EXHIBIT 99
MB Financial, Inc. | ||||
800 West Madison Street | ||||
Chicago, Illinois 60607 | ||||
(847) 653-7375 | ||||
NASDAQ: MBFI |
PRESS RELEASE
For Information at MB Financial, Inc. Contact:
Berry Allen - Investor Relations
E-Mail: beallen@mbfinancial.com
FOR IMMEDIATE RELEASE
MB FINANCIAL, INC. REPORTS EARNINGS FOR THE FOURTH QUARTER OF 2016
CHICAGO, January 26, 2017 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2016 fourth quarter net income available to common stockholders of $45.2 million, or $0.53 per diluted common share, compared to $42.4 million, or $0.54 per diluted common share, last quarter and $41.6 million, or $0.56 per diluted common share, in the fourth quarter a year ago. Annual net income available to common stockholders for 2016 was $166.1 million compared to $150.9 million for 2015. Diluted earnings per common share were $2.13 for 2016 compared to $2.02 for 2015.
"Our company had a very successful 2016. Operating earnings per share grew by 13.6%. We realized significant and sustained organic loan, deposit, and fee growth. Credit performance was excellent. We were able to maintain our net interest margin despite significant interest rate swings, and our fee businesses continued their growth and development.
In the third quarter of 2016, we successfully acquired and integrated American Chartered Bancorp, Inc., while at the same time increasing the investment we’re making in our infrastructure, particularly in technology and risk capabilities.
Legacy bank performance, which excludes the impact of the American Chartered merger, in the fourth quarter was very good. Loan growth, deposit growth, and fee performance, with the exception of the Mortgage Banking Segment, was strong. Mortgage net income was under our target run rate for the fourth quarter, but did well given the highly volatile interest rate environment in the quarter.
We look forward to a strong 2017," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc.
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KEY ITEMS
Operating Earnings
The following table presents a reconciliation of net income to operating earnings (in thousands). Non-core items represent the difference between non-core non-interest income and non-core non-interest expense. See the "Non-GAAP Financial Information" section for details on non-core items.
Year Ended | |||||||||||||||||||||
December 31, | |||||||||||||||||||||
4Q16 | 3Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||
Net income - as reported | $ | 47,191 | $ | 44,419 | $ | 43,607 | $ | 174,136 | $ | 158,948 | |||||||||||
Non-core items | 7,062 | 15,363 | (4,183 | ) | 28,214 | 5,769 | |||||||||||||||
Income tax expense on non-core items (1) | 2,406 | 7,867 | (1,140 | ) | 11,853 | 2,809 | |||||||||||||||
Non-core items, net of tax | 4,656 | 7,496 | (3,043 | ) | 16,361 | 2,960 | |||||||||||||||
Operating earnings | 51,847 | 51,915 | 40,564 | 190,497 | 161,908 | ||||||||||||||||
Dividends on preferred shares | 2,005 | 2,004 | 2,000 | 8,009 | 8,000 | ||||||||||||||||
Operating earnings available to common stockholders | $ | 49,842 | $ | 49,911 | $ | 38,564 | $ | 182,488 | $ | 153,908 | |||||||||||
Diluted operating earnings per common share | $ | 0.59 | $ | 0.63 | $ | 0.52 | $ | 2.34 | $ | 2.06 | |||||||||||
Weighted average common shares outstanding for diluted operating earnings per common share | 84,674,181 | 78,683,170 | 73,953,165 | 77,976,121 | 74,849,030 |
(1) | Both the third quarter of 2016 and the year ended December 31, 2016 include an adjustment for the $1.8 million income tax benefit resulting from the adoption of new stock-based compensation guidance. |
Operating earnings available to common stockholders were $49.8 million, or $0.59 per diluted common share, in the fourth quarter of 2016 compared to $49.9 million, or $0.63 per diluted common share, last quarter. Key drivers of the change in operating earnings from the third to the fourth quarter of 2016 were:
• | Net interest income on a fully tax equivalent basis increased by $14.4 million, or 10.5%, in the fourth quarter of 2016 compared to the prior quarter. This increase is due to a full quarter of American Chartered Bancorp, Inc. ("American Chartered") being presented as well as organic loan growth. |
• | Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital Group, Inc. ("Taylor Capital") and American Chartered mergers ("bank mergers"), decreased three basis points from the prior quarter primarily due to higher borrowing costs. |
• | Our core non-interest income decreased $14.4 million, or 13.4%, to $93.3 million compared to the prior quarter primarily due to a decrease in mortgage banking revenue which was a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges, driven by interest rate volatility during the quarter. |
• | Our core non-interest expense increased $4.8 million, or 3.1%, to $159.1 million compared to the prior quarter primarily due to higher salaries and employee benefits, occupancy and equipment, and computer services and telecommunication expenses driven by the inclusion of a full quarter of American Chartered expenses. |
Operating earnings available to common stockholders increased by $28.6 million to $182.5 million, or $2.34 per diluted common share, for the year ended December 31, 2016 compared to $153.9 million, or $2.06 per diluted common share, in the prior year. Key drivers of the change in operating earnings from the year ended December 31, 2015 to the year ended December 31, 2016 were:
• | Net interest income on a fully tax equivalent basis increased by $53.8 million, or 10.9%, in 2016 compared to the prior year primarily due to organic loan growth as well as the impact of the American Chartered merger. |
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• | Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points in 2016 compared to the prior year primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings. |
• | Our core non-interest income for 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to 2015 primarily due to higher mortgage banking revenue and trust and asset management fees. |
• | Our core non-interest expense increased by $62.1 million, or 11.7%, from 2015 to $590.6 million for 2016 primarily due to higher salaries and employee benefits, occupancy and equipment, computer services and telecommunication, and other operating expenses. |
Loan Balances
Loan balances, excluding purchased credit-impaired loans, increased $226.4 million (+1.8%, or +7.3% annualized) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Legacy loan balances (which exclude loans acquired in the American Chartered merger), excluding purchased credit-impaired loans, increased $360.0 million (+3.4%, or +13.6% annualized) from September 30, 2016.
The following table sets forth the composition of the loan portfolio (excluding loans held for sale) as of the dates indicated (dollars in thousands):
12/31/2016 | 9/30/2016 | Change in Legacy Loan Balances from 9/30/2016 to 12/31/2016 | |||||||||||||||||||||||||||||
Legacy | American Chartered (1) | Total | Legacy | American Chartered (1) | Total | Amount | Percent | ||||||||||||||||||||||||
Commercial-related loans: | |||||||||||||||||||||||||||||||
Commercial | $ | 3,752,392 | $ | 594,114 | $ | 4,346,506 | $ | 3,745,486 | $ | 640,326 | $ | 4,385,812 | $ | 6,906 | +0.2 | % | |||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,002,976 | — | 2,002,976 | 1,873,380 | — | 1,873,380 | 129,596 | +6.9 | % | ||||||||||||||||||||||
Commercial real estate | 2,892,692 | 895,324 | 3,788,016 | 2,849,270 | 945,531 | 3,794,801 | 43,422 | +1.5 | % | ||||||||||||||||||||||
Construction real estate | 501,060 | 17,502 | 518,562 | 415,171 | 35,852 | 451,023 | 85,889 | +20.7 | % | ||||||||||||||||||||||
Total commercial-related loans | 9,149,120 | 1,506,940 | 10,656,060 | 8,883,307 | 1,621,709 | 10,505,016 | 265,813 | +3.0 | % | ||||||||||||||||||||||
Other loans: | |||||||||||||||||||||||||||||||
Residential real estate | 896,700 | 164,128 | 1,060,828 | 823,374 | 175,453 | 998,827 | 73,326 | +8.9 | % | ||||||||||||||||||||||
Indirect vehicle | 541,680 | — | 541,680 | 522,271 | — | 522,271 | 19,409 | +3.7 | % | ||||||||||||||||||||||
Home equity | 187,162 | 79,215 | 266,377 | 188,861 | 86,427 | 275,288 | (1,699 | ) | -0.9 | % | |||||||||||||||||||||
Consumer | 80,122 | 659 | 80,781 | 77,013 | 943 | 77,956 | 3,109 | +4.0 | % | ||||||||||||||||||||||
Total other loans | 1,705,664 | 244,002 | 1,949,666 | 1,611,519 | 262,823 | 1,874,342 | 94,145 | +5.8 | % | ||||||||||||||||||||||
Total loans, excluding purchased credit-impaired | 10,854,784 | 1,750,942 | 12,605,726 | 10,494,826 | 1,884,532 | 12,379,358 | 359,958 | +3.4 | % | ||||||||||||||||||||||
Purchased credit-impaired | 122,156 | 40,921 | 163,077 | 137,025 | 24,313 | 161,338 | (14,869 | ) | -10.9 | % | |||||||||||||||||||||
Total loans | $ | 10,976,940 | $ | 1,791,863 | $ | 12,768,803 | $ | 10,631,851 | $ | 1,908,845 | $ | 12,540,696 | $ | 345,089 | +3.2 | % |
(1) | American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger. |
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The following table sets forth the composition of the loan portfolio (excluding loans held for sale) as of the dates indicated (dollars in thousands):
12/31/2016 | Change in Legacy Loan Balances from 12/31/2015 to 12/31/2016 | ||||||||||||||||||||||
Legacy | American Chartered (1) | Total | 12/31/2015 | Amount | Percent | ||||||||||||||||||
Commercial-related loans: | |||||||||||||||||||||||
Commercial | $ | 3,752,392 | $ | 594,114 | $ | 4,346,506 | $ | 3,616,286 | $ | 136,106 | +3.8 | % | |||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,002,976 | — | 2,002,976 | 1,779,072 | 223,904 | +12.6 | % | ||||||||||||||||
Commercial real estate | 2,892,692 | 895,324 | 3,788,016 | 2,695,676 | 197,016 | +7.3 | % | ||||||||||||||||
Construction real estate | 501,060 | 17,502 | 518,562 | 252,060 | 249,000 | +98.8 | % | ||||||||||||||||
Total commercial-related loans | 9,149,120 | 1,506,940 | 10,656,060 | 8,343,094 | 806,026 | +9.7 | % | ||||||||||||||||
Other loans: | |||||||||||||||||||||||
Residential real estate | 896,700 | 164,128 | 1,060,828 | 628,169 | 268,531 | +42.7 | % | ||||||||||||||||
Indirect vehicle | 541,680 | — | 541,680 | 384,095 | 157,585 | +41.0 | % | ||||||||||||||||
Home equity | 187,162 | 79,215 | 266,377 | 216,573 | (29,411 | ) | -13.6 | % | |||||||||||||||
Consumer | 80,122 | 659 | 80,781 | 80,661 | (539 | ) | -0.7 | % | |||||||||||||||
Total other loans | 1,705,664 | 244,002 | 1,949,666 | 1,309,498 | 396,166 | +30.3 | % | ||||||||||||||||
Total loans, excluding purchased credit-impaired | 10,854,784 | 1,750,942 | 12,605,726 | 9,652,592 | 1,202,192 | +12.5 | % | ||||||||||||||||
Purchased credit-impaired | 122,156 | 40,921 | 163,077 | 141,406 | (19,250 | ) | -13.6 | % | |||||||||||||||
Total loans | $ | 10,976,940 | $ | 1,791,863 | $ | 12,768,803 | $ | 9,793,998 | $ | 1,182,942 | +12.1 | % |
(1) | American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger. |
Legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%) compared to December 31, 2015, driven by the growth in commercial-related loans.
Deposit Balances
Low cost deposits decreased $131.5 million (-1.1%, or -4.3% annualized) in the fourth quarter of 2016 primarily due to a decrease in higher rate NOW accounts and mortgage escrow accounts. Low cost deposits represented 86% of total deposits at December 31, 2016, with non-interest bearing deposits representing 46% of total deposits. Legacy low cost deposit balances increased $40.7 million (+0.4%, or 1.6% annualized) from September 30, 2016 driven by good non-interest bearing deposit flows. Legacy non-interest bearing deposits increased $82.3 million (+1.6%, or +6.5% annualized) in the fourth quarter of 2016. Legacy deposits exclude deposits assumed in the American Chartered merger.
The following table shows the composition of deposits as of the dates indicated (dollars in thousands):
12/31/2016 | 9/30/2016 | Change in Legacy Deposit Balances from 9/30/2016 to 12/31/2016 | |||||||||||||||||||||||||||||
Legacy | American Chartered (1) | Total | Legacy | American Chartered (1) | Total | Amount | Percent | ||||||||||||||||||||||||
Low cost deposits: | |||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 5,137,605 | $ | 1,270,564 | $ | 6,408,169 | $ | 5,055,261 | $ | 1,355,073 | $ | 6,410,334 | $ | 82,344 | +1.6 | % | |||||||||||||||
Money market, NOW and interest bearing deposits | 3,861,222 | 681,782 | 4,543,004 | 3,896,438 | 763,969 | 4,660,407 | (35,216 | ) | -0.9 | % | |||||||||||||||||||||
Savings deposits | 1,024,368 | 111,624 | 1,135,992 | 1,030,834 | 117,066 | 1,147,900 | (6,466 | ) | -0.6 | % | |||||||||||||||||||||
Total low cost deposits | 10,023,195 | 2,063,970 | 12,087,165 | 9,982,533 | 2,236,108 | 12,218,641 | 40,662 | +0.4 | % | ||||||||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||||||||||
Certificates of deposit | 1,079,405 | 145,697 | 1,225,102 | 1,145,303 | 152,883 | 1,298,186 | (65,898 | ) | -5.8 | % | |||||||||||||||||||||
Brokered certificates of deposit | 774,802 | 23,379 | 798,181 | 738,960 | 23,479 | 762,439 | 35,842 | +4.9 | % | ||||||||||||||||||||||
Total certificates of deposit | 1,854,207 | 169,076 | 2,023,283 | 1,884,263 | 176,362 | 2,060,625 | (30,056 | ) | -1.6 | % | |||||||||||||||||||||
Total deposits | $ | 11,877,402 | $ | 2,233,046 | $ | 14,110,448 | $ | 11,866,796 | $ | 2,412,470 | $ | 14,279,266 | $ | 10,606 | +0.1 | % |
(1) | American Chartered deposits refer to deposits assumed in the American Chartered merger. |
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The following table shows the composition of deposits as of the dates indicated (dollars in thousands):
12/31/2016 | Change in Legacy Deposit Balances from 12/31/2015 to 12/31/2016 | ||||||||||||||||||||||
Legacy | American Chartered (1) | Total | 12/31/2015 | Amount | Percent | ||||||||||||||||||
Low cost deposits: | |||||||||||||||||||||||
Non-interest bearing deposits | $ | 5,137,605 | $ | 1,270,564 | $ | 6,408,169 | $ | 4,627,184 | $ | 510,421 | +11.0 | % | |||||||||||
Money market, NOW and interest bearing deposits | 3,861,222 | 681,782 | 4,543,004 | 4,144,633 | (283,411 | ) | -6.8 | % | |||||||||||||||
Savings deposits | 1,024,368 | 111,624 | 1,135,992 | 974,555 | 49,813 | +5.1 | % | ||||||||||||||||
Total low cost deposits | 10,023,195 | 2,063,970 | 12,087,165 | 9,746,372 | 276,823 | +2.8 | % | ||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||
Certificates of deposit | 1,079,405 | 145,697 | 1,225,102 | 1,244,292 | (164,887 | ) | -13.3 | % | |||||||||||||||
Brokered certificates of deposit | 774,802 | 23,379 | 798,181 | 514,551 | 260,251 | +50.6 | % | ||||||||||||||||
Total certificates of deposit | 1,854,207 | 169,076 | 2,023,283 | 1,758,843 | 95,364 | +5.4 | % | ||||||||||||||||
Total deposits | $ | 11,877,402 | $ | 2,233,046 | $ | 14,110,448 | $ | 11,505,215 | $ | 372,187 | +3.2 | % |
(1) | American Chartered deposits refer to deposits assumed in the American Chartered merger. |
Legacy low cost deposit balances increased $276.8 million (+2.8%) compared to December 31, 2015, driven by 11.0% growth in non-interest bearing deposits.
