EX-99 2 exhibit_99earningsrelease3.htm EXHIBIT 99 Exhibit



EXHIBIT 99

                                         
 
 
 
 
 
 
 
 
 
MB Financial, Inc.
 
 
 
 
800 West Madison Street
 
 
 
 
Chicago, Illinois 60607
 
 
 
 
(888) 422-6562
 
 
 
 
NASDAQ:  MBFI

PRESS RELEASE


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

FOR IMMEDIATE RELEASE


MB FINANCIAL, INC. REPORTS EARNINGS FOR THE THIRD QUARTER OF 2015


CHICAGO, October 15, 2015 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2015 third quarter net income available to common stockholders of $38.3 million, or $0.51 per diluted common share, compared to $39.0 million, or $0.52 per diluted common share, last quarter and $4.9 million, or $0.08 per diluted common share, in the third quarter a year ago.  

Highlights Include:

Loan Growth During the Quarter

Loan balances, excluding purchased credit-impaired loans, increased $304.3 million (+3.4%, or +13.5% annualized) during the third quarter of 2015 primarily due to increases in commercial-related loans across several categories.
 
 
 
 
 
 
Change from 6/30/2015 to 9/30/2015
(Dollars in thousands)
 
9/30/2015
 
6/30/2015
 
Amount
 
Percent
Commercial-related credits:
 
 
 
 
 
 
 
 

Commercial loans
 
$
3,440,632

 
$
3,354,889

 
$
85,743

 
2.6
 %
Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,693,540

 
1,690,866

 
2,674

 
0.2

Commercial real estate
 
2,580,009

 
2,539,991

 
40,018

 
1.6

Construction real estate
 
255,620

 
189,599

 
66,021

 
34.8

Total commercial-related credits
 
7,969,801

 
7,775,345

 
194,456

 
2.5

Other loans:
 
 
 
 
 
 
 
 
Residential real estate
 
607,171

 
533,118

 
74,053

 
13.9

Indirect vehicle
 
345,731

 
303,777

 
41,954

 
13.8

Home equity
 
223,173

 
230,478

 
(7,305
)
 
(3.2
)
Consumer loans
 
87,612

 
86,463

 
1,149

 
1.3

Total other loans
 
1,263,687

 
1,153,836

 
109,851

 
9.5

Total loans, excluding purchased credit-impaired
 
9,233,488

 
8,929,181

 
304,307

 
3.4

Purchased credit-impaired
 
155,693

 
164,775

 
(9,082
)
 
(5.5
)
Total loans
 
$
9,389,181

 
$
9,093,956

 
$
295,225

 
3.2
 %

1


Deposit Growth During the Quarter
•
Non-interest bearing deposits increased $56.1 million (+1.3%, or +5.1% annualized) during the third quarter of 2015 and comprised 39% of total deposits at quarter-end.
•
Low cost deposits increased $326.1 million (+3.5%, or +14.1% annualized) in the third quarter of 2015 and continued to represent 84% of total deposits at quarter-end.
 
 
 
 
 
 
Change from 6/30/2015 to 9/30/2015
(Dollars in thousands)
 
9/30/2015
 
6/30/2015
 
Amount
 
Percent
Low cost deposits:
 
 
 
 
 
 
 
 
Noninterest bearing deposits
 
$
4,434,067

 
$
4,378,005

 
$
56,062

 
1.3
 %
Money market and NOW
 
4,129,414

 
3,842,264

 
287,150

 
7.5

Savings
 
953,746

 
970,875

 
(17,129
)
 
(1.8
)
Total low cost deposits
 
9,517,227

 
9,191,144

 
326,083

 
3.5

Certificates of deposit:
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,279,842

 
1,261,843

 
17,999

 
1.4

Brokered certificates of deposit
 
457,509

 
408,827

 
48,682

 
11.9

Total certificates of deposit
 
1,737,351

 
1,670,670

 
66,681

 
4.0

Total deposits
 
$
11,254,578

 
$
10,861,814

 
$
392,764

 
3.6
 %

Credit Quality
•
Provision for credit losses on legacy loans (which excludes loans acquired through the Taylor Capital merger (the "Merger")) was $1.2 million in the third quarter of 2015 compared to a negative provision of $600 thousand in the second quarter of 2015.
•
Taylor Capital related provision for credit losses was $4.1 million in the third quarter of 2015 compared to $4.9 million in the second quarter of 2015. These credit costs are a result of Taylor Capital loan renewals and needed reserves on Taylor Capital acquired loans in excess of the purchase loan discount. As expected, these credit costs largely offset the accretion on Taylor Capital non-purchased credit-impaired loans of $7.4 million in the third quarter of 2015 and $8.0 million in the second quarter of 2015.
•
Our net loan charge-offs during the third quarter of 2015 were $1.5 million compared to net loan recoveries of $2.6 million in the second quarter of 2015.
•
Non-performing loans decreased by $1.5 million while potential problem loans increased by $6.5 million from June 30, 2015. The increase in potential problem loans was more than offset by a $9.1 million decline in purchased credit-impaired loans.

Key Earnings Components
•
Net interest income on a fully tax equivalent basis increased $1.8 million (1.5%) to $123.0 million in the third quarter of 2015 compared to the prior quarter primarily due to an increase in interest earning assets (loans and investment securities) partly offset by lower loan yields.
•
Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Merger, declined eight basis points from the prior quarter and five basis points from the third quarter of 2014, due to a seven basis point decrease in average yields earned on loans (excluding accretion).
•
Our core non-interest income was $82.8 million compared to $83.0 million in the prior quarter. Lease financing revenues increased due to an increase in fees and promotional revenue from the sale of third-party equipment maintenance contracts. The increase in leasing revenue was partially offset by lower mortgage banking revenue primarily as a result of reduced origination fees due to lower loan origination volumes. Our core non-interest income was also impacted by the Durbin amendment of the Dodd-Frank Act, which decreased card fees by approximately $1.2 million in the quarter.
•
Our core non-interest expense increased 2.5% compared to the prior quarter. Salaries and employee benefits expense was up due to an extra day in the quarter and annual pay increases for hourly employees. Excluding salaries and employee benefits expense, core non-interest expense increased $631 thousand in the third quarter compared to the prior quarter. This increase was primarily due to an increase in the clawback liability of $306 thousand related to our loss share agreements with the FDIC as well as an increase in debit card production cost of $294 thousand from replacing magnetic strip only cards with cards having new chip technology and an increase in advertising and marketing expense.



2


RESULTS OF OPERATIONS

Third Quarter Results

Net Interest Income
 
 
 
 
 
 
Change from 2Q15 to 3Q15
 
 
 
Change from 3Q14 to 3Q15
 
 
Nine Months Ended
 
Change from 2014 to 2015
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
3Q15
 
2Q15
 
 
3Q14
 
 
 
2015
 
2014
 
(Dollars in thousands)
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income - fully tax equivalent
 
$
122,988

 
$
121,149

 
+1.5
 %
 
$
101,699

 
+20.9
 %
 
 
$
363,610

 
$
248,357

 
+46.4
 %
Net interest margin - fully tax equivalent
 
3.73
%
 
3.84
%
 
-0.11
 %
 
3.78
%
 
-0.05

 
 
3.83
%
 
3.66
%
 
+0.17
 %
Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on Taylor Capital loans
 
3.49
%
 
3.57
%
 
-0.08
 %
 
3.54
%
 
-0.05

 
 
3.56
%
 
3.57
%
 
-0.01
 %

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

Net interest income on a fully tax equivalent basis increased in the third quarter of 2015 compared to the prior quarter primarily due to an increase in interest earning assets (loans and investment securities) partly offset by lower loan yields.

While interest earning assets increased during the third quarter of 2015, our net interest margin on a fully tax equivalent basis, excluding accretion of the acquisition accounting discount recorded on loans acquired in the Merger, decreased eight basis points to 3.49% for the third quarter of 2015 compared to 3.57% for the prior quarter. This decrease was primarily due to a seven basis point decrease in average yields earned on loans (excluding accretion) of which three basis points was due to a decrease in fees and interest recoveries.

See the supplemental net interest margin tables for further detail.


3


Non-interest Income (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Core non-interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key fee initiatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease financing, net
 
$
20,000

 
$
15,564

 
$
25,080

 
$
18,542

 
$
17,719

 
 
$
60,644

 
$
45,768

Mortgage banking revenue
 
30,692

 
35,648

 
24,544

 
29,080

 
16,823

 
 
90,884

 
17,069

Commercial deposit and treasury management fees
 
11,472

 
11,062

 
11,038

 
10,720

 
9,345

 
 
33,572

 
23,595

Trust and asset management fees
 
6,002

 
5,752

 
5,714

 
5,515

 
5,712

 
 
17,468

 
16,324

Card fees
 
3,335

 
4,409

 
3,927

 
3,900

 
3,836

 
 
11,671

 
9,841

Capital markets and international banking service fees
 
2,357

 
1,508

 
1,928

 
1,648

 
1,472

 
 
5,793

 
3,810

Total key fee initiatives
 
73,858

 
73,943

 
72,231

 
69,405

 
54,907

 
 
220,032

 
116,407

Consumer and other deposit service fees
 
3,499

 
3,260

 
3,083

 
3,335

 
3,362

 
 
9,842

 
9,453

Brokerage fees
 
1,281

 
1,543

 
1,678

 
1,350

 
1,145

 
 
4,502

 
3,826

Loan service fees
 
1,531

 
1,353

 
1,485

 
1,864

 
1,069

 
 
4,369

 
2,950

Increase in cash surrender value of life insurance
 
852

 
836

 
839

 
865

 
855

 
 
2,527

 
2,516

Other operating income
 
1,730

 
2,098

 
2,102

 
2,577

 
1,145

 
 
5,930

 
3,106

Total core non-interest income
 
82,751

 
83,033

 
81,418

 
79,396

 
62,483

 
 
247,202

 
138,258

Non-core non-interest income:
 
 
 

 
 
 
 
 
 
 
 
 
 

Net gain (loss) on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Net gain (loss) on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

(Decrease) increase in market value of assets held in trust for deferred compensation (1)
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Total non-core non-interest income
 
(500
)
 
(84
)
 
(150
)
 
4,282

 
(1,396
)
 
 
(734
)
 
(631
)
Total non-interest income
 
$
82,251

 
$
82,949

 
$
81,268

 
$
83,678

 
$
61,087

 
 
$
246,468

 
$
137,627


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

Core non-interest income for the third quarter of 2015 decreased slightly by $282 thousand, or 0.3%, to $82.8 million from the second quarter of 2015.
•
Leasing revenues increased due to an increase in fees and promotional revenue from the sale of third-party equipment maintenance contracts.
•
Capital markets and international banking services fees increased due to higher swap and syndication fees.
•
Commercial deposit and treasury management fees increased primarily due to new business.
•
Trust and asset management fees increased due to the acquisition of the Illinois court-appointed guardianship and special needs trust business of JPMorgan Chase in August 2015.  This acquisition added approximately $200 million of assets under management to our existing guardianship business.
•
Mortgage banking revenue decreased due to reduced origination fees due to lower loan origination volumes and reduced mortgage servicing fees as the result of the sale of certain mortgage servicing assets in July 2015.
•
Card fees decreased by $1.1 million primarily as a result of the impact from being subject to the Durbin amendment of the Dodd-Frank Act for the first time, which decreased card fees by approximately $1.2 million in the quarter.

