-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HMsCQ0SyslgfxngkBLOs8/bj6I4fDIAfGzBG2SummkhrFXnyfcGZIkxEtU2xkzhQ cu6H6a/sRiDWUe06k0i7HQ== 0000950131-99-003190.txt : 19990518 0000950131-99-003190.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950131-99-003190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MB FINANCIAL INC CENTRAL INDEX KEY: 0000908143 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 363895923 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24566 FILM NUMBER: 99625362 BUSINESS ADDRESS: STREET 1: 1200 N ASHLAND AVE CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3127826200 MAIL ADDRESS: STREET 1: 1200 N ASHLAND AVE CITY: CHICAGO STATE: IL ZIP: 60602 FORMER COMPANY: FORMER CONFORMED NAME: AVONDALE FINANCIAL CORP DATE OF NAME CHANGE: 19930623 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 Commission file number 0-24566 MB FINANCIAL, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 36-3895923 (I.R.S. Employer Identification No.) 1200 North Ashland Avenue, Chicago, Illinois 60602 (Address of principal executive offices) Registrant's telephone number, including area code: (773) 645-7866 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES: XXX NO: ____ --- There were issued and outstanding 7,064,515 shares of the Registrant's common stock as of May 14, 1999. ================================================================================ MB FINANCIAL, INC. AND SUBSIDIARIES FORM 10-Q MARCH 31, 1999 INDEX -----
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets at March 31, 1999; December 31, 1998 and March 31, 1998 3 Consolidated statements of income for the three months ended March 31, 1999 and 1998 4 Consolidated statements of cash flows for the three months ended March 31, 1999 and 1998 5 - 6 Notes to consolidated financial statements 7 - 10 Item 2. Management's discussion and analysis of financial condition and results of operations 11 - 19 PART II. OTHER INFORMATION Signatures 20
2 PART I. - FINANCIAL INFORMATION Item 1. - Financial Statements MB FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS (Unaudited - March 31, 1999 and 1998) (Statement Amounts in Thousands)
March 31, December 31, March 31, 1999 1998 1998 ----------------------------------------- ASSETS Cash and due from banks $ 34,597 $ 23,669 $ 36,318 Investment securities: Securities available for sale 369,891 212,020 136,670 Securities held to maturity (fair value of $11,259 at March 31, 1999, $11,529 at December 31, 1998 and $5,638 at March 31, 1998) 10,932 11,142 5,224 Stock in Federal Home Loan Bank 7,904 2,614 615 Federal funds sold 42,200 20,350 - Other interest bearing deposits 941 - - Loans (net of allowance for loan losses of $15,766 at March 31, 1999, $6,344 at December 31, 1998 and $7,751 at March 31, 1998) 781,766 542,009 519,163 Lease investments, net 20,177 21,931 21,812 Premises and equipment, net 11,973 11,483 11,066 Other assets 28,109 8,380 10,702 Interest only securities 15,940 - - Intangibles, net 17,675 18,293 21,105 ----------------------------------------- Total assets $1,342,105 $871,891 $762,675 ========================================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits: Noninterest bearing $ 141,224 $128,218 $130,331 Interest bearing 827,193 517,443 504,117 ----------------------------------------- Total deposits 968,417 645,661 634,448 Short-term borrowings 138,008 130,521 29,365 Long-term borrowings 113,143 12,034 20,537 Other liabilities 23,729 11,815 11,937 ----------------------------------------- Total liabilities 1,243,297 800,031 696,287 ----------------------------------------- Minority Interest in Subsidiary - - 1,544 ----------------------------------------- Corporation Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures 25,000 25,000 - ----------------------------------------- Corporation Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures - - 10,000 ----------------------------------------- Stockholders' Equity Preferred stock, (Class B, $150,000 par value; authorized 100 shares; issued March 31, 1998 68 shares) - - 10,200 Common stock, (March 31, 1999 $0.01 par value; authorized 20,000,000 shares; issued 7,064,515 shares; December 31, 1998 and March 31, 1998 no par value; $10 stated value; authorized 200,000 shares; issued 48,957 shares) 71 490 490 Additional paid-in capital 50,447 23,794 23,779 Retained earnings 23,676 22,232 20,186 Accumulated other comprehensive income (386) 344 189 ----------------------------------------- Total stockholders' equity 73,808 46,860 54,844 ----------------------------------------- Total liabilities and stockholders' equity $1,342,105 $871,891 $762,675 =========================================
See Notes to Consolidated Financial Statements. 3 MB FINANCIAL, INC. CONSOLIDATED STATEMENTS OF INCOME (Statement Amounts in Thousands Except Common Share Data) (Unaudited)
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Interest Income: Loans $12,802 $11,159 Investment securities: Taxable 3,639 2,531 Nontaxable 79 82 Federal funds sold 293 118 Other interest bearing accounts 17 -- -------------------------- Total interest income 16,830 13,890 -------------------------- Interest expense: Deposits 6,304 5,593 Short-term borrowings 1,507 731 Long-term borrowings 1,070 563 -------------------------- Total interest expense 8,881 6,887 -------------------------- Net interest income 7,949 7,003 Provision for loan losses 246 188 -------------------------- Net interest income after provision for loan losses 7,703 6,815 -------------------------- Other income: Loan service fees 400 88 Deposit service fees 691 702 Lease financing, net 237 245 Net gains on sale of securities available for sale -- 15 Gain on sale of Coal City National Bank -- 4,099 Other operating income 235 351 -------------------------- 1,563 5,500 -------------------------- Other expense: Salaries and employee benefits 3,817 3,653 Occupancy and equipment expenses 1,275 946 Intangibles amortization expense 618 811 Other operating expenses 1,353 1,430 -------------------------- 7,063 6,840 -------------------------- Income before income taxes and minority interest 2,203 5,475 Income taxes 759 1,885 -------------------------- Income before minority interest 1,444 3,590 Minority interest -- (32) -------------------------- Net income 1,444 3,558 -------------------------- Other comprehensive income: Unrealized securities losses, net of income taxes (730) (122) Less: reclassification adjustments for gains included in net income, net of income taxes -- 10 -------------------------- Other comprehensive income (730) (132) -------------------------- Comprehensive income $ 714 $3,426 ========================== Net income $ 1,444 $3,558 Preferred stock dividend -- 434 -------------------------- Net income available to common stockholders $ 1,444 $3,124 ========================== Common share data: Basic earnings per common share $ 0.28 $ 0.76 Diluted earnings per common share $ 0.28 $ 0.76 Weighted average common shares outstanding 5,126,289 4,109,453
