EX-99 2 exhibit99.htm EXHIBIT 99 exhibit99.htm
 
 

                                         MB Financial, Inc.
                                         800 West Madison Street
                                         Chicago, Illinois 60607
                                         (888) 422-6562
                                         NASDAQ:  MBFI

PRESS RELEASE


For Information at MB Financial, Inc. contact:
Jill York - Vice President and Chief Financial Officer
E-Mail:  jyork@mbfinancial.com

FOR IMMEDIATE RELEASE

MB FINANCIAL, INC. REPORTS INCREASE IN 2008 SECOND QUARTER NET INCOME

 
CHICAGO, July 25, 2008 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., announced today second quarter results for 2008.  The words “MB Financial,” “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its wholly owned subsidiaries, unless indicated otherwise.  We had net income from continuing operations of $22.0 million for the second quarter of 2008 compared to $19.6 million for the second quarter of 2007, and $5.8 million for the first quarter of 2008.  Fully diluted earnings per share from continuing operations for the second quarter of 2008 were $0.63 per share as compared to $0.53 per share for the second quarter of 2007, and $0.17 per share for the first quarter of 2008.  Income was positively impacted by a $7.3 million, or $0.21 per diluted share, adjustment related to the removal of valuation allowances on certain state tax net operating loss carryforwards and an adjustment of state tax contingency reserves.

Key items for the quarter were as follows:

Strong Balance Sheet Growth Continues
·  
Strong commercial loan growth continued in the second quarter.  Commercial related loans increased by 18% compared to the second quarter of 2007 and 16% annualized on a linked quarter basis driven by strong commercial and commercial real estate loan growth.  Furthermore, we are continuing to see better credit spreads on our new and renewed loans.
·  
Our non-interest bearing deposits grew by 15% annualized on a linked quarter basis.  Total core funding grew by 9% annualized on a linked quarter basis.
·  
We have hired a total of 32 commercial and private bankers from the third quarter of 2007 through the second quarter of 2008. Salary and employee benefit expenses related to new bankers were approximately $1.6 million in the second quarter of 2008, up from $500 thousand in the first quarter of 2008.

Positive Operating Leverage
·  
Net interest income on a tax equivalent basis increased by $4.4 million, or 8.0% from the second quarter of 2007, and $3.0 million, or 21.9% annualized on a linked quarter basis.  The net interest margin on a fully tax equivalent basis increased three basis points from the first quarter of 2008 and decreased six basis points from the second quarter of 2007.
·  
Fee income growth continues to be good.  Core fee income increased by $2.7 million or 12% compared to the second quarter of 2007.  This increase was driven by robust growth in trust and asset management fees, resulting from our Cedar Hill Associates, LLC (Cedar Hill) acquisition, and strong deposit service and loan fees.
·  
On April 18, 2008, we purchased an 80% interest in Cedar Hill, an asset management firm located in Chicago, Illinois, with approximately $960 million in assets under management.  Cedar Hill complements and expands our wealth management product offerings and revenues.


4

Credit Quality
·  
During the second quarter we experienced a $42.7 million increase in non-performing loans resulting primarily from the migration of potential problem loans to non-performing loans during the second quarter and a $47.8 million decrease in potential problem loans.
·  
The allowance for loan losses to total loans was 1.38% as of June 30, 2008.
·  
Our provision for loan losses was $12.2 million for the second quarter, while our net charge-offs were $8.4 million.  Approximately 85% of second quarter charge-offs were reserved as of March 31, 2008.  Therefore, approximately $1.4 million of the second quarter provision related to charge-offs this quarter, $8.4 million of the provision related to the downgrade of credits to non-performing status, and the remainder of the provision related to normal migration of risk ratings and loan growth within the portfolio.

Strong Capital Position
·  
Our quarterly dividend of $0.18 per share was approved this week and remained consistent with prior quarters.
·  
We have 666,730 shares that remain available for purchase under our stock repurchase program.  We have not repurchased any outstanding shares in the open market or in privately negotiated transactions during this year, and we do not intend to repurchase any outstanding shares at this time.  This is a reflection of the strong growth opportunities in our market.
·  
MB Financial Bank, N.A., continues to significantly exceed all of its capital requirements and remains “Well-Capitalized” under the regulations of the Office of the Comptroller of the Currency.  At June 30, 2008, our total risk-based capital ratio was 11.60%, Tier 1 capital to risk-weighted assets ratio was 9.59% and Tier 1 capital to average asset ratio was 8.08%.

RESULTS OF OPERATIONS

Second Quarter Results

Net Interest Income

Net interest income on a tax equivalent basis increased $3.0 million from the first quarter of 2008 to the second quarter of 2008.  The increase in net interest income was primarily due to a $305.3 million increase in average interest earning assets and a three basis point increase in the net interest margin on a fully tax equivalent basis.

See the supplemental net interest margin table for further detail.


5

Other Income (in thousands)

   
Three Months Ended
  
   
June 30,
    
March 31,
    
December 31,
    
September 30,
    
June 30,
  
   
2008
    
2008
    
2007
    
2007
    
2007
  
Core other income:
                              
     Loan service fees
   $ 2,475     $ 2,470     $ 2,080     $ 1,253     $ 1,388  
     Deposit service fees
     6,889       6,530       6,635       6,501       5,624  
     Lease financing, net
     3,969       3,867       4,155       3,952       3,744  
     Brokerage fees
     1,187       985       1,399       2,067       2,716  
     Trust and asset management fees
     3,589       2,220       2,101       2,490       2,666  
     Increase in cash surrender value of life insurance
     1,128       1,606       1,225       1,288       1,269  
     Merchant card processing
     4,644       4,530       4,293       4,131       4,045  
     Other operating income
     1,580       1,605       1,282       1,507       1,303  
Total core other income
     25,461       23,813       23,170       23,189       22,755  
                                         
Non-core other income (1):
                                        
     Gain on sale of third party brokerage business (A)
     -       -       447       -       500  
     Gain on sale of artwork (C)
     -       -       733       -       1,634  
     Gain on sale of properties (C)
     -       -       -       -       7,439  
     Net gain (loss) on sale of other assets (C)
     50       (306 )     (10 )     293       (14 )
     Net gain (loss) on sale of investment securities
     1       1,105       (1,529 )     (114 )     (2,077 )
     Increase (decrease) in market value of assets held in
                                        
       trust for deferred compensation (B)
     55       (75 )     170       (109 )     483  
Total non-core other income
     106       724       (189 )     70       7,965  
                                         
Total other income
   $ 25,567     $ 24,537     $ 22,981     $ 23,259     $ 30,720  

 
(1)
Letters denote the corresponding line items where these non-core other income items reside in the consolidated statements of income as follows: A – Brokerage fees, B – Other Operating Income, and C – Net gain (loss) on sale of other assets.

Core other income has grown steadily over the past year.  Core other income increased by 12% compared to the second quarter of 2007, driven by higher amounts of loan service, deposit service, and trust and asset management fees.

Core deposit service fees increased primarily due to an increase in treasury management fees. Core trust and asset management fees increased primarily due to the acquisition of Cedar Hill during the second quarter of 2008.  The decrease in cash surrender value of life insurance from the first quarter of 2008 to the second quarter of 2008 was primarily due to a $436 thousand death benefit on a bank owned life insurance policy that we recognized during the first quarter of 2008.