Core non-interest income for the nine months ended September 30, 2015 increased by $108.9 million, or 78.8%, to $247.2 million from the nine months ended September 30, 2014.
•
Mortgage banking revenue increased due to mortgage operations acquired through the Merger.
•
Leasing revenues increased due to higher fees and promotional revenue from the sale of third-party equipment maintenance contracts and higher lease residual realization.
•
Commercial deposit and treasury management fees increased due to new customer activity as well as the increased customer base as a result of the Merger.
•
Other operating income increased due to higher earnings from investments in Small Business Investment Companies.
•
Capital markets and international banking services fees increased due to higher swap and syndication fees partly offset by a decrease in M&A advisory fees.
•
Card fees increased due to a new payroll prepaid card program that started in the second quarter of 2014 as well as higher debit and credit card fees.

4


•
Loan service fees increased due to increased unused line fees.
•
Trust and asset management fees increased due to the addition of new customers and the impact of higher equity values.

Non-interest Expense (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Core non-interest expense:(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
$
88,760

 
$
86,138

 
$
84,447

 
$
83,242

 
$
65,271

 
 
$
259,345

 
$
155,614

Occupancy and equipment expense
 
12,456

 
12,081

 
12,763

 
13,757

 
11,314

 
 
37,300

 
30,410

Computer services and telecommunication expense
 
8,558

 
8,407

 
8,634

 
8,612

 
6,194

 
 
25,599

 
16,174

Advertising and marketing expense
 
2,578

 
2,497

 
2,446

 
2,233

 
1,973

 
 
7,521

 
6,077

Professional and legal expense
 
1,496

 
1,902

 
2,480

 
2,184

 
2,501

 
 
5,878

 
5,358

Other intangible amortization expense
 
1,542

 
1,509

 
1,518

 
1,617

 
1,470

 
 
4,569

 
3,884

Net loss (gain) recognized on other real estate owned (A)
 
520

 
662

 
888

 
(120
)
 
1,348

 
 
2,070

 
1,674

Net (gain) loss recognized on other real estate owned related to FDIC transactions (A)
 
65

 
(88
)
 
(273
)
 
(27
)
 
421

 
 
(296
)
 
473

Other real estate expense, net (A)
 
(8
)
 
150

 
281

 
433

 
409

 
 
423

 
1,142

Other operating expenses
 
18,782

 
18,238

 
18,276

 
18,514

 
13,577

 
 
55,296

 
33,905

Total core non-interest expense
 
134,749

 
131,496

 
131,460

 
130,445

 
104,478

 
 
397,705

 
254,711

Non-core non-interest expense: (1)
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Merger related expenses (B)
 
319

 
1,234

 
8,069

 
6,494

 
27,161

 
 
9,622

 
28,329

Branch impairment charges
 
70

 
—

 
—

 
—

 
—

 
 
70

 
—

Prepayment fees on interest bearing liabilities
 
—

 
—

 
85

 
—

 
—

 
 
85

 
—

Loss on low to moderate income real estate investment (C)
 
—

 
—

 
—

 
—

 
—

 
 
—

 
2,124

Contingent consideration - Celtic acquisition (C)
 
—

 
—

 
—

 
—

 
10,600

 
 
—

 
10,600

Contribution to MB Financial Charitable Foundation (C)
 
—

 
—

 
—

 
3,250

 
—

 
 
—

 
—

(Decrease) increase in market value of assets held in trust for deferred compensation (D)
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Total non-core non-interest expense
 
(483
)
 
1,241

 
8,460

 
10,059

 
37,723

 
 
9,218

 
41,567

Total non-interest expense
 
$
134,266

 
$
132,737

 
$
139,920

 
$
140,504

 
$
142,201

 
 
$
406,923

 
$
296,278


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

Core non-interest expense increased by $3.3 million from the second quarter of 2015 to $134.7 million for the third quarter of 2015.
•
Salaries and employee benefits expense was up due to an extra day in the quarter and annual pay increases for hourly employees.
•
Other operating expenses increased due to an increase in the clawback liability related to our loss share agreements with the FDIC of $306 thousand as well as an increase in debit card production cost of $294 thousand from replacing magnetic strip only cards with cards having new chip technology.
•
Occupancy and equipment expense increased due to higher repair and maintenance expense as well as higher rental operating expenses.
•
Professional and legal expense decreased due to lower legal fees.

Core non-interest expense increased by $143.0 million, or 56.1%, from the nine months ended September 30, 2014 to $397.7 million for the nine months ended September 30, 2015 primarily due to the Merger. Other explanations for changes are as follows:
•
Other operating expense increased as a result of an increase in filing and other loan expense and higher FDIC assessments due to our larger balance sheet.
•
Computer services and telecommunication expenses increased due to an increase in spending on IT security and other IT projects.
•
Advertising and marketing expense was higher due to increased advertising and sponsorships.
•
Professional and legal expense increased due to higher consulting expense.


5


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

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Merger related expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Salaries and employee benefits
 
$
3

 
$
—

 
$
33

 
$
1,926

 
$
14,259

 
 
$
36

 
$
14,363

   Occupancy and equipment expense
 
2

 
96

 
177

 
301

 
428

 
 
275

 
442

   Computer services and telecommunication expense
 
9

 
130

 
270

 
1,397

 
5,312

 
 
409

 
5,495

   Advertising and marketing expense
 
—

 
—

 
—

 
84

 
262

 
 
—

 
460

   Professional and legal expense
 
305

 
511

 
190

 
258

 
6,363

 
 
1,006

 
6,852

   Branch exit and facilities impairment charges
 
—

 
438

 
7,391

 
2,270

 
—

 
 
7,829

 
—

   Other operating expenses
 
—

 
59

 
8

 
258

 
537

 
 
67

 
717

Total merger related expenses
 
$
319

 
$
1,234

 
$
8,069

 
$
6,494

 
$
27,161

 
 
$
9,622

 
$
28,329


Income Tax Expense

Income tax expense was $18.3 million for the third quarter of 2015 compared to $19.4 million for the second quarter of 2015. The decrease in income tax expense was primarily due to the $1.8 million decrease in income before taxes from $60.4 million in the second quarter of 2015 to $58.6 million in the third quarter of 2015.

Operating Segments

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


6


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

 
Banking
 
Leasing
 
Mortgage Banking
 
Non-core Items
 
Consolidated
Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
Net interest income
$
104,714

 
$
2,832

 
$
8,423

 
$
—

 
$
115,969

Provision for credit losses
4,965

 
242

 
151

 
—

 
5,358

Net interest income after provision for credit losses
99,749

 
2,590

 
8,272

 
—

 
110,611

Non-interest income:
 
 
 
 
 
 
 
 
 
   Lease financing, net
637

 
19,363

 
—

 
—

 
20,000

   Mortgage origination fees
—

 
—

 
23,449

 
—

 
23,449

   Mortgage servicing fees
—

 
—

 
7,243

 
—

 
7,243

   Other non-interest income
30,563

 
624

 
—

 
372

 
31,559

Total non-interest income
31,200

 
19,987

 
30,692

 
372

 
82,251

Non-interest expense:
 
 
 
 
 
 
 
 
 
   Salaries and employee benefits
54,547

 
8,475

 
24,866

 
3

 
87,891

   Occupancy and equipment expense
9,982

 
843

 
1,631

 
2

 
12,458

   Computer services and telecommunication expense
6,179

 
335

 
2,044

 
9

 
8,567

   Professional and legal expense
1,206

 
290

 
—

 
305

 
1,801

   Other operating expenses
15,973

 
1,439

 
6,067

 
70

 
23,549

Total non-interest expense
87,887

 
11,382

 
34,608

 
389

 
134,266

Income before income taxes
43,062

 
11,195

 
4,356

 
(17
)
 
58,596

Income tax expense
12,184

 
4,398

 
1,742

 
(6
)
 
18,318

Net income
$
30,878

 
$
6,797

 
$
2,614

 
$
(11
)
 
$
40,278

Three months ended June 30, 2015
 
 
 
 
 
 
 
 
 
Net interest income
$
104,352

 
$
2,915

 
$
7,206

 
$
—

 
$
114,473

Provision for credit losses
2,844

 
1,356

 
96

 
—

 
4,296

Net interest income after provision for credit losses
101,508

 
1,559

 
7,110

 
—

 
110,177

Non-interest income:
 
 
 
 
 
 
 
 
 
   Lease financing, net
408

 
15,156

 
—

 
—

 
15,564

   Mortgage origination fees
—

 
—

 
26,863

 
—

 
26,863

   Mortgage servicing fees
—

 
—

 
8,785

 
—

 
8,785

   Other non-interest income
30,791

 
1,037

 
—

 
(91
)
 
31,737

Total non-interest income
31,199

 
16,193

 
35,648

 
(91
)
 
82,949

Non-interest expense:
 
 
 
 
 
 
 
 
 
   Salaries and employee benefits
54,168

 
6,986

 
24,991

 
—

 
86,145

   Occupancy and equipment expense
9,733

 
823

 
1,525

 
96

 
12,177

   Computer services and telecommunication expense
6,194

 
274

 
1,939

 
130

 
8,537

   Professional and legal expense
1,655

 
247

 
—

 
511

 
2,413

   Other operating expenses
14,654

 
1,498

 
6,816

 
497

 
23,465

Total non-interest expense
86,404

 
9,828

 
35,271

 
1,234

 
132,737

Income before income taxes
46,303

 
7,924

 
7,487

 
(1,325
)
 
60,389

Income tax expense
13,895

 
3,073

 
2,995

 
(526
)
 
19,437

Net income
$
32,408

 
$
4,851

 
$
4,492

 
$
(799
)
 
$
40,952



7


Net income from our banking segment for the third quarter of 2015 decreased compared to the prior quarter. This decrease in net income was primarily due to an increase in provision for credit losses and other operating expenses. Other operating expenses increased due to an increase in the clawback liability of $306 thousand related to our loss share agreements with the FDIC as well as an increase in debit card production cost of $294 thousand from replacing magnetic strip only cards with cards having new chip technology and an increase in advertising and marketing expense. Other non-interest income was also impacted by the Durbin amendment of the Dodd-Frank Act, which decreased card fees by approximately $1.2 million in the quarter.

Net income from our leasing segment for the third quarter of 2015 increased compared to the prior quarter. Lease financing revenues increased due to an increase in fees and promotional revenue from the sale of third-party equipment maintenance contracts.

Net income from our mortgage segment for the third quarter of 2015 decreased compared to the prior quarter primarily as a result of reduced origination fees due to lower loan origination volumes. In July 2015, we sold approximately $106 million of mortgage servicing rights at book value. This sale reduced mortgage servicing fees in the third quarter of 2015. Partially offsetting the decrease in mortgage banking revenue, net interest income increased due to higher average balances and rates on mortgage loans held for sale.

The following table presents additional information regarding the mortgage banking segment (dollars in thousands):

 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14 (1)
Origination volume
 
$
1,880,960

 
$
2,010,175

 
$
1,688,541

 
$
1,511,909

 
$
724,713

Refinance
 
34
%
 
43
%
 
61
%
 
44
%
 
35
%
Purchase
 
66

 
57

 
39

 
56

 
65

 
 
 
 
 
 
 
 
 
 
 
Origination volume by channel:
 
 
 
 
 
 
 
 
 
 
Retail
 
18
%
 
18
%
 
18
%
 
19
%
 
18
%
Third party
 
82

 
82

 
82

 
81

 
82

 
 
 
 
 
 
 
 
 
 
 
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end (2)
 
$
15,593,630

 
$
23,539,865

 
$
22,927,263

 
$
22,479,008

 
$
21,989,278

Mortgage servicing rights, recorded at fair value, at period end
 
148,097

 
261,034

 
219,254

 
235,402

 
241,391

Notional value of rate lock commitments, at period end
 
800,162

 
992,025

 
1,069,145

 
645,287

 
610,818


(1) For the 44 day period subsequent to the Merger.
(2) Does not include the unpaid principal balance of serviced loans sold in July 2015 that will continue to be sub-serviced through October 2015.


