MB FINANCIAL INC /MD - FORM 8-K - EX-99 - EXHIBIT 99

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8-K - 8-K - MB FINANCIAL INC /MD	form8-kearningsrelease3q17.htm

EXHIBIT 99



	3Q17

MB FINANCIAL, INC. REPORTS THIRD QUARTER 2017 NET INCOME OF $60.8 MILLION

CHICAGO, October 19, 2017 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced third quarter 2017 net income of $60.8 million compared to $44.5 million last quarter and $44.4 million in the third quarter a year ago. Diluted earnings per common share were $0.69 in the third quarter of 2017 compared to $0.50 last quarter and $0.54 in the third quarter a year ago.

"Our record quarter is directly related to executing our long-term strategy," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc. "We are intent on building a bank with superior returns and lower risk. Our results this quarter show our progress with solid performance across all business units. We believe our strategic combination of high quality low-cost deposits; strong and rapidly growing fee businesses; revenue, profit, loan, and deposit diversification; and close attention to credit quality will lead to peer-leading performance."

Mr. Feiger continued, "Our operating earnings increased by 31.5% to $62.8 million, this quarter, which is an all-time record. This can be attributed to several factors including an increase in net interest income, decreased provision for credit losses, increased lease financing revenues, controlled expenses and certain tax benefits. In addition, annualized loan growth was 8.5%, on top of the 21.2% recorded last quarter. Further, credit quality remained strong in the third quarter with net recoveries of $0.6 million and non-performing loans down two basis points to 0.36% of total loans."

Operating Earnings (in thousands, except per share data)



												Nine Months Ended
												September 30,
	3Q17		2Q17		1Q17			4Q16		3Q16		2017		2016
Net income - as reported	$	60,843	$	44,466	$	54,537		$	47,191	$	44,419	$	159,846	$	126,945
Non-core items, net of tax ⁽¹⁾	1,942		3,292		(1,358		)	4,656		7,496		3,876		11,705
Operating earnings	62,785		47,758		53,179			51,847		51,915		163,722		138,650
Dividends on preferred shares	2,002		2,002		2,003			2,005		2,004		6,007		6,004
Operating earnings available to common stockholders	$	60,783	$	45,756	$	51,176		$	49,842	$	49,911	$	157,715	$	132,646
Diluted earnings per common share - as reported	$	0.69	$	0.50	$	0.62		$	0.53	$	0.54	$	1.81	$	1.60
Diluted operating earnings per common share	$	0.72	$	0.54	$	0.60		$	0.59	$	0.63	$	1.86	$	1.75


⁽¹⁾	Non-core items represent the difference between non-core non-interest income and non-core non-interest expense net of tax.

See "Non-GAAP Financial Information" section for details on non-core items.

Key Items (compared to 2Q17)

Operating Earnings

•

Operating earnings increased by $15.0 million, or 31.5%, to $62.8 million compared to the prior quarter. This growth resulted from the following items (net of tax): an increase in net interest income of $4.7 million, a decrease in provision for credit losses of $3.1 million, an increase in lease financing revenues of $2.8 million and tax benefits of $4.0 million mostly due to the impact of the rate increase on our Illinois deferred tax assets and a reduction in tax accruals attributable to compensation.


•	Diluted operating earnings per common share were $0.72 compared to $0.54 in the prior quarter.

Loans


•	Loans, excluding purchased credit-impaired loans, increased $288.4 million (+2.1%, or +8.5% annualized) to $13.8 billion. Growth was driven by increases in commercial and commercial real estate loans.


•	Average loan balances, excluding purchased credit-impaired loans, increased $426.2 million due to increases in commercial, commercial real estate and residential real estate loans.


•	Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 11 basis points to 4.17% from 4.06% in the prior quarter.

Deposits


•	Low-cost deposits declined $66.5 million in the quarter (-0.5%, or -2.2% annualized) to $12.0 billion due to normal fluctuations in balances. Additionally, there was some migration from non-interest bearing to NOW and money market deposits as rates have modestly increased.


•	Average low-cost deposits increased $216.7 million.


•	Average cost of total deposits increased five basis points to 0.30% due to an unfavorable shift in the mix of deposits.

Net interest margin


•	Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased two basis points in the quarter to 3.56%. This increase was due to higher loan yields partly offset by increased funding costs and an unfavorable shift in the mix of liabilities.


•	Average interest earning assets increased $502.3 million due to an increase in loan balances.


•	Average cost of funds increased seven basis points to 0.46%.

Operating Segments (compared to 2Q17)

Banking


•	Operating earnings were $54.5 million, an increase of $13.3 million, or 32.4%, compared to the prior quarter.


•	This increase was due to increased net interest income, lower provision for credit losses and tax benefits mostly due to the impact of the rate increase on our Illinois deferred tax assets and a reduction in tax accruals attributable to compensation.

Leasing


•	Operating earnings were $6.0 million, an increase of $1.9 million, or 45.5%, compared to the prior quarter.


•	Operating earnings for the quarter increased due to higher lease financing revenues resulting from increased promotional income and fees from the sale of third-party equipment maintenance contracts partially offset by lower residual gains.

Mortgage Banking


•	Operating earnings were relatively consistent at $2.2 million compared to $2.4 million in the prior quarter.

Operating Segments

The Company has three reportable operating segments: Banking, Leasing and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. Our Leasing Segment generates revenues through lease originations and related services. Our Mortgage Banking Segment originates residential mortgage loans for sale to investors through its retail and third-

party origination channels as well as residential mortgage loans held in our loan portfolio. The Mortgage Banking Segment also services residential mortgage loans owned by investors and the Company. The financial information below was adjusted for funds transfer pricing and internal allocations of certain expenses and excludes non-core non-interest income and expense.

Banking Segment

The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):



											Nine Months Ended
											September 30,
	3Q17		2Q17		1Q17		4Q16		3Q16		2017		2016
Net interest income	$	142,888	$	135,982	$	131,449	$	133,688	$	119,685	$	410,319	$	341,445
Provision for credit losses	3,637		8,890		3,527		4,193		4,394		16,054		14,390
Net interest income after provision for credit losses	139,251		127,092		127,922		129,495		115,291		394,265		327,055
Non-interest income:
Lease financing revenue, net	1,097		1,326		1,545		1,050		890		3,968		2,358
Commercial deposit and treasury management fees	14,508		14,499		14,689		14,237		12,957		43,696		36,383
Trust and asset management fees	8,702		8,498		8,520		8,442		8,244		25,720		24,430
Card fees	4,585		4,413		4,566		4,340		4,161		13,564		11,731
Capital markets and international banking fees	4,870		3,586		3,253		4,021		3,313		11,709		9,311
Other non-interest income	10,940		9,655		9,306		9,314		10,252		29,901		26,585
Total non-interest income	44,702		41,977		41,879		41,404		39,817		128,558		110,798
Non-interest expense:
Salaries and employee benefits expense:
Salaries	45,096		44,019		42,120		42,797		38,575		131,235		109,053
Commissions	877		1,121		1,107		1,090		1,172		3,105		3,992
Bonus and stock-based compensation	10,032		10,603		10,619		9,535		10,553		31,254		27,881
Other salaries and benefits ⁽¹⁾	14,604		12,698		13,705		13,920		13,657		41,007		36,647
Total salaries and employee benefits expense	70,609		68,441		67,551		67,342		63,957		206,601		177,573
Occupancy and equipment expense	12,372		12,298		12,117		12,765		11,724		36,787		32,715
Computer services and telecommunication expense	8,386		7,976		7,514		8,813		7,418		23,876		20,809
Professional and legal expense	1,239		1,455		1,600		1,281		1,566		4,294		5,437
Other operating expenses	16,757		18,793		18,255		17,430		16,467		53,805		48,624
Total non-interest expense	109,363		108,963		107,037		107,631		101,132		325,363		285,158
Income before income taxes	74,590		60,106		62,764		63,268		53,976		197,460		152,695
Income tax expense	20,064		18,915		17,168		19,422		16,287		56,147		45,567
Operating earnings	$	54,526	$	41,191	$	45,596	$	43,846	$	37,689	$	141,313	$	107,128
Total assets (period end)	$	16,406,714	$	16,320,111	$	16,009,339	$	16,368,881	$	16,453,379	$	16,406,714	$	16,453,379


⁽¹⁾	Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Banking Segment operating earnings for the third quarter of 2017 increased $13.3 million compared to the prior quarter.


•	Net interest income increased due to higher average loan yields and balances partly offset by a higher cost of funds.


•	Provision for credit losses decreased due to net recoveries and less loan growth in the quarter.

•

Non-interest income increased due to higher capital markets and treasury management fees (mainly swap fees) and stronger earnings from investments in Small Business Investment Companies ("SBICs"). Non-interest expense increased due to higher salaries and employee benefits expense as a result of an additional day in the quarter, annual salary increases for hourly employees, higher temporary help expense and higher 401(k) and profit sharing contributions partly offset by a decrease in bonus expense. Additionally, salaries and employee benefits expense for the prior quarter was impacted by lower health insurance expense.


•	Income tax expense includes tax benefits of $4.0 million due to the impact of the Illinois state income tax rate increase on our deferred tax assets as well as a reduction in tax accruals attributable to compensation.


•	Total assets increased due to the loan growth in the quarter.


•	Excluded from operating earnings for the third quarter of 2017 (and from the table above) were $2.8 million in branch exit and facilities impairment charges from the closing of four branches.

Banking Segment operating earnings for the nine months ended September 30, 2017 grew $34.2 million compared to the same period last year. Our merger with American Chartered Bancorp Inc. in the third quarter of 2016 positively impacted net income and total assets.

