MB Financial, Inc. Reports First Quarter Net Income of $20.0 Million

CHICAGO--()--MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2014 first quarter net income of $20.0 million.

Key items include:

Net Interest Margin Increased:

  • Fully taxable equivalent net interest margin was 3.64% for the first quarter of 2014 compared to 3.50% for the prior quarter and 3.59% for the first quarter of 2013.
  • The increase from the fourth quarter of 2013 was due to lower cash balances held during the first quarter of 2014 (approximately ten basis points of net interest margin improvement) as well as higher yields on taxable investment securities (approximately five basis points of net interest margin improvement).
  • The increase from the first quarter of 2013 was due to a lower cost of funds and improved taxable investment securities yields, partially offset by lower loan yields.

Fee Income Declined and Non-interest Expense Improved from the Prior Quarter:

  • Capital markets and international banking fees, treasury management fees and trust and asset management fees all increased from the prior quarter.
  • Leasing revenues declined due to lower equipment remarketing gains and lower fees from the sale of third-party equipment maintenance contracts.
  • Core non-interest expense improved from the prior quarter due to lower salaries and employee benefits expense, lower computer services expense, lower professional and legal expense and a reduction in expenses related to the clawback liability under loss sharing agreements with the FDIC.

Credit Quality Metrics:

  • Our provision for credit losses remained low at approximately $1.2 million for the quarter, but increased from a negative provision of $3.0 million in the prior quarter.
  • Non-performing loans increased during the quarter compared to the first and fourth quarters of 2013 due to a $22.7 million relationship being placed on non-accrual status during the first quarter of 2014.
  • Potential problem loan balances improved from year end and a year ago by $10.8 million and $46.7 million, respectively.
  • Other real estate owned balances improved from year end and a year ago by $2.4 million and $10.5 million, respectively.
  • Included in other operating expenses was a $2.0 million write-off of an investment in low-income housing funds that invested in real estate projects. We view this write-off as a credit cost due to the nature of the investment. See below for additional details.

Balance Sheet Activity - Average Loans and Average Deposits Increased, Low Cost Deposit Flows Strong:

  • Average loans, excluding covered loans, increased approximately $71 million (+1.3%) from the fourth quarter and approximately $142 million (+2.7%) from the first quarter one year ago. Loans, excluding covered loans, at the end of the quarter increased $88 million (+1.7%) from a year ago but decreased $82 million (-1.5%) from year end.
  • Average low cost deposit flows were strong, increasing approximately $76 million (+1.3%) during the first quarter. Low cost deposits at the end of the first quarter increased $161 million (+2.7%) from year end. We typically see low cost deposit outflows during the first quarter. Stable low cost deposits decrease our reliance on wholesale funding sources and allow us to maintain a lower cost of funds.
  • We continue to maintain robust capital and liquidity ratios and are positioned well for completion of our pending merger with Taylor Capital Group, Inc. Cash and interest bearing deposits at our holding company totaled approximately $140 million as of March 31, 2014.

Taylor Capital Group, Inc. Pending Merger Update:

The stockholders of both MB Financial and Taylor Capital approved the merger agreement in the first quarter of 2014. The completion of the merger remains subject to regulatory approvals and the satisfaction of customary closing conditions.

As disclosed in Taylor Capital’s Annual Report on Form 10-K for the year ended December 31, 2013, Taylor Capital has been notified by its regulators that its Cole Taylor Bank subsidiary may be cited with a violation of Section 5 of the Federal Trade Commission Act. The potential violation relates to the account opening process associated with a former deposit program relationship with an organization that provides electronic financial disbursements and payment services to the higher education industry. Cole Taylor Bank exited the relationship in August 2013. As part of the regulatory approval process for the merger, an evaluation of this situation is being conducted by Taylor Capital’s regulators. That evaluation is ongoing and the closing of the pending merger could be delayed beyond June 30, 2014.

RESULTS OF OPERATIONS

First Quarter Results

Net Interest Income

Net interest income on a fully tax equivalent basis decreased $1.0 million from the fourth quarter of 2013 due to two fewer days in the quarter. Our net interest margin on a fully tax equivalent basis for the first quarter of 2014 increased 14 basis points compared to the fourth quarter of 2013 primarily due to lower cash balances held during the first quarter of 2014 (approximately ten basis points of net interest margin improvement). Also positively impacting net interest margin were higher yields on taxable investment securities (approximately five basis points of net interest margin improvement). With the exception of covered loans, which declined by 133 basis points, loan yields were consistent with the prior quarter.

Net interest income on a fully tax equivalent basis decreased slightly from the first quarter of 2013. Our net interest margin on a fully tax equivalent basis for the first quarter of 2014 increased five basis points compared to the first quarter of 2013 due to a lower cost of funds and improved taxable investment securities yields, partially offset by lower loan yields.

See the supplemental net interest margin tables for further detail.

Non-interest Income (in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
Core non-interest income:
Key fee initiatives:
Capital markets and international banking service fees $ 978 $ 841 $ 972 $ 939 $ 808
Commercial deposit and treasury management fees 7,144 6,545 6,327 6,029 5,966
Lease financing, net 13,196 15,808 14,070 15,102 16,263
Trust and asset management fees 5,207 4,975 4,799 4,874 4,494
Card fees 2,701   2,838   2,745   2,735   2,695  
Total key fee initiatives 29,226 31,007 28,913 29,679 30,226
 
Loan service fees 965 1,214 1,427 1,911 1,011
Consumer and other deposit service fees 2,935 3,481 3,648 3,593 3,246
Brokerage fees 1,325 1,227 1,289 1,234 1,157
Increase in cash surrender value of life insurance 827 848 851 842 844
Accretion of FDIC indemnification asset 31 35 64 100 143
Net gain on sale of loans 59 342 177 506 639
Other operating income 768   641   878   1,039   955  
Total core non-interest income 36,136   38,795   37,247   38,904   38,221  
Non-core non-interest income: (1)
Net gain (loss) on investment securities 317 (15 ) 1 14 (1 )
Net gain (loss) on sale of other assets 7 (323 )
Increase in market value of assets held in trust for deferred compensation (A) 152   588   459   21   483  
Total non-core non-interest income 476   250   460   35   482  
 
Total non-interest income $ 36,612   $ 39,045   $ 37,707   $ 38,939   $ 38,703  

(1) Letter denotes the corresponding line item where this non-core non-interest income item resides in the consolidated statements of income as follows: A – Other operating income.

