09:44:46 EDT Fri 29 Mar 2024
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MB Financial, Inc. Reports Earnings for the Third Quarter of 2016

2016-10-20 20:08 ET - News Release

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

KEY ITEMS

Completion of American Chartered Bancorp, Inc. Merger

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

Growth in Operating Earnings for the Quarter

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

The following table presents a reconciliation of net income to operating earnings (in thousands).  Non-core items represent the difference between non-core non-interest income and non-core non-interest expense.

         Nine Months Ended
         September 30,
  3Q16 2Q16 3Q15  2016 2015
Net income - as reported $44,419  $43,412  $40,278   $126,945  $115,341 
            
Non-core items 15,363  2,454  17   21,152  9,952 
Income tax expense on non-core items 7,867  1,003  6   9,447  3,949 
Non-core items, net of tax 7,496  1,451  11   11,705  6,003 
            
Operating earnings 51,915  44,863  40,289   138,650  121,344 
Dividends on preferred shares 2,004  2,000  2,000   6,004  6,000 
Operating earnings available to common stockholders $49,911  $42,863  $38,289   $132,646  $115,344 
            
Diluted operating earnings per common share $0.63  $0.58  $0.51   $1.75  $1.53 
Weighted average common shares outstanding for diluted operating earnings per common share 78,683,170  74,180,374  75,029,827   75,727,580  75,154,585 
                 
  • Net interest income on a fully tax equivalent basis increased $8.1 million (+6.2%) to $137.9 million in the third quarter of 2016 compared to the prior quarter due to higher average loan balances as a result of the loans acquired through the American Chartered merger as well as loan growth in our legacy portfolio.
  • Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital and American Chartered mergers ("bank mergers"), decreased seven basis points to 3.50% compared to 3.57% last quarter primarily due to lower yields earned on loans.  
  • Our core non-interest income increased 18.0% to $107.7 million compared to $91.3 million in the prior quarter primarily due to an increase in mortgage banking and lease financing revenue.  The increase in mortgage banking revenue was driven by higher origination fees as a result of higher origination volumes in the third quarter of 2016 and higher gains on sale margins.  The increase in lease financing revenue was due to higher fees from the sale of third-party equipment maintenance contracts.
  • Our core non-interest expense increased $9.6 million (+6.6%) compared to the prior quarter primarily due to an increase in salaries and employee benefits expense, which increased mainly due to the increased staff from the American Chartered merger, and commission expense.  Commission expense increased as a result of higher mortgage loan origination volumes and lease financing revenue noted above.
  • The Company adopted new authoritative accounting guidance under ASC Topic 718 "Compensation - Stock Compensation" in the third quarter of 2016, resulting in an income tax benefit of $1.8 million associated with stock-based compensation.  Operating earnings were adjusted to exclude the $1.8 million income tax benefit in the table above.

Growth in Loan Balances During the Quarter

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

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

  9/30/2016   Change in Legacy Loan
Balances from 6/30/2016

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

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

Growth in Deposit Balances During the Quarter

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

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

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

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

Positive Credit Quality Metrics

Credit quality behaved well in the quarter.

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

RESULTS OF OPERATIONS

Third Quarter Results

Net Interest Income

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

      Change
from
2Q16 to 3Q16
   Change
from
3Q15 to 3Q16
  Nine Months Ended Change from 2015 to 2016
           September 30, 
  3Q16 2Q16  3Q15   2016 2015 
Net interest income - fully tax equivalent $137,893  $129,810  +6.2% $122,988  +12.1%  $394,202  $363,610  +8.4%
                  
Net interest income - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans $131,733  $122,108  +7.9% $115,580  +14.0%  $372,986  $339,674  +9.8%
                  
Net interest margin - fully tax equivalent 3.68% 3.81% -0.13% 3.73% -0.05%  3.76% 3.83% -0.07%
                  
Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans 3.50% 3.57% -0.07% 3.49% +0.01%  3.54% 3.56% -0.02%
                          

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

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

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

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

Non-interest Income

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

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

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

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

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

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

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

Non-interest Expense

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

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

(1) Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of operations as follows:  A – Net loss (gain) recognized on other real estate owned and other expense, B – See merger related and repositioning expenses table below, C – Other operating expenses, and D – Salaries and employee benefits.
(2) Includes payroll taxes, 401(k) and profit sharing contributions, overtime and temporary help expenses.

