MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB
Financial Bank, N.A., today announced 2014 third quarter net income
of $6.9 million compared to $23.1 million last quarter and $24.4
million in the third quarter a year ago. Net income available to
common stockholders was $4.9 million for the third quarter of
2014.
Key items for the third quarter include:
Completion of Taylor Capital Group, Inc. Merger:
- We completed the Taylor Capital Group,
Inc. ("Taylor Capital") merger on August 18, 2014.
- Consideration paid was $639.8 million,
including $519.3 million in common stock and $120.5 million in
cash.
- We issued 19.6 million shares of common
stock as a result of the acquisition.
- Each share of Taylor Capital’s
Perpetual Non-Cumulative Preferred Stock, Series A was converted
into one share of our Perpetual Non-Cumulative Preferred Stock,
Series A with substantially identical terms.
- The results of operations of Taylor
Capital have been included in our results of operations for the 44
days since the date of acquisition.
- We have made significant progress
toward achieving targeted cost savings.
- We successfully converted Taylor
Capital's clients to MB data processing systems and products in
September 2014.
Operating Earnings:
- Operating earnings, which we define as
earnings excluding non-core items, were $35.7 million for the third
quarter of 2014 compared to $23.5 million last quarter and $26.0
million in the third quarter a year ago. A table reconciling net
income, as reported to operating earnings is set forth below and in
the “Non-GAAP Financial Information” section.
Nine Months
Ended September 30, 3Q14 2Q14 3Q13
2014 2013 (dollars in thousands)
Net income, as reported $ 6,901 $ 23,106 $ 24,400 $ 49,976 $ 74,599
Less non-core items: Net (loss) gain on investment securities
(3,246 ) (87 ) 1 (3,016 ) 14 Net loss on sale of other assets (7 )
(24 ) — (24 ) — Gain on extinguishment of debt 1,895 — — 1,895 —
Merger related expenses (27,161 ) (488 ) (1,759 ) (28,329 ) (1,759
) Loss on low-income housing investment — (96 ) — (2,124 ) —
Contingent consideration expense - Celtic acquisition (10,600 ) —
— (10,600 ) — Total non-core items (39,119 )
(695 ) (1,758 ) (42,198 ) (1,745 ) Income tax expense on non-core
items (10,295 ) (266 ) (174 ) (11,416 ) (168 ) Non-core items, net
of tax (28,824 ) (429 ) (1,584 ) (30,782 ) (1,577 ) Operating
earnings $ 35,725 $ 23,535 $ 25,984 $ 80,758
$ 76,176
In December 2012, we acquired Celtic Leasing Corp. ("Celtic").
The purchase consideration paid to Celtic's selling shareholders
included the right to receive certain contingent payments based on
the realization of residuals owned by Celtic on the transaction
closing date. Given Celtic's stronger than expected lease residual
performance subsequent to the acquisition, we have increased the
fair value of the residual based contingent consideration by $10.6
million.
Net Interest Income Increased $27.5 million, or 40.5%, from
the Prior Quarter and $26.7 million, or 38.8%, from the Third
Quarter of 2013:
- The increase in net interest income is
primarily due to the Taylor Capital merger. Net interest income in
the third quarter of 2014 included interest income of $6.2 million
resulting from the accretion of the purchase accounting discount
recorded on the loans acquired in the Taylor Capital merger ($5.9
million for non-purchased credit-impaired loans and $282 thousand
for purchase credit-impaired loans).
- Our fully tax equivalent net interest
margin was 3.78% for the third quarter of 2014 compared to 3.53%
for the prior quarter and 3.66% for the third quarter of 2013.
Excluding the purchase accounting loan discount accretion ($6.2
million)on Taylor Capital loans, the Company's net interest margin
on a fully tax equivalent basis would have been 3.54% for the third
quarter of 2014.
Core Non-interest Income Increased $22.8 million, or 57.6%,
from the Prior Quarter and $25.2 million, or 67.8%, from the Third
Quarter of 2013:
- Leasing revenues increased 19.3% from
$14.9 million in second quarter of 2014 and 25.9% from $14.1
million in the third quarter of 2013 to $17.7 million in the third
quarter of 2014 primarily due to higher fees and promotional
revenue from the sale of third-party equipment maintenance
contracts.
- Mortgage banking revenue increased by
$16.6 million due to the Taylor Capital merger.
- Commercial deposit and treasury
management fees increased 31.5% from $7.1 million in the second
quarter of 2014 and 47.7% from $6.3 million in the third quarter of
2013 to $9.3 million in the third quarter of 2014 as a result of
the Taylor Capital merger in addition to robust new customer
activity prior to the merger.
- Core non-interest income was 38.23% of
revenues in the third quarter of 2014 compared to 35.22% in the
prior quarter.
Core Non-interest Expense Increased $27.4 million, or 35.6%,
from the Prior Quarter and $30.4 million, or 41.1%, from the Third
Quarter of 2013:
- The increase in the Company’s core
non-interest expense from the prior quarter and third quarter of
2013 was primarily driven by the Taylor Capital merger.
- The efficiency ratio for the third
quarter of 2014 decreased to 63.46% from 67.68% in the prior
quarter and 65.81% in the third quarter of 2013.
- Net non-interest expense to average
assets decreased to 1.35% in the third quarter of 2014 from 1.55%
and 1.56% in the prior quarter and the third quarter of 2013,
respectively.
Credit Quality Metrics:
- We recorded a provision for credit
losses of $3.1 million in the third quarter compared to a negative
provision for credit losses of $2.0 million in the prior quarter
and a negative provision for credit losses of $3.3 million in the
third quarter of 2013.
- The third quarter 2014 provision for
credit losses included a negative provision for credit losses of
$1.6 million for the legacy MB Financial portfolio and a positive
provision of $4.7 million related to the acquired Taylor Capital
portfolio for loan renewals subsequent to the acquisition date and
the establishment of a corresponding general reserve for Taylor
Capital loans in excess of the loan discount. We anticipate
recording a provision related to the acquired portfolio in future
quarters related to renewing Taylor loans which will largely offset
the accretion from non-purchase credit impaired loans.
- Non-performing loans decreased by $10.5
million from June 30, 2014, and potential problem loans
decreased by $11.8 million from June 30, 2014.
RESULTS OF OPERATIONS
Third Quarter Results
Net Interest Income
Net interest income and net interest margin on a fully tax
equivalent basis for the three and nine months ended September 30,
2014 were impacted by the Taylor Capital merger. Net interest
income on a fully tax equivalent basis increased $28.0 million from
the second quarter of 2014 to $101.7 million in the third quarter
of 2014. The Company's net interest margin on a fully tax
equivalent basis for the third quarter of 2014 increased 25 basis
points to 3.78% compared to the second quarter of 2014.
Net interest income on a fully tax equivalent basis increased
$26.9 million from the third quarter of 2013. Our net interest
margin on a fully tax equivalent basis for the third quarter of
2014 increased 12 basis points compared to the third quarter of
2013.
Net interest income on a fully tax equivalent basis for the nine
months ended September 30, 2014 increased $27.2 million from the
nine months ended September 30, 2013. Our net interest margin
on a fully tax equivalent basis for the nine months ended
September 30, 2014 increased four basis points to 3.66%
compared to the nine months ended September 30, 2013.
As noted earlier, on August 18, 2014, we completed the Taylor
Capital merger. The acquired assets and assumed liabilities were
recorded at fair value as required under the acquisition method of
accounting. Fair value adjustments are amortized or accreted into
net interest income over the remaining terms of the interest
earning assets and interest bearing liabilities. The fair value
adjustment on acquired loans had the most significant impact on net
interest margin. Excluding the purchase accounting loan discount
accretion on Taylor Capital loans, our net interest margin on a
fully tax equivalent basis would have been 3.54% and 3.57% for the
three and nine months ended September 30, 2014, respectively,
compared to 3.66% and 3.62% for the three and nine months ended
September 30, 2013.
In September 2014, we repositioned our balance sheet and
shortened the duration of our investment securities portfolio to
pre-merger levels by selling $468.7 million in investment
securities and utilizing the proceeds from the sales to reduce
short term FHLB advances. A $3.2 million loss was recognized on
investment securities in the third quarter of 2014 as a result of
this balance sheet repositioning.
In September 2014, we also redeemed all of the outstanding 9.75%
junior subordinated notes relating to the trust preferred
securities of TAYC Capital Trust I. These notes were originally
issued by Taylor Capital and were assumed by us in connection with
the merger. The TAYC Capital Trust I trust preferred securities,
which had an aggregate outstanding liquidation amount of $45.4
million, were automatically redeemed as a result of our redemption
of the junior subordinated notes. A $1.9 million gain on the early
extinguishment of the trust preferred securities was recorded in
other operating income in the third quarter of 2014, which
represented the difference between the fair market value of these
securities on August 18, 2014 and their aggregate liquidation
amount at redemption.
Non-interest Income and Expense
We acquired Taylor Capital's mortgage operations through the
merger. As there can be fluctuations in the mortgage operations
from quarter to quarter based on the overall level of interest
rates, we are presenting non-interest income and expense both
including and excluding mortgage banking.
Non-interest Income (in thousands):
Nine Months Ended
September 30, 3Q14 2Q14 3Q13
2014 2013 Excluding Excluding
Mortgage Mortgage Mortgage
Mortgage Banking Banking
Total Banking Banking
Total Core non-interest income: Key fee initiatives: Lease
financing, net $ 17,719 $ — $ 17,719 $ 14,853 $ 14,070 $ 45,768 $ —
$ 45,768 $ 45,435 Mortgage banking revenue — 16,823 16,823 187 177
— 17,069 17,069 1,322 Commercial deposit and treasury management
fees 9,345 — 9,345 7,106 6,327 23,595 — 23,595 18,322 Trust and
asset management fees 5,712 — 5,712 5,405 4,799 16,324 — 16,324
14,167 Card fees 3,836 — 3,836 3,304 2,745 9,841 — 9,841 8,175
Capital markets and international banking service fees 1,472
— 1,472 1,360 972 3,810 —
3,810 2,719 Total key fee initiatives 38,084 16,823 54,907
32,215 29,090 99,338 17,069 116,407 90,140 Consumer and
other deposit service fees 3,362 — 3,362 3,156 3,648 9,453 — 9,453
10,487 Brokerage fees 1,145 — 1,145 1,356 1,289 3,826 — 3,826 3,680
Loan service fees 1,069 — 1,069 916 1,427 2,950 — 2,950 4,349
Increase in cash surrender value of life insurance 855 — 855 834
851 2,516 — 2,516 2,537 Other operating income 1,145 —
1,145 1,162 942 3,106 —
3,106 3,179 Total core non-interest income 45,660
16,823 62,483 39,639 37,247 121,189
17,069 138,258 114,372 Non-core non-interest
income: Net (loss) gain on investment securities (3,246 ) — (3,246
) (87 ) 1 (3,016 ) — (3,016 ) 14 Net loss on sale of other assets
(7 ) — (7 ) (24 ) — (24 ) — (24 ) — Gain on extinguishment of debt
1,895 — 1,895 — — 1,895 — 1,895 — (Decrease) increase in market
value of assets held in trust for deferred compensation (1) (38 ) —
(38 ) 400 459 514 — 514
963 Total non-core non-interest income (1,396 ) — (1,396 )
289 460 (631 ) — (631 ) 977 Total
non-interest income $ 44,264 $ 16,823 $ 61,087
$ 39,928 $ 37,707 $ 120,558 $ 17,069 $
137,627 $ 115,349
(1) Resides in other operating income in
the consolidated statements of income.
