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| 8-K - 1Q 2014 EARNINGS RELEASE - TAYLOR CAPITAL GROUP INC | tayc2014q1earningsrelease.htm |
Investor Relations and Media Contact: | |
Berry Allen | |
(847) 653-7375 | |
Taylor Capital Group Reports Net Income of
$9.9 Million for the First Quarter of 2014
CHICAGO, IL - April 29, 2014 - Taylor Capital Group, Inc. (the “Company”) (NASDAQ: TAYC), the parent company of Cole Taylor Bank (the “Bank”), today reported results for the first quarter of 2014.
Net income for the quarter was $9.9 million, compared to $15.0 million for the fourth quarter of 2013. Net income applicable to common stockholders for the quarter was $9.9 million, or $0.32 per diluted share, compared to $10.1 million, or $0.33 per diluted share, for the fourth quarter of 2013. The results for the first quarter of 2014 and the fourth quarter of 2013 also included $0.7 million and $4.5 million, respectively, of pre-tax expense relating to the previously announced pending merger with MB Financial, Inc. (“MB Financial”) and other strategic initiatives and there were no preferred dividends recorded in the first quarter of 2014 as compared to $4.9 million in the fourth quarter of 2013. The following table compares selected additional financial information for the periods indicated:
(dollars in millions) | 1Q14 | 4Q13 | Change from 4Q13 to 1Q14 | 1Q13 | Change from 1Q13 to 1Q14 | |||||||||
Total commercial loans (period-end) | $3,370.4 | $3,359.4 | 0.3 | % | $2,817.4 | 19.6 | % | |||||||
Average total deposits | $3,837.9 | $3,867.4 | (0.8 | )% | $3,758.7 | 2.1 | % | |||||||
Net interest income | $43.9 | $45.2 | (2.9 | )% | $40.7 | 7.9 | % | |||||||
Net interest margin | 3.49 | % | 3.41 | % | 8 bps | 3.20 | % | 29 bps | ||||||
Mortgage banking revenue | $23.1 | $27.2 | (15.1 | )% | $32.0 | (27.8 | )% | |||||||
Loan loss provision | $2.6 | $1.1 | 136.4 | % | $0.3 | 766.7 | % | |||||||
Net income | $9.9 | $15.0 | (34.0 | )% | $17.3 | (42.8 | )% | |||||||
In commenting on the results, Mark A. Hoppe, President and Chief Executive Officer of the Company said, “We continue to benefit from our long-standing diversification strategy. Our national asset based lending and equipment financing businesses grew significantly with asset based lending having their most profitable quarter ever. That growth helped offset the seasonally light demand in the rest of our commercial loan portfolio. Our net interest margin was 3.49% for the quarter despite the highly competitive loan pricing in our markets. We also remain focused and disciplined on credit, and are pleased to report our nonaccrual loans and the ratio of nonperforming assets to total assets are both down from year-end 2013.
In another positive development in the first quarter, Cole Taylor Mortgage completed the transfer of loans to our in-house servicing platform, which provides more flexibility and control of our customers’ experience than using a third party servicer,” Hoppe continued. “While our mortgage origination volume of $1.1 billion for the quarter was down as compared to the previous quarter, we believe this amount represents an increase in U.S. market share in a difficult residential mortgage environment. We expanded our higher-margin retail origination channel, opening five new retail lending offices this quarter and now have 46 offices in 20 states.
In late February, stockholders of both Taylor Capital and MB Financial overwhelmingly approved the Agreement and Plan of Merger between our two organizations,” Hoppe added. “Teams of colleagues from both companies are focused on the transaction, and they are making substantial progress in a collaborative manner. Of course, most of our colleagues remain dedicated to our top priority: providing our clients the same high quality service to which they’ve grown accustomed. I am excited for the future, knowing that we are extremely well positioned to benefit from the numerous opportunities ahead for our customers, employees and shareholders.”
1
FIRST QUARTER 2014 HIGHLIGHTS - COMPARISON TO FOURTH QUARTER 2013
• | Total commercial loans grew $11.0 million, or 0.3%, from December 31, 2013 |
• | Net interest margin was 3.49% for the first quarter of 2014, up 8 basis points from the fourth quarter of 2013 |
• | Mortgage banking revenue was $23.1 million for the first quarter of 2014, as compared to $27.2 million for the fourth quarter of 2013 |
• | Mortgage origination volume was $1.05 billion for the first quarter of 2014, as compared to $1.17 billion from the fourth quarter of 2013 |
• | As of March 31, 2014, the Company’s Tier I Risk Based Capital ratio was 11.67%, its Total Risk Based Capital ratio was 12.93% and its Tier I Capital to Average Assets leverage ratio was 9.73% |
• | Return on Average Common Equity was 10.44% for the first quarter of 2014, as compared to 10.84% for the fourth quarter of 2013 |
• | Return on Average Assets was 0.71% for the first quarter of 2014, as compared to 1.03% for the fourth quarter of 2013 |
First quarter 2014 credit quality indicators as compared to the fourth quarter of 2013
• | Nonperforming loans were $72.9 million and 2.00% of total loans at March 31, 2014, down 10.9% from $81.8 million and 2.24% of total loans at December 31, 2013 |
• | At March 31, 2014, commercial criticized and classified loans(1) totaled $184.6 million, compared to $188.0 million at December 31, 2013 |
• | Other real estate owned (“OREO”) and repossessed assets were $10.0 million at March 31, 2014, and $10.0 million at December 31, 2013 |
• | The allowance for loan losses as a percent of nonperforming loans was 113.6% at March 31, 2014, compared to 100.0% at December 31, 2013 |
• | Credit costs(2) were $2.8 million for the first quarter of 2014, compared to $3.3 million for the fourth quarter of 2013 |
FIRST QUARTER 2014 - COMPARISON TO FIRST QUARTER 2013
• | Total commercial loans increased to $3.37 billion at March 31, 2014, up $553.0 million, or 19.6%, from March 31, 2013 |
• | Core deposits grew to $2.74 billion at March 31, 2014, up 0.3% from March 31, 2013 |
• | Mortgage origination volume was $1.05 billion for the first quarter of 2014, as compared to $1.91 billion for the first quarter of 2013 |
• | Return on Average Common Equity was 10.44% for the first quarter of 2014 as compared to 14.82% for the first quarter of 2013 |
FIRST QUARTER 2014 PERFORMANCE OVERVIEW
Results of Operations - Comparisons to Fourth Quarter 2013
Net income for the first quarter of 2014 was $9.9 million, compared to $15.0 million for the fourth quarter of 2013, a decrease of 34.0%. Net income applicable to common stockholders for the first quarter of 2014 was $9.9 million, compared to $10.1 million for the fourth quarter of 2013.
Income before income taxes was $15.8 million for the first quarter of 2014, compared to $21.7 million for the fourth quarter of 2013, a decrease of 27.2%. The decrease in income before income taxes was primarily due to a $5.9 million decrease in gain on sales of investment securities and a $4.1 million volume-related decrease in mortgage banking revenue. Partially offsetting these items was a reduction in occupancy of premises, furniture and equipment expense due to the prior quarter including a one-time $3.3 million early lease termination cost related to the pending merger with MB Financial.
2
Pre-tax, pre-provision operating earnings(3) were $18.5 million for the first quarter of 2014, compared to $19.1 million for the fourth quarter of 2013, a decrease of 3.1%, primarily due to a volume-related decrease in the mortgage segment.
Revenue(4)
Revenue totaled $72.9 million for the first quarter of 2014, compared to $79.0 million for the fourth quarter of 2013, a decrease of 7.7%.
