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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 24, 2018

 
 
 
 
 
MB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
Maryland
 
001-36599
 
36-4460265
(State or other jurisdiction of incorporation)
 
(Commission File No.)
 
(IRS Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
800 West Madison Street, Chicago, Illinois 60607
(Address of principal executive offices) (Zip Code)
 
 
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code:  (888) 422-6562
 
 
 
 
 
 
 
 
 
 
N/A
(Former name or former address, if changed since last report)
 
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ] 









Item 2.02 Results of Operations and Financial Condition

On April 24, 2018, MB Financial, Inc. issued a release containing its first quarter 2018 results of operations.   A copy of the release, including unaudited financial information contained therein, is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.

Item 7.01. Regulation FD Disclosure
Set forth as Exhibit 99.2 to this Current Report on Form 8-K are investor presentation materials of the Company.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits
Exhibit 99.1 Release of MB Financial, Inc.
Exhibit 99.2 Investor Presentation Materials of MB Financial, Inc.
 









SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
MB FINANCIAL, INC.
 
 
 
 
 
 
Date:
April 24, 2018
By:
/s/Randall T. Conte
 
 
 
 
Randall T. Conte
 
 
 
 
Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 








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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit




EXHIBIT 99.1
                                    
393146698_mbfilogoblacka07.jpg
1Q18



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


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

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

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

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

 
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Net income - as reported
 
$
56,757

 
$
144,194

 
$
60,843

 
$
44,466

 
$
54,537

Non-core items, net of tax (1)
 
614

 
(96,814
)
 
1,942

 
3,292

 
(1,358
)
Operating earnings
 
57,371

 
47,380

 
62,785

 
47,758

 
53,179

Dividends on preferred shares
 
3,100

 
2,000

 
2,002

 
2,002

 
2,003

Operating earnings available to common stockholders
 
$
54,271

 
$
45,380

 
$
60,783

 
$
45,756

 
$
51,176

Diluted earnings per common share - as reported (2) (3)
 
$
0.81

 
$
1.67

 
$
0.69

 
$
0.50

 
$
0.62

Impact of return from preferred stockholders due to redemption (2)
 
(0.18
)
 

 

 

 

Impact of non-core items, net of tax
 
0.01

 
(1.14
)
 
0.03

 
0.04

 
(0.02
)
Diluted operating earnings per common share
 
$
0.64

 
$
0.53

 
$
0.72

 
$
0.54

 
$
0.60

(1) 
Non-core items represent the difference between non-core non-interest income and non-core non-interest expense net of tax. See "Non-GAAP Financial Information" section for details on non-core items.
(2) 
The $0.81 diluted earnings per common share in the first quarter of 2018 were positively impacted by a $15.3 million, or $0.18 per common share, return from preferred stockholders due to the redemption of our 8% Series A non-cumulative perpetual preferred stock. The $15.3 million represents the excess carrying amount over the redemption price of the Series A preferred stock.
(3) 
The $1.67 diluted earnings per common share in the fourth quarter of 2018 were positively impacted by a $104.2 million, or $1.23 per common share, tax benefit due to the enactment of the Tax Cuts and Jobs Act of 2017.






Key Items (compared to 4Q17)
Operating Earnings
Operating earnings increased by $10.0 million, or 21.1%, to $57.4 million compared to the prior quarter. This increase resulted mostly from the following items (net of tax): an increase of $1.9 million in earnings from investments in Small Business Investment Companies ("SBICs") and an $8.0 million decrease in income tax expense due to the decrease in the effective tax rate resulting from the Tax Cuts and Jobs Act ("TCJ Act"). These items were partly offset by a $2.8 million, net of tax, increase in provision for credit losses.
Diluted operating earnings per common share were $0.64 compared to $0.53 in the prior quarter.
Loans
Loan balances, excluding purchased credit-impaired loans, decreased $21.3 million (-0.2%, or -0.6%, annualized).
Average loan balances, excluding purchased credit-impaired loans, increased $143.6 million (+1.1%, or +4.3% annualized) to $13.8 billion due to increases in commercial and construction loans.
Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 16 basis points to 4.33% from 4.17% in the prior quarter as a result of increases in short-term interest rates (prime rate and LIBOR).
Deposits
Low-cost deposits declined $30.5 million in the quarter (-0.2%, or -1.0% annualized).
Average low-cost deposits decreased $94.4 million (-0.8%, or -3.1% annualized) to $12.4 billion due to normal seasonal balance fluctuations.
Average cost of total deposits increased five basis points to 0.41%.
Net interest margin
Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased six basis points in the quarter to 3.55%. This increase was due to higher loan yields partly offset by increased funding costs and a lower tax benefit on municipal investment securities and tax exempt loans as a result of the TCJ Act (six basis points).
Average interest earning assets decreased $290.2 million mostly due to (1) a seasonal reduction in deposit balances and (2) a reduction in cash caused by redemption of all $100 million of our 8% Series A non-cumulative perpetual preferred stock and $20 million of higher-cost junior subordinated debt.
Average cost of funds increased seven basis points to 0.58% due to higher rates paid on interest bearing liabilities partly offset by a favorable shift in liability mix.
 
