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MB Financial, Inc. (NASDAQ:MBFI)

Q4 2013 Earnings Conference Call

January 16, 2014 10:00 a.m. 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

Brian J. Wildman - Executive Vice President of Risk Management

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

Thomas Watts - Chief Credit Officer all of MB Financial Bank

Analysts

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

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

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

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

Brian Martin - Susquehanna International Group, LLP, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Quarter Four 2013 MB Financial conference call. My name is Michelle, and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replaying purposes.

I would like to introduce Mitchell Feiger, President and Chief Executive Officer, and Jill E. York, Chief Financial Officer of MB Financial Incorporate. 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 future events and future financial performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates 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 fourth quarter earnings release.

I'd like to turn the call over to Mr. Mitchell Feiger, the President and Chief Executive Officer. Please proceed, sir.

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

Okay. Thank you, Michelle. Good morning everyone, and thank you for joining us today.

2013 was a good year for MB Financial. Net income, return on average assets and returns on capital, all increased. For the year, we had net income available to common stockholders of $98.5 million, that's an increase of 13% over 2012.

Our return on average assets was 1.05% in 2013 versus 0.95% in 2012. Return on common equity was 7.6% compared to 7.1% in 2012, and return on tangible common equity was 11.9% in the year versus 10.9% in 2012. Returns on capital are lower than I would like, but we are surprised by our high levels of common equity.

Our goal has been to push earnings to something over 1% on assets, and we accomplished that in the year. We continue to believe in an ROA of over 1%, perhaps well over 1% is necessary to provide an appropriate return on shareholder capital. Doing that in the Chicago market is a real challenge, but we were able to accomplish it in 2013.

Perhaps more importantly in 2013, we made meaningful progress on almost all of our strategic objectives. We've been highly focused on building a better company. We've been willing to make the investments necessary, and we have been making the investments necessary to create a company with lower risk, high returns on capital and ultimately better growth.

To refresh your memory, we have four basic strategies to accomplish our objectives. First, we are committed to developing a balance sheet with superior profitability and lower risk. We made good progress in that regard in 2013. The loan growth has been more modest than at some other banks on loans excluding covered loans did grow by a $160 million or 3% in the year. And our loan mix and risk profile improved considerably.

Essentially, C&I and lease loans increased by $252 million or 10% in the year, and commercial real estate and construction loans declined by $83 million or 4% in the year. We think that's a good trade. In addition, nonperforming loans, potential problem loans and OREO, all declined meaningfully in the year.

Building a great deposit base is also a critical element of building a great balance sheet. In 2013, non-interest bearing deposits increased by almost 10% and low cost deposits increased by more than 3%. And the reason low cost deposits have been increased more was that we were obsessive about reading our deposit base of price sensitive funds.

Finally on the balance sheet front, we believe that our capital and liquidity is strong in quantity and quality. All in all, a good year for the balance sheet.

Our second strategy for building a great bank is to intensely focus on increasing high quality sustainable profits from fee businesses and fee products. In that regard, 2013 was a good year. Non-interest income increased $25 million or 19% over 2012. Well, the increase is mostly due to our acquisition of Celtic Leasing, at the end of 2012 we saw good development of our other fee businesses.

Trust and asset management fees increased by 6%, card fees by 18% and commercial deposit and treasury management fees by 5%. Core non-interest income to revenues increased to 34.7% and we would like to see that number go higher. While we were disappointed the capital markets and the international banking fees declined in the year, we expect those businesses to contribute more in the future.

Our third strategy for building a great bank is to invest in human talent. There is not much data I can share with you on this very important effort, but I can tell you that 2013 was a very good year here as well.

Finally, our fourth strategy for building a great bank is to make opportunistic acquisitions. Clearly 2013 was a good year for that. In July, we agreed to merge with Taylor Capital. Of course, signing an agreement is only the start of the merger process, since then our staff and the Taylor Capital staff have been working very hard planning to execute and deliver on the promise of their agreement for our shareholders.

