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

CHICAGO, Jan. 26, 2017 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., today announced 2016 fourth quarter net income available to common stockholders of $45.2 million, or $0.53 per diluted common share, compared to $42.4 million, or $0.54 per diluted common share, last quarter and $41.6 million, or $0.56 per diluted common share, in the fourth quarter a year ago. Annual net income available to common stockholders for 2016 was $166.1 million compared to $150.9 million for 2015. Diluted earnings per common share were $2.13 for 2016 compared to $2.02 for 2015.

"Our company had a very successful 2016. Operating earnings per share grew by 13.6%. We realized significant and sustained organic loan, deposit, and fee growth. Credit performance was excellent. We were able to maintain our net interest margin despite significant interest rate swings, and our fee businesses continued their growth and development.

In the third quarter of 2016, we successfully acquired and integrated American Chartered Bancorp, Inc., while at the same time increasing the investment we’re making in our infrastructure, particularly in technology and risk capabilities.

Legacy bank performance, which excludes the impact of the American Chartered merger, in the fourth quarter was very good. Loan growth, deposit growth, and fee performance, with the exception of the Mortgage Banking Segment, was strong. Mortgage net income was under our target run rate for the fourth quarter, but did well given the highly volatile interest rate environment in the quarter.

We look forward to a strong 2017," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc.

KEY ITEMS

Operating Earnings

The following table presents a reconciliation of net income to operating earnings (in thousands). Non-core items represent the difference between non-core non-interest income and non-core non-interest expense. See the "Non-GAAP Financial Information" section for details on non-core items.

Year Ended
December 31,
4Q16 3Q16 4Q15 2016 2015
Net income - as reported $47,191 $44,419 $43,607 $174,136 $158,948
Non-core items 7,062 15,363 (4,183) 28,214 5,769
Income tax expense on non-core items (1) 2,406 7,867 (1,140) 11,853 2,809
Non-core items, net of tax 4,656 7,496 (3,043) 16,361 2,960
Operating earnings 51,847 51,915 40,564 190,497 161,908
Dividends on preferred shares 2,005 2,004 2,000 8,009 8,000
Operating earnings available to common stockholders $49,842 $49,911 $38,564 $182,488 $153,908
Diluted operating earnings per common share $0.59 $0.63 $0.52 $2.34 $2.06
Weighted average common shares outstanding for diluted operating earnings per common share 84,674,181 78,683,170 73,953,165 77,976,121 74,849,030
(1) Both the third quarter of 2016 and the year ended December 31, 2016 include an adjustment for the $1.8 million income tax benefit resulting from the adoption of new stock-based compensation guidance.

Operating earnings available to common stockholders were $49.8 million, or $0.59 per diluted common share, in the fourth quarter of 2016 compared to $49.9 million, or $0.63 per diluted common share, last quarter. Key drivers of the change in operating earnings from the third to the fourth quarter of 2016 were:

  • Net interest income on a fully tax equivalent basis increased by $14.4 million, or 10.5%, in the fourth quarter of 2016 compared to the prior quarter. This increase is due to a full quarter of American Chartered Bancorp, Inc. ("American Chartered") being presented as well as organic loan growth.
  • Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital Group, Inc. ("Taylor Capital") and American Chartered mergers ("bank mergers"), decreased three basis points from the prior quarter primarily due to higher borrowing costs.
  • Our core non-interest income decreased $14.4 million, or 13.4%, to $93.3 million compared to the prior quarter primarily due to a decrease in mortgage banking revenue which was a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges, driven by interest rate volatility during the quarter.
  • Our core non-interest expense increased $4.8 million, or 3.1%, to $159.1 million compared to the prior quarter primarily due to higher salaries and employee benefits, occupancy and equipment, and computer services and telecommunication expenses driven by the inclusion of a full quarter of American Chartered expenses.

Operating earnings available to common stockholders increased by $28.6 million to $182.5 million, or $2.34 per diluted common share, for the year ended December 31, 2016 compared to $153.9 million, or $2.06 per diluted common share, in the prior year. Key drivers of the change in operating earnings from the year ended December 31, 2015 to the year ended December 31, 2016 were:

  • Net interest income on a fully tax equivalent basis increased by $53.8 million, or 10.9%, in 2016 compared to the prior year primarily due to organic loan growth as well as the impact of the American Chartered merger.
  • Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points in 2016 compared to the prior year primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.
  • Our core non-interest income for 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to 2015 primarily due to higher mortgage banking revenue and trust and asset management fees.
  • Our core non-interest expense increased by $62.1 million, or 11.7%, from 2015 to $590.6 million for 2016 primarily due to higher salaries and employee benefits, occupancy and equipment, computer services and telecommunication, and other operating expenses.

Loan Balances

Loan balances, excluding purchased credit-impaired loans, increased $226.4 million (+1.8%, or +7.3% annualized) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Legacy loan balances (which exclude loans acquired in the American Chartered merger), excluding purchased credit-impaired loans, increased $360.0 million (+3.4%, or +13.6% annualized) from September 30, 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):

12/31/2016 9/30/2016 Change in Legacy Loan Balances from 9/30/2016 to 12/31/2016
Legacy American Chartered (1) Total Legacy American Chartered (1) Total Amount Percent
Commercial-related loans:
Commercial $3,752,392 $594,114 $4,346,506 $3,745,486 $640,326 $4,385,812 $6,906 +0.2%
Commercial loans collateralized by assignment of lease payments (lease loans) 2,002,976 2,002,976 1,873,380 1,873,380 129,596 +6.9%
Commercial real estate 2,892,692 895,324 3,788,016 2,849,270 945,531 3,794,801 43,422 +1.5%
Construction real estate 501,060 17,502 518,562 415,171 35,852 451,023 85,889 +20.7%
Total commercial-related loans 9,149,120 1,506,940 10,656,060 8,883,307 1,621,709 10,505,016 265,813 +3.0%
Other loans:
Residential real estate 896,700 164,128 1,060,828 823,374 175,453 998,827 73,326 +8.9%
Indirect vehicle 541,680 541,680 522,271 522,271 19,409 +3.7%
Home equity 187,162 79,215 266,377 188,861 86,427 275,288 (1,699) -0.9%
Consumer 80,122 659 80,781 77,013 943 77,956 3,109 +4.0%
Total other loans 1,705,664 244,002 1,949,666 1,611,519 262,823 1,874,342 94,145 +5.8%
Total loans, excluding purchased credit-impaired 10,854,784 1,750,942 12,605,726 10,494,826 1,884,532 12,379,358 359,958 +3.4%
Purchased credit-impaired 122,156 40,921 163,077 137,025 24,313 161,338 (14,869) -10.9%
Total loans $10,976,940 $1,791,863 $12,768,803 $10,631,851 $1,908,845 $12,540,696 $345,089 +3.2%
(1) American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger.


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

12/31/2016 Change in Legacy Loan
Balances from 12/31/2015 to 12/31/2016
Legacy American Chartered (1) Total 12/31/2015 Amount Percent
Commercial-related loans:
Commercial $3,752,392 $594,114 $4,346,506 $3,616,286 $136,106 +3.8%
Commercial loans collateralized by assignment of lease payments (lease loans) 2,002,976 2,002,976 1,779,072 223,904 +12.6%
Commercial real estate 2,892,692 895,324 3,788,016 2,695,676 197,016 +7.3%
Construction real estate 501,060 17,502 518,562 252,060 249,000 +98.8%
Total commercial-related loans 9,149,120 1,506,940 10,656,060 8,343,094 806,026 +9.7%
Other loans:
Residential real estate 896,700 164,128 1,060,828 628,169 268,531 +42.7%
Indirect vehicle 541,680 541,680 384,095 157,585 +41.0%
Home equity 187,162 79,215 266,377 216,573 (29,411) -13.6%
Consumer 80,122 659 80,781 80,661 (539) -0.7%
Total other loans 1,705,664 244,002 1,949,666 1,309,498 396,166 +30.3%
Total loans, excluding purchased credit-impaired 10,854,784 1,750,942 12,605,726 9,652,592 1,202,192 +12.5%
Purchased credit-impaired 122,156 40,921 163,077 141,406 (19,250) -13.6%
Total loans $10,976,940 $1,791,863 $12,768,803 $9,793,998 $1,182,942 +12.1%
(1) American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger.

Legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%) compared to December 31, 2015, driven by the growth in commercial-related loans.

Deposit Balances

Low cost deposits decreased $131.5 million (-1.1%, or -4.3% annualized) in the fourth quarter of 2016 primarily due to a decrease in higher rate NOW accounts and mortgage escrow accounts. Low cost deposits represented 86% of total deposits at December 31, 2016, with non-interest bearing deposits representing 46% of total deposits. Legacy low cost deposit balances increased $40.7 million (+0.4%, or 1.6% annualized) from September 30, 2016 driven by good non-interest bearing deposit flows. Legacy non-interest bearing deposits increased $82.3 million (+1.6%, or 6.5%) in the fourth quarter of 2016. Legacy deposits exclude deposits assumed in the American Chartered merger.

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

12/31/2016 9/30/2016 Change in Legacy Deposit Balances from 9/30/2016 to 12/31/2016
Legacy American Chartered (1) Total Legacy American Chartered (1) Total Amount Percent
Low cost deposits:
Non-interest bearing deposits $5,137,605 $1,270,564 $6,408,169 $5,055,261 $1,355,073 $6,410,334 $82,344 +1.6%
Money market, NOW and interest bearing deposits 3,861,222 681,782 4,543,004 3,896,438 763,969 4,660,407 (35,216) -0.9%
Savings deposits 1,024,368 111,624 1,135,992 1,030,834 117,066 1,147,900 (6,466) -0.6%
Total low cost deposits 10,023,195 2,063,970 12,087,165 9,982,533 2,236,108 12,218,641 40,662 +0.4%
Certificates of deposit:
Certificates of deposit 1,079,405 145,697 1,225,102 1,145,303 152,883 1,298,186 (65,898) -5.8%
Brokered certificates of deposit 774,802 23,379 798,181 738,960 23,479 762,439 35,842 +4.9%
Total certificates of deposit 1,854,207 169,076 2,023,283 1,884,263 176,362 2,060,625 (30,056) -1.6%
Total deposits $11,877,402 $2,233,046 $14,110,448 $11,866,796 $2,412,470 $14,279,266 $10,606 +0.1%
(1) American Chartered deposits refer to deposits assumed in the American Chartered merger.


