EX-99.1 2 exhibit_991earningsrelease.htm EXHIBIT 99.1 Exhibit



EXHIBIT 99.1
mbfilogoblacka04.jpg
4Q17

MB FINANCIAL, INC. REPORTS FOURTH QUARTER 2017 NET INCOME OF $144.2 MILLION

CHICAGO, January 25, 2018 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced fourth quarter 2017 net income of $144.2 million compared to $60.8 million last quarter and $47.2 million in the fourth quarter a year ago.  Diluted earnings per common share were $1.67 in the fourth quarter of 2017 compared to $0.69 last quarter and $0.53 in the fourth quarter a year ago. Annual net income for 2017 was $304.0 million compared to $174.1 million for 2016. Diluted earnings per common share were $3.49 for 2017 compared to $2.13 for 2016.

Fourth quarter 2017 operating earnings were $47.4 million compared to $62.8 million last quarter and $51.8 million in the fourth quarter a year ago.  Diluted operating earnings per common share were $0.53 in the fourth quarter of 2017 compared to $0.72 last quarter and $0.59 in the fourth quarter a year ago. Annual operating earnings for 2017 were $211.1 million compared to $190.5 million for 2016. Diluted operating earnings per common share were $2.39 for 2017 compared to $2.34 for 2016.

Capital Raise and Tax Reform Update

•
In November 2017, we successfully issued $200 million in 6% fixed rate non-cumulative perpetual preferred stock, and our bank subsidiary issued $175 million in 4% fixed-to-floating rate subordinated notes. A portion of the net proceeds of the preferred stock offering will be used to redeem all $100 million of our 8% non-cumulative perpetual preferred stock on February 15, 2018 and $10 million was used to pre-pay our term note in January 2018.

•
We recognized a $104.2 million tax benefit in the fourth quarter of 2017 due to the enactment of the Tax Cuts and Jobs Act of 2017 ("TCJ Act"). Approximately $6.5 million of the tax benefit was recognized at our Banking Segment, $65.3 million at our Leasing Segment, and $32.4 million at our Mortgage Banking Segment.

•
Our company's capital position was strengthened by the capital we raised and the TCJ Act tax benefit. Our tangible common equity to tangible assets increased to 8.70% at December 31, 2017 compared to 8.07% at September 30, 2017 and our total capital to risk-weighted assets increased to 14.23% at December 31, 2017 compared to 11.67% at September 30, 2017.

•
In the fourth quarter, we contributed $7.5 million to the MB Financial Charitable Foundation, raised our minimum wage to $15 per hour effective January 2018, and awarded approximately $2.7 million in one-time bonuses.

•
We estimate that our effective tax rate in 2018 will be reduced by approximately 10%, due to the TCJ Act, to 24%.

"We had a very busy fourth quarter and 2017.  We raised $375 million of capital; increased our residential mortgage team with members transferred from Busey Bank; and as a result of a Tax Cuts and Jobs Act of 2017 tax benefit, we were able to give back to our employees and communities.  Our capital position meaningfully strengthened. We significantly grew our core banking business.  And, we did so while maintaining high credit quality," said Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc.  "In 2017, we had solid loan growth of 9.8%, low-cost deposit growth of 3.4%, and key fee growth, excluding mortgage banking revenue, of 15.1%.  I attribute our success to an unwavering focus on the four pillars of our long-term strategy:  high quality low-cost deposits; strong rapidly growing fee businesses; diversification across revenue and profit sources, loans and deposits; and close attention to balance sheet risk, especially credit quality."
Mr. Feiger continued, "Our operating earnings for the quarter were down as funding costs and other expenses increased and our Mortgage Banking segment recorded a loss.  While disappointing, many of the things we accomplished in 2017, particularly in the fourth quarter, set us up well for 2018. We had significant growth in low-cost deposits in the quarter (15.6% annualized) led by growth in noninterest bearing deposits of 18.2% on an annualized basis. Lease finance revenue grew 17.9% in the year as a result of investments we made in Leasing personnel and products. Our Wealth Management Department saw good growth and reorganized to be even more successful. Fourth quarter trust and asset management fees were 6.9% greater than the same period a year earlier. Our Cards and Payments businesses continues to grow at a rapid pace. Fourth quarter cards fees were 15.9% greater than the same period in 2016. MB Business Capital (our asset-based lending unit) and our Commercial Specialty businesses, among others, added significant numbers of new clients in the year. Our investment portfolio again had strong returns. And our growing investments in technology and infrastructure should provide a more reliable, safer, and more nimble operating environment for our company. These investments, new clients, increased revenues, and strong expense control, along with an expected improvement in our net interest margin in the first quarter of 2018 position us well for 2018.”




Operating Earnings (in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net income - as reported
 
$
144,194

 
$
60,843

 
$
44,466

 
$
54,537

 
$
47,191

 
 
$
304,040

 
$
174,136

Non-core items, net of tax (1)
 
(96,814
)
 
1,942

 
3,292

 
(1,358
)
 
4,656

 
 
(92,938
)
 
16,361

Operating earnings
 
47,380

 
62,785

 
47,758

 
53,179

 
51,847

 
 
211,102

 
190,497

Dividends on preferred shares
 
2,000

 
2,002

 
2,002

 
2,003

 
2,005

 
 
8,007

 
8,009

Operating earnings available to common stockholders
 
$
45,380

 
$
60,783

 
$
45,756

 
$
51,176

 
$
49,842

 
 
$
203,095

 
$
182,488

Diluted earnings per common share - as reported
 
$
1.67

 
$
0.69

 
$
0.50

 
$
0.62

 
$
0.53

 
 
$
3.49

 
$
2.13

Diluted operating earnings per common share
 
$
0.53

 
$
0.72

 
$
0.54

 
$
0.60

 
$
0.59

 
 
$
2.39

 
$
2.34

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

Key Items - Full Year (compared to 2016)
Operating Earnings

•
Operating earnings increased $20.6 million, or 10.8%, to $211.1 million compared to the prior year.

•
The Banking Segment contributed $34.1 million to the increase in operating earnings partly offset by a $13.4 million decrease in the Mortgage Banking Segment. Leasing Segment operating earnings were consistent with the prior year.

•
Banking Segment operating earnings were positively impacted by strong loan growth, improvements in nearly all key fee initiatives, as well as our merger with American Chartered Bancorp Inc. ("American Chartered") completed in third quarter 2016.

•
Mortgage Banking Segment operating earnings, which declined from $18.9 million to $5.5 million, were impacted by lower origination and servicing fees.

•
Diluted operating earnings per common share were $2.39 compared to $2.34 in the prior year.
Loans

•
Loans, excluding purchased credit-impaired loans, increased $1.2 billion (+9.8%). Growth was driven by increases in commercial, commercial real estate, and residential real estate loan balances.

•
Quarterly average loan balances, excluding purchased credit-impaired loans, increased $1.3 billion.

•
Our average yield on loans, excluding accretion on loans acquired in bank mergers, was 4.09%, 20 basis points higher than in the prior year. This increase was driven by several Federal Reserve interest rate increases in 2016 and 2017.
Deposits

•
Low-cost deposits increased $416.9 million (+3.4%) to $12.5 billion. Growth was driven by a $411.8 million increase in money market and NOW accounts.

•
Quarterly average low-cost deposits increased $244.6 million.

•
Average cost of total deposits increased eight basis points to 0.28%.
Net interest margin

•
Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased three basis points to 3.52%. This increase was due to a favorable change in the mix of interest earning assets and higher loan yields partly offset by increased funding costs and an unfavorable shift in the mix of liabilities.

•
Average cost of funds increased 16 basis points to 0.43%.


2



Key Items - Fourth Quarter (compared to third quarter of 2017)
Operating Earnings

•
Operating earnings decreased $15.4 million, or 24.5%, to $47.4 million compared to the prior quarter. This decrease resulted from the following items, net of income taxes:
•
a $2.1 million decrease in net interest income due to lower yields on interest earning assets and a higher cost of funds;
•
a $3.4 million decrease in mortgage banking revenue due to lower origination and servicing fees;
•
a $3.1 million increase in core non-interest expense due to higher occupancy and equipment expense, computer services and telecommunication, professional and legal, and other operating expenses; and
•
a $2.1 million increase in state income tax accruals as a result of income allocation to high income tax rate jurisdictions. Prior quarter operating earnings included tax benefits of $4.0 million due to the impact of the Illinois state income tax rate increase and a reduction in tax accruals attributable to compensation.

•
The $3.1 million after-tax increase in core non-interest expense includes $511 thousand of after-tax expenses from additional mortgage banking operations acquired in December 2017 (see the "Operating Segments - Mortgage Banking Segment" section for further information). In addition, it includes approximately $1.6 million of after-tax expenses that are not expected to repeat in the first quarter of 2018. See the Non-interest Expense section for further information on the run-rate of non-interest expense.

•
Diluted operating earnings per common share were $0.53 compared to $0.72 in the prior quarter.
Loans

•
Loans, excluding purchased credit-impaired loans, increased $92.9 million (+0.7%, or +2.7% annualized) to $13.8 billion due to growth in lease loan and commercial real estate loan balances.
 
•
Average loan balances, excluding purchased credit-impaired loans, increased $177.8 million due to an increase in commercial real estate loans.

•
Average yield on loans, excluding accretion on loans acquired in bank mergers, was 4.17%, unchanged from the prior quarter.
Deposits

•
Low-cost deposits increased $472.6 million in the quarter (+3.9%, or +15.6% annualized) to $12.5 billion. Growth was driven by a $280.4 million increase (+4.6%, or +18.2% annualized) in non-interest bearing deposits as well as a $112.7 million increase (+2.3%, or +9.2% annualized) in money market and NOW accounts.

•
Average low-cost deposits increased $295.4 million.

•
Average cost of total deposits increased six basis points to 0.36% due to increases in interest rates paid on deposits and an unfavorable shift in the mix of deposits. Average low-cost deposits decreased to 83% of total deposits in the fourth quarter 2017 compared to 84% in the prior quarter.
Net interest margin

•
Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased seven basis points in the quarter to 3.49%. Approximately three basis points of the decrease was due to the Company maintaining higher interest earning cash balances during the quarter in anticipation of redeeming our 8% non-cumulative perpetual preferred stock and pre-paying our term note. Two basis points of the decrease was due to increased deposit costs and an unfavorable shift in the mix of deposits, and two basis points related to the new subordinated debt issued in November 2017.

•
Average cost of funds increased five basis points to 0.51%.

•
The TCJ Act corporate tax rate, effective in 2018, is expected to decrease our taxable equivalent net interest margin by approximately six basis points.  The expected decrease is caused by a lower tax benefit on municipal securities and tax exempt loans.

Guidance for 2018 on selected financial items:
We expect:

•
outstanding loans to grow in the mid to high single digits (percent) for the year.

•
net interest margin for the first quarter of 2018, excluding accretion on bank merger loans and inclusive of the six basis point decrease due to the TJC Act, to moderately increase from the fourth quarter of 2017, which was 3.49%.

•
non-interest expense, excluding commissions, to grow in the low single digits (percent) from the fourth quarter 2017 run-rate found on page 23.

•
annual operating earnings for the Mortgage Banking Segment to be between $8 to $12 million. The first and fourth quarters of the year are typically the slowest for mortgage banking activity.

