MB Financial, Inc. Reports Third Quarter Net Income and Strong Balance Sheet, Capital, and Liquidity Position
CHICAGO--(BUSINESS WIRE)--MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., announced today third quarter results for 2008. The words “MB Financial,” “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its wholly owned subsidiaries, unless indicated otherwise. We had net income from continuing operations of $13.2 million for the third quarter of 2008 compared to $17.3 million for the third quarter of 2007, and $22.0 million for the second quarter of 2008. Fully diluted earnings per share from continuing operations for the third quarter of 2008 were $0.38 per share as compared to $0.48 per share for the third quarter of 2007, and $0.63 per share for the second quarter of 2008. During the third quarter of 2008, income was positively impacted by a $1.5 million adjustment, or $0.04 per diluted share, related to a reduction of state tax contingency reserves. During the second quarter of 2008, income was positively impacted by a $7.3 million adjustment, or $0.21 per diluted share, related to the removal of valuation allowances on certain state tax net operating loss carryforwards and an adjustment of state tax contingency reserves.
Key items for the quarter were as follows:
Strong Balance Sheet and Liquidity Position
- Strong commercial loan growth continued in the third quarter. Commercial related loans increased by 15% from the end of the third quarter of 2007 to the end of the third quarter of 2008, and 6% annualized on a linked quarter basis driven by strong commercial and commercial real estate loan growth, while our construction real estate loan balance continues to decline. Furthermore, we continue to see significantly better credit spreads on new and renewed loans.
- Our liquidity position substantially improved during the third quarter, primarily due to an increase in customer deposits of $233.5 million, or 20% on an annualized basis, and a reduction in short-term borrowings of $379.1 million. In addition, we lengthened the maturities on both customer and brokered certificates of deposits.
- Our non-interest bearing deposits grew by 11% from the end of the third quarter of 2007 to the end of the third quarter of 2008, and 16% annualized on a linked quarter basis. Total core funding grew by 5% compared to the third quarter of 2007 and 14% annualized on a linked quarter basis.
- We have maintained our disciplined investment management philosophy. We have not incurred impairment losses on any investment securities during 2008 and have avoided the types of problem securities that have caused many financial institutions to incur large losses. Net unrealized gains in the portfolio were $5.5 million as of September 30, 2008.
Positive Operating Leverage
- Net interest income on a tax equivalent basis increased by $3.1 million, or 5.6% from the third quarter of 2007, and increased by $646 thousand, or 4.4% annualized on a linked quarter basis.
- Fee income growth continues to be good. Core fee income increased by $3.5 million or 15% compared to the third quarter of 2007. This increase was driven by robust growth in trust and asset management fees, resulting from our acquisition of Cedar Hill Associates, LLC (Cedar Hill) during the second quarter of 2008, and strong deposit service and loan fees.
Credit Quality
- During the third quarter we experienced a $23.6 million increase in non-performing loans while the overall level of potential problem loans did not change significantly (See “Asset Quality” section below for additional information).
- We increased the allowance for loan losses to total loans to 1.46% as of September 30, 2008 from 1.38% as of June 30, 2008.
- Our provision for loan losses was $18.4 million for the third quarter, while our net charge-offs were $12.1 million.
Strong Capital Position
- Our quarterly dividend of $0.18 per share was approved last week and remained consistent with prior quarters.
- MB Financial Bank, N.A., continues to significantly exceed the “Well-Capitalized” threshold established under the regulations of the Office of the Comptroller of the Currency. At September 30, 2008, MB Financial, Inc.’s total risk-based capital ratio was 11.65%, Tier 1 capital to risk-weighted assets ratio was 9.64% and Tier 1 capital to average asset ratio was 8.00%.
- Our tangible equity to assets ratio increased to 6.10% at September 30, 2008, compared to 5.95% at June 30, 2008.
RESULTS OF OPERATIONS
Third Quarter Results
Net Interest Income
Net interest income on a tax equivalent basis increased by $3.1 million, or 5.6% from the third quarter of 2007, and increased by $646 thousand, or 4.4% annualized on a linked quarter basis. An increase in average interest earning assets from the second quarter of 2008 to the third quarter of 2008 was offset by a seven basis point decrease in the net interest margin, which was primarily due to the steps we took to improve our liquidity position, including increased customer and brokered deposits, lengthening the terms of our brokered deposits, and reducing lower cost short-term borrowings.
See the supplemental net interest margin table for further detail.
