,432       114,552       23,880  
 
                  
Interest Expense
                        
Deposits
     55,115       40,023       15,092  
Federal funds purchased
     1,156       750       406  
Securities sold under repurchase agreements
     7,859       7,736       123  
Advances from the FHLB
     10,958       6,522       4,436  
Junior subordinated debentures
     3,950       3,414       536  
Note payable
     18       —       18  
 
                  
Total interest expense
     79,056       58,445       20,611  
 
                  
Net interest income
     59,376       56,107       3,269  
Provision for loan losses
     3,481       6,550       (3,069 )
 
                  
Net interest income after provision for loan losses
     55,895       49,557       6,338  
Noninterest Income
                        
Service charges on deposit accounts
     4,744       4,161       583  
Gains (losses) on securities transactions
     23       (195 )     218  
Net trading profits
     —       624       (624 )
Gains on sale of loans
     441       490       (49 )
Insurance and brokerage commissions
     1,799       1,476       323  
Trust
     1,349       520       829  
Increase in CSV of life insurance
     2,192       1,700       492  
Gain on extinguishment of debt
     —       1,250       (1,250 )
Other
     768       735       (33 )
 
                  
Total noninterest income
     11,316       10,761       555  
 
                  
Noninterest Expenses
                        
Salaries and employee benefits
     30,550       24,418       6,132  
Occupancy and equipment
     6,741       4,988       1,753  
Professional services
     3,591       3,799       (208 )
Marketing
     1,696       1,459       237  
Foreclosed properties
     36       237       (201 )
Amortization of intangible assets
     1,273       762       511  
Merger related charges
     —       1,595       (1,595 )
Other
     6,083       4,862       1,221  
 
                  
Total noninterest expenses
     49,970       42,120       7,850  
 
                  
Income before income taxes
     17,241       18,198       (957 )
Provision for income taxes
     2,886       3,385       (499 )
 
                  
Net Income
   $ 14,355     $ 14,813     $ (458 )
 
                  
 
                        
Basic earnings per share
   $ .58     $ .65     $ (.07 )
 
                  
Diluted earnings per share
   $ .58     $ .64     $ (.06 )
 
                  
Cash dividends declared per share
   $ .39     $ .38     $ .01  
 
                  

 

 

Balance Sheet
Midwest Banc Holdings, Inc.
(In thousands)
                                         
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
Assets
                                        
Cash
   $ 46,963     $ 53,832     $ 64,153     $ 91,630     $ 70,004  
Short-term investments
     17,241       8,861       24,485       8,902       2,647  
Securities available-for-sale
     660,986       639,087       639,985       589,981       642,188  
Securities held-to-maturity
     40,978       42,110       43,562       45,931       50,688  
 
                              
Total securities
     701,964       681,197       683,547       635,912       692,876  
Fed Res and FHLB stock, at cost
     23,683       23,683       23,592       23,592       20,977  
Loans held for sale
     —       2,349       3,740       2,672       3,321  
Loans
     2,007,446       1,982,672       1,950,613       1,946,816       1,909,026  
Allowance for loan losses
     (24,879 )     (23,724 )     (24,028 )     (23,229 )     (25,542 )
 
                              
Net loans
     1,982,567       1,958,948       1,926,585       1,923,587       1,883,484  
Cash value of life insurance
     67,412       66,676       65,973       65,220       64,526  
Premises and equipment
     22,468       22,489       22,282       21,960       20,993  
Foreclosed properties
     2,246       2,312       2,403       2,640       2,864  
Goodwill and other intangibles
     89,443       89,437       89,788       90,761       90,244  
Other
     78,578       112,510       74,083       75,170       90,365  
 
                              
Total assets
   $ 3,032,565     $ 3,022,294     $ 2,980,631     $ 2,942,046     $ 2,942,301  
 
                              
 
                                        
Liabilities and Shareholders’ Equity
                                        
 
                                        
Liabilities
                                        
Deposits
                                        
Noninterest-bearing
   $ 246,153     $ 256,152     $ 247,548     $ 276,381     $ 272,442  
Interest-bearing
     1,748,774       1,801,690       1,759,452       1,681,429       1,754,394  
 