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

3



Operating Segments

The Company has three reportable operating segments: Banking, Leasing, and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering, and fee business activities. Our Leasing Segment generates revenues through lease originations and related services. Our Mortgage Banking Segment originates residential mortgage loans for sale to investors through its retail and third-party origination channels as well as residential mortgage loans held in our loan portfolio. The Mortgage Banking Segment also services residential mortgage loans owned by investors and the Company. The financial information below was adjusted for funds transfer pricing and internal allocations of certain expenses and excludes non-core non-interest income and expense.
Banking Segment

The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net interest income
$
140,180

 
$
142,888

 
$
135,982

 
$
131,449

 
$
133,688

 
 
$
550,499

 
$
475,133

Provision for credit losses
501

 
3,637

 
8,890

 
3,527

 
4,193

 
 
16,555

 
18,583

Net interest income after provision for credit losses
139,679

 
139,251

 
127,092

 
127,922

 
129,495

 
 
533,944

 
456,550

Non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Lease financing revenue, net
1,795

 
1,097

 
1,326

 
1,545

 
1,050

 
 
5,763

 
3,408

   Treasury management fees
15,234

 
14,508

 
14,499

 
14,689

 
14,237

 
 
58,930

 
50,620

   Trust and asset management fees
9,024

 
8,702

 
8,498

 
8,520

 
8,442

 
 
34,744

 
32,872

   Card fees
5,032

 
4,585

 
4,413

 
4,566

 
4,340

 
 
18,596

 
16,071

   Capital markets and international banking fees
3,999

 
4,870

 
3,586

 
3,253

 
4,021

 
 
15,708

 
13,332

   Other non-interest income
9,359

 
10,940

 
9,655

 
9,306

 
9,314

 
 
39,260

 
35,899

Total non-interest income
44,443

 
44,702

 
41,977

 
41,879

 
41,404

 
 
173,001

 
152,202

Non-interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 


 
 
 
 
 
 
 
 
 
 
 
Salaries
44,782

 
45,096

 
44,019

 
42,120

 
42,797

 
 
176,017

 
151,850

Commissions
1,119

 
877

 
1,121

 
1,107

 
1,090

 
 
4,224

 
5,082

Bonus and stock-based compensation
10,418

 
10,032

 
10,603

 
10,619

 
9,535

 
 
41,672

 
37,416

Other salaries and benefits (1)
14,119

 
14,604

 
12,698

 
13,705

 
13,920

 
 
55,126

 
50,567

Total salaries and employee benefits expense
70,438

 
70,609

 
68,441

 
67,551

 
67,342

 
 
277,039

 
244,915

   Occupancy and equipment expense
13,769

 
12,372

 
12,298

 
12,117

 
12,765

 
 
50,556

 
45,480

   Computer services and telecommunication expense
9,664

 
8,386

 
7,976

 
7,514

 
8,813

 
 
33,540

 
29,622

   Professional and legal expense
1,967

 
1,239

 
1,455

 
1,600

 
1,281

 
 
6,261

 
6,718

   Other operating expenses
18,817

 
16,757

 
18,793

 
18,255

 
17,430

 
 
72,622

 
66,054

Total non-interest expense
114,655

 
109,363

 
108,963

 
107,037

 
107,631

 
 
440,018

 
392,789

Income before income taxes
69,467

 
74,590

 
60,106

 
62,764

 
63,268

 
 
266,927

 
215,963

Income tax expense
25,734

 
20,064

 
18,915

 
17,168

 
19,422

 
 
81,881

 
64,989

Operating earnings
$
43,733

 
$
54,526

 
$
41,191

 
$
45,596

 
$
43,846

 
 
$
185,046

 
$
150,974

Total assets (period end)
$
16,448,960

 
$
16,406,714

 
$
16,320,111

 
$
16,009,339

 
$
16,368,881

 
 
$
16,448,960

 
$
16,368,881


(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 2017 decreased $10.8 million compared to the prior quarter.

•
Net interest income decreased due to lower yields on interest earning assets and a higher cost of funds. A $1.8 million decrease in accretion on loans acquired in bank mergers contributed to decreased yields on interest earning assets.

•
Provision for credit losses decreased as a result of strong credit performance in 2017. Downward loan risk rating migrations in 2017 were below our historical average, and, as a result, reduced our estimated default probabilities.

•
Non-interest income was relatively flat with lower capital markets and international banking fees (mainly swap fees) and a decrease in earnings from investments in Small Business Investment Companies ("SBICs") offset by increases in treasury management and card fees (prepaid and credit cards).

•
Non-interest expense increased by $5.3 million compared to the prior quarter. Approximately $2.6 million of these expenses are not expected to repeat in the first quarter of 2018.
•
Occupancy and equipment expense increased due to higher building expenses and depreciation related to an investment in infrastructure. Prior quarter expense was positively impacted by a favorable $500 thousand increase in subtenant rent.

4



•
Computer services and telecommunication expense increased due to investments in new technology. Approximately $500 thousand of this expense during the quarter in not expected to repeat next quarter.
•
Professional and legal expense increased due to greater risk management consulting expense. Approximately $400 thousand of this expense during the quarter in not expected to repeat next quarter.
•
Other operating expenses increased due to higher travel, postage, and operating losses. Prior quarter expenses were positively impacted by lower advertising and audit expenses of about $800 thousand in the aggregate.

•
Fourth quarter income tax expense includes a $2.1 million increase in state income tax accruals as a result of income allocation to high income tax rate jurisdictions. The prior quarter includes tax benefits of $4.0 million due to the impact of a State of Illinois income tax rate increase and a reduction in compensation related tax accruals.

Banking Segment operating earnings for the year ended December 31, 2017 increased $34.1 million compared to the prior year and were positively impacted by strong loan growth, improvements in nearly all key fee initiatives, as well as our merger with American Chartered completed in the third quarter of 2016.
Leasing Segment

The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net interest income
$
2,602

 
$
2,686

 
$
2,345

 
$
2,269

 
$
2,413

 
 
$
9,902

 
$
9,415

Provision for credit losses
3,184

 
399

 
410

 
(135
)
 
(1,750
)
 
 
3,858

 
295

Net interest income after provision for credit losses
(582
)
 
2,287

 
1,935

 
2,404

 
4,163

 
 
6,044

 
9,120

Non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Lease financing revenue, net
22,576

 
22,534

 
17,474

 
20,253

 
19,005

 
 
82,837

 
70,265

   Other non-interest income
1,168

 
26

 
676

 
1,173

 
754

 
 
3,043

 
3,164

Total non-interest income
23,744

 
22,560

 
18,150

 
21,426

 
19,759

 
 
85,880

 
73,429

Non-interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:


 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries
5,361

 
5,029

 
4,623

 
4,810

 
4,811

 
 
19,823

 
17,413

Commissions
2,777

 
2,328

 
2,115

 
2,572

 
1,038

 
 
9,792

 
6,867

Bonus and stock-based compensation
1,761

 
1,228

 
1,045

 
955

 
1,516

 
 
4,989

 
4,167

Other salaries and benefits (1)
1,329

 
1,572

 
1,523

 
1,581

 
1,317

 
 
6,005

 
5,332

Total salaries and employee benefits expense
11,228

 
10,157

 
9,306

 
9,918

 
8,682

 
 
40,609

 
33,779

   Occupancy and equipment expense
1,090

 
1,070

 
1,011

 
944

 
929

 
 
4,115

 
3,737

   Computer services and telecommunication expense
595

 
456

 
431

 
458

 
483

 
 
1,940

 
1,709

   Professional and legal expense
457

 
403

 
392

 
399

 
652

 
 
1,651

 
2,277

   Other operating expenses
2,101

 
2,412

 
2,266

 
2,088

 
1,714

 
 
8,867

 
6,874

Total non-interest expense
15,471

 
14,498

 
13,406

 
13,807

 
12,460

 
 
57,182

 
48,376

Income before income taxes
7,691

 
10,349

 
6,679

 
10,023

 
11,462

 
 
34,742

 
34,173

Income tax expense
3,229

 
4,307

 
2,525

 
4,119

 
4,653

 
 
14,180

 
13,525

Operating earnings
$
4,462

 
$
6,042

 
$
4,154

 
$
5,904

 
$
6,809

 
 
$
20,562

 
$
20,648

Total assets (period end)
$
1,403,690

 
$
1,307,459

 
$
1,275,386

 
$
1,173,558

 
$
1,224,169

 
 
$
1,403,690

 
$
1,224,169


(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 2017 decreased $1.6 million compared to the prior quarter.

•
Provision for credit losses increased due to greater loan charge-offs.

•
Non-interest expense increased due to higher commission and bonus expense.

•
Total assets increased due to growth in loans and lease investments.

Leasing Segment operating earnings for the year ended December 31, 2017 were about the same as the prior year. The increase in lease financing revenue was mostly offset by an increase in provision for credit losses as well as salaries and benefits expense.

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

•
Provision for credit losses was higher due to increased loan charge-offs.

•
Non-interest expense increased due to higher salaries and employee benefits expense (increased salaries related to the investment in sales and other revenue generating staff and increased commissions due to higher lease financing revenues) and an increase in other operating expenses.

5



Mortgage Banking Segment

In December 2017, we closed on an agreement with Champaign, Illinois-based Busey Bank ("Busey") to transfer approximately 165 residential mortgage team members from Busey to our company for approximately $3.6 million. This acquisition adds direct origination capabilities as well as 14 retail mortgage locations across Kansas, Missouri, Nebraska, Iowa and Colorado. The added retail and consumer direct staff supports our strategy to grow those channels and increase our purchase share of originations. Non-interest expenses include approximately $850 thousand during the fourth quarter of 2017 as a result of this acquisition, and additional revenue was negligible as the pipeline was being established.

The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net interest income
$
10,611

 
$
11,373

 
$
10,667

 
$
9,325

 
$
9,113

 
 
$
41,976

 
$
33,343

Provision for credit losses
(42
)
 
481

 
399

 
342

 
179

 
 
1,180

 
685

Net interest income after provision for credit losses
10,653

 
10,892

 
10,268

 
8,983

 
8,934

 
 
40,796

 
32,658

Non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Mortgage origination fees
17,642

 
21,980

 
23,283

 
21,465

 
29,317

 
 
84,370

 
117,590

   Mortgage servicing fees
4,228

 
5,595

 
6,216

 
6,314

 
2,960

 
 
22,353

 
30,879

   Other non-interest income
—

 
1

 
—

 
—

 
—

 
 
1

 
(3
)
Total non-interest income
21,870

 
27,576

 
29,499

 
27,779

 
32,277

 
 
106,724

 
148,466

Non-interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries
12,322

 
11,867

 
11,247

 
11,881

 
12,945

 
 
47,317

 
49,441

Commissions
4,407

 
6,001

 
6,494

 
4,932

 
8,178

 
 
21,834

 
28,974

Bonus and stock-based compensation
1,153

 
651

 
905

 
716

 
1,116

 
 
3,425

 
5,092

Other salaries and benefits (1)
4,705

 
4,746

 
4,952

 
4,978

 
5,786

 
 
19,381

 
23,633

Total salaries and employee benefits expense
22,587

 
23,265

 
23,598

 
22,507

 
28,025

 
 
91,957

 
107,140

   Occupancy and equipment expense
1,868

 
1,940

 
1,969

 
1,979

 
1,900

 
 
7,756

 
7,706

   Computer services and telecommunication expense
1,779

 
1,734

 
1,701

 
1,663

 
1,910

 
 
6,877

 
7,622

   Professional and legal expense
490

 
467

 
600

 
595

 
418

 
 
2,152

 
1,847

   Other operating expenses
7,169

 
7,376

 
7,886

 
7,238

 
6,971

 
 
29,669

 
25,351

Total non-interest expense
33,893

 
34,782

 
35,754

 
33,982

 
39,224

 
 
138,411

 
149,666

Income before income taxes
(1,370
)
 
3,686

 
4,013

 
2,780

 
1,987

 
 
9,109

 
31,458

Income tax (benefit) expense
(555
)
 
1,469

 
1,600

 
1,101

 
795

 
 
3,615

 
12,583

Operating (loss) earnings
$
(815
)
 
$
2,217

 
$
2,413

 
$
1,679

 
$
1,192

 
 
$
5,494

 
$
18,875

Total assets (period end)
$
2,234,290

 
$
2,402,362

 
$
2,369,560

 
$
1,963,165

 
$
1,709,267

 
 
$
2,234,290

 
$
1,709,267


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

Mortgage Banking Segment operating earnings for the fourth quarter of 2017 decreased $3.0 million compared to the prior quarter.

•
Net interest income decreased due to lower average balances and yields on loans held for sale.

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

•
Mortgage servicing fees declined due to an increase in amortization and prepayments of mortgage servicing rights and a loss on fair value changes of mortgage servicing rights net of the related economic hedge activity. Nearly $800 thousand of this loss was due to an increase in delinquencies in the fourth quarter of 2017 resulting in higher anticipated collection costs and lower mortgage servicing rights asset value.

•
Salaries and employee benefits expense decreased due to lower commissions (lower origination volume and commission rates) partly offset by higher salaries as a result of the increase in staff from the Busey staff transfer.

Mortgage Banking Segment operating earnings for the year ended December 31, 2017 decreased $13.4 million compared to the prior year.

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

•
Mortgage origination revenue decreased due to lower mortgage origination volume and lower gain on sale margin.

•
Mortgage servicing revenue decreased as mortgage servicing revenue for the year ended December 31, 2016 was positively impacted by fair value changes of mortgage servicing rights net of the related economic hedge activity of $14.7 million.

•
Non-interest expense decreased due to lower salaries and employee benefits expense as a result of lower commission and overtime expenses attributable to a decrease in origination volume, lower bonus expense, and a decline in the number of employees (excluding the staff transferred from Busey).

