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

CHICAGO, Jan. 26, 2017 (GLOBE NEWSWIRE) -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., today announced 2016 fourth quarter net income available to common stockholders of $45.2 million, or $0.53 per diluted common share, compared to $42.4 million, or $0.54 per diluted common share, last quarter and $41.6 million, or $0.56 per diluted common share, in the fourth quarter a year ago. Annual net income available to common stockholders for 2016 was $166.1 million compared to $150.9 million for 2015. Diluted earnings per common share were $2.13 for 2016 compared to $2.02 for 2015.

"Our company had a very successful 2016. Operating earnings per share grew by 13.6%. We realized significant and sustained organic loan, deposit, and fee growth. Credit performance was excellent. We were able to maintain our net interest margin despite significant interest rate swings, and our fee businesses continued their growth and development.

In the third quarter of 2016, we successfully acquired and integrated American Chartered Bancorp, Inc., while at the same time increasing the investment we’re making in our infrastructure, particularly in technology and risk capabilities.

Legacy bank performance, which excludes the impact of the American Chartered merger, in the fourth quarter was very good. Loan growth, deposit growth, and fee performance, with the exception of the Mortgage Banking Segment, was strong. Mortgage net income was under our target run rate for the fourth quarter, but did well given the highly volatile interest rate environment in the quarter.

We look forward to a strong 2017," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc.

KEY ITEMS

Operating Earnings

The following table presents a reconciliation of net income to operating earnings (in thousands). Non-core items represent the difference between non-core non-interest income and non-core non-interest expense. See the "Non-GAAP Financial Information" section for details on non-core items.

								Year Ended
								December 31,
	4Q16		3Q16		4Q15			2016		2015
Net income - as reported	$	47,191	$	44,419	$	43,607		$	174,136	$	158,948

Non-core items	7,062		15,363		(4,183		)	28,214		5,769
Income tax expense on non-core items ⁽¹⁾	2,406		7,867		(1,140		)	11,853		2,809
Non-core items, net of tax	4,656		7,496		(3,043		)	16,361		2,960

Operating earnings	51,847		51,915		40,564			190,497		161,908
Dividends on preferred shares	2,005		2,004		2,000			8,009		8,000
Operating earnings available to common stockholders	$	49,842	$	49,911	$	38,564		$	182,488	$	153,908

Diluted operating earnings per common share	$	0.59	$	0.63	$	0.52		$	2.34	$	2.06
Weighted average common shares outstanding for diluted operating earnings per common share	84,674,181		78,683,170		73,953,165			77,976,121		74,849,030

⁽¹⁾Both the third quarter of 2016 and the year ended December 31, 2016 include an adjustment for the $1.8 million income tax benefit resulting from the adoption of new stock-based compensation guidance.

Operating earnings available to common stockholders were $49.8 million, or $0.59 per diluted common share, in the fourth quarter of 2016 compared to $49.9 million, or $0.63 per diluted common share, last quarter. Key drivers of the change in operating earnings from the third to the fourth quarter of 2016 were:

Net interest income on a fully tax equivalent basis increased by $14.4 million, or 10.5%, in the fourth quarter of 2016 compared to the prior quarter. This increase is due to a full quarter of American Chartered Bancorp, Inc. ("American Chartered") being presented as well as organic loan growth.
Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in the Taylor Capital Group, Inc. ("Taylor Capital") and American Chartered mergers ("bank mergers"), decreased three basis points from the prior quarter primarily due to higher borrowing costs.
Our core non-interest income decreased $14.4 million, or 13.4%, to $93.3 million compared to the prior quarter primarily due to a decrease in mortgage banking revenue which was a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges, driven by interest rate volatility during the quarter.
Our core non-interest expense increased $4.8 million, or 3.1%, to $159.1 million compared to the prior quarter primarily due to higher salaries and employee benefits, occupancy and equipment, and computer services and telecommunication expenses driven by the inclusion of a full quarter of American Chartered expenses.

Operating earnings available to common stockholders increased by $28.6 million to $182.5 million, or $2.34 per diluted common share, for the year ended December 31, 2016 compared to $153.9 million, or $2.06 per diluted common share, in the prior year. Key drivers of the change in operating earnings from the year ended December 31, 2015 to the year ended December 31, 2016 were:

Net interest income on a fully tax equivalent basis increased by $53.8 million, or 10.9%, in 2016 compared to the prior year primarily due to organic loan growth as well as the impact of the American Chartered merger.
Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points in 2016 compared to the prior year primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.
Our core non-interest income for 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to 2015 primarily due to higher mortgage banking revenue and trust and asset management fees.
Our core non-interest expense increased by $62.1 million, or 11.7%, from 2015 to $590.6 million for 2016 primarily due to higher salaries and employee benefits, occupancy and equipment, computer services and telecommunication, and other operating expenses.

Loan Balances

Loan balances, excluding purchased credit-impaired loans, increased $226.4 million (+1.8%, or +7.3% annualized) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Legacy loan balances (which exclude loans acquired in the American Chartered merger), excluding purchased credit-impaired loans, increased $360.0 million (+3.4%, or +13.6% annualized) from September 30, 2016.

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

	12/31/2016						9/30/2016						Change in Legacy Loan Balances from 9/30/2016 to 12/31/2016
	Legacy		American Chartered ⁽¹⁾		Total		Legacy		American Chartered ⁽¹⁾		Total		Amount			Percent
Commercial-related loans:
Commercial	$	3,752,392	$	594,114	$	4,346,506	$	3,745,486	$	640,326	$	4,385,812	$	6,906		+0.2	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,002,976		—		2,002,976		1,873,380		—		1,873,380		129,596			+6.9	%
Commercial real estate	2,892,692		895,324		3,788,016		2,849,270		945,531		3,794,801		43,422			+1.5	%
Construction real estate	501,060		17,502		518,562		415,171		35,852		451,023		85,889			+20.7	%
Total commercial-related loans	9,149,120		1,506,940		10,656,060		8,883,307		1,621,709		10,505,016		265,813			+3.0	%
Other loans:
Residential real estate	896,700		164,128		1,060,828		823,374		175,453		998,827		73,326			+8.9	%
Indirect vehicle	541,680		—		541,680		522,271		—		522,271		19,409			+3.7	%
Home equity	187,162		79,215		266,377		188,861		86,427		275,288		(1,699		)	-0.9	%
Consumer	80,122		659		80,781		77,013		943		77,956		3,109			+4.0	%
Total other loans	1,705,664		244,002		1,949,666		1,611,519		262,823		1,874,342		94,145			+5.8	%
Total loans, excluding purchased credit-impaired	10,854,784		1,750,942		12,605,726		10,494,826		1,884,532		12,379,358		359,958			+3.4	%
Purchased credit-impaired	122,156		40,921		163,077		137,025		24,313		161,338		(14,869		)	-10.9	%
Total loans	$	10,976,940	$	1,791,863	$	12,768,803	$	10,631,851	$	1,908,845	$	12,540,696	$	345,089		+3.2	%

⁽¹⁾American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger.

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

	12/31/2016								Change in Legacy Loan Balances from 12/31/2015 to 12/31/2016
	Legacy		American Chartered ⁽¹⁾		Total		12/31/2015		Amount			Percent
Commercial-related loans:
Commercial	$	3,752,392	$	594,114	$	4,346,506	$	3,616,286	$	136,106		+3.8	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,002,976		—		2,002,976		1,779,072		223,904			+12.6	%
Commercial real estate	2,892,692		895,324		3,788,016		2,695,676		197,016			+7.3	%
Construction real estate	501,060		17,502		518,562		252,060		249,000			+98.8	%
Total commercial-related loans	9,149,120		1,506,940		10,656,060		8,343,094		806,026			+9.7	%
Other loans:
Residential real estate	896,700		164,128		1,060,828		628,169		268,531			+42.7	%
Indirect vehicle	541,680		—		541,680		384,095		157,585			+41.0	%
Home equity	187,162		79,215		266,377		216,573		(29,411		)	-13.6	%
Consumer	80,122		659		80,781		80,661		(539		)	-0.7	%
Total other loans	1,705,664		244,002		1,949,666		1,309,498		396,166			+30.3	%
Total loans, excluding purchased credit-impaired	10,854,784		1,750,942		12,605,726		9,652,592		1,202,192			+12.5	%
Purchased credit-impaired	122,156		40,921		163,077		141,406		(19,250		)	-13.6	%
Total loans	$	10,976,940	$	1,791,863	$	12,768,803	$	9,793,998	$	1,182,942		+12.1	%

⁽¹⁾American Chartered loans refer to the loans acquired in the American Chartered merger, including those that have been renewed subsequent to the merger.

Legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%) compared to December 31, 2015, driven by the growth in commercial-related loans.

Deposit Balances

Low cost deposits decreased $131.5 million (-1.1%, or -4.3% annualized) in the fourth quarter of 2016 primarily due to a decrease in higher rate NOW accounts and mortgage escrow accounts. Low cost deposits represented 86% of total deposits at December 31, 2016, with non-interest bearing deposits representing 46% of total deposits. Legacy low cost deposit balances increased $40.7 million (+0.4%, or 1.6% annualized) from September 30, 2016 driven by good non-interest bearing deposit flows. Legacy non-interest bearing deposits increased $82.3 million (+1.6%, or 6.5%) in the fourth quarter of 2016. Legacy deposits exclude deposits assumed in the American Chartered merger.

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

	12/31/2016						9/30/2016						Change in Legacy Deposit Balances from 9/30/2016 to 12/31/2016
	Legacy		American Chartered ⁽¹⁾		Total		Legacy		American Chartered ⁽¹⁾		Total		Amount			Percent
Low cost deposits:
Non-interest bearing deposits	$	5,137,605	$	1,270,564	$	6,408,169	$	5,055,261	$	1,355,073	$	6,410,334	$	82,344		+1.6	%
Money market, NOW and interest bearing deposits	3,861,222		681,782		4,543,004		3,896,438		763,969		4,660,407		(35,216		)	-0.9	%
Savings deposits	1,024,368		111,624		1,135,992		1,030,834		117,066		1,147,900		(6,466		)	-0.6	%
Total low cost deposits	10,023,195		2,063,970		12,087,165		9,982,533		2,236,108		12,218,641		40,662			+0.4	%
Certificates of deposit:
Certificates of deposit	1,079,405		145,697		1,225,102		1,145,303		152,883		1,298,186		(65,898		)	-5.8	%
Brokered certificates of deposit	774,802		23,379		798,181		738,960		23,479		762,439		35,842			+4.9	%
Total certificates of deposit	1,854,207		169,076		2,023,283		1,884,263		176,362		2,060,625		(30,056		)	-1.6	%
Total deposits	$	11,877,402	$	2,233,046	$	14,110,448	$	11,866,796	$	2,412,470	$	14,279,266	$	10,606		+0.1	%

⁽¹⁾American Chartered deposits refer to deposits assumed in the American Chartered merger.

