News Column

MB Financial, Inc. Reports Second Quarter Net Income of $23.1 Million

July 23, 2014

CHICAGO--(BUSINESS WIRE)-- MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2014 second quarter net income of $23.1 million compared to $20.0 million last quarter and $25.3 million in the second quarter a year ago.

Key items for the second quarter include:

Net Interest Income Increased Modestly:

  • Net interest income on a fully tax equivalent basis increased $840 thousand from the first quarter of 2014 due to an extra day in the quarter, and increased $675 thousand from the second quarter of 2013 primarily due to higher yields on taxable investment securities partly offset by lower loan yields.
  • Fully taxable equivalent net interest margin was 3.53% for the second quarter of 2014 compared to 3.64% for the prior quarter and 3.61% for the second quarter of 2013. Higher cash balances in the second quarter of 2014 resulting from strong deposit inflows had minimal impact on net interest income, but reduced net interest margin by 11 basis points.

    Credit Quality Metrics Improved during the Quarter:

  • We recorded a negative provision for credit losses of $2.0 million in the second quarter compared to a positive provision for credit losses of $1.2 million in the prior quarter as a result of reduced levels of classified and special mention assets.
  • Non-performing loans decreased by $8.0 million from March 31, 2014.
  • Potential problem loan balances improved by $5.3 million from March 31, 2014.
  • Special mention assets decreased by $24.0 million compared to March 31, 2014.

    Fee Income from Key Fee Initiatives Increased $2.8 million, 9.6%, from the Prior Quarter and $2.3 million, 7.9%, from the Second Quarter of 2013:

  • Leasing revenues increased due to higher fees from the sale of third-party equipment maintenance contracts compared to the prior quarter, but decreased slightly compared to the second quarter of 2013.
  • Capital markets and international banking service fees increased due to higher M&A advisory and syndication fees.
  • Card fees increased due to prepaid card program growth.
  • Commercial deposit and treasury management fees increased compared to the second quarter of 2013 due to new customer activity, but slightly decreased compared to the prior quarter.

    Core Non-interest Expenses Increased $3.9 million, 5.3%, from the Prior Quarter and $4.6 million, 6.4%, from the Second Quarter of 2013:

  • Salaries and employee benefits increased compared to the prior quarter primarily due to annual salary increases, an extra day in the quarter, an increase in leasing commissions as a result of higher leasing revenues and higher long-term incentive expense. Compared to the second quarter of 2013, salaries and employee benefits increased due to annual salary increases and higher long-term incentive expense, health insurance costs and temporary staffing costs.
  • Other operating expense increased from the prior quarter as a result of an increase of $1.4 million in the clawback liability related to our loss share agreements with the FDIC. The increase was due to better than expected performance of the acquired loan portfolios (faster resolution and lower charge-offs). Compared to the second quarter of 2013, other operating expense increased as a result of an increase in filing and other loan expense, as well as higher FDIC assessments due to our larger balance sheet, increased FDIC clawback liability and higher currency delivery expenses related to new treasury management accounts.

    Balance Sheet Activity - Loans and Deposits Increased, Low Cost Deposit Flows Strong:

  • Loans, excluding covered loans, increased approximately $27 million (+0.5%) from March 31, 2014 and approximately $62 million (+1.2%) from June 30, 2013.
  • Low cost deposit flows were strong, increasing approximately $335 million (+5.5%) from March 31, 2014 and approximately $615 million (+10.6%) from June 30, 2013.
  • Noninterest bearing deposits as a percent of total deposits were 34% at June 30, 2014.
  • We continue to maintain robust levels of capital and liquidity and are positioned well to complete our pending merger with Taylor Capital Group, Inc. Cash and interest bearing deposits at our holding company totaled approximately $154 million as of June 30, 2014.

    RESULTS OF OPERATIONS

    Second Quarter Results

    Net Interest Income

    Net interest income on a fully tax equivalent basis increased $840 thousand from the first quarter of 2014 primarily due to an extra day in the quarter. Our net interest margin on a fully tax equivalent basis for the second quarter of 2014 decreased 11 basis points compared to the first quarter of 2014 primarily due to higher cash balances held during the second quarter of 2014 as a result of the strong deposit inflows. Higher deposits and cash balances had minimal impact on net interest income.

    Net interest income on a fully tax equivalent basis increased $675 thousand from the second quarter of 2013 primarily due to higher yields on taxable investment securities partly offset by lower loan yields. Our net interest margin on a fully tax equivalent basis for the second quarter of 2014 decreased eight basis points compared to the second quarter of 2013 primarily due to higher cash balances.

    See the supplemental net interest margin tables for further detail.

    Non-interest Income (in thousands):

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Core non-interest income:
    Key fee initiatives:
    Capital markets and international banking service fees $ 1,360 $ 978 $ 841 $ 972 $ 939 $ 2,338 $ 1,747
    Commercial deposit and treasury management fees 7,106 7,144 6,545 6,327 6,029 14,250 11,995
    Lease financing, net 14,853 13,196 15,808 14,070 15,102 28,049 31,365
    Trust and asset management fees 5,405 5,207 4,975 4,799 4,874 10,612 9,368
    Card fees 3,304   2,701   2,838   2,745   2,735   6,005   5,430
    Total key fee initiatives 32,028 29,226 31,007 28,913 29,679 61,254 59,905
     
    Loan service fees 916 965 1,214 1,427 1,911 1,881 2,922
    Consumer and other deposit service fees 3,156 2,935 3,481 3,648 3,593 6,091 6,839
    Brokerage fees 1,356 1,325 1,227 1,289 1,234 2,681 2,391
    Increase in cash surrender value of life insurance 834 827 848 851 842 1,661 1,686
    Accretion of FDIC indemnification asset 28 31 35 64 100 59 243
    Net gain on sale of loans 187 59 342 177 506 246 1,145
    Other operating income 1,134   768   641   878   1,039   1,902   1,994
    Total core non-interest income 39,639   36,136   38,795   37,247   38,904   75,775   77,125
    Non-core non-interest income:
    Net (loss) gain on investment securities (87 ) 317 (15 ) 1 14 230 13
    Net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Increase in market value of assets held in trust for deferred compensation (1) 400   152   588   459   21   552   504
    Total non-core non-interest income 289   476   250   460   35   765   517
     
    Total non-interest income $ 39,928   $ 36,612   $ 39,045   $ 37,707   $ 38,939   $ 76,540   $ 77,642


    (1) Resides in other operating income in the consolidated statements of income.

    Core non-interest income for the second quarter of 2014 increased approximately 9.7% from the first quarter of 2014.

  • Leasing revenues increased due to higher fees from the sale of third-party equipment maintenance contracts.
  • Capital markets and international banking service fees increased due to higher M&A advisory and syndication fees.
  • Card fees increased due to a new payroll prepaid card program.

    Core non-interest income for the first six months of 2014 decreased approximately 1.8% from the first six months of 2013.

  • Commercial deposit and treasury management fees increased in the first half of 2014 due to robust new customer activity.
  • Trust and asset management fees increased due to the growth in investment management fees as a result of new customers added and the impact of higher equity values on assets under management and related fee revenue.
  • Card fees increased due to a new payroll prepaid card program as well as higher ATM and debit card fees.
  • Leasing revenues declined due to lower equipment remarketing gains and lower fees from the sale of third-party equipment maintenance contracts.
  • Loan service fees decreased due to lower late, prepayment and miscellaneous loan fees collected.
  • Consumer and other deposit service fees decreased due to lower demand deposit service and overdraft charges.
  • Net gain on sale of loans decreased as a result of less mortgage origination activity.

