MB FINANCIAL INC /MD - FORM 8-K - EX-99.1 - EXHIBIT 99.1

Attached files

file	filename
8-K - 8-K - MB FINANCIAL INC /MD	form8-kearningsrelease1q18.htm
EX-99.2 - EXHIBIT 99.2 - MB FINANCIAL INC /MD	exhibit992investorpresen.htm

EXHIBIT 99.1



	1Q18

MB FINANCIAL, INC. REPORTS FIRST QUARTER 2018 NET INCOME OF $56.8 MILLION

CHICAGO, April 24, 2018 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced first quarter 2018 net income of $56.8 million compared to $144.2 million last quarter and $54.5 million in the first quarter a year ago. Diluted earnings per common share were $0.81 in the first quarter of 2018 compared to $1.67 last quarter and $0.62 in the first quarter a year ago.

"Overall, we had a good quarter. Our operating earnings were up 21.1% from last quarter with increases in our banking and leasing segments. Other contributing factors to our results for the quarter include net interest margin expansion, good expense control, and stable credit quality," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc. "Loan and deposit balances were relatively unchanged. This is consistent with our expectations of seasonal fluctuations in the first quarter compared to other quarters."

Mr. Feiger continued, "Regarding mortgage, we announced earlier this month our plan to discontinue our national residential mortgage origination business. We had been pursuing a strategy of improving the profitability of our mortgage business by growing retail originations, which have typically been more profitable and consistent. However, with recent economic changes, the competitiveness of the mortgage industry, and recent low origination margins, we determined that we would be unable to successfully execute that strategy within a reasonable period of time. We plan to continue originating residential mortgage loans in the greater Chicago area through our mortgage retail offices, retain the mortgage servicing asset as well as our mortgage servicing operation in Wilmington, Ohio, and continue holding residential mortgages on our balance sheet."

"Our successes, and the tough business decisions we sometimes have to make, are guided by the pillars of our long-term strategy: high quality low-cost deposits; strong rapidly growing fee businesses; diversification across revenue and profit sources, loans, and deposits; and close attention to balance sheet risk, especially credit quality. These pillars, coupled with our nimbleness to offer products and services that provide maximum value to our clients in a rapidly-changing economic environment, position us well for the future," stated Mr. Feiger.

Operating Earnings (in thousands, except per share data)



	1Q18			4Q17			3Q17		2Q17		1Q17
Net income - as reported	$	56,757		$	144,194		$	60,843	$	44,466	$	54,537
Non-core items, net of tax ⁽¹⁾	614			(96,814		)	1,942		3,292		(1,358		)
Operating earnings	57,371			47,380			62,785		47,758		53,179
Dividends on preferred shares	3,100			2,000			2,002		2,002		2,003
Operating earnings available to common stockholders	$	54,271		$	45,380		$	60,783	$	45,756	$	51,176
Diluted earnings per common share - as reported ^{(2) (3)}	$	0.81		$	1.67		$	0.69	$	0.50	$	0.62
Impact of return from preferred stockholders due to redemption ⁽²⁾	(0.18		)	—			—		—		—
Impact of non-core items, net of tax	0.01			(1.14		)	0.03		0.04		(0.02		)
Diluted operating earnings per common share	$	0.64		$	0.53		$	0.72	$	0.54	$	0.60


⁽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.


⁽²⁾	The $0.81 diluted earnings per common share in the first quarter of 2018 were positively impacted by a $15.3 million, or $0.18 per common share, return from preferred stockholders due to the redemption of our 8% Series A non-cumulative perpetual preferred stock. The $15.3 million represents the excess carrying amount over the redemption price of the Series A preferred stock.


⁽³⁾	The $1.67 diluted earnings per common share in the fourth quarter of 2018 were positively impacted by a $104.2 million, or $1.23 per common share, tax benefit due to the enactment of the Tax Cuts and Jobs Act of 2017.

Key Items (compared to 4Q17)

Operating Earnings

•

Operating earnings increased by $10.0 million, or 21.1%, to $57.4 million compared to the prior quarter. This increase resulted mostly from the following items (net of tax): an increase of $1.9 million in earnings from investments in Small Business Investment Companies ("SBICs") and an $8.0 million decrease in income tax expense due to the decrease in the effective tax rate resulting from the Tax Cuts and Jobs Act ("TCJ Act"). These items were partly offset by a $2.8 million, net of tax, increase in provision for credit losses.


•	Diluted operating earnings per common share were $0.64 compared to $0.53 in the prior quarter.

Loans


•	Loan balances, excluding purchased credit-impaired loans, decreased $21.3 million (-0.2%, or -0.6%, annualized).


•	Average loan balances, excluding purchased credit-impaired loans, increased $143.6 million (+1.1%, or +4.3% annualized) to $13.8 billion due to increases in commercial and construction loans.


•	Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 16 basis points to 4.33% from 4.17% in the prior quarter as a result of increases in short-term interest rates (prime rate and LIBOR).

Deposits


•	Low-cost deposits declined $30.5 million in the quarter (-0.2%, or -1.0% annualized).


•	Average low-cost deposits decreased $94.4 million (-0.8%, or -3.1% annualized) to $12.4 billion due to normal seasonal balance fluctuations.


•	Average cost of total deposits increased five basis points to 0.41%.

Net interest margin


•	Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased six basis points in the quarter to 3.55%. This increase was due to higher loan yields partly offset by increased funding costs and a lower tax benefit on municipal investment securities and tax exempt loans as a result of the TCJ Act (six basis points).


•	Average interest earning assets decreased $290.2 million mostly due to (1) a seasonal reduction in deposit balances and (2) a reduction in cash caused by redemption of all $100 million of our 8% Series A non-cumulative perpetual preferred stock and $20 million of higher-cost junior subordinated debt.


•	Average cost of funds increased seven basis points to 0.58% due to higher rates paid on interest bearing liabilities partly offset by a favorable shift in liability mix.

Operating Segments (compared to 4Q17)

Banking


•	Operating earnings were $49.1 million, an increase of $5.4 million, or 12.3%, compared to the prior quarter.


•	This increase was due to a decrease in non-interest expenses, stronger earnings from investments in SBICs, and lower income tax expense, partly offset by an increase in provision for credit losses.

Leasing


•	Operating earnings were $8.6 million, an increase of $4.1 million, or 92.0%, compared to the prior quarter.


•	Operating earnings for the quarter increased due to higher lease financing revenues, lower provision for credit losses, and a lower effective tax rate.

Mortgage Banking


•	Operating loss was $295 thousand compared to an operating loss of $815 thousand in the prior quarter.


•	On April 12, 2018, we announced the discontinuation of our national mortgage origination business, which includes all originations outside of the Company's consumer banking footprint in the Chicagoland area. See "Operating Segments - Mortgage Banking Segment" section for additional details.

Guidance on Selected Financial Items

We expect:


•	for the full year 2018, outstanding loans to grow in the mid to high single digits (percent) from balances at December 31, 2017;


•	for the second quarter of 2018, net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, to be at least 3.60%;


•	non-interest expense for the full year 2018 to grow in the low single digits (percent) from the fourth quarter of 2017, excluding commissions and expenses related to the discontinuation of our national mortgage origination business; and


•	our effective tax rate to be approximately 24% in 2018.