6



Additional Mortgage Banking Segment Data

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

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Mortgage origination revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on sale revenue, net (A)
 
$
13,376

 
$
17,098

 
$
18,000

 
$
15,607

 
$
23,576

 
 
$
64,081

 
$
100,097

Origination fees
 
4,266

 
4,882

 
5,283

 
5,858

 
5,741

 
 
20,289

 
17,493

Total mortgage origination revenue
 
$
17,642

 
$
21,980

 
$
23,283

 
$
21,465

 
$
29,317

 
 
$
84,370

 
$
117,590

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing revenue:
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
$
14,802

 
$
14,531

 
$
14,065

 
$
13,735

 
$
12,610

 
 
$
57,133

 
$
46,575

Amortization/prepayment of mortgage servicing rights (1)
 
(9,037
)
 
(8,399
)
 
(7,822
)
 
(6,743
)
 
(8,777
)
 
 
(32,001
)
 
(30,431
)
Fair value changes of mortgage servicing rights
 
7,231

 
4,475

 
(6,195
)
 
4,083

 
65,006

 
 
9,594

 
26,646

Economic hedge activity, net
 
(8,768
)
 
(5,012
)
 
6,168

 
(4,761
)
 
(65,879
)
 
 
(12,373
)
 
(11,911
)
Fair value changes of mortgage servicing rights net of economic hedge activity (1)
 
(1,537
)
 
(537
)
 
(27
)
 
(678
)
 
(873
)
 
 
(2,779
)
 
14,735

Total mortgage servicing revenue
 
$
4,228

 
$
5,595

 
$
6,216

 
$
6,314

 
$
2,960

 
 
$
22,353

 
$
30,879

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing rights, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
261,446

 
$
249,688

 
$
251,498

 
$
238,011

 
$
154,730

 
 
$
238,011

 
$
168,162

Originations/purchases
 
16,639

 
15,682

 
12,207

 
16,147

 
27,052

 
 
60,675

 
73,634

Amortization/prepayment (2)
 
(9,037
)
 
(8,399
)
 
(7,822
)
 
(6,743
)
 
(8,777
)
 
 
(32,001
)
 
(30,431
)
Fair value changes
 
7,231

 
4,475

 
(6,195
)
 
4,083

 
65,006

 
 
9,594

 
26,646

Ending balance
 
$
276,279

 
$
261,446

 
$
249,688

 
$
251,498

 
$
238,011

 
 
$
276,279

 
$
238,011

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing book (unpaid principal balance of loans serviced for others)
 
$
21,993,128

 
$
21,380,397

 
$
20,823,016

 
$
20,450,217

 
$
19,683,073

 
 
$
21,993,128

 
$
19,683,073

Mortgage servicing rights valuation
 
1.26
%
 
1.22
%
 
1.20
%
 
1.23
%
 
1.21
%
 
 
1.26
%
 
1.21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans funded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For sale
 
$
1,200,460

 
$
1,307,329

 
$
1,248,544

 
$
1,073,357

 
$
1,933,208

 
 
$
4,829,690

 
$
6,625,971

For investment
 
33,766

 
95,495

 
233,314

 
212,745

 
121,198

 
 
575,320

 
442,657

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans funded by purpose:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Refinance
 
39
%
 
30
%
 
30
%
 
41
%
 
56
%
 
 
35
%
 
49
%
Purchase
 
61

 
70

 
70

 
59

 
44

 
 
65

 
51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans funded by channel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
 
24
%
 
26
%
 
27
%
 
23
%
 
21
%
 
 
25
%
 
21
%
Third party
 
76

 
74

 
73

 
77

 
79

 
 
75

 
79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated for sale mortgage volume (3) (B)
 
$
1,074,775

 
$
1,265,240

 
$
1,299,706

 
$
1,061,173

 
$
1,419,871

 
 
$
4,700,894

 
$
6,553,261

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on sale margin (A)/(B)
 
1.24
%
 
1.35
%
 
1.38
%
 
1.47
%
 
1.66
%
 
 
1.36
%
 
1.53
%

(1) 
Approximately $800 thousand of the fourth quarter 2017 fair value change was due to an increase in delinquencies in the fourth quarter of 2017 resulting in higher anticipated collection costs and lower mortgage servicing rights asset value.
(2) 
Changes due to collection or realization of expected cash flows.
(3) 
Includes change in mortgage rate lock commitments expected to close, change in loans held for sale and loans sold to investors during the period.



7



FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the possibility that the actual reduction in our effective tax rate expected to result from Tax Cut and Jobs Act of 2017 might be different from the estimated reduction set forth in this document; (2) the risk that funds obtained from capital raising activities will not be utilized efficiently or effectively; (3) expected revenues, cost savings, synergies, and other benefits from our merger and acquisition activities (including our merger with American Chartered Bancorp, Inc. in 2016) 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; (4) 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; (5) the quality and composition of our securities portfolio; (6) competitive pressures among depository institutions; (7) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (8) the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (9) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (10) fluctuations in real estate values; (11) 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; (12) our ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (13) 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; (14) our ability to realize the residual values of our direct finance, leveraged and operating leases; (15) our ability to access cost-effective funding; (16) changes in financial markets; (17) changes in economic conditions in general and in the Chicago metropolitan area in particular; (18) the costs, effects and outcomes of litigation; (19) 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 Tax Cut and Jobs Act of 2017, or interpretations thereof by taxing authorities; (20) changes in accounting principles, policies or guidelines; (21) our future acquisitions of other depository institutions or lines of business; and (22) 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



8



CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
ASSETS
 
 

 
 

 
 

 
 

 
 

Cash and due from banks
 
$
397,880

 
$
361,080

 
$
348,550

 
$
368,078

 
$
364,783

Interest earning deposits with banks
 
181,341

 
82,636

 
115,707

 
102,328

 
98,686

Total cash and cash equivalents
 
579,221

 
443,716

 
464,257

 
470,406

 
463,469

Investment securities:
 
 
 
 
 
 
 
 
 
 
Securities available for sale, at fair value
 
1,408,326

 
1,497,543

 
1,567,071

 
1,657,950

 
1,696,195

Securities held to maturity, at amortized cost
 
959,082

 
994,238

 
1,022,912

 
1,056,008

 
1,069,750

Non-marketable securities - FHLB and FRB Stock
 
114,111

 
152,345

 
160,204

 
144,427

 
143,276

Total investment securities
 
2,481,519

 
2,644,126

 
2,750,187

 
2,858,385

 
2,909,221

Loans held for sale
 
548,578

 
722,754

 
718,916

 
493,261

 
716,883

Loans:
 
 
 
 
 
 
 
 
 
 
Total loans, excluding purchased credit-impaired loans
 
13,846,318

 
13,753,459

 
13,465,064

 
12,789,667

 
12,605,726

Purchased credit-impaired loans
 
119,744

 
131,919

 
149,077

 
168,814

 
163,077

Total loans
 
13,966,062

 
13,885,378

 
13,614,141

 
12,958,481

 
12,768,803

Less: Allowance for loan and lease losses
 
157,710

 
159,128

 
154,033

 
144,170

 
139,366

Net loans
 
13,808,352

 
13,726,250

 
13,460,108

 
12,814,311

 
12,629,437

Lease investments, net
 
409,051

 
371,541

 
346,036

 
315,523

 
311,327

Premises and equipment, net
 
286,690

 
286,482

 
288,148

 
290,767

 
293,910

Cash surrender value of life insurance
 
203,602

 
204,855

 
203,534

 
202,233

 
200,945

Goodwill
 
1,003,548

 
999,925

 
999,925

 
999,925

 
1,001,038

Other intangibles
 
54,766

 
56,745

 
58,783

 
60,869

 
62,959

Mortgage servicing rights, at fair value
 
276,279

 
261,446

 
249,688

 
251,498

 
238,011

Other real estate owned, net
 
9,736

 
13,020

 
11,063

 
14,706

 
26,279

Other real estate owned related to FDIC transactions
 
4,788

 
4,817

 
4,849

 
3,864

 
5,006

Other assets
 
420,810

 
380,858

 
409,563

 
370,314

 
443,832

Total assets
 
$
20,086,940

 
$
20,116,535

 
$
19,965,057

 
$
19,146,062

 
$
19,302,317

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Liabilities
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 

 
 

 
 

 
 

 
 

Non-interest bearing
 
$
6,381,512

 
$
6,101,159

 
$
6,388,292

 
$
6,211,173

 
$
6,408,169

Interest bearing
 
8,576,866

 
8,313,985

 
7,873,527

 
7,788,210

 
7,702,279

Total deposits
 
14,958,378

 
14,415,144

 
14,261,819

 
13,999,383

 
14,110,448

Short-term borrowings
 
861,039

 
1,865,415

 
1,993,358

 
1,550,628

 
1,569,288

Long-term borrowings
 
505,158

 
405,715

 
330,160

 
315,618

 
311,790

Junior subordinated notes issued to capital trusts
 
211,494

 
211,289

 
211,085

 
210,769

 
210,668

Accrued expenses and other liabilities
 
541,048

 
526,880

 
520,355

 
453,236

 
520,914

Total liabilities
 
17,077,117

 
17,424,443

 
17,316,777

 
16,529,634

 
16,723,108

Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
309,999

 
115,280

 
115,572

 
115,572

 
115,572

Common stock
 
858

 
858

 
857

 
857

 
856

Additional paid-in capital
 
1,691,007

 
1,685,971

 
1,681,252

 
1,675,956

 
1,678,826

Retained earnings
 
1,065,303

 
940,948

 
899,930

 
875,295

 
838,892

Accumulated other comprehensive income
 
3,584

 
9,772

 
10,520

 
8,415

 
5,190

Treasury stock
 
(60,928
)
 
(60,737
)
 
(59,851
)
 
(59,667
)
 
(60,384
)
Controlling interest stockholders' equity
 
3,009,823

 
2,692,092

 
2,648,280

 
2,616,428

 
2,578,952

Non-controlling interest
 
—

 
—

 
—

 
—

 
257

Total stockholders' equity
 
3,009,823

 
2,692,092

 
2,648,280

 
2,616,428

 
2,579,209

Total liabilities and stockholders' equity
 
$
20,086,940

 
$
20,116,535

 
$
19,965,057

 
$
19,146,062

 
$
19,302,317




9



CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands, except per share data)
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Taxable
 
$
154,631

 
$
155,440

 
$
143,426

 
$
133,737

 
$
134,048

 
 
$
587,234

 
$
467,877

   Nontaxable
 
2,362

 
2,632

 
2,791

 
2,880

 
2,947

 
 
10,665

 
11,120

Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Taxable
 
7,696

 
8,440

 
8,717

 
9,122

 
9,362

 
 
33,975

 
35,571

   Nontaxable
 
9,677

 
9,731

 
9,837

 
9,973

 
10,220

 
 
39,218

 
42,022

Other interest earning accounts and Federal funds sold
 
600

 
327

 
228

 
199

 
157

 
 
1,354

 
587

Total interest income
 
174,966

 
176,570

 
164,999

 
155,911

 
156,734

 
 
672,446

 
557,177

Interest expense:
 

 
 
 
 
 
 
 
 
 
 
 
 
 
   Deposits
 
13,552

 
10,865

 
8,793

 
7,475

 
7,324

 
 
40,685

 
25,579

   Short-term borrowings
 
3,257

 
5,148

 
3,912

 
2,380

 
1,472

 
 
14,697

 
4,195

   Long-term borrowings and junior subordinated notes
 
4,764

 
3,610

 
3,300

 
3,013

 
2,724

 
 
14,687

 
9,512

Total interest expense
 
21,573

 
19,623

 
16,005

 
12,868

 
11,520

 
 
70,069

 
39,286

Net interest income
 
153,393

 
156,947

 
148,994

 
143,043

 
145,214

 
 
602,377

 
517,891

Provision for credit losses
 
3,643

 
4,517

 
9,699

 
3,734

 
2,622

 
 
21,593

 
19,563

Net interest income after provision for credit losses
 
149,750

 
152,430

 
139,295

 
139,309

 
142,592

 
 
580,784

 
498,328

Non-interest income:
 


 
 
 
 

 
 

 
 

 
 
 

 
 

Mortgage banking revenue
 
21,870

 
27,575

 
29,499

 
27,779

 
32,277

 
 
106,723

 
148,469

Lease financing revenue, net
 
23,620

 
23,148

 
18,401

 
21,418

 
19,868

 
 
86,587

 
73,486

Treasury management fees
 
15,234

 
14,508

 
14,499

 
14,689

 
14,237

 
 
58,930

 
50,620

Trust and asset management fees
 
9,024

 
8,702

 
8,498

 
8,520

 
8,442

 
 
34,744

 
32,872

Card fees
 
5,032

 
4,585

 
4,413

 
4,566

 
4,340

 
 
18,596

 
16,071

Capital markets and international banking service fees
 
3,999

 
4,870

 
3,586

 
3,253

 
4,021

 
 
15,708

 
13,332

Consumer and other deposit service fees
 
3,261

 
3,424

 
3,285

 
3,363

 
3,563

 
 
13,333

 
13,308

Brokerage fees
 
942

 
1,004

 
1,250

 
1,125

 
887

 
 
4,321

 
4,654

Loan service fees
 
2,197

 
2,114

 
2,037

 
1,969

 
1,952

 
 
8,317

 
7,457

Increase in cash surrender value of life insurance
 
1,511

 
1,321

 
1,301

 
1,288

 
1,316

 
 
5,421

 
4,075

Net gain on investment securities
 
111

 
83

 
137

 
231

 
178

 
 
562

 
447

Net loss on disposal of other assets
 
(2,016
)
 
(180
)
 
(4
)
 
(123
)
 
(749
)
 
 
(2,323
)
 
(794
)
Other operating income
 
4,534

 
4,110

 
3,615

 
3,695

 
2,491

 
 
15,954

 
10,906

Total non-interest income
 
89,319

 
95,264

 
90,517

 
91,773

 
92,823

 
 
366,873

 
374,903

Non-interest expense:
 
 
 
 
 
 

 
 

 
 

 
 