Operating Segments (compared to 4Q17)
Banking
Operating earnings were $49.1 million, an increase of $5.4 million, or 12.3%, compared to the prior quarter.
This increase was due to a decrease in non-interest expenses, stronger earnings from investments in SBICs, and lower income tax expense, partly offset by an increase in provision for credit losses.

Leasing
Operating earnings were $8.6 million, an increase of $4.1 million, or 92.0%, compared to the prior quarter.
Operating earnings for the quarter increased due to higher lease financing revenues, lower provision for credit losses, and a lower effective tax rate.

Mortgage Banking
Operating loss was $295 thousand compared to an operating loss of $815 thousand in the prior quarter.
On April 12, 2018, we announced the discontinuation of our national mortgage origination business, which includes all originations outside of the Company's consumer banking footprint in the Chicagoland area. See "Operating Segments - Mortgage Banking Segment" section for additional details.

Guidance on Selected Financial Items

We expect:

for the full year 2018, outstanding loans to grow in the mid to high single digits (percent) from balances at December 31, 2017;
for the second quarter of 2018, net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, to be at least 3.60%;
non-interest expense for the full year 2018 to grow in the low single digits (percent) from the fourth quarter of 2017, excluding commissions and expenses related to the discontinuation of our national mortgage origination business; and
our effective tax rate to be approximately 24% in 2018.


2





Operating Segments

The Company currently has three reportable operating segments: Banking, Leasing, and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering, and fee business activities. Our Leasing Segment generates revenues through lease originations and related services. As a result of the discontinuation of our national mortgage origination business, we expect to stop operating the mortgage business as a defined segment with separate Mortgage Banking Segment reporting prior to the fourth quarter of 2018. The financial information below was adjusted for funds transfer pricing and internal allocations of certain expenses and excludes non-core non-interest income and expense.

Banking Segment

The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Net interest income
$
140,471

 
$
140,180

 
$
142,888

 
$
135,982

 
$
131,449

Provision for credit losses
7,579

 
501

 
3,637

 
8,890

 
3,527

Net interest income after provision for credit losses
132,892

 
139,679

 
139,251

 
127,092

 
127,922

Non-interest income:
 
 


 
 
 
 
 
 
   Lease financing revenue, net
1,535

 
1,795

 
1,097

 
1,326

 
1,545

Treasury management fees
15,156

 
15,234

 
14,508

 
14,499

 
14,689

   Wealth management fees
9,121

 
9,024

 
8,702

 
8,498

 
8,520

   Card fees
4,787

 
5,032

 
4,585

 
4,413

 
4,566

Capital markets and international banking fees
2,998

 
3,999

 
4,870

 
3,586

 
3,253

   Other non-interest income
10,675

 
9,359

 
10,940

 
9,655

 
9,306

Total non-interest income
44,272

 
44,443

 
44,702

 
41,977

 
41,879

Non-interest expense:


 


 


