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MB Financial, Inc. Reports Fourth Quarter 2015 Results

CHICAGO, Jan. 22, 2016 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., today announced 2015 fourth quarter net income available to common stockholders of $41.6 million, or $0.56 per diluted common share, compared to $38.3 million, or $0.51 per diluted common share, last quarter and $34.1 million, or $0.45 per diluted common share, in the fourth quarter a year ago. Annual net income available to common stockholders for 2015 was $150.9 million compared to $82.1 million for 2014. Diluted earnings per common share were $2.02 for 2015 compared to $1.31 for 2014.

Highlights Include:

Loan Growth During the Quarter

Loan balances, excluding purchased credit-impaired loans, increased $419.1 million (+4.5%, or +18.0% annualized) during the fourth quarter of 2015 primarily due to growth in commercial-related loans.

Change from 9/30/2015 to
12/31/2015
(Dollars in thousands) 12/31/2015 9/30/2015 Amount Percent
Commercial-related credits:
Commercial loans $3,616,286 $3,440,632 $175,654 5.1%
Commercial loans collateralized by assignment of lease payments (lease loans) 1,779,072 1,693,540 85,532 5.1
Commercial real estate 2,695,676 2,580,009 115,667 4.5
Construction real estate 252,060 255,620 (3,560) (1.4)
Total commercial-related credits 8,343,094 7,969,801 373,293 4.7
Other loans:
Residential real estate 628,169 607,171 20,998 3.5
Indirect vehicle 384,095 345,731 38,364 11.1
Home equity 216,573 223,173 (6,600) (3.0)
Consumer loans 80,661 87,612 (6,951) (7.9)
Total other loans 1,309,498 1,263,687 45,811 3.6
Total loans, excluding purchased credit-impaired 9,652,592 9,233,488 419,104 4.5
Purchased credit-impaired 141,406 155,693 (14,287) (9.2)
Total loans $9,793,998 $9,389,181 $404,817 4.3%

Deposit Growth During the Quarter

  • Non-interest bearing deposits increased $193.1 million (+4.4%, or +17.3% annualized) during the fourth quarter of 2015 and comprised 40% of total deposits at quarter-end.
  • Low cost deposits increased $229.1 million (+2.4%, or +9.6% annualized) in the fourth quarter of 2015 and continued to represent 84% of total deposits at quarter-end.

Change from 9/30/2015 to
12/31/2015
(Dollars in thousands) 12/31/2015 9/30/2015 Amount Percent
Low cost deposits:
Non-interest bearing deposits $4,627,184 $4,434,067 $193,117 4.4%
Money market and NOW 4,144,633 4,129,414 15,219 0.4
Savings 974,555 953,746 20,809 2.2
Total low cost deposits 9,746,372 9,517,227 229,145 2.4
Certificates of deposit:
Certificates of deposit 1,244,292 1,279,842 (35,550) (2.8)
Brokered certificates of deposit 514,551 457,509 57,042 12.5
Total certificates of deposit 1,758,843 1,737,351 21,492 1.2
Total deposits $11,505,215 $11,254,578 $250,637 2.2%

Key Earnings Components as Compared to the Prior Quarter

  • Net interest income on a fully tax equivalent basis increased $6.1 million (+5.0%) to $129.1 million in the fourth quarter of 2015 compared to the prior quarter primarily due to an increase in average loans outstanding.
  • Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, increased seven basis points from the prior quarter to 3.56% due to a favorable mix shift to higher yielding loans.
  • Core non-interest income was $75.1 million compared to $82.8 million in the prior quarter. Mortgage banking revenue decreased $4.2 million as a result of reduced origination fees due to lower loan origination volume. Lease financing revenues decreased $4.1 million due to reduced revenue from the sale of third-party equipment maintenance contracts and lower promotional revenue.
  • Core non-interest expense decreased $3.9 million compared to the prior quarter. Salaries and employee benefits expense declined due to reduced commission expense as a result of lower lease financing and mortgage banking revenues. Salaries and employee benefits expense also decreased due to lower health insurance expense.
  • Merger related and repositioning expenses were impacted by the reversal of an accrual for a potential contingent loss we assumed in connection with the Taylor Capital merger that we currently believe is no longer required.

The following table presents the calculation of operating earnings available to common stockholders (in thousands):

Year Ended
December 31,
4Q15 3Q15 4Q14 2015 2014
Net income - as reported $43,607 $40,278 $36,125 $158,948 $86,101
Less non-core items:
Net (loss) gain on investment securities (3) 371 491 (176) (2,525)
Net gain (loss) on sale of other assets 1 3,476 (2) 3,452
Gain on extinguishment of debt 1,895
Merger related and repositioning expenses 4,186 (389) (6,494) (5,506) (34,823)
Prepayment fees on interest bearing liabilities (85)
Loss on low to moderate income real estate investment (2,124)
Contingent consideration expense - Celtic acquisition (10,600)
Contribution to MB Financial Charitable Foundation (3,250) (3,250)
Total non-core items 4,183 (17) (5,777) (5,769) (47,975)
Income tax expense on non-core items 1,140 (6) (2,314) (2,809) (13,730)
Non-core items, net of tax 3,043 (11) (3,463) (2,960) (34,245)
Operating earnings 40,564 40,289 39,588 161,908 120,346
Dividends on preferred shares 2,000 2,000 2,000 8,000 4,000
Operating earnings available to common stockholders $38,564 $38,289 $37,588 $153,908 $116,346
Diluted operating earnings per common share $0.52 $0.51 $0.50 $2.06 $1.86
Weighted average common shares outstanding for diluted operating earnings per common share 73,953,165 75,029,827 75,130,331 74,849,030 62,573,406

Credit Quality Metrics

  • Legacy provision for credit losses (not related to loans acquired in the Taylor Capital merger) in the fourth quarter of 2015 was $6.8 million as compared to a provision of $1.2 million in the third quarter of 2015. This increase was driven by strong loan growth in the quarter. During the fourth quarter of 2015, no provision for credit losses was recorded for the Taylor Capital loans compared to a provision of $4.1 million in the third quarter of 2015. No provision was recorded in the current period due to better than expected credit performance and favorable changes in portfolio mix and loan risk ratings. Total provision for credit losses was $6.8 million in the fourth quarter of 2015 compared to $5.4 million in the third quarter of 2015.
  • Non-performing loans increased by $13.9 million and potential problem loans increased by $17.0 million from September 30, 2015, while purchased credit-impaired loans decreased by $14.3 million.
  • The ratio of non-performing loans to total loans was 1.13% at December 31, 2015 and 1.03% at September 30, 2015.
  • The ratio of allowance for loan and lease losses to non-performing loans was 116.02% at December 31, 2015 compared to 129.04% at September 30, 2015.

Acquisitions

  • On December 31, 2015, we completed the previously announced acquisition of MSA Holdings, LLC, ("MSA") the parent company of MainStreet Investment Advisors, LLC and Cambium Asset Management, LLC. We recorded $13.5 million in goodwill and $8.8 million in other intangibles as a result of this acquisition.
  • In November 2015, we announced the pending acquisition of American Chartered Bancorp, Inc. ("American Chartered"), the parent company of American Chartered Bank. American Chartered operates 15 banking offices in the Chicago area and, as of September 30, 2015, had approximately $2.8 billion in total assets, $2.0 billion in loans, and $2.2 billion in deposits, of which approximately half were non-interest bearing. The transaction, which is subject to customary regulatory approvals and the approval of American Chartered stockholders, is expected to close around June 30, 2016.

RESULTS OF OPERATIONS

Fourth Quarter and Annual Results

Net Interest Income

Change
from
3Q15 to 4Q15
Change
from
4Q14 to 4Q15
Year Ended Change from
2014 to 2015
December 31,
4Q15 3Q15 4Q14 2015 2014
(dollars in thousands)
Net interest income - fully tax equivalent $129,076 $122,988 +5.0% $126,057 +2.4% $492,686 $374,414 +31.6%
Net interest margin - fully tax equivalent 3.86% 3.73% +0.13 4.01% -0.15 3.84% 3.77% +0.07
Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on Taylor Capital loans 3.56% 3.49% +0.07 3.63% -0.07 3.56% 3.59% -0.03

Reconciliations of net interest income - fully tax equivalent to net interest income, as reported, net interest margin - fully tax equivalent to net interest margin and net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on Taylor Capital loans to net interest margin are set forth in the tables in the "Net Interest Margin" section.

Net interest income on a fully tax equivalent basis increased $6.1 million in the fourth quarter of 2015 compared to the prior quarter primarily due to growth in average loan balances.

Our net interest margin on a fully tax equivalent basis, excluding accretion of the acquisition accounting discount recorded on loans acquired in the Taylor Capital merger, increased seven basis points to 3.56% for the fourth quarter of 2015 compared to 3.49% for the prior quarter primarily due to a favorable mix shift to higher yielding loans.

Our net interest margin on a fully tax equivalent basis, excluding accretion of the acquisition accounting discount recorded on loans acquired in the Taylor Capital merger, decreased seven basis points to 3.56% for the fourth quarter of 2015 compared to 3.63% for the fourth quarter of 2014 primarily due to the decrease in average yields earned on loans (excluding accretion).

Net interest income on a fully tax equivalent basis increased in 2015 compared to the prior year primarily due to an increase in interest earning assets (loans and investment securities) as a result of the Taylor Capital merger. Our net interest margin on a fully tax equivalent basis, excluding accretion of the acquisition accounting discount recorded on loans acquired in the Taylor Capital merger, decreased three basis points to 3.56% for 2015 compared to 3.59% for the prior year. This decrease was primarily due to a decrease in average yields earned on loans (excluding accretion).

