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MB Financial (NASDAQ:MBFI)

Q3 2013 Earnings Call

October 18, 2013 10:00 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

Thomas Watts

Brian J. Wildman - Executive Vice President of Risk Management

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

Analysts

Stephen G. Geyen - D.A. Davidson & Co., Research Division

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

Jonathan Dane - Jefferies LLC, Research Division

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

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2013 MB Financial Earnings Conference Call. My name is Alex and I will be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would like to introduce Mitchell Feiger, President and Chief Executive Officer; and Jill York, Chief Financial Officer of MB Financial. Also present are Mark Heckler, Executive Vice President, Wealth Management and Commercial 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 the future events and future financial performance. You should not take undue reliance of any forward-looking statements which speak only as of the date made. These statements are subject to innumerous 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 third quarter earnings release.

And now I'd like to hand the call over to Mitchell Feiger. Please go ahead, sir.

Mitchell S. Feiger

Thank you, Alex. Good morning, everyone, and thank you for joining us today. I'll begin our call this morning by offering my thoughts about our third quarter performance, Jill will then fill in some of the missing details and finally, we'll take your questions and try to answer them to the best of our ability. I know that many of you are very busy with earnings reports this week, so we'll try to be brief. I encourage you to ask for further information. If there's something you'd like to know that we haven't included in our prepared remarks, we're really keenly interested in providing the information that you need to understand our company.

I thought our third quarter performance was good -- was a good one in most regards and had some similarities to third quarters of the last 3 or 4 years. In reviewing numbers for our call this morning, I was struck by how much our performance has improved over the same period a year earlier and especially 2 years earlier. In the quarter, we earned $24.4 million or $0.44 per share, compared to $25.3 million or $0.46 per share in the last quarter and $23.1 million or $0.42 per share in the third quarter of 2012. Our return on average assets was 1.05%, which is quite good, I think, for a Chicago bank.

Our return on average tangible equity was 11.74%, which I also think is very good considering our tangible equity ratio is almost 10% now. Year-to-date net income available to common shareholders increased 18.2% over the same period last year to 40 -- to $74.6 million, and earnings per share increased 17.2% to $1.36. So pretty good.

Asset quality performed well by all measures. Nonperforming loans and nonperforming assets declined by 9.6% each. Potential problem loans declined by 26.8%, net charge-offs annualized was 18 basis points. So that combination of events allowed us to realize negative credit costs in the quarter. We define credit costs as provision for loan losses plus OREO losses. Now we're trying very carefully to manage credit, especially in this aggressive credit market and more on that later, and we're trying to maintain healthy reserves for future credit losses.

Our net interest margin expanded in the quarter. I like that. It demonstrates our almost fanatical commitment to earning appropriate returns on our business and our customer relationships. As a result of increased margin, net interest income grew in the quarter. It seems to be a third quarter pattern for us, loans, excluding covered loans, were flat in the quarter as were low cost deposits.

By the way, you shouldn't confuse flat loan growth with flat customer growth. In third quarter and each prior quarter for many years, we've been successfully adding new middle-market commercial clients. Sometimes those clients borrow money and it shows in loan growth and sometimes they don't. We're intensely focused on building our commercial banking business around high-quality middle-market customers, and some borrow and some don't.

Focusing on year-over-year loan growth. Loans excluding covered loans grew 3.6%, and I guess low cost deposits as well, they grew 5.4%. Reasonably good performance given the credit deposit base profile we're seeking.

Fees were down from last quarter, but as we've discussed in prior calls, leasing revenues can vary quite a bit from one quarter to the next. We encourage you to judge performance and make forecasts for lease revenue based on at least the trailing 12-month period. I was particularly pleased with growth in commercial deposit and treasury management fees. This, too, is an important key fee initiative for us, and we struggled in the past to grow it as lower quality customers left the bank.

Looking forward, the fourth quarter tends to be our best quarter for loan and deposit growth. And while it's certainly hard to know, we have no reason to think that this year will be different. Our new loan pipeline has improved compared to a few months ago. In addition, we have a few significant customers that traditionally have higher fourth quarter seasonal borrowing needs.