Operating Segments

The Company currently 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. As a result of the discontinuation of our national mortgage origination business, we expect to stop operating the mortgage business as a defined segment with separate Mortgage Banking Segment reporting prior to the fourth quarter of 2018. 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):



	1Q18		4Q17		3Q17		2Q17		1Q17
Net interest income	$	140,471	$	140,180	$	142,888	$	135,982	$	131,449
Provision for credit losses	7,579		501		3,637		8,890		3,527
Net interest income after provision for credit losses	132,892		139,679		139,251		127,092		127,922
Non-interest income:
Lease financing revenue, net	1,535		1,795		1,097		1,326		1,545
Treasury management fees	15,156		15,234		14,508		14,499		14,689
Wealth management fees	9,121		9,024		8,702		8,498		8,520
Card fees	4,787		5,032		4,585		4,413		4,566
Capital markets and international banking fees	2,998		3,999		4,870		3,586		3,253
Other non-interest income	10,675		9,359		10,940		9,655		9,306
Total non-interest income	44,272		44,443		44,702		41,977		41,879
Non-interest expense:
Salaries and employee benefits expense:
Salaries	44,821		44,782		45,096		44,019		42,120
Commissions	953		1,119		877		1,121		1,107
Bonus and stock-based compensation	10,610		10,418		10,032		10,603		10,619
Other salaries and benefits ⁽¹⁾	15,207		14,119		14,604		12,698		13,705
Total salaries and employee benefits expense	71,591		70,438		70,609		68,441		67,551
Occupancy and equipment expense	14,089		13,769		12,372		12,298		12,117
Computer services and telecommunication expense	9,741		9,664		8,386		7,976		7,514
Professional and legal expense	1,359		1,967		1,239		1,455		1,600
Other operating expenses	16,745		18,817		16,757		18,793		18,255
Total non-interest expense	113,525		114,655		109,363		108,963		107,037
Income before income taxes	63,639		69,467		74,590		60,106		62,764
Income tax expense	14,539		25,734		20,064		18,915		17,168
Operating earnings	$	49,100	$	43,733	$	54,526	$	41,191	$	45,596
Total assets (period end)	$	16,582,585	$	16,448,960	$	16,406,714	$	16,320,111	$	16,009,339


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

Banking Segment operating earnings for the first quarter of 2018 increased $5.4 million compared to the prior quarter.


•	Provision for credit losses increased due to required reserves on one loan relationship that migrated into non-performing status in the quarter and normal risk rating migrations in the loan portfolio.


•	Other non-interest income increased as a result of stronger earnings from investments in SBICs.


•	Prior quarter other salaries and benefits expense was impacted by lower health insurance expense due to fewer claims.


•	Other operating expenses decreased mostly due to lower FDIC premiums, travel, postage, card expenses, and operating losses.


•	Income tax expense decreased as a result of the decrease in the effective tax rate.


•	Total assets increased due to investments in mortgage-backed securities partly offset by a decrease in cash and cash equivalents.

Leasing Segment

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



	1Q18			4Q17			3Q17		2Q17		1Q17
Net interest income	$	2,482		$	2,602		$	2,686	$	2,345	$	2,269
Provision for credit losses	(24		)	3,184			399		410		(135		)
Net interest income after provision for credit losses	2,506			(582		)	2,287		1,935		2,404
Non-interest income:
Lease financing revenue, net	23,938			22,576			22,534		17,474		20,253
Other non-interest income	899			1,168			26		676		1,173
Total non-interest income	24,837			23,744			22,560		18,150		21,426
Non-interest expense:
Salaries and employee benefits expense:
Salaries	5,917			5,361			5,029		4,623		4,810
Commissions	2,520			2,777			2,328		2,115		2,572
Bonus and stock-based compensation	974			1,761			1,228		1,045		955
Other salaries and benefits ⁽¹⁾	1,809			1,329			1,572		1,523		1,581
Total salaries and employee benefits expense	11,220			11,228			10,157		9,306		9,918
Occupancy and equipment expense	1,167			1,090			1,070		1,011		944
Computer services and telecommunication expense	505			595			456		431		458
Professional and legal expense	373			457			403		392		399
Other operating expenses	2,212			2,101			2,412		2,266		2,088
Total non-interest expense	15,477			15,471			14,498		13,406		13,807
Income before income taxes	11,866			7,691			10,349		6,679		10,023
Income tax expense	3,300			3,229			4,307		2,525		4,119
Operating earnings	$	8,566		$	4,462		$	6,042	$	4,154	$	5,904
Total assets (period end)	$	1,360,117		$	1,403,690		$	1,307,459	$	1,275,386	$	1,173,558


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

Leasing Segment operating earnings for the first quarter of 2018 increased $4.1 million compared to the prior quarter.


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


•	Provision for credit losses decreased as the prior quarter was impacted by greater loan charge-offs.


•	Salaries increased due to our investment in additional revenue generating staff offset by lower bonus expense.


•	Income tax expense was lower (in relation to income before taxes) as a result of the decrease in the effective tax rate.

Mortgage Banking Segment

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



	1Q18			4Q17			3Q17		2Q17		1Q17
Net interest income	$	10,428		$	10,611		$	11,373	$	10,667	$	9,325
Provision for credit losses	(47		)	(42		)	481		399		342
Net interest income after provision for credit losses	10,475			10,653			10,892		10,268		8,983
Non-interest income:
Mortgage origination revenue ⁽¹⁾	17,854			18,146			22,647		23,936		22,142
Mortgage servicing revenue	7,193			4,228			5,595		6,216		6,314
Other non-interest income	1			—			1		—		—
Total non-interest income	25,048			22,374			28,243		30,152		28,456
Non-interest expense:
Salaries and employee benefits expense:
Salaries	13,849			12,322			11,867		11,247		11,881
Commissions	3,962			4,407			6,001		6,494		4,932
Bonus and stock-based compensation	471			1,153			651		905		716
Other salaries and benefits ⁽²⁾	4,924			4,705			4,746		4,952		4,978
Total salaries and employee benefits expense	23,206			22,587			23,265		23,598		22,507
Occupancy and equipment expense	2,138			1,868			1,940		1,969		1,979
Computer services and telecommunication expense	1,673			1,779			1,734		1,701		1,663
Professional and legal expense	162			490			467		600		595
Other operating expenses ⁽¹⁾	8,749			7,673			8,043		8,539		7,915
Total non-interest expense	35,928			34,397			35,449		36,407		34,659
Income (loss) before income taxes	(405		)	(1,370		)	3,686		4,013		2,780
Income tax (benefit) expense	(110		)	(555		)	1,469		1,600		1,101
Operating (loss) earnings	$	(295	)	$	(815	)	$	2,217	$	2,413	$	1,679
Total assets (period end)	$	2,224,821		$	2,234,290		$	2,402,362	$	2,369,560	$	1,963,165


⁽¹⁾	2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses.


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

On April 12, 2018, the Company announced that it will be discontinuing its national mortgage origination business, which includes all originations outside of the Company's consumer banking footprint in the Chicagoland area. As a result, the Company expects:


•	quarterly net interest income from the Mortgage Banking Segment to decline approximately $3.3 million (net of funding costs) by the third quarter of 2018, from $10.4 million in the first quarter of 2018 due to the decrease in loans held for sale,


•	quarterly mortgage origination revenue from the Mortgage Banking Segment to decline approximately $16.9 million by the third quarter of 2018 from $17.9 million in the first quarter of 2018,


•	quarterly mortgage servicing revenue from the Mortgage Banking Segment to decrease approximately $1.2 million by the third quarter of 2018 from $7.2 million in the first quarter of 2018,


•	quarterly non-interest expense from the Mortgage Banking Segment to decrease approximately $29.1 million by the end of 2018 from $35.9 million in the first quarter of 2018,


•	the fully phased in quarterly impact of these changes will be to increase our pre-tax income by approximately $7.7 million by the first quarter of 2019,


•	revenues to decrease more quickly than expenses as we will stop accepting locked loans and loan applications from our national residential mortgage origination business during the second quarter of 2018,


•	to incur one-time costs of approximately $37 to $41 million during the remainder of 2018, and


•	to stop operating its mortgage business as a defined segment with separate Mortgage Banking Segment reporting prior to the fourth quarter of 2018.

Additional Mortgage Banking Segment Data

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Mortgage origination revenue:
Gain on sale revenue, net	$	11,652		$	13,376		$	17,098		$	18,000		$	15,607
Origination fees ⁽¹⁾	6,202			4,770			5,549			5,936			6,535
Total mortgage origination revenue	$	17,854		$	18,146		$	22,647		$	23,936		$	22,142

Mortgage servicing revenue:
Servicing fees	$	16,068		$	14,802		$	14,531		$	14,065		$	13,735
Amortization/prepayment of mortgage servicing rights ⁽²⁾	(8,015		)	(9,037		)	(8,399		)	(7,822		)	(6,743		)
Fair value changes of mortgage servicing rights	10,890			7,231			4,475			(6,195		)	4,083
Economic hedge activity, net	(11,750		)	(8,768		)	(5,012		)	6,168			(4,761		)
Fair value changes of mortgage servicing rights net of economic hedge activity ⁽³⁾	(860		)	(1,537		)	(537		)	(27		)	(678		)
Total mortgage servicing revenue	$	7,193		$	4,228		$	5,595		$	6,216		$	6,314

Mortgage servicing rights, at fair value:
Beginning balance	$	276,279		$	261,446		$	249,688		$	251,498		$	238,011
Originations/purchases	12,407			16,639			15,682			12,207			16,147
Amortization/prepayment ⁽²⁾	(8,015		)	(9,037		)	(8,399		)	(7,822		)	(6,743		)
Fair value changes	10,890			7,231			4,475			(6,195		)	4,083
Ending balance	$	291,561		$	276,279		$	261,446		$	249,688		$	251,498

Mortgage servicing book (unpaid principal balance of loans serviced for others)	$	22,362,896		$	21,993,128		$	21,380,397		$	20,823,016		$	20,450,217
Mortgage servicing rights valuation	1.30		%	1.26		%	1.22		%	1.20		%	1.23		%


⁽¹⁾	2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses.