See Notes to Consolidated Financial Statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Statement Amounts in Thousands)
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Cash Flows From Operating Activities Net income $ 1,444 $ 3,558 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,141 2,177 Loss on disposal of premises and equipment and leased equipment - 13 (Gain) on sale of Coal City National Bank - (4,099) Amortization of intangibles 618 811 Provision for loan losses 246 188 (Credit) for deferred income taxes (242) (303) Bond (accretion), net (999) (484) Securities (gains), net - (15) Minority interest in net income - 32 (Increase) decrease in accrued other assets (931) 49 Increase in other liabilities 1,581 222 ---------------------------- Net cash provided by operating activities 3,858 2,149 ---------------------------- Cash Flows From Investing Activities Proceeds from sales, maturities and calls of securities available for sale 33,580 61,758 Proceeds from maturities and calls of securities held to maturity 226 - Purchase of securities available for sale (6,175) (77,054) Federal funds sold, net 23,650 17,900 Other interest bearing deposits, net 531 - (Increase) in loans, net of principal collections (34,151) (17,747) Purchases of premises and equipment (785) (1,658) Proceeds from sales of premises and equipment and leased equipment - 3 Proceeds from sales of other real estate owned 285 73 Principal collected on lease investments 97 (187) Purchase of minority interests - (1,508) Proceeds from sale of Coal City National Bank, net - 5,481 Cash acquired through merger with Avondale Financial Corp. 7,224 - ---------------------------- Net cash provided by (used in) investing activities 24,482 (12,939) ---------------------------- Cash Flows From Financing Activities Net increase in noninterest bearing deposits 13,006 5,266 Net (decrease) in interest bearing deposits (33,211) (2,826) Net increase in short-term borrowings 2,487 11,352 Proceeds from long-term borrowings 1,000 5,622 Principal paid on long-term borrowings (694) (7,500) Purchase and retirement of common stock - (674) Dividends paid on preferred stock - (434) ---------------------------- Net cash provided by (used in) financing activities (17,412) 10,806 ---------------------------- Net increase in cash and cash due from banks $ 10,938 $ 16 Cash and due from banks: Beginning 23,669 36,302 ---------------------------- Ending $ 34,597 $ 36,318 ============================
(continued) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) (Statement Amounts in Thousands)
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Supplemental Disclosures of Cash Flow Information Cash payments for: Interest paid to depositors $ 4,688 $ 6,170 Other interest paid 1,028 624 Income taxes paid, net of refunds - - Supplemental Schedule of Noncash Investing Activities Merger with Avondale Financial Corp. Noncash Assets acquired: Securities available for sale $185,125 Stock in Federal Home Loan Bank 5,290 Federal funds sold 45,500 Other interest bearing deposits 1,472 Loans, net 205,861 Premises and equipment 189 Accrued interest and other and other assets 34,987 -------- 478,424 -------- Liabilities assumed: Interest bearing deposits 342,961 Short-term borrowings 5,000 Long-term borrowings 100,803 Other liabilities 10,575 -------- 459,339 -------- Net noncash assets acquired $ 19,085 -------- Cash acquired $ 7,224 ======== Sale of Coal City National Bank Assets sold: Cash $ 2,319 Securities available for sale 15,418 Securities held to maturity 173 Federal funds sold 19,500 Loans, net 17,573 Premises and equipment 696 Other 317 ------- 55,996 ------- Liabilities sold: Deposits 52,052 Other 243 ------- 52,295 ------- Net assets sold $ 3,701 ======= Cash received $ 7,800 ======= Real estate acquired in settlement of losses $ 276 =======
See Notes to Consolidated Financial Statements. 6 MB FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The unaudited consolidated financial statements include the accounts of MB Financial, Inc. and its subsidiaries (the "Company"). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operation and cash flows for the interim periods have been made. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles and industry practice. Certain information in footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles and industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. The Company believes the disclosures made in the consolidated financial statements are adequate so that the financial statements are not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 1998 audited financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ from those estimates. 2. THE MERGER On February 26, 1999, Coal City Corporation, the holding company for Manufacturers Bank, was merged with and into Avondale Financial Corp., the holding company for Avondale Federal Savings Bank. The resulting entity was renamed MB Financial, Inc. Simultaneously, Avondale Federal Savings Bank was merged into Manufacturers Bank. Since the Coal City stockholders owned more than 50% of the combined company, the transaction was accounted for as a reverse acquisition using the purchase method of accounting with Coal City being the accounting acquirer. As a result, the post-merger historical financial statements of the combined company are Coal City's as the accounting acquirer, and includes the operating results of Avondale only for the month of March 1999. Total consideration, based upon Avondale's shares outstanding at the merger date times the estimated market value per share at the merger announcement date, was $26.4 million. The amount of goodwill which was recorded at the merger date was a negative ($267 thousand), which represents the excess of the fair value of net assets acquired over total consideration. Negative goodwill is being amortized over a fifteen- year period. Included in the purchase accounting adjustments was an accrual of $8.0 million for merger related costs. The accrual includes estimated costs for data conversion, professional fees, severance and personnel related expenses, lease contracts, premises and equipment and other miscellaneous expenses. At March 31, 1999, the remaining liability was approximately $7.5 million primarily for lease contracts, data conversion and severance costs. The majority of the remaining costs are scheduled to occur in 1999. Each share of Coal City Common Stock issued and outstanding on February 26, 1999 was converted into 83.5 shares of Avondale Financial Corp. Consequently, common share data for the first quarter of 1999 and 1998 was converted at an exchange rate of 83.5. The unaudited pro forma results of operation, which follow, assume that the merger had occurred at January 1, 1998. In addition to combining the historical results of operations of the companies, the pro forma calculations include purchase accounting adjustments related to the acquisition. The pro forma calculations do not include any anticipated cost savings as a result of the merger. 7 Unaudited pro forma consolidated results of operations for the quarters ended March 31, 1999 and 1998 are as follows:
