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MB Financial (NASDAQ:MBFI)

Q1 2013 Earnings Call

April 23, 2013 11:30 am ET

Executives

Mitchell S. Feiger - Chief Executive Officer, President, Director and Member of Executive Committee

Jill E. York - Chief Financial Officer, Principal Accounting Officer, Vice President, Chief Financial Officer of MB Financial Bank NA, Executive Vice President of MB Financial Bank NA and Director of MB Financial Bank NA

Edward F. Milefchik - Executive Vice President of Commercial Banking - M B Financial Bank and Director of M B Financial Bank

Thomas Watts

Mark Alexander Heckler - Executive Vice President of Credit Management - M B Financial Bank and Director of the Bank - M B Financial Bank

Analysts

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Emlen B. Harmon - Jefferies & Company, Inc., Research Division

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Brian Joseph Martin - FIG Partners, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 MB Financial Earnings Conference Call. My name is Tihisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Mitchell Feiger, President and Chief Executive Officer; and Jill York, Chief Financial Officer of MB Financial, Inc. Also present are Mark Heckler, Executive Vice President, Wealth Management and Commercial Banking Services; Ed Milefchik, Executive Vice President, Commercial Banking; Brian Wildman, Executive Vice President, Risk Management; and Thomas Watts, Chief Credit Officer all of MB Financial Bank.

Before we begin, I need to remind you that during the course of this call, the company may make forward-looking statements about future events and future financial performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to numerous factors that could cause actual results to differ materially from those anticipated or projected. For a list of some of these factors, please see MB Financial's forward-looking statements disclosure in their 2013 first quarter earnings release.

You may now proceed.

Mitchell S. Feiger

Okay. Thank you. Good morning, and thank you for joining us again today. My report to you this morning may be a little shorter than normal because our first quarter of 2013 was a very clean one with few unusual items, so no explaining of the extraordinary. I'll start the discussion with a few comments, and then turn it over to Jill. We'll take your questions following Jill's remarks.

I'm very pleased to report to you that we continued our progression of increasing earnings. Net income was $24.9 million in the quarter or $0.46 per share. Earnings per share were 4.5% better than the prior quarter and almost 40% better than the same quarter a year earlier. Return on average assets was a strong 1.07% in the quarter.

There were many positives in the quarter. Let's start with fee revenues. On December 28, just before year end, we completed our acquisition of Celtic Leasing. So Celtic contributed a full quarter leasing revenues and Celtic had a very good first quarter, with sales systems leasing our longtime leasing subsidiary had a strong quarter, continuing its excellent performance. While it may seem that our leasing business can produce ever higher and more steady earnings, I caution you that the leasing business can and will have some volatility in revenue and earnings. We've been fortunate over the last several years to have LaSalle do so well. I hope it continues and we're working to make it continue, but there are no guarantees. If you're forecasting future lease revenues for our company, you'll be well served to base your forecast on the trailing 12 months of revenue or at least tempering your forecast for uneven performance. In the quarter, leasing revenues increased by $3.8 million, with Celtic contributing $6 million of revenue.

Our other fee businesses pretty much performed as expected. Please remember that we have several fee businesses, product lines and products that are still in their infancy and are not yet contributing meaningfully to earnings. These include capital markets, foreign exchange services and various debit and credit card products. We expect each of those businesses to contribute more meaningfully to earnings in the future. Asset quality was good in the quarter, nonperforming assets decreased by $8.6 million or 5.5% and credit costs were very low, essentially 0, including OREO gains and losses. Loan flows to nonperforming status were very low, somewhat below perhaps what we would expect in the future. Also good were net interest margin performance and expense control, and I'll let Jill tell you about those.

With regard to loan growth, you may remember that we indicated at the start of the quarter that we expected $40 million to $60 million of seasonal year-end loans to pay down in the quarter. That happened. Considering the seasonal headwind and considering first quarters are normally softer for loan growth, I think we did a good job generating commercial, lease and indirect consumer loans. Nevertheless, we still need to demonstrate better overall loan growth, which, I think, subject to the next topic, we will produce as the year progresses. Our loan pipeline is currently better than in the first quarter, and there should be no seasonal impact in the second quarter. In most years, as the year progresses, we generate more loans, and it looks like that's happening this year as well.

That next topic I spoke about -- mentioned is competition for loans. Competition for loans is intense, commercial loan structure has weakened and pricing is regularly below what's needed to earn an appropriate return on capital. If current conditions continue, which I think they will, and especially, if conditions worsen, loan production in our company may be less than we would like.