Net interest income was $43.9 million for the first quarter of 2014, as compared to $45.2 million for the fourth quarter of 2013. The decrease in net interest income of $1.3 million was primarily the result of lower interest income from investment securities due to a planned reduction in the securities portfolio in the fourth quarter of 2013.
Noninterest income, excluding investment security gains and losses, was $29.1 million for the first quarter of 2014, compared to $33.7 million for the fourth quarter of 2013, a decrease of 13.6%. The change in noninterest income, as compared to the fourth quarter of 2013, was primarily due to a $4.1 million decrease in mortgage banking revenue due to both a decline of 10.0% in mortgage origination volume, which led to a $2.7 million decrease in origination income and a $1.5 million decrease in servicing revenue primarily due to a reduction in the fair market value of the servicing asset. In addition, other derivative income decreased $1.5 million due to a reduction in customer swap activity. Partially offsetting these decreases was a $685,000 increase in other noninterest income associated with certain other investments.
Noninterest Expense
Noninterest expense, excluding nonperforming asset expense, was $54.4 million for the first quarter of 2014, compared to $59.8 million for the fourth quarter of 2013, a decrease of $5.4 million, or 9.0%. The decrease was primarily due to the fourth quarter of 2013 including $3.3 million of early lease termination expense, and other costs - which are primarily legal fees - related to the pending merger with MB Financial. In addition, salaries and employee benefits decreased $1.4 million from the fourth quarter of 2013. The decrease in salaries and employee benefits was due to a $3.1 million decrease in performance-based incentive compensation primarily related to a decrease in origination volume at Cole Taylor Mortgage and a $1.4 million decrease in salary costs as staffing levels adjusted to the reduced origination volume. Partially offsetting these decreases was a $3.0 million increase in employee benefits primarily due to certain employment tax expenses that are typically higher in the first quarter of each year.
Preferred Dividends
There were no preferred dividends or discounts in the first quarter of 2014 as compared to $4.9 million in the fourth quarter of 2013. This decrease was due to two reasons. First, as required by the Series A Preferred stock and in connection with the repurchase and redemption of the Series B Preferred stock, the $2.0 million quarterly dividend on the Series A Preferred stock, which typically would have been recorded in the first quarter of 2014, was instead declared and recorded in the fourth quarter of 2013. In addition, the Company’s Series B Preferred stock was fully repaid in 2013 and has been cancelled.
Results of Operations - Comparisons to First Quarter 2013
Net income for the first quarter of 2014 was $9.9 million, compared to $17.3 million for the first quarter of 2013, a decrease of 42.8%. Net income applicable to common stockholders for the first quarter of 2014 was $9.9 million, compared to $13.6 million for the first quarter of 2013.
Income before income taxes was $15.8 million for the first quarter of 2014, compared to $28.3 million for the first quarter of 2013, a decrease of 44.2%, primarily due to a $9.0 million volume-related decrease in mortgage banking revenue.
3
Pre-tax, pre-provision operating earnings totaled $18.5 million for the first quarter of 2014, compared to $29.2 million for the first quarter of 2013, a decrease of 36.6%. The decrease was also primarily due to lower mortgage banking revenue.
Revenue
Revenue totaled $72.9 million for the first quarter of 2014, compared to $80.4 million for the first quarter of 2013, a decrease of 9.3%.
Net interest income was $43.9 million for the first quarter of 2014, as compared to $40.7 million for the first quarter of 2013, an increase of 7.9%. The increase in net interest income was the result of the combination of a $2.0 million reduction in interest expense and a $1.2 million increase in interest income. Interest expense decreased due to lower rates paid on deposit balances and the early retirement of the Company’s 8% subordinated notes in June 2013. The increase in interest income was primarily due to growth in the commercial loan portfolio.
Noninterest income, excluding investment security gains and losses, was $29.1 million for the first quarter of 2014, compared to $39.7 million for the first quarter of 2013, a decrease of 26.7%. The decrease was primarily due to a net $9.0 million decrease in mortgage banking revenue. Mortgage loan origination income decreased $15.1 million due to a reduction in mortgage loan origination volume. Partially offsetting this decrease was a $6.2 million increase in net mortgage servicing income. Servicing income increased due to the combination of retention of mortgage servicing rights (“MSRs”) on loans originated by Cole Taylor Mortgage, purchases of MSRs and an increase in the valuation of the MSR asset. Total mortgage originations were $1.05 billion in the first quarter of 2014, as compared to $1.91 billion in the first quarter of 2013. In addition, other derivative income decreased $1.6 million due to a reduction in customer swap activity.
Noninterest Expense
Noninterest expense, excluding nonperforming asset expense, was $54.4 million for the first quarter of 2014, compared to $51.2 million for the first quarter of 2013, an increase of 6.2%. The increase was due to a $1.1 million increase in outside services primarily due to one-time costs associated with transferring the bulk of Cole Taylor Mortgage’s loan servicing portfolio in-house and a $802,000 increase in computer processing costs primarily related to the expansion of retail mortgage lending offices from 26 offices at the end of the first quarter 2013 to 46 offices at the end of the first quarter 2014.
Credit Quality
Loan Portfolio Performance and Credit Quality
Total commercial criticized and classified loans were $184.6 million at March 31, 2014, as compared to $188.0 million at December 31, 2013 and $138.5 million at March 31, 2013. The $46.1 million increase in commercial criticized and classified loans from March 31, 2013 to March 31, 2014 was primarily due to a $24.7 million net increase in loans classified as substandard and a $20.6 million net increase in special mention loans. The $24.7 million increase in substandard loans was primarily due to migrations into this category net of upgrades and payoffs of $15.1 million of commercial and industrial loans and $7.8 million of commercial real estate secured loans. The $20.6 million increase in special mention loans was primarily due to migrations into this category net of payoffs and upgrades of certain commercial and industrial loans. The decrease in criticized and classified loans from year-end 2013 was largely attributable to net payoffs of certain commercial real estate portfolio loans previously classified as nonaccrual, partially offset by the net migration of certain loans into the substandard category.
Nonperforming loans were $72.9 million at March 31, 2014, as compared to $81.8 million at December 31, 2013 and $71.4 million at March 31, 2013. The decrease in the first quarter of 2014 of $8.9 million was primarily due to payoffs of loans previously classified as nonaccrual.
4
OREO and repossessed assets were $10.0 million at March 31, 2014, as compared to $10.0 million at December 31, 2013 and $27.2 million at March 31, 2013. We continue to actively manage the resolution process.
Total nonperforming assets were $82.9 million at March 31, 2014, down from $91.9 million at December 31, 2013 and $98.6 million at March 31, 2013. Nonperforming assets to total assets were 1.47% at March 31, 2014, down from 1.62% at December 31, 2013 and 1.71% at March 31, 2013.
Allowance and Provision for Loan Losses
The allowance for loan losses was $82.9 million at March 31, 2014, compared to $81.9 million at December 31, 2013 and $82.2 million at March 31, 2013. The allowance for loan losses as a percent of nonperforming loans was 113.65% at March 31, 2014, as compared to 100.05% at December 31, 2013 and 115.05% at March 31, 2013.
The provision for loan losses was $2.6 million for the first quarter of 2014, compared to $1.1 million for the fourth quarter of 2013 and $300,000 for the first quarter of 2013. The increase of $1.5 million in the first quarter of 2014 as compared to the fourth quarter of 2013 was primarily due to the establishment of specific reserves for certain loans in both the commercial and industrial and commercial real estate secured portfolios.
Balance Sheet
Assets
Total assets at March 31, 2014 were $5.65 billion, down slightly from $5.69 billion at December 31, 2013.