    Non-interest Expense (in thousands):

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Core non-interest expense:
    Salaries and employee benefits $ 46,222 $ 44,121 $ 44,929 $ 44,459 $ 43,888 $ 90,343 $ 86,919
    Occupancy and equipment expense 9,504 9,592 9,269 8,797 9,408 19,096 18,812
    Computer services and telecommunication expense 4,909 5,071 5,509 4,870 4,617 9,980 8,504
    Advertising and marketing expense 2,113 1,991 2,081 1,917 2,167 4,104 4,270
    Professional and legal expense 1,488 1,369 2,340 1,408 1,353 2,857 2,648
    Other intangible amortization expense 1,174 1,240 1,489 1,513 1,538 2,414 3,082
    Other real estate expense, net 337 396 175 240 193 733 332
    Other operating expenses 11,108   9,220   10,171   10,052   9,083   20,328   18,296  
    Total core non-interest expense 76,855   73,000   75,963   73,256   72,247   149,855   142,863  
    Non-core non-interest expense: (1)
    Merger related expenses (A) 488 680 724 1,759 1,168
    Net loss (gain) recognized on other real estate owned 204 122 (831 ) 754 (2,130 ) 326 (1,811 )
    Net (gain) loss recognized on other real estate owned related to FDIC transactions (B) (13 ) 65 197 37 115 52 126
    Loss on low to moderate income real estate investment (C) 96 2,028 2,124
    Increase in market value of assets held in trust for deferred compensation (D) 400   152   588   459   21   552   504  
    Total non-core non-interest expense 1,175   3,047   678   3,009   (1,994 ) 4,222   (1,181 )
     
    Total non-interest expense $ 78,030   $ 76,047   $ 76,641   $ 76,265   $ 70,253   $ 154,077   $ 141,682  


    (1) Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of income as follows: A – Salaries and employee benefits, computer services and telecommunication expense, advertising and marketing expense, professional and legal expense and other operating expenses, B – Net (gain) loss recognized on other real estate owned, C – Other operating expenses, D – Salaries and employee benefits.

    Core non-interest expense increased by $3.9 million, or 5.3%, from the first quarter of 2014 to the second quarter of 2014.

  • Salaries and employee benefits increased primarily due to annual salary increases, an extra day in the quarter, an increase in leasing commissions as a result of higher leasing revenues and higher long-term incentive expense.
  • Other operating expense increased primarily as a result of an increase of $1.4 million in the clawback liability related to our loss share agreements with the FDIC.

    Core non-interest expense increased by $7.0 million, or 4.9%, from the first six months of 2013 to the first six months of 2014.

  • Salaries and employee benefits increased due to annual salary increases, long-term incentive expense, health insurance and temporary staffing needs.
  • Computer services and telecommunication expenses increased due primarily to an increase in spending on IT security, data warehouse, investments in our key fee initiatives, as well as higher transaction volumes in leasing, treasury management and card areas. The increase was also due to increased telecommunication expense related to the transitioning to a new provider.
  • Other operating expense increased primarily as a result of an increase in filing and other loan expense as well as higher FDIC assessments due to our larger balance sheet, higher ATM and debit card processing costs and higher currency delivery expenses related to new treasury management accounts.

    Non-core non-interest expense decreased from the preceding quarter. Last quarter's results included a write-off of an investment in funds that invested in low to moderate income real estate projects. This investment was made in 2006 as a community development initiative. The extended slow real estate recovery in some low income areas of Chicago negatively impacted this investment.

    LOAN PORTFOLIO

    The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on period end balances as of the dates indicated (dollars in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
      % of   % of   % of   % of   % of
    AmountTotalAmountTotalAmountTotalAmountTotalAmountTotal
    Commercial related credits:
    Commercial loans $ 1,272,200 23 % $ 1,267,398 23 % $ 1,281,377 22 % $ 1,169,009 21 % $ 1,198,862 22 %
    Commercial loans collateralized by assignment of lease payments (lease loans) 1,515,446 27 1,472,621 27 1,494,188 26 1,468,814 26 1,422,901 25
    Commercial real estate 1,619,322 29 1,623,509 29 1,647,700 29 1,638,368 29 1,710,964 30
    Construction real estate 116,996   2   132,997   2   141,253   3   136,146   2   121,420   2  
    Total commercial related credits 4,523,964   81   4,496,525   81   4,564,518   80   4,412,337   78   4,454,147   79  
    Other loans:
    Residential real estate 309,234 6 309,137 5 314,440 5 311,256 6 305,710 5
    Indirect vehicle 272,841 5 266,044 5 262,632 5 257,740 5 242,964 5
    Home equity 245,135 4 258,120 5 268,289 5 274,484 5 281,334 5
    Consumer loans 70,584   1   64,812   1   66,952   1   57,418   1   75,476   1  
    Total other loans 897,794   16   898,113   16   912,313   16   900,898   17   905,484   16  
    Gross loans excluding covered loans 5,421,758 97 5,394,638 97 5,476,831 96 5,313,235 95 5,359,631 95
    Covered loans (1) 134,966   3   173,677   3   235,720   4   273,497   5   308,556   5  
    Total loans $ 5,556,724   100 % $ 5,568,315   100 % $ 5,712,551   100 % $ 5,586,732   100 % $ 5,668,187   100 %


    (1) Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.

    The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on quarterly average balances for the periods indicated (dollars in thousands):

      2Q14   1Q14   4Q13   3Q13   2Q13
      % of   % of   % of   % of   % of
    AmountTotalAmountTotalAmountTotalAmountTotalAmountTotal
    Commercial related credits:
    Commercial loans $ 1,229,799 22 % $ 1,232,562 22 % $ 1,167,924 21 % $ 1,166,887 21 % $ 1,206,740 21 %
    Commercial loans collateralized by assignment of lease payments (lease loans) 1,476,618 27 1,479,998 26 1,468,257 26 1,429,169 26 1,340,854 25
    Commercial real estate 1,620,658 29 1,631,041 29 1,629,270 29 1,652,339 30 1,716,170 30
    Construction real estate 133,557   2   140,920   3   141,041   3   128,115   2   133,705   2  
    Total commercial related credits 4,460,632   80   4,484,521   80   4,406,492   79   4,376,510   79   4,397,469   78  
    Other loans:
    Residential real estate 309,848 6 311,466 5 315,303 5 307,555 5 306,978 5
    Indirect vehicle 269,556 5 263,510 5 260,918 5 250,003 5 231,577 5
    Home equity 252,891 5 263,283 5 271,898 5 277,122 5 286,640 5
    Consumer loans 65,437   1   62,616   1   60,054   1   61,950   1   70,603   1  
    Total other loans 897,732   17   900,875   16   908,173   16   896,630   16   895,798   16  
    Gross loans excluding covered loans 5,358,364 97 5,385,396 96 5,314,665 95 5,273,140 95 5,293,267 94
    Covered loans (1) 158,371   3   221,481   4   258,094   5   281,896   5   335,148   6  
    Total loans $ 5,516,735   100 % $ 5,606,877   100 % $ 5,572,759   100 % $ 5,555,036   100 % $ 5,628,415   100 %


    (1) Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.