See the supplemental net interest margin tables for further detail.

Non-interest Income (in thousands):

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Core non-interest income:
Key fee initiatives:
Lease financing, net $15,937 $20,000 $15,564 $25,080 $18,542 $76,581 $64,310
Mortgage banking revenue 26,542 30,692 35,648 24,544 29,080 117,426 46,149
Commercial deposit and treasury management fees 11,711 11,472 11,062 11,038 10,720 45,283 34,315
Trust and asset management fees 6,077 6,002 5,752 5,714 5,515 23,545 21,839
Card fees 3,651 3,335 4,409 3,927 3,900 15,322 13,741
Capital markets and international banking service fees 2,355 2,357 1,508 1,928 1,648 8,148 5,458
Total key fee initiatives 66,273 73,858 73,943 72,231 69,405 286,305 185,812
Consumer and other deposit service fees 3,440 3,499 3,260 3,083 3,335 13,282 12,788
Brokerage fees 1,252 1,281 1,543 1,678 1,350 5,754 5,176
Loan service fees 1,890 1,531 1,353 1,485 1,864 6,259 4,814
Increase in cash surrender value of life insurance 864 852 836 839 865 3,391 3,381
Other operating income 1,344 1,730 2,098 2,102 2,577 7,274 5,683
Total core non-interest income 75,063 82,751 83,033 81,418 79,396 322,265 217,654
Non-core non-interest income:
Net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Gain on extinguishment of debt 1,895
Increase (decrease) in market value of assets held in trust for deferred compensation (1) 565 (872) 7 306 315 6 829
Total non-core non-interest income 562 (500) (84) (150) 4,282 (172) 3,651
Total non-interest income $75,625 $82,251 $82,949 $81,268 $83,678 $322,093 $221,305
(1) Resides in other operating income in the consolidated statements of operations.

Core non-interest income for the fourth quarter of 2015 decreased 9.3% from the third quarter of 2015.

  • Mortgage banking revenue decreased as the result of reduced origination fees due to lower loan origination volume.
  • Lease financing revenue decreased primarily due to a decrease in revenue from the sale of third-party equipment maintenance contracts and lower promotional revenue.
  • Card fees increased due to an increase in prepaid and credit card fees.
  • Commercial deposit and treasury management fees increased due to new business.


Core non-interest income for the year ended December 31, 2015 increased 48.1% compared to the year ended December 31, 2014.

  • Mortgage banking revenue increased due to mortgage operations acquired through the Taylor Capital merger.
  • Leasing revenues increased due to higher fees and promotional revenue from the sale of third-party equipment maintenance contracts and higher lease residual realization.
  • Commercial deposit and treasury management fees increased due to new customer activity as well as the increased customer base as a result of the Taylor Capital merger.
  • Capital markets and international banking services fees increased due to higher swap and syndication fees partly offset by a decrease in M&A advisory fees.
  • Trust and asset management fees increased due to the addition of new customers.
  • Card fees increased due to a new payroll prepaid card program that started in the second quarter of 2014 as well as higher debit and credit card fees. This increase was partly offset by the impact from being subject to the Durbin amendment of the Dodd-Frank Act for the first time in the third quarter of 2015, which decreased card fees by approximately $2.4 million in 2015.
  • Other operating income increased due to higher earnings from investments in Small Business Investment Companies.
  • Loan service fees increased due to increased unused line fees.

Non-interest Expense (in thousands):

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Core non-interest expense: (1)
Salaries and employee benefits $84,356 $88,760 $86,138 $84,447 $83,242 $343,701 $238,856
Occupancy and equipment expense 12,935 12,456 12,081 12,763 13,757 50,235 44,167
Computer services and telecommunication expense 8,548 8,558 8,407 8,634 8,612 34,147 24,786
Advertising and marketing expense 2,549 2,578 2,497 2,446 2,233 10,070 8,310
Professional and legal expense 2,715 1,496 1,902 2,480 2,184 8,593 7,542
Other intangible amortization expense 1,546 1,542 1,509 1,518 1,617 6,115 5,501
Net (gain) loss recognized on other real estate owned (A) (256) 520 662 888 (120) 1,814 1,554
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A) (549) 65 (88) (273) (27) (845) 446
Other real estate expense, net (A) 76 (8) 150 281 433 499 1,575
Other operating expenses 18,932 18,782 18,238 18,276 18,514 74,228 52,419
Total core non-interest expense 130,852 134,749 131,496 131,460 130,445 528,557 385,156
Non-core non-interest expense: (1)
Merger related and repositioning expenses (B) (4,186) 389 1,234 8,069 6,494 5,506 34,823
Prepayment fees on interest bearing liabilities 85 85
Loss on low to moderate income real estate investment (C) 2,124
Contingent consideration - Celtic acquisition (C) 10,600
Contribution to MB Financial Charitable Foundation (C) 3,250 3,250
Increase (decrease) in market value of assets held in trust for deferred compensation (D) 565 (872) 7 306 315 6 829
Total non-core non-interest expense (3,621) (483) 1,241 8,460 10,059 5,597 51,626
Total non-interest expense $127,231 $134,266 $132,737 $139,920 $140,504 $534,154 $436,782
(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 expenses table below, C – Other operating expenses, D – Salaries and employee benefits.

Core non-interest expense decreased by $3.9 million, or 2.9%, from the third quarter to the fourth quarter of 2015.

  • Salaries and employee benefits expense decreased due to reduced commission expense as a result of lower lease financing and mortgage banking revenue. Salaries and employee benefits expense also decreased due to lower health insurance expense.
  • Core non-interest expense was also impacted by gains this quarter on other real estate owned compared to losses in the prior quarter.
  • Occupancy and equipment expense increased due to higher repair and maintenance expense as well as higher depreciation expense.
  • Professional and legal expense increased due to an increase in legal fees.

Core non-interest expense increased by $143.4 million, or 37.2%, from the year ended December 31, 2014 to the year ended December 31, 2015 primarily due to the Taylor Capital merger. Other explanations for changes are as follows:

  • Other operating expense increased as a result of an increase in filing and other loan expense and higher FDIC assessments due to our larger balance sheet.
  • Computer services and telecommunication expenses increased due to an increase in spending on IT security and other IT projects.
  • Advertising and marketing expense was higher due to increased advertising and sponsorships.
  • Professional and legal expense increased due to higher consulting expense.

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Merger related and repositioning expenses:
Salaries and employee benefits $(212) $3 $ $33 $1,926 $(176) $16,289
Occupancy and equipment expense 2 96 177 301 275 743
Computer services and telecommunication expense (103) 9 130 270 1,397 306 6,892
Advertising and marketing expense 2 84 2 544
Professional and legal expense 1,454 305 511 190 258 2,460 7,110
Branch exit and facilities impairment charges 616 70 438 7,391 2,270 8,515 2,270
Other operating expenses (5,943) 59 8 258 (5,876) 975
Total merger related and repositioning expenses $(4,186) $389 $1,234 $8,069 $6,494 $5,506 $34,823

Other operating expenses for the fourth quarter of 2015 were impacted by the reversal of an accrual for a potential contingent loss we assumed in connection with the Taylor Capital merger that we currently believe is no longer required. This was for a previously disclosed matter related to a former deposit program relationship that Taylor Capital’s subsidiary bank, Cole Taylor Bank, had with an organization that provides electronic financial disbursements and payment services to the higher education industry.

Professional and legal expense in the fourth quarter of 2015 included expenses related to the acquisition of MSA and the pending acquisition of American Chartered. All other expenses in that period and prior periods related to the Taylor Capital merger.

Income Tax Expense

Income tax expense was $19.8 million for the fourth quarter of 2015 compared to $18.3 million for the third quarter of 2015. The increase in income tax expense was primarily due to the $4.8 million increase in income before taxes from $58.6 million in the third quarter of 2015 to $63.4 million in the fourth quarter of 2015.

Operating Segments

The Company's operations consist of three reportable operating segments: Banking, Leasing and Mortgage Banking. Our Banking Segment generates its revenues primarily from its lending and deposit gathering activities. Our Leasing Segment generates its revenues through lease originations and related services offered through the Company's leasing subsidiaries: LaSalle Systems Leasing, Inc., Celtic Leasing Corp. and MB Equipment Finance, LLC. 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 following table presents summary financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments (in thousands):

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Three months ended December 31, 2015
Net interest income$111,691 $2,714 $7,364 $ $121,769
Provision for credit losses6,654 104 6,758
Net interest income after provision for credit losses105,037 2,714 7,260 115,011
Non-interest income:
Lease financing, net1,180 14,757 15,937
Mortgage origination fees 17,596 17,596
Mortgage servicing fees 8,946 8,946
Other non-interest income32,337 802 10 (3) 33,146
Total non-interest income33,517 15,559 26,552 (3) 75,625
Non-interest expense:
Salaries and employee benefits54,655 7,474 22,792 (212) 84,709
Occupancy and equipment expense10,344 855 1,736 12,935
Computer services and telecommunication expense6,200 340 2,008 (103) 8,445
Professional and legal expense1,709 328 678 1,454 4,169
Other operating expenses15,757 1,501 5,040 (5,325) 16,973
Total non-interest expense88,665 10,498 32,254 (4,186) 127,231
Income before income taxes49,889 7,775 1,558 4,183 63,405
Income tax expense14,998 3,037 623 1,140 19,798
Net income$34,891 $4,738 $935 $3,043 $43,607
Three months ended September 30, 2015
Net interest income$104,714 $2,832 $8,423 $ $115,969
Provision for credit losses4,965 242 151 5,358
Net interest income after provision for credit losses99,749 2,590 8,272 110,611
Non-interest income:
Lease financing, net637 19,363 20,000
Mortgage origination fees 23,449 23,449
Mortgage servicing fees 7,243 7,243
Other non-interest income30,563 624 372 31,559
Total non-interest income31,200 19,987 30,692 372 82,251
Non-interest expense:
Salaries and employee benefits54,547 8,475 24,866 3 87,891
Occupancy and equipment expense9,982 843 1,631 2 12,458
Computer services and telecommunication expense6,179 335 2,044 9 8,567
Professional and legal expense766 290 440 305 1,801
Other operating expenses16,413 1,439 5,627 70 23,549
Total non-interest expense87,887 11,382 34,608 389 134,266
Income before income taxes43,062 11,195 4,356 (17) 58,596
Income tax expense12,184 4,398 1,742 (6) 18,318
Net income$30,878 $6,797 $2,614 $(11) $40,278

Net income from our Banking Segment for the fourth quarter of 2015 increased $4.0 million compared to the prior quarter. This increase was primarily due to an increase in net interest income partly offset by an increase in the provision for credit losses.

