EX-99 2 exhibit_99earningsrelease1.htm EXHIBIT 99 Exhibit



EXHIBIT 99
                                    
mbfilogoblack.jpg
1Q17



MB FINANCIAL, INC. REPORTS FIRST QUARTER 2017 NET INCOME OF $54.5 MILLION



CHICAGO, April 27, 2017 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced first quarter 2017 net income of $54.5 million compared to $47.2 million last quarter and $39.1 million in the first quarter a year ago.  Diluted earnings per common share were $0.62 in the first quarter of 2017 compared to $0.53 last quarter and $0.50 in the first quarter a year ago.  

"Our company’s operating performance was solid in the first quarter," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc. "We remain focused on making the investments necessary to build a high performing diversified bank. That strategy helped to grow loans by 6% annualized, as consumer and residential mortgage loans led the increase. While commercial-related loan growth was minimal in the quarter, our commercial-related loan pipeline is strong."

Mr. Feiger added, "While deposit balances declined slightly in the quarter reflecting normal first quarter activity, deposit costs increased only one basis point demonstrating the high quality deposit base we’ve worked hard to build. Generally, upward deposit pricing pressure has been modest, though that could change if industry liquidity tightens or wholesale interest rates rise further.

I was particularly pleased with the eight basis point improvement in our net interest margin. The increase was driven by better loan yields and asset mix, offset by an adverse change in liability mix.

As a result of an increased net interest margin, very low credit costs and good expense control, diluted operating earnings grew to 60 cents per share, an increase of 1.7% over last quarter and 11.1% over the first quarter of 2016. In addition, our return on tangible common equity increased to 15.27% and our return on average assets to 1.16%."

Operating Earnings (in thousands, except per share data)

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net income - as reported
 
$
54,537

 
$
47,191

 
$
44,419

 
$
43,412

 
$
39,114

Non-core items, net of tax (1)
 
(1,358
)
 
4,656

 
7,496

 
1,451

 
2,758

Operating earnings
 
53,179

 
51,847

 
51,915

 
44,863

 
41,872

Dividends on preferred shares
 
2,003

 
2,005

 
2,004

 
2,000

 
2,000

Operating earnings available to common stockholders
 
$
51,176

 
$
49,842

 
$
49,911

 
$
42,863

 
$
39,872

Diluted earnings per common share - as reported
 
$
0.62

 
$
0.53

 
$
0.54

 
$
0.56

 
$
0.50

Diluted operating earnings per common share
 
$
0.60

 
$
0.59

 
$
0.63

 
$
0.58

 
$
0.54

(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.



1



Key Items (compared to 4Q16)

Operating Earnings

Operating earnings increased 2.6% (+10.4% annualized) to $53.2 million compared to $51.8 million in the prior quarter.
Diluted operating earnings per common share were $0.60 compared to $0.59 in the prior quarter.

Loans

Loans increased by $189.7 million (+1.5%, or +6.0% annualized) to $13.0 billion led by growth in residential real estate loans.
Average yield on loans, excluding accretion on loans acquired in bank mergers, increased to 4.01% from 3.92% in the prior quarter.

Deposits

Low cost deposits decreased by $168.3 million in the quarter (-1.4%, or -5.6% annualized) to $11.9 billion due to a decrease in mortgage escrow account balances, sale of our Philadelphia branch and seasonal deposit declines.
Average cost of deposits (interest bearing and non-interest bearing deposits) increased one basis point to 0.22%.

Net interest margin

Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased by eight basis points to 3.55% from the prior quarter due to the impact of the December interest rate increase on loans and a favorable shift in the mix of interest earning assets partly offset by a higher average cost of borrowings and an unfavorable shift in liabilities (a higher percentage of borrowings).
Average interest earning assets decreased by $246.5 million mostly due to the decrease in loans held for sale and taxable investment securities.
Average cost of funds increased five basis points to 0.33%.

 
Operating Segments (compared to 4Q16)

Banking

Operating earnings were $45.6 million compared to $43.8 million in the prior quarter.
Operating earnings for the quarter were positively impacted by $2.7 million of tax benefit recorded on stock-based compensation during the quarter compared to $849 thousand in the prior quarter, an increase of $1.9 million.

Leasing

Operating earnings were $5.9 million compared to $6.8 million in the prior quarter.
Prior quarter was positively impacted by a $1.8 million negative provision for credit losses due to improvement of a potential problem loan.

Mortgage Banking

Operating earnings were $1.7 million compared to $1.2 million in the prior quarter.
The increase in operating earnings was the result of higher mortgage servicing revenue and lower non-interest expense partly offset by a decline in mortgage origination revenue.



Operating Segments

The Company's operations consist of 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.

2



Banking Segment

The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net interest income
$
131,449

 
$
133,688

 
$
119,685

 
$
112,152

 
$
109,608

Provision for credit losses
3,527

 
4,193

 
4,394

 
2,995

 
7,001

Net interest income after provision for credit losses
127,922

 
129,495

 
115,291

 
109,157

 
102,607

Non-interest income:
 
 
 
 
 
 
 
 
 
   Lease financing revenue, net
1,545

 
1,050

 
890

 
789

 
679

   Commercial deposit and treasury management fees
14,689

 
14,237

 
12,957

 
11,548

 
11,878

   Trust and asset management fees
8,520

 
8,442

 
8,244

 
8,236

 
7,950

   Card fees
4,566

 
4,340

 
4,161

 
4,045

 
3,525

   Capital markets and international banking service fees
3,253

 
4,021

 
3,313

 
2,771

 
3,227

   Other non-interest income
9,306

 
9,314

 
10,252

 
8,544

 
7,789

Total non-interest income
41,879

 
41,404

 
39,817

 
35,933

 
35,048

Non-interest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
Salaries
42,120

 
42,797

 
38,575

 
35,951

 
34,527

Commissions
1,107

 
1,090

 
1,172

 
1,424

 
1,396

Bonus and stock-based compensation
10,619

 
9,535

 
10,553

 
10,852

 
6,476

Other salaries and benefits (1)
13,705

 
13,920

 
13,657

 
11,987

 
11,003

Total salaries and employee benefits expense
67,551

 
67,342

 
63,957

 
60,214

 
53,402

   Occupancy and equipment expense
12,117

 
12,765

 
11,724

 
10,561

 
10,430

   Computer services and telecommunication expense
7,514

 
8,813

 
7,418

 
6,945

 
6,446

   Professional and legal expense
1,600

 
1,281

 
1,566

 
2,385

 
1,486

   Other operating expenses
18,255

 
17,430

 
16,467

 
16,587

 
15,570

Total non-interest expense
107,037

 
107,631

 
101,132

 
96,692

 
87,334

Income before income taxes
62,764

 
63,268

 
53,976

 
48,398

 
50,321

Income tax expense
17,168

 
19,422

 
16,287

 
14,353

 
14,927

Net income
$
45,596

 
$
43,846

 
$
37,689

 
$
34,045

 
$
35,394

Total assets (period end)
$
16,009,339

 
$
16,368,881

 
$
16,453,379

 
$
13,296,238

 
$
13,235,848


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

Net income from our Banking Segment for the first quarter of 2017 increased $1.8 million compared to the prior quarter.

Net interest income decreased due to two fewer days during the quarter.

Provision for credit losses decreased reflecting stable credit quality as well as net recoveries for the quarter. We continue to provide for credit losses for loans acquired in bank mergers reflecting the transfer from acquired to renewed status.

Non-interest income was consistent with the prior quarter. Commercial deposit and treasury management fees increased due to additional fees paid by existing customers, and card fees increased as a result of promotional debit card income during the quarter. Lease financing revenue, which includes revenue related to investments in joint venture lease pools, increased in the quarter due to higher earnings from these lease pools. These increases were offset by a decrease in capital markets and international banking service fees mainly due to lower M&A advisory and swap fees.

Non-interest expense decreased mostly as a result of lower computer services and telecommunication expense driven by lower systems expense. This decrease was partially offset by higher bonus and stock-based compensation expense.

Income tax expense was lower as a result of $2.7 million of tax benefit recorded for the vesting of restricted shares and exercises of stock options compared to $849 thousand in the prior quarter. The tax expense or benefit related to the vesting of restricted shares and exercises of stock options can fluctuate from period to period based on activity and the stock price of our common shares.

Total assets decreased due to the transfer of previously acquired residential real estate loans to the Mortgage Banking Segment.