Core loan service fees increased from the second quarter of 2007 to the second quarter of 2008, primarily due to an increase in prepayment fees recognized during the second quarter of 2008 compared to the second quarter of 2007.  Core deposit service fees increased from the second quarter of 2007 to the second quarter of 2008, primarily due to an increase in treasury management fees.  The decrease in core brokerage fee income from the second quarter of 2007 to the second quarter of 2008 was mostly due to the sale of our third party brokerage business during the second quarter of 2007, and conversion of customer accounts to the purchaser’s platform in third quarter.  This decrease was offset by a corresponding reduction in brokerage expense.


6

Other Expense (in thousands)

   
Three Months Ended
  
   
June 30,
    
March 31,
    
December 31,
    
September 30,
    
June 30,
  
   
2008
    
2008
    
2007
    
2007
    
2007
  
Core other expense:
                              
     Salaries and employee benefits
   $ 29,052     $ 26,859     $ 26,571     $ 27,273     $ 25,951  
     Occupancy and equipment expense
     6,967       7,525       7,239       6,928       7,054  
     Computer services expense
     2,030       1,916       1,949       1,846       1,857  
     Advertising and marketing expense
     1,504       1,316       962       1,214       1,444  
     Professional and legal expense
     803       306       862       593       656  
     Brokerage fee expense
     470       419       620       1,152       1,582  
     Telecommunication expense
     774       762       757       681       689  
     Other intangibles amortization expense
     913       815       871       874       878  
     Merchant card processing
     4,069       3,926       3,815       3,487       3,474  
     Other operating expenses
     5,489       4,797       5,156       4,888       4,805  
Total core other expense
     52,071       48,641       48,802       48,936       48,390  
                                         
Non-core other expense (1):
                                        
     Vision severance payments (E)
     -       -       -       -       200  
     Executive separation agreement expense (E)
     -       -       5,908       -       -  
     Contribution to MB Financial Charitable Foundation (F)
     -       -       1,500       -       3,000  
     Unamortized issuance costs related to redemption of
                                        
       trust preferred securities (G)
     -       -       1,914       -       -  
     Rent expense (H)
     -       -       494       -       -  
     Visa litigation expense (F)
     -       (342 )     342       -       -  
     Increase in market value of assets held in trust for
                                        
       deferred compensation (E)
     55       (75 )     170       (109 )     483  
Total non-core other expense
     55       (417 )     10,328       (109 )     3,683  
                                         
Total other expense
   $ 52,126     $ 48,224     $ 59,130     $ 48,827     $ 52,073  

 
(1)
Letters denote the corresponding line items where the non-core other expense items reside in the consolidated statements of income as follows:  E – Salaries and employee benefits, F – Other Operating Expenses, G – Professional and legal expense and H –Occupancy and equipment expense.

Salaries and employee benefits expense increased from the second quarter of 2007 to the second quarter of 2008, as we hired 32 bankers from the end of the third quarter of 2007 through the second quarter of 2008.  Included in salaries and employee benefits expense for the second quarter is approximately $1.6 million (including salaries, signing bonus and recruiting fees) related to the addition of these bankers.  Approximately $1.0 million of the increase in salaries and employee benefits expense from the first quarter of 2008 to the second quarter of 2008 was due to the additional bankers, as many of these bankers were hired around the end of the first quarter of 2008.  In addition, the acquisition of Cedar Hill increased salary and employee benefits expense, other expenses and intangible amortization by approximately $800 thousand, $200 thousand and $100 thousand, respectively, during the second quarter of 2008.  As noted earlier, the decrease in our core business brokerage fee expense from the second quarter of 2007 to the second quarter of 2008 was primarily due to the sale of our third party brokerage business during the second quarter of 2007.

Income Taxes

Income tax expense from continuing operations for the three months ended June 30, 2008, decreased $6.1 million to a $4.7 million tax benefit compared to $1.4 million tax expense for the three months ended March 31, 2008.  The decrease in income tax expense was primarily due to a $7.3 million adjustment due to the removal of valuation allowances on state net operating loss carryforwards and an adjustment of state tax contingency reserves.  Not including these adjustments and a $300 thousand adjustment to our tax contingency reserves in the first quarter of 2008, our effective tax rate was 17.6% for the six months ended June 30, 2008.  Our effective tax rate may be in the range of 15% to 20% for the remainder of 2008 depending on pre-tax income, and we expect our effective tax rate to increase in 2009.


7

LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio as of the dates indicated (dollars in thousands):

 
June 30,
March 31,
December 31,
September 30,
June 30,
 
2008
2008
2007
2007
2007
 
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
                     
Commercial related credits:
                    
    Commercial loans
$     1,450,822
25%
 $    1,433,114
25%
    $    1,323,455
24%
$    1,261,995
23%
$   1,161,268
22%
    Commercial loans collateralized by
                    
        assignment of lease payments (lease loans)
         596,148
10%
          581,502
10%
         553,138
10%
      453,340
8%
      437,581
8%
    Commercial real estate (1)
      2,234,848
37%
       2,048,123
35%
      1,994,312
36%
   1,915,845
36%
   1,819,388
36%
    Construction real estate
          795,506
13%
          822,312
14%
         825,216
14%
      849,914
16%
      884,560
17%
Total commercial related credits
       5,077,324
85%
       4,885,051
84%
      4,696,121
84%
   4,481,094
83%
   4,302,797
83%
Other loans:
                    
    Residential real estate (1)
          328,469
5%
          379,279
6%
         372,787
6%
      362,963
7%
      354,763
6%
    Indirect vehicle
          185,083
3%
          162,348
3%
         146,311
3%
      142,827
3%
      131,308
3%
    Home equity
          356,314
6%
          347,752
6%
         347,676
6%
      344,116
6%
      348,336
7%
    Consumer loans
            53,792
1%
            54,671
1%
           52,732
1%
        51,532
1%
        52,302
1%
Total other loans
          923,658
15%
          944,050
16%
         919,506
16%
      901,438
17%
      886,709
17%
                     
Gross loans
       6,000,982
100%
       5,829,101
100%
      5,615,627
100%
   5,382,532
100%
   5,189,506
100%
     Allowance for loan losses
          (82,544)
  
          (78,764)
  
        (65,103)
  
      (61,122)
  
      (59,058)
  
Net loans
 $    5,918,438
  
 $    5,750,337
  
$    5,550,524
  
$    5,321,410
  
$  5,130,448
  

 
(1)
During the third quarter of 2007, multifamily residential real estate loans were reclassified from residential real estate loans to commercial real estate loans.  Prior periods have been reclassified to conform to the current period’s presentation.

Commercial related credits increased by 16% on an annualized basis from March 31, 2008 to June 30, 2008 and by 18% from June 30, 2007.  In the second quarter of 2008 we securitized $50.9 million of residential real estate loans and hold those securities in our investment portfolio.  Including the securitized loans, total loans grew by 15% on an annualized basis from the first quarter of 2008 to the second quarter of 2008, and 17% from June 30, 2007.  The strong growth in commercial related credits was due to new and existing customer demand.