Net income from our Leasing Segment for the fourth quarter of 2015 decreased $2.1 million compared to the prior quarter. This decrease was primarily due to a decrease in lease financing revenues primarily due to reduced revenue from the sale of third-party equipment maintenance contracts and lower promotional revenue partly offset by a decrease in commission expense.

Net income from our Mortgage Banking Segment for the fourth quarter of 2015 decreased $1.7 million compared to the prior quarter primarily due to a decrease in mortgage origination fees partly offset by an increase in mortgage servicing fees and a decrease in commission expense. The decrease in mortgage origination fees was the result of lower loan origination volume.

The following table presents summary financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments (in thousands):

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Year ended December 31, 2015
Net interest income$424,883 $11,475 $29,248 $ $465,606
Provision for credit losses19,436 1,598 352 21,386
Net interest income after provision for credit losses405,447 9,877 28,896 444,220
Non-interest income:
Lease financing, net2,750 73,831 76,581
Mortgage origination fees 94,703 94,703
Mortgage servicing fees 22,723 22,723
Other non-interest income125,138 3,112 14 (178) 128,086
Total non-interest income127,888 76,943 117,440 (178) 322,093
Non-interest expense:
Salaries and employee benefits216,051 33,724 93,932 (176) 343,531
Occupancy and equipment expense40,512 3,355 6,368 275 50,510
Computer services and telecommunication expense24,983 1,244 7,920 306 34,453
Professional and legal expense4,784 1,172 2,637 2,460 11,053
Other operating expenses63,806 5,869 22,206 2,726 94,607
Total non-interest expense350,136 45,364 133,063 5,591 534,154
Income before income taxes183,199 41,456 13,273 (5,769) 232,159
Income tax expense54,456 16,255 5,309 (2,809) 73,211
Net income$128,743 $25,201 $7,964 $(2,960) $158,948
Year ended December 31, 2014
Net interest income$328,326 $12,783 $9,714 $ $350,823
Provision for credit losses12,022 35 (5) 12,052
Net interest income after provision for credit losses316,304 12,748 9,719 338,771
Non-interest income:
Lease financing, net3,506 60,804 64,310
Mortgage origination fees 27,742 27,742
Mortgage servicing fees 18,407 18,407
Other non-interest income109,083 (998) (61) 2,822 110,846
Total non-interest income112,589 59,806 46,088 2,822 221,305
Non-interest expense:
Salaries and employee benefits179,279 28,284 32,122 16,289 255,974
Occupancy and equipment expense39,350 2,682 2,135 743 44,910
Computer services and telecommunication expense21,292 882 2,612 6,892 31,678
Professional and legal expense5,402 1,093 1,047 7,110 14,652
Other operating expenses54,238 6,584 8,983 19,763 89,568
Total non-interest expense299,561 39,525 46,899 50,797 436,782
Income before income taxes129,332 33,029 8,908 (47,975) 123,294
Income tax expense34,836 12,524 3,563 (13,730) 37,193
Net income$94,496 $20,505 $5,345 $(34,245) $86,101

Net income from our Banking Segment for the year ended December 31, 2015 increased compared to the prior year. This increase was primarily due to an increase in net interest income due to the increase in interest earning assets partly offset by an increase in the total non-interest expense, both as a result of the full year impact of the Taylor Capital merger.

Net income from our Leasing Segment for the year ended December 31, 2015 increased compared to the prior year. This increase was primarily due to higher fees and promotional revenue from the sale of third-party equipment maintenance contracts and higher lease residual realization partly offset by an increase in commission expense.

Net income from our Mortgage Banking Segment for the year ended December 31, 2015 increased compared to the prior year. This increase was primarily due to the full year impact of the mortgage operations acquired through the Taylor Capital merger.

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

4Q15 3Q15 2Q15 1Q15 4Q14
Origination volume $1,437,057 $1,880,960 $2,010,175 $1,688,541 $1,511,909
Refinance 42% 34% 43% 61% 44%
Purchase 58 66 57 39 56
Origination volume by channel:
Retail 18% 18% 18% 18% 19%
Third party 82 82 82 82 81
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end (1) $16,218,613 $15,582,911 $23,588,345 $22,978,750 $22,532,895
Mortgage servicing rights, recorded at fair value, at period end 168,162 148,097 261,034 219,254 235,402
Notional value of rate lock commitments, at period end 622,906 800,162 992,025 1,069,145 645,287
(1) 3Q15 does not include the unpaid principal balance of serviced loans sold in July 2015 that continued to be sub-serviced through October 2015.

LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) as of the dates indicated (dollars in thousands):

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Commercial related credits:
Commercial loans $3,616,286 37% $3,440,632 37% $3,354,889 37% $3,258,652 37% $3,245,206 36%
Commercial loans collateralized by assignment of lease payments (lease loans) 1,779,072 18 1,693,540 18 1,690,866 18 1,628,031 18 1,692,258 18
Commercial real estate 2,695,676 27 2,580,009 27 2,539,991 28 2,525,640 28 2,544,867 28
Construction real estate 252,060 3 255,620 3 189,599 2 184,105 2 247,068 3
Total commercial related credits 8,343,094 85 7,969,801 85 7,775,345 85 7,596,428 85 7,729,399 85
Other loans:
Residential real estate 628,169 6 607,171 6 533,118 6 505,558 5 503,287 5
Indirect vehicle 384,095 4 345,731 4 303,777 3 273,105 3 268,840 3
Home equity 216,573 2 223,173 2 230,478 3 241,078 3 251,909 3
Consumer loans 80,661 1 87,612 1 86,463 1 77,645 1 78,137 1
Total other loans 1,309,498 13 1,263,687 13 1,153,836 13 1,097,386 12 1,102,173 12
Total loans, excluding purchased credit-impaired loans 9,652,592 98 9,233,488 98 8,929,181 98 8,693,814 97 8,831,572 97
Purchased credit impaired 141,406 2 155,693 2 164,775 2 227,514 3 251,645 3
Total loans $9,793,998 100% $9,389,181 100% $9,093,956 100% $8,921,328 100% $9,083,217 100%

Our loan balances, excluding purchase credit impaired and covered loans, grew $419.1 million (+4.5%, or +18.0% annualized basis) during the fourth quarter of 2015.

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):

4Q15 3Q15 2Q15 1Q15 4Q14
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Commercial-related credits:
Commercial loans $3,492,161 37% $3,372,279 37% $3,309,519 37% $3,190,755 36% $3,110,016 35%
Commercial loans collateralized by assignment of lease payments (lease loans) 1,708,404 18 1,674,939 18 1,634,583 18 1,647,761 18 1,642,427 18
Commercial real estate 2,627,004 28 2,568,539 28 2,522,473 28 2,538,995 29 2,611,410 29
Construction real estate 274,188 2 210,506 2 191,935 2 191,257 2 232,679 3
Total commercial-related credits 8,101,757 85 7,826,263 85 7,658,510 85 7,568,768 85 7,596,532 85
Other loans:
Residential real estate 612,275 6 566,115 6 512,766 6 493,366 5 503,211 5
Indirect vehicle 365,744 4 325,323 4 286,107 3 267,265 3 273,063 3
Home equity 219,440 2 226,365 2 233,867 3 246,537 3 256,933 3
Consumer loans 83,869 1 85,044 1 76,189 1 72,374 1 75,264 1
Total other loans 1,281,328 13 1,202,847 13 1,108,929 13 1,079,542 12 1,108,471 12
Total loans, excluding purchased credit-impaired loans 9,383,085 98 9,029,110 98 8,767,439 98 8,648,310 97 8,705,003 97
Purchased credit-impaired loans 154,562 2 156,309 2 202,374 2 240,376 3 273,136 3
Total loans $9,537,647 100% $9,185,419 100% $8,969,813 100% $8,888,686 100% $8,978,139 100%

Our quarterly average loan balances, excluding purchase credit impaired and covered loans, grew $354.0 million (+3.9%, or +15.6% annualized basis) during the fourth quarter of 2015.