3



Leasing Segment

The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net interest income
$
2,269

 
$
2,413

 
$
2,168

 
$
2,411

 
$
2,423

Provision for credit losses
(135
)
 
(1,750
)
 
1,964

 
(356
)
 
437

Net interest income after provision for credit losses
2,404

 
4,163

 
204

 
2,767

 
1,986

Non-interest income:
 
 
 
 
 
 
 
 
 
   Lease financing revenue, net
20,253

 
19,005

 
17,974

 
14,919

 
18,367

   Other non-interest income
1,173

 
754

 
785

 
786

 
839

Total non-interest income
21,426

 
19,759

 
18,759

 
15,705

 
19,206

Non-interest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
Salaries
4,810

 
4,811

 
4,550

 
4,242

 
3,810

Commissions
2,572

 
1,038

 
1,597

 
1,274

 
2,958

Bonus and stock-based compensation
955

 
1,516

 
950

 
829

 
872

Other salaries and benefits (1)
1,581

 
1,317

 
1,310

 
1,262

 
1,443

Total salaries and employee benefits expense
9,918

 
8,682

 
8,407

 
7,607

 
9,083

   Occupancy and equipment expense
944

 
929

 
966

 
947

 
895

   Computer services and telecommunication expense
458

 
483

 
432

 
431

 
363

   Professional and legal expense
399

 
652

 
802

 
414

 
409

   Other operating expenses
2,088

 
1,714

 
1,997

 
1,716

 
1,447

Total non-interest expense
13,807

 
12,460

 
12,604

 
11,115

 
12,197

Income before income taxes
10,023

 
11,462

 
6,359

 
7,357

 
8,995

Income tax expense
4,119

 
4,653

 
2,484

 
2,879

 
3,509

Net income
$
5,904

 
$
6,809

 
$
3,875

 
$
4,478

 
$
5,486

Total assets (period end)
$
1,173,558

 
$
1,224,169

 
$
1,126,847

 
$
1,081,723

 
$
1,045,117


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

Net income from our Leasing Segment for the first quarter of 2017 decreased $905 thousand compared to the prior quarter.

Prior quarter included a $1.8 million negative provision for credit losses due to improvement of a potential problem loan.

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

Non-interest expense increased due to higher commissions expense as a result of greater lease financing revenue and lower indirect capitalized costs. Bonus and stock-based compensation was higher in the prior quarter as a result of strong performance in 2016.
 


4



Mortgage Banking Segment

The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net interest income
$
9,325

 
$
9,113

 
$
8,918

 
$
8,039

 
$
7,273

Provision for credit losses
342

 
179

 
191

 
190

 
125

Net interest income after provision for credit losses
8,983

 
8,934

 
8,727

 
7,849

 
7,148

Non-interest income:
 
 
 
 
 
 
 
 
 
   Mortgage origination revenue
21,465

 
29,317

 
39,962

 
31,417

 
16,894

   Mortgage servicing revenue
6,314

 
2,960

 
9,133

 
8,198

 
10,588

   Other non-interest income

 

 

 

 
(3
)
Total non-interest income
27,779

 
32,277

 
49,095

 
39,615

 
27,479

Non-interest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
Salaries
11,881

 
12,945

 
12,958

 
12,088

 
11,450

Commissions
4,932

 
8,178

 
8,554

 
7,226

 
5,016

Bonus and stock-based compensation
716

 
1,116

 
1,477

 
1,190

 
1,309

Other salaries and benefits (1)
4,978

 
5,786

 
6,730

 
5,875

 
5,242

Total salaries and employee benefits expense
22,507

 
28,025

 
29,719

 
26,379

 
23,017

   Occupancy and equipment expense
1,979

 
1,900

 
1,972

 
1,899

 
1,935

   Computer services and telecommunication expense
1,663

 
1,910

 
1,881

 
1,890

 
1,941

   Professional and legal expense
595

 
418

 
411

 
421

 
597

   Other operating expenses
7,238

 
6,971

 
6,587

 
6,309

 
5,484

Total non-interest expense
33,982

 
39,224

 
40,570

 
36,898

 
32,974

Income before income taxes
2,780

 
1,987

 
17,252

 
10,566

 
1,653

Income tax expense
1,101

 
795

 
6,901

 
4,226

 
661

Net income
$
1,679

 
$
1,192

 
$
10,351

 
$
6,340

 
$
992

Total assets (period end)
$
1,963,165

 
$
1,709,267

 
$
1,761,656

 
$
1,617,829

 
$
1,294,688


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

Net income from our Mortgage Banking Segment for the first quarter of 2017 increased $487 thousand compared to the prior quarter.

Lower mortgage origination volume and lower gain on sale margin caused a decrease in mortgage origination revenue.

Mortgage servicing revenue increased due to higher servicing revenue and a lower decrease in the fair value of the mortgage servicing asset net of the related economic hedge activity.

Non-interest expense decreased mostly due to lower salaries and employee benefits expense. Salaries expense decreased as a result of a decline in the number of full time equivalent employees. Commissions expense decreased due to lower mortgage origination volume.

Computer services and telecommunication expense decreased due to lower systems expense.

Total assets increased due to the transfer of previously acquired residential real estate loans from the Banking Segment and loan growth partially offset by a decrease in loans held for sale.




5



FORWARD-LOOKING STATEMENTS

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

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

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




TABLES TO FOLLOW

6



CONSOLIDATED BALANCE SHEETS (Unaudited)

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

 
 

 
 

 
 

 
 

Cash and due from banks
 
$
368,078

 
$
364,783

 
$
351,009

 
$
303,037

 
$
271,732

Interest earning deposits with banks
 
102,328

 
98,686

 
125,250

 
123,086

 
113,785

Total cash and cash equivalents
 
470,406

 
463,469

 
476,259

 
426,123

 
385,517

Investment securities:
 
 
 
 
 
 
 
 
 
 
Securities available for sale, at fair value
 
1,657,950

 
1,696,195

 
1,859,356

 
1,477,395

 
1,532,844

Securities held to maturity, at amortized cost
 
1,056,008

 
1,069,750

 
1,115,262

 
1,151,415

 
1,191,910

Non-marketable securities - FHLB and FRB Stock
 
144,427

 
143,276

 
146,209

 
130,232

 
121,750

Total investment securities
 
2,858,385

 
2,909,221

 
3,120,827

 
2,759,042

 
2,846,504

Loans held for sale
 
493,261

 
716,883

 
899,412

 
843,379

 
632,196

Loans:
 
 
 
 
 
 
 
 
 
 
Total loans, excluding purchased credit-impaired loans
 
12,789,667

 
12,605,726

 
12,379,358

 
10,061,076

 
9,820,903

Purchased credit-impaired loans
 
168,814

 
163,077

 
161,338

 
136,811

 
140,445

Total loans
 
12,958,481

 
12,768,803

 
12,540,696

 
10,197,887

 
9,961,348

Less: Allowance for loan and lease losses
 
144,170

 
139,366

 
139,528

 
135,614

 
134,493

Net loans
 
12,814,311

 
12,629,437

 
12,401,168

 
10,062,273

 
9,826,855

Lease investments, net
 
315,523

 
311,327

 
277,647

 
233,320

 
216,046

Premises and equipment, net
 
290,767

 
293,910

 
283,112

 
243,319

 
238,578

Cash surrender value of life insurance
 
202,233

 
200,945

 
199,628

 
138,657

 
137,807

Goodwill
 
999,925

 
1,001,038

 
993,799

 
725,039

 
725,068

Other intangibles
 
60,869

 
62,959

 
65,395

 
41,569

 
43,186

Mortgage servicing rights, at fair value
 
251,498

 
238,011

 
154,730

 
134,969

 
145,800

Other real estate owned, net
 
14,706

 
26,279

 
33,105

 
27,663

 
28,309

Other real estate owned related to FDIC transactions
 
3,864

 
5,006

 
5,177

 
8,356

 
10,397

Other assets
 
370,314

 
443,832

 
431,623

 
352,081

 
339,390

Total assets
 
$
19,146,062

 
$
19,302,317

 
$
19,341,882

 
$
15,995,790

 
$
15,575,653

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Liabilities
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 

 
 

 
 

 
 

 
 

Non-interest bearing
 
$
6,211,173

 
$
6,408,169

 
$
6,410,334

 
$
4,775,364

 
$
4,667,410

Interest bearing
 
7,788,210

 
7,702,279

 
7,868,932

 
6,660,732

 
6,866,416

Total deposits
 
13,999,383

 
14,110,448

 
14,279,266

 
11,436,096

 
11,533,826

Short-term borrowings
 
1,550,628

 
1,569,288

 
1,496,319

 
1,246,994

 
884,101

Long-term borrowings
 
315,618

 
311,790

 
311,645

 
518,545

 
439,615

Junior subordinated notes issued to capital trusts
 
210,769

 
210,668

 
209,159

 
185,925

 
185,820

Accrued expenses and other liabilities
 
453,236

 
520,914

 
482,085

 
451,695

 
409,406

Total liabilities
 
16,529,634

 
16,723,108

 
16,778,474

 
13,839,255

 
13,452,768

Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
115,572

 
115,572

 
116,507

 
115,280

 
115,280

Common stock
 
857

 
856

 
855

 
757

 
756

Additional paid-in capital
 
1,675,956

 
1,678,826

 
1,674,341

 
1,288,777

 
1,284,438

Retained earnings
 
875,295

 
838,892

 
809,769

 
783,468

 
756,272

Accumulated other comprehensive income
 
8,415

 
5,190

 
23,763

 
28,731

 
24,687

Treasury stock
 
(59,667
)
 
