<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-24566
MB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-3895923
(I.R.S. Employer Identification No.)
1200 North Ashland Avenue, Chicago, Illinois 60602
(Address of principal executive offices)
Registrant's telephone number, including area code: (773) 645-7866
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES: XXX NO:
--- ----
There were issued and outstanding 7,064,515 shares of the Registrant's
common stock as of November 9, 1999.
================================================================================
<PAGE>
MB FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1999
INDEX
-----
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets at September 30, 1999, December 31, 1998 and September 30, 1998 3
Consolidated statements of income for the three and nine months ended
September 30, 1999 and 1998 4
Consolidated statements of cash flows for the nine months ended September 30, 1999 and 1998 5 - 6
Notes to consolidated financial statements 7 - 10
Item 2. Management's discussion and analysis of financial condition and results of operations 11 - 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
PART II. OTHER INFORMATION
Signatures 25
</TABLE>
2
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
MB FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Statement Amounts in Thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
-------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 29,441 $ 23,669 $ 19,445
Investment securities:
Securities available for sale 249,866 212,020 184,138
Securities held to maturity (fair value of $10,480 at
September 30, 1999, $11,529 at December 31, 1998 and
$10,309 at September 30, 1998) 10,403 11,142 9,884
Stock in Federal Home Loan Bank 5,290 2,614 2,239
Federal funds sold 2,000 20,350 16,700
Other interest bearing deposits 532 - -
Loans (net of allowance for loan losses of $13,203 at
September 30, 1999, $6,344 at December 31, 1998 and
$7,245 at September 30, 1998) 824,629 542,009 532,110
Lease investments, net 30,129 21,931 20,971
Premises and equipment, net 12,084 11,483 11,509
Interest only securities 15,074 - -
Intangibles, net 16,439 18,293 19,439
Other assets 27,505 8,380 7,848
-------------------------------------------------
Total assets $ 1,223,392 $ 871,891 $ 824,283
=================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 134,178 $ 128,218 $ 121,815
Interest bearing 807,184 517,443 512,773
-------------------------------------------------
Total deposits 941,362 645,661 634,588
Short-term borrowings 98,139 130,521 84,494
Long-term borrowings 86,003 37,034 34,510
Other liabilities 20,801 11,815 11,969
-------------------------------------------------
Total liabilities 1,146,305 825,031 765,561
-------------------------------------------------
Minority Interest in Subsidiary - - 1,367
-------------------------------------------------
Stockholders' Equity
Preferred stock, (Class B, $150,000 par value; authorized
100 shares; issued September 30, 1998 68 shares) - - 10,200
Common stock, (September 30, 1999 $0.01 par value;
authorized 20,000,000 shares; issued 7,064,515 shares;
December 31, 1998 and September 30, 1998 no par value;
$10 stated value; authorized 200,000 shares; issued
48,957 shares) 71 490 490
Additional paid-in capital 50,447 23,794 23,779
Retained earnings 29,304 22,232 22,011
Accumulated other comprehensive income (2,735) 344 875
-------------------------------------------------
Total stockholders' equity 77,087 46,860 57,355
-------------------------------------------------
Total liabilities and stockholders' equity $ 1,223,392 $ 871,891 $ 824,283
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
MB FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Statement amounts in Thousands except Common Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 16,993 $ 11,232 $ 45,935 $ 33,483
Investment securities:
Taxable 4,185 3,307 12,660 8,615
Nontaxable 81 72 241 225
Federal funds sold 144 333 762 542
Other interest bearing accounts 11 - 47 -
---------------------------------------------------------------------
Total interest income 21,414 14,944 59,645 42,865
---------------------------------------------------------------------
Interest expense:
Deposits 8,129 5,619 22,697 16,822
Short-term borrowings 679 1,624 2,929 3,435
Long-term borrowings 1,654 639 4,558 1,716
----------------------------------------------------------------------
Total interest expense 10,462 7,882 30,184 21,973
----------------------------------------------------------------------
Net interest income 10,952 7,062 29,461 20,892
Provision for loan losses 363 188 897 563
----------------------------------------------------------------------
Net interest income after provision for loan losses 10,589 6,874 28,564 20,329
----------------------------------------------------------------------
Other income:
Loan service fees 1,165 64 2,642 230
Deposit service fees 906 803 2,415 2,407
Lease financing, net 293 285 759 1,189
Net gains (losses) on sale of securities available for sale (6) 21 1 36
Gain on sale of Coal City National Bank - - - 4,099
Other operating income 391 120 1,077 598
----------------------------------------------------------------------
Total other income 2,749 1,293 6,894 8,559
----------------------------------------------------------------------
Other expense:
Salaries and employee benefits 4,696 3,102 12,963 9,833
Occupancy and equipment expenses 1,573 1,121 4,360 3,302
Intangibles amortization expense 618 808 1,854 2,429
Other operating expenses 2,222 1,358 5,787 4,031
----------------------------------------------------------------------
Total other expense 9,109 6,389 24,964 19,595
----------------------------------------------------------------------
Income before income taxes and minority interest 4,229 1,778 10,494 9,293
Income taxes 1,352 695 3,422 3,395
----------------------------------------------------------------------
Income before minority interest 2,877 1,083 7,072 5,898
Minority interest - (27) - (82)
----------------------------------------------------------------------
Net income 2,877 1,056 7,072 5,816
----------------------------------------------------------------------
Other comprehensive income:
Unrealized securities gains (losses), net of income taxes (484) 693 (3,078) 578
Less: reclassification adjustments for gains included
in net income, net of income taxes (4) 14 1 24
----------------------------------------------------------------------
Other comprehensive income (480) 679 (3,079) 554
----------------------------------------------------------------------
Comprehensive income $ 2,397 $ 1,735 $ 3,993 $ 6,370
======================================================================
Net income $ 2,877 $ 1,056 $ 7,072 $ 5,816
Preferred stock dividend - 433 - 867
----------------------------------------------------------------------
Net income available to common stockholders $ 2,877 $ 623 $ 7,072 $ 4,949
======================================================================
Common share data:
Basic earnings per common share $ 0.41 $ 0.15 $ 1.10 $ 1.21
Diluted earnings per common share $ 0.41 $ 0.15 $ 1.10 $ 1.21
Weighted average common shares outstanding 7,064,515 4,087,910 6,425,539 4,095,007
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Statement Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 7,072 $ 5,816
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,491 6,558
(Gain) loss on disposal of premises and equipment
and leased equipment 32 (376)
Gain on sale of Coal City National Bank -- (4,099)
Amortization of intangibles 1,854 2,429
Provision for loan losses 897 563
Credit for deferred income taxes (884) (1,099)
Bond accretion, net (1,234) (2,478)
Securities gains, net (1) (36)
Minority interest in net income -- 82
Decrease in accrued other assets 1,006 2,882
Increase in other liabilities 1,008 765
Net cash provided by operating activities 17,241 11,007
----------------------------------
Cash Flows From Investing Activities
Proceeds from sales of securities available for sale 32,654 33,685
Proceeds from maturities and calls of securities available for sale 171,097 120,699
Proceeds from maturities and calls of securities held to maturity 798 757
Purchase of securities available for sale (49,758) (215,594)
Purchase of securities held to maturity -- (5,499)
Federal funds sold, net 63,850 1,200
Other interest bearing deposits, net 940 --
Increase in loans, net of principal collections (85,703) (31,069)
Purchases of premises and equipment and leased equipment (16,457) (9,527)
Proceeds from sales of premises and
equipment and leased equipment 71 3,601
Principal collected on lease investments 291 500
Purchase of minority interests -- (1,713)
Proceeds from sale of Coal City National Bank, net -- 5,481
Cash acquired through merger with Avondale Financial Corp. 7,224 --
----------------------------------
Net cash provided by (used in) investing activities 125,007 (97,479)
----------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in non-interest bearing deposits 5,960 (3,250)
Net increase (decrease) in interest bearing deposits (53,220) 5,830
Net increase (decrease) in short-term borrowings (87,382) 66,481
Proceeds from long-term borrowings 2,414 4,425
Principal paid on long-term borrowings (4,248) (17,330)
Redemption of Preferred Trust Securities -- (10,000)
Issuance of Preferred Capital Securities -- 25,000
Purchase and retirement of common stock -- (674)
Dividends paid on preferred stock -- (867)
----------------------------------
Net cash provided by (used in) financing activities (136,476) 69,615
----------------------------------
Net increase (decrease) in cash and cash due from banks $ 5,772 $ (16,857)
Cash and due from banks:
Beginning 23,669 36,302
----------------------------------
Ending $ 29,441 $ 19,445
==================================
</TABLE>
(continued)
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(Statement Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 22,779 $16,716
Other interest paid 7,737 5,000
Income taxes paid, net of refunds 2,399 3,810
Supplemental Schedule of Noncash Investing Activities
Merger with Avondale Financial Corp.
