Market Overview

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

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CHICAGO, July 20, 2016 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2016 second quarter net income available to common stockholders of $41.4 million, or $0.56 per diluted common share, compared to $37.1 million, or $0.50 per diluted common share, last quarter and $39.0 million, or $0.52 per diluted common share, in the second quarter a year ago.  

KEY ITEMS

Growth in Operating Earnings for the Quarter

Operating earnings increased by $3.0 million, or $0.04 per diluted common share, compared to last quarter and $3.1 million, or $0.05  per diluted common share, compared to the second quarter of last year.

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

         Six Months Ended
         June 30,
  2Q16 1Q16 2Q15  2016 2015
Net income - as reported $43,412  $39,114  $40,952   $82,526  $75,063 
Non-core items adjustment:           
Non-core items 2,454  3,335  1,325   5,789  9,935 
Income tax expense on non-core items 1,003  577  526   1,580  3,943 
Non-core items, net of tax 1,451  2,758  799   4,209  5,992 
Operating earnings 44,863  41,872  41,751   86,735  81,055 
Dividends on preferred shares 2,000  2,000  2,000   4,000  4,000 
Operating earnings available to common stockholders $42,863  $39,872  $39,751   $82,735  $77,055 
Diluted operating earnings per common share $0.58  $0.54  $0.53   $1.12  $1.02 
Weighted average common shares outstanding for diluted
operating earnings per common share
 74,180,374  73,966,935  75,296,029   74,073,655  75,230,455 


  • Net interest income on a fully tax equivalent basis increased $3.3 million (+2.6%) to $129.8 million in the second quarter of 2016 compared to the prior quarter due to higher average loan balances and higher yields earned on loans.
  • Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, increased two basis points to 3.57% compared to 3.55% last quarter.  
  • Our core non-interest income increased 11.6% to $91.3 million compared to $81.7 million in the prior quarter primarily due to an increase in mortgage banking revenue.  The increase in mortgage banking revenue was driven by higher origination fees as a result of higher origination volumes in the second quarter of 2016 and higher gains on sale margins.  The increase in mortgage banking revenue was partially offset by lower lease financing revenue, which decreased due to lower fees from the sale of third-party equipment maintenance contracts.
  • Our core non-interest expense increased $12.2 million (+9.2%) compared to the prior quarter primarily due to an increase in salaries and employee benefits expense, which increased due to higher mortgage commission expense resulting from higher mortgage origination volumes, annual pay increases effective in the beginning of the second quarter and an increase in bonus expense based on company performance through June 2016.

Growth in Loan Balances During the Quarter

Loan balances, excluding purchased credit-impaired loans, increased $240.2 million (+2.4%, or +9.8% annualized) during the second 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):

      Change from 3/31/2016
 to 6/30/2016
(Dollars in thousands) 6/30/2016 3/31/2016 Amount Percent
Commercial-related credits:        
Commercial loans $3,561,500  $3,509,604  $51,896  +1.5%
Commercial loans collateralized by assignment of lease
payments (lease loans)
 1,794,465  1,774,104  20,361  +1.1 
Commercial real estate 2,827,720  2,831,814  (4,094) -0.1 
Construction real estate 357,807  310,278  47,529  +15.3 
Total commercial-related credits 8,541,492  8,425,800  115,692  +1.4 
Other loans:        
Residential real estate 753,707  677,791  75,916  +11.2 
Indirect vehicle 491,480  432,915  58,565  +13.5 
Home equity 198,622  207,079  (8,457) -4.1 
Consumer loans 75,775  77,318  (1,543) -2.0 
Total other loans 1,519,584  1,395,103  124,481  +8.9 
Total loans, excluding purchased credit-impaired 10,061,076  9,820,903  240,173  +2.4 
Purchased credit-impaired 136,811  140,445  (3,634) -2.6 
Total loans $10,197,887  $9,961,348  $236,539  +2.4%


Growth in Non-Interest Bearing Deposit Balances During the Quarter

Non-interest bearing deposits increased $108.0 million (+2.3% or +9.3% annualized) during the second quarter of 2016, and represented 42% of total deposits at June 30, 2016.  Total low cost deposits declined during the quarter due to the reduction in balances of certain large accounts, but continued to represent 84% of total deposits at June 30, 2016.

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

      Change from 3/31/2016
 to 6/30/2016
(Dollars in thousands) 6/30/2016 3/31/2016 Amount Percent
Low cost deposits:        
Non-interest bearing deposits $4,775,364  $4,667,410  $107,954  +2.3%
Money market and NOW 3,771,111  4,048,054  (276,943) -6.8 
Savings 1,021,845  991,300  30,545  +3.1 
Total low cost deposits 9,568,320  9,706,764  (138,444) -1.4 
Certificates of deposit:        
Certificates of deposit 1,220,562  1,255,457  (34,895) -2.8 
Brokered certificates of deposit 647,214  571,605  75,609  +13.2 
Total certificates of deposit 1,867,776  1,827,062  40,714  +2.2 
Total deposits $11,436,096  $11,533,826  $(97,730) -0.8%


Positive Credit Quality Metrics

Our credit quality metrics improved during the second quarter of 2016 as follows:

  • Provision for credit losses decreased to $2.8 million in the second quarter of 2016 compared to $7.6 million in the prior quarter primarily due to a decrease in non-performing loans and a reduction in specific reserves.
  • Non-performing loans and non-performing assets decreased by $20.0 million and $20.4 million, respectively, from March 31, 2016 primarily due to loans that paid off during the quarter.
  • Potential problem loans decreased by $10.4 million from March 31, 2016 primarily due to loans that paid off during the quarter and loans that were upgraded from potential problem loan status to pass status. 
  • Our net loan charge-offs during the second quarter of 2016 were $2.2 million, or 0.09% of loans (annualized), compared to net loan charge-offs of $1.3 million, or 0.06% of loans (annualized), in the first quarter of 2016.
  • Our allowance for loan and lease losses to total loans ratio was 1.33% at June 30, 2016 compared to 1.35% at March 31, 2016.  The decrease in the allowance for loan and lease losses to total loans ratio was primarily due to lower specific reserves.

American Chartered Bancorp, Inc. ("ACB") Pending Merger Update

The Office of the Comptroller of the Currency has approved the merger of American Chartered Bank, the bank subsidiary of American Chartered Bancorp, Inc., with MB Financial, Inc.'s bank subsidiary, MB Financial Bank, N.A.  The Board of Governors of the Federal Reserve System has also approved the merger of American Chartered Bancorp, Inc. with MB Financial, Inc.  The transaction, which remains subject to the satisfaction of other customary conditions to closing, is expected to be completed in the third quarter of 2016.

RESULTS OF OPERATIONS

Second 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
1Q16 to
2Q16
   Change
from
2Q15 to
2Q16
  Six Months Ended Change
from
2015 to
2016
           June 30, 
  2Q16 1Q16  2Q15   2016 2015 
Net interest income - fully
tax equivalent
 $129,810  $126,499  +2.6% $121,149  +7.1%  $256,309  $240,622  +6.5%
Net interest income - fully
tax equivalent, excluding
acquisition accounting
discount accretion on
Taylor Capital loans
 $122,108  $119,146  +2.5% $113,197  +7.9%  $241,254  $224,094  +7.7%
Net interest margin - fully
tax equivalent
 3.81% 3.79% +0.02% 3.84% -0.03%  3.80% 3.89% -0.09%
Net interest margin - fully
tax equivalent, excluding
acquisition accounting
discount accretion on
Taylor Capital loans
 3.57% 3.55% +0.02% 3.57% 0.00%  3.56% 3.59% -0.03%


Net interest income on a fully tax equivalent basis increased in the second quarter of 2016 compared to the prior quarter due to higher average loan balances and higher yields earned on loans. Net interest income on a fully tax equivalent basis increased in the second quarter of 2016 compared to the second 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 the Taylor Capital merger, was stable at 3.57% in the second quarter of 2016 compared to 3.55% last quarter and 3.57% in the same quarter of last year.

Net interest income on a fully tax equivalent basis increased in the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to an increase in average loans, partially offset by an increase in average borrowings and an increase in the cost of deposits as well as lower average yields earned on interest earning assets.  

Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital merger, decreased slightly to 3.56% in the six months ended June 30, 2016 compared to 3.59% in the six months ended June 30, 2015.

See the supplemental net interest margin tables in the "Net Interest Margin" section for further detail.  Reconciliations of net interest income and net interest margin to net interest income and net interest margin on a fully tax equivalent basis and to net interest income and net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans are also set forth in the tables in the "Net Interest Margin" section.