While we're cautiously optimistic about loan growth in the fourth quarter, I'm concerned about the state of the middle -- of the market for middle-market commercial loans. The Chicago market is hypercompetitive with tremendous pricing pressure and a steady decline in credit structure.

Fortunately for us, we expected this to happen. Several years ago, we redirected core parts of our strategy to build important, new and existing fee businesses based upon the premise that capital returns on lending were ultimately going to decline and the returns on fee businesses would improve relative to those earned on lending. This is proving to be true. Furthermore, I expect middle-market loan pricing to continue to worsen and structure to continue to weaken as long as interest rates remain low. And I find it quite puzzling that so many companies in our industry are growing loans at double-digit rates, while the economy is producing little loan growth.

All right, Jill, will you please go through the financial particulars?

Jill E. York

Thanks, Mitch, and good morning, everyone. I'm pleased with our quarterly results. As Mitch noted, net income totaled $24.4 million or $0.44 per share in a fully diluted basis. Return on assets for the quarter was a healthy 1.05%, consistent with prior quarters this year. Included in our results this quarter were $1.8 million of merger costs related to our pending Taylor transaction, consisting mainly of investment banker and attorneys' fees. After-tax fees cost impacted our earnings by about $0.02 per share.

Our results for the quarter were highlighted by net interest margin and net interest income expansion and low credit cost, while our fee income remained at robust levels and comprised about 34% of our total revenues. Our net interest margin expanded by 5 basis points compared to last quarter, as our securities portfolio benefited from the steeper yield curve, and yields improved by 14 basis points. Covered loan yields also improved and our funding cost improved by 4 basis points to 30 basis points.

Net interest income increased by $1.7 million compared to last quarter, primarily due to the net interest margin improvement, as well as one extra day in the quarter. Credit costs remained low. In fact, our provision for loan losses was a negative $3.3 million due to significant improvement in our credit metrics. Nonperforming loans, potential problem loans and Special Mention loans all improved. In addition, the quality of our acquired asset pools improved and accounted for about $1.5 million of the negative provision for the quarter. Total credit cost for the quarter, including OREO impairments, as well as the provision were a negative $2.5 million and were about $1 million better than last quarter.

We continued to see strong revenue growth compared to a year ago from our key fee initiatives, and these were up about 22% compared to the third quarter a year ago. This increase was driven by our Celtic Leasing acquisition, as well as meaningful revenue increases in commercial deposits and treasury management fees, wealth management fees and card fees. On a linked-quarter basis, key fee initiatives were down a bit, primarily due to the lumpiness in our leasing revenue stream. I'm happy with the progress we are making with all of our key fee initiatives.

From an expense standpoint, I felt these were well-controlled. Absent the merger-related expenses, total expenses were up approximately $1 million on a linked-quarter basis due to the extra day in the quarter, as well as investments we're making in technology and other infrastructure improvements to support a larger company and continued investments and product enhancements for our customers.

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

Mitchell S. Feiger

Okay. Thanks, Jill. Finally, a quick update on our merger with Taylor Capital. All is progressing as planned and as expected. No negative surprises. We have filed the required regulatory applications with the OCC and the Federal Reserve. We've named our senior leadership team and are working to build out the rest of our staffing structure. Our integration and systems conversion teams are in place and fully functional. We still expect to close the transaction during the first half of 2014, but I'm hopeful that we can close in the first half of the first half of 2014, and we're working hard to make that happen. But at this point, that's only a hope. So all is expected on the merger front.

Okay. At this time, we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Stephen Geyen.

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Maybe first off, as you're aware, Taylor Capital has some pretty good commercial loan growth this quarter. Maybe I think it would be helpful if you could kind of compare the business lines of Taylor Capital versus yours, and maybe customer basis and where the growth is coming from? Where they're seeing good loan growth at decent spreads?

Mitchell S. Feiger

Okay. Well, maybe I can queue up the business line part, and if anybody in the room here has -- can add to the source of loan growth, that would be helpful. But just to refresh all -- everybody's memory. So the place we line up well with Taylor is in our middle-market commercial banking business, right? We're both long-tenured, middle-market commercial banks here in Chicago. What Taylor has different than MB is a significant asset base, lending business and then their mortgage business. So I don't know. Does anybody have a comment on growth sources for Taylor?