 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
Salaries
44,821

 
44,782

 
45,096

 
44,019

 
42,120

Commissions
953

 
1,119

 
877

 
1,121

 
1,107

Bonus and stock-based compensation
10,610

 
10,418

 
10,032

 
10,603

 
10,619

Other salaries and benefits (1)
15,207

 
14,119

 
14,604

 
12,698

 
13,705

Total salaries and employee benefits expense
71,591

 
70,438

 
70,609

 
68,441

 
67,551

   Occupancy and equipment expense
14,089

 
13,769

 
12,372

 
12,298

 
12,117

Computer services and telecommunication expense
9,741

 
9,664

 
8,386

 
7,976

 
7,514

   Professional and legal expense
1,359

 
1,967

 
1,239

 
1,455

 
1,600

   Other operating expenses
16,745

 
18,817

 
16,757

 
18,793

 
18,255

Total non-interest expense
113,525

 
114,655

 
109,363

 
108,963

 
107,037

Income before income taxes
63,639

 
69,467

 
74,590

 
60,106

 
62,764

Income tax expense
14,539

 
25,734

 
20,064

 
18,915

 
17,168

Operating earnings
$
49,100

 
$
43,733

 
$
54,526

 
$
41,191

 
$
45,596

Total assets (period end)
$
16,582,585

 
$
16,448,960

 
$
16,406,714

 
$
16,320,111

 
$
16,009,339


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

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

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

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

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

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

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

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

3





Leasing Segment

The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Net interest income
$
2,482

 
$
2,602

 
$
2,686

 
$
2,345

 
$
2,269

Provision for credit losses
(24
)
 
3,184

 
399

 
410

 
(135
)
Net interest income after provision for credit losses
2,506

 
(582
)
 
2,287

 
1,935

 
2,404

Non-interest income:
 
 
 
 
 
 
 
 
 
   Lease financing revenue, net
23,938

 
22,576

 
22,534

 
17,474

 
20,253

   Other non-interest income
899

 
1,168

 
26

 
676

 
1,173

Total non-interest income
24,837

 
23,744

 
22,560

 
18,150

 
21,426

Non-interest expense:


 
 
 
 
 
 
 
 
Salaries and employee benefits expense:


 
 
 
 
 
 
 
 
Salaries
5,917

 
5,361

 
5,029

 
4,623

 
4,810

Commissions
2,520

 
2,777

 
2,328

 
2,115

 
2,572

Bonus and stock-based compensation
974

 
1,761

 
1,228

 
1,045

 
955

Other salaries and benefits (1)
1,809

 
1,329

 
1,572

 
1,523

 
1,581

Total salaries and employee benefits expense
11,220

 
11,228

 
10,157

 
9,306

 
9,918

   Occupancy and equipment expense
1,167

 
1,090

 
1,070

 
1,011

 
944

Computer services and telecommunication expense
505

 
595

 
456

 
431

 
458

   Professional and legal expense
373

 
457

 
403

 
392

 
399

   Other operating expenses
2,212

 
2,101

 
2,412

 
2,266

 
2,088

Total non-interest expense
15,477

 
15,471

 
14,498

 
13,406

 
13,807

Income before income taxes
11,866

 
7,691

 
10,349

 
6,679

 
10,023

Income tax expense
3,300

 
3,229

 
4,307

 
2,525

 
4,119

Operating earnings
$
8,566

 
$
4,462

 
$
6,042

 
$
4,154

 
$
5,904

Total assets (period end)
$
1,360,117

 
$
1,403,690

 
$
1,307,459

 
$
1,275,386

 
$
1,173,558


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

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


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

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

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

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



4





Mortgage Banking Segment

The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Net interest income
$
10,428

 
$
10,611

 
$
11,373

 
$
10,667

 
$
9,325

Provision for credit losses
(47
)
 
(42
)
 
481

 
399

 
342

Net interest income after provision for credit losses
10,475

 
10,653

 
10,892

 
10,268

 
8,983

Non-interest income:
 
 
 
 
 
 
 
 
 
   Mortgage origination revenue (1)
17,854

 
18,146

 
22,647

 
23,936

 
22,142

   Mortgage servicing revenue
7,193

 
4,228

 
5,595

 
6,216

 
6,314

   Other non-interest income
1

 

 
1

 

 

Total non-interest income
25,048

 
22,374

 
28,243

 
30,152

 
28,456

Non-interest expense:
 
 
 
 
 
 
 
 
 
Salaries and employee benefits expense:
 
 
 
 
 
 
 
 
 
Salaries
13,849

 
12,322

 
11,867

 
11,247

 
11,881

Commissions
3,962

 
4,407

 
6,001

 
6,494

 
4,932

Bonus and stock-based compensation
471

 
1,153

 
651

 
905

 
716

Other salaries and benefits (2)
4,924

 
4,705

 
4,746

 
4,952

 
4,978

Total salaries and employee benefits expense
23,206

 
22,587

 
23,265

 
23,598

 
22,507

   Occupancy and equipment expense
2,138

 
1,868

 
1,940

 
1,969

 
1,979

Computer services and telecommunication expense
1,673

 
1,779

 
1,734

 
1,701

 
1,663

   Professional and legal expense
162

 
490

 
467

 
600

 
595

   Other operating expenses (1)
8,749

 
7,673

 
8,043

 
8,539

 
7,915

Total non-interest expense
35,928

 
34,397

 
35,449

 
36,407

 
34,659

Income (loss) before income taxes
(405
)
 
