MB FINANCIAL INC /MD - FORM 8-K - EX-99 - EXHIBIT 99

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8-K - 8-K - MB FINANCIAL INC /MD	form8-kearningsrelease2q17.htm

EXHIBIT 99



	2Q17

MB FINANCIAL, INC. REPORTS SECOND QUARTER 2017 NET INCOME OF $44.5 MILLION;

LOAN GROWTH OF 21.2% ⁽¹⁾ ANNUALIZED

CHICAGO, July 20, 2017 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced second quarter 2017 net income of $44.5 million compared to $54.5 million last quarter and $43.4 million in the second quarter a year ago. Diluted earnings per common share were $0.50 in the second quarter of 2017 compared to $0.62 last quarter and $0.56 in the second quarter a year ago.

"Loan growth during the quarter was outstanding at more than 20% on an annualized basis," stated Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc. "The growth was wide-spread, with contributions from nearly all loan generating areas of our company. Approximately two thirds of the growth was in our commercial loan portfolio. Loan yields increased nicely in the quarter as well. The combination of strong loan growth and increased loan yields drove our net interest income and margin higher. However, we did experience some upward pricing pressure on funding. Although low cost deposits grew at 6% on an annualized basis, greater loan growth caused our mix in liabilities to shift unfavorably towards borrowings, leading to an increase in our cost of funds. Overall, we were pleased to see that our net interest margin expanded during the quarter. We remain highly focused on generating low-cost deposits to fund our loan growth."

Mr. Feiger continued, "Operating earnings decreased this quarter compared to last quarter due in large part to an increase in our provision for credit losses. This increase in provision was entirely related to loan growth in excess of the prior quarter's loan growth. Credit quality continues to be exceptional with net recoveries for the second quarter in a row and a decrease in non-performing assets and potential problem loans. Additionally, we increased our dividend $0.02 to $0.21 per share during the quarter."

"We continue to invest aggressively in better technology as evidenced by the successful implementation of our new commercial online banking system during the quarter. We have also been investing in business development employees in almost all of our business units to enhance future growth potential," Mr. Feiger further noted.


⁽¹⁾	Loan growth based on total loans excluding purchased credit-impaired loans.

Operating Earnings (in thousands, except per share data)



												Six Months Ended
												June 30,
	2Q17		1Q17			4Q16		3Q16		2Q16		2017		2016
Net income - as reported	$	44,466	$	54,537		$	47,191	$	44,419	$	43,412	$	99,003	$	82,526
Non-core items, net of tax ⁽¹⁾	3,292		(1,358		)	4,656		7,496		1,451		1,934		4,209
Operating earnings	47,758		53,179			51,847		51,915		44,863		100,937		86,735
Dividends on preferred shares	2,002		2,003			2,005		2,004		2,000		4,005		4,000
Operating earnings available to common stockholders	$	45,756	$	51,176		$	49,842	$	49,911	$	42,863	$	96,932	$	82,735
Diluted earnings per common share - as reported	$	0.50	$	0.62		$	0.53	$	0.54	$	0.56	$	1.12	$	1.06
Diluted operating earnings per common share	$	0.54	$	0.60		$	0.59	$	0.63	$	0.58	$	1.14	$	1.12


⁽¹⁾	Non-core items represent the difference between non-core non-interest income and non-core non-interest expense net of tax.

See "Non-GAAP Financial Information" section for details on non-core items.

Key Items (compared to 1Q17)

Operating Earnings

•

Operating earnings decreased by $5.4 million, or 10.2%, to $47.8 million compared to the prior quarter. This decline was caused by (1) an increased provision for credit losses of $3.6 million, after tax, which was a result of strong loan growth, (2) a $2.5 million increase in tax expense which was a result of a reduction in the tax benefit recorded on stock-based compensation in the second quarter and (3) a decrease in promotional income in our Leasing Segment of $2.6 million, after tax. These reductions in operating earnings were offset by an increase in net interest income of $3.6 million, after tax.


•	Diluted operating earnings per common share were $0.54 compared to $0.60 in the prior quarter.

Loans


•	Loans, excluding purchased credit-impaired loans, increased by $675.4 million (+5.3%, or +21.2% annualized) to $13.5 billion. This increase was due to growth in commercial, lease, commercial real estate, residential real estate and indirect loans, offset by a decrease in construction loans.


•	Average yield on loans, excluding accretion on loans acquired in bank mergers, increased 11 basis points to 4.06% from 3.95% in the prior quarter.

Deposits


•	Low cost deposits grew by $179.1 million in the quarter (+1.5%, or +6.0% annualized) to $12.1 billion led by $177.1 million growth in non-interest bearing deposits.


•	Average cost of total deposits increased three basis points to 0.25%.

Net interest margin


•	Net interest margin on a fully tax equivalent basis, excluding accretion on loans acquired in bank mergers, increased by four basis points in the quarter to 3.54%. The increase in the net interest margin was due to higher short-term interest rates partly offset by increased funding costs and an unfavorable shift in the mix of liabilities.


•	Average interest earning assets increased by $430.8 million due to an increase in loan balances.


•	Average cost of funds increased six basis points to 0.39%.

Operating Segments (compared to 1Q17)

Banking


•	Operating earnings were $41.2 million, a decrease of $4.4 million, or 9.7%, compared to the prior quarter.


•	This decrease was due to increased provision for credit losses associated with the loan growth in the quarter.


•	Commercial-related loans increased more than $400 million in the second quarter of 2017.

Leasing


•	Operating earnings were $4.2 million, a decrease of $1.8 million, or 29.6%, compared to the prior quarter.


•	Operating earnings for the quarter decreased due to lower lease financing revenues resulting from decreased promotional income and residual gains partially offset by increased fees from the sale of third-party equipment maintenance contracts.

Mortgage Banking


•	Operating earnings were $2.4 million compared to $1.7 million in the prior quarter.


•	The increase in operating earnings was driven by increased origination revenue due to growth in loan origination volume partly offset by a decrease in gain on sale margin.


•	Residential real estate loans held for investment increased more than $180 million in the second quarter of 2017.

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. Our Mortgage Banking Segment originates residential mortgage loans for sale to investors through its retail and third party origination channels as well as residential mortgage loans held in our loan portfolio. The Mortgage Banking Segment also services residential mortgage loans owned by investors and the Company. The financial information below was adjusted for funds transfer pricing and internal allocations of certain expenses and excludes non-core non-interest income and expense.

Banking Segment

The following table summarizes certain financial information for the Banking Segment for the periods presented (in thousands):



											Six Months Ended
											June 30,
	2Q17		1Q17		4Q16		3Q16		2Q16		2017		2016
Net interest income	$	135,982	$	131,449	$	133,688	$	119,685	$	112,152	$	267,431	$	221,760
Provision for credit losses	8,890		3,527		4,193		4,394		2,995		12,417		9,996
Net interest income after provision for credit losses	127,092		127,922		129,495		115,291		109,157		255,014		211,764
Non-interest income:
Lease financing revenue, net	1,326		1,545		1,050		890		789		2,092		1,468
Commercial deposit and treasury management fees	14,499		14,689		14,237		12,957		11,548		29,188		23,426
Trust and asset management fees	8,498		8,520		8,442		8,244		8,236		17,018		16,186
Card fees	4,413		4,566		4,340		4,161		4,045		8,979		7,570
Capital markets and international banking fees	3,586		3,253		4,021		3,313		2,771		6,839		5,998
Other non-interest income	9,655		9,306		9,314		10,252		8,544		18,961		16,332
Total non-interest income	41,977		41,879		41,404		39,817		35,933		83,077		70,980
Non-interest expense:
Salaries and employee benefits expense:
Salaries	44,019		42,120		42,797		38,575		35,951		86,139		70,478
Commissions	1,121		1,107		1,090		1,172		1,424		2,228		2,820
Bonus and stock-based compensation	10,603		10,619		9,535		10,553		10,852		21,222		17,328
Other salaries and benefits ⁽¹⁾	12,698		13,705		13,920		13,657		11,987		26,403		22,990
Total salaries and employee benefits expense	68,441		67,551		67,342		63,957		60,214		135,992		113,616
Occupancy and equipment expense	12,298		12,117		12,765		11,724		10,561		24,415		20,991
Computer services and telecommunication expense	7,976		7,514		8,813		7,418		6,945		14,711		13,391
Professional and legal expense	1,455		1,600		1,281		1,566		2,385		3,055		3,871
Other operating expenses	18,793		18,255		17,430		16,467		16,587		37,048		32,157
Total non-interest expense	108,963		107,037		107,631		101,132		96,692		215,221		184,026
Income before income taxes	60,106		62,764		63,268		53,976		48,398		122,870		98,718
Income tax expense	18,915		17,168		19,422		16,287		14,353		36,083		29,280
Operating earnings	$	41,191	$	45,596	$	43,846	$	37,689	$	34,045	$	86,787	$	69,438
Total assets (period end)	$	16,320,111	$	16,009,339	$	16,368,881	$	16,453,379	$	13,296,238	$	16,320,111	$	13,296,238


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

Net income from our Banking Segment for the second quarter of 2017 decreased $4.4 million compared to the prior quarter.