Core non-interest income for the third quarter of 2014 increased
57.6% to $62.5 million from the second quarter of 2014. Excluding
mortgage banking, core non-interest income increased by 15.2%.
- Leasing revenues increased due to
higher fees and promotional revenue from the sale of third-party
equipment maintenance contracts. The Company acquired another
leasing subsidiary, Cole Taylor Equipment Finance, through the
Taylor Capital merger. Cole Taylor Equipment Finance contributed
approximately $404 thousand to leasing revenues in the third
quarter of 2014 since the date of acquisition.
- Commercial deposit and treasury
management fees increased due to the increased customer base as a
result of the Taylor Capital merger and new customer activity prior
to the merger.
- Card fees increased due to the full
quarter impact of a new payroll prepaid card program that started
in the second quarter of 2014.
- Trust and asset management fees
increased due to the addition of new customers and the impact of
higher equity values.
Core non-interest income for the nine months ended September 30,
2014 increased 20.9% to $138.3 million from the nine months ended
September 30, 2013. Excluding mortgage banking, core non-interest
income increased by 6.0%.
- Commercial deposit and treasury
management fees increased due to robust new customer activity as
well as the increased customer base as a result of the Taylor
Capital merger.
- Trust and asset management fees
increased due to the addition of new customers and the impact of
higher equity values.
- Card fees increased due to a new
payroll prepaid card program as well as higher credit card
fees.
- Capital markets and international
banking services fees increased due to higher M&A advisory and
syndication fees.
- Loan service fees decreased due to
lower late, prepayment and miscellaneous loan fees collected.
- Consumer and other deposit service fees
decreased due to lower demand deposit service and NSF and overdraft
charges.
Non-core non-interest income for the quarter and nine months
ended September 30, 2014 was impacted by the net loss on investment
securities and the gain on extinguishment of debt as a result of
the balance sheet repositioning that occurred in September
2014.
Non-interest Expense (in thousands):
Nine Months Ended
September 30, 3Q14 2Q14 3Q13
2014 2013 Excluding
Excluding Mortgage Mortgage
Mortgage Mortgage Banking
Banking Total Banking
Banking Total Core non-interest expense:(1)
Salaries and employee benefits $ 54,911 $ 10,360 $ 65,271 $ 46,222
$ 44,459 $ 145,254 $ 10,360 $ 155,614 $ 131,378 Occupancy and
equipment expense 10,659 655 11,314 9,504 8,797 29,755 655 30,410
27,609 Computer services and telecommunication expense 5,377 817
6,194 4,909 4,870 15,357 817 16,174 13,374 Advertising and
marketing expense 1,879 94 1,973 2,113 1,917 5,983 94 6,077 6,187
Professional and legal expense 2,194 307 2,501 1,488 1,408 5,051
307 5,358 4,056 Other intangible amortization expense 1,470 — 1,470
1,174 1,513 3,884 — 3,884 4,595 Net loss (gain) recognized on other
real estate owned (A) 1,339 9 1,348 204 754 1,665 9 1,674 (1,020 )
Net loss (gain) recognized on other real estate owned related to
FDIC transactions (A) 421 — 421 (13 ) 37 473 — 473 126 Other real
estate expense, net (A) 409 — 409 337 240 1,142 — 1,142 572 Other
operating expenses 11,512 2,065 13,577 11,108
10,052 31,840 2,065 33,905
28,348 Total core non-interest expense 90,171 14,307
104,478 77,046 74,047 240,404
14,307 254,711 215,225 Non-core non-interest
expense: (1) Merger related expenses (B) 27,161 — 27,161 488 1,759
28,329 — 28,329 1,759 Loss on low to moderate income real estate
investment (C) — — — 96 — 2,124 — 2,124 — Contingent consideration
- Celtic acquisition (C) 10,600 — 10,600 — — 10,600 — 10,600 —
(Decrease) increase in market value of assets held in trust for
deferred compensation (D) (38 ) — (38 ) 400 459
514 — 514 963 Total non-core
non-interest expense 37,723 — 37,723 984
2,218 41,567 — 41,567 2,722
Total non-interest expense $ 127,894 $ 14,307
$ 142,201 $ 78,030 $ 76,265 $ 281,971
$ 14,307 $ 296,278 $ 217,947
(1) Letters denote the corresponding line
items where these non-core non-interest expense items reside in the
consolidated statements of income as follows: A – Net (gain) loss
recognized on other real estate owned and other expense, B –
Salaries and employee benefits, occupancy and equipment expense,
computer services and telecommunication expense, advertising and
marketing expense, professional and legal expense and other
operating expenses, C – Other operating expenses, D – Salaries and
employee benefits.
Core non-interest expense increased by $27.4 million, or 35.6%,
from the second quarter of 2014 to $104.5 million for the third
quarter of 2014. Excluding mortgage banking, core non-interest
expense increased by $13.1 million, or 17.0%.
- Salaries and employee benefits
increased primarily due to increased staff from the Taylor Capital
merger.
- Occupancy and equipment expense
increased due to the additional offices acquired in the Taylor
Capital merger.
- Computer services and telecommunication
expenses increased primarily due to an increase in spending on IT
security, data warehouse and investments in our key fee
initiatives, as well as due to the Taylor Capital merger.
Core non-interest expense increased by $39.5 million, or 18.3%,
from the nine months ended September 30, 2013 to $254.7 million for
the nine months ended September 30, 2014. Excluding mortgage
banking, core non-interest expense increased by $25.2 million, or
11.7%.
- Salaries and employee benefits
increased due to annual salary increases, long-term incentive
expense, health insurance and temporary staffing needs, and the
increased staff from the Taylor Capital merger.
- Other operating expense increased
primarily as a result of an increase in filing and other loan
expense, higher FDIC assessments due to our larger balance sheet
and higher currency delivery expenses related to new treasury
management accounts.
- Computer services and telecommunication
expenses increased due primarily to an increase in spending on IT
security, data warehouse, investments in our key fee initiatives,
as well as higher transaction volumes in the leasing, treasury
management and card areas. The increase was also due to increased
telecommunication expense related to transitioning to a new
provider.
Non-core non-interest expense was primarily impacted by the
merger related expenses for the Taylor Capital merger and the
contingent consideration expense related to our acquisition of
Celtic Leasing Corp.
The following table presents the detail of the merger related
expenses (dollars in thousands):
Nine Months
Ended September 30, 3Q14 2Q14 1Q14
4Q13 3Q13 2014 2013
Merger related expenses: Salaries and employee benefits $
14,259 $ — $ 104 $ — $ — $ 14,363 $ — Occupancy and equipment
expense 428 14 — — — 442 — Computer services and telecommunication
expense 5,312 170 13 — — 5,495 — Advertising and marketing expense
262 108 90 4 — 460 — Professional and legal expense 6,363 79 410
717 1,694 6,852 1,694 Other operating expenses 537 117
63 3 65 717 65 Total merger
related expenses $ 27,161 $ 488 $ 680 $ 724
$ 1,759 $ 28,329 $ 1,759
We expect to incur additional merger related expenses in the
next few quarters primarily in the area of occupancy and equipment
expense.
Income Tax Expense
Income tax expense was $4.5 million for the third quarter of
2014, compared to $8.8 million for the second quarter of 2014, a
decrease of 49.1%. The reduction in income tax expense is primarily
due to the 64.3% decrease in income before taxes from $31.9 million
in the second quarter of 2014 to $11.4 million in the third quarter
of 2014, partially offset by certain costs incurred in the third
quarter of 2014 that were not currently deductible for tax
purposes. These include the contingent consideration expense
related to the Celtic acquisition and certain legal and
professional fees associated with the Taylor Capital merger.
Operating Segments
The Company's operations consist of three reportable operating
segments: banking, leasing and mortgage banking. The banking
segment generates its revenues primarily from its lending and
deposit gathering activities. The leasing segment generates its
revenues through lease originations and related services offered
through the Company's leasing subsidiaries: LaSalle Systems
Leasing, Inc., Celtic Leasing Corp. and Cole Taylor Equipment
Finance. The mortgage banking segment originates residential
mortgage loans for sale to investors through its retail and third
party channels. The mortgage banking segment also services
residential mortgage loans owned by investors and the Company. The
segment information incorporates the result of Taylor Capital for
44 days subsequent to the merger date.