Leasing Segment

The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):



													Nine Months Ended
													September 30,
	3Q17		2Q17		1Q17			4Q16			3Q16		2017		2016
Net interest income	$	2,686	$	2,345	$	2,269		$	2,413		$	2,168	$	7,300	$	7,002
Provision for credit losses	399		410		(135		)	(1,750		)	1,964		674		2,045
Net interest income after provision for credit losses	2,287		1,935		2,404			4,163			204		6,626		4,957
Non-interest income:
Lease financing revenue, net	22,534		17,474		20,253			19,005			17,974		60,261		51,260
Other non-interest income	26		676		1,173			754			785		1,875		2,410
Total non-interest income	22,560		18,150		21,426			19,759			18,759		62,136		53,670
Non-interest expense:
Salaries and employee benefits expense:
Salaries	5,029		4,623		4,810			4,811			4,550		14,462		12,602
Commissions	2,328		2,115		2,572			1,038			1,597		7,015		5,829
Bonus and stock-based compensation	1,228		1,045		955			1,516			950		3,228		2,651
Other salaries and benefits ⁽¹⁾	1,572		1,523		1,581			1,317			1,310		4,676		4,015
Total salaries and employee benefits expense	10,157		9,306		9,918			8,682			8,407		29,381		25,097
Occupancy and equipment expense	1,070		1,011		944			929			966		3,025		2,808
Computer services and telecommunication expense	456		431		458			483			432		1,345		1,226
Professional and legal expense	403		392		399			652			802		1,194		1,625
Other operating expenses	2,412		2,266		2,088			1,714			1,997		6,766		5,160
Total non-interest expense	14,498		13,406		13,807			12,460			12,604		41,711		35,916
Income before income taxes	10,349		6,679		10,023			11,462			6,359		27,051		22,711
Income tax expense	4,307		2,525		4,119			4,653			2,484		10,951		8,872
Operating earnings	$	6,042	$	4,154	$	5,904		$	6,809		$	3,875	$	16,100	$	13,839
Total assets (period end)	$	1,307,459	$	1,275,386	$	1,173,558		$	1,224,169		$	1,126,847	$	1,307,459	$	1,126,847


⁽¹⁾	Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Leasing Segment operating earnings for the third quarter of 2017 increased $1.9 million compared to the prior quarter.


•	Lease financing revenue increased as a result of higher promotional income and fees from the sale of third-party equipment maintenance contracts partly offset by lower residual gains.


•	Non-interest expense increased due to higher salaries and employee benefits expense attributable to our investment in additional revenue generating staff and higher commission expense reflective of greater lease financing revenue.


•	Total assets increased due to growth in interest earning assets, mainly loans.

Leasing Segment operating earnings for the nine months ended September 30, 2017 increased $2.3 million compared to the same period last year.


•	Lease financing revenue increased as a result of higher rental income due to increased operating leases, fees from the sale of third-party equipment maintenance contracts driven by contract renewals and promotional income.


•	Provision for credit losses was lower for the nine months ended September 30, 2017 compared to the same period in 2016. The nine months ended September 30, 2016 included a provision for credit losses for a potential problem credit that improved later that year.


•	Non-interest expense increased due to higher salaries and employee benefits expense (increased salaries related to the investment in sales and other revenue generating staff and higher commissions expense as a result of higher lease financing revenue) and an increase in other operating expenses related to internal support functions from the Banking Segment.

Mortgage Banking Segment

The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):



											Nine Months Ended
											September 30,
	3Q17		2Q17		1Q17		4Q16		3Q16		2017		2016
Net interest income	$	11,373	$	10,667	$	9,325	$	9,113	$	8,918	$	31,365	$	24,230
Provision for credit losses	481		399		342		179		191		1,222		506
Net interest income after provision for credit losses	10,892		10,268		8,983		8,934		8,727		30,143		23,724
Non-interest income:
Mortgage origination revenue	21,980		23,283		21,465		29,317		39,962		66,728		88,273
Mortgage servicing revenue	5,595		6,216		6,314		2,960		9,133		18,125		27,919
Other non-interest income	1		—		—		—		—		1		(3		)
Total non-interest income	27,576		29,499		27,779		32,277		49,095		84,854		116,189
Non-interest expense:
Salaries and employee benefits expense:
Salaries	11,867		11,247		11,881		12,945		12,958		34,995		36,496
Commissions	6,001		6,494		4,932		8,178		8,554		17,427		20,796
Bonus and stock-based compensation	651		905		716		1,116		1,477		2,272		3,976
Other salaries and benefits ⁽¹⁾	4,746		4,952		4,978		5,786		6,730		14,676		17,847
Total salaries and employee benefits expense	23,265		23,598		22,507		28,025		29,719		69,370		79,115
Occupancy and equipment expense	1,940		1,969		1,979		1,900		1,972		5,888		5,806
Computer services and telecommunication expense	1,734		1,701		1,663		1,910		1,881		5,098		5,712
Professional and legal expense	467		600		595		418		411		1,662		1,429
Other operating expenses	7,376		7,886		7,238		6,971		6,587		22,500		18,380
Total non-interest expense	34,782		35,754		33,982		39,224		40,570		104,518		110,442
Income before income taxes	3,686		4,013		2,780		1,987		17,252		10,479		29,471
Income tax expense	1,469		1,600		1,101		795		6,901		4,170		11,788
Operating earnings	$	2,217	$	2,413	$	1,679	$	1,192	$	10,351	$	6,309	$	17,683
Total assets (period end)	$	2,402,362	$	2,369,560	$	1,963,165	$	1,709,267	$	1,761,656	$	2,402,362	$	1,761,656


⁽¹⁾	Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Mortgage Banking Segment operating earnings for the third quarter of 2017 decreased $196 thousand compared to the prior quarter.


•	Net interest income increased due to earnings on higher average loan balances.


•	Mortgage origination revenue decreased as a result of lower origination volume and lower gain on sale margin.


•	Mortgage servicing revenue declined due to an increase in amortization and prepayments of mortgage servicing rights, and a loss on fair value changes of mortgage servicing rights net of the related economic hedge activity partly offset by an increase in servicing fees as total serviced loans grew.


•	Salaries and employee benefits expense decreased due to lower commissions and decline in the number of employees partly offset by less deferred origination costs.

Mortgage Banking Segment operating earnings for the nine months ended September 30, 2017 decreased $11.4 million compared to the same period last year.


•	Net interest income increased due to earnings on higher average balances of loans held for investment.


•	Mortgage origination revenue decreased due to lower mortgage origination volume as a result of higher mortgage interest rates and lower gain on sale margin.


•	Mortgage servicing revenue decreased as mortgage servicing revenue for the nine months ended September 30, 2016 was positively impacted by fair value changes of mortgage servicing rights net of the related economic hedge activity.


•	Non-interest expense decreased due to lower salaries and employee benefits expense as a result of lower commission and overtime expenses attributable to a decrease in origination volume, lower bonus expense, and a decline in the number of employees. Other operating expenses increased due to higher filing fees.

FORWARD-LOOKING STATEMENTS

When used in this document and in reports filed with or furnished to the Securities and Exchange Commission (the "SEC"), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the MB Financial-American Chartered merger might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (5) the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (6) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (9) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (10) our ability to realize the residual values of its direct finance, leveraged and operating leases; (11) the ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation; (15) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act, changes in the interpretation and/or application of laws and regulations by regulatory authorities, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

TABLES TO FOLLOW

CONSOLIDATED BALANCE SHEETS (Unaudited)



(Dollars in thousands)	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
ASSETS
Cash and due from banks	$	361,080		$	348,550		$	368,078		$	364,783		$	351,009
Interest earning deposits with banks	82,636			115,707			102,328			98,686			125,250
Total cash and cash equivalents	443,716			464,257			470,406			463,469			476,259
Investment securities:
Securities available for sale, at fair value	1,497,543			1,567,071			1,657,950			1,696,195			1,859,356
Securities held to maturity, at amortized cost	994,238			1,022,912			1,056,008			1,069,750			1,115,262
Non-marketable securities - FHLB and FRB Stock	152,345			160,204			144,427			143,276			146,209
Total investment securities	2,644,126			2,750,187			2,858,385			2,909,221			3,120,827
Loans held for sale	722,754			718,916			493,261			716,883			899,412
Loans:
Total loans, excluding purchased credit-impaired loans	13,753,459			13,465,064			12,789,667			12,605,726			12,379,358
Purchased credit-impaired loans	131,919			149,077			168,814			163,077			161,338
Total loans	13,885,378			13,614,141			12,958,481			12,768,803			12,540,696
Less: Allowance for loan and lease losses	159,128			154,033			144,170			139,366			139,528
Net loans	13,726,250			13,460,108			12,814,311			12,629,437			12,401,168
Lease investments, net	371,541			346,036			315,523			311,327			277,647
Premises and equipment, net	286,482			288,148			290,767			293,910			283,112
Cash surrender value of life insurance	204,855			203,534			202,233			200,945			199,628
Goodwill	999,925			999,925			999,925			1,001,038			993,799
Other intangibles	56,745			58,783			60,869			62,959			65,395
Mortgage servicing rights, at fair value	261,446			249,688			251,498			238,011			154,730
Other real estate owned, net	13,020			11,063			14,706			26,279			33,105
Other real estate owned related to FDIC transactions	4,817			4,849			3,864			5,006			5,177
Other assets	380,858			409,563			370,314			443,832			431,623
Total assets	$	20,116,535		$	19,965,057		$	19,146,062		$	19,302,317		$	19,341,882
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	6,101,159		$	6,388,292		$	6,211,173		$	6,408,169		$	6,410,334
Interest bearing	8,313,985			7,873,527			7,788,210			7,702,279			7,868,932
Total deposits	14,415,144			14,261,819			13,999,383			14,110,448			14,279,266
Short-term borrowings	1,865,415			1,993,358			1,550,628			1,569,288			1,496,319
Long-term borrowings	405,715			330,160			315,618			311,790			311,645
Junior subordinated notes issued to capital trusts	211,289			211,085			210,769			210,668			209,159
Accrued expenses and other liabilities	526,880			520,355			453,236			520,914			482,085
Total liabilities	17,424,443			17,316,777			16,529,634			16,723,108			16,778,474
Stockholders' Equity
Preferred stock	115,280			115,572			115,572			115,572			116,507
Common stock	858			857			857			856			855
Additional paid-in capital	1,685,971			1,681,252			1,675,956			1,678,826			1,674,341
Retained earnings	940,948			899,930			875,295			838,892			809,769
Accumulated other comprehensive income	9,772			10,520			8,415			5,190			23,763
Treasury stock	(60,737		)	(59,851		)	(59,667		)	(60,384		)	(62,084		)
Controlling interest stockholders' equity	2,692,092			2,648,280			2,616,428			2,578,952			2,563,151
Non-controlling interest	—			—			—			257			257
Total stockholders' equity	2,692,092			2,648,280			2,616,428			2,579,209			2,563,408
Total liabilities and stockholders' equity	$	20,116,535		$	19,965,057		$	19,146,062		$	19,302,317		$	19,341,882

