UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________
FORM
10-K
(Mark
One)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31,
2008
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ____________ to
____________
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Commission
file number 0-24566-01
MB
FINANCIAL, INC.
(Exact
name of registrant as specified in its charter)
Maryland
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36-4460265
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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800
West Madison Street, Chicago, Illinois
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60607
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (888) 422-6562
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Name of Each Exchange on Which
Registered
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Common Stock, par value $0.01 per
share
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The NASDAQ Stock Market
LLC
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Securities
registered pursuant to Section 12(g) of the Act:
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
x
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
o
No
x
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
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
x
Accelerated
filer
o
Non-accelerated
filer
o
(Do not check if a
smaller reporting
company) Smaller
reporting company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
x
The
aggregate market value of the voting shares held by non-affiliates of the
Registrant was approximately $722,242,874 as of June 30, 2008, the last
business day of the Registrant’s most recently completed second fiscal
quarter. Solely for the purpose of this computation, it has been
assumed that executive officers and directors of the Registrant are
“affiliates”.
There
were issued and outstanding 34,934,157 shares of the Registrant’s common stock
as of February 27, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE:
Document
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Part of Form 10-K
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Portions
of the definitive Proxy Statement to
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be
used in conjunction with the Registrant’s
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Part
III
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2009
Annual Meeting of Stockholders.
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MB
FINANCIAL, INC. AND SUBSIDIARIES
FORM
10-K
December
31, 2008
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Page
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Business
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4
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Risk
Factors
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14
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Unresolved
Staff Comments
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19
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Properties
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19
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Legal
Proceedings
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21
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Submission
of Matters to a Vote of Security Holders
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21
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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22
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Selected
Financial Data
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24
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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28
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Quantitative
and Qualitative Disclosures about Market Risk
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49
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Financial
Statements and Supplementary Data
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53
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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99
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Controls
and Procedures
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99
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Other
Information
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99
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Directors,
Executive Officers, and Corporate Governance
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100
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Executive
Compensation
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100
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Security
Ownership of Certain Beneficial Owners, and Management and
Related Stockholder Matters
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100
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Certain
Relationships, Related Transactions and Director
Independence
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101
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Principal
Accountant Fees and Services
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101
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Exhibits
and Financial Statement Schedules
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102
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103
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Special
Note Regarding Forward-Looking Statements
When used in this Annual Report on Form
10-K and in other filings with the Securities and Exchange Commission, in press
releases or other public shareholder communications, or in oral statements made
with the approval of an authorized executive officer, the words or phrases
"believe," "will," "should," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," "plans," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. You are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date made. These statements may relate to MB
Financial, Inc.’s future financial performance, strategic plans or objectives,
revenues or earnings projections, or other financial items. By their
nature, these statements are subject to numerous uncertainties that could cause
actual results to differ materially from those anticipated in the
statements.
Important factors that could cause
actual results to differ materially from the results anticipated or projected
include, but are not limited to, the following (1) the credit risks of lending
activities, including changes in the level and direction of loan delinquencies
and write-offs and changes in estimates of the adequacy of the allowance for
loan losses, which could necessitate additional provisions for loan losses; (2)
competitive pressures among depository institutions; (3) interest rate movements
and their impact on customer behavior and net interest margin; (4) the impact of
repricing and competitors' pricing initiatives on loan and deposit products; (5)
fluctuations in real estate values; (6) the ability to adapt successfully to
technological changes to meet customers' needs and developments in the market
place; (7) our ability to realize the residual values of our direct finance,
leveraged, and operating leases; (8) our ability to access cost-effective
funding; (9) changes and volatility in financial markets; (10) changes in
economic conditions in general and in the Chicago metropolitan area in
particular; (11) the costs, effects and outcomes of litigation; (12) new
legislation or regulatory changes, including but not limited to changes in
federal and/or state tax laws or interpretations thereof by taxing authorities
and other governmental initiatives affecting the financial services industry;
(13) changes in accounting principles, policies or guidelines; (14) our future
acquisitions of other depository institutions or lines of business.
We do not undertake any obligation to
update any forward-looking statement to reflect circumstances or events that
occur after the date on which the forward-looking statement is
made.
General
MB Financial, Inc., headquartered in
Chicago, Illinois, is a financial holding company with 72 banking offices
located primarily in the Chicago area. The words "MB
Financial," "the Company," "we," "our" and "us" refer to MB
Financial, Inc. and its wholly owned subsidiaries, unless we indicate
otherwise. Our primary market is the Chicago metropolitan area, in
which we operate 71 banking offices through our bank subsidiary, MB Financial
Bank, N.A. (MB Financial Bank). MB Financial Bank also has one
banking office in the city of Philadelphia. Through MB Financial
Bank, we offer a broad range of financial services primarily to small and middle
market businesses and individuals in the markets that we serve. Our
primary lines of business include commercial banking, retail banking and wealth
management. As of December 31, 2008, we had total assets of $8.8
billion, deposits of $6.5 billion, stockholders’ equity of $1.1 billion, an
asset management and trust department with approximately $3.3 billion in assets
under management, including approximately $702.1 million that represents our own
investment accounts under management, and a broker/dealer subsidiary, Vision
Investment Services, Inc., with $479.2 million in assets under
administration.
We were incorporated as a Maryland
corporation in 2001 as part of the merger of MB Financial, Inc., a Delaware
corporation (which we sometimes refer to as Old MB Financial) and MidCity
Financial Corporation (MidCity Financial). This all-stock,
merger-of-equals transaction, which we accounted for as pooling-of-interests,
was completed on November 6, 2001 through the merger of Old MB Financial and
MidCity Financial into our newly-formed company to create the presently existing
MB Financial, Inc.
We have continued to grow subsequent to
the Old MB Financial-MidCity Financial merger. In April 2002, we
acquired First National Bank of Lincolnwood, based in Lincolnwood, Illinois, and
its parent, First Lincolnwood Corporation, for approximately $35.0 million in
cash. In August 2002, we acquired Chicago-based LaSalle Systems
Leasing, Inc. and its affiliated company, LaSalle Equipment Limited Partnership
(which we sometimes refer to below collectively as “LaSalle”) for consideration
comprised of $5.0 million of our
common
stock and cash of $30.7 million paid at the time of closing, plus deferred
payments of $3.5 million that were tied to LaSalle’s operating results for the
four-year period subsequent to the acquisition date. In February
2003, we acquired South Holland Trust & Savings Bank, based in South
Holland, Illinois, and its parent, South Holland Bancorp, Inc., for $93.1
million in cash. In May 2004, we acquired First Security Federal
Savings Bank, based in Chicago, Illinois, and its parent, First SecurityFed
Financial, Inc., for $140.2 million. The purchase price was paid
through a combination of cash and our common stock totaling $73.3 million and
$66.9 million, respectively. In August 2006, we acquired Oak Brook
Bank, based in Oak Brook, Illinois, and its parent First Oak Brook Bancshares,
Inc. (FOBB), for $371.0 million. The purchase price was paid through a
combination of cash and our common stock totaling $74.1 million and $296.9
million, respectively. First National Bank of Lincolnwood, South
Holland Trust & Savings Bank, First Security Federal Savings Bank, and Oak
Brook Bank, had assets of approximately $227.5 million, $560.3 million, $576.0
million, and $2.6 billion, respectively, as of their acquisition dates, and all
were merged into MB Financial Bank. In April 2008, we purchased an
80% interest in Cedar Hill Associates, LLC (Cedar Hill), an asset management
firm located in Chicago, Illinois, with approximately $960 million in assets
under management.
In May 2003, we sold Abrams Centre
National Bank (Abrams), based in Dallas, Texas, and its parent Abrams Centre
Bancshares, Inc., for $16.3 million in cash. Abrams, a former
subsidiary of MidCity Financial, had assets of approximately $98.4 million as of
the sale date.
In November 2007, we sold Union Bank
(Union), based in Oklahoma City, Oklahoma, for $76.3 million in
cash. Union, a former subsidiary of MidCity Financial, had assets of
approximately $398.6 million as of the sale date.
MB Financial Bank, our largest
subsidiary, has seven wholly owned subsidiaries with significant operating
activities: MB Financial Center LLC; MB Financial Community Development
Corporation; MBRE Holdings LLC; LaSalle Systems Leasing, Inc.; Vision Investment
Services, Inc.; Cedar Hill Associates, LLC; and Ashland Management
LLC.
MB Financial Center LLC is used to
manage the real estate activities of our operations center located in Rosemont,
Illinois (See
Item 2.
Properties for additional
information).
MB Financial Community Development
Corporation engages in community lending and makes equity investments to
facilitate the construction and rehabilitation of housing in low-to-moderate
income neighborhoods in MB Financial Bank’s market area.
MBRE Holdings LLC, a Delaware limited
liability company, was established in August 2002 as the holding company of MB
Real Estate Holdings LLC, which is also a Delaware limited liability
company. MB Real Estate Holdings LLC and MBRE Holdings LLC were
established as part of an initiative to enhance our earnings by providing
alternative methods of raising capital and funding. The assets of MB
Real Estate Holdings LLC consist primarily of 100% participation interests in
commercial real estate loans, construction real estate loans, residential real
estate loans, commercial loans and lease loans originated by MB Financial Bank
and mortgage-backed securities. MB Real Estate Holdings LLC has
elected to be taxed as a Real Estate Investment Trust for federal income tax
purposes. The management of MBRE Holdings LLC consists of certain
officers of MB Financial and MB Financial Bank who receive no compensation from
MBRE Holdings LLC or MB Real Estate Holdings LLC.
LaSalle focuses primarily on leasing
technology-related equipment to middle market and large “Fortune 1000”
businesses located throughout the United States. During the second
quarter of 2005, LaSalle, which was the owner of 60% of LaSalle Business
Solutions (LBS), purchased from the minority owners the remaining 40% of
LBS. LBS specializes in selling and administering third party
equipment maintenance contracts as well as technology-related
equipment.
Vision Investment Services, Inc.
(Vision) is registered with the Securities and Exchange Commission as a
broker/dealer, is a member of the National Association of Securities Dealers, is
a member of the Securities Investor Protection Corporation, and is a licensed
insurance agency. Vision has two wholly owned subsidiaries; Vision
Insurance Services, Inc. and Vision Asset Management, Inc. Vision
Insurance Services, Inc. is a licensed insurance agency which functions as a
distribution firm for certain annuity products, whereas Vision Asset Management,
Inc. is a Registered Investment Advisor with the Securities and Exchange
Commission. Vision was acquired in connection with our February 2003
acquisition of South Holland Trust & Savings Bank (South
Holland). Vision provides both institutional and retail clients with
investment and wealth management services. It had $479.2 million in
assets under administration at December 31, 2008.
Cedar Hill is an asset management firm
located in Chicago, Illinois, with approximately $807.1 million in assets under
management at December 31, 2008.
Ashland
Management Agency, Inc. holds and/or manages certain properties purchased by the
Company.
We also own all of the issued and
outstanding common securities of Coal City Capital Trust I, MB Financial Capital
Trust II, MB Financial Capital Trust III, MB Financial Capital Trust IV, MB
Financial Capital Trust V, MB Financial Capital Trust VI, FOBB Capital Trust I,
FOBB Capital Trust III, all statutory business trusts formed for the purpose of
issuing trust preferred securities. See
Note 13
of the notes to our audited consolidated financial statements for additional
information.
Recent
Developments
On February 27, 2009, we will pay a
cash dividend, distributing $0.12 per share to shareholders of record as of
February 13, 2009.
Primary
Lines of Business
Our operations are currently managed as
one unit and we have one reportable segment. Our chief operating
decision-makers use consolidated results to make operating and strategic
decisions.
We concentrate on serving small and
middle market businesses, leasing companies, and their respective
owners. We also serve consumers who live or work near our
branches. Through our acquisition program and careful selection of
officers and employees, we have positioned ourselves to take a leading role in
these attractive niches. We have established three primary lines of
business: commercial banking; retail banking; and wealth
management. Each is described below.
Commercial
Banking.
Our commercial banking group focuses on serving small
and middle market businesses, primarily located in the Chicago metropolitan
area. We provide a full set of credit, deposit, and treasury
management products to these companies. In general, our credit
products are specifically designed for companies with annual revenues between $5
million and $100 million and credit needs of up to $25 million. We
have a broad range of credit products for our target market, including working
capital loans and lines of credit; accounts receivable; inventory and equipment
financing; industrial revenue bond financing; business acquisition loans; owner
occupied real estate loans; and financial, performance and commercial letters of
credit. Our deposit and treasury management products are designed for
companies with annual revenues up to $500 million and include: internet products
for businesses, investment sweep accounts, zero balance accounts, automated tax
payments, ATM access, merchant credit card processing, telephone banking,
lockbox, automated clearing house transactions, account reconciliation,
controlled disbursement, detail and general information reporting, wire
transfers, a variety of international banking services, and checking
accounts. We also provide a full set of credit, deposit and treasury
management services for real estate operators and investors.
Within commercial banking, we also
target small and medium size equipment leasing companies located throughout the
United States. We have provided lease banking services to these
companies for more than three decades. Competition in serving this
equipment leasing market generally comes from large banks, finance companies,
large industrial companies and some community banks. We compete based
upon rapid decision making and excellent service and by providing flexible
financial solutions to meet our customers’ needs. We provide full
banking services to leasing companies by financing the debt portion of leveraged
equipment leases (referred to as lease loans), providing short and long-term
equity financing and by making working capital and bridge loans. For
lease loans, a lessee’s credit is often rated as investment grade for its public
debt by Moody’s, Standard & Poors or the equivalent. If a lessee
does not have a public debt rating, they are subject to the same internal credit
analysis as any other customer of MB Financial Bank. We also invest
directly in equipment that we lease to other companies located throughout the
United States (referred to as operating leases). Our operating lease
portfolio is made up of various kinds of equipment, generally technology
related, such as computer systems, satellite equipment, and general
manufacturing equipment. We seek leasing transactions where we
believe the equipment leased is integral to the lessee’s business, thereby
increasing the likelihood of renewal at the end of the lease term.
Additionally, LaSalle, a subsidiary of
MB Financial Bank, primarily focuses on leasing technology-related equipment to
middle market and large “Fortune 1000” businesses throughout the United States
and provides us the additional ability to directly originate
leases. LaSalle is a 28-year old organization that banked with MB
Financial Bank since its inception, prior to being acquired by us in
2002. LaSalle’s experienced leasing personnel enhance our ability to
originate leases, and expand the products that we offer our commercial banking
customers.
Retail Banking.
The
target market for our retail banking group is individuals who live or work near
our banking offices. We offer a full set of personal banking products
to these individuals, including checking accounts, savings accounts, NOW and
money market accounts, time deposit accounts, secured and unsecured consumer
loans, residential mortgage loans, Internet banking and a variety of fee for
service products, such as money orders and travelers’ checks. As our
customers’ needs change, we adjust our product offerings accordingly, and
develop new products to differentiate ourselves from our
competitors. To offer our customers additional convenience, beginning
in 2005, we expanded our banking hours (including Sundays in some locations),
provided a 7:00 PM cut-off time for deposits to accelerate cash availability for
our customers, and introduced our ATM Freedom product that allows free ATM
transactions anytime and anywhere in the world. In 2008, we opened a
limited number of supermarket branches in the Chicago metropolitan
area.
Wealth
Management.
Our Wealth Management Group provides coordinated
and integrated delivery of investment management, trust, brokerage and private
banking services. Our asset management and trust department offers a
wide range of financial services, including personal trust, investment
management, custody, estate settlement, guardianship, tax-deferred exchange and
retirement plan services. Our private banking department provides
qualified clients with personalized, “high touch” banking products and services,
including a private banker as a single point of contact for all their financial
needs. MB Financial Bank subsidiaries Cedar Hill Associates and
Vision Investment Services provide clients with non-FDIC insured investment
alternatives and insurance products.
General
. We are
primarily a commercial lender and our loan portfolio consists primarily of loans
to businesses or for business purposes.
Commercial
Lending.
We make commercial loans to small and middle market
businesses most often located in the Chicago area. Borrowers tend to
be privately owned and are generally manufacturers, wholesalers, distributors,
long-term health care operators and service providers. Loan products
offered are primarily working capital and term loans and lines of credit that
help our customers finance accounts receivable, inventory and
equipment. We also offer financial, performance and commercial
letters of credit. Commercial loans secured by owner occupied real
estate are classified as commercial real estate loans in the loan portfolio
composition table in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 6 to the audited consolidated
financial statements in “Item 8. Financial Statements and Supplementary
Data”. Most commercial loans are short-term in nature, being one year
or less, with the maximum term generally being five years. Our
commercial loans typically range in size from $500 thousand to $15
million.
Lines of credit for customers are
typically secured, established for one year or less, and are subject to renewal
upon a satisfactory review of the borrower’s financial statements and credit
history. Secured short-term commercial business loans are usually
collateralized by accounts receivable, inventory, equipment and/or real
estate. Such loans are typically, but not always, guaranteed by the
owners of the business. Collateral securing commercial loans may
depreciate over time, be difficult to appraise and fluctuate in value based on
the success of the business. In addition, in the case of loans
secured by accounts receivable, the availability of funds for the repayment of
these loans may be substantially dependent on the ability of the borrower to
collect the amounts due from its customers. Accordingly, we make our
commercial loans primarily based on the historical and expected cash flow of the
borrower and secondarily on underlying collateral provided by the
borrower.
Commercial Real Estate
Lending
. We originate commercial real estate loans that are
generally secured by multi-unit residential property and owner and non-owner
occupied commercial and industrial property. We also make loans to
finance the acquisition and development of land for residential, retail, and
industrial uses. Longer term commercial real estate loans are
generally made at fixed rates, although some have interest rates that change
based on our Reference Rate or LIBOR. Generally, terms of up to
twenty-five years are offered on fully amortizing loans, but most loans are
structured with a balloon payment at the end of five years. For our
fixed rate loans with maturities greater than five years, we may enter into an
interest rate swap agreement with a third party to mitigate interest rate
risk. In deciding whether to make a commercial real estate loan, we
consider, among other things, the experience and qualifications of the borrower
as well as the value and cash flow of the underlying property. Some
factors considered are net operating income of the property before debt service
and depreciation, the debt service coverage ratio (the ratio of the property’s
net cash flow to debt service requirements), the global cash flows of the
borrower, the ratio of the loan amount to the appraised value and the overall
creditworthiness of the prospective borrower. Our commercial real
estate loans typically range in size from $250 thousand to $20
million.
Commercial real estate lending
typically involves higher principal amounts than other types of loans and the
repayment of such a loan is often dependent on the successful operations of the
property securing the loan or the business conducted on the property securing
the loan. These loans may therefore be more adversely affected by
conditions in real
estate
markets or in the economy in general. For example, if the cash flow
from the borrower’s project is reduced due to leases not being obtained, renewed
or modified from their original terms, the borrower’s ability to repay a loan
may be impaired. In addition, many commercial real estate loans are
not fully amortized over the loan period, but have balloon payments due at
maturity. A borrower’s ability to make a balloon payment typically
will depend on their ability to either refinance the loan or complete a timely
sale of the underlying property.
Construction Real
Estate
. We provide construction loans for the acquisition and
development of land for further improvement of condominiums, townhomes, and
one-to-four family residences. We also provide acquisition,
development and construction loans for retail and other commercial purposes,
primarily in our market areas. With regard to construction lending,
there were fewer new loans made during 2008 compared to prior years due to the
economic environment. Construction lending can involve a higher level
of risk than other types of lending because funds are advanced partially based
upon the value of the project, which is uncertain prior to the project’s
completion. Because of the uncertainties inherent in estimating
construction costs as well as the market value of a completed project and the
effects of governmental regulation of real property, our estimates with regards
to the total funds required to complete a project and the related loan-to-value
ratio may vary from actual results. As a result, construction loans
often involve the disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project and the ability of the borrower to
sell or lease the property or refinance the indebtedness. If our
estimate of the value of a project at completion proves to be overstated, we may
have inadequate security for repayment of the loan and we may incur a
loss.
Lease Loans
. We
lend money to small and mid-size independent leasing companies to finance the
debt portion of leases (which we refer to as lease loans). A lease
loan arises when a leasing company discounts the equipment rental revenue stream
owed to the leasing company by a lessee. Lease loans generally are
non-recourse to the leasing company, and, consequently, our recourse is limited
to the lessee and the leased equipment. For this reason, we
underwrite lease loans by examining the creditworthiness of the lessee rather
than the lessor. Generally, lease loans are secured by an assignment
of lease payments and a security interest in the equipment being
leased. As with commercial loans secured by equipment, equipment
securing our lease loans may depreciate over time, may be difficult to appraise
and may fluctuate in value. We rely on the lessee’s continuing
financial stability, rather than the value of the leased equipment, for
repayment of all required amounts under lease loans. In the event of
default, it is unlikely that the proceeds from the sale of leased equipment will
be sufficient to satisfy the outstanding unpaid amounts under terms of the lease
loan.
The lessee acknowledges the bank’s
security interest in the leased equipment and normally agrees to send lease
payments directly to us. Lessees tend to be Fortune 1000 companies
and have an investment grade public debt rating by Moody’s or Standard &
Poors or the equivalent, though, we also provided credit to below investment
grade and non-rated companies as well. If the lessee does not have a
public debt rating, they are subject to the same internal credit analysis as any
other customer. Lease loans almost always are fully amortizing, with
maturities typically ranging from three to five years. Loan interest
rates are fixed.
Residential Real
Estate
. We also originate fixed and adjustable rate
residential real estate loans secured by one to four family
homes. Terms of first mortgages range from five to thirty
years. Terms for second mortgages range from five to ten
years. In deciding whether to make a residential real estate loan, we
consider the qualifications of the borrower as well as the value of the
underlying property. Our general practice is to sell the majority of
our newly originated fixed-rate residential real estate loans shortly after they
are funded, and to hold in portfolio the majority of adjustable rate residential
real estate loans.
Consumer
Lending
. Our consumer loan portfolio is primarily focused on
home equity lines of credit, fixed-rate second mortgage loans, indirect vehicle
loans, and to a lesser extent, direct motorcycle loans and secured and unsecured
consumer loans. Home equity lines of credit are generally extended up
to 80% of the appraised value of the property, less existing
liens. Indirect vehicle loans represent consumer loans made primarily
through a network of Harley Davidson motorcycle dealers in 44 states. To a
lesser extent we originate consumer loans for other motorcycle dealers and a few
local auto dealerships. Consumer loans typically have shorter terms
and lower balances with higher yields as compared to residential real estate
loans, but carry a higher risk of default. Terms for second mortgages
typically range from five to ten years. Consumer loan collections are
dependent on the
borrower’s
continuing financial stability, and thus, are more likely to be affected by
adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on these loans.
Foreign
Operations
MB Financial Bank holds certain
commercial real estate loans, residential real estate loans, other loans and
mortgage-backed investment securities in a real estate investment trust through
its wholly owned subsidiary MBRE Holdings LLC headquartered and domiciled in
Freeport, The Bahamas. MBRE Holdings LLC and its subsidiary, MB Real
Estate Holdings LLC, were established in August 2002 to provide us with
alternative methods for raising capital and funding. We do not engage
in operations in any other foreign countries.
Competition
We face substantial competition in all
phases of our operations, including deposit gathering and loan origination, from
a variety of competitors. Commercial banks, savings institutions,
brokerage firms, credit unions, mutual fund companies, insurance companies and
specialty finance companies all compete with us for new and existing
customers. Several national financial institutions have commenced
aggressive de novo branching plans that have heightened competitive pressures in
our market areas. Our bank competes by providing quality services to
our customers, ease of access to our facilities, convenient hours and
competitive pricing of services (including interest rates paid on deposits,
interest rates charged on loans and fees charged for other non-interest related
services).
Personnel
As of December 31, 2008, we and our
subsidiaries employed a total of 1,342 full-time equivalent
employees. We consider our relationship with our employees to be
good.
We, our subsidiary bank, and its
subsidiaries, are subject to an extensive system of banking and securities laws
and regulations that are intended primarily for the protection of customers and
depositors and not for the protection of security holders. These laws
and regulations govern such areas as capital, permissible activities, allowance
for loan losses, loans and investments, and rates of interest that can be
charged on loans. Described below are elements of selected laws and
regulations. The descriptions are not intended to be complete and are
qualified in their entirety by reference to the full text of the statutes and
regulations described.
Holding Company
Regulation
.
As a bank holding
company and financial holding company, we are subject to comprehensive
regulation by the Board of Governors of the Federal Reserve System, frequently
referred to as the Federal Reserve Board, under the Bank Holding Company Act of
1956, as amended by the Gramm-Leach-Bliley Act of 1999. We must file
reports with the Federal Reserve Board and such additional information as the
Federal Reserve Board may require, and our holding company and non-banking
affiliates are subject to examination by the Federal Reserve
Board. Under Federal Reserve Board policy, a bank holding company
must serve as a source of strength for its subsidiary banks. Under
this policy, the Federal Reserve Board may require, and has required in the
past, a holding company to contribute additional capital to an undercapitalized
subsidiary bank. The Bank Holding Company Act provides that a bank
holding company must obtain Federal Reserve Board approval before:
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Acquiring,
directly or indirectly, ownership or control of any voting shares of
another bank or bank
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holding
company if, after such acquisition, it would own or control more than 5%
of such shares
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(unless
it already owns or controls the majority of such
shares);
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Acquiring
all or substantially all of the assets of another bank or bank holding
company; or
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Merging
or consolidating with another bank holding
company.
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The Bank Holding Company Act generally
prohibits a bank holding company from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or providing
services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by Federal
Reserve Board regulation or order, have been identified as activities closely
related to the business of banking or managing or controlling
banks. The list of activities permitted by the Federal Reserve Board
includes, among other things: lending; operating a savings institution, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-
operating
basis; selling money orders, travelers’ checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. These activities may also be
affected by federal legislation.
In November 1999, the
Gramm-Leach-Bliley Act became law. The Gramm-Leach-Bliley Act is
intended to, among other things; facilitate affiliations among banks, securities
firms, insurance firms and other financial companies. To further this
goal, the Gramm-Leach-Bliley Act amended portions of the Bank Holding Company
Act of 1956 to authorize bank holding companies, such as us, directly or through
non-bank subsidiaries to engage in securities, insurance and other activities
that are financial in nature or incidental to a financial
activity. In order to undertake these activities, a bank holding
company must become a "financial holding company" by submitting to the
appropriate Federal Reserve Bank a declaration that the company elects to be a
financial holding company and a certification that all of the depository
institutions controlled by the company are well capitalized and well
managed. We submitted the declaration of our election to become a
financial holding company with the Federal Reserve Bank of Chicago in June 2002,
and our election became effective in July 2002.
Depository Institution
Regulation.
Our bank subsidiary is
subject to regulation by the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation. This regulatory structure
includes:
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Real
estate lending standards, which provide guidelines concerning
loan-to-value ratios for various types of real estate
loans;
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Risk-based
capital rules, including accounting for interest rate risk, concentration
of credit risk and the risks posed by non-traditional
activities;
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Rules
requiring depository institutions to develop and implement internal
procedures to evaluate and control credit and settlement exposure to their
correspondent banks;
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Rules
restricting types and amounts of equity investments;
and
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Rules
addressing various safety and soundness issues, including operations and
managerial standards, standards for asset quality, earnings and
compensation standards.
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Capital
Adequacy.
The Federal Reserve Board, Office of the
Comptroller of the Currency and Federal Deposit Insurance Corporation have
issued substantially similar risk-based and leverage capital guidelines
applicable to bank holding companies and banks. In addition, these
regulatory agencies may from time to time require that a bank holding company or
bank maintain capital above the minimum levels, based on its financial condition
or actual or anticipated growth.
The Federal Reserve Board's risk-based
guidelines establish a two-tier capital framework. Tier 1 capital
generally consists of common stockholders' equity, retained earnings, a limited
amount of qualifying perpetual preferred stock, qualifying trust preferred
securities and minority interests in the equity accounts of consolidated
subsidiaries, less goodwill and certain intangibles. Tier 2 capital
generally consists of certain hybrid capital instruments and perpetual debt,
mandatory convertible debt securities and a limited amount of subordinated debt,
qualifying preferred stock, loan loss allowance, and unrealized holding gains on
certain equity securities. The sum of Tier 1 and Tier 2 capital
represents qualifying total capital, at least 50% of which must consist of Tier
1 capital.
Risk-based capital ratios are
calculated by dividing Tier 1 and total capital by risk-weighted
assets. Assets and off-balance sheet exposures are assigned to one of
four categories of risk-weights, based primarily on relative credit
risk. The minimum Tier 1 risk-based capital ratio is 4% and the
minimum total risk-based capital ratio is 8%. Our Tier 1 and total
risk-based capital ratios under these guidelines at December 31, 2008 were
12.07% and 14.08%, respectively.
The Federal Reserve Board’s leverage
capital guidelines establish a minimum leverage ratio determined by dividing
Tier 1 capital by adjusted average total assets. The minimum leverage
ratio is 3% for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. At December 31, 2008, we had a leverage ratio of
9.85%.
Prompt
Corrective Action.
The Federal Deposit Insurance
Corporation Improvement Act of 1991, among other things, identifies five capital
categories for insured depository institutions (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within these
categories. This act imposes progressively more restrictive
constraints on operations, management and capital distributions, depending on
the category in which an institution is classified. Failure to meet
the capital guidelines could also subject a banking institution to capital
raising requirements. An "undercapitalized" bank must develop a
capital restoration plan and its parent holding company must guarantee that
bank's compliance with the plan. The liability of the parent holding
company under any such guarantee is limited to the lesser of five percent of the
bank's assets at the time it became "undercapitalized" or the amount needed to
comply with the plan. Furthermore, in the event of the bankruptcy of
the parent holding company, such guarantee would take priority over the parent's
general unsecured creditors. In addition, the Federal Deposit
Insurance Corporation Improvement Act requires the various regulatory agencies
to prescribe certain non-capital standards for safety and soundness relating
generally to operations and management, asset quality and executive compensation
and permits regulatory action against a financial institution that does not meet
these standards.
The various federal regulatory agencies
have adopted substantially similar regulations that define the five capital
categories identified by the Federal Deposit Insurance Corporation Improvement
Act, using the total risk-based capital, Tier 1 risk-based capital and leverage
capital ratios as the relevant capital measures. These regulations
establish various degrees of corrective action to be taken when an institution
is considered undercapitalized. Under the regulations, a "well
capitalized" institution must have a Tier 1 risk-based capital ratio of at least
6%, a total risk-based capital ratio of at least 10% and a leverage ratio of at
least 5% and not be subject to a capital directive or order. An
institution is "adequately capitalized" if it has a Tier 1 risk-based capital
ratio of at least 4%, a total risk-based capital ratio of at least 8% and a
leverage ratio of at least 4% (3% in certain circumstances). An
institution is “undercapitalized” if it has a Tier 1 risk-based capital ratio of
less than 4%, a total risk-based capital ratio of less than 8% or a leverage
ratio of less than 4% (3% in certain circumstances). An institution
is "significantly undercapitalized" if it has a Tier 1 risk-based capital ratio
of less than 3%, a total risk-based capital ratio of less than 6% or a leverage
ratio of less than 3%. An institution is "critically
undercapitalized" if its tangible equity is equal to or less than 2% of total
assets. Generally, an institution may be reclassified in a lower
capitalization category if it is determined that the institution is in an unsafe
or unsound condition or engaged in an unsafe or unsound practice.
As of December 31, 2008, our subsidiary
bank met the requirements to be classified as “well-capitalized.”
Dividends.
The Federal Reserve Board's
policy is that a bank holding company should pay cash dividends only to the
extent that its net income for the past year is sufficient to cover both the
cash dividends and a rate of earnings retention that is consistent with the
holding company's capital needs, asset quality and overall financial condition,
and that it is inappropriate for a bank holding company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, a
bank that is classified under the prompt corrective action regulations as
"undercapitalized" will be prohibited from paying any dividends.
On
December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital
Purchase Program of the United States Department of the Treasury (“Treasury”),
the Company sold to Treasury 196,000 shares of the Company’s Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”),
having a liquidation preference amount of $1,000 per share, for a purchase price
of $196.0 million in cash and (ii) issued to Treasury a ten-year warrant to
purchase 1,012,048 shares of the Company’s common stock at an
exercise price of $29.05 per share.
The
securities purchase agreement between us and Treasury provides that prior to the
earlier of (i) December 5, 2011 and (ii) the date on which all of the shares of
the Series A Preferred Stock have been redeemed by us or transferred by Treasury
to third parties, we may not, without the consent of Treasury, (a) pay a
quarterly cash dividend on our common stock of more than $0.18 per share or (b)
subject to limited exceptions, redeem, repurchase or otherwise acquire shares of
our common stock or preferred stock, other than the Series A Preferred Stock, or
trust preferred securities. In addition, under the terms of the
Series A Preferred Stock, we may not pay dividends on our common stock at any
time we are in arrears on the dividends payable on the Series A Preferred
Stock. Dividends on the Series A Preferred Stock are payable
quarterly at a rate of 5% per annum for the first five years and a rate of 9%
per annum thereafter if not redeemed prior to that time.
Our primary source for cash dividends
is the dividends we receive from our subsidiary bank. Our bank is
subject to various regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain capital above regulatory
minimums. A national bank must obtain the approval of the Office of
the Comptroller of the Currency prior to paying a dividend if the total of all
dividends declared by the national bank in any calendar year will exceed the sum
of the bank’s net profits for that year and its retained net profits for the
preceding two calendar years, less any required transfers to
surplus.
Federal Deposit Insurance
Reform.
The FDIC currently maintains the Deposit Insurance
Fund (the “DIF”), which was created in 2006 in the merger of the Bank Insurance
Fund and the Savings Association Insurance Fund. The deposit
accounts of our subsidiary bank are insured by the DIF to the maximum amount
provided by law. This insurance is backed by the full faith and
credit of the United States Government.
As insurer, the FDIC is authorized to
conduct examinations of and to require reporting by DIF-insured institutions. It
also may prohibit any DIF-insured institution from engaging in any activity the
FDIC determines by regulation or order to pose a serious threat to the DIF. The
FDIC also has the authority to take enforcement actions against insured
institutions.
The FDIC’s regulations for risk-based
deposit insurance assessments establish four Risk Categories. The FDIC regards
well-capitalized institutions that are financially sound with only a few minor
weaknesses, including MB Financial Bank, as Risk Category I. Risk
Categories II, III and IV present progressively greater risks to the DIF and pay
progressively higher rates. For the first quarter of 2009, Risk
Category I institutions will pay quarterly assessments for deposit insurance at
annual rates of 12 to 14 basis points. With advance notice to insured
institutions, rates are subject to change. Within Risk Category I,
the precise rate for an individual institution with less than $10 billion in
assets is generally determined by a formula using CAMELS ratings, which are
assigned in examinations, and financial ratios. A different method
applies for larger institutions. The rate for an individual
institution is applied to its assessment base, consisting generally of its
deposit liabilities subject to certain adjustments.
In an effort to restore capitalization
levels and to ensure the DIF will adequately cover projected losses from future
bank failures, the FDIC, in October 2008, proposed a rule to alter the way in
which it differentiates for risk in the risk-based assessment system and to
revise deposit insurance assessment rates, including base assessment rates. For
Risk Category I institutions, the FDIC proposes (i) to determine the
initial base assessment rate using a combination of weighted-average CAMELS
component ratings and the financial ratios method assessment rate (as defined),
each equally weighted and (ii) to revise the uniform amount and the pricing
multipliers. The FDIC also proposes to introduce three adjustments that could be
made to an institution’s initial base assessment rate, including (i) a potential
decrease of up to 2 basis points for long-term unsecured debt, including senior
and subordinated debt, (ii) a potential increase for secured liabilities in
excess of 15% of domestic deposits and (iii) for non-Risk Category I
institutions, a potential increase for brokered deposits in excess of 10% of
domestic deposits. The FDIC also proposes, effective April 1, 2009,
initial base assessment rates for Risk Category I institutions of 10 to 14 basis
points. After the effect of potential base-rate adjustments, the annualized
assessment rate for Risk Category I institutions would range from 8 to 21 basis
points. A final rule related to this proposal is expected to be issued during
the first quarter of 2009. The Company cannot provide any assurance as to the
amount of any proposed increase in its deposit insurance premium rate, should
such an increase occur, as such changes are dependent upon a variety of factors
beyond the Company’s control.
FDIC
insurance expense totaled $1.9 million and $664.0 thousand in 2008 and 2007,
respectively. FDIC insurance expense includes deposit insurance assessments and
Financing Corporation (“FICO”) assessments related to outstanding FICO bonds.
The FICO is a mixed-ownership government corporation established by the
Competitive Equality Banking Act of 1987 whose sole purpose was to function as a
financing vehicle for the now defunct Federal Savings & Loan Insurance
Corporation. Under the Federal Deposit Insurance Reform Act of 2005, which
became law in 2006, MB Financial Bank received a one-time assessment credit of
$5.3 million to be applied against future deposit insurance assessments, subject
to certain limitations. This credit was utilized to offset $2.1 million of
deposit insurance assessments during 2007 and $3.1 million of assessments during
2008. The assessment credits were utilized as of December 31, 2008.
Temporary Liquidity Guarantee
Program
. On November 21, 2008, the Board of Directors of the
FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program
(“TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008,
preceded by the determination of systemic risk by the Secretary of the
Department of Treasury (after consultation with the President), as an initiative
to counter the system-wide crisis in the nation’s financial sector. Under the
TLG Program the FDIC will (i) guarantee, through the earlier
of
maturity or June 30, 2012, certain newly issued senior unsecured debt issued by
participating institutions on or after October 14, 2008, and before June 30,
2009 and (ii) provide full FDIC deposit insurance coverage for non-interest
bearing transaction deposit accounts, Negotiable Order of Withdrawal (“NOW”)
accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust
Accounts held at participating FDIC insured institutions through December 31,
2009. Coverage under the TLG Program was available for the first 30 days without
charge. The fee assessment for coverage of senior unsecured debt ranges from 50
basis points to 100 basis points per annum, depending on the initial maturity of
the debt. The fee assessment for the Transaction Account Guarantee Program is 10
basis points per quarter on amounts in covered accounts exceeding
$250,000. On December 5, 2008, the Company elected not to opt-out of
either guarantee program. The FDIC has announced that for an
additional premium, it will extend the TLG Program through October 2009, but no
regulations have been published in proposed or final form.
Transactions with
Affiliates.
We and our subsidiary bank are affiliates within
the meaning of the Federal Reserve Act. The Federal Reserve Act
imposes limitations on a bank with respect to extensions of credit to,
investments in, and certain other transactions with, its parent bank holding
company and the holding company’s other subsidiaries. Furthermore,
bank loans and extensions of credit to affiliates also are subject to various
collateral requirements.
Community Reinvestment
Act.
Under the Community Reinvestment Act, every Federal
Deposit Insurance Corporation-insured institution is obligated, consistent with
safe and sound banking practices, to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The
Community Reinvestment Act requires the appropriate federal banking regulator,
in connection with the examination of an insured institution, to assess the
institution’s record of meeting the credit needs of its community and to
consider this record in its evaluation of certain applications, such as a merger
or the establishment of a branch. An unsatisfactory rating may be
used as the basis for the denial of an application and will prevent a bank
holding company of the institution from making an election to become a financial
holding company.
As of its last examination, MB
Financial Bank received a Community Reinvestment Act rating of
“outstanding.”
Interstate Banking and
Branching.
The Federal Reserve Board may approve an
application of a bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than the
bank holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may
not approve the acquisition of a bank that has not been in existence for the
minimum time period (not exceeding five years) specified by the law of the
target bank’s home state. The Federal Reserve Board also may not
approve an application if the bank holding company (and its bank affiliates)
controls or would control more than ten percent of the insured deposits in the
United States or, generally, 30% or more of the deposits in the target bank's
home state or in any state in which the target bank maintains a
branch. Individual states may waive the 30% statewide concentration
limit. Each state may limit the percentage of total insured deposits
in the state that may be held or controlled by a bank or bank holding company to
the extent the limitation does not discriminate against out-of-state banks or
bank holding companies.
The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether these transactions are prohibited by the law of any state, unless the
home state of one of the banks opted out of interstate mergers prior to June 1,
1997. Interstate acquisitions of branches are permitted only if the
law of the state in which the branch is located permits these
acquisitions. Interstate mergers and branch acquisitions are subject
to the nationwide and statewide-insured deposit concentration limits described
above.
Privacy
Rules.
Federal banking regulators, as required under the
Gramm-Leach-Bliley Act, have adopted rules limiting the ability of banks and
other financial institutions to disclose nonpublic information about consumers
to non-affiliated third parties. The rules require disclosure of
privacy policies to consumers and, in some circumstances, allow consumers to
prevent disclosure of certain personal information to non-affiliated third
parties. The privacy provisions of the Gramm-Leach-Bliley Act affect
how consumer information is transmitted through diversified financial services
companies and conveyed to outside vendors.
International Money Laundering
Abatement and Financial Anti-Terrorism Act of 2001.
The
President signed the USA Patriot Act of 2001 into law in October 2001. This act
contains the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA substantially broadens
existing anti-money laundering legislation and the extraterritorial jurisdiction
of the United States, imposes new compliance and due diligence obligations,
creates new crimes and penalties, compels the production of documents located
both inside and outside the United States, including those of foreign
institutions that have a correspondent relationship in the United States, and
clarifies the safe harbor from civil liability to customers. The U.S. Treasury
Department has issued a number of regulations implementing the USA Patriot Act
that apply certain of its requirements to
financial
institutions such as our banking and broker-dealer subsidiaries. The regulations
impose obligations on financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing. The increased obligations of financial institutions,
including us, to identify their customers, watch for and report suspicious
transactions, respond to requests for information by regulatory authorities and
law enforcement agencies, and share information with other financial
institutions, requires the implementation and maintenance of internal
procedures, practices and controls which have increased, and may continue to
increase, our costs and may subject us to liability.
As noted above, enforcement and
compliance-related activity by government agencies has increased. Money
laundering and anti-terrorism compliance is among the areas receiving a high
level of focus in the present environment.
Future Legislation and Changes in
Regulations.
Proposals to change the laws and regulations
governing the banking industry are frequently introduced in Congress, in the
state legislatures and by the various bank regulatory agencies. New
legislation and/or changes in regulations could affect us in substantial and
unpredictable ways, and increase or decrease the cost of doing business, limit
or expand permissible activities or affect the competitive balance among banks
and other financial institutions. The likelihood and timing of any
proposed legislation or changes in regulations and the impact they might have on
us cannot be determined at this time.
Internet
Website
We maintain a website with the address
www.mbfinancial.com. The information contained on our website is not
included as a part of, or incorporated by reference into, this Annual Report on
Form 10-K. Other than an investor's own Internet access charges, we
make available free of charge through our website our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and
amendments to these reports, as soon as reasonably practicable after we have
electronically filed such material with, or furnished such material to, the
Securities and Exchange Commission.
An investment in our common stock is
subject to risks inherent in our business. Before making an
investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included in this
report. In addition to the risks and uncertainties described below,
other risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially and adversely affect our business,
financial condition and results of operations. The value or market
price of our common stock could decline due to any of these identified or other
risks, and you could lose all or part of your investment.
Changes
in economic conditions, particularly a further economic slowdown in the Chicago
area, could hurt our business.
Our
business is directly affected by market conditions, trends in industry and
finance, legislative and regulatory changes, and changes in governmental
monetary and fiscal policies and inflation, all of which are beyond our
control. In 2007, the housing and real estate sectors experienced an
economic slowdown that has continued into 2009. Further deterioration
in economic conditions, particularly within the Chicago area, could result in
the following consequences, among others, any of which could hurt our business
materially:
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loan
delinquencies may increase;
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problem
assets and foreclosures may
increase;
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demand
for our products and services may decline;
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collateral
for our loans may decline in value, in turn reducing a customer’s
borrowing power and reducing the value of assets and collateral securing
our loans.
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Negative
developments in the financial industry and credit markets may continue to
adversely impact our financial condition and results of operations.
Negative developments
beginning in the latter half of 2007 in the sub-prime mortgage market and the
securitization markets for such loans, together with other factors, have
resulted in uncertainty in the financial markets in general and a related
general economic downturn, which have continued into 2009.
In
addition, as a consequence of the recession that the United
States
now finds itself in, business activity across a wide range of industries face
serious difficulties due to the lack of consumer spending and the extreme lack
of liquidity in the global credit markets. Unemployment has also increased
significantly.
As a
result of these economic crises, many lending institutions, including us, have
experienced declines in the performance of their loans, including construction
loans and commercial real estate loans. In addition, the values of
real estate collateral supporting many loans have declined and may continue to
decline. Bank and bank holding company stock prices have been
negatively affected, as has the ability of banks and bank holding companies to
raise capital or borrow in the debt markets compared to recent
years. These conditions may have a material adverse effect on our
financial condition and results of operations. In addition, as a
result of the foregoing factors, there is a potential for new laws and
regulations regarding lending and funding practices and liquidity standards, and
bank regulatory agencies are expected to be very aggressive in responding to
concerns and trends identified in examinations. Negative developments
in the financial industry and the impact of new legislation and regulations in
response to those developments could restrict our business operations, including
our ability to originate loans, and adversely impact our results of operations
and financial condition.
Overall, during the past
year, the general business environment has had an adverse effect on our
business, and there can be no assurance that the environment will improve in the
near term. Until conditions improve, we expect our business, financial condition
and results of operations to be adversely affected.
Recent
legislative and regulatory initiatives to address difficult market and economic
conditions may not stabilize the U.S. banking system.
The
recently enacted Emergency Economic Stabilization Act of 2008 (the “EESA”)
authorizes the U.S. Treasury Department (the “Treasury”) to purchase from
financial institutions and their holding companies up to $700 billion in
mortgage loans, mortgage-related securities and certain other financial
instruments, including debt and equity securities issued by financial
institutions and their holding companies, under a Troubled Asset Relief Program
(“TARP”). The purpose of TARP is to restore confidence and stability
to the U.S. banking system and to encourage financial institutions to increase
their lending to customers and to each other. The Treasury has
allocated $250 billion towards the TARP Capital Purchase Program
(“CPP”). Under the CPP, Treasury has purchased preferred equity
securities from participating institutions, including $196.0 million of our
preferred stock. The EESA also increased federal deposit insurance on
most deposit accounts from $100,000 to $250,000. This increase is in
place until the end of 2009.
The EESA
followed, and has been followed by, numerous actions by the Board of Governors
of the Federal Reserve System, the U.S. Congress, Treasury, the FDIC, the SEC
and others to address the current liquidity and credit crisis that has followed
the sub-prime meltdown that commenced in 2007. These measures include
homeowner relief that encourage loan restructuring and modification; the
establishment of significant liquidity and credit facilities for financial
institutions and investment banks; the lowering of the federal funds rate;
emergency action against short selling practices; a temporary guaranty program
for money market funds; the establishment of a commercial paper funding facility
to provide back-stop liquidity to commercial paper issuers; and coordinated
international efforts to address illiquidity and other weaknesses in the banking
sector. In addition, Treasury recently announced its Financial
Stability Plan to attack the current credit crisis, and President Obama has
signed into law the American Recovery and Reinvestment Act (the
“ARRA”). The purpose of these legislative and regulatory actions is
to stabilize the U.S. banking system, improve the flow of credit and foster an
economic recovery. The regulatory and legislative initiatives
described above may not have their desired effects, however. If the
volatility in the markets continues and economic conditions fail to improve or
worsen, our business, financial condition and results of operations could be
materially and adversely affected.
Current
levels of market volatility are unprecedented.
The
capital and credit markets have been experiencing volatility and disruption for
more than a year. In recent months, the volatility and disruption has reached
unprecedented levels. In some cases, the markets have produced downward pressure
on stock prices and credit availability for certain issuers without regard to
those issuers’ underlying financial strength. If current levels of market
disruption and volatility continue or worsen, there can be no assurance that we
will not experience an adverse effect, which may be material, on our ability to
access capital, if needed or desired, and on our business, financial condition
and results of operations.
Our
allowance for loan losses may prove to be insufficient to absorb losses in our
loan portfolio.
Lending
money is a substantial part of our business. Every loan carries a certain risk
that it will not be repaid in accordance with its terms or that any underlying
collateral will not be sufficient to assure repayment. This risk is affected by,
among other things:
• cash
flow of the borrower and/or the project being financed;
•
the changes and
uncertainties as to the future value of the collateral, in the case of a
collateralized loan;
•
t
he credit history of a
particular borrower;
•
c
hanges in economic and
industry conditions; and
•
t
he duration of the
loan.
We
maintain an allowance for loan losses, which is a reserve established through a
provision for loan losses charged to expense, which we believe is appropriate to
provide for probable losses in our loan portfolio. The amount of this allowance
is determined by our management through a periodic review and consideration of
several factors, including, but not limited to:
•
our general reserve, based
on our historical default and loss experience;
•
our specific reserve,
based on our evaluation of non-performing loans and their underlying
collerateral; and
•
current macroeconomic factors and model
imprecision factors.
The
determination of the appropriate level of the allowance for loan losses
inherently involves a high degree of subjectivity and requires us to make
significant estimates of current credit risks and future trends, all of which
may undergo material changes. Continuing deterioration in economic conditions
affecting borrowers, new information regarding existing loans, identification of
additional problem loans and other factors, both within and outside of our
control, may require an increase in the allowance for loan losses. In addition,
bank regulatory agencies periodically review our allowance for loan losses and
may require an increase in the provision for possible loan losses or the
recognition of further loan charge-offs, based on judgments different than those
of management. In addition, if charge-offs in future periods exceed the
allowance for loan losses, we will need additional provisions to increase the
allowance for loan losses. Any increases in the allowance for loan losses will
result in a decrease in net income and, possibly, capital, and may have a
material adverse effect on our financial condition and results of
operations.
As of
December 31, 2008, approximately 85% of our loan portfolio consisted of
commercial-related credits, consisting of commercial loans, commercial loans
collateralized by the assignment of lease payments, commercial real estate loans
and construction loans. See
“Item 1.
Business—Lending Activities.”
Changes
in interest rates may reduce our net interest income.
Like
other financial institutions, our consolidated operating results are largely
dependent on our net interest income. Net interest income is the
difference between interest earned on loans and investments and interest expense
incurred on deposits and other borrowings. Our net interest income is
impacted by changes in market rates of interest, changes in credit spreads,
changes in the shape of the yield curve, the interest rate sensitivity of our
assets and liabilities, and prepayments on our loans and
investments.
Our
interest earning assets and interest bearing liabilities may react in different
degrees to changes in market interest rates. Interest rates on some
types of assets and liabilities may fluctuate prior to changes in broader market
interest rates, while rates on other types may lag behind. The result
of these changes to rates may result in differing spreads on interest earning
assets and interest bearing liabilities. While we take measures
intended to manage the risks from changes in market interest rates, we cannot
control or accurately predict changes in market rates of interest or be sure our
protective measures are adequate.
We
pursue acquisitions to supplement internal growth.
We pursue
a strategy of supplementing internal growth by acquiring other financial
institutions that will help us fulfill our strategic objectives and enhance our
earnings. There are risks associated with this strategy, however,
including the following:
•
We may be exposed to
potential asset quality issues or unknown or contingent liabilities of the banks
or businesses we acquire. If these issues or liabilities exceed our
estimates, our earnings and financial condition may be adversely
affected;
• Prices
at which acquisitions can be made fluctuate with market
conditions. We have experienced times during which acquisitions could
not be made in specific markets at prices our management considered acceptable
and expect that we will experience this condition in the future in one or more
markets;
•
The acquisition of other
entities generally requires integration of systems, procedures and personnel of
the acquired entity in order to make the transaction economically
feasible. This integration process is complicated and time consuming
and can also be disruptive to the customers of the acquired
business. If the integration process is not conducted successfully
and with minimal effect on the acquired business and its customers, we may not
realize the anticipated economic benefits of particular acquisitions within the
expected time frame, and we may lose customers or employees of the acquired
business;
•
We may borrow funds to
finance an acquisition, thereby increasing our leverage and diminishing our
liquidity; and
•
We have completed various
acquisitions and opened additional banking offices in the past few years that
enhanced our rate of growth. We may not be able to continue to
sustain our past rate of growth or to grow at all in the future.
Our
growth or future losses may require us to raise additional capital in the
future, but that capital may not be available when it is needed or the cost of
that capital may be very high.
We are required by federal and state
regulatory authorities to maintain adequate levels of capital to support our
operations. We anticipate that our existing capital resources will
satisfy our capital requirements for the foreseeable future. We may
at some point need to raise additional capital to support continued growth or
losses, both internally and through acquisitions.
Our ability to raise additional
capital, if needed, will depend on conditions in the capital markets at that
time, which are outside our control, and on our financial
performance. Accordingly, we cannot make assurances of our ability to
raise additional capital if needed, or if the terms will be acceptable to
us. If we cannot raise additional capital when needed, our ability to
further expand our operations through internal growth and acquisitions could be
materially impaired.
Our
wholesale funding sources may prove insufficient to replace deposits or support
our future growth.
We
must maintain sufficient
funds to respond to the needs of depositors and borrowers. As a part
of our liquidity management, we use a number of funding sources in addition to
core deposit growth and repayments and maturities of loans and
investments. As we continue to grow, we may become more dependent on
these sources, which include brokered certificates of deposit, repurchase
agreements, federal funds purchased, Federal Reserve term auction funds and
Federal Home Loan Bank advances. Adverse operating results or changes
in industry conditions could lead to an inability to replace these additional
funding sources at maturity. Our financial flexibility will be
severely constrained if we are unable to maintain our access to funding or if
adequate financing is not available to accommodate future growth at acceptable
interest rates. Finally, if we are required to rely more heavily on
more expensive funding sources to support future growth, our revenues may not
increase proportionately to cover our costs. In this case, our
operating margins and profitability would be adversely affected.
Since
our business is concentrated in the Chicago metropolitan area, a further decline
in the economy of this area may adversely affect our business.
Except for our lease banking activities
which are nationwide, our lending and deposit gathering activities are
concentrated primarily in the Chicago metropolitan area. Our success
depends on the general economic conditions of this metropolitan area and its
surrounding areas.
Many of the loans in our portfolio are
secured by real estate. Most of these loans are secured by properties
located in the Chicago metropolitan area. Continued deterioration in
the real estate markets where collateral for a mortgage loan is located could
adversely affect the borrower's ability to repay the loan and the value of the
collateral securing the loan. Real estate values are affected by
various other factors, including changes in general or regional economic
conditions, governmental rules or policies and natural disasters such as
tornados.
Adverse changes in the regional and
general economy could reduce our growth rate, impair our ability to collect
loans and generally have a negative effect on our financial condition and
results of operations.
We
may experience future goodwill impairment.
If
our estimates of the fair value of our goodwill change as a result of changes in
our business or other factors, we may determine that an impairment charge is
necessary. Estimates of fair value are based on a complex model using, among
other things, cash flows and company comparisons. To the extent our
market capitalization (market value of total common shares outstanding) is less
than the book value of our total stockholders’ equity (which it was not as of
December 31, 2008 but was as of February 27, 2009), this will be considered,
along with other pertinent factors, in determining whether goodwill is
impaired. If our estimates of future cash flows or other components
of our fair value calculations are inaccurate, the fair value of goodwill
reflected in our financial statements could be inaccurate and we could be
required to take asset impairment charges, which could have a material adverse
effect on our results of operations and financial
condition.
Non-compliance
with USA Patriot Act, Bank Secrecy Act, or other laws and regulations could
result in fines or sanctions.
The USA Patriot and Bank Secrecy Acts
require financial institutions to develop programs to prevent financial
institutions from being used for money laundering and terrorist
activities. If such activities are detected, financial institutions
are obligated to file suspicious activity reports with the U.S. Treasury
Department’s Office of Financial Crimes Enforcement Network. These
rules require financial institutions to establish procedures for identifying and
verifying the identity of customers seeking to open new financial
accounts. Failure to comply with these regulations could result in
fines or sanctions. During the last year, several banking
institutions have received large fines for non-compliance with these laws and
regulations. Although we have developed policies and procedures
designed to assist in compliance with these laws and regulations, no assurance
can be given that these policies and procedures will be effective in preventing
violations of these laws and regulations.
New
or changes in existing tax, accounting, and regulatory rules and interpretations
could significantly impact strategic initiatives, results of operations, cash
flows, and financial condition.
The financial services industry is
extensively regulated. Federal and state banking regulations are designed
primarily to protect the deposit insurance funds and consumers, not to benefit a
financial company’s shareholders. These regulations may sometimes
impose significant limitations on operations. The significant federal
and state banking regulations that affect us are described in this report under
the heading “Item 1. Business-Supervision and Regulation.” These
regulations, along with the currently existing tax, accounting, securities,
insurance, and monetary laws, regulations, rules, standards, policies, and
interpretations control the methods by which financial institutions conduct
business, implement strategic initiatives and tax compliance, and govern
financial reporting and disclosures. These laws, regulations, rules,
standards, policies, and interpretations are constantly evolving and may change
significantly over time.
Significant
legal actions could subject us to substantial liabilities.
We are from time to time subject to
claims related to our operations. These claims and legal actions,
including supervisory actions by our regulators, could involve large monetary
claims and significant defense costs. As a result, we may be exposed
to substantial liabilities, which could adversely affect our results of
operations and financial condition.
The
loss of certain key personnel could adversely affect our
operations.
Our success depends in large part on
the retention of a limited number of key management, lending and other banking
personnel. We could undergo a difficult transition period if we were
to lose the services of any of these individuals. Our success also
depends on the experience of our banking facilities' managers and lending
officers and on their relationships with the customers and communities they
serve. The loss of these key persons could negatively impact the
affected banking operations.
Because of our participation in the
CPP under the EESA, we are subject to several restrictions, including
restrictions on compensation paid to our executive officers and other
key
employees.
Our
ability
to retain
key officers and employees may be further impacted by legislation and regulation
affecting the financial services industry. On February 17, 2009, the American
Recovery and Reinvestment Act of 2009 was signed into law. Section 7001 of the
ARRA amended Section 111 of the EESA in its entirety. While the U.S. Treasury
must promulgate regulations to implement the restrictions and standards set
forth in Section 7001, the ARRA, among other things, significantly expands the
executive compensation restrictions previously imposed by the EESA. Such
restrictions apply to any entity that has received or will receive financial
assistance under the Troubled Asset Recovery Program, and will generally
continue to apply for as long as any obligation arising from financial
assistance provided under TARP, including preferred stock issued under the
Capital Purchase Program, remains outstanding. These ARRA restrictions will
not apply to any Troubled Asset Recovery Program recipient during such time when
the federal government (i) only holds any warrants to purchase common stock of
such recipient or (ii) does not hold any preferred stock or warrants to purchase
common stock of such recipient. As a result of our participation in the Capital
Purchase Program, the restrictions and standards set forth in Section 7001 of
the ARRA shall be applicable to us, subject to regulations promulgated by the
U.S. Treasury. Such restrictions and standards may further impact management's
ability to compete with financial institutions that are not subject to the same
limitations as us under Section 7001 of the ARRA.
Our business,
financial condition or results of operations could be materially adversely
affected by the loss of any of its key employees, or our inability to attract
and retain skilled employees.
Our
future success is dependent on our ability to compete effectively in the highly
competitive banking industry.
We face substantial competition in all
phases of our operations from a variety of different competitors. Our
future growth and success will depend on our ability to compete effectively in
this highly competitive environment. To date, we have grown our
business successfully by focusing on our business lines in our geographic
markets and emphasizing the high level of service and responsiveness desired by
our customers. We compete for loans, deposits and other financial
services with other commercial banks, thrifts, credit unions, brokerage houses,
mutual funds, insurance companies and specialized finance
companies. Many of our competitors offer products and services which
we do not offer, and many have substantially greater resources and lending
limits, name recognition and market presence that benefit them in attracting
business. In addition, larger competitors may be able to price loans
and deposits more aggressively than we do, and smaller newer competitors may
also be more aggressive in terms of pricing loan and deposit products than we
are in order to obtain a share of the market. Some of the financial
institutions and financial services organizations with which we compete are not
subject to the same degree of regulation as is imposed on bank holding
companies, federally insured state-chartered banks and national banks and
federal savings banks. As a result, these nonbank competitors have
certain advantages over us in accessing funding and in providing various
services.
We
are subject to security and operational risks relating to our use of technology
that could damage our reputation and our business.
Security breaches in our internet
banking activities could expose us to possible liability and damage our
reputation. Any compromise of our security also could deter customers
from using our internet banking services that involve the transmission of
confidential information. We rely on standard internet security
systems to provide the security and authentication necessary to effect secure
transmission of data. These precautions may not protect our systems
from compromises or breaches of our security measures that could result in
damage to our reputation and our business. Additionally, we outsource
our data processing to a third party. If our third party provider
encounters difficulties or if we have difficulty in communicating with such
third party, it will significantly affect our ability to adequately process and
account for customer transactions, which would significantly affect our business
operations.
None.
We conduct our business at 72 retail
banking center locations, with 71 in the Chicago metropolitan area and one in
Philadelphia, Pennsylvania. We own 37 of our banking center
facilities. The other facilities are leased for various
terms. All of our branches have ATMs, and we have 10 additional ATMs
at other locations in the Chicago metropolitan area. We believe that
all of our properties and equipment are well maintained, in good operating
condition and adequate for all of our present and anticipated
needs.
Set forth below is information relating
to each of our offices as of December 31, 2008. The total net book
value of our premises and equipment (including land and land improvements,
buildings, furniture and equipment, and buildings and leasehold improvements) at
December 31, 2008 was $186.5 million.
Principal
Business Office:
800 West
Madison Street, Chicago, Illinois
Banking
Office Locations:
Chicago
(Central)
1200
North Ashland Avenue, Chicago, Illinois (1)
936 North
Western, Chicago, Illinois
820 North
Western, Chicago, Illinois
2 South
LaSalle Street, Chicago, Illinois (1)
303 East
Wacker Drive, Chicago, Illinois (1)
One East
Wacker Drive, Chicago, Illinois (1)
One South
Wacker Drive, Chicago, Illinois (1)
33 W.
Huron St., Chicago, Illinois (1)
557 S.
State St., Chicago, Illinois (1)
1420 West
Madison Street, Chicago, Illinois (2)
Chicago
(North)
2965
North Milwaukee, Chicago, Illinois
5670
North Milwaukee, Chicago, Illinois
6443
North Sheridan Road, Chicago, Illinois (1)
Chicago
(South)
5100
South Damen Avenue, Chicago, Illinois
1618 West
18th Street, Chicago, Illinois
3030 East
92nd Street, Chicago, Illinois
Chicago
(West)
6422 West
Archer Avenue, Chicago, Illinois (2)
8300 West
Belmont, Chicago, Illinois
Chicago
(Suburban)
777 Army
Trail Rd., Addison, Illinois
2992
Indian Trail Rd., Aurora, Illinois
1050
Busse Hwy., Bensenville, Illinois (1)
455 S.
Weber Rd., Bolingbrook, Illinois
1500
Roosevelt Rd., Broadview, Illinois
5750 West
87th Street, Burbank, Illinois
7000
County Line Road, Burr Ridge, Illinois
8300 S.
Madison St., Burr Ridge, Illinois
600 W.
Plainfield Rd., Countryside, Illinois
1100 E.
Exchange Ave., Crete, Illinois (1)
2401
75th St. Darien, Illinois
14121
Chicago Road, Dolton, Illinois
1218
Sheffield Ave., Dyer Indiana (1)
990 North
York Road, Elmhurst, Illinois
685 N.
Lagrange Rd., Frankfort, Illinois (1)
356 Park
Ave., Glencoe, Illinois (1)
2823
Pfingsten Rd., Glenview, Illinois (1)
2200 N.
Waukegan Rd., Glenview, Illinois (1)
581 Elm
Pl., Highland Park, Illinois (1)
2345 West
183rd St., Homewood, Illinois (1)
13900 S.
Bell Rd., Homer Glen, Illinois
326 W.
Burlington Ave., LaGrange Park, Illinois
401 North
LaGrange Road, LaGrange Park, Illinois (1)
1151
State Street, Lemont, Illinois
6401
North Lincoln Avenue, Lincolnwood, Illinois
4010 West
Touhy Avenue, Lincolnwood, Illinois
6444 S.
College Rd., Lisle, Illinois (1)
1145 S.
Main St., Lombard, Illinois (2)
6201 West
Dempster Street, Morton Grove, Illinois
9147
Waukekgan Road, Morton Grove, Illinois
15 East
Prospect Avenue, Mount Prospect, Illinois (1)
380 W.
Diehl Rd., Naperville, Illinois
7557 West
Oakton Street, Niles, Illinois (1)
1161
Church St., Northbrook, Illinois (1)
7222 West
Cermak Road, North Riverside, Illinois (1)
1400
Sixteenth St., Oak Brook, Illinois (1)
3824 York
Rd., Oak Brook, Illinois (1)
9701 S.
Cicero Ave., Oak Lawn, Illinois
6621 West
North Ave., Oak Park, Illinois
2251 Plum
Grove Road, Palatine, Illinois
1014
Busse Highway, Park Ridge, Illinois (1)
6111
North River Road, Rosemont, Illinois (3)
200 West
Higgins Road, Schaumburg, Illinois (1)
475 East
162nd Street, South Holland, Illinois
16340
South Park Avenue, South Holland, Illinois
16145
South State St., South Holland, Illinois (1)
2607
Lincoln Hwy., St. Charles, Illinois
16255
South Harlem Avenue, Tinley Park, Illinois
18299
South Harlem Avenue, Tinley Park, Illinois
16039
South Harlem Avenue, Tinley Park, Illinois (1)
28W571
Batavia Rd., Warrenville, Illinois (1)
212 S.
West St., Wheaton, Illinois
Pennsylvania
7918
Bustleton Avenue, Philadelphia, Pennsylvania
(2)
|
Land
under building site is leased; other land and buildings are
owned.
|
(3)
|
The
Company owns the building. However, the first floor is under a
master lease agreement to a third party. The branch leases the
space from the third party.
|
We also have non-bank office locations
in Chicago, Illinois, Paramus, New Jersey, Troy, Michigan, Columbus, Ohio, and
Freeport, The Bahamas. The Chicago office is used as the headquarters
for Cedar Hill. The Paramus location is used as part of our lease
banking services. The Troy and Columbus locations are used only as
part of LaSalle’s business. The Freeport office houses the
headquarters for MBRE Holdings LLC. None of these locations provide
banking services to our customers.
We are involved from time to time as
plaintiff or defendant in various legal actions arising in the normal course of
our businesses. While the ultimate outcome of pending proceedings
cannot be predicted with certainty, it is the opinion of management, after
consultation with counsel representing us in such proceedings, that the
resolution of these proceedings should not have a material adverse effect on our
consolidated financial position or results of operation.
Item 4.
Submission of Matters to a Vote of Security
Holders
No matter was submitted to a vote of
security holders, through the solicitation of proxies or otherwise, during the
quarter ended December 31, 2008.
Item 5.
Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the
NASDAQ Global Select Market under the symbol “MBFI”. There were
approximately 1,650 holders of record of our common stock as of December 31,
2008.
The
following table presents quarterly market price information and cash dividends
paid per share for our common stock for 2008 and 2007:
|
Market
Price Range
|
|
|
High
|
|
Low
|
|
Dividends
Paid
|
2008
|
|
|
|
|
|
|
Quarter
ended December 31, 2008
|
|
$34.59
|
|
$20.43
|
|
$0.18
|
Quarter
ended September 30, 2008
|
|
$44.29
|
|
$18.76
|
|
$0.18
|
Quarter
ended June 30, 2008
|
|
$32.59
|
|
$22.47
|
|
$0.18
|
Quarter
ended March 31, 2008
|
|
$33.30
|
|
$25.41
|
|
$0.18
|
2007
|
|
|
|
|
|
|
Quarter
ended December 31, 2007
|
|
$36.52
|
|
$29.13
|
|
$0.18
|
Quarter
ended September 30, 2007
|
|
$37.88
|
|
$31.15
|
|
$0.18
|
Quarter
ended June 30, 2007
|
|
$36.53
|
|
$33.18
|
|
$0.18
|
Quarter
ended March 31, 2007
|
|
$37.89
|
|
$34.50
|
|
$0.18
|
The timing and amount of cash dividends
paid depends on our earnings, capital requirements, financial condition and
other relevant factors. In this regard, we reduced our dividend for
the first quarter of 2009 to $0.12 per share after reviewing these factors and
giving consideration to the current economic environment. The primary
source for dividends paid to stockholders is dividends paid to us from MB
Financial Bank. We have an internal policy which provides that
dividends paid to us by MB Financial Bank cannot exceed an amount that would
cause the bank’s total risk-based capital, Tier 1 risk-based capital and Tier 1
leverage capital ratios to fall below 11%, 8% and 7%,
respectively. The minimum ratios required for a bank to be considered
“well capitalized” for regulatory purposes are 10%, 6% and 5%,
respectively. In addition to adhering to our internal policy, there
are regulatory restrictions on the ability of national banks to pay
dividends. See “Item 1. Business -
Supervision
and Regulation
-
Dividends
” above and
Note 18
of notes to consolidated financial statements
contained in Item 8 of this report.
The
following table sets forth information for the three months ended December 31,
2008 with respect to repurchases of our outstanding common shares:
|
Total
Number of Shares Purchased (1)
|
|
Average
Price Paid per Share
|
|
Number
of Shares Purchased as Part Publicly Announced Plans or
Programs
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
October
1, 2008 – October 31, 2008
|
172
|
|
$29.67
|
|
-
|
|
-
|
November
1, 2008 – November 30, 2008
|
160
|
|
29.71
|
|
-
|
|
-
|
December
1, 2008 – December 31, 2008
|
38,660
|
(2)
|
26.09
|
(2)
|
-
|
|
-
|
Total
|
38,992
|
|
$26.12
|
|
-
|
|
|
(1)
|
Represents
shares of stock withheld upon vesting of restricted shares or exercise of
stock options to satisfy tax withholding
obligations.
|
(2)
|
Includes
36,817 shares surrendered to the Company in payment of the exercise price
of stock options exercised, and to satisfy tax withholding
obligations.
|
On
December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital
Purchase Program of the United States Department of the Treasury (“Treasury”),
the Company sold to Treasury 196,000 shares of the Company’s Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”),
having a liquidation preference
amount of
$1,000 per share, for a purchase price of $196.0 million in cash and (ii) issued
to Treasury a ten-year warrant to purchase 1,012,048 shares of the
Company’s common stock at an exercise price of $29.05 per share.
The
securities purchase agreement between us and Treasury provides that prior to the
earlier of (i) December 5, 2011 and (ii) the date on which all of the shares of
the Series A Preferred Stock have been redeemed by us or transferred by Treasury
to third parties, we may not, without the consent of Treasury, (a) pay a cash
dividend on our common stock of more than $0.18 per share or (b) subject to
limited exceptions, redeem, repurchase or otherwise acquire shares of our common
stock or preferred stock, other than the Series A Preferred Stock, or trust
preferred securities. In addition, under the terms of the Series A
Preferred Stock, we may not pay dividends on our common stock unless we are
current in our dividend payments on the Series A Preferred
Stock. Dividends on the Series A Preferred Stock are payable
quarterly at a rate of 5% per annum for the first five years and a rate of 9%
per annum thereafter if not redeemed prior to that time.
Stock
Performance Presentation
The following line graph shows a
comparison of the cumulative returns for the Company, the NASDAQ Market Bank
Index and an index of peer corporations selected by the Company, for the period
beginning December 31, 2003 and ending December 31, 2008. The
information assumes that $100 was invested at the closing price on December 31,
2003 in the Common Stock and each index, and that all dividends were
reinvested.
COMPARISON
OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG
MB FINANCIAL, INC.,
NASDAQ
BANK INDEX AND PEER GROUP INDEX
|
|
Fiscal
Year Ending
|
COMPANY/INDEX/MARKET
|
12/31/2003
|
12/31/2004
|
12/31/2005
|
12/31/2006
|
12/31/2007
|
12/31/2008
|
|
|
|
|
|
|
|
MB
Financial, Inc.
|
100.00
|
117.37
|
100.01
|
108.23
|
90.56
|
84.23
|
NASDAQ
Banks
|
100.00
|
110.99
|
106.18
|
117.87
|
91.85
|
69.88
|
Peer
Group
|
100.00
|
121.82
|
123.52
|
129.14
|
96.12
|
58.73
|
|
The
Peer Group is made up of the common stocks of the following
companies:
|
AMCORE
FINANCIAL INC
FIRST
MIDWEST BANCORP INC
MIDWEST
BANC HOLDINGS INC
OLD
SECOND BANCORP INC
PRIVATEBANCORP
INC
TAYLOR
CAPITAL GROUP INC
WINTRUST
FINANCIAL CORPORATION
Set forth below and on the following
page is our summary consolidated financial information and other financial
data. This information should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included herein in response to Item 7 and the consolidated financial
statements and notes thereto included herein in response to Item 8 (in
thousands, except common share data).
On November 28, 2007, the Company sold
its Union Bank subsidiary. In accordance with accounting principles
generally accepted in the United States, the assets, liabilities, earnings, and
cash flows of the business conducted by Union Bank have been shown separately as
discontinued operations in the consolidated balance sheets, consolidated
statements of income, and consolidated statements of cash flows for all periods
presented.
For purposes of the following
discussion, balances, average rate, income and expenses associated with Union
Bank have been excluded from continuing operations. See
Note 3
in the notes to consolidated financial statements
contained under Item 8. Financial Statements and Supplementary
Data.
Our summary consolidated financial
information and other financial data contain information determined by methods
other than in accordance with accounting principles generally accepted in the
United States of America (GAAP). These measures include net interest
income on a fully tax equivalent basis, net interest margin on a fully tax
equivalent basis, tangible equity to assets ratio, tangible common equity to
assets ratio, tangible common book value per share, and annualized cash return
on average tangible common equity. Our management uses these non-GAAP
measures in its analysis of our performance. The tax equivalent
adjustment to net interest income recognizes the income tax savings when
comparing taxable and tax-exempt assets and assumes a 35% tax
rate. Management believes that it is a standard practice in the
banking industry to present net interest income and net interest margin on a
fully tax equivalent basis, and accordingly believes that providing these
measures may be useful for peer comparison purposes. The other
measures exclude goodwill and other intangible assets, net of tax benefit, in
determining tangible stockholders’ equity. Management believes the
presentation of these other financial measures excluding the impact of such
items provides useful supplemental information that is helpful in understanding
our financial results, as they provide a method to assess management’s success
in utilizing our tangible capital. These disclosures should not be
viewed as substitutes for the results determined to be in accordance with GAAP,
nor are they necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
Reconciliations
of net interest margin on a fully tax equivalent basis to net interest margin
and tangible common book value per common share to common book value per common
share are contained in the “Selected Financial Data” discussed
below.