Cash and cash equivalents were $138.6 million as of March 31, 2014, as compared to $90.8 million as of December 31, 2013. The increase of $47.8 million was primarily due to timing as March 31, 2014 was a Monday, which tends to be a higher-balance cash day than other weekdays.
Investment securities were $1.10 billion at March 31, 2014, down 1.8% from $1.12 billion at December 31, 2013.
Loans held for sale were $436.1 million at March 31, 2014, a decrease of 8.0% from December 31, 2013. The decrease was primarily the result of reduced mortgage origination volume for the first quarter 2014 by Cole Taylor Mortgage.
Net loans at March 31, 2014 were $3.57 billion, as compared to $3.57 billion at December 31, 2013. Commercial and industrial loans were $1.94 billion at March 31, 2014, as compared to $1.94 billion at December 31, 2013. Commercial real estate secured loans were $1.11 billion at March 31, 2014, down slightly from $1.12 billion at December 31, 2013. Commercial construction and land loans were $132.7 million at March 31, 2014, up from $121.7 million at December 31, 2013 due to continued diversification of our loan portfolio across several construction sectors. Lease receivables were $143.1 million at March 31, 2014, up $11.1 million, or 8.4%, from December 31, 2013, primarily as a result of new leases sourced by our recently expanded direct sales channel. Consumer loans, which consist primarily of residential mortgages, were $294.5 million at March 31, 2014, down $6.8 million from December 31, 2013.
Investment in Federal Home Loan Bank and Federal Reserve Bank (“FHLB”) stock was $49.6 million as of March 31, 2014, as compared to $64.6 million as of December 31, 2013. The decrease of $15.0 million in these investments was due to the reduction in the Bank’s use of short term FHLB borrowings.
The MSR asset increased $11.6 million in the first quarter to $227.7 million as of March 31, 2014. The unpaid principal balance of loans serviced was $20.14 billion as of March 31, 2014, up 8.9% from December 31, 2013. The Company invests in MSRs and retains servicing on most mortgage loans originated as part of its strategy to diversify the revenue streams of Cole Taylor Mortgage.
5
Liabilities and Stockholders’ Equity
Total liabilities at March 31, 2014 were $5.17 billion, as compared to $5.22 billion at December 31, 2013.
Total deposits were $3.95 billion at March 31, 2014, compared to $3.65 billion at December 31, 2013, an increase of 8.3%. Total deposits increased in the first quarter primarily due to a planned increase in time deposits, both brokered and CDARS, for liquidity management purposes. Total time deposits increased $339.4 million to $1.21 billion at March 31, 2014. Partially offsetting this increase, brokered money market deposits decreased $45.0 million to $6.1 million at March 31, 2014, due to timing of customer activity.
Average total deposits for the first quarter of 2014 decreased slightly to $3.84 billion from $3.87 billion in the fourth quarter of 2013.
Short-term borrowings decreased $335.2 million in the first quarter to $1.04 billion as of March 31, 2014, primarily due to a planned shift in the funding mix to reduce short-term borrowings and increase time deposits.
Total stockholders’ equity increased $18.0 million from $464.6 million at December 31, 2013 to $482.6 million at March 31, 2014, primarily due to retaining the net income available to common stockholders earned in the first quarter and a $7.5 million increase in accumulated other comprehensive income resulting from an increase in the market value of available for sale securities.
Capital
At March 31, 2014, the Company’s Tier I Risk Based Capital ratio was 11.67%, while its Total Risk Based Capital ratio was 12.93% and its Tier I Capital to Average Assets leverage ratio was 9.73%.
Each of these Company ratios exceeded the regulatory requirements for well-capitalized banks of 6.00% for the Tier I Risk Based Capital ratio, 10.00% for the Total Risk Based Capital ratio and 5.00% for the Tier I Capital to Average Assets leverage ratio.
Recent Development - Pending Merger Update
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, we have been notified by our regulators that our Bank subsidiary may be cited with a violation of Section 5 of the Federal Trade Commission Act. The potential violation relates to the checking account opening process associated with a former deposit program relationship with an organization that provides electronic financial disbursements and payment services to the higher education industry. Our Bank exited the relationship in August 2013. As part of the regulatory approval process for the merger, an evaluation of this situation is being conducted by our regulators. That evaluation is ongoing and the closing of the pending merger could be delayed beyond June 30, 2014.
Accompanying Financial Statements and Tables
This press release is accompanied by the following unaudited financial information:
• | Condensed Consolidated Balance Sheets |
• | Consolidated Statements of Income |
• | Summary of Key Quarterly Financial Data |
• | Summary of Key Period-End Financial Data |
• | Composition of Loan Portfolio |
• | Credit Quality |
• | Loan Portfolio Aging |
• | Funding Liabilities |
• | Summary of Quarterly Segment Financial Data |
• | Reconciliation of U.S. GAAP Financial Measures |
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About Taylor Capital Group, Inc. (NASDAQ: TAYC)
Taylor Capital Group, Inc. is the holding company of Cole Taylor Bank, a commercial bank headquartered in Chicago with assets of $5.7 billion as of March 31, 2014. For more than 80 years, Cole Taylor Bank has been successfully meeting the banking needs of closely-held companies and the people who own and manage them by focusing on a relationship-based approach to business. Through its national businesses, Cole Taylor provides a full range of financial services, including asset based lending, commercial equipment financing, and residential mortgage lending.
Endnotes:
(1) Commercial criticized and classified loans are defined as special mention, substandard, and nonaccrual loans in commercial and industrial, commercial real estate, residential construction and land, and commercial construction and land, excluding consumer loans.
(2) Credit costs are defined as provision for loan losses plus nonperforming asset expense.
(3) Schedules reconciling earnings in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) to the non-GAAP measurement of revenue and pre-tax, pre-provision operating earnings are provided in the attached tables.
(4) Revenue is defined as net interest income plus noninterest income less investment securities gains and losses and impairment of investment securities.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including “may,” “might,” “contemplate,” “plan,” “predict,” “potential,” “should,” “will,” “expect,” “anticipate,” “believe,” “intend,” “could,” “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2014 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements.