Non-interest Income

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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Core non-interest income:               
Key fee initiatives:               
Lease financing revenues, net $15,708  $19,046  $15,937  $20,000  $15,564   $34,754  $40,644 
Mortgage banking revenue 39,615  27,482  26,542  30,692  35,648   67,097  60,192 
Commercial deposit and treasury management fees 11,548  11,878  11,711  11,472  11,062   23,426  22,100 
Trust and asset management fees 8,236  7,950  6,077  6,002  5,752   16,186  11,466 
Card fees 4,045  3,525  3,651  3,335  4,409   7,570  8,336 
Capital markets and international banking service fees 2,771  3,227  2,355  2,357  1,508   5,998  3,436 
Total key fee initiatives 81,923  73,108  66,273  73,858  73,943   155,031  146,174 
Consumer and other deposit service fees 3,161  3,025  3,440  3,499  3,260   6,186  6,343 
Brokerage fees 1,315  1,158  1,252  1,281  1,543   2,473  3,221 
Loan service fees 1,961  1,752  1,890  1,531  1,353   3,713  2,838 
Increase in cash surrender value of life insurance 850  854  864  852  836   1,704  1,675 
Other operating income 2,043  1,836  1,344  1,730  2,098   3,879  4,200 
Total core non-interest income 91,253  81,733  75,063  82,751  83,033   172,986  164,451 
Non-core non-interest income:               
Net gain (loss) on investment securities 269    (3) 371  (84)  269  (544)
Net (loss) gain on sale of other assets (2) (48)   1  (7)  (50) (3)
Increase (decrease) in market value of assets held in
trust for deferred compensation (1)
 480  8  565  (872) 7   488  313 
Total non-core non-interest income 747  (40) 562  (500) (84)  707  (234)
Total non-interest income $92,000  $81,693  $75,625  $82,251  $82,949   $173,693  $164,217 


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

Core non-interest income for the second quarter of 2016 increased by $9.5 million, or 11.6%, to $91.3 million from the first 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.
  • Card fees increased primarily due to higher prepaid card revenue.  
  • Lease financing revenues decreased due to a decrease in fees from the sale of third-party equipment maintenance contracts.
  • Capital markets and international banking services fees decreased due to lower swap fees partially offset by higher syndication and M&A advisory fees.

Core non-interest income for the six months ended June 30, 2016 increased by $8.5 million, or 5.2%, to $173.0 million from the six months ended June 30, 2015.

  • Mortgage banking revenue increased due to higher mortgage servicing fees partly offset by lower mortgage origination fees.
  • Trust and asset management fees increased due to the addition of new customers as well as the acquisitions of MSA Holdings, LLC ("MSA") and the Illinois court-appointed guardianship and special needs trust business. 
  • 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.
  • Commercial deposit and treasury management fees increased due to new customer activity.
  • Loan service fees increased due to higher unused line and letter of credit fees.
  • Lease financing revenues decreased due to lower residual gains and fees from the sale of third-party equipment maintenance contracts.
  • Card fees decreased due to the impact of becoming subject to the Durbin amendment of the Dodd-Frank Act starting on July 1, 2015, which was partly offset by an increase in prepaid card revenue and credit card fees.  We estimate the quarterly impact of the Durbin amendment was a loss of $1.2 million of revenue.

Non-interest Expense

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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Core non-interest expense: (1)               
Salaries and employee benefits expense:               
Salaries and commissions $61,105  $58,282  $56,741  $59,358  $57,459   $119,387  $114,858 
Bonus and stock-based compensation 13,971  9,532  11,436  11,316  11,264   23,503  21,356 
Health and accident insurance 6,079  5,599  4,646  5,640  5,296   11,678  10,789 
Other salaries and benefits (2) 13,045  12,089  11,533  12,446  12,119   25,134  23,582 
Total salaries and employee benefits expense 94,200  85,502  84,356  88,760  86,138   179,702  170,585 
Occupancy and equipment expense 13,407  13,260  12,935  12,456  12,081   26,667  24,844 
Computer services and telecommunication expense 9,266  8,750  8,548  8,558  8,407   18,016  17,041 
Advertising and marketing expense 2,923  2,855  2,549  2,578  2,497   5,778  4,943 
Professional and legal expense 3,220  2,492  2,715  1,496  1,902   5,712  4,382 
Other intangible amortization expense 1,618  1,626  1,546  1,542  1,509   3,244  3,027 
Net (gain) loss recognized on other real estate owned (A) (297) (637) (256) 520  662   (934) 1,550 
Net loss (gain) recognized on other real estate owned related
to FDIC transactions (A)
 312  154  (549) 65  (88)  466  (361)
Other real estate expense, net (A) 243  137  76  (8) 150   380  431 
Other operating expenses 19,813  18,366  18,932  18,782  18,238   38,179  36,514 
Total core non-interest expense 144,705  132,505  130,852  134,749  131,496   277,210  262,956 
Non-core non-interest expense: (1)               
Merger related and repositioning expenses (B) 2,566  3,287  (4,186) 389  1,234   5,853  9,303 
Branch exit and facilities impairment charges 155           155   
Prepayment fees on interest bearing liabilities              85 
Increase (decrease) in market value of assets held in trust for
deferred compensation (C)
 480  8  565  (872) 7   488  313 
Total non-core non-interest expense 3,201  3,295  (3,621) (483) 1,241   6,496  9,701 
Total non-interest expense $147,906  $135,800  $127,231  $134,266  $132,737   $283,706  $272,657 


(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, and C – 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 $12.2 million, or 9.2%, from the first quarter of 2016 to $144.7 million for the second quarter of 2016.

  • Salaries and employee benefits expense was up due to the following: 
    • Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through June 2016.  Bonus expense for the first quarter of 2016 included a reduction in expense related to 2015 bonus payments.

    • Salaries and commissions expense increased due to higher mortgage commission expense resulting from higher mortgage origination volumes and annual pay increases effective in the beginning of the second quarter.
  • Other operating expenses increased due to higher filing and other loan expense.
  • Professional and legal expense increased due to an increase in litigation fees and organizational legal fees related to the setup of a Canadian entity as well as an increase in consulting expense.
  • Computer services and telecommunication expense increased due to higher processing fees and increased spending in infrastructure.

Core non-interest expense increased by $14.3 million, or 5.4%, from the six months ended June 30, 2015 to $277.2 million for the six months ended June 30, 2016.

  • Salaries and employee benefits expense was up due to the following:
    • Salaries and commissions expense increased due to annual pay increases effective in the beginning of the second quarter as well as new hires. 
    • Bonus and stock-based compensation increased due to an increase in bonus expense based on company performance through June 2016.
    • Other 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, new offices opened at our mortgage banking segment and an office relocation at our leasing segment.
  • 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) and card expenses (higher rewards and product development expense).
  • Professional and legal expense increased due to an increase in litigation and consulting fees. 
  • 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 advertising.

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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Merger related and repositioning expenses:               
  Salaries and employee benefits $324  $81  $(212) $3  $   $405  $33 
  Occupancy and equipment expense 8      2  96   8  273 
  Computer services and telecommunication expense 511  305  (103) 9  130   816  400 
  Advertising and marketing expense 41  23  2       64   
  Professional and legal expense 101  97  1,454  305  511   198  701 
  Branch exit and facilities impairment charges   44  616  70  438   44  7,829 
  Contingent consideration expense - Celtic acquisition (1)   2,703         2,703   
  Other operating expenses 1,581  34  (5,943)   59   1,615  67 
Total merger related and repositioning expenses $2,566  $3,287  $(4,186) $389  $1,234   $5,853  $9,303 


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

In the second quarter of 2016, merger related and repositioning expenses included a $1.5 million contract termination fee related to the anticipated ACB 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.

