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MB Financial, Inc. Reports Earnings for the Second Quarter of 2016

CHICAGO, July 20, 2016 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., today announced 2016 second quarter net income available to common stockholders of $41.4 million, or $0.56 per diluted common share, compared to $37.1 million, or $0.50 per diluted common share, last quarter and $39.0 million, or $0.52 per diluted common share, in the second quarter a year ago.

KEY ITEMS

Growth in Operating Earnings for the Quarter

Operating earnings increased by $3.0 million, or $0.04 per diluted common share, compared to last quarter and $3.1 million, or $0.05 per diluted common share, compared to the second quarter of last year.

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

Six Months Ended
June 30,
2Q16 1Q16 2Q15 2016 2015
Net income - as reported $43,412 $39,114 $40,952 $82,526 $75,063
Non-core items adjustment:
Non-core items 2,454 3,335 1,325 5,789 9,935
Income tax expense on non-core items 1,003 577 526 1,580 3,943
Non-core items, net of tax 1,451 2,758 799 4,209 5,992
Operating earnings 44,863 41,872 41,751 86,735 81,055
Dividends on preferred shares 2,000 2,000 2,000 4,000 4,000
Operating earnings available to common stockholders $42,863 $39,872 $39,751 $82,735 $77,055
Diluted operating earnings per common share $0.58 $0.54 $0.53 $1.12 $1.02
Weighted average common shares outstanding for diluted
operating earnings per common share
74,180,374 73,966,935 75,296,029 74,073,655 75,230,455


  • Net interest income on a fully tax equivalent basis increased $3.3 million (+2.6%) to $129.8 million in the second quarter of 2016 compared to the prior quarter due to higher average loan balances and higher yields earned on loans.
  • Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, increased two basis points to 3.57% compared to 3.55% last quarter.
  • Our core non-interest income increased 11.6% to $91.3 million compared to $81.7 million in the prior quarter primarily due to an increase in mortgage banking revenue. The increase in mortgage banking revenue was driven by higher origination fees as a result of higher origination volumes in the second quarter of 2016 and higher gains on sale margins. The increase in mortgage banking revenue was partially offset by lower lease financing revenue, which decreased due to lower fees from the sale of third-party equipment maintenance contracts.
  • Our core non-interest expense increased $12.2 million (+9.2%) compared to the prior quarter primarily due to an increase in salaries and employee benefits expense, which increased due to higher mortgage commission expense resulting from higher mortgage origination volumes, annual pay increases effective in the beginning of the second quarter and an increase in bonus expense based on company performance through June 2016.

Growth in Loan Balances During the Quarter

Loan balances, excluding purchased credit-impaired loans, increased $240.2 million (+2.4%, or +9.8% annualized) during the second quarter of 2016.

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

Change from 3/31/2016
to 6/30/2016
(Dollars in thousands) 6/30/2016 3/31/2016 Amount Percent
Commercial-related credits:
Commercial loans $3,561,500 $3,509,604 $51,896 +1.5%
Commercial loans collateralized by assignment of lease
payments (lease loans)
1,794,465 1,774,104 20,361 +1.1
Commercial real estate 2,827,720 2,831,814 (4,094) -0.1
Construction real estate 357,807 310,278 47,529 +15.3
Total commercial-related credits 8,541,492 8,425,800 115,692 +1.4
Other loans:
Residential real estate 753,707 677,791 75,916 +11.2
Indirect vehicle 491,480 432,915 58,565 +13.5
Home equity 198,622 207,079 (8,457) -4.1
Consumer loans 75,775 77,318 (1,543) -2.0
Total other loans 1,519,584 1,395,103 124,481 +8.9
Total loans, excluding purchased credit-impaired 10,061,076 9,820,903 240,173 +2.4
Purchased credit-impaired 136,811 140,445 (3,634) -2.6
Total loans $10,197,887 $9,961,348 $236,539 +2.4%


Growth in Non-Interest Bearing Deposit Balances During the Quarter

Non-interest bearing deposits increased $108.0 million (+2.3% or +9.3% annualized) during the second quarter of 2016, and represented 42% of total deposits at June 30, 2016. Total low cost deposits declined during the quarter due to the reduction in balances of certain large accounts, but continued to represent 84% of total deposits at June 30, 2016.

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

Change from 3/31/2016
to 6/30/2016
(Dollars in thousands) 6/30/2016 3/31/2016 Amount Percent
Low cost deposits:
Non-interest bearing deposits $4,775,364 $4,667,410 $107,954 +2.3%
Money market and NOW 3,771,111 4,048,054 (276,943) -6.8
Savings 1,021,845 991,300 30,545 +3.1
Total low cost deposits 9,568,320 9,706,764 (138,444) -1.4
Certificates of deposit:
Certificates of deposit 1,220,562 1,255,457 (34,895) -2.8
Brokered certificates of deposit 647,214 571,605 75,609 +13.2
Total certificates of deposit 1,867,776 1,827,062 40,714 +2.2
Total deposits $11,436,096 $11,533,826 $(97,730) -0.8%


Positive Credit Quality Metrics

Our credit quality metrics improved during the second quarter of 2016 as follows:

  • Provision for credit losses decreased to $2.8 million in the second quarter of 2016 compared to $7.6 million in the prior quarter primarily due to a decrease in non-performing loans and a reduction in specific reserves.
  • Non-performing loans and non-performing assets decreased by $20.0 million and $20.4 million, respectively, from March 31, 2016 primarily due to loans that paid off during the quarter.
  • Potential problem loans decreased by $10.4 million from March 31, 2016 primarily due to loans that paid off during the quarter and loans that were upgraded from potential problem loan status to pass status.
  • Our net loan charge-offs during the second quarter of 2016 were $2.2 million, or 0.09% of loans (annualized), compared to net loan charge-offs of $1.3 million, or 0.06% of loans (annualized), in the first quarter of 2016.
  • Our allowance for loan and lease losses to total loans ratio was 1.33% at June 30, 2016 compared to 1.35% at March 31, 2016. The decrease in the allowance for loan and lease losses to total loans ratio was primarily due to lower specific reserves.

American Chartered Bancorp, Inc. ("ACB") Pending Merger Update

The Office of the Comptroller of the Currency has approved the merger of American Chartered Bank, the bank subsidiary of American Chartered Bancorp, Inc., with MB Financial, Inc.’s bank subsidiary, MB Financial Bank, N.A. The Board of Governors of the Federal Reserve System has also approved the merger of American Chartered Bancorp, Inc. with MB Financial, Inc. The transaction, which remains subject to the satisfaction of other customary conditions to closing, is expected to be completed in the third quarter of 2016.

RESULTS OF OPERATIONS

Second Quarter Results

Net Interest Income

The following table presents net interest income and net interest margin on fully tax equivalent basis (dollars in thousands):

Change
from
1Q16 to
2Q16
Change
from
2Q15 to
2Q16
Six Months Ended Change
from
2015 to
2016
June 30,
2Q16 1Q16 2Q15 2016 2015
Net interest income - fully
tax equivalent
$129,810 $126,499 +2.6% $121,149 +7.1% $256,309 $240,622 +6.5%
Net interest income - fully
tax equivalent, excluding
acquisition accounting
discount accretion on
Taylor Capital loans
$122,108 $119,146 +2.5% $113,197 +7.9% $241,254 $224,094 +7.7%
Net interest margin - fully
tax equivalent
3.81% 3.79% +0.02% 3.84% -0.03% 3.80% 3.89% -0.09%
Net interest margin - fully
tax equivalent, excluding
acquisition accounting
discount accretion on
Taylor Capital loans
3.57% 3.55% +0.02% 3.57% 0.00% 3.56% 3.59% -0.03%


Net interest income on a fully tax equivalent basis increased in the second quarter of 2016 compared to the prior quarter due to higher average loan balances and higher yields earned on loans. Net interest income on a fully tax equivalent basis increased in the second quarter of 2016 compared to the second quarter of 2015 primarily due to an increase in average loans, partially offset by an increase in average borrowings and an increase in the average cost of deposits as a result of the increase in interest rates.

Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, was stable at 3.57% in the second quarter of 2016 compared to 3.55% last quarter and 3.57% in the same quarter of last year.

Net interest income on a fully tax equivalent basis increased in the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to an increase in average loans, partially offset by an increase in average borrowings and an increase in the cost of deposits as well as lower average yields earned on interest earning assets.

Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, decreased slightly to 3.56% in the six months ended June 30, 2016 compared to 3.59% in the six months ended June 30, 2015.

See the supplemental net interest margin tables in the "Net Interest Margin" section for further detail. Reconciliations of net interest income and net interest margin to net interest income and net interest margin on a fully tax equivalent basis and to net interest income and net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans are also set forth in the tables in the "Net Interest Margin" section.