These risks, uncertainties and other factors include, without limitation:
• | The Agreement and Plan of Merger (the “Merger Agreement”) with MB Financial may be terminated in accordance with its terms, and the merger contemplated thereby may not be completed. |
• | Termination of the Merger Agreement could negatively impact us. |
• | We may be subject to business uncertainties and contractual restrictions while the Merger is pending. |
• | We and MB Financial have entered into a memorandum of understanding with the plaintiffs to settle two stockholder actions previously filed against us, our board of directors and MB Financial challenging the Merger. It is possible that additional suits may be filed in the future. If the settlement of these existing suits is not approved by the court or is otherwise voided, an adverse ruling in these or any similar future lawsuits may prevent the Merger from being completed or from being completed within the expected timeframe. |
• | The Merger Agreement limits our ability to pursue an alternative acquisition proposal and requires us to pay a termination fee of $20 million under limited circumstances relating to alternative acquisition proposals. |
• | We may be materially and adversely affected by the highly regulated environment in which we operate. |
• | Dependence on our mortgage business may increase volatility in our consolidated revenues and earnings and our residential mortgage lending profitability could be significantly reduced if we are not able to originate and sell mortgage loans at profitable margins. |
• | Changes in interest rates may change the value of our MSR portfolio which may increase the volatility of our earnings. |
• | Certain hedging strategies that we use to manage investment in MSRs, mortgage loans held for sale and interest rate lock commitments may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity. |
• | Our mortgage loan repurchase reserve for losses could be insufficient. |
• | A significant increase in certain loan balances associated with our mortgage business may result in liquidity risk related to the funding of these loans. |
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• | We are subject to certain operational risks, including, but not limited to, data processing system failures and errors and customer or employee fraud. Our controls and procedures may fail or be circumvented. |
• | We are dependent on outside third parties for processing and handling of our records and data. |
• | System failure or breaches of our network security, including with respect to our internet banking activities, could subject us to increased operating costs as well as litigation and other liabilities. |
• | We may not be able to access sufficient and cost-effective sources of liquidity. |
• | We are subject to liquidity risk, including unanticipated deposit volatility. |
• | Changes in certain credit ratings related to us or our credit could increase our financing costs or make it more difficult for us to obtain funding or capital on commercially acceptable terms. |
• | As a bank holding company, our sources of funds are limited. |
• | We are subject to interest rate risk, including interest rate fluctuations,that could have a material adverse effect on us. |
• | Competition from financial institutions and other financial services providers may adversely affect our growth and profitability and have a material adverse effect on us. |
• | Our business is subject to the conditions of the economies in which we operate and continued weakness in those economies and the real estate markets may materially and adversely affect us. |
• | Our business is subject to domestic and to a lesser extent, international economic conditions and other factors, many of which are beyond our control and could materially and adversely affect us. |
• | The preparation of our consolidated financial statements requires us to make estimates and judgments, including the use of models, which are subject to an inherent degree of uncertainty and which may differ from actual results. |
• | We must manage credit risk and if we are unable to do so, our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio, which could have a material adverse effect on us. |
• | We have counterparty risk and therefore we may be materially and adversely affected by the soundness of other financial institutions. |
• | We are subject to lending concentration risks. |
• | We are subject to mortgage asset concentration risks. |
• | Our business strategy is dependent on our continued ability to attract, develop and retain highly qualified and experienced personnel in senior management and customer relationship positions. |
• | Our reputation could be damaged by negative publicity. |
• | New and less mature lines of business, new products and services or new customer relationships may subject us to certain additional risks. |
• | We may experience difficulties in managing our future growth. |
• | We and our subsidiaries are subject to changes in federal and state tax laws and changes in interpretation of existing laws. |
• | Regulatory requirements recently adopted by the U.S. federal bank regulatory agencies to implement Basel III, growth plans or operating results may require us to raise additional capital, which may not be available on favorable terms or at all. |
• | We have not paid a dividend on our common stock since the second quarter of 2008. In addition, regulatory restrictions and liquidity constraints at the holding company level could impair our ability to make distributions on our outstanding securities. |
For further information about these and other risks, uncertainties and factors, please review the disclosure included in the section captioned "Risk Factors” in our December 31, 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2014, current Reports on Form 8-K and other filings we have made with the SEC. You should not place undue reliance on any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this press release.
8
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited) | |||||||
Mar. 31, 2014 | Dec. 31, 2013 | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 138,569 | $ | 90,817 | |||
Investment securities | 1,100,056 | 1,120,731 | |||||
Loans held for sale | 436,086 | 473,890 | |||||
Loans, net of allowance for loan losses of $82,891 at March 31, 2014 and $81,864 at December 31, 2013 | 3,568,122 | 3,566,511 | |||||
Premises, leasehold improvements and equipment, net | 26,350 | 26,919 | |||||
Investment in Federal Home Loan Bank and Federal Reserve Bank stock | 49,617 | 64,612 | |||||
Mortgage servicing rights | 227,695 | 216,111 | |||||
Other real estate and repossessed assets, net | 9,950 | 10,049 | |||||
Other assets | 96,573 | 116,178 | |||||
Total assets | $ | 5,653,018 | $ | 5,685,818 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 1,068,207 | $ | 1,048,946 | |||