Core non-interest income for the first quarter of 2014 decreased approximately 6.9% from the fourth quarter of 2013.

  • Leasing revenues declined due to lower equipment remarketing gains and lower fees from the sale of third-party equipment maintenance contracts.
  • Commercial deposit and treasury management fees increased during the first quarter due to robust new customer activity.
  • Trust and asset management fees increased due to the growth in investment management fees as a result of new customers added and the impact of higher equity values on assets under management and related fee revenue.

Core non-interest income for the first quarter of 2014 decreased approximately 5.5% from the first quarter of 2013.

  • Leasing revenues declined due to lower equipment remarketing gains and lower fees from the sale of third-party equipment maintenance contracts.
  • Commercial deposit and treasury management fees increased in the first quarter due to robust new customer activity.
  • Trust and asset management fees increased due to the growth in investment management fees as a result of new customers added and the impact of higher equity values on assets under management and related fee revenue.

Non-interest Expense (in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
Core non-interest expense:
Salaries and employee benefits $ 44,121 $ 44,929 $ 44,459 $ 43,888 $ 43,031
Occupancy and equipment expense 9,592 9,269 8,797 9,408 9,404
Computer services and telecommunication expense 5,071 5,509 4,870 4,617 3,887
Advertising and marketing expense 1,991 2,081 1,917 2,167 2,103
Professional and legal expense 1,369 2,340 1,408 1,353 1,295
Other intangible amortization expense 1,240 1,489 1,513 1,538 1,544
Other real estate expense, net 396 175 240 193 139
Other operating expenses 9,220   10,171   10,052   9,083   9,213
Total core non-interest expense 73,000   75,963   73,256   72,247   70,616
Non-core non-interest expense: (1)
Merger related expenses (A) 680 724 1,759
Net loss (gain) recognized on other real estate owned (B) 122 (831 ) 754 (2,130 ) 319
Net loss recognized on other real estate owned related to FDIC transactions (B) 65 197 37 115 11
Loss on low-income housing investment (C) 2,028
Increase in market value of assets held in trust for deferred compensation (D) 152   588   459   21   483
Total non-core non-interest expense 3,047   678   3,009   (1,994 ) 813
 
Total non-interest expense $ 76,047   $ 76,641   $ 76,265   $ 70,253   $ 71,429

(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 – Salaries and employee benefits, computer services and telecommunication expense, advertising and marketing expense, professional and legal expense and other operating expenses, B – Net (gain) loss recognized on other real estate owned, C – Other operating expenses, D – Salaries and employee benefits.

Core non-interest expense decreased by $3.0 million, or 3.9%, from the fourth quarter of 2013 to the first quarter of 2014.

  • Professional and legal expense decreased due to lower consulting and legal costs.
  • Other operating expense decreased as a result of a decrease in the clawback liability related to our loss share agreements with the FDIC.
  • Salaries and employee benefits decreased primarily due to a decrease in leasing commissions as a result of lower leasing revenues.

Core non-interest expense increased by $2.4 million, or 3.4%, from the first quarter of 2013 to the first quarter of 2014.

  • 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 leasing, treasury management and card areas.
  • Salaries and employee benefits increased due to annual salary increases, long-term incentive expense, taxes and temporary staffing needs.

Non-core non-interest expense for the first quarter of 2014 increased from the preceding quarter primarily due to a write-off of an investment in low-income housing funds that invested in real estate projects. This investment was made in 2006 as a community development initiative. The extended slow real estate recovery in some low income areas of Chicago negatively impacted this investment.

LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on quarterly average balances for the periods indicated (dollars in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
  % of   % of   % of   % of   % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Commercial related credits:
Commercial loans $ 1,232,562 22 % $ 1,167,924 21 % $ 1,166,887 21 % $ 1,206,740 21 % $ 1,205,903 21 %
Commercial loans collateralized by assignment of lease payments (lease loans) 1,479,998 26 1,468,257 26 1,429,169 26 1,340,854 25 1,300,818 23
Commercial real estate 1,631,041 29 1,629,270 29 1,652,339 30 1,716,170 30 1,730,051 31
Construction real estate 140,920   3   141,041   3   128,115   2   133,705   2   113,573   2  
Total commercial related credits 4,484,521   80   4,406,492   79   4,376,510   79   4,397,469   78   4,350,345   77  
Other loans:
Residential real estate 311,466 5 315,303 5 307,555 5 306,978 5 312,748 6
Indirect vehicle 263,510 5 260,918 5 250,003 5 231,577 5 212,153 4
Home equity 263,283 5 271,898 5 277,122 5 286,640 5 298,061 5
Consumer loans 62,616   1   60,054   1   61,950   1   70,603   1   70,364   1  
Total other loans 900,875   16   908,173   16   896,630   16   895,798   16   893,326   16  
Gross loans excluding covered loans 5,385,396 96 5,314,665 95 5,273,140 95 5,293,267 94 5,243,671 93
Covered loans (1) 221,481   4   258,094   5   281,896   5   335,148   6   424,688   7  
Total loans $ 5,606,877   100 % $ 5,572,759   100 % $ 5,555,036   100 % $ 5,628,415   100 % $ 5,668,359   100 %