Other Income (in thousands):
| Three Months Ended | |||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | |||||||||||||||
| Core other income: | |||||||||||||||||||
| Loan service fees | $ | 2,385 | $ | 2,475 | $ | 2,470 | $ | 2,080 | $ | 1,253 | |||||||||
| Deposit service fees | 7,330 | 6,889 | 6,530 | 6,635 | 6,501 | ||||||||||||||
| Lease financing, net | 4,533 | 3,969 | 3,867 | 4,155 | 3,952 | ||||||||||||||
| Brokerage fees | 1,177 | 1,187 | 985 | 1,399 | 2,067 | ||||||||||||||
| Trust and asset management fees | 3,276 | 3,589 | 2,220 | 2,101 | 2,490 | ||||||||||||||
| Increase in cash surrender value of life insurance | 1,995 | 1,128 | 1,606 | 1,225 | 1,288 | ||||||||||||||
| Merchant card processing | 4,541 | 4,644 | 4,530 | 4,293 | 4,131 | ||||||||||||||
| Other operating income | 1,557 | 1,580 | 1,605 | 1,282 | 1,507 | ||||||||||||||
| Total core other income | 26,794 | 25,461 | 23,813 | 23,170 | 23,189 | ||||||||||||||
| Non-core other income (1): | |||||||||||||||||||
| Gain on sale of third party brokerage business (A) | - | - | - | 447 | - | ||||||||||||||
|
Gain on sale of artwork (C) |
- | - | - | 733 | - | ||||||||||||||
|
Net gain (loss) on sale of other assets (C) |
26 | 50 | (306 | ) | (10 | ) | 293 | ||||||||||||
| Net gain (loss) on sale of investment securities | - | 1 | 1,105 | (1,529 | ) | (114 | ) | ||||||||||||
|
Increase (decrease) in market value of |
(395 | ) | 55 | (75 | ) | 170 | (109 | ) | |||||||||||
| Total non-core other income | (369 | ) | 106 | 724 | (189 | ) | 70 | ||||||||||||
| Total other income | $ | 26,425 | $ | 25,567 | $ | 24,537 | $ | 22,981 | $ | 23,259 | |||||||||
|
(1) |
Letters denote the corresponding line items where these non-core other income items reside in the consolidated statements of income as follows: A – Brokerage fees, B – Other Operating Income, and C – Net gain (loss) on sale of other assets. | |
Core other income has grown steadily over the past year. Core other income increased by 15% compared to the third quarter of 2007. Loan service fees increased from the third quarter of 2007 to the third quarter of 2008, primarily due to an increase in letter of credit fees, prepayment fees and swap fees recognized during the third quarter of 2008 compared to the third quarter of 2007. Deposit service fees increased from the third quarter of 2007 to the third quarter of 2008, primarily due to an increase in commercial deposit and treasury management fees as a result of a lower earnings credit rate. Trust and asset management fees increased primarily due to our Cedar Hill acquisition during the second quarter of 2008. The decrease in core brokerage fee income from the third quarter of 2007 to the third quarter of 2008 was due to the sale of our third party brokerage business during the second quarter of 2007, and conversion of customer accounts to the purchaser’s platform in third quarter. This decrease was offset by a corresponding reduction in brokerage expense.
Core other income increased 19% on an annualized basis from the second quarter of 2008. Deposit service fees increased from the second quarter of 2008 to the third quarter of 2008, primarily due to an increase in overdraft fees. Net lease financing increased primarily due to due to higher levels of income realized on leased equipment in which we own a residual interest during the third quarter of 2008. The increase in cash surrender value of life insurance was primarily due to a $938 thousand death benefit on a bank owned life insurance policy that we recognized during the third quarter of 2008.