Core non-interest expense increased by $9.6 million, or 6.6%, from the second quarter of 2016 to $154.3 million for the third quarter of 2016.

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

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

  • Salaries and employee benefits expense increased due to the following:
    • Salaries increased due to annual pay increases effective in the beginning of the second quarter, new hires and the increased staff from the American Chartered merger. 
    • Commission expense decreased due to lower commissions paid in our leasing segment as a result of lower lease financing revenues.
    • Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through September 2016.
    • Other salaries and benefits expense increased due to increased temporary help in our IT and mortgage areas as well as higher 401(k) match and profit sharing contribution expense.
  • Occupancy and equipment expense increased due to higher depreciation expense and rental operating expenses as a result of the acquisition of MSA and the American Chartered merger, new offices opened at our mortgage banking segment and an office relocation in our leasing segment.
  • Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer activity and investments in systems.
  • Advertising and marketing expense increased due to increased brand awareness advertising.
  • Professional and legal expense increased due to an increase in litigation and consulting fees.
  • Non-interest expense was also impacted by higher gains recognized on other real estate owned properties.
  • Other operating expenses increased due to higher FDIC premiums (as a result of MB Financial Bank, N.A. (the "Bank") exceeding $10 billion in assets), filing and other loan expense and card expenses (higher rewards and product development expense).

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

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

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

In the third quarter of 2016, merger related and repositioning expenses primarily included costs incurred in connection with the American Chartered merger as well as a reversal of an exit cost due to a favorable lease termination on a branch acquired through the Taylor Capital merger.  In the second quarter of 2016, merger related and repositioning expenses included a $1.5 million contract termination fee related to the American Chartered integration (reflected in other operating expenses).  In the first quarter of 2016, merger related and repositioning expenses included an increase in our contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated.  In the fourth quarter of 2015, merger related and repositioning expenses were impacted by the reversal of an accrual for a potential contingent loss we assumed in connection with the Taylor Capital merger (reflected in other operating expenses).

Operating Segments

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

Banking Segment

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

            Nine Months Ended
            September 30,
 3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
               
Net interest income$119,685  $112,152  $109,608  $111,691  $104,714   $341,445  $313,192 
Provision for credit losses4,394  2,995  7,001  6,654  4,965   14,390  12,783 
Net interest income after provision for credit losses115,291  109,157  102,607  105,037  99,749   327,055  300,409 
Non-interest income:              
Lease financing revenue, net890  789  679  1,180  637   2,358  1,570 
Mortgage origination fees              
Mortgage servicing fees              
Other non-interest income38,927  35,144  34,369  31,772  31,435   108,440  93,361 
Total non-interest income39,817  35,933  35,048  32,952  32,072   110,798  94,931 
Non-interest expense:              
Salaries and employee benefits expense:              
Salaries38,575  35,951  34,527  34,840  34,940   109,054  101,065 
Commissions1,172  1,424  1,396  1,503  932   3,991  3,429 
Bonus and stock-based compensation10,553  10,852  6,476  7,838  8,250   27,881  24,642 
Health and accident insurance4,045  3,816  3,461  2,765  3,508   11,322  10,551 
Other salaries and benefits (1)9,612  8,171  7,542  7,144  7,789   25,325  22,268 
Total salaries and employee benefits expense63,957  60,214  53,402  54,090  55,419   177,573  161,955 
Occupancy and equipment expense11,724  10,561  10,430  10,344  9,982   32,715  30,168 
Computer services and telecommunication expense7,418  6,945  6,446  6,200  6,179   20,809  18,783 
Professional and legal expense1,566  2,385  1,486  1,709  766   5,437  3,074 
Other operating expenses16,467  16,587  15,570  15,757  16,413   48,624  48,050 
Total non-interest expense101,132  96,692  87,334  88,100  88,759   285,158  262,030 
Income before income taxes53,976  48,398  50,321  49,889  43,062   152,695  133,310 
Income tax expense16,287  14,353  14,927  14,998  12,184   45,567  39,458 
Net income$37,689  $34,045  $35,394  $34,891  $30,878   $107,128  $93,852 
                             

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

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

Net income from our Banking Segment for the nine months ended September 30, 2016 increased compared to the nine months ended September 30, 2015.  This increase in net income was primarily due to an increase in net interest income, driven by loan growth in the legacy portfolio and, to a lesser extent, loans acquired through the American Chartered merger, and an increase in other non-interest income.  This increase was partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires, increased staff from the American Chartered merger and bonus expense based on company performance as well as an increase in provision for credit losses expense.