Selected
Financial Data:
|
As
of or for the Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
(1)
|
|
2005
|
|
2004
(2)
|
Statement
of Income Data:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$413,788
|
|
$457,266
|
|
$374,371
|
|
$274,522
|
|
$213,788
|
Interest
expense
|
|
192,900
|
|
244,960
|
|
186,192
|
|
105,689
|
|
65,083
|
Net
interest income
|
|
220,888
|
|
212,306
|
|
188,179
|
|
168,833
|
|
148,705
|
Provision
for loan losses
|
|
125,721
|
|
19,313
|
|
10,100
|
|
8,150
|
|
7,800
|
Net
interest income after provision for loan losses
|
|
95,167
|
|
192,993
|
|
178,079
|
|
160,683
|
|
140,905
|
Other
income
|
|
98,466
|
|
99,904
|
|
71,321
|
|
60,080
|
|
63,288
|
Other
expenses
|
|
200,787
|
|
206,836
|
|
159,075
|
|
133,511
|
|
119,518
|
Income
(loss) before income taxes
|
|
(7,154)
|
|
86,061
|
|
90,325
|
|
87,252
|
|
84,675
|
Applicable
income tax expense (benefit)
|
|
(23,318)
|
|
24,036
|
|
27,269
|
|
26,607
|
|
25,697
|
Income
from continuing operations
|
|
16,164
|
|
62,025
|
|
63,056
|
|
60,645
|
|
58,978
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before income taxes
|
|
-
|
|
50,475
|
|
6,213
|
|
6,281
|
|
6,091
|
Income
taxes
|
|
-
|
|
18,637
|
|
2,155
|
|
2,172
|
|
1,941
|
Income
from discontinued operations
|
|
-
|
|
31,838
|
|
4,058
|
|
4,109
|
|
4,150
|
Net
income
|
|
16,164
|
|
93,863
|
|
67,114
|
|
64,754
|
|
63,128
|
Dividends
on preferred shares
|
|
789
|
|
-
|
|
-
|
|
-
|
|
-
|
Net
income available to common shareholders
|
|
$
15,375
|
|
$
93,863
|
|
$
67,114
|
|
$
64,754
|
|
$
63,128
|
|
|
|
|
|
|
|
|
|
|
|
Common
Share Data:
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share from continuing operations
|
|
$ 0.44
|
|
$
1.73
|
|
$
2.02
|
|
$
2.13
|
|
$
2.11
|
Basic
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
|
$
0.14
|
|
$
0.15
|
Basic
earnings per common share
|
|
$ 0.44
|
|
$
2.61
|
|
$
2.15
|
|
$
2.27
|
|
$
2.26
|
Diluted
earnings per common share from continuing operations
|
|
$
0.44
|
|
$
1.70
|
|
$
1.99
|
|
$
2.10
|
|
$
2.07
|
Diluted
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
|
$
0.14
|
|
$
0.14
|
Diluted
earnings per common share
|
|
$ 0.44
|
|
$
2.58
|
|
$
2.12
|
|
$
2.24
|
|
$
2.21
|
Common
book value per common share
|
|
$
25.17
|
|
$
24.91
|
|
$
23.10
|
|
$
17.81
|
|
$
16.90
|
Less:
goodwill and other tangible assets, net of tax benefit, per common
share
|
|
$
11.56
|
|
$
11.43
|
|
$
10.85
|
|
$
4.66
|
|
$
4.63
|
Tangible
common book value per common share
|
|
$
13.61
|
|
$
13.48
|
|
$
12.25
|
|
$
13.15
|
|
$
12.27
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
34,706,092
|
|
35,919,900
|
|
31,156,887
|
|
28,480,909
|
|
27,886,191
|
Diluted
|
|
35,061,712
|
|
36,439,561
|
|
31,687,220
|
|
28,895,042
|
|
28,537,111
|
Dividend
payout ratio
|
|
163.64%
|
|
27.59%
|
|
30.70%
|
|
24.63%
|
|
22.09%
|
Cash
dividends per common share
|
|
$
0.72
|
|
$
0.72
|
|
$
0.66
|
|
$
0.56
|
|
$
0.50
|
(1)
|
In
2006 we acquired First Oak Brook Bancshares, Inc.
|
(2)
|
In
2004 we acquired First SecurityFed Financial,
Inc.
|
Selected Financial Data (continued):
|
|
As
of or for the Year Ended December 31,
|
(Dollars
in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
79,824
|
|
$141,248
|
|
$142,207
|
|
$
82,751
|
|
$
81,059
|
Investment
securities
|
|
1,400,376
|
|
1,241,385
|
|
1,628,348
|
|
1,316,149
|
|
1,256,526
|
Loans,
gross
|
|
6,228,563
|
|
5,615,627
|
|
4,971,494
|
|
3,480,447
|
|
3,180,820
|
Allowance
for loan losses
|
|
144,001
|
|
65,103
|
|
58,983
|
|
42,290
|
|
42,255
|
Assets
held for sale
|
|
-
|
|
-
|
|
393,608
|
|
370,103
|
|
320,190
|
Total
assets
|
|
8,819,763
|
|
7,834,703
|
|
7,978,298
|
|
5,719,065
|
|
5,253,975
|
Deposits
|
|
6,495,571
|
|
5,513,783
|
|
5,580,553
|
|
3,906,212
|
|
3,698,540
|
Short-term
and long-term borrowings
|
|
960,085
|
|
1,186,586
|
|
934,384
|
|
771,088
|
|
633,616
|
Junior
subordinated notes issued to capital trusts
|
|
158,824
|
|
159,016
|
|
179,162
|
|
123,526
|
|
87,443
|
Liabilities
held for sale
|
|
-
|
|
-
|
|
361,008
|
|
341,988
|
|
293,110
|
Stockholders’
equity
|
|
1,066,195
|
|
862,369
|
|
846,952
|
|
506,986
|
|
484,537
|
Plus:
minority interest
|
|
2,629
|
|
-
|
|
-
|
|
-
|
|
-
|
Less:
goodwill
|
|
387,069
|
|
379,047
|
|
379,047
|
|
125,010
|
|
123,628
|
Less:
other intangible assets, net of tax benefit
|
|
16,754
|
|
16,479
|
|
18,756
|
|
8,186
|
|
8,832
|
Tangible
equity
|
|
665,001
|
|
466,843
|
|
449,149
|
|
373,790
|
|
352,077
|
Less:
preferred stock
|
|
193,025
|
|
-
|
|
-
|
|
-
|
|
-
|
Tangible
common equity
|
|
$471,976
|
|
$466,843
|
|
$449,149
|
|
$373,790
|
|
$352,077
|
Performance
Ratios (continuing operations):
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
0.20%
|
|
0.78%
|
|
0.96%
|
|
1.10%
|
|
1.23%
|
Return
on average common equity
|
|
1.74%
|
|
7.29%
|
|
10.06%
|
|
12.31%
|
|
13.55%
|
Net
interest margin (1)
|
|
3.03%
|
|
3.20%
|
|
3.40%
|
|
3.62%
|
|
3.67%
|
Tax
equivalent effect
|
|
0.13%
|
|
0.12%
|
|
0.11%
|
|
0.12%
|
|
0.10%
|
Net
interest margin – fully tax equivalent basis (1)
|
|
3.16%
|
|
3.32%
|
|
3.51%
|
|
3.74%
|
|
3.77%
|
Efficiency
ratio (2)
|
|
61.19%
|
|
63.90%
|
|
59.77%
|
|
56.53%
|
|
54.18%
|
Cash
return on average tangible common equity (3)
|
|
3.65%
|
|
14.14%
|
|
16.03%
|
|
17.02%
|
|
18.26%
|
Loans
to deposits
|
|
95.89%
|
|
101.85%
|
|
89.09%
|
|
89.10%
|
|
86.00%
|
Performance
Ratios (total):
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
0.20%
|
|
1.19%
|
|
1.02%
|
|
1.17%
|
|
1.31%
|
Return
on average common equity
|
|
1.74%
|
|
11.03%
|
|
10.70%
|
|
13.15%
|
|
14.50%
|
Net
interest margin (1)
|
|
3.03%
|
|
3.22%
|
|
3.41%
|
|
3.63%
|
|
3.69%
|
Tax
equivalent effect
|
|
0.13%
|
|
0.11%
|
|
0.11%
|
|
0.11%
|
|
0.10%
|
Net
interest margin – fully tax equivalent basis (1)
|
|
3.16%
|
|
3.33%
|
|
3.52%
|
|
3.74%
|
|
3.79%
|
Efficiency
ratio (2)
|
|
61.19%
|
|
55.90%
|
|
59.61%
|
|
56.47%
|
|
55.16%
|
Cash
return on average tangible common equity (3)
|
|
3.65%
|
|
21.14%
|
|
17.04%
|
|
18.16%
|
|
19.53%
|
Loans
to deposits
|
|
95.89%
|
|
101.85%
|
|
89.10%
|
|
89.16%
|
|
84.44%
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans (4)
|
|
2.34%
|
|
0.44%
|
|
0.43%
|
|
0.58%
|
|
0.71%
|
Non-performing
assets to total assets (5)
|
|
1.71%
|
|
0.33%
|
|
0.31%
|
|
0.36%
|
|
0.44%
|
Allowance
for loan losses to total loans
|
|
2.31%
|
|
1.16%
|
|
1.19%
|
|
1.22%
|
|
1.33%
|
Allowance
for loan losses to non-performing loans (4)
|
|
98.67%
|
|
266.17%
|
|
274.75%
|
|
209.66%
|
|
187.21%
|
Net
loan charge-offs to average loans
|
|
0.79%
|
|
0.25%
|
|
0.24%
|
|
0.24%
|
|
0.23%
|
Liquidity
and Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to risk weighted assets
|
|
12.07%
|
|
9.75%
|
|
10.49%
|
|
11.70%
|
|
11.38%
|
Total
capital to risk weighted assets
|
|
14.08%
|
|
11.58%
|
|
11.80%
|
|
12.91%
|
|
12.54%
|
Tier
1 capital to average assets
|
|
9.85%
|
|
8.18%
|
|
8.39%
|
|
9.08%
|
|
8.62%
|
Average
equity to average assets
|
|
10.90%
|
|
10.76%
|
|
9.50%
|
|
8.93%
|
|
9.07%
|
Tangible
equity to assets (6)
|
|
7.90%
|
|
6.28%
|
|
5.93%
|
|
6.69%
|
|
6.87%
|
Tangible
common equity to assets (7)
|
|
5.61%
|
|
6.28%
|
|
5.93%
|
|
6.69%
|
|
6.87%
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Banking
facilities
|
|
72
|
|
73
|
|
70
|
|
45
|
|
45
|
Full
time equivalent employees (8)
|
|
1,342
|
|
1,282
|
|
1,380
|
|
1,123
|
|
1,030
|
(1)
|
Net
interest margin represents net interest income as a percentage of average
interest earning assets.
|
(2)
|
Equals
total other expense divided by the sum of net interest income on a fully
tax equivalent basis and total other income less net gains (losses) on
securities available for sale.
|
(3)
|
Net
cash flow available to common stockholders (net income plus other
intangibles amortization expense, net of tax benefit) / Average tangible
common equity (average common equity less average goodwill and average
other intangibles, net of tax
benefit).
|
(4)
|
Non-performing
loans include loans accounted for on a non-accrual basis, accruing loans
contractually past due 90 days or more as to interest or principal and
loans the terms of which have been renegotiated to provide reduction or
deferral of interest or principal because of a deterioration in the
financial position of the borrower.
|
(5)
|
Non-performing
assets include non-performing loans, other real estate owned and other
repossessed assets.
|
(6)
|
Equals
total ending shareholders’ equity plus minority interest less goodwill and
other intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax
benefit.
|
(7)
|
Equals
total ending shareholders’ equity plus minority interest less preferred
stock, goodwill and other intangibles, net of tax benefit, divided by
total assets less goodwill and other intangibles, net of tax
benefit.
|
(8)
|
Includes
Union Bank employees.
|
Selected
Financial Data (continued):
The
following table presents a reconciliation of cash return on average common
tangible equity (in thousands):
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
Net
Income available to common shareholders from continuing
|
|
|
|
|
|
|
operations
- as reported
|
|
$
15,375
|
$
62,025
|
$
63,056
|
$
60,645
|
$
58,978
|
Plus: Intangible
amortization, net of tax benefit
|
|
2,310
|
2,278
|
1,281
|
645
|
660
|
Net
cash flow available to common shareholders from continuing
operations
|
|
$
17,685
|
$
64,303
|
$
64,337
|
$
61,290
|
$
59,638
|
|
|
|
|
|
|
|
Net
Income available to common shareholders
|
|
$
15,375
|
$
93,863
|
$
67,114
|
$
64,754
|
$
63,128
|
Plus: Intangible
amortization, net of tax benefit
|
|
2,310
|
2,278
|
1,281
|
645
|
660
|
Net
cash flow available to common shareholders
|
|
$
17,685
|
$
96,141
|
$
68,395
|
$
65,399
|
$
63,788
|
|
|
|
|
|
|
|
Average
common stockholder’s equity
|
|
$884,032
|
$851,324
|
$627,069
|
$492,513
|
$435,419
|
Plus: Average
minority interest
|
|
1,516
|
-
|
-
|
-
|
-
|
Less: Average
goodwill
|
|
383,737
|
379,047
|
213,874
|
123,879
|
101,314
|
Less: Average
other intangible assets net of tax benefit
|
|
16,788
|
17,524
|
11,901
|
8,496
|
7,453
|
Average
tangible common equity
|
|
$485,023
|
$454,753
|
$401,294
|
$360,138
|
$326,652
|
The
following table sets forth our selected quarterly financial data (in thousands,
except common share data):
|
Three
Months Ended 2008
|
Three
Months Ended 2007
|
Statement
of Income Data:
|
December
|
September
|
June
|
March
|
December
|
September
|
June
|
March
|
Interest
income
|
$101,535
|
$103,061
|
$101,390
|
$107,802
|
$114,829
|
$117,172
|
$113,397
|
$111,868
|
Interest
expense
|
46,789
|
46,455
|
45,317
|
54,339
|
60,857
|
63,089
|
61,043
|
59,971
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
54,746
|
56,606
|
56,073
|
53,463
|
53,972
|
54,083
|
52,354
|
51,897
|
Provision
for loan losses
|
72,581
|
18,400
|
12,200
|
22,540
|
8,000
|
4,500
|
3,000
|
3,813
|
|
|
|
|
|
|
|
|
|
Net
interest income (loss) after provision for loan losses
|
(17,835)
|
38,206
|
43,873
|
30,923
|
45,972
|
49,583
|
49,354
|
48,084
|
|
|
|
|
|
|
|
|
|
Other
income
|
21,937
|
26,425
|
25,567
|
24,537
|
22,981
|
23,259
|
30,720
|
22,944
|
Other
expenses
|
48,271
|
52,166
|
52,126
|
48,224
|
59,130
|
48,827
|
52,073
|
46,806
|
Income
(loss) before income taxes
|
(44,169)
|
12,465
|
17,314
|
7,236
|
9,823
|
24,015
|
28,001
|
24,222
|
Income
tax expense (benefit)
|
(19,348)
|
(689)
|
(4,693)
|
1,412
|
1,890
|
6,709
|
8,394
|
7,043
|
Income
(loss) from continuing operations
|
(24,821)
|
13,154
|
22,007
|
5,824
|
7,933
|
17,306
|
19,607
|
17,179
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before income taxes
|
-
|
-
|
-
|
-
|
45,744
|
1,499
|
1,803
|
1,429
|
Income
taxes
|
-
|
-
|
-
|
-
|
17,281
|
500
|
369
|
487
|
Income
from discontinued operations
|
-
|
-
|
-
|
-
|
28,463
|
999
|
1,434
|
942
|
Net
income (loss)
|
$(24,821)
|
$
13,154
|
$
22,007
|
$ 5,824
|
$
36,396
|
$
18,305
|
$
21,041
|
$
18,121
|
Dividends
on preferred shares
|
789
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Net
income (loss) available to common shareholders
|
$(25,610)
|
$
13,154
|
$
22,007
|
$
5,824
|
$
36,396
|
$
18,305
|
$
21,041
|
$
18,121
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
|
2.86%
|
3.04%
|
3.11%
|
3.10%
|
3.16%
|
3.22%
|
3.20%
|
3.21%
|
Tax
equivalent effect
|
0.14%
|
0.14%
|
0.14%
|
0.12%
|
0.12%
|
0.12%
|
0.11%
|
0.12%
|
Net
interest margin on a fully tax equivalent basis
|
3.00%
|
3.18%
|
3.25%
|
3.22%
|
3.28%
|
3.34%
|
3.31%
|
3.33%
|
|
|
|
|
|
|
|
|
|
Common
Share Data :
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share from continuing
operations
|
$ (0.74)
|
$
0.38
|
$
0.63
|
$
0.17
|
$
0.23
|
$
0.48
|
$
0.54
|
$
0.47
|
Basic
earnings per common share from discontinued operations
|
$
-
|
$
-
|
$
-
|
$
-
|
$
0.81
|
$
0.03
|
$
0.04
|
$
0.02
|
Basic
earnings (loss) per common share
|
$
(0.74)
|
$
0.38
|
$
0.63
|
$
0.17
|
$
1.04
|
$
0.51
|
$
0.58
|
$
0.49
|
Diluted
earnings (loss) per common share from continuing
operations
|
$
(0.74)
|
$
0.38
|
$
0.63
|
$
0.17
|
$
0.22
|
$
0.48
|
$
0.53
|
$
0.46
|
Diluted
earnings per common share from discontinued operations
|
$
-
|
$
-
|
$
-
|
$
-
|
$
0.80
|
$
0.03
|
$
0.04
|
$
0.03
|
Diluted
earnings (loss) per common share
|
$
(0.74)
|
$
0.38
|
$
0.63
|
$
0.17
|
$
1.02
|
$
0.51
|
$
0.57
|
$
0.49
|
Weighted
average common shares outstanding
|
34,777,651
|
34,732,633
|
34,692,571
|
34,620,435
|
35,095,301
|
35,733,165
|
36,239,731
|
36,630,323
|
Diluted
weighted average common shares outstanding
|
35,164,585
|
35,074,297
|
35,047,596
|
34,994,731
|
35,536,449
|
36,213,532
|
36,744,473
|
37,180,928
|
Fourth
Quarter Results
We had a net loss from continuing
operations available to common shareholders of $25.6 million for the fourth
quarter of 2008, compared to net income from continuing operations available to
common shareholders of $7.9 million for the fourth quarter of
2007. The results for the fourth quarter of 2008 generated an
annualized return on average assets of (1.15%), an annualized return on average
common equity of (11.38%) and an annualized cash return on average tangible
common equity of (20.14%), compared to 0.40%, 3.68% and 7.32%, respectively, for
the same period in 2007.
Net
interest income remained stable in the fourth quarter of 2008 compared to the
fourth quarter of 2007. Our average interest earning assets increased
by $837.6 million from the fourth quarter of 2007 to the fourth quarter of
2008. The increase in average interest earning assets was offset by a
28 basis point decrease in our net interest margin, on a fully tax equivalent
basis. Average interest bearing assets increased primarily due to
organic growth. There were three primary reasons for the decline in
our net interest margin. First, much of the decline in the margin was
due to the timing of asset and liability repricing. Our interest
earning assets tend to reprice faster than our interest bearing
liabilities. There was a dramatic decrease in Fed funds and
LIBOR rates during the fourth quarter of 2008. As a result, our
overall loan yields declined significantly more than our funding costs during
the fourth quarter of 2008, as it typically takes more time for our funding
liabilities to adjust. Second, we experienced very strong core
funding growth, and as a result of this growth along with the receipt of $196.0
million from the issuance of preferred securities pursuant to the TARP Capital
Purchase Program, we built significant excess liquidity during the fourth
quarter of 2008. Third, our non-performing loans increased from $24.5
million at December 31, 2007 to $145.9 million at December 31,
2008. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations-
Asset Quality
” in
Item 7 below for further analysis of non-performing loans.
The provision for loan losses was $72.6
million in the fourth quarter of 2008 and $8.0 million in the fourth quarter of
2007. The increase in our provision from 2007 to 2008 was
primarily due to increases in non-performing and potential problem loans as a
result of declining real estate values and the continued deterioration in
economic conditions. Net charge-offs were $17.4 million in the
quarter ended December 31, 2008 compared to $4.0 million in the quarter ended
December 31, 2007. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations-
Asset
Quality
” in Item 7 below for further analysis of the allowance for loan
losses.
Other income was $21.9 million for the
quarter ended December 31, 2008, a decrease of $1.0 million, or 4.5% compared to
$23.0 million for the quarter ended December 31, 2007. Deposit
service fees increased from $6.6 million in the fourth quarter of 2007 to $7.5
million in the fourth quarter of 2008, primarily due to an increase in
commercial deposit and treasury management fees during 2008, as a result of a
lower earnings credit rate. Trust and asset management fees increased
from $2.1 million in fourth quarter of 2007 to $2.8 million in the fourth
quarter of 2008, primarily due to our Cedar Hill acquisition during the second
quarter of 2008. Net gains recognized on securities sold totaled $24
thousand in the fourth quarter of 2008, compared to a net loss of $1.5 million
on securities sold for the quarter ended December 31, 2007. These
increases were offset by decreases in brokerage fees, net gain on sale of
assets, and other operating income of $878 thousand, $1.6 million, and $1.2
million, respectively. Brokerage fees decreased primarily due to a
$447 thousand gain on the sale of our third party brokerage business recognized
in the fourth quarter of 2007, and lower sales activity during the fourth
quarter of 2008 compared to the fourth quarter of 2007. Net losses
recognized on assets sold totaled $874 thousand in the fourth quarter of 2008,
compared to net gains recognized of $723 thousand during the same period in
2007. Other operating income decreased primarily due to a decrease in
market value of assets held in trust for deferred compensation.
Other expense decreased $10.9 million
or 18.4% to $48.3 million for the quarter ended December 31, 2008 from $59.1
million for the quarter ended December 31, 2007. Salaries and
employee benefits expense decreased by $8.4 million, primarily due to an
executive separation agreement expense of $5.9 million incurred in the fourth
quarter of 2007, and a decrease in employee bonus expense during the fourth
quarter of 2008. Professional and legal expense decreased by $1.7
million, primarily due to $1.9 million of unamortized issuance costs recognized
in the fourth quarter of 2007, as a result of the redemption of trust preferred
securities in October 2007. Charitable contributions decreased $1.5
million, due to a $1.5 million contribution made in the fourth quarter of 2007
to the MB Financial Charitable Foundation, which is dedicated to strengthening
the communities where MB Financial Bank operates. Other operating
expenses increased by $1.1 million, primarily due to an increase in FDIC
insurance premiums, as our FDIC credits were fully utilized during the fourth
quarter of 2008.
Income tax benefit from continuing
operations for the three months ended December 31, 2008 was $19.3 million,
compared to income tax expense from continuing operations of $1.9 million for
the three months ended December 31, 2007. See
Note
16
of notes to consolidated financial statements contained in Item 8 of this
report for further analysis of income taxes.
Item 7.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The
following is a discussion and analysis of our financial position and results of
operations and should be read in conjunction with the information set forth
under “Item 1A Risks Factors,” “General” in Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, and our consolidated financial
statements and notes thereto appearing under Item 8 of this report.
Overview
We had net income from continuing
operations available to common shareholders of $15.4 million for the year ended
December 31, 2008 compared to $62.0 million for the year ended December 31,
2007. Fully diluted earnings per share from continuing operations
available to common shareholders for 2008 were $0.44 compared to $1.70 per share
in 2007.
The profitability of our operations
depends primarily on our net interest income after provision for loan losses,
which is the difference between interest earned on interest earning assets and
interest paid on interest bearing liabilities less provision for loan
losses. The provision for loan losses is dependent on changes in our
loan portfolio and management’s assessment of the collectability of our loan
portfolio as well as prevailing economic and market
conditions. Additionally, our net income is affected by other income
and other expenses. The provision for loan losses reflects the
amount, when added to the existing balance of the allowance for loan losses,
that we believe is adequate to cover potential credit losses in our loan
portfolio. Non-interest income or other income consists of loan
service fees, deposit service fees, net lease financing income, brokerage fees,
asset management and trust fees, net gains on the sale of investment securities
available for sale, increase in cash surrender value of life insurance, net
gains on sale of other assets, merchant card processing fees and other operating
income. Other expenses include salaries and employee benefits,
occupancy and equipment expense, computer services expense, advertising and
marketing expense, professional and legal expense, brokerage fee expense,
telecommunication expense, other intangibles amortization expense, merchant card
processing expense, charitable contributions, and other operating
expenses. Additionally, dividends on preferred shares reduce net
income available to common shareholders.
Net interest income is affected by
changes in the volume and mix of interest earning assets, interest earned on
those assets, the volume and mix of interest bearing liabilities and interest
paid on interest bearing liabilities. Other income and other expenses
are impacted by growth of operations and growth in the number of loan and
deposit accounts through both acquisitions and core banking business
growth. Growth in operations affects other expenses primarily as a
result of additional employees, branch facilities and promotional marketing
expense. Growth in the number of loan and deposit accounts affects
other income, including service fees as well as other expenses such as computer
services, supplies, postage, telecommunications and other miscellaneous
expenses.
As noted under “Item 6. Selected
Financial Data," on November 28, 2007, we completed the sale of our Oklahoma
City-based subsidiary bank, Union Bank for $76.3 million, resulting in an
after-tax gain of $28.8 million. Prior to closing, Union Bank sold to
MB Financial Bank approximately $100 million in performing loans previously
purchased from and originated by MB Financial Bank.
For purposes of the following
discussion, balances, average rate, income and expenses associated with Union
Bank, including the gain recognized on the sale, have been excluded from
continuing operations. See
Note 3
of the notes
to our consolidated financial statements for additional information on
discontinued operations.
Recent
Market Developments
In
response to the financial crises affecting the banking system and financial
markets and going concern threats to investment banks and other financial
institutions, on October 3, 2008, the Emergency Economic Stabilization Act
of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S.
Treasury was given the authority to, among other things, purchase up to
$700 billion of mortgages, mortgage-backed securities and certain other
financial instruments from financial institutions for the purpose of stabilizing
and providing liquidity to the U.S. financial markets.
On
October 14, 2008, the Secretary of the Department of the Treasury announced that
the Department of the Treasury would purchase equity stakes in a wide variety of
banks and thrifts. Under the program, known as the Troubled Asset Relief Program
Capital Purchase Program (the “TARP Capital Purchase Program”), from the $700
billion authorized by the EESA, the Treasury made $250 billion of capital
available to U.S. financial institutions in the form of preferred stock. In
conjunction with the purchase of preferred stock, the Treasury received, from
participating financial institutions, warrants to purchase common stock with an
aggregate market price equal to 15% of the preferred investment. Participating
financial institutions were required to adopt the Treasury’s standards for
executive compensation and corporate governance for the period during which the
Treasury holds equity issued under the TARP Capital Purchase
Program. On December 5, 2008, we received $196.0 million from the
issuance of preferred stock and stock warrants to the Treasury pursuant to the
TARP Capital Purchase Program.
On
November 21, 2008, the Board of Directors of the FDIC adopted a final rule
relating to the Temporary Liquidity Guarantee Program (“TLG Program”). The TLG
Program was announced by the FDIC on October 14, 2008, preceded by the
determination of systemic risk by the Secretary of the Department of Treasury
(after consultation with the President), as an initiative to counter the
system-wide crisis in the nation’s financial sector. Under the TLG Program the
FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012,
certain
newly
issued senior unsecured debt issued by participating institutions on or after
October 14, 2008, and before June 30, 2009 and (ii) provide full FDIC deposit
insurance coverage for non-interest bearing transaction deposit accounts,
Negotiable Order of Withdrawal (“NOW”) accounts paying less than 0.5% interest
per annum and Interest on Lawyers Trust Accounts held at participating FDIC
insured institutions through December 31, 2009. Coverage under the TLG Program
was available for the first 30 days without charge. The fee assessment for
coverage of senior unsecured debt ranges from 50 basis points to 100 basis
points per annum, depending on the initial maturity of the debt. The fee
assessment for the Transaction Account Guarantee Program is 10 basis points per
quarter on amounts in covered accounts exceeding $250,000. On
December 5, 2008, the Company elected not to opt-out of either guarantee
program. As of December 31, 2008, the Company did not have any debt
issued under the TLG Program. The FDIC has announced that for an
additional premium, it will extend the TLG Program through October 2009, but no
regulations have been published in proposed or final form.
Overall,
during 2008, the business environment has been adverse for many households and
businesses in the United States, including the Chicago metropolitan area, and
worldwide. It is expected that the business environment in the
Chicago metropolitan area, the United States and worldwide will continue to
deteriorate for the foreseeable future. There can be no assurance that these
conditions will improve in the near term. These conditions could adversely
affect the Company’s asset quality, results of operations and financial
condition.
At
December 31, 2008, the Company’s market capitalization (based on total shares
outstanding) was greater than our total common stockholders’ equity of $876.6
million. However, as of February 27, 2009, our market capitalization
was less than our stockholders’ common equity. Should this situation
continue to exist during 2009, the Company will consider this and other factors,
including the Company’s anticipated future cash flows, to determine whether
goodwill is impaired. No assurance can be given that the Company will
not record an impairment loss on goodwill in 2009. Because goodwill
is not included in the calculation of regulatory capital, the Company’s
regulatory capital ratios would not be affected by this potential non-cash
expense.
Critical
Accounting Policies
Our consolidated financial statements
are prepared in conformity with accounting principles generally accepted in the
United States of America and follow general practices within the industries in
which we operate. This preparation requires management to make
estimates, assumptions, and judgments that affect the amounts reported in the
financial statements and accompanying notes. These estimates,
assumptions, and judgments are based on information available as of the date of
the financial statements; accordingly, as this information changes, actual
results could differ from the estimates, assumptions, and judgments reflected in
the financial statements. Certain policies inherently have a greater
reliance on the use of estimates, assumptions, and judgments and, as such, have
a greater possibility of producing results that could be materially different
than originally reported. Management believes the following policies
are both important to the portrayal of our financial condition and results of
operations and require subjective or complex judgments; therefore, management
considers the following to be critical accounting
policies. Management has reviewed the application of these polices
with the Audit Committee of our board of directors.
Allowance for Loan
Losses.
Subject to the use of estimates, assumptions, and
judgments is management's evaluation process used to determine the adequacy of
the allowance for loan losses, which combines several factors: management's
ongoing review and grading of the loan portfolio, consideration of past loan
loss experience, trends in past due and nonperforming loans, risk
characteristics of the various classifications of loans, existing economic
conditions, the fair value of underlying collateral, and other qualitative and
quantitative factors which could affect probable credit
losses. Because current economic conditions can change and future
events are inherently difficult to predict, the anticipated amount of estimated
loan losses, and therefore the adequacy of the allowance, could change
significantly. As an integral part of their examination process,
various regulatory agencies also review the allowance for loan
losses. Such agencies may require that certain loan balances be
charged off when their credit evaluations differ from those of management or
require that adjustments be made to the allowance for loan losses, based on
their judgments about information available to them at the time of their
examination. We believe the allowance for loan losses is adequate and
properly recorded in the financial statements. See
"Allowance for Loan Losses"
section below for further
analysis.
Residual Value
of Our Direct Finance, Leveraged, and Operating Leases
.
Lease
residual value represents the present value of the estimated fair value of the
leased equipment at the termination date of the lease. Realization of
these residual values depends on many factors, including management’s use of
estimates, assumptions, and judgment to determine such
values. Several other factors outside of management’s control may
reduce the residual values realized, including general market conditions at the
time of expiration of the lease, whether there has been technological or
economic obsolescence or unusual wear and tear on, or use of, the equipment and
the cost of comparable equipment. If, upon the expiration of
a lease,
we sell the equipment and the amount realized is less than the recorded value of
the residual interest in the equipment, we will recognize a loss reflecting the
difference. On a quarterly basis, management reviews the lease
residuals for potential impairment. If we fail to realize our
aggregate recorded residual values, our financial condition and profitability
could be adversely affected. At December 31, 2008, the aggregate
residual value of the equipment leased under our direct finance, leveraged, and
operating leases totaled $46.4 million. See
Note
1
and
Note 7
of our audited consolidated financial
statements for additional information.
Income
Tax Accounting.
In
June 2006, the FASB issued FASB interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (FIN
48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold that a tax position must meet to be recognized in the
financial statements. FIN 48 also provides guidance on measurement,
recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company adopted FIN 48 as of
January 1, 2007. As a result of the implementation of FIN 48, the
Company recognized no material adjustment in the liability for uncertain income
tax positions. During the year ended December 31, 2008, the Company
increased the reserve for uncertain tax positions, which was more than offset by
a reduction in the valuation allowances on state net operating loss
carryforwards, resulting in a reduction of tax expense of $5.9
million. The Company reassessed the likelihood of the state net
operating losses being more likely than not utilized as a result of prospective
tax law changes. The potential future usage of these net operating
losses also had a direct impact on the amount of state tax contingency
reserves. The Company elects to treat interest and penalties
recognized for the underpayment of income taxes as income tax
expense. However, interest and penalties imposed by taxing
authorities on issues specifically addressed in FIN 48 will be taken out of the
tax reserves up to the amount allocated to interest and
penalties. The amount of interest and penalties exceeding the amount
allocated in the tax reserves will be treated as income tax
expense. As of December 31, 2008, the Company had $964 thousand of
accrued interest related to tax reserves. The application of income
tax law is inherently complex. Laws and regulations in this area are
voluminous and are often ambiguous. As such, we are required to make
many subjective assumptions and judgments regarding our income tax
exposures. Interpretations of and guidance surrounding income tax
laws and regulations change over time. As such, changes in our
subjective assumptions and judgments can materially affect amounts recognized in
the consolidated balance sheets and statements of income.
Fair Value of Assets and
Liabilities.
On January 1, 2008, the Company adopted SFAS 157
which defines fair value as the price that would be received to sell the
financial asset or paid to transfer the financial liability in an orderly
transaction between market participants at the measurement date.
The
degree of management judgment involved in determining the fair value of assets
and liabilities is dependent upon the availability of quoted market prices or
observable market parameters. For financial instruments that trade
actively and have quoted market prices or observable market parameters, there is
minimal subjectivity involved in measuring fair value. When
observable market prices and parameters are not fully available, management
judgment is necessary to estimate fair value. In addition, changes in
market conditions may reduce the availability of quoted prices or observable
data. For example, reduced liquidity in the capital markets or
changes in secondary market activities could result in observable market inputs
becoming unavailable. Therefore, when market data is not available,
the Company would use valuation techniques requiring more management judgment to
estimate the appropriate fair value measurement.
At
December 31, 2008, $1.3 billion of investment securities, or 15.1 percent of
total assets, were recorded at fair value on a recurring basis. All
but one of these financial instruments used valuation methodologies involving
market-based or market-derived information, collectively Level 1 and 2
measurements, to measure fair value. One investment security with a
fair value of $1.6 million at December 31, 2008, used significant unobservable
inputs that are supported by little or no market activity (Level 3) to measure
fair value. At December 31, 2008, $24.2 million, or less than one
percent of total liabilities, consisted of financial instruments recorded at
fair value on a recurring basis.
At
December 31, 2008, $91.3 million of impaired loans, or one percent of total
assets, were recorded at fair value on a nonrecurring basis. These
assets were measured using Level 3 measurements. At December 31,
2008, no liabilities were measured at fair value on a nonrecurring
basis.
See
Note 19
to the consolidated financial statements for a
complete discussion on the Company’s use of fair valuation of assets and
liabilities and the related measurement techniques.
Recent Accounting Pronouncements.
Refer to Note 1 of our consolidated financial statements for a
description of recent accounting pronouncements including the respective dates
of adoption and effects on results of operations and financial
condition.
Net
Interest Income
The following table presents, for the
periods indicated, the total dollar amount of interest income from average
interest earning assets and the related yields, as well as the interest expense
on average interest bearing liabilities, and the related costs, expressed both
in dollars and rates (dollars in thousands). The table below and the
discussion that follows contain presentations of net interest income and net
interest margin on a tax-equivalent basis, which is adjusted for the tax-favored
status of income from certain loans and investments. Net interest
margin also is presented on a tax-equivalent basis in “Item 6. Selected
Financial Data.” We believe this measure to be the preferred industry
measurement of net interest income, as it provides a relevant comparison between
taxable and non-taxable amounts.
Reconciliations of net interest income
and net interest margin on a tax-equivalent basis to net interest income and net
interest margin in accordance with accounting principles generally accepted in
the United States of America are provided in the table.
|
Year
Ended December 31,
|
|
2008
|
|
2007
|
|
2006
|
|
Average
|
|
Yield/
|
|
Average
|
|
Yield/
|
|
Average
|
|
Yield/
|
|
Balance
|
Interest
|
Rate
|
|
Balance
|
Interest
|
Rate
|
|
Balance
|
Interest
|
Rate
|
Interest
Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1) (2)
|
$5,892,845
|
$354,210
|
6.01%
|
|
$5,198,249
|
$392,526
|
7.55%
|
|
$4,082,920
|
$309,951
|
7.59%
|
Loans
exempt from federal income taxes (3)
|
59,746
|
4,408
|
7.26
|
|
9,338
|
754
|
7.96
|
|
5,027
|
373
|
7.32
|
Taxable
investment securities
|
868,700
|
40,468
|
4.66
|
|
1,037,129
|
49,675
|
4.79
|
|
1,115,585
|
51,836
|
4.65
|
Investment
securities exempt from federal income taxes (3)
|
414,234
|
23,849
|
5.66
|
|
374,025
|
21,326
|
5.62
|
|
305,930
|
17,316
|
5.58
|
Federal
funds sold
|
12,849
|
276
|
2.11
|
|
8,853
|
449
|
5.00
|
|
15,148
|
774
|
5.04
|
Other
interest bearing deposits
|
52,497
|
467
|
0.89
|
|
7,193
|
264
|
3.67
|
|
7,952
|
312
|
3.92
|
Total
interest earning assets
|
7,300,871
|
$423,678
|
5.80
|
|
6,634,787
|
$464,994
|
7.01
|
|
5,532,562
|
$380,562
|
6.88
|
Assets
available for sale
|
-
|
|
|
|
341,734
|
|
|
|
393,003
|
|
|
Non-interest
earning assets
|
939,473
|
|
|
|
934,089
|
|
|
|
676,505
|
|
|
Total
assets
|
$8,240,344
|
|
|
|
$7,910,610
|
|
|
|
$6,602,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
NOW
and money market deposit
|
$1,292,407
|
$
23,176
|
1.79%
|
|
$1,213,001
|
$
37,568
|
3.10%
|
|
$
778,795
|
$
18,475
|
2.37%
|
Savings
deposit
|
383,534
|
1,239
|
0.32
|
|
428,087
|
3,051
|
0.71
|
|
457,723
|
3,334
|
0.73
|
Time
deposits
|
3,426,332
|
126,955
|
3.71
|
|
2,986,964
|
145,030
|
4.86
|
|
2,674,892
|
119,299
|
4.46
|
Short-term
borrowings
|
681,074
|
17,590
|
2.58
|
|
812,681
|
37,354
|
4.60
|
|
631,892
|
27,944
|
4.42
|
Long-term
borrowings and junior subordinated notes
|
581,026
|
23,940
|
4.05
|
|
364,441
|
21,957
|
5.94
|
|
293,310
|
17,140
|
5.76
|
Total
interest bearing liabilities
|
6,364,373
|
$192,900
|
3.03
|
|
5,805,174
|
$244,960
|
4.22
|
|
4,836,612
|
$186,192
|
3.85
|
Non-interest
bearing deposits
|
891,072
|
|
|
|
860,557
|
|
|
|
708,100
|
|
|
Liabilities
held for sale
|
-
|
|
|
|
313,414
|
|
|
|
365,380
|
|
|
Other
non-interest bearing liabilities
|
86,884
|
|
|
|
80,141
|
|
|
|
64,909
|
|
|
Stockholders’
equity
|
898,015
|
|
|
|
851,324
|
|
|
|
627,069
|
|
|
Total
liabilities and stockholders’ equity
|
$8,240,344
|
|
|
|
$7,910,610
|
|
|
|
$6,602,070
|
|
|
Net
interest income/interest rate spread (4)
|
|
$230,778
|
2.77%
|
|
|
$220,034
|
2.79%
|
|
|
$194,370
|
3.03%
|
Taxable
equivalent adjustment
|
|
(9,890)
|
|
|
|
7,728
|
|
|
|
6,191
|
|
Net
interest income, as reported
|
|
$220,888
|
|
|
|
$212,306
|
|
|
|
$188,179
|
|
Net
interest margin (5)
|
|
|
3.03%
|
|
|
|
3.20%
|
|
|
|
3.40%
|
Tax
equivalent effect
|
|
|
0.13%
|
|
|
|
0.12%
|
|
|
|
0.11%
|
Net
interest margin on a fully tax equivalent basis (5)
|
|
|
3.16%
|
|
|
|
3.32%
|
|
|
|
3.51%
|
(1)
|
Non-accrual
loans are included in average
loans.
|
(2)
|
Interest
income includes loan origination fees of $7.0 million, $6.7 million and
$6.9 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
|
(3)
|
Non-taxable
loan and investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate.
|
(4)
|
Interest
rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities and is presented on a fully tax equivalent
basis.
|
(5)
|
Net
interest margin represents net interest income as a percentage of average
interest earning assets.
|
Net interest income on a tax equivalent
basis was $230.8 million for the year ended December 31, 2008, an increase of
$10.7 million, or 4.9% from $220.0 million for the comparable period in
2007. The growth in net interest income reflects a $666.1 million, or
10.0%, increase in average interest earning assets, and a $559.2 million, or
9.6%, increase in average interest bearing liabilities. This was
partially offset by approximately 16 basis points of margin compression on a
fully tax equivalent basis. The increase in average interest earning
assets and the increase in average interest bearing liabilities was due to
organic growth. The net interest margin, expressed on a fully tax
equivalent basis, was 3.16% for 2008 and 3.32% for
2007. The
decline in the net interest margin was primarily due to an increase in
non-performing loans during 2008, and our interest earning assets repricing
faster than our interest bearing liabilities during 2008 due to the dramatic
decrease in Fed funds and LIBOR rates during the second half of
2008.
Net interest income on a tax equivalent
basis increased $25.7 million, or 13.2%, to $220.0 million for the year ended
December 31, 2007 from $194.4 million for the year ended December 31,
2006. Tax-equivalent interest income increased by $84.4 million,
primarily due to a $1.1 billion, or 19.9%, increase in average interest earning
assets. The yield on average interest earning assets increased 13
basis points to 7.01%. The increase in average interest earning
assets was primarily due to the acquisition of FOBB in the third quarter of
2006, and organic growth. Interest expense increased by $58.8 million
due to a $968.6 million, or 20.0%, increase in average interest bearing
liabilities. The increase in average interest bearing liabilities was
primarily due to the acquisition of FOBB and organic growth. The rate
on average interest bearing liabilities increased 37 basis points to 4.22% due
to the increase in overall short-term interest rates and the acquisition of
FOBB. The net interest margin expressed on a fully tax equivalent
basis for the year ended December 31, 2007, decreased by 19 basis points from
3.51% for the year ended December 31, 2006, due to the acquisition of FOBB, the
inverted yield curve, continued tight credit spreads on loans and fierce
competition for deposits.
Volume
and Rate Analysis of Net Interest Income
The following table presents the extent
to which changes in volume and interest rates of interest earning assets and
interest bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior period rate), (ii) changes attributable to changes
in rates (changes in rates multiplied by prior period volume) and (iii) change
attributable to a combination of changes in rate and volume (change in rates
multiplied by the changes in volume) (in thousands). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to
rate.
|
|
Year
Ended December 31,
|
|
|
2008
Compared to 2007
|
|
2007
Compared to 2006
|
|
|
Change
|
|
Change
|
|
|
|
Change
|
|
Change
|
|
|
|
|
Due
to
|
|
Due
to
|
|
Total
|
|
Due
to
|
|
Due
to
|
|
Total
|
|
|
Volume
|
|
Rate
|
|
Change
|
|
Volume
|
|
Rate
|
|
Change
|
Interest
Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$47,821
|
|
$(86,137)
|
|
$(38,316)
|
|
$84,217
|
|
$
(1,642)
|
|
$82,575
|
Loans
exempt from federal income taxes (1)
|
|
3,725
|
|
(71)
|
|
3,654
|
|
345
|
|
36
|
|
381
|
Taxable
investment securities
|
|
(7,878)
|
|
(1,329)
|
|
(9,207)
|
|
(3,724)
|
|
1,563
|
|
(2,161)
|
Investment
securities exempt from federal income taxes (1)
|
|
2,313
|
|
210
|
|
2,523
|
|
3,882
|
|
128
|
|
4,010
|
Federal
funds sold
|
|
152
|
|
(325)
|
|
(173)
|
|
(319)
|
|
(6)
|
|
(325)
|
Other
interest bearing deposits
|
|
538
|
|
(335)
|
|
203
|
|
(29)
|
|
(19)
|
|
(48)
|
Total
increase in interest income
|
|
46,671
|
|
(87,987)
|
|
(41,316)
|
|
84,372
|
|
60
|
|
84,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
and money market deposit accounts
|
|
2,320
|
|
(16,712)
|
|
(14,392)
|
|
12,334
|
|
6,759
|
|
19,093
|
Savings
deposits
|
|
(290)
|
|
(1,522)
|
|
(1,812)
|
|
(212)
|
|
(71)
|
|
(283)
|
Time
deposits
|
|
19,397
|
|
(37,472)
|
|
(18,075)
|
|
14,619
|
|
11,112
|
|
25,731
|
Short-term
borrowings
|
|
(5,334)
|
|
(14,430)
|
|
(19,764)
|
|
8,272
|
|
1,138
|
|
9,410
|
Long-term
borrowings and junior subordinated notes
|
|
10,356
|
|
(8,373)
|
|
1,983
|
|
4,271
|
|
546
|
|
4,817
|
Total
increase in interest expense
|
|
26,449
|
|
(78,509)
|
|
(52,060)
|
|
39,284
|
|
19,484
|
|
58,768
|
Total
increase (decrease) in net interest income
|
|
$20,222
|
|
$
(9,478)
|
|
$
10,744
|
|
$45,088
|
|
$(19,424)
|
|
$25,664
|
(1)
|
Non-taxable
loan and investment income is presented on a fully tax equivalent basis
assuming a 35% rate.
|
Other
Income
Other income did not change
significantly from the year ended December 31, 2007 to the year ended December
31, 2008. Net gain on sale of other assets decreased by $11.2
million. During the year ended December 31, 2007, we realized a gain
of $2.4 million on the sale of artwork that was acquired as a result of our
acquisition of FOBB and a gain of $7.4 million on the sale of two real estate
properties. Brokerage fees decreased by $5.3 million, primarily 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. These decreases were partially offset by a $1.1
million gain on the sale investment securities during the year ended December
31, 2008, compared to a $3.7 million loss on the sale of investment securities
for the
comparable period in 2007. Deposit service fees increased by $4.3
million, primarily due to an increase in commercial deposit and treasury
management fees as a result of a lower earnings credit rate. Loan
service fees increased $2.9 million, primarily due to an increase in letter of
credit fees, prepayment fees and swap fees recognized during 2008 compared to
2007. Other income decreased primarily due to a decrease in market
value of assets held in trust for deferred compensation and was offset by the
same amount recorded as other expense.
Other income increased $28.6 million,
or 40.1% to $99.9 million for the year ended December 31, 2007 from $71.3
million for the year ended December 31, 2006. Merchant card
processing income increased by $9.5 million mostly due to the acquisition of
FOBB and an increase in transactions processed during the year ended December
31, 2007 compared to the same period in 2006. Net gain on sale of
other assets increased by $9.2 million. During the year ended
December 31, 2007, we also sold two properties for a total gain of $7.4
million. Also, during the year ended December 31, 2007, we realized a
gain of $2.4 million on the sale of artwork that was acquired as a result of our
acquisition of FOBB. Deposit service fees increased $4.5 million,
primarily due to the acquisition of FOBB, enhancements made to our courtesy
overdraft program, and a fee increase that was implemented during the second
quarter of 2007. Asset management and trust fees increased $3.5
million, primarily due to the acquisition of FOBB, a $909 thousand gain realized
on the sale of our land trust operations during the first quarter of 2007, an
increase in fees generated from new customers, and expansion of our existing
customer relationships during the year ended December 31, 2007 compared to the
same period in 2006. Net lease financing increased $2.5 million,
primarily due to higher residual realizations during the year ended December 31,
2007 compared to the year ended December 31, 2006. During the year
ended December 31, 2007, we sold approximately $563.9 million in investment
securities that resulted in a net loss of $3.7 million. The proceeds
were redeployed to fund loan growth, and new investment
purchases. During the second quarter of 2007 we sold our third party
brokerage business. We recognized a $947 thousand gain on the
sale.
Other
Expenses
Other expense for the year ended
December 31, 2008, decreased $6.0 million, or 2.9%, to $200.8 million, compared
to $206.8 million for the year ended December 31, 2007. Salaries and
employee benefits expense decreased $1.9 million, primarily due to an executive
separation agreement expense incurred in 2007, partially offset by the
additional commercial bankers hired from the end of the third quarter of 2007
through the second quarter of 2008 and the acquisition of Cedar
Hill. Professional and legal expense decreased by $1.4 million,
primarily due to $1.9 million of unamortized issuance costs recognized during
2007, as a result of the redemption of trust preferred securities in October
2007. Charitable contributions decreased by $4.7 million, primarily
due to contributions totaling $4.5 million made during 2007 to the MB Financial
Charitable Foundation, which is dedicated to strengthening the communities where
MB Financial Bank operates. Other operating expenses increased by $2.0 million,
primarily due to an increase in FDIC insurance premiums, as our FDIC credits
were fully utilized during 2008. As noted earlier, the decrease in
our brokerage fee expense from the year ended December 31, 2007 to the
comparable period in 2008 was primarily due to the sale of our third party
brokerage business during the second quarter of 2007.
Other expense increased by $47.8
million, or 30.0% to $206.8 million for the year ended December 31, 2007 from
$159.1 million for the year ended December 31, 2006. Salaries and
employee benefits increased by $22.5 million primarily due to the acquisition of
FOBB and organic growth, and partially due to an executive separation agreement
expense incurred in 2007. Merchant card processing expense increased
by $8.6 million due to the acquisition of FOBB and an increase in transactions
processed during the year ended December 31, 2007, compared to the same period
in 2006. Charitable contributions increased by $4.0 million primarily
due to contributions totaling $4.5 million made during 2007 to the MB Financial
Charitable Foundation, which is dedicated to strengthening the communities where
MB Financial Bank operates. Occupancy and equipment expense increased
by $4.5 million, primarily due to the acquisition of FOBB and organic
growth. On October 2, 2007, we redeemed $61.7 million of trust
preferred securities with a fixed coupon rate of 8.60%. As a result
of redeeming these securities, we recorded $1.9 million of unamortized issuance
costs that was recorded as professional and legal expense.
Income
Taxes
Income tax benefit from continuing
operations for the year ended December 31, 2008 was $23.3 million, compared to
income tax expense from continuing operations of $24.0 million for the year
ended December 31, 2007, primarily due to a decrease in taxable income and a
reduction in the valuation allowances on state net operating loss carryforwards
during 2008. During the fourth quarter of 2008, our taxable income
significantly decreased compared to prior quarters in 2008, primarily due to our
results of operations in the fourth quarter.
Income tax expense for the year ended
December 31, 2007 decreased $3.2 million to $24.0 million compared to
$27.3 million for the same period in 2006. The effective tax rates
were
27.9% and 30.2% for the years ended December 31, 2007 and 2006,
respectively. The decline in the effective tax rate was primarily due
to a higher percentage of pre-tax income generated from tax exempt sources for
the year ended December 31, 2007, compared to the same time period in
2006.
As previously stated in the “Critical
Accounting Policies” section above, income tax expense recorded in the
consolidated income statement involves interpretation and application of certain
accounting pronouncements and federal and state tax codes, and is, therefore,
considered a critical accounting policy. See
Note
1
and
Note 16
of the notes to our audited consolidated
financial statements for our income tax accounting policy and additional income
tax information.
Balance
Sheet
Total assets increased $985.1 million
or 12.6% to $8.8 billion at December 31, 2008 from December 31,
2007. Net loans increased by $534.0 million or 9.6%, to $6.1 billion
at December 31, 2008 from December 31, 2007. In aggregate, commercial
related credits grew by $587.3 million, or 13.0%. See
“Loan Portfolio”
section below for further
analysis. Investment securities increased $159.0 million or 12.8%, to
$1.4 billion at December 31, 2008 from December 31, 2007. In 2008, we
securitized $50.9 million of residential real estate loans and held those
securities in our investment portfolio. As noted earlier, we built
significant excess liquidity during the second half of 2008. As a
result, our interest bearing deposits with banks increased by $252.7 million
from December 31, 2007 to December 31, 2008.
Total liabilities increased by $778.6
million or 11.2% to $7.8 billion at December 31, 2008 from December 31,
2007. Total deposits increased by $981.8 million or 17.8% to $6.5
billion at December 31, 2008 from December 31, 2007, primarily due to increases
in certificates of deposit, brokered deposit accounts, and money market and NOW
accounts of $410.8 million, $386.3 million, and $202.4 million,
respectively. Short-term borrowings decreased $489.1
million. This decrease was primarily due to decreases in short-term
Federal Home Loan Bank advances and federal funds purchased of $339.2 million
and $165.0 million, respectively. Long-term borrowings increased
$262.6 million, primarily due to a $247.4 million increase in long-term Federal
Home Loan Bank advances.
Total stockholders’ equity increased
$203.8 million to $1.1 billion at December 31, 2008 compared to $862.4 million
at December 31, 2007. The increase was primarily due to a $192.9
million increase in preferred stock, net of discount, due to the issuance of
preferred stock pursuant to the TARP Capital Purchase Program during
2008.
Investment
Securities
The primary purpose of the investment
portfolio is to provide a source of earnings, for liquidity management purposes,
and to control interest rate risk. In managing the portfolio, we seek
safety of principal, liquidity, diversification and maximized return on
funds. See
“Liquidity”
and
“Capital Resources”
in this Item 7 and “Quantitative and
Qualitative Disclosures About Market Risk -
Asset
Liability Management
” under Item 7A.
The
following table sets forth the amortized cost and fair value of our investment
securities available for sale, by type of security as indicated (in
thousands):
|
Year-ended
December 31,
|
|
2008
|
2007
|
2006
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
$
-
|
|
$ -
|
|
$
-
|
|
$
-
|
|
$
11,287
|
|
$
11,248
|
Government
sponsored agencies
|
|
171,385
|
|
179,373
|
|
305,768
|
|
310,538
|
|
666,855
|
|
665,435
|
States
and political subdivisions
|
|
417,608
|
|
427,999
|
|
407,973
|
|
412,302
|
|
369,204
|
|
370,036
|
Mortgage-backed
securities
|
|
682,679
|
|
690,285
|
|
435,743
|
|
438,056
|
|
505,241
|
|
495,215
|
Corporate
bonds
|
|
34,546
|
|
34,565
|
|
12,797
|
|
13,057
|
|
27,477
|
|
27,316
|
Equity
securities
|
|
3,595
|
|
3,606
|
|
3,446
|
|
3,460
|
|
7,069
|
|
6,993
|
Debt
securities issued by foreign governments
|
|
301
|
|
302
|
|
299
|
|
301
|
|
547
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$1,310,114
|
|
$1,336,130
|
|
$1,166,026
|
|
$1,177,714
|
|
$1,587,680
|
|
$1,576,790
|
U.S. Treasury securities and securities
of government sponsored agencies generally consist of fixed rate securities with
maturities of three months to three years. States and political
subdivisions investment securities consist of investment grade and local
non-rated issues with maturities of one year to fifteen years. The
average expected life of mortgage-backed securities generally ranges between one
and four years. Corporate bonds typically have terms of five years or
less.
Securities of a single issuer which had
book values in excess of 10.0% of our stockholder’s equity at December 31, 2008,
other than government sponsored agencies and corporations, included
mortgage-backed securities issued by the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA
issued mortgage-backed securities had an aggregate book value and market value
of $164.3 million and $165.7 million, respectively, at December 31,
2008. FHLMC issued mortgage-backed securities had an aggregate book
value and market value of $445.5 million and $451.5 million, respectively, at
December 31, 2008. 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.
The following table sets forth certain
information regarding contractual maturities and the weighted average yields of
our investment securities available for sale at December 31, 2008 (dollars in
thousands):
|
|
|
|
Due
after One
|
Due
after Five
|
|
|
|
|
Due
in One
|
Year
through
|
Years
through
|
Due
after
|
|
Year
or Less
|
Five
Years
|
Ten
Years
|
Ten
Years
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Balance
|
Yield
|
|
Balance
|
Yield
|
|
Balance
|
Yield
|
|
Balance
|
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
$ -
|
-
|
|
$ -
|
-
|
|
$
-
|
-
|
|
$ -
|
-
|
Government
sponsored agencies
|
|
34,425
|
4.00%
|
|
124,738
|
3.56%
|
|
20,210
|
4.61%
|
|
-
|
-
|
States
and political subdivision (1)
|
|
19,073
|
5.53%
|
|
79,392
|
5.62%
|
|
263,279
|
5.79%
|
|
66,255
|
6.48%
|
Mortgage-backed
securities (2)
|
|
12
|
8.11%
|
|
22,294
|
4.75%
|
|
138,241
|
4.92%
|
|
529,738
|
4.90%
|
Corporate
bonds
|
|
3,023
|
3.00%
|
|
25,161
|
4.60%
|
|
-
|
-
|
|
6,381
|
9.25%
|
Equity
securities
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
3,606
|
4.07%
|
Debt
securities issued by foreign governments
|
|
302
|
6.63%
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
Total
|
|
$56,835
|
4.48%
|
|
$251,585
|
4.42%
|
|
$421,730
|
5.45%
|
|
$605,980
|
5.08%
|
(1)
|
Yield
is reflected on a fully tax equivalent basis utilizing a 35% tax
rate.
|
(2)
|
These
securities are presented based upon contractual
maturities.
|
The
following table sets forth the composition of our loan portfolio (dollars in
thousands):
|
|
|
At
December 31,
|
|
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
|
|
|
%
of
|
|
%
of
|
|
%
of
|
|
%
of
|
|
%
of
|
|
|
|
Amount
|
Total
|
Amount
|
Total
|
Amount
|
Total
|
Amount
|
Total
|
Amount
|
Total
|
Commercial
related credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$1,522,380
|
24%
|
$1,323,455
|
24%
|
$1,020,707
|
21%
|
$
767,392
|
22%
|
$
693,219
|
22%
|
|
Commercial
loans collateralized by
|
|
|
|
|
|
|
|
|
|
|
|
|
assignment
of lease payments
|
|
649,918
|
10%
|
553,138
|
10%
|
392,063
|
8%
|
271,945
|
8%
|
250,595
|
8%
|
|
Commercial
real estate
|
|
2,353,261
|
38%
|
1,974,370
|
36%
|
1,804,103
|
36%
|
1,465,875
|
42%
|
1,313,619
|
42%
|
|
Construction
real estate
|
|
757,900
|
13%
|
845,158
|
14%
|
851,896
|
17%
|
511,379
|
15%
|
395,864
|
12%
|
Total
commercial related credits
|
|
5,283,459
|
85%
|
4,696,121
|
84%
|
4,068,769
|
82%
|
3,016,591
|
87%
|
2,653,297
|
83%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
295,336
|
5%
|
354,874
|
6%
|
360,183
|
7%
|
224,006
|
6%
|
269,457
|
8%
|
|
Indirect
vehicle
|
|
189,227
|
3%
|
146,311
|
3%
|
110,573
|
2%
|
56
|
0%
|
215
|
0%
|
|
Home
equity
|
|
401,029
|
6%
|
365,589
|
6%
|
381,612
|
8%
|
222,419
|
6%
|
242,231
|
7%
|
|
Consumer
loans
|
|
59,512
|
1%
|
52,732
|
1%
|
50,357
|
1%
|
17,375
|
1%
|
15,620
|
1%
|
Total
other loans
|
|
945,104
|
15%
|
919,506
|
16%
|
902,725
|
18%
|
463,856
|
13%
|
527,523
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loans (1)
|
|
6,228,563
|
100%
|
5,615,627
|
100%
|
4,971,494
|
100%
|
3,480,447
|
100%
|
3,180,820
|
100%
|
|
Allowance
for loan losses
|
|
(144,001)
|
|
(65,103)
|
|
(58,983)
|
|
(42,290)
|
|
(42,255)
|
|
Net
loans
|
|
$6,084,562
|
|
$5,550,524
|
|
$4,912,511
|
|
$3,438,157
|
|
$3,138,565
|
|
(1)
|
Gross
loan balances at December 31, 2008, 2007, 2006, 2005, and 2004 are net of
unearned income, including net deferred loans fees of $4.5 million, $3.7
million, $3.0 million, $3.2 million, and $4.1 million,
respectively.
|
Total loans and total commercial
related credits increased from 2007 to 2008 by approximately $612.9 million and
$587.3 million, respectively. Commercial related credits grew
primarily due to organic growth in both existing customer and new customer loan
demand resulting from the Company’s focus on marketing and new business
development. As of
December
31, 2008 and 2007, there were $448.9 million and $571.8 million, respectively,
of residential construction loans in our construction real estate
portfolio. The remainder of construction real estate loans consisted
of commercial construction loans.
Total loans and total commercial
related credits increased from 2006 to 2007 by approximately $644.1 million and
$627.4 million, respectively. Commercial related credits grew
primarily due to organic growth in both existing customer and new customer loan
demand resulting from the Company’s focus on marketing and new business
development. Approximately $100.0 million of the increase was due to
the purchase of loans by MB Financial Bank from Union Bank, prior to the closing
of the Union Bank sale, as noted earlier.
Loan
Maturities
The following table sets forth the
scheduled repayment information for our loan portfolio at December 31, 2008 (in
thousands). Loans having no stated schedule of repayments and no
stated maturity, and overdrafts are reported as due in one year or
less.
|
|
Due
in One Year
|
|
Due
after One Year
|
|
Due
after
|
|
|
|
|
Or
Less
|
|
Through
Five Years
|
|
Five
Years
|
|
|
|
|
Fixed
|
|
Floating
|
|
Fixed
|
|
Floating
|
|
Fixed
|
|
Floating
|
|
|
|
|
Rate
|
|
Rate
|
|
Rate
|
|
Rate
|
|
Rate
|
|
Rate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
103,018
|
|
$1,085,201
|
|
$
110,115
|
|
$212,620
|
|
$11,290
|
|
$
136
|
|
$1,522,380
|
Commercial
loans collateralized by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assignment
of lease payments
|
|
279,324
|
|
-
|
|
368,580
|
|
-
|
|
2,014
|
|
-
|
|
649,918
|
Commercial
real estate
|
|
460,027
|
|
606,420
|
|
1,047,037
|
|
172,867
|
|
51,845
|
|
15,065
|
|
2,353,261
|
Construction
real estate
|
|
107,836
|
|
601,349
|
|
15,618
|
|
30,217
|
|
46
|
|
2,833
|
|
757,899
|
Residential
real estate
|
|
45,907
|
|
35,790
|
|
53,158
|
|
126,730
|
|
27,737
|
|
6,014
|
|
295,336
|
Indirect
vehicle
|
|
76,385
|
|
-
|
|
111,877
|
|
-
|
|
965
|
|
-
|
|
189,227
|
Home
equity
|
|
15,280
|
|
368,739
|
|
16,306
|
|
-
|
|
704
|
|
-
|
|
401,029
|
Consumer
loans
|
|
12,438
|
|
23,730
|
|
3,735
|
|
17,747
|
|
12
|
|
1,851
|
|
59,513
|
Gross
loans
|
|
$1,100,215
|
|
$2,721,229
|
|
$1,726,426
|
|
$560,181
|
|
$94,613
|
|
$25,899
|
|
$6,228,563
|
The following table sets forth the
amounts of non-performing loans and non-performing assets at the dates indicated
(dollars in thousands):
|
At
December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
Non-performing
loans:
|
|
|
|
|
|
|
|
|
|
|
Non-accruing
loans
|
|
$145,936
|
|
$24,459
|
|
$21,164
|
|
$19,850
|
|
$22,386
|
Loans
90 days or more past due, still accruing interest
|
|
-
|
|
-
|
|
304
|
|
321
|
|
185
|
Total
non-performing loans
|
|
145,936
|
|
24,459
|
|
21,468
|
|
20,171
|
|
22,571
|
Other
real estate owned
|
|
4,366
|
|
1,120
|
|
2,844
|
|
354
|
|
384
|
Repossessed
vehicles
|
|
356
|
|
179
|
|
192
|
|
-
|
|
-
|
Total
non-performing assets
|
|
$150,658
|
|
$25,758
|
|
$24,504
|
|
$20,525
|
|
$22,955
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
2.34%
|
|
0.44%
|
|
0.43%
|
|
0.58%
|
|
0.71%
|
Allowance
for loan losses to non-performing loans
|
|
98.67%
|
|
266.17%
|
|
274.75%
|
|
209.66%
|
|
187.21%
|
Total
non-performing assets to total assets
|
|
1.71%
|
|
0.33%
|
|
0.31%
|
|
0.36%
|
|
0.44%
|
The
following table presents data related to non-performing loans by dollar amount
and category at December 31, 2008 (dollar amounts in thousands):
|
|
Commercial
and Lease Loans
|
|
Construction
Real Estate Loans
|
|
Commercial
Real Estate Loans
|
|
Other
Loans
|
|
Total
Loans
|
Dollar
Range
|
|
Number
of Borrowers
|
Amount
|
|
Number
of Borrowers
|
Amount
|
|
Number
of Borrowers
|
Amount
|
|
Amount
|
|
Amount
|
$5.0
million or more
|
|
1
|
$ 10,851
|
|
6
|
$ 50,959
|
|
-
|
$ -
|
|
$ -
|
|
$ 61,810
|
$3.0
million to $4.9 million
|
|
-
|
-
|
|
7
|
23,647
|
|
3
|
10,572
|
|
-
|
|
34,219
|
$1.5
million to $2.9 million
|
|
-
|
-
|
|
1
|
2,118
|
|
4
|
7,345
|
|
-
|
|
9,463
|
Under
$1.5 million
|
|
16
|
9,167
|
|
16
|
9,323
|
|
33
|
14,141
|
|
7,813
|
|
40,444
|
|
|
17
|
$ 20,018
|
|
30
|
$ 86,047
|
|
40
|
$ 32,058
|
|
$ 7,813
|
|
$ 145,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of individual loan category
|
0.92%
|
|
|
11.35%
|
|
|
1.36%
|
|
0.83%
|
|
2.34%
|
The
following table presents data related to non-performing loans by dollar amount
and category at December 31, 2007 (dollar amounts in thousands):
|
|
Commercial
and Lease Loans
|
|
Construction
Real Estate Loans
|
|
Commercial
Real Estate Loans
|
|
Other
Loans
|
|
Total
Loans
|
Dollar
Range
|
|
Number
of Borrowers
|
Amount
|
|
Number
of Borrowers
|
Amount
|
|
Number
of Borrowers
|
Amount
|
|
Amount
|
|
Amount
|
$5.0
million or more
|
|
-
|
$ -
|
|
-
|
$ -
|
|
1
|
$ 8,484
|
|
$ -
|
|
$ 8,484
|
$3.0
million to $4.9 million
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
-
|
|
-
|
$1.5
million to $2.9 million
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
-
|
|
-
|
Under
$1.5 million
|
|
12
|
3,201
|
|
13
|
5,366
|
|
1
|
603
|
|
6,805
|
|
15,975
|
|
|
12
|
$ 3,201
|
|
13
|
$ 5,366
|
|
2
|
$ 9,087
|
|
$ 6,805
|
|
$ 24,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of individual loan category
|
0.17%
|
|
|
0.63%
|
|
|
0.46%
|
|
0.74%
|
|
0.44%
|
The
aggregate principal amount of non-performing loans was $145.9 million as of
December 31, 2008, compared to $24.5 million as of December 31,
2007. Most of the increase was attributable to non-performing
construction real estate and commercial real estate
loans. Non-performing construction real estate loans increased by
$80.7 million, as a result of the continued weak residential construction
market. Non-performing commercial real estate loans increased $23.0
million, primarily due to the economic slowdown during
2008. Non-performing commercial and lease loans increased by $16.8
million from December 31, 2007 to December 31, 2008, primarily due to one
commercial credit.
Non-performing
Assets
Non-performing loans include loans
accounted for on a non-accrual basis, accruing loans contractually past due 90
days or more as to interest or principal and loans whose terms have been
restructured to provide reduction or deferral of interest or principal because
of a deterioration in the financial position of the
borrower. Management reviews the loan portfolio for problem loans on
an ongoing basis. During the ordinary course of business, management
becomes aware of borrowers that may not be able to meet the contractual
requirements of loan agreements. These loans are placed under close
supervision with consideration given to placing the loan on non-accrual status,
increasing the allowance for loan losses and (if appropriate) partial or full
charge-off. After a loan is placed on non-accrual status, any
interest previously accrued but not yet collected is reversed against current
income. If interest payments are received on non-accrual loans, these
payments will be applied to principal and not taken into
income. Loans will not be placed back on accrual status unless back
interest and principal payments are made. If interest on non-accrual
loans had been accrued, such income would have amounted to approximately $4.6
million and $1.6 million for the years ended December 31, 2008 and 2007,
respectively. Our general policy is to place loans 90 days past due
on non-accrual status.
Non-performing assets consists of
non-performing loans as well as other repossessed assets and other real estate
owned. Other real estate owned represents properties acquired through
foreclosure or other proceedings and is recorded at the lower of cost or fair
value less the estimated cost of disposal. Other real estate owned is
evaluated regularly to ensure that the recorded amount is supported by its
current fair value. Valuation allowances to reduce the carrying
amount to fair value less estimated costs of disposal are recorded as
necessary. Revenues and expenses from the operations of other real
estate owned and changes in the valuation are included in other income and other
expenses on the income statement. Other repossessed assets primarily
consist of repossessed vehicles. Losses on repossessed vehicles are
charged-off to the allowance when title is taken and the vehicle is
valued.
Once the Bank obtains title, repossessed vehicles are not included in loans, but
are classified as “other assets” on the consolidated balance sheets. The typical
holding period for resale of repossessed automobiles is less than 90 days unless
significant repairs to the vehicle are needed which occasionally results in a
longer holding period. The typical holding period for motorcycles can
be more than 90 days as well, as the average motorcycle re-sale period is longer
than the average automobile re-sale period. The longer average period
for motorcycles is a result of cyclical trends in the motorcycle
market.
Of the $24.5 million of non-performing
loans as of December 31, 2007, only $6.2 million still remained non-performing
at December 31, 2008. As a result, $139.7 million of the $145.9
million of the non-performing loans as of December 31, 2008 were loans that
migrated to non-performing status during 2008. Most of the increase
was attributable to non-performing commercial real estate and construction real
estate loans.
Management believes the allowance for
loan losses accounting policy is critical to the portrayal and understanding of
our financial condition and results of operations. Selection and
application of this “critical accounting policy” involves judgments, estimates,
and uncertainties that are subject to change. In the event that
different assumptions or conditions were to prevail, and depending upon the
severity of such changes, materially different financial condition or results of
operations is a reasonable possibility.
We
maintain our allowance for loan losses at a level that management believes is
appropriate to absorb probable losses on existing loans based on an evaluation
of the collectability of loans, underlying collateral and prior loss
experience.
Our
allowance for loan losses is comprised of three elements: a general loss
reserve; a specific reserve for impaired loans; and a reserve for
smaller-balance homogenous loans. Each element is discussed
below.
General Loss Reserve
. We
maintain a general loan loss reserve for the four categories of
commercial-related loans in our portfolio - commercial loans, commercial loans
collateralized by the assignment of lease payments (lease loans), commercial
real estate loans and construction real estate loans. We use a loan
loss reserve model that incorporates the migration of loan risk rating and
historical default data over a multi-year period. Under our loan risk
rating system, each loan, with the exception of those included in large groups
of smaller-balance homogeneous loans, is risk rated between one and nine by the
originating loan officer, Senior Credit Management, Loan Review or any loan
committee. A loan rated one represents those loans least likely to
default and nine represents those most likely to default. The
probability of loans defaulting for each risk rating, sometimes referred to as
default factors, are estimated based on the frequency with which loans migrate
from one risk rating to another and to default status over
time. Estimated loan default factors are multiplied by individual
loan balances in each risk-rating category and again multiplied by an historical
loss given default estimate for each loan type (which incorporates estimated
recoveries) to determine an appropriate level of allowance by loan
type. This approach is applied to the commercial, commercial real
estate and construction real estate components of the
portfolio. Moody’s Corporation migration factors, rather than the
Company’s actual loss and migration experience, are used to develop estimated
default factors for lease loans, since we do not have sufficient loss experience
to develop statistically reliable factors of our own.
The general allowance for loan losses
also includes estimated losses resulting from macroeconomic factors and
imprecision of our loan loss model. Macroeconomic factors adjust the
allowance for loan losses upward or downward based on the current point in the
economic cycle and are applied to the loan loss model through a separate
allowance element for the commercial, commercial real estate, construction real
estate and lease loan components. To determine our macroeconomic
factors, we use specific economic data that has a statistical correlation to
loan losses. We annually review this data to determine that such a
correlation continues to exist.
Model imprecision accounts for the
possibility that our limited loan loss history may result in inaccurate
estimated default and loss given default factors. Factors for
imprecision modify estimated default factors calculated by our migration
analysis and are based on the standard deviation of each estimated default
factor. We do not apply imprecision factors to the lease portfolio,
as we use migration factors that incorporate approximately 30 years of data from
Moody’s Corporation.
At each quarter end, potential problem
loans are reviewed individually, with adjustments made to the general calculated
reserve for each loan as deemed necessary. Specific adjustments are
made depending on expected cash flows and/or the value of the collateral
securing the loan.
The general loss reserve was $87.0 million as of December 31, 2008, and $56.2
million as of December 31, 2007. The increase in the general loss
reserve was primarily due to the migration of performing loans from lower risk
rating to higher risk rating during 2008. This resulted in a higher
default rate for performing loans. Additionally, worsening
macroeconomic factors, loan growth during 2008, and an increase in potential
problem loans contributed to the increase in the general reserve. See
discussion below in
“Potential Problem
Loans”
.
Specific Reserves
. Our
allowance for loan losses also includes specific reserves on impaired
loans. A loan is considered to be impaired when management believes,
after considering collection efforts and other factors, the borrower’s financial
condition is such that the collection of all contractual principal and interest
payments due according to contractual terms is doubtful. The total
specific reserve component of the allowance was $52.1 million as of December 31,
2008 and $6.0 million as of December 31, 2007. The increase in
specific reserve relates to the increase in impaired loans in the portfolio from
December 31, 2007, and deterioration in value of underlying collateral of
construction real estate loans.
Smaller Balance Homogenous
Loans
. Pools of homogeneous loans with similar risk and loss
characteristics are also assessed for probable losses. These loan
pools include consumer, residential real estate, home equity and indirect
vehicle loans. Migration probabilities obtained from past due roll
rate analyses are applied to current balances to forecast charge-offs over a one
year time horizon. The reserves for smaller balance homogenous loans
totaled $4.9 million at December 31, 2008, and $2.9 million at December 31,
2007.
Prior to December 31, 2005, we
designated a portion of our allowance for loan losses as unallocated to account
for macroeconomic and precision uncertainties. During 2005, the
methodology used to determine our allowance for loan losses was refined and
macroeconomic and imprecision factors were calculated for each loan
type. As a result, the portion of our reserve previously designated
as unallocated was fully allocated to specific loan categories as of December
31, 2005. This change accounts for a majority of the increase in the
allowance for loan losses for each loan type when comparing year-end 2005 to
prior periods. In the past, unallocated reserves represented model
imprecision and macroeconomic factors for the entire portfolio. The
allocation of unallocated reserves to the various components of the loan
portfolio was done to more accurately present the allowance for loan losses by
ascribing macroeconomic and imprecision factors to each loan category rather
than the loan portfolio as a whole.
Loan quality is monitored closely by
management and is reviewed by MB Financial Bank’s board of directors at its
regularly scheduled meetings. We consistently apply our methodology for
determining the appropriateness of the allowance for loan losses, but may adjust
our methodologies and assumptions based on historical information related to
charge-offs, management's evaluation of the loan portfolio, and macroeconomic
factors.
The
following table presents an analysis of the allowance for loan losses for the
years presented (dollars in thousands):
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
65,103
|
|
$
58,983
|
|
$
42,290
|
|
$
42,255
|
|
$
37,730
|
Additions
from acquisitions
|
|
-
|
|
-
|
|
16,425
|
|
-
|
|
4,052
|
Allowance
related to bank subsidiary sold
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Provision
for loan losses
|
|
125,721
|
|
19,313
|
|
10,100
|
|
8,150
|
|
7,800
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
(13,653)
|
|
(7,072)
|
|
(10,160)
|
|
(4,007)
|
|
(5,584)
|
Commercial
loans collateralized by assignment of lease payments
|
|
(1,258)
|
|
(515)
|
|
(246)
|
|
(826)
|
|
(1,538)
|
Commercial
real estate
|
|
(14,872)
|
|
(3,471)
|
|
(1,671)
|
|
(1,052)
|
|
(1,508)
|
Residential
real estate
|
|
(550)
|
|
(1,075)
|
|
(434)
|
|
(118)
|
|
(98)
|
Construction
real estate
|
|
(14,940)
|
|
(2,294)
|
|
-
|
|
(3,824)
|
|
(514)
|
Indirect
vehicles
|
|
(2,109)
|
|
(1,193)
|
|
(307)
|
|
-
|
|
-
|
Home
equity
|
|
(1,801)
|
|
(194)
|
|
(427)
|
|
(149)
|
|
(276)
|
Consumer
loans
|
|
(642)
|
|
(492)
|
|
(555)
|
|
(199)
|
|
(459)
|
Total
charge-offs
|
|
(49,825)
|
|
(16,306)
|
|
(13,800)
|
|
(10,175)
|
|
(9,977)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
891
|
|
1,265
|
|
2,402
|
|
954
|
|
1,488
|
Commercial
loans collateralized by assignment of lease payments
|
|
67
|
|
979
|
|
40
|
|
329
|
|
105
|
Commercial
real estate
|
|
266
|
|
37
|
|
378
|
|
51
|
|
35
|
Residential
real estate
|
|
29
|
|
20
|
|
26
|
|
97
|
|
45
|
Construction
real estate
|
|
951
|
|
38
|
|
490
|
|
-
|
|
28
|
Indirect
vehicles
|
|
625
|
|
389
|
|
4
|
|
-
|
|
-
|
Home
equity
|
|
132
|
|
344
|
|
481
|
|
495
|
|
611
|
Consumer
loans
|
|
41
|
|
41
|
|
147
|
|
134
|
|
338
|
Total
recoveries
|
|
3,002
|
|
3,113
|
|
3,968
|
|
2,060
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
(46,823)
|
|
(13,193)
|
|
(9,832)
|
|
(8,115)
|
|
(7,327)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31,
|
|
$144,001
|
|
$65,103
|
|
$58,983
|
|
$42,290
|
|
$42,255
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans at December 31,
|
|
$6,228,563
|
|
$5,615,627
|
|
$4,971,494
|
|
$3,480,447
|
|
$3,180,820
|
Ratio
of allowance to total loans
|
|
2.31%
|
|
1.16%
|
|
1.19%
|
|
1.22%
|
|
1.33%
|
Ratio
of net charge-offs to average loans
|
|
0.79%
|
|
0.25%
|
|
0.24%
|
|
0.24%
|
|
0.25%
|
Provision for
loan losses increased by $106.4 million to $125.7 million for the year
ended December 31, 2008 from $19.3 million in the same period of
2007. The increase in our provision for loan losses was
primarily due the migration of performing loans from lower risk rating to
higher risk rating during 2008, worsening macroeconomic factors, and the
increases in non-performing loans and net charge-offs. Also
factoring into our provision was our loan growth during the year ended
December 31, 2008.
|
Additionally,
the underlying value of collateral on impaired loans deteriorated during the
fourth quarter of 2008. Overall, the business environment has been
adverse for many households and businesses in the United States, including the
Chicago metropolitan area. The business environment significantly
declined during the fourth quarter of 2008 as a result of significant job losses
and housing foreclosures. Single family homes, condominiums, retail
property, manufacturing property, and vacant land all experienced a significant
decrease in demand due to the worsening economic environment during the fourth
quarter of 2008. As a result, significant declines in the values of
single family homes and other properties occurred during the fourth
quarter.
The
following table sets forth the allocation of the allowance for loan losses for
the years presented and the percentage of loans in each category to total
loans. The purpose of this allocation is only for internal analysis
of the adequacy of the allowance and is not an indication of expected or
anticipated losses (dollars in thousands):
|
At
December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
|
%
of Total
|
|
%
of Total
|
|
%
of Total
|
|
%
of Total
|
|
%
of Total
|
|
Amount
|
Loans
|
Amount
|
Loans
|
Amount
|
Loans
|
Amount
|
Loans
|
Amount
|
Loans
|
Commercial
loans
|
|
$
40,217
|
24%
|
|
$15,627
|
24%
|
|
$20,918
|
21%
|
|
$14,918
|
22%
|
|
$10,394
|
22%
|
Commercial
loans collateralized by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assignment
of lease payments
|
|
10,245
|
10%
|
|
7,854
|
10%
|
|
8,897
|
8%
|
|
6,868
|
8%
|
|
6,560
|
8%
|
Commercial
real estate
|
|
31,241
|
38%
|
|
15,653
|
36%
|
|
10,458
|
36%
|
|
11,687
|
42%
|
|
9,715
|
42%
|
Residential
real estate
|
|
1,623
|
5%
|
|
1,430
|
6%
|
|
1,430
|
7%
|
|
776
|
6%
|
|
779
|
8%
|
Construction
real estate
|
|
57,443
|
13%
|
|
23,039
|
14%
|
|
15,780
|
17%
|
|
7,491
|
15%
|
|
4,416
|
12%
|
Consumer
loans and other
|
|
3,232
|
10%
|
|
1,500
|
10%
|
|
1,621
|
11%
|
|
550
|
7%
|
|
571
|
8%
|
Unallocated
(1)
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
9,820
|
-
|
Total
|
|
$144,001
|
100%
|
|
$65,103
|
100%
|
|
$58,983
|
100%
|
|
$42,290
|
100%
|
|
$42,255
|
100%
|
(1) In
2005, the methodology was refined to fully allocate all components of the
loan loss reserve.
|
Additions to the allowance for loan
losses, which are charged to earnings through the provision for loan losses, are
determined based on a variety of factors, including specific reserves, current
loan risk ratings, delinquent loans, historical loss experience and economic
conditions in our market area. In addition, federal regulatory
authorities, as part of the examination process, periodically review our
allowance for loan losses. The regulators may require us to record
adjustments to the allowance level based upon their assessment of the
information available to them at the time of examination. Although
management believes the allowance for loan losses is sufficient to cover
probable losses inherent in the loan portfolio, there can be no assurance that
the allowance will prove sufficient to cover actual loan losses. In
2008, the allocation of the allowance for loan losses increased in commercial,
commercial real estate and construction real estate loans, due to the migration
of performing loans from lower risk rating to higher risk rating during 2008,
worsening macroeconomic factors, and the increases in non-performing loans and
potential problem loans during the year ended December 31, 2008. See
discussion below in
“Potential Problem
Loans”
.
We utilize an internal asset
classification system as a means of reporting problem and potential problem
assets. At our scheduled meetings of the board of directors of MB
Financial Bank, a watch list is presented, showing significant loan
relationships listed as “Special Mention,” “Substandard,” and
“Doubtful.” Under our risk rating system noted above, Special
Mention, Substandard, and Doubtful loan classifications correspond to risk
ratings six, seven, and eight, respectively. Substandard assets
include those characterized by the distinct possibility that we will sustain
some loss if the deficiencies are not corrected. Assets classified as
Doubtful, or risk rated eight have all the weaknesses inherent in those
classified Substandard with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and
improbable. Assets classified as Loss, or risk rated nine are those
considered uncollectible and viewed as valueless assets and have been
charged-off. Assets that do not currently expose us to sufficient
risk to warrant classification in one of the aforementioned categories, but
possess weaknesses that deserve management’s close attention are deemed to be
Special Mention, or risk rated six.
Our determination as to the
classification of our assets and the amount of our valuation allowances is
subject to review by the Office of the Comptroller of the Currency, MB Financial
Bank’s primary regulator, which can order the establishment of additional
general or specific loss allowances. There can be no assurance that
regulators, in reviewing our loan portfolio, will not request us to materially
adjust our allowance for loan losses. The Office of the Comptroller
of the Currency, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan
losses. The policy statement provides guidance for financial
institutions on both the responsibilities of management for the assessment and
establishment of adequate allowances and guidance for banking agency examiners
to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that (1)
institutions have effective systems and controls to identify, monitor and
address asset quality problems; (2) management has analyzed all significant
factors that affect the collectability of the portfolio in a reasonable manner;
and (3) management has established acceptable allowance evaluation processes
that meet the objectives set forth in the policy
statement. Management believes it has established an adequate
allowance for probable loan losses. We analyze our process regularly,
with modifications made if needed, and report those results four times per year
at meetings of our Audit Committee. However, there can be no
assurance that regulators, in reviewing our loan portfolio, will not request us
to materially adjust our allowance for loan losses at the time of their
examination.