As far as merger status, the reasons that I am sure you can appreciate, we're not going to say anything more than it's already included in our joint proxy statement prospectus, which went effective on January 14th. That filing says we've submitted all required bank regulatory merger applications and we expect to complete the merger in the first half of 2014.

All right, and that's my report to you about 2013. Well, I hope you are interested in the 2013 recap, I know you are interested in hearing about our performance in the fourth quarter of 2013, and Jill is going to cover that with you now.

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

Thanks, Mitch, and good morning everyone. I was pleased with our fourth quarter results. Net income for the fourth quarter totalled $23.9 million or $0.43 per fully diluted share down slightly from prior quarters this year. Included in our results this quarter was 724,000 in merger costs related to our pending Taylor transaction consisting mainly of attorneys' fees. After-tax fees cost impacted our earnings by about $0.02 per share.

Our results for the quarter were highlighted by fee income growth driven by our key fee initiatives, decent loan growth driven by the C&I and leasing portions of the loan portfolio and continued low credit costs. Our net interest income declined a bit due to net interest margin compression. Please note though that our core net interest margin was about 10 basis points higher than the reported margin of 3.5%.

Early in the fourth quarter we entered into a $300 million, 80-day federal home loan bank advance to boost our on balance sheet liquidity in preparation for an adverse market reaction to a potential federal government shutdown. While the increased liquidity had little impact on net interest income, it has decreased our margin by approximately 10 basis points. This advance was repaid shortly after yearend. The six basis point decrease in our core margin was due to a decrease in loan yields partially offset by higher securities yields and lower cost of funds.

Loan yields were impacted by lower covered loan yield, which can vary from quarter-to-quarter, lower re-accrual interest on remediated credits and loan repricing on renewing credits. Higher securities yields were a result of this steeper yield curve.

As noted earlier, credit cost remain low in fact our provision for loan losses were negative 3 million due to improvement in our potential problem loans and improved credit history while nonperforming loans were up slightly primarily due to one CRE or Commercial Real Estate relationship. Potential problem loans and Special Mention loans both improved. In addition, our other real estate owned balances declined by 26%. As a result, classified assets improved by 9% on a linked quarter basis.

Total credit costs for the quarter, and for this metric I am including OREO gains and losses as well as the provision, these were negative 3.6 million and were about 1.1 million better than last quarter.

We continue to see good fee revenue growth both on a quarterly and annual basis largely driven by our key fee initiatives. Revenue from key fee initiatives increased 7% on a linked quarter basis, and on an annual basis we are up 30%. This increase was largely driven by our Celtic Leasing acquisition.

In addition, we saw meaningful revenue increases in commercial deposit and treasury management fees, higher wealth management fees and higher card fees. I continue to be happy with the progress we are making with our key fee initiatives. And as Mitch noted, our fee revenues comprise 35% of total revenues and it was up slightly from last quarter.

Okay. And expenses, core expenses were up about 2.7 million on a linked quarter basis. This was primarily due to two categories, our consulting fees which are included in professional and legal fees and then our computer expense. Generally I would characterize the bulk of the increased expenses as related to investments that we are making at an accelerated pace to enhance our technology systems and procedures to support a larger company close merger. They are also due to continued investments in product enhancements for our customers and expenditures in support of our key fee initiatives.

From a balance sheet perspective I just had a few quick comments. Keep in mind our total reporting at the year-end were impacted by the 300 million FHLB Advance that I discussed earlier. This impacted short-term borrowings and cash at the Federal Reserve. This advance was repaid shortly after year-end.

As I noted earlier, I was pleased with our loan growth in the quarter on a linked quarter basis. C&I loan were up 10%, net annualized. Please note that most of the 112 million increase in C&I loans occurred near the end of the quarter and included about 33 million in seasonal borrowings because of the C&I loan increase occurred near year-end. It had little impact on a fourth quarter net interest income.

Our lease loans increased a solid 2% linked quarter, again, net annualized, and as expected covered loans declines. We continue to do a very good job here resolving the loans that we acquire from the FDIC.

Low cost deposit flows in the quarter were good, plus 2%, driven by strong DDA growth, which increased by 5% largely driven by our commercial banking customers.