•	Net interest income increased due to higher loan balances, higher short-term interest rates and an additional day in the quarter. This increase was partly offset by a higher cost of funds primarily due to higher rates paid on borrowings.


•	Provision for credit losses increased due to loan growth in the quarter.


•	Non-interest income was consistent with the prior quarter. Non-interest expense increased due to increased salary expense as a result of annual pay increases as well as an additional day in the quarter.


•	Income tax expense was higher as the prior quarter included a $2.7 million tax benefit recorded for the vesting of restricted shares compared to $221 thousand in the second quarter of 2017.


•	Total assets increased mostly due to the loan growth in the quarter.


•	Excluded from operating earnings for the second quarter of 2017 and for the six months ended June 30, 2017 (and from the table above) were $6.6 million in branch exit and facilities impairment charges from the closing of five branches as a result of the American Chartered merger.

Net income from our Banking Segment for the six months ended June 30, 2017 grew $17.3 million compared to the same period last year. Total assets increased $3.0 billion at June 30, 2017 compared to a year ago. Our merger with American Chartered Bancorp Inc. in the third quarter of 2016 positively impacted net income and total assets.

Leasing Segment

The following table summarizes certain financial information for the Leasing Segment for the periods presented (in thousands):



														Six Months Ended
														June 30,
	2Q17		1Q17			4Q16			3Q16		2Q16			2017		2016
Net interest income	$	2,345	$	2,269		$	2,413		$	2,168	$	2,411		$	4,614	$	4,834
Provision for credit losses	410		(135		)	(1,750		)	1,964		(356		)	275		81
Net interest income after provision for credit losses	1,935		2,404			4,163			204		2,767			4,339		4,753
Non-interest income:
Lease financing revenue, net	17,474		20,253			19,005			17,974		14,919			37,727		33,286
Other non-interest income	676		1,173			754			785		786			1,849		1,626
Total non-interest income	18,150		21,426			19,759			18,759		15,705			39,576		34,912
Non-interest expense:
Salaries and employee benefits expense:
Salaries	4,623		4,810			4,811			4,550		4,242			9,433		8,052
Commissions	2,115		2,572			1,038			1,597		1,274			4,687		4,232
Bonus and stock-based compensation	1,045		955			1,516			950		829			2,000		1,701
Other salaries and benefits ⁽¹⁾	1,523		1,581			1,317			1,310		1,262			3,104		2,705
Total salaries and employee benefits expense	9,306		9,918			8,682			8,407		7,607			19,224		16,690
Occupancy and equipment expense	1,011		944			929			966		947			1,955		1,842
Computer services and telecommunication expense	431		458			483			432		431			889		794
Professional and legal expense	392		399			652			802		414			791		823
Other operating expenses	2,266		2,088			1,714			1,997		1,716			4,354		3,163
Total non-interest expense	13,406		13,807			12,460			12,604		11,115			27,213		23,312
Income before income taxes	6,679		10,023			11,462			6,359		7,357			16,702		16,353
Income tax expense	2,525		4,119			4,653			2,484		2,879			6,644		6,388
Operating earnings	$	4,154	$	5,904		$	6,809		$	3,875	$	4,478		$	10,058	$	9,965
Total assets (period end)	$	1,275,386	$	1,173,558		$	1,224,169		$	1,126,847	$	1,081,723		$	1,275,386	$	1,081,723


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

Net income from our Leasing Segment for the second quarter of 2017 decreased $1.8 million compared to the prior quarter.


•	Provision for credit losses increased mainly due to loan growth in the quarter. The prior quarter included a negative provision for credit losses due to improvement of a potential problem loan.


•	Lease financing revenue decreased as a result of less promotional income and residual gains partially offset by an increase in fees from the sale of third-party equipment maintenance contracts.


•	Non-interest expense decreased due to reduced commission expense reflective of lower lease financing revenue and increased indirect capitalized costs.


•	Total assets increased due to growth in interest earning assets, mainly loans.

Net income from our Leasing Segment for the six months ended June 30, 2017 increased $93 thousand compared to the same period last year.


•	Lease financing revenue increased as a result of higher rental income and residual gains.


•	Non-interest expense increased due to higher salaries expense related to the investment in sales and other revenue generating staff, higher commissions expense as a result of higher lease financing revenue and an increase in other operating expenses related to internal support functions from the Banking Segment.

Mortgage Banking Segment

The following table summarizes certain financial information for the Mortgage Banking Segment for the periods presented (in thousands):



											Six Months Ended
											June 30,
	2Q17		1Q17		4Q16		3Q16		2Q16		2017		2016
Net interest income	$	10,667	$	9,325	$	9,113	$	8,918	$	8,039	$	19,992	$	15,312
Provision for credit losses	399		342		179		191		190		741		315
Net interest income after provision for credit losses	10,268		8,983		8,934		8,727		7,849		19,251		14,997
Non-interest income:
Mortgage origination revenue	23,283		21,465		29,317		39,962		31,417		44,748		48,311
Mortgage servicing revenue	6,216		6,314		2,960		9,133		8,198		12,530		18,786
Other non-interest income	—		—		—		—		—		—		(3		)
Total non-interest income	29,499		27,779		32,277		49,095		39,615		57,278		67,094
Non-interest expense:
Salaries and employee benefits expense:
Salaries	11,247		11,881		12,945		12,958		12,088		23,128		23,538
Commissions	6,494		4,932		8,178		8,554		7,226		11,426		12,242
Bonus and stock-based compensation	905		716		1,116		1,477		1,190		1,621		2,499
Other salaries and benefits ⁽¹⁾	4,952		4,978		5,786		6,730		5,875		9,930		11,117
Total salaries and employee benefits expense	23,598		22,507		28,025		29,719		26,379		46,105		49,396
Occupancy and equipment expense	1,969		1,979		1,900		1,972		1,899		3,948		3,834
Computer services and telecommunication expense	1,701		1,663		1,910		1,881		1,890		3,364		3,831
Professional and legal expense	600		595		418		411		421		1,195		1,018
Other operating expenses	7,886		7,238		6,971		6,587		6,309		15,124		11,793
Total non-interest expense	35,754		33,982		39,224		40,570		36,898		69,736		69,872
Income before income taxes	4,013		2,780		1,987		17,252		10,566		6,793		12,219
Income tax expense	1,600		1,101		795		6,901		4,226		2,701		4,887
Operating earnings	$	2,413	$	1,679	$	1,192	$	10,351	$	6,340	$	4,092	$	7,332
Total assets (period end)	$	2,369,560	$	1,963,165	$	1,709,267	$	1,761,656	$	1,617,829	$	2,369,560	$	1,617,829


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

Net income from our Mortgage Banking Segment for the second quarter of 2017 increased $734 thousand compared to the prior quarter.


•	Net interest income increased due to earnings on higher loan balances held for investment.


•	Mortgage origination revenue increased due to higher origination volume partly offset by a lower gain on sale margin.


•	Non-interest expense increased due to higher commission expense and higher filing fees as a result of growth in origination volume.


•	Total assets increased due to residential real estate loan growth.

Net income from our Mortgage Banking Segment for the six months ended June 30, 2017 decreased $3.2 million compared to the same period last year.


•	Net interest income increased due to earnings on higher loan balances held for investment.


•	Mortgage origination revenue decreased due to lower mortgage origination volume. Mortgage servicing revenue decreased as mortgage servicing revenue for the six months ended June 30, 2016 was positively impacted by the fair value changes of mortgage servicing rights net of the related economic hedge activity.


•	Non-interest expense decreased due to lower commission and overtime expenses resulting from the decrease in origination volume, lower bonus expense and an overall decline in full time equivalent employees. Other operating expenses increased due to higher filing fees.