ASSET QUALITY

The following table presents a summary of criticized assets (excluding loans held for sale) as of the dates indicated (dollars in thousands):

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Non-performing loans:
Non-accrual loans (1) $103,546 $92,302 $91,943 $81,571 $82,733
Loans 90 days or more past due, still accruing interest 6,898 4,275 6,112 1,707 4,354
Total non-performing loans 110,444 96,577 98,055 83,278 87,087
Other real estate owned 31,553 29,587 28,517 21,839 19,198
Repossessed assets 81 216 78 160 93
Total non-performing assets $142,078 $126,380 $126,650 $105,277 $106,378
Potential problem loans (2) $139,941 $122,966 $116,443 $107,703 $55,651
Purchased credit-impaired loans $141,406 $155,693 $164,775 $227,514 $251,645
Total non-performing, potential problem and purchased credit-impaired loans $391,791 $375,236 $379,273 $418,495 $394,383
Total allowance for loan and lease losses $128,140 $124,626 $120,070 $113,412 $110,026
Accruing restructured loans (3) 26,991 20,120 16,875 16,874 15,603
Total non-performing loans to total loans 1.13% 1.03% 1.08% 0.93% 0.96%
Total non-performing assets to total assets 0.91 0.85 0.84 0.73 0.73
Allowance for loan and lease losses to non-performing loans 116.02 129.04 122.45 136.18 126.34

(1) Includes $22.8 million, $21.4 million, $24.5 million, $25.5 million and $25.8 million of restructured loans on non-accrual status at December 31, 2015, September 30, 2015, June 30, 2015, March 31, 2015, and December 31, 2014, 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) Accruing restructured loans consist primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table presents data related to non-performing loans by category (excluding loans held for sale and purchased credit-impaired loans that were acquired as part of our FDIC-assisted transactions and the Taylor Capital merger) as of the dates indicated (in thousands):

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Commercial and lease $37,076 $34,465 $31,053 $18,315 $20,058
Commercial real estate 34,856 25,437 32,358 29,645 32,663
Construction real estate 337 337 337
Consumer related 38,512 36,675 34,307 34,981 34,029
Total non-performing loans $110,444 $96,577 $98,055 $83,278 $87,087

The following table represents a summary of other real estate owned (excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (in thousands):

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Balance at the beginning of quarter $29,587 $28,517 $21,839 $19,198 $18,817
Transfers in at fair value less estimated costs to sell 5,964 2,402 8,595 4,615 1,261
Fair value adjustments (721) (565) (920) (922) (34)
Net gains on sales of other real estate owned 977 45 258 34 154
Cash received upon disposition (4,254) (812) (1,255) (1,086) (1,000)
Balance at the end of quarter $31,553 $29,587 $28,517 $21,839 $19,198

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Allowance for credit losses, balance at the beginning of period $128,038 $124,130 $117,189 $114,057 $106,912 $114,057 $113,462
Allowance for unfunded credit commitments acquired through business combination 1,261
Utilization of allowance for unfunded credit commitments (637)
Provision for credit losses - MB Financial legacy portfolio 6,758 1,225 (600) (550) 2,472 6,833 72
Provision for credit losses - acquired Taylor Capital loan portfolio renewals 4,133 4,896 5,524 7,271 14,553 11,980
Charge-offs:
Commercial loans 710 1,657 57 569 197 2,993 1,339
Commercial loans collateralized by assignment of lease payments (lease loans) 685 1,980 100 885 2,765 925
Commercial real estate loans 1,251 170 108 2,034 1,528 3,563 11,438
Construction real estate 23 5 3 3 4 34 79
Residential real estate 261 292 318 579 280 1,450 1,718
Home equity 407 358 276 444 1,381 1,485 3,383
Indirect vehicle 898 581 627 874 1,189 2,980 3,735
Consumer loans 550 467 500 424 546 1,941 2,128
Total charge-offs 4,785 5,510 1,989 4,927 6,010 17,211 24,745
Recoveries:
Commercial loans 235 456 816 242 869 1,749 3,757
Commercial loans collateralized by assignment of lease payments (lease loans) 12 11 340 749 384 1,112 939
Commercial real estate loans 385 2,402 2,561 1,375 741 6,723 4,020
Construction real estate 19 216 35 2 51 272 252
Residential real estate 98 337 8 72 661 515 1,190
Home equity 132 186 160 101 176 579 482
Indirect vehicle 499 334 545 475 453 1,853 1,736
Consumer loans 117 118 169 69 77 473 288
Total recoveries 1,497 4,060 4,634 3,085 3,412 13,276 12,664
Total net charge-offs (recoveries) 3,288 1,450 (2,645) 1,842 2,598 3,935 12,081
Allowance for credit losses, balance at the end of the period 131,508 128,038 124,130 117,189 114,057 131,508 114,057
Allowance for unfunded credit commitments (3,368) (3,412) (4,060) (3,777) (4,031) (3,368) (4,031)
Allowance for loan and lease losses, balance at the end of the period $128,140 $124,626 $120,070 $113,412 $110,026 $128,140 $110,026
Total loans, at end of period, excluding loans held for sale $9,793,998 $9,389,181 $9,093,956 $8,921,328 $9,083,217 $9,793,998 $9,083,217
Average loans, excluding loans held for sale 9,537,647 9,185,419 8,969,813 8,888,686 8,978,139 9,147,279 6,831,183
Ratio of allowance for loan and lease losses to total loans at end of period, excluding loans held for sale 1.31% 1.33% 1.32% 1.27% 1.21% 1.31% 1.21%
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized) 0.14 0.06 (0.12) 0.08 0.11 0.04 0.18

The following table presents the three elements of our allowance for loan and lease losses (dollars in thousands):

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Commercial related loans:
General reserve $94,164 $93,903 $89,642 $88,425 $85,087
Specific reserve 16,173 13,683 11,303 5,658 5,189
Consumer related reserve 17,803 17,040 19,125 19,329 19,750
Total allowance for loan losses $128,140 $124,626 $120,070 $113,412 $110,026

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan and lease losses. These acquired loans are segregated into three types: pass rated loans with no discount attributable to credit quality, non-impaired loans with a discount attributable at least in part to credit quality and impaired loans with evidence of significant credit deterioration.

  • Pass rated loans (typically performing loans) are accounted for in accordance with ASC 310-20 "Nonrefundable Fees and Other Costs" as these loans do not have evidence of credit deterioration since origination.
  • Non-impaired loans (typically performing substandard loans) are accounted for in accordance with ASC 310-30 if they display at least some level of credit deterioration since origination.
  • Impaired loans (typically substandard loans on non-accrual status) are accounted for in accordance with ASC 310-30 as they display significant credit deterioration since origination.

For pass rated loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans (computed on a loan by loan basis) and the principal outstanding is accreted over the remaining life of the loans. We anticipate recording a provision for the acquired portfolio in future quarters related to renewing Taylor Capital loans which will largely offset the accretion from the pass rated loans. No provision was recorded during the fourth quarter of 2015 due to better than expected credit performance and favorable changes in portfolio mix and loan risk ratings.

In accordance with ASC 310-30, for both purchased non-impaired loans and purchased credit-impaired loans ("PCI loans"), the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.

Changes in the purchase accounting discount for loans acquired in the Taylor Capital merger were as follows for the three months ended December 31, 2015 (in thousands):

Non-
Accretable
Discount -
PCI Loans
Accretable
Discount -
PCI Loans
Accretable
Discount -
Non-PCI
Loans
Total
Balance at beginning of period $19,747 $9,368 $40,961 $70,076
Recoveries 1,354 1,354
Accretion (3,510) (6,193) (9,703)
Transfer (6,440) 6,440
Balance at end of period $14,661 $12,298 $34,768 $61,727

The $6.4 million purchase accounting discount 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.

Changes in the purchase accounting discount for loans acquired in the Taylor Capital merger were as follows for the three months ended September 30, 2015 (in thousands):

Non-
Accretable
Discount -
PCI Loans
Accretable
Discount -
PCI Loans
Accretable
Discount -
Non-PCI Loans
Total
Balance at beginning of period $23,474 $10,901 $46,836 $81,211
Charge-offs (3,727) (3,727)
Accretion (1,533) (5,875) (7,408)
Balance at end of period $19,747 $9,368 $40,961 $70,076

INVESTMENT SECURITIES

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

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $64,611 $65,461 $65,485 $66,070 $65,873
States and political subdivisions 396,367 399,274 395,912 403,628 410,854
Mortgage-backed securities 893,656 847,426 902,017 856,933 908,225
Corporate bonds 219,628 228,251 246,468 252,042 259,203
Equity securities 10,761 10,826 10,669 10,751 10,597
Total fair value $1,585,023 $1,551,238 $1,620,551 $1,589,424 $1,654,752
Amortized cost
Government sponsored agencies and enterprises $63,805 $64,008 $64,211 $64,411 $64,612
States and political subdivisions 373,285 379,015 380,221 381,704 390,076
Mortgage-backed securities 888,325 834,791 890,334 841,727 899,523
Corporate bonds 222,784 228,711 245,506 250,543 259,526
Equity securities 10,757 10,701 10,644 10,587 10,531
Total amortized cost $1,558,956 $1,517,226 $1,590,916 $1,548,972 $1,624,268
Unrealized gain
Government sponsored agencies and enterprises $806 $1,453 $1,274 $1,659 $1,261
States and political subdivisions 23,082 20,259 15,691 21,924 20,778
Mortgage-backed securities 5,331 12,635 11,683 15,206 8,702
Corporate bonds (3,156) (460) 962 1,499 (323)
Equity securities 4 125 25 164 66
Total unrealized gain $26,067 $34,012 $29,635 $40,452 $30,484
Securities held to maturity, at cost:
States and political subdivisions $1,016,519 $1,002,963 $974,032 $764,931 $752,558
Mortgage-backed securities 214,291 221,889 229,595 235,928 240,822
Total amortized cost $1,230,810 $1,224,852 $1,203,627 $1,000,859 $993,380

DEPOSIT MIX

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

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing deposits $4,627,184 40% $4,434,067 39% $4,378,005 40% $4,290,499 39% $4,118,256 37%
Money market and NOW accounts 4,144,633 36 4,129,414 37 3,842,264 35 4,002,818 36 3,913,765 36
Savings accounts 974,555 8 953,746 8 970,875 9 969,560 9 940,345 9
Total low cost deposits 9,746,372 84 9,517,227 84 9,191,144 84 9,262,877 84 8,972,366 82
Certificates of deposit:
Certificates of deposit 1,244,292 11 1,279,842 12 1,261,843 12 1,354,633 12 1,479,928 13
Brokered deposit accounts 514,551 5 457,509 4 408,827 4 401,991 4 538,648 5
Total certificates of deposit 1,758,843 16 1,737,351 16 1,670,670 16 1,756,624 16 2,018,576 18
Total deposits $11,505,215 100% $11,254,578 100% $10,861,814 100% $11,019,501 100% $10,990,942 100%

Non-interest bearing deposits grew by $193.1 million (+4.4%, or +17.3% annualized) during the fourth quarter of 2015. Compared to the prior quarter, total low cost deposits increased $229.1 million to $9.7 billion at December 31, 2015 primarily due to strong non-interest bearing deposit flows.