Credit Quality Metrics
Overall credit quality was stable compared to the prior quarter and improved compared to the prior year end.
• | Our provision for credit losses decreased by $3.9 million in the fourth quarter of 2016 compared to the third quarter of 2016 and decreased by $1.8 million during the year ended December 31, 2016 compared to the prior year. The decrease from the prior quarter was primarily due to improvement of a potential problem loan at our leasing segment. |
• | Net loan charge-offs during the quarter were 0.10% of loans (annualized) compared to 0.09% (annualized) in the third quarter of 2016 and were 0.09% for the year ended December 31, 2016 compared to 0.04% for the year ended December 31, 2015. |
• | Non-accrual loans and non-performing assets decreased by $3.2 million (-6.1%) and $1.5 million (-1.7%), respectively, from September 30, 2016. Compared to a year ago, non-accrual loans decreased by $49.1 million (-50.1%) and non-performing assets decreased by $50.3 million (-36.9%). |
• | Potential problem loans increased by $33.0 million (+29.5%) from September 30, 2016 and increased by $4.6 million (+3.3%) from December 31, 2015. |
• | Our non-performing loans to total loans ratio was 0.46% at December 31, 2016, 0.43% at September 30, 2016 and 1.07% at December 31, 2015. |
5
RESULTS OF OPERATIONS
Fourth Quarter and Annual Results
Net Interest Income
The following table presents net interest income and net interest margin on fully tax equivalent basis (dollars in thousands):
Change from 3Q16 to 4Q16 | Change from 4Q15 to 4Q16 | Year Ended | Change from 2015 to 2016 | |||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||
4Q16 | 3Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||||||
Net interest income - fully tax equivalent | $ | 152,304 | $ | 137,893 | +10.5 | % | $ | 129,076 | +18.0 | % | $ | 546,507 | $ | 492,686 | +10.9 | % | ||||||||||||||
Net interest income - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans | 144,741 | 131,733 | +9.9 | % | 119,373 | +21.3 | % | 517,728 | 459,047 | +12.8 | % | |||||||||||||||||||
Net interest margin - fully tax equivalent | 3.67 | % | 3.68 | % | -0.01 | % | 3.86 | % | -0.19 | % | 3.73 | % | 3.84 | % | -0.11 | % | ||||||||||||||
Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans | 3.47 | % | 3.50 | % | -0.03 | % | 3.56 | % | -0.09 | % | 3.52 | % | 3.56 | % | -0.04 | % |
Net interest income on a fully tax equivalent basis increased $14.4 million in the fourth quarter of 2016 compared to the prior quarter as a result of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger being presented for a full quarter and organic loan growth. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased three basis points to 3.47% for the fourth quarter of 2016 compared to 3.50% for the prior quarter primarily due to a higher cost of borrowings.
Net interest income on a fully tax equivalent basis increased in the fourth quarter of 2016 compared to the fourth quarter of 2015 primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, partially offset by a decrease in interest earned on purchased credit-impaired loans and an increase in average borrowings. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased nine basis points to 3.47% compared to 3.56% for the fourth quarter of 2015 primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.
Net interest income on a fully tax equivalent basis increased in 2016 compared to the prior year primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points to 3.52% for 2016 compared to 3.56% for the prior year. This decrease was primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.
See the supplemental net interest margin tables in the "Net Interest Margin" section for further detail. Reconciliations of net interest income on a fully tax equivalent basis to net interest income on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans are also set forth in the tables in the "Net Interest Margin" section. In addition, reconciliations of net interest margin on a fully tax equivalent basis to net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans are included in the same section.
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Non-interest Income
The following table presents non-interest income (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Core non-interest income: | |||||||||||||||||||||||||||||
Key fee initiatives: | |||||||||||||||||||||||||||||
Mortgage banking revenue | $ | 32,277 | $ | 49,095 | $ | 39,615 | $ | 27,482 | $ | 26,542 | $ | 148,469 | $ | 117,426 | |||||||||||||||
Lease financing revenue, net | 19,868 | 18,864 | 15,708 | 19,046 | 15,937 | 73,486 | 76,581 | ||||||||||||||||||||||
Commercial deposit and treasury management fees | 14,237 | 12,957 | 11,548 | 11,878 | 11,711 | 50,620 | 45,283 | ||||||||||||||||||||||
Trust and asset management fees | 8,442 | 8,244 | 8,236 | 7,950 | 6,077 | 32,872 | 23,545 | ||||||||||||||||||||||
Card fees | 4,340 | 4,161 | 4,045 | 3,525 | 3,651 | 16,071 | 15,322 | ||||||||||||||||||||||
Capital markets and international banking service fees | 4,021 | 3,313 | 2,771 | 3,227 | 2,355 | 13,332 | 8,148 | ||||||||||||||||||||||
Total key fee initiatives | 83,185 | 96,634 | 81,923 | 73,108 | 66,273 | 334,850 | 286,305 | ||||||||||||||||||||||
Consumer and other deposit service fees | 3,563 | 3,559 | 3,161 | 3,025 | 3,440 | 13,308 | 13,282 | ||||||||||||||||||||||
Brokerage fees | 887 | 1,294 | 1,315 | 1,158 | 1,252 | 4,654 | 5,754 | ||||||||||||||||||||||
Loan service fees | 1,952 | 1,792 | 1,961 | 1,752 | 1,890 | 7,457 | 6,259 | ||||||||||||||||||||||
Increase in cash surrender value of life insurance | 1,316 | 1,055 | 850 | 854 | 864 | 4,075 | 3,391 | ||||||||||||||||||||||
Other operating income | 2,350 | 3,337 | 2,043 | 1,836 | 1,344 | 9,566 | 7,274 | ||||||||||||||||||||||
Total core non-interest income | 93,253 | 107,671 | 91,253 | 81,733 | 75,063 | 373,910 | 322,265 | ||||||||||||||||||||||
Non-core non-interest income: | |||||||||||||||||||||||||||||
Net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Increase in market value of assets held in trust for deferred compensation (1) | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Total non-core non-interest income | (430 | ) | 716 | 747 | (40 | ) | 562 | 993 | (172 | ) | |||||||||||||||||||
Total non-interest income | $ | 92,823 | $ | 108,387 | $ | 92,000 | $ | 81,693 | $ | 75,625 | $ | 374,903 | $ | 322,093 |
(1) | Resides in other operating income in the consolidated statements of operations. |
Core non-interest income for the fourth quarter of 2016 decreased by $14.4 million, or 13.4%, to $93.3 million from the third quarter of 2016.
• | Mortgage banking revenue decreased as a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges also driven by the volatile interest rate environment in the fourth quarter of 2016. |
• | Lease financing revenue increased primarily due to higher residual gains and an increase in operating lease revenue. |
• | Commercial deposit and treasury management fees increased due to the increased customer base as a result of the American Chartered merger. |
• | Capital markets and international banking services fees increased due to higher swap and M&A advisory fees partly offset by lower syndication fees. |
• | Other operating income decreased due to lower earnings from investments in Small Business Investment Companies. |
Core non-interest income for the year ended December 31, 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to the year ended December 31, 2015.
• | Mortgage banking revenue increased due to higher gain on sale margin and higher mortgage servicing fees. |
• | Leasing revenues decreased due to lower residual gains partly offset by higher fees from the sale of third-party equipment maintenance contracts. |
• | Commercial deposit and treasury management fees increased due to new customer activity as well as the increased customer base as a result of the American Chartered merger. |
• | Trust and asset management fees increased due to the addition of new customers as well as the acquisitions of MSA Holdings, LLC ("MSA") on December 31, 2015 and the Illinois court-appointed guardianship and special needs trust business in the third quarter of 2015. |
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• | Capital markets and international banking services fees increased due to higher swap, M&A advisory and syndication fees. |
• | Other operating income increased due to higher earnings from investments in Small Business Investment Companies. |
Non-interest Expense
The following table presents non-interest expense (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Core non-interest expense: (1) | |||||||||||||||||||||||||||||
Salaries and employee benefits expense: | |||||||||||||||||||||||||||||
Salaries | $ | 58,823 | $ | 55,088 | $ | 51,383 | $ | 48,809 | $ | 48,433 | $ | 214,103 | $ | 189,570 | |||||||||||||||
Commissions | 12,036 | 12,318 | 10,822 | 10,348 | 9,794 | 45,524 | 45,564 | ||||||||||||||||||||||
Bonus and stock-based compensation | 12,167 | 12,980 | 12,871 | 8,657 | 9,950 | 46,675 | 39,932 | ||||||||||||||||||||||
Health and accident insurance | 5,951 | 6,377 | 6,079 | 5,599 | 4,646 | 24,006 | 21,075 | ||||||||||||||||||||||
Other salaries and benefits (2) | 15,072 | 15,320 | 13,045 | 12,089 | 11,533 | 55,526 | 47,560 | ||||||||||||||||||||||
Total salaries and employee benefits expense | 104,049 | 102,083 | 94,200 | 85,502 | 84,356 | 385,834 | 343,701 | ||||||||||||||||||||||
Occupancy and equipment expense | 15,594 | 14,662 | 13,407 | 13,260 | 12,935 | 56,923 | 50,235 | ||||||||||||||||||||||
Computer services and telecommunication expense | 11,019 | 9,731 | 9,266 | 8,750 | 8,548 | 38,766 | 34,147 | ||||||||||||||||||||||
Advertising and marketing expense | 3,039 | 3,031 | 2,923 | 2,855 | 2,549 | 11,848 | 10,070 | ||||||||||||||||||||||
Professional and legal expense | 2,351 | 2,779 | 3,220 | 2,492 | 2,715 | 10,842 | 8,593 | ||||||||||||||||||||||
Other intangible amortization expense | 2,388 | 1,674 | 1,617 | 1,626 | 1,546 | 7,305 | 6,115 | ||||||||||||||||||||||
Net loss (gain) recognized on other real estate owned (A) | 182 | (890 | ) | (297 | ) | (637 | ) | (256 | ) | (1,642 | ) | 1,814 | |||||||||||||||||
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A) | (1,164 | ) | (18 | ) | 312 | 154 | (549 | ) | (716 | ) | (845 | ) | |||||||||||||||||
Other real estate expense, net (A) | 192 | 187 | 243 | 137 | 76 | 759 | 499 | ||||||||||||||||||||||
Other operating expenses | 21,478 | 21,067 | 19,814 | 18,366 | 18,932 | 80,725 | 74,228 | ||||||||||||||||||||||
Total core non-interest expense | 159,128 | 154,306 | 144,705 | 132,505 | 130,852 | 590,644 | 528,557 | ||||||||||||||||||||||
Non-core non-interest expense: (1) | |||||||||||||||||||||||||||||
Merger related and repositioning expenses (B) | 6,491 | 11,368 | 2,566 | 3,287 | (4,186 | ) | 23,712 | 5,506 | |||||||||||||||||||||
Branch exit and facilities impairment charges | — | — | 155 | — | — | 155 | — | ||||||||||||||||||||||
Prepayment fees on interest bearing liabilities | — | — | — | — | — | — | 85 | ||||||||||||||||||||||
Contribution to MB Financial Charitable Foundation (C) | — | 4,000 | — | — | — | 4,000 | — | ||||||||||||||||||||||
Increase in market value of assets held in trust for deferred compensation (D) | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Total non-core non-interest expense | 6,632 | 16,079 | 3,201 | 3,295 | (3,621 | ) | 29,207 | 5,597 | |||||||||||||||||||||
Total non-interest expense | $ | 165,760 | $ | 170,385 | $ | 147,906 | $ | 135,800 | $ | 127,231 | $ | 619,851 | $ | 534,154 |
(1) | Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows: A – Net loss (gain) recognized on other real estate owned and other expense, B – See merger related and repositioning expenses table below, C – Other operating expenses and D – Salaries and employee benefits. |
(2) | Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses. |
Core non-interest expense increased by $4.8 million, or 3.1%, from the third quarter of 2016 to $159.1 million for the fourth quarter of 2016.
• | Salaries and employee benefits expense increased primarily due to the increased staff from the American Chartered merger for a full quarter. |
• | Occupancy and equipment expense increased due to the additional offices acquired through the American Chartered merger for a full quarter. |
• | Computer services and telecommunication expense increased due to investments in systems as well as the increase in customer activity as a result of the American Chartered merger. |
• | Professional and legal expense decreased due to lower legal expense. |
• | Other intangible amortization expense was higher due to the core deposit intangible recorded as a result of the American Chartered merger. |
8
Core non-interest expense increased by $62.1 million, or 11.7%, from the year ended December 31, 2015 to $590.6 million for the year ended December 31, 2016.
• | Salaries and employee benefits expense increased due to the following: |
• | Salaries increased due to new hires, annual pay increases effective in the beginning of the second quarter and increased staff from the American Chartered merger and the acquisition of MSA. |
• | Bonus and stock-based compensation increased primarily due to an increase in bonus expense based on company performance in 2016 as well as the increase in staff. |
• | Other salaries and benefits expense increased due to increased temporary help in our IT, mortgage and other support areas as well as higher 401(k) match and profit sharing contribution expense and payroll taxes as a result of the increase in staff. |
• | Occupancy and equipment expense increased due to higher depreciation, property tax and rental operating expenses as a result of the acquisition of MSA and the American Chartered merger as well as new offices opened at our Mortgage Banking Segment. |
• | Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer base and investments in systems. |
• | Advertising and marketing expense increased due to increased brand awareness advertising. |
• | Professional and legal expense increased due to increased litigation and consulting fees. |
• | Other intangible amortization expense was higher due to the customer and core deposit intangibles recorded as a result of the acquisition of MSA and the American Chartered merger, respectively. |
• | Non-interest expense was also impacted by higher gains recognized on other real estate owned properties. |
• | Other operating expenses increased due to higher FDIC premiums (as a result of MB Financial Bank, N.A. (the "Bank") exceeding $10 billion in assets), filing and other loan expense and card expenses (higher rewards and product development expense). |
The following table presents the detail of the merger related and repositioning expenses (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Merger related and repositioning expenses: | |||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 4,238 | $ | 8,684 | $ | 324 | $ | 81 | $ | (212 | ) | $ | 13,327 | $ | (176 | ) | |||||||||||||
Occupancy and equipment expense | 95 | 104 | 8 | — | — | 207 | 275 | ||||||||||||||||||||||
Computer services and telecommunication expense | 781 | 3,105 | 511 | 305 | (103 | ) | 4,702 | 306 | |||||||||||||||||||||
Advertising and marketing expense | 6 | 53 | 41 | 23 | 2 | 123 | 2 | ||||||||||||||||||||||
Professional and legal expense | 158 | 1,681 | 101 | 97 | 1,454 | 2,037 | 2,460 | ||||||||||||||||||||||
Branch exit and facilities impairment charges | — | (2,908 | ) | — | 44 | 616 | (2,864 | ) | 8,515 | ||||||||||||||||||||
Contingent consideration expense - Celtic acquisition (1) | 1,000 | — | — | 2,703 | — | 3,703 | — | ||||||||||||||||||||||
Other operating expenses | 213 | 649 | 1,581 | 34 | (5,943 | ) | 2,477 | (5,876 | ) | ||||||||||||||||||||
Total merger related and repositioning expenses | $ | 6,491 | $ | 11,368 | $ | 2,566 | $ | 3,287 | $ | (4,186 | ) | $ | 23,712 | $ | 5,506 |
(1) | Resides in other operating expenses in the consolidated statements of operations. |
In the fourth quarter of 2016, merger related and repositioning expenses primarily included costs incurred in connection with the American Chartered merger. In the third quarter of 2016, merger related and repositioning expenses primarily included costs incurred in connection with the American Chartered merger as well as a reversal of an exit cost due to a favorable lease termination on a branch acquired through the Taylor Capital merger. In the second quarter of 2016, merger related and repositioning expenses included a $1.5 million contract termination fee related to the American Chartered integration (reflected in other operating expenses). In the first quarter of 2016, merger related and repositioning expenses included an increase in our contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated. In the fourth quarter of 2015, merger related and repositioning expenses were impacted by the reversal of an accrual for a potential contingent loss we assumed in connection with the Taylor Capital merger (reflected in other operating expenses).