Thomas Watts

This is Tom Watts. I'd say, Mitch is correct. They've had a lot of growth in asset base portfolio, and a good amount of that growth has been outside the Chicago area, as they have offices nationwide.

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Okay, that's helpful. And maybe a quick question on lease, just curious if Celtic lease the addition late last year? Has added some seasonality to it? I realized that there is uncertainty as far as timing of when revenue might be realized. But is there some additional seasonality with Celtic?

Jill E. York

No. If anything, I think Celtic has made the business less volatile in terms of fluctuations from quarter-to-quarter. I think there's one piece of LaSalle's business that tends to fluctuate more, and that would be they sell equipment maintenance contracts. And I think that can be a little lumpy from quarter-to-quarter.

Stephen G. Geyen - D.A. Davidson & Co., Research Division

Okay. And Jill, if you could provide a little bit of color on the margin, kind of what you're expecting? We saw C&I down a little bit, a little bit hope on cost of funds. Commercial real estate, a little bit improvement there. Just curious about that maybe a little bit more specifically kind of it was like a mix change or if you saw some growth that was a little bit higher yield than what was run-off? Or...

Jill E. York

In terms of the margin, sometimes we can have loans that come back on accrual status and that can create a little bit of fluctuation in some of those commercial categories. I think that may have been what happened on the CRE side. I think probably more meaningful is the change in yield on covered loans that went up a fair amount in the quarter. And what we're finding is, the pool that we have are starting to perform a little better than our expectations, so that's a really good thing. I think our team on the acquired asset side is doing a real nice job of working those credits out. And as cash flows in the pools have increased a little bit, that in turn has improved the yield on the covered loans.

Operator

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

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

Jill or Mitch, you raised the dividend in the quarter. You've got, obviously, very strong capital ratios. Can you talk about -- I think in the past, you talked about looking at more leasing deals. Can you talk about whether that is -- you're having conversations about potentially bolting-on another Celtic type of deal? And how are you thinking about excess capital?

Mitchell S. Feiger

Well, okay. First, a general comment. I mean, we're not -- we wouldn't comment on pending discussions with others. We love the leasing business, we like to see it expand and we're thrilled with our Celtic acquisition. It's working extremely well. So is it possible at some point in the future we would look to acquire another leasing company like Celtic or like LaSalle or like what we're doing in the bank? Yes, I think that's entirely possible. Chris, what was the second part of your question?

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

Just how are you measuring excess capital? I guess what capital ratio you're most squarely focused on? And is it tangible common, is it Tier 1 common pro forma for Taylor?

Mitchell S. Feiger

I think it's all of those. Me, I'm keenly focused on our tangible common equity ratio and our total capital. Me, I think about common shareholders. I think there's the regulatory ratios which are, obviously, critically important. And then there is the real capital required to run our company, which we think about a lot, which can be different from what regulators require. I suppose it could be higher or lower. Now keep in mind, I mean, our tangible common -- our tangible equity ratio and tangible common equity is the same thing in our case now, it's pushing 10%. But we're going to use $120 million -- something between $125 million and $130 million of that when we close our Taylor acquisition in cash. So that's going to take our ratios down a bit. Put them more in a normal range. I think it's at the higher end of the normal range, but it's probably in a range that's more comfortable and more where we would like to be.

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

Okay. And just a quick question on the mortgage company, obviously, the option with Taylor to sell it, can you give us an update -- I saw the S-4 you filed earlier this week. Can you give us an update on when we might see any kind of disclosure there? And then obviously, mortgage banking has been pretty weak for the banks this quarter. Is there a -- how are you thinking about that $57 million gain number you talked about with the deal? How hard of a number is that? Or could you potentially just offload it at a lower price, I guess the likelihood of that?

Mitchell S. Feiger

Well, so yes, the $50 million -- $57 million number is really -- is simply a part of our agreement with Taylor's shareholders that any proceeds -- if the company is sold right, if Cole Taylor mortgage is sold, any proceeds above $57 million would flow to them. That's not a number that we're geared to one way or the other. I think Taylor -- within their rights, Taylor continues to market the business for sale. When that will come to a conclusion, one way or the other, it's hard to know. So I think that just continues to proceed. Now I have to remind everybody that we still consider it unlikely that Taylor's shareholders will see any additional proceeds from the sale of Cole Taylor mortgage. In other words, its unlikely, if we sell it, that there would be a yield of over $57 million after-tax, okay? Just to keep everybody's expectations set correctly.