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

4Q15 3Q15 2Q15 1Q15 4Q14
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing deposits $4,617,076 40% $4,428,065 39% $4,273,931 39% $4,199,948 38% $4,072,797 36%
Money market and NOW 4,214,099 37 4,119,625 36 3,940,201 36 3,937,707 36 4,023,657 37
Savings 959,049 8 965,060 9 972,327 9 952,345 9 936,960 8
Total low cost deposits 9,790,224 85 9,512,750 84 9,186,459 84 9,090,000 83 9,033,414 81
Certificates of deposit:
Certificates of deposit 1,245,947 11 1,304,516 12 1,302,031 12 1,420,320 13 1,563,011 14
Brokered certificates of deposit 492,839 4 427,649 4 412,517 4 476,245 4 606,166 5
Total certificates of deposit 1,738,786 15 1,732,165 16 1,714,548 16 1,896,565 17 2,169,177 19
Total deposits $11,529,010 100% $11,244,915 100% $10,901,007 100% $10,986,565 100% $11,202,591 100%

Non-interest bearing deposits quarterly average grew by $189.0 million (+4.3%, or +16.9% annualized) during the fourth quarter of 2015. Total low cost deposits increased $277.5 million to $9.8 billion during the fourth quarter of 2015 compared to the prior quarter primarily due to strong non-interest bearing deposit flows.

CAPITAL

Tangible book value per common share was $16.53 at December 31, 2015 compared to $16.43 last quarter and $15.74 a year ago.

In the second quarter of 2015, our Board of Directors authorized the purchase of up to $50 million of our common stock. Subsequently, we executed on this authorization by purchasing $50 million, or approximately 1.6 million shares, of our common stock during the third and fourth quarters of 2015.

Our regulatory capital ratios remain strong. MB Financial Bank, N.A. (the "Bank") was categorized as “well capitalized” at December 31, 2015 under the Prompt Corrective Action (“PCA”) provisions. The Company and Bank have implemented the changes required under the Basel III regulatory capital reform. The Bank would be categorized as "well capitalized" under the fully phased in rules.

FORWARD-LOOKING STATEMENTS

When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission (the "SEC"), in other 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 pending 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 requisite regulatory approvals and approval of American Chartered’s shareholders for the pending MB Financial-American Chartered merger might not be obtained, or may take longer to obtain than expected; (3) 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; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (6) the possibility that our mortgage banking business may increase 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; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) 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; (11) our ability to realize the residual values of its direct finance, leveraged and operating leases; (12) the ability to access cost-effective funding; (13) changes in financial markets; (14) changes in economic conditions in general and in the Chicago metropolitan area in particular; (15) the costs, effects and outcomes of litigation; (16) 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, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (17) changes in accounting principles, policies or guidelines; (18) our future acquisitions of other depository institutions or lines of business; and (19) 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.

Additional Information

In connection with the proposed merger between MB Financial and American Chartered, MB Financial has filed a registration statement on Form S-4 with the SEC. The registration statement includes a preliminary proxy statement/prospectus, which, when finalized, will be sent to the stockholders of American Chartered. Investors and stockholders of American Chartered are advised to read the preliminary proxy statement/prospectus, the definitive proxy statement/prospectus (when it becomes available) and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain, or will contain, as the case may be, important information about MB Financial, American Chartered and the proposed transaction. Copies of all documents relating to the merger filed by MB Financial can be obtained free of charge from the SEC’s website at www.sec.gov. These documents also can be obtained free of charge by accessing MB Financial’s website at www.mbfinancial.com under the tab “Investor Relations” and then under “SEC Filings.” Alternatively, these documents, when available, can be obtained free of charge from MB Financial upon written request to MB Financial, Inc., Corporate Secretary, 6111 North River Road, Rosemont, Illinois 60018 or by calling (847) 653-1992.

MB Financial, American Chartered and their respective directors and executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies from American Chartered stockholders in connection with the proposed transaction. Information about the directors and executive officers of MB Financial is contained in the definitive proxy statement of MB Financial relating to its 2015 Annual Meeting of Stockholders filed by MB Financial with the SEC on April 10, 2015. Information about the directors and executive officers of American Chartered is set forth in the preliminary proxy statement/prospectus and will be set forth in the definitive proxy statement/prospectus when it is filed with the SEC.

TABLES TO FOLLOW

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands) 12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
ASSETS
Cash and due from banks $307,869 $234,220 $290,266 $248,840 $256,804
Interest earning deposits with banks 73,572 66,025 144,154 52,212 55,277
Total cash and cash equivalents 381,441 300,245 434,420 301,052 312,081
Federal funds sold 5
Investment securities:
Securities available for sale, at fair value 1,585,023 1,551,238 1,620,551 1,589,424 1,654,752
Securities held to maturity, at amortized cost 1,230,810 1,224,852 1,203,627 1,000,859 993,380
Non-marketable securities - FHLB and FRB Stock 114,233 91,400 111,400 87,677 75,569
Total investment securities 2,930,066 2,867,490 2,935,578 2,677,960 2,723,701
Loans held for sale 744,727 676,020 801,343 686,838 737,209
Loans:
Total loans, excluding purchased credit-impaired loans 9,652,592 9,233,488 8,929,181 8,693,814 8,831,572
Purchased credit-impaired loans 141,406 155,693 164,775 227,514 251,645
Total loans 9,793,998 9,389,181 9,093,956 8,921,328 9,083,217
Less: Allowance for loan and lease losses 128,140 124,626 120,070 113,412 110,026
Net loans 9,665,858 9,264,555 8,973,886 8,807,916 8,973,191
Lease investments, net 211,687 184,223 167,966 159,191 162,833
Premises and equipment, net 236,013 234,115 234,651 234,077 238,377
Cash surrender value of life insurance 136,953 136,089 135,237 134,401 133,562
Goodwill 725,070 711,521 711,521 711,521 711,521
Other intangibles 44,812 37,520 34,979 36,488 38,006
Mortgage servicing rights, at fair value 168,162 148,097 261,034 219,254 235,402
Other real estate owned, net 31,553 29,587 28,517 21,839 19,198
Other real estate owned related to FDIC transactions 10,717 13,825 13,867 17,890 19,328
Other assets 297,948 346,814 285,190 319,883 297,690
Total assets $15,585,007 $14,950,101 $15,018,194 $14,328,310 $14,602,099
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $4,627,184 $4,434,067 $4,378,005 $4,290,499 $4,118,256
Interest bearing 6,878,031 6,820,511 6,483,809 6,729,002 6,872,686
Total deposits 11,505,215 11,254,578 10,861,814 11,019,501 10,990,942
Short-term borrowings 1,005,737 940,529 1,382,635 615,231 931,415
Long-term borrowings 400,274 95,175 89,639 85,477 82,916
Junior subordinated notes issued to capital trusts 186,164 186,068 185,971 185,874 185,778
Accrued expenses and other liabilities 400,333 410,523 420,396 363,934 382,762
Total liabilities 13,497,723 12,886,873 12,940,455 12,270,017 12,573,813
Stockholders' Equity
Preferred stock 115,280 115,280 115,280 115,280 115,280
Common stock 756 756 754 754 751
Additional paid-in capital 1,280,870 1,277,348 1,273,333 1,268,851 1,267,761
Retained earnings 731,812 702,789 677,246 651,178 629,677
Accumulated other comprehensive income 15,777 20,968 18,778 26,101 20,356
Treasury stock (58,504) (55,258) (9,035) (5,277) (6,974)
Controlling interest stockholders' equity 2,085,991 2,061,883 2,076,356 2,056,887 2,026,851
Noncontrolling interest 1,293 1,345 1,383 1,406 1,435
Total stockholders' equity 2,087,284 2,063,228 2,077,739 2,058,293 2,028,286
Total liabilities and stockholders' equity $15,585,007 $14,950,101 $15,018,194 $14,328,310 $14,602,099

