EXHIBIT 99.1
![]() | 2Q18 |
MB FINANCIAL, INC. REPORTS SECOND QUARTER 2018 NET INCOME
CHICAGO, July 19, 2018 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced second quarter 2018 net income of $38.5 million compared to $56.8 million last quarter and $44.5 million in the second quarter a year ago. Diluted earnings per common share were $0.42 in the second quarter of 2018 compared to $0.81 last quarter and $0.50 in the second quarter a year ago.
Operating Earnings (in thousands, except per share data) |
The table below reconciles net income, as reported, to operating earnings excluding our Mortgage Banking Segment. As previously announced, we have discontinued our national mortgage origination business (substantially all originations outside of the Company's consumer banking footprint in the Chicagoland area). Therefore, we believe operating earnings excluding our Mortgage Banking Segment better reflect our primary operations until the wind down of the segment is complete, as we are retaining the mortgage servicing asset and residential mortgage loans on our balance sheet.
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Net income - as reported | $ | 38,533 | $ | 56,757 | $ | 144,194 | $ | 60,843 | $ | 44,466 | $ | 95,290 | $ | 99,003 | |||||||||||||||
Non-core items, net of tax (1) | 18,679 | 614 | (96,814 | ) | 1,942 | 3,292 | 19,293 | 1,934 | |||||||||||||||||||||
Operating earnings | 57,212 | 57,371 | 47,380 | 62,785 | 47,758 | 114,583 | 100,937 | ||||||||||||||||||||||
Operating (loss) earnings - Mortgage Banking Segment | (3,359 | ) | (295 | ) | (815 | ) | 2,217 | 2,413 | (3,654 | ) | 4,092 | ||||||||||||||||||
Operating earnings, excluding Mortgage Banking Segment | 60,571 | 57,666 | 48,195 | 60,568 | 45,345 | 118,237 | 96,845 | ||||||||||||||||||||||
Dividends on preferred shares | 3,000 | 3,100 | 2,000 | 2,002 | 2,002 | 6,100 | 4,005 | ||||||||||||||||||||||
Operating earnings available to common stockholders, excluding Mortgage Banking Segment | $ | 57,571 | $ | 54,566 | $ | 46,195 | $ | 58,566 | $ | 43,343 | $ | 112,137 | $ | 92,840 | |||||||||||||||
Diluted earnings per common share - as reported (2) (3) | $ | 0.42 | $ | 0.81 | $ | 1.67 | $ | 0.69 | $ | 0.50 | $ | 1.23 | $ | 1.12 | |||||||||||||||
Diluted operating earnings per common share, excluding Mortgage Banking Segment | $ | 0.68 | $ | 0.64 | $ | 0.54 | $ | 0.69 | $ | 0.51 | $ | 1.32 | $ | 1.10 |
(1) | Non-core items represent the difference between non-core non-interest income and non-core non-interest expense net of tax. See "Non-GAAP Financial Information" section for details on non-core items starting on page 25. Non-core items for the second quarter of 2018 include approximately $14 million, net of tax, related to the discontinuation of our national mortgage origination business and approximately $5 million, net of tax, related to the pending merger with Fifth Third Bancorp ("Fifth Third"). |
(2) | The $0.81 diluted earnings per common share in the first quarter of 2018 were positively impacted by a $15.3 million, or $0.18 per common share, return from preferred stockholders due to the redemption of our 8% Series A non-cumulative perpetual preferred stock. The $15.3 million represents the excess carrying amount over the redemption price of the Series A preferred stock. |
(3) | The $1.67 diluted earnings per common share in the fourth quarter of 2017 were positively impacted by a $104.2 million, or $1.23 per common share, tax benefit due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJ Act"). |
Key Items (compared to 1Q18) |
Pending Merger |
On May 20, 2018, we signed a definitive merger agreement with Fifth Third.
Operating Earnings |
• | Operating earnings, excluding the Mortgage Banking Segment, increased $2.9 million, or 5.0%, to $60.6 million compared to the prior quarter. This increase resulted mostly from a $4.4 million (net of tax) increase in net interest income and an approximate $900 thousand decrease in income tax expense (due to a lower effective tax rate). These favorable variances were partly offset by a $2.5 million (net of tax) increase in professional and legal fees. |
• | Diluted operating earnings per common share, excluding the Mortgage Banking Segment, were $0.68 compared to $0.64 in the prior quarter. |
Loans |
• | Loan balances, excluding purchased credit-impaired loans, decreased $105.7 million (-0.8%, or -3.1%, annualized). |
• | Average loan balances, excluding purchased credit-impaired loans, decreased $58.6 million (-0.4%, or -1.7% annualized) to $13.7 billion due to a decrease in commercial real estate loans. |
• | Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 17 basis points to 4.50% from 4.33% in the prior quarter as a result of increases in short-term interest rates. |
Deposits |
• | Low-cost deposit balances ended the quarter essentially at the same level as the prior quarter end. |
• | Average low-cost deposits increased $128.7 million (1.0%, or 4.2% annualized) to $12.5 billion due to a normal seasonal increase in non-interest bearing deposits. |
• | Average cost of total deposits increased six basis points to 0.47%. |
Net interest margin |
• | Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased seven basis points in the quarter to 3.62%. This increase was due to higher loan yields partly offset by increased funding costs. |
• | Average interest earning assets increased $207.6 million mostly due to the purchase of residential mortgage-backed securities in March 2018. |
• | Average cost of funds increased nine basis points to 0.67% due to higher rates paid on interest bearing liabilities. |
Operating Segments (compared to 1Q18) |
Banking |
• | Operating earnings were $53.6 million, an increase of $4.5 million, or 9.2%, compared to the prior quarter. |
• | This increase was due to an increase in net interest income (higher average loan and investment security yields) and card fees partly offset by an increase in professional and legal fees. |
Leasing |
• | Operating earnings were $7.0 million, a decrease of $1.6 million, or 18.7%, compared to the prior quarter. |
• | Operating earnings for the quarter decreased as a result of lower promotional income partially offset by higher rental income and residual gains. |
Mortgage Banking |
• | On April 12, 2018, we announced the discontinuation of our national mortgage origination business, which includes substantially all originations outside of the Company's consumer banking footprint in the Chicagoland area. |
• | Operating loss was $3.4 million compared to an operating loss of $295 thousand in the prior quarter. |
• | The wind down of our national mortgage origination business is proceeding as planned. We project that, excluding any impact of our pending merger with Fifth Third, our remaining mortgage operations will earn quarterly pre-tax income of approximately $7.4 million beginning in the first quarter of 2019, as outlined in our first quarter 2018 earnings release. |
Key Items (compared to six months ended June 30, 2017) |
• | Operating earnings, excluding the Mortgage Banking Segment, increased $21.4 million, or 22.1%, to $118.2 million compared to the six months ended June 30, 2017. This increase resulted from the following items (net of tax): a $14.6 million increase in net interest income, an $8.3 million increase in our key fee initiatives revenue (mainly lease financing revenue), and an approximate $12 million decrease in income tax expense (lower effective tax rate). These increases were partly offset by a $14.9 million increase in non-interest expense with more than half of the increase in salaries and benefits. |
• | Diluted operating earnings per common share, excluding the Mortgage Banking Segment, were $1.32 compared to $1.10 in the six months ended June 30, 2017, an increase of 20.0%. |
Guidance on Selected Financial Items |
In light of our pending merger with Fifth Third, we will no longer provide forward-looking financial guidance or update previously provided financial guidance except as otherwise provided in this release with respect to our mortgage operations.
2
Operating Segments |
The Company currently has 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. As a result of the discontinuation of our national mortgage origination business, we expect to stop operating the mortgage business as a defined segment with separate Mortgage Banking Segment reporting prior to the first quarter of 2019. The financial information below was adjusted for funds transfer pricing and internal allocations of certain expenses and excludes non-core non-interest income and expense.
Banking Segment |
The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):
Six Months Ended | ||||||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | ||||||||||||||||||||||
Net interest income | $ | 146,614 | $ | 140,471 | $ | 140,180 | $ | 142,888 | $ | 135,982 | $ | 287,085 | $ | 267,431 | ||||||||||||||
Provision for credit losses | 5,746 | 7,579 | 501 | 3,637 | 8,890 | 13,325 | 12,417 | |||||||||||||||||||||
Net interest income after provision for credit losses | 140,868 | 132,892 | 139,679 | 139,251 | 127,092 | 273,760 | 255,014 | |||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Lease financing revenue, net | 2,165 | 1,535 | 1,795 | 1,097 | 1,326 | 3,700 | 2,871 | |||||||||||||||||||||
Treasury management fees | 15,066 | 15,156 | 15,234 | 14,508 | 14,499 | 30,222 | 29,188 | |||||||||||||||||||||
Wealth management fees | 8,969 | 9,121 | 9,024 | 8,702 | 8,498 | 18,090 | 17,018 | |||||||||||||||||||||
Card fees | 5,654 | 4,787 | 5,032 | 4,585 | 4,413 | 10,441 | 8,979 | |||||||||||||||||||||
Capital markets and international banking fees | 3,785 | 2,998 | 3,999 | 4,870 | 3,586 | 6,783 | 6,839 | |||||||||||||||||||||
Other non-interest income | 11,838 | 10,675 | 9,359 | 10,940 | 9,655 | 22,513 | 18,961 | |||||||||||||||||||||
Total non-interest income | 47,477 | 44,272 | 44,443 | 44,702 | 41,977 | 91,749 | 83,856 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 45,103 | 44,821 | 44,782 | 45,096 | 44,019 | 89,924 | 86,139 | |||||||||||||||||||||
Commissions | 941 | 953 | 1,119 | 877 | 1,121 | 1,894 | 2,228 | |||||||||||||||||||||
Bonus and stock-based compensation | 11,533 | 10,610 | 10,418 | 10,032 | 10,603 | 22,143 | 21,222 | |||||||||||||||||||||
Other salaries and benefits (1) | 15,721 | 15,207 | 14,119 | 14,604 | 12,698 | 30,928 | 26,403 | |||||||||||||||||||||
Total salaries and employee benefits expense | 73,298 | 71,591 | 70,438 | 70,609 | 68,441 | 144,889 | 135,992 | |||||||||||||||||||||
Occupancy and equipment expense | 13,308 | 14,089 | 13,769 | 12,372 | 12,298 | 27,397 | 24,415 | |||||||||||||||||||||
Computer services and telecommunication expense | 9,384 | 9,741 | 9,664 | 8,386 | 7,976 | 19,125 | 15,490 | |||||||||||||||||||||
Professional and legal expense | 4,846 | 1,359 | 1,967 | 1,239 | 1,455 | 6,205 | 3,055 | |||||||||||||||||||||
Other operating expenses | 18,665 | 16,745 | 18,817 | 16,757 | 18,793 | 35,410 | 37,048 | |||||||||||||||||||||
Total non-interest expense | 119,501 | 113,525 | 114,655 | 109,363 | 108,963 | 233,026 | 216,000 | |||||||||||||||||||||
Income before income taxes | 68,844 | 63,639 | 69,467 | 74,590 | 60,106 | 132,483 | 122,870 | |||||||||||||||||||||
Income tax expense | 15,237 | 14,539 | 25,734 | 20,064 | 18,915 | 29,776 | 36,083 | |||||||||||||||||||||
Operating earnings | $ | 53,607 | $ | 49,100 | $ | 43,733 | $ | 54,526 | $ | 41,191 | $ | 102,707 | $ | 86,787 | ||||||||||||||
Total assets (period end) | $ | 16,581,205 | $ | 16,582,585 | $ | 16,448,960 | $ | 16,406,714 | $ | 16,320,111 | $ | 16,581,205 | $ | 16,320,111 |
(1) | Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime, and temporary help expenses. |
Banking Segment operating earnings for the second quarter of 2018 increased $4.5 million compared to the prior quarter.
• | Net interest income increased due to higher average loan and investment security yields and average investment security balances partly offset by a higher cost of funds. Our average yield on loans increased as a result of an increase in short-term rates. Our average investment security yield and balances increased due to investments made in higher yielding residential mortgage-backed securities in March 2018. |
• | Card fees increased due to higher prepaid and debit card fees as a result of increased sales and volume. |
• | Capital markets and international banking fees increased due to higher syndication fees, swap fees, and foreign currency derivative income. |
3
• | Salaries and benefits expense increased as a result of increased bonus and stock-based compensation expense. |
• | Professional and legal fees increased due to case settlements and other legal and professional fees. |
• | Other operating expenses increased mostly due to losses on other real estate owned properties (compared to gains in the prior quarter), higher FDIC premiums, and increased card expenses. |
Banking Segment operating earnings for the six months ended June 30, 2018 increased $15.9 million, or 18.3%, compared to the same period last year.
• | Net interest income increased due to higher average loan yields and balances partly offset by higher cost of funds. |
• | Non-interest income increased due to higher card fees (increased sales and volume in prepaid cards and higher credit card usage) and stronger earnings from Small Business Investment Companies. |
• | Non-interest expense increased as a result of higher salaries and employee benefits expense, computer services and telecommunication expense (investments in new technology), and professional and legal fees (case settlements and other legal and professional fees). Salaries and employee benefits expense increased due to annual salary increases, new hires, higher health insurance costs, and higher 401(k) and profit sharing contributions expense. |
• | Income tax expense decreased as a result of a decline in the effective tax rate. |
4
Leasing Segment |
The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):
Six Months Ended | ||||||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | ||||||||||||||||||||||
Net interest income | $ | 2,349 | $ | 2,482 | $ | 2,602 | $ | 2,686 | $ | 2,345 | $ | 4,831 | $ | 4,614 | ||||||||||||||
Provision for credit losses | 500 | (24 | ) | 3,184 | 399 | 410 | 476 | 275 | ||||||||||||||||||||
Net interest income after provision for credit losses | 1,849 | 2,506 | (582 | ) | 2,287 | 1,935 | 4,355 | 4,339 | ||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Lease financing revenue, net | 21,435 | 23,938 | 22,576 | 22,534 | 17,474 | 45,373 | 37,727 | |||||||||||||||||||||
Other non-interest income | 1,160 | 899 | 1,168 | 26 | 676 | 2,059 | 1,849 | |||||||||||||||||||||
Total non-interest income | 22,595 | 24,837 | 23,744 | 22,560 | 18,150 | 47,432 | 39,576 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 6,021 | 5,917 | 5,361 | 5,029 | 4,623 | 11,938 | 9,433 | |||||||||||||||||||||
Commissions | 1,892 | 2,520 | 2,777 | 2,328 | 2,115 | 4,412 | 4,687 | |||||||||||||||||||||
Bonus and stock-based compensation | 1,205 | 974 | 1,761 | 1,228 | 1,045 | 2,179 | 2,000 | |||||||||||||||||||||
Other salaries and benefits (1) | 1,613 | 1,809 | 1,329 | 1,572 | 1,523 | 3,422 | 3,104 | |||||||||||||||||||||
Total salaries and employee benefits expense | 10,731 | 11,220 | 11,228 | 10,157 | 9,306 | 21,951 | 19,224 | |||||||||||||||||||||
Occupancy and equipment expense | 1,110 | 1,167 | 1,090 | 1,070 | 1,011 | 2,277 | 1,955 | |||||||||||||||||||||
Computer services and telecommunication expense | 492 | 505 | 595 | 456 | 431 | 997 | 889 | |||||||||||||||||||||
Professional and legal expense | 323 | 373 | 457 | 403 | 392 | 696 | 791 | |||||||||||||||||||||
Other operating expenses | 2,500 | 2,212 | 2,101 | 2,412 | 2,266 | 4,712 | 4,354 | |||||||||||||||||||||
Total non-interest expense | 15,156 | 15,477 | 15,471 | 14,498 | 13,406 | 30,633 | 27,213 | |||||||||||||||||||||
Income before income taxes | 9,288 | 11,866 | 7,691 | 10,349 | 6,679 | 21,154 | 16,702 | |||||||||||||||||||||
Income tax expense | 2,324 | 3,300 | 3,229 | 4,307 | 2,525 | 5,624 | 6,644 | |||||||||||||||||||||
Operating earnings | $ | 6,964 | $ | 8,566 | $ | 4,462 | $ | 6,042 | $ | 4,154 | $ | 15,530 | $ | 10,058 | ||||||||||||||
Total assets (period end) | $ | 1,354,940 | $ | 1,360,117 | $ | 1,403,690 | $ | 1,307,459 | $ | 1,275,386 | $ | 1,354,940 | $ | 1,275,386 |
(1) | Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime, and temporary help expenses. |
Leasing Segment operating earnings for the second quarter of 2018 decreased $1.6 million compared to the prior quarter.