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.
We define potential problem loans as
performing loans rated substandard, that do not meet the definition of a
non-performing loan (See
“Asset Quality”
section above
for non-performing loans). 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 amounts of potential problem
loans were $100.9 million, or 1.62% of total loans as of December 31, 2008, and
approximately $87.6 million, or 1.56% of total loans as of December 31,
2007.
Sources
of Funds
General.
Deposits,
short-term and long-term borrowings, including junior subordinated notes issued
to capital trusts and subordinated debt, loan and investment security repayments
and prepayments, proceeds from the sale of securities, and cash flows generated
from operations are the primary sources of our funds for lending, investing,
leasing and other general purposes. Loan repayments are a relatively
predictable source of funds except during periods of significant interest rate
declines, while deposit flows tend to fluctuate with prevailing interests rates,
money markets conditions, general economic conditions and
competition.
Deposits.
We offer
a variety of deposit accounts with a range of interest rates and
terms. Our core deposits consist of checking accounts, NOW accounts,
money market accounts, savings accounts and non-public certificates of
deposit. These deposits, along with public fund deposits, brokered
deposits, and short-term and long-term borrowings are used to support our asset
base. Our deposits are obtained predominantly from the geographic
trade areas surrounding each of our office locations. We rely
primarily on customer service and long-standing relationships with customers to
attract and retain deposits; however, market interest rates and rates offered by
competing financial institutions significantly affect our ability to attract and
retain deposits. We also use brokered deposits as an alternative
funding source which allows us flexibility in managing our overall interest
expense. Total deposits increased by $981.8 million, including an
increase in brokered deposits of $386.3 million, from December 31, 2007 to
December 31, 2008.
The
following table sets forth the maturities of certificates of deposit and other
time deposits $100,000 and over at December 31, 2008 (in
thousands):
|
|
At
December 31, 2008
|
Certificates
of deposit $100,000 and over:
|
|
|
|
Maturing
within three months
|
|
|
$ 511,980
|
After
three but within six months
|
|
|
532,188
|
After
six but within twelve months
|
|
|
403,516
|
After
twelve months
|
|
|
561,671
|
Total
certificates of deposit $100,000 and over (1)
|
|
|
$2,009,355
|
|
|
|
|
Other
time deposits $100,000 and over (2):
|
|
|
|
Maturing
within three months
|
|
|
$
12,347
|
After
three but within six months
|
|
|
27,603
|
After
six but within twelve months
|
|
|
25,851
|
After
twelve months
|
|
|
15,911
|
Total
other time deposits $100,000 and over
|
|
|
$
81,712
|
|
|
|
|
(1)
Includes brokered deposits of $864.8 million.
|
(2)
Consists of time deposits held in individual retirement accounts (IRA’s)
and time certificates that the customer has the option to increase the
principal balance and maintain the original interest
rate.
|
The
following table sets forth the composition of our deposits at the dates
indicated (dollars in thousands):
|
At
December 31,
|
|
2008
|
2007
|
|
Amount
|
Percent
|
Amount
|
Percent
|
|
|
|
|
|
Demand
deposits, noninterest bearing
|
|
$
960,117
|
14.78%
|
|
$
875,491
|
15.88%
|
NOW
and money market accounts
|
|
1,465,436
|
22.56%
|
|
1,263,021
|
22.91%
|
Savings
deposits
|
|
367,684
|
5.66%
|
|
390,980
|
7.09%
|
Time
certificates, $100,000 or more
|
|
2,091,067
|
32.19%
|
|
1,686,593
|
30.59%
|
Other
time certificates
|
|
1,611,267
|
24.81%
|
|
1,297,698
|
23.53%
|
Total
|
|
$6,495,571
|
100.00%
|
|
$5,513,783
|
100.00%
|
Borrowings.
Short-term
borrowings decreased by $489.1 million to $488.6 million at December 31, 2008
compared to $977.7 million at December 31, 2007. We have access to a
variety of borrowing sources and use short-term and long-term borrowings to
support our asset base. Short-term borrowings from time to time
include federal funds purchased, Federal Reserve term auction funds, securities
sold under agreements to repurchase, Federal Home Loan Bank advances, treasury,
tax and loan demand notes, and correspondent bank lines of credit. We
also offer customers a deposit account that sweeps balances in excess of an
agreed upon target amount into overnight repurchase agreements. As
business customers have grown more sophisticated in managing their daily cash
position, demand for the sweep product has increased.
The
following table sets forth certain information regarding our short-term
borrowings at the dates and for the periods indicated (dollars in
thousands):
|
|
At
or For the Year Ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
Federal
funds purchased:
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$
44,413
|
|
$
90,928
|
|
$
57,641
|
Maximum
outstanding at any month-end during the period
|
|
|
175,000
|
|
199,100
|
|
133,100
|
Balance
outstanding at end of period
|
|
|
5,000
|
|
170,000
|
|
133,100
|
Weighted
average interest rate during the period
|
|
|
3.09%
|
|
5.16%
|
|
5.40%
|
Weighted
average interest rate at end of the period
|
|
|
0.68%
|
|
3.86%
|
|
5.38%
|
Federal
Reserve term auction funds:
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$
91,803
|
|
$ -
|
|
$
-
|
Maximum
outstanding at any month-end during the period
|
|
|
250,000
|
|
-
|
|
-
|
Balance
outstanding at end of period
|
|
|
100,000
|
|
-
|
|
-
|
Weighted
average interest rate during the period
|
|
|
2.59%
|
|
-
|
|
-
|
Weighted
average interest rate at end of the period
|
|
|
0.42%
|
|
-
|
|
-
|
Securities
sold under agreements to repurchase:
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$291,013
|
|
$323,132
|
|
$365,786
|
Maximum
outstanding at any month-end during the period
|
|
|
366,271
|
|
409,848
|
|
462,293
|
Balance
outstanding at end of period (1)
|
|
|
282,832
|
|
367,702
|
|
351,378
|
Weighted
average interest rate during the period
|
|
|
1.49%
|
|
3.66%
|
|
3.97%
|
Weighted
average interest rate at end of the period
|
|
|
0.48%
|
|
3.02%
|
|
3.89%
|
Federal
Home Loan Bank advances:
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$252,452
|
|
$397,065
|
|
$205,805
|
Maximum
outstanding at any month-end during the period
|
|
|
344,011
|
|
440,019
|
|
239,679
|
Balance
outstanding at end of period
|
|
|
100,787
|
|
440,019
|
|
204,026
|
Weighted
average interest rate during the period
|
|
|
3.75%
|
|
5.23%
|
|
4.94%
|
Weighted
average interest rate at end of the period
|
|
|
2.46%
|
|
5.05%
|
|
5.30%
|
Treasury,
tax and loan demand notes
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$
-
|
|
$
-
|
|
$
1,545
|
Maximum
outstanding at any month-end during the period
|
|
|
-
|
|
-
|
|
3,959
|
Balance
outstanding at end of period
|
|
|
-
|
|
-
|
|
-
|
Weighted
average interest rate during the period
|
|
|
-
|
|
-
|
|
4.48%
|
Weighted
average interest rate at end of the period
|
|
|
-
|
|
-
|
|
-
|
Correspondent
bank lines of credit:
|
|
|
|
|
|
|
|
Average
balance outstanding
|
|
|
$
1,393
|
|
$
1,555
|
|
$
1,115
|
Maximum
outstanding at any month-end during the period
|
|
|
10,000
|
|
10,000
|
|
12,000
|
Balance
outstanding at end of period
|
|
|
-
|
|
-
|
|
-
|
Weighted
average interest rate during the period
|
|
|
3.23%
|
|
5.72%
|
|
6.11%
|
Weighted
average interest rate at end of the period
|
|
|
-
|
|
-
|
|
-
|
(1)
|
Balance
includes customer repurchase agreements totaling $282.8 million, $367.7
million and $314.4 million at December 31, 2008, 2007 and 2006,
respectively.
|
Long-term borrowings include notes
payable to other banks to support a portfolio of equipment that we own and lease
to other companies, Federal Home Loan Bank advances, structured repurchase
agreements, and subordinated debt. As of December 31, 2008 and
December 31, 2007, our long-term borrowings were $471.5 million and $208.9
million, respectively.
Junior subordinated notes issued to
capital trusts include debentures sold to Coal City Capital Trust I, FOBB
Capital Trust I, FOBB Capital Trust III, MB Financial Capital Trust II, MB
Financial Capital Trust III, MB Financial Capital Trust IV, MB Financial Capital
Trust V, and MB Financial Capital Trust VI in connection with the issuance of
their preferred securities in 1998, 2000, 2003, 2005, 2006, 2006, 2007, and
2007, respectively. As of December 31, 2008 and December 31, 2007,
our junior subordinated notes issued to capital trusts were $158.8 million and
$159.0 million, respectively. See
Notes 1
and
13
to the consolidated financial statements for further
analysis.
Bank Liquidity
.
Liquidity
management is monitored by an Asset/Liability Management Committee, consisting
of members of management, which reviews historical funding requirements, current
liquidity position, sources and stability of funding, marketability of assets,
options for attracting additional funds, and anticipated future funding needs,
including the level of unfunded commitments.
Our primary sources of funds are retail
and commercial deposits, short-term and long-term borrowings, public funds and
funds generated from operations. Funds from operations include
principal and interest payments received on loans and
securities. While maturities and scheduled amortization of loans and
securities provide an indication of the timing of the receipt of funds, changes
in interest rates, economic conditions and competition strongly influence
mortgage prepayment rates and deposit flows, reducing the predictability of the
timing on sources of funds.
Our subsidiary bank has no required
regulatory liquidity ratios to maintain; however, it adheres to an internal
policy which dictates a ratio of loans to deposits. Our current
policy maintains that we, on a consolidated basis, may not have a ratio of loans
to deposits (including customer repurchase agreements) in excess of
105%. At December 31, 2008, we were in compliance with the foregoing
policy.
At December 31, 2008, our subsidiary
bank had outstanding letters of credit, loan origination commitments and unused
commercial and retail lines of credit of approximately $1.8
billion. Our bank anticipates that it will have sufficient funds
available to meet current origination and other lending
commitments. Certificates of deposit that are scheduled to mature
within one year totaled $2.8 billion at December 31, 2008 including brokered
deposits. Although no assurance can be given, we expect to retain a
substantial majority of these certificates of deposit or acquire additional
brokered deposits.
In the event that additional short-term
liquidity is needed, our banks have established relationships with several large
regional banks to provide short-term borrowings in the form of federal funds
purchases. While, at December 31, 2008, there were no firm lending
commitments in place, management believes that MB Financial Bank could borrow
approximately $400 million for a short time from these banks on a collective
basis. Additionally, MB Financial Bank is a member of the Federal
Home Loan Bank of Chicago, Illinois and as of December 31, 2008, has the ability
to borrow an additional $132.7 million from the Federal Home Loan
Bank. The Company can also use the Federal Reserve Discount Window
and the Federal Reserve Term Auction Funds for short-term
funding. Each auction is for a fixed amount and the rate is
determined by the auction process. These borrowings are primarily
collateralized by commercial and indirect vehicle loans with unpaid principal
balances aggregating no less than 200% of the outstanding advances from the
Federal Reserve Term Auction and 100% of the outstanding advances from the
Federal Reserve Discount Window. As a contingency plan for
significant funding needs, the Asset/Liability Management Committee may also
consider the sale of investment securities, selling securities under agreement
to repurchase, the temporary curtailment of lending activities, or selling
loans.
Corporation Liquidity.
Our
main sources of liquidity at the holding company level are dividends from our
subsidiary bank.
MB Financial Bank is subject to various
regulatory capital requirements which affect its ability to pay dividends to
us. Failure to meet minimum capital requirements can initiate certain
mandatory and discretionary actions by regulators that, if undertaken, could
have a direct material effect on our financial
statements. Additionally, our current policy effectively limits the
amount of dividends our subsidiary bank may pay to us by requiring the bank to
maintain total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage
capital ratios of 11%, 8% and 7%, respectively. The minimum ratios
required for a bank to be considered "well capitalized" for regulatory purposes
are 10%, 6% and 5%, respectively. In addition to adhering to our
policy, there are regulatory restrictions on the ability of national banks to
pay dividends. See "Item 1. Business –
Supervision and Regulation
."
Commitments.
As a
financial services provider, we routinely enter into commitments to extend
credit, including loan commitments, standby and commercial letters of
credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire
without being drawn upon. Such commitments are subject to the same
credit policies and approval process accorded to loans made by
us. For additional information, see
Note 17
“Commitments and Contingencies”
to the consolidated financial
statements.
Derivative Financial
Instruments.
Derivatives
have become one of several components of our asset/liability management
activities to manage interest rate risk. In general, the assets and
liabilities generated through the ordinary course of business activities do not
naturally create offsetting positions with respect to repricing, basis or
maturity characteristics. Using derivative instruments, principally
interest rate swaps, our interest rate sensitivity is adjusted to maintain the
desired interest rate risk profile. Interest rate swaps used to
adjust the interest rate sensitivity of certain interest-bearing assets and
liabilities will not need to be replaced at maturity, since the corresponding
asset or liability will mature along with the interest rate swap.
Interest rate swaps designated as an
interest rate related hedge of an existing fixed rate asset or liability are
fair value type hedges. We currently use fair value type hedges, or
interest rate swaps, to mitigate the interest sensitivity of certain qualifying
commercial loans and brokered time certificates of deposit. The
change in fair value of both the interest rate swap and hedged instrument is
recorded in current earnings. If a hedge ceases to qualify for hedge
accounting prior to maturity, previous adjustments to the carrying value of the
hedged item are recognized in earnings to match the earnings recognition pattern
of the hedged item (e.g., level yield amortization if hedging an
interest-bearing instrument that has not been sold or
extinguished). For additional information, including the notional
amount and fair value of our interest rate swaps at December 31, 2008, see
Note 21 “Derivative Financial Instruments”
to the
consolidated financial statements.
Trust Preferred
Securities.
In addition to our commitments and derivative
financial instruments of the types described above, our off balance sheet
arrangements include our combined $4.8 million ownership interests in the common
securities of the statutory trusts we established to issue trust preferred
securities. See
“Capital Resources”
below in
this Item 7 and
Note 13 “Junior Subordinated Notes Issued to
Capital Trusts”
to the consolidated financial statements.
Contractual Obligations.
In
the ordinary course of operations, we enter into certain contractual
obligations. Such obligations include the funding of operations
through debt issuances, subordinated notes issued to capital trusts, operating
leases for premises and equipment, as well as capital expenditures for new
premises and equipment.
The following table summarizes our
significant contractual obligations and other potential funding needs at
December 31, 2008 (in thousands):
|
Payments
Due by Period
|
Contractual
Obligations
|
Total
|
Less
than 1 Year
|
1 -
3 Years
|
3 -
5 Years
|
More
than 5 Years
|
|
|
|
|
|
|
Time
deposits
|
$
|
3,702,334
|
$
|
2,806,727
|
$
|
709,579
|
$
|
104,150
|
$
|
81,878
|
Long-term
borrowings
|
471,466
|
45,060
|
189,003
|
44,320
|
193,083
|
Junior
subordinated notes issued to capital trusts (1)
|
158,824
|
-
|
-
|
-
|
158,824
|
Operating
leases
|
27,226
|
3,182
|
4,415
|
3,259
|
16,370
|
Capital
expenditures
|
1,016
|
1,016
|
-
|
-
|
-
|
Total
|
$
|
4,360,866
|
$
|
2,855,989
|
$
|
902,992
|
$
|
151,230
|
$
|
450,655
|
Letters
of Credit and commitments to extend credit
|
$
|
1,812,903
|
|
|
|
|
|
|
|
|
(1)
|
Call
dates are set forth in Note 13 to the audited consolidated financial
statements under Item 8. Financial Statements and Supplementary
Data.
|
Our subsidiary bank is subject to the
risk based capital regulations administered by the banking regulatory
agencies. The risk based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under the regulations,
assets and off-balance sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk weighted assets and off-balance sheet
items. Under the prompt corrective action regulations, to be
adequately capitalized a bank must maintain minimum ratios of total capital to
risk-weighted assets of 8.00%, Tier 1 capital to risk-weighted assets of 4.00%,
and Tier 1 capital to total assets of 4.00%. Failure to meet these
capital requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators, which, if undertaken, could have a direct
material effect on the bank’s financial statements. As of December
31, 2008, the most recent notification from the federal banking regulators
categorized our subsidiary bank as well capitalized.
A well capitalized institution must
maintain a minimum ratio of total capital to risk-weighted assets of at least
10.00%, a minimum ratio of Tier 1 capital to risk weighted assets of at least
6.00%, a minimum ratio of Tier 1 capital to total assets of at least 5.00% and
must not be subject to any written order, agreement or directive requiring it to
meet or maintain a specific capital level. There are no conditions or
events since that notification that management believes have changed our
subsidiary bank’s capital classification. On a consolidated basis, we
must maintain a minimum ratio of Tier 1 capital to total assets of 4.00%, a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.00% and a minimum
ratio of total-capital to risk-weighted assets of 8.00%. See “Item 1.
Business – Supervision and Regulation –
Capital
Adequacy
" and "
Prompt Corrective
Action
." In addition, our internal policy requires us, on a
consolidated basis, to maintain these ratios at or above 7%, 8% and 11%,
respectively.
As of December 31, 2008, our subsidiary
bank was "well capitalized" under the capital adequacy requirements to which
each of us are subject. The following table sets forth the actual and
required regulatory capital amounts and ratios for our subsidiary bank and us as
of December 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
Capitalized
Under
|
|
|
|
|
|
For
Capital
|
|
Prompt
Corrective
|
|
Actual
|
|
Adequacy
Purposes
|
|
Action
Provisions
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$936,027
|
14.08%
|
|
|
$531,968
|
8.00%
|
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
759,845
|
11.46%
|
|
|
530,595
|
8.00%
|
|
|
$663,243
|
10.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$802,384
|
12.07%
|
|
|
$265,984
|
4.00%
|
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
626,185
|
9.44%
|
|
|
265,297
|
4.00%
|
|
|
$397,946
|
6.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$802,384
|
9.85%
|
|
|
$325,872
|
4.00%
|
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
626,185
|
7.70%
|
|
|
325,300
|
4.00%
|
|
|
$406,625
|
5.00%
|
N/A – not
applicable
We established statutory trusts for the
sole purpose of issuing trust preferred securities and related trust common
securities. The trust preferred securities are included in our
consolidated Tier 1 Capital and Total Capital at December 31,
2008. In March 2005, the Board of Governors of the Federal Reserve
System issued a final rule allowing bank holding companies to continue to
include qualifying trust preferred securities in their Tier 1 Capital for
regulatory capital purposes, subject to a 25% limitation to all core (Tier I)
capital elements, net of goodwill less any associated deferred tax
liability. The final rule provides a five-year transition period,
ending March 31, 2009, for application of the aforementioned quantitative
limitation. As of December 31, 2008, 100% of the trust preferred
securities described in Note 13 of our audited consolidated financial statements
qualified as Tier I capital. Under the final rule adopted in March
2005, that will take effect March 31, 2009, 100% of the trust preferred
securities outstanding, as of December 31, 2008, will qualify as Tier I
capital.
As of December 31, 2008, we had
approximately $1.0 million in capital expenditure commitments outstanding which
relate to various projects to build new branches or renovate existing
branches. We expect to pay the outstanding commitments as of December
31, 2008 through the normal cash flows of our business operations.
Statement
of Cash Flows
Operating
Activities
. Cash flows from continuing operating activities
primarily include net income, adjusted for items in net income that did not
impact cash. Net cash provided by continuing operating activities
increased by $6.0 million to $147.7 million for the year ended December 31,
2008, from $141.7 million for the year ended December 31, 2007. The
increase was primarily due to an increase in provision for loan losses partially
offset by a decrease in net income.
Net cash provided by continuing
operating activities decreased by $303.2 million to $141.7 million for the year
ended December 31, 2007, from $445.0 million for the year ended December 31,
2006. The decrease was primarily due to a decrease in proceeds from
the sale of loans held for sale, partially offset by higher net income and a net
decrease in other assets for the year ended December 31, 2007. The
decrease in proceeds from the sale of loans held for sale was primarily due to
the sale of $344.8 million of indirect auto loans on September 29, 2006, to
remove low yielding assets. These indirect auto loans were held by
Oak Brook Bank and acquired by us as a result of our acquisition of Oak Brook
Bank on August 25, 2006. Subsequent to the indirect auto loan sale,
we significantly scaled back our indirect auto origination
business.
Investing
Activities
. Cash used in continuing investing activities
reflects the impact of loans and investments acquired for the Company’s
interest-earning asset portfolios, as well as cash flows from asset sales and
the impact of acquisitions. For the year ended December 31, 2008, the
Company had net cash flows used in continuing investing activities of $887.8
million, compared to $206.9 million for the year ended December 31,
2007. The change in cash flows from continuing investing activities
was primarily due to a decrease in the proceeds from sales and maturities in our
investment portfolio, and an increase in purchases of investment securities
during the year ended December 31, 2008, compared to the year ended December 31,
2007. Additionally, we received $76.1 million from the sale of Union
Bank in 2007.
Net cash used in investing activities
increased by $112.2 million to $206.9 million for the year ended December 31,
2006 from $94.8 million for the year ended December 31, 2007. The
change in cash flows from continuing investing activities was primarily due to
the funding of our loan growth during the year ended December 31,
2007.
Financing
Activities
. Cash flows from continuing financing activities
include transactions and events whereby cash is obtained from depositors,
creditors or investors. For the year ended December 31, 2008, the
Company had net cash flows provided by continuing financing activities of $931.5
million, compared to $68.2 million for the year ended December 31,
2007. The change in cash flows from continuing financing activities
was primarily due to an increase in deposits and the issuance of preferred stock
pursuant to the TARP Capital Purchase Program, partially offset by a net
decrease in borrowings. During 2008 we improved our liquidity
position as a result of an increase in deposits of $981.8 million, and a
reduction in short-term borrowings of $489.1 million. In addition, we
lengthened the maturities on both customer and brokered certificates of
deposits.
For the year ended December 31, 2007,
the Company had net cash flows provided by continuing financing activities of
$68.2 million, compared to net cash used in continuing financing activities of
$303.7 million for the year ended December 31, 2006. The change in
cash flows from continuing financing activities was primarily due to a net
increase in short-term borrowings for the year ended December 31, 2007, compared
to a net decrease in short-term borrowings for the year ended December 31, 2006,
and in increase in treasury stock purchased during 2007. The Company
used the funds generated from the indirect auto loan sale, as discussed above,
to payoff a portion of the Company’s short-term borrowings during the year ended
December 31, 2006.
Item 7A.
Quantitative and Qualitative Disclosures
about Market Risk
Market
Risk and Asset Liability Management
Market Risk.
Market
risk is the risk that the market value or estimated fair value of our assets,
liabilities, and derivative financial instruments will decline as a result of
changes in interest rates or financial market volatility, or that our net income
will be significantly reduced by interest rate changes. Market risk
is managed operationally in our Treasury Group, and is addressed through a
selection of funding and hedging instruments supporting balance sheet growth, as
well as monitoring our asset investment strategies.
Asset Liability
Management
.
Management and our Treasury Group continually
monitor our sensitivity to interest rate changes. It is our policy to
maintain an acceptable level of interest rate risk over a range of possible
changes in interest rates while remaining responsive to market demand for loan
and deposit products. The strategy we employ to manage our interest
rate risk is to measure our risk using an asset/liability simulation
model. The model considers several factors to determine our potential
exposure to interest rate risk, including measurement of repricing gaps,
duration, convexity, value at risk, and the market value of portfolio equity
under assumed changes in the level of interest rates, shape of the yield curves,
and general market volatility. Management controls our interest rate
exposure using several strategies, which include adjusting the maturities of
securities in our investment portfolio, and limiting fixed rate loans or fixed
rate deposits with terms of more than five years. We also use
derivative instruments, principally interest rate swaps, to manage
Interest Rate
Risk
. Interest rate risk can come in a variety of forms,
including repricing risk, yield curve risk, basis risk, and prepayment
risk. We experience repricing risk when the change in the average
yield of either our interest earning assets or interest bearing liabilities is
more sensitive than the other to changes in market interest
rates. Such a change in sensitivity could reflect a number of
possible mismatches in the repricing opportunities of our assets and
liabilities.
In the event that yields on our assets
and liabilities do adjust to changes in market rates to the same extent, we may
still be exposed to yield curve risk. Yield curve risk reflects the
possibility the changes in the shape of the yield curve could have different
effects on our assets and liabilities.
Variable rate assets and liabilities
that reprice at similar times, have similar maturities or repricing dates, are
based on different indexes still have interest rate risk. Basis risk
reflects the possibility that indexes will not move in a coordinated
manner.
We hold mortgage-related investments,
including mortgage loans and mortgage-backed securities. Prepayment
risk is associated with mortgage-related investments and results from
homeowners’ ability to pay off their mortgage loans prior to
maturity. We limit this risk by restricting the types of
mortgage-backed securities we own to those with limited average life changes
under certain interest-rate shock scenarios, or securities with embedded
prepayment penalties. We also limit the amount of fixed rate mortgage
loans we hold that have maturities greater than five years.
Measuring Interest Rate
Risk.
As noted above, interest rate risk can be measured by
analyzing the extent to which the repricing of assets and liabilities are
mismatched to create an interest sensitivity gap. An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate
sensitivity gap is defined as the difference between the amount of interest
earning assets maturing or repricing within a specific time period and the
amount of interest bearing liabilities maturing or repricing within that same
time period. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets. During a period of rising interest rates, therefore, a
negative gap would tend to adversely affect net interest
income. Conversely, during a period of falling interest rates, a
negative gap position would tend to result in an increase in net interest
income.
The following table sets forth the
amounts of interest earning assets and interest bearing liabilities outstanding
at December 31, 2008 that we anticipate, based upon certain assumptions, to
reprice or mature in each of the future time periods shown. Except as
stated below, the amount of assets and liabilities shown which reprice or mature
during a particular period were determined based on the earlier of the term to
repricing or the term to repayment of the asset or liability. The
table is intended to provide an approximation of the projected repricing of
assets and liabilities at December 31, 2008 based on contractual maturities and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal
balances expected to be reinvested and/or repriced because of contractual
amortization and rate adjustments on adjustable-rate loans. Loan and
investment securities’ contractual maturities and amortization reflect expected
prepayment assumptions. While NOW, money market and savings deposit
accounts have adjustable rates, it is assumed that the interest rates on some of
the accounts will not adjust immediately to changes in other interest
rates.
Therefore,
the information in the table is calculated assuming that NOW, money market and
savings deposits will reprice as follows: 6%, 9% and 8%, respectively, in the
first three months, 17%, 23%, and 21%, respectively, in the next nine months,
59%, 57% and 58%, respectively, from one year to five years, and 18%, 11%, and
13%, respectively over five years (dollars in thousands):
|
Time
to Maturity or Repricing
|
|
0
– 90
|
91
- 365
|
1
– 5
|
Over
5
|
|
|
|
Days
|
Days
|
Years
|
Years
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits with banks
|
|
$
260,892
|
|
$ 190
|
|
$
752
|
|
$
-
|
|
$
261,834
|
Investment
securities available for sale
|
|
133,998
|
|
251,193
|
|
661,663
|
|
289,276
|
|
1,336,130
|
Loans
|
|
2,634,769
|
|
1,163,948
|
|
2,309,914
|
|
119,932
|
|
6,228,563
|
Total
interest earning assets
|
|
$3,029,659
|
|
$1,415,331
|
|
$2,972,329
|
|
$
409,208
|
|
$7,826,527
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
NOW
and money market deposit accounts
|
|
$
117,491
|
|
$ 309,272
|
|
$
845,547
|
|
$
193,126
|
|
$1,465,436
|
Savings
deposits
|
|
28,627
|
|
76,483
|
|
211,711
|
|
50,863
|
|
367,684
|
Time
deposits
|
|
914,565
|
|
1,953,563
|
|
810,869
|
|
23,337
|
|
3,702,334
|
Short-term
borrowings
|
|
239,203
|
|
89,144
|
|
146,233
|
|
14,039
|
|
488,619
|
Long-term
borrowings
|
|
101,998
|
|
33,548
|
|
333,736
|
|
2,184
|
|
471,466
|
Junior
subordinated notes issued to capital trusts
|
|
152,070
|
|
-
|
|
6,754
|
|
-
|
|
158,824
|
Total
interest bearing liabilities
|
|
$1,553,954
|
|
$2,462,010
|
|
$2,354,850
|
|
$
283,549
|
|
$6,654,363
|
|
|
|
|
|
|
|
|
|
|
|
Rate
sensitive assets (RSA)
|
|
$3,029,659
|
|
$4,444,990
|
|
$7,417,319
|
|
$7,826,527
|
|
$7,826,527
|
Rate
sensitive liabilities (RSL)
|
|
$1,553,954
|
|
$4,015,964
|
|
$6,370,814
|
|
$6,654,363
|
|
$6,654,363
|
Cumulative
GAP (GAP=RSA-RSL)
|
|
$1,475,705
|
|
$ 429,026
|
|
$1,046,505
|
|
$1,172,164
|
|
$1,172,164
|
|
|
|
|
|
|
|
|
|
|
|
RSA/Total
assets
|
|
34.35%
|
|
50.40%
|
|
84.10%
|
|
88.74%
|
|
88.74%
|
RSL/Total
assets
|
|
17.62%
|
|
45.53%
|
|
72.23%
|
|
75.45%
|
|
75.45%
|
GAP/Total
assets
|
|
16.73%
|
|
4.86%
|
|
11.87%
|
|
13.29%
|
|
13.29%
|
GAP/RSA
|
|
48.71%
|
|
9.65%
|
|
14.11%
|
|
14.98%
|
|
14.98%
|
Certain shortcomings are inherent in
the method of analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types of assets may lag behind changes in market
rates. Additionally, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Therefore, we do not rely on
a gap analysis to manage our interest rate risk, but rather we use what we
believe to be the more reliable simulation model relating to changes in net
interest income.
Based on
simulation modeling which assumes gradual changes in interest rates over a
one-year period, we believe that our net interest income would change due to
changes in interest rates as follows (dollars in thousands):
Gradual
|
|
Change
in Net Interest Income Over One Year Horizon
|
Changes
in
|
|
At
December 31, 2008
|
|
At
December 31, 2007
|
Levels
of
|
|
Dollar
|
Percentage
|
|
Dollar
|
Percentage
|
Interest
Rates
|
|
Change
|
Change
|
|
Change
|
Change
|
+2.00%
|
|
$8,664
|
3.40%
|
|
$502
|
0.23%
|
+1.00%
|
|
3,328
|
1.30%
|
|
736
|
0.33%
|
In the interest rate sensitivity table
above, changes in net interest income between December 31, 2008 and December 31,
2007 reflect changes in the composition of interest earning assets and interest
bearing liabilities, related interest rates, repricing frequencies, and the
fixed or variable characteristics of the interest earning assets and interest
bearing liabilities.
The assumptions used in our interest
rate sensitivity simulation discussed above are inherently uncertain and, as a
result, the simulations cannot precisely measure net interest income or
precisely predict the impact of changes in interest rates on net interest
income. Our model assumes that a portion of our variable rate loans
that have minimum interest rates will remain in our portfolio regardless of
changes in the interest rate environment. Actual results will differ
from simulated results due to timing, magnitude and frequency of interest rate
changes as well as changes in market conditions and management
strategies.
As a
result of the current interest rate environment, the Company does not anticipate
any significant declines in interest rates over the next twelve
months. For this reason, we did not use an interest rate sensitivity
simulation that assumes a gradual decline in the level of interest rates over
the next twelve months.
Item 8.
Financial Statements and Supplementary
Data
MB
FINANCIAL, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
December
31, 2008, 2007, and 2006
|
Page
|
MANAGEMENT’S REPORT
ON INTERNAL CONTROL OVER
FINANCIAL
REPORTING................................................................................................
|
54
|
|
|
|
55
|
|
|
|
56
|
|
|
FINANCIAL
STATEMENTS
|
|
|
|
Consolidated Balance
Sheets
.........................................................................................................................................................................................................
|
57
|
|
|
Consolidated Statements of
Income
..............................................................................................................................................................................................
|
58
|
|
|
|
60
|
|
|
Consolidated Statements of Cash
Flows
......................................................................................................................................................................................
|
62
|
|
|
Notes to Consolidated Financial
Statements
...............................................................................................................................................................................
|
64
|
|
|
The
management of MB Financial, Inc. (the Company) is responsible for establishing
and maintaining adequate internal control over financial reporting.
The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how
well designed, have inherent limitations, including the possibility of human
error and the circumvention of overriding controls. Accordingly, even
effective internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control–Integrated
Framework
. Based on that assessment, management concluded that, as of
December 31, 2008, the Company’s internal control over financial reporting is
effective based on the criteria established in
Internal Control–Integrated
Framework
.
Management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008, has been audited by McGladrey & Pullen,
LLP, an independent registered public accounting firm, as stated in their
attestation report, which expresses an unqualified opinion on the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2008. See “
Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial
Reporting
.”
/s/ Mitchell Feiger
|
|
|
/s/ Jill E. York
|
Mitchell
Feiger
|
|
|
Jill
E. York
|
President
and
|
|
|
Vice
President and
|
Chief
Executive Officer
|
|
|
Chief
Financial Officer
|
February
27, 2009
To the
Board of Directors and Stockholders
MB
Financial, Inc.
We have
audited MB Financial, Inc.’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying
Management’s
Report on Internal Control Over Financial Reporting.
Our
responsibility is to express an opinion on the company's internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, MB Financial, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of MB Financial, Inc. and our report dated
February 26, 2009 expressed an unqualified opinion.
/s/McGladrey
& Pullen, LLP
Schaumburg,
Illinois
February
26, 2009
To the
Board of Directors and Stockholders
MB
Financial, Inc.
We have
audited the consolidated balance sheets of MB Financial, Inc. and Subsidiaries
as of December 31, 2008 and 2007, and the related consolidated statements
of income, changes in stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2008. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of MB Financial, Inc. and
Subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
As
disclosed in Note 19, MB Financial, Inc. and Subsidiaries adopted the provisions
of Statement of Accounting Standards (SFAS) No. 157,
Fair Value Measurements
, for
assets and liabilities measured and reported at fair value.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), MB Financial Inc. and Subsidiaries internal
control over financial reporting as of December 31, 2008, based on the
criteria established in Internal Control
—
Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated February 26, 2009 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial
reporting.
/s/McGladrey
& Pullen, LLP
Schaumburg,
Illinois
February
26, 2009
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
December
31, 2008 and 2007
|
|
|
|
|
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
79,824
|
|
$
141,248
|
Interest
bearing deposits with banks
|
|
261,834
|
|
9,093
|
Total
cash and cash equivalents
|
|
341,658
|
|
150,341
|
Investment
securities:
|
|
|
|
|
Securities
available for sale, at fair value
|
|
1,336,130
|
|
1,177,714
|
Non-marketable
securities - FHLB and FRB Stock
|
|
64,246
|
|
63,671
|
Total
investment securities
|
|
1,400,376
|
|
1,241,385
|
Loans
(net of allowance for loan losses of $144,001 at December 31, 2008
and
|
|
|
|
|
$65,103
at December 31, 2007)
|
|
6,084,562
|
|
5,550,524
|
Lease
investments, net
|
|
125,034
|
|
97,321
|
Premises
and equipment, net
|
|
186,474
|
|
183,722
|
Cash
surrender value of life insurance
|
|
119,526
|
|
116,690
|
Goodwill,
net
|
|
387,069
|
|
379,047
|
Other
intangibles, net
|
|
25,776
|
|
25,352
|
Other
assets
|
|
149,288
|
|
90,321
|
Total
assets
|
|
$8,819,763
|
|
$7,834,703
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits:
|
|
|
|
|
Noninterest
bearing
|
|
$
960,117
|
|
$
875,491
|
Interest
bearing
|
|
5,535,454
|
|
4,638,292
|
Total
deposits
|
|
6,495,571
|
|
5,513,783
|
Short-term
borrowings
|
|
488,619
|
|
977,721
|
Long-term
borrowings
|
|
471,466
|
|
208,865
|
Junior
subordinated notes issued to capital trusts
|
|
158,824
|
|
159,016
|
Accrued
expenses and other liabilities
|
|
136,459
|
|
112,949
|
Total
liabilities
|
|
7,750,939
|
|
6,972,334
|
|
|
|
|
|
Minority
interest
|
|
2,629
|
|
-
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
Preferred
stock, ($0.01 par value, authorized 1,000,000 shares at December 31, 2008;
series A, 5% cumulative
|
|
193,025
|
|
-
|
perpetual,
196,000 shares issued and outstanding at December 31, 2008, $1,000.00
liquidation value)
|
|
|
|
|
Common
stock, ($0.01 par value; authorized 50,000,000 shares at December 31, 2008
and 43,000,000 at
|
|
|
|
|
December
31, 2007; issued 37,542,968 shares at December 31, 2008 and 37,401,023 at
December 31, 2007)
|
|
375
|
|
374
|
Additional
paid-in capital
|
|
445,692
|
|
441,201
|
Retained
earnings
|
|
495,505
|
|
505,260
|
Accumulated
other comprehensive income
|
|
16,910
|
|
7,597
|
Less: 2,612,143
and 2,785,573 shares of treasury stock, at cost, at December
31,
|
|
|
|
|
2008
and December 31, 2007, respectively
|
|
(85,312)
|
|
(92,063)
|
Total
stockholders' equity
|
|
1,066,195
|
|
862,369
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$8,819,763
|
|
$7,834,703
|
See
Accompanying Notes to Consolidated Financial Statements.
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
(Amounts
in thousands, except share and per share data)
|
|
|
|
2008
|
|
2007
|
|
2006
|
Interest
income:
|
|
|
|
|
|
|
Loans
|
|
$357,075
|
|
$393,016
|
|
$310,194
|
Investment
securities available for sale:
|
|
|
|
|
|
|
Taxable
|
|
40,468
|
|
49,675
|
|
51,836
|
Nontaxable
|
|
15,502
|
|
13,862
|
|
11,255
|
Federal
funds sold
|
|
276
|
|
449
|
|
774
|
Other
interest bearing accounts
|
|
467
|
|
264
|
|
312
|
Total
interest income
|
|
413,788
|
|
457,266
|
|
374,371
|
Interest
expense:
|
|
|
|
|
|
|
Deposits
|
|
151,370
|
|
185,649
|
|
141,108
|
Short-term
borrowings
|
|
17,590
|
|
37,354
|
|
27,944
|
Long-term
borrowings and junior subordinated notes
|
|
23,940
|
|
21,957
|
|
17,140
|
Total
interest expense
|
|
192,900
|
|
244,960
|
|
186,192
|
Net
interest income
|
|
220,888
|
|
212,306
|
|
188,179
|
Provision
for loan losses
|
|
125,721
|
|
19,313
|
|
10,100
|
Net
interest income after provision for loan losses
|
|
95,167
|
|
192,993
|
|
178,079
|
Other
income:
|
|
|
|
|
|
|
Loan
service fees
|
|
9,180
|
|
6,258
|
|
5,400
|
Deposit
service fees
|
|
28,228
|
|
23,918
|
|
19,445
|
Lease
financing, net
|
|
16,973
|
|
15,847
|
|
13,369
|
Brokerage
fees
|
|
4,317
|
|
9,581
|
|
9,318
|
Asset
management and trust fees
|
|
11,869
|
|
10,447
|
|
6,916
|
Net
gain (loss) on sale of securities available for sale
|
|
1,130
|
|
(3,744)
|
|
(445)
|
Increase
in cash surrender value of life insurance
|
|
5,299
|
|
5,003
|
|
3,964
|
Net
(loss) gain on sale of assets
|
|
(1,104)
|
|
10,097
|
|
860
|
Merchant
card processing
|
|
18,041
|
|
16,347
|
|
6,848
|
Other
operating income
|
|
4,533
|
|
6,150
|
|
5,646
|
|
|
98,466
|
|
99,904
|
|
71,321
|
Other
expenses:
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
109,568
|
|
111,438
|
|
88,907
|
Occupancy
and equipment expense
|
|
28,922
|
|
28,915
|
|
24,462
|
Computer
services expense
|
|
7,392
|
|
6,699
|
|
6,281
|
Advertising
and marketing expense
|
|
5,092
|
|
4,861
|
|
4,597
|
Professional
and legal expense
|
|
3,110
|
|
4,543
|
|
2,027
|
Brokerage
fee expense
|
|
1,929
|
|
4,802
|
|
4,986
|
Telecommunication
expense
|
|
2,825
|
|
2,808
|
|
2,617
|
Other
intangibles amortization expense
|
|
3,554
|
|
3,504
|
|
1,971
|
Merchant
card processing
|
|
16,582
|
|
14,815
|
|
6,210
|
Charitable
contributions
|
|
30
|
|
4,686
|
|
695
|
Other
operating expenses
|
|
21,783
|
|
19,765
|
|
16,322
|
|
|
200,787
|
|
206,836
|
|
159,075
|
Income
(loss) before income taxes and discontinued operations
|
|
(7,154)
|
|
86,061
|
|
90,325
|
Income
taxes
|
|
(23,318)
|
|
24,036
|
|
27,269
|
Income
from continuing operations
|
|
16,164
|
|
62,025
|
|
63,056
|
Discontinued
operations
|
|
|
|
|
|
|
Income
from discontinued operations before income taxes
|
|
-
|
|
50,475
|
|
6,213
|
Income
taxes
|
|
-
|
|
18,637
|
|
2,155
|
Income
from discontinued operations
|
|
-
|
|
31,838
|
|
4,058
|
Net
income
|
|
$
16,164
|
|
$
93,863
|
|
$
67,114
|
Dividends
on preferred shares
|
|
789
|
|
-
|
|
-
|
Net
income available to common shareholders
|
|
$
15,375
|
|
$
93,863
|
|
$
67,114
|
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
Common
share data:
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
Basic
earnings per common share from continuing operations
|
|
$
0.44
|
|
$ 1.73
|
|
$
2.02
|
Basic
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
Basic
earnings per common share
|
|
$
0.44
|
|
$
2.61
|
|
$
2.15
|
Diluted
earnings per common share from continuing operations
|
|
$ 0.44
|
|
$
1.70
|
|
$
1.99
|
Diluted
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
Diluted
earnings per common share
|
|
$
0.44
|
|
$
2.58
|
|
$
2.12
|
Weighted
average common shares outstanding
|
|
34,706,092
|
|
35,919,900
|
|
31,156,887
|
Diluted
weighted average common shares outstanding
|
|
35,061,712
|
|
36,439,561
|
|
31,687,220
|
See
Accompanying Notes to Consolidated Financial Statements.
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Additional
|
|
Comprehensive
|
|
Total
Stock-
|
|
Comprehensive
|
Preferred
|
Common
|
Paid-in
|
Retained
|
Income
(Loss),
|
Treasury
|
holders'
|
|
Income
|
Stock
|
Stock
|
Capital
|
Earnings
|
Net
of Tax
|
Stock
|
Equity
|
Balance
at January 1, 2006
|
|
$
-
|
$289
|
$141,745
|
$390,407
|
$(9,453)
|
$(16,002)
|
$
506,986
|
Net
income
|
$
67,114
|
|
|
|
67,114
|
|
|
67,114
|
Unrealized
holding gains on investment securities,
|
|
|
|
|
|
|
|
|
net
of tax expense of $841
|
1,562
|
|
|
|
|
|
|
|
Reclassification
adjustments for losses included in
|
|
|
|
|
|
|
|
|
net
income, net of tax benefit of ($156)
|
289
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
1,851
|
|
|
|
|
1,851
|
|
1,851
|
Comprehensive
income
|
$
68,965
|
|
|
|
|
|
|
|
Issuance
of 8,374,308 shares of common stock in
|
|
|
84
|
296,812
|
|
|
|
296,896
|
business
combination
|
|
|
|
|
|
|
|
|
Issuance
of 45,217 shares of restricted stock, net of
|
|
|
|
|
|
|
|
|
forfeitures
and amortization
|
|
|
|
1,447
|
|
|
|
1,447
|
Purchase
of 390,000 shares of treasury stock
|
|
|
|
|
|
|
(13,833)
|
(13,833)
|
Reissuance
of 161 shares of treasury stock for
|
|
|
|
|
|
|
|
|
employee
stock awards
|
|
|
|
(1)
|
|
|
6
|
5
|
Paid-in
capital – stock options
|
|
|
|
1,643
|
|
|
|
1,643
|
Stock
options exercised - Reissuance of 185,582
|
|
|
|
|
|
|
|
|
shares
of treasury stock
|
|
|
|
(3,307)
|
|
|
7,434
|
4,127
|
Excess
tax benefits from stock-based payment
|
|
|
|
884
|
|
|
|
884
|
arrangements
|
|
|
|
|
|
|
|
|
Preferred
dividends declared
|
|
-
|
|
|
|
|
|
|
Cash
dividends declared ($0.66 per share)
|
|
|
|
|
(20,168)
|
|
|
(20,168)
|
Purchase
of 8,402 shares held in trust for
|
|
|
|
|
|
|
|
|
deferred
compensation plan
|
|
|
|
279
|
|
|
(279)
|
-
|
Balance
at December 31, 2006
|
|
$
-
|
$373
|
$439,502
|
$437,353
|
$(7,602)
|
$(22,674)
|
$
846,952
|
Net
income
|
$
93,863
|
|
|
|
93,863
|
|
|
93,863
|
Unrealized
holding gains on investment securities,
|
|
|
|
|
|
|
|
|
net
of tax expense of $6,715
|
12,470
|
|
|
|
|
|
|
|
Reclassification
adjustments for losses included in
|
|
|
|
|
|
|
|
|
net
income, net of tax benefit of ($1,469)
|
2,729
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
15,199
|
|
|
|
|
15,199
|
|
15,199
|
Comprehensive
income
|
$109,062
|
|
|
|
|
|
|
|
Issuance
of 68,695 shares of restricted stock, net of
|
|
|
|
|
|
|
|
|
forfeitures
and amortization
|
|
|
1
|
2,112
|
|
|
|
2,113
|
Purchase
of 2,333,270 shares of treasury stock
|
|
|
|
|
|
|
(77,524)
|
(77,524)
|
Reissuance
of 2,250 shares of treasury stock for
|
|
|
|
|
|
|
|
|
employee
stock awards
|
|
|
|
(70)
|
|
|
80
|
10
|
Reissuance
of 40,428 shares of treasury stock for
|
|
|
|
|
|
|
|
|
prior
Company Directors’ fees deferred
|
|
|
|
(819)
|
|
|
1,631
|
812
|
Paid-in
capital – stock options
|
|
|
|
2,127
|
|
|
|
2,127
|
Stock
options exercised - Reissuance of 173,415
|
|
|
|
|
|
|
|
|
shares
of treasury stock
|
|
|
|
(2,709)
|
|
|
6,498
|
3,789
|
Excess
tax benefits from stock-based payment
|
|
|
|
|
|
|
|
|
arrangements
|
|
|
|
984
|
|
|
|
984
|
Preferred
dividends declared
|
|
-
|
|
|
|
|
|
|
Cash
dividends declared ($0.72 per share)
|
|
|
|
|
(25,956)
|
|
|
(25,956)
|
Purchase
of 2,276 shares held in trust for
|
|
|
|
|
|
|
|
|
deferred
compensation plan
|
|
|
|
74
|
|
|
(74)
|
-
|
Balance
at December 31, 2007
|
|
$
-
|
$374
|
$441,201
|
$505,260
|
$
7,597
|
$(92,063)
|
$
862,369
|
(Continued)
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Additional
|
|
Comprehensive
|
|
Total
Stock-
|
|
Comprehensive
|
Preferred
|
Common
|
Paid-in
|
Retained
|
Income
(Loss),
|
Treasury
|
holders'
|
|
Income
|
Stock
|
Stock
|
Capital
|
Earnings
|
Net
of Tax
|
Stock
|
Equity
|
Balance
at January 1, 2008
|
|
$ -
|
$374
|
$441,201
|
$505,260
|
$
7,597
|
$(92,063)
|
$
862,369
|
Net
income
|
$
16,164
|
|
|
|
16,164
|
|
|
16,164
|
Unrealized
holding gains on investment securities,
|
|
|
|
|
|
|
|
|
net
of tax expense of $5,410
|
10,048
|
|
|
|
|
|
|
|
Reclassification
adjustments for gains included in
|
|
|
|
|
|
|
|
|
net
income, net of tax expense of ($395)
|
(735)
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
9,313
|
|
|
|
|
9,313
|
|
9,313
|
Comprehensive
income
|
$
25,477
|
|
|
|
|
|
|
|
Issuance
of 126,078 shares of restricted stock, net of
|
|
|
|
|
|
|
|
|
forfeitures
and amortization
|
|
|
1
|
2,227
|
|
|
|
2,228
|
Purchase
of 51,274 shares of treasury stock
|
|
|
|
|
|
|
(1,349)
|
(1,349)
|
Reissuance
of 13,098 shares of treasury stock for
|
|
|
|
|
|
|
|
|
employee
stock awards
|
|
|
|
(465)
|
|
|
465
|
-
|
Issuance
of 15,867 shares for employee stock awards
|
|
|
-
|
|
|
|
|
-
|
Paid-in
capital – stock options
|
|
|
|
651
|
|
|
|
651
|
Stock
options exercised - Reissuance of 230,877
|
|
|
|
|
|
|
|
|
shares
of treasury stock
|
|
|
|
(3,590)
|
|
|
8,175
|
4,585
|
Excess
tax benefits from stock-based payment
|
|
|
|
|
|
|
|
|
arrangements
|
|
|
|
2,032
|
|
|
|
2,032
|
Issuance
of preferred stock
|
|
192,944
|
|
|
|
|
|
192,944
|
Issuance
of stock warrant
|
|
|
|
3,056
|
|
|
|
3,056
|
Dividends
on preferred shares
|
|
81
|
|
|
(789)
|
|
|
(708)
|
Restricted
stock unit dividends
|
|
|
|
40
|
(40)
|
|
|
|
Cash
dividends declared ($0.72 per share)
|
|
|
|
|
(25,090)
|
|
|
(25,090)
|
Purchase
of 19,271 shares held in trust for
|
|
|
|
|
|
|
|
|
deferred
compensation plan
|
|
|
|
540
|
|
|
(540)
|
-
|
Balance
at December 31, 2008
|
|
$193,025
|
$375
|
$445,692
|
$495,505
|
$16,910
|
$(85,312)
|
$1,066,195
|
See
Accompanying Notes to Consolidated Financial Statements.
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
(Amounts
in Thousands)
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
income
|
|
$
16,164
|
|
$
93,863
|
|
$ 67,114
|
Net
income from discontinued operations
|
|
-
|
|
(31,838)
|
|
(4,058)
|
Adjustments
to reconcile net income to net cash provided by continuing
operating activities:
|
|
|
|
|
|
|
Depreciation
on premises and equipment
|
|
11,743
|
|
11,179
|
|
9,599
|
Depreciation
on leased equipment
|
|
31,995
|
|
26,097
|
|
27,548
|
Amortization
of restricted stock awards
|
|
2,228
|
|
2,113
|
|
1,447
|
Compensation
expense for stock option grants
|
|
651
|
|
3,110
|
|
2,527
|
(Gain)
loss on sales of premises and equipment and leased
equipment
|
|
382
|
|
(11,683)
|
|
(1,830)
|
Amortization
of other intangibles
|
|
3,554
|
|
3,504
|
|
1,971
|
Provision
for loan losses
|
|
125,721
|
|
19,313
|
|
10,100
|
Deferred
income tax expense (benefit)
|
|
(22,574)
|
|
(683)
|
|
11,000
|
Amortization
of premiums and discounts on investment securities, net
|
|
3,519
|
|
2,274
|
|
5,964
|
Accretion
of premiums and discounts on loans, net
|
|
(2,732)
|
|
(3,272)
|
|
(2,097)
|
Trading
securities transactions, net
|
|
-
|
|
-
|
|
903
|
Net
(gain) loss on sale of investment securities
|
|
(1,130)
|
|
3,744
|
|
445
|
Proceeds
from sale of loans held for sale
|
|
44,108
|
|
61,794
|
|
385,346
|
Origination
of loans held for sale
|
|
(43,586)
|
|
(60,994)
|
|
(39,060)
|
Net
gain on sale of loans held for sale
|
|
(522)
|
|
(800)
|
|
(954)
|
Increase
in cash surrender value of life insurance
|
|
(2,836)
|
|
(2,556)
|
|
(3,964)
|
Gain
on interest only securities pool termination
|
|
-
|
|
-
|
|
(718)
|
(Increase)
decrease in other assets
|
|
(36,484)
|
|
9,460
|
|
(19,110)
|
Increase
(decrease) in other liabilities, net
|
|
17,475
|
|
17,092
|
|
(7,218)
|
Net
cash provided by continuing operating activities
|
|
147,676
|
|
141,717
|
|
444,955
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
Proceeds
from sales of investment securities available for sale
|
|
14,806
|
|
315,837
|
|
400,710
|
Proceeds
from maturities and calls of investment securities available for
sale
|
|
351,420
|
|
409,777
|
|
266,420
|
Purchase
of investment securities available for sale
|
|
(513,396)
|
|
(317,653)
|
|
(239,207)
|
Net
increase in loans
|
|
(657,026)
|
|
(654,054)
|
|
(411,274)
|
Purchases
of premises and equipment
|
|
(15,440)
|
|
(17,238)
|
|
(12,829)
|
Purchases
of leased equipment
|
|
(61,050)
|
|
(47,397)
|
|
(45,952)
|
Proceeds
from sales of premises and equipment
|
|
129
|
|
21,842
|
|
1,768
|
Proceeds
from sales of leased equipment
|
|
3,164
|
|
6,597
|
|
5,302
|
Principal
paid on lease investments
|
|
(1,099)
|
|
(774)
|
|
(721)
|
Cash
proceeds received from sale of bank subsidiary
|
|
-
|
|
76,148
|
|
-
|
Cash
paid, net of cash and cash equivalents in acquisitions
|
|
(9,333)
|
|
-
|
|
(58,979)
|
Net
cash used in continuing investing activities
|
|
(887,825)
|
|
(206,915)
|
|
(94,762)
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
981,788
|
|
(66,770)
|
|
(208,413)
|
Net
(decrease) increase in short-term borrowings
|
|
(489,102)
|
|
210,117
|
|
(71,943)
|
Proceeds
from long-term borrowings
|
|
285,384
|
|
51,530
|
|
65,045
|
Principal
paid on long-term borrowings
|
|
(22,783)
|
|
(9,445)
|
|
(89,157)
|
Proceeds
from junior subordinated notes issued to capital trusts
|
|
-
|
|
52,500
|
|
30,000
|
Principal
paid on junior subordinated notes issued to capital trusts
|
|
-
|
|
(71,800)
|
|
-
|
Issuance
of preferred stock
|
|
192,944
|
|
-
|
|
-
|
Issuance
of common stock warrant
|
|
3,056
|
|
-
|
|
-
|
Treasury
stock transactions, net
|
|
(1,348)
|
|
(76,703)
|
|
(14,107)
|
Stock
options exercised
|
|
4,585
|
|
3,789
|
|
4,124
|
Excess
tax benefits from share-based payment arrangements
|
|
2,032
|
|
984
|
|
884
|
Dividends
paid on common stock
|
|
(25,090)
|
|
(25,956)
|
|
(20,168)
|
Net
cash provided by (used in) continuing financing
activities
|
|
931,466
|
|
68,246
|
|
(303,735)
|
Net
increase in cash and cash equivalents from continuing
operations
|
|
$
191,317
|
|
$
3,048
|
|
$
46,458
|
Cash
Flows From Discontinued Operations
|
|
|
|
|
|
|
Net cash
provided by operating activities of discontinued
operations
|
|
-
|
|
5,817
|
|
5,548
|
Net cash
used in investing activities of discontinued operations
|
|
-
|
|
(21,191)
|
|
(14,682)
|
Net cash
provided by financing activities of discontinued
operations
|
|
-
|
|
2,617
|
|
17,942
|
Net
cash provided by (used in) discontinued operations
|
|
-
|
|
(12,757)
|
|
8,808
|
Net
increase/(decrease) in cash and cash equivalents
|
|
$
191,317
|
|
$ (9,709)
|
|
$ 55,266
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
Beginning
of year (1)
|
|
150,341
|
|
160,050
|
|
104,784
|
End
of year (2)
|
|
$
341,658
|
|
$
150,341
|
|
$160,050
|
(1)
Includes balances from discontinued operations
|
|
$
-
|
|
$
12,757
|
|
$
3,947
|
(2)
Includes balances from discontinued operations
|
|
$
-
|
|
$
-
|
|
$
12,757
|
See
Accompanying Notes to Consolidated Financial Statements.
MB
FINANCIAL, INC. & SUBSIDIARIES
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
(Amounts
in Thousands)
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
payments for:
|
|
|
|
|
|
|
Interest
paid to depositors and other borrowed funds
|
|
$190,266
|
|
$249,292
|
|
$ 177,867
|
Income
taxes paid, net of refunds
|
|
12,767
|
|
35,642
|
|
31,451
|
|
|
|
|
|
|
|
Supplemental
Schedule of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
transferred to other real estate owned
|
|
$
6,327
|
|
$ 1,249
|
|
$
3,074
|
Loans
transferred to repossessed vehicles
|
|
1,519
|
|
681
|
|
-
|
Loans
securitized transferred to investment securities available for
sale
|
|
50,914
|
|
-
|
|
-
|
Long-term
borrowings reclassified to short-term borrowings
|
|
-
|
|
79,100
|
|
-
|
|
|
|
|
|
|
|
Supplemental
Schedule of Noncash Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
assets acquired:
|
|
|
|
|
|
|
Investment
securities available for sale
|
|
$
-
|
|
$
-
|
|
$
744,292
|
Trading
securities
|
|
-
|
|
-
|
|
898
|
Loans
held for sale
|
|
-
|
|
-
|
|
1,471
|
Loans,
net
|
|
-
|
|
-
|
|
1,075,277
|
Loans
held for sale
|
|
-
|
|
-
|
|
343,361
|
Premises
and equipment, net
|
|
72
|
|
-
|
|
48,703
|
Goodwill,
net
|
|
8,022
|
|
-
|
|
253,783
|
Other
intangibles, net
|
|
3,978
|
|
-
|
|
18,233
|
Cash
surrender value of life insurance
|
|
-
|
|
-
|
|
26,507
|
Other
assets
|
|
828
|
|
-
|
|
21,321
|
Total
noncash assets acquired:
|
|
$
12,900
|
|
$
-
|
|
$2,533,846
|
|
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
|
|
|
Deposits
|
|
$
-
|
|
$
-
|
|
$1,882,754
|
Short-term
borrowings
|
|
-
|
|
-
|
|
46,937
|
Long-term
borrowings
|
|
-
|
|
-
|
|
212,414
|
Junior
subordinated notes issued to capital trusts
|
|
-
|
|
-
|
|
24,775
|
Accrued
expenses and other liabilities
|
|
1,067
|
|
-
|
|
12,559
|
Total
liabilities assumed:
|
|
$ 1,067
|
|
$
-
|
|
$2,179,439
|
Net
noncash assets acquired:
|
|
$
11,833
|
|
$
-
|
|
$
354,407
|
|
|
|
|
|
|
|
Cash
and cash equivalents acquired
|
|
$
667
|
|
$
-
|
|
$ 16,585
|
|
|
|
|
|
|
|
Minority
interest
|
|
$
2,500
|
|
$ -
|
|
$
-
|
|
|
|
|
|
|
|
Stock
issuance in lieu of cash paid in acquisition
|
|
$
-
|
|
$
-
|
|
$
296,896
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
Note
1.
Significant
Accounting Policies
MB
Financial, Inc. (the Company, we, us, our) is a
financial holding
company providing a full range
of financial services to individuals and
corporate customers through its banking subsidiary, MB Financial Bank,
N.A.
The
Company’s primary market is the Chicago, Illinois metropolitan area, in which
the Company operates 71 banking offices through MB Financial Bank,
N.A. MB Financial Bank, N.A. also has one banking office in
Philadelphia, Pennsylvania.
MB
Financial Bank N.A., our largest subsidiary, has seven wholly owned subsidiaries
with significant operating activities: MB Financial Center LLC; MB Financial
Community Development Corporation; MBRE Holdings LLC; LaSalle Systems Leasing,
Inc.; Vision Investment Services, Inc.; Cedar Hill Associates, LLC; and Ashland
Management LLC.
Basis of Financial Statement
Presentation:
The consolidated financial statements include the accounts
of the Company and its subsidiaries. Significant intercompany items
and transactions have been eliminated in consolidation. The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and general
practices within the financial services industry. In accordance with
applicable accounting standards, the Company does not consolidate statutory
trusts established for the sole purpose of issuing trust preferred securities
and related trust common securities. See
Note 13
below for more detail. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the year. Actual results could differ
from those estimates. Areas involving the use of management's
estimates and assumptions, which are more susceptible to change in the near term
include the allowance for loan losses; residual value of direct finance,
leveraged, and operating leases; income tax accounting; and goodwill impairment
analysis.
We
adopted SFAS No. 157,
Fair
Value Measurements
(SFAS 157) effective January 1, 2008. SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosure of fair value measurements. The adoption of SFAS 157 did
not have a material impact on the consolidated financial statements or results
of operations of the Company. In accordance with Financial Accounting
Standards Board Staff Position (FSP) No. 157-2, "Effective Date of FASB
Statement No. 157," the Company will delay application of SFAS 157 for
non-financial assets and non-financial liabilities such as goodwill, other
intangibles, real estate owned, and repossessed assets until January 1,
2009. SFAS 157 applies to all financial instruments that are measured
and reported on a fair value basis. See
Note 19
for additional information.
In
conjunction with the adoption of SFAS 157, we also adopted SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities – Including an
Amendment of SFAS No. 115 (SFAS 159) as of January 1, 2008. SFAS 159
provides companies the option to report selected financial assets and
liabilities at fair value. This statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. After the initial adoption, the election is made at the acquisition
of a financial asset or financial liability and it may not be
revoked. The Company has not elected the fair value option for any
financial assets or liabilities. See
Note 19
for additional information.
On
November 28, 2007, the Company sold Union Bank to Olney Bancshares of Texas,
Inc. This divestiture is accounted for in the accompanying financial
statements as discontinued operations. Please see
Note 3
to the notes to the audited consolidated financial
statements for more detail.
Cash and cash
equivalents:
For purposes of reporting cash flows, cash and cash
equivalents includes cash on hand, amounts due from banks (including cash items
in process of clearing), interest-bearing deposits with banks, with original
maturities of ninety days or less, and federal funds sold.
Investment securities
available for sale:
Securities classified as available for sale are those
securities that the Company intends to hold for an indefinite period of time,
but not necessarily to maturity. Any decision to sell a security
classified as available for sale is based on various factors, including
significant movements in interest rates, changes in the maturity mix of assets
and liabilities, liquidity needs, regulatory capital considerations, and other
factors.
Securities
available for sale are reported at fair value with unrealized gains or losses
reported as accumulated other comprehensive income, net of the related deferred
tax effect. The historical cost of debt securities is adjusted for
amortization of premiums and accretion of discounts over the estimated life of
the security, using the level-yield method. In determining
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
the estimated
life of a mortgage-related security, certain judgments are required as to the
timing and amount of future principal prepayments. These judgments
are made based upon the actual performance of the underlying security and the
general market consensus regarding changes in mortgage interest rates and
underlying prepayment estimates. Amortization of premium and
accretion of discount is included in interest income from the related
security. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings. The
Company evaluates the portfolio for impairment each quarter. In
estimating other-than-temporary losses, the Company considers the length of time
and the extent to which the fair value has
been
less than
cost, the financial condition and near-term prospects of the issuer, and the
intent and ability of the Company to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair
value. If a security has been impaired for more than twelve months,
and the impairment is deemed other than temporary and material, a write down
will occur in that quarter. If a loss is deemed to be
other-than-temporary, it is recognized as a realized loss in the income
statement with the security assigned a new cost basis.
Loans
held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Gains and losses recognized on mortgage loans held for
sale include the value of the mortgage servicing rights if the loan is sold with
servicing retained by the Company. Mortgage servicing rights are
stratified based on the predominant risk characteristics of rates, terms, and
the underlying loan types to measure its fair value. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
Loans and leases:
Loans are stated at the amount of unpaid principal reduced by the allowance for
loan losses and unearned income. Direct finance and leveraged leases
are included as lease loans for financial statement purposes. Direct
finance leases are stated as the sum of remaining minimum lease payments from
lessees plus estimated residual values less unearned lease
income. Leveraged leases are stated at the sum of remaining minimum
lease payments from lessees (less nonrecourse debt payments) plus estimated
residual values less unearned lease income. On a monthly basis,
management reviews the lease residuals for potential
impairment. Unearned lease income on direct finance and leveraged
leases is recognized over the lives of the leases using the level-yield
method.
Loan
origination and commitment fees and certain direct loan origination costs are
deferred and the net amount amortized as an adjustment of the related loan's
yield. The Company is amortizing these amounts over the contractual
life of the loan. Commitment fees based upon a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
Interest
income is accrued daily on the Company’s outstanding loan
balances. The accrual of interest on loans is discontinued at the
time the loan is 90 days past due unless the credit is well-secured and in
process of renewal or collection. Past due status is based on
contractual terms of the loan. In all cases, loans are placed on
non-accrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful. All interest accrued but not
collected for loans that are placed on non-accrual or charged off is reversed
against interest income.
For
impaired loans, accrual of interest is discontinued on a loan when management
believes, after considering collection efforts and other factors, the borrower's
financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans are credited to the loan
balance, and no interest income is recognized on those loans until the principal
balance has been determined to be collectible. Loans, other than
those included in large groups of smaller-balance homogeneous loans, are
considered impaired when it is probable the Company will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the loan agreement. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. The amount of impairment, if any, and any subsequent
changes are charged against the allowance for loan losses.
The
allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb probable losses on existing loans, based on an evaluation of
the collectibility of loans and prior loss and recovery
experience. The allowance for loan losses is based on management’s
evaluation of the loan portfolio giving consideration to the nature and volume
of the loan portfolio, the value of underlying collateral, overall portfolio
quality, review of specific problem loans, and prevailing economic
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
conditions that
may affect the borrower's ability to pay. While management uses the
best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review MB Financial Bank’s allowance for
loan losses, and may require it to recognize adjustments to its allowance based
on their judgments of information available to them at the time of their
examinations.
Lease
investments:
The Company's investment in assets leased to others is
reported as lease investments, net, and accounted for as operating
leases. Rental income on operating leases is recognized as income
over the lease term according to the provisions of the lease, which is generally
on a straight-line basis. The investment in equipment in operating
leases is stated at cost less depreciation using the straight-line method
generally over a life of five years or less.
Premises and
equipment:
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization is
computed by the straight-line method over the estimated useful lives of the
assets. Useful lives range from five to ten years for furniture and
equipment, and five to thirty-nine years for buildings and building
improvements. Land improvements are amortized over a period of
fifteen years and leasehold improvements are amortized over the term of the
related lease or the estimated useful lives of the improvements, whichever is
shorter. Land is not subject to depreciation. Maintenance
and repairs are charged to expense as incurred, while major improvements are
capitalized and amortized to operating expense over their identified useful
lives. Premises and equipment and other long-lived assets are tested
for impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair
value.
Other real estate owned
(OREO):
OREO includes real estate assets that have been received in
satisfaction of debt and is included in other assets. OREO is
initially recorded and subsequently carried at the lower of cost or fair value
less estimated selling costs. Any valuation adjustments required at
the date of transfer are charged to the allowance for loan
losses. Subsequently, unrealized losses and realized gains and losses
on sale are included in other noninterest income. Operating results
from OREO are recorded in other non-interest expense. The Company had
$4.4 million of OREO recorded at December 31, 2008.
Cash surrender value of life
insurance:
The Company has purchased bank-owned life insurance policies
on certain executives. Bank-owned life insurance is recorded at its
cash surrender value. Changes in the cash surrender values are
included in non-interest income.
Goodwill
: The excess
of the cost of an acquisition over the fair value of the net assets acquired
consist of goodwill and core deposit intangibles (see
“Other intangibles”
section below). Under the
provisions of Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible
Assets
, goodwill is subject to at least annual assessments for impairment
by applying a fair value based test. The Company reviews goodwill and
other intangible assets to determine potential impairment annually, or more
frequently if events and circumstances indicate that the asset might be
impaired, by comparing the carrying value of the asset with the anticipated
future cash flows.
The
Company’s stock price has historically traded above its book value and was
trading above its book value as of December 31, 2008. In the
event the Company’s stock price were to trade below its book value and tangible
book value, the Company would perform its usual evaluation of the carrying value
of goodwill as of the reporting date. Such a circumstance would be one
factor in its evaluation that could result in an eventual goodwill impairment
charge. Additionally, should the Company’s future earnings and cash flows
decline and/or discount rates increase, an impairment charge to goodwill and
other intangible assets may also be required.
The
Company’s annual assessment date is as of
December 31. No impairment losses were recognized in 2008,
2007 or 2006. Should we determine in a future period that the
goodwill recorded in connection with our acquisitions has been impaired, then a
charge to our earnings will be recorded in the period such determination is
made.
Other
intangibles
:
The Company’s other intangible assets consist of core
deposit intangibles obtained through acquisitions. Core deposit
intangibles (the portion of an acquisition purchase price which represents value
assigned to the existing deposit base) have finite lives and are amortized by
the declining balance method over four to fifteen years.
Preferred stock:
Preferred stock callable at the option of the Company is initially recorded at
the amount of proceeds received. Any discount from the liquidation
value is accreted to the expected call date and charged to retained
earnings. This accretion is recorded using the level-yield
method. Preferred dividends paid (declared and accrued) and any
accretion is deducted from net income for computing income available to common
shareholders and earnings per share computations.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Treasury
stock:
Treasury stock is recorded at acquisition cost. Gains and losses
on disposition are recorded as increases or decreases to additional paid-in
capital with losses in excess of previously recorded gains charged directly to
retained earnings.
Derivative
Financial Instruments and Hedging Activities
: SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities,
as amended by SFAS No. 137, 138, 149
and 155 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 No. 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.
All
derivatives are recognized on the consolidated balance sheet at their fair
value. On the date the derivative contract is entered into, the
Company designates the derivative as either a fair value hedge (i.e. a hedge of
the fair value of a recognized asset or liability) or a cash flow hedge (i.e. a
hedge of the variability of cash flows to be received or paid related to a
recognized asset or liability). The Company formally documents all
relationships between hedging instruments and hedging items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are
designated as fair value hedges or cash flow hedges to specific assets or
liabilities on the balance sheet. The Company also formally assesses,
both at the hedge's inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. If it is determined
that a derivative is not highly effective as a hedge or that it has ceased to be
a highly effective hedge, the Company discontinues hedge accounting
prospectively.
For a
derivative designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash
flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive income and are recognized in the
income statement when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in
earnings.
The
Company discontinues hedge accounting prospectively when it is determined that
the derivative is no longer effective in offsetting changes in the fair value or
cash flows of the hedged item, the derivative expires or is sold, terminated, or
exercised, the derivative is designated as a hedging instrument, or management
determines that designation of the derivative as a hedging instrument is no
longer appropriate. When hedge accounting is discontinued because it
is determined that the derivative no longer qualifies as an effective fair value
hedge, the Company continues to carry the derivative on the balance sheet at its
fair value, and no longer adjusts the hedged asset or liability for changes in
fair value. The adjustment of the carrying amount of the hedged asset
or liability is accounted for in the same manner as other components of the
carrying amount of that asset or liability.
Transfers of financial
assets
: Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when the assets have been
isolated from the Company, the transferee obtains the right (free of conditions
that constrain it from taking advantage of the right) to pledge or exchange the
transferred assets, and the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.
Merchant Card
Processing:
The Company works with merchants in local markets to help
process credit card transactions for Master Card and Visa. A third
party vendor is used to process the corresponding data. The Company
records merchant card processing revenue and expense on a gross basis as other
operating income and expense.
Sale of Maintenance
Contracts:
LaSalle Business Solutions (LBS) sells third party maintenance
to customers. The maintenance is serviced by third party providers,
with LBS maintaining no legal obligation under the contract to perform
additional services. Revenues are recorded net of cost of sales, as
LBS is viewed as an agent under EITF 99-19,
Reporting Revenue Gross as a
Principal versus Net as an Agent,
accepting minimal credit risk,
maintaining no obligation to perform maintenance under the contracts and having
no control over selection of the maintenance supplier.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Asset
Management and Trust assets:
Assets of the asset management and trust
department, other than trust cash on deposit at MB Financial Bank, are not
included in these consolidated financial statements because they are not assets
of the Bank.
Stock-based
compensation:
The Company accounts for its equity awards in accordance
with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”
(Statement 123R), which the Company adopted in the quarter ended March 31,
2006. Statement 123R requires public companies to recognize
compensation expense related to stock-based equity awards in their income
statements. See
Note 20
below for more
information.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards, and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Earnings per common
share:
Basic earnings per common share represent income available to
common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflect
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be
issued by the Company relate solely to outstanding stock options, stock
warrants, restricted stock, restricted stock units and director stock units and
are determined using the treasury stock method.
Earnings
per common share have been computed for the years ended December 31, 2008, 2007
and 2006 based on the following (dollars in thousands except per share
data):
|
2008
|
2007
|
2006
|
Basic:
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$16,164
|
|
$62,025
|
|
$63,056
|
Net
income from discontinued operations
|
|
-
|
|
31,838
|
|
4,058
|
Net
income
|
|
16,164
|
|
93,863
|
|
67,114
|
Dividends
on preferred shares
|
|
789
|
|
-
|
|
-
|
Net
income available to common shareholders
|
|
$15,375
|
|
$93,863
|
|
$67,114
|
Average
shares outstanding
|
|
34,706,092
|
|
35,919,900
|
|
31,156,887
|
Basic
earnings per common share from continuing operations
|
|
$
0.44
|
|
$
1.73
|
|
$
2.02
|
Basic
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
Basic
earnings per common share
|
|
$ 0.44
|
|
$
2.61
|
|
$
2.15
|
Diluted:
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$16,164
|
|
$62,025
|
|
$63,056
|
Net
income from discontinued operations
|
|
-
|
|
31,838
|
|
4,058
|
Net
Income
|
|
$16,164
|
|
$93,863
|
|
$67,114
|
Dividends
on preferred shares
|
|
789
|
|
-
|
|
-
|
Net
income available to common shareholders
|
|
$15,375
|
|
$93,863
|
|
$67,114
|
Average
shares outstanding
|
|
34,706,092
|
|
35,919,900
|
|
31,156,887
|
Net
effect of dilutive equity-based incentive awards(1) (2)
|
|
355,620
|
|
519,661
|
|
530,333
|
Total
|
|
35,061,712
|
|
36,439,561
|
|
31,687,220
|
Diluted
earnings per common share from continuing operations
|
|
$ 0.44
|
|
$
1.70
|
|
$
1.99
|
Diluted
earnings per common share from discontinued operations
|
|
$
-
|
|
$
0.88
|
|
$
0.13
|
Diluted
earnings per common share
|
|
$
0.44
|
|
$
2.58
|
|
$
2.12
|
(1)
|
Includes
the common stock equivalents for stock options and restricted share rights
(restricted stock, restricted stock units and director stock units) that
are dilutive.
|
(2)
|
Options
and warrants for which the exercise price of the option or warrant is
greater than the average market price of the Company’s common stock are
antidilutive and, therefore, not included in the computation of diluted
earnings per share. Antidilutive shares excluded from diluted earnings per
share totaled 1,981,794 shares for 2008, 1,155,394 shares for 2007, and
715,768 shares for 2006.
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comprehensive
income:
Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized
gains and losses on securities available-for-sale, net of deferred taxes, which
are reported as a separate component of stockholders’ equity on the consolidated
balance sheet.
Segment
Reporting:
The Company has one reportable segment. The
Company’s chief operating decision-makers use consolidated results to make
operating and strategic decisions.
Recent accounting
pronouncements
:
The FASB issued FASB
Statement No. 163,
Accounting
for Financial Guarantee Insurance Contracts
(SFAS 163). This
new standard clarifies how FASB Statement No. 60,
Accounting and Reporting by
Insurance Enterprises,
applies to financial guarantee insurance contracts
issued by insurance enterprises, including the recognition and measurement of
premium revenue and claim liabilities. It also requires expanded disclosures
about financial guarantee insurance contracts.
SFAS 163
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years, except for
disclosures about the insurance enterprise’s risk-management activities, which
are effective the first period (including interim periods) beginning after May
23, 2008. Except for the required disclosures, earlier application is not
permitted. Management does not believe that the adoption of SFAS 163 will
have a material impact on the Company’s financial statements.
The FASB
issued FASB Staff Position (FSP) EITF 03-6-1,
“Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.”
(FSP EITF 03-6-1). FSP EITF 03-6-1
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. FSP EITF 03-6-1 will be
effective on January 1, 2009. All previously reported earnings per share
data will be retrospectively adjusted to conform with the provisions of
FSP EITF 03-6-1. Management is currently evaluating the provisions of
FSP EITF 03-6-1 and its potential effect on its financial
statements.
The FASB
issued FASB Staff Position (FSP) FAS 157-3,
Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3 clarifies the application of FASB Statement No. 157, Fair Value
Measurements, in a market that is not active.
FSP 157-3
is effective October 10, 2008, and for prior periods for which financial
statements have not been issued. Revisions resulting from a change in the
valuation technique or its application should be accounted for as a change in
accounting estimate following the guidance in FASB Statement No. 154,
Accounting Changes and Error
Corrections
(SFAS 154). However, the disclosure provisions in SFAS 154
for a change in accounting estimate are not required for revisions resulting
from a change in valuation technique or its application. The adoption
of FSP 157-3 did not have a material impact on the Company’s financial
statements.
The FASB
has issued FASB Statement No. 162,
The Hierarchy of Generally Accepted
Accounting Principles
(SFAS 162)
.
SFAS 162 is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles for nongovernmental entities. SFAS 162
is effective 60 days following the SEC's approval of the PCAOB amendments to AU
Section 411,
The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles.
Management does not believe that the adoption of
SFAS 162 will have a material impact on the Company’s financial
statements.
On March
19, 2008, the FASB issued FASB Statement No. 161,
Disclosures
about Derivative Instruments and Hedging Activities - an Amendment of FASB
Statement 133
(SFAS 161)
.
SFAS 161 enhances required disclosures regarding derivatives and hedging
activities, including enhanced disclosures regarding how: (
a
)
an entity uses derivative instruments; (
b
)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133,
Accounting
for Derivative Instruments and Hedging Activities;
and (
c
)
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. Specifically, SFAS 161
requires:
·
|
Disclosure
of the objectives for using derivative instruments be disclosed in terms
of underlying risk and accounting
designation;
|
·
|
Disclosure
of the fair values of derivative instruments and their gains and losses in
a tabular
format
;
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
·
|
Disclosure
of information about credit-risk-related contingent features;
and
|
·
|
Cross-reference
from the derivative footnote to other footnotes in which
derivative-related information is
disclosed.
|
Statement
No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. Management is currently evaluating the provisions
of SFAS 161 and its potential effect on its financial statements.
On
December 4, 2007, the FASB issued FASB Statement 141R,
Business Combinations
(SFAS
141R)
.