(60,384
)
 
(62,084
)
 
(60,732
)
 
(59,863
)
Controlling interest stockholders' equity
 
2,616,428

 
2,578,952

 
2,563,151

 
2,156,281

 
2,121,570

Noncontrolling interest
 

 
257

 
257

 
254

 
1,315

Total stockholders' equity
 
2,616,428

 
2,579,209

 
2,563,408

 
2,156,535

 
2,122,885

Total liabilities and stockholders' equity
 
$
19,146,062

 
$
19,302,317

 
$
19,341,882

 
$
15,995,790

 
$
15,575,653



7



CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Interest income:
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
   Taxable
 
$
133,737

 
$
134,048

 
$
118,675

 
$
110,231

 
$
104,923

   Nontaxable
 
2,880

 
2,947

 
2,846

 
2,741

 
2,586

Investment securities:
 
 
 
 
 
 
 
 
 
 
   Taxable
 
9,122

 
9,362

 
8,844

 
7,799

 
9,566

   Nontaxable
 
9,973

 
10,220

 
10,382

 
10,644

 
10,776

Other interest earning accounts
 
199

 
157

 
164

 
125

 
141

Total interest income
 
155,911

 
156,734

 
140,911

 
131,540

 
127,992

Interest expense:
 

 
 
 
 
 
 
 
 
   Deposits
 
7,475

 
7,324

 
6,681

 
5,952

 
5,622

   Short-term borrowings
 
2,380

 
1,472

 
1,092

 
910

 
721

   Long-term borrowings and junior subordinated notes
 
3,013

 
2,724

 
2,367

 
2,076

 
2,345

Total interest expense
 
12,868

 
11,520

 
10,140

 
8,938

 
8,688

Net interest income
 
143,043

 
145,214

 
130,771

 
122,602

 
119,304

Provision for credit losses
 
3,734

 
2,622

 
6,549

 
2,829

 
7,563

Net interest income after provision for credit losses
 
139,309

 
142,592

 
124,222

 
119,773

 
111,741

Non-interest income:
 


 
 
 
 

 
 

 
 

Mortgage banking revenue
 
27,779

 
32,277

 
49,095

 
39,615

 
27,482

Lease financing revenue, net
 
21,418

 
19,868

 
18,864

 
15,708

 
19,046

Commercial deposit and treasury management fees
 
14,689

 
14,237

 
12,957

 
11,548

 
11,878

Trust and asset management fees
 
8,520

 
8,442

 
8,244

 
8,236

 
7,950

Card fees
 
4,566

 
4,340

 
4,161

 
4,045

 
3,525

Capital markets and international banking service fees
 
3,253

 
4,021

 
3,313

 
2,771

 
3,227

Consumer and other deposit service fees
 
3,363

 
3,563

 
3,559

 
3,161

 
3,025

Brokerage fees
 
1,125

 
887

 
1,294

 
1,315

 
1,158

Loan service fees
 
1,969

 
1,952

 
1,792

 
1,961

 
1,752

Increase in cash surrender value of life insurance
 
1,288

 
1,316

 
1,055

 
850

 
854

Net gain on investment securities
 
231

 
178

 

 
269

 

Net (loss) gain on disposal of other assets
 
(123
)
 
(749
)
 
5

 
(2
)
 
(48
)
Other operating income
 
3,695

 
2,491

 
4,048

 
2,523

 
1,844

Total non-interest income
 
91,773

 
92,823

 
108,387

 
92,000

 
81,693

Non-interest expense:
 
 
 
 
 
 

 
 

 
 

Salaries and employee benefits expense
 
101,551

 
108,428

 
111,478

 
95,004

 
85,591

Occupancy and equipment expense
 
15,044

 
15,689

 
14,766

 
13,415

 
13,260

Computer services and telecommunication expense
 
9,440

 
11,800

 
12,836

 
9,777

 
9,055

Advertising and marketing expense
 
3,161

 
3,045

 
3,084

 
2,964

 
2,878

Professional and legal expense
 
2,691

 
2,509

 
4,460

 
3,321

 
2,589

Other intangible amortization expense
 
2,091

 
2,388

 
1,674

 
1,617

 
1,626

Branch exit and facilities impairment charges
 
(682
)
 

 
(2,908
)
 
155

 
44

Net loss (gain) recognized on other real estate owned and other related expense
 
844

 
(790
)
 
(721
)
 
258

 
(346
)
Other operating expenses
 
21,525

 
22,691

 
25,716

 
21,395

 
21,103

Total non-interest expense
 
155,665

 
165,760

 
170,385

 
147,906

 
135,800

Income before income taxes
 
75,417

 
69,655

 
62,224

 
63,867

 
57,634

Income tax expense
 
20,880

 
22,464

 
17,805

 
20,455

 
18,520

Net income
 
54,537

 
47,191

 
44,419

 
43,412

 
39,114

Dividends on preferred shares
 
2,003

 
2,005

 
2,004

 
2,000

 
2,000

Net income available to common stockholders
 
$
52,534

 
$
45,186

 
$
42,415

 
$
41,412

 
$
37,114



8



 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Common share data:
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.63

 
$
0.54

 
$
0.55

 
$
0.56

 
$
0.51

Diluted earnings per common share
 
0.62

 
0.53

 
0.54

 
0.56

 
0.50

Weighted average common shares outstanding for basic earnings per common share
 
83,662,430

 
83,484,899

 
77,506,885

 
73,475,258

 
73,330,731

Weighted average common shares outstanding for diluted earnings per common share
 
84,778,130

 
84,674,181

 
78,683,170

 
74,180,374

 
73,966,935

Common shares outstanding (at end of period)
 
83,832,648

 
83,725,269

 
83,555,257

 
73,740,348

 
73,639,487


SELECTED FINANCIAL DATA

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
Annualized return on average assets
 
1.16
 %
 
0.98
%
 
1.02
%
 
1.11
%
 
1.02
%
Annualized operating return on average assets (1) 
 
1.13

 
1.07

 
1.20

 
1.15

 
1.09

Annualized return on average common equity
 
8.62

 
7.36

 
7.67

 
8.27

 
7.52

Annualized operating return on average common equity (1)
 
8.39

 
8.12

 
9.02

 
8.56

 
8.08

Annualized cash return on average tangible common equity (2)
 
15.27

 
13.22

 
12.99

 
13.53

 
12.47

Annualized cash operating return on average tangible common equity (3)
 
14.88

 
14.54

 
15.23

 
13.99

 
13.37

Net interest rate spread
 
3.52

 
3.48

 
3.50

 
3.64

 
3.63

Cost of funds (4)
 
0.33

 
0.28

 
0.28

 
0.27

 
0.27

Efficiency ratio (5)
 
63.99

 
64.62

 
62.69

 
65.32

 
63.49

Annualized net non-interest expense to average assets (6)
 
1.35

 
1.35

 
1.06

 
1.35

 
1.31

Core non-interest income to revenues (7)
 
37.87

 
38.15

 
43.98

 
41.40

 
39.38

Net interest margin
 
3.57

 
3.50

 
3.49

 
3.60

 
3.57

Tax equivalent effect
 
0.17

 
0.17

 
0.19

 
0.21

 
0.22

Net interest margin - fully tax equivalent basis (8)
 
3.74

 
3.67

 
3.68

 
3.81

 
3.79

Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans (9)
 
3.55

 
3.47

 
3.50

 
3.57

 
3.55

Loans to deposits
 
92.56

 
90.49

 
87.82

 
89.17

 
86.37

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
Non-performing loans (10) to total loans
 
0.38
 %
 
0.46
%
 
0.43
%
 
0.73
%
 
0.95
%
Non-performing assets (10) to total assets
 
0.34

 
0.45

 
0.45

 
0.64

 
0.79

Allowance for loan and lease losses to non-performing loans (10)
 
293.02

 
234.81

 
258.82

 
181.46

 
142.00

Allowance for loan and lease losses to total loans
 
1.11

 
1.09

 
1.11

 
1.33

 
1.35

Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)
 
(0.03
)
 
0.10

 
0.09

 
0.09

 
0.06

Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets (11)
 
8.71
 %
 
8.42
%
 
8.34
%
 
9.21
%
 
9.24
%
Tangible common equity to tangible assets (12)
 
8.07

 
7.79

 
7.71

 
8.46

 
8.46

Tangible common equity to risk weighted assets (13)
 
9.07

 
8.80

 
8.83

 
9.75

 
9.54

Total capital (to risk-weighted assets) (14)
 
11.80

 
11.63

 
11.66

 
12.81

 
12.65

Tier 1 capital (to risk-weighted assets) (14)
 
9.54

 
9.40

 
9.40

 
11.77

 
11.60

Common equity tier 1 capital (to risk-weighted assets) (14)
 
8.84

 
8.72

 
8.71

 
9.52

 
9.33

Tier 1 capital (to average assets) (14)
 
8.58

 
8.38

 
9.29

 
10.41

 
10.38

Per Share Data:
 
 
 
 
 
 
 
 
 
 
Book value per common share (15)
 
$
29.83

 
$
29.43

 
$
29.28

 
$
27.68

 
$
27.26

Less: goodwill and other intangible assets, net of tax benefit, per common share
 
12.40

 
12.45

 
12.40

 
10.20

 
10.22

Tangible book value per common share (16)
 
$
17.43

 
$
16.98

 
$
16.88

 
$
17.48

 
$
17.04

Cash dividends per common share
 
$
0.19

 
$
0.19

 
$
0.19

 
$
0.19

 
$
0.17


(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.