• | Consistent with the second quarter in the previous year, lease financing revenue decreased as a result of lower promotional income. This cyclical decline in promotional income was partially offset by higher rental income and residual gains. Excluding promotional income, lease financing revenue increased by approximately 10%. |
• | Non-interest expense decreased slightly due to a reduction in commissions expense resulting from a decrease in lease financing revenue in the quarter. |
Leasing Segment operating earnings for the six months ended June 30, 2018 increased $5.5 million, or 54.4%, compared to the same period last year due largely to an increase in lease financing revenue as a result of higher residual gains and promotional income. Additionally, income tax expense declined as a result of a decrease in the effective tax rate.
5
Mortgage Banking Segment |
The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):
Six Months Ended | ||||||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | ||||||||||||||||||||||
Net interest income | $ | 10,106 | $ | 10,428 | $ | 10,611 | $ | 11,373 | $ | 10,667 | $ | 20,534 | $ | 19,992 | ||||||||||||||
Provision for credit losses | (27 | ) | (47 | ) | (42 | ) | 481 | 399 | (74 | ) | 741 | |||||||||||||||||
Net interest income after provision for credit losses | 10,133 | 10,475 | 10,653 | 10,892 | 10,268 | 20,608 | 19,251 | |||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||
Mortgage origination revenue (1) | 13,334 | 17,854 | 18,146 | 22,647 | 23,936 | 31,188 | 46,078 | |||||||||||||||||||||
Mortgage servicing revenue | 5,592 | 7,193 | 4,228 | 5,595 | 6,216 | 12,785 | 12,530 | |||||||||||||||||||||
Other non-interest income | 11 | 1 | — | 1 | — | 12 | — | |||||||||||||||||||||
Total non-interest income | 18,937 | 25,048 | 22,374 | 28,243 | 30,152 | 43,985 | 58,608 | |||||||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||
Salaries and employee benefits expense: | ||||||||||||||||||||||||||||
Salaries | 12,033 | 13,849 | 12,322 | 11,867 | 11,247 | 25,882 | 23,128 | |||||||||||||||||||||
Commissions | 4,790 | 3,962 | 4,407 | 6,001 | 6,494 | 8,752 | 11,426 | |||||||||||||||||||||
Bonus and stock-based compensation | 115 | 471 | 1,153 | 651 | 905 | 586 | 1,621 | |||||||||||||||||||||
Other salaries and benefits (2) | 4,539 | 4,924 | 4,705 | 4,746 | 4,952 | 9,463 | 9,930 | |||||||||||||||||||||
Total salaries and employee benefits expense | 21,477 | 23,206 | 22,587 | 23,265 | 23,598 | 44,683 | 46,105 | |||||||||||||||||||||
Occupancy and equipment expense | 2,032 | 2,138 | 1,868 | 1,940 | 1,969 | 4,170 | 3,948 | |||||||||||||||||||||
Computer services and telecommunication expense | 1,677 | 1,673 | 1,779 | 1,734 | 1,701 | 3,350 | 3,364 | |||||||||||||||||||||
Professional and legal expense | 266 | 162 | 490 | 467 | 600 | 428 | 1,195 | |||||||||||||||||||||
Other operating expenses (1) | 8,159 | 8,749 | 7,673 | 8,043 | 8,539 | 16,908 | 16,454 | |||||||||||||||||||||
Total non-interest expense | 33,611 | 35,928 | 34,397 | 35,449 | 36,407 | 69,539 | 71,066 | |||||||||||||||||||||
Income (loss) before income taxes | (4,541 | ) | (405 | ) | (1,370 | ) | 3,686 | 4,013 | (4,946 | ) | 6,793 | |||||||||||||||||
Income tax (benefit) expense | (1,182 | ) | (110 | ) | (555 | ) | 1,469 | 1,600 | (1,292 | ) | 2,701 | |||||||||||||||||
Operating (loss) earnings | $ | (3,359 | ) | $ | (295 | ) | $ | (815 | ) | $ | 2,217 | $ | 2,413 | $ | (3,654 | ) | $ | 4,092 | ||||||||||
Total assets (period end) | $ | 2,030,412 | $ | 2,224,821 | $ | 2,234,290 | $ | 2,402,362 | $ | 2,369,560 | $ | 2,030,412 | $ | 2,369,560 |
(1) | 2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses. |
(2) | Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime, and temporary help expenses. |
On April 12, 2018, the Company announced that it will be discontinuing its national mortgage origination business, which includes substantially all originations outside of the Company's consumer banking footprint in the Chicagoland area.
As expected, total non-interest income declined faster than expenses as a result of the wind down. The first phase of staff reductions was completed in early July. The wind down is expected to be completed in the fourth quarter of 2018. We project that, excluding any impact of the pending Fifth Third merger, remaining operations will earn quarterly pre-tax income of approximately $7.4 million beginning in the first quarter of 2019. We also continue to expect one-time exit expenses to range from $37 to $41 million.
6
Additional Mortgage Banking Segment Data |
The following table presents additional information regarding the Mortgage Banking Segment (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Mortgage origination revenue: | |||||||||||||||||||||||||||||
Gain on sale revenue, net | $ | 9,756 | $ | 11,652 | $ | 13,376 | $ | 17,098 | $ | 18,000 | $ | 21,408 | $ | 33,607 | |||||||||||||||
Origination fees (1) | 3,578 | 6,202 | 4,770 | 5,549 | 5,936 | 9,780 | 12,471 | ||||||||||||||||||||||
Total mortgage origination revenue | $ | 13,334 | $ | 17,854 | $ | 18,146 | $ | 22,647 | $ | 23,936 | $ | 31,188 | $ | 46,078 | |||||||||||||||
Mortgage servicing revenue: | |||||||||||||||||||||||||||||
Servicing fees | $ | 15,707 | $ | 16,068 | $ | 14,802 | $ | 14,531 | $ | 14,065 | $ | 31,775 | $ | 27,800 | |||||||||||||||
Amortization/prepayment of mortgage servicing rights (2) | (8,894 | ) | (8,015 | ) | (9,037 | ) | (8,399 | ) | (7,822 | ) | (16,909 | ) | (14,565 | ) | |||||||||||||||
Fair value changes of mortgage servicing rights | 1,193 | 10,890 | 7,231 | 4,475 | (6,195 | ) | 12,083 | (2,112 | ) | ||||||||||||||||||||
Economic hedge activity, net | (2,414 | ) | (11,750 | ) | (8,768 | ) | (5,012 | ) | 6,168 | (14,164 | ) | 1,407 | |||||||||||||||||
Fair value changes of mortgage servicing rights net of economic hedge activity (3) | (1,221 | ) | (860 | ) | (1,537 | ) | (537 | ) | (27 | ) | (2,081 | ) | (705 | ) | |||||||||||||||
Total mortgage servicing revenue | $ | 5,592 | $ | 7,193 | $ | 4,228 | $ | 5,595 | $ | 6,216 | $ | 12,785 | $ | 12,530 | |||||||||||||||
Mortgage servicing rights, at fair value: | |||||||||||||||||||||||||||||
Beginning balance | $ | 291,561 | $ | 276,279 | $ | 261,446 | $ | 249,688 | $ | 251,498 | $ | 276,279 | $ | 238,011 | |||||||||||||||
Originations/purchases | 12,769 | 12,407 | 16,639 | 15,682 | 12,207 | 25,176 | 28,354 | ||||||||||||||||||||||
Amortization/prepayment (2) | (8,894 | ) | (8,015 | ) | (9,037 | ) | (8,399 | ) | (7,822 | ) | (16,909 | ) | (14,565 | ) | |||||||||||||||
Fair value changes | 1,193 | 10,890 | 7,231 | 4,475 | (6,195 | ) | 12,083 | (2,112 | ) | ||||||||||||||||||||
Ending balance | $ | 296,629 | $ | 291,561 | $ | 276,279 | $ | 261,446 | $ | 249,688 | $ | 296,629 | $ | 249,688 | |||||||||||||||
Mortgage servicing book (unpaid principal balance of loans serviced for others) | $ | 22,643,179 | $ | 22,362,896 | $ | 21,993,128 | $ | 21,380,397 | $ | 20,823,016 | $ | 22,643,179 | $ | 20,823,016 | |||||||||||||||
Mortgage servicing rights valuation | 1.31 | % | 1.30 | % | 1.26 | % | 1.22 | % | 1.20 | % | 1.31 | % | 1.20 | % |
(1) | 2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses. |
(2) | Changes due to collection or realization of expected cash flows. |
(3) | Approximately $500 thousand of the second quarter 2018 fair value change was due to an increase in delinquencies in the second quarter of 2018 resulting in higher anticipated collection costs and lower mortgage servicing rights asset value. In addition, approximately $300 thousand of the fair value change was due to higher than expected prepayments of mortgage servicing rights in the second quarter of 2018. Approximately $800 thousand of the fourth quarter 2017 fair value change was due to an increase in delinquencies in the fourth quarter of 2017. |
7
FORWARD-LOOKING STATEMENTS
When used in this document and in reports filed with or furnished to the Securities and Exchange Commission (the "SEC"), in 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,” “guidance,” “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) the possibility that our actual results on selected items relating to our mortgage operations for which we have provided projections or estimates in this document will be materially different from such projections or estimates; (2) the ability to satisfy closing conditions to our pending merger with Fifth Third, including the approvals by our stockholders, on the expected terms and schedule; (3) the ability to obtain regulatory approvals required to complete our pending merger with Fifth Third, and the timing and conditions for such approvals; (4) delays in closing our pending merger with Fifth Third; (5) disruptions to our business resulting from our pending merger with Fifth Third; (6) the risk that funds obtained from capital raising activities will not be utilized efficiently or effectively; (7) expected revenues, cost savings, synergies, and other benefits from our other merger and acquisition activities 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; (8) 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 and lease losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (9) the quality and composition of our securities portfolio; (10) competitive pressures among depository institutions; (11) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (12) 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, both before and after the discontinuation of our national mortgage origination business, 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; (13) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (14) fluctuations in real estate values; (15) results of examinations of us and our bank subsidiary by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses, write-down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; (16) our ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (17) 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; (18) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (19) our ability to access cost-effective funding; (20) changes in financial markets; (21) changes in economic conditions in general and in the Chicago metropolitan area in particular; (22) the costs, effects, and outcomes of litigation; (23) 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, including but not limited to the TCJ Act, or interpretations thereof by taxing authorities; (24) changes in accounting principles, policies or guidelines; and (25) 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
8
CONSOLIDATED BALANCE SHEETS (Unaudited) |
(Dollars in thousands) | 6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | |||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 373,448 | $ | 332,234 | $ | 397,880 | $ | 361,080 | $ | 348,550 | ||||||||||
Interest earning deposits with banks | 119,672 | 50,624 | 181,341 | 82,636 | 115,707 | |||||||||||||||
Total cash and cash equivalents | 493,120 | 382,858 | 579,221 | 443,716 | 464,257 | |||||||||||||||
Investment securities: | ||||||||||||||||||||
Securities available for sale, at fair value | 1,647,260 | 1,679,011 | 1,408,326 | 1,497,543 | 1,567,071 | |||||||||||||||
Securities held to maturity, at amortized cost | 923,036 | 933,319 | 959,082 | 994,238 | 1,022,912 | |||||||||||||||
Marketable equity securities, at fair value | 10,922 | 11,124 | — | — | — | |||||||||||||||
Non-marketable securities - FHLB and FRB Stock | 115,453 | 118,955 | 114,111 | 152,345 | 160,204 | |||||||||||||||
Total investment securities | 2,696,671 | 2,742,409 | 2,481,519 | 2,644,126 | 2,750,187 | |||||||||||||||
Loans held for sale | 423,367 | 561,549 | 548,578 | 722,754 | 718,916 | |||||||||||||||
Loans: | ||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 13,719,244 | 13,824,990 | 13,846,318 | 13,753,459 | 13,465,064 | |||||||||||||||
Purchased credit-impaired loans | 101,001 | 109,990 | 119,744 | 131,919 | 149,077 | |||||||||||||||
Total loans | 13,820,245 | 13,934,980 | 13,966,062 | 13,885,378 | 13,614,141 | |||||||||||||||
Less: Allowance for loan and lease losses | 162,790 | 161,712 | 157,710 | 159,128 | 154,033 | |||||||||||||||
Net loans | 13,657,455 | 13,773,268 | 13,808,352 | 13,726,250 | 13,460,108 | |||||||||||||||
Lease investments, net | 433,505 | 408,798 | 409,051 | 371,541 | 346,036 | |||||||||||||||
Premises and equipment, net | 281,458 | 281,791 | 286,690 | 286,482 | 288,148 | |||||||||||||||
Cash surrender value of life insurance | 205,982 | 204,710 | 203,602 | 204,855 | 203,534 | |||||||||||||||
Goodwill | 999,925 | 1,003,548 | 1,003,548 | 999,925 | 999,925 | |||||||||||||||