Operator

Our next question comes from Emlen Harmon from Jefferies.

Jonathan Dane - Jefferies LLC, Research Division

This is actually Jonathan for Emlen. I was wondering if you guys just talk maybe a little more about credit and the provision going forward. I know it's been running pretty low lately, and given this quarter, it was negative. Where should we be thinking about it in terms of a normalized level?

Mitchell S. Feiger

For credit provisioning?

Jonathan Dane - Jefferies LLC, Research Division

Yes.

Jill E. York

Right. I mean, we do a bottoms up approach, and it's really dependent on what we see in the way of really credit trends. So for example, if we continue to see nonperformers and potential problem loans and Special Mention loans improve, chances are, you're going to see a very low provision. At some point, that will end because at some point, you'll reach a level that's so low, you can't improve further. But I -- that's just how we build it. And the other thing that impacts it is loan growth. And when we book a loan, it's also set up so that we would record, in effect, a provision related to that loan when I think about the overall methodology.

Mitchell S. Feiger

So let me -- I want to add on to that just a little bit. So what Jill said is exactly right. I guess the way think about it, and maybe this is where you're going a little bit, is way out in the future when our loan loss reserve is kind of loan -- credit quality, nonperforming loans, nonperforming assets have normalized, let's say, credit quality is normalized and our loan loss reserve then is set at the appropriate level, at that point, what kind of provisioning would we see? And the way I think about that is pretty simple. I just think about, we have a $5-plus billion loan portfolio today. What would charge-off rates be on that? You can pick a number what you think is the right number, and then add a little bit to Jill's point for provisioning related to loan growth, and that's how I think about the long-term run rate.

Jonathan Dane - Jefferies LLC, Research Division

Okay, that's helpful. And then, just to follow up on the leasing business a little bit, you guys said you'd like to see it expand. But given that it's now about 13% of revenues, how big of a piece of the revenue pie do you see this eventually becoming? Or how big would you like to cap it at?

Mitchell S. Feiger

Hang on 1 second. I just want to look at something. Not sure offhand what percent of...

Jill E. York

Yes, it's about...

Mitchell S. Feiger

What's the total...

Jill E. York

Yes, do you want to...

Mitchell S. Feiger

All right. Well, let me say this. I don't know. I'm not exactly sure what -- I take it correctly what you said at 13%. The answer around the leasing piece to me on sizing it depends on several things. One is, what kind of credit quality is inside the lease book? What kind of companies are we dealing with? What kind of volatility might credit produce? The other piece is, how volatile or not volatile our leasing revenues and our -- particularly, profits from our leasing businesses? And breaking our leasing activities into 4 components, let me just drill down real quick for you. So the biggest asset piece is our leased banking business, which is about $1.4 billion, maybe a little more now in assets. And that is exceptionally high credit quality, we believe, and has produced very steady, very steady returns. Our LaSalle leasing company has 2 components, as Jill mentioned, one is the straight leasing part of the business, the other is an equipment maintenance contracts. The straight leasing part of the business has produced also very steady profits and is made up of very high credit quality clients. As Jill mentioned, the equipment leasing side can vary somewhat in revenues and profits, and you've seen some of that in the last quarter or 2 in our financial statement. But given the relative variability of that component to the rest of our financial statement, it's not much. And then Celtic, which we've owned now for about 9 months, 9 months -- no, I guess it's 10 months probably today, something like that, almost 10 months, has a long history of producing steady and steadily increasing earnings with excellent credit quality as well. So I think that if -- my view is, if our leasing businesses continue to perform in that fashion, meaning that a substantial majority of the profit base is not very volatile and has high credit quality and is consistent, I would be in favor of increasing it and growing it. And I think one of the things that's made our leasing business so successful in its totality is our very narrow focus on high-quality leasing customers. And just staying in a pretty narrow niche in the industry and really, really knowing our business inside and out, we've got true experts in the business, they're really good at it, they've done it for decades. And I think that if it continues to perform at the level it is, I would be in favor of growing it.