Interest-bearing | 2,885,178 | 2,602,037 | |||||
Total deposits | 3,953,385 | 3,650,983 | |||||
Accrued interest, taxes and other liabilities | 87,369 | 105,350 | |||||
Short-term borrowings | 1,043,097 | 1,378,327 | |||||
Junior subordinated debentures | 86,607 | 86,607 | |||||
Total liabilities | 5,170,458 | 5,221,267 | |||||
Stockholders' equity: | |||||||
Preferred stock, Series A | 100,000 | 100,000 | |||||
Nonvoting preferred stock | 13 | 13 | |||||
Common stock | 308 | 307 | |||||
Surplus | 417,984 | 417,429 | |||||
Accumulated deficit | (7,486 | ) | (17,430 | ) | |||
Accumulated other comprehensive income (loss), net | 1,326 | (6,183 | ) | ||||
Treasury stock | (29,585 | ) | (29,585 | ) | |||
Total stockholders' equity | 482,560 | 464,551 | |||||
Total liabilities and stockholders' equity | $ | 5,653,018 | $ | 5,685,818 | |||
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CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended | |||||||||||
Mar. 31, 2014 | Dec 31, 2013 | Mar. 31, 2013 | |||||||||
Interest income: | |||||||||||
Interest and fees on loans | $ | 39,811 | $ | 39,835 | $ | 37,629 | |||||
Interest and dividends on investment securities: | |||||||||||
Taxable | 6,486 | 7,670 | 8,617 | ||||||||
Tax-exempt | 2,545 | 2,875 | 1,427 | ||||||||
Interest on cash equivalents | — | — | 1 | ||||||||
Total interest income | 48,842 | 50,380 | 47,674 | ||||||||
Interest expense: | |||||||||||
Deposits | 3,169 | 3,324 | 4,264 | ||||||||
Short-term borrowings | 382 | 408 | 420 | ||||||||
Junior subordinated debentures | 1,437 | 1,444 | 1,443 | ||||||||
Subordinated notes | — | — | 864 | ||||||||
Total interest expense | 4,988 | 5,176 | 6,991 | ||||||||
Net interest income | 43,854 | 45,204 | 40,683 | ||||||||
Provision for loan losses | 2,600 | 1,100 | 300 | ||||||||
Net interest income after provision for loan losses | 41,254 | 44,104 | 40,383 | ||||||||
Noninterest income: | |||||||||||
Service charges | 3,620 | 3,571 | 3,491 | ||||||||
Mortgage banking revenue | 23,057 | 27,171 | 32,030 | ||||||||
Gain on sales of investment securities, net | 35 | 5,891 | 1 | ||||||||
Other derivative income (loss) | (31 | ) | 1,427 | 1,560 | |||||||
Letter of credit and other loan fees | 1,254 | 1,102 | 1,091 | ||||||||
Other noninterest income | 1,163 | 478 | 1,546 | ||||||||
Total noninterest income | 29,098 | 39,640 | 39,719 | ||||||||
Noninterest expense: | |||||||||||
Salaries and employee benefits | 34,655 | 36,099 | 34,028 | ||||||||
Occupancy of premises, furniture and equipment | 3,957 | 7,239 | 3,305 | ||||||||
Nonperforming asset expense | 166 | 2,246 | 559 | ||||||||
FDIC assessment | 1,862 | 1,946 | 2,024 | ||||||||
Legal fees, net | 1,010 | 1,746 | 858 | ||||||||
Loan expense, net | 2,189 | 2,081 | 2,371 | ||||||||
Outside services | 3,559 | 3,300 | 2,496 | ||||||||
Computer processing | 1,768 | 1,573 | 966 | ||||||||
Other noninterest expense | 5,397 | 5,849 | 5,148 | ||||||||
Total noninterest expense | 54,563 | 62,079 | 51,755 | ||||||||
Income before income taxes | 15,789 | 21,665 | 28,347 | ||||||||
Income tax expense | 5,845 | 6,701 | 11,090 | ||||||||
Net income | 9,944 | 14,964 | 17,257 | ||||||||
Preferred dividends and discounts | — | (4,876 | ) | (3,661 | ) | ||||||
Net income applicable to common stockholders | $ | 9,944 | $ | 10,088 | $ | 13,596 | |||||
Basic income per common share | $ | 0.32 | $ | 0.33 | $ | 0.45 | |||||
Diluted income per common share | 0.32 | 0.33 | 0.44 | ||||||||
Weighted-average common shares outstanding | 29,075,072 | 29,004,826 | 28,598,194 | ||||||||
Weighted-average diluted common shares outstanding | 29,323,756 | 29,266,098 | 28,962,425 | ||||||||
10
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(dollars in thousands)
Unaudited
2014 | 2013 | ||||||||||||||||||
First Quarter | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||||
Condensed Income Data: | |||||||||||||||||||
Net interest income | $ | 43,854 | $ | 45,204 | $ | 46,027 | $ | 41,082 | $ | 40,683 | |||||||||
Provision for loan losses | 2,600 | 1,100 | 300 | 700 | 300 | ||||||||||||||
Total noninterest income | 29,098 | 39,640 | 32,472 | 46,101 | 39,719 | ||||||||||||||
Total noninterest expense | 54,563 | 62,079 | 54,542 | 60,271 | 51,755 | ||||||||||||||
Income before income taxes | 15,789 | 21,665 | 23,657 | 26,212 | 28,347 | ||||||||||||||
Income tax expense | 5,845 | 6,701 | 9,488 | 10,595 | 11,090 | ||||||||||||||
Net income | 9,944 | 14,964 | 14,169 | 15,617 | 17,257 | ||||||||||||||
Preferred dividends and discounts | — | (4,876 | ) | (3,583 | ) | (3,780 | ) | (3,661 | ) | ||||||||||
Net income applicable to common stockholders | $ | 9,944 | $ | 10,088 | $ | 10,586 | $ | 11,837 | $ | 13,596 | |||||||||
Non-GAAP Measures of Performance: (1) | |||||||||||||||||||
Revenue | $ | 72,917 | $ | 78,953 | $ | 78,438 | $ | 87,177 | $ | 80,401 | |||||||||
Pre-tax, pre-provision operating earnings | 18,520 | 19,120 | 23,060 | 31,088 | 29,205 | ||||||||||||||
Per Share Data: | |||||||||||||||||||
Basic income per common share | $ | 0.32 | $ | 0.33 | $ | 0.35 | $ | 0.39 | $ | 0.45 | |||||||||
Diluted income per common share | 0.32 | 0.33 | 0.34 | 0.39 | 0.44 | ||||||||||||||
Tangible book value per common share | 13.02 | 12.43 | 12.47 | 12.22 | 12.69 | ||||||||||||||
Weighted average common shares-basic | 29,075,072 | 29,004,826 | 28,936,361 | 28,687,406 | 28,595,562 | ||||||||||||||
Weighted average common shares-diluted | 29,323,756 | 29,266,098 | 29,176,070 | 28,995,753 | 28,961,395 | ||||||||||||||
Common shares outstanding-end of period | 29,370,998 | 29,329,530 | 29,333,540 | 29,098,639 | 29,088,735 | ||||||||||||||
Performance Ratios (annualized): | |||||||||||||||||||
Return on average assets | 0.71 | % | 1.03 | % | 0.96 | % | 1.09 | % | 1.22 | % | |||||||||
Return on average common equity | 10.44 | % | 10.84 | % | 11.69 | % | 12.66 | % | 14.82 | % | |||||||||
Efficiency ratio (2) | 74.83 | % | 78.63 | % | 69.54 | % | 69.14 | % | 64.37 | % | |||||||||
Average Balance Sheet Data: (3) | |||||||||||||||||||
Total assets | $ | 5,599,140 | $ | 5,827,825 | $ | 5,893,140 | $ | 5,747,219 | $ | 5,642,192 | |||||||||
Investments | 1,187,563 | 1,368,550 | 1,491,554 | 1,472,316 | 1,360,213 | ||||||||||||||
Cash equivalents | 98 | 160 | 541 | 237 | 555 | ||||||||||||||
Loans held for sale | 420,815 | 463,756 | 626,043 | 634,327 | 691,134 | ||||||||||||||
Loans | 3,624,226 | 3,633,969 | 3,442,999 | 3,254,918 | 3,177,615 | ||||||||||||||
Total interest-earning assets | 5,232,702 | 5,466,435 | 5,561,137 | 5,361,798 | 5,229,517 | ||||||||||||||
Interest-bearing deposits | 2,826,405 | 2,786,288 | 2,767,265 | 2,494,537 | 2,424,772 | ||||||||||||||
Borrowings | 1,185,596 | 1,330,934 | 1,425,545 | 1,397,300 | 1,219,977 | ||||||||||||||
Total interest-bearing liabilities | 4,012,001 | 4,117,222 | 4,192,810 | 3,891,837 | 3,644,749 | ||||||||||||||