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



																Nine Months Ended
																September 30,
(Dollars in thousands, except per share data)	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Interest income:
Loans:
Taxable	$	155,440		$	143,426		$	133,737		$	134,048		$	118,675		$	432,603		$	333,829
Nontaxable	2,632			2,791			2,880			2,947			2,846			8,303			8,173
Investment securities:
Taxable	8,440			8,717			9,122			9,362			8,844			26,279			26,209
Nontaxable	9,731			9,837			9,973			10,220			10,382			29,541			31,802
Other interest earning accounts and Federal funds sold	327			228			199			157			164			754			430
Total interest income	176,570			164,999			155,911			156,734			140,911			497,480			400,443
Interest expense:
Deposits	10,865			8,793			7,475			7,324			6,681			27,133			18,255
Short-term borrowings	5,148			3,912			2,380			1,472			1,092			11,440			2,723
Long-term borrowings and junior subordinated notes	3,610			3,300			3,013			2,724			2,367			9,923			6,788
Total interest expense	19,623			16,005			12,868			11,520			10,140			48,496			27,766
Net interest income	156,947			148,994			143,043			145,214			130,771			448,984			372,677
Provision for credit losses	4,517			9,699			3,734			2,622			6,549			17,950			16,941
Net interest income after provision for credit losses	152,430			139,295			139,309			142,592			124,222			431,034			355,736
Non-interest income:
Mortgage banking revenue	27,575			29,499			27,779			32,277			49,095			84,853			116,192
Lease financing revenue, net	23,148			18,401			21,418			19,868			18,864			62,967			53,618
Commercial deposit and treasury management fees	14,508			14,499			14,689			14,237			12,957			43,696			36,383
Trust and asset management fees	8,702			8,498			8,520			8,442			8,244			25,720			24,430
Card fees	4,585			4,413			4,566			4,340			4,161			13,564			11,731
Capital markets and international banking fees	4,870			3,586			3,253			4,021			3,313			11,709			9,311
Consumer and other deposit service fees	3,424			3,285			3,363			3,563			3,559			10,072			9,745
Brokerage fees	1,004			1,250			1,125			887			1,294			3,379			3,767
Loan service fees	2,114			2,037			1,969			1,952			1,792			6,120			5,505
Increase in cash surrender value of life insurance	1,321			1,301			1,288			1,316			1,055			3,910			2,759
Net gain on investment securities	83			137			231			178			—			451			269
Net (loss) gain on disposal of other assets	(180		)	(4		)	(123		)	(749		)	5			(307		)	(45		)
Other operating income	4,110			3,615			3,695			2,491			4,048			11,420			8,415
Total non-interest income	95,264			90,517			91,773			92,823			108,387			277,554			282,080
Non-interest expense:
Salaries and employee benefits expense	105,815			102,566			101,551			108,428			111,478			309,932			292,073
Occupancy and equipment expense	15,382			15,284			15,044			15,689			14,766			45,710			41,441
Computer services and telecommunication expense	10,062			9,785			9,440			11,800			12,836			29,287			31,668
Advertising and marketing expense	2,558			3,245			3,161			3,045			3,084			8,964			8,926
Professional and legal expense	2,109			2,450			2,691			2,509			4,460			7,250			10,370
Other intangible amortization expense	2,038			2,086			2,090			2,388			1,674			6,214			4,917
Branch exit and facilities impairment charges	2,773			6,589			(682		)	—			(2,908		)	8,680			(2,709		)
Net (gain) loss recognized on other real estate owned and other related expense	(86		)	690			844			(790		)	(721		)	1,448			(809		)
Other operating expenses	21,643			22,864			21,526			22,691			25,716			66,033			68,214
Total non-interest expense	162,294			165,559			155,665			165,760			170,385			483,518			454,091
Income before income taxes	85,400			64,253			75,417			69,655			62,224			225,070			183,725
Income tax expense	24,557			19,787			20,880			22,464			17,805			65,224			56,780
Net income	60,843			44,466			54,537			47,191			44,419			159,846			126,945
Dividends on preferred shares	2,002			2,002			2,003			2,005			2,004			6,007			6,004
Net income available to common stockholders	$	58,841		$	42,464		$	52,534		$	45,186		$	42,415		$	153,839		$	120,941



											Nine Months Ended
											September 30,
	3Q17		2Q17		1Q17		4Q16		3Q16		2017		2016
Common share data:
Basic earnings per common share	$	0.70	$	0.51	$	0.63	$	0.54	$	0.55	$	1.84	$	1.62
Diluted earnings per common share	0.69		0.50		0.62		0.53		0.54		1.81		1.60
Weighted average common shares outstanding for basic earnings per common share	83,891,175		83,842,963		83,662,430		83,484,899		77,506,885		83,799,694		74,780,943
Weighted average common shares outstanding for diluted earnings per common share	84,779,797		84,767,414		84,778,130		84,674,181		78,683,170		84,775,952		75,727,580
Common shares outstanding (at end of period)	83,887,097		83,869,517		83,832,648		83,725,269		83,555,257		83,887,097		83,555,257

SELECTED FINANCIAL DATA



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Performance Ratios:
Annualized return on average assets	1.21		%	0.92		%	1.16		%	0.98		%	1.02		%	1.10		%	1.05		%
Annualized operating return on average assets ⁽¹⁾	1.25			0.99			1.13			1.07			1.20			1.13			1.15
Annualized return on average common equity	9.17			6.78			8.62			7.36			7.67			8.19			7.81
Annualized operating return on average common equity ⁽¹⁾	9.47			7.31			8.39			8.12			9.02			8.40			8.57
Annualized cash return on average tangible common equity ⁽²⁾	15.81			11.94			15.27			13.22			12.99			14.34			13.00
Annualized cash operating return on average tangible common equity ⁽³⁾	16.32			12.83			14.88			14.54			15.23			14.70			14.23
Efficiency ratio ⁽⁴⁾	61.14			64.19			63.99			64.62			62.69			63.07			63.80
Annualized net non-interest expense to average assets ⁽⁵⁾	1.25			1.40			1.35			1.35			1.06			1.33			1.23
Core non-interest income to revenues ⁽⁶⁾	36.75			36.60			37.87			38.15			43.98			37.06			41.72
Net interest margin - fully tax equivalent basis ⁽⁷⁾	3.76			3.71			3.69			3.65			3.65			3.72			3.72
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans ⁽⁸⁾	3.56			3.54			3.50			3.45			3.47			3.53			3.50
Cost of funds ⁽⁹⁾	0.46			0.39			0.33			0.28			0.28			0.39			0.27
Loans to deposits	96.32			95.46			92.56			90.49			87.82			96.32			87.82
Asset Quality Ratios:
Non-performing loans ⁽¹⁰⁾ to total loans	0.36		%	0.38		%	0.38		%	0.46		%	0.43		%	0.36		%	0.43		%
Non-performing assets ⁽¹⁰⁾ to total assets	0.32			0.32			0.34			0.45			0.45			0.32			0.45
Allowance for loan and lease losses to non-performing loans ⁽¹⁰⁾	314.39			295.07			293.02			234.81			258.82			314.39			258.82
Allowance for loan and lease losses to total loans	1.15			1.13			1.11			1.09			1.11			1.15			1.11
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)	(0.02		)	(0.00		)	(0.03		)	0.10			0.09			(0.02		)	0.08
Capital Ratios:
Tangible equity to tangible assets ⁽¹¹⁾	8.68		%	8.51		%	8.71		%	8.42		%	8.34		%	8.68		%	8.34		%
Tangible common equity to tangible assets ⁽¹²⁾	8.07			7.90			8.07			7.79			7.71			8.07			7.71
Tangible common equity to risk weighted assets ⁽¹³⁾	8.99			8.90			9.07			8.80			8.83			8.99			8.83
Total capital to risk-weighted assets ⁽¹⁴⁾	11.68			11.60			11.80			11.63			11.66			11.68			11.66
Tier 1 capital to risk-weighted assets ⁽¹⁴⁾	9.46			9.37			9.54			9.40			9.40			9.46			9.40
Common equity tier 1 capital to risk-weighted assets ⁽¹⁴⁾	8.80			8.70			8.84			8.72			8.71			8.80			8.71
Tier 1 capital to average assets (leverage ratio) ⁽¹⁴⁾	8.59			8.60			8.58			8.38			9.29			8.59			9.29
Per Share Data:
Book value per common share ⁽¹⁵⁾	$	30.72		$	30.20		$	29.83		$	29.43		$	29.28		$	30.72		$	29.28
Less: goodwill and other intangible assets, net of tax benefit, per common share	12.36			12.38			12.40			12.45			12.40			12.36			12.40
Tangible book value per common share ⁽¹⁶⁾	$	18.36		$	17.82		$	17.43		$	16.98		$	16.88		$	18.36		$	16.88
Cash dividends per common share	$	0.21		$	0.21		$	0.19		$	0.19		$	0.19		$	0.61		$	0.55


⁽¹⁾	Annualized operating return on average assets is computed by dividing annualized operating earnings by average total assets. Annualized operating return on average common equity is computed by dividing annualized operating earnings by average common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.