All right, at this point I will turn the call back over to Mitch.

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

Okay, thank you very much Jill. All right, Michelle, we are ready at this point to take questions from participants.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Brad Milsaps of Sandler O'Neill. Please go ahead.

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

Hi, good morning.

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

Good morning, Brad.

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

Hi, Mitch. I know you guys typically always have a good fourth quarter for loan growth. This one was no different. What do you think changed, Jill mentioned maybe 33 million would be seasonal, but just kind of curious -- anything else you saw on the market, better opportunities, better pricing, just kind of curious -- anything different for this for the fourth quarter?

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

Brad, this is Ed Milefchik. I would say, no, we really didn't see much change, especially with regards to pricing or competitor pressures. I would just say that our bankers were very active mid-to-late summer and usually that activity leads into the fourth quarter activity. The one thing I would say too is the pipeline remains pretty decent just because we had less urgency from some clients to close deals by year-end. So, as we head into the beginning of this next year the pipeline looks decent, looks better than did last year.

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

Just to put that into context, the first quarter is normally one of the weaker quarters for us for loan growth historically, it's a seasonal trend. So I think -- what I say is pipeline looks pretty good, but just keep that in the context that first quarter growth can (bless the) one of the weaker quarters of the year.

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

Okay. And then just switching gears, Jill, on expenses, can you talk a little bit maybe about opportunities to maybe reduce that run rate a bit? I know '14 is going to look pretty muddled with Taylor coming over, but for the core MB franchise maybe that line item continues to run a little heavier than I would have thought and just kind of curious what are your thoughts there are going forward in terms of expenses?

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

Right. Good question. Yes, I think -- when I try to highlight my prepared comments there was one category in particular that was up quite a bit. I think we will get some relief on next quarter nets of the professional legal expense category. That was up quite a bit even if we backup the merger related costs. And, we are just trying to get a lot of things in place in preparation for the Taylor transaction. They are not really merger cost or direct merger cost, but certainly some of that consulting I wouldn't expect to repeat us off in Q1. So that's one year where I think we will have a little bit of relief.

We are also continuing from a computer technology area to invest pretty heavily. Perhaps it's a little bit there of savings, but I don't think there is a lot in that category. We continue to support key fee initiatives and continue to make sure that we have very good technology. I think the spend there will continue pretty close to where it was in Q4. Of course I think another area that I talked about in the past has been loan remediation cost. We continue to see those come down. I think there maybe a little bit of room left there, but not too much. Those are probably the biggest categories I think. Mitch, do you have anything there?

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

No, I think you got it.

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

Okay.

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

Okay, thanks guys. I really appreciate the color.

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

Thanks.

Operator

The next question comes from the line of Chris McGratty of KBW. Please go ahead.

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

Hi, good morning. Mitch, on the leasing line I would say it is pretty relevant quarter-to-quarter. Can you talk about what's your reasonable growth rate for that fee income line if maybe we were to take a full year approach given that Celtic has been in for a year?

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

Oh boy, good question.

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

Yes, it's tricky. I mean, I kind of looked back and I looked at year-over-year what we have been doing and I think don't pull me in these numbers. But I think going from 2010 to 2011, leasing revenues were up in the 20 plus percent range from a 11 to 12 with a 35%. This year is up another 30, and that's largely due to Celtic. And yeah, I am hoping that it's maybe going forward, maybe high single-digits, somewhere in that range. But it could be very lumpy from quarter-to-quarter.

LaSalle, just -- the LaSalle portion of our lease revenues were flat from 12 to 13, but that's coming off of a very big increase from a 11 to 12. So that's kind of where I'm thinking it may go, but it can vary a lot from quarter-to-quarter.

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

Okay. And on the margin, Jill, obviously with the liquidity build or the action you took, can you help us on near term expectations for margin, loan yield seem like there is still a little bit of pressure. But maybe you could tell us maybe if there is anything to reprice on the liability side and maybe before Taylor comes in, what we should be thinking about for our margin?

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.