(1,370
)
 
3,686

 
4,013

 
2,780

Income tax (benefit) expense
(110
)
 
(555
)
 
1,469

 
1,600

 
1,101

Operating (loss) earnings
$
(295
)
 
$
(815
)
 
$
2,217

 
$
2,413

 
$
1,679

Total assets (period end)
$
2,224,821

 
$
2,234,290

 
$
2,402,362

 
$
2,369,560

 
$
1,963,165


(1) 
2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses.
(2) 
Includes health insurance, payroll taxes, 401(k) and profit sharing contributions, overtime, and temporary help expenses.

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

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

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

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

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

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

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

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

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

5





Additional Mortgage Banking Segment Data

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

 
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Mortgage origination revenue:
 
 
 
 
 
 
 
 
 
 
Gain on sale revenue, net
 
$
11,652

 
$
13,376

 
$
17,098

 
$
18,000

 
$
15,607

Origination fees (1)
 
6,202

 
4,770

 
5,549

 
5,936

 
6,535

Total mortgage origination revenue
 
$
17,854

 
$
18,146

 
$
22,647

 
$
23,936

 
$
22,142

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing revenue:
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
$
16,068

 
$
14,802

 
$
14,531

 
$
14,065

 
$
13,735

Amortization/prepayment of mortgage servicing rights (2)
 
(8,015
)
 
(9,037
)
 
(8,399
)
 
(7,822
)
 
(6,743
)
Fair value changes of mortgage servicing rights
 
10,890

 
7,231

 
4,475

 
(6,195
)
 
4,083

Economic hedge activity, net
 
(11,750
)
 
(8,768
)
 
(5,012
)
 
6,168

 
(4,761
)
Fair value changes of mortgage servicing rights net of economic hedge activity (3)
 
(860
)
 
(1,537
)
 
(537
)
 
(27
)
 
(678
)
Total mortgage servicing revenue
 
$
7,193

 
$
4,228

 
$
5,595

 
$
6,216

 
$
6,314

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing rights, at fair value:
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
276,279

 
$
261,446

 
$
249,688

 
$
251,498

 
$
238,011

Originations/purchases
 
12,407

 
16,639

 
15,682

 
12,207

 
16,147

Amortization/prepayment (2)
 
(8,015
)
 
(9,037
)
 
(8,399
)
 
(7,822
)
 
(6,743
)
Fair value changes
 
10,890

 
7,231

 
4,475

 
(6,195
)
 
4,083

Ending balance
 
$
291,561

 
$
276,279

 
$
261,446

 
$
249,688

 
$
251,498

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing book (unpaid principal balance of loans serviced for others)
 
$
22,362,896

 
$
21,993,128

 
$
21,380,397

 
$
20,823,016

 
$
20,450,217

Mortgage servicing rights valuation
 
1.30
%
 
1.26
%
 
1.22
%
 
1.20
%
 
1.23
%

(1) 
2017 amounts were revised as certain costs to originate mortgage loans were reclassified from mortgage origination revenue to other operating expenses.
(2) 
Changes due to collection or realization of expected cash flows.
(3) 
Approximately $800 thousand of the fourth quarter 2017 fair value change was due to an increase in delinquencies in the fourth quarter of 2017 resulting in higher anticipated collection costs and lower mortgage servicing rights asset value.