SFAS
141R will significantly change the accounting for business
combinations. Under Statement 141R, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited
exceptions. SFAS 141R will change the accounting treatment for
certain specific items, including:
·
|
acquisition
costs will be generally expensed as
incurred;
|
·
|
noncontrolling
interests (formerly known as "minority interests") will be valued at fair
value at the acquisition date;
|
·
|
acquired
contingent liabilities will be recorded at fair value at the acquisition
date and subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies;
|
·
|
the
acquirer shall not recognize a separate valuation allowance as of the
acquisition date for assets acquired in a business that are measured at
their acquisition-date fair value;
|
·
|
restructuring
costs associated with a business combination will be generally expensed
subsequent to the acquisition date;
and
|
·
|
changes
in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax
expense.
|
SFAS 141R
also includes a substantial number of new disclosure
requirements. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. Earlier adoption is prohibited
.
Management is
currently evaluating the provisions of SFAS 141R and its potential effect on its
financial statements.
On
December 4, 2007, the FASB issued FASB Statement No. 160,
Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51
(SFAS
160)
.
SFAS
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of
a noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent's equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
160 clarifies that changes in a parent's ownership interest in a subsidiary that
do not result in deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation
date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling
interest. SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. Management is
currently evaluating the provisions of SFAS 160 and its potential effect on the
Company’s financial statements.
Reclassifications:
Certain prior period amounts have been reclassified to conform to current period
presentation. These reclassifications did not result in any changes
to previously reported net income or stockholders’ equity.
Business Combinations.
The
following business combinations were accounted for under the purchase method of
accounting. Accordingly, the results of operations of the acquired
companies have been included in the Company’s results of operations since the
date of acquisition. Under this method of accounting, the purchase
price is allocated to the respective
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
assets
acquired and liabilities assumed based on their estimated fair values, net of
applicable income tax effects. The excess cost over fair value of net
assets acquired is recorded as goodwill.
On August
25, 2006, the Company acquired First Oak Brook Bancshares, Inc. (FOBB), parent
company of Oak Brook Bank, located in Oak Brook, Illinois, for $371.0
million. The purchase price was paid through a combination of cash
and the Company’s common stock totaling $74.1 million and $296.9 million
(approximately 8.4 million shares), respectively. The transaction
generated approximately $253.8 million in goodwill and $18.2 million in
intangible assets subject to amortization. Oak Brook Bank was merged
into MB Financial Bank on November 2, 2006.
Pro
Forma Condensed Combined Financial Information
The
following pro forma condensed combined financial information presents the
results of operations of the Company had the merger been completed as of the
beginning of the period indicated (thousands, except share and per share
data).
|
Year
Ended
|
|
December
31,
|
|
2006
|
|
|
Net
interest income after provision for loan losses
|
$
208,326
|
Noninterest
income
|
88,663
|
Noninterest
expense
|
198,126
|
Income
before income taxes
|
98,863
|
Income
taxes
|
29,674
|
Net
income from continuing operations
|
$
69,189
|
Discontinued
operations
|
|
Income
from discontinued operations before income taxes
|
6,213
|
Income
taxes
|
2,155
|
Income
from discontinued operations
|
4,058
|
Net income available to common
shareholders
|
$
73,247
|
|
|
Common
share data:
|
|
Basic
earnings per common share from continuing operations
|
$
1.89
|
Basic
earnings per common share from discontinued operations
|
$
0.11
|
Basic
earnings per common share
|
$
2.00
|
Diluted
earnings per common share from continuing operations
|
$
1.86
|
Diluted
earnings per common share from discontinued operations
|
$
0.11
|
Diluted
earnings per common share
|
$
1.97
|
|
|
Average
common shares issued and outstanding
|
36,583,597
|
Average
diluted common shares outstanding
|
37,093,116
|
These
unaudited proforma results have been prepared for comparative purposes only and
include certain adjustments, such as additional amortization expense on revalued
purchased assets and implied interest on additional borrowings to fund the
acquisition and does not include the impact of expected cost
savings. All adjustments were tax affected. They do not
purport to be indicative of the results of operations that actually would have
resulted had the combination occurred on January 1, 2006, or of future results
of operations of the consolidated entities.
On April
18, 2008, we purchased an 80% interest in Cedar Hill Associates, LLC (Cedar
Hill), an asset management firm located in Chicago, Illinois, with approximately
$960 million in assets under management. The purchase of Cedar Hill
complements and expands our wealth management product offerings and
revenues. The transaction generated approximately $8.0 million in
goodwill, $4.0 million in client relationship intangibles, and $2.5 million in
minority interest. In addition, the purchase agreement contains
potential deferred payments related to earn-out provisions over a three year
period. Any future deferred payments related to these earn-out
provisions will be applied to the purchase price. Cedar Hill operates
as a subsidiary of MB Financial Bank.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Pro forma
results of operation for Cedar Hill for the year ended December 31, 2008 are not
included as Cedar Hill would not have had a material impact on the Company’s
financial statements.
On
November 28, 2007, we completed the sale of our Oklahoma City-based subsidiary
bank, Union Bank, N.A., for $76.3 million, resulting in an after-tax gain of
$28.8 million. Prior to closing, Union Bank sold to MB Financial Bank
approximately $100 million in performing loans previously purchased from and
originated by MB Financial Bank.
The sale
of Union allows us to concentrate our resources on growth and expansion in the
Chicago metropolitan market where we operate 71 offices under MB Financial
Bank.
In
accordance with FASB Statement No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” the financial position of Union Bank is
reflected on the Company’s balance sheets as “assets held for sale” and
“liabilities held for sale”, and the results of operations of Union Bank are
reflected in the Company’s statements of income as “discontinued
operations.”
The
results of operations for Union Bank were as follows (in
thousands):
|
Years
Ended December 31,
|
|
2007
(1)
|
2006
|
|
|
|
Interest
income
|
$21,946
|
$24,189
|
Interest
expense
|
10,216
|
10,957
|
Net
interest income
|
11,730
|
13,232
|
Provision
for loan losses
|
1,185
|
-
|
Net
interest income after provision for loans losses
|
10,545
|
13,232
|
Other
income
|
999
|
1,585
|
Other
expenses
|
7,554
|
8,604
|
Income
before income taxes
|
3,990
|
6,213
|
Applicable
income taxes
|
998
|
2,155
|
Operating
income from discontinued operations
|
2,992
|
4,058
|
Gain
on sale of discontinued operations, net of tax
|
28,846
|
-
|
|
$31,838
|
$
4,058
|
(1)
|
Represents
results of operations through the date of sale, November 28,
2007.
|
Note
4. Restrictions
on Cash and Due From Banks
MB
Financial Bank is required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank, based on a percentage of deposits. The
total of those required reserve balances was approximately $51.2 million and
$37.3 million at December 31, 2008 and 2007, respectively.
The
nature of the Company's business requires that it maintain amounts due from
banks and federal funds sold which, at times, may exceed federally insured
limits. Management monitors these correspondent relationships and the
Company has not experienced any losses in such accounts.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
5. Investment
Securities
Carrying
amounts and fair values of investment securities available for sale are
summarized as follows (in thousands):
|
|
|
Gross
|
Gross
|
|
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Available
for sale
|
Cost
|
Gains
|
Losses
|
Value
|
|
|
|
|
|
|
|
|
|
December
31, 2008:
|
|
|
|
|
|
|
|
|
Government
sponsored agencies
|
|
$
171,385
|
|
$
7,988
|
|
$
-
|
|
$
179,373
|
States
and political subdivisions
|
|
417,608
|
|
12,585
|
|
(2,194)
|
|
427,999
|
Mortgage-backed
securities
|
|
682,679
|
|
8,597
|
|
(991)
|
|
690,285
|
Corporate
bonds
|
|
34,546
|
|
34
|
|
(15)
|
|
34,565
|
Equity
securities
|
|
3,595
|
|
11
|
|
-
|
|
3,606
|
Debt
securities issued by foreign governments
|
|
301
|
|
1
|
|
-
|
|
302
|
Totals
|
|
$1,310,114
|
|
$29,216
|
|
$(3,200)
|
|
$1,336,130
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
Government
sponsored agencies
|
|
$
305,768
|
|
$
4,810
|
|
$
(40)
|
|
$
310,538
|
States
and political subdivisions
|
|
407,973
|
|
4,961
|
|
(632)
|
|
412,302
|
Mortgage-backed
securities
|
|
435,743
|
|
3,346
|
|
(1,033)
|
|
438,056
|
Corporate
bonds
|
|
12,797
|
|
271
|
|
(11)
|
|
13,057
|
Equity
securities
|
|
3,446
|
|
14
|
|
-
|
|
3,460
|
Debt
securities issued by foreign governments
|
|
299
|
|
2
|
|
-
|
|
301
|
Totals
|
|
$1,166,026
|
|
$13,404
|
|
$(1,716)
|
|
$1,177,714
|
Unrealized
losses on investment securities available for sale and the fair value of the
related securities at December 31, 2008 are summarized as follows (in
thousands):
|
|
|
|
|
|
|
Less
Than 12 Months
|
12
Months or More
|
Total
|
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
$
57,096
|
|
$(1,970)
|
|
$4,179
|
|
$(224)
|
|
$ 61,275
|
|
$(2,194)
|
Mortgage-backed
securities
|
|
141,786
|
|
(958)
|
|
5,276
|
|
(33)
|
|
147,062
|
|
(991)
|
Corporate
bonds
|
|
15,045
|
|
(15)
|
|
-
|
|
-
|
|
15,045
|
|
(15)
|
Totals
|
|
$213,927
|
|
$(2,943)
|
|
$9,455
|
|
$(257)
|
|
$223,382
|
|
$(3,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Unrealized
losses on investment securities available for sale and the fair value of the
related securities at December 31, 2007 are summarized as follows (in
thousands):
|
|
|
|
|
|
|
Less
Than 12 Months
|
12
Months or More
|
Total
|
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
sponsored agencies
|
|
$ -
|
|
$ -
|
|
$
24,999
|
|
$ (40)
|
|
$ 24,999
|
|
$ (40)
|
States
and political subdivisions
|
|
34,485
|
|
(373)
|
|
35,362
|
|
(259)
|
|
69,847
|
|
(632)
|
Mortgage-backed
securities
|
|
52,934
|
|
(64)
|
|
136,338
|
|
(969)
|
|
189,272
|
|
(1,033)
|
Corporate
bonds
|
|
-
|
|
-
|
|
4,124
|
|
(11)
|
|
4,124
|
|
(11)
|
Totals
|
|
$87,419
|
|
$(437)
|
|
$200,823
|
|
$(1,279)
|
|
$288,242
|
|
$(1,716)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total
number of security positions in the investment portfolio in an unrealized loss
position at December 31, 2008 was 244 compared to 256 at December 31,
2007. All securities with unrealized losses are reviewed by
management at least quarterly to determine whether the unrealized losses are
other-than-temporary. All of the securities in an unrealized loss
position for greater than 12 months as of December 31, 2008 were either issued
by U.S. Government-sponsored enterprises, or by issuers with investment grade
ratings. Since the Company has the ability and intent to hold these
securities until market price recovery or maturity, these investment securities
are not considered other-than-temporarily impaired.
The
Company views its investment in the FHLB as a long-term investment.
Accordingly, when evaluating for impairment, the value is determined based on
the ultimate recovery of the par value rather than recognizing temporary
declines in value. The decision of whether impairment exists is a matter
of judgment that should reflect the investor's views on the FHLB Chicago's long
term performance, which includes factors such as its operating performance, the
severity and duration of declines of the market value of its net assets relative
to its capital stock amount, its commitment to make payments required by law or
regulation and the level of such payments in relation to its operating
performance, the impact of legislative and regulation changes on FHLB Chicago
and accordingly, on the members of FHLB Chicago, and its liquidity and funding
position. The FHLB Chicago reported net income during the third quarter of
2008, and reported the highest level of retained earnings compared to the other
11 FHLBs. The Company does not believe that its investment in the FHLB was
impaired as December 31, 2008.
The
unrealized losses on the Company’s investment in mortgage-backed securities were
primarily due to the current interest rate environment, which resulted in an
increased probability of the securities being called or repaid prior to their
estimated maturities. These types of investments are issued by U.S.
Government-sponsored enterprises (e.g. Fannie Mae and Freddie
Mac). Accordingly, the Company believes the credit risk embedded in
these securities to be very remote. The unrealized losses in the
Company’s investment in state and political subdivision securities all relate to
securities with investment grade ratings and were believed by management to have
been caused not by credit risk, but by interest rate increases.
Realized
net gains (losses) on sale of investment securities available for sale are
summarized as follows (in thousands):
|
For
the Years Ended December 31,
|
|
2008
|
2007
|
2006
|
Realized
gains
|
|
$1,420
|
|
$
962
|
|
$
268
|
Realized
losses
|
|
(290)
|
|
(4,706)
|
|
(713)
|
Net
gains (losses)
|
|
$1,130
|
|
$(3,744)
|
|
$(445)
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
amortized cost and fair value of investment securities available for sale as of
December 31, 2008 by contractual maturity are shown below. Maturities
may differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties.
Therefore,
mortgage-backed securities are not included in the maturity categories in the
following maturity summary.
|
Amortized
|
Fair
|
(In
thousands)
|
Cost
|
Value
|
|
|
|
|
|
Due
in one year or less
|
|
$
56,235
|
|
$
56,823
|
Due
after one year through five years
|
|
221,616
|
|
229,291
|
Due
after five years through ten years
|
|
272,514
|
|
283,489
|
Due
after ten years
|
|
73,475
|
|
72,636
|
Equity
securities
|
|
3,595
|
|
3,606
|
Mortgage-backed
securities
|
|
682,679
|
|
690,285
|
Totals
|
|
$1,310,114
|
|
$1,336,130
|
Investment
securities available for sale with carrying amounts of $765.9 million and $1.1
billion at December 31, 2008 and 2007, respectively, were pledged as collateral
on public deposits and for other purposes as required or permitted by
law.
Note
6. Loans
Loans
consist of the following at (in thousands):
|
December
31,
|
|
2008
|
2007
|
|
|
|
|
|
Commercial
loans
|
|
$1,522,380
|
|
$1,323,455
|
Commercial
loans collateralized by assignment of lease payments
|
|
649,918
|
|
553,138
|
Commercial
real estate
|
|
2,353,261
|
|
1,974,370
|
Residential
real estate
|
|
295,336
|
|
354,874
|
Construction
real estate
|
|
757,900
|
|
845,158
|
Indirect
vehicle
|
|
189,227
|
|
146,311
|
Home
equity
|
|
401,029
|
|
365,589
|
Consumer
loans
|
|
59,512
|
|
52,732
|
Gross
loans (1)
|
|
6,228,563
|
|
5,615,627
|
Allowance
for loan losses
|
|
(144,001)
|
|
(65,103)
|
Loans,
net
|
|
$6,084,562
|
|
$5,550,524
|
(1)
|
Gross
loan balances at December 31, 2008 and 2007 are net of unearned income,
including net deferred loan fees of $4.5 million, and $3.7 million
respectively.
|
Loans are
made to individuals as well as commercial and tax exempt
entities. Specific loan terms vary as to interest rate, repayment and
collateral requirements based on the type of loan requested and the credit
worthiness of the prospective borrower. Credit risk tends to be
geographically concentrated in that the majority of the loan customers are
located in the markets serviced by MB Financial Bank.
Non-accrual
loans and loans past due ninety days or more were $145.9 million and $24.5
million at December 31, 2008 and 2007, respectively. There were no
loans past due ninety days or more still accruing interest as of December 31,
2007 or December 31, 2008. The reduction in interest income
associated with loans on non-accrual status was approximately $4.6 million, $1.6
million, and $1.4 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Information
about impaired loans as of and for the years ended December 31, 2008, 2007 and
2006 are as follows (in thousands):
|
December
31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
Loans
for which there were related allowance for loan losses
|
|
$143,423
|
|
$18,398
|
|
$12,454
|
Other
impaired loans
|
|
-
|
|
564
|
|
-
|
Total
impaired loans
|
|
$143,423
|
|
$18,962
|
|
$12,454
|
|
|
|
|
|
|
|
Average
monthly balance of impaired loans
|
|
$
76,942
|
|
$16,208
|
|
$13,260
|
Related
allowance for loan losses
|
|
52,112
|
|
5,960
|
|
4,343
|
Interest
income recognized on a cash basis
|
|
74
|
|
429
|
|
567
|
Activity
in the allowance for loan losses was as follows (in thousands):
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
65,103
|
|
$58,983
|
|
$42,290
|
|
Additions
from acquisitions
|
|
-
|
|
-
|
|
16,425
|
|
Provision
for loan losses
|
|
125,721
|
|
19,313
|
|
10,100
|
|
Charge-offs
|
|
(49,825)
|
|
(16,306)
|
|
(13,800)
|
|
Recoveries
|
|
3,002
|
|
3,113
|
|
3,968
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
(46,823)
|
|
(13,193)
|
|
(9,832)
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$144,001
|
|
$65,103
|
|
$58,983
|
Loans
outstanding to executive officers and directors of the Company, including
companies in which they have management control or beneficial ownership, at
December 31, 2008 and 2007, were approximately $10.6 million and $18.6 million,
respectively. In the opinion of management, these loans have similar
terms to other customer loans and do not present more than normal risk of
collection.
An
analysis of the activity related to these loans for the year ended December 31,
2008 is as follows (in thousands):
|
|
Balance,
beginning of year
|
|
$18,641
|
Additions
|
|
43
|
Principal
payments and other reductions
|
|
(8,070)
|
Balance,
end of year
|
|
$10,614
|
The lease
portfolio is comprised of various types of equipment, generally technology
related, including computer systems and satellite equipment, material handling
and general manufacturing equipment. Lessees tend to be Fortune 1000
companies and have an investment grade public debt rating by Moody’s or Standard
& Poors or the equivalent, though, we also provided credit to below
investment grade and non-rated companies.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Lease
investments by categories follow (in thousands):
|
December
31,
|
|
2008
|
2007
|
|
|
|
Direct
finance leases:
|
|
|
|
|
|
Minimum
lease payments
|
|
$
61,239
|
|
$
52,150
|
|
Estimated
unguaranteed residual values
|
|
7,093
|
|
6,029
|
|
Less:
unearned income
|
|
(7,484)
|
|
(6,675)
|
Direct
finance leases (1)
|
|
$
60,848
|
|
$
51,504
|
|
|
|
|
Leveraged
leases:
|
|
|
|
|
|
Minimum
lease payments
|
|
$
30,150
|
|
$
34,172
|
|
Estimated
unguaranteed residual values
|
|
4,914
|
|
4,830
|
|
Less:
unearned income
|
|
(2,804)
|
|
(3,547)
|
|
Less:
related non-recourse debt
|
|
(28,437)
|
|
(31,755)
|
Leveraged
leases (1)
|
|
$
3,823
|
|
$
3,700
|
|
|
|
Operating
leases:
|
|
|
|
Equipment,
at cost
|
|
$196,068
|
|
$151,663
|
|
Less
accumulated depreciation
|
|
(71,034)
|
|
(54,342)
|
Lease
investments, net
|
|
$125,034
|
|
$
97,321
|
(1)
|
Direct
finance and leveraged leases are included as commercial loans
collateralized by assignment of lease payments for financial statement
purposes.
|
Leases
that transfer substantially all of the benefits and risk related to the
equipment ownership to the lessee are classified as direct
financing. If these direct finance leases have non-recourse debt
associated with them, they are further classified as leveraged leases, and the
associated debt is netted with the outstanding balance in the consolidated
financial statements. Interest income on direct finance and leveraged
leases is recognized using methods which approximate a level yield over the term
of the lease.
Operating
leases are investments in equipment leased to other companies, where the
residual component makes up more than 10% of the investment. The
Company funds most of the lease equipment purchases internally, but has some
loans at other banks which totaled $27.7 million at December 31, 2008 and $12.5
million at December 31, 2007.
The
minimum lease payments receivable for the various categories of leases are due
as follows (in thousands) for the years ending December 31,
|
Direct
|
|
|
|
|
|
Finance
|
Leveraged
|
Operating
|
|
|
Year
|
Leases
|
Leases
|
Leases
|
Total
|
|
|
|
|
|
|
|
|
|
2009
|
|
$27,675
|
|
$17,014
|
|
$38,440
|
|
$ 83,129
|
2010
|
|
19,150
|
|
10,456
|
|
27,964
|
|
57,570
|
2011
|
|
8,562
|
|
2,098
|
|
14,742
|
|
25,402
|
2012
|
|
3,593
|
|
395
|
|
6,049
|
|
10,037
|
2013
|
|
1,910
|
|
187
|
|
1,692
|
|
3,789
|
2014
& Thereafter
|
|
349
|
|
-
|
|
745
|
|
1,094
|
|
|
$61,239
|
|
$30,150
|
|
$89,632
|
|
$181,021
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Income from
lease investments is composed of (in thousands):
|
Years
Ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
Rental
income on operating leases
|
|
$44,210
|
|
$35,160
|
|
$35,840
|
LaSalle
Business Solutions revenue
|
|
32,302
|
|
46,813
|
|
27,117
|
Gain
on sale of leased equipment
|
|
1,921
|
|
4,149
|
|
3,991
|
Income
on lease investments, gross
|
|
78,433
|
|
86,122
|
|
66,948
|
Less:
|
|
|
|
|
|
|
Write
down of residual value of equipment
|
|
(512)
|
|
(1,617)
|
|
(1,259)
|
LaSalle
Business Solutions cost of sales
|
|
(28,953)
|
|
(42,561)
|
|
(24,772)
|
Depreciation
on operating leases
|
|
(31,995)
|
|
(26,097)
|
|
(27,548)
|
Income
from lease investments, net
|
|
$16,973
|
|
$15,847
|
|
$13,369
|
LaSalle
Business Solutions (LBS) revenue represents the gross amount of revenue paid to
LBS for maintenance contracts sold to customers. The maintenance
contracts are serviced by third parties, with LBS maintaining no obligations
under the contract. The cost of sales is the amount paid by LBS to
the third party maintenance provider.
Gains on
leased equipment periodically result when a lessee renews a lease or purchases
the equipment at the end of a lease, or the equipment is sold to a third party
at a profit. Individual lease transactions can, however, result in a
loss. This generally happens when, at the end of a lease, the lessee
does not renew the lease or purchase the equipment. To mitigate this
risk of loss, we usually limit individual leased equipment residuals to
approximately $500 thousand per transaction and seek to diversify both the type
of equipment leased and the industries in which the lessees to whom such
equipment is leased participate. Often times, there are several
individual lease schedules under one master lease. There were 2,273
leases at December 31, 2008 compared to 1,969 at December 31,
2007. The average residual value per lease schedule was approximately
$20 thousand at December 31, 2008 and $18 thousand at December 31,
2007. The average residual value per master lease schedule was
approximately $169 thousand at December 31, 2008 and $152 thousand at December
31, 2007.
At
December 31, 2008, the following reflects the residual values for leases by
category in the year the initial lease term ends (in thousands):
|
Residual
Values
|
End
of initial lease term
|
|
Direct
|
|
|
|
|
|
|
|
|
Finance
|
|
Leveraged
|
|
Operating
|
|
|
December
31,
|
|
Leases
|
|
Leases
|
|
Leases
|
|
Total
|
2009
|
|
$1,634
|
|
$
735
|
|
$
6,797
|
|
$
9,166
|
2010
|
|
1,712
|
|
2,571
|
|
6,733
|
|
11,016
|
2011
|
|
2,519
|
|
1,340
|
|
10,600
|
|
14,459
|
2012
|
|
489
|
|
130
|
|
4,703
|
|
5,322
|
2013
|
|
354
|
|
138
|
|
3,086
|
|
3,578
|
2014
& Thereafter
|
|
385
|
|
-
|
|
2,462
|
|
2,847
|
|
|
$7,093
|
|
$4,914
|
|
$34,381
|
|
$46,388
|
The lease
residual value represents the present value of the estimated fair value of the
leased equipment at the termination of the lease. Lease residual
values are reviewed quarterly and any write-downs, or charge-offs deemed
necessary are recorded in the period in which they become known.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
8. Premises
and Equipment
Premises
and equipment consist of (in thousands):
|
December
31,
|
|
2008
|
2007
|
|
|
|
|
|
Land
and land improvements
|
|
$
55,941
|
|
$
55,941
|
Buildings
|
|
80,582
|
|
82,590
|
Furniture
and equipment
|
|
62,019
|
|
58,816
|
Buildings
and leasehold improvements
|
|
46,055
|
|
36,709
|
|
|
244,597
|
|
234,056
|
Accumulated
depreciation
|
|
(58,123)
|
|
(50,334)
|
Premises
and equipment, net
|
|
$186,474
|
|
$183,722
|
Depreciation
on premises and equipment totaled $11.7 million, $11.1, and $9.4 million for the
years ended December 31, 2008, 2007, and 2006, respectively.
As of
December 31, 2008, the Company had approximately $1.0 million in capital
expenditure commitments outstanding which relate to various projects to build
new branches or renovate existing branches.
Note
9. Goodwill
and Intangibles
Under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
goodwill is no longer subject to amortization, but instead is subject to at
least annual assessments for impairment by applying a fair-value based
test. SFAS No. 142 also requires that an acquired intangible asset be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the asset can be sold, transferred,
licensed, rented or exchanged, regardless of the acquirer’s intent to do
so. Our most recent impairment assessment on goodwill and other
intangibles was completed as of December 31, 2008. No impairment
losses on goodwill or other intangibles were incurred in 2008, 2007, and
2006.
The
following table presents the changes in the carrying amount of goodwill (in
thousands):
|
December
31,
|
|
2008
|
2007
|
|
|
|
Balance
at beginning of period
|
$379,047
|
|
$379,047
|
Goodwill
from business combinations (1)
|
$8,022
|
-
|
Balance
at end of period
|
$387,069
|
|
$379,047
|
(1)
|
See
Note 2
for additional
information.
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The Company has
other intangible assets consisting of core deposit and client relationship
intangibles that had, as of December 31, 2008, a remaining weighted average
amortization period of approximately five years. The following table
presents the changes in the carrying amount of core deposit and client
relationship intangibles, gross carrying amount, accumulated amortization, and
net book value as of December 31, 2008 and December 31, 2007 (in
thousands):
|
December
31,
|
|
2008
|
2007
|
Balance
at beginning of period
|
$25,352
|
$28,856
|
Amortization
expense
|
(3,554)
|
(3,504)
|
Other
intangibles from business combinations (1)
|
3,978
|
-
|
Balance
at end of period
|
$25,776
|
$25,352
|
|
|
|
Gross
carrying amount
|
$51,472
|
$47,494
|
Accumulated
amortization
|
(25,696)
|
(22,142)
|
Net
book value
|
$25,776
|
$25,352
|
(1)
|
See
Note 2
for additional
information.
|
The
following presents the estimated amortization expense of other intangible assets
(in thousands):
Year
ending December 31,
|
|
Amount
|
2009
|
|
$
3,503
|
2010
|
|
3,292
|
2011
|
|
2,962
|
2012
|
|
2,753
|
2013
|
|
2,605
|
Thereafter
|
|
10,661
|
|
|
$25,776
|
Note
10. Deposits
The
composition of deposits is as follows (in thousands):
|
December
31,
|
|
2008
|
2007
|
Demand
deposits, noninterest bearing
|
|
$
960,117
|
|
$
875,491
|
NOW
and money market accounts
|
|
1,465,436
|
|
1,263,021
|
Savings
deposits
|
|
367,684
|
|
390,980
|
Time
certificates, $100,000 or more
|
|
2,091,067
|
|
1,686,593
|
Other
time certificates
|
|
1,611,267
|
|
1,297,698
|
Total
|
|
$6,495,571
|
|
$5,513,783
|
Time
certificates of $100,000 or more included $864.8 million and $478.5 million of
brokered deposits at December 31, 2008 and 2007,
respectively. Brokered deposits typically consist of smaller
individual time certificates that have the same liquidity characteristics and
yields consistent with time certificates of $100,000 or more.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
At
December 31, 2008, the scheduled maturities of time certificates are as follows
(in thousands):
2009
|
|
$2,806,727
|
2010
|
|
588,215
|
2011
|
|
121,364
|
2012
|
|
39,616
|
2013
|
|
64,534
|
Thereafter
|
|
81,878
|
|
|
$3,702,334
|
Note
11. Short-Term
Borrowings
Short-term
borrowings are summarized as follows as of December 31, 2008 and 2007 (dollars
in thousands):
|
December
31,
|
|
2008
|
2007
|
|
Weighted
Average
|
Amount
|
Weighted
Average
|
Amount
|
Cost
|
Cost
|
Federal
funds purchased
|
0.68%
|
$
5,000
|
3.86%
|
$170,000
|
Federal
Reserve term auction funds
|
0.42%
|
100,000
|
-
|
-
|
Customer
repurchase agreements
|
0.48%
|
282,832
|
3.02%
|
367,702
|
Federal
Home Loan Bank advances
|
2.46%
|
100,787
|
5.05%
|
440,019
|
|
0.88%
|
$488,619
|
4.08%
|
$977,721
|
|
|
|
|
|
The
Company uses the Federal Reserve Term Auction Funds for short-term
funding. Each auction is for a fixed amount and the rate is
determined by the auction process. These borrowings are primarily
collateralized by commercial and indirect vehicle loans with unpaid principal
balances aggregating no less than 200% of the outstanding advances from the
Federal Reserve Term Auction.
Securities
sold under agreements to repurchase are agreements in which the Company acquires
funds by selling securities or investment grade lease loans to another party
under a simultaneous agreement to repurchase the same securities or lease loans
at a specified price and date. The Company enters into repurchase
agreements and also offers a demand deposit account product to customers that
sweeps their balances in excess of an agreed upon target amount into overnight
repurchase agreements.
The
Company had Federal Home Loan Bank advances with maturity dates less than one
year consisting of $100.8 million in fixed rate advances at December 31, 2008
and $440.0 million in fixed rate advances at December 31, 2007. At
December 31, 2008, fixed rate advances had effective interest rates ranging from
2.44% to 4.88% and are subject to a prepayment fee. At December 31,
2008, the advances had maturities ranging from March 2009 to November
2009.
A
collateral pledge agreement exists whereby at all times, the Company must keep
on hand, free of all other pledges, liens, and encumbrances, first mortgage
loans and home equity loans with unpaid principal balances aggregating no less
than 133% for first mortgage loans and 200% for home equity loans of the
outstanding secured advances from the Federal Home Loan Bank. As of
December 31, 2008 and 2007, the Company had $405.0 million and $426.7 million,
respectively, of loans pledged as collateral for Federal Home Loan Bank
advances. Additionally, as of December 31, 2008 and 2007, the Company
had $181.0 million and $137.5 million, respectively, of investment securities
pledged as collateral for secured advances from the Federal Home Loan
Bank.
As of
December 31, 2008, the Company had a $30 million correspondent bank line of
credit which had certain covenants that required the Company to maintain MB
Financial Bank’s “Well Capitalized” status, to maintain minimum financial ratios
relating to MB Financial Bank’s non-performing assets and loan loss reserve and
the Company’s return on assets. The Company was in compliance with
such covenants as of December 31, 2008, with the exception of the rolling four
quarter return on average assets requirement. The correspondent bank
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
line of credit
was used for short-term liquidity purposes. The Company substantially
improved its liquidity position during 2008, and will not retain this line of
credit in 2009. As of December 31, 2008 and 2007, no balances
were outstanding on the correspondent bank line of credit.
Note
12. Long-term
Borrowings
The
Company had Federal Home Loan Bank advances with original contractual maturities
greater than one year of $352.5 million and $105.1 million at December 31, 2008
and December 31, 2007, respectively. As of December 31, 2008, the advances had
fixed terms with effective interest rates, net of discounts, ranging from 3.26%
to 5.87%.
The
Company had notes payable to banks totaling $27.7 million and $12.5 million at
December 31, 2008 and December 31, 2007, respectively, which as of December 31,
2008, were accruing interest at rates ranging from 4.19% to
12.00%. Lease investments includes equipment with an amortized cost
of $34.8 million and $16.1 million at December 31, 2008 and December 31, 2007,
respectively, that is pledged as collateral on these notes.
The
Company had a $40 million ten year structured repurchase agreement which is
non-putable until 2011 as of December 31, 2008. The borrowing agreement floats
at 3-month LIBOR less 37 basis points and reprices quarterly. The
counterparty to the repurchase agreement has a one-time put option in
2011. If the option is not exercised, the repurchase agreement
converts to a fixed rate borrowing at 4.75% for the remaining term, which would
expire in 2016.
MB
Financial Bank has a $50 million subordinated debt facility. Interest
is payable at a rate of 3 month LIBOR + 1.20%. The debt matures on
October 1, 2017. In addition, the Company has a $500 thousand
ten-year term loan from the same lender.
The
principal payments on long-term borrowings are due as follows (in
thousands):
|
Amount
|
Year
ending December 31,
|
|
2009
|
$
45,060
|
2010
|
145,756
|
2011
|
43,247
|
2012
|
34,755
|
2013
|
9,565
|
Thereafter
|
193,083
|
|
$471,466
|
Note
13.
Junior
Subordinated Notes Issued to Capital Trusts
The
Company has established statutory trusts for the sole purpose of issuing trust
preferred securities and related trust common securities. The
proceeds from such issuances were used by the trusts to purchase junior
subordinated notes of the Company, which are the sole assets of each
trust. Concurrently with the issuance of the trust preferred
securities, the Company issued guarantees for the benefit of the holders of the
trust preferred securities. The trust preferred securities are issues
that qualify, and are treated by the Company, as Tier 1 regulatory
capital. The Company owns all of the common securities of each
trust. The trust preferred securities issued by each trust rank
equally with the common securities in right of payment, except that if an event
of default under the indenture governing the notes has occurred and is
continuing, the preferred securities will rank senior to the common securities
in right of payment. FOBB Capital Trusts I and III were established
by FOBB prior to the Company’s acquisition of FOBB, and the junior subordinated
notes issued by FOBB to FOBB Capital Trusts I and III were assumed by the
Company upon completion of the acquisition.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The table below
summarizes the outstanding junior subordinated notes and the related trust
preferred securities issued by each trust as of December 31, 2008 (in
thousands):
|
Coal City
|
MB
Financial
|
MB
Financial (3)
|
MB
Financial (4)
|
Capital
Trust I
|
Capital
Trust II
|
Capital
Trust III
|
Capital
Trust IV
|
Junior
Subordinated Notes:
|
|
|
|
|
Principal
balance
|
$25,774
|
$36,083
|
$10,310
|
$20,619
|
Annual
interest rate
|
3-mo
LIBOR + 1.80%
|
3-mo
LIBOR + 1.40%
|
3-mo
LIBOR + 1.50%
|
3-mo
LIBOR + 1.52%
|
Stated
maturity date
|
September
1, 2028
|
September
15, 2035
|
September
23, 2036
|
September
15, 2036
|
Call
date
|
September
1, 2008
|
September
15, 2010
|
September
23, 2011
|
September
15, 2011
|
|
|
|
|
|
Trust
Preferred Securities:
|
|
|
|
|
Face
value
|
$25,000
|
$35,000
|
$10,000
|
$20,000
|
Annual
distribution rate
|
3-mo
LIBOR + 1.80%
|
3-mo
LIBOR + 1.40%
|
3-mo
LIBOR + 1.50%
|
3-mo
LIBOR + 1.52%
|
Issuance
date
|
July
1998
|
August
2005
|
July
2006
|
August
2006
|
Distribution
dates (1)
|
Quarterly
|
Quarterly
|
Quarterly
|
Quarterly
|
|
|
|
|
|
|
MB
Financial (4)
|
MB
Financial
|
FOBB
(2) (3)
|
FOBB
(2)
|
Capital
Trust V
|
Capital
Trust VI
|
Capital
Trust I
|
Capital
Trust III
|
Junior
Subordinated Notes:
|
|
|
|
|
Principal
balance
|
$30,928
|
$23,196
|
$6,186
|
$5,155
|
Annual
interest rate
|
3-mo
LIBOR + 1.30%
|
3-mo
LIBOR + 1.30%
|
10.60%
|
3-mo
LIBOR + 2.80%
|
Stated
maturity date
|
December
15, 2037
|
October
30, 2037
|
September
7, 2030
|
January
23, 2034
|
Call
date
|
March
15, 2008
|
October
30, 2012
|
September
7, 2010
|
January
23, 2009
|
|
|
|
|
|
Trust
Preferred Securities:
|
|
|
|
|
Face
value
|
$30,000
|
$22,500
|
$6,000
|
$5,000
|
Annual
distribution rate
|
3-mo
LIBOR + 1.30%
|
3-mo
LIBOR + 1.30%
|
10.60%
|
3-mo
LIBOR + 2.80%
|
Issuance
date
|
September
2007
|
October
2007
|
September
2000
|
December
2003
|
Distribution
dates (1)
|
Quarterly
|
Quarterly
|
Semi-annual
|
Quarterly
|
|
|
|
|
|
(1)
|
All
distributions are cumulative and paid in
cash.
|
(2)
|
Amount
does not include purchase accounting adjustments totaling a premium of
$572.5 thousand associated with FOBB Capital Trust I and
III.
|
(3)
|
Callable
at a premium through 2020.
|
(4)
|
Callable
at a premium through 2011.
|
The trust
preferred securities are subject to mandatory redemption, in whole or in part,
upon repayment of the junior subordinated notes at the stated maturity date or
upon redemption on a date no earlier than the call dates noted in the table
above. Prior to these respective redemption dates, the junior
subordinated notes may be redeemed by the Company (in which case the trust
preferred securities would also be redeemed) after the occurrence of certain
events that would have a negative tax effect on the Company or the trusts, would
cause the trust preferred securities to no longer qualify as Tier 1 capital, or
would result in a trust being treated as an investment company. Each
trust’s ability to pay amounts due on the trust preferred securities is solely
dependent upon the Company making payment on the related junior subordinated
notes. The Company’s obligation under the junior subordinated notes
and other relevant trust agreements, in aggregate, constitute a full and
unconditional guarantee by the Company of each trust’s obligations under the
trust preferred securities issued by each trust. The Company has the
right to defer payment of interest on the notes and, therefore, distributions on
the trust preferred securities, for up to five years, but not beyond the stated
maturity date in the table above. During any such deferral period the
Company may not pay cash dividends on its common stock and generally may not
repurchase its common stock.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
14. Lease
Commitments and Rental Expense
The
Company leases office space for certain branch offices. The future
minimum annual rental commitments for these noncancelable leases and subleases
of such space are as follows (in thousands):
|
Gross
|
|
Sublease
|
|
Net
|
Year
|
Rents
|
|
Rents
|
|
Rents
|
2009
|
|
$3,874
|
|
|
$692
|
|
|
$3,182
|
2010
|
|
3,125
|
|
|
717
|
|
|
2,408
|
2011
|
|
2,750
|
|
|
743
|
|
|
2,007
|
2012
|
|
2,450
|
|
|
747
|
|
|
1,703
|
2013
|
|
2,105
|
|
|
549
|
|
|
1,556
|
Thereafter
|
|
17,184
|
|
|
814
|
|
|
16,370
|
|
|
$31,488
|
|
|
$4,262
|
|
|
$27,226
|
Under the
terms of these leases, the Company is required to pay its pro rata share of the
cost of maintenance and real estate taxes. Certain leases also
provide for increased rental payments based on increases in the Consumer Price
Index.
Net
rental expense for the years ended December 31, 2008, 2007 and 2006 amounted to
$3.3 million, $3.6 million and $2.0 million, respectively.
Note
15. Employee
Benefit Plans
The
Company has a defined contribution 401(k) profit sharing plan that covers all
full-time employees who have completed three months of service. Each
participant under the plan may contribute up to 75% of his/her eligible
compensation on a pretax basis. The Company's contributions consist
of a discretionary profit-sharing contribution and a matching contribution of
the amounts contributed by the participants. The board of directors
determines the Company’s contributions on an annual basis.
During
2008, each participant was eligible for a maximum total Company matching
contribution of 3.5% of their compensation. Additionally, the Company
may make annual discretionary profit sharing contributions. The
contributions for profit sharing equaled 3.0% of eligible compensation for the
year ended December 31, 2008, 3.5% for the year ended December 31, 2007, and
3.5% for the year ended December 31, 2006. The Company's total
contributions to the plan, for the years ended December 31, 2008, 2007 and 2006,
were approximately $3.8 million, $3.7 million, $3.2 million,
respectively.
On the
acquisition date of FOBB, the Company assumed FOBB’s 401(k) savings plan, which
allowed eligible FOBB employees to defer a percentage of their
salary. The Company also assumed FOBB’s profit sharing plan on the
date of acquisition. Effective January 1, 2007, these plans were
merged into the Company’s 401(k) profit sharing plan.
The
Company has deferred compensation plans that allow eligible executives, senior
officers and certain other employees and directors to defer payment of up 100%
of their base salary and bonus in the case of employees and board fees in the
case of directors. Discretionary Company contributions to these plans
were approximately $220 thousand, $263 thousand, $146 thousand for the years
ended December 31, 2008, 2007 and 2006, respectively. The amounts
deferred can be invested in MB Financial stock (under the Company’s stock
deferred compensation plan) or other publicly traded mutual funds (under the
Company’s non-stock deferred compensation plan) at the discretion of the
participant. In addition, pursuant to the Company’s agreement entered
into with the Company’s Chief Executive Officer, he is entitled to receive on
each December 31st while he is employed by the Company (starting December
31, 2007) a fully vested employer contribution to his account under the
non-stock deferred compensation plan in amount equal to 20% of his base salary
then in effect. The cost of the MB Financial common stock held by MB
Financial’s deferred compensation plans is reported separately in a manner
similar to treasury stock (that is, changes in fair value are not recognized)
with a corresponding deferred compensation obligation reflected in additional
paid-in capital. The amounts of the assets that are not invested in
MB Financial common stock are recorded at their fair market value in other
assets on the consolidated balance sheet. As of December 31, 2008,
the fair value of the assets held in other publicly traded
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
funds
totaled $5.4 million. A liability is established, in other
liabilities, in the consolidated balance sheet, for the fair value of the
obligation to the participants. Any increase or decrease in the fair
market value of plan assets is recorded in other non-interest income on the
consolidated statement of income. Any increase or decrease in the
fair value of the deferred compensation obligation to participants is recorded
as additional compensation expense or a reduction of compensation expense on the
consolidated statement of income. The decrease in fair market value
of the assets and the obligation related to the deferred compensation plan was
$1.7 million for the year ended December 31, 2008.
The
deferred taxes consist of (in thousands):
|
December
31,
|
|
2008
|
2007
|
Deferred
tax assets:
|
|
|
|
|
Allowance
for loan losses
|
|
$
56,160
|
|
$
22,786
|
Deferred
compensation
|
|
5,552
|
|
5,231
|
Merger
and non-compete accrual
|
|
544
|
|
796
|
Securities
|
|
449
|
|
1,939
|
Stock
options, restricted stock, director stock units, and restricted stock
units
|
|
7,827
|
|
6,065
|
Federal
net operating loss carryforwards
|
|
1,353
|
|
1,658
|
State
net operating loss carryforwards
|
|
17,551
|
|
10,100
|
Other
items
|
|
1,128
|
|
3,926
|
Total
deferred tax asset
|
|
90,564
|
|
52,501
|
Valuation
allowance
|
|
-
|
|
(10,100)
|
Total
deferred tax asset, net of valuation allowance
|
|
90,564
|
|
42,401
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
Securities
discount accretion
|
|
(603)
|
|
(1,110)
|
Loans
|
|
(5,486)
|
|
(562)
|
Lease
investments
|
|
(1,175)
|
|
(256)
|
Premises
and equipment
|
|
(42,118)
|
|
(22,175)
|
Core
deposit intangible
|
|
(8,935)
|
|
(8,873)
|
Federal
Home Loan Bank stock dividends
|
|
(4,014)
|
|
(3,602)
|
Other
items
|
|
(103)
|
|
(267)
|
Total
deferred tax liabilities
|
|
(62,434)
|
|
(36,845)
|
Net
deferred tax asset
|
|
28,130
|
|
5,556
|
Net
unrealized holding gain on securities available for sale
|
|
(9,106)
|
|
(4,091)
|
Net
deferred tax asset
|
|
$
19,024
|
|
$
1,465
|
During
the year ended December 31, 2008, the Company increased the reserve for
uncertain tax positions, which was more than offset by a reduction in the
valuation allowances on state net operating loss carryforwards, resulting in a
reduction of tax expense of $5.9 million. The Company reassessed the
likelihood of the state net operating losses being more likely than not utilized
as a result of prospective tax law changes.
The
Company’s state net operating loss carryforwards totaled approximately $365.6
million at December 31, 2008 and begin to expire in 2009 through
2028. The Company’s Federal net operating loss carryforwards totaled
approximately $3.5 million at December 31, 2008 and expire in 2012 through
2019.
MB
FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Income taxes consist of
(in thousands):
|
Years
Ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
Current
expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
$
(959)
|
|
$24,519
|
|
$16,119
|
State
|
|
216
|
|
200
|
|
150
|
|
|
(743)
|
|
24,719
|
|
16,269
|
Deferred
expense (benefit)
|
|
(22,575)
|
|
(683)
|
|
11,000
|
|
|
$(23,318)
|
|
$24,036
|
|
$27,269
|
The
reconciliation between the statutory federal income tax rate of 35% and the
effective tax rate on income from continuing operations follows (in
thousands):
|
Years
Ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
Federal
income tax (benefit) expense at expected statutory rate
|
|
$
(2,504)
|
|
$30,121
|
|
$31,614
|
Increase
(decrease) due to:
|
|
|
|
Tax
exempt income, net
|
(5,521)
|
(4,355)
|
(3,313)
|
Nonincludable
increase in cash surrender value of life insurance
|
(1,855)
|
(1,740)
|
(1,387)
|
Removal
of valuation reserve on state net operating loss
carryforwards
|
|
(10,100)
|
|
-
|
|
-
|
Adjustment
of tax contingency reserves
|
|
4,232
|
|
-
|
|
-
|
State
tax, net of federal benefit
|
(7,003)
|
130
|
98
|
Other
items, net
|
(567)
|
(120)
|
257
|
|
|
|
|
Income
tax expense
|
|
$(23,318)
|
|
$24,036
|
|
$27,269
|
Accounting for Uncertainty in Income
Taxes:
Effective January 1, 2007, the Company adopted FIN
48. This Interpretation provides guidance on financial statement
recognition and measurement of tax positions taken, or expected to be taken, in
tax returns. The initial adoption of this Interpretation had no material
impact on the Company’s financial statements.
A
reconciliation of the change in unrecognized tax benefits from January 1, 2008
to December 31, 2008 is as follows (in thousands):
|
Unrecognized
Tax Benefit Without Interest
|
Interest
on unrecognized Tax Benefit
|
Total
Unrecognized Tax Benefit Including Interest
|
Balance
at January 1, 2008
|
$3,443
|
$339
|
$3,782
|
Increases
for tax positions of prior years
|
3,607
|
625
|
4,232
|
Balance
at December 31, 2008
|
$7,050
|
$964
|
$8,014
|
The whole
amount of unrecognized tax benefits would affect the tax provision and the
effective income tax rate if recognized in future periods.
The
Company elects to treat interest and penalties recognized for the underpayment
of income taxes as income tax expense, to the extent not included in
unrecognized tax benefits.
The
Company’s federal income tax returns are open and subject to examination from
the 2004 tax return year and forward. One of the Company’s subsidiaries is
currently scheduled to begin federal examination for tax year
2007. The Company’s various state income tax returns are generally
open from the 2002 and later tax return years based on individual state statutes
of limitation. The Company is under examination by Illinois for tax
years 2002 through 2005. The Company is not certain whether these
examinations will be completed within
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
the
next twelve months. Developments in these examinations or other
events could cause management to change its judgment about the amount of
unrecognized tax benefits.
Commitments:
The
Company is a party to credit-related financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit, standby letters of credit and commercial letters
of credit. Such commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets.
The
Company's exposure to credit loss is represented by the contractual amount of
these commitments. The Company follows the same credit policies in
making commitments as it does for on-balance-sheet instruments.
At
December 31, 2008 and 2007, the following financial instruments were
outstanding, the contractual amounts of which represent off-balance sheet credit
risk (in thousands):
|
Contract
Amount
|
|
2008
|
2007
|
Commitments
to extend credit:
|
|
|
Home
equity lines
|
$
376,854
|
$
402,355
|
Other
commitments
|
1,261,276
|
1,444,713
|
|
|
|
Letters
of credit:
|
|
|
Standby
|
119,504
|
132,843
|
Commercial
|
55,269
|
56,136
|
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require a payment of a fee. The commitments for equity lines of
credit may expire without being drawn upon.
Therefore,
the total commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained, if it is deemed
necessary by the Company, is based on management’s credit evaluation of the
customer.
The
Company, in the normal course of its business, regularly offers standby and
commercial letters of credit to its bank customers. Standby and
commercial letters of credit are a conditional but irrevocable form of
guarantee. Under letters of credit, the Company typically guarantees
payment to a third party beneficiary upon the default of payment or
nonperformance by the bank customer and upon receipt of complying documentation
from that beneficiary.
Both
standby and commercial letters of credit may be issued for any length of time,
but normally do not exceed a period of five years. These letters of
credit may also be extended or amended from time to time depending on the bank
customer's needs. As of December 31, 2008, the maximum remaining term
for any standby letter of credit was December 31, 2014. A fee of up
to two percent of face value may be charged to the bank customer and is
recognized as income over the life of the letter of credit, unless considered
non-rebatable under the terms of a letter of credit application.
At
December 31, 2008, the aggregate contractual amount of these letters of credit,
which represents the maximum potential amount of future payments that the
Company would be obligated to pay, decreased $14.2 million to $174.8 million
from $189.0 million at December 31, 2007. Of the $174.8 million in
commitments outstanding at December 31, 2008, approximately $77.5 million of the
letters of credit have been issued or renewed since December 31,
2007. The Company had a $435 thousand liability recorded as of
December 31, 2008 relating to these commitments.
Letters
of credit issued on behalf of bank customers may be done on either a secured,
partially secured or an unsecured basis. If a letter credit is
secured or partially secured, the collateral can take various forms including
bank accounts, investments, fixed assets, inventory, accounts receivable or real
estate, among other things. The Company takes the same care in making
credit decisions and obtaining collateral when it issues letters of credit on
behalf of its customers, as it does when making other types of
loans.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Concentrations
of credit risk:
The majority of the loans, commitments to extend credit
and standby letters of credit have been granted to customers in the Company's
market area. Investments in securities issued by states and political
subdivisions also involve governmental entities primarily within the Company's
market area. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Standby letters
of credit are granted primarily to commercial
borrowers.
Contingencies:
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting
from pending proceedings would not be expected to have a material adverse effect
on the Company's consolidated financial statements.
As of
December 31, 2008, the Company had approximately $1.0 million in capital
expenditure commitments outstanding which relate to various projects to build
new branches or renovate existing branches.
The
Company's primary source of cash is dividends from its subsidiary
bank. The subsidiary bank is subject to certain restrictions on the
amount of dividends that it may declare without prior regulatory
approval. In addition, the dividends declared cannot be in excess of
the amount which would cause the subsidiary bank to fall below the minimum
required for capital adequacy purposes.
The
Company and its subsidiary bank are subject to various 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 its subsidiary bank’s assets, liabilities, and certain
off-balance-sheet items are calculated under regulatory accounting
practices. The Company's and its subsidiary bank’s capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding
companies.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and its subsidiary 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 of Tier 1 capital (as
defined) to average assets (as defined). Management believes the
Company and its subsidiary bank met all capital adequacy requirements to which
they are subject as of December 31, 2008 and 2007.
As of
December 31, 2008, the most recent notification from the Federal Deposit
Insurance Corporation categorized the subsidiary bank as “well capitalized”
under the regulatory framework for prompt corrective action. To be
categorized as “well capitalized” the subsidiary bank must maintain the total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratio 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
subsidiary bank’s categories.
MB
FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The required and actual
amounts and ratios for the Company and its subsidiary bank are presented below
(dollars in thousands):
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
Capitalized
Under
|
|
|
|
|
For
Capital
|
Prompt
Corrective
|
|
Actual
|
Adequacy
Purposes
|
Action
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$936,027
|
14.08%
|
|
$531,968
|
8.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
759,845
|
11.46%
|
|
530,595
|
8.00%
|
|
$663,243
|
10.00%
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
802,384
|
12.07%
|
|
265,984
|
4.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
626,185
|
9.44%
|
|
265,297
|
4.00%
|
|
397,946
|
6.00%
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to average assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
802,384
|
9.85%
|
|
325,872
|
4.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
626,185
|
7.70%
|
|
325,300
|
4.00%
|
|
406,625
|
5.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$730,123
|
11.58%
|
|
$498,893
|
8.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
703,676
|
11.20%
|
|
497,030
|
8.00%
|
|
$621,288
|
10.00%
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
615,020
|
9.75%
|
|
249,446
|
4.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
588,573
|
9.37%
|
|
248,515
|
4.00%
|
|
372,773
|
6.00%
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to average assets):
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
615,020
|
8.18%
|
|
300,744
|
4.00%
|
|
N/A
|
N/A
|
MB
Financial Bank
|
|
588,573
|
8.09%
|
|
291,192
|
4.00%
|
|
363,990
|
5.00%
|
N/A – not
applicable
Note
19.
Fair
Values of Financial Instruments
Effective
January 1, 2008, we adopted the provisions of SFAS No. 157, "Fair Value
Measurements," for financial assets and financial liabilities. SFAS
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The application of SFAS 157 in situations
where the market for a financial asset is not active was clarified by the
issuance of FSP No. SFAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” (FSP 157-3) in
October 2008. FSP 157-3 became effective immediately and did not
significantly impact the methods by which the Corporation determines the fair
values of its financial assets.
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction
to sell the asset or transfer the liability occurs in the principal market for
the asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. The price in the
principal (or most advantageous) market used to measure the fair value of the
asset or liability shall not be adjusted for transaction costs. An
orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are
usual
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
and
customary for transactions involving such assets and liabilities; it is not a
forced transaction. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact and (iv) willing to transact.
SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and
liabilities. The income approach uses valuation techniques to convert
expected future amounts, such as cash flows or earnings, to a single present
value amount on a discounted basis. The cost approach is based on the
amount that currently would be required to replace the service capacity of an
asset (replacement cost). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that
market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect the
assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity's own assumptions
about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. In that regard, SFAS 157 establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as
follows:
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.
Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
Level 3:
Significant unobservable inputs that reflect a reporting entity’s own
assumptions about the assumptions that market participants would use in pricing
an asset or liability.
A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation
methodologies were applied to all of the Company's financial assets and
financial liabilities carried at fair value effective January 1,
2008.
In
general, fair value is based upon quoted market prices, where
available. If such quoted market prices are not available, fair value
is based upon internally developed models that primarily use, as inputs,
observable market-based parameters. Valuation adjustments may be made
to ensure that financial instruments are recorded at fair
value. These adjustments may include amounts to reflect counterparty
credit quality, the Company's creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied
consistently over time. Our valuation methodologies may produce a
fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. While management believes the
Corporation's valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
Securities
Available for Sale
.
The fair values of
securities available for sale are determined by quoted prices in active markets,
when available. If quoted market prices are not available, the fair
value is determined by a matrix pricing, which is a mathematical technique,
widely used in the industry to value debt securities without relying exclusively
on quoted prices for the specific securities but rather by relying on the
securities’ relationship to other benchmark quoted securities.
Assets Held in
Trust for Deferred Compensation and Associated Liabilities.
Assets held in trust
for deferred compensation are recorded at fair value and included in “Other
Assets” on the consolidated balance sheets. These assets are invested
in mutual funds and classified as Level 1. Deferred compensation
liabilities, also classified as Level 1, are carried at the fair value of the
obligation to the employee, which corresponds to the fair value of the invested
assets.
Derivatives
.
Currently, we use interest
rate swaps to manage our interest rate risk. The valuation of these
instruments is determined using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity,
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
and
uses observable market-based inputs, including LIBOR rate curves. We
also obtain dealer quotations for these derivatives for comparative purposes to
assess the reasonableness of the model valuations.
Financial
Instruments Recorded at Fair Value on a Recurring
Basis
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of December 31, 2008, segregated by the
level of the valuation inputs within the fair value hierarchy utilized to
measure fair value (in thousands):
|
|
|
Fair
Value Measurements at December 31, 2008 Using
|
|
|
|
Total
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
Significant
Other Observable Inputs (Level 2)
|
Significant
Unobservable Inputs (Level 3)
|
Financial
assets
|
|
|
|
|
|
|
Securities
available for sale
|
|
$ 1,336,130
|
$ -
|
$ 1,334,500
|
$ 1,630
|
|
Assets
held in trust for deferred compensation
|
5,383
|
5,383
|
-
|
-
|
|
Derivative
financial instruments
|
|
25,835
|
-
|
25,835
|
-
|
Financial
liabilities
|
|
|
|
|
|
|
Other
liabilities (1)
|
|
5,383
|
5,383
|
-
|
-
|
|
Derivative
financial instruments
|
|
24,169
|
-
|
24,169
|
-
|
|
|
|
|
|
|
|
(1)
Liabilities associated with assets held in trust for deferred
compensation.
|
|
|
The
following table presents additional information about financial assets measured
at fair value on a recurring basis for which the Company used significant
unobservable inputs (Level 3):
|
|
Year Ended
|
(in
thousands)
|
|
December
31, 2008
|
|
|
|
Balance,
beginning of period
|
|
$ -
|
Transfer
into Level 3
|
|
1,911
|
Net
unrealized losses
|
|
-
|
Impairment
charge
|
|
(281)
|
|
|
$ 1,630
|
|
|
|
Financial Instruments
Recorded at Fair Value on a Nonrecurring Basis
Impaired
Loans.
Loans for which it is
probable that payment of interest and principal will not be made in accordance
with the contractual terms of the loan agreement are considered
impaired. Once a loan is identified as individually impaired,
management measures impairment in accordance with SFAS 114, “Accounting by
Creditors for Impairment of a Loan,
”
(SFAS 114). The
fair value of impaired loans is estimated using one of several methods,
including collateral value, market value of similar debt, enterprise value,
liquidation value and discounted cash flows. Those impaired loans not
requiring an allowance represent loans for which the fair value of the expected
repayments or collateral exceed the recorded investments in such
loans. At December 31, 2008, substantially all of the total impaired
loans were evaluated based on the fair value of the collateral. In
accordance with SFAS 157, impaired loans where an allowance is established based
on the fair value of collateral require classification in the fair value
hierarchy. Collateral values are estimated using Level 3 inputs based
on customized discounting criteria.
The
Company may be required, from time to time, to measure certain financial assets
and financial liabilities at fair value on a nonrecurring basis in accordance
with U.S. generally accepted accounting principles. These include
assets that are measured at the lower of cost or market that were recognized at
fair value below cost at the end of the period.
MB
FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Assets measured at fair
value on a nonrecurring basis are included in the table below (in
thousands):
|
|
|
Fair
Value Measurements at December 31, 2008 Using
|
|
|
|
Total
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
Significant
Other Observable Inputs (Level 2)
|
Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
Impaired
loans
|
|
$ 91,311
|
$ -
|
$ -
|
$ 91,311
|
SFAS 107,
“Disclosures about Fair Value of Financial Instruments,” requires disclosure of
the fair value of financial assets and financial liabilities, including those
financial assets and financial liabilities that are not measured and reported at
fair value on a recurring basis or non-recurring basis. The methodologies for
estimating the fair value of financial assets and financial liabilities that are
measured at fair value on a recurring or non-recurring basis are discussed
above. The estimated fair value approximates carrying value for cash and cash
equivalents, accrued interest and the cash surrender value of life insurance
policies. The methodologies for other financial assets and financial liabilities
are discussed below:
The
following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Cash and due from banks and
interest bearing deposits with banks:
The carrying amounts reported in
the balance sheet approximate fair value.
Non-marketable securities –
FHLB and FRB Stock:
The carrying amounts reported in the balance sheet
approximate fair value.
Loans held for sale
:
Fair values are based on Federal Home Loan Mortgage Corporation quoted market
prices.
Loans
: Most
commercial loans and some real estate mortgage loans are made on a variable rate
basis. For those variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying
values. The fair values for fixed rate and all other loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers with similar credit
quality.
Accrued interest receivable
and payable
: The carrying amounts of accrued interest approximate their
fair values.
Non-interest bearing
deposits
: The fair values disclosed are equal to their balance sheet
carrying amounts, which represent the amount payable on demand.
Interest bearing
deposits
: The fair values disclosed for deposits with no defined
maturities are equal to their carrying amounts, which represent the amounts
payable on demand. The carrying amounts for variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair values
at the reporting date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on similar certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term
borrowings
: The carrying amounts of federal funds purchased, borrowings
under repurchase agreements and other short-term borrowings with maturities of
90 days or less approximate their fair values. The fair value of
short-term borrowings greater than 90 days is based on the discounted value of
contractual cash flows.
Long-term borrowings
:
The fair values of the Company's long-term borrowings (other than deposits) are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
Junior subordinated notes
issued to capital trusts
: The fair values of the Company’s junior
subordinated notes issued to capital trusts are estimated based on the quoted
market prices, when available, of the related trust preferred security
instruments, or are estimated based on the quoted market prices of comparable
trust preferred securities.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Off-balance-sheet
instruments
: Fair values for the Company's off-balance-sheet lending
commitments (guarantees, letters of credit and commitments to extend credit) are
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements.
Effective
January 1, 2008, we adopted the provisions of SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115." SFAS 159 permits the Company to choose to
measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value
measurement option has been elected are reported in earnings at each subsequent
reporting date. The fair value option (i) may be applied instrument
by instrument, with certain exceptions, thus the Company may record identical
financial assets and liabilities at fair value or by another measurement basis
permitted under generally accepted accounting principles, (ii) is irrevocable
(unless a new election date occurs) and (iii) is applied only to entire
instruments and not to portions of instruments. The Company has not
elected the fair value option for any financial assets or
liabilities. Adoption of SFAS 159 on January 1, 2008 did not have a
significant impact on the Company's financial statements.
The
estimated fair values of financial instruments are as follows (in
thousands):
|
December
31,
|
|
2008
|
2007
|
|
Carrying
|
|
Carrying
|
|
|
Amount
|
Fair
Value
|
Amount
|
Fair
Value
|
Financial
Assets
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
79,824
|
|
$
79,824
|
|
$
141,248
|
|
$
141,248
|
Interest
bearing deposits with banks
|
|
261,834
|
|
261,880
|
|
9,093
|
|
9,093
|
Investment
securities available for sale
|
|
1,336,130
|
|
1,336,130
|
|
1,241,385
|
|
1,241,385
|
Non-marketable
securities - FHLB and FRB stock
|
|
64,246
|
|
64,246
|
|
63,671
|
|
63,671
|
Loans,
net
|
|
6,084,562
|
|
6,185,940
|
|
5,550,524
|
|
5,590,934
|
Accrued
interest receivable
|
|
34,096
|
|
34,096
|
|
35,671
|
|
35,671
|
Interest
rate swap contracts
|
|
25,835
|
|
25,835
|
|
4,340
|
|
4,340
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
$
960,117
|
|
$
960,117
|
|
$
875,491
|
|
$
875,491
|
Interest
bearing deposits
|
|
5,535,454
|
|
5,561,809
|
|
4,638,292
|
|
4,645,436
|
Short-term
borrowings
|
|
488,619
|
|
476,899
|
|
977,721
|
|
978,692
|
Long-term
borrowings
|
|
471,466
|
|
484,454
|
|
208,865
|
|
213,089
|
Junior
subordinated notes issued to capital trusts
|
|
158,824
|
|
94,936
|
|
159,016
|
|
153,065
|
Accrued
interest payable
|
|
21,289
|
|
21,289
|
|
18,655
|
|
18,655
|
Interest
rate swap contracts
|
|
24,169
|
|
24,169
|
|
5,699
|
|
5,699
|
|
|
|
|
|
|
|
|
|
Off-balance-sheet
instruments:
|
|
|
|
|
|
|
|
|
Loan
commitments and standby letters of credit
|
|
$
-
|
|
$
3,455
|
|
$
-
|
|
$
1,670
|
Statement
123R requires that the grant date fair value of equity awards to employees be
recognized as compensation expense over the period during which an employee is
required to provide service in exchange for such award. During 2006,
the Company adopted Statement 123R using “modified retrospective application”,
electing to restate all prior periods.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
following table summarizes the impact of the Company’s share-based payment plans
in the financial statements for the periods shown (in thousands):
|
|
Year
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Total
cost of share-based payment plans during the year
|
|
$4,911
|
|
$5,223
|
|
$3,974
|
|
|
|
|
|
|
|
Amount
of related income tax benefit recognized in income
|
|
$1,663
|
|
$1,773
|
|
$1,391
|
The
Company adopted the Omnibus Incentive Plan (the “Omnibus Plan”) in
1997. In April 2007, the Omnibus Plan was modified to add 2,250,000
authorized shares for a total of 6,000,000 shares of common stock for issuance
to directors, officers, and employees of the Company or any of its
subsidiaries. As of December 31, 2008, there are 1,178,894 shares
available for grant. Grants under the Omnibus Plan can be in the form
of options intended to be incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock, restricted stock units, performance
shares, performance units, other stock-based awards and cash
awards.
Annual
equity-based incentive awards are typically granted to officers and employees in
June. Options are granted with an exercise price equal to no less
than the market price of the Company’s shares at the date of grant; those option
awards generally vest based on four years of continuous service and have 10-year
contractual terms. Options may also be granted at other times
throughout the year in connection with the recruitment of new officers and
employees. Restricted shares granted to officers and employees
typically vest over a two to three year period. Directors currently
may elect, in lieu of cash, to receive up to 70% of their fees in stock options
with a five-year term which are fully vested on the grant date (provided that
the director may not sell the underlying shares for at least six months after
the grant date), and up to 100% of their fees in restricted stock, which vests
one year after the grant date.
The
following table summarizes stock options outstanding for the year ended December
31, 2008:
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Number
of
|
|
Exercise
|
|
Term
|
|
Value
|
|
|
Options
|
|
Price
|
|
(In
Years)
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of January 1, 2008
|
|
2,625,051
|
|
$29.59
|
|
|
|
|
Granted
|
|
938,073
|
|
25.65
|
|
|
|
|
Exercised
|
|
(230,877)
|
|
14.19
|
|
|
|
|
Expired
or cancelled
|
|
(35,762)
|
|
29.40
|
|
|
|
|
Forfeited
|
|
(55,207)
|
|
35.80
|
|
|
|
|
Options
outstanding as of December 31, 2008
|
|
3,241,278
|
|
$29.44
|
|
6.46
|
|
7,894
|
|
|
|
|
|
|
|
|
|
Options
exercisable as of December 31, 2008
|
|
1,386,270
|
|
$26.68
|
|
3.63
|
|
5,624
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
fair value of each option award is estimated on the date of grant using the
Black Scholes option-pricing model based on certain
assumptions. Expected volatility is based on historical volatilities
of Company shares. The risk free rate for periods within the
contractual term of the option is based on the U.S. Treasury yield curve in
effect at the time of the grant. The expected life of options is
estimated based on historical employee behavior and represents the period of
time that options granted are expected to be outstanding. These
assumptions are summarized in the following table.
|
For
the Years Ended December 31,
|
|
2008
|
|
2007
|
|
2006
|
Risk-free
interest rate
|
3.61%
|
|
4.80%
|
|
5.12%
|
Volatility
of Company's stock
|
18.92%
|
|
16.84%
|
|
16.62%
|
Expected
dividend yield
|
2.95%
|
|
2.19%
|
|
1.61%
|
Expected
life of options
|
6
years
|
|
6
years
|
|
6
years
|
|
|
|
|
|
|
Weighted
average fair value per option of options granted during the
year
|
$3.84
|
|
$6.27
|
|
$7.97
|
The total
intrinsic value of options exercised during the years ended December 31, 2008,
2007 and 2006 was $3.3 million, $2.8 million and $3.8 million,
respectively.
The
following is a summary of changes in restricted shares for the year ended
December 31, 2008:
|
|
Number
of Shares
|
|
Grant
Date Fair Value
|
|
|
|
|
|
Shares
Outstanding at December 31, 2007
|
|
134,722
|
|
$35.74
|
Granted
|
|
136,868
|
|
25.97
|
Vested
|
|
(38,567)
|
|
38.87
|
Forfeited
|
|
(10,790)
|
|
33.42
|
Shares
Outstanding at December 31, 2008
|
|
222,233
|
|
$29.29
|
As of
December 31, 2008, there was $9.7 million of total unrecognized compensation
cost related to nonvested share-based compensation arrangements (including share
option and nonvested share awards) granted under the Omnibus Plan.
Note
21.
Derivative
Financial Instruments
In
accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (SFAS 133), the Company designates each derivative contract at
inception as either a fair value hedge or a cash flow
hedge. Currently, the Company has only fair value hedges in the
portfolio. For fair value hedges, the interest rate swaps are
structured so that all of the critical terms of the hedged items match the terms
of the appropriate leg of the interest rate swaps at inception of the hedging
relationship. The Company tests hedge effectiveness on a quarterly
basis for all fair value hedges. For prospective and retrospective
hedge effectiveness, we use the dollar offset approach. In
periodically assessing retrospectively the effectiveness of a fair value hedge
in having achieved offsetting changes in fair values under a dollar-offset
approach, the Company uses a cumulative approach on individual fair value
hedges.
The
Company uses interest rate swaps to hedge its interest rate risk. The
Company had fair value commercial loan interest rate swaps and fair value
brokered deposit interest rate swaps with aggregate notional amounts of $13.0
million and $57.2 million, respectively, at December 31, 2008. For
fair value hedges, the changes in fair values of both the hedging derivative and
the hedged item were recorded in current earnings as other income and other
expense. When a fair value hedge no longer qualifies for hedge
accounting, previous adjustments to the carrying value of the hedged item are
reversed immediately to current earnings and the hedge is reclassified to a
trading position.
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
We
also offer various derivatives to our customers and offset our exposure from
such contracts by purchasing other financial contracts. The customer
accommodations and any offsetting financial contracts are treated as non-hedging
derivative instruments which do not qualify for hedge accounting.
Interest
rate swap contracts involve the risk of dealing with counterparties and their
ability to meet contractual terms. The net amount payable or
receivable under interest rate swaps is accrued as an adjustment to interest
income. The net amount receivable (payable) for the years ended
December 31, 2008 and 2007 were approximately $596 thousand and $727 thousand,
respectively. The Company's credit exposure on interest rate swaps is
limited to the Company's net favorable value and interest payments of all swaps
to each counterparty. In such cases collateral is required from the
counterparties involved if the net value of the swaps exceeds a nominal
amount. At December 31, 2008, the Company's credit exposure relating
to interest rate swaps was not significant.
The
Company’s derivative financial instruments are summarized below as of December
31, 2008 and 2007 (dollars in thousands):
|
December
31, 2008
|
|
December
31, 2007
|
|
|
|
Weighted-Average
|
|
|
|
|
Notional
Amount
|
Estimated
Fair Value
|
Years
to Maturity
|
Receive
Rate
|
Pay
|
|
Notional
Amount
|
Estimated
Fair Value
|
Rate
|
|
Derivative
instruments designated as hedges of fair value:
|
|
|
|
|
|
|
|
|
Pay
fixed/receive variable swaps (1)
|
$13,039
|
$1,022
|
4.4
|
4.02%
|
6.22%
|
|
$
14,320
|
$
(23)
|
Receive
fixed/pay variable swaps (2)
|
57,177
|
631
|
6.7
|
4.89%
|
2.21%
|
|
151,706
|
(1,245)
|
|
|
|
|
|
|
|
|
|
Non-hedging
derivative instruments (3):
|
|
|
|
|
|
|
|
|
Pay
fixed/receive variable swaps
|
203,040
|
(24,169)
|
6.1
|
3.06%
|
6.18%
|
|
119,223
|
(4,431)
|
Pay
variable/receive fixed swaps
|
204,863
|
24,182
|
6.2
|
6.17%
|
3.05%
|
|
127,517
|
4,340
|
Total
portfolio swaps
|
$478,119
|
$1,666
|
6.2
|
4.64%
|
4.37%
|
|
$412,766
|
$(1,359)
|
(1)
Hedges fixed-rate commercial real estate loans
|
|
|
|
|
|
|
|
|
(2)
Hedges fixed-rate callable brokered deposits
|
|
|
|
|
|
|
|
|
(3)
These portfolio swaps are not designated as hedging instruments under SFAS
No. 133.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Methods
and assumptions used by the Company in estimating the fair value of its interest
rate swaps are discussed in Note 19 to consolidated financial
statements.
Note
22. Condensed
Parent Company Financial Information
The
condensed financial statements of MB Financial, Inc. (parent company only) are
presented below:
Balance
Sheets
|
(In
thousands)
|
|
December
31,
|
|
2008
|
2007
|
Assets
|
|
|
|
|
Cash
|
|
$
161,479
|
|
$
31,777
|
Investments
in subsidiaries
|
|
1,044,070
|
|
990,187
|
Other
assets
|
|
27,519
|
|
25,654
|
Total
assets
|
|
$1,233,068
|
|
$1,047,618
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
Junior
subordinated notes issued to capital trusts
|
|
$
158,823
|
|
$
159,016
|
Other
liabilities
|
|
8,049
|
|
26,233
|
Stockholders'
equity
|
|
1,066,196
|
|
862,369
|
Total
liabilities and stockholders' equity
|
|
$1,233,068
|
|
$1,047,618
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Statements
of Income
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Dividends
from continuing subsidiaries
|
|
$30,000
|
|
$88,000
|
|
$65,269
|
Dividends
from discontinued subsidiary
|
|
-
|
|
6,500
|
|
-
|
Interest
and other income
|
|
(985)
|
|
757
|
|
764
|
Interest
and other expense
|
|
(8,278)
|
|
(18,201)
|
|
(13,965)
|
Income
before income tax benefit and equity in undistributed net income of
subsidiaries
|
|
20,737
|
|
77,056
|
|
52,068
|
Income
tax benefit
|
|
(3,370)
|
|
(6,105)
|
|
(4,621)
|
Income
before equity in undistributed net income of subsidiaries
|
|
24,107
|
|
83,161
|
|
56,689
|
Equity
in undistributed net income of continuing subsidiaries
|
|
(7,943)
|
|
(14,636)
|
|
6,367
|
Equity
in undistributed net income of discontinued subsidiary
|
|
-
|
|
25,338
|
|
4,058
|
Net
income
|
|
16,164
|
|
93,863
|
|
67,114
|
Dividends
on preferred shares
|
|
789
|
|
-
|
|
-
|
Net
income available to common shareholders
|
|
$15,375
|
|
$93,863
|
|
$67,114
|
Statements
of Cash Flows
|
(In
thousands)
|
|
Years
Ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
income
|
|
$
16,164
|
|
$
93,863
|
|
$
67,114
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Amortization
of restricted stock awards
|
|
2,228
|
|
2,113
|
|
1,447
|
Compensation
expense for stock option grants
|
|
651
|
|
3,111
|
|
2,527
|
Net
gains on sale of investment securities available for sale
|
|
-
|
|
-
|
|
(5)
|
Equity
in undistributed net income of continuing subsidiaries
|
|
7,943
|
|
14,636
|
|
(6,367)
|
Equity
in undistributed net income of discontinued subsidiary
|
|
-
|
|
(25,338)
|
|
(4,058)
|
Change
in other assets and other liabilities
|
|
(30,963)
|
|
(7,845)
|
|
(7,515)
|
Net
cash (used in) provided by operating activities
|
|
(3,977)
|
|
80,540
|
|
53,143
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
Proceeds
from sales of investment securities available for sale
|
|
-
|
|
-
|
|
278
|
Investments
in and advances to subsidiaries
|
|
(50,000)
|
|
(5,000)
|
|
(9,500)
|
Proceeds
from the sales of other assets
|
|
-
|
|
1,630
|
|
106
|
Net
(increase) decrease in loans
|
|
7,500
|
|
(7,500)
|
|
-
|
Cash
proceeds received from sale of subsidiary
|
|
-
|
|
76,148
|
|
-
|
Cash
paid for acquisitions, net
|
|
-
|
|
-
|
|
(68,868)
|
Net
cash (used in) provided by investing activities
|
|
(42,500)
|
|
65,278
|
|
(77,984)
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
Treasury
stock transactions, net
|
|
(1,348)
|
|
(76,703)
|
|
(14,107)
|
Stock
options exercised
|
|
4,585
|
|
3,789
|
|
4,124
|
Excess
tax benefits from share-based payment arrangements
|
|
2,032
|
|
1,828
|
|
884
|
Dividends
paid
|
|
(25,090)
|
|
(25,956)
|
|
(20,168)
|
Principal
paid on short-term borrowings
|
|
-
|
|
-
|
|
(2,000)
|
Proceeds
from long-term debt
|
|
-
|
|
-
|
|
500
|
Issuance
of preferred stock
|
|
192,944
|
|
-
|
|
-
|
Issuance
of common stock warrant
|
|
3,056
|
|
-
|
|
-
|
Proceeds
from junior subordinated notes issued to capital trusts
|
|
-
|
|
52,500
|
|
30,000
|
Principal
paid on junior subordinated notes issued to capital trusts
|
|
-
|
|
(71,800)
|
|
-
|
Net
cash provided by (used in) financing activities
|
|
176,179
|
|
(116,342)
|
|
(767)
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
129,702
|
|
29,476
|
|
(25,608)
|
Cash:
|
|
|
|
|
|
|
Beginning
of year
|
|
31,777
|
|
2,301
|
|
27,909
|
End
of year
|
|
$161,479
|
|
$
31,777
|
|
$
2,301
|
MB FINANCIAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
23. Preferred Stock
On
December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital
Purchase Program of the United States Department of the Treasury (“Treasury”),
the Company entered into a Letter Agreement and Securities Purchase Agreement
(collectively, the “Purchase Agreement”) with Treasury, pursuant to which the
Company (i) sold to Treasury 196,000 shares of the Company’s Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”),
having a liquidation preference amount of $1,000 per share, for a purchase price
of $196.0 million in cash and (ii) issued to Treasury a ten-year warrant (the
“Warrant”) to purchase 1,012,048 shares of the Company’s common stock, par
value $0.01 per share (the “Common Stock”), at an exercise price of $29.05 per
share.
The
Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative
dividends on the liquidation preference amount on a quarterly basis at a rate of
5% per annum for the first five years, and 9% per annum
thereafter. Subject to the prior approval of the Board of Governors
of the Federal Reserve System, the Series A Preferred Stock is redeemable at the
option of the Company in whole or in part at a redemption price of 100% of the
liquidation preference amount plus any accrued and unpaid dividends, provided
that the Series A Preferred Stock may be redeemed prior to the first dividend
payment date falling after the third anniversary of the issue date (December 5,
2011) only if (i) the Company has raised aggregate gross proceeds in one or more
Qualified Equity Offerings of at least $49.0 million and (ii) the aggregate
redemption price does not exceed the aggregate net proceeds from such Qualified
Equity Offerings. A “Qualified Equity Offering” is defined as the sale for cash
by the Company of preferred stock or common stock that qualifies as Tier 1
capital.
The
exercise price of and number of shares of Common Stock underlying the Warrant
are subject to customary anti-dilution adjustments. Treasury may not
transfer a portion or portions of the Warrant with respect to, and/or exercise
the Warrant for more than one-half of, the 1,012,048 shares of Common Stock
underlying the Warrant until the earlier of (i) the date on which the Company
has received aggregate gross proceeds of at least $196.0 million from one or
more Qualified Equity Offerings and (ii) December 31, 2009. If the Company
completes one or more Qualified Equity Offerings on or prior to December 31,
2009 that result in the Company receiving aggregate gross proceeds of at least
$196.0 million, then the number of the shares of Common Stock underlying the
Warrant will be reduced to 50% of the original number of shares of Common Stock
underlying the Warrant. Treasury has agreed not to exercise voting
power with respect to any shares of Common Stock issued to it upon exercise of
the Warrant.