9
Operating Segments
The Company's operations consist of three reportable operating segments: Banking, Leasing and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. Our Leasing Segment generates revenues through lease originations and related services offered through the Company's leasing subsidiaries: LaSalle Systems Leasing, Inc., Celtic Leasing Corp. and MB Equipment Finance, LLC. Our Mortgage Banking Segment originates residential mortgage loans for sale to investors through its retail and third party origination channels as well as residential mortgage loans held in our loan portfolio. The Mortgage Banking Segment also services residential mortgage loans owned by investors and the Company.
Banking Segment
The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Banking segment for the periods presented (in thousands):
Year Ended | ||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||
Net interest income | $ | 133,688 | $ | 119,685 | $ | 112,152 | $ | 109,608 | $ | 111,691 | $ | 475,133 | $ | 424,883 | ||||||||||||||
Provision for credit losses | 4,193 | 4,394 | 2,995 | 7,001 | 6,654 | 18,583 | 19,436 | |||||||||||||||||||||
Net interest income after provision for credit losses | 129,495 | 115,291 | 109,157 | 102,607 | 105,037 | 456,550 | 405,447 | |||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Mortgage origination fees | — | — | — | — | — | — | — | |||||||||||||||||||||
Mortgage servicing fees | — | — | — | — | — | — | — | |||||||||||||||||||||
Lease financing revenue, net | 1,050 | 890 | 789 | 679 | 1,180 | 3,408 | 2,750 | |||||||||||||||||||||
Other non-interest income | 40,354 | 38,927 | 35,144 | 34,369 | 31,772 | 148,794 | 125,132 | |||||||||||||||||||||
Total non-interest income | 41,404 | 39,817 | 35,933 | 35,048 | 32,952 | 152,202 | 127,882 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 42,797 | 38,575 | 35,951 | 34,527 | 34,840 | 151,850 | 135,905 | |||||||||||||||||||||
Commissions | 1,090 | 1,172 | 1,424 | 1,396 | 1,503 | 5,082 | 4,932 | |||||||||||||||||||||
Bonus and stock-based compensation | 9,535 | 10,553 | 10,852 | 6,476 | 7,838 | 37,416 | 32,480 | |||||||||||||||||||||
Health and accident insurance | 3,579 | 4,045 | 3,816 | 3,461 | 2,765 | 14,901 | 13,316 | |||||||||||||||||||||
Other salaries and benefits (1) | 10,341 | 9,612 | 8,171 | 7,542 | 7,144 | 35,666 | 29,412 | |||||||||||||||||||||
Total salaries and employee benefits expense | 67,342 | 63,957 | 60,214 | 53,402 | 54,090 | 244,915 | 216,045 | |||||||||||||||||||||
Occupancy and equipment expense | 12,765 | 11,724 | 10,561 | 10,430 | 10,344 | 45,480 | 40,512 | |||||||||||||||||||||
Computer services and telecommunication expense | 8,813 | 7,418 | 6,945 | 6,446 | 6,200 | 29,622 | 24,983 | |||||||||||||||||||||
Professional and legal expense | 1,281 | 1,566 | 2,385 | 1,486 | 1,709 | 6,718 | 4,784 | |||||||||||||||||||||
Other operating expenses | 17,430 | 16,467 | 16,587 | 15,570 | 15,757 | 66,054 | 63,806 | |||||||||||||||||||||
Total non-interest expense | 107,631 | 101,132 | 96,692 | 87,334 | 88,100 | 392,789 | 350,130 | |||||||||||||||||||||
Income before income taxes | 63,268 | 53,976 | 48,398 | 50,321 | 49,889 | 215,963 | 183,199 | |||||||||||||||||||||
Income tax expense | 19,422 | 16,287 | 14,353 | 14,927 | 14,998 | 64,989 | 54,456 | |||||||||||||||||||||
Net income | $ | 43,846 | $ | 37,689 | $ | 34,045 | $ | 35,394 | $ | 34,891 | $ | 150,974 | $ | 128,743 |
(1) | Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses. |
Net income from our Banking Segment for the fourth quarter of 2016 increased by $6.2 million, or 16.3%, compared to the prior quarter. This increase in net income was primarily due to an increase in net interest income driven by the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger for a full quarter as well as an increase in other non-interest income, partially offset by higher salaries and employee benefits expense primarily due to the increased staff from the American Chartered merger for a full quarter.
Net income from our Banking Segment for the year ended December 31, 2016 increased by $22.2 million, or 17.3%, compared to the year ended December 31, 2015. This increase in net income was primarily due to an increase in net interest income, driven by growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, and an increase in other non-interest income. This increase was partly offset by higher salaries
10
and employee benefits expense due to annual pay increases, new hires, increased staff from the American Chartered merger and bonus expense based on company performance and the increase in staff.
Leasing Segment
The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Leasing segment for the periods presented (in thousands):
Year Ended | ||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||
Net interest income | $ | 2,413 | $ | 2,168 | $ | 2,411 | $ | 2,423 | $ | 2,714 | $ | 9,415 | $ | 11,475 | ||||||||||||||
Provision for credit losses | (1,750 | ) | 1,964 | (356 | ) | 437 | — | 295 | 1,598 | |||||||||||||||||||
Net interest income after provision for credit losses | 4,163 | 204 | 2,767 | 1,986 | 2,714 | 9,120 | 9,877 | |||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Mortgage origination fees | — | — | — | — | — | — | — | |||||||||||||||||||||
Mortgage servicing fees | — | — | — | — | — | — | — | |||||||||||||||||||||
Lease financing revenue, net | 19,005 | 17,974 | 14,919 | 18,367 | 14,757 | 70,265 | 73,831 | |||||||||||||||||||||
Other non-interest income | 754 | 785 | 786 | 839 | 802 | 3,164 | 3,112 | |||||||||||||||||||||
Total non-interest income | 19,759 | 18,759 | 15,705 | 19,206 | 15,559 | 73,429 | 76,943 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 3,081 | 3,555 | 3,344 | 2,832 | 2,286 | 12,812 | 10,211 | |||||||||||||||||||||
Commissions | 2,768 | 2,592 | 2,172 | 3,936 | 3,047 | 11,468 | 15,298 | |||||||||||||||||||||
Bonus and stock-based compensation | 1,516 | 950 | 829 | 872 | 1,052 | 4,167 | 3,735 | |||||||||||||||||||||
Health and accident insurance | 376 | 376 | 376 | 335 | 312 | 1,463 | 1,287 | |||||||||||||||||||||
Other salaries and benefits (1) | 941 | 934 | 886 | 1,108 | 777 | 3,869 | 3,193 | |||||||||||||||||||||
Total salaries and employee benefits expense | 8,682 | 8,407 | 7,607 | 9,083 | 7,474 | 33,779 | 33,724 | |||||||||||||||||||||
Occupancy and equipment expense | 929 | 966 | 947 | 895 | 855 | 3,737 | 3,355 | |||||||||||||||||||||
Computer services and telecommunication expense | 483 | 432 | 431 | 363 | 340 | 1,709 | 1,244 | |||||||||||||||||||||
Professional and legal expense | 652 | 802 | 414 | 409 | 328 | 2,277 | 1,172 | |||||||||||||||||||||
Other operating expenses | 1,714 | 1,997 | 1,716 | 1,447 | 1,501 | 6,874 | 5,869 | |||||||||||||||||||||
Total non-interest expense | 12,460 | 12,604 | 11,115 | 12,197 | 10,498 | 48,376 | 45,364 | |||||||||||||||||||||
Income before income taxes | 11,462 | 6,359 | 7,357 | 8,995 | 7,775 | 34,173 | 41,456 | |||||||||||||||||||||
Income tax expense | 4,653 | 2,484 | 2,879 | 3,509 | 3,037 | 13,525 | 16,255 | |||||||||||||||||||||
Net income | $ | 6,809 | $ | 3,875 | $ | 4,478 | $ | 5,486 | $ | 4,738 | $ | 20,648 | $ | 25,201 |
(1) | Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses. |
Net income from our Leasing Segment for the fourth quarter of 2016 increased by $2.9 million, or 75.7%, compared to the prior quarter. This increase in net income was primarily due to a negative provision for credit losses resulting from the improvement of a potential problem loan as well as greater residual gains and an increase in operating lease revenue.
Net income from our Leasing Segment for the year ended December 31, 2016 decreased by $4.6 million, or 18.1%, compared to the year ended December 31, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues resulting from lower residual gains partly offset by higher fees from the sale of third-party equipment maintenance contracts as well as an increase in legal and other operating expenses.
11
Mortgage Banking Segment
The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Mortgage Banking segment for the periods presented (in thousands):
Year Ended | ||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||
Net interest income | $ | 9,113 | $ | 8,918 | $ | 8,039 | $ | 7,273 | $ | 7,364 | $ | 33,343 | $ | 29,248 | ||||||||||||||
Provision for credit losses | 179 | 191 | 190 | 125 | 104 | 685 | 352 | |||||||||||||||||||||
Net interest income after provision for credit losses | 8,934 | 8,727 | 7,849 | 7,148 | 7,260 | 32,658 | 28,896 | |||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Mortgage origination fees | 29,317 | 39,962 | 31,417 | 16,894 | 17,596 | 117,590 | 94,703 | |||||||||||||||||||||
Mortgage servicing fees | 2,960 | 9,133 | 8,198 | 10,588 | 8,946 | 30,879 | 22,723 | |||||||||||||||||||||
Lease financing revenue, net | — | — | — | — | — | — | — | |||||||||||||||||||||
Other non-interest income | — | — | — | (3 | ) | 10 | (3 | ) | 14 | |||||||||||||||||||
Total non-interest income | 32,277 | 49,095 | 39,615 | 27,479 | 26,552 | 148,466 | 117,440 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 12,945 | 12,958 | 12,088 | 11,450 | 11,307 | 49,441 | 43,454 | |||||||||||||||||||||
Commissions | 8,178 | 8,554 | 7,226 | 5,016 | 5,244 | 28,974 | 25,334 | |||||||||||||||||||||
Bonus and stock-based compensation | 1,116 | 1,477 | 1,190 | 1,309 | 1,060 | 5,092 | 3,717 | |||||||||||||||||||||
Health and accident insurance | 1,996 | 1,956 | 1,887 | 1,803 | 1,569 | 7,642 | 6,472 | |||||||||||||||||||||
Other salaries and benefits (1) | 3,790 | 4,774 | 3,988 | 3,439 | 3,612 | 15,991 | 14,955 | |||||||||||||||||||||
Total salaries and employee benefits expense | 28,025 | 29,719 | 26,379 | 23,017 | 22,792 | 107,140 | 93,932 | |||||||||||||||||||||
Occupancy and equipment expense | 1,900 | 1,972 | 1,899 | 1,935 | 1,736 | 7,706 | 6,368 | |||||||||||||||||||||
Computer services and telecommunication expense | 1,910 | 1,881 | 1,890 | 1,941 | 2,008 | 7,622 | 7,920 | |||||||||||||||||||||
Professional and legal expense | 418 | 411 | 421 | 597 | 678 | 1,847 | 2,637 | |||||||||||||||||||||
Other operating expenses | 6,971 | 6,587 | 6,309 | 5,484 | 5,040 | 25,351 | 22,206 | |||||||||||||||||||||
Total non-interest expense | 39,224 | 40,570 | 36,898 | 32,974 | 32,254 | 149,666 | 133,063 | |||||||||||||||||||||
Income before income taxes | 1,987 | 17,252 | 10,566 | 1,653 | 1,558 | 31,458 | 13,273 | |||||||||||||||||||||
Income tax expense | 795 | 6,901 | 4,226 | 661 | 623 | 12,583 | 5,309 | |||||||||||||||||||||
Net income | $ | 1,192 | $ | 10,351 | $ | 6,340 | $ | 992 | $ | 935 | $ | 18,875 | $ | 7,964 |
(1) | Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses. |
Net income from our Mortgage Banking Segment for the fourth quarter of 2016 decreased by $9.2 million, or 88.5%, compared to the prior quarter primarily due to a decrease in mortgage banking revenue.
The significant increase in interest rates in the fourth quarter of 2016, coupled with an increase in short-term interest rates by the Federal Reserve, drove fewer interest rate lock commitments. This decrease in interest rate lock commitment volume had a negative impact on our mortgage origination fees for the quarter. Lower gain on sale margin during the quarter also had a negative impact on mortgage origination fees.
In addition, high volatility in interest rates caused disproportionate changes in the fair value of our mortgage servicing rights asset and the fair value of the derivatives used to hedge this asset. As a result, the fair value of our hedge decreased more than the increase in the fair value of our mortgage servicing rights asset, reducing our mortgage servicing fees during the quarter.
By comparison, favorable market conditions in the third quarter drove higher interest rate lock commitment volume at higher gain on sale margins. This, coupled with improved hedge performance, drove better than expected results in our Mortgage Banking Segment.
Net income from our Mortgage Banking Segment for the year ended December 31, 2016 increased by $10.9 million, or 137.0%, compared to the year ended December 31, 2015. This increase in net income was due to higher gain on sale margin and an increase in servicing fees, partly offset by higher salaries expense as the result of annual pay increases and new hires, higher commission expense and higher bonus expense.