6





FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the possibility that our actual results on selected financial items for which we have provided guidance in this document will be materially different from such guidance; (2) the possibility that the actual changes in net interest income from the Mortgage Banking Segment, mortgage origination revenue from the Mortgage Banking Segment, mortgage servicing revenue from the Mortgage Banking Segment, non-interest expense from the Mortgage Banking Segment, and our pre-tax income resulting from the discontinuation of our national mortgage origination business will be materially different from the estimated changes provided in this document; (3) the risk that funds obtained from capital raising activities will not be utilized efficiently or effectively; (4) expected revenues, cost savings, synergies, and other benefits from our merger and acquisition activities might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (5) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (6) the quality and composition of our securities portfolio; (7) competitive pressures among depository institutions; (8) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (9) the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced, both before and after the discontinuation of our national mortgage origination business, if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (10) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (11) fluctuations in real estate values; (12) results of examinations of us and our bank subsidiary by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses, write-down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; (13) our ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (14) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (15) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (16) our ability to access cost-effective funding; (17) changes in financial markets; (18) changes in economic conditions in general and in the Chicago metropolitan area in particular; (19) the costs, effects, and outcomes of litigation; (20) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act, changes in the interpretation and/or application of laws and regulations by regulatory authorities, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws, including but not limited to the TCJ Act, or interpretations thereof by taxing authorities; (21) changes in accounting principles, policies or guidelines; (22) our future acquisitions of other depository institutions or lines of business; and (23) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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





TABLES TO FOLLOW

7





CONSOLIDATED BALANCE SHEETS (Unaudited)

 (Dollars in thousands)
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
ASSETS
 
 

 
 

 
 

 
 

 
 

Cash and due from banks
 
$
332,234

 
$
397,880

 
$
361,080

 
$
348,550

 
$
368,078

Interest earning deposits with banks
 
50,624

 
181,341

 
82,636

 
115,707

 
102,328

Total cash and cash equivalents
 
382,858

 
579,221

 
443,716

 
464,257

 
470,406

Investment securities:
 
 
 
 
 
 
 
 
 
 
Securities available for sale, at fair value
 
1,679,011

 
1,408,326

 
1,497,543

 
1,567,071

 
1,657,950

Securities held to maturity, at amortized cost
 
933,319

 
959,082

 
994,238

 
1,022,912

 
1,056,008

Marketable equity securities, at fair value
 
11,124

 

 

 

 

Non-marketable securities - FHLB and FRB Stock
 
118,955

 
114,111

 
152,345

 
160,204

 
144,427

Total investment securities
 
2,742,409

 
2,481,519

 
2,644,126

 
2,750,187

 
2,858,385

Loans held for sale
 
561,549

 
548,578

 
722,754

 
718,916

 
493,261

Loans:
 
 
 
 
 
 
 
 
 
 
Total loans, excluding purchased credit-impaired loans
 
13,824,990

 
13,846,318

 
13,753,459

 
13,465,064

 
12,789,667

Purchased credit-impaired loans
 
109,990

 
119,744

 
131,919

 
149,077

 
168,814

Total loans
 
13,934,980

 
13,966,062

 
13,885,378

 
13,614,141

 
12,958,481

Less: Allowance for loan and lease losses
 
161,712

 
157,710

 
159,128

 
154,033

 
144,170

Net loans
 
13,773,268

 
13,808,352

 
13,726,250

 
13,460,108

 
12,814,311

Lease investments, net
 
408,798

 
409,051

 
371,541

 
346,036

 
315,523

Premises and equipment, net
 
281,791

 
286,690

 
286,482

 
288,148

 
290,767

Cash surrender value of life insurance
 
204,710

 
203,602

 
204,855

 
203,534

 
202,233

Goodwill
 
1,003,548

 
1,003,548

 
999,925

 
999,925

 
999,925

Other intangibles
 
52,864

 
54,766

 
56,745

 
58,783

 
60,869

Mortgage servicing rights, at fair value
 
291,561

 
276,279

 
261,446

 
249,688

 
251,498

Other real estate owned, net
 
10,528

 
9,736

 
13,020

 
11,063

 
14,706

Other real estate owned related to FDIC transactions
 
4,185

 
4,788

 
4,817

 
4,849

 
3,864

Other assets
 
449,454

 
420,810

 
380,858

 
409,563

 
370,314

Total assets
 
$
20,167,523

 
$
20,086,940

 
$
20,116,535

 
$
19,965,057

 
$
19,146,062

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Liabilities
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 

 
 

 
 

 
 

 
 