8


LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio (excluding loans held for sale) based on period end balances as of the dates indicated (dollars in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related credits:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial loans
 
$
3,440,632

 
37
%
 
$
3,354,889

 
37
%
 
$
3,258,652

 
37
%
 
$
3,245,206

 
36
%
 
$
3,064,669

 
34
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,693,540

 
18

 
1,690,866

 
18

 
1,628,031

 
18

 
1,692,258

 
18

 
1,631,660

 
18

Commercial real estate
 
2,580,009

 
27

 
2,539,991

 
28

 
2,525,640

 
28

 
2,544,867

 
28

 
2,647,412

 
29

Construction real estate
 
255,620

 
3

 
189,599

 
2

 
184,105

 
2

 
247,068

 
3

 
222,120

 
3

Total commercial-related credits
 
7,969,801

 
85

 
7,775,345

 
85

 
7,596,428

 
85

 
7,729,399

 
85

 
7,565,861

 
84

Other loans:
 
 
 

 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
Residential real estate
 
607,171

 
6

 
533,118

 
6

 
505,558

 
5

 
503,287

 
5

 
516,834

 
6

Indirect vehicle
 
345,731

 
4

 
303,777

 
3

 
273,105

 
3

 
268,840

 
3

 
273,038

 
3

Home equity
 
223,173

 
2

 
230,478

 
3

 
241,078

 
3

 
251,909

 
3

 
262,977

 
3

Consumer loans
 
87,612

 
1

 
86,463

 
1

 
77,645

 
1

 
78,137

 
1

 
69,028

 
1

Total other loans
 
1,263,687

 
13

 
1,153,836

 
13

 
1,097,386

 
12

 
1,102,173

 
12

 
1,121,877

 
13

Total loans, excluding purchased credit-impaired loans
 
9,233,488

 
98

 
8,929,181

 
98

 
8,693,814

 
97

 
8,831,572

 
97

 
8,687,738

 
97

Purchased credit-impaired loans
 
155,693

 
2

 
164,775

 
2

 
227,514

 
3

 
251,645

 
3

 
288,186

 
3

Total loans
 
$
9,389,181

 
100
%
 
$
9,093,956

 
100
%
 
$
8,921,328

 
100
%
 
$
9,083,217

 
100
%
 
$
8,975,924

 
100
%

Our loan balances, excluding purchased credit-impaired loans, increased $304.3 million (+3.4%, or +13.5% annualized) during the third quarter of 2015 primarily due to increases in commercial related 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):
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
 
Amount
 
% of Total
Commercial-related credits:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial loans
 
$
3,372,279

 
37
%
 
$
3,309,519

 
37
%
 
$
3,190,755

 
36
%
 
$
3,110,016

 
35
%
 
$
2,118,864

 
30
%
Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,674,939

 
18

 
1,634,583

 
18

 
1,647,761

 
18

 
1,642,427

 
18

 
1,561,484

 
22

Commercial real estate
 
2,568,539

 
28

 
2,522,473

 
28

 
2,538,995

 
29

 
2,611,410

 
29

 
2,108,492

 
29

Construction real estate
 
210,506

 
2

 
191,935

 
2

 
191,257

 
2

 
232,679

 
3

 
170,017

 
2

Total commercial-related credits
 
7,826,263

 
85

 
7,658,510

 
85

 
7,568,768

 
85

 
7,596,532

 
85

 
5,958,857

 
83

Other loans:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
Residential real estate
 
566,115

 
6

 
512,766

 
6

 
493,366

 
5

 
503,211

 
5

 
405,589

 
6

Indirect vehicle
 
325,323

 
4

 
286,107

 
3

 
267,265

 
3

 
273,063

 
3

 
251,969

 
3

Home equity
 
226,365

 
2

 
233,867

 
3

 
246,537

 
3

 
256,933

 
3

 
274,841

 
4

Consumer loans
 
85,044

 
1

 
76,189

 
1

 
72,374

 
1

 
75,264

 
1

 
69,699

 
1

Total other loans
 
1,202,847

 
13

 
1,108,929

 
13

 
1,079,542

 
12

 
1,108,471

 
12

 
1,002,098

 
14

Total loans, excluding purchased credit-impaired loans
 
9,029,110

 
98

 
8,767,439

 
98

 
8,648,310

 
97

 
8,705,003

 
97

 
6,960,955

 
97

Purchased credit-impaired loans
 
156,309

 
2

 
202,374

 
2

 
240,376

 
3

 
273,136

 
3

 
221,129

 
3

Total loans
 
$
9,185,419

 
100
%
 
$
8,969,813

 
100
%
 
$
8,888,686

 
100
%
 
$
8,978,139

 
100
%
 
$
7,182,084

 
100
%




9


ASSET QUALITY

The following table presents a summary of criticized assets (excluding loans held for sale) as of the dates indicated (dollars in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Non-performing loans:
 
 

 
 

 
 

 
 

 
 

Non-accrual loans (1)
 
$
92,302

 
$
91,943

 
$
81,571

 
$
82,733

 
$
97,580

Loans 90 days or more past due, still accruing interest
 
4,275

 
6,112

 
1,707

 
4,354

 
2,681

Total non-performing loans
 
96,577

 
98,055

 
83,278

 
87,087

 
100,261

Other real estate owned
 
29,587

 
28,517

 
21,839

 
19,198

 
18,817

Repossessed assets
 
216

 
78

 
160

 
93

 
126

Total non-performing assets
 
$
126,380

 
$
126,650

 
$
105,277

 
$
106,378

 
$
119,204

Potential problem loans (2)
 
$
122,966

 
$
116,443

 
$
107,703

 
$
55,651

 
$
51,690

Purchased credit-impaired loans
 
$
155,693

 
$
164,775

 
$
227,514

 
$
251,645

 
$
288,186

 
 
 
 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
 
$
124,626

 
$
120,070

 
$
113,412

 
$
110,026

 
$
102,810

Accruing restructured loans (3)
 
20,120

 
16,875

 
16,874

 
15,603

 
16,877

Total non-performing loans to total loans
 
1.03
%
 
1.08
%
 
0.93
%
 
0.96
%
 
1.12
%
Total non-performing assets to total assets
 
0.85

 
0.84

 
0.73

 
0.73

 
0.82

Allowance for loan and lease losses to non-performing loans
 
129.04

 
122.45

 
136.18

 
126.34

 
102.54


(1) 
Includes $21.4 million, $24.5 million, $25.5 million, $25.8 million and $22.4 million of restructured loans on non-accrual status at September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014 and September 30, 2014, respectively.
(2) 
We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan.  Potential problem loans carry a higher probability of default and require additional attention by management.
(3) 
Accruing restructured loans consist primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table presents data related to non-performing loans by category (excluding loans held for sale and purchased credit-impaired loans that were acquired as part of our FDIC-assisted transactions and the Merger) as of the dates indicated (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Commercial and lease
 
$
34,465

 
$
31,053

 
$
18,315

 
$
20,058

 
$
22,985

Commercial real estate
 
25,437

 
32,358

 
29,645

 
32,663

 
42,832

Construction real estate
 
—

 
337

 
337

 
337

 
337

Consumer related
 
36,675

 
34,307

 
34,981

 
34,029

 
34,107

Total non-performing loans
 
$
96,577

 
$
98,055

 
$
83,278

 
$
87,087

 
$
100,261


The following table represents a summary of other real estate owned (excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Balance at the beginning of quarter
 
$
28,517

 
$
21,839

 
$
19,198

 
$
18,817

 
$
20,306

Transfers in at fair value less estimated costs to sell
 
2,402

 
8,595

 
4,615

 
1,261

 
221

Acquired from business combination
 
—

 
—

 
—

 
—

 
4,720

Fair value adjustments
 
(565
)
 
(920
)
 
(922
)
 
(34
)
 
(2,083
)
Net gains on sales of other real estate owned
 
45

 
258

 
34

 
154

 
735

Cash received upon disposition
 
(812
)
 
(1,255
)
 
(1,086
)
 
(1,000
)
 
(5,082
)
Balance at the end of quarter
 
$
29,587

 
$
28,517

 
$
21,839

 
$
19,198

 
$
18,817




10



Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Allowance for credit losses, balance at the beginning of period
 
$
124,130

 
$
117,189

 
$
114,057

 
$
106,912

 
$
103,905

 
 
$
114,057

 
$
113,462

Allowance for unfunded credit commitments acquired through business combination
 
—

 
—

 
—

 
—

 
1,261

 
 
—

 
1,261

Utilization of allowance for unfunded credit commitments
 
—

 
—

 
—

 
—

 
(637
)
 
 
—

 
(637
)
Provision for credit losses - legacy
 
1,225

 
(600
)
 
(550
)
 
2,472

 
(1,600
)
 
 
75

 
(2,400
)
Provision for credit losses - acquired Taylor Capital loan portfolio renewals
 
4,133

 
4,896

 
5,524

 
7,271

 
4,709

 
 
14,553

 
4,709

Charge-offs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans
 
1,657

 
57

 
569

 
197

 
606

 
 
2,283

 
1,142

Commercial loans collateralized by assignment of lease payments (lease loans)
 
1,980

 
100

 
—

 
885

 
—

 
 
2,080

 
40

Commercial real estate
 
170

 
108

 
2,034

 
1,528

 
1,027

 
 
2,312

 
9,910

Construction real estate
 
5

 
3

 
3

 
4

 
5

 
 
11

 
75

Residential real estate
 
292

 
318

 
579

 
280

 
740

 
 
1,189

 
1,438

Home equity
 
358

 
276

 
444

 
1,381

 
566

 
 
1,078

 
2,002

Indirect vehicle
 
581

 
627

 
874

 
1,189

 
1,043

 
 
2,082

 
2,546

Consumer loans
 
467

 
500

 
424

 
546

 
497

 
 
1,391

 
1,582

Total charge-offs
 
5,510

 
1,989

 
4,927

 
6,010

 
4,484

 
 
12,426

 
18,735

Recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans
 
456

 
816

 
242

 
869

 
564

 
 
1,514

 
2,888

Commercial loans collateralized by assignment of lease payments (lease loans)
 
11

 
340

 
749

 
384

 
425

 
 
1,100

 
555

Commercial real estate
 
2,402

 
2,561

 
1,375

 
741

 
2,227

 
 
6,338

 
3,279

Construction real estate
 
216

 
35

 
2

 
51

 
25

 
 
253

 
201

Residential real estate
 
337

 
8

 
72

 
661

 
4

 
 
417

 
529

Home equity
 
186

 
160

 
101

 
176

 
46

 
 
447

 
306

Indirect vehicle
 
334

 
545

 
475

 
453

 
402

 
 
1,354

 
1,283

Consumer loans
 
118

 
169

 
69

 
77

 
65

 
 
356

 
211

Total recoveries
 
4,060

 
4,634

 
3,085

 
3,412

 
3,758

 
 
11,779

 
9,252

Total net charge-offs (recoveries)
 
1,450

 
(2,645
)
 
1,842

 
2,598

 
726

 
 
647

 
9,483

Allowance for credit losses
 
128,038

 
124,130

 
117,189

 
114,057

 
106,912

 
 
128,038

 
106,912

Allowance for unfunded credit commitments
 
(3,412
)
 
(4,060
)
 
(3,777
)
 
(4,031
)
 
(4,102
)
 
 
(3,412
)
 
(4,102
)
Allowance for loan and lease losses
 
$
124,626

 
$
120,070

 
$
113,412

 
$
110,026

 
$
102,810

 
 
$
124,626

 
$
102,810

Total loans, excluding loans held for sale
 
$
9,389,181

 
$
9,093,956

 
$
8,921,328

 
$
9,083,217

 
$
8,975,924

 
 
$
9,389,181

 
$
8,975,924

Average loans, excluding loans held for sale
 
9,185,419

 
8,969,813

 
8,888,686

 
8,978,139

 
7,182,084

 
 
9,015,726

 
6,107,670

Ratio of allowance for loan and lease losses to total loans, excluding loans held for sale
 
1.33
%
 
1.32
 %
 
1.27
%
 
1.21
%
 
1.15
%
 
 
1.33
%
 
1.15
%
Net loan charge-offs (recoveries) to average loans, excluding loans held for sale (annualized)
 
0.06

 
(0.12
)
 
0.08

 
0.11

 
0.04

 
 
0.01

 
0.21









11



The following table presents the three elements of the Company's allowance for loan and lease losses as of the dates indicated (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Commercial related loans:
 
 
 
 
 
 
 
 
 
 
     General reserve
 
$
93,903

 
$
89,642

 
$
88,425

 
$
85,087

 
$
76,604

     Specific reserve
 
13,683

 
11,303

 
5,658

 
5,189

 
5,802

Consumer related reserve
 
17,040

 
19,125

 
19,329

 
19,750

 
20,404

Total allowance for loan and lease losses
 
$
124,626

 
$
120,070

 
$
113,412

 
$
110,026

 
$
102,810



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

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

For pass rated loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans (computed on a loan by loan basis) and the principal outstanding is accreted over the remaining life of the loans. We anticipate recording a provision for the acquired portfolio in future quarters related to renewing Taylor Capital loans which will largely offset the accretion from the pass rated loans.