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

12/31/2016 Change in Legacy Deposit Balances from
12/31/2015 to 12/31/2016
Legacy American Chartered (1) Total 12/31/2015 Amount Percent
Low cost deposits:
Non-interest bearing deposits $5,137,605 $1,270,564 $6,408,169 $4,627,184 $510,421 +11.0%
Money market, NOW and interest bearing deposits 3,861,222 681,782 4,543,004 4,144,633 (283,411) -6.8%
Savings deposits 1,024,368 111,624 1,135,992 974,555 49,813 +5.1%
Total low cost deposits 10,023,195 2,063,970 12,087,165 9,746,372 276,823 +2.8%
Certificates of deposit:
Certificates of deposit 1,079,405 145,697 1,225,102 1,244,292 (164,887) -13.3%
Brokered certificates of deposit 774,802 23,379 798,181 514,551 260,251 +50.6%
Total certificates of deposit 1,854,207 169,076 2,023,283 1,758,843 95,364 +5.4%
Total deposits $11,877,402 $2,233,046 $14,110,448 $11,505,215 $372,187 +3.2%
(1) American Chartered deposits refer to deposits assumed in the American Chartered merger.

Legacy low cost deposit balances increased $276.8 million (+2.8%) compared to December 31, 2015, driven by 11.0% growth in non-interest bearing deposits.

Credit Quality Metrics

Overall credit quality was stable compared to the prior quarter and improved compared to the prior year end.

  • Our provision for credit losses decreased by $3.9 million in the fourth quarter of 2016 compared to the third quarter of 2016 and decreased by $1.8 million during the year ended December 31, 2016 compared to the prior year. The decrease from the prior quarter was primarily due to improvement of a potential problem loan at our leasing segment.
  • Net loan charge-offs during the quarter were 0.10% of loans (annualized) compared to 0.09% (annualized) in the third quarter of 2016 and were 0.09% for the year ended December 31, 2016 compared to 0.04% for the year ended December 31, 2015.
  • Non-accrual loans and non-performing assets decreased by $3.2 million (-6.1%) and $1.5 million (-1.7%), respectively, from September 30, 2016. Compared to a year ago, non-accrual loans decreased by $49.1 million (-50.1%) and non-performing assets decreased by $50.3 million (-36.9%).
  • Potential problem loans increased by $33.0 million (+29.5%) from September 30, 2016 and increased by $4.6 million (+3.3%) from December 31, 2015.
  • Our non-performing loans to total loans ratio was 0.46% at December 31, 2016, 0.43% at September 30, 2016 and 1.07% at December 31, 2015.

RESULTS OF OPERATIONS

Fourth Quarter and Annual 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 3Q16 to 4Q16 Change from 4Q15 to 4Q16 Year Ended Change from 2015 to 2016
December 31,
4Q16 3Q16 4Q15 2016 2015
Net interest income - fully tax equivalent $152,304 $137,893 +10.5% $129,076 +18.0% $546,507 $492,686 +10.9%
Net interest income - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans 144,741 131,733 +9.9% 119,373 +21.3% 517,728 459,047 +12.8%
Net interest margin - fully tax equivalent 3.67% 3.68% -0.01% 3.86% -0.19 3.73% 3.84% -0.11%
Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans 3.47% 3.50% -0.03% 3.56% -0.09 3.52% 3.56% -0.04%

Net interest income on a fully tax equivalent basis increased $14.4 million in the fourth quarter of 2016 compared to the prior quarter as a result of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger being presented for a full quarter and organic loan growth. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased three basis points to 3.47% for the fourth quarter of 2016 compared to 3.50% for the prior quarter primarily due to a higher cost of borrowings.

Net interest income on a fully tax equivalent basis increased in the fourth quarter of 2016 compared to the fourth quarter of 2015 primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, partially offset by a decrease in interest earned on purchased credit-impaired loans and an increase in average borrowings. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased nine basis points to 3.47% compared to 3.56% for the fourth quarter of 2015 primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.

Net interest income on a fully tax equivalent basis increased in 2016 compared to the prior year primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points to 3.52% for 2016 compared to 3.56% for the prior year. This decrease was primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.

See the supplemental net interest margin tables in the "Net Interest Margin" section for further detail. Reconciliations of net interest income on a fully tax equivalent basis to net interest income on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans are also set forth in the tables in the "Net Interest Margin" section. In addition, reconciliations of net interest margin on a fully tax equivalent basis to net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans are included in the same section.

Non-interest Income

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Core non-interest income:
Key fee initiatives:
Mortgage banking revenue $32,277 $49,095 $39,615 $27,482 $26,542 $148,469 $117,426
Lease financing revenue, net 19,868 18,864 15,708 19,046 15,937 73,486 76,581
Commercial deposit and treasury management fees 14,237 12,957 11,548 11,878 11,711 50,620 45,283
Trust and asset management fees 8,442 8,244 8,236 7,950 6,077 32,872 23,545
Card fees 4,340 4,161 4,045 3,525 3,651 16,071 15,322
Capital markets and international banking service fees 4,021 3,313 2,771 3,227 2,355 13,332 8,148
Total key fee initiatives 83,185 96,634 81,923 73,108 66,273 334,850 286,305
Consumer and other deposit service fees 3,563 3,559 3,161 3,025 3,440 13,308 13,282
Brokerage fees 887 1,294 1,315 1,158 1,252 4,654 5,754
Loan service fees 1,952 1,792 1,961 1,752 1,890 7,457 6,259
Increase in cash surrender value of life insurance 1,316 1,055 850 854 864 4,075 3,391
Other operating income 2,350 3,337 2,043 1,836 1,344 9,566 7,274
Total core non-interest income 93,253 107,671 91,253 81,733 75,063 373,910 322,265
Non-core non-interest income:
Net gain (loss) on investment securities 178 269 (3) 447 (176)
Net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Increase in market value of assets held in trust for deferred compensation (1) 141 711 480 8 565 1,340 6
Total non-core non-interest income (430) 716 747 (40) 562 993 (172)
Total non-interest income $92,823 $108,387 $92,000 $81,693 $75,625 $374,903 $322,093
(1) Resides in other operating income in the consolidated statements of operations.

Core non-interest income for the fourth quarter of 2016 decreased by $14.4 million, or 13.4%, to $93.3 million from the third quarter of 2016.

  • Mortgage banking revenue decreased as a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges also driven by the volatile interest rate environment in the fourth quarter of 2016.
  • Lease financing revenue increased primarily due to higher residual gains and an increase in operating lease revenue.
  • Commercial deposit and treasury management fees increased due to the increased customer base as a result of the American Chartered merger.
  • Capital markets and international banking services fees increased due to higher swap and M&A advisory fees partly offset by lower syndication fees.
  • Other operating income decreased due to lower earnings from investments in Small Business Investment Companies.

Core non-interest income for the year ended December 31, 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to the year ended December 31, 2015.

  • Mortgage banking revenue increased due to higher gain on sale margin and higher mortgage servicing fees.
  • Leasing revenues decreased due to lower residual gains partly offset by higher fees from the sale of third-party equipment maintenance contracts.
  • Commercial deposit and treasury management fees increased due to new customer activity as well as the increased customer base as a result of the American Chartered merger.
  • Trust and asset management fees increased due to the addition of new customers as well as the acquisitions of MSA Holdings, LLC ("MSA") on December 31, 2015 and the Illinois court-appointed guardianship and special needs trust business in the third quarter of 2015.
  • Capital markets and international banking services fees increased due to higher swap, M&A advisory and syndication fees.
  • Other operating income increased due to higher earnings from investments in Small Business Investment Companies.

Non-interest Expense

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Core non-interest expense: (1)
Salaries and employee benefits expense:
Salaries $58,823 $55,088 $51,383 $48,809 $48,433 $214,103 $189,570
Commissions 12,036 12,318 10,822 10,348 9,794 45,524 45,564
Bonus and stock-based compensation 12,167 12,980 12,871 8,657 9,950 46,675 39,932
Health and accident insurance 5,951 6,377 6,079 5,599 4,646 24,006 21,075
Other salaries and benefits (2) 15,072 15,320 13,045 12,089 11,533 55,526 47,560
Total salaries and employee benefits expense 104,049 102,083 94,200 85,502 84,356 385,834 343,701
Occupancy and equipment expense 15,594 14,662 13,407 13,260 12,935 56,923 50,235
Computer services and telecommunication expense 11,019 9,731 9,266 8,750 8,548 38,766 34,147
Advertising and marketing expense 3,039 3,031 2,923 2,855 2,549 11,848 10,070
Professional and legal expense 2,351 2,779 3,220 2,492 2,715 10,842 8,593
Other intangible amortization expense 2,388 1,674 1,617 1,626 1,546 7,305 6,115
Net loss (gain) recognized on other real estate owned (A) 182 (890) (297) (637) (256) (1,642) 1,814
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A) (1,164) (18) 312 154 (549) (716) (845)
Other real estate expense, net (A) 192 187 243 137 76 759 499
Other operating expenses 21,478 21,067 19,814 18,366 18,932 80,725 74,228
Total core non-interest expense 159,128 154,306 144,705 132,505 130,852 590,644 528,557
Non-core non-interest expense: (1)
Merger related and repositioning expenses (B) 6,491 11,368 2,566 3,287 (4,186) 23,712 5,506
Branch exit and facilities impairment charges 155 155
Prepayment fees on interest bearing liabilities 85
Contribution to MB Financial Charitable Foundation (C) 4,000 4,000
Increase in market value of assets held in trust for deferred compensation (D) 141 711 480 8 565 1,340 6
Total non-core non-interest expense 6,632 16,079 3,201 3,295 (3,621) 29,207 5,597
Total non-interest expense $165,760 $170,385 $147,906 $135,800 $127,231 $619,851 $534,154
(1) Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows: A – Net loss (gain) recognized on other real estate owned and other expense, B – See merger related and repositioning expenses table below, C – Other operating expenses and D – Salaries and employee benefits.
(2) Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.