    ASSET QUALITY

    The following table presents a summary of criticized assets (excluding loans held for sale, credit-impaired loans and other real estate owned that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Non-performing loans:
    Non-accrual loans (1) $ 108,414 $ 118,023 $ 106,115 $ 102,042 $ 112,926
    Loans 90 days or more past due, still accruing interest 2,363   747   446   410   2,322  
    Total non-performing loans 110,777   118,770   106,561   102,452   115,248  
    Other real estate owned 20,306 20,928 23,289 31,356 32,993
    Repossessed assets 73   772   840   861   749  
    Total non-performing assets 131,156   140,470   130,690   134,669   148,990  
    Potential problem loans (2) 63,477   68,785   79,589   96,410   131,746  
    Total classified assets 194,633   209,255   210,279   231,079   280,736  
    Special mention 47,284   71,311   68,277   73,931   85,835  
    Total criticized assets $ 241,917   $ 280,566   $ 278,556   $ 305,010   $ 366,571  
     
    Total allowance for loan losses $ 100,910 $ 106,752 $ 111,746 $ 118,031 $ 123,685
    Accruing restructured loans (3) 27,135 25,797 29,430 29,911 28,270
    Total non-performing loans to total loans 1.99 % 2.13 % 1.87 % 1.83 % 2.03 %
    Total non-performing assets to total assets 1.34 1.49 1.36 1.45 1.59
    Allowance for loan losses to non-performing loans 91.09 89.88 104.87 115.21 107.32


    (1) Includes $14.5 million, $15.6 million, $25.0 million, $22.3 million and $20.9 million of restructured loans on non-accrual status at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013 and June 30, 2013, respectively.

    (2) We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.

    (3) Accruing restructured loans consist primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

    The following table presents data related to non-performing loans by category (excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Commercial and lease $ 36,807 $ 42,532 $ 22,348 $ 22,293 $ 25,968
    Commercial real estate 48,751 49,541 58,292 54,276 62,335
    Construction real estate 337 782 475 496 519
    Consumer related 24,882   25,915   25,446   25,387   26,426
    Total non-performing loans $ 110,777   $ 118,770   $ 106,561   $ 102,452   $ 115,248
     


    The following table represents a summary of other real estate owned (excluding other real estate owned related to assets acquired in FDIC-assisted transactions) as of the dates indicated (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Balance at the beginning of quarter $ 20,928 $ 23,289 $ 31,356 $ 32,993 $ 31,462
    Transfers in at fair value less estimated costs to sell 112 539 104 1,846 3,503
    Capitalized other real estate owned costs 21 45 8
    Fair value adjustments (286 ) (140 ) (176 ) (741 ) 1,170
    Net gains (losses) on sales of other real estate owned 82 18 1,007 (13 ) 960
    Cash received upon disposition (530 ) (2,778 ) (9,023 ) (2,774 ) (4,110 )
    Balance at the end of quarter $ 20,306   $ 20,928   $ 23,289   $ 31,356   $ 32,993  
     


    Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollars in thousands):

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Allowance for credit losses, balance at the beginning of period $ 108,395 $ 113,462 $ 119,725 $ 125,497 $ 124,733 $ 113,462 $ 128,279
    Provision for credit losses (1,950 ) 1,150 (3,000 ) (3,304 ) 500 (800 ) 500
    Charge-offs:
    Commercial loans 446 90 676 1,686 433 536 1,344
    Commercial loans collateralized by assignment of lease payments (lease loans) 40 40
    Commercial real estate 1,727 7,156 2,386 1,236 1,978 8,883 3,895
    Construction real estate 14 56 125 26 747 70 829
    Residential real estate 433 265 722 713 399 698 1,361
    Home equity 817 619 1,145 437 1,323 1,436 2,110
    Indirect vehicle 583 920 981 572 629 1,503 1,358
    Consumer loans 590   495   572   485   451   1,085   1,016  
    Total charge-offs 4,650   9,601   6,607   5,155   5,960   14,251   11,913  
    Recoveries:
    Commercial loans 696 1,628 1,348 579 777 2,324 1,229
    Commercial loans collateralized by assignment of lease payments (lease loans) 130 987 130 1,131
    Commercial real estate 567 485 672 966 3,647 1,052 4,387
    Construction real estate 77 99 789 420 131 176 407
    Residential real estate 6 519 18 48 199 525 413
    Home equity 127 133 152 228 100 260 214
    Indirect vehicle 439 442 300 372 324 881 739
    Consumer loans 68   78   65   74   59   146   111  
    Total recoveries 2,110   3,384   3,344   2,687   6,224   5,494   8,631  
    Total net charge-offs (recoveries) 2,540   6,217   3,263   2,468   (264 ) 8,757   3,282  
    Allowance for credit losses 103,905 108,395 113,462 119,725 125,497 103,905 125,497
    Allowance for unfunded credit commitments (2,995 ) (1,643 ) (1,716 ) (1,694 ) (1,812 ) (2,995 ) (1,812 )
    Allowance for loan losses $ 100,910   $ 106,752   $ 111,746   $ 118,031   $ 123,685   $ 100,910   $ 123,685  
     
    Total loans, excluding loans held for sale $ 5,556,724 $ 5,568,315 $ 5,712,551 $ 5,586,732 $ 5,668,187 $ 5,556,724 $ 5,668,187
    Average loans, excluding loans held for sale 5,516,735 5,606,877 5,572,759 5,555,036 5,628,415 5,561,559 5,648,277
    Ratio of allowance for loan losses to total loans, excluding loans held for sale 1.82 % 1.92 % 1.96 % 2.11 % 2.18 % 1.82 % 2.18 %
    Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) 0.18 0.45 0.23 0.18 (0.02 ) 0.32 0.12
     


    The following table presents the three elements of our allowance for loan losses (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Commercial related loans:
    General reserve $ 70,855 $ 75,695 $ 78,270 $ 87,112 $ 87,836
    Specific reserve 10,270 11,325 12,834 12,378 16,679
    Consumer related reserve 19,785   19,732   20,642   18,541   19,170
    Total allowance for loan losses $ 100,910   $ 106,752   $ 111,746   $ 118,031   $ 123,685
     


    Although management believes that adequate loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may become necessary.