(1) Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) as of the dates indicated (dollars in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
  % of   % of   % of   % of   % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Commercial related credits:
Commercial loans $ 1,267,398 23 % $ 1,281,377 22 % $ 1,169,009 21 % $ 1,198,862 22 % $ 1,207,638 21 %
Commercial loans collateralized by assignment of lease payments (lease loans) 1,472,621 27 1,494,188 26 1,468,814 26 1,422,901 25 1,347,666 24
Commercial real estate 1,623,509 29 1,647,700 29 1,638,368 29 1,710,964 30 1,743,329 30
Construction real estate 132,997   2   141,253   3   136,146   2   121,420   2   101,581   2  
Total commercial related credits 4,496,525   81   4,564,518   80   4,412,337   78   4,454,147   79   4,400,214   77  
Other loans:
Residential real estate 309,137 5 314,440 5 311,256 6 305,710 5 312,804 5
Indirect vehicle 266,044 5 262,632 5 257,740 5 242,964 5 220,739 4
Home equity 258,120 5 268,289 5 274,484 5 281,334 5 291,190 5
Consumer loans 64,812   1   66,952   1   57,418   1   75,476   1   81,932   2  
Total other loans 898,113   16   912,313   16   900,898   17   905,484   16   906,665   16  
Gross loans excluding covered loans 5,394,638 97 5,476,831 96 5,313,235 95 5,359,631 95 5,306,879 93
Covered loans (1) 173,677   3   235,720   4   273,497   5   308,556   5   400,789   7  
Total loans $ 5,568,315   100 % $ 5,712,551   100 % $ 5,586,732   100 % $ 5,668,187   100 % $ 5,707,668   100 %

(1) Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.

ASSET QUALITY

The following table presents a summary of classified assets (excluding loans held for sale, credit-impaired loans and other real estate owned that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Non-performing loans:
Non-accrual loans (1) $ 118,023 $ 106,115 $ 102,042 $ 112,926 $ 108,765
Loans 90 days or more past due, still accruing interest 747   446   410   2,322   5,193  
Total non-performing loans 118,770   106,561   102,452   115,248   113,958  
Other real estate owned 20,928 23,289 31,356 32,993 31,462
Repossessed assets 772   840   861   749   757  
Total non-performing assets 140,470   130,690   134,669   148,990   146,177  
Potential problem loans (2) 68,785   79,589   96,405   131,746   115,451  
Total classified assets $ 209,255   $ 210,279   $ 231,074   $ 280,736   $ 261,628  
 
Total allowance for loan losses $ 106,752 $ 111,746 $ 118,031 $ 123,685 $ 121,802
Accruing restructured loans (3) 25,797 29,430 29,911 28,270 21,630
Total non-performing loans to total loans 2.13 % 1.87 % 1.83 % 2.03 % 2.00 %
Total non-performing assets to total assets 1.49 1.36 1.45 1.59 1.56
Allowance for loan losses to non-performing loans 89.88 104.87 115.21 107.32 106.88

(1) Includes $15.6 million, $25.0 million, $22.3 million, $20.9 million and $26.3 million of restructured loans on non-accrual status at March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 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 consists 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 increase in accruing restructured loans in the second quarter of 2013 was primarily a result of non-accrual loans upgraded to accrual status due to continued performance.

Non-performing loans increased during the quarter compared to the first and fourth quarters of 2013 due to a $22.7 million relationship being placed on non-accrual status during the first quarter of 2014. We believe the relationship is well collateralized and minimal additional allowance was required when the relationship migrated to non-performing status during the quarter.

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) as of the dates indicated (in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Commercial and lease $ 42,532 $ 22,348 $ 22,293 $ 25,968 $ 22,247
Commercial real estate 49,541 58,292 54,276 62,335 57,604
Construction real estate 782 475 496 519 1,025
Consumer related 25,915   25,446   25,387   26,426   33,082
Total non-performing loans $ 118,770   $ 106,561   $ 102,452   $ 115,248   $ 113,958
 

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):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Balance at the beginning of quarter $ 23,289 $ 31,356 $ 32,993 $ 31,462 $ 36,977
Transfers in at fair value less estimated costs to sell 539 104 1,846 3,503 711
Capitalized other real estate owned costs 21 45 8
Fair value adjustments (140 ) (176 ) (741 ) 1,170 (349 )
Net gains (losses) on sales of other real estate owned 18 1,007 (13 ) 960 30
Cash received upon disposition (2,778 ) (9,023 ) (2,774 ) (4,110 ) (5,907 )
Balance at the end of quarter $ 20,928   $ 23,289   $ 31,356   $ 32,993   $ 31,462  
 

Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollars in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
Allowance for credit losses, balance at the beginning of period $ 113,462 $ 119,725 $ 125,497 $ 124,733 $ 128,279
Provision for credit losses 1,150 (3,000 ) (3,304 ) 500
Charge-offs:
Commercial loans 90 676 1,686 433 911
Commercial loans collateralized by assignment of lease payments (lease loans)
Commercial real estate loans 7,156 2,386 1,236 1,978 1,917
Construction real estate 56 125 26 747 82
Residential real estate 265 722 713 399 962
Home equity 619 1,145 437 1,323 787
Indirect vehicle 920 981 572 629 729
Consumer loans 495   572   485   451   565  
Total charge-offs 9,601   6,607   5,155   5,960   5,953  
Recoveries:
Commercial loans 1,628 1,348 579 777 452
Commercial loans collateralized by assignment of lease payments (lease loans) 987 144
Commercial real estate loans 485 672 966 3,647 740
Construction real estate 99 789 420 131 276
Residential real estate 519 18 48 199 214
Home equity 133 152 228 100 114
Indirect vehicle 442 300 372 324 415
Consumer loans 78   65   74   59   52  
Total recoveries 3,384   3,344   2,687   6,224   2,407  
Total net charge-offs (recoveries) 6,217   3,263   2,468   (264 ) 3,546  
Allowance for credit losses 108,395 113,462 119,725 125,497 124,733
Allowance for unfunded credit commitments (1,643 ) (1,716 ) (1,694 ) (1,812 ) (2,931 )
Allowance for loan losses $ 106,752   $ 111,746   $ 118,031   $ 123,685   $ 121,802  
 