Non-interest bearing
 
$
6,385,149

 
$
6,381,512

 
$
6,101,159

 
$
6,388,292

 
$
6,211,173

Interest bearing
 
8,585,444

 
8,576,866

 
8,313,985

 
7,873,527

 
7,788,210

Total deposits
 
14,970,593

 
14,958,378

 
14,415,144

 
14,261,819

 
13,999,383

Short-term borrowings
 
717,679

 
861,039

 
1,865,415

 
1,993,358

 
1,550,628

Long-term borrowings
 
851,221

 
505,158

 
405,715

 
330,160

 
315,618

Junior subordinated notes issued to capital trusts
 
194,304

 
211,494

 
211,289

 
211,085

 
210,769

Accrued expenses and other liabilities
 
499,379

 
541,048

 
526,880

 
520,355

 
453,236

Total liabilities
 
17,233,176

 
17,077,117

 
17,424,443

 
17,316,777

 
16,529,634

Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
194,719

 
309,999

 
115,280

 
115,572

 
115,572

Common stock
 
860

 
858

 
858

 
857

 
857

Additional paid-in capital
 
1,692,650

 
1,691,007

 
1,685,971

 
1,681,252

 
1,675,956

Retained earnings
 
1,112,323

 
1,065,303

 
940,948

 
899,930

 
875,295

Accumulated other comprehensive (loss) income
 
(3,719
)
 
3,584

 
9,772

 
10,520

 
8,415

Treasury stock
 
(62,486
)
 
(60,928
)
 
(60,737
)
 
(59,851
)
 
(59,667
)
Total stockholders' equity
 
2,934,347

 
3,009,823

 
2,692,092

 
2,648,280

 
2,616,428

Total liabilities and stockholders' equity
 
$
20,167,523

 
$
20,086,940

 
$
20,116,535

 
$
19,965,057

 
$
19,146,062



8





CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Interest income:
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
   Taxable
 
$
157,119

 
$
154,631

 
$
155,440

 
$
143,426

 
$
133,737

   Nontaxable
 
2,271

 
2,362

 
2,632

 
2,791

 
2,880

Investment securities:
 
 
 
 
 
 
 
 
 
 
   Taxable
 
7,934

 
7,696

 
8,440

 
8,717

 
9,122

   Nontaxable
 
9,476

 
9,677

 
9,731

 
9,837

 
9,973

Other interest earning accounts and Federal funds sold
 
131

 
600

 
327

 
228

 
199

Total interest income
 
176,931

 
174,966

 
176,570

 
164,999

 
155,911

Interest expense:
 

 
 
 
 
 
 
 
 
   Deposits
 
15,032

 
13,552

 
10,865

 
8,793

 
7,475

   Short-term borrowings
 
2,516

 
3,257

 
5,148

 
3,912

 
2,380

   Long-term borrowings and junior subordinated notes
 
6,002

 
4,764

 
3,610

 
3,300

 
3,013

Total interest expense
 
23,550

 
21,573

 
19,623

 
16,005

 
12,868

Net interest income
 
153,381

 
153,393

 
156,947

 
148,994

 
143,043

Provision for credit losses
 
7,508

 
3,643

 
4,517

 
9,699

 
3,734

Net interest income after provision for credit losses
 
145,873

 
149,750

 
152,430

 
139,295

 
139,309

Non-interest income:
 


 
 
 
 

 
 

 
 

Mortgage banking revenue
 
25,047

 
22,374

 
28,242

 
30,152

 
28,456

Lease financing revenue, net
 
24,710

 
23,620

 
23,148

 
18,401

 
21,418

Treasury management fees
 
15,156

 
15,234

 
14,508

 
14,499

 
14,689

Wealth management fees
 
9,121

 
9,024

 
8,702

 
8,498

 
8,520

Card fees
 
4,787

 
5,032

 
4,585

 
4,413

 
4,566

Capital markets and international banking fees
 
2,998

 
3,999

 
4,870

 
3,586

 
3,253

Consumer and other deposit service fees
 
2,912

 
3,261

 
3,424

 
3,285

 
3,363

Brokerage fees
 
864

 
942

 
1,004

 
1,250

 
1,125

Loan service fees
 
2,245

 
2,197

 
2,114

 
2,037

 
1,969

Increase in cash surrender value of life insurance
 
1,108

 
1,511

 
1,321

 
1,301

 
1,288

Net (loss) gain on investment securities
 
(174
)
 
111

 
83

 
137

 
231

Net loss on disposal of other assets
 
(357
)
 
(2,016
)
 
(180
)
 
(4
)
 
(123
)
Other operating income
 
4,385

 
4,534

 
4,110

 
3,615

 
3,695

Total non-interest income
 
92,802

 
89,823

 
95,931

 
91,170

 
92,450

Non-interest expense:
 
 
 
 
 
 

 
 

 
 