Other Expense (in thousands):
| Three Months Ended | ||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||||||||
| Core other expense: | ||||||||||||||||||
| Salaries and employee benefits | $ | 29,700 | $ | 29,052 | $ | 26,859 | $ | 26,571 | $ | 27,273 | ||||||||
| Occupancy and equipment expense | 7,120 | 6,967 | 7,525 | 7,239 | 6,928 | |||||||||||||
| Computer services expense | 1,840 | 1,843 | 1,737 | 1,739 | 1,615 | |||||||||||||
| Advertising and marketing expense | 1,487 | 1,504 | 1,316 | 962 | 1,214 | |||||||||||||
| Professional and legal expense | 884 | 803 | 306 | 862 | 593 | |||||||||||||
| Brokerage fee expense | 564 | 470 | 419 | 620 | 1,152 | |||||||||||||
| Telecommunication expense | 621 | 774 | 762 | 757 | 681 | |||||||||||||
| Other intangibles amortization expense | 913 | 913 | 815 | 871 | 874 | |||||||||||||
| Merchant card processing | 4,175 | 4,256 | 4,105 | 4,025 | 3,718 | |||||||||||||
| Other operating expenses | 5,257 | 5,489 | 4,797 | 5,156 | 4,888 | |||||||||||||
| Total core other expense | 52,561 | 52,071 | 48,641 | 48,802 | 48,936 | |||||||||||||
| Non-core other expense (1): | ||||||||||||||||||
| Executive separation agreement expense (E) | - | - | - | 5,908 | - | |||||||||||||
| Contribution to MB Financial Charitable Foundation (F) | - | - | - | 1,500 | - | |||||||||||||
|
Unamortized issuance costs related to |
- | - | - | 1,914 | - | |||||||||||||
| Rent expense (H) | - | - | - | 494 | - | |||||||||||||
| Visa litigation expense (F) | - | - | (342 | ) | 342 | - | ||||||||||||
|
Increase in market value of assets held |
(395 | ) | 55 | (75 | ) | 170 | (109 | ) | ||||||||||
| Total non-core other expense | (395 | ) | 55 | (417 | ) | 10,328 | (109 | ) | ||||||||||
| Total other expense | $ | 52,166 | $ | 52,126 | $ | 48,224 | $ | 59,130 | $ | 48,827 | ||||||||
|
(1) |
Letters denote the corresponding line items where the non-core other expense items reside in the consolidated statements of income as follows: E – Salaries and employee benefits, F – Other Operating Expenses, G – Professional and legal expense and H –Occupancy and equipment expense. | |
Other expenses increased approximately $3.6 million from the third quarter of 2007 to the third quarter of 2008. This increase is primarily a result of the Cedar Hill acquisition and the impact of hiring 32 bankers from the end of the third quarter of 2007 through the second quarter of 2008. Salaries and employee benefits related to the new bankers totaled approximately $1.3 million during the third quarter of 2008. The acquisition of Cedar Hill increased total core other expense by $1.1 million per quarter beginning in the second quarter of 2008. As noted earlier, the decrease in our core business brokerage fee expense from the third quarter of 2007 to the third quarter of 2008 was primarily due to the sale of our third party brokerage business during the second quarter of 2007. Excluding these items, core other income increased by 3.7% compared to the third quarter of 2007.
Core other expense increased approximately 4% on an annualized basis from the quarter ended June 30, 2008. Salaries and employee benefits increased from the second quarter of 2008 to the third quarter of 2008, primarily due to one additional day during the third quarter compared to the second quarter and annual hourly employee pay increases during the third quarter.
Income Taxes
Income tax benefit from continuing operations for the three months ended September 30, 2008, decreased $4.0 million to $689 thousand compared to $4.7 million for the three months ended June 30, 2008. The tax benefit in the third quarter was related to a $1.5 million adjustment, related to a reduction of state tax contingency reserves. The tax benefit in the second quarter was related a $7.3 million adjustment, due to the removal of valuation allowances on state net operating loss carryforwards and an adjustment of state tax contingency reserves. Not including these adjustments and a $300 thousand adjustment to our tax contingency reserves in the first quarter of 2008, our effective tax rate was 13.9% for the nine months ended September 30, 2008. Our effective tax rate may be in the range of 10% to 15% for the remainder of 2008 depending on pre-tax income, and we expect our effective tax rate to increase in 2009.