--------------------- 1999 1998 --------------------- Net interest income $10,354 $11,384 Net income (loss) (791) 3,639 Net income (loss) available to common stockholders (791) 3,205 Basic earnings (loss) per common share $ (0.11) $ 0.43 Diluted earnings (loss) per common share $ (0.11) $ 0.43
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the merger actually taken place at the beginning of the respective periods, or of results which may occur in the future. 3. REGULATORY CAPITAL The Company and it's subsidiary, Manufacturers Bank (the "Bank") are subject to certain regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company's and Bank's assets, liabilities, and certain off-balance-sheet items are calculated using regulatory accounting practices. The Company's and Bank's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk- weighted assets (as defined) and Tier 1 capital to average assets (as defined). The Company and the Bank were in full compliance with all capital adequacy requirements to which they are subject at March 31, 1999. As of March 31, 1999, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as "well capitalized" under the framework of prompt corrective action. To be categorized as "well capitalized" the Bank must maintain the total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the "well capitalized" column in the table below. There are no conditions or events since that notification that management believes have changed the Bank's categorization. The required and actual amounts and ratios for the Company and Manufacturers Bank are presented below (dollars in thousands):
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ----------------------------------------------------------------------- As of March 31, 1999 (unaudited) Total capital (to risk-weighted assets): MB Financial, Inc. $94,633 10.36 % $73,099 8.00 % N/A N/A Manufacturers Bank 97,301 10.66 % 73,016 8.00 % $91,270 10.00 % Tier 1 capital (to risk-weighted assets): MB Financial, Inc. 82,674 9.05 % 36,550 4.00 % N/A N/A Manufacturers Bank 85,874 9.41 % 36,508 4.00 % 54,762 6.00 % Tier 1 capital (to average assets): MB Financial, Inc. 82,674 8.22 % 40,236 4.00 % N/A N/A Manufacturers Bank 85,874 8.56 % 40,151 4.00 % 50,819 5.00 %
8 4. EARNINGS PER SHARE DATA The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands except per share data):
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Basic: Net income $ 1,444 $ 3,558 Less preferred dividends - 434 ---------------------------- Net income available to common stockholders 1,444 3,124 Average shares outstanding 5,126,289 4,109,453 ---------------------------- Basic EPS $ 0.28 $ 0.76 ============================ Diluted: Net income $ 1,444 $ 3,558 Less preferred dividends - 434 ---------------------------- Net income available to common stockholders 1,444 3,558 Average shares outstanding 5,126,289 4,109,453 Net effect of dilutive stock options 27,878 1,774 Total 5,154,167 4,111,227 ---------------------------- Diluted EPS $ 0.28 $ 0.76 ============================
5. LONG-TERM BORROWINGS The following table presents long-term borrowings for the periods indicated (in thousands):
March 31, December 31, March 31, 1999 1998 1998 -------------------------------------------- Federal Home Loan Bank advances $100,803 $ - $ - Loans for the purchase of equipment and other loans 7,840 8,534 14,537 LaSalle National Bank lines of credit 4,500 3,500 6,000 -------------------------------------------- $113,143 $12,034 $20,537 ============================================
At March 31, 1999, the Company had $100.8 million in advances from the Federal Home Loan Bank. The Company acquired these through the merger. The Company has pledged its stock in the Federal Home Loan Bank as collateral for the advances. In addition, the Company is required to maintain certain qualifying first mortgage loans or mortgage backed securities in an amount equal to at least 170% of the outstanding advances. As of March 31, 1999, $100.0 million of the advances are scheduled to mature in March 2008; however, these are callable at any time by the Federal Home Loan Bank. This $100.0 million bears a current interest rate of 4.69%. The remaining $803 thousand matures in 2003 and bears a current interest rate of 2.5%. At March 31, 1999, December 31, 1998 and March 31, 1998, the Company had loans for the purchase of equipment and other loans of $7.8 million, $8.5 million and $14.5 million; respectively. These loans have various interest rates and various scheduled maturity dates to June 2007. The Company has two lines of credit with LaSalle National Bank including a secured revolving note payable and unsecured revolving note payable. The secured note payable had outstanding balances of $4.2 million, $3.2 million and $5.5 million at March 31, 1999, December 31, 1998 and March 31, 1998; respectively. The note bears interest at a rate equal to the adjusted LIBOR rate, 6.19% at March 31, 1999. The note requires quarterly payments of interest only on the outstanding balance through June 1, 1999 at which time the revolving feature of the note shall cease and the unpaid principal amount shall convert to an installment note with quarterly payments due, including interest at the adjusted LIBOR rate through June 1, 2007. The unsecured note payable had outstanding balances of $250 thousand at March 31, 1999 and December 31, 1998, and $500 thousand at March 31, 1998. The note bears interest at a the bank's prime rate, 7.75% at March 31, and requires quarterly payments of interest only on the outstanding balance through June 1, 1999 at which time the revolving feature of the note shall cease and the unpaid principal amount shall convert to an installment note with quarterly payments due, including interest at the bank's prime rate through June 1, 2007. 9 6. