MB Financial 8-K 2012
For Information at MB Financial, Inc. contact:
Jill York - Vice President and Chief Financial Officer
FOR IMMEDIATE RELEASE
MB FINANCIAL, INC. REPORTS SECOND QUARTER 2012 NET INCOME OF $22.1 MILLION, IMPROVED RETURN ON ASSETS AND RETURN ON EQUITY AND IMPROVED CREDIT METRICS
CHICAGO, July 17, 2012 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A (“the Bank” or “MB Financial Bank”), announced today second quarter results for 2012. The words “MB Financial,” “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its consolidated subsidiaries, unless indicated otherwise. We had net income and net income available to common stockholders of $22.1 million for the second quarter of 2012 compared to a net loss of $7.4 million and net loss available to common stockholders of $10.0 million for the second quarter of 2011, and net income of $21.1 million and net income available to common stockholders of $17.8 million for the first quarter of 2012.
Key items for the quarter were as follows:
Improved Return on Assets and Return on Equity:
Improved Credit Metrics:
Balance Sheet Trends:
RESULTS OF OPERATIONS
Second Quarter Results
Net Interest Income
Net interest income on a fully tax equivalent basis decreased $2.7 million from the first quarter of 2012. The decrease from the first quarter of 2012 to the second quarter of 2012 was due primarily to a decrease in average interest earning assets of approximately $195 million and a four basis point decline in our net interest margin to 3.83% on a fully tax equivalent basis.
Net interest income on a fully tax equivalent basis decreased $9.0 million during the first six months of 2012 compared to the first six months of 2011. The decrease from the first six months of 2012 to the first six months of 2011 was due primarily to a decrease in average interest earning assets of approximately $382 million and a five basis point decline in our net interest margin to 3.85% on a fully tax equivalent basis.
See the supplemental net interest margin tables for further detail.
Other Income (in thousands):
Core other income increased by $577 thousand from the first quarter of 2012 to the second quarter of 2012. Loan service fees increased due to an increase in loan prepayment fees. Net lease financing increased due to an increase in remarketing revenues. Accretion of FDIC indemnification asset decreased as accretion is recorded based on the FDIC indemnification asset balance, which has declined as we have received loss-share payments. Card fee income increased due primarily to fees earned on prepaid cards and credit cards. Non-core other income was primarily impacted by lower losses recognized on OREO.
Core other income decreased by $2.1 million from the first six months of 2011 to the first six months of 2012 primarily due to a $2.5 million decrease in accretion of FDIC indemnification asset. Accretion is recorded based on the FDIC indemnification asset balance which has declined as we have received loss-share payments. Loan service fees decreased in the first six months of 2012 compared to the same period in 2011 due to a decrease in loan prepayment and exit fees. Net lease financing increased primarily due to an increase in remarketing revenues. Cash surrender value of life insurance decreased as a result of a death benefit recorded in the first six months of 2011. Card fee income increased due primarily to fees earned on prepaid cards and credit cards. Non-core other income was primarily impacted by higher losses recognized on OREO.
Other Expense (in thousands):
Core other expense in the second quarter of 2012 was consistent with first quarter of 2012. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012. Other real estate expense decreased as a result of lower holding costs related to OREO given we have fewer OREO properties. Other operating expenses were unusually low in the first quarter of 2012 as a result of recording a decrease during that period in the clawback liability related to our loss share agreements with the FDIC.
Core other expense increased by $1.6 million from the first six months of 2011 to the first six months of 2012. Salaries and employee benefits expense increased primarily due to annual salary increases and higher health insurance claims. FDIC insurance premiums decreased due to a change in the assessment computation during the second quarter of 2012 and the impact of improved credit quality on the computation. Other operating expenses were favorably impacted in the first half of 2012 by a decrease in the clawback liability related to our loss share agreements with the FDIC recorded during the period. Non-core other expense was primarily impacted by $1.0 million of fixed asset impairment charges due to our decision to close a branch in the first quarter of 2011.
The Company had income tax expense of $9.0 million for the three months ended June 30, 2012 compared to $8.4 million for the three months ended March 31, 2012. Income tax expense was $17.5 million for the six months ended June 30, 2012 compared to a tax benefit of $11.5 million for the six months ended June 30, 2011. The change was due to the Company’s improvement in pre-tax income.
The following table sets forth the composition of the loan portfolio, excluding loans held for sale, as of the dates indicated (dollars in thousands):
The following table presents a summary of non-performing assets, excluding loans held for sale, credit-impaired loans that were acquired as part of our FDIC-assisted transactions and OREO related to assets acquired in FDIC-assisted transactions, as of the dates indicated (dollar amounts in thousands):
The following table represents a summary of OREO, excluding OREO related to assets acquired in FDIC-assisted transactions (in thousands):
The following table presents data related to non-performing loans, by dollar amount and category at June 30, 2012, excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):
The following table presents data related to non-performing loans, by dollar amount and category at March 31, 2012, excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):
We define potential problem loans as performing loans rated substandard that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans). Potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amount of potential problem loans was $141.0 million, or 2.46% of total loans, as of June 30, 2012, compared to $159.4 million, or 2.75% of total loans, as of March 31, 2012.
Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollar amounts in thousands):
During the second quarter of 2011, we sold certain performing, sub-performing and non-performing loans. The loans sold had an aggregate carrying amount of $281.6 million prior to the transfer to loans held for sale. This sale resulted in approximately $87.6 million in charge-offs and an increase in the provision for credit losses of approximately $50 million in the second quarter of 2011.
Our allowance for loan losses is comprised of three elements: a general loss reserve, a specific reserve for impaired loans and a reserve for smaller-balance homogenous loans. The following table presents these three elements of our allowance for loan losses (in thousands):
Although management believes that adequate general, specific and smaller-balance homogenous loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of general, specific and smaller-balance homogenous loan loss allowances may become necessary.
The following table sets forth the fair value, amortized cost, and total unrealized gain of our investment securities, by type (in thousands):
We do not have any meaningful direct or indirect holdings of subprime residential mortgage loans, home equity lines of credit, or any Fannie Mae or Freddie Mac preferred or common equity securities in our investment securities portfolio. Additionally, more than 99% of our mortgage-backed securities are agency guaranteed.
The following table shows the composition of deposits as of the dates indicated (dollars in thousands):
When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission, in 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 our merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the possibility that the expected benefits of the FDIC-assisted transactions we previously completed will not be realized; (3) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans we originate and loans we acquire from other financial institutions; (4) results of examinations by the Office of Comptroller of Currency and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (11) our ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation; (15) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations adopted thereunder, 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