LOAN PORTFOLIO
The following table sets forth the composition of the loan portfolio as of the dates indicated (dollars in thousands):
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||||||||||||||||||||
| % of | % of | % of | % of | % of | ||||||||||||||||||||||||||
| Amount | Total | Amount | Total | Amount | Total | Amount | Total | Amount | Total | |||||||||||||||||||||
| Commercial related credits: | ||||||||||||||||||||||||||||||
| Commercial loans | $ | 1,510,620 | 25 | % | $ | 1,450,822 | 24 | % | $ | 1,433,114 | 25 | % | $ | 1,323,455 | 24 | % | $ | 1,261,995 | 23 | % | ||||||||||
|
Commercial loans collateralized by assignment of lease payments (lease loans) |
609,101 | 10 | % | 596,148 | 10 | % | 581,502 | 10 | % | 553,138 | 10 | % | 453,340 | 8 | % | |||||||||||||||
| Commercial real estate | 2,316,657 | 38 | % | 2,234,848 | 37 | % | 2,048,123 | 35 | % | 1,994,312 | 36 | % | 1,915,845 | 36 | % | |||||||||||||||
| Construction real estate | 715,220 | 12 | % | 795,506 | 14 | % | 822,312 | 14 | % | 825,216 | 14 | % | 849,914 | 16 | % | |||||||||||||||
| Total commercial related credits | 5,151,598 | 85 | % | 5,077,324 | 85 | % | 4,885,051 | 84 | % | 4,696,121 | 84 | % | 4,481,094 | 83 | % | |||||||||||||||
| Other loans: | ||||||||||||||||||||||||||||||
| Residential real estate | 317,534 | 5 | % | 328,469 | 5 | % | 379,279 | 7 | % | 372,787 | 6 | % | 362,963 | 7 | % | |||||||||||||||
| Indirect motorcycle | 155,045 | 2 | % | 144,684 | 2 | % | 118,912 | 2 | % | 101,883 | 2 | % | 97,677 | 2 | % | |||||||||||||||
| Indirect automobile | 38,844 | 1 | % | 40,399 | 1 | % | 43,436 | 1 | % | 44,428 | 1 | % | 45,150 | 1 | % | |||||||||||||||
| Home equity | 366,088 | 6 | % | 356,314 | 6 | % | 347,752 | 5 | % | 347,676 | 6 | % | 344,116 | 6 | % | |||||||||||||||
| Consumer loans | 66,938 | 1 | % | 53,792 | 1 | % | 54,671 | 1 | % | 52,732 | 1 | % | 51,532 | 1 | % | |||||||||||||||
| Total other loans | 944,449 | 15 | % | 923,658 | 15 | % | 944,050 | 16 | % | 919,506 | 16 | % | 901,438 | 17 | % | |||||||||||||||
| Gross loans | 6,096,047 | 100 | % | 6,000,982 | 100 | % | 5,829,101 | 100 | % | 5,615,627 | 100 | % | 5,382,532 | 100 | % | |||||||||||||||
| Allowance for loan losses | (88,863 | ) | (82,544 | ) | (78,764 | ) | (65,103 | ) | (61,122 | ) | ||||||||||||||||||||
| Net loans | $ | 6,007,184 | $ | 5,918,438 | $ | 5,750,337 | $ | 5,550,524 | $ | 5,321,410 | ||||||||||||||||||||
Commercial related credits increased by 6% on an annualized basis from June 30, 2008 to September 30, 2008 and by 15% from September 30, 2007. Total loans grew by 6% on an annualized basis from the second quarter of 2008 to the third quarter of 2008, and 13% from September 30, 2007. As of September 30, 2008 and June 30, 2008, there were $449.6 million and $529.1 million, respectively, of residential construction loans in our construction real estate portfolio. The remainder of construction real estate loans consisted of commercial construction loans.
ASSET QUALITY
The following table presents a summary of total performing loans greater than 30 days and less than 90 days past due as of the dates indicated (dollars in thousands):
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | |||||||||||
| 30 - 59 Days Past Due | $ | 22,583 | $ | 21,117 | $ | 17,330 | $ | 18,619 | $ | 9,266 | |||||
| 60 - 89 Days Past Due | 14,043 | 7,188 | 11,318 | 6,351 | 4,078 | ||||||||||
| $ | 36,626 | $ | 28,305 | $ | 28,648 | $ | 24,970 | $ | 13,344 | ||||||
As of September 30, 2008, approximately $8.3 million of the performing loans past due are included as potential problem loans.
The following table presents a summary of non-performing assets as of the dates indicated (dollar amounts in thousands):
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||||||||||
| Non-performing loans: | ||||||||||||||||||||
| Non-accrual loans (1) | $ | 115,716 | $ | 91,972 | $ | 46,666 | $ | 24,459 | $ | 23,901 | ||||||||||
|
Loans 90 days or more past due, still accruing interest |
1,490 | 1,627 | 4,218 | - | - | |||||||||||||||
| Total non-performing loans | 117,206 | 93,599 | 50,884 | 24,459 | 23,901 | |||||||||||||||
| Other real estate owned | 3,821 | 1,499 | 1,770 | 1,120 | 566 | |||||||||||||||
| Repossessed vehicles | 108 | 81 | 225 | 179 | 288 | |||||||||||||||
| Total non-performing assets | $ | 121,135 | $ | 95,179 | $ | 52,879 | $ | 25,758 | $ | 24,755 | ||||||||||
| Total non-performing loans to total loans | 1.92 | % | 1.56 | % | 0.87 | % | 0.44 | % | 0.44 | % | ||||||||||
| Total non-performing assets to total assets | 1.45 | % | 1.13 | % | 0.65 | % | 0.33 | % | 0.31 | % | ||||||||||
| Allowance for loan losses to non-performing loans | 75.82 | % | 88.19 | % | 154.79 | % | 266.17 | % | 255.73 | % | ||||||||||
|
(1) There were no restructured loans in any period presented. |
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Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.