Noncash Assets acquired:
Securities available for sale $185,125
Stock in Federal Home Loan Bank 5,290
Federal funds sold 45,500
Other interest bearing deposits 1,472
Loans, net 205,861
Premises and equipment 189
Other assets 19,700
Interest only securities 15,287
--------
478,424
--------
Liabilities assumed:
Interest bearing deposits 342,961
Short-term borrowings 5,000
Long-term borrowings 100,803
Other liabilities 10,575
--------
459,339
--------
Net noncash assets acquired $ 19,085
--------
Cash acquired $ 7,224
========
Sale of Coal City National Bank
Assets sold:
Cash $ 2,319
Securities available for sale 15,418
Securities held to maturity 173
Federal funds sold 19,500
Loans, net 17,573
Premises and equipment 696
Other 317
-------
55,996
-------
Liabilities sold:
Deposits 52,052
Other 243
-------
52,295
-------
Net assets sold $ 3,701
=======
Cash received $ 7,800
=======
Transfer of long-term Federal Home Loan Bank advances to
short-term classification $ 50
========
Real estate acquired in settlement of losses $ 114 $ 222
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
MB FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of MB
Financial, Inc. and its subsidiaries (the "Company"). In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operation and cash flows for the interim periods have been made. The results of
operations for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results expected for the entire fiscal year.
The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and industry practice. Certain
information in footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles and
industry practice has been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. The Company believes the
disclosures made in the consolidated financial statements are adequate so that
the financial statements are not misleading. These financial statements should
be read in conjunction with consolidated financial statements and notes thereto
included in Coal City Corporation's December 31, 1998 audited financial
statements filed with Form 8-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements, as well as the reported amounts of income and expenses during the
reported periods. Actual results could differ from those estimates.
2. THE MERGER
On February 26, 1999, Coal City Corporation, the holding company for
Manufacturers Bank (the "Bank"), was merged with and into Avondale Financial
Corp., the holding company for Avondale Federal Savings Bank. The resulting
entity was renamed MB Financial, Inc. Simultaneously, Avondale Federal Savings
Bank was merged into Manufacturers Bank.
Since the Coal City stockholders owned more than 50% of the combined
company, the transaction was accounted for as a reverse acquisition using the
purchase method of accounting with Coal City being the accounting acquirer. As a
result, the post-merger historical financial statements of the combined company
are Coal City's as the accounting acquirer, and includes the operating results
of Avondale since the merger date. Total consideration, based upon Avondale's
shares outstanding at the merger date times the estimated market value per share
at the merger announcement date, was $26.4 million. The amount of goodwill that
was recorded at the merger date was a negative $267 thousand, which represents
the excess of the fair value of net assets acquired over total consideration.
Negative goodwill is being amortized over a ten-year period. Included in the
purchase accounting adjustments was an accrual of $8.0 million for merger
related costs. The accrual includes estimated costs for termination of data
processing contracts, professional fees, severance and personnel related
expenses and lease contracts. At September 30, 1999, the remaining liability was
approximately $6.5 million primarily for lease contracts, termination of data
processing contracts and severance costs. The majority of the remaining costs
are scheduled to occur by the end of 2000.
Each share of Coal City Common Stock issued and outstanding on February 26,
1999 was converted into 83.5 shares of Avondale Financial Corp. Consequently,
common share data for the three and nine months ended 1999 and 1998 was
converted at an exchange ratio of 83.5.
The unaudited pro forma results of operation, which follow, assume that the
merger had occurred at January 1, 1998. In addition to combining the historical
results of operations of the companies, the pro forma calculations include
purchase accounting adjustments related to the acquisition. The pro forma
calculations do not include any anticipated cost savings as a result of the
merger.
7
<PAGE>
Unaudited pro forma consolidated results of operations for the nine months
ended September 30, 1999 and 1998 are as follows (in thousands except earnings
per share data):
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1999 1998
------------------------------
<S> <C> <C>
Net interest income $31,866 $34,000
Net income 5,342 4,559
Net income available to common stockholders 5,342 3,692
Basic earnings per common share $ 0.76 $ 0.51
Diluted earnings per common share $ 0.76 $ 0.51
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the merger actually
taken place at the beginning of the respective periods, or of results which may
occur in the future.
3. REGULATORY CAPITAL
The Company and it's subsidiary, the Bank, are subject to certain
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company's and Bank's assets, liabilities, and certain off-balance-sheet
items are calculated using regulatory accounting practices. The Company's and
Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined) and Tier 1 capital to average assets (as defined).
The Company and the Bank were in full compliance with all capital adequacy
requirements to which they are subject at September 30, 1999. As of September
30, 1999, the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as "well capitalized" under the framework of
prompt corrective action. To be categorized as "well capitalized" the Bank must
maintain the total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as
set forth in the "well capitalized" column in the table below. There are no
conditions or events since that notification that management believes have
changed the Bank's categorization.
The required and actual amounts and ratios for the Company and the Bank are
presented below (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999 (unaudited)
Total capital (to risk-weighted assets):
MB Financial, Inc. $101,671 10.45 % $77,831 8.00 % N/A N/A
Manufacturers Bank 102,439 10.55 % 77,687 8.00 % $97,109 10.00 %
Tier 1 capital (to risk-weighted assets):
MB Financial, Inc. 89,525 9.20 % 38,915 4.00 % N/A N/A
Manufacturers Bank 90,316 9.30 % 38,844 4.00 % 58,266 6.00 %
Tier 1 capital (to average assets):
MB Financial, Inc. 89,525 7.48 % 47,882 4.00 % N/A N/A
Manufacturers Bank 90,316 7.55 % 47,840 4.00 % 59,800 5.00 %
</TABLE>
8
<PAGE>
4. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated (in thousands except earnings per
share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net income $ 2,877 $ 1,056 $ 7,072 $ 5,816
Less preferred dividends -- 433 -- 867
-----------------------------------------------------------------------------
Net income available to common stockholders 2,877 623 7,072 4,949
Average shares outstanding 7,064,515 4,087,910 6,425,539 4,095,007
-----------------------------------------------------------------------------
Basic earnings per share $ 0.41 $ 0.15 $ 1.10 $ 1.21
=============================================================================
Diluted:
Net income $ 2,877 $ 1,056 $ 7,072 $ 5,816
Less preferred dividends -- 433 -- 867
-----------------------------------------------------------------------------
Net income available to common stockholders 2,877 623 7,072 4,949
Average shares outstanding 7,064,515 4,087,910 6,425,539 4,095,007
Net effect of dilutive stock options 19,314 5,418 19,314 5,418
Total 7,083,829 4,093,328 6,444,853 4,100,425
-----------------------------------------------------------------------------
Diluted earnings per share $ 0.41 $ 0.15 $ 1.10 $ 1.21
=============================================================================
</TABLE>
5. LONG-TERM BORROWINGS
The following table presents long-term borrowings for the periods indicated
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
-----------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Bank advances $ 50,803 $ -- $ --
Preferred Capital Securities 25,000 25,000 25,000
Loans for the purchase of equipment and other loans 7,700 8,534 9,010
Correspondent bank lines of credit 2,500 3,500 500
-----------------------------------------------
$ 86,003 $ 37,034 $ 34,510
==============================================
</TABLE>
At September 30, 1999, the Company had $50.8 million in advances from the
Federal Home Loan Bank which were acquired through the merger. The Company
pledged its stock in the Federal Home Loan Bank as collateral for these
advances. In addition, the Company is required to maintain certain qualifying
first mortgage loans or mortgage backed securities in an amount equal to at
least 170% of the outstanding advances. $50.0 million of the advances bear
interest at a fixed rate of 4.69% and are scheduled to mature in 2008; they are
callable, however, at any time by the Federal Home Loan Bank. The remaining $803
thousand of the advances mature in 2003 and bear interest at a fixed rate of
2.50%.