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

	12/31/2016								Change in Legacy Deposit Balances from 12/31/2015 to 12/31/2016
	Legacy		American Chartered ⁽¹⁾		Total		12/31/2015		Amount			Percent
Low cost deposits:
Non-interest bearing deposits	$	5,137,605	$	1,270,564	$	6,408,169	$	4,627,184	$	510,421		+11.0	%
Money market, NOW and interest bearing deposits	3,861,222		681,782		4,543,004		4,144,633		(283,411		)	-6.8	%
Savings deposits	1,024,368		111,624		1,135,992		974,555		49,813			+5.1	%
Total low cost deposits	10,023,195		2,063,970		12,087,165		9,746,372		276,823			+2.8	%
Certificates of deposit:
Certificates of deposit	1,079,405		145,697		1,225,102		1,244,292		(164,887		)	-13.3	%
Brokered certificates of deposit	774,802		23,379		798,181		514,551		260,251			+50.6	%
Total certificates of deposit	1,854,207		169,076		2,023,283		1,758,843		95,364			+5.4	%
Total deposits	$	11,877,402	$	2,233,046	$	14,110,448	$	11,505,215	$	372,187		+3.2	%

⁽¹⁾American Chartered deposits refer to deposits assumed in the American Chartered merger.

Legacy low cost deposit balances increased $276.8 million (+2.8%) compared to December 31, 2015, driven by 11.0% growth in non-interest bearing deposits.

Credit Quality Metrics

Overall credit quality was stable compared to the prior quarter and improved compared to the prior year end.

Our provision for credit losses decreased by $3.9 million in the fourth quarter of 2016 compared to the third quarter of 2016 and decreased by $1.8 million during the year ended December 31, 2016 compared to the prior year. The decrease from the prior quarter was primarily due to improvement of a potential problem loan at our leasing segment.
Net loan charge-offs during the quarter were 0.10% of loans (annualized) compared to 0.09% (annualized) in the third quarter of 2016 and were 0.09% for the year ended December 31, 2016 compared to 0.04% for the year ended December 31, 2015.
Non-accrual loans and non-performing assets decreased by $3.2 million (-6.1%) and $1.5 million (-1.7%), respectively, from September 30, 2016. Compared to a year ago, non-accrual loans decreased by $49.1 million (-50.1%) and non-performing assets decreased by $50.3 million (-36.9%).
Potential problem loans increased by $33.0 million (+29.5%) from September 30, 2016 and increased by $4.6 million (+3.3%) from December 31, 2015.
Our non-performing loans to total loans ratio was 0.46% at December 31, 2016, 0.43% at September 30, 2016 and 1.07% at December 31, 2015.

RESULTS OF OPERATIONS

Fourth Quarter and Annual Results

Net Interest Income

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

							Change from 3Q16 to 4Q16					Change from 4Q15 to 4Q16		Year Ended						Change from 2015 to 2016
														December 31,
	4Q16			3Q16					4Q15					2016			2015
Net interest income - fully tax equivalent	$	152,304		$	137,893		+10.5	%	$	129,076		+18.0	%	$	546,507		$	492,686		+10.9	%

Net interest income - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans	144,741			131,733			+9.9	%	119,373			+21.3	%	517,728			459,047			+12.8	%

Net interest margin - fully tax equivalent	3.67		%	3.68		%	-0.01	%	3.86		%	-0.19		3.73		%	3.84		%	-0.11	%

Net interest margin - fully tax equivalent, excluding acquisition accounting discount accretion on bank merger loans	3.47		%	3.50		%	-0.03	%	3.56		%	-0.09		3.52		%	3.56		%	-0.04	%

Net interest income on a fully tax equivalent basis increased $14.4 million in the fourth quarter of 2016 compared to the prior quarter as a result of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger being presented for a full quarter and organic loan growth. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased three basis points to 3.47% for the fourth quarter of 2016 compared to 3.50% for the prior quarter primarily due to a higher cost of borrowings.

Net interest income on a fully tax equivalent basis increased in the fourth quarter of 2016 compared to the fourth quarter of 2015 primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, partially offset by a decrease in interest earned on purchased credit-impaired loans and an increase in average borrowings. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased nine basis points to 3.47% compared to 3.56% for the fourth quarter of 2015 primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.

Net interest income on a fully tax equivalent basis increased in 2016 compared to the prior year primarily due to growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger. Our net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, decreased four basis points to 3.52% for 2016 compared to 3.56% for the prior year. This decrease was primarily due to a decrease in average yields earned on investment securities and an increase in cost of deposits and borrowings.

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

Non-interest Income

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

															Year Ended
															December 31,
	4Q16			3Q16		2Q16			1Q16			4Q15			2016			2015
Core non-interest income:
Key fee initiatives:
Mortgage banking revenue	$	32,277		$	49,095	$	39,615		$	27,482		$	26,542		$	148,469		$	117,426
Lease financing revenue, net	19,868			18,864		15,708			19,046			15,937			73,486			76,581
Commercial deposit and treasury management fees	14,237			12,957		11,548			11,878			11,711			50,620			45,283
Trust and asset management fees	8,442			8,244		8,236			7,950			6,077			32,872			23,545
Card fees	4,340			4,161		4,045			3,525			3,651			16,071			15,322
Capital markets and international banking service fees	4,021			3,313		2,771			3,227			2,355			13,332			8,148
Total key fee initiatives	83,185			96,634		81,923			73,108			66,273			334,850			286,305
Consumer and other deposit service fees	3,563			3,559		3,161			3,025			3,440			13,308			13,282
Brokerage fees	887			1,294		1,315			1,158			1,252			4,654			5,754
Loan service fees	1,952			1,792		1,961			1,752			1,890			7,457			6,259
Increase in cash surrender value of life insurance	1,316			1,055		850			854			864			4,075			3,391
Other operating income	2,350			3,337		2,043			1,836			1,344			9,566			7,274
Total core non-interest income	93,253			107,671		91,253			81,733			75,063			373,910			322,265
Non-core non-interest income:
Net gain (loss) on investment securities	178			—		269			—			(3		)	447			(176		)
Net (loss) gain on disposal of other assets	(749		)	5		(2		)	(48		)	—			(794		)	(2		)
Increase in market value of assets held in trust for deferred compensation ⁽¹⁾	141			711		480			8			565			1,340			6
Total non-core non-interest income	(430		)	716		747			(40		)	562			993			(172		)
Total non-interest income	$	92,823		$	108,387	$	92,000		$	81,693		$	75,625		$	374,903		$	322,093

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

Core non-interest income for the fourth quarter of 2016 decreased by $14.4 million, or 13.4%, to $93.3 million from the third quarter of 2016.

Mortgage banking revenue decreased as a result of lower origination and servicing fees. Mortgage origination fees declined due to fewer rate lock commitments during the quarter as a result of higher interest rates and lower gain on sale margin. Servicing fees declined due to changes in the fair value of our mortgage servicing rights asset, net of related hedges also driven by the volatile interest rate environment in the fourth quarter of 2016.
Lease financing revenue increased primarily due to higher residual gains and an increase in operating lease revenue.
Commercial deposit and treasury management fees increased due to the increased customer base as a result of the American Chartered merger.
Capital markets and international banking services fees increased due to higher swap and M&A advisory fees partly offset by lower syndication fees.
Other operating income decreased due to lower earnings from investments in Small Business Investment Companies.

Core non-interest income for the year ended December 31, 2016 increased by $51.6 million, or 16.0%, to $373.9 million compared to the year ended December 31, 2015.

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

Non-interest Expense

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	58,823		$	55,088		$	51,383		$	48,809		$	48,433		$	214,103		$	189,570
Commissions	12,036			12,318			10,822			10,348			9,794			45,524			45,564
Bonus and stock-based compensation	12,167			12,980			12,871			8,657			9,950			46,675			39,932
Health and accident insurance	5,951			6,377			6,079			5,599			4,646			24,006			21,075
Other salaries and benefits ⁽²⁾	15,072			15,320			13,045			12,089			11,533			55,526			47,560
Total salaries and employee benefits expense	104,049			102,083			94,200			85,502			84,356			385,834			343,701
Occupancy and equipment expense	15,594			14,662			13,407			13,260			12,935			56,923			50,235
Computer services and telecommunication expense	11,019			9,731			9,266			8,750			8,548			38,766			34,147
Advertising and marketing expense	3,039			3,031			2,923			2,855			2,549			11,848			10,070
Professional and legal expense	2,351			2,779			3,220			2,492			2,715			10,842			8,593
Other intangible amortization expense	2,388			1,674			1,617			1,626			1,546			7,305			6,115
Net loss (gain) recognized on other real estate owned (A)	182			(890		)	(297		)	(637		)	(256		)	(1,642		)	1,814
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A)	(1,164		)	(18		)	312			154			(549		)	(716		)	(845		)
Other real estate expense, net (A)	192			187			243			137			76			759			499
Other operating expenses	21,478			21,067			19,814			18,366			18,932			80,725			74,228
Total core non-interest expense	159,128			154,306			144,705			132,505			130,852			590,644			528,557
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	6,491			11,368			2,566			3,287			(4,186		)	23,712			5,506
Branch exit and facilities impairment charges	—			—			155			—			—			155			—
Prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Contribution to MB Financial Charitable Foundation (C)	—			4,000			—			—			—			4,000			—
Increase in market value of assets held in trust for deferred compensation (D)	141			711			480			8			565			1,340			6
Total non-core non-interest expense	6,632			16,079			3,201			3,295			(3,621		)	29,207			5,597
Total non-interest expense	$	165,760		$	170,385		$	147,906		$	135,800		$	127,231		$	619,851		$	534,154

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

Core non-interest expense increased by $4.8 million, or 3.1%, from the third quarter of 2016 to $159.1 million for the fourth quarter of 2016.

Salaries and employee benefits expense increased primarily due to the increased staff from the American Chartered merger for a full quarter.
Occupancy and equipment expense increased due to the additional offices acquired through the American Chartered merger for a full quarter.
Computer services and telecommunication expense increased due to investments in systems as well as the increase in customer activity as a result of the American Chartered merger.
Professional and legal expense decreased due to lower legal expense.
Other intangible amortization expense was higher due to the core deposit intangible recorded as a result of the American Chartered merger.