12
The following table presents additional information regarding the Mortgage Banking Segment (dollars in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Origination volume | $ | 2,054,406 | $ | 1,976,377 | $ | 1,709,044 | $ | 1,328,804 | $ | 1,437,057 | $ | 7,068,631 | $ | 7,016,733 | |||||||||||||||
Refinance | 56 | % | 48 | % | 42 | % | 49 | % | 42 | % | 49 | % | 45 | % | |||||||||||||||
Purchase | 44 | 52 | 58 | 51 | 58 | 51 | 55 | ||||||||||||||||||||||
Origination volume by channel: | |||||||||||||||||||||||||||||
Retail | 21 | % | 22 | % | 23 | % | 19 | % | 18 | % | 21 | % | 18 | % | |||||||||||||||
Third party | 79 | 78 | 77 | 81 | 82 | 79 | 82 | ||||||||||||||||||||||
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end | $ | 19,683,073 | $ | 18,477,648 | $ | 17,739,626 | $ | 16,911,325 | $ | 16,218,613 | $ | 19,683,073 | $ | 16,218,613 | |||||||||||||||
Mortgage servicing rights, recorded at fair value, at period end | 238,011 | 154,730 | 134,969 | 145,800 | 168,162 | 238,011 | 168,162 | ||||||||||||||||||||||
Notional value of rate lock commitments, at period end | 543,900 | 1,201,100 | 981,000 | 823,000 | 622,906 | 543,900 | 622,906 |
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):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Commercial related loans: | |||||||||||||||||||||||||||||||||||
Commercial | $ | 4,346,506 | 34 | % | $ | 4,385,812 | 35 | % | $ | 3,561,500 | 35 | % | $ | 3,509,604 | 36 | % | $ | 3,616,286 | 37 | % | |||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,002,976 | 16 | 1,873,380 | 15 | 1,794,465 | 18 | 1,774,104 | 18 | 1,779,072 | 18 | |||||||||||||||||||||||||
Commercial real estate | 3,788,016 | 29 | 3,794,801 | 30 | 2,827,720 | 28 | 2,831,814 | 28 | 2,695,676 | 27 | |||||||||||||||||||||||||
Construction real estate | 518,562 | 4 | 451,023 | 4 | 357,807 | 3 | 310,278 | 3 | 252,060 | 3 | |||||||||||||||||||||||||
Total commercial related loans | 10,656,060 | 83 | 10,505,016 | 84 | 8,541,492 | 84 | 8,425,800 | 85 | 8,343,094 | 85 | |||||||||||||||||||||||||
Other loans: | |||||||||||||||||||||||||||||||||||
Residential real estate | 1,060,828 | 8 | 998,827 | 8 | 753,707 | 7 | 677,791 | 7 | 628,169 | 6 | |||||||||||||||||||||||||
Indirect vehicle | 541,680 | 4 | 522,271 | 4 | 491,480 | 5 | 432,915 | 4 | 384,095 | 4 | |||||||||||||||||||||||||
Home equity | 266,377 | 2 | 275,288 | 2 | 198,622 | 2 | 207,079 | 2 | 216,573 | 2 | |||||||||||||||||||||||||
Consumer | 80,781 | 1 | 77,956 | 1 | 75,775 | 1 | 77,318 | 1 | 80,661 | 1 | |||||||||||||||||||||||||
Total other loans | 1,949,666 | 15 | 1,874,342 | 15 | 1,519,584 | 15 | 1,395,103 | 14 | 1,309,498 | 13 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 12,605,726 | 98 | 12,379,358 | 99 | 10,061,076 | 99 | 9,820,903 | 99 | 9,652,592 | 98 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 163,077 | 2 | 161,338 | 1 | 136,811 | 1 | 140,445 | 1 | 141,406 | 2 | |||||||||||||||||||||||||
Total loans | $ | 12,768,803 | 100 | % | $ | 12,540,696 | 100 | % | $ | 10,197,887 | 100 | % | $ | 9,961,348 | 100 | % | $ | 9,793,998 | 100 | % | |||||||||||||||
Change from prior quarter | +1.8 | % | +23.0 | % | +2.4 | % | +1.7 | % | +4.3 | % | |||||||||||||||||||||||||
Change from same quarter one year ago | +30.4 | % | +33.6 | % | +12.1 | % | +11.7 | % | +7.8 | % |
Our loan balances, excluding purchased credit-impaired loans, grew $226.4 million (+1.8%, or +7.3% annualized basis) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Compared to December 31, 2015, legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%).
13
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):
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Commercial-related loans: | |||||||||||||||||||||||||||||||||||
Commercial | $ | 4,274,398 | 35 | % | $ | 3,850,588 | 35 | % | $ | 3,522,641 | 35 | % | $ | 3,531,441 | 36 | % | $ | 3,492,161 | 37 | % | |||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 1,896,486 | 15 | 1,825,505 | 16 | 1,777,763 | 18 | 1,754,558 | 18 | 1,708,404 | 18 | |||||||||||||||||||||||||
Commercial real estate | 3,775,599 | 30 | 3,183,131 | 29 | 2,821,516 | 28 | 2,734,148 | 28 | 2,627,004 | 28 | |||||||||||||||||||||||||
Construction real estate | 486,861 | 4 | 397,480 | 4 | 351,079 | 3 | 276,797 | 3 | 274,188 | 2 | |||||||||||||||||||||||||
Total commercial-related loans | 10,433,344 | 84 | 9,256,704 | 84 | 8,472,999 | 84 | 8,296,944 | 85 | 8,101,757 | 85 | |||||||||||||||||||||||||
Other loans: | |||||||||||||||||||||||||||||||||||
Residential real estate | 1,031,152 | 8 | 862,393 | 7 | 710,384 | 7 | 640,231 | 7 | 612,275 | 6 | |||||||||||||||||||||||||
Indirect vehicle | 532,782 | 4 | 507,772 | 5 | 462,053 | 5 | 404,473 | 4 | 365,744 | 4 | |||||||||||||||||||||||||
Home equity | 273,694 | 2 | 231,399 | 2 | 202,228 | 2 | 210,678 | 2 | 219,440 | 2 | |||||||||||||||||||||||||
Consumer | 80,113 | 1 | 77,451 | 1 | 78,108 | 1 | 80,569 | 1 | 83,869 | 1 | |||||||||||||||||||||||||
Total other loans | 1,917,741 | 15 | 1,679,015 | 15 | 1,452,773 | 15 | 1,335,951 | 14 | 1,281,328 | 13 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 12,351,085 | 99 | 10,935,719 | 99 | 9,925,772 | 99 | 9,632,895 | 99 | 9,383,085 | 98 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 152,509 | 1 | 135,548 | 1 | 136,415 | 1 | 139,451 | 1 | 154,562 | 2 | |||||||||||||||||||||||||
Total loans | $ | 12,503,594 | 100 | % | $ | 11,071,267 | 100 | % | $ | 10,062,187 | 100 | % | $ | 9,772,346 | 100 | % | $ | 9,537,647 | 100 | % | |||||||||||||||
Change from prior quarter | +12.9 | % | +10.0 | % | +3.0 | % | +2.5 | % | +3.8 | % | |||||||||||||||||||||||||
Change from same quarter one year ago | +31.1 | % | +20.5 | % | +12.2 | % | +9.9 | % | +6.2 | % |
Our quarterly average loan balances, excluding purchased credit-impaired loans, increased $1.4 billion (+12.9%) during the fourth quarter of 2016 primarily due to having a full quarter of loan balances acquired through the American Chartered merger. Compared to the fourth quarter of 2015, our quarterly average legacy loan balances, excluding purchased credit-impaired loans, for the fourth quarter of 2016 increased by approximately 12%.
ASSET QUALITY
The following table presents a summary of criticized assets (excluding loans held for sale and excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Non-accrual loans (1) | $ | 48,974 | $ | 52,135 | $ | 67,544 | $ | 93,602 | $ | 98,065 | ||||||||||
Loans 90 days or more past due, still accruing interest | 10,378 | 1,774 | 7,190 | 1,112 | 6,596 | |||||||||||||||
Total non-performing loans | 59,352 | 53,909 | 74,734 | 94,714 | 104,661 | |||||||||||||||
Other real estate owned | 26,279 | 33,105 | 27,663 | 28,309 | 31,553 | |||||||||||||||
Repossessed assets | 322 | 453 | 459 | 187 | 81 | |||||||||||||||
Total non-performing assets | $ | 85,953 | $ | 87,467 | $ | 102,856 | $ | 123,210 | $ | 136,295 | ||||||||||
Potential problem loans (2) | $ | 144,544 | $ | 111,594 | $ | 99,782 | $ | 110,193 | $ | 139,941 | ||||||||||
Purchased credit-impaired loans | $ | 163,077 | $ | 161,338 | $ | 136,811 | $ | 140,445 | $ | 141,406 | ||||||||||
Total non-performing, potential problem and purchased credit-impaired loans | $ | 366,973 | $ | 326,841 | $ | 311,327 | $ | 345,352 | $ | 386,008 | ||||||||||
Total allowance for loan and lease losses | $ | 139,366 | $ | 139,528 | $ | 135,614 | $ | 134,493 | $ | 128,140 | ||||||||||
Accruing restructured loans (3) | 32,687 | 28,561 | 26,715 | 27,269 | 26,991 | |||||||||||||||
Total non-performing loans to total loans | 0.46 | % | 0.43 | % | 0.73 | % | 0.95 | % | 1.07 | % | ||||||||||
Total non-performing assets to total assets | 0.45 | 0.45 | 0.64 | 0.79 | 0.87 | |||||||||||||||
Allowance for loan and lease losses to non-performing loans | 234.81 | 258.82 | 181.46 | 142.00 | 122.43 |
(1) | Includes $27.1 million, $23.4 million, $28.9 million, $24.0 million and $23.6 million of restructured loans on non-accrual status at December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016 and December 31, 2015, 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. |
14
(3) | Accruing restructured loans consist of 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 purchased credit-impaired loans that were acquired as part of our FDIC-assisted transactions and bank mergers) as of the dates indicated (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Commercial and lease | $ | 15,189 | $ | 14,898 | $ | 29,509 | $ | 28,590 | $ | 37,076 | ||||||||||
Commercial real estate | 11,767 | 4,655 | 7,163 | 27,786 | 29,073 | |||||||||||||||
Consumer related | 32,396 | 34,356 | 38,062 | 38,338 | 38,512 | |||||||||||||||
Total non-performing loans | $ | 59,352 | $ | 53,909 | $ | 74,734 | $ | 94,714 | $ | 104,661 |
The following table represents a summary of other real estate owned (excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Balance at the beginning of quarter | $ | 33,105 | $ | 27,663 | $ | 28,309 | $ | 31,553 | $ | 29,587 | ||||||||||
Transfers in at fair value less estimated costs to sell | 1,191 | 929 | 1,367 | 1,270 | 5,964 | |||||||||||||||
Acquired from business combination | — | 4,148 | — | — | — | |||||||||||||||
Capitalized other real estate owned costs | — | 96 | — | — | — | |||||||||||||||
Fair value adjustments | (2,834 | ) | 865 | 70 | 45 | (721 | ) | |||||||||||||
Net gains on sales of other real estate owned | 2,652 | 25 | 227 | 592 | 977 | |||||||||||||||
Cash received upon disposition | (7,835 | ) | (621 | ) | (2,310 | ) | (5,151 | ) | (4,254 | ) | ||||||||||
Balance at the end of quarter | $ | 26,279 | $ | 33,105 | $ | 27,663 | $ | 28,309 | $ | 31,553 |
15
Below is a reconciliation of the activity in our allowance for credit and loan and lease losses for the periods indicated (dollars in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Allowance for credit losses, balance at the beginning of period | $ | 142,399 | $ | 138,333 | $ | 137,732 | $ | 131,508 | $ | 128,038 | $ | 131,508 | $ | 114,057 | |||||||||||||||
Provision for credit losses | 2,622 | 6,549 | 2,829 | 7,563 | 6,758 | 19,563 | 21,386 | ||||||||||||||||||||||
Charge-offs: | |||||||||||||||||||||||||||||
Commercial | — | 1,341 | 72 | 713 | 710 | 2,126 | 2,993 | ||||||||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 3,452 | 367 | 2,347 | 574 | 685 | 6,740 | 2,765 | ||||||||||||||||||||||
Commercial real estate | 250 | 529 | 1,720 | 352 | 1,251 | 2,851 | 3,563 | ||||||||||||||||||||||
Construction real estate | 442 | 7 | 144 | — | 23 | 593 | 34 | ||||||||||||||||||||||
Residential real estate | 222 | 290 | 476 | 368 | 261 | 1,356 | 1,450 | ||||||||||||||||||||||
Home equity | 429 | 376 | 619 | 238 | 407 | 1,662 | 1,485 | ||||||||||||||||||||||
Indirect vehicle | 1,085 | 838 | 651 | 931 | 898 | 3,505 | 2,980 | ||||||||||||||||||||||
Consumer | 562 | 409 | 395 | 412 | 550 | 1,778 | 1,941 | ||||||||||||||||||||||
Total charge-offs | 6,442 | 4,157 | 6,424 | 3,588 | 4,785 | 20,611 | 17,211 | ||||||||||||||||||||||
Recoveries: | |||||||||||||||||||||||||||||
Commercial | 437 | 665 | 952 | 380 | 235 | 2,434 | 1,749 | ||||||||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 30 | 3 | 467 | 50 | 12 | 550 | 1,112 | ||||||||||||||||||||||
Commercial real estate | 968 | 324 | 1,843 | 594 | 385 | 3,729 | 6,723 | ||||||||||||||||||||||
Construction real estate | 48 | 50 | 17 | 27 | 19 | 142 | 272 | ||||||||||||||||||||||
Residential real estate | 1,059 | 45 | 82 | 24 | 98 | 1,210 | 515 | ||||||||||||||||||||||
Home equity | 180 | 65 | 193 | 318 | 132 | 756 | 579 | ||||||||||||||||||||||
Indirect vehicle | 437 | 436 | 501 | 463 | 499 | 1,837 | 1,853 | ||||||||||||||||||||||
Consumer | 104 | 86 | 141 | 393 | 117 | 724 | 473 | ||||||||||||||||||||||
Total recoveries | 3,263 | 1,674 | 4,196 | 2,249 | 1,497 | 11,382 | 13,276 | ||||||||||||||||||||||
Total net charge-offs | 3,179 | 2,483 | 2,228 | 1,339 | 3,288 | 9,229 | 3,935 | ||||||||||||||||||||||
Allowance for credit losses, balance at the end of the period | 141,842 | 142,399 | 138,333 | 137,732 | 131,508 | 141,842 | 131,508 | ||||||||||||||||||||||
Allowance for unfunded credit commitments | (2,476 | ) | (2,871 | ) | (2,719 | ) | (3,239 | ) | (3,368 | ) | (2,476 | ) | (3,368 | ) | |||||||||||||||
Allowance for loan and lease losses, balance at the end of the period | $ | 139,366 | $ | 139,528 | $ | 135,614 | $ | 134,493 | $ | 128,140 | $ | 139,366 | $ | 128,140 | |||||||||||||||
Total loans, excluding loans held for sale | $ | 12,768,803 | $ | 12,540,696 | $ | 10,197,887 | $ | 9,961,348 | $ | 9,793,998 | $ | 12,768,803 | $ | 9,793,998 | |||||||||||||||
Average loans, excluding loans held for sale | 12,503,594 | 11,071,267 | 10,062,187 | 9,772,346 | 9,537,647 | 10,857,460 | 9,147,279 | ||||||||||||||||||||||
Allowance for loan and lease losses to total loans, excluding loans held for sale | 1.09 | % | 1.11 | % | 1.33 | % | 1.35 | % | 1.31 | % | 1.09 | % | 1.31 | % | |||||||||||||||
Net loan charge-offs to average loans, excluding loans held for sale (annualized) | 0.10 | 0.09 | 0.09 | 0.06 | 0.14 | 0.09 | 0.04 |
The following table presents the three elements of the Company's allowance for loan and lease losses as of the dates indicated (dollars in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Commercial related loans: | ||||||||||||||||||||
General reserve | $ | 120,489 | $ | 112,653 | $ | 108,972 | $ | 98,001 | $ | 94,164 | ||||||||||
Specific reserve | 3,243 | 9,698 | 12,205 | 20,995 | 16,173 | |||||||||||||||
Consumer related reserve | 15,634 | 17,177 | 14,437 | 15,497 | 17,803 | |||||||||||||||
Total allowance for loan and lease losses | $ | 139,366 | $ | 139,528 | $ | 135,614 | $ | 134,493 | $ | 128,140 |
16
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 and lease 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 (computed on a loan by loan basis) and the principal outstanding is accreted over the remaining life of the loans.