                              
Total deposits
     1,994,927       2,057,842       2,007,000       1,957,810       2,026,836  
Federal funds purchased
     12,000       29,000       7,000       66,000       34,000  
Securities sold under repurchase agreements
     317,118       282,037       251,070       201,079       229,676  
FHLB advances
     319,925       269,911       319,897       319,883       254,869  
Junior subordinated debentures
     65,861       65,845       65,828       65,812       65,800  
Note payable
     2,500       —       —       —       —  
Other
     35,001       34,084       39,337       44,220       41,643  
 
                              
Total liabilities
     2,747,332       2,738,719       2,690,132       2,654,804       2,652,824  
 
                              
 
                                        
Shareholders’ Equity
                                        
 
                                        
Common equity
     295,807       295,436       295,614       293,515       296,038  
Accumulated other comprehensive loss
     (10,574 )     (11,861 )     (5,115 )     (6,273 )     (6,561 )
 
                              
Total shareholders’ equity
     285,233       283,575       290,499       287,242       289,477  
 
                              
Total liabilities and shareholders’ equity
   $ 3,032,565     $ 3,022,294     $ 2,980,631     $ 2,942,046     $ 2,942,301  
 
                              

 

 

Net Interest Margin
Midwest Banc Holdings, Inc.
(In thousands)
                                                 
    For the Three Months Ended  
    September 30, 2007     June 30, 2007     September 30, 2006  
    Average     Average     Average     Average     Average     Average  
    Balance     Rate     Balance     Rate     Balance     Rate  
Interest-Earning Assets:
                                                
Short-term investments
   $ 23,996       4.95 %   $ 16,857       4.86 %   $ 13,057       4.81 %
Securities:
                                                
Taxable(7)
     650,776       5.61       678,766       5.46       604,176       5.48  
Exempt from federal income taxes(7)
     47,765       5.95       47,768       5.95       99,746       5.90  
 
                                    
Total securities
     698,541       5.63       726,534       5.49       703,922       5.52  
FRB and FHLB stock
     23,683       3.83       23,688       3.82       20,914       3.81  
Loans held for sale
     815       5.40       3,011       6.38       2,586       6.81  
Loans: (8)
                                                
Commercial loans
     426,366       7.94       413,416       7.87       406,046       8.12  
Commercial real estate loans(7)(9)(10)
     1,272,773       7.63       1,257,438       7.56       1,241,622       7.71  
Agricultural loans
     3,172       8.07       3,538       8.14       2,701       8.00  
Consumer real estate loans(7)(9)(10)
     277,164       6.68       277,562       6.82       255,003       7.04  
Consumer installment loans
     9,644       7.76       9,483       7.76       13,569       7.28  
 
                                    
Total loans
     1,989,119       7.57       1,961,437       7.52       1,918,941       7.72  
 
                                    
Total interest-earning assets
   $ 2,736,154       7.00 %   $ 2,731,527       6.92 %   $ 2,659,420       7.08 %
 
                                                
Noninterest-Earning Assets:
                                                
Cash
   $ 51,487             $ 49,301             $ 78,241          
Premises and equipment
     22,404               22,279               21,084          
Allowance for loan losses
     (24,255 )             (23,807 )             (26,727 )        
Other
     234,464               233,739               235,554          
 
                                          
Total noninterest-earning assets
     284,100               281,512               308,152          
 
                                          
Total assets
   $ 3,020,254             $ 3,013,039             $ 2,967,572          
 
                                                
Interest-Bearing Liabilities:
                                                
Deposits:
                                                
Interest-bearing demand deposits
   $ 175,582       1.96 %   $ 171,671       1.85 %   $ 165,672       1.37 %
Money-market demand and savings account
     365,985       2.62       362,692       2.62       413,626       2.50  
Time deposits less than $100,000
     750,642       4.86       736,665       4.84       748,929       4.34  
Time deposits of $100,000 or more
     474,194       5.28       495,549       5.24       417,731       5.23  
Public funds
     —       —       —       —       19,397       4.68  
 
                                    
Total interest-bearing deposits
     1,766,403       4.22       1,766,577       4.21       1,765,355       3.84  
Borrowings:
                                                
Fed funds purch & repurchase agreements
     307,843       4.16       283,571       4.17       255,718       5.02  
FHLB advances
     307,418       4.74       318,256       4.61       254,862       4.71  
Notes payable and other borrowings
     67,294       8.04       65,837       7.99       65,788       8.13  
 