9



(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 interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.
(5) 
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.
(6) 
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.
(7) 
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.
(8) 
Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
(9) 
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.
(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


10



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):

 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
Fair value
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
23,330

 
$
23,415

 
$
53,968

 
$
54,457

 
$
64,762

States and political subdivisions
 
389,109

 
391,365

 
410,737

 
400,948

 
398,024

Mortgage-backed securities
 
1,056,529

 
1,076,692

 
1,173,330

 
785,367

 
834,559

Corporate bonds
 
178,097

 
193,895

 
210,193

 
225,525

 
224,530

Equity securities
 
10,885

 
10,828

 
11,128

 
11,098

 
10,969

Total fair value
 
$
1,657,950

 
$
1,696,195

 
$
1,859,356

 
$
1,477,395

 
$
1,532,844

 
 
 
 
 
 
 
 
 
 
 
Unrealized gain, net
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
126

 
$
148

 
$
512

 
$
783

 
$
1,162

States and political subdivisions
 
17,780

 
14,824

 
27,696

 
31,132

 
27,018

Mortgage-backed securities
 
(2,412
)
 
(4,001
)
 
12,534

 
16,258

 
13,734

Corporate bonds
 
762

 
731

 
1,253

 
795

 
(1,127
)
Equity securities
 
(172
)
 
(172
)
 
196

 
226

 
155

Total unrealized gain, net
 
$
16,084

 
$
11,530

 
$
42,191

 
$
49,194

 
$
40,942

 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity, at amortized cost:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
 
$
910,336

 
$
910,608

 
$
939,491

 
$
960,784

 
$
986,340

Mortgage-backed securities
 
145,672

 
159,142

 
175,771

 
190,631

 
205,570

Total amortized cost
 
$
1,056,008

 
$
1,069,750

 
$
1,115,262

 
$
1,151,415

 
$
1,191,910

 

 

11



LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on period end balances as of the dates indicated (dollars in thousands):
 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related loans:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial
 
$
4,364,122

 
34
%
 
$
4,346,506

 
34
%
 
$
4,385,812

 
35
%
 
$
3,561,500

 
35
%
 
$
3,509,604

 
36
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
2,008,601

 
16

 
2,002,976

 
16

 
1,873,380

 
15

 
1,794,465

 
18

 
1,774,104

 
18

Commercial real estate
 
3,734,171

 
29

 
3,788,016

 
29

 
3,794,801

 
30

 
2,827,720

 
28

 
2,831,814

 
28

Construction real estate
 
554,942

 
4

 
518,562

 
4

 
451,023

 
4

 
357,807

 
3

 
310,278

 
3

Total commercial-related loans
 
10,661,836

 
83

 
10,656,060

 
83

 
10,505,016

 
84

 
8,541,492

 
84

 
8,425,800

 
85

Other loans:
 
 
 

 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
Residential real estate
 
1,227,218

 
9

 
1,060,828

 
8

 
998,827

 
8

 
753,707

 
7

 
677,791

 
7

Indirect vehicle
 
573,792

 
4

 
541,680

 
4

 
522,271

 
4

 
491,480

 
5

 
432,915

 
4

Home equity
 
246,805

 
2

 
266,377

 
2

 
275,288

 
2

 
198,622

 
2

 
207,079

 
2

Consumer
 
80,016

 
1

 
80,781

 
1

 
77,956

 
1

 
75,775

 
1

 
77,318

 
1

Total other loans
 
2,127,831

 
16

 
1,949,666

 
15

 
1,874,342

 
15

 
1,519,584

 
15

 
1,395,103

 
14

Total loans, excluding purchased credit-impaired loans
 
12,789,667

 
99

 
12,605,726

 
98

 
12,379,358

 
99

 
10,061,076

 
99

 
9,820,903

 
99

Purchased credit-impaired loans
 
168,814

 
1

 
163,077

 
2

 
161,338

 
1

 
136,811

 
1

 
140,445

 
1

Total loans
 
$
12,958,481

 
100
%
 
$
12,768,803

 
100
%
 
$
12,540,696

 
100
%
 
$
10,197,887

 
100
%
 
$
9,961,348

 
100
%
Change from prior quarter
 
+1.5
%
 
 
 
+1.8
%
 
 
 
+23.0
%
 
 
 
+2.4
%
 
 
 
+1.7
%
 
 
Change from same quarter one year ago
 
+30.1
%
 
 
 
+30.4
%
 
 
 
+33.6
%
 
 
 
+12.1
%
 
 
 
+11.7
%
 
 

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on quarterly average balances for the periods indicated (dollars in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related loans:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial
 
$
4,269,545

 
34
%
 
$
4,274,398

 
35
%
 
$
3,850,588

 
35
%
 
$
3,522,641

 
35
%
 
$
3,531,441

 
36
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,938,564

 
15

 
1,896,486

 
15

 
1,825,505

 
16

 
1,777,763

 
18

 
1,754,558

 
18

Commercial real estate
 
3,742,505

 
30

 
3,775,599

 
30

 
3,183,131

 
29

 
2,821,516

 
28

 
2,734,148

 
28

Construction real estate
 
554,612

 
4

 
486,861

 
4

 
397,480

 
4

 
351,079

 
3

 
276,797

 
3

Total commercial-related loans
 
10,505,226

 
83

 
10,433,344

 
84

 
9,256,704

 
84

 
8,472,999

 
84

 
8,296,944

 
85

Other loans:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
Residential real estate
 
1,133,927

 
9

 
1,031,152

 
8

 
862,393

 
7

 
710,384

 
7

 
640,231

 
7

Indirect vehicle
 
552,669

 
4

 
532,782

 
4

 
507,772

 
5

 
462,053

 
5

 
404,473

 
4

Home equity
 
253,654

 
2

 
273,694

 
2

 
231,399

 
2

 
202,228

 
2

 
210,678

 
2

Consumer
 
81,564

 
1

 
80,113

 
1

 
77,451

 
1

 
78,108

 
1

 
80,569

 
1

Total other loans
 
2,021,814

 
16

 
1,917,741

 
15

 
1,679,015

 
15

 
1,452,773

 
15

 
1,335,951

 
14

Total loans, excluding purchased credit-impaired loans
 
12,527,040

 
99

 
12,351,085

 
99

 
10,935,719

 
99

 
9,925,772

 
99

 
9,632,895

 
99

Purchased credit-impaired loans
 
156,058

 
1

 
152,509

 
1

 
135,548

 
1

 
136,415

 
1

 
139,451

 
1

Total loans
 
$
12,683,098

 
100
%
 
$
12,503,594

 
100
%
 
$
11,071,267

 
100
%
 
$
10,062,187

 
100
%
 
$
9,772,346

 
100
%
Change from prior quarter
 
+1.4
%
 
 
 
+12.9
%
 
 
 
+10.0
%
 
 
 
+3.0
%
 
 
 
+2.5
%
 
 
Change from same quarter one year ago
 
+29.8
%
 
 
 
+31.1
%
 
 
 
+20.5
%
 
 
 
+12.2
%
 
 
 
+9.9
%
 
 



12



ASSET QUALITY

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

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

 
 

 
 

 
 

 
 

Non-accrual loans (1)
 
$
47,042

 
$
48,974

 
$
52,135

 
$
67,544

 
$
93,602

Loans 90 days or more past due, still accruing interest
 
2,159

 
10,378

 
1,774

 
7,190

 
1,112

Total non-performing loans
 
49,201

 
59,352

 
53,909

 
74,734

 
94,714

Other real estate owned
 
14,706

 
26,279

 
33,105

 
27,663

 
28,309

Repossessed assets
 
477

 
322

 
453

 
459

 
187

Total non-performing assets
 
$
64,384

 
$
85,953

 
$
87,467

 
$
102,856

 
$
123,210

Potential problem loans (2)
 
$
153,779

 
$
144,544

 
$
111,594

 
$
99,782

 
$
110,193

Purchased credit-impaired loans (3)
 