The following table presents summary financial information,
adjusted for funds transfer pricing and internal allocations of
certain expenses, for the reportable segments (in thousands):
Mortgage
Non-core Banking Leasing
Banking Items Consolidated Three months
ended September 30, 2014 Net interest income $ 88,863 $ 3,216 $
3,533 $ — $ 95,612 Provision for credit losses 3,172 (58 ) (5 ) —
3,109 Non-interest income 29,323 16,299 16,823 (1,358 ) 61,087
Non-interest expense 79,564 9,721 15,155 37,761 142,201 Income tax
expense 9,008 3,693 2,082 (10,295 ) 4,488
Net income $ 26,442 $ 6,159 $ 3,124 $
(28,824 ) $ 6,901
Three months ended June 30, 2014
Net interest income $ 65,266 $ 2,806 $ — $ — $ 68,072 Provision for
credit losses (1,764 ) (186 ) — — (1,950 ) Non-interest income
25,789 14,063 187 (111 ) 39,928 Non-interest expense 67,346 10,100
— 584 78,030 Income tax expense 6,415 2,665 —
(266 ) 8,814 Net income $ 19,058 $ 4,290 $ 187
$ (429 ) $ 23,106
The following table presents additional information regarding
the mortgage banking segment (dollars in thousands) for the 44 days
subsequent to the Taylor Capital Merger:
3Q14 Origination volume $ 724,713 Refinance 35
% Purchase 65 % Origination volume by channel: Retail 18 %
Third party 82 % Mortgage servicing book (unpaid principal
balance of loans serviced for others) at September 30, 2014 $
21,989,278 Mortgage servicing rights, recorded at fair value, at
September 30, 2014 $ 249,376 Notional value of rate lock
commitments, at September 30, 2014 $ 610,818
LOAN PORTFOLIO
The following table sets forth the composition of the loan
portfolio (excluding loans held for sale) based on period end
balances as of the dates indicated (dollars in thousands):
9/30/2014 6/30/2014 9/30/2013 % of %
of % of Legacy
Acquired (1)
Total Total Amount Total Amount
Total Commercial related credits: Commercial loans $
1,343,085 $ 1,736,188 $ 3,079,273 34 % $ 1,272,200 23 % $ 1,169,009
21 % Commercial loans collateralized by assignment of lease
payments (lease loans) 1,498,121 133,539 1,631,660 18 1,515,446 27
1,468,814 26 Commercial real estate 1,648,295 1,002,229 2,650,524
30 1,619,322 29 1,638,368 29 Construction real estate 70,428
161,114 231,542 3 116,996 2
136,146 2 Total commercial related credits 4,559,929
3,033,070 7,592,999 85 4,523,964
81 4,412,337 78 Other loans: Residential real
estate 308,982 207,891 516,873 5 309,234 6 311,256 6 Indirect
vehicle 273,038 — 273,038 3 272,841 5 257,740 5 Home equity 237,090
25,887 262,977 3 245,135 4 274,484 5 Consumer loans 68,050
978 69,028 1 70,584 1 57,418
1 Total other loans 887,160 234,756
1,121,916 12 897,794 16 900,898
17 Gross loans excluding purchased credit impaired and
covered loans 5,447,089 3,267,826 8,714,915 97 5,421,758 97
5,313,235 95 Purchased credit impaired including covered loans (2)
89,247 178,855 268,102 3 134,966
3 273,497 5 Total loans $ 5,536,336 $
3,446,681 $ 8,983,017 100 % $ 5,556,724 100 %
$ 5,586,732 100 %
(1) Acquired loans refer to the September
30, 2014 balance for loans acquired in the Taylor Capital
merger.
(2) Covered loans refer to loans we
acquired in FDIC-assisted transactions that have been subject to
loss-sharing agreements with the FDIC.
Legacy gross loans excluding covered loans increased $25.3
million from $5.4 billion at June 30, 2014. This increase was
primarily due to growth in the commercial loans category.
ASSET QUALITY
The following table presents a summary of criticized assets
(excluding loans held for sale, purchased credit-impaired loans and
other real estate owned acquired as part of our FDIC-assisted
transactions) as of the dates indicated (dollars in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013
9/30/2013
Non-performing loans: Non-accrual loans (1) $ 97,580 $ 108,414 $
118,023 $ 106,115 $ 102,042 Loans 90 days or more past due, still
accruing interest 2,681 2,363 747 446
410 Total non-performing loans 100,261 110,777
118,770 106,561 102,452 Other real estate
owned 19,179 20,306 20,928 23,289 31,356 Repossessed assets 126
73 772 840 861 Total
non-performing assets $ 119,566 $ 131,156 $ 140,470
$ 130,690 $ 134,669 Potential problem loans
(2) $ 51,690 $ 63,477 $ 68,785 $ 79,589
$ 96,410 Total allowance for loan losses $ 102,810 $
100,910 $ 106,752 $ 111,746 $ 118,031 Accruing restructured loans
(3) 18,277 26,793 25,797 29,430 29,911 Total non-performing loans
to total loans 1.12 % 1.99 % 2.13 % 1.87 % 1.83 % Total
non-performing assets to total assets 0.82 1.34 1.49 1.36 1.45
Allowance for loan losses to non-performing loans 102.54 91.09
89.88 104.87 115.21
(1)
Includes $22.4 million, $14.5 million, $15.6 million, $25.0
million and $22.3 million of restructured loans on non-accrual
status at September 30, 2014, June 30, 2014, March 31, 2014,
December 31, 2013 and September 30, 2013, respectively. (2)
We define potential problem loans as loans
rated substandard that do not meet the definition of a
non-performing loan. Potential problem loans carry a higher
probability of default and require additional attention by
management.
(3) Accruing restructured loans consist primarily of residential
real estate and home equity loans that have been modified and are
performing in accordance with those modified terms as of the dates
indicated.
The following table presents data related to non-performing
loans by category (excluding loans held for sale and
credit-impaired loans that were acquired as part of our
FDIC-assisted transactions and Taylor Capital merger) as of the
dates indicated (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013
9/30/2013 Commercial and lease $ 22,985 $
36,807 $ 42,532 $ 22,348 $ 22,293 Commercial real estate 42,832
48,751 49,541 58,292 54,276 Construction real estate 337 337 782
475 496 Consumer related 34,107 24,882 25,915
25,446 25,387 Total non-performing loans $ 100,261 $
110,777 $ 118,770 $ 106,561 $ 102,452
The increase in consumer non-performing loans relates to a group
of restructured loans that are less than 90 days past due that are
now reported as non-performing.
The following table represents a summary of other real estate
owned (excluding other real estate owned related to assets acquired
in FDIC-assisted transactions) as of the dates indicated (in
thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013
9/30/2013 Balance at the beginning of quarter
$ 20,306 $ 20,928 $ 23,289 $ 31,356 $ 32,993 Transfers in at fair
value less estimated costs to sell 221 112 539 104 1,846 Acquired
from business combination 5,082 — — — — Capitalized other real
estate owned costs — — — 21 45 Fair value adjustments (2,083 ) (286
) (140 ) (176 ) (741 ) Net gains (losses) on sales of other real
estate owned 735 82 18 1,007 (13 ) Cash received upon disposition
(5,082 ) (530 ) (2,778 ) (9,023 ) (2,774 ) Balance at the end of
quarter $ 19,179 $ 20,306 $ 20,928 $ 23,289
$ 31,356
Below is a reconciliation of the activity in our allowance for
credit and loan losses for the periods indicated (dollars in
thousands):
Nine Months
Ended September 30, 3Q14 2Q14 1Q14
4Q13 3Q13 2014 2013
Allowance for credit losses, balance at the beginning of
period $ 103,905 $ 108,395 $ 113,462 $ 119,725 $ 125,497 $ 113,462
$ 128,279 Allowance for unfunded credit commitments acquired
through business combination 1,261 — — — — 1,261 — Utilization of
allowance for unfunded credit commitments (637 ) — — — — (637 ) —
Provision for credit losses - legacy (1,600 ) (1,950 ) 1,150 (3,000
) (3,304 ) (2,400 ) (2,804 ) Provision for credit losses - acquired
Taylor Capital loan portfolio renewals 4,709 — — — — 4,709 —
Charge-offs: Commercial loans 606 446 90 676 1,686 1,142 3,030
Commercial loans collateralized by assignment of lease payments
(lease loans) — 40 — — — 40 — Commercial real estate 1,027 1,727
7,156 2,386 1,236 9,910 5,131 Construction real estate 5 14 56 125
26 75 855 Residential real estate 740 433 265 722 713 1,438 2,074
Home equity 566 817 619 1,145 437 2,002 2,547 Indirect vehicle
1,043 583 920 981 572 2,546 1,930 Consumer loans 497 590
495 572 485 1,582 1,501
Total charge-offs 4,484 4,650 9,601 6,607
5,155 18,735 17,068 Recoveries:
Commercial loans 564 696 1,628 1,348 579 2,888 1,808 Commercial
loans collateralized by assignment of lease payments (lease loans)
425 130 — — — 555 1,131 Commercial real estate 2,227 567 485 672
966 3,279 5,353 Construction real estate 25 77 99 789 420 201 827
Residential real estate 4 6 519 18 48 529 461 Home equity 46 127
133 152 228 306 442 Indirect vehicle 402 439 442 300 372 1,283
1,111 Consumer loans 65 68 78 65 74
211 185 Total recoveries 3,758 2,110
3,384 3,344 2,687 9,252 11,318
Total net charge-offs 726 2,540 6,217
3,263 2,468 9,483 5,750 Allowance for
credit losses 106,912 103,905 108,395 113,462 119,725 106,912
119,725 Allowance for unfunded credit commitments (4,102 ) (2,995 )
(1,643 ) (1,716 ) (1,694 ) (4,102 ) (1,694 ) Allowance for loan
losses $ 102,810 $ 100,910 $ 106,752 $ 111,746
$ 118,031 $ 102,810 $ 118,031
Total loans, excluding loans held for sale $ 8,983,017 $ 5,556,724
$ 5,568,315 $ 5,712,551 $ 5,586,732 $ 8,983,017 $ 5,586,732 Average
loans, excluding loans held for sale 7,182,146 5,516,735 5,606,877
5,572,759 5,555,036 6,107,690 5,616,855 Ratio of allowance for loan
losses to total loans, excluding loans held for sale 1.14 % 1.82 %
1.92 % 1.96 % 2.11 % 1.14 % 2.11 % Ratio of allowance for loan
losses to total legacy loans plus Taylor renewed loans, excluding
loans held for sale (1) 1.83 1.82 1.92 1.96 2.11 1.83 2.11 Net loan
charge-offs to average loans, excluding loans held for sale
(annualized) 0.04 0.18 0.45 0.23 0.18 0.21 0.14
(1) Taylor renewed loans totaled $92.6
million at September 30, 2014.
The following table presents the three elements of the Company's
allowance for loan losses (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013
9/30/2013 Commercial related loans: General
reserve $ 76,604 $ 70,855 $ 75,695 $ 78,270 $ 87,112 Specific
reserve 5,802 10,270 11,325 12,834 12,378 Consumer related reserve
20,404 19,785 19,732 20,642 18,541
Total allowance for loan losses $ 102,810 $ 100,910 $
106,752 $ 111,746 $ 118,031
Specific reserves decreased during the quarter due to an
improvement in credit quality on impaired loans.