Core non-interest expense increased by $62.1 million, or 11.7%, from the year ended December 31, 2015 to $590.6 million for the year ended December 31, 2016.

Salaries and employee benefits expense increased due to the following:
- Salaries increased due to new hires, annual pay increases effective in the beginning of the second quarter and increased staff from the American Chartered merger and the acquisition of MSA.
- Bonus and stock-based compensation increased primarily due to an increase in bonus expense based on company performance in 2016 as well as the increase in staff.
- Other salaries and benefits expense increased due to increased temporary help in our IT, mortgage and other support areas as well as higher 401(k) match and profit sharing contribution expense and payroll taxes as a result of the increase in staff.
Occupancy and equipment expense increased due to higher depreciation, property tax and rental operating expenses as a result of the acquisition of MSA and the American Chartered merger as well as new offices opened at our Mortgage Banking Segment.
Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer base and investments in systems.
Advertising and marketing expense increased due to increased brand awareness advertising.
Professional and legal expense increased due to increased litigation and consulting fees.
Other intangible amortization expense was higher due to the customer and core deposit intangibles recorded as a result of the acquisition of MSA and the American Chartered merger, respectively.
Non-interest expense was also impacted by higher gains recognized on other real estate owned properties.
Other operating expenses increased due to higher FDIC premiums (as a result of MB Financial Bank, N.A. (the "Bank") exceeding $10 billion in assets), filing and other loan expense and card expenses (higher rewards and product development expense).

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

													Year Ended
													December 31,
	4Q16		3Q16			2Q16		1Q16		4Q15			2016			2015
Merger related and repositioning expenses:
Salaries and employee benefits	$	4,238	$	8,684		$	324	$	81	$	(212	)	$	13,327		$	(176	)
Occupancy and equipment expense	95		104			8		—		—			207			275
Computer services and telecommunication expense	781		3,105			511		305		(103		)	4,702			306
Advertising and marketing expense	6		53			41		23		2			123			2
Professional and legal expense	158		1,681			101		97		1,454			2,037			2,460
Branch exit and facilities impairment charges	—		(2,908		)	—		44		616			(2,864		)	8,515
Contingent consideration expense - Celtic acquisition ⁽¹⁾	1,000		—			—		2,703		—			3,703			—
Other operating expenses	213		649			1,581		34		(5,943		)	2,477			(5,876		)
Total merger related and repositioning expenses	$	6,491	$	11,368		$	2,566	$	3,287	$	(4,186	)	$	23,712		$	5,506

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

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

Operating Segments

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

Banking Segment

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

											Year Ended
											December 31,
	4Q16		3Q16		2Q16		1Q16		4Q15		2016		2015

Net interest income	$	133,688	$	119,685	$	112,152	$	109,608	$	111,691	$	475,133	$	424,883
Provision for credit losses	4,193		4,394		2,995		7,001		6,654		18,583		19,436
Net interest income after provision for credit losses	129,495		115,291		109,157		102,607		105,037		456,550		405,447
Non-interest income:
Mortgage origination fees	—		—		—		—		—		—		—
Mortgage servicing fees	—		—		—		—		—		—		—
Lease financing revenue, net	1,050		890		789		679		1,180		3,408		2,750
Other non-interest income	40,354		38,927		35,144		34,369		31,772		148,794		125,132
Total non-interest income	41,404		39,817		35,933		35,048		32,952		152,202		127,882
Non-interest expense:
Salaries and employee benefits expense:
Salaries	42,797		38,575		35,951		34,527		34,840		151,850		135,905
Commissions	1,090		1,172		1,424		1,396		1,503		5,082		4,932
Bonus and stock-based compensation	9,535		10,553		10,852		6,476		7,838		37,416		32,480
Health and accident insurance	3,579		4,045		3,816		3,461		2,765		14,901		13,316
Other salaries and benefits ⁽¹⁾	10,341		9,612		8,171		7,542		7,144		35,666		29,412
Total salaries and employee benefits expense	67,342		63,957		60,214		53,402		54,090		244,915		216,045
Occupancy and equipment expense	12,765		11,724		10,561		10,430		10,344		45,480		40,512
Computer services and telecommunication expense	8,813		7,418		6,945		6,446		6,200		29,622		24,983
Professional and legal expense	1,281		1,566		2,385		1,486		1,709		6,718		4,784
Other operating expenses	17,430		16,467		16,587		15,570		15,757		66,054		63,806
Total non-interest expense	107,631		101,132		96,692		87,334		88,100		392,789		350,130
Income before income taxes	63,268		53,976		48,398		50,321		49,889		215,963		183,199
Income tax expense	19,422		16,287		14,353		14,927		14,998		64,989		54,456
Net income	$	43,846	$	37,689	$	34,045	$	35,394	$	34,891	$	150,974	$	128,743

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

Net income from our Banking Segment for the fourth quarter of 2016 increased by $6.2 million, or 16.3%, compared to the prior quarter. This increase in net income was primarily due to an increase in net interest income driven by the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger for a full quarter as well as an increase in other non-interest income, partially offset by higher salaries and employee benefits expense primarily due to the increased staff from the American Chartered merger for a full quarter.

Net income from our Banking Segment for the year ended December 31, 2016 increased by $22.2 million, or 17.3%, compared to the year ended December 31, 2015. This increase in net income was primarily due to an increase in net interest income, driven by growth in our legacy loan portfolio and the impact of the interest earning assets and interest bearing liabilities acquired through the American Chartered merger, and an increase in other non-interest income. This increase was partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires, increased staff from the American Chartered merger and bonus expense based on company performance and the increase in staff.

Leasing Segment

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

													Year Ended
													December 31,
	4Q16			3Q16		2Q16			1Q16		4Q15		2016		2015

Net interest income	$	2,413		$	2,168	$	2,411		$	2,423	$	2,714	$	9,415	$	11,475
Provision for credit losses	(1,750		)	1,964		(356		)	437		—		295		1,598
Net interest income after provision for credit losses	4,163			204		2,767			1,986		2,714		9,120		9,877
Non-interest income:
Mortgage origination fees	—			—		—			—		—		—		—
Mortgage servicing fees	—			—		—			—		—		—		—
Lease financing revenue, net	19,005			17,974		14,919			18,367		14,757		70,265		73,831
Other non-interest income	754			785		786			839		802		3,164		3,112
Total non-interest income	19,759			18,759		15,705			19,206		15,559		73,429		76,943
Non-interest expense:
Salaries and employee benefits expense:
Salaries	3,081			3,555		3,344			2,832		2,286		12,812		10,211
Commissions	2,768			2,592		2,172			3,936		3,047		11,468		15,298
Bonus and stock-based compensation	1,516			950		829			872		1,052		4,167		3,735
Health and accident insurance	376			376		376			335		312		1,463		1,287
Other salaries and benefits ⁽¹⁾	941			934		886			1,108		777		3,869		3,193
Total salaries and employee benefits expense	8,682			8,407		7,607			9,083		7,474		33,779		33,724
Occupancy and equipment expense	929			966		947			895		855		3,737		3,355
Computer services and telecommunication expense	483			432		431			363		340		1,709		1,244
Professional and legal expense	652			802		414			409		328		2,277		1,172
Other operating expenses	1,714			1,997		1,716			1,447		1,501		6,874		5,869
Total non-interest expense	12,460			12,604		11,115			12,197		10,498		48,376		45,364
Income before income taxes	11,462			6,359		7,357			8,995		7,775		34,173		41,456
Income tax expense	4,653			2,484		2,879			3,509		3,037		13,525		16,255
Net income	$	6,809		$	3,875	$	4,478		$	5,486	$	4,738	$	20,648	$	25,201

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

Net income from our Leasing Segment for the fourth quarter of 2016 increased by $2.9 million, or 75.7%, compared to the prior quarter. This increase in net income was primarily due to a negative provision for credit losses resulting from the improvement of a potential problem loan as well as greater residual gains and an increase in operating lease revenue.

Net income from our Leasing Segment for the year ended December 31, 2016 decreased by $4.6 million, or 18.1%, compared to the year ended December 31, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues resulting from lower residual gains partly offset by higher fees from the sale of third-party equipment maintenance contracts as well as an increase in legal and other operating expenses.

Mortgage Banking Segment

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

												Year Ended
												December 31,
	4Q16		3Q16		2Q16		1Q16			4Q15		2016			2015

Net interest income	$	9,113	$	8,918	$	8,039	$	7,273		$	7,364	$	33,343		$	29,248
Provision for credit losses	179		191		190		125			104		685			352
Net interest income after provision for credit losses	8,934		8,727		7,849		7,148			7,260		32,658			28,896
Non-interest income:
Mortgage origination fees	29,317		39,962		31,417		16,894			17,596		117,590			94,703
Mortgage servicing fees	2,960		9,133		8,198		10,588			8,946		30,879			22,723
Lease financing revenue, net	—		—		—		—			—		—			—
Other non-interest income	—		—		—		(3		)	10		(3		)	14
Total non-interest income	32,277		49,095		39,615		27,479			26,552		148,466			117,440
Non-interest expense:
Salaries and employee benefits expense:
Salaries	12,945		12,958		12,088		11,450			11,307		49,441			43,454
Commissions	8,178		8,554		7,226		5,016			5,244		28,974			25,334
Bonus and stock-based compensation	1,116		1,477		1,190		1,309			1,060		5,092			3,717
Health and accident insurance	1,996		1,956		1,887		1,803			1,569		7,642			6,472
Other salaries and benefits ⁽¹⁾	3,790		4,774		3,988		3,439			3,612		15,991			14,955
Total salaries and employee benefits expense	28,025		29,719		26,379		23,017			22,792		107,140			93,932
Occupancy and equipment expense	1,900		1,972		1,899		1,935			1,736		7,706			6,368
Computer services and telecommunication expense	1,910		1,881		1,890		1,941			2,008		7,622			7,920
Professional and legal expense	418		411		421		597			678		1,847			2,637
Other operating expenses	6,971		6,587		6,309		5,484			5,040		25,351			22,206
Total non-interest expense	39,224		40,570		36,898		32,974			32,254		149,666			133,063
Income before income taxes	1,987		17,252		10,566		1,653			1,558		31,458			13,273
Income tax expense	795		6,901		4,226		661			623		12,583			5,309
Net income	$	1,192	$	10,351	$	6,340	$	992		$	935	$	18,875		$	7,964

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

Net income from our Mortgage Banking Segment for the fourth quarter of 2016 decreased by $9.2 million, or 88.5%, compared to the prior quarter primarily due to a decrease in mortgage banking revenue.