Noninterest-bearing deposits | 1,011,485 | 1,081,148 | 1,061,917 | 1,195,709 | 1,333,958 | ||||||||||||||
Total stockholders' equity | 480,873 | 526,313 | 545,391 | 578,142 | 570,652 | ||||||||||||||
Tax Equivalent Net Interest Margin: | |||||||||||||||||||
Net interest income as stated | $ | 43,854 | $ | 45,204 | $ | 46,027 | $ | 41,082 | $ | 40,683 | |||||||||
Add: Tax equivalent adjust. - investment (4) | 1,370 | 1,548 | 1,522 | 1,119 | 769 | ||||||||||||||
Tax equivalent adjust. - loans (4) | 13 | 26 | 27 | 29 | 29 | ||||||||||||||
Tax equivalent net interest income | $ | 45,237 | $ | 46,778 | $ | 47,576 | $ | 42,230 | $ | 41.481 | |||||||||
Net interest margin without tax adjustment | 3.38 | % | 3.29 | % | 3.29 | % | 3.07 | % | 3.14 | % | |||||||||
Net interest margin - tax equivalent (4) | 3.49 | % | 3.41 | % | 3.41 | % | 3.16 | % | 3.20 | % | |||||||||
Yield on earning assets without tax adjustment | 3.77 | % | 3.67 | % | 3.70 | % | 3.59 | % | 3.68 | % | |||||||||
Yield on earning assets - tax equivalent (4) | 3.87 | % | 3.79 | % | 3.81 | % | 3.67 | % | 3.74 | % | |||||||||
Yield on interest-bearing liabilities | 0.50 | % | 0.50 | % | 0.53 | % | 0.71 | % | 0.78 | % | |||||||||
Net interest spread without tax adjustment | 3.27 | % | 3.17 | % | 3.17 | % | 2.88 | % | 2.90 | % | |||||||||
Net interest spread - tax equivalent (4) | 3.37 | % | 3.29 | % | 3.28 | % | 2.96 | % | 2.96 | % | |||||||||
Footnotes:
(1) | Refer to Reconciliation of U.S. GAAP Financial Measures for a reconciliation to GAAP. |
(2) | Efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, adjusted for gains or losses from investment securities. |
(3) | Average balances are daily averages. |
(4) | Adjustment reflects tax-exempt interest income on an equivalent before-tax basis assuming a tax rate of 35.0% |
11
SUMMARY OF KEY PERIOD-END FINANCIAL DATA
(dollars in thousands)
Unaudited
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||
Condensed Balance Sheet Data: | |||||||||||||||||||
Investment securities | $ | 1,100,056 | $ | 1,120,731 | $ | 1,420,906 | $ | 1,434,326 | $ | 1,429,971 | |||||||||
Loans held for sale | 436,086 | 473,890 | 498,276 | 693,937 | 668,937 | ||||||||||||||
Loans | 3,651,013 | 3,648,375 | 3,628,658 | 3,302,548 | 3,222,794 | ||||||||||||||
Allowance for loan losses | 82,891 | 81,864 | 85,013 | 83,576 | 82,150 | ||||||||||||||
Total assets | 5,653,018 | 5,685,818 | 6,014,694 | 5,901,370 | 5,770,432 | ||||||||||||||
Total deposits | 3,953,385 | 3,650,983 | 3,697,196 | 3,692,426 | 3,794,394 | ||||||||||||||
Total borrowings | 1,129,704 | 1,464,934 | 1,652,258 | 1,515,462 | 1,256,653 | ||||||||||||||
Total stockholders' equity | 482,560 | 464,551 | 544,719 | 560,274 | 573,332 | ||||||||||||||
Asset Quality Ratios: | |||||||||||||||||||
Nonperforming loans | $ | 72,936 | $ | 81,825 | $ | 86,045 | $ | 69,539 | $ | 71,404 | |||||||||
Nonperforming assets | 82,886 | 91,874 | 100,434 | 89,333 | 98,622 | ||||||||||||||
Allowance for loan losses to total loans | 2.27 | % | 2.24 | % | 2.34 | % | 2.53 | % | 2.55 | % | |||||||||
Allowance for loan losses to nonperforming loans | 113.65 | % | 100.05 | % | 98.80 | % | 120.19 | % | 115.05 | % | |||||||||
Nonperforming assets to total loans plus repossessed property | 2.26 | % | 2.51 | % | 2.76 | % | 2.69 | % | 3.03 | % | |||||||||
Capital Resources (Taylor Capital Group, Inc.): | |||||||||||||||||||
Total Capital (to Risk Weighted Assets) | 12.93 | % | 12.65 | % | 14.15 | % | 15.22 | % | 16.50 | % | |||||||||
Tier I Capital (to Risk Weighted Assets) | 11.67 | % | 11.40 | % | 12.89 | % | 13.96 | % | 14.45 | % | |||||||||
Leverage (to average assets) | 9.73 | % | 9.18 | % | 10.30 | % | 10.87 | % | 10.91 | % | |||||||||
Total Capital | $ | 600,876 | $ | 591,908 | $ | 663,917 | $ | 679,379 | $ | 701,381 | |||||||||
Tier I Capital | 542,464 | 533,123 | 604,920 | 623,221 | 614,382 | ||||||||||||||
12
COMPOSITION OF LOAN PORTFOLIO (unaudited)
(dollars in thousands)
The following table presents the composition of the Company's loan portfolio as of the dates indicated:
March 31, 2014 | December 31, 2013 | March 31, 2013 | |||||||||||||||||||
Loans | Balance | Percent of Gross Loans | Balance | Percent of Gross Loans | Balance | Percent of Gross Loans | |||||||||||||||
Commercial and industrial | $ | 1,940,095 | 53.0 | % | $ | 1,935,377 | 52.9 | % | $ | 1,577,241 | 48.8 | % | |||||||||
Commercial real estate secured | 1,109,042 | 30.3 | 1,124,227 | 30.7 | 1,013,252 | 31.4 | |||||||||||||||
Residential construction and land | 45,417 | 1.2 | 46,079 | 1.3 | 40,620 | 1.3 | |||||||||||||||
Commercial construction and land | 132,729 | 3.6 | 121,682 | 3.3 | 121,212 | 3.7 | |||||||||||||||
Lease receivables | 143,091 | 3.9 | 132,013 | 3.6 | 65,028 | 2.0 | |||||||||||||||
Total commercial loans | 3,370,374 | 92.0 | 3,359,378 | 91.8 | 2,817,353 | 87.2 | |||||||||||||||
Consumer | 294,546 | 8.0 | 301,377 | 8.2 | 411,905 | 12.8 | |||||||||||||||
Gross loans | 3,664,920 | 100.0 | % | 3,660,755 | 100.0 | % | 3,229,258 | 100.0 | % | ||||||||||||
Less: Unearned discount | (13,907 | ) | (12,380 | ) | (6,464 | ) | |||||||||||||||
Total loans | 3,651,013 | 3,648,375 | 3,222,794 | ||||||||||||||||||
Less: Loan loss allowance | (82,891 | ) | (81,864 | ) | (82,150 | ) | |||||||||||||||
Net loans | $ | 3,568,122 | $ | 3,566,511 | $ | 3,140,644 | |||||||||||||||
Loans Held for Sale | $ | 436,086 | $ | 473,890 | $ | 668,937 | |||||||||||||||
The following table provides details of the Company's commercial real estate portfolio:
March 31, 2014 | December 31, 2013 | March 31, 2013 | |||||||||||||||||||
Commercial real estate secured: | Balance | Percent of Total | Balance | Percent of Total | Balance | Percent of Total | |||||||||||||||
Commercial non-owner occupied: | |||||||||||||||||||||
Retail strip centers or malls | $ | 95,371 | 8.6 | % | $ | 102,195 | 9.1 | % | $ | 107,861 | 10.6 | % | |||||||||
Office/mixed use property | 146,822 | 13.2 | 126,662 | 11.3 | 124,542 | 12.3 | |||||||||||||||
Commercial properties | 123,796 | 11.2 | 126,608 | 11.3 | 107,642 | 10.6 | |||||||||||||||
Specialized – other | 102,014 | 9.2 | 101,813 | 9.1 | 70,271 | 6.9 | |||||||||||||||
Other commercial properties | 18,639 | 1.7 | 25,483 | 2.3 | 27,140 | 2.8 | |||||||||||||||
Farmland | 2,227 | 0.2 | 2,256 | 0.2 | — | — | |||||||||||||||
Subtotal commercial non-owner occupied | 488,869 | 44.1 | 485,017 | 43.3 | 437,456 | 43.2 | |||||||||||||||
Commercial owner-occupied | 491,413 | 44.3 | 513,126 | 45.5 | 463,166 | 45.7 | |||||||||||||||
Multi-family properties | 128,760 | 11.6 | 126,084 | 11.2 | 112,630 | 11.1 | |||||||||||||||
Total commercial real estate secured | $ | 1,109,042 | 100.0 | % | $ | 1,124,227 | 100.0 | % | $ | 1,013,252 | 100.0 | % | |||||||||
13
CREDIT QUALITY (unaudited)
(dollars in thousands)
At or for the Three Months Ended | ||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2013 | ||||||||||