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 Merger were as follows for the three months ended September 30, 2015 (in thousands):
 
 
 
Non-Accretable Discount - PCI Loans
 
Accretable Discount - PCI Loans
 
Accretable Discount - Non-PCI Loans
 
Total
Balance at beginning of period
 
$
23,474

 
$
10,901

 
$
46,836

 
$
81,211

Charge-offs
 
(3,727
)
 
—

 
—

 
(3,727
)
Accretion
 
—

 
(1,533
)
 
(5,875
)
 
(7,408
)
Balance at end of period
 
$
19,747

 
$
9,368

 
$
40,961

 
$
70,076




12


Changes in the purchase accounting discount for loans acquired in the Merger were as follows for the three months ended June 30, 2015 (in thousands):
 
 
 
Non-Accretable Discount - PCI Loans
 
Accretable Discount - PCI Loans
 
Accretable Discount - Non-PCI Loans
 
Total
Balance at beginning of period
 
$
30,793

 
$
3,861

 
$
53,828

 
$
88,482

Charge-offs
 
681

 
—

 
—

 
681

Accretion
 
—

 
(960
)
 
(6,992
)
 
(7,952
)
Transfer
 
(8,000
)
 
8,000

 
—

 
—

Balance at end of period
 
$
23,474

 
$
10,901

 
$
46,836

 
$
81,211

 
The $8.0 million purchase accounting discount transfer from non-accretable discount on purchased credit-impaired loans to accretable discount was due to better than expected cash flows on two pools of purchased credit-impaired loans.


13



INVESTMENT SECURITIES

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

 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
Fair value
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
65,461

 
$
65,485

 
$
66,070

 
$
65,873

 
$
65,829

States and political subdivisions
 
399,274

 
395,912

 
403,628

 
410,854

 
409,033

Mortgage-backed securities
 
847,426

 
902,017

 
856,933

 
908,225

 
1,006,102

Corporate bonds
 
228,251

 
246,468

 
252,042

 
259,203

 
267,239

Equity securities
 
10,826

 
10,669

 
10,751

 
10,597

 
10,447

Total fair value
 
$
1,551,238

 
$
1,620,551

 
$
1,589,424

 
$
1,654,752

 
$
1,758,650

 
 
 
 
 
 
 
 
 
 
 
Amortized cost
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
64,008

 
$
64,211

 
$
64,411

 
$
64,612

 
$
64,809

States and political subdivisions
 
379,015

 
380,221

 
381,704

 
390,076

 
391,900

Mortgage-backed securities
 
834,791

 
890,334

 
841,727

 
899,523

 
999,630

Corporate bonds
 
228,711

 
245,506

 
250,543

 
259,526

 
265,720

Equity securities
 
10,701

 
10,644

 
10,587

 
10,531

 
10,470

Total amortized cost
 
$
1,517,226

 
$
1,590,916

 
$
1,548,972

 
$
1,624,268

 
$
1,732,529

 
 
 
 
 
 
 
 
 
 
 
Unrealized gain, net
 
 
 
 
 
 
 
 
 
 
Government sponsored agencies and enterprises
 
$
1,453

 
$
1,274

 
$
1,659

 
$
1,261

 
$
1,020

States and political subdivisions
 
20,259

 
15,691

 
21,924

 
20,778

 
17,133

Mortgage-backed securities
 
12,635

 
11,683

 
15,206

 
8,702

 
6,472

Corporate bonds
 
(460
)
 
962

 
1,499

 
(323
)
 
1,519

Equity securities
 
125

 
25

 
164

 
66

 
(23
)
Total unrealized gain, net
 
$
34,012

 
$
29,635

 
$
40,452

 
$
30,484

 
$
26,121

 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity, at amortized cost:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
 
$
1,002,963

 
$
974,032

 
$
764,931

 
$
752,558

 
$
760,674

Mortgage-backed securities
 
221,889

 
229,595

 
235,928

 
240,822

 
244,675

Total amortized cost
 
$
1,224,852

 
$
1,203,627

 
$
1,000,859

 
$
993,380

 
$
1,005,349

 


14


DEPOSIT MIX

The following table shows the composition of deposits based on period end balances as of the dates indicated (dollars in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest bearing deposits
 
$
4,434,067

 
39
%
 
$
4,378,005

 
40
%
 
$
4,290,499

 
39
%
 
$
4,118,256

 
37
%
 
$
3,807,448

 
34
%
Money market and NOW
 
4,129,414

 
37

 
3,842,264

 
35

 
4,002,818

 
36

 
3,913,765

 
36

 
4,197,166

 
37

Savings
 
953,746

 
8

 
970,875

 
9

 
969,560

 
9

 
940,345

 
9

 
931,985

 
8

Total low cost deposits
 
9,517,227

 
84

 
9,191,144

 
84

 
9,262,877

 
84

 
8,972,366

 
82

 
8,936,599

 
79

Certificates of deposit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,279,842

 
12

 
1,261,843

 
12

 
1,354,633

 
12

 
1,479,928

 
13

 
1,646,000

 
15

Brokered certificates of deposit
 
457,509

 
4

 
408,827

 
4

 
401,991

 
4

 
538,648

 
5

 
655,843

 
6

Total certificates of deposit
 
1,737,351

 
16

 
1,670,670

 
16

 
1,756,624

 
16

 
2,018,576

 
18

 
2,301,843

 
21

Total deposits
 
$
11,254,578

 
100
%
 
$
10,861,814

 
100
%
 
$
11,019,501

 
100
%
 
$
10,990,942

 
100
%
 
$
11,238,442

 
100
%

Non-interest bearing deposits grew by $56.1 million (+1.3%, or +5.1% annualized) during the third quarter of 2015 and comprise 39% of total deposits at quarter-end. Total low cost deposits increased $326.1 million (+3.5%, or +14.1% annualized) to $9.5 billion at September 30, 2015 compared to the prior quarter and represent 84% of total deposits at quarter-end.

The following table shows the composition of deposits based on quarterly average balances for the periods indicated (dollars in thousands):
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
Amount
 
% of
Total
Low cost deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest bearing deposits
 
$
4,428,065

 
39
%
 
$
4,273,931

 
39
%
 
$
4,199,948

 
38
%
 
$
4,072,797

 
36
%
 
$
3,175,512

 
34
%
Money market and NOW
 
4,119,625

 
36

 
3,940,201

 
36

 
3,937,707

 
36

 
4,023,657

 
37

 
3,518,314

 
37

Savings
 
965,060

 
9

 
972,327

 
9

 
952,345

 
9

 
936,960

 
8

 
906,630

 
10

Total low cost deposits
 
9,512,750

 
84

 
9,186,459

 
84

 
9,090,000

 
83

 
9,033,414

 
81

 
7,600,456

 
81

Certificates of deposit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
1,304,516

 
12

 
1,302,031

 
12

 
1,420,320

 
13

 
1,563,011

 
14

 
1,411,407

 
15

Brokered certificates of deposit
 
427,649

 
4

 
412,517

 
4

 
476,245

 
4

 
606,166

 
5

 
417,346

 
4

Total certificates of deposit
 
1,732,165

 
16

 
1,714,548

 
16

 
1,896,565

 
17

 
2,169,177

 
19

 
1,828,753

 
19

Total deposits
 
$
11,244,915

 
100
%
 
$
10,901,007

 
100
%
 
$
10,986,565

 
100
%
 
$
11,202,591

 
100
%
 
$
9,429,209

 
100
%


CAPITAL

Tangible book value per common share was $16.43 at September 30, 2015 compared to $16.36 last quarter and $15.36 a year ago. In the second quarter of 2015, our Board of Directors authorized the purchase of up to $50 million of our common stock. We purchased $47.2 million, or approximately 1.5 million shares, of our common stock through September 30, 2015.

Our regulatory capital ratios remain strong. MB Financial Bank, N.A. (the "Bank") was categorized as “well capitalized” at September 30, 2015 under the Prompt Corrective Action (“PCA”) provisions. The Company and Bank have implemented the changes required under the Basel III regulatory capital reform. The Bank would be categorized as "well capitalized" under the fully phased in rules.



15


FORWARD-LOOKING STATEMENTS

When used in this press release and in reports filed with or furnished to the Securities and Exchange Commission, 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 Merger and our other merger and acquisition activities might not be realized within the anticipated time frames or at all; (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 and lease losses, which could necessitate additional provisions for loan losses, resulting both from loans we originate and loans we acquire from other financial institutions; (3) results of examinations by the Office of Comptroller of Currency, the Federal Reserve Board, the Consumer Financial Protection Bureau and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan and lease losses or write-down assets; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (6) the possibility that our mortgage banking business may increase volatility in our revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market-place; (10) the possibility that our security measures might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that our security measures might not protect us from systems failures or interruptions; (11) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (12) our ability to access cost-effective funding; (13) changes in financial markets; (14) changes in economic conditions in general and in the Chicago metropolitan area in particular; (15) the costs, effects and outcomes of litigation; (16) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (17) changes in accounting principles, policies or guidelines; (18) our future acquisitions of other depository institutions or lines of business; and (19) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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





TABLES TO FOLLOW



16


MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
As of the dates indicated
(In thousands)
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
ASSETS
 
 

 
 

 
 

 
 

 
 

Cash and due from banks
 
$
234,220

 
$
290,266

 
$
248,840

 
$
256,804

 
$
267,405

Interest earning deposits with banks
 
66,025

 
144,154

 
52,212

 
55,277

 
179,391

Total cash and cash equivalents
 
300,245

 
434,420

 
301,052

 
312,081

 
446,796

Federal funds sold
 
—

 
5

 
—

 
—

 
—

Investment securities:
 
 
 
 
 
 
 
 
 
 
Securities available for sale, at fair value
 
1,551,238

 
1,620,551

 
1,589,424

 
1,654,752

 
1,758,650

Securities held to maturity, at amortized cost
 
1,224,852

 
1,203,627

 
1,000,859

 
993,380

 
1,005,349

Non-marketable securities - FHLB and FRB Stock
 
91,400

 
111,400

 
87,677

 
75,569

 
75,569

Total investment securities
 
2,867,490

 
2,935,578

 
2,677,960

 
2,723,701

 
2,839,568

Loans held for sale
 
676,020

 
801,343

 
686,838

 
737,209

 
553,627

Loans:
 