Salaries and employee benefits expense
 
106,514

 
109,247

 
105,815

 
102,566

 
101,551

Occupancy and equipment expense
 
17,429

 
16,846

 
15,382

 
15,284

 
15,044

Computer services and telecommunication expense
 
11,156

 
11,304

 
10,062

 
9,785

 
9,440

Advertising and marketing expense
 
3,863

 
3,271

 
2,558

 
3,245

 
3,161

Professional and legal expense
 
1,898

 
2,957

 
2,109

 
2,450

 
2,691

Other intangible amortization expense
 
1,902

 
1,979

 
2,038

 
2,086

 
2,090

Branch exit and facilities impairment charges
 

 
(327
)
 
2,773

 
6,589

 
(682
)
Net loss (gain) recognized on other real estate owned and other related expense
 
47

 
(104
)
 
(86
)
 
690

 
844

Loss on extinguishment of debt
 
3,136

 

 

 

 

Other operating expenses
 
21,941

 
30,655

 
22,310

 
23,517

 
22,203

Total non-interest expense
 
167,886

 
175,828

 
162,961

 
166,212

 
156,342

Income before income taxes
 
70,789

 
63,745

 
85,400

 
64,253

 
75,417

Income tax expense (benefit)
 
14,032

 
(80,449
)
 
24,557

 
19,787

 
20,880

Net income
 
56,757

 
144,194

 
60,843

 
44,466

 
54,537

Dividends on preferred shares
 
3,100

 
2,000

 
2,002

 
2,002

 
2,003

Return from preferred stockholders due to redemption
 
(15,280
)
 

 

 

 

Net income available to common stockholders
 
$
68,937

 
$
142,194

 
$
58,841

 
$
42,464

 
$
52,534



9





 
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Common share data:
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.82

 
$
1.69

 
$
0.70

 
$
0.51

 
$
0.63

Diluted earnings per common share
 
0.81

 
1.67

 
0.69

 
0.50

 
0.62

Weighted average common shares outstanding for basic earnings per common share
 
84,065,681

 
83,946,637

 
83,891,175

 
83,842,963

 
83,662,430

Weighted average common shares outstanding for diluted earnings per common share
 
84,896,401

 
84,964,759

 
84,779,797

 
84,767,414

 
84,778,130

Common shares outstanding (at end of period)
 
84,052,547

 
83,917,892

 
83,887,097

 
83,869,517

 
83,832,648


SELECTED FINANCIAL DATA
 
 
1Q18
 
4Q17
 
3Q17
 
2Q17
 
1Q17
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
Annualized return on average assets
 
1.15
%
 
2.84
%
 
1.21
 %
 
0.92
 %
 
1.16
 %
Annualized operating return on average assets (1) 
 
1.17

 
0.93

 
1.25

 
0.99

 
1.13

Annualized return on average common equity
 
10.32

 
21.87

 
9.17

 
6.78

 
8.62

Annualized operating return on average common equity (1)
 
8.13

 
6.98

 
9.47

 
7.31

 
8.39

Annualized cash return on average tangible common equity (2)
 
17.15

 
36.90

 
15.81

 
11.94

 
15.27

Annualized cash operating return on average tangible common equity (3)
 
13.58

 
12.00

 
16.32

 
12.83

 
14.88

Efficiency ratio (4)
 
65.62

 
65.38

 
61.24

 
64.28

 
64.09

Annualized net non-interest expense to average assets (5)
 
1.43

 
1.44

 
1.25

 
1.40

 
1.35

Core non-interest income to revenues (6)
 
37.45

 
36.18

 
36.91

 
36.77

 
38.04

Net interest margin - fully tax equivalent basis (7)
 
3.67

 
3.63

 
3.76

 
3.71

 
3.69

Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans (8)
 
3.55

 
3.49

 
3.56

 
3.54

 
3.50

Cost of funds (9)
 
0.58

 
0.51

 
0.46

 
0.39

 
0.33

Loans to deposits
 
93.08

 
93.37

 
96.32

 
95.46

 
92.56

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
Non-performing loans (10) to total loans
 
0.44
%
 
0.55
%
 
0.36
 %
 
0.38
 %
 
0.38
 %
Non-performing assets (10) to total assets
 
0.36

 
0.43

 
0.32

 
0.32

 
0.34

Allowance for loan and lease losses to non-performing loans (10)
 