The following tables summarize financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments for the periods presented (in thousands):

 Banking Leasing Mortgage
Banking
 Non-core
Items
 Consolidated
Three months ended June 30, 2016         
Net interest income$112,152  $2,411  $8,039  $  $122,602 
Provision for credit losses2,995  (356) 190    2,829 
Net interest income after provision for credit losses109,157  2,767  7,849    119,773 
Non-interest income:         
  Lease financing revenues, net789  14,919      15,708 
  Mortgage origination fees    31,417    31,417 
  Mortgage servicing fees    8,198    8,198 
  Other non-interest income35,132  798    747  36,677 
Total non-interest income35,921  15,717  39,615  747  92,000 
Non-interest expense:         
Salaries and employee benefits expense:         
Salaries and commissions36,552  5,317  19,236    61,105 
Bonus and stock-based compensation11,676  1,028  1,267    13,971 
Health and accident insurance3,816  376  1,887    6,079 
Other salaries and benefits (1)8,170  886  3,989  804  13,849 
Total salaries and employee benefits expense60,214  7,607  26,379  804  95,004 
  Occupancy and equipment expense10,561  947  1,899  8  13,415 
  Computer services and telecommunication expense6,945  431  1,890  511  9,777 
  Professional and legal expense2,385  414  421  101  3,321 
  Other operating expenses16,587  1,716  6,309  1,777  26,389 
Total non-interest expense96,692  11,115  36,898  3,201  147,906 
Income before income taxes48,386  7,369  10,566  (2,454) 63,867 
Income tax expense14,353  2,879  4,226  (1,003) 20,455 
Net income$34,033  $4,490  $6,340  $(1,451) $43,412 


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

 Banking Leasing Mortgage
Banking
 Non-core
Items
 Consolidated
Three months ended March 31, 2016         
Net interest income$109,608  $2,423  $7,273  $  $119,304 
Provision for credit losses7,001  437  125    7,563 
Net interest income after provision for credit losses102,607  1,986  7,148    111,741 
Non-interest income:         
  Lease financing revenues, net679  18,367      19,046 
  Mortgage origination fees    16,894    16,894 
  Mortgage servicing fees    10,588    10,588 
  Other non-interest income34,380  828  (3) (40) 35,165 
Total non-interest income35,059  19,195  27,479  (40) 81,693 
Non-interest expense:         
Salaries and employee benefits expense:         
Salaries and commissions35,154  6,715  16,413    58,282 
Bonus and stock-based compensation7,245  925  1,362    9,532 
Health and accident insurance3,461  335  1,803    5,599 
Other salaries and benefits (1)7,542  1,108  3,439  89  12,178 
Total salaries and employee benefits expense53,402  9,083  23,017  89  85,591 
  Occupancy and equipment expense10,430  895  1,935    13,260 
  Computer services and telecommunication expense6,446  363  1,941  305  9,055 
  Professional and legal expense1,486  409  597  97  2,589 
  Other operating expenses15,570  1,447  5,484  2,804  25,305 
Total non-interest expense87,334  12,197  32,974  3,295  135,800 
Income before income taxes50,332  8,984  1,653  (3,335) 57,634 
Income tax expense14,927  3,509  661  (577) 18,520 
Net income$35,405  $5,475  $992  $(2,758) $39,114 


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

Net income from our Banking Segment for the second quarter of 2016 decreased compared to the prior quarter.  This decrease in net income was primarily due to higher salaries and employee benefits expense due to higher bonus expense and annual pay increases partly offset by an increase in net interest income driven by loan growth and higher loan yields and a decrease in provision for credit losses expense.

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

Net income from our Mortgage Banking Segment for the second 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, which was partly offset by higher mortgage commission expense and other operating expenses.  The increase in mortgage origination fees was driven by higher origination volumes in the second quarter of 2016, as a result of the favorable interest rate environment, and higher gains on sale margins.
The following tables summarize financial information, adjusted for funds transfer pricing and internal allocations of certain expenses, for the reportable segments for the periods presented (in thousands):

 Banking Leasing Mortgage
Banking
 Non-core
Items
 Consolidated
Six months ended June 30, 2016         
Net interest income$221,760  $4,834  $15,312  $  $241,906 
Provision for credit losses9,996  81  315    10,392 
Net interest income after provision for credit losses211,764  4,753  14,997    231,514 
Non-interest income:         
  Lease financing, net1,468  33,286      34,754 
  Mortgage origination fees    48,311    48,311 
  Mortgage servicing fees    18,786    18,786 
  Other non-interest income69,512  1,626  (3) 707  71,842 
Total non-interest income70,980  34,912  67,094  707  173,693 
Non-interest expense:         
Salaries and employee benefits expense:         
Salaries and commissions71,706  12,032  35,649    119,387 
Bonus and stock-based compensation18,921  1,953  2,629    23,503 
Health and accident insurance7,277  711  3,690    11,678 
Other salaries and benefits (1)15,712  1,994  7,428  893  26,027 
Total salaries and employee benefits expense113,616  16,690  49,396  893  180,595 
  Occupancy and equipment expense20,991  1,842  3,834  8  26,675 
  Computer services and telecommunication expense13,391  794  3,831  816  18,832 
  Professional and legal expense3,871  823  1,018  198  5,910 
  Other operating expenses32,157  3,163  11,793  4,581  51,694 
Total non-interest expense184,026  23,312  69,872  6,496  283,706 
Income before income taxes98,718  16,353  12,219  (5,789) 121,501 
Income tax expense29,280  6,388  4,887  (1,580) 38,975 
Net income$69,438  $9,965  $7,332  $(4,209) $82,526 


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

 Banking Leasing Mortgage
Banking
 Non-core
Items
 Consolidated
Six months ended June 30, 2015         
Net interest income$208,478  $5,930  $13,460  $  $227,868 
Provision for credit losses7,818  1,356  96    9,270 
Net interest income after provision for credit losses200,660  4,574  13,364    218,598 
Non-interest income:         
  Lease financing, net933  39,711      40,644 
  Mortgage origination fees    53,758    53,758 
  Mortgage servicing fees    6,434    6,434 
  Other non-interest income61,926  1,685  4  (234) 63,381 
Total non-interest income62,859  41,396  60,196  (234) 164,217 
Non-interest expense:         
Salaries and employee benefits expense:         
Salaries and commissions67,647  13,615  33,596    114,858 
Bonus and stock-based compensation17,367  1,800  2,189    21,356 
Health and accident insurance7,043  644  3,102    10,789 
Other salaries and benefits (1)14,480  1,716  7,386  346  23,928 
Total salaries and employee benefits expense106,537  17,775  46,273  346  170,931 
  Occupancy and equipment expense20,187  1,656  3,001  273  25,117 
  Computer services and telecommunication expense12,604  569  3,868  400  17,441 
  Professional and legal expense3,223  554  605  701  5,083 
  Other operating expenses30,720  2,930  12,454  7,981  54,085 
Total non-interest expense173,271  23,484  66,201  9,701  272,657 
Income before income taxes90,248  22,486  7,359  (9,935) 110,158 
Income tax expense27,274  8,820  2,944  (3,943) 35,095 
Net income$62,974  $13,666  $4,415  $(5,992) $75,063 


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

Net income from our Banking Segment for the six months ended June 30, 2016 increased compared to the six months ended June 30, 2015.  This increase in net income was primarily due to an increase in net interest income driven by loan growth and an increase in other non-interest income partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires and bonus expense as well as an increase in provision for credit losses expense.

Net income from our Leasing Segment for the six months ended June 30, 2016 decreased compared to the six months ended June 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, partly offset by a decrease in commission expense and provision for credit losses expense.

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

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

  2Q16 1Q16 4Q15 3Q15 2Q15
Origination volume: $1,709,044  $1,328,804  $1,437,057  $1,880,960  $2,010,175 
Refinance 42% 49% 42% 34% 43%
Purchase 58  51  58  66  57 
Origination volume by channel:          
Retail 23% 19% 18% 18% 18%
Third party 77  81  82  82  82 
Mortgage servicing book (unpaid principal balance of loans
serviced for others) at period end (1)
 $17,739,626  $16,911,325  $16,218,613  $15,582,911  $23,588,345 
Mortgage servicing rights, recorded at fair value, at period end 134,969  145,800  168,162  148,097  261,034 
Notional value of rate lock commitments, at period end 981,000  823,000  622,906  800,162  992,025 
                

(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):