                                    
Total borrowings
     682,555       4.80       667,664       4.76       576,368       5.24  
 
                                    
Total interest-bearing liabilities
   $ 2,448,958       4.40 %   $ 2,434,241       4.36 %   $ 2,341,723       4.20 %
 
                                                
Noninterest-Bearing Liabilities:
                                                
Noninterest-bearing demand deposits
   $ 256,306             $ 254,679             $ 296,659          
Other liabilities
     30,759               34,359               47,823          
Total interest-bearing liabilities
     287,065               289,038               344,482          
Shareholders’ equity
     284,231               289,760               281,367          
 
                                          
Total liabilities and shareholders’ equity
   $ 3,020,254             $ 3,013,039             $ 2,967,572          
 
                                                
Net interest margin (tax equivalent)(7)(11)
             3.10 %             3.05 %             3.40 %
See footnotes at end of statements, tables and schedules.

 

 

Net Interest Margin
Midwest Banc Holdings, Inc.
(In thousands)
                                 
    For the Nine Months Ended  
    September 30, 2007     September 30, 2006  
    Average     Average     Average     Average  
    Balance     Rate     Balance     Rate  
Interest-Earning Assets:
                                
Short-term investments
   $ 18,976       4.83 %   $ 11,621       5.01 %
Securities:
                                
Taxable(7)
     644,567       5.48       618,985       5.28  
Exempt from federal income taxes(7)
     56,211       5.93       90,966       5.88  
 
                        
Total securities
     700,778       5.52       709,951       5.36  
FRB and FHLB stock
     23,648       3.84       16,832       3.76  
Loans held for sale
     1,939       6.12       1,756       6.38  
Loans:(8)
                                
Commercial loans
     411,034       7.87       270,941       7.93  
Commercial real estate loans(7)(9)(10)
     1,264,709       7.55       1,057,020       7.54  
Agricultural loans
     3,187       7.99       2,419       7.72  
Consumer real estate loans(7)(9)(10)
     277,092       6.75       233,548       6.67  
Consumer installment loans
     9,806       7.60       7,556       7.41  
 
                        
Total loans
     1,965,828       7.50       1,571,484       7.48  
 
                        
Total interest-earning assets
   $ 2,711,169       6.93 %   $ 2,311,644       6.79 %
 
                                
Noninterest-Earning Assets:
                                
Cash
   $ 57,220             $ 59,617          
Premises and equipment, net
     22,231               21,869          
Allowance for loan losses
     (24,321 )             (20,895 )        
Other assets
     233,578               160,336          
 
                            
Total noninterest-earning assets
     288,708               220,927          
 
                            
Total assets
   $ 2,999,877             $ 2,532,571          
 
                            
 
                                
Interest-Bearing Liabilities:
                                
Deposits:
                                
Interest-bearing demand deposits
   $ 170,166       1.87 %   $ 148,869       1.00 %
Money-market demand and savings accounts
     368,861       2.61       328,388       2.01  
Time deposits less than $100,000
     739,579       4.81       756,544       4.03  
Time deposits of $100,000 or more
     478,916       5.24       289,399       4.86  
Public funds
     —       —       15,288       4.52  
 
                        
Total interest-bearing deposits
     1,757,522       4.18       1,538,488       3.47  
Borrowings:
                                
Fed funds purch & repurchase agreements
     282,768       4.25       249,151       4.54  
FHLB advances
     215,142       4.64       210,979       4.12  
Notes payable and other borrowings
     66,322       7.98       59,081       7.70  
 
                        
Total borrowings
     664,232       4.81       519,211       4.73  
 
                        
Total interest-bearing liabilities
   $ 2,421,754       4.35 %   $ 2,057,699       3.79 %
 
                                
Noninterest-Bearing Liabilities:
                                
Noninterest-bearing demand deposits
   $ 255,805             $ 202,901          
Other liabilities
     34,743               32,495          
 
                            
Total interest-bearing liabilities
     290,548               235,396          
Shareholders’ equity
     287,575               239,476          
 
                            
Total liabilities and shareholders’ equity
   $ 2,999,877             $ 2,532,571          
 
                            
 
                                
Net interest margin (tax equivalent)(7)(11)
             3.05 %             3.41 %
See footnotes at end of statements, tables and schedules.

