MBFI
#What I disclosed, I think on last quarter's call, was the Fed rate increase had little impact on the margin for Q4.
I also, I think, disclosed that the unusual re-accrual interest was about $1.5 million in Q4.
So I feel like that was largely offset by the rate impact in Q1.
That is why we ended up with the stable margin, was what I expected.
Oh, sure.
I think as you know, because you've followed us for some time, our leasing revenues do vary from quarter to quarter.
And what we continue to recommend is that people take kind of a rolling four quarters of leasing revenue and really base their forecasts or projections for us on that sort of trailing four quarters revenue stream.
Oh, yes, it's very sticky.
It's just we have equipment and maintenance renewals that occur every quarter.
We also get new business every quarter and we get promotional revenue every quarter.
It just varies from quarter to quarter based on the magnitude of the contracts.
I'm going to handle the first part of the question and then I will turn it over to Mike.
If you think about the general reserve, okay, keep in mind that we continue to book a provision related to the Taylor loans and essentially what's happening is, the discount in the purchase accounting is moving from discount to a general reserve as time goes on.
So that's part of the reason for the increase in the general reserve and then Mike will talk about the specific reserve.
Let me start.
This is Mitch.
I'll start and then <UNK> will make ---+ add in.
He'll correct whatever I say that's wrong.
Right, you referenced putting the two companies together.
To refresh everybody's memory, the Taylor/MB merger is August 2014.
Everybody was kind of on defense for most of 2014, certainly post August through the end of the year as we went through systems conversions.
Came into the first quarter 2014 all our bankers were fully back in the market, competing, doing the thing they do really well.
We saw new business pickup in second, third, fourth quarter now the first quarter again.
So I think it's four pretty good quarters in a row.
To me, a lot of the results that we're seeing in a difficult, a very difficult market, are a result of fully engaged sales and relationship management team.
We've got great bankers and I think they are doing great work in all our markets, whether it's in Chicago or across the country where we've got a number of national lending businesses that have developed the traction.
This is <UNK> <UNK>.
I just have a real brief addendum to that and that's that I think it was kind of inherent in what Mitch just said, but as you work together more as a team, bankers, risk people, the credit books, et cetera, et cetera, you ---+ as a lender you have a better idea of what can get done and how you can be successful in the marketplace.
I think that really is an impact of now we've been together for a little over a 1.5 years and so it just continues to ---+ the comfort level enables you to be a little bit more confident the marketplace and market more effectively.
You mean for ---+ yes, I think it is.
I think it will continue to grow.
But yes, I think that's a pretty good base number to start with.
Okay, yes.
Good question.
You tailed off but the last part of your question was on M&A.
Okay.
I think our last dividend increase was second quarter 2015, so that's effectively four quarters ago now, right.
Yes, I'm sure at some point here our Board's going to want to have a look at the dividend.
Our capital generation rates are really good now.
Don't forget, we're going to use $125 million or so of cash in our acquisition of American Chartered, so that's a pretty good use of capital.
For me, I'm speaking for me, I mean ---+ step back.
Our capital policy here basically looks like this.
First, we need to generate enough capital to operate our business.
Post that, we want to keep dividends at the highest sustainable level possible.
So regular dividend at a rate that we are highly, highly confident sustainable in the very long term, even through all downturns and the rest.
Given our increased earnings and our increased capital generation rates, I think it's logical for our Board to at some point here take a look at the dividend.
Again, I'm sure that they will.
No promises there, but it's an appropriate thing to do.
And then on the M&A front, same comment.
No change from last quarter and so I'll be really brief about it.
Small, depository acquisitions are probably uninteresting to us just given the level of work involved and the opportunities we have within our own business currently to use our resources to enhance our current Company and not divert them to small M&A opportunities.
If we do another depository transaction, it's highly likely that it would be in the Chicago marketplace and it's highly likely that looks something like American Chartered, who we're really excited about.
Non-depositories could be anywhere in the United States.
The size is a little less relevant because the integration requirements in non-depositories are much less intense and less diverting of critical Company resources, so that's that.
Can't remember commenting about how manufacturing would increase lease originations in the fourth quarter, but I may have.
I continue to think manufacturing is a risk, but that's neither here nor there.
Look, I mean, our leasing business and all the components, it's a fantastic business.
It really is, and in all regards.
The returns on capital are very, very high.
The asset quality, the kinds of leases that are originated or the kinds of lease loans that are originated are really, really great assets to have.
The business has good growth on almost all fronts, which is really exciting, particularly our MB Equipment Finance has made the moves in the last quarter or so that are going to accelerate its growth, so I really like that.
That's a piece you may remember, <UNK>, came in our Taylor merger.