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, and utilizes the "management approach" for segment reporting. The management approach is based on the way that the chief operating decision maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on any manner in which management disaggregates its company such as by products and services, geography, legal structure and management structure. SFAS 131 requires disclosure for each segment that are similar to those required under current standards with the addition of quarterly disclosure requirements and more specific and detailed geographic disclosures. This Statement also requires descriptive information about the way the operating segments were determined. The provisions of SFAS 131 were effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The Company adopted SFAS No. 131 at December 31, 1998 and the Company views its banking business as its only segment. In June 1998, the FASB adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS 133 may be implemented as of the beginning of any fiscal quarter after June 30, 1998 but cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. The standard is not required to be implemented until December 31, 2000 and management has not yet determined the impact of this standard. In October 1998, the FASB adopted SFAS 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. The Statement amends SFAS 65, Accounting for Certain Mortgage Banking Activities, and requires that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. The provisions of SFAS 134 are effective for the first fiscal quarter beginning after December 15, 1998 and were adopted on January 1, 1999. The adoption of SFAS 134 did not have a material impact on the Company's financial statements. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The following is a discussion and analysis of MB Financial, Inc.'s financial position and results of operation and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. On January 28, 1998, the Company sold Coal City National Bank, its wholly owned subsidiary, for $7.8 million in cash. In addition, on February 26, 1999, Coal City Corporation, the holding company for Manufacturers Bank, was merged with and into Avondale Financial Corp., the holding company for Avondale Federal Savings Bank. The resulting entity was rename MB Financial, Inc. Simultaneously, Avondale Federal Savings Bank was merged into Manufacturers Bank. These transactions significantly affect the comparative information discussed below. General The profitability of the Company's operations depends primarily on its net interest income, which is the difference between total interest earned on interest earning assets and total interest paid on interest bearing liabilities. The Company's net income is affected by its provision for loan losses as well as other income and other expenses. The provision for loan losses reflects the amount thought to be adequate to cover estimated losses in the loan portfolio. Non-interest income or other income, consists of loan service fees, deposit service fees, net lease financing income, net gains (losses) on the sale of securities available for sale, and other operating income. Other expenses include salaries and employee benefits along with occupancy and equipment expenses, intangibles amortization and other operating expenses. The amount of net interest income is affected by changes in the volume and mix of earning assets, the level of interest rates earned on those assets, the volume and mix of interest bearing liabilities, and the level of interest rates paid on those interest bearing liabilities. The provision for loan losses is dependent on changes in the loan portfolio and Management's assessment of the collectibility of the loan portfolio, as well as economic and market conditions. Other income and other expenses are impacted by growth of operations and growth in the number of accounts through both acquisitions and core banking business growth. Growth in operations affects other expenses as a result of additional employees, branch facilities and promotional marketing expense. Growth in the number of accounts affects other income including service fees as well as other expenses such as computer services, supplies, postage, telephone and other miscellaneous expenses. Results of Operations The Company had net income of $1.4 million for the first quarter of 1999 compared to $3.6 million for the first quarter of 1998. Net interest income was $7.9 million for the first quarter of 1999 compared to $7.0 million for the same period in 1998. The increase in net interest income was primarily due to the merger. Other income decreased $3.9 million to $1.6 million for the quarter ended March 31, 1999 from $5.5 million for the same period in 1998. This decrease was primarily due to gains resulting from the sale of Coal City National Bank and the sale of a trust business in the first quarter of 1998, and was slightly offset by increases in loan service fees, as well as a net gain on the sale of other real estate owned in the first quarter of 1999. Other expense increased from $6.8 million in the first quarter of 1998 to $7.1 million in the first quarter of 1999 resulting from higher operating costs due to the merger. Intangible amortization decreased $193 thousand in the first quarter of 1999 as compared to the same period for 1998. 11 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. Non-taxable investment income is presented on a fully tax equivalent basis assuming a 34% tax rate. TABLE 1 AVERAGE BALANCES, INTEREST RATES AND YIELDS (Dollars in thousands)
Three Months Ended March 31, ---------------------------------------------------------------- 1999 1998 ---------------------------------------------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------- Interest Earning Assets: Loans (1)(2) $ 631,738 $ 12,802 8.22 % $ 524,452 $ 11,159 8.63 % Taxable investment securities 278,762 3,639 5.29 % 174,822 2,531 5.87 % Investment securities exempt from federal income taxes (3) 5,517 120 8.82 % 4,182 124 12.03 % Federal funds sold 25,396 293 4.68 % 8,748 118 5.47 % Other interest bearingdeposits 1,453 17 4.74 % - - - % --------------------- ------------------- Total interest earning assets 942,866 16,871 7.26 % 712,204 13,932 7.93 % -------- -------- Non-interest earning assets 84,905 85,096 ---------- --------- Total assets $1,027,771 $ 797,300 ========== ========= Interest Bearing Liabilities: Deposits: NOW and money market deposit accounts $ 152,649 1,080 2.87 % $ 146,342 1,179 3.27 % Savings deposits 112,491 687 2.48 % 88,586 540 2.47 % Time deposits 357,452 4,537 5.15 % 283,439 3,874 5.54 % Long-term borrowings (4) 71,750 1,070 6.05 % 28,871 563 7.91 % Short-term borrowings 133,931 1,507 4.56 % 57,564 731 5.15 % --------------------- ------------------- Total interest bearing liabilities 828,273 8,881 4.35 % 604,802 6,887 4.62 % -------- -------- Demand deposits- non-interest bearing 128,319 123,400 Other non-interest bearing liabilities 14,374 13,263 Minority interest in subsidiary - 2,482 Stockholders' equity 56,805 53,353 ---------- --------- Total liabilities and stockholders' equity $1,027,771 $ 797,300 ========== ========= Net interest income/interestrate spread (5) $ 7,990 2.91 % $ 7,045 3.31 % ======== ======== Net interest margin (6) 3.44 % 4.01 %