Operator

Our 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 or Mitch, just a question to follow up on some of the Taylor Capital numbers. It looked like the mortgage earnings were, this quarter, kind of in line with what you guys were using at the time of the deal announcement. But it look like the commercial bank earnings, they really had a nice quarter. They are up about 35% linked-quarter. Was that a surprise to you guys? And were you expecting that when you were going through the due diligence process? And thinking about the 2 companies together, and just kind of curious on your thoughts of the sustainability of that higher run rate number at Taylor Capital?

Jill E. York

Let me start on, then Mitch can add to it. I guess, I was quite pleased to see the improvement in the banking portion of the earnings. I think, in particular, the expansion of the margin was great. I was very pleased to see that. I thought that they would grow loans, and so I guess that part wasn't too surprising to me. But I think the expansion of the margin was certainly nice to see.

Mitchell S. Feiger

Yes, I was similarly very pleased. And Brad, I think when we do these things, we generally don't forecast one quarter's worth of performance, right? I mean, we're looking -- when we considered the merger, most of our consideration was built around longer-term performance and performance expectations. That said, I'm very happy with the third quarter that Taylor had. I thought they'd -- the commercial bank, in particular, had an excellent quarter landing a lot of new business. Very pleased.

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

Okay, great. And then just to follow up on a couple of the asset quality questions. I know you guys have had nice improvement in potential problem loans and -- but kind of wanted to ask specifically about nonperformers. They've kind of bounced between, I don't know, call it, $102 million this quarter and $115 million over the last 6. I know a high number are current. Can you remind us of that percentage and just kind of your thoughts on maybe pushing that number down more meaningfully? And you maybe limited by the fact that there are a high number that are current but they're there for whatever reason they're there. But maybe just any thoughts you have on maybe some more dramatic improvement versus kind of what we've seen over the last 5 or 6 quarters?

Jill E. York

Right. Right around 55% of the nonperformers are current with respect to the principal interest payments. I'll let credit answer the remainder of the question.

Thomas Watts

I wish I could predict the future. I wish I could have a good answer for you. I'd imagine it's going to be a slow and steady improvement absent surprises, which may happen, but there's no reasons for us to believe that that today.

Mitchell S. Feiger

Yes, I agree with that, Tom and Jill. Brad, one more thing. This is just my sense of this, I think every banker said, okay, look, we think we tried to be and we think we are conservative in marking our loans. We want to be on the conservative side of doing that. So it wouldn't surprise me if in the long run, in the long run, if our nonperforming ratios stay somewhat higher than our peers, and it's probably going to be mostly or at least somewhat reflected in the point that you asked about, which is how many our current in their payments. When I look at some of our peers, we see -- I see that of their nonperforming loans, none are current in their payments. And we have 55%, and our percentage is -- at times, it's been higher than that, but it hasn't been less than 50% for, what? I don't know, 3, 4 years. How long?

Jill E. York

Since 2010.

Mitchell S. Feiger

Since 2010, right. So I think there's a chance that our NPL numbers will remain higher than our peers. Now that doesn't mean that credit costs remain higher. Credit costs, in fact, may remain lower, so it's a little bit of an oddity.

Operator

Our next question comes from the line of Terry McEvoy from Oppenheimer.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

A question for Jill, and I think you hinted at this earlier on your prepared remarks. How should we think about the incremental regulatory costs as the company gets larger post-Taylor? And are you doing anything ahead of the close that we would see in the expense line in preparation?

Jill E. York

We are doing a lot of things to prepare. And I'm actually going to turn that question over to Brian who runs risk -- the risk management area for us.