FORWARD-LOOKING STATEMENTS

When used in this document and in reports filed with or furnished to the Securities and Exchange Commission (the "SEC"), in 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

CONSOLIDATED BALANCE SHEETS (Unaudited)



(Dollars in thousands)	6/30/2017			3/31/2017			12/31/2016			9/30/2016			6/30/2016
ASSETS
Cash and due from banks	$	348,550		$	368,078		$	364,783		$	351,009		$	303,037
Interest earning deposits with banks	115,707			102,328			98,686			125,250			123,086
Total cash and cash equivalents	464,257			470,406			463,469			476,259			426,123
Investment securities:
Securities available for sale, at fair value	1,567,071			1,657,950			1,696,195			1,859,356			1,477,395
Securities held to maturity, at amortized cost	1,022,912			1,056,008			1,069,750			1,115,262			1,151,415
Non-marketable securities - FHLB and FRB Stock	160,204			144,427			143,276			146,209			130,232
Total investment securities	2,750,187			2,858,385			2,909,221			3,120,827			2,759,042
Loans held for sale	718,916			493,261			716,883			899,412			843,379
Loans:
Total loans, excluding purchased credit-impaired loans	13,465,064			12,789,667			12,605,726			12,379,358			10,061,076
Purchased credit-impaired loans	149,077			168,814			163,077			161,338			136,811
Total loans	13,614,141			12,958,481			12,768,803			12,540,696			10,197,887
Less: Allowance for loan and lease losses	154,033			144,170			139,366			139,528			135,614
Net loans	13,460,108			12,814,311			12,629,437			12,401,168			10,062,273
Lease investments, net	346,036			315,523			311,327			277,647			233,320
Premises and equipment, net	288,148			290,767			293,910			283,112			243,319
Cash surrender value of life insurance	203,534			202,233			200,945			199,628			138,657
Goodwill	999,925			999,925			1,001,038			993,799			725,039
Other intangibles	58,783			60,869			62,959			65,395			41,569
Mortgage servicing rights, at fair value	249,688			251,498			238,011			154,730			134,969
Other real estate owned, net	11,063			14,706			26,279			33,105			27,663
Other real estate owned related to FDIC transactions	4,849			3,864			5,006			5,177			8,356
Other assets	409,563			370,314			443,832			431,623			352,081
Total assets	$	19,965,057		$	19,146,062		$	19,302,317		$	19,341,882		$	15,995,790
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	6,388,292		$	6,211,173		$	6,408,169		$	6,410,334		$	4,775,364
Interest bearing	7,873,527			7,788,210			7,702,279			7,868,932			6,660,732
Total deposits	14,261,819			13,999,383			14,110,448			14,279,266			11,436,096
Short-term borrowings	1,993,358			1,550,628			1,569,288			1,496,319			1,246,994
Long-term borrowings	330,160			315,618			311,790			311,645			518,545
Junior subordinated notes issued to capital trusts	211,085			210,769			210,668			209,159			185,925
Accrued expenses and other liabilities	520,355			453,236			520,914			482,085			451,695
Total liabilities	17,316,777			16,529,634			16,723,108			16,778,474			13,839,255
Stockholders' Equity
Preferred stock	115,572			115,572			115,572			116,507			115,280
Common stock	857			857			856			855			757
Additional paid-in capital	1,681,252			1,675,956			1,678,826			1,674,341			1,288,777
Retained earnings	899,930			875,295			838,892			809,769			783,468
Accumulated other comprehensive income	10,520			8,415			5,190			23,763			28,731
Treasury stock	(59,851		)	(59,667		)	(60,384		)	(62,084		)	(60,732		)
Controlling interest stockholders' equity	2,648,280			2,616,428			2,578,952			2,563,151			2,156,281
Noncontrolling interest	—			—			257			257			254
Total stockholders' equity	2,648,280			2,616,428			2,579,209			2,563,408			2,156,535
Total liabilities and stockholders' equity	$	19,965,057		$	19,146,062		$	19,302,317		$	19,341,882		$	15,995,790

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



																Six Months Ended
																June 30,
(Dollars in thousands, except per share data)	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Interest income:
Loans:
Taxable	$	143,426		$	133,737		$	134,048		$	118,675		$	110,231		$	277,163		$	215,154
Nontaxable	2,791			2,880			2,947			2,846			2,741			5,671			5,327
Investment securities:
Taxable	8,717			9,122			9,362			8,844			7,799			17,839			17,365
Nontaxable	9,837			9,973			10,220			10,382			10,644			19,810			21,420
Other interest earning accounts and Federal funds sold	228			199			157			164			125			427			266
Total interest income	164,999			155,911			156,734			140,911			131,540			320,910			259,532
Interest expense:
Deposits	8,793			7,475			7,324			6,681			5,952			16,268			11,574
Short-term borrowings	3,912			2,380			1,472			1,092			910			6,292			1,631
Long-term borrowings and junior subordinated notes	3,300			3,013			2,724			2,367			2,076			6,313			4,421
Total interest expense	16,005			12,868			11,520			10,140			8,938			28,873			17,626
Net interest income	148,994			143,043			145,214			130,771			122,602			292,037			241,906
Provision for credit losses	9,699			3,734			2,622			6,549			2,829			13,433			10,392
Net interest income after provision for credit losses	139,295			139,309			142,592			124,222			119,773			278,604			231,514
Non-interest income:
Mortgage banking revenue	29,499			27,779			32,277			49,095			39,615			57,278			67,097
Lease financing revenue, net	18,401			21,418			19,868			18,864			15,708			39,819			34,754
Commercial deposit and treasury management fees	14,499			14,689			14,237			12,957			11,548			29,188			23,426
Trust and asset management fees	8,498			8,520			8,442			8,244			8,236			17,018			16,186
Card fees	4,413			4,566			4,340			4,161			4,045			8,979			7,570
Capital markets and international banking fees	3,586			3,253			4,021			3,313			2,771			6,839			5,998
Consumer and other deposit service fees	3,285			3,363			3,563			3,559			3,161			6,648			6,186
Brokerage fees	1,250			1,125			887			1,294			1,315			2,375			2,473
Loan service fees	2,037			1,969			1,952			1,792			1,961			4,006			3,713
Increase in cash surrender value of life insurance	1,301			1,288			1,316			1,055			850			2,589			1,704
Net gain on investment securities	137			231			178			—			269			368			269
Net (loss) gain on disposal of other assets	(4		)	(123		)	(749		)	5			(2		)	(127		)	(50		)
Other operating income	3,615			3,695			2,491			4,048			2,523			7,310			4,367
Total non-interest income	90,517			91,773			92,823			108,387			92,000			182,290			173,693
Non-interest expense:
Salaries and employee benefits expense	102,566			101,551			108,428			111,478			95,004			204,117			180,595
Occupancy and equipment expense	15,284			15,044			15,689			14,766			13,415			30,328			26,675
Computer services and telecommunication expense	9,785			9,440			11,800			12,836			9,777			19,225			18,832
Advertising and marketing expense	3,245			3,161			3,045			3,084			2,964			6,406			5,842
Professional and legal expense	2,450			2,691			2,509			4,460			3,321			5,141			5,910
Other intangible amortization expense	2,086			2,090			2,388			1,674			1,617			4,176			3,243
Branch exit and facilities impairment charges	6,589			(682		)	—			(2,908		)	155			5,907			199
Net loss (gain) recognized on other real estate owned and other related expense	690			844			(790		)	(721		)	258			1,534			(88		)
Other operating expenses	22,864			21,526			22,691			25,716			21,395			44,390			42,498
Total non-interest expense	165,559			155,665			165,760			170,385			147,906			321,224			283,706
Income before income taxes	64,253			75,417			69,655			62,224			63,867			139,670			121,501
Income tax expense	19,787			20,880			22,464			17,805			20,455			40,667			38,975
Net income	44,466			54,537			47,191			44,419			43,412			99,003			82,526
Dividends on preferred shares	2,002			2,003			2,005			2,004			2,000			4,005			4,000
Net income available to common stockholders	$	42,464		$	52,534		$	45,186		$	42,415		$	41,412		$	94,998		$	78,526



											Six Months Ended
											June 30,
	2Q17		1Q17		4Q16		3Q16		2Q16		2017		2016
Common share data:
Basic earnings per common share	$	0.51	$	0.63	$	0.54	$	0.55	$	0.56	$	1.13	$	1.07
Diluted earnings per common share	0.50		0.62		0.53		0.54		0.56		1.12		1.06
Weighted average common shares outstanding for basic earnings per common share	83,842,963		83,662,430		83,484,899		77,506,885		73,475,258		83,753,195		73,402,995
Weighted average common shares outstanding for diluted earnings per common share	84,767,414		84,778,130		84,674,181		78,683,170		74,180,374		84,773,271		74,073,655
Common shares outstanding (at end of period)	83,869,517		83,832,648		83,725,269		83,555,257		73,740,348		83,869,517		73,740,348