 
 
 
 
 
 
 
 
 
Total loans, excluding purchased credit-impaired loans
 
9,233,488

 
8,929,181

 
8,693,814

 
8,831,572

 
8,687,738

Purchased credit-impaired loans
 
155,693

 
164,775

 
227,514

 
251,645

 
288,186

Total loans
 
9,389,181

 
9,093,956

 
8,921,328

 
9,083,217

 
8,975,924

Less: Allowance for loan and lease losses
 
124,626

 
120,070

 
113,412

 
110,026

 
102,810

Net loans
 
9,264,555

 
8,973,886

 
8,807,916

 
8,973,191

 
8,873,114

Lease investments, net
 
184,223

 
167,966

 
159,191

 
162,833

 
137,120

Premises and equipment, net
 
234,115

 
234,651

 
234,077

 
238,377

 
243,814

Cash surrender value of life insurance
 
136,089

 
135,237

 
134,401

 
133,562

 
132,697

Goodwill
 
711,521

 
711,521

 
711,521

 
711,521

 
711,521

Other intangibles
 
37,520

 
34,979

 
36,488

 
38,006

 
39,623

Mortgage servicing rights, at fair value
 
148,097

 
261,034

 
219,254

 
235,402

 
241,391

Other real estate owned, net
 
29,587

 
28,517

 
21,839

 
19,198

 
18,817

Other real estate owned related to FDIC transactions
 
13,825

 
13,867

 
17,890

 
19,328

 
22,028

Other assets
 
346,814

 
285,190

 
319,883

 
297,690

 
244,481

Total assets
 
$
14,950,101

 
$
15,018,194

 
$
14,328,310

 
$
14,602,099

 
$
14,504,597

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Liabilities
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 

 
 

 
 

 
 

 
 

Noninterest bearing
 
$
4,434,067

 
$
4,378,005

 
$
4,290,499

 
$
4,118,256

 
$
3,807,448

Interest bearing
 
6,820,511

 
6,483,809

 
6,729,002

 
6,872,686

 
7,430,994

Total deposits
 
11,254,578

 
10,861,814

 
11,019,501

 
10,990,942

 
11,238,442

Short-term borrowings
 
940,529

 
1,382,635

 
615,231

 
931,415

 
667,160

Long-term borrowings
 
95,175

 
89,639

 
85,477

 
82,916

 
77,269

Junior subordinated notes issued to capital trusts
 
186,068

 
185,971

 
185,874

 
185,778

 
185,681

Accrued expenses and other liabilities
 
410,523

 
420,396

 
363,934

 
382,762

 
335,677

Total liabilities
 
12,886,873

 
12,940,455

 
12,270,017

 
12,573,813

 
12,504,229

Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
115,280

 
115,280

 
115,280

 
115,280

 
115,280

Common stock
 
756

 
754

 
754

 
751

 
751

Additional paid-in capital
 
1,277,348

 
1,273,333

 
1,268,851

 
1,267,761

 
1,265,050

Retained earnings
 
702,789

 
677,246

 
651,178

 
629,677

 
606,097

Accumulated other comprehensive income
 
20,968

 
18,778

 
26,101

 
20,356

 
18,431

Treasury stock
 
(55,258
)
 
(9,035
)
 
(5,277
)
 
(6,974
)
 
(6,692
)
Controlling interest stockholders' equity
 
2,061,883

 
2,076,356

 
2,056,887

 
2,026,851

 
1,998,917

Noncontrolling interest
 
1,345

 
1,383

 
1,406

 
1,435

 
1,451

Total stockholders' equity
 
2,063,228

 
2,077,739

 
2,058,293

 
2,028,286

 
2,000,368

Total liabilities and stockholders' equity
 
$
14,950,101

 
$
15,018,194

 
$
14,328,310

 
$
14,602,099

 
$
14,504,597



17


MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
(Dollars in thousands, except per share data)
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Taxable
 
$
100,573

 
$
98,768

 
$
98,846

 
$
104,531

 
$
79,902

 
 
$
298,187

 
$
187,497

   Nontaxable
 
2,283

 
2,259

 
2,174

 
2,203

 
2,265

 
 
6,716

 
6,819

Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Taxable
 
9,655

 
10,002

 
9,934

 
10,651

 
11,028

 
 
29,591

 
27,968

   Nontaxable
 
10,752

 
10,140

 
9,113

 
9,398

 
9,041

 
 
30,005

 
25,393

Federal funds sold
 
—

 
—

 
—

 
2

 
14

 
 
—

 
23

Other interest earning accounts
 
89

 
57

 
62

 
62

 
211

 
 
208

 
601

Total interest income
 
123,352

 
121,226

 
120,129

 
126,847

 
102,461

 
 
364,707

 
248,301

Interest expense:
 

 
 
 
 
 
 
 
 
 
 
 
 
 
   Deposits
 
5,102

 
4,554

 
4,645

 
4,889

 
4,615

 
 
14,301

 
12,138

   Short-term borrowings
 
395

 
355

 
277

 
354

 
231

 
 
1,027

 
426

   Long-term borrowings and junior subordinated notes
 
1,886

 
1,844

 
1,812

 
1,793

 
2,003

 
 
5,542

 
4,725

Total interest expense
 
7,383

 
6,753

 
6,734

 
7,036

 
6,849

 
 
20,870

 
17,289

Net interest income
 
115,969

 
114,473

 
113,395

 
119,811

 
95,612

 
 
343,837

 
231,012

Provision for credit losses
 
5,358

 
4,296

 
4,974

 
9,743

 
3,109

 
 
14,628

 
2,309

Net interest income after provision for credit losses
 
110,611

 
110,177

 
108,421

 
110,068

 
92,503

 
 
329,209

 
228,703

Non-interest income:
 


 
 
 
 

 
 

 
 

 
 
 

 
 

Lease financing, net
 
20,000

 
15,564

 
25,080

 
18,542

 
17,719

 
 
60,644

 
45,768

Mortgage banking revenue
 
30,692

 
35,648

 
24,544

 
29,080

 
16,823

 
 
90,884

 
17,069

Commercial deposit and treasury management fees
 
11,472

 
11,062

 
11,038

 
10,720

 
9,345

 
 
33,572

 
23,595

Trust and asset management fees
 
6,002

 
5,752

 
5,714

 
5,515

 
5,712

 
 
17,468

 
16,324

Card fees
 
3,335

 
4,409

 
3,927

 
3,900

 
3,836

 
 
11,671

 
9,841

Capital markets and international banking service fees
 
2,357

 
1,508

 
1,928

 
1,648

 
1,472

 
 
5,793

 
3,810

Consumer and other deposit service fees
 
3,499

 
3,260

 
3,083

 
3,335

 
3,362

 
 
9,842

 
9,453

Brokerage fees
 
1,281

 
1,543

 
1,678

 
1,350

 
1,145

 
 
4,502

 
3,826

Loan service fees
 
1,531

 
1,353

 
1,485

 
1,864

 
1,069

 
 
4,369

 
2,950

Increase in cash surrender value of life insurance
 
852

 
836

 
839

 
865

 
855

 
 
2,527

 
2,516

Net gain (loss) on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Net gain (loss) on sale of assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Gain on early extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Other operating income
 
858

 
2,105

 
2,408

 
2,892

 
1,107

 
 
5,371

 
3,620

Total non-interest income
 
82,251

 
82,949

 
81,268

 
83,678

 
61,087

 
 
246,468

 
137,627

Non-interest expense:
 
 
 
 
 
 

 
 

 
 

 
 
 

 
 

Salaries and employee benefits
 
87,891

 
86,145

 
84,786

 
85,483

 
79,492

 
 
258,822

 
170,491

Occupancy and equipment expense
 
12,458

 
12,177

 
12,940

 
14,058

 
11,742

 
 
37,575

 
30,852

Computer services and telecommunication expense
 
8,567

 
8,537

 
8,904

 
10,009

 
11,506

 
 
26,008

 
21,669

Advertising and marketing expense
 
2,578

 
2,497

 
2,446

 
2,317

 
2,235

 
 
7,521

 
6,537

Professional and legal expense
 
1,801

 
2,413

 
2,670

 
2,442

 
8,864

 
 
6,884

 
12,210

Other intangible amortization expense
 
1,542

 
1,509

 
1,518

 
1,617

 
1,470

 
 
4,569

 
3,884

Branch exit and facilities impairment charges
 
70

 
438

 
7,391

 
2,270

 
—

 
 
7,899

 
—

Net loss recognized on other real estate owned and other expense
 
577

 
724

 
896

 
286

 
2,178

 
 
2,197

 
3,289

Prepayment fees on interest bearing liabilities
 
—

 
—

 
85

 
—

 
—

 
 
85

 
—

Other operating expenses
 
18,782

 
18,297

 
18,284

 
22,022

 
24,714

 
 
55,363

 
47,346

Total non-interest expense
 
134,266

 
132,737

 
139,920

 
140,504

 
142,201

 
 
406,923

 
296,278

Income before income taxes
 
58,596

 
60,389

 
49,769

 
53,242

 
11,389

 
 
168,754

 
70,052

Income tax expense
 
18,318

 
19,437

 
15,658

 
17,117

 
4,488

 
 
53,413

 
20,076

Net income
 
40,278

 
40,952

 
34,111

 
36,125

 
6,901

 
 
115,341

 
49,976

Dividends on preferred shares
 
2,000

 
2,000

 
2,000

 
2,000

 
2,000

 
 
6,000

 
2,000

Net income available to common stockholders
 
$
38,278

 
$
38,952

 
$
32,111

 
$
34,125

 
$
4,901

 
 
$
109,341

 
$
47,976


18



 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Common share data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
$
0.52

 
$
0.52

 
$
0.43

 
$
0.46

 
$
0.08

 
 
$
1.47

 
$
0.83

Diluted earnings per common share
 
0.51

 
0.52

 
0.43

 
0.45

 
0.08

 
 
1.45

 
0.82

Weighted average common shares outstanding for basic earnings per common share
 
74,297,281

 
74,596,925

 
74,567,104

 
74,525,990

 
63,972,902

 
 
74,478,164

 
57,795,094

Weighted average common shares outstanding for diluted earnings per common share
 
75,029,827

 
75,296,029

 
75,164,716

 
75,130,331

 
64,457,978

 
 
75,154,585

 
58,341,927



19


Selected Financial Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized return on average assets
 
1.06
%
 
1.12
 %
 
0.96
%
 
0.99
%
 
0.22
%
 
 
1.05
%
 
0.64
%
Annualized operating return on average assets (1) 
 
1.06

 
1.14

 
1.11

 
1.09

 
1.16

 
 
1.10

 
1.04

Annualized return on average common equity
 
7.75

 
8.02

 
6.78

 
7.12

 
1.21

 
 
7.52

 
4.47

Annualized operating return on average common equity (1)
 
7.75

 
8.19

 
7.87

 
7.84

 
8.29

 
 
7.94

 
7.34

Annualized cash return on average tangible common equity (2)
 
12.74

 
13.21

 
11.31

 
11.98

 
2.23

 
 
12.43

 
7.09

Annualized cash operating return on average tangible common equity (3)
 
12.74

 
13.47

 
13.09

 
13.16

 
13.19

 
 
13.10

 
11.42

Net interest rate spread
 
3.60

 
3.72

 
3.80

 
3.88

 
3.66

 
 
3.70

 
3.54

Cost of funds (4)
 
0.23

 
0.22

 
0.23

 
0.23

 
0.26

 
 