$
168,814

 
$
163,077

 
$
161,338

 
$
136,811

 
$
140,445

Total non-performing, potential problem and purchased credit-impaired loans
 
$
371,794

 
$
366,973

 
$
326,841

 
$
311,327

 
$
345,352

 
 
 
 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
 
$
144,170

 
$
139,366

 
$
139,528

 
$
135,614

 
$
134,493

Accruing restructured loans (4)
 
31,384

 
32,687

 
28,561

 
26,715

 
27,269

Total non-performing loans to total loans
 
0.38
%
 
0.46
%
 
0.43
%
 
0.73
%
 
0.95
%
Total non-performing assets to total assets
 
0.34

 
0.45

 
0.45

 
0.64

 
0.79

Allowance for loan and lease losses to non-performing loans
 
293.02

 
234.81

 
258.82

 
181.46

 
142.00


(1) 
Includes $20.7 million, $27.1 million, $23.4 million, $28.9 million and $24.0 million of restructured loans on non-accrual status at March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 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 $68.8 million, $66.1 million, $60.1 million, $54.1 million and $50.4 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 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 previously acquired as part of our FDIC-assisted transactions and bank mergers) as of the dates indicated (in thousands):

 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Commercial and lease
 
$
8,739

 
$
15,189

 
$
14,898

 
$
29,509

 
$
28,590

Commercial real estate
 
8,719

 
11,767

 
4,655

 
7,163

 
27,786

Consumer-related
 
31,743

 
32,396

 
34,356

 
38,062

 
38,338

Total non-performing loans
 
$
49,201

 
$
59,352

 
$
53,909

 
$
74,734

 
$
94,714




13



Below is a reconciliation of the activity in our allowance for credit and loan and lease losses for the periods indicated (dollars in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Allowance for credit losses, balance at the beginning of period
 
$
141,842

 
$
142,399

 
$
138,333

 
$
137,732

 
$
131,508

Provision for credit losses
 
3,734

 
2,622

 
6,549

 
2,829

 
7,563

Charge-offs
 
3,373

 
6,442

 
4,157

 
6,424

 
3,588

Recoveries
 
4,295

 
3,263

 
1,674

 
4,196

 
2,249

Net (recoveries) charge-offs
 
(922
)
 
3,179

 
2,483

 
2,228

 
1,339

Allowance for credit losses
 
146,498

 
141,842

 
142,399

 
138,333

 
137,732

Allowance for unfunded credit commitments
 
(2,328
)
 
(2,476
)
 
(2,871
)
 
(2,719
)
 
(3,239
)
Allowance for loan and lease losses
 
$
144,170

 
$
139,366

 
$
139,528

 
$
135,614

 
$
134,493

Total loans, excluding loans held for sale
 
$
12,958,481

 
$
12,768,803

 
$
12,540,696

 
$
10,197,887

 
$
9,961,348

Average loans, excluding loans held for sale
 
12,683,098

 
12,503,594

 
11,071,267

 
10,062,187

 
9,772,346

Allowance for loan and lease losses to total loans, excluding loans held for sale
 
1.11
 %
 
1.09
%
 
1.11
%
 
1.33
%
 
1.35
%
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)
 
(0.03
)
 
0.10

 
0.09

 
0.09

 
0.06


The following table presents the three elements of the Company's allowance for loan and lease losses as of the dates indicated (dollars in thousands):
 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Commercial related loans:
 
 
 
 
 
 
 
 
 
 
     General reserve
 
$
125,370

 
$
120,221

 
$
112,653

 
$
108,972

 
$
98,001

     Specific reserve
 
1,272

 
3,243

 
9,698

 
12,205

 
20,995

Consumer related reserve
 
17,528

 
15,902

 
17,177

 
14,437

 
15,497

Total allowance for loan and lease losses
 
$
144,170

 
$
139,366

 
$
139,528

 
$
135,614

 
$
134,493


Changes in the acquisition accounting discount for purchased credit-impaired ("PCI") and non-purchased credit-impaired ("Non-PCI") loans acquired in bank mergers were as follows for the three months ended March 31, 2017 (in thousands):
 
 
 
Non-Accretable Discount - PCI Loans
 
Accretable Discount - PCI Loans
 
Accretable Discount - Non-PCI Loans
 
Total
Balance at beginning of period
 
$
27,617

 
$
16,050

 
$
36,598

 
$
80,265

Purchases (1)
 
(1,687
)
 
43

 
(202
)
 
(1,846
)
Charge-offs
 
(5,172
)
 

 

 
(5,172
)
Accretion
 

 
(2,188
)
 
(4,970
)
 
(7,158
)
Transfer (2)
 
(1,006
)
 
1,006

 

 

Balance at end of period
 
$
19,752

 
$
14,911

 
$
31,426

 
$
66,089

 
(1) 
The acquisition accounting discount for loans acquired in the American Chartered merger was revised compared to previously reported balances. The change is reflected in this line.
(2) 
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.


14



DEPOSIT MIX

The following table shows the composition of deposits based on period end balances as of the dates indicated (dollars in thousands):
 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing deposits
 
$
6,211,173

 
44
%
 
$
6,408,169

 
46
%
 
$
6,410,334

 
45
%
 
$
4,775,364

 
42
%
 
$
4,667,410

 
40
%
Money market, NOW and interest bearing deposits
 
4,580,773

 
33

 
4,543,004

 
32

 
4,660,407

 
33

 
3,771,111

 
33

 
4,048,054

 
35

Savings deposits
 
1,126,879

 
8

 
1,135,992

 
8

 
1,147,900

 
8

 
1,021,845

 
9

 
991,300

 
9

Total low cost deposits
 
11,918,825

 
85

 
12,087,165

 
86

 
12,218,641

 
86

 
9,568,320

 
84

 
9,706,764

 
84

Certificates of deposit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,261,228

 
9

 
1,225,102

 
9

 
1,298,186

 
9

 
1,220,562

 
11

 
1,255,457

 
11

Brokered certificates of deposit
 
819,330

 
6

 
798,181

 
5

 
762,439

 
5

 
647,214

 
5

 
571,605

 
5

Total certificates of deposit
 
2,080,558

 
15

 
2,023,283

 
14

 
2,060,625

 
14

 
1,867,776

 
16

 
1,827,062

 
16

Total deposits
 
$
13,999,383

 
100
%
 
$
14,110,448

 
100
%
 
$
14,279,266

 
100
%
 
$
11,436,096

 
100
%
 
$
11,533,826

 
100
%
Change from prior quarter
 
-0.8
 %
 
 
 
-1.2
 %
 
 
 
+24.9
%
 
 
 
-0.8
 %
 
 
 
+0.2
%
 
 
Change from same quarter one year ago
 
+21.4
 %
 
 
 
+22.6
 %
 
 
 
+26.9
%
 
 
 
+5.3
 %
 
 
 
+4.7
%
 
 

The following table shows the composition of deposits based on quarterly average balances for the periods indicated (dollars in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing deposits
 
$
6,209,402

 
45
%
 
$
6,454,025

 
45
%
 
$
5,524,043

 
43
%
 
$
4,806,692

 
42
%
 
$
4,606,008

 
40
%
Money market, NOW and interest bearing deposits
 
4,529,402

 
33

 
4,628,698

 
33

 
4,161,913

 
33

 
3,836,134

 
33

 
4,109,150

 
36

Savings deposits
 
1,131,757

 
8

 
1,140,926

 
8

 
1,080,609

 
8

 
1,006,902

 
9

 
984,019

 
9

Total low cost deposits
 
11,870,561

 
86

 
12,223,649

 
86

 
10,766,565

 
84

 
9,649,728

 
84

 
9,699,177

 
85

Certificates of deposit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,245,152

 
9

 
1,263,675

 
9

 
1,257,959

 
10

 
1,237,198

 
11

 
1,237,971

 
11

Brokered certificates of deposit
 
815,473

 
5

 
779,411

 
5

 
702,030

 
6

 
598,702

 
5

 
534,910

 
4

Total certificates of deposit
 
2,060,625

 
14

 
2,043,086

 
14

 
1,959,989

 
16

 
1,835,900

 
16

 
1,772,881

 
15

Total deposits
 
$
13,931,186

 
100
%
 
$
14,266,735

 
100
%
 
$
12,726,554

 
100
%
 
$
11,485,628

 
100
%
 
$
11,472,058

 
100
%
Change from prior quarter
 
-2.4
 %
 
 
 
+12.1
%
 
 
 
+10.8
%
 
 
 
+0.1
%
 
 
 
-0.5
 %
 
 
Change from same quarter one year ago
 
+21.4
 %
 
 
 
+23.7
%
 
 
 
+13.2
%
 
 
 
+5.4
%
 
 
 
+4.4
 %
 
 




STATEMENT OF OPERATIONS DETAILS TO FOLLOW


15



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):
 
 
1Q17
 
4Q16
 
 
1Q16
 
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
 
 
Average
Balance
 
Interest
 
Yield/
Rate
Interest Earning Assets:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Loans held for sale
 