SELECTED FINANCIAL DATA



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Performance Ratios:
Annualized return on average assets	0.92		%	1.16		%	0.98		%	1.02		%	1.11		%	1.04		%	1.06		%
Annualized operating return on average assets ⁽¹⁾	0.99			1.13			1.07			1.20			1.15			1.06			1.12
Annualized return on average common equity	6.78			8.62			7.36			7.67			8.27			7.69			7.90
Annualized operating return on average common equity ⁽¹⁾	7.31			8.39			8.12			9.02			8.56			7.84			8.32
Annualized cash return on average tangible common equity ⁽²⁾	11.94			15.27			13.22			12.99			13.53			13.57			13.01
Annualized cash operating return on average tangible common equity ⁽³⁾	12.83			14.88			14.54			15.23			13.99			13.84			13.69
Efficiency ratio ⁽⁴⁾	64.19			63.99			64.62			62.69			65.32			64.09			64.44
Annualized net non-interest expense to average assets ⁽⁵⁾	1.40			1.35			1.35			1.06			1.35			1.37			1.33
Core non-interest income to revenues ⁽⁶⁾	36.60			37.87			38.15			43.98			41.40			37.23			40.42
Net interest margin - fully tax equivalent basis ⁽⁷⁾	3.71			3.69			3.65			3.65			3.77			3.70			3.76
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans ⁽⁸⁾	3.54			3.50			3.45			3.47			3.53			3.52			3.52
Cost of funds ⁽⁹⁾	0.39			0.33			0.28			0.28			0.27			0.36			0.27
Loans to deposits	95.46			92.56			90.49			87.82			89.17			95.46			89.17
Asset Quality Ratios:
Non-performing loans ⁽¹⁰⁾ to total loans	0.38		%	0.38		%	0.46		%	0.43		%	0.73		%	0.38		%	0.73		%
Non-performing assets ⁽¹⁰⁾ to total assets	0.32			0.34			0.45			0.45			0.64			0.32			0.64
Allowance for loan and lease losses to non-performing loans ⁽¹⁰⁾	295.07			293.02			234.81			258.82			181.46			295.07			181.46
Allowance for loan and lease losses to total loans	1.13			1.11			1.09			1.11			1.33			1.13			1.33
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)	(0.00		)	(0.03		)	0.10			0.09			0.09			(0.02		)	0.07
Capital Ratios:
Tangible equity to tangible assets ⁽¹¹⁾	8.51		%	8.71		%	8.42		%	8.34		%	9.21		%	8.51		%	9.21		%
Tangible common equity to tangible assets ⁽¹²⁾	7.90			8.07			7.79			7.71			8.46			7.90			8.46
Tangible common equity to risk weighted assets ⁽¹³⁾	8.90			9.07			8.80			8.83			9.75			8.90			9.75
Total capital to risk-weighted assets ⁽¹⁴⁾	11.60			11.80			11.63			11.66			12.81			11.60			12.81
Tier 1 capital to risk-weighted assets ⁽¹⁴⁾	9.37			9.54			9.40			9.40			11.77			9.37			11.77
Common equity tier 1 capital to risk-weighted assets ⁽¹⁴⁾	8.70			8.84			8.72			8.71			9.52			8.70			9.52
Tier 1 capital to average assets (leverage ratio) ⁽¹⁴⁾	8.60			8.58			8.38			9.29			10.41			8.60			10.41
Per Share Data:
Book value per common share ⁽¹⁵⁾	$	30.20		$	29.83		$	29.43		$	29.28		$	27.68		$	30.20		$	27.68
Less: goodwill and other intangible assets, net of tax benefit, per common share	12.38			12.40			12.45			12.40			10.20			12.38			10.20
Tangible book value per common share ⁽¹⁶⁾	$	17.82		$	17.43		$	16.98		$	16.88		$	17.48		$	17.82		$	17.48
Cash dividends per common share	$	0.21		$	0.19		$	0.19		$	0.19		$	0.19		$	0.40		$	0.36


⁽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 common 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 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.


⁽⁵⁾	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.


⁽⁶⁾	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.


⁽⁷⁾	Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.


⁽⁸⁾	Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, excluding acquisition accounting discount accretion on bank merger loans as a percentage of average interest earning assets.


⁽⁹⁾	Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.


⁽¹⁰⁾	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.


⁽¹¹⁾	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.


⁽¹²⁾	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.


⁽¹³⁾	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.


⁽¹⁴⁾	Current quarter ratios are estimated.


⁽¹⁵⁾	Equals total ending common stockholders’ equity divided by common shares outstanding.


⁽¹⁶⁾	Equals total ending common stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.

BALANCE SHEET DETAILS TO FOLLOW

INVESTMENT SECURITIES

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



	6/30/2017			3/31/2017			12/31/2016			9/30/2016		6/30/2016
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	23,229		$	23,330		$	23,415		$	53,968	$	54,457
States and political subdivisions	387,351			389,109			391,365			410,737		400,948
Mortgage-backed securities	1,006,931			1,056,529			1,076,692			1,173,330		785,367
Corporate bonds	138,556			178,097			193,895			210,193		225,525
Equity securities	11,004			10,885			10,828			11,128		11,098
Total fair value	$	1,567,071		$	1,657,950		$	1,696,195		$	1,859,356	$	1,477,395

Unrealized gain, net
Government sponsored agencies and enterprises	$	88		$	126		$	148		$	512	$	783
States and political subdivisions	19,966			17,780			14,824			27,696		31,132
Mortgage-backed securities	(1,233		)	(2,412		)	(4,001		)	12,534		16,258
Corporate bonds	608			762			731			1,253		795
Equity securities	(110		)	(172		)	(172		)	196		226
Total unrealized gain, net	$	19,319		$	16,084		$	11,530		$	42,191	$	49,194

Securities held to maturity, at amortized cost:
States and political subdivisions	$	896,043		$	910,336		$	910,608		$	939,491	$	960,784
Mortgage-backed securities	126,869			145,672			159,142			175,771		190,631
Total amortized cost	$	1,022,912		$	1,056,008		$	1,069,750		$	1,115,262	$	1,151,415

The Company has no direct exposure to the State of Illinois, but approximately 20% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of June 30, 2017.

LOAN PORTFOLIO

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



	6/30/2017					3/31/2017					12/31/2016					9/30/2016					6/30/2016
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,703,328		35	%	$	4,364,122		34	%	$	4,346,506		34	%	$	4,385,812		35	%	$	3,561,500		35	%
Commercial loans collateralized by assignment of lease payments (lease loans)	2,076,911			15		2,008,601			16		2,002,976			16		1,873,380			15		1,794,465			18
Commercial real estate	3,882,754			29		3,734,171			29		3,788,016			29		3,794,801			30		2,827,720			28
Construction real estate	449,116			3		554,942			4		518,562			4		451,023			4		357,807			3
Total commercial-related loans	11,112,109			82		10,661,836			83		10,656,060			83		10,505,016			84		8,541,492			84
Other loans:
Residential real estate	1,411,259			10		1,227,218			9		1,060,828			8		998,827			8		753,707			7
Indirect vehicle	627,819			4		573,792			4		541,680			4		522,271			4		491,480			5
Home equity	238,952			2		246,805			2		266,377			2		275,288			2		198,622			2
Consumer	74,925			1		80,016			1		80,781			1		77,956			1		75,775			1
Total other loans	2,352,955			17		2,127,831			16		1,949,666			15		1,874,342			15		1,519,584			15
Total loans, excluding purchased credit-impaired loans	13,465,064			99		12,789,667			99		12,605,726			98		12,379,358			99		10,061,076			99
Purchased credit-impaired loans	149,077			1		168,814			1		163,077			2		161,338			1		136,811			1
Total loans	$	13,614,141		100	%	$	12,958,481		100	%	$	12,768,803		100	%	$	12,540,696		100	%	$	10,197,887		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+5.3		%			+1.5		%			+1.8		%			+23.0		%			+2.4		%
From same quarter one year ago	+33.8		%			+30.2		%			+30.6		%			+34.1		%			+12.7		%

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):



	2Q17					1Q17					4Q16					3Q16					2Q16
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Commercial-related loans:
Commercial	$	4,494,343		34	%	$	4,269,545		34	%	$	4,274,398		35	%	$	3,850,588		35	%	$	3,522,641		35	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,989,397			15		1,938,564			15		1,896,486			15		1,825,505			16		1,777,763			18
Commercial real estate	3,790,911			29		3,742,505			30		3,775,599			30		3,183,131			29		2,821,516			28
Construction real estate	512,385			4		554,612			4		486,861			4		397,480			4		351,079			3
Total commercial-related loans	10,787,036			82		10,505,226			83		10,433,344			84		9,256,704			84		8,472,999			84
Other loans:
Residential real estate	1,331,369			10		1,133,927			9		1,031,152			8		862,393			7		710,384			7
Indirect vehicle	601,394			4		552,669			4		532,782			4		507,772			5		462,053			5
Home equity	243,232			2		253,654			2		273,694			2		231,399			2		202,228			2
Consumer	81,164			1		81,564			1		80,113			1		77,451			1		78,108			1
Total other loans	2,257,159			17		2,021,814			16		1,917,741			15		1,679,015			15		1,452,773			15
Total loans, excluding purchased credit-impaired loans	13,044,195			99		12,527,040			99		12,351,085			99		10,935,719			99		9,925,772			99
Purchased credit-impaired loans	161,218			1		156,058			1		152,509			1		135,548			1		136,415			1
Total loans	$	13,205,413		100	%	$	12,683,098		100	%	$	12,503,594		100	%	$	11,071,267		100	%	$	10,062,187		100	%
Change in total loans, excluding purchased credit-impaired loans:
From prior quarter	+4.1		%			+1.4		%			+12.9		%			+10.2		%			+3.0		%
From same quarter one year ago	+31.4		%			+30.0		%			+31.6		%			+21.1		%			+13.2		%

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):



	6/30/2017			3/31/2017			12/31/2016			9/30/2016			6/30/2016
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	51,013		$	47,042		$	48,974		$	52,135		$	67,544
Loans 90 days or more past due, still accruing interest	1,190			2,159			10,378			1,774			7,190
Total non-performing loans	52,203			49,201			59,352			53,909			74,734
Other real estate owned	11,063			14,706			26,279			33,105			27,663
Repossessed assets	484			477			322			453			459
Total non-performing assets	$	63,750		$	64,384		$	85,953		$	87,467		$	102,856
Potential problem loans ⁽²⁾	$	134,509		$	153,779		$	144,544		$	111,594		$	99,782
Purchased credit-impaired loans ⁽³⁾	$	149,077		$	168,814		$	163,077		$	161,338		$	136,811
Total non-performing, potential problem and purchased credit-impaired loans	$	335,789		$	371,794		$	366,973		$	326,841		$	311,327

Total allowance for loan and lease losses	$	154,033		$	144,170		$	139,366		$	139,528		$	135,614
Accruing restructured loans ⁽⁴⁾	29,658			31,101			32,687			28,561			26,715
Total non-performing loans to total loans	0.38		%	0.38		%	0.46		%	0.43		%	0.73		%
Total non-performing assets to total assets	0.32			0.34			0.45			0.45			0.64
Allowance for loan and lease losses to non-performing loans	295.07			293.02			234.81			258.82			181.46


⁽¹⁾	Includes $22.8 million, $20.7 million, $27.1 million, $23.4 million and $28.9 million of restructured loans on non-accrual status at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016 and June 30, 2016, 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⁾	Includes $65.7 million, $68.8 million, $66.1 million, $60.1 million and $54.1 million of Government National Mortgage Association ("GNMA") loans that have been repurchased at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016 and June 30, 2016, respectively.