 

 

Credit Risk Management
Midwest Banc Holdings, Inc.
(In thousands)
                                         
    Three Months Ended  
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
Loan Quality
                                        
Nonaccrual loans
                                        
Large Problem Credit
   $ 28,886     $ 28,909     $ 26,845     $ 25,825     $ 11,252  
From remainder of portfolio
     15,795       14,679       14,834       17,001       10,303  
 
                              
Total nonaccrual loans
   $ 44,681     $ 43,588     $ 41,679     $ 42,826     $ 21,555  
 
                              
 
                                        
Foreclosed properties
   $ 2,246     $ 2,312     $ 2,403     $ 2,640     $ 2,864  
 
                              
 
                                        
Nonperforming assets
                                        
Large Problem Credit
   $ 28,886     $ 28,909     $ 26,845     $ 25,825     $ 11,252  
From remainder of portfolio
     18,041       16,991       17,237       19,641       13,167  
 
                              
Total nonperforming assets
   $ 46,927     $ 45,900     $ 44,082     $ 45,466     $ 24,419  
 
                              
 
                                        
90+ days past due and accruing
   $ —     $ 608     $ 25     $ 34     $ 29  
 
                                        
Loans
                                        
Large Problem Credit
   $ 28,886     $ 28,909     $ 28,884     $ 27,902     $ 34,489  
Remainder of portfolio
     1,978,560       1,953,763       1,921,729       1,918,914       1,874,537  
 
                              
Total loans
   $ 2,007,446     $ 1,982,672     $ 1,950,613     $ 1,946,816     $ 1,909,026  
 
                              
 
                                        
Foreclosed properties
   $ 2,246     $ 2,312     $ 2,403     $ 2,640     $ 2,864  
 
                              
 
                                        
Loan-related assets
                                        
Large Problem Credit
   $ 28,886     $ 28,909     $ 28,884     $ 27,902     $ 34,489  
Remainder of portfolio
     1,980,806       1,956,075       1,924,132       1,921,554       1,877,401  
 
                              
Total loan-related assets
   $ 2,009,692     $ 1,984,984     $ 1,953,016     $ 1,949,456     $ 1,911,890  
 
                              
 
                                        
Nonaccrual loans to loans
                                        
Total
     2.23 %     2.20 %     2.14 %     2.20 %     1.13 %
Without Large Problem Credit
     .80       .75       .77       .89       .55  
Nonperforming assets to loan-related assets
                                        
Total
     2.34 %     2.31 %     2.26 %     2.33 %     1.28 %
Without Large Problem Credit
     .91       .87       .90       1.02       0.70  
 
                                        
Allowance for Loan Losses
                                        
Beginning balance
   $ 23,724     $ 24,028     $ 23,229     $ 25,542     $ 20,874  
Balance at bank acquisition
     —       —       —       —       3,244  
Provision for loan losses
     1,800       1,036       645       5,500       1,550  
Net chargeoffs (recoveries)
                                        
Large Problem Credit
     —       —       —       7,500       —  
From remainder of portfolio
     645       1,340       (154 )     313       126  
 
                              
 
     645       1,340       (154 )     7,813       126  
 
                              
Ending balance
   $ 24,879     $ 23,724     $ 24,028     $ 23,229     $ 25,542  
 
                              
 
                                        
Net chargeoffs (recoveries) to average loans
                                        
Total
     .13 %     .27 %     (.03 )%     1.62 %     .03 %
Without Large Problem Credit
     .13       .27       (.03 )     .06       .03  
Delinquencies 30 - 89 days
                                        
Total
     .49 %     .63 %     .48 %     .33 %     1.98 %
Without Large Problem Credit
     .49       .63       .48       .33       .76  
Allowance for loan losses to
                                        
Loans at period end
     1.24 %     1.20 %     1.23 %     1.19 %     1.34 %
Nonaccrual loans
     56 %     54 %     58 %     54 %     118 %

 

 

Footnotes
Midwest Banc Holdings, Inc.
(In thousands)
(1)   Core net income is net income excluding merger related charges. Management believes that core net income is a more useful measure of operating performance since it excludes items that are not recurring in nature. In addition, management believes core net income is more reflective of current trends. The following table reconciles reported net income to core net income for the periods presented:
                                         