Lastly, you may have noticed in the operator's introduction to our call this morning that Brian Wildman is a new participant. Until a couple of days ago, Brian ran our Wealth Management and Commercial Banking Services business. Brian has changed jobs and is now head of Risk Management in our company. Mark Heckler, a longtime participant in our calls, was head of Risk Management until a couple of days ago, and now runs our Wealth Management and Commercial Banking Services business. In essence, Brian and Mark switched jobs. So in future calls and visits, you'll be hearing from Brian about risk management and from Mark about wealth and commercial services.

Okay, Jill?

Jill E. York

Thanks, Mitch, and good morning, everyone. As Mitch noted, we're off to a good start in 2013, with $24.9 million in earnings for the first quarter or $0.46 per fully diluted share. Our earnings for the quarter were highlighted by strong fee income and good lease loan growth, along with a stable net interest margin and low credit cost. We continue to see strong revenue growth from our key fee initiatives, which were up 8% compared to the fourth quarter and 53% compared to the first quarter a year ago. Leasing revenues were up 31% in the linked-quarter basis, largely driven by our Celtic leasing acquisition, which added $6 million in fee revenue in the first quarter, as well as continued very good performance from our LaSalle leasing subsidiary. We are making good progress with all of our other key fee initiatives.

I was pleased to see our margin stabilize this quarter as we put to work some of the excess liquidity that we have been holding in the balance sheet. While our margin increased by 2 basis points, we did experience a $1.6 million decline in net interest income as they were 2 less days in the first quarter compared to the fourth quarter. This accounts for all the decline.

Our cost of funds improved to 38 basis points this quarter compared to 40 basis points last quarter. Our cost of fund will continue to decline as CDs reprice. In the second quarter, we have approximately $475 million in maturing CDs, with the potential repricing benefit of around 65 basis points. In the third quarter, we have approximately $365 million in maturing CDs, with the potential repricing benefit of around 75 basis points. Next quarter, I'm expecting the margin to be stable compared to the first quarter, provided that we can continue to successfully deploy our excess cash flow into loans. That being said, our net interest margin is impacted by a number of factors, most notably, credit spreads and loans, LIBOR rates and mortgage-backed security prepayments. And in the current environment, these can be unpredictable.

On the expense side, I feel like expenses were well controlled in the quarter. On a linked-quarter basis, core expenses were up $1 million, even though the Celtic transaction added $3.1 million to our quarterly expense base. Compared to the first quarter a year ago, core expenses were up by $3.8 million, again, this is a modest increase considering the impact of Celtic.

All right. At this point, I'll turn the call back over to Mitch.

Mitchell S. Feiger

Okay. Thanks, Jill. Operator, we're ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Steven Alexopoulos from JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

I wanted to start and try to understand this volatility in the lease line a bit. It would probably help, Jill, if you had available, what were Celtic's revenues in the fourth quarter compared to the first quarter, even though I understand they weren't with you for the first quarter -- fourth quarter?

Jill E. York

Right. They weren't with us. We also had purchase accounting, which impacted revenues in the first quarter compared to their stand-alone fourth quarter financials. But I can tell you that, if you were to ignore the purchase accounting, their revenues were up in the first quarter relative to the fourth quarter. I don't have though the exact numbers for the fourth quarter at my fingertips.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And then Mitch, you've cautioned us not to read too much into the jump in fee revenues given the volatility and you pointed to the trailing 4 quarters, which implies, I don't know, $4 million or $5 million reduction in terms of where we were this quarter. Where the business stands today in aggregate? Can you talk about the unique drivers that are going to cause volatility quarter-to-quarter, and what we should be thinking about?