Yes, of course there are all kinds of functions that go into a margin forecast. Let me kind of run-through, just to refresh your memory, the key levers that impact the margin. I will characterize them into couple of different buckets. The things that would increase the margin, okay, relate to the steeper yield curves. So that helps our securities portfolio and in lease loans, because those tend to price off not so long into the curve, but kind of the intermediate portion of the yield curve.

Continued improvement in the loan profile helps to end up with some real cool interest and less of an impact on loan yields due to non-accruals. And there is a little bit of deposit repricing, not a lot. So that's why I didn't even mention it in my prepared comments.

To the negative, I think pricing continues to be very competitive and I think credit, you never know, credits could tight more, and I think we will have some negative impact from continued repricing on term loans. That's primarily in the CRE category. And then of course the covered yields can just bounce around from quarter-to-quarter. So, all that being said, I'm thinking the margin, the core margin I should say, is going to be relatively stable but it could be down a few basis points next quarter.

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

Great. And the last one on the amount of premium amortization, Jill, do you have that in the (MBF book)?

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.

I am sorry; I didn't give that statistic before, I --

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

Okay. I'll follow-up offline. Thanks.

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.

Okay.

Operator

The next question comes from the line of Emlen Harmon of Jefferies. Please go ahead.

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

Hi, good morning. Just quickly following up on the NIM question, Jill, could you quantify the amount of re-accrual income that you guys recaptured on some on the nonperforming loans this quarter versus last quarter? Just how much of a drag was that on the loan yields?

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.

Right. So, it was primarily in one category and that was CRE. And the impact for the CRE category, the yield was from 473 to 430. And a little over CapEx change was due to the difference in the accrual interest. We typically have some, each quarter has loans payoff or get upgraded, but the third quarter had more than we typically expect to see.

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

Got it, that's helpful. Thanks. And then, this next question is for Mitchell. You gave us a little bit of color on the -- from a competitive environment and what you are seeing from a lending perspective. I am just being curious to hear a little bit more about just a general business environment and the kind of general health there. We have seen some improvement in some of the employment data, in Illinois, average manufacturing hours and unemployment rates, particularly, just be kind of curious to hear your thoughts on the general business environment there?

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

Yeah, go ahead and just start.

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

Yes. That's -- what I'd say, I mean, generally the economy I think is doing pretty well. The client-base is holding up well. I would say that the vast majority of our clients, their performance is quite strong. Balance sheets are very good. We are still seeing a limited amount of borrowing requests really from our clients for our real growth. And that's -- the challenge is that, in our market and I just want to make sure everybody remembers it; a vast majority of our focus is in on the Chicago land market. And in Chicago, there is a significant amount of competition for loans and people are really chasing assets. We are really chasing strong relationships. And as you can see in our fourth quarter, we were very successful in bringing in a number of relationships. But some of those relationships, and quite frankly, a lot of them are at times non-borrowing. And we can -- that's really reflected in the strength of our growth in deposits and the strength of our treasury management fees. And Mitch alluded to it earlier in his opening comments, but that did impact our capital market fees, given that loans weren't where we would like them to be. That has a tendency to directly affect derivative income. But competition is still intense. Here in Chicago, people are really grappling for assets as they are probably in other markets around the country. But it's intense like competitive.

We're really looking to bring in quite frankly the best clients, the strongest clients, and whether they are borrowing or non-borrowing. But the atmosphere is good. I am hoping that with some level of clarity, at least I guess in government terms is long-term for the next eight months on what's happening with the physical state of the government, that people have a little bit more competence issue. So, I am cautiously optimistic, but we'll wait and see.

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

Okay. Thanks for taking my questions everybody.

Operator

The next question comes from the line of Peyton Green of Sterne Agee. Please go ahead.

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

Hi guys, good morning. Just a question, Jill, maybe you can comment on this better, but Mitch, I mean, to what degree are you willing to suffer the consequences of competition and then take lower spreads on loan buying going forward? Given the steepening of the curve occur, I mean are there opportunities to put the money elsewhere.