(1) Non-accrual loans are included in average loans. (2) Interest income includes loan origination fees of $189,000 and $251,000 for the three months ended March 31, 1999 and 1998, respectively. (3) Non-taxable investment income is presented on a fully tax equivalent basis assuming a 34% tax rate. (4) Long-term borrowings include corporation obligated mandatorily redeemable preferred and capital securities. (5) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities. (6) Net interest margin represents net interest income as a percentage of average interest earning assets. The Company's net interest income increased $946 thousand to $7.9 million for the quarter ended March 31, 1999 from $7.0 million for the quarter ended March 31, 1998. The increase in net interest income resulted from an increase in interest income of $2.9 million, or 21.2%, partially offset by an increase in interest expense of $2.0 million or 29.0%. Interest income increased due to a $230.7 million, or 32.4% increase in average interest earning assets while interest expense rose as a result of a $223.5 million, or 36.9% increase in average interest bearing liabilities. Approximately $148.0 million of the increase in average interest earning assets and approximately $142.0 million of the increase in average interest bearing liabilities was due to the merger. The remaining increase in average interest earning assets and average interest bearing liabilities was due to growth in the Company's core banking businesses and an increase in short-term borrowings used to fund U.S. Treasury investments. 12 Although net interest income increased in 1999, the net interest margin decreased from 4.01% for the quarter ended March 31, 1998 to 3.44% for the quarter ended March 31, 1999. This decrease was due to increased leverage in the Company's balance sheet as a result of the purchase of approximately $100.0 million additional U.S. Treasury investments and the addition of approximately $100.0 million repurchase agreements used to fund those investments. Excluding the effect of the increased leverage in the Company's balance sheet, the net interest margin for the first quarter of 1999 would be 3.85% compared to 4.01% for the same period in 1998. TABLE 2 - RATE/VOLUME ANALYSIS OF NET INTEREST INCOME (Dollars in thousands) The following table presents the extent to which changes in interest rates and changes in volume of interest earning assets and interest bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided on changes in each category attributable to (i) changes attributable to changes in volume, (changes in volume multiplied by prior period rate); (ii) changes attributable to changes in rate (changes in rate multiplied by current period volume) and (iii) the total changes.
Three Months Ended March 31, 1999 Compared to March 31, 1998 ----------------------------------- Change Change Due to Due to Total Volume Rate Change ----------------------------------- Interest Earning Assets: Loans $ 2,283 $ (640) $ 1,643 Taxable investment securities 1,505 (397) 1,108 Investment securities exempt from federal income taxes (1) 40 (44) (4) Federal funds sold 225 (50) 175 Other interest bearing deposits 17 - 17 ---------------------------------- Total increase (decrease) in interest income 4,070 (1,131) 2,939 ---------------------------------- Interest Bearing Liabilities: Deposits: NOW and money market deposit accounts 51 (150) (99) Savings deposits 146 1 147 Time deposits 1,012 (349) 663 Long-term borrowings (2) 836 (329) 507 Short-term borrowings 970 (194) 776 ---------------------------------- Total increase (decrease) in interest expense 3,015 (1,021) 1,994 ---------------------------------- Increase (decrease) in net interest income $ 1,055 $ (110) $ 945 ==================================
(1) Non-taxable investment income is presented on a fully tax equivalent basis utilizing a 34% rate. (2) Long-term borrowings include corporation obligated mandatorily redeemable preferred and capital securities. 13 Other Income Other income decreased $3.9 million to $1.6 million for the quarter ended March 31, 1999 from $5.5 million for the same period in 1998. The decrease was primarily due to a $4.1 million gain resulting from the sale of Coal City National Bank and a $200 thousand gain on the sale of a trust business for the same period in 1998. Offsets to these decreases include a $312 thousand increase in loan service fees, as well as a $101 thousand net gain on the sale of other real estate owned in the first quarter of 1999. Other Expense Other expense increased from $6.8 million in the first quarter of 1998 to $7.1 million in the first quarter of 1999. Approximately $895 thousand of the increase was due to operating costs primarily associated with the former Avondale branches and higher personnel costs. Offsetting this increase were a $314 thousand decrease in operating expenses related to the sale of Coal City National Bank and a $193 thousand decrease in intangible amortization. Income Taxes The Company recorded an income tax expense of $759 thousand for the three months ended March 31, 1999, compared to $1.9 million for the same period in 1998 reflecting the decrease in the Company's income before taxes in 1999. The effective tax rate was 34.4% for the three months ended March 31, 1999 and 1998. Cash Earnings The purchase method of accounting has been used to record each of the Company's acquisitions. As a result, the recorded basis of the net assets of the acquired entities has been adjusted to fair value. Adjustments included recording core deposit intangibles to reflect the difference between the fair value and underlying basis of deposits purchased and recording goodwill for the excess of the acquisition cost over the fair value of net assets acquired. Core deposit intangibles and goodwill are being amortized as a non-cash expense over periods of up to eight and 20 years, respectively. Other fair value adjustments made to assets such as investment securities, loans, and buildings are also being amortized or depreciated over varying periods, ranging from eight to 35 years. Amortization/depreciation expense reduces net income during the amortization periods. If the Company's acquisitions had met certain accounting rules, the pooling of interest method of accounting may have been used to account for the Company's acquisitions. Under this method of accounting, no goodwill or core deposit intangibles would have been recorded or other fair value adjustments made. Consequently, net income is not reduced for the amortization of core deposit intangibles, goodwill or other fair value adjustments. Since application of the two methods can result in dramatically different net income, management, certain analysts and certain peer financial institutions have been computing cash earnings in order to compare results. At present, cash earnings is not a defined term or concept under generally accepted accounting principles. 14 The following table sets forth the Company's cash earnings, which is defined by management as net income excluding amortization of purchase accounting non-cash items and the related deferred income tax effect (dollars in thousands):