ASSET QUALITY

The following table presents a summary of total performing loans greater than 30 days and less than 90 days past due as of the dates indicated (dollars in thousands):

 
June 30, 2008
March 31, 2008
December 31, 2007
September 30, 2007
June 30, 2007
30 - 59 Days Past Due
$      21,117
$    17,330
$    18,619
$      9,266
$      6,851
60 - 89 Days Past Due
7,188
11,318
6,351
4,078
9,477
 
$      28,305
$    28,648
$    24,970
$    13,344
$    16,328

The following table presents a summary of non-performing assets as of the dates indicated (dollar amounts in thousands):

 
June 30,
2008
March 31,
2008
December 31,
2007
September 30,
2007
June 30,
2007
Non-performing loans:
          
Non-accrual loans (1)
$          91,972
$          46,666
$          24,459
$          23,901
$          21,799
Loans 90 days or more past due, still accruing interest
1,627
4,218
-
-
-
Total non-performing loans
50,884
24,459
23,901
21,799
Other real estate owned
1,499
1,770
1,120
566
111
Repossessed vehicles
81
225
179
288
188
Total non-performing assets
$          52,879
$          25,758
$          24,755
$          22,098
Total non-performing loans to total loans
1.56%
0.87%
0.44%
0.44%
0.42%
Allowance for loan losses to non-performing loans
88.19%
154.79%
266.17%
255.73%
270.92%
Total non-performing assets to total assets
1.13%
0.65%
0.33%
0.31%
0.28%

(1)
 There were no restructured loans in any period presented.


8
 
The following table presents data related to non-performing loans by dollar amount and category at June 30, 2008 (dollar amounts in thousands):

 
Commercial and Lease Loans
Construction Real Estate Loans
Commercial Real Estate Loans
Consumer Loans
Total Loans
Dollar Range
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
Amount
Amount
                 
$5.0 million or more
-
$           -
5
$  42,517
1
$      5,406
$           -
$  47,923
$3.0 million to $4.9 million
-
-
1
4,000
1
3,037
-
7,037
$1.5 million to $2.9 million
-
-
4
8,997
2
3,516
-
12,513
Under $1.5 million
15
4,495
3
2,027
24
12,017
7,587
26,126
 
15
$   4,495
13
$  57,541
28
$    23,976
$   7,587
$  93,599
Percent of loan category
  
0.22%
  
7.23%
  
1.07%
0.82%
1.56%

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.

We define potential problem loans as performing loans rated substandard or doubtful, 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 declined by $47.8 million to $75.2 million, or 1.25% of total loans as of June 30, 2008, and were approximately $123.0 million, or 2.11% of total loans as of March 31, 2008.  The decrease in potential problem loans was primarily due to three construction real estate relationships migrating from potential problem to non-performing loan status.

Among other changes strengthening our credit control and monitoring processes that were implemented during 2008, we enhanced our controls with respect to certain loan monitoring requirements.  The enhancements consisted of a requirement that third party field audits are sent by the auditor directly to credit management.  In addition, credit management independently monitors whether all required field audits have been received and reviewed.  The total outstanding balance on the three commercial loans identified as new potential problem loans in the first quarter press release decreased $3.8 million to $38.7 million in the second quarter from the first quarter of 2008.  We feel we are adequately reserved on these loans as of June 30, 2008.  No additional loans with similar characteristics have been identified.
 
The following table presents data related to potential problem loans by dollar amount and category at June 30, 2008 (dollar amounts in thousands):

 
Commercial and Lease Loans
Construction Real Estate Loans
Commercial Real Estate Loans
Total
Dollar Range
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
Number of Borrowers
Amount
                 
$5.0 million or more
3
$  38,681
1
$  13,433
-
$            -
4
$    52,114
$3.0 million to $4.9 million
1
3,927
-
-
-
-
1
3,927
$1.5 million to $2.9 million
1
1,522
-
-
1
2,308
2
3,830
Under $1.5 million
15
5,488
4
3,504
11
6,353
30
15,345
 
20
$  49,618
5
$  16,937
12
$    8,661
37
$   75,216
Percent of loan category
  
2.42%
  
2.13%
  
0.39%
  
1.25%


9

Below is a reconciliation of the activity in our allowance for loan losses for the periods indicated (dollar amounts in thousands):

 
Three Months Ended
           
 
June 30,
2008
March 31,
2008
December 31,
2007
September 30,
2007
June 30,
2007
           
Balance at beginning of period
$          78,764
$          65,103
$          61,122
$          59,058
$          58,705
Provision for loan losses
           12,200
           22,540
            8,000
            4,500
                3,000
Charge-offs
          
  Commercial loans
(1,342)
(4,166)
(136)
(2,409)
(958)
  Commercial loans collateralized by assignment
          
      of lease payments (lease loans)
(154)
(182)
(108)
-
(99)
  Commercial real estate loans
(1,854)
(3,650)
(1,239)
(489)
(2,534)
  Construction real estate
(4,551)
(1,135)
(2,293)
-
-
  Residential real estate
(92)
(26)
(11)
(186)
(33)
  Indirect vehicle
(366)
(629)
(450)
(152)
(304)
  Home equity
(488)
(182)
(93)
(26)
(32)
  Consumer loans
(144)
(115)
(182)
(133)
(86)
    Total charge-offs
    (8,991)
    (10,085)
            (4,512)
            (3,395)
             (4,046)
Recoveries
          
  Commercial loans
214
191
289
648
248
  Commercial loans collateralized by assignment
          
      of lease payments (lease loans)
-
-
17
18
928
  Commercial real estate loans
6
3
20
7
3
  Construction real estate
161
750
-
-
37
  Residential real estate
5
6
4
5
8
  Indirect vehicle
163
194
109
156
92
  Home equity
15
52
41
120
70
  Consumer loans
7
10
13
5
13
   Total Recoveries
             571 
             1,206 
             493 
            959
1,399
Net charge-offs
            (8,420) 
            (8,879) 
            (4,019) 
            (2,436)
(2,647)
           
Balance
$          82,544
$          78,764
$          65,103
$          61,122
$          59,058
Total loans
  $     6,000,982
  $     5,829,101
  $     5,615,627
  $     5,382,532
$     5,189,506
Average loans
 $     5,927,236
 $     5,687,646
 $     5,459,430
 $     5,275,376
$     5,099,822
Ratio of allowance for loan losses to total loans
   1.38%
   1.35%
   1.16%
   1.14%
   1.14%
Net loan charge-offs to average loans (annualized)
0.57%
0.63%
0.29%
0.18%
0.21%


10

The following is a summary of charge-offs and non-performing loans for the prior twenty-two quarters (in thousands):