The significant increase in interest rates in the fourth quarter of 2016, coupled with an increase in short-term interest rates by the Federal Reserve, drove fewer interest rate lock commitments. This decrease in interest rate lock commitment volume had a negative impact on our mortgage origination fees for the quarter. Lower gain on sale margin during the quarter also had a negative impact on mortgage origination fees.

In addition, high volatility in interest rates caused disproportionate changes in the fair value of our mortgage servicing rights asset and the fair value of the derivatives used to hedge this asset. As a result, the fair value of our hedge decreased more than the increase in the fair value of our mortgage servicing rights asset, reducing our mortgage servicing fees during the quarter.

By comparison, favorable market conditions in the third quarter drove higher interest rate lock commitment volume at higher gain on sale margins. This, coupled with improved hedge performance, drove better than expected results in our Mortgage Banking Segment.

Net income from our Mortgage Banking Segment for the year ended December 31, 2016 increased by $10.9 million, or 137.0%, compared to the year ended December 31, 2015. This increase in net income was due to higher gain on sale margin and an increase in servicing fees, partly offset by higher salaries expense as the result of annual pay increases and new hires, higher commission expense and higher bonus expense.

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Origination volume	$	2,054,406		$	1,976,377		$	1,709,044		$	1,328,804		$	1,437,057		$	7,068,631		$	7,016,733
Refinance	56		%	48		%	42		%	49		%	42		%	49		%	45		%
Purchase	44			52			58			51			58			51			55
Origination volume by channel:
Retail	21		%	22		%	23		%	19		%	18		%	21		%	18		%
Third party	79			78			77			81			82			79			82
Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end	$	19,683,073		$	18,477,648		$	17,739,626		$	16,911,325		$	16,218,613		$	19,683,073		$	16,218,613
Mortgage servicing rights, recorded at fair value, at period end	238,011			154,730			134,969			145,800			168,162			238,011			168,162
Notional value of rate lock commitments, at period end	543,900			1,201,100			981,000			823,000			622,906			543,900			622,906

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):

	12/31/2016					9/30/2016					6/30/2016					3/31/2016					12/31/2015
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial related loans:
Commercial	$	4,346,506		34	%	$	4,385,812		35	%	$	3,561,500		35	%	$	3,509,604		36	%	$	3,616,286		37	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,002,976			16		1,873,380			15		1,794,465			18		1,774,104			18		1,779,072			18
Commercial real estate	3,788,016			29		3,794,801			30		2,827,720			28		2,831,814			28		2,695,676			27
Construction real estate	518,562			4		451,023			4		357,807			3		310,278			3		252,060			3
Total commercial related loans	10,656,060			83		10,505,016			84		8,541,492			84		8,425,800			85		8,343,094			85
Other loans:
Residential real estate	1,060,828			8		998,827			8		753,707			7		677,791			7		628,169			6
Indirect vehicle	541,680			4		522,271			4		491,480			5		432,915			4		384,095			4
Home equity	266,377			2		275,288			2		198,622			2		207,079			2		216,573			2
Consumer	80,781			1		77,956			1		75,775			1		77,318			1		80,661			1
Total other loans	1,949,666			15		1,874,342			15		1,519,584			15		1,395,103			14		1,309,498			13
Total loans, excluding purchased credit-impaired loans	12,605,726			98		12,379,358			99		10,061,076			99		9,820,903			99		9,652,592			98
Purchased credit-impaired loans	163,077			2		161,338			1		136,811			1		140,445			1		141,406			2
Total loans	$	12,768,803		100	%	$	12,540,696		100	%	$	10,197,887		100	%	$	9,961,348		100	%	$	9,793,998		100	%
Change from prior quarter	+1.8		%			+23.0		%			+2.4		%			+1.7		%			+4.3		%
Change from same quarter one year ago	+30.4		%			+33.6		%			+12.1		%			+11.7		%			+7.8		%

Our loan balances, excluding purchased credit-impaired loans, grew $226.4 million (+1.8%, or +7.3% annualized basis) during the fourth quarter of 2016 primarily due to growth in lease, construction real estate and residential real estate loans. Compared to December 31, 2015, legacy loan balances, excluding purchased credit-impaired loans, increased $1.2 billion (+12.5%).

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):

	4Q16					3Q16					2Q16					1Q16					4Q15
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,274,398		35	%	$	3,850,588		35	%	$	3,522,641		35	%	$	3,531,441		36	%	$	3,492,161		37	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,896,486			15		1,825,505			16		1,777,763			18		1,754,558			18		1,708,404			18
Commercial real estate	3,775,599			30		3,183,131			29		2,821,516			28		2,734,148			28		2,627,004			28
Construction real estate	486,861			4		397,480			4		351,079			3		276,797			3		274,188			2
Total commercial-related loans	10,433,344			84		9,256,704			84		8,472,999			84		8,296,944			85		8,101,757			85
Other loans:
Residential real estate	1,031,152			8		862,393			7		710,384			7		640,231			7		612,275			6
Indirect vehicle	532,782			4		507,772			5		462,053			5		404,473			4		365,744			4
Home equity	273,694			2		231,399			2		202,228			2		210,678			2		219,440			2
Consumer	80,113			1		77,451			1		78,108			1		80,569			1		83,869			1
Total other loans	1,917,741			15		1,679,015			15		1,452,773			15		1,335,951			14		1,281,328			13
Total loans, excluding purchased credit-impaired loans	12,351,085			99		10,935,719			99		9,925,772			99		9,632,895			99		9,383,085			98
Purchased credit-impaired loans	152,509			1		135,548			1		136,415			1		139,451			1		154,562			2
Total loans	$	12,503,594		100	%	$	11,071,267		100	%	$	10,062,187		100	%	$	9,772,346		100	%	$	9,537,647		100	%
Change from prior quarter	+12.9		%			+10.0		%			+3.0		%			+2.5		%			+3.8		%
Change from same quarter one year ago	+31.1		%			+20.5		%			+12.2		%			+9.9		%			+6.2		%

Our quarterly average loan balances, excluding purchased credit-impaired loans, increased $1.4 billion (+12.9%) during the fourth quarter of 2016 primarily due to having a full quarter of loan balances acquired through the American Chartered merger. Compared to the fourth quarter of 2015, our quarterly average legacy loan balances, excluding purchased credit-impaired loans, for the fourth quarter of 2016 increased by approximately 12%.

ASSET QUALITY

The following table presents a summary of criticized assets (excluding loans held for sale and excluding other real estate owned acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

	12/31/2016			9/30/2016			6/30/2016			3/31/2016			12/31/2015
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	48,974		$	52,135		$	67,544		$	93,602		$	98,065
Loans 90 days or more past due, still accruing interest	10,378			1,774			7,190			1,112			6,596
Total non-performing loans	59,352			53,909			74,734			94,714			104,661
Other real estate owned	26,279			33,105			27,663			28,309			31,553
Repossessed assets	322			453			459			187			81
Total non-performing assets	$	85,953		$	87,467		$	102,856		$	123,210		$	136,295
Potential problem loans ⁽²⁾	$	144,544		$	111,594		$	99,782		$	110,193		$	139,941
Purchased credit-impaired loans	$	163,077		$	161,338		$	136,811		$	140,445		$	141,406
Total non-performing, potential problem and purchased credit-impaired loans	$	366,973		$	326,841		$	311,327		$	345,352		$	386,008

Total allowance for loan and lease losses	$	139,366		$	139,528		$	135,614		$	134,493		$	128,140
Accruing restructured loans ⁽³⁾	32,687			28,561			26,715			27,269			26,991
Total non-performing loans to total loans	0.46		%	0.43		%	0.73		%	0.95		%	1.07		%
Total non-performing assets to total assets	0.45			0.45			0.64			0.79			0.87
Allowance for loan and lease losses to non-performing loans	234.81			258.82			181.46			142.00			122.43

⁽¹⁾Includes $27.1 million, $23.4 million, $28.9 million, $24.0 million and $23.6 million of restructured loans on non-accrual status at December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016 and December 31, 2015, respectively.
⁽²⁾We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.
⁽³⁾Accruing restructured loans consist of loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

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

	12/31/2016		9/30/2016		6/30/2016		3/31/2016		12/31/2015
Commercial and lease	$	15,189	$	14,898	$	29,509	$	28,590	$	37,076
Commercial real estate	11,767		4,655		7,163		27,786		29,073
Consumer related	32,396		34,356		38,062		38,338		38,512
Total non-performing loans	$	59,352	$	53,909	$	74,734	$	94,714	$	104,661

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

	12/31/2016			9/30/2016			6/30/2016			3/31/2016			12/31/2015
Balance at the beginning of quarter	$	33,105		$	27,663		$	28,309		$	31,553		$	29,587
Transfers in at fair value less estimated costs to sell	1,191			929			1,367			1,270			5,964
Acquired from business combination	—			4,148			—			—			—
Capitalized other real estate owned costs	—			96			—			—			—
Fair value adjustments	(2,834		)	865			70			45			(721		)
Net gains on sales of other real estate owned	2,652			25			227			592			977
Cash received upon disposition	(7,835		)	(621		)	(2,310		)	(5,151		)	(4,254		)
Balance at the end of quarter	$	26,279		$	33,105		$	27,663		$	28,309		$	31,553