In accordance with ASC 310-30, for both purchased non-impaired loans and purchased credit-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 acquisition accounting discount for loans acquired in the bank mergers were as follows for the three months ended December 31, 2016 (in thousands):
Non-Accretable Discount - PCI Loans | Accretable Discount - PCI Loans | Accretable Discount - Non-PCI Loans | Total | |||||||||||||
Balance at beginning of period | $ | 11,130 | $ | 13,924 | $ | 49,356 | $ | 74,410 | ||||||||
Purchases | 15,746 | 4,281 | (7,904 | ) | 12,123 | |||||||||||
Recoveries | 1,295 | — | — | 1,295 | ||||||||||||
Accretion | — | (2,709 | ) | (4,854 | ) | (7,563 | ) | |||||||||
Transfer | (554 | ) | 554 | — | — | |||||||||||
Balance at end of period | $ | 27,617 | $ | 16,050 | $ | 36,598 | $ | 80,265 |
The acquisition accounting discount for loans acquired in the American Chartered merger was revised compared to previously reported balances and is only provisional at December 31, 2016 as loan risk ratings continue to be assessed. The change is reflected in the purchases line in the table above.
Changes in the acquisition accounting discount for loans acquired in the bank mergers were as follows for the three months ended September 30, 2016 (in thousands):
Non-Accretable Discount - PCI Loans | Accretable Discount - PCI Loans | Accretable Discount - Non-PCI Loans | Total | |||||||||||||
Balance at beginning of period | $ | 9,435 | $ | 12,677 | $ | 24,428 | $ | 46,540 | ||||||||
Purchases | 4,293 | 805 | 29,042 | 34,140 | ||||||||||||
Charge-offs | (110 | ) | — | — | (110 | ) | ||||||||||
Accretion | — | (2,046 | ) | (4,114 | ) | (6,160 | ) | |||||||||
Transfer | (2,488 | ) | 2,488 | — | — | |||||||||||
Balance at end of period | $ | 11,130 | $ | 13,924 | $ | 49,356 | $ | 74,410 |
The $554 thousand and $2.5 million acquisition accounting discount transfer from non-accretable discount to accretable discount on purchased credit-impaired loans for the three months ended December 31, 2016 and September 30, 2016, respectively, was due to better than expected cash flows on several pools of purchased credit-impaired loans.
17
INVESTMENT SECURITIES
The following table sets forth, by type, fair value, amortized cost and unrealized gain of our investment securities, excluding FHLB and FRB stock, as of the dates indicated (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
Fair value | ||||||||||||||||||||
Government sponsored agencies and enterprises | $ | 23,415 | $ | 53,968 | $ | 54,457 | $ | 64,762 | $ | 64,611 | ||||||||||
States and political subdivisions | 391,365 | 410,737 | 400,948 | 398,024 | 396,367 | |||||||||||||||
Mortgage-backed securities | 1,076,692 | 1,173,330 | 785,367 | 834,559 | 893,656 | |||||||||||||||
Corporate bonds | 193,895 | 210,193 | 225,525 | 224,530 | 219,628 | |||||||||||||||
Equity securities | 10,828 | 11,128 | 11,098 | 10,969 | 10,761 | |||||||||||||||
Total fair value | $ | 1,696,195 | $ | 1,859,356 | $ | 1,477,395 | $ | 1,532,844 | $ | 1,585,023 | ||||||||||
Amortized cost | ||||||||||||||||||||
Government sponsored agencies and enterprises | $ | 23,267 | $ | 53,456 | $ | 53,674 | $ | 63,600 | $ | 63,805 | ||||||||||
States and political subdivisions | 376,541 | 383,041 | 369,816 | 371,006 | 373,285 | |||||||||||||||
Mortgage-backed securities | 1,080,693 | 1,160,796 | 769,109 | 820,825 | 888,325 | |||||||||||||||
Corporate bonds | 193,164 | 208,940 | 224,730 | 225,657 | 222,784 | |||||||||||||||
Equity securities | 11,000 | 10,932 | 10,872 | 10,814 | 10,757 | |||||||||||||||
Total amortized cost | $ | 1,684,665 | $ | 1,817,165 | $ | 1,428,201 | $ | 1,491,902 | $ | 1,558,956 | ||||||||||
Unrealized gain (loss) | ||||||||||||||||||||
Government sponsored agencies and enterprises | $ | 148 | $ | 512 | $ | 783 | $ | 1,162 | $ | 806 | ||||||||||
States and political subdivisions | 14,824 | 27,696 | 31,132 | 27,018 | 23,082 | |||||||||||||||
Mortgage-backed securities | (4,001 | ) | 12,534 | 16,258 | 13,734 | 5,331 | ||||||||||||||
Corporate bonds | 731 | 1,253 | 795 | (1,127 | ) | (3,156 | ) | |||||||||||||
Equity securities | (172 | ) | 196 | 226 | 155 | 4 | ||||||||||||||
Total unrealized gain | $ | 11,530 | $ | 42,191 | $ | 49,194 | $ | 40,942 | $ | 26,067 | ||||||||||
Securities held to maturity, at cost: | ||||||||||||||||||||
States and political subdivisions | $ | 910,608 | $ | 939,491 | $ | 960,784 | $ | 986,340 | $ | 1,016,519 | ||||||||||
Mortgage-backed securities | 159,142 | 175,771 | 190,631 | 205,570 | 214,291 | |||||||||||||||
Total amortized cost | $ | 1,069,750 | $ | 1,115,262 | $ | 1,151,415 | $ | 1,191,910 | $ | 1,230,810 |
Total unrealized gain decreased at December 31, 2016 compared to September 30, 2016 as result of the increase in interest rates.
18
DEPOSIT MIX
The following table shows the composition of deposits based on period end balances as of the dates indicated (dollars in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Low cost deposits: | |||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 6,408,169 | 46 | % | $ | 6,410,334 | 45 | % | $ | 4,775,364 | 42 | % | $ | 4,667,410 | 40 | % | $ | 4,627,184 | 40 | % | |||||||||||||||
Money market, NOW and interest bearing deposits | 4,543,004 | 32 | 4,660,407 | 33 | 3,771,111 | 33 | 4,048,054 | 35 | 4,144,633 | 36 | |||||||||||||||||||||||||
Savings deposits | 1,135,992 | 8 | 1,147,900 | 8 | 1,021,845 | 9 | 991,300 | 9 | 974,555 | 8 | |||||||||||||||||||||||||
Total low cost deposits | 12,087,165 | 86 | 12,218,641 | 86 | 9,568,320 | 84 | 9,706,764 | 84 | 9,746,372 | 84 | |||||||||||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||||||||||||||
Certificates of deposit | 1,225,102 | 9 | 1,298,186 | 9 | 1,220,562 | 11 | 1,255,457 | 11 | 1,244,292 | 11 | |||||||||||||||||||||||||
Brokered certificates of deposit | 798,181 | 5 | 762,439 | 5 | 647,214 | 5 | 571,605 | 5 | 514,551 | 5 | |||||||||||||||||||||||||
Total certificates of deposit | 2,023,283 | 14 | 2,060,625 | 14 | 1,867,776 | 16 | 1,827,062 | 16 | 1,758,843 | 16 | |||||||||||||||||||||||||
Total deposits | $ | 14,110,448 | 100 | % | $ | 14,279,266 | 100 | % | $ | 11,436,096 | 100 | % | $ | 11,533,826 | 100 | % | $ | 11,505,215 | 100 | % | |||||||||||||||
Change from prior quarter | -1.2 | % | +24.9 | % | -0.8 | % | +0.2 | % | +2.2 | % | |||||||||||||||||||||||||
Change from same quarter one year ago | +22.6 | % | +26.9 | % | +5.3 | % | +4.7 | % | +4.7 | % |
Total low cost deposits decreased $131.5 million to $12.1 billion at December 31, 2016 compared to the prior quarter primarily due to the decrease in higher rate NOW accounts and mortgage escrow accounts. Non-interest bearing deposits represented 46% of total deposits at December 31, 2016. Compared to December 31, 2015, legacy low cost deposit balances increased $276.8 million (+2.8%) driven by the 11.0% growth in non-interest bearing deposits.
The following table shows the composition of deposits based on quarterly average balances for the periods indicated (dollars in thousands):
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Low cost deposits: | |||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 6,454,025 | 45 | % | $ | 5,524,043 | 43 | % | $ | 4,806,692 | 42 | % | $ | 4,606,008 | 40 | % | $ | 4,617,076 | 40 | % | |||||||||||||||
Money market, NOW and interest bearing deposits | 4,628,698 | 33 | 4,161,913 | 33 | 3,836,134 | 33 | 4,109,150 | 36 | 4,214,099 | 37 | |||||||||||||||||||||||||
Savings deposits | 1,140,926 | 8 | 1,080,609 | 8 | 1,006,902 | 9 | 984,019 | 9 | 959,049 | 8 | |||||||||||||||||||||||||
Total low cost deposits | 12,223,649 | 86 | 10,766,565 | 84 | 9,649,728 | 84 | 9,699,177 | 85 | 9,790,224 | 85 | |||||||||||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||||||||||||||
Certificates of deposit | 1,263,675 | 9 | 1,257,959 | 10 | 1,237,198 | 11 | 1,237,971 | 11 | 1,245,947 | 11 | |||||||||||||||||||||||||
Brokered certificates of deposit | 779,411 | 5 | 702,030 | 6 | 598,702 | 5 | 534,910 | 4 | 492,839 | 4 | |||||||||||||||||||||||||
Total certificates of deposit | 2,043,086 | 14 | 1,959,989 | 16 | 1,835,900 | 16 | 1,772,881 | 15 | 1,738,786 | 15 | |||||||||||||||||||||||||
Total deposits | $ | 14,266,735 | 100 | % | $ | 12,726,554 | 100 | % | $ | 11,485,628 | 100 | % | $ | 11,472,058 | 100 | % | $ | 11,529,010 | 100 | % | |||||||||||||||
Change from prior quarter | +12.1 | % | +10.8 | % | +0.1 | % | -0.5 | % | +2.5 | % | |||||||||||||||||||||||||
Change from same quarter one year ago | +23.7 | % | +13.2 | % | +5.4 | % | +4.4 | % | +2.9 | % |
Total average low cost deposits increased $1.5 billion to $12.2 billion during the fourth quarter of 2016 compared to the prior quarter primarily due to a full quarter of deposit balances assumed through the American Chartered merger. Similarly, non-interest bearing deposits quarterly average grew by $930.0 million (+16.8%) during the fourth quarter of 2016 compared to the third quarter of 2016. Our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 2% compared to the third quarter of 2016. Compared to the fourth quarter of 2015, our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 3%.
19
CAPITAL
Tangible book value per common share was $16.98 at December 31, 2016 compared to $16.88 at September 30, 2016 and $16.53 at December 31, 2015.
Our regulatory capital ratios remain strong. MB Financial Bank, N.A. (the "Bank") was categorized as “well capitalized” at December 31, 2016 under the Prompt Corrective Action (“PCA”) provisions. The Bank would be categorized as "well capitalized" under the fully phased in rules under the Basel III capital reform.
FORWARD-LOOKING STATEMENTS
When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission (the "SEC"), 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 MB Financial-American Chartered merger might not be realized within the expected 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 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 originated loans and loans acquired from other financial institutions; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (5) the possibility that our mortgage banking business may experience increased volatility in its 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 or if changes in interest rates negatively impact the value of our mortgage servicing rights; (6) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (9) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (10) our ability to realize the residual values of its direct finance, leveraged and operating leases; (11) the 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, changes in the interpretation and/or application of laws and regulations by regulatory authorities, 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
20
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands) | 12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | |||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 364,783 | $ | 351,009 | $ | 303,037 | $ | 271,732 | $ | 307,869 | ||||||||||
Interest earning deposits with banks | 98,686 | 125,250 | 123,086 | 113,785 | 73,572 | |||||||||||||||
Total cash and cash equivalents | 463,469 | 476,259 | 426,123 | 385,517 | 381,441 | |||||||||||||||
Investment securities: | ||||||||||||||||||||
Securities available for sale, at fair value | 1,696,195 | 1,859,356 | 1,477,395 | 1,532,844 | 1,585,023 | |||||||||||||||
Securities held to maturity, at amortized cost | 1,069,750 | 1,115,262 | 1,151,415 | 1,191,910 | 1,230,810 | |||||||||||||||
Non-marketable securities - FHLB and FRB Stock | 143,276 | 146,209 | 130,232 | 121,750 | 114,233 | |||||||||||||||
Total investment securities | 2,909,221 | 3,120,827 | 2,759,042 | 2,846,504 | 2,930,066 | |||||||||||||||
Loans held for sale | 716,883 | 899,412 | 843,379 | 632,196 | 744,727 | |||||||||||||||
Loans: | ||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 12,605,726 | 12,379,358 | 10,061,076 | 9,820,903 | 9,652,592 | |||||||||||||||
Purchased credit-impaired loans | 163,077 | 161,338 | 136,811 | 140,445 | 141,406 | |||||||||||||||
Total loans | 12,768,803 | 12,540,696 | 10,197,887 | 9,961,348 | 9,793,998 | |||||||||||||||
Less: Allowance for loan and lease losses | 139,366 | 139,528 | 135,614 | 134,493 | 128,140 | |||||||||||||||
Net loans | 12,629,437 | 12,401,168 | 10,062,273 | 9,826,855 | 9,665,858 | |||||||||||||||
Lease investments, net | 311,327 | 277,647 | 233,320 | 216,046 | 211,687 | |||||||||||||||
Premises and equipment, net | 293,910 | 283,112 | 243,319 | 238,578 | 236,013 | |||||||||||||||
Cash surrender value of life insurance | 200,945 | 199,628 | 138,657 | 137,807 | 136,953 | |||||||||||||||
Goodwill | 1,001,038 | 993,799 | 725,039 | 725,068 | 725,070 | |||||||||||||||
Other intangibles | 62,959 | 65,395 | 41,569 | 43,186 | 44,812 | |||||||||||||||
Mortgage servicing rights, at fair value | 238,011 | 154,730 | 134,969 | 145,800 | 168,162 | |||||||||||||||
Other real estate owned, net | 26,279 | 33,105 | 27,663 | 28,309 | 31,553 | |||||||||||||||
Other real estate owned related to FDIC transactions | 5,006 | 5,177 | 8,356 | 10,397 | 10,717 | |||||||||||||||
Other assets | 443,832 | 431,623 | 352,081 | 339,390 | 297,948 | |||||||||||||||
Total assets | $ | 19,302,317 | $ | 19,341,882 | $ | 15,995,790 | $ | 15,575,653 | $ | 15,585,007 | ||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Non-interest bearing | $ | 6,408,169 | $ | 6,410,334 | $ | 4,775,364 | $ | 4,667,410 | $ | 4,627,184 | ||||||||||
Interest bearing | 7,702,279 | 7,868,932 | 6,660,732 | 6,866,416 | 6,878,031 | |||||||||||||||
Total deposits | 14,110,448 | 14,279,266 | 11,436,096 | 11,533,826 | 11,505,215 | |||||||||||||||
Short-term borrowings | 1,569,288 | 1,496,319 | 1,246,994 | 884,101 | 1,005,737 | |||||||||||||||
Long-term borrowings | 311,790 | 311,645 | 518,545 | 439,615 | 400,274 | |||||||||||||||