Non-interest Income

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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Core non-interest income:
Key fee initiatives:
Lease financing revenues, net $15,708 $19,046 $15,937 $20,000 $15,564 $34,754 $40,644
Mortgage banking revenue 39,615 27,482 26,542 30,692 35,648 67,097 60,192
Commercial deposit and treasury management fees 11,548 11,878 11,711 11,472 11,062 23,426 22,100
Trust and asset management fees 8,236 7,950 6,077 6,002 5,752 16,186 11,466
Card fees 4,045 3,525 3,651 3,335 4,409 7,570 8,336
Capital markets and international banking service fees 2,771 3,227 2,355 2,357 1,508 5,998 3,436
Total key fee initiatives 81,923 73,108 66,273 73,858 73,943 155,031 146,174
Consumer and other deposit service fees 3,161 3,025 3,440 3,499 3,260 6,186 6,343
Brokerage fees 1,315 1,158 1,252 1,281 1,543 2,473 3,221
Loan service fees 1,961 1,752 1,890 1,531 1,353 3,713 2,838
Increase in cash surrender value of life insurance 850 854 864 852 836 1,704 1,675
Other operating income 2,043 1,836 1,344 1,730 2,098 3,879 4,200
Total core non-interest income 91,253 81,733 75,063 82,751 83,033 172,986 164,451
Non-core non-interest income:
Net gain (loss) on investment securities 269 (3) 371 (84) 269 (544)
Net (loss) gain on sale of other assets (2) (48) 1 (7) (50) (3)
Increase (decrease) in market value of assets held in
trust for deferred compensation (1)
480 8 565 (872) 7 488 313
Total non-core non-interest income 747 (40) 562 (500) (84) 707 (234)
Total non-interest income $92,000 $81,693 $75,625 $82,251 $82,949 $173,693 $164,217


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

Core non-interest income for the second quarter of 2016 increased by $9.5 million, or 11.6%, to $91.3 million from the first quarter of 2016.

  • Mortgage banking revenue increased due to higher origination volumes as a result of the favorable interest rate environment and higher gains on sale margins.
  • Card fees increased primarily due to higher prepaid card revenue.
  • Lease financing revenues decreased due to a decrease in fees from the sale of third-party equipment maintenance contracts.
  • Capital markets and international banking services fees decreased due to lower swap fees partially offset by higher syndication and M&A advisory fees.

Core non-interest income for the six months ended June 30, 2016 increased by $8.5 million, or 5.2%, to $173.0 million from the six months ended June 30, 2015.

  • Mortgage banking revenue increased due to higher mortgage servicing fees partly offset by lower mortgage origination fees.
  • Trust and asset management fees increased due to the addition of new customers as well as the acquisitions of MSA Holdings, LLC ("MSA") and the Illinois court-appointed guardianship and special needs trust business.
  • Capital markets and international banking services fees increased due to higher swap, syndication and M&A advisory fees partly offset by lower commercial real estate advisory fees.
  • Commercial deposit and treasury management fees increased due to new customer activity.
  • Loan service fees increased due to higher unused line and letter of credit fees.
  • Lease financing revenues decreased due to lower residual gains and fees from the sale of third-party equipment maintenance contracts.
  • Card fees decreased due to the impact of becoming subject to the Durbin amendment of the Dodd-Frank Act starting on July 1, 2015, which was partly offset by an increase in prepaid card revenue and credit card fees. We estimate the quarterly impact of the Durbin amendment was a loss of $1.2 million of revenue.

Non-interest Expense

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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Core non-interest expense: (1)
Salaries and employee benefits expense:
Salaries and commissions $61,105 $58,282 $56,741 $59,358 $57,459 $119,387 $114,858
Bonus and stock-based compensation 13,971 9,532 11,436 11,316 11,264 23,503 21,356
Health and accident insurance 6,079 5,599 4,646 5,640 5,296 11,678 10,789
Other salaries and benefits (2) 13,045 12,089 11,533 12,446 12,119 25,134 23,582
Total salaries and employee benefits expense 94,200 85,502 84,356 88,760 86,138 179,702 170,585
Occupancy and equipment expense 13,407 13,260 12,935 12,456 12,081 26,667 24,844
Computer services and telecommunication expense 9,266 8,750 8,548 8,558 8,407 18,016 17,041
Advertising and marketing expense 2,923 2,855 2,549 2,578 2,497 5,778 4,943
Professional and legal expense 3,220 2,492 2,715 1,496 1,902 5,712 4,382
Other intangible amortization expense 1,618 1,626 1,546 1,542 1,509 3,244 3,027
Net (gain) loss recognized on other real estate owned (A) (297) (637) (256) 520 662 (934) 1,550
Net loss (gain) recognized on other real estate owned related
to FDIC transactions (A)
312 154 (549) 65 (88) 466 (361)
Other real estate expense, net (A) 243 137 76 (8) 150 380 431
Other operating expenses 19,813 18,366 18,932 18,782 18,238 38,179 36,514
Total core non-interest expense 144,705 132,505 130,852 134,749 131,496 277,210 262,956
Non-core non-interest expense: (1)
Merger related and repositioning expenses (B) 2,566 3,287 (4,186) 389 1,234 5,853 9,303
Branch exit and facilities impairment charges 155 155
Prepayment fees on interest bearing liabilities 85
Increase (decrease) in market value of assets held in trust for
deferred compensation (C)
480 8 565 (872) 7 488 313
Total non-core non-interest expense 3,201 3,295 (3,621) (483) 1,241 6,496 9,701
Total non-interest expense $147,906 $135,800 $127,231 $134,266 $132,737 $283,706 $272,657


(1) Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows: A – Net loss (gain) recognized on other real estate owned and other expense, B – See merger related and repositioning expenses table below, and C – Salaries and employee benefits.

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

Core non-interest expense increased by $12.2 million, or 9.2%, from the first quarter of 2016 to $144.7 million for the second quarter of 2016.

  • Salaries and employee benefits expense was up due to the following:
    • Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through June 2016. Bonus expense for the first quarter of 2016 included a reduction in expense related to 2015 bonus payments.

    • Salaries and commissions expense increased due to higher mortgage commission expense resulting from higher mortgage origination volumes and annual pay increases effective in the beginning of the second quarter.
  • Other operating expenses increased due to higher filing and other loan expense.
  • Professional and legal expense increased due to an increase in litigation fees and organizational legal fees related to the setup of a Canadian entity as well as an increase in consulting expense.
  • Computer services and telecommunication expense increased due to higher processing fees and increased spending in infrastructure.

Core non-interest expense increased by $14.3 million, or 5.4%, from the six months ended June 30, 2015 to $277.2 million for the six months ended June 30, 2016.

  • Salaries and employee benefits expense was up due to the following:
    • Salaries and commissions expense increased due to annual pay increases effective in the beginning of the second quarter as well as new hires.
    • Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through June 2016.
    • Other benefits expense increased due to increased temporary help in our IT and mortgage areas as well as higher 401(k) match and profit sharing contribution expense.
  • Occupancy and equipment expense increased due to higher depreciation expense and rental operating expenses as a result of the acquisition of MSA, new offices opened at our mortgage banking segment and an office relocation at our leasing segment.
  • Other operating expenses increased due to higher FDIC premiums (as a result of MB Financial Bank, N.A. (the "Bank") exceeding $10 billion in assets) and card expenses (higher rewards and product development expense).
  • Professional and legal expense increased due to an increase in litigation and consulting fees.
  • Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer activity and investments in systems.
  • Advertising and marketing expense increased due to increased advertising.

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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Merger related and repositioning expenses:
Salaries and employee benefits $324 $81 $(212) $3 $ $405 $33
Occupancy and equipment expense 8 2 96 8 273
Computer services and telecommunication expense 511 305 (103) 9 130 816 400
Advertising and marketing expense 41 23 2 64
Professional and legal expense 101 97 1,454 305 511 198 701
Branch exit and facilities impairment charges 44 616 70 438 44 7,829
Contingent consideration expense - Celtic acquisition (1) 2,703 2,703
Other operating expenses 1,581 34 (5,943) 59 1,615 67
Total merger related and repositioning expenses $2,566 $3,287 $(4,186) $389 $1,234 $5,853 $9,303


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

In the second quarter of 2016, merger related and repositioning expenses included a $1.5 million contract termination fee related to the anticipated ACB integration (reflected in other operating expenses). In the first quarter of 2016, merger related and repositioning expenses included an increase in our contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated. In the fourth quarter of 2015, 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 (reflected in other operating expenses).