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Allowance for credit losses, balance at the beginning of period	$	142,399		$	138,333		$	137,732		$	131,508		$	128,038		$	131,508		$	114,057
Provision for credit losses	2,622			6,549			2,829			7,563			6,758			19,563			21,386
Charge-offs:
Commercial	—			1,341			72			713			710			2,126			2,993
Commercial loans collateralized by assignment of lease payments (lease loans)	3,452			367			2,347			574			685			6,740			2,765
Commercial real estate	250			529			1,720			352			1,251			2,851			3,563
Construction real estate	442			7			144			—			23			593			34
Residential real estate	222			290			476			368			261			1,356			1,450
Home equity	429			376			619			238			407			1,662			1,485
Indirect vehicle	1,085			838			651			931			898			3,505			2,980
Consumer	562			409			395			412			550			1,778			1,941
Total charge-offs	6,442			4,157			6,424			3,588			4,785			20,611			17,211
Recoveries:
Commercial	437			665			952			380			235			2,434			1,749
Commercial loans collateralized by assignment of lease payments (lease loans)	30			3			467			50			12			550			1,112
Commercial real estate	968			324			1,843			594			385			3,729			6,723
Construction real estate	48			50			17			27			19			142			272
Residential real estate	1,059			45			82			24			98			1,210			515
Home equity	180			65			193			318			132			756			579
Indirect vehicle	437			436			501			463			499			1,837			1,853
Consumer	104			86			141			393			117			724			473
Total recoveries	3,263			1,674			4,196			2,249			1,497			11,382			13,276
Total net charge-offs	3,179			2,483			2,228			1,339			3,288			9,229			3,935
Allowance for credit losses, balance at the end of the period	141,842			142,399			138,333			137,732			131,508			141,842			131,508
Allowance for unfunded credit commitments	(2,476		)	(2,871		)	(2,719		)	(3,239		)	(3,368		)	(2,476		)	(3,368		)
Allowance for loan and lease losses, balance at the end of the period	$	139,366		$	139,528		$	135,614		$	134,493		$	128,140		$	139,366		$	128,140
Total loans, excluding loans held for sale	$	12,768,803		$	12,540,696		$	10,197,887		$	9,961,348		$	9,793,998		$	12,768,803		$	9,793,998
Average loans, excluding loans held for sale	12,503,594			11,071,267			10,062,187			9,772,346			9,537,647			10,857,460			9,147,279
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.09		%	1.11		%	1.33		%	1.35		%	1.31		%	1.09		%	1.31		%
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.10			0.09			0.09			0.06			0.14			0.09			0.04

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

	12/31/2016		9/30/2016		6/30/2016		3/31/2016		12/31/2015
Commercial related loans:
General reserve	$	120,489	$	112,653	$	108,972	$	98,001	$	94,164
Specific reserve	3,243		9,698		12,205		20,995		16,173
Consumer related reserve	15,634		17,177		14,437		15,497		17,803
Total allowance for loan and lease losses	$	139,366	$	139,528	$	135,614	$	134,493	$	128,140

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

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

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

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

Changes in the acquisition accounting discount for loans acquired in the bank mergers were as follows for the three months ended December 31, 2016 (in thousands):

	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	11,130		$	13,924		$	49,356		$	74,410
Purchases	15,746			4,281			(7,904		)	12,123
Recoveries	1,295			—			—			1,295
Accretion	—			(2,709		)	(4,854		)	(7,563		)
Transfer	(554		)	554			—			—
Balance at end of period	$	27,617		$	16,050		$	36,598		$	80,265

The acquisition accounting discount for loans acquired in the American Chartered merger was revised compared to previously reported balances and is only provisional at December 31, 2016 as loan risk ratings continue to be assessed. The change is reflected in the purchases line in the table above.

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

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

The $554 thousand and $2.5 million acquisition accounting discount transfer from non-accretable discount to accretable discount on purchased credit-impaired loans for the three months ended December 31, 2016 and September 30, 2016, respectively, was due to better than expected cash flows on several pools of purchased credit-impaired loans.

INVESTMENT SECURITIES

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

	12/31/2016			9/30/2016		6/30/2016		3/31/2016			12/31/2015
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	23,415		$	53,968	$	54,457	$	64,762		$	64,611
States and political subdivisions	391,365			410,737		400,948		398,024			396,367
Mortgage-backed securities	1,076,692			1,173,330		785,367		834,559			893,656
Corporate bonds	193,895			210,193		225,525		224,530			219,628
Equity securities	10,828			11,128		11,098		10,969			10,761
Total fair value	$	1,696,195		$	1,859,356	$	1,477,395	$	1,532,844		$	1,585,023

Amortized cost
Government sponsored agencies and enterprises	$	23,267		$	53,456	$	53,674	$	63,600		$	63,805
States and political subdivisions	376,541			383,041		369,816		371,006			373,285
Mortgage-backed securities	1,080,693			1,160,796		769,109		820,825			888,325
Corporate bonds	193,164			208,940		224,730		225,657			222,784
Equity securities	11,000			10,932		10,872		10,814			10,757
Total amortized cost	$	1,684,665		$	1,817,165	$	1,428,201	$	1,491,902		$	1,558,956

Unrealized gain (loss)
Government sponsored agencies and enterprises	$	148		$	512	$	783	$	1,162		$	806
States and political subdivisions	14,824			27,696		31,132		27,018			23,082
Mortgage-backed securities	(4,001		)	12,534		16,258		13,734			5,331
Corporate bonds	731			1,253		795		(1,127		)	(3,156		)
Equity securities	(172		)	196		226		155			4
Total unrealized gain	$	11,530		$	42,191	$	49,194	$	40,942		$	26,067

Securities held to maturity, at cost:
States and political subdivisions	$	910,608		$	939,491	$	960,784	$	986,340		$	1,016,519
Mortgage-backed securities	159,142			175,771		190,631		205,570			214,291
Total amortized cost	$	1,069,750		$	1,115,262	$	1,151,415	$	1,191,910		$	1,230,810

Total unrealized gain decreased at December 31, 2016 compared to September 30, 2016 as result of the increase in interest rates.

DEPOSIT MIX

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

	12/31/2016					9/30/2016					6/30/2016					3/31/2016					12/31/2015
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	6,408,169		46	%	$	6,410,334		45	%	$	4,775,364		42	%	$	4,667,410		40	%	$	4,627,184		40	%
Money market, NOW and interest bearing deposits	4,543,004			32		4,660,407			33		3,771,111			33		4,048,054			35		4,144,633			36
Savings deposits	1,135,992			8		1,147,900			8		1,021,845			9		991,300			9		974,555			8
Total low cost deposits	12,087,165			86		12,218,641			86		9,568,320			84		9,706,764			84		9,746,372			84
Certificates of deposit:
Certificates of deposit	1,225,102			9		1,298,186			9		1,220,562			11		1,255,457			11		1,244,292			11
Brokered certificates of deposit	798,181			5		762,439			5		647,214			5		571,605			5		514,551			5
Total certificates of deposit	2,023,283			14		2,060,625			14		1,867,776			16		1,827,062			16		1,758,843			16
Total deposits	$	14,110,448		100	%	$	14,279,266		100	%	$	11,436,096		100	%	$	11,533,826		100	%	$	11,505,215		100	%
Change from prior quarter	-1.2		%			+24.9		%			-0.8		%			+0.2		%			+2.2		%
Change from same quarter one year ago	+22.6		%			+26.9		%			+5.3		%			+4.7		%			+4.7		%

Total low cost deposits decreased $131.5 million to $12.1 billion at December 31, 2016 compared to the prior quarter primarily due to the decrease in higher rate NOW accounts and mortgage escrow accounts. Non-interest bearing deposits represented 46% of total deposits at December 31, 2016. Compared to December 31, 2015, legacy low cost deposit balances increased $276.8 million (+2.8%) driven by the 11.0% growth in non-interest bearing deposits.

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

	4Q16					3Q16					2Q16					1Q16					4Q15
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	6,454,025		45	%	$	5,524,043		43	%	$	4,806,692		42	%	$	4,606,008		40	%	$	4,617,076		40	%
Money market, NOW and interest bearing deposits	4,628,698			33		4,161,913			33		3,836,134			33		4,109,150			36		4,214,099			37
Savings deposits	1,140,926			8		1,080,609			8		1,006,902			9		984,019			9		959,049			8
Total low cost deposits	12,223,649			86		10,766,565			84		9,649,728			84		9,699,177			85		9,790,224			85
Certificates of deposit:
Certificates of deposit	1,263,675			9		1,257,959			10		1,237,198			11		1,237,971			11		1,245,947			11
Brokered certificates of deposit	779,411			5		702,030			6		598,702			5		534,910			4		492,839			4
Total certificates of deposit	2,043,086			14		1,959,989			16		1,835,900			16		1,772,881			15		1,738,786			15
Total deposits	$	14,266,735		100	%	$	12,726,554		100	%	$	11,485,628		100	%	$	11,472,058		100	%	$	11,529,010		100	%
Change from prior quarter	+12.1		%			+10.8		%			+0.1		%			-0.5		%			+2.5		%
Change from same quarter one year ago	+23.7		%			+13.2		%			+5.4		%			+4.4		%			+2.9		%

Total average low cost deposits increased $1.5 billion to $12.2 billion during the fourth quarter of 2016 compared to the prior quarter primarily due to a full quarter of deposit balances assumed through the American Chartered merger. Similarly, non-interest bearing deposits quarterly average grew by $930.0 million (+16.8%) during the fourth quarter of 2016 compared to the third quarter of 2016. Our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 2% compared to the third quarter of 2016. Compared to the fourth quarter of 2015, our quarterly average legacy low cost deposits for the fourth quarter of 2016 increased by approximately 3%.

CAPITAL

Tangible book value per common share was $16.98 at December 31, 2016 compared to $16.88 at September 30, 2016 and $16.53 at December 31, 2015.

Our regulatory capital ratios remain strong. MB Financial Bank, N.A. (the "Bank") was categorized as “well capitalized” at December 31, 2016 under the Prompt Corrective Action (“PCA”) provisions. The Bank would be categorized as "well capitalized" under the fully phased in rules under the Basel III capital reform.