⁽²⁾	Changes due to collection or realization of expected cash flows.


⁽³⁾	Approximately $800 thousand of the fourth quarter 2017 fair value change was due to an increase in delinquencies in the fourth quarter of 2017 resulting in higher anticipated collection costs and lower mortgage servicing rights asset value.

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,” “guidance,” “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) the possibility that our actual results on selected financial items for which we have provided guidance in this document will be materially different from such guidance; (2) the possibility that the actual changes in net interest income from the Mortgage Banking Segment, mortgage origination revenue from the Mortgage Banking Segment, mortgage servicing revenue from the Mortgage Banking Segment, non-interest expense from the Mortgage Banking Segment, and our pre-tax income resulting from the discontinuation of our national mortgage origination business will be materially different from the estimated changes provided in this document; (3) the risk that funds obtained from capital raising activities will not be utilized efficiently or effectively; (4) expected revenues, cost savings, synergies, and other benefits from our merger and acquisition activities 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; (5) 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 and lease losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (6) the quality and composition of our securities portfolio; (7) competitive pressures among depository institutions; (8) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (9) 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, both before and after the discontinuation of our national mortgage origination business, 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; (10) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (11) fluctuations in real estate values; (12) results of examinations of us and our bank subsidiary by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses, write-down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; (13) our ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (14) 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; (15) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (16) our ability to access cost-effective funding; (17) changes in financial markets; (18) changes in economic conditions in general and in the Chicago metropolitan area in particular; (19) the costs, effects, and outcomes of litigation; (20) 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, including but not limited to the TCJ Act, or interpretations thereof by taxing authorities; (21) changes in accounting principles, policies or guidelines; (22) our future acquisitions of other depository institutions or lines of business; and (23) 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)	3/31/2018			12/31/2017			9/30/2017			6/30/2017			3/31/2017
ASSETS
Cash and due from banks	$	332,234		$	397,880		$	361,080		$	348,550		$	368,078
Interest earning deposits with banks	50,624			181,341			82,636			115,707			102,328
Total cash and cash equivalents	382,858			579,221			443,716			464,257			470,406
Investment securities:
Securities available for sale, at fair value	1,679,011			1,408,326			1,497,543			1,567,071			1,657,950
Securities held to maturity, at amortized cost	933,319			959,082			994,238			1,022,912			1,056,008
Marketable equity securities, at fair value	11,124			—			—			—			—
Non-marketable securities - FHLB and FRB Stock	118,955			114,111			152,345			160,204			144,427
Total investment securities	2,742,409			2,481,519			2,644,126			2,750,187			2,858,385
Loans held for sale	561,549			548,578			722,754			718,916			493,261
Loans:
Total loans, excluding purchased credit-impaired loans	13,824,990			13,846,318			13,753,459			13,465,064			12,789,667
Purchased credit-impaired loans	109,990			119,744			131,919			149,077			168,814
Total loans	13,934,980			13,966,062			13,885,378			13,614,141			12,958,481
Less: Allowance for loan and lease losses	161,712			157,710			159,128			154,033			144,170
Net loans	13,773,268			13,808,352			13,726,250			13,460,108			12,814,311
Lease investments, net	408,798			409,051			371,541			346,036			315,523
Premises and equipment, net	281,791			286,690			286,482			288,148			290,767
Cash surrender value of life insurance	204,710			203,602			204,855			203,534			202,233
Goodwill	1,003,548			1,003,548			999,925			999,925			999,925
Other intangibles	52,864			54,766			56,745			58,783			60,869
Mortgage servicing rights, at fair value	291,561			276,279			261,446			249,688			251,498
Other real estate owned, net	10,528			9,736			13,020			11,063			14,706
Other real estate owned related to FDIC transactions	4,185			4,788			4,817			4,849			3,864
Other assets	449,454			420,810			380,858			409,563			370,314
Total assets	$	20,167,523		$	20,086,940		$	20,116,535		$	19,965,057		$	19,146,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	6,385,149		$	6,381,512		$	6,101,159		$	6,388,292		$	6,211,173
Interest bearing	8,585,444			8,576,866			8,313,985			7,873,527			7,788,210
Total deposits	14,970,593			14,958,378			14,415,144			14,261,819			13,999,383
Short-term borrowings	717,679			861,039			1,865,415			1,993,358			1,550,628
Long-term borrowings	851,221			505,158			405,715			330,160			315,618
Junior subordinated notes issued to capital trusts	194,304			211,494			211,289			211,085			210,769
Accrued expenses and other liabilities	499,379			541,048			526,880			520,355			453,236
Total liabilities	17,233,176			17,077,117			17,424,443			17,316,777			16,529,634
Stockholders' Equity
Preferred stock	194,719			309,999			115,280			115,572			115,572
Common stock	860			858			858			857			857
Additional paid-in capital	1,692,650			1,691,007			1,685,971			1,681,252			1,675,956
Retained earnings	1,112,323			1,065,303			940,948			899,930			875,295
Accumulated other comprehensive (loss) income	(3,719		)	3,584			9,772			10,520			8,415
Treasury stock	(62,486		)	(60,928		)	(60,737		)	(59,851		)	(59,667		)
Total stockholders' equity	2,934,347			3,009,823			2,692,092			2,648,280			2,616,428
Total liabilities and stockholders' equity	$	20,167,523		$	20,086,940		$	20,116,535		$	19,965,057		$	19,146,062

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



(Dollars in thousands, except per share data)	1Q18			4Q17			3Q17			2Q17			1Q17
Interest income:
Loans:
Taxable	$	157,119		$	154,631		$	155,440		$	143,426		$	133,737
Nontaxable	2,271			2,362			2,632			2,791			2,880
Investment securities:
Taxable	7,934			7,696			8,440			8,717			9,122
Nontaxable	9,476			9,677			9,731			9,837			9,973
Other interest earning accounts and Federal funds sold	131			600			327			228			199
Total interest income	176,931			174,966			176,570			164,999			155,911
Interest expense:
Deposits	15,032			13,552			10,865			8,793			7,475
Short-term borrowings	2,516			3,257			5,148			3,912			2,380
Long-term borrowings and junior subordinated notes	6,002			4,764			3,610			3,300			3,013
Total interest expense	23,550			21,573			19,623			16,005			12,868
Net interest income	153,381			153,393			156,947			148,994			143,043
Provision for credit losses	7,508			3,643			4,517			9,699			3,734
Net interest income after provision for credit losses	145,873			149,750			152,430			139,295			139,309
Non-interest income:
Mortgage banking revenue	25,047			22,374			28,242			30,152			28,456
Lease financing revenue, net	24,710			23,620			23,148			18,401			21,418
Treasury management fees	15,156			15,234			14,508			14,499			14,689
Wealth management fees	9,121			9,024			8,702			8,498			8,520
Card fees	4,787			5,032			4,585			4,413			4,566
Capital markets and international banking fees	2,998			3,999			4,870			3,586			3,253
Consumer and other deposit service fees	2,912			3,261			3,424			3,285			3,363
Brokerage fees	864			942			1,004			1,250			1,125
Loan service fees	2,245			2,197			2,114			2,037			1,969
Increase in cash surrender value of life insurance	1,108			1,511			1,321			1,301			1,288
Net (loss) gain on investment securities	(174		)	111			83			137			231
Net loss on disposal of other assets	(357		)	(2,016		)	(180		)	(4		)	(123		)
Other operating income	4,385			4,534			4,110			3,615			3,695
Total non-interest income	92,802			89,823			95,931			91,170			92,450
Non-interest expense:
Salaries and employee benefits expense	106,514			109,247			105,815			102,566			101,551
Occupancy and equipment expense	17,429			16,846			15,382			15,284			15,044
Computer services and telecommunication expense	11,156			11,304			10,062			9,785			9,440
Advertising and marketing expense	3,863			3,271			2,558			3,245			3,161
Professional and legal expense	1,898			2,957			2,109			2,450			2,691
Other intangible amortization expense	1,902			1,979			2,038			2,086			2,090
Branch exit and facilities impairment charges	—			(327		)	2,773			6,589			(682		)
Net loss (gain) recognized on other real estate owned and other related expense	47			(104		)	(86		)	690			844
Loss on extinguishment of debt	3,136			—			—			—			—
Other operating expenses	21,941			30,655			22,310			23,517			22,203
Total non-interest expense	167,886			175,828			162,961			166,212			156,342
Income before income taxes	70,789			63,745			85,400			64,253			75,417
Income tax expense (benefit)	14,032			(80,449		)	24,557			19,787			20,880
Net income	56,757			144,194			60,843			44,466			54,537
Dividends on preferred shares	3,100			2,000			2,002			2,002			2,003
Return from preferred stockholders due to redemption	(15,280		)	—			—			—			—
Net income available to common stockholders	$	68,937		$	142,194		$	58,841		$	42,464		$	52,534