The following table presents data related to non-performing loans by dollar amount and category at September 30, 2008 (dollar amounts in thousands):
| Commercial and Lease Loans | Construction Real Estate Loans | Commercial Real Estate Loans | Consumer Loans | Total Loans | ||||||||||||||||||||||
| Dollar Range | Number of Borrowers | Amount | Number of Borrowers | Amount | Number of Borrowers | Amount | Amount | Amount | ||||||||||||||||||
| $5.0 million or more | - | $ | - | 6 | $ | 55,598 | - | $ | - | $ | - | $ | 55,598 | |||||||||||||
| $3.0 million to $4.9 million | - | - | 2 | 6,901 | 2 | 6,982 | - | 13,883 | ||||||||||||||||||
| $1.5 million to $2.9 million | - | - | 3 | 7,446 | 4 | 8,352 | - | 15,798 | ||||||||||||||||||
| Under $1.5 million | 22 | 7,491 | 4 | 2,256 | 31 | 16,022 | 6,158 | 31,927 | ||||||||||||||||||
| 22 | $ | 7,491 | 15 | $ | 72,201 | 37 | $ | 31,356 | $ | 6,158 | $ | 117,206 | ||||||||||||||
| Percentage of individual loan category | 0.35 | % | 10.09 | % | 1.35 | % | 0.65 | % | 1.92 | % | ||||||||||||||||
The aggregate principal amount of non-performing loans was $117.2 million as of September 30, 2008, compared to $93.6 million as of June 30, 2008. Approximately $40 million in loans migrated to non-performing status during the third quarter. Of this amount, approximately $17 million were classified as potential problem loans as of June 30, 2008. The remainder of the loans migrating to non-performing status consisted primarily of one large construction loan and two commercial real estate loans that deteriorated during the third quarter. Additions to non-performing loans were partially offset by paydowns, charge-offs and up-grades of approximately $10 million, $4 million, and $3 million, respectively, during the third quarter.
We define potential problem loans as performing loans rated substandard or doubtful, that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans). We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amount of potential problem loans was $73.8 million, or 1.21% of total loans as of September 30, 2008, compared to $75.2 million, or 1.25% of total loans as of June 30, 2008. There were approximately $37 million in new potential problem loans in the third quarter, which were offset primarily by approximately $17 million in loans that migrated from potential problem to non-performing status during the quarter, approximately $15 million in paydowns during the quarter, and $6 million in charge-offs primarily relating to one large commercial loan.
The following table presents data related to potential problem loans by dollar amount and category at September 30, 2008 (dollar amounts in thousands):
| Commercial and | Construction Real | Commercial Real | |||||||||||||||||||||
| Lease Loans | Estate Loans | Estate Loans | Total | ||||||||||||||||||||
| Number of | Number of | Number of | Number of | ||||||||||||||||||||
| Dollar Range | Borrowers | Amount | Borrowers | Amount | Borrowers | Amount | Borrowers | Amount | |||||||||||||||
| $5.0 million or more | 2 | $ | 21,965 | 2 | $ | 18,378 | - | $ | - | 4 | $ | 40,343 | |||||||||||
| $3.0 million to $4.9 million | 2 | 7,799 | 1 | 3,257 | - | - | 3 | 11,056 | |||||||||||||||
| $1.5 million to $2.9 million | 1 | 1,623 | - | - | 3 | 7,234 | 4 | 8,857 | |||||||||||||||
| Under $1.5 million | 11 | 3,762 | 4 | 4,163 | 10 | 5,571 | 25 | 13,496 | |||||||||||||||
| 16 | $ | 35,149 | 7 | $ | 25,798 | 13 | $ | 12,805 | 36 | $ | 73,752 | ||||||||||||
| Percentage of individual loan category | 1.66 | % | 3.61 | % | 0.55 | % | 1.21 | % | |||||||||||||||