Operating Segments

The Company's operations consist of three reportable operating segments: Banking, Leasing and Mortgage Banking. Our Banking Segment generates revenues primarily from its lending, deposit gathering and fee business activities. Our Leasing Segment generates revenues through lease originations and related services 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 tables summarize financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments for the periods presented (in thousands):

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Three months ended June 30, 2016
Net interest income$112,152 $2,411 $8,039 $ $122,602
Provision for credit losses2,995 (356) 190 2,829
Net interest income after provision for credit losses109,157 2,767 7,849 119,773
Non-interest income:
Lease financing revenues, net789 14,919 15,708
Mortgage origination fees 31,417 31,417
Mortgage servicing fees 8,198 8,198
Other non-interest income35,132 798 747 36,677
Total non-interest income35,921 15,717 39,615 747 92,000
Non-interest expense:
Salaries and employee benefits expense:
Salaries and commissions36,552 5,317 19,236 61,105
Bonus and stock-based compensation11,676 1,028 1,267 13,971
Health and accident insurance3,816 376 1,887 6,079
Other salaries and benefits (1)8,170 886 3,989 804 13,849
Total salaries and employee benefits expense60,214 7,607 26,379 804 95,004
Occupancy and equipment expense10,561 947 1,899 8 13,415
Computer services and telecommunication expense6,945 431 1,890 511 9,777
Professional and legal expense2,385 414 421 101 3,321
Other operating expenses16,587 1,716 6,309 1,777 26,389
Total non-interest expense96,692 11,115 36,898 3,201 147,906
Income before income taxes48,386 7,369 10,566 (2,454) 63,867
Income tax expense14,353 2,879 4,226 (1,003) 20,455
Net income$34,033 $4,490 $6,340 $(1,451) $43,412


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

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Three months ended March 31, 2016
Net interest income$109,608 $2,423 $7,273 $ $119,304
Provision for credit losses7,001 437 125 7,563
Net interest income after provision for credit losses102,607 1,986 7,148 111,741
Non-interest income:
Lease financing revenues, net679 18,367 19,046
Mortgage origination fees 16,894 16,894
Mortgage servicing fees 10,588 10,588
Other non-interest income34,380 828 (3) (40) 35,165
Total non-interest income35,059 19,195 27,479 (40) 81,693
Non-interest expense:
Salaries and employee benefits expense:
Salaries and commissions35,154 6,715 16,413 58,282
Bonus and stock-based compensation7,245 925 1,362 9,532
Health and accident insurance3,461 335 1,803 5,599
Other salaries and benefits (1)7,542 1,108 3,439 89 12,178
Total salaries and employee benefits expense53,402 9,083 23,017 89 85,591
Occupancy and equipment expense10,430 895 1,935 13,260
Computer services and telecommunication expense6,446 363 1,941 305 9,055
Professional and legal expense1,486 409 597 97 2,589
Other operating expenses15,570 1,447 5,484 2,804 25,305
Total non-interest expense87,334 12,197 32,974 3,295 135,800
Income before income taxes50,332 8,984 1,653 (3,335) 57,634
Income tax expense14,927 3,509 661 (577) 18,520
Net income$35,405 $5,475 $992 $(2,758) $39,114


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

Net income from our Banking Segment for the second quarter of 2016 decreased compared to the prior quarter. This decrease in net income was primarily due to higher salaries and employee benefits expense due to higher bonus expense and annual pay increases partly offset by an increase in net interest income driven by loan growth and higher loan yields and a decrease in provision for credit losses expense.

Net income from our Leasing Segment for the second quarter of 2016 decreased compared to the prior quarter. This decrease in net income was primarily due to a decrease in lease financing revenues, as a result of a decrease in fees from the sale of third-party equipment maintenance contracts, partly offset by a decrease in commission expense and provision for credit losses expense.

Net income from our Mortgage Banking Segment for the second quarter of 2016 increased compared to the prior quarter. This increase in net income was due to an increase in mortgage origination fees and net interest income, which was partly offset by higher mortgage commission expense and other operating expenses. The increase in mortgage origination fees was driven by higher origination volumes in the second quarter of 2016, as a result of the favorable interest rate environment, and higher gains on sale margins.
The following tables summarize financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments for the periods presented (in thousands):

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Six months ended June 30, 2016
Net interest income$221,760 $4,834 $15,312 $ $241,906
Provision for credit losses9,996 81 315 10,392
Net interest income after provision for credit losses211,764 4,753 14,997 231,514
Non-interest income:
Lease financing, net1,468 33,286 34,754
Mortgage origination fees 48,311 48,311
Mortgage servicing fees 18,786 18,786
Other non-interest income69,512 1,626 (3) 707 71,842
Total non-interest income70,980 34,912 67,094 707 173,693
Non-interest expense:
Salaries and employee benefits expense:
Salaries and commissions71,706 12,032 35,649 119,387
Bonus and stock-based compensation18,921 1,953 2,629 23,503
Health and accident insurance7,277 711 3,690 11,678
Other salaries and benefits (1)15,712 1,994 7,428 893 26,027
Total salaries and employee benefits expense113,616 16,690 49,396 893 180,595
Occupancy and equipment expense20,991 1,842 3,834 8 26,675
Computer services and telecommunication expense13,391 794 3,831 816 18,832
Professional and legal expense3,871 823 1,018 198 5,910
Other operating expenses32,157 3,163 11,793 4,581 51,694
Total non-interest expense184,026 23,312 69,872 6,496 283,706
Income before income taxes98,718 16,353 12,219 (5,789) 121,501
Income tax expense29,280 6,388 4,887 (1,580) 38,975
Net income$69,438 $9,965 $7,332 $(4,209) $82,526


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

Banking Leasing Mortgage
Banking
Non-core
Items
Consolidated
Six months ended June 30, 2015
Net interest income$208,478 $5,930 $13,460 $ $227,868
Provision for credit losses7,818 1,356 96 9,270
Net interest income after provision for credit losses200,660 4,574 13,364 218,598
Non-interest income:
Lease financing, net933 39,711 40,644
Mortgage origination fees 53,758 53,758
Mortgage servicing fees 6,434 6,434
Other non-interest income61,926 1,685 4 (234) 63,381
Total non-interest income62,859 41,396 60,196 (234) 164,217
Non-interest expense:
Salaries and employee benefits expense:
Salaries and commissions67,647 13,615 33,596 114,858
Bonus and stock-based compensation17,367 1,800 2,189 21,356
Health and accident insurance7,043 644 3,102 10,789
Other salaries and benefits (1)14,480 1,716 7,386 346 23,928
Total salaries and employee benefits expense106,537 17,775 46,273 346 170,931
Occupancy and equipment expense20,187 1,656 3,001 273 25,117
Computer services and telecommunication expense12,604 569 3,868 400 17,441
Professional and legal expense3,223 554 605 701 5,083
Other operating expenses30,720 2,930 12,454 7,981 54,085
Total non-interest expense173,271 23,484 66,201 9,701 272,657
Income before income taxes90,248 22,486 7,359 (9,935) 110,158
Income tax expense27,274 8,820 2,944 (3,943) 35,095
Net income$62,974 $13,666 $4,415 $(5,992) $75,063


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

Net income from our Banking Segment for the six months ended June 30, 2016 increased compared to the six months ended June 30, 2015. This increase in net income was primarily due to an increase in net interest income driven by loan growth and an increase in other non-interest income partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires and bonus expense as well as an increase in provision for credit losses expense.

Net income from our Leasing Segment for the six months ended June 30, 2016 decreased compared to the six months ended June 30, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues, as a result of a decrease in residual gains and fees from the sale of third-party equipment maintenance contracts, partly offset by a decrease in commission expense and provision for credit losses expense.

Net income from our Mortgage Banking Segment for the six months ended June 30, 2016 increased compared to the six months ended June 30, 2015. This increase in net income was due to an increase in mortgage servicing fees and net interest income, which was partly offset by lower mortgage origination fees and higher salaries expense due to annual pay increases and new hires.

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

2Q16 1Q16 4Q15 3Q15 2Q15
Origination volume: $1,709,044 $1,328,804 $1,437,057 $1,880,960 $2,010,175
Refinance 42% 49% 42% 34% 43%
Purchase 58 51 58 66 57
Origination volume by channel:
Retail 23% 19% 18% 18% 18%
Third party 77 81 82 82 82
Mortgage servicing book (unpaid principal balance of loans
serviced for others) at period end (1)
$17,739,626 $16,911,325 $16,218,613 $15,582,911 $23,588,345
Mortgage servicing rights, recorded at fair value, at period end 134,969 145,800 168,162 148,097 261,034
Notional value of rate lock commitments, at period end 981,000 823,000 622,906 800,162 992,025

(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) based on period end balances as of the dates indicated (dollars in thousands):

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Commercial-related credits:
Commercial loans $3,561,500 35% $3,509,604 36% $3,616,286 37% $3,440,632 37% $3,354,889 37%
Commercial loans collateralized by
assignment of lease payments (lease loans)
1,794,465 18 1,774,104 18 1,779,072 18 1,693,540 18 1,690,866 18
Commercial real estate 2,827,720 28 2,831,814 28 2,695,676 27 2,580,009 27 2,539,991 28
Construction real estate 357,807 3 310,278 3 252,060 3 255,620 3 189,599 2
Total commercial-related credits 8,541,492 84 8,425,800 85 8,343,094 85 7,969,801 85 7,775,345 85
Other loans:
Residential real estate 753,707 7 677,791 7 628,169 6 607,171 6 533,118 6
Indirect vehicle 491,480 5 432,915 4 384,095 4 345,731 4 303,777 3
Home equity 198,622 2 207,079 2 216,573 2 223,173 2 230,478 3
Consumer loans 75,775 1 77,318 1 80,661 1 87,612 1 86,463 1
Total other loans 1,519,584 15 1,395,103 14 1,309,498 13 1,263,687 13 1,153,836 13
Total loans, excluding purchased credit-
impaired loans
10,061,076 99 9,820,903 99 9,652,592 98 9,233,488 98 8,929,181 98
Purchased credit-impaired loans 136,811 1 140,445 1 141,406 2 155,693 2 164,775 2
Total loans $10,197,887 100% $9,961,348 100% $9,793,998 100% $9,389,181 100% $9,093,956 100%
Change over prior quarter +2.4% +1.7% +4.3% +3.2% +1.9%

Our loan balances, excluding purchased credit-impaired loans, increased $240.2 million (+2.4%, or +9.8% annualized) during the second quarter of 2016. Residential real estate loan balances have increased over the past year as a result of retaining adjustable rate mortgages originated by our Mortgage Banking Segment in our loan portfolio. Construction loans have increased over the past year due to draws on new and existing credit lines primarily in the areas of apartments, healthcare and office. Indirect vehicle loans have increased as a result of growth in boat, motorcycle and other recreational vehicle loans.

