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MB Financial, Inc. Reports Second Quarter Net Income Of $23.1 Million

MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2014 second quarter net income of $23.1 million compared to $20.0 million last quarter and $25.3 million in the second quarter a year ago.

Key items for the second quarter include:

Net Interest Income Increased Modestly:

  • Net interest income on a fully tax equivalent basis increased $840 thousand from the first quarter of 2014 due to an extra day in the quarter, and increased $675 thousand from the second quarter of 2013 primarily due to higher yields on taxable investment securities partly offset by lower loan yields.
  • Fully taxable equivalent net interest margin was 3.53% for the second quarter of 2014 compared to 3.64% for the prior quarter and 3.61% for the second quarter of 2013. Higher cash balances in the second quarter of 2014 resulting from strong deposit inflows had minimal impact on net interest income, but reduced net interest margin by 11 basis points.

Credit Quality Metrics Improved during the Quarter:

  • We recorded a negative provision for credit losses of $2.0 million in the second quarter compared to a positive provision for credit losses of $1.2 million in the prior quarter as a result of reduced levels of classified and special mention assets.
  • Non-performing loans decreased by $8.0 million from March 31, 2014.
  • Potential problem loan balances improved by $5.3 million from March 31, 2014.
  • Special mention assets decreased by $24.0 million compared to March 31, 2014.

Fee Income from Key Fee Initiatives Increased $2.8 million, 9.6%, from the Prior Quarter and $2.3 million, 7.9%, from the Second Quarter of 2013:

  • Leasing revenues increased due to higher fees from the sale of third-party equipment maintenance contracts compared to the prior quarter, but decreased slightly compared to the second quarter of 2013.
  • Capital markets and international banking service fees increased due to higher M&A advisory and syndication fees.
  • Card fees increased due to prepaid card program growth.
  • Commercial deposit and treasury management fees increased compared to the second quarter of 2013 due to new customer activity, but slightly decreased compared to the prior quarter.

Core Non-interest Expenses Increased $3.9 million, 5.3%, from the Prior Quarter and $4.6 million, 6.4%, from the Second Quarter of 2013:

  • Salaries and employee benefits increased compared to the prior quarter primarily due to annual salary increases, an extra day in the quarter, an increase in leasing commissions as a result of higher leasing revenues and higher long-term incentive expense. Compared to the second quarter of 2013, salaries and employee benefits increased due to annual salary increases and higher long-term incentive expense, health insurance costs and temporary staffing costs.
  • Other operating expense increased from the prior quarter as a result of an increase of $1.4 million in the clawback liability related to our loss share agreements with the FDIC. The increase was due to better than expected performance of the acquired loan portfolios (faster resolution and lower charge-offs). Compared to the second quarter of 2013, other operating expense increased as a result of an increase in filing and other loan expense, as well as higher FDIC assessments due to our larger balance sheet, increased FDIC clawback liability and higher currency delivery expenses related to new treasury management accounts.

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

  • Loans, excluding covered loans, increased approximately $27 million (+0.5%) from March 31, 2014 and approximately $62 million (+1.2%) from June 30, 2013.
  • Low cost deposit flows were strong, increasing approximately $335 million (+5.5%) from March 31, 2014 and approximately $615 million (+10.6%) from June 30, 2013.
  • Noninterest bearing deposits as a percent of total deposits were 34% at June 30, 2014.
  • We continue to maintain robust levels of capital and liquidity and are positioned well to complete our pending merger with Taylor Capital Group, Inc. Cash and interest bearing deposits at our holding company totaled approximately $154 million as of June 30, 2014.

RESULTS OF OPERATIONS

Second Quarter Results

Net Interest Income

Net interest income on a fully tax equivalent basis increased $840 thousand from the first quarter of 2014 primarily due to an extra day in the quarter. Our net interest margin on a fully tax equivalent basis for the second quarter of 2014 decreased 11 basis points compared to the first quarter of 2014 primarily due to higher cash balances held during the second quarter of 2014 as a result of the strong deposit inflows. Higher deposits and cash balances had minimal impact on net interest income.

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