Core non-interest expense increased by $4.8 million, or 3.1%, from the third quarter of 2016 to $159.1 million for the fourth quarter of 2016.

  • Salaries and employee benefits expense increased primarily due to the increased staff from the American Chartered merger for a full quarter.
  • Occupancy and equipment expense increased due to the additional offices acquired through the American Chartered merger for a full quarter.
  • Computer services and telecommunication expense increased due to investments in systems as well as the increase in customer activity as a result of the American Chartered merger.
  • Professional and legal expense decreased due to lower legal expense.
  • Other intangible amortization expense was higher due to the core deposit intangible recorded as a result of the American Chartered merger.

Core non-interest expense increased by $62.1 million, or 11.7%, from the year ended December 31, 2015 to $590.6 million for the year ended December 31, 2016.

  • Salaries and employee benefits expense increased due to the following:
    - Salaries increased due to new hires, annual pay increases effective in the beginning of the second quarter and increased staff from the American Chartered merger and the acquisition of MSA.
    - Bonus and stock-based compensation increased primarily due to an increase in bonus expense based on company performance in 2016 as well as the increase in staff.
    - Other salaries and benefits expense increased due to increased temporary help in our IT, mortgage and other support areas as well as higher 401(k) match and profit sharing contribution expense and payroll taxes as a result of the increase in staff.
  • Occupancy and equipment expense increased due to higher depreciation, property tax and rental operating expenses as a result of the acquisition of MSA and the American Chartered merger as well as new offices opened at our Mortgage Banking Segment.
  • Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer base and investments in systems.
  • Advertising and marketing expense increased due to increased brand awareness advertising.
  • Professional and legal expense increased due to increased litigation and consulting fees.
  • Other intangible amortization expense was higher due to the customer and core deposit intangibles recorded as a result of the acquisition of MSA and the American Chartered merger, respectively.
  • Non-interest expense was also impacted by higher gains recognized on other real estate owned properties.
  • 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), filing and other loan expense and card expenses (higher rewards and product development expense).

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Merger related and repositioning expenses:
Salaries and employee benefits $4,238 $8,684 $324 $81 $(212) $13,327 $(176)
Occupancy and equipment expense 95 104 8 207 275
Computer services and telecommunication expense 781 3,105 511 305 (103) 4,702 306
Advertising and marketing expense 6 53 41 23 2 123 2
Professional and legal expense 158 1,681 101 97 1,454 2,037 2,460
Branch exit and facilities impairment charges (2,908) 44 616 (2,864) 8,515
Contingent consideration expense - Celtic acquisition (1) 1,000 2,703 3,703
Other operating expenses 213 649 1,581 34 (5,943) 2,477 (5,876)
Total merger related and repositioning expenses $6,491 $11,368 $2,566 $3,287 $(4,186) $23,712 $5,506
(1) Resides in other operating expenses in the consolidated statements of operations.

In the fourth quarter of 2016, merger related and repositioning expenses primarily included costs incurred in connection with the American Chartered merger. In the third quarter of 2016, merger related and repositioning expenses primarily included costs incurred in connection with the American Chartered merger as well as a reversal of an exit cost due to a favorable lease termination on a branch acquired through the Taylor Capital merger. In the second quarter of 2016, merger related and repositioning expenses included a $1.5 million contract termination fee related to the American Chartered 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.

Banking Segment

The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Banking segment for the periods presented (in thousands):

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Net interest income$133,688 $119,685 $112,152 $109,608 $111,691 $475,133 $424,883
Provision for credit losses4,193 4,394 2,995 7,001 6,654 18,583 19,436
Net interest income after provision for credit losses129,495 115,291 109,157 102,607 105,037 456,550 405,447
Non-interest income:
Mortgage origination fees
Mortgage servicing fees
Lease financing revenue, net1,050 890 789 679 1,180 3,408 2,750
Other non-interest income40,354 38,927 35,144 34,369 31,772 148,794 125,132
Total non-interest income41,404 39,817 35,933 35,048 32,952 152,202 127,882
Non-interest expense:
Salaries and employee benefits expense:
Salaries42,797 38,575 35,951 34,527 34,840 151,850 135,905
Commissions1,090 1,172 1,424 1,396 1,503 5,082 4,932
Bonus and stock-based compensation9,535 10,553 10,852 6,476 7,838 37,416 32,480
Health and accident insurance3,579 4,045 3,816 3,461 2,765 14,901 13,316
Other salaries and benefits (1)10,341 9,612 8,171 7,542 7,144 35,666 29,412
Total salaries and employee benefits expense67,342 63,957 60,214 53,402 54,090 244,915 216,045
Occupancy and equipment expense12,765 11,724 10,561 10,430 10,344 45,480 40,512
Computer services and telecommunication expense8,813 7,418 6,945 6,446 6,200 29,622 24,983
Professional and legal expense1,281 1,566 2,385 1,486 1,709 6,718 4,784
Other operating expenses17,430 16,467 16,587 15,570 15,757 66,054 63,806
Total non-interest expense107,631 101,132 96,692 87,334 88,100 392,789 350,130
Income before income taxes63,268 53,976 48,398 50,321 49,889 215,963 183,199
Income tax expense19,422 16,287 14,353 14,927 14,998 64,989 54,456
Net income$43,846 $37,689 $34,045 $35,394 $34,891 $150,974 $128,743
(1) Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Net income from our Banking Segment for the fourth quarter of 2016 increased by $6.2 million, or 16.3%, compared to the prior quarter. This increase in net income was primarily due to an increase in net interest income driven by the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger for a full quarter as well as an increase in other non-interest income, partially offset by higher salaries and employee benefits expense primarily due to the increased staff from the American Chartered merger for a full quarter.

Net income from our Banking Segment for the year ended December 31, 2016 increased by $22.2 million, or 17.3%, compared to the year ended December 31, 2015. This increase in net income was primarily due to an increase in net interest income, driven by growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, and an increase in other non-interest income. This increase was partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires, increased staff from the American Chartered merger and bonus expense based on company performance and the increase in staff.

Leasing Segment

The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Leasing segment for the periods presented (in thousands):

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Net interest income$2,413 $2,168 $2,411 $2,423 $2,714 $9,415 $11,475
Provision for credit losses(1,750) 1,964 (356) 437 295 1,598
Net interest income after provision for credit losses4,163 204 2,767 1,986 2,714 9,120 9,877
Non-interest income:
Mortgage origination fees
Mortgage servicing fees
Lease financing revenue, net19,005 17,974 14,919 18,367 14,757 70,265 73,831
Other non-interest income754 785 786 839 802 3,164 3,112
Total non-interest income19,759 18,759 15,705 19,206 15,559 73,429 76,943
Non-interest expense:
Salaries and employee benefits expense:
Salaries3,081 3,555 3,344 2,832 2,286 12,812 10,211
Commissions2,768 2,592 2,172 3,936 3,047 11,468 15,298
Bonus and stock-based compensation1,516 950 829 872 1,052 4,167 3,735
Health and accident insurance376 376 376 335 312 1,463 1,287
Other salaries and benefits (1)941 934 886 1,108 777 3,869 3,193
Total salaries and employee benefits expense8,682 8,407 7,607 9,083 7,474 33,779 33,724
Occupancy and equipment expense929 966 947 895 855 3,737 3,355
Computer services and telecommunication expense483 432 431 363 340 1,709 1,244
Professional and legal expense652 802 414 409 328 2,277 1,172
Other operating expenses1,714 1,997 1,716 1,447 1,501 6,874 5,869
Total non-interest expense12,460 12,604 11,115 12,197 10,498 48,376 45,364
Income before income taxes11,462 6,359 7,357 8,995 7,775 34,173 41,456
Income tax expense4,653 2,484 2,879 3,509 3,037 13,525 16,255
Net income$6,809 $3,875 $4,478 $5,486 $4,738 $20,648 $25,201
(1) Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Net income from our Leasing Segment for the fourth quarter of 2016 increased by $2.9 million, or 75.7%, compared to the prior quarter. This increase in net income was primarily due to a negative provision for credit losses resulting from the improvement of a potential problem loan as well as greater residual gains and an increase in operating lease revenue.

Net income from our Leasing Segment for the year ended December 31, 2016 decreased by $4.6 million, or 18.1%, compared to the year ended December 31, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues resulting from lower residual gains partly offset by higher fees from the sale of third-party equipment maintenance contracts as well as an increase in legal and other operating expenses.

Mortgage Banking Segment

The following table summarizes financial information, adjusted for funds transfer pricing and internal allocations of certain expenses and excluding non-core non-interest income and expense, for the Mortgage Banking segment for the periods presented (in thousands):

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Net interest income$9,113 $8,918 $8,039 $7,273 $7,364 $33,343 $29,248
Provision for credit losses179 191 190 125 104 685 352
Net interest income after provision for credit losses8,934 8,727 7,849 7,148 7,260 32,658 28,896
Non-interest income:
Mortgage origination fees29,317 39,962 31,417 16,894 17,596 117,590 94,703
Mortgage servicing fees2,960 9,133 8,198 10,588 8,946 30,879 22,723
Lease financing revenue, net
Other non-interest income (3) 10 (3) 14
Total non-interest income32,277 49,095 39,615 27,479 26,552 148,466 117,440
Non-interest expense:
Salaries and employee benefits expense:
Salaries12,945 12,958 12,088 11,450 11,307 49,441 43,454
Commissions8,178 8,554 7,226 5,016 5,244 28,974 25,334
Bonus and stock-based compensation1,116 1,477 1,190 1,309 1,060 5,092 3,717
Health and accident insurance1,996 1,956 1,887 1,803 1,569 7,642 6,472
Other salaries and benefits (1)3,790 4,774 3,988 3,439 3,612 15,991 14,955
Total salaries and employee benefits expense28,025 29,719 26,379 23,017 22,792 107,140 93,932
Occupancy and equipment expense1,900 1,972 1,899 1,935 1,736 7,706 6,368
Computer services and telecommunication expense1,910 1,881 1,890 1,941 2,008 7,622 7,920
Professional and legal expense418 411 421 597 678 1,847 2,637
Other operating expenses6,971 6,587 6,309 5,484 5,040 25,351 22,206
Total non-interest expense39,224 40,570 36,898 32,974 32,254 149,666 133,063
Income before income taxes1,987 17,252 10,566 1,653 1,558 31,458 13,273
Income tax expense795 6,901 4,226 661 623 12,583 5,309
Net income$1,192 $10,351 $6,340 $992 $935 $18,875 $7,964
(1) Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Net income from our Mortgage Banking Segment for the fourth quarter of 2016 decreased by $9.2 million, or 88.5%, compared to the prior quarter primarily due to a decrease in mortgage banking revenue.