It was Cole Taylor Equipment Finance before we rebranded it MB Equipment Finance.
LaSalle and Celtic continue to do really well.
LaSalle's contract maintenance business has been really good.
That's the one volatile part that I think gives people, if you will, volatility heartburn.
The revenues on the contract maintenance side can be rather lumpy and that's the piece that is responsible for ---+ mostly responsible for moving that lease revenue line perhaps more than people are totally comfortable with.
And that's why <UNK> continues to say, take a look at the four quarters prior.
You can apply some kind of growth rate to that and use that for forecasting the future.
I think that forecasting a business like that on a single quarter basis is really, really hard, but over a 12- or 15-month, 18-month period actually isn't that hard.
It's a great business.
I think it's going to continue to grow at really, really healthy rates.
I think conditions are still, at least in leasing, feel about the same as they did a quarter ago or two quarters ago.
Our volumes are quite steady.
We haven't seen ---+ I don't think we've seen a drop off in originations related to the economy.
I think there are some things moving around.
For example, in the energy sector, obviously originations of any Company connected with that are going to be lower than elsewhere but in total, it's not a significant part of our business anyway and it's not a huge part of the economy.
I like what we're doing.
We continue to gain share.
It's a great business run by great people.
No, not really.
I mean, those units existed in our Company before.
Many or most, perhaps, reported to Randy, I think.
Some did, some didn't.
No, I think it was thinking about what experiences people could most benefit from in development as we made changes and who were the best people ---+ not the best people, but who were the right people to put on to oversee certain of our businesses to bring skills that they have and they had developed previously that could be additive to those businesses and make them better.
We could ---+ honestly we could have shuffled the deck in a quite different fashion, too.
We've got great people that are really multitalented and this was just an opportunity to make ---+ it's an interesting thing.
It makes our Company better because we get a new set of eyes looking at existing businesses and existing functions, which is always a good thing.
A new set of eyes can bring new ideas to people and help those people get better and help those functions and departments get better.
It's also better for our people too, as we talked about, because they learn more.
They get exposed to more things.
I think the more that people understand about our Company, or any business for that matter, the better they are able to contribute to the whole.
I think if there is anything perhaps that banking suffers from occasionally is having people who are very siloed who understand a great deal about a particular area and only one particular area of the Company.
I think that overall that can be a detriment.
One of the advantages that small banks have is you've got generally one or two, bright, executives that sit up top and understand how the entire Company works and can take action based on that very broad-based knowledge and so they can be really quick to market.
They can work with clients across products sets.
They can know how one ---+ a change in one part of the Company will affect the other part of the Company.
And then as banks grow, as companies grow, I think people sometimes lose that ability and we don't want to lose that ability.
We want people who understand ---+ a lot of people understand how our entire Company works and contribute across departments and across lines and know how one change in one area will affect another change, how customers can be served across our platform in a seamless way to try to back some of our revenues and share wallet.
Just ---+ it's a good thing to do and we're very lucky to be able to do that to and have talented people who can take on those kinds of roles.
Morning.
I agree.
MSA's doing a great job.
They've added some new businesses in Q1.
I'm very pleased with how they have integrated into MB Financial.
I would, though, stick with the $0.01 or $0.02 in terms of impact in the first year.
It's going to grow from there but I think let's stick with the prior guidance.
I apologize.
I should have been more specific.
It's not auto.
We do boats, we do RVs, we do motorcycles and again, a business that we've been in for 10 years anyway, maybe a little bit more.
Particularly motorcycles.
Right.
So that's ---+ it is not auto.
The other thing that I would add is that we've been pretty discriminating as it relates to credit scores and it's a portfolio that leans heavily toward higher credit scores.
The other point I would add is when I look back over the performance of our indirect portfolio throughout the credit crisis, charge-offs were very well behaved and we are pleased with how the portfolio performed.
Hi, <UNK>.
The normal sequence, and I'm beginning to think that this actually might be changing.
But the normal sequence would be fourth quarter is best for loans and deposits and it's almost always by far the best.
Second quarter second-best, third quarter third-best and first quarter weakest.
So, four, two, three, one.
But I wonder if that trend is beginning to change and is beginning to even out.
We'll see after a few ---+ I guess another year passes, we'll see if that is true we get into first quarter 2017.
Because I say I wonder if the trend is changing because the summer quarter, right, third quarter last year was good, growth for loans and deposits.
I'm hoping it changes.
I would like very much to have a much steadier growth pattern.
We may be getting there.
I don't really think that has impacted anything from ---+ at least what we've seen from our perspective.
If you look at our deposits and what happens there, it's a function of many things, but I think primarily two.
