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