Other intangibles | 50,968 | 52,864 | 54,766 | 56,745 | 58,783 | |||||||||||||||
Mortgage servicing rights, at fair value | 296,629 | 291,561 | 276,279 | 261,446 | 249,688 | |||||||||||||||
Other real estate owned, net | 10,869 | 10,528 | 9,736 | 13,020 | 11,063 | |||||||||||||||
Other real estate owned related to FDIC transactions | 2,908 | 4,185 | 4,788 | 4,817 | 4,849 | |||||||||||||||
Other assets | 413,700 | 449,454 | 420,810 | 380,858 | 409,563 | |||||||||||||||
Total assets | $ | 19,966,557 | $ | 20,167,523 | $ | 20,086,940 | $ | 20,116,535 | $ | 19,965,057 | ||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Non-interest bearing | $ | 6,347,208 | $ | 6,385,149 | $ | 6,381,512 | $ | 6,101,159 | $ | 6,388,292 | ||||||||||
Interest bearing | 8,575,455 | 8,585,444 | 8,576,866 | 8,313,985 | 7,873,527 | |||||||||||||||
Total deposits | 14,922,663 | 14,970,593 | 14,958,378 | 14,415,144 | 14,261,819 | |||||||||||||||
Short-term borrowings | 651,462 | 717,679 | 861,039 | 1,865,415 | 1,993,358 | |||||||||||||||
Long-term borrowings | 730,292 | 851,221 | 505,158 | 405,715 | 330,160 | |||||||||||||||
Junior subordinated notes issued to capital trusts | 194,450 | 194,304 | 211,494 | 211,289 | 211,085 | |||||||||||||||
Accrued expenses and other liabilities | 518,997 | 499,379 | 541,048 | 526,880 | 520,355 | |||||||||||||||
Total liabilities | 17,017,864 | 17,233,176 | 17,077,117 | 17,424,443 | 17,316,777 | |||||||||||||||
Stockholders' Equity | ||||||||||||||||||||
Preferred stock | 194,719 | 194,719 | 309,999 | 115,280 | 115,572 | |||||||||||||||
Common stock | 861 | 860 | 858 | 858 | 857 | |||||||||||||||
Additional paid-in capital | 1,698,057 | 1,692,650 | 1,691,007 | 1,685,971 | 1,681,252 | |||||||||||||||
Retained earnings | 1,127,814 | 1,112,323 | 1,065,303 | 940,948 | 899,930 | |||||||||||||||
Accumulated other comprehensive (loss) income | (9,818 | ) | (3,719 | ) | 3,584 | 9,772 | 10,520 | |||||||||||||
Treasury stock | (62,940 | ) | (62,486 | ) | (60,928 | ) | (60,737 | ) | (59,851 | ) | ||||||||||
Total stockholders' equity | 2,948,693 | 2,934,347 | 3,009,823 | 2,692,092 | 2,648,280 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 19,966,557 | $ | 20,167,523 | $ | 20,086,940 | $ | 20,116,535 | $ | 19,965,057 |
9
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
(Dollars in thousands, except per share data) | 2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | ||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||
Taxable | $ | 164,401 | $ | 157,119 | $ | 154,631 | $ | 155,440 | $ | 143,426 | $ | 321,520 | $ | 277,163 | |||||||||||||||
Nontaxable | 2,330 | 2,271 | 2,362 | 2,632 | 2,791 | 4,601 | 5,671 | ||||||||||||||||||||||
Investment securities: | |||||||||||||||||||||||||||||
Taxable | 10,578 | 7,934 | 7,696 | 8,440 | 8,717 | 18,512 | 17,839 | ||||||||||||||||||||||
Nontaxable | 9,439 | 9,476 | 9,677 | 9,731 | 9,837 | 18,915 | 19,810 | ||||||||||||||||||||||
Other interest earning accounts and Federal funds sold | 244 | 131 | 600 | 327 | 228 | 375 | 427 | ||||||||||||||||||||||
Total interest income | 186,992 | 176,931 | 174,966 | 176,570 | 164,999 | 363,923 | 320,910 | ||||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||||
Deposits | 17,386 | 15,032 | 13,552 | 10,865 | 8,793 | 32,418 | 16,268 | ||||||||||||||||||||||
Short-term borrowings | 2,769 | 2,516 | 3,257 | 5,148 | 3,912 | 5,285 | 6,292 | ||||||||||||||||||||||
Long-term borrowings and junior subordinated notes | 7,768 | 6,002 | 4,764 | 3,610 | 3,300 | 13,770 | 6,313 | ||||||||||||||||||||||
Total interest expense | 27,923 | 23,550 | 21,573 | 19,623 | 16,005 | 51,473 | 28,873 | ||||||||||||||||||||||
Net interest income | 159,069 | 153,381 | 153,393 | 156,947 | 148,994 | 312,450 | 292,037 | ||||||||||||||||||||||
Provision for credit losses | 6,219 | 7,508 | 3,643 | 4,517 | 9,699 | 13,727 | 13,433 | ||||||||||||||||||||||
Net interest income after provision for credit losses | 152,850 | 145,873 | 149,750 | 152,430 | 139,295 | 298,723 | 278,604 | ||||||||||||||||||||||
Non-interest income: | |||||||||||||||||||||||||||||
Mortgage banking revenue | 18,926 | 25,047 | 22,374 | 28,242 | 30,152 | 43,973 | 58,608 | ||||||||||||||||||||||
Lease financing revenue, net | 22,918 | 24,710 | 23,620 | 23,148 | 18,401 | 47,628 | 39,819 | ||||||||||||||||||||||
Treasury management fees | 15,066 | 15,156 | 15,234 | 14,508 | 14,499 | 30,222 | 29,188 | ||||||||||||||||||||||
Wealth management fees | 8,969 | 9,121 | 9,024 | 8,702 | 8,498 | 18,090 | 17,018 | ||||||||||||||||||||||
Card fees | 5,654 | 4,787 | 5,032 | 4,585 | 4,413 | 10,441 | 8,979 | ||||||||||||||||||||||
Capital markets and international banking fees | 3,785 | 2,998 | 3,999 | 4,870 | 3,586 | 6,783 | 6,839 | ||||||||||||||||||||||
Consumer and other deposit service fees | 2,929 | 2,912 | 3,261 | 3,424 | 3,285 | 5,841 | 6,648 | ||||||||||||||||||||||
Brokerage fees | 1,050 | 864 | 942 | 1,004 | 1,250 | 1,914 | 2,375 | ||||||||||||||||||||||
Loan service fees | 2,148 | 2,245 | 2,197 | 2,114 | 2,037 | 4,393 | 4,006 | ||||||||||||||||||||||
Increase in cash surrender value of life insurance | 1,272 | 1,108 | 1,511 | 1,321 | 1,301 | 2,380 | 2,589 | ||||||||||||||||||||||
Net (loss) gain on investment securities | (86 | ) | (174 | ) | 111 | 83 | 137 | (260 | ) | 368 | |||||||||||||||||||
Net loss on disposal of other assets | (397 | ) | (357 | ) | (2,016 | ) | (180 | ) | (4 | ) | (754 | ) | (127 | ) | |||||||||||||||
Other operating income | 6,072 | 4,385 | 4,534 | 4,110 | 3,615 | 10,457 | 7,310 | ||||||||||||||||||||||
Total non-interest income | 88,306 | 92,802 | 89,823 | 95,931 | 91,170 | 181,108 | 183,620 | ||||||||||||||||||||||
Non-interest expense: | |||||||||||||||||||||||||||||
Salaries and employee benefits expense | 123,478 | 106,514 | 109,247 | 105,815 | 102,566 | 229,992 | 204,117 | ||||||||||||||||||||||
Occupancy and equipment expense | 16,451 | 17,429 | 16,846 | 15,382 | 15,284 | 33,880 | 30,328 | ||||||||||||||||||||||
Computer services and telecommunication expense | 10,871 | 11,156 | 11,304 | 10,062 | 9,785 | 22,027 | 19,225 | ||||||||||||||||||||||
Advertising and marketing expense | 3,342 | 3,863 | 3,271 | 2,558 | 3,245 | 7,205 | 6,406 | ||||||||||||||||||||||
Professional and legal expense | 8,887 | 1,898 | 2,957 | 2,109 | 2,450 | 10,785 | 5,141 | ||||||||||||||||||||||
Other intangible amortization expense | 1,896 | 1,902 | 1,979 | 2,038 | 2,086 | 3,798 | 4,176 | ||||||||||||||||||||||
Branch exit and facilities impairment charges | 340 | — | (327 | ) | 2,773 | 6,589 | 340 | 5,907 | |||||||||||||||||||||
Net loss (gain) recognized on other real estate owned and other related expense | 1,048 | 47 | (104 | ) | (86 | ) | 690 | 1,095 | 1,534 | ||||||||||||||||||||
Loss on extinguishment of debt | — | 3,136 | — | — | — | 3,136 | — | ||||||||||||||||||||||
Other operating expenses | 26,679 | 21,941 | 30,655 | 22,310 | 23,517 | 48,620 | 45,720 | ||||||||||||||||||||||
Total non-interest expense | 192,992 | 167,886 | 175,828 | 162,961 | 166,212 | 360,878 | 322,554 | ||||||||||||||||||||||
Income before income taxes | 48,164 | 70,789 | 63,745 | 85,400 | 64,253 | 118,953 | 139,670 | ||||||||||||||||||||||
Income tax expense (benefit) | 9,631 | 14,032 | (80,449 | ) | 24,557 | 19,787 | 23,663 | 40,667 | |||||||||||||||||||||
Net income | 38,533 | 56,757 | 144,194 | 60,843 | 44,466 | 95,290 | 99,003 | ||||||||||||||||||||||
Dividends on preferred shares | 3,000 | 3,100 | 2,000 | 2,002 | 2,002 | 6,100 | 4,005 | ||||||||||||||||||||||
Return from preferred stockholders due to redemption | — | (15,280 | ) | — | — | — | (15,280 | ) | — | ||||||||||||||||||||
Net income available to common stockholders | $ | 35,533 | $ | 68,937 | $ | 142,194 | $ | 58,841 | $ | 42,464 | $ | 104,470 | $ | 94,998 |
10
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Common share data: | |||||||||||||||||||||||||||||
Basic earnings per common share | $ | 0.42 | $ | 0.82 | $ | 1.69 | $ | 0.70 | $ | 0.51 | $ | 1.24 | $ | 1.13 | |||||||||||||||
Diluted earnings per common share | 0.42 | 0.81 | 1.67 | 0.69 | 0.50 | 1.23 | 1.12 | ||||||||||||||||||||||
Diluted operating earnings per common share, excluding Mortgage Banking Segment | 0.68 | 0.64 | 0.54 | 0.69 | 0.51 | 1.32 | 1.10 | ||||||||||||||||||||||
Weighted average common shares outstanding for basic earnings per common share | 84,253,966 | 84,065,681 | 83,946,637 | 83,891,175 | 83,842,963 | 84,160,344 | 83,753,195 | ||||||||||||||||||||||
Weighted average common shares outstanding for diluted earnings per common share | 85,251,810 | 84,896,401 | 84,964,759 | 84,779,797 | 84,767,414 | 85,074,626 | 84,773,271 | ||||||||||||||||||||||
Common shares outstanding (at end of period) | 84,194,594 | 84,052,547 | 83,917,892 | 83,887,097 | 83,869,517 | 84,194,594 | 83,869,517 |
SELECTED FINANCIAL DATA |
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Performance Ratios: | |||||||||||||||||||||||||||||
Annualized return on average assets | 0.77 | % | 1.15 | % | 2.84 | % | 1.21 | % | 0.92 | % | 0.96 | % | 1.04 | % | |||||||||||||||
Annualized operating return, excluding Mortgage Banking Segment, on average assets (1) | 1.35 | 1.32 | 1.07 | 1.37 | 1.06 | 1.34 | 1.14 | ||||||||||||||||||||||
Annualized return on average common equity | 5.20 | 10.32 | 21.87 | 9.17 | 6.78 | 7.73 | 7.69 | ||||||||||||||||||||||
Annualized operating return, excluding Mortgage Banking Segment, on average common equity (1) | 8.42 | 8.17 | 7.10 | 9.12 | 6.92 | 8.30 | 7.51 | ||||||||||||||||||||||
Annualized cash return on average tangible common equity (2) | 8.73 | 17.15 | 36.90 | 15.81 | 11.94 | 12.87 | 13.57 | ||||||||||||||||||||||
Annualized cash operating return, excluding Mortgage Banking Segment, on average tangible common equity (3) | 13.92 | 13.65 | 12.21 | 15.74 | 12.18 | 13.79 | 13.27 | ||||||||||||||||||||||
Efficiency ratio (4) | 66.80 | 65.62 | 65.38 | 61.24 | 64.28 | 66.21 | 64.19 | ||||||||||||||||||||||
Efficiency ratio, excluding Mortgage Banking Segment (4) | 60.40 | 59.72 | 59.48 | 56.15 | 59.34 | 60.07 | 59.16 | ||||||||||||||||||||||
Annualized net non-interest expense to average assets (5) | 1.57 | 1.43 | 1.44 | 1.25 | 1.40 | 1.50 | 1.37 | ||||||||||||||||||||||
Core non-interest income to revenues (6) | 35.34 | 37.45 | 36.18 | 36.91 | 36.77 | 36.39 | 37.40 | ||||||||||||||||||||||
Core non-interest income to revenues, excluding Mortgage Banking Segment(6) | 31.43 | 31.97 | 31.38 | 30.72 | 29.40 | 31.70 | 30.27 | ||||||||||||||||||||||
Net interest margin - fully tax equivalent basis (7) | 3.73 | 3.67 | 3.63 | 3.76 | 3.71 | 3.70 | 3.70 | ||||||||||||||||||||||
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans (8) | 3.62 | 3.55 | 3.49 | 3.56 | 3.54 | 3.58 | 3.52 | ||||||||||||||||||||||
Cost of funds (9) | 0.67 | 0.58 | 0.51 | 0.46 | 0.39 | 0.62 | 0.36 | ||||||||||||||||||||||
Loans to deposits | 92.61 | 93.08 | 93.37 | 96.32 | 95.46 | 92.61 | 95.46 | ||||||||||||||||||||||
Asset Quality Ratios: | |||||||||||||||||||||||||||||
Non-performing loans (10) to total loans | 0.50 | % | 0.44 | % | 0.55 | % | 0.36 | % | 0.38 | % | 0.50 | % | 0.38 | % | |||||||||||||||
Non-performing assets (10) to total assets | 0.40 | 0.36 | 0.43 | 0.32 | 0.32 | 0.40 | 0.32 | ||||||||||||||||||||||
Allowance for loan and lease losses to non-performing loans (10) | 237.56 | 263.72 | 205.33 | 314.39 | 295.07 | 237.56 | 295.07 | ||||||||||||||||||||||
Allowance for loan and lease losses to total loans | 1.18 | 1.16 | 1.13 | 1.15 | 1.13 | 1.18 | 1.13 | ||||||||||||||||||||||
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) | 0.15 | 0.10 | 0.16 | (0.02 | ) | (0.00 | ) | 0.12 | (0.02 | ) | |||||||||||||||||||
Capital Ratios: | |||||||||||||||||||||||||||||
Tangible equity to tangible assets (11) | 10.10 | % | 9.89 | % | 10.32 | % | 8.68 | % | 8.51 | % | 10.10 | % | 8.51 | % | |||||||||||||||
Tangible common equity to tangible assets (12) | 9.07 | 8.87 | 8.70 | 8.07 | 7.90 | 9.07 | 7.90 | ||||||||||||||||||||||
Tangible common equity to risk weighted assets (13) | 9.99 | 9.85 | 9.71 | 8.99 | 8.90 | 9.99 | 8.90 | ||||||||||||||||||||||
Total capital to risk-weighted assets (14) | 13.75 | 13.57 | 14.23 | 11.67 | 11.60 | 13.75 | 11.60 | ||||||||||||||||||||||
Tier 1 capital to risk-weighted assets (14) | 10.81 | 10.64 | 11.20 | 9.46 | 9.37 | 10.81 | 9.37 | ||||||||||||||||||||||
Common equity tier 1 capital to risk-weighted assets (14) | 9.68 | 9.51 | 9.40 | 8.80 | 8.70 | 9.68 | 8.70 | ||||||||||||||||||||||
Tier 1 capital to average assets (leverage ratio) (14) | 9.74 | 9.73 | 10.02 | 8.59 | 8.60 | 9.74 | 8.60 |