	1Q18		4Q17		3Q17		2Q17		1Q17
Common share data:
Basic earnings per common share	$	0.82	$	1.69	$	0.70	$	0.51	$	0.63
Diluted earnings per common share	0.81		1.67		0.69		0.50		0.62
Weighted average common shares outstanding for basic earnings per common share	84,065,681		83,946,637		83,891,175		83,842,963		83,662,430
Weighted average common shares outstanding for diluted earnings per common share	84,896,401		84,964,759		84,779,797		84,767,414		84,778,130
Common shares outstanding (at end of period)	84,052,547		83,917,892		83,887,097		83,869,517		83,832,648

SELECTED FINANCIAL DATA



	1Q18			4Q17			3Q17			2Q17			1Q17
Performance Ratios:
Annualized return on average assets	1.15		%	2.84		%	1.21		%	0.92		%	1.16		%
Annualized operating return on average assets ⁽¹⁾	1.17			0.93			1.25			0.99			1.13
Annualized return on average common equity	10.32			21.87			9.17			6.78			8.62
Annualized operating return on average common equity ⁽¹⁾	8.13			6.98			9.47			7.31			8.39
Annualized cash return on average tangible common equity ⁽²⁾	17.15			36.90			15.81			11.94			15.27
Annualized cash operating return on average tangible common equity ⁽³⁾	13.58			12.00			16.32			12.83			14.88
Efficiency ratio ⁽⁴⁾	65.62			65.38			61.24			64.28			64.09
Annualized net non-interest expense to average assets ⁽⁵⁾	1.43			1.44			1.25			1.40			1.35
Core non-interest income to revenues ⁽⁶⁾	37.45			36.18			36.91			36.77			38.04
Net interest margin - fully tax equivalent basis ⁽⁷⁾	3.67			3.63			3.76			3.71			3.69
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans ⁽⁸⁾	3.55			3.49			3.56			3.54			3.50
Cost of funds ⁽⁹⁾	0.58			0.51			0.46			0.39			0.33
Loans to deposits	93.08			93.37			96.32			95.46			92.56
Asset Quality Ratios:
Non-performing loans ⁽¹⁰⁾ to total loans	0.44		%	0.55		%	0.36		%	0.38		%	0.38		%
Non-performing assets ⁽¹⁰⁾ to total assets	0.36			0.43			0.32			0.32			0.34
Allowance for loan and lease losses to non-performing loans ⁽¹⁰⁾	263.72			205.33			314.39			295.07			293.02
Allowance for loan and lease losses to total loans	1.16			1.13			1.15			1.13			1.11
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)	0.10			0.16			(0.02		)	(0.00		)	(0.03		)
Capital Ratios:
Tangible equity to tangible assets ⁽¹¹⁾	9.89		%	10.32		%	8.68		%	8.51		%	8.71		%
Tangible common equity to tangible assets ⁽¹²⁾	8.87			8.70			8.07			7.90			8.07
Tangible common equity to risk weighted assets ⁽¹³⁾	9.85			9.71			8.99			8.90			9.07
Total capital to risk-weighted assets ⁽¹⁴⁾	13.61			14.23			11.67			11.60			11.80
Tier 1 capital to risk-weighted assets ⁽¹⁴⁾	10.69			11.20			9.46			9.37			9.54
Common equity tier 1 capital to risk-weighted assets ⁽¹⁴⁾	9.57			9.40			8.80			8.70			8.84
Tier 1 capital to average assets (leverage ratio) ⁽¹⁴⁾	9.78			10.02			8.59			8.60			8.58
Per Share Data:
Book value per common share ⁽¹⁵⁾	$	32.59		$	32.17		$	30.72		$	30.20		$	29.83
Less: goodwill and other intangible assets, net of tax benefit, per common share	12.40			12.44			12.36			12.38			12.40
Tangible book value per common share ⁽¹⁶⁾	$	20.19		$	19.73		$	18.36		$	17.82		$	17.43
Cash dividends per common share	$	0.24		$	0.21		$	0.21		$	0.21		$	0.19


⁽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 less dividends on preferred shares 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 plus the 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 Federal tax rate of 21% for 2018 and 35% for 2017, as a percentage of average interest earning assets.


⁽⁸⁾	Represents net interest income on a fully tax equivalent basis assuming a Federal tax rate of 21% for 2018 and 35% for 2017, 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 non-interest bearing deposits.


⁽¹⁰⁾	Non-performing loans exclude purchased credit-impaired loans and loans held for sale. Non-performing assets exclude 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 marketable equity securities and non-marketable FHLB and FRB stock, as well as the unrealized (loss) gain, net of our investment securities available for sale as of the dates indicated (in thousands):



	3/31/2018			12/31/2017			9/30/2017			6/30/2017			3/31/2017
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	22,885		$	23,007		$	23,146		$	23,229		$	23,330
States and political subdivisions	366,906			379,325			385,829			387,351			389,109
Mortgage-backed securities	1,251,229			924,734			962,477			1,006,931			1,056,529
Corporate bonds	37,991			70,197			115,014			138,556			178,097
Equity securities ⁽¹⁾	—			11,063			11,077			11,004			10,885
Total fair value	$	1,679,011		$	1,408,326		$	1,497,543		$	1,567,071		$	1,657,950

Unrealized (loss) gain, net
Government sponsored agencies and enterprises	$	(63	)	$	(6	)	$	69		$	88		$	126
States and political subdivisions	11,848			15,512			19,642			19,966			17,780
Mortgage-backed securities	(15,166		)	(8,414		)	(2,101		)	(1,233		)	(2,412		)
Corporate bonds	(29		)	42			433			608			762
Equity securities ⁽¹⁾	—			(173		)	(100		)	(110		)	(172		)
Total unrealized (loss) gain, net	$	(3,410	)	$	6,961		$	17,943		$	19,319		$	16,084

Securities held to maturity, at amortized cost:
States and political subdivisions	$	874,306		$	878,400		$	888,576		$	896,043		$	910,336
Mortgage-backed securities	59,013			80,682			105,662			126,869			145,672
Total amortized cost	$	933,319		$	959,082		$	994,238		$	1,022,912		$	1,056,008


⁽¹⁾	Reflected in marketable equity securities on the consolidated balance sheet following the adoption of the new investments in equity securities guidance on January 1, 2018.

The Company has no direct exposure to the State of Illinois, but approximately 19% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of March 31, 2018.