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):

2Q16 1Q16 4Q15 3Q15 2Q15
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Commercial-related credits:
Commercial loans $3,522,641 35% $3,531,441 36% $3,492,161 37% $3,372,279 37% $3,309,519 37%
Commercial loans collateralized by
assignment of lease payments (lease loans)
1,777,763 18 1,754,558 18 1,708,404 18 1,674,939 18 1,634,583 18
Commercial real estate 2,821,516 28 2,734,148 28 2,627,004 28 2,568,539 28 2,522,473 28
Construction real estate 351,079 3 276,797 3 274,188 2 210,506 2 191,935 2
Total commercial-related credits 8,472,999 84 8,296,944 85 8,101,757 85 7,826,263 85 7,658,510 85
Other loans:
Residential real estate 710,384 7 640,231 7 612,275 6 566,115 6 512,766 6
Indirect vehicle 462,053 5 404,473 4 365,744 4 325,323 4 286,107 3
Home equity 202,228 2 210,678 2 219,440 2 226,365 2 233,867 3
Consumer loans 78,108 1 80,569 1 83,869 1 85,044 1 76,189 1
Total other loans 1,452,773 15 1,335,951 14 1,281,328 13 1,202,847 13 1,108,929 13
Total loans, excluding purchased credit-
impaired loans
9,925,772 99 9,632,895 99 9,383,085 98 9,029,110 98 8,767,439 98
Purchased credit-impaired loans 136,415 1 139,451 1 154,562 2 156,309 2 202,374 2
Total loans $10,062,187 100% $9,772,346 100% $9,537,647 100% $9,185,419 100% $8,969,813 100%
Change over prior quarter +3.0% +2.5% +3.8% +2.4% +0.9%


Our average loan balances, excluding purchased credit-impaired loans, increased $292.9 million (+3.0%, or +12.2% annualized) during the second quarter of 2016.

ASSET QUALITY

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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Non-performing loans:
Non-accrual loans (1) $67,544 $93,602 $98,065 $92,302 $91,943
Loans 90 days or more past due, still accruing interest 7,190 1,112 6,596 4,275 6,112
Total non-performing loans 74,734 94,714 104,661 96,577 98,055
Other real estate owned 27,663 28,309 31,553 29,587 28,517
Repossessed assets 459 187 81 216 78
Total non-performing assets $102,856 $123,210 $136,295 $126,380 $126,650
Potential problem loans (2) $99,782 $110,193 $139,941 $122,966 $116,443
Purchased credit-impaired loans $136,811 $140,445 $141,406 $155,693 $164,775
Total non-performing, potential problem and purchased
credit-impaired loans
$311,327 $345,352 $386,008 $375,236 $379,273
Total allowance for loan and lease losses $135,614 $134,493 $128,140 $124,626 $120,070
Accruing restructured loans (3) 26,715 27,269 26,991 20,120 16,875
Total non-performing loans to total loans 0.73% 0.95% 1.07% 1.03% 1.08%
Total non-performing assets to total assets 0.64 0.79 0.87 0.85 0.84
Allowance for loan and lease losses to non-performing loans 181.46 142.00 122.43 129.04 122.45

(1) Includes $29.3 million, $24.0 million, $23.6 million, $21.4 million and $24.5 million of restructured loans on non-accrual status at June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015, 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 of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Commercial and lease $29,509 $28,590 $37,076 $34,465 $31,053
Commercial real estate 7,163 27,786 29,073 25,437 32,358
Construction real estate 337
Consumer related 38,062 38,338 38,512 36,675 34,307
Total non-performing loans $74,734 $94,714 $104,661 $96,577 $98,055


Non-performing commercial real estate loans decreased at June 30, 2016 compared to March 31, 2016 as a result of loans paid off during the quarter.

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):

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Balance at the beginning of quarter $28,309 $31,553 $29,587 $28,517 $21,839
Transfers in at fair value less estimated costs to sell 1,367 1,270 5,964 2,402 8,595
Fair value adjustments 70 45 (721) (565) (920)
Net gains on sales of other real estate owned 227 592 977 45 258
Cash received upon disposition (2,310) (5,151) (4,254) (812) (1,255)
Balance at the end of quarter $27,663 $28,309 $31,553 $29,587 $28,517


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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Allowance for credit losses, balance
at the beginning of period
$137,732 $131,508 $128,038 $124,130 $117,189 $131,508 $114,057
Provision for credit losses 2,829 7,563 6,758 5,358 4,296 10,392 9,270
Charge-offs:
Commercial loans 72 713 710 1,657 57 785 626
Commercial loans collateralized by
assignment of lease payments (lease
loans)
2,347 574 685 1,980 100 2,921 100
Commercial real estate 1,720 352 1,251 170 108 2,072 2,142
Construction real estate 144 23 5 3 144 6
Residential real estate 476 368 261 292 318 844 897
Home equity 619 238 407 358 276 857 720
Indirect vehicle 651 931 898 581 627 1,582 1,501
Consumer loans 395 412 550 467 500 807 924
Total charge-offs 6,424 3,588 4,785 5,510 1,989 10,012 6,916
Recoveries:
Commercial loans 952 380 235 456 816 1,332 1,058
Commercial loans collateralized by
assignment of lease payments (lease
loans)
467 50 12 11 340 517 1,089
Commercial real estate 1,843 594 385 2,402 2,561 2,437 3,936
Construction real estate 17 27 19 216 35 44 37
Residential real estate 82 24 98 337 8 106 80
Home equity 193 318 132 186 160 511 261
Indirect vehicle 501 463 499 334 545 964 1,020
Consumer loans 141 393 117 118 169 534 238
Total recoveries 4,196 2,249 1,497 4,060 4,634 6,445 7,719
Total net charge-offs (recoveries) 2,228 1,339 3,288 1,450 (2,645) 3,567 (803)
Allowance for credit losses 138,333 137,732 131,508 128,038 124,130 138,333 124,130
Allowance for unfunded credit commitments (2,719) (3,239) (3,368) (3,412) (4,060) (2,719) (4,060)
Allowance for loan and lease losses $135,614 $134,493 $128,140 $124,626 $120,070 $135,614 $120,070
Total loans, excluding loans held for
sale
$10,197,887 $9,961,348 $9,793,998 $9,389,181 $9,093,956 $10,197,887 $9,093,956
Average loans, excluding loans held
for sale
10,062,187 9,772,346 9,537,647 9,185,419 8,969,813 9,917,267 8,929,474
Ratio of allowance for loan and
lease losses to total loans, excluding
loans held for sale
1.33% 1.35% 1.31% 1.33% 1.32% 1.33% 1.32%
Net loan charge-offs (recoveries) to
average loans, excluding loans held
for sale (annualized)
0.09 0.06 0.14 0.06 (0.12) 0.07 (0.02)


The following table presents the three elements of the Company's allowance for loan and lease losses as of the dates indicated (in thousands):

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Commercial related loans:
General reserve $108,972 $98,001 $94,164 $93,903 $89,642
Specific reserve 12,205 20,995 16,173 13,683 11,303
Consumer related reserve 14,437 15,497 17,803 17,040 19,125
Total allowance for loan and lease losses $135,614 $134,493 $128,140 $124,626 $120,070


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.

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 June 30, 2016 (in thousands):

Non-
Accretable
Discount -
PCI Loans
Accretable
Discount -
PCI Loans
Accretable
Discount -
Non-PCI
Loans
Total
Balance at beginning of period $10,954 $13,479 $29,818 $54,251
Charge-offs (9) (9)
Accretion (2,312) (5,390) (7,702)
Transfer (1,510) 1,510
Balance at end of period $9,435 $12,677 $24,428 $46,540


Changes in the purchase accounting discount for loans acquired in the Taylor Capital merger were as follows for the three months ended March 31, 2016 (in thousands):

Non-
Accretable
Discount -
PCI Loans
Accretable
Discount -
PCI Loans
Accretable
Discount -
Non-PCI
Loans
Total
Balance at beginning of period $14,661 $12,298 $34,768 $61,727
Charge-offs (123) (123)
Accretion (2,403) (4,950) (7,353)
Transfer (3,584) 3,584
Balance at end of period $10,954 $13,479 $29,818 $54,251


The $1.5 million and $3.6 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount for the three months ended June 30, 2016 and March 31, 2016, respectively, was due to better than expected cash flows on several pools of purchased credit-impaired loans.