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
  Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
Commercial-related credits:                    
Commercial loans $3,561,500  35% $3,509,604  36% $3,616,286  37% $3,440,632  37% $3,354,889  37%
Commercial loans collateralized by
assignment of lease payments (lease loans)
 1,794,465  18  1,774,104  18  1,779,072  18  1,693,540  18  1,690,866  18 
Commercial real estate 2,827,720  28  2,831,814  28  2,695,676  27  2,580,009  27  2,539,991  28 
Construction real estate 357,807  3  310,278  3  252,060  3  255,620  3  189,599  2 
Total commercial-related credits 8,541,492  84  8,425,800  85  8,343,094  85  7,969,801  85  7,775,345  85 
Other loans:                    
Residential real estate 753,707  7  677,791  7  628,169  6  607,171  6  533,118  6 
Indirect vehicle 491,480  5  432,915  4  384,095  4  345,731  4  303,777  3 
Home equity 198,622  2  207,079  2  216,573  2  223,173  2  230,478  3 
Consumer loans 75,775  1  77,318  1  80,661  1  87,612  1  86,463  1 
Total other loans 1,519,584  15  1,395,103  14  1,309,498  13  1,263,687  13  1,153,836  13 
Total loans, excluding purchased credit-
impaired loans
 10,061,076  99  9,820,903  99  9,652,592  98  9,233,488  98  8,929,181  98 
Purchased credit-impaired loans 136,811  1  140,445  1  141,406  2  155,693  2  164,775  2 
Total loans $10,197,887  100% $9,961,348  100% $9,793,998  100% $9,389,181  100% $9,093,956  100%
Change over prior quarter +2.4%   +1.7%   +4.3%   +3.2%   +1.9%  
                          

Our loan balances, excluding purchased credit-impaired loans, increased $240.2 million (+2.4%, or +9.8% annualized) during the second quarter of 2016.  Residential real estate loan balances have increased over the past year as a result of retaining adjustable rate mortgages originated by our Mortgage Banking Segment in our loan portfolio.  Construction loans have increased over the past year due to draws on new and existing credit lines primarily in the areas of apartments, healthcare and office.  Indirect vehicle loans have increased as a result of growth in boat, motorcycle and other recreational vehicle loans. 

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):

  2Q16 1Q16 4Q15 3Q15 2Q15
  Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
Commercial-related credits:                    
Commercial loans $3,522,641  35% $3,531,441  36% $3,492,161  37% $3,372,279  37% $3,309,519  37%
Commercial loans collateralized by
assignment of lease payments (lease loans)
 1,777,763  18  1,754,558  18  1,708,404  18  1,674,939  18  1,634,583  18 
Commercial real estate 2,821,516  28  2,734,148  28  2,627,004  28  2,568,539  28  2,522,473  28 
Construction real estate 351,079  3  276,797  3  274,188  2  210,506  2  191,935  2 
Total commercial-related credits 8,472,999  84  8,296,944  85  8,101,757  85  7,826,263  85  7,658,510  85 
Other loans:                    
Residential real estate 710,384  7  640,231  7  612,275  6  566,115  6  512,766  6 
Indirect vehicle 462,053  5  404,473  4  365,744  4  325,323  4  286,107  3 
Home equity 202,228  2  210,678  2  219,440  2  226,365  2  233,867  3 
Consumer loans 78,108  1  80,569  1  83,869  1  85,044  1  76,189  1 
Total other loans 1,452,773  15  1,335,951  14  1,281,328  13  1,202,847  13  1,108,929  13 
Total loans, excluding purchased credit-
impaired loans
 9,925,772  99  9,632,895  99  9,383,085  98  9,029,110  98  8,767,439  98 
Purchased credit-impaired loans 136,415  1  139,451  1  154,562  2  156,309  2  202,374  2 
Total loans $10,062,187  100% $9,772,346  100% $9,537,647  100% $9,185,419  100% $8,969,813  100%
Change over prior quarter +3.0%   +2.5%   +3.8%   +2.4%   +0.9%  


Our average loan balances, excluding purchased credit-impaired loans, increased $292.9 million (+3.0%, or +12.2% annualized) during the second quarter of 2016.

ASSET QUALITY

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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Non-performing loans:          
Non-accrual loans (1) $67,544  $93,602  $98,065  $92,302  $91,943 
Loans 90 days or more past due, still accruing interest 7,190  1,112  6,596  4,275  6,112 
Total non-performing loans 74,734  94,714  104,661  96,577  98,055 
Other real estate owned 27,663  28,309  31,553  29,587  28,517 
Repossessed assets 459  187  81  216  78 
Total non-performing assets $102,856  $123,210  $136,295  $126,380  $126,650 
Potential problem loans (2) $99,782  $110,193  $139,941  $122,966  $116,443 
Purchased credit-impaired loans $136,811  $140,445  $141,406  $155,693  $164,775 
Total non-performing, potential problem and purchased
credit-impaired loans
 $311,327  $345,352  $386,008  $375,236  $379,273 
           
Total allowance for loan and lease losses $135,614  $134,493  $128,140  $124,626  $120,070 
Accruing restructured loans (3) 26,715  27,269  26,991  20,120  16,875 
Total non-performing loans to total loans 0.73% 0.95% 1.07% 1.03% 1.08%
Total non-performing assets to total assets 0.64  0.79  0.87  0.85  0.84 
Allowance for loan and lease losses to non-performing loans 181.46  142.00  122.43  129.04  122.45 

(1) Includes $29.3 million, $24.0 million, $23.6 million, $21.4 million and $24.5 million of restructured loans on non-accrual status at June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 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 the Taylor Capital merger) as of the dates indicated (in thousands):

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Commercial and lease $29,509  $28,590  $37,076  $34,465  $31,053 
Commercial real estate 7,163  27,786  29,073  25,437  32,358 
Construction real estate         337 
Consumer related 38,062  38,338  38,512  36,675  34,307 
Total non-performing loans $74,734  $94,714  $104,661  $96,577  $98,055 


Non-performing commercial real estate loans decreased at June 30, 2016 compared to March 31, 2016 as a result of loans paid off 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):

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Balance at the beginning of quarter $28,309  $31,553  $29,587  $28,517  $21,839 
Transfers in at fair value less estimated costs to sell 1,367  1,270  5,964  2,402  8,595 
Fair value adjustments 70  45  (721) (565) (920)
Net gains on sales of other real estate owned 227  592  977  45  258 
Cash received upon disposition (2,310) (5,151) (4,254) (812) (1,255)
Balance at the end of quarter $27,663  $28,309  $31,553  $29,587  $28,517 


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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Allowance for credit losses, balance
at the beginning of period
 $137,732  $131,508  $128,038  $124,130  $117,189   $131,508  $114,057 
Provision for credit losses 2,829  7,563  6,758  5,358  4,296   10,392  9,270 
Charge-offs:               
Commercial loans 72  713  710  1,657  57   785  626 
Commercial loans collateralized by
assignment of lease payments (lease
loans)
 2,347  574  685  1,980  100   2,921  100 
Commercial real estate 1,720  352  1,251  170  108   2,072  2,142 
Construction real estate 144    23  5  3   144  6 
Residential real estate 476  368  261  292  318   844  897 
Home equity 619  238  407  358  276   857  720 
Indirect vehicle 651  931  898  581  627   1,582  1,501 
Consumer loans 395  412  550  467  500   807  924 
Total charge-offs 6,424  3,588  4,785  5,510  1,989   10,012  6,916 
Recoveries:               
Commercial loans 952  380  235  456  816   1,332  1,058 
Commercial loans collateralized by
assignment of lease payments (lease
loans)
 467  50  12  11  340   517  1,089 
Commercial real estate 1,843  594  385  2,402  2,561   2,437  3,936 
Construction real estate 17  27  19  216  35   44  37 
Residential real estate 82  24  98  337  8   106  80 
Home equity 193  318  132  186  160   511  261 
Indirect vehicle 501  463  499  334  545   964  1,020 
Consumer loans 141  393  117  118  169   534  238 
Total recoveries 4,196  2,249  1,497  4,060  4,634   6,445  7,719 
Total net charge-offs (recoveries) 2,228  1,339  3,288  1,450  (2,645)  3,567  (803)
Allowance for credit losses 138,333  137,732  131,508  128,038  124,130   138,333  124,130 
Allowance for unfunded credit commitments (2,719) (3,239) (3,368) (3,412) (4,060)  (2,719) (4,060)
Allowance for loan and lease losses $135,614  $134,493  $128,140  $124,626  $120,070   $135,614  $120,070 
Total loans, excluding loans held for
sale
 $10,197,887  $9,961,348  $9,793,998  $9,389,181  $9,093,956   $10,197,887  $9,093,956 
Average loans, excluding loans held
for sale
 10,062,187  9,772,346  9,537,647  9,185,419  8,969,813   9,917,267  8,929,474 
Ratio of allowance for loan and
lease losses to total loans, excluding
loans held for sale
 1.33% 1.35% 1.31% 1.33% 1.32%  1.33% 1.32%
Net loan charge-offs (recoveries) to
average loans, excluding loans held
for sale (annualized)
 0.09  0.06  0.14  0.06  (0.12)  0.07  (0.02)