FORWARD-LOOKING STATEMENTS

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

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

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

TABLES TO FOLLOW

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

(Dollars in thousands)	12/31/2016			9/30/2016			6/30/2016			3/31/2016			12/31/2015
ASSETS
Cash and due from banks	$	364,783		$	351,009		$	303,037		$	271,732		$	307,869
Interest earning deposits with banks	98,686			125,250			123,086			113,785			73,572
Total cash and cash equivalents	463,469			476,259			426,123			385,517			381,441
Investment securities:
Securities available for sale, at fair value	1,696,195			1,859,356			1,477,395			1,532,844			1,585,023
Securities held to maturity, at amortized cost	1,069,750			1,115,262			1,151,415			1,191,910			1,230,810
Non-marketable securities - FHLB and FRB Stock	143,276			146,209			130,232			121,750			114,233
Total investment securities	2,909,221			3,120,827			2,759,042			2,846,504			2,930,066
Loans held for sale	716,883			899,412			843,379			632,196			744,727
Loans:
Total loans, excluding purchased credit-impaired loans	12,605,726			12,379,358			10,061,076			9,820,903			9,652,592
Purchased credit-impaired loans	163,077			161,338			136,811			140,445			141,406
Total loans	12,768,803			12,540,696			10,197,887			9,961,348			9,793,998
Less: Allowance for loan and lease losses	139,366			139,528			135,614			134,493			128,140
Net loans	12,629,437			12,401,168			10,062,273			9,826,855			9,665,858
Lease investments, net	311,327			277,647			233,320			216,046			211,687
Premises and equipment, net	293,910			283,112			243,319			238,578			236,013
Cash surrender value of life insurance	200,945			199,628			138,657			137,807			136,953
Goodwill	1,001,038			993,799			725,039			725,068			725,070
Other intangibles	62,959			65,395			41,569			43,186			44,812
Mortgage servicing rights, at fair value	238,011			154,730			134,969			145,800			168,162
Other real estate owned, net	26,279			33,105			27,663			28,309			31,553
Other real estate owned related to FDIC transactions	5,006			5,177			8,356			10,397			10,717
Other assets	443,832			431,623			352,081			339,390			297,948
Total assets	$	19,302,317		$	19,341,882		$	15,995,790		$	15,575,653		$	15,585,007
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	6,408,169		$	6,410,334		$	4,775,364		$	4,667,410		$	4,627,184
Interest bearing	7,702,279			7,868,932			6,660,732			6,866,416			6,878,031
Total deposits	14,110,448			14,279,266			11,436,096			11,533,826			11,505,215
Short-term borrowings	1,569,288			1,496,319			1,246,994			884,101			1,005,737
Long-term borrowings	311,790			311,645			518,545			439,615			400,274
Junior subordinated notes issued to capital trusts	210,668			209,159			185,925			185,820			186,164
Accrued expenses and other liabilities	520,914			482,085			451,695			409,406			400,333
Total liabilities	16,723,108			16,778,474			13,839,255			13,452,768			13,497,723
Stockholders' Equity
Preferred stock	115,572			116,507			115,280			115,280			115,280
Common stock	856			855			757			756			756
Additional paid-in capital	1,678,826			1,674,341			1,288,777			1,284,438			1,280,870
Retained earnings	838,892			809,769			783,468			756,272			731,812
Accumulated other comprehensive income	5,190			23,763			28,731			24,687			15,777
Treasury stock	(60,384		)	(62,084		)	(60,732		)	(59,863		)	(58,504		)
Controlling interest stockholders' equity	2,578,952			2,563,151			2,156,281			2,121,570			2,085,991
Noncontrolling interest	257			257			254			1,315			1,293
Total stockholders' equity	2,579,209			2,563,408			2,156,535			2,122,885			2,087,284
Total liabilities and stockholders' equity	$	19,302,317		$	19,341,882		$	15,995,790		$	15,575,653		$	15,585,007

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

																Year Ended
																December 31,
(Dollars in thousands, except per share data)	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Interest income:
Loans:
Taxable	$	134,048		$	118,675		$	110,231		$	104,923		$	106,137		$	467,877		$	404,324
Nontaxable	2,947			2,846			2,741			2,586			2,602			11,120			9,318
Investment securities:
Taxable	9,362			8,844			7,799			9,566			9,708			35,571			39,299
Nontaxable	10,220			10,382			10,644			10,776			10,969			42,022			40,974
Federal funds sold	—			—			—			—			1			—			1
Other interest earning accounts	157			164			125			141			110			587			318
Total interest income	156,734			140,911			131,540			127,992			129,527			557,177			494,234
Interest expense:
Deposits	7,324			6,681			5,952			5,622			5,357			25,579			19,658
Short-term borrowings	1,472			1,092			910			721			385			4,195			1,412
Long-term borrowings and junior subordinated notes	2,724			2,367			2,076			2,345			2,016			9,512			7,558
Total interest expense	11,520			10,140			8,938			8,688			7,758			39,286			28,628
Net interest income	145,214			130,771			122,602			119,304			121,769			517,891			465,606
Provision for credit losses	2,622			6,549			2,829			7,563			6,758			19,563			21,386
Net interest income after provision for credit losses	142,592			124,222			119,773			111,741			115,011			498,328			444,220
Non-interest income:
Mortgage banking revenue	32,277			49,095			39,615			27,482			26,542			148,469			117,426
Lease financing revenue, net	19,868			18,864			15,708			19,046			15,937			73,486			76,581
Commercial deposit and treasury management fees	14,237			12,957			11,548			11,878			11,711			50,620			45,283
Trust and asset management fees	8,442			8,244			8,236			7,950			6,077			32,872			23,545
Card fees	4,340			4,161			4,045			3,525			3,651			16,071			15,322
Capital markets and international banking service fees	4,021			3,313			2,771			3,227			2,355			13,332			8,148
Consumer and other deposit service fees	3,563			3,559			3,161			3,025			3,440			13,308			13,282
Brokerage fees	887			1,294			1,315			1,158			1,252			4,654			5,754
Loan service fees	1,952			1,792			1,961			1,752			1,890			7,457			6,259
Increase in cash surrender value of life insurance	1,316			1,055			850			854			864			4,075			3,391
Net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Other operating income	2,491			4,048			2,523			1,844			1,909			10,906			7,280
Total non-interest income	92,823			108,387			92,000			81,693			75,625			374,903			322,093
Non-interest expense:
Salaries and employee benefits expense	108,428			111,478			95,004			85,591			84,709			400,501			343,531
Occupancy and equipment expense	15,689			14,766			13,415			13,260			12,935			57,130			50,510
Computer services and telecommunication expense	11,800			12,836			9,777			9,055			8,445			43,468			34,453
Advertising and marketing expense	3,045			3,084			2,964			2,878			2,551			11,971			10,072
Professional and legal expense	2,509			4,460			3,321			2,589			4,169			12,879			11,053
Other intangible amortization expense	2,388			1,674			1,617			1,626			1,546			7,305			6,115
Branch exit and facilities impairment charges	—			(2,908		)	155			44			616			(2,709		)	8,515
Net (gain) loss recognized on other real estate owned and other related expense	(790		)	(721		)	258			(346		)	(729		)	(1,599		)	1,468
Prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Other operating expenses	22,691			25,716			21,395			21,103			12,989			90,905			68,352
Total non-interest expense	165,760			170,385			147,906			135,800			127,231			619,851			534,154
Income before income taxes	69,655			62,224			63,867			57,634			63,405			253,380			232,159
Income tax expense	22,464			17,805			20,455			18,520			19,798			79,244			73,211
Net income	47,191			44,419			43,412			39,114			43,607			174,136			158,948
Dividends on preferred shares	2,005			2,004			2,000			2,000			2,000			8,009			8,000
Net income available to common stockholders	$	45,186		$	42,415		$	41,412		$	37,114		$	41,607		$	166,127		$	150,948

											Year Ended
											December 31,
	4Q16		3Q16		2Q16		1Q16		4Q15		2016		2015
Common share data:
Basic earnings per common share	$	0.54	$	0.55	$	0.56	$	0.51	$	0.57	$	2.16	$	2.03
Diluted earnings per common share	0.53		0.54		0.56		0.50		0.56		2.13		2.02
Weighted average common shares outstanding for basic earnings per common share	83,484,899		77,506,885		73,475,258		73,330,731		73,296,602		76,968,823		74,177,574
Weighted average common shares outstanding for diluted earnings per common share	84,674,181		78,683,170		74,180,374		73,966,935		73,953,165		77,976,121		74,849,030
Common shares outstanding (at end of period)	83,725,269		83,555,257		73,740,348		73,639,487		73,678,329		83,725,269		73,678,329

Selected Financial Data:
																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Performance Ratios:
Annualized return on average assets	0.98		%	1.02		%	1.11		%	1.02		%	1.13		%	1.03		%	1.07		%
Annualized operating return on average assets ⁽¹⁾	1.07			1.20			1.15			1.09			1.06			1.13			1.09
Annualized return on average common equity	7.36			7.67			8.27			7.52			8.48			7.69			7.77
Annualized operating return on average common equity ⁽¹⁾	8.12			9.02			8.56			8.08			7.86			8.44			7.92
Annualized cash return on average tangible common equity ⁽²⁾	13.22			12.99			13.53			12.47			13.97			13.06			12.82
Annualized cash operating return on average tangible common equity ⁽³⁾	14.54			15.23			13.99			13.37			12.97			14.31			13.07
Net interest rate spread	3.48			3.50			3.64			3.63			3.72			3.56			3.70
Cost of funds ⁽⁴⁾	0.28			0.28			0.27			0.27			0.24			0.28			0.23
Efficiency ratio ⁽⁵⁾	64.62			62.69			65.32			63.49			63.95			64.02			64.71
Annualized net non-interest expense to average assets ⁽⁶⁾	1.35			1.06			1.35			1.31			1.44			1.27			1.38
Core non-interest income to revenues ⁽⁷⁾	38.15			43.98			41.40			39.38			36.91			40.77			39.68
Net interest margin	3.50			3.49			3.60			3.57			3.64			3.54			3.63
Tax equivalent effect	0.17			0.19			0.21			0.22			0.22			0.19			0.21
Net interest margin - fully tax equivalent basis ⁽⁸⁾	3.67			3.68			3.81			3.79			3.86			3.73			3.84
Loans to deposits	90.49			87.82			89.17			86.37			85.13			90.49			85.13
Asset Quality Ratios:
Non-performing loans ⁽⁹⁾ to total loans	0.46		%	0.43		%	0.73		%	0.95		%	1.07		%	0.46		%	1.07		%
Non-performing assets ⁽⁹⁾ to total assets	0.45			0.45			0.64			0.79			0.87			0.45			0.87
Allowance for loan and lease losses to non-performing loans ⁽⁹⁾	234.81			258.82			181.46			142.00			122.43			234.81			122.43
Allowance for loan and lease losses to total loans	1.09			1.11			1.33			1.35			1.31			1.09			1.31
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.10			0.09			0.09			0.06			0.14			0.09			0.04
Capital Ratios:
Tangible equity to tangible assets ⁽¹⁰⁾	8.42		%	8.34		%	9.21		%	9.24		%	8.99		%	8.42		%	8.99		%
Tangible common equity to tangible assets ⁽¹¹⁾	7.79			7.71			8.46			8.46			8.21			7.79			8.21
Tangible common equity to risk weighted assets ⁽¹²⁾	8.78			8.83			9.75			9.54			9.34			8.78			9.34
Total capital (to risk-weighted assets) ⁽¹³⁾	11.59			11.66			12.81			12.65			12.54			11.59			12.54
Tier 1 capital (to risk-weighted assets) ⁽¹³⁾	9.37			9.40			11.77			11.60			11.54			9.37			11.54
Common equity tier 1 capital (to risk-weighted assets) ⁽¹³⁾	8.70			8.71			9.52			9.33			9.27			8.70			9.27
Tier 1 capital (to average assets) ⁽¹³⁾	8.38			9.29			10.41			10.38			10.40			8.38			10.40
Per Share Data:
Book value per common share ⁽¹⁴⁾	$	29.43		$	29.28		$	27.68		$	27.26		$	26.77		$	29.43		$	26.77
Less: goodwill and other intangible assets, net of benefit, per common share	12.45			12.40			10.20			10.22			10.24			12.45			10.24
Tangible book value per common share ⁽¹⁵⁾	$	16.98		$	16.88		$	17.48		$	17.04		$	16.53		$	16.98		$	16.53
Cash dividends per common share	$	0.19		$	0.19		$	0.19		$	0.17		$	0.17		$	0.74		$	0.65

⁽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 non-interest bearing deposits.
⁽⁵⁾Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance.
⁽⁶⁾Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.
⁽⁷⁾Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance.
⁽⁸⁾Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
⁽⁹⁾Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale and other real estate owned related to FDIC transactions.
⁽¹⁰⁾Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
⁽¹¹⁾Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
⁽¹²⁾Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by risk-weighted assets. Current quarter risk-weighted assets are estimated.
⁽¹³⁾Current quarter ratios are estimated.
⁽¹⁴⁾Equals total ending common stockholders’ equity divided by common shares outstanding.
⁽¹⁵⁾Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.

