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

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8-K - 8-K - MB FINANCIAL INC /MD	form8-kearningsrelease4q18.htm

EXHIBIT 99.1



	4Q18

MB FINANCIAL, INC. REPORTS FOURTH QUARTER 2018 NET INCOME

CHICAGO, January 22, 2019 – MB Financial, Inc. (the "Company") (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced fourth quarter 2018 net income of $75.9 million compared to $42.7 million last quarter and $144.2 million in the fourth quarter a year ago. Diluted earnings per common share were $0.85 in the fourth quarter of 2018 compared to $0.47 last quarter and $1.67 in the fourth quarter a year ago.

Annual net income for 2018 was $213.9 million compared to $304.0 million for 2017. Diluted earnings per common share were $2.55 for 2018 compared to $3.49 for 2017.

Net income and earnings per common share for the fourth quarter of 2017 and full year 2017 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 (the "TCJ Act"). Net income and earnings per common share for the fourth and third quarters of 2018 were also positively impacted by TCJ Act tax benefits of $8.2 million, or $0.10 per common share, and $2.2 million, or $0.03 per common share, respectively.

Operating Earnings (in thousands, except per share data)

The table below reconciles net income, as reported, to operating earnings excluding our Mortgage Banking Segment. As previously announced in April 2018, we have discontinued our national mortgage origination business (substantially all originations outside of the Company's consumer banking footprint in the Chicagoland area). Therefore, we believe operating earnings excluding our Mortgage Banking Segment better reflect our primary operations until the wind down of the segment is complete, as we are retaining the mortgage servicing asset and certain residential mortgage loans on our balance sheet and continue to originate residential mortgage loans in the Chicagoland area.



															Year Ended
															December 31,
	4Q18			3Q18		2Q18			1Q18			4Q17			2018		2017
Net income - as reported	$	75,911		$	42,714	$	38,533		$	56,757		$	144,194		$	213,915	$	304,040
Non-core items, net of tax ⁽¹⁾	(3,696		)	12,889		18,679			614			(96,814		)	28,486		(92,938		)
Operating earnings	72,215			55,603		57,212			57,371			47,380			242,401		211,102
Operating earnings (loss) - Mortgage Banking Segment	3,141			1,067		(3,359		)	(295		)	(815		)	554		5,494
Operating earnings, excluding Mortgage Banking Segment	69,074			54,536		60,571			57,666			48,195			241,847		205,608
Dividends on preferred shares	3,000			3,000		3,000			3,100			2,000			12,100		8,007
Operating earnings available to common stockholders, excluding Mortgage Banking Segment	$	66,074		$	51,536	$	57,571		$	54,566		$	46,195		$	229,747	$	197,601
Diluted earnings per common share - as reported ⁽²⁾	$	0.85		$	0.47	$	0.42		$	0.81		$	1.67		$	2.55	$	3.49
Diluted operating earnings per common share, excluding Mortgage Banking Segment	$	0.77		$	0.60	$	0.68		$	0.64		$	0.54		$	2.70	$	2.33


⁽¹⁾	Non-core items represent the difference between non-core non-interest income and non-core non-interest expense net of tax as well as other non-core tax items. See "Non-GAAP Financial Information" section for details on non-core items starting on page 25.


⁽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.

Key Items (4Q18 compared to 3Q18)

Pending Merger

On May 20, 2018, we signed a definitive merger agreement with Fifth Third Bancorp ("Fifth Third"). We received the necessary stockholder approvals on September 18, 2018. The merger remains subject to regulatory approvals and other customary closing conditions.

Operating Earnings

•

Operating earnings, excluding the Mortgage Banking Segment, grew by $14.5 million, or 26.7%, to $69.1 million compared to the prior quarter. These results were attributable to the following items (net of income taxes): a $1.3 million increase in net interest income, a $4.7 million increase in lease financing revenue, a $7.0 million decrease in provision for credit losses, and a $5.2 million decrease in state income tax accruals, partly reduced by a $3.2 million increase in non-interest expenses.


•	Diluted operating earnings per common share, excluding the Mortgage Banking Segment, were $0.77 compared to $0.60 in the prior quarter.

Loans


•	Loan balances, excluding purchased credit-impaired loans, increased $107.2 million (+0.8%, or +3.1% annualized) to $14.0 billion due to growth in commercial loan balances partly offset by decreases in construction and commercial real estate loan balances.


•	Average loan balances, excluding purchased credit-impaired loans, increased $44.5 million (+0.3%, or +1.3% annualized) to $13.8 billion.


•	Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 14 basis points to 4.82% from 4.68% in the prior quarter as a result of increases in short-term interest rates.

Deposits


•	Although the mix improved with an increase in non-interest bearing deposits offset by a decrease in money market account balances, low-cost deposits decreased $16.7 million (-0.1%, or -0.5% annualized) to $12.3 billion.


•	Average low-cost deposits decreased $109.5 million (-0.9%, or -3.4% annualized) to $12.5 billion due to decreases in non-interest bearing and money market account balances.


•	Average cost of total deposits increased six basis points to 0.60% due to increases in interest rates paid on deposits.

Net interest margin


•	Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased 14 basis points in the quarter to 3.84%. This increase was due to higher loan yields as a result of increases in short-term interest rates.


•	Average cost of funds increased two basis points to 0.74% due to higher rates paid on deposits reduced by a decrease in the average cost of borrowings.

Operating Segments (4Q18 compared to 3Q18)

Banking


•	Operating earnings were $59.1 million, an increase of $11.7 million, or 24.7%, compared to the prior quarter.


•	This increase was due to a decrease in provision for credit losses and state income tax accruals partly offset by an increase in non-interest expenses.

Leasing


•	Operating earnings were $10.0 million, an increase of $2.8 million, or 39.8%, compared to the prior quarter.


•	This increase was mostly due to higher residual gains and fees from the sale of third-party equipment maintenance contracts.

Mortgage Banking


•	On April 12, 2018, we announced the discontinuation of our national mortgage origination business, which includes substantially all originations outside of the Company's consumer banking footprint in the Chicagoland area.


•	Operating earnings were $3.1 million compared to $1.1 million in the prior quarter.


•	The wind down of our national mortgage origination business is proceeding as planned. We project that, excluding any impact of our pending merger with Fifth Third, our remaining mortgage operations will earn quarterly pretax income of approximately $7 million in 2019, consistent with prior projections.

Key Items - Full Year (2018 compared to 2017)


•	Operating earnings, excluding the Mortgage Banking Segment, increased $36.2 million, or 17.6%, to $241.8 million compared to the year ended December 31, 2017.

•

The growth in operating earnings, excluding the Mortgage Banking Segment, resulted from the following items (net of income tax): a $30.5 million increase in net interest income; a $14.7 million increase in our key fee initiatives revenue, mainly lease financing revenue; a $4.9 million increase in earnings from investments in Small Business Investment Companies; and an approximate $33 million decrease in income tax expense resulting from a lower effective tax rate. These items were partly offset by a $25.1 million increase in non-interest expense with more than half of the increase in salaries and benefits due to higher health insurance costs, annual salary increases, and higher bonus expense, and a $19.7 million increase in provision for credit losses, mostly due to higher charge-offs related to one loan relationship.


•	Diluted operating earnings per common share, excluding the Mortgage Banking Segment, were $2.70 compared to $2.33 in the year ended December 31, 2017.

Guidance on Selected Financial Items

In light of our pending merger with Fifth Third, we no longer provide forward-looking financial guidance or update previously provided financial guidance except as otherwise provided in this release with respect to our mortgage operations.

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 in 2019. 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 and non-core tax items.

Banking Segment

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



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Net interest income	$	153,426	$	152,003	$	146,614	$	140,471	$	140,180	$	592,514	$	550,499
Provision for credit losses	11,340		21,439		5,746		7,579		501		46,104		16,555
Net interest income after provision for credit losses	142,086		130,564		140,868		132,892		139,679		546,410		533,944
Non-interest income:
Lease financing revenue, net	2,400		3,420		2,165		1,535		1,795		9,520		5,763
Treasury management fees	14,287		15,226		15,066		15,156		15,234		59,735		58,930
Wealth management fees	9,204		9,089		8,969		9,121		9,024		36,383		34,744
Card fees	5,851		5,362		5,654		4,787		5,032		21,654		18,596
Capital markets and international banking fees	3,637		1,913		3,785		2,998		3,999		12,333		15,708
Other non-interest income	9,733		10,987		11,838		10,675		9,359		43,233		39,260
Total non-interest income	45,112		45,997		47,477		44,272		44,443		182,858		173,001
Non-interest expense:
Salaries and employee benefits expense:
Salaries	43,598		44,933		45,103		44,821		44,782		178,455		176,017
Commissions	790		1,097		941		953		1,119		3,781		4,224
Bonus and stock-based compensation	13,487		10,774		11,533		10,610		10,418		46,404		41,672
Other salaries and benefits ⁽¹⁾	17,576		17,339		15,721		15,207		14,119		65,843		55,126
Total salaries and employee benefits expense	75,451		74,143		73,298		71,591		70,438		294,483		277,039
Occupancy and equipment expense	13,153		13,400		13,308		14,089		13,769		53,950		50,556
Computer services and telecommunication expense	8,814		8,324		9,384		9,741		9,664		36,263		33,540
Professional and legal expense	2,570		1,347		4,846		1,359		1,967		10,122		6,261
Other operating expenses	18,399		18,479		18,665		16,745		18,817		72,288		72,622
Total non-interest expense	118,387		115,693		119,501		113,525		114,655		467,106		440,018
Income before income taxes	68,811		60,868		68,844		63,639		69,467		262,162		266,927
Income tax expense	9,715		13,468		15,237		14,539		25,734		52,959		81,881
Operating earnings	$	59,096	$	47,400	$	53,607	$	49,100	$	43,733	$	209,203	$	185,046
Total assets (period end)	$	17,070,713	$	16,677,552	$	16,581,205	$	16,582,585	$	16,448,960	$	17,070,713	$	16,448,960


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

Banking Segment operating earnings for the fourth quarter of 2018 increased $11.7 million, or 24.7%, compared to the prior quarter.


•	Net interest income increased due to higher yields on loans partly offset by a higher cost of deposits.


•	Provision for credit losses decreased as the prior quarter was unfavorably impacted by higher charge-offs on one loan relationship.


•	Non-interest income decreased $885 thousand compared to the prior quarter.


•	Lease financing revenue decreased due to lower earnings from equity investments in leases and lower residual gains.


•	Treasury management fees declined as a result of an increasing earnings credit rate for our commercial customers and lower average non-interest bearing deposits.


•	Other non-interest income decreased as a result of lower earnings from investments in Small Business Investment Companies ("SBICs").