Junior subordinated notes issued to capital trusts | 210,668 | 209,159 | 185,925 | 185,820 | 186,164 | |||||||||||||||
Accrued expenses and other liabilities | 520,914 | 482,085 | 451,695 | 409,406 | 400,333 | |||||||||||||||
Total liabilities | 16,723,108 | 16,778,474 | 13,839,255 | 13,452,768 | 13,497,723 | |||||||||||||||
Stockholders' Equity | ||||||||||||||||||||
Preferred stock | 115,572 | 116,507 | 115,280 | 115,280 | 115,280 | |||||||||||||||
Common stock | 856 | 855 | 757 | 756 | 756 | |||||||||||||||
Additional paid-in capital | 1,678,826 | 1,674,341 | 1,288,777 | 1,284,438 | 1,280,870 | |||||||||||||||
Retained earnings | 838,892 | 809,769 | 783,468 | 756,272 | 731,812 | |||||||||||||||
Accumulated other comprehensive income | 5,190 | 23,763 | 28,731 | 24,687 | 15,777 | |||||||||||||||
Treasury stock | (60,384 | ) | (62,084 | ) | (60,732 | ) | (59,863 | ) | (58,504 | ) | ||||||||||
Controlling interest stockholders' equity | 2,578,952 | 2,563,151 | 2,156,281 | 2,121,570 | 2,085,991 | |||||||||||||||
Noncontrolling interest | 257 | 257 | 254 | 1,315 | 1,293 | |||||||||||||||
Total stockholders' equity | 2,579,209 | 2,563,408 | 2,156,535 | 2,122,885 | 2,087,284 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 19,302,317 | $ | 19,341,882 | $ | 15,995,790 | $ | 15,575,653 | $ | 15,585,007 |
21
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
(Dollars in thousands, except per share data) | 4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||
Taxable | $ | 134,048 | $ | 118,675 | $ | 110,231 | $ | 104,923 | $ | 106,137 | $ | 467,877 | $ | 404,324 | |||||||||||||||
Nontaxable | 2,947 | 2,846 | 2,741 | 2,586 | 2,602 | 11,120 | 9,318 | ||||||||||||||||||||||
Investment securities: | |||||||||||||||||||||||||||||
Taxable | 9,362 | 8,844 | 7,799 | 9,566 | 9,708 | 35,571 | 39,299 | ||||||||||||||||||||||
Nontaxable | 10,220 | 10,382 | 10,644 | 10,776 | 10,969 | 42,022 | 40,974 | ||||||||||||||||||||||
Federal funds sold | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||
Other interest earning accounts | 157 | 164 | 125 | 141 | 110 | 587 | 318 | ||||||||||||||||||||||
Total interest income | 156,734 | 140,911 | 131,540 | 127,992 | 129,527 | 557,177 | 494,234 | ||||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||||
Deposits | 7,324 | 6,681 | 5,952 | 5,622 | 5,357 | 25,579 | 19,658 | ||||||||||||||||||||||
Short-term borrowings | 1,472 | 1,092 | 910 | 721 | 385 | 4,195 | 1,412 | ||||||||||||||||||||||
Long-term borrowings and junior subordinated notes | 2,724 | 2,367 | 2,076 | 2,345 | 2,016 | 9,512 | 7,558 | ||||||||||||||||||||||
Total interest expense | 11,520 | 10,140 | 8,938 | 8,688 | 7,758 | 39,286 | 28,628 | ||||||||||||||||||||||
Net interest income | 145,214 | 130,771 | 122,602 | 119,304 | 121,769 | 517,891 | 465,606 | ||||||||||||||||||||||
Provision for credit losses | 2,622 | 6,549 | 2,829 | 7,563 | 6,758 | 19,563 | 21,386 | ||||||||||||||||||||||
Net interest income after provision for credit losses | 142,592 | 124,222 | 119,773 | 111,741 | 115,011 | 498,328 | 444,220 | ||||||||||||||||||||||
Non-interest income: | |||||||||||||||||||||||||||||
Mortgage banking revenue | 32,277 | 49,095 | 39,615 | 27,482 | 26,542 | 148,469 | 117,426 | ||||||||||||||||||||||
Lease financing revenue, net | 19,868 | 18,864 | 15,708 | 19,046 | 15,937 | 73,486 | 76,581 | ||||||||||||||||||||||
Commercial deposit and treasury management fees | 14,237 | 12,957 | 11,548 | 11,878 | 11,711 | 50,620 | 45,283 | ||||||||||||||||||||||
Trust and asset management fees | 8,442 | 8,244 | 8,236 | 7,950 | 6,077 | 32,872 | 23,545 | ||||||||||||||||||||||
Card fees | 4,340 | 4,161 | 4,045 | 3,525 | 3,651 | 16,071 | 15,322 | ||||||||||||||||||||||
Capital markets and international banking service fees | 4,021 | 3,313 | 2,771 | 3,227 | 2,355 | 13,332 | 8,148 | ||||||||||||||||||||||
Consumer and other deposit service fees | 3,563 | 3,559 | 3,161 | 3,025 | 3,440 | 13,308 | 13,282 | ||||||||||||||||||||||
Brokerage fees | 887 | 1,294 | 1,315 | 1,158 | 1,252 | 4,654 | 5,754 | ||||||||||||||||||||||
Loan service fees | 1,952 | 1,792 | 1,961 | 1,752 | 1,890 | 7,457 | 6,259 | ||||||||||||||||||||||
Increase in cash surrender value of life insurance | 1,316 | 1,055 | 850 | 854 | 864 | 4,075 | 3,391 | ||||||||||||||||||||||
Net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Other operating income | 2,491 | 4,048 | 2,523 | 1,844 | 1,909 | 10,906 | 7,280 | ||||||||||||||||||||||
Total non-interest income | 92,823 | 108,387 | 92,000 | 81,693 | 75,625 | 374,903 | 322,093 | ||||||||||||||||||||||
Non-interest expense: | |||||||||||||||||||||||||||||
Salaries and employee benefits expense | 108,428 | 111,478 | 95,004 | 85,591 | 84,709 | 400,501 | 343,531 | ||||||||||||||||||||||
Occupancy and equipment expense | 15,689 | 14,766 | 13,415 | 13,260 | 12,935 | 57,130 | 50,510 | ||||||||||||||||||||||
Computer services and telecommunication expense | 11,800 | 12,836 | 9,777 | 9,055 | 8,445 | 43,468 | 34,453 | ||||||||||||||||||||||
Advertising and marketing expense | 3,045 | 3,084 | 2,964 | 2,878 | 2,551 | 11,971 | 10,072 | ||||||||||||||||||||||
Professional and legal expense | 2,509 | 4,460 | 3,321 | 2,589 | 4,169 | 12,879 | 11,053 | ||||||||||||||||||||||
Other intangible amortization expense | 2,388 | 1,674 | 1,617 | 1,626 | 1,546 | 7,305 | 6,115 | ||||||||||||||||||||||
Branch exit and facilities impairment charges | — | (2,908 | ) | 155 | 44 | 616 | (2,709 | ) | 8,515 | ||||||||||||||||||||
Net (gain) loss recognized on other real estate owned and other related expense | (790 | ) | (721 | ) | 258 | (346 | ) | (729 | ) | (1,599 | ) | 1,468 | |||||||||||||||||
Prepayment fees on interest bearing liabilities | — | — | — | — | — | — | 85 | ||||||||||||||||||||||
Other operating expenses | 22,691 | 25,716 | 21,395 | 21,103 | 12,989 | 90,905 | 68,352 | ||||||||||||||||||||||
Total non-interest expense | 165,760 | 170,385 | 147,906 | 135,800 | 127,231 | 619,851 | 534,154 | ||||||||||||||||||||||
Income before income taxes | 69,655 | 62,224 | 63,867 | 57,634 | 63,405 | 253,380 | 232,159 | ||||||||||||||||||||||
Income tax expense | 22,464 | 17,805 | 20,455 | 18,520 | 19,798 | 79,244 | 73,211 | ||||||||||||||||||||||
Net income | 47,191 | 44,419 | 43,412 | 39,114 | 43,607 | 174,136 | 158,948 | ||||||||||||||||||||||
Dividends on preferred shares | 2,005 | 2,004 | 2,000 | 2,000 | 2,000 | 8,009 | 8,000 | ||||||||||||||||||||||
Net income available to common stockholders | $ | 45,186 | $ | 42,415 | $ | 41,412 | $ | 37,114 | $ | 41,607 | $ | 166,127 | $ | 150,948 |
22
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Common share data: | |||||||||||||||||||||||||||||
Basic earnings per common share | $ | 0.54 | $ | 0.55 | $ | 0.56 | $ | 0.51 | $ | 0.57 | $ | 2.16 | $ | 2.03 | |||||||||||||||
Diluted earnings per common share | 0.53 | 0.54 | 0.56 | 0.50 | 0.56 | 2.13 | 2.02 | ||||||||||||||||||||||
Weighted average common shares outstanding for basic earnings per common share | 83,484,899 | 77,506,885 | 73,475,258 | 73,330,731 | 73,296,602 | 76,968,823 | 74,177,574 | ||||||||||||||||||||||
Weighted average common shares outstanding for diluted earnings per common share | 84,674,181 | 78,683,170 | 74,180,374 | 73,966,935 | 73,953,165 | 77,976,121 | 74,849,030 | ||||||||||||||||||||||
Common shares outstanding (at end of period) | 83,725,269 | 83,555,257 | 73,740,348 | 73,639,487 | 73,678,329 | 83,725,269 | 73,678,329 |
23
Selected Financial Data: | |||||||||||||||||||||||||||||
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Performance Ratios: | |||||||||||||||||||||||||||||
Annualized return on average assets | 0.98 | % | 1.02 | % | 1.11 | % | 1.02 | % | 1.13 | % | 1.03 | % | 1.07 | % | |||||||||||||||
Annualized operating return on average assets (1) | 1.07 | 1.20 | 1.15 | 1.09 | 1.06 | 1.13 | 1.09 | ||||||||||||||||||||||
Annualized return on average common equity | 7.36 | 7.67 | 8.27 | 7.52 | 8.48 | 7.69 | 7.77 | ||||||||||||||||||||||
Annualized operating return on average common equity (1) | 8.12 | 9.02 | 8.56 | 8.08 | 7.86 | 8.44 | 7.92 | ||||||||||||||||||||||
Annualized cash return on average tangible common equity (2) | 13.22 | 12.99 | 13.53 | 12.47 | 13.97 | 13.06 | 12.82 | ||||||||||||||||||||||
Annualized cash operating return on average tangible common equity (3) | 14.54 | 15.23 | 13.99 | 13.37 | 12.97 | 14.31 | 13.07 | ||||||||||||||||||||||
Net interest rate spread | 3.48 | 3.50 | 3.64 | 3.63 | 3.72 | 3.56 | 3.70 | ||||||||||||||||||||||
Cost of funds (4) | 0.28 | 0.28 | 0.27 | 0.27 | 0.24 | 0.28 | 0.23 | ||||||||||||||||||||||
Efficiency ratio (5) | 64.62 | 62.69 | 65.32 | 63.49 | 63.95 | 64.02 | 64.71 | ||||||||||||||||||||||
Annualized net non-interest expense to average assets (6) | 1.35 | 1.06 | 1.35 | 1.31 | 1.44 | 1.27 | 1.38 | ||||||||||||||||||||||
Core non-interest income to revenues (7) | 38.15 | 43.98 | 41.40 | 39.38 | 36.91 | 40.77 | 39.68 | ||||||||||||||||||||||
Net interest margin | 3.50 | 3.49 | 3.60 | 3.57 | 3.64 | 3.54 | 3.63 | ||||||||||||||||||||||
Tax equivalent effect | 0.17 | 0.19 | 0.21 | 0.22 | 0.22 | 0.19 | 0.21 | ||||||||||||||||||||||
Net interest margin - fully tax equivalent basis (8) | 3.67 | 3.68 | 3.81 | 3.79 | 3.86 | 3.73 | 3.84 | ||||||||||||||||||||||
Loans to deposits | 90.49 | 87.82 | 89.17 | 86.37 | 85.13 | 90.49 | 85.13 | ||||||||||||||||||||||
Asset Quality Ratios: | |||||||||||||||||||||||||||||
Non-performing loans (9) to total loans | 0.46 | % | 0.43 | % | 0.73 | % | 0.95 | % | 1.07 | % | 0.46 | % | 1.07 | % | |||||||||||||||
Non-performing assets (9) to total assets | 0.45 | 0.45 | 0.64 | 0.79 | 0.87 | 0.45 | 0.87 | ||||||||||||||||||||||
Allowance for loan and lease losses to non-performing loans (9) | 234.81 | 258.82 | 181.46 | 142.00 | 122.43 | 234.81 | 122.43 | ||||||||||||||||||||||
Allowance for loan and lease losses to total loans | 1.09 | 1.11 | 1.33 | 1.35 | 1.31 | 1.09 | 1.31 | ||||||||||||||||||||||
Net loan charge-offs to average loans, excluding loans held for sale (annualized) | 0.10 | 0.09 | 0.09 | 0.06 | 0.14 | 0.09 | 0.04 | ||||||||||||||||||||||
Capital Ratios: | |||||||||||||||||||||||||||||
Tangible equity to tangible assets (10) | 8.42 | % | 8.34 | % | 9.21 | % | 9.24 | % | 8.99 | % | 8.42 | % | 8.99 | % | |||||||||||||||
Tangible common equity to tangible assets (11) | 7.79 | 7.71 | 8.46 | 8.46 | 8.21 | 7.79 | 8.21 | ||||||||||||||||||||||
Tangible common equity to risk weighted assets (12) | 8.78 | 8.83 | 9.75 | 9.54 | 9.34 | 8.78 | 9.34 | ||||||||||||||||||||||
Total capital (to risk-weighted assets) (13) | 11.59 | 11.66 | 12.81 | 12.65 | 12.54 | 11.59 | 12.54 | ||||||||||||||||||||||
Tier 1 capital (to risk-weighted assets) (13) | 9.37 | 9.40 | 11.77 | 11.60 | 11.54 | 9.37 | 11.54 | ||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) (13) | 8.70 | 8.71 | 9.52 | 9.33 | 9.27 | 8.70 | 9.27 | ||||||||||||||||||||||
Tier 1 capital (to average assets) (13) | 8.38 | 9.29 | 10.41 | 10.38 | 10.40 | 8.38 | 10.40 | ||||||||||||||||||||||
Per Share Data: | |||||||||||||||||||||||||||||
Book value per common share (14) | $ | 29.43 | $ | 29.28 | $ | 27.68 | $ | 27.26 | $ | 26.77 | $ | 29.43 | $ | 26.77 | |||||||||||||||
Less: goodwill and other intangible assets, net of benefit, per common share | 12.45 | 12.40 | 10.20 | 10.22 | 10.24 | 12.45 | 10.24 | ||||||||||||||||||||||
Tangible book value per common share (15) | $ | 16.98 | $ | 16.88 | $ | 17.48 | $ | 17.04 | $ | 16.53 | $ | 16.98 | $ | 16.53 | |||||||||||||||
Cash dividends per common share | $ | 0.19 | $ | 0.19 | $ | 0.19 | $ | 0.17 | $ | 0.17 | $ | 0.74 | $ | 0.65 |
(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) | Annualized cash return on average tangible equity is computed by dividing net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible common 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 non-interest 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. |
24
(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 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. |
(12) | Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated. |
(13) | Current quarter ratios are estimated. |
(14) | Equals total ending common stockholders’ equity divided by common shares outstanding. |
(15) | Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding. |
25
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, net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on bank mergers loans, 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 prepayment fees on interest bearing liabilities, branch exit and facilities impairment charges, merger related and repositioning expenses, increase in market value of assets held in trust for deferred compensation and contribution to MB Financial Charitable Foundation 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 tangible assets and tangible common equity to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating 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 core and non-core 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.
Management believes that operating earnings adjusted for merger related and repositioning expenses is a useful measure because it excludes expenses that can significantly fluctuate from acquisition to acquisition. In addition, management believes that excluding these expenses provides investors and analysts a measure to better understand the Company's primary operations when comparing the periods presented in the earnings release.
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 prepayment fees on interest bearing liabilities, branch exit and facilities impairment charges, merger related and repositioning expenses, increase in market value of assets held in trust for deferred compensation and contribution to MB Financial Charitable Foundation 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.