$
565,128

 
$
5,033

 
3.56
%
 
$
859,254

 
$
7,100

 
3.31
%
 
 
$
661,021

 
$
5,966

 
3.61
%
Loans (1) (2) (3):
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial-related loans:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
4,269,545

 
45,755

 
4.29

 
4,274,398

 
45,255

 
4.14

 
 
3,531,441

 
37,357

 
4.18

Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,938,564

 
17,781

 
3.67

 
1,896,486

 
17,275

 
3.64

 
 
1,754,558

 
16,577

 
3.78

Commercial real estate
 
3,742,505

 
40,500

 
4.33

 
3,775,599

 
41,508

 
4.30

 
 
2,734,148

 
28,039

 
4.06

Construction real estate
 
554,612

 
5,569

 
4.02

 
486,861

 
4,592

 
3.69

 
 
276,797

 
2,902

 
4.15

Total commercial-related loans
 
10,505,226

 
109,605

 
4.17

 
10,433,344

 
108,630

 
4.07

 
 
8,296,944

 
84,875

 
4.05

Other loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
1,133,927

 
9,441

 
3.33

 
1,031,152

 
8,522

 
3.31

 
 
640,231

 
5,695

 
3.56

Home equity
 
253,654

 
2,502

 
4.00

 
273,694

 
2,651

 
3.85

 
 
210,678

 
2,033

 
3.88

Indirect
 
552,669

 
6,111

 
4.48

 
532,782

 
6,198

 
4.63

 
 
404,473

 
4,758

 
4.73

Consumer
 
81,564

 
800

 
3.98

 
80,113

 
776

 
3.86

 
 
80,569

 
794

 
3.97

Total other loans
 
2,021,814

 
18,854

 
3.78

 
1,917,741

 
18,147

 
3.76

 
 
1,335,951

 
13,280

 
4.00

Total loans, excluding purchased credit-impaired loans
 
12,527,040

 
128,459

 
4.16

 
12,351,085

 
126,777

 
4.08

 
 
9,632,895

 
98,155

 
4.10

Purchased credit-impaired loans
 
156,058

 
4,675

 
12.15

 
152,509

 
4,704

 
12.27

 
 
139,451

 
4,780

 
13.75

Total loans
 
12,683,098

 
133,134

 
4.26

 
12,503,594

 
131,481

 
4.18

 
 
9,772,346

 
102,935

 
4.24

Taxable investment securities
 
1,593,209

 
9,122

 
2.29

 
1,721,537

 
9,362

 
2.18

 
 
1,524,583

 
9,566

 
2.51

Investment securities exempt from federal income taxes (3)
 
1,278,150

 
15,344

 
4.80

 
1,304,931

 
15,724

 
4.82

 
 
1,362,468

 
16,579

 
4.87

Federal funds sold
 
38

 
0

 
1.23

 
36

 
0

 
1.00

 
 
42

 
0

 
1.00

Other interest earning deposits
 
130,553

 
199

 
0.62

 
107,311

 
157

 
0.58

 
 
113,748

 
141

 
0.50

Total interest earning assets
 
$
16,250,176

 
$
162,832

 
4.06
%
 
$
16,496,663

 
$
163,824

 
3.95
%
 
 
$
13,434,208

 
$
135,187

 
4.05
%
Non-interest earning assets
 
2,752,806

 
 
 
 
 
2,696,084

 
 
 
 
 
 
2,053,357

 
 
 
 
Total assets
 
$
19,002,982

 
 
 
 
 
$
19,192,747

 
 
 
 
 
 
$
15,487,565

 
 
 
 
Interest Bearing Liabilities:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Core funding:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Money market, NOW and interest bearing deposits
 
$
4,529,402

 
$
2,622

 
0.23
%
 
$
4,628,698

 
$
2,593

 
0.22
%
 
 
$
4,109,150

 
$
2,086

 
0.20
%
Savings deposits
 
1,131,757

 
255

 
0.09

 
1,140,926

 
273

 
0.10

 
 
984,019

 
159

 
0.06

Certificates of deposit
 
1,245,152

 
1,690

 
0.55

 
1,263,675

 
1,728

 
0.54

 
 
1,237,971

 
1,413

 
0.46

Customer repurchase agreements
 
198,977

 
100

 
0.20

 
247,273

 
129

 
0.21

 
 
190,114

 
94

 
0.20

Total core funding
 
7,105,288

 
4,667

 
0.27

 
7,280,572

 
4,723

 
0.26

 
 
6,521,254

 
3,752

 
0.23

Wholesale funding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokered certificates of deposit (includes fee expense)
 
815,473

 
2,908

 
1.45

 
779,411

 
2,730

 
1.39

 
 
534,910

 
1,964

 
1.48

Other borrowings
 
1,819,393

 
5,293

 
1.16

 
1,638,605

 
4,067

 
0.97

 
 
1,327,274

 
2,972

 
0.89

Total wholesale funding
 
2,634,866

 
8,201

 
1.26

 
2,418,016

 
6,797

 
1.12

 
 
1,862,184

 
4,936

 
1.07

Total interest bearing liabilities
 
$
9,740,154

 
$
12,868

 
0.54
%
 
$
9,698,588

 
$
11,520

 
0.47
%
 
 
$
8,383,438

 
$
8,688

 
0.42
%
Non-interest bearing deposits
 
6,209,402

 
 
 
 
 
6,454,025

 
 
 
 
 
 
4,606,008

 
 
 
 
Other non-interest bearing liabilities
 
465,083

 
 
 
 
 
482,449

 
 
 
 
 
 
398,460

 
 
 
 
Stockholders' equity
 
2,588,343

 
 
 
 
 
2,557,685

 
 
 
 
 
 
2,099,659

 
 
 
 
Total liabilities and stockholders' equity
 
$
19,002,982

 
 
 
 
 
$
19,192,747

 
 
 
 
 
 
$
15,487,565

 
 
 
 
Net interest income/interest rate spread (4)
 
 
 
$
149,964

 
3.52
%
 
 
 
$
152,304

 
3.48
%
 
 
 
 
$
126,499

 
3.63
%
Taxable equivalent adjustment
 
 
 
6,921

 
 
 
 
 
7,090

 
 
 
 
 
 
7,195

 
 
Net interest income, as reported
 
 
 
$
143,043

 
 
 
 
 
$
145,214

 
 
 
 
 
 
$
119,304

 
 
Net interest margin (5)
 
 
 
 
 
3.57
%
 
 
 
 
 
3.50
%
 
 
 
 
 
 
3.57
%
Tax equivalent effect
 
 
 
 
 
0.17
%
 
 
 
 
 
0.17
%
 
 
 
 
 
 
0.22
%
Net interest margin on a fully tax equivalent basis (5)
 
 
 
 
 
3.74
%
 
 
 
 
 
3.67
%
 
 
 
 
 
 
3.79
%

(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.
 
 
 
 
 
 
 
 
 
 
 
 
 

16



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):
 
 
1Q17
 
4Q16
 
1Q16
 
 
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
 
$
12,683,098

 
$
133,134

 
4.26
%
 
$
12,503,594

 
$
131,481

 
4.18
%
 
$
9,772,346

 
$
102,935

 
4.24
%
Less acquisition accounting discount accretion on non-PCI loans
 
(38,442
)
 
4,970

 
 
 
(42,978
)
 
4,854

 
 
 
(32,293
)
 
4,950

 
 
Less acquisition accounting discount accretion on PCI loans
 
(33,811
)
 
2,188

 
 
 
(34,360
)
 
2,709

 
 
 
(25,696
)
 
2,403

 
 
Total loans, excluding acquisition accounting discount accretion on bank merger loans
 
$
12,755,351

 
$
125,976

 
4.01
%
 
$
12,580,932

 
$
123,918

 
3.92
%
 
$
9,830,335

 
$
95,582

 
3.91
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest earning assets, as reported
 
$
16,250,176

 
$
149,964

 
3.74
%
 
$
16,496,663

 
$
152,304

 
3.67
%
 
$
13,434,208

 
$
126,499

 
3.79
%
Less acquisition accounting discount accretion on non-PCI loans
 
(38,442
)
 
4,970

 
 
 
(42,978
)
 
4,854

 
 
 
(32,293
)
 
4,950

 
 
Less acquisition accounting discount accretion on PCI loans
 
(33,811
)
 
2,188

 
 
 
(34,360
)
 
2,709

 
 
 
(25,696
)
 
2,403

 
 
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans
 
$
16,322,429

 
$
142,806

 
3.55
%
 
$
16,574,001

 
$
144,741

 
3.47
%
 
$
13,492,197

 
$
119,146

 
3.55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
NON-INTEREST INCOME

The following table presents non-interest income (in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Core non-interest income:
 
 
 
 
 
 
 
 
 
 
Key fee initiatives:
 
 
 
 
 
 
 
 
 