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Year Ended
December 31,
(Dollars in thousands, except per share data) 4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Interest income:
Loans:
Taxable $106,137 $100,573 $98,768 $98,846 $104,531 $404,324 $292,028
Nontaxable 2,602 2,283 2,259 2,174 2,203 9,318 9,022
Investment securities:
Taxable 9,708 9,655 10,002 9,934 10,651 39,299 38,619
Nontaxable 10,969 10,752 10,140 9,113 9,398 40,974 34,791
Federal funds sold 1 2 1 25
Other interest earning accounts 110 89 57 62 62 318 663
Total interest income 129,527 123,352 121,226 120,129 126,847 494,234 375,148
Interest expense:
Deposits 5,357 5,102 4,554 4,645 4,889 19,658 17,027
Short-term borrowings 385 395 355 277 354 1,412 780
Long-term borrowings and junior subordinated notes 2,016 1,886 1,844 1,812 1,793 7,558 6,518
Total interest expense 7,758 7,383 6,753 6,734 7,036 28,628 24,325
Net interest income 121,769 115,969 114,473 113,395 119,811 465,606 350,823
Provision for credit losses 6,758 5,358 4,296 4,974 9,743 21,386 12,052
Net interest income after provision for credit losses 115,011 110,611 110,177 108,421 110,068 444,220 338,771
Non-interest income:
Lease financing, net 15,937 20,000 15,564 25,080 18,542 76,581 64,310
Mortgage banking revenue 26,542 30,692 35,648 24,544 29,080 117,426 46,149
Commercial deposit and treasury management fees 11,711 11,472 11,062 11,038 10,720 45,283 34,315
Trust and asset management fees 6,077 6,002 5,752 5,714 5,515 23,545 21,839
Card fees 3,651 3,335 4,409 3,927 3,900 15,322 13,741
Capital markets and international banking service fees 2,355 2,357 1,508 1,928 1,648 8,148 5,458
Consumer and other deposit service fees 3,440 3,499 3,260 3,083 3,335 13,282 12,788
Brokerage fees 1,252 1,281 1,543 1,678 1,350 5,754 5,176
Loan service fees 1,890 1,531 1,353 1,485 1,864 6,259 4,814
Increase in cash surrender value of life insurance 864 852 836 839 865 3,391 3,381
Net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Gain on extinguishment of debt 1,895
Other operating income 1,909 858 2,105 2,408 2,892 7,280 6,512
Total non-interest income 75,625 82,251 82,949 81,268 83,678 322,093 221,305
Non-interest expense:
Salaries and employee benefits 84,709 87,891 86,145 84,786 85,483 343,531 255,974
Occupancy and equipment expense 12,935 12,458 12,177 12,940 14,058 50,510 44,910
Computer services and telecommunication expense 8,445 8,567 8,537 8,904 10,009 34,453 31,678
Advertising and marketing expense 2,551 2,578 2,497 2,446 2,317 10,072 8,854
Professional and legal expense 4,169 1,801 2,413 2,670 2,442 11,053 14,652
Other intangible amortization expense 1,546 1,542 1,509 1,518 1,617 6,115 5,501
Branch exit and facilities impairment charges 616 70 438 7,391 2,270 8,515 2,270
Net (gain) loss recognized on other real estate owned and other related expense (729) 577 724 896 286 1,468 3,575
Prepayment fees on interest bearing liabilities 85 85
Other operating expenses 12,989 18,782 18,297 18,284 22,022 68,352 69,368
Total non-interest expense 127,231 134,266 132,737 139,920 140,504 534,154 436,782
Income before income taxes 63,405 58,596 60,389 49,769 53,242 232,159 123,294
Income tax expense 19,798 18,318 19,437 15,658 17,117 73,211 37,193
Net income 43,607 40,278 40,952 34,111 36,125 158,948 86,101
Dividends on preferred shares 2,000 2,000 2,000 2,000 2,000 8,000 4,000
Net income available to common stockholders $41,607 $38,278 $38,952 $32,111 $34,125 $150,948 $82,101
Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Common share data:
Basic earnings per common share $0.57 $0.52 $0.52 $0.43 $0.46 $2.03 $1.32
Diluted earnings per common share 0.56 0.51 0.52 0.43 0.45 2.02 1.31
Weighted average common shares outstanding for basic earnings per common share 73,296,602 74,297,281 74,596,925 74,567,104 74,525,990 74,177,574 62,012,196
Weighted average common shares outstanding for diluted earnings per common share 73,953,165 75,029,827 75,296,029 75,164,716 75,130,331 74,849,030 62,573,406
Selected Financial Data:
Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Performance Ratios:
Annualized return on average assets 1.13% 1.06% 1.12% 0.96% 0.99% 1.07% 0.75%
Annualized operating return on average assets (1) 1.06 1.06 1.14 1.11 1.09 1.09 1.05
Annualized return on average common equity 8.48 7.75 8.02 6.78 7.12 7.77 5.29
Annualized operating return on average common equity (1) 7.86 7.75 8.19 7.87 7.84 7.92 7.50
Annualized cash return on average tangible common equity (2) 13.97 12.74 13.21 11.31 11.98 12.82 8.52
Annualized cash operating return on average tangible common equity (3) 12.97 12.74 13.47 13.09 13.16 13.07 11.92
Net interest rate spread 3.72 3.60 3.72 3.80 3.88 3.70 3.65
Cost of funds (4) 0.24 0.23 0.22 0.23 0.23 0.23 0.25
Efficiency ratio (5) 63.95 65.35 64.26 65.29 63.35 64.71 64.85
Annualized net non-interest expense to average assets (6) 1.44 1.36 1.32 1.40 1.39 1.38 1.45
Core non-interest income to revenues (7) 36.91 40.35 40.80 40.66 38.78 39.68 36.96
Net interest margin 3.64 3.52 3.63 3.73 3.81 3.63 3.54
Tax equivalent effect 0.22 0.21 0.21 0.20 0.20 0.21 0.23
Net interest margin - fully tax equivalent basis (8) 3.86 3.73 3.84 3.93 4.01 3.84 3.77
Loans to deposits 85.13 83.43 83.72 80.96 82.64 85.13 82.64
Asset Quality Ratios:
Non-performing loans (9) to total loans 1.13% 1.03% 1.08% 0.93% 0.96% 1.13% 0.96%
Non-performing assets (9) to total assets 0.91 0.85 0.84 0.73 0.73 0.91 0.73
Allowance for loan and lease losses to non-performing loans (9) 116.02 129.04 122.45 136.18 126.34 116.02 126.34
Allowance for loan and lease losses to total loans 1.31 1.33 1.32 1.27 1.21 1.31 1.21
Net loan charge-offs (recoveries) to average loans (annualized) 0.14 0.06 (0.12) 0.08 0.11 0.04 0.18
Capital Ratios:
Tangible equity to tangible assets (10) 8.99% 9.34% 9.41% 9.73% 9.32% 8.99% 9.32%
Tangible common equity to tangible assets(11) 8.21 8.53 8.60 8.89 8.49 8.21 8.49
Tangible common equity to risk weighted assets (12) 9.34 9.69 10.02 10.09 10.38 9.34 10.38
Total capital (to risk-weighted assets) (13) 12.54 12.94 13.07 13.22 13.62 12.54 13.62
Tier 1 capital (to risk-weighted assets) (13) 11.53 11.92 12.06 12.24 12.61 11.53 12.61
Common equity tier 1 capital (to risk-weighted assets) (13) 9.27 9.56 9.66 9.79 N/A 9.27 N/A
Tier 1 capital (to average assets) (13) 10.40 10.43 10.69 10.80 10.47 10.40 10.47
Per Share Data:
Book value per common share (14) $26.77 $26.40 $26.14 $25.86 $25.58 $26.77 $25.58
Less: goodwill and other intangible assets, net of benefit, per common share 10.24 9.97 9.78 9.78 9.84 10.24 9.84
Tangible book value per common share (15) $16.53 $16.43 $16.36 $16.08 $15.74 $16.53 $15.74
Cash dividends per common share $0.17 $0.17 $0.17 $0.14 $0.14 $0.65 $0.52

(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.
(2) Annualized cash return on average tangible 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) 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.
(10) 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.
(11) 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.
(12) 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.
(13) Current quarter ratios are estimated. 2015 ratios reflect the new capital regulation changes required under the Basel III regulatory capital reform.
(14) Equals total ending common stockholders’ equity divided by common shares outstanding.
(15) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.

NON-GAAP FINANCIAL INFORMATION

This press release 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, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt, commitment reversal and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, and prepayment fees on interest bearing liabilities, loss on low to moderate income real estate investment, merger related and repositioning expenses, contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase (decrease) in market value of assets held in trust for deferred compensation 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 risk-weighted assets and Tier 1 common capital 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.

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 and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt, commitment reversal and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding prepayment fees on interest bearing liabilities, loss on low to moderate income real estate investment, merger related and repositioning expenses, contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase in market value of assets held in trust for deferred compensation 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.

In addition, management believes that presenting the ratio of Tier 1 common equity to risk-weighted assets is useful for assessing our capital strength and for peer comparison purposes. 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.

A reconciliation of net interest margin on a fully tax equivalent basis to net interest margin is 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 Ratios” 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 “Results of Operations—Fourth Quarter and Annual Results.”