⁽²⁾	Annualized cash return on average tangible common equity is computed by dividing net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible common equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).


⁽³⁾	Annualized cash operating return on average tangible common equity is computed by dividing annualized cash operating earnings (operating earnings plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.


⁽⁴⁾	Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.


⁽⁵⁾	Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.


⁽⁶⁾	Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.


⁽⁷⁾	Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.


⁽⁸⁾	Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, excluding acquisition accounting discount accretion on bank merger loans as a percentage of average interest earning assets.


⁽⁹⁾	Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.


⁽¹⁰⁾	Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.


⁽¹¹⁾	Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.


⁽¹²⁾	Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.


⁽¹³⁾	Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated.


⁽¹⁴⁾	Current quarter ratios are estimated.


⁽¹⁵⁾	Equals total ending common stockholders’ equity divided by common shares outstanding.


⁽¹⁶⁾	Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.

BALANCE SHEET DETAILS TO FOLLOW

INVESTMENT SECURITIES

The following table sets forth, by type, the carrying value of our investment securities, excluding FHLB and FRB stock, as well as the unrealized gain, net of our investment securities available for sale as of the dates indicated (in thousands):



	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	23,146		$	23,229		$	23,330		$	23,415		$	53,968
States and political subdivisions	385,829			387,351			389,109			391,365			410,737
Mortgage-backed securities	962,477			1,006,931			1,056,529			1,076,692			1,173,330
Corporate bonds	115,014			138,556			178,097			193,895			210,193
Equity securities	11,077			11,004			10,885			10,828			11,128
Total fair value	$	1,497,543		$	1,567,071		$	1,657,950		$	1,696,195		$	1,859,356

Unrealized gain, net
Government sponsored agencies and enterprises	$	69		$	88		$	126		$	148		$	512
States and political subdivisions	19,642			19,966			17,780			14,824			27,696
Mortgage-backed securities	(2,101		)	(1,233		)	(2,412		)	(4,001		)	12,534
Corporate bonds	433			608			762			731			1,253
Equity securities	(100		)	(110		)	(172		)	(172		)	196
Total unrealized gain, net	$	17,943		$	19,319		$	16,084		$	11,530		$	42,191

Securities held to maturity, at amortized cost:
States and political subdivisions	$	888,576		$	896,043		$	910,336		$	910,608		$	939,491
Mortgage-backed securities	105,662			126,869			145,672			159,142			175,771
Total amortized cost	$	994,238		$	1,022,912		$	1,056,008		$	1,069,750		$	1,115,262

The Company has no direct exposure to the State of Illinois, but approximately 20% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of September 30, 2017.

LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on balances as of the dates indicated (dollars in thousands):



	9/30/2017					6/30/2017					3/31/2017					12/31/2016					9/30/2016
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,793,838		35	%	$	4,703,328		35	%	$	4,364,122		34	%	$	4,346,506		34	%	$	4,385,812		35	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,074,215			15		2,076,911			15		2,008,601			16		2,002,976			16		1,873,380			15
Commercial real estate	4,094,706			29		3,882,754			29		3,734,171			29		3,788,016			29		3,794,801			30
Construction real estate	395,794			3		449,116			3		554,942			4		518,562			4		451,023			4
Total commercial-related loans	11,358,553			82		11,112,109			82		10,661,836			83		10,656,060			83		10,505,016			84
Other loans:
Residential real estate	1,433,595			10		1,411,259			10		1,227,218			9		1,060,828			8		998,827			8
Indirect vehicle	655,213			4		627,819			4		573,792			4		541,680			4		522,271			4
Home equity	228,726			2		238,952			2		246,805			2		266,377			2		275,288			2
Consumer	77,372			1		74,925			1		80,016			1		80,781			1		77,956			1
Total other loans	2,394,906			17		2,352,955			17		2,127,831			16		1,949,666			15		1,874,342			15
Total loans, excluding purchased credit-impaired loans	13,753,459			99		13,465,064			99		12,789,667			99		12,605,726			98		12,379,358			99
Purchased credit-impaired loans	131,919			1		149,077			1		168,814			1		163,077			2		161,338			1
Total loans	$	13,885,378		100	%	$	13,614,141		100	%	$	12,958,481		100	%	$	12,768,803		100	%	$	12,540,696		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+2.1		%			+5.3		%			+1.5		%			+1.8		%			+23.0		%
From same quarter one year ago	+11.1		%			+33.8		%			+30.2		%			+30.6		%			+34.1		%

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on average balances for the periods indicated (dollars in thousands):



	3Q17					2Q17					1Q17					4Q16					3Q16
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,630,865		34	%	$	4,494,343		34	%	$	4,269,545		34	%	$	4,274,398		35	%	$	3,850,588		35	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,057,461			15		1,989,397			15		1,938,564			15		1,896,486			15		1,825,505			16
Commercial real estate	3,953,639			29		3,790,911			29		3,742,505			30		3,775,599			30		3,183,131			29
Construction real estate	442,197			3		512,385			4		554,612			4		486,861			4		397,480			4
Total commercial-related loans	11,084,162			81		10,787,036			82		10,505,226			83		10,433,344			84		9,256,704			84
Other loans:
Residential real estate	1,433,866			11		1,331,369			10		1,133,927			9		1,031,152			8		862,393			7
Indirect vehicle	641,328			4		601,394			4		552,669			4		532,782			4		507,772			5
Home equity	234,460			2		243,232			2		253,654			2		273,694			2		231,399			2
Consumer	76,591			1		81,164			1		81,564			1		80,113			1		77,451			1
Total other loans	2,386,245			18		2,257,159			17		2,021,814			16		1,917,741			15		1,679,015			15
Total loans, excluding purchased credit-impaired loans	13,470,407			99		13,044,195			99		12,527,040			99		12,351,085			99		10,935,719			99
Purchased credit-impaired loans	139,246			1		161,218			1		156,058			1		152,509			1		135,548			1
Total loans	$	13,609,653		100	%	$	13,205,413		100	%	$	12,683,098		100	%	$	12,503,594		100	%	$	11,071,267		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+3.3		%			+4.1		%			+1.4		%			+12.9		%			+10.2		%
From same quarter one year ago	+23.2		%			+31.4		%			+30.0		%			+31.6		%			+21.1		%

ASSET QUALITY

The following table presents a summary of criticized assets (excluding loans held for sale and excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):



	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	49,926		$	51,013		$	47,042		$	48,974		$	52,135
Loans 90 days or more past due, still accruing interest	689			1,190			2,159			10,378			1,774
Total non-performing loans	50,615			52,203			49,201			59,352			53,909
Other real estate owned	13,020			11,063			14,706			26,279			33,105
Repossessed assets	497			484			477			322			453
Total non-performing assets	$	64,132		$	63,750		$	64,384		$	85,953		$	87,467
Potential problem loans ⁽²⁾	$	160,840		$	134,509		$	153,779		$	144,544		$	111,594
Purchased credit-impaired loans ⁽³⁾	$	131,919		$	149,077		$	168,814		$	163,077		$	161,338
Total non-performing, potential problem and purchased credit-impaired loans	$	343,374		$	335,789		$	371,794		$	366,973		$	326,841

Total allowance for loan and lease losses	$	159,128		$	154,033		$	144,170		$	139,366		$	139,528
Accruing restructured loans ⁽⁴⁾	32,850			29,658			31,101			32,687			28,561
Total non-performing loans to total loans	0.36		%	0.38		%	0.38		%	0.46		%	0.43		%
Total non-performing assets to total assets	0.32			0.32			0.34			0.45			0.45
Allowance for loan and lease losses to non-performing loans	314.39			295.07			293.02			234.81			258.82


⁽¹⁾	Includes $24.4 million, $23.7 million, $20.7 million, $27.1 million and $23.4 million of restructured loans on non-accrual status at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.


⁽²⁾	We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.


⁽³⁾	Includes $60.1 million, $65.7 million, $68.8 million, $66.1 million and $60.1 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.


⁽⁴⁾	Accruing restructured loans consist of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table presents data related to non-performing loans by category (excluding loans held for sale and purchased credit-impaired loans that were acquired as part of our FDIC-assisted transactions and bank mergers) as of the dates indicated (in thousands):



	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Commercial and lease	$	8,493	$	8,166	$	8,739	$	15,189	$	14,898
Commercial real estate	7,753		9,512		8,719		11,767		4,655
Consumer-related	34,369		34,525		31,743		32,396		34,356
Total non-performing loans	$	50,615	$	52,203	$	49,201	$	59,352	$	53,909

Below is a reconciliation of the activity in our allowance for credit and loan and lease losses for the periods indicated (dollars in thousands):



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Allowance for credit losses, at beginning of period	$	156,297		$	146,498		$	141,842		$	142,399		$	138,333		$	141,842		$	131,508
Provision for credit losses	4,517			9,699			3,734			2,622			6,549			17,950			16,941
Charge-offs	2,830			2,921			3,373			6,442			4,157			9,124			14,169
Recoveries	3,420			3,021			4,295			3,263			1,674			10,736			8,119
Net (recoveries) charge-offs	(590		)	(100		)	(922		)	3,179			2,483			(1,612		)	6,050
Allowance for credit losses, at end of period	161,404			156,297			146,498			141,842			142,399			161,404			142,399
Allowance for unfunded credit commitments	(2,276		)	(2,264		)	(2,328		)	(2,476		)	(2,871		)	(2,276		)	(2,871		)
Allowance for loan and lease losses, at end of period	$	159,128		$	154,033		$	144,170		$	139,366		$	139,528		$	159,128		$	139,528
Total loans, excluding loans held for sale	$	13,885,378		$	13,614,141		$	12,958,481		$	12,768,803		$	12,540,696		$	13,885,378		$	12,540,696
Average loans, excluding loans held for sale	13,609,653			13,205,413			12,683,098			12,503,594			11,071,267			13,169,448			10,304,741
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.15		%	1.13		%	1.11		%	1.09		%	1.11		%	1.15		%	1.11		%
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)	(0.02		)	(0.00		)	(0.03		)	0.10			0.09			(0.02		)	0.08

The following table presents the three elements of the Company's allowance for loan and lease losses as of the dates indicated (dollars in thousands):



	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Commercial related loans:
General reserve	$	137,617	$	133,869	$	125,370	$	120,221	$	112,653
Specific reserve	2,453		1,800		1,272		3,243		9,698
Consumer related reserve	19,058		18,364		17,528		15,902		17,177
Total allowance for loan and lease losses	$	159,128	$	154,033	$	144,170	$	139,366	$	139,528

Changes in the acquisition accounting discount for purchased credit-impaired ("PCI") and non-purchased credit-impaired ("Non-PCI") loans acquired in bank mergers were as follows for the three months ended September 30, 2017 (in thousands):



	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	18,544		$	12,686		$	27,557		$	58,787
Charge-offs	(1,451		)	—			—			(1,451		)
Accretion	—			(4,315		)	(3,587		)	(7,902		)
Transfer ⁽¹⁾	(3,453		)	3,453			—			—
Balance at end of period	$	13,640		$	11,824		$	23,970		$	49,434


⁽¹⁾	The transfer from non-accretable discount on purchased credit-impaired loans to accretable discount was due to better than expected cash flows on several pools of purchased credit-impaired loans.