 
Mortgage banking revenue
 
$
27,779

 
$
32,277

 
$
49,095

 
$
39,615

 
$
27,482

Lease financing revenue, net
 
21,418

 
19,868

 
18,864

 
15,708

 
19,046

Commercial deposit and treasury management fees
 
14,689

 
14,237

 
12,957

 
11,548

 
11,878

Trust and asset management fees
 
8,520

 
8,442

 
8,244

 
8,236

 
7,950

Card fees
 
4,566

 
4,340

 
4,161

 
4,045

 
3,525

Capital markets and international banking service fees
 
3,253

 
4,021

 
3,313

 
2,771

 
3,227

Total key fee initiatives
 
80,225

 
83,185

 
96,634

 
81,923

 
73,108

Consumer and other deposit service fees
 
3,363

 
3,563

 
3,559

 
3,161

 
3,025

Brokerage fees
 
1,125

 
887

 
1,294

 
1,315

 
1,158

Loan service fees
 
1,969

 
1,952

 
1,792

 
1,961

 
1,752

Increase in cash surrender value of life insurance
 
1,288

 
1,316

 
1,055

 
850

 
854

Other operating income
 
2,734

 
2,350

 
3,337

 
2,043

 
1,836

Total core non-interest income
 
90,704

 
93,253

 
107,671

 
91,253

 
81,733

Non-core non-interest income:
 
 
 
 
 
 
 
 
 
 
Net gain on investment securities
 
231

 
178

 

 
269

 

Net (loss) gain on disposal of other assets
 
(123
)
 
(749
)
 
5

 
(2
)
 
(48
)
Increase in market value of assets held in trust for deferred compensation (1)
 
961

 
141

 
711

 
480

 
8

Total non-core non-interest income
 
1,069

 
(430
)
 
716

 
747

 
(40
)
Total non-interest income
 
$
91,773

 
$
92,823

 
$
108,387

 
$
92,000

 
$
81,693


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




17



NON-INTEREST EXPENSE

The following table presents non-interest expense (in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Core non-interest expense: (1)
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
 
Salaries
 
$
58,811

 
$
60,553

 
$
56,083

 
$
52,281

 
$
49,787

Commissions
 
8,611

 
10,306

 
11,323

 
9,924

 
9,370

Bonus and stock-based compensation
 
12,290

 
12,167

 
12,980

 
12,871

 
8,657

Health and accident insurance
 
6,623

 
5,951

 
6,377

 
6,079

 
5,599

Other salaries and benefits (2)
 
13,641

 
15,072

 
15,320

 
13,045

 
12,089

Total salaries and employee benefits expense
 
99,976

 
104,049

 
102,083

 
94,200

 
85,502

Occupancy and equipment expense
 
15,040

 
15,594

 
14,662

 
13,407

 
13,260

Computer services and telecommunication expense
 
9,255

 
11,019

 
9,731

 
9,266

 
8,750

Advertising and marketing expense
 
3,161

 
3,039

 
3,031

 
2,923

 
2,855

Professional and legal expense
 
2,594

 
2,351

 
2,779

 
3,220

 
2,492

Other intangible amortization expense
 
2,091

 
2,388

 
1,674

 
1,617

 
1,626

Net loss (gain) recognized on other real estate owned (A)
 
607

 
(982
)
 
(908
)
 
15

 
(483
)
Other real estate expense, net (A)
 
237

 
192

 
187

 
243

 
137

Other operating expenses
 
21,485

 
21,478

 
21,067

 
19,814

 
18,366

Total core non-interest expense
 
154,446

 
159,128

 
154,306

 
144,705

 
132,505

Non-core non-interest expense: (1)
 
 
 
 
 
 
 
 
 
 
Merger related and repositioning expenses (B)
 
258

 
6,491

 
11,368

 
2,566

 
3,287

Branch exit and facilities impairment charges
 

 

 

 
155

 

Contribution to MB Financial Charitable Foundation (C)
 

 

 
4,000

 

 

Increase in market value of assets held in trust for deferred compensation (D)
 
961

 
141

 
711

 
480

 
8

Total non-core non-interest expense
 
1,219

 
6,632

 
16,079

 
3,201

 
3,295

Total non-interest expense
 
$
155,665

 
$
165,760

 
$
170,385

 
$
147,906

 
$
135,800


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

The following table presents the detail of the merger related and repositioning expenses (in thousands):
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Merger related and repositioning expenses (1):
 
 
 
 
 
 
 
 
 
 
   Salaries and employee benefits expense
 
$
614

 
$
4,238

 
$
8,684

 
$
324

 
$
81

   Occupancy and equipment expense
 
4

 
95

 
104

 
8

 

   Computer services and telecommunication expense
 
185

 
781

 
3,105

 
511

 
305

   Advertising and marketing expense
 

 
6

 
53

 
41

 
23

   Professional and legal expense
 
97

 
158

 
1,681

 
101

 
97

   Branch exit and facilities impairment charges (2)
 
(682
)
 

 
(2,908
)
 

 
44

   Contingent consideration expense - Celtic acquisition (3)
 

 
1,000

 

 

 
2,703

   Other operating expenses
 
40

 
213

 
649

 
1,581

 
34

Total merger related and repositioning expenses
 
$
258

 
$
6,491

 
$
11,368

 
$
2,566

 
$
3,287


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


18



MORTGAGE BANKING SEGMENT DATA

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

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Mortgage origination revenue:
 
 
 
 
 
 
 
 
 
 
Gain on sale revenue, net (A)
 
$
15,607

 
$
23,576

 
$
35,190

 
$
27,032

 
$
14,299

Origination fees
 
5,858

 
5,741

 
4,772

 
4,385

 
2,595

Total mortgage origination revenue
 
$
21,465

 
$
29,317

 
$
39,962

 
$
31,417

 
$
16,894

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing revenue:
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
$
13,735

 
$
12,610

 
$
12,022

 
$
11,418

 
$
10,525

Amortization/prepayment of mortgage servicing rights (1)
 
(6,743
)
 
(8,777
)
 
(8,551
)
 
(7,790
)
 
(5,313
)
Fair value changes of mortgage servicing rights
 
4,083

 
65,006

 
9,853

 
(19,035
)
 
(29,178
)
Economic hedge activity, net
 
(4,761
)
 
(65,879
)
 
(4,191
)
 
23,605

 
34,554

Fair value changes of mortgage servicing rights net of economic hedge activity
 
(678
)
 
(873
)
 
5,662

 
4,570

 
5,376

Total mortgage servicing revenue
 
$
6,314

 
$
2,960

 
$
9,133

 
$
8,198

 
$
10,588

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing rights, at fair value:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
238,011

 
$
154,730

 
$
134,969

 
$
145,800

 
$
168,162

Originations/purchases
 
16,147

 
27,052

 
18,459

 
15,994

 
12,129

Amortization/prepayment (1)
 
(6,743
)
 
(8,777
)
 
(8,551
)
 
(7,790
)
 
(5,313
)
Fair value changes
 
4,083

 
65,006

 
9,853

 
(19,035
)
 
(29,178
)
Ending balance
 
$
251,498

 
$
238,011

 
$
154,730

 
$
134,969

 
$
145,800

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing book (unpaid principal balance of loans serviced for others)
 
$
20,450,217

 
$
19,683,073

 
$
18,477,648

 
$
17,739,626

 
$
16,911,325

Mortgage servicing rights valuation
 
1.23
%
 
1.21
%
 
0.84
%
 
0.76
%
 
0.86
%
 
 
 
 
 
 
 
 
 
 
 
Loans funded:
 
 
 
 
 
 
 
 
 
 
For sale
 
$
1,073,357

 
$
1,933,208

 
$
1,853,146

 
$
1,594,632

 
$
1,244,985

For investment
 
212,745

 
121,198

 
123,228

 
114,412

 
83,819

 
 
 
 
 
 
 
 
 
 
 
Loans funded by purpose:
 
 
 
 
 
 
 
 
 
 
Refinance
 
41
%
 
56
%
 
48
%
 
42
%
 
49
%
Purchase
 
59

 
44

 
52

 
58

 
51

 
 
 
 
 
 
 
 
 
 
 
Loans funded by channel:
 
 
 
 
 
 
 
 
 
 
Retail
 
23
%
 
21
%
 
22
%
 
23
%
 
19
%
Third party
 
77

 
79

 
78

 
77

 
81

 
 
 
 
 
 
 
 
 
 
 
Originated for sale mortgage volume (2) (B)
 
$
1,061,173

 
$
1,419,871

 
$
2,055,919

 
$
1,712,602

 
$
1,364,869

 
 

 
 
 
 
 
 
 
 
Gain on sale margin (A)/(B)
 
1.47
%
 
1.66
%
 
1.71
%
 
1.58
%
 
1.05
%
(1) 
Changes due to collection or realization of expected cash flows.
(2) 
Includes change in mortgage rate lock commitments expected to close, change in loans held for sale and loans sold to investors during the period.