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

Well, let me take a crack at by describing the way we think about it inside the bank and maybe this will help. And so, for commercial relationships which are the bigger relationships, as well as certain others around the bank, we measure return on risk adjusted capital. We are looking for appropriate returns on risk adjusted capital. And if it meets our hurdles we are doing and if it doesn't meet our hurdles, we'd rather not. Now, it's possible we may see an opportunity where that doesn't meet our return on capital hurdle rate, if we can believably see our way to moving that return from below our hurdle rate to above our hurdle rate in a reasonable period of time to do that as well.

So, I think in the right opportunity we could be very aggressive in that regard. But we want to know that the other relationships that we add to the bank will add positively the returns that shareholders expect. That's how we think about that, anybody want to add anything to that? And maybe another way in saying this is, is if the market is total, let's say, take a worse case example. The market is totally priced below our hurdle rate on return on capital. Our business flows will decline.

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

Okay. And then maybe just a leasing business, I mean, how much more competitive is that business, say, right now compared to a year ago? I mean, would you be less optimistic about that business or does the improvement in the economy help that -- help offset any increase in competition?

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

Yes. I don't think that business has changed any over the last year as far as competitiveness. It's totally competitive for returns in a business, the way the business works, apart worrying the steeper yield curve helps. Lease loans tend to be priced off the final maturity of the lease as opposed to the average life. So, steeper yield curve at the same spread provides actually a better average spread.

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

Okay. Let's say, you're seeing that over the last couple of quarters, I mean are you seeing better lease yields on your originations compared to maybe the first half of '13 when the yield curve was when the five-year number was a little bit lower?

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

Same question, I don't know about absolute.

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

I think it's been pre-stated.

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

The spreads?

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

The spreads.

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

Yes, I think Jill is right. I think that when you look at the spreads measured properly against the average life, the cost of funds at an average life, I think spreads have held pretty firm for the last 12, maybe even a little longer than last 12 months, perhaps longer.

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

Okay. I mean, would you -- so it is a three-year LIBOR swap rate the right one to use or is it five-year?

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

Well, the typical -- if you are talking about lease loans for a second, typical lease loan is between three and five years of origination. So it's got an average life, say, between 18 and probably 25 or 27 months.

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

Okay.

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

It will be priced off at three or five year point in the curve, but when -- how much I gave you about steady spreads is geared towards that 18 -- 17, 18, 25-month period.

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

Okay. All right, great. Thank you for taking my question.

Operator

The next question comes from the line of Chris McGratty of KBW. Please go ahead.

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

Yes, just a quick follow-up. On your capital, Mitch, given how strong it is today in pro-forma, is it at all possible that you guys would do another deal either bank or leasing at any point during '14?

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

I suppose anything is possible. If I were to rank those from least likely to most likely I think it's least likely we would do another -- we would complete, let's say it that way, complete another bank deal in 2014. Taylor transaction is obviously very significant for us and we need to make sure that that goes exceptionally well. And I think that probably anything that distracts from that would be viewed unfavorably here. Now, is it possible that there is another kind of acquisition, something Celtic-like that doesn't directly distract from our efforts in integrating with Taylor, is it possible that we would do something like that? I think it's possible and it's more likely that would happen in a depository institution, but I don't consider either terribly likely in 2014.

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

Great, thanks.

Operator

The next question comes from the line of Brian Martin of SIG Partners. Please go ahead.

Brian Martin - Susquehanna International Group, LLP, Research Division

Good morning.

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

Good morning.

Brian Martin - Susquehanna International Group, LLP, Research Division

Mitchell, or Jill, I was just wondering if you can talk about kind of your expectations for the fee income initiatives and we talked about one at a good rate or the level higher than it is today and then maybe if that just correlates with the -- maybe you guys being little more optimistic of the capital markets opportunities in 2014, just what your thoughts are there?

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

Just to clarify, your question surrounds the 35% fee revenues and my comment about wanting to increase that further.

Brian Martin - Susquehanna International Group, LLP, Research Division

Yes. And then also, maybe with Jill's comments about maybe being a little bit disappointed with the capital markets revenues within fee income this year -- what your outlook is for that next year and what drives it higher if that's the expectation?