Leasing Segment

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

            Nine Months Ended
            September 30,
 3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
               
Net interest income$2,168  $2,411  $2,423  $2,714  $2,832   $7,002  $8,762 
Provision for credit losses1,964  (356) 437    242   2,045  1,598 
Net interest income after provision for credit losses204  2,767  1,986  2,714  2,590   4,957  7,164 
Non-interest income:              
Lease financing revenue, net17,974  14,919  18,367  14,757  19,363   51,260  59,074 
Mortgage origination fees              
Mortgage servicing fees              
Other non-interest income785  786  839  802  624   2,410  2,309 
Total non-interest income18,759  15,705  19,206  15,559  19,987   53,670  61,383 
Non-interest expense:              
Salaries and employee benefits expense:              
Salaries3,555  3,344  2,832  2,286  2,917   9,730  7,925 
Commissions2,592  2,172  3,936  3,047  3,714   8,701  12,251 
Bonus and stock-based compensation950  829  872  1,052  813   2,651  2,683 
Health and accident insurance376  376  335  312  331   1,087  975 
Other salaries and benefits (1)934  886  1,108  777  700   2,928  2,416 
Total salaries and employee benefits expense8,407  7,607  9,083  7,474  8,475   25,097  26,250 
Occupancy and equipment expense966  947  895  855  843   2,808  2,500 
Computer services and telecommunication expense432  431  363  340  335   1,226  904 
Professional and legal expense802  414  409  328  290   1,625  844 
Other operating expenses1,997  1,716  1,447  1,501  1,439   5,160  4,368 
Total non-interest expense12,604  11,115  12,197  10,498  11,382   35,916  34,866 
Income before income taxes6,359  7,357  8,995  7,775  11,195   22,711  33,681 
Income tax expense2,484  2,879  3,509  3,037  4,398   8,872  13,218 
Net income$3,875  $4,478  $5,486  $4,738  $6,797   $13,839  $20,463 

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

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

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

Mortgage Banking Segment

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

            Nine Months Ended
            September 30,
 3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
               
Net interest income$8,918  $8,039  $7,273  $7,364  $8,423   $24,230  $21,883 
Provision for credit losses191  190  125  104  151   506  247 
Net interest income after provision for credit losses8,727  7,849  7,148  7,260  8,272   23,724  21,636 
Non-interest income:              
Lease financing revenue, net              
Mortgage origination fees39,962  31,417  16,894  17,596  23,449   88,273  77,106 
Mortgage servicing fees9,133  8,198  10,588  8,946  7,243   27,919  13,778 
Other non-interest income    (3) 10     (3) 4 
Total non-interest income49,095  39,615  27,479  26,552  30,692   116,189  90,888 
Non-interest expense:              
Salaries and employee benefits expense:              
Salaries12,958  12,088  11,450  11,307  11,069   36,496  32,147 
Commissions8,554  7,226  5,016  5,244  6,867   20,796  20,090 
Bonus and stock-based compensation1,477  1,190  1,309  1,060  1,172   3,976  2,657 
Health and accident insurance1,956  1,887  1,803  1,569  1,801   5,646  4,903 
Other salaries and benefits (1)4,774  3,988  3,439  3,612  3,957   12,201  11,343 
Total salaries and employee benefits expense29,719  26,379  23,017  22,792  24,866   79,115  71,140 
Occupancy and equipment expense1,972  1,899  1,935  1,736  1,631   5,806  4,632 
Computer services and telecommunication expense1,881  1,890  1,941  2,008  2,044   5,712  5,912 
Professional and legal expense411  421  597  678  440   1,429  1,960 
Other operating expenses6,587  6,309  5,484  5,040  5,627   18,380  17,165 
Total non-interest expense40,570  36,898  32,974  32,254  34,608   110,442  100,809 
Income before income taxes17,252  10,566  1,653  1,558  4,356   29,471  11,715 
Income tax expense6,901  4,226  661  623  1,742   11,788  4,686 
Net income$10,351  $6,340  $992  $935  $2,614   $17,683  $7,029 
                             