 

 
 

Salaries and employee benefits expense
 
109,247

 
105,815

 
102,566

 
101,551

 
108,428

 
 
419,179

 
400,501

Occupancy and equipment expense
 
16,846

 
15,382

 
15,284

 
15,044

 
15,689

 
 
62,556

 
57,130

Computer services and telecommunication expense
 
11,304

 
10,062

 
9,785

 
9,440

 
11,800

 
 
40,591

 
43,468

Advertising and marketing expense
 
3,271

 
2,558

 
3,245

 
3,161

 
3,045

 
 
12,235

 
11,971

Professional and legal expense
 
2,957

 
2,109

 
2,450

 
2,691

 
2,509

 
 
10,207

 
12,879

Other intangible amortization expense
 
1,979

 
2,038

 
2,086

 
2,090

 
2,388

 
 
8,193

 
7,305

Branch exit and facilities impairment charges
 
(327
)
 
2,773

 
6,589

 
(682
)
 
—

 
 
8,353

 
(2,709
)
Net (gain) loss recognized on other real estate owned and other related expense
 
(104
)
 
(86
)
 
690

 
844

 
(790
)
 
 
1,344

 
(1,599
)
Other operating expenses
 
30,151

 
21,643

 
22,864

 
21,526

 
22,691

 
 
96,184

 
90,905

Total non-interest expense
 
175,324

 
162,294

 
165,559

 
155,665

 
165,760

 
 
658,842

 
619,851

Income before income taxes
 
63,745

 
85,400

 
64,253

 
75,417

 
69,655

 
 
288,815

 
253,380

Income tax (benefit) expense
 
(80,449
)
 
24,557

 
19,787

 
20,880

 
22,464

 
 
(15,225
)
 
79,244

Net income
 
144,194

 
60,843

 
44,466

 
54,537

 
47,191

 
 
304,040

 
174,136

Dividends on preferred shares
 
2,000

 
2,002

 
2,002

 
2,003

 
2,005

 
 
8,007

 
8,009

Net income available to common stockholders
 
$
142,194

 
$
58,841

 
$
42,464

 
$
52,534

 
$
45,186

 
 
$
296,033

 
$
166,127


10



 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Common share data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
1.69

 
$
0.70

 
$
0.51

 
$
0.63

 
$
0.54

 
 
$
3.53

 
$
2.16

Diluted earnings per common share
 
1.67

 
0.69

 
0.50

 
0.62

 
0.53

 
 
3.49

 
2.13

Weighted average common shares outstanding for basic earnings per common share
 
83,946,637

 
83,891,175

 
83,842,963

 
83,662,430

 
83,484,899

 
 
83,836,732

 
76,968,823

Weighted average common shares outstanding for diluted earnings per common share
 
84,964,759

 
84,779,797

 
84,767,414

 
84,778,130

 
84,674,181

 
 
84,823,456

 
77,976,121

Common shares outstanding (at end of period)
 
83,917,892

 
83,887,097

 
83,869,517

 
83,832,648

 
83,725,269

 
 
83,917,892

 
83,725,269


SELECTED FINANCIAL DATA

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized return on average assets
 
2.84
%
 
1.21
 %
 
0.92
 %
 
1.16
 %
 
0.98
%
 
 
1.55
%
 
1.03
%
Annualized operating return on average assets (1) 
 
0.93

 
1.25

 
0.99

 
1.13

 
1.07

 
 
1.08

 
1.13

Annualized return on average common equity
 
21.87

 
9.17

 
6.78

 
8.62

 
7.36

 
 
11.71

 
7.69

Annualized operating return on average common equity (1)
 
6.98

 
9.47

 
7.31

 
8.39

 
8.12

 
 
8.03

 
8.44

Annualized cash return on average tangible common equity (2)
 
36.90

 
15.81

 
11.94

 
15.27

 
13.22

 
 
20.23

 
13.06

Annualized cash operating return on average tangible common equity (3)
 
12.00

 
16.32

 
12.83

 
14.88

 
14.54

 
 
13.99

 
14.31

Efficiency ratio (4)
 
65.31

 
61.14

 
64.19

 
63.99

 
64.62

 
 
63.63

 
64.02

Annualized net non-interest expense to average assets (5)
 
1.44

 
1.25

 
1.40

 
1.35

 
1.35

 
 
1.36

 
1.27

Core non-interest income to revenues (6)
 
36.05

 
36.75

 
36.60

 
37.87

 
38.15

 
 
36.81

 
40.77

Net interest margin - fully tax equivalent basis (7)
 
3.63

 
3.76

 
3.71

 
3.69

 
3.65

 
 
3.70

 
3.70

Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans (8)
 
3.49

 
3.56

 
3.54

 
3.50

 
3.45

 
 
3.52

 
3.49

Cost of funds (9)
 
0.51

 
0.46

 
0.39

 
0.33

 
0.28

 
 
0.43

 
0.27

Loans to deposits
 
93.37

 
96.32

 
95.46

 
92.56

 
90.49

 
 
93.37

 
90.49

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-performing loans (10) to total loans
 
0.55
%
 
0.36
 %
 
0.38
 %
 
0.38
 %
 
0.46
%
 
 
0.55
%
 
0.46
%
Non-performing assets (10) to total assets
 
0.43

 
0.32

 
0.32

 
0.34

 
0.45

 
 
0.43

 
0.45

Allowance for loan and lease losses to non-performing loans (10)
 
205.33

 
314.39

 
295.07

 
293.02

 
234.81

 
 
205.33

 
234.81

Allowance for loan and lease losses to total loans
 
1.13

 
1.15

 
1.13

 
1.11

 
1.09

 
 
1.13

 
1.09

Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)
 
0.16

 
(0.02
)
 
(0.00
)
 
(0.03
)
 
0.10

 
 
0.03

 
0.09

Capital Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets (11)
 
10.32
%
 
8.68
 %
 
8.51
 %
 
8.71
 %
 
8.42
%
 
 
10.32
%
 
8.42
%
Tangible common equity to tangible assets (12)
 
8.70

 
8.07

 
7.90

 
8.07

 
7.79

 
 
8.70

 
7.79

Tangible common equity to risk weighted assets (13)
 
9.71

 
8.99

 
8.90

 
9.07

 
8.80

 
 
9.71

 
8.80

Total capital to risk-weighted assets (14)
 
14.23

 
11.67

 
11.60

 
11.80

 
11.63

 
 
14.23

 
11.63

Tier 1 capital to risk-weighted assets (14)
 
11.20

 
9.46

 
9.37

 
9.54

 
9.40

 
 
11.20

 
9.40

Common equity tier 1 capital to risk-weighted assets (14)
 
9.40

 
8.80

 
8.70

 
8.84

 
8.72

 
 
9.40

 
8.72

Tier 1 capital to average assets (leverage ratio) (14)
 
10.02

 
8.59

 
8.60

 
8.58

 
8.38

 
 
10.02

 
8.38

Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Book value per common share (15)
 
$
32.17

 
$
30.72

 
$
30.20

 
$
29.83

 
$
29.43

 
 
$
32.17

 
$
29.43

Less: goodwill and other intangible assets, net of benefit, per common share
 
12.44

 
12.36

 
12.38

 
12.40

 
12.45

 
 
12.44

 
12.45

Tangible book value per common share (16)
 
$
19.73

 
$
18.36

 
$
17.82

 
$
17.43

 
$
16.98

 
 
$
19.73

 
$
16.98

Cash dividends per common share
 
$
0.21

 
$
0.21

 
$
0.21

 
$
0.19

 
$
0.19

 
 
$
0.82

 
$
0.74


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

11



(2) 
Annualized cash return on average tangible common equity is computed by dividing net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible common equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).
(3) 
Annualized cash operating return on average tangible common equity is computed by dividing annualized cash operating earnings (operating earnings plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.
(4) 
Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(5) 
Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.
(6) 
Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(7) 
Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
(8) 
Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, excluding acquisition accounting discount accretion on bank merger loans as a percentage of average interest earning assets.
(9) 
Equals total interest expense divided by the sum of average interest bearing liabilities and non-interest bearing deposits.
(10) 
Non-performing loans excludes purchased credit-impaired loans and loans held for sale.  Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.
(11) 
Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(12) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(13) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated.
(14) 
Current quarter ratios are estimated.
(15) 
Equals total ending common stockholders’ equity divided by common shares outstanding.
(16) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.




BALANCE SHEET DETAILS TO FOLLOW



12




INVESTMENT SECURITIES

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

 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
Fair value
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
23,007

 
$
23,146

 
$
23,229

 
$
23,330

 
$
23,415

States and political subdivisions
 
379,325

 
385,829

 
387,351

 
389,109

 
391,365

Mortgage-backed securities
 
924,734

 
962,477

 
1,006,931

 
1,056,529

 
1,076,692

Corporate bonds
 
70,197

 
115,014

 
138,556

 
178,097

 
193,895

Equity securities
 
11,063

 
11,077

 
11,004

 
10,885

 
10,828

Total fair value
 
$
1,408,326

 
$
1,497,543

 
$
1,567,071

 
$
1,657,950

 
$
1,696,195

 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss)
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
(6
)
 
$
69

 
$
88

 
$
126

 
$
148

States and political subdivisions
 
15,512

 
19,642

 
19,966

 
17,780

 
14,824

Mortgage-backed securities
 
(8,414
)
 
(2,101
)
 
(1,233
)
 
(2,412
)
 
(4,001
)
Corporate bonds
 
42

 
433

 
608

 
762

 
731

Equity securities
 
(173
)
 
(100
)
 
(110
)
 
(172
)
 
(172
)
Total unrealized gain
 
$
6,961

 
$
17,943

 
$
19,319

 
$
16,084

 
$
11,530

 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity, at cost:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
 
$
878,400

 
$
888,576

 
$
896,043

 
$
910,336

 
$
910,608

Mortgage-backed securities
 
80,682

 
105,662

 
126,869

 
145,672

 
159,142

Total amortized cost
 
$
959,082

 
$
994,238

 
$
1,022,912

 
$
1,056,008

 
$
1,069,750

 
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, 2017.



13



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):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial
 
$
4,786,180

 
34
%
 
$
4,793,838

 
35
%
 
$
4,703,328

 
35
%
 
$
4,364,122

 
34
%
 
$
4,346,506

 
34
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
2,113,135

 
15

 
2,074,215

 
15

 
2,076,911

 
15

 
2,008,601

 
16

 
2,002,976

 
16

Commercial real estate
 
4,147,529

 
30

 
4,094,706

 
29

 
3,882,754

 
29

 
3,734,171

 
29

 
3,788,016

 
29

Construction real estate
 
406,849

 
3

 
395,794

 
3

 
449,116

 
3

 
554,942

 
4

 
518,562

 
4

Total commercial-related loans
 
11,453,693

 
82

 
11,358,553

 
82

 
11,112,109

 
82

 
10,661,836

 
83

 
10,656,060

 
83

Other loans:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential real estate
 
1,432,458

 
10

 
1,433,595

 
10

 
1,411,259

 
10

 
1,227,218

 
9

 
1,060,828

 
8

Indirect vehicle
 
667,928

 
4

 
655,213

 
4

 
627,819

 
4

 
573,792

 
4

 
541,680

 
4

Home equity
 
219,098

 
2

 
228,726

 
2

 
238,952

 
2

 
246,805

 
2

 
266,377

 
2

Consumer
 
73,141

 
1

 
77,372

 
1

 
74,925

 
1

 
80,016

 
1

 
80,781

 
1

Total other loans
 
2,392,625

 
17

 
2,394,906

 
17

 
2,352,955

 
17

 
2,127,831

 
16

 
1,949,666

 
15

Total loans, excluding purchased credit-impaired loans
 
13,846,318

 
99

 
13,753,459

 
99

 
13,465,064

 
99

 
12,789,667

 
99

 
12,605,726

 
98

Purchased credit-impaired loans
 
119,744

 
1

 
131,919

 
1

 
149,077

 
1

 
168,814

 
1

 
163,077

 
2

Total loans
 
$
13,966,062

 
100
%
 
$
13,885,378

 
100
%
 
$
13,614,141

 
100
%
 
$
12,958,481

 
100
%
 
$
12,768,803

 
100
%
Change in total loans, excluding purchased credit-impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From prior quarter
 
+0.7
%
 
 
 
+2.1
%
 
 
 
+5.3
%
 
 
 
+1.5
%
 
 
 
+1.8
%
 
 
From same quarter one year ago
 
+9.8
%
 
 
 
+11.1
%
 
 
 
+33.8
%
 
 
 
+30.2
%
 
 
 
+30.6
%
 
 

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):

 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related loans:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial
 