0.23

 
0.27

Efficiency ratio (5)
 
65.35

 
64.26

 
65.29

 
63.35

 
63.46

 
 
64.97

 
65.65

Annualized net non-interest expense to average assets (6)
 
1.36

 
1.32

 
1.40

 
1.39

 
1.35

 
 
1.36

 
1.48

Core non-interest income to revenues (7)
 
40.35

 
40.80

 
40.66

 
38.78

 
38.23

 
 
40.60

 
35.99

Net interest margin
 
3.52

 
3.63

 
3.73

 
3.81

 
3.56

 
 
3.62

 
3.41

Tax equivalent effect
 
0.21

 
0.21

 
0.20

 
0.20

 
0.22

 
 
0.21

 
0.25

Net interest margin - fully tax equivalent basis (8)
 
3.73

 
3.84

 
3.93

 
4.01

 
3.78

 
 
3.83

 
3.66

Loans to deposits
 
83.43

 
83.72

 
80.96

 
82.64

 
79.87

 
 
83.43

 
79.87

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-performing loans (9) to total loans
 
1.03
%
 
1.08
 %
 
0.93
%
 
0.96
%
 
1.12
%
 
 
1.03
%
 
1.12
%
Non-performing assets (9) to total assets
 
0.85

 
0.84

 
0.73

 
0.73

 
0.82

 
 
0.85

 
0.82

Allowance for loan and lease losses to non-performing loans (9)
 
129.04

 
122.45

 
136.18

 
126.34

 
102.54

 
 
129.04

 
102.54

Allowance for loan and lease losses to total loans
 
1.33

 
1.32

 
1.27

 
1.21

 
1.15

 
 
1.33

 
1.15

Net loan (recoveries) charge-offs to average loans (annualized)
 
0.06

 
(0.12
)
 
0.08

 
0.11

 
0.04

 
 
0.01

 
0.21

Capital Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets (10)
 
9.34
%
 
9.41
 %
 
9.73
%
 
9.32
%
 
9.17
%
 
 
9.34
%
 
9.17
%
Tangible common equity to tangible assets (11)
 
8.53

 
8.60

 
8.89

 
8.49

 
8.34

 
 
8.53

 
8.34

Tangible common equity to risk weighted assets (12)
 
9.69

 
10.02

 
10.09

 
10.38

 
10.34

 
 
9.69

 
10.34

Total capital (to risk-weighted assets) (13)
 
12.94

 
13.07

 
13.22

 
13.62

 
13.60

 
 
12.94

 
13.60
%
Tier 1 capital (to risk-weighted assets) (13)
 
11.92

 
12.06

 
12.24

 
12.61

 
12.64

 
 
11.92

 
12.64

Common equity tier 1 capital (to risk-weighted assets) (13)
 
9.56

 
9.66

 
9.79

 
N/A

 
N/A

 
 
9.56

 
N/A

Tier 1 capital (to average assets) (13)
 
10.43

 
10.69

 
10.80

 
10.47

 
12.29

 
 
10.43

 
12.29

Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Book value per common share (14)
 
$
26.40

 
$
26.14

 
$
25.86

 
$
25.58

 
$
25.09

 
 
$
26.40

 
$
25.09

Less: goodwill and other intangible assets, net of benefit, per common share
 
9.97

 
9.78

 
9.78

 
9.84

 
9.73

 
 
9.97

 
9.73

Tangible book value per common share (15)
 
$
16.43

 
$
16.36

 
$
16.08

 
$
15.74

 
$
15.36

 
 
$
16.43

 
$
15.36

Cash dividends per common share
 
$
0.17

 
$
0.17

 
$
0.14

 
$
0.14

 
$
0.14

 
 
$
0.48

 
$
0.38


(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.

20


(6) 
Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.
(7) 
Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.
(8) 
Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
(9) 
Non-performing loans excludes purchased credit-impaired loans and loans held for sale.  Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.
(10) 
Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(11) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(12) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated.
(13) 
Current quarter ratios are estimated. 2015 ratios reflect the new capital regulation changes required under the Basel III regulatory capital reform.
(14) 
Equals total ending common stockholders’ equity divided by common shares outstanding.
(15) 
Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.



NON-GAAP FINANCIAL INFORMATION

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include operating earnings; annualized operating return on average assets; 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 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, gain on extinguishment of debt 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 contingent consideration expense, Merger related expenses, loss on low to moderate income real estate investment, prepayment fees on interest bearing liabilities, contribution to MB Financial Charitable Foundation and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets and tangible common equity to tangible assets; tangible book value per common share; 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, annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity, annualized cash operating return on average tangible common equity, net interest margin on a fully tax equivalent basis excluding acquisition discount accretion on Taylor Capital loans, core and non-core non-interest income and non-interest expense are useful in assessing our core operating performance and, in the case of core and non-core non-interest income and non-interest expense, in understanding the primary drivers of our non-interest income and non-interest expense when comparing periods.

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

Management also believes that by excluding net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt and increase (decrease) in market value of assets held in trust for deferred compensation

21


from the non-interest income components, and excluding contingent consideration expense, merger related expenses, loss on low to moderate income real estate investment, prepayment fees on interest bearing liabilities, contribution to MB Financial Charitable Foundation 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.

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

The following table presents a reconciliation of tangible equity to stockholders' equity (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Stockholders' equity - as reported
 
$
2,063,228

 
$
2,077,739

 
$
2,058,293

 
$
2,028,286

 
$
2,000,368

Less: goodwill
 
711,521

 
711,521

 
711,521

 
711,521

 
711,521

Less: other intangible assets, net of tax benefit
 
24,388

 
22,736

 
23,717

 
24,704

 
25,755

Tangible equity
 
$
1,327,319

 
$
1,343,482

 
$
1,323,055

 
$
1,292,061

 
$
1,263,092


The following table presents a reconciliation of tangible assets to total assets (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Total assets - as reported
 
$
14,950,101

 
$
15,018,194

 
$
14,328,310

 
$
14,602,099

 
$
14,504,597

Less: goodwill
 
711,521

 
711,521

 
711,521

 
711,521

 
711,521

Less: other intangible assets, net of tax benefit
 
24,388

 
22,736

 
23,717

 
24,704

 
25,755

Tangible assets
 
$
14,214,192

 
$
14,283,937

 
$
13,593,072

 
$
13,865,874

 
$
13,767,321


The following table presents a reconciliation of tangible common equity to common stockholders' equity (in thousands):
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Common stockholders' equity - as reported
 
$
1,947,948

 
$
1,962,459

 
$
1,943,013

 
$
1,913,006

 
$
1,885,088

Less: goodwill
 
711,521

 
711,521

 
711,521

 
711,521

 
711,521

Less: other intangible assets, net of tax benefit
 
24,388

 
22,736

 
23,717

 
24,704

 
25,755

Tangible common equity
 
$
1,212,039

 
$
1,228,202

 
$
1,207,775

 
$
1,176,781

 
$
1,147,812



22


The following table presents a reconciliation of average tangible equity to average common stockholders’ equity (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Average common stockholders' equity - as reported
 
$
1,958,947

 
$
1,947,231

 
$
1,922,151

 
$
1,901,830

 
$
1,613,375

 
 
$
1,942,911

 
$
1,434,420

Less: average goodwill
 
711,521

 
711,521

 
711,521

 
711,521

 
550,667

 
 
711,521

 
466,271

Less: average other intangible assets, net of tax benefit
 
23,900

 
23,092

 
24,157

 
25,149

 
19,734

 
 
23,715

 
16,179

Average tangible common equity
 
$
1,223,526

 
$
1,212,618

 
$
1,186,473

 
$
1,165,160

 
$
1,042,974

 
 
$
1,207,675

 
$
951,970


The following table presents a reconciliation of net cash flow available to common stockholders to net income available to common stockholders (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Net income available to common stockholders - as reported
 
$
38,278

 
$
38,952

 
$
32,111

 
$
34,125

 
$
4,901

 
 
$
109,341

 
$
47,976

Add: other intangible amortization expense, net of tax benefit
 
1,002

 
981

 
987

 
1,051

 
956

 
 
2,970

 
2,525

Net cash flow available to common stockholders
 
$
39,280

 
$
39,933

 
$
33,098

 
$
35,176

 
$
5,857

 
 
$
112,311

 
$
50,501




23


The following table presents a reconciliation of net income to operating earnings (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Net income - as reported
 
$
40,278

 
$
40,952

 
$
34,111

 
$
36,125

 
$
6,901

 
 
$
115,341

 
$
49,976

Less non-core items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) gain on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Net (loss) gain on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Merger related expenses
 
(319
)
 
(1,234
)
 
(8,069
)
 
(6,494
)
 
(27,161
)
 
 
(9,622
)
 
(28,329
)
Branch impairment charges
 
(70
)
 
—

 
—

 
—

 
—

 
 
(70
)
 
—

Prepayment fees on interest bearing liabilities
 
—

 
—

 
(85
)
 
—

 
—

 
 
(85
)
 
—

Loss on low to moderate income real estate investment
 
—

 
—

 
—

 
—

 
—

 
 
—

 
(2,124
)
Contingent consideration expense - Celtic acquisition
 
—

 
—

 
—

 
—

 
(10,600
)
 
 
—

 
(10,600
)
Contribution to MB Financial Charitable Foundation
 
—

 
—

 
—

 
(3,250
)
 
—

 
 
—

 
—

Total non-core items
 
(17
)
 
(1,325
)
 
(8,610
)
 
(5,777
)
 
(39,119
)
 
 
(9,952
)
 
(42,198
)
Income tax expense on non-core items
 
(6
)
 
(526
)
 
(3,417
)
 
(2,314
)
 
(10,295
)
 
 
(3,949
)
 
(11,416
)
Non-core items, net of tax
 
(11
)
 
(799
)
 
(5,193
)
 
(3,463
)
 
(28,824
)
 
 
(6,003
)
 
(30,782
)
Operating earnings
 
40,289

 
41,751

 
39,304

 
39,588

 
35,725

 
 
121,344

 
80,758

Dividends on preferred shares
 
2,000

 
2,000

 
2,000

 
2,000

 
2,000

 
 
6,000

 
2,000

Operating earnings available to common stockholders
 
$
38,289

 
$
39,751

 
$
37,304

 
$
37,588

 
$
33,725

 
 
$
115,344

 
$
78,758

Diluted operating earnings per common share
 
$
0.51

 
$
0.53

 
$
0.50

 
$
0.50

 
$
0.52

 
 
$
1.53

 
$
1.35

Weighted average common shares outstanding for diluted operating earnings per common share
 
75,029,827

 
75,296,029

 
75,164,716

 
75,130,331

 
64,457,978

 
 
75,154,585

 
58,341,927




24


Efficiency Ratio Calculation (Dollars in Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Non-interest expense
 
$
134,266

 
$
132,737

 
$
139,920

 
$
140,504

 
$
142,201

 
 
$
406,923

 
$
296,278

Less merger related expenses
 
319

 
1,234

 
8,069

 
6,494

 
27,161

 
 
9,622

 
28,329

Less prepayment fees on interest bearing liabilities
 
—

 
—

 
85

 
—

 
—

 
 
85

 
—

Less branch impairment charges
 
70

 
—

 
—

 
—

 
—

 
 
70

 
—

Less loss on low to moderate income real estate investment
 
—

 
—

 
—

 
—

 
—

 
 
—

 
2,124

Less contingent consideration expense
 
—

 
—

 
—

 
—

 
10,600

 
 
—

 
10,600

Less contribution to MB Financial Charitable Foundation
 
—

 
—

 
—

 
3,250

 
—

 
 
—

 
—

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Non-interest expense - as adjusted
 