The
enactment of ARRA on February 17, 2009 permits the Company to repay the
Treasury without penalty and without the need to raise new capital, subject to
the Treasury’s consultation with the recipient’s appropriate regulatory
agency. Additionally, upon repayment the Treasury will liquidate all
outstanding warrants at their current market value.
The
proceeds from the TARP Capital Purchase Program were allocated between the
Series A Preferred Stock and the Warrant based on relative fair value,
which resulted in an initial carrying value of $192.9 million for the
Series A Preferred Shares and $3.1 million for the Warrant. The
resulting discount to the Series A Preferred Shares of $3.1 million
will accrete on a level yield basis over five years ending December 2013 and is
being recognized as additional preferred stock dividends. The fair value
assigned to the Series A Preferred Shares was estimated using a discounted
cash flow model. The discount rate used in the model was based on yields on
comparable publicly traded perpetual preferred stocks. The fair value assigned
to the warrant was based on a
Black Scholes
option-pricing model
using several inputs, including risk-free rate,
expected stock price volatility and expected dividend yield.
The
Series A Preferred Stock and the Warrant were issued in a private placement
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the “Securities Act”). In accordance with the Purchase
Agreement, the Company subsequently registered the Series A Preferred Stock, the
Warrant and the shares of Common Stock underlying the Warrant under the
Securities Act.
Item 9.
Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
Not
applicable.
a)
Evaluation of Disclosure
Controls and Procedures
: An evaluation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the “Act”)) was carried out as of December 31, 2008 under the supervision
and with the participation of our Chief Executive Officer, Chief Financial
Officer and several other members of our senior management. Our Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2008, our disclosure controls and procedures were effective in ensuring that the
information we are required to disclose in the reports we file or submit under
the Act is (i) accumulated and communicated to our management (including the
Chief Executive Officer and Chief Financial Officer) to allow timely decisions
regarding required disclosure, and (ii) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms.
b).
Management’s Annual Report
on Internal Control Over Financial Reporting
: The annual report of
management on the effectiveness of our internal control over financial reporting
and the attestation report thereon issued by our independent registered public
accounting firm are set forth under “Management’s Report on Internal Control
Over Financial Reporting” and “Report of Independent Registered Public
Accounting Firm” under “Item 8. Financial Statements and Supplementary
Data”.
c)
Changes in Internal Control
Over Financial Reporting
: During the quarter ended December 31, 2008, no
change occurred in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Not
applicable.
Item 10.
Directors, Executive Officers and
Corporate Governance
Directors and Executive
Officers
. The information concerning our directors and
executive officers required by this item is incorporated herein by reference
from our definitive proxy statement for our 2009 Annual Meeting of Stockholders,
a copy of which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of our fiscal year.
Section 16(a) Beneficial Ownership
Reporting Compliance
. The information concerning compliance
with the reporting requirements of Section 16(a) of the Securities Exchange Act
of 1934 by our directors, officers and ten percent stockholders required by this
item is incorporated herein by reference from our definitive proxy statement for
our 2009 Annual Meeting of Stockholders, a copy of which will be filed with the
Securities and Exchange Commission not later than 120 days after the end of our
fiscal year.
Code of Ethics.
We
have adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer, and persons
performing similar functions, and to all of our other employees and our
directors. A copy of our code of ethics is available on our Internet
website address, www.mbfinancial.com.
The information concerning compensation
and other matters required by this item is incorporated herein by reference from
our definitive proxy statement for our 2009 Annual Meeting of Stockholders, a
copy of which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of our fiscal year.
Item 12.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information concerning security
ownership of certain beneficial owners and management required by this item is
incorporated herein by reference from our definitive proxy statement for our
2009 Annual Meeting of Stockholders, a copy of which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of our
fiscal year.
The
following table sets forth information as of December 31, 2008 with respect to
compensation plans under which shares of our common stock may be
issued:
Equity
Compensation Plan Information
|
Plan
Category
|
Number
of Shares to be Issued upon Exercise of Outstanding Options,
warrants and rights (1)
|
Weighted
Average Exercise Price of Outstanding Options, warrants and rights
(1)
|
Number
of Shares Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Shares Reflected in the first column)
(2)
|
|
|
|
|
Equity
compensation plans approved by
stockholders............................................................
|
3,241,278
|
$29.44
|
1,178,894
|
Equity
compensation plans not approved by
stockholders.....................................................
|
N/A
|
N/A
|
N/A
|
Total...................................................................................................................................................
|
3,241,278
|
$29.44
|
1,178,894
|
|
|
|
|
(1)
|
Includes
21,158 shares underlying stock options that we assumed in the First
SecurityFed acquisition, and 135,392 shares underlying stock options,
4,937 shares underlying restricted stock units and 6,604 shares underlying
director stock units that we assumed in the FOBB
acquisition. Since the restricted stock units and the director
stock units do not have an exercise price and are settled only for shares
of our common stock on a one-for-one basis, these units are not relevant
for purposes of computing the weighted average exercise
price.
|
(2)
|
Includes
797,187 shares remaining available for future issuance under our Amended
and Restated Omnibus Incentive Plan which could be utilized for
awards to plan participants in the form of restricted stock, restricted
stock units, performance shares, performance units or other stock-based
awards.
|
N/A – not applicable
Not included in the table are shares of
our common stock that may be acquired by directors and officers who participate
in the MB Financial, Inc. Stock Deferred Compensation Plan. This
plan, along with the MB Financial, Inc. Non-Stock Deferred Compensation Plan,
allows directors and eligible officers to defer a portion of their cash
compensation. Neither plan has been approved by our
stockholders. All distributions under the stock plan are made in
shares of our common stock purchased by the plan trustee on the open market,
except for fractional shares, which are paid in cash.
Item 13.
Certain Relationships, Related
Transactions and Director Independence
The information concerning certain
relationships and related transactions and director independence required by
this item is incorporated herein by reference from our definitive proxy
statement for our 2009 Annual Meeting of Stockholders, a copy of which will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of our fiscal year.
Item 14.
Principal Accountant Fees and
Services
The information concerning principal accountant fees and services is
incorporated herein by reference from our definitive proxy statement for our
2009 Annual Meeting of Stockholders, a copy of which will be filed not later
than 120 days after the end of our fiscal year.
Item 15.
Exhibits and Financial Statement
Schedules
(a)(1)
|
|
|
|
(a)(2)
|
Financial
Statement Schedules: All financial statement schedules have been omitted
as the information is not required under the related instructions or is
not applicable.
|
|
|
(a)(3)
|
|
|
|
(b)
|
|
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
MB
FINANCIAL, INC.
(registrant)
By:
/s/MITCHELL
FEIGER
Mitchell Feiger
President and Chief Executive
Officer
(Principal Executive
Officer)
Date:
February 27, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures
|
|
Title
|
|
|
|
|
|
|
|
/s/Mitchell Feiger
|
|
Director,
President and Chief Executive Officer
|
|
|
Mitchell
Feiger
|
|
(Principal
Executive Officer), February 27, 2009
|
|
|
|
|
|
|
|
/s/Jill E. York
|
|
Vice
President and Chief Financial Officer
|
|
|
Jill
E. York
|
|
(Principal
Financial Officer and Principal Accounting Officer), February 27,
2009
|
|
|
|
|
|
|
|
/s/Thomas H. Harvey*
|
|
Director
|
|
) February
27, 2009
|
Thomas
H. Harvey
|
|
|
|
|
|
|
|
|
|
/s/David P. Bolger*
|
|
Director
|
|
) February
27, 2009
|
David
P. Bolger
|
|
|
|
|
|
|
|
|
|
/s/Robert S. Engleman, Jr.*
|
|
Director
|
|
) February
27, 2009
|
Robert
S. Engleman, Jr.
|
|
|
|
|
|
|
|
|
|
/s/Charles J. Gries*
|
|
Director
|
|
) February
27, 2009
|
Charles
J. Gries
|
|
|
|
|
|
|
|
|
|
/s/James N. Hallene*
|
|
Director
|
|
) February
27, 2009
|
James.
N. Hallene
|
|
|
|
|
|
|
|
|
|
/s/Richard J. Holmstrom*
|
|
Director
|
|
) February
27, 2009
|
Richard
J. Holmstrom
|
|
|
|
|
|
|
|
|
|
/s/Karen J. May*
|
|
Director
|
|
) February
27, 2009
|
Karen
J. May
|
|
|
|
|
|
|
|
|
|
/s/Patrick Henry*
|
|
Director
|
|
) February
27, 2009
|
Patrick
Henry
|
|
|
|
|
|
|
|
|
|
/s/Ronald D. Santo*
|
|
Director
|
|
) February
27, 2009
|
Ronald
D. Santo
|
|
|
|
|
|
|
|
|
|
*
By: /s/Mitchell
Feiger
|
|
Attorney-in-Fact
|
|
)
|
|
|
Exhibit Number
|
Description
|
2.1
|
Amended
and Restated Agreement and Plan of Merger, dated as of April 19, 2001, by
and among the Registrant, MB Financial, Inc., a Delaware corporation (“Old
MB Financial”) and MidCity Financial (incorporated herein by reference to
Appendix A to the joint proxy statement-prospectus filed by the Registrant
pursuant to Rule 424(b) under the Securities Act of 1933 with the
Securities and Exchange Commission (the “Commission”) on October 9,
2001)
|
2.2
|
Agreement
and Plan of Merger, dated as of November 1, 2002, by and among the
Registrant, MB Financial Acquisition Corp II and South Holland Bancorp,
Inc. (incorporated herein by reference to Exhibit 2 to the Registrant’s
Current Report Form 8-K filed on November 5, 2002 (File No.
0-24566-01))
|
2.3
|
Agreement
and Plan of Merger, dated as of January 9, 2004, by and among the
Registrant and First SecurityFed Financial, Inc. (incorporated herein by
reference to Exhibit 2 to the Registrant’s Current Report on Form 8-K
filed on January 14, 2004 (File No.0-24566-01))
|
2.4
|
Agreement
and Plan of Merger, dated as of May 1, 2006, by and among the Registrant,
MBFI Acquisition Corp. and First Oak Brook Bancshares, Inc. (“First Oak
Brook”)(incorporated herein by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K filed on May 2, 2006 (File
No.0-24566-01))
|
|
Charter
of the Registrant, as amended*
|
3.1A
|
Articles
Supplementary to the Charter of the Registrant for the Registrant’s Fixed
Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on December 8, 2008 (File No.0-24566-01))
|
3.2
|
Bylaws
of the Registrant, as amended (incorporated herein by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K filed on December 11,
2007 (File No. 0-24566-01))
|
4.1
|
The
Registrant hereby agrees to furnish to the Commission, upon request, the
instruments defining the rights of the holders of each issue of long-term
debt of the Registrant and its consolidated subsidiaries
|
4.2
|
Certificate
of Registrant’s Common Stock (incorporated herein by reference to Exhibit
4.1 to Amendment No. One to the Registrant’s Registration Statement on
Form S-4 (No. 333-64584))
|
4.3
|
Warrant
to purchase shares of the Registrant’s Common Stock (incorporated herein
by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed on December 8, 2008 (File No.0-24566-01))
|
10.1
|
Letter
Agreement, dated as of December 5, 2008, between the Registrant and the
United States Department of the Treasury (incorporated herein
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on December 8, 2008 (File No.0-24566-01))
|
|
EXHIBIT INDEX
|
Exhibit Number
|
Description
|
|
Amended
and Restated Employment Agreement between the Registrant and Mitchell
Feiger*
|
10.3
|
Employment
Agreement between MB Financial Bank, N.A. and Burton J. Field
(incorporated herein by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2008
(File No. 0-24566-01))
|
|
Form
of Change and Control Severance Agreement between MB Financial Bank,
National Association and each of Thomas Panos, Jill E.
York, and Thomas P. Fitzgibbon, Jr. *
|
|
Form
of Change and Control Severance Agreement between MB Financial Bank,
National Association and each of Burton Field, Larry J. Kallembach, Brian
Wildman, Rosemarie Bouman and Susan Peterson*
|
|
Form
of Letter Agreement between the United States Department of the Treasury
and each of Mitchell Feiger, Thomas Panos, Jill E. York, Thomas
P. Fitzgibbon, Jr., Burton Field, Larry J. Kallembach, Brian Wildman,
Rosemarie Bouman, and Susan Peterson*
|
10.6
|
Coal
City Corporation 1995 Stock Option Plan (incorporated herein by reference
to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-4
(No. 333-64584))
|
10.6A
|
Amendment
to Coal City Corporation 1995 Stock Option Plan ((incorporated herein by
reference to Exhibit 10.6A to the Registrant’s Annual Report on Form
10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File
No. 0-24566-01))
|
10.7
|
MB
Financial, Inc. Amended and Restated Omnibus Incentive Plan
(the “Omnibus Incentive Plan”) (incorporated herein by reference to the
Registrant’s definitive proxy statement filed on March 23, 2007 (File No.
0-24566-01))
|
|
MB
Financial Stock Deferred Compensation Plan*
|
|
MB
Financial Non-Stock Deferred Compensation Plan*
|
10.10
|
Avondale
Federal Savings Bank Supplemental Executive Retirement Plan Agreement
(incorporated herein by reference to Exhibit 10.2 to Old MB Financial’s
(then known as Avondale Financial Corp.) Annual Report on Form 10-K for
the year ended December 31, 1996 (File No. 0-24566))
|
10.11
|
Reserved
|
|
EXHIBIT INDEX
|
Exhibit Number
|
Description
|
10.12
|
Reserved
|
10.13
|
Amended
and Restated Employment Agreement between MB Financial Bank, N.A. and
Ronald D. Santo (incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on December 14, 2004 (File
No. 0-24566-01))
|
10.13A
|
Amendment
to Amended and Restated Employment Agreement between MB Financial Bank,
N.A. and Ronald D. Santo ((incorporated herein by reference to Exhibit
10.13A to the Registrant’s Annual Report on Form 10-K/A for the year ended
December 31, 2006, filed on March 2, 2007 (File No.
0-24566-01))
|
10.14
|
First
SecurityFed Financial, Inc. 1998 Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit B to the definitive proxy
statement filed by First SecurityFed Financial, Inc. on March 24, 1998
(File No. 0-23063))
|
10.14A
|
Amendment
to First SecurityFed Financial, Inc. 1998 Stock Option and Incentive Plan
((incorporated herein by reference to Exhibit 10.14A to the Registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2006, filed
on March 2, 2007 (File No. 0-24566-01))
|
|
Tax
Gross Up Agreements between the Registrant and each of Mitchell Feiger,
Burton J. Field, Thomas D. Panos, Jill E. York and Thomas P. FitzGibbon,
Jr., Larry J. Kallembach, Brian Wildman, and Susan Peterson *
|
|
Tax
Gross Up Agreement between the Registrant and Rosemarie
Bouman*
|
10.16
|
Form
of Incentive Stock Option Agreement for Executive Officers under the
Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007 (File No. 0-24566-01))
|
10.17
|
Form
of Non-Qualified Stock Option Agreement for Directors under the Omnibus
Incentive Plan (incorporated herein by reference to Exhibit
10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007 (File No. 0-24566-01))
|
10.18
|
Form
of Restricted Stock Agreement for Executive Officers under the Omnibus
Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2007 (File No. 0-24566-01))
|
|
Amendment
to Form of Incentive Stock Option Agreement and Form of Restricted Stock
Agreement for Executive Officers under the Omnibus Incentive
Plan*
|
|
EXHIBIT INDEX
|
Exhibit Number
|
Description
|
10.19
|
Form
of Restricted Stock Agreement for Directors under the Omnibus Incentive
Plan (incorporated herein by reference to Exhibit 10.16 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2007 (File No. 0-24566-01))
|
10.20
|
First
Oak Brook Bancshares, Inc. Incentive Compensation Plan (incorporated
herein by reference to Appendix A to the definitive proxy statement filed
by First Oak Brook on March 30, 2004 (File No. 0-14468))
|
10.20A
|
Amendment
to First Oak Brook Bancshares, Inc. Incentive Compensation Plan
((incorporated herein by reference to Exhibit 10.20A to the Registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2006, filed
on March 2, 2007 (File No. 0-24566-01))
|
10.21
|
First
Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan (incorporated herein
by reference to Appendix A to the definitive proxy statement filed by
First Oak Brook on April 2, 2001 (File No. 0-14468))
|
10.21A
|
Amendment
to First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan
((incorporated herein by reference to Exhibit 10.21A to the Registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2006, filed
on March 2, 2007 (File No. 0-24566-01))
|
10.22
|
First
Oak Brook Bancshares, Inc. Directors Stock Plan (incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed
by First Oak Brook on October 25, 1999 (File No. 333-89647))
|
10.23
|
Reserved.
|
10.24
|
Reserved.
|
10.25
|
Reserved.
|
10.26
|
Reserved.
|
10.27
|
First
Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.3 to First Oak Brook’s Annual
Report on Form 10-K for the year ended December 31, 1997 (File No.
0-14468))
|
|
EXHIBIT INDEX
|
Exhibit
Number
|
Description
|
10.27A
|
Amendment
to First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.27A to the Registrant’s
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007 filed
on May 15, 2007)
|
10.28
|
Transitional
Employment Agreement between the Registrant (as successor to First Oak
Brook) and Susan Peterson (incorporated herein by reference
to Exhibit 10.27 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2006 (File No.
0-24566-01))
|
10.29
|
Form
of Transitional Employment Agreement between the Registrant (as successor
to First Oak Brook) and Rosemarie Bouman (incorporated herein by reference
to Exhibit 10.10 to First Oak Brook's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-14468))
|
10.29A
|
First
Amendment to Transitional Employment Agreement between the Registrant (as
successor to First Oak Brook) and Rosemarie Bouman ((incorporated herein
by reference to Exhibit 10.28A to the Registrant's Annual Report on Form
10-K/A for the year ended December 31, 2006, filed March 2, 2007 (File No.
0-24566-01))
|
10.29B
|
Second
Amendment to Transitional Employment Agreement between the Registrant (as
successor to First Oak Brook) and Rosemarie
Bouman ((incorporated herein by reference to Exhibit 10.28B to
the Registrant’s Annual Report on Form 10-K/A for the year ended December
31, 2006, filed March 2, 2007 (File No. 0-24566-01))
|
|
Subsidiaries
of the Registrant*
|
|
Consent
of McGladrey & Pullen *
|
|
Power
of Attorney*
|
|
Rule
13a – 14(a)/15d – 14(a) Certification (Chief Executive
Officer)*
|
|
Rule
13a – 14(a)/15d – 14(a) Certification (Chief Financial
Officer)*
|
|
Section
1350 Certifications*
|
MB
FINANCIAL, INC.
ARTICLES
OF AMENDMENT
MB
Financial, Inc., a Maryland corporation, having its principal office in the
State of Maryland in Baltimore, Maryland (which is hereinafter called the
“Corporation”), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST:
The Charter of
the Corporation is hereby amended by changing the first two sentences of Section
A of Article 5 to read as follows:
"
ARTICLE 5.
A. Capital
Stock.
The total number of shares of capital stock of all
classes which the Corporation has authority to issue is fifty-one million
(51,000,000) shares, classified as follows:
1. One
million (1,000,000) shares of preferred stock, par value one cent ($.01) per
share (the "Preferred Stock") and
2. Fifty
million (50,000,000) shares of common stock, par value one cent ($.01) per share
(the "Common Stock")
The
aggregate par value of all the authorized shares of capital stock is five
hundred ten thousand dollars ($510,000)."
SECOND:
The
amendment to the Charter of the Corporation as set forth above was approved by a
majority of the entire Board of Directors of the Corporation. The
amendment is limited to a change expressly authorized by Section 2-105(a)(12) of
the Maryland General Corporation Law (the "MGCL") to be made without action by
the Corporation's stockholders.
THIRD:
Immediately
before the amendment to the Charter of the Corporation as set forth above, the
total number of shares of capital stock of all classes which the Corporation had
authority to issue was forty-four million (44,000,000), with one million
(1,000,000) of such shares classified as preferred stock, par value one cent
($.01) per share, and forty-three million (43,000,000) of such shares classified
as common stock, par value one cent ($.01) per share, and the aggregate par
value of all the authorized shares of capital stock was four hundred forty
thousand dollars ($440,000). As amended by the amendment to the
Charter of the Corporation set forth above, the total number of shares of
capital stock of all classes which the Corporation has authority to issue is
fifty-one million (51,000,000), with one million (1,000,000) of such shares
classified as preferred stock, par value one cent ($.01) per share, and fifty
million (50,000,000) of such shares classified as common stock, par value one
cent ($.01) per share, and the aggregate par value of all the authorized shares
of capital stock is five hundred ten thousand dollars ($510,000).
FOURTH:
The
information required by Section 2-607(b)(2)(i) of the MGCL was not changed by
the amendment to the Charter of the Corporation as set forth above.
FIFTH:
The
undersigned President and Chief Executive Officer acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President and Chief
Executive Officer acknowledges that to the best of his knowledge, information
and belief these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF,
the
Corporation has caused these Articles of Amendment to by signed in its name and
on its behalf by its President and Chief Executive Officer and attested to by
its Secretary as of the 5th day of December, 2008.
ATTEST: MB
FINANCIAL, INC.
/s/ Doria L.
Koros
By:
/s/ Mitchell
Feiger
Doria L.
Koros
Mitchell Feiger
Secretary
|
President
and Chief Executive Officer
|
MB
FINANCIAL, INC.
ARTICLES
OF AMENDMENT
MB
Financial, Inc., a Maryland corporation, having its principal office in the
State of Maryland in Baltimore, Maryland (which is hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST:
The Charter
of the Corporation is hereby amended by changing the first two sentences of
Section A of Article 5 to read as follows:
"
ARTICLE 5.
A. Capital
Stock.
The total number of shares of capital stock of all
classes which the Corporation has authority to issue is forty-four million
(44,000,000) shares, classified as follows:
1. One
million (1,000,000) shares of preferred stock, par value one cent ($.01) per
share (the "Preferred Stock") and
2. Forty-three
million (43,000,000) shares of common stock, par value one cent ($.01) per share
(the "Common Stock")
The
aggregate par value of all the authorized shares of capital stock is four
hundred forty thousand dollars ($440,000)."
SECOND:
The
amendment to the Charter of the Corporation as set forth above was approved by a
majority of the entire Board of Directors of the Corporation. The
amendment is limited to a change expressly authorized by Section 2-105(a)(12) of
the Maryland General Corporation Law (the "MGCL") to be made without action by
the Corporation's stockholders.
THIRD:
Immediately
before the amendment to the Charter of the Corporation as set forth above, the
total number of shares of capital stock of all classes which the Corporation had
authority to issue was forty-one million (41,000,000), with one million
(1,000,000) of such shares classified as preferred stock, par value one cent
($.01) per share, and forty million (40,000,000) of such shares classified as
common stock, par value one cent ($.01) per share, and the aggregate par value
of all the authorized shares of capital stock was four hundred ten thousand
dollars ($410,000). As amended by the amendment to the Charter of the
Corporation set forth above, the total number of shares of capital stock of all
classes which the Corporation has authority to issue is forty-four million
(44,000,000), with one million (1,000,000) of such shares classified as
preferred stock, par value one cent ($.01) per share, and forty-three million
(43,000,000) of such shares classified as common stock, par value one cent
($.01) per share, and the aggregate par value of all the authorized shares of
capital stock is four hundred forty thousand dollars ($440,000).
FOURTH:
The
information required by Section 2-607(b)(2)(i) of the MGCL was not changed by
the amendment to the Charter of the Corporation as set forth above.
FIFTH:
The
undersigned President and Chief Executive Officer acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President and Chief
Executive Officer acknowledges that to the best of his knowledge, information
and belief these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF,
the
Corporation has caused these Articles of Amendment to by signed in its name and
on its behalf by its President and Chief Executive Officer and attested to by
its Secretary as of the 25th day of April, 2007.
ATTEST: MB
FINANCIAL, INC.
/s/ Doria L.
Koros
By:
/s/ Mitchell
Feiger
Doria L.
Koros Mitchell
Feiger
Secretary
|
President
and Chief Executive Officer
|
ARTICLES
OF MERGER
between
MB-MIDCITY,
INC.
(a
Maryland corporation)
and
MB
FINANCIAL, INC.
(a
Delaware corporation)
MB-MIDCITY,
INC., a corporation duly organized and existing under the laws of the State of
Maryland ("
MB-MIDCITY"
),
and MB FINANCIAL, INC., a corporation duly organized and existing under the laws
of the State of Delaware ("
MB FINANCIAL
")
do hereby certify
that:
FIRST:
MB-MIDCITY
and MB FINANCIAL agree to merge.
SECOND:
The name
and place of incorporation of each party to these Articles are MB-MIDCITY, INC.,
a Maryland corporation, and MB FINANCIAL, INC., a Delaware
corporation. MB-MIDCITY shall survive the merger as the successor
corporation under the name, by virtue of Article FIFTH of these Articles, "MB
FINANCIAL, INC." as a corporation of the State of Maryland.
THIRD:
MB-MIDCITY
has its principal office in the State of Maryland in Baltimore City. MB
FINANCIAL has no principal office in the State of Maryland. MB
FINANCIAL was incorporated on June 21, 1993 under the general laws of the State
of Delaware. MB FINANCIAL is not registered or qualified to do
business in the State of Maryland. MB FINANCIAL does not own an
interest in land in the State of Maryland.
FOURTH:
The terms
and conditions of the transaction set forth in these Articles were advised,
authorized, and approved by each corporation party to these Articles in the
manner and by the vote required by its Charter or Certificate of Incorporation
and the laws of the state of its incorporation. The manner of
approval was as follows:
(a) The
Board of Directors of MB-MIDCITY, by unanimous written consent dated July 2,
2001 signed by all the directors and filed with the minutes of proceedings of
the Board of Directors of MB-MIDCITY, adopted resolutions which declared that
the proposed merger was advisable and approved the proposed merger on
substantially the terms and conditions set forth or referred to in the
resolutions and directed that the proposed merger be submitted to the
stockholders of MB-MIDCITY for their consideration and approval.
(b) By
written consent dated November 2, 2001 signed by all the stockholders of
MB-MIDCITY entitled to vote on the proposed merger and filed with the minutes of
proceedings of the stockholders of MB-MIDCITY, the proposed merger was approved
by the stockholders of MB-MIDCITY.
(c) The
Board of Directors of MB FINANCIAL, at a meeting held on April 9, 2001, adopted
resolutions which declared that the proposed merger was advisable on
substantially the terms and conditions set forth or referred to in the
resolutions and directed that the agreement for the proposed merger be submitted
to the stockholders of MB FINANCIAL for their adoption.
(d) The
agreement for the proposed merger was adopted by the stockholders of MB
FINANCIAL at a special meeting of stockholders held, after appropriate notice,
on November 6, 2001 by the affirmative vote of the holders of a majority of the
outstanding shares entitled to be voted thereon.
FIFTH:
The
following amendment to the Charter of MB-MIDCITY is to be effected as a part of
the merger:
Article 1
of the Charter is amended in its entirety to read as follows:
"Article
1. Name. The name of the corporation is MB Financial, Inc. (herein
the "Corporation")."
SIXTH:
The total
number of shares of stock of all classes which MB-MIDCITY or MB FINANCIAL,
respectively, has authority to issue, the number of shares of stock of each
class which MB-MIDCITY or MB FINANCIAL, respectively, has authority to issue,
and the par value of the shares of each class which MB-MIDCITY or MB FINANCIAL,
respectively, has authority to issue, are as follows:
(a) The
total number of shares of stock of all classes which MB-MIDCITY has authority to
issue is 41,000,000 shares, 40,000,000 of which are classified as
common stock (par value $.01 per share) and 1,000,000 of which are classified as
preferred stock (par value $.01 per share). The aggregate par value
of all the shares of stock of all classes of MB-MIDCITY is
$410,000.
(b) The
total number of shares of stock of all classes which MB FINANCIAL has authority
to issue is 21,000,000 shares, 20,000,000 of which are classified as common
stock (par value $.01 per share) and 1,000,000 of which are
classified as preferred stock (par value $.01 per share). The
aggregate par value of all the shares of stock of all classes of MB FINANCIAL is
$210,000.
SEVENTH:
The merger
does not change the authorized stock of MB-MIDCITY.
EIGHTH:
The manner
and basis of converting or exchanging issued stock of the merging corporations
into different stock of a corporation, for other consideration and the treatment
of any issued stock of the merging corporations not to be converted or exchanged
are as follows:
(a) The
issued and outstanding shares of the common stock of MB-MIDCITY owned by MB
FINANCIAL and MidCity Financial Corporation, a Delaware corporation ("MidCity")
immediately prior to the effective time of the merger shall, at the effective
time of the merger and without further act, be cancelled.
(b) Each
issued and outstanding share of the common stock of MB FINANCIAL prior to the
effective time of the merger, except for shares of MB FINANCIAL common stock
owned, directly or indirectly, by MB FINANCIAL or MidCity or any of their
respective wholly owned subsidiaries (other than (i) shares of MB FINANCIAL
common stock held, directly or indirectly, in trust accounts, managed accounts
and the like, or otherwise held in a fiduciary capacity, that are beneficially
owned by third parties (any such shares, whether held directly or indirectly by
MB FINANCIAL or MidCity, as the case may be, being referred to herein as "Trust
Account Shares") and (ii) shares of MB FINANCIAL common stock held on account of
a debt previously contracted ("DPC Shares")) shall, at the effective time of the
merger and without further act, be converted into the right to receive one share
of the common stock of MB-MIDCITY.
(c) As
soon as practicable following the effective time of the merger, each holder of
issued and outstanding shares of the common stock of MB FINANCIAL (other than
shares cancelled in the manner described in paragraph (d) of this Article
EIGHTH) shall be entitled to surrender to MB-MIDCITY the certificate(s)
representing the shares of common stock of MB FINANCIAL held by such holder
immediately prior to the effective time of the merger, and, upon such surrender,
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of common stock of MB-MIDCITY deliverable in
respect thereof.
(d) At
the effective time of the merger, all shares of the common stock of MB FINANCIAL
that are owned, directly or indirectly, by MB FINANCIAL, MidCity or any of their
respective wholly owned subsidiaries (other than Trust Account Shares and DPC
shares) shall be cancelled and shall cease to exist and no stock of MB-MIDCITY
or other consideration shall be delivered in exchange therefor.
NINTH:
The merger
shall become effective at 5:01 P.M. Eastern time on November 6,
2001.
IN
WITNESS WHEREOF, MB-MIDCITY, INC. has caused these Articles of Merger to be
signed in its name and on its behalf by its president and witnessed by its
secretary on November 6, 2001.
WITNESS:
MB-MIDCITY, INC.
(a
Maryland corporation)
/s/ Doria
Koros
By
/s/ Mitchell
Feiger
Doria
Koros,
Secretary
Mitchell Feiger, President and
Chief
Executive Officer
THE
UNDERSIGNED, President and Chief Executive Officer of MB-MIDCITY, INC., who
executed on behalf of said Corporation the foregoing Articles of Merger of which
this certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Merger to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/
Mitchell
Feiger
Mitchell Feiger, President and
Chief Executive Officer
IN
WITNESS WHEREOF, MB FINANCIAL, INC. has caused these Articles of Merger to be
signed in its name and on its behalf by its president and witnessed by its
secretary on November 6, 2001.
WITNESS:
MB FINANCIAL, INC.
(a
Delaware corporation)
/s/ Doria
Koros
By
/s/ Mitchell
Feiger
Doria
Koros,
Secretary
Mitchell Feiger, President and
Chief Executive Officer
THE
UNDERSIGNED, President and Chief Executive Officer of MB FINANCIAL, INC., who
executed on behalf of said Corporation the foregoing Articles of Merger of which
this certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Merger to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Mitchell
Feiger
Mitchell
Feiger, President and
Chief
Executive Officer
MB-MIDCITY,
INC.
ARTICLES
OF AMENDMENT AND RESTATEMENT
MB-MidCity,
Inc., a Maryland Corporation, having its principal office in the State of
Maryland in Baltimore, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST:
The Charter
of the Corporation is hereby amended and restated in its entirety to read as
follows:
ARTICLE
1. Name.
The name of the corporation is MB-MidCity,
Inc. (herein the "Corporation").
ARTICLE 2. Principal
Office.
The address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202.
ARTICLE
3. Purpose.
The purpose for which the Corporation
is formed is to engage in any lawful act or activity for which corporations may
be organized under the general laws of the State of Maryland as now or hereafter
in force.
ARTICLE 4. Resident
Agent.
The name and address of the registered agent of the
Corporation in the State of Maryland is The Corporation Trust Incorporated, 300
East Lombard Street, Baltimore, Maryland 21202. Said resident agent
is a Maryland corporation.
ARTICLE
5.
A. Capital
Stock.
The total number of shares of capital stock of all
classes which the Corporation has authority to issue is forty-one million
(41,000,000) shares, initially classified as follows:
1. One
million (1,000,000) shares of preferred stock, par value one cent ($.01) per
share (the "Preferred Stock"); and
2. Forty
million (40,000,000) shares of common stock, par value one cent ($.01) per share
(the "Common Stock").
The
aggregate par value of all the authorized shares of capital stock is four
hundred ten thousand dollars ($410,000). Except to the extent
required by governing law, rule or regulation, the shares of capital stock may
be issued from time to time by the Board of Directors without further approval
of the stockholders of the Corporation. The Corporation shall have
the authority to purchase its capital stock out of funds lawfully available
therefor which funds shall include, without limitation, the Corporation's
unreserved and unrestricted capital surplus. If shares of one class
of stock are classified or reclassified into shares of another class of stock by
the Board of Directors pursuant to this Article 5, the number of authorized
shares of the former class shall be automatically decreased and the number of
shares of the latter class shall be automatically increased, in each case by the
number of shares so classified or reclassified, so that the aggregate number of
shares of stock of all classes that the Corporation has authority to issue shall
not be more than the total number of shares of stock set forth in the first
sentence of this paragraph. The Board of Directors, with the approval
of a majority of the entire Board of Directors and without action by the
stockholders, may amend the Charter to increase or decrease the aggregate number
of shares of stock or the number of shares of stock of any class or series that
the Corporation has authority to issue.
B. Reclassification of
Capital Stock.
The Board of Directors may classify or
reclassify any unissued shares of capital stock from time to time into one or
more classes or series of stock by setting or changing in one or more respects
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of
redemption of such shares.
C.
Common
Stock.
Except as provided under the terms of any stock
classified or reclassified by the Board of Directors pursuant to this Article 5
and as limited by Section F of this Article 5, the exclusive voting power shall
be vested in the Common Stock, the holders thereof being entitled to one vote
for each share of such Common Stock standing in the holder's name on the books
of the Corporation. Subject to any rights and preferences of any
class of stock having preferences over the Common Stock, holders of Common Stock
shall be entitled to such dividends as may be declared by the Board of Directors
out of funds lawfully available therefor. Upon any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, holders of Common Stock shall be entitled to receive pro rata
the remaining assets of the Corporation after payment or provision for payment
of all debts and liabilities of the Corporation and payment or provision for
payment of any amounts owed to the holders of any class of stock having
preference over the Common Stock on distributions on liquidation, dissolution or
winding up of the Corporation.
D. Preferred Stock and
Other Stock.
Subject to the foregoing, the power of the Board
of Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the Charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of Preferred Stock, preference stock, special stock or other stock (such
preference, special or other stock being collectively referred to as "Other
Stock"), and to divide and classify shares of any class into one or more series
of such class, by determining, fixing, or altering one or more of the
following:
1. The
distinctive designation of such class or series and the number of shares to
constitute such class or series; provided that, unless otherwise prohibited by
the terms of such or any other class or series, the number of shares of any
class or series may be decreased by the Board of Directors in connection with
any classification or reclassification of unissued shares and the number of
shares of such class or series may be increased by the Board of Directors in
connection with any such classification or reclassification, and any shares of
any class or series which have been redeemed, purchased, otherwise acquired or
converted into shares of Common Stock or any other class or series shall become
part of the authorized capital stock and be subject to classification and
reclassification as provided in this sub-paragraph.
2. Whether
or not and, if so, the rates, amounts and times at which, and the conditions
under which, dividends shall be payable on shares of such class or series,
whether any such dividends shall rank senior or junior to or on a parity with
the dividends payable on any other class or series of stock, and the status of
any such dividends as cumulative, cumulative to a limited extent or
non-cumulative and as participating or non-participating.
3. Whether
or not shares of such class or series shall have voting rights, in addition to
any voting rights provided by law and, if so, the terms of such voting
rights.
4. Whether
or not shares of such class or series shall have conversion or exchange
privileges and, if so, the terms and conditions thereof, including provision for
adjustment of the conversion or exchange rate in such events or at such times as
the Board of Directors shall determine.
5. Whether
or not shares of such class or series shall be subject to redemption
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates; and whether or not there shall be any sinking
fund or purchase account in respect thereof, and if so, the terms
thereof.
6. The
rights of the holders of shares of such class or series upon the liquidation,
dissolution or winding up of the affairs of, or upon any distribution of the
assets of, the Corporation, which rights may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or involuntary and, if
voluntary, may vary at different dates, and whether such rights shall rank
senior or junior to or on a parity with such rights of any other class or series
of stock.
7. Whether
or not there shall be any limitations applicable, while shares of such class or
series are outstanding, upon the payment of dividends or making of distributions
on, or the acquisition of, or the use of moneys for purchase or redemption of,
any stock of the Corporation, or upon any other action of the Corporation,
including action under this sub-paragraph, and, if so, the terms and conditions
thereof.
8. Any
other preferences, rights, restrictions, including restrictions on
transferability, and qualifications of shares of such class or series, not
inconsistent with law and the Charter.
E. Ranking of Capital
Stock.
For the purposes hereof and of any articles
supplementary to the Charter providing for the classification or
reclassification of any shares of capital stock or of any other Charter document
of the Corporation (unless otherwise provided in any such articles or document),
any class or series of stock of the Corporation shall be deemed to
rank:
1. prior
to another class or series either as to dividends or upon liquidation, if the
holders of such class or series shall be entitled to the receipt of dividends or
of amounts distributable on liquidation, dissolution or winding up, as the case
may be, in preference or priority to holders of such other class or
series;
2. on
a parity with another class or series either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation price per share thereof be different from those of
such others, if the holders of such class or series of stock shall be entitled
to receipt of dividends or amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in proportion to their respective dividend
rates or redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and
3. junior
to another class or series either as to dividends or upon liquidation, if the
rights of the holders of such class or series shall be subject or subordinate to
the rights of the holders of such other class or series in respect of the
receipt of dividends or the amounts distributable upon liquidation, dissolution
or winding up, as the case may be.
F. Restrictions
on Voting Rights of the Corporation's Equity Securities.
1. Notwithstanding
any other provision of the Charter, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of 14.9% of the
then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted
to any vote in respect of the shares held in excess of the Limit. The
number of votes which may be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock beneficially owned by such person
owning shares in excess of the Limit shall be a number equal to the total number
of votes which a single record owner of all Common Stock owned by such person
would be entitled to cast after giving effect to the provisions hereof,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
2. The
following definitions shall apply to this Section F of this Article
5.
(a) An
"affiliate" of a specified person shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the person specified.
(b) "Beneficial
ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall
be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3
as in effect on December 31, 2000;
provided, however
,
that a person shall, in any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which
such person or any of its affiliates beneficially owns, directly or indirectly;
or
(2) which
such person or any of its affiliates has (i) the right to acquire (whether such
right is exercisable immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an agreement,
contract, or other arrangement with the Corporation to effect any transaction
which is described in any one or more of the clauses of Section A of Article 9
hereof) or upon the exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such person nor any such
affiliate is otherwise deemed the beneficial owner); or
(3) which
are beneficially owned, directly or indirectly, by any other person with which
such first mentioned person or any of its affiliates acts as a partnership,
limited partnership, syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation;
and
provided further, however, that (i) no director or officer of the Corporation
(or any affiliate of any such director or officer) shall, solely by reason of
any or all of such directors or officers acting in their capacities as such, be
deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such director or officer (or any affiliate
thereof), and (ii) neither any employee stock ownership or similar plan of the
Corporation or any subsidiary of the Corporation nor any trustee with respect
thereto (or any affiliate of such trustee) shall, solely by reason of such
capacity of such trustee, be deemed, for any purposes hereof, to beneficially
own any Common Stock held under any such plan. For purposes of
computing the percentage beneficial ownership of Common Stock of a person, the
outstanding Common Stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other Common
Stock which may be issuable by the Corporation pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall
include only Common Stock then outstanding and shall not include any Common
Stock which may be issuable by the Corporation pursuant to any agreement, or
upon the exercise of conversion rights, warrants or options, or
otherwise.
(c) A
"person" shall mean any individual, firm, corporation, or other
entity.
(d) The
Board of Directors shall have the power to construe and apply the provisions of
this Section F and to make all determinations necessary or desirable to
implement such provisions, including but not limited to matters with respect to
(i) the number of shares of Common Stock beneficially owned by any person, (ii)
whether a person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) the application of any other
definition or operative provision of this Section F to the given facts, or (v)
any other matter relating to the applicability or effect of this
Section.
3. The
Board of Directors shall have the right to demand that any person who is
reasonably believed to beneficially own Common Stock in excess of the Limit (or
holds of record Common Stock beneficially owned by any person in excess of the
Limit) supply the Corporation with complete information as to (i) the record
owner(s) of all shares beneficially owned by such person who is reasonably
believed to own shares in excess of the Limit, and (ii) any other factual matter
relating to the applicability or effect of this section as may reasonably be
requested of such person.
4. Except
as otherwise provided by law or expressly provided in this Section F, the
presence, in person or by proxy, of the holders of record of shares of capital
stock of the Corporation entitling the holders thereof to cast a majority of the
votes (after giving effect, if required, to the provisions of this Section F)
entitled to be cast by the holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders,
and every reference in the Charter to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining any quorum
requirement or any requirement for stockholder consent or approval shall be
deemed to refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such capital
stock.
5. Any
constructions, applications, or determinations made by the Board of Directors,
pursuant to this Section F in good faith and on the basis of such information
and assistance as was then reasonably available for such purpose, shall be
conclusive and binding upon the Corporation and its stockholders.
6. In
the event any provision (or portion thereof) of this Section F shall be found to
be invalid, prohibited or unenforceable for any reason, the remaining provisions
(or portions thereof) of this Section F shall remain in full force and effect,
and shall be construed as if such invalid, prohibited or unenforceable provision
had been stricken herefrom or otherwise rendered inapplicable, it being the
intent of the Corporation and its stockholders that each such remaining
provision (or portion thereof) of this Section F remain, to the fullest extent
permitted by law, applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit, notwithstanding any such
finding.
G. Majority
Vote.
Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of the total
number of shares of all classes of capital stock or of the total number of
shares of any class of capital stock, such action shall be valid and effective
if authorized by the affirmative vote of the holders of a majority of the total
number of shares of all classes outstanding and entitled to vote thereon, except
as otherwise provided in the Charter.
ARTICLE 6. Preemptive
Rights
. No holder of the capital stock of the Corporation or
series of stock or of options, warrants or other rights to purchase shares of
any class or series of stock or of other securities of the Corporation shall
have any preemptive right to purchase or subscribe for any unissued capital
stock of any class or series, or any unissued bonds, certificates of
indebtedness, debentures or other securities convertible into or exchangeable
for capital stock of any class or series, or carrying any right to purchase
stock of any class or series, except such as may be established by the Board of
Directors.
ARTICLE 7. Directors.
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. Management of the
Corporation.
The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. All powers
of the Corporation may be exercised by or under the authority of the Board of
Directors, except as conferred on or as reserved to the stockholders by law or
by the Charter or the By-laws of the Corporation.
B. Number, Class and Terms
of Directors; Cumulative Voting.
The number of directors of
the Corporation shall be 17, which number may, subject to any limitations and/or
voting requirements set forth in the By-laws of the Corporation, be increased or
decreased from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption) (the
"Whole Board"); provided, however, that such number shall never be less than the
minimum number of directors permitted by the Maryland General Corporation Law
("MGCL") now or hereafter in force. The directors, other than those
who may be elected by the holders of any class or series of Preferred Stock or
Other Stock, shall be divided into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class ("Class I") to
expire at the conclusion of the first annual meeting of stockholders, the term
of office of the second class ("Class II") to expire at the conclusion of the
annual meeting of stockholders one year thereafter and the term of office of the
third class ("Class III") to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each
annual meeting of stockholders, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified.
The names
of the individuals who will serve as directors of the Corporation until their
successors are elected and qualify are as follows:
(1) Class
I directors:
Burton J.
Field
Lawrence
E. Gilford
Patrick
Henry
Richard
J. Holmstrom
Clarence
Mann
Kenneth
A. Skopec
(2) Class
II directors:
Robert S.
Engelman, Jr.
Alfred
Feiger
Richard
I. Gilford
Thomas H.
Harvey
Ronald D.
Santo
Eugene
Sawyer
(3) Class
III directors:
E.M.
Bakwin
Mitchell
Feiger
James N.
Hallene
Leslie S.
Hindman
David
Husman
Stockholders
shall not be permitted to cumulate their votes in the election of
directors.
C. Vacancies.
Subject
to the rights of the holders of any class or series of Preferred Stock or Other
Stock then outstanding and except as otherwise provided in the By-laws of the
Corporation, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled by a majority vote of the directors then in
office, though less than a quorum, and, by virtue of the Corporation's election
made hereby to be subject to Section 3-804(c)(3) of the MCGL, any director so
chosen shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until a successor is elected and
qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent
director.
D. Removal.
Subject
to the rights of the holders of any class or series of Preferred Stock or Other
Stock then outstanding, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80% of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (after giving effect to the provisions of
Article 5 hereof) voting together as a single class.
E. Stockholder Proposals
and Nominations of Directors.
Advance notice of stockholder
nominations for the election of directors and of business to be brought by
stockholders before any meeting of the stockholders of the Corporation shall be
given in the manner provided in the By-laws of the Corporation.
ARTICLE
8. By-laws.
The Board of Directors is expressly
empowered to adopt, amend or repeal the By-laws of the
Corporation. Except as otherwise provided in the By-laws of the
Corporation, any adoption, amendment or repeal of the By-laws of the Corporation
by the Board of Directors shall require the approval of a majority of the Whole
Board. The stockholders shall also have power to adopt, amend or
repeal the By-laws of the Corporation. In addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
the Charter, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors (after
giving effect to the provisions of Article 5 hereof), voting together as a
single class, shall be required for the adoption, amendment or repeal of any
provisions of the By-laws of the Corporation by the stockholders.
ARTICLE
9. Approval of Certain Business Combinations.
A.
Super-majority Voting Requirement;
Business Combination Defined.
In addition to any affirmative vote
required by law or by the Charter, and except as otherwise expressly provided in
this Section:
1. any
merger or consolidation of the Corporation or any Subsidiary (as hereinafter
defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any
other corporation (whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with any Interested Stockholder,
or any Affiliate of any Interested Stockholder, of any assets of the Corporation
or any Subsidiary having an aggregate Fair Market Value (as hereafter defined)
equaling or exceeding 25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the
issuance or transfer by the Corporation or any Subsidiary (in one transaction or
a series of transactions) of any securities of the Corporation or any Subsidiary
to any Interested Stockholder or any Affiliate of any Interested Stockholder in
exchange for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries except pursuant to an employee
benefit plan of the Corporation or any Subsidiary thereof; or
4. the
adoption of any plan or proposal for the liquidation or dissolution of the
Corporation proposed by or on behalf of any Interested Stockholder or any
Affiliate of any Interested Stockholder; or
5. any
reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall
require the affirmative vote of the holders of at least 80% of the voting power
of the then-outstanding shares of stock of the Corporation entitled to vote in
the election of directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be specified,
by law or by any other provisions of the Charter (including those applicable to
any class or series of capital stock) or in any agreement with any national
securities exchange or quotation system or otherwise.
The term
"Business Combination" as used in this Article 9 shall mean any transaction
which is referred to in any one or more of paragraphs 1 through 5 of Section A
of this Article 9.
B.
Exception to Super-majority Voting
Requirement.
The provisions of Section A of this Article 9
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only the affirmative vote of the majority of
the outstanding shares of capital stock entitled to vote, or such vote as is
required by law or by the Charter, if, in the case of any Business Combination
that does not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is met or, in
the case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 and 2 are met:
1. The
Business Combination shall have been approved by a majority of the Disinterested
Directors (as hereinafter defined).
2. All
of the following conditions shall have been met:
(a) The
aggregate amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than cash to be
received per share by the holders of Common Stock in such Business Combination
shall at least be equal to the higher of the following:
(i)
(if applicable) the Highest Per Share Price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of Common Stock acquired by
it (x) within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date"), or (y) in the transaction in which it became an Interested Stockholder,
whichever is higher.
(ii)
the Fair Market Value per share of Common Stock on the Announcement Date or on
the date on which the Interested Stockholder became an Interested Stockholder
(such latter date is referred to in this Article 9 as the "Determination Date"),
whichever is higher.
(b) The
aggregate amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than cash to be
received per share by holders of shares of any class of outstanding Voting Stock
other than Common Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of outstanding Voting Stock,
whether or not the Interested Stockholder has previously acquired any shares of
a particular class of Voting Stock):
(i) (if
applicable) the Highest Per Share Price (as hereinafter defined), including any
brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of Voting Stock acquired by
it (x) within the two-year period immediately prior to the Announcement Date, or
(y) in the transaction in which it became an Interested Stockholder, whichever
is higher;
(ii)
(if applicable) the highest preferential amount per share to which the holders
of shares of such class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(iii)
the Fair Market Value per share of such class of Voting Stock on the
Announcement Date or on the Determination Date, whichever is
higher.
(c) The
consideration to be received by holders of a particular class of outstanding
Voting Stock (including Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for shares of
any class of Voting Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of such class of
Voting Stock shall be either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with Section B.2. of
this Article 9 shall be subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or similar
event.
(d) After
such Interested Stockholder has become an Interested Stockholder and prior to
the consummation of such Business Combination: (i) except as approved
by a majority of the Disinterested Directors, there shall have been no failure
to declare and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock having preference over the
Common Stock as to dividends or liquidation; (ii) there shall have been (X) no
reduction in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as approved by
a majority of the Disinterested Directors, and (Y) an increase in such annual
rate of dividends as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure to so increase such annual rate is approved by
a majority of the Disinterested Directors; and (iii) neither such Interested
Stockholder nor any of its Affiliates shall have become the beneficial owner of
any additional shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder.
(e) After
such Interested Stockholder has become an Interested Stockholder, such
Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A
proxy or information statement describing the proposed Business Combination and
complying with the requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to stockholders of the Corporation at
least 30 days prior to the consummation of such Business Combination (whether or
not such proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions).
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C.
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Certain Definitions.
For
the purposes of this Article 9:
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1. A
"Person" shall include an individual, a group acting in concert, a
corporation,
a partnership, an association, a joint venture, a pool, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group or entity formed for the purpose of acquiring, holding or disposing
of securities.
2. "Interested
Stockholder" shall mean any Person (other than the Corporation or any holding
company or Subsidiary thereof) who or which:
(a) is
the beneficial owner, directly or indirectly, of more than 14.9% of the voting
power of the outstanding Voting Stock; or
(b) is
an Affiliate of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner, directly or
indirectly, of more than 14.9% of the voting power of the then-outstanding
Voting Stock; or
(c) is
an assignee of or has otherwise succeeded to any shares of Voting Stock which
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
3. A
Person shall be a "beneficial owner" of any Voting Stock:
(a) which
such Person or any of its Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as in effect on December 31, 2000;
or
(b) which
such Person or any of its Affiliates or Associates has (i) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate or Associate shall
be deemed to be the beneficial owner of any shares of Voting Stock solely by
reason of a revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, and with respect
to which shares neither such Person nor any such Affiliate or Associate is
otherwise deemed the beneficial owner); or
(c) which
are beneficially owned, directly or indirectly within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as in effect on December 31, 2000, by
any other Person with which such Person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purposes of acquiring,
holding, voting (other than solely by reason of a revocable proxy as described
in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting
Stock;
provided,
however, that, in the case of any employee stock ownership or similar plan of
the Corporation or of any Subsidiary in which the beneficiaries thereof possess
the right to vote any shares of Voting Stock held by such plan, no such plan nor
any trustee with respect thereto (nor any Affiliate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed, for any purposes
hereof, to beneficially own any shares of Voting Stock held under any such
plan.
4. For
the purpose of determining whether a Person is an Interested Stockholder
pursuant to Paragraph 2 of this Section C, the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed owned through application
of Paragraph 3 of this Section C but shall not include any other shares of
Voting Stock which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
5. "Affiliate"
and "Associate" shall have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as in effect on December 31, 2000.
6. "Subsidiary"
means any corporation of which a majority of any class of equity security is
owned, directly or indirectly, by the Corporation;
provided, however
,
that for the purposes of the definition of Interested Stockholder set forth in
Paragraph 2 of this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
7. "Disinterested
Director" means any member of the Board of Directors who is unaffiliated with
the Interested Stockholder and was a member of the Board of Directors prior to
the time that the Interested Stockholder became an Interested Stockholder, and
any director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated with the
Interested Stockholder, and in connection with his or her initial assumption of
office is recommended for appointment or election by a majority of Disinterested
Directors then on the Board of Directors.
8. "Fair
Market Value" means: (a) in the case of stock, the highest closing sale price of
the stock during the 30-day period immediately preceding the date in question of
a share of such stock on the Nasdaq System or any system then in use, or, if
such stock is admitted to trading on a principal United States securities
exchange registered under the Securities Exchange Act of 1934, Fair Market Value
shall be the highest sale price reported during the 30-day period preceding the
date in question, or, if no such quotations are available, the Fair Market Value
on the date in question of a share of such stock as determined by the Board of
Directors in good faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares of such stock
or in combination or reclassification of outstanding shares of such stock into a
smaller number of shares of such stock, and (b) in the case of property other
than cash or stock, the Fair Market Value of such property on the date in
question as determined by the Board of Directors in good faith.
9. Reference
to "Highest Per Share Price" shall in each case with respect to any class of
stock reflect an appropriate adjustment for any dividend or distribution in
shares of such stock or any stock split or reclassification of outstanding
shares of such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such stock into a
smaller number of shares of such stock.
10. In
the event of any Business Combination in which the Corporation survives, the
phrase "consideration other than cash to be received" as used in Sections
B.2.(a) and B.2.(b) of this Article 9 shall include the shares of Common Stock
and/or the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
D. Construction and
Interpretation.
A majority of the Disinterested Directors of
the Corporation shall have the power and duty to determine for the purposes of
this Article 9, on the basis of information known to them after reasonable
inquiry, (a) whether a person is an Interested Stockholder; (b) the number of
shares of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value equaling or
exceeding 25% of the combined assets of the Corporation and its
Subsidiaries. A majority of the Disinterested Directors shall have
the further power to interpret all of the terms and provisions of this Article
9.
E.
Fiduciary
Duty.
Nothing contained in this Article 9 shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Maryland Business
Combination Statute.
Notwithstanding any contrary provision of
law, the provisions of Sections 3-601 through 3-604 of the MGCL, as now and
hereafter in force, shall not apply to any "business combination" (as defined in
Section 3-601(e) of the MGCL, as now and hereafter in force), of the
Corporation.
ARTICLE 10. Evaluation of
Certain Offers
. The Board of Directors, when evaluating
(i) any offer of another Person (as defined in Article 9 hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity, or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation or (ii) any other actual or proposed transaction which
would or may involve a change in control of the Corporation (whether by
purchases of shares of stock or any other securities of the Corporation in the
open market, or otherwise, tender offer, merger, consolidation, share exchange,
dissolution, liquidation, sale of all or substantially all of the assets of the
Corporation, proxy solicitation or otherwise), may, in connection with the
exercise of its business judgment in determining what is in the best interests
of the Corporation and its stockholders and in making any recommendation to the
Corporation
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stockholders, give due consideration to all relevant factors, including, but not
limited to: (A) the economic effect, both immediate and long-term, upon the
Corporation
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stockholders, including stockholders, if any, who do not participate in the
transaction; (B) the social and economic effect on the present and future
employees, creditors and customers of, and others dealing with, the Corporation
and its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located; (C) whether the proposal is acceptable
based on the historical, current or projected future operating results or
financial condition of the Corporation; (D) whether a more favorable price could
be obtained for the Corporation
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stock or other securities in the future; (E) the reputation and business
practices of the other entity to be involved in the transaction and its
management and affiliates as they would affect the employees of the Corporation
and its subsidiaries; (F) the future value of the stock or any other securities
of the Corporation or the other entity to be involved in the proposed
transaction; (G) any antitrust or other legal and regulatory issues that are
raised by the proposal; (H) the business and historical, current or expected
future financial condition or operating results of the other entity to be
involved in the transaction, including, but not limited to, debt service and
other existing financial obligations, financial obligations to be incurred in
connection with the proposed transaction, and other likely financial obligations
of the other entity to be involved in the proposed transaction; and (I) the
ability of the Corporation to fulfill its objectives as a financial institution
holding company and on the ability of its subsidiary financial institution(s) to
fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations. If the Board of Directors
determines that any proposed transaction of the type described in clause (i) or
(ii) of the immediately preceding sentence should be rejected, it may take any
lawful action to defeat such transaction, including, but not limited to, any or
all of the following: advising stockholders not to accept the
proposal; instituting litigation against the party making the proposal; filing
complaints with governmental and regulatory authorities; acquiring the stock or
any of the securities of the Corporation; increasing the authorized stock of the
Corporation; selling or otherwise issuing authorized but unissued stock, other
securities or granting options or rights with respect thereto; acquiring a
company to create an antitrust or other regulatory problem for the party making
the proposal; and obtaining a more favorable offer from another individual or
entity. This Article 10 does not create any inference concerning
factors that may be considered by the Board of Directors regarding any proposed
transaction of the type described in clause (i) or (ii) of the first sentence of
this Article 10.
ARTICLE
11. Acquisitions of Equity Securities from Interested
Persons.
A. Super-majority Voting
Requirement.
Except as set forth in Section B of this Article
11, in addition to any affirmative vote of stockholders required by law or the
Charter, any direct or indirect purchase or other acquisition by the Corporation
of any Equity Security (as hereinafter defined) of any class from any Interested
Person (as hereinafter defined) shall require the affirmative vote of the
holders of at least 80% of the Voting Stock of the Corporation that is not
beneficially owned (for purposes of this Article 11 beneficial ownership shall
be determined in accordance with Section F.2(b) of Article 5 hereof) by such
Interested Person, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or by any other
provisions of the Charter (including those applicable to any class of securities
or capital stock) or in any agreement with any national securities exchange or
quotation system, or otherwise. Certain defined terms used in this
Article 11 are as set forth in Section C below.
B. Exceptions.
The
provisions of Section A of this Article 11 shall not be applicable with respect
to:
1. any
purchase or other acquisition of securities made as part of a tender or
exchange
offer by the Corporation or a Subsidiary (which term, as used in this Article
11, is as defined in the first clause of Section C.6 of Article 9 hereof) of the
Corporation to purchase securities of the same class made on the same terms to
all holders of such securities and complying with the applicable requirements of
the Securities Exchange Act of 1934 and the rules and regulations thereunder (or
any subsequent provision replacing such Act, rules or regulations);
2. any
purchase or acquisition made pursuant to an open market purchase program
approved by a majority of the Board of Directors, including a majority of the
Disinterested Directors (which term, as used in this Article 11, is as defined
in Article 9 hereof); or
3. any
purchase or acquisition which is approved by a majority of the Board of
Directors, including a majority of the Disinterested Directors, and which is
made at no more than the Market Price (as hereinafter defined), on the date that
the understanding between the Corporation and the Interested Person is reached
with respect to such purchase (whether or not such purchase is made or a written
agreement relating to such purchase is executed on such date), of shares of the
class of Equity Security to be purchased.
C.
Certain
Definitions.
For the purposes of this Article 11:
(i) The
term Interested Person shall mean any Person (other than the Corporation,
Subsidiaries of the Corporation, pension, profit sharing, employee stock
ownership or other employee benefit plans of the Corporation and its
Subsidiaries, entities organized or established by the Corporation or any of its
Subsidiaries pursuant to the terms of such plans and trustees and fiduciaries
with respect to any such plan acting in such capacity) that is the direct or
indirect beneficial owner of 5% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person. For purposes of
this Article 11, the terms "Affiliate" and "Associate" shall have the
definitions given them in Article 9 hereof.
(ii) The
Market Price of shares of a class of Equity Security on any day shall mean the
highest sale price of shares of such class of Equity Security on such day, or,
if that day is not a trading day, on the trading day immediately preceding such
day, on the national securities exchange or the Nasdaq System or any other
system then in use on which such class of Equity Security is
traded.
(iii) The
term Equity Security shall mean any security described in Section 3(a)(11) of
the Securities Exchange Act of 1934, as in effect on December 31, 2000, which is
traded on a national securities exchange or the Nasdaq System or any other
system then in use.
(iv) For
purposes of this Article 11, all references to the term Interested Stockholder
in the definition of Disinterested Director shall be deemed to refer to the term
Interested Person.
ARTICLE 12.
Indemnification, etc. of Directors
and Officers.
A. Indemnification.
The
Corporation shall indemnify (1) its current and former directors and officers,
whether serving the Corporation or at its request any other entity, to the
fullest extent required or permitted by the MGCL now or hereafter in force,
including the advancement of expenses under the procedures and to the fullest
extent permitted by law, and (2) other employees and agents to such extent as
shall be authorized by the Board of Directors and permitted by law; provided,
however, that, except as provided in Section B hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. Procedure.
If
a claim under Section A of this Article 12 is not paid in full by the
Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee
may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall also be
entitled to be reimbursed the expense of prosecuting or defending such
suit. It shall be a defense to any action for advancement of expenses
that the Corporation has not received both (i) an undertaking as required by law
to repay such advances in the event it shall ultimately be determined that the
standard of conduct has not been met and (ii) a written affirmation by the
indemnitee of his good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met the applicable standard for indemnification set
forth in the MGCL. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the MGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article 12 or otherwise shall be on the
Corporation.
C. Non-Exclusivity.
The
rights to indemnification and to the advancement of expenses conferred in this
Article 12 shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, the Charter, the Corporation
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By-laws, any agreement, any vote of stockholders or the Board of Directors, or
otherwise.
D. Insurance.
The
Corporation may maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
MGCL.
E. Miscellaneous.
The
Corporation shall not be liable for any payment under this Article 12 in
connection with a claim made by any indemnitee to the extent such indemnitee has
otherwise actually received payment under any insurance policy, agreement, or
otherwise, of the amounts otherwise indemnifiable hereunder. The
rights to indemnification and to the advancement of expenses conferred in
Sections A and B of this Article 12 shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a director or officer
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
Any
repeal or modification of this Article 12 shall not in any way diminish any
rights to indemnification or advancement of expenses of such director or officer
or the obligations of the Corporation arising hereunder with respect to events
occurring, or claims made, while this Article 12 is in force.
ARTICLE 13. Limitation of
Liability.
An officer or director of the Corporation, as such,
shall not be liable to the Corporation or its stockholders for money damages,
except (i) to the extent that it is proved that the person actually received an
improper benefit or profit in money, property or services for the amount of the
benefit or profit in money, property or services actually received; (ii) to the
extent that a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding in the proceeding that the
person
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action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding; or (iii)
to the extent otherwise provided by the MGCL. If the MGCL is amended
to further eliminate or limit the personal liability of officers and directors,
then the liability of officers and directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by MGCL, as so
amended.
Any
repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such repeal or
modification.
ARTICLE 14.
Amendment of the
Charter.
The Corporation reserves the right to amend or repeal
any provision contained in the Charter in the manner prescribed by the MGCL,
including any amendment altering the terms or contract rights, as expressly set
forth in the Charter, of any of the Corporation
'
s
outstanding stock by classification, reclassification or otherwise, and all
rights conferred upon stockholders are granted subject to this reservation;
provided,
however
, that, notwithstanding any other provision of the Charter or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of the
Corporation required by law or by the Charter, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors (after giving effect to the provisions of Article 5),
voting together as a single class, shall be required to amend or repeal this
Article 14, Section F of Article 5, Article 7, Article 8, Article 9, Article 11,
Article 12 or Article 13;
provided, further
,
that as provided in Article 5, the Board of Directors, with the approval of a
majority of the entire Board of Directors and without action by the
stockholders, may amend the Charter to increase or decrease the aggregate number
of shares of stock or the number of shares of stock of any class or series that
the Corporation has authority to issue.
SECOND:
The foregoing
amendment and restatement of the Charter does not increase the authorized
capital stock of the Corporation.
THIRD:
The
foregoing amendment and restatement of the Charter has been duly advised by the
Board of Directors and approved by the stockholders of the Corporation as
required by law.
FOURTH:
The current address of
the principal office of the Corporation in the State of Maryland is set forth in
Article 2 of the foregoing amendment and restatement of the
Charter.
FIFTH:
The name and address of
the Corporation
'
s
current resident agent is as set forth in Article 4 of the foregoing amendment
and restatement of the Charter.
SIXTH:
The number of directors
of the Corporation and the names of those currently in office are as set forth
in Article 6 of the foregoing amendment and restatement of the
Charter.
SEVENTH:
The undersigned
President and Chief Executive Officer acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation and as to all matters
or facts required to be verified under oath, the undersigned President and Chief
Executive Officer acknowledges that to the best of his knowledge, information
and belief these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF
, the
Corporation has caused these Articles of Amendment and Restatement to be signed
in its name and on its behalf by its President and Chief Executive Officer and
attested to by its Secretary on this 6th day of November, 2001.
MB-MIDCITY,
INC.
By:
/s/ Mitchell
Feiger
Mitchell
Feiger
President
and Chief Executive Officer
ATTESTED:
By:
/s/ Doria
Koros
Doria
Koros
Secretary
[Execution
Copy]
EMPLOYMENT
AGREEMENT
THIS
AGREEMENT (this "Agreement") is made and entered into as of this 5th day of
December, 2008, by and between MB Financial, Inc. (the “Corporation") and
Mitchell Feiger (the "Executive").
WHEREAS,
the Executive is the President and Chief Executive Officer of the Corporation
and was previously a party to a written employment agreement with the
Corporation dated March 19, 2003 (the “2003 Employment Agreement”);
WHEREAS,
the parties entered into an Employment Agreement dated December 5, 2007 in
replacement of the 2003 Employment Agreement (the “2007 Employment
Agreement”);
WHEREAS,
the parties believe it is in their respective best interests to amend the 2007
Employment Agreement to reflect provisions deemed desirable in anticipation of
the Corporation’s participation in the TARP Capital Purchase
Program;
WHEREAS,
the Organization and Compensation Committee of the Board of Directors (the
“Committee”) and the Board of Directors of the Corporation (the “Board of
Directors”) has approved and authorized such amendments; and
WHEREAS,
the parties desire to enter into this Agreement to reflect such amendments and
in replacement of the 2007 Employment Agreement;
NOW
THEREFORE, in consideration of the foregoing and of the respective covenants and
agreements of the parties herein, it is AGREED as follows:
1.
Definitions
.
(a)
The term
“Change in Control” means (1) any Person is or becomes the Beneficial Owner
directly or indirectly of securities of the Corporation or the MB Financial
Bank, National Association (the “Bank”) representing 35% or more of the combined
voting power of the Corporation’s or the Bank’s outstanding securities entitled
to vote generally in the election of directors; (2) individuals who were members
of the Board of Directors on the Effective Date (the “Incumbent Board”) cease
for any reason to constitute at least a majority thereof,
provided that
any
person becoming a member of the Board of Directors subsequent to the Effective
Date (a) whose appointment as a director by the Board of Directors was approved
by a vote of at least three-quarters of the directors comprising the Incumbent
Board, or (b) whose nomination for election as a member of the Board of
Directors by the Corporation’s stockholders was approved by the Incumbent Board
or recommended by the nominating committee serving under the Incumbent Board,
shall be considered a member of the Incumbent Board; (3) consummation of a plan
of reorganization, merger or consolidation involving the Corporation or the Bank
or the securities of either, other than (a) in the case of the Corporation, a
transaction at the completion of which the stockholders of the Corporation
immediately preceding completion of the transaction hold more than 60% of the
outstanding securities of the resulting entity entitled to vote generally in the
election of its directors or (b) in the case of the Bank, a transaction at the
completion of which the Corporation holds more than 50% of the outstanding
securities of the resulting institution entitled to vote generally in the
election of its directors; (4) consummation of a sale or other disposition to an
unaffiliated third party or parties of all or substantially all of the assets of
the Corporation or the Bank or approval by the stockholders of the Corporation
or the Bank of a plan of complete liquidation or dissolution of the Corporation
or the Bank;
provided
that
for purposes of clause (1), the term “Person” shall not include the
Corporation, any employee benefit plan of the Corporation or the Bank, or any
corporation or other entity owned directly or indirectly by the stockholders of
the Corporation in substantially the same proportions as their ownership of
stock of the Corporation. Each event comprising a “Change in Control”
is intended to constitute a “change in ownership or effective control,” or a
“change in the ownership of a substantial portion of the assets,” of the
Corporation or the Bank as such terms are defined for purposes of
Section 409A of the Code and “Change in Control” as used herein shall be
interpreted consistently therewith.
(b)
The term
"Date of Termination" means the date upon which the Executive's employment with
the Corporation ceases, as specified in a notice of termination pursuant to
Section 9 hereof; provided, that “termination,” “termination of employment” and
“Date of Termination” as used herein are intended to mean a termination of
employment which constitutes a “separation from service” under Code Section 409A
determined without regard to Executive’s service as a member of the Board of
Directors or of the board of directors of any subsidiary of the
Corporation.
(c)
Subject
to the remainder of this Section 1(c), the term "Involuntary Termination" means
the termination of the employment of the Executive (i) by the Corporation
without his express written consent; (ii) by the Executive by reason of a
material diminution of or interference with his duties, responsibilities or
benefits, including (without limitation) any of the following actions unless
consented to in writing by the Executive: (1) a requirement that the Executive
be based at any place other than Chicago, Illinois, or within a radius of 35
miles from the location of MB Financial Center at 6111 North River Road,
Rosemont, Illinois, except for reasonable travel on Corporation or Bank
business; (2) a material demotion of the Executive; (3) a material reduction in
the number or seniority of personnel reporting to the Executive or a material
reduction in the frequency with which, or in the nature of the matters with
respect to which such personnel are to report to the Executive, other than as
part of a Corporation and Bank-wide reduction in staff; (4) a reduction in the
Executive's salary or a material adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Corporation and the Bank; (5) a material permanent increase in
the required hours of work or the workload of the Executive beyond what is
expected of comparably situated chief executive officers performing
substantially the same duties; (6) the failure of the Board of
Directors (or board of directors of any successor of the Corporation including
its ultimate parent company) to elect the Executive as President and Chief
Executive Officer of the Corporation (or any successor of the Corporation
including its ultimate parent company) or any action by the Board of Directors
(or a board of directors of a successor of the Corporation including its
ultimate parent company) removing him from such office; or (7) failure of the
Corporation to obtain an assumption agreement from a successor as required by
Section 12(a) hereof; or (iii) by the Executive within 90
days after he receives written notice from the Corporation pursuant to Section 2
hereof that the term of this Agreement will not be extended (a ”Non-Extension
Termination”). The term "Involuntary Termination" does not include
Termination for Cause, termination of employment due to death or disability or
termination pursuant to Section 7(g) of this Agreement, or suspension or
temporary or permanent prohibition from participation in the conduct of the
Bank's affairs under Section 8 of the Federal Deposit Insurance Act. The term
“Involuntary Termination” does not include the resignation by the Executive for
the reasons set forth in clauses (ii) and (iii) above, unless the notice
provisions set forth in Section 9 are satisfied.
(d)
The terms
"Termination for Cause" and "Terminated For Cause" mean termination of the
employment of the Executive with the Corporation and the Bank because of the
Executive's willful misconduct, breach of a fiduciary duty involving personal
profit, repeated failure to perform stated duties (after written notice and
reasonable opportunity to cure), willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order issued by a federal banking regulator, or (except as
provided below) material breach of any provision of this Agreement (after
written notice and reasonable opportunity to cure). No act or failure
to act by the Executive shall be considered willful unless the Executive acted
or failed to act in bad faith and without a reasonable belief that his action or
failure to act was in the best interest of the Corporation or the
Bank. The Executive shall not be deemed to have been Terminated for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution, duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors at a meeting of the
Board duly called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board), stating that in the good faith opinion
of the Board of Directors the Executive has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in
detail.
(e)
The term
“Voluntary Termination” shall mean termination of employment by the Executive
voluntarily as set forth in Section 7(d) of this Agreement.
2.
Term
. The
term of this Agreement shall be a period of three years commencing on the date
hereof, subject to earlier termination as provided herein, and on each day
thereafter the term of this Agreement shall be extended for one day in addition
to the then-remaining term, creating on each such day a new three year term,
provided
that
the Corporation
has not at any time given Executive prior written notice that the term of this
Agreement will not be so extended.
3.
Employment
. The
Executive is employed as the President and Chief Executive Officer of the
Corporation. As such, the Executive shall have supervision and
control over strategic planning (with each strategic plan being subject to
approval by the Board of Directors of the Corporation) and daily consolidated
operations of the Corporation, shall render administrative and management
services as are customarily performed by persons situated in similar executive
capacities, and shall have such other powers and duties as the Board of
Directors may prescribe from time to time consistent with services performed by
similarly situated executives and consistent with the terms of this
Agreement. The Executive shall also render services without
additional compensation to any subsidiary or subsidiaries of the Corporation as
requested by the Corporation from time to time consistent with his executive
position and with the terms of this Agreement. The Executive may also
serve as a member of the Board, or as a member of the board of directors of any
subsidiary, and shall be entitled to receive compensation for such service as
determined by such boards. The Executive shall devote his best
efforts and reasonable time and attention to the business and affairs of the
Corporation and its subsidiaries to the extent necessary to discharge his
responsibilities hereunder. The Executive may (a) serve on charitable
boards or committees at the Executive’s discretion without consent of the Board
of Directors and, in addition, on such corporate boards as are approved in a
resolution adopted by a majority of the Board of Directors, and (b) manage
personal investments, so long as such activities do not interfere materially
with performance of his responsibilities hereunder.
4.
Compensation
.
(a)
Salary
. The
Corporation agrees to pay the Executive during the term of this Agreement a base
salary (the "Corporation Salary") the annualized amount of which shall be not
less than $600,000. The Corporation Salary shall be paid no less
frequently than monthly and shall be subject to customary tax
withholding. The amount of the Corporation Salary shall be increased
(but under no circumstances may the Corporation Salary be decreased) from time
to time in accordance with the amounts of salary approved by the Committee or
Board of Directors. In order to effectuate the purpose of the
preceding sentence, the amount of the Corporation Salary shall be reviewed by
the Committee or Board of Directors at least every year during the term of this
Agreement. If and to the extent that the Bank and/or any other
entities directly or indirectly controlled by the Corporation (the “Consolidated
Subsidiaries”) pay salary or other amounts or provide benefits to the Executive
that the Corporation is obligated to pay or to provide to the Executive under
this Agreement, the Corporation’s obligations to the Executive shall be reduced
accordingly.
(b)
Annual Incentive
Bonus
. On or before March 31
st
of each
year of the term of this Agreement, the Committee or Board of Directors shall
adopt consolidated performance criteria for the current calendar year based upon
which the Executive shall be entitled to earn an annual cash incentive bonus
(the “Annual Cash Bonus”) for such calendar year if he is employed by the
Corporation on the last day of such year. In adopting such criteria
the Committee or Board of Directors shall establish performance levels based
upon which the Executive will be entitled to earn an Annual Cash Bonus, at
target, equal to not less than 60% of the Corporation Salary and performance
levels based upon which the Executive will be entitled to earn an Annual Cash
Bonus in an amount less or greater than the target amount of the Corporation
Salary. The Annual Cash Bonus earned by the Executive for a calendar
year shall be paid within two and one-half months after the expiration of such
calendar year. Executive shall also be entitled to receive such other
annual bonus compensation, if any, as the Committee or Board of Directors may in
its sole discretion, award to Executive.
(c)
Stock-Based Incentive
Compensation
. Each year while the Executive is employed
pursuant to this Agreement, he shall be considered for an award of one or more
stock options and/or other stock-based awards (“Stock-Based Awards”) under the
Corporation’s Amended and Restated Omnibus Incentive Plan and any successor or
substitute for such plan (the “Omnibus Incentive Plan”) by the Committee at such
time as awards are granted to other senior executives of the Corporation. It is
expected, if the Executive is then employed by the Corporation, that the
Committee will grant to the Executive Stock-Based Awards under the Omnibus
Incentive Plan having a value at the date of grant, at target, equal to 100% of
the Corporation Salary earned by the Executive for the preceding calendar year,
which value shall be determined utilizing the same methodology (and the same
assumptions applied to such methodology) that is used for grants of stock
options or other stock-based awards granted at such time to other senior
executives of the Corporation. The Executive may be awarded Stock-Based Awards
having a lesser or great value. The Stock-Based Awards will be made in the form
of stock options, restricted stock, performance shares or other forms of award
permitted under the Omnibus Incentive Plan, and, except as provided below, the
mix and terms and conditions of which shall be the same as the awards made at
such time to the other senior officers of the Corporation. Each option granted
pursuant to the provisions hereof shall have an option term of 10 years (or such
other period applicable to stock options granted at such time to the other
senior officers of the Corporation) and may be subject to a vesting schedule,
provided: (i) vesting will continue following an Involuntary Termination at any
time, (ii) such option to the extent outstanding and unexercisable shall become
fully vested and exercisable upon the death or disability of the Executive,
(iii) other than as provided in the following subparts (iv) and (v)
of this subsection, all such options which have vested at the time of
termination of employment shall remain exercisable for one year following such
termination (but not beyond the expiration of the option’s term), and any such
options that become vested after Involuntary Termination shall be exercisable
for one year following the date such options vest (but not beyond the expiration
of an option’s term), (iv) such option to the extent outstanding and
unexercisable shall become fully exercisable upon a Change in Control if the
unexercisable portion of the option would otherwise terminate or cease to be
enforceable, in whole or in part, by reason of such Change in Control, and (v)
the option shall expire, terminate, and be forfeited upon a Termination for
Cause or a termination pursuant to Section 7(g) below. Nothing in
this Agreement shall affect the provisions of the 2003 Employment Agreement and
previous employment agreements relating to options granted thereunder, which
shall continue to govern the terms and conditions of options issued by the
Corporation to Executive prior to the effective date of this
Agreement.
(d)
Expenses
. The
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in performing services under this Agreement
in accordance with the policies and procedures applicable to the executive
officers of the Corporation and the Bank,
provided
that
the Executive
accounts for such expenses as required under such policies and
procedures.
5.
Employee
Benefits
.
(a)
Participation in Benefit
Plans
. While the Executive is employed by the Corporation, the
Executive shall be entitled to participate, to the same extent as executive
officers of the Corporation and the Bank generally, in all plans, programs and
practices of the Corporation and the Bank relating to pension, retirement
thrift, profit-sharing, savings, group or other life insurance, hospitalization,
medical and dental coverage, travel and accident insurance, education,
retirement or employee benefits or combination thereof. In addition,
the Executive shall be entitled to be considered for benefits under all of the
stock and stock option related plans in which the Corporation's or the Bank’s
executive officers are eligible or become eligible to participate provided any
grants made to the Executive pursuant to Section 4(c) hereof shall be considered
in making any determination with respect thereto.