At September 30, 1999, December 31, 1998 and September 30, 1998, the
Company had Preferred Capital Securities of $25.0 million which were issued in
July 1998. These Preferred Capital Securities were issued with a floating rate
through Coal City Capital Trust I (Trust), a statutory business trust and wholly
owned subsidiary of the Company. The Preferred Capital Securities pay cumulative
cash distributions quarterly at a rate per annum, reset quarterly, equal to the
3-month LIBOR plus 180 basis points. Proceeds from the sale of the Preferred
Capital Securities were invested by the Trust in floating rate (3-month LIBOR
plus 180 basis points) Junior Subordinated Deferrable Interest Debentures
(Debentures) issued by the Company which represents all of the assets of the
Trust. The Preferred Capital Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Debentures at the stated maturity in the
year 2028 or their earlier redemption, in each case at a redemption price equal
to the aggregate liquidation preference of the Preferred Capital Securities plus
any accumulated and unpaid distributions thereon to the date of redemption.
Prior redemption is permitted under certain circumstances.
At September 30, 1999, December 31, 1998 and September 30, 1998, the
Company had loans for the purchase of equipment and other loans of $7.7 million,
$8.5 million and $9.0 million, respectively. At September 30, 1999, these loans
had various interest rates and various scheduled maturity dates through June
2007.
9
<PAGE>
The Company had a line of credit, a secured revolving note payable, with a
correspondent bank at September 30, 1999. This secured note had outstanding
balances of $2.5 million and $3.3 million at September 30, 1999 and December 31,
1998, respectively. The secured note bears interest at a rate computed at a 1-
month LIBOR rate plus 125 basis points at September 30, 1999. In addition, the
secured note requires quarterly payments of interest only on the outstanding
balance. At July 31, 1999, the Company converted a second line of credit, an
unsecured revolving note payable, to the secured revolving note payable at the
correspondent bank. This unsecured note, bearing interest at the correspondent
bank's prime rate, required quarterly payments of interest only on the
outstanding balance and had outstanding balances of $250 thousand at December
31, 1998 and $500 thousand at September 30, 1998.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This Statement supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, and utilizes the
"management approach" for segment reporting. The management approach is based on
the way that the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance. Reportable
segments are based on any manner in which management disaggregates its company
such as by products and services, geography, legal structure and management
structure. SFAS 131 requires disclosure for each segment that are similar to
those required under current standards with the addition of quarterly disclosure
requirements and more specific and detailed geographic disclosures. This
Statement also requires descriptive information about the way the operating
segments were determined. The provisions of SFAS 131 were effective for fiscal
years beginning after December 15, 1997, with earlier application permitted. The
Company adopted SFAS No. 131 at December 31, 1998 and the Company views its
banking business as its only segment. For purposes of SFAS No. 131, management
evaluates financial performance and manages operations on a company-wide basis.
Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.
In June 1998, the FASB adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. In June 1999, the FASB adopted SFAS
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133. SFAS 133, as amended by SFAS 137
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133, as amended by SFAS 137, may be implemented as of the
beginning of any fiscal quarter after September 30, 1998 but cannot be applied
retroactively. Management has not yet determined the impact of this standard.
In October 1998, the FASB adopted SFAS 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise. The Statement amends SFAS 65, Accounting for
Certain Mortgage Banking Activities, and requires that after the securitization
of mortgage loans held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed securities or other retained
interests based on its ability and intent to sell or hold those investments. The
provisions of SFAS 134 are effective for the first fiscal quarter beginning
after December 15, 1998 and were adopted on January 1, 1999. The adoption of
SFAS 134 did not have a material impact on the Company's financial statements.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following is a discussion and analysis of MB Financial, Inc.'s
financial position and results of operation and should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in this report. On January 28, 1998, the Company sold Coal City National Bank,
its wholly owned subsidiary, for $7.8 million in cash. In addition, on February
26, 1999, Coal City Corporation, the holding company for Manufacturers Bank, was
merged with and into Avondale Financial Corp., the holding company for Avondale
Federal Savings Bank. The resulting entity was renamed MB Financial, Inc.
Simultaneously, Avondale Federal Savings Bank was merged into Manufacturers
Bank. These transactions significantly affect the comparative information
discussed below.
Results of Operations
General
The profitability of the Company's operations depends primarily on its net
interest income, which is the difference between total interest earned on
interest earning assets and total interest paid on interest bearing liabilities.
The Company's net income is affected by its provision for loan losses as well as
other income and other expenses. The provision for loan losses reflects the
amount thought to be adequate to cover estimated losses in the loan portfolio.
Non-interest income or other income, consists of loan service fees, deposit
service fees, net lease financing income, net gains (losses) on the sale of
securities available for sale, and other operating income. Other expenses
include salaries and employee benefits along with occupancy and equipment
expenses, intangibles amortization and other operating expenses.
The amount of net interest income is affected by changes in the volume and
mix of earning assets, the level of interest rates earned on those assets, the
volume and mix of interest bearing liabilities, and the level of interest rates
paid on those interest bearing liabilities. The provision for loan losses is
dependent on changes in the loan portfolio and Management's assessment of the
collectibility of the loan portfolio, as well as economic and market conditions.
Other income and other expenses are impacted by growth of operations and growth
in the number of accounts through both acquisitions and core banking business
growth. Growth in operations affects other expenses as a result of additional
employees, branch facilities and promotional marketing expense. Growth in the
number of accounts affects other income including service fees as well as other
expenses such as computer services, supplies, postage, telephone and other
miscellaneous expenses.
The Company had net income of $2.9 million for the three months ended
September 30, 1999 compared to $1.1 million for the three months ended September
30, 1998. Net interest income was $11.0 million for the third quarter of 1999
compared to $7.1 million for the same period for 1998. The increase in net
interest income was due to the merger and the Company's continued growth in its
commercial and lease banking businesses.
Net income was $7.1 million for the nine months ended September 30, 1999
compared to $5.8 million for the nine months ended September 30, 1998. Net
income for the nine months ended 1998 included a $2.7 million net of tax gain
from the sale of Coal City National Bank in the first quarter of 1998.
Additionally, the increase in net income for the nine months ended September 30,
1999 was due to the merger and the Company's continued growth in its commercial
and lease banking businesses. Net interest income was $29.5 million for the nine
months ended September 30, 1999 compared to $20.9 million for the nine months
ended September 30, 1998. The increase in net interest income was due to the
merger and the Company's continued growth in its commercial and lease banking
businesses.
Other income increased $1.4 million to $2.7 million for the quarter ended
September 30, 1999 from $1.3 million for the quarter ended September 30, 1998.
This increase was primarily due to increases in loan servicing fees and other
operating income. Loan servicing fees and other operating income increased due
to the acquisition of loan servicing activities and the expansion of brokerage
servicing fee activities acquired through the merger.
For the nine months ended September 30, 1999, other income decreased $1.7
million to $6.9 million from $8.6 million for the nine months ended September
30, 1998. The decrease was primarily due to the gain resulting from the sale of
Coal City National Bank in the first quarter of 1998. Also attributing to this
decrease was a $200 thousand gain on the sale of a trust business in the first
quarter of 1998, and a decrease in net lease financing due to some gains for
equipment sold at the end of the lease terms in the second quarter of 1998. Loan
servicing fees increased due to fees for the servicing of home equity lines of
credit originated and securitized by Avondale and acquired through the merger.
Other operating income further increased with additional brokerage servicing fee
activities acquired through the merger and a net gain on the sale of other real
estate owned.
11
<PAGE>
Other expense increased $2.7 million to $9.1 million for the third quarter
of 1999 from $6.4 million for the third quarter of 1998 reflecting post-merger
operating costs. These higher costs included increases in salaries and employee
benefits, occupancy and equipment expenses as well as other operating expenses.