The significant increase in interest rates in the fourth quarter of 2016, coupled with an increase in short-term interest rates by the Federal Reserve, drove fewer interest rate lock commitments. This decrease in interest rate lock commitment volume had a negative impact on our mortgage origination fees for the quarter. Lower gain on sale margin during the quarter also had a negative impact on mortgage origination fees.

In addition, high volatility in interest rates caused disproportionate changes in the fair value of our mortgage servicing rights asset and the fair value of the derivatives used to hedge this asset. As a result, the fair value of our hedge decreased more than the increase in the fair value of our mortgage servicing rights asset, reducing our mortgage servicing fees during the quarter.

By comparison, favorable market conditions in the third quarter drove higher interest rate lock commitment volume at higher gain on sale margins. This, coupled with improved hedge performance, drove better than expected results in our Mortgage Banking Segment.

Net income from our Mortgage Banking Segment for the year ended December 31, 2016 increased by $10.9 million, or 137.0%, compared to the year ended December 31, 2015. This increase in net income was due to higher gain on sale margin and an increase in servicing fees, partly offset by higher salaries expense as the result of annual pay increases and new hires, higher commission expense and higher bonus expense.

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Origination volume $2,054,406 $1,976,377 $1,709,044 $1,328,804 $1,437,057 $7,068,631 $7,016,733
Refinance 56% 48% 42% 49% 42% 49% 45%
Purchase 44 52 58 51 58 51 55
Origination volume by channel:
Retail 21% 22% 23% 19% 18% 21% 18%
Third party 79 78 77 81 82 79 82
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end $19,683,073 $18,477,648 $17,739,626 $16,911,325 $16,218,613 $19,683,073 $16,218,613
Mortgage servicing rights, recorded at fair value, at period end 238,011 154,730 134,969 145,800 168,162 238,011 168,162
Notional value of rate lock commitments, at period end 543,900 1,201,100 981,000 823,000 622,906 543,900 622,906


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):

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Commercial related loans:
Commercial $4,346,506 34% $4,385,812 35% $3,561,500 35% $3,509,604 36% $3,616,286 37%
Commercial loans collateralized by assignment of lease payments (lease loans) 2,002,976 16 1,873,380 15 1,794,465 18 1,774,104 18 1,779,072 18
Commercial real estate 3,788,016 29 3,794,801 30 2,827,720 28 2,831,814 28 2,695,676 27
Construction real estate 518,562 4 451,023 4 357,807 3 310,278 3 252,060 3
Total commercial related loans 10,656,060 83 10,505,016 84 8,541,492 84 8,425,800 85 8,343,094 85
Other loans:
Residential real estate 1,060,828 8 998,827 8 753,707 7 677,791 7 628,169 6
Indirect vehicle 541,680 4 522,271 4 491,480 5 432,915 4 384,095 4
Home equity 266,377 2 275,288 2 198,622 2 207,079 2 216,573 2
Consumer 80,781 1 77,956 1 75,775 1 77,318 1 80,661 1
Total other loans 1,949,666 15 1,874,342 15 1,519,584 15 1,395,103 14 1,309,498 13
Total loans, excluding purchased credit-impaired loans 12,605,726 98 12,379,358 99 10,061,076 99 9,820,903 99 9,652,592 98
Purchased credit-impaired loans 163,077 2 161,338 1 136,811 1 140,445 1 141,406 2
Total loans $12,768,803 100% $12,540,696 100% $10,197,887 100% $9,961,348 100% $9,793,998 100%
Change from prior quarter +1.8% +23.0% +2.4% +1.7% +4.3%
Change from same quarter one year ago +30.4% +33.6% +12.1% +11.7% +7.8%

Our loan balances, excluding purchased credit-impaired loans, grew $226.4 million (+1.8%, or +7.3% annualized basis) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Compared to December 31, 2015, legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%).

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):

4Q16 3Q16 2Q16 1Q16 4Q15
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Commercial-related loans:
Commercial $4,274,398 35% $3,850,588 35% $3,522,641 35% $3,531,441 36% $3,492,161 37%
Commercial loans collateralized by assignment of lease payments (lease loans) 1,896,486 15 1,825,505 16 1,777,763 18 1,754,558 18 1,708,404 18
Commercial real estate 3,775,599 30 3,183,131 29 2,821,516 28 2,734,148 28 2,627,004 28
Construction real estate 486,861 4 397,480 4 351,079 3 276,797 3 274,188 2
Total commercial-related loans 10,433,344 84 9,256,704 84 8,472,999 84 8,296,944 85 8,101,757 85
Other loans:
Residential real estate 1,031,152 8 862,393 7 710,384 7 640,231 7 612,275 6
Indirect vehicle 532,782 4 507,772 5 462,053 5 404,473 4 365,744 4
Home equity 273,694 2 231,399 2 202,228 2 210,678 2 219,440 2
Consumer 80,113 1 77,451 1 78,108 1 80,569 1 83,869 1
Total other loans 1,917,741 15 1,679,015 15 1,452,773 15 1,335,951 14 1,281,328 13
Total loans, excluding purchased credit-impaired loans 12,351,085 99 10,935,719 99 9,925,772 99 9,632,895 99 9,383,085 98
Purchased credit-impaired loans 152,509 1 135,548 1 136,415 1 139,451 1 154,562 2
Total loans $12,503,594 100% $11,071,267 100% $10,062,187 100% $9,772,346 100% $9,537,647 100%
Change from prior quarter +12.9% +10.0% +3.0% +2.5% +3.8%
Change from same quarter one year ago +31.1% +20.5% +12.2% +9.9% +6.2%

Our quarterly average loan balances, excluding purchased credit-impaired loans, increased $1.4 billion (+12.9%) during the fourth quarter of 2016 primarily due to having a full quarter of loan balances acquired through the American Chartered merger. Compared to the fourth quarter of 2015, our quarterly average legacy loan balances, excluding purchased credit-impaired loans, for the fourth quarter of 2016 increased by approximately 12%.

ASSET QUALITY

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Non-performing loans:
Non-accrual loans (1) $48,974 $52,135 $67,544 $93,602 $98,065
Loans 90 days or more past due, still accruing interest 10,378 1,774 7,190 1,112 6,596
Total non-performing loans 59,352 53,909 74,734 94,714 104,661
Other real estate owned 26,279 33,105 27,663 28,309 31,553
Repossessed assets 322 453 459 187 81
Total non-performing assets $85,953 $87,467 $102,856 $123,210 $136,295
Potential problem loans (2) $144,544 $111,594 $99,782 $110,193 $139,941
Purchased credit-impaired loans $163,077 $161,338 $136,811 $140,445 $141,406
Total non-performing, potential problem and purchased credit-impaired loans $366,973 $326,841 $311,327 $345,352 $386,008
Total allowance for loan and lease losses $139,366 $139,528 $135,614 $134,493 $128,140
Accruing restructured loans (3) 32,687 28,561 26,715 27,269 26,991
Total non-performing loans to total loans 0.46% 0.43% 0.73% 0.95% 1.07%
Total non-performing assets to total assets 0.45 0.45 0.64 0.79 0.87
Allowance for loan and lease losses to non-performing loans 234.81 258.82 181.46 142.00 122.43
(1) Includes $27.1 million, $23.4 million, $28.9 million, $24.0 million and $23.6 million of restructured loans on non-accrual status at December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016 and December 31, 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 bank mergers) as of the dates indicated (in thousands):

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Commercial and lease $15,189 $14,898 $29,509 $28,590 $37,076
Commercial real estate 11,767 4,655 7,163 27,786 29,073
Consumer related 32,396 34,356 38,062 38,338 38,512
Total non-performing loans $59,352 $53,909 $74,734 $94,714 $104,661

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Balance at the beginning of quarter $33,105 $27,663 $28,309 $31,553 $29,587
Transfers in at fair value less estimated costs to sell 1,191 929 1,367 1,270 5,964
Acquired from business combination 4,148
Capitalized other real estate owned costs 96
Fair value adjustments (2,834) 865 70 45 (721)
Net gains on sales of other real estate owned 2,652 25 227 592 977
Cash received upon disposition (7,835) (621) (2,310) (5,151) (4,254)
Balance at the end of quarter $26,279 $33,105 $27,663 $28,309 $31,553