Total loans, excluding loans held for sale $ 5,568,315 $ 5,712,551 $ 5,586,732 $ 5,668,187 $ 5,707,668
Average loans, excluding loans held for sale 5,606,877 5,572,759 5,555,036 5,628,415 5,668,359
Ratio of allowance for loan losses to total loans, excluding loans held for sale 1.92 % 1.96 % 2.11 % 2.18 % 2.13 %
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) 0.45 0.23 0.18 (0.02 ) 0.25
 

The following table presents the three elements of our allowance for loan losses (in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Commercial related loans:
General reserve $ 75,695 $ 78,270 $ 87,112 $ 87,836 $ 92,433
Specific reserve 11,325 12,834 12,378 16,679 12,137
Consumer related reserve 19,732   20,642   18,541   19,170   17,232
Total allowance for loan losses $ 106,752   $ 111,746   $ 118,031   $ 123,685   $ 121,802
 

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.

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):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $ 51,836 $ 52,068 $ 52,527 $ 33,935 $ 40,949
States and political subdivisions 19,350 19,143 19,312 684,710 719,761
Mortgage-backed securities 726,439 754,174 744,722 701,201 842,605
Corporate bonds 273,853 283,070 263,021 215,256 197,675
Equity securities 10,572   10,457   10,541   10,570   11,179
Total fair value $ 1,082,050   $ 1,118,912   $ 1,090,123   $ 1,645,672   $ 1,812,169
 
Amortized cost
Government sponsored agencies and enterprises $ 50,291 $ 50,486 $ 50,678 $ 32,050 $ 38,478
States and political subdivisions 19,285 19,398 19,461 669,791 680,978
Mortgage-backed securities 717,548 747,306 736,070 690,681 827,384
Corporate bonds 272,490 284,083 265,293 219,362 197,162
Equity securities 10,703   10,649   10,574   10,560   10,820
Total amortized cost $ 1,070,317   $ 1,111,922   $ 1,082,076   $ 1,622,444   $ 1,754,822
 
Unrealized gain
Government sponsored agencies and enterprises $ 1,545 $ 1,582 $ 1,849 $ 1,885 $ 2,471
States and political subdivisions 65 (255 ) (149 ) 14,919 38,783
Mortgage-backed securities 8,891 6,868 8,652 10,520 15,221
Corporate bonds 1,363 (1,013 ) (2,272 ) (4,106 ) 513
Equity securities (131 ) (192 ) (33 ) 10   359
Total unrealized gain $ 11,733   $ 6,990   $ 8,047   $ 23,228   $ 57,347
 
Securities held to maturity, at cost:
States and political subdivisions $ 940,610 $ 932,955 $ 941,273 $ 282,655 $ 262,310
Mortgage-backed securities 248,082   249,578   252,271   253,779   255,475
Total amortized cost $ 1,188,692   $ 1,182,533   $ 1,193,544   $ 536,434   $ 517,785
 

Securities of states and political subdivisions with an approximate fair value of $656.6 million were transferred from available for sale to held to maturity during the third quarter of 2013, which is the new cost basis.

We do not have any meaningful direct or indirect holdings of subprime residential mortgage loans, home equity lines of credit, or any Fannie Mae or Freddie Mac preferred or common equity securities in our investment securities portfolio. Additionally, more than 95% of our mortgage-backed securities are agency guaranteed.

DEPOSIT MIX

The following table shows the composition of deposits based on quarterly average balances for the periods indicated (dollars in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
  % of   % of   % of   % of   % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Low cost deposits:
Noninterest bearing deposits $ 2,372,866 32 % $ 2,352,901 32 % $ 2,258,357 31 % $ 2,179,284 30 % $ 2,145,058 29 %
Money market and NOW accounts 2,727,620 37 2,685,343 36 2,695,479 37 2,675,189 36 2,737,494 36
Savings accounts 862,197   12   848,734   12   844,647   11   840,154   11   822,214   11  
Total low cost deposits 5,962,683   81   5,886,978   80     5,798,483   79   5,694,627   77   5,704,766   76  
Certificates of deposit:
Certificates of deposit 1,210,189 16 1,250,049 17 1,309,539 17 1,406,693 19 1,512,600 20
Brokered deposit accounts 223,926   3   229,635   3   263,448   4   294,277   4   294,295   4  
Total certificates of deposit 1,434,115   19   1,479,684   20   1,572,987   21   1,700,970   23   1,806,895   24  
Total deposits $ 7,396,798   100 % $ 7,366,662   100 % $ 7,371,470   100 % $ 7,395,597   100 % $ 7,511,661   100 %
 

Average low cost deposits increased by $75.7 million (+1.3%) and $257.9 million (+4.5%) from the fourth and first quarters of 2013, respectively, to the first quarter of 2014, driven by growth in noninterest bearing deposits. Our deposit mix improved over the past twelve months as low cost deposits now comprise 81% of total deposits at March 31, 2014 compared to 76% at March 31, 2013.

