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MB Financial, Inc. Reports Fourth Quarter 2015 Results

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

Highlights Include:

Loan Growth During the Quarter

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

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

Deposit Growth During the Quarter

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

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

Key Earnings Components as Compared to the Prior Quarter

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

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

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

Credit Quality Metrics

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

Acquisitions

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

RESULTS OF OPERATIONS

Fourth Quarter and Annual Results

Net Interest Income

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

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

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

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

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

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

See the supplemental net interest margin tables for further detail.

Non-interest Income (in thousands):

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

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

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


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

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

Non-interest Expense (in thousands):

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

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

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

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

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

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

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

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

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

Income Tax Expense

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

Operating Segments

The Company's operations consist of three reportable operating segments: Banking, Leasing and Mortgage Banking.  Our Banking Segment generates its revenues primarily from its lending and deposit gathering activities.  Our Leasing Segment generates its revenues through lease originations and related services offered through the Company's leasing subsidiaries: LaSalle Systems Leasing, Inc., Celtic Leasing Corp. and MB Equipment Finance, LLC.  Our Mortgage Banking Segment originates residential mortgage loans for sale to investors through its retail and third party origination channels as well as residential mortgage loans held in our loan portfolio.  The Mortgage Banking Segment also services residential mortgage loans owned by investors and the Company.

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

  Banking   Leasing   Mortgage
Banking
  Non-core
Items
  Consolidated
Three months ended December 31, 2015                  
Net interest income $ 111,691     $ 2,714     $ 7,364     $     $ 121,769  
Provision for credit losses 6,654         104         6,758  
Net interest income after provision for credit losses 105,037     2,714     7,260         115,011  
Non-interest income:                  
Lease financing, net 1,180     14,757             15,937  
Mortgage origination fees         17,596         17,596  
Mortgage servicing fees         8,946         8,946  
Other non-interest income 32,337     802     10     (3 )   33,146  
Total non-interest income 33,517     15,559     26,552     (3 )   75,625  
Non-interest expense:                  
Salaries and employee benefits 54,655     7,474     22,792     (212 )   84,709  
Occupancy and equipment expense 10,344     855     1,736         12,935  
Computer services and telecommunication expense 6,200     340     2,008     (103 )   8,445  
Professional and legal expense 1,709     328     678     1,454     4,169  
Other operating expenses 15,757     1,501     5,040     (5,325 )   16,973  
Total non-interest expense 88,665     10,498     32,254     (4,186 )   127,231  
Income before income taxes 49,889     7,775     1,558     4,183     63,405  
Income tax expense 14,998     3,037     623     1,140     19,798  
Net income $ 34,891     $ 4,738     $ 935     $ 3,043     $ 43,607  
Three months ended September 30, 2015                  
Net interest income $ 104,714     $ 2,832     $ 8,423     $     $ 115,969  
Provision for credit losses 4,965     242     151         5,358  
Net interest income after provision for credit losses 99,749     2,590     8,272         110,611  
Non-interest income:                  
Lease financing, net 637     19,363             20,000  
Mortgage origination fees         23,449         23,449  
Mortgage servicing fees         7,243         7,243  
Other non-interest income 30,563     624         372     31,559  
Total non-interest income 31,200     19,987     30,692     372     82,251  
Non-interest expense:                  
Salaries and employee benefits 54,547     8,475     24,866     3     87,891  
Occupancy and equipment expense 9,982     843     1,631     2     12,458  
Computer services and telecommunication expense 6,179     335     2,044     9     8,567  
Professional and legal expense 766     290     440     305     1,801  
Other operating expenses 16,413     1,439     5,627     70     23,549  
Total non-interest expense 87,887     11,382     34,608     389     134,266  
Income before income taxes 43,062     11,195     4,356     (17 )   58,596  
Income tax expense 12,184     4,398     1,742     (6 )   18,318  
Net income $ 30,878     $ 6,797     $ 2,614     $ (11 )   $ 40,278  
                                       