Nonperforming Assets: | ||||||||||||
Loans contractually past due 90 days or more but still accruing interest | $ | — | $ | — | $ | — | ||||||
Nonaccrual loans: | ||||||||||||
Commercial and industrial | $ | 17,841 | $ | 15,879 | $ | 16,010 | ||||||
Commercial real estate secured | 26,589 | 37,474 | 23,096 | |||||||||
Residential construction and land | — | — | 742 | |||||||||
Commercial construction and land | 22,550 | 22,550 | 26,375 | |||||||||
Consumer | 5,956 | 5,922 | 5,181 | |||||||||
Total nonaccrual loans | 72,936 | 81,825 | 71,404 | |||||||||
Total nonperforming loans | 72,936 | 81,825 | 71,404 | |||||||||
Other real estate owned and repossessed assets | 9,950 | 10,049 | 27,218 | |||||||||
Total nonperforming assets | $ | 82,886 | $ | 91,874 | $ | 98,622 | ||||||
Other Credit Quality Information: | ||||||||||||
Commercial criticized and classified loans (1) | ||||||||||||
Special mention | $ | 70,227 | $ | 73,093 | $ | 49,644 | ||||||
Substandard | 47,368 | 39,012 | 22,649 | |||||||||
Nonaccrual | 66,980 | 75,903 | 66,223 | |||||||||
Total commercial criticized and classified loans | $ | 184,575 | $ | 188,008 | $ | 138,516 | ||||||
Loans contractually past due 30 – 89 days and still accruing | $ | 8,035 | $ | 5,189 | $ | 4,293 | ||||||
Performing restructured loans | 35,605 | 20,736 | 22,739 | |||||||||
Recorded balance of impaired loans | 106,066 | 96,451 | 90,113 | |||||||||
Allowance for loan losses related to impaired loans | 18,049 | 13,687 | 13,670 | |||||||||
Allowance for Loan Losses Summary: | ||||||||||||
Allowance at beginning of period | $ | 81,864 | $ | 85,013 | $ | 82,191 | ||||||
(Charge-offs), net of recoveries: | ||||||||||||
Commercial and commercial real estate | (1,819 | ) | (1,713 | ) | 114 | |||||||
Real estate – construction and land | 426 | (2,232 | ) | 174 | ||||||||
Consumer | (180 | ) | (304 | ) | (629 | ) | ||||||
Total net charge-offs | (1,573 | ) | (4,249 | ) | (341 | ) | ||||||
Provision for loan losses | 2,600 | 1,100 | 300 | |||||||||
Allowance at end of period | $ | 82,891 | $ | 81,864 | $ | 82,150 | ||||||
Key Credit Ratios: | ||||||||||||
Nonperforming loans to total loans | 2.00 | % | 2.24 | % | 2.22 | % | ||||||
Nonperforming assets to total loans plus repossessed property | 2.26 | % | 2.51 | % | 3.03 | % | ||||||
Nonperforming assets to total assets | 1.47 | % | 1.62 | % | 1.71 | % | ||||||
Annualized net charge-offs to average total loans | 0.17 | % | 0.47 | % | 0.04 | % | ||||||
Allowance to total loans at end of period | 2.27 | % | 2.24 | % | 2.55 | % | ||||||
Allowance to nonperforming loans | 113.65 | % | 100.05 | % | 115.05 | % | ||||||
30 – 89 days past due to total loans | 0.22 | % | 0.14 | % | 0.13 | % | ||||||
(1) | Commercial criticized and classified loans excludes consumer loans. |
14
LOAN PORTFOLIO AGING (unaudited)
(dollars in thousands)
As of March 31, 2014 | |||||||||||||||||||||||||||
30-89 Days Past Due | >90 Days Past Due and Still Accruing | Nonaccrual | Current | Total Loans | % of Total Loans | Allowance for Loan Loss Allocation | |||||||||||||||||||||
Commercial and industrial | $ | 14 | $ | — | $ | 17,841 | $ | 1,922,240 | $ | 1,940,095 | 53 | % | $ | 41,857 | |||||||||||||
Commercial real estate secured: | |||||||||||||||||||||||||||
Commercial non-owner occupied: | |||||||||||||||||||||||||||
Retail strip centers or malls | — | — | 13,398 | 81,973 | 95,371 | 2 | % | 2,469 | |||||||||||||||||||
Office/mixed use property | — | — | 302 | 146,520 | 146,822 | 4 | % | 2,473 | |||||||||||||||||||
Commercial properties | — | — | 389 | 123,407 | 123,796 | 3 | % | 3,100 | |||||||||||||||||||
Specialized – other | — | — | 4,528 | 97,486 | 102,014 | 3 | % | 1,502 | |||||||||||||||||||
Other commercial properties | — | — | — | 18,639 | 18,639 | 1 | % | 273 | |||||||||||||||||||
Farmland | — | — | — | 2,227 | 2,227 | — | % | 33 | |||||||||||||||||||
Subtotal commercial non-owner occupied | — | — | 18,617 | 470,252 | 488,869 | 13 | % | 9,850 | |||||||||||||||||||
Commercial owner-occupied | 1,049 | — | 7,805 | 482,559 | 491,413 | 13 | % | 8,380 | |||||||||||||||||||
Multi-family properties | — | — | 167 | 128,593 | 128,760 | 4 | % | 2,109 | |||||||||||||||||||
Total commercial real estate secured | 1,049 | — | 26,589 | 1,081,404 | 1,109,042 | 30 | % | 20,339 | |||||||||||||||||||
Residential construction and land: | |||||||||||||||||||||||||||
Residential construction | — | — | — | 30,026 | 30,026 | 1 | % | 2,884 | |||||||||||||||||||
Land | — | — | — | 15,391 | 15,391 | — | % | 1,548 | |||||||||||||||||||
Total residential construction and land | — | — | — | 45,417 | 45,417 | 1 | % | 4,432 | |||||||||||||||||||
Commercial construction and land | — | — | 22,550 | 110,179 | 132,729 | 4 | % | 8,261 | |||||||||||||||||||
Lease receivables, net of unearned discount | 2,319 | — | — | 126,865 | 129,184 | 4 | % | 775 | |||||||||||||||||||
Total commercial loans | 3,382 | — | 66,980 | 3,286,105 | 3,356,467 | 92 | % | 75,664 | |||||||||||||||||||
Consumer loans | 4,653 | — | 5,956 | 283,937 | 294,546 | 8 | % | 7,227 | |||||||||||||||||||
Total loans | $ | 8,035 | $ | — | $ | 72,936 | $ | 3,570,042 | $ | 3,651,013 | 100 | % | $ | 82,891 | |||||||||||||
15
FUNDING LIABILITIES (unaudited)
(dollars in thousands)
The following table presents the distribution of the Company’s average deposit account balances for the periods indicated:
For the Three Months Ended | ||||||||||||||||||||
March 31, 2014 | December 31, 2013 | March 31, 2013 | ||||||||||||||||||
Average Balance | Percent of Deposits | Average Balance | Percent of Deposits | Average Balance | Percent of Deposits | |||||||||||||||
Noninterest-bearing deposits | $ | 1,011,485 | 26.4 | % | $ | 1,081,148 | 28.0 | % | $ | 1,333,958 | 35.5 | % | ||||||||
Interest-bearing deposits: | ||||||||||||||||||||
Commercial interest checking | 377,103 | 9.8 | 360,476 | 9.3 | — | — | ||||||||||||||
NOW accounts | 555,784 | 14.5 | 597,373 | 15.4 | 717,410 | 19.1 | ||||||||||||||
Savings deposits | 40,600 | 1.1 | 40,355 | 1.0 | 40,255 | 1.1 | ||||||||||||||
Money market accounts | 694,531 | 18.1 | 728,419 | 18.8 | 746,542 | 19.9 | ||||||||||||||
Brokered money market deposits | 9,085 | 0.2 | 37,874 | 1.0 | 11,942 | 0.3 | ||||||||||||||
Certificates of deposit | 476,370 | 12.4 | 493,291 | 12.8 | 550,430 | 14.6 | ||||||||||||||
Brokered certificates of deposit | 290,749 | 7.6 | 268,982 | 7.0 | 181,740 | 4.8 | ||||||||||||||
CDARS time deposits | 334,262 | 8.7 | 205,088 | 5.3 | 162,662 | 4.3 | ||||||||||||||
Public time deposits | 47,921 | 1.2 | 54,430 | 1.4 | 13,791 | 0.4 | ||||||||||||||
Total interest-bearing deposits | 2,826,405 | 73.6 | 2,786,288 | 72.0 | 2,424,772 | 64.5 | ||||||||||||||
Total deposits | $ | 3,837,890 | 100.0 | % | $ | 3,867,436 | 100.0 | % | $ | 3,758,730 | 100.0 | % | ||||||||
The following table sets forth the period-end balances of total deposits as of each of the dates indicated below.