11
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Per Share Data: | |||||||||||||||||||||||||||||
Book value per common share (15) | $ | 32.71 | $ | 32.59 | $ | 32.17 | $ | 30.72 | $ | 30.20 | $ | 32.71 | $ | 30.20 | |||||||||||||||
Less: goodwill and other intangible assets, net of tax benefit, per common share | 12.32 | 12.40 | 12.44 | 12.36 | 12.38 | 12.32 | 12.38 | ||||||||||||||||||||||
Tangible book value per common share (16) | $ | 20.39 | $ | 20.19 | $ | 19.73 | $ | 18.36 | $ | 17.82 | $ | 20.39 | $ | 17.82 | |||||||||||||||
Cash dividends per common share | $ | 0.24 | $ | 0.24 | $ | 0.21 | $ | 0.21 | $ | 0.21 | $ | 0.48 | $ | 0.40 |
(1) | Annualized operating return, excluding Mortgage Banking Segment, on average assets is computed by dividing annualized operating earnings, excluding Mortgage Banking Segment, by average total assets. Annualized operating return, excluding Mortgage Banking Segment, on average common equity is computed by dividing annualized operating earnings, excluding Mortgage Banking Segment, less dividends on preferred shares by average common equity. Operating earnings, excluding Mortgage Banking Segment, is defined as net income as reported less non-core items, net of tax and less operating earnings (loss) from our Mortgage Banking Segment. |
(2) | Annualized cash return on average tangible common 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, excluding Mortgage Banking Segment, on average tangible common equity is computed by dividing annualized cash operating earnings, excluding Mortgage Banking Segment, (operating earnings, excluding Mortgage Banking Segment, plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings, excluding Mortgage Banking Segment, is defined as net income as reported less non-core items, net of tax and less operating earnings (loss) from our Mortgage Banking Segment. |
(4) | 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. |
(5) | Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items plus the tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets. |
(6) | 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. |
(7) | Represents net interest income on a fully tax equivalent basis assuming a Federal tax rate of 21% for 2018 and 35% for 2017, as a percentage of average interest earning assets. |
(8) | Represents net interest income on a fully tax equivalent basis assuming a Federal tax rate of 21% for 2018 and 35% for 2017, excluding acquisition accounting discount accretion on bank merger loans as a percentage of average interest earning assets. |
(9) | Equals total interest expense divided by the sum of average interest bearing liabilities and non-interest bearing deposits. |
(10) | Non-performing loans exclude purchased credit-impaired loans and loans held for sale. Non-performing assets exclude purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions. |
(11) | Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit. |
(12) | Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit. |
(13) | Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated. |
(14) | Current quarter ratios are estimated. |
(15) | Equals total ending common stockholders’ equity divided by common shares outstanding. |
(16) | Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding. |
BALANCE SHEET DETAILS TO FOLLOW
12
INVESTMENT SECURITIES |
The following table sets forth, by type, the carrying value of our investment securities, excluding marketable equity securities and non-marketable FHLB and FRB stock, as well as the unrealized (loss) gain, net of our investment securities available for sale as of the dates indicated (in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
Fair value | ||||||||||||||||||||
Government sponsored agencies and enterprises | $ | 5,026 | $ | 22,885 | $ | 23,007 | $ | 23,146 | $ | 23,229 | ||||||||||
States and political subdivisions | 350,061 | 366,906 | 379,325 | 385,829 | 387,351 | |||||||||||||||
Mortgage-backed securities | 1,269,003 | 1,251,229 | 924,734 | 962,477 | 1,006,931 | |||||||||||||||
Corporate bonds | 23,170 | 37,991 | 70,197 | 115,014 | 138,556 | |||||||||||||||
Equity securities (1) | — | — | 11,063 | 11,077 | 11,004 | |||||||||||||||
Total fair value | $ | 1,647,260 | $ | 1,679,011 | $ | 1,408,326 | $ | 1,497,543 | $ | 1,567,071 | ||||||||||
Unrealized (loss) gain, net | ||||||||||||||||||||
Government sponsored agencies and enterprises | $ | (72 | ) | $ | (63 | ) | $ | (6 | ) | $ | 69 | $ | 88 | |||||||
States and political subdivisions | 11,134 | 11,848 | 15,512 | 19,642 | 19,966 | |||||||||||||||
Mortgage-backed securities | (20,502 | ) | (15,166 | ) | (8,414 | ) | (2,101 | ) | (1,233 | ) | ||||||||||
Corporate bonds | (9 | ) | (29 | ) | 42 | 433 | 608 | |||||||||||||
Equity securities (1) | — | — | (173 | ) | (100 | ) | (110 | ) | ||||||||||||
Total unrealized (loss) gain, net | $ | (9,449 | ) | $ | (3,410 | ) | $ | 6,961 | $ | 17,943 | $ | 19,319 | ||||||||
Securities held to maturity, at amortized cost: | ||||||||||||||||||||
States and political subdivisions | $ | 884,576 | $ | 874,306 | $ | 878,400 | $ | 888,576 | $ | 896,043 | ||||||||||
Mortgage-backed securities | 38,460 | 59,013 | 80,682 | 105,662 | 126,869 | |||||||||||||||
Total amortized cost | $ | 923,036 | $ | 933,319 | $ | 959,082 | $ | 994,238 | $ | 1,022,912 |
(1) | Reflected in marketable equity securities on the consolidated balance sheet following the adoption of the new investments in equity securities guidance on January 1, 2018. |
The Company has no direct exposure to the State of Illinois, but approximately 20% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of June 30, 2018.
13
LOAN PORTFOLIO |
The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on balances as of the dates indicated (dollars in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Commercial-related loans: | |||||||||||||||||||||||||||||||||||
Commercial | $ | 4,816,545 | 35 | % | $ | 4,790,803 | 34 | % | $ | 4,786,180 | 34 | % | $ | 4,793,838 | 35 | % | $ | 4,703,328 | 35 | % | |||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,100,460 | 15 | 2,095,189 | 15 | 2,113,135 | 15 | 2,074,215 | 15 | 2,076,911 | 15 | |||||||||||||||||||||||||
Commercial real estate | 3,929,327 | 28 | 4,093,045 | 29 | 4,147,529 | 30 | 4,094,706 | 29 | 3,882,754 | 29 | |||||||||||||||||||||||||
Construction real estate | 495,805 | 4 | 479,638 | 4 | 406,849 | 3 | 395,794 | 3 | 449,116 | 3 | |||||||||||||||||||||||||
Total commercial-related loans | 11,342,137 | 82 | 11,458,675 | 82 | 11,453,693 | 82 | 11,358,553 | 82 | 11,112,109 | 82 | |||||||||||||||||||||||||
Other loans: | |||||||||||||||||||||||||||||||||||
Residential real estate | 1,352,625 | 10 | 1,391,900 | 10 | 1,432,458 | 10 | 1,433,595 | 10 | 1,411,259 | 10 | |||||||||||||||||||||||||
Indirect vehicle | 749,983 | 5 | 692,642 | 5 | 667,928 | 4 | 655,213 | 4 | 627,819 | 4 | |||||||||||||||||||||||||
Home equity | 192,785 | 1 | 202,920 | 1 | 219,098 | 2 | 228,726 | 2 | 238,952 | 2 | |||||||||||||||||||||||||
Consumer | 81,714 | 1 | 78,853 | 1 | 73,141 | 1 | 77,372 | 1 | 74,925 | 1 | |||||||||||||||||||||||||
Total other loans | 2,377,107 | 17 | 2,366,315 | 17 | 2,392,625 | 17 | 2,394,906 | 17 | 2,352,955 | 17 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 13,719,244 | 99 | 13,824,990 | 99 | 13,846,318 | 99 | 13,753,459 | 99 | 13,465,064 | 99 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 101,001 | 1 | 109,990 | 1 | 119,744 | 1 | 131,919 | 1 | 149,077 | 1 | |||||||||||||||||||||||||
Total loans | $ | 13,820,245 | 100 | % | $ | 13,934,980 | 100 | % | $ | 13,966,062 | 100 | % | $ | 13,885,378 | 100 | % | $ | 13,614,141 | 100 | % | |||||||||||||||
Change in total loans, excluding purchased credit-impaired loans: | |||||||||||||||||||||||||||||||||||
From prior quarter | -0.8 | % | -0.2 | % | +0.7 | % | +2.1 | % | +5.3 | % | |||||||||||||||||||||||||
From same quarter one year ago | +1.9 | % | +8.1 | % | +9.8 | % | +11.1 | % | +33.8 | % |
The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on average balances for the periods indicated (dollars in thousands):
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Commercial-related loans: | |||||||||||||||||||||||||||||||||||
Commercial | $ | 4,770,098 | 34 | % | $ | 4,750,035 | 34 | % | $ | 4,638,618 | 34 | % | $ | 4,630,865 | 34 | % | $ | 4,494,343 | 34 | % | |||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,065,688 | 15 | 2,084,396 | 15 | 2,074,655 | 15 | 2,057,461 | 15 | 1,989,397 | 15 | |||||||||||||||||||||||||
Commercial real estate | 4,033,421 | 29 | 4,133,826 | 30 | 4,131,179 | 30 | 3,953,639 | 29 | 3,790,911 | 29 | |||||||||||||||||||||||||
Construction real estate | 491,440 | 4 | 443,329 | 3 | 410,416 | 3 | 442,197 | 3 | 512,385 | 4 | |||||||||||||||||||||||||
Total commercial-related loans | 11,360,647 | 82 | 11,411,586 | 82 | 11,254,868 | 82 | 11,084,162 | 81 | 10,787,036 | 82 | |||||||||||||||||||||||||
Other loans: | |||||||||||||||||||||||||||||||||||
Residential real estate | 1,371,020 | 10 | 1,415,374 | 10 | 1,430,219 | 10 | 1,433,866 | 11 | 1,331,369 | 10 | |||||||||||||||||||||||||
Indirect vehicle | 720,052 | 5 | 676,590 | 5 | 663,474 | 4 | 641,328 | 4 | 601,394 | 4 | |||||||||||||||||||||||||
Home equity | 199,334 | 1 | 211,729 | 1 | 223,445 | 2 | 234,460 | 2 | 243,232 | 2 | |||||||||||||||||||||||||
Consumer | 82,189 | 1 | 76,606 | 1 | 76,249 | 1 | 76,591 | 1 | 81,164 | 1 | |||||||||||||||||||||||||
Total other loans | 2,372,595 | 17 | 2,380,299 | 17 | 2,393,387 | 17 | 2,386,245 | 18 | 2,257,159 | 17 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 13,733,242 | 99 | 13,791,885 | 99 | 13,648,255 | 99 | 13,470,407 | 99 | 13,044,195 | 99 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 105,781 | 1 | 113,942 | 1 | 127,781 | 1 | 139,246 | 1 | 161,218 | 1 | |||||||||||||||||||||||||
Total loans | $ | 13,839,023 | 100 | % | $ | 13,905,827 | 100 | % | $ | 13,776,036 | 100 | % | $ | 13,609,653 | 100 | % | $ | 13,205,413 | 100 | % | |||||||||||||||
Change in total loans, excluding purchased credit-impaired loans: | |||||||||||||||||||||||||||||||||||
From prior quarter | -0.4 | % | +1.1 | % | +1.3 | % | +3.3 | % | +4.1 | % | |||||||||||||||||||||||||
From same quarter one year ago | +5.3 | % | +10.1 | % | +10.5 | % | +23.2 | % | +31.4 | % |
14
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):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Non-accrual loans (1) | $ | 64,515 | $ | 60,151 | $ | 71,238 | $ | 49,926 | $ | 51,013 | ||||||||||
Loans 90 days or more past due, still accruing interest | 4,010 | 1,169 | 5,570 | 689 | 1,190 | |||||||||||||||
Total non-performing loans | 68,525 | 61,320 | 76,808 | 50,615 | 52,203 | |||||||||||||||
Other real estate owned | 10,869 | 10,528 | 9,736 | 13,020 | 11,063 | |||||||||||||||
Repossessed assets | 643 | 661 | 589 | 497 | 484 | |||||||||||||||
Total non-performing assets | $ | 80,037 | $ | 72,509 | $ | 87,133 | $ | 64,132 | $ | 63,750 | ||||||||||
Potential problem loans (2) | $ | 243,684 | $ | 208,201 | $ | 173,266 | $ | 160,840 | $ | 134,509 | ||||||||||
Purchased credit-impaired loans (3) | $ | 101,001 | $ | 109,990 | $ | 119,744 | $ | 131,919 | $ | 149,077 | ||||||||||
Total non-performing, potential problem and purchased credit-impaired loans | $ | 413,210 | $ | 379,511 | $ | 369,818 | $ | 343,374 | $ | 335,789 | ||||||||||
Total allowance for loan and lease losses | $ | 162,790 | $ | 161,712 | $ | 157,710 | $ | 159,128 | $ | 154,033 | ||||||||||
Accruing restructured loans (4) | 25,660 | 28,591 | 28,554 | 32,850 | 29,658 | |||||||||||||||
Total non-performing loans to total loans | 0.50 | % | 0.44 | % | 0.55 | % | 0.36 | % | 0.38 | % | ||||||||||
Total non-performing assets to total assets | 0.40 | 0.36 | 0.43 | 0.32 | 0.32 | |||||||||||||||
Allowance for loan and lease losses to non-performing loans | 237.56 | 263.72 | 205.33 | 314.39 | 295.07 |
(1) | Includes $26.2 million, $28.5 million, $30.8 million, $24.4 million, and $23.7 million of restructured loans on non-accrual status at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively. |
(2) | We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management. |
(3) | Includes $43.6 million, $49.5 million, $54.9 million, $60.1 million, and $65.7 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively. |
(4) | Accruing restructured loans consist of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated. |
Potential problem loans increased in the second quarter of 2018 due to migrations from the health care and asset-based lending portfolios.