 
Net Charge-Offs
  
Annualized
Net Charge-Offs
to Average Loans
  
End of Period
Non-Performing
Loans
  
Non-Performing
Loans to Total Loans
  
Potential Problem Loans to Total Loans
  
Total Non-Performing Loans and Potential Problem Loans to Total Loans
                       
2003 – 1st Qtr
$     1,219
  
0.20%
  
 $       22,384
  
0.86%
  
1.56%
  
2.42%
2003 – 2nd Qtr
2,872
  
0.44%
  
 $       21,503
  
0.84%
  
1.15%
  
1.99%
2003 – 3rd Qtr
4,538
  
0.69%
  
 $       25,519
  
0.98%
  
1.04%
  
2.02%
2003 –  4th Qtr
1,524
  
0.23%
  
 $       21,073
  
0.79%
  
0.89%
  
1.68%
2003 – Full Year
$   10,153
  
0.39%
                
                       
2004 – 1st Qtr
 $    1,317
  
0.20%
  
 $       25,922
  
0.96%
  
1.45%
  
2.40%
2004 – 2nd Qtr
1,962
  
0.28%
  
 $       28,789
  
0.95%
  
1.34%
  
2.29%
2004 – 3rd Qtr
1,632
  
0.21%
  
 $       25,228
  
0.84%
  
1.45%
  
2.28%
2004 –  4th Qtr
2,416
  
0.31%
  
 $       22,571
  
0.71%
  
1.28%
  
1.99%
2004 – Full Year
$    7,327
  
0.25%
                
                       
2005 – 1st Qtr
 $    2,890
  
0.36%
  
 $       25,623
  
0.79%
  
0.81%
  
1.60%
2005 – 2nd Qtr
2,074
  
0.25%
  
 $       22,883
  
0.67%
  
0.59%
  
1.26%
2005 – 3rd Qtr
1,805
  
0.21%
  
 $       18,212
  
0.53%
  
0.67%
  
1.20%
2005 –  4th Qtr
1,346
  
0.16%
  
 $       20,171
  
0.58%
  
0.61%
  
1.19%
2005 – Full Year
$    8,115
  
0.24%
                
                       
2006 – 1st Qtr
 $    1,035
  
0.12%
  
 $       19,685
  
0.55%
  
0.66%
  
1.21%
2006 – 2nd Qtr
866
  
0.10%
  
 $       15,887
  
0.43%
  
0.88%
  
1.31%
2006 – 3rd Qtr
     4,975
  
0.46%
  
  $       19,912
  
0.41%
  
0.45%
  
0.86%
2006 –  4th Qtr
     2,956
  
0.24%
  
  $       21,468
  
0.43%
  
0.48%
  
0.91%
2006 – Full Year
 $    9,832
  
0.24%
                
                       
2007 – 1st Qtr
$     4,091
  
0.33%
  
  $       23,222
  
0.46%
  
0.63%
  
1.09%
2007 – 2nd Qtr
     2,647
  
0.21%
  
  $       21,799
  
0.42%
  
0.41%
  
0.83%
2007 – 3rd Qtr
     2,436
  
0.18%
  
  $       23,901
  
0.44%
  
0.85%
  
1.29%
2007 –  4th Qtr
     4,019
  
0.29%
  
  $       24,459
  
0.44%
  
1.56%
  
2.00%
2007 – Full Year
$   13,193
  
0.25%
                
                       
2008 – 1st Qtr
$     8,879
  
0.63%
  
  $       50,884
  
0.87%
  
2.11%
  
2.98%
2008 – 2nd Qtr
     8,420
  
0.57%
  
  $       93,599
  
1.56%
  
1.25%
  
2.81%

 
 
11
 

INVESTMENT SECURITIES AVAILABLE FOR SALE

The following table sets forth the fair value, amortized cost, and total unrealized gain (loss) of our investment securities available for sale, by type (in thousands):

   
At June 30,
    
At March 31,
    
At December 31,
    
At September 30,
    
At June 30,
  
   
2008
    
2008
    
2007
    
2007
    
2007
  
Fair value
                              
U.S. Treasury securities
   $ -     $ -     $ -     $ -     $ 1,274  
Government sponsored agencies and enterprises
     269,947       274,217       310,538       328,040       414,620  
States and political subdivisions
     431,882       417,609       412,302       397,807       386,040  
Mortgage-backed securities
     608,737       479,383       438,056       487,747       489,345  
Corporate bonds
     8,000       11,123       13,057       22,006       27,643  
Equity securities
     3,480       3,520       3,460       9,892       6,222  
Debt securities issued by foreign governments
     295       301       301       298       298  
    Total fair value
     1,322,341       1,186,153       1,177,714       1,245,790       1,325,442  
                                         
Amortized cost
                                        
U.S. Treasury securities
     -       -       -       -       1,290  
Government sponsored agencies and enterprises
     266,418       266,276       305,768       326,504       417,647  
States and political subdivisions
     432,780       408,969       407,973       396,896       392,378  
Mortgage-backed securities
     606,150       472,482       435,743       489,219       496,675  
Corporate bonds
     7,765       10,779       12,797       22,120       28,024  
Equity securities
     3,520       3,484       3,446       9,950       6,434  
Debt securities issued by foreign governments
     301       301       299       298       298  
    Total amortized cost
     1,316,934       1,162,291       1,166,026       1,244,987       1,342,746  
                                         
Unrealized gain (loss)
                                        
U.S. Treasury securities
     -       -       -       -       (16 )
Government sponsored agencies and enterprises
     3,529       7,941       4,770       1,536       (3,027 )
States and political subdivisions
     (898 )     8,640       4,329       911       (6,338 )
Mortgage-backed securities
     2,587       6,901       2,313       (1,472 )     (7,330 )
Corporate bonds
     235       344       260       (114 )     (381 )
Equity securities
     (40 )     36       14       (58 )     (212 )
Debt securities issued by foreign governments
     (6 )     -       2       -       -  
    Total unrealized gain (loss)
   $ 5,407     $ 23,862     $ 11,688     $ 803     $ (17,304 )

We do not have any meaningful direct or indirect holdings of subprime residential mortgage loans, home equity lines of credit, or trust preferred securities in our investment portfolio.  We do not own any Fannie Mae or Freddie Mac preferred or common equity securities.

FUNDING MIX

The following table shows the composition of our core and wholesale funding resources as of the dates indicated (dollars in thousands):

 
June 30,
March 31,
December 31,
September 30,
June 30,
 
2008
2008
2007
2007
2007
 
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
Amount
% of Total
                     
Core funding:
                    
    Non-interest bearing deposits
 $          898,954
12%
 $      865,665
12%
$       875,491
13%
$      846,699
13%
$       879,338
13%
    Money market and NOW accounts
           1,257,852
17%
      1,220,152
17%
1,263,021
18%
1,336,162
20%
1,221,893
18%
    Savings accounts
             390,145
5%
         389,944
5%
390,980
6%
407,608
6%
429,625
7%
    Certificates of deposit
           2,379,894
32%
      2,324,157
33%
2,193,793
32%
2,236,197
33%
2,270,184
34%
    Customer repurchase agreements
              312,170
4%
         328,976
5%
367,702
5%
341,893
5%
326,194
5%
Total core funding
           5,239,015
70%
      5,128,894
72%
5,090,987
74%
5,168,559
77%
5,127,234
77%
                     
Wholesale funding:
                    
    Public funds deposits
           252,693
3%
         264,972
5%
312,032
5%
314,826
5%
327,560
5%
    Brokered deposit accounts
           858,135
12%
         616,197
9%
478,466
7%
408,796
6%
394,644
6%
    Other short-term borrowings
           452,002
6%
         594,009
7%
610,019
9%
468,042
6%
456,959
7%
    Long-term borrowings
           433,625
6%
         304,010
4%
158,865
2%
162,577
3%
161,322
3%
    Subordinated debt
             50,000
1%
           50,000
1%
50,000
1%
25,000
0%
25,000
0%
    Junior subordinated notes issued
     to capital trusts
                     158,920
2%
         158,968
2%
159,016
2%
197,537
3%
166,657
2%
Total wholesale funding
          2,205,375
30%
      1,988,156
28%
1,768,398
26%
1,576,778
23%
1,532,142
23%
                     
Total funding
 $        7,444,390
100%
$    7,117,050
100%
$    6,859,385
100%
$    6,745,337
100%
$    6,659,376
100%
 
 
12

 
FORWARD-LOOKING STATEMENTS

When used in this press release and in filings with the Securities and Exchange Commission, in other 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 our future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following (1) expected cost savings and synergies from our merger and acquisition activities, including our recently completed acquisition of Cedar Hill Associates, might not be realized within the expected time frames; (2) 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; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (8) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (9) our ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in the Chicago metropolitan area in particular; (12) the costs, effects and outcomes of litigation; (13) new legislation or regulatory changes, including but not limited to changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (14) changes in accounting principles, policies or guidelines; (15) our future acquisitions of other depository institutions or lines of business.