(b)
Fringe
Benefits
. While the Executive is employed by the Corporation,
the Executive shall be eligible to participate in, and receive benefits under,
any other fringe benefit plans, programs and practices or perquisites which are
or may become generally available to the Corporation's or the Bank's executive
officers, including but not limited to, supplemental retirement, supplemental
medical or life insurance plans, company car, club dues, physical examinations,
financial planning and tax preparation services. Without limiting the
generality of the foregoing, the Corporation agrees to pay for the Executive's
membership dues and related business expenses in Twin Orchard Country Club (Long
Grove, Illinois), The Standard Club, and expenses for an executive automobile
which shall be replaced with a new vehicle at least every three
years. Moreover, during the Executive’s employment with the
Corporation, he shall be entitled to receive long-term disability coverage and
benefits as in effect on the date hereof (to the extent available at a
reasonable cost). In no event will the Executive receive any benefit
which is less favorable than a benefit generally being provided to the senior
executive officers of the Corporation or the Bank.
(c)
Post-Employment Health
Benefit
. In recognition of the past service of the Executive
to the Corporation and its subsidiaries, the Executive has earned and shall be
entitled to receive, subject to unconditional forfeiture thereof upon a
Termination for Cause or a termination pursuant to Section 7(g) hereof,
post-employment continuing health benefit coverage from the Corporation or its
successor in interest (the “Post-Employment Health Benefit”) upon any
termination of employment of the Executive which does not result in forfeiture
of the Post-Employment Health Benefit, as follows: (i) the Corporation (or its
successor in interest) shall provide to the Executive (for himself, his spouse
and his other eligible dependents) until the date that Executive becomes
eligible for Medicare benefits (for his spouse until the date that is seven full
calendar months after Executive becomes eligible for Medicare benefits), or if
he should die prior thereto then to his surviving spouse and his other eligible
dependents until the date that is seven full calendar months after the date that
Executive would have become eligible for Medicare benefits if he had survived,
the same family health insurance, hospitalization, medical, dental, prescription
drug and other health benefits as the Executive would have been eligible for if
Executive had continued to serve as an executive officer of the Corporation (or
its successor) until the Executive became eligible for Medicare benefits (and
for his spouse until the date that is seven full calendar months thereafter) on
terms as favorable to the Executive as to other executive officers of the
Corporation (or its successor) from time to time, including amounts of coverage
and deductibles, which shall be at the Corporation's (or its successor’s) sole
cost other than co-payments and deductibles; and (ii) the Corporation (or its
successor) shall, at the election of the Executive, provide the same coverage as
set forth in subpart (i) of this subsection for the benefit of the Executive,
his spouse and his other eligible dependents after the Executive becomes
eligible for Medicare benefits and during the remainder of his lifetime (for
Executive’s spouse, not ending before the date that is seven full calendar
months after the date that Executive becomes eligible for Medicare benefits), at
the sole cost of the Executive. To the extent the Corporation shall
determine that the provisions of the coverage described in clause (i) at the
Corporation’s sole cost may result in taxability of the benefits provided
thereunder to Executive or his dependents because such benefits are
self-insured, then (A) the Corporation shall provide such benefits through a
Corporation-paid insurance policy, or, if the Corporation determines that such
insurance policy cannot be reasonably obtained, (B) Executive (or his spouse)
shall be obligated to pay the monthly COBRA or similar premium for such
coverage. Within thirty (30) days following the end of each calendar
quarter during which COBRA premiums are paid with respect to the coverage
described in clause (i), the Executive (or his spouse) shall be entitled to
receive a lump sum payment equal to 150% of the aggregate COBRA premiums paid
during such quarter, subject to Section 21(b) hereof.
(d)
Supplemental Deferred
Compensation
. Commencing December 31, 2007 and continuing on
each December 31 thereafter during the term of this Agreement, if Executive is
employed by the Corporation on such December 31, then the Corporation shall
credit an employer contribution (“DC Contribution”) to a fully-vested deferral
account under the Corporation’s Non-Stock Deferred Compensation Plan, as may be
amended from time to time, or any successor or substitute plan (“Deferred
Compensation Plan”) in an amount determined in accordance with this Section
5(d). The DC Contribution to be credited pursuant to this Section
5(d) shall be an amount equal to 20% of the Corporation Salary in effect on such
December 31. In the event of a Change in Control, the Corporation
shall credit the deferral account in an amount equal to the present value of the
DC Contributions (but not any earnings or other adjustments thereto pursuant to
the Deferred Compensation Plan) that would be credited to Executive under this
Section 5(d) as if his employment under this Agreement continued until the later
of three years after the Date of Termination or the December 31 of the calendar
year during which the Executive would attain age 60, and no further credits
shall be made to such account under this Section 5(d). Such present value shall
be determined by assuming each annual DC Contribution during the applicable
period would be equal to the DC Contribution that would have been credited at
the end of the calendar year in which the Change in Control occurs and by using
an interest rate equal to 120% of the applicable federal long-term rate,
compounded annually, applicable to the month in which the Change in Control
occurs. The deferral account established and credited pursuant to
this Section 5(d) shall be subject to crediting and debiting with respect to the
deemed investment of the account, and the account shall be distributed to
Executive, in accordance with Executive’s elections under the provisions of the
Deferred Compensation Plan.
6.
Vacations;
Leave
. The Executive shall be entitled (i) to annual paid
vacation in accordance with the policies established by the Board of Directors
which shall not be less favorable than that provided to any other executive
officer of the Corporation or the Bank, and (ii) to voluntary leaves of absence,
with or without pay, from time to time at such times and upon such conditions as
the Board of Directors may determine in its discretion.
7.
Termination of
Employment
.
(a)
Involuntary
Termination
. If the Executive experiences an Involuntary
Termination prior to (and not in connection with) a Change in Control, such
termination of employment shall be subject to the Corporation's obligations
under this Section 7(a) in lieu of any other compensation and employee benefits
under this Agreement. If such Involuntary Termination is not a
Non-Extension Termination, the Corporation shall pay to the Executive monthly,
during the unexpired term of this Agreement after the Date of Termination, an
amount equal to the sum of: (i) one-twelfth of the Corporation Salary at the
annual rate in effect immediately prior to the Date of Termination, (ii)
one-twelfth of the average Annual Cash Bonus, based on the average amount of
such Annual Cash Bonus for the two full calendar years preceding the Date of
Termination, and (iii) one-twelfth of the amount of the DC Contribution that
would have been made at the end of the calendar year in which the Involuntary
Termination occurs, based on the amount of the Corporation Salary determined
under clause (i) above. If such Involuntary Termination is a
Non-Extension Termination, the Corporation shall pay the Executive monthly the
compensation set forth in the preceding sentence for a period of eighteen months
following the Date of Termination. In addition to the foregoing, in
connection with an Involuntary Termination, the Executive shall be entitled to
receive (A) any accrued Corporation Salary through the Date of Termination
within 30 days after the Date of Termination, (B) any unpaid Annual Cash Bonus
earned by the Executive for the preceding calendar year within the time period
set forth in Section 4(b) hereof, (C) prompt reimbursement of any expenses
incurred through the Date of Termination in accordance with Section 4(d), and
(D) all vested employee benefits described in Section 5 hereof (collectively,
the “Accrued Compensation”) plus the Post-Employment Health Benefit described in
Section 5(c), such benefits to be paid in accordance with this Agreement and the
applicable plan, program, arrangement or agreement. If the Executive
should die after amounts become payable under this Section 7(a), such amounts
shall thereafter be paid to the Executive’s estate until satisfied in
full. Payments pursuant to this Section 7(a) shall be subject to
Section 21(b).
(b)
Change in
Control
. If the Executive experiences an Involuntary
Termination in connection with or following a Change in Control, such
termination of employment shall, in lieu of any other compensation and employee
benefits under this Agreement, be subject to the Corporation’s (or its
successor-in-interest’s) obligations under this Section 7(b).
(i)
Accrued Compensation and
Post-Employment Health Benefit
. In addition to any other
amounts to which the Executive may be entitled to receive under this Section
7(b), the Corporation (or its successor-in-interest) shall pay to the Executive
the Accrued Compensation and provide the Post-Employment Health
Benefit.
(ii)
Change in Control
Payment
. If an Involuntary Termination occurs in connection
with or within 18 months following a Change in Control, in addition to the
Corporation’s (or its successor-in-interest’s) obligations under Section 7(b)(i)
above, the Corporation (or its successor-in-interest) shall pay to the Executive
in cash, within 30 days after the Date of Termination, an amount equal to three
times the sum of the Corporation Salary and the target Annual Cash Bonus in
effect under Sections 4(a) and 4(b) respectively, immediately prior to the Date
of Termination.
If the
Executive should die after amounts become payable under any provision of this
Section 7(b), such amounts shall thereafter be paid to the Executive’s estate
until satisfied in full. Payments under this Section 7(b) are subject
to Section 21(b).
(c)
Termination for
Cause
. In the event of Termination for Cause, the Corporation
shall have no further obligation to the Executive under this Agreement after the
Date of Termination except for the Accrued Compensation. Payments
under this Section 7(c) are subject to Section 21(b).
(d)
Voluntary
Termination
. The Executive may terminate his employment
voluntarily at any time by a notice pursuant to Section 9 of this
Agreement. In the event that the Executive voluntarily terminates his
employment other than by reason of any of the actions that constitute
Involuntary Termination ("Voluntary Termination"), the Corporation shall only be
obligated to the Executive for the amount of the Accrued Compensation and to
provide the Post-Employment Health Benefit, and the Corporation shall have no
further obligation to the Executive under this Agreement. Payments
under this Section 7(d) are subject to Section 21(b).
(e)
Death
. In
the event of the death of Executive during the term of this Agreement and prior
to any termination of employment, the Corporation shall pay to the Executive's
estate the Accrued Compensation and shall provide to the Executive’s surviving
spouse and other eligible dependents the Post-Employment Health
Benefit.
(f)
Disability
. If
the Executive becomes entitled to benefits under the terms of the
then-current disability plan, if any, of the Corporation or the Bank (a
"Disability Plan"), he shall be entitled to receive such group and other
disability benefits, if any, as are then provided by the Corporation or the Bank
for executive officers. In the event of such disability, this
Agreement shall not be suspended, except that (i) the Corporation's obligation
to pay the Corporation Salary to the Executive shall be reduced in accordance
with the amount of disability income benefits received by the Executive, if any,
pursuant to this Section 7(f) such that, on an after-tax basis, the Executive
shall realize from the sum of disability income benefits and Corporation Salary
the same amount as he would realize on an after-tax basis from the Corporation
Salary if the Corporation’s obligation to pay salary were not reduced pursuant
to this Section 7(f); (ii) the Executive shall not be entitled to earn an Annual
Cash Bonus pursuant to Section 4(b) hereof or option grants pursuant to Section
4(c) if the disability prevents the Executive from rendering full time service
to the Corporation for a period of in excess of six months during an applicable
calendar year; and (iii) upon a resolution adopted by a majority of the
disinterested members of the Board of Directors, the Corporation may discontinue
payment of the Corporation Salary beginning six months following a determination
that the Executive has become entitled to benefits under a Disability Plan or
otherwise unable to fulfill his duties under this Agreement. The
Corporation may terminate the employment of the Executive at any time after the
expiration of one year following such disability if such disability is then
continuing and upon such termination the Executive shall only be entitled to
receive the Accrued Compensation and the Post-Employment Health
Benefit. Payments under this Section 7(f) are subject to Section
21(b).
(g)
Regulatory
Action
. Notwithstanding any other provisions of this
Agreement, if the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. §
1818(e)(4) and (g)(1), all obligations of the Corporation under this Agreement
shall terminate as of the effective date of the order, except for the obligation
of the Corporation to pay the Accrued Compensation.
(h)
No Other Obligation to
Mitigate Damages; No Offset
. Except as provided in Section 7(i),
Executive shall not be obligated to mitigate amounts payable or arrangements
made under the provisions of this Section 7 and the obtaining of other
employment shall in no event effect any reduction of the Corporation’s
obligations under this Section 7. Except as provided in Section 7(i), the
Corporation’s obligation to make payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Corporation may have against the Executive or others.
(i)
Release and Restrictive
Covenants
. Notwithstanding the foregoing, the Corporation’s
obligations to pay or provide any benefits, under this Section 7(a) or 7(b)
below shall (i) cease as of the date the Executive knowingly and materially
violates the provisions of Section 8 hereof and (ii) be conditioned on the
Executive signing a release of claims in favor of the Corporation in the form
annexed hereto within forty-give (45) days of such termination and the
expiration of any revocation period provided for in such release; provided that,
if such Date of Termination is after November 8 of any year, no payment
conditioned on such release shall be made until the calendar year following the
calendar year of termination even if the release is signed and the revocation
period concluded earlier.
(j)
Tax Gross Up
Agreement
. The Corporation and Executive have entered into a
Tax Gross-Up Agreement of even date herewith, which provides certain payments in
the event Executive shall become subject to excise tax under Code Section 4999
of the Code in the event of a Change in Control.
8.
Confidential Information;
Restrictive Covenants
.
(a)
The
Executive shall not at any time during or following the Executive’s employment
with the Corporation, directly or indirectly, disclose or use on the Executive’s
behalf or another’s behalf, publish or communicate, except in the course of the
Executive’s employment and in the pursuit of the business of the Corporation or
any of its subsidiaries or affiliates, any proprietary information or data of
the Corporation or any of its subsidiaries or affiliates, which is not generally
known to the public or which could not be recreated through public means and
which the Corporation may reasonably regard as confidential and proprietary,
except as may be compelled by legal process and in the event of legal process
compelling disclosure, Executive shall provide the Corporation as much advance
notice thereof as may be practicable. The Executive recognizes and
acknowledges that all knowledge and information which the Executive has or may
acquire in the course of the Executive’s employment, such as, but not limited to
the business, developments, procedures, techniques, activities or services of
the Corporation or the business affairs and activities of any customer,
prospective customer, individual firm or entity doing business with the
Corporation are its sole valuable property, and shall be held by Executive in
confidence and in trust for their sole benefit. All records of every
nature and description which come into the Executive’s possession, whether
prepared by the Executive, or otherwise, shall remain the sole property of the
Corporation and upon termination of the Executive’s employment for any reason,
said records shall be left with the Corporation as part of its property;
provided, however, that Executive’s contact list and other personal information
stored on the Corporation’s information systems shall not be deemed Confidential
Information for purposes of the prohibition on Executive’s possession or use of
such information set forth in this Section 8(a).
(b)
Non-Competition;
Non-Solicitation
. The Executive acknowledges that the
Corporation by nature of its respective businesses has a legitimate and
protectable interest in its clients, customers and employees with whom the
Corporation has established significant relationships as a result of a
substantial investment of time and money, and but for the Executive’s employment
hereunder, the Executive would not have had contact with such clients, customers
and employees. The Executive agrees that during the period of the
Executive’s employment with the Corporation and for a period of one
(1) year after termination of the Executive’s employment for any reason
(such one (1) year period the “
Post-Employment Non-Compete
Period”
), the Executive will not (except in the Executive’s capacity as
an employee of the Corporation) directly or indirectly, for the Executive’s own
account, or as an agent, employee, director, owner, partner, or consultant of
any corporation, bank, thrift, firm, partnership, joint venture, syndicate, sole
proprietorship or other entity, or any division, subsidiary or affiliate
thereof:
(i)
engage,
directly or indirectly, within the Market Area (as defined below) in any
business that provides Banking Products or Banking Services that compete with
the Banking Products or Banking Services actually provided by Corporation during
the period of the Executive’s employment with the Corporation and prior to a
Change in Control (such Banking Products or Banking Services hereinafter
referred to as “Competitive Banking Products or Banking Services”);
(ii)
solicit
or induce, or attempt to solicit or induce any client or customer of the
Corporation or any of its subsidiaries or affiliates for purposes of providing
Competitive Banking Products or Banking Services; or
(iii)
solicit
or induce, or attempt to solicit or induce, any employee or agent of the
Corporation or any of its subsidiaries or affiliates to terminate his or her
relationship with the Corporation or any of its subsidiaries or
affiliates.
(c)
For
purposes of this Section 8:
(i)
“Corporation”
means the Corporation and all of its subsidiaries during the period of the
Executive’s employment with the Corporation, provided that with respect to the
Post-Employment Non-Compete Period, “Corporation” means only the Corporation and
all of its subsidiaries as of the date immediately prior to commencement of the
Post-Employment Non-Compete Period, or if earlier, the date immediately
preceding a Change in Control;
(ii)
“Market
Area” shall be an area encompassed within a thirty (30) mile radius surrounding
any office, branch or other place of business of the Corporation during the
period of the Executive’s employment with the Corporation, provided that with
respect to the Post-Employment Non-Compete Period, “Market Area” shall be
limited to an area encompassed within a thirty (30) mile radius surrounding any
office, branch or other place of business of the Corporation as of the date
immediately prior to commencement of the Post-Employment Non-Compete Period, or
if earlier, the date immediately preceding a Change in Control;
(iii)
“Banking
Products or Banking Services” means (1) credit, deposit and treasury management
services offered to businesses, (2) financial services related to equipment
leasing, (3) credit and deposit services offered to individuals, (4) asset
management services of the type actually provided by the Corporation, and (5)
any other product or service provided by the Corporation; provided, that with
respect to the Post-Employment Non-Compete Period, asset management services
shall be deemed Banking Products or Banking Services only if the Corporation’s
revenues from such services during the Reference Period (as defined below)
exceeded 1% of the Corporation’s Annual Revenues (as defined below) during the
Reference Period; and provided further, that with respect to the Post-Employment
Non-Compete Period, an other product or service described in clause (5) shall be
deemed Banking Products or Banking Services only if the Corporation’s revenues
from other product or service during the Reference Period (as defined below)
exceeded 2% of the Corporation’s Annual Revenues (as defined below) during the
Reference Period;
(iv)
“Reference
Period” means the four completed calendar quarters immediately preceding the
commencement of the Post-Employment Non-Compete Period, or if earlier, the date
immediately preceding a Change in Control; and
(v)
“Annual
Revenue” means the sum of the Corporation’s net interest income and non-interest
income during the Reference Period.
(d)
Notwithstanding
the foregoing provisions of this Section 8, Section 8(b)(i) above shall not be
deemed to prohibit:
(i)
the
Executive’s ownership, not to exceed five percent (5%), of the outstanding
capital stock or equity interests entity engaged in providing Competing Banking
Products or Banking Services in the Market Area, provided such investment is
passive and Executive does not provide any services to such entity either as an
employee, consultant, director or otherwise,
(ii)
the
Executive from serving as a director of other corporations and entities to the
extent these directorships do not inhibit the performance of the Executive’s
duties hereunder or conflict with the business of the Corporation;
(iii)
the
Executive from serving or continuing to serve as a director of other
corporations and entities following his termination of employment for which he
served in such capacity at any time during his employment with the
Corporation,
(iv)
the
Executive’s ownership of, or activity with respect to any business (whether
publicly or privately-held corporation or entity) disclosed to the Board during
the period of his employment and not objected to by the Board, or
(v)
the
Executive during the Post-Employment Non-Compete Period from being employed by
or otherwise providing services to an entity which is engaged within the Market
Area in any business that provides Competitive Banking Products or Banking
Services, so long as Executive has advised such entity of his obligations under
this Section 8 and Executive does not provide any services or otherwise engages
in any way, directly or indirectly, in any business of such entity which
provides Competitive Banking Products or Banking Services within the Market
Area.
(e)
Remedies
. The
Executive acknowledges that the restraints and agreements herein provided are
fair and reasonable, that enforcement of the provisions of this Section 8 will
not cause the Executive undue hardship and that said provisions are reasonably
necessary and commensurate with the need to protect the Corporation and its
legitimate and proprietary business interests and property from irreparable
harm. The Executive acknowledges and agrees that, (i) a breach
of any of the covenants and provisions contained in this Section 8, will result
in irreparable harm to the business of the Corporation, a remedy at law in the
form of monetary damages for any breach by the Executive of any of the covenants
and provisions contained in this Section 8 is inadequate, in addition to any
remedy at law or equity for such breach, the Corporation shall be entitled to
recover any amounts paid pursuant to Section 7(a) or 7(b) and to institute and
maintain appropriate proceedings in equity, including a suit for injunction to
enforce the specific performance by Executive of the obligations hereunder and
to enjoin Executive from engaging in any activity in violation hereof and the
covenants on the Executive’s part contained in this Section 8, shall be
construed as agreements independent of any other provisions in this Agreement,
and the existence of any claim, setoff or cause of action by the Executive
against the Corporation, whether predicated on this Agreement or otherwise,
shall not constitute a defense or bar to the specific enforcement by the
Corporation of said covenants. The Corporation acknowledges and
agrees that it shall not suspend or discontinue any payments due to Executive
under this Agreement except pursuant to the order of a state or federal court
that has personal and subject matter jurisdiction. In the event of a
breach or a violation by the Executive of any of the covenants and provisions of
this Agreement, the running of the Non-Compete Period (but not of Executive’s
obligation thereunder) shall be tolled during the period of the continuance of
any actual breach or violation.
(f)
Severability
. The
parties hereto agree that the covenants set forth in this Section 8 are
reasonable with respect to their duration, geographical area and
scope. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 8 is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
9.
Notice of
Termination
. Subject to the provisions of Section 1(d) hereof,
in the event that the Corporation or the Bank, or both, desire to terminate the
employment of the Executive during the term of this Agreement, the Corporation
or the Bank, or both, shall deliver to the Executive a written notice of
termination, stating whether such termination constitutes Termination for Cause,
Involuntary Termination, or termination for disability, setting forth in
reasonable detail the facts and circumstances that are the basis for the
termination, and specifying the date upon which employment shall terminate,
which date shall be at least 30 days after the date upon which the notice is
delivered, except in the case of Termination for Cause. In the event
that the Executive determines in good faith that he has experienced an
Involuntary Termination of his employment in accordance with Section 1(c), he
shall (a) send a written notice to the Corporation stating the circumstances
that constitute such Involuntary Termination, which notice shall be given within
90 days of the Executive’s first learning of such circumstances and shall state
his intention to terminate his employment due to such Involuntary Termination
and (b) provide the Corporation with 30 days from the date of such notice to
cure such circumstances. If the Corporation fails to cure such circumstances,
then Executive will be deemed to have terminated his employment due to
Involuntary Termination at the end of such 30 day period. In the
event that the Executive desires to effect a Voluntary Termination, he shall
deliver a written notice to the Corporation, stating the date upon which
employment shall terminate, which date shall be at least 90 days after the date
upon which the notice is delivered, unless the parties agree to a date
sooner.
10.
Attorneys' Fees
. The
Corporation shall pay all legal fees and related expenses (including the costs
of experts, evidence and counsel) incurred by the Executive as a result of (i)
the Executive's contesting or disputing any termination of employment, or (ii)
the Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement or by any other plan or arrangement maintained by the Corporation
(or any successor) or the Consolidated Subsidiaries under which the Executive is
or may be entitled to receive benefits;
provided that
the
Corporation's obligation to pay such fees and expenses is subject to the
Executive's prevailing with respect to the matters in dispute in any proceeding
initiated by the Executive or the Executive's having been determined to have
acted reasonably and in good faith with respect to any proceeding initiated by
the Corporation or the Consolidated Subsidiaries.
11.
Indemnification
. During
Executive’s term of employment with the Corporation and thereafter, the
Corporation shall indemnify and hold Executive harmless to the maximum extent
now or hereafter permitted under the Articles of Incorporation and By-Laws of
the Corporation. In the event that legal action is instituted or
threatened against the Executive during or after the term of his employment
with, or membership on the Board of Directors of, the Corporation, the Bank or
any affiliate the Corporation, in connection with such employment or membership,
the Corporation will advance to the Executive the costs and expenses incurred by
Executive in the defense of such action (including reasonable attorneys, expert
and other professional fees) to the maximum extent permitted by law without
prejudice to or waiver by the Corporation of its rights and remedies against the
Executive. In the event that there is a final judgment entered
against the Executive in any such litigation which, in accordance with its
Articles of Incorporation and By-Laws, is not subject to indemnification, then
the Executive shall reimburse the Corporation for all such costs and expenses
paid or incurred by it in the Executive’s defense of such litigation (the
“Reimbursement Amount”). The Reimbursement Amount shall be paid by the Executive
within 30 days after rendition of the final judgment and a determination by the
Board of Directors that such costs and expenses are not subject to
indemnification. The parties shall cooperate in the defense of any asserted
claim, demand or liability against the Executive or the Corporation or any of
the Consolidated Subsidiaries. The term “final judgment” as used
herein shall be defined to mean the decision of a court of competent
jurisdiction, and in the event of an appeal, then the decision of the appellate
court, after petition for rehearing has been denied, or the time for filing the
same (or the filing of further appeal) has expired. The rights to
indemnification under this Section 11 shall be in addition to any rights which
Executive may now or hereafter have under any insurance contract maintained by
the Corporation or any of its other affiliates or any other agreement between
Executive and the Corporation or any of its affiliates. Anything in
this Agreement to the contrary notwithstanding, Executive’s indemnification
rights under this Section 11, the Articles of Incorporation and By-Laws of the
Corporation and applicable law, shall survive the termination of Executive’s
employment with the Corporation and his membership on the Board of Directors of
the Corporation, the Bank and any affiliate of the Corporation.
12.
No
Assignments
.
(a)
This
Agreement is personal to each of the parties hereto, and neither may assign or
delegate any of its rights or obligations hereunder without first obtaining the
written consent of the other party; provided, however, that this Agreement shall
be binding upon and inure to the benefit of any successor of the Corporation and
the Corporation shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) by an assumption agreement in form
and substance reasonably satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Corporation would be required to perform it if no such succession had taken
place. Executive’s resignation following the failure of the
Corporation to obtain such an assumption agreement prior to the effectiveness of
any such succession shall constitute an Involuntary Termination as defined in
Section 1(c).
(b)
This
Agreement and all rights of the Executive hereunder shall inure to the benefit
of and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
13.
Notice
. For
the purposes of this Agreement, notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or five days after the date that sent by
certified mail, return receipt requested, postage prepaid, to the Corporation at
its home office, to the attention of the Board of Directors with a copy to the
Secretary of the Corporation, or, if to the Executive, to such home or other
address as the Executive has most recently provided in writing to the
Corporation.
14.
Amendments
. No
amendments or additions to this Agreement shall be binding unless in writing and
signed by both parties.
15.
Headings
. The
headings used in this Agreement are included solely for convenience and shall
not affect, or be used in connection with, the interpretation of this
Agreement.
16.
Severability
. The
provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provisions shall not affect the validity or
enforceability of the other provisions hereof.
17.
Governing
Law
. This Agreement shall be governed by the laws of the State
of Illinois.
18.
Preparation
Fees
. The Corporation shall be solely responsible for payment
of any and all legal fees incurred by Executive in the preparation, negotiation
and execution of this Agreement, but in an amount not to exceed
$15,000.
19.
Successors to Code
Sections
. All provisions of this Agreement referring to
sections of the U.S.C. (United State Code) or to the Code shall be deemed to
refer to successor code sections in the event of renumbering of code
sections.
20.
2003 Employment Agreement
and 2007 Employment Agreement
. Except with respect to stock
options awarded pursuant to the 2003 Employment Agreement (and previous
employment agreements that remain outstanding), this Agreement supersedes and
replaces the 2007 Employment Agreement and as of the date hereof, the 2007
Employment Agreement shall terminate and have no further force or
effect.
21.
Code Section
409A
.
(a)
The
intent of the parties is that payments and benefits under this Agreement comply
with Internal Revenue Code Section 409A and the regulations and guidance
promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to
the maximum extent permitted, this Agreement shall be interpreted to be in
compliance therewith. If the Executive notifies the Corporation (with
specificity as to the reason therefore) that the Executive believes that any
provision of this Agreement (or of any award of compensation, including equity
compensation or benefits) would cause the Executive to incur any additional tax
or interest under Code Section 409A and the Corporation concurs with such belief
or the Corporation (without any obligation whatsoever to do so) independently
makes such determination, the Corporation shall, after consulting with the
Executive, reform such provision to try to comply with Code Section 409A through
good faith modifications to the minimum extent reasonably appropriate to conform
with Code Section 409A. To the extent that any provision hereof is
modified in order to comply with Code Section 409A, such modification shall be
made in good faith and shall, to the maximum extent reasonably possible,
maintain the original intent and economic benefit to the Executive and the
Corporation of the applicable provision without violating the provisions of Code
Section 409A.
(b)
If the
Executive is deemed on the date of “separation from service” to be a “specified
employee” within the meaning of that term under Code Section 409A(a)(2)(B), then
with regard to any payment or the provision of any benefit that is specified as
subject to this Section, such payment or benefit shall be made or provided at
the date which is the earlier of (A) the expiration of the six (6)-month period
measured from the date of such “separation from service” of the Executive, and
(B) the date of the Executive’s death (the “Delay Period”). Upon the
expiration of the Delay Period, all payments and benefits delayed pursuant to
this Section 21(b) (whether they would have otherwise been payable in a single
sum or in installments in the absence of such delay) shall be paid or reimbursed
to the Executive in a lump sum, and any remaining payments and benefits due
under this Agreement shall be paid or provided in accordance with the normal
payment dates specified for them herein. Whenever a payment is to be
made promptly after a date, it shall be made within sixty (60) days
thereafter.
(c)
With
regard to any provision herein that provides for reimbursement of expenses or
in-kind benefits: (i) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, and (ii) the amount of
expenses eligible for reimbursement or in-kind benefits provided during any
taxable year shall not effect the expenses eligible for reimbursement or in-kind
benefits to be provided in any other taxable year, provided that the foregoing
shall not be violated with regard to expenses covered by Code Section 105(h)
that are subject to a limit related to the period in which the arrangement is in
effect. Any expense or other reimbursement payment made pursuant to
this Agreement or any plan, program, agreement or arrangement of the Corporation
referred to herein, shall be made on or before the last day of the taxable year
following the taxable year in which such expense or other payment to be
reimbursed.
22.
TARP
. Notwithstanding
anything in this Agreement or in any compensation plan, program or arrangement
maintained by the Company which covers Executive or to which Executive is a
party or in which Executive participates, as of the date hereof, or which may
become applicable to Executive hereinafter (collectively, the “Compensation
Arrangements”), each provision of this Agreement and the Compensation
Arrangements is amended and any amounts payable hereunder and thereunder are
hereby amended and modified with respect to Executive, if and to the extent
necessary, for the Company to comply with any requirements of the Emergency
Economic Stabilization Act of 2008 (“EESA”) and/or the TARP Capital Purchase
Program (“CPP”) (and the guidance or regulations issued thereunder by the United
States Treasury Department at 31 CFR Part 30, effective October 20, 2008 (the
“CPP Guidance”) which may become applicable to the Company, including, but not
limited to, provisions prohibiting the Company from making any “golden parachute
payments,” providing the Company may recover (“clawback”) bonus and incentive
compensation in certain circumstances, and precluding bonus and incentive
arrangements that encourage unnecessary or excessive risks that threaten the
value of the Company, in each case within the meaning of EESA and the CPP
Guidance and only to the extent applicable to the Company and
Executive. For purposes of this Section 22, references to “Company”
means MB Financial, Inc. and any entities treated as a single employer with MB
Financial, Inc. under the CPP Guidance. Executive hereby agrees to
execute such documents, agreements or waivers as the Company deems necessary or
appropriate to effect such amendments to this Agreement or the Compensation
Arrangements or to facilitate the participation of the Company in the TARP
Capital Purchase Program or any other programs under EESA.
The
application of this Section 22 is intended to, and shall be interpreted,
administered and construed to, comply with Section 111 of EESA and the CPP
Guidance and, to the maximum extent consistent with this Section 22 and such
statute and regulations, to permit the operation of this Agreement and
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this Section 22, EESA and the CPP Guidance.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and year
first above written.
ATTEST:
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MB
FINANCIAL, INC.
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Secretary
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By:
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Its:
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WITNESS:
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EXECUTIVE:
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/s/Mitchell
Feiger
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Mitchell
Feiger
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ANNEX
TO EXECUTIVE EMPLOYMENT AGREEMENT
Form
of Release
AGREEMENT AND GENERAL
RELEASE
MB
Financial, Inc., its affiliates, subsidiaries, divisions, successors and assigns
in such capacity, and the current, future and former employees, officers,
directors, and agents thereof in such capacities (collectively referred to
throughout this Agreement as “
Corporation
”) and
Mitchell Feiger (“
Executive
”), the Executive’s
heirs, executors, administrators, successors and assigns (collectively referred
to throughout this Agreement as “
Executive
”) agree:
1.
Consideration
. The
parties acknowledge that this Agreement and General Release is being executed in
accordance with Section 7 of the Employment Agreement by and between
Executive and the Corporation.
2.
Revocation
. Executive
may revoke this Agreement and General Release for a period of seven
(7) calendar days following the day Executive executes this Agreement and
General Release. Any revocation within this period must be submitted,
in writing, hand delivered to Corporation, or if mailed, postmarked, within
seven (7) calendar days of execution of this Agreement and General
Release. This Agreement and General Release shall not become
effective or enforceable until the revocation period has expired.
3.
General
Release of Claim
. Executive knowingly and voluntarily releases
and forever discharges Corporation from any and all claims, causes of action,
demands, fees and liabilities of any kind whatsoever, whether known and unknown,
against Corporation, Executive has, has ever had or may have as of the date of
execution of this Agreement and General Release, including, but not limited to,
any alleged violation of:
● Title
VII of the Civil Rights Act of 1964, as amended;
● The
Civil Rights Act of 1991;
● Sections 1981
through 1988 of Title 42 of the United States Code, as amended;
● The
Immigration Reform and Control Act, as amended;
● The
Americans with Disabilities Act of 1990, as amended;
● The
Age Discrimination in Employment Act of 1967, as amended;
● The
Older Workers Benefit Protection Act of 1990;
● The
Worker Adjustment and Retraining Notification Act, as amended;
● The
Occupational Safety and Health Act, as amended;
● The
Family and Medical Leave Act of 1993;
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●
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Any
other federal, state or local civil or human rights law or any other
local, state or federal law, regulation or
ordinance;
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● Any
public policy, contract, tort, or common law; or
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●
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Any
allegation for costs, fees, or other expenses including attorneys’ fees
incurred in these matters.
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Notwithstanding
anything herein to the contrary, the sole matters to which the Agreement and
General Release do not apply are: (i) Executive’s rights of indemnification
and directors and officers liability insurance coverage to which Executive was
entitled immediately prior to DATE with regard to Executive’s service as an
officer and director of Corporation; (ii) Executive’s rights under any
tax-qualified pension or claims for accrued vested benefits under any other
Executive benefit plan, policy or arrangement maintained by Corporation or under
COBRA; (iii) Executive’s rights under the provisions of the Employment
Agreement which are intended to survive termination of employment; or
(iv) Executive’s rights as a stockholder.
4.
No Claims
Permitted
. Executive waives Executive’s right to file any
charge or complaint against Corporation arising out of Executive’s employment
with or separation from Corporation before any federal, state or local court or
any state or local administrative agency, except where such waivers are
prohibited by law. This Agreement, however, does not prevent
Executive from filing a charge with the Equal Employment Opportunity Commission,
any other federal government agency, and/or any government agency concerning
claims of discrimination, although Executive waives the Executive’s right to
recover any damages or other relief in any claim or suit brought by or through
the Equal Employment Opportunity Commission or any other state or local agency
on behalf of Executive under the Age Discrimination in Employment Act, Title VII
of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act,
or any other federal or state discrimination law, except where such waivers are
prohibited by law.
5.
Affirmations
. Executive
affirms Executive has not filed, has not caused to be filed, and is not
presently a party to, any claim, complaint, or action against Corporation in any
forum or form. Executive further affirms that the Executive has been paid and/or
has received all compensation, wages, bonuses, commissions, and/or benefits to
which Executive may be entitled and no other compensation, wages, bonuses,
commissions and/or benefits are due to Executive, except as provided in Section
5(d) of the Employment Agreement. Executive also affirms Executive
has no known workplace injuries.
6.
Governing
Law and Interpretation
. This Agreement and General Release
shall be governed and conformed in accordance with the laws of the State of
Illinois without regard to its conflict of laws provisions. In the
event Executive or Corporation breaches any provision of this Agreement and
General Release, Executive and Corporation affirm either may institute legal
action to specifically enforce any term or terms of this Agreement and General
Release. Should any provision of this Agreement and General Release
be declared illegal or unenforceable by any court of competent jurisdiction and
should the provision be incapable of being modified to be enforceable, such
provision shall immediately become null and void, leaving the remainder of this
Agreement and General Release in full force and effect. Nothing
herein, however, shall operate to void or nullify any general release language
contained in the Agreement and General Release.
7.
Nonadmission
of Wrongdoing
. Executive agrees neither this Agreement and
General Release nor the furnishing of the consideration for this Release shall
be deemed or construed at any time for any purpose as an admission by
Corporation of any liability or unlawful conduct of any kind.
8.
Amendment
. This
Agreement and General Release may not be modified, altered or changed except
upon express written consent of both parties wherein specific reference is made
to this Agreement and General Release.
9.
Entire
Agreement
. This Agreement and General Release sets forth the
entire agreement between the parties hereto and fully supersedes any prior
agreements or understandings between the parties; provided, however, that
notwithstanding anything in this Agreement and General Release, the provisions
in the Employment Agreement which are intended to survive termination of the
Employment Agreement, including but not limited to those contained in
Section 11 thereof, shall survive and continue in full force and
effect. Executive acknowledges Executive has not relied on any
representations, promises, or agreements of any kind made to Executive in
connection with Executive’s decision to accept this Agreement and General
Release.
EXECUTIVE
HAS BEEN ADVISED THAT EXECUTIVE HAS UP TO FORTY-FIVE (45) CALENDAR DAYS TO
REVIEW THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN WRITING TO
CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL
RELEASE.
EXECUTIVE
AGREES ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND
GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE
(21) CALENDAR DAY CONSIDERATION PERIOD.
HAVING
ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES
SET FORTH HEREIN, AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN THE
EMPLOYMENT AGREEMENT, EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE
CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO
WAIVE, SETTLE AND RELEASE ALL CLAIMS EXECUTIVE HAS OR MIGHT HAVE AGAINST
CORPORATION.
IN
WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this
Agreement and General Release as of the date set forth below:
Mitchell
Feiger
|
MB
Financial, Inc.
By:
/s/ Mitchell
Feiger
Name:
Mitchell
Feiger
Title:
President and Chief Executive
Officer
|
Date:
|
Date:
|
MB
FINANCIAL BANK, N.A.
Change In Control Severance
Agreement
THIS SEVERANCE AGREEMENT
, (the
“
Agreement
”) is entered
into as of December 5, 2008 (the “
Effective Date
”), by and
between MB Financial Bank, N.A., a national banking association (the “
Company
”) and the undersigned
officer (the “
Executive
”);
WITNESSETH
THAT:
WHEREAS
, the Executive is
employed by the Company, and the Company desires to provide protection to
Executive in connection with any change in control of the Company.
NOW
,
THEREFORE
, it is hereby agreed
by and between the parties, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, as follows:
ARTICLE I
ESTABLISHMENT
AND PURPOSE
1.1
Term of
the Agreement
. Unless expired earlier as provided in
Section 1.3
or
terminated by the Company pursuant to
Section 2.4
,
this Agreement will commence on the Effective Date and remain in effect for an
initial term of three years which will be automatically extended for one year on
each anniversary of the Effective Date. In addition, if a Change in Control
occurs while this Agreement is effective, this Agreement will remain irrevocably
in effect for the greater of twenty four months from the date of the Change in
Control or until all benefits have been paid to the Executive hereunder, and
will then expire.
1.2
Purpose
of the Agreement
. The purpose of this Agreement is to advance
the interests of the Company by providing the Executive with an assurance of
equitable treatment, in terms of compensation and economic security, in the
event of an acquisition or other Change in Control of the Company. An
assurance of equitable treatment will enable the Executive to maintain
productivity and focus during a period of significant uncertainty that is
inherent in an acquisition or other Change in Control. Further, the
Company believes that agreements of this kind will aid it in attracting and
retaining the highly qualified, high performing professionals who are essential
to its success.
1.3
Contractual
Right to Benefits
. This Agreement establishes and vests in the
Executive a contractual right to the benefits to which he or she is entitled
hereunder, enforceable by the Executive against the Company. However,
nothing in this Agreement will require or be deemed to require the Company to
segregate, earmark, or otherwise set aside any funds or other assets to provide
for any payments to be made under it.
Subject
to
Section 3.2
, the
Company will retain the right to terminate the Executive’s employment at any
time prior to a Change in Control of the Company. If the Executive’s
employment is terminated prior to a Change in Control of the Company, this
Agreement will no longer be applicable to the Executive, and any and all rights
and obligations of the Company and the Executive under this Agreement will
cease. Notwithstanding the foregoing, if the effective date of a
Change in Control occurs within six months following the effective date of an
involuntary termination without Just Cause, the Executive’s termination may be
deemed to be a Qualifying Termination pursuant to
Section 3.2
of
this Agreement as of the date of the Change in Control.
ARTICLE II
DEFINITIONS
AND CONSTRUCTION
2.1
Definitions
. Whenever
used in the Agreement, the following terms have the meanings set forth below
and, when the meaning is intended, the initial letter of the word is
capitalized.
(a)
“
Average
Annual
Bonus
” means the Executive’s
actual average annual bonus earned over the two complete fiscal years prior to
the Effective Date of Termination, or, if shorter, over the Executive’s entire
period of employment. However, if the Executive’s period of
employment is less than one year, the average bonus will be considered
zero.
(b)
“
Base
Salary
” means the base rate of
compensation paid to the Executive as annual salary, excluding amounts received
under incentive or other bonus plans, as in effect as of the Effective Date of
Termination. Notwithstanding the foregoing, if the Executive’s Base
Salary was reduced within twenty-four months of the Effective Date of
Termination, then “Base Salary” will mean the Executive’s annual Base Salary as
in effect immediately prior to the reduction.
(c)
“
Beneficial Owner
” has the
meaning ascribed to that term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, namely, any person, who directly or indirectly, through
any contract, arrangement, understanding or otherwise, has or shares voting
power, which includes the power to vote or direct the voting of securities,
and/or investment power, which includes the power to dispose of, or direct the
disposition of, a security.
(d)
“
Beneficiary
” means the persons
or entities designated or deemed designated by the Executive pursuant
to
Section 8.2
herein.
(e)
“
Board
” means the Board of
Directors of the Company.
(f)
The term
“
Change in Control
”
means (1) any Person is or becomes the Beneficial Owner directly or
indirectly of securities of the Parent or the Company representing 35% or more
of the combined voting power of the Parent’s or the Company’s outstanding
securities entitled to vote generally in the election of directors;
(2) individuals who were members of the Parent Board on the Effective Date
(the “
Incumbent Parent
Board
”) cease for any reason to constitute at least a majority thereof,
provided that any person becoming a member of the Parent Board subsequent to the
Effective Date (a) whose appointment as a director by the Parent Board was
approved by a vote of at least three quarters of the directors comprising the
Incumbent Parent Board, or (b) whose nomination for election as a member of
the Parent Board by the Corporation’s stockholders was approved by the Incumbent
Parent Board or recommended by the nominating committee serving under the
Incumbent Parent Board, shall be considered a member of the Incumbent Parent
Board; (3) consummation of a plan of reorganization, merger or
consolidation involving the Parent or the Company or the securities of either,
other than (a) in the case of the Parent, a transaction at the completion
of which the stockholders of the Parent immediately preceding completion of the
transaction hold more than 70% of the outstanding securities of the resulting
entity entitled to vote generally in the election of its directors or
(b) in the case of the Company, a transaction at the completion of which
the Parent holds more than 50% of the outstanding securities of the resulting
institution entitled to vote generally in the election of its directors;
(4) consummation of a sale or other disposition to an unaffiliated third
party or parties of all or substantially all of the assets of the Parent or the
Company or approval by the stockholders of the Parent or the Company of a plan
of complete liquidation or dissolution of the Parent or the Company; provided
that for purposes of clause (1), the term “Person” shall not include the Parent,
any employee benefit plan of the Parent or the Company, or any corporation or
other entity owned directly or indirectly by the stockholders of the Parent in
substantially the same proportions as their ownership of stock of the
Parent. Each event comprising a “Change in Control” is intended to
constitute a “change in ownership or effective control,” or a “change in the
ownership of a substantial portion of the assets,” of the Parent or the Company
as such terms are defined for purposes of Section 409A of the Code and
“Change in Control” as used herein shall be interpreted consistently
therewith.
(g)
“
Code
” means the Internal
Revenue Code of 1986, as amended.
(h)
“
Company
” means MB Financial
Bank, N.A., a national banking association, or any successor thereto that adopts
the Agreement, as provided in
Section 8.1
herein.
(i)
“
Compensation
Committee
” means the
Compensation Committee of the Board of Directors of the Parent
Company.
(j)
“
Director
” means a member of
the Board or of the Parent Board, as the case may be.
(k)
“
Disability
” means a physical
or mental condition that would entitle the Executive to benefits under the
Company’s long-term disability plan, or if the Company maintains no such plan,
then under the federal Social Security laws.
(l)
“
Effective
Date
of
Termination
” means the date on
which a Qualifying Termination occurs which triggers Severance Benefits
hereunder.
(m)
“
Exchange
Act
” means the Securities
Exchange Act of 1934, as amended from time to time, or any successor to
it.
(n)
“
Expiration
Date
” means the date the
Agreement expires, as provided in
Section 1.1
herein.
(o)
“
Good
Reason
” means (i) the
occurrence of a ten percent or greater reduction in the aggregate value of the
Executive’s annual Base Salary, bonus opportunity, and benefits excluding profit
sharing; (ii) the assignment to the Executive of any duties inconsistent
with, and commonly (in the banking industry) considered beneath, the Executive’s
position, or a change in the Executive’s status, offices, titles and reporting
relationships, authority, duties or responsibilities, or any other action by the
Company, in each case if the assignment, change or action results in a
significant diminution in the Executive’s position, authority, duties or
responsibility; or (iii) a required relocation of the Executive to a
location more than fifty miles from the Executive’s then existing job
location to which the Executive does not consent to in writing. In
determining whether an assignment, change or action described in clause
(ii) above constitutes Good Reason, due consideration will be given to the
size of the organization and other facts and circumstances surrounding the
Executive’s situation before and after the assignment, change or
action. For example, if the Executive is moved to a position that
carries a title generally considered to be of a lower degree, but he or she is
working in a larger division or company than before the change, has more
employees reporting to him or her, or has authority for projects controlling
more dollars, or if other circumstances exist that suggest the Executive’s new
position is not a demotion, then Good Reason will not exist for the Executive to
terminate his or her employment.
(p)
“
Just Cause
” means a
termination of the Executive’s employment by the Company, for which no Severance
Benefits are payable, as provided in Article IV.
(q)
“
Parent
” means MB Financial,
Inc., a Maryland corporation, or any direct parent of a successor of the Company
that adopts the Agreement as provided in
Section 8.1
.
(r)
“
Parent Board
” means the Board
of Directors of the Parent.
(s)
“
Person
” means a natural
person, company, or government, or a political subdivision, agency, or
instrumentality of a government, including a “group” as defined in
Section 13(d) of the Exchange Act. When two or more persons act
as a partnership, limited partnership, syndicate or other group for the purpose
of acquiring the securities of the Company, they will be deemed a Person for
purposes of the Agreement. “Person” will be construed in the same
manner as under Section 3(a)(9) of the Exchange Act, and “group” will be
construed in the same manner as under Section 13(d) of the Exchange
Act.
(t)
“
Qualifying Termination
” means
any of the events described in
Section 3.2
, the
occurrence of which triggers the payment of Severance Benefits.
(u)
“
Severance Benefit
” means the
payment of severance compensation as provided in Article III.
2.2
Gender
and Number
. Except where otherwise indicated by the context,
any masculine term used herein also includes the feminine, the plural includes
the singular, and the singular includes the plural.
2.3
Severability
. If
any provision of this Agreement is held to be illegal or invalid for any reason,
the illegality or invalidity will not affect the remaining parts of this
Agreement, and this Agreement will be construed and enforced as if the illegal
or invalid provision had not been included.
2.4
Amendment
or Termination
. The provisions of this Agreement may be
amended by written agreement between the Company and the Executive, with any
material amendment approved by the Compensation Committee or the
Board. Subject to the final sentence of
Section 1.1
, the
Company may terminate this Agreement by written resolution of the Compensation
Committee or the Board, effective as of a date at least twelve months following
the date the Company gives written notice to the Executive of its intent to
terminate the Agreement.
2.5
Applicable
Law
. To the extent not preempted by the laws of the United
States, the laws of the State of Illinois, without regard to its conflict of
laws provisions, will be the controlling law in all matters relating to this
Agreement.
ARTICLE III
SEVERANCE
BENEFITS
3.1
Right to
Severance Benefits
. Subject to the provisions hereof, the
Executive will be entitled to receive from the Company Severance Benefits as
described in
Section 3.3
if
there has been a Change in Control of the Company and if any of the events
designated within
Section 3.2
occur. The Executive will not be entitled to receive Severance
Benefits if his or her employment with the Company ends due to death,
disability, voluntary retirement, a voluntary termination by the Executive
without Good Reason, or due to an involuntary termination by the Company for
Just Cause.
3.2
Qualifying
Terminations
. The occurrence of any one of the following
events within twenty four calendar months after a Change in Control of the
Company will trigger the payment of Severance Benefits under this
Agreement:
(a)
an
involuntary termination of the Executive’s employment without Just
Cause;
(b)
a
voluntary termination of the Executive’s employment with the Company, for Good
Reason;
(c)
the
failure or refusal of a successor company (including, but not limited to, an
individual, corporation, association, or partnership) to assume the Company’s
obligations under this Agreement, as required by
Section 8.1
;
and
(d)
a breach
by the Company or any successor company of any of the provisions of this
Agreement.
In
addition, an involuntary termination without Just Cause will trigger the payment
of Severance Benefits under this Agreement if the Executive’s employment is
terminated by the Company without Just Cause within six months prior to a Change
in Control that actually occurs during the term of this Agreement and either
(i) the termination was at the request or direction of a Person who has
entered into an agreement with the Company the consummation of which would
constitute a Change in Control, or (ii) the Executive reasonably
demonstrates that the termination is otherwise in connection with or in
anticipation of the Change in Control.
3.3
Description
of Severance Benefits
. If the Executive becomes entitled to
receive Severance Benefits, as provided in
Sections 3.1
and
3.2
, the
Company will pay to the Executive and provide him or her with the
following:
(a)
an amount
equal to the Executive’s annual Base Salary multiplied by two;
(b)
an amount
equal to the Executive’s Average Annual Bonus multiplied by two;
(c)
immediate
vesting of the Executive’s benefits, if any, under any and all non-qualified
retirement plans of the Company (or its affiliates) in which the Executive
participates; and
(d)
continuation
of the welfare benefits of medical, dental or other health coverage, long term
disability, and group term life insurance at the same premium cost to the
Executive and at the same coverage level as in effect as of the Executive’s
Effective Date of Termination until the second anniversary of the Effective Date
of Termination, without regard to the federal income tax consequences of that
continuation.
The
treatment of any options held by the Executive will be subject to the terms of
the plan or plans under which they were granted. Benefits under
subsection 3.3(d) will be discontinued prior to the end of the second
anniversary of the Effective Date of Termination if the Executive receives
substantially similar benefits in the aggregate from a subsequent employer, as
determined by the Compensation Committee. Continued medical, dental
or other health benefits under subsection 3.3(d) will count toward any COBRA
continuation coverage period that may apply to the Executive.
ARTICLE IV
JUST
CAUSE OR RETIREMENT
4.1
Just
Cause
. Nothing in this Agreement will be construed to prevent
the Company from terminating the Executive’s employment for Just
Cause. If the Company does so, no Severance Benefits will be payable
to the Executive under this Agreement.
Just
Cause will be defined to include, but will not be limited to, willful, malicious
conduct by the Executive that is prejudicial to the best interests of the
Company, including theft, embezzlement, the conviction of a criminal act,
disclosure of trade secrets, a gross dereliction of duty, or other grave
misconduct on the part of the Executive that is injurious to the
Company.
4.2
Retirement
. If
the Executive’s employment with the Company ends due to voluntary retirement,
the Executive: (i) will not be entitled to receive Severance Benefits under
this Agreement; and (ii) will not be eligible to participate in a
Company-sponsored severance plan or arrangement at any time following his or her
retirement.
ARTICLE V
FORM
AND TIMING OF SEVERANCE BENEFITS
5.1
Form and
Timing of Severance Benefits
. Subject to Article XII below,
the Severance Benefits described in
Sections 3.3(a)
and
(b)
will be
paid in cash to the Executive in a single lump sum as soon as practicable
following the Effective Date of Termination, but in no event more than thirty
days after the Effective Date of Termination. The vesting of benefits
under
Section 3.3(c)
shall occur on the Effective Date of Termination.
The
Severance Benefits described in subsection 3.3(d) will be provided by the
Company to the Executive immediately upon the Effective Date of Termination and
will continue to be provided until the second anniversary of the Effective Date
of Termination. However, the Severance Benefits described in
subsection 3.3(d) will be discontinued prior to the end of
the two-year period immediately upon the Executive’s receiving
similar benefits from a subsequent employer, as determined by the Compensation
Committee.
5.2
Withholding
of Taxes
. The Company will withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes that are legally
required.
ARTICLE VI
TAX
GROSS UP AGREEMENT
6.1
Tax Gross
Up Agreement
. Contemporaneously with entering into this
Agreement, the Executive and Parent have entered into a Tax Gross-Up Agreement
to make the Executive whole in certain circumstances described therein from the
excise tax, if any, imposed under Section 280(G) of the Code.
ARTICLE VII
OTHER
RIGHTS AND BENEFITS NOT AFFECTED
7.1
Other
Benefits
. Except as provided in this Section below,
neither the provisions of this Agreement nor the Severance Benefits provided for
hereunder will reduce any amounts otherwise payable, or in any way diminish the
Executive’s rights as an employee of the Company, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock purchase plan, or any employment agreement, or other Agreement or
arrangement. Notwithstanding the foregoing, if the Executive is also
a covered employee under a severance plan of the Company or one of its
affiliates, the Executive will be entitled to receive the Severance Benefits
provided under this Agreement in lieu of any severance pay or other benefits
provided under that severance plan. Benefits provided under this
Agreement will not increase any amounts otherwise payable under any other
arrangement, if that other arrangement does not provide that severance benefits
will be taken into account in determining benefits.
7.2
Employment
Status
. This Agreement does not constitute a contract of
employment or impose on the Executive or the Company any obligation to retain
the Executive as an employee, to change the status of the Executive’s
employment, or to change the Company’s policies regarding termination of
employment.
ARTICLE VIII
SUCCESSORS
8.1
Successors
. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) of all or substantially all of the business
and/or assets of the Company or of any division or subsidiary thereof to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such an
assumption and agreement prior to the effectiveness of any such succession will
be a breach of this Agreement and will entitle the Executive to compensation
from the Company in the same amount and on the same terms as he or she would be
entitled hereunder if terminated voluntarily for Good Reason, except that, for
the purposes of implementing the foregoing, the date on which any succession
becomes effective will be deemed the Effective Date of Termination.
This
Agreement will inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive dies while any
amount would still be payable to him or her hereunder had he or she continued to
live, any such amount, unless otherwise provided herein, will be paid in
accordance with the terms of this Agreement, to the Executive’s devisee,
legatee, or other designee, or if there is no such designee, to the Executive’s
estate.
8.2
Beneficiaries
. The
Executive’s beneficiary under the qualified defined contribution plan of the
Company or an affiliate in which the Executive participates will be his or her
Beneficiary under this Agreement, unless the Executive otherwise designates a
Beneficiary in the form of a signed writing acceptable to the Compensation
Committee. The Executive may make or change such a designation at any
time.
ARTICLE IX
ADMINISTRATION
9.1
Administration
. This
Agreement will be administered by the Compensation Committee. In that
capacity, the Compensation Committee, to the extent not contrary to the express
provisions of the Agreement, is authorized in its discretion to interpret this
Agreement, to prescribe and rescind rules and regulations, to provide conditions
and assurances deemed necessary and advisable, to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of this Agreement and similar Agreements.
In
fulfilling its administrative duties hereunder, the Compensation Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2
Indemnification
and Exculpation
. The members of the Board and the Parent
Board, its agents and officers, directors, and employee of the Company and its
affiliates will be indemnified and held harmless by the Company against and from
any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may be
involved by reason of any action taken or failure to act under this Agreement
and against and from any and all amounts paid by them in settlement (with the
Company’s written approval) or paid by them in satisfaction of a judgment in any
such action, suit, or proceeding. The foregoing provision will not
apply to any person if the loss, cost, liability, or expense is due to that
person’s gross negligence or willful misconduct.
ARTICLE X
LEGAL
FEES AND ARBITRATION
10.1
Legal
Fees and Expenses
. The Company (or, in the event of the
acquisition of substantially all of the assets of the Company, the acquirer of
those assets) will pay all legal fees, costs of litigation, and expenses
directly related to legal fees and costs of litigation incurred in good faith by
the Executive as a result of the Company’s refusal to provide the Severance
Benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company’s contesting the validity, enforceability, or
interpretation of this Agreement, but in each case only if the Executive
ultimately prevails in litigation conducted as a result of the refusal or
contest.
10.2
Arbitration
. The
Executive and the Company will have the right and option to elect (in lieu of
litigation) to have any dispute or controversy arising under or in connection
with this Agreement settled by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Executive within
fifty miles from the location of his or her job, in accordance with rules
of the American Arbitration Association then in effect. Judgment may
be entered on the award of the arbitrator in any court having
jurisdiction. All expenses of arbitration, including the fees and
expenses of the counsel for the Executive, will be split between the Company and
the Executive, unless the Executive prevails, in which case the Company will
bear the expenses of the arbitration. Notwithstanding the right of
the Executive or the Company to elect to enter into arbitration, the Company and
the Executive may mutually agree to resolve any dispute or controversy arising
under or in connection with the Agreement in a court of law, in lieu of
arbitration.
ARTICLE XI
EXCLUSIVITY
OF SEVERANCE BENEFITS
11.1
Exclusivity
of Severance Benefits
. Subject to
Section 7.1
, if
the Company is contractually obligated to pay to the Executive any severance
benefits pursuant to another agreement, plan, program, policy, or any other
change of control agreement, the terms and provisions of the program
under which the aggregate level of severance benefits is the highest (as
determined by the Executive) will operate to completely replace and supersede
the terms and provisions of this Agreement and/or all other programs that
provide for the payment of severance benefits.
ARTICLE XII
CODE
SECTION 409A; TARP
12.1
Code
Section 409A
. The intent of the parties is that payments
and benefits under this Agreement comply with Internal Revenue Code
Section 409A and the regulations and guidance promulgated thereunder
(collectively “
Code
Section 409A
”) and, accordingly, to the maximum extent permitted,
this Agreement shall be interpreted to be in compliance therewith. If
the Executive notifies the Company (with specificity as to the reason therefore)
that the Executive believes that any provision of this Agreement would cause the
Executive to incur any additional tax or interest under Code Section 409A
and the Company concurs with such belief or the Company (without any obligation
whatsoever to do so) independently makes such determination, the Company shall,
after consulting with the Executive, reform such provision to try to comply with
Code Section 409A through good faith modifications to the minimum extent
reasonably appropriate to conform with Code Section 409A. To the
extent that any provision hereof is modified in order to comply with Code
Section 409A, such modification shall be made in good faith and shall, to
the maximum extent reasonably possible, maintain the original intent and
economic benefit to the Executive and the Company of the applicable provision
without violating the provisions of Code Section 409A.
If the
Executive is deemed on the date of “separation from service” to be a “specified
Executive” within the meaning of such terms under Code
Section 409A(a)(2)(B), then with regard to any payment or the provision of
any benefit that is specified as subject to this Section, such payment or
benefit shall be made or provided at the date which is the earlier of
(A) the expiration of the six (6)-month period measured from the date of
such “separation from service” of the Executive, and (B) the date of the
Executive’s death (the “
Delay
Period
”). Upon the expiration of the Delay Period, all
payments and benefits delayed pursuant to this Section 12.1 (whether they
would have otherwise been payable in a single sum or in installments in the
absence of such delay) shall be paid or reimbursed to the Executive in a lump
sum, and any remaining payments and benefits due under this Agreement shall be
paid or provided in accordance with the normal payment dates specified for them
herein. Whenever a payment is to be made promptly after a date, it
shall be made within sixty (60) days thereafter.
With
regard to any provision herein that provides for reimbursement of expenses or
in-kind benefits: (i) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, and (ii) the amount
of expenses eligible for reimbursement or in-kind benefits provided during any
taxable year shall not effect the expenses eligible for reimbursement or in-kind
benefits to be provided in any other taxable year, provided that the foregoing
shall not be violated with regard to expenses covered by Code
Section 105(h) that are subject to a limit related to the period in which
the arrangement is in effect. Any expense or other reimbursement
payment made pursuant to this Agreement or any plan, program, agreement or
arrangement of the Company referred to herein, shall be made on or before the
last day of the taxable year following the taxable year in which such expense or
other payment to be reimbursed is incurred.
12.2
TARP
. Notwithstanding
anything in this Agreement or in any compensation plan, program or arrangement
maintained by the Company which covers Executive or to which Executive is a
party or in which Executive participates, as of the date hereof, or which may
become applicable to Executive hereinafter (collectively, the “
Compensation Arrangements
”),
each provision of this Agreement and the Compensation Arrangements is amended
and any amounts payable hereunder and thereunder are hereby amended and modified
with respect to Executive, if and to the extent necessary, for the Company to
comply with any requirements of the Emergency Economic Stabilization Act of 2008
(“
EESA
”) and/or the TARP
Capital Purchase Program (“
CPP
”) (and the guidance or
regulations issued thereunder by the United States Treasury Department at 31 CFR
Part 30, effective October 20, 2008 (the “CPP Guidance”) which may become
applicable to the Company, including, but not limited to, provisions prohibiting
the Company from making any “golden parachute payments,” providing the Company
may recover (“clawback”) bonus and incentive compensation in certain
circumstances, and precluding bonus and incentive arrangements that encourage
unnecessary or excessive risks that threaten the value of the Company, in each
case within the meaning of EESA and the CPP Guidance and only to the extent
applicable to the Company and Executive. For purposes of this
Section 12.
2,
references to “Company” means MB Financial, Inc. and any entities treated as a
single employer with MB Financial, Inc. under the CPP
Guidance. Executive hereby agrees to execute such documents,
agreements or waivers as the Company deems necessary or appropriate to effect
such amendments to this Agreement or the Compensation Arrangements or to
facilitate the participation of the Company in the TARP Capital Purchase Program
or any other programs under EESA.
The
application of this
Section 12.2
is
intended to, and shall be interpreted, administered and construed to, comply
with Section 111 of EESA and the CPP Guidance and, to the maximum extent
consistent with this
Section 12.2
and such
statute and regulations, to permit the operation of this Agreement and the
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this
Section 12.2
, EESA
and the CPP Guidance.
IN WITNESS WHEREOF
, the
Executive has executed this Agreement and the Company has caused this Agreement
to be executed by a resolution of the Board, as of the day and year first above
written.
MB
FINANCIAL BANK, N.A.
By:
Its:
|
EXECUTIVE
Name:
|
MB
FINANCIAL BANK, N.A.
Change In Control Severance
Agreement
THIS SEVERANCE AGREEMENT
, (the
“
Agreement
”) is entered
into as of December 5, 2008 (the “
Effective Date
”), by and
between MB Financial Bank, N.A., a national banking association (the “
Company
”) and the undersigned
officer (the “
Executive
”);
WITNESSETH
THAT:
WHEREAS
, the Executive is
employed by the Company, and the Company desires to provide protection to
Executive in connection with any change in control of the Company.
NOW
,
THEREFORE
, it is hereby agreed
by and between the parties, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, as follows:
ARTICLE I
ESTABLISHMENT
AND PURPOSE
1.1
Term of
the Agreement
. Unless expired earlier as provided in
Section 1.3
or
terminated by the Company pursuant to
Section 2.4
,
this Agreement will commence on the Effective Date and remain in effect for an
initial term of three years which will be automatically extended for one year on
each anniversary of the Effective Date. In addition, if a Change in Control
occurs while this Agreement is effective, this Agreement will remain irrevocably
in effect for the greater of twenty four months from the date of the Change in
Control or until all benefits have been paid to the Executive hereunder, and
will then expire.
1.2
Purpose
of the Agreement
. The purpose of this Agreement is to advance
the interests of the Company by providing the Executive with an assurance of
equitable treatment, in terms of compensation and economic security, in the
event of an acquisition or other Change in Control of the Company. An
assurance of equitable treatment will enable the Executive to maintain
productivity and focus during a period of significant uncertainty that is
inherent in an acquisition or other Change in Control. Further, the
Company believes that agreements of this kind will aid it in attracting and
retaining the highly qualified, high performing professionals who are essential
to its success.
1.3
Contractual
Right to Benefits
. This Agreement establishes and vests in the
Executive a contractual right to the benefits to which he or she is entitled
hereunder, enforceable by the Executive against the Company. However,
nothing in this Agreement will require or be deemed to require the Company to
segregate, earmark, or otherwise set aside any funds or other assets to provide
for any payments to be made under it.
Subject
to
Section 3.2
, the
Company will retain the right to terminate the Executive’s employment at any
time prior to a Change in Control of the Company. If the Executive’s
employment is terminated prior to a Change in Control of the Company, this
Agreement will no longer be applicable to the Executive, and any and all rights
and obligations of the Company and the Executive under this Agreement will
cease. Notwithstanding the foregoing, if the effective date of a
Change in Control occurs within six months following the effective date of an
involuntary termination without Just Cause, the Executive’s termination may be
deemed to be a Qualifying Termination pursuant to
Section 3.2
of
this Agreement as of the date of the Change in Control.
ARTICLE II
DEFINITIONS
AND CONSTRUCTION
2.1
Definitions
. Whenever
used in the Agreement, the following terms have the meanings set forth below
and, when the meaning is intended, the initial letter of the word is
capitalized.
(a)
“
Average
Annual
Bonus
” means the Executive’s
actual average annual bonus earned over the two complete fiscal years prior to
the Effective Date of Termination, or, if shorter, over the Executive’s entire
period of employment. However, if the Executive’s period of
employment is less than one year, the average bonus will be considered
zero.
(b)
“
Base
Salary
” means the base rate of
compensation paid to the Executive as annual salary, excluding amounts received
under incentive or other bonus plans, as in effect as of the Effective Date of
Termination. Notwithstanding the foregoing, if the Executive’s Base
Salary was reduced within twenty-four months of the Effective Date of
Termination, then “Base Salary” will mean the Executive’s annual Base Salary as
in effect immediately prior to the reduction.
(c)
“
Beneficial Owner
” has the
meaning ascribed to that term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, namely, any person, who directly or indirectly, through
any contract, arrangement, understanding or otherwise, has or shares voting
power, which includes the power to vote or direct the voting of securities,
and/or investment power, which includes the power to dispose of, or direct the
disposition of, a security.
(d)
“
Beneficiary
” means the persons
or entities designated or deemed designated by the Executive pursuant
to
Section 8.2
herein.
(e)
“
Board
” means the Board of
Directors of the Company.
(f)
The term
“
Change in Control
”
means (1) any Person is or becomes the Beneficial Owner directly or
indirectly of securities of the Parent or the Company representing 35% or more
of the combined voting power of the Parent’s or the Company’s outstanding
securities entitled to vote generally in the election of directors;
(2) individuals who were members of the Parent Board on the Effective Date
(the “
Incumbent Parent
Board
”) cease for any reason to constitute at least a majority thereof,
provided that any person becoming a member of the Parent Board subsequent to the
Effective Date (a) whose appointment as a director by the Parent Board was
approved by a vote of at least three quarters of the directors comprising the
Incumbent Parent Board, or (b) whose nomination for election as a member of
the Parent Board by the Corporation’s stockholders was approved by the Incumbent
Parent Board or recommended by the nominating committee serving under the
Incumbent Parent Board, shall be considered a member of the Incumbent Parent
Board; (3) consummation of a plan of reorganization, merger or
consolidation involving the Parent or the Company or the securities of either,
other than (a) in the case of the Parent, a transaction at the completion
of which the stockholders of the Parent immediately preceding completion of the
transaction hold more than 60% of the outstanding securities of the resulting
entity entitled to vote generally in the election of its directors or
(b) in the case of the Company, a transaction at the completion of which
the Parent holds more than 50% of the outstanding securities of the resulting
institution entitled to vote generally in the election of its directors;
(4) consummation of a sale or other disposition to an unaffiliated third
party or parties of all or substantially all of the assets of the Parent or the
Company or approval by the stockholders of the Parent or the Company of a plan
of complete liquidation or dissolution of the Parent or the Company; provided
that for purposes of clause (1), the term “Person” shall not include the Parent,
any employee benefit plan of the Parent or the Company, or any corporation or
other entity owned directly or indirectly by the stockholders of the Parent in
substantially the same proportions as their ownership of stock of the
Parent. Each event comprising a “Change in Control” is intended to
constitute a “change in ownership or effective control,” or a “change in the
ownership of a substantial portion of the assets,” of the Parent or the Company
as such terms are defined for purposes of Section 409A of the Code and
“Change in Control” as used herein shall be interpreted consistently
therewith.
(g)
“
Code
” means the Internal
Revenue Code of 1986, as amended.
(h)
“
Company
” means MB Financial
Bank, N.A., a national banking association, or any successor thereto that adopts
the Agreement, as provided in
Section 8.1
herein.
(i)
“
Compensation
Committee
” means the
Compensation Committee of the Board of Directors of the Parent
Company.
(j)
“
Director
” means a member of
the Board or of the Parent Board, as the case may be.
(k)
“
Disability
” means a physical
or mental condition that would entitle the Executive to benefits under the
Company’s long-term disability plan, or if the Company maintains no such plan,
then under the federal Social Security laws.
(l)
“
Effective
Date
of
Termination
” means the date on
which a Qualifying Termination occurs which triggers Severance Benefits
hereunder.
(m)
“
Exchange
Act
” means the Securities
Exchange Act of 1934, as amended from time to time, or any successor to
it.
(n)
“
Expiration
Date
” means the date the
Agreement expires, as provided in
Section 1.1
herein.
(o)
“
Good
Reason
” means (i) the
occurrence of a ten percent or greater reduction in the aggregate value of the
Executive’s annual Base Salary, bonus opportunity, and benefits excluding profit
sharing; (ii) the assignment to the Executive of any duties inconsistent
with, and commonly (in the banking industry) considered beneath, the Executive’s
position, or a change in the Executive’s status, offices, titles and reporting
relationships, authority, duties or responsibilities, or any other action by the
Company, in each case if the assignment, change or action results in a
significant diminution in the Executive’s position, authority, duties or
responsibility; or (iii) a required relocation of the Executive to a
location more than fifty miles from the Executive’s then existing job
location to which the Executive does not consent to in writing. In
determining whether an assignment, change or action described in clause
(ii) above constitutes Good Reason, due consideration will be given to the
size of the organization and other facts and circumstances surrounding the
Executive’s situation before and after the assignment, change or
action. For example, if the Executive is moved to a position that
carries a title generally considered to be of a lower degree, but he or she is
working in a larger division or company than before the change, has more
employees reporting to him or her, or has authority for projects controlling
more dollars, or if other circumstances exist that suggest the Executive’s new
position is not a demotion, then Good Reason will not exist for the Executive to
terminate his or her employment.
(p)
“
Just Cause
” means a
termination of the Executive’s employment by the Company, for which no Severance
Benefits are payable, as provided in Article IV.
(q)
“
Parent
” means MB Financial,
Inc., a Maryland corporation, or any direct parent of a successor of the Company
that adopts the Agreement as provided in
Section 8.1
.
(r)
“
Parent Board
” means the Board
of Directors of the Parent.
(s)
“
Person
” means a natural
person, company, or government, or a political subdivision, agency, or
instrumentality of a government, including a “group” as defined in
Section 13(d) of the Exchange Act. When two or more persons act
as a partnership, limited partnership, syndicate or other group for the purpose
of acquiring the securities of the Company, they will be deemed a Person for
purposes of the Agreement. “Person” will be construed in the same
manner as under Section 3(a)(9) of the Exchange Act, and “group” will be
construed in the same manner as under Section 13(d) of the Exchange
Act.
(t)
“
Qualifying Termination
” means
any of the events described in
Section 3.2
, the
occurrence of which triggers the payment of Severance Benefits.
(u)
“
Severance Benefit
” means the
payment of severance compensation as provided in Article III.
2.2
Gender
and Number
. Except where otherwise indicated by the context,
any masculine term used herein also includes the feminine, the plural includes
the singular, and the singular includes the plural.
2.3
Severability
. If
any provision of this Agreement is held to be illegal or invalid for any reason,
the illegality or invalidity will not affect the remaining parts of this
Agreement, and this Agreement will be construed and enforced as if the illegal
or invalid provision had not been included.
2.4
Amendment
or Termination
. The provisions of this Agreement may be
amended by written agreement between the Company and the Executive, with any
material amendment approved by the Compensation Committee or the
Board. Subject to the final sentence of
Section 1.1
, the
Company may terminate this Agreement by written resolution of the Compensation
Committee or the Board, effective as of a date at least twelve months following
the date the Company gives written notice to the Executive of its intent to
terminate the Agreement.
2.5
Applicable
Law
. To the extent not preempted by the laws of the United
States, the laws of the State of Illinois, without regard to its conflict of
laws provisions, will be the controlling law in all matters relating to this
Agreement.
ARTICLE III
SEVERANCE
BENEFITS
3.1
Right to
Severance Benefits
. Subject to the provisions hereof, the
Executive will be entitled to receive from the Company Severance Benefits as
described in
Section 3.3
if
there has been a Change in Control of the Company and if any of the events
designated within
Section 3.2
occur. The Executive will not be entitled to receive Severance
Benefits if his or her employment with the Company ends due to death,
disability, voluntary retirement, a voluntary termination by the Executive
without Good Reason, or due to an involuntary termination by the Company for
Just Cause.
3.2
Qualifying
Terminations
. The occurrence of any one of the following
events within twenty four calendar months after a Change in Control of the
Company will trigger the payment of Severance Benefits under this
Agreement:
(a)
an
involuntary termination of the Executive’s employment without Just
Cause;
(b)
a
voluntary termination of the Executive’s employment with the Company, for Good
Reason;
(c)
the
failure or refusal of a successor company (including, but not limited to, an
individual, corporation, association, or partnership) to assume the Company’s
obligations under this Agreement, as required by
Section 8.1
;
and
(d)
a breach
by the Company or any successor company of any of the provisions of this
Agreement.
In
addition, an involuntary termination without Just Cause will trigger the payment
of Severance Benefits under this Agreement if the Executive’s employment is
terminated by the Company without Just Cause within six months prior to a Change
in Control that actually occurs during the term of this Agreement and either
(i) the termination was at the request or direction of a Person who has
entered into an agreement with the Company the consummation of which would
constitute a Change in Control, or (ii) the Executive reasonably
demonstrates that the termination is otherwise in connection with or in
anticipation of the Change in Control.
3.3
Description
of Severance Benefits
. If the Executive becomes entitled to
receive Severance Benefits, as provided in
Sections 3.1
and
3.2
, the
Company will pay to the Executive and provide him or her with the
following:
(a)
an amount
equal to the Executive’s annual Base Salary multiplied by two;
(b)
an amount
equal to the Executive’s Average Annual Bonus multiplied by two;
(c)
immediate
vesting of the Executive’s benefits, if any, under any and all non-qualified
retirement plans of the Company (or its affiliates) in which the Executive
participates; and
(d)
continuation
of the welfare benefits of medical, dental or other health coverage, long term
disability, and group term life insurance at the same premium cost to the
Executive and at the same coverage level as in effect as of the Executive’s
Effective Date of Termination until the second anniversary of the Effective Date
of Termination, without regard to the federal income tax consequences of that
continuation.
The
treatment of any options held by the Executive will be subject to the terms of
the plan or plans under which they were granted. Benefits under
subsection 3.3(d) will be discontinued prior to the end of the second
anniversary of the Effective Date of Termination if the Executive receives
substantially similar benefits in the aggregate from a subsequent employer, as
determined by the Compensation Committee. Continued medical, dental
or other health benefits under subsection 3.3(d) will count toward any COBRA
continuation coverage period that may apply to the Executive.
ARTICLE IV
JUST
CAUSE OR RETIREMENT
4.1
Just
Cause
. Nothing in this Agreement will be construed to prevent
the Company from terminating the Executive’s employment for Just
Cause. If the Company does so, no Severance Benefits will be payable
to the Executive under this Agreement.
Just
Cause will be defined to include, but will not be limited to, willful, malicious
conduct by the Executive that is prejudicial to the best interests of the
Company, including theft, embezzlement, the conviction of a criminal act,
disclosure of trade secrets, a gross dereliction of duty, or other grave
misconduct on the part of the Executive that is injurious to the
Company.
4.2
Retirement
. If
the Executive’s employment with the Company ends due to voluntary retirement,
the Executive: (i) will not be entitled to receive Severance Benefits under
this Agreement; and (ii) will not be eligible to participate in a
Company-sponsored severance plan or arrangement at any time following his or her
retirement.
ARTICLE V
FORM
AND TIMING OF SEVERANCE BENEFITS
5.1
Form and
Timing of Severance Benefits
. Subject to Article XII below,
the Severance Benefits described in
Sections 3.3(a)
and
(b)
will be
paid in cash to the Executive in a single lump sum as soon as practicable
following the Effective Date of Termination, but in no event more than thirty
days after the Effective Date of Termination. The vesting of benefits
under
Section 3.3(c)
shall occur on the Effective Date of Termination.
The
Severance Benefits described in subsection 3.3(d) will be provided by the
Company to the Executive immediately upon the Effective Date of Termination and
will continue to be provided until the second anniversary of the Effective Date
of Termination. However, the Severance Benefits described in
subsection 3.3(d) will be discontinued prior to the end of
the two-year period immediately upon the Executive’s receiving
similar benefits from a subsequent employer, as determined by the Compensation
Committee.
5.2
Withholding
of Taxes
. The Company will withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes that are legally
required.
ARTICLE VI
TAX
GROSS UP AGREEMENT
6.1
Tax Gross
Up Agreement
. Contemporaneously with entering into this
Agreement, the Executive and Parent have entered into a Tax Gross-Up Agreement
to make the Executive whole in certain circumstances described therein from the
excise tax, if any, imposed under Section 280(G) of the Code.
ARTICLE VII
OTHER
RIGHTS AND BENEFITS NOT AFFECTED
7.1
Other
Benefits
. Except as provided in this Section below,
neither the provisions of this Agreement nor the Severance Benefits provided for
hereunder will reduce any amounts otherwise payable, or in any way diminish the
Executive’s rights as an employee of the Company, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock purchase plan, or any employment agreement, or other Agreement or
arrangement. Notwithstanding the foregoing, if the Executive is also
a covered employee under a severance plan of the Company or one of its
affiliates, the Executive will be entitled to receive the Severance Benefits
provided under this Agreement in lieu of any severance pay or other benefits
provided under that severance plan. Benefits provided under this
Agreement will not increase any amounts otherwise payable under any other
arrangement, if that other arrangement does not provide that severance benefits
will be taken into account in determining benefits.
7.2
Employment
Status
. This Agreement does not constitute a contract of
employment or impose on the Executive or the Company any obligation to retain
the Executive as an employee, to change the status of the Executive’s
employment, or to change the Company’s policies regarding termination of
employment.
ARTICLE VIII
SUCCESSORS
8.1
Successors
. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) of all or substantially all of the business
and/or assets of the Company or of any division or subsidiary thereof to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such an
assumption and agreement prior to the effectiveness of any such succession will
be a breach of this Agreement and will entitle the Executive to compensation
from the Company in the same amount and on the same terms as he or she would be
entitled hereunder if terminated voluntarily for Good Reason, except that, for
the purposes of implementing the foregoing, the date on which any succession
becomes effective will be deemed the Effective Date of Termination.
This
Agreement will inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive dies while any
amount would still be payable to him or her hereunder had he or she continued to
live, any such amount, unless otherwise provided herein, will be paid in
accordance with the terms of this Agreement, to the Executive’s devisee,
legatee, or other designee, or if there is no such designee, to the Executive’s
estate.