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):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Commercial and lease | $ | 19,788 | $ | 13,843 | $ | 18,522 | $ | 8,493 | $ | 8,166 | ||||||||||
Commercial real estate | 11,400 | 10,986 | 21,235 | 7,753 | 9,512 | |||||||||||||||
Consumer-related | 37,337 | 36,491 | 37,051 | 34,369 | 34,525 | |||||||||||||||
Total non-performing loans | $ | 68,525 | $ | 61,320 | $ | 76,808 | $ | 50,615 | $ | 52,203 |
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):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Allowance for credit losses, at beginning of period | $ | 163,390 | $ | 159,408 | $ | 161,404 | $ | 156,297 | $ | 146,498 | $ | 159,408 | $ | 141,842 | |||||||||||||||
Provision for credit losses | 6,219 | 7,508 | 3,643 | 4,517 | 9,699 | 13,727 | 13,433 | ||||||||||||||||||||||
Charge-offs | 6,720 | 6,818 | 7,448 | 2,830 | 2,921 | 13,538 | 6,294 | ||||||||||||||||||||||
Recoveries | 1,689 | 3,292 | 1,809 | 3,420 | 3,021 | 4,981 | 7,316 | ||||||||||||||||||||||
Net charge-offs (recoveries) | 5,031 | 3,526 | 5,639 | (590 | ) | (100 | ) | 8,557 | (1,022 | ) | |||||||||||||||||||
Allowance for credit losses, at end of period | 164,578 | 163,390 | 159,408 | 161,404 | 156,297 | 164,578 | 156,297 | ||||||||||||||||||||||
Allowance for unfunded credit commitments | (1,788 | ) | (1,678 | ) | (1,698 | ) | (2,276 | ) | (2,264 | ) | (1,788 | ) | (2,264 | ) | |||||||||||||||
Allowance for loan and lease losses, at end of period | $ | 162,790 | $ | 161,712 | $ | 157,710 | $ | 159,128 | $ | 154,033 | $ | 162,790 | $ | 154,033 | |||||||||||||||
Total loans, excluding loans held for sale | $ | 13,820,245 | $ | 13,934,980 | $ | 13,966,062 | $ | 13,885,378 | $ | 13,614,141 | $ | 13,820,245 | $ | 13,614,141 | |||||||||||||||
Average loans, excluding loans held for sale | 13,839,023 | 13,905,827 | 13,776,036 | 13,609,653 | 13,205,413 | 13,872,240 | 12,945,698 | ||||||||||||||||||||||
Allowance for loan and lease losses to total loans, excluding loans held for sale | 1.18 | % | 1.16 | % | 1.13 | % | 1.15 | % | 1.13 | % | 1.18 | % | 1.13 | % | |||||||||||||||
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) | 0.15 | 0.10 | 0.16 | (0.02 | ) | (0.00 | ) | 0.12 | (0.02 | ) |
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):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Commercial related loans: | ||||||||||||||||||||
General reserve | $ | 139,356 | $ | 137,284 | $ | 132,787 | $ | 137,617 | $ | 133,869 | ||||||||||
Specific reserve | 6,544 | 7,290 | 6,056 | 2,453 | 1,800 | |||||||||||||||
Consumer related reserve | 16,890 | 17,138 | 18,867 | 19,058 | 18,364 | |||||||||||||||
Total allowance for loan and lease losses | $ | 162,790 | $ | 161,712 | $ | 157,710 | $ | 159,128 | $ | 154,033 |
Changes in the acquisition accounting discount for purchased credit-impaired ("PCI") and non-purchased credit-impaired ("Non-PCI") loans acquired in bank mergers were as follows for the three months ended June 30, 2018 (in thousands):
Non-Accretable Discount - PCI Loans | Accretable Discount - PCI Loans | Accretable Discount - Non-PCI Loans | Total | |||||||||||||
Balance at beginning of period | $ | 7,379 | $ | 10,267 | $ | 18,718 | $ | 36,364 | ||||||||
Charge-offs, net | (874 | ) | — | — | (874 | ) | ||||||||||
Accretion | — | (2,223 | ) | (2,267 | ) | (4,490 | ) | |||||||||
Transfer (1) | (197 | ) | 197 | — | — | |||||||||||
Balance at end of period | $ | 6,308 | $ | 8,241 | $ | 16,451 | $ | 31,000 |
(1) | The transfer from non-accretable discount on purchased credit-impaired loans to accretable discount was due to better than expected cash flows on several pools of purchased credit-impaired loans. |
16
DEPOSIT MIX |
The following table shows the composition of deposits based on balances as of the dates indicated (dollars in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Low-cost deposits: | |||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 6,347,208 | 43 | % | $ | 6,385,149 | 43 | % | $ | 6,381,512 | 43 | % | $ | 6,101,159 | 42 | % | $ | 6,388,292 | 45 | % | |||||||||||||||
Money market, NOW, and interest bearing deposits | 4,950,676 | 33 | 4,858,506 | 32 | 4,954,765 | 33 | 4,842,097 | 34 | 4,600,506 | 32 | |||||||||||||||||||||||||
Savings deposits | 1,181,078 | 8 | 1,229,968 | 8 | 1,167,810 | 8 | 1,088,194 | 7 | 1,109,155 | 8 | |||||||||||||||||||||||||
Total low-cost deposits | 12,478,962 | 84 | 12,473,623 | 83 | 12,504,087 | 84 | 12,031,450 | 83 | 12,097,953 | 85 | |||||||||||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||||||||||||||
Certificates of deposit | 1,361,611 | 9 | 1,397,868 | 10 | 1,392,409 | 9 | 1,381,993 | 10 | 1,340,071 | 9 | |||||||||||||||||||||||||
Brokered certificates of deposit | 1,082,090 | 7 | 1,099,102 | 7 | 1,061,882 | 7 | 1,001,701 | 7 | 823,795 | 6 | |||||||||||||||||||||||||
Total certificates of deposit | 2,443,701 | 16 | 2,496,970 | 17 | 2,454,291 | 16 | 2,383,694 | 17 | 2,163,866 | 15 | |||||||||||||||||||||||||
Total deposits | $ | 14,922,663 | 100 | % | $ | 14,970,593 | 100 | % | $ | 14,958,378 | 100 | % | $ | 14,415,144 | 100 | % | $ | 14,261,819 | 100 | % | |||||||||||||||
Change in total deposits: | |||||||||||||||||||||||||||||||||||
From prior quarter | -0.3 | % | +0.1 | % | +3.8 | % | +1.1 | % | +1.9 | % | |||||||||||||||||||||||||
From same quarter one year ago | +4.6 | % | +6.9 | % | +6.0 | % | +1.0 | % | +24.7 | % |
The following table shows the composition of deposits based on average balances for the periods indicated (dollars in thousands):
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | |||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||
Low-cost deposits: | |||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 6,414,450 | 43 | % | $ | 6,293,453 | 42 | % | $ | 6,370,801 | 43 | % | $ | 6,337,955 | 44 | % | $ | 6,336,151 | 45 | % | |||||||||||||||
Money market, NOW, and interest bearing deposits | 4,878,700 | 32 | 4,871,501 | 33 | 4,976,854 | 33 | 4,740,210 | 33 | 4,506,765 | 32 | |||||||||||||||||||||||||
Savings deposits | 1,209,360 | 8 | 1,208,843 | 8 | 1,120,550 | 7 | 1,094,625 | 7 | 1,113,159 | 8 | |||||||||||||||||||||||||
Total low-cost deposits | 12,502,510 | 83 | 12,373,797 | 83 | 12,468,205 | 83 | 12,172,790 | 84 | 11,956,075 | 85 | |||||||||||||||||||||||||
Certificates of deposit: | |||||||||||||||||||||||||||||||||||
Certificates of deposit | 1,400,201 | 10 | 1,383,260 | 10 | 1,393,210 | 10 | 1,369,401 | 10 | 1,317,995 | 9 | |||||||||||||||||||||||||
Brokered certificates of deposit | 1,093,525 | 7 | 1,075,056 | 7 | 1,092,990 | 7 | 869,687 | 6 | 820,026 | 6 | |||||||||||||||||||||||||
Total certificates of deposit | 2,493,726 | 17 | 2,458,316 | 17 | 2,486,200 | 17 | 2,239,088 | 16 | 2,138,021 | 15 | |||||||||||||||||||||||||
Total deposits | $ | 14,996,236 | 100 | % | $ | 14,832,113 | 100 | % | $ | 14,954,405 | 100 | % | $ | 14,411,878 | 100 | % | $ | 14,094,096 | 100 | % | |||||||||||||||
Change in total deposits: | |||||||||||||||||||||||||||||||||||
From prior quarter | +1.1 | % | -0.8 | % | +3.8 | % | +2.3 | % | +1.2 | % | |||||||||||||||||||||||||
From same quarter one year ago | +6.4 | % | +6.5 | % | +4.8 | % | +13.2 | % | +22.7 | % |
STATEMENT OF OPERATIONS DETAILS TO FOLLOW
17
NET INTEREST MARGIN |
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):
2Q18 | 1Q18 | 2Q17 | ||||||||||||||||||||||||||||||||
Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | ||||||||||||||||||||||||||
Interest Earning Assets: | ||||||||||||||||||||||||||||||||||
Loans held for sale | $ | 573,444 | $ | 5,429 | 3.79 | % | $ | 545,392 | $ | 4,431 | 3.25 | % | $ | 585,207 | $ | 5,434 | 3.71 | % | ||||||||||||||||
Loans (1) (2) (3): | ||||||||||||||||||||||||||||||||||
Commercial-related loans: | ||||||||||||||||||||||||||||||||||
Commercial | 4,770,098 | 59,351 | 4.92 | 4,750,035 | 55,394 | 4.66 | 4,494,343 | 49,620 | 4.37 | |||||||||||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,065,688 | 19,847 | 3.84 | 2,084,396 | 19,756 | 3.79 | 1,989,397 | 18,393 | 3.70 | |||||||||||||||||||||||||
Commercial real estate | 4,033,421 | 50,053 | 4.91 | 4,133,826 | 48,811 | 4.72 | 3,790,911 | 42,119 | 4.40 | |||||||||||||||||||||||||
Construction real estate | 491,440 | 5,943 | 4.78 | 443,329 | 4,865 | 4.39 | 512,385 | 5,344 | 4.13 | |||||||||||||||||||||||||
Total commercial-related loans | 11,360,647 | 135,194 | 4.72 | 11,411,586 | 128,826 | 4.52 | 10,787,036 | 115,476 | 4.24 | |||||||||||||||||||||||||
Other loans: | ||||||||||||||||||||||||||||||||||
Residential real estate | 1,371,020 | 11,039 | 3.22 | 1,415,374 | 11,848 | 3.35 | 1,331,369 | 11,111 | 3.34 | |||||||||||||||||||||||||
Indirect | 720,052 | 8,646 | 4.82 | 676,590 | 7,928 | 4.75 | 601,394 | 6,935 | 4.63 | |||||||||||||||||||||||||
Home equity | 199,334 | 2,310 | 4.65 | 211,729 | 2,340 | 4.48 | 243,232 | 2,475 | 4.08 | |||||||||||||||||||||||||
Consumer | 82,189 | 828 | 4.04 | 76,606 | 799 | 4.23 | 81,164 | 815 | 4.03 | |||||||||||||||||||||||||
Total other loans | 2,372,595 | 22,823 | 3.85 | 2,380,299 | 22,915 | 3.88 | 2,257,159 | 21,336 | 3.79 | |||||||||||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 13,733,242 | 158,017 | 4.57 | 13,791,885 | 151,741 | 4.41 | 13,044,195 | 136,812 | 4.16 | |||||||||||||||||||||||||
Purchased credit-impaired loans | 105,781 | 3,904 | 14.80 | 113,942 | 3,821 | 13.60 | 161,218 | 5,474 | 13.62 | |||||||||||||||||||||||||
Total loans | 13,839,023 | 161,921 | 4.64 | 13,905,827 | 155,562 | 4.48 | 13,205,413 | 142,286 | 4.28 | |||||||||||||||||||||||||
Taxable investment securities | 1,510,287 | 10,579 | 2.80 | 1,264,282 | 7,934 | 2.51 | 1,539,432 | 8,717 | 2.26 | |||||||||||||||||||||||||
Investment securities exempt from federal income taxes (3) | 1,222,531 | 11,948 | 3.91 | 1,226,319 | 11,995 | 3.91 | 1,263,213 | 15,134 | 4.79 | |||||||||||||||||||||||||
Federal funds sold | 265 | 2 | 2.17 | 72 | 0 | 1.80 | 145 | 1 | 1.37 | |||||||||||||||||||||||||
Other interest earning deposits | 129,274 | 242 | 0.75 | 125,351 | 131 | 0.42 | 87,549 | 227 | 1.04 | |||||||||||||||||||||||||
Total interest earning assets | $ | 17,274,824 | $ | 190,121 | 4.37 | % | $ | 17,067,243 | $ | 180,053 | 4.22 | % | $ | 16,680,959 | $ | 171,799 | 4.10 | % | ||||||||||||||||
Non-interest earning assets | 2,882,363 | 2,871,314 | 2,708,504 | |||||||||||||||||||||||||||||||
Total assets | $ | 20,157,187 | $ | 19,938,557 | $ | 19,389,463 | ||||||||||||||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||||||||||||||||
Core funding: | ||||||||||||||||||||||||||||||||||
Money market, NOW, and interest bearing deposits | $ | 4,878,700 | $ | 7,647 | 0.63 | % | $ | 4,871,501 | $ | 6,319 | 0.53 | % | $ | 4,506,765 | $ | 3,284 | 0.29 | % | ||||||||||||||||
Savings deposits | 1,209,360 | 886 | 0.29 | 1,208,843 | 816 | 0.27 | 1,113,159 | 244 | 0.09 | |||||||||||||||||||||||||
Certificates of deposit | 1,400,201 | 3,796 | 1.09 | 1,383,260 | 3,364 | 0.99 | 1,317,995 | 2,236 | 0.68 | |||||||||||||||||||||||||
Customer repurchase agreements | 222,033 | 247 | 0.45 | 216,526 | 169 | 0.32 | 182,062 | 97 | 0.21 | |||||||||||||||||||||||||
Total core funding | 7,710,294 | 12,576 | 0.65 | 7,680,130 | 10,668 | 0.56 | 7,119,981 | 5,861 | 0.33 | |||||||||||||||||||||||||
Wholesale funding: | ||||||||||||||||||||||||||||||||||
Brokered certificates of deposit (includes fee expense) | 1,093,525 | 5,057 | 1.85 | 1,075,056 | 4,532 | 1.71 | 820,026 | 3,029 | 1.48 | |||||||||||||||||||||||||
Other borrowings | 1,512,888 | 10,290 | 2.69 | 1,431,735 | 8,350 | 2.33 | 2,035,391 | 7,115 | 1.38 | |||||||||||||||||||||||||
Total wholesale funding | 2,606,413 | 15,347 | 2.34 | 2,506,791 | 12,882 | 2.07 | 2,855,417 | 10,144 | 1.41 | |||||||||||||||||||||||||
Total interest bearing liabilities | $ | 10,316,707 | $ | 27,923 | 1.08 | % | $ | 10,186,921 | $ | 23,550 | 0.93 | % | $ | 9,975,398 | $ | 16,005 | 0.64 | % | ||||||||||||||||
Non-interest bearing deposits | 6,414,450 | 6,293,453 | 6,336,151 | |||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 490,314 | 496,914 | 451,071 | |||||||||||||||||||||||||||||||
Stockholders' equity | 2,935,716 | 2,961,269 | 2,626,843 | |||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 20,157,187 | $ | 19,938,557 | $ | 19,389,463 | ||||||||||||||||||||||||||||
Net interest income/interest rate spread (4) | $ | 162,198 | 3.29 | % | $ | 156,503 | 3.29 | % | $ | 155,794 | 3.46 | % | ||||||||||||||||||||||
Taxable equivalent adjustment | 3,129 | 3,122 | 6,800 | |||||||||||||||||||||||||||||||
Net interest income, as reported | $ | 159,069 | $ | 153,381 | $ | 148,994 | ||||||||||||||||||||||||||||
Net interest margin (5) | 3.66 | % | 3.59 | % | 3.55 | % | ||||||||||||||||||||||||||||
Tax equivalent effect | 0.07 | % | 0.08 | % | 0.16 | % | ||||||||||||||||||||||||||||
Net interest margin on a fully tax equivalent basis (5) | 3.73 | % | 3.67 | % | 3.71 | % |
(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 Federal tax rate of 21% for 2018 and 35% for 2017. |
(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. |