The following table shows the composition of deposits as of the dates indicated (dollars in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
  % of   % of   % of   % of   % of
Amount Total Amount Total Amount Total Amount Total Amount Total
Low cost deposits:
Noninterest bearing deposits $ 2,435,868 32 % $ 2,375,863 32 % $ 2,269,367 31 % $ 2,230,384 30 % $ 2,067,310 28 %
Money market and NOW accounts 2,772,766 37 2,682,419 36 2,680,127 37 2,718,989 37 2,778,916 37
Savings accounts 865,910   12   855,394   12   843,671   12   845,742   11   833,251   11  
Total low cost deposits 6,074,544   81   5,913,676   80     5,793,165   80   5,795,115   78   5,679,477   76  
Certificates of deposit:
Certificates of deposit 1,188,896 16 1,243,433 17 1,266,989 17 1,357,777 18 1,478,039 20
Brokered deposit accounts 222,307   3   224,150   3   238,532   3   292,504   4   294,390   4  
Total certificates of deposit 1,411,203   19   1,467,583   20   1,505,521   20   1,650,281   22   1,772,429   24  
Total deposits $ 7,485,747   100 % $ 7,381,259   100 % $ 7,298,686   100 % $ 7,445,396   100 % $ 7,451,906   100 %
 

CAPITAL

Tangible book value per common share increased to $16.43 at March 31, 2014 compared to $15.57 a year ago primarily due to retained net income less dividends. Our regulatory capital ratios remain strong. MB Financial Bank, N.A. was categorized as “well capitalized” at March 31, 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 pending 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 requisite regulatory approvals for the pending Taylor Capital merger might not be obtained; (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; (4) results of examinations by the Office of Comptroller of Currency, the Board of Governors of the Federal Reserve System and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (11) our ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation; (15) new legislation or regulatory changes, including but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act 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; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions or other factors.

We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

TABLES TO FOLLOW

         
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
As of the dates indicated
(Dollars in thousands)
 
3/31/2014 12/31/2013 9/30/2013 6/30/2013 3/31/2013
ASSETS
Cash and due from banks $ 268,803 $ 205,193 $ 215,017 $ 152,302 $ 131,146
Interest earning deposits with banks 244,819   268,266   41,700   280,618   108,885  
Total cash and cash equivalents 513,622 473,459 256,717 432,920 240,031
Federal funds sold 7,500 42,950 47,500 7,500
Investment securities:
Securities available for sale, at fair value 1,082,050 1,118,912 1,090,123 1,645,672 1,812,169
Securities held to maturity, at amortized cost 1,188,692 1,182,533 1,193,544 536,434 517,785
Non-marketable securities - FHLB and FRB Stock 51,432   51,417   50,870   50,870   52,434  
Total investment securities 2,322,174 2,352,862 2,334,537 2,232,976 2,382,388
Loans held for sale 802 629 1,120 2,528 3,030
Loans:
Total loans, excluding covered loans 5,394,638 5,476,831 5,313,235 5,359,631 5,306,879
Covered loans 173,677   235,720   273,497   308,556   400,789  
Total loans 5,568,315 5,712,551 5,586,732 5,668,187 5,707,668
Less: Allowance for loan losses 106,752   111,746   118,031   123,685   121,802  
Net loans 5,461,563 5,600,805 5,468,701 5,544,502 5,585,866
Lease investments, net 122,589 131,089 112,491 113,958 117,744
Premises and equipment, net 221,711 221,065 220,574 219,783 219,662
Cash surrender value of life insurance 131,008 130,181 129,332 130,565 129,723
Goodwill 423,369 423,369 423,369 423,369 423,369
Other intangibles 22,188 23,428 24,917 26,430 27,968
Other real estate owned, net 20,928 23,289 31,356 32,993 31,462
Other real estate owned related to FDIC transactions 22,682 20,472 24,792 19,014 20,011
FDIC indemnification asset 8,055 11,675 11,074 16,337 29,197
Other assets 159,112   186,154   171,138   166,784   175,379  
Total assets $ 9,437,303   $ 9,641,427   $ 9,257,618   $ 9,369,659   $ 9,385,830  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 2,435,868 $ 2,375,863 $ 2,269,367 $ 2,230,384 $ 2,067,310
Interest bearing 5,049,879   5,005,396   5,029,319   5,215,012   5,384,596  
Total deposits 7,485,747 7,381,259 7,298,686 7,445,396 7,451,906
Short-term borrowings 189,872 493,389 240,600 230,547 224,379
Long-term borrowings 65,664 62,159 62,428 62,786 64,019
Junior subordinated notes issued to capital trusts 152,065 152,065 152,065 152,065 152,065
Accrued expenses and other liabilities 200,175   225,873   194,371   182,784   198,658  
Total liabilities 8,093,523   8,314,745   7,948,150   8,073,578   8,091,027  
Stockholders' Equity
Common stock 553 551 551 550 550
Additional paid-in capital 740,245 738,053 736,294 736,281 734,057
Retained earnings 595,301 581,998 564,779 547,116 527,332
Accumulated other comprehensive income 10,362 8,383 9,918 14,231 34,928
Treasury stock (4,132 ) (3,747 ) (3,525 ) (3,558 ) (3,529 )
Controlling interest stockholders' equity 1,342,329 1,325,238 1,308,017 1,294,620 1,293,338
Noncontrolling interest 1,451   1,444   1,451   1,461   1,465  
Total stockholders' equity 1,343,780   1,326,682   1,309,468   1,296,081   1,294,803  
Total liabilities and stockholders' equity $ 9,437,303   $ 9,641,427   $ 9,257,618   $ 9,369,659   $ 9,385,830  
         
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) (Unaudited)
 