⁽⁴⁾	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 previously acquired as part of our FDIC-assisted transactions and bank mergers) as of the dates indicated (in thousands):



	6/30/2017		3/31/2017		12/31/2016		9/30/2016		6/30/2016
Commercial and lease	$	8,166	$	8,739	$	15,189	$	14,898	$	29,509
Commercial real estate	9,512		8,719		11,767		4,655		7,163
Consumer-related	34,525		31,743		32,396		34,356		38,062
Total non-performing loans	$	52,203	$	49,201	$	59,352	$	53,909	$	74,734

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



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Allowance for credit losses, balance at the beginning of period	$	146,498		$	141,842		$	142,399		$	138,333		$	137,732		$	141,842		$	131,508
Provision for credit losses	9,699			3,734			2,622			6,549			2,829			13,433			10,392
Charge-offs	2,921			3,373			6,442			4,157			6,424			6,294			10,012
Recoveries	3,021			4,295			3,263			1,674			4,196			7,316			6,445
Net (recoveries) charge-offs	(100		)	(922		)	3,179			2,483			2,228			(1,022		)	3,567
Allowance for credit losses	156,297			146,498			141,842			142,399			138,333			156,297			138,333
Allowance for unfunded credit commitments	(2,264		)	(2,328		)	(2,476		)	(2,871		)	(2,719		)	(2,264		)	(2,719		)
Allowance for loan and lease losses	$	154,033		$	144,170		$	139,366		$	139,528		$	135,614		$	154,033		$	135,614
Total loans, excluding loans held for sale	$	13,614,141		$	12,958,481		$	12,768,803		$	12,540,696		$	10,197,887		$	13,614,141		$	10,197,887
Average loans, excluding loans held for sale	13,205,413			12,683,098			12,503,594			11,071,267			10,062,187			12,945,698			9,917,267
Allowance for loan and lease losses to total loans, excluding loans held for sale	1.13		%	1.11		%	1.09		%	1.11		%	1.33		%	1.13		%	1.33		%
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized)	(0.00		)	(0.03		)	0.10			0.09			0.09			(0.02		)	0.07

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):



	6/30/2017		3/31/2017		12/31/2016		9/30/2016		6/30/2016
Commercial related loans:
General reserve	$	133,869	$	125,370	$	120,221	$	112,653	$	108,972
Specific reserve	1,800		1,272		3,243		9,698		12,205
Consumer related reserve	18,364		17,528		15,902		17,177		14,437
Total allowance for loan and lease losses	$	154,033	$	144,170	$	139,366	$	139,528	$	135,614

Changes in the acquisition accounting discount for purchased credit-impaired ("PCI") and non-purchased credit-impaired ("Non-PCI") loans acquired in bank mergers were as follows for the three months ended June 30, 2017 (in thousands):



	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	19,752		$	14,911		$	31,426		$	66,089
Charge-offs	(602		)	—			—			(602		)
Accretion	—			(2,831		)	(3,869		)	(6,700		)
Transfer ⁽¹⁾	(606		)	606			—			—
Balance at end of period	$	18,544		$	12,686		$	27,557		$	58,787


⁽¹⁾	The transfer from non-accretable discount on purchased credit-impaired loans to accretable discount was due to better than expected cash flows on several pools of purchased credit-impaired loans.

DEPOSIT MIX

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



	6/30/2017					3/31/2017					12/31/2016					9/30/2016					6/30/2016
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	6,388,292		45	%	$	6,211,173		44	%	$	6,408,169		46	%	$	6,410,334		45	%	$	4,775,364		42	%
Money market, NOW and interest bearing deposits	4,600,506			32		4,580,773			33		4,543,004			32		4,660,407			33		3,771,111			33
Savings deposits	1,109,155			8		1,126,879			8		1,135,992			8		1,147,900			8		1,021,845			9
Total low cost deposits	12,097,953			85		11,918,825			85		12,087,165			86		12,218,641			86		9,568,320			84
Certificates of deposit:
Certificates of deposit	1,340,071			9		1,261,228			9		1,225,102			9		1,298,186			9		1,220,562			11
Brokered certificates of deposit	823,795			6		819,330			6		798,181			5		762,439			5		647,214			5
Total certificates of deposit	2,163,866			15		2,080,558			15		2,023,283			14		2,060,625			14		1,867,776			16
Total deposits	$	14,261,819		100	%	$	13,999,383		100	%	$	14,110,448		100	%	$	14,279,266		100	%	$	11,436,096		100	%
Change in total deposits:
From prior quarter	+1.9		%			-0.8		%			-1.2		%			+24.9		%			-0.8		%
From same quarter one year ago	+24.7		%			+21.4		%			+22.6		%			+26.9		%			+5.3		%

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



	2Q17					1Q17					4Q16					3Q16					2Q16
	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Low cost deposits:
Non-interest bearing deposits	$	6,336,151		45	%	$	6,209,402		45	%	$	6,454,025		45	%	$	5,524,043		43	%	$	4,806,692		42	%
Money market, NOW and interest bearing deposits	4,506,765			32		4,529,402			33		4,628,698			33		4,161,913			33		3,836,134			33
Savings deposits	1,113,159			8		1,131,757			8		1,140,926			8		1,080,609			8		1,006,902			9
Total low cost deposits	11,956,075			85		11,870,561			86		12,223,649			86		10,766,565			84		9,649,728			84
Certificates of deposit:
Certificates of deposit	1,317,995			9		1,245,152			9		1,263,675			9		1,257,959			10		1,237,198			11
Brokered certificates of deposit	820,026			6		815,473			5		779,411			5		702,030			6		598,702			5
Total certificates of deposit	2,138,021			15		2,060,625			14		2,043,086			14		1,959,989			16		1,835,900			16
Total deposits	$	14,094,096		100	%	$	13,931,186		100	%	$	14,266,735		100	%	$	12,726,554		100	%	$	11,485,628		100	%
Change in total deposits:
From prior quarter	+1.2		%			-2.4		%			+12.1		%			+10.8		%			+0.1		%
From same quarter one year ago	+22.7		%			+21.4		%			+23.7		%			+13.2		%			+5.4		%

SHORT-TERM BORROWINGS

The following table shows the composition of short-term borrowings by time to maturity and the weighted average cost at period end as of June 30, 2017 (dollars in thousands):



	Time to Maturity
	0-30 days			31-60 days			61-90 days			91-365 days			Total
Customer repurchase agreements	$	203,358		$	—		$	—		$	—		$	203,358
Federal Home Loan Bank advances	550,000			400,000			75,000			625,000			1,650,000
Federal funds purchased	137,000			—			3,000			—			140,000
Total short-term borrowings	$	890,358		$	400,000		$	78,000		$	625,000		$	1,993,358

