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

CHICAGO, Oct. 20, 2016 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., today announced third quarter 2016 net income available to common stockholders of $42.4 million, or $0.54 per diluted common share, compared to $41.4 million, or $0.56 per diluted common share, last quarter and $38.3 million, or $0.51 per diluted common share, in the third quarter a year ago.

KEY ITEMS

Completion of American Chartered Bancorp, Inc. Merger

We completed our merger with American Chartered Bancorp, Inc. ("American Chartered") on August 24, 2016. Consideration paid was $487.4 million, including $382.8 million in common stock (9.7 million shares), $102.3 million in cash and $2.3 million in preferred stock and stock-based awards assumed. The results of operations of American Chartered have been included in our results of operations for the 37 days between the date of the merger and quarter end. In addition, we have successfully converted American Chartered's clients to MB data processing systems and products. Amounts recognized in the financial statements for this business combination are only provisional at September 30, 2016.

Growth in Operating Earnings for the Quarter

Operating earnings available to common stockholders increased by $7.0 million to $49.9 million, or $0.63 per diluted common share, compared to last quarter, and increased by $11.6 million compared to the third quarter of last year.

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.

							Nine Months Ended
							September 30,
	3Q16		2Q16		3Q15		2016		2015
Net income - as reported	$	44,419	$	43,412	$	40,278	$	126,945	$	115,341

Non-core items	15,363		2,454		17		21,152		9,952
Income tax expense on non-core items	7,867		1,003		6		9,447		3,949
Non-core items, net of tax	7,496		1,451		11		11,705		6,003

Operating earnings	51,915		44,863		40,289		138,650		121,344
Dividends on preferred shares	2,004		2,000		2,000		6,004		6,000
Operating earnings available to common stockholders	$	49,911	$	42,863	$	38,289	$	132,646	$	115,344

Diluted operating earnings per common share	$	0.63	$	0.58	$	0.51	$	1.75	$	1.53
Weighted average common shares outstanding for diluted operating earnings per common share	78,683,170		74,180,374		75,029,827		75,727,580		75,154,585

Net interest income on a fully tax equivalent basis increased $8.1 million (+6.2%) to $137.9 million in the third quarter of 2016 compared to the prior quarter due to higher average loan balances as a result of the loans acquired through the American Chartered merger as well as loan growth in our legacy portfolio.
Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital and American Chartered mergers ("bank mergers"), decreased seven basis points to 3.50% compared to 3.57% last quarter primarily due to lower yields earned on loans.
Our core non-interest income increased 18.0% to $107.7 million compared to $91.3 million in the prior quarter primarily due to an increase in mortgage banking and lease financing revenue. The increase in mortgage banking revenue was driven by higher origination fees as a result of higher origination volumes in the third quarter of 2016 and higher gains on sale margins. The increase in lease financing revenue was due to higher fees from the sale of third-party equipment maintenance contracts.
Our core non-interest expense increased $9.6 million (+6.6%) compared to the prior quarter primarily due to an increase in salaries and employee benefits expense, which increased mainly due to the increased staff from the American Chartered merger, and commission expense. Commission expense increased as a result of higher mortgage loan origination volumes and lease financing revenue noted above.
The Company adopted new authoritative accounting guidance under ASC Topic 718 "Compensation - Stock Compensation" in the third quarter of 2016, resulting in an income tax benefit of $1.8 million associated with stock-based compensation. Operating earnings were adjusted to exclude the $1.8 million income tax benefit in the table above.

Growth in Loan Balances During the Quarter

Loan balances, excluding purchased credit-impaired loans, increased $2.3 billion (+23.0%) during the third quarter primarily due to loans acquired through the American Chartered merger as well as the growth in legacy commercial-related credits. Legacy loan balances, excluding purchased credit-impaired loans, increased $433.8 million (+4.3%, or +17.2% annualized) during the third quarter of 2016.

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

	9/30/2016								Change in Legacy Loan Balances from 6/30/2016 to 9/30/2016
	Legacy ⁽¹⁾		Acquired ⁽²⁾		Total		6/30/2016		Amount			Percent
Commercial-related credits:
Commercial	$	3,745,486	$	640,326	$	4,385,812	$	3,561,500	$	183,986		+5.2	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,873,380		—		1,873,380		1,794,465		78,915			+4.4	%
Commercial real estate	2,849,270		945,531		3,794,801		2,827,720		21,550			+0.8	%
Construction real estate	415,171		35,852		451,023		357,807		57,364			+16.0	%
Total commercial-related credits	8,883,307		1,621,709		10,505,016		8,541,492		341,815			+4.0	%
Other loans:
Residential real estate	823,374		175,453		998,827		753,707		69,667			+9.2	%
Indirect vehicle	522,271		—		522,271		491,480		30,791			+6.3	%
Home equity	188,861		86,427		275,288		198,622		(9,761		)	-4.9	%
Consumer	77,013		943		77,956		75,775		1,238			+1.6	%
Total other loans	1,611,519		262,823		1,874,342		1,519,584		91,935			+6.1	%
Total loans, excluding purchased credit-impaired	10,494,826		1,884,532		12,379,358		10,061,076		433,750			+4.3	%
Purchased credit-impaired loans	137,025		24,313		161,338		136,811		214			+0.2	%
Total loans	$	10,631,851	$	1,908,845	$	12,540,696	$	10,197,887	$	433,964		+4.3	%

⁽¹⁾Legacy loans include loans previously acquired through the Taylor Capital merger.
⁽²⁾Acquired loans refer to the September 30, 2016 balance for loans acquired in the American Chartered merger.

Growth in Deposit Balances During the Quarter

Low cost deposits increased $2.7 billion (+27.7%) primarily due to the deposits assumed in the American Chartered merger as well as strong growth in legacy non-interest bearing deposits during the third quarter. Low cost deposits represented 86% of total deposits at September 30, 2016. Non-interest bearing deposits increased $1.6 billion (+34.2%) during the third quarter and represented 45% of total deposits at September 30, 2016. Period end legacy low cost deposits increased $414.2 million in the quarter (+4.3%, or 17.2% annualized). Average legacy low cost deposits increased approximately $220 million (+2.3%, 9.1% annualized) during the quarter.

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

	9/30/2016								Change in Legacy Deposit Balances from 6/30/2016 to 9/30/2016
	Legacy ⁽¹⁾		Assumed ⁽²⁾		Total		6/30/2016		Amount			Percent
Low cost deposits:
Non-interest bearing deposits	$	5,055,261	$	1,355,073	$	6,410,334	$	4,775,364	$	279,897		+5.9	%
Money market, NOW and interest bearing deposits	3,896,438		763,969		4,660,407		3,771,111		125,327			+3.3
Savings deposits	1,030,834		117,066		1,147,900		1,021,845		8,989			+0.9
Total low cost deposits	9,982,533		2,236,108		12,218,641		9,568,320		414,213			+4.3
Certificates of deposit:
Certificates of deposit	1,145,303		152,883		1,298,186		1,220,562		(75,259		)	-6.2
Brokered certificates of deposit	738,960		23,479		762,439		647,214		91,746			+14.2
Total certificates of deposit	1,884,263		176,362		2,060,625		1,867,776		16,487			+0.9
Total deposits	$	11,866,796	$	2,412,470	$	14,279,266	$	11,436,096	$	430,700		+3.8	%

⁽¹⁾Legacy deposits include deposits previously assumed through the Taylor Capital merger.
⁽²⁾Assumed deposits refer to the September 30, 2016 balance for deposits assumed in the American Chartered merger.

Positive Credit Quality Metrics

Credit quality behaved well in the quarter.

Non-performing loans and non-performing assets decreased by $20.8 million and $15.4 million, respectively, from June 30, 2016 primarily due to problem loans repaid in the quarter.
Potential problem loans increased by $11.8 million in the quarter.
Net loan charge-offs during the quarter were $2.5 million, or 0.09% of loans (annualized), compared to net loan charge-offs of $2.2 million, or 0.09% of average loans (annualized), in the second quarter of 2016.
Our allowance for loan and lease losses to total loans ratio was 1.11% at September 30, 2016 compared to 1.33% at June 30, 2016. The decrease in this ratio was primarily due to the loans acquired through the American Chartered merger. American Chartered's historical allowance for loan and lease losses does not transfer in purchase accounting, but an acquisition accounting discount on loans was recorded within the loan balances. The total acquisition accounting discount on these acquired loans was $34.1 million as of acquisition date.
Provision for credit losses increased to $6.5 million in the third quarter of 2016 compared to $2.8 million in the prior quarter primarily due to loan growth in the quarter.

RESULTS OF OPERATIONS

Third Quarter Results

Net Interest Income

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

							Change from 2Q16 to 3Q16					Change from 3Q15 to 3Q16		Nine Months Ended						Change from 2015 to 2016
														September 30,
	3Q16			2Q16					3Q15					2016			2015
Net interest income - fully tax equivalent	$	137,893		$	129,810		+6.2	%	$	122,988		+12.1	%	$	394,202		$	363,610		+8.4	%

Net interest income - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans	$	131,733		$	122,108		+7.9	%	$	115,580		+14.0	%	$	372,986		$	339,674		+9.8	%

Net interest margin - fully tax equivalent	3.68		%	3.81		%	-0.13	%	3.73		%	-0.05	%	3.76		%	3.83		%	-0.07	%

Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans	3.50		%	3.57		%	-0.07	%	3.49		%	+0.01	%	3.54		%	3.56		%	-0.02	%

Net interest income on a fully tax equivalent basis increased in the third quarter of 2016 compared to the prior quarter due to higher average loan balances as a result of the loans acquired through the American Chartered merger as well as loan growth in the legacy portfolio during the quarter. Net interest income on a fully tax equivalent basis increased in the third quarter of 2016 compared to the third quarter of 2015 primarily due to an increase in average loans, partially offset by an increase in average borrowings and an increase in the average cost of deposits as a result of the increase in interest rates.

Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, was 3.50% in the third quarter of 2016 compared to 3.57% last quarter and 3.49% in the same quarter of last year. The decrease in our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, in the third quarter of 2016 compared to last quarter was primarily due to lower yields earned on loans.

Net interest income on a fully tax equivalent basis increased in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 primarily due to an increase in average loans, a result of the loan growth in the legacy portfolio and, to a lesser extent, loans acquired through the American Chartered merger, partially offset by an increase in average borrowings and an increase in the cost of deposits.

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):

															Nine Months Ended
															September 30,
	3Q16		2Q16			1Q16			4Q15			3Q15			2016			2015
Core non-interest income:
Key fee initiatives:
Mortgage banking revenue	$	49,095	$	39,615		$	27,482		$	26,542		$	30,692		$	116,192		$	90,884
Lease financing revenue, net	18,864		15,708			19,046			15,937			20,000			53,618			60,644
Commercial deposit and treasury management fees	12,957		11,548			11,878			11,711			11,472			36,383			33,572
Trust and asset management fees	8,244		8,236			7,950			6,077			6,002			24,430			17,468
Card fees	4,161		4,045			3,525			3,651			3,335			11,731			11,671
Capital markets and international banking service fees	3,313		2,771			3,227			2,355			2,357			9,311			5,793
Total key fee initiatives	96,634		81,923			73,108			66,273			73,858			251,665			220,032
Consumer and other deposit service fees	3,559		3,161			3,025			3,440			3,499			9,745			9,842
Brokerage fees	1,294		1,315			1,158			1,252			1,281			3,767			4,502
Loan service fees	1,792		1,961			1,752			1,890			1,531			5,505			4,369
Increase in cash surrender value of life insurance	1,055		850			854			864			852			2,759			2,527
Other operating income	3,337		2,043			1,836			1,344			1,730			7,216			5,930
Total core non-interest income	107,671		91,253			81,733			75,063			82,751			280,657			247,202
Non-core non-interest income:
Net gain (loss) on investment securities	—		269			—			(3		)	371			269			(173		)
Net gain (loss) on sale of assets	5		(2		)	(48		)	—			1			(45		)	(2		)
Increase (decrease) in market value of assets held in trust for deferred compensation ⁽¹⁾	711		480			8			565			(872		)	1,199			(559		)
Total non-core non-interest income	716		747			(40		)	562			(500		)	1,423			(734		)
Total non-interest income	$	108,387	$	92,000		$	81,693		$	75,625		$	82,251		$	282,080		$	246,468

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

Core non-interest income for the third quarter of 2016 increased by $16.4 million, or 18.0%, to $107.7 million from the second quarter of 2016.

Mortgage banking revenue increased due to higher origination volumes as a result of the favorable interest rate environment and higher gains on sale margins.
Lease financing revenues increased due to an increase in fees from the sale of third-party equipment maintenance contracts.
Commercial deposit and treasury management fees increased primarily due to the increased customer base as a result of the American Chartered merger as well as new customer activity.
Capital markets and international banking services fees increased due to higher swap and syndication fees partially offset by lower M&A advisory fees.
Consumer and other deposit service fees increased due to the increased customer base as a result of the American Chartered merger as well as an increase in NSF fees.
Other operating income increased due to higher earnings from investments in Small Business Investment Companies.

Core non-interest income for the nine months ended September 30, 2016 increased by $33.5 million, or 13.5%, to $280.7 million from the nine months ended September 30, 2015.

Mortgage banking revenue increased due to higher mortgage servicing fees and higher gains on sale margins.
Lease financing revenues decreased due to lower residual gains and 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, syndication and M&A advisory fees partly offset by lower commercial real estate advisory fees.
Loan service fees increased due to higher unused line and letter of credit 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):

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	55,088		$	51,383		$	48,809		$	48,433		$	48,926		$	155,280		$	141,137
Commissions	12,318			10,822			10,348			9,794			11,513			33,488			35,770
Bonus and stock-based compensation	12,980			12,871			8,657			9,950			10,235			34,508			29,982
Health and accident insurance	6,377			6,079			5,599			4,646			5,640			18,055			16,429
Other salaries and benefits ⁽²⁾	15,320			13,045			12,089			11,533			12,446			40,454			36,027
Total salaries and employee benefits expense	102,083			94,200			85,502			84,356			88,760			281,785			259,345
Occupancy and equipment expense	14,662			13,407			13,260			12,935			12,456			41,329			37,300
Computer services and telecommunication expense	9,731			9,266			8,750			8,548			8,558			27,747			25,599
Advertising and marketing expense	3,031			2,923			2,855			2,549			2,578			8,809			7,521
Professional and legal expense	2,779			3,220			2,492			2,715			1,496			8,491			5,878
Other intangible amortization expense	1,674			1,617			1,626			1,546			1,542			4,917			4,569
Net (gain) loss recognized on other real estate owned (A)	(890		)	(297		)	(637		)	(256		)	520			(1,824		)	2,070
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A)	(18		)	312			154			(549		)	65			448			(296		)
Other real estate expense, net (A)	187			243			137			76			(8		)	567			423
Other operating expenses	21,067			19,814			18,366			18,932			18,782			59,247			55,296
Total core non-interest expense	154,306			144,705			132,505			130,852			134,749			431,516			397,705
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	11,368			2,566			3,287			(4,186		)	389			17,221			9,622
Branch exit and facilities impairment charges	—			155			—			—			—			155			70
Prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Contribution to MB Financial Charitable Foundation (C)	4,000			—			—			—			—			4,000			—
Increase (decrease) in market value of assets held in trust for deferred compensation (D)	711			480			8			565			(872		)	1,199			(559		)
Total non-core non-interest expense	16,079			3,201			3,295			(3,621		)	(483		)	22,575			9,218
Total non-interest expense	$	170,385		$	147,906		$	135,800		$	127,231		$	134,266		$	454,091		$	406,923

⁽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 $9.6 million, or 6.6%, from the second quarter of 2016 to $154.3 million for the third quarter of 2016.

Salaries and employee benefits expense increased primarily due to the increased staff from the American Chartered merger. Salaries and employee benefits expense also increased as a result of the following:
- Commission expense increased due to higher mortgage commission expense resulting from higher mortgage origination volumes and higher leasing commission expense resulting from higher sales of third-party equipment maintenance contracts.
- Other salaries and benefits expense increased due to increased temporary help in our IT and mortgage areas, increased overtime in our mortgage area and higher 401(k) match and profit sharing contribution expense.
Occupancy and equipment expense increased primarily due to the additional offices acquired through the American Chartered merger.
Non-interest expense was also impacted by higher gains recognized on other real estate owned properties.
Other operating expenses increased primarily due to higher filing and other loan expense as well as higher FDIC assessment fees as a result of a larger balance sheet due to the American Chartered merger.

Core non-interest expense increased by $33.8 million, or 8.5%, from the nine months ended September 30, 2015 to $431.5 million for the nine months ended September 30, 2016.

Salaries and employee benefits expense increased due to the following:
- Salaries increased due to annual pay increases effective in the beginning of the second quarter, new hires and the increased staff from the American Chartered merger.
- Commission expense decreased due to lower commissions paid in our leasing segment as a result of lower lease financing revenues.
- Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through September 2016.
- Other salaries and benefits expense increased due to increased temporary help in our IT and mortgage areas as well as higher 401(k) match and profit sharing contribution expense.
Occupancy and equipment expense increased due to higher depreciation expense and rental operating expenses as a result of the acquisition of MSA and the American Chartered merger, new offices opened at our mortgage banking segment and an office relocation in our leasing segment.
Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer activity and investments in systems.
Advertising and marketing expense increased due to increased brand awareness advertising.
Professional and legal expense increased due to an increase in litigation and consulting fees.
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):

													Nine Months Ended
													September 30,
	3Q16			2Q16		1Q16		4Q15			3Q15		2016			2015
Merger related and repositioning expenses:
Salaries and employee benefits expense	$	8,684		$	324	$	81	$	(212	)	$	3	$	9,089		$	36
Occupancy and equipment expense	104			8		—		—			2		112			275
Computer services and telecommunication expense	3,105			511		305		(103		)	9		3,921			409
Advertising and marketing expense	53			41		23		2			—		117			—
Professional and legal expense	1,681			101		97		1,454			305		1,879			1,006
Branch exit and facilities impairment charges	(2,908		)	—		44		616			70		(2,864		)	7,829
Contingent consideration expense - Celtic acquisition ⁽¹⁾	—			—		2,703		—			—		2,703			—
Other operating expenses	649			1,581		34		(5,943		)	—		2,264			67
Total merger related and repositioning expenses	$	11,368		$	2,566	$	3,287	$	(4,186	)	$	389	$	17,221		$	9,622

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

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 tables summarize 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):

											Nine Months Ended
											September 30,
	3Q16		2Q16		1Q16		4Q15		3Q15		2016		2015