18
Six Months Ended June 30, | ||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | |||||||||||||||||
Interest Earning Assets: | ||||||||||||||||||||||
Loans held for sale | $ | 559,495 | $ | 9,860 | 3.52 | % | $ | 575,223 | $ | 10,467 | 3.64 | % | ||||||||||
Loans (1) (2) (3): | ||||||||||||||||||||||
Commercial-related loans: | ||||||||||||||||||||||
Commercial | 4,760,122 | 114,744 | 4.79 | 4,382,565 | 95,375 | 4.33 | ||||||||||||||||
Commercial loans collateralized by assignment of lease payments (lease loans) | 2,074,991 | 39,603 | 3.82 | 1,964,121 | 36,174 | 3.68 | ||||||||||||||||
Commercial real estate | 4,083,346 | 98,864 | 4.82 | 3,766,842 | 82,619 | 4.36 | ||||||||||||||||
Construction real estate | 467,517 | 10,808 | 4.60 | 533,382 | 10,913 | 4.07 | ||||||||||||||||
Total commercial-related loans | 11,385,976 | 264,019 | 4.62 | 10,646,910 | 225,081 | 4.21 | ||||||||||||||||
Other loans: | ||||||||||||||||||||||
Residential real estate | 1,393,074 | 22,887 | 3.29 | 1,233,193 | 20,552 | 3.33 | ||||||||||||||||
Indirect | 698,441 | 16,574 | 4.79 | 577,166 | 13,046 | 4.56 | ||||||||||||||||
Home equity | 205,497 | 4,650 | 4.56 | 248,414 | 4,977 | 4.04 | ||||||||||||||||
Consumer | 79,413 | 1,627 | 4.13 | 81,363 | 1,615 | 4.00 | ||||||||||||||||
Total other loans | 2,376,425 | 45,738 | 3.87 | 2,140,136 | 40,190 | 3.77 | ||||||||||||||||
Total loans, excluding purchased credit-impaired loans | 13,762,401 | 309,757 | 4.49 | 12,787,046 | 265,271 | 4.14 | ||||||||||||||||
Purchased credit-impaired loans | 109,839 | 7,726 | 14.18 | 158,652 | 10,149 | 12.90 | ||||||||||||||||
Total loans | 13,872,240 | 317,483 | 4.56 | 12,945,698 | 275,420 | 4.24 | ||||||||||||||||
Taxable investment securities | 1,387,964 | 18,513 | 2.67 | 1,566,172 | 17,839 | 2.28 | ||||||||||||||||
Investment securities exempt from federal income taxes (3) | 1,224,415 | 23,943 | 3.91 | 1,270,640 | 30,478 | 4.80 | ||||||||||||||||
Federal funds sold | 169 | 2 | 2.09 | 92 | 1 | 1.34 | ||||||||||||||||
Other interest earning deposits | 127,323 | 373 | 0.59 | 108,932 | 426 | 0.79 | ||||||||||||||||
Total interest earning assets | $ | 17,171,606 | $ | 370,174 | 4.30 | % | $ | 16,466,757 | $ | 334,631 | 4.05 | % | ||||||||||
Non-interest earning assets | 2,876,870 | 2,730,533 | ||||||||||||||||||||
Total assets | $ | 20,048,476 | $ | 19,197,290 | ||||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||||
Core funding: | ||||||||||||||||||||||
Money market, NOW and interest bearing deposits | $ | 4,875,120 | $ | 13,967 | 0.58 | % | $ | 4,518,021 | $ | 5,906 | 0.26 | % | ||||||||||
Savings deposits | 1,209,103 | 1,703 | 0.28 | 1,122,407 | 499 | 0.09 | ||||||||||||||||
Certificates of deposit | 1,391,777 | 7,160 | 1.04 | 1,281,774 | 3,926 | 0.62 | ||||||||||||||||
Customer repurchase agreements | 219,295 | 415 | 0.38 | 190,473 | 197 | 0.21 | ||||||||||||||||
Total core funding | 7,695,295 | 23,245 | 0.61 | 7,112,675 | 10,528 | 0.30 | ||||||||||||||||
Wholesale funding: | ||||||||||||||||||||||
Brokered accounts (includes fee expense) | 1,084,342 | 9,589 | 1.78 | 817,762 | 5,937 | 1.46 | ||||||||||||||||
Other borrowings | 1,472,536 | 18,639 | 2.52 | 1,927,988 | 12,408 | 1.28 | ||||||||||||||||
Total wholesale funding | 2,556,878 | 28,228 | 2.21 | 2,745,750 | 18,345 | 1.33 | ||||||||||||||||
Total interest bearing liabilities | $ | 10,252,173 | $ | 51,473 | 1.01 | % | $ | 9,858,425 | $ | 28,873 | 0.59 | % | ||||||||||
Non-interest bearing deposits | 6,354,286 | 6,273,127 | ||||||||||||||||||||
Other non-interest bearing liabilities | 493,595 | 458,039 | ||||||||||||||||||||
Stockholders' equity | 2,948,422 | 2,607,699 | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 20,048,476 | $ | 19,197,290 | ||||||||||||||||||
Net interest income/interest rate spread (4) | $ | 318,701 | 3.29 | % | $ | 305,758 | 3.46 | % | ||||||||||||||
Taxable equivalent adjustment | 6,251 | 13,721 | ||||||||||||||||||||
Net interest income, as reported | $ | 312,450 | $ | 292,037 | ||||||||||||||||||
Net interest margin (5) | 3.63 | % | 3.54 | % | ||||||||||||||||||
Tax equivalent effect | 0.07 | % | 0.16 | % | ||||||||||||||||||
Net interest margin on a fully tax equivalent basis (5) | 3.70 | % | 3.70 | % |
(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 Federal tax rate of 21% for 2018 and 35% for 2017. |
(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. |
19
The tables below reflect the impact that 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):
2Q18 | 1Q18 | 2Q17 | |||||||||||||||||||||||||||||||
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 | $ | 13,839,023 | $ | 161,921 | 4.64 | % | $ | 13,905,827 | $ | 155,562 | 4.48 | % | $ | 13,205,413 | $ | 142,286 | 4.28 | % | |||||||||||||||
Less acquisition accounting discount on non-PCI loans | (17,584 | ) | 2,267 | (19,887 | ) | 2,338 | (29,492 | ) | 3,869 | ||||||||||||||||||||||||
Less acquisition accounting discount on PCI loans | (16,098 | ) | 2,223 | (18,696 | ) | 2,411 | (32,946 | ) | 2,831 | ||||||||||||||||||||||||
Total loans, excluding acquisition accounting discount on bank merger loans | $ | 13,872,705 | $ | 157,431 | 4.50 | % | $ | 13,944,410 | $ | 150,813 | 4.33 | % | $ | 13,267,851 | $ | 135,586 | 4.06 | % | |||||||||||||||
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans: | |||||||||||||||||||||||||||||||||
Total interest earning assets, as reported | $ | 17,274,824 | $ | 162,198 | 3.73 | % | $ | 17,067,243 | $ | 156,503 | 3.67 | % | $ | 16,680,959 | $ | 155,794 | 3.71 | % | |||||||||||||||
Less acquisition accounting discount on non-PCI loans | (17,584 | ) | 2,267 | (19,887 | ) | 2,338 | (29,492 | ) | 3,869 | ||||||||||||||||||||||||
Less acquisition accounting discount on PCI loans | (16,098 | ) | 2,223 | (18,696 | ) | 2,411 | (32,946 | ) | 2,831 | ||||||||||||||||||||||||
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount on bank merger loans | $ | 17,308,506 | $ | 157,708 | 3.62 | % | $ | 17,105,826 | $ | 151,754 | 3.55 | % | $ | 16,743,397 | $ | 149,094 | 3.54 | % |
Six Months Ended June 30, | ||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||
Average Balance | Interest | Yield | Average Balance | Interest | Yield | |||||||||||||||||
Loan yield excluding acquisition accounting discount accretion on bank merger loans: | ||||||||||||||||||||||
Total loans, as reported | $ | 13,872,240 | $ | 317,483 | 4.56 | % | $ | 12,945,698 | $ | 275,420 | 4.24 | % | ||||||||||
Less acquisition accounting discount on non-PCI loans | (18,754 | ) | 4,605 | (31,877 | ) | 8,839 | ||||||||||||||||
Less acquisition accounting discount on PCI loans | (17,147 | ) | 4,634 | (36,726 | ) | 5,019 | ||||||||||||||||
Total loans, excluding acquisition accounting discount on bank merger loans | $ | 13,908,141 | $ | 308,244 | 4.42 | % | $ | 13,014,301 | $ | 261,562 | 4.01 | % | ||||||||||
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans: | ||||||||||||||||||||||
Total interest earning assets, as reported | $ | 17,171,606 | $ | 318,701 | 3.70 | % | $ | 16,466,757 | $ | 305,758 | 3.70 | % | ||||||||||
Less acquisition accounting discount on non-PCI loans | (18,754 | ) | 4,605 | (31,877 | ) | 8,839 | ||||||||||||||||
Less acquisition accounting discount on PCI loans | (17,147 | ) | 4,634 | (36,726 | ) | 5,019 | ||||||||||||||||
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount on bank merger loans | $ | 17,207,507 | $ | 309,462 | 3.58 | % | $ | 16,535,360 | $ | 291,900 | 3.52 | % |
20
NON-INTEREST INCOME |
The following table presents non-interest income (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Core non-interest income: | |||||||||||||||||||||||||||||
Key fee initiatives: | |||||||||||||||||||||||||||||
Lease financing revenue, net | $ | 22,918 | $ | 24,710 | $ | 23,620 | $ | 23,148 | $ | 18,401 | $ | 47,628 | $ | 39,819 | |||||||||||||||
Treasury management fees | 15,066 | 15,156 | 15,234 | 14,508 | 14,499 | 30,222 | 29,188 | ||||||||||||||||||||||
Wealth management fees | 8,969 | 9,121 | 9,024 | 8,702 | 8,498 | 18,090 | 17,018 | ||||||||||||||||||||||
Card fees | 5,654 | 4,787 | 5,032 | 4,585 | 4,413 | 10,441 | 8,979 | ||||||||||||||||||||||
Capital markets and international banking fees | 3,785 | 2,998 | 3,999 | 4,870 | 3,586 | 6,783 | 6,839 | ||||||||||||||||||||||
Total key fee initiatives | 56,392 | 56,772 | 56,909 | 55,813 | 49,397 | 113,164 | 101,843 | ||||||||||||||||||||||
Mortgage banking revenue | 18,926 | 25,047 | 22,374 | 28,242 | 30,152 | 43,973 | 58,608 | ||||||||||||||||||||||
Consumer and other deposit service fees | 2,929 | 2,912 | 3,261 | 3,424 | 3,285 | 5,841 | 6,648 | ||||||||||||||||||||||
Brokerage fees | 1,050 | 864 | 942 | 1,004 | 1,250 | 1,914 | 2,375 | ||||||||||||||||||||||
Loan service fees | 2,148 | 2,245 | 2,197 | 2,114 | 2,037 | 4,393 | 4,006 | ||||||||||||||||||||||
Increase in cash surrender value of life insurance | 1,272 | 1,108 | 1,511 | 1,321 | 1,301 | 2,380 | 2,589 | ||||||||||||||||||||||
Other operating income | 5,610 | 4,445 | 2,616 | 3,104 | 2,458 | 10,055 | 5,192 | ||||||||||||||||||||||
Total core non-interest income | 88,327 | 93,393 | 89,810 | 95,022 | 89,880 | 181,720 | 181,261 | ||||||||||||||||||||||
Non-core non-interest income: | |||||||||||||||||||||||||||||
Net (loss) gain on investment securities | (86 | ) | (174 | ) | 111 | 83 | 137 | (260 | ) | 368 | |||||||||||||||||||
Net loss on disposal of other assets | (397 | ) | (357 | ) | (2,016 | ) | (180 | ) | (4 | ) | (754 | ) | (127 | ) | |||||||||||||||
Recovery of low to moderate income real estate investment (1) | — | — | 1,006 | 210 | 488 | — | 488 | ||||||||||||||||||||||
Increase (decrease) in market value of assets held in trust for deferred compensation (1) | 462 | (60 | ) | 912 | 796 | 669 | 402 | 1,630 | |||||||||||||||||||||
Total non-core non-interest income | (21 | ) | (591 | ) | 13 | 909 | 1,290 | (612 | ) | 2,359 | |||||||||||||||||||
Total non-interest income | $ | 88,306 | $ | 92,802 | $ | 89,823 | $ | 95,931 | $ | 91,170 | $ | 181,108 | $ | 183,620 |
(1) | Resides in other operating income in the consolidated statements of operations. |
21
NON-INTEREST EXPENSE |
The following table presents non-interest expense (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Core non-interest expense: (1) | |||||||||||||||||||||||||||||
Salaries and employee benefits expense: | |||||||||||||||||||||||||||||
Salaries | $ | 63,157 | $ | 64,587 | $ | 62,465 | $ | 61,992 | $ | 59,889 | $ | 127,744 | $ | 118,700 | |||||||||||||||
Commissions | 7,623 | 7,435 | 8,303 | 9,206 | 9,730 | 15,058 | 18,341 | ||||||||||||||||||||||
Bonus and stock-based compensation | 12,853 | 12,055 | 13,332 | 11,911 | 12,553 | 24,908 | 24,843 | ||||||||||||||||||||||
Other salaries and benefits (2) | 21,873 | 21,940 | 20,153 | 20,922 | 19,173 | 43,813 | 39,437 | ||||||||||||||||||||||
Total salaries and employee benefits expense | 105,506 | 106,017 | 104,253 | 104,031 | 101,345 | 211,523 | 201,321 | ||||||||||||||||||||||
Occupancy and equipment expense | 16,450 | 17,394 | 16,727 | 15,382 | 15,278 | 33,844 | 30,318 | ||||||||||||||||||||||
Computer services and telecommunication expense | 10,871 | 11,156 | 11,287 | 10,093 | 9,709 | 22,027 | 18,964 | ||||||||||||||||||||||
Advertising and marketing expense | 3,342 | 3,837 | 3,266 | 2,558 | 3,245 | 7,179 | 6,406 | ||||||||||||||||||||||
Professional and legal expense | 5,434 | 1,894 | 2,914 | 2,109 | 2,447 | 7,328 | 5,041 | ||||||||||||||||||||||
Other intangible amortization expense | 1,896 | 1,902 | 1,979 | 2,038 | 2,086 | 3,798 | 4,176 | ||||||||||||||||||||||
Net loss (gain) recognized on other real estate owned (A) | 879 | (143 | ) | (151 | ) | 84 | 706 | 736 | 1,313 | ||||||||||||||||||||
Other real estate expense, net (A) | 169 | 190 | 47 | (170 | ) | (16 | ) | 359 | 221 | ||||||||||||||||||||
Other operating expenses | 23,039 | 21,919 | 23,450 | 22,702 | 23,577 | 44,958 | 45,740 | ||||||||||||||||||||||
Total core non-interest expense | 167,586 | 164,166 | 163,772 | 158,827 | 158,377 | 331,752 | 313,500 | ||||||||||||||||||||||
Non-core non-interest expense: (1) | |||||||||||||||||||||||||||||
Merger related and repositioning expenses (B) | 24,944 | 644 | 944 | 1,579 | 7,166 | 25,588 | 7,424 | ||||||||||||||||||||||
One-time bonuses | — | — | 2,700 | — | — | ||||||||||||||||||||||||
Branch exit and facilities impairment charges | — | — | — | 1,759 | — | — | — | ||||||||||||||||||||||
Loss on extinguishment of debt | — | 3,136 | — | — | — | 3,136 | — | ||||||||||||||||||||||
Contribution to MB Financial Charitable Foundation (C) | — | — | 7,500 | — | — | — | — | ||||||||||||||||||||||
Increase (decrease) in market value of assets held in trust for deferred compensation (D) | 462 | (60 | ) | 912 | 796 | 669 | 402 | 1,630 | |||||||||||||||||||||
Total non-core non-interest expense | 25,406 | 3,720 | 12,056 | 4,134 | 7,835 | 29,126 | 9,054 | ||||||||||||||||||||||
Total non-interest expense | $ | 192,992 | $ | 167,886 | $ | 175,828 | $ | 162,961 | $ | 166,212 | $ | 360,878 | $ | 322,554 |