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):



	3/31/2018					12/31/2017					9/30/2017					6/30/2017					3/31/2017
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,790,803		34	%	$	4,786,180		34	%	$	4,793,838		35	%	$	4,703,328		35	%	$	4,364,122		34	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,095,189			15		2,113,135			15		2,074,215			15		2,076,911			15		2,008,601			16
Commercial real estate	4,093,045			29		4,147,529			30		4,094,706			29		3,882,754			29		3,734,171			29
Construction real estate	479,638			4		406,849			3		395,794			3		449,116			3		554,942			4
Total commercial-related loans	11,458,675			82		11,453,693			82		11,358,553			82		11,112,109			82		10,661,836			83
Other loans:
Residential real estate	1,391,900			10		1,432,458			10		1,433,595			10		1,411,259			10		1,227,218			9
Indirect vehicle	692,642			5		667,928			4		655,213			4		627,819			4		573,792			4
Home equity	202,920			1		219,098			2		228,726			2		238,952			2		246,805			2
Consumer	78,853			1		73,141			1		77,372			1		74,925			1		80,016			1
Total other loans	2,366,315			17		2,392,625			17		2,394,906			17		2,352,955			17		2,127,831			16
Total loans, excluding purchased credit-impaired loans	13,824,990			99		13,846,318			99		13,753,459			99		13,465,064			99		12,789,667			99
Purchased credit-impaired loans	109,990			1		119,744			1		131,919			1		149,077			1		168,814			1
Total loans	$	13,934,980		100	%	$	13,966,062		100	%	$	13,885,378		100	%	$	13,614,141		100	%	$	12,958,481		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	-0.2		%			+0.7		%			+2.1		%			+5.3		%			+1.5		%
From same quarter one year ago	+8.1		%			+9.8		%			+11.1		%			+33.8		%			+30.2		%

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):



	1Q18					4Q17					3Q17					2Q17					1Q17
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,750,035		34	%	$	4,638,618		34	%	$	4,630,865		34	%	$	4,494,343		34	%	$	4,269,545		34	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,084,396			15		2,074,655			15		2,057,461			15		1,989,397			15		1,938,564			15
Commercial real estate	4,133,826			30		4,131,179			30		3,953,639			29		3,790,911			29		3,742,505			30
Construction real estate	443,329			3		410,416			3		442,197			3		512,385			4		554,612			4
Total commercial-related loans	11,411,586			82		11,254,868			82		11,084,162			81		10,787,036			82		10,505,226			83
Other loans:
Residential real estate	1,415,374			10		1,430,219			10		1,433,866			11		1,331,369			10		1,133,927			9
Indirect vehicle	676,590			5		663,474			4		641,328			4		601,394			4		552,669			4
Home equity	211,729			1		223,445			2		234,460			2		243,232			2		253,654			2
Consumer	76,606			1		76,249			1		76,591			1		81,164			1		81,564			1
Total other loans	2,380,299			17		2,393,387			17		2,386,245			18		2,257,159			17		2,021,814			16
Total loans, excluding purchased credit-impaired loans	13,791,885			99		13,648,255			99		13,470,407			99		13,044,195			99		12,527,040			99
Purchased credit-impaired loans	113,942			1		127,781			1		139,246			1		161,218			1		156,058			1
Total loans	$	13,905,827		100	%	$	13,776,036		100	%	$	13,609,653		100	%	$	13,205,413		100	%	$	12,683,098		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+1.1		%			+1.3		%			+3.3		%			+4.1		%			+1.4		%
From same quarter one year ago	+10.1		%			+10.5		%			+23.2		%			+31.4		%			+30.0		%

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):



	3/31/2018			12/31/2017			9/30/2017			6/30/2017			3/31/2017
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	60,151		$	71,238		$	49,926		$	51,013		$	47,042
Loans 90 days or more past due, still accruing interest	1,169			5,570			689			1,190			2,159
Total non-performing loans	61,320			76,808			50,615			52,203			49,201
Other real estate owned	10,528			9,736			13,020			11,063			14,706
Repossessed assets	661			589			497			484			477
Total non-performing assets	$	72,509		$	87,133		$	64,132		$	63,750		$	64,384
Potential problem loans ⁽²⁾	$	208,201		$	173,266		$	160,840		$	134,509		$	153,779
Purchased credit-impaired loans ⁽³⁾	$	109,990		$	119,744		$	131,919		$	149,077		$	168,814
Total non-performing, potential problem and purchased credit-impaired loans	$	379,511		$	369,818		$	343,374		$	335,789		$	371,794

Total allowance for loan and lease losses	$	161,712		$	157,710		$	159,128		$	154,033		$	144,170
Accruing restructured loans ⁽⁴⁾	28,591			28,554			32,850			29,658			31,101
Total non-performing loans to total loans	0.44		%	0.55		%	0.36		%	0.38		%	0.38		%
Total non-performing assets to total assets	0.36			0.43			0.32			0.32			0.34
Allowance for loan and lease losses to non-performing loans	263.72			205.33			314.39			295.07			293.02


⁽¹⁾	Includes $28.5 million, $30.8 million, $24.4 million, $23.7 million, and $20.7 million of restructured loans on non-accrual status at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, 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 $49.5 million, $54.9 million, $60.1 million, $65.7 million, and $68.8 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, 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):



	3/31/2018		12/31/2017		9/30/2017		6/30/2017		3/31/2017
Commercial and lease	$	13,843	$	18,522	$	8,493	$	8,166	$	8,739
Commercial real estate	10,986		21,235		7,753		9,512		8,719
Consumer-related	36,491		37,051		34,369		34,525		31,743
Total non-performing loans	$	61,320	$	76,808	$	50,615	$	52,203	$	49,201

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Allowance for credit losses, at beginning of period	$	159,408		$	161,404		$	156,297		$	146,498		$	141,842
Provision for credit losses	7,508			3,643			4,517			9,699			3,734
Charge-offs	6,818			7,448			2,830			2,921			3,373
Recoveries	3,292			1,809			3,420			3,021			4,295
Net charge-offs (recoveries)	3,526			5,639			(590		)	(100		)	(922		)
Allowance for credit losses, at end of period	163,390			159,408			161,404			156,297			146,498
Allowance for unfunded credit commitments	(1,678		)	(1,698		)	(2,276		)	(2,264		)	(2,328		)
Allowance for loan and lease losses, at end of period	$	161,712		$	157,710		$	159,128		$	154,033		$	144,170
Total loans, excluding loans held for sale	$	13,934,980		$	13,966,062		$	13,885,378		$	13,614,141		$	12,958,481
Average loans, excluding loans held for sale	13,905,827			13,776,036			13,609,653			13,205,413			12,683,098
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.16		%	1.13		%	1.15		%	1.13		%	1.11		%
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)	0.10			0.16			(0.02		)	(0.00		)	(0.03		)

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):



	3/31/2018		12/31/2017		9/30/2017		6/30/2017		3/31/2017
Commercial related loans:
General reserve	$	137,284	$	132,787	$	137,617	$	133,869	$	125,370
Specific reserve	7,290		6,056		2,453		1,800		1,272
Consumer related reserve	17,138		18,867		19,058		18,364		17,528
Total allowance for loan and lease losses	$	161,712	$	157,710	$	159,128	$	154,033	$	144,170

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 March 31, 2018 (in thousands):



	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	7,676		$	12,069		$	21,056		$	40,801
Recoveries, net	312			—			—			312
Accretion	—			(2,411		)	(2,338		)	(4,749		)
Transfer ⁽¹⁾	(609		)	609			—			—
Balance at end of period	$	7,379		$	10,267		$	18,718		$	36,364


⁽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):



	3/31/2018					12/31/2017					9/30/2017					6/30/2017					3/31/2017
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,385,149		43	%	$	6,381,512		43	%	$	6,101,159		42	%	$	6,388,292		45	%	$	6,211,173		44	%
Money market, NOW, and interest bearing deposits	4,858,506			32		4,954,765			33		4,842,097			34		4,600,506			32		4,580,773			33
Savings deposits	1,229,968			8		1,167,810			8		1,088,194			7		1,109,155			8		1,126,879			8
Total low-cost deposits	12,473,623			83		12,504,087			84		12,031,450			83		12,097,953			85		11,918,825			85
Certificates of deposit:
Certificates of deposit	1,397,868			10		1,392,409			9		1,381,993			10		1,340,071			9		1,261,228			9
Brokered certificates of deposit	1,099,102			7		1,061,882			7		1,001,701			7		823,795			6		819,330			6
Total certificates of deposit	2,496,970			17		2,454,291			16		2,383,694			17		2,163,866			15		2,080,558			15
Total deposits	$	14,970,593		100	%	$	14,958,378		100	%	$	14,415,144		100	%	$	14,261,819		100	%	$	13,999,383		100	%
Change in total deposits:
From prior quarter	+0.1		%			+3.8		%			+1.1		%			+1.9		%			-0.8		%
From same quarter one year ago	+6.9		%			+6.0		%			+1.0		%			+24.7		%			+21.4		%