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

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

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

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

  Banking   Leasing   Mortgage
Banking
  Non-core
Items
  Consolidated
Year ended December 31, 2015                  
Net interest income $ 424,883     $ 11,475     $ 29,248     $     $ 465,606  
Provision for credit losses 19,436     1,598     352         21,386  
Net interest income after provision for credit losses 405,447     9,877     28,896         444,220  
Non-interest income:                  
Lease financing, net 2,750     73,831             76,581  
Mortgage origination fees         94,703         94,703  
Mortgage servicing fees         22,723         22,723  
Other non-interest income 125,138     3,112     14     (178 )   128,086  
Total non-interest income 127,888     76,943     117,440     (178 )   322,093  
Non-interest expense:                  
Salaries and employee benefits 216,051     33,724     93,932     (176 )   343,531  
Occupancy and equipment expense 40,512     3,355     6,368     275     50,510  
Computer services and telecommunication expense 24,983     1,244     7,920     306     34,453  
Professional and legal expense 4,784     1,172     2,637     2,460     11,053  
Other operating expenses 63,806     5,869     22,206     2,726     94,607  
Total non-interest expense 350,136     45,364     133,063     5,591     534,154  
Income before income taxes 183,199     41,456     13,273     (5,769 )   232,159  
Income tax expense 54,456     16,255     5,309     (2,809 )   73,211  
Net income $ 128,743     $ 25,201     $ 7,964     $ (2,960 )   $ 158,948  
Year ended December 31, 2014                  
Net interest income $ 328,326     $ 12,783     $ 9,714     $     $ 350,823  
Provision for credit losses 12,022     35     (5 )       12,052  
Net interest income after provision for credit losses 316,304     12,748     9,719         338,771  
Non-interest income:                  
Lease financing, net 3,506     60,804             64,310  
Mortgage origination fees         27,742         27,742  
Mortgage servicing fees         18,407         18,407  
Other non-interest income 109,083     (998 )   (61 )   2,822     110,846  
Total non-interest income 112,589     59,806     46,088     2,822     221,305  
Non-interest expense:                  
Salaries and employee benefits 179,279     28,284     32,122     16,289     255,974  
Occupancy and equipment expense 39,350     2,682     2,135     743     44,910  
Computer services and telecommunication expense 21,292     882     2,612     6,892     31,678  
Professional and legal expense 5,402     1,093     1,047     7,110     14,652  
Other operating expenses 54,238     6,584     8,983     19,763     89,568  
Total non-interest expense 299,561     39,525     46,899     50,797     436,782  
Income before income taxes 129,332     33,029     8,908     (47,975 )   123,294  
Income tax expense 34,836     12,524     3,563     (13,730 )   37,193  
Net income $ 94,496     $ 20,505     $ 5,345     $ (34,245 )   $ 86,101  
                                       

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

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

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

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

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

LOAN PORTFOLIO

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

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

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

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on quarterly average balances for the periods indicated (dollars in thousands):

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

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

ASSET QUALITY

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

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

 

(1) Includes $22.8 million, $21.4 million, $24.5 million, $25.5 million and $25.8 million of restructured loans on non-accrual status at December 31, 2015, September 30, 2015, June 30, 2015, March 31, 2015, and December 31, 2014, respectively.
(2) We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.
(3) Accruing restructured loans consist primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The $6.4 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount was due to better than expected cash flows on several pools of purchased credit-impaired loans.

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

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

INVESTMENT SECURITIES

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

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

DEPOSIT MIX

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

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

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

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

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

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

CAPITAL

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

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

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

FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the pending MB Financial-American Chartered merger might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the requisite regulatory approvals and approval of American Chartered’s shareholders for the pending MB Financial-American Chartered merger might not be obtained, or may take longer to obtain than expected; (3) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (6) the possibility that our mortgage banking business may increase volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (11) our ability to realize the residual values of its direct finance, leveraged and operating leases; (12) the ability to access cost-effective funding; (13) changes in financial markets; (14) changes in economic conditions in general and in the Chicago metropolitan area in particular; (15) the costs, effects and outcomes of litigation; (16) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (17) changes in accounting principles, policies or guidelines; (18) our future acquisitions of other depository institutions or lines of business; and (19) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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

Additional Information

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

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

TABLES TO FOLLOW

 

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

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

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

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

 

(1) Annualized operating return on average assets is computed by dividing annualized operating earnings by average total assets.  Annualized operating return on average common equity is computed by dividing annualized operating earnings by average common equity.  Operating earnings is defined as net income as reported less non-core items, net of tax.
(2) Annualized cash return on average tangible equity is computed by dividing net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible common equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).
(3) Annualized cash operating return on average tangible common equity is computed by dividing annualized cash operating earnings (operating earnings plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity.  Operating earnings is defined as net income as reported less non-core items, net of tax.
(4) Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.
(5) Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(6) Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.
(7) Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(8) Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
(9) Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.
(10) Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(11) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(12)  Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets.  Current quarter risk- weighted assets are estimated.
(13) Current quarter ratios are estimated.  2015 ratios reflect the new capital regulation changes required under the Basel III regulatory capital reform.
(14) Equals total ending common stockholders’ equity divided by common shares outstanding.
(15) Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.
     