•	These decreases were partly offset by an increase in capital markets and international banking fees as a result of higher swap and international banking fees.


•	Non-interest expense increased $2.7 million compared to the prior quarter.


•	Salaries and employee benefits increased due to higher temporary help as a result of higher employee turnover and higher bonus expenses due to better than expected performance, reduced by decreases in salaries and health insurance expense as a result of fewer claims.


•	Professional and legal expenses increased as a result of higher consulting expense related to information technology security.


•	Fourth quarter income tax expense includes a $5.2 million decrease in state income tax accruals as a result of income allocation to lower income tax rate jurisdictions.

Banking Segment operating earnings for the year ended December 31, 2018 increased $24.2 million, or 13.1%, compared to the prior year.


•	Net interest income increased due to higher average loan yields and balances partly offset by a higher cost of funds. Our average yield on loans and cost of funds increased as a result of an increase in short-term interest rates.


•	Provision for credit losses increased as a result of higher charge-offs during the second half of 2018 related to one loan relationship.


•	Non-interest income increased $9.9 million compared to the prior year.


•	Lease financing revenue increased due to higher earnings from investments in leasing companies and higher residual gains.


•	Card fees increased as a result of increased sales and volume in prepaid cards and higher credit card usage.


•	Other non-interest income increased due to stronger earnings from investments in SBICs.


•	These increases were partly reduced by a decrease in capital markets and international banking fees due to decreases in swap and syndication fees.


•	Non-interest expense increased $27.1 million compared to the prior year.


•	Salaries and employee benefits expense increased due to higher health insurance costs as a result of an increase in claims, higher bonus and stock based compensation expense, annual salary increases, and higher 401(k) and profit sharing contributions expense.


•	Occupancy and equipment expense increased due to higher building and software depreciation.


•	Computer services and telecommunication expense increased due to previous investments in new technology.


•	Professional and legal fees increased as a result of case settlements, other legal fees, and consulting expense related to information technology security.


•	Income tax expense decreased as a result of a decline in the effective tax rate related to the TCJ Act.

Leasing Segment

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



													Year Ended
													December 31,
	4Q18		3Q18		2Q18		1Q18			4Q17			2018		2017
Net interest income	$	2,572	$	2,160	$	2,349	$	2,482		$	2,602		$	9,563	$	9,902
Provision for credit losses	638		90		500		(24		)	3,184			1,204		3,858
Net interest income after provision for credit losses	1,934		2,070		1,849		2,506			(582		)	8,359		6,044
Non-interest income:
Lease financing revenue, net	29,263		21,810		21,435		23,938			22,576			96,446		82,837
Other non-interest income	328		1,304		1,160		899			1,168			3,691		3,043
Total non-interest income	29,591		23,114		22,595		24,837			23,744			100,137		85,880
Non-interest expense:
Salaries and employee benefits expense:
Salaries	7,112		5,926		6,021		5,917			5,361			24,976		19,823
Commissions	2,023		2,662		1,892		2,520			2,777			9,097		9,792
Bonus and stock-based compensation	1,661		1,207		1,205		974			1,761			5,047		4,989
Other salaries and benefits ⁽¹⁾	1,211		1,338		1,613		1,809			1,329			5,971		6,005
Total salaries and employee benefits expense	12,007		11,133		10,731		11,220			11,228			45,091		40,609
Occupancy and equipment expense	1,242		1,128		1,110		1,167			1,090			4,647		4,115
Computer services and telecommunication expense	693		474		492		505			595			2,164		1,940
Professional and legal expense	422		353		323		373			457			1,471		1,651
Other operating expenses	3,306		2,480		2,500		2,212			2,101			10,498		8,867
Total non-interest expense	17,670		15,568		15,156		15,477			15,471			63,871		57,182
Income before income taxes	13,855		9,616		9,288		11,866			7,691			44,625		34,742
Income tax expense	3,877		2,480		2,324		3,300			3,229			11,981		14,180
Operating earnings	$	9,978	$	7,136	$	6,964	$	8,566		$	4,462		$	32,644	$	20,562
Total assets (period end)	$	1,464,380	$	1,340,901	$	1,354,940	$	1,360,117		$	1,403,690		$	1,464,380	$	1,403,690


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

Leasing Segment operating earnings for the fourth quarter of 2018 increased $2.8 million compared to the prior quarter.


•	Provision for credit losses increased as a result of the increase in loan balances during the quarter.


•	Lease financing revenue increased due to higher residual gains and fees from the sale of third-party equipment maintenance contracts.


•	Non-interest expense increased due to higher salaries and employee benefits expense related to the investment in sales and other revenue generating staff partly reduced by a decrease in commissions due to higher deferrals of indirect costs resulting from more deals during the quarter. In addition, non-interest expense increased due to higher marketing expense at promotional events.


•	Total assets increased mostly due to growth in lease investments.

Leasing Segment operating earnings for the year ended December 31, 2018 increased $12.1 million, or 58.8%, compared to the prior year.


•	Lease financing revenue increased as a result of higher residual gains, rental income due to an increase in operating leases, and promotional income attributable to our investment in sales and other revenue generating staff.


•	Provision for credit losses was lower due to decreased loan charge-offs.


•	Non-interest expense increased due to higher salaries and employee benefits expense as a result of increased salaries related to the investment in sales and other revenue generating staff and an increase in other operating expenses.

Mortgage Banking Segment

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Net interest income	$	7,507		$	7,685		$	10,106		$	10,428		$	10,611		$	35,726		$	41,976
Provision for credit losses	(7		)	(26		)	(27		)	(47		)	(42		)	(107		)	1,180
Net interest income after provision for credit losses	7,514			7,711			10,133			10,475			10,653			35,833			40,796
Non-interest income:
Mortgage origination revenue	1,349			1,907			13,334			17,854			18,146			34,444			86,871
Mortgage servicing revenue	8,277			8,009			5,592			7,193			4,228			29,071			22,353
Other non-interest income	—			13			11			1			—			25			1
Total non-interest income	9,626			9,929			18,937			25,048			22,374			63,540			109,225
Non-interest expense:
Salaries and employee benefits expense:
Salaries	3,888			5,375			12,033			13,849			12,322			35,145			47,317
Commissions	753			1,189			4,790			3,962			4,407			10,694			21,834
Bonus and stock-based compensation	442			392			115			471			1,153			1,420			3,425
Other salaries and benefits ⁽¹⁾	1,739			2,149			4,539			4,924			4,705			13,351			19,381
Total salaries and employee benefits expense	6,822			9,105			21,477			23,206			22,587			60,610			91,957
Occupancy and equipment expense	927			1,273			2,032			2,138			1,868			6,370			7,756
Computer services and telecommunication expense	945			1,263			1,677			1,673			1,779			5,558			6,877
Professional and legal expense	632			174			266			162			490			1,234			2,152
Other operating expenses	3,527			4,368			8,159			8,749			7,673			24,803			32,170
Total non-interest expense	12,853			16,183			33,611			35,928			34,397			98,575			140,912
Income (loss) before income taxes	4,287			1,457			(4,541		)	(405		)	(1,370		)	798			9,109
Income tax (benefit) expense	1,146			390			(1,182		)	(110		)	(555		)	244			3,615
Operating (loss) earnings	$	3,141		$	1,067		$	(3,359	)	$	(295	)	$	(815	)	$	554		$	5,494
Total assets (period end) ⁽²⁾	$	1,671,933		$	1,701,518		$	2,030,412		$	2,224,821		$	2,234,290		$	1,671,933		$	2,234,290


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


⁽²⁾	The decrease in total assets subsequent to the first quarter of 2018 was due to the decrease in loans held for sale as a result of the wind down of the national mortgage origination business.

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

As expected with the wind down, total non-interest income declined faster than expenses. The first phase of staff reductions was completed in early July 2018, and staff reductions continued through the remainder of 2018. The wind down is expected to be completed in the first quarter of 2019. We project that, excluding any impact of the pending Fifth Third merger, remaining operations will earn quarterly pre-tax income of approximately $7 million, consistent with prior projections. We also expect one-time exit expenses to be approximately $35 million, which is down from the previously announced range of $37 to $41 million. We recognized approximately $32 million of such expenses in the year ended December 31, 2018.

Additional Mortgage Banking Segment Data

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Mortgage origination revenue:
Gain on sale revenue, net	$	691		$	1,303		$	9,756		$	11,652		$	13,376		$	23,402		$	64,081
Origination fees ⁽¹⁾	658			604			3,578			6,202			4,770			11,042			22,790
Total mortgage origination revenue	$	1,349		$	1,907		$	13,334		$	17,854		$	18,146		$	34,444		$	86,871

Mortgage servicing revenue:
Servicing fees	$	16,314		$	15,953		$	15,707		$	16,068		$	14,802		$	64,042		$	57,133
Amortization/prepayment of mortgage servicing rights ⁽²⁾	(7,377		)	(8,418		)	(8,894		)	(8,015		)	(9,037		)	(32,704		)	(32,001		)
Fair value changes of mortgage servicing rights	(4,285		)	2,521			1,193			10,890			7,231			10,319			9,594
Economic hedge activity, net	3,625			(2,047		)	(2,414		)	(11,750		)	(8,768		)	(12,586		)	(12,373		)
Fair value changes of mortgage servicing rights net of economic hedge activity ⁽³⁾	(660		)	474			(1,221		)	(860		)	(1,537		)	(2,267		)	(2,779		)
Total mortgage servicing revenue	$	8,277		$	8,009		$	5,592		$	7,193		$	4,228		$	29,071		$	22,353

Mortgage servicing rights, at fair value:
Beginning balance	$	295,803		$	296,629		$	291,561		$	276,279		$	261,446		$	276,279		$	238,011
Originations/purchases	757			5,071			12,769			12,407			16,639			31,004			60,675
Amortization/prepayment ⁽²⁾	(7,377		)	(8,418		)	(8,894		)	(8,015		)	(9,037		)	(32,704		)	(32,001		)
Fair value changes	(4,285		)	2,521			1,193			10,890			7,231			10,319			9,594
Ending balance	$	284,898		$	295,803		$	296,629		$	291,561		$	276,279		$	284,898		$	276,279

Mortgage servicing book (unpaid principal balance of loans serviced for others)	$	21,886,440		$	22,382,822		$	22,643,179		$	22,362,896		$	21,993,128		$	21,886,440		$	21,993,128
Mortgage servicing rights valuation	1.30		%	1.32		%	1.31		%	1.30		%	1.26		%	1.30		%	1.26		%


⁽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 $500 thousand of the second quarter 2018 fair value change was due to an increase in delinquencies in the quarter resulting in higher than anticipated collection costs and lower mortgage servicing rights asset value. In addition, approximately $300 thousand of the fair value change was due to higher than expected prepayments of mortgage servicing rights in the second quarter of 2018. Approximately $800 thousand of the fourth quarter 2017 fair value change was due to an increase in delinquencies in the quarter.