1Q14 4Q13 3Q13 2Q13 1Q13
Interest income:
Loans $ 56,244 $ 58,053 $ 60,115 $ 59,581 $ 60,793
Investment securities:
Taxable 8,146 7,334 6,330 6,280 6,140
Nontaxable 8,067 8,166 8,175 8,163 8,060
Federal funds sold 5 6 7 2
Other interest earning accounts 113   270   193   92   135  
Total interest income 72,575   73,829   74,820   74,118   75,128  
Interest expense:
Deposits 3,769 3,966 4,433 5,132 5,709
Short-term borrowings 100 227 112 116 167
Long-term borrowings and junior subordinated notes 1,378   1,373   1,367   1,390   1,567  
Total interest expense 5,247   5,566   5,912   6,638   7,443  
Net interest income 67,328 68,263 68,908 67,480 67,685
Provision for credit losses 1,150   (3,000 ) (3,304 ) 500    
Net interest income after provision for credit losses 66,178   71,263   72,212   66,980   67,685  
Non-interest income:
Capital markets and international banking service fees 978 841 972 939 808
Commercial deposit and treasury management fees 7,144 6,545 6,327 6,029 5,966
Lease financing, net 13,196 15,808 14,070 15,102 16,263
Trust and asset management fees 5,207 4,975 4,799 4,874 4,494
Card fees 2,701 2,838 2,745 2,735 2,695
Loan service fees 965 1,214 1,427 1,911 1,011
Consumer and other deposit service fees 2,935 3,481 3,648 3,593 3,246
Brokerage fees 1,325 1,227 1,289 1,234 1,157
Net gain (loss) on securities available for sale 317 (15 ) 1 14 (1 )
Increase in cash surrender value of life insurance 827 848 851 842 844
Net gain (loss) on sale of other assets 7 (323 )
Accretion of FDIC indemnification asset 31 35 64 100 143
Net gain on sale of loans 59 342 177 506 639
Other operating income 920   1,229   1,337   1,060   1,438  
Total non-interest income 36,612   39,045   37,707   38,939   38,703  
Non-interest expense:
Salaries and employee benefits 44,377 45,517 44,918 43,909 43,514
Occupancy and equipment expense 9,592 9,269 8,797 9,408 9,404
Computer services and telecommunication expense 5,084 5,509 4,870 4,617 3,887
Advertising and marketing expense 2,081 2,085 1,917 2,167 2,103
Professional and legal expense 1,779 3,057 3,102 1,353 1,295
Other intangible amortization expense 1,240 1,489 1,513 1,538 1,544
Net loss (gain) recognized on other real estate owned 187 (634 ) 791 (2,015 ) 330
Other real estate expense, net 396 175 240 193 139
Other operating expenses 11,311   10,174   10,117   9,083   9,213  
Total non-interest expense 76,047   76,641   76,265   70,253   71,429  
Income before income taxes 26,743 33,667 33,654 35,666 34,959
Income tax expense 6,774   9,811   9,254   10,373   10,053  
Net income $ 19,969   $ 23,856   $ 24,400   $ 25,293   $ 24,906  
         
1Q14 4Q13 3Q13 2Q13 1Q13
Common share data:
Basic earnings per common share $ 0.37 $ 0.44 $ 0.45 $ 0.46 $ 0.46
Diluted earnings per common share 0.36 0.43 0.44 0.46 0.46
Weighted average common shares outstanding for basic earnings per common share 54,639,951 54,622,584 54,565,089 54,436,043 54,411,806
Weighted average common shares outstanding for diluted earnings per common share 55,265,188 55,237,160 55,130,653 54,868,075 54,736,644
         
Selected Financial Data:
1Q14 4Q13 3Q13 2Q13 1Q13
Performance Ratios:
Annualized return on average assets 0.86 % 0.99 % 1.05 % 1.09 % 1.07 %
Annualized return on average equity 6.07 7.19 7.46 7.82 7.89
Annualized cash return on average tangible equity(1) 9.39 11.23 11.74 12.31 12.53
Net interest rate spread 3.51 3.37 3.52 3.46 3.44
Cost of funds(2) 0.27 0.27 0.30 0.34 0.38
Efficiency ratio(3) 66.67 67.12 65.11 64.26 63.10
Annualized net non-interest expense to average assets(4) 1.58 1.52 1.52 1.42 1.37
Core non-interest income to revenues (5) 33.41 34.68 33.51 35.01 34.56
Net interest margin 3.36 3.23 3.37 3.33 3.32
Tax equivalent effect 0.28 0.27 0.29 0.28 0.27
Net interest margin - fully tax equivalent basis(6) 3.64 3.50 3.66 3.61 3.59
Loans to deposits 74.39 77.39 76.54 76.13 76.59
Asset Quality Ratios:
Non-performing loans(7) to total loans 2.13 % 1.87 % 1.83 % 2.03 % 2.00 %
Non-performing assets(7) to total assets 1.49 1.36 1.45 1.59 1.56
Allowance for loan losses to non-performing loans(7) 89.88 104.87 115.21 107.32 106.88
Allowance for loan losses to total loans 1.92 1.96 2.11 2.18 2.13
Net loan charge-offs (recoveries) to average loans (annualized) 0.45 0.23 0.18 (0.02 ) 0.25
Capital Ratios:
Tangible equity to tangible assets(8) 10.07 % 9.65 % 9.87 % 9.58 % 9.54 %
Tangible common equity to risk weighted assets(9) 13.82 13.27 13.40 13.23 13.29
Book value per common share(10) $ 24.37 $ 24.14 $ 23.82 $ 23.63 $ 23.63
Less: goodwill and other intangible assets, net of benefit, per common share 7.94   7.98   7.99   8.03   8.06  
Tangible book value per common share(11) $ 16.43 $ 16.16 $ 15.83 $ 15.60 $ 15.57
 
Total capital (to risk-weighted assets) 17.09 % 16.53 % 16.70 % 16.48 % 16.22 %
Tier 1 capital (to risk-weighted assets) 15.84 15.28 15.44 15.22 14.96
Tier 1 capital (to average assets) 11.65 11.22 11.39 11.19 10.74
Tier 1 common capital (to risk-weighted assets) 13.59 13.07 13.17 12.94 12.66

(1) Net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) divided by average tangible equity (average equity less average goodwill and average other intangibles, net of tax benefit).

(2) Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.

(3) 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.

(4) 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.

(5) 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.

(6) Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.

(7) 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.

(8) 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.

(9) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total risk-weighted assets.

(10) Equals total ending stockholders’ equity divided by common shares outstanding.

(11) 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 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, and increase in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, and net gains and losses on other real estate owned, merger-related expenses, loss on low-income housing 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 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, and increase in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding net gains and losses on other real estate owned, merger-related expenses, loss on low-income housing 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—First Quarter Results.”