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Allowance for credit losses, balance at the beginning of period $142,399 $138,333 $137,732 $131,508 $128,038 $131,508 $114,057
Provision for credit losses 2,622 6,549 2,829 7,563 6,758 19,563 21,386
Charge-offs:
Commercial 1,341 72 713 710 2,126 2,993
Commercial loans collateralized by assignment of lease payments (lease loans) 3,452 367 2,347 574 685 6,740 2,765
Commercial real estate 250 529 1,720 352 1,251 2,851 3,563
Construction real estate 442 7 144 23 593 34
Residential real estate 222 290 476 368 261 1,356 1,450
Home equity 429 376 619 238 407 1,662 1,485
Indirect vehicle 1,085 838 651 931 898 3,505 2,980
Consumer 562 409 395 412 550 1,778 1,941
Total charge-offs 6,442 4,157 6,424 3,588 4,785 20,611 17,211
Recoveries:
Commercial 437 665 952 380 235 2,434 1,749
Commercial loans collateralized by assignment of lease payments (lease loans) 30 3 467 50 12 550 1,112
Commercial real estate 968 324 1,843 594 385 3,729 6,723
Construction real estate 48 50 17 27 19 142 272
Residential real estate 1,059 45 82 24 98 1,210 515
Home equity 180 65 193 318 132 756 579
Indirect vehicle 437 436 501 463 499 1,837 1,853
Consumer 104 86 141 393 117 724 473
Total recoveries 3,263 1,674 4,196 2,249 1,497 11,382 13,276
Total net charge-offs 3,179 2,483 2,228 1,339 3,288 9,229 3,935
Allowance for credit losses, balance at the end of the period 141,842 142,399 138,333 137,732 131,508 141,842 131,508
Allowance for unfunded credit commitments (2,476) (2,871) (2,719) (3,239) (3,368) (2,476) (3,368)
Allowance for loan and lease losses, balance at the end of the period $139,366 $139,528 $135,614 $134,493 $128,140 $139,366 $128,140
Total loans, excluding loans held for sale $12,768,803 $12,540,696 $10,197,887 $9,961,348 $9,793,998 $12,768,803 $9,793,998
Average loans, excluding loans held for sale 12,503,594 11,071,267 10,062,187 9,772,346 9,537,647 10,857,460 9,147,279
Allowance for loan and lease losses to total loans, excluding loans held for sale 1.09% 1.11% 1.33% 1.35% 1.31% 1.09% 1.31%
Net loan charge-offs to average loans, excluding loans held for sale (annualized) 0.10 0.09 0.09 0.06 0.14 0.09 0.04


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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Commercial related loans:
General reserve $120,489 $112,653 $108,972 $98,001 $94,164
Specific reserve 3,243 9,698 12,205 20,995 16,173
Consumer related reserve 15,634 17,177 14,437 15,497 17,803
Total allowance for loan and lease losses $139,366 $139,528 $135,614 $134,493 $128,140


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 acquisition accounting discount for loans acquired in the bank mergers were as follows for the three months ended December 31, 2016 (in thousands):

Non-Accretable Discount - PCI Loans Accretable Discount - PCI Loans Accretable Discount - Non-PCI Loans Total
Balance at beginning of period $11,130 $13,924 $49,356 $74,410
Purchases 15,746 4,281 (7,904) 12,123
Recoveries 1,295 1,295
Accretion (2,709) (4,854) (7,563)
Transfer (554) 554
Balance at end of period $27,617 $16,050 $36,598 $80,265

The acquisition accounting discount for loans acquired in the American Chartered merger was revised compared to previously reported balances and is only provisional at December 31, 2016 as loan risk ratings continue to be assessed. The change is reflected in the purchases line in the table above.

Changes in the acquisition accounting discount for loans acquired in the bank mergers were as follows for the three months ended September 30, 2016 (in thousands):

Non-Accretable Discount - PCI Loans Accretable Discount - PCI Loans Accretable Discount - Non-PCI Loans Total
Balance at beginning of period $9,435 $12,677 $24,428 $46,540
Purchases 4,293 805 29,042 34,140
Charge-offs (110) (110)
Accretion (2,046) (4,114) (6,160)
Transfer (2,488) 2,488
Balance at end of period $11,130 $13,924 $49,356 $74,410

The $554 thousand and $2.5 million acquisition accounting discount transfer from non-accretable discount to accretable discount on purchased credit-impaired loans for the three months ended December 31, 2016 and September 30, 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, fair value, amortized cost and unrealized gain of our investment securities, excluding FHLB and FRB stock, as of the dates indicated (in thousands):

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Securities available for sale:
Fair value
Government sponsored agencies and enterprises $23,415 $53,968 $54,457 $64,762 $64,611
States and political subdivisions 391,365 410,737 400,948 398,024 396,367
Mortgage-backed securities 1,076,692 1,173,330 785,367 834,559 893,656
Corporate bonds 193,895 210,193 225,525 224,530 219,628
Equity securities 10,828 11,128 11,098 10,969 10,761
Total fair value $1,696,195 $1,859,356 $1,477,395 $1,532,844 $1,585,023
Amortized cost
Government sponsored agencies and enterprises $23,267 $53,456 $53,674 $63,600 $63,805
States and political subdivisions 376,541 383,041 369,816 371,006 373,285
Mortgage-backed securities 1,080,693 1,160,796 769,109 820,825 888,325
Corporate bonds 193,164 208,940 224,730 225,657 222,784
Equity securities 11,000 10,932 10,872 10,814 10,757
Total amortized cost $1,684,665 $1,817,165 $1,428,201 $1,491,902 $1,558,956
Unrealized gain (loss)
Government sponsored agencies and enterprises $148 $512 $783 $1,162 $806
States and political subdivisions 14,824 27,696 31,132 27,018 23,082
Mortgage-backed securities (4,001) 12,534 16,258 13,734 5,331
Corporate bonds 731 1,253 795 (1,127) (3,156)
Equity securities (172) 196 226 155 4
Total unrealized gain $11,530 $42,191 $49,194 $40,942 $26,067
Securities held to maturity, at cost:
States and political subdivisions $910,608 $939,491 $960,784 $986,340 $1,016,519
Mortgage-backed securities 159,142 175,771 190,631 205,570 214,291
Total amortized cost $1,069,750 $1,115,262 $1,151,415 $1,191,910 $1,230,810

Total unrealized gain decreased at December 31, 2016 compared to September 30, 2016 as result of the increase in interest rates.

DEPOSIT MIX

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing deposits $6,408,169 46% $6,410,334 45% $4,775,364 42% $4,667,410 40% $4,627,184 40%
Money market, NOW and interest bearing deposits 4,543,004 32 4,660,407 33 3,771,111 33 4,048,054 35 4,144,633 36
Savings deposits 1,135,992 8 1,147,900 8 1,021,845 9 991,300 9 974,555 8
Total low cost deposits 12,087,165 86 12,218,641 86 9,568,320 84 9,706,764 84 9,746,372 84
Certificates of deposit:
Certificates of deposit 1,225,102 9 1,298,186 9 1,220,562 11 1,255,457 11 1,244,292 11
Brokered certificates of deposit 798,181 5 762,439 5 647,214 5 571,605 5 514,551 5
Total certificates of deposit 2,023,283 14 2,060,625 14 1,867,776 16 1,827,062 16 1,758,843 16
Total deposits $14,110,448 100% $14,279,266 100% $11,436,096 100% $11,533,826 100% $11,505,215 100%
Change from prior quarter -1.2% +24.9% -0.8% +0.2% +2.2%
Change from same quarter one year ago +22.6% +26.9% +5.3% +4.7% +4.7%

Total low cost deposits decreased $131.5 million to $12.1 billion at December 31, 2016 compared to the prior quarter primarily due to the decrease in higher rate NOW accounts and mortgage escrow accounts. Non-interest bearing deposits represented 46% of total deposits at December 31, 2016. Compared to December 31, 2015, legacy low cost deposit balances increased $276.8 million (+2.8%) driven by the 11.0% growth in non-interest bearing deposits.

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

4Q16 3Q16 2Q16 1Q16 4Q15
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Low cost deposits:
Non-interest bearing deposits $6,454,025 45% $5,524,043 43% $4,806,692 42% $4,606,008 40% $4,617,076 40%
Money market, NOW and interest bearing deposits 4,628,698 33 4,161,913 33 3,836,134 33 4,109,150 36 4,214,099 37
Savings deposits 1,140,926 8 1,080,609 8 1,006,902 9 984,019 9 959,049 8
Total low cost deposits 12,223,649 86 10,766,565 84 9,649,728 84 9,699,177 85 9,790,224 85
Certificates of deposit:
Certificates of deposit 1,263,675 9 1,257,959 10 1,237,198 11 1,237,971 11 1,245,947 11
Brokered certificates of deposit 779,411 5 702,030 6 598,702 5 534,910 4 492,839 4
Total certificates of deposit 2,043,086 14 1,959,989 16 1,835,900 16 1,772,881 15 1,738,786 15
Total deposits $14,266,735 100% $12,726,554 100% $11,485,628 100% $11,472,058 100% $11,529,010 100%
Change from prior quarter +12.1% +10.8% +0.1% -0.5% +2.5%
Change from same quarter one year ago +23.7% +13.2% +5.4% +4.4% +2.9%

Total average low cost deposits increased $1.5 billion to $12.2 billion during the fourth quarter of 2016 compared to the prior quarter primarily due to a full quarter of deposit balances assumed through the American Chartered merger. Similarly, non-interest bearing deposits quarterly average grew by $930.0 million (+16.8%) during the fourth quarter of 2016 compared to the third quarter of 2016. Our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 2% compared to the third quarter of 2016. Compared to the fourth quarter of 2015, our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 3%.

CAPITAL

Tangible book value per common share was $16.98 at December 31, 2016 compared to $16.88 at September 30, 2016 and $16.53 at December 31, 2015.