We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.



TABLES TO FOLLOW

 
13
 

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2008, March 31, 2008, December 31, 2007,
September 30, 2007, and June 30, 2007
(Amounts in thousands, except common share data)
(Unaudited)
 
June 30,
March 31,
December 31,
September 30,
June 30,
 
2008
2008
2007
2007
2007
                     
ASSETS
                    
Cash and due from banks
$
164,996
$
187,116
$
141,248
$
119,961
$
153,496
Interest bearing deposits with banks
  
6,487
  
16,054
  
9,093
  
7,582
  
3,622
Investment securities:
                    
           Securities available for sale, at fair value
  
1,322,341
  
1,186,153
  
1,177,714
  
1,245,790
  
1,325,442
           Non-marketable securities - FHLB and FRB Stock
  
63,913
  
63,671
  
63,671
  
63,634
  
63,634
                Total investment securities
  
1,386,254
  
1,249,824
  
1,241,385
  
1,309,424
  
1,389,076
Loans (net of allowance for loan losses of $82,544 at June 30, 2008,
                    
           $78,764 at March 31, 2008, $65,103 at December 31, 2007,
                    
$61,122 at September 30, 2007, and $59,058 at June 30, 2007)
  
5,918,438
  
5,750,337
  
5,550,524
  
5,321,410
  
5,130,448
Assets held for sale
  
-
  
-
  
-
  
353,028
  
375,149
Lease investments, net
  
113,101
  
91,675
  
97,321
  
90,670
  
80,353
Premises and equipment, net
  
185,411
  
184,257
  
183,722
  
183,506
  
184,090
Cash surrender value of life insurance
  
119,423
  
118,296
  
116,690
  
117,900
  
116,624
Goodwill, net
  
387,069
  
379,047
  
379,047
  
379,047
  
379,047
Other intangibles, net
  
27,602
  
24,537
  
25,352
  
26,223
  
27,097
Other assets
  
90,961
  
89,213
  
90,321
  
91,745
  
82,306
                     
Total assets
$
8,399,742
$
8,090,356
$
7,834,703
$
8,000,496
$
7,921,308
                     
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
                    
Liabilities
                    
Deposits:
                    
Noninterest bearing
$
898,954
$
865,665
$
875,491
$
846,699
$
879,338
Interest bearing
  
5,138,719
  
4,814,621
  
4,638,292
  
4,703,589
  
4,643,906
Total deposits
  
6,037,673
  
5,680,286
  
5,513,783
  
5,550,288
  
5,523,244
Short-term borrowings
  
764,172
  
922,985
  
977,721
  
809,935
  
783,153
Long-term borrowings
  
483,625
  
354,010
  
208,865
  
187,577
  
186,322
Junior subordinated notes issued to capital trusts
  
158,920
  
158,968
  
159,016
  
197,537
  
166,657
Liabilities held for sale
  
-
  
-
  
-
  
321,144
  
344,643
Accrued expenses and other liabilities
  
74,471
  
102,060
  
112,949
  
79,112
  
74,972
Total liabilities
  
7,518,861
  
7,218,309
  
6,972,334
  
7,145,593
  
7,078,991
                     
Minority interest
  
2,564
  
-
  
-
  
-
  
-
                     
Stockholders' Equity
                    
Common stock, ($0.01 par value; authorized 43,000,000 shares at June
                   
           30, 2008, March 31, 2007, December 31, 2007, September 30, 2007,
                    
           and June 30, 2007; issued 37,525,940, 37,414,091, 37,401,023,
                    
37,404,087 and 37,345,661 shares at June 30, 2008, March 31, 2008,
                    
December 31, 2007, September 30, 2007, and June 30, 2007, respectively)
  
375
  
374
  
374
  
374
  
373
Additional paid-in capital
  
441,914
  
441,405
  
441,201
  
440,655
  
439,450
Retained earnings
  
520,595
  
504,861
  
505,260
  
475,208
  
463,359
Accumulated other comprehensive income (loss)
  
3,515
  
15,511
  
7,597
  
120
  
(12,028)
                   
           Treasury stock, at cost, at June 30, 2008, March  31, 2008,
                    
December 31,2007, September 30, 2007 and June 30, 2007, respectively
  
(88,082)
  
(90,104)
  
(92,063)
  
(61,454)
  
(48,837)
Total stockholders' equity
  
878,317
  
872,047
  
862,369
  
854,903
  
842,317
                     
Total liabilities, minority interest and stockholders' equity
$
8,399,742
$
8,090,356
$
7,834,703
$
8,000,496
$
7,921,308

 
14
 

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except common share data)
(Unaudited)
 
Three months ended
Six months ended
 
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
 
2008
2008
2007
2007
2007
2008
2007
Interest income:
              
Loans
$    87,458
$    93,877
$    100,802
$    101,488
$         96,793
$    181,335
$    190,726
Investment securities available for sale:
              
Taxable
10,001
9,971
10,181
11,983
13,163
19,972
27,511
Nontaxable
3,828
3,753
3,649
3,586
3,325
7,581
6,627
Federal funds sold
14
95
95
52
67
109
302
Other interest bearing accounts
89
106
102
63
49
195
99
Total interest income
101,390
107,802
114,829
117,172
113,397
209,192
225,265
Interest expense:
              
Deposits
34,309
40,849
45,917
47,942
46,337
75,158
91,790
Short-term borrowings
5,351
7,867
9,729
9,617
9,390
13,218
18,008
Long-term borrowings and junior subordinated notes
5,657
5,623
5,211
5,530
5,316
11,280
11,216
Total interest expense
45,317
54,339
60,857
63,089
61,043
99,656
121,014
Net interest income
56,073
53,463
53,972
54,083
52,354
109,536
104,251
Provision for loan losses
12,200
22,540
8,000
4,500
3,000
34,740
6,813
Net interest income after provision for loan losses
43,873
30,923
45,972
49,583
49,354
74,796
97,438
Other income:
              
Loan service fees
2,475
2,470
2,080
1,253
1,388
4,945
2,925
Deposit service fees
6,889
6,530
6,635
6,501
5,624
13,419
10,782
Lease financing, net
3,969
3,867
4,155
3,952
3,744
7,836
7,740
Brokerage fees
1,187
985
1,846
2,067
3,216
2,172
5,668
Trust and asset management fees
3,589
2,220
2,101
2,490
2,666
5,809
5,856
      Net (loss) gain on sale of investment securities
1
1,105
(1,529)
(114)
(2,077)
1,106
(2,101)
Increase in cash surrender value of life insurance
1,128
1,606
1,225
1,288
1,269
2,734
2,490
Net gain (loss) on sale of other assets
50
(306)
723
293
9,059
(256)
9,081
Merchant card processing
4,644
4,530
4,293
4,131
4,045
9,174
7,923
Other operating income
1,635
1,530
1,452
1,398
1,786
3,165
3,300
 
25,567
24,537
22,981
23,259
30,720
50,104
53,664
Other expense:
              