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

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

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

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

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

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

LOAN PORTFOLIO

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

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

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

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

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

ASSET QUALITY

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

  9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
Non-performing loans:          
Non-accrual loans (1) $52,135  $67,544  $93,602  $98,065  $92,302 
Loans 90 days or more past due, still accruing interest 1,774  7,190  1,112  6,596  4,275 
Total non-performing loans 53,909  74,734  94,714  104,661  96,577 
Other real estate owned 33,105  27,663  28,309  31,553  29,587 
Repossessed assets 453  459  187  81  216 
Total non-performing assets $87,467  $102,856  $123,210  $136,295  $126,380 
Potential problem loans (2) $111,594  $99,782  $110,193  $139,941  $122,966 
Purchased credit-impaired loans $161,338  $136,811  $140,445  $141,406  $155,693 
Total non-performing, potential problem and purchased credit-impaired loans $326,841  $311,327  $345,352  $386,008  $375,236 
           
Total allowance for loan and lease losses $139,528  $135,614  $134,493  $128,140  $124,626 
Accruing restructured loans (3) 28,582  26,715  27,269  26,991  20,120 
Total non-performing loans to total loans 0.43% 0.73% 0.95% 1.07% 1.03%
Total non-performing assets to total assets 0.45  0.64  0.79  0.87  0.85 
Allowance for loan and lease losses to non-performing loans 258.82  181.46  142.00  122.43  129.04 
                

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The $2.5 million and $1.5 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount for the three months ended September 30, 2016 and June 30, 2016, respectively, was due to better than expected cash flows on several pools of purchased credit-impaired loans.

INVESTMENT SECURITIES

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

  9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
Securities available for sale:          
Fair value          
Government sponsored agencies and enterprises $53,992  $54,457  $64,762  $64,611  $65,461 
States and political subdivisions 410,737  400,948  398,024  396,367  399,274 
Mortgage-backed securities 1,173,306  785,367  834,559  893,656  847,426 
Corporate bonds 210,193  225,525  224,530  219,628  228,251 
Equity securities 11,128  11,098  10,969  10,761  10,826 
Total fair value $1,859,356  $1,477,395  $1,532,844  $1,585,023  $1,551,238 
           
Amortized cost          
Government sponsored agencies and enterprises $53,480  $53,674  $63,600  $63,805  $64,008 
States and political subdivisions 383,041  369,816  371,006  373,285  379,015 
Mortgage-backed securities 1,160,772  769,109  820,825  888,325  834,791 
Corporate bonds 208,940  224,730  225,657  222,784  228,711 
Equity securities 10,932  10,872  10,814  10,757  10,701 
Total amortized cost $1,817,165  $1,428,201  $1,491,902  $1,558,956  $1,517,226 
           
Unrealized gain, net          
Government sponsored agencies and enterprises $512  $783  $1,162  $806  $1,453 
States and political subdivisions 27,696  31,132  27,018  23,082  20,259 
Mortgage-backed securities 12,534  16,258  13,734  5,331  12,635 
Corporate bonds 1,253  795  (1,127) (3,156) (460)
Equity securities 196  226  155  4  125 
Total unrealized gain, net $42,191  $49,194  $40,942  $26,067  $34,012 
           
Securities held to maturity, at amortized cost:          
States and political subdivisions $939,491  $960,784  $986,340  $1,016,519  $1,002,963 
Mortgage-backed securities 175,771  190,631  205,570  214,291  221,889 
Total amortized cost $1,115,262  $1,151,415  $1,191,910  $1,230,810  $1,224,852 
                     

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

DEPOSIT MIX

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

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

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

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

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

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

CAPITAL

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

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

FORWARD-LOOKING STATEMENTS

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

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

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

TABLES TO FOLLOW

 