(1) | Letters denote the corresponding line items where these 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 health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime, and temporary help expenses. |
22
The following table presents the detail of merger related and repositioning expenses (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Merger related and repositioning expenses (1): | |||||||||||||||||||||||||||||
Salaries and employee benefits expense | $ | 17,510 | $ | 557 | $ | 1,382 | $ | 988 | $ | 552 | $ | 18,067 | $ | 1,166 | |||||||||||||||
Occupancy and equipment expense | 1 | 35 | 119 | — | 6 | 36 | 10 | ||||||||||||||||||||||
Computer services and telecommunication expense | — | — | 17 | (31 | ) | 76 | — | 261 | |||||||||||||||||||||
Advertising and marketing expense | — | 26 | 5 | — | — | 26 | — | ||||||||||||||||||||||
Professional and legal expense | 3,453 | 4 | 43 | — | 3 | 3,457 | 100 | ||||||||||||||||||||||
Branch exit and facilities impairment charges (2) | 340 | — | (327 | ) | 1,014 | 6,589 | 340 | 5,907 | |||||||||||||||||||||
Contingent consideration expense (3) | — | — | (454 | ) | — | — | — | — | |||||||||||||||||||||
Other operating expenses (4) | 3,640 | 22 | 159 | (392 | ) | (60 | ) | 3,662 | (20 | ) | |||||||||||||||||||
Total merger related and repositioning expenses | $ | 24,944 | $ | 644 | $ | 944 | $ | 1,579 | $ | 7,166 | $ | 25,588 | $ | 7,424 |
(1) | Includes costs incurred in connection with the pending merger with Fifth Third, the discontinuation of our national mortgage origination business, the mortgage banking acquisition, and the American Chartered merger. For the second quarter of 2018, approximately $19 million relates to the discontinuation of our national mortgage origination business and approximately $6 million relates to the pending merger with Fifth Third. |
(2) | Includes the following items: exit charges related to the closing of five of our mortgage retail offices in the second quarter of 2018; gains on previously closed branch facilities in the fourth quarter of 2017; costs associated with office space reconfiguration in the third quarter of 2017; and exit charges on branches closed in the second quarter of 2017 due to the American Chartered merger. |
(3) | Includes 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. Also includes a decrease in our contingent consideration accrual for our acquisition of MSA Holdings, LLC. Resides in other operating expenses in the consolidated statements of operations. |
(4) | Includes a $3.6 million goodwill impairment charge at the Mortgage Banking Segment in the second quarter of 2018. |
The following table presents an alternative view of non-interest expense for the periods presented (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Core non-interest expense (1) | $ | 167,586 | $ | 164,166 | $ | 163,772 | $ | 158,827 | $ | 158,377 | $ | 331,752 | $ | 313,500 | |||||||||||||||
Less commissions (2) | 7,623 | 7,435 | 8,303 | 9,206 | 9,730 | 15,058 | 18,341 | ||||||||||||||||||||||
Less net (gain) loss recognized on other real estate owned (3) | 879 | (143 | ) | (151 | ) | 84 | 706 | 736 | 1,313 | ||||||||||||||||||||
Less non-repeatable 4Q17 expenses (4) | — | — | 2,600 | — | — | — | — | ||||||||||||||||||||||
Run-rate of non-interest expense | $ | 159,084 | $ | 156,874 | $ | 153,020 | $ | 149,537 | $ | 147,941 | $ | 315,958 | $ | 293,846 | |||||||||||||||
Percent change from prior period | +1.4 | % | +2.5 | % | +2.3 | % | +1.1 | % | +7.5 | % |
(1) | See "Non-interest Expense" section for reconciliation of core non-interest expense to total non-interest expense as reported. |
(2) | Resides in salaries and employee benefits expense on the consolidated statements of operations. |
(3) | Resides in net loss (gain) recognized on other real estate owned and other expense on the consolidated statements of operations. |
(4) | Includes a portion of expenses from the following: occupancy and equipment expense, computer services and telecommunication expense, professional and legal expense, and other operating expense (travel, postage, and operating losses). |
23
INCOME TAX EXPENSE |
The following table presents information on our income tax rate (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Income before income taxes - as reported | $ | 48,164 | $ | 70,789 | $ | 63,745 | $ | 85,400 | $ | 64,253 | $ | 118,953 | $ | 139,670 | |||||||||||||||
Tax at Federal statutory rate (21% for 2018 and 35% for 2017) | 10,114 | 14,866 | 22,310 | 29,890 | 22,489 | 24,980 | 48,885 | ||||||||||||||||||||||
Increase (decrease) due to: | |||||||||||||||||||||||||||||
Tax exempt income, net | (2,681 | ) | (2,639 | ) | (4,673 | ) | (4,665 | ) | (4,815 | ) | (5,320 | ) | (9,715 | ) | |||||||||||||||
State tax expense (benefit), net of Federal impact | 2,593 | 3,964 | 3,103 | 4,101 | 2,727 | 6,557 | 5,491 | ||||||||||||||||||||||
Other items, net | 931 | 586 | 1,131 | (802 | ) | 261 | 1,517 | 1,068 | |||||||||||||||||||||
Tax expense before discrete items | 10,957 | 16,777 | 21,871 | 28,524 | 20,662 | 27,734 | 45,729 | ||||||||||||||||||||||
Income tax rate before discrete items (effective tax rate) | 22.7 | % | 23.7 | % | 34.3 | % | 33.4 | % | 32.2 | % | 23.3 | % | 32.7 | % | |||||||||||||||
Discrete tax expense (benefit) items (1) | (483 | ) | (201 | ) | 1,919 | (1,643 | ) | (220 | ) | (684 | ) | (2,958 | ) | ||||||||||||||||
Discrete tax benefit corporate tax rate changes (2) | (843 | ) | (2,544 | ) | (104,239 | ) | (2,324 | ) | — | (3,387 | ) | — | |||||||||||||||||
Discrete tax expense (benefit) merger related items (3) | — | — | — | — | (655 | ) | — | (2,104 | ) | ||||||||||||||||||||
Income tax expense - as reported | $ | 9,631 | $ | 14,032 | $ | (80,449 | ) | $ | 24,557 | $ | 19,787 | $ | 23,663 | $ | 40,667 | ||||||||||||||
Income tax rate | 20.0 | % | 19.8 | % | (126.2 | )% | 28.8 | % | 30.8 | % | 19.9 | % | 29.1 | % |
(1) | Includes tax benefits on the vesting of restricted shares, exercise of options, and other compensation as well as non-deductible merger expenses and the $2.1 million increase in state income tax accruals due to income allocation to high income tax rate jurisdictions for the fourth quarter of 2017. |
(2) | Includes tax benefit due to the impact of the Illinois state income tax rate increase (effective July 1, 2017) on our deferred tax assets and the impact of the Federal income tax rate decrease due to the TCJ Act (enacted on December 22, 2017) on our net deferred tax liabilities. |
(3) | Includes reversals of a tax liability no longer needed specifically related to two entities we acquired and certain non-deductible merger related items. |
24
NON-GAAP FINANCIAL INFORMATION |
This document 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, operating earnings excluding the Mortgage Banking Segment, core non-interest income, core non-interest income to revenues (including and excluding Mortgage Banking Segment) (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 merger loans, efficiency ratio (including and excluding Mortgage Banking Segment), and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net losses on disposal of other assets, recovery of low to moderate income real estate investment, and increase and decrease in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios and branch exit and facilities impairment charges, merger related and repositioning expenses, restructuring severance charges, one-time bonuses, loss on extinguishment of debt, increase and decrease 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, excluding Mortgage Banking Segment, on average assets, annualized operating return, excluding Mortgage Banking Segment, on average common equity, annualized cash return, excluding Mortgage Banking Segment, on average tangible common equity, and annualized cash operating return, excluding Mortgage Banking Segment, 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, operating earnings excluding Mortgage Banking Segment, 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 Federal tax rate of 21% for 2018 and 35% for 2017. 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 losses on disposal of other assets, recovery of low to moderate income real estate investment, and increase and decrease in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding branch exit and facilities impairment charges, merger related and repositioning expenses, restructuring severance charges, one-time bonuses, loss on extinguishment of debt, increase and decrease 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.
25
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 "Non-interest Income" and "Non-interest Expense."
The following table presents a reconciliation of tangible equity to stockholders' equity (in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Stockholders' equity - as reported | $ | 2,948,693 | $ | 2,934,347 | $ | 3,009,823 | $ | 2,692,092 | $ | 2,648,280 | ||||||||||
Less goodwill | 999,925 | 1,003,548 | 1,003,548 | 999,925 | 999,925 | |||||||||||||||
Less other intangible assets, net of tax benefit | 37,334 | 38,723 | 40,116 | 36,884 | 38,209 | |||||||||||||||
Tangible equity | $ | 1,911,434 | $ | 1,892,076 | $ | 1,966,159 | $ | 1,655,283 | $ | 1,610,146 |
The following table presents a reconciliation of tangible assets to total assets (in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Total assets - as reported | $ | 19,966,557 | $ | 20,167,523 | $ | 20,086,940 | $ | 20,116,535 | $ | 19,965,057 | ||||||||||
Less goodwill | 999,925 | 1,003,548 | 1,003,548 | 999,925 | 999,925 | |||||||||||||||
Less other intangible assets, net of tax benefit | 37,334 | 38,723 | 40,116 | 36,884 | 38,209 | |||||||||||||||
Tangible assets | $ | 18,929,298 | $ | 19,125,252 | $ | 19,043,276 | $ | 19,079,726 | $ | 18,926,923 |
The following table presents a reconciliation of tangible common equity to common stockholders' equity (in thousands):
6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | 6/30/2017 | ||||||||||||||||
Common stockholders' equity - as reported | $ | 2,753,974 | $ | 2,739,628 | $ | 2,699,824 | $ | 2,576,812 | $ | 2,532,708 | ||||||||||
Less goodwill | 999,925 | 1,003,548 | 1,003,548 | 999,925 | 999,925 | |||||||||||||||
Less other intangible assets, net of tax benefit | 37,334 | 38,723 | 40,116 | 36,884 | 38,209 | |||||||||||||||
Tangible common equity | $ | 1,716,715 | $ | 1,697,357 | $ | 1,656,160 | $ | 1,540,003 | $ | 1,494,574 |
The following table presents a reconciliation of average tangible common equity to average common stockholders’ equity (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Average common stockholders' equity - as reported | $ | 2,740,997 | $ | 2,708,911 | $ | 2,579,896 | $ | 2,546,744 | $ | 2,511,271 | $ | 2,725,042 | $ | 2,492,127 | |||||||||||||||
Less average goodwill | 1,001,119 | 1,003,548 | 1,001,027 | 999,925 | 999,925 | 1,002,327 | 1,000,462 | ||||||||||||||||||||||
Less average other intangible assets, net of tax benefit | 37,804 | 39,212 | 36,049 | 37,346 | 38,836 | 38,504 | 39,440 | ||||||||||||||||||||||
Average tangible common equity | $ | 1,702,074 | $ | 1,666,151 | $ | 1,542,820 | $ | 1,509,473 | $ | 1,472,510 | $ | 1,684,211 | $ | 1,452,225 |
The following table presents a reconciliation of net cash flow available to common stockholders to net income available to common stockholders (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Net income available to common stockholders - as reported | $ | 35,533 | $ | 68,937 | $ | 142,194 | $ | 58,841 | $ | 42,464 | $ | 104,470 | $ | 94,998 | |||||||||||||||
Plus other intangible amortization expense, net of tax benefit | 1,498 | 1,503 | 1,286 | 1,325 | 1,356 | 3,000 | 2,714 | ||||||||||||||||||||||
Net cash flow available to common stockholders | $ | 37,031 | $ | 70,440 | $ | 143,480 | $ | 60,166 | $ | 43,820 | $ | 107,470 | $ | 97,712 |
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The following table presents a reconciliation of net income to operating earnings, excluding Mortgage Banking Segment (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Net income - as reported | $ | 38,533 | $ | 56,757 | $ | 144,194 | $ | 60,843 | $ | 44,466 | $ | 95,290 | $ | 99,003 | |||||||||||||||
Less non-core items: | |||||||||||||||||||||||||||||
Net (loss) gain on investment securities | (86 | ) | (174 | ) | 111 | 83 | 137 | (260 | ) | 368 | |||||||||||||||||||
Net loss on disposal of other assets | (397 | ) | (357 | ) | (2,016 | ) | (180 | ) | (4 | ) | (754 | ) | (127 | ) | |||||||||||||||
Recovery of low to moderate income real estate investment | — | — | 1,006 | 210 | 488 | — | 488 | ||||||||||||||||||||||
Increase (decrease) in market value of assets held in trust for deferred compensation - other operating income | 462 | (60 | ) | 912 | 796 | 669 | 402 | 1,630 | |||||||||||||||||||||
Merger related and repositioning expenses | (24,944 | ) | (644 | ) | (944 | ) | (1,579 | ) | (7,166 | ) | (25,588 | ) | (7,424 | ) | |||||||||||||||
One-time bonuses | — | — | (2,700 | ) | — | — | |||||||||||||||||||||||