Our regulatory capital ratios remain strong. MB Financial Bank, N.A. (the "Bank") was categorized as “well capitalized” at December 31, 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 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 MB Financial-American Chartered merger might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (5) the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (6) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (9) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (10) our ability to realize the residual values of its direct finance, leveraged and operating leases; (11) the ability to access cost-effective funding; (12) changes in financial markets; (13) changes in economic conditions in general and in the Chicago metropolitan area in particular; (14) the costs, effects and outcomes of litigation; (15) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act, changes in the interpretation and/or application of laws and regulations by regulatory authorities, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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

TABLES TO FOLLOW


MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands) 12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
ASSETS
Cash and due from banks $364,783 $351,009 $303,037 $271,732 $307,869
Interest earning deposits with banks 98,686 125,250 123,086 113,785 73,572
Total cash and cash equivalents 463,469 476,259 426,123 385,517 381,441
Investment securities:
Securities available for sale, at fair value 1,696,195 1,859,356 1,477,395 1,532,844 1,585,023
Securities held to maturity, at amortized cost 1,069,750 1,115,262 1,151,415 1,191,910 1,230,810
Non-marketable securities - FHLB and FRB Stock 143,276 146,209 130,232 121,750 114,233
Total investment securities 2,909,221 3,120,827 2,759,042 2,846,504 2,930,066
Loans held for sale 716,883 899,412 843,379 632,196 744,727
Loans:
Total loans, excluding purchased credit-impaired loans 12,605,726 12,379,358 10,061,076 9,820,903 9,652,592
Purchased credit-impaired loans 163,077 161,338 136,811 140,445 141,406
Total loans 12,768,803 12,540,696 10,197,887 9,961,348 9,793,998
Less: Allowance for loan and lease losses 139,366 139,528 135,614 134,493 128,140
Net loans 12,629,437 12,401,168 10,062,273 9,826,855 9,665,858
Lease investments, net 311,327 277,647 233,320 216,046 211,687
Premises and equipment, net 293,910 283,112 243,319 238,578 236,013
Cash surrender value of life insurance 200,945 199,628 138,657 137,807 136,953
Goodwill 1,001,038 993,799 725,039 725,068 725,070
Other intangibles 62,959 65,395 41,569 43,186 44,812
Mortgage servicing rights, at fair value 238,011 154,730 134,969 145,800 168,162
Other real estate owned, net 26,279 33,105 27,663 28,309 31,553
Other real estate owned related to FDIC transactions 5,006 5,177 8,356 10,397 10,717
Other assets 443,832 431,623 352,081 339,390 297,948
Total assets $19,302,317 $19,341,882 $15,995,790 $15,575,653 $15,585,007
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $6,408,169 $6,410,334 $4,775,364 $4,667,410 $4,627,184
Interest bearing 7,702,279 7,868,932 6,660,732 6,866,416 6,878,031
Total deposits 14,110,448 14,279,266 11,436,096 11,533,826 11,505,215
Short-term borrowings 1,569,288 1,496,319 1,246,994 884,101 1,005,737
Long-term borrowings 311,790 311,645 518,545 439,615 400,274
Junior subordinated notes issued to capital trusts 210,668 209,159 185,925 185,820 186,164
Accrued expenses and other liabilities 520,914 482,085 451,695 409,406 400,333
Total liabilities 16,723,108 16,778,474 13,839,255 13,452,768 13,497,723
Stockholders' Equity
Preferred stock 115,572 116,507 115,280 115,280 115,280
Common stock 856 855 757 756 756
Additional paid-in capital 1,678,826 1,674,341 1,288,777 1,284,438 1,280,870
Retained earnings 838,892 809,769 783,468 756,272 731,812
Accumulated other comprehensive income 5,190 23,763 28,731 24,687 15,777
Treasury stock (60,384) (62,084) (60,732) (59,863) (58,504)
Controlling interest stockholders' equity 2,578,952 2,563,151 2,156,281 2,121,570 2,085,991
Noncontrolling interest 257 257 254 1,315 1,293
Total stockholders' equity 2,579,209 2,563,408 2,156,535 2,122,885 2,087,284
Total liabilities and stockholders' equity $19,302,317 $19,341,882 $15,995,790 $15,575,653 $15,585,007


MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Year Ended
December 31,
(Dollars in thousands, except per share data) 4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Interest income:
Loans:
Taxable $134,048 $118,675 $110,231 $104,923 $106,137 $467,877 $404,324
Nontaxable 2,947 2,846 2,741 2,586 2,602 11,120 9,318
Investment securities:
Taxable 9,362 8,844 7,799 9,566 9,708 35,571 39,299
Nontaxable 10,220 10,382 10,644 10,776 10,969 42,022 40,974
Federal funds sold 1 1
Other interest earning accounts 157 164 125 141 110 587 318
Total interest income 156,734 140,911 131,540 127,992 129,527 557,177 494,234
Interest expense:
Deposits 7,324 6,681 5,952 5,622 5,357 25,579 19,658
Short-term borrowings 1,472 1,092 910 721 385 4,195 1,412
Long-term borrowings and junior subordinated notes 2,724 2,367 2,076 2,345 2,016 9,512 7,558
Total interest expense 11,520 10,140 8,938 8,688 7,758 39,286 28,628
Net interest income 145,214 130,771 122,602 119,304 121,769 517,891 465,606
Provision for credit losses 2,622 6,549 2,829 7,563 6,758 19,563 21,386
Net interest income after provision for credit losses 142,592 124,222 119,773 111,741 115,011 498,328 444,220
Non-interest income:
Mortgage banking revenue 32,277 49,095 39,615 27,482 26,542 148,469 117,426
Lease financing revenue, net 19,868 18,864 15,708 19,046 15,937 73,486 76,581
Commercial deposit and treasury management fees 14,237 12,957 11,548 11,878 11,711 50,620 45,283
Trust and asset management fees 8,442 8,244 8,236 7,950 6,077 32,872 23,545
Card fees 4,340 4,161 4,045 3,525 3,651 16,071 15,322
Capital markets and international banking service fees 4,021 3,313 2,771 3,227 2,355 13,332 8,148
Consumer and other deposit service fees 3,563 3,559 3,161 3,025 3,440 13,308 13,282
Brokerage fees 887 1,294 1,315 1,158 1,252 4,654 5,754
Loan service fees 1,952 1,792 1,961 1,752 1,890 7,457 6,259
Increase in cash surrender value of life insurance 1,316 1,055 850 854 864 4,075 3,391
Net gain (loss) on investment securities 178 269 (3) 447 (176)
Net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Other operating income 2,491 4,048 2,523 1,844 1,909 10,906 7,280
Total non-interest income 92,823 108,387 92,000 81,693 75,625 374,903 322,093
Non-interest expense:
Salaries and employee benefits expense 108,428 111,478 95,004 85,591 84,709 400,501 343,531
Occupancy and equipment expense 15,689 14,766 13,415 13,260 12,935 57,130 50,510
Computer services and telecommunication expense 11,800 12,836 9,777 9,055 8,445 43,468 34,453
Advertising and marketing expense 3,045 3,084 2,964 2,878 2,551 11,971 10,072
Professional and legal expense 2,509 4,460 3,321 2,589 4,169 12,879 11,053
Other intangible amortization expense 2,388 1,674 1,617 1,626 1,546 7,305 6,115
Branch exit and facilities impairment charges (2,908) 155 44 616 (2,709) 8,515
Net (gain) loss recognized on other real estate owned and other related expense (790) (721) 258 (346) (729) (1,599) 1,468
Prepayment fees on interest bearing liabilities 85
Other operating expenses 22,691 25,716 21,395 21,103 12,989 90,905 68,352
Total non-interest expense 165,760 170,385 147,906 135,800 127,231 619,851 534,154
Income before income taxes 69,655 62,224 63,867 57,634 63,405 253,380 232,159
Income tax expense 22,464 17,805 20,455 18,520 19,798 79,244 73,211
Net income 47,191 44,419 43,412 39,114 43,607 174,136 158,948
Dividends on preferred shares 2,005 2,004 2,000 2,000 2,000 8,009 8,000
Net income available to common stockholders $45,186 $42,415 $41,412 $37,114 $41,607 $166,127 $150,948


Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Common share data:
Basic earnings per common share $0.54 $0.55 $0.56 $0.51 $0.57 $2.16 $2.03
Diluted earnings per common share 0.53 0.54 0.56 0.50 0.56 2.13 2.02
Weighted average common shares outstanding for basic earnings per common share 83,484,899 77,506,885 73,475,258 73,330,731 73,296,602 76,968,823 74,177,574
Weighted average common shares outstanding for diluted earnings per common share 84,674,181 78,683,170 74,180,374 73,966,935 73,953,165 77,976,121 74,849,030
Common shares outstanding (at end of period) 83,725,269 83,555,257 73,740,348 73,639,487 73,678,329 83,725,269 73,678,329



Selected Financial Data:
Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Performance Ratios:
Annualized return on average assets 0.98% 1.02% 1.11% 1.02% 1.13% 1.03% 1.07%
Annualized operating return on average assets (1) 1.07 1.20 1.15 1.09 1.06 1.13 1.09
Annualized return on average common equity 7.36 7.67 8.27 7.52 8.48 7.69 7.77
Annualized operating return on average common equity (1) 8.12 9.02 8.56 8.08 7.86 8.44 7.92
Annualized cash return on average tangible common equity (2) 13.22 12.99 13.53 12.47 13.97 13.06 12.82
Annualized cash operating return on average tangible common equity (3) 14.54 15.23 13.99 13.37 12.97 14.31 13.07
Net interest rate spread 3.48 3.50 3.64 3.63 3.72 3.56 3.70
Cost of funds (4) 0.28 0.28 0.27 0.27 0.24 0.28 0.23
Efficiency ratio (5) 64.62 62.69 65.32 63.49 63.95 64.02 64.71
Annualized net non-interest expense to average assets (6) 1.35 1.06 1.35 1.31 1.44 1.27 1.38
Core non-interest income to revenues (7) 38.15 43.98 41.40 39.38 36.91 40.77 39.68
Net interest margin 3.50 3.49 3.60 3.57 3.64 3.54 3.63
Tax equivalent effect 0.17 0.19 0.21 0.22 0.22 0.19 0.21
Net interest margin - fully tax equivalent basis (8) 3.67 3.68 3.81 3.79 3.86 3.73 3.84
Loans to deposits 90.49 87.82 89.17 86.37 85.13 90.49 85.13
Asset Quality Ratios:
Non-performing loans (9) to total loans 0.46% 0.43% 0.73% 0.95% 1.07% 0.46% 1.07%
Non-performing assets (9) to total assets 0.45 0.45 0.64 0.79 0.87 0.45 0.87
Allowance for loan and lease losses to non-performing loans (9) 234.81 258.82 181.46 142.00 122.43 234.81 122.43
Allowance for loan and lease losses to total loans 1.09 1.11 1.33 1.35 1.31 1.09 1.31
Net loan charge-offs to average loans, excluding loans held for sale (annualized) 0.10 0.09 0.09 0.06 0.14 0.09 0.04
Capital Ratios:
Tangible equity to tangible assets (10) 8.42% 8.34% 9.21% 9.24% 8.99% 8.42% 8.99%
Tangible common equity to tangible assets (11) 7.79 7.71 8.46 8.46 8.21 7.79 8.21
Tangible common equity to risk weighted assets (12) 8.78 8.83 9.75 9.54 9.34 8.78 9.34
Total capital (to risk-weighted assets) (13) 11.59 11.66 12.81 12.65 12.54 11.59 12.54
Tier 1 capital (to risk-weighted assets) (13) 9.37 9.40 11.77 11.60 11.54 9.37 11.54
Common equity tier 1 capital (to risk-weighted assets) (13) 8.70 8.71 9.52 9.33 9.27 8.70 9.27
Tier 1 capital (to average assets) (13) 8.38 9.29 10.41 10.38 10.40 8.38 10.40
Per Share Data:
Book value per common share (14) $29.43 $29.28 $27.68 $27.26 $26.77 $29.43 $26.77
Less: goodwill and other intangible assets, net of benefit, per common share 12.45 12.40 10.20 10.22 10.24 12.45 10.24
Tangible book value per common share (15) $16.98 $16.88 $17.48 $17.04 $16.53 $16.98 $16.53
Cash dividends per common share $0.19 $0.19 $0.19 $0.17 $0.17 $0.74 $0.65