Salaries and employee benefits
29,107
26,784
32,649
27,164
26,634
55,891
51,456
Occupancy and equipment expense
6,967
7,525
7,733
6,928
7,054
14,492
14,254
Computer services expense
2,030
1,916
1,949
1,846
1,857
3,946
3,674
Advertising and marketing expense
1,504
1,316
962
1,214
1,444
2,820
2,854
Professional and legal expense
803
306
2,776
593
656
1,109
1,179
Brokerage fee expense
470
419
620
1,152
1,582
889
3,030
Telecommunication expense
774
762
757
681
689
1,536
1,370
Other intangibles amortization expense
913
815
871
874
878
1,728
1,759
Merchant card processing
4,069
3,926
3,815
3,487
3,474
7,995
6,744
Charitable contributions
15
15
1,512
31
3,034
29
3,143
Other operating expenses
5,474
4,440
5,486
4,857
4,771
9,915
9,416
 
52,126
48,224
59,130
48,827
52,073
100,350
98,879
Income before income taxes
17,314
7,236
9,823
24,015
28,001
24,550
52,223
Income tax (benefit) expense
(4,693)
1,412
1,890
6,709
8,394
(3,281)
15,437
Income from continuing operations
$       22,007
$       5,824
$      7,933
$    17,306
$    19,607
$    27,831
$     36,786
Discontinued operations
              
     Income (loss)  from discontinued operations before income taxes
-
-
(741)
1,499
1,803
-
3,232
     Gain on disposal of discontinued operations before income taxes
-
-
46,485
-
-
-
-
        Income before income taxes
-
-
45,744
1,499
1,803
-
3,232
   Income taxes
-
-
17,281
500
369
-
856
        Income from discontinued operations
-
-
28,463
999
1,434
-
2,376
          Net income
$       22,007
$      5,824
$    36,396
$    18,305
$    21,041
$    27,831
$     39,162

 
15
 


 
Three months ended
Six months ended
 
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
 
2008
2008
2007
2007
2007
2008
2007
Common share data:
              
     Basic earnings per common share from continuing operations
$        0.63
$        0.17
$        0.23
$        0.48
$        0.54
$        0.80
$            1.01 
     Basic earnings per common share from discontinued operations
$              -
$              -
$        0.81
$        0.03
$        0.04
$              -
$            0.06 
     Basic earnings per common share
$        0.63
$        0.17
$        1.04
$        0.51
$        0.58
$        0.80
$            1.07 
     Diluted earnings per common share from continuing operations
$        0.63
$        0.17
$        0.22
$        0.48
$        0.53
$        0.79
$            1.00 
     Diluted earnings per common share from discontinued operations
$              -
$              -
$        0.80
$        0.03
$        0.04
$              -
$            0.06 
     Diluted earnings per common share
$        0.63
$        0.17
$        1.02
$        0.51
$        0.57
$        0.79
$            1.06 
     Weighted average common shares outstanding
34,692,571
34,620,435
35,095,301
35,733,165
36,239,731
34,656,503
36,433,948 
     Diluted weighted average common shares outstanding
  35,047,596
34,994,731
35,536,449
36,213,532
36,744,473
     35,043,849
36,958,570 


 
16
 

                             
 
Three months ended
Six months ended
 
June 30,
  
March 31,
  
December 31,
  
September 30,
  
June 30,
  
June 30,
  
June 30,
  
 
2008
  
2008
  
2007
  
2007
  
2007
  
2008
  
2007
  
                             
Performance Ratios (continuing operations):
                            
    Annualized return on average assets
       1.08
%
             0.30
%
             0.40
%
             0.86
%
   1.00
%
0.70
%
0.94
%
    Annualized return on average equity
     10.11
  
             2.66
  
             3.68
  
             8.10
  
        9.25
  
6.38
  
8.72
  
    Annualized return on average tangible equity (1)
     19.12
  
           5.28
  
           7.32
  
           15.72
  
      17.87
  
12.14
  
16.86
  
    Net interest rate spread
       2.88
  
             2.75
  
             2.76
  
             2.81
  
        2.79
  
2.82
  
2.79
  
    Efficiency ratio (2)
     61.96
  
           61.07
  
           73.46
  
           61.47
  
      59.86
  
61.48
  
60.38
  
    Net interest margin
       3.11
  
             3.10
  
             3.16
  
             3.22
  
        3.20
  
3.11
  
3.21
  
    Tax equivalent effect
       0.14
  
             0.12
  
             0.12
  
             0.12
  
        0.11
  
0.13
  
0.11
  
    Net interest margin – fully tax equivalent basis (3)
       3.25
  
             3.22
  
             3.28
  
             3.34
  
        3.31
  
3.24
  
3.32
  
                             
Performance Ratios (total):
                            
    Annualized return on average assets
       1.08
%
             0.30
%
             1.82
%
             0.91
%
    1.07
%
0.70
%
1.00
%
    Annualized return on average equity
     10.11
  
             2.66
  
             16.86
  
             8.57
  
        9.93
  
6.38
  
9.28
  
    Annualized return on average tangible equity (1)
     19.12
  
           5.28
  
           31.83
  
           16.60
  
      19.14
  
12.14
  
17.92
  
    Net interest rate spread
       2.88
  
             2.75
  
             2.76
  
             2.81
  
        2.80
  
2.82
  
2.81
  
    Efficiency ratio (2)
     61.96
  
           61.07
  
           47.60
  
           61.29
  
      59.44
  
61.48
  
60.03
  
    Net interest margin
       3.11
  
             3.10
  
               3.17
  
             3.24
  
        3.22
  
3.11
  
3.23
  
    Tax equivalent effect
       0.14
  
             0.12
  
               0.12
  
             0.12
  
        0.12
  
0.13
  
0.11
  
    Net interest margin – fully tax equivalent basis (3)
       3.25
  
             3.22
  
               3.29
  
             3.36
  
        3.34
  
3.24
  
3.34
  
                             
Asset Quality Ratios:
                            
    Total non-performing loans and potential problem
                            
       loans to total loans
2.81
%
2.98
%
2.00
%
1.29
%
0.83
%
2.81
%
0.83
%
    Non-performing loans to total loans
       1.56
  
             0.87
  
             0.44
  
             0.44
  
     0.42
  
1.56
  
0.42
  
    Non-performing assets to total assets
       1.13
  
             0.65
  
             0.33
  
             0.31
  
        0.28
  
       1.13
  
0.28
  
    Allowance for loan losses to total loans
       1.38
  
             1.35
  
             1.16
  
             1.14
  
        1.14
  
      1.38
  
1.14
  
    Allowance for loan losses to  non-performing loans
    88.19
  
         154.79
  
         266.17
  
         255.73
  
    270.92
  
   88.19
  
270.92
  
    Net loan charge-offs to average loans (annualized)
       0.57
  
             0.63
  
             0.29
  
             0.18
  
        0.21
  
0.60
  
0.27
  
                             
Capital Ratios:
                            
    Tangible equity to assets (4)
       5.95
%
             6.20
%
             6.28
%
             6.03
%
     5.92
%
5.95
%
5.92
%
    Equity to total assets
     10.46
  
           10.78
  
           11.01
  
           10.69
  
     10.63
  
10.46
  
10.63
  
    Book value per share (5)
     25.20
  
           25.15
  
           24.91
  
           24.02
  
      23.46
  
25.20
  
23.46
  
    Less: goodwill and other intangible assets, net of
                            
       tax benefit, per common share
     11.62
  
           11.39
  
           11.43
  
           11.13
  
      11.05
  
11.62
  
11.05
  
    Tangible book value per share (6)
     13.58
  
           13.76
  
           13.48
  
           12.89
  
      12.41
  
13.58
  
12.41
  
                             
    Total capital (to risk–weighted assets)
     11.60
%
           11.81
%
           11.58
%
           11.83
%
   11.62
%
     11.60
%
11.62
%
    Tier 1 capital (to risk-weighted assets)
      9.59
  
           9.78
  
           9.75
  
           10.31
  
      10.09
  
      9.59
  
10.09
  
    Tier 1 capital (to average assets)
       8.08
  
             8.29
  
             8.18
  
             8.61
  
        8.25
  
       8.08
  
8.25
  

 
(1)
Net cash flow available to stockholders (net income or net income from continuing operations, as appropriate, plus other intangibles amortization expense, net of tax benefit) / Average tangible equity (average equity less average goodwill and average other intangibles, net of tax benefit)
 
(2)
Equals total other expense divided by the sum of net interest income on a fully tax equivalent basis and total other income less net gains (losses) on securities available for sale.
 