Net interest income	$	119,685	$	112,152	$	109,608	$	111,691	$	104,714	$	341,445	$	313,192
Provision for credit losses	4,394		2,995		7,001		6,654		4,965		14,390		12,783
Net interest income after provision for credit losses	115,291		109,157		102,607		105,037		99,749		327,055		300,409
Non-interest income:
Lease financing revenue, net	890		789		679		1,180		637		2,358		1,570
Mortgage origination fees	—		—		—		—		—		—		—
Mortgage servicing fees	—		—		—		—		—		—		—
Other non-interest income	38,927		35,144		34,369		31,772		31,435		108,440		93,361
Total non-interest income	39,817		35,933		35,048		32,952		32,072		110,798		94,931
Non-interest expense:
Salaries and employee benefits expense:
Salaries	38,575		35,951		34,527		34,840		34,940		109,054		101,065
Commissions	1,172		1,424		1,396		1,503		932		3,991		3,429
Bonus and stock-based compensation	10,553		10,852		6,476		7,838		8,250		27,881		24,642
Health and accident insurance	4,045		3,816		3,461		2,765		3,508		11,322		10,551
Other salaries and benefits ⁽¹⁾	9,612		8,171		7,542		7,144		7,789		25,325		22,268
Total salaries and employee benefits expense	63,957		60,214		53,402		54,090		55,419		177,573		161,955
Occupancy and equipment expense	11,724		10,561		10,430		10,344		9,982		32,715		30,168
Computer services and telecommunication expense	7,418		6,945		6,446		6,200		6,179		20,809		18,783
Professional and legal expense	1,566		2,385		1,486		1,709		766		5,437		3,074
Other operating expenses	16,467		16,587		15,570		15,757		16,413		48,624		48,050
Total non-interest expense	101,132		96,692		87,334		88,100		88,759		285,158		262,030
Income before income taxes	53,976		48,398		50,321		49,889		43,062		152,695		133,310
Income tax expense	16,287		14,353		14,927		14,998		12,184		45,567		39,458
Net income	$	37,689	$	34,045	$	35,394	$	34,891	$	30,878	$	107,128	$	93,852

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

Net income from our Banking Segment for the third quarter of 2016 increased compared to the prior quarter. This increase in net income was primarily due to an increase in net interest income driven by the loans acquired through the American Chartered merger and loan growth in the legacy portfolio as well as an increase in other non-interest income, partially offset by an increase in provision for credit losses expense and higher salaries and employee benefits expense primarily due to the increased staff from the American Chartered merger.

Net income from our Banking Segment for the nine months ended September 30, 2016 increased compared to the nine months ended September 30, 2015. This increase in net income was primarily due to an increase in net interest income, driven by loan growth in the legacy portfolio and, to a lesser extent, loans 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 as well as an increase in provision for credit losses expense.

Leasing Segment

The following tables summarize 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):

												Nine Months Ended
												September 30,
	3Q16		2Q16			1Q16		4Q15		3Q15		2016		2015

Net interest income	$	2,168	$	2,411		$	2,423	$	2,714	$	2,832	$	7,002	$	8,762
Provision for credit losses	1,964		(356		)	437		—		242		2,045		1,598
Net interest income after provision for credit losses	204		2,767			1,986		2,714		2,590		4,957		7,164
Non-interest income:
Lease financing revenue, net	17,974		14,919			18,367		14,757		19,363		51,260		59,074
Mortgage origination fees	—		—			—		—		—		—		—
Mortgage servicing fees	—		—			—		—		—		—		—
Other non-interest income	785		786			839		802		624		2,410		2,309
Total non-interest income	18,759		15,705			19,206		15,559		19,987		53,670		61,383
Non-interest expense:
Salaries and employee benefits expense:
Salaries	3,555		3,344			2,832		2,286		2,917		9,730		7,925
Commissions	2,592		2,172			3,936		3,047		3,714		8,701		12,251
Bonus and stock-based compensation	950		829			872		1,052		813		2,651		2,683
Health and accident insurance	376		376			335		312		331		1,087		975
Other salaries and benefits ⁽¹⁾	934		886			1,108		777		700		2,928		2,416
Total salaries and employee benefits expense	8,407		7,607			9,083		7,474		8,475		25,097		26,250
Occupancy and equipment expense	966		947			895		855		843		2,808		2,500
Computer services and telecommunication expense	432		431			363		340		335		1,226		904
Professional and legal expense	802		414			409		328		290		1,625		844
Other operating expenses	1,997		1,716			1,447		1,501		1,439		5,160		4,368
Total non-interest expense	12,604		11,115			12,197		10,498		11,382		35,916		34,866
Income before income taxes	6,359		7,357			8,995		7,775		11,195		22,711		33,681
Income tax expense	2,484		2,879			3,509		3,037		4,398		8,872		13,218
Net income	$	3,875	$	4,478		$	5,486	$	4,738	$	6,797	$	13,839	$	20,463

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

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

Net income from our Leasing Segment for the nine months ended September 30, 2016 decreased compared to the nine months ended September 30, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues, as a result of a decrease in residual gains and fees from the sale of third-party equipment maintenance contracts.

Mortgage Banking Segment

The following tables summarize 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):

												Nine Months Ended
												September 30,
	3Q16		2Q16		1Q16			4Q15		3Q15		2016			2015

Net interest income	$	8,918	$	8,039	$	7,273		$	7,364	$	8,423	$	24,230		$	21,883
Provision for credit losses	191		190		125			104		151		506			247
Net interest income after provision for credit losses	8,727		7,849		7,148			7,260		8,272		23,724			21,636
Non-interest income:
Lease financing revenue, net	—		—		—			—		—		—			—
Mortgage origination fees	39,962		31,417		16,894			17,596		23,449		88,273			77,106
Mortgage servicing fees	9,133		8,198		10,588			8,946		7,243		27,919			13,778
Other non-interest income	—		—		(3		)	10		—		(3		)	4
Total non-interest income	49,095		39,615		27,479			26,552		30,692		116,189			90,888
Non-interest expense:
Salaries and employee benefits expense:
Salaries	12,958		12,088		11,450			11,307		11,069		36,496			32,147
Commissions	8,554		7,226		5,016			5,244		6,867		20,796			20,090
Bonus and stock-based compensation	1,477		1,190		1,309			1,060		1,172		3,976			2,657
Health and accident insurance	1,956		1,887		1,803			1,569		1,801		5,646			4,903
Other salaries and benefits ⁽¹⁾	4,774		3,988		3,439			3,612		3,957		12,201			11,343
Total salaries and employee benefits expense	29,719		26,379		23,017			22,792		24,866		79,115			71,140
Occupancy and equipment expense	1,972		1,899		1,935			1,736		1,631		5,806			4,632
Computer services and telecommunication expense	1,881		1,890		1,941			2,008		2,044		5,712			5,912
Professional and legal expense	411		421		597			678		440		1,429			1,960
Other operating expenses	6,587		6,309		5,484			5,040		5,627		18,380			17,165
Total non-interest expense	40,570		36,898		32,974			32,254		34,608		110,442			100,809
Income before income taxes	17,252		10,566		1,653			1,558		4,356		29,471			11,715
Income tax expense	6,901		4,226		661			623		1,742		11,788			4,686
Net income	$	10,351	$	6,340	$	992		$	935	$	2,614	$	17,683		$	7,029

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

Net income from our Mortgage Banking Segment for the third quarter of 2016 increased compared to the prior quarter. This increase in net income was due to an increase in mortgage origination fees and net interest income, partly offset by higher mortgage commission expense and volume-related other operating expenses. The increase in mortgage origination fees was driven by higher origination volumes in the third quarter of 2016, as a result of the favorable interest rate environment, and higher gains on sale margins.

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

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

	3Q16			2Q16			1Q16			4Q15			3Q15
Origination volume:	$	1,976,377		$	1,709,044		$	1,328,804		$	1,437,057		$	1,880,960
Refinance	48		%	42		%	49		%	42		%	34		%
Purchase	52			58			51			58			66
Origination volume by channel:
Retail	22		%	23		%	19		%	18		%	18		%
Third party	78			77			81			82			82
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end ⁽¹⁾	$	18,477,648		$	17,739,626		$	16,911,325		$	16,218,613		$	15,582,911
Mortgage servicing rights, recorded at fair value, at period end	154,730			134,969			145,800			168,162			148,097
Notional value of rate lock commitments, at period end	1,201,100			981,000			823,000			622,906			800,162

⁽¹⁾3Q15 does not include the unpaid principal balance of serviced loans sold in July 2015 that continued to be sub-serviced through October 2015.

LOAN PORTFOLIO

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

	9/30/2016					6/30/2016					3/31/2016					12/31/2015					9/30/2015
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related credits:
Commercial	$	4,385,812		35	%	$	3,561,500		35	%	$	3,509,604		36	%	$	3,616,286		37	%	$	3,440,632		37	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,873,380			15		1,794,465			18		1,774,104			18		1,779,072			18		1,693,540			18
Commercial real estate	3,794,801			30		2,827,720			28		2,831,814			28		2,695,676			27		2,580,009			27
Construction real estate	451,023			4		357,807			3		310,278			3		252,060			3		255,620			3
Total commercial-related credits	10,505,016			84		8,541,492			84		8,425,800			85		8,343,094			85		7,969,801			85
Other loans:
Residential real estate	998,827			8		753,707			7		677,791			7		628,169			6		607,171			6
Indirect vehicle	522,271			4		491,480			5		432,915			4		384,095			4		345,731			4
Home equity	275,288			2		198,622			2		207,079			2		216,573			2		223,173			2
Consumer	77,956			1		75,775			1		77,318			1		80,661			1		87,612			1
Total other loans	1,874,342			15		1,519,584			15		1,395,103			14		1,309,498			13		1,263,687			13
Total loans, excluding purchased credit-impaired loans	12,379,358			99		10,061,076			99		9,820,903			99		9,652,592			98		9,233,488			98
Purchased credit-impaired loans	161,338			1		136,811			1		140,445			1		141,406			2		155,693			2
Total loans	$	12,540,696		100	%	$	10,197,887		100	%	$	9,961,348		100	%	$	9,793,998		100	%	$	9,389,181		100	%
Change from prior quarter	+23.0		%			+2.4		%			+1.7		%			+4.3		%			+3.2		%

Our loan balances, excluding purchased credit-impaired loans, increased $2.3 billion (+23.0%) during the third quarter of 2016 primarily due to the loans acquired from the American Chartered merger as well as growth in our legacy commercial-related credits. Legacy loan balances, excluding purchased credit-impaired loans, increased $433.8 million (+4.3%, or +17.2% annualized) during the third quarter of 2016.