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



	1Q18					4Q17					3Q17					2Q17					1Q17
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,293,453		42	%	$	6,370,801		43	%	$	6,337,955		44	%	$	6,336,151		45	%	$	6,209,402		45	%
Money market, NOW, and interest bearing deposits	4,871,501			33		4,976,854			33		4,740,210			33		4,506,765			32		4,529,402			33
Savings deposits	1,208,843			8		1,120,550			7		1,094,625			7		1,113,159			8		1,131,757			8
Total low-cost deposits	12,373,797			83		12,468,205			83		12,172,790			84		11,956,075			85		11,870,561			86
Certificates of deposit:
Certificates of deposit	1,383,260			10		1,393,210			10		1,369,401			10		1,317,995			9		1,245,152			9
Brokered certificates of deposit	1,075,056			7		1,092,990			7		869,687			6		820,026			6		815,473			5
Total certificates of deposit	2,458,316			17		2,486,200			17		2,239,088			16		2,138,021			15		2,060,625			14
Total deposits	$	14,832,113		100	%	$	14,954,405		100	%	$	14,411,878		100	%	$	14,094,096		100	%	$	13,931,186		100	%
Change in total deposits:
From prior quarter	-0.8		%			+3.8		%			+2.3		%			+1.2		%			-2.4		%
From same quarter one year ago	+6.5		%			+4.8		%			+13.2		%			+22.7		%			+21.4		%

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):



	1Q18						4Q17						1Q17
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	545,392	$	4,431	3.25	%	$	653,482	$	5,683	3.48	%	$	565,128	$	5,033	3.56	%
Loans ^{(1) (2) (3)}:
Commercial-related loans:
Commercial	4,750,035		55,394		4.66		4,638,618		53,505		4.51		4,269,545		45,755		4.29
Commercial loans collateralized by assignment of lease payments (lease loans)	2,084,396		19,756		3.79		2,074,655		19,314		3.72		1,938,564		17,781		3.67
Commercial real estate	4,133,826		48,811		4.72		4,131,179		47,763		4.52		3,742,505		40,500		4.33
Construction real estate	443,329		4,865		4.39		410,416		4,395		4.19		554,612		5,569		4.02
Total commercial-related loans	11,411,586		128,826		4.52		11,254,868		124,977		4.36		10,505,226		109,605		4.17
Other loans:
Residential real estate	1,415,374		11,848		3.35		1,430,219		11,621		3.25		1,133,927		9,441		3.33
Indirect	676,590		7,928		4.75		663,474		7,810		4.67		552,669		6,111		4.48
Home equity	211,729		2,340		4.48		223,445		2,414		4.29		253,654		2,502		4.00
Consumer	76,606		799		4.23		76,249		796		4.14		81,564		800		3.98
Total other loans	2,380,299		22,915		3.88		2,393,387		22,641		3.77		2,021,814		18,854		3.76
Total loans, excluding purchased credit-impaired loans	13,791,885		151,741		4.41		13,648,255		147,618		4.26		12,527,040		128,459		4.11
Purchased credit-impaired loans	113,942		3,821		13.60		127,781		4,964		15.41		156,058		4,675		12.15
Total loans	13,905,827		155,562		4.48		13,776,036		152,582		4.36		12,683,098		133,134		4.20
Taxable investment securities	1,264,282		7,934		2.51		1,315,473		7,696		2.34		1,593,209		9,122		2.29
Investment securities exempt from federal income taxes ⁽³⁾	1,226,319		11,995		3.91		1,249,181		14,888		4.77		1,278,150		15,344		4.80
Federal funds sold	72		0		1.80		37		0		1.73		38		0		1.23
Other interest earning deposits	125,351		131		0.42		363,273		600		0.66		130,553		199		0.62
Total interest earning assets	$	17,067,243	$	180,053	4.22	%	$	17,357,482	$	181,449	4.13	%	$	16,250,176	$	162,832	4.01	%
Non-interest earning assets	2,871,314						2,809,191						2,752,806
Total assets	$	19,938,557					$	20,166,673					$	19,002,982
Interest Bearing Liabilities:
Core funding:
Money market, NOW, and interest bearing deposits	$	4,871,501	$	6,319	0.53	%	$	4,976,854	$	5,617	0.45	%	$	4,529,402	$	2,622	0.23	%
Savings deposits	1,208,843		816		0.27		1,120,550		478		0.17		1,131,757		255		0.09
Certificates of deposit	1,383,260		3,364		0.99		1,393,210		3,143		0.90		1,245,152		1,690		0.55
Customer repurchase agreements	216,526		169		0.32		217,390		137		0.25		198,977		100		0.20
Total core funding	7,680,130		10,668		0.56		7,708,004		9,375		0.48		7,105,288		4,667		0.27
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	1,075,056		4,532		1.71		1,092,990		4,314		1.57		815,473		2,908		1.45
Other borrowings	1,431,735		8,350		2.33		1,672,957		7,884		1.84		1,819,393		5,293		1.16
Total wholesale funding	2,506,791		12,882		2.07		2,765,947		12,198		1.73		2,634,866		8,201		1.25
Total interest bearing liabilities	$	10,186,921	$	23,550	0.93	%	$	10,473,951	$	21,573	0.81	%	$	9,740,154	$	12,868	0.53	%
Non-interest bearing deposits	6,293,453						6,370,801						6,209,402
Other non-interest bearing liabilities	496,914						541,823						465,083
Stockholders' equity	2,961,269						2,780,098						2,588,343
Total liabilities and stockholders' equity	$	19,938,557					$	20,166,673					$	19,002,982
Net interest income/interest rate spread ⁽⁴⁾			$	156,503	3.29	%			$	159,876	3.32	%			$	149,964	3.48	%
Taxable equivalent adjustment			3,122						6,483						6,921
Net interest income, as reported			$	153,381					$	153,393					$	143,043
Net interest margin ⁽⁵⁾					3.59	%					3.49	%					3.52	%
Tax equivalent effect					0.08	%					0.14	%					0.17	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.67	%					3.63	%					3.69	%


⁽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 Federal tax rate of 21% for 2018 and 35% for 2017.


⁽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 that 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):



	1Q18							4Q17							1Q17
	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	$	13,905,827		$	155,562	4.48	%	$	13,776,036		$	152,582	4.36	%	$	12,683,098		$	133,134	4.20	%
Less acquisition accounting discount on non-PCI loans	(19,887		)	2,388				(22,513		)	2,914				(38,442		)	4,970
Less acquisition accounting discount on PCI loans	(18,696		)	2,411				(22,605		)	3,166				(33,811		)	2,188
Total loans, excluding acquisition accounting discount on bank merger loans	$	13,944,410		$	150,763	4.33	%	$	13,821,154		$	146,502	4.17	%	$	12,755,351		$	125,976	3.95	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	17,067,243		$	156,503	3.67	%	$	17,357,482		$	159,876	3.63	%	$	16,250,176		$	149,964	3.69	%
Less acquisition accounting discount on non-PCI loans	(19,887		)	2,388				(22,513		)	2,914				(38,442		)	4,970
Less acquisition accounting discount on PCI loans	(18,696		)	2,411				(22,605		)	3,166				(33,811		)	2,188
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount on bank merger loans	$	17,105,826		$	151,704	3.55	%	$	17,402,600		$	153,796	3.49	%	$	16,322,429		$	142,806	3.50	%

NON-INTEREST INCOME

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Core non-interest income:
Key fee initiatives:
Lease financing revenue, net	$	24,710		$	23,620		$	23,148		$	18,401		$	21,418
Treasury management fees	15,156			15,234			14,508			14,499			14,689
Wealth management fees	9,121			9,024			8,702			8,498			8,520
Card fees	4,787			5,032			4,585			4,413			4,566
Capital markets and international banking fees	2,998			3,999			4,870			3,586			3,253
Total key fee initiatives	56,772			56,909			55,813			49,397			52,446
Mortgage banking revenue	25,047			22,374			28,242			30,152			28,456
Consumer and other deposit service fees	2,912			3,261			3,424			3,285			3,363
Brokerage fees	864			942			1,004			1,250			1,125
Loan service fees	2,245			2,197			2,114			2,037			1,969
Increase in cash surrender value of life insurance	1,108			1,511			1,321			1,301			1,288
Other operating income	4,445			2,616			3,104			2,458			2,734
Total core non-interest income	93,393			89,810			95,022			89,880			91,381
Non-core non-interest income:
Net (loss) gain on investment securities	(174		)	111			83			137			231
Net loss on disposal of other assets	(357		)	(2,016		)	(180		)	(4		)	(123		)
Recovery of low to moderate income real estate investment ⁽¹⁾	—			1,006			210			488			—
(Decrease) increase in market value of assets held in trust for deferred compensation ⁽¹⁾	(60		)	912			796			669			961
Total non-core non-interest income	(591		)	13			909			1,290			1,069
Total non-interest income	$	92,802		$	89,823		$	95,931		$	91,170		$	92,450