8.2
Beneficiaries
. The
Executive’s beneficiary under the qualified defined contribution plan of the
Company or an affiliate in which the Executive participates will be his or her
Beneficiary under this Agreement, unless the Executive otherwise designates a
Beneficiary in the form of a signed writing acceptable to the Compensation
Committee. The Executive may make or change such a designation at any
time.
ARTICLE IX
ADMINISTRATION
9.1
Administration
. This
Agreement will be administered by the Compensation Committee. In that
capacity, the Compensation Committee, to the extent not contrary to the express
provisions of the Agreement, is authorized in its discretion to interpret this
Agreement, to prescribe and rescind rules and regulations, to provide conditions
and assurances deemed necessary and advisable, to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of this Agreement and similar Agreements.
In
fulfilling its administrative duties hereunder, the Compensation Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2
Indemnification
and Exculpation
. The members of the Board and the Parent
Board, its agents and officers, directors, and employee of the Company and its
affiliates will be indemnified and held harmless by the Company against and from
any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may be
involved by reason of any action taken or failure to act under this Agreement
and against and from any and all amounts paid by them in settlement (with the
Company’s written approval) or paid by them in satisfaction of a judgment in any
such action, suit, or proceeding. The foregoing provision will not
apply to any person if the loss, cost, liability, or expense is due to that
person’s gross negligence or willful misconduct.
ARTICLE X
LEGAL
FEES AND ARBITRATION
10.1
Legal
Fees and Expenses
. The Company (or, in the event of the
acquisition of substantially all of the assets of the Company, the acquirer of
those assets) will pay all legal fees, costs of litigation, and expenses
directly related to legal fees and costs of litigation incurred in good faith by
the Executive as a result of the Company’s refusal to provide the Severance
Benefits to which the Executive becomes entitled under this Agreement, or as a
result of the Company’s contesting the validity, enforceability, or
interpretation of this Agreement, but in each case only if the Executive
ultimately prevails in litigation conducted as a result of the refusal or
contest.
10.2
Arbitration
. The
Executive and the Company will have the right and option to elect (in lieu of
litigation) to have any dispute or controversy arising under or in connection
with this Agreement settled by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Executive within
fifty miles from the location of his or her job, in accordance with rules
of the American Arbitration Association then in effect. Judgment may
be entered on the award of the arbitrator in any court having
jurisdiction. All expenses of arbitration, including the fees and
expenses of the counsel for the Executive, will be split between the Company and
the Executive, unless the Executive prevails, in which case the Company will
bear the expenses of the arbitration. Notwithstanding the right of
the Executive or the Company to elect to enter into arbitration, the Company and
the Executive may mutually agree to resolve any dispute or controversy arising
under or in connection with the Agreement in a court of law, in lieu of
arbitration.
ARTICLE XI
EXCLUSIVITY
OF SEVERANCE BENEFITS
11.1
Exclusivity
of Severance Benefits
. Subject to
Section 7.1
, if
the Company is contractually obligated to pay to the Executive any severance
benefits pursuant to another agreement, plan, program, policy, or any other
change of control agreement, the terms and provisions of the program
under which the aggregate level of severance benefits is the highest (as
determined by the Executive) will operate to completely replace and supersede
the terms and provisions of this Agreement and/or all other programs that
provide for the payment of severance benefits.
ARTICLE XII
CODE
SECTION 409A; TARP
12.1
Code
Section 409A
. The intent of the parties is that payments
and benefits under this Agreement comply with Internal Revenue Code
Section 409A and the regulations and guidance promulgated thereunder
(collectively “
Code
Section 409A
”) and, accordingly, to the maximum extent permitted,
this Agreement shall be interpreted to be in compliance therewith. If
the Executive notifies the Company (with specificity as to the reason therefore)
that the Executive believes that any provision of this Agreement would cause the
Executive to incur any additional tax or interest under Code Section 409A
and the Company concurs with such belief or the Company (without any obligation
whatsoever to do so) independently makes such determination, the Company shall,
after consulting with the Executive, reform such provision to try to comply with
Code Section 409A through good faith modifications to the minimum extent
reasonably appropriate to conform with Code Section 409A. To the
extent that any provision hereof is modified in order to comply with Code
Section 409A, such modification shall be made in good faith and shall, to
the maximum extent reasonably possible, maintain the original intent and
economic benefit to the Executive and the Company of the applicable provision
without violating the provisions of Code Section 409A.
If the
Executive is deemed on the date of “separation from service” to be a “specified
Executive” within the meaning of such terms under Code
Section 409A(a)(2)(B), then with regard to any payment or the provision of
any benefit that is specified as subject to this Section, such payment or
benefit shall be made or provided at the date which is the earlier of
(A) the expiration of the six (6)-month period measured from the date of
such “separation from service” of the Executive, and (B) the date of the
Executive’s death (the “
Delay
Period
”). Upon the expiration of the Delay Period, all
payments and benefits delayed pursuant to this Section 12.1 (whether they
would have otherwise been payable in a single sum or in installments in the
absence of such delay) shall be paid or reimbursed to the Executive in a lump
sum, and any remaining payments and benefits due under this Agreement shall be
paid or provided in accordance with the normal payment dates specified for them
herein. Whenever a payment is to be made promptly after a date, it
shall be made within sixty (60) days thereafter.
With
regard to any provision herein that provides for reimbursement of expenses or
in-kind benefits: (i) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, and (ii) the amount
of expenses eligible for reimbursement or in-kind benefits provided during any
taxable year shall not effect the expenses eligible for reimbursement or in-kind
benefits to be provided in any other taxable year, provided that the foregoing
shall not be violated with regard to expenses covered by Code
Section 105(h) that are subject to a limit related to the period in which
the arrangement is in effect. Any expense or other reimbursement
payment made pursuant to this Agreement or any plan, program, agreement or
arrangement of the Company referred to herein, shall be made on or before the
last day of the taxable year following the taxable year in which such expense or
other payment to be reimbursed is incurred.
12.2
TARP
. Notwithstanding
anything in this Agreement or in any compensation plan, program or arrangement
maintained by the Company which covers Executive or to which Executive is a
party or in which Executive participates, as of the date hereof, or which may
become applicable to Executive hereinafter (collectively, the “
Compensation Arrangements
”),
each provision of this Agreement and the Compensation Arrangements is amended
and any amounts payable hereunder and thereunder are hereby amended and modified
with respect to Executive, if and to the extent necessary, for the Company to
comply with any requirements of the Emergency Economic Stabilization Act of 2008
(“
EESA
”) and/or the TARP
Capital Purchase Program (“
CPP
”) (and the guidance or
regulations issued thereunder by the United States Treasury Department at 31 CFR
Part 30, effective October 20, 2008 (the “CPP Guidance”) which may become
applicable to the Company, including, but not limited to, provisions prohibiting
the Company from making any “golden parachute payments,” providing the Company
may recover (“clawback”) bonus and incentive compensation in certain
circumstances, and precluding bonus and incentive arrangements that encourage
unnecessary or excessive risks that threaten the value of the Company, in each
case within the meaning of EESA and the CPP Guidance and only to the extent
applicable to the Company and Executive. For purposes of this
Section 12.
2,
references to “Company” means MB Financial, Inc. and any entities treated as a
single employer with MB Financial, Inc. under the CPP
Guidance. Executive hereby agrees to execute such documents,
agreements or waivers as the Company deems necessary or appropriate to effect
such amendments to this Agreement or the Compensation Arrangements or to
facilitate the participation of the Company in the TARP Capital Purchase Program
or any other programs under EESA.
The
application of this
Section 12.2
is
intended to, and shall be interpreted, administered and construed to, comply
with Section 111 of EESA and the CPP Guidance and, to the maximum extent
consistent with this
Section 12.2
and such
statute and regulations, to permit the operation of this Agreement and the
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this
Section 12.2
, EESA
and the CPP Guidance.
IN WITNESS WHEREOF
, the
Executive has executed this Agreement and the Company has caused this Agreement
to be executed by a resolution of the Board, as of the day and year first above
written.
MB
FINANCIAL BANK, N.A.
By:
Its:
|
EXECUTIVE
Name:
|
CPP
Senior Executive Officer Agreement
Under the
TARP Capital Purchase Program
December
4, 2008
[Name of
Executive Officer]
MB
Financial, Inc.
MF
Financial Center
6111
North River Road
Rosemont,
IL 60018
Dear
[ ]:
MB
Financial, Inc. (“Company”) proposes to enter into a letter agreement with the
United States Department of Treasury (“UST”) as part of the Company’s
participation in the UST’s TARP Capital Purchase Program (“CPP”). The letter
agreement incorporates therein a Securities Purchase Agreement – Standard Form
(“UST Purchase Agreement”) providing for the purchase (the “Purchase”) and
receipt by the UST of preferred stock and warrants of the Company (such
preferred shares, warrants, and if applicable, any common stock issued upon
exercise of the warrants, the “Purchased Securities”).
In order
for the Company to participate in the CPP and as a condition to the closing of
the Purchase in the Company contemplated by the UST Purchase Agreement, the
Company is required to take certain actions and adopt certain standards relating
to the compensation of its senior executive officers (as defined below) and to
make certain changes to certain compensation arrangements applicable to its
senior executive officers.
The
Company has determined that you are or may become a senior executive officer for
purposes of the CPP. To comply with these requirements, and in
consideration of the benefits that you will receive as an employee, officer
and/or stockholder of the Company as a result of the Company’s participation in
the CPP, you agree as follows:
|
(A)
|
No Golden Parachute
Payments
. The Company is prohibited from making any
golden parachute payment (as defined below) to you during any “CPP Covered
Period.” The “CPP Covered Period” is any period during which the UST holds
any Purchased Securities. The Company shall work with you
between the date hereof and December 31, 2008 in order to determine the
potential payments and benefits which may be subject to the foregoing
limitations and, if necessary, to determine the order in which such
payments and benefits would be reduced, if
necessary.
|
|
(B)
|
Clawback of Bonus and
Incentive Compensation
. Any bonus or incentive
compensation payments to you during a CPP Covered Period are subject to
recovery or “clawback” by the Company if such payments were based on
materially inaccurate financial statements or any other materially
inaccurate performance metric, all within the meaning of and to the extent
required by Section 111(b) of the EESA and CPP Guidance (as defined
below).
|
|
(C)
|
Amendment of
Compensation Arrangements
. Each of the Company’s
compensation, bonus, incentive and other benefit plans, programs,
arrangements and agreements pursuant to which you are or may became
entitled to payments in the nature of compensation from the Company or any
of its subsidiaries (including, without limitation any employment
agreement, letter agreement, term sheet, stock option, restricted stock,
performance share or other equity-based compensation agreement, deferred
compensation plan, or severance plan) (collectively, “Compensation
Arrangements”) is amended if and to the extent necessary to give effect to
the provisions of clauses (A) and (B) above and as required under the UST
Purchase Agreement.
|
|
(D)
|
Avoidance of
Incentives Encouraging Unnecessary and Excessive
Risks
. The CPP requires the Organization and
Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”) to periodically review with the appropriate
senior risk officers the provisions of the Company’s bonus and incentive
compensation arrangements for the purposes of determining if such
arrangements encourage the Company’s senior executive officers to take
unnecessary and excessive risks that threaten the value of the Company
within the meaning of the CPP Guidance. If and to the extent the
Compensation Committee determines that any revision to any Compensation
Arrangement is appropriate, you hereby agree to such revisions and to
execute such additional documents as the Company deems necessary or
appropriate to effect such
revisions.
|
|
(E)
|
Definitions and
Interpretations
. The following definitions and
interpretations shall apply to this
letter:
|
“ESSA”
means the Emergency Economic Stabilization Act of 2008 as implemented by
guidance or regulations thereunder issued by the UST at 31 CFR Part 30,
effective on October 20, 2008, and in effect as of the “Closing Date” as defined
in the UST Purchase Agreement. Such guidance or regulations are
referred to herein as the “CPP Guidance”.
“Senior
executive officer” means each of the Company’s “senior executive officers” as
defined in subsection 111(b)(3) of EESA and the CPP Guidance.
“Golden
parachute payment” has the same meaning as in subsection 111(b)(2)(C) of EESA
and the CPP Guidance.
“Company”
or “employer” means MB Financial, Inc. and includes any entities treated as a
single employer with MB Financial, Inc. under the CPP Guidance. You are also
delivering a wavier (the “Waiver”) pursuant to the UST Purchase Agreement, and
as between the Company and you, the term “employer” in that waiver will be
deemed to mean the Company as used in this letter.
The term
“CPP Covered Period” shall be limited by, and interpreted in a manner consistent
with the CPP Guidance.
The
application of provisions (A) an (B) of this letter are intended to, and shall
be interpreted, administered and construed to, comply with Section 111 of EESA
and the CPP Guidance and, to the maximum extent consistent with provisions (A)
and (B) and such statute and regulations, to permit the operation of the
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this letter.
If this
letter sets forth our agreement on the subject matter hereof, kindly sign and
return to the Company the enclosed copy of this letter which will then
constitute our agreement on this subject and please sign and return the Waiver
as well.
|
Sincerely,
MB
Financial, Inc.
By:
Name:
Jill York
Title:
Vice President and Chief Financial Officer
|
Intending
to be legally bound, I agree to with and accept the foregoing
terms:
Name:
Title:
Date:
|
|
MB
FINANCIAL, INC. AND MB FINANCIAL BANK, N.A.
STOCK
DEFERRED COMPENSATION PLAN
Amended
and Restated
effective
January 1, 2009
Article 2
|
Selection,
Enrollment, Eligibility
|
7
|
|
2.1
|
Selection
by Committee
|
7
|
|
2.2
|
Enrollment
Requirements
|
7
|
|
2.3
|
Eligibility;
Commencement of Participation
|
7
|
|
2.4
|
Termination
of Participation and/or Deferrals
|
7
|
Article 3
|
Deferral
Commitments/Employer Contributions/Crediting/Taxes
|
8
|
|
3.1
|
Compensation
Deferrals
|
8
|
|
3.2
|
Election
to Defer; Effect of Election Form
|
8
|
|
3.3
|
Withholding
of Annual Deferral Amounts
|
8
|
|
3.4
|
Employer
Contributions
|
9
|
|
3.5
|
Investment
of Trust Assets
|
9
|
|
3.7
|
Crediting/Debiting
of Account Balances
|
9
|
|
3.8
|
FICA
and Other Taxes
|
10
|
Article 4
|
Short-Term
Payout; Unforeseeable Financial
Emergencies10
|
|
4.2
|
Other
Benefits Take Precedence Over Short-Term
|
10
|
|
4.3
|
Withdrawal
Payout/Suspensions for Unforeseeable Financial
Emergencies
|
11
|
Article 5
|
Separation
from Service Benefit
|
11
|
|
5.1
|
Separation
from Service Benefit
|
11
|
|
5.2
|
Payment
of Separation from Service Benefit
|
11
|
Article 6
|
Disability
Waiver
|
12
|
|
6.1
|
Waiver
of Deferral
|
12
|
Article 7
|
Elections
Relating to Employer Contributions; 409A Transition
Elections
|
12
|
|
7.1
|
Timing
of Election
|
12
|
|
7.2
|
409A
Transition Elections
|
12
|
Article 8
|
Beneficiary
Designation
|
13
|
|
8.2
|
Beneficiary
Designation
|
13
|
|
8.4
|
No
Beneficiary Designation
|
13
|
|
8.5
|
Doubt
as to Beneficiary
|
13
|
|
8.6
|
Discharge
of Obligations
|
13
|
Article 9
|
Leave
of Absence
|
14
|
|
9.1
|
Paid
Leave of Absence
|
14
|
|
9.2
|
Unpaid
Leave of Absence
|
14
|
Article 10
|
Termination,
Amendment or Modification
|
14
|
|
10.3
|
Effect
of Change in Control
|
15
|
|
10.5
|
Effect
of Payment
|
15
|
Article 11
|
Administration
|
15
|
|
11.3
|
Indemnity
of Committee
|
15
|
|
11.4
|
Employer
Information
|
16
|
Article 12
|
Other
Benefits and Agreements
|
16
|
|
12.1
|
Coordination
with Other Benefits
|
16
|
Article 13
|
Claims
Procedures
|
16
|
|
13.1
|
Presentation
of Claim
|
16
|
|
13.2
|
Notification
of Decision
|
16
|
|
13.3
|
Review
of a Denied Claim
|
17
|
|
13.4
|
Decision
on Review
|
17
|
|
14.1
|
Establishment
of the Trust
|
17
|
|
14.2
|
Interrelationship
of the Plan and the Trust
|
18
|
|
14.3
|
Distributions
From the Trust
|
18
|
Article 15
|
Miscellaneous
|
18
|
|
15.2
|
Unsecured
General Creditor
|
18
|
|
15.3
|
Employer’s
Liability
|
18
|
|
15.5
|
Not
a Contract of Employment
|
18
|
|
15.6
|
Furnishing
Information
|
19
|
|
15.12
Spouse’s Interest20
|
|
15.16
Distribution in the Event of
Taxation20
|
|
15.18
Legal Fees to Enforce Rights After Change in
Control21
|
MB
FINANCIAL, INC. AND MB FINANCIAL BANK, N.A.
STOCK
DEFERRED COMPENSATION PLAN
Amended
and Restated Effective January 1, 2009
Purpose
The
purpose of this Plan is to provide specified benefits to a select group of
management and highly compensated Employees, and Directors, who contribute
materially to the continued growth, development and future business success of
MB Financial, Inc., MB Financial Bank, N.A., and any other subsidiaries, if any,
that sponsor this Plan. The benefits provided hereunder shall be
distributed in the form of Company Stock. This Plan shall be unfunded for tax
purposes and for purposes of Title I of ERISA.
Effective
Date
The Plan,
as amended and restated in this document, is effective as of January 1, 2009
(the “
Effective
Date
”). The distribution of benefits vested as of December 31, 2004
(together with earnings thereon) (“
Grandfathered
Benefits
”) shall be governed solely by the terms of Appendix
A.
ARTICLE 1
Definitions
For
purposes of this Plan, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following meanings:
1.1
“
Account Balance
”
shall mean, with respect to a Participant, a credit on the records of the
Employer equal to the sum of (i) the Employee Deferral Account, (ii) the
Director Deferral Account (collectively, the Employee Deferral and Director
Deferral Accounts shall hereinafter be referred to as the “Deferral Account”),
(iii) the Matching Contribution Account, and (iv) the Employer Contribution
Account. The Account Balance, and each other specified account
balance, shall be a bookkeeping entry only and shall be utilized solely as a
device for the measurement and determination of the amounts to be paid to a
Participant, or his or her designated Beneficiary, pursuant to this
Plan.
1.2
“
Annual Bonus
” shall
mean any compensation, in addition to Base Annual Salary relating to services
performed during any calendar year, whether or not paid in such calendar year or
included on the Federal Income Tax Form W-2 for such calendar year, payable to a
Participant as an Employee under any Employer’s annual bonus and cash incentive
plans, excluding equity awards.
1.3
“
Annual Deferral
Amount
” shall mean that portion of a Participant’s Base Annual Salary,
Annual Bonus and/or Director’s Compensation that a Participant elects to have,
and is deferred, in accordance with Article 3, for any one Plan
Year. In the event of a Participant’s Disability (if deferrals cease
in accordance with Section 6.1) or Separation from Service prior to the end
of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount
withheld prior to such event.
1.4
“
Annual Installment
Method
” shall be annual installment payments over the number of years
selected by the Participant in accordance with the Plan, calculated as
follows: Prior to the last Business Day (as defined in Section 3.7)
of the year, the Account Balance of the Participant shall be multiplied by a
fraction, the numerator of which is one, and the denominator of which is the
remaining number of annual payments due the Participant (including the
installment being calculated). Notwithstanding the foregoing, any
installment payments payable under the Plan shall constitute a single payment
for purposes of compliance with Code Section 409A.
By way of
example, if the Participant elects a 10 year Annual Installment Method, the
first payment shall be 1/10 of the Account Balance, calculated as described in
this definition. The following year, the payment shall be 1/9 of the
Account Balance, calculated as described in this definition. Each annual
installment shall be paid on or as soon as administratively practicable
following the last Business Day of the applicable year, but in no event more
than 30 days after such date.
1.5
“
Base Annual Salary
”
shall mean the annual cash compensation relating to services performed during
any calendar year, whether or not paid in such calendar year or included on the
Federal Income Tax Form W-2 for such calendar year,
excluding bonuses,
commissions, overtime, fringe benefits, equity awards, relocation expenses,
incentive payments, retention payments, change in control and severance
payments, non-monetary awards, directors’ fees and other fees, automobile and
other allowances paid to a Participant for employment services rendered (whether
or not such allowances are included in the Employee’s gross income). Base Annual
Salary shall be calculated before reduction for compensation voluntarily
deferred or contributed by the Participant pursuant to all qualified or
non-qualified plans of any Employer and shall be calculated to include amounts
not otherwise included in the Participant’s gross income under Code
sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the amount
would have been payable in cash to the Employee.
1.6
“
Beneficiary
” shall
mean one or more persons, trusts, estates or other entities, designated in
accordance with Article 8, that are entitled to receive benefits under this
Plan upon the death of a Participant.
1.7
“
Beneficiary Designation
Form
” shall mean the form established from time to time by or at the
direction of the Committee that a Participant completes, signs and returns to
the Committee or its designated agent to designate one or more
Beneficiaries.
1.8
“
Benefit Payment Date
”
shall mean:
(a)
For
purposes of a Short-Term Payout payable to a Participant under Article 4, any
date occurring during the 60-day period beginning on January 1st of the calendar
year designated by the Participant as the payment year for an Annual Deferral
Amount (“
Short Term
Payment Year
”), provided that such Short Term Payment Year shall be at
least five Plan Years after the end of the Plan Year in which such amounts are
actually deferred.
(b)
For
purposes of a Separation from Service Benefit payable to a Participant under
Article 5 who is not a Specified Employee (determined as of the date of his or
her Separation from Service), any date occurring during the 90-day period
beginning on the date on which the Participant experiences the Separation from
Service; provided that if the Participant has elected payment pursuant to the
Annual Installment Method, the Benefit Payment Date for each annual installment
shall occur during the 30-day period beginning after each December
1st.
(c)
For
purposes of a Separation from Service Benefit payable to a Participant under
Article 5 who is also a Specified Employee (determined as of the date of his or
her Separation from Service), (i) on or as soon as administratively practicable
after the first date of the seventh month following the Participant’s Separation
from Service date, but in no event more than 30 days after such date, or (ii) if
earlier, on or as soon as administratively practicable after the date of the
Participant’s death; provided that if the Participant has elected payment
pursuant to the Annual Installment Method, the Benefit Payment Date for the
first annual installment shall take place during the 30-day period beginning
after the earlier of July 1 or December 1 to occur after the completion of the
sixth (6th) month following the Participant’s Separation from Service and, for
all subsequent annual installments, during the 30-day period beginning after
each December 1st.
1.9
“
Board
” shall mean the
Board of Directors of the Company.
1.10
“
Change in Control
”
shall mean the first to occur of any of the following events:
(a) Any
“person” (as that term is used in Section 13 and 14(d)(2) of the Securities
Exchange Act of 1934 (the “
Exchange Act
”)) is or
becomes the beneficial owner (as that term is used in Section 13(d) of the
Exchange Act) directly or indirectly of securities of the Company representing
35% or more of the combined voting power of the Company’s or the Employer’s
outstanding securities entitled to vote generally in the election of
directors;
(b) individuals
who were members of the Board on the Effective Date (the “
Incumbent Board
”)
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a member of the Board subsequent to the Effective Date (i)
whose appointment as a director by the Board was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board, or (ii) whose
nomination for election as a member of the Board by the Company’s stockholders
was approved by the Incumbent Board or recommended by the nominating committee
serving under the Incumbent Board, shall be considered a member of the Incumbent
Board;
(c) consummation
of a plan of reorganization, merger or consolidation involving the Company or
the Employer or the securities of either, other than (i) in the case of the
Company, a transaction at the completion of which the stockholders of the
Company immediately preceding completion of the transaction hold more than 60%
of the outstanding securities of the resulting entity entitled to vote generally
in the election of its directors or (ii) in the case of the Employer, a
transaction at the completion of which the Company holds more than 50% of the
outstanding securities of the resulting institution entitled to vote generally
in the election of its directors;
(d) consummation
of a sale or other disposition to an unaffiliated third party or parties of all
or substantially all of the assets of the Company or the Employer or approval by
the stockholders of the Company or the Employer of a plan of complete
liquidation or dissolution of the Company or the Employer.
For
purposes of clause (a), the term “person” shall not include the Company, any
Executive benefit plan of the Company or the Employer, or any corporation or
other entity owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company.
Each
event comprising a Change in Control is intended to constitute a “change in
ownership or effective control,” or a “change in the ownership of a substantial
portion of the assets,” of the Company or the Employer as such terms are defined
for purposes of Section 409A of the Code and Change in Control as used herein
shall be interpreted consistently therewith.
1.11
“
Claimant
” shall have
the meaning set forth in Section 13.1.
1.12
“
Code
” shall mean the
Internal Revenue Code of 1986, as it may be amended from time to
time.
1.13
“
Committee
” shall mean
the committee or its designee as described in Article 11.
1.14
“
Company
” shall mean
MB Financial, Inc., a Delaware corporation, and any successor to all or
substantially all of the Company’s assets or business.
1.15
“
Company Stock
” shall
mean the common stock of the Company.
1.16
“
Deduction Limitation
”
shall mean the following described limitation on a benefit that may otherwise be
distributable pursuant to the provisions of this Plan. Except as
otherwise provided, this limitation shall be applied to all distributions that
are “subject to the Deduction Limitation” under this Plan. If an
Employer determines in good faith prior to a Change in Control that there is a
reasonable likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by reason of
the limitation under Code section 162(m), then to the extent deemed
necessary by the Employer to ensure that the entire amount of any distribution
to the Participant pursuant to this Plan prior to the Change in Control is
deductible, the Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation shall
continue to be credited/debited with additional amounts, even if such amount is
being paid out in installments. The amounts so deferred and amounts
credited thereon shall be distributed to the Participant or his or her
Beneficiary (in the event of the Participant’s death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the taxable
year of the Employer during which the distribution is made will not be limited
by Code section 162(m), or if earlier, the effective date of a Change in
Control. Notwithstanding anything to the contrary in this Plan, the
Deduction Limitation shall not apply to any distributions made after a Change in
Control.
1.17
“
Deferral Account
”
shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts,
plus (ii) amounts credited in accordance with all the applicable crediting
provisions of this Plan that relate to the Participant’s Deferral Account, less
(iii) all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to his or her Deferral Account.
1.18
“
Deferral Election
Date
” shall mean:
(a)
For
purposes of deferrals of Base Annual Salary, Annual Bonus, and/or Director’s
Compensation under Article 3, except as provided below, the last day of the Plan
Year preceding the Plan Year during which the services related to such Base
Annual Salary, Annual Bonus, and/or Director’s Compensation are to be performed;
or
(b)
For a
Participant who is first designated by the Committee on or after the first day
of the Plan Year as being eligible to participate in the Plan, 30 days from the
date such designation is communicated to the Participant.
1.19
“
Director
” shall mean
a member of the Board.
1.20
“
Director’s
Compensation
” shall mean fees and other compensation payable for services
as a Director.
1.21
“
Disability
” shall be
determined in accordance with Treasury Regulation 1.409A-3(i)(4). The
determination of whether a Participant has a Disability shall be determined by
the Committee in its sole discretion.
1.22
“
Election Form
” shall
mean the appropriate form(s) prescribed from time to time by the Committee for a
Participant to complete, sign and return to the Committee or its designated
agent to make an election under the Plan.
1.23
“
Employee
” shall mean
a person who is an employee of any Employer.
1.24
“
Employer(s)
” shall
mean the Company, MB Financial Bank, N.A., and any other subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the Board
to participate in the Plan and have adopted the Plan as a sponsor.
1.25
“
Employer
Contribution
” shall mean a contribution made by an Employer on behalf of
a Participant pursuant to Section 3.4.
1.26
“
Employer Contribution
Account
” shall mean (i) the sum of the Participant’s Employer
Contribution Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the Participant’s
Employer Contribution Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to the
Participant’s Employer Contribution Account.
1.27
“
ERISA
” shall mean the
Employee Retirement Income Security Act of 1974, as it may be amended from time
to time.
1.28
“
Matching
Contribution
” shall mean a matching contribution made by an Employer on
behalf of a Participant or Participants in accordance with
Section 3.4.
1.29
“
Matching Contribution
Account
” shall mean (i) the sum of all of a Participant’s Matching
Contribution Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the Participant’s
Matching Contribution Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to the
Participant’s Matching Contribution Account.
1.30
“
Participant
” shall
mean any Employee or Director who (i) is selected to participate in the
Plan, (ii) elects to participate in the Plan, (iii) signs a Plan
Agreement, Election Form and Beneficiary Designation Form, (iv) signs a
Plan Agreement, Election Form and Beneficiary Designation Form that is accepted
by the Committee, (v) commences participation in the Plan, and
(vi) does not terminate his or her Plan Agreement. A spouse or
former spouse of a Participant shall not be treated as a Participant in the Plan
or have an Account Balance under the Plan, even if he or she has an interest in
the Participant’s Account Balance under the Plan as a result of applicable law
or property settlements resulting from legal separation or divorce.
1.31
“
Plan
” shall mean the
Company’s Stock Deferred Compensation Plan, which shall be evidenced by this
instrument and by each Plan Agreement and Election Form(s), as they may from
time to time be amended.
1.32
“
Plan Agreement
” shall
mean a written agreement, as may be amended from time to time, that is entered
into by and between an Employer and a Participant. Each Plan
Agreement executed by a Participant and the Participant’s Employer shall provide
for the entire benefit to which such Participant is entitled under the Plan;
should there be more than one Plan Agreement, the Plan Agreement bearing the
latest date of acceptance by the Employer shall supersede all previous Plan
Agreements in their entirety and shall govern such entitlement. The
terms of any Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or limit the
benefits otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant.
1.33
“
Plan Year
” shall mean
a period beginning on January 1 of each calendar year and continuing
through December 31 of such calendar year.
1.34
“
Separation from
Service
” shall mean:
(a)
For a
Participant who is an Employee, a separation from service from all Employers due
to death, retirement or other termination of employment, as determined in
accordance with Treasury Regulation 1.409A-1(h).
(b)
For a
Participant who is a Director, a separation from service from the board of
directors of the Company and all of its subsidiaries, as determined in
accordance with Treasury Regulation 1.409A-1(h). For this purpose,
service as a honorary or emeritus director will not constitute continuing
service as a member of the board of directors of the Company or its
subsidiaries.
1.35
“
Separation from Service
Benefit
” shall mean the benefit set forth in Article 5.
1.36
“
Short-Term Payment
Year
” shall have the meaning set forth in Section 1.7.
1.37
“
Short-Term Payout
”
shall mean the payout set forth in Section 4.1.
1.38
“
Specified Employee
”
shall mean any Participant who is determined to be a “key employee” (as defined
under Code section 416(i) without regard to paragraph (5) thereof) for the
applicable period, as determined annually by the Committee in accordance with
Treas. Reg. §1.409A-1(i). In determining whether a Participant is a
Specified Employee, the following provisions shall apply:
(a)
The
Committee’s identification of the individuals who fall within the definition of
“key employee” under Code section 416(i) (without regard to paragraph (5)
thereof) shall be based upon the 12-month period ending on each December 31st
(referred to below as the “Identification Date”). In applying the
applicable provisions of Code Section 416(i) to identify such individuals,
“compensation” shall be determined in accordance with Treas. Reg. §1.415(c)-2(a)
without regard to:
(i)
Any safe
harbor provided in Treas. Reg. §1.415(c)-2(d);
(ii)
Any of
the special timing rules provided in Treas. Reg. §1.415(c)-2(e);
and
(iii)
Any of
the special rules provided in Treas. Reg. §1.415(c)-2(g); and
(b)
Each
Participant who is among the individuals identified as a “key employee” in
accordance with part (a) of this Section shall be treated as a Specified
Employee for purposes of this Plan if such Participant experiences a Separation
from Service during the 12-month period that begins on the April 1st following
the applicable Identification Date.
1.39
“
Trust
” shall mean, if
applicable, one or more trusts established pursuant to a trust agreement between
the Company and the trustee named therein, as amended from time to
time.
1.40
“
Unforeseeable Financial
Emergency
” shall be determined in accordance with Treasury Regulation
1.409A-3(i)(3).
ARTICLE 2
Selection, Enrollment,
Eligibility
2.1
Selection
by Committee
. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees and Directors, as
determined by the Committee in its sole discretion. From that group,
the Committee shall select, in its sole discretion, Employees and Directors to
participate in the Plan.
2.2
Enrollment
Requirements
. As a condition to participation, each selected
Employee or Director shall complete, execute and return to the Committee or its
designated agent a Plan Agreement, an Election Form and a Beneficiary
Designation Form, all within 30 days after he or she is selected to participate
in the Plan. In addition, the Committee shall establish from time to
time such other enrollment requirements as it determines in its sole discretion
are necessary.
2.3
Eligibility;
Commencement of Participation
. Provided an Employee or
Director selected to participate in the Plan has met all enrollment requirements
set forth in this Plan and required by the Committee, including returning all
required documents to the Committee or its designated agent within the specified
time period, that Employee or Director shall commence participation in the Plan
as soon as administratively practicable following the month in which the
Employee or Director completes all enrollment requirements or another date, such
as the first day of the next Plan Year, as specified by the
Committee. If an Employee or Director fails to meet all such
requirements within the period required, in accordance with Section 2.2,
that Employee or Director shall not be eligible to participate in the Plan until
the first day of the Plan Year following the delivery to and acceptance by the
Committee or its designated agent of the required documents.
2.4
Termination
of Participation and/or Deferrals
. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a select
group of management or highly compensated employees, as membership in such group
is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1)
of ERISA, or is no longer a Director, the Committee shall have the right, in its
sole discretion, to prevent the Participant from making future deferral
elections as of the first day of the subsequent Plan Year.
ARTICLE 3
Deferral
Commitments/Employer Contributions/Crediting/Taxes
3.1
Compensation
Deferrals
. For each Plan Year, a Participant may elect to
defer, as his or her Annual Deferral Amount, up to 100% of his or her Base
Annual Salary, Annual Bonus and/or Director’s Compensation, as the case may
be. If no election is made, or a Participant does not make a timely
election, the amount deferred shall be zero. Notwithstanding the
foregoing, if a Participant first becomes a Participant after the first day of a
Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of
compensation not yet earned by the Participant as of the date the Participant
submits a Plan Agreement and Election Form to the Committee for
acceptance.
3.2
Election
to Defer; Effect of Election Form
.
(a)
General
Rules
. Except as provided below, a Participant must make his
or her deferral election as to a Plan Year no later than the applicable Deferral
Election Date and such election shall become irrevocable as of the last day of
such preceding Plan Year.
(b)
Subsequent
Plan Years
. For each succeeding Plan Year, a Participant may
revoke or make a new deferral election for the subsequent Plan Year, provided
that such election is made before the applicable Deferral Election
Date. In the absence of the timely delivery of such a new Election
Form, the Election Form in effect at the end of the preceding Plan Year shall
constitute the Participant’s irrevocable deferral election for the succeeding
Plan Year.
(c)
Effect of
Short-Term Payout Election.
Notwithstanding the foregoing, if a
Participant, pursuant to Section 4.1, elects a Short-Term Payout, such
election shall be effective for the subsequent Plan Year and shall render all of
a Participant’s prior deferral elections, if any, ineffective for subsequent
Plan Years. To defer compensation for subsequent Plan Years, the Participant
must submit a new Election Form. In the absence of the timely delivery of a new
Election Form, the Participant’s deferral amount shall be deemed to be zero for
the subsequent Plan Year and will remain zero for all subsequent Plan Years
unless and until he or she timely delivers a new Election Form to the
Committee.
(d)
Election
Form.
For the above elections to be valid, the Election Form
must be properly completed and signed by the Participant and timely delivered to
and accepted by the Committee.
3.3
Withholding
of Annual Deferral Amounts
. For each Plan Year, the Base
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall
be withheld at the time the Annual Bonus is or otherwise would be paid to the
Participant, whether or not this occurs during the Plan Year. The
Director’s Compensation portion of the Annual Deferral Amount shall be withheld
at the time the Director’s Compensation is paid to the Participant, whether or
not this occurs during the Plan Year.
3.4
Employer
Contributions
.
(a)
Discretionary
Matching Contributions
. Each Employer, in its sole discretion,
may agree to contribute on behalf of a Participant (or Participants) who is an
Employee of that Employer a Matching Contribution with respect to the Plan
Year. The amount of the Matching Contribution shall be determined in
relation to the Participant’s Annual Deferral Amount, or to such other
compensation that the Participant makes to any other plan of deferred
compensation. For any Plan Year, Matching Contributions may be made
for some, but not all, Participants, and the amount of the Matching Contribution
may vary from Participant to Participant, all as determined by the Employer in
its sole discretion. No earnings shall be credited on any Matching
Contributions until after such contributions are allocated to a Participant’s
Matching Contribution Account.
(b)
Discretionary
Employer Contributions
. Each Employer may, but is not required
to, contribute on behalf of a Participant who is an Employee of that Employer an
additional Employer Contribution. For any Plan Year, Employer
Contributions may be made for some, but not all, Participants, and the amount of
the Employer Contribution may vary from Participant to Participant, all as
determined by the Employer in its sole discretion. No earnings shall
be credited on any Employer Contributions until after such contributions are
allocated to a Participant’s Employer Contribution Account.
3.5
Investment
of Trust Assets
. In the event that a Trust is established, the
assets of the Trust shall be invested solely in Company Stock, except for such
amounts of cash as the Trustee determines necessary to ensure the proper
operation of the Trust.
3.6
Vesting
. A
Participant shall at all times be 100% vested in his or her Deferral Account,
Employer Contribution Account, and Matching Contribution Account.
3.7
Crediting/Debiting
of Account Balances
. In accordance with, and subject to, the
rules and procedures that are established from time to time by the Committee, in
its sole discretion, for each day that the New York Stock Exchange is open
(“Business Day”), amounts shall be credited or debited to a Participant’s
Account Balance as though (i) a Participant’s Account Balance were invested
in Company Stock; (ii) the portion of the Annual Deferral Amount that was
actually deferred during any calendar quarter was invested in Company Stock no
later than the close of business on the fifth (5th) Business Day after the day
on which such amounts are actually deferred from the Participant’s Base Annual
Salary through reductions in his or her payroll; and (iii) any distribution
made to a Participant that decreases such Participant’s Account Balance ceased
being invested in Company Stock no earlier than one Business Day prior to the
distribution, at the closing price on such date. Any Employer
Contributions and/or Employer Matching Contributions shall be credited to a
Participant’s Employer Contribution Account and/or Matching Contribution
Account, as the case may be, no later than the end of the first calendar quarter
following the Plan Year to which such contributions relate.
3.8
FICA and
Other Taxes
.
(a)
Deferral
Account
. For each Plan Year in which an Annual Deferral Amount
is being withheld from a Participant, the Participant’s Employer(s) shall
withhold from that portion of the Participant’s Base Annual Salary, Annual Bonus
and Director’s Compensation that is not being deferred, in a manner determined
by the Employer(s), the Participant’s share of FICA and other employment taxes
on such Annual Deferral Amount. If necessary, the Committee may
reduce the Annual Deferral Amount in order to comply with this
Section 3.8.
(b)
Matching
Contribution Account, Employer Contribution Account
. When a
Participant is credited with an Employer Contribution Amount or Matching
Contribution Amount in his or her Employer Contribution Account or Matching
Contribution Account, the Participant’s Employer(s) shall withhold from the
Participant’s Base Annual Salary and/or Annual Bonus that is not deferred, in a
manner determined by the Employer(s), the Participant’s share of FICA and other
employment taxes on such amount. If necessary, the Committee may
reduce the Employer Contribution Account and/or Matching Contribution Account in
order to comply with this Section 3.8.
(c)
Distributions
. The
Participant’s Employer(s), or the trustee of the Trust, shall withhold from any
payments made to a Participant under this Plan all federal, state and local
income, employment and other taxes required to be withheld by the Employer(s),
or the trustee of the Trust, in connection with such payments, in amounts and in
a manner to be determined in the sole discretion of the Employer(s) and the
trustee of the Trust.
ARTICLE 4
Short-Term Payout;
Unforeseeable Financial Emergencies
4.1
Short-Term
Payout
. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
Short-Term Payout from the Plan with respect to such Annual Deferral
Amount. Subject to the Deduction Limitation and Section 4.2, the
Short-Term Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount plus amounts credited or debited in the manner provided
in Section 3.8 above on that amount, determined at the time that the
Short-Term Payout becomes payable. Subject to the Deduction
Limitation and the other terms and conditions of this Plan, each Short-Term
Payout elected shall be paid out on the applicable Benefit Payment
Date. By way of example, if a five year Short-Term Payout is elected
for an Annual Deferral Amount deferred in the Plan Year commencing
January 1, 2009, the five-year Short-Term Payout would become payable
during the 60-day period commencing January 1, 2015. For
purposes of this Section 4.1, “Participant” shall not include
Directors.
4.2
Other
Benefits Take Precedence Over Short-Term
. Should an event
occur that triggers payment of a Separation from Service Benefit under
Article 5, any Annual Deferral Amount, plus amounts credited or debited
thereon, that is subject to a Short-Term Payout election under Section 4.1
shall not be paid in accordance with Section 4.1 but shall be paid in
accordance with Article 5.
4.3
Withdrawal
Payout/Suspensions for Unforeseeable Financial Emergencies
. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant’s Account Balance, calculated as if such Participant were receiving
a Separation from Service Benefit, or the amount reasonably needed to satisfy
the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a deferral suspension and/or
payout is approved, the deferral suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall
be subject to the Deduction Limitation.
4.4
Manner of
Payment
. All distributions made pursuant to this Article 4
shall be made in the form of Company Stock except for fractional shares, which
shall be distributed in cash.
ARTICLE 5
Separation from Service
Benefit
5.1
Separation
from Service Benefit
. Subject to Section 5.2 and the Deduction
Limitation:
(a)
A
Participant who is an Employee and experiences a Separation from Service shall
receive, as a Separation from Service Benefit, his or her Employee Deferral
Account, Matching Contribution Account and Employer Contribution Account on the
Benefit Payment Date.
(b)
A
Participant who is a Director and experiences a Separation from Service shall
receive, as a Separation from Service Benefit, his or her Director Deferral
Account on the Benefit Payment Date.
5.2
Payment
of Separation from Service Benefit
.
(a)
A
Participant, in connection with his or her commencement of participation in the
Plan, shall elect whether to receive payment of the Separation from Service
Benefit in (i) a lump sum, (ii) 5 annual installments, or (iii) 10 annual
installments. Annual installments shall be paid pursuant to the Annual
Installment Method. Such election shall be made no later than the
applicable Deferral Election Date and shall be irrevocable.
(b)
If a
Participant, in connection with his or her commencement of participation in the
Plan, elects payment of his Separation from Service Benefit in annual
installments, the Participant may elect whether, in the event of his death
before all such installment payments are made, his Beneficiary should receive
his remaining Account Balance in (i) installment payments over the remaining
number of years and in the same amounts as the benefit would have been paid to
the Participant had the Participant survived, or (ii) a lump
sum. Such election shall be made no later than the applicable
Deferral Election Date.
(c)
If a
Participant does not make any election with respect to the payment of the
Separation from Service Benefit, then such benefit shall be payable in a lump
sum to be paid on the Benefit Payment Date.
(d)
Notwithstanding
the provisions of Sections 5.2(a) and (b) above, if the Participant’s Account
Balance is less than the dollar limitation in effect under Code section 402(g)
at the time of Separation from Service, payment of the Account Balance shall be
made in a lump sum no later than 30 days after the last day of the calendar
quarter in which the Participant experiences the Separation from Service;
provided, however, that payment of the Account Balance to a Participant who is
also a Specified Employee shall be made pursuant to Section 1.7(c). Any payment
made shall be subject to the Deduction Limitation.
(e)
All
distributions made pursuant to this Article 5 shall be made in the form of
Company Stock except for fractional shares, which shall be distributed in
cash.
ARTICLE 6
Disability
Waiver
6.1
Waiver of
Deferral
. A Participant who suffers from a Disability may petition the
Committee to be excused from fulfilling that portion of the Annual Deferral
Amount commitment that would otherwise have been withheld from the Participant’s
Base Annual Salary, Annual Bonus, or Director’s Compensation for the Plan Year
during which the Participant first suffers a Disability. Such
petition must be submitted by the 15th day of the third month following the date
the participant becomes Disabled. The suspension shall take effect upon the date
the petition is approved by the Committee. During the period of Disability, the
Participant shall not be allowed to make any additional deferral elections, but
will continue to be considered a Participant for all other purposes of this
Plan.
(a)
Return to
Work
. If a Participant returns to employment with an Employer after a
Disability ceases, the Participant may elect to defer an Annual Deferral Amount
for the Plan Year following his or her return to employment or service and for
every Plan Year thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form is delivered to
and accepted by the Committee for each such election in accordance with
Section 3.2 above.
ARTICLE 7
Elections Relating to
Employer Contributions; 409A Transition Elections
7.1
Timing of
Election
. If an individual initially becomes a Participant
solely as a result of the crediting of an Annual Employer Contribution Amount,
such Participant shall make the appropriate elections relating to the
distribution of such Amounts within 30 days after the end of the Plan Year with
respect to which such Annual Employer Contribution Amount is
credited.
7.2
409A
Transition Elections
. Notwithstanding anything in this Plan to
the contrary, effective through December 31, 2008, a Participant may make new
distribution elections with respect to benefits other than Grandfathered
Benefits; provided that any such elections may only apply to benefits that would
not otherwise be payable in 2008 and may not cause a benefit to be paid in 2008
that would not otherwise be payable in 2008. No election under this
Section 7.2 shall violate any constructive receipt or other tax rule that would
result in the acceleration of taxation of benefits.
ARTICLE 8
Beneficiary
Designation
8.1
Beneficiary
. Each
Participant shall have the right, at any time, to designate his or her
Beneficiary(ies) (both primary as well as contingent) to receive any benefits
payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan may be the
same as or different from the Beneficiary designation under any other plan of an
Employer in which the Participant participates.
8.2
Beneficiary
Designation
. A Participant shall designate his or her
Beneficiary by completing and signing the Beneficiary Designation Form and
returning it to the Committee or its designated agent. A Participant
shall have the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the Beneficiary Designation Form and the
Committee’s rules and procedures, as in effect from time to time. If
the Participant names someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the Committee, must be signed by that
Participant’s spouse and returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all Beneficiary designations
previously filed shall be canceled. The Committee shall be entitled
to rely on the last Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
8.3
Acknowledgment
. No
designation or change in designation of a Beneficiary shall be effective until
received and acknowledged in writing by the Committee.
8.4
No
Beneficiary Designation
. If a Participant fails to designate a
Beneficiary as provided under this Article 8 or, if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant’s benefits, then the Participant’s designated Beneficiary shall be
deemed to be his or her surviving spouse. If the Participant has no
surviving spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal representative of the
Participant’s estate.
8.5
Doubt as
to Beneficiary
. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant’s
Employer to withhold such payments until this matter is resolved to the
Committee’s satisfaction.
8.6
Discharge
of Obligations
. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the Committee
from all further obligations under this Plan with respect to the Participant,
and that Participant’s Plan Agreement shall terminate upon such full payment of
benefits.
ARTICLE 9
Leave of
Absence
9.1
Paid
Leave of Absence
. If a Participant is authorized by the
Participant’s Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with
Section 3.3.
9.2
Unpaid
Leave of Absence
. If a Participant is authorized by the
Participant’s Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence expires or the
Participant returns to paid employment status. Upon such expiration
or return, deferrals shall resume for the remaining portion of the Plan Year in
which the expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year,
no deferral shall be withheld.
ARTICLE 10
Termination, Amendment or
Modification
10.1
Termination
.
(a)
Although
all the Employers anticipate that the Plan will continue for an indefinite
period of time, there is no guarantee that the Plan will not terminate at any
time in the future. Accordingly, the Employers reserve the right to
terminate the Plan at any time by action of each Employer’s board of
directors.
(b)
Upon
termination of the Plan, the Plan Agreements of the Participants shall terminate
and their Account Balances shall be distributed in a lump sum. The termination
of the Plan shall not adversely affect any Participant or Beneficiary who has
become entitled to the payment of any benefits under the Plan as of the date of
termination; provided however, that upon Plan termination, each Employer shall
accelerate installment payments without a premium or prepayment penalty by
paying the Account Balance in a lump sum. Notwithstanding the
foregoing, distributions shall not be made in connection with the termination of
the Plan unless all the requirements of Treas. Reg. §1.409A-3(j)(4)(ix) are
satisfied. After a Change in Control, the effect of termination of
the Plan shall be governed by Section 10.3 below.
10.2
Amendment
. Subject
to Section 10.3 below relating to amendments made after a Change in
Control, any Employer may, at any time, amend or modify the Plan in whole or in
part with respect to that Employer by the action of its board of directors;
provided, however, that: (i) no amendment or modification shall be
effective to decrease or restrict the value of a Participant’s Account Balance
in existence at the time the amendment or modification is made, calculated as if
the Participant had experienced a Separation from Service as of the effective
date of the amendment or modification; and (ii) no amendment or
modification of this Section 10.2 or Section 11.2 of the Plan shall be
effective. Such amendment or modification of the Plan shall not
affect any Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or
modification.
10.3
Effect of
Change in Control
. Despite the provisions of
Sections 10.1 and 10.2 above, following a Change in Control, the provisions
of this Plan or any Participant’s Plan Agreement may not be amended or
terminated in any manner with respect to a Participant or Beneficiary if such
amendment or termination would have an adverse effect in any way upon the
computation or amount of or entitlement to benefits of such Participant or
Beneficiary under the Plan as in effect immediately prior to the Change in
Control, including, but not limited to, any adverse change in or to the
crediting or debiting of amounts to the Account Balances or the time or manner
of payment of the Account Balances to any Participant or Beneficiary, unless the
Participant or Beneficiary has given written consent to such amendment or
termination. An “adverse change” for purposes of this
Section 10.3 shall include, but not be limited to, any acceleration of the
payment of the Account Balances payable to the Participant or Beneficiary or a
change in the composition of the risk and return characteristics represented by
the available Measurement Funds or the Participant’s or Beneficiary’s ability to
allocate his or her Account Balances among such Measurement Funds.
10.4
Plan
Agreement
. Despite the provisions of Sections 10.1 and
10.2 above, if a Participant’s Plan Agreement contains benefits or limitations
that are not in this Plan document, the Employer may amend or terminate such
provisions only with the consent of the Participant.
10.5
Effect of
Payment
. The full payment of the applicable benefit under
Articles 4 or 5 of the Plan shall completely discharge all obligations to a
Participant and his or her designated Beneficiaries under this Plan and the
Participant’s Plan Agreement shall thereafter terminate.
ARTICLE 11
Administration
11.1
Committee
Duties
. Except as otherwise provided in this Article 11,
this Plan shall be administered by a Committee that shall consist of the Board,
or such committee as the Board shall appoint. Members of the
Committee may be Participants under this Plan. The Committee shall
also have the discretion and authority to (i) make, amend, interpret and
enforce all appropriate rules and regulations for the administration of this
Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the
Plan. Any individual serving on the Committee who is a Participant
shall not vote or act on any matter relating solely to himself or
herself. When making a determination or calculation, the Committee
shall be entitled to rely on information furnished by a Participant or the
Company.
11.2
Agents
.
In the administration of this Plan, the Committee may, from time to time, employ
agents and delegate to them such administrative duties as it sees fit (including
acting through a duly appointed representative) and may from time to time
consult with counsel who may be counsel to any Employer.
11.3
Indemnity
of Committee
. All Employers shall indemnify and hold harmless
the members of the Committee, and any Employee to whom the duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with respect
to this Plan, except in the case of willful misconduct by the Committee, any of
its members or any such Employee.
11.4
Employer
Information
. To enable the Committee to perform its functions,
the Company and each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants, the
date and circumstances of the Disability or Separation from Service of its
Participants and such other pertinent information as the Committee may
reasonably require.
ARTICLE 12
Other Benefits and
Agreements
12.1
Coordination
with Other Benefits
. The benefits provided for a Participant
and Participant’s Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Participant’s Employer. The Plan shall supplement
and shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 13
Claims
Procedures
13.1
Presentation
of Claim
. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
“Claimant”) may deliver to the Committee or its designated agent a written claim
for a determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. All other claims must be made
within 180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination
desired by the Claimant.
13.2
Notification
of Decision
. The Committee shall consider a Claimant’s claim
within a reasonable time and shall notify the Claimant in writing:
(a)
that the
Claimant’s requested determination has been made and that the claim has been
allowed in full; or
(b)
that the
Committee has reached a conclusion contrary, in whole or in part, to the
Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:
(i)
the
specific reason(s) for the denial of the claim, or any part of it;
(ii)
specific
reference(s) to pertinent provisions of the Plan upon which such denial was
based;
(iii)
a
description of any additional material or information necessary for the Claimant
to perfect the claim, and an explanation of why such material or information is
necessary; and
(iv)
an
explanation of the claim review procedure set forth in Section 13.3
below.
13.3
Review of
a Denied Claim
. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant’s duly authorized representative) may file with the Committee
a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure has begun, the Claimant (or the Claimant’s duly authorized
representative):
(a)
may
review pertinent documents;
(b)
may
submit written comments or other documents; and/or
(c)
may
request a hearing, which the Committee, in its sole discretion, may
grant.
13.4
Decision
on Review
. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request for
review of the denial, unless a hearing is held or other special circumstances
require additional time, in which case the Committee’s decision must be rendered
within 120 days after such date. Such decision must be written in a
manner calculated to be understood by the Claimant, and it must
contain:
(a)
specific
reasons for the decision;
(b)
specific
reference(s) to the pertinent Plan provisions upon which the decision was based;
and
(c)
such
other matters as the Committee deems relevant.
13.5
Legal
Action
. A Claimant’s compliance with the foregoing provisions
of this Article 13 is a mandatory prerequisite to a Claimant’s right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 14
Trust
14.1
Establishment
of the Trust
. The Company may establish a Trust to hold assets
in connection with this Plan. In the event that a Trust is established, each
Employer shall transfer over to the Trust such assets as the Employer
determines, in its sole discretion, are necessary to provide, on a present value
basis, for its respective future liabilities created with respect to the Annual
Deferral Amounts, Annual Employer Contribution Amounts and Matching Contribution
Amounts for such Employer’s Participants for all periods prior to the transfer,
as well as any debits and credits to the Participants’ Account Balances for all
periods prior to the transfer, taking into consideration the value of the assets
in the trust at the time of the transfer.
14.2
Interrelationship
of the Plan and the Trust
. The provisions of the Plan and the
Plan Agreement shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Employers, Participants and creditors of the Employers to the
assets transferred to the Trust. Each Employer shall at all times
remain liable to carry out its obligations under the Plan.
14.3
Distributions
From the Trust
. Each Employer’s obligations under the Plan may
be satisfied with Trust assets distributed pursuant to the terms of the Trust,
and any such distribution shall reduce the Employer’s obligations under this
Plan.
ARTICLE 15
Miscellaneous
15.1
Status of
Plan
. The Plan is intended to be a plan that is not qualified
within the meaning of Code section 401(a) and that “is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees”
within the meaning of ERISA sections 201(2), 301(a)(3) and
401(a)(1). In all respects, the Plan is intended to comply with the
requirements of Code section 409A and all regulations issued
thereunder. The Plan shall be administered and interpreted to the
extent possible in a manner consistent with that intent.
15.2
Unsecured
General Creditor
. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or
claims in any property or assets of an Employer. For purposes of the
payment of benefits under this Plan, any and all of an Employer’s assets shall
be, and remain, the general, unpledged unrestricted assets of the
Employer. An Employer’s obligation under the Plan shall be merely
that of an unfunded and unsecured promise to pay money in the
future.
15.3
Employer’s
Liability
. An Employer’s liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into
between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
15.4
Nonassignability
. Neither
a Participant nor any other person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if
any, payable hereunder, or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and non-transferable. No
part of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, be transferable by operation of law in the event of a Participant’s or
any other person’s bankruptcy or insolvency or be transferable to a spouse as a
result of a property settlement or otherwise.
15.5
Not a
Contract of Employment
. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an
“at-will” employment relationship that can be terminated at any time for any
reason, or no reason, with or without cause, and with or without notice, unless
expressly provided in a written employment agreement. Nothing in this
Plan shall be deemed to give a Participant the right to be retained in the
service of any Employer as an Employee, or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
15.6
Furnishing
Information
. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.
15.7
Terms
. Whenever
any words are used herein in the masculine, they shall be construed as though
they were in the feminine in all cases where they would so apply; and whenever
any words are used herein in the singular or in the plural, they shall be
construed as though they were used in the plural or the singular, as the case
may be, in all cases where they would so apply.
15.8
Captions
. The
captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
15.9
Governing
Law
. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
Illinois without regard to its conflicts of laws principles.
15.10
Notice
. Any
notice or filing required or permitted to be given to the Committee under this
Plan shall be sufficient if in writing and hand-delivered, or sent by registered
or certified mail, to the address below:
Executive
Vice President- Administration
MB
Financial, Inc.
6111
North River Road
Rosemont,
IL 60018
Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.
Any
notice or filing required or permitted to be given to a Participant under this
Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to
the last known address of the Participant.
15.11
Successors
. The
provisions of this Plan shall bind and inure to the benefit of the Participant’s
Employer and its successors and assigns and the Participant and the
Participant’s designated Beneficiaries. The Company shall require any
successor or assignee to expressly and unconditionally assume and agree to
perform or cause to be performed each Employer’s obligations
hereunder. In addition, the Company shall require the ultimate parent
entity of any successor or assignee to expressly guaranty the prompt performance
by such successor or assignee.
15.12
Spouse’s
Interest
. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically pass to
the Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse’s will, nor shall such interest pass
under the laws of intestate succession.
15.13
Validity
. In
case any provision of this Plan shall be illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining parts hereof, and this
Plan shall be construed and enforced as if such illegal or invalid provision had
never been inserted herein.
15.14
Incompetent
. If
the Committee determines in its discretion that a benefit under this Plan is to
be paid to a minor, a person declared incompetent or a person incapable of
handling the disposition of that person’s property, the Committee may direct
payment of such benefit to the guardian, legal representative or person having
the care and custody of such minor, incompetent or incapable
person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate, prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the
account of the Participant and the Participant’s Beneficiary, as the case may
be, and shall be a complete discharge of any liability under the Plan for such
payment amount.
15.15
Court
Order
. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant’s
benefits under the Plan in connection with a property settlement or otherwise,
the Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse’s or former
spouse’s interest in the Participant’s benefits under the Plan to that spouse or
former spouse.
15.16
Distribution
in the Event of Taxation
.
(a)
In
General
. If, for any reason, all or any portion of a
Participant’s benefits under this Plan becomes taxable to the Participant prior
to receipt, a Participant may petition the Committee before a Change in Control,
or the trustee of the Trust after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant’s Employer shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall not exceed a
Participant’s unpaid Account Balance under the Plan). If the petition
is granted, the tax liability distribution shall be made within 90 days of the
date when the Participant’s petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(b)
Trust
. If
the Trust terminates in accordance with its terms and benefits are distributed
from the Trust thereunder to a Participant, the Participant’s benefits under
this Plan shall be reduced to the extent of such distributions.
15.17
Insurance
. The
Employers, on their own behalf or on behalf of the trustee of the Trust, and, in
their sole discretion, may apply for and procure insurance on the life of the
Participant, in such amounts and in such forms as the Trust may
choose. The Employers or the trustee of the Trust, as the case may
be, shall be the sole owner and beneficiary of any such
insurance. The Participant shall have no interest whatsoever in any
such policy or policies and at the request of the Employers shall submit to
medical examinations and supply such information and execute such documents as
may be required by the insurance company or companies to whom the Employers have
applied for insurance.
15.18
Legal
Fees to Enforce Rights After Change in Control
. In the event
of a Change in Control, the Company shall pay all reasonable legal fees, costs
and expenses incurred by a Participant or Beneficiary in enforcing any provision
of this Plan or as a result of the Company’s or any Employer’s contesting the
validity, enforceability or interpretation of this Plan. Such payment
shall be made within 30 days after the Participant or Beneficiary submits in
writing a request for payment accompanied with such evidence of fees and
expenses incurred by the Participant or Beneficiary. In no case will a payment
under this Section 15.18 be made after December 31 of the year following the
year in which the Participant or Beneficiary incurred such fees and
expenses.
IN
WITNESS WHEREOF, the Company has signed this Plan document as of
December ____, 2008.
|
MB
FINANCIAL, INC.
By:
Title:
|
APPENDIX
A
The
following provisions govern the distribution of benefits that were earned and
vested as of December 31, 2004 (including any earnings thereon). The
provisions of this Appendix A mirror the Plan provisions effective as of
December 31, 2004 and should be interpreted accordingly.
A.1.
Definitions
(a)
“Account
Balance” shall mean a Participant’s vested interest in the Plan as of December
31, 2004.
(b)
“Annual
Installment Method” shall be annual installment payments over the number of
years selected by the Participant in accordance with the Plan, calculated as
follows: Prior to the last Business Day of the year, the Account
Balance of the Participant shall be multiplied by a fraction, the numerator of
which is one, and the denominator of which is the remaining number of annual
payments due the Participant (including the installment being
calculated). Notwithstanding the foregoing, any installment payments
payable under the Plan shall constitute a single payment for purposes of
compliance with Code section 409A.
By way of
example, if the Participant elects a 10 year Annual Installment Method, the
first payment shall be 1/10 of the Account Balance, calculated as described in
this definition. The following year, the payment shall be 1/9 of the
Account Balance, calculated as described in this definition. Each annual
installment shall be paid on or as soon as administratively practicable
following the last Business Day of the applicable year, but in no event more
than 30 days after such date.
(c)
“Disability”
shall mean a period of disability during which a Participant qualifies for
permanent disability benefits under the Participant’s Employer’s long-term
disability plan, or, if a Participant does not participate in such a plan, a
period of disability during which the Participant would have qualified for
permanent disability benefits under such a plan had the Participant been a
participant in such a plan, as determined in the sole discretion of the
Committee. If the Participant’s Employer does not sponsor such a
plan, or discontinues to sponsor such a plan, Disability shall be determined by
the Committee in its sole discretion.
(d)
“Retirement,”
“Retire(s)” or “Retired” shall mean severance from employment from all Employers
for any reason other than a leave of absence, death or Disability on or after
the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five
(55) with ten (10) years of service.
(e)
“Termination
of Employment” or “Termination” shall mean the severing of employment with all
Employers, voluntarily or involuntarily, for any reason other than Retirement,
Disability, death or an authorized leave of absence.
(f)
“Unforeseeable
Financial Emergency” shall mean an unanticipated emergency that is caused by an
event beyond the control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a sudden and
unexpected illness or accident of the Participant or a dependent of the
Participant, (ii) a loss of the Participant’s property due to casualty, or
(iii) such other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee. A distribution will be deemed to be
on account of an Unforeseeable Financial Emergency if the distribution is on
account of:
(i)
Unreimbursed
medical expenses (as defined in Code section 213(d)) and amounts necessary
to obtain medical care for the Participant, the Participant’s spouse or any
dependent;
(ii)
the
purchase of the Participant’s principal residence (but not ongoing mortgage
payments);
(iii)
tuition
and related educational fees for the immediately forthcoming twelve (12) month
period of post-secondary education for the Participant, his spouse or
dependents;
(iv)
the need
to prevent eviction from or foreclosure on a Participant’s principal
residence.
Terms
used in this Appendix but not defined above shall be defined under the terms of
the Plan in effect as of December 31, 2004.
A.2.
Distribution
of Benefits
(a)
Withdrawal
Payout/Suspensions for Unforeseeable Financial Emergencies
. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to receive a partial or full payout from
the Plan. The payout shall not exceed the lesser of the Participant’s
Account Balance, calculated as if such Participant were receiving a Termination
Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the
petition for payout is approved, any payout shall be made within 60 days of the
date of approval. The payment of any amount under this
Section A.2(a) shall be subject to the Deduction Limitation.
(b)
Withdrawal
Election
. A Participant (or, after a Participant’s death, his
or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of Employment
as of the day of the election, less a withdrawal penalty equal to 10% of such
amount (the net amount shall be referred to as the “Withdrawal
Amount”). This election can be made at any time, before or after
Retirement, Disability, death or Termination of Employment, and whether or not
the Participant (or Beneficiary) is in the process of being paid pursuant to an
installment payment schedule. If made before Retirement, Disability
or death, a Participant’s Withdrawal Amount shall be his or her Account Balance
calculated as if there had occurred a Termination of Employment as of the day of
the election. No partial withdrawals of the Withdrawal Amount shall
be allowed. The Participant (or his or her Beneficiary) shall make
this election by giving the Committee advance written notice of the election in
a form determined from time to time by the Committee. The Participant
(or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days
of his or her election. The payment of the Withdrawal Amount shall be
subject to the Deduction Limitation.
(c)
Retirement
Benefit
.
Subject to the
Deduction Limitation, a Participant who Retires shall receive as a Retirement
Benefit his or her Account Balance.
(i)
Payment of Retirement
Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph in (i) a lump sum,
(ii) five (5) annual installments or (iii) ten (10) annual
installments. The Participant may change his elected form of payment
by submitting an Election Form to that effect which is accepted by the Committee
at least twelve (12) months prior to his or her Retirement Date. Installment
payments shall be calculated and paid pursuant to the Annual Installment Method.
The lump sum payment shall be made, or installment payments shall commence, no
later than 60 days after the date the Participant Retires.
(ii)
Death Prior to Entire
Payment of Retirement Benefit
. If a Participant dies after
Retirement but before the Retirement Benefit is paid in full, the Participant’s
unpaid Retirement Benefit payments shall continue and shall be paid to the
Participant’s Beneficiary (i) over the remaining number of months and in
the same amounts as that benefit would have been paid to the Participant had the
Participant survived, or (ii) in a lump sum, if requested by the
Beneficiary and allowed in the sole discretion of the Committee, that is equal
to the Participant’s unpaid remaining Account Balance. Payment shall
be payable either in cash or in-kind, as determined in the sole discretion of
the Committee, taking into account any request made by the
Beneficiary.
(d)
Pre-Retirement
Survivor Benefit
.
Subject to the
Deduction Limitation, the Participant’s Beneficiary shall receive a
Pre-Retirement Survivor Benefit equal to the Participant’s Account Balance if
the Participant dies before he or she Retires, experiences a Termination of
Employment or suffers a Disability.
(i)
Payment of Pre-Retirement
Survivor Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph, in (i) a lump sum, (ii) five (5)
annual installments or (iii) ten (10) annual
installments. Installment payments shall be calculated and paid
pursuant to the Annual Installment Method. The lump sum payment shall be made,
or installment payments shall commence, no later than 60 days after the date the
Committee is provided with proof that is satisfactory to the Committee of the
Participant’s death. Any payment made shall be subject to the Deduction
Limitation.
(e)
Termination
Benefit
. Subject to the Deduction Limitation, the Participant
shall receive a Termination Benefit, which shall be equal to the Participant’s
Account Balance if a Participant experiences a Termination of Employment prior
to his or her Retirement, death or Disability.
(i)
Payment of Termination
Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph in (i) a lump sum, (ii) five (5)
annual installments or (iii) ten (10) annual installments. The
Participant may change his elected form of payment by submitting an Election
Form to that effect which is accepted by the Committee at least twelve (12)
months prior to his or her Termination Date. Installment payments shall be
calculated and paid pursuant to the Annual Installment Method. The lump sum
payment shall be made, or installment payments shall commence, no later than 60
days after the date of the Participant’s Termination of
Employment. Any payment made shall be subject to the Deduction
Limitation. Should the Participant die before payment of his entire
Termination Benefit, Section A.2(c)(ii) shall apply.
(f)
Disability Waiver and
Benefit.
(i)
Continued Eligibility;
Disability Benefit
. A Participant suffering a Disability
shall, for benefit purposes under this Plan, continue to be considered to be
employed and shall be eligible for the benefits provided in subsections A.2(a),
(b), (c), (d) or (e) in accordance with the provisions of those
subsections. Notwithstanding the above, the Committee shall have the
right to, in its sole and absolute discretion and for purposes of this Plan
only, and must in the case of a Participant who is otherwise eligible to Retire,
deem the Participant to have experienced a Termination of Employment, or in the
case of a Participant who is eligible to Retire, to have Retired, at any time
(or in the case of a Participant who is eligible to Retire, as soon as
practicable) after such Participant is determined to be suffering a Disability,
in which case the Participant shall receive a Disability Benefit equal to his or
her Account Balance at the time of the Committee’s determination; provided,
however, that should the Participant otherwise have been eligible to Retire, he
or she shall be paid in accordance with Section A.2(c). The
Disability Benefit shall be paid in a lump sum within 60 days of the Committee’s
exercise of such right. Any payment made shall be subject to the
Deduction Limitation.
(g)
Court
Order
. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant’s
benefits under the Plan in connection with a property settlement or otherwise,
the Committee, in its sole discretion shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse’s or former
spouse’s interest in the Participant’s benefits under the Plan to that spouse or
former spouse.
(h)
Distribution
in the Event of
Taxation
.
(i)
In
General
. If, for any reason, all or any portion of a
Participant’s benefits under this Plan becomes taxable to the Participant prior
to receipt, a Participant may petition the Committee before a Change in Control,
or the trustee of the Trust after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant’s Employer shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall not exceed a
Participant’s unpaid Account Balance under the Plan). If the petition
is granted, the tax liability distribution shall be made within 90 days of the
date when the Participant’s petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(ii)
Trust
. If
the Trust terminates in accordance with Section 3.6(e) of the Trust, and
benefits are distributed from the Trust to a Participant in accordance with that
Section, the Participant’s benefits under this Plan shall be reduced to the
extent of such distributions.
(i)
Termination
of Participation Benefit
. If the Committee determines in good faith that
a Participant no longer qualifies as a member of a select group of management or
highly compensated employees, as membership in such group is determined in
accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or is no
longer a director, the Committee shall have the right, in its sole discretion
immediately distribute the Participant’s then Account Balance as a Termination
Benefit to the Participant.
(j)
Manner of
Payment.
All
distributions made pursuant to this Section A.2 shall be made in the form of
Company Stock except for fractional shares, which shall be distributed in
cash.
MB
FINANCIAL, INC. AND MB FINANCIAL BANK, N.A.
NON-STOCK
DEFERRED COMPENSATION PLAN
Amended
and Restated
effective
January 1, 2009
Article 2
|
Selection,
Enrollment, Eligibility
|
7
|
|
2.1
|
Selection
by Committee
|
7
|
|
2.2
|
Enrollment
Requirements
|
7
|
|
2.3
|
Eligibility;
Commencement of Participation
|
7
|
|
2.4
|
Termination
of Participation and/or Deferrals
|
7
|
|
2.5
|
Merger
of the First Oak Brook Bancshares, Inc. Executive Deferred Compensation
Plan
|
8
|
Article 3
|
Deferral
Commitments/Employer Contributions/Crediting/Taxes
|
8
|
|
3.1
|
Compensation
Deferrals
|
8
|
|
3.2
|
Election
to Defer; Effect of Election Form
|
8
|
|
3.3
|
Withholding
of Annual Deferral Amounts
|
9
|
|
3.4
|
Employer
Contributions
|
9
|
|
3.5
|
Investment
of Trust Assets
|
9
|
|
3.7
|
Crediting/Debiting
of Account Balances
|
10
|
|
3.8
|
FICA
and Other Taxes
|
11
|
Article 4
|
Short-Term
Payout; Unforeseeable Financial
Emergencies12
|
|
4.2
|
Other
Benefits Take Precedence Over Short-Term
|
12
|
|
4.3
|
Withdrawal
Payout/Suspensions for Unforeseeable Financial
Emergencies
|
12
|
Article 5
|
Separation
from Service Benefit
|
12
|
|
5.1
|
Separation
from Service Benefit
|
12
|
|
5.2
|
Payment
of Separation from Service Benefit
|
13
|
Article 6
|
Disability
Waiver
|
13
|
|
6.1
|
Waiver
of Deferral
|
13
|
Article 7
|
Elections
Relating to Employer Contributions; 409A Transition
Elections
|
14
|
|
7.1
|
Timing
of Election
|
14
|
|
7.2
|
409A
Transition Elections
|
14
|
Article 8
|
Beneficiary
Designation
|
14
|
|
8.2
|
Beneficiary
Designation
|
14
|
|
8.4
|
No
Beneficiary Designation
|
14
|
|
8.5
|
Doubt
as to Beneficiary
|
15
|
|
8.6
|
Discharge
of Obligations
|
15
|
Article 9
|
Leave
of Absence
|
15
|
|
9.1
|
Paid
Leave of Absence
|
15
|
|
9.2
|
Unpaid
Leave of Absence
|
15
|
Article 10
|
Termination,
Amendment or Modification
|
15
|
|
10.3
|
Effect
of Change in Control
|
16
|
|
10.5
|
Effect
of Payment
|
16
|
Article 11
|
Administration
|
16
|
|
11.3
|
Indemnity
of Committee
|
17
|
|
11.4
|
Employer
Information
|
17
|
Article 12
|
Other
Benefits and Agreements
|
17
|
|
12.1
|
Coordination
with Other Benefits
|
17
|
Article 13
|
Claims
Procedures
|
17
|
|
13.1
|
Presentation
of Claim
|
17
|
|
13.2
|
Notification
of Decision
|
17
|
|
13.3
|
Review
of a Denied Claim
|
18
|
|
13.4
|
Decision
on Review
|
18
|
|
14.1
|
Establishment
of the Trust
|
18
|
|
14.2
|
Interrelationship
of the Plan and the Trust
|
19
|
|
14.3
|
Distributions
From the Trust
|
19
|
Article 15
|
Miscellaneous
|
19
|
|
15.2
|
Unsecured
General Creditor
|
19
|
|
15.3
|
Employer’s
Liability
|
19
|
|
15.5
|
Not
a Contract of Employment
|
20
|
|
15.6
|
Furnishing
Information
|
20
|
|
15.12
Spouse’s Interest21
|
|
15.16
Distribution in the Event of
Taxation21
|
|
15.18
Legal Fees to Enforce Rights After Change in
Control22
|
MB
FINANCIAL, INC. AND MB FINANCIAL BANK, N.A.
NON-STOCK
DEFERRED COMPENSATION PLAN
Amended
and Restated Effective January 1, 2009
Purpose
The
purpose of this Plan is to provide specified benefits to a select group of
management and highly compensated Employees, and Directors, who contribute
materially to the continued growth, development and future business success of
MB Financial, Inc., MB Financial Bank, N.A., and any other subsidiaries, if any,
that sponsor this Plan. This Plan shall be unfunded for tax purposes
and for purposes of Title I of ERISA.
Effective
Date
The Plan,
as amended and restated in this document, is effective as of January 1, 2009
(the “
Effective
Date
”). The distribution of benefits vested as of December 31, 2004
(together with earnings thereon) (“
Grandfathered
Benefits
”) shall be governed solely by the terms of Appendix
A.
ARTICLE 1
Definitions
For
purposes of this Plan, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following meanings:
1.1
“
Account Balance
”
shall mean, with respect to a Participant, a credit on the records of the
Employer equal to the sum of (i) the Employee Deferral Account, (ii) the
Director Deferral Account (collectively, the Employee Deferral Account and the
Director Deferral Account shall hereinafter be referred to as the “
Deferral Account
”),
(iii) the Matching Contribution Account and (iv) the Employer Contribution
Account. The Account Balance, and each other specified account
balance, shall be a bookkeeping entry only and shall be utilized solely as a
device for the measurement and determination of the amounts to be paid to a
Participant, or his or her designated Beneficiary, pursuant to this
Plan.
1.2
“
Annual Bonus
” shall
mean any compensation, in addition to Base Annual Salary relating to services
performed during any calendar year, whether or not paid in such calendar year or
included on the Federal Income Tax Form W-2 for such calendar year, payable to a
Participant as an Employee under any Employer’s annual bonus and cash incentive
plans, excluding equity awards.
1.3
“
Annual Deferral
Amount
” shall mean that portion of a Participant’s Base Annual Salary,
Annual Bonus and/or Director’s Compensation that a Participant elects to have
deferred, and is deferred, in accordance with Article 3, for any one Plan
Year. In the event of a Participant’s Disability (if deferrals cease
in accordance with Section 6.1) or Separation from Service prior to the end
of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount
withheld prior to such event.
1.4
“
Base Annual Salary
”
shall mean the annual cash compensation relating to services performed during
any calendar year, whether or not paid in such calendar year or included on the
Federal Income Tax Form W-2 for such calendar year,
excluding bonuses,
commissions, overtime, fringe benefits, equity awards, relocation expenses,
incentive payments, retention payments, change in control and severance
payments, non-monetary awards, directors’ fees and other fees, and automobile
and other allowances paid to a Participant for employment services rendered
(whether or not such allowances are included in the Employee’s gross income).
Base Annual Salary shall be calculated before reduction for compensation
voluntarily deferred or contributed by the Participant pursuant to all qualified
or non-qualified plans of any Employer and shall be calculated to include
amounts not otherwise included in the Participant’s gross income under Code
sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the amount
would have been payable in cash to the Employee.
1.5
“
Beneficiary
” shall
mean one or more persons, trusts, estates or other entities, designated in
accordance with Article 8, that are entitled to receive benefits under this
Plan upon the death of a Participant.
1.6
“
Beneficiary Designation
Form
” shall mean the form established from time to time by or at the
direction of the Committee that a Participant completes, signs and returns to
the Committee or its designated agent to designate one or more
Beneficiaries.
1.7
“
Benefit Payment Date
”
shall mean:
(a)
For
purposes of a Short-Term Payout payable to a Participant under Article 4, any
date occurring during the 60-day period beginning on January 1st of the calendar
year designated by the Participant as the payment year for an Annual Deferral
Amount (“
Short Term
Payment Year
”), provided that such Short Term Payment Year shall be at
least five Plan Years after the end of the Plan Year in which such amounts are
actually deferred.
(b)
For
purposes of a Separation from Service Benefit payable to a Participant under
Article 5 who is not a Specified Employee (determined as of the date of his or
her Separation from Service), any date occurring during the 90-day period
beginning on the date on which the Participant experiences his or her Separation
from Service.
(c)
For
purposes of a Separation from Service Benefit payable to a Participant under
Article 5 who is also a Specified Employee (determined as of the date of his or
her Separation from Service), (i) on or as soon as administratively practicable
after the first date of the seventh month following the Participant’s Separation
from Service date, but in no event more than 30 days after such date, or (ii) if
earlier, on or as soon as administratively practicable after the date of the
Participant’s death. If the Participant has elected payment pursuant to the
Monthly Installment Method, installments that would otherwise be paid to the
Participant prior to the Benefit Payment Date shall be accumulated and paid to
the Participant on the Benefit Payment Date. By way of example, if a
Participant’s Benefit Payment Date is the date determined under (i) above, the
Participant’s first six monthly installments shall be delayed until the Benefit
Payment Date, such that the initial payment on the Benefit Payment Date will
equal seven monthly installments (calculated using the Monthly Installment
Method).
1.8
“
Board
” shall mean the
Board of Directors of the Company.