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 ability to satisfy closing conditions to our pending merger with Fifth Third on the expected terms and schedule; (2) the ability to obtain regulatory approvals required to complete our pending merger with Fifth Third, and the timing and conditions for such approvals; (3) delays in closing our pending merger with Fifth Third; (4) disruptions to our business resulting from our pending merger with Fifth Third; (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) 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) the risk that funds obtained from capital raising activities will not be utilized efficiently or effectively; (17) expected revenues, cost savings, synergies, and other benefits from our other 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; (18) our ability to access cost-effective funding; (19) changes in financial markets; (20) changes in economic conditions in general and in the Chicago metropolitan area in particular; (21) the costs, effects, and outcomes of litigation; (22) 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; (23) changes in accounting principles, policies or guidelines; and (24) 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)	12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
ASSETS
Cash and due from banks	$	503,153		$	342,933		$	373,448		$	332,234		$	397,880
Interest earning deposits with banks	147,254			87,740			119,672			50,624			181,341
Total cash and cash equivalents	650,407			430,673			493,120			382,858			579,221
Investment securities:
Securities available for sale, at fair value	1,855,682			1,710,636			1,647,260			1,679,011			1,408,326
Securities held to maturity, at amortized cost	901,684			923,082			923,036			933,319			959,082
Marketable equity securities, at fair value	11,075			10,901			10,922			11,124			—
Non-marketable securities - FHLB and FRB Stock	113,957			107,407			115,453			118,955			114,111
Total investment securities	2,882,398			2,752,026			2,696,671			2,742,409			2,481,519
Loans held for sale	45,550			51,834			423,367			561,549			548,578
Loans:
Total loans, excluding purchased credit-impaired loans	13,951,082			13,843,880			13,719,244			13,824,990			13,846,318
Purchased credit-impaired loans	84,101			91,072			101,001			109,990			119,744
Total loans	14,035,183			13,934,952			13,820,245			13,934,980			13,966,062
Less: Allowance for loan and lease losses	161,578			155,411			162,790			161,712			157,710
Net loans	13,873,605			13,779,541			13,657,455			13,773,268			13,808,352
Lease investments, net	487,776			429,843			433,505			408,798			409,051
Premises and equipment, net	270,614			274,006			281,458			281,791			286,690
Cash surrender value of life insurance	208,581			207,280			205,982			204,710			203,602
Goodwill	999,925			999,925			999,925			1,003,548			1,003,548
Other intangibles	46,914			49,114			50,968			52,864			54,766
Mortgage servicing rights, at fair value	284,898			295,803			296,629			291,561			276,279
Other real estate owned, net	9,182			10,933			10,869			10,528			9,736
Other real estate owned related to FDIC transactions	1,182			2,661			2,908			4,185			4,788
Other assets	445,994			436,332			413,700			449,454			420,810
Total assets	$	20,207,026		$	19,719,971		$	19,966,557		$	20,167,523		$	20,086,940
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	6,152,163		$	6,036,012		$	6,347,208		$	6,385,149		$	6,381,512
Interest bearing	8,502,050			8,672,781			8,575,455			8,585,444			8,576,866
Total deposits	14,654,213			14,708,793			14,922,663			14,970,593			14,958,378
Short-term borrowings	1,470,055			903,355			651,462			717,679			861,039
Long-term borrowings	349,681			451,677			730,292			851,221			505,158
Junior subordinated notes issued to capital trusts	121,118			133,995			194,450			194,304			211,494
Accrued expenses and other liabilities	577,111			556,822			518,997			499,379			541,048
Total liabilities	17,172,178			16,754,642			17,017,864			17,233,176			17,077,117
Stockholders' Equity
Preferred stock	194,719			194,719			194,719			194,719			309,999
Common stock	862			862			861			860			858
Additional paid-in capital	1,708,319			1,703,404			1,698,057			1,692,650			1,691,007
Retained earnings	1,199,485			1,147,060			1,127,814			1,112,323			1,065,303
Accumulated other comprehensive (loss) income	(4,864		)	(17,186		)	(9,818		)	(3,719		)	3,584
Treasury stock	(63,673		)	(63,530		)	(62,940		)	(62,486		)	(60,928		)
Total stockholders' equity	3,034,848			2,965,329			2,948,693			2,934,347			3,009,823
Total liabilities and stockholders' equity	$	20,207,026		$	19,719,971		$	19,966,557		$	20,167,523		$	20,086,940

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



																Year Ended
																December 31,
(Dollars in thousands, except per share data)	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Interest income:
Loans:
Taxable	$	170,283		$	168,190		$	164,401		$	157,119		$	154,631		$	659,993		$	587,234
Nontaxable	2,508			2,146			2,330			2,271			2,362			9,255			10,665
Investment securities:
Taxable	11,323			10,366			10,578			7,934			7,696			40,201			33,975
Nontaxable	9,474			9,387			9,439			9,476			9,677			37,776			39,218
Other interest earning accounts and Federal funds sold	356			1,650			244			131			600			2,381			1,354
Total interest income	193,944			191,739			186,992			176,931			174,966			749,606			672,446
Interest expense:
Deposits	22,367			20,485			17,386			15,032			13,552			75,270			40,685
Short-term borrowings	3,337			2,317			2,769			2,516			3,257			10,939			14,697
Long-term borrowings and junior subordinated notes	4,735			7,089			7,768			6,002			4,764			25,594			14,687
Total interest expense	30,439			29,891			27,923			23,550			21,573			111,803			70,069
Net interest income	163,505			161,848			159,069			153,381			153,393			637,803			602,377
Provision for credit losses	11,971			21,503			6,219			7,508			3,643			47,201			21,593
Net interest income after provision for credit losses	151,534			140,345			152,850			145,873			149,750			590,602			580,784
Non-interest income:
Mortgage banking revenue	9,626			9,916			18,926			25,047			22,374			63,515			109,224
Lease financing revenue, net	31,657			25,205			22,918			24,710			23,620			104,490			86,587
Treasury management fees	14,287			15,226			15,066			15,156			15,234			59,735			58,930
Wealth management fees	9,204			9,089			8,969			9,121			9,024			36,383			34,744
Card fees	5,851			5,362			5,654			4,787			5,032			21,654			18,596
Capital markets and international banking fees	3,637			1,913			3,785			2,998			3,999			12,333			15,708
Consumer and other deposit service fees	3,031			3,051			2,929			2,912			3,261			11,923			13,333
Brokerage fees	1,182			1,138			1,050			864			942			4,234			4,321
Loan service fees	2,252			2,103			2,148			2,245			2,197			8,748			8,317
Increase in cash surrender value of life insurance	1,301			1,298			1,272			1,108			1,511			4,979			5,421
Net gain (loss) on investment securities	89			(85		)	(86		)	(174		)	111			(256		)	562
Net loss on disposal of other assets	(10		)	(32		)	(397		)	(357		)	(2,016		)	(796		)	(2,323		)
Other operating income	(427		)	5,657			6,072			4,385			4,534			15,687			15,954
Total non-interest income	81,680			79,841			88,306			92,802			89,823			342,629			369,374
Non-interest expense:
Salaries and employee benefits expense	95,683			101,885			123,478			106,514			109,247			427,560			419,179
Occupancy and equipment expense	15,448			16,117			16,451			17,429			16,846			65,445			62,556
Computer services and telecommunication expense	10,745			12,684			10,871			11,156			11,304			45,456			40,591
Advertising and marketing expense	2,783			3,432			3,342			3,863			3,271			13,420			12,235
Professional and legal expense	4,162			2,586			8,887			1,898			2,957			17,533			10,207
Other intangible amortization expense	2,199			1,854			1,896			1,902			1,979			7,851			8,193
Branch exit and facilities impairment charges	613			3,292			340			—			(327		)	4,245			8,353
Net loss (gain) recognized on other real estate owned and other related expense	841			248			1,048			47			(104		)	2,184			1,344
Loss on extinguishment of debt	2,507			6,255			—			3,136			—			11,898			—
Goodwill impairment loss	—			—			3,623			—			—			3,623			—
Other operating expenses	16,657			20,191			23,056			21,941			30,655			81,845			98,685
Total non-interest expense	151,638			168,544			192,992			167,886			175,828			681,060			661,343
Income before income taxes	81,576			51,642			48,164			70,789			63,745			252,171			288,815
Income tax expense (benefit)	5,665			8,928			9,631			14,032			(80,449		)	38,256			(15,225		)
Net income	75,911			42,714			38,533			56,757			144,194			213,915			304,040
Dividends on preferred shares	3,000			3,000			3,000			3,100			2,000			12,100			8,007
Return from preferred stockholders due to redemption	—			—			—			(15,280		)	—			(15,280		)	—
Net income available to common stockholders	$	72,911		$	39,714		$	35,533		$	68,937		$	142,194		$	217,095		$	296,033



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Common share data:
Basic earnings per common share	$	0.86	$	0.47	$	0.42	$	0.82	$	1.69	$	2.58	$	3.53
Diluted earnings per common share	0.85		0.47		0.42		0.81		1.67		2.55		3.49
Diluted operating earnings per common share, excluding Mortgage Banking Segment	0.77		0.60		0.68		0.64		0.54		2.70		2.33
Weighted average common shares outstanding for basic earnings per common share	84,414,900		84,369,519		84,253,966		84,065,681		83,946,637		84,277,230		83,836,732
Weighted average common shares outstanding for diluted earnings per common share	85,337,028		85,335,109		85,251,810		84,896,401		84,964,759		85,206,300		84,823,456
Common shares outstanding (at end of period)	84,276,514		84,220,671		84,194,594		84,052,547		83,917,892		84,276,514		83,917,892