$
134,749

 
$
131,496

 
$
131,460

 
$
130,445

 
$
104,478

 
 
$
397,705

 
$
254,711

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
115,969

 
$
114,473

 
$
113,395

 
$
119,811

 
$
95,612

 
 
$
343,837

 
$
231,012

Tax equivalent adjustment
 
7,019

 
6,676

 
6,078

 
6,246

 
6,087

 
 
19,773

 
17,345

Net interest income on a fully tax equivalent basis
 
122,988

 
121,149

 
119,473

 
126,057

 
101,699

 
 
363,610

 
248,357

Plus non-interest income
 
82,251

 
82,949

 
81,268

 
83,678

 
61,087

 
 
246,468

 
137,627

Plus tax equivalent adjustment on the increase in cash surrender value of life insurance
 
459

 
450

 
452

 
466

 
460

 
 
1,361

 
1,355

Less net (loss) gain on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Less net (loss) gain on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Less gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Net interest income plus non-interest income - as adjusted
 
$
206,198

 
$
204,632

 
$
201,343

 
$
205,919

 
$
164,642

 
 
$
612,173

 
$
387,970

Efficiency ratio
 
65.35
%
 
64.26
%
 
65.29
%
 
63.35
%
 
63.46
%
 
 
64.97
%
 
65.65
%
Efficiency ratio (without adjustments)
 
67.74
%
 
67.24
%
 
71.88
%
 
69.05
%
 
90.75
%
 
 
68.93
%
 
80.37
%


25


Annualized Net Non-interest Expense to Average Assets Calculation (Dollars in Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Non-interest expense
 
$
134,266

 
$
132,737

 
$
139,920

 
$
140,504

 
$
142,201

 
 
$
406,923

 
$
296,278

Less merger related expenses
 
319

 
1,234

 
8,069

 
6,494

 
27,161

 
 
9,622

 
28,329

Less prepayment fees on interest bearing liabilities
 
—

 
—

 
85

 
—

 
—

 
 
85

 
—

Less branch impairment charges
 
70

 
—

 
—

 
—

 
—

 
 
70

 
—

Less loss on low to moderate income real estate investment
 
—

 
—

 
—

 
—

 
—

 
 
—

 
2,124

Less contingent consideration expense
 
—

 
—

 
—

 
—

 
10,600

 
 
—

 
10,600

Less contribution to MB Financial Charitable Foundation
 
—

 
—

 
—

 
3,250

 
—

 
 
—

 
—

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Non-interest expense - as adjusted
 
134,749

 
131,496

 
131,460

 
130,445

 
104,478

 
 
397,705

 
254,711

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest income
 
82,251

 
82,949

 
81,268

 
83,678

 
61,087

 
 
246,468

 
137,627

Less net (loss) gain on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Less net (loss) gain on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Less gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Non-interest income - as adjusted
 
82,751

 
83,033

 
81,418

 
79,396

 
62,483

 
 
247,202

 
138,258

Less tax equivalent adjustment on the increase in cash surrender value of life insurance
 
459

 
450

 
452

 
466

 
460

 
 
1,361

 
1,355

Net non-interest expense
 
$
51,539

 
$
48,013

 
$
49,590

 
$
50,583

 
$
41,535

 
 
$
149,142

 
$
115,098

Average assets
 
$
15,059,429

 
$
14,631,999

 
$
14,363,244

 
$
14,466,066

 
$
12,206,014

 
 
$
14,687,441

 
$
10,393,680

Annualized net non-interest expense to average assets
 
1.36
%
 
1.32
%
 
1.40
%
 
1.39
%
 
1.35
%
 
 
1.36
%
 
1.48
%
Annualized net non-interest expense to average assets (without adjustments)
 
1.37
%
 
1.38
%
 
1.66
%
 
1.56
%
 
2.64
%
 
 
1.46
%
 
2.04
%


26


Core Non-interest Income to Revenues Ratio Calculation (Dollars in Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
3Q15
 
2Q15
 
1Q15
 
4Q14
 
3Q14
 
 
2015
 
2014
Non-interest income
 
$
82,251

 
$
82,949

 
$
81,268

 
$
83,678

 
$
61,087

 
 
$
246,468

 
$
137,627

Plus tax equivalent adjustment on the increase in cash surrender value of life insurance
 
459

 
450

 
452

 
466

 
460

 
 
1,361

 
1,355

Less net (loss) gain on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Less net (loss) gain on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Less gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Non-interest income - as adjusted
 
$
83,210

 
$
83,483

 
$
81,870

 
$
79,862

 
$
62,943

 
 
$
248,563

 
$
139,613

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
115,969

 
$
114,473

 
$
113,395

 
$
119,811

 
$
95,612

 
 
$
343,837

 
$
231,012

Tax equivalent adjustment
 
7,019

 
6,676

 
6,078

 
6,246

 
6,087

 
 
19,773

 
17,345

Net interest income on a fully tax equivalent basis
 
122,988

 
121,149

 
119,473

 
126,057

 
101,699

 
 
363,610

 
248,357

Plus non-interest income
 
82,251

 
82,949

 
81,268

 
83,678

 
61,087

 
 
246,468

 
137,627

Plus tax equivalent adjustment on the increase in cash surrender value of life insurance
 
459

 
450

 
452

 
466

 
460

 
 
1,361

 
1,355

Less net (loss) gain on investment securities
 
371

 
(84
)
 
(460
)
 
491

 
(3,246
)
 
 
(173
)
 
(3,016
)
Less net (loss) gain on sale of other assets
 
1

 
(7
)
 
4

 
3,476

 
(7
)
 
 
(2
)
 
(24
)
Less gain on extinguishment of debt
 
—

 
—

 
—

 
—

 
1,895

 
 
—

 
1,895

Less increase (decrease) in market value of assets held in trust for deferred compensation
 
(872
)
 
7

 
306

 
315

 
(38
)
 
 
(559
)
 
514

Total revenue - as adjusted and on a fully tax equivalent basis
 
$
206,198

 
$
204,632

 
$
201,343

 
$
205,919

 
$
164,642

 
 
$
612,173

 
$
387,970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue - unadjusted
 
$
198,220

 
$
197,422

 
$
194,663

 
$
203,489

 
$
156,699

 
 
$
590,305

 
$
368,639

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core non-interest income to revenues ratio
 
40.35
%
 
40.80
%
 
40.66
%
 
38.78
%
 
38.23
%
 
 
40.60
%
 
35.99
%
Non-interest income to revenues  ratio (without adjustments)
 
41.49
%
 
42.02
%
 
41.75
%
 
41.12
%
 
38.98
%
 
 
41.75
%
 
37.33
%



27


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):
 
 
3Q15
 
3Q14
 
 
2Q15
 
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
 
 
Average
Balance
 
Interest
 
Yield/
Rate
Interest Earning Assets:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Loans held for sale
 
$
841,663

 
$
7,904

 
3.76
%
 
$
313,695

 
$
2,826

 
3.60
%
 
 
$
781,020

 
$
6,839

 
3.50
%
Loans (1) (2) (3):
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial-related credits
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
3,372,279

 
34,481

 
4.00

 
2,118,864

 
23,536

 
4.35

 
 
3,309,519

 
34,884

 
4.17

Commercial loans collateralized by assignment of lease payments
 
1,674,939

 
15,647

 
3.74

 
1,561,484

 
14,669

 
3.76

 
 
1,634,583

 
15,235

 
3.73

Real estate commercial
 
2,568,539

 
27,558

 
4.20

 
2,108,492

 
24,213

 
4.49

 
 
2,522,473

 
27,145

 
4.26

Real estate construction
 
210,506

 
2,431

 
4.52

 
170,017

 
2,565

 
5.90

 
 
191,935

 
2,388

 
4.92

Total commercial-related credits
 
7,826,263

 
80,117

 
4.01

 
5,958,857

 
64,983

 
4.27

 
 
7,658,510

 
79,652

 
4.11

Other loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate residential
 
566,115

 
5,152

 
3.64

 
405,589

 
4,581

 
4.52

 
 
512,766

 
4,785

 
3.73

Home equity
 
226,365

 
2,298

 
4.03

 
251,969

 
2,549

 
4.01

 
 
233,867

 
2,301

 
3.95

Indirect
 
325,323

 
4,017

 
4.90

 
274,841

 
3,647

 
5.26

 
 
286,107

 
3,769

 
5.28

Consumer loans
 
85,044

 
807

 
3.76

 
69,699

 
774

 
4.41

 
 
76,189

 
780

 
4.11

Total other loans
 
1,202,847

 
12,274

 
4.05

 
1,002,098

 
11,551

 
4.57

 
 
1,108,929

 
11,635

 
4.21

Total loans, excluding purchased credit-impaired loans
 
9,029,110

 
92,391

 
4.06

 
6,960,955

 
76,534

 
4.36

 
 
8,767,439

 
91,287

 
4.18

Purchased credit-impaired loans
 
156,309

 
3,791

 
9.62

 
221,129

 
4,027

 
7.23

 
 
202,374

 
4,117

 
8.16

Total loans
 
9,185,419

 
96,182

 
4.15

 
7,182,084

 
80,561

 
4.45

 
 
8,969,813

 
95,404

 
4.27

Taxable investment securities
 
1,543,434

 
9,655

 
2.50

 
1,726,352

 
11,028

 
2.56

 
 
1,545,284

 
10,002

 
2.59

Investment securities exempt from federal income taxes (3)
 
1,356,702

 
16,541

 
4.88

 
1,087,340

 
13,908

 
5.12

 
 
1,261,567

 
15,600

 
4.95

Federal funds sold
 
38

 
—

 
1.00

 
15,460

 
14

 
0.38

 
 
126

 
—

 
1.00

Other interest earning deposits
 
138,542

 
89

 
0.25

 
341,758

 
211

 
0.24

 
 
85,935

 
57

 
0.27

Total interest earning assets
 
$
13,065,798

 
$
130,371

 
3.96
%
 
$
10,666,689

 
$
108,548

 
4.04
%
 
 
$
12,643,745

 
$
127,902

 
4.06
%
Non-interest earning assets
 
1,993,631

 
 
 
 
 
1,539,325

 
 
 
 
 
 
1,988,254

 
 
 
 
Total assets
 
$
15,059,429

 
 
 
 
 
$
12,206,014

 
 
 
 
 
 
$
14,631,999

 
 
 
 
Interest Bearing Liabilities:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Core funding:
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 

 
 

 
 
Money market and NOW deposits
 
$
4,119,625

 
$
1,832

 
0.18
%
 
$
3,518,314

 
$
1,469

 
0.17
%
 
 
$
3,940,201

 
$
1,634

 
0.17
%
Savings deposits
 
965,060

 
124

 
0.05

 
906,630

 
128

 
0.06

 
 
972,327

 
135

 
0.06

Certificates of deposit
 
1,304,516

 
1,450

 
0.44

 
1,411,407

 
1,375

 
0.40

 
 
1,302,031

 
1,259

 
0.39

Customer repurchase agreements
 
244,845

 
114

 
0.18

 
210,543

 
102

 
0.19

 
 
241,942

 
104

 
0.17

Total core funding
 
6,634,046

 
3,520

 
0.21

 
6,046,894

 
3,074

 
0.20

 
 
6,456,501

 
3,132

 
0.19

Wholesale funding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokered certificates of deposit (includes fee expense)
 
427,649

 
1,696

 
1.57

 
417,346

 
1,643

 
1.56

 
 
412,517

 
1,526

 
1.48

Other borrowings
 
1,117,166

 
2,167

 
0.76

 
632,163

 
2,132

 
1.32

 
 
1,078,297

 
2,095

 
0.77

Total wholesale funding
 
1,544,815

 
3,863

 
0.99

 
1,049,509

 
3,775

 
1.33

 
 