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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Commercial related loans:          
  General reserve $108,972  $98,001  $94,164  $93,903  $89,642 
  Specific reserve 12,205  20,995  16,173  13,683  11,303 
Consumer related reserve 14,437  15,497  17,803  17,040  19,125 
Total allowance for loan and lease losses $135,614  $134,493  $128,140  $124,626  $120,070 


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 Taylor Capital merger 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 


Changes in the purchase accounting discount for loans acquired in the Taylor Capital merger were as follows for the three months ended March 31, 2016 (in thousands):

  Non-
Accretable
Discount -
PCI Loans
 Accretable
Discount -
PCI Loans
 Accretable
Discount -
Non-PCI
Loans
 Total
Balance at beginning of period $14,661  $12,298  $34,768  $61,727 
Charge-offs (123)     (123)
Accretion   (2,403) (4,950) (7,353)
Transfer (3,584) 3,584     
Balance at end of period $10,954  $13,479  $29,818  $54,251 


The $1.5 million and $3.6 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount for the three months ended June 30, 2016 and March 31, 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):

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Securities available for sale:          
Fair value          
Government sponsored agencies and enterprises $54,457  $64,762  $64,611  $65,461  $65,485 
States and political subdivisions 400,948  398,024  396,367  399,274  395,912 
Mortgage-backed securities 785,367  834,559  893,656  847,426  902,017 
Corporate bonds 225,525  224,530  219,628  228,251  246,468 
Equity securities 11,098  10,969  10,761  10,826  10,669 
Total fair value $1,477,395  $1,532,844  $1,585,023  $1,551,238  $1,620,551 
           
Amortized cost          
Government sponsored agencies and enterprises $53,674  $63,600  $63,805  $64,008  $64,211 
States and political subdivisions 369,816  371,006  373,285  379,015  380,221 
Mortgage-backed securities 769,109  820,825  888,325  834,791  890,334 
Corporate bonds 224,730  225,657  222,784  228,711  245,506 
Equity securities 10,872  10,814  10,757  10,701  10,644 
Total amortized cost $1,428,201  $1,491,902  $1,558,956  $1,517,226  $1,590,916 
           
Unrealized gain, net          
Government sponsored agencies and enterprises $783  $1,162  $806  $1,453  $1,274 
States and political subdivisions 31,132  27,018  23,082  20,259  15,691 
Mortgage-backed securities 16,258  13,734  5,331  12,635  11,683 
Corporate bonds 795  (1,127) (3,156) (460) 962 
Equity securities 226  155  4  125  25 
Total unrealized gain, net $49,194  $40,942  $26,067  $34,012  $29,635 
           
Securities held to maturity, at amortized cost:          
States and political subdivisions $960,784  $986,340  $1,016,519  $1,002,963  $974,032 
Mortgage-backed securities 190,631  205,570  214,291  221,889  229,595 
Total amortized cost $1,151,415  $1,191,910  $1,230,810  $1,224,852  $1,203,627 


Our investment securities, excluding FHLB and FRB stock, decreased by $95.9 million to $2.6 billion at June 30, 2016 compared to $2.7 billion at March 31, 2016 primarily due to principal paydowns on our mortgage-backed securities that were not re-invested in the portfolio.

DEPOSIT MIX

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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
  Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
Low cost deposits:                    
Non-interest bearing
deposits
 $4,775,364  42% $4,667,410  40% $4,627,184  40% $4,434,067  39% $4,378,005  40%
Money market, NOW
and interest bearing
deposits
 3,771,111  33  4,048,054  35  4,144,633  36  4,129,414  37  3,842,264  35 
Savings 1,021,845  9  991,300  9  974,555  8  953,746  8  970,875  9 
Total low cost deposits 9,568,320  84  9,706,764  84  9,746,372  84  9,517,227  84  9,191,144  84 
Certificates of deposit:                    
Certificates of deposit 1,220,562  11  1,255,457  11  1,244,292  11  1,279,842  12  1,261,843  12 
Brokered certificates of
deposit
 647,214  5  571,605  5  514,551  5  457,509  4  408,827  4 
Total certificates of
deposit
 1,867,776  16  1,827,062  16  1,758,843  16  1,737,351  16  1,670,670  16 
Total deposits $11,436,096  100% $11,533,826  100% $11,505,215  100% $11,254,578  100% $10,861,814  100%
Change over prior quarter -0.8%   +0.2%   +2.2%   +3.6%   -1.4%  
                          

Non-interest bearing deposits grew by $108.0 million (+2.3%, or +9.3% annualized) during the second quarter of 2016 and comprised 42% of total deposits at quarter-end.  Total low cost deposits decreased $138.4 million (-1.4%, or -5.7% annualized) to $9.6 billion at June 30, 2016 compared to March 31, 2016 but continued to represent 84% of total deposits at quarter-end.  Money market, NOW and interest bearing deposits decreased due to the reduction in balances of certain large accounts.

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

  2Q16 1Q16 4Q15 3Q15 2Q15
  Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
 Amount % of
Total
Low cost deposits:                    
Non-interest bearing
deposits
 $4,806,692  42% $4,606,008  40% $4,617,076  40% $4,428,065  39% $4,273,931  39%
Money market, NOW
and interest bearing
deposits
 3,836,134  33  4,109,150  36  4,214,099  37  4,119,625  36  3,940,201  36 
Savings 1,006,902  9  984,019  9  959,049  8  965,060  9  972,327  9 
Total low cost deposits 9,649,728  84  9,699,177  85  9,790,224  85  9,512,750  84  9,186,459  84 
Certificates of deposit:                    
Certificates of deposit 1,237,198  11  1,237,971  11  1,245,947  11  1,304,516  12  1,302,031  12 
Brokered certificates of
deposit
 598,702  5  534,910  4  492,839  4  427,649  4  412,517  4 
Total certificates of
deposit
 1,835,900  16  1,772,881  15  1,738,786  15  1,732,165  16  1,714,548  16 
Total deposits $11,485,628  100% $11,472,058  100% $11,529,010  100% $11,244,915  100% $10,901,007  100%
Change over prior quarter +0.1%   -0.5%   +2.5%   +3.2%   -0.8%  
                          

CAPITAL

Tangible book value per common share was $17.48 at June 30, 2016 compared to $17.04 at March 31, 2016 and $16.36 at June 30, 2015.

Our regulatory capital ratios remain strong.  The Bank was categorized as "well capitalized" at June 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 pending MB Financial-American Chartered merger might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the 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.

ADDITIONAL INFORMATION

In connection with the proposed merger between MB Financial and American Chartered, MB Financial filed a registration statement on Form S-4 with the SEC, which was declared effective by the SEC on February 4, 2016. The registration statement includes a proxy statement/prospectus, which was sent to the shareholders of American Chartered. Investors and shareholders of American Chartered are advised to read the proxy statement/prospectus, which was filed by MB Financial with the SEC on February 4, 2016, and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain, or will contain, as the case may be, important information about MB Financial, American Chartered and the proposed transaction. Copies of all documents relating to the merger filed by MB Financial can be obtained free of charge from the SEC's website at www.sec.gov. These documents also can be obtained free of charge by accessing MB Financial's website at www.mbfinancial.com under the tab "Investor Relations" and then under "SEC Filings." Alternatively, these documents, when available, can be obtained free of charge from MB Financial upon written request to MB Financial, Inc., Corporate Secretary, 6111 North River Road, Rosemont, Illinois 60018 or by calling (847) 653-1992.