SELECTED FINANCIAL DATA



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Performance Ratios:
Annualized return on average assets	1.53	%	0.85	%	0.77	%	1.15	%	2.84	%	1.07	%	1.55	%
Annualized operating return, excluding Mortgage Banking Segment, on average assets ⁽¹⁾	1.52		1.19		1.35		1.32		1.07		1.35		1.18
Annualized return on average common equity	10.38		5.71		5.20		10.32		21.87		7.90		11.71
Annualized operating return, excluding Mortgage Banking Segment, on average common equity ⁽¹⁾	9.40		7.41		8.42		8.17		7.10		8.36		7.82
Annualized cash return on average tangible common equity ⁽²⁾	16.87		9.46		8.70		17.12		36.90		13.02		20.23
Annualized cash operating return, excluding Mortgage Banking Segment, on average tangible common equity ⁽³⁾	15.32		12.18		13.89		13.62		12.21		13.76		13.62
Efficiency ratio ⁽⁴⁾	59.24		60.35		66.80		65.62		65.38		63.02		63.72
Efficiency ratio, excluding Mortgage Banking Segment ⁽⁴⁾	58.09		57.90		60.40		59.72		59.48		59.00		58.46
Annualized net non-interest expense to average assets ⁽⁵⁾	1.29		1.35		1.57		1.43		1.44		1.41		1.36
Core non-interest income to revenues ⁽⁶⁾	33.68		32.49		35.34		37.45		36.18		34.75		36.97
Core non-interest income to revenues, excluding Mortgage Banking Segment⁽⁶⁾	32.04		30.63		31.43		31.97		31.38		31.52		30.67
Net interest margin - fully tax equivalent basis ⁽⁷⁾	3.91		3.81		3.73		3.67		3.63		3.78		3.70
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans ⁽⁸⁾	3.84		3.70		3.62		3.55		3.49		3.68		3.52
Cost of funds ⁽⁹⁾	0.74		0.72		0.67		0.58		0.51		0.68		0.43
Loans to deposits	95.78		94.74		92.61		93.08		93.37		95.78		93.37
Asset Quality Ratios:
Non-performing loans ⁽¹⁰⁾ to total loans	0.50	%	0.53	%	0.50	%	0.44	%	0.55	%	0.50	%	0.55	%
Non-performing assets ⁽¹⁰⁾ to total assets	0.40		0.43		0.40		0.36		0.43		0.40		0.43
Allowance for loan and lease losses to non-performing loans ⁽¹⁰⁾	229.61		210.78		237.56		263.72		205.33		229.61		205.33
Allowance for loan and lease losses to total loans	1.15		1.12		1.18		1.16		1.13		1.15		1.13
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)	0.21		0.82		0.15		0.10		0.16		0.32		0.03
Capital Ratios:
Tangible equity to tangible assets ⁽¹¹⁾	10.43	%	10.33	%	10.10	%	9.89	%	10.32	%	10.43	%	10.32	%
Tangible common equity to tangible assets ⁽¹²⁾	9.42		9.28		9.07		8.87		8.70		9.42		8.70
Tangible common equity to risk weighted assets ⁽¹³⁾	10.37		10.07		9.99		9.85		9.71		10.37		9.71
Total capital to risk-weighted assets ⁽¹⁴⁾	13.67		13.48		13.75		13.57		14.23		13.67		14.23
Tier 1 capital to risk-weighted assets ⁽¹⁴⁾	11.25		10.96		10.81		10.64		11.20		11.25		11.20
Common equity tier 1 capital to risk-weighted assets ⁽¹⁴⁾	10.14		9.83		9.68		9.51		9.40		10.14		9.40
Tier 1 capital to average assets (leverage ratio) ⁽¹⁴⁾	10.50		9.99		9.74		9.73		10.02		10.50		10.02



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Performance Ratios:
Per Share Data:
Book value per common share ⁽¹⁵⁾	$	33.70	$	32.90	$	32.71	$	32.59	$	32.17	$	33.70	$	32.17
Less: goodwill and other intangible assets, net of benefit, per common share	12.27		12.30		12.32		12.40		12.44		12.27		12.44
Tangible book value per common share ⁽¹⁶⁾	$	21.43	$	20.60	$	20.39	$	20.19	$	19.73	$	21.43	$	19.73
Cash dividends per common share	$	0.24	$	0.24	$	0.24	$	0.24	$	0.21	$	0.96	$	0.82

⁽¹⁾

Annualized operating return, excluding Mortgage Banking Segment, on average assets is computed by dividing annualized operating earnings, excluding Mortgage Banking Segment, by average total assets. Annualized operating return, excluding Mortgage Banking Segment, on average common equity is computed by dividing annualized operating earnings, excluding Mortgage Banking Segment, less dividends on preferred shares by average common equity. Operating earnings, excluding Mortgage Banking Segment, is defined as net income as reported less non-core items, net of tax and less operating earnings (loss) from our Mortgage Banking Segment.


⁽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, excluding Mortgage Banking Segment, on average tangible common equity is computed by dividing annualized cash operating earnings, excluding Mortgage Banking Segment (operating earnings, excluding Mortgage Banking Segment, plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings, excluding Mortgage Banking Segment, is defined as net income as reported less non-core items, net of tax and less operating earnings (loss) from our Mortgage Banking Segment.

⁽⁴⁾

The efficiency ratio is calculated by dividing total non-interest expense excluding non-core items 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. The efficiency ratio, excluding Mortgage Banking Segment is calculated the same as the efficiency ratio but excludes the non-interest expense, net interest income on a fully tax equivalent basis, and non-interest income from the Mortgage Banking Segment.


⁽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⁾

Core non-interest income to revenues is calculated by dividing total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance 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. Core non-interest income to revenues, excluding Mortgage Banking Segment is calculated the same as core non-interest income to revenues but excludes the non-interest income and net interest income on a fully tax equivalent basis from the Mortgage Banking Segment.


⁽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.

See "Non-GAAP Financial Information" section for details on non-GAAP measures and reconciliations starting on page 25.

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):



	12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
Securities available for sale:
Fair value
U.S. Treasury securities	$	75,141		$	—		$	—		$	—		$	—
Government sponsored agencies and enterprises	5,024			5,002			5,026			22,885			23,007
States and political subdivisions	341,477			343,256			350,061			366,906			379,325
Mortgage-backed securities	1,434,040			1,357,314			1,269,003			1,251,229			924,734
Corporate bonds	—			5,064			23,170			37,991			70,197
Equity securities ⁽¹⁾	—			—			—			—			11,063
Total fair value	$	1,855,682		$	1,710,636		$	1,647,260		$	1,679,011		$	1,408,326

Unrealized gain (loss)
U.S. Treasury securities	$	2		$	—		$	—		$	—		$	—
Government sponsored agencies and enterprises	(52		)	(85		)	(72		)	(63		)	(6		)
States and political subdivisions	9,429			8,222			11,134			11,848			15,512
Mortgage-backed securities	(11,867		)	(28,026		)	(20,502		)	(15,166		)	(8,414		)
Corporate bonds	—			(1		)	(9		)	(29		)	42
Equity securities ⁽¹⁾	—			—			—			—			(173		)
Total unrealized gain	$	(2,488	)	$	(19,890	)	$	(9,449	)	$	(3,410	)	$	6,961

Securities held to maturity, at cost:
States and political subdivisions	$	887,028		$	899,865		$	884,576		$	874,306		$	878,400
Mortgage-backed securities	14,656			23,217			38,460			59,013			80,682
Total amortized cost	$	901,684		$	923,082		$	923,036		$	933,319		$	959,082


⁽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 20% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of December 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):



	12/31/2018					9/30/2018					6/30/2018					3/31/2018					12/31/2017
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	5,169,763		36	%	$	4,936,536		35	%	$	4,816,545		35	%	$	4,790,803		34	%	$	4,786,180		34	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,084,170			15		2,065,588			15		2,100,460			15		2,095,189			15		2,113,135			15
Commercial real estate	3,720,255			27		3,832,032			28		3,929,327			28		4,093,045			29		4,147,529			30
Construction real estate	506,837			4		548,882			4		495,805			4		479,638			4		406,849			3
Total commercial-related loans	11,481,025			82		11,383,038			82		11,342,137			82		11,458,675			82		11,453,693			82
Other loans:
Residential real estate ⁽¹⁾	1,397,598			10		1,403,087			10		1,352,625			10		1,391,900			10		1,432,458			10
Indirect vehicle	817,108			5		790,573			5		749,983			5		692,642			5		667,928			4
Home equity	172,890			1		181,477			1		192,785			1		202,920			1		219,098			2
Consumer	82,461			1		85,705			1		81,714			1		78,853			1		73,141			1
Total other loans	2,470,057			17		2,460,842			17		2,377,107			17		2,366,315			17		2,392,625			17
Total loans, excluding purchased credit-impaired loans	13,951,082			99		13,843,880			99		13,719,244			99		13,824,990			99		13,846,318			99
Purchased credit-impaired loans	84,101			1		91,072			1		101,001			1		109,990			1		119,744			1
Total loans	$	14,035,183		100	%	$	13,934,952		100	%	$	13,820,245		100	%	$	13,934,980		100	%	$	13,966,062		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+0.8		%			+0.9		%			-0.8		%			-0.2		%			+0.7		%
From same quarter one year ago	+0.8		%			+0.7		%			+1.9		%			+8.1		%			+9.8		%


⁽¹⁾	Reflects a $75.5 million transfer as of September 30, 2018 from loans held for sale of GNMA loans previously sold that were eligible for repurchase.

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):



	4Q18					3Q18					2Q18					1Q18					4Q17
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,943,611		36	%	$	4,906,844		35	%	$	4,770,098		34	%	$	4,750,035		34	%	$	4,638,618		34	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,050,265			15		2,029,053			15		2,065,688			15		2,084,396			15		2,074,655			15
Commercial real estate	3,793,329			27		3,883,132			28		4,033,421			29		4,133,826			30		4,131,179			30
Construction real estate	516,238			4		511,193			4		491,440			4		443,329			3		410,416			3
Total commercial-related loans	11,303,443			82		11,330,222			82		11,360,647			82		11,411,586			82		11,254,868			82
Other loans:
Residential real estate	1,397,719			10		1,355,501			10		1,371,020			10		1,415,374			10		1,430,219			10
Indirect vehicle	806,139			5		770,047			5		720,052			5		676,590			5		663,474			4
Home equity	178,585			1		187,347			1		199,334			1		211,729			1		223,445			2
Consumer	85,414			1		83,677			1		82,189			1		76,606			1		76,249			1
Total other loans	2,467,857			17		2,396,572			17		2,372,595			17		2,380,299			17		2,393,387			17
Total loans, excluding purchased credit-impaired loans	13,771,300			99		13,726,794			99		13,733,242			99		13,791,885			99		13,648,255			99
Purchased credit-impaired loans	86,872			1		94,916			1		105,781			1		113,942			1		127,781			1
Total loans	$	13,858,172		100	%	$	13,821,710		100	%	$	13,839,023		100	%	$	13,905,827		100	%	$	13,776,036		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+0.3		%			-0.1		%			-0.4		%			+1.1		%			+1.3		%
From same quarter one year ago	+0.9		%			+1.9		%			+5.3		%			+10.1		%			+10.5		%

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):



	12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	67,616		$	72,437		$	64,515		$	60,151		$	71,238
Loans 90 days or more past due, still accruing interest	2,755			1,294			4,010			1,169			5,570
Total non-performing loans	70,371			73,731			68,525			61,320			76,808
Other real estate owned	9,182			10,933			10,869			10,528			9,736
Repossessed assets	990			870			643			661			589
Total non-performing assets	$	80,543		$	85,534		$	80,037		$	72,509		$	87,133
Potential problem loans ⁽²⁾	$	328,705		$	245,131		$	243,684		$	208,201		$	173,266
Purchased credit-impaired loans ⁽³⁾	$	84,101		$	91,072		$	101,001		$	109,990		$	119,744
Total non-performing, potential problem and purchased credit-impaired loans	$	483,177		$	409,934		$	413,210		$	379,511		$	369,818

Total allowance for loan and lease losses	$	161,578		$	155,411		$	162,790		$	161,712		$	157,710
Accruing restructured loans ⁽⁴⁾	22,793			22,970			25,660			28,591			28,554
Total non-performing loans to total loans	0.50		%	0.53		%	0.50		%	0.44		%	0.55		%
Total non-performing assets to total assets	0.40			0.43			0.40			0.36			0.43
Allowance for loan and lease losses to non-performing loans	229.61			210.78			237.56			263.72			205.33


⁽¹⁾	Includes $22.0 million, $24.0 million, $26.2 million, $28.5 million and $30.8 million of restructured loans on non-accrual status at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 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 $36.6 million, $40.2 million, $43.6 million, $49.5 million and $54.9 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 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.