DEPOSIT MIX

The following table shows the composition of deposits based on balances as of the dates indicated (dollars in thousands):



	9/30/2017					6/30/2017					3/31/2017					12/31/2016					9/30/2016
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,101,159		42	%	$	6,388,292		45	%	$	6,211,173		44	%	$	6,408,169		46	%	$	6,410,334		45	%
Money market, NOW and interest bearing deposits	4,842,097			34		4,600,506			32		4,580,773			33		4,543,004			32		4,660,407			33
Savings deposits	1,088,194			7		1,109,155			8		1,126,879			8		1,135,992			8		1,147,900			8
Total low-cost deposits	12,031,450			83		12,097,953			85		11,918,825			85		12,087,165			86		12,218,641			86
Certificates of deposit:
Certificates of deposit	1,381,993			10		1,340,071			9		1,261,228			9		1,225,102			9		1,298,186			9
Brokered certificates of deposit	1,001,701			7		823,795			6		819,330			6		798,181			5		762,439			5
Total certificates of deposit	2,383,694			17		2,163,866			15		2,080,558			15		2,023,283			14		2,060,625			14
Total deposits	$	14,415,144		100	%	$	14,261,819		100	%	$	13,999,383		100	%	$	14,110,448		100	%	$	14,279,266		100	%
Change in total deposits:
From prior quarter	+1.1		%			+1.9		%			-0.8		%			-1.2		%			+24.9		%
From same quarter one year ago	+1.0		%			+24.7		%			+21.4		%			+22.6		%			+26.9		%

The following table shows the composition of deposits based on average balances for the periods indicated (dollars in thousands):



	3Q17					2Q17					1Q17					4Q16					3Q16
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,337,955		44	%	$	6,336,151		45	%	$	6,209,402		45	%	$	6,454,025		45	%	$	5,524,043		43	%
Money market, NOW and interest bearing deposits	4,740,210			33		4,506,765			32		4,529,402			33		4,628,698			33		4,161,913			33
Savings deposits	1,094,625			7		1,113,159			8		1,131,757			8		1,140,926			8		1,080,609			8
Total low-cost deposits	12,172,790			84		11,956,075			85		11,870,561			86		12,223,649			86		10,766,565			84
Certificates of deposit:
Certificates of deposit	1,369,401			10		1,317,995			9		1,245,152			9		1,263,675			9		1,257,959			10
Brokered certificates of deposit	869,687			6		820,026			6		815,473			5		779,411			5		702,030			6
Total certificates of deposit	2,239,088			16		2,138,021			15		2,060,625			14		2,043,086			14		1,959,989			16
Total deposits	$	14,411,878		100	%	$	14,094,096		100	%	$	13,931,186		100	%	$	14,266,735		100	%	$	12,726,554		100	%
Change in total deposits:
From prior quarter	+2.3		%			+1.2		%			-2.4		%			+12.1		%			+10.8		%
From same quarter one year ago	+13.2		%			+22.7		%			+21.4		%			+23.7		%			+13.2		%

STATEMENT OF OPERATIONS DETAILS TO FOLLOW

NET INTEREST MARGIN

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):



	3Q17						2Q17						3Q16
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	725,899	$	6,651	3.67	%	$	585,207	$	5,434	3.71	%	$	835,953	$	7,074	3.38	%
Loans ^{(1) (2) (3)}:
Commercial-related loans:
Commercial	4,630,865		53,567		4.53		4,494,343		49,620		4.37		3,850,588		41,095		4.18
Commercial loans collateralized by assignment of lease payments (lease loans)	2,057,461		19,381		3.77		1,989,397		18,393		3.70		1,825,505		16,876		3.70
Commercial real estate	3,953,639		46,587		4.61		3,790,911		42,119		4.40		3,183,131		33,253		4.09
Construction real estate	442,197		4,689		4.15		512,385		5,344		4.13		397,480		3,921		3.86
Total commercial-related loans	11,084,162		124,224		4.40		10,787,036		115,476		4.24		9,256,704		95,145		4.04
Other loans:
Residential real estate	1,433,866		11,579		3.23		1,331,369		11,111		3.34		862,393		7,121		3.30
Indirect	641,328		7,528		4.66		601,394		6,935		4.63		507,772		5,838		4.57
Home equity	234,460		2,515		4.26		243,232		2,475		4.08		231,399		2,252		3.87
Consumer	76,591		831		4.31		81,164		815		4.03		77,451		821		4.21
Total other loans	2,386,245		22,453		3.75		2,257,159		21,336		3.79		1,679,015		16,032		3.81
Total loans, excluding purchased credit-impaired loans	13,470,407		146,677		4.29		13,044,195		136,812		4.16		10,935,719		111,177		4.00
Purchased credit-impaired loans	139,246		6,161		17.55		161,218		5,474		13.62		135,548		4,802		14.09
Total loans	13,609,653		152,838		4.42		13,205,413		142,286		4.28		11,071,267		115,979		4.13
Taxable investment securities	1,445,619		8,440		2.34		1,539,432		8,717		2.26		1,592,547		8,844		2.22
Investment securities exempt from federal income taxes ⁽³⁾	1,255,025		14,971		4.77		1,263,213		15,134		4.79		1,318,855		15,972		4.84
Federal funds sold	38		0		1.74		145		1		1.37		36		0		1.00
Other interest earning deposits	147,065		327		0.88		87,549		227		1.04		103,061		164		0.63
Total interest earning assets	$	17,183,299	$	183,227	4.21	%	$	16,680,959	$	171,799	4.10	%	$	14,921,719	$	148,033	3.92	%
Non-interest earning assets	2,762,556						2,708,504						2,326,712
Total assets	$	19,945,855					$	19,389,463					$	17,248,431
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,740,210	$	4,485	0.38	%	$	4,506,765	$	3,284	0.29	%	$	4,161,913	$	2,299	0.22	%
Savings deposits	1,094,625		289		0.10		1,113,159		244		0.09		1,080,609		231		0.09
Certificates of deposit	1,369,401		2,757		0.80		1,317,995		2,236		0.68		1,257,959		1,633		0.52
Customer repurchase agreements	200,008		114		0.23		182,062		97		0.21		210,688		113		0.21
Total core funding	7,404,244		7,645		0.41		7,119,981		5,861		0.33		6,711,169		4,276		0.25
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	869,687		3,334		1.52		820,026		3,029		1.48		702,030		2,518		1.43
Other borrowings	2,192,200		8,644		1.54		2,035,391		7,115		1.38		1,533,344		3,346		0.85
Total wholesale funding	3,061,887		11,978		1.54		2,855,417		10,144		1.41		2,235,374		5,864		1.03
Total interest bearing liabilities	$	10,466,131	$	19,623	0.74	%	$	9,975,398	$	16,005	0.64	%	$	8,946,543	$	10,140	0.45	%
Non-interest bearing deposits	6,337,955						6,336,151						5,524,043
Other non-interest bearing liabilities	479,488						451,071						461,243
Stockholders' equity	2,662,281						2,626,843						2,316,602
Total liabilities and stockholders' equity	$	19,945,855					$	19,389,463					$	17,248,431
Net interest income/interest rate spread ⁽⁴⁾			$	163,604	3.47	%			$	155,794	3.46	%			$	137,893	3.47	%
Taxable equivalent adjustment			6,657						6,800						7,122
Net interest income, as reported			$	156,947					$	148,994					$	130,771
Net interest margin ⁽⁵⁾					3.60	%					3.55	%					3.46	%
Tax equivalent effect					0.16	%					0.16	%					0.19	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.76	%					3.71	%					3.65	%


⁽¹⁾	Non-accrual loans are included in average loans.


⁽²⁾	Interest income includes amortization of deferred loan origination fees and costs.


⁽³⁾	Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.


⁽⁴⁾	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.


⁽⁵⁾	Net interest margin represents net interest income as a percentage of average interest earning assets.