    INVESTMENT SECURITIES

    The following table sets forth, by type, the fair value and amortized cost of our investment securities, excluding FHLB and FRB stock, as well as the unrealized gain of our investment securities available for sale (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Securities available for sale:
    Fair value
    Government sponsored agencies and enterprises $ 51,727 $ 51,836 $ 52,068 $ 52,527 $ 33,935
    States and political subdivisions 19,498 19,350 19,143 19,312 684,710
    Mortgage-backed securities 797,783 726,439 754,174 744,722 701,201
    Corporate bonds 275,529 273,853 283,070 263,021 215,256
    Equity securities 10,421   10,572   10,457   10,541   10,570  
    Total fair value $ 1,154,958   $ 1,082,050   $ 1,118,912   $ 1,090,123   $ 1,645,672  
     
    Amortized cost
    Government sponsored agencies and enterprises $ 50,096 $ 50,291 $ 50,486 $ 50,678 $ 32,050
    States and political subdivisions 19,228 19,285 19,398 19,461 669,791
    Mortgage-backed securities 786,496 717,548 747,306 736,070 690,681
    Corporate bonds 271,351 272,490 284,083 265,293 219,362
    Equity securities 10,414   10,703   10,649   10,574   10,560  
    Total amortized cost $ 1,137,585   $ 1,070,317   $ 1,111,922   $ 1,082,076   $ 1,622,444  
     
    Unrealized gain, net
    Government sponsored agencies and enterprises $ 1,631 $ 1,545 $ 1,582 $ 1,849 $ 1,885
    States and political subdivisions 270 65 (255 ) (149 ) 14,919
    Mortgage-backed securities 11,287 8,891 6,868 8,652 10,520
    Corporate bonds 4,178 1,363 (1,013 ) (2,272 ) (4,106 )
    Equity securities 7   (131 ) (192 ) (33 ) 10  
    Total unrealized gain, net $ 17,373   $ 11,733   $ 6,990   $ 8,047   $ 23,228  
     
    Securities held to maturity, at amortized cost:
    States and political subdivisions $ 993,937 $ 940,610 $ 932,955 $ 941,273 $ 282,655
    Mortgage-backed securities 247,455   248,082   249,578   252,271   253,779  
    Total amortized cost $ 1,241,392   $ 1,188,692   $ 1,182,533   $ 1,193,544   $ 536,434  
     


    Securities of states and political subdivisions with an approximate fair value of $656.6 million were transferred from available for sale to held to maturity during the third quarter of 2013, which is the new cost basis.

    DEPOSIT MIX

    The following table shows the composition of deposits based on period end balances as of the dates indicated (dollars in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
      % of   % of   % of   % of   % of
    AmountTotalAmountTotalAmountTotalAmountTotalAmountTotal
    Low cost deposits:
    Noninterest bearing deposits $ 2,605,367 34 % $ 2,435,868 32 % $ 2,375,863 32 % $ 2,269,367 31 % $ 2,230,384 30 %
    Money market and NOW accounts 2,932,089 38 2,772,766 37 2,682,419 36 2,680,127 37 2,718,989 37
    Savings accounts 872,324   11   865,910   12   855,394   12   843,671   12   845,742   11  
    Total low cost deposits 6,409,780   83   6,074,544   81     5,913,676   80   5,793,165   80   5,795,115   78  
    Certificates of deposit:
    Certificates of deposit 1,137,262 14 1,188,896 16 1,243,433 17 1,266,989 17 1,357,777 18
    Brokered deposit accounts 216,022   3   222,307   3   224,150   3   238,532   3   292,504   4  
    Total certificates of deposit 1,353,284   17   1,411,203   19   1,467,583   20   1,505,521   20   1,650,281   22  
    Total deposits $ 7,763,064   100 % $ 7,485,747   100 % $ 7,381,259   100 % $ 7,298,686   100 % $ 7,445,396   100 %
     


    The following table shows the composition of deposits based on quarterly average balances for the periods indicated (dollars in thousands):

      2Q14   1Q14   4Q13   3Q13   2Q13
      % of   % of   % of   % of   % of
    AmountTotalAmountTotalAmountTotalAmountTotalAmountTotal
    Low cost deposits:
    Noninterest bearing deposits $ 2,476,396 33 % $ 2,372,866 32 % $ 2,352,901 32 % $ 2,258,357 31 % $ 2,179,284 30 %
    Money market and NOW accounts 2,880,910 38 2,727,620 37 2,685,343 36 2,695,479 37 2,675,189 36
    Savings accounts 868,694   11   862,197   12   848,734   12   844,647   11   840,154   11  
    Total low cost deposits 6,226,000   82   5,962,683   81   5,886,978   80     5,798,483   79   5,694,627   77  
    Certificates of deposit:
    Certificates of deposit 1,157,805 15 1,210,189 16 1,250,049 17 1,309,539 17 1,406,693 19
    Brokered deposit accounts 220,396   3   223,926   3   229,635   3   263,448   4   294,277   4  
    Total certificates of deposit 1,378,201   18   1,434,115   19   1,479,684   20   1,572,987   21   1,700,970   23  
    Total deposits $ 7,604,201   100 % $ 7,396,798   100 % $ 7,366,662   100 % $ 7,371,470   100 % $ 7,395,597   100 %
     


    Average low cost deposits increased by $263.3 million (+4.4%) and $531.4 million (+9.3%) from the first quarter of 2014 and second quarter of 2013, respectively, to the second quarter of 2014, driven by growth in noninterest bearing deposits. Our deposit mix improved over the past twelve months as average low cost deposits now comprise 82% of total deposits in the second quarter of 2014 compared to 77% in the second quarter of 2013.

    CAPITAL

    Tangible book value per common share increased to $16.81 at June 30, 2014 compared to $15.60 a year ago primarily due to net income less dividends. Our regulatory capital ratios remain strong. MB Financial Bank, N.A. was categorized as “well capitalized” at June 30, 2014 under the Prompt Corrective Action (“PCA”) provisions.

    FORWARD-LOOKING STATEMENTS

    When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission, in other press releases or other public stockholder 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 revenues, cost savings, synergies and other benefits from the pending Taylor Capital merger and our other merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to, customer and employee retention, might be greater than expected; (2) the possibility that the requisite regulatory approvals for the pending Taylor Capital merger might not be obtained; (3) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses; (4) results of examinations by the Office of Comptroller of Currency, the Board of Governors of the Federal Reserve System and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (11) our ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation, including without limitation litigation relating to the pending Taylor Capital merger; (15) new legislation or regulatory changes, including but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions or other factors.

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

    TABLES TO FOLLOW

             
    MB FINANCIAL, INC. & SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS (Unaudited)
    As of the dates indicated
    (In thousands)
     