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

NON-INTEREST EXPENSE

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	64,587		$	62,465		$	61,992		$	59,889		$	58,811
Commissions	7,435			8,303			9,206			9,730			8,611
Bonus and stock-based compensation	12,055			13,332			11,911			12,553			12,290
Other salaries and benefits ⁽²⁾	21,940			20,153			20,922			19,173			20,264
Total salaries and employee benefits expense	106,017			104,253			104,031			101,345			99,976
Occupancy and equipment expense	17,394			16,727			15,382			15,278			15,040
Computer services and telecommunication expense	11,156			11,287			10,093			9,709			9,255
Advertising and marketing expense	3,837			3,266			2,558			3,245			3,161
Professional and legal expense	1,894			2,914			2,109			2,447			2,594
Other intangible amortization expense	1,902			1,979			2,038			2,086			2,090
Net (gain) loss recognized on other real estate owned (A)	(143		)	(151		)	84			706			607
Other real estate expense, net (A)	190			47			(170		)	(16		)	237
Other operating expenses	21,919			23,450			22,702			23,577			22,163
Total core non-interest expense	164,166			163,772			158,827			158,377			155,123
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	644			136			1,579			7,166			258
Restructuring severance charges	—			808			—			—			—
One-time bonuses	—			2,700			—			—			—
Branch exit and facilities impairment charges	—			—			1,759			—			—
Loss on extinguishment of debt	3,136			—			—			—			—
Contribution to MB Financial Charitable Foundation (C)	—			7,500			—			—			—
(Decrease) increase in market value of assets held in trust for deferred compensation (D)	(60		)	912			796			669			961
Total non-core non-interest expense	3,720			12,056			4,134			7,835			1,219
Total non-interest expense	$	167,886		$	175,828		$	162,961		$	166,212		$	156,342


⁽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 merger related and repositioning expenses (in thousands):



	1Q18		4Q17			3Q17			2Q17			1Q17
Merger related and repositioning expenses ⁽¹⁾:
Salaries and employee benefits expense	$	557	$	574		$	988		$	552		$	614
Occupancy and equipment expense	35		119			—			6			4
Computer services and telecommunication expense	—		17			(31		)	76			185
Advertising and marketing expense	26		5			—			—			—
Professional and legal expense	4		43			—			3			97
Branch exit and facilities impairment charges ⁽²⁾	—		(327		)	1,014			6,589			(682		)
Contingent consideration expense ⁽³⁾	—		(454		)	—			—			—
Other operating expenses	22		159			(392		)	(60		)	40
Total merger related and repositioning expenses	$	644	$	136		$	1,579		$	7,166		$	258


⁽¹⁾	Primarily includes costs incurred in connection with the mortgage banking acquisition in the fourth quarter of 2017 and the American Chartered merger.


⁽²⁾	Includes gains on previously closed branch facilities in the fourth quarter of 2017, costs associated with office space reconfiguration in the third quarter of 2017, exit charges on branches closed in the second quarter of 2017 due to the American Chartered merger, and a gain on the sale of a branch in the first quarter of 2017.


⁽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. Also includes a decrease in our contingent consideration accrual for our acquisition of MSA Holdings, LLC. Resides in other operating expenses in the consolidated statements of operations.

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



	1Q18			4Q17			3Q17			2Q17			1Q17

Core non-interest expense ⁽¹⁾	$	164,166		$	163,772		$	158,827		$	158,377		$	155,123
Less commissions ⁽²⁾	7,435			8,303			9,206			9,730			8,611
Less net (gain) loss recognized on other real estate owned ⁽³⁾	(143		)	(151		)	84			706			607
Less non-repeatable 4Q17 expenses ⁽⁴⁾	—			2,600			—			—			—
Run-rate of non-interest expense ⁽⁵⁾	$	156,874		$	153,020		$	149,537		$	147,941		$	145,905
Percent change from prior period ⁽⁵⁾	+2.5		%	+2.3		%	+1.1		%	+1.4		%


⁽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.


⁽⁴⁾	Includes a portion of expenses from the following: occupancy and equipment expense, computer services and telecommunication expense, professional and legal expense, and other operating expense (travel, postage, and operating losses).


⁽⁵⁾	The run-rate of non-interest expense includes $5.0 million and $850 thousand in expenses in the first quarter of 2018 and fourth quarter of 2017, respectively, related to the mortgage banking acquisition in the fourth quarter of 2017. Excluding these expenses, the percent change for the first quarter of 2018 would have been -0.2%.

INCOME TAX EXPENSE

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Income before income taxes - as reported	$	70,789		$	63,745		$	85,400		$	64,253		$	75,417
Tax at Federal statutory rate (21% for 2018 and 35% for 2017)	14,866			22,310			29,890			22,489			26,396

Increase (decrease) due to:
Tax exempt income, net	(2,639		)	(4,673		)	(4,665		)	(4,815		)	(4,900		)
State tax expense (benefit), net of Federal impact	3,964			3,103			4,101			2,727			2,764
Other items, net	586			1,131			(802		)	261			807
Tax expense before discrete items	16,777			21,871			28,524			20,662			25,067
Income tax rate before discrete items (effective tax rate)	23.7		%	34.3		%	33.4		%	32.2		%	33.2		%

Discrete tax expense (benefit) items ⁽¹⁾	(201		)	1,919			(1,643		)	(220		)	(2,738		)
Discrete tax benefit corporate tax rate changes ⁽²⁾	(2,544		)	(104,239		)	(2,324		)	—			—
Discrete tax expense (benefit) merger related items ⁽³⁾	—			—			—			(655		)	(1,449		)
Income tax expense - as reported	$	14,032		$	(80,449	)	$	24,557		$	19,787		$	20,880
Income tax rate	19.8		%	(126.2		)%	28.8		%	30.8		%	27.7		%


⁽¹⁾	Includes tax benefits on the vesting of restricted shares, exercise of options, and other compensation as well as the $2.1 million increase in state income tax accruals due to income allocation to high income tax rate jurisdictions for the fourth quarter of 2017.


⁽²⁾	Includes tax benefit due to the impact of the Illinois state income tax rate increase (effective July 1, 2017) on our deferred tax assets and the impact of the Federal income tax rate decrease due to the TCJ Act (enacted on December 22, 2017) on our net deferred tax liabilities.


⁽³⁾	Includes reversals of a tax liability no longer needed specifically related to two entities we acquired and certain non-deductible merger related items.

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 merger loans, efficiency ratio, and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net losses on disposal of other assets, recovery of low to moderate income real estate investment, and increase and decrease 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, restructuring severance charges, one-time bonuses, loss on extinguishment of debt, increase and decrease 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 Federal tax rate of 21% for 2018 and 35% for 2017. 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 and losses on investment securities, net losses on disposal of other assets, recovery of low to moderate income real estate investment, and increase and decrease 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, restructuring severance charges, one-time bonuses, loss on extinguishment of debt, increase and decrease 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):



	3/31/2018		12/31/2017		9/30/2017		6/30/2017		3/31/2017
Stockholders' equity - as reported	$	2,934,347	$	3,009,823	$	2,692,092	$	2,648,280	$	2,616,428
Less goodwill	1,003,548		1,003,548		999,925		999,925		999,925
Less other intangible assets, net of tax benefit	38,723		40,116		36,884		38,209		39,565
Tangible equity	$	1,892,076	$	1,966,159	$	1,655,283	$	1,610,146	$	1,576,938

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



	3/31/2018		12/31/2017		9/30/2017		6/30/2017		3/31/2017
Total assets - as reported	$	20,167,523	$	20,086,940	$	20,116,535	$	19,965,057	$	19,146,062
Less goodwill	1,003,548		1,003,548		999,925		999,925		999,925
Less other intangible assets, net of tax benefit	38,723		40,116		36,884		38,209		39,565
Tangible assets	$	19,125,252	$	19,043,276	$	19,079,726	$	18,926,923	$	18,106,572