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, net of our investment securities available for sale as of the dates indicated (in thousands):

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $54,457 $64,762 $64,611 $65,461 $65,485
States and political subdivisions 400,948 398,024 396,367 399,274 395,912
Mortgage-backed securities 785,367 834,559 893,656 847,426 902,017
Corporate bonds 225,525 224,530 219,628 228,251 246,468
Equity securities 11,098 10,969 10,761 10,826 10,669
Total fair value $1,477,395 $1,532,844 $1,585,023 $1,551,238 $1,620,551
Amortized cost
Government sponsored agencies and enterprises $53,674 $63,600 $63,805 $64,008 $64,211
States and political subdivisions 369,816 371,006 373,285 379,015 380,221
Mortgage-backed securities 769,109 820,825 888,325 834,791 890,334
Corporate bonds 224,730 225,657 222,784 228,711 245,506
Equity securities 10,872 10,814 10,757 10,701 10,644
Total amortized cost $1,428,201 $1,491,902 $1,558,956 $1,517,226 $1,590,916
Unrealized gain, net
Government sponsored agencies and enterprises $783 $1,162 $806 $1,453 $1,274
States and political subdivisions 31,132 27,018 23,082 20,259 15,691
Mortgage-backed securities 16,258 13,734 5,331 12,635 11,683
Corporate bonds 795 (1,127) (3,156) (460) 962
Equity securities 226 155 4 125 25
Total unrealized gain, net $49,194 $40,942 $26,067 $34,012 $29,635
Securities held to maturity, at amortized cost:
States and political subdivisions $960,784 $986,340 $1,016,519 $1,002,963 $974,032
Mortgage-backed securities 190,631 205,570 214,291 221,889 229,595
Total amortized cost $1,151,415 $1,191,910 $1,230,810 $1,224,852 $1,203,627


Our investment securities, excluding FHLB and FRB stock, decreased by $95.9 million to $2.6 billion at June 30, 2016 compared to $2.7 billion at March 31, 2016 primarily due to principal paydowns on our mortgage-backed securities that were not re-invested in the portfolio.

DEPOSIT MIX

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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing
deposits
$4,775,364 42% $4,667,410 40% $4,627,184 40% $4,434,067 39% $4,378,005 40%
Money market, NOW
and interest bearing
deposits
3,771,111 33 4,048,054 35 4,144,633 36 4,129,414 37 3,842,264 35
Savings 1,021,845 9 991,300 9 974,555 8 953,746 8 970,875 9
Total low cost deposits 9,568,320 84 9,706,764 84 9,746,372 84 9,517,227 84 9,191,144 84
Certificates of deposit:
Certificates of deposit 1,220,562 11 1,255,457 11 1,244,292 11 1,279,842 12 1,261,843 12
Brokered certificates of
deposit
647,214 5 571,605 5 514,551 5 457,509 4 408,827 4
Total certificates of
deposit
1,867,776 16 1,827,062 16 1,758,843 16 1,737,351 16 1,670,670 16
Total deposits $11,436,096 100% $11,533,826 100% $11,505,215 100% $11,254,578 100% $10,861,814 100%
Change over prior quarter -0.8% +0.2% +2.2% +3.6% -1.4%

Non-interest bearing deposits grew by $108.0 million (+2.3%, or +9.3% annualized) during the second quarter of 2016 and comprised 42% of total deposits at quarter-end. Total low cost deposits decreased $138.4 million (-1.4%, or -5.7% annualized) to $9.6 billion at June 30, 2016 compared to March 31, 2016 but continued to represent 84% of total deposits at quarter-end. Money market, NOW and interest bearing deposits decreased due to the reduction in balances of certain large accounts.

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

2Q16 1Q16 4Q15 3Q15 2Q15
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing
deposits
$4,806,692 42% $4,606,008 40% $4,617,076 40% $4,428,065 39% $4,273,931 39%
Money market, NOW
and interest bearing
deposits
3,836,134 33 4,109,150 36 4,214,099 37 4,119,625 36 3,940,201 36
Savings 1,006,902 9 984,019 9 959,049 8 965,060 9 972,327 9
Total low cost deposits 9,649,728 84 9,699,177 85 9,790,224 85 9,512,750 84 9,186,459 84
Certificates of deposit:
Certificates of deposit 1,237,198 11 1,237,971 11 1,245,947 11 1,304,516 12 1,302,031 12
Brokered certificates of
deposit
598,702 5 534,910 4 492,839 4 427,649 4 412,517 4
Total certificates of
deposit
1,835,900 16 1,772,881 15 1,738,786 15 1,732,165 16 1,714,548 16
Total deposits $11,485,628 100% $11,472,058 100% $11,529,010 100% $11,244,915 100% $10,901,007 100%
Change over prior quarter +0.1% -0.5% +2.5% +3.2% -0.8%

CAPITAL

Tangible book value per common share was $17.48 at June 30, 2016 compared to $17.04 at March 31, 2016 and $16.36 at June 30, 2015.

Our regulatory capital ratios remain strong. The Bank was categorized as “well capitalized” at June 30, 2016 under the Prompt Corrective Action (“PCA”) provisions. The Bank would be categorized as "well capitalized" under the fully phased in rules under the Basel III regulatory capital reform.

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

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

ADDITIONAL INFORMATION

In connection with the proposed merger between MB Financial and American Chartered, MB Financial filed a registration statement on Form S-4 with the SEC, which was declared effective by the SEC on February 4, 2016. The registration statement includes a proxy statement/prospectus, which was sent to the shareholders of American Chartered. Investors and shareholders of American Chartered are advised to read the proxy statement/prospectus, which was filed by MB Financial with the SEC on February 4, 2016, 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.

TABLES TO FOLLOW


MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
As of the dates indicated
(In thousands)

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
ASSETS
Cash and due from banks $303,037 $271,732 $307,869 $234,220 $290,266
Interest earning deposits with banks 123,086 113,785 73,572 66,025 144,154
Total cash and cash equivalents 426,123 385,517 381,441 300,245 434,420
Federal funds sold 5
Investment securities:
Securities available for sale, at fair value 1,477,395 1,532,844 1,585,023 1,551,238 1,620,551
Securities held to maturity, at amortized cost 1,151,415 1,191,910 1,230,810 1,224,852 1,203,627
Non-marketable securities - FHLB and FRB Stock 130,232 121,750 114,233 91,400 111,400
Total investment securities 2,759,042 2,846,504 2,930,066 2,867,490 2,935,578
Loans held for sale 843,379 632,196 744,727 676,020 801,343
Loans:
Total loans, excluding purchased credit-impaired loans 10,061,076 9,820,903 9,652,592 9,233,488 8,929,181
Purchased credit-impaired loans 136,811 140,445 141,406 155,693 164,775
Total loans 10,197,887 9,961,348 9,793,998 9,389,181 9,093,956
Less: Allowance for loan and lease losses 135,614 134,493 128,140 124,626 120,070
Net loans 10,062,273 9,826,855 9,665,858 9,264,555 8,973,886
Lease investments, net 233,320 216,046 211,687 184,223 167,966
Premises and equipment, net 243,319 238,578 236,013 234,115 234,651
Cash surrender value of life insurance 138,657 137,807 136,953 136,089 135,237
Goodwill 725,039 725,068 725,070 711,521 711,521
Other intangibles 41,569 43,186 44,812 37,520 34,979
Mortgage servicing rights, at fair value 134,969 145,800 168,162 148,097 261,034
Other real estate owned, net 27,663 28,309 31,553 29,587 28,517
Other real estate owned related to FDIC transactions 8,356 10,397 10,717 13,825 13,867
Other assets 352,081 339,390 297,948 346,814 285,190
Total assets $15,995,790 $15,575,653 $15,585,007 $14,950,101 $15,018,194
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $4,775,364 $4,667,410 $4,627,184 $4,434,067 $4,378,005
Interest bearing 6,660,732 6,866,416 6,878,031 6,820,511 6,483,809
Total deposits 11,436,096 11,533,826 11,505,215 11,254,578 10,861,814
Short-term borrowings 1,246,994 884,101 1,005,737 940,529 1,382,635
Long-term borrowings 518,545 439,615 400,274 95,175 89,639
Junior subordinated notes issued to capital trusts 185,925 185,820 186,164 186,068 185,971
Accrued expenses and other liabilities 451,695 409,406 400,333 410,523 420,396
Total liabilities 13,839,255 13,452,768 13,497,723 12,886,873 12,940,455
Stockholders' Equity
Preferred stock 115,280 115,280 115,280 115,280 115,280
Common stock 757 756 756 756 754
Additional paid-in capital 1,288,777 1,284,438 1,280,870 1,277,348 1,273,333
Retained earnings 783,468 756,272 731,812 702,789 677,246
Accumulated other comprehensive income 28,731 24,687 15,777 20,968 18,778
Treasury stock (60,732) (59,863) (58,504) (55,258) (9,035)
Controlling interest stockholders' equity 2,156,281 2,121,570 2,085,991 2,061,883 2,076,356
Noncontrolling interest 254 1,315 1,293 1,345 1,383
Total stockholders' equity 2,156,535 2,122,885 2,087,284 2,063,228 2,077,739
Total liabilities and stockholders' equity $15,995,790 $15,575,653 $15,585,007 $14,950,101 $15,018,194