March 31, 2014 | December 31, 2013 | March 31, 2013 | ||||||||||
Noninterest-bearing deposits | $ | 1,068,207 | $ | 1,048,946 | $ | 1,326,483 | ||||||
Interest-bearing deposits: | ||||||||||||
Commercial interest checking | 373,467 | 377,631 | — | |||||||||
NOW accounts | 572,259 | 566,269 | 819,101 | |||||||||
Savings accounts | 41,229 | 40,357 | 40,646 | |||||||||
Money market accounts | 684,358 | 698,302 | 741,818 | |||||||||
Brokered money market deposits | 6,081 | 51,124 | — | |||||||||
Certificates of deposit | 507,239 | 472,222 | 548,767 | |||||||||
Brokered certificates of deposit | 428,502 | 203,715 | 171,320 | |||||||||
CDARS time deposits | 214,479 | 142,835 | 135,630 | |||||||||
Public time deposits | 57,564 | 49,582 | 10,629 | |||||||||
Total interest-bearing deposits | 2,885,178 | 2,602,037 | 2,467,911 | |||||||||
Total deposits | $ | 3,953,385 | $ | 3,650,983 | $ | 3,794,394 | ||||||
16
SUMMARY OF QUARTERLY SEGMENT FINANCIAL DATA (unaudited)
(dollars in thousands)
For the Three Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||||
BANKING: | |||||||||||||||||||||
Net interest income | $ | 40,528 | $ | 40,975 | $ | 40,780 | $ | 37,175 | $ | 36,181 | |||||||||||
Provision for loan losses | 2,603 | 1,210 | 233 | 946 | 292 | ||||||||||||||||
Total noninterest income | 6,001 | 12,428 | 7,284 | 7,528 | 7,647 | ||||||||||||||||
Total noninterest expense | 25,947 | 28,363 | 23,473 | 25,770 | 25,468 | ||||||||||||||||
Income before income taxes | 17,979 | 23,830 | 24,358 | 17,987 | 18,068 | ||||||||||||||||
Income tax expense | 7,102 | 9,413 | 9,621 | 7,105 | 7,136 | ||||||||||||||||
Net income | $ | 10,877 | $ | 14,417 | $ | 14,737 | $ | 10,882 | $ | 10,932 | |||||||||||
For the Three Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||||
MORTGAGE BANKING: | |||||||||||||||||||||
Net interest income | $ | 4,735 | $ | 5,517 | $ | 6,499 | $ | 5,742 | $ | 6,414 | |||||||||||
Provision for loan losses | (3 | ) | (110 | ) | 67 | (246 | ) | 8 | |||||||||||||
Noninterest income: | |||||||||||||||||||||
Loan origination income | 11,292 | 13,943 | 17,249 | 29,355 | 26,430 | ||||||||||||||||
Net servicing income | 11,763 | 13,226 | 7,896 | 9,176 | 5,600 | ||||||||||||||||
Total noninterest income | 23,055 | 27,169 | 25,145 | 38,531 | 32,030 | ||||||||||||||||
Total noninterest expense | 27,943 | 29,222 | 29,063 | 29,086 | 26,287 | ||||||||||||||||
Income (loss) before income taxes | (150 | ) | 3,574 | 2,514 | 15,433 | 12,149 | |||||||||||||||
Income tax expense (benefit) | (278 | ) | 1,033 | (19 | ) | 4,928 | 3,375 | ||||||||||||||
Net income | $ | 128 | $ | 2,541 | $ | 2,533 | $ | 10,505 | $ | 8,774 | |||||||||||
Origination Volume | $ | 1,052,106 | $ | 1,169,098 | $ | 1,596,431 | $ | 1,874,248 | $ | 1,907,642 | |||||||||||
Refinance % | 41 | % | 40 | % | 37 | % | 62 | % | 77 | % | |||||||||||
Purchase % | 59 | % | 60 | % | 63 | % | 38 | % | 23 | % | |||||||||||
Period-End Balances | |||||||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||||
Mortgage servicing book | $ | 20,136,044 | $ | 18,496,230 | $ | 16,431,269 | $ | 12,740,176 | $ | 10,506,034 | |||||||||||
Mortgage servicing rights | 227,695 | 216,111 | 184,237 | 145,729 | 106,576 | ||||||||||||||||
The Company has identified two operating segments for purposes of financial reporting: Banking and Mortgage Banking. The Banking operating segment includes commercial banking, asset-based lending, equipment finance, retail banking and all other functions that support those units. The Mortgage Banking operating segment originates mortgage loans for sale to investors and for the Company's portfolio through its retail and third party channels. This segment also services mortgage loans for various investors and for loans owned by the Company. Segment results are presented based on our management accounting practices. The information presented in our segment reporting is based on internal allocations, which involve management judgment and is subject to periodic adjustments and enhancements. In addition, the Company utilizes an Other category that includes subordinated debt expense, certain parent company activities, expenses related to the pending merger with MB Financial, and residual income tax expense or benefit.
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RECONCILIATION OF U.S. GAAP FINANCIAL MEASURES (unaudited)
(dollars in thousands)
The following reconciles the income before income taxes to pre-tax, pre-provision operating earnings for the periods indicated.
For the Three Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||||
Income before income taxes | $ | 15,789 | $ | 21,665 | $ | 23,657 | $ | 26,212 | $ | 28,347 | |||||||||||
Add back (subtract): | |||||||||||||||||||||
Credit costs: | |||||||||||||||||||||
Provision for loan losses | 2,600 | 1,100 | 300 | 700 | 300 | ||||||||||||||||
Nonperforming asset expense | 166 | 2,246 | (836 | ) | (1,198 | ) | 559 | ||||||||||||||
Credit costs subtotal | 2,766 | 3,346 | (536 | ) | (498 | ) | 859 | ||||||||||||||
Other: | |||||||||||||||||||||
Gain on sales of investment securities | (35 | ) | (5,891 | ) | (61 | ) | (6 | ) | (1 | ) | |||||||||||
Early extinguishment of debt | — | — | — | 5,380 | — | ||||||||||||||||
Other subtotal | (35 | ) | (5,891 | ) | (61 | ) | 5,374 | (1 | ) | ||||||||||||
Pre-tax, pre-provision operating earnings | $ | 18,520 | $ | 19,120 | $ | 23,060 | $ | 31,088 | $ | 29,205 | |||||||||||
The following details the components of revenue for the periods indicated.
For the Three Months Ended | |||||||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Sept. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | |||||||||||||||||
Net interest income | $ | 43,854 | $ | 45,204 | $ | 46,027 | $ | 41,082 | $ | 40,683 | |||||||||||
Noninterest income | 29,098 | 39,640 | 32,472 | 46,101 | 39,719 | ||||||||||||||||
Add back (subtract): | |||||||||||||||||||||
Gain on sales of investment securities | (35 | ) | (5,891 | ) | (61 | ) | (6 | ) | (1 | ) | |||||||||||
Revenue | $ | 72,917 | $ | 78,953 | $ | 78,438 | $ | 87,177 | $ | 80,401 | |||||||||||
The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practice within the banking industry. Management uses certain non-GAAP financial measures to evaluate the Company’s financial performance and has provided the non-GAAP measures of pre-tax, pre-provision operating earnings and of revenue. In the pre-tax, pre-provision operating earnings non-GAAP financial measure, the provision for loan losses, nonperforming asset expense and certain non-recurring items, such as gains and losses on investment securities and early extinguishment of debt are excluded from the determination of operating results. The non-GAAP measure of revenue is calculated as the sum of net interest income and noninterest income adjusted by investment securities gains and losses. Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance from period to period.
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