TABLES TO FOLLOW


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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
ASSETS          
Cash and due from banks $303,037  $271,732  $307,869  $234,220  $290,266 
Interest earning deposits with banks 123,086  113,785  73,572  66,025  144,154 
Total cash and cash equivalents 426,123  385,517  381,441  300,245  434,420 
Federal funds sold         5 
Investment securities:          
Securities available for sale, at fair value 1,477,395  1,532,844  1,585,023  1,551,238  1,620,551 
Securities held to maturity, at amortized cost 1,151,415  1,191,910  1,230,810  1,224,852  1,203,627 
Non-marketable securities - FHLB and FRB Stock 130,232  121,750  114,233  91,400  111,400 
Total investment securities 2,759,042  2,846,504  2,930,066  2,867,490  2,935,578 
Loans held for sale 843,379  632,196  744,727  676,020  801,343 
Loans:          
Total loans, excluding purchased credit-impaired loans 10,061,076  9,820,903  9,652,592  9,233,488  8,929,181 
Purchased credit-impaired loans 136,811  140,445  141,406  155,693  164,775 
Total loans 10,197,887  9,961,348  9,793,998  9,389,181  9,093,956 
Less: Allowance for loan and lease losses 135,614  134,493  128,140  124,626  120,070 
Net loans 10,062,273  9,826,855  9,665,858  9,264,555  8,973,886 
Lease investments, net 233,320  216,046  211,687  184,223  167,966 
Premises and equipment, net 243,319  238,578  236,013  234,115  234,651 
Cash surrender value of life insurance 138,657  137,807  136,953  136,089  135,237 
Goodwill 725,039  725,068  725,070  711,521  711,521 
Other intangibles 41,569  43,186  44,812  37,520  34,979 
Mortgage servicing rights, at fair value 134,969  145,800  168,162  148,097  261,034 
Other real estate owned, net 27,663  28,309  31,553  29,587  28,517 
Other real estate owned related to FDIC transactions 8,356  10,397  10,717  13,825  13,867 
Other assets 352,081  339,390  297,948  346,814  285,190 
Total assets $15,995,790  $15,575,653  $15,585,007  $14,950,101  $15,018,194 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities          
Deposits:          
Noninterest bearing $4,775,364  $4,667,410  $4,627,184  $4,434,067  $4,378,005 
Interest bearing 6,660,732  6,866,416  6,878,031  6,820,511  6,483,809 
Total deposits 11,436,096  11,533,826  11,505,215  11,254,578  10,861,814 
Short-term borrowings 1,246,994  884,101  1,005,737  940,529  1,382,635 
Long-term borrowings 518,545  439,615  400,274  95,175  89,639 
Junior subordinated notes issued to capital trusts 185,925  185,820  186,164  186,068  185,971 
Accrued expenses and other liabilities 451,695  409,406  400,333  410,523  420,396 
Total liabilities 13,839,255  13,452,768  13,497,723  12,886,873  12,940,455 
Stockholders' Equity          
Preferred stock 115,280  115,280  115,280  115,280  115,280 
Common stock 757  756  756  756  754 
Additional paid-in capital 1,288,777  1,284,438  1,280,870  1,277,348  1,273,333 
Retained earnings 783,468  756,272  731,812  702,789  677,246 
Accumulated other comprehensive income 28,731  24,687  15,777  20,968  18,778 
Treasury stock (60,732) (59,863) (58,504) (55,258) (9,035)
Controlling interest stockholders' equity 2,156,281  2,121,570  2,085,991  2,061,883  2,076,356 
Noncontrolling interest 254  1,315  1,293  1,345  1,383 
Total stockholders' equity 2,156,535  2,122,885  2,087,284  2,063,228  2,077,739 
Total liabilities and stockholders' equity $15,995,790  $15,575,653  $15,585,007  $14,950,101  $15,018,194 





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

             Six Months Ended
             June 30,
(Dollars in thousands, except per share data) 2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Interest income:               
Loans:               
  Taxable $110,231  $104,923  $106,137  $100,573  $98,768   $215,154  $197,614 
  Nontaxable 2,741  2,586  2,602  2,283  2,259   5,327  4,433 
Investment securities:               
  Taxable 7,799  9,566  9,708  9,655  10,002   17,365  19,936 
  Nontaxable 10,644  10,776  10,969  10,752  10,140   21,420  19,253 
Federal funds sold     1          
Other interest earning accounts 125  141  110  89  57   266  119 
Total interest income 131,540  127,992  129,527  123,352  121,226   259,532  241,355 
Interest expense:               
  Deposits 5,952  5,622  5,357  5,102  4,554   11,574  9,199 
  Short-term borrowings 910  721  385  395  355   1,631  632 
  Long-term borrowings and junior subordinated notes 2,076  2,345  2,016  1,886  1,844   4,421  3,656 
Total interest expense 8,938  8,688  7,758  7,383  6,753   17,626  13,487 
Net interest income 122,602  119,304  121,769  115,969  114,473   241,906  227,868 
Provision for credit losses 2,829  7,563  6,758  5,358  4,296   10,392  9,270 
Net interest income after provision for credit losses 119,773  111,741  115,011  110,611  110,177   231,514  218,598 
Non-interest income:               
Lease financing revenue, net 15,708  19,046  15,937  20,000  15,564   34,754  40,644 
Mortgage banking revenue 39,615  27,482  26,542  30,692  35,648   67,097  60,192 
Commercial deposit and treasury management fees 11,548  11,878  11,711  11,472  11,062   23,426  22,100 
Trust and asset management fees 8,236  7,950  6,077  6,002  5,752   16,186  11,466 
Card fees 4,045  3,525  3,651  3,335  4,409   7,570  8,336 
Capital markets and international banking service fees 2,771  3,227  2,355  2,357  1,508   5,998  3,436 
Consumer and other deposit service fees 3,161  3,025  3,440  3,499  3,260   6,186  6,343 
Brokerage fees 1,315  1,158  1,252  1,281  1,543   2,473  3,221 
Loan service fees 1,961  1,752  1,890  1,531  1,353   3,713  2,838 
Increase in cash surrender value of life insurance 850  854  864  852  836   1,704  1,675 
Net gain (loss) on investment securities 269    (3) 371  (84)  269  (544)
Net (loss) gain on sale of assets (2) (48)   1  (7)  (50) (3)
Other operating income 2,523  1,844  1,909  858  2,105   4,367  4,513 
Total non-interest income 92,000  81,693  75,625  82,251  82,949   173,693  164,217 
Non-interest expense:               
Salaries and employee benefits expense 95,004  85,591  84,709  87,891  86,145   180,595  170,931 
Occupancy and equipment expense 13,415  13,260  12,935  12,458  12,177   26,675  25,117 
Computer services and telecommunication expense 9,777  9,055  8,445  8,567  8,537   18,832  17,441 
Advertising and marketing expense 2,964  2,878  2,551  2,578  2,497   5,842  4,943 
Professional and legal expense 3,321  2,589  4,169  1,801  2,413   5,910  5,083 
Other intangible amortization expense 1,618  1,626  1,546  1,542  1,509   3,244  3,027 
Branch exit and facilities impairment charges 155  44  616  70  438   199  7,829 
Net loss (gain) recognized on other real estate owned and
other expense
 258  (346) (729) 577  724   (88) 1,620 
Prepayment fees on interest bearing liabilities              85 
Other operating expenses 21,394  21,103  12,989  18,782  18,297   42,497  36,581 
Total non-interest expense 147,906  135,800  127,231  134,266  132,737   283,706  272,657 
Income before income taxes 63,867  57,634  63,405  58,596  60,389   121,501  110,158 
Income tax expense 20,455  18,520  19,798  18,318  19,437   38,975  35,095 
Net income 43,412  39,114  43,607  40,278  40,952   82,526  75,063 
Dividends on preferred shares 2,000  2,000  2,000  2,000  2,000   4,000  4,000 
Net income available to common stockholders $41,412  $37,114  $41,607  $38,278  $38,952   $78,526  $71,063 





             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Common share data:               
Basic earnings per common share $0.56  $0.51  $0.57  $0.52  $0.52   $1.07  $0.95 
Diluted earnings per common share 0.56  0.50  0.56  0.51  0.52   1.06  0.94 
Weighted average common shares outstanding for
basic earnings per common share
 73,475,258  73,330,731  73,296,602  74,297,281  74,596,925   73,402,995  74,582,097 
Weighted average common shares outstanding for
diluted earnings per common share
 74,180,374  73,966,935  73,953,165  75,029,827  75,296,029   74,073,655  75,230,455 
Common shares outstanding (at end of period) 73,740,348  73,639,487  73,678,329  73,776,196  75,073,292   73,740,348  75,073,292 