The following table presents a reconciliation of tangible equity to equity (in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Stockholders' equity - as reported $ 1,343,780 $ 1,326,682 $ 1,309,468 $ 1,296,081 $ 1,294,803
Less: goodwill 423,369 423,369 423,369 423,369 423,369
Less: other intangible assets, net of tax benefit 14,422   15,228   16,196   17,180   18,179
Tangible equity $ 905,989   $ 888,085   $ 869,903   $ 855,532   $ 853,255
 

The following table presents a reconciliation of tangible assets to total assets (in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Total assets - as reported $ 9,437,303 $ 9,641,427 $ 9,257,618 $ 9,369,659 $ 9,385,830
Less: goodwill 423,369 423,369 423,369 423,369 423,369
Less: other intangible assets, net of tax benefit 14,422   15,228   16,196   17,180   18,179
Tangible assets $ 8,999,512   $ 9,202,830   $ 8,818,053   $ 8,929,110   $ 8,944,282
 

The following table presents a reconciliation of average tangible equity to average common stockholders’ equity (in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
Average common stockholders' equity - as reported $ 1,335,223 $ 1,315,804 $ 1,297,498 $ 1,297,364 $ 1,280,921
Less: average goodwill 423,369 423,369 423,369 423,369 423,369
Less: average other intangible assets, net of tax benefit 14,758   15,647   16,620   17,605   18,611
Average tangible common equity $ 897,096   $ 876,788   $ 857,509   $ 856,390   $ 838,941
 

The following table presents a reconciliation of net cash flow available to common stockholders to net income available to common stockholders (in thousands):

  1Q14   4Q13   3Q13   2Q13   1Q13
Net income available to common stockholders - as reported $ 19,969 $ 23,856 $ 24,400 $ 25,293 $ 24,906
Add: other intangible amortization expense, net of tax benefit 806   968   983   1,000   1,004
Net cash flow available to common stockholders $ 20,775   $ 24,824   $ 25,383   $ 26,293   $ 25,910
 

The following table presents a reconciliation of Tier 1 common capital to Tier 1 capital (in thousands):

  3/31/2014   12/31/2013   9/30/2013   6/30/2013   3/31/2013
Tier 1 capital - as reported $ 1,038,600 $ 1,022,512 $ 1,002,883 $ 983,997 $ 960,803
Less: qualifying trust preferred securities 147,500   147,500   147,500   147,500   147,500
Tier 1 common capital $ 891,100   $ 875,012   $ 855,383   $ 836,497   $ 813,303
 

Efficiency Ratio Calculation (Dollars in Thousands)

  1Q14   4Q13   3Q13   2Q13   1Q13
Non-interest expense $ 76,047 $ 76,641 $ 76,265 $ 70,253 $ 71,429
Less net loss (gain) on other real estate owned 187 (634 ) 791 (2,015 ) 330
Less merger related expenses 680 724 1,759
Less loss on low-income housing investment 2,028
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Non-interest expense - as adjusted $ 73,000   $ 75,963   $ 73,256   $ 72,247   $ 70,616  
 
Net interest income $ 67,328 $ 68,263 $ 68,908 $ 67,480 $ 67,685
Tax equivalent adjustment 5,581   5,655   5,905   5,594   5,555  
Net interest income on a fully tax equivalent basis 72,909 73,918 74,813 73,074 73,240
Plus non-interest income 36,612 39,045 37,707 38,939 38,703
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 445 457 458 454 454
Less net gain (loss) on investment securities 317 (15 ) 1 14 (1 )
Less net gain (loss) on sale of other assets 7 (323 )
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Net interest income plus non-interest income - as adjusted $ 109,490   $ 113,170   $ 112,518   $ 112,432   $ 111,915  
 
Efficiency ratio 66.67 % 67.12 % 65.11 % 64.26 % 63.10 %
Efficiency ratio (without adjustments) 73.16 % 71.42 % 71.53 % 66.02 % 67.14 %
 

Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)

  1Q14   4Q13   3Q13   2Q13   1Q13
Non-interest expense $ 76,047 $ 76,641 $ 76,265 $ 70,253 $ 71,429
Less net loss (gain) on other real estate owned 187 (634 ) 791 (2,015 ) 330
Less merger related expenses 680 724 1,759
Less loss on low-income housing investment 2,028
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Non-interest expense - as adjusted 73,000   75,963   73,256   72,247   70,616  
 
Non-interest income 36,612 39,045 37,707 38,939 38,703
Less net gain (loss) on investment securities 317 (15 ) 1 14 (1 )
Less net gain (loss) on sale of other assets 7 (323 )
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Non-interest income - as adjusted 36,136   38,795   37,247   38,904   38,221  
Less tax equivalent adjustment on the increase in cash surrender value of life insurance 445   457   458   454   454  
Net non-interest expense $ 36,419   $ 36,711   $ 35,551   $ 32,889   $ 31,941  
 
Average assets $ 9,367,942 $ 9,567,388 $ 9,261,291 $ 9,289,382 $ 9,449,588
 
Annualized net non-interest expense to average assets 1.58 % 1.52 % 1.52 % 1.42 % 1.37 %
 
Annualized net non-interest expense to average assets (without adjustments) 1.71 % 1.56 % 1.65 % 1.35 % 1.40 %
 

Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)

  1Q14   4Q13   3Q13   2Q13   1Q13
Non-interest income $ 36,612 $ 39,045 $ 37,707 $ 38,939 $ 38,703
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 445 457 458 454 454
Less net gain (loss) on investment securities 317 (15 ) 1 14 (1 )
Less net gain (loss) on sale of other assets 7 (323 )
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Non-interest income - as adjusted $ 36,581   $ 39,252   $ 37,705   $ 39,358   $ 38,675  
 