263.72

 
205.33

 
314.39

 
295.07

 
293.02

Allowance for loan and lease losses to total loans
 
1.16

 
1.13

 
1.15

 
1.13

 
1.11

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

 
0.16

 
(0.02
)
 
(0.00
)
 
(0.03
)
Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets (11)
 
9.89
%
 
10.32
%
 
8.68
 %
 
8.51
 %
 
8.71
 %
Tangible common equity to tangible assets (12)
 
8.87

 
8.70

 
8.07

 
7.90

 
8.07

Tangible common equity to risk weighted assets (13)
 
9.85

 
9.71

 
8.99

 
8.90

 
9.07

Total capital to risk-weighted assets (14)
 
13.61

 
14.23

 
11.67

 
11.60

 
11.80

Tier 1 capital to risk-weighted assets (14)
 
10.69

 
11.20

 
9.46

 
9.37

 
9.54

Common equity tier 1 capital to risk-weighted assets (14)
 
9.57

 
9.40

 
8.80

 
8.70

 
8.84

Tier 1 capital to average assets (leverage ratio) (14)
 
9.78

 
10.02

 
8.59

 
8.60

 
8.58

Per Share Data:
 
 
 
 
 
 
 
 
 
 
Book value per common share (15)
 
$
32.59

 
$
32.17

 
$
30.72

 
$
30.20

 
$
29.83

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

 
12.44

 
12.36

 
12.38

 
12.40

Tangible book value per common share (16)
 
$
20.19

 
$
19.73

 
$
18.36

 
$
17.82

 
$
17.43

Cash dividends per common share
 
$
0.24

 
$
0.21

 
$
0.21

 
$
0.21

 
$
0.19


10






(1) 
Annualized operating return on average assets is computed by dividing annualized operating earnings by average total assets. Annualized operating return on average common equity is computed by dividing annualized operating earnings less dividends on preferred shares by average common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.
(2) 
Annualized cash return on average tangible common equity is computed by dividing net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible common equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).
(3) 
Annualized cash operating return on average tangible common equity is computed by dividing annualized cash operating earnings (operating earnings plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.
(4) 
Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(5) 
Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items plus the tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.
(6) 
Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(7) 
Represents net interest income on a fully tax equivalent basis assuming a Federal tax rate of 21% for 2018 and 35% for 2017, as a percentage of average interest earning assets.
(8) 
Represents net interest income on a fully tax equivalent basis assuming a Federal tax rate of 21% for 2018 and 35% for 2017, excluding acquisition accounting discount accretion on bank merger loans as a percentage of average interest earning assets.
(9) 
Equals total interest expense divided by the sum of average interest bearing liabilities and non-interest bearing deposits.
(10) 
Non-performing loans exclude purchased credit-impaired loans and loans held for sale.  Non-performing assets exclude purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.
(11) 
Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(12) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(13) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated.
(14) 
Current quarter ratios are estimated.
(15) 
Equals total ending common stockholders’ equity divided by common shares outstanding.
(16) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.




BALANCE SHEET DETAILS TO FOLLOW


11





INVESTMENT SECURITIES

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

 
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
Fair value
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
22,885

 
$
23,007

 
$
23,146

 
$
23,229

 
$
23,330

States and political subdivisions
 
366,906

 
379,325

 
385,829

 
387,351

 
389,109

Mortgage-backed securities
 
1,251,229

 
924,734

 
962,477

 
1,006,931

 
1,056,529

Corporate bonds
 
37,991

 
70,197

 
115,014

 
138,556

 
178,097

Equity securities (1)
 

 
11,063

 
11,077

 
11,004

 
10,885

Total fair value
 
$
1,679,011

 
$
1,408,326

 
$
1,497,543

 
$
1,567,071

 
$
1,657,950

 
 
 
 
 
 
 
 
 
 
 
Unrealized (loss) gain, net
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
(63
)
 
$
(6
)
 
$
69

 
$
88

 
$
126

States and political subdivisions
 
11,848

 
15,512

 
19,642

 
19,966

 
17,780

Mortgage-backed securities
 
(15,166
)
 
(8,414
)
 
(2,101
)
 
(1,233
)
 
(2,412
)
Corporate bonds
 
(29
)
 
42

 
433

 
608

 
762

Equity securities (1)
 

 
(173
)
 
(100
)
 
(110
)
 
(172
)
Total unrealized (loss) gain, net
 
$
(3,410
)
 
$
6,961

 
$
17,943

 
$
19,319

 
$
16,084