Mitchell S. Feiger

Okay, yes. Happy to. First, when you're looking at considering the trailing 12 quarters, you're going to have to add back Celtic, I think, over that period of time, obviously, right? Because we have them going forward, and for 3 of the 4 trailing quarters, they weren't there, so that may adjust your numbers some on the trailing 12 quarters. Leasing profits for us are driven by several things. Jill, jump in here to add to this. To me, the most volatile elements revolve around realization on residuals and contract maintenance revenues, which can come in large chunks, particularly the contract maintenance revenues. So with regard to residual realization, the way we run the business, we've been very fortunate that residual realizations have been, I think, pretty steady over the years. We're quite conservative, I think, in the way we think about residuals. I think that our business model hasn't changed, except with the addition of Celtic recently. But our business model at LaSalle has been pretty constant, the kinds of equipments -- kinds of equipment we lease, the kinds of lessees that we look for. But you book a lease today, and you don't know for 3 or 4 years if that thing's actually going to produce any profit. So by its very nature, there's uncertainty in it. I think that lease residual realization can be impacted not only by what's happening in the individual lessee, but also what's happening in the economy and the marketplace, say, for an equipment -- for a particular equipment type or if the economy is soft and demand for equipment increases or decreases, I don't think in that regard we're any different from any other company that leases equipment to major, major companies. Our contract maintenance business, right, that's a business where we broker equipment maintenance contracts for very large companies. And sometimes those transactions can be large. And if a large one comes through, we see a pretty big -- pretty good increase in leasing revenues and then we have a quarter or 2 without a couple of large ones or maybe less. So it's very difficult to predict when those will hit. Do you want to add anything?

Jill E. York

So I was just going to add, so what we disclosed in the release was Celtic accounted for $6 million in revenues. So if you back that out of the lease line item, then LaSalle's revenues would have been about $10.3 million, which was below where they were in the fourth quarter, because in the fourth quarter, they had a large equipment maintenance contract that they had brokered. So you will see some volatility, and that's why we don't want you to get too excited about a large increase. Although in this case, in the first quarter, we did have that large increase that's coming from Celtic. And I would expect that Celtic's going to continue to perform well in the future, although, again, theirs may vary some from quarter-to-quarter.

Mitchell S. Feiger

Right. One other thing is a backdrop to the entire discussion, I think, is that, particularly -- well, for both companies. But especially, LaSalle, I mean, revenues have been growing. If you look back over many years, I think growing at a very healthy clip. The business is expanding. We are adding resources at a pretty rapid rate, and over time, we do expect revenues to increase in that business. It's just the rate of increase can be unpredictable could go plus 20% one quarter, down 10% the next quarter, plus 30%, minus 15% and I just want people to be prepared for that. It's a great business.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

That commentary helps then. Thanks for clarifying that we should add back Celtic for the prior quarters. Mitch, just one question on the loan side. A lot of banks around the Chicago area talking about real intense competition on the price side, to the point where some banks are starting to walk away from opportunities, and you're telling us that you expect, it sounds like some net loan growth through the year. Can you reconcile those 2 for us?

Mitchell S. Feiger

Well, we're working hard. It's hard to reconcile them. We're working very hard on the loan side. Our people are making more calls than ever, I think. The pipeline looks pretty good right now in the second quarter. I'll turn over to Ed. You can make a comment on the pipeline in a second. So from that regard, we feel quite, I think, quite positive about loan growth. The other thing that makes me feel positive about loan growth is, while loans didn't change very much in the first quarter, it's probably the best first quarter we've had in 3 or 4 years. And normally, for us, things improved after the first quarter, loan growth side, I feel pretty good about that. Loan pricing in particular in the market, especially for top-tier high-quality credit just come way in. And as you may remember, we make our pricing decisions based on a capital risk model and a rate of return on capital at risk. And we've steadily seen those returns get lower and lower, and now we're seeing more and more transactions that are underneath our hurdle rates, which means we won't do them, or generally, we won't do them unless we can see a way to turn that below hurdle rate return into a higher -- above hurdle rate return in a pretty short period of time. So we're seeing more and more things like that in a market, and that makes me believe market pricing is too tight. But go ahead, Ed.

Edward F. Milefchik

I would really -- this is Ed Milefchik, and I would echo Mitch's comments. Given the heightened level of competition that we've seen, and this has been going on now for the better part of 2, 2.5 years now, but just continues to increase, what we're trying to do, our strategy really is to maintain an extremely high level of calling, our bankers are out on the street more now than they ever have been and really, we realized that we've got to be more selective, because to Mitch's point, when we're looking at deals, you're seeing loosening of credit structure, you're seeing lowering of pricing, and at the end of the day, we still need to be able to make money on the transactions that we're entering into because we're looking at long-term relationship, not just short-term transactions. So we're really not looking just to grow market share. And it's becoming more and more challenging. And so in this type of environment, you have to look at a lot of transactions to be -- to pick the ones that you want. We're finding many situations quite frankly, and Mitch mentioned the high-quality transactions, I would actually say it has leaked down to, what I would call, the mediocre transactions, where you're finding anywhere from 5 to 10 banks bidding on any 1 deal. And I would say in that instance, everybody loses, except potentially the company that's out there. But there is a heightened level of competition as people are trying to gain market share here in Chicago.