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):

	3Q16					2Q16					1Q16					4Q15					3Q15
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related credits:
Commercial	$	3,850,588		35	%	$	3,522,641		35	%	$	3,531,441		36	%	$	3,492,161		37	%	$	3,372,279		37	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,825,505			16		1,777,763			18		1,754,558			18		1,708,404			18		1,674,939			18
Commercial real estate	3,183,131			29		2,821,516			28		2,734,148			28		2,627,004			28		2,568,539			28
Construction real estate	397,480			4		351,079			3		276,797			3		274,188			2		210,506			2
Total commercial-related credits	9,256,704			84		8,472,999			84		8,296,944			85		8,101,757			85		7,826,263			85
Other loans:
Residential real estate	862,393			7		710,384			7		640,231			7		612,275			6		566,115			6
Indirect vehicle	507,772			5		462,053			5		404,473			4		365,744			4		325,323			4
Home equity	231,399			2		202,228			2		210,678			2		219,440			2		226,365			2
Consumer	77,451			1		78,108			1		80,569			1		83,869			1		85,044			1
Total other loans	1,679,015			15		1,452,773			15		1,335,951			14		1,281,328			13		1,202,847			13
Total loans, excluding purchased credit-impaired loans	10,935,719			99		9,925,772			99		9,632,895			99		9,383,085			98		9,029,110			98
Purchased credit-impaired loans	135,548			1		136,415			1		139,451			1		154,562			2		156,309			2
Total loans	$	11,071,267		100	%	$	10,062,187		100	%	$	9,772,346		100	%	$	9,537,647		100	%	$	9,185,419		100	%
Change from prior quarter	+10.0		%			+3.0		%			+2.5		%			+3.8		%			+2.4		%

ASSET QUALITY

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

	9/30/2016			6/30/2016			3/31/2016			12/31/2015			9/30/2015
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	52,135		$	67,544		$	93,602		$	98,065		$	92,302
Loans 90 days or more past due, still accruing interest	1,774			7,190			1,112			6,596			4,275
Total non-performing loans	53,909			74,734			94,714			104,661			96,577
Other real estate owned	33,105			27,663			28,309			31,553			29,587
Repossessed assets	453			459			187			81			216
Total non-performing assets	$	87,467		$	102,856		$	123,210		$	136,295		$	126,380
Potential problem loans ⁽²⁾	$	111,594		$	99,782		$	110,193		$	139,941		$	122,966
Purchased credit-impaired loans	$	161,338		$	136,811		$	140,445		$	141,406		$	155,693
Total non-performing, potential problem and purchased credit-impaired loans	$	326,841		$	311,327		$	345,352		$	386,008		$	375,236

Total allowance for loan and lease losses	$	139,528		$	135,614		$	134,493		$	128,140		$	124,626
Accruing restructured loans ⁽³⁾	28,582			26,715			27,269			26,991			20,120
Total non-performing loans to total loans	0.43		%	0.73		%	0.95		%	1.07		%	1.03		%
Total non-performing assets to total assets	0.45			0.64			0.79			0.87			0.85
Allowance for loan and lease losses to non-performing loans	258.82			181.46			142.00			122.43			129.04

⁽¹⁾Includes $23.4 million, $28.9 million, $24.0 million, $23.6 million and $21.4 million of restructured loans on non-accrual status at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015, respectively.
⁽²⁾We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.
⁽³⁾Accruing restructured loans consist of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

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

	9/30/2016		6/30/2016		3/31/2016		12/31/2015		9/30/2015
Commercial and lease	$	14,898	$	29,509	$	28,590	$	37,076	$	34,465
Commercial real estate	4,655		7,163		27,786		29,073		25,437
Consumer-related	34,356		38,062		38,338		38,512		36,675
Total non-performing loans	$	53,909	$	74,734	$	94,714	$	104,661	$	96,577

Non-performing commercial and lease loans decreased at September 30, 2016 compared to June 30, 2016 as a result of problem loans repaid during the quarter.

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

	9/30/2016			6/30/2016			3/31/2016			12/31/2015			9/30/2015
Balance at the beginning of quarter	$	27,663		$	28,309		$	31,553		$	29,587		$	28,517
Transfers in at fair value less estimated costs to sell	929			1,367			1,270			5,964			2,402
Acquired from business combination	4,148			—			—			—			—
Capitalized other real estate owned costs	96			—			—			—			—
Fair value adjustments	865			70			45			(721		)	(565		)
Net gains on sales of other real estate owned	25			227			592			977			45
Cash received upon disposition	(621		)	(2,310		)	(5,151		)	(4,254		)	(812		)
Balance at the end of quarter	$	33,105		$	27,663		$	28,309		$	31,553		$	29,587

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

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Allowance for credit losses, balance at the beginning of period	$	138,333		$	137,732		$	131,508		$	128,038		$	124,130		$	131,508		$	114,057
Provision for credit losses	6,549			2,829			7,563			6,758			5,358			16,941			14,628
Charge-offs:
Commercial loans	1,341			72			713			710			1,657			2,126			2,283
Commercial loans collateralized by assignment of lease payments (lease loans)	367			2,347			574			685			1,980			3,288			2,080
Commercial real estate	529			1,720			352			1,251			170			2,601			2,312
Construction real estate	7			144			—			23			5			151			11
Residential real estate	290			476			368			261			292			1,134			1,189
Home equity	376			619			238			407			358			1,233			1,078
Indirect vehicle	838			651			931			898			581			2,420			2,082
Consumer loans	409			395			412			550			467			1,216			1,391
Total charge-offs	4,157			6,424			3,588			4,785			5,510			14,169			12,426
Recoveries:
Commercial loans	665			952			380			235			456			1,997			1,514
Commercial loans collateralized by assignment of lease payments (lease loans)	3			467			50			12			11			520			1,100
Commercial real estate	324			1,843			594			385			2,402			2,761			6,338
Construction real estate	50			17			27			19			216			94			253
Residential real estate	45			82			24			98			337			151			417
Home equity	65			193			318			132			186			576			447
Indirect vehicle	436			501			463			499			334			1,400			1,354
Consumer loans	86			141			393			117			118			620			356
Total recoveries	1,674			4,196			2,249			1,497			4,060			8,119			11,779
Total net charge-offs	2,483			2,228			1,339			3,288			1,450			6,050			647
Allowance for credit losses	142,399			138,333			137,732			131,508			128,038			142,399			128,038
Allowance for unfunded credit commitments	(2,871		)	(2,719		)	(3,239		)	(3,368		)	(3,412		)	(2,871		)	(3,412		)
Allowance for loan and lease losses	$	139,528		$	135,614		$	134,493		$	128,140		$	124,626		$	139,528		$	124,626
Total loans, excluding loans held for sale	$	12,540,696		$	10,197,887		$	9,961,348		$	9,793,998		$	9,389,181		$	12,540,696		$	9,389,181
Average loans, excluding loans held for sale	11,071,267			10,062,187			9,772,346			9,537,647			9,185,419			10,304,741			9,015,726
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.11		%	1.33		%	1.35		%	1.31		%	1.33		%	1.11		%	1.33		%
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.09			0.09			0.06			0.14			0.06			0.08			0.01

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

	9/30/2016		6/30/2016		3/31/2016		12/31/2015		9/30/2015
Commercial related loans:
General reserve	$	112,653	$	108,972	$	98,001	$	94,164	$	93,903
Specific reserve	9,698		12,205		20,995		16,173		13,683
Consumer related reserve	17,177		14,437		15,497		17,803		17,040
Total allowance for loan and lease losses	$	139,528	$	135,614	$	134,493	$	128,140	$	124,626

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

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

For pass rated loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans (computed on a loan by loan basis) and the principal outstanding is accreted over the remaining life of the loans.

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

Changes in the purchase accounting discount for loans acquired in the 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

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

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

The $2.5 million and $1.5 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount for the three months ended September 30, 2016 and June 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, the fair value and amortized cost of our investment securities, excluding FHLB and FRB stock, as well as the unrealized gain, net of our investment securities available for sale as of the dates indicated (in thousands):

	9/30/2016		6/30/2016		3/31/2016			12/31/2015			9/30/2015
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	53,992	$	54,457	$	64,762		$	64,611		$	65,461
States and political subdivisions	410,737		400,948		398,024			396,367			399,274
Mortgage-backed securities	1,173,306		785,367		834,559			893,656			847,426
Corporate bonds	210,193		225,525		224,530			219,628			228,251
Equity securities	11,128		11,098		10,969			10,761			10,826
Total fair value	$	1,859,356	$	1,477,395	$	1,532,844		$	1,585,023		$	1,551,238

Amortized cost
Government sponsored agencies and enterprises	$	53,480	$	53,674	$	63,600		$	63,805		$	64,008
States and political subdivisions	383,041		369,816		371,006			373,285			379,015
Mortgage-backed securities	1,160,772		769,109		820,825			888,325			834,791
Corporate bonds	208,940		224,730		225,657			222,784			228,711
Equity securities	10,932		10,872		10,814			10,757			10,701
Total amortized cost	$	1,817,165	$	1,428,201	$	1,491,902		$	1,558,956		$	1,517,226

Unrealized gain, net
Government sponsored agencies and enterprises	$	512	$	783	$	1,162		$	806		$	1,453
States and political subdivisions	27,696		31,132		27,018			23,082			20,259
Mortgage-backed securities	12,534		16,258		13,734			5,331			12,635
Corporate bonds	1,253		795		(1,127		)	(3,156		)	(460		)
Equity securities	196		226		155			4			125
Total unrealized gain, net	$	42,191	$	49,194	$	40,942		$	26,067		$	34,012

Securities held to maturity, at amortized cost:
States and political subdivisions	$	939,491	$	960,784	$	986,340		$	1,016,519		$	1,002,963
Mortgage-backed securities	175,771		190,631		205,570			214,291			221,889
Total amortized cost	$	1,115,262	$	1,151,415	$	1,191,910		$	1,230,810		$	1,224,852

Our total investment securities, excluding FHLB and FRB stock, increased by $345.8 million to $3.0 billion at September 30, 2016 compared to $2.6 billion at June 30, 2016 primarily due to securities acquired through the American Chartered merger classified as available for sale.