(3)
Represents net interest income, on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
 
(4)
Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
 
(5)
Equals total ending stockholders’ equity divided by common shares outstanding.
 
(6)
Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.


 
17
 

NON-GAAP FINANCIAL INFORMATION

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP).  These measures include net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, tangible equity to assets ratio, tangible book value per share, and annualized cash return on average tangible equity.  Our management uses these non-GAAP measures in its analysis of our performance.  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.  The other measures exclude the ending balances of acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible stockholders’ equity.  Management believes the presentation of these other financial measures excluding the impact of such items provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management’s success in utilizing our tangible capital.  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.

The following table presents a reconciliation of tangible equity to stockholders’ equity (in thousands):

   
June 30,
  
March 31,
  
December 31,
  
September 30,
  
June 30,
   
2008
  
2008
  
2007
  
2007
  
2007
                     
Stockholders’ equity – as reported
$
878,317
$
872,047
$
862,369
$
854,903
$
842,317
   Plus: minority interest
  
2,564
  
-
  
-
  
-
  
-
   Less: goodwill
  
387,069
  
379,047
  
379,047
  
379,047
  
379,047
   Less: other intangible assets, net of tax benefit
  
17,941
  
15,949
  
16,479
  
17,045
  
17,613
Tangible equity
$
$
477,051
$
466,843
$
458,811
$
445,657

The following table presents a reconciliation of average tangible equity to average stockholders’ equity (in thousands):

 
Three months ended
Six months ended
 
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
 
2008
2008
2007
2007
2007
2008
2007
               
Average Stockholders’ equity – as reported
$    875,636
$    879,056
$    856,362
$    847,326
$    849,816
$    877,346
$      850,795
   Plus: average minority interest
      1,814
-
-
-
-
                  907
-
   Less: average goodwill
  384,865
379,047
379,047
379,047
379,047
           381,956
379,047
   Less: average other intangible assets, net of tax benefit
    17,295
16,131
16,671
17,245
17,805
             16,802
18,099
Average tangible equity
$    475,290
$    483,878
$    460,644
$    451,034
$    452,964
 $    479,495
$      453,649

The following table presents a reconciliation of net cash flow available to stockholders to net income from continuing operations (in thousands):

 
Three months ended
Six months ended
 
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
 
2008
2008
2007
2007
2007
2008
2007
               
Net income – as reported
$      22,007
$       5,824
$        7,933
$         17,306
  $    19,607
$         27,831
   $     36,786
   Add: other intangible amortization
              
     expense, net of tax benefit
593
530
566
568
571
1,123
1,143
Net cash flow available to stockholders
$      22,600
$      6,354
 $        8,499
$         17,874
$   20,178
$        28,954
   $     37,929

 
18

The following table presents a reconciliation of net cash flow available to stockholders to net income (in thousands):

 
Three months ended
Six months ended
 
June 30,
March 31,
December 31,
September 30,
June 30,
June 30,
June 30,
 
2008
2008
2007
2007
2007
2008
2007
               
Net income – as reported
$     22,007
$       5,824
$       36,396
$      18,305
$     21,041
$        27,831
   $     39,162
   Add: other intangible amortization
              
     expense, net of tax benefit
593
530
566
568
571
1,123
1,143
Net cash flow available to stockholders
$    22,600
$      6,354
$      36,962
$     18,873
$     21,612
$       28,954
   $     40,305

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.”  A reconciliation of tangible book value per share to book value per share is contained in the “Selected Financial Ratios” table.



 
19
 


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 June 30,
Three Months Ended March 31,
 
2008
2007
2008
 
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
                     
Interest Earning Assets:
                    
Loans (1) (2):
                    
Commercial related credits
                    
    Commercial
 $    1,375,537
 $   19,605
5.64%
 $     1,140,869
 $    22,635
7.85%
  
 $   1,365,694
 $  22,771
6.60%
    Commercial – nontaxable (3)
           65,880
       1,206
  7.24   
            7,693
             142
7.30   
 
            7,560
          141
  7.38   
    Commercial loans collateralized by assignment
       of lease  payments
        577,051
       9,524
  6.60   
        402,079
          6,984
6.95   
 
        555,076
       9,411
  6.78   
    Real estate commercial
     2,145,371
    32,593
  6.01   
     1,809,011
       33,159
7.25   
  
     2,003,039
    32,969
  6.51   
    Real estate construction
        804,946
     11,010
  5.41   
        854,090
        18,426
8.53   
 
        827,220
     14,124
  6.75   
Total commercial related credits
     4,968,785
     73,938
  5.89   
     4,213,742
        81,346
7.64   
 
     4,758,589
     79,416
  6.60   
Other loans
                    
    Real estate residential
         378,163
       5,565
  5.89   
         350,842
          5,330
6.08   
 
         373,989
       5,587
  5.98   
    Home equity
         352,209
       4,273
  4.88   
         356,205
          6,783
7.64   
 
         348,789
       5,082
  5.86   
    Indirect
        174,681
       3,395
  7.82   
        125,848
          2,373
7.56   
 
        152,774
       3,028
  7.97   
    Consumer loans
          53,398
         709
  5.34   
          53,185
         1,011
7.62   
 
          53,505
         813
  6.11   
Total other loans
958,451
13,942
  5.85   
886,080
15,497
7.01   
 
929,057
14,510
  6.28   
                      
Total loans
5,927,236
   87,880
  5.96   
5,099,822
      96,843
7.62   
 
5,687,646
   93,926
  6.64   
                     
Taxable investment securities
      886,736
     10,001
  4.51   
      1,088,104
        13,163
4.84   
 
      819,845
     9,971
  4.86   
Investments securities exempt from federal income taxes (3)
         409,389
      5,889
  5.69   
         358,761
         5,115
5.64   
 
         401,207
      5,774
  5.69   
Federal funds sold
           2,912
            14
  1.90   
           5,099
            67
5.20   
 
           15,220
            95
  2.47   
Other interest bearing deposits
           18,345
          89
  1.95   
           6,245
            49
3.15   
 
           15,387
          106
  2.77   
            Total interest earning assets
      7,244,618
   103,873
  5.77   
      6,558,031
      115,237
7.05   
 
      6,939,305
   109,872
  6.37   
Assets held for sale
-
    
399,584
      
-
    
Non-interest earning assets
933,310
    
931,340
      
925,512
    
            Total assets
$    8,177,928
    
$     7,888,955
      
$    7,864,817
    
                     
Interest Bearing Liabilities:
                    
Core  funding:
                    
    Money market and NOW accounts
    $    1,226,903
$     4,762
  1.56   
   $     1,181,417
  $      9,293
3.16   
 