    Three Months Ended  
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
 
                                        
Net Income
   $ 4,836     $ 5,107     $ 4,412     $ 2,933     $ 5,982  
Merger related charges, net of tax
     —       —       —       —       961  
 
                              
Core net income
   $ 4,836     $ 5,107     $ 4,412     $ 2,933     $ 6,943  
 
                              
                 
    Nine Months Ended  
    September 30,     September 30,  
    2007     2006  
 
                
Net Income
   $ 14,355     $ 14,813  
Merger related charges, net of tax
     —       961  
 
            
Core net income
   $ 14,355     $ 15,774  
 
            
    Core return on average assets is core net income, reconciled above, divided by average assets for that period. Core return on average equity is core net income, reconciled above, divided by average equity for that period. Management believes that core return on average assets and average equity are more useful measures of operating performance since it excludes items that are not recurring in nature and are more reflective of current trends.
 
(2)   Shareholders’ equity less goodwill and net core deposit intangible and other intangibles.
                                         
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
 
                                        
Shareholders’ equity
   $ 285,233     $ 283,575     $ 290,499     $ 287,242     $ 289,477  
Core deposit intangible and other intangibles
     9,586       9,812       10,163       11,273       11,677  
Goodwill
     79,857       79,625       79,625       79,488       78,567  
 
                              
Tangible shareholders’ equity
   $ 195,790     $ 194,138     $ 200,711     $ 196,481     $ 199,233  
 
                              
(3)   Excludes net gains or losses on securities transactions.
 
(4)   Noninterest expense less amortization and foreclosed properties expenses divided by the sum of net interest income (tax equivalent) plus noninterest income.
 
    Core efficiency ratio excludes merger related charges. Management believes that the core efficiency ratio is a more useful measure since it excludes items that are not recurring in nature and is more reflective of current trends. The following tables reconcile reported noninterest expense to core noninterest expenses for the periods presented:
                                         
    Three Months Ended  
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
 
                                        
Noninterest expenses
   $ 16,245     $ 16,644     $ 17,081     $ 16,495     $ 17,194  
Merger related charges
     —       —       —       —       (1,595 )
 
                              
Core noninterest expenses
   $ 16,245     $ 16,644     $ 17,081     $ 16,495     $ 15,599  
 
                              
                 
    Nine Months Ended  
    September 30,     September 30,  
    2007     2006  
 
                
Noninterest expenses
   $ 49,970     $ 42,120  
Merger related charges
     —       (1,595 )
 
            
Core noninterest expenses
   $ 49,970     $ 40,525  
 
            

 

 

(5)   Total assets less goodwill and net core deposit intangible and other intangibles.
                                         
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2007     2007     2007     2006     2006  
 
                                        
Total assets
   $ 3,032,565     $ 3,022,294     $ 2,980,631     $ 2,942,046     $ 2,942,301  
Core deposit intangible and other intangibles
     9,586       9,812       10,163       11,273       11,677  
Goodwill
     79,857       79,625       79,625       79,488       78,567  
 
                              
Tangible assets
   $ 2,943,122     $ 2,932,857     $ 2,890,843     $ 2,851,285     $ 2,852,057  
 
                              
(6)   Includes net interest income and noninterest income.
 
(7)   Adjusted for 35% tax rate and adjusted for the dividends-received deduction where applicable.
 
(8)   Nonaccrual loans are included in the average balance; however, these loans are not earning any interest.
 
(9)   Includes loan fees.
 
(10)   Includes construction loans.
 
(11)   Reconciliation of reported net interest income to tax equivalent net interest income.
                                         
    For the Three Months Ended,     For the Nine Months Ended,  
    September 30,     June 30,     September 30,     September 30,     September 30,  
    2007     2007     2006     2007     2006  
 
                                        
Net interest income
   $ 20,347     $ 19,969     $ 21,393     $ 59,376     $ 56,107  
Tax equivalent adjustment to net interest income
     837       836       1,194       2,652       3,066  
 
                              
Net interest income, tax equivalent basis
   $ 21,184     $ 20,805     $ 22,587     $ 62,028     $ 59,173