Although management believes that adequate loan loss allowances
have been established, actual losses are dependent upon future
events and, as such, further additions to the level of loan loss
allowances may become necessary.
Purchased loans acquired in a business combination are recorded
at estimated fair value on their purchase date without a carryover
of the related allowance for loan losses. These acquired loans are
segregated into three types: pass rated loans with no discount
attributable to credit quality, non-impaired loans with a discount
attributable at least in part to credit quality and impaired loans
with evidence of significant credit deterioration.
- Pass rated loans (typically performing
loans) are accounted for in accordance with ASC 310-20
"Nonrefundable Fees and Other Costs" as these loans do not have
evidence of credit deterioration since origination.
- Non-impaired loans (typically
performing substandard loans) are accounted for in accordance with
ASC 310-30 if they display at least some level of credit
deterioration since origination.
- Impaired loans (typically substandard
loans on non-accrual status) are accounted for in accordance with
ASC 310-30 as they display significant credit deterioration since
origination.
For pass rated loans (non-purchased credit impaired loans), the
difference between the estimated fair value of the loans and the
principal outstanding is accreted over the remaining life of the
loans. We anticipate recording a provision for the acquired
portfolio in future quarters related to renewing Taylor loans which
will largely offset the accretion from the pass rated loans.
In accordance with ASC 310-30, for both purchased non-impaired
loans and purchased impaired loans ("PCI loans"), the difference
between contractually required payments at acquisition and the cash
flows expected to be collected is referred to as the non-accretable
difference. Further, any excess of cash flows expected at
acquisition over the estimated fair value is referred to as the
accretable yield and is recognized into interest income over the
remaining life of the loan when there is a reasonable expectation
about the amount and timing of such cash flows.
Changes in the purchase accounting discount for loans acquired
in the Taylor Capital merger were as follows for the three months
ended September 30, 2014 (in thousands):
Non-
Accretable
Accretable Accretable
Discount -
Discount - Discount -
Non-PCI
PCI Loans PCI Loans Loans Total Balance
at beginning of period $ — $ — $ — $ — Purchases 30,042 3,252
77,186 110,480 Charge-offs (1,062 ) — — (1,062 ) Accretion —
(282 ) (5,892 ) (6,174 ) Balance at end of period $ 28,980 $
2,970 $ 71,294 $ 103,244
INVESTMENT SECURITIES
The following table sets forth, by type, the fair value and
amortized cost of our investment securities, excluding FHLB and FRB
stock, as well as the unrealized gain of our investment securities
available for sale (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013 9/30/2013
Securities available for sale: Fair value Government
sponsored agencies and enterprises $ 65,829 $ 51,727 $ 51,836 $
52,068 $ 52,527 States and political subdivisions 409,033 19,498
19,350 19,143 19,312 Mortgage-backed securities 1,006,102 797,783
726,439 754,174 744,722 Corporate bonds 267,239 275,529 273,853
283,070 263,021 Equity securities 10,447 10,421
10,572 10,457 10,541 Total fair value $
1,758,650 $ 1,154,958 $ 1,082,050 $ 1,118,912
$ 1,090,123
Amortized cost Government
sponsored agencies and enterprises $ 64,809 $ 50,096 $ 50,291 $
50,486 $ 50,678 States and political subdivisions 391,900 19,228
19,285 19,398 19,461 Mortgage-backed securities 999,630 786,496
717,548 747,306 736,070 Corporate bonds 265,720 271,351 272,490
284,083 265,293 Equity securities 10,470 10,414
10,703 10,649 10,574 Total amortized cost $
1,732,529 $ 1,137,585 $ 1,070,317 $ 1,111,922
$ 1,082,076
Unrealized gain, net
Government sponsored agencies and enterprises $ 1,020 $ 1,631 $
1,545 $ 1,582 $ 1,849 States and political subdivisions 17,133 270
65 (255 ) (149 ) Mortgage-backed securities 6,472 11,287 8,891
6,868 8,652 Corporate bonds 1,519 4,178 1,363 (1,013 ) (2,272 )
Equity securities (23 ) 7 (131 ) (192 ) (33 ) Total
unrealized gain, net $ 26,121 $ 17,373 $ 11,733
$ 6,990 $ 8,047
Securities held to
maturity, at amortized cost: States and political subdivisions
$ 760,674 $ 993,937 $ 940,610 $ 932,955 $ 941,273 Mortgage-backed
securities 244,675 247,455 248,082 249,578
252,271 Total amortized cost $ 1,005,349 $
1,241,392 $ 1,188,692 $ 1,182,533 $ 1,193,544
During the third quarter of 2014, the Company repositioned its
balance sheet subsequent to the Taylor Capital merger and sold
certain longer-term and lower-coupon investment securities with an
approximate carrying amount of $468.7 million. These investment
security sales shortened the overall duration of the investment
securities portfolio to pre-merger levels. Also as a part of the
balance sheet repositioning, securities of states and political
subdivisions with an approximate fair value of $291.2 million were
transferred from held to maturity to available for sale during the
third quarter of 2014. As a result of the repositioning, we
recognized a net loss of $3.2 million.
DEPOSIT MIX
The following table shows the composition of deposits based on
period end balances as of the dates indicated (dollars in
thousands):
9/30/2014 6/30/2014
9/30/2013 % of
% of % of Legacy
Acquired (1)
Total Total Amount Total Amount
Total Low cost deposits: Noninterest bearing deposits
$ 2,658,102 $ 1,149,452 $ 3,807,554 34 % $ 2,605,367 34 % $
2,269,367 31 % Money market and NOW accounts 2,884,296 1,312,870
4,197,166 37 2,932,089 38 2,680,127 37 Savings accounts 892,183
39,802 931,985 8 872,324 11
843,671 12 Total low cost deposits 6,434,581
2,502,124 8,936,705 79 6,409,780
83 5,793,165 80
Certificates of
deposit: Certificates of deposit 1,114,292 531,708 1,646,000 15
1,137,262 14 1,266,989 17 Brokered deposit accounts 189,135
466,708 655,843 6 216,022 3
238,532 3 Total certificates of deposit 1,303,427
998,416 2,301,843 21 1,353,284
17 1,505,521 20 Total deposits $ 7,738,008
$ 3,500,540 $ 11,238,548 100 % $ 7,763,064
100 % $ 7,298,686 100 %
(1) Acquired deposits refer to the
September 30, 2014 balance for deposits acquired in the Taylor
Capital transaction.
Total legacy deposits decreased $25.1 million from $7.8 billion
at June 30, 2014 primarily due to the decrease in certificates of
deposit. Legacy low cost deposits increased by $24.8 million from
June 30, 2014. Shortly after the acquisition the rates paid on the
Taylor Capital deposit products, primarily affecting money markets
and certificates of deposit, were reduced to align with the
Company’s current rate offerings. We expect to see a decline in
balances from rate sensitive customers over the next few
quarters.
CAPITAL
Tangible book value per common share decreased to $15.36 at
September 30, 2014 compared to $15.83 a year ago and $16.81 last
quarter.
Our regulatory capital ratios remain strong. MB Financial Bank,
N.A. was categorized as “well capitalized” at September 30, 2014
under the Prompt Corrective Action (“PCA”) provisions.
FORWARD-LOOKING STATEMENTS
When used in this press release and in reports filed with or
furnished to the Securities and Exchange Commission, in other press
releases or other public stockholder communications, or in oral
statements made with the approval of an authorized executive
officer, the words or phrases “believe,” “will,” “should,” “will
likely result,” “are expected to,” “will continue” “is
anticipated,” “estimate,” “project,” “plans,” or similar
expressions are intended to identify “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
These statements may relate to our future financial performance,
strategic plans or objectives, revenues or earnings projections, or
other financial items. By their nature, these statements are
subject to numerous uncertainties that could cause actual results
to differ materially from those anticipated in the statements.
Important factors that could cause actual results to differ
materially from the results anticipated or projected include, but
are not limited to, the following: (1) expected revenues, cost
savings, synergies and other benefits from the recently completed
MB Financial-Taylor Capital merger and our other merger and
acquisition activities might not be realized within the anticipated
time frames or at all, and costs or difficulties relating to
integration matters, including but not limited to customer and
employee retention, might be greater than expected; (2) the
possibility that the expected benefits of the other acquisition
transactions we previously completed will not be realized; (3) the
credit risks of lending activities, including changes in the level
and direction of loan delinquencies and write-offs and changes in
estimates of the adequacy of the allowance for loan losses, which
could necessitate additional provisions for loan losses, resulting
both from loans we originate and loans we acquire from other
financial institutions; (4) results of examinations by the Office
of Comptroller of Currency, the Federal Reserve Board, the Consumer
Financial Protection Bureau and other regulatory authorities,
including the possibility that any such regulatory authority may,
among other things, require us to increase our allowance for loan
losses or write-down assets; (5) competitive pressures among
depository institutions; (6) interest rate movements and their
impact on customer behavior and net interest margin; (7) the
possibility that our mortgage banking business may increase
volatility in our revenues and earnings and the possibility that
the profitability of our mortgage banking business could be
significantly reduced if we are unable to originate and sell
mortgage loans at profitable margins; (8) the impact of repricing
and competitors’ pricing initiatives on loan and deposit products;
(9) fluctuations in real estate values; (10) the ability to adapt
successfully to technological changes to meet customers’ needs and
developments in the market-place; (11) our ability to realize the
residual values of our direct finance, leveraged, and operating
leases; (12) our ability to access cost-effective funding; (13)
changes in financial markets; (14) changes in economic conditions
in general and in the Chicago metropolitan area in particular; (15)
the costs, effects and outcomes of litigation; (16) new legislation
or regulatory changes, including but not limited to the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (the
“Dodd-Frank Act”) and regulations adopted thereunder, changes in
capital requirements pursuant to the Dodd-Frank Act and the
implementation of the Basel III capital standards, other
governmental initiatives affecting the financial services industry
and changes in federal and/or state tax laws or interpretations
thereof by taxing authorities; (17) changes in accounting
principles, policies or guidelines; (18) our future acquisitions of
other depository institutions or lines of business; and (19) future
goodwill impairment due to changes in our business, changes in
market conditions, or other factors.
We do not undertake any obligation to update any forward-looking
statement to reflect circumstances or events that occur after the
date on which the forward-looking statement is made.