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

Six Months Ended
June 30,
(Dollars in thousands, except per share data) 2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Interest income:
Loans:
Taxable $110,231 $104,923 $106,137 $100,573 $98,768 $215,154 $197,614
Nontaxable 2,741 2,586 2,602 2,283 2,259 5,327 4,433
Investment securities:
Taxable 7,799 9,566 9,708 9,655 10,002 17,365 19,936
Nontaxable 10,644 10,776 10,969 10,752 10,140 21,420 19,253
Federal funds sold 1
Other interest earning accounts 125 141 110 89 57 266 119
Total interest income 131,540 127,992 129,527 123,352 121,226 259,532 241,355
Interest expense:
Deposits 5,952 5,622 5,357 5,102 4,554 11,574 9,199
Short-term borrowings 910 721 385 395 355 1,631 632
Long-term borrowings and junior subordinated notes 2,076 2,345 2,016 1,886 1,844 4,421 3,656
Total interest expense 8,938 8,688 7,758 7,383 6,753 17,626 13,487
Net interest income 122,602 119,304 121,769 115,969 114,473 241,906 227,868
Provision for credit losses 2,829 7,563 6,758 5,358 4,296 10,392 9,270
Net interest income after provision for credit losses 119,773 111,741 115,011 110,611 110,177 231,514 218,598
Non-interest income:
Lease financing revenue, net 15,708 19,046 15,937 20,000 15,564 34,754 40,644
Mortgage banking revenue 39,615 27,482 26,542 30,692 35,648 67,097 60,192
Commercial deposit and treasury management fees 11,548 11,878 11,711 11,472 11,062 23,426 22,100
Trust and asset management fees 8,236 7,950 6,077 6,002 5,752 16,186 11,466
Card fees 4,045 3,525 3,651 3,335 4,409 7,570 8,336
Capital markets and international banking service fees 2,771 3,227 2,355 2,357 1,508 5,998 3,436
Consumer and other deposit service fees 3,161 3,025 3,440 3,499 3,260 6,186 6,343
Brokerage fees 1,315 1,158 1,252 1,281 1,543 2,473 3,221
Loan service fees 1,961 1,752 1,890 1,531 1,353 3,713 2,838
Increase in cash surrender value of life insurance 850 854 864 852 836 1,704 1,675
Net gain (loss) on investment securities 269 (3) 371 (84) 269 (544)
Net (loss) gain on sale of assets (2) (48) 1 (7) (50) (3)
Other operating income 2,523 1,844 1,909 858 2,105 4,367 4,513
Total non-interest income 92,000 81,693 75,625 82,251 82,949 173,693 164,217
Non-interest expense:
Salaries and employee benefits expense 95,004 85,591 84,709 87,891 86,145 180,595 170,931
Occupancy and equipment expense 13,415 13,260 12,935 12,458 12,177 26,675 25,117
Computer services and telecommunication expense 9,777 9,055 8,445 8,567 8,537 18,832 17,441
Advertising and marketing expense 2,964 2,878 2,551 2,578 2,497 5,842 4,943
Professional and legal expense 3,321 2,589 4,169 1,801 2,413 5,910 5,083
Other intangible amortization expense 1,618 1,626 1,546 1,542 1,509 3,244 3,027
Branch exit and facilities impairment charges 155 44 616 70 438 199 7,829
Net loss (gain) recognized on other real estate owned and
other expense
258 (346) (729) 577 724 (88) 1,620
Prepayment fees on interest bearing liabilities 85
Other operating expenses 21,394 21,103 12,989 18,782 18,297 42,497 36,581
Total non-interest expense 147,906 135,800 127,231 134,266 132,737 283,706 272,657
Income before income taxes 63,867 57,634 63,405 58,596 60,389 121,501 110,158
Income tax expense 20,455 18,520 19,798 18,318 19,437 38,975 35,095
Net income 43,412 39,114 43,607 40,278 40,952 82,526 75,063
Dividends on preferred shares 2,000 2,000 2,000 2,000 2,000 4,000 4,000
Net income available to common stockholders $41,412 $37,114 $41,607 $38,278 $38,952 $78,526 $71,063





Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Common share data:
Basic earnings per common share $0.56 $0.51 $0.57 $0.52 $0.52 $1.07 $0.95
Diluted earnings per common share 0.56 0.50 0.56 0.51 0.52 1.06 0.94
Weighted average common shares outstanding for
basic earnings per common share
73,475,258 73,330,731 73,296,602 74,297,281 74,596,925 73,402,995 74,582,097
Weighted average common shares outstanding for
diluted earnings per common share
74,180,374 73,966,935 73,953,165 75,029,827 75,296,029 74,073,655 75,230,455
Common shares outstanding (at end of period) 73,740,348 73,639,487 73,678,329 73,776,196 75,073,292 73,740,348 75,073,292





Selected Financial Data:
Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Performance Ratios:
Annualized return on average assets 1.11% 1.02% 1.13% 1.06% 1.12% 1.06% 1.04%
Annualized operating return on average assets (1) 1.15 1.09 1.06 1.06 1.14 1.12 1.13
Annualized return on average common equity 8.27 7.52 8.48 7.75 8.02 7.90 7.41
Annualized operating return on average common equity (1) 8.56 8.08 7.86 7.75 8.19 8.32 8.03
Annualized cash return on average tangible common equity (2) 13.53 12.47 13.97 12.74 13.21 13.01 12.28
Annualized cash operating return on average tangible common equity (3) 13.99 13.37 12.97 12.74 13.47 13.69 13.28
Net interest rate spread 3.64 3.63 3.72 3.60 3.72 3.64 3.75
Cost of funds (4) 0.27 0.27 0.24 0.23 0.22 0.27 0.22
Efficiency ratio (5) 65.32 63.49 63.95 65.35 64.26 64.44 64.77
Annualized net non-interest expense to average assets (6) 1.35 1.31 1.44 1.36 1.32 1.33 1.36
Core non-interest income to revenues (7) 41.40 39.38 36.91 40.35 40.80 40.42 40.73
Net interest margin 3.60 3.57 3.64 3.52 3.63 3.59 3.68
Tax equivalent effect 0.21 0.22 0.22 0.21 0.21 0.21 0.21
Net interest margin - fully tax equivalent basis (8) 3.81 3.79 3.86 3.73 3.84 3.80 3.89
Loans to deposits 89.17 86.37 85.13 83.43 83.72 89.17 83.72
Asset Quality Ratios:
Non-performing loans (9) to total loans 0.73% 0.95% 1.07% 1.03% 1.08% 0.73% 1.08%
Non-performing assets (9) to total assets 0.64 0.79 0.87 0.85 0.84 0.64 0.84
Allowance for loan and lease losses to non-performing loans (9) 181.46 142.00 122.43 129.04 122.45 181.46 122.45
Allowance for loan and lease losses to total loans 1.33 1.35 1.31 1.33 1.32 1.33 1.32
Net loan charge-offs (recoveries) to average loans (annualized) 0.09 0.06 0.14 0.06 (0.12) 0.07 (0.02)
Capital Ratios:
Tangible equity to tangible assets (10) 9.21% 9.24% 8.99% 9.34% 9.41% 9.21% 9.41%
Tangible common equity to tangible assets (11) 8.46 8.46 8.21 8.53 8.60 8.46 8.60
Tangible common equity to risk weighted assets (12) 9.75 9.54 9.34 9.69 10.02 9.75 10.02
Total capital (to risk-weighted assets) (13) 12.81 12.65 12.54 12.94 13.07 12.81 13.07
Tier 1 capital (to risk-weighted assets) (13) 11.77 11.60 11.54 11.92 12.06 11.77 12.06
Common equity tier 1 capital (to risk-weighted assets) (13) 9.52 9.33 9.27 9.56 9.66 9.52 9.66
Tier 1 capital (to average assets) (13) 10.41 10.38 10.40 10.43 10.69 10.41 10.69
Per Share Data:
Book value per common share (14) $27.68 $27.26 $26.77 $26.40 $26.14 $27.68 $26.14
Less: goodwill and other intangible assets, net of benefit, per common
share
10.20 10.22 10.24 9.97 9.78 10.20 9.78
Tangible book value per common share (15) $17.48 $17.04 $16.53 $16.43 $16.36 $17.48 $16.36
Cash dividends per common share $0.19 $0.17 $0.17 $0.17 $0.17 $0.36 $0.31

(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.
(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, net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on Taylor Capital loans, 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, 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, branch exit and facilities impairment charges, merger related and repositioning expenses, 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 tangible assets and tangible common equity to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

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

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 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, branch exit and facilities impairment charges, merger related and repositioning expenses and increase (decrease) 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.