Weighted average cost	0.99		%	1.14		%	1.15		%	1.19		%	1.09		%

STATEMENT OF OPERATIONS DETAILS TO FOLLOW

NET INTEREST MARGIN

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



	2Q17						1Q17						2Q16
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	585,207	$	5,434	3.71	%	$	565,128	$	5,033	3.56	%	$	727,631	$	6,311	3.47	%
Loans ^{(1) (2) (3)}:
Commercial-related loans:
Commercial	4,494,343		49,620		4.37		4,269,545		45,755		4.29		3,522,641		39,002		4.38
Commercial loans collateralized by assignment of lease payments (lease loans)	1,989,397		18,393		3.70		1,938,564		17,781		3.67		1,777,763		16,647		3.75
Commercial real estate	3,790,911		42,119		4.40		3,742,505		40,500		4.33		2,821,516		29,948		4.20
Construction real estate	512,385		5,344		4.13		554,612		5,569		4.02		351,079		3,436		3.87
Total commercial-related loans	10,787,036		115,476		4.24		10,505,226		109,605		4.17		8,472,999		89,033		4.17
Other loans:
Residential real estate	1,331,369		11,111		3.34		1,133,927		9,441		3.33		710,384		6,064		3.41
Indirect	601,394		6,935		4.63		552,669		6,111		4.48		462,053		5,333		4.64
Home equity	243,232		2,475		4.08		253,654		2,502		4.00		202,228		1,969		3.92
Consumer	81,164		815		4.03		81,564		800		3.98		78,108		767		3.95
Total other loans	2,257,159		21,336		3.79		2,021,814		18,854		3.76		1,452,773		14,133		3.90
Total loans, excluding purchased credit-impaired loans	13,044,195		136,812		4.16		12,527,040		128,459		4.11		9,925,772		103,166		4.13
Purchased credit-impaired loans	161,218		5,474		13.62		156,058		4,675		12.15		136,415		4,972		14.66
Total loans	13,205,413		142,286		4.28		12,683,098		133,134		4.20		10,062,187		108,138		4.27
Taxable investment securities	1,539,432		8,717		2.26		1,593,209		9,122		2.29		1,466,915		7,799		2.13
Investment securities exempt from federal income taxes ⁽³⁾	1,263,213		15,134		4.79		1,278,150		15,344		4.80		1,339,465		16,375		4.89
Federal funds sold	145		1		1.37		38		0		1.23		35		0		1.00
Other interest earning deposits	87,549		227		1.04		130,553		199		0.62		100,200		125		0.50
Total interest earning assets	$	16,680,959	$	171,799	4.10	%	$	16,250,176	$	162,832	4.01	%	$	13,696,433	$	138,748	4.03	%
Non-interest earning assets	2,708,504						2,752,806						2,044,225
Total assets	$	19,389,463					$	19,002,982					$	15,740,658
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,506,765	$	3,284	0.29	%	$	4,529,402	$	2,622	0.23	%	$	3,836,134	$	2,049	0.21	%
Savings deposits	1,113,159		244		0.09		1,131,757		255		0.09		1,006,902		174		0.07
Certificates of deposit	1,317,995		2,236		0.68		1,245,152		1,690		0.55		1,237,198		1,474		0.48
Customer repurchase agreements	182,062		97		0.21		198,977		100		0.20		162,038		85		0.21
Total core funding	7,119,981		5,861		0.33		7,105,288		4,667		0.27		6,242,272		3,782		0.24
Wholesale funding:
Brokered certificates of deposit (includes fee expense)	820,026		3,029		1.48		815,473		2,908		1.45		598,702		2,255		1.51
Other borrowings	2,035,391		7,115		1.38		1,819,393		5,293		1.16		1,573,083		2,901		0.73
Total wholesale funding	2,855,417		10,144		1.41		2,634,866		8,201		1.25		2,171,785		5,156		0.95
Total interest bearing liabilities	$	9,975,398	$	16,005	0.64	%	$	9,740,154	$	12,868	0.53	%	$	8,414,057	$	8,938	0.42	%
Non-interest bearing deposits	6,336,151						6,209,402						4,806,692
Other non-interest bearing liabilities	451,071						465,083						389,807
Stockholders' equity	2,626,843						2,588,343						2,130,102
Total liabilities and stockholders' equity	$	19,389,463					$	19,002,982					$	15,740,658
Net interest income/interest rate spread ⁽⁴⁾			$	155,794	3.46	%			$	149,964	3.48	%			$	129,810	3.61	%
Taxable equivalent adjustment			6,800						6,921						7,208
Net interest income, as reported			$	148,994					$	143,043					$	122,602
Net interest margin ⁽⁵⁾					3.55	%					3.52	%					3.56	%
Tax equivalent effect					0.16	%					0.17	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.71	%					3.69	%					3.77	%


⁽¹⁾	Non-accrual loans are included in average loans.


⁽²⁾	Interest income includes amortization of deferred loan origination fees and costs.


⁽³⁾	Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.


⁽⁴⁾	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.


⁽⁵⁾	Net interest margin represents net interest income as a percentage of average interest earning assets.



	Six Months Ended June 30,
	2017						2016
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	575,223	$	10,467	3.64	%	$	694,326	$	12,277	3.54	%
Loans ^{(1) (2) (3)}:
Commercial-related loans:
Commercial	4,382,565		95,375		4.33		3,527,041		76,359		4.28
Commercial loans collateralized by assignment of lease payments (lease loans)	1,964,121		36,174		3.68		1,766,161		33,224		3.76
Commercial real estate	3,766,842		82,619		4.36		2,777,832		57,987		4.13
Construction real estate	533,382		10,913		4.07		313,938		6,338		3.99
Total commercial-related loans	10,646,910		225,081		4.21		8,384,972		173,908		4.11
Other loans:
Residential real estate	1,233,193		20,552		3.33		675,307		11,759		3.48
Indirect	577,166		13,046		4.56		433,263		10,091		4.68
Home equity	248,414		4,977		4.04		206,453		4,002		3.90
Consumer	81,363		1,615		4.00		79,339		1,561		3.96
Total other loans	2,140,136		40,190		3.77		1,394,362		27,413		3.94
Total loans, excluding purchased credit-impaired loans	12,787,046		265,271		4.14		9,779,334		201,321		4.09
Purchased credit-impaired loans	158,652		10,149		12.90		137,933		9,752		14.22
Total loans	12,945,698		275,420		4.24		9,917,267		211,073		4.23
Taxable investment securities	1,566,172		17,839		2.28		1,495,749		17,365		2.32
Investment securities exempt from federal income taxes ⁽³⁾	1,270,640		30,478		4.80		1,350,967		32,954		4.88
Federal funds sold	92		1		1.34		39		0		1.00
Other interest earning deposits	108,932		426		0.79		106,974		266		0.50
Total interest earning assets	$	16,466,757	$	334,631	4.05	%	$	13,565,322	$	273,935	4.02	%
Non-interest earning assets	2,730,533						2,048,789
Total assets	$	19,197,290					$	15,614,111
Interest Bearing Liabilities:
Core funding:
Money market, NOW and interest bearing deposits	$	4,518,021	$	5,906	0.26	%	$	3,972,642	$	4,135	0.21	%
Savings deposits	1,122,407		499		0.09		995,460		333		0.07
Certificates of deposit	1,281,774		3,926		0.62		1,237,584		2,887		0.47
Customer repurchase agreements	190,473		197		0.21		176,076		179		0.20
Total core funding	7,112,675		10,528		0.30		6,381,762		7,534		0.24
Wholesale funding:
Brokered accounts (includes fee expense)	817,762		5,937		1.46		566,806		4,219		1.50
Other borrowings	1,927,988		12,408		1.28		1,450,178		5,873		0.80
Total wholesale funding	2,745,750		18,345		1.33		2,016,984		10,092		1.00
Total interest bearing liabilities	$	9,858,425	$	28,873	0.59	%	$	8,398,746	$	17,626	0.42	%
Non-interest bearing deposits	6,273,127						4,706,351
Other non-interest bearing liabilities	458,039						394,133
Stockholders' equity	2,607,699						2,114,881
Total liabilities and stockholders' equity	$	19,197,290					$	15,614,111
Net interest income/interest rate spread ⁽⁴⁾			$	305,758	3.46	%			$	256,309	3.60	%
Taxable equivalent adjustment			13,721						14,403
Net interest income, as reported			$	292,037					$	241,906
Net interest margin ⁽⁵⁾					3.54	%					3.55	%
Tax equivalent effect					0.16	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.70	%					3.76	%


⁽¹⁾	Non-accrual loans are included in average loans.


⁽²⁾	Interest income includes amortization of deferred loan origination fees and costs.


⁽³⁾	Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.


⁽⁴⁾	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.


⁽⁵⁾	Net interest margin represents net interest income as a percentage of average interest earning assets.