   $   1,234,965
 $    6,602
  2.15   
    Savings accounts
391,683
269
  0.28   
438,093
813
0.74   
   
388,956
443
  0.46   
    Certificates of deposit
2,299,976
20,647
  3.61   
2,295,965
27,588
4.82   
 
2,218,570
24,899
  4.51   
    Customer repos
291,208
1,033
  1.43   
298,323
2,868
3.86   
 
334,464
1,830
  2.20   
Total core funding
4,209,770
26,711
  2.55   
4,213,798
40,562
3.86   
 
4,176,955
33,774
  3.25   
                     
Wholesale funding:
                    
    Public funds
245,953
1,956
  3.20   
293,026
3,820
5.23   
 
282,793
3,013
  4.29   
    Brokered accounts (includes fee expense)
735,325
6,675
  3.65   
391,427
4,823
4.94   
 
516,841
5,892
  4.59   
    Other short-term borrowings
533,462
4,318
  3.26   
495,660
6,522
5.28   
 
605,282
6,037
  4.01   
    Long-term borrowings
587,940
5,657
  3.81   
353,081
5,316
5.96   
 
461,053
5,623
  4.82   
Total wholesale funding
2,102,680
18,606
  3.56   
1,533,194
20,481
5.36   
 
1,865,969
20,565
  4.43   
Total interest bearing liabilities
 $    6,312,450
    45,317
  2.89   
 $     5,746,992
       61,043
4.26   
 
 $   6,042,924
    54,339
  3.62   
Non-interest bearing deposits
905,201
    
848,459
      
839,386
    
Liabilities held for sale
-
    
368,892
      
-
    
Other non-interest bearing liabilities
84,641
    
74,796
      
103,451
    
Stockholders’ equity
875,636
    
849,816
      
879,056
    
   Total liabilities and stockholders’ equity
$    8,177,928
    
$     7,888,955
      
$    7,864,817
    
   Net interest income/interest rate spread (4)
  
$   58,556
2.88%
  
$    54,194
2.79%
    
$   55,533
2.75%
   Taxable equivalent adjustment
  
2,483
    
1,840
      
2,070
  
   Net interest income, as reported
  
$   56,073
    
 $    52,354
      
$   53,463
  
   Net interest margin (5)
    
3.11%
    
3.20%
      
3.10%
   Tax equivalent effect
    
0.14%
    
0.11%
      
0.12%
   Net interest margin on a fully tax equivalent basis (5)
    
3.25%
    
3.31%
      
3.22%
                     
 
(1)
Non-accrual loans are included in average loans.
 
(2)
Interest income includes amortization of deferred loan origination fees of $1.5 million, $1.8 million and $2.0 million for the three months ended June 30, 2008, June 30, 2007, and March 31, 2008, respectively.
 
(3)
Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
 
(4)
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
 
(5)
Net interest margin represents net interest income as a percentage of average interest earning assets.

 
 
20
 

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):

 
Six Months Ended June 30,
 
2008
2007
 
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
             
Interest Earning Assets:
            
Loans (1) (2):
            
    Commercial related credits
            
    Commercial
 $   1,360,739
 $     42,126
  6.12%
 $   1,086,277
 $     43,041
7.88%
    Commercial – nontaxable (3)
           46,596
          1,732
  7.35   
           11,410
             478
  8.33   
    Commercial loans collateralized by assignment of lease  payments
         566,064
        18,935
  6.69   
         394,584
        13,597
  6.89   
    Real estate commercial
    2,074,204
       65,562
  6.25   
    1,810,363
       66,102
  7.26   
    Real estate construction
         816,083
        25,134
  6.09   
         853,649
        36,612
  8.53   
Total commercial related credits
     4,863,686
      153,489
  6.24   
     4,156,283
      159,830
  7.65   
Other loans 
            
    Real estate residential
         376,076
        11,152
  5.93   
         351,253
        10,625
  6.05   
    Home equity
         350,499
        9,355
  5.37   
         363,416
        13,827
  7.67   
    Indirect
        163,728
          6,423
  7.89   
        120,114
          4,587
  7.70   
    Consumer loans
          53,451
         1,522
  5.73   
          54,057
         2,025
  7.55   
Total other loans
943,754
28,452
  6.06   
888,840
31,064
  7.05   
             
    Total loans
5,807,440
      181,941
  6.30   
5,045,123
      190,894
  7.63   
             
Taxable investment securities
      853,290
        19,972
  4.68   
      1,135,660
        27,511
  4.84   
Investments securities exempt from federal income taxes (3)
         405,298
       11,663
  5.69   
         359,384
       10,195
  5.64   
Federal funds sold
           9,066
            109
  2.38   
           11,515
            302
  5.22   
Other interest bearing deposits
           16,867
            195
  2.32   
           6,412
            99
  3.11   
    Total interest earning assets
      7,091,961
      213,880
  6.06   
      6,558,094
      229,001
  7.04   
Assets held for sale
-
    
393,784
    
Non-interest bearing assets 
929,412
    
932,504
    
    Total assets
$   8,021,373
    
$   7,884,382
    
             
Interest Bearing Liabilities:
            
Core  funding:
            
    Money market and NOW accounts
  $   1,230,934
    $     11,365
  1.86   
  $   1,126,142
    $     17,023
  3.05   
    Savings accounts
390,319
712
  0.37   
448,543
1,677
  0.75   
    Certificates of deposit
2,259,273
45,545
  4.05   
2,310,764
55,170
  4.81   
    Customer repos
312,836
2,863
  1.84   
303,657
5,761
  3.83   
 Total core funding
4,193,362
60,485
  2.90   
4,189,106
79,631
  3.83   
             
Wholesale funding:
            
    Public funds
264,373
4,969
  3.78   
275,334
7,140
  5.23   
    Brokered accounts (includes fee expense)
626,083
12,567
  4.04   
440,167
10,780
  4.94   
    Other short-term borrowings
569,372
10,355
  3.66   
465,806
12,247
  5.30   
    Long-term borrowings
524,497
11,280
  4.25   
373,816
11,216
  5.97   
Total wholesale funding
1,984,325
39,171
 3.97   
1,555,123
41,383
 5.37   
             
    Total interest bearing liabilities
 $   6,177,687
     99,656
  3.24   
 $   5,744,229
     121,014
  4.25   
Non-interest bearing deposits
872,294
    
853,771
    
Liabilities held for sale
-
    
362,630
    
Other non-interest bearing liabilities
94,046
    
72,957
    
Stockholders’ equity
877,346
    
850,795
    
    Total liabilities and stockholders’ equity
$   8,021,373
    
$   7,884,382
    
Net interest income/interest rate spread (4)
  
$    114,224
  2.82%
  
$   107,987
2.79%
Taxable equivalent adjustment
  
4,688
    
3,736
  
Net interest income, as reported
  
 $   109,536
    
 $   104,251
  
Net interest margin (5)
    
3.11%
    
3.21%
Tax equivalent effect
    
0.13%
    
0.11%
Net interest margin on a fully tax equivalent basis (5)
    
3.24%
    
3.32%

 
(1)
Non-accrual loans are included in average loans.
 
(2)
Interest income includes amortization of deferred loan origination fees of $3.5 million and $3.5 million for the six months ended June 30, 2008, and June 30, 2007, respectively.
 
(3)
Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
 
(4)
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
 
(5)
Net interest margin represents net interest income as percentage of average interest earning assets.

 
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