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

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Stockholders' equity - as reported $2,087,284 $2,063,228 $2,077,739 $2,058,293 $2,028,286
Less: goodwill 725,070 711,521 711,521 711,521 711,521
Less: other intangible assets, net of tax benefit 29,128 24,388 22,736 23,717 24,704
Tangible equity $1,333,086 $1,327,319 $1,343,482 $1,323,055 $1,292,061

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

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Total assets - as reported $15,585,007 $14,950,101 $15,018,194 $14,328,310 $14,602,099
Less: goodwill 725,070 711,521 711,521 711,521 711,521
Less: other intangible assets, net of tax benefit 29,128 24,388 22,736 23,717 24,704
Tangible assets $14,830,809 $14,214,192 $14,283,937 $13,593,072 $13,865,874

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

12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Common stockholders' equity - as reported $1,972,004 $1,947,948 $1,962,459 $1,943,013 $1,913,006
Less: goodwill 725,070 711,521 711,521 711,521 711,521
Less: other intangible assets, net of tax benefit 29,128 24,388 22,736 23,717 24,704
Tangible common equity $1,217,806 $1,212,039 $1,228,202 $1,207,775 $1,176,781

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Average common stockholders' equity $1,945,772 $1,958,947 $1,947,231 $1,922,151 $1,901,830 $1,943,632 $1,552,232
Less: average goodwill 711,669 711,521 711,521 711,521 711,521 711,559 528,088
Less: average other intangible assets, net of tax benefit 23,826 23,900 23,092 24,157 25,149 23,743 18,440
Average tangible common equity $1,210,277 $1,223,526 $1,212,618 $1,186,473 $1,165,160 $1,208,330 $1,005,704

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Net income available to common stockholders - as reported $41,607 $38,278 $38,952 $32,111 $34,125 $150,948 $82,101
Add: other intangible amortization expense, net of tax benefit 1,005 1,002 981 987 1,051 3,975 3,576
Net cash flow available to common stockholders $42,612 $39,280 $39,933 $33,098 $35,176 $154,923 $85,677

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Net income - as reported $43,607 $40,278 $40,952 $34,111 $36,125 $158,948 $86,101
Less non-core items:
Net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Gain on extinguishment of debt 1,895
Merger related and repositioning expenses 4,186 (389) (1,234) (8,069) (6,494) (5,506) (34,823)
Prepayment fees on interest bearing liabilities (85) (85)
Loss on low to moderate income real estate investment (2,124)
Contingent consideration expense - Celtic acquisition (10,600)
Contribution to MB Financial Charitable Foundation (3,250) (3,250)
Total non-core items 4,183 (17) (1,325) (8,610) (5,777) (5,769) (47,975)
Income tax expense on non-core items 1,140 (6) (526) (3,417) (2,314) (2,809) (13,730)
Non-core items, net of tax 3,043 (11) (799) (5,193) (3,463) (2,960) (34,245)
Operating earnings 40,564 40,289 41,751 39,304 39,588 161,908 120,346
Dividends on preferred shares 2,000 2,000 2,000 2,000 2,000 8,000 4,000
Operating earnings available to common stockholders $38,564 $38,289 $39,751 $37,304 $37,588 $153,908 $116,346
Diluted operating earnings per common share $0.52 $0.51 $0.53 $0.50 $0.50 $2.06 $1.86
Weighted average common shares outstanding for diluted operating earnings per common share 73,953,165 75,029,827 75,296,029 75,164,716 75,130,331 74,849,030 62,573,406

Efficiency Ratio Calculation (Dollars in Thousands)

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Non-interest expense$127,231 $134,266 $132,737 $139,920 $140,504 $534,154 $436,782
Less merger related and repositioning expenses(4,186) 389 1,234 8,069 6,494 5,506 34,823
Less prepayment fees on interest bearing liabilities 85 85
Less loss on low to moderate income real estate investment 2,124
Less contingent consideration expense - Celtic acquisition 10,600
Less contribution to MB Financial Charitable Foundation 3,250 3,250
Less increase (decrease) in market value of assets held in trust for deferred compensation565 (872) 7 306 315 6 829
Non-interest expense - as adjusted$130,852 $134,749 $131,496 $131,460 $130,445 $528,557 $385,156
Net interest income$121,769 $115,969 $114,473 $113,395 $119,811 $465,606 $350,823
Tax equivalent adjustment7,307 7,019 6,676 6,078 6,246 27,080 23,591
Net interest income on a fully tax equivalent basis129,076 122,988 121,149 119,473 126,057 492,686 374,414
Plus non-interest income75,625 82,251 82,949 81,268 83,678 322,093 221,305
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance465 459 450 452 466 1,826 1,821
Less net (loss) gain on investment securities(3) 371 (84) (460) 491 (176) (2,525)
Less net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Less gain on extinguishment of debt 1,895
Less increase (decrease) in market value of assets held in trust for deferred compensation565 (872) 7 306 315 6 829
Net interest income plus non-interest income - as adjusted$204,604 $206,198 $204,632 $201,343 $205,919 $816,777 $593,889
Efficiency ratio63.95% 65.35% 64.26% 65.29% 63.35% 64.71% 64.85%
Efficiency ratio (without adjustments)64.46% 67.74% 67.24% 71.88% 69.05% 67.81% 76.34%

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Non-interest expense $127,231 $134,266 $132,737 $139,920 $140,504 $534,154 $436,782
Less merger related and repositioning expenses (4,186) 389 1,234 8,069 6,494 5,506 34,823
Less prepayment fees on interest bearing liabilities 85 85
Less loss on low to moderate income real estate investment 2,124
Less contingent consideration expense - Celtic acquisition 10,600
Less contribution to MB Financial Charitable Foundation 3,250 3,250
Less increase (decrease) in market value of assets held in trust for deferred compensation 565 (872) 7 306 315 6 829
Non-interest expense - as adjusted 130,852 134,749 131,496 131,460 130,445 528,557 385,156
Non-interest income 75,625 82,251 82,949 81,268 83,678 322,093 221,305
Less net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Less net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Less gain on extinguishment of debt 1,895
Less increase (decrease) in market value of assets held in trust for deferred compensation 565 (872) 7 306 315 6 829
Non-interest income - as adjusted 75,063 82,751 83,033 81,418 79,396 322,265 217,654
Less tax equivalent adjustment on the increase in cash surrender value of life insurance 465 459 450 452 466 1,826 1,821
Net non-interest expense $55,324 $51,539 $48,013 $49,590 $50,583 $204,466 $165,681
Average assets $15,244,633 $15,059,429 $14,631,999 $14,363,244 $14,466,066 $14,827,884 $11,420,144
Annualized net non-interest expense to average assets 1.44% 1.36% 1.32% 1.40% 1.39% 1.38% 1.45%
Annualized net non-interest expense to average assets (without adjustments) 1.34% 1.37% 1.36% 1.66% 1.56% 1.43% 1.89%

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

Year Ended
December 31,
4Q15 3Q15 2Q15 1Q15 4Q14 2015 2014
Non-interest income $75,625 $82,251 $82,949 $81,268 $83,678 $322,093 $221,305
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 465 459 450 452 466 1,826 1,821
Less net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Less net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Less gain on extinguishment of debt 1,895
Less increase (decrease) in market value of assets held in trust for deferred compensation 565 (872) 7 306 315 6 829
Non-interest income - as adjusted $75,528 $83,210 $83,483 $81,870 $79,862 $324,091 $219,475
Net interest income $121,769 $115,969 $114,473 $113,395 $119,811 $465,606 $350,823
Tax equivalent adjustment 7,307 7,019 6,676 6,078 6,246 27,080 23,591
Net interest income on a fully tax equivalent basis 129,076 122,988 121,149 119,473 126,057 492,686 374,414
Plus non-interest income 75,625 82,251 82,949 81,268 83,678 322,093 221,305
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 465 459 450 452 466 1,826 1,821
Less net (loss) gain on investment securities (3) 371 (84) (460) 491 (176) (2,525)
Less net gain (loss) on sale of other assets 1 (7) 4 3,476 (2) 3,452
Less gain on extinguishment of debt 1,895
Less increase (decrease) in market value of assets held in trust for deferred compensation 565 (872) 7 306 315 6 829
Total revenue - as adjusted and on a fully tax equivalent basis $204,604 $206,198 $204,632 $201,343 $205,919 $816,777 $593,889
Total revenue - unadjusted $197,394 $198,220 $197,422 $194,663 $203,489 $787,699 $572,128
Core non-interest income to revenues ratio 36.91% 40.35% 40.80% 40.66% 38.78% 39.68% 36.96%
Non-interest income to revenues ratio (without adjustments) 38.31% 41.49% 42.02% 41.75% 41.12% 40.89% 38.68%

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):