Additionally, intangible amortization decreased for the third quarter of 1999
compared to the third quarter of 1998 as the Company utilizes an accelerated
amortization method which amortizes more of the purchase premium in early years
than in later years.
For the nine months ended September 30, 1999 other expense increased $5.4
million to $25.0 million from $19.6 million for the nine months ended September
30, 1998. The increase was due to additional operating costs primarily
associated with added branches and personnel acquired through the merger.
Partially offsetting this increase was a decrease in operating expenses related
to the sale of Coal City National Bank and a decrease in intangible amortization
for goodwill and core deposits. The Company utilizes an accelerated intangible
amortization method which amortizes more of the purchase premium in early years
than in later years.
12
<PAGE>
Net Interest Margin
The following tables present, for the periods indicated, the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
and the resultant costs, expressed both in dollars and rates. Non-taxable
investment income is presented on a fully tax equivalent basis assuming a 35%
tax rate and a 34% tax rate for the three months ended September 30, 1999 and
1998, respectively, and for the nine months ended September 30, 1999 and 1998,
respectively.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------
1999 1998
----------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------------------------------------------------
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) $ 825,769 $16,993 8.16% $526,133 $11,232 8.47%
Taxable investment
securities 261,186 4,185 6.36% 234,379 3,307 5.60%
Investment securities
exempt from federal
income taxes 5,479 125 9.05% 4,079 109 10.61%
Federal funds sold 11,336 144 5.04% 24,002 333 5.50%
Other interest
bearing deposits 772 11 5.65% - - - %
------------------ ------------------
Total interest
earning assets 1,104,542 21,458 7.71% 788,593 14,981 7.54%
------ ------
Non-interest
earning asset 108,954 74,896
--------- --------
Total assets $1,213,496 $863,489
========== ========
Interest Bearing Liabilities:
Deposits:
NOW and money
money market
accounts $ 182,489 1,241 2.70% $137,132 1,101 3.19%
Savings deposits 159,988 1,019 2.52% 82,622 518 2.49%
Time deposits 458,458 5,869 5.08% 289,196 4,000 5.49%
Long-term borrowings (4) 119,700 1,654 5.46% 32,451 639 7.81%
Short-term borrowings 56,773 679 4.59% 121,919 1,624 5.28%
---------------- -----------------
Total interest
bearing liabilities 977,408 10,462 4.25% 663,320 7,882 4.71%
------ -----
Demand deposits-
non-interest bearing 137,645 129,668
Other non-interest
bearing liabilities 21,421 12,258
Minority interest
in subsidiary - 1,342
Stockholders' equity 77,022 56,901
-------- -------
Total liabilities
and stockholders'
equity $1,213,496 $863,489
========== ========
Net interest
income/interest
rate spread (5) $10,996 3.46% $ 7,099 2.83%
======= =======
Net interest
margin (6) 3.95% 3.57%
</TABLE>
(1) Non-accrual loans are included in average loans.
(2) Interest income includes loan origination fees of $255 thousand and $277
thousand for the three months ended September 30, 1999 and 1998,
respectively.
(3) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate and a 34% tax rate for the three months ended
September 30, 1999 and 1998, respectively.
(4) Long-term borrowings include preferred capital and preferred trust
securities.
(5) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest earning assets.
13
<PAGE>
The Company's net interest income increased $3.9 million to $11.0 million
for the quarter ended September 30, 1999 from $7.1 million for the quarter ended
September 30, 1998. The increase in net interest income resulted from an
increase in interest income of $6.5 million, or 43.3%, partially offset by an
increase in interest expense of $2.6 million, or 32.7%. Interest income
increased due to a $315.9 million, or 40.1%, increase in average interest
earning assets, while interest expense rose as a result of a $314.1 million, or
47.4%, increase in average interest bearing liabilities. Approximately $354.0
million of the increase in average interest earning assets for the third quarter
of 1999 compared to the same period for 1998 was due to the merger. Offsetting
this merger increase was a $156.1 million decrease in U.S. Treasury investments,
while the remaining increase in average interest earning assets was due to
growth in the Company's commercial and lease banking businesses for the third
quarter of 1999 compared to the same period for 1998. Approximately $309.0
million of the increase in average interest bearing liabilities for the third
quarter of 1999 compared to the same period for 1998 was due to the merger.
Offsetting this merger increase was a $90.0 million decrease in repurchase
agreements used to fund U.S. Treasury investments, while the remaining increase
in average interest bearing liabilities was due to growth in interest bearing
deposits for the third quarter of 1999 compared to the same period for 1998.
Average long-term borrowings for the three months ended September 30, 1999
included $84.0 million in Federal Home Loan Bank advances which were acquired
through the merger. $83.0 million of the advances bear interest at a fixed rate
of 4.69%, while $803 thousand of the advances bear interest at a fixed rate of
2.50%. As a result, long-term borrowings yield/rate decreased to 5.46% for the
three months ended September 30, 1999 from 7.81% for the three months ended
September 30, 1998. The net interest margin increased to 3.95% for the quarter
ended September 30, 1999 from 3.57% for the quarter ended September 30, 1998.
The net interest margin was lower for the third quarter of 1998 due to increased
leverage in the Company's balance sheet compared to the same period for 1999.
The balance sheet for the third quarter of 1998 included an additional $90.0
million in repurchase agreements used to fund $91.0 million U.S. Treasury
investments compared to the third quarter of 1999. Excluding the effect of the
increased leverage in the Company's balance sheet, the net interest margin for
the third quarter of 1999 would have been 3.95% compared to 4.05% for the third
quarter of 1998. This decrease in the net interest margin was due to a lower
yield/rate for loans attributable to market conditions for the three months
ended September 30, 1999 compared to the same period for 1998.
14
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) $ 754,367 $ 45,935 8.14 % $ 527,726 $33,483 8.48 %
Taxable investment securities 284,148 12,660 5.96 % 201,132 8,615 5.73 %
Investment securities exempt from federal
income taxes (3) 5,493 371 9.02 % 4,198 341 10.86 %
Federal funds sold 21,462 762 4.75 % 13,234 542 5.48 %
Other interest bearing deposits 1,230 47 5.11 % - - - %
---------------------- -------------------------
Total interest earning assets $1,066,700 59,775 7.49 % 746,290 42,981 7.70 %
-------- --------
Non-interest earning assets 99,986 80,557
---------- ---------
Total assets $1,166,686 $ 826,847
========== =========
Interest Bearing Liabilities:
Deposits:
NOW and money market deposit accounts $ 171,512 3,542 2.76 % $ 141,763 3,432 3.24 %
Savings deposits 145,626 2,748 2.52 % 85,110 1,574 2.47 %
Time deposits 430,274 16,407 5.10 % 285,650 11,816 5.53 %
Long-term borrowings (4) 109,676 4,558 5.56 % 29,250 1,716 7.84 %
Short-term borrowings 85,748 2,929 4.57 % 88,064 3,435 5.22 %
---------------------- -------------------------
Total interest bearing liabilities 942,836 30,184 4.28 % 629,837 21,973 4.66 %
-------- --------
Demand deposits--non-interest bearing 134,650 127,732
Other non-interest bearing liabilities 19,319 12,878
Minority interest in subsidiary - 1,912
Stockholders' equity 69,881 54,488
---------- ---------
Total liabilities and stockholders' equity $1,166,686 $ 826,847
========== =========
Net interest income/interest rate spread (5) $ 29,591 3.21 % $ 21,008 3.04 %
======== ========
Net interest margin (6) 3.71 % 3.76 %
</TABLE>
(1) Non-accrual loans are included in average loans.
(2) Interest income includes loan origination fees of $690 thousand and $583
thousand for the nine months ended September 30, 1999 and 1998,
respectively.
(3) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate and a 34% tax rate for the nine months ended
September 30, 1999 and 1998, respectively.
(4) Long-term borrowings include preferred capital and preferred trust
securities.
(5) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest earning assets.