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



	3/31/2018		12/31/2017		9/30/2017		6/30/2017		3/31/2017
Common stockholders' equity - as reported	$	2,739,628	$	2,699,824	$	2,576,812	$	2,532,708	$	2,500,856
Less goodwill	1,003,548		1,003,548		999,925		999,925		999,925
Less other intangible assets, net of tax benefit	38,723		40,116		36,884		38,209		39,565
Tangible common equity	$	1,697,357	$	1,656,160	$	1,540,003	$	1,494,574	$	1,461,366

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



	1Q18		4Q17		3Q17		2Q17		1Q17
Average common stockholders' equity - as reported	$	2,708,911	$	2,579,896	$	2,546,744	$	2,511,271	$	2,472,771
Less average goodwill	1,003,548		1,001,027		999,925		999,925		1,001,005
Less average other intangible assets, net of tax benefit	39,212		36,049		37,346		38,836		40,052
Average tangible common equity	$	1,666,151	$	1,542,820	$	1,509,473	$	1,472,510	$	1,431,714

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



	1Q18		4Q17		3Q17		2Q17		1Q17
Net income available to common stockholders - as reported	$	68,937	$	142,194	$	58,841	$	42,464	$	52,534
Plus other intangible amortization expense, net of tax benefit	1,503		1,286		1,325		1,356		1,359
Net cash flow available to common stockholders	$	70,440	$	143,480	$	60,166	$	43,820	$	53,893

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



	1Q18			4Q17			3Q17			2Q17			1Q17
Net income - as reported	$	56,757		$	144,194		$	60,843		$	44,466		$	54,537
Less non-core items:
Net (loss) gain on investment securities	(174		)	111			83			137			231
Net loss on disposal of other assets	(357		)	(2,016		)	(180		)	(4		)	(123		)
Recovery of low to moderate income real estate investment	—			1,006			210			488			—
Increase in market value of assets held in trust for deferred compensation - other operating income	(60		)	912			796			669			961
Merger related and repositioning expenses	(644		)	(136		)	(1,579		)	(7,166		)	(258		)
Restructuring severance charges	—			(808		)	—			—			—
One-time bonuses	—			(2,700		)	—			—			—
Branch exit and facilities impairment charges	—			—			(1,759		)	—			—
Loss on extinguishment of debt	(3,136		)	—			—			—			—
Contribution to MB Financial Charitable Foundation	—			(7,500		)	—			—			—
Increase in market value of assets held in trust for deferred compensation - other operating expense	60			(912		)	(796		)	(669		)	(961		)
Total non-core items	(4,311		)	(12,043		)	(3,225		)	(6,545		)	(150		)
Income tax expense on non-core items	(1,153		)	(4,618		)	(1,283		)	(2,598		)	(59		)
Income tax expense - other ⁽¹⁾	(2,544		)	(104,239		)	—			(655		)	(1,449		)
Non-core items, net of tax	(614		)	96,814			(1,942		)	(3,292		)	1,358
Operating earnings	57,371			47,380			62,785			47,758			53,179
Dividends on preferred shares	3,100			2,000			2,002			2,002			2,003
Operating earnings available to common stockholders	$	54,271		$	45,380		$	60,783		$	45,756		$	51,176
Diluted operating earnings per common share	$	0.64		$	0.53		$	0.72		$	0.54		$	0.60
Weighted average common shares outstanding for diluted operating earnings per common share	84,896,401			84,964,759			84,779,797			84,767,414			84,778,130

⁽¹⁾

The first quarter of 2018 and fourth quarter of 2017 include the reversal of deferred tax liability as a result of the decrease in Federal income tax rate effective January 1, 2018 due to the TCJ Act. The first quarter 2018 reversal of $2.5 million was recognized at the Leasing Segment. The fourth quarter 2017 reversal of $104.2 million was recognized as follows: $6.5 million at our Banking Segment, $65.3 million at our Leasing Segment, and $32.4 million at our Mortgage Banking Segment. The first and second quarters of 2017 include reversals of tax liabilities no longer needed specifically related to two entities we acquired.

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



	1Q18			4Q17			3Q17		2Q17		1Q17
Banking Segment:
Net income - as reported	$	46,550		$	43,435		$	52,584	$	37,899	$	46,954
Non-core items, net of tax	2,550			298			1,942		3,292		(1,358		)
Operating earnings	$	49,100		$	43,733		$	54,526	$	41,191	$	45,596

Leasing Segment:
Net income - as reported	$	11,110		$	69,783		$	6,042	$	4,154	$	5,904
Non-core items, net of tax	(2,544		)	(65,321		)	—		—		—
Operating earnings	$	8,566		$	4,462		$	6,042	$	4,154	$	5,904

Mortgage Banking Segment:
Net (loss) income - as reported	$	(903	)	$	30,976		$	2,217	$	2,413	$	1,679
Non-core items, net of tax	608			(31,791		)	—		—		—
Operating (loss) earnings	$	(295	)	$	(815	)	$	2,217	$	2,413	$	1,679

The following table presents the efficiency ratio calculation (dollars in thousands):



	1Q18			4Q17			3Q17			2Q17			1Q17
Non-interest expense	$	167,886		$	175,828		$	162,961		$	166,212		$	156,342
Less merger related and repositioning expenses	644			136			1,579			7,166			258
Less loss on extinguishment of debt	3,136			—			—			—			—
Less restructuring severance charges	—			808			—			—			—
Less one-time bonuses	—			2,700			—			—			—
Less branch exit and facilities impairment charges	—			—			1,759			—			—
Less contribution to MB Financial Charitable Foundation	—			7,500			—			—			—
Less (decrease) increase in market value of assets held in trust for deferred compensation	(60		)	912			796			669			961
Non-interest expense - as adjusted	$	164,166		$	163,772		$	158,827		$	158,377		$	155,123

Net interest income	$	153,381		$	153,393		$	156,947		$	148,994		$	143,043
Tax equivalent adjustment	3,122			6,483			6,657			6,800			6,921
Net interest income on a fully tax equivalent basis	156,503			159,876			163,604			155,794			149,964
Plus non-interest income	92,802			89,823			95,931			91,170			92,450
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	295			814			711			701			694
Less net (loss) gain on investment securities	(174		)	111			83			137			231
Less net loss on disposal of other assets	(357		)	(2,016		)	(180		)	(4		)	(123		)
Less recovery of low to moderate income real estate investment	—			1,006			210			488			—
Less (decrease) increase in market value of assets held in trust for deferred compensation	(60		)	912			796			669			961
Non-interest income - as adjusted	93,688			90,624			95,733			90,581			92,075
Total revenue - as adjusted and on a fully tax equivalent basis	$	250,191		$	250,500		$	259,337		$	246,375		$	242,039
Efficiency ratio	65.62		%	65.38		%	61.24		%	64.28		%	64.09		%
Efficiency ratio (without adjustments)	68.20		%	72.29		%	64.44		%	69.21		%	66.39		%

The following table presents the annualized net non-interest expense to average assets ratio calculation (dollars in thousands):



	1Q18			4Q17			3Q17			2Q17			1Q17
Non-interest expense - as adjusted ⁽¹⁾	$	164,166		$	163,772		$	158,827		$	158,377		$	155,123
Less non-interest income - as adjusted ⁽¹⁾	93,688			90,624			95,733			90,581			92,075
Net non-interest expense - as adjusted	$	70,478		$	73,148		$	63,094		$	67,796		$	63,048
Average assets	$	19,938,557		$	20,166,673		$	19,945,855		$	19,389,463		$	19,002,982
Annualized net non-interest expense to average assets	1.43		%	1.44		%	1.25		%	1.40		%	1.35		%
Annualized net non-interest expense to average assets (without adjustments)	1.53		%	1.69		%	1.33		%	1.55		%	1.36		%


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

The following table presents the core non-interest income to revenues ratio calculation (dollars in thousands):



	1Q18			4Q17			3Q17			2Q17			1Q17
Non-interest income - as adjusted ⁽¹⁾	$	93,688		$	90,624		$	95,733		$	90,581		$	92,075
Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	250,191		$	250,500		$	259,337		$	246,375		$	242,039
Core non-interest income to revenues ratio	37.45		%	36.18		%	36.91		%	36.77		%	38.04		%
Non-interest income to revenues ratio (without adjustments)	37.70		%	36.93		%	37.94		%	37.96		%	39.26		%


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

MB FINANCIAL INC /MD - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 24, 2018

Attached files

MB FINANCIAL INC /MD Reports