Brian J. Wildman

Part of where we've been spending our time looking at is what enhancements do we need to make to our risk management infrastructure once we bring together these 2 banks and our bigger bank, what do we need to do to move, as we like to say in hockey vernacular, where the puck is going as opposed to where the puck is now. And so we're in the process of evaluating where we are from a risk management standpoint and we're we need to be as part of a larger organization and then beginning to make those enhancements today to build out our risk management infrastructure in light of regulatory requirements and in light of what's doing the right thing for the bank and the shareholders. So we are in the process even now of beginning to do that. And yes, that some of the costs that you see are reflected relate to that. It's hard to put a number today on what that is and what it will look like, but it is something we're working on quite a bit.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

And then just as a follow up for Mitch, I mean, I hear you loud and clear on the hyper pricing pressure on middle-market C&I. As you look at other pieces of the loan portfolio, maybe where you compete in CRE, are you seeing better risk-adjusted returns and better growth opportunities unlike what you've talked about on the C&I side?

Mitchell S. Feiger

So let me repeat it because we had a little hard time hearing you, so tell me if I have this right. Your question is, I made a comment about in the commercial middle-market space, there's tremendous pricing pressure, credit -- structure weakening, and your question is, in other areas where we lend money, we have lending businesses, are the -- essentially, are the opportunities better or are we seeing the same kinds of problems. Is that your question?

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Yes.

Mitchell S. Feiger

Okay. Anybody want to take a crack at it? Ed?.

Edward F. Milefchik

Well, I think I heard you mention CRE specifically. We continue to see opportunities in that space. What I would say is from a competitive perspective, you're seeing a lot more competitors stepping back into CRE and stepping into CRE in a big way because of the lack of catalyst, I'd say, in the C&I area, so they're really looking to grow loans any way that they can. And our focus is really to be -- to stay disciplined. And I think Mitch kind of alluded to it earlier, but I think the hardest thing to do is to remain disciplined in an undisciplined and highly competitive environment. And we are trying to learn from our mistakes, so we're reviewing many opportunities. We look at them as they come in. And as they meet our profiles, yes, we're definitely participating. I would say this though, we do see a lot of banks out there that are also actively trying to compete with the institutional investors. And the term and the pricing and the amount of recourse has come down quite a bit because people are competing for assets. And when you're competing against institutional investors, that's a different competitive environment.

Mitchell S. Feiger

Yes, so CRE, I think I described CRE well. We continue to see significant volume opportunities in our lease banking business, that's $1.4 billion, $1.5 billion on our balance sheet. But pricing has come in quite a bit from where it was, say, a year ago, certainly from where it was 3 years ago, it is substantially tighter. In our -- the small consumer lending businesses we have, I think margins are in some there as well, but they're just -- while those businesses are important to us, they're not as large as yet as our lease lending business and our commercial banking business. So there is no area that we've seen in lending today that's immune from the pricing and quality pressures that we're seeing inside the middle-market space, but it's really intense in the middle-market space.

Operator

Our next question comes from the line of Peyton Green from Sterne Agee.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Mitch, so I mean, is it reasonable -- I mean, is it a potential outcome that loan growth might be negative given just the lackluster GDP growth and also maybe overzealous competition?

Mitchell S. Feiger

Anything's possible. I assume the time period you're looking forward, right, to the fourth quarter or...

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Oh, maybe 2 or 3 quarters.

Mitchell S. Feiger

I'd say this, I would be very disappointed if it was negative. I suppose it's possible. I don't know how else to answer that. Any thoughts?

Edward F. Milefchik

I take a look at our pipeline. I don't foresee that is happening as well. Again, our client retention has been extremely strong. We have very good clients, they're generating a lot of cash as can be seen by our growth in deposits. Mitch mentioned this earlier in the call that we're generating new client relationships, and I think it's really -- I guess you can really see that in our treasury management piece and really see the nice growth. So do I see loans going down? I don't. I mean, we are filling the bucket with the amortizing loan bucket and what have you with additional loans from existing clients and some new relationships. But no, I really don't see it going down. Not at this point.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Okay. So I mean, I guess you'd describe it as conditions are getting thin, but you're not willing to let good customers go because the pricing is that irrational. What terms are that irrational?

Edward F. Milefchik

I think that's a fair comment.

Operator

We have no further questions in the queue at this time. I'd now like to hand the call back to Mitchell for closing remarks.

Mitchell S. Feiger

Okay, great. Thank you, everyone, for joining us this morning and this quarter, and we look forward to talking with you again in around 3 months.

Operator

Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you, and good day.

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