Below is a reconciliation of the activity in our allowance for loan losses for the periods indicated (dollar amounts in thousands):
| Three Months Ended | ||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||
| Balance at the beginning of period | $ 82,544 | $ 78,764 | $ 65,103 | $ 61,122 | $ 59,058 | |||||||
| Provision for loan losses | 18,400 | 12,200 | 22,540 | 8,000 | 4,500 | |||||||
| Charge-offs: | ||||||||||||
| Commercial loans | (6,231) | (1,342) | (4,166) | (136) | (2,409) | |||||||
|
Commercial loans collateralized by assignment of lease payments (lease loans) |
(482) | (154) | (182) | (108) | - | |||||||
| Commercial real estate loans | (2,292) | (1,854) | (3,650) | (1,239) | (489) | |||||||
| Construction real estate | (2,110) | (4,551) | (1,135) | (2,293) | - | |||||||
| Residential real estate | (315) | (92) | (26) | (11) | (186) | |||||||
| Indirect vehicle | (499) | (366) | (629) | (450) | (152) | |||||||
| Home equity | (628) | (488) | (182) | (93) | (26) | |||||||
| Consumer loans | (167) | (144) | (115) | (182) | (133) | |||||||
| Total charge-offs | (12,724) | (8,991) | (10,085) | (4,512) | (3,395) | |||||||
| Recoveries: | ||||||||||||
| Commercial loans | 132 | 214 | 191 | 289 | 648 | |||||||
|
Commercial loans collateralized by assignment of lease payments (lease loans) |
- | - | - | 17 | 18 | |||||||
| Commercial real estate loans | 257 | 6 | 3 | 20 | 7 | |||||||
| Construction real estate | 40 | 161 | 750 | - | - | |||||||
| Residential real estate | 1 | 5 | 6 | 4 | 5 | |||||||
| Indirect vehicle | 152 | 163 | 194 | 109 | 156 | |||||||
| Home equity | 48 | 15 | 52 | 41 | 120 | |||||||
| Consumer loans | 13 | 7 | 10 | 13 | 5 | |||||||
| Total recoveries | 643 | 571 | 1,206 | 493 | 959 | |||||||
| Net charge-offs | (12,081) | (8,420) | (8,879) | (4,019) | (2,436) | |||||||
| Balance | $ 88,863 | $ 82,544 | $ 78,764 | $ 65,103 | $ 61,122 | |||||||
| Total loans | $ 6,096,047 | $ 6,000,982 | $ 5,829,101 | $ 5,615,627 | $ 5,382,532 | |||||||
| Average loans | $ 6,026,179 | $ 5,927,236 | $ 5,687,646 | $ 5,459,430 | $ 5,275,376 | |||||||
| Ratio of allowance for loan losses to total loans | 1.46% | 1.38% | 1.35% | 1.16% | 1.14% | |||||||
| Net loan charge-offs to average loans (annualized) | 0.80% | 0.57% | 0.63% | 0.29% | 0.18% | |||||||
The following is a summary of charge-offs and non-performing loans for the prior twenty-three quarters (in thousands):
|
Net Charge- Offs |
Annualized Net |
End of Period
Performing |
Non-
Performing Loans |
Potential |
Total Non- |
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| 2003 - 1st Qtr | $ 1,219 | 0.20% | $ 22,384 | 0.86% | 1.56% | 2.42% | |||||
| 2003 - 2nd Qtr | 2,872 | 0.44% | $ 21,503 | 0.84% | 1.15% | 1.99% | |||||
| 2003 - 3rd Qtr | 4,538 | 0.69% | $ 25,519 | 0.98% | 1.04% | 2.02% | |||||
| 2003 - 4th Qtr | 1,524 | 0.23% | $ 21,073 | 0.79% | 0.89% | 1.68% | |||||
| 2003 - Full Year | $ 10,153 | 0.39% | |||||||||
| 2004 - 1st Qtr | $ 1,317 | 0.20% | $ 25,922 | 0.96% | 1.45% | 2.40% | |||||
| 2004 - 2nd Qtr | 1,962 | 0.28% | $ 28,789 | 0.95% | 1.34% | 2.29% | |||||
| 2004 - 3rd Qtr | 1,632 | 0.21% | $ 25,228 | 0.84% | 1.45% | 2.28% | |||||
| 2004 - 4th Qtr | 2,416 | 0.31% | $ 22,571 | 0.71% | 1.28% | 1.99% | |||||
| 2004 - Full Year | $ 7,327 | 0.25% | |||||||||
| 2005 - 1st Qtr | $ 2,890 | 0.36% | $ 25,623 | 0.79% | 0.81% | 1.60% | |||||
| 2005 - 2nd Qtr | 2,074 | 0.25% | $ 22,883 | 0.67% | 0.59% | 1.26% | |||||
| 2005 - 3rd Qtr | 1,805 | 0.21% | $ 18,212 | 0.53% | 0.67% | 1.20% | |||||
| 2005 - 4th Qtr | 1,346 | 0.16% | $ 20,171 | 0.58% | 0.61% | 1.19% | |||||
| 2005 - Full Year | $ 8,115 | 0.24% | |||||||||
| 2006 - 1st Qtr | $ 1,035 | 0.12% | $ 19,685 | 0.55% | 0.66% | 1.21% | |||||