Branch exit and facilities impairment charges | — | — | — | (1,759 | ) | — | — | — | |||||||||||||||||||||
Loss on extinguishment of debt | — | (3,136 | ) | — | — | — | (3,136 | ) | — | ||||||||||||||||||||
Contribution to MB Financial Charitable Foundation | — | — | (7,500 | ) | — | — | — | — | |||||||||||||||||||||
(Increase) decrease in market value of assets held in trust for deferred compensation - other operating expense | (462 | ) | 60 | (912 | ) | (796 | ) | (669 | ) | (402 | ) | (1,630 | ) | ||||||||||||||||
Total non-core items | (25,427 | ) | (4,311 | ) | (12,043 | ) | (3,225 | ) | (6,545 | ) | (29,738 | ) | (6,695 | ) | |||||||||||||||
Income tax expense on non-core items | (5,905 | ) | (1,153 | ) | (4,618 | ) | (1,283 | ) | (2,598 | ) | (7,058 | ) | (2,657 | ) | |||||||||||||||
Income tax expense - other (1) | (843 | ) | (2,544 | ) | (104,239 | ) | — | (655 | ) | (3,387 | ) | (2,104 | ) | ||||||||||||||||
Non-core items, net of tax | (18,679 | ) | (614 | ) | 96,814 | (1,942 | ) | (3,292 | ) | (19,293 | ) | (1,934 | ) | ||||||||||||||||
Operating earnings | 57,212 | 57,371 | 47,380 | 62,785 | 47,758 | 114,583 | 100,937 | ||||||||||||||||||||||
Operating (loss) earnings - Mortgage Banking Segment | (3,359 | ) | (295 | ) | (815 | ) | 2,217 | 2,413 | (3,654 | ) | 4,092 | ||||||||||||||||||
Operating earnings, excluding Mortgage Banking Segment | 60,571 | 57,666 | 48,195 | 60,568 | 45,345 | 118,237 | 96,845 | ||||||||||||||||||||||
Dividends on preferred shares | 3,000 | 3,100 | 2,000 | 2,002 | 2,002 | 6,100 | 4,005 | ||||||||||||||||||||||
Operating earnings, excluding Mortgage Banking Segment, available to common stockholders | $ | 57,571 | $ | 54,566 | $ | 46,195 | $ | 58,566 | $ | 43,343 | $ | 112,137 | $ | 92,840 | |||||||||||||||
Diluted earnings per common share - as reported | $ | 0.42 | $ | 0.81 | $ | 1.67 | $ | 0.69 | $ | 0.50 | $ | 1.23 | $ | 1.12 | |||||||||||||||
Impact of return from preferred stockholders due to redemption | — | (0.18 | ) | — | — | — | (0.18 | ) | — | ||||||||||||||||||||
Impact of non-core items, net of tax | 0.22 | 0.01 | (1.14 | ) | 0.03 | 0.04 | 0.23 | 0.02 | |||||||||||||||||||||
Impact of excluding operating (loss) earnings - Mortgage Banking Segment | 0.04 | — | 0.01 | (0.03 | ) | (0.03 | ) | 0.04 | (0.05 | ) | |||||||||||||||||||
Diluted operating earnings per common share, excluding Mortgage Banking Segment | $ | 0.68 | $ | 0.64 | $ | 0.54 | $ | 0.69 | $ | 0.51 | $ | 1.32 | $ | 1.10 | |||||||||||||||
Weighted average common shares outstanding for diluted operating earnings per common share | 85,251,810 | 84,896,401 | 84,964,759 | 84,779,797 | 84,767,414 | 85,074,626 | 84,773,271 |
(1) | The first and second quarters of 2018 and fourth quarter of 2017 include the reversal of deferred tax liability as a result of the decrease in Federal income tax rate effective January 1, 2018 due to the TCJ Act. The second quarter of 2018 reversal of $843 thousand was recognized as follows: $ 429 thousand of expense at the Banking Segment and $1.3 million reversal at the Leasing Segment. The first quarter 2018 reversal of $2.5 million was recognized at the Leasing Segment. The fourth quarter 2017 reversal of $104.2 million was recognized as follows: $6.5 million at our Banking Segment, $65.3 million at our Leasing Segment, and $32.4 million at our Mortgage Banking Segment. The first and second quarters of 2017 include reversals of tax liabilities no longer needed specifically related to two entities we acquired. |
27
The following table presents a reconciliation of net income to operating earnings for our operating segments (in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Banking Segment: | |||||||||||||||||||||||||||||
Net income - as reported | $ | 47,893 | $ | 46,550 | $ | 43,435 | $ | 52,584 | $ | 37,899 | $ | 94,443 | $ | 84,853 | |||||||||||||||
Non-core items, net of tax | 5,714 | 2,550 | 298 | 1,942 | 3,292 | 8,264 | 1,934 | ||||||||||||||||||||||
Operating earnings | $ | 53,607 | $ | 49,100 | $ | 43,733 | $ | 54,526 | $ | 41,191 | $ | 102,707 | $ | 86,787 | |||||||||||||||
Leasing Segment: | |||||||||||||||||||||||||||||
Net income - as reported | $ | 8,236 | $ | 11,110 | $ | 69,783 | $ | 6,042 | $ | 4,154 | $ | 19,346 | $ | 10,058 | |||||||||||||||
Non-core items, net of tax | (1,272 | ) | (2,544 | ) | (65,321 | ) | — | — | (3,816 | ) | — | ||||||||||||||||||
Operating earnings | $ | 6,964 | $ | 8,566 | $ | 4,462 | $ | 6,042 | $ | 4,154 | $ | 15,530 | $ | 10,058 | |||||||||||||||
Mortgage Banking Segment: | |||||||||||||||||||||||||||||
Net (loss) income - as reported | $ | (17,596 | ) | $ | (903 | ) | $ | 30,976 | $ | 2,217 | $ | 2,413 | $ | (18,499 | ) | $ | 4,092 | ||||||||||||
Non-core items, net of tax | 14,237 | 608 | (31,791 | ) | — | — | 14,845 | — | |||||||||||||||||||||
Operating (loss) earnings | $ | (3,359 | ) | $ | (295 | ) | $ | (815 | ) | $ | 2,217 | $ | 2,413 | $ | (3,654 | ) | $ | 4,092 |
28
The following table presents the efficiency ratio calculation (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Non-interest expense | $ | 192,992 | $ | 167,886 | $ | 175,828 | $ | 162,961 | $ | 166,212 | $ | 360,878 | $ | 322,554 | |||||||||||||||
Less merger related and repositioning expenses | 24,944 | 644 | 944 | 1,579 | 7,166 | 25,588 | 7,424 | ||||||||||||||||||||||
Less loss on extinguishment of debt | — | 3,136 | — | — | — | 3,136 | — | ||||||||||||||||||||||
Less one-time bonuses | — | — | 2,700 | — | — | — | — | ||||||||||||||||||||||
Less branch exit and facilities impairment charges | — | — | — | 1,759 | — | — | — | ||||||||||||||||||||||
Less contribution to MB Financial Charitable Foundation | — | — | 7,500 | — | — | — | — | ||||||||||||||||||||||
Less (decrease) increase in market value of assets held in trust for deferred compensation | 462 | (60 | ) | 912 | 796 | 669 | 402 | 1,630 | |||||||||||||||||||||
Non-interest expense - as adjusted | $ | 167,586 | $ | 164,166 | $ | 163,772 | $ | 158,827 | $ | 158,377 | $ | 331,752 | $ | 313,500 | |||||||||||||||
Net interest income | $ | 159,069 | $ | 153,381 | $ | 153,393 | $ | 156,947 | $ | 148,994 | $ | 312,450 | $ | 292,037 | |||||||||||||||
Tax equivalent adjustment | 3,129 | 3,122 | 6,483 | 6,657 | 6,800 | 6,251 | 13,721 | ||||||||||||||||||||||
Net interest income on a fully tax equivalent basis | 162,198 | 156,503 | 159,876 | 163,604 | 155,794 | 318,701 | 305,758 | ||||||||||||||||||||||
Plus non-interest income | 88,306 | 92,802 | 89,823 | 95,931 | 91,170 | 181,108 | 183,620 | ||||||||||||||||||||||
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance | 338 | 295 | 814 | 711 | 701 | 633 | 1,395 | ||||||||||||||||||||||
Less net (loss) gain on investment securities | (86 | ) | (174 | ) | 111 | 83 | 137 | (260 | ) | 368 | |||||||||||||||||||
Less net loss on disposal of other assets | (397 | ) | (357 | ) | (2,016 | ) | (180 | ) | (4 | ) | (754 | ) | (127 | ) | |||||||||||||||
Less recovery of low to moderate income real estate investment | — | — | 1,006 | 210 | 488 | — | 488 | ||||||||||||||||||||||
Less (decrease) increase in market value of assets held in trust for deferred compensation | 462 | (60 | ) | 912 | 796 | 669 | 402 | 1,630 | |||||||||||||||||||||
Non-interest income - as adjusted | 88,665 | 93,688 | 90,624 | 95,733 | 90,581 | 182,353 | 182,656 | ||||||||||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis | $ | 250,863 | $ | 250,191 | $ | 250,500 | $ | 259,337 | $ | 246,375 | $ | 501,054 | $ | 488,414 | |||||||||||||||
Efficiency ratio | 66.80 | % | 65.62 | % | 65.38 | % | 61.24 | % | 64.28 | % | 66.21 | % | 64.19 | % | |||||||||||||||
Efficiency ratio (without adjustments) | 78.02 | % | 68.20 | % | 72.29 | % | 64.44 | % | 69.21 | % | 73.12 | % | 67.81 | % |
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The following table presents the efficiency ratio, excluding the Mortgage Banking Segment calculation (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Non-interest expense - as adjusted (1) | $ | 167,586 | $ | 164,166 | $ | 163,772 | $ | 158,827 | $ | 158,377 | $ | 331,752 | $ | 313,500 | |||||||||||||||
Less Mortgage Banking Segment non-interest expense | 33,611 | 35,928 | 34,397 | 35,449 | 36,407 | 69,539 | 71,066 | ||||||||||||||||||||||
Non-interest expense - as adjusted, less Mortgage Banking Segment | $ | 133,975 | $ | 128,238 | $ | 129,375 | $ | 123,378 | $ | 121,970 | $ | 262,213 | $ | 242,434 | |||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis (1) | $ | 250,863 | $ | 250,191 | $ | 250,500 | $ | 259,337 | $ | 246,375 | $ | 501,054 | $ | 488,414 | |||||||||||||||
Less Mortgage Banking Segment net interest income | 10,106 | 10,428 | 10,611 | 11,373 | 10,667 | 20,534 | 19,992 | ||||||||||||||||||||||
Less Mortgage Banking Segment non-interest income | 18,937 | 25,048 | 22,374 | 28,243 | 30,152 | 43,985 | 58,608 | ||||||||||||||||||||||
Net interest income plus non-interest income - as adjusted, less Mortgage Banking Segment | $ | 221,820 | $ | 214,715 | $ | 217,515 | $ | 219,721 | $ | 205,556 | $ | 436,535 | $ | 409,814 | |||||||||||||||
Efficiency ratio, excluding Mortgage Banking Segment | 60.40 | % | 59.72 | % | 59.48 | % | 56.15 | % | 59.34 | % | 60.07 | % | 59.16 | % |
(1) | See "Efficiency Ratio Calculation" table for reconciliation of this item. |
The following table presents the annualized net non-interest expense to average assets ratio calculation (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Non-interest expense - as adjusted (1) | $ | 167,586 | $ | 164,166 | $ | 163,772 | $ | 158,827 | $ | 158,377 | $ | 331,752 | $ | 313,500 | |||||||||||||||
Less non-interest income - as adjusted (1) | 88,665 | 93,688 | 90,624 | 95,733 | 90,581 | 182,353 | 182,656 | ||||||||||||||||||||||
Net non-interest expense - as adjusted | $ | 78,921 | $ | 70,478 | $ | 73,148 | $ | 63,094 | $ | 67,796 | $ | 149,399 | $ | 130,844 | |||||||||||||||
Average assets | $ | 20,157,187 | $ | 19,938,557 | $ | 20,166,673 | $ | 19,945,855 | $ | 19,389,463 | $ | 20,048,476 | $ | 19,197,290 | |||||||||||||||
Annualized net non-interest expense to average assets | 1.57 | % | 1.43 | % | 1.44 | % | 1.25 | % | 1.40 | % | 1.50 | % | 1.37 | % | |||||||||||||||
Annualized net non-interest expense to average assets (without adjustments) | 2.08 | % | 1.53 | % | 1.69 | % | 1.33 | % | 1.55 | % | 1.81 | % | 1.46 | % |
(1) | See "Efficiency Ratio Calculation" table for reconciliation of this item. |
The following table presents the core non-interest income to revenues ratio calculation (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Non-interest income - as adjusted (1) | $ | 88,665 | $ | 93,688 | $ | 90,624 | $ | 95,733 | $ | 90,581 | $ | 182,353 | $ | 182,656 | |||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis (1) | $ | 250,863 | $ | 250,191 | $ | 250,500 | $ | 259,337 | $ | 246,375 | $ | 501,054 | $ | 488,414 | |||||||||||||||
Core non-interest income to revenues ratio | 35.34 | % | 37.45 | % | 36.18 | % | 36.91 | % | 36.77 | % | 36.39 | % | 37.40 | % | |||||||||||||||
Non-interest income to revenues ratio (without adjustments) | 35.70 | % | 37.70 | % | 36.93 | % | �� | 37.94 | % | 37.96 | % | 36.69 | % | 38.60 | % |
(1) | See "Efficiency Ratio Calculation" table for reconciliation of this item. |
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The following table presents the core non-interest income to revenues ratio, excluding the Mortgage Banking Segment calculation (dollars in thousands):
Six Months Ended | |||||||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||||||
2Q18 | 1Q18 | 4Q17 | 3Q17 | 2Q17 | 2018 | 2017 | |||||||||||||||||||||||
Non-interest income - as adjusted (1) | $ | 88,665 | $ | 93,688 | $ | 90,624 | $ | 95,733 | $ | 90,581 | $ | 182,353 | $ | 182,656 | |||||||||||||||
Less Mortgage Banking Segment non-interest income | 18,937 | 25,048 | 22,374 | 28,243 | 30,152 | 43,985 | 58,608 | ||||||||||||||||||||||
Non-interest income - as adjusted, less Mortgage Banking Segment | $ | 69,728 | $ | 68,640 | $ | 68,250 | $ | 67,490 | $ | 60,429 | $ | 138,368 | $ | 124,048 | |||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis (1) | $ | 250,863 | $ | 250,191 | $ | 250,500 | $ | 259,337 | $ | 246,375 | $ | 501,054 | $ | 488,414 | |||||||||||||||
Less Mortgage Banking Segment net interest income | 10,106 | 10,428 | 10,611 | 11,373 | 10,667 | 20,534 | 19,992 | ||||||||||||||||||||||
Less Mortgage Banking Segment non-interest income | 18,937 | 25,048 | 22,374 | 28,243 | 30,152 | 43,985 | 58,608 | ||||||||||||||||||||||
Total revenue - as adjusted and on a fully tax equivalent basis, less Mortgage Banking Segment | $ | 221,820 | $ | 214,715 | $ | 217,515 | $ | 219,721 | $ | 205,556 | $ | 436,535 | $ | 409,814 | |||||||||||||||
Core non-interest income to revenues ratio, excluding Mortgage Banking Segment | 31.43 | % | 31.97 | % | 31.38 | % | 30.72 | % | 29.40 | % | 31.70 | % | 30.27 | % |
(1) | See "Efficiency Ratio Calculation" table for reconciliation of this item. |
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