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



	2Q17							1Q17							2Q16
	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	$	13,205,413		$	142,286	4.28	%	$	12,683,098		$	133,134	4.20	%	$	10,062,187		$	108,138	4.27	%
Less acquisition accounting discount accretion on non-PCI loans	(29,492		)	3,869				(38,442		)	4,970				(27,123		)	5,390
Less acquisition accounting discount accretion on PCI loans	(32,946		)	2,831				(33,811		)	2,188				(23,272		)	2,312
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	13,267,851		$	135,586	4.06	%	$	12,755,351		$	125,976	3.95	%	$	10,112,582		$	100,436	3.94	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	16,680,959		$	155,794	3.71	%	$	16,250,176		$	149,964	3.69	%	$	13,696,433		$	129,810	3.77	%
Less acquisition accounting discount accretion on non-PCI loans	(29,492		)	3,869				(38,442		)	4,970				(27,123		)	5,390
Less acquisition accounting discount accretion on PCI loans	(32,946		)	2,831				(33,811		)	2,188				(23,272		)	2,312
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	16,743,397		$	149,094	3.54	%	$	16,322,429		$	142,806	3.50	%	$	13,746,828		$	122,108	3.53	%



	Six Months Ended June 30,
	2017							2016
	Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on bank merger loans:
Total loans, as reported	$	12,945,698		$	275,420	4.24	%	$	9,917,267		$	211,073	4.23	%
Less acquisition accounting discount accretion on non-PCI loans	(31,877		)	8,839				(29,598		)	10,340
Less acquisition accounting discount accretion on PCI loans	(36,726		)	5,019				(24,535		)	4,715
Total loans, excluding acquisition accounting discount accretion on bank merger loans	$	13,014,301		$	261,562	4.01	%	$	9,971,400		$	196,018	3.90	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans:
Total interest earning assets, as reported	$	16,466,757		$	305,758	3.70	%	$	13,565,322		$	256,309	3.76	%
Less acquisition accounting discount accretion on non-PCI loans	(31,877		)	8,839				(29,598		)	10,340
Less acquisition accounting discount accretion on PCI loans	(36,726		)	5,019				(24,535		)	4,715
Total interest earning assets/net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on bank merger loans	$	16,535,360		$	291,900	3.52	%	$	13,619,455		$	241,254	3.52	%

We have revised the method of annualizing interest income and interest expense for the calculation of the net interest margin and net interest margin on a fully tax equivalent basis to take into account the day count interest payment convention at the interest earning asset or interest bearing liability level. Among the most common conventions are 30/360 or 365, actual/360 or 365, and actual/actual. For comparability purposes, we have included prior period revised data below.



	Six Months Ended		Years Ended December 31,
	June 30, 2017		2016		2015
Net interest margin	3.54	%	3.50	%	3.60	%
Net interest margin - fully tax equivalent basis	3.70	%	3.70	%	3.81	%
Net interest margin - fully tax equivalent basis excluding acquisition accounting discount accretion on bank merger loans	3.52	%	3.49	%	3.58	%

NON-INTEREST INCOME

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



															Six Months Ended
															June 30,
	2Q17			1Q17			4Q16			3Q16		2Q16			2017			2016
Core non-interest income:
Key fee initiatives:
Mortgage banking revenue	$	29,499		$	27,779		$	32,277		$	49,095	$	39,615		$	57,278		$	67,097
Lease financing revenue, net	18,401			21,418			19,868			18,864		15,708			39,819			34,754
Commercial deposit and treasury management fees	14,499			14,689			14,237			12,957		11,548			29,188			23,426
Trust and asset management fees	8,498			8,520			8,442			8,244		8,236			17,018			16,186
Card fees	4,413			4,566			4,340			4,161		4,045			8,979			7,570
Capital markets and international banking fees	3,586			3,253			4,021			3,313		2,771			6,839			5,998
Total key fee initiatives	78,896			80,225			83,185			96,634		81,923			159,121			155,031
Consumer and other deposit service fees	3,285			3,363			3,563			3,559		3,161			6,648			6,186
Brokerage fees	1,250			1,125			887			1,294		1,315			2,375			2,473
Loan service fees	2,037			1,969			1,952			1,792		1,961			4,006			3,713
Increase in cash surrender value of life insurance	1,301			1,288			1,316			1,055		850			2,589			1,704
Other operating income	2,458			2,734			2,350			3,337		2,043			5,192			3,879
Total core non-interest income	89,227			90,704			93,253			107,671		91,253			179,931			172,986
Non-core non-interest income:
Net gain on investment securities	137			231			178			—		269			368			269
Net (loss) gain on disposal of other assets	(4		)	(123		)	(749		)	5		(2		)	(127		)	(50		)
Recovery of low to moderate income real estate investment	488			—			—			—		—			488			—
Increase in market value of assets held in trust for deferred compensation ⁽¹⁾	669			961			141			711		480			1,630			488
Total non-core non-interest income	1,290			1,069			(430		)	716		747			2,359			707
Total non-interest income	$	90,517		$	91,773		$	92,823		$	108,387	$	92,000		$	182,290		$	173,693


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

NON-INTEREST EXPENSE

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



														Six Months Ended
														June 30,
	2Q17			1Q17		4Q16			3Q16			2Q16		2017		2016
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits expense:
Salaries	$	59,889		$	58,811	$	60,553		$	56,083		$	52,281	$	118,700	$	102,068
Commissions	9,730			8,611		10,306			11,323			9,924		18,341		19,294
Bonus and stock-based compensation	12,553			12,290		12,167			12,980			12,871		24,843		21,528
Other salaries and benefits ⁽²⁾	19,173			20,264		21,023			21,697			19,124		39,437		36,812
Total salaries and employee benefits expense	101,345			99,976		104,049			102,083			94,200		201,321		179,702
Occupancy and equipment expense	15,278			15,040		15,594			14,662			13,407		30,318		26,667
Computer services and telecommunication expense	9,709			9,255		11,019			9,731			9,266		18,964		18,016
Advertising and marketing expense	3,245			3,161		3,039			3,031			2,923		6,406		5,778
Professional and legal expense	2,447			2,594		2,351			2,779			3,220		5,041		5,712
Other intangible amortization expense	2,086			2,090		2,388			1,674			1,617		4,176		3,243
Net loss (gain) recognized on other real estate owned (A)	706			607		(982		)	(908		)	15		1,313		(468		)
Other real estate expense, net (A)	(16		)	237		192			187			243		221		380
Other operating expenses	22,924			21,486		21,478			21,067			19,814		44,410		38,180
Total core non-interest expense	157,724			154,446		159,128			154,306			144,705		312,170		277,210
Non-core non-interest expense: ⁽¹⁾
Merger related and repositioning expenses (B)	7,166			258		6,491			11,368			2,566		7,424		5,853
Branch exit and facilities impairment charges	—			—		—			—			155		—		155
Contribution to MB Financial Charitable Foundation (C)	—			—		—			4,000			—		—		—
Increase in market value of assets held in trust for deferred compensation (D)	669			961		141			711			480		1,630		488
Total non-core non-interest expense	7,835			1,219		6,632			16,079			3,201		9,054		6,496
Total non-interest expense	$	165,559		$	155,665	$	165,760		$	170,385		$	147,906	$	321,224	$	283,706


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

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



														Six Months Ended
														June 30,
	2Q17			1Q17			4Q16		3Q16			2Q16		2017			2016
Merger related and repositioning expenses ⁽¹⁾:
Salaries and employee benefits expense	$	552		$	614		$	4,238	$	8,684		$	324	$	1,166		$	405
Occupancy and equipment expense	6			4			95		104			8		10			8
Computer services and telecommunication expense	76			185			781		3,105			511		261			816
Advertising and marketing expense	—			—			6		53			41		—			64
Professional and legal expense	3			97			158		1,681			101		100			198
Branch exit and facilities impairment charges ⁽²⁾	6,589			(682		)	—		(2,908		)	—		5,907			44
Contingent consideration expense - Celtic acquisition ⁽³⁾	—			—			1,000		—			—		—			2,703
Other operating expenses	(60		)	40			213		649			1,581		(20		)	1,615
Total merger related and repositioning expenses	$	7,166		$	258		$	6,491	$	11,368		$	2,566	$	7,424		$	5,853


⁽¹⁾	Primarily includes costs incurred in connection with the American Chartered merger.


⁽²⁾	Includes branch exit charges on branches closed in the second quarter of 2017 as a result of the American Chartered merger, a gain on the sale of a branch in the first quarter of 2017 and a reversal of an exit cost due to a favorable lease termination in the third quarter of 2016 on a branch acquired through the Taylor Capital merger.


⁽³⁾	Includes 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. Resides in other operating expenses in the consolidated statements of operations.

MORTGAGE BANKING SEGMENT DATA

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



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Mortgage origination revenue:
Gain on sale revenue, net (A)	$	18,000		$	15,607		$	23,576		$	35,190		$	27,032		$	33,607		$	41,331
Origination fees	5,283			5,858			5,741			4,772			4,385			11,141			6,980
Total mortgage origination revenue	$	23,283		$	21,465		$	29,317		$	39,962		$	31,417		$	44,748		$	48,311

Mortgage servicing revenue:
Servicing fees	$	14,065		$	13,735		$	12,610		$	12,022		$	11,418		$	27,800		$	21,943
Amortization/prepayment of mortgage servicing rights ⁽¹⁾	(7,822		)	(6,743		)	(8,777		)	(8,551		)	(7,790		)	(14,565		)	(13,103		)
Fair value changes of mortgage servicing rights	(6,195		)	4,083			65,006			9,853			(19,035		)	(2,112		)	(48,213		)
Economic hedge activity, net	6,168			(4,761		)	(65,879		)	(4,191		)	23,605			1,407			58,159
Fair value changes of mortgage servicing rights net of economic hedge activity	(27		)	(678		)	(873		)	5,662			4,570			(705		)	9,946
Total mortgage servicing revenue	$	6,216		$	6,314		$	2,960		$	9,133		$	8,198		$	12,530		$	18,786