	Nine Months Ended September 30,
	2017						2016
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	626,000	$	17,118	3.65	%	$	741,880	$	19,351	3.48	%
Loans ^{(1) (2) (3)}:
Commercial-related loans:
Commercial	4,466,241		148,940		4.40		3,635,677		117,454		4.24
Commercial loans collateralized by assignment of lease payments (lease loans)	1,995,576		55,556		3.71		1,786,087		50,100		3.74
Commercial real estate	3,829,792		129,206		4.45		2,913,918		91,240		4.11
Construction real estate	502,653		15,601		4.09		341,988		10,259		3.94
Total commercial-related loans	10,794,262		349,303		4.27		8,677,670		269,053		4.08
Other loans:
Residential real estate	1,300,819		32,131		3.29		738,124		18,880		3.41
Indirect	598,788		20,575		4.59		458,281		15,929		4.64
Home equity	243,712		7,492		4.11		214,829		6,254		3.89
Consumer	79,755		2,447		4.10		78,705		2,382		4.04
Total other loans	2,223,074		62,645		3.76		1,489,939		43,445		3.89
Total loans, excluding purchased credit-impaired loans	13,017,336		411,948		4.19		10,167,609		312,498		4.06
Purchased credit-impaired loans	152,112		16,310		14.34		137,132		14,554		14.18
Total loans	13,169,448		428,258		4.30		10,304,741		327,052		4.19
Taxable investment securities	1,525,546		26,279		2.30		1,528,251		26,209		2.29
Investment securities exempt from federal income taxes ⁽³⁾	1,265,378		45,449		4.79		1,340,185		48,926		4.87
Federal funds sold	74		1		1.41		38		0		1.00
Other interest earning deposits	121,783		753		0.83		105,660		430		0.54
Total interest earning assets	$	16,708,229	$	517,858	4.11	%	$	14,020,755	$	421,968	3.98	%
Non-interest earning assets	2,741,325						2,142,106
Total assets	$	19,449,554					$	16,162,861
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,592,898	$	10,391	0.30	%	$	4,036,193	$	6,434	0.21	%
Savings deposits	1,113,044		789		0.09		1,024,050		564		0.07
Certificates of deposit	1,311,304		6,683		0.68		1,244,425		4,520		0.49
Customer repurchase agreements	193,686		311		0.21		187,698		292		0.21
Total core funding	7,210,932		18,174		0.34		6,492,366		11,810		0.24
Wholesale funding:
Brokered accounts (includes fee expense)	835,260		9,270		1.48		612,210		6,737		1.47
Other borrowings	2,017,027		21,052		1.38		1,478,102		9,219		0.82
Total wholesale funding	2,852,287		30,322		1.41		2,090,312		15,956		1.01
Total interest bearing liabilities	$	10,063,219	$	48,496	0.64	%	$	8,582,678	$	27,766	0.43	%
Non-interest bearing deposits	6,294,974						4,980,904
Other non-interest bearing liabilities	465,268						416,667
Stockholders' equity	2,626,093						2,182,612
Total liabilities and stockholders' equity	$	19,449,554					$	16,162,861
Net interest income/interest rate spread ⁽⁴⁾			$	469,362	3.47	%			$	394,202	3.55	%
Taxable equivalent adjustment			20,378						21,525
Net interest income, as reported			$	448,984					$	372,677
Net interest margin ⁽⁵⁾					3.56	%					3.52	%
Tax equivalent effect					0.16	%					0.20	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.72	%					3.72	%


⁽¹⁾	Non-accrual loans are included in average loans.


⁽²⁾	Interest income includes amortization of deferred loan origination fees and costs.


⁽³⁾	Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.


⁽⁴⁾	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.


⁽⁵⁾	Net interest margin represents net interest income as a percentage of average interest earning assets.

The tables below reflect the impact the acquisition accounting loan discount accretion on acquired loans had on the loan yield and net interest margin on a fully tax equivalent basis for the periods indicated (dollars in thousands):



	3Q17							2Q17							3Q16
	Average Balance			Interest		Yield		Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	13,609,653		$	152,838	4.42	%	$	13,205,413		$	142,286	4.28	%	$	11,071,267		$	115,979	4.13	%
Less acquisition accounting discount accretion on non-PCI loans	(25,764		)	3,587				(29,492		)	3,869				(34,315		)	4,114
Less acquisition accounting discount accretion on PCI loans	(28,347		)	4,315				(32,946		)	2,831				(23,110		)	2,046
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	13,663,764		$	144,936	4.17	%	$	13,267,851		$	135,586	4.06	%	$	11,128,692		$	109,819	3.88	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	17,183,299		$	163,604	3.76	%	$	16,680,959		$	155,794	3.71	%	$	14,921,719		$	137,893	3.65	%
Less acquisition accounting discount accretion on non-PCI loans	(25,764		)	3,587				(29,492		)	3,869				(34,315		)	4,114
Less acquisition accounting discount accretion on PCI loans	(28,347		)	4,315				(32,946		)	2,831				(23,110		)	2,046
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	17,237,410		$	155,702	3.56	%	$	16,743,397		$	149,094	3.54	%	$	14,979,144		$	131,733	3.47	%



	Nine Months Ended September 30,
	2017							2016
	Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	13,169,448		$	428,258	4.30	%	$	10,304,741		$	327,052	4.19	%
Less acquisition accounting discount accretion on non-PCI loans	(30,083		)	12,426				(32,056		)	14,455
Less acquisition accounting discount accretion on PCI loans	(33,843		)	9,334				(24,206		)	6,761
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	13,233,374		$	406,498	4.06	%	$	10,361,003		$	305,836	3.90	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	16,708,229		$	469,362	3.72	%	$	14,020,755		$	394,202	3.72	%
Less acquisition accounting discount accretion on non-PCI loans	(30,083		)	12,426				(32,056		)	14,455
Less acquisition accounting discount accretion on PCI loans	(33,843		)	9,334				(24,206		)	6,761
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	16,772,155		$	447,602	3.53	%	$	14,077,017		$	372,986	3.50	%

NON-INTEREST INCOME

The following table presents non-interest income (in thousands):



															Nine Months Ended
															September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16		2017			2016
Core non-interest income:
Key fee initiatives:
Mortgage banking revenue	$	27,575		$	29,499		$	27,779		$	32,277		$	49,095	$	84,853		$	116,192
Lease financing revenue, net	23,148			18,401			21,418			19,868			18,864		62,967			53,618
Commercial deposit and treasury management fees	14,508			14,499			14,689			14,237			12,957		43,696			36,383
Trust and asset management fees	8,702			8,498			8,520			8,442			8,244		25,720			24,430
Card fees	4,585			4,413			4,566			4,340			4,161		13,564			11,731
Capital markets and international banking fees	4,870			3,586			3,253			4,021			3,313		11,709			9,311
Total key fee initiatives	83,388			78,896			80,225			83,185			96,634		242,509			251,665
Consumer and other deposit service fees	3,424			3,285			3,363			3,563			3,559		10,072			9,745
Brokerage fees	1,004			1,250			1,125			887			1,294		3,379			3,767
Loan service fees	2,114			2,037			1,969			1,952			1,792		6,120			5,505
Increase in cash surrender value of life insurance	1,321			1,301			1,288			1,316			1,055		3,910			2,759
Other operating income	3,104			2,458			2,734			2,350			3,337		8,296			7,216
Total core non-interest income	94,355			89,227			90,704			93,253			107,671		274,286			280,657
Non-core non-interest income:
Net gain on investment securities	83			137			231			178			—		451			269
Net (loss) gain on disposal of other assets	(180		)	(4		)	(123		)	(749		)	5		(307		)	(45		)
Recovery of low to moderate income real estate investment	210			488			—			—			—		698			—
Increase in market value of assets held in trust for deferred compensation ⁽¹⁾	796			669			961			141			711		2,426			1,199
Total non-core non-interest income	909			1,290			1,069			(430		)	716		3,268			1,423
Total non-interest income	$	95,264		$	90,517		$	91,773		$	92,823		$	108,387	$	277,554		$	282,080


⁽¹⁾	Resides in other operating income in the consolidated statements of operations.

NON-INTEREST EXPENSE

The following table presents non-interest expense (in thousands):



															Nine Months Ended
															September 30,
	3Q17			2Q17			1Q17		4Q16			3Q16			2017		2016
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	61,992		$	59,889		$	58,811	$	60,553		$	56,083		$	180,692	$	158,151
Commissions	9,206			9,730			8,611		10,306			11,323			27,547		30,617
Bonus and stock-based compensation	11,911			12,553			12,290		12,167			12,980			36,754		34,508
Other salaries and benefits ⁽²⁾	20,922			19,173			20,264		21,023			21,697			60,359		58,509
Total salaries and employee benefits expense	104,031			101,345			99,976		104,049			102,083			305,352		281,785
Occupancy and equipment expense	15,382			15,278			15,040		15,594			14,662			45,700		41,329
Computer services and telecommunication expense	10,093			9,709			9,255		11,019			9,731			29,057		27,747
Advertising and marketing expense	2,558			3,245			3,161		3,039			3,031			8,964		8,809
Professional and legal expense	2,109			2,447			2,594		2,351			2,779			7,150		8,491
Other intangible amortization expense	2,038			2,086			2,090		2,388			1,674			6,214		4,917
Net loss (gain) recognized on other real estate owned (A)	84			706			607		(982		)	(908		)	1,397		(1,376		)
Other real estate expense, net (A)	(170		)	(16		)	237		192			187			51		567
Other operating expenses	22,035			22,924			21,486		21,478			21,067			66,445		59,247
Total core non-interest expense	158,160			157,724			154,446		159,128			154,306			470,330		431,516
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	1,579			7,166			258		6,491			11,368			9,003		17,221
Branch exit and facilities impairment charges	1,759			—			—		—			—			1,759		155
Contribution to MB Financial Charitable Foundation (C)	—			—			—		—			4,000			—		4,000
Increase in market value of assets held in trust for deferred compensation (D)	796			669			961		141			711			2,426		1,199
Total non-core non-interest expense	4,134			7,835			1,219		6,632			16,079			13,188		22,575
Total non-interest expense	$	162,294		$	165,559		$	155,665	$	165,760		$	170,385		$	483,518	$	454,091


⁽¹⁾	Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows: A – Net loss (gain) recognized on other real estate owned and other expense, B – See merger related and repositioning expenses table below, C – Other operating expenses, and D – Salaries and employee benefits.