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.
26
Reconciliations of net interest margin on a fully tax equivalent basis to net interest margin and net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans to net interest margin are 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 Data” 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—Fourth Quarter and Annual Results.”
The following table presents a reconciliation of tangible equity to stockholders' equity (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Stockholders' equity - as reported | $ | 2,579,209 | $ | 2,563,408 | $ | 2,156,535 | $ | 2,122,885 | $ | 2,087,284 | ||||||||||
Less: goodwill | 1,001,038 | 993,799 | 725,039 | 725,068 | 725,070 | |||||||||||||||
Less: other intangible assets, net of tax benefit | 40,923 | 42,507 | 27,020 | 28,071 | 29,128 | |||||||||||||||
Tangible equity | $ | 1,537,248 | $ | 1,527,102 | $ | 1,404,476 | $ | 1,369,746 | $ | 1,333,086 |
The following table presents a reconciliation of tangible assets to total assets (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Total assets - as reported | $ | 19,302,317 | $ | 19,341,882 | $ | 15,995,790 | $ | 15,575,653 | $ | 15,585,007 | ||||||||||
Less: goodwill | 1,001,038 | 993,799 | 725,039 | 725,068 | 725,070 | |||||||||||||||
Less: other intangible assets, net of tax benefit | 40,923 | 42,507 | 27,020 | 28,071 | 29,128 | |||||||||||||||
Tangible assets | $ | 18,260,356 | $ | 18,305,576 | $ | 15,243,731 | $ | 14,822,514 | $ | 14,830,809 |
The following table presents a reconciliation of tangible common equity to common stockholders' equity (in thousands):
12/31/2016 | 9/30/2016 | 6/30/2016 | 3/31/2016 | 12/31/2015 | ||||||||||||||||
Common stockholders' equity - as reported | $ | 2,463,637 | $ | 2,446,901 | $ | 2,041,255 | $ | 2,007,605 | $ | 1,972,004 | ||||||||||
Less: goodwill | 1,001,038 | 993,799 | 725,039 | 725,068 | 725,070 | |||||||||||||||
Less: other intangible assets, net of tax benefit | 40,923 | 42,507 | 27,020 | 28,071 | 29,128 | |||||||||||||||
Tangible common equity | $ | 1,421,676 | $ | 1,410,595 | $ | 1,289,196 | $ | 1,254,466 | $ | 1,217,806 |
The following table presents a reconciliation of average tangible common equity to average common stockholders’ equity (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Average common stockholders' equity | $ | 2,441,809 | $ | 2,201,095 | $ | 2,014,822 | $ | 1,984,379 | $ | 1,945,772 | $ | 2,161,405 | $ | 1,943,632 | |||||||||||||||
Less: average goodwill | 994,053 | 835,894 | 725,011 | 725,070 | 711,669 | 820,526 | 711,559 | ||||||||||||||||||||||
Less: average other intangible assets, net of tax benefit | 41,471 | 32,744 | 27,437 | 28,511 | 23,826 | 32,566 | 23,743 | ||||||||||||||||||||||
Average tangible common equity | $ | 1,406,285 | $ | 1,332,457 | $ | 1,262,374 | $ | 1,230,798 | $ | 1,210,277 | $ | 1,308,313 | $ | 1,208,330 |
The following table presents a reconciliation of net cash flow available to common stockholders to net income available to common stockholders (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Net income available to common stockholders - as reported | $ | 45,186 | $ | 42,415 | $ | 41,412 | $ | 37,114 | $ | 41,607 | $ | 166,127 | $ | 150,948 | |||||||||||||||
Add: other intangible amortization expense, net of tax benefit | 1,552 | 1,088 | 1,051 | 1,057 | 1,005 | 4,748 | 3,975 | ||||||||||||||||||||||
Net cash flow available to common stockholders | $ | 46,738 | $ | 43,503 | $ | 42,463 | $ | 38,171 | $ | 42,612 | $ | 170,875 | $ | 154,923 |
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The following table presents a reconciliation of net income to operating earnings (in thousands):
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Net income - as reported | $ | 47,191 | $ | 44,419 | $ | 43,412 | $ | 39,114 | $ | 43,607 | $ | 174,136 | $ | 158,948 | |||||||||||||||
Less non-core items: | |||||||||||||||||||||||||||||
Net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Increase in market value of assets held in trust for deferred compensation - other operating income | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Merger related and repositioning expenses | (6,491 | ) | (11,368 | ) | (2,566 | ) | (3,287 | ) | 4,186 | (23,712 | ) | (5,506 | ) | ||||||||||||||||
Branch exit and facilities impairment charges | — | — | (155 | ) | — | — | (155 | ) | — | ||||||||||||||||||||
Prepayment fees on interest bearing liabilities | — | — | — | — | — | — | (85 | ) | |||||||||||||||||||||
Contribution to MB Financial Charitable Foundation | — | (4,000 | ) | — | — | — | (4,000 | ) | — | ||||||||||||||||||||
Increase in market value of assets held in trust for deferred compensation - other operating expense | (141 | ) | (711 | ) | (480 | ) | (8 | ) | (565 | ) | (1,340 | ) | (6 | ) | |||||||||||||||
Total non-core items | (7,062 | ) | (15,363 | ) | (2,454 | ) | (3,335 | ) | 4,183 | (28,214 | ) | (5,769 | ) | ||||||||||||||||
Income tax expense on non-core items | (2,406 | ) | (6,074 | ) | (1,003 | ) | (577 | ) | 1,140 | (10,060 | ) | (2,809 | ) | ||||||||||||||||
Income tax benefit resulting from adoption of new stock-based compensation guidance | — | (1,793 | ) | — | — | — | (1,793 | ) | — | ||||||||||||||||||||
Non-core items, net of tax | (4,656 | ) | (7,496 | ) | (1,451 | ) | (2,758 | ) | 3,043 | (16,361 | ) | (2,960 | ) | ||||||||||||||||
Operating earnings | 51,847 | 51,915 | 44,863 | 41,872 | 40,564 | 190,497 | 161,908 | ||||||||||||||||||||||
Dividends on preferred shares | 2,005 | 2,004 | 2,000 | 2,000 | 2,000 | 8,009 | 8,000 | ||||||||||||||||||||||
Operating earnings available to common stockholders | $ | 49,842 | $ | 49,911 | $ | 42,863 | $ | 39,872 | $ | 38,564 | $ | 182,488 | $ | 153,908 | |||||||||||||||
Diluted operating earnings per common share | $ | 0.59 | $ | 0.63 | $ | 0.58 | $ | 0.54 | $ | 0.52 | $ | 2.34 | $ | 2.06 | |||||||||||||||
Weighted average common shares outstanding for diluted operating earnings per common share | 84,674,181 | 78,683,170 | 74,180,374 | 73,966,935 | 73,953,165 | 77,976,121 | 74,849,030 |
28
Efficiency Ratio Calculation (Dollars in Thousands)
Year Ended | ||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | ||||||||||||||||||||||
Non-interest expense | $ | 165,760 | $ | 170,385 | $ | 147,906 | $ | 135,800 | $ | 127,231 | $ | 619,851 | $ | 534,154 | ||||||||||||||
Less merger related and repositioning expenses | 6,491 | 11,368 | 2,566 | 3,287 | (4,186 | ) | 23,712 | 5,506 | ||||||||||||||||||||
Less prepayment fees on interest bearing liabilities | — | — | — | — | — | — | 85 | |||||||||||||||||||||
Less branch exit and facilities impairment charges | — | — | 155 | — | — | 155 | — | |||||||||||||||||||||
Less contribution to MB Financial Charitable Foundation | — | 4,000 | — | — | — | 4,000 | — | |||||||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | |||||||||||||||||||||
Non-interest expense - as adjusted | $ | 159,128 | $ | 154,306 | $ | 144,705 | $ | 132,505 | $ | 130,852 | $ | 590,644 | $ | 528,557 | ||||||||||||||
Net interest income | $ | 145,214 | $ | 130,771 | $ | 122,602 | $ | 119,304 | $ | 121,769 | $ | 517,891 | $ | 465,606 | ||||||||||||||
Tax equivalent adjustment | 7,090 | 7,122 | 7,208 | 7,195 | 7,307 | 28,616 | 27,080 | |||||||||||||||||||||
Net interest income on a fully tax equivalent basis | 152,304 | 137,893 | 129,810 | 126,499 | 129,076 | 546,507 | 492,686 | |||||||||||||||||||||
Plus non-interest income | 92,823 | 108,387 | 92,000 | 81,693 | 75,625 | 374,903 | 322,093 | |||||||||||||||||||||
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance | 709 | 568 | 458 | 460 | 465 | 2,194 | 1,826 | |||||||||||||||||||||
Less net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | |||||||||||||||||||
Less net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | ||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | |||||||||||||||||||||
Net interest income plus non-interest income - as adjusted | $ | 246,266 | $ | 246,132 | $ | 221,521 | $ | 208,692 | $ | 204,604 | $ | 922,611 | $ | 816,777 | ||||||||||||||
Efficiency ratio | 64.62 | % | 62.69 | % | 65.32 | % | 63.49 | % | 63.95 | % | 64.02 | % | 64.71 | % | ||||||||||||||
Efficiency ratio (without adjustments) | 69.64 | % | 71.24 | % | 68.92 | % | 67.56 | % | 64.46 | % | 69.43 | % | 67.81 | % |
29
Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Non-interest expense | $ | 165,760 | $ | 170,385 | $ | 147,906 | $ | 135,800 | $ | 127,231 | $ | 619,851 | $ | 534,154 | |||||||||||||||
Less merger related and repositioning expenses | 6,491 | 11,368 | 2,566 | 3,287 | (4,186 | ) | 23,712 | 5,506 | |||||||||||||||||||||
Less prepayment fees on interest bearing liabilities | — | — | — | — | — | — | 85 | ||||||||||||||||||||||
Less branch exit and facilities impairment charges | — | — | 155 | — | — | 155 | — | ||||||||||||||||||||||
Less contribution to MB Financial Charitable Foundation | — | 4,000 | — | — | — | 4,000 | — | ||||||||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Non-interest expense - as adjusted | 159,128 | 154,306 | 144,705 | 132,505 | 130,852 | 590,644 | 528,557 | ||||||||||||||||||||||
Non-interest income | 92,823 | 108,387 | 92,000 | 81,693 | 75,625 | 374,903 | 322,093 | ||||||||||||||||||||||
Less net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Less net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Non-interest income - as adjusted | 93,253 | 107,671 | 91,253 | 81,733 | 75,063 | 373,910 | 322,265 | ||||||||||||||||||||||
Less tax equivalent adjustment on the increase in cash surrender value of life insurance | 709 | 568 | 458 | 460 | 465 | 2,194 | 1,826 | ||||||||||||||||||||||
Net non-interest expense - as adjusted | $ | 65,166 | $ | 46,067 | $ | 52,994 | $ | 50,312 | $ | 55,324 | $ | 214,540 | $ | 204,466 | |||||||||||||||
Average assets | $ | 19,192,747 | $ | 17,248,431 | $ | 15,740,658 | $ | 15,487,565 | $ | 15,244,633 | $ | 16,924,472 | $ | 14,827,884 | |||||||||||||||
Annualized net non-interest expense - as adjusted to average assets | 1.35 | % | 1.06 | % | 1.35 | % | 1.31 | % | 1.44 | % | 1.27 | % | 1.38 | % | |||||||||||||||
Annualized net non-interest expense to average assets (without adjustments) | 1.51 | % | 1.43 | % | 1.43 | % | 1.41 | % | 1.34 | % | 1.45 | % | 1.43 | % |
30
Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)
Year Ended | |||||||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||||||
4Q16 | 3Q16 | 2Q16 | 1Q16 | 4Q15 | 2016 | 2015 | |||||||||||||||||||||||
Non-interest income | $ | 92,823 | $ | 108,387 | $ | 92,000 | $ | 81,693 | $ | 75,625 | $ | 374,903 | $ | 322,093 | |||||||||||||||
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance | 709 | 568 | 458 | 460 | 465 | 2,194 | 1,826 | ||||||||||||||||||||||
Less net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Less net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Non-interest income - as adjusted | $ | 93,962 | $ | 108,239 | $ | 91,711 | $ | 82,193 | $ | 75,528 | $ | 376,104 | $ | 324,091 | |||||||||||||||
Net interest income | $ | 145,214 | $ | 130,771 | $ | 122,602 | $ | 119,304 | $ | 121,769 | $ | 517,891 | $ | 465,606 | |||||||||||||||
Tax equivalent adjustment | 7,090 | 7,122 | 7,208 | 7,195 | 7,307 | 28,616 | 27,080 | ||||||||||||||||||||||
Net interest income on a fully tax equivalent basis | 152,304 | 137,893 | 129,810 | 126,499 | 129,076 | 546,507 | 492,686 | ||||||||||||||||||||||
Plus non-interest income | 92,823 | 108,387 | 92,000 | 81,693 | 75,625 | 374,903 | 322,093 | ||||||||||||||||||||||
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance | 709 | 568 | 458 | 460 | 465 | 2,194 | 1,826 | ||||||||||||||||||||||
Less net gain (loss) on investment securities | 178 | — | 269 | — | (3 | ) | 447 | (176 | ) | ||||||||||||||||||||
Less net (loss) gain on disposal of other assets | (749 | ) | 5 | (2 | ) | (48 | ) | — | (794 | ) | (2 | ) | |||||||||||||||||
Less increase in market value of assets held in trust for deferred compensation | 141 | 711 | 480 | 8 | 565 | 1,340 | 6 | ||||||||||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis | $ | 246,266 | $ | 246,132 | $ | 221,521 | $ | 208,692 | $ | 204,604 | $ | 922,611 | $ | 816,777 | |||||||||||||||
Total revenue - unadjusted | $ | 238,037 | $ | 239,158 | $ | 214,602 | $ | 200,997 | $ | 197,394 | $ | 892,794 | $ | 787,699 | |||||||||||||||
Core non-interest income to revenues ratio | 38.15 | % | 43.98 | % | 41.40 | % | 39.38 | % | 36.91 | % | 40.77 | % | 39.68 | % | |||||||||||||||
Non-interest income to revenues ratio (without adjustments) | 39.00 | % | 45.32 | % | 42.87 | % | 40.64 | % | 38.31 | % | 41.99 | % | 40.89 | % |
31
NET INTEREST MARGIN
The following tables present, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):
4Q16 | 3Q16 | 4Q15 | ||||||||||||||||||||||||||||||||
Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | ||||||||||||||||||||||||||
Interest Earning Assets: | ||||||||||||||||||||||||||||||||||
Loans held for sale | $ | 859,254 | $ | 7,100 | 3.31 | % | $ | 835,953 | 7,074 | 3.38 | % | $ | 681,682 | $ | 6,276 | 3.68 | % | |||||||||||||||||