| 2006 - 2nd Qtr | 866 | 0.10% | $ 15,887 | 0.43% | 0.88% | 1.31% | |||||
| 2006 - 3rd Qtr | 4,975 | 0.46% | $ 19,912 | 0.41% | 0.45% | 0.86% | |||||
| 2006 - 4th Qtr | 2,956 | 0.24% | $ 21,468 | 0.43% | 0.48% | 0.91% | |||||
| 2006 - Full Year | $ 9,832 | 0.24% | |||||||||
| 2007 - 1st Qtr | $ 4,091 | 0.33% | $ 23,222 | 0.46% | 0.63% | 1.09% | |||||
| 2007 - 2nd Qtr | 2,647 | 0.21% | $ 21,799 | 0.42% | 0.41% | 0.83% | |||||
| 2007 - 3rd Qtr | 2,436 | 0.18% | $ 23,901 | 0.44% | 0.85% | 1.29% | |||||
| 2007 - 4th Qtr | 4,019 | 0.29% | $ 24,459 | 0.44% | 1.56% | 2.00% | |||||
| 2007 - Full Year | $ 13,193 | 0.25% | |||||||||
| 2008 - 1st Qtr | $ 8,879 | 0.63% | $ 50,884 | 0.87% | 2.11% | 2.98% | |||||
| 2008 - 2nd Qtr | 8,420 | 0.57% | $ 93,599 | 1.56% | 1.25% | 2.81% | |||||
| 2008 - 3rd Qtr | 12,081 | 0.80% | $ 117,206 | 1.92% | 1.21% | 3.13% | |||||
INVESTMENT SECURITIES AVAILABLE FOR SALE
The following table sets forth the fair value, amortized cost, and total unrealized gain (loss) of our investment securities available for sale, by type (in thousands):
|
At |
At June 30, | At March 31, |
At |
At |
||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||||||||
| Fair Value | ||||||||||||||||||
| U.S. Treasury securities | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Government sponsored agencies and enterprises | 209,350 | 269,947 | 274,217 | 310,538 | 328,040 | |||||||||||||
| States and political subdivisions | 430,120 | 431,882 | 417,609 | 412,302 | 397,807 | |||||||||||||
| Mortgage-backed securities | 569,947 | 608,737 | 479,383 | 438,056 | 487,747 | |||||||||||||
| Corporate bonds | 6,990 | 8,000 | 11,123 | 13,057 | 22,006 | |||||||||||||
| Equity securities | 3,524 | 3,480 | 3,520 | 3,460 | 9,892 | |||||||||||||
| Debt securities issued by foreign governments | 298 | 295 | 301 | 301 | 298 | |||||||||||||
| Total fair value | $ | 1,220,229 | $ | 1,322,341 | $ | 1,186,153 | $ | 1,177,714 | $ | 1,245,790 | ||||||||
| Amortized cost | ||||||||||||||||||
| U.S. Treasury securities | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Government sponsored agencies and enterprises | 206,429 | 266,418 | 266,276 | 305,768 | 326,504 | |||||||||||||
| States and political subdivisions | 428,610 | 432,780 | 408,969 | 407,973 | 396,896 | |||||||||||||
| Mortgage-backed securities | 568,054 | 606,150 | 472,482 | 435,743 | 489,219 | |||||||||||||
| Corporate bonds | 7,764 | 7,765 | 10,779 | 12,797 | 22,120 | |||||||||||||
| Equity securities | 3,557 | 3,520 | 3,484 | 3,446 | 9,950 | |||||||||||||
| Debt securities issued by foreign governments | 301 | 301 | 301 | 299 | 298 | |||||||||||||
| Total amortized cost | $ | 1,214,715 | $ | 1,316,934 | $ | 1,162,291 | $ | 1,166,026 | $ | 1,244,987 | ||||||||
| Unrealized gain (loss) | ||||||||||||||||||
| U.S. Treasury securities | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Government sponsored agencies and enterprises | 2,921 | 3,529 | 7,941 | 4,770 | 1,536 | |||||||||||||
| States and political subdivisions | 1,510 | (898 | ) | 8,640 | 4,329 | 911 | ||||||||||||
| Mortgage-backed securities | 1,893 | 2,587 | 6,901 | 2,313 | (1,472 | ) | ||||||||||||
| Corporate bonds | (774 | ) | 235 | 344 | 260 | (114 | ) | |||||||||||
| Equity securities | (33 | ) | (40 | ) | 36 | 14 | (58 | ) | ||||||||||
| Debt securities issued by foreign governments | (3 | ) | (6 | ) | - | 2 | - | |||||||||||
| Total unrealized gain (loss) | $ | 5,514 | $ | 5,407 | $ | 23,862 | $ | 11,688 | $ | 803 | ||||||||
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 portfolio. Additionally, more than 99% of our mortgage-backed securities are agency guaranteed.