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

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

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

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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Stockholders' equity - as reported $2,156,535 $2,122,885 $2,087,284 $2,063,228 $2,077,739
Less: goodwill 725,039 725,068 725,070 711,521 711,521
Less: other intangible assets, net of tax benefit 27,020 28,071 29,128 24,388 22,736
Tangible equity $1,404,476 $1,369,746 $1,333,086 $1,327,319 $1,343,482


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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Total assets - as reported $15,995,790 $15,575,653 $15,585,007 $14,950,101 $15,018,194
Less: goodwill 725,039 725,068 725,070 711,521 711,521
Less: other intangible assets, net of tax benefit 27,020 28,071 29,128 24,388 22,736
Tangible assets $15,243,731 $14,822,514 $14,830,809 $14,214,192 $14,283,937


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

6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Common stockholders' equity - as reported $2,041,255 $2,007,605 $1,972,004 $1,947,948 $1,962,459
Less: goodwill 725,039 725,068 725,070 711,521 711,521
Less: other intangible assets, net of tax benefit 27,020 28,071 29,128 24,388 22,736
Tangible common equity $1,289,196 $1,254,466 $1,217,806 $1,212,039 $1,228,202


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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Average common
stockholders' equity - as
reported
$2,014,822 $1,984,379 $1,945,772 $1,958,947 $1,947,231 $1,999,601 $1,934,760
Less: average goodwill 725,011 725,070 711,669 711,521 711,521 725,041 711,521
Less: average other
intangible assets, net of tax
benefit
27,437 28,511 23,826 23,900 23,092 27,974 23,622
Average tangible common
equity
$1,262,374 $1,230,798 $1,210,277 $1,223,526 $1,212,618 $1,246,586 $1,199,617


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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Net income available to
common stockholders - as
reported
$41,412 $37,114 $41,607 $38,278 $38,952 $78,526 $71,063
Add: other intangible
amortization expense, net
of tax benefit
1,052 1,057 1,005 1,002 981 2,109 1,968
Net cash flow available to
common stockholders
$42,464 $38,171 $42,612 $39,280 $39,933 $80,635 $73,031


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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Net income - as reported $43,412 $39,114 $43,607 $40,278 $40,952 $82,526 $75,063
Less non-core items:
Net gain (loss) on
investment securities
269 (3) 371 (84) 269 (544)
Net (loss) gain on sale of
other assets
(2) (48) 1 (7) (50) (3)
Increase (decrease) in
market value of assets
held in trust for deferred
compensation - other
operating income
480 8 565 (872) 7 488 313
Merger related and
repositioning expenses
(2,566) (3,287) 4,186 (389) (1,234) (5,853) (9,303)
Branch exit and facilities
impairment charges
(155) (155)
Prepayment fees on
interest bearing
liabilities
(85)
Increase (decrease) in
market value of assets
held in trust for deferred
compensation - other
operating expense
(480) (8) (565) 872 (7) (488) (313)
Total non-core items (2,454) (3,335) 4,183 (17) (1,325) (5,789) (9,935)
Income tax expense on
non-core items
(1,003) (577) 1,140 (6) (526) (1,580) (3,943)
Non-core items, net of tax (1,451) (2,758) 3,043 (11) (799) (4,209) (5,992)
Operating earnings 44,863 41,872 40,564 40,289 41,751 86,735 81,055
Dividends on preferred
shares
2,000 2,000 2,000 2,000 2,000 4,000 4,000
Operating earnings
available to common
stockholders
$42,863 $39,872 $38,564 $38,289 $39,751 $82,735 $77,055
Diluted operating earnings
per common share
$0.58 $0.54 $0.52 $0.51 $0.53 $1.12 $1.02
Weighted average common
shares outstanding for
diluted operating earnings
per common share
74,180,374 73,966,935 73,953,165 75,029,827 75,296,029 74,073,655 75,230,455



Efficiency Ratio Calculation (Dollars in Thousands)

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Non-interest expense $147,906 $135,800 $127,231 $134,266 $132,737 $283,706 $272,657
Less merger related and
repositioning expenses
2,566 3,287 (4,186) 389 1,234 5,853 9,303
Less prepayment fees on
interest bearing liabilities
85
Less branch exit and facilities
impairment charges
155 155
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
480 8 565 (872) 7 488 313
Non-interest expense - as
adjusted
$144,705 $132,505 $130,852 $134,749 $131,496 $277,210 $262,956
Net interest income $122,602 $119,304 $121,769 $115,969 $114,473 $241,906 $227,868
Tax equivalent adjustment 7,208 7,195 7,307 7,019 6,676 14,403 12,754
Net interest income on a fully
tax equivalent basis
129,810 126,499 129,076 122,988 121,149 256,309 240,622
Plus non-interest income 92,000 81,693 75,625 82,251 82,949 173,693 164,217
Plus tax equivalent
adjustment on the increase in
cash surrender value of life
insurance
458 460 465 459 450 918 902
Less net gain (loss) on
investment securities
269 (3) 371 (84) 269 (544)
Less net (loss) gain on sale of
other assets
(2) (48) 1 (7) (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
480 8 565 (872) 7 488 313
Net interest income plus non-
interest income - as adjusted
$221,521 $208,692 $204,604 $206,198 $204,632 $430,213 $405,975
Efficiency ratio 65.32% 63.49% 63.95% 65.35% 64.26% 64.44% 64.77%
Efficiency ratio
(without adjustments)
68.92% 67.56% 64.46% 67.74% 67.24% 68.26% 69.54%





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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Non-interest expense $147,906 $135,800 $127,231 $134,266 $132,737 $283,706 $272,657
Less merger related and
repositioning expenses
2,566 3,287 (4,186) 389 1,234 5,853 9,303
Less prepayment fees on
interest bearing liabilities
85
Less branch exit and
facilities impairment
charges
155 155
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
480 8 565 (872) 7 488 313
Non-interest expense - as
adjusted
144,705 132,505 130,852 134,749 131,496 277,210 262,956
Non-interest income 92,000 81,693 75,625 82,251 82,949 173,693 164,217
Less net gain (loss) on
investment securities
269 (3) 371 (84) 269 (544)
Less net (loss) gain on sale of
other assets
(2) (48) 1 (7) (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
480 8 565 (872) 7 488 313
Non-interest income - as
adjusted
91,253 81,733 75,063 82,751 83,033 172,986 164,451
Less tax equivalent
adjustment on the increase in
cash surrender value of life
insurance
458 460 465 459 450 918 902
Net non-interest expense $52,994 $50,312 $55,324 $51,539 $48,013 $103,306 $97,603
Average assets $15,740,658 $15,487,565 $15,244,633 $15,059,429 $14,631,999 $15,614,111 $14,498,364
Annualized net non-interest
expense to average assets
1.35% 1.31% 1.44% 1.36% 1.32% 1.33% 1.36%
Annualized net non-interest
expense to average assets
(without adjustments)
1.43% 1.41% 1.34% 1.37% 1.36% 1.42% 1.51%





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

Six Months Ended
June 30,
2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015
Non-interest income $92,000 $81,693 $75,625 $82,251 $82,949 $173,693 $164,217
Plus tax equivalent adjustment
on the increase in cash
surrender value of life insurance
458 460 465 459 450 918 902
Less net gain (loss) on
investment securities
269 (3) 371 (84) 269 (544)
Less net (loss) gain on sale of
other assets
(2) (48) 1 (7) (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred compensation
480 8 565 (872) 7 488 313
Non-interest income - as
adjusted
$91,711 $82,193 $75,528 $83,210 $83,483 $173,904 $165,353
Net interest income $122,602 $119,304 $121,769 $115,969 $114,473 $241,906 $227,868
Tax equivalent adjustment 7,208 7,195 7,307 7,019 6,676 14,403 12,754
Net interest income on a fully
tax equivalent basis
129,810 126,499 129,076 122,988 121,149 256,309 240,622
Plus non-interest income 92,000 81,693 75,625 82,251 82,949 173,693 164,217
Plus tax equivalent adjustment
on the increase in cash
surrender value of life insurance
458 460 465 459 450 918 902
Less net gain (loss) on
investment securities
269 (3) 371 (84) 269 (544)
Less net (loss) gain on sale of
other assets
(2) (48) 1 (7) (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred compensation
480 8 565 (872) 7 488 313
Total revenue - as adjusted and
on a fully tax equivalent basis
$221,521 $208,692 $204,604 $206,198 $204,632 $430,213 $405,975
Total revenue - unadjusted $214,602 $200,997 $197,394 $198,220 $197,422 $415,599 $392,085
Core non-interest income to
revenues ratio
41.40% 39.38% 36.91% 40.35% 40.80% 40.42% 40.73%
Non-interest income to
revenues ratio (without
adjustments)
42.87% 40.64% 38.31% 41.49% 42.02% 41.79% 41.88%



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):