    6/30/20143/31/201412/31/20139/30/20136/30/2013
    ASSETS
    Cash and due from banks $ 294,475 $ 268,803 $ 205,193 $ 215,017 $ 152,302
    Interest earning deposits with banks 466,820   244,819   268,266   41,700   280,618  
    Total cash and cash equivalents 761,295 513,622 473,459 256,717 432,920
    Federal funds sold 10,000 7,500 42,950 47,500 7,500
    Investment securities:
    Securities available for sale, at fair value 1,154,958 1,082,050 1,118,912 1,090,123 1,645,672
    Securities held to maturity, at amortized cost 1,241,392 1,188,692 1,182,533 1,193,544 536,434
    Non-marketable securities - FHLB and FRB Stock 51,432   51,432   51,417   50,870   50,870  
    Total investment securities 2,447,782 2,322,174 2,352,862 2,334,537 2,232,976
    Loans held for sale 1,219 802 629 1,120 2,528
    Loans:
    Total loans, excluding covered loans 5,421,758 5,394,638 5,476,831 5,313,235 5,359,631
    Covered loans 134,966   173,677   235,720   273,497   308,556  
    Total loans 5,556,724 5,568,315 5,712,551 5,586,732 5,668,187
    Less: Allowance for loan losses 100,910   106,752   111,746   118,031   123,685  
    Net loans 5,455,814 5,461,563 5,600,805 5,468,701 5,544,502
    Lease investments, net 127,194 122,589 131,089 112,491 113,958
    Premises and equipment, net 224,245 221,711 221,065 220,574 219,783
    Cash surrender value of life insurance 131,842 131,008 130,181 129,332 130,565
    Goodwill 423,369 423,369 423,369 423,369 423,369
    Other intangibles 21,014 22,188 23,428 24,917 26,430
    Other real estate owned, net 20,306 20,928 23,289 31,356 32,993
    Other real estate owned related to FDIC transactions 15,349 22,682 20,472 24,792 19,014
    FDIC indemnification asset 4,607 8,055 11,675 11,074 16,337
    Other assets 174,655   159,112   186,154   171,138   166,784  
    Total assets $ 9,818,691   $ 9,437,303   $ 9,641,427   $ 9,257,618   $ 9,369,659  
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities
    Deposits:
    Noninterest bearing $ 2,605,367 $ 2,435,868 $ 2,375,863 $ 2,269,367 $ 2,230,384
    Interest bearing 5,157,697   5,049,879   5,005,396   5,029,319   5,215,012  
    Total deposits 7,763,064 7,485,747 7,381,259 7,298,686 7,445,396
    Short-term borrowings 229,809 189,872 493,389 240,600 230,547
    Long-term borrowings 71,473 65,664 62,159 62,428 62,786
    Junior subordinated notes issued to capital trusts 152,065 152,065 152,065 152,065 152,065
    Accrued expenses and other liabilities 236,964   200,175   225,873   194,371   182,784  
    Total liabilities 8,453,375   8,093,523   8,314,745   7,948,150   8,073,578  
    Stockholders' Equity
    Common stock 553 553 551 551 550
    Additional paid-in capital 742,824 740,245 738,053 736,294 736,281
    Retained earnings 611,741 595,301 581,998 564,779 547,116
    Accumulated other comprehensive income 13,034 10,362 8,383 9,918 14,231
    Treasury stock (4,295 ) (4,132 ) (3,747 ) (3,525 ) (3,558 )
    Controlling interest stockholders' equity 1,363,857 1,342,329 1,325,238 1,308,017 1,294,620
    Noncontrolling interest 1,459   1,451   1,444   1,451   1,461  
    Total stockholders' equity 1,365,316   1,343,780   1,326,682   1,309,468   1,296,081  
    Total liabilities and stockholders' equity $ 9,818,691   $ 9,437,303   $ 9,641,427   $ 9,257,618   $ 9,369,659  
                 
    MB FINANCIAL, INC. & SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF INCOME
    (In thousands, except share and per share data) (Unaudited)
     
    Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Interest income:
    Loans $ 55,905 $ 56,244 $ 58,053 $ 60,115 $ 59,581 $ 112,149 $ 120,374
    Investment securities:
    Taxable 8,794 8,146 7,334 6,330 6,280 16,940 12,419
    Nontaxable 8,285 8,067 8,166 8,175 8,163 16,352 16,224
    Federal funds sold 4 5 6 7 2 9 2
    Other interest earning accounts 277   113   270   193   92   390   227  
    Total interest income 73,265   72,575   73,829   74,820   74,118   145,840   149,246  
    Interest expense:
    Deposits 3,754 3,769 3,966 4,433 5,132 7,523 10,841
    Short-term borrowings 95 100 227 112 116 195 283
    Long-term borrowings and junior subordinated notes 1,344   1,378   1,373   1,367   1,390   2,722   2,957  
    Total interest expense 5,193   5,247   5,566   5,912   6,638   10,440   14,081  
    Net interest income 68,072 67,328 68,263 68,908 67,480 135,400 135,165
    Provision for credit losses (1,950 ) 1,150   (3,000 ) (3,304 ) 500   (800 ) 500  
    Net interest income after provision for credit losses 70,022   66,178   71,263   72,212   66,980   136,200   134,665  
    Non-interest income:
    Capital markets and international banking service fees 1,360 978 841 972 939 2,338 1,747
    Commercial deposit and treasury management fees 7,106 7,144 6,545 6,327 6,029 14,250 11,995
    Lease financing, net 14,853 13,196 15,808 14,070 15,102 28,049 31,365
    Trust and asset management fees 5,405 5,207 4,975 4,799 4,874 10,612 9,368
    Card fees 3,304 2,701 2,838 2,745 2,735 6,005 5,430
    Loan service fees 916 965 1,214 1,427 1,911 1,881 2,922
    Consumer and other deposit service fees 3,156 2,935 3,481 3,648 3,593 6,091 6,839
    Brokerage fees 1,356 1,325 1,227 1,289 1,234 2,681 2,391
    Net (loss) gain on securities available for sale (87 ) 317 (15 ) 1 14 230 13
    Increase in cash surrender value of life insurance 834 827 848 851 842 1,661 1,686
    Net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Accretion of FDIC indemnification asset 28 31 35 64 100 59 243
    Net gain on sale of loans 187 59 342 177 506 246 1,145
    Other operating income 1,534   920   1,229   1,337   1,060   2,454   2,498  
    Total non-interest income 39,928   36,612   39,045   37,707   38,939   76,540   77,642  
    Non-interest expense:
    Salaries and employee benefits 46,622 44,377 45,517 44,918 43,909 90,999 87,423
    Occupancy and equipment expense 9,518 9,592 9,269 8,797 9,408 19,110 18,812
    Computer services and telecommunication expense 5,079 5,084 5,509 4,870 4,617 10,163 8,504
    Advertising and marketing expense 2,221 2,081 2,085 1,917 2,167 4,302 4,270
    Professional and legal expense 1,567 1,779 3,057 3,102 1,353 3,346 2,648
    Other intangible amortization expense 1,174 1,240 1,489 1,513 1,538 2,414 3,082
    Net loss (gain) recognized on other real estate owned 191 187 (634 ) 791 (2,015 ) 378 (1,685 )
    Other real estate expense, net 337 396 175 240 193 733 332
    Other operating expenses 11,321   11,311   10,174   10,117   9,083   22,632   18,296  
    Total non-interest expense 78,030   76,047   76,641   76,265   70,253   154,077   141,682  
    Income before income taxes 31,920 26,743 33,667 33,654 35,666 58,663 70,625
    Income tax expense 8,814   6,774   9,811   9,254   10,373   15,588   20,426  
    Net income $ 23,106   $ 19,969   $ 23,856   $ 24,400   $ 25,293   $ 43,075   $ 50,199  
                 
    Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014     2013
    Common share data:  
    Basic earnings per common share $ 0.42 $ 0.37 $ 0.44 $ 0.45 $ 0.46 $ 0.79 $ 0.92
    Diluted earnings per common share 0.42 0.36 0.43 0.44 0.46 0.78 0.92
    Weighted average common shares outstanding for basic earnings per common share 54,669,868 54,639,951 54,622,584 54,565,089 54,436,043 54,654,992 54,423,992
    Weighted average common shares outstanding for diluted earnings per common share 55,200,054 55,265,188 55,237,160 55,130,653 54,868,075 55,232,703 54,802,427
                   