Three Months Ended ----------------------------------------- March 31, 1999 March 31, 1998 ----------------------------------------- Net income $1,444 $ 3,558 Goodwill amortization (including negative goodwill) 203 235 Core deposit intangibles amortization (net of tax) 273 380 Other fair value adjustment amortization (net of tax) 43 3 ----------------------------------------- Cash earnings 1,963 4,176 Preferred dividends - (434) ----------------------------------------- Cash earnings to common stockholders $1,963 $ 3,742 ========================================= Cash earnings per share: (1)(3) Basic $ 0.38 $ 0.91 Diluted $ 0.38 $ 0.91 Performance ratios:(2)(3) Cash return on average tangible assets 0.79 % 2.20 % Cash return on average tangible equity 19.81 % 71.01 %
(1) Basic earnings per share is calculated by dividing the cash earnings by the average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing the cash earnings by the average number of common shares outstanding for the period, including additional shares that would have been outstanding if dilutive potential shares had been issued. (2) Cash return on average tangible assets and equity has been annualized for the three months ended March 31, 1999 and for the three months ended March 31, 1998. (3) March 31, 1998 ratios include the $4.1 million gain on sale of Coal City National Bank. Basic and diluted cash earnings per share, excluding the gain on sale of Coal City National Bank, would have been $0.25 and $0.25 respectively. Cash return on average tangible assets and equity, excluding the gain on sale of Coal City National Bank, would have been 0.79 % and 19.68 % respectively. Balance Sheet Review Total assets increased $470.2 million from $871.9 million at December 31, 1998 and $579.4 million from $762.7 million at March 31, 1998 to $1.3 billion at March 31, 1999. Approximately $491.0 million of the increase in total assets was due to the merger. In addition, U.S. Treasury investments at March 31, 1999, funded by short-term borrowings, increased $1.1 million as compared to December 31, 1998 and $100.0 million as compared to March 31, 1998. Net loans increased $239.8 million from $542.0 million at December 31, 1998 and $262.6 million from $519.2 million at March 31, 1998 to $781.8 million at March 31, 1999. Approximately $205.9 million of increase in net loans was due to the merger while the remaining increase was due to strong loan demand. Total deposits increased $334.0 million from $645.7 million at December 31, 1998 and $634.4 million at March 31, 1998 to $968.4 million at March 31, 1999. Increase in deposits related to the merger was $343.0 million. Long-term borrowings increased $101.1 million from December 31, 1998 and $92.6 million from March 31, 1998 primarily attributable to advances from the Federal Home Loan Bank of $100.8 million acquired through the merger. Additionally, in July 1998, the Company issued $25.0 million in Corporation Obligated Mandatorily Redeemable Capital Securities and retired $10.0 million of Corporation Obligated Mandatorily Redeemable Preferred Securities issued in 1997. Total stockholders' equity increased $26.9 million from December 31, 1998 and $19.0 million from March 31, 1998 to $73.8 million at March 31, 1999. Increase in stockholders' equity due to the merger was $26,309. Additionally, in the fourth quarter of 1998, the Company used a portion of the proceeds from the issuance of the Capital Securities to redeem the Class B Preferred Stock of the Company issued in connection with the U.S. Bancorp acquisition. The aggregate redemption price for the Class B Preferred Stock of the Company was $10.2 million, plus accrued dividends. As of March 31, 1999, the Company's book value per share was $10.45 compared to $11.46 at December 31, 1998 and $10.92 at March 31, 1998. 15 Loan Portfolio The following table sets forth the composition of the loan portfolio (dollars in thousands):
March 31, December 31, March 31, 1999 1998 1998 --------------------------------------------------------------- Amount Percent Amount Percent Amount Percent --------------------------------------------------------------- Commercial $128,798 16.15 % $122,094 22.27 % $103,055 19.56 % Commercial loans collateralized by assignment of lease payments 127,343 15.97 % 89,301 16.28 % 88,793 16.85 % Real estate 404,306 50.69 % 281,196 51.28 % 268,683 50.99 % Real estate construction 29,963 3.76 % 21,059 3.84 % 35,902 6.81 % Installment 107,122 13.43 % 34,703 6.33 % 30,481 5.79 % --------------------------------------------------------------- Gross loans 797,532 100.00 % 548,353 100.00 % 526,914 100.00 % ======== ======== ======== Allowance for loan losses (15,766) (6,344) (7,751) -------- -------- -------- Net loans $781,766 $542,009 $519,163 ======== ======== ========
Net loans increased $239.8 million from $542.0 million at December 31, 1998 and $262.6 million from $519.2 million at March 31, 1998 to $781.8 million at March 31, 1999. Approximately $205.9 million of increase in net loans was due to the merger, while the remaining increase was due to strong loan demand. The composition of the loan portfolio remained relatively constant with the exception of the installment loan portfolio, which increased with the addition of home equity lines of credit acquired through the merger. Asset Quality The following table presents a summary of non-performing assets as of the dates indicated (dollars in thousands):
March 31, December 31, March 31, 1999 1998 1998 ---------------------------------------------- Non-accruing loans $ 10,727 $ 4,789 $ 9,364 Loans 90 days or more past due, still accruing interest - 85 - ---------------------------------------------- Total non-performing loans 10,727 4,874 9,364 Other real estate owned 740 442 3,879 ---------------------------------------------- Total non-performing assets $ 11,467 $ 5,316 $ 13,243 ============================================== Total non-performing loans to total loans 1.35 % 0.89 % 1.78 % Allowance for loan losses to non-performing loans 146.97 % 130.16 % 82.77 % Total non-performing assets to total assets 0.85 % 0.61 % 1.74 %