Mitchell S. Feiger

Yes. So the good thing here is that we thought this would happen as long as, perhaps, 3 years ago, certainly 2 years ago, we expected loan pricing and loan competition to be so intense that generating acceptable return high-quality loans would be very, very, very difficult. Which is why we've been investing so heavily in our fee businesses and why we think it's so critical that we, well, I supposed at any bank, but really, our bank is the one I care about, can drive a significant amount of its earnings from non-margin-related business. Our fee revenue in the first quarter was right around 35%. Total revenues in the fourth quarter was just a hair under, I think, 35% as well. I love where that is. Frankly, we're ahead -- on that percentage, we're ahead now of where I thought we would be at this time, and I'm hopeful that we can drive that percentage over time higher, quite a bit higher. And if the current market conditions and lending remain the way they are or, let's say, even turn worse, in 2014 and 2015, I think banks that have true meaningful fee businesses, and I would argue not mortgage-related revenues, but true continuing fee revenues at a high percentage total revenues are going to be much, much better off, and that's what we're headed.

Operator

Your next question comes from the line of Brad Milsaps from Sandler O'Neill.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Jill, just maybe a little bit color on the operating expense line item. Even with Celtic -- excluding Celtic, you guys would have been down looks like on a linked-quarter basis. I know there were some noise related to maybe some of the FDIC-assisted loans. But just kind of curious on run rate going forward and kind of other things you may have done in the expense line item to kind of keep those flat year-over-year and then certainly down versus the fourth quarter?

Jill E. York

Right. We're certainly getting a little bit of lift here from lower loan and OREO workout cost, and that was a big drag on expenses. I mean, just if you compare, for example, the other real estate expenses net, those are down over $1 million from the first quarter a year ago. And those have nothing to do with impairments. That's just the operating cost associated with OREO properties. So that's given us a lift. We're doing a little better on the professional legal expense side again because we have fewer loans in workout. So I think that -- we thought it would come and it's taken a while, but we're finally seeing some reduced expenses there. So I think the run rate right now is pretty indicative of where we're going to be going forward. We did have one unusual item and other expenses related to the clawback liability to the FDIC we fine-tuned our calculations a little bit. And we said, given -- we're making a little bit better progress than we initially anticipated, so the servicing aspect of the calculation, the servicing income aspect of the calculation came down a bit, and that's what created a higher clawback liability.

Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division

Okay, okay. And then, Mitch, just back to loan growth. I was curious if you or one of the guys there could maybe give us an example of some of the weaker structures you're seeing in Chicago? Is it more LTV, covenants, et cetera? And then maybe a bigger picture question. As your capital continues to build throughout the year, just any updated thoughts there on how you plan to lever that if, in fact, the loan growth -- the loan demand environment sort of plays out as you expect with you maybe -- it not being to your liking in terms of being able to get the profitability you want?

Mitchell S. Feiger

Okay. Good questions. Let's take the loan structure question first. Who wants to...

Thomas Watts

This is Tom Watts. I'd say we have seen some pressure on structures as far as loan to values, and on the leverage side, loan multiples. We have some clients that we've decided to pass on, some we've kept because the market -- the ones we've lost, the market has pushed them to levels that we kind of had a problem with. We're starting to see some covenant-wide transactions, some non-covenant transactions, guarantees are under pressure. And I think we've done a fairly good job given the circumstances keeping those spreads that we'd like under our terms, and in some cases, we haven't kept them.

Mitchell S. Feiger

That's pretty much across the board.

Thomas Watts

Yes.

Mitchell S. Feiger

With regard to capital, obviously, our capital continues to grow, and our capital ratios were up by a meaningful amount, I suppose, this quarter. And we're generating more capital, no doubt, than we can use organically growing risk assets at the moment, and I think that that's true. But we think that, over time, there's going to be at least -- right now, we think, over time, there's going to be good opportunities, perhaps Celtic-like opportunities to deploy our capital in a manner that generates really, really healthy returns. At some point, if we can't use it, we'll find a way to give it back, I think. It's a regular discussion at our board meeting. Our directors are very attuned to capital levels and capital usage -- appropriate capital usage and appropriate returns on capital is how we drive this company. So I really can't say any more than that about it. That's the whole story.

Operator

Your next question comes from the line of Chris McGratty from KBW.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Following up on the capital question. Is there a preference at this point, given your comments on both season and loan growth to deploy capital towards to your fee businesses as opposed to a depository acquisition?