⁽²⁾	Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

The following table presents the detail of the merger related and repositioning expenses (in thousands):



															Nine Months Ended
															September 30,
	3Q17			2Q17			1Q17			4Q16		3Q16			2017			2016
Merger related and repositioning expenses ⁽¹⁾:
Salaries and employee benefits expense	$	988		$	552		$	614		$	4,238	$	8,684		$	2,154		$	9,089
Occupancy and equipment expense	—			6			4			95		104			10			112
Computer services and telecommunication expense	(31		)	76			185			781		3,105			230			3,921
Advertising and marketing expense	—			—			—			6		53			—			117
Professional and legal expense	—			3			97			158		1,681			100			1,879
Branch exit and facilities impairment charges ⁽²⁾	1,014			6,589			(682		)	—		(2,908		)	6,921			(2,864		)
Contingent consideration expense - Celtic acquisition ⁽³⁾	—			—			—			1,000		—			—			2,703
Other operating expenses	(392		)	(60		)	40			213		649			(412		)	2,264
Total merger related and repositioning expenses	$	1,579		$	7,166		$	258		$	6,491	$	11,368		$	9,003		$	17,221


⁽¹⁾	Primarily includes costs incurred in connection with the American Chartered merger.

⁽²⁾

Includes costs associated with office space reconfiguration in the third quarter of 2017, exit charges on branches closed in the second quarter of 2017 as a result of the American Chartered merger, a gain on the sale of a branch in the first quarter of 2017 and a reversal of an exit cost due to a favorable lease termination in the third quarter of 2016 on a branch acquired through the Taylor Capital merger.


⁽³⁾	Includes an increase in our contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated. Resides in other operating expenses in the consolidated statements of operations.

INCOME TAX EXPENSE

The following table presents information on our income tax rate (dollars in thousands):



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Income before income taxes - as reported	$	85,400		$	64,253		$	75,417		$	69,655		$	62,224		$	225,070		$	183,725
Tax at Federal statutory rate (35%)	29,890			22,489			26,396			24,379			21,778			78,775			64,304

Increase (decrease) due to:
Tax exempt income, net	(4,665		)	(4,814		)	(4,900		)	(5,025		)	(4,947		)	(14,379		)	(14,616		)
State tax expense (benefit), net of Federal impact	4,101			2,727			2,764			3,234			2,485			9,592			6,796
Other items, net	(802		)	261			807			320			294			266			1,306
Tax expense before discrete items	28,524			20,663			25,067			22,908			19,610			74,254			57,790
Income tax rate before discrete items (effective tax rate)	33.4		%	32.2		%	33.2		%	32.9		%	31.5		%	33.0		%	31.5		%

Discrete tax expense (benefit) items ⁽¹⁾	(3,967		)	(221		)	(2,738		)	(849		)	(2,105		)	(6,926		)	(2,105		)
Discrete tax expense (benefit) merger related items ⁽²⁾	—			(655		)	(1,449		)	405			300			(2,104		)	1,095
Income tax expense - as reported	$	24,557		$	19,787		$	20,880		$	22,464		$	17,805		$	65,224		$	56,780
Income tax rate	28.8		%	30.8		%	27.7		%	32.3		%	28.6		%	29.0		%	30.9		%


⁽¹⁾	Includes tax benefits on the vesting of restricted shares, exercise of options and other compensation as well as a tax benefit due to the impact of the Illinois state income tax rate increase (effective July 1, 2017) on our deferred tax assets.


⁽²⁾	Includes reversals of a tax liability no longer needed specifically related to two entities we acquired and certain non-deductible merger related items.

MORTGAGE BANKING SEGMENT DATA

The following table presents additional information regarding the Mortgage Banking Segment (dollars in thousands):



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Mortgage origination revenue:
Gain on sale revenue, net (A)	$	17,098		$	18,000		$	15,607		$	23,576		$	35,190		$	50,705		$	76,521
Origination fees	4,882			5,283			5,858			5,741			4,772			16,023			11,752
Total mortgage origination revenue	$	21,980		$	23,283		$	21,465		$	29,317		$	39,962		$	66,728		$	88,273

Mortgage servicing revenue:
Servicing fees	$	14,531		$	14,065		$	13,735		$	12,610		$	12,022		$	42,331		$	33,965
Amortization/prepayment of mortgage servicing rights ⁽¹⁾	(8,399		)	(7,822		)	(6,743		)	(8,777		)	(8,551		)	(22,964		)	(21,654		)
Fair value changes of mortgage servicing rights	4,475			(6,195		)	4,083			65,006			9,853			2,363			(38,360		)
Economic hedge activity, net	(5,012		)	6,168			(4,761		)	(65,879		)	(4,191		)	(3,605		)	53,968
Fair value changes of mortgage servicing rights net of economic hedge activity	(537		)	(27		)	(678		)	(873		)	5,662			(1,242		)	15,608
Total mortgage servicing revenue	$	5,595		$	6,216		$	6,314		$	2,960		$	9,133		$	18,125		$	27,919

Mortgage servicing rights, at fair value:
Beginning balance	$	249,688		$	251,498		$	238,011		$	154,730		$	134,969		$	238,011		$	168,162
Originations/purchases	15,682			12,207			16,147			27,052			18,459			44,036			46,582
Amortization/prepayment ⁽¹⁾	(8,399		)	(7,822		)	(6,743		)	(8,777		)	(8,551		)	(22,964		)	(21,654		)
Fair value changes	4,475			(6,195		)	4,083			65,006			9,853			2,363			(38,360		)
Ending balance	$	261,446		$	249,688		$	251,498		$	238,011		$	154,730		$	261,446		$	154,730

Mortgage servicing book (unpaid principal balance of loans serviced for others)	$	21,380,397		$	20,823,016		$	20,450,217		$	19,683,073		$	18,477,648		$	21,380,397		$	18,477,648
Mortgage servicing rights valuation	1.22		%	1.20		%	1.23		%	1.21		%	0.84		%	1.22		%	0.84		%

Loans funded:
For sale	$	1,307,329		$	1,248,544		$	1,073,357		$	1,933,208		$	1,853,146		$	3,629,230		$	4,692,763
For investment	95,495			233,314			212,745			121,198			123,228			541,554			321,459

Loans funded by purpose:
Refinance	30		%	30		%	41		%	56		%	48		%	34		%	45		%
Purchase	70			70			59			44			52			66			55

Loans funded by channel:
Retail	26		%	27		%	23		%	21		%	22		%	25		%	21		%
Third party	74			73			77			79			78			75			79

Originated for sale mortgage volume ⁽²⁾ (B)	$	1,265,240		$	1,299,706		$	1,061,173		$	1,419,871		$	2,055,919		$	3,626,119		$	5,133,390

Gain on sale margin (A)/(B)	1.35		%	1.38		%	1.47		%	1.66		%	1.71		%	1.40		%	1.49		%


⁽¹⁾	Changes due to collection or realization of expected cash flows.


⁽²⁾	Includes change in mortgage rate lock commitments expected to close, change in loans held for sale and loans sold to investors during the period.

NON-GAAP FINANCIAL INFORMATION

This document contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include operating earnings, core non-interest income, core non-interest income to revenues (with non-core items excluded from both core non-interest income and revenues), core non-interest expense, non-core non-interest income and non-core non-interest expense, net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on bank mergers loans, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains on investment securities, net gains and losses on disposal of other assets, recovery of low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios and branch exit and facilities impairment charges, merger related and repositioning expenses, increase in market value of assets held in trust for deferred compensation and contribution to MB Financial Charitable Foundation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to tangible assets and tangible common equity to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

Management believes that operating earnings, core and non-core non-interest income and core and non-core non-interest expense are useful in assessing our core operating performance and in understanding the primary drivers of our non-interest income and non-interest expense when comparing periods.

Management believes that operating earnings adjusted for merger related and repositioning expenses is a useful measure because it excludes expenses that can significantly fluctuate from acquisition to acquisition. In addition, management believes that excluding these expenses provides investors and analysts a measure to better understand the Company's primary operations when comparing the periods presented in the earnings release.

The tax equivalent adjustment to net interest income, net interest margin, tax-exempt interest income and increase in cash surrender value of life insurance recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. For the same reasons, management believes that the tax equivalent adjustments to tax-exempt interest income and increase in cash surrender value of life insurance are useful.

Management also believes that by excluding net gains on investment securities, net gains and losses on disposal of other assets, recovery of low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding branch exit and facilities impairment charges, merger related and repositioning expenses, increase in market value of assets held in trust for deferred compensation and contribution to MB Financial Charitable Foundation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

The other measures exclude the acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible assets, tangible equity, tangible common equity and average tangible common equity and exclude other intangible amortization expense, net of tax benefit, in determining net cash flow available to common stockholders. Management believes the presentation of these other financial measures, excluding the impact of such items, provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management’s success in utilizing our tangible capital, as well as our capital strength. Management also believes that providing measures that exclude balances of acquisition-related goodwill and other intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

The non-GAAP disclosures contained herein should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Reconciliations of net interest margin on a fully tax equivalent basis to net interest margin and net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans to net interest margin are contained in the tables under “Net Interest Margin.” A reconciliation of tangible book value per common share to book value per common share is contained in the

“Selected Financial Data” table. Reconciliations of core and non-core non-interest income and non-interest expense to non-interest income and non-interest expense are contained in the tables under “Non-interest Income” and “Non-interest Expense.”