2Q16 2Q15 1Q16
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $727,631 $6,311 3.47% $781,020 $6,839 3.50% $661,021 $5,966 3.61%
Loans (1) (2) (3):
Commercial-related credits
Commercial 3,522,641 39,002 4.38 3,309,519 34,884 4.17 3,531,441 37,357 4.18
Commercial loans collateralized by assignment of lease
payments
1,777,763 16,647 3.75 1,634,583 15,235 3.73 1,754,558 16,577 3.78
Real estate commercial 2,821,516 29,948 4.20 2,522,473 27,145 4.26 2,734,148 28,039 4.06
Real estate construction 351,079 3,436 3.87 191,935 2,388 4.92 276,797 2,902 4.15
Total commercial-related credits 8,472,999 89,033 4.16 7,658,510 79,652 4.11 8,296,944 84,875 4.05
Other loans
Real estate residential 710,384 6,064 3.41 512,766 4,785 3.73 640,231 5,695 3.56
Home equity 202,228 1,969 3.92 233,867 2,301 3.95 210,678 2,033 3.88
Indirect 462,053 5,333 4.64 286,107 3,769 5.28 404,473 4,758 4.73
Consumer loans 78,108 767 3.95 76,189 780 4.11 80,569 794 3.97
Total other loans 1,452,773 14,133 3.91 1,108,929 11,635 4.21 1,335,951 13,280 4.00
Total loans, excluding purchased credit-impaired loans 9,925,772 103,166 4.18 8,767,439 91,287 4.18 9,632,895 98,155 4.10
Purchased credit-impaired loans 136,415 4,972 14.66 202,374 4,117 8.16 139,451 4,780 13.75
Total loans 10,062,187 108,138 4.32 8,969,813 95,404 4.27 9,772,346 102,935 4.24
Taxable investment securities 1,466,915 7,799 2.13 1,545,284 10,002 2.59 1,524,583 9,566 2.51
Investment securities exempt from federal income taxes (3) 1,339,465 16,375 4.89 1,261,567 15,600 4.95 1,362,468 16,579 4.87
Federal funds sold 35 0 1.00 126 0 1.00 42 0 1.00
Other interest earning deposits 100,200 125 0.50 85,935 57 0.27 113,748 141 0.50
Total interest earning assets $13,696,433 $138,748 4.07% $12,643,745 $127,902 4.06% $13,434,208 $135,187 4.05%
Non-interest earning assets 2,044,225 1,988,254 2,053,357
Total assets $15,740,658 $14,631,999 $15,487,565
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits $3,836,134 $2,049 0.21% $3,940,201 $1,634 0.17% $4,109,150 $2,086 0.20%
Savings deposits 1,006,902 174 0.07 972,327 135 0.06 984,019 159 0.06
Certificates of deposit 1,237,198 1,474 0.48 1,302,031 1,259 0.39 1,237,971 1,413 0.46
Customer repurchase agreements 162,038 85 0.21 241,942 104 0.17 190,114 94 0.20
Total core funding 6,242,272 3,782 0.24 6,456,501 3,132 0.19 6,521,254 3,752 0.23
Wholesale funding:
Brokered certificates of deposit (includes fee expense) 598,702 2,255 1.51 412,517 1,526 1.48 534,910 1,964 1.48
Other borrowings 1,573,083 2,901 0.73 1,078,297 2,095 0.77 1,327,274 2,972 0.89
Total wholesale funding 2,171,785 5,156 0.95 1,490,814 3,621 0.96 1,862,184 4,936 1.07
Total interest bearing liabilities $8,414,057 $8,938 0.43% $7,947,315 $6,753 0.34% $8,383,438 $8,688 0.42%
Non-interest bearing deposits 4,806,692 4,273,931 4,606,008
Other non-interest bearing liabilities 389,807 348,242 398,460
Stockholders' equity 2,130,102 2,062,511 2,099,659
Total liabilities and stockholders' equity $15,740,658 $14,631,999 $15,487,565
Net interest income/interest rate spread (4) $129,810 3.64% $121,149 3.72% $126,499 3.63%
Taxable equivalent adjustment 7,208 6,676 7,195
Net interest income, as reported $122,602 $114,473 $119,304
Net interest margin (5) 3.60% 3.63% 3.57%
Tax equivalent effect 0.21% 0.21% 0.22%
Net interest margin on a fully tax equivalent basis (5) 3.81% 3.84% 3.79%

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


Six Months Ended June 30,
2016 2015
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $694,326 $12,277 3.54% $719,934 $12,624 3.51%
Loans (1) (2) (3):
Commercial-related credits
Commercial 3,527,041 76,359 4.28 3,250,466 67,507 4.13
Commercial loans collateralized by assignment of lease payments 1,766,161 33,224 3.76 1,641,135 30,673 3.74
Real estate commercial 2,777,832 57,987 4.13 2,530,688 54,693 4.30
Real estate construction 313,938 6,338 3.99 191,598 6,469 6.72
Total commercial-related credits 8,384,972 173,908 4.10 7,613,887 159,342 4.16
Other loans
Real estate residential 675,307 11,759 3.48 503,120 9,813 3.90
Home equity 206,453 4,002 3.90 240,167 4,769 4.00
Indirect 433,263 10,091 4.68 276,738 7,254 5.29
Consumer loans 79,339 1,561 3.96 74,292 1,577 4.28
Total other loans 1,394,362 27,413 3.95 1,094,317 23,413 4.31
Total loans, excluding purchased credit-impaired loans 9,779,334 201,321 4.14 8,708,204 182,755 4.23
Purchased credit-impaired loans 137,933 9,752 14.22 221,270 9,054 8.25
Total loans 9,917,267 211,073 4.28 8,929,474 191,809 4.33
Taxable investment securities 1,495,749 17,365 2.32 1,550,876 19,936 2.57
Investment securities exempt from federal income taxes (3) 1,350,967 32,954 4.88 1,194,224 29,621 4.96
Federal funds sold 39 0 1.00 71 0 1.00
Other interest earning deposits 106,974 266 0.50 94,095 119 0.26
Total interest earning assets $13,565,322 $273,935 4.06% $12,488,674 $254,109 4.10%
Non-interest earning assets 2,048,789 2,009,690
Total assets $15,614,111 $14,498,364
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $3,972,642 $4,135 0.21% $3,938,962 $3,229 0.17%
Savings accounts 995,460 333 0.07 962,391 255 0.05
Certificates of deposit 1,237,584 2,887 0.47 1,360,849 2,711 0.40
Customer repurchase agreements 176,076 179 0.20 243,897 223 0.18
Total core funding 6,381,762 7,534 0.24 6,506,099 6,418 0.20
Wholesale funding:
Brokered accounts (includes fee expense) 566,806 4,219 1.50 444,205 3,004 1.36
Other borrowings 1,450,178 5,873 0.80 905,950 4,065 0.89
Total wholesale funding 2,016,984 10,092 1.01 1,350,155 7,069 1.03
Total interest bearing liabilities $8,398,746 $17,626 0.42% $7,856,254 $13,487 0.35%
Non-interest bearing deposits 4,706,351 4,237,144
Other non-interest bearing liabilities 394,133 354,926
Stockholders' equity 2,114,881 2,050,040
Total liabilities and stockholders' equity $15,614,111 $14,498,364
Net interest income/interest rate spread (4) $256,309 3.64% $240,622 3.75%
Taxable equivalent adjustment 14,403 12,754
Net interest income, as reported $241,906 $227,868
Net interest margin (5) 3.59% 3.68%
Tax equivalent effect 0.21% 0.21%
Net interest margin on a fully tax equivalent basis (5) 3.80% 3.89%

(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 June 30, 2016, June 30, 2015 and March 31, 2016 (dollars in thousands):

2Q16 2Q15 1Q16
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 $10,062,187 $108,138 4.32% $8,969,813 $95,404 4.27% $9,772,346 $102,935 4.24%
Less acquisition accounting discount accretion
on non-PCI loans
(27,123) 5,390 (50,333) 6,992 (32,293) 4,950
Less acquisition accounting discount accretion
on PCI loans
(23,272) 2,312 (34,514) 960 (25,696) 2,403
Total loans, excluding acquisition accounting
discount accretion on Taylor Capital loans
$10,112,582 $100,436 3.99% $9,054,660 $87,452 3.87% $9,830,335 $95,582 3.91%
Net interest margin on a fully tax
equivalent basis, excluding acquisition
accounting discount accretion on Taylor
Capital loans:
Total interest earning assets, as reported $13,696,433 $129,810 3.81% $12,643,745 $121,149 3.84% $13,434,208 $126,499 3.79%
Less acquisition accounting discount accretion
on non-PCI loans
(27,123) 5,390 (50,333) 6,992 (32,293) 4,950
Less acquisition accounting discount accretion
on PCI loans
(23,272) 2,312 (34,514) 960 (25,696) 2,403
Total interest earning assets/net interest
margin on a fully tax equivalent basis,
excluding acquisition accounting discount
accretion on Taylor Capital loans
$13,746,828 $122,108 3.57% $12,728,592 $113,197 3.57% $13,492,197 $119,146 3.55%




Six Months Ended June 30,
2016 2015
Average
Balance
Interest Yield Average
Balance
Interest Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital
loans:
Total loans, as reported $9,917,267 $211,073 4.28% $8,929,474 $191,809 4.33%
Less acquisition accounting discount accretion on non-PCI loans (29,598) 10,340 (54,047) 14,940
Less acquisition accounting discount accretion on PCI loans (24,535) 4,715 (34,802) 1,588
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans $9,971,400 $196,018 3.95% $9,018,323 $175,281 3.92%
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting
discount accretion on Taylor Capital loans:
Total interest earning assets, as reported $13,565,322 $256,309 3.80% $12,488,674 $240,622 3.89%
Less acquisition accounting discount accretion on non-PCI loans (29,598) 10,340 (54,047) 14,940
Less acquisition accounting discount accretion on PCI loans (24,535) 4,715 (34,802) 1,588
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding
acquisition accounting discount accretion on Taylor Capital loans
$13,619,455 $241,254 3.56% $12,577,523 $224,094 3.59%


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

Source:MB Financial