    Selected Financial Data:
    Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q1320142013
    Performance Ratios:
    Annualized return on average assets 0.97 % 0.86 % 0.99 % 1.05 % 1.09 % 0.92 % 1.08 %
    Annualized return on average equity 6.86 6.07 7.19 7.46 7.82 6.47 7.85
    Annualized cash return on average tangible equity(1) 10.47 9.39 11.23 11.74 12.31 9.94 12.42
    Net interest rate spread 3.40 3.51 3.37 3.52 3.46 3.46 3.45
    Cost of funds(2) 0.26 0.27 0.27 0.30 0.34 0.27 0.36
    Efficiency ratio(3) 67.51 66.67 67.12 65.11 64.26 67.10 63.68
    Annualized net non-interest expense to average assets(4) 1.54 1.58 1.52 1.52 1.42 1.56 1.40
    Core non-interest income to revenues (5) 35.22 33.41 34.68 33.51 35.01 34.33 34.78
    Net interest margin 3.26 3.36 3.23 3.37 3.33 3.31 3.33
    Tax equivalent effect 0.27 0.28 0.27 0.29 0.28 0.28 0.27
    Net interest margin - fully tax equivalent basis(6) 3.53 3.64 3.50 3.66 3.61 3.59 3.60
    Loans to deposits 71.58 74.39 77.39 76.54 76.13 71.58 76.13
    Asset Quality Ratios:
    Non-performing loans(7) to total loans 1.99 % 2.13 % 1.87 % 1.83 % 2.03 % 1.99 % 2.03 %
    Non-performing assets(7) to total assets 1.34 1.49 1.36 1.45 1.59 1.34 1.59
    Allowance for loan losses to non-performing loans(7) 91.09 89.88 104.87 115.21 107.32 91.09 107.32
    Allowance for loan losses to total loans 1.82 1.92 1.96 2.11 2.18 1.82 2.18
    Net loan charge-offs (recoveries) to average loans (annualized) 0.18 0.45 0.23 0.18 (0.02 ) 0.32 0.12
    Capital Ratios:
    Tangible equity to tangible assets(8) 9.89 % 10.07 % 9.65 % 9.87 % 9.58 % 9.89 % 9.58 %
    Tangible common equity to risk weighted assets(9) 13.97 13.82 13.27 13.40 13.23 13.97 13.23
    Book value per common share(10) $ 24.73 $ 24.37 $ 24.14 $ 23.82 $ 23.63 $ 24.73 $ 23.63
    Less: goodwill and other intangible assets, net of benefit, per common share 7.92   7.94   7.98   7.99   8.03   7.92   8.03  
    Tangible book value per common share(11) $ 16.81 $ 16.43 $ 16.16 $ 15.83 $ 15.60 $ 16.81 $ 15.60
     
    Total capital (to risk-weighted assets) 17.18 % 17.09 % 16.53 % 16.70 % 16.48 % 17.18 % 16.48 %
    Tier 1 capital (to risk-weighted assets) 15.92 15.84 15.28 15.44 15.22 15.92 15.22
    Tier 1 capital (to average assets) 11.61 11.65 11.22 11.39 11.19 11.61 11.19
    Tier 1 common capital (to risk-weighted assets) 13.71 13.59 13.07 13.17 12.94 13.71 12.94


    (1) Net cash flow (net income, plus other intangibles amortization expense, net of tax benefit) divided by average tangible equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).

    (2) Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.

    (3) Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.

    (4) Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.

    (5) Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.

    (6) Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.

    (7) Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.

    (8) 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.

    (9) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total risk-weighted assets.

    (10) Equals total ending stockholders’ equity divided by common shares outstanding.

    (11) Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.

    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 core non-interest income, core non-interest income to revenues (with non-core items excluded from both core non-interest income and revenues), core non-interest expense, non-core non-interest income and non-core non-interest expense, net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net gains and losses on sale of other assets, and increase in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, and net gains and losses recognized on other real estate owned, merger-related expenses, loss on low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to risk-weighted assets and Tier 1 common capital to risk-weighted assets; tangible book value per common share; and annualized cash return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

    Management believes that core and non-core non-interest income and non-interest expense are useful in assessing our core operating performance and in understanding the primary drivers of our non-interest income and non-interest expense when comparing periods.

    The tax equivalent adjustment to net interest income, net interest margin, tax-exempt interest income and increase in cash surrender value of life insurance 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. For the same reasons, management believes that the tax equivalent adjustments to tax-exempt interest income and increase in cash surrender value of life insurance are useful.

    Management also believes that by excluding net gains and losses on investment securities, net gains and losses on sale of other assets, and increase in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding net gains and losses on other real estate owned, merger-related expenses, loss on low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

    In addition, management believes that presenting the ratio of Tier 1 common equity to risk-weighted assets is useful for assessing our capital strength and for peer comparison purposes. The other measures exclude the acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible assets, tangible equity, tangible common equity and average tangible common equity and exclude other intangible amortization expense, net of tax benefit, in determining net cash flow available to common stockholders. 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, as well as our capital strength. Management also believes that providing measures that exclude balances of acquisition-related goodwill and other intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

    The non-GAAP disclosures contained herein 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.

    A reconciliation of net interest margin on a fully tax equivalent basis to net interest margin is contained in the tables under “Net Interest Margin.” A reconciliation of tangible book value per common share to book value per common share is contained in the “Selected Financial Ratios” table. Reconciliations of core and non-core non-interest income and non-interest expense to non-interest income and non-interest expense are contained in the tables under “Results of Operations—Second Quarter Results.”

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

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Stockholders' equity - as reported $ 1,365,316 $ 1,343,780 $ 1,326,682 $ 1,309,468 $ 1,296,081
    Less: goodwill 423,369 423,369 423,369 423,369 423,369
    Less: other intangible assets, net of tax benefit 13,659   14,422   15,228   16,196   17,180
    Tangible equity $ 928,288   $ 905,989   $ 888,085   $ 869,903   $ 855,532
     


    The following table presents a reconciliation of tangible assets to total assets (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Total assets - as reported $ 9,818,691 $ 9,437,303 $ 9,641,427 $ 9,257,618 $ 9,369,659
    Less: goodwill 423,369 423,369 423,369 423,369 423,369
    Less: other intangible assets, net of tax benefit 13,659   14,422   15,228   16,196   17,180
    Tangible assets $ 9,381,663   $ 8,999,512   $ 9,202,830   $ 8,818,053   $ 8,929,110
     


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

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014     2013
    Average common stockholders' equity - as reported $ 1,351,604 $ 1,335,223 $ 1,315,804 $ 1,297,498 $ 1,297,364 $ 1,343,458   $ 1,289,187
    Less: average goodwill 423,369 423,369 423,369 423,369 423,369 423,369 423,369
    Less: average other intangible assets, net of tax benefit 13,990   14,758   15,647   16,620   17,605   14,372   18,106
    Average tangible common equity $ 914,245   $ 897,096   $ 876,788   $ 857,509   $ 856,390   $ 905,717   $ 847,712
     


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

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014     2013
    Net income - as reported $ 23,106 $ 19,969 $ 23,856 $ 24,400 $ 25,293 $ 43,075   $ 50,199
    Add: other intangible amortization expense, net of tax benefit 763   806   968   983   1,000   1,569   2,003
    Net cash flow $ 23,869   $ 20,775   $ 24,824   $ 25,383   $ 26,293   $ 44,644   $ 52,202
     


    The following table presents a reconciliation of Tier 1 common capital to Tier 1 capital (in thousands):