$
4,638,618

 
34
%
 
$
4,630,865

 
34
%
 
$
4,494,343

 
34
%
 
$
4,269,545

 
34
%
 
$
4,274,398

 
35
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
2,074,655

 
15

 
2,057,461

 
15

 
1,989,397

 
15

 
1,938,564

 
15

 
1,896,486

 
15

Commercial real estate
 
4,131,179

 
30

 
3,953,639

 
29

 
3,790,911

 
29

 
3,742,505

 
30

 
3,775,599

 
30

Construction real estate
 
410,416

 
3

 
442,197

 
3

 
512,385

 
4

 
554,612

 
4

 
486,861

 
4

Total commercial-related loans
 
11,254,868

 
82

 
11,084,162

 
81

 
10,787,036

 
82

 
10,505,226

 
83

 
10,433,344

 
84

Other loans:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
Residential real estate
 
1,430,219

 
10

 
1,433,866

 
11

 
1,331,369

 
10

 
1,133,927

 
9

 
1,031,152

 
8

Indirect vehicle
 
663,474

 
4

 
641,328

 
4

 
601,394

 
4

 
552,669

 
4

 
532,782

 
4

Home equity
 
223,445

 
2

 
234,460

 
2

 
243,232

 
2

 
253,654

 
2

 
273,694

 
2

Consumer
 
76,249

 
1

 
76,591

 
1

 
81,164

 
1

 
81,564

 
1

 
80,113

 
1

Total other loans
 
2,393,387

 
17

 
2,386,245

 
18

 
2,257,159

 
17

 
2,021,814

 
16

 
1,917,741

 
15

Total loans, excluding purchased credit-impaired loans
 
13,648,255

 
99

 
13,470,407

 
99

 
13,044,195

 
99

 
12,527,040

 
99

 
12,351,085

 
99

Purchased credit-impaired loans
 
127,781

 
1

 
139,246

 
1

 
161,218

 
1

 
156,058

 
1

 
152,509

 
1

Total loans
 
$
13,776,036

 
100
%
 
$
13,609,653

 
100
%
 
$
13,205,413

 
100
%
 
$
12,683,098

 
100
%
 
$
12,503,594

 
100
%
Change in total loans, excluding purchased credit-impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From prior quarter
 
+1.3
%
 
 
 
+3.3
%
 
 
 
+4.1
%
 
 
 
+1.4
%
 
 
 
+12.9
%
 
 
From same quarter one year ago
 
+10.5
%
 
 
 
+23.2
%
 
 
 
+31.4
%
 
 
 
+30.0
%
 
 
 
+31.6
%
 
 


14



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):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Non-performing loans:
 
 

 
 

 
 

 
 

 
 

Non-accrual loans (1)
 
$
71,238

 
$
49,926

 
$
51,013

 
$
47,042

 
$
48,974

Loans 90 days or more past due, still accruing interest
 
5,570

 
689

 
1,190

 
2,159

 
10,378

Total non-performing loans
 
76,808

 
50,615

 
52,203

 
49,201

 
59,352

Other real estate owned
 
9,736

 
13,020

 
11,063

 
14,706

 
26,279

Repossessed assets
 
589

 
497

 
484

 
477

 
322

Total non-performing assets
 
$
87,133

 
$
64,132

 
$
63,750

 
$
64,384

 
$
85,953

Potential problem loans (2)
 
$
173,266

 
$
160,840

 
$
134,509

 
$
153,779

 
$
144,544

Purchased credit-impaired loans (3)
 
$
119,744

 
$
131,919

 
$
149,077

 
$
168,814

 
$
163,077

Total non-performing, potential problem and purchased credit-impaired loans
 
$
369,818

 
$
343,374

 
$
335,789

 
$
371,794

 
$
366,973

 
 
 
 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
 
$
157,710

 
$
159,128

 
$
154,033

 
$
144,170

 
$
139,366

Accruing restructured loans (4)
 
28,554

 
32,850

 
29,658

 
31,101

 
32,687

Total non-performing loans to total loans
 
0.55
%
 
0.36
%
 
0.38
%
 
0.38
%
 
0.46
%
Total non-performing assets to total assets
 
0.43

 
0.32

 
0.32

 
0.34

 
0.45

Allowance for loan and lease losses to non-performing loans
 
205.33

 
314.39

 
295.07

 
293.02

 
234.81


(1) 
Includes $30.8 million, $24.4 million, $23.7 million, $20.7 million and $27.1 million of restructured loans on non-accrual status at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.
(2) 
We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan.  Potential problem loans carry a higher probability of default and require additional attention by management.
(3) 
Includes $54.9 million, $60.1 million, $65.7 million, $68.8 million and $66.1 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.
(4) 
Accruing restructured loans consist of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table presents data related to non-performing loans by category (excluding loans held for sale and purchased credit-impaired loans that were acquired as part of our FDIC-assisted transactions and bank mergers) as of the dates indicated (in thousands):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Commercial and lease
 
$
18,522

 
$
8,493

 
$
8,166

 
$
8,739

 
$
15,189

Commercial real estate
 
21,235

 
7,753

 
9,512

 
8,719

 
11,767

Consumer-related
 
37,051

 
34,369

 
34,525

 
31,743

 
32,396

Total non-performing loans
 
$
76,808

 
$
50,615

 
$
52,203

 
$
49,201

 
$
59,352




15



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,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Allowance for credit losses, balance at the beginning of period
 
$
161,404

 
$
156,297

 
$
146,498

 
$
141,842

 
$
142,399

 
 
$
141,842

 
$
131,508

Provision for credit losses
 
3,643

 
4,517

 
9,699

 
3,734

 
2,622

 
 
21,593

 
19,563

Charge-offs
 
7,448

 
2,830

 
2,921

 
3,373

 
6,442

 
 
16,572

 
20,611

Recoveries
 
1,809

 
3,420

 
3,021

 
4,295

 
3,263

 
 
12,545

 
11,382

Net charge-offs (recoveries)
 
5,639

 
(590
)
 
(100
)
 
(922
)
 
3,179

 
 
4,027

 
9,229

Allowance for credit losses, at end of period
 
159,408

 
161,404

 
156,297

 
146,498

 
141,842

 
 
159,408

 
141,842

Allowance for unfunded credit commitments
 
(1,698
)
 
(2,276
)
 
(2,264
)
 
(2,328
)
 
(2,476
)
 
 
(1,698
)
 
(2,476
)
Allowance for loan and lease losses, at end of period
 
$
157,710

 
$
159,128

 
$
154,033

 
$
144,170

 
$
139,366

 
 
$
157,710

 
$
139,366

Total loans, excluding loans held for sale
 
$
13,966,062

 
$
13,885,378

 
$
13,614,141

 
$
12,958,481

 
$
12,768,803

 
 
$
13,966,062

 
$
12,768,803

Average loans, excluding loans held for sale
 
13,776,036

 
13,609,653

 
13,205,413

 
12,683,098

 
12,503,594

 
 
13,322,342

 
10,857,460

Allowance for loan and lease losses to total loans, excluding loans held for sale
 
1.13
%
 
1.15
 %
 
1.13
 %
 
1.11
 %
 
1.09
%
 
 
1.13
%
 
1.09
%
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)
 
0.16

 
(0.02
)
 
(0.00
)
 
(0.03
)
 
0.10

 
 
0.03

 
0.09


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):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Commercial related loans:
 
 
 
 
 
 
 
 
 
 
     General reserve
 
$
132,787

 
$
137,617

 
$
133,869

 
$
125,370

 
$
120,221

     Specific reserve
 
6,056

 
2,453

 
1,800

 
1,272

 
3,243

Consumer related reserve
 
18,867

 
19,058

 
18,364

 
17,528

 
15,902

Total allowance for loan and lease losses
 
$
157,710

 
$
159,128

 
$
154,033

 
$
144,170

 
$
139,366


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, 2017 (in thousands):
 
 
 
Non-Accretable Discount - PCI Loans
 
Accretable Discount - PCI Loans
 
Accretable Discount - Non-PCI Loans
 
Total
Balance at beginning of period
 
$
13,640

 
$
11,824

 
$
23,970

 
$
49,434

Charge-offs
 
(2,553
)
 
—

 
—

 
(2,553
)
Accretion
 
—

 
(3,166
)
 
(2,914
)
 
(6,080
)
Transfer (1)
 
(3,411
)
 
3,411

 
—

 
—

Balance at end of period
 
$
7,676

 
$
12,069

 
$
21,056

 
$
40,801


(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.


16



DEPOSIT MIX

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

 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low-cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing deposits
 
$
6,381,512

 
43
%
 
$
6,101,159

 
42
%
 
$
6,388,292

 
45
%
 
$
6,211,173

 
44
%
 
$
6,408,169

 
46
%
Money market, NOW, and interest bearing deposits
 
4,954,765

 
33

 
4,842,097

 
34

 
4,600,506

 
32

 
4,580,773

 
33

 
4,543,004

 
32

Savings deposits
 
1,167,810

 
8

 
1,088,194

 
7

 
1,109,155

 
8

 
1,126,879

 
8

 
1,135,992

 
8

Total low-cost deposits
 
12,504,087

 
84

 
12,031,450

 
83

 
12,097,953

 
85

 
11,918,825

 
85

 
12,087,165

 
86

Certificates of deposit:
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,392,409

 
9

 
1,381,993

 
10

 
1,340,071

 
9

 
1,261,228

 
9

 
1,225,102

 
9

Brokered certificates of deposit
 
1,061,882

 
7

 
1,001,701

 
7

 
823,795

 
6

 
819,330

 
6

 
798,181

 
5

Total certificates of deposit
 
2,454,291

 
16

 
2,383,694

 
17

 
2,163,866

 
15

 
2,080,558

 
15

 
2,023,283

 
14

Total deposits
 
$
14,958,378

 
100
%
 
$
14,415,144

 
100
%
 
$
14,261,819

 
100
%
 
$
13,999,383

 
100
%
 
$
14,110,448

 
100
%
Change in total deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From prior quarter
 
+3.8
%
 
 
 
+1.1
%
 
 
 
+1.9
%
 
 
 
-0.8
 %
 
 
 
-1.2
 %
 
 
From same quarter one year ago
 
+6.0
%
 
 
 
+1.0
%
 
 
 
+24.7
%
 
 
 
+21.4
 %
 
 
 
+22.6
 %
 
 

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

 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low-cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing deposits
 
$
6,370,801

 
43
%
 
$
6,337,955

 
44
%
 
$
6,336,151

 
45
%
 
$
6,209,402

 
45
%
 
$
6,454,025

 
45
%
Money market, NOW, and interest bearing deposits
 
4,976,854

 
33

 
4,740,210

 
33

 
4,506,765

 
32

 
4,529,402

 
33

 
4,628,698

 
33

Savings deposits
 
1,120,550

 
7

 
1,094,625

 
7

 
1,113,159

 
8

 
1,131,757

 
8

 
1,140,926

 
8

Total low-cost deposits
 
12,468,205

 
83

 
12,172,790

 
84

 
11,956,075

 
85

 
11,870,561

 
86

 
12,223,649

 
86

Certificates of deposit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,393,210

 
10

 
1,369,401

 
10

 
1,317,995

 
9

 
1,245,152

 
9

 
1,263,675

 
9

Brokered certificates of deposit
 
1,092,990

 
7

 
869,687

 
6

 
820,026

 
6

 
815,473

 
5

 
779,411

 
5

Total certificates of deposit
 
2,486,200

 
17

 
2,239,088

 
16

 
2,138,021

 
15

 
2,060,625

 
14

 
2,043,086

 
14

Total deposits
 
$
14,954,405

 
100
%
 
$
14,411,878

 
100
%
 
$
14,094,096

 
100
%
 
$
13,931,186

 
100
%
 
$
14,266,735

 
100
%
Change in total deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
From prior quarter
 
+3.8
%
 
 
 
+2.3
%
 
 
 
+1.2
%
 
 
 
-2.4
 %
 
 
 
+12.1
%
 
 
From same quarter one year ago
 
+4.8
%
 
 
 
+13.2
%
 
 
 
+22.7
%
 
 
 
+21.4
 %
 
 
 
+23.7
%
 
 


STATEMENT OF OPERATIONS DETAILS TO FOLLOW


17



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):

 
 
4Q17
 
3Q17
 
 
4Q16
 
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
 
 
Average
Balance
 
Interest
 
Yield/
Rate
Interest Earning Assets:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Loans held for sale
 
$
653,482

 
$
5,683

 
3.48
%
 
$
725,899

 
6,651

 
3.67
%
 
 
$
859,254

 
$
7,100

 
3.31
%
Loans (1) (2) (3):
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial-related loans
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
4,638,618

 
53,505

 
4.51

 
4,630,865

 
53,567

 
4.53

 
 
4,274,398

 
45,255

 
4.14

Commercial loans collateralized by assignment of lease payments (lease loans)
 
2,074,655

 
19,314

 
3.72

 
2,057,461

 
19,381

 
3.77

 
 
1,896,486

 
17,275

 
3.64

Commercial real estate
 
4,131,179

 
47,763

 
4.52

 
3,953,639

 
46,587

 
4.61

 
 
3,775,599

 
41,508

 
4.30

Construction real estate
 
410,416

 
4,395

 
4.19

 
442,197

 
4,689

 
4.15

 
 
486,861

 
4,592

 
3.69

Total commercial related loans
 
11,254,868

 
124,977

 
4.36

 
11,084,162

 
124,224

 
4.40

 
 