Mitchell S. Feiger

Okay. All right, excellent question. So obviously, buying a depository institution is -- all other things being equal, buying a depository institution could use a lot more capital than buying a fee business. I mean, just consider the capital used in our Celtic transaction and the amount of profit that, that generates versus taking that same amount of capital and putting into a depository institution, just simply the returns on a healthy fee business are way better. And that said, let's talk about M&A for a second. I didn't put in my prepared remarks, but I'm sure somebody is going to ask, so I'll answer before you ask. What we're seeing mostly in the M&A market and M&A opportunities is pretty darn bad. The quality of institutions that are coming to market and that we're seeing are poor. The deposit bases are generally weak, either because the deposit mixes are poor or the offices that they have are very small, meaning the overhead costs are high relative to the deposit values. And the asset side, by and large, is just very weak, and it consists generally of the kinds of things that banks like ours have been shedding over the last 5 years. So we found M&A pretty darn tough, particularly on assisted M&A, and there's very few assisted, very few assisted transactions anymore. So that's what we're seeing in bank M&A lend -- now that's not to say there aren't some companies out there that we would be very, very interested, and there are. It's just that they're very few, and they almost never come to market. If they did come to market or we did have an opportunity for a company that had attributes that we like, we would be aggressive in trying to bring it into the MB family. We think we're good at that. We are good at that, and we think we can make it work. So if I had to handicap the likelihood of capital deployment at the moment, I would handicap it more on the fee business side than on the depository side.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And I think you mentioned in the past, you talked about your ability to do an MOE. You've done a couple in your past. Has anything changed here?

Mitchell S. Feiger

No. We're very open-minded about things in general, and that would be one of them.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. Last question. On the reserve, I think you're one of the few in Chicago with reserves still north of 2. Can you help us, given the credit stats look pretty good, about the pace at which we should see some reserve bleed?

Jill E. York

I think we'll continue to see the reserve come down as our nonperforming loans and potential problem loans decline. It's just the way the calculation works. So I think you'll continue to see that drift down. And over time, maybe it settles in around 1.5%, 1.6%.

Operator

Your next question comes from the line of Emlen Harmon from Jefferies.

Emlen B. Harmon - Jefferies & Company, Inc., Research Division

Just if I could speak to loan growth. Are there any -- as you think about getting back to growth in the remainder of the year, are there any particular categories where you're expecting strength? And I guess, specifically, I'd be kind of interested to hear your comments on the commercial real estate book. That has been shrinking for a while. Look like the pace was falling a little bit in the fourth quarter and picked up again this quarter maybe because of seasonality. But I'd just kind of be interested to hear if you're thinking you're getting close to bottom there as well?

Edward F. Milefchik

Yes. This is Ed Milefchik. Let's say, specifically, on the CRE book, I would say my feelings are, that yes, I think, we're pretty close to or at the bottom of where I would expect CRE to be. I would actually roll that into construction lines of credit as well. We've had a few opportunities that we've booked over the past probably 60 days to 90 days, of which the commitments are sitting out there and we'll start to fund throughout the year while they are not large. But I would expect to see that line of business flat and potentially grow throughout the year. So we continue to seek opportunities within the portfolio with which we can remix. And again, exiting, I guess, clients that we just don't really fit our current strategy, but we're primarily through that, that whole process and are just continuing to look for new opportunities, and we are selectively bringing on new opportunities that we see. With regards to other areas that we're seeing growth in, I mean, it's just the general economy, it's just the general C&I world that we're looking at right now. I would say that the unfortunate part is that there's very little organic growth right now in the market. We're seeing some of our clients being active. But most of it, when you see people gaining market share or gaining loan growth is because they're stealing market share. There's really not a catalyst in the market right now from an economic perspective that's driving loan growth. So I would expect to see our loans going up. It's just more from a greater level of activity within our core, looking at more opportunities.

Emlen B. Harmon - Jefferies & Company, Inc., Research Division

Okay, great. And then last question for me. Just on the OREO losses, you guys are getting pretty close to the point where those are no longer a drag on earnings. Do you feel like the OREO book is pretty much at a point where we see that no longer generating expense, or even potentially starting to generate some recoveries going forward?

Mark Alexander Heckler

This is Mark Heckler. In the REO book, I think we've seen some stabilization in that book. There are -- things get remarked on at least on an annual basis. Whenever we get relevant information on a particular transaction in the market that may effect our REO holding. I will tell you that still a large part of the book is land, commercial land, and that seems to have stabilized in certain areas. And so we're -- we hope that we're kind of bouncing along the bottom on there. There are certain other asset classes, multifamily, for example, or even single-family that tends to move rather quickly. And certainly, I think, the land, as I said earlier, is stabilizing or even in certain locations seeing an uptick there as well. So our strategy is always to do what's economically advantageous to us, and I think we'll continue to pursue that. So total OREO is in 30s...