      6/30/2014   3/31/2014   12/31/2013   9/30/2013   6/30/2013
    Tier 1 capital - as reported $ 1,058,504 $ 1,038,600 $ 1,022,512 $ 1,002,883 $ 983,997
    Less: qualifying trust preferred securities 147,500   147,500   147,500   147,500   147,500
    Tier 1 common capital $ 911,004   $ 891,100   $ 875,012   $ 855,383   $ 836,497
     


    Efficiency Ratio Calculation (Dollars in Thousands)

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Non-interest expense $ 78,030 $ 76,047 $ 76,641 $ 76,265 $ 70,253 $ 154,077 $ 141,682
    Less net loss (gain) recognized on other real estate owned 191 187 (634 ) 791 (2,015 ) 378 (1,685 )
    Less merger related expenses 488 680 724 1,759 1,168
    Less loss on low to moderate income real estate investment 96 2,028 2,124
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Non-interest expense - as adjusted $ 76,855   $ 73,000   $ 75,963   $ 73,256   $ 72,247   $ 149,855   $ 142,863  
     
    Net interest income $ 68,072 $ 67,328 $ 68,263 $ 68,908 $ 67,480 $ 135,400 $ 135,165
    Tax equivalent adjustment 5,677   5,581   5,655   5,905   5,594   11,258   11,149  
    Net interest income on a fully tax equivalent basis 73,749 72,909 73,918 74,813 73,074 146,658 146,314
    Plus non-interest income 39,928 36,612 39,045 37,707 38,939 76,540 77,642
    Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 449 445 457 458 454 894 908
    Less net (loss) gain on investment securities (87 ) 317 (15 ) 1 14 230 13
    Less net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Net interest income plus non-interest income - as adjusted $ 113,837   $ 109,490   $ 113,170   $ 112,518   $ 112,432   $ 223,327   $ 224,347  
     
    Efficiency ratio 67.51 % 66.67 % 67.12 % 65.11 % 64.26 % 67.10 % 63.68 %
    Efficiency ratio (without adjustments) 72.25 % 73.16 % 71.42 % 71.53 % 66.02 % 72.70 % 66.58 %
     


    Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Non-interest expense $ 78,030 $ 76,047 $ 76,641 $ 76,265 $ 70,253 $ 154,077 $ 141,682
    Less net loss (gain) recognized on other real estate owned 191 187 (634 ) 791 (2,015 ) 378 (1,685 )
    Less merger related expenses 488 680 724 1,759 1,168
    Less loss on low to moderate income real estate investment 96 2,028 2,124
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Non-interest expense - as adjusted 76,855   73,000   75,963   73,256   72,247   149,855   142,863  
     
    Non-interest income 39,928 36,612 39,045 37,707 38,939 76,540 77,642
    Less net (loss) gain on investment securities (87 ) 317 (15 ) 1 14 230 13
    Less net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Non-interest income - as adjusted 39,639   36,136   38,795   37,247   38,904   75,775   77,125  
    Less tax equivalent adjustment on the increase in cash surrender value of life insurance 449   445   457   458   454   894   908  
    Net non-interest expense $ 36,767   $ 36,419   $ 36,711   $ 35,551   $ 32,889   $ 73,186   $ 64,830  
     
    Average assets $ 9,575,896 $ 9,367,942 $ 9,567,388 $ 9,261,291 $ 9,289,382 $ 9,472,493 $ 9,369,042
     
    Annualized net non-interest expense to average assets 1.54 % 1.58 % 1.52 % 1.52 % 1.42 % 1.56 % 1.40 %
     
    Annualized net non-interest expense to average assets (without adjustments) 1.60 % 1.71 % 1.56 % 1.65 % 1.35 % 1.65 % 1.38 %
     


    Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)

                  Six Months Ended
    June 30,
    2Q141Q144Q133Q132Q132014   2013
    Non-interest income $ 39,928 $ 36,612 $ 39,045 $ 37,707 $ 38,939 $ 76,540 $ 77,642
    Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 449 445 457 458 454 894 908
    Less net (loss) gain on investment securities (87 ) 317 (15 ) 1 14 230 13
    Less net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Non-interest income - as adjusted $ 40,088   $ 36,581   $ 39,252   $ 37,705   $ 39,358   $ 76,669   $ 78,033  
     
    Net interest income $ 68,072 $ 67,328 $ 68,263 $ 68,908 $ 67,480 $ 135,400 $ 135,165
    Tax equivalent adjustment 5,677   5,581   5,655   5,905   5,594   11,258   11,149  
    Net interest income on a fully tax equivalent basis 73,749 72,909 73,918 74,813 73,074 146,658 146,314
    Plus non-interest income 39,928 36,612 39,045 37,707 38,939 76,540 77,642
    Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 449 445 457 458 454 894 908
    Less net (loss) gain on investment securities (87 ) 317 (15 ) 1 14 230 13
    Less net (loss) gain on sale of other assets (24 ) 7 (323 ) (17 )
    Less increase in market value of assets held in trust for deferred compensation 400   152   588   459   21   552   504  
    Total revenue - as adjusted and on a fully tax equivalent basis $ 113,837   $ 109,490   $ 113,170   $ 112,518   $ 112,432   $ 223,327   $ 224,347  
     
    Total revenue - unadjusted $ 108,000 $ 103,940 $ 107,308 $ 106,615 $ 106,419 $ 211,940 $ 212,807
     
    Core non-interest income to revenues ratio 35.22 % 33.41 % 34.68 % 33.51 % 35.01 % 34.33 % 34.78 %
     
    Non-interest income to revenues ratio (without adjustments) 36.97 % 35.22 % 36.39 % 35.37 % 36.59 % 36.11 % 36.48 %
     


    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):