10,433,344

 
108,630

 
4.09

Other loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate residential
 
1,430,219

 
11,621

 
3.25

 
1,433,866

 
11,579

 
3.23

 
 
1,031,152

 
8,522

 
3.31

Indirect
 
663,474

 
7,810

 
4.67

 
641,328

 
7,528

 
4.66

 
 
532,782

 
6,198

 
4.63

Home equity
 
223,445

 
2,414

 
4.29

 
234,460

 
2,515

 
4.26

 
 
273,694

 
2,651

 
3.85

Consumer
 
76,249

 
796

 
4.14

 
76,591

 
831

 
4.31

 
 
80,113

 
776

 
3.86

Total other loans
 
2,393,387

 
22,641

 
3.77

 
2,386,245

 
22,453

 
3.75

 
 
1,917,741

 
18,147

 
3.77

Total loans, excluding purchased credit-impaired loans
 
13,648,255

 
147,618

 
4.26

 
13,470,407

 
146,677

 
4.29

 
 
12,351,085

 
126,777

 
4.04

Purchased credit-impaired loans
 
127,781

 
4,964

 
15.41

 
139,246

 
6,161

 
17.55

 
 
152,509

 
4,704

 
12.27

Total loans
 
13,776,036

 
152,582

 
4.36

 
13,609,653

 
152,838

 
4.42

 
 
12,503,594

 
131,481

 
4.14

Taxable investment securities
 
1,315,473

 
7,696

 
2.34

 
1,445,619

 
8,440

 
2.34

 
 
1,721,537

 
9,362

 
2.18

Investment securities exempt from federal income taxes (3)
 
1,249,181

 
14,888

 
4.77

 
1,255,025

 
14,971

 
4.77

 
 
1,304,931

 
15,724

 
4.82

Federal funds sold
 
37

 
0

 
1.73

 
38

 
0

 
1.74

 
 
36

 
0

 
1.00

Other interest earning deposits
 
363,273

 
600

 
0.66

 
147,065

 
327

 
0.88

 
 
107,311

 
157

 
0.58

Total interest earning assets
 
$
17,357,482

 
$
181,449

 
4.13
%
 
$
17,183,299

 
$
183,227

 
4.21
%
 
 
$
16,496,663

 
$
163,824

 
3.92
%
Non-interest earning assets
 
2,809,191

 
 
 
 
 
2,762,556

 
 
 
 
 
 
2,696,084

 
 
 
 
Total assets
 
$
20,166,673

 
 
 
 
 
$
19,945,855

 
 
 
 
 
 
$
19,192,747

 
 
 
 
Interest Bearing Liabilities:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Core funding:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Money market, NOW, and interest bearing deposits
 
$
4,976,854

 
$
5,617

 
0.45
%
 
$
4,740,210

 
$
4,485

 
0.38
%
 
 
$
4,628,698

 
$
2,593

 
0.22
%
Savings deposits
 
1,120,550

 
478

 
0.17

 
1,094,625

 
289

 
0.10

 
 
1,140,926

 
273

 
0.10

Certificates of deposit
 
1,393,210

 
3,143

 
0.90

 
1,369,401

 
2,757

 
0.80

 
 
1,263,675

 
1,728

 
0.54

Customer repurchase agreements
 
217,390

 
137

 
0.25

 
200,008

 
114

 
0.23

 
 
247,273

 
129

 
0.21

Total core funding
 
7,708,004

 
9,375

 
0.48

 
7,404,244

 
7,645

 
0.41

 
 
7,280,572

 
4,723

 
0.26

Wholesale funding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokered certificates of deposit (includes fee expense)
 
1,092,990

 
4,314

 
1.57

 
869,687

 
3,334

 
1.52

 
 
779,411

 
2,730

 
1.39

Other borrowings
 
1,672,957

 
7,884

 
1.84

 
2,192,200

 
8,644

 
1.54

 
 
1,638,605

 
4,067

 
0.97

Total wholesale funding
 
2,765,947

 
12,198

 
1.73

 
3,061,887

 
11,978

 
1.54

 
 
2,418,016

 
6,797

 
1.11

Total interest bearing liabilities
 
$
10,473,951

 
$
21,573

 
0.81
%
 
$
10,466,131

 
$
19,623

 
0.74
%
 
 
$
9,698,588

 
$
11,520

 
0.47
%
Non-interest bearing deposits
 
6,370,801

 
 
 
 
 
6,337,955

 
 
 
 
 
 
6,454,025

 
 
 
 
Other non-interest bearing liabilities
 
541,823

 
 
 
 
 
479,488

 
 
 
 
 
 
482,449

 
 
 
 
Stockholders' equity
 
2,780,098

 
 
 
 
 
2,662,281

 
 
 
 
 
 
2,557,685

 
 
 
 
Total liabilities and stockholders' equity
 
$
20,166,673

 
 
 
 
 
$
19,945,855

 
 
 
 
 
 
$
19,192,747

 
 
 
 
Net interest income/interest rate spread (4)
 
 
 
$
159,876

 
3.32
%
 
 
 
$
163,604

 
3.47
%
 
 
 
 
$
152,304

 
3.45
%
Taxable equivalent adjustment
 
 
 
6,483

 
 
 
 
 
6,657

 
 
 
 
 
 
7,090

 
 
Net interest income, as reported
 
 
 
$
153,393

 
 
 
 
 
$
156,947

 
 
 
 
 
 
$
145,214

 
 
Net interest margin (5)
 
 
 
 
 
3.49
%
 
 
 
 
 
3.60
%
 
 
 
 
 
 
3.47
%
Tax equivalent effect
 
 
 
 
 
0.14
%
 
 
 
 
 
0.16
%
 
 
 
 
 
 
0.18
%
Net interest margin on a fully tax equivalent basis (5)
 
 
 
 
 
3.63
%
 
 
 
 
 
3.76
%
 
 
 
 
 
 
3.65
%

(1) 
Non-accrual loans are included in average loans.
(2) 
Interest income includes amortization of deferred loan origination fees and costs.
(3) 
Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(4) 
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(5) 
Net interest margin represents net interest income as a percentage of average interest earning assets.



18




 
 
Year Ended December 31,
 
 
2017
 
2016
 
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
Interest Earning Assets:
 
 

 
 

 
 
 
 

 
 

 
 

Loans held for sale
 
$
632,927

 
$
22,801

 
3.60
%
 
$
771,384

 
26,450

 
3.43
%
Loans (1) (2) (3):
 
 

 
 

 
 
 
 

 
 

 
 

Commercial-related loans
 
 

 
 

 
 
 
 

 
 

 
 

Commercial
 
4,509,690

 
202,446

 
4.43

 
3,796,230

 
162,710

 
4.22

Commercial loans collateralized by assignment of lease payments (lease loans)
 
2,015,508

 
74,870

 
3.71

 
1,813,837

 
67,376

 
3.71

Commercial real estate
 
3,905,758

 
176,969

 
4.47

 
3,130,516

 
132,748

 
4.17

Construction real estate
 
479,404

 
19,996

 
4.11

 
378,405

 
14,852

 
3.86

Total commercial related loans
 
10,910,360

 
474,281

 
4.30

 
9,118,988

 
377,686

 
4.09

Other loans:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate residential
 
1,333,435

 
43,752

 
3.28

 
811,782

 
27,402

 
3.38

Indirect
 
615,093

 
28,385

 
4.61

 
477,008

 
22,128

 
4.64

Home equity
 
238,603

 
9,906

 
4.15

 
229,626

 
8,905

 
3.88

Consumer
 
78,871

 
3,243

 
4.11

 
79,059

 
3,158

 
3.99

Total other loans
 
2,266,002

 
85,286

 
3.76

 
1,597,475

 
61,593

 
3.86

Total loans, excluding purchased credit-impaired loans
 
13,176,362

 
559,567

 
4.21

 
10,716,463

 
439,279

 
4.05

Purchased credit-impaired loans
 
145,980

 
21,274

 
14.57

 
140,997

 
19,257

 
13.66

Total loans
 
13,322,342

 
580,841

 
4.32

 
10,857,460

 
458,536

 
4.18

Taxable investment securities
 
1,472,596

 
33,975

 
2.31

 
1,576,836

 
35,571

 
2.26

Investment securities exempt from federal income taxes (3)
 
1,261,295

 
60,336

 
4.78

 
1,331,323

 
64,649

 
4.86

Federal funds sold
 
64

 
1

 
1.45

 
37

 
0

 
1.00

Other interest earning deposits
 
182,651

 
1,353

 
0.74

 
106,075

 
587

 
0.55

Total interest earning assets
 
$
16,871,875

 
$
699,307

 
4.11
%
 
$
14,643,115

 
$
585,793

 
3.97
%
Non-interest earning assets
 
2,758,432

 
 
 
 
 
2,281,357

 
 
 
 
Total assets
 
$
19,630,307

 
 
 
 
 
$
16,924,472

 
 
 
 
Interest Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Core funding:
 
 
 
 
 
 
 
 
 
 
 
 
Money market, NOW, and interest bearing deposits
 
$
4,689,676

 
$
16,008

 
0.34
%
 
$
4,185,129

 
$
9,027

 
0.22
%
Savings deposits
 
1,114,936

 
1,267

 
0.11

 
1,053,429

 
837

 
0.08

Certificates of deposit
 
1,331,949

 
9,826

 
0.74

 
1,249,264

 
6,248

 
0.50

Customer repurchase agreements
 
199,661

 
448

 
0.22

 
202,673

 
420

 
0.21

Total core funding
 
7,336,222

 
27,549

 
0.38

 
6,690,495

 
16,532

 
0.25

Wholesale funding:
 
 
 
 
 
 
 
 
 
 
 
 
Brokered certificates of deposit (includes fee expense)
 
900,222

 
13,584

 
1.51

 
654,238

 
9,467

 
1.45

Other borrowings
 
1,930,302

 
28,936

 
1.48

 
1,518,447

 
13,287

 
0.86

Total wholesale funding
 
2,830,524

 
42,520

 
1.49

 
2,172,685

 
22,754

 
1.04

Total interest bearing liabilities
 
$
10,166,746

 
$
70,069

 
0.69
%
 
$
8,863,180

 
$
39,286

 
0.44
%
Non-interest bearing deposits
 
6,314,086

 
 
 
 
 
5,351,197

 
 
 
 
Other non-interest bearing liabilities
 
484,564

 
 
 
 
 
433,202

 
 
 
 
Stockholders' equity
 
2,664,911

 
 
 
 
 
2,276,893

 
 
 
 
Total liabilities and stockholders' equity
 
$
19,630,307

 
 
 
 
 
$
16,924,472

 
 
 
 
Net interest income/interest rate spread (4)
 
 
 
$
629,238

 
3.42
%
 
 
 
$
546,507

 
3.53
%
Taxable equivalent adjustment
 
 
 
26,861

 
 
 
 
 
28,616

 
 
Net interest income, as reported
 
 
 
$
602,377

 
 
 
 
 
$
517,891

 
 
Net interest margin (5)
 
 
 
 
 
3.54
%
 
 
 
 
 
3.50
%
Tax equivalent effect
 
 
 
 
 
0.16
%
 
 
 
 
 
0.20
%
Net interest margin on a fully tax equivalent basis (5)
 
 
 
 
 
3.70
%
 
 
 
 
 
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 35% tax rate.
(4) 
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(5) 
Net interest margin represents net interest income as a percentage of average interest earning assets.