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

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

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

             Nine Months Ended
             September 30,
(Dollars in thousands, except per share data) 3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
Interest income:               
Loans:               
Taxable $118,675  $110,231  $104,923  $106,137  $100,573   $333,829  $298,187 
Nontaxable 2,846  2,741  2,586  2,602  2,283   8,173  6,716 
Investment securities:               
Taxable 8,844  7,799  9,566  9,708  9,655   26,209  29,591 
Nontaxable 10,382  10,644  10,776  10,969  10,752   31,802  30,005 
Federal funds sold       1        
Other interest earning accounts 164  125  141  110  89   430  208 
Total interest income 140,911  131,540  127,992  129,527  123,352   400,443  364,707 
Interest expense:               
Deposits 6,681  5,952  5,622  5,357  5,102   18,255  14,301 
Short-term borrowings 1,092  910  721  385  395   2,723  1,027 
Long-term borrowings and junior subordinated notes 2,367  2,076  2,345  2,016  1,886   6,788  5,542 
Total interest expense 10,140  8,938  8,688  7,758  7,383   27,766  20,870 
Net interest income 130,771  122,602  119,304  121,769  115,969   372,677  343,837 
Provision for credit losses 6,549  2,829  7,563  6,758  5,358   16,941  14,628 
Net interest income after provision for credit losses 124,222  119,773  111,741  115,011  110,611   355,736  329,209 
Non-interest income:               
Mortgage banking revenue 49,095  39,615  27,482  26,542  30,692   116,192  90,884 
Lease financing revenue, net 18,864  15,708  19,046  15,937  20,000   53,618  60,644 
Commercial deposit and treasury management fees 12,957  11,548  11,878  11,711  11,472   36,383  33,572 
Trust and asset management fees 8,244  8,236  7,950  6,077  6,002   24,430  17,468 
Card fees 4,161  4,045  3,525  3,651  3,335   11,731  11,671 
Capital markets and international banking service fees 3,313  2,771  3,227  2,355  2,357   9,311  5,793 
Consumer and other deposit service fees 3,559  3,161  3,025  3,440  3,499   9,745  9,842 
Brokerage fees 1,294  1,315  1,158  1,252  1,281   3,767  4,502 
Loan service fees 1,792  1,961  1,752  1,890  1,531   5,505  4,369 
Increase in cash surrender value of life insurance 1,055  850  854  864  852   2,759  2,527 
Net gain (loss) on investment securities   269    (3) 371   269  (173)
Net gain (loss) on sale of assets 5  (2) (48)   1   (45) (2)
Other operating income 4,048  2,523  1,844  1,909  858   8,415  5,371 
Total non-interest income 108,387  92,000  81,693  75,625  82,251   282,080  246,468 
Non-interest expense:               
Salaries and employee benefits expense 111,478  95,004  85,591  84,709  87,891   292,073  258,822 
Occupancy and equipment expense 14,766  13,415  13,260  12,935  12,458   41,441  37,575 
Computer services and telecommunication expense 12,836  9,777  9,055  8,445  8,567   31,668  26,008 
Advertising and marketing expense 3,084  2,964  2,878  2,551  2,578   8,926  7,521 
Professional and legal expense 4,460  3,321  2,589  4,169  1,801   10,370  6,884 
Other intangible amortization expense 1,674  1,617  1,626  1,546  1,542   4,917  4,569 
Branch exit and facilities impairment charges (2,908) 155  44  616  70   (2,709) 7,899 
Net (gain) loss recognized on other real estate owned and other expense (721) 258  (346) (729) 577   (809) 2,197 
Prepayment fees on interest bearing liabilities              85 
Other operating expenses 25,716  21,395  21,103  12,989  18,782   68,214  55,363 
Total non-interest expense 170,385  147,906  135,800  127,231  134,266   454,091  406,923 
Income before income taxes 62,224  63,867  57,634  63,405  58,596   183,725  168,754 
Income tax expense 17,805  20,455  18,520  19,798  18,318   56,780  53,413 
Net income 44,419  43,412  39,114  43,607  40,278   126,945  115,341 
Dividends on preferred shares 2,004  2,000  2,000  2,000  2,000   6,004  6,000 
Net income available to common stockholders $42,415  $41,412  $37,114  $41,607  $38,278   $120,941  $109,341 
              