15
<PAGE>
For the nine months ended September 30, 1999, net interest income increased
$8.6 million to $29.6 million from $21.0 million for the nine months ended
September 30, 1998. The increase in net interest income resulted from an
increase in interest income of $16.8 million, or 39.1%, partially offset by an
increase in interest expense of $8.2 million or, 37.4%. Interest income
increased due to a $320.4 million, or 42.9%, increase in average interest
earning assets, while interest expense rose as a result of a $313.0 million, or
49.7%, increase in average interest bearing liabilities. Approximately $280.0
million of the increase in average interest earning assets for the nine months
ended September 30, 1999 compared to the same period for 1998 was due to the
merger. Offsetting this merger increase was a $90.5 million decrease in U.S.
Treasury investments, while the remaining increase in average interest earning
assets was due to growth in the company's commercial and lease banking
businesses for the nine months ended September 30, 1999 compared to the same
period for 1998. Approximately $240.0 million of the increase in average
interest bearing liabilities for the nine months ended September 30, 1999
compared to the same period for 1998 was due to the merger. Offsetting this
merger increase was a $16.8 million decrease in repurchase agreements used to
fund U.S. Treasury investments, while the remaining increase in average interest
bearing liabilities was due to growth in interest bearing deposits for the nine
months ended September 30, 1999 compared to the same period for 1998. Average
long-term borrowings for the nine months ended September 30, 1999 included $79.0
million in Federal Home Loan Bank advances which were acquired through the
merger. $78.0 million of the advances bear interest at a fixed rate of 4.69%,
while $803 thousand of the advances bear interest at a fixed rate of 2.50%. As a
result, long-term borrowings yield/rate decreased to 5.56% from 7.84% for the
nine months ended September 30, 1999 compared to the same period for 1998. The
net interest margin decreased to 3.71% for the nine months ended September 30,
1999 from 3.76% for the nine months ended September 30, 1998. In addition, the
balance sheet included $42.3 million in repurchase agreements to fund $42.9
million U.S. Treasury investments for the nine months ended September 30, 1999
compared to $59.1 million in repurchase agreements to fund $59.7 million U.S.
Treasury investments for the nine months ended September 30, 1998. Excluding the
effect of the increased leverage in the Company's balance sheet, the net
interest margin for the nine months ended September 30, 1999 would have been
3.86% compared to 4.10% for the same period for 1998. This decrease in the net
interest margin was due to a lower yield/rate for loans attributable to market
conditions for the nine months ended September 30, 1999 compared to the same
period for 1998.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
The following table presents the extent to which changes in interest rates
and changes in volume of interest earning assets and interest bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided on changes in each
category attributable to (i) changes attributable to changes in volume, (changes
in volume multiplied by prior period rate); (ii) changes attributable to changes
in rate (changes in rate multiplied by current period volume) and (iii) the
total changes.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
Compared to Compared to
September 30, 1998 September 30, 1998
---------------------------- -------------------------------
Change Change Change Change
Due to Due to Total Due to Due to Total
Volume Rate Change Volume Rate Change
---------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans $ 6,397 $ (636) $ 5,761 $ 14,380 $ (1,928) $ 12,452
Taxable investment securities 378 500 878 3,556 489 4,045
Investment securities exempt from federal income taxes (1) 38 (22) 16 105 (75) 30
Federal funds sold (176) (13) (189) 337 (117) 220
Other interest bearing deposits 11 - 11 47 - 47
---------------------------- -------------------------------
Total increase (decrease) in interest income 6,648 (171) 6,477 18,425 (1,631) 16,794
---------------------------- -------------------------------
Interest Bearing Liabilities:
NOW and money market deposit accounts 364 (224) 140 720 (610) 110
Savings deposits 485 16 501 1,119 55 1,174
Time deposits 2,341 (472) 1,869 5,982 (1,391) 4,591
Long-term borrowings (2) 1,718 (703) 1,015 4,718 (1,876) 2,842
Short-term borrowings (868) (77) (945) (90) (416) (506)
---------------------------- -------------------------------
Total increase (decrease) in interest expense 4,040 (1,460) 2,580 12,449 (4,238) 8,211
---------------------------- -------------------------------
Increase in net interest income $ 2,608 $ 1,289 $ 3,897 $ 5,976 $ 2,607 $ 8,583
============================ ===============================
</TABLE>
(1) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate and a 34% tax rate for the three months ended
September 30, 1999 and 1998, respectively, and for the nine months ended
September 30, 1999 and 1998.
(2) Long-term borrowings include preferred capital and preferred trust
securities.
16
<PAGE>
Other Income
Other income increased $1.4 million to $2.7 million for the quarter ended
September 30, 1999 from $1.3 million for the quarter ended September 30, 1998.
This increase was primarily due to increases of $1.1 million in loan servicing
fees and $271 thousand in other operating income. Loan servicing fees and other
operating income increased due to loan servicing activities and the expansion of
brokerage servicing fee activities acquired through the merger.
For the nine months ended September 30, 1999, other income decreased $1.7
million to $6.9 million from $8.6 million for the nine months ended September
30, 1998. The decrease was primarily due to the $4.1 million gain resulting from
the sale of Coal City National Bank in the first quarter of 1998. Also
attributing to this decrease was a $200 thousand gain on the sale of a trust
business in the first quarter of 1998, and a $430 thousand decrease in net lease
financing for the nine months ended September 30, 1999 compared to the same
period for 1998. Net lease financing decreased due to some gains, in the second
quarter of 1998, for equipment sold at the end of the lease terms. The following
additional items offset these decreases: Loan servicing fees increased $2.4
million due to fees for the servicing of home equity lines of credit originated
and securitized by Avondale and acquired through the merger. Other operating
income further increased with $452 thousand in additional brokerage servicing
fees due to Avondale's business acquired through the merger and an $85 thousand
net gain on other real estate owned for the nine months ended September 30, 1999
compared to the same period for 1998.
Other Expense
Other expense increased $2.7 million to $9.1 million for the third quarter
of 1999 from $6.4 million for the third quarter of 1998 resulting from higher
operating costs of a larger company as a result of the merger. These higher
costs included a $1.6 million increase in salaries and employee benefits, a $452
thousand increase in occupancy and equipment expenses and a $864 thousand
increase in other operating expenses for the third quarter of 1999 compared to
the same period for 1998. Additionally, intangible amortization decreased $190
thousand for the third quarter of 1999 compared to the third quarter for 1998.
This decrease represents a decrease in goodwill amortization of $29 thousand and
a decrease in core deposit intangible amortization of $161 thousand. The Company
utilizes an accelerated amortization method which amortizes more of the purchase
premium in early years than in later years.
For the nine months ended September 30, 1999, other expense increased $5.4
million to $25.0 million from $19.6 million for the nine months ended September
30, 1998. Approximately $6.3 million of the increase was due to operating costs
primarily associated with additional branches and personnel acquired through the
merger. Offsetting this increase was a $314 thousand decrease in operating
expenses related to the sale of Coal City National Bank and a $575 thousand
decrease in intangible amortization. The decrease in intangible amortization
represents a decrease in goodwill amortization of $91 thousand and a decrease in
core deposit intangible amortization of $484 thousand. The Company utilizes an
accelerated amortization method which amortizes more of the purchase premium in
early years than in later years.
Income Taxes
The Company recorded income tax expense of $1.4 million for the three
months ended September 30, 1999, compared to $695 thousand for the same period
for 1998 as a result of a $2.5 million increase in income before taxes and
minority interest for the third quarter of 1999 compared to the same period for
1998.
For the nine months ended September 30, 1999, the Company recorded income
tax expense of $3.4 million compared to $3.4 million for the same period for
1998. Income before taxes and minority interest for the nine months ended
September 30, 1999 increased $1.2 million compared to the same period for 1998.
The effective tax rate decreased to 32.6% for the nine months ended September
30, 1999 from 36.5% for the nine months ended September 30, 1998 as the Company
continues to review and manage its income tax expense.
Cash Earnings
The purchase method of accounting has been used to record each of the
Company's acquisitions. As a result, the recorded basis of the net assets of the
acquired entities has been adjusted to fair value. Adjustments included
recording core deposit intangibles to reflect the difference between the fair
value and underlying basis of deposits purchased and recording goodwill for the
excess of the acquisition cost over the fair value of net assets acquired. Core
deposit intangibles and goodwill are being amortized as a non-cash expense over
periods of up to eight and 20 years, respectively. Amortization expense reduces
net income during the amortization periods.