NON-GAAP FINANCIAL INFORMATION

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP).  These measures include operating earnings, core non-interest income, core non-interest income to revenues (with non-core items excluded from both core non-interest income and revenues), core non-interest expense, non-core non-interest income and non-core non-interest expense, net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt, commitment reversal and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios, and prepayment fees on interest bearing liabilities, loss on low to moderate income real estate investment, merger related and repositioning expenses, contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to risk-weighted assets and Tier 1 common capital to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating return on average tangible common equity.  Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions.  Management also uses these measures for peer comparisons.

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

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

Management also believes that by excluding net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt, commitment reversal and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding prepayment fees on interest bearing liabilities, loss on low to moderate income real estate investment, merger related and repositioning expenses,  contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase in market value of assets held in trust for deferred compensation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

In addition, management believes that presenting the ratio of Tier 1 common equity to risk-weighted assets is useful for assessing our capital strength and for peer comparison purposes.  The other measures exclude the acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible assets, tangible equity, tangible common equity and average tangible common equity and exclude other intangible amortization expense, net of tax benefit, in determining net cash flow available to common stockholders.  Management believes the presentation of these other financial measures, excluding the impact of such items, provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management’s success in utilizing our tangible capital, as well as our capital strength.  Management also believes that providing measures that exclude balances of acquisition-related goodwill and other intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers.  In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Efficiency Ratio Calculation (Dollars in Thousands)

                        Year Ended
                        December 31,
  4Q15   3Q15   2Q15   1Q15   4Q14     2015   2014
Non-interest expense $ 127,231     $ 134,266     $ 132,737     $ 139,920     $ 140,504       $ 534,154     $ 436,782  
Less merger related and repositioning expenses (4,186 )   389     1,234     8,069     6,494       5,506     34,823  
Less prepayment fees on interest bearing liabilities             85           85      
Less loss on low to moderate income real estate investment                           2,124  
Less contingent consideration expense - Celtic acquisition                           10,600  
Less contribution to MB Financial Charitable Foundation                 3,250           3,250  
Less increase (decrease) in market value of assets held in trust for deferred compensation 565     (872 )   7     306     315       6     829  
Non-interest expense - as adjusted $ 130,852     $ 134,749     $ 131,496     $ 131,460     $ 130,445       $ 528,557     $ 385,156  
                             
Net interest income $ 121,769     $ 115,969     $ 114,473     $ 113,395     $ 119,811       $ 465,606     $ 350,823  
Tax equivalent adjustment 7,307     7,019     6,676     6,078     6,246       27,080     23,591  
Net interest income on a fully tax equivalent basis 129,076     122,988     121,149     119,473     126,057       492,686     374,414  
Plus non-interest income 75,625     82,251     82,949     81,268     83,678       322,093     221,305  
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 465     459     450     452     466       1,826     1,821  
Less net (loss) gain on investment securities (3 )   371     (84 )   (460 )   491       (176 )   (2,525 )
Less net gain (loss) on sale of other assets     1     (7 )   4     3,476       (2 )   3,452  
Less gain on extinguishment of debt                           1,895  
Less increase (decrease) in market value of assets held in trust for deferred compensation 565     (872 )   7     306     315       6     829  
Net interest income plus non-interest income - as adjusted $ 204,604     $ 206,198     $ 204,632     $ 201,343     $ 205,919       $ 816,777     $ 593,889  
                             
Efficiency ratio 63.95 %   65.35 %   64.26 %   65.29 %   63.35 %     64.71 %   64.85 %
Efficiency ratio (without adjustments) 64.46 %   67.74 %   67.24 %   71.88 %   69.05 %     67.81 %   76.34 %
                                           

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

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

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

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

NET INTEREST MARGIN

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

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

 

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

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

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

 

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

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

 

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

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

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

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

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

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

 

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

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