Potential problem loans increased by $83.6 million, or 34.1%, due to an increase in downgraded loans in our commercial and health care portfolios.

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):



	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Commercial and lease	$	20,458	$	25,378	$	19,788	$	13,843	$	18,522
Commercial real estate	11,205		10,556		11,400		10,986		21,235
Consumer-related	38,708		37,797		37,337		36,491		37,051
Total non-performing loans	$	70,371	$	73,731	$	68,525	$	61,320	$	76,808

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Allowance for credit losses, at the beginning of period	$	157,419		$	164,578		$	163,390		$	159,408		$	161,404		$	159,408		$	141,842
Provision for credit losses	11,971			21,503			6,219			7,508			3,643			47,201			21,593
Charge-offs	10,804			31,600			6,720			6,818			7,448			55,942			16,572
Recoveries	3,470			2,938			1,689			3,292			1,809			11,389			12,545
Net charge-offs	7,334			28,662			5,031			3,526			5,639			44,553			4,027
Allowance for credit losses, at end of period	162,056			157,419			164,578			163,390			159,408			162,056			159,408
Allowance for unfunded credit commitments	(478		)	(2,008		)	(1,788		)	(1,678		)	(1,698		)	(478		)	(1,698		)
Allowance for loan and lease losses, at end of period	$	161,578		$	155,411		$	162,790		$	161,712		$	157,710		$	161,578		$	157,710
Total loans, excluding loans held for sale	$	14,035,183		$	13,934,952		$	13,820,245		$	13,934,980		$	13,966,062		$	14,035,183		$	13,966,062
Average loans, excluding loans held for sale	13,858,172			13,821,710			13,839,023			13,905,827			13,776,036			13,855,958			13,322,342
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.15		%	1.12		%	1.18		%	1.16		%	1.13		%	1.15		%	1.13		%
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.21			0.82			0.15			0.10			0.16			0.32			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):



	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Commercial related loans:
General reserve	$	146,277	$	137,204	$	139,356	$	137,284	$	132,787
Specific reserve	2,025		1,235		6,544		7,290		6,056
Consumer related reserve	13,276		16,972		16,890		17,138		18,867
Total allowance for loan and lease losses	$	161,578	$	155,411	$	162,790	$	161,712	$	157,710

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 December 31, 2018 (in thousands):



	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	6,185		$	5,898		$	14,480		$	26,563
Charge-offs	(140		)	—			—			(140		)
Accretion	—			(1,057		)	(1,739		)	(2,796		)
Transfer ⁽¹⁾	(1,083		)	1,083			—			—
Balance at end of period	$	4,962		$	5,924		$	12,741		$	23,627


⁽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):



	12/31/2018					9/30/2018					6/30/2018					3/31/2018					12/31/2017
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,152,163		42	%	$	6,036,012		41	%	$	6,347,208		43	%	$	6,385,149		43	%	$	6,381,512		43	%
Money market, NOW, and interest bearing deposits	4,982,026			34		5,125,330			35		4,950,676			33		4,858,506			32		4,954,765			33
Savings deposits	1,191,498			8		1,180,997			8		1,181,078			8		1,229,968			8		1,167,810			8
Total low-cost deposits	12,325,687			84		12,342,339			84		12,478,962			84		12,473,623			83		12,504,087			84
Certificates of deposit:
Certificates of deposit	1,416,815			10		1,392,020			9		1,361,611			9		1,397,868			10		1,392,409			9
Brokered certificates of deposit	911,711			6		974,434			7		1,082,090			7		1,099,102			7		1,061,882			7
Total certificates of deposit	2,328,526			16		2,366,454			16		2,443,701			16		2,496,970			17		2,454,291			16
Total deposits	$	14,654,213		100	%	$	14,708,793		100	%	$	14,922,663		100	%	$	14,970,593		100	%	$	14,958,378		100	%
Change in total deposits:
From prior quarter	-0.4		%			-1.4		%			-0.3		%			+0.1		%			+3.8		%
From same quarter one year ago	-2.0		%			+2.0		%			+4.6		%			+6.9		%			+6.0		%

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



	4Q18					3Q18					2Q18					1Q18					4Q17
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low-cost deposits:
Non-interest bearing deposits	$	6,346,760		43	%	$	6,418,925		43	%	$	6,414,450		43	%	$	6,293,453		42	%	$	6,370,801		43	%
Money market, NOW, and interest bearing deposits	4,989,644			33		5,042,158			33		4,878,700			32		4,871,501			33		4,976,854			33
Savings deposits	1,187,808			8		1,172,627			8		1,209,360			8		1,208,843			8		1,120,550			7
Total low-cost deposits	12,524,212			84		12,633,710			84		12,502,510			83		12,373,797			83		12,468,205			83
Certificates of deposit:
Certificates of deposit	1,416,280			10		1,370,866			9		1,400,201			10		1,383,260			10		1,393,210			10
Brokered certificates of deposit	941,661			6		1,028,420			7		1,093,525			7		1,075,056			7		1,092,990			7
Total certificates of deposit	2,357,941			16		2,399,286			16		2,493,726			17		2,458,316			17		2,486,200			17
Total deposits	$	14,882,153		100	%	$	15,032,996		100	%	$	14,996,236		100	%	$	14,832,113		100	%	$	14,954,405		100	%
Change in total deposits:
From prior quarter	-1.0		%			+0.2		%			+1.1		%			-0.8		%			+3.8		%
From same quarter one year ago	-0.5		%			+4.3		%			+6.4		%			+6.5		%			+4.8		%

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):



	4Q18						3Q18						4Q17
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	52,275	$	537	4.11	%	$	196,180	1,608		3.28	%	$	653,482	$	5,683	3.48	%
Loans ^{(1) (2) (3)}:
Commercial-related loans
Commercial	4,943,611		67,123		5.31		4,906,844		64,512		5.14		4,638,618		53,505		4.51
Commercial loans collateralized by assignment of lease payments (lease loans)	2,050,265		21,615		4.22		2,029,053		20,262		3.99		2,074,655		19,314		3.72
Commercial real estate	3,793,329		50,302		5.19		3,883,132		50,185		5.06		4,131,179		47,763		4.52
Construction real estate	516,238		6,931		5.25		511,193		6,521		4.99		410,416		4,395		4.19
Total commercial-related loans	11,303,443		145,971		5.07		11,330,222		141,480		4.90		11,254,868		124,977		4.36
Other loans:
Residential real estate	1,397,719		11,199		3.21		1,355,501		11,048		3.26		1,430,219		11,621		3.25
Indirect	806,139		10,319		5.08		770,047		9,541		4.92		663,474		7,810		4.67
Home equity	178,585		2,237		4.97		187,347		2,295		4.86		223,445		2,414		4.29
Consumer	85,414		817		3.79		83,677		856		4.06		76,249		796		4.14
Total other loans	2,467,857		24,572		3.96		2,396,572		23,740		3.95		2,393,387		22,641		3.77
Total loans, excluding purchased credit-impaired loans	13,771,300		170,543		4.87		13,726,794		165,220		4.73		13,648,255		147,618		4.26
Purchased credit-impaired loans	86,872		2,379		10.87		94,916		4,079		17.05		127,781		4,964		15.41
Total loans	13,858,172		172,922		4.91		13,821,710		169,299		4.82		13,776,036		152,582		4.36
Taxable investment securities	1,525,126		11,322		2.97		1,455,771		10,366		2.85		1,315,473		7,696		2.34
Investment securities exempt from federal income taxes ⁽³⁾	1,228,820		11,992		3.90		1,220,193		11,882		3.90		1,249,181		14,888		4.77
Federal funds sold	74		0		2.50		383		2		2.21		37		0		1.73
Other interest earning deposits	121,401		356		1.16		375,961		1,648		1.74		363,273		600		0.66
Total interest earning assets	$	16,785,868	$	197,129	4.63	%	$	17,070,198	$	194,805	4.50	%	$	17,357,482	$	181,449	4.13	%
Non-interest earning assets	2,934,520						2,907,225						2,809,191
Total assets	$	19,720,388					$	19,977,423					$	20,166,673
Interest Bearing Liabilities:
Core funding:
Money market, NOW, and interest bearing deposits	$	4,989,644	$	11,389	0.91	%	$	5,042,158	$	10,183	0.80	%	$	4,976,854	$	5,617	0.45	%
Savings deposits	1,187,808		1,109		0.37		1,172,627		919		0.31		1,120,550		478		0.17
Certificates of deposit	1,416,280		5,079		1.42		1,370,866		4,300		1.24		1,393,210		3,143		0.90
Customer repurchase agreements	273,794		443		0.64		232,584		276		0.47		217,390		137		0.25
Total core funding	7,867,526		18,020		0.91		7,818,235		15,678		0.80		7,708,004		9,375		0.48
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	941,661		4,790		2.02		1,028,420		5,083		1.96		1,092,990		4,314		1.57
Other borrowings	1,013,859		7,629		2.94		1,232,992		9,130		2.90		1,672,957		7,884		1.84
Total wholesale funding	1,955,520		12,419		2.50		2,261,412		14,213		2.47		2,765,947		12,198		1.73
Total interest bearing liabilities	$	9,823,046	$	30,439	1.23	%	$	10,079,647	$	29,891	1.17	%	$	10,473,951	$	21,573	0.81	%
Non-interest bearing deposits	6,346,760						6,418,925						6,370,801
Other non-interest bearing liabilities	568,520						524,447						541,823
Stockholders' equity	2,982,062						2,954,404						2,780,098
Total liabilities and stockholders' equity	$	19,720,388					$	19,977,423					$	20,166,673
Net interest income/interest rate spread ⁽⁴⁾			$	166,690	3.40	%			$	164,914	3.33	%			$	159,876	3.32	%
Taxable equivalent adjustment			3,185						3,066						6,483
Net interest income, as reported			$	163,505					$	161,848					$	153,393
Net interest margin ⁽⁵⁾					3.84	%					3.74	%					3.49	%
Tax equivalent effect					0.07	%					0.07	%					0.14	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.91	%					3.81	%					3.63	%


⁽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.