Selected Financial Data:               
             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Performance Ratios:               
Annualized return on average assets 1.11% 1.02% 1.13% 1.06% 1.12%  1.06% 1.04%
Annualized operating return on average assets (1) 1.15  1.09  1.06  1.06  1.14   1.12  1.13 
Annualized return on average common equity 8.27  7.52  8.48  7.75  8.02   7.90  7.41 
Annualized operating return on average common equity (1) 8.56  8.08  7.86  7.75  8.19   8.32  8.03 
Annualized cash return on average tangible common equity (2) 13.53  12.47  13.97  12.74  13.21   13.01  12.28 
Annualized cash operating return on average tangible common equity (3) 13.99  13.37  12.97  12.74  13.47   13.69  13.28 
Net interest rate spread 3.64  3.63  3.72  3.60  3.72   3.64  3.75 
Cost of funds (4) 0.27  0.27  0.24  0.23  0.22   0.27  0.22 
Efficiency ratio (5) 65.32  63.49  63.95  65.35  64.26   64.44  64.77 
Annualized net non-interest expense to average assets (6) 1.35  1.31  1.44  1.36  1.32   1.33  1.36 
Core non-interest income to revenues (7) 41.40  39.38  36.91  40.35  40.80   40.42  40.73 
Net interest margin 3.60  3.57  3.64  3.52  3.63   3.59  3.68 
Tax equivalent effect 0.21  0.22  0.22  0.21  0.21   0.21  0.21 
Net interest margin - fully tax equivalent basis (8) 3.81  3.79  3.86  3.73  3.84   3.80  3.89 
Loans to deposits 89.17  86.37  85.13  83.43  83.72   89.17  83.72 
Asset Quality Ratios:               
Non-performing loans (9) to total loans 0.73% 0.95% 1.07% 1.03% 1.08%  0.73% 1.08%
Non-performing assets (9) to total assets 0.64  0.79  0.87  0.85  0.84   0.64  0.84 
Allowance for loan and lease losses to non-performing loans (9) 181.46  142.00  122.43  129.04  122.45   181.46  122.45 
Allowance for loan and lease losses to total loans 1.33  1.35  1.31  1.33  1.32   1.33  1.32 
Net loan charge-offs (recoveries) to average loans (annualized) 0.09  0.06  0.14  0.06  (0.12)  0.07  (0.02)
Capital Ratios:               
Tangible equity to tangible assets (10) 9.21% 9.24% 8.99% 9.34% 9.41%  9.21% 9.41%
Tangible common equity to tangible assets (11) 8.46  8.46  8.21  8.53  8.60   8.46  8.60 
Tangible common equity to risk weighted assets (12) 9.75  9.54  9.34  9.69  10.02   9.75  10.02 
Total capital (to risk-weighted assets) (13) 12.81  12.65  12.54  12.94  13.07   12.81  13.07 
Tier 1 capital (to risk-weighted assets) (13) 11.77  11.60  11.54  11.92  12.06   11.77  12.06 
Common equity tier 1 capital (to risk-weighted assets) (13) 9.52  9.33  9.27  9.56  9.66   9.52  9.66 
Tier 1 capital (to average assets) (13) 10.41  10.38  10.40  10.43  10.69   10.41  10.69 
Per Share Data:               
Book value per common share (14) $27.68  $27.26  $26.77  $26.40  $26.14   $27.68  $26.14 
Less: goodwill and other intangible assets, net of benefit, per common
share
 10.20  10.22  10.24  9.97  9.78   10.20  9.78 
Tangible book value per common share (15) $17.48  $17.04  $16.53  $16.43  $16.36   $17.48  $16.36 
Cash dividends per common share $0.19  $0.17  $0.17  $0.17  $0.17   $0.36  $0.31 

(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 Taylor Capital 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, and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to 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.

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 and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

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 Taylor Capital 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—Second Quarter Results."

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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Stockholders' equity - as reported $2,156,535  $2,122,885  $2,087,284  $2,063,228  $2,077,739 
Less: goodwill 725,039  725,068  725,070  711,521  711,521 
Less: other intangible assets, net of tax benefit 27,020  28,071  29,128  24,388  22,736 
Tangible equity $1,404,476  $1,369,746  $1,333,086  $1,327,319  $1,343,482 


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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Total assets - as reported $15,995,790  $15,575,653  $15,585,007  $14,950,101  $15,018,194 
Less: goodwill 725,039  725,068  725,070  711,521  711,521 
Less: other intangible assets, net of tax benefit 27,020  28,071  29,128  24,388  22,736 
Tangible assets $15,243,731  $14,822,514  $14,830,809  $14,214,192  $14,283,937 


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

  6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Common stockholders' equity - as reported $2,041,255  $2,007,605  $1,972,004  $1,947,948  $1,962,459 
Less: goodwill 725,039  725,068  725,070  711,521  711,521 
Less: other intangible assets, net of tax benefit 27,020  28,071  29,128  24,388  22,736 
Tangible common equity $1,289,196  $1,254,466  $1,217,806  $1,212,039  $1,228,202 


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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Average common
stockholders' equity - as
reported
 $2,014,822  $1,984,379  $1,945,772  $1,958,947  $1,947,231   $1,999,601  $1,934,760 
Less: average goodwill 725,011  725,070  711,669  711,521  711,521   725,041  711,521 
Less: average other
intangible assets, net of tax
benefit
 27,437  28,511  23,826  23,900  23,092   27,974  23,622 
Average tangible common
equity
 $1,262,374  $1,230,798  $1,210,277  $1,223,526  $1,212,618   $1,246,586  $1,199,617 


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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Net income available to
common stockholders - as
reported
 $41,412  $37,114  $41,607  $38,278  $38,952   $78,526  $71,063 
Add: other intangible
amortization expense, net
of tax benefit
 1,052  1,057  1,005  1,002  981   2,109  1,968 
Net cash flow available to
common stockholders
 $42,464  $38,171  $42,612  $39,280  $39,933   $80,635  $73,031 


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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Net income - as reported $43,412  $39,114  $43,607  $40,278  $40,952   $82,526  $75,063 
Less non-core items:               
Net gain (loss) on
investment securities
 269    (3) 371  (84)  269  (544)
Net (loss) gain on sale of
other assets
 (2) (48)   1  (7)  (50) (3)
Increase (decrease) in
market value of assets
held in trust for deferred
compensation - other
operating income
 480  8  565  (872) 7   488  313 
Merger related and
repositioning expenses
 (2,566) (3,287) 4,186  (389) (1,234)  (5,853) (9,303)
                       
Branch exit and facilities
impairment charges
 (155)          (155)  
Prepayment fees on
interest bearing
liabilities
              (85)
Increase (decrease) in
market value of assets
held in trust for deferred
compensation - other
operating expense
 (480) (8) (565) 872  (7)  (488) (313)
Total non-core items (2,454) (3,335) 4,183  (17) (1,325)  (5,789) (9,935)
Income tax expense on
non-core items
 (1,003) (577) 1,140  (6) (526)  (1,580) (3,943)
Non-core items, net of tax (1,451) (2,758) 3,043  (11) (799)  (4,209) (5,992)
Operating earnings 44,863  41,872  40,564  40,289  41,751   86,735  81,055 
Dividends on preferred
shares
 2,000  2,000  2,000  2,000  2,000   4,000  4,000 
Operating earnings
available to common
stockholders
 $42,863  $39,872  $38,564  $38,289  $39,751   $82,735  $77,055 
Diluted operating earnings
per common share
 $0.58  $0.54  $0.52  $0.51  $0.53   $1.12  $1.02 
Weighted average common
shares outstanding for
diluted operating earnings
per common share
 74,180,374  73,966,935  73,953,165  75,029,827  75,296,029   74,073,655  75,230,455 



Efficiency Ratio Calculation (Dollars in Thousands)

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Non-interest expense $147,906  $135,800  $127,231  $134,266  $132,737   $283,706  $272,657 
Less merger related and
repositioning expenses
 2,566  3,287  (4,186) 389  1,234   5,853  9,303 
Less prepayment fees on
interest bearing liabilities
              85 
Less branch exit and facilities
impairment charges
 155           155   
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
 480  8  565  (872) 7   488  313 
Non-interest expense - as
adjusted
 $144,705  $132,505  $130,852  $134,749  $131,496   $277,210  $262,956 
                
Net interest income $122,602  $119,304  $121,769  $115,969  $114,473   $241,906  $227,868 
Tax equivalent adjustment 7,208  7,195  7,307  7,019  6,676   14,403  12,754 
Net interest income on a fully
tax equivalent basis
 129,810  126,499  129,076  122,988  121,149   256,309  240,622 
Plus non-interest income 92,000  81,693  75,625  82,251  82,949   173,693  164,217 
Plus tax equivalent
adjustment on the increase in
cash surrender value of life
insurance
 458  460  465  459  450   918  902 
Less net gain (loss) on
investment securities
 269    (3) 371  (84)  269  (544)
Less net (loss) gain on sale of
other assets
 (2) (48)   1  (7)  (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
 480  8  565  (872) 7   488  313 
Net interest income plus non-
interest income - as adjusted
 $221,521  $208,692  $204,604  $206,198  $204,632   $430,213  $405,975 
Efficiency ratio 65.32% 63.49% 63.95% 65.35% 64.26%  64.44% 64.77%
Efficiency ratio
(without adjustments)
 68.92% 67.56% 64.46% 67.74% 67.24%  68.26% 69.54%