TABLES TO FOLLOW
MB FINANCIAL, INC. & SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (Unaudited) As of the dates indicated
(In thousands) 9/30/2014
6/30/2014 3/31/2014 12/31/2013
9/30/2013 ASSETS Cash and due from banks $
267,405 $ 294,475 $ 268,803 $ 205,193 $ 215,017 Interest earning
deposits with banks 179,391 466,820 244,819
268,266 41,700
Total cash and cash equivalents
446,796 761,295 513,622 473,459 256,717 Federal funds sold — 10,000
7,500 42,950 47,500 Investment securities: Securities available for
sale, at fair value 1,758,650 1,154,958 1,082,050 1,118,912
1,090,123 Securities held to maturity, at amortized cost 1,005,349
1,241,392 1,188,692 1,182,533 1,193,544 Non-marketable securities -
FHLB and FRB Stock 75,569 51,432 51,432 51,417
50,870
Total investment securities 2,839,568
2,447,782 2,322,174 2,352,862 2,334,537 Loans held for sale 553,627
1,219 802 629 1,120 Loans: Total loans, excluding purchased credit
impaired and covered loans 8,714,915 5,421,758 5,394,638 5,476,831
5,313,235 Purchased credit impaired including covered loans 268,102
134,966 173,677 235,720 273,497
Total loans 8,983,017 5,556,724 5,568,315 5,712,551
5,586,732 Less: Allowance for loan losses 102,810 100,910
106,752 111,746 118,031
Net
loans 8,880,207 5,455,814 5,461,563 5,600,805 5,468,701 Lease
investments, net 137,120 127,194 122,589 131,089 112,491 Premises
and equipment, net 244,314 224,245 221,711 221,065 220,574 Cash
surrender value of life insurance 132,697 131,842 131,008 130,181
129,332 Goodwill 698,946 423,369 423,369 423,369 423,369 Other
intangibles 44,544 21,014 22,188 23,428 24,917 Mortgage servicing
rights, at fair value 249,376 344 378 413 430 Other real estate
owned, net 19,179 20,306 20,928 23,289 31,356 Other real estate
owned related to FDIC transactions 22,028 15,349 22,682 20,472
24,792 FDIC indemnification asset 2,205 4,607 8,055 11,675 11,074
Other assets 235,436 174,311 158,734 185,741
170,708
Total assets $ 14,506,043 $
9,818,691 $ 9,437,303 $ 9,641,427 $ 9,257,618
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits: Noninterest bearing $ 3,807,554 $
2,605,367 $ 2,435,868 $ 2,375,863 $ 2,269,367 Interest bearing
7,430,994 5,157,697 5,049,879 5,005,396
5,029,319
Total deposits 11,238,548 7,763,064
7,485,747 7,381,259 7,298,686 Short-term borrowings 667,160 229,809
189,872 493,389 240,600 Long-term borrowings 77,269 71,473 65,664
62,159 62,428 Junior subordinated notes issued to capital trusts
185,681 152,065 152,065 152,065 152,065 Accrued expenses and other
liabilities 346,017 236,964 200,175 225,873
194,371
Total liabilities 12,514,675
8,453,375 8,093,523 8,314,745 7,948,150
Stockholders' Equity Preferred stock 115,280 — — — — Common
stock 751 553 553 551 551 Additional paid-in capital 1,256,050
742,824 740,245 738,053 736,294 Retained earnings 606,097 611,741
595,301 581,998 564,779 Accumulated other comprehensive income
18,431 13,034 10,362 8,383 9,918 Treasury stock (6,692 ) (4,295 )
(4,132 ) (3,747 ) (3,525 ) Controlling interest stockholders'
equity 1,989,917 1,363,857 1,342,329 1,325,238 1,308,017
Noncontrolling interest 1,451 1,459 1,451
1,444 1,451
Total stockholders' equity
1,991,368 1,365,316 1,343,780 1,326,682
1,309,468
Total liabilities and stockholders' equity
$ 14,506,043 $ 9,818,691 $ 9,437,303 $
9,641,427 $ 9,257,618
MB FINANCIAL, INC.
& SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data) (Unaudited)
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Interest income: Loans $ 82,167 $ 55,905 $
56,244 $ 58,053 $ 60,115 $ 194,316 $ 180,489 Investment securities:
Taxable 11,028 8,794 8,146 7,334 6,330 27,968 18,749 Nontaxable
9,041 8,285 8,067 8,166 8,175 25,393 24,399 Federal funds sold and
other interest earning accounts 225 281 118
276 200 624 429
Total interest
income 102,461 73,265 72,575 73,829
74,820 248,301 224,066 Interest expense:
Deposits 4,615 3,754 3,769 3,966 4,433 12,138 15,274 Borrowings
2,234 1,439 1,478 1,600 1,479
5,151 4,719
Total interest expense 6,849
5,193 5,247 5,566 5,912 17,289
19,993
Net interest income 95,612 68,072
67,328 68,263 68,908 231,012 204,073 Provision for credit losses
3,109 (1,950 ) 1,150 (3,000 ) (3,304 ) 2,309
(2,804 )
Net interest income after provision for credit
losses 92,503 70,022 66,178 71,263
72,212 228,703 206,877 Non-interest income:
Lease financing, net 17,719 14,853 13,196 15,808 14,070 45,768
45,435 Mortgage banking revenue 16,823 187 59 342 177 17,069 1,322
Commercial deposit and treasury management fees 9,345 7,106 7,144
6,545 6,327 23,595 18,322 Trust and asset management fees 5,712
5,405 5,207 4,975 4,799 16,324 14,167 Card fees 3,836 3,304 2,701
2,838 2,745 9,841 8,175 Capital markets and international banking
service fees 1,472 1,360 978 841 972 3,810 2,719 Consumer and other
deposit service fees 3,362 3,156 2,935 3,481 3,648 9,453 10,487
Brokerage fees 1,145 1,356 1,325 1,227 1,289 3,826 3,680 Loan
service fees 1,069 916 965 1,214 1,427 2,950 4,349 Increase in cash
surrender value of life insurance 855 834 827 848 851 2,516 2,537
Net (loss) gain on investment securities (3,246 ) (87 ) 317 (15 ) 1
(3,016 ) 14 Net (loss) gain on sale of assets (7 ) (24 ) 7 (323 ) —
(24 ) — Gain on early extinguishment of debt 1,895 — — — — 1,895 —
Other operating income 1,107 1,562 951 1,264
1,401 3,620 4,142
Total non-interest
income 61,087 39,928 36,612 39,045
37,707 137,627 115,349 Non-interest expense:
Salaries and employee benefits 79,492 46,622 44,377 45,517 44,918
170,491 132,341 Occupancy and equipment expense 11,742 9,518 9,592
9,269 8,797 30,852 27,609 Computer services and telecommunication
expense 11,506 5,079 5,084 5,509 4,870 21,669 13,374 Advertising
and marketing expense 2,235 2,221 2,081 2,085 1,917 6,537 6,187
Professional and legal expense 8,864 1,567 1,779 3,057 3,102 12,210
5,750 Other intangible amortization expense 1,470 1,174 1,240 1,489
1,513 3,884 4,595 Net loss (gain) recognized on other real estate
owned and other expense 2,178 528 583 (459 ) 1,031 3,289 (322 )
Other operating expenses 24,714 11,321 11,311
10,174 10,117 47,346 28,413
Total
non-interest expense 142,201 78,030 76,047
76,641 76,265 296,278 217,947
Income
before income taxes 11,389 31,920 26,743 33,667 33,654 70,052
104,279 Income tax expense 4,488 8,814 6,774
9,811 9,254 20,076 29,680
Net
income 6,901 23,106 19,969 23,856 24,400 49,976 74,599
Dividends on preferred shares 2,000 — — —
— 2,000 —
Net income available to
common stockholders $ 4,901 $ 23,106 $ 19,969
$ 23,856 $ 24,400 $ 47,976 $ 74,599
Nine Months Ended September 30, 3Q14
2Q14 1Q14 4Q13 3Q13 2014
2013 Common share data: Basic earnings
per common share $ 0.08 $ 0.42 $ 0.37 $ 0.44 $ 0.45 $ 0.83 $ 1.37
Diluted earnings per common share 0.08 0.42 0.36 0.43 0.44 0.82
1.36
Weighted average common shares outstanding
forbasic earnings per common share
63,972,902 54,669,868 54,639,951 54,622,584 54,565,089 57,795,094
54,471,541
Weighted average common shares outstanding
fordiluted earnings per common share
64,457,978 55,200,054 55,265,188 55,237,160 55,130,653 58,341,927
54,912,352
Selected Financial Data:
Nine Months Ended
September 30, 3Q14 2Q14 1Q14
4Q13 3Q13 2014 2013
Performance Ratios: Annualized return on average assets 0.22
% 0.97 % 0.86 % 0.99 % 1.05 % 0.64 % 1.07 % Annualized operating
return on average assets (1) 1.16 0.99 0.93 1.02 1.11 1.04 1.09
Annualized return on average common equity 1.21 6.86 6.07 7.19 7.46
4.47 7.72 Annualized operating return on average common equity(1)
8.29 6.98 6.53 7.43 7.95 7.34 7.88 Annualized cash return on
average tangible common equity(2) 2.23 10.47 9.39 11.23 11.74 7.09
12.19 Annualized cash operating return on average tangible common
equity(3) 13.19 10.66 10.08 11.59 12.48 11.42 12.44 Net interest
rate spread 3.66 3.40 3.51 3.37 3.52 3.54 3.48 Cost of funds(4)
0.26 0.26 0.27 0.27 0.30 0.27 0.34 Efficiency ratio(5) 63.46 67.68
66.84 66.56 65.81 65.65 63.89 Annualized net non-interest expense
to average assets(6) 1.35 1.55 1.58 1.50 1.56 1.48 1.43 Core
non-interest income to revenues (7) 38.23 35.22 33.41 34.68 33.51
35.99 34.36 Net interest margin 3.56 3.26 3.36 3.23 3.37 3.41 3.34
Tax equivalent effect 0.22 0.27 0.28 0.27 0.29 0.25 0.28 Net
interest margin - fully tax equivalent basis(8) 3.78 3.53 3.64 3.50
3.66 3.66 3.62 Loans to deposits 79.93 71.58 74.39 77.39 76.54
79.93 76.54
Asset Quality Ratios: Non-performing loans(9) to
total loans 1.12 % 1.99 % 2.13 % 1.87 % 1.83 % 1.12 % 1.83 %
Non-performing assets(9) to total assets 0.82 1.34 1.49 1.36 1.45
0.82 1.45 Allowance for loan losses to non-performing loans(9)
102.54 91.09 89.88 104.87 115.21 102.54 115.21 Allowance for loan
losses to total loans 1.14 1.82 1.92 1.96 2.11 1.14 2.11 Net loan
charge-offs to average loans (annualized) 0.04 0.18 0.45 0.23 0.18
0.21 0.14
Capital Ratios: Tangible equity to tangible
assets(10) 9.17 % 9.89 % 10.07 % 9.65 % 9.87 % 9.17 % 9.87 %
Tangible common equity to tangible assets(11) 8.33 9.89 10.07 9.65
9.87 8.33 9.87 Tangible common equity to risk weighted assets(12)
10.33 13.97 13.82 13.27 13.40 10.33 13.40 Book value per common
share(13) $ 25.09 $ 24.73 $ 24.37 $ 24.14 $ 23.82 $ 25.09 $ 23.82
Less: goodwill and other intangible assets, net of benefit, per
common share 9.73 7.92 7.94 7.98 7.99
9.73 7.99 Tangible book value per common
share(14) $ 15.36 $ 16.81 $ 16.43 $ 16.16 $ 15.83 $ 15.36 $ 15.83
Total capital (to risk-weighted assets) 13.58 % 17.18 %
17.09 % 16.53 % 16.70 % 13.58 % 16.70 % Tier 1 capital (to
risk-weighted assets) 12.62 15.92 15.84 15.28 15.44 12.62 15.44
Tier 1 capital (to average assets) 12.27 11.61 11.65 11.22 11.39
12.27 11.39 Tier 1 common capital (to risk-weighted assets) 9.90
13.71 13.59 13.07 13.17 9.90 13.17
(1)
Annualized operating return on average assets is computed by
dividing annualized operating earnings by average total assets.