              
             Nine Months Ended
             September 30,
  3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
Common share data:               
Basic earnings per common share $0.55  $0.56  $0.51  $0.57  $0.52   $1.62  $1.47 
Diluted earnings per common share 0.54  0.56  0.50  0.56  0.51   1.60  1.45 
Weighted average common shares outstanding for basic earnings per common share 77,506,885  73,475,258  73,330,731  73,296,602  74,297,281   74,780,943  74,478,164 
Weighted average common shares outstanding for diluted earnings per common share 78,683,170  74,180,374  73,966,935  73,953,165  75,029,827   75,727,580  75,154,585 
Common shares outstanding (at end of period) 83,555,257  73,740,348  73,639,487  73,678,329  73,776,196   83,555,257  73,776,196 


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

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

NON-GAAP FINANCIAL INFORMATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Efficiency Ratio Calculation (Dollars in Thousands)

             Nine Months Ended
             September 30,
  3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
Non-interest expense $170,385  $147,906  $135,800  $127,231  $134,266   $454,091  $406,923 
Less merger related and repositioning expenses 11,368  2,566  3,287  (4,186) 389   17,221  9,622 
Less prepayment fees on interest bearing liabilities              85 
Less branch exit and facilities impairment charges   155         155  70 
Less contribution to MB Financial Charitable Foundation 4,000           4,000   
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Non-interest expense - as adjusted $154,306  $144,705  $132,505  $130,852  $134,749   $431,516  $397,705 
                
Net interest income $130,771  $122,602  $119,304  $121,769  $115,969   $372,677  $343,837 
Tax equivalent adjustment 7,122  7,208  7,195  7,307  7,019   21,525  19,773 
Net interest income on a fully tax equivalent basis 137,893  129,810  126,499  129,076  122,988   394,202  363,610 
Plus non-interest income 108,387  92,000  81,693  75,625  82,251   282,080  246,468 
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 568  458  460  465  459   1,486  1,361 
Less net gain (loss) on investment securities   269    (3) 371   269  (173)
Less net gain (loss) on sale of assets 5  (2) (48)   1   (45) (2)
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Net interest income plus non-interest income - as adjusted $246,132  $221,521  $208,692  $204,604  $206,198   $676,345  $612,173 
Efficiency ratio 62.69% 65.32% 63.49% 63.95% 65.35%  63.80% 64.97%
Efficiency ratio (without adjustments) 71.24% 68.92% 67.56% 64.46% 67.74%  69.35% 68.93%
                       

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

             Nine Months Ended
             September 30,
  3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
Non-interest expense $170,385  $147,906  $135,800  $127,231  $134,266   $454,091  $406,923 
Less merger related and repositioning expenses 11,368  2,566  3,287  (4,186) 389   17,221  9,622 
Less prepayment fees on interest bearing liabilities              85 
Less branch exit and facilities impairment charges   155         155  70 
Less contribution to MB Financial Charitable Foundation 4,000           4,000   
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Non-interest expense - as adjusted 154,306  144,705  132,505  130,852  134,749   431,516  397,705 
                
Non-interest income 108,387  92,000  81,693  75,625  82,251   282,080  246,468 
Less net gain (loss) on investment securities   269    (3) 371   269  (173)
Less net gain (loss) on sale of assets 5  (2) (48)   1   (45) (2)
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Non-interest income - as adjusted 107,671  91,253  81,733  75,063  82,751   280,657  247,202 
Less tax equivalent adjustment on the increase in cash surrender value of life insurance 568  458  460  465  459   1,486  1,361 
Net non-interest expense $46,067  $52,994  $50,312  $55,324  $51,539   $149,373  $149,142 
Average assets $17,248,431  $15,740,658  $15,487,565  $15,244,633  $15,059,429   $16,162,861  $14,687,441 
Annualized net non-interest expense to average assets 1.06% 1.35% 1.31% 1.44% 1.36%  1.23% 1.36%
Annualized net non-interest expense to average assets (without adjustments) 1.43% 1.43% 1.41% 1.34% 1.37%  1.42% 1.46%
                       