	Year Ended December 31,
	2018						2017
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	340,073	$	12,006	3.53	%	$	632,927	22,801		3.60	%
Loans ^{(1) (2) (3)}:
Commercial-related loans
Commercial	4,843,353		246,379		5.02		4,509,690		202,446		4.43
Commercial loans collateralized by assignment of lease payments (lease loans)	2,057,180		81,479		3.96		2,015,508		74,870		3.71
Commercial real estate	3,959,781		199,351		4.97		3,905,758		176,969		4.47
Construction real estate	490,806		24,260		4.88		479,404		19,996		4.11
Total commercial-related loans	11,351,120		551,469		4.80		10,910,360		474,281		4.30
Other loans:
Residential real estate	1,384,774		45,135		3.26		1,333,435		43,752		3.28
Indirect	743,636		36,434		4.90		615,093		28,385		4.61
Home equity	194,139		9,181		4.73		238,603		9,906		4.15
Consumer	82,000		3,300		4.02		78,871		3,243		4.11
Total other loans	2,404,549		94,050		3.91		2,266,002		85,286		3.76
Total loans, excluding purchased credit-impaired loans	13,755,669		645,519		4.65		13,176,362		559,567		4.21
Purchased credit-impaired loans	100,289		14,183		14.14		145,980		21,274		14.57
Total loans	13,855,958		659,702		4.71		13,322,342		580,841		4.32
Taxable investment securities	1,439,627		40,201		2.79		1,472,596		33,975		2.31
Investment securities exempt from federal income taxes ⁽³⁾	1,224,461		47,818		3.91		1,261,295		60,336		4.78
Federal funds sold	199		4		2.19		64		1		1.45
Other interest earning deposits	188,501		2,377		1.26		182,651		1,353		0.74
Total interest earning assets	$	17,048,819	$	762,108	4.43	%	$	16,871,875	$	699,307	4.11	%
Non-interest earning assets	2,899,052						2,758,432
Total assets	$	19,947,871					$	19,630,307
Interest Bearing Liabilities:
Core funding:
Money market, NOW, and interest bearing deposits	$	4,946,089	$	35,539	0.72	%	$	4,689,676	$	16,008	0.34	%
Savings deposits	1,194,541		3,730		0.31		1,114,936		1,267		0.11
Certificates of deposit	1,392,683		16,539		1.19		1,331,949		9,826		0.74
Customer repurchase agreements	236,381		1,135		0.48		199,661		448		0.22
Total core funding	7,769,694		56,943		0.73		7,336,222		27,549		0.38
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	1,034,283		19,462		1.88		900,222		13,584		1.51
Other borrowings	1,296,546		35,398		2.69		1,930,302		28,936		1.48
Total wholesale funding	2,330,829		54,860		2.33		2,830,524		42,520		1.49
Total interest bearing liabilities	$	10,100,523	$	111,803	1.10	%	$	10,166,746	$	70,069	0.69	%
Non-interest bearing deposits	6,368,681						6,314,086
Other non-interest bearing liabilities	520,258						484,564
Stockholders' equity	2,958,409						2,664,911
Total liabilities and stockholders' equity	$	19,947,871					$	19,630,307
Net interest income/interest rate spread ⁽⁴⁾			$	650,305	3.33	%			$	629,238	3.42	%
Taxable equivalent adjustment			12,502						26,861
Net interest income, as reported			$	637,803					$	602,377
Net interest margin ⁽⁵⁾					3.71	%					3.54	%
Tax equivalent effect					0.07	%					0.16	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.78	%					3.70	%


⁽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):



	4Q18							3Q18							4Q17
	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	$	13,858,172		$	172,922	4.91	%	$	13,821,710		$	169,299	4.82	%	$	13,776,036		$	152,582	4.36	%
Less acquisition accounting discount on non-PCI loans	(13,611		)	1,739				(15,467		)	1,971				(22,513		)	2,914
Less acquisition accounting discount on PCI loans	(11,484		)	1,057				(13,315		)	2,579				(22,605		)	3,166
Total loans, excluding acquisition accounting discount on bank merger loans	$	13,883,267		$	170,126	4.82	%	$	13,850,492		$	164,749	4.68	%	$	13,821,154		$	146,502	4.17	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	16,785,868		$	166,690	3.91	%	$	17,070,198		$	164,914	3.81	%	$	17,357,482		$	159,876	3.63	%
Less acquisition accounting discount on non-PCI loans	(13,611		)	1,739				(15,467		)	1,971				(22,513		)	2,914
Less acquisition accounting discount on PCI loans	(11,484		)	1,057				(13,315		)	2,579				(22,605		)	3,166
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount on bank merger loans	$	16,810,963		$	163,894	3.84	%	$	17,098,980		$	160,364	3.70	%	$	17,402,600		$	153,796	3.49	%



	Year Ended December 31,
	2018							2017
	Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	13,855,958		$	659,702	4.71	%	$	13,322,342		$	580,841	4.32	%
Less acquisition accounting discount on non-PCI loans	(16,899		)	8,315				(28,626		)	15,340
Less acquisition accounting discount on PCI loans	(15,316		)	8,270				(30,984		)	12,500
Total loans, excluding acquisition accounting discount on bank merger loans	$	13,888,173		$	643,117	4.58	%	$	13,381,952		$	553,001	4.09	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	17,048,819		$	650,305	3.78	%	$	16,871,875		$	629,238	3.70	%
Less acquisition accounting discount on non-PCI loans	(16,899		)	8,315				(28,626		)	15,340
Less acquisition accounting discount on PCI loans	(15,316		)	8,270				(30,984		)	12,500
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount on bank merger loans	$	17,081,034		$	633,720	3.68	%	$	16,931,485		$	601,398	3.52	%

NON-INTEREST INCOME

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Core non-interest income:
Key fee initiatives:
Lease financing revenue, net	$	31,657		$	25,205		$	22,918		$	24,710		$	23,620		$	104,490		$	86,587
Treasury management fees	14,287			15,226			15,066			15,156			15,234			59,735			58,930
Wealth management fees	9,204			9,089			8,969			9,121			9,024			36,383			34,744
Card fees	5,851			5,362			5,654			4,787			5,032			21,654			18,596
Capital markets and international banking fees	3,637			1,913			3,785			2,998			3,999			12,333			15,708
Total key fee initiatives	64,636			56,795			56,392			56,772			56,909			234,595			214,565
Mortgage banking revenue	9,626			9,916			18,926			25,047			22,374			63,515			109,224
Consumer and other deposit service fees	3,031			3,051			2,929			2,912			3,261			11,923			13,333
Brokerage fees	1,182			1,138			1,050			864			942			4,234			4,321
Loan service fees	2,252			2,103			2,148			2,245			2,197			8,748			8,317
Increase in cash surrender value of life insurance	1,301			1,298			1,272			1,108			1,511			4,979			5,421
Other operating income	2,295			4,714			5,610			4,445			2,616			17,064			10,912
Total core non-interest income	84,323			79,015			88,327			93,393			89,810			345,058			366,093
Non-core non-interest income:
Net gain (loss) on investment securities	89			(85		)	(86		)	(174		)	111			(256		)	562
Net loss on disposal of other assets	(10		)	(32		)	(397		)	(357		)	(2,016		)	(796		)	(2,323		)
Recovery of low to moderate income real estate investment ⁽¹⁾	—			—			—			—			1,006			—			1,704
(Decrease) increase in market value of assets held in trust for deferred compensation ⁽¹⁾	(2,722		)	943			462			(60		)	912			(1,377		)	3,338
Total non-core non-interest income	(2,643		)	826			(21		)	(591		)	13			(2,429		)	3,281
Total non-interest income	$	81,680		$	79,841		$	88,306		$	92,802		$	89,823		$	342,629		$	369,374


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

NON-INTEREST EXPENSE

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



														Year Ended
														December 31,
	4Q18			3Q18		2Q18		1Q18			4Q17			2018			2017
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	54,598		$	56,234	$	63,157	$	64,587		$	62,465		$	238,576		$	243,157
Commissions	3,566			4,948		7,623		7,435			8,303			23,572			35,850
Bonus and stock-based compensation	15,590			12,373		12,853		12,055			13,332			52,871			50,086
Other salaries and benefits ⁽²⁾	20,526			20,826		21,873		21,940			20,153			85,165			80,512
Total salaries and employee benefits expense	94,280			94,381		105,506		106,017			104,253			400,184			409,605
Occupancy and equipment expense	15,322			15,801		16,450		17,394			16,727			64,967			62,427
Computer services and telecommunication expense	10,446			10,036		10,871		11,156			11,287			42,509			40,344
Advertising and marketing expense	2,749			3,154		3,342		3,837			3,266			13,082			12,230
Professional and legal expense	3,624			1,874		5,434		1,894			2,914			12,826			10,064
Other intangible amortization expense	2,199			1,854		1,896		1,902			1,979			7,851			8,193
Net loss (gain) recognized on other real estate owned (A)	476			62		879		(143		)	(151		)	1,274			1,246
Other real estate expense, net (A)	365			186		169		190			47			910			98
Other operating expenses	19,443			20,071		23,039		21,919			23,450			84,472			91,892
Total core non-interest expense	148,904			147,419		167,586		164,166			163,772			628,075			636,099
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	7,958			13,927		24,944		644			944			47,473			9,947
Restructuring severance charges (C)	—			—		—		—			—			—			—
One-time bonuses (C)	—			—		—		—			2,700			—			2,700
Branch exit and facilities impairment charges	—			—		—		—			—			—			1,759
Loss on extinguishment of debt ⁽³⁾	2,507			6,255		—		3,136			—			11,898			—
Reduction in clawback liability ⁽⁴⁾	(5,009		)	—		—		—			—			(5,009		)	—
Contribution to MB Financial Charitable Foundation (D)	—			—		—		—			7,500			—			7,500
(Decrease) increase in market value of assets held in trust for deferred compensation (C)	(2,722		)	943		462		(60		)	912			(1,377		)	3,338
Total non-core non-interest expense	2,734			21,125		25,406		3,720			12,056			52,985			25,244
Total non-interest expense	$	151,638		$	168,544	$	192,992	$	167,886		$	175,828		$	681,060		$	661,343


⁽¹⁾	Letters denote the corresponding line items where these items reside in the consolidated statements of operations as follows: A – Net loss (gain) recognized on other real estate owned and other related 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.