19



The tables below reflect the impact the acquisition accounting loan discount accretion on acquired loans had on the loan yield and net interest margin on a fully tax equivalent basis for the periods indicated (dollars in thousands):
 
 
4Q17
 
3Q17
 
4Q16
 
 
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
 
$
13,776,036

 
$
152,582

 
4.36
%
 
$
13,609,653

 
$
152,838

 
4.42
%
 
$
12,503,594

 
$
131,481

 
4.14
%
Less acquisition accounting discount accretion on non-PCI loans
 
(22,513
)
 
2,914

 
 
 
(25,764
)
 
3,587

 
 
 
(42,978
)
 
4,854

 
 
Less acquisition accounting discount accretion on PCI loans
 
(22,605
)
 
3,166

 
 
 
(28,347
)
 
4,315

 
 
 
(34,360
)
 
2,709

 
 
Total loans, excluding acquisition accounting discount accretion on bank merger loans
 
$
13,821,154

 
$
146,502

 
4.17
%
 
$
13,663,764

 
$
144,936

 
4.17
%
 
$
12,580,932

 
$
123,918

 
3.88
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest earning assets, as reported
 
$
17,357,482

 
$
159,876

 
3.63
%
 
$
17,183,299

 
$
163,604

 
3.76
%
 
$
16,496,663

 
$
152,304

 
3.65
%
Less acquisition accounting discount accretion on non-PCI loans
 
(22,513
)
 
2,914

 
 
 
(25,764
)
 
3,587

 
 
 
(42,978
)
 
4,854

 
 
Less acquisition accounting discount accretion on PCI loans
 
(22,605
)
 
3,166

 
 
 
(28,347
)
 
4,315

 
 
 
(34,360
)
 
2,709

 
 
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans
 
$
17,402,600

 
$
153,796

 
3.49
%
 
$
17,237,410

 
$
155,702

 
3.56
%
 
$
16,574,001

 
$
144,741

 
3.45
%

 
 
Year Ended December 31,
 
 
2017
 
2016
 
 
Average
Balance
 
Interest
 
Yield
 
Average
Balance
 
Interest
 
Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
 
 
 
 
 
 
 
 
 
 
 
 
Total loans, as reported
 
$
13,322,342

 
$
580,841

 
4.32
%
 
$
10,857,460

 
$
458,536

 
4.18
%
Less acquisition accounting discount accretion on non-PCI loans
 
(28,626
)
 
15,340

 
 
 
(35,507
)
 
19,309

 
 
Less acquisition accounting discount accretion on PCI loans
 
(30,984
)
 
12,500

 
 
 
(26,856
)
 
9,470

 
 
Total loans, excluding acquisition accounting discount accretion on bank merger loans
 
$
13,381,952

 
$
553,001

 
4.09
%
 
$
10,919,823

 
$
429,757

 
3.89
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
 
 
 
 
 
 
 
 
 
 
 
 
Total interest earning assets, as reported
 
$
16,871,875

 
$
629,238

 
3.70
%
 
$
14,643,115

 
$
546,507

 
3.70
%
Less acquisition accounting discount accretion on non-PCI loans
 
(28,626
)
 
15,340

 
 
 
(35,507
)
 
19,309

 
 
Less acquisition accounting discount accretion on PCI loans
 
(30,984
)
 
12,500

 
 
 
(26,856
)
 
9,470

 
 
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans
 
$
16,931,485

 
$
601,398

 
3.52
%
 
$
14,705,478

 
$
517,728

 
3.49
%




20



NON-INTEREST INCOME

The following table presents non-interest income (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Core non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key fee initiatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
$
21,870

 
$
27,575

 
$
29,499

 
$
27,779

 
$
32,277

 
 
$
106,723

 
$
148,469

Lease financing revenue, net
 
23,620

 
23,148

 
18,401

 
21,418

 
19,868

 
 
86,587

 
73,486

Treasury management fees
 
15,234

 
14,508

 
14,499

 
14,689

 
14,237

 
 
58,930

 
50,620

Trust and asset management fees
 
9,024

 
8,702

 
8,498

 
8,520

 
8,442

 
 
34,744

 
32,872

Card fees
 
5,032

 
4,585

 
4,413

 
4,566

 
4,340

 
 
18,596

 
16,071

Capital markets and international banking service fees
 
3,999

 
4,870

 
3,586

 
3,253

 
4,021

 
 
15,708

 
13,332

Total key fee initiatives
 
78,779

 
83,388

 
78,896

 
80,225

 
83,185

 
 
321,288

 
334,850

Consumer and other deposit service fees
 
3,261

 
3,424

 
3,285

 
3,363

 
3,563

 
 
13,333

 
13,308

Brokerage fees
 
942

 
1,004

 
1,250

 
1,125

 
887

 
 
4,321

 
4,654

Loan service fees
 
2,197

 
2,114

 
2,037

 
1,969

 
1,952

 
 
8,317

 
7,457

Increase in cash surrender value of life insurance
 
1,511

 
1,321

 
1,301

 
1,288

 
1,316

 
 
5,421

 
4,075

Other operating income
 
2,616

 
3,104

 
2,458

 
2,734

 
2,350

 
 
10,912

 
9,566

Total core non-interest income
 
89,306

 
94,355

 
89,227

 
90,704

 
93,253

 
 
363,592

 
373,910

Non-core non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on investment securities
 
111

 
83

 
137

 
231

 
178

 
 
562

 
447

Net loss on disposal of other assets
 
(2,016
)
 
(180
)
 
(4
)
 
(123
)
 
(749
)
 
 
(2,323
)
 
(794
)
Recovery of low to moderate income real estate investment (1)
 
1,006

 
210

 
488

 
—

 
—

 
 
1,704

 
—

Increase in market value of assets held in trust for deferred
compensation (1)
 
912

 
796

 
669

 
961

 
141

 
 
3,338

 
1,340

Total non-core non-interest income
 
13

 
909

 
1,290

 
1,069

 
(430
)
 
 
3,281

 
993

Total non-interest income
 
$
89,319

 
$
95,264

 
$
90,517

 
$
91,773

 
$
92,823

 
 
$
366,873

 
$
374,903


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


21



NON-INTEREST EXPENSE

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

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Core non-interest expense: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries
 
$
62,465

 
$
61,992

 
$
59,889

 
$
58,811

 
$
60,553

 
 
$
243,157

 
$
218,704

Commissions
 
8,303

 
9,206

 
9,730

 
8,611

 
10,306

 
 
35,850

 
40,923

Bonus and stock-based compensation
 
13,332

 
11,911

 
12,553

 
12,290

 
12,167

 
 
50,086

 
46,675

Other salaries and benefits (2)
 
20,153

 
20,922

 
19,173

 
20,264

 
21,023

 
 
80,512

 
79,532

Total salaries and employee benefits expense
 
104,253

 
104,031

 
101,345

 
99,976

 
104,049

 
 
409,605

 
385,834

Occupancy and equipment expense
 
16,727

 
15,382

 
15,278

 
15,040

 
15,594

 
 
62,427

 
56,923

Computer services and telecommunication expense
 
11,287

 
10,093

 
9,709

 
9,255

 
11,019

 
 
40,344

 
38,766

Advertising and marketing expense
 
3,266

 
2,558

 
3,245

 
3,161

 
3,039

 
 
12,230

 
11,848

Professional and legal expense
 
2,914

 
2,109

 
2,447

 
2,594

 
2,351

 
 
10,064

 
10,842

Other intangible amortization expense
 
1,979

 
2,038

 
2,086

 
2,090

 
2,388

 
 
8,193

 
7,305

Net (gain) loss recognized on other real estate owned (A)
 
(151
)
 
84

 
706

 
607

 
(982
)
 
 
1,246

 
(2,358
)
Other real estate expense, net (A)
 
47

 
(170
)
 
(16
)
 
237

 
192

 
 
98

 
759

Other operating expenses
 
22,946

 
22,035

 
22,924

 
21,486

 
21,478

 
 
89,391

 
80,725

Total core non-interest expense
 
163,268

 
158,160

 
157,724

 
154,446

 
159,128

 
 
633,598

 
590,644

Non-core non-interest expense: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merger related and repositioning expenses (B)
 
136

 
1,579

 
7,166

 
258

 
6,491

 
 
9,139

 
23,712

Restructuring severance charges (C)
 
808

 
—

 
—

 
—

 
—

 
 
808

 
—

One-time bonuses (C)
 
2,700

 
—

 
—

 
—

 
—

 
 
2,700

 
—

Branch exit and facilities impairment charges
 
—

 
1,759

 
—

 
—

 
—

 
 
1,759

 
155

Contribution to MB Financial Charitable Foundation (D)
 
7,500

 
—

 
—

 
—

 
—

 
 
7,500

 
4,000

Increase in market value of assets held in trust for deferred
compensation (C)
 
912

 
796

 
669

 
961

 
141

 
 
3,338

 
1,340

Total non-core non-interest expense
 
12,056

 
4,134

 
7,835

 
1,219

 
6,632

 
 
25,244

 
29,207

Total non-interest expense
 
$
175,324

 
$
162,294

 
$
165,559

 
$
155,665

 
$
165,760

 
 
$
658,842

 
$
619,851


(1) 
Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows:  A – net loss (gain) recognized on other real estate owned and other expense, B – see merger related and repositioning expenses table below, C – salaries and employee benefits and D – other operating expenses.
(2) 
Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

22




The following table presents the detail of the merger related and repositioning expenses (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Merger related and repositioning expenses (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Salaries and employee benefits expense
 
$
574

 
$
988

 
$
552

 
$
614

 
$
4,238

 
 
$
2,728

 
$
13,327

   Occupancy and equipment expense
 
119

 
—

 
6

 
4

 
95

 
 
129

 
207

   Computer services and telecommunication expense
 
17

 
(31
)
 
76

 
185

 
781

 
 
247

 
4,702

   Advertising and marketing expense
 
5

 
—

 
—

 
—

 
6

 
 
5

 
123

   Professional and legal expense
 
43

 
—

 
3

 
97

 
158

 
 
143

 
2,037

   Branch exit and facilities impairment charges (2)
 
(327
)
 
1,014

 
6,589

 
(682
)
 
—

 
 
6,594

 
(2,864
)
   Contingent consideration expense (3)
 
(454
)
 
—

 
—

 
—

 
1,000

 
 
(454
)
 
3,703

   Other operating expenses
 
159

 
(392
)
 
(60
)
 
40

 
213

 
 
(253
)
 
2,477

Total merger related and repositioning expenses
 
$
136

 
$
1,579

 
$
7,166

 
$
258

 
$
6,491

 
 
$
9,139

 
$
23,712


(1) 
Primarily includes costs incurred in connection with the American Chartered merger.
(2) 
Includes gains on previously closed branch facilities, costs associated with office space reconfiguration in the third quarter of 2017, exit charges on branches closed in the second quarter of 2017 as a result of the American Chartered merger, a gain on the sale of a branch in the first quarter of 2017, and a reversal of an exit cost due to a favorable lease termination in the third quarter of 2016 on a branch acquired through the Taylor Capital merger.
(3) 
Includes an increase in our contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated. Also includes a decrease in our contingent consideration accrual for our acquisition of MSA Holdings, LLC. Resides in other operating expenses in the consolidated statements of operations.

The following table presents an alternative view of non-interest expense for the periods presented (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Core non-interest expense (1)
 
$
163,268

 
$
158,160

 
$
157,724

 
$
154,446

 
$
159,128

 
 
$
633,598

 
$
590,644

Less commissions (2)
 
8,303

 
9,206

 
9,730

 
8,611

 
10,306

 
 
35,850

 
40,923

Less net loss (gain) recognized on other real estate owned (3)
 
(151
)
 
84

 
706

 
607

 
(982
)
 
 
1,246

 
(2,358
)
Plus day count adjustment for constant 92 days of salary expense (4)
 
—

 
—

 
658

 
1,307

 
—

 
 
—

 
—

Less non-repeatable 4Q17 expenses
 
2,600

 
 
 
 
 
 
 
 
 
 
 
 
 
Run-rate of non-interest expense
 
$
152,516

 
$
148,870

 
$
147,946

 
$
146,535

 
$
149,804

 
 
$
596,502

 
$
552,079

Percent change from prior period
 
+2.4
%
 
+0.6
%
 
+1.0
%
 
-2.2
 %
 
 
 
 
+8.0
%
 
 

(1) 
See "Non-interest Expense" section for reconciliation of core non-interest expense to total non-interest expense as reported.
(2) 
Resides in salaries and employee benefits expense on the consolidated statements of operations.
(3) 
Resides in net loss (gain) recognized on other real estate owned and other expense on the consolidated statements of operations.
(4) 
Adjustment adds one extra day of salary expense to the second quarter of 2017 and two days to the first quarter of 2017 for comparability purposes. No adjustments made to full year.

The increase in run-rate of non-interest expense was $3.6 million in the fourth quarter of 2017 compared to the prior quarter. Non-interest expenses increased by approximately $850 thousand during the fourth quarter of 2017 as a result of the staff transferred from Busey in December 2017. This $850 thousand represents less than a full month of expense (a full quarter of expense would have been approximately $3.6 million, excluding commissions).

23



INCOME TAX EXPENSE

The following table presents information on our income tax rate (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Income before income taxes - as reported
$
63,745

 
$
85,400

 
$
64,253

 
$
75,417

 
$
69,655

 
 
$
288,815

 
$
253,380

Tax at Federal statutory rate (35%)
22,310

 
29,890

 
22,489

 
26,396

 
24,379

 
 
101,085

 
88,683

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax exempt income, net
(4,673
)
 
(4,665
)
 
(4,815
)
 
(4,900
)
 
(5,025
)
 
 
(19,053
)
 
(19,646
)
State tax expense (benefit), net of Federal impact
3,103

 
4,101

 
2,727

 
2,764

 
3,234

 
 
12,695

 
10,030

Other items, net
1,131

 
(802
)
 
261

 
807

 
320

 
 
1,397

 
1,631

Tax expense before discrete items
21,871

 
28,524

 
20,662

 
25,067

 
22,908

 
 
96,124

 
80,698

Income tax rate before discrete items (effective tax rate)
34.3
 %
 
33.4
%
 
32.2
%
 
33.2
%
 
32.9
%
 
 
33.3
 %
 
31.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discrete tax expense (benefit) items (1)
1,919

 
(1,643
)
 
(220
)
 
(2,738
)
 
(849
)
 
 
(2,682
)
 
(2,954
)
Discrete tax benefit corporate tax rate changes (2)
(104,239
)
 
(2,324
)
 
—

 
—

 
—

 
 
(106,563
)
 
—

Discrete tax expense (benefit) merger related items (3)
—

 
—

 
(655
)
 
(1,449
)
 
405

 
 
(2,104
)
 
1,500

Income tax (benefit) expense - as reported
$
(80,449
)
 
$
24,557

 
$
19,787

 
$
20,880

 
$
22,464

 
 
$
(15,225
)
 
$
79,244

Income tax rate
(126.2
)%
 
28.8
%
 
30.8
%
 
27.7
%
 
32.3
%
 
 
(5.3
)%
 
31.3
%

(1) 
Includes tax benefits on the vesting of restricted shares, exercise of options and other compensation as well as the $2.1 million increase in state income tax accruals as a result of income allocation to high income tax rate jurisdictions for the fourth quarter of 2017.
(2) 
Includes tax benefit due to the impact of the Illinois state income tax rate increase (effective July 1, 2017) on our deferred tax assets and the impact of the Federal income tax rate decrease due to the Tax Cuts and Jobs Act of 2017 (enacted on December 22, 2017) on our net deferred tax liabilities.
(3) 
Includes reversals of a tax liability no longer needed specifically related to two entities we acquired and certain non-deductible merger related items.