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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Non-interest expense $147,906  $135,800  $127,231  $134,266  $132,737   $283,706  $272,657 
Less merger related and
repositioning expenses
 2,566  3,287  (4,186) 389  1,234   5,853  9,303 
Less prepayment fees on
interest bearing liabilities
              85 
Less branch exit and
facilities impairment
charges
 155           155   
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
 480  8  565  (872) 7   488  313 
Non-interest expense - as
adjusted
 144,705  132,505  130,852  134,749  131,496   277,210  262,956 
                
Non-interest income 92,000  81,693  75,625  82,251  82,949   173,693  164,217 
Less net gain (loss) on
investment securities
 269    (3) 371  (84)  269  (544)
Less net (loss) gain on sale of
other assets
 (2) (48)   1  (7)  (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred
compensation
 480  8  565  (872) 7   488  313 
Non-interest income - as
adjusted
 91,253  81,733  75,063  82,751  83,033   172,986  164,451 
Less tax equivalent
adjustment on the increase in
cash surrender value of life
insurance
 458  460  465  459  450   918  902 
Net non-interest expense $52,994  $50,312  $55,324  $51,539  $48,013   $103,306  $97,603 
Average assets $15,740,658  $15,487,565  $15,244,633  $15,059,429  $14,631,999   $15,614,111  $14,498,364 
Annualized net non-interest
expense to average assets
 1.35% 1.31% 1.44% 1.36% 1.32%  1.33% 1.36%
Annualized net non-interest
expense to average assets
(without adjustments)
 1.43% 1.41% 1.34% 1.37% 1.36%  1.42% 1.51%





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

             Six Months Ended
             June 30,
  2Q16 1Q16 4Q15 3Q15 2Q15  2016 2015
Non-interest income $92,000  $81,693  $75,625  $82,251  $82,949   $173,693  $164,217 
Plus tax equivalent adjustment
on the increase in cash
surrender value of life insurance
 458  460  465  459  450   918  902 
Less net gain (loss) on
investment securities
 269    (3) 371  (84)  269  (544)
Less net (loss) gain on sale of
other assets
 (2) (48)   1  (7)  (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred compensation
 480  8  565  (872) 7   488  313 
Non-interest income - as
adjusted
 $91,711  $82,193  $75,528  $83,210  $83,483   $173,904  $165,353 
                
Net interest income $122,602  $119,304  $121,769  $115,969  $114,473   $241,906  $227,868 
Tax equivalent adjustment 7,208  7,195  7,307  7,019  6,676   14,403  12,754 
Net interest income on a fully
tax equivalent basis
 129,810  126,499  129,076  122,988  121,149   256,309  240,622 
Plus non-interest income 92,000  81,693  75,625  82,251  82,949   173,693  164,217 
Plus tax equivalent adjustment
on the increase in cash
surrender value of life insurance
 458  460  465  459  450   918  902 
Less net gain (loss) on
investment securities
 269    (3) 371  (84)  269  (544)
Less net (loss) gain on sale of
other assets
 (2) (48)   1  (7)  (50) (3)
Less increase (decrease) in
market value of assets held in
trust for deferred compensation
 480  8  565  (872) 7   488  313 
Total revenue - as adjusted and
on a fully tax equivalent basis
 $221,521  $208,692  $204,604  $206,198  $204,632   $430,213  $405,975 
                
Total revenue - unadjusted $214,602  $200,997  $197,394  $198,220  $197,422   $415,599  $392,085 
                
Core non-interest income to
revenues ratio
 41.40% 39.38% 36.91% 40.35% 40.80%  40.42% 40.73%
Non-interest income to
revenues ratio (without
adjustments)
 42.87% 40.64% 38.31% 41.49% 42.02%  41.79% 41.88%



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):

  2Q16 2Q15  1Q16
  Average
Balance
 Interest Yield/
Rate
 Average
Balance
 Interest Yield/
Rate
  Average
Balance
 Interest Yield/
Rate
Interest Earning Assets:                   
Loans held for sale $727,631  $6,311  3.47% $781,020  $6,839  3.50%  $661,021  $5,966  3.61%
Loans (1) (2) (3):                   
Commercial-related credits                   
Commercial 3,522,641  39,002  4.38  3,309,519  34,884  4.17   3,531,441  37,357  4.18 
Commercial loans collateralized by assignment of lease
payments
 1,777,763  16,647  3.75  1,634,583  15,235  3.73   1,754,558  16,577  3.78 
Real estate commercial 2,821,516  29,948  4.20  2,522,473  27,145  4.26   2,734,148  28,039  4.06 
Real estate construction 351,079  3,436  3.87  191,935  2,388  4.92   276,797  2,902  4.15 
Total commercial-related credits 8,472,999  89,033  4.16  7,658,510  79,652  4.11   8,296,944  84,875  4.05 
Other loans                   
Real estate residential 710,384  6,064  3.41  512,766  4,785  3.73   640,231  5,695  3.56 
Home equity 202,228  1,969  3.92  233,867  2,301  3.95   210,678  2,033  3.88 
Indirect 462,053  5,333  4.64  286,107  3,769  5.28   404,473  4,758  4.73 
Consumer loans 78,108  767  3.95  76,189  780  4.11   80,569  794  3.97 
Total other loans 1,452,773  14,133  3.91  1,108,929  11,635  4.21   1,335,951  13,280  4.00 
Total loans, excluding purchased credit-impaired loans 9,925,772  103,166  4.18  8,767,439  91,287  4.18   9,632,895  98,155  4.10 
Purchased credit-impaired loans 136,415  4,972  14.66  202,374  4,117  8.16   139,451  4,780  13.75 
Total loans 10,062,187  108,138  4.32  8,969,813  95,404  4.27   9,772,346  102,935  4.24 
Taxable investment securities 1,466,915  7,799  2.13  1,545,284  10,002  2.59   1,524,583  9,566  2.51 
Investment securities exempt from federal income taxes (3) 1,339,465  16,375  4.89  1,261,567  15,600  4.95   1,362,468  16,579  4.87 
Federal funds sold 35  0  1.00  126  0  1.00   42  0  1.00 
Other interest earning deposits 100,200  125  0.50  85,935  57  0.27   113,748  141  0.50 
Total interest earning assets $13,696,433  $138,748  4.07% $12,643,745  $127,902  4.06%  $13,434,208  $135,187  4.05%
Non-interest earning assets 2,044,225      1,988,254       2,053,357     
Total assets $15,740,658      $14,631,999       $15,487,565     
Interest Bearing Liabilities:                   
Core funding:                   
Money market, NOW and interest bearing deposits $3,836,134  $2,049  0.21% $3,940,201  $1,634  0.17%  $4,109,150  $2,086  0.20%
Savings deposits 1,006,902  174  0.07  972,327  135  0.06   984,019  159  0.06 
Certificates of deposit 1,237,198  1,474  0.48  1,302,031  1,259  0.39   1,237,971  1,413  0.46 
Customer repurchase agreements 162,038  85  0.21  241,942  104  0.17   190,114  94  0.20 
Total core funding 6,242,272  3,782  0.24  6,456,501  3,132  0.19   6,521,254  3,752  0.23 
Wholesale funding:                   
Brokered certificates of deposit (includes fee expense) 598,702  2,255  1.51  412,517  1,526  1.48   534,910  1,964  1.48 
Other borrowings 1,573,083  2,901  0.73  1,078,297  2,095  0.77   1,327,274  2,972  0.89 
Total wholesale funding 2,171,785  5,156  0.95  1,490,814  3,621  0.96   1,862,184  4,936  1.07 
Total interest bearing liabilities $8,414,057  $8,938  0.43% $7,947,315  $6,753  0.34%  $8,383,438  $8,688  0.42%
Non-interest bearing deposits 4,806,692      4,273,931       4,606,008     
Other non-interest bearing liabilities 389,807      348,242       398,460     
Stockholders' equity 2,130,102      2,062,511       2,099,659     
Total liabilities and stockholders' equity $15,740,658      $14,631,999       $15,487,565     
Net interest income/interest rate spread (4)   $129,810  3.64%   $121,149  3.72%    $126,499  3.63%
Taxable equivalent adjustment   7,208      6,676       7,195   
Net interest income, as reported