1.9
“
Change in Control
”
shall mean the first to occur of any of the following events:
(a) Any “person” (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 (the “
Exchange Act
”)) is or
becomes the beneficial owner (as that term is used in Section 13(d) of the
Exchange Act) directly or indirectly of securities of the Company representing
35% or more of the combined voting power of the Company’s or the Employer’s
outstanding securities entitled to vote generally in the election of
directors;
(b) individuals who were members of the Board on the Effective Date (the
“
Incumbent
Board
”) cease for any reason to constitute at least a majority thereof,
provided that any person becoming a member of the Board subsequent to the
Effective Date (i) whose appointment as a director by the Board was approved by
a vote of at least three quarters of the directors comprising the Incumbent
Board, or (ii) whose nomination for election as a member of the Board by the
Company’s stockholders was approved by the Incumbent Board or recommended by the
nominating committee serving under the Incumbent Board, shall be considered a
member of the Incumbent Board;
(c) consummation of a plan of reorganization, merger or consolidation
involving the Company or the Employer or the securities of either, other than
(i) in the case of the Company, a transaction at the completion of which the
stockholders of the Company immediately preceding completion of the transaction
hold more than 60% of the outstanding securities of the resulting entity
entitled to vote generally in the election of its directors or (ii) in the case
of the Employer, a transaction at the completion of which the Company holds more
than 50% of the outstanding securities of the resulting institution entitled to
vote generally in the election of its directors;
(d) consummation of a sale or other disposition to an unaffiliated third
party or parties of all or substantially all of the assets of the Company or the
Employer or approval by the stockholders of the Company or the Employer of a
plan of complete liquidation or dissolution of the Company or the
Employer.
For
purposes of clause (a), the term “person” shall not include the Company, any
Executive benefit plan of the Company or the Employer, or any corporation or
other entity owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company.
Each
event comprising a Change in Control is intended to constitute a “change in
ownership or effective control,” or a “change in the ownership of a substantial
portion of the assets,” of the Company or the Employer as such terms are defined
for purposes of Section 409A of the Code and Change in Control as used herein
shall be interpreted consistently therewith.
1.10
“
Claimant
” shall have
the meaning set forth in Section 13.1.
1.11
“
Code
” shall mean the
Internal Revenue Code of 1986, as it may be amended from time to
time.
1.12
“
Committee
” shall mean
the committee or its designee as described in Article 11.
1.13
“
Company
” shall mean
MB Financial, Inc., a Delaware corporation, and any successor to all or
substantially all of the Company’s assets or business.
1.14
“
Deduction Limitation
”
shall mean the following described limitation on a benefit that may otherwise be
distributable pursuant to the provisions of this Plan. Except as
otherwise provided, this limitation shall be applied to all distributions that
are “subject to the Deduction Limitation” under this Plan. If an
Employer determines in good faith prior to a Change in Control that there is a
reasonable likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by reason of
the limitation under Code section 162(m), then to the extent deemed
necessary by the Employer to ensure that the entire amount of any distribution
to the Participant pursuant to this Plan prior to the Change in Control is
deductible, the Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation shall
continue to be credited/debited with additional amounts in accordance with
Section 3.7 below, even if such amount is being paid out in
installments. The amounts so deferred and amounts credited thereon
shall be distributed to the Participant or his or her Beneficiary (in the event
of the Participant’s death) at the earliest possible date, as determined by
the Employer in good faith, on which the deductibility of compensation paid or
payable to the Participant for the taxable year of the Employer during which the
distribution is made will not be limited by Code section 162(m), or if
earlier, the effective date of a Change in Control. Notwithstanding
anything to the contrary in this Plan, the Deduction Limitation shall not apply
to any distributions made after a Change in Control.
1.15
“
Deferral Account
”
shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts,
plus
(ii) amounts credited in accordance with all the applicable crediting
provisions of this Plan that relate to the Participant’s Deferral Account,
less
(iii) all
distributions made to the Participant or his or her Beneficiary pursuant to this
Plan that relate to his or her Deferral Account.
1.16
“
Deferral Election
Date
” shall mean:
(a)
For
purposes of deferrals of Base Annual Salary, Annual Bonus, and/or Director’s
Compensation under Article 3, except as provided below, the last day of the Plan
Year preceding the Plan Year during which the services related to such Base
Annual Salary, Annual Bonus and/or Director’s Compensation are to be performed;
or
(b)
For a
Participant who is first designated by the Committee on or after the first day
of the Plan Year as being eligible to participate in the Plan, 30 days from the
date such designation is communicated to the Participant.
1.17
“
Director
” shall mean
a member of the Board.
1.18
“
Director’s
Compensation
” shall mean fees and other compensation payable for services
as a Director.
1.19
“
Disability
” shall be
determined in accordance with Treasury Regulation 1.409A-3(i)(4). The
determination of whether a Participant has a Disability shall be determined by
the Committee in its sole discretion.
1.20
“
Election Form
” shall
mean the appropriate form(s) prescribed from time to time by the Committee for a
Participant to complete, sign and return to the Committee or its designated
agent to make an election under the Plan.
1.21
“
Employee
” shall mean
a person who is an employee of any Employer.
1.22
“
Employer(s)
” shall
mean the Company, MB Financial Bank, N.A., and any other subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the Board
to participate in the Plan and have adopted the Plan as a sponsor.
1.23
“
Employer
Contribution
” shall mean a contribution made by an Employer on behalf of
a Participant pursuant to Section 3.4.
1.24
“
Employer Contribution
Account
” shall mean (i) the sum of the Participant’s Employer
Contribution Amounts,
plus
(ii) amounts credited in accordance with all the applicable crediting
provisions of this Plan that relate to the Participant’s Employer Contribution
Account,
less
(iii) all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant’s Employer Contribution
Account.
1.25
“
ERISA
” shall mean the
Employee Retirement Income Security Act of 1974, as it may be amended from time
to time.
1.26
“
Matching
Contribution
” shall mean a matching contribution made by an Employer on
behalf of a Participant or Participants in accordance with
Section 3.4.
1.27
“
Matching Contribution
Account
” shall mean (i) the sum of all of a Participant’s Matching
Contribution Amounts,
plus
(ii) amounts credited in accordance with all the applicable crediting
provisions of this Plan that relate to the Participant’s Matching Contribution
Account,
less
(iii) all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant’s Matching Contribution
Account.
1.28
“
Monthly Installment
Method
” shall be a monthly installment payment over the number of months
selected by the Participant in accordance with the Plan, calculated as
follows: Prior to the last Business Day (as defined in Section
3.7(a)) of the month, the Account Balance of the Participant shall be multiplied
by a fraction, the numerator of which is one and the denominator of which is the
remaining number of monthly payments due the Participant (including the
installment being calculated). Notwithstanding the foregoing, any
installment payments payable under the Plan shall constitute a single payment
for purposes of compliance with Code section 409A.
By way of
example, if the Participant elects a 120-month Monthly Installment Method, the
first payment shall be 1/120 of the Account Balance, calculated as described in
this definition. The following month, the payment shall be 1/119 of
the Account Balance, calculated as described in this definition. Each
monthly installment shall be paid on or as soon as administratively practicable
following the last Business Day of the applicable month, but in no event more
than 30 days after such date.
1.29
“
Participant
” shall
mean any Employee or Director who (i) is selected to participate in the
Plan, (ii) elects to participate in the Plan, (iii) signs a Plan
Agreement, Election Form and Beneficiary Designation Form, (iv) signs a
Plan Agreement, Election Form and Beneficiary Designation Form that is accepted
by the Committee, (v) commences participation in the Plan, and
(vi) does not terminate his or her Plan Agreement. A spouse or
former spouse of a Participant shall not be treated as a Participant in the Plan
or have an Account Balance under the Plan, even if he or she has an interest in
the Participant’s Account Balance under the Plan as a result of applicable law
or property settlements resulting from legal separation or divorce.
1.30
“
Plan
” shall mean the
Company’s Non-Stock Deferred Compensation Plan, which shall be evidenced by this
instrument and by each Plan Agreement and Election Form(s), as they may from
time to time be amended.
1.31
“
Plan Agreement
” shall
mean a written agreement, as may be amended from time to time, that is entered
into by and between an Employer and a Participant. Each Plan
Agreement executed by a Participant and the Participant’s Employer shall provide
for the entire benefit to which such Participant is entitled under the Plan;
should there be more than one Plan Agreement, the Plan Agreement bearing the
latest date of acceptance by the Employer shall supersede all previous Plan
Agreements in their entirety and shall govern such entitlement. The
terms of any Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or limit the
benefits otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant.
1.32
“
Plan Year
” shall mean
a period beginning on January 1 of each calendar year and continuing
through December 31 of such calendar year.
1.33
“
Separation from
Service
” shall mean:
(a)
For a
Participant who is an Employee, a separation from service from all Employers due
to death, retirement or other termination of employment, as determined in
accordance with Treas. Reg.§ 1.409A-1(h).
(b)
For a
Participant who is a Director, a separation from service from the board of
directors of the Company and all of its subsidiaries, as determined in
accordance with Treas. Reg. § 1.409A-1(h). For this purpose, service
as a honorary or emeritus director will not constitute continuing service as a
member of the board of directors of the Company or its
subsidiaries.
1.34
“
Separation from Service
Benefit
” shall mean the benefit set forth in Article 5.
1.35
“
Short-Term Payment
Year
” shall have the meaning set forth in Section 1.7.
1.36
“
Short-Term Payout
”
shall mean the payout set forth in Section 4.1.
1.37
“
Specified Employee
”
shall mean any Participant who is determined to be a “key employee” (as defined
under Code section 416(i) without regard to paragraph (5) thereof) for the
applicable period, as determined annually by the Committee in accordance with
Treas. Reg. § 1.409A-1(i). In determining whether a Participant
is a Specified Employee, the following provisions shall apply:
(a)
The
Committee’s identification of the individuals who fall within the definition of
“key employee” under Code section 416(i) (without regard to paragraph (5)
thereof) shall be based upon the 12-month period ending on each December 31
(referred to below as the “
Identification
Date
”). In applying the applicable provisions of Code Section
416(i) to identify such individuals, “compensation” shall be determined in
accordance with Treas. Reg. § 1.415(c)-2(a) without regard to:
(i)
Any safe
harbor provided in Treas. Reg. § 1.415(c)-2(d);
(ii)
Any of
the special timing rules provided in Treas. Reg. §1.415(c)-2(e);
and
(iii)
Any of
the special rules provided in Treas. Reg. § 1.415(c)-2(g); and
(b)
Each
Participant who is among the individuals identified as a “key employee” in
accordance with part (a) of this Section shall be treated as a Specified
Employee for purposes of this Plan if such Participant experiences a Separation
from Service during the 12-month period that begins on the April 1 following the
applicable Identification Date.
1.38
“
Trust
” shall mean, if
applicable, one or more trusts established pursuant to a trust agreement between
the Company and the trustee named therein, as amended from time to
time.
1.39
“
Unforeseeable Financial
Emergency
” shall be determined in accordance with Treas. Reg. §
1.409A-3(i)(3).
ARTICLE 2
Selection, Enrollment,
Eligibility
2.1
Selection
by Committee
. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees and Directors, as
determined by the Committee in its sole discretion. From that group,
the Committee shall select, in its sole discretion, Employees and Directors to
participate in the Plan.
2.2
Enrollment
Requirements
. As a condition to participation, each selected
Employee or Director shall complete, execute and return to the Committee or its
designated agent a Plan Agreement, an Election Form and a Beneficiary
Designation Form, all within 30 days after he or she is selected to participate
in the Plan. In addition, the Committee shall establish from time to
time such other enrollment requirements as it determines in its sole discretion
are necessary.
2.3
Eligibility;
Commencement of Participation
. Provided an Employee or
Director selected to participate in the Plan has met all enrollment requirements
set forth in this Plan and required by the Committee, including returning all
required documents to the Committee or its designated agent within the specified
time period, that Employee or Director shall commence participation in the Plan
as soon as administratively practicable following the month in which the
Employee or Director completes all enrollment requirements or another date, such
as the first day of the next Plan Year, as specified by the
Committee. If an Employee or Director fails to meet all such
requirements within the period required, in accordance with Section 2.2,
that Employee or Director shall not be eligible to participate in the Plan until
the first day of the Plan Year following the delivery to and acceptance by the
Committee or its designated agent of the required documents.
2.4
Termination
of Participation and/or Deferrals
. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a select
group of management or highly compensated employees, as membership in such group
is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1)
of ERISA, or is no longer a Director, the Committee shall have the right, in its
sole discretion, to prevent the Participant from making future deferral
elections as of the first day of the subsequent Plan Year.
2.5
Merger of
the First Oak Brook Bancshares, Inc. Executive Deferred Compensation
Plan
. The First Oak Brook Bancshares, Inc. Executive Deferred
Compensation Plan (the “
FOBB Plan
”) was
previously merged into this Plan. Each FOBB Plan participant with an
account transferred from the FOBB Plan to this Plan shall be a Participant in
this Plan. Separate bookkeeping accounts shall be maintained under
this Plan with respect to amounts transferred from the FOBB Plan into this
Plan. Such accounts shall distinguish between amounts that are
subject to Section 409A, and amounts that are not, and shall be treated as such
under this Plan. Accounts transferred from the FOBB Plan to this Plan
shall be subject to the provisions of this Plan (including but not limited to
the distribution provisions of this Plan and not the FOBB Plan), including
separate treatment for amounts that are subject to Section 409A and amounts
that are not, to the extent applicable.
ARTICLE 3
Deferral
Commitments/Employer Contributions/Crediting/Taxes
3.1
Compensation
Deferrals
. For each Plan Year, a Participant may elect to
defer, as his or her Annual Deferral Amount, up to 100% of his or her Base
Annual Salary, Annual Bonus and/or Director’s Compensation, as the case may
be. If no election is made, or if a Participant does not make a
timely election, the amount deferred shall be zero. Notwithstanding
the foregoing, if a Participant first becomes a Participant after the first day
of a Plan Year, the maximum Annual Deferral Amount shall be limited to the
amount of compensation not yet earned by the Participant as of the date the
Participant submits a Plan Agreement and Election Form to the Committee for
acceptance.
3.2
Election
to Defer; Effect of Election Form
.
(a)
General
Rules
. Except as provided below, a Participant must make his
or her deferral election as to a Plan Year no later than the applicable Deferral
Election Date and such election shall become irrevocable as of the last day of
such preceding Plan Year.
(b)
Subsequent
Plan Years
. For each succeeding Plan Year, a Participant may
revoke or make a new deferral election for the subsequent Plan Year, provided
that such election is made before the applicable Deferral Election
Date. In the absence of the timely delivery of such a new Election
Form, the Election Form in effect at the end of the preceding Plan Year shall
constitute the Participant’s irrevocable deferral election for the succeeding
Plan Year.
(c)
Effect of
Short-Term Payout Election.
Notwithstanding the foregoing, if a
Participant, pursuant to Section 4.1, elects a Short-Term Payout, such
election shall be effective for the subsequent Plan Year and shall render all of
a Participant’s prior deferral elections, if any, ineffective for subsequent
Plan Years. To defer compensation for subsequent Plan Years, the Participant
must submit a new Election Form. In the absence of the timely delivery of a new
Election Form, the Participant’s deferral amount shall be deemed to be zero for
the subsequent Plan Year and will remain zero for all subsequent Plan Years
unless and until he or she timely delivers a new Election Form to the
Committee.
(d)
Election
Form.
For the above elections to be valid, the Election Form
must be properly completed and signed by the Participant and timely delivered to
and accepted by the Committee.
3.3
Withholding
of Annual Deferral Amounts
. For each Plan Year, the Base
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall
be withheld at the time the Annual Bonus is or otherwise would be paid to the
Participant, whether or not this occurs during the Plan Year. The
Director’s Compensation portion of the Annual Deferral Amount shall be withheld
at the time the Director’s Compensation is paid to the Participant, whether or
not this occurs during the Plan Year.
3.4
Employer
Contributions
.
(a)
Discretionary
Matching Contributions
. Each Employer, in its sole discretion,
may agree to contribute on behalf of a Participant (or Participants) who is an
Employee of that Employer a Matching Contribution with respect to the Plan
Year. The amount of the Matching Contribution shall be determined in
relation to the Participant’s Annual Deferral Amount, or to such other
compensation that the Participant makes to any other plan of deferred
compensation. For any Plan Year, Matching Contributions may be made
for some, but not all, Participants, and the amount of the Matching Contribution
may vary from Participant to Participant, all as determined by the Employer in
its sole discretion. No earnings shall be credited on any Matching
Contributions until after such contributions are allocated to a Participant’s
Matching Contribution Account.
(b)
Discretionary
Employer Contributions
. Each Employer may, but is not required
to, contribute on behalf of a Participant who is an Employee of that Employer an
additional Employer Contribution. For any Plan Year, Employer
Contributions may be made for some, but not all, Participants, and the amount of
the Employer Contribution may vary from Participant to Participant, all as
determined by the Employer in its sole discretion. No earnings shall
be credited on any Employer Contributions until after such contributions are
allocated to a Participant’s Employer Contribution Account.
3.5
Investment
of Trust Assets
. In the event that a Trust is established, the
Trustee of the Trust shall be authorized, upon written instructions received
from the Committee or investment manager appointed by the Committee, to invest
and reinvest the assets of the Trust in accordance with the applicable trust
agreement.
3.6
Vesting
. A
Participant shall at all times be 100% vested in his or her Deferral Account,
Employer Contribution Account and Matching Contribution Account.
3.7
Crediting/Debiting
of Account Balances
. In accordance with, and subject to, the
rules and procedures that are established from time to time by the Committee, in
its sole discretion, amounts shall be credited or debited to a Participant’s
Account Balance in accordance with the following rules:
(a)
Election
of Measurement Funds
. A Participant, in connection with his or
her initial deferral election in accordance with Section 3.2(a) above,
shall elect, on the Election Form, one or more Measurement Fund(s) (as described
in Section 3.7(c) below) to be used to determine the additional amounts to
be credited to his or her Account Balance. A Participant shall elect,
by submitting an Election Form to the Committee that is accepted by the
Committee, the Measurement Fund(s) to be used to determine the additional
amounts to be credited to his or her Account Balance, or to change the portion
of his or her Account Balance allocated to each previously newly elected
Measurement Fund. Elections made in accordance with the previous sentence shall
be made no more frequently than daily and shall apply to the next day the New
York Stock Exchange is open (“Business Day”) in which the Participant
participates in the Plan and continue thereafter, unless changed in accordance
with the previous sentence.
(b)
Proportionate
Allocation
. In making any election described in
Section 3.7(a) above, the Participant shall specify on the Election Form,
in increments of one percent (1%), the percentage of his or her Account Balance
to be allocated to a Measurement Fund (as if the Participant was making an
investment in that Measurement Fund with that portion of his or her Account
Balance).
(c)
Measurement
Funds
. The Participant may elect one or more measurement
funds, based on such funds as are designated from time to time by Committee (the
“Measurement Funds”). As necessary, the Committee may, in its
discretion, discontinue, substitute or add a Measurement Fund. The
Committee shall give Participants advance written notice of any such
changes.
(d)
Crediting
or Debiting Method
. The performance of each elected
Measurement Fund (either positive or negative) will be determined by the
Committee, in its reasonable discretion, based on the performance of the
Measurement Funds themselves. Each Business Day, a Participant’s
Account Balance shall be credited or debited based on the performance of each
Measurement Fund selected by the Participant, as determined by the Committee in
its sole discretion, as though (i) a Participant’s Account Balance were
invested in the Measurement Fund(s) selected by the Participant, in the
percentages applicable to such date, at the closing price on such date;
(ii) the portion of the Annual Deferral Amount that was actually deferred
during any payroll period was invested in the Measurement Fund(s) selected by
the Participant, in the percentages applicable to that date, no later than the
close of business on the fifth (5th) Business Day after the day on which such
amounts are actually deferred from the Participant’s Base Annual Salary through
reductions in his or her payroll, at the closing price on such date; and
(iii) any distribution made to a Participant that decreases such
Participant’s Account Balance ceased being invested in the Measurement Fund(s),
in the applicable percentages, no earlier than one Business Day prior to the
distribution, at the closing price on such date. Any Employer
Contributions and/or Employer Matching Contributions shall be credited to a
Participant’s Employer Contribution Account and/or Matching Contribution
Account, as the case may be, no later than the end of the first calendar quarter
following the Plan Year to which such contributions relate.
Despite the foregoing,
to the extent the other amounts described in this Article 3 are paid into
the Trust and the Trust assets are invested from time to time to reflect the
elections made by Participants pursuant to Section 3.7(a) above, then each
Participant’s Account Balance shall be debited or credited on the basis of the
actual investment gains or losses of the Trust in lieu of crediting of the gains
or losses in accordance with clauses (i), (ii) and (iii) above.
(e)
No Actual
Investment
. Notwithstanding any other provision of this Plan
that may be interpreted to the contrary, the Measurement Funds are to be used
for measurement purposes only, and a Participant’s election of any such
Measurement Fund, the allocation to his or her Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such amounts
to a Participant’s Account Balance shall not be considered or construed in any
manner as an actual investment of his or her Account Balance in any such
Measurement Fund. In the event that the Company or the Trustee (as
that term is defined in the applicable trust agreement with the Trust), in its
own discretion, decides to invest funds in any or all of the Measurement Funds,
no Participant shall have any rights in or to such investments
themselves. Without limiting the foregoing, a Participant’s Account
Balance shall at all times be a bookkeeping entry only and shall not represent
any investment made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of the
Company.
3.8
FICA and
Other Taxes
.
(a)
Deferral
Account
. For each Plan Year in which an Annual Deferral Amount
is being withheld from a Participant, the Participant’s Employer(s) shall
withhold from that portion of the Participant’s Base Annual Salary, Annual Bonus
and Director’s Compensation that is not being deferred, in a manner determined
by the Employer(s), the Participant’s share of FICA and other employment taxes
on such Annual Deferral Amount. If necessary, the Committee may
reduce the Annual Deferral Amount in order to comply with this
Section 3.8.
(b)
Matching
Contribution Account, Employer Contribution Account
. When a
Participant is credited with an Employer Contribution Amount or Matching
Contribution Amount in his or her Employer Contribution Account or Matching
Contribution Account, the Participant’s Employer(s) shall withhold from the
Participant’s Base Annual Salary and/or Annual Bonus that is not deferred, in a
manner determined by the Employer(s), the Participant’s share of FICA and other
employment taxes on such amount. If necessary, the Committee may
reduce the Employer Contribution Account and/or Matching Contribution Account in
order to comply with this Section 3.8.
(c)
Distributions
. The
Participant’s Employer(s), or the trustee of the Trust, shall withhold from any
payments made to a Participant under this Plan all federal, state and local
income, employment and other taxes required to be withheld by the Employer(s),
or the trustee of the Trust, in connection with such payments, in amounts and in
a manner to be determined in the sole discretion of the Employer(s) and the
trustee of the Trust.
ARTICLE 4
Short-Term Payout;
Unforeseeable Financial Emergencies
4.1
Short-Term
Payout
. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
Short-Term Payout from the Plan with respect to such Annual Deferral
Amount. Subject to the Deduction Limitation and Section 4.2, the
Short-Term Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount plus amounts credited or debited in the manner provided
in Section 3.8 above on that amount, determined at the time that the
Short-Term Payout becomes payable. Subject to the Deduction
Limitation and the other terms and conditions of this Plan, each Short-Term
Payout elected shall be paid out on the applicable Benefit Payment
Date. By way of example, if a five-year Short-Term Payout is elected
for an Annual Deferral Amount deferred in the Plan Year commencing
January 1, 2009, the five-year Short-Term Payout would become payable
during the 60-day period commencing January 1, 2015. For
purposes of this Section 4.1, “Participant” shall not include
Directors.
4.2
Other
Benefits Take Precedence Over Short-Term
. Should an event
occur that triggers payment of a Separation from Service Benefit under
Article 5, any Annual Deferral Amount, plus amounts credited or debited
thereon, that is subject to a Short-Term Payout election under Section 4.1
shall not be paid in accordance with Section 4.1 but shall be paid in
accordance with Article 5.
4.3
Withdrawal
Payout/Suspensions for Unforeseeable Financial Emergencies
. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant’s Account Balance, calculated as if such Participant were receiving
a Separation from Service Benefit, or the amount reasonably needed to satisfy
the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a deferral suspension and/or
payout is approved, the deferral suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall
be subject to the Deduction Limitation.
ARTICLE 5
Separation from Service
Benefit
5.1
Separation
from Service Benefit
. Subject to Section 5.2 and the Deduction
Limitation:
(a)
A
Participant who is an Employee and experiences a Separation from Service shall
receive, as a Separation from Service Benefit, his or her Employee Deferral
Account, Matching Contribution Account and Employer Contribution Account on the
Benefit Payment Date.
(b)
A
Participant who is a Director and experiences a Separation from Service shall
receive, as a Separation from Service Benefit, his or her Director Deferral
Account on the Benefit Payment Date.
5.2
Payment
of Separation from Service Benefit
.
(a)
A
Participant, in connection with his or her commencement of participation in the
Plan, shall elect whether to receive payment of the Separation from Service
Benefit in (i) a lump sum, (ii) 60 monthly installments, or (iii) 120 monthly
installments. Monthly installments shall be paid pursuant to the Monthly
Installment Method. Such election shall be made no later than the
applicable Deferral Election Date and shall be irrevocable.
(b)
If a
Participant, in connection with his or her commencement of participation in the
Plan, elects payment of his Separation from Service Benefit in monthly
installments, the Participant may elect whether, in the event of his death
before all such installment payments are made, his Beneficiary should receive
his remaining Account Balance in (i) installment payments over the remaining
number of months and in the same amounts as the benefit would have been paid to
the Participant had the Participant survived, or (ii) a lump
sum. Such election shall be made no later than the applicable
Deferral Election Date.
(c)
If a
Participant does not make any election with respect to the payment of the
Separation from Service Benefit, then such benefit shall be payable in a lump
sum to be paid on the Benefit Payment Date.
(d)
Notwithstanding
the provisions of Sections 5.2(a) and (b) above, if the Participant’s Account
Balance is less than the dollar limitation in effect under Code section 402(g)
at the time of Separation from Service, payment of the Account Balance shall be
made in a lump sum no later than 30 days after the last day of the calendar
quarter in which the Participant experiences the Separation from Service;
provided, however, that payment of the Account Balance to a Participant who is
also a Specified Employee shall be made pursuant to Section
1.7(c). Any payment made shall be subject to the Deduction
Limitation.
ARTICLE 6
Disability
Waiver
6.1
Waiver of
Deferral
. A Participant who suffers from a Disability may petition the
Committee to be excused from fulfilling that portion of the Annual Deferral
Amount commitment that would otherwise have been withheld from the Participant’s
Base Annual Salary, Annual Bonus or Director’s Compensation for the Plan Year
during which the Participant first suffers a Disability. Such
petition must be submitted by the 15th day of the third month following the date
the participant becomes Disabled. The suspension shall take effect upon the date
the petition is approved by the Committee. During the period of Disability, the
Participant shall not be allowed to make any additional deferral elections but
will continue to be considered a Participant for all other purposes of this
Plan.
(a)
Return to
Work
. If a Participant returns to employment with an Employer after a
Disability ceases, the Participant may elect to defer an Annual Deferral Amount
for the Plan Year following his or her return to employment or service and for
every Plan Year thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form is delivered to
and accepted by the Committee for each such election in accordance with
Section 3.2 above.
ARTICLE 7
Elections Relating to
Employer Contributions; 409A Transition Elections
7.1
Timing of
Election
. If an individual initially becomes a Participant
solely as a result of the crediting of an Annual Employer Contribution Amount,
such Participant shall make the appropriate elections relating to the
distribution of such Amounts within 30 days after the end of the Plan Year with
respect to which such Annual Employer Contribution Amount is
credited.
7.2
409A
Transition Elections
. Notwithstanding anything in this Plan to
the contrary, effective through December 31, 2008, a Participant may make new
distribution elections with respect to benefits other than Grandfathered
Benefits; provided that any such elections may apply only to benefits that would
not otherwise be payable in 2008 and may not cause a benefit to be paid in 2008
that would not otherwise be payable in 2008. No election under this
Section 7.2 shall violate any constructive receipt or other tax rule that would
result in the acceleration of taxation of benefits.
ARTICLE 8
Beneficiary
Designation
8.1
Beneficiary
. Each
Participant shall have the right, at any time, to designate his or her
Beneficiary(ies) (both primary as well as contingent) to receive any benefits
payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan may be the
same as or different from the Beneficiary designation under any other plan of an
Employer in which the Participant participates.
8.2
Beneficiary
Designation
. A Participant shall designate his or her
Beneficiary by completing and signing the Beneficiary Designation Form and
returning it to the Committee or its designated agent. A Participant
shall have the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the Beneficiary Designation Form and the
Committee’s rules and procedures, as in effect from time to time. If
the Participant names someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the Committee, must be signed by that
Participant’s spouse and returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all Beneficiary designations
previously filed shall be canceled. The Committee shall be entitled
to rely on the last Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
8.3
Acknowledgment
. No
designation or change in designation of a Beneficiary shall be effective until
received and acknowledged in writing by the Committee.
8.4
No
Beneficiary Designation
. If a Participant fails to designate a
Beneficiary as provided under this Article 8 or, if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant’s benefits, then the Participant’s designated Beneficiary shall be
deemed to be his or her surviving spouse. If the Participant has no
surviving spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal representative of the
Participant’s estate.
8.5
Doubt as
to Beneficiary
. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant’s
Employer to withhold such payments until this matter is resolved to the
Committee’s satisfaction.
8.6
Discharge
of Obligations
. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the Committee
from all further obligations under this Plan with respect to the Participant,
and that Participant’s Plan Agreement shall terminate upon such full payment of
benefits.
ARTICLE 9
Leave of
Absence
9.1
Paid
Leave of Absence
. If a Participant is authorized by the
Participant’s Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with
Section 3.3.
9.2
Unpaid
Leave of Absence
. If a Participant is authorized by the
Participant’s Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence expires or the
Participant returns to paid employment status. Upon such expiration
or return, deferrals shall resume for the remaining portion of the Plan Year in
which the expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year,
no deferral shall be withheld.
ARTICLE 10
Termination, Amendment or
Modification
10.1
Termination
.
(a)
Although
all the Employers anticipate that the Plan will continue for an indefinite
period of time, there is no guarantee that the Plan will not terminate at any
time in the future. Accordingly, the Employers reserve the right to
terminate the Plan at any time by action of each Employer’s board of
directors.
(b)
Upon
termination of the Plan, the Plan Agreements of the Participants shall terminate
and their Account Balances shall be distributed in a lump sum. The termination
of the Plan shall not adversely affect any Participant or Beneficiary who has
become entitled to the payment of any benefits under the Plan as of the date of
termination; provided, however, that upon Plan termination, each Employer shall
accelerate installment payments without a premium or prepayment penalty by
paying the Account Balance in a lump sum. Notwithstanding the
foregoing, distributions shall not be made in connection with the termination of
the Plan unless all the requirements of Treas. Reg. § 1.409A-3(j)(4)(ix) are
satisfied. After a Change in Control, the effect of termination of
the Plan shall be governed by Section 10.3 below.
10.2
Amendment
. Subject
to Section 10.3 below relating to amendments made after a Change in
Control, any Employer may, at any time, amend or modify the Plan in whole or in
part with respect to that Employer by the action of its board of directors;
provided, however, that: (i) no amendment or modification shall be
effective to decrease or restrict the value of a Participant’s Account Balance
in existence at the time the amendment or modification is made, calculated as if
the Participant had experienced a Separation from Service as of the effective
date of the amendment or modification; and (ii) no amendment or
modification of this Section 10.2 or Section 11.2 of the Plan shall be
effective. Such amendment or modification of the Plan shall not
affect any Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or
modification.
10.3
Effect of
Change in Control
. Despite the provisions of
Sections 10.1 and 10.2 above, following a Change in Control, the provisions
of this Plan or any Participant’s Plan Agreement may not be amended or
terminated in any manner with respect to a Participant or Beneficiary if such
amendment or termination would have an adverse effect in any way upon the
computation or amount of or entitlement to benefits of such Participant or
Beneficiary under the Plan as in effect immediately prior to the Change in
Control, including, but not limited to, any adverse change in or to the
crediting or debiting of amounts to the Account Balances or the time or manner
of payment of the Account Balances to any Participant or Beneficiary, unless the
Participant or Beneficiary has given written consent to such amendment or
termination. An “adverse change” for purposes of this
Section 10.3 shall include, but not be limited to, any acceleration of the
payment of the Account Balances payable to the Participant or Beneficiary or a
change in the composition of the risk and return characteristics represented by
the available Measurement Funds or the Participant’s or Beneficiary’s ability to
allocate his or her Account Balances among such Measurement Funds.
10.4
Plan
Agreement
. Despite the provisions of Sections 10.1 and
10.2 above, if a Participant’s Plan Agreement contains benefits or limitations
that are not in this Plan document, the Employer may amend or terminate such
provisions only with the consent of the Participant.
10.5
Effect of
Payment
. The full payment of the applicable benefit under
Articles 4 or 5 of the Plan shall completely discharge all obligations to a
Participant and his or her designated Beneficiaries under this Plan, and the
Participant’s Plan Agreement shall thereafter terminate.
ARTICLE 11
Administration
11.1
Committee
Duties
. Except as otherwise provided in this Article 11,
this Plan shall be administered by a Committee that shall consist of the Board,
or such committee as the Board shall appoint. Members of the
Committee may be Participants under this Plan. The Committee shall
also have the discretion and authority to (i) make, amend, interpret and
enforce all appropriate rules and regulations for the administration of this
Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the
Plan. Any individual serving on the Committee who is a Participant
shall not vote or act on any matter relating solely to himself or
herself. When making a determination or calculation, the Committee
shall be entitled to rely on information furnished by a Participant or the
Company.
11.2
Agents
.
In the administration of this Plan, the Committee may, from time to time, employ
agents and delegate to them such administrative duties as it sees fit (including
acting through a duly appointed representative) and may from time to time
consult with counsel who may be counsel to any Employer.
11.3
Indemnity
of Committee
. All Employers shall indemnify and hold harmless
the members of the Committee, and any Employee to whom the duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with respect
to this Plan, except in the case of willful misconduct by the Committee any of
its members or any such Employee.
11.4
Employer
Information
. To enable the Committee to perform its functions,
the Company and each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants, the
date and circumstances of the Disability or Separation from Service of its
Participants and such other pertinent information as the Committee may
reasonably require.
ARTICLE 12
Other Benefits and
Agreements
12.1
Coordination
with Other Benefits
. The benefits provided for a Participant
and Participant’s Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Participant’s Employer. The Plan shall supplement
and shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 13
Claims
Procedures
13.1
Presentation
of Claim
. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a “
Claimant
”) may
deliver to the Committee or its designated agent a written claim for a
determination with respect to the amounts distributable to such Claimant from
the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. All other claims must be made
within 180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination
desired by the Claimant.
13.2
Notification
of Decision
. The Committee shall consider a Claimant’s claim
within a reasonable time and shall notify the Claimant in writing:
(a)
that the
Claimant’s requested determination has been made and that the claim has been
allowed in full; or
(b)
that the
Committee has reached a conclusion contrary, in whole or in part, to the
Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:
(i)
the
specific reason(s) for the denial of the claim, or any part of it;
(ii)
specific
reference(s) to pertinent provisions of the Plan upon which such denial was
based;
(iii)
a
description of any additional material or information necessary for the Claimant
to perfect the claim, and an explanation of why such material or information is
necessary; and
(iv)
an
explanation of the claim review procedure set forth in Section 13.3
below.
13.3
Review of
a Denied Claim
. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant’s duly authorized representative) may file with the Committee
a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure has begun, the Claimant (or the Claimant’s duly authorized
representative):
(a)
may
review pertinent documents;
(b)
may
submit written comments or other documents; and/or
(c)
may
request a hearing, which the Committee, in its sole discretion, may
grant.
13.4
Decision
on Review
. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request for
review of the denial, unless a hearing is held or other special circumstances
require additional time, in which case the Committee’s decision must be rendered
within 120 days after such date. Such decision must be written in a
manner calculated to be understood by the Claimant, and it must
contain:
(a)
specific
reasons for the decision;
(b)
specific
reference(s) to the pertinent Plan provisions upon which the decision was based;
and
(c)
such
other matters as the Committee deems relevant.
13.5
Legal
Action
. A Claimant’s compliance with the foregoing provisions
of this Article 13 is a mandatory prerequisite to a Claimant’s right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 14
Trust
14.1
Establishment
of the Trust
. The Company may establish a Trust to hold assets
in connection with this Plan. In the event that a Trust is established, each
Employer shall transfer over to the Trust such assets as the Employer
determines, in its sole discretion, are necessary to provide, on a present-value
basis, for its respective future liabilities created with respect to the Annual
Deferral Amounts, Annual Employer Contribution Amounts and Matching Contribution
Amounts for such Employer’s Participants for all periods prior to the transfer,
as well as any debits and credits to the Participants’ Account Balances for all
periods prior to the transfer, taking into consideration the value of the assets
in the trust at the time of the transfer.
14.2
Interrelationship
of the Plan and the Trust
. The provisions of the Plan and the
Plan Agreement shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Employers, Participants and creditors of the Employers to the
assets transferred to the Trust. Each Employer shall at all times
remain liable to carry out its obligations under the Plan.
14.3
Distributions
From the Trust
. Each Employer’s obligations under the Plan may
be satisfied with Trust assets distributed pursuant to the terms of the Trust,
and any such distribution shall reduce the Employer’s obligations under this
Plan.
ARTICLE 15
Miscellaneous
15.1
Status of
Plan
. The Plan is intended to be a plan that is not qualified
within the meaning of Code section 401(a) and that “is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees”
within the meaning of ERISA sections 201(2), 301(a)(3) and
401(a)(1). In all respects, the Plan is intended to comply with the
requirements of Code section 409A and all regulations issued
thereunder. The Plan shall be administered and interpreted to the
extent possible in a manner consistent with that intent.
15.2
Unsecured
General Creditor
. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or
claims in any property or assets of an Employer. For purposes of the
payment of benefits under this Plan, any and all of an Employer’s assets shall
be, and remain, the general, unpledged unrestricted assets of the
Employer. An Employer’s obligation under the Plan shall be merely
that of an unfunded and unsecured promise to pay money in the
future.
15.3
Employer’s
Liability
. An Employer’s liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into
between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
15.4
Nonassignability
. Neither
a Participant nor any other person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if
any, payable hereunder, or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and non-transferable. No
part of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, be transferable by operation of law in the event of a Participant’s or
any other person’s bankruptcy or insolvency or be transferable to a spouse as a
result of a property settlement or otherwise.
15.5
Not a
Contract of Employment
. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an
“at-will” employment relationship that can be terminated at any time for any
reason, or no reason, with or without cause, and with or without notice, unless
expressly provided in a written employment agreement. Nothing in this
Plan shall be deemed to give a Participant the right to be retained in the
service of any Employer as an Employee, or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
15.6
Furnishing
Information
. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.
15.7
Terms
. Whenever
any words are used herein in the masculine, they shall be construed as though
they were in the feminine in all cases where they would so apply; and whenever
any words are used herein in the singular or in the plural, they shall be
construed as though they were used in the plural or the singular, as the case
may be, in all cases where they would so apply.
15.8
Captions
. The
captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
15.9
Governing
Law
. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
Illinois without regard to its conflicts of laws principles.
15.10
Notice
. Any
notice or filing required or permitted to be given to the Committee under this
Plan shall be sufficient if in writing and hand-delivered, or sent by registered
or certified mail, to the address below:
Executive
Vice President- Administration
MB
Financial, Inc.
6111
North River Road
Rosemont,
IL 60018
Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.
Any
notice or filing required or permitted to be given to a Participant under this
Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to
the last known address of the Participant.
15.11
Successors
. The
provisions of this Plan shall bind and inure to the benefit of the Participant’s
Employer and its successors and assigns and the Participant and the
Participant’s designated Beneficiaries. The Company shall require any
successor or assignee to expressly and unconditionally assume and agree to
perform or cause to be performed each Employer’s obligations
hereunder. In addition, the Company shall require the ultimate parent
entity of any successor or assignee to expressly guaranty the prompt performance
by such successor or assignee.
15.12
Spouse’s
Interest
. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically pass to
the Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse’s will, nor shall such interest pass
under the laws of intestate succession.
15.13
Validity
. In
case any provision of this Plan shall be illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining parts hereof, and this
Plan shall be construed and enforced as if such illegal or invalid provision had
never been inserted herein.
15.14
Incompetent
. If
the Committee determines in its discretion that a benefit under this Plan is to
be paid to a minor, a person declared incompetent or a person incapable of
handling the disposition of that person’s property, the Committee may direct
payment of such benefit to the guardian, legal representative or person having
the care and custody of such minor, incompetent or incapable
person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate, prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the
account of the Participant and the Participant’s Beneficiary, as the case may
be, and shall be a complete discharge of any liability under the Plan for such
payment amount.
15.15
Court
Order
. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant’s
benefits under the Plan in connection with a property settlement or otherwise,
the Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse’s or former
spouse’s interest in the Participant’s benefits under the Plan to that spouse or
former spouse.
15.16
Distribution
in the Event of Taxation
.
(a)
In
General
. If, for any reason, all or any portion of a
Participant’s benefits under this Plan becomes taxable to the Participant prior
to receipt, a Participant may petition the Committee before a Change in Control,
or the trustee of the Trust after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant’s Employer shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall not exceed a
Participant’s unpaid Account Balance under the Plan). If the petition
is granted, the tax liability distribution shall be made within 90 days of the
date when the Participant’s petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(b)
Trust
. If
the Trust terminates in accordance with its terms and benefits are distributed
from the Trust thereunder to a Participant, the Participant’s benefits under
this Plan shall be reduced to the extent of such distributions.
15.17
Insurance
. The
Employers, on their own behalf or on behalf of the trustee of the Trust, and, in
their sole discretion, may apply for and procure insurance on the life of the
Participant, in such amounts and in such forms as the Trust may
choose. The Employers or the trustee of the Trust, as the case may
be, shall be the sole owner and beneficiary of any such
insurance. The Participant shall have no interest whatsoever in any
such policy or policies and at the request of the Employers shall submit to
medical examinations and supply such information and execute such documents as
may be required by the insurance company or companies to whom the Employers have
applied for insurance.
15.18
Legal
Fees to Enforce Rights After Change in Control
. In the event
of a Change in Control, the Company shall pay all reasonable legal fees, costs
and expenses incurred by a Participant or Beneficiary in enforcing any provision
of this Plan or as a result of the Company’s or any Employer’s contesting the
validity, enforceability or interpretation of this Plan. Such payment
shall be made within 30 days after the Participant or Beneficiary submits in
writing a request for payment accompanied with such evidence of fees and
expenses incurred by the Participant or Beneficiary. In no case will a payment
under this Section 15.18 be made after December 31 of the year following the
year in which the Participant or Beneficiary incurred such fees and
expenses.
IN
WITNESS WHEREOF, the Company has signed this Plan document as of
December ___, 2008.
|
MB FINANCIAL,
INC
.
By:
Title:
|
APPENDIX
A
The
following provisions govern the distribution of benefits that were earned and
vested as of December 31, 2004 (including any earnings thereon). The
provisions of this Appendix A mirror the Plan provisions effective as of
December 31, 2004 and should be interpreted accordingly.
A.1.
Definitions
(a)
“Account
Balance” shall mean a Participant’s vested interest in the Plan as of December
31, 2004.
(b)
“Disability”
shall mean a period of disability during which a Participant qualifies for
permanent disability benefits under the Participant’s Employer’s long-term
disability plan, or, if a Participant does not participate in such a plan, a
period of disability during which the Participant would have qualified for
permanent disability benefits under such a plan had the Participant been a
participant in such a plan, as determined in the sole discretion of the
Committee. If the Participant’s Employer does not sponsor such a
plan, or discontinues to sponsor such a plan, Disability shall be determined by
the Committee in its sole discretion.
(c)
“Retirement,”
“Retire(s)” or “Retired” shall mean severance from employment from all Employers
for any reason other than a leave of absence, death or Disability on or after
the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five
(55) with ten (10) years of service.
(d)
“Termination
of Employment” or “Termination” shall mean the severing of employment with all
Employers, voluntarily or involuntarily, for any reason other than Disability,
death or an authorized leave of absence.
(e)
“Unforeseeable
Financial Emergency” shall mean an unanticipated emergency that is caused by an
event beyond the control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a sudden and
unexpected illness or accident of the Participant or a dependent of the
Participant, (ii) a loss of the Participant’s property due to casualty or
(iii) such other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee. A distribution will be deemed to be
on account of an Unforeseeable Financial Emergency if the distribution is on
account of:
(i)
Unreimbursed
medical expenses (as defined in Code section 213(d)) and amounts necessary
to obtain medical care for the Participant, the Participant’s spouse or any
dependent;
(ii)
the
purchase of the Participant’s principal residence (but not ongoing mortgage
payments);
(iii)
tuition
and related educational fees for the immediately forthcoming twelve (12) month
period of post-secondary education for the Participant, his spouse or
dependents; or
(iv)
the need
to prevent eviction from or foreclosure on a Participant’s principal
residence.
Terms
used in this Appendix but not defined above shall be defined under the terms of
the Plan in effect as of December 31, 2004.
A.2.
Distribution
of Benefits
(a)
Withdrawal
Payout/Suspensions for Unforeseeable Financial Emergencies
. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the
Participant’s Account Balance, calculated as if such Participant were receiving
a Termination Benefit, or the amount reasonably needed to satisfy the
Unforeseeable Financial Emergency. If, subject to the sole discretion
of the Committee, the petition for payout is approved, any payout shall be made
within 60 days of the date of approval. The payment of any amount
under this Section A.2(a) shall be subject to the Deduction
Limitation.
(b)
Withdrawal
Election
. A Participant (or, after a Participant’s death, his
or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of Employment
as of the day of the election, less a withdrawal penalty equal to 10% of such
amount (the net amount shall be referred to as the “Withdrawal
Amount”). This election can be made at any time, before or after
Retirement, Disability, death or Termination of Employment, and whether or not
the Participant (or Beneficiary) is in the process of being paid pursuant to an
installment payment schedule. If made before Retirement, Disability
or death, a Participant’s Withdrawal Amount shall be his or her Account Balance
calculated as if there had occurred a Termination of Employment as of the day of
the election. No partial withdrawals of the Withdrawal Amount shall
be allowed. The Participant (or his or her Beneficiary) shall make
this election by giving the Committee advance written notice of the election in
a form determined from time to time by the Committee. The Participant
(or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days
of his or her election. The payment of the Withdrawal Amount shall be
subject to the Deduction Limitation.
(c)
Retirement
Benefit
.
Subject to the
Deduction Limitation, a Participant who Retires shall receive as a Retirement
Benefit his or her Account Balance.
(i)
Payment of Retirement
Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph, in a lump sum, in installments over 60
months or in installments over 120 months. The Participant may change his
elected form of payment by submitting an Election Form to that effect which is
accepted by the Committee at least twelve (12) months prior to his or her
Retirement Date. Installment payments shall be calculated and paid pursuant to
the Monthly Installment Method. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the date of the
Participant’s Retirement. Also, the Committee, in its sole and
unrestricted discretion, but taking into account any request made by the
Participant, shall determine whether the lump-sum payment shall be in cash or in
kind. Payment shall be made no later than 60 days after the date of
the Participant’s Retirement. Any payment made shall be subject to
the Deduction Limitation.
(ii)
Death Prior to Entire
Payment of Retirement Benefit
. If a Participant dies after
Retirement but before the Retirement Benefit is paid in full, the Participant’s
unpaid Retirement Benefit payments shall continue and shall be paid to the
Participant’s Beneficiary (i) over the remaining number of months and in
the same amounts as that benefit would have been paid to the Participant had the
Participant survived, or (ii) in a lump sum, if requested by the
Beneficiary and allowed in the sole discretion of the Committee, that is equal
to the Participant’s unpaid remaining Account Balance. Payment shall
be payable either in cash or in-kind, as determined in the sole discretion of
the Committee, taking into account any request made by the
Beneficiary.
(d)
Pre-Retirement Survivor
Benefit.
Subject to the Deduction Limitation, the
Participant’s Beneficiary shall receive a Pre-Retirement Survivor Benefit equal
to the Participant’s Account Balance if the Participant dies before he or she
Retires, experiences a Termination of Employment or suffers a
Disability.
(i)
Payment of Pre-Retirement
Survivor Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph, in a cash lump sum, in installments over 60
months or in installments over 120 months. Installment payments shall be
calculated and paid pursuant to the Monthly Installment Method. The lump sum
payment shall be made, or installment payments shall commence, no later than 60
days after the date the Committee is provided with proof that is satisfactory to
the Committee of the Participant’s death. Also, the Committee, in its
sole and unrestricted discretion, but taking into account any request made by
the Beneficiary, shall determine whether the lump-sum payment shall be in cash
or in kind. Any payment made shall be subject to the Deduction
Limitation.
(e)
Termination
Benefit
. Subject to the Deduction Limitation, the Participant
shall receive a Termination Benefit, which shall be equal to the Participant’s
Account Balance, if a Participant experiences a Termination of Employment prior
to his or her Retirement, death or Disability.
(i)
Payment of Termination
Benefit
. The Committee, in its sole and unrestricted
discretion, but taking into account any election made by the Participant, shall
determine whether the Participant will receive distribution of all amounts
payable to him under this paragraph, in a lump sum, in installments over 60
months or in installments over 120 months. The Participant may change his
elected form of payment by submitting an Election Form to that effect which is
accepted by the Committee at least twelve (12) months prior to his or her
Retirement Date. Installment payments shall be calculated and paid pursuant to
the Monthly Installment Method. The lump sum payment shall be made,
or installment payments shall commence, no later than 60 days after the date of
the Participant’s Retirement. Also, the Committee, in its sole and
unrestricted discretion, but taking into account any request made by the
Participant, shall determine whether the lump sum payment shall be in cash or in
kind. Payment shall be made no later than 60 days after the date of
the Participant’s Termination of Employment. Any payment made shall
be subject to the Deduction Limitation. Should the Participant die
before payment of his entire Termination Benefit, Section 5.2 of the Plan
shall apply.
(f)
Disability Waiver and
Benefit.
(i)
Disability
Benefit
. A Participant suffering a Disability shall, for
benefit purposes under this Plan, continue to be considered to be employed and
shall be eligible for the benefits provided in (a)-(e)
above. Notwithstanding the above, the Committee shall have the right
to, in its sole and absolute discretion and for purposes of this Plan only, and
must in the case of a Participant who is otherwise eligible for Retirement, deem
the Participant to have experienced a Termination of Employment, or in the case
of a Participant who is eligible for Retirement, to have attained (or reached)
Retirement, at any time (or in the case of a Participant who is eligible for
Retirement, as soon as practicable) after such Participant is determined to be
suffering a Disability, in which case the Participant shall receive a Disability
Benefit equal to his or her Account Balance at the time of the Committee’s
determination; provided, however, that should the Participant otherwise have
been eligible for Retirement, he or she shall be paid in accordance with (c)
above. The Disability Benefit shall be paid in a lump sum within 60
days of the Committee’s exercise of such right. Any payment made
shall be subject to the Deduction Limitation.
(g)
Court
Order
. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant’s
benefits under the Plan in connection with a property settlement or otherwise,
the Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse’s or former
spouse’s interest in the Participant’s benefits under the Plan to that spouse or
former spouse.
(h)
Distribution
in the Event of Taxation
.
(i)
In
General
. If, for any reason, all or any portion of a
Participant’s benefits under this Plan becomes taxable to the Participant prior
to receipt, a Participant may petition the Committee before a Change in Control,
or the trustee of the Trust after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant’s Employer shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall not exceed a
Participant’s unpaid Account Balance under the Plan). If the petition
is granted, the tax liability distribution shall be made within 90 days of the
date when the Participant’s petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(ii)
Trust
. If
the Trust terminates in accordance with Section 3.6(e) of the Trust, and
benefits are distributed from the Trust to a Participant in accordance with that
Section, the Participant’s benefits under this Plan shall be reduced to the
extent of such distributions.
(i)
Termination
of Participation Benefit
. If the Committee determines in good faith that
a Participant no longer qualifies as a member of a select group of management or
highly compensated employees, as membership in such group is determined in
accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or is no
longer a director, the Committee shall have the right, in its sole discretion
immediately distribute the Participant’s then Account Balance as a Termination
Benefit to the Participant.
TAX
GROSS UP AGREEMENT
This Tax
Gross Up Agreement (this “
Agreement
”) is entered into as
of the 5th day of December, 2008 by and between
MB Financial, Inc.
(the “
Company
”) and the undersigned
officer (the “
Executive
”).
WHEREAS
, it is possible that
the Executive may receive or be entitled to receive payments or benefits from
the Company and/or its subsidiaries (“
Payments
”) in connection with
or arising from a Change in Control (as hereinafter defined), or an associated
event linked to a Change in Control, which could result in the receipt by the
Executive of an “excess parachute payment” (as such term is defined in
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
“
Code
”));
WHEREAS
, if the Executive
receives such an “excess parachute payment” from the Company and/or any of its
subsidiaries; the Executive will be subject to a 20% excise tax under
Section 4999 of the Code;
WHEREAS
, it is the intention
of the parties that the Executive should not be subject to any penalty tax by
virtue of any Payments unless his employment ceases due to a Termination for
Cause (as such term is hereinafter defined); and
WHEREAS
, it has been agreed to
by the Company and the Executive that if the Executive is subject to an excise
tax under Section 4999 by virtue of any Payments in connection with or
arising from a Change in Control, then, the Company shall make an additional
cash payment or cash payments to the Executive that will provide the Executive
with sufficient funds, on an after tax basis, to pay the penalty tax imposed on
any such Payment and the penalty tax imposed on the additional cash payment or
payments, unless the Executive’s employment ceases due to a Termination for
Cause, except that such additional cash payment shall not be made and the
Payments shall be reduced in the event the Payments, prior to reduction, do not
exceed a threshold amount described below.
NOW
,
THEREFORE
, in consideration of
the premises, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed by the
parties as follows:
1.
Definition
of Certain Terms
.
(a)
“
Change in Control
” means a
change in ownership or control of the Company or a substantial portion of the
assets of the Company as defined in Section 280G of the
Code. For purposes of this Agreement, references to sections of the
Code shall mean such section and each successor or replacement section, together
with regulations and other published guidance thereunder.
(b)
“
Termination for Cause
” means,
in the case of an Executive who is party to an Employment Agreement, Change in
Control Severance Agreement or similar agreement with the Company or a Company
subsidiary (any such agreement an “
Employment Agreement
”), means
a termination of the Executive’s employment by the Company for “cause,” or “just
cause” or words of similar import under such Employment Agreement, and for any
Executive who is not party to an Employment Agreement, means termination of the
employment of the Executive by the Company or a Company subsidiary at any time
prior to or within one year following a Change in Control because of the
Executive’s willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. No act or failure to act by the
Executive shall be considered willful unless the Executive acted or failed to
act in bad faith and without a reasonable belief that his action or failure to
act was in the best interest of the Company or a Company
subsidiary. The Executive shall not be subject to or experience a
Termination for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Company (the “
Board
”) at
a meeting of the Board duly called and held for such purpose (after reasonable
notice to the Executive and an opportunity for the Executive, together with the
Executive’s counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described above
and specifying the particulars thereof in detail.
2.
Tax Gross
Up Payment
.
(a)
In the
event that any Payments would be subject to excise tax under Section 4999
of the Code (such excise tax and any penalties and interest collectively, the
“
Penalty Tax
”), then,
except in the case of a De Minimus Excess Amount (as described below), the
Company shall pay to the Executive in cash an additional amount equal to the Tax
Gross Up Payment.
(b)
In the
event that the amount by which the present value of the Payments which
constitute “parachute payments” (within the meaning of Section 280G of the Code)
(the “
Parachute
Payments
”) exceeds three (3) times the Executive’s “base amount” (within
the meaning of Section 280G of the Code) (the “
Base Amount
”) is an amount
that is less than 30% of the Base Amount, such excess shall be deemed to be a De
Minimus Excess Amount and the Executive shall not be entitled to an Tax Gross-Up
Payment. In such an instance, the Payments shall be reduced to an
amount (the “
Non-Triggering
Amount
”) such that the present value of the Parachute Payments is one
dollar ($1.00) less than an amount equal to three (3) times Executive’s Base
Amount. The reduction required hereby shall be made by first by reducing any
cash severance amounts payable to Executive, then by reducing other cash amounts
included in the Payments and finally, to the extent necessary, reducing non-cash
amounts included in the Payments. The amount of any reduction pursuant to this
Section 2(b)
is
referred to below as the “
Reduction
Amount
.”
(c)
In
the event the present value of the Parachute Payments exceed the Non-Triggering
Amount by more than 30% of the Base Amount, then the Company shall pay the Tax
Gross Up Payment to the Executive. The “
Tax Gross Up Payment
” shall be
an amount such that after payment by the Executive of all federal, state, local,
employment and Medicare taxes thereon (and any penalties and interest with
respect thereto), the Executive retains on an after tax basis a portion of such
amount equal to the aggregate of 100% of the Penalty Tax imposed upon the
Payments and 100% of the Penalty Tax imposed upon the Tax Gross Up
Payment. For purposes of determining the amount of the Tax Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
subject to the Penalty Tax shall be determined by the Company’s independent tax
advisor in accordance with the principles of Section 280G(d)(3) and
(4) of the Code. The Tax Gross Up Payment less required tax
withholding shall be paid by the Company to the Executive on or within five
business days after the earlier of (i) the date the Company and/or any of
its subsidiaries is required to withhold tax with respect to any Payment or
(ii) the date any Penalty Tax is required to be paid by the
Executive. As a result of uncertainty in the application of Sections
280G and 4999 of the Code at the time the determinations are made under this
Section 2
, or
as a result of a subsequent determination by the Internal Revenue Service or a
judicial authority, it is possible that the Company should have made Tax
Gross-Up Payments and, the reduction, if any, of the Payments pursuant to
Section 2(b)
should
not have been made (collectively an “Underpayment”), or that Tax Gross Up
Payments will have been made by the Company which should not have been made and,
if applicable, a reduction of the Payments under
Section 2(b)
should
have occurred (collectively an “Overpayment”). In the case of the
Underpayment, the amount of such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the case of an
Overpayment, the Executive shall, at the direction and expense of the Company,
take such steps as are reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and procedures
established by, the Company, and otherwise reasonably cooperate with the Company
to correct such Overpayment, including repayment of such Overpayment to the
Company. Notwithstanding the foregoing, in the event the Executive
experiences a Termination for Cause within one year of the Change in Control,
then in that event, (a) if such termination occurs prior to the payment to
the Executive of any Tax Gross Up Payment, then the Executive shall not be
entitled to receive any Tax Gross Up Payment, or (b) if such termination
occurs after an Tax Gross Up Payment has been made to the Executive, then the
Executive shall remit to the Company within five days after such termination the
full amount of the Tax Gross Up Payments thereto are paid to the Executive and
the Executive shall not be entitled to receive any other payments pursuant to
this
Section 2
. However,
if it is later determined that the Executive’s Termination for Cause was
improper, then the Executive shall be entitled to receive the Tax Gross Up
Payment, together with any actual consequential and incidental damages arising
from the delay in his receipt of such payments.
3.
TARP
. Notwithstanding
anything in this Agreement or in any compensation plan, program or arrangement
maintained by the Company which covers Executive or to which Executive is a
party or in which Executive participates, as of the date hereof, or which may
become applicable to Executive hereinafter (collectively, the “
Compensation Arrangements
”),
each provision of this Agreement and the Compensation Arrangements is amended
and any amounts payable hereunder and thereunder are hereby amended and modified
with respect to Executive, if and to the extent necessary, for the Company to
comply with any requirements of the Emergency Economic Stabilization Act of 2008
(“
EESA
”) and/or the TARP
Capital Purchase Program (“
CPP
”) (and the guidance or
regulations issued thereunder by the United States Treasury Department at 31 CFR
Part 30, effective October 20, 2008 (the “CPP Guidance”) which may become
applicable to the Company, including, but not limited to, provisions prohibiting
the Company from making any “golden parachute payments,” providing the Company
may recover (“clawback”) bonus and incentive compensation in certain
circumstances, and precluding bonus and incentive arrangements that encourage
unnecessary or excessive risks that threaten the value of the Company, in each
case within the meaning of EESA and the CPP Guidance and only to the extent
applicable to the Company and Executive. For purposes of this
Section 3
, references
to “Company” means MB Financial, Inc. and any entities treated as a single
employer with MB Financial, Inc. under the CPP Guidance. Executive
hereby agrees to execute such documents, agreements or waivers as the Company
deems necessary or appropriate to effect such amendments to this Agreement or
the Compensation Arrangements or to facilitate the participation of the Company
in the TARP Capital Purchase Program or any other programs under
EESA.
The
application of this
Section 3
is intended
to, and shall be interpreted, administered and construed to, comply with Section
111 of EESA and the CPP Guidance and, to the maximum extent consistent with this
Section 3
and
such statute and regulations, to permit the operation of this Agreement and the
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this
Section 3
, EESA and
the CPP Guidance.
4.
Repeal
and Replacement of Contrary Provisions
. In the event the
Company and/or its subsidiaries, on the one hand, and the Executive, on the
other hand, are parties to any agreement or arrangement, including without
limitation, any employment agreement, change in control agreement, severance
agreement or arrangement, stock option agreement, restricted stock agreement
(other than this Agreement), that provides for (a) a reduction of payments or
benefits to the Executive so that the payments or benefits do not become
nondeductible pursuant to or by reason of Section 280G of the Code or (b) a
limitation on the circumstances under which a tax gross up payment is to be
paid, or the amount of a gross up payment to be paid, to the Executive, (the
“Contrary Provisions”), such Contrary Provisions are hereby repealed and
terminated and superceded and replaced by the provisions of Section 2 of this
Agreement; provided, however, that the foregoing shall not apply to any Contrary
Provisions implementing provisions similar to those set forth in
Section 3
above,
provided, further, that the foregoing shall not apply to that certain
Transitional Employment Agreement, dated as of January 26, 1999, between the
Executive and the Company (as successor to First Oak Brook Bancshares,
Inc.).
5.
Final
Agreement and Binding Effect
. This Agreement represents the
final agreement between the parties relating to the subject matter hereof, and
may only be modified or amended by subsequent writing that is executed by the
parties. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the Executive and his or
her estate, heirs and beneficiaries.
6.
Governing
Law
. This Agreement shall be governed by the laws of the State
of Illinois.
7.
Counterparts
. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original.
This
Agreement has been executed by the parties hereto as of the date first above
written.
|
MB
FINANCIAL, INC.
By:
|
|
EXECUTIVE
Print
Name:
|
TAX
GROSS UP AGREEMENT
This Tax
Gross Up Agreement (this “
Agreement
”) is entered into as
of the 5th day of December, 2008 by and between
MB Financial, Inc.
(the “
Company
”) and the undersigned
officer (the “
Executive
”).
WHEREAS
, it is possible that
the Executive may receive or be entitled to receive payments or benefits from
the Company and/or its subsidiaries (“
Payments
”) in connection with
or arising from a Change in Control (as hereinafter defined), or an associated
event linked to a Change in Control, which could result in the receipt by the
Executive of an “excess parachute payment” (as such term is defined in
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
“
Code
”));
WHEREAS
, if the Executive
receives such an “excess parachute payment” from the Company and/or any of its
subsidiaries; the Executive will be subject to a 20% excise tax under
Section 4999 of the Code;
WHEREAS
, it is the intention
of the parties that the Executive should not be subject to any penalty tax by
virtue of any Payments unless his employment ceases due to a Termination for
Cause (as such term is hereinafter defined); and
WHEREAS
, it has been agreed to
by the Company and the Executive that if the Executive is subject to an excise
tax under Section 4999 by virtue of any Payments in connection with or
arising from a Change in Control, then, the Company shall make an additional
cash payment or cash payments to the Executive that will provide the Executive
with sufficient funds, on an after tax basis, to pay the penalty tax imposed on
any such Payment and the penalty tax imposed on the additional cash payment or
payments, unless the Executive’s employment ceases due to a Termination for
Cause, except that such additional cash payment shall not be made and the
Payments shall be reduced in the event the Payments, prior to reduction, do not
exceed a threshold amount described below.
NOW
,
THEREFORE
, in consideration of
the premises, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, it is agreed by the
parties as follows:
1.
Definition
of Certain Terms
.
(a)
“
Change in Control
” means a
change in ownership or control of the Company or a substantial portion of the
assets of the Company as defined in Section 280G of the
Code. For purposes of this Agreement, references to sections of the
Code shall mean such section and each successor or replacement section, together
with regulations and other published guidance thereunder.
(b)
“
Termination for Cause
” means,
in the case of an Executive who is party to an Employment Agreement, Change in
Control Severance Agreement or similar agreement with the Company or a Company
subsidiary (any such agreement an “
Employment Agreement
”), means
a termination of the Executive’s employment by the Company for “cause,” or “just
cause” or words of similar import under such Employment Agreement, and for any
Executive who is not party to an Employment Agreement, means termination of the
employment of the Executive by the Company or a Company subsidiary at any time
prior to or within one year following a Change in Control because of the
Executive’s willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. No act or failure to act by the
Executive shall be considered willful unless the Executive acted or failed to
act in bad faith and without a reasonable belief that his action or failure to
act was in the best interest of the Company or a Company
subsidiary. The Executive shall not be subject to or experience a
Termination for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Company (the “
Board
”) at
a meeting of the Board duly called and held for such purpose (after reasonable
notice to the Executive and an opportunity for the Executive, together with the
Executive’s counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described above
and specifying the particulars thereof in detail.
2.
Tax Gross
Up Payment
.
(a)
In the
event that any Payments would be subject to excise tax under Section 4999
of the Code (such excise tax and any penalties and interest collectively, the
“
Penalty Tax
”), then,
except in the case of a De Minimus Excess Amount (as described below), the
Company shall pay to the Executive in cash an additional amount equal to the Tax
Gross Up Payment.
(b)
In the
event that the amount by which the present value of the Payments which
constitute “parachute payments” (within the meaning of Section 280G of the Code)
(the “
Parachute
Payments
”) exceeds three (3) times the Executive’s “base amount” (within
the meaning of Section 280G of the Code) (the “
Base Amount
”) is an amount
that is less than 30% of the Base Amount, such excess shall be deemed to be a De
Minimus Excess Amount and the Executive shall not be entitled to an Tax Gross-Up
Payment. In such an instance, the Payments shall be reduced to an
amount (the “
Non-Triggering
Amount
”) such that the present value of the Parachute Payments is one
dollar ($1.00) less than an amount equal to three (3) times Executive’s Base
Amount. The reduction required hereby shall be made by first by reducing any
cash severance amounts payable to Executive, then by reducing other cash amounts
included in the Payments and finally, to the extent necessary, reducing non-cash
amounts included in the Payments. The amount of any reduction pursuant to this
Section 2(b)
is
referred to below as the “
Reduction
Amount
.”
(c)
In
the event the present value of the Parachute Payments exceed the Non-Triggering
Amount by more than 30% of the Base Amount, then the Company shall pay the Tax
Gross Up Payment to the Executive. The “
Tax Gross Up Payment
” shall be
an amount such that after payment by the Executive of all federal, state, local,
employment and Medicare taxes thereon (and any penalties and interest with
respect thereto), the Executive retains on an after tax basis a portion of such
amount equal to the aggregate of 100% of the Penalty Tax imposed upon the
Payments and 100% of the Penalty Tax imposed upon the Tax Gross Up
Payment. For purposes of determining the amount of the Tax Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
subject to the Penalty Tax shall be determined by the Company’s independent tax
advisor in accordance with the principles of Section 280G(d)(3) and
(4) of the Code. The Tax Gross Up Payment less required tax
withholding shall be paid by the Company to the Executive on or within five
business days after the earlier of (i) the date the Company and/or any of
its subsidiaries is required to withhold tax with respect to any Payment or
(ii) the date any Penalty Tax is required to be paid by the
Executive. As a result of uncertainty in the application of Sections
280G and 4999 of the Code at the time the determinations are made under this
Section 2
, or
as a result of a subsequent determination by the Internal Revenue Service or a
judicial authority, it is possible that the Company should have made Tax
Gross-Up Payments and, the reduction, if any, of the Payments pursuant to
Section 2(b)
should
not have been made (collectively an “Underpayment”), or that Tax Gross Up
Payments will have been made by the Company which should not have been made and,
if applicable, a reduction of the Payments under
Section 2(b)
should
have occurred (collectively an “Overpayment”). In the case of the
Underpayment, the amount of such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the case of an
Overpayment, the Executive shall, at the direction and expense of the Company,
take such steps as are reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and procedures
established by, the Company, and otherwise reasonably cooperate with the Company
to correct such Overpayment, including repayment of such Overpayment to the
Company. Notwithstanding the foregoing, in the event the Executive
experiences a Termination for Cause within one year of the Change in Control,
then in that event, (a) if such termination occurs prior to the payment to
the Executive of any Tax Gross Up Payment, then the Executive shall not be
entitled to receive any Tax Gross Up Payment, or (b) if such termination
occurs after an Tax Gross Up Payment has been made to the Executive, then the
Executive shall remit to the Company within five days after such termination the
full amount of the Tax Gross Up Payments thereto are paid to the Executive and
the Executive shall not be entitled to receive any other payments pursuant to
this
Section 2
. However,
if it is later determined that the Executive’s Termination for Cause was
improper, then the Executive shall be entitled to receive the Tax Gross Up
Payment, together with any actual consequential and incidental damages arising
from the delay in his receipt of such payments.
3.
TARP
. Notwithstanding
anything in this Agreement or in any compensation plan, program or arrangement
maintained by the Company which covers Executive or to which Executive is a
party or in which Executive participates, as of the date hereof, or which may
become applicable to Executive hereinafter (collectively, the “
Compensation Arrangements
”),
each provision of this Agreement and the Compensation Arrangements is amended
and any amounts payable hereunder and thereunder are hereby amended and modified
with respect to Executive, if and to the extent necessary, for the Company to
comply with any requirements of the Emergency Economic Stabilization Act of 2008
(“
EESA
”) and/or the TARP
Capital Purchase Program (“
CPP
”) (and the guidance or
regulations issued thereunder by the United States Treasury Department at 31 CFR
Part 30, effective October 20, 2008 (the “CPP Guidance”) which may become
applicable to the Company, including, but not limited to, provisions prohibiting
the Company from making any “golden parachute payments,” providing the Company
may recover (“clawback”) bonus and incentive compensation in certain
circumstances, and precluding bonus and incentive arrangements that encourage
unnecessary or excessive risks that threaten the value of the Company, in each
case within the meaning of EESA and the CPP Guidance and only to the extent
applicable to the Company and Executive. For purposes of this
Section 3
, references
to “Company” means MB Financial, Inc. and any entities treated as a single
employer with MB Financial, Inc. under the CPP Guidance. Executive
hereby agrees to execute such documents, agreements or waivers as the Company
deems necessary or appropriate to effect such amendments to this Agreement or
the Compensation Arrangements or to facilitate the participation of the Company
in the TARP Capital Purchase Program or any other programs under
EESA.
The
application of this
Section 3
is intended
to, and shall be interpreted, administered and construed to, comply with Section
111 of EESA and the CPP Guidance and, to the maximum extent consistent with this
Section 3
and
such statute and regulations, to permit the operation of this Agreement and the
Compensation Arrangements in accordance with their terms before giving effect to
the provisions of this
Section 3
, EESA and
the CPP Guidance.
4.
Repeal
and Replacement of Contrary Provisions
. In the event the
Company and/or its subsidiaries, on the one hand, and the Executive, on the
other hand, are parties to any agreement or arrangement, including without
limitation, any employment agreement, change in control agreement, severance
agreement or arrangement, stock option agreement, restricted stock agreement
(other than this Agreement), that provides for (a) a reduction of payments or
benefits to the Executive so that the payments or benefits do not become
nondeductible pursuant to or by reason of Section 280G of the Code or (b) a
limitation on the circumstances under which a tax gross up payment is to be
paid, or the amount of a gross up payment to be paid, to the Executive, (the
“Contrary Provisions”), such Contrary Provisions are hereby repealed and
terminated and superceded and replaced by the provisions of Section 2 of this
Agreement; provided, however, that the foregoing shall not apply to any Contrary
Provisions implementing provisions similar to those set forth in
Section 3
above,
provided, further, that the foregoing shall not apply to that certain
Transitional Employment Agreement, dated as of January 26, 1999, between the
Executive and the Company (as successor to First Oak Brook Bancshares,
Inc.).
5.
Final
Agreement and Binding Effect
. This Agreement represents the
final agreement between the parties relating to the subject matter hereof, and
may only be modified or amended by subsequent writing that is executed by the
parties. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the Executive and his or
her estate, heirs and beneficiaries.
6.
Governing
Law
. This Agreement shall be governed by the laws of the State
of Illinois.
7.
Counterparts
. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original.
This
Agreement has been executed by the parties hereto as of the date first above
written.
|
MB
FINANCIAL, INC.
By:
|
|
EXECUTIVE
Print
Name:
|
MB
FINANCIAL, INC.
AMENDED AND RESTATED OMNIBUS
INCENTIVE PLAN
AMENDMENT
TO
RESTRICTED
STOCK AGREEMENTS
AND
INCENTIVE STOCK OPTION
AGREEMENTS
THIS AMENDMENT AGREEMENT,
is
made and entered into as of December 5, 2008, by and between MB Financial, Inc.,
a Maryland corporation (the “Company”), and the undersigned executive officer of
MB Financial, Inc. (“Executive”) under the MB Financial, Inc. Amended and
Restated Omnibus Incentive Plan (the “Plan”), amends each agreement (each an
“Option Agreement”) evidencing a stock option and each agreement evidencing a
restricted stock award (each a “Restricted Stock Agreement”) granted to the
Executive under the Plan and in effect on the date hereof:
1.
Effect of
Change in Control
. The provisions of each Stock Option
Agreement and each Restricted Stock Agreement relating to the effect of a Change
in Control are hereby amended in their entirety to provide that upon the
occurrence of a Change in Control (as defined in the Plan): (a) each outstanding
Option shall become immediately exercisable in full, and (b) any Restricted
Period and other restrictions applicable to Shares subject to such Restricted
Stock Agreement shall lapse and such Shares shall become vested in
full.
2.
Effect of
this Amendment Agreement
. Except as expressly provided for
herein, this Amendment Agreement shall effect no amendment, change or
modification whatsoever of or to an Stock Option Agreement, Restricted Stock
Agreement or to the Plan; except that for purposes of determining the exercise
period of Options following termination of employment, references to “vesting
date” in the Stock Option Agreement shall mean the date the Option would have
become exercisable, notwithstanding the acceleration of vesting upon a Change in
Control. Unless defined herein, capitalized terms used in this
Amendment Agreement shall have the same meaning ascribed to them under the Stock
Option Agreement or Restricted Stock Agreement, as applicable.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF
, the
parties have caused this Amendment Agreement to be executed as of the date and
year first above written.
|
MB
FINANCIAL, INC.
Its:
|
Attested
by
:
Its: ________________________________
|
|
|
EXECUTIVE
:
|
MB
FINANCIAL, INC.
|
|
SUBSIDIARIES
OF MB FINANCIAL, INC.
|
|
|
|
|
|
|
|
Subsidiary
|
|
Ownership
|
|
Jurisdiction
|
|
MB
Financial Bank, N.A.
|
|
Wholly-owned
subsidiary of MB Financial, Inc.
|
|
United
States
|
|
Coal
City Capital Trust I
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB
Financial Capital Trust I
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB
Financial Capital Trust II
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
Ashland
Management Agency, Inc.
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
MB
Financial Capital Trust III
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB
Financial Capital Trust IV
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB
Financial Capital Trust V
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB
Financial Capital Trust VI
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
FOBB
Capital Trust I
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Connecticut
|
|
FOBB
Capital Trust III
|
|
MB
Financial, Inc. owns 100% of the common securities of the
trust
|
|
Delaware
|
|
MB1200
Corporation
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
MB
Deferred Exchange Corporation
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
MB
Financial Community Development Corporation
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
MB
Financial Center, LLC
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
MB
Financial Center Land Owner, LLC
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
LaSalle
Systems Leasing, Inc.
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
Melrose
Equipment Company, LLC
|
|
Wholly-owned
subsidiary of LaSalle Systems Leasing, Inc.
|
|
Illinois
|
|
LaSalle
Business Solutions, LLC
|
|
Subsidiary
of LaSalle Systems Leasing, Inc.
|
|
Illinois
|
|
MBRE
Holdings, LLC
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Delaware
|
|
MB
Real Estate Holdings, LLC
|
|
Majority
owned subsidiary of MBRE Holdings LLC
|
|
Delaware
|
|
Vision
Investment Services, Inc.
|
|
Wholly-owned
subsidiary of MB Financial Bank
|
|
Illinois
|
|
Vision
Asset Management, Inc.
|
|
Wholly-owned
subsidiary of Vision Investment Services, Inc.
|
|
Illinois
|
|
Vision
Insurance Services, Inc.
|
|
Wholly-owned
subsidiary of Vision Investment Services, Inc.
|
|
Illinois
|
|
Cedar
Hill Associates, LLC
|
|
MB
Financial Bank owns 80% of Cedar Hill Associates, LLC
|
|
Illinois
|
|
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
MB
Financial, Inc.
We
consent to incorporation by reference in the registration statements on Form S-3
(no. 333-156332) and Form S-8 (nos. 333-105872, 333-64584, 333-81802, 333-97857,
333-120270 and 333-136997) of MB Financial, Inc. of our reports dated February
26, 2009, relating to our audits of the consolidated financial statements and
internal control over financial reporting, which appear in this Annual Report on
Form 10-K of MB Financial, Inc. for the year ended December 31,
2008.
Schaumburg,
Illinois
February
26, 2009
LIMITED
POWER OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Mitchell Feiger and Jill York his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign MB Financial Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 and any and all amendments thereto, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming said attorney-in-fact and agent or his or her substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the
undersigned has subscribed these presents, this 27th day of February
2009.
Signature
|
Title
|
|
|
/s/Mitchell Feiger
|
Director,
President and Chief Executive Officer
|
Mitchell
Feiger
|
(Principal
Executive Officer)
|
|
|
/s/Jill E. York
|
Vice
President and Chief Financial Officer
|
Jill
E. York
|
(Principal
Financial Officer and Principal Accounting Officer)
|
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/s/David P. Bolger
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Director
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David
P. Bolger
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/s/Robert S. Engelman, Jr.
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Director
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Robert
S. Engelman, Jr.
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/s/James N. Hallene
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Director
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James
N. Hallene
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/s/Thomas H. Harvey
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Director
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Thomas
H. Harvey
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/s/Patrick Henry
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Director
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Patrick
Henry
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/s/Richard J. Holmstrom
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Director
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Richard
J. Holmstrom
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/s/Charles J. Gries
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Director
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Charles
J. Gries
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/s/Karen J. May
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Director
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Karen
J. May
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/s/Ronald D. Santo
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Director
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Ronald
D. Santo
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CERTIFICATION
I,
Mitchell Feiger, certify that:
1. I
have reviewed this Annual Report on Form 10-K of MB Financial,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
Date:
February 27,
2009
/s/ Mitchell
Feiger
Mitchell
Feiger
President
and Chief Executive Officer
CERTIFICATION
I, Jill
E. York, certify that:
1. I
have reviewed this Annual Report on Form 10-K of MB Financial,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
Date:
February 27,
2009
/s/ Jill E.
York
Jill E.
York
Vice
President and Chief Financial Officer
CERTIFICATION
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby
certifies in his or her capacity as an officer of MB Financial, Inc. (the
Company) that the Annual Report of the Company on Form 10-K for the year ended
December 31, 2008 fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained in such
report fairly presents, in all material respects, the financial condition and
results of operations of the Company as of the dates and for the periods
presented in the financial statements included in such report.
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Date:
February 27, 2009
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/s/Mitchell Feiger
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Mitchell
Feiger
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President
and Chief Executive Officer
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Date:
February 27, 2009
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/s/ Jill E. York
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Jill
E. York
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Vice
President and Chief Financial Officer
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