In March of 1998 the Company had higher non-performing assets which were acquired as part of the acquisition of U.S. Bancorp in 1997. The potential problem loans declined from $13.2 million at March 31, 1998 to $5.3 million at December 31, 1998 due to the Company's collection efforts. The increase in non- performing assets from December 31, 1998 to March 31, 1999 was due to the merger. 16 Provision for Loan Losses A reconciliation of the activity in the Company's allowance for loan losses follows (dollars in thousands):
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Balance at beginning of period $ 6,344 $ 7,922 Decreases resulting from sale of subsidiary -- (399) Additions resulting from merger 9,489 -- Provision for loan losses 246 188 Charge-offs (410) (4) Recoveries 97 44 ----------------------- Balance at March 31, $ 15,766 $ 7,751 ======================= Total loans at March 31, $797,532 $526,914 Ratio of allowance to total loans 1.98% 1.47%
For the three months ended March 31, 1999 and 1998, there were net charge- offs (recoveries) of $313 thousand ($40) thousand, respectively. In March 1999, $9.5 million was added to the allowance for loan losses with the merger. In January 1998, Coal City National Bank was sold, reducing the allowance for loan losses by $399 thousand. The Company maintains its allowance for loan losses at a level that management believes will be adequate to absorb estimated losses on existing loans, based on an evaluation of the collectibility of loans and prior loss experience. Control of the Company's loan quality is continually monitored by management and is reviewed by the Board of Directors and loan committee of the Bank on a monthly basis, subject to oversight by the Company's Board of Directors through its members who serve on the loan committee. Independent external review of the loan portfolio is conducted by regulatory authorities and by independent public accountants in conjunction with their annual audit. The amount of additions to the allowance for loan losses which are charged to earnings through the provision for loan losses is determined based on a variety of factors, including actual charge-offs and anticipated charge-offs, delinquent loans, historical loss experience and economic conditions in the Bank's market area. Although management believes the allowance for loan losses is sufficient to cover potential losses, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. Interest Only Securities Approximately $15.3 million of interest only securities were acquired as a result of the merger with Avondale. Avondale securitized and sold certain home equity lines of credit to investors. On a quarterly basis, the Company performs a review to determine the fair value of its interest-only securities. As part of its review, the Company reviews its assumptions of prepayment speeds, discount rates and anticipated credit losses. The discount rate reflects liquidity and risk premiums required by the capital markets. Prepayment speeds are adjusted based upon both historical experience and expectations for the future. Projected loan losses are based on the Company's non-judgmental credit underwriting models and are further validated with updated credit scores at least semi-annually. Following is a table of the four interest only security pools and the assumptions used for each of the securitized pools:
Interest Only Security Pool ----------------------------------- 96-1 97-1 97-2 98-1 ----------------------------------- Discount rate 12% 12% 12% 12% Prepayment speed 38.3% 39.8% 41.5% 28.5% Remaining over-the-life loan losses 4.66% 4.98% 5.25% 4.81%
The revision of the foregoing assumptions resulted in a reduction of comprehensive income by $187 thousand at March 31, 1999. The Company will continue to review its assumptions quarterly and revise them when circumstances dictate. Because of the sensitivity of the value of the interest only securities to market factors beyond management's control, the actual amounts realized could differ materially from the carrying value. 17 Investment Securities The following table sets forth the amortized cost and fair value of the Company's investment securities by accounting classification and type of security:
March 31, December 31, March 31, 1999 1998 1998 -------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Cost Cost Value -------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury securities $118,683 $118,663 $128,630 $128,748 $ 97,179 $ 97,328 U.S. government agencies and corporations 148,150 147,709 80,089 80,411 33,680 33,691 Mortgage-backed securities 103,364 103,519 2,779 2,861 5,513 5,651 -------------------------------------------------------------------------------------- Total securities $370,197 $369,891 $211,498 212,020 $136,372 $136,670 ====================================================================================== Securities Held to Maturity: States and political subdivisions $ 5,525 $ 5,881 $ 5,524 $ 5,912 $ 4,256 $ 4,669 Mortgage-backed securities 4,444 4,415 4,651 4,648 -- -- Other securities 963 963 967 969 968 969 -------------------------------------------------------------------------------------- Total securities $ 10,932 $ 11,259 $ 11,142 $ 11,529 $ 5,224 $ 5,638 ======================================================================================
Liquidity and Sources of Capital The Company's cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities was $3.9 million and $2.1 million for the three months ended March 31, 1999 and 1998, respectively. Net cash provided by (used in) investing activities was $24.5 million for the three months ended March 31, 1999 and ($12.9) million for the same period in 1998; respectively. The increase in 1999 is attributable to an increase in net federal funds sold and cash acquired through the merger. Net cash provided by (used in) financing activities was ($17.4) million for the three months ended March 31, 1999 and $10.8 million for the same period in 1998; respectively. The decrease in 1999 is attributable to a decrease in net interest bearing deposits. The Company expects to have available cash to meet its liquidity needs. Liquidity management is monitored by the asset liability committee of Manufacturers Bank, which takes into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. In the event that additional short-term liquidity is needed, Manufacturers Bank has established relationships with several large regional banks to provide short- term borrowings in the form of federal funds purchased. While there are no firm lending commitments in place, Manufacturers