1,490,814

 
3,621

 
0.96

Total interest bearing liabilities
 
$
8,178,861

 
$
7,383

 
0.36
%
 
$
7,096,403

 
$
6,849

 
0.38
%
 
 
$
7,947,315

 
$
6,753

 
0.34
%
Non-interest bearing deposits
 
4,428,065

 
 
 
 
 
3,175,512

 
 
 
 
 
 
4,273,931

 
 
 
 
Other non-interest bearing liabilities
 
378,276

 
 
 
 
 
267,915

 
 
 
 
 
 
348,242

 
 
 
 
Stockholders' equity
 
2,074,227

 
 
 
 
 
1,666,184

 
 
 
 
 
 
2,062,511

 
 
 
 
Total liabilities and stockholders' equity
 
$
15,059,429

 
 
 
 
 
$
12,206,014

 
 
 
 
 
 
$
14,631,999

 
 
 
 
Net interest income/interest rate spread (4)
 
 
 
$
122,988

 
3.60
%
 
 
 
$
101,699

 
3.66
%
 
 
 
 
$
121,149

 
3.72
%
Taxable equivalent adjustment
 
 
 
7,019

 
 
 
 
 
6,087

 
 
 
 
 
 
6,676

 
 
Net interest income, as reported
 
 
 
$
115,969

 
 
 
 
 
$
95,612

 
 
 
 
 
 
$
114,473

 
 
Net interest margin (5)
 
 
 
 
 
3.52
%
 
 
 
 
 
3.56
%
 
 
 
 
 
 
3.63
%
Tax equivalent effect
 
 
 
 
 
0.21
%
 
 
 
 
 
0.22
%
 
 
 
 
 
 
0.21
%
Net interest margin on a fully tax equivalent basis (5)
 
 
 
 
 
3.73
%
 
 
 
 
 
3.78
%
 
 
 
 
 
 
3.84
%

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

28


 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
Interest Earning Assets:
 
 

 
 

 
 
 
 

 
 

 
 

Loans held for sale
 
$
760,956

 
$
20,528

 
3.60
%
 
$
105,977

 
$
2,826

 
3.56
%
Loans (1) (2) (3):
 
 

 
 

 
 
 
 

 
 

 
 

Commercial-related credits
 
 

 
 

 
 
 
 

 
 

 
 

Commercial
 
3,291,515

 
101,988

 
4.09

 
1,550,383

 
48,670

 
4.14

Commercial loans collateralized by assignment of lease payments
 
1,652,527

 
46,320

 
3.74

 
1,506,332

 
43,681

 
3.87

Real estate commercial
 
2,543,444

 
82,251

 
4.26

 
1,798,581

 
59,123

 
4.33

Real estate construction
 
197,970

 
8,900

 
5.93

 
152,813

 
5,372

 
4.64

Total commercial-related credits
 
7,685,456

 
239,459

 
4.11

 
5,008,109

 
156,846

 
4.13

Other loans
 
 
 
 
 
 
 
 
 
 
 
 
Real estate residential
 
524,349

 
14,965

 
3.81

 
343,718

 
10,397

 
4.03

Home equity
 
235,516

 
7,067

 
4.01

 
256,101

 
7,945

 
4.15

Indirect
 
293,111

 
11,271

 
5.14

 
269,344

 
10,629

 
5.28

Consumer loans
 
77,916

 
2,384

 
4.09

 
65,943

 
2,175

 
4.41

Total other loans
 
1,130,892

 
35,687

 
4.22

 
935,106

 
31,146

 
4.50

Total loans, excluding purchased credit-impaired loans
 
8,816,348

 
275,146

 
4.17

 
5,943,215

 
187,992

 
4.23

Purchased credit-impaired loans
 
199,378

 
12,845

 
8.61

 
164,455

 
7,169

 
5.83

Total loans
 
9,015,726

 
287,991

 
4.27

 
6,107,670

 
195,161

 
4.27

Taxable investment securities
 
1,548,369

 
29,591

 
2.55

 
1,516,260

 
27,968

 
2.46

Investment securities exempt from federal income taxes (3)
 
1,248,978

 
46,162

 
4.93

 
997,128

 
39,067

 
5.22

Federal funds sold
 
60

 
—

 
1.00

 
8,605

 
23

 
0.37

Other interest earning deposits
 
109,074

 
208

 
0.25

 
326,226

 
601

 
0.25

Total interest earning assets
 
$
12,683,163

 
$
384,480

 
4.05
%
 
$
9,061,866

 
$
265,646

 
3.92
%
Non-interest earning assets
 
2,004,278

 
 
 
 
 
1,331,814

 
 
 
 
Total assets
 
$
14,687,441

 
 
 
 
 
$
10,393,680

 
 
 
 
Interest Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Core funding:
 
 
 
 
 
 
 
 
 
 
 
 
Money market and NOW accounts
 
$
3,999,844

 
$
5,062

 
0.17
%
 
$
3,045,178

 
$
3,216

 
0.14
%
Savings accounts
 
963,291

 
379

 
0.05

 
879,336

 
334

 
0.05

Certificates of deposit
 
1,341,865

 
4,160

 
0.42

 
1,260,537

 
3,673

 
0.40

Customer repurchase agreements
 
244,217

 
337

 
0.18

 
195,136

 
293

 
0.20

Total core funding
 
6,549,217

 
9,938

 
0.20

 
5,380,187

 
7,516

 
0.19

Wholesale funding:
 
 
 
 
 
 
 
 
 
 
 
 
Brokered accounts (includes fee expense)
 
438,626

 
4,700

 
1.43

 
287,931

 
4,915

 
2.28

Other borrowings
 
977,130

 
6,232

 
0.84

 
368,220

 
4,858

 
1.74

Total wholesale funding
 
1,415,756

 
10,932

 
1.01

 
656,151

 
9,773

 
1.82

Total interest bearing liabilities
 
$
7,964,973

 
$
20,870

 
0.35
%
 
$
6,036,338

 
$
17,289

 
0.38
%
Non-interest bearing deposits
 
4,301,483

 
 
 
 
 
2,677,865

 
 
 
 
Other non-interest bearing liabilities
 
362,794

 
 
 
 
 
227,261

 
 
 
 
Stockholders' equity
 
2,058,191

 
 
 
 
 
1,452,216

 
 
 
 
Total liabilities and stockholders' equity
 
$
14,687,441

 
 
 
 
 
$
10,393,680

 
 
 
 
Net interest income/interest rate spread (4)
 
 
 
$
363,610

 
3.70
%
 
 
 
$
248,357

 
3.54
%
Taxable equivalent adjustment
 
 
 
19,773

 
 
 
 
 
17,345

 
 
Net interest income, as reported
 
 
 
$
343,837

 
 
 
 
 
$
231,012

 
 
Net interest margin (5)
 
 
 
 
 
3.62
%
 
 
 
 
 
3.41
%
Tax equivalent effect
 
 
 
 
 
0.21
%
 
 
 
 
 
0.25
%
Net interest margin on a fully tax equivalent basis (5)
 
 
 
 
 
3.83
%
 
 
 
 
 
3.66
%

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


29


The table below reflects the impact the acquisition accounting loan discount accretion on Taylor Capital loans had on the loan yield and net interest margin on a fully tax equivalent basis for the three months ended September 30, 2015, September 30, 2014 and June 30, 2015 (dollars in thousands):
 
 
3Q15
 
3Q14
 
2Q15
 
 
Average
Balance
 
Interest
 
Yield
 
Average
Balance
 
Interest
 
Yield
 
Average
Balance
 
Interest
 
Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans, as reported
 
$
9,185,419

 
$
96,182

 
4.15
%
 
$
7,182,084

 
$
80,561

 
4.45
%
 
$
8,969,813

 
$
95,404

 
4.27
%
Less acquisition accounting discount accretion on non-PCI loans
 
(43,899
)
 
5,875

 
 
 
(35,285
)
 
5,797

 
 
 
(50,333
)
 
6,992

 
 
Less acquisition accounting discount accretion on PCI loans
 
(31,745
)
 
1,533

 
 
 
(18,579
)
 
377

 
 
 
(34,514
)
 
960

 
 
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans
 
$
9,261,063

 
$
88,774

 
3.80
%
 
$
7,235,948

 
$
74,387

 
4.08
%
 
$
9,054,660

 
$
87,452

 
3.87
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest earning assets, as reported
 
$
13,065,798

 
$
122,988

 
3.73
%
 
$
10,666,689

 
$
101,699

 
3.78
%
 
$
12,643,745

 
$
121,149

 
3.84
%
Less acquisition accounting discount accretion on non-PCI loans
 
(43,899
)
 
5,875

 
 
 
(35,285
)
 
5,797

 
 
 
(50,333
)
 
6,992

 
 
Less acquisition accounting discount accretion on PCI loans
 
(31,745
)
 
1,533

 
 
 
(18,579
)
 
377

 
 
 
(34,514
)
 
960

 
 
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans
 
$
13,141,442

 
$
115,580

 
3.49
%
 
$
10,720,553

 
$
95,525

 
3.54
%
 
$
12,728,592

 
$
113,197

 
3.57
%

The table below reflects the impact the acquisition accounting loan discount accretion on Taylor Capital loans had on the loan yield and net interest margin on a fully tax equivalent basis for the nine months ended September 30, 2015 and 2014 (dollars in thousands):
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
Average
Balance
 
Interest
 
Yield
 
Average
Balance
 
Interest
 
Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital loans:
 
 
 
 
 
 
 
 
 
 
 
 
Total loans, as reported
 
$
9,015,726

 
$
287,991

 
4.27
%
 
$
6,107,670

 
$
195,161

 
4.27
%
Less acquisition accounting discount accretion on non-PCI loans
 
(50,627
)
 
20,815

 
 
 
(8,894
)
 
5,797

 
 
Less acquisition accounting discount accretion on PCI loans
 
(33,772
)
 
3,121

 
 
 
(4,683
)
 
377

 
 
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans
 
$
9,100,125

 
$
264,055

 
3.88
%
 
$
6,121,247

 
$
188,987

 
4.13
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans:
 
 
 
 
 
 
 
 
 
 
 
 
Total interest earning assets, as reported
 
$
12,683,163

 
$
363,610

 
3.83
%
 
$
9,061,866

 
$
248,357

 
3.66
%
Less acquisition accounting discount accretion on non-PCI loans
 
(50,627
)
 
20,815

 
 
 
(8,894
)
 
5,797

 
 
Less acquisition accounting discount accretion on PCI loans
 
(33,772
)
 
3,121

 
 
 
(4,683
)
 
377

 
 
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans
 
$
12,767,562

 
$
339,674

 
3.56
%
 
$
9,075,443

 
$
242,183

 
3.57
%

Provision for credit losses will be recognized on acquired Taylor Capital loans as they renew and will largely offset the positive impact of the loan discount accretion on non-purchased credit-impaired loans. During the third and second quarters of 2015, a provision for credit losses of approximately $4.1 million and $4.9 million, respectively, was recorded related to acquired Taylor Capital loans.

The table below reflects the impact that the loan discount accretion and provision for credit losses on Taylor Capital loans had on earnings for the three months ended September 30, 2015 and June 30, 2015 (dollars in thousands):
 
 
3Q15
 
2Q15
Acquisition accounting discount accretion on Taylor Capital loans
 
$
7,408

 
$
7,952

Provision for credit losses on Taylor Capital loans
 
4,133

 
4,896

Earnings impact of discount accretion and merger related provision
 
3,275

 
3,056

Tax expense
 
1,300

 
1,213

Earnings impact of discount accretion and merger related provision, net of tax
 
$
1,975

 
$
1,843


30