Loans (1) (2) (3): | ||||||||||||||||||||||||||||||||||
Commercial-related loans | ||||||||||||||||||||||||||||||||||
Commercial | 4,274,398 | 45,255 | 4.14 | 3,850,588 | 41,095 | 4.18 | 3,492,161 | 35,890 | 4.02 | |||||||||||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 1,896,486 | 17,275 | 3.64 | 1,825,505 | 16,876 | 3.70 | 1,708,404 | 15,901 | 3.72 | |||||||||||||||||||||||||
Commercial real estate | 3,775,599 | 41,508 | 4.30 | 3,183,131 | 33,253 | 4.09 | 2,627,004 | 27,759 | 4.13 | |||||||||||||||||||||||||
Construction real estate | 486,861 | 4,592 | 3.69 | 397,480 | 3,921 | 3.86 | 274,188 | 3,736 | 5.33 | |||||||||||||||||||||||||
Total commercial related loans | 10,433,344 | 108,630 | 4.07 | 9,256,704 | 95,145 | 4.02 | 8,101,757 | 83,286 | 4.02 | |||||||||||||||||||||||||
Other loans: | ||||||||||||||||||||||||||||||||||
Real estate residential | 1,031,152 | 8,522 | 3.31 | 862,393 | 7,121 | 3.30 | 612,275 | 5,490 | 3.59 | |||||||||||||||||||||||||
Home equity | 273,694 | 2,651 | 3.85 | 231,399 | 2,252 | 3.87 | 219,440 | 2,142 | 3.87 | |||||||||||||||||||||||||
Indirect | 532,782 | 6,198 | 4.63 | 507,772 | 5,838 | 4.57 | 365,744 | 4,403 | 4.78 | |||||||||||||||||||||||||
Consumer | 80,113 | 776 | 3.86 | 77,451 | 821 | 4.21 | 83,869 | 777 | 3.67 | |||||||||||||||||||||||||
Total other loans | 1,917,741 | 18,147 | 3.76 | 1,679,015 | 16,032 | 3.80 | 1,281,328 | 12,812 | 3.97 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 12,351,085 | 126,777 | 4.08 | 10,935,719 | 111,177 | 4.04 | 9,383,085 | 96,098 | 4.06 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 152,509 | 4,704 | 12.27 | 135,548 | 4,802 | 14.09 | 154,562 | 7,766 | 19.93 | |||||||||||||||||||||||||
Total loans | 12,503,594 | 131,481 | 4.18 | 11,071,267 | 115,979 | 4.17 | 9,537,647 | 103,864 | 4.32 | |||||||||||||||||||||||||
Taxable investment securities | 1,721,537 | 9,362 | 2.18 | 1,592,547 | 8,844 | 2.22 | 1,510,047 | 9,708 | 2.57 | |||||||||||||||||||||||||
Investment securities exempt from federal income taxes (3) | 1,304,931 | 15,724 | 4.82 | 1,318,855 | 15,972 | 4.84 | 1,383,592 | 16,875 | 4.88 | |||||||||||||||||||||||||
Federal funds sold | 36 | 0 | 1.00 | 36 | 0 | 1.00 | 100 | 1 | 1.00 | |||||||||||||||||||||||||
Other interest earning deposits | 107,311 | 157 | 0.58 | 103,061 | 164 | 0.63 | 141,891 | 110 | 0.31 | |||||||||||||||||||||||||
Total interest earning assets | $ | 16,496,663 | $ | 163,824 | 3.95 | $ | 14,921,719 | $ | 148,033 | 3.95 | $ | 13,254,959 | $ | 136,834 | 4.10 | |||||||||||||||||||
Non-interest earning assets | 2,696,084 | 2,326,712 | 1,989,674 | |||||||||||||||||||||||||||||||
Total assets | $ | 19,192,747 | $ | 17,248,431 | $ | 15,244,633 | ||||||||||||||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||||||||||||||||
Core funding: | ||||||||||||||||||||||||||||||||||
Money market, NOW and interest bearing deposits | $ | 4,628,698 | $ | 2,593 | 0.22 | % | $ | 4,161,913 | $ | 2,299 | 0.22 | % | $ | 4,214,099 | $ | 1,999 | 0.19 | % | ||||||||||||||||
Savings deposits | 1,140,926 | 273 | 0.10 | 1,080,609 | 231 | 0.09 | 959,049 | 123 | 0.05 | |||||||||||||||||||||||||
Certificates of deposit | 1,263,675 | 1,728 | 0.54 | 1,257,959 | 1,633 | 0.52 | 1,245,947 | 1,431 | 0.46 | |||||||||||||||||||||||||
Customer repurchase agreements | 247,273 | 129 | 0.21 | 210,688 | 113 | 0.21 | 230,412 | 115 | 0.20 | |||||||||||||||||||||||||
Total core funding | 7,280,572 | 4,723 | 0.26 | 6,711,169 | 4,276 | 0.25 | 6,649,507 | 3,668 | 0.22 | |||||||||||||||||||||||||
Wholesale funding: | ||||||||||||||||||||||||||||||||||
Brokered certificates of deposit (includes fee expense) | 779,411 | 2,730 | 1.39 | 702,030 | 2,518 | 1.43 | 492,839 | 1,804 | 1.45 | |||||||||||||||||||||||||
Other borrowings | 1,638,605 | 4,067 | 0.97 | 1,533,344 | 3,346 | 0.85 | 1,031,301 | 2,286 | 0.87 | |||||||||||||||||||||||||
Total wholesale funding | 2,418,016 | 6,797 | 1.12 | 2,235,374 | 5,864 | 1.04 | 1,524,140 | 4,090 | 1.06 | |||||||||||||||||||||||||
Total interest bearing liabilities | $ | 9,698,588 | $ | 11,520 | 0.47 | $ | 8,946,543 | $ | 10,140 | 0.45 | $ | 8,173,647 | $ | 7,758 | 0.38 | |||||||||||||||||||
Non-interest bearing deposits | 6,454,025 | 5,524,043 | 4,617,076 | |||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 482,449 | 461,243 | 392,858 | |||||||||||||||||||||||||||||||
Stockholders' equity | 2,557,685 | 2,316,602 | 2,061,052 | |||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 19,192,747 | $ | 17,248,431 | $ | 15,244,633 | ||||||||||||||||||||||||||||
Net interest income/interest rate spread (4) | $ | 152,304 | 3.48 | % | $ | 137,893 | 3.50 | % | $ | 129,076 | 3.72 | % | ||||||||||||||||||||||
Taxable equivalent adjustment | 7,090 | 7,122 | 7,307 | |||||||||||||||||||||||||||||||
Net interest income, as reported | $ | 145,214 | $ | 130,771 | $ | 121,769 | ||||||||||||||||||||||||||||
Net interest margin (5) | 3.50 | % | 3.49 | % | 3.64 | % | ||||||||||||||||||||||||||||
Tax equivalent effect | 0.17 | % | 0.19 | % | 0.22 | % | ||||||||||||||||||||||||||||
Net interest margin on a fully tax equivalent basis (5) | 3.67 | % | 3.68 | % | 3.86 | % |
(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. |
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Year Ended December 31, | ||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||
Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | |||||||||||||||||
Interest Earning Assets: | ||||||||||||||||||||||
Loans held for sale | $ | 771,384 | $ | 26,450 | 3.43 | % | $ | 740,975 | 26,804 | 3.62 | % | |||||||||||
Loans (1) (2) (3): | ||||||||||||||||||||||
Commercial-related loans | ||||||||||||||||||||||
Commercial | 3,796,230 | 162,710 | 4.22 | 3,342,090 | 137,878 | 4.07 | ||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 1,813,837 | 67,376 | 3.71 | 1,666,611 | 62,221 | 3.73 | ||||||||||||||||
Commercial real estate | 3,130,516 | 132,748 | 4.17 | 2,564,506 | 110,009 | 4.23 | ||||||||||||||||
Construction real estate | 378,405 | 14,852 | 3.86 | 217,181 | 12,637 | 5.74 | ||||||||||||||||
Total commercial related loans | 9,118,988 | 377,686 | 4.07 | 7,790,388 | 322,745 | 4.09 | ||||||||||||||||
Other loans: | ||||||||||||||||||||||
Real estate residential | 811,782 | 27,402 | 3.38 | 546,511 | 20,455 | 3.74 | ||||||||||||||||
Home equity | 229,626 | 8,905 | 3.88 | 231,464 | 9,209 | 3.98 | ||||||||||||||||
Indirect | 477,008 | 22,128 | 4.64 | 311,418 | 15,674 | 5.03 | ||||||||||||||||
Consumer | 79,059 | 3,158 | 3.99 | 79,416 | 3,161 | 3.98 | ||||||||||||||||
Total other loans | 1,597,475 | 61,593 | 3.86 | 1,168,809 | 48,499 | 4.15 | ||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 10,716,463 | 439,279 | 4.10 | 8,959,197 | 371,244 | 4.14 | ||||||||||||||||
Purchased credit-impaired loans | 140,997 | 19,257 | 13.66 | 188,082 | 20,611 | 10.96 | ||||||||||||||||
Total loans | 10,857,460 | 458,536 | 4.22 | 9,147,279 | 391,855 | 4.28 | ||||||||||||||||
Taxable investment securities | 1,576,836 | 35,571 | 2.26 | 1,538,709 | 39,299 | 2.55 | ||||||||||||||||
Investment securities exempt from federal income taxes (3) | 1,331,323 | 64,649 | 4.86 | 1,282,909 | 63,037 | 4.91 | ||||||||||||||||
Federal funds sold | 37 | — | 1.00 | 70 | 1 | 0.99 | ||||||||||||||||
Other interest earning deposits | 106,075 | 587 | 0.55 | 117,344 | 318 | 0.27 | ||||||||||||||||
Total interest earning assets | $ | 14,643,115 | $ | 585,793 | 4.00 | $ | 12,827,286 | $ | 521,314 | 4.06 | ||||||||||||
Non-interest earning assets | 2,281,357 | 2,000,598 | ||||||||||||||||||||
Total assets | $ | 16,924,472 | $ | 14,827,884 | ||||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||||
Core funding: | ||||||||||||||||||||||
Money market, NOW and interest bearing deposits | $ | 4,185,129 | $ | 9,027 | 0.22 | % | $ | 4,053,848 | $ | 7,060 | 0.17 | % | ||||||||||
Savings deposits | 1,053,429 | 837 | 0.08 | 962,221 | 502 | 0.05 | ||||||||||||||||
Certificates of deposit | 1,249,264 | 6,248 | 0.50 | 1,317,689 | 5,593 | 0.42 | ||||||||||||||||
Customer repurchase agreements | 202,673 | 420 | 0.21 | 240,737 | 452 | 0.19 | ||||||||||||||||
Total core funding | 6,690,495 | 16,532 | 0.25 | 6,574,495 | 13,607 | 0.21 | ||||||||||||||||
Wholesale funding: | ||||||||||||||||||||||
Brokered certificates of deposit (includes fee expense) | 654,238 | 9,467 | 1.45 | 452,290 | 6,503 | 1.44 | ||||||||||||||||
Other borrowings | 1,518,447 | 13,287 | 0.86 | 990,784 | 8,518 | 0.85 | ||||||||||||||||
Total wholesale funding | 2,172,685 | 22,754 | 1.05 | 1,443,074 | 15,021 | 1.04 | ||||||||||||||||
Total interest bearing liabilities | $ | 8,863,180 | $ | 39,286 | 0.44 | $ | 8,017,569 | $ | 28,628 | 0.36 | ||||||||||||
Non-interest bearing deposits | 5,351,197 | 4,381,030 | ||||||||||||||||||||
Other non-interest bearing liabilities | 433,202 | 370,373 | ||||||||||||||||||||
Stockholders' equity | 2,276,893 | 2,058,912 | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 16,924,472 | $ | 14,827,884 | ||||||||||||||||||
Net interest income/interest rate spread (4) | $ | 546,507 | 3.56 | % | $ | 492,686 | 3.70 | % | ||||||||||||||
Taxable equivalent adjustment | 28,616 | 27,080 | ||||||||||||||||||||
Net interest income, as reported | $ | 517,891 | $ | 465,606 | ||||||||||||||||||
Net interest margin (5) | 3.54 | % | 3.63 | % | ||||||||||||||||||
Tax equivalent effect | 0.19 | % | 0.21 | % | ||||||||||||||||||
Net interest margin on a fully tax equivalent basis (5) | 3.73 | % | 3.84 | % |
(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. |
33
The tables below reflects the impact the acquisition accounting loan discount accretion on acquired loans had on the loan yield and net interest margin on a fully tax equivalent basis for the periods indicated (dollars in thousands):
4Q16 | 3Q16 | 4Q15 | |||||||||||||||||||||||||||||||
Average Balance | Interest | Yield | Average Balance | Interest | Yield | Average Balance | Interest | Yield | |||||||||||||||||||||||||
Loan yield excluding acquisition accounting discount accretion on bank merger loans: | |||||||||||||||||||||||||||||||||
Total loans, as reported | $ | 12,503,594 | $ | 131,481 | 4.18 | % | $ | 11,071,267 | $ | 115,979 | 4.17 | % | $ | 9,537,647 | $ | 103,864 | 4.32 | % | |||||||||||||||
Less acquisition accounting discount accretion on non-PCI loans | (42,978 | ) | 4,854 | (34,315 | ) | 4,114 | (37,865 | ) | 6,193 | ||||||||||||||||||||||||
Less acquisition accounting discount accretion on PCI loans | (34,360 | ) | 2,709 | (23,110 | ) | 2,046 | (28,037 | ) | 3,510 | ||||||||||||||||||||||||
Total loans, excluding acquisition accounting discount accretion on bank merger loans | $ | 12,580,932 | $ | 123,918 | 3.92 | % | $ | 11,128,692 | $ | 109,819 | 3.93 | % | $ | 9,603,549 | $ | 94,161 | 3.89 | % | |||||||||||||||
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans: | |||||||||||||||||||||||||||||||||
Total interest earning assets, as reported | $ | 16,496,663 | $ | 152,304 | 3.67 | % | $ | 14,921,719 | $ | 137,893 | 3.68 | % | $ | 13,254,959 | $ | 129,076 | 3.86 | % | |||||||||||||||
Less acquisition accounting discount accretion on non-PCI loans | (42,978 | ) | 4,854 | (34,315 | ) | 4,114 | (37,865 | ) | 6,193 | ||||||||||||||||||||||||
Less acquisition accounting discount accretion on PCI loans | (34,360 | ) | 2,709 | (23,110 | ) | 2,046 | (28,037 | ) | 3,510 | ||||||||||||||||||||||||
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans | $ | 16,574,001 | $ | 144,741 | 3.47 | % | $ | 14,979,144 | $ | 131,733 | 3.50 | % | $ | 13,320,861 | $ | 119,373 | 3.56 | % |
Year Ended December 31, | ||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||
Average Balance | Interest | Yield | Average Balance | Interest | Yield | |||||||||||||||||
Loan yield excluding acquisition accounting discount accretion on bank merger loans: | ||||||||||||||||||||||
Total loans, as reported | $ | 10,857,460 | $ | 458,536 | 4.22 | % | $ | 9,147,279 | $ | 391,855 | 4.28 | % | ||||||||||
Less acquisition accounting discount accretion on non-PCI loans | (35,507 | ) | 19,309 | (47,410 | ) | 27,008 | ||||||||||||||||
Less acquisition accounting discount accretion on PCI loans | (26,856 | ) | 9,470 | (32,326 | ) | 6,631 | ||||||||||||||||
Total loans, excluding acquisition accounting discount accretion on bank merger loans | $ | 10,919,823 | $ | 429,757 | 3.94 | % | $ | 9,227,015 | $ | 358,216 | 3.88 | % | ||||||||||
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans: | ||||||||||||||||||||||
Total interest earning assets, as reported | $ | 14,643,115 | $ | 546,507 | 3.73 | % | $ | 12,827,286 | $ | 492,686 | 3.84 | % | ||||||||||
Less acquisition accounting discount accretion on non-PCI loans | (35,507 | ) | 19,309 | (47,410 | ) | 27,008 | ||||||||||||||||
Less acquisition accounting discount accretion on PCI loans | (26,856 | ) | 9,470 | (32,326 | ) | 6,631 | ||||||||||||||||
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans | $ | 14,705,478 | $ | 517,728 | 3.52 | % | $ | 12,907,022 | $ | 459,047 | 3.56 | % |
34