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

             Nine Months Ended
             September 30,
  3Q16 2Q16 1Q16 4Q15 3Q15  2016 2015
Non-interest income $108,387  $92,000  $81,693  $75,625  $82,251   $282,080  $246,468 
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 568  458  460  465  459   1,486  1,361 
Less net gain (loss) on investment securities   269    (3) 371   269  (173)
Less net gain (loss) on sale of assets 5  (2) (48)   1   (45) (2)
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Non-interest income - as adjusted $108,239  $91,711  $82,193  $75,528  $83,210   $282,143  $248,563 
                
Net interest income $130,771  $122,602  $119,304  $121,769  $115,969   $372,677  $343,837 
Tax equivalent adjustment 7,122  7,208  7,195  7,307  7,019   21,525  19,773 
Net interest income on a fully tax equivalent basis 137,893  129,810  126,499  129,076  122,988   394,202  363,610 
Plus non-interest income 108,387  92,000  81,693  75,625  82,251   282,080  246,468 
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance 568  458  460  465  459   1,486  1,361 
Less net gain (loss) on investment securities   269    (3) 371   269  (173)
Less net gain (loss) on sale of assets 5  (2) (48)   1   (45) (2)
Less increase (decrease) in market value of assets held in trust for deferred compensation 711  480  8  565  (872)  1,199  (559)
Total revenue - as adjusted and on a fully tax equivalent basis $246,132  $221,521  $208,692  $204,604  $206,198   $676,345  $612,173 
                
Total revenue - unadjusted $239,158  $214,602  $200,997  $197,394  $198,220   $654,757  $590,305 
                
Core non-interest income to revenues ratio 43.98% 41.40% 39.38% 36.91% 40.35%  41.72% 40.60%
Non-interest income to revenues ratio (without adjustments) 45.32% 42.87% 40.64% 38.31% 41.49%  43.08% 41.75%
                       

NET INTEREST MARGIN

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

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

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

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

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

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

  3Q16 2Q16 3Q15
  Average
Balance
 Interest Yield Average
Balance
 Interest Yield Average
Balance
 Interest Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:                  
Total loans, as reported $11,071,267  $115,979  4.17% $10,062,187  $108,138  4.32% $9,185,419  $96,182  4.15%
Less acquisition accounting discount accretion on non-PCI loans (34,315) 4,114    (27,123) 5,390    (43,899) 5,875   
Less acquisition accounting discount accretion on PCI loans (23,110) 2,046    (23,272) 2,312    (31,745) 1,533   
Total loans, excluding acquisition accounting discount accretion on bank merger loans $11,128,692  $109,819  3.93% $10,112,582  $100,436  3.99% $9,261,063  $88,774  3.80%
                   
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:                  
Total interest earning assets, as reported $14,921,719  $137,893  3.68% $13,696,433  $129,810  3.81% $13,065,798  $122,988  3.73%
Less acquisition accounting discount accretion on non-PCI loans (34,315) 4,114    (27,123) 5,390    (43,899) 5,875   
Less acquisition accounting discount accretion on PCI loans (23,110) 2,046    (23,272) 2,312    (31,745) 1,533   
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans $14,979,144  $131,733  3.50% $13,746,828  $122,108  3.57% $13,141,442  $115,580  3.49%

 

  Nine Months Ended September 30,
  2016 2015
  Average
Balance
 Interest Yield Average
Balance
 Interest Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:            
Total loans, as reported $10,304,741  $327,052  4.24% $9,015,726  $287,991  4.27%
Less acquisition accounting discount accretion on non-PCI loans (32,056) 14,455    (50,627) 20,815   
Less acquisition accounting discount accretion on PCI loans (24,206) 6,761    (33,772) 3,121   
Total loans, excluding acquisition accounting discount accretion on bank merger loans $10,361,003  $305,836  3.94% $9,100,125  $264,055  3.88%
             
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:            
Total interest earning assets, as reported $14,020,755  $394,202  3.76% $12,683,163  $363,610  3.83%
Less acquisition accounting discount accretion on non-PCI loans (32,056) 14,455    (50,627) 20,815   
Less acquisition accounting discount accretion on PCI loans (24,206) 6,761    (33,772) 3,121   
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans $14,077,017  $372,986  3.54% $12,767,562  $339,674  3.56%

 

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

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