17
<PAGE>
If the Company's acquisitions had met certain accounting rules, the pooling
of interest method of accounting may have been used to account for the Company's
acquisitions. Under this method of accounting, no goodwill or core deposit
intangibles would have been recorded. Consequently, net income is not reduced
for the amortization of core deposit intangibles or goodwill. Since application
of the two methods can result in dramatically different net income, management,
certain analysts and certain peer financial institutions have been computing
cash earnings in order to compare results. At present, cash earnings is not a
defined term or concept under generally accepted accounting principles.
The following table sets forth the Company's cash earnings, which is
defined by management as net income excluding amortization of core deposit
intangibles and goodwill and the related deferred income tax effect (dollars in
thousands except earnings per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 2,877 $ 1,056 $ 7,072 $ 5,816
Goodwill amortization (including negative goodwill) 204 233 611 702
Core deposit intangibles amortization (net of tax) 261 380 808 1,140
-------------------------------------------------------------------
Cash earnings 3,342 1,669 8,491 7,658
Preferred dividends - 433 - 867
-------------------------------------------------------------------
Cash earnings to common stockholders $ 3,342 $ 1,236 $ 8,491 $ 6,791
===================================================================
Average tangible assets $ 1,198,067 $ 845,634 $ 1,150,777 $ 804,336
Average tangible equity $ 63,755 $ 38,767 $ 54,807 $ 23,145
Cash earnings per share: (1)(3)
Basic $ 0.47 $ 0.30 $ 1.32 $ 1.66
Diluted $ 0.47 $ 0.30 $ 1.32 $ 1.66
Performance ratios: (2)(3)
Cash return on average tangible assets 1.11% 0.58% 0.99% 1.13%
Cash return on average tangible equity 20.85% 12.64% 20.71% 39.23%
</TABLE>
(1) Basic earnings per share is calculated by dividing the cash earnings by the
average number of common shares outstanding for the period. Diluted
earnings per share is calculated by dividing the cash earnings by the
average number of common shares outstanding for the period, including
additional shares that would have been outstanding if dilutive potential
shares had been issued.
(2) Cash return on average tangible assets and equity has been annualized for
the three months and nine months ended September 30, 1999 and 1998.
(3) The ratios for the nine months ended September 30, 1998 include the $4.1
million pre-tax gain on sale of Coal City National Bank. Basic and diluted
cash earnings per share, excluding the gain on sale of Coal City National
Bank, would have been $1.00. Cash return on average tangible assets and
equity, excluding the gain on sale of Coal City National Bank, would have
been 0.68% and 23.64%, respectively.
Balance Sheet Review
Total assets increased $351.5 million to $1.2 billion at September 30, 1999
compared to $871.9 million at December 31, 1998. Assets increased $491.0 million
due to the merger. Offsetting this increase was a $128.6 million decrease in
U.S. Treasury investments of which $97.9 was funded by short-term borrowings.
Net loans increased $282.6 million to $824.6 million at September 30, 1999 from
$542.0 million at December 31, 1998. Approximately $205.9 million of this
increase was due to the merger, while the remainder of the increase was due to
strong loan demand in the Company's commercial and lease banking businesses.
Total deposits increased $295.7 million to $941.4 million at September 30, 1999
from $645.7 million at December 31, 1998. Approximately $343.0 million of the
increase in deposits was related to the merger.
Short-term borrowings decreased $32.4 million to $98.1 million at September
30, 1999 from $130.5 million at December 31, 1998 due to a $97.9 decrease in
repurchase agreements partially offset by a $50.0 million increase in Federal
Home Loan Bank advances which were reclassified from long-term borrowings to
short-term borrowings in the third quarter of 1999. Long-term borrowings
increased $50.0 million to 86.0 million at September 30, 1999 from $37.0 million
at December 31, 1998 mainly attributable to advances from the Federal Home Loan
Bank of $100.8 million acquired through the merger. $50.0 million of the
advances acquired through the merger were called in the third quarter of 1999
and renewed as short-term borrowings.
18
<PAGE>
Total assets increased $399.1 million to $1.2 billion at September 30, 1999
compared to $824.3 million at September 30, 1998. Assets increased $491.0
million due to the merger. Offsetting this increase was a $111.7 million
decrease in U.S. Treasury investments of which $48.7 was funded by short-term
borrowings. Net loans increased $292.5 million to $824.6 million at September
30, 1999 from $532.1 million at September 30, 1998. Approximately $205.9 million
of this increase was due to the merger, while the remainder of the increase was
due to strong loan demand in the Company's commercial and lease banking
businesses. Total deposits increased $306.8 million to $941.4 million at
September 30, 1999 from $634.6 million at September 30, 1998. Approximately
$343.0 million of the increase in deposits was related to the merger.
Short-term borrowings increased $13.6 million to $98.1 million at September
30, 1999 from $84.5 million at September 30, 1998. The increase was due to a
$50.0 million increase in Federal Home Loan Bank advances reclassified to short-
term borrowings from long-term borrowings and a $48.7 million decrease in
repurchase agreements used to fund U.S.Treasury investments. Long-term
borrowings increased $51.5 million to $86.0 million at September 30, 1999 from
$34.5 million at September 30, 1999 mainly attributable to advances from the
Federal Home Loan Bank of $100.8 million acquired through the merger. $50.0
million of the advances acquired through the merger were called in the third
quarter of 1999 and renewed as short-term borrowings.
In the fourth quarter of 1998, $10.2 million of preferred stock was
redeemed.
Loan Portfolio
The following table sets forth the composition of the loan portfolio
(dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
--------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Originated by Manufacturers Bank:
Commercial $ 140,198 16.74% $ 122,094 22.26% $ 120,703 22.38%
Commercial loans collateralized by
Lease payments 138,607 16.54% 89,301 16.29% 98,709 18.30%
Real estate commercial 243,770 29.09% 225,596 41.14% 203,939 37.81%
Real estate residential 64,503 7.70% 55,600 10.14% 56,111 10.40%
Real estate construction 49,683 5.93% 21,059 3.84% 26,838 4.98%
Installment 39,488 4.71% 34,703 6.33% 33,055 6.13%
----------------------------------------------------------------------------
Total loans originated by Manufacturers 676,249 80.71% 548,353 100.00% 539,355 100.00%
Bank
Acquired from Avondale Federal Savings
Bank:
Real estate commercial 1,424 0.17% - -% - -%
Real estate residential 76,074 9.08% - -% - -%
Credit scored loans 71,022 8.48% - -% - -%
Installment 13,063 1.56% - -% - -%
----------------------------------------------------------------------------
Total loans acquired from Avondale
Federal Savings Bank 161,583 19.29% - -% - -%
----------------------------------------------------------------------------
Gross loans 837,832 100.00% - 100.00% - 100.00%
====== ====== ======
Allowance for loan losses (13,203) (6,344) (7,245)
----------- ----------------- ----------------
Net loans $ 824,629 $ 542,009 $ 532,110
=========== ================= ================
</TABLE>
At September 30, 1999 net loans of $824.6 million included $676.2 million
in core business loans originated by Manufacturers Bank and $161.6 million in
loans acquired from Avondale.