Annualized operating return on average common equity is computed by
dividing annualized operating earnings by average common equity.
Operating earnings is defined as net income as reported less
non-core items, net of tax.
(2)
Net cash flow (net income available to common stockholders, plus
other intangibles amortization expense, net of tax benefit) divided
by average tangible equity (average common stockholders' equity
less average goodwill and average other intangibles, net of tax
benefit).
(3)
Annualized cash operating return on average tangible common equity
is computed by dividing annualized cash operating earnings
(operating earnings plus other intangibles amortization expense,
net of tax benefit, less dividends on preferred shares) by average
tangible common equity. Operating earnings is defined as net income
as reported less non-core items, net of tax.
(4)
Equals total interest expense divided by the sum of average
interest bearing liabilities and noninterest bearing deposits.
(5)
Equals total non-interest expense excluding non-core items divided
by the sum of net interest income on a fully tax equivalent basis,
total non-interest income less non-core items, and tax equivalent
adjustment on the increase in cash surrender value of life
insurance.
(6)
Equals total non-interest expense excluding non-core items less
total non-interest income excluding non-core items, and including
tax equivalent adjustment on the increase in cash surrender value
of life insurance divided by average assets.
(7)
Equals total non-interest income excluding non-core items and tax
equivalent adjustment on the increase in cash surrender value of
life insurance divided by the sum of net interest income on a fully
tax equivalent basis, total non-interest income less non-core
items, and tax equivalent adjustment on the increase in cash
surrender value of life insurance.
(8)
Represents net interest income on a fully tax equivalent basis
assuming a 35% tax rate, as a percentage of average interest
earning assets.
(9)
Non-performing loans excludes purchased credit-impaired loans and
loans held for sale. Non-performing assets excludes purchased
credit-impaired loans, loans held for sale, and other real estate
owned related to FDIC transactions.
(10)
Equals total ending stockholders’ equity less goodwill and other
intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax benefit.
(11)
Equals total ending stockholders’ equity less goodwill and other
intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax benefit.
(12)
Equals total ending common stockholders’ equity less goodwill and
other intangibles, net of tax benefit, divided by total assets less
goodwill and other intangibles, net of tax benefit.
(13)
Equals total ending stockholders’ equity divided by common shares
outstanding.
(14)
Equals total ending stockholders’ equity less goodwill and other
intangibles, net of tax benefit, divided by common shares
outstanding.
NON-GAAP FINANCIAL INFORMATION
This press release contains certain financial information
determined by methods other than in accordance with accounting
principles generally accepted in the United States of America
(GAAP). These measures include operating earnings, core
non-interest income, core non-interest income to revenues (with
non-core items excluded from both core non-interest income and
revenues), core non-interest expense, non-core non-interest income
and non-core non-interest expense, net interest income on a fully
tax equivalent basis, net interest margin on a fully tax equivalent
basis, efficiency ratio and the ratio of annualized net
non-interest expense to average assets with net gains and losses on
investment securities, net gains and losses on sale of other
assets, gain on extinguishment of debt and increase in market value
of assets held in trust for deferred compensation excluded from the
non-interest income components of these ratios, and contingent
consideration expense, merger related expenses, loss on low to
moderate income real estate investment and increase in market value
of assets held in trust for deferred compensation excluded from the
non-interest expense components of these ratios, with tax
equivalent adjustment for tax-exempt interest income and increase
in cash surrender value of life insurance, as applicable; ratios of
tangible equity to tangible assets, tangible common equity to
risk-weighted assets and Tier 1 common capital to risk-weighted
assets; tangible book value per common share; and annualized cash
return on average tangible common equity. Our management uses these
non-GAAP measures, together with the related GAAP measures, in its
analysis of our performance and in making business decisions.
Management also uses these measures for peer comparisons.
Management believes that operating earnings, core and non-core
non-interest income and non-interest expense are useful in
assessing our core operating performance and in understanding the
primary drivers of our non-interest income and non-interest expense
when comparing periods.
The tax equivalent adjustment to net interest income, net
interest margin, tax-exempt interest income and increase in cash
surrender value of life insurance recognizes the income tax savings
when comparing taxable and tax-exempt assets and assumes a 35% tax
rate. Management believes that it is a standard practice in the
banking industry to present net interest income and net interest
margin on a fully tax equivalent basis, and accordingly believes
that providing these measures may be useful for peer comparison
purposes. For the same reasons, management believes that the tax
equivalent adjustments to tax-exempt interest income and increase
in cash surrender value of life insurance are useful.
Management also believes that by excluding net gains and losses
on investment securities, net gains and losses on sale of other
assets, gain on extinguishment of debt and increase in market value
of assets held in trust for deferred compensation from the
non-interest income components, and excluding contingent
consideration expense, merger-related expenses, loss on low to
moderate income real estate investment and increase in market value
of assets held in trust for deferred compensation from the
non-interest expense components, of the efficiency ratio and the
ratio of annualized net non-interest expense to average assets,
these ratios better reflect our core operating performance, as the
excluded items do not pertain to our core business operations and
their exclusion makes these ratios more meaningful when comparing
our operating results from period to period.
In addition, management believes that presenting the ratio of
Tier 1 common equity to risk-weighted assets is useful for
assessing our capital strength and for peer comparison purposes.
The other measures exclude the acquisition-related goodwill and
other intangible assets, net of tax benefit, in determining
tangible assets, tangible equity, tangible common equity and
average tangible common equity and exclude other intangible
amortization expense, net of tax benefit, in determining net cash
flow available to common stockholders. Management believes the
presentation of these other financial measures, excluding the
impact of such items, provides useful supplemental information that
is helpful in understanding our financial results, as they provide
a method to assess management’s success in utilizing our tangible
capital, as well as our capital strength. Management also believes
that providing measures that exclude balances of
acquisition-related goodwill and other intangible assets, which are
subjective components of valuation, facilitates the comparison of
our performance with the performance of our peers. In addition,
management believes that these are standard financial measures used
in the banking industry to evaluate performance.
The non-GAAP disclosures contained herein should not be viewed
as substitutes for the results determined to be in accordance with
GAAP, nor are they necessarily comparable to non-GAAP performance
measures that may be presented by other companies.
A reconciliation of net interest margin on a fully tax
equivalent basis to net interest margin is contained in the tables
under “Net Interest Margin.” A reconciliation of tangible book
value per common share to book value per common share is contained
in the “Selected Financial Ratios” table. Reconciliations of core
and non-core non-interest income and non-interest expense to
non-interest income and non-interest expense are contained in the
tables under “Results of Operations—Third Quarter Results.”