⁽³⁾	Includes losses on the extinguishment of junior subordinated notes issued to capital trusts in the first, third, and fourth quarters of 2018.


⁽⁴⁾	Includes a decrease in expense related to FDIC loss share agreements.

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



												Year Ended
												December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17			2018		2017
Merger related and repositioning expenses ⁽¹⁾:
Salaries and employee benefits expense	$	4,125	$	6,561	$	17,510	$	557	$	1,382		$	28,753	$	3,536
Occupancy and equipment expense	126		316		1		35		119			478		129
Computer services and telecommunication expense	299		2,648		—		—		17			2,947		247
Advertising and marketing expense	34		278		—		26		5			338		5
Professional and legal expense	538		712		3,453		4		43			4,707		143
Branch exit and facilities impairment charges ⁽²⁾	613		3,292		340		—		(327		)	4,245		6,594
Contingent consideration expense ⁽³⁾	2,000		—		—		—		(454		)	2,000		(454		)
Goodwill impairment loss ⁽⁴⁾	—		—		3,623		—		—			3,623		—
Other operating expenses	223		120		17		22		159			382		(253		)
Total merger related and repositioning expenses	$	7,958	$	13,927	$	24,944	$	644	$	944		$	47,473	$	9,947

⁽¹⁾

Includes costs incurred in connection with the pending merger with Fifth Third, the discontinuation of our national mortgage origination business, the mortgage banking acquisition (completed in the fourth quarter of 2017), and the American Chartered merger (completed in 2016). For the fourth quarter of 2018, approximately $2 million relates to the discontinuation of our national mortgage origination business and approximately $3 million relates to the pending merger with Fifth Third. For the third quarter of 2018, approximately $10 million relates to the discontinuation of our national mortgage origination business and approximately $4 million relates to the pending merger with Fifth Third. For the second quarter of 2018, approximately $19 million relates to the discontinuation of our national mortgage origination business and approximately $6 million relates to the pending merger with Fifth Third.

⁽²⁾

Includes the following items: exit charges related to our mortgage wind down in the fourth quarter of 2018; exit charges related to the closing of 34 of our mortgage retail offices in the third quarter of 2018; exit charges related to the closing of five of our mortgage retail offices in the second quarter of 2018; gains on previously closed branch facilities in the fourth quarter of 2017; costs associated with office space reconfiguration in the third quarter of 2017; and exit charges on branches closed in the second quarter of 2017 due to the American Chartered 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. 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.


⁽⁴⁾	Reflects the goodwill impairment charge at the Mortgage Banking Segment in the second quarter of 2018.

INCOME TAX EXPENSE

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Income before income taxes - as reported	$	81,576		$	51,642		$	48,164		$	70,789		$	63,745		$	252,171		$	288,815
Tax at Federal statutory rate (21% for 2018 and 35% for 2017)	17,131			10,845			10,114			14,866			22,310			52,956			101,085

Increase (decrease) due to:
Tax exempt income, net	(2,781		)	(2,653		)	(2,681		)	(2,639		)	(4,673		)	(10,754		)	(19,053		)
State tax expense, net of Federal impact	3,651			2,846			2,593			3,964			3,103			13,054			12,695
Other items, net	642			198			931			586			1,131			2,357			1,397
Tax expense before discrete items	18,643			11,236			10,957			16,777			21,871			57,613			96,124
Income tax rate before discrete items (effective tax rate)	22.9		%	21.8		%	22.7		%	23.7		%	34.3		%	22.8		%	33.3		%

Discrete tax expense (benefit) items ⁽¹⁾	(4,778		)	(154		)	(483		)	(201		)	1,919			(5,616		)	(2,682		)
Discrete tax benefit corporate Federal tax rate changes ⁽²⁾	(8,200		)	(2,154		)	(843		)	(2,544		)	(104,239		)	(13,741		)	(104,239		)
Discrete tax benefit corporate state tax rate changes ⁽³⁾	—			—			—			—			—			—			(2,324		)
Discrete tax expense (benefit) merger related items ⁽⁴⁾	—			—			—			—			—			—			(2,104		)
Income tax expense - as reported	$	5,665		$	8,928		$	9,631		$	14,032		$	(80,449	)	$	38,256		$	(15,225	)
Income tax rate	6.9		%	17.3		%	20.0		%	19.8		%	(126.2		)%	15.2		%	(5.3		)%

⁽¹⁾

Includes tax benefits on the vesting of restricted shares, exercise of options, and other compensation as well as non-deductible merger expenses, the $5.2 million decrease in state income tax accruals due to income allocation to low income tax rate jurisdictions for the fourth quarter of 2018, and $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 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. Amounts for 2018 represent re-measurement adjustments of our net deferred tax liabilities.


⁽³⁾	Includes tax benefit due to the impact of the Illinois state income tax rate increase (effective July 1, 2017) on our deferred tax assets.


⁽⁴⁾	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, operating earnings excluding the Mortgage Banking Segment, core non-interest income, core non-interest income to revenues (including and excluding Mortgage Banking Segment) (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 (including and excluding Mortgage Banking Segment), 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, one-time bonuses, loss on extinguishment of debt, increase and decrease in market value of assets held in trust for deferred compensation, reduction in clawback liability, 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, excluding Mortgage Banking Segment, on average assets, annualized operating return on average common equity, annualized cash return, excluding Mortgage Banking Segment, on average tangible common equity, and annualized cash operating return, excluding Mortgage Banking Segment, 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, operating earnings excluding Mortgage Banking Segment, 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, 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):



	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Stockholders' equity - as reported	$	3,034,848	$	2,965,329	$	2,948,693	$	2,934,347	$	3,009,823
Less: goodwill	999,925		999,925		999,925		1,003,548		1,003,548
Less: other intangible assets, net of tax benefit	34,365		35,976		37,334		38,723		40,116
Tangible equity	$	2,000,558	$	1,929,428	$	1,911,434	$	1,892,076	$	1,966,159

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



	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Total assets - as reported	$	20,207,026	$	19,719,971	$	19,966,557	$	20,167,523	$	20,086,940
Less: goodwill	999,925		999,925		999,925		1,003,548		1,003,548
Less: other intangible assets, net of tax benefit	34,365		35,976		37,334		38,723		40,116
Tangible assets	$	19,172,736	$	18,684,070	$	18,929,298	$	19,125,252	$	19,043,276

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



	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Common stockholders' equity - as reported	$	2,840,129	$	2,770,610	$	2,753,974	$	2,739,628	$	2,699,824
Less: goodwill	999,925		999,925		999,925		1,003,548		1,003,548
Less: other intangible assets, net of tax benefit	34,365		35,976		37,334		38,723		40,116
Tangible common equity	$	1,805,839	$	1,734,709	$	1,716,715	$	1,697,357	$	1,656,160

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



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Average common stockholders' equity - as reported	$	2,787,343	$	2,759,685	$	2,740,997	$	2,708,911	$	2,579,896	$	2,749,478	$	2,528,015
Less: average goodwill	999,925		999,925		1,001,119		1,003,548		1,001,027		1,001,116		1,000,469
Less: average other intangible assets, net of tax benefit	35,024		36,433		37,804		39,212		36,049		37,105		38,058
Average tangible common equity	$	1,752,394	$	1,723,327	$	1,702,074	$	1,666,151	$	1,542,820	$	1,711,257	$	1,489,488

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



											Year Ended
											December 31,
	4Q18		3Q18		2Q18		1Q18		4Q17		2018		2017
Net income available to common stockholders - as reported	$	72,911	$	39,714	$	35,533	$	68,937	$	142,194	$	217,095	$	296,033
Add: other intangible amortization expense, net of tax benefit	1,611		1,358		1,389		1,393		1,286		5,751		5,325
Net cash flow available to common stockholders	$	74,522	$	41,072	$	36,922	$	70,330	$	143,480	$	222,846	$	301,358

The following table presents a reconciliation of net income to operating earnings (dollars in thousands, except per share data):



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Net income - as reported	$	75,911		$	42,714		$	38,533		$	56,757		$	144,194		$	213,915		$	304,040
Less non-core items:
Net gain (loss) on investment securities	89			(85		)	(86		)	(174		)	111			(256		)	562
Net loss on disposal of other assets	(10		)	(32		)	(397		)	(357		)	(2,016		)	(796		)	(2,323		)
Recovery of low to moderate income real estate investment	—			—			—			—			1,006			—			1,704
(Decrease) increase in market value of assets held in trust for deferred compensation - other operating income	(2,722		)	943			462			(60		)	912			(1,377		)	3,338
Merger related and repositioning expenses ⁽¹⁾	(7,958		)	(13,927		)	(24,944		)	(644		)	(944		)	(47,473		)	(9,947		)
One-time bonuses	—			—			—			—			(2,700		)	—			(2,700		)
Branch exit and facilities impairment charges	—			—			—			—			—			—			(1,759		)
Loss on extinguishment of debt	(2,507		)	(6,255		)	—			(3,136		)	—			(11,898		)	—
Reduction in clawback liability	5,009			—			—			—			—			5,009			—
Contribution to MB Financial Charitable Foundation	—			—			—			—			(7,500		)	—			(7,500		)
Decrease (increase) in market value of assets held in trust for deferred compensation - other operating expense	2,722			(943		)	(462		)	60			(912		)	1,377			(3,338		)
Total non-core items	(5,377		)	(20,299		)	(25,427		)	(4,311		)	(12,043		)	(55,414		)	(21,963		)
Income tax expense on non-core items	(873		)	(5,256		)	(5,905		)	(1,153		)	(4,618		)	(13,187		)	(8,558		)
Income tax expense - other ⁽²⁾	(8,200		)	(2,154		)	(843		)	(2,544		)	(104,239		)	(13,741		)	(106,343		)
Non-core items, net of tax	3,696			(12,889		)	(18,679		)	(614		)	96,814			(28,486		)	92,938
Operating earnings	72,215			55,603			57,212			57,371			47,380			242,401			211,102
Operating earnings (loss) - Mortgage Banking Segment	3,141			1,067			(3,359		)	(295		)	(815		)	554			5,494
Operating earnings, excluding Mortgage Banking Segment	69,074			54,536			60,571			57,666			48,195			241,847			205,608
Dividends on preferred shares	3,000			3,000			3,000			3,100			2,000			12,100			8,007
Operating earnings available to common stockholders, excluding Mortgage Banking Segment	$	66,074		$	51,536		$	57,571		$	54,566		$	46,195		$	229,747		$	197,601
Diluted earnings per common share - as reported	$	0.85		$	0.47		$	0.42		$	0.81		$	1.67		$	2.55		$	3.49
Impact of return from preferred stockholders due to redemption ⁽³⁾	—			—			—			(0.18		)	—			(0.18		)	—
Impact of non-core items, net of tax	(0.04		)	0.14			0.22			0.01			(1.14		)	0.34			(1.10		)
Impact of excluding operating (earnings) loss - Mortgage Banking Segment	(0.04		)	(0.01		)	0.04			—			0.01			(0.01		)	(0.06		)
Diluted operating earnings per common share, excluding Mortgage Banking Segment	$	0.77		$	0.60		$	0.68		$	0.64		$	0.54		$	2.70		$	2.33
Weighted average common shares outstanding for diluted operating earnings per common share	85,337,028			85,335,109			85,251,810			84,896,401			84,964,759			85,206,300			84,823,456