Net interest income $ 67,328 $ 68,263 $ 68,908 $ 67,480 $ 67,685
Tax equivalent adjustment 5,581   5,655   5,905   5,594   5,555  
Net interest income on a fully tax equivalent basis 72,909 73,918 74,813 73,074 73,240
Plus non-interest income 36,612 39,045 37,707 38,939 38,703
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 445 457 458 454 454
Less net gain (loss) on investment securities 317 (15 ) 1 14 (1 )
Less net gain (loss) on sale of other assets 7 (323 )
Less increase in market value of assets held in trust for deferred compensation 152   588   459   21   483  
Total revenue - as adjusted and on a fully tax equivalent basis $ 109,490   $ 113,170   $ 112,518   $ 112,432   $ 111,915  
 
Total revenue - unadjusted $ 103,940 $ 107,308 $ 106,615 $ 106,419 $ 106,388
 
Core non-interest income to revenues ratio 33.41 % 34.68 % 33.51 % 35.01 % 34.56 %
 
Core non-interest income to revenues ratio (without adjustments) 35.22 % 36.39 % 35.37 % 36.59 % 36.38 %
 

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):

  1Q14   1Q13     4Q13
Average     Yield/ Average     Yield/ Average     Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,232,562 $ 12,312 4.00 % $ 1,205,903 12,559 4.17 % $ 1,167,924 $ 12,080 4.05 %
Commercial loans collateralized by assignment of lease payments 1,479,998 14,319 3.87 1,300,818 12,799 3.94 1,468,257 14,087 3.84
Real estate commercial 1,631,041 17,332 4.25 1,730,051 20,744 4.80 1,629,270 17,908 4.30
Real estate construction 140,920   1,278   3.63 113,573   1,120   3.94 141,041   1,402   3.89
Total commercial related credits 4,484,521   45,241   4.04 4,350,345   47,222   4.34 4,406,492   45,477   4.04
Other loans
Real estate residential 311,760 2,992 3.84 317,779 3,285 4.13 316,573 3,018 3.81
Home equity 263,283 2,712 4.18 298,061 3,190 4.34 271,898 2,925 4.27
Indirect 263,510 3,391 5.22 212,153 3,022 5.78 260,918 3,455 5.25
Consumer loans 62,616   676   4.38 70,364   607   3.50 60,054   629   4.16
Total other loans 901,169   9,771   4.40 898,357   10,104   4.56 909,443   10,027   4.37
Total loans, excluding covered loans 5,385,690 55,012 4.14 5,248,702 57,326 4.43 5,315,935 55,504 4.14
Covered loans 221,481   2,470   4.52 424,688   4,682   4.47 258,094   3,808   5.85
Total loans 5,607,171   57,482   4.16 5,673,390   62,008   4.43 5,574,029   59,312   4.22
Taxable investment securities 1,384,371 8,146 2.35 1,484,300 6,140 1.65 1,421,135 7,335 2.06
Investment securities exempt from federal income taxes (3) 935,863 12,410 5.30 911,742 12,400 5.44 943,298 12,561 5.33
Federal funds sold 5,889 5 0.34 8,251 6 0.28
Other interest earning deposits 187,049   113   0.25 197,057   135   0.28 436,158   270   0.25
Total interest earning assets $ 8,120,343 $ 78,156   3.90 $ 8,266,489 $ 80,683   3.96 $ 8,382,871 $ 79,484   3.76
Non-interest earning assets 1,247,599   1,183,099   1,184,517  
Total assets $ 9,367,942   $ 9,449,588   $ 9,567,388  
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,727,620 $ 848 0.13 % $ 2,737,494 $ 927 0.14 % $ 2,685,343 $ 861 0.13 %
Savings accounts 862,197 109 0.05 822,214 136 0.07 848,734 137 0.06
Certificates of deposit 1,210,189 1,174 0.40 1,512,600 2,397 0.66 1,250,049 1,256 0.40
Customer repurchase agreements 190,466   96   0.20 181,658   98   0.22 216,504   114   0.21
Total core funding 4,990,472   2,227   0.18 5,253,966   3,558   0.27 5,000,630   2,368   0.19
Wholesale funding:
Brokered accounts (includes fee expense) 223,926 1,638 2.97 294,295 2,249 3.10 229,635 1,712 2.96
Other borrowings 231,805   1,382   2.38 259,135   1,636   2.53 466,508   1,486   1.25
Total wholesale funding 455,731   3,020   2.38 553,430   3,885   2.52 696,143   3,198   1.68
Total interest bearing liabilities $ 5,446,203 $ 5,247   0.39 $ 5,807,396 $ 7,443   0.52 $ 5,696,773 $ 5,566   0.39
Non-interest bearing deposits 2,372,866 2,145,058 2,352,901
Other non-interest bearing liabilities 213,650 216,213 201,910
Stockholders' equity 1,335,223   1,280,921   1,315,804  
Total liabilities and stockholders' equity $ 9,367,942   $ 9,449,588   $ 9,567,388  
Net interest income/interest rate spread (4) $ 72,909   3.51 % $ 73,240   3.44 % $ 73,918   3.37 %
Taxable equivalent adjustment 5,581   5,555   5,655  
Net interest income, as reported $ 67,328   $ 67,685   $ 68,263  
Net interest margin (5) 3.36 % 3.32 % 3.23 %
Tax equivalent effect 0.28 % 0.27 % 0.27 %
Net interest margin on a fully tax equivalent basis (5) 3.64 % 3.59 % 3.50 %

(1) Non-accrual loans are included in average loans.

(2) Interest income includes amortization of deferred loan origination costs of $55 thousand for the three months ended March 31, 2014 and deferred loan origination fees of $981 thousand and $956 thousand for the three months ended March 31, 2013 and December 31, 2013, 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.

Contacts

MB Financial, Inc.
Jill York - Vice President and Chief Financial Officer
E-Mail: jyork@mbfinancial.com
(888) 422-6562

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Contacts

MB Financial, Inc.
Jill York - Vice President and Chief Financial Officer
E-Mail: jyork@mbfinancial.com
(888) 422-6562