The following table presents a reconciliation of tangible equity to stockholders' equity (in thousands):



	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Stockholders' equity - as reported	$	2,692,092	$	2,648,280	$	2,616,428	$	2,579,209	$	2,563,408
Less goodwill	999,925		999,925		999,925		1,001,038		993,799
Less other intangible assets, net of tax benefit	36,884		38,209		39,565		40,923		42,507
Tangible equity	$	1,655,283	$	1,610,146	$	1,576,938	$	1,537,248	$	1,527,102

The following table presents a reconciliation of tangible assets to total assets (in thousands):



	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Total assets - as reported	$	20,116,535	$	19,965,057	$	19,146,062	$	19,302,317	$	19,341,882
Less goodwill	999,925		999,925		999,925		1,001,038		993,799
Less other intangible assets, net of tax benefit	36,884		38,209		39,565		40,923		42,507
Tangible assets	$	19,079,726	$	18,926,923	$	18,106,572	$	18,260,356	$	18,305,576

The following table presents a reconciliation of tangible common equity to common stockholders' equity (in thousands):



	9/30/2017		6/30/2017		3/31/2017		12/31/2016		9/30/2016
Common stockholders' equity - as reported	$	2,576,812	$	2,532,708	$	2,500,856	$	2,463,637	$	2,446,901
Less goodwill	999,925		999,925		999,925		1,001,038		993,799
Less other intangible assets, net of tax benefit	36,884		38,209		39,565		40,923		42,507
Tangible common equity	$	1,540,003	$	1,494,574	$	1,461,366	$	1,421,676	$	1,410,595

The following table presents a reconciliation of average tangible equity to average common stockholders’ equity (in thousands):



											Nine Months Ended
											September 30,
	3Q17		2Q17		1Q17		4Q16		3Q16		2017		2016
Average common stockholders' equity - as reported	$	2,546,744	$	2,511,271	$	2,472,771	$	2,441,809	$	2,201,095	$	2,510,533	$	2,067,257
Less average goodwill	999,925		999,925		1,001,005		994,053		835,894		1,000,281		762,262
Less average other intangible assets, net of tax benefit	37,346		38,836		40,052		41,471		32,744		38,734		29,576
Average tangible common equity	$	1,509,473	$	1,472,510	$	1,431,714	$	1,406,285	$	1,332,457	$	1,471,518	$	1,275,419

The following table presents a reconciliation of net cash flow available to common stockholders to net income available to common stockholders (in thousands):



											Nine Months Ended
											September 30,
	3Q17		2Q17		1Q17		4Q16		3Q16		2017		2016
Net income available to common stockholders - as reported	$	58,841	$	42,464	$	52,534	$	45,186	$	42,415	$	153,839	$	120,941
Plus other intangible amortization expense, net of tax benefit	1,325		1,356		1,359		1,552		1,088		4,039		3,196
Net cash flow available to common stockholders	$	60,166	$	43,820	$	53,893	$	46,738	$	43,503	$	157,878	$	124,137

The following table presents a reconciliation of net income to operating earnings (in thousands):



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Net income - as reported	$	60,843		$	44,466		$	54,537		$	47,191		$	44,419		$	159,846		$	126,945
Less non-core items:
Net gain on investment securities	83			137			231			178			—			451			269
Net (loss) gain on disposal of other assets	(180		)	(4		)	(123		)	(749		)	5			(307		)	(45		)
Recovery of low to moderate income real estate investment	210			488			—			—			—			698			—
Increase in market value of assets held in trust for deferred compensation - other operating income	796			669			961			141			711			2,426			1,199
Merger related and repositioning expenses	(1,579		)	(7,166		)	(258		)	(6,491		)	(11,368		)	(9,003		)	(17,221		)
Branch exit and facilities impairment charges	(1,759		)	—			—			—			—			(1,759		)	(155		)
Contribution to MB Financial Charitable Foundation	—			—			—			—			(4,000		)	—			(4,000		)
Increase in market value of assets held in trust for deferred compensation - other operating expense	(796		)	(669		)	(961		)	(141		)	(711		)	(2,426		)	(1,199		)
Total non-core items	(3,225		)	(6,545		)	(150		)	(7,062		)	(15,363		)	(9,920		)	(21,152		)
Income tax expense on non-core items	(1,283		)	(2,598		)	(59		)	(2,406		)	(6,074		)	(3,940		)	(7,654		)
Income tax expense - other ⁽¹⁾	—			(655		)	(1,449		)	—			—			(2,104		)	—
Income tax benefit resulting from early adoption of new stock-based compensation guidance	—			—			—			—			(1,793		)	—			(1,793		)
Non-core items, net of tax	(1,942		)	(3,292		)	1,358			(4,656		)	(7,496		)	(3,876		)	(11,705		)
Operating earnings	62,785			47,758			53,179			51,847			51,915			163,722			138,650
Dividends on preferred shares	2,002			2,002			2,003			2,005			2,004			6,007			6,004
Operating earnings available to common stockholders	$	60,783		$	45,756		$	51,176		$	49,842		$	49,911		$	157,715		$	132,646
Diluted operating earnings per common share	$	0.72		$	0.54		$	0.60		$	0.59		$	0.63		$	1.86		$	1.75
Weighted average common shares outstanding for diluted operating earnings per common share	84,779,797			84,767,414			84,778,130			84,674,181			78,683,170			84,775,952			75,727,580


⁽¹⁾	The first and second quarters of 2017 include reversals of a tax liability no longer needed specifically related to two entities we acquired.

Efficiency Ratio Calculation (Dollars in Thousands)



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Non-interest expense	$	162,294		$	165,559		$	155,665		$	165,760		$	170,385		$	483,518		$	454,091
Less merger related and repositioning expenses	1,579			7,166			258			6,491			11,368			9,003			17,221
Less branch exit and facilities impairment charges	1,759			—			—			—			—			1,759			155
Less contribution to MB Financial Charitable Foundation	—			—			—			—			4,000			—			4,000
Less increase in market value of assets held in trust for deferred compensation	796			669			961			141			711			2,426			1,199
Non-interest expense - as adjusted	$	158,160		$	157,724		$	154,446		$	159,128		$	154,306		$	470,330		$	431,516

Net interest income	$	156,947		$	148,994		$	143,043		$	145,214		$	130,771		$	448,984		$	372,677
Tax equivalent adjustment	6,657			6,800			6,921			7,090			7,122			20,378			21,525
Net interest income on a fully tax equivalent basis	163,604			155,794			149,964			152,304			137,893			469,362			394,202
Plus non-interest income	95,264			90,517			91,773			92,823			108,387			277,554			282,080
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	711			701			694			709			568			2,105			1,486
Less net gain on investment securities	83			137			231			178			—			451			269
Less net (loss) gain on disposal of other assets	(180		)	(4		)	(123		)	(749		)	5			(307		)	(45		)
Less recovery of low to moderate income real estate investment	210			488			—			—			—			698			—
Less increase in market value of assets held in trust for deferred compensation	796			669			961			141			711			2,426			1,199
Non-interest income - as adjusted	95,066			89,928			91,398			93,962			108,239			276,391			282,143
Total revenue - as adjusted and on a fully tax equivalent basis	$	258,670		$	245,722		$	241,362		$	246,266		$	246,132		$	745,753		$	676,345
Efficiency ratio	61.14		%	64.19		%	63.99		%	64.62		%	62.69		%	63.07		%	63.80		%
Efficiency ratio (without adjustments)	64.35		%	69.12		%	66.29		%	69.64		%	71.24		%	66.55		%	69.35		%

Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Non-interest expense - as adjusted ⁽¹⁾	$	158,160		$	157,724		$	154,446		$	159,128		$	154,306		$	470,330		$	431,516
Less non-interest income - as adjusted ⁽¹⁾	95,066			89,928			91,398			93,962			108,239			276,391			282,143
Net non-interest expense - as adjusted	$	63,094		$	67,796		$	63,048		$	65,166		$	46,067		$	193,939		$	149,373
Average assets	$	19,945,855		$	19,389,463		$	19,002,982		$	19,192,747		$	17,248,431		$	19,449,554		$	16,162,861
Annualized net non-interest expense to average assets	1.25		%	1.40		%	1.35		%	1.35		%	1.06		%	1.33		%	1.23		%
Annualized net non-interest expense to average assets (without adjustments)	1.33		%	1.55		%	1.36		%	1.51		%	1.43		%	1.42		%	1.42		%


⁽¹⁾	See "Efficiency Ratio Calculation" table for reconciliation of this item.

Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)



																Nine Months Ended
																September 30,
	3Q17			2Q17			1Q17			4Q16			3Q16			2017			2016
Non-interest income - as adjusted ⁽¹⁾	$	95,066		$	89,928		$	91,398		$	93,962		$	108,239		$	276,391		$	282,143
Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	258,670		$	245,722		$	241,362		$	246,266		$	246,132		$	745,753		$	676,345
Core non-interest income to revenues ratio	36.75		%	36.60		%	37.87		%	38.15		%	43.98		%	37.06		%	41.72		%
Non-interest income to revenues ratio (without adjustments)	37.77		%	37.79		%	39.08		%	39.00		%	45.32		%	38.20		%	43.08		%


⁽¹⁾	See "Efficiency Ratio Calculation" table for reconciliation of this item.

The following table presents an alternative view of non-interest expense for the periods presented (in thousands):



	3Q17			2Q17			1Q17			4Q16			3Q16

Core non-interest expense ⁽¹⁾	$	158,160		$	157,724		$	154,446		$	159,128		$	154,306
Less commissions ⁽²⁾	9,206			9,730			8,611			10,306			11,323
Less net loss (gain) recognized on other real estate owned ⁽³⁾	84			706			607			(982		)	(908		)
Plus day count adjustment for constant 92 days of salary expense	—			658			1,307			—			—
Run-rate of non-interest expense	$	148,870		$	147,946		$	146,535		$	149,804		$	143,891
Percent change from prior period	+0.6		%	+1.0		%	-2.2		%	+4.1		%


⁽¹⁾	See "Non-interest Expense" section for reconciliation of core non-interest expense to total non-interest expense as reported.


⁽²⁾	Resides in salaries and employee benefits expense on the consolidated statements of operations.


⁽³⁾	Resides in net loss (gain) recognized on other real estate owned and other expense on the consolidated statements of operations.

MB FINANCIAL INC /MD - FORM 8-K - EX-99 - EXHIBIT 99 - October 18, 2017

Attached files

MB FINANCIAL INC /MD Reports