⁽¹⁾	Non-core items for the fourth quarter of 2018 include approximately $2 million, net of tax, related to the discontinuation of our national mortgage origination business and approximately $3 million, net of tax, related to the pending merger with Fifth Third. Non-core items for the third quarter of

2018 include approximately $7 million, net of tax, related to the discontinuation of our national mortgage origination business and approximately $3 million, net of tax, related to the pending merger with Fifth Third. Non-core items for the second quarter of 2018 include approximately $14 million, net of tax, related to the discontinuation of our national mortgage origination business and approximately $5 million, net of tax, related to the pending merger with Fifth Third.

⁽²⁾

The four quarters of 2018 and fourth quarter of 2017 include the reversal of deferred tax liabilities as a result of the decrease in Federal income tax rate effective January 1, 2018 due to the TCJ Act. The fourth quarter reversal of $8.2 million was recognized at the Banking Segment. The third quarter of 2018 reversal of $2.2 million was recognized at the Banking Segment. The second quarter of 2018 reversal of $843 thousand was recognized as follows: $429 thousand of expense at the Banking Segment and $1.3 million reversal at the Leasing Segment. 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 year ended December 31, 2017 includes reversals of tax liabilities no longer needed specifically related to two entities we acquired.


⁽³⁾	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.

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Banking Segment:
Net income - as reported	$	64,628		$	41,662		$	47,893		$	46,550		$	43,435		$	200,733		$	180,872
Non-core items, net of tax	(5,532		)	5,738			5,714			2,550			298			8,470			4,174
Operating earnings	$	59,096		$	47,400		$	53,607		$	49,100		$	43,733		$	209,203		$	185,046

Leasing Segment:
Net income - as reported	$	9,961		$	7,136		$	8,236		$	11,110		$	69,783		$	36,443		$	85,883
Non-core items, net of tax	17			—			(1,272		)	(2,544		)	(65,321		)	(3,799		)	(65,321		)
Operating earnings	$	9,978		$	7,136		$	6,964		$	8,566		$	4,462		$	32,644		$	20,562

Mortgage Banking Segment:
Net income (loss) - as reported	$	1,322		$	(6,084	)	$	(17,596	)	$	(903	)	$	30,976		$	(23,261	)	$	37,285
Non-core items, net of tax	1,819			7,151			14,237			608			(31,791		)	23,815			(31,791		)
Operating earnings (loss)	$	3,141		$	1,067		$	(3,359	)	$	(295	)	$	(815	)	$	554		$	5,494

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Non-interest expense	$	151,638		$	168,544		$	192,992		$	167,886		$	175,828		$	681,060		$	661,343
Less merger related and repositioning expenses	7,958			13,927			24,944			644			944			47,473			9,947
Less loss on extinguishment of debt	2,507			6,255			—			3,136			—			11,898			—
Less one-time bonuses	—			—			—			—			2,700			—			2,700
Less branch exit and facilities impairment charges	—			—			—			—			—			—			1,759
Less reduction in clawback liability	(5,009		)	—			—			—			—			(5,009		)	—
Less contribution to MB Financial Charitable Foundation	—			—			—			—			7,500			—			7,500
Less (decrease) increase in market value of assets held in trust for deferred compensation	(2,722		)	943			462			(60		)	912			(1,377		)	3,338
Non-interest expense - as adjusted	$	148,904		$	147,419		$	167,586		$	164,166		$	163,772		$	628,075		$	636,099

Net interest income	$	163,505		$	161,848		$	159,069		$	153,381		$	153,393		$	637,803		$	602,377
Tax equivalent adjustment	3,185			3,066			3,129			3,122			6,483			12,502			26,861
Net interest income on a fully tax equivalent basis	166,690			164,914			162,198			156,503			159,876			650,305			629,238
Plus non-interest income	81,680			79,841			88,306			92,802			89,823			342,629			369,374
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	346			345			338			295			814			1,324			2,919
Less net gain (loss) on investment securities	89			(85		)	(86		)	(174		)	111			(256		)	562
Less net loss on disposal of other assets	(10		)	(32		)	(397		)	(357		)	(2,016		)	(796		)	(2,323		)
Less recovery of low to moderate income real estate investment	—			—			—			—			1,006			—			1,704
Less (decrease) increase in market value of assets held in trust for deferred compensation	(2,722		)	943			462			(60		)	912			(1,377		)	3,338
Non-interest income - as adjusted	84,669			79,360			88,665			93,688			90,624			346,382			369,012
Total revenue - as adjusted and on a fully tax equivalent basis	$	251,359		$	244,274		$	250,863		$	250,191		$	250,500		$	996,687		$	998,250

Efficiency ratio	59.24		%	60.35		%	66.80		%	65.62		%	65.38		%	63.02		%	63.72		%
Efficiency ratio (without adjustments)	61.85		%	69.74		%	78.02		%	68.20		%	72.29		%	69.47		%	68.06		%

The following table presents the efficiency ratio, excluding the Mortgage Banking Segment calculation (dollars in thousands):



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Non-interest expense - as adjusted ⁽¹⁾	$	148,904		$	147,419		$	167,586		$	164,166		$	163,772		$	628,075		$	636,099
Less Mortgage Banking Segment non-interest expense	12,853			16,183			33,611			35,928			34,397			98,575			140,912
Non-interest expense - as adjusted, less Mortgage Banking Segment	$	136,051		$	131,236		$	133,975		$	128,238		$	129,375		$	529,500		$	495,187

Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	251,359		$	244,274		$	250,863		$	250,191		$	250,500		$	996,687		$	998,250
Less Mortgage Banking Segment net interest income	7,507			7,685			10,106			10,428			10,611			35,726			41,976
Less Mortgage Banking Segment non-interest income	9,626			9,929			18,937			25,048			22,374			63,540			109,225
Net interest income plus non-interest income - as adjusted, less Mortgage Banking Segment	$	234,226		$	226,660		$	221,820		$	214,715		$	217,515		$	897,421		$	847,049
Efficiency ratio, excluding Mortgage Banking Segment	58.09		%	57.90		%	60.40		%	59.72		%	59.48		%	59.00		%	58.46		%


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

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Non-interest expense	$	151,638		$	168,544		$	192,992		$	167,886		$	175,828		$	681,060		$	661,343
Less merger related and repositioning expenses	7,958			13,927			24,944			644			944			47,473			9,947
Less one-time bonuses	—			—			—			—			2,700			—			2,700
Less loss on extinguishment of debt	2,507			6,255			—			3,136			—			11,898			—
Less branch exit and facilities impairment charges	—			—			—			—			—			—			1,759
Less reduction in clawback liability	(5,009		)	—			—			—			—			(5,009		)	—
Less contribution to MB Financial Charitable Foundation	—			—			—			—			7,500			—			7,500
Less increase in market value of assets held in trust for deferred compensation	(2,722		)	943			462			(60		)	912			(1,377		)	3,338
Non-interest expense - as adjusted ⁽¹⁾	$	148,904		$	147,419		$	167,586		$	164,166		$	163,772		$	628,075		$	636,099
Less non-interest income - as adjusted ⁽¹⁾	84,669			79,360			88,665			93,688			90,624			346,382			369,012
Net non-interest expense - as adjusted	$	64,235		$	68,059		$	78,921		$	70,478		$	73,148		$	281,693		$	267,087
Average assets	$	19,720,388		$	19,977,423		$	20,157,187		$	19,938,557		$	20,166,673		$	19,947,871		$	19,630,307
Annualized net non-interest expense to average assets	1.29		%	1.35		%	1.57		%	1.43		%	1.44		%	1.41		%	1.36		%
Annualized net non-interest expense to average assets (without adjustments)	1.41		%	1.76		%	2.08		%	1.53		%	1.69		%	1.70		%	1.49		%


⁽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):



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Non-interest income - as adjusted ⁽¹⁾	$	84,669		$	79,360		$	88,665		$	93,688		$	90,624		$	346,382		$	369,012
Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	251,359		$	244,274		$	250,863		$	250,191		$	250,500		$	996,687		$	998,250
Core non-interest income to revenues ratio	33.68		%	32.49		%	35.34		%	37.45		%	36.18		%	34.75		%	36.97		%
Non-interest income to revenues ratio (without adjustments)	33.31		%	33.03		%	35.70		%	37.70		%	36.93		%	34.95		%	38.01		%


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

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



																Year Ended
																December 31,
	4Q18			3Q18			2Q18			1Q18			4Q17			2018			2017
Non-interest income - as adjusted ⁽¹⁾	$	84,669		$	79,360		$	88,665		$	93,688		$	90,624		$	346,382		$	369,012
Less Mortgage Banking Segment non-interest income	9,626			9,929			18,937			25,048			22,374			63,540			109,225
Non-interest income - as adjusted, less Mortgage Banking Segment	$	75,043		$	69,431		$	69,728		$	68,640		$	68,250		$	282,842		$	259,787

Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	251,359		$	244,274		$	250,863		$	250,191		$	250,500		$	996,687		$	998,250
Less Mortgage Banking Segment net interest income	7,507			7,685			10,106			10,428			10,611			35,726			41,976
Less Mortgage Banking Segment non-interest income	9,626			9,929			18,937			25,048			22,374			63,540			109,225
Total revenue - as adjusted and on a fully tax equivalent basis, less Mortgage Banking Segment	$	234,226		$	226,660		$	221,820		$	214,715		$	217,515		$	897,421		$	847,049

Core non-interest income to revenues ratio, excluding Mortgage Banking Segment	32.04		%	30.63		%	31.43		%	31.97		%	31.38		%	31.52		%	30.67		%


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

MB FINANCIAL INC /MD - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - January 18, 2019

Attached files

MB FINANCIAL INC /MD Reports