4Q15 4Q14 3Q15
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $681,682 $6,276 3.68% $604,196 5,850 3.87% $841,663 $7,904 3.76%
Loans (1) (2) (3):
Commercial related credits
Commercial 3,492,161 35,890 4.02 3,110,016 34,609 4.35 3,372,279 34,481 4.00
Commercial loans collateralized by assignment of lease payments 1,708,404 15,901 3.72 1,642,427 15,280 3.72 1,674,939 15,647 3.74
Real estate commercial 2,627,004 27,759 4.13 2,611,410 30,249 4.53 2,568,539 27,558 4.20
Real estate construction 274,188 3,736 5.33 232,679 3,996 6.72 210,506 2,431 4.52
Total commercial related credits 8,101,757 83,286 4.02 7,596,532 84,134 4.33 7,826,263 80,117 4.01
Other loans
Real estate residential 612,275 5,490 3.59 503,211 4,897 3.89 566,115 5,152 3.64
Home equity 219,440 2,142 3.87 256,933 2,711 4.19 226,365 2,298 4.03
Indirect 365,744 4,403 4.78 273,063 3,660 5.32 325,323 4,017 4.90
Consumer loans 83,869 777 3.67 75,264 785 4.14 85,044 807 3.76
Total other loans 1,281,328 12,812 3.97 1,108,471 12,053 4.31 1,202,847 12,274 4.05
Total loans, excluding purchased credit-impaired loans 9,383,085 96,098 4.06 8,705,003 96,187 4.38 9,029,110 92,391 4.06
Purchased credit-impaired loans 154,562 7,766 19.93 273,136 5,883 8.55 156,309 3,791 9.62
Total loans 9,537,647 103,864 4.32 8,978,139 102,070 4.51 9,185,419 96,182 4.15
Taxable investment securities 1,510,047 9,708 2.57 1,649,937 10,651 2.58 1,543,434 9,655 2.50
Investment securities exempt from federal income taxes (3) 1,383,592 16,875 4.88 1,144,497 14,458 5.05 1,356,702 16,541 4.88
Federal funds sold 100 1 1.00 551 2 0.71 38 1.00
Other interest earning deposits 141,891 110 0.31 105,446 62 0.23 138,542 89 0.25
Total interest earning assets $13,254,959 $136,834 4.10 $12,482,766 $133,093 4.23 $13,065,798 $130,371 3.96
Non-interest earning assets 1,989,674 1,983,300 1,993,631
Total assets $15,244,633 $14,466,066 $15,059,429
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $4,214,099 $1,999 0.19% $4,023,657 $1,600 0.16% $4,119,625 $1,832 0.18%
Savings accounts 959,049 123 0.05 936,960 118 0.05 965,060 124 0.05
Certificates of deposit 1,245,947 1,431 0.46 1,563,011 1,537 0.39 1,304,516 1,450 0.44
Customer repurchase agreements 230,412 115 0.20 241,653 119 0.20 244,845 114 0.18
Total core funding 6,649,507 3,668 0.22 6,765,281 3,374 0.20 6,634,046 3,520 0.21
Wholesale funding:
Brokered accounts (includes fee expense) 492,839 1,804 1.45 606,166 1,634 1.07 427,649 1,696 1.57
Other borrowings 1,031,301 2,286 0.87 688,418 2,028 1.15 1,117,166 2,167 0.76
Total wholesale funding 1,524,140 4,090 1.06 1,294,584 3,662 1.08 1,544,815 3,863 0.99
Total interest bearing liabilities $8,173,647 $7,758 0.38 $8,059,865 $7,036 0.35 $8,178,861 $7,383 0.36
Non-interest bearing deposits 4,617,076 4,072,797 4,428,065
Other non-interest bearing liabilities 392,858 316,294 378,276
Stockholders' equity 2,061,052 2,017,110 2,074,227
Total liabilities and stockholders' equity $15,244,633 $14,466,066 $15,059,429
Net interest income/interest rate spread (4) $129,076 3.72% $126,057 3.88% $122,988 3.60%
Taxable equivalent adjustment 7,307 6,246 7,019
Net interest income, as reported $121,769 $119,811 $115,969
Net interest margin (5) 3.64% 3.81% 3.52%
Tax equivalent effect 0.22% 0.20% 0.21%
Net interest margin on a fully tax equivalent basis (5) 3.86% 4.01% 3.73%

(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.

The following table presents, for the years 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):

Year Ended December 31,
2015 2014
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $740,975 $26,804 3.62% $231,555 8,676 3.75%
Loans (1) (2) (3):
Commercial related credits
Commercial $3,342,090 $137,878 4.07% $1,928,491 82,369 4.21%
Commercial loans collateralized by assignment of lease payments 1,666,611 62,221 3.73 1,540,635 58,961 3.83
Real estate commercial 2,564,506 110,009 4.23 1,995,903 88,802 4.39
Real estate construction 217,181 12,637 5.74 169,547 9,113 5.30
Total commercial related credits 7,790,388 322,745 4.09 5,634,576 239,245 4.19
Other loans
Real estate residential 546,511 20,455 3.74 383,117 15,279 3.99
Home equity 231,464 9,209 3.98 256,240 10,650 4.16
Indirect 311,418 15,674 5.03 270,281 14,277 5.28
Consumer loans 79,416 3,161 3.98 68,292 2,960 4.33
Total other loans 1,168,809 48,499 4.15 977,930 43,166 4.41
Total loans, excluding purchased credit-impaired loans 8,959,197 371,244 4.14 6,612,506 282,411 4.27
Purchased credit-impaired loans 188,082 20,611 10.96 218,677 14,821 6.78
Total loans 9,147,279 391,855 4.28 6,831,183 297,232 4.35
Taxable investment securities 1,538,709 39,299 2.55 1,549,954 38,619 2.49
Investment securities exempt from federal income taxes (3) 1,282,909 63,037 4.91 1,034,274 53,524 5.18
Federal funds sold 70 1 0.99 6,575 25 0.38
Other interest earning deposits 117,344 318 0.27 270,578 663 0.25
Total interest earning assets $12,827,286 $521,314 4.06 $9,924,119 $398,739 4.02
Non-interest earning assets 2,000,598 1,496,025
Total assets $14,827,884 $11,420,144
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $4,053,848 $7,060 0.17% $3,291,808 $4,815 0.15%
Savings accounts 962,221 502 0.05 893,861 453 0.05
Certificates of deposit 1,317,689 5,593 0.42 1,336,777 5,210 0.40
Customer repurchase agreements 240,737 452 0.19 206,861 412 0.20
Total core funding 6,574,495 13,607 0.21 5,729,307 10,890 0.19
Wholesale funding:
Brokered accounts (includes fee expense) 452,290 6,503 1.44 368,144 6,549 1.78
Other borrowings 990,784 8,518 0.85 448,927 6,886 1.51
Total wholesale funding 1,443,074 15,021 1.04 817,071 13,435 1.53
Total interest bearing liabilities $8,017,569 $28,628 0.36 $6,546,378 $24,325 0.37
Non-interest bearing deposits 4,381,030 3,029,464
Other non-interest bearing liabilities 370,373 249,702
Stockholders' equity 2,058,912 1,594,600
Total liabilities and stockholders' equity $14,827,884 $11,420,144
Net interest income/interest rate spread (4) $492,686 3.70% $374,414 3.65%
Taxable equivalent adjustment 27,080 23,591
Net interest income, as reported $465,606 $350,823
Net interest margin (5) 3.63% 3.54%
Tax equivalent effect 0.21% 0.23%
Net interest margin on a fully tax equivalent basis (5) 3.84% 3.77%

(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.

The table below reflects the impact the acquisition accounting loan discount accretion on Taylor Capital loans had on the loan yield and net interest margin on a fully tax equivalent basis for the three months ended December 31, 2015, December 31, 2014 and September 30, 2015:

4Q15 4Q14 3Q15
Average
Balance
Interest Yield Average
Balance
Interest Yield Average
Balance
Interest Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital loans:
Total loans, as reported $9,537,647 $103,864 4.32% $8,978,139 $102,070 4.51% $9,185,419 $96,182 4.15%
Less acquisition accounting discount accretion on non-PCI loans (37,865) 6,193 (65,975) 10,082 (43,899) 5,875
Less acquisition accounting discount accretion on PCI loans (28,037) 3,510 (37,534) 833 (31,745) 1,533
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans $9,603,549 $94,161 3.89% $9,081,648 $91,155 3.98% $9,261,063 $88,774 3.80%
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans:
Total interest earning assets, as reported $13,254,959 $129,076 3.86% $12,482,766 $126,057 4.01% $13,065,798 $122,988 3.73%
Less acquisition accounting discount accretion on non-PCI loans (37,865) 6,193 (65,975) 10,082 (43,899) 5,875
Less acquisition accounting discount accretion on PCI loans (28,037) 3,510 (37,534) 833 (31,745) 1,533
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans $13,320,861 $119,373 3.56% $12,586,275 $115,142 3.63% $13,141,442 $115,580 3.49%

The table below reflects the impact the acquisition accounting loan discount accretion on Taylor Capital loans had on the loan yield and net interest margin on a fully tax equivalent basis for the year ended December 31, 2015 and 2014 (dollars in thousands):

Year Ended December 31,
2015 2014
Average
Balance
Interest Yield Average
Balance
Interest Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital loans:
Total loans, as reported $9,147,279 $391,855 4.28% $6,831,183 $297,232 4.35%
Less acquisition accounting discount accretion on non-PCI loans (47,410) 27,008 (25,523) 15,879
Less acquisition accounting discount accretion on PCI loans (32,326) 6,631 (14,144) 1,210
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans $9,227,015 $358,216 3.88% $6,870,850 $280,143 4.08%
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans:
Total interest earning assets, as reported $12,827,286 $492,686 3.84% $9,924,119 $374,414 3.77%
Less acquisition accounting discount accretion on non-PCI loans (47,410) 27,008 (25,523) 15,879
Less acquisition accounting discount accretion on PCI loans (32,326) 6,631 (14,144) 1,210
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans $12,907,022 $459,047 3.56% $9,963,786 $357,325 3.59%

Provision for credit losses will be recognized on acquired Taylor Capital loans as they renew and will largely offset the positive impact of the loan discount accretion on non-purchased credit-impaired loans. During the fourth quarter of 2015, no provision for credit losses was recorded compared to $4.1 million recorded in the third quarter of 2015 related to acquired Taylor Capital loans. No provision was recorded due to better than expected credit performance as well as favorable changes in portfolio mix and loan risk ratings.

The table below reflects the impact that the loan discount accretion and provision for credit losses on Taylor Capital loans had on earnings for the three months ended December 31, 2015 and September 30, 2015 (dollars in thousands):

4Q15 3Q15
Acquisition accounting discount accretion on Taylor Capital loans $9,703 $7,408
Provision for credit losses on Taylor Capital loans 4,133
Earnings impact of discount accretion and merger related provision 9,703 3,275
Tax expense 3,850 1,300
Earnings impact of discount accretion and merger related provision, net of tax $5,853 $1,975

For Information at MB Financial, Inc. Contact: Berry Allen - Investor Relations E-Mail: beallen@mbfinancial.com

Source:MB Financial