Bank has borrowed, and management believes that Manufacturers Bank could again borrow, more than $30 million for a short time from these banks on a collective basis. Additionally, Manufacturers Bank is a member of the Federal Home Loan Bank (FHLB) and has the ability to borrow from the FHLB. In addition, MB Financial, Inc. maintains a line of credit with a large regional correspondent bank in the amount of $15.0 million. As of March 31, 1999, MB Financial had $11.5 million undrawn and available under its line of credit. Year 2000 Compliance A significant issue has emerged in the banking industry and for the economy overall regarding how existing computer systems recognize the year 2000. Many existing computer programs and systems were originally programmed with six digit dates that provided only two digits to identify the calendar year in the date field, without considering the upcoming change in the century. If computer systems are not adequately changed to identify the year 2000, many computer applications could fail or create erroneous results. As a result, many calculations that rely on the date field information, such as interest payment due dates and other operating functions, may generate results that could be significantly misstated, and the Company could experience a temporary inability to process transactions, send invoices or engage in similar normal business activities. In addition, under certain circumstances, failure to adequately address the Year 2000 issue could adversely affect the creditworthiness of the Bank's borrowers. Thus, if not adequately addressed, the Year 2000 issue could result in a significant adverse impact on the products, services and competitive condition of the Company and the Bank. 18 On March 20, 1998, the Examination Parity and Year 2000 Readiness for Financial Institutions Act, P.L. 105-164, became law. In that statute, Congress emphasized the seriousness with which financial services industry and its regulators must view the Year 2000 issue by requiring the regulators to conduct seminars for, and otherwise provide information and model approaches concerning common problems to, the nation's financial institutions concerning this problem. The regulators, acting through the FFIEC, have been compiling and disseminating such information through industry-wide pronouncements which emphasize that safety and soundness examinations would focus, among other things, on the institutions' awareness and preparations with respect to the Year 2000 issue. Failure to appropriately address the Year 2000 issue may result in supervisory actions, denials of regulatory applications and civil money penalties. In response to the foregoing regulatory guidance and pronouncements, the Company and the Bank have been reviewing the Bank's operating procedures for exposure to potential issues that the Year 2000 might have on its computer systems and programs. At the direction of the Bank's Board of Directors, the Year 2000 committee was established and has identified any issues related to computer hardware, software and operating systems to ensure that they will be capable of properly recognizing the January 1, 2000 and beyond. In addition, selected business customers have been contacted and procedures have been put in place to survey these business customers to understand their progress in regard to dealing with the Year 2000. The Year 2000 committee reports periodically to the Bank's Board of Directors. Management believes that the organization has had an effective corporate year 2000 compliance program in place and that additional expenditures required to bring its systems into compliance will not have a materially adverse effect on the Company's operations, cash flow, or financial condition. Management has made significant progress in identifying and testing all its systems for year 2000 compliance. Of all systems that have been identified as mission critical, all but one are deemed year 2000 compliant. This remaining mission critical system is the outsourced data processing system, and the Company is awaiting the proxy testing by the outsourced data processor. This system has been reported to be year 2000 compliant. As part of the Company's process of updating computer hardware, the Company replaced computer equipment prior to the merger with Avondale and these costs were incurred by Avondale prior to the merger. Management expects that any additional expenditures related to the year 2000 problem are immaterial. Forward Looking Statements Statements made about the Company's future economic performance, strategic plans or objectives, revenues or earnings projections, or other financial items and similar statements are not guarantees of future performance, but are forward looking statements. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those in the statements. Important factors that might cause the Company's actual results to differ materially include, but are not limited to, the following: . Federal and state legislative and regulatory developments; . Changes in management's estimate of the adequacy of the allowance for loan losses; . Changes in management's valuation of the interest only securities; . Changes in the level and direction of loan delinquencies and write-offs; . Interest rate movements and their impact on customer behavior and the Company's net interest margin; . The impact of repricing and competitors' pricing initiatives on loan and deposit products; . The Company's ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; . The Company's ability to access cost effective funding; and . Changes in financial markets and general economic conditions. 19 PART II. - OTHER INFORMATION SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, MB Financial, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized, on the 14th day of May 1999. MB FINANCIAL, INC. By: /s/ Mitchell Feiger ------------------- Mitchell Feiger Chief Executive Officer (Principal Executive Officer) By: /s/ Howard A. Jaffe ------------------- Howard A. Jaffe Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) 20 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 3-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 MAR-31-1999 MAR-31-1998 34,597 36,318 941 0 42,200 0 0 0 369,891 136,670 10,932 5,224 11,259 5,638 797,532 526,914 15,766 7,751 1,342,105 762,675 968,417 634,448 138,008 29,365 23,729 11,937 113,143 20,537 0 0 0 0 71 490 0 0 1,342,105 762,675 12,802 11,159 3,718 2,613 310 118 16,830 13,890 6,304 5,593 8,881 6,887 7,949 7,003 246 188 0 15 7,063 6,840 2,203 5,475 2,203 5,475 0 0 0 0 1,444 3,558 0.28 0.76 0.28 0.76 0 0 10,727 9,364 0 0 0 0 0 0 6,344 7,922 410 4 97 44 15,766 7,751 15,766 7,751 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----