The following table presents a reconciliation of tangible equity
to stockholders' equity (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013 9/30/2013
Stockholders' equity - as reported $ 1,991,368 $ 1,365,316 $
1,343,780 $ 1,326,682 $ 1,309,468 Less: goodwill 698,946 423,369
423,369 423,369 423,369 Less: other intangible assets, net of tax
benefit 28,954 13,659 14,422 15,228
16,196 Tangible equity $ 1,263,468 $ 928,288 $
905,989 $ 888,085 $ 869,903
The following table presents a reconciliation of tangible assets
to total assets (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013 9/30/2013
Total assets - as reported $ 14,506,043 $ 9,818,691 $ 9,437,303 $
9,641,427 $ 9,257,618 Less: goodwill 698,946 423,369 423,369
423,369 423,369 Less: other intangible assets, net of tax benefit
28,954 13,659 14,422 15,228 16,196
Tangible assets $ 13,778,143 $ 9,381,663 $ 8,999,512
$ 9,202,830 $ 8,818,053
The following table presents a reconciliation of tangible common
equity to common stockholders' equity (in thousands):
9/30/2014 6/30/2014
3/31/2014 12/31/2013 9/30/2013
Common stockholders' equity - as reported $ 1,876,088 $ 1,365,316 $
1,343,780 $ 1,326,682 $ 1,309,468 Less: goodwill 698,946 423,369
423,369 423,369 423,369 Less: other intangible assets, net of tax
benefit 28,954 13,659 14,422 15,228
16,196 Tangible common equity $ 1,148,188 $ 928,288 $
905,989 $ 888,085 $ 869,903
The following table presents a reconciliation of average
tangible equity to average common stockholders’ equity (in
thousands):
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Average common stockholders' equity - as reported $
1,613,277 $ 1,351,604 $ 1,335,223 $ 1,315,804 $ 1,297,498 $
1,434,387 $ 1,291,988 Less: average goodwill 550,581 423,369
423,369 423,369 423,369 466,239 423,369 Less: average other
intangible assets, net of tax benefit 19,769 13,990
14,758 15,647 16,620 16,191 17,605
Average tangible common equity $ 1,042,927 $ 914,245
$ 897,096 $ 876,788 $ 857,509 $ 951,957
$ 851,014
The following table presents a reconciliation of net cash flow
available to common stockholders to net income available to common
stockholders (in thousands):
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Net income available to common stockholders - as
reported $ 4,901 $ 23,106 $ 19,969 $ 23,856 $ 24,400 $ 47,976
$ 74,599 Add: other intangible amortization expense, net of
tax benefit 956 763 806 968 983
2,525 2,987 Net cash flow available to common stockholders $
5,857 $ 23,869 $ 20,775 $ 24,824 $
25,383 $ 50,501 $ 77,586
The following table presents a reconciliation of net income to
operating earnings (in thousands):
Nine Months
Ended September 30, 3Q14 2Q14 1Q14
4Q13 3Q13 2014 2013
Net income - as reported $ 6,901 $ 23,106 $ 19,969 $ 23,856
$ 24,400 $ 49,976 $ 74,599 Less non-core items: Net gain (loss) on
investment securities (3,246 ) (87 ) 317 (15 ) 1 (3,016 ) 14 Net
(loss) gain on sale of other assets (7 ) (24 ) 7 (323 ) — (24 ) —
Gain on extinguishment of debt 1,895 — — — — 1,895 — Merger related
expenses (27,161 ) (488 ) (680 ) (724 ) (1,759 ) (28,329 ) (1,759 )
Loss on low-income housing investment — (96 ) (2,028 ) — — (2,124 )
— Contingent consideration expense - Celtic acquisition (10,600 ) —
— — — (10,600 ) — Total non-core
items (39,119 ) (695 ) (2,384 ) (1,062 ) (1,758 ) (42,198 ) (1,745
) Income tax expense on non-core items (10,295 ) (266 ) (855 ) (281
) (174 ) (11,416 ) (168 ) Non-core items, net of tax (28,824 ) (429
) (1,529 ) (781 ) (1,584 ) (30,782 ) (1,577 ) Operating earnings $
35,725 $ 23,535 $ 21,498 $ 24,637 $
25,984 $ 80,758 $ 76,176
The following table presents a reconciliation of Tier 1 common
capital to Tier 1 capital (in thousands):
9/30/2014
6/30/2014 3/31/2014 12/31/2013
9/30/2013 Tier 1 capital - as reported $ 1,402,796 $
1,058,504 $ 1,038,600 $ 1,022,512 $ 1,002,883 Less: qualifying
trust preferred securities 187,500 147,500 147,500 147,500 147,500
Less: preferred stock 115,280 — — — —
Tier 1 common capital $ 1,100,016 $ 911,004 $ 891,100
$ 875,012 $ 855,383
Efficiency Ratio Calculation (Dollars
in Thousands)
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Non-interest expense $ 142,201 $ 78,030 $ 76,047
$ 76,641 $ 76,265 $ 296,278 $ 217,947 Less merger related expenses
27,161 488 680 724 1,759 28,329 1,759 Less loss on low to moderate
income real estate investment — 96 2,028 — — 2,124 — Less
contingent consideration expense 10,600 — — — — 10,600 — Less
(decrease) increase in market value of assets held in trust for
deferred compensation (38 ) 400 152 588 459
514 963 Non-interest expense - as adjusted $
104,478 $ 77,046 $ 73,187 $ 75,329 $
74,047 $ 254,711 $ 215,225 Net interest
income $ 95,612 $ 68,072 $ 67,328 $ 68,263 $ 68,908 $ 231,012 $
204,073 Tax equivalent adjustment 6,087 5,677 5,581
5,655 5,905 17,345 17,054 Net
interest income on a fully tax equivalent basis 101,699 73,749
72,909 73,918 74,813 248,357 221,127 Plus non-interest income
61,087 39,928 36,612 39,045 37,707 137,627 115,349 Plus tax
equivalent adjustment on the increase in cash surrender value of
life insurance 460 449 445 457 458 1,355 1,366 Less net (loss) gain
on investment securities (3,246 ) (87 ) 317 (15 ) 1 (3,016 ) 14
Less net (loss) gain on sale of other assets (7 ) (24 ) 7 (323 ) —
(24 ) — Gain on extinguishment of debt 1,895 — — — — 1,895 — Less
(decrease) increase in market value of assets held in trust for
deferred compensation (38 ) 400 152 588 459
514 963 Net interest income plus non-interest
income - as adjusted $ 164,642 $ 113,837 $ 109,490
$ 113,170 $ 112,518 $ 387,970 $ 336,865
Efficiency ratio 63.46 % 67.68 % 66.84 % 66.56 %
65.81 % 65.65 % 63.89 % Efficiency ratio (without adjustments)
90.75 % 72.25 % 73.16 % 71.42 % 71.53 % 80.37 % 68.23 %
Annualized Net Non-interest Expense to
Average Assets Calculation (Dollars in Thousands)
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Non-interest expense $ 142,201 $ 78,030 $ 76,047
$ 76,641 $ 76,265 $ 296,278 $ 217,947 Less merger related expenses
27,161 488 680 724 1,759 28,329 1,759 Less loss on low to moderate
income real estate investment — 96 2,028 — — 2,124 — Less
contingent consideration expense 10,600 — — — — 10,600 — Less
(decrease) increase in market value of assets held in trust for
deferred compensation (38 ) 400 152 588 459
514 963 Non-interest expense - as adjusted
104,478 77,046 73,187 75,329 74,047
254,711 215,225 Non-interest income
61,087 39,928 36,612 39,045 37,707 137,627 115,349 Less net (loss)
gain on investment securities (3,246 ) (87 ) 317 (15 ) 1 (3,016 )
14 Less net (loss) gain on sale of other assets (7 ) (24 ) 7 (323 )
— (24 ) — Gain on extinguishment of debt 1,895 — — — — 1,895 — Less
(decrease) increase in market value of assets held in trust for
deferred compensation (38 ) 400 152 588 459
514 963 Non-interest income - as adjusted
62,483 39,639 36,136 38,795 37,247
138,258 114,372 Less tax equivalent adjustment
on the increase in cash surrender value of life insurance 460
449 445 457 458 1,355
1,366 Net non-interest expense $ 41,535 $ 36,958
$ 36,606 $ 36,077 $ 36,342 $ 115,098
$ 99,487 Average assets $ 12,206,030 $
9,575,896 $ 9,367,942 $ 9,567,388 $ 9,261,291 $ 10,393,719 $
9,332,730 Annualized net non-interest expense to average
assets 1.35 % 1.55 % 1.58 % 1.50 % 1.56 % 1.48 % 1.43 %
Annualized net non-interest expense to average assets (without
adjustments) 2.64 % 1.60 % 1.71 % 1.56 % 1.65 % 2.04 % 1.47 %
Core Non-interest Income to Revenues
Ratio Calculation (Dollars in Thousands)
Nine
Months Ended September 30, 3Q14 2Q14
1Q14 4Q13 3Q13 2014
2013 Non-interest income $ 61,087 $ 39,928 $ 36,612 $
39,045 $ 37,707 $ 137,627 $ 115,349 Plus tax equivalent adjustment
on the increase in cash surrender value of life insurance 460 449
445 457 458 1,355 1,366 Less net (loss) gain on investment
securities (3,246 ) (87 ) 317 (15 ) 1 (3,016 ) 14 Less net (loss)
gain on sale of other assets (7 ) (24 ) 7 (323 ) — (24 ) — Gain on
extinguishment of debt 1,895 — — — — 1,895 — Less (decrease)
increase in market value of assets held in trust for deferred
compensation (38 ) 400 152 588 459 514
963 Non-interest income - as adjusted $ 62,943
$ 40,088 $ 36,581 $ 39,252 $ 37,705 $
139,613 $ 115,738 Net interest income $ 95,612
$ 68,072 $ 67,328 $ 68,263 $ 68,908 $ 231,012 $ 204,073 Tax
equivalent adjustment 6,087 5,677 5,581 5,655
5,905 17,345 17,054 Net interest income
on a fully tax equivalent basis 101,699 73,749 72,909 73,918 74,813
248,357 221,127 Plus non-interest income 61,087 39,928 36,612
39,045 37,707 137,627 115,349 Plus tax equivalent adjustment on the
increase in cash surrender value of life insurance 460 449 445 457
458 1,355 1,366 Less net (loss) gain on investment securities
(3,246 ) (87 ) 317 (15 ) 1 (3,016 ) 14 Less net (loss) gain on sale
of other assets (7 ) (24 ) 7 (323 ) — (24 ) — Gain on
extinguishment of debt 1,895 — — — — 1,895 — Less (decrease)
increase in market value of assets held in trust for deferred
compensation (38 ) 400 152 588 459 514
963 Total revenue - as adjusted and on a fully tax
equivalent basis $ 164,642 $ 113,837 $ 109,490
$ 113,170 $ 112,518 $ 387,970 $ 336,865
Total revenue - unadjusted $ 156,699 $ 108,000 $ 103,940 $
107,308 $ 106,615 $ 368,639 $ 319,422 Core non-interest
income to revenues ratio 38.23 % 35.22 % 33.41 % 34.68 % 33.51 %
35.99 % 34.36 % Non-interest income to revenues ratio
(without adjustments) 38.98 % 36.97 % 35.22 % 36.39 % 35.37 % 37.33
% 36.11 %
NET INTEREST MARGIN
The following table presents, for the periods indicated, the
total dollar amount of interest income from average interest
earning assets and the resultant yields, as well as the interest