DEPOSIT MIX

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

	9/30/2016					6/30/2016					3/31/2016					12/31/2015					9/30/2015
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	6,410,334		45	%	$	4,775,364		42	%	$	4,667,410		40	%	$	4,627,184		40	%	$	4,434,067		39	%
Money market, NOW and interest bearing deposits	4,660,407			33		3,771,111			33		4,048,054			35		4,144,633			36		4,129,414			37
Savings deposits	1,147,900			8		1,021,845			9		991,300			9		974,555			8		953,746			8
Total low cost deposits	12,218,641			86		9,568,320			84		9,706,764			84		9,746,372			84		9,517,227			84
Certificates of deposit:
Certificates of deposit	1,298,186			9		1,220,562			11		1,255,457			11		1,244,292			11		1,279,842			12
Brokered certificates of deposit	762,439			5		647,214			5		571,605			5		514,551			5		457,509			4
Total certificates of deposit	2,060,625			14		1,867,776			16		1,827,062			16		1,758,843			16		1,737,351			16
Total deposits	$	14,279,266		100	%	$	11,436,096		100	%	$	11,533,826		100	%	$	11,505,215		100	%	$	11,254,578		100	%
Change from prior quarter	+24.9		%			-0.8		%			+0.2		%			+2.2		%			+3.6		%

Total low cost deposits increased $2.7 billion (+27.7%) to $12.2 billion at September 30, 2016 compared to June 30, 2016 and represented 86% of total deposits at quarter-end primarily due to the deposits assumed in the American Chartered merger as well as strong growth in our legacy non-interest bearing deposits. Non-interest bearing deposits grew by $1.6 billion (+34.2%) during the third quarter of 2016 and comprised 45% of total deposits at quarter-end. Period end legacy low cost deposits increased $414.2 million (+4.3%, or 17.2% annualized).

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

	3Q16					2Q16					1Q16					4Q15					3Q15
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	5,524,043		43	%	$	4,806,692		42	%	$	4,606,008		40	%	$	4,617,076		40	%	$	4,428,065		39	%
Money market, NOW and interest bearing deposits	4,161,913			33		3,836,134			33		4,109,150			36		4,214,099			37		4,119,625			36
Savings deposits	1,080,609			8		1,006,902			9		984,019			9		959,049			8		965,060			9
Total low cost deposits	10,766,565			84		9,649,728			84		9,699,177			85		9,790,224			85		9,512,750			84
Certificates of deposit:
Certificates of deposit	1,257,959			10		1,237,198			11		1,237,971			11		1,245,947			11		1,304,516			12
Brokered certificates of deposit	702,030			6		598,702			5		534,910			4		492,839			4		427,649			4
Total certificates of deposit	1,959,989			16		1,835,900			16		1,772,881			15		1,738,786			15		1,732,165			16
Total deposits	$	12,726,554		100	%	$	11,485,628		100	%	$	11,472,058		100	%	$	11,529,010		100	%	$	11,244,915		100	%
Change from prior quarter	+10.8		%			+0.1		%			-0.5		%			+2.5		%			+3.2		%

Average total low cost deposits increased $1.1 billion (+11.6%) to $10.8 billion during the third quarter of 2016 compared to last quarter and represented 84% of average total deposits for the quarter due to the deposits assumed in the American Chartered merger as well as strong growth in our legacy non-interest bearing deposits. Average non-interest bearing deposits grew by $717.4 million (+14.92%) during the third quarter of 2016 and comprised 43% of average total deposits during the third quarter of 2016. Average legacy low cost deposits increased approximately $220 million (+2.3%, 9.1% annualized) during the quarter.

CAPITAL

Tangible book value per common share was $16.88 at September 30, 2016 compared to $17.48 at June 30, 2016 and $16.43 at September 30, 2015.

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

FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the 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)
As of the dates indicated
(In thousands)

	9/30/2016			6/30/2016			3/31/2016			12/31/2015			9/30/2015
ASSETS
Cash and due from banks	$	351,009		$	303,037		$	271,732		$	307,869		$	234,220
Interest earning deposits with banks	125,250			123,086			113,785			73,572			66,025
Total cash and cash equivalents	476,259			426,123			385,517			381,441			300,245
Investment securities:
Securities available for sale, at fair value	1,859,356			1,477,395			1,532,844			1,585,023			1,551,238
Securities held to maturity, at amortized cost	1,115,262			1,151,415			1,191,910			1,230,810			1,224,852
Non-marketable securities - FHLB and FRB Stock	146,209			130,232			121,750			114,233			91,400
Total investment securities	3,120,827			2,759,042			2,846,504			2,930,066			2,867,490
Loans held for sale	899,412			843,379			632,196			744,727			676,020
Loans:
Total loans, excluding purchased credit-impaired loans	12,379,358			10,061,076			9,820,903			9,652,592			9,233,488
Purchased credit-impaired loans	161,338			136,811			140,445			141,406			155,693
Total loans	12,540,696			10,197,887			9,961,348			9,793,998			9,389,181
Less: Allowance for loan and lease losses	139,528			135,614			134,493			128,140			124,626
Net loans	12,401,168			10,062,273			9,826,855			9,665,858			9,264,555
Lease investments, net	277,647			233,320			216,046			211,687			184,223
Premises and equipment, net	283,112			243,319			238,578			236,013			234,115
Cash surrender value of life insurance	199,628			138,657			137,807			136,953			136,089
Goodwill	993,799			725,039			725,068			725,070			711,521
Other intangibles	65,395			41,569			43,186			44,812			37,520
Mortgage servicing rights, at fair value	154,730			134,969			145,800			168,162			148,097
Other real estate owned, net	33,105			27,663			28,309			31,553			29,587
Other real estate owned related to FDIC transactions	5,177			8,356			10,397			10,717			13,825
Other assets	431,623			352,081			339,390			297,948			346,814
Total assets	$	19,341,882		$	15,995,790		$	15,575,653		$	15,585,007		$	14,950,101
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing	$	6,410,334		$	4,775,364		$	4,667,410		$	4,627,184		$	4,434,067
Interest bearing	7,868,932			6,660,732			6,866,416			6,878,031			6,820,511
Total deposits	14,279,266			11,436,096			11,533,826			11,505,215			11,254,578
Short-term borrowings	1,496,319			1,246,994			884,101			1,005,737			940,529
Long-term borrowings	311,645			518,545			439,615			400,274			95,175
Junior subordinated notes issued to capital trusts	209,159			185,925			185,820			186,164			186,068
Accrued expenses and other liabilities	482,085			451,695			409,406			400,333			410,523
Total liabilities	16,778,474			13,839,255			13,452,768			13,497,723			12,886,873
Stockholders' Equity
Preferred stock	116,507			115,280			115,280			115,280			115,280
Common stock	855			757			756			756			756
Additional paid-in capital	1,674,341			1,288,777			1,284,438			1,280,870			1,277,348
Retained earnings	809,769			783,468			756,272			731,812			702,789
Accumulated other comprehensive income	23,763			28,731			24,687			15,777			20,968
Treasury stock	(62,084		)	(60,732		)	(59,863		)	(58,504		)	(55,258		)
Controlling interest stockholders' equity	2,563,151			2,156,281			2,121,570			2,085,991			2,061,883
Noncontrolling interest	257			254			1,315			1,293			1,345
Total stockholders' equity	2,563,408			2,156,535			2,122,885			2,087,284			2,063,228
Total liabilities and stockholders' equity	$	19,341,882		$	15,995,790		$	15,575,653		$	15,585,007		$	14,950,101