19
<PAGE>
Asset Quality
The following table presents a summary of non-performing assets as of the
dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
--------------------------------------------
<S> <C> <C> <C>
Non-accruing loans:
Originated by Manufacturers Bank $ 3,626 $ 4,789 $ 6,798
Acquired from Avondale Federal Savings Bank 7,174 - -
--------------------------------------------
Total non-accruing loans 10,800 4,789 6,798
--------------------------------------------
Loans 90 days or more past due, still accruing interest:
Originated by Manufacturers Bank 130 85 27
Acquired from Avondale Federal Savings Bank - - -
Total loans 90 days or more past due, still accruing interest 130 85 27
--------------------------------------------
Total non-performing loans 10,930 4,874 6,825
--------------------------------------------
Other real estate owned:
Originated by Manufacturers Bank 89 442 409
Acquired from Avondale Federal Savings Bank 190 - -
--------------------------------------------
Total other real estate owned 279 442 409
--------------------------------------------
Total non-performing assets $ 11,209 $ 5,316 $ 7,234
============================================
Total non-performing loans to total loans 1.30% 0.89% 1.27%
Allowance for loan losses to non-performing loans 120.80% 130.16% 106.15%
Total non-performing assets to total assets 0.92% 0.61% 0.88%
</TABLE>
At September 30, 1999, non-performing assets increased $5.9 million to
$11.2 million from $5.3 million at December 31, 1998 due to a $6.1 million
increase in non-performing loans. Non-performing loans increased due to a $7.2
million increase in non-accruing loans acquired from Avondale offset by a $1.1
million decrease in non-accruing loans originated by Manufacturers Bank at
September 30, 1999 compared to December 31, 1998. Non-accruing loans originated
by Manufacturers Bank decreased, as certain non-accruing loans were deemed
uncollectible and charged-off. At September 30, 1999, other real estate owned
decreased to $279 thousand from $442 thousand at December 31, 1998. Other real
estate owned originated by Manufacturers Bank decreased $353 thousand, while
other real estate owned acquired from Avondale was $190 thousand. Other real
estate owned originated by Manufacturers Bank decreased due to Management's on-
going efforts to sell these properties.
At September 30, 1999, non-performing assets increased $4.0 million to
$11.2 million from $7.2 million at September 30, 1998 due to a $4.1 million
increase in non-performing loans. Non-performing loans increased due to a $7.2
million increase in non-accruing loans acquired from Avondale offset by a $3.2
million decrease in non-accruing loans originated by Manufacturers Bank at
September 30, 1999 compared to September 30, 1998. Non-accruing loans originated
by Manufacturers Bank decreased, as certain non-accruing loans were deemed
uncollectible and charged-off. Other real estate owned originated by
Manufacturers Bank decreased $320 thousand, while other real estate owned
acquired from Avondale was $190 thousand. Other real estate owned originated by
Manufacturers Bank decreased due to Management's on-going efforts to sell these
properties.
20
<PAGE>
Allowance for Loan Losses
A reconciliation of the activity in the Company's allowance for loan losses
follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 14,453 $ 7,014 $ 6,344 $ 7,922
Decreases resulting from sale of subsidiary - - - (399)
Additions resulting from merger - - 9,489 -
Provision for loan losses 363 188 897 563
Charge-offs:
Originated by Manufacturers Bank 589 1 1,949 995
Acquired from Avondale Federal Savings Bank 1,176 - 2,105 -
----------------------------------------------------------------------------
Total charge-offs 1,765 1 4,054 995
----------------------------------------------------------------------------
Recoveries:
Originated by Manufacturers Bank 6 44 19 154
Acquired from Avondale Federal Savings Bank 146 - 508 -
----------------------------------------------------------------------------
Total recoveries 152 44 527 154
----------------------------------------------------------------------------
Net charge-offs (recoveries) 1,613 (43) 3,527 841
----------------------------------------------------------------------------
Balance at September 30, $ 13,203 $ 7,245 $ 13,203 $ 7,245
============================================================================
Total loans at September 30, $ 837,832 $ 539,355 $ 837,832 $ 539,355
Ratio of allowance to total loans 1.58 % 1.34 % 1.58 % 1.34 %
</TABLE>
For the three months ended September 30, 1999 and 1998, there were net
charge-offs (recoveries) of $1.6 million and ($43) thousand, respectively. For
the three months ended September 30, 1999, net charge-offs originated by
Manufacturers Bank increased $626 thousand compared to the same period for 1998
as non-accruing loans deemed uncollectable were charged-off. Net charge-offs on
loans acquired from Avondale were $1.0 million for the quarter ended September
30, 1999.
For the nine months ended September 30, 1999 and 1998, there were net
charge-offs of $3.5 million and $841 thousand, respectively. For the nine
months ended September 30, 1999, net charge-offs on loans originated by
Manufacturers Bank increased $1.1 million compared to the same period for 1998
as non-accruing loans deemed uncollectable were charged-off. Net charge-offs on
loans acquired from Avondale were $1.6 million for the nine months ended
September 30, 1999. At the merger date, Avondale's allowance for loan losses
was $9.5 million. Management reviewed Avondale's calculation, based on credit
scoring models and other criteria, and concluded that the allowance for loan
losses related to loans acquired through the merger was adequate. To date,
losses associated with the loan portfolio acquired from Avondale are consistent
with losses indicated by the credit scoring models and other criteria at the
merger date. In January 1998, Coal City National Bank was sold, reducing the
allowance for loan losses by $399 thousand.
The Company maintains its allowance for loan losses at a level that
management believes will be adequate to absorb estimated losses on existing
loans, based on an evaluation of the collectibility of loans and prior loss
experience. Control of the Company's loan quality is continually monitored by
management and is reviewed by the Board of Directors and loan committee of the
Bank on a monthly basis, subject to oversight by the Company's Board of
Directors through its members who serve on the loan committee. Independent
external review of the loan portfolio is conducted by regulatory authorities and
by independent public accountants in conjunction with their annual audit. In
addition, the Company utilizes an independent third party loan review. The
amount of additions to the allowance for loan losses which are charged to
earnings through the provision for loan losses is determined based on a variety
of factors, including actual charge-offs and anticipated charge-offs, delinquent
loans, historical loss experience and economic conditions in the Bank's market
area. Although management believes the allowance for loan losses is sufficient
to cover potential losses, there can be no assurance that the allowance will
prove sufficient to cover actual loan losses in the future.
Interest Only Securities
At September 30, 1999, interest only securities acquired through the merger
were $15.1 million. Avondale securitized and sold certain home equity lines of
credit to investors. On a quarterly basis, the Company performs a review to
determine the fair value of its interest-only securities, as these securities
are accounted for as available for sale securities. As part of its review, the
Company reviews its assumptions of prepayment speeds, discount rates and
anticipated credit losses.
21
<PAGE>
The discount rate reflects liquidity and risk premiums required by the
capital markets. Prepayment speeds are adjusted based upon both historical
experience and expectations for the future. Projected loan losses are based on
the Company's non-judgmental credit underwriting models and are further
validated with updated credit scores at least semi-annually.
Following is a table of the four interest only security pools and the
assumptions used for each of the securitized pool (dollars in thousands):
<TABLE>
<CAPTION>
Interest Only Security Pool
-------------------------------------------------------
<S> <C> <C> <C> <C>
96-1 97-1 97-2 98-1
-------------------------------------------------------
Loan balances $25,785 $31,773 $44,293 $75,383
Discount rate 12.00 % 12.00 % 12.00 % 12.00 %
Prepayment speed 33.47 % 35.21 % 35.23 % 38.92 %
Remaining over-the-life loan losses 4.15 % 4.01 % 4.77 % 4.18 %
</TABLE>
The revision of the foregoing assumptions resulted in an addition to
comprehensive income of $368 thousand for the three months ended September 30,
1999 and $142 thousand for the nine months ended September 30, 1999. The
Company will continue to review its assumptions quarterly and revise them when
circumstances dictate. Because of the sensitivity of the value of the interest
only securities to market factors beyond management's control, the actual
amounts realized could differ materially from the carrying value.