(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 non-interest 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 bank mergers 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 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, increase in market value of assets held in trust for deferred compensation and contribution to MB Financial Charitable Foundation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to tangible assets and tangible common equity to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

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

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

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

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

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

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

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

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Stockholders' equity - as reported $2,579,209 $2,563,408 $2,156,535 $2,122,885 $2,087,284
Less: goodwill 1,001,038 993,799 725,039 725,068 725,070
Less: other intangible assets, net of tax benefit 40,923 42,507 27,020 28,071 29,128
Tangible equity $1,537,248 $1,527,102 $1,404,476 $1,369,746 $1,333,086

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Total assets - as reported $19,302,317 $19,341,882 $15,995,790 $15,575,653 $15,585,007
Less: goodwill 1,001,038 993,799 725,039 725,068 725,070
Less: other intangible assets, net of tax benefit 40,923 42,507 27,020 28,071 29,128
Tangible assets $18,260,356 $18,305,576 $15,243,731 $14,822,514 $14,830,809

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

12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Common stockholders' equity - as reported $2,463,637 $2,446,901 $2,041,255 $2,007,605 $1,972,004
Less: goodwill 1,001,038 993,799 725,039 725,068 725,070
Less: other intangible assets, net of tax benefit 40,923 42,507 27,020 28,071 29,128
Tangible common equity $1,421,676 $1,410,595 $1,289,196 $1,254,466 $1,217,806

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Average common stockholders' equity $2,441,809 $2,201,095 $2,014,822 $1,984,379 $1,945,772 $2,161,405 $1,943,632
Less: average goodwill 994,053 835,894 725,011 725,070 711,669 820,526 711,559
Less: average other intangible assets, net of tax benefit 41,471 32,744 27,437 28,511 23,826 32,566 23,743
Average tangible common equity $1,406,285 $1,332,457 $1,262,374 $1,230,798 $1,210,277 $1,308,313 $1,208,330

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Net income available to common stockholders - as reported $45,186 $42,415 $41,412 $37,114 $41,607 $166,127 $150,948
Add: other intangible amortization expense, net of tax benefit 1,552 1,088 1,051 1,057 1,005 4,748 3,975
Net cash flow available to common stockholders $46,738 $43,503 $42,463 $38,171 $42,612 $170,875 $154,923

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

Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Net income - as reported $47,191 $44,419 $43,412 $39,114 $43,607 $174,136 $158,948
Less non-core items:
Net gain (loss) on investment securities 178 269 (3) 447 (176)
Net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Increase in market value of assets held in trust for deferred compensation - other operating income 141 711 480 8 565 1,340 6
Merger related and repositioning expenses (6,491) (11,368) (2,566) (3,287) 4,186 (23,712) (5,506)
Branch exit and facilities impairment charges (155) (155)
Prepayment fees on interest bearing liabilities (85)
Contribution to MB Financial Charitable Foundation (4,000) (4,000)
Increase in market value of assets held in trust for deferred compensation - other operating expense (141) (711) (480) (8) (565) (1,340) (6)
Total non-core items (7,062) (15,363) (2,454) (3,335) 4,183 (28,214) (5,769)
Income tax expense on non-core items (2,406) (6,074) (1,003) (577) 1,140 (10,060) (2,809)
Income tax benefit resulting from adoption of new stock-based compensation guidance (1,793) (1,793)
Non-core items, net of tax (4,656) (7,496) (1,451) (2,758) 3,043 (16,361) (2,960)
Operating earnings 51,847 51,915 44,863 41,872 40,564 190,497 161,908
Dividends on preferred shares 2,005 2,004 2,000 2,000 2,000 8,009 8,000
Operating earnings available to common stockholders $49,842 $49,911 $42,863 $39,872 $38,564 $182,488 $153,908
Diluted operating earnings per common share $0.59 $0.63 $0.58 $0.54 $0.52 $2.34 $2.06
Weighted average common shares outstanding for diluted operating earnings per common share 84,674,181 78,683,170 74,180,374 73,966,935 73,953,165 77,976,121 74,849,030


Efficiency Ratio Calculation (Dollars in Thousands)
Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Non-interest expense$165,760 $170,385 $147,906 $135,800 $127,231 $619,851 $534,154
Less merger related and repositioning expenses6,491 11,368 2,566 3,287 (4,186) 23,712 5,506
Less prepayment fees on interest bearing liabilities 85
Less branch exit and facilities impairment charges 155 155
Less contribution to MB Financial Charitable Foundation 4,000 4,000
Less increase in market value of assets held in trust for deferred compensation141 711 480 8 565 1,340 6
Non-interest expense - as adjusted$159,128 $154,306 $144,705 $132,505 $130,852 $590,644 $528,557
Net interest income$145,214 $130,771 $122,602 $119,304 $121,769 $517,891 $465,606
Tax equivalent adjustment7,090 7,122 7,208 7,195 7,307 28,616 27,080
Net interest income on a fully tax equivalent basis152,304 137,893 129,810 126,499 129,076 546,507 492,686
Plus non-interest income92,823 108,387 92,000 81,693 75,625 374,903 322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance709 568 458 460 465 2,194 1,826
Less net gain (loss) on investment securities178 269 (3) 447 (176)
Less net (loss) gain on disposal of other assets(749) 5 (2) (48) (794) (2)
Less increase in market value of assets held in trust for deferred compensation141 711 480 8 565 1,340 6
Net interest income plus non-interest income - as adjusted$246,266 $246,132 $221,521 $208,692 $204,604 $922,611 $816,777
Efficiency ratio64.62% 62.69% 65.32% 63.49% 63.95% 64.02% 64.71%
Efficiency ratio (without adjustments)69.64% 71.24% 68.92% 67.56% 64.46% 69.43% 67.81%


Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)
Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Non-interest expense $165,760 $170,385 $147,906 $135,800 $127,231 $619,851 $534,154
Less merger related and repositioning expenses 6,491 11,368 2,566 3,287 (4,186) 23,712 5,506
Less prepayment fees on interest bearing liabilities 85
Less branch exit and facilities impairment charges 155 155
Less contribution to MB Financial Charitable Foundation 4,000 4,000
Less increase in market value of assets held in trust for deferred compensation 141 711 480 8 565 1,340 6
Non-interest expense - as adjusted 159,128 154,306 144,705 132,505 130,852 590,644 528,557
Non-interest income 92,823 108,387 92,000 81,693 75,625 374,903 322,093
Less net gain (loss) on investment securities 178 269 (3) 447 (176)
Less net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Less increase in market value of assets held in trust for deferred compensation 141 711 480 8 565 1,340 6
Non-interest income - as adjusted 93,253 107,671 91,253 81,733 75,063 373,910 322,265
Less tax equivalent adjustment on the increase in cash surrender value of life insurance 709 568 458 460 465 2,194 1,826
Net non-interest expense - as adjusted $65,166 $46,067 $52,994 $50,312 $55,324 $214,540 $204,466
Average assets $19,192,747 $17,248,431 $15,740,658 $15,487,565 $15,244,633 $16,924,472 $14,827,884
Annualized net non-interest expense - as adjusted to average assets 1.35% 1.06% 1.35% 1.31% 1.44% 1.27% 1.38%
Annualized net non-interest expense to average assets (without adjustments) 1.51% 1.43% 1.43% 1.41% 1.34% 1.45% 1.43%


Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)
Year Ended
December 31,
4Q16 3Q16 2Q16 1Q16 4Q15 2016 2015
Non-interest income $92,823 $108,387 $92,000 $81,693 $75,625 $374,903 $322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 709 568 458 460 465 2,194 1,826
Less net gain (loss) on investment securities 178 269 (3) 447 (176)
Less net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Less increase in market value of assets held in trust for deferred compensation 141 711 480 8 565 1,340 6
Non-interest income - as adjusted $93,962 $108,239 $91,711 $82,193 $75,528 $376,104 $324,091
Net interest income $145,214 $130,771 $122,602 $119,304 $121,769 $517,891 $465,606
Tax equivalent adjustment 7,090 7,122 7,208 7,195 7,307 28,616 27,080
Net interest income on a fully tax equivalent basis 152,304 137,893 129,810 126,499 129,076 546,507 492,686
Plus non-interest income 92,823 108,387 92,000 81,693 75,625 374,903 322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 709 568 458 460 465 2,194 1,826
Less net gain (loss) on investment securities 178 269 (3) 447 (176)
Less net (loss) gain on disposal of other assets (749) 5 (2) (48) (794) (2)
Less increase in market value of assets held in trust for deferred compensation 141 711 480 8 565 1,340 6
Total revenue - as adjusted and on a fully tax equivalent basis $246,266 $246,132 $221,521 $208,692 $204,604 $922,611 $816,777
Total revenue - unadjusted $238,037 $239,158 $214,602 $200,997 $197,394 $892,794 $787,699
Core non-interest income to revenues ratio 38.15% 43.98% 41.40% 39.38% 36.91% 40.77% 39.68%
Non-interest income to revenues ratio (without adjustments) 39.00% 45.32% 42.87% 40.64% 38.31% 41.99% 40.89%


NET INTEREST MARGIN

The following tables present, 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):