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

															Nine Months Ended
															September 30,
(Dollars in thousands, except per share data)	3Q16			2Q16			1Q16			4Q15			3Q15		2016			2015
Interest income:
Loans:
Taxable	$	118,675		$	110,231		$	104,923		$	106,137		$	100,573	$	333,829		$	298,187
Nontaxable	2,846			2,741			2,586			2,602			2,283		8,173			6,716
Investment securities:
Taxable	8,844			7,799			9,566			9,708			9,655		26,209			29,591
Nontaxable	10,382			10,644			10,776			10,969			10,752		31,802			30,005
Federal funds sold	—			—			—			1			—		—			—
Other interest earning accounts	164			125			141			110			89		430			208
Total interest income	140,911			131,540			127,992			129,527			123,352		400,443			364,707
Interest expense:
Deposits	6,681			5,952			5,622			5,357			5,102		18,255			14,301
Short-term borrowings	1,092			910			721			385			395		2,723			1,027
Long-term borrowings and junior subordinated notes	2,367			2,076			2,345			2,016			1,886		6,788			5,542
Total interest expense	10,140			8,938			8,688			7,758			7,383		27,766			20,870
Net interest income	130,771			122,602			119,304			121,769			115,969		372,677			343,837
Provision for credit losses	6,549			2,829			7,563			6,758			5,358		16,941			14,628
Net interest income after provision for credit losses	124,222			119,773			111,741			115,011			110,611		355,736			329,209
Non-interest income:
Mortgage banking revenue	49,095			39,615			27,482			26,542			30,692		116,192			90,884
Lease financing revenue, net	18,864			15,708			19,046			15,937			20,000		53,618			60,644
Commercial deposit and treasury management fees	12,957			11,548			11,878			11,711			11,472		36,383			33,572
Trust and asset management fees	8,244			8,236			7,950			6,077			6,002		24,430			17,468
Card fees	4,161			4,045			3,525			3,651			3,335		11,731			11,671
Capital markets and international banking service fees	3,313			2,771			3,227			2,355			2,357		9,311			5,793
Consumer and other deposit service fees	3,559			3,161			3,025			3,440			3,499		9,745			9,842
Brokerage fees	1,294			1,315			1,158			1,252			1,281		3,767			4,502
Loan service fees	1,792			1,961			1,752			1,890			1,531		5,505			4,369
Increase in cash surrender value of life insurance	1,055			850			854			864			852		2,759			2,527
Net gain (loss) on investment securities	—			269			—			(3		)	371		269			(173		)
Net gain (loss) on sale of assets	5			(2		)	(48		)	—			1		(45		)	(2		)
Other operating income	4,048			2,523			1,844			1,909			858		8,415			5,371
Total non-interest income	108,387			92,000			81,693			75,625			82,251		282,080			246,468
Non-interest expense:
Salaries and employee benefits expense	111,478			95,004			85,591			84,709			87,891		292,073			258,822
Occupancy and equipment expense	14,766			13,415			13,260			12,935			12,458		41,441			37,575
Computer services and telecommunication expense	12,836			9,777			9,055			8,445			8,567		31,668			26,008
Advertising and marketing expense	3,084			2,964			2,878			2,551			2,578		8,926			7,521
Professional and legal expense	4,460			3,321			2,589			4,169			1,801		10,370			6,884
Other intangible amortization expense	1,674			1,617			1,626			1,546			1,542		4,917			4,569
Branch exit and facilities impairment charges	(2,908		)	155			44			616			70		(2,709		)	7,899
Net (gain) loss recognized on other real estate owned and other expense	(721		)	258			(346		)	(729		)	577		(809		)	2,197
Prepayment fees on interest bearing liabilities	—			—			—			—			—		—			85
Other operating expenses	25,716			21,395			21,103			12,989			18,782		68,214			55,363
Total non-interest expense	170,385			147,906			135,800			127,231			134,266		454,091			406,923
Income before income taxes	62,224			63,867			57,634			63,405			58,596		183,725			168,754
Income tax expense	17,805			20,455			18,520			19,798			18,318		56,780			53,413
Net income	44,419			43,412			39,114			43,607			40,278		126,945			115,341
Dividends on preferred shares	2,004			2,000			2,000			2,000			2,000		6,004			6,000
Net income available to common stockholders	$	42,415		$	41,412		$	37,114		$	41,607		$	38,278	$	120,941		$	109,341


															Nine Months Ended
															September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15		2016			2015
Common share data:
Basic earnings per common share	$	0.55		$	0.56		$	0.51		$	0.57		$	0.52	$	1.62		$	1.47
Diluted earnings per common share	0.54			0.56			0.50			0.56			0.51		1.60			1.45
Weighted average common shares outstanding for basic earnings per common share	77,506,885			73,475,258			73,330,731			73,296,602			74,297,281		74,780,943			74,478,164
Weighted average common shares outstanding for diluted earnings per common share	78,683,170			74,180,374			73,966,935			73,953,165			75,029,827		75,727,580			75,154,585
Common shares outstanding (at end of period)	83,555,257			73,740,348			73,639,487			73,678,329			73,776,196		83,555,257			73,776,196

Selected Financial Data:
																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Performance Ratios:
Annualized return on average assets	1.02		%	1.11		%	1.02		%	1.13		%	1.06		%	1.05		%	1.05		%
Annualized operating return on average assets ⁽¹⁾	1.20			1.15			1.09			1.06			1.06			1.15			1.10
Annualized return on average common equity	7.67			8.27			7.52			8.48			7.75			7.81			7.52
Annualized operating return on average common equity ⁽¹⁾	9.02			8.56			8.08			7.86			7.75			8.57			7.94
Annualized cash return on average tangible common equity ⁽²⁾	12.99			13.53			12.47			13.97			12.74			13.00			12.43
Annualized cash operating return on average tangible common equity ⁽³⁾	15.23			13.99			13.37			12.97			12.74			14.23			13.10
Net interest rate spread	3.50			3.64			3.63			3.72			3.60			3.59			3.70
Cost of funds ⁽⁴⁾	0.28			0.27			0.27			0.24			0.23			0.27			0.23
Efficiency ratio ⁽⁵⁾	62.69			65.32			63.49			63.95			65.35			63.80			64.97
Annualized net non-interest expense to average assets ⁽⁶⁾	1.06			1.35			1.31			1.44			1.36			1.23			1.36
Core non-interest income to revenues ⁽⁷⁾	43.98			41.40			39.38			36.91			40.35			41.72			40.60
Net interest margin	3.49			3.60			3.57			3.64			3.52			3.55			3.62
Tax equivalent effect	0.19			0.21			0.22			0.22			0.21			0.21			0.21
Net interest margin - fully tax equivalent basis ⁽⁸⁾	3.68			3.81			3.79			3.86			3.73			3.76			3.83
Loans to deposits	87.82			89.17			86.37			85.13			83.43			87.82			83.43
Asset Quality Ratios:
Non-performing loans ⁽⁹⁾ to total loans	0.43		%	0.73		%	0.95		%	1.07		%	1.03		%	0.43		%	1.03		%
Non-performing assets ⁽⁹⁾ to total assets	0.45			0.64			0.79			0.87			0.85			0.45			0.85
Allowance for loan and lease losses to non-performing loans ⁽⁹⁾	258.82			181.46			142.00			122.43			129.04			258.82			129.04
Allowance for loan and lease losses to total loans	1.11			1.33			1.35			1.31			1.33			1.11			1.33
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.09			0.09			0.06			0.14			0.06			0.08			0.01
Capital Ratios:
Tangible equity to tangible assets ⁽¹⁰⁾	8.34		%	9.21		%	9.24		%	8.99		%	9.34		%	8.34		%	9.34		%
Tangible common equity to tangible assets ⁽¹¹⁾	7.71			8.46			8.46			8.21			8.53			7.71			8.53
Tangible common equity to risk weighted assets ⁽¹²⁾	8.82			9.75			9.54			9.34			9.69			8.82			9.69
Total capital (to risk-weighted assets) ⁽¹³⁾	11.65			12.81			12.65			12.54			12.94			11.65			12.94
Tier 1 capital (to risk-weighted assets) ⁽¹³⁾	9.39			11.77			11.60			11.54			11.92			9.39			11.92
Common equity tier 1 capital (to risk-weighted assets) ⁽¹³⁾	8.70			9.52			9.33			9.27			9.56			8.70			9.56
Tier 1 capital (to average assets) ⁽¹³⁾	9.29			10.41			10.38			10.40			10.43			9.29			10.43
Per Share Data:
Book value per common share ⁽¹⁴⁾	$	29.28		$	27.68		$	27.26		$	26.77		$	26.40		$	29.28		$	26.40
Less: goodwill and other intangible assets, net of tax benefit, per common share	12.40			10.20			10.22			10.24			9.97			12.40			9.97
Tangible book value per common share ⁽¹⁵⁾	$	16.88		$	17.48		$	17.04		$	16.53		$	16.43		$	16.88		$	16.43
Cash dividends per common share	$	0.19		$	0.19		$	0.17		$	0.17		$	0.17		$	0.55		$	0.48

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

NON-GAAP FINANCIAL INFORMATION

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include operating earnings, core non-interest income, core non-interest income to revenues (with non-core items excluded from both core non-interest income and revenues), core non-interest expense, non-core non-interest income and non-core non-interest expense, net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis excluding acquisition accounting discount accretion on 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 (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, and prepayment fees on interest bearing liabilities, branch exit and facilities impairment charges, merger related and repositioning expenses, increase (decrease) 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 (decrease) in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding prepayment fees on interest bearing liabilities, branch exit and facilities impairment charges, merger related and repositioning expenses, increase (decrease) 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 Ratios” table. Reconciliations of core and non-core non-interest income and non-interest expense to non-interest income and non-interest expense are contained in the tables under “Results of Operations—Third Quarter Results.”