We estimate that our effective tax rate in 2018 will be reduced by approximately 10%, due to the TCJ Act, to 24%.


24



NON-GAAP FINANCIAL INFORMATION

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

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

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

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

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

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

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

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

25



“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):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Stockholders' equity - as reported
 
$
3,009,823

 
$
2,692,092

 
$
2,648,280

 
$
2,616,428

 
$
2,579,209

Less: goodwill
 
1,003,548

 
999,925

 
999,925

 
999,925

 
1,001,038

Less: other intangible assets, net of tax benefit
 
40,116

 
36,884

 
38,209

 
39,565

 
40,923

Tangible equity
 
$
1,966,159

 
$
1,655,283

 
$
1,610,146

 
$
1,576,938

 
$
1,537,248


The following table presents a reconciliation of tangible assets to total assets (in thousands):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Total assets - as reported
 
$
20,086,940

 
$
20,116,535

 
$
19,965,057

 
$
19,146,062

 
$
19,302,317

Less: goodwill
 
1,003,548

 
999,925

 
999,925

 
999,925

 
1,001,038

Less: other intangible assets, net of tax benefit
 
40,116

 
36,884

 
38,209

 
39,565

 
40,923

Tangible assets
 
$
19,043,276

 
$
19,079,726

 
$
18,926,923

 
$
18,106,572

 
$
18,260,356


The following table presents a reconciliation of tangible common equity to common stockholders' equity (in thousands):
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Common stockholders' equity - as reported
 
$
2,699,824

 
$
2,576,812

 
$
2,532,708

 
$
2,500,856

 
$
2,463,637

Less: goodwill
 
1,003,548

 
999,925

 
999,925

 
999,925

 
1,001,038

Less: other intangible assets, net of tax benefit
 
40,116

 
36,884

 
38,209

 
39,565

 
40,923

Tangible common equity
 
$
1,656,160

 
$
1,540,003

 
$
1,494,574

 
$
1,461,366

 
$
1,421,676


The following table presents a reconciliation of average tangible common equity to average common stockholders’ equity (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Average common stockholders' equity
 
$
2,579,896

 
$
2,546,744

 
$
2,511,271

 
$
2,472,771

 
$
2,441,809

 
 
$
2,528,015

 
$
2,161,405

Less: average goodwill
 
1,001,027

 
999,925

 
999,925

 
1,001,005

 
994,053

 
 
1,000,469

 
820,526

Less: average other intangible assets, net of tax benefit
 
36,049

 
37,346

 
38,836

 
40,052

 
41,471

 
 
38,058

 
32,566

Average tangible common equity
 
$
1,542,820

 
$
1,509,473

 
$
1,472,510

 
$
1,431,714

 
$
1,406,285

 
 
$
1,489,488

 
$
1,308,313


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,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net income available to common stockholders - as reported
 
$
142,194

 
$
58,841

 
$
42,464

 
$
52,534

 
$
45,186

 
 
$
296,033

 
$
166,127

Add: other intangible amortization expense, net of tax benefit
 
1,286

 
1,325

 
1,356

 
1,359

 
1,552

 
 
5,325

 
4,748

Net cash flow available to common stockholders
 
$
143,480

 
$
60,166

 
$
43,820

 
$
53,893

 
$
46,738

 
 
$
301,358

 
$
170,875



26



The following table presents a reconciliation of net income to operating earnings (dollars in thousands, except per share data):
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Net income - as reported
 
$
144,194

 
$
60,843

 
$
44,466

 
$
54,537

 
$
47,191

 
 
$
304,040

 
$
174,136

Less non-core items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on investment securities
 
111

 
83

 
137

 
231

 
178

 
 
562

 
447

Net loss on disposal of other assets
 
(2,016
)
 
(180
)
 
(4
)
 
(123
)
 
(749
)
 
 
(2,323
)
 
(794
)
Recovery of low to moderate income real estate investment
 
1,006

 
210

 
488

 
—

 
—

 
 
1,704

 
—

Increase in market value of assets held in trust for deferred compensation - other operating income
 
912

 
796

 
669

 
961

 
141

 
 
3,338

 
1,340

Merger related and repositioning expenses
 
(136
)
 
(1,579
)
 
(7,166
)
 
(258
)
 
(6,491
)
 
 
(9,139
)
 
(23,712
)
Restructuring severance charges
 
(808
)
 
—

 
—

 
—

 
—

 
 
(808
)
 
—

One-time bonuses
 
(2,700
)
 
—

 
—

 
—

 
—

 
 
(2,700
)
 
—

Branch exit and facilities impairment charges
 
—

 
(1,759
)
 
—

 
—

 
—

 
 
(1,759
)
 
(155
)
Contribution to MB Financial Charitable Foundation
 
(7,500
)
 
—

 
—

 
—

 
—

 
 
(7,500
)
 
(4,000
)
Increase in market value of assets held in trust for deferred compensation - other operating expense
 
(912
)
 
(796
)
 
(669
)
 
(961
)
 
(141
)
 
 
(3,338
)
 
(1,340
)
Total non-core items
 
(12,043
)
 
(3,225
)
 
(6,545
)
 
(150
)
 
(7,062
)
 
 
(21,963
)
 
(28,214
)
Income tax expense on non-core items
 
(4,618
)
 
(1,283
)
 
(2,598
)
 
(59
)
 
(2,406
)
 
 
(8,558
)
 
(10,060
)
Income tax expense - other (1)
 
(104,239
)
 
—

 
(655
)
 
(1,449
)
 
—

 
 
(106,343
)
 
—

Income tax benefit resulting from early adoption of new stock-based compensation guidance
 
—

 
—

 
—

 
—

 
—

 
 
—

 
(1,793
)
Non-core items, net of tax
 
96,814

 
(1,942
)
 
(3,292
)
 
1,358

 
(4,656
)
 
 
92,938

 
(16,361
)
Operating earnings
 
47,380

 
62,785

 
47,758

 
53,179

 
51,847

 
 
211,102

 
190,497

Dividends on preferred shares
 
2,000

 
2,002

 
2,002

 
2,003

 
2,005

 
 
8,007

 
8,009

Operating earnings available to common stockholders
 
$
45,380

 
$
60,783

 
$
45,756

 
$
51,176

 
$
49,842

 
 
$
203,095

 
$
182,488

Diluted operating earnings per common share
 
$
0.53

 
$
0.72

 
$
0.54

 
$
0.60

 
$
0.59

 
 
$
2.39

 
$
2.34

Weighted average common shares outstanding for diluted operating earnings per common share
 
84,964,759

 
84,779,797

 
84,767,414

 
84,778,130

 
84,674,181

 
 
84,823,456

 
77,976,121


(1) 
The fourth quarter of 2017 includes the reversal of deferred tax liability as a result of the decrease in Federal income tax rate effective January 1, 2018 due to the Tax Cuts and Jobs Act of 2017. The first and second quarters of 2017 include reversals of a tax liability no longer needed specifically related to two entities we acquired.





27



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

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Non-interest expense
 
$
175,324

 
$
162,294

 
$
165,559

 
$
155,665

 
$
165,760

 
 
$
658,842

 
$
619,851

Less merger related and repositioning expenses
 
136

 
1,579

 
7,166

 
258

 
6,491

 
 
9,139

 
23,712

Less restructuring severance charges
 
808

 
—

 
—

 
—

 
—

 
 
808

 
—

Less one-time bonuses
 
2,700

 
—

 
—

 
—

 
—

 
 
2,700

 
—

Less branch exit and facilities impairment charges
 
—

 
1,759

 
—

 
—

 
—

 
 
1,759

 
155

Less contribution to MB Financial Charitable Foundation
 
7,500

 
—

 
—

 
—

 
—

 
 
7,500

 
4,000

Less increase in market value of assets held in trust for deferred compensation
 
912

 
796

 
669

 
961

 
141

 
 
3,338

 
1,340

Non-interest expense - as adjusted
 
$
163,268

 
$
158,160

 
$
157,724

 
$
154,446

 
$
159,128

 
 
$
633,598

 
$
590,644

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
153,393

 
$
156,947

 
$
148,994

 
$
143,043

 
$
145,214

 
 
$
602,377

 
$
517,891

Tax equivalent adjustment
 
6,483

 
6,657

 
6,800

 
6,921

 
7,090

 
 
26,861

 
28,616

Net interest income on a fully tax equivalent basis
 
159,876

 
163,604

 
155,794

 
149,964

 
152,304

 
 
629,238

 
546,507

Plus non-interest income
 
89,319

 
95,264

 
90,517

 
91,773

 
92,823

 
 
366,873

 
374,903

Plus tax equivalent adjustment on the increase in cash surrender value of life insurance
 
814

 
711

 
701

 
694

 
709

 
 
2,919

 
2,194

Less net gain on investment securities
 
111

 
83

 
137

 
231

 
178

 
 
562

 
447

Less net loss on disposal of other assets
 
(2,016
)
 
(180
)
 
(4
)
 
(123
)
 
(749
)
 
 
(2,323
)
 
(794
)
Less recovery of low to moderate income real estate investment
 
1,006

 
210

 
488

 
—

 
—

 
 
1,704

 
—

Less increase in market value of assets held in trust for deferred compensation
 
912

 
796

 
669

 
961

 
141

 
 
3,338

 
1,340

Non-interest income - as adjusted
 
90,120

 
95,066

 
89,928

 
91,398

 
93,962

 
 
366,511

 
376,104

Total revenue - as adjusted and on a fully tax equivalent basis
 
$
249,996

 
$
258,670

 
$
245,722

 
$
241,362

 
$
246,266

 
 
$
995,749

 
$
922,611

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
 
65.31
%
 
61.14
%
 
64.19
%
 
63.99
%
 
64.62
%
 
 
63.63
%
 
64.02
%
Efficiency ratio (without adjustments)
 
72.24
%
 
64.35
%
 
69.12
%
 
66.29
%
 
69.64
%
 
 
67.97
%
 
69.43
%



28



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

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Non-interest expense - as adjusted (1)
 
$
163,268

 
$
158,160

 
$
157,724

 
$
154,446

 
$
159,128

 
 
$
633,598

 
$
590,644

Less non-interest income - as adjusted (1)
 
90,120

 
95,066

 
89,928

 
91,398

 
93,962

 
 
366,511

 
376,104

Net non-interest expense - as adjusted
 
$
73,148

 
$
63,094

 
$
67,796

 
$
63,048

 
$
65,166

 
 
$
267,087

 
$
214,540

Average assets
 
$
20,166,673

 
$
19,945,855

 
$
19,389,463

 
$
19,002,982

 
$
19,192,747

 
 
$
19,630,307

 
$
16,924,472

Annualized net non-interest expense to average assets
 
1.44
%
 
1.25
%
 
1.40
%
 
1.35
%
 
1.35
%
 
 
1.36
%
 
1.27
%
Annualized net non-interest expense to average assets (without adjustments)
 
1.70
%
 
1.34
%
 
1.56
%
 
1.35
%
 
1.51
%
 
 
1.49
%
 
1.45
%
(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,
 
 
4Q17
 
3Q17
 
2Q17
 
1Q17
 
4Q16
 
 
2017
 
2016
Non-interest income - as adjusted (1)
 
$
90,120

 
$
95,066

 
$
89,928

 
$
91,398

 
$
93,962

 
 
$
366,511

 
$
376,104

Total revenue - as adjusted and on a fully tax equivalent basis (1)
 
$
249,996

 
$
258,670

 
$
245,722

 
$
241,362

 
$
246,266

 
 
$
995,749

 
$
922,611

Core non-interest income to revenues ratio
 
36.05
%
 
36.75
%
 
36.60
%
 
37.87
%
 
38.15
%
 
 
36.81
%
 
40.77
%
Non-interest income to revenues  ratio (without adjustments)
 
36.80
%
 
37.77
%
 
37.79
%
 
39.08
%
 
39.00
%
 
 
37.85
%
 
41.99
%
(1) 
See "Efficiency Ratio Calculation" table for reconciliation of this item.



29