FUNDING MIX AND LIQUIDITY
The following table shows the composition of our core and wholesale funding resources as of the dates indicated (dollars in thousands):
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||||
| 2008 | 2008 | 2008 | 2007 | 2007 | ||||||||||||||||||||||||||||
| % of | % of | % of | % of | % of | ||||||||||||||||||||||||||||
| Amount | Total | Amount | Total | Amount | Total | Amount | Total | Amount | Total | |||||||||||||||||||||||
| Core funding: | ||||||||||||||||||||||||||||||||
| Non-interest bearing deposits | $ | 935,153 | 13 | % | $ | 898,954 | 12 | % | $ | 865,665 | 12 | % | $ | 875,491 | 13 | % | $ | 846,699 | 13 | % | ||||||||||||
| Money market and NOW accounts | 1,326,474 | 18 | % | 1,257,852 | 17 | % | 1,220,152 | 17 | % | 1,263,021 | 18 | % | 1,336,162 | 20 | % | |||||||||||||||||
| Savings accounts | 375,567 | 5 | % | 390,145 | 5 | % | 389,944 | 5 | % | 390,980 | 6 | % | 407,608 | 6 | % | |||||||||||||||||
| Certificates of deposit | 2,523,198 | 34 | % | 2,379,894 | 32 | % | 2,324,157 | 33 | % | 2,193,793 | 32 | % | 2,236,197 | 33 | % | |||||||||||||||||
| Customer repurchase agreements | 260,087 | 3 | % | 312,170 | 4 | % | 328,976 | 5 | % | 367,702 | 5 | % | 341,893 | 5 | % | |||||||||||||||||
| Total core funding | 5,420,479 | 73 | % | 5,239,015 | 70 | % | 5,128,894 | 72 | % | 5,090,987 | 74 | % | 5,168,559 | 77 | % | |||||||||||||||||
| Wholesale funding: | ||||||||||||||||||||||||||||||||
| Public funds deposits | 211,250 | 3 | % | 252,693 | 3 | % | 264,972 | 5 | % | 312,032 | 5 | % | 314,826 | 5 | % | |||||||||||||||||
| Brokered deposit accounts | 997,767 | 13 | % | 858,135 | 12 | % | 616,197 | 9 | % | 478,466 | 7 | % | 408,796 | 6 | % | |||||||||||||||||
| Other short-term borrowings | 125,000 | 2 | % | 452,002 | 6 | % | 594,009 | 7 | % | 610,019 | 9 | % | 468,042 | 6 | % | |||||||||||||||||
| Long-term borrowings | 429,548 | 6 | % | 433,625 | 6 | % | 304,010 | 4 | % | 158,865 | 2 | % | 162,577 | 3 | % | |||||||||||||||||
| Subordinated debt | 50,000 | 1 | % | 50,000 | 1 | % | 50,000 | 1 | % | 50,000 | 1 | % | 25,000 | 0 | % | |||||||||||||||||
|
Junior subordinated notes issued to capital trusts |
158,872 | 2 | % | 158,920 | 2 | % | 158,968 | 2 | % | 159,016 | 2 | % | 197,537 | 3 | % | |||||||||||||||||
| Total wholesale funding | 1,972,437 | 27 | % | 2,205,375 | 30 | % | 1,988,156 | 28 | % | 1,768,398 | 26 | % | 1,576,778 | 23 | % | |||||||||||||||||
| Total funding | $ | 7,392,916 | 100 | % | $ | 7,444,390 | ||||||||||||||||||||||||||