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

Okay. So capital markets in international banking, particularly capital markets are still I think in their infancy. We have been added a couple of (fierceful) full time, right at this point. And I think it's got a pretty long runway. It takes time I think to build a high quality business in that space and we are committed to doing that. I like where we are at so far. We had higher expectations for revenues in that area for 2013 than we accomplished. What I do like that's happening in the space is the revenue base is broadening. I think they want most banks talk about capital markets, at least most banks of our size they talk about -- they really talk about derivative income. We are focused on derivative income, but also a number of other product sets and we're starting to see good activity in those other product sets and its building. And so, I like that. I don't want our capital market businesses to be dependant on derivative revenue for their success. And they are doing a nice job diversifying that. So I like what's happening there.

International banking is also moving along nicely. It's never going to be -- I don't think it's bigger business as some of our other fee businesses, but it's very complimentary inside our client-base, and we should be able to drive a fair amount of revenue from that. On the international banking front, another advantage, just talking about it for a second, is that so many of our clients really need to service and the fact that we can provide and keeps another bank out of our client-base, which we like very much because our clients would have to go elsewhere if we didn't provide it. So, we like that. But in general on fees and our determination to growth to continue the growth I mean at an accelerated rate, we are doing that, we want to do that. And the largest drivers of fees I continue to be very excited about, particularly commercial deposit services and treasury management fees I think we have got great momentum in that. And a lot of the work that we have been doing over the last few years to build product and capability and sales I think is working.

I like what's -- I love what's happening in our leasing business. I think we have two really great leasing subsidiaries in Celtic Leasing, LaSalle Leasing. Expertly run companies, experts in their space with good growth, really good growth potential. I also like the leasing activities that we are doing in the core bank inside our lease banking group. Our wealth management business had a good year in 2013. Some of it -- with the win in our back because of what happened to the equity markets as did most people.

And frankly we struggled over five, ten years or more trying to figure out just how to sell it and drive new revenues into the business and I think we are doing a better job in that regard. We are going to keep at it until we figure out how to do it right. So I have high expectations for that business, but it's probably a little bit less developed in the sales sense in our leasing activities. Have I forgotten anything of importance?

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

Cards.

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

Cards. Oh, cards. Thank you. Card revenues were up by good amount in 2013. And I think that there is significant potential in our card businesses. Debit cards are one thing and that's relatively mature for us and I guess I would like to see growth in it. But I don't think the growth is going to be double-digits year after year after year in debit card revenues.

However, the other aspects of our card business we feel quite good about, we launched the credit card product set not too long ago and that's I think doing loan growing nicely and we are learning a lot about the business. It's targeted inside our client-base primarily where we think there is a lot of potential. And then we are dipping our toes, continue to dip our toes in prepaid card space. And we spend -- that's frankly quite a bit of time and money building out that price factor that needs to be done right, very right. Otherwise there can be adverse consequences to it. But I think that we are in a good space there. I like the pipeline that we have got there. I like the clients so far that we have booked in this space and I think it has good potential. So I am very optimistic about these.

Brian Martin - Susquehanna International Group, LLP, Research Division

Okay. Thanks for the color and then maybe just on the loan portfolio I guess the typical seasonality you guys see in the fourth quarter and then just kind of throughout the year, any sense that there is a change in that pattern as you look to 2014 and the same type of lumpiness that you typically see? Is that a core basis at Taylor?

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

We don't have any reason to see why there would be a seasonal change. Listen, in the weak quarters I always hope there isn't, in the strong quarters I always hope there is, but looking forward started to see it a reason for change at this point.

Brian Martin - Susquehanna International Group, LLP, Research Division

Okay, all right. And then we just -- I guess that's it. Thank you very much.

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

Okay, Brian.

Operator

Thank you, sir. We have no questions at this time. (Operator Instructions) Okay, I would now like to turn the call over to Mr. Mitchell Feiger for closing remarks.

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

All right, great. Thank you, Michelle. Thank you everyone for joining us again this quarter, and we look forward to talking with you again next quarter.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Enjoy the rest of your day.

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Source: MB Financial Management Discusses Q4 2013 Results - Earnings Call Transcript
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