19



NON-GAAP FINANCIAL INFORMATION

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

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

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

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

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

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

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


20



Reconciliations of net interest margin on a fully tax equivalent basis to net interest margin and net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans to net interest margin are contained in the tables under “Net Interest Margin.” A reconciliation of tangible book value per common share to book value per common share is contained in the “Selected Financial Data” table. Reconciliations of core and non-core non-interest income and non-interest expense to non-interest income and non-interest expense are contained in the tables under “Non-interest Income” and “Non-interest Expense.”

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

 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Stockholders' equity - as reported
 
$
2,616,428

 
$
2,579,209

 
$
2,563,408

 
$
2,156,535

 
$
2,122,885

Less goodwill
 
999,925

 
1,001,038

 
993,799

 
725,039

 
725,068

Less other intangible assets, net of tax benefit
 
39,565

 
40,923

 
42,507

 
27,020

 
28,071

Tangible equity
 
$
1,576,938

 
$
1,537,248

 
$
1,527,102

 
$
1,404,476

 
$
1,369,746


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

 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Total assets - as reported
 
$
19,146,062

 
$
19,302,317

 
$
19,341,882

 
$
15,995,790

 
$
15,575,653

Less goodwill
 
999,925

 
1,001,038

 
993,799

 
725,039

 
725,068

Less other intangible assets, net of tax benefit
 
39,565

 
40,923

 
42,507

 
27,020

 
28,071

Tangible assets
 
$
18,106,572

 
$
18,260,356

 
$
18,305,576

 
$
15,243,731

 
$
14,822,514


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

 
 
3/31/2017
 
12/31/2016
 
9/30/2016
 
6/30/2016
 
3/31/2016
Common stockholders' equity - as reported
 
$
2,500,856

 
$
2,463,637

 
$
2,446,901

 
$
2,041,255

 
$
2,007,605

Less goodwill
 
999,925

 
1,001,038

 
993,799

 
725,039

 
725,068

Less other intangible assets, net of tax benefit
 
39,565

 
40,923

 
42,507

 
27,020

 
28,071

Tangible common equity
 
$
1,461,366

 
$
1,421,676

 
$
1,410,595

 
$
1,289,196

 
$
1,254,466


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

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Average common stockholders' equity - as reported
 
$
2,472,771

 
$
2,441,809

 
$
2,201,095

 
$
2,014,822

 
$
1,984,379

Less average goodwill
 
1,001,005

 
994,053

 
835,894

 
725,011

 
725,070

Less average other intangible assets, net of tax benefit
 
40,052

 
41,471

 
32,744

 
27,437

 
28,511

Average tangible common equity
 
$
1,431,714

 
$
1,406,285

 
$
1,332,457

 
$
1,262,374

 
$
1,230,798


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

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net income available to common stockholders - as reported
 
$
52,534

 
$
45,186

 
$
42,415

 
$
41,412

 
$
37,114

Plus other intangible amortization expense, net of tax benefit
 
1,359

 
1,552

 
1,088

 
1,051

 
1,057

Net cash flow available to common stockholders
 
$
53,893

 
$
46,738

 
$
43,503

 
$
42,463

 
$
38,171


21




The following table presents a reconciliation of net income to operating earnings (in thousands):
 
 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Net income - as reported
 
$
54,537

 
$
47,191

 
$
44,419

 
$
43,412

 
$
39,114

Less non-core items:
 
 
 
 
 
 
 
 
 
 
Net gain on investment securities
 
231

 
178

 

 
269

 

Net (loss) gain on disposal of other assets
 
(123
)
 
(749
)
 
5

 
(2
)
 
(48
)
Increase in market value of assets held in trust for deferred compensation - other operating income
 
961

 
141

 
711

 
480

 
8

Merger related and repositioning expenses
 
(258
)
 
(6,491
)
 
(11,368
)
 
(2,566
)
 
(3,287
)
Branch exit and facilities impairment charges
 

 

 

 
(155
)
 

Contribution to MB Financial Charitable Foundation
 

 

 
(4,000
)
 

 

Increase in market value of assets held in trust for deferred compensation - other operating expense
 
(961
)
 
(141
)
 
(711
)
 
(480
)
 
(8
)
Total non-core items
 
(150
)
 
(7,062
)
 
(15,363
)
 
(2,454
)
 
(3,335
)
Income tax expense on non-core items (1)
 
(1,508
)
 
(2,406
)
 
(6,074
)
 
(1,003
)
 
(577
)
Income tax benefit resulting from early adoption of new stock-based compensation guidance
 

 

 
(1,793
)
 

 

Non-core items, net of tax
 
1,358

 
(4,656
)
 
(7,496
)
 
(1,451
)
 
(2,758
)
Operating earnings
 
53,179

 
51,847

 
51,915

 
44,863

 
41,872

Dividends on preferred shares
 
2,003

 
2,005

 
2,004

 
2,000

 
2,000

Operating earnings available to common stockholders
 
$
51,176

 
$
49,842

 
$
49,911

 
$
42,863

 
$
39,872

Diluted operating earnings per common share
 
$
0.60

 
$
0.59

 
$
0.63

 
$
0.58

 
$
0.54

Weighted average common shares outstanding for diluted operating earnings per common share
 
84,778,130

 
84,674,181

 
78,683,170

 
74,180,374

 
73,966,935


(1) 
The first quarter of 2017 includes a reversal of a tax liability no longer needed related to one of our acquired entities.

22



Efficiency Ratio Calculation (Dollars in Thousands)

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Non-interest expense
 
$
155,665

 
$
165,760

 
$
170,385

 
$
147,906

 
$
135,800

Less merger related and repositioning expenses
 
258

 
6,491

 
11,368

 
2,566

 
3,287

Less branch exit and facilities impairment charges
 

 

 

 
155

 

Less contribution to MB Financial Charitable Foundation
 

 

 
4,000

 

 

Less increase in market value of assets held in trust for deferred compensation
 
961

 
141

 
711

 
480

 
8

Non-interest expense - as adjusted
 
$
154,446

 
$
159,128

 
$
154,306

 
$
144,705

 
$
132,505

 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
143,043

 
$
145,214

 
$
130,771

 
$
122,602

 
$
119,304

Tax equivalent adjustment
 
6,921

 
7,090

 
7,122

 
7,208

 
7,195

Net interest income on a fully tax equivalent basis
 
149,964

 
152,304

 
137,893

 
129,810

 
126,499

Plus non-interest income
 
91,773

 
92,823

 
108,387

 
92,000

 
81,693

Plus tax equivalent adjustment on the increase in cash surrender value of life insurance
 
694

 
709

 
568

 
458

 
460

Less net gain on investment securities
 
231

 
178

 

 
269

 

Less net (loss) gain on disposal of other assets
 
(123
)
 
(749
)
 
5

 
(2
)
 
(48
)
Less increase in market value of assets held in trust for deferred compensation
 
961

 
141

 
711

 
480

 
8

Non-interest income - as adjusted
 
91,398

 
93,962

 
108,239

 
91,711

 
82,193

Total revenue - as adjusted and on a fully tax equivalent basis
 
$
241,362

 
$
246,266

 
$
246,132

 
$
221,521

 
$
208,692

Efficiency ratio
 
63.99
%
 
64.62
%
 
62.69
%
 
65.32
%
 
63.49
%
Efficiency ratio (without adjustments)
 
66.29
%
 
69.64
%
 
71.24
%
 
68.92
%
 
67.56
%

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

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Non-interest expense - as adjusted
 
$
154,446

 
$
159,128

 
$
154,306

 
$
144,705

 
$
132,505

Less non-interest income - as adjusted
 
91,398

 
93,962

 
108,239

 
91,711

 
82,193

Net non-interest expense - as adjusted
 
$
63,048

 
$
65,166

 
$
46,067

 
$
52,994

 
$
50,312

Average assets
 
$
19,002,982

 
$
19,192,747

 
$
17,248,431

 
$
15,740,658

 
$
15,487,565

Annualized net non-interest expense to average assets
 
1.35
%
 
1.35
%
 
1.06
%
 
1.35
%
 
1.31
%
Annualized net non-interest expense to average assets (without adjustments)
 
1.36
%
 
1.51
%
 
1.43
%
 
1.43
%
 
1.41
%

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

 
 
1Q17
 
4Q16
 
3Q16
 
2Q16
 
1Q16
Non-interest income - as adjusted
 
$
91,398

 
$
93,962

 
$
108,239

 
$
91,711

 
$
82,193

Total revenue - as adjusted and on a fully tax equivalent basis
 
$
241,362

 
$
246,266

 
$
246,132

 
$
221,521

 
$
208,692

Core non-interest income to revenues ratio
 
37.87
%
 
38.15
%
 
43.98
%
 
41.40
%
 
39.38
%
Non-interest income to revenues ratio (without adjustments)
 
39.08
%
 
39.00
%
 
45.32
%
 
42.87
%
 
40.64
%



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