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

	9/30/2016		6/30/2016		3/31/2016		12/31/2015		9/30/2015
Stockholders' equity - as reported	$	2,563,408	$	2,156,535	$	2,122,885	$	2,087,284	$	2,063,228
Less: goodwill	993,799		725,039		725,068		725,070		711,521
Less: other intangible assets, net of tax benefit	42,507		27,020		28,071		29,128		24,388
Tangible equity	$	1,527,102	$	1,404,476	$	1,369,746	$	1,333,086	$	1,327,319

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

	9/30/2016		6/30/2016		3/31/2016		12/31/2015		9/30/2015
Total assets - as reported	$	19,341,882	$	15,995,790	$	15,575,653	$	15,585,007	$	14,950,101
Less: goodwill	993,799		725,039		725,068		725,070		711,521
Less: other intangible assets, net of tax benefit	42,507		27,020		28,071		29,128		24,388
Tangible assets	$	18,305,576	$	15,243,731	$	14,822,514	$	14,830,809	$	14,214,192

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

	9/30/2016		6/30/2016		3/31/2016		12/31/2015		9/30/2015
Common stockholders' equity - as reported	$	2,446,901	$	2,041,255	$	2,007,605	$	1,972,004	$	1,947,948
Less: goodwill	993,799		725,039		725,068		725,070		711,521
Less: other intangible assets, net of tax benefit	42,507		27,020		28,071		29,128		24,388
Tangible common equity	$	1,410,595	$	1,289,196	$	1,254,466	$	1,217,806	$	1,212,039

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

											Nine Months Ended
											September 30,
	3Q16		2Q16		1Q16		4Q15		3Q15		2016		2015
Average common stockholders' equity - as reported	$	2,201,095	$	2,014,822	$	1,984,379	$	1,945,772	$	1,958,947	$	2,067,257	$	1,942,911
Less: average goodwill	835,894		725,011		725,070		711,669		711,521		762,262		711,521
Less: average other intangible assets, net of tax benefit	32,744		27,437		28,511		23,826		23,900		29,576		23,715
Average tangible common equity	$	1,332,457	$	1,262,374	$	1,230,798	$	1,210,277	$	1,223,526	$	1,275,419	$	1,207,675

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

											Nine Months Ended
											September 30,
	3Q16		2Q16		1Q16		4Q15		3Q15		2016		2015
Net income available to common stockholders - as reported	$	42,415	$	41,412	$	37,114	$	41,607	$	38,278	$	120,941	$	109,341
Add: other intangible amortization expense, net of tax benefit	1,088		1,051		1,057		1,005		1,002		3,196		2,970
Net cash flow available to common stockholders	$	43,503	$	42,463	$	38,171	$	42,612	$	39,280	$	124,137	$	112,311

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

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Net income - as reported	$	44,419		$	43,412		$	39,114		$	43,607		$	40,278		$	126,945		$	115,341
Less non-core items:
Net gain (loss) on investment securities	—			269			—			(3		)	371			269			(173		)
Net (loss) gain on sale of other assets	5			(2		)	(48		)	—			1			(45		)	(2		)
Increase (decrease) in market value of assets held in trust for deferred compensation - other operating income	711			480			8			565			(872		)	1,199			(559		)
Merger related and repositioning expenses	(11,368		)	(2,566		)	(3,287		)	4,186			(389		)	(17,221		)	(9,622		)
Branch exit and facilities impairment charges	—			(155		)	—			—			—			(155		)	(70		)
Prepayment fees on interest bearing liabilities	—			—			—			—			—			—			(85		)
Contribution to MB Financial Charitable Foundation	(4,000		)	—			—			—			—			(4,000		)	—
Increase (decrease) in market value of assets held in trust for deferred compensation - other operating expense	(711		)	(480		)	(8		)	(565		)	872			(1,199		)	559
Total non-core items	(15,363		)	(2,454		)	(3,335		)	4,183			(17		)	(21,152		)	(9,952		)
Income tax expense on non-core items	(6,074		)	(1,003		)	(577		)	1,140			(6		)	(7,654		)	(3,949		)
Income tax benefit resulting from adoption of new stock-based compensation guidance	(1,793		)	—			—			—			—			(1,793		)	—
Non-core items, net of tax	(7,496		)	(1,451		)	(2,758		)	3,043			(11		)	(11,705		)	(6,003		)
Operating earnings	51,915			44,863			41,872			40,564			40,289			138,650			121,344
Dividends on preferred shares	2,004			2,000			2,000			2,000			2,000			6,004			6,000
Operating earnings available to common stockholders	$	49,911		$	42,863		$	39,872		$	38,564		$	38,289		$	132,646		$	115,344
Diluted operating earnings per common share	$	0.63		$	0.58		$	0.54		$	0.52		$	0.51		$	1.75		$	1.53
Weighted average common shares outstanding for diluted operating earnings per common share	78,683,170			74,180,374			73,966,935			73,953,165			75,029,827			75,727,580			75,154,585

Efficiency Ratio Calculation (Dollars in Thousands)

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Non-interest expense	$	170,385		$	147,906		$	135,800		$	127,231		$	134,266		$	454,091		$	406,923
Less merger related and repositioning expenses	11,368			2,566			3,287			(4,186		)	389			17,221			9,622
Less prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Less branch exit and facilities impairment charges	—			155			—			—			—			155			70
Less contribution to MB Financial Charitable Foundation	4,000			—			—			—			—			4,000			—
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Non-interest expense - as adjusted	$	154,306		$	144,705		$	132,505		$	130,852		$	134,749		$	431,516		$	397,705

Net interest income	$	130,771		$	122,602		$	119,304		$	121,769		$	115,969		$	372,677		$	343,837
Tax equivalent adjustment	7,122			7,208			7,195			7,307			7,019			21,525			19,773
Net interest income on a fully tax equivalent basis	137,893			129,810			126,499			129,076			122,988			394,202			363,610
Plus non-interest income	108,387			92,000			81,693			75,625			82,251			282,080			246,468
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	568			458			460			465			459			1,486			1,361
Less net gain (loss) on investment securities	—			269			—			(3		)	371			269			(173		)
Less net gain (loss) on sale of assets	5			(2		)	(48		)	—			1			(45		)	(2		)
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Net interest income plus non-interest income - as adjusted	$	246,132		$	221,521		$	208,692		$	204,604		$	206,198		$	676,345		$	612,173
Efficiency ratio	62.69		%	65.32		%	63.49		%	63.95		%	65.35		%	63.80		%	64.97		%
Efficiency ratio (without adjustments)	71.24		%	68.92		%	67.56		%	64.46		%	67.74		%	69.35		%	68.93		%

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

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Non-interest expense	$	170,385		$	147,906		$	135,800		$	127,231		$	134,266		$	454,091		$	406,923
Less merger related and repositioning expenses	11,368			2,566			3,287			(4,186		)	389			17,221			9,622
Less prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Less branch exit and facilities impairment charges	—			155			—			—			—			155			70
Less contribution to MB Financial Charitable Foundation	4,000			—			—			—			—			4,000			—
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Non-interest expense - as adjusted	154,306			144,705			132,505			130,852			134,749			431,516			397,705

Non-interest income	108,387			92,000			81,693			75,625			82,251			282,080			246,468
Less net gain (loss) on investment securities	—			269			—			(3		)	371			269			(173		)
Less net gain (loss) on sale of assets	5			(2		)	(48		)	—			1			(45		)	(2		)
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Non-interest income - as adjusted	107,671			91,253			81,733			75,063			82,751			280,657			247,202
Less tax equivalent adjustment on the increase in cash surrender value of life insurance	568			458			460			465			459			1,486			1,361
Net non-interest expense	$	46,067		$	52,994		$	50,312		$	55,324		$	51,539		$	149,373		$	149,142
Average assets	$	17,248,431		$	15,740,658		$	15,487,565		$	15,244,633		$	15,059,429		$	16,162,861		$	14,687,441
Annualized net non-interest expense to average assets	1.06		%	1.35		%	1.31		%	1.44		%	1.36		%	1.23		%	1.36		%
Annualized net non-interest expense to average assets (without adjustments)	1.43		%	1.43		%	1.41		%	1.34		%	1.37		%	1.42		%	1.46		%

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

																Nine Months Ended
																September 30,
	3Q16			2Q16			1Q16			4Q15			3Q15			2016			2015
Non-interest income	$	108,387		$	92,000		$	81,693		$	75,625		$	82,251		$	282,080		$	246,468
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	568			458			460			465			459			1,486			1,361
Less net gain (loss) on investment securities	—			269			—			(3		)	371			269			(173		)
Less net gain (loss) on sale of assets	5			(2		)	(48		)	—			1			(45		)	(2		)
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Non-interest income - as adjusted	$	108,239		$	91,711		$	82,193		$	75,528		$	83,210		$	282,143		$	248,563

Net interest income	$	130,771		$	122,602		$	119,304		$	121,769		$	115,969		$	372,677		$	343,837
Tax equivalent adjustment	7,122			7,208			7,195			7,307			7,019			21,525			19,773
Net interest income on a fully tax equivalent basis	137,893			129,810			126,499			129,076			122,988			394,202			363,610
Plus non-interest income	108,387			92,000			81,693			75,625			82,251			282,080			246,468
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	568			458			460			465			459			1,486			1,361
Less net gain (loss) on investment securities	—			269			—			(3		)	371			269			(173		)
Less net gain (loss) on sale of assets	5			(2		)	(48		)	—			1			(45		)	(2		)
Less increase (decrease) in market value of assets held in trust for deferred compensation	711			480			8			565			(872		)	1,199			(559		)
Total revenue - as adjusted and on a fully tax equivalent basis	$	246,132		$	221,521		$	208,692		$	204,604		$	206,198		$	676,345		$	612,173

Total revenue - unadjusted	$	239,158		$	214,602		$	200,997		$	197,394		$	198,220		$	654,757		$	590,305

Core non-interest income to revenues ratio	43.98		%	41.40		%	39.38		%	36.91		%	40.35		%	41.72		%	40.60		%
Non-interest income to revenues ratio (without adjustments)	45.32		%	42.87		%	40.64		%	38.31		%	41.49		%	43.08		%	41.75		%

NET INTEREST MARGIN

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, and the resultant costs, expressed both in dollars and rates (dollars in thousands):