Investment Securities
The following table sets forth the amortized cost and fair value of the
Company's investment securities by accounting classification and type of
security:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
-----------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities $ - $ - $ 128,630 $ 128,748 $ 111,697 $ 112,213
U.S. government agencies
and Corporations 142,953 139,150 80,089 80,411 67,712 68,484
Mortgage-backed securities 103,464 102,844 2,779 2,861 3,353 3,441
Investment in equity lines
of credit trusts 7,872 7,872 - - - -
--------------------------------------------------------------------------
Total securities $ 254,289 $ 249,866 $ 211,498 $ 212,020 $ 182,762 $ 184,138
==========================================================================
Securities Held to Maturity:
States and political
subdivisions $ 5,495 $ 5,741 $ 5,524 $ 5,912 $ 4,093 $ 4,501
Mortgage-backed securities 3,945 3,776 4,651 4,648 4,824 4,839
Other securities 963 963 967 969 967 969
--------------------------------------------------------------------------
Total securities $ 10,403 $ 10,480 $ 11,142 $ 11,529 $ 9,884 $ 10,309
==========================================================================
</TABLE>
Liquidity and Sources of Capital
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities was $17.2
million and $11.0 million for the nine months ended September 30, 1999 and 1998,
respectively. Net cash provided by (used in) investing activities was $125.0
million for the nine months ended September 30, 1999 and ($97.5) million for the
same period for 1998. The increase in net cash provided by investing activities
for the nine months ended September 30, 1999 compared to the same period for
1998 was attributable to proceeds from sales, maturities and calls of securities
available for sale, net federal funds sold and cash acquired through the merger,
offset by an increase in loans, net of principal collections. Net cash (used
in) provided by financing activities was ($136.5) million for the nine months
ended September 30, 1999 and $69.6 million for the same period for 1998. The
increase in net cash used in financing activities for the nine months ended
September 30, 1999 compared to the same period for 1998 was attributable to
decreases in net interest bearing deposits and net short-term borrowings.
22
<PAGE>
The Company expects to have available cash to meet its liquidity needs.
Liquidity management is monitored by the asset liability committee of
Manufacturers Bank, which takes into account the marketability of assets, the
sources and stability of funding and the level of unfunded commitments. In the
event that additional short-term liquidity is needed, Manufacturers Bank has
established relationships with several large regional banks to provide short-
term borrowings in the form of federal funds purchased. While there are no firm
lending commitments in place, Manufacturers Bank has borrowed, and management
believes that Manufacturers Bank could again borrow, more than $30.0 million for
a short time from these banks on a collective basis. Additionally,
Manufacturers Bank is a member of the Federal Home Loan Bank (FHLB) and has the
ability to borrow from the FHLB. In addition, MB Financial, Inc. maintains a
line of credit with a large regional correspondent bank in the amount of $15.0
million. As of September 30, 1999, $12.5 million of the line of credit was
undrawn and available to the Company.
The Company's total risk-based capital ratio was 10.45%, Tier 1 capital to
risk-weighted assets ratio was 9.20%, and Tier 1 capital to average asset ratio
was 7.48% at September 30, 1999. The FDIC has categorized the bank subsidiary
as "Well-Capitalized" at September 30, 1999.
As of September 30, 1999, the Company's book value per share was $10.91
compared to $11.54 at September 30, 1998. The 1998 book value was calculated
using an exchange ratio of 83.5.
Year 2000 Compliance
A significant issue has emerged in the banking industry and for the economy
overall regarding how existing computer systems recognize the Year 2000. Many
existing computer programs and systems were originally programmed with nine
digit dates that provided only two digits to identify the calendar year in the
date field, without considering the upcoming change in the century. If computer
systems are not adequately changed to identify the Year 2000, many computer
applications could fail or create erroneous results. As a result, many
calculations that rely on the date field information, such as interest payment
due dates and other operating functions, may generate results that could be
significantly misstated, and the Company could experience a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. In addition, under certain circumstances, failure to adequately
address the Year 2000 issue could adversely affect the creditworthiness of the
Bank's borrowers. Thus, if not adequately addressed, the Year 2000 issue could
result in a significant adverse impact on the products, services and competitive
condition of the Company and the Bank.
On March 20, 1998, the Examination Parity and Year 2000 Readiness for
Financial Institutions Act, P.L. 105-164, became law. In that statute, Congress
emphasized the seriousness with which financial services industry and its
regulators must view the Year 2000 issue by requiring the regulators to conduct
seminars for, and otherwise provide information and model approaches concerning
common problems to, the nation's financial institutions concerning this problem.
The regulators, acting through the FFIEC, have been compiling and disseminating
such information through industry-wide pronouncements which emphasize that
safety and soundness examinations would focus, among other things, on the
institutions' awareness and preparations with respect to the Year 2000 issue.
Failure to appropriately address the Year 2000 issue may result in supervisory
actions, denials of regulatory applications and civil money penalties.
In response to the foregoing regulatory guidance and pronouncements, the
Company and the Bank have reviewed the Bank's operating procedures for exposure
to potential issues that the Year 2000 might have on its computer systems and
programs. At the direction of the Bank's Board of Directors, the Year 2000
committee was established and has identified any issues related to computer
hardware, software and operating systems to ensure that they will be capable of
properly recognizing the January 1, 2000 and beyond. All hardware and software
have been remedied and tested, and the Year 2000 contingency plans are in place.
In regards to dealing with the Year 2000, the Year 2000 committee reports to the
Bank's Board of Directors.
Management believes that the organization has had an effective corporate
Year 2000-compliance program in place. Of all systems that have been identified
as mission critical, all are deemed Year 2000 compliant. As part of the
Company's process of updating computer hardware, computer equipment owned by
Avondale and not Year 2000 compliant was replaced prior to the merger and these
costs were incurred by Avondale prior to the merger. Management expects that
any additional expenditures related to the Year 2000 problem are immaterial.
23
<PAGE>
Forward Looking Statements
Statements made about the Company's future economic performance, strategic
plans or objectives, revenues or earnings projections, or other financial items
and similar statements are not guarantees of future performance, but are forward
looking statements. By their nature, these statements are subject to numerous
uncertainties that could cause actual results to differ materially from those in
the statements. Important factors that might cause the Company's actual results
to differ materially include, but are not limited to, the following:
. Federal and state legislative and regulatory developments;
. Changes in management's estimate of the adequacy of the allowance for loan
losses;
. Changes in management's valuation of the interest only securities;
. Changes in the level and direction of loan delinquencies and write-offs;
. Interest rate movements and their impact on customer behavior and the
Company's net interest margin;
. The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
. The Company's ability to adapt successfully to technological changes to meet
customers' needs and developments in the market place;
. The Company's ability to access cost effective funding; and
. Changes in financial markets and general economic conditions.
24
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At September 30, 1999, there has been no material change in market
risk from December 31, 1998.
PART II. - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, MB
Financial, Inc. has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized, on the 9th day of November 1999.
MB FINANCIAL, INC.
By: /s/ Mitchell Feiger
-------------------
Mitchell Feiger
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Howard A. Jaffe
-------------------
Howard A. Jaffe
Vice President and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 29,441 19,445
<INT-BEARING-DEPOSITS> 532 0
<FED-FUNDS-SOLD> 2,000 16,700
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 249,866 184,138
<INVESTMENTS-CARRYING> 10,403 9,884
<INVESTMENTS-MARKET> 10,480 10,309
<LOANS> 824,629 532,110
<ALLOWANCE> 13,203 7,245
<TOTAL-ASSETS> 1,223,392 824,283
<DEPOSITS> 941,362 634,588
<SHORT-TERM> 98,139 84,494
<LIABILITIES-OTHER> 20,801 11,969
<LONG-TERM> 86,003 34,510
0 0
0 10,200
<COMMON> 71 490
<OTHER-SE> 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,223,392 824,283
<INTEREST-LOAN> 45,935 33,483<F1>
<INTEREST-INVEST> 12,901 8,840<F1>
<INTEREST-OTHER> 47 0<F1>
<INTEREST-TOTAL> 59,645 42,865<F1>
<INTEREST-DEPOSIT> 22,697 16,822<F1>
<INTEREST-EXPENSE> 30,184 21,973<F1>
<INTEREST-INCOME-NET> 29,461 20,892<F1>
<LOAN-LOSSES> 897 563
<SECURITIES-GAINS> 1 36
<EXPENSE-OTHER> 24,964 19,595
<INCOME-PRETAX> 10,494 9,293
<INCOME-PRE-EXTRAORDINARY> 10,494 9,293
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,072 5,816
<EPS-BASIC> 1.10 1.21
<EPS-DILUTED> 1.10 1.21
<YIELD-ACTUAL> 3.71 3.76
<LOANS-NON> 10,800 6,798
<LOANS-PAST> 130 27
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 6,344 7,922
<CHARGE-OFFS> 4,054 995
<RECOVERIES> 527 154
<ALLOWANCE-CLOSE> 13,203 7,245
<ALLOWANCE-DOMESTIC> 13,203 7,245
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
</TABLE>