One is that it comes from the growth in our commercial businesses.
Our customers, basically they have one bank so we have everything.
We're going to have all their deposit business so when we originate loans and new loans to clients and new loans with clients that are growing, that is going to have a positive results on deposit growth.
The other thing ---+ there are two other areas that are very, very important to us and one is just the plain retailing.
We've got 80 branches.
We've got a very heavy sales culture in our branches and they are very consistent with it and so the traditional retail business is growing a little bit.
And then the third one is our business banking and we like our model.
It's very branch centric and it's been very successful and again at very sales driven culture that emphasizes deposits.
That's through the way we incent our bankers et cetera from the deposit perspective.
I would say those are the factors.
I'm not certain of the other impact.
I'm just not sure.
Sure.
Hey, <UNK>.
Okay, so I'll start and if anybody wants to jump in and add more detail.
Breaking it apart, international banking provides international financial products to our middle market clients and that's just a very steady business.
People need foreign exchange services, trade letters of credit, things like that.
It kind of grows as our client base grows and as we further penetrate our client base.
Remember, that business started about six years ago, and six years sounds like a long time but there's still opportunities even after six years to add product to our current client base.
Capital markets, the majority of the revenue is on derivatives, which said another way is helping protect our clients from rising interest rates in the future.
So interest rate swaps, things like that.
There's a few other products in there too, but that's the majority of it.
Anybody want to add.
No, I think that's ---+ that covers it.
Interesting question.
I would think as people become more fearful about rising rates, particularly if they rise rapidly, which doesn't look like it's going to happen but if that would ever happen, you'd think people would want to buy, if you will, more insurance against raising rates to protect their investments or their property against raising rates.
I think that our capital markets business would do better in that environment.
I don't think people though at the moment are really worried about rapidly rising rates and so I think the level of activity is kind of normal, if you will, at this point.
I might add that our capital markets group does more than derivatives.
They also provide mergers and acquisition advisory services, which I think we've got a really good team there.
They provide real estate debt placement and capital raising services as well and that's pretty good.
Those businesses are growing, growing slowly.
I think the seeds are planted and they are going to do well.
They should contribute to revenue growth in the future.
There are some, but it's not what you might think of.
I mean, many of our clients that are impacted by what's going on in Springfield have traditionally had pretty strong balance sheets.
They've had a liquidity that's been on the balance sheet for some time and in many cases they have the ability to raise money from either boards or other constituencies that they've dealt with for a long time.
It's really primarily, at least from what I've seen and Mike <UNK>, you may have another thought on this, but it's primarily been impacting the social service agencies.
Those are ---+ that's the area where we've seen what little we've seen of problems but that clearly has been a problem.
Some have cut back services dramatically and some have had to shut down but that's typically how we've seen them care for the issue is kind of pass a hat, if you will, among their various constituencies to be able to keep their doors open for as many different ---+ to provide as many services as they possibly could.
Mike, I don't know if you have any color that.
I want to add one more thing.
<UNK> and Mike talked about social service agencies.
The other sector of the private companies that are ---+ have meaningful amounts of state revenue, particularly nursing homes.
The thing about our nursing home operators, I think people in the industry in Illinois, nursing home industry in Illinois, is they are used to these cycles.
There have been a number of times in the past when the state has been late in making payments, as late as eight, seven, eight, nine months in making payments so they've long maintained lines of credit and other means to fund that kind of late payment.
In other words, they're kind of used to it.
No, I don't have an update on that.
We're continuing to study the issue carefully.
We formed some time ago a technology committee of our Board of Directors because we thought it was so important.
That committee is getting around to doing its work.
Listen, if something material changes, I'll surely let you know.
But at the moment, it's business as usual.
You're asking in terms of expectations for mortgage profitability for the rest of the year.
I'll let Randy <UNK> answer that question because Randy's been very involved with mortgage.
<UNK>, it's <UNK>.
I'll just go back to comments we made a few minutes ago on the call.
As it relates to ---+ and I think I use this terminology maybe in the third quarter last year of our people, I think, are kind of hitting their stride.
They're getting comfortable with each other.
They know what we can do.
I think that makes them more efficient.
They're not running at opportunities that aren't going to come to fruition.
I think we're more consistently in the market and doing it with really a good number of people.
Plus the fact that at the end of the day, we've got a nice market share and we like it but it's not huge.
It's not like having a 30% market share in a market like this and so we feel there's continued room to expand.
I think it's kind of a combination of those things.
Thanks, <UNK>.
Okay, thanks everyone.
Thanks your attention, your participation today.
Your support is much appreciated and we'll talk to you again in around three months.