	3Q16						2Q16						3Q15
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	835,953	$	7,074	3.38	%	$	727,631	$	6,311	3.47	%	$	841,663	$	7,904	3.76	%
Loans ^{(1) (2) (3)}:
Commercial-related credits:
Commercial	3,850,588		41,095		4.18		3,522,641		39,002		4.38		3,372,279		34,481		4.00
Commercial loans collateralized by assignment of lease payments (lease loans)	1,825,505		16,876		3.70		1,777,763		16,647		3.75		1,674,939		15,647		3.74
Real estate commercial	3,183,131		33,253		4.09		2,821,516		29,948		4.20		2,568,539		27,558		4.20
Real estate construction	397,480		3,921		3.86		351,079		3,436		3.87		210,506		2,431		4.52
Total commercial-related credits	9,256,704		95,145		4.02		8,472,999		89,033		4.16		7,826,263		80,117		4.01
Other loans:
Real estate residential	862,393		7,121		3.30		710,384		6,064		3.41		566,115		5,152		3.64
Home equity	231,399		2,252		3.87		202,228		1,969		3.92		226,365		2,298		4.03
Indirect	507,772		5,838		4.57		462,053		5,333		4.64		325,323		4,017		4.90
Consumer	77,451		821		4.21		78,108		767		3.95		85,044		807		3.76
Total other loans	1,679,015		16,032		3.80		1,452,773		14,133		3.91		1,202,847		12,274		4.05
Total loans, excluding purchased credit-impaired loans	10,935,719		111,177		4.04		9,925,772		103,166		4.18		9,029,110		92,391		4.06
Purchased credit-impaired loans	135,548		4,802		14.09		136,415		4,972		14.66		156,309		3,791		9.62
Total loans	11,071,267		115,979		4.17		10,062,187		108,138		4.32		9,185,419		96,182		4.15
Taxable investment securities	1,592,547		8,844		2.22		1,466,915		7,799		2.13		1,543,434		9,655		2.50
Investment securities exempt from federal income taxes ⁽³⁾	1,318,855		15,972		4.84		1,339,465		16,375		4.89		1,356,702		16,541		4.88
Federal funds sold	36		0		1.00		35		0		1.00		38		0		1.00
Other interest earning deposits	103,061		164		0.63		100,200		125		0.50		138,542		89		0.25
Total interest earning assets	$	14,921,719	$	148,033	3.95	%	$	13,696,433	$	138,748	4.07	%	$	13,065,798	$	130,371	3.96	%
Non-interest earning assets	2,326,712						2,044,225						1,993,631
Total assets	$	17,248,431					$	15,740,658					$	15,059,429
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,161,913	$	2,299	0.22	%	$	3,836,134	$	2,049	0.21	%	$	4,119,625	$	1,832	0.18	%
Savings deposits	1,080,609		231		0.09		1,006,902		174		0.07		965,060		124		0.05
Certificates of deposit	1,257,959		1,633		0.52		1,237,198		1,474		0.48		1,304,516		1,450		0.44
Customer repurchase agreements	210,688		113		0.21		162,038		85		0.21		244,845		114		0.18
Total core funding	6,711,169		4,276		0.25		6,242,272		3,782		0.24		6,634,046		3,520		0.21
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	702,030		2,518		1.43		598,702		2,255		1.51		427,649		1,696		1.57
Other borrowings	1,533,344		3,346		0.85		1,573,083		2,901		0.73		1,117,166		2,167		0.76
Total wholesale funding	2,235,374		5,864		1.04		2,171,785		5,156		0.95		1,544,815		3,863		0.99
Total interest bearing liabilities	$	8,946,543	$	10,140	0.45	%	$	8,414,057	$	8,938	0.43	%	$	8,178,861	$	7,383	0.36	%
Non-interest bearing deposits	5,524,043						4,806,692						4,428,065
Other non-interest bearing liabilities	461,243						389,807						378,276
Stockholders' equity	2,316,602						2,130,102						2,074,227
Total liabilities and stockholders' equity	$	17,248,431					$	15,740,658					$	15,059,429
Net interest income/interest rate spread ⁽⁴⁾			$	137,893	3.50	%			$	129,810	3.64	%			$	122,988	3.60	%
Taxable equivalent adjustment			7,122						7,208						7,019
Net interest income, as reported			$	130,771					$	122,602					$	115,969
Net interest margin ⁽⁵⁾					3.49	%					3.60	%					3.52	%
Tax equivalent effect					0.19	%					0.21	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.68	%					3.81	%					3.73	%

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

	Nine Months Ended September 30,
	2016						2015
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	741,880	$	19,351	3.48	%	$	760,956	$	20,528	3.60	%
Loans ^{(1) (2) (3)}:
Commercial-related credits
Commercial:	3,635,677		117,454		4.24		3,291,515		101,988		4.09
Commercial loans collateralized by assignment of lease payments (lease loans)	1,786,087		50,100		3.74		1,652,527		46,320		3.74
Real estate commercial	2,913,918		91,240		4.11		2,543,444		82,251		4.26
Real estate construction	341,988		10,259		3.94		197,970		8,900		5.93
Total commercial-related credits	8,677,670		269,053		4.07		7,685,456		239,459		4.11
Other loans:
Real estate residential	738,124		18,880		3.41		524,349		14,965		3.81
Home equity	214,829		6,254		3.89		235,516		7,067		4.01
Indirect	458,281		15,929		4.64		293,111		11,271		5.14
Consumer	78,705		2,382		4.04		77,916		2,384		4.09
Total other loans	1,489,939		43,445		3.89		1,130,892		35,687		4.22
Total loans, excluding purchased credit-impaired loans	10,167,609		312,498		4.11		8,816,348		275,146		4.17
Purchased credit-impaired loans	137,132		14,554		14.18		199,378		12,845		8.61
Total loans	10,304,741		327,052		4.24		9,015,726		287,991		4.27
Taxable investment securities	1,528,251		26,209		2.29		1,548,369		29,591		2.55
Investment securities exempt from federal income taxes ⁽³⁾	1,340,185		48,926		4.87		1,248,978		46,162		4.93
Federal funds sold	38		0		1.00		60		0		1.00
Other interest earning deposits	105,660		430		0.54		109,074		208		0.25
Total interest earning assets	$	14,020,755	$	421,968	4.02	%	$	12,683,163	$	384,480	4.05	%
Non-interest earning assets	2,142,106						2,004,278
Total assets	$	16,162,861					$	14,687,441
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,036,193	$	6,434	0.21	%	$	3,999,844	$	5,062	0.17	%
Savings deposits	1,024,050		564		0.07		963,291		379		0.05
Certificates of deposit	1,244,425		4,520		0.49		1,341,865		4,160		0.42
Customer repurchase agreements	187,698		292		0.21		244,217		337		0.18
Total core funding	6,492,366		11,810		0.24		6,549,217		9,938		0.20
Wholesale funding:
Brokered accounts (includes fee expense)	612,210		6,737		1.47		438,626		4,700		1.43
Other borrowings	1,478,102		9,219		0.82		977,130		6,232		0.84
Total wholesale funding	2,090,312		15,956		1.02		1,415,756		10,932		1.01
Total interest bearing liabilities	$	8,582,678	$	27,766	0.43	%	$	7,964,973	$	20,870	0.35	%
Non-interest bearing deposits	4,980,904						4,301,483
Other non-interest bearing liabilities	416,667						362,794
Stockholders' equity	2,182,612						2,058,191
Total liabilities and stockholders' equity	$	16,162,861					$	14,687,441
Net interest income/interest rate spread ⁽⁴⁾			$	394,202	3.59	%			$	363,610	3.70	%
Taxable equivalent adjustment			21,525						19,773
Net interest income, as reported			$	372,677					$	343,837
Net interest margin ⁽⁵⁾					3.55	%					3.62	%
Tax equivalent effect					0.21	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.76	%					3.83	%

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

	3Q16							2Q16							3Q15
	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	$	11,071,267		$	115,979	4.17	%	$	10,062,187		$	108,138	4.32	%	$	9,185,419		$	96,182	4.15	%
Less acquisition accounting discount accretion on non-PCI loans	(34,315		)	4,114				(27,123		)	5,390				(43,899		)	5,875
Less acquisition accounting discount accretion on PCI loans	(23,110		)	2,046				(23,272		)	2,312				(31,745		)	1,533
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	11,128,692		$	109,819	3.93	%	$	10,112,582		$	100,436	3.99	%	$	9,261,063		$	88,774	3.80	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	14,921,719		$	137,893	3.68	%	$	13,696,433		$	129,810	3.81	%	$	13,065,798		$	122,988	3.73	%
Less acquisition accounting discount accretion on non-PCI loans	(34,315		)	4,114				(27,123		)	5,390				(43,899		)	5,875
Less acquisition accounting discount accretion on PCI loans	(23,110		)	2,046				(23,272		)	2,312				(31,745		)	1,533
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	14,979,144		$	131,733	3.50	%	$	13,746,828		$	122,108	3.57	%	$	13,141,442		$	115,580	3.49	%

	Nine Months Ended September 30,
	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	$	10,304,741		$	327,052	4.24	%	$	9,015,726		$	287,991	4.27	%
Less acquisition accounting discount accretion on non-PCI loans	(32,056		)	14,455				(50,627		)	20,815
Less acquisition accounting discount accretion on PCI loans	(24,206		)	6,761				(33,772		)	3,121
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	10,361,003		$	305,836	3.94	%	$	9,100,125		$	264,055	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	$	14,020,755		$	394,202	3.76	%	$	12,683,163		$	363,610	3.83	%
Less acquisition accounting discount accretion on non-PCI loans	(32,056		)	14,455				(50,627		)	20,815
Less acquisition accounting discount accretion on PCI loans	(24,206		)	6,761				(33,772		)	3,121
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	14,077,017		$	372,986	3.54	%	$	12,767,562		$	339,674	3.56	%

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

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

Distribution channels: Banking, Finance & Investment Industry

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