NON-GAAP FINANCIAL INFORMATION

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

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

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

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

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

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

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

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

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

	12/31/2016		9/30/2016		6/30/2016		3/31/2016		12/31/2015
Stockholders' equity - as reported	$	2,579,209	$	2,563,408	$	2,156,535	$	2,122,885	$	2,087,284
Less: goodwill	1,001,038		993,799		725,039		725,068		725,070
Less: other intangible assets, net of tax benefit	40,923		42,507		27,020		28,071		29,128
Tangible equity	$	1,537,248	$	1,527,102	$	1,404,476	$	1,369,746	$	1,333,086

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

	12/31/2016		9/30/2016		6/30/2016		3/31/2016		12/31/2015
Total assets - as reported	$	19,302,317	$	19,341,882	$	15,995,790	$	15,575,653	$	15,585,007
Less: goodwill	1,001,038		993,799		725,039		725,068		725,070
Less: other intangible assets, net of tax benefit	40,923		42,507		27,020		28,071		29,128
Tangible assets	$	18,260,356	$	18,305,576	$	15,243,731	$	14,822,514	$	14,830,809

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

	12/31/2016		9/30/2016		6/30/2016		3/31/2016		12/31/2015
Common stockholders' equity - as reported	$	2,463,637	$	2,446,901	$	2,041,255	$	2,007,605	$	1,972,004
Less: goodwill	1,001,038		993,799		725,039		725,068		725,070
Less: other intangible assets, net of tax benefit	40,923		42,507		27,020		28,071		29,128
Tangible common equity	$	1,421,676	$	1,410,595	$	1,289,196	$	1,254,466	$	1,217,806

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

											Year Ended
											December 31,
	4Q16		3Q16		2Q16		1Q16		4Q15		2016		2015
Average common stockholders' equity	$	2,441,809	$	2,201,095	$	2,014,822	$	1,984,379	$	1,945,772	$	2,161,405	$	1,943,632
Less: average goodwill	994,053		835,894		725,011		725,070		711,669		820,526		711,559
Less: average other intangible assets, net of tax benefit	41,471		32,744		27,437		28,511		23,826		32,566		23,743
Average tangible common equity	$	1,406,285	$	1,332,457	$	1,262,374	$	1,230,798	$	1,210,277	$	1,308,313	$	1,208,330

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

											Year Ended
											December 31,
	4Q16		3Q16		2Q16		1Q16		4Q15		2016		2015
Net income available to common stockholders - as reported	$	45,186	$	42,415	$	41,412	$	37,114	$	41,607	$	166,127	$	150,948
Add: other intangible amortization expense, net of tax benefit	1,552		1,088		1,051		1,057		1,005		4,748		3,975
Net cash flow available to common stockholders	$	46,738	$	43,503	$	42,463	$	38,171	$	42,612	$	170,875	$	154,923

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Net income - as reported	$	47,191		$	44,419		$	43,412		$	39,114		$	43,607		$	174,136		$	158,948
Less non-core items:
Net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Increase in market value of assets held in trust for deferred compensation - other operating income	141			711			480			8			565			1,340			6
Merger related and repositioning expenses	(6,491		)	(11,368		)	(2,566		)	(3,287		)	4,186			(23,712		)	(5,506		)
Branch exit and facilities impairment charges	—			—			(155		)	—			—			(155		)	—
Prepayment fees on interest bearing liabilities	—			—			—			—			—			—			(85		)
Contribution to MB Financial Charitable Foundation	—			(4,000		)	—			—			—			(4,000		)	—
Increase in market value of assets held in trust for deferred compensation - other operating expense	(141		)	(711		)	(480		)	(8		)	(565		)	(1,340		)	(6		)
Total non-core items	(7,062		)	(15,363		)	(2,454		)	(3,335		)	4,183			(28,214		)	(5,769		)
Income tax expense on non-core items	(2,406		)	(6,074		)	(1,003		)	(577		)	1,140			(10,060		)	(2,809		)
Income tax benefit resulting from adoption of new stock-based compensation guidance	—			(1,793		)	—			—			—			(1,793		)	—
Non-core items, net of tax	(4,656		)	(7,496		)	(1,451		)	(2,758		)	3,043			(16,361		)	(2,960		)
Operating earnings	51,847			51,915			44,863			41,872			40,564			190,497			161,908
Dividends on preferred shares	2,005			2,004			2,000			2,000			2,000			8,009			8,000
Operating earnings available to common stockholders	$	49,842		$	49,911		$	42,863		$	39,872		$	38,564		$	182,488		$	153,908
Diluted operating earnings per common share	$	0.59		$	0.63		$	0.58		$	0.54		$	0.52		$	2.34		$	2.06
Weighted average common shares outstanding for diluted operating earnings per common share	84,674,181			78,683,170			74,180,374			73,966,935			73,953,165			77,976,121			74,849,030

Efficiency Ratio Calculation (Dollars in Thousands)

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Non-interest expense	$	165,760		$	170,385		$	147,906		$	135,800		$	127,231		$	619,851		$	534,154
Less merger related and repositioning expenses	6,491			11,368			2,566			3,287			(4,186		)	23,712			5,506
Less prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Less branch exit and facilities impairment charges	—			—			155			—			—			155			—
Less contribution to MB Financial Charitable Foundation	—			4,000			—			—			—			4,000			—
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Non-interest expense - as adjusted	$	159,128		$	154,306		$	144,705		$	132,505		$	130,852		$	590,644		$	528,557

Net interest income	$	145,214		$	130,771		$	122,602		$	119,304		$	121,769		$	517,891		$	465,606
Tax equivalent adjustment	7,090			7,122			7,208			7,195			7,307			28,616			27,080
Net interest income on a fully tax equivalent basis	152,304			137,893			129,810			126,499			129,076			546,507			492,686
Plus non-interest income	92,823			108,387			92,000			81,693			75,625			374,903			322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	709			568			458			460			465			2,194			1,826
Less net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Less net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Net interest income plus non-interest income - as adjusted	$	246,266		$	246,132		$	221,521		$	208,692		$	204,604		$	922,611		$	816,777

Efficiency ratio	64.62		%	62.69		%	65.32		%	63.49		%	63.95		%	64.02		%	64.71		%
Efficiency ratio (without adjustments)	69.64		%	71.24		%	68.92		%	67.56		%	64.46		%	69.43		%	67.81		%

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Non-interest expense	$	165,760		$	170,385		$	147,906		$	135,800		$	127,231		$	619,851		$	534,154
Less merger related and repositioning expenses	6,491			11,368			2,566			3,287			(4,186		)	23,712			5,506
Less prepayment fees on interest bearing liabilities	—			—			—			—			—			—			85
Less branch exit and facilities impairment charges	—			—			155			—			—			155			—
Less contribution to MB Financial Charitable Foundation	—			4,000			—			—			—			4,000			—
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Non-interest expense - as adjusted	159,128			154,306			144,705			132,505			130,852			590,644			528,557

Non-interest income	92,823			108,387			92,000			81,693			75,625			374,903			322,093
Less net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Less net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Non-interest income - as adjusted	93,253			107,671			91,253			81,733			75,063			373,910			322,265
Less tax equivalent adjustment on the increase in cash surrender value of life insurance	709			568			458			460			465			2,194			1,826
Net non-interest expense - as adjusted	$	65,166		$	46,067		$	52,994		$	50,312		$	55,324		$	214,540		$	204,466

Average assets	$	19,192,747		$	17,248,431		$	15,740,658		$	15,487,565		$	15,244,633		$	16,924,472		$	14,827,884
Annualized net non-interest expense - as adjusted to average assets	1.35		%	1.06		%	1.35		%	1.31		%	1.44		%	1.27		%	1.38		%
Annualized net non-interest expense to average assets (without adjustments)	1.51		%	1.43		%	1.43		%	1.41		%	1.34		%	1.45		%	1.43		%

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

																Year Ended
																December 31,
	4Q16			3Q16			2Q16			1Q16			4Q15			2016			2015
Non-interest income	$	92,823		$	108,387		$	92,000		$	81,693		$	75,625		$	374,903		$	322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	709			568			458			460			465			2,194			1,826
Less net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Less net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Non-interest income - as adjusted	$	93,962		$	108,239		$	91,711		$	82,193		$	75,528		$	376,104		$	324,091

Net interest income	$	145,214		$	130,771		$	122,602		$	119,304		$	121,769		$	517,891		$	465,606
Tax equivalent adjustment	7,090			7,122			7,208			7,195			7,307			28,616			27,080
Net interest income on a fully tax equivalent basis	152,304			137,893			129,810			126,499			129,076			546,507			492,686
Plus non-interest income	92,823			108,387			92,000			81,693			75,625			374,903			322,093
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	709			568			458			460			465			2,194			1,826
Less net gain (loss) on investment securities	178			—			269			—			(3		)	447			(176		)
Less net (loss) gain on disposal of other assets	(749		)	5			(2		)	(48		)	—			(794		)	(2		)
Less increase in market value of assets held in trust for deferred compensation	141			711			480			8			565			1,340			6
Total revenue - as adjusted and on a fully tax equivalent basis	$	246,266		$	246,132		$	221,521		$	208,692		$	204,604		$	922,611		$	816,777