Jill E. York

$31 million.

Mark Alexander Heckler

$31 million. And what percent is land now? So $18-ish million of land. I mean, the whole thing is getting pretty small, and we're going to have -- or even in the best of times, we're going to have some level of OREO, so we're kind of homing in I think on what the future run rate amount of OREO is. I don't know what that is. It's maybe half of where we're at or 1/3, but we're not far from it, which means that the marks -- risks and the marks, if you will, are less -- way less than they used to be.

Operator

Your next question comes from the line of Mac Hodgson from SunTrust Robinson Humphrey.

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Just a couple of questions. On the expense side, it may be in the release, I might have just missed it. Jill, how much was the increase in the clawback liability related to the last year agreement?

Jill E. York

It was roughly $650,000.

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Got you. Okay. In your comments earlier, I think about this being a relatively good expense run rate. I guess it's a small amount, but I'm assuming that's exclusive of that adjustment?

Jill E. York

Correct, correct.

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then on the net interest margin, great result this quarter and really kind of the near-term outlook as well relative to what we're seeing across the industry. How should we think about the margin as the year progresses? I know you gave us detail on CDs repricing this quarter or the next. Would you expect to start seeing pressure in the back half of the year? How do you look -- if we look out a little bit, how you think the margin will trend?

Jill E. York

There are so many assumptions that go into our margin forecast. It's very difficult in this environment to predict, especially with competition being very intense on the commercial loan side. But if we can grow our loans even a little bit, I think we'll do a pretty good job defending the margin. But even things like, let's say, rates stay very well and mortgage-backed security prepayments tick up again, that could certainly have an impact on the margin.

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Got you. Okay. And then just on the fee income side. Mitch, you mentioned a couple of products that are still in their infancy, one of which is capital markets. Just remind us what drives that revenues. Is it mainly swap income?

Mitchell S. Feiger

Yes, right now, it's mostly derivative income, which consists of swaps. But we also have in there debt placement, M&A activity, syndications, all of which should be growing as the year progresses.

Operator

Your next question comes from the line of Brian Martin from FIG Partners.

Brian Joseph Martin - FIG Partners, LLC, Research Division

Just back to leasing for just 1 minute, and that was Mitch, I guess. I know you talked about looking at the trailing 4 quarters, but how would you characterize this quarter as far as -- was it kind of a normal quarter? Was it particularly strong? I guess where does it stack up?

Jill E. York

Well, I would say for Celtic, our view is a pretty normal quarter. And I would say, LaSalle just maybe a little better than normal, but not extraordinary, but I would say a little better than normal.

Brian Joseph Martin - FIG Partners, LLC, Research Division

Okay. All right. And then maybe same question on Mac's question on the capital markets. Jill, I mean, is that a -- do we expect -- do we just kind of look at a trailing quarter? Or, I mean, there was reasonably large drop linked-quarter in that line item. I guess just best to think about that on an annual basis, or was there something unusual in this quarter in that line item?

Jill E. York

It's kind of interesting if you compare it to the first quarter a year ago, it was actually up quite a bit. This quarter, the revenues consisted mainly of swap revenues. In the fourth quarter, we had an M&A assignment to close, so we had a boost there, and syndications and debt placements were also a little higher than -- they had a very good quarter last quarter from the debt placements and syndications realm. So I would expect this to grow meaningfully as the year goes on.

Brian Joseph Martin - FIG Partners, LLC, Research Division

Okay. So on a full year basis. So when you look at '12 versus '13, it's up?

Jill E. York

Oh yes.

Brian Joseph Martin - FIG Partners, LLC, Research Division

Okay. All right. And then just last. With maybe loans not being -- potentially not being as strong as you guys would think, I mean, are you still comfortable that you can grow top line revenue in the remaining quarters of the year?

Jill E. York

I am.

Mitchell S. Feiger

Yes.

Operator

Ladies and gentleman, that concludes the Q&A portion of the conference. I would now like to turn the conference back over to Mr. Mitchell Feiger for any closing remarks.

Mitchell S. Feiger

Okay, terrific. Thank you for joining us again this quarter, and we look to talking to you again in about 3 months.

Operator

Ladies and gentleman, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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