expense on average interest bearing liabilities, and the resultant
costs, expressed both in dollars and rates (dollars in
thousands):
3Q14 3Q13
2Q14 Average Yield/
Average Yield/ Average
Yield/ Balance Interest Rate
Balance Interest Rate Balance
Interest Rate Interest Earning Assets: Loans
held for sale $ 313,695 $ 2,826 3.60 % $ 1,972 $ — — % $ 497 $ — —
% Loans (1) (2) (3): Commercial related credits Commercial
2,179,924 24,446 4.39 1,166,887 12,263 4.11 1,229,799 11,912 3.83
Commercial loans collateralized by assignment of lease payments
1,561,414 14,669 3.76 1,429,169 13,726 3.84 1,476,618 14,693 3.98
Real estate commercial 2,138,485 24,783 4.53 1,652,339 19,996 4.73
1,620,658 17,008 4.15 Real estate construction 183,535 2,820
6.01 128,115 1,324 4.04 133,557 1,274
3.77 Total commercial related credits 6,063,358
66,718 4.31 4,376,510 47,309 4.23 4,460,632
44,887 3.98 Other loans Real estate residential
409,119 4,608 4.51 307,555 2,961 3.85 309,848 2,809 3.62 Home
equity 252,250 2,556 4.02 277,122 2,993 4.28 252,891 2,678 4.25
Indirect 274,493 3,647 5.27 250,003 3,365 5.34 269,556 3,579 5.33
Consumer loans 68,186 774 4.50 61,950 599
3.84 65,437 725 4.44 Total other loans
1,004,048 11,585 4.58 896,630 9,918
4.39 897,732 9,791 4.37 Total loans, excluding
covered loans 7,067,406 78,303 4.40 5,273,140 57,227 4.30 5,358,364
54,678 4.09 Covered loans 114,686 2,258 7.81 281,896
4,391 6.18 158,371 2,441 6.18 Total
loans 7,182,092 80,561 4.45 5,555,036 61,618
4.40 5,516,735 57,119 4.15 Taxable investment
securities 1,726,352 11,028 2.56 1,292,366 6,330 1.96 1,434,300
8,794 2.45 Investment securities exempt from federal income taxes
(3) 1,087,340 13,908 5.12 946,396 12,577 5.32 966,518 12,748 5.28
Federal funds sold 15,460 14 0.38 6,793 7 0.40 4,359 4 0.36 Other
interest earning deposits 341,758 211 0.24 316,210
193 0.24 448,173 277 0.25 Total
interest earning assets $ 10,666,697 $ 108,548 4.04 % $
8,118,773 $ 80,725 3.94 % $ 8,370,582 $ 78,942 3.78 %
Non-interest earning assets 1,539,333 1,142,518
1,205,314 Total assets $ 12,206,030 $ 9,261,291
$ 9,575,896
Interest Bearing Liabilities: Core
funding: Money market and NOW accounts $ 3,518,314 $ 1,469 0.17 % $
2,695,479 $ 862 0.13 % $ 2,880,910 $ 899 0.13 % Savings accounts
906,630 128 0.06 844,647 137 0.06 868,694 97 0.04 Certificates of
deposit 1,411,407 1,375 0.40 1,309,539 1,444 0.44 1,157,805 1,124
0.40 Customer repurchase agreements 210,543 102 0.19
205,946 113 0.22 184,178 95 0.21 Total
core funding 6,046,894 3,074 0.20 5,055,611
2,556 0.20 5,091,587 2,215 0.17 Wholesale
funding: Brokered accounts (includes fee expense) 417,346 1,643
1.56 263,448 1,990 3.00 220,396 1,634 2.97 Other borrowings 632,163
2,132 1.32 215,041 1,366 2.49 236,292
1,344 2.25 Total wholesale funding 1,049,509
3,775 1.33 478,489 3,356 2.47 456,688
2,978 2.33 Total interest bearing liabilities $ 7,096,403 $
6,849 0.38 % $ 5,534,100 $ 5,912 0.42 % $ 5,548,275 $
5,193 0.38 % Non-interest bearing deposits 3,175,513
2,258,357 2,476,396 Other non-interest bearing liabilities 268,028
171,336 199,621 Stockholders' equity 1,666,086 1,297,498
1,351,604 Total liabilities and stockholders' equity
$ 12,206,030 $ 9,261,291 $ 9,575,896 Net
interest income/interest rate spread (4) $ 101,699 3.66 % $
74,813 3.52 % $ 73,749 3.40 % Taxable equivalent
adjustment 6,087 5,905 5,677 Net interest
income, as reported $ 95,612 $ 68,908 $ 68,072
Net interest margin (5) 3.56 % 3.37 % 3.26 % Tax equivalent effect
0.22 % 0.29 % 0.27 % Net interest margin on a fully tax equivalent
basis (5) 3.78 % 3.66 % 3.53 % (1) Non-accrual loans
are included in average loans. (2) Interest income includes
amortization of deferred loan origination fees and costs. (3)
Non-taxable loan and investment income is presented on a fully tax
equivalent basis assuming a 35% tax rate. (4) Interest rate spread
represents the difference between the average yield on interest
earning assets and the average cost of interest bearing liabilities
and is presented on a fully tax equivalent basis. (5) Net interest
margin represents net interest income as a percentage of average
interest earning assets.
The following table presents, for the periods indicated, the
total dollar amount of interest income from average interest
earning assets and the resultant yields, as well as the interest
expense on average interest bearing liabilities, and the resultant
costs, expressed both in dollars and rates (dollars in
thousands):
Nine Months Ended September 30, 2014
2013 Average
Yield/ Average Yield/
Balance Interest Rate Balance
Interest Rate Interest Earning Assets: Loans
held for sale $ 105,977 $ 2,826 3.56 % $ 3,259 $ — — % Loans (1)
(2) (3): Commercial related credits Commercial 1,550,916 48,670
4.14 1,193,034 37,436 4.14 Commercial loans collateralized by
assignment of lease payments 1,506,309 43,681 3.87 1,357,417 39,512
3.88 Real estate commercial 1,798,587 59,123 4.33 1,699,235 60,475
4.69 Real estate construction 152,827 5,372 4.64
125,184 3,714 3.91 Total commercial related credits
5,008,639 156,846 4.13 4,374,870 141,137
4.25 Other loans Real estate residential 343,836 10,409 4.04
309,075 9,288 4.01 Home equity 256,101 7,946 4.15 287,198 9,259
4.31 Indirect 269,226 10,617 5.27 231,383 9,563 5.53 Consumer loans
65,433 2,175 4.44 67,608 1,830 3.62
Total other loans 934,596 31,147 4.46 895,264
29,940 4.47 Total loans, excluding covered loans 5,943,235
187,993 4.23 5,270,134 171,077 4.34 Covered loans 164,455
7,169 5.83 346,721 13,328 4.14 Total loans
6,107,690 195,162 4.27 5,616,855 184,405
4.39 Taxable investment securities 1,516,281 27,968 2.46
1,383,975 18,749 1.81 Investment securities exempt from federal
income taxes (3) 997,128 39,066 5.22 930,653 37,537 5.38 Federal
funds sold 8,605 23 0.37 3,249 9 0.37 Other interest earning
deposits 326,226 601 0.25 232,529 420
0.24 Total interest earning assets $ 9,061,907 $ 265,646
3.92 % $ 8,170,520 $ 241,120 3.95 % Non-interest earning
assets 1,331,812 1,162,210 Total assets $ 10,393,719
$ 9,332,730
Interest Bearing Liabilities: Core
funding: Money market and NOW accounts $ 3,045,178 $ 3,216 0.14 % $
2,702,567 $ 2,622 0.13 % Savings accounts 879,336 334 0.05 835,754
409 0.07 Certificates of deposit 1,260,537 3,673 0.40 1,408,866
5,734 0.56 Customer repurchase agreements 195,136 293
0.20 191,789 312 0.22 Total core funding 5,380,187
7,516 0.19 5,138,976 9,077 0.23
Wholesale funding: Brokered accounts (includes fee expense) 287,931
4,915 2.28 283,894 6,509 3.07 Other borrowings 368,220 4,858
1.74 230,021 4,407 2.53 Total wholesale
funding 656,151 9,773 1.82 513,915 10,916
2.51 Total interest bearing liabilities $ 6,036,338 $ 17,289
0.38 % $ 5,652,891 $ 19,993 0.47 % Non-interest
bearing deposits 2,677,865 2,194,648 Other non-interest bearing
liabilities 227,333 193,203 Stockholders' equity 1,452,183
1,291,988 Total liabilities and stockholders' equity $
10,393,719 $ 9,332,730 Net interest income/interest
rate spread (4) $ 248,357 3.54 % $ 221,127 3.48 %
Taxable equivalent adjustment 17,345 17,054 Net
interest income, as reported $ 231,012 $ 204,073 Net
interest margin (5) 3.41 % 3.34 % Tax equivalent effect 0.25 % 0.28
% Net interest margin on a fully tax equivalent basis (5) 3.66 %
3.62 % (1) Non-accrual loans are included in average
loans. (2) Interest income includes amortization of deferred loan
origination fees and costs. (3) Non-taxable loan and investment
income is presented on a fully tax equivalent basis assuming a 35%
tax rate. (4) Interest rate spread represents the difference
between the average yield on interest earning assets and the
average cost of interest bearing liabilities and is presented on a
fully tax equivalent basis. (5) Net interest margin represents net
interest income as a percentage of average interest earning assets.
The table below reflects the impact the purchase accounting loan
discount accretion on Taylor Capital loans had on the loan yield
and net interest margin on a fully tax equivalent basis for the
three and nine months ended September 30, 2014:
Three months ended Nine
months ended September 30, 2014 September 30,
2014 Average Yield/ Average
Yield/ Balance Interest
Rate Balance Interest Rate Loan
yield excluding purchase accounting discount accretion on Taylor
Capital loans: Total loans, as reported $ 7,182,092 $ 80,561
4.45 % $ 6,107,690 $ 195,162 4.27 % Less purchase accounting
discount accretion on non-PCI loans (34,097 ) 5,892 (11,491 ) 5,892
Less purchase accounting discount accretion on PCI loans (15,281 )
282 (5,150 ) 282 Total loans, excluding purchase
accounting discount accretion on Taylor Capital loans $ 7,231,470
$ 74,387 4.08 % $ 6,124,331 $ 188,988
4.13 %
Net interest margin on a fully tax equivalent
basis, excluding purchase accounting discount accretion on Taylor
Capital loans: Total interest earning assets, as reported $
10,666,697 $ 101,699 3.78 % $ 9,061,907 $ 248,357 3.66 % Less
purchase accounting discount accretion on non-PCI loans (34,097 )
5,892 (11,491 ) 5,892 Less purchase accounting discount accretion
on PCI loans (15,281 ) 282 (5,150 ) 282 Total
interest earning assets, excluding purchase accounting discount
accretion on Taylor Capital loans $ 10,716,075 $ 95,525
3.54 % $ 9,078,548 $ 242,183 3.57 %
Provision will be recognized on legacy Taylor Capital loans as
they renew and will largely offset the positive impact of the loan
discount accretion on non-purchase credit impaired loans. During
the third quarter of 2014, a provision of approximately $4.7
million was recorded related to legacy Taylor Capital loans.
MB Financial, Inc.Jill York - Vice President and Chief
Financial OfficerE-Mail:
jyork@mbfinancial.com(888) 422-6562
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