Total revenue - unadjusted	$	238,037		$	239,158		$	214,602		$	200,997		$	197,394		$	892,794		$	787,699
Core non-interest income to revenues ratio	38.15		%	43.98		%	41.40		%	39.38		%	36.91		%	40.77		%	39.68		%
Non-interest income to revenues ratio (without adjustments)	39.00		%	45.32		%	42.87		%	40.64		%	38.31		%	41.99		%	40.89		%

NET INTEREST MARGIN

The following tables present, 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):

	4Q16						3Q16						4Q15
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	859,254	$	7,100	3.31	%	$	835,953	7,074		3.38	%	$	681,682	$	6,276	3.68	%
Loans ^{(1) (2) (3)}:
Commercial-related loans
Commercial	4,274,398		45,255		4.14		3,850,588		41,095		4.18		3,492,161		35,890		4.02
Commercial loans collateralized by assignment of lease payments (lease loans)	1,896,486		17,275		3.64		1,825,505		16,876		3.70		1,708,404		15,901		3.72
Commercial real estate	3,775,599		41,508		4.30		3,183,131		33,253		4.09		2,627,004		27,759		4.13
Construction real estate	486,861		4,592		3.69		397,480		3,921		3.86		274,188		3,736		5.33
Total commercial related loans	10,433,344		108,630		4.07		9,256,704		95,145		4.02		8,101,757		83,286		4.02
Other loans:
Real estate residential	1,031,152		8,522		3.31		862,393		7,121		3.30		612,275		5,490		3.59
Home equity	273,694		2,651		3.85		231,399		2,252		3.87		219,440		2,142		3.87
Indirect	532,782		6,198		4.63		507,772		5,838		4.57		365,744		4,403		4.78
Consumer	80,113		776		3.86		77,451		821		4.21		83,869		777		3.67
Total other loans	1,917,741		18,147		3.76		1,679,015		16,032		3.80		1,281,328		12,812		3.97
Total loans, excluding purchased credit-impaired loans	12,351,085		126,777		4.08		10,935,719		111,177		4.04		9,383,085		96,098		4.06
Purchased credit-impaired loans	152,509		4,704		12.27		135,548		4,802		14.09		154,562		7,766		19.93
Total loans	12,503,594		131,481		4.18		11,071,267		115,979		4.17		9,537,647		103,864		4.32
Taxable investment securities	1,721,537		9,362		2.18		1,592,547		8,844		2.22		1,510,047		9,708		2.57
Investment securities exempt from federal income taxes ⁽³⁾	1,304,931		15,724		4.82		1,318,855		15,972		4.84		1,383,592		16,875		4.88
Federal funds sold	36		0		1.00		36		0		1.00		100		1		1.00
Other interest earning deposits	107,311		157		0.58		103,061		164		0.63		141,891		110		0.31
Total interest earning assets	$	16,496,663	$	163,824	3.95		$	14,921,719	$	148,033	3.95		$	13,254,959	$	136,834	4.10
Non-interest earning assets	2,696,084						2,326,712						1,989,674
Total assets	$	19,192,747					$	17,248,431					$	15,244,633
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,628,698	$	2,593	0.22	%	$	4,161,913	$	2,299	0.22	%	$	4,214,099	$	1,999	0.19	%
Savings deposits	1,140,926		273		0.10		1,080,609		231		0.09		959,049		123		0.05
Certificates of deposit	1,263,675		1,728		0.54		1,257,959		1,633		0.52		1,245,947		1,431		0.46
Customer repurchase agreements	247,273		129		0.21		210,688		113		0.21		230,412		115		0.20
Total core funding	7,280,572		4,723		0.26		6,711,169		4,276		0.25		6,649,507		3,668		0.22
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	779,411		2,730		1.39		702,030		2,518		1.43		492,839		1,804		1.45
Other borrowings	1,638,605		4,067		0.97		1,533,344		3,346		0.85		1,031,301		2,286		0.87
Total wholesale funding	2,418,016		6,797		1.12		2,235,374		5,864		1.04		1,524,140		4,090		1.06
Total interest bearing liabilities	$	9,698,588	$	11,520	0.47		$	8,946,543	$	10,140	0.45		$	8,173,647	$	7,758	0.38
Non-interest bearing deposits	6,454,025						5,524,043						4,617,076
Other non-interest bearing liabilities	482,449						461,243						392,858
Stockholders' equity	2,557,685						2,316,602						2,061,052
Total liabilities and stockholders' equity	$	19,192,747					$	17,248,431					$	15,244,633
Net interest income/interest rate spread ⁽⁴⁾			$	152,304	3.48	%			$	137,893	3.50	%			$	129,076	3.72	%
Taxable equivalent adjustment			7,090						7,122						7,307
Net interest income, as reported			$	145,214					$	130,771					$	121,769
Net interest margin ⁽⁵⁾					3.50	%					3.49	%					3.64	%
Tax equivalent effect					0.17	%					0.19	%					0.22	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.67	%					3.68	%					3.86	%

⁽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.

	Year Ended December 31,
	2016						2015
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	771,384	$	26,450	3.43	%	$	740,975	26,804		3.62	%
Loans ^{(1) (2) (3)}:
Commercial-related loans
Commercial	3,796,230		162,710		4.22		3,342,090		137,878		4.07
Commercial loans collateralized by assignment of lease payments (lease loans)	1,813,837		67,376		3.71		1,666,611		62,221		3.73
Commercial real estate	3,130,516		132,748		4.17		2,564,506		110,009		4.23
Construction real estate	378,405		14,852		3.86		217,181		12,637		5.74
Total commercial related loans	9,118,988		377,686		4.07		7,790,388		322,745		4.09
Other loans:
Real estate residential	811,782		27,402		3.38		546,511		20,455		3.74
Home equity	229,626		8,905		3.88		231,464		9,209		3.98
Indirect	477,008		22,128		4.64		311,418		15,674		5.03
Consumer	79,059		3,158		3.99		79,416		3,161		3.98
Total other loans	1,597,475		61,593		3.86		1,168,809		48,499		4.15
Total loans, excluding purchased credit-impaired loans	10,716,463		439,279		4.10		8,959,197		371,244		4.14
Purchased credit-impaired loans	140,997		19,257		13.66		188,082		20,611		10.96
Total loans	10,857,460		458,536		4.22		9,147,279		391,855		4.28
Taxable investment securities	1,576,836		35,571		2.26		1,538,709		39,299		2.55
Investment securities exempt from federal income taxes ⁽³⁾	1,331,323		64,649		4.86		1,282,909		63,037		4.91
Federal funds sold	37		—		1.00		70		1		0.99
Other interest earning deposits	106,075		587		0.55		117,344		318		0.27
Total interest earning assets	$	14,643,115	$	585,793	4.00		$	12,827,286	$	521,314	4.06
Non-interest earning assets	2,281,357						2,000,598
Total assets	$	16,924,472					$	14,827,884
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,185,129	$	9,027	0.22	%	$	4,053,848	$	7,060	0.17	%
Savings deposits	1,053,429		837		0.08		962,221		502		0.05
Certificates of deposit	1,249,264		6,248		0.50		1,317,689		5,593		0.42
Customer repurchase agreements	202,673		420		0.21		240,737		452		0.19
Total core funding	6,690,495		16,532		0.25		6,574,495		13,607		0.21
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	654,238		9,467		1.45		452,290		6,503		1.44
Other borrowings	1,518,447		13,287		0.86		990,784		8,518		0.85
Total wholesale funding	2,172,685		22,754		1.05		1,443,074		15,021		1.04
Total interest bearing liabilities	$	8,863,180	$	39,286	0.44		$	8,017,569	$	28,628	0.36
Non-interest bearing deposits	5,351,197						4,381,030
Other non-interest bearing liabilities	433,202						370,373
Stockholders' equity	2,276,893						2,058,912
Total liabilities and stockholders' equity	$	16,924,472					$	14,827,884
Net interest income/interest rate spread ⁽⁴⁾			$	546,507	3.56	%			$	492,686	3.70	%
Taxable equivalent adjustment			28,616						27,080
Net interest income, as reported			$	517,891					$	465,606
Net interest margin ⁽⁵⁾					3.54	%					3.63	%
Tax equivalent effect					0.19	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.73	%					3.84	%

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

	4Q16							3Q16							4Q15
	Average Balance			Interest		Yield		Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	12,503,594		$	131,481	4.18	%	$	11,071,267		$	115,979	4.17	%	$	9,537,647		$	103,864	4.32	%
Less acquisition accounting discount accretion on non-PCI loans	(42,978		)	4,854				(34,315		)	4,114				(37,865		)	6,193
Less acquisition accounting discount accretion on PCI loans	(34,360		)	2,709				(23,110		)	2,046				(28,037		)	3,510
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	12,580,932		$	123,918	3.92	%	$	11,128,692		$	109,819	3.93	%	$	9,603,549		$	94,161	3.89	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	16,496,663		$	152,304	3.67	%	$	14,921,719		$	137,893	3.68	%	$	13,254,959		$	129,076	3.86	%
Less acquisition accounting discount accretion on non-PCI loans	(42,978		)	4,854				(34,315		)	4,114				(37,865		)	6,193
Less acquisition accounting discount accretion on PCI loans	(34,360		)	2,709				(23,110		)	2,046				(28,037		)	3,510
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	16,574,001		$	144,741	3.47	%	$	14,979,144		$	131,733	3.50	%	$	13,320,861		$	119,373	3.56	%

	Year Ended December 31,
	2016							2015
	Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	10,857,460		$	458,536	4.22	%	$	9,147,279		$	391,855	4.28	%
Less acquisition accounting discount accretion on non-PCI loans	(35,507		)	19,309				(47,410		)	27,008
Less acquisition accounting discount accretion on PCI loans	(26,856		)	9,470				(32,326		)	6,631
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	10,919,823		$	429,757	3.94	%	$	9,227,015		$	358,216	3.88	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	14,643,115		$	546,507	3.73	%	$	12,827,286		$	492,686	3.84	%
Less acquisition accounting discount accretion on non-PCI loans	(35,507		)	19,309				(47,410		)	27,008
Less acquisition accounting discount accretion on PCI loans	(26,856		)	9,470				(32,326		)	6,631
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	14,705,478		$	517,728	3.52	%	$	12,907,022		$	459,047	3.56	%

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

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

Distribution channels: Banking, Finance & Investment Industry

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