      2Q14   2Q13     1Q14
    Average     Yield/Average     Yield/Average     Yield/
    BalanceInterestRateBalanceInterestRateBalanceInterestRate
    Interest Earning Assets:
    Loans (1) (2) (3):
    Commercial related credits
    Commercial $ 1,229,799 $ 11,912 3.83 % $ 1,206,740 12,613 4.18 % $ 1,232,562 $ 12,312 4.00 %
    Commercial loans collateralized by assignment of lease payments 1,476,618 14,693 3.98 1,340,854 12,987 3.87 1,479,998 14,319 3.87
    Real estate commercial 1,620,658 17,008 4.15 1,718,979 19,736 4.54 1,631,041 17,332 4.25
    Real estate construction 133,557   1,274   3.77 133,705   1,270   3.76 140,920   1,278   3.63
    Total commercial related credits 4,460,632   44,887   3.98 4,400,278   46,606   4.19 4,484,521   45,241   4.04
    Other loans
    Real estate residential 310,345 2,809 3.62 306,978 3,042 3.96 311,760 2,992 3.84
    Home equity 252,891 2,678 4.25 286,640 3,076 4.30 263,283 2,712 4.18
    Indirect 269,556 3,579 5.33 231,577 3,176 5.50 263,510 3,391 5.22
    Consumer loans 65,437   725   4.44 70,603   624   3.54 62,616   676   4.38
    Total other loans 898,229   9,791   4.37 895,798   9,918   4.44 901,169   9,771   4.40
    Total loans, excluding covered loans 5,358,861 54,678 4.09 5,296,076 56,524 4.28 5,385,690 55,012 4.14
    Covered loans 158,371   2,441   6.18 335,148   4,255   5.09 221,481   2,470   4.52
    Total loans 5,517,232   57,119   4.15 5,631,224   60,779   4.33 5,607,171   57,482   4.16
    Taxable investment securities 1,434,300 8,794 2.45 1,377,368 6,280 1.82 1,384,371 8,146 2.35
    Investment securities exempt from federal income taxes (3) 966,518 12,748 5.28 933,442 12,559 5.38 935,863 12,410 5.30
    Federal funds sold 4,359 4 0.36 2,879 2 0.27 5,889 5 0.34
    Other interest earning deposits 448,173   277   0.25 183,010   92   0.20 187,049   113   0.25
    Total interest earning assets $ 8,370,582 $ 78,942   3.78 % $ 8,127,923 $ 79,712   3.93 % $ 8,120,343 $ 78,156   3.90 %
    Non-interest earning assets 1,205,314   1,161,459   1,247,599  
    Total assets $ 9,575,896   $ 9,289,382   $ 9,367,942  
    Interest Bearing Liabilities:
    Core funding:
    Money market and NOW accounts $ 2,880,910 $ 899 0.13 % $ 2,675,189 $ 833 0.12 % $ 2,727,620 $ 848 0.13 %
    Savings accounts 868,694 97 0.04 840,154 136 0.06 862,197 109 0.05
    Certificates of deposit 1,157,805 1,124 0.40 1,406,693 1,893 0.55 1,210,189 1,174 0.40
    Customer repurchase agreements 184,178   95   0.21 187,496   101   0.22 190,466   96   0.20
    Total core funding 5,091,587   2,215   0.17 5,109,532   2,963   0.23 4,990,472   2,227   0.18
    Wholesale funding:
    Brokered accounts (includes fee expense) 220,396 1,634 2.97 294,277 2,271 3.10 223,926 1,638 2.97
    Other borrowings 236,292   1,344   2.25 216,372   1,404   2.57 231,805   1,382   2.38
    Total wholesale funding 456,688   2,978   2.33 510,649   3,675   2.55 455,731   3,020   2.38
    Total interest bearing liabilities $ 5,548,275 $ 5,193   0.38 % $ 5,620,181 $ 6,638   0.47 % $ 5,446,203 $ 5,247   0.39 %
    Non-interest bearing deposits 2,476,396 2,179,284 2,372,866
    Other non-interest bearing liabilities 199,621 192,553 213,650
    Stockholders' equity 1,351,604   1,297,364   1,335,223  
    Total liabilities and stockholders' equity $ 9,575,896   $ 9,289,382   $ 9,367,942  
    Net interest income/interest rate spread (4) $ 73,749   3.40 % $ 73,074   3.46 % $ 72,909   3.51 %
    Taxable equivalent adjustment 5,677   5,594   5,581  
    Net interest income, as reported $ 68,072   $ 67,480   $ 67,328  
    Net interest margin (5) 3.26 % 3.33 % 3.36 %
    Tax equivalent effect 0.27 % 0.28 % 0.28 %
    Net interest margin on a fully tax equivalent basis (5) 3.53 % 3.61 % 3.64 %


    (1) Non-accrual loans are included in average loans.

    (2) Interest income includes amortization of deferred loan origination fees of $28 thousand and $817 thousand for the three months ended June 30, 2014 and June 30, 2013, respectively, deferred loan origination costs of $55 thousand for the three months ended March 31, 2014.

    (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.

    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,
    2014   2013
    Average     Yield/Average     Yield/
    BalanceInterestRateBalanceInterestRate
    Interest Earning Assets:
    Loans (1) (2) (3):
    Commercial related credits
    Commercial $ 1,231,171 $ 24,224 3.91 % $ 1,206,324 25,172 4.15 %
    Commercial loans collateralized by assignment of lease payments 1,478,299 29,012 3.93 1,320,946 25,786 3.90
    Real estate commercial 1,625,821 34,340 4.20 1,726,986 40,480 4.66
    Real estate construction 137,219   2,552   3.70 123,694   2,390   3.84
    Total commercial related credits 4,472,510   90,128   4.01 4,377,950   93,828   4.26
    Other loans
    Real estate residential 311,049 5,801 3.73 309,847 6,327 4.08
    Home equity 258,060 5,390 4.21 292,319 6,266 4.32
    Indirect 266,549 6,970 5.27 221,919 6,198 5.63
    Consumer loans 64,034   1,401   4.41 70,484   1,231   3.52
    Total other loans 899,692   19,562   4.38 894,569   20,022   4.51
    Total loans, excluding covered loans 5,372,202 109,690 4.12 5,272,519 113,850 4.35
    Covered loans 189,751   4,911   5.22 379,671   8,937   4.75
    Total loans 5,561,953   114,601   4.16 5,652,190   122,787   4.38
    Taxable investment securities 1,409,473 16,940 2.40 1,430,539 12,419 1.74
    Investment securities exempt from federal income taxes (3) 951,275 25,158 5.29 922,652 24,960 5.41
    Federal funds sold 5,120 9 0.35 1,448 2 0.27
    Other interest earning deposits 318,332   390   0.25 189,994   227   0.24
    Total interest earning assets $ 8,246,153 $ 157,098   3.84 % $ 8,196,823 $ 160,395   3.95 %
    Non-interest earning assets 1,226,340   1,172,219  
    Total assets $ 9,472,493   $ 9,369,042  
    Interest Bearing Liabilities:
    Core funding:
    Money market and NOW accounts $ 2,804,688 $ 1,747 0.13 % $ 2,706,169 $ 1,760 0.13 %
    Savings accounts 865,463 206 0.05 831,233 272 0.07
    Certificates of deposit 1,183,852 2,298 0.40 1,459,354 4,290 0.61
    Customer repurchase agreements 187,305   191   0.21 184,593   199   0.22
    Total core funding 5,041,308   4,442   0.18 5,181,349   6,521   0.25
    Wholesale funding:
    Brokered accounts (includes fee expense) 222,151 3,272 2.97 294,286 4,520 3.10
    Other borrowings 234,062   2,726   2.32 237,636   3,040   2.54
    Total wholesale funding 456,213   5,998   2.36 531,922   7,560   2.53
    Total interest bearing liabilities $ 5,497,521 $ 10,440   0.38 % $ 5,713,271 $ 14,081   0.50 %
    Non-interest bearing deposits 2,424,917 2,162,266
    Other non-interest bearing liabilities 206,597 204,318
    Stockholders' equity 1,343,458   1,289,187  
    Total liabilities and stockholders' equity $ 9,472,493   $ 9,369,042  
    Net interest income/interest rate spread (4) $ 146,658   3.46 % $ 146,314   3.45 %
    Taxable equivalent adjustment 11,258   11,149  
    Net interest income, as reported $ 135,400   $ 135,165  
    Net interest margin (5) 3.31 % 3.33 %
    Tax equivalent effect 0.28 % 0.27 %
    Net interest margin on a fully tax equivalent basis (5) 3.59 % 3.60 %


    (1) Non-accrual loans are included in average loans.

    (2) Interest income includes amortization of deferred loan origination costs of $27 thousand and deferred loan origination fees $1.8 million for the six months ended June 30, 2014 and 2013, 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.




    MB Financial, Inc.

    Jill York - Vice President and Chief Financial Officer

    E-Mail: jyork@mbfinancial.com

    (888) 422-6562



    Source: MB Financial, Inc.


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