4Q16 3Q16 4Q15
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $859,254 $7,100 3.31% $835,953 7,074 3.38% $681,682 $6,276 3.68%
Loans (1) (2) (3):
Commercial-related loans
Commercial 4,274,398 45,255 4.14 3,850,588 41,095 4.18 3,492,161 35,890 4.02
Commercial loans collateralized by assignment of lease payments (lease loans) 1,896,486 17,275 3.64 1,825,505 16,876 3.70 1,708,404 15,901 3.72
Commercial real estate 3,775,599 41,508 4.30 3,183,131 33,253 4.09 2,627,004 27,759 4.13
Construction real estate 486,861 4,592 3.69 397,480 3,921 3.86 274,188 3,736 5.33
Total commercial related loans 10,433,344 108,630 4.07 9,256,704 95,145 4.02 8,101,757 83,286 4.02
Other loans:
Real estate residential 1,031,152 8,522 3.31 862,393 7,121 3.30 612,275 5,490 3.59
Home equity 273,694 2,651 3.85 231,399 2,252 3.87 219,440 2,142 3.87
Indirect 532,782 6,198 4.63 507,772 5,838 4.57 365,744 4,403 4.78
Consumer 80,113 776 3.86 77,451 821 4.21 83,869 777 3.67
Total other loans 1,917,741 18,147 3.76 1,679,015 16,032 3.80 1,281,328 12,812 3.97
Total loans, excluding purchased credit-impaired loans 12,351,085 126,777 4.08 10,935,719 111,177 4.04 9,383,085 96,098 4.06
Purchased credit-impaired loans 152,509 4,704 12.27 135,548 4,802 14.09 154,562 7,766 19.93
Total loans 12,503,594 131,481 4.18 11,071,267 115,979 4.17 9,537,647 103,864 4.32
Taxable investment securities 1,721,537 9,362 2.18 1,592,547 8,844 2.22 1,510,047 9,708 2.57
Investment securities exempt from federal income taxes (3) 1,304,931 15,724 4.82 1,318,855 15,972 4.84 1,383,592 16,875 4.88
Federal funds sold 36 0 1.00 36 0 1.00 100 1 1.00
Other interest earning deposits 107,311 157 0.58 103,061 164 0.63 141,891 110 0.31
Total interest earning assets $16,496,663 $163,824 3.95 $14,921,719 $148,033 3.95 $13,254,959 $136,834 4.10
Non-interest earning assets 2,696,084 2,326,712 1,989,674
Total assets $19,192,747 $17,248,431 $15,244,633
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits $4,628,698 $2,593 0.22% $4,161,913 $2,299 0.22% $4,214,099 $1,999 0.19%
Savings deposits 1,140,926 273 0.10 1,080,609 231 0.09 959,049 123 0.05
Certificates of deposit 1,263,675 1,728 0.54 1,257,959 1,633 0.52 1,245,947 1,431 0.46
Customer repurchase agreements 247,273 129 0.21 210,688 113 0.21 230,412 115 0.20
Total core funding 7,280,572 4,723 0.26 6,711,169 4,276 0.25 6,649,507 3,668 0.22
Wholesale funding:
Brokered certificates of deposit (includes fee expense) 779,411 2,730 1.39 702,030 2,518 1.43 492,839 1,804 1.45
Other borrowings 1,638,605 4,067 0.97 1,533,344 3,346 0.85 1,031,301 2,286 0.87
Total wholesale funding 2,418,016 6,797 1.12 2,235,374 5,864 1.04 1,524,140 4,090 1.06
Total interest bearing liabilities $9,698,588 $11,520 0.47 $8,946,543 $10,140 0.45 $8,173,647 $7,758 0.38
Non-interest bearing deposits 6,454,025 5,524,043 4,617,076
Other non-interest bearing liabilities 482,449 461,243 392,858
Stockholders' equity 2,557,685 2,316,602 2,061,052
Total liabilities and stockholders' equity $19,192,747 $17,248,431 $15,244,633
Net interest income/interest rate spread (4) $152,304 3.48% $137,893 3.50% $129,076 3.72%
Taxable equivalent adjustment 7,090 7,122 7,307
Net interest income, as reported $145,214 $130,771 $121,769
Net interest margin (5) 3.50% 3.49% 3.64%
Tax equivalent effect 0.17% 0.19% 0.22%
Net interest margin on a fully tax equivalent basis (5) 3.67% 3.68% 3.86%

(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.


Year Ended December 31,
2016 2015
Average
Balance
Interest Yield/
Rate
Average
Balance
Interest Yield/
Rate
Interest Earning Assets:
Loans held for sale $771,384 $26,450 3.43% $740,975 26,804 3.62%
Loans (1) (2) (3):
Commercial-related loans
Commercial 3,796,230 162,710 4.22 3,342,090 137,878 4.07
Commercial loans collateralized by assignment of lease payments (lease loans) 1,813,837 67,376 3.71 1,666,611 62,221 3.73
Commercial real estate 3,130,516 132,748 4.17 2,564,506 110,009 4.23
Construction real estate 378,405 14,852 3.86 217,181 12,637 5.74
Total commercial related loans 9,118,988 377,686 4.07 7,790,388 322,745 4.09
Other loans:
Real estate residential 811,782 27,402 3.38 546,511 20,455 3.74
Home equity 229,626 8,905 3.88 231,464 9,209 3.98
Indirect 477,008 22,128 4.64 311,418 15,674 5.03
Consumer 79,059 3,158 3.99 79,416 3,161 3.98
Total other loans 1,597,475 61,593 3.86 1,168,809 48,499 4.15
Total loans, excluding purchased credit-impaired loans 10,716,463 439,279 4.10 8,959,197 371,244 4.14
Purchased credit-impaired loans 140,997 19,257 13.66 188,082 20,611 10.96
Total loans 10,857,460 458,536 4.22 9,147,279 391,855 4.28
Taxable investment securities 1,576,836 35,571 2.26 1,538,709 39,299 2.55
Investment securities exempt from federal income taxes (3) 1,331,323 64,649 4.86 1,282,909 63,037 4.91
Federal funds sold 37 1.00 70 1 0.99
Other interest earning deposits 106,075 587 0.55 117,344 318 0.27
Total interest earning assets $14,643,115 $585,793 4.00 $12,827,286 $521,314 4.06
Non-interest earning assets 2,281,357 2,000,598
Total assets $16,924,472 $14,827,884
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits $4,185,129 $9,027 0.22% $4,053,848 $7,060 0.17%
Savings deposits 1,053,429 837 0.08 962,221 502 0.05
Certificates of deposit 1,249,264 6,248 0.50 1,317,689 5,593 0.42
Customer repurchase agreements 202,673 420 0.21 240,737 452 0.19
Total core funding 6,690,495 16,532 0.25 6,574,495 13,607 0.21
Wholesale funding:
Brokered certificates of deposit (includes fee expense) 654,238 9,467 1.45 452,290 6,503 1.44
Other borrowings 1,518,447 13,287 0.86 990,784 8,518 0.85
Total wholesale funding 2,172,685 22,754 1.05 1,443,074 15,021 1.04
Total interest bearing liabilities $8,863,180 $39,286 0.44 $8,017,569 $28,628 0.36
Non-interest bearing deposits 5,351,197 4,381,030
Other non-interest bearing liabilities 433,202 370,373
Stockholders' equity 2,276,893 2,058,912
Total liabilities and stockholders' equity $16,924,472 $14,827,884
Net interest income/interest rate spread (4) $546,507 3.56% $492,686 3.70%
Taxable equivalent adjustment 28,616 27,080
Net interest income, as reported $517,891 $465,606
Net interest margin (5) 3.54% 3.63%
Tax equivalent effect 0.19% 0.21%
Net interest margin on a fully tax equivalent basis (5) 3.73% 3.84%

(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 tables below reflects the impact the acquisition accounting loan discount accretion on acquired loans had on the loan yield and net interest margin on a fully tax equivalent basis for the periods indicated (dollars in thousands):

4Q16 3Q16 4Q15
Average
Balance
Interest Yield Average
Balance
Interest Yield Average
Balance
Interest Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported $12,503,594 $131,481 4.18% $11,071,267 $115,979 4.17% $9,537,647 $103,864 4.32%
Less acquisition accounting discount accretion on non-PCI loans (42,978) 4,854 (34,315) 4,114 (37,865) 6,193
Less acquisition accounting discount accretion on PCI loans (34,360) 2,709 (23,110) 2,046 (28,037) 3,510
Total loans, excluding acquisition accounting discount accretion on bank merger loans $12,580,932 $123,918 3.92% $11,128,692 $109,819 3.93% $9,603,549 $94,161 3.89%
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported $16,496,663 $152,304 3.67% $14,921,719 $137,893 3.68% $13,254,959 $129,076 3.86%
Less acquisition accounting discount accretion on non-PCI loans (42,978) 4,854 (34,315) 4,114 (37,865) 6,193
Less acquisition accounting discount accretion on PCI loans (34,360) 2,709 (23,110) 2,046 (28,037) 3,510
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans $16,574,001 $144,741 3.47% $14,979,144 $131,733 3.50% $13,320,861 $119,373 3.56%


Year Ended December 31,
2016 2015
Average
Balance
Interest Yield Average
Balance
Interest Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported $10,857,460 $458,536 4.22% $9,147,279 $391,855 4.28%
Less acquisition accounting discount accretion on non-PCI loans (35,507) 19,309 (47,410) 27,008
Less acquisition accounting discount accretion on PCI loans (26,856) 9,470 (32,326) 6,631
Total loans, excluding acquisition accounting discount accretion on bank merger loans $10,919,823 $429,757 3.94% $9,227,015 $358,216 3.88%
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported $14,643,115 $546,507 3.73% $12,827,286 $492,686 3.84%
Less acquisition accounting discount accretion on non-PCI loans (35,507) 19,309 (47,410) 27,008
Less acquisition accounting discount accretion on PCI loans (26,856) 9,470 (32,326) 6,631
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans $14,705,478 $517,728 3.52% $12,907,022 $459,047 3.56%


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

Source:MB Financial