Key items were as follows:
Robust Loan Growth, Mix Improvements Continue:
- Our loan balances, excluding covered loans, increased $192.1 million (+3.7%) during the fourth quarter of 2012 and our loan mix continued to improve with growth in generally lower risk commercial and lease loans and declines in generally higher risk construction and commercial real estate loans as follows (dollars in thousands):
|Commercial related credits:|
|Commercial loans collateralized by|
|assignment of lease payments (lease loans)||87,408||+7.2||%|
|Commercial real estate||(8,429||)||-0.5||%|
|Construction real estate||(39,611||)||-26.4||%|
|Total commercial related credits||185,859||+4.4||%|
|Residential real estate||5,493||+1.8||%|
|Total other loans||6,287||+0.7||%|
|Gross loans excluding covered loans||$||192,146||+3.7||%|
- Over the last year, our commercial related loan balances increased modestly (+0.9%), and our loan mix improved. Commercial and lease loans increased by 8.9%, while commercial real estate and construction loans decreased by 8.1%.
Strong Core Fee Income Growth (+20.5%) During the Quarter:
- Revenues from key fee initiatives increased 18.7% compared to the third quarter of 2012:
- Leasing revenues increased 28.4% to $12.4 million,
- Capital markets and international banking service fees increased 80.6% to $2.6 million, and
- Commercial deposit and treasury management fees increased 4.0% to $6.1 million.
- Annual revenues from key fee initiatives increased 21.0% compared to 2011:
- Leasing revenues increased 35.1% to $36.4 million,
- Capital markets and international banking service fees increased 192.6% to $5.5 million, and
- Card revenues increased 33.2% to $9.4 million.
- Our core fee income to total revenues ratio improved to 34.2% in the fourth quarter compared to 29.5% in the prior quarter and 26.2% a year ago.
- Fee income growth exceeded the impact of margin compression. As a result, total revenue, as adjusted and on a fully tax equivalent basis, increased by $4.1 million (+3.7%) during the fourth quarter.
Margin Compression Negatively Impacted Net Interest Income:
- Net interest margin compression of 10 basis points (on a fully tax equivalent basis) for the quarter negatively impacted net interest income (down $2.5 million and 3.2%).
- The decline in net interest margin was due to a decline in covered loan yields, tightening credit spreads and high levels of prepayments on mortgage-backed securities, partially offset by a lower cost of funds.
- Classified assets, defined as potential problem loans, non-performing loans, other real estate owned (“OREO”) and repossessed assets (excluding credit-impaired loans and OREO that were acquired as part of our FDIC-assisted transactions) declined in the quarter. Non-performing loans were up $11.7 million, while potential problem loans declined $22.7 million.
|(dollars in thousands)|
|Potential problem loans||$||111,553||$||134,289||$||(22,736)||$||149,756|
|Total classified assets||$||266,289||$||282,112||$||(15,823)||$||357,755|
- Credit costs remained very low in the quarter, aided by net recoveries.
|(dollars in thousands)|
|Provision for credit losses||$||1,000||$||(13,000||)||$||14,000||$||8,000|
|Net loss recognized on OREO||1,626||3,938||(2,312||)||5,478|
|Total credit costs||$||2,626||$||(9,062||)||$||11,688||$||13,478|
|Net (recoveries) charge-offs||$||(2,353||)||$||(9,086||)||$||6,733||$||13,886|
- As discussed above, over the past year we have improved the risk/return profile of our loan portfolio by significantly reducing our classified loans and changing our loan mix.
- Over the past year, we changed the mix of our investment portfolio by allocating a larger portion of the investment portfolio to municipal securities. This has helped mitigate the impact of high levels of mortgage-backed security prepayments in the current interest rate environment. Municipal securities were 39.8% of total investment securities at December 31, 2012 compared to 30.9% of total investment securities a year ago.
- Our funding mix improved over the past twelve months, with low cost deposits increasing $438.5 million (+8.3%) primarily driven by noninterest bearing deposits increasing by $278.9 million (+14.8%). Customer certificates of deposit decreased by $400.2 million (-20.8%) over the same period. In addition, our wholesale funding balances decreased $291.0 million (-33.6%) from a year ago largely due to prepayments in the third quarter of 2012.
- During 2012, we repurchased all $196 million of preferred stock and the related warrant issued as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program.
- Our annualized return on average assets, annualized return on average common equity and annualized cash return on average tangible common equity improved compared to the third quarter of 2012 and fourth quarter of 2011:
|Annualized return on average assets||1.01%||0.97%||0.78%||0.95%||0.39%|
|Annualized return on average common equity||7.55%||7.38%||5.66%||7.05%||2.43%|
|Annualized cash return on average tangible|
- On December 28, 2012, MB Financial Bank acquired Celtic Leasing Corp. (“Celtic”), a privately held, mid-ticket equipment leasing company.
- Celtic specializes in solutions for the health care, legal, technology, and manufacturing industries. In recent years Celtic’s lease originations have ranged from $75 to $100 million on an annual basis.
- Given the timing of the Celtic transaction, the impact to lease financing revenues was insignificant in the quarter and year.
- Initial cash consideration paid was $58.7 million. Celtic stockholders will receive additional purchase consideration based on the performance of leases outstanding as of the acquisition date as well as the performance of leases originated during the three-year period immediately following the acquisition date. As a result of the transaction, $36.3 million in goodwill was recorded.
- During the fourth quarter of 2012, our bank was for the second consecutive year named one of Chicago’s Top Workplaces by the Chicago Tribune.
- We ranked among the top ten in the large employers category.