Mortgage servicing rights, at fair value:
Beginning balance	$	251,498		$	238,011		$	154,730		$	134,969		$	145,800		$	238,011		$	168,162
Originations/purchases	12,207			16,147			27,052			18,459			15,994			28,354			28,123
Amortization/prepayment ⁽¹⁾	(7,822		)	(6,743		)	(8,777		)	(8,551		)	(7,790		)	(14,565		)	(13,103		)
Fair value changes	(6,195		)	4,083			65,006			9,853			(19,035		)	(2,112		)	(48,213		)
Ending balance	$	249,688		$	251,498		$	238,011		$	154,730		$	134,969		$	249,688		$	134,969

Mortgage servicing book (unpaid principal balance of loans serviced for others)	$	20,823,016		$	20,450,217		$	19,683,073		$	18,477,648		$	17,739,626		$	20,823,016		$	17,739,626
Mortgage servicing rights valuation	1.20		%	1.23		%	1.21		%	0.84		%	0.76		%	1.20		%	0.76		%

Loans funded:
For sale	$	1,248,544		$	1,073,357		$	1,933,208		$	1,853,146		$	1,594,632		$	2,321,901		$	2,839,617
For investment	233,314			212,745			121,198			123,228			114,412			446,059			198,231

Loans funded by purpose:
Refinance	30		%	41		%	56		%	48		%	42		%	35		%	45		%
Purchase	70			59			44			52			58			65			55

Loans funded by channel:
Retail	27		%	23		%	21		%	22		%	23		%	25		%	21		%
Third party	73			77			79			78			77			75			79

Originated for sale mortgage volume ⁽²⁾ (B)	$	1,299,706		$	1,061,173		$	1,419,871		$	2,055,919		$	1,712,602		$	2,360,879		$	3,077,471

Gain on sale margin (A)/(B)	1.38		%	1.47		%	1.66		%	1.71		%	1.58		%	1.42		%	1.34		%


⁽¹⁾	Changes due to collection or realization of expected cash flows.


⁽²⁾	Includes change in mortgage rate lock commitments expected to close, change in loans held for sale and loans sold to investors during the period.

NON-GAAP FINANCIAL INFORMATION

This document 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 on investment securities, net gains and losses on disposal of other assets, recovery of low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation excluded from the non-interest income components of these ratios and 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 on investment securities, net gains and losses on disposal of other assets, recovery of low to moderate income real estate investment and increase in market value of assets held in trust for deferred compensation from the non-interest income components, and excluding 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 “Non-interest Income” and “Non-interest Expense.”

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



	6/30/2017		3/31/2017		12/31/2016		9/30/2016		6/30/2016
Stockholders' equity - as reported	$	2,648,280	$	2,616,428	$	2,579,209	$	2,563,408	$	2,156,535
Less goodwill	999,925		999,925		1,001,038		993,799		725,039
Less other intangible assets, net of tax benefit	38,209		39,565		40,923		42,507		27,020
Tangible equity	$	1,610,146	$	1,576,938	$	1,537,248	$	1,527,102	$	1,404,476

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



	6/30/2017		3/31/2017		12/31/2016		9/30/2016		6/30/2016
Total assets - as reported	$	19,965,057	$	19,146,062	$	19,302,317	$	19,341,882	$	15,995,790
Less goodwill	999,925		999,925		1,001,038		993,799		725,039
Less other intangible assets, net of tax benefit	38,209		39,565		40,923		42,507		27,020
Tangible assets	$	18,926,923	$	18,106,572	$	18,260,356	$	18,305,576	$	15,243,731

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



	6/30/2017		3/31/2017		12/31/2016		9/30/2016		6/30/2016
Common stockholders' equity - as reported	$	2,532,708	$	2,500,856	$	2,463,637	$	2,446,901	$	2,041,255
Less goodwill	999,925		999,925		1,001,038		993,799		725,039
Less other intangible assets, net of tax benefit	38,209		39,565		40,923		42,507		27,020
Tangible common equity	$	1,494,574	$	1,461,366	$	1,421,676	$	1,410,595	$	1,289,196

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



											Six Months Ended
											June 30,
	2Q17		1Q17		4Q16		3Q16		2Q16		2017		2016
Average common stockholders' equity - as reported	$	2,511,271	$	2,472,771	$	2,441,809	$	2,201,095	$	2,014,822	$	2,492,127	$	1,999,601
Less average goodwill	999,925		1,001,005		994,053		835,894		725,011		1,000,462		725,041
Less average other intangible assets, net of tax benefit	38,836		40,052		41,471		32,744		27,437		39,440		27,974
Average tangible common equity	$	1,472,510	$	1,431,714	$	1,406,285	$	1,332,457	$	1,262,374	$	1,452,225	$	1,246,586

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



											Six Months Ended
											June 30,
	2Q17		1Q17		4Q16		3Q16		2Q16		2017		2016
Net income available to common stockholders - as reported	$	42,464	$	52,534	$	45,186	$	42,415	$	41,412	$	94,998	$	78,526
Plus other intangible amortization expense, net of tax benefit	1,356		1,359		1,552		1,088		1,051		2,714		2,108
Net cash flow available to common stockholders	$	43,820	$	53,893	$	46,738	$	43,503	$	42,463	$	97,712	$	80,634

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



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Net income - as reported	$	44,466		$	54,537		$	47,191		$	44,419		$	43,412		$	99,003		$	82,526
Less non-core items:
Net gain on investment securities	137			231			178			—			269			368			269
Net (loss) gain on disposal of other assets	(4		)	(123		)	(749		)	5			(2		)	(127		)	(50		)
Recovery of low to moderate income real estate investment	488			—			—			—			—			488			—
Increase in market value of assets held in trust for deferred compensation - other operating income	669			961			141			711			480			1,630			488
Merger related and repositioning expenses	(7,166		)	(258		)	(6,491		)	(11,368		)	(2,566		)	(7,424		)	(5,853		)
Branch exit and facilities impairment charges	—			—			—			—			(155		)	—			(155		)
Contribution to MB Financial Charitable Foundation	—			—			—			(4,000		)	—			—			—
Increase in market value of assets held in trust for deferred compensation - other operating expense	(669		)	(961		)	(141		)	(711		)	(480		)	(1,630		)	(488		)
Total non-core items	(6,545		)	(150		)	(7,062		)	(15,363		)	(2,454		)	(6,695		)	(5,789		)
Income tax expense on non-core items	(2,598		)	(59		)	(2,406		)	(6,074		)	(1,003		)	(2,657		)	(1,580		)
Income tax expense - other ⁽¹⁾	(655		)	(1,449		)	—			—			—			(2,104		)	—
Income tax benefit resulting from early adoption of new stock-based compensation guidance	—			—			—			(1,793		)	—			—			—
Non-core items, net of tax	(3,292		)	1,358			(4,656		)	(7,496		)	(1,451		)	(1,934		)	(4,209		)
Operating earnings	47,758			53,179			51,847			51,915			44,863			100,937			86,735
Dividends on preferred shares	2,002			2,003			2,005			2,004			2,000			4,005			4,000
Operating earnings available to common stockholders	$	45,756		$	51,176		$	49,842		$	49,911		$	42,863		$	96,932		$	82,735
Diluted operating earnings per common share	$	0.54		$	0.60		$	0.59		$	0.63		$	0.58		$	1.14		$	1.12
Weighted average common shares outstanding for diluted operating earnings per common share	84,767,414			84,778,130			84,674,181			78,683,170			74,180,374			84,773,271			74,073,655


⁽¹⁾	The first and second quarters of 2017 include reversals of a tax liability no longer needed related to two of our acquired entities.

Efficiency Ratio Calculation (Dollars in Thousands)



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Non-interest expense	$	165,559		$	155,665		$	165,760		$	170,385		$	147,906		$	321,224		$	283,706
Less merger related and repositioning expenses	7,166			258			6,491			11,368			2,566			7,424			5,853
Less branch exit and facilities impairment charges	—			—			—			—			155			—			155
Less contribution to MB Financial Charitable Foundation	—			—			—			4,000			—			—			—
Less increase in market value of assets held in trust for deferred compensation	669			961			141			711			480			1,630			488
Non-interest expense - as adjusted	$	157,724		$	154,446		$	159,128		$	154,306		$	144,705		$	312,170		$	277,210

Net interest income	$	148,994		$	143,043		$	145,214		$	130,771		$	122,602		$	292,037		$	241,906
Tax equivalent adjustment	6,800			6,921			7,090			7,122			7,208			13,721			14,403
Net interest income on a fully tax equivalent basis	155,794			149,964			152,304			137,893			129,810			305,758			256,309
Plus non-interest income	90,517			91,773			92,823			108,387			92,000			182,290			173,693
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	701			694			709			568			458			1,394			918
Less net gain on investment securities	137			231			178			—			269			368			269
Less net (loss) gain on disposal of other assets	(4		)	(123		)	(749		)	5			(2		)	(127		)	(50		)
Less recovery of low-income housing investment	488			—			—			—			—			488			—
Less increase in market value of assets held in trust for deferred compensation	669			961			141			711			480			1,630			488
Non-interest income - as adjusted	89,928			91,398			93,962			108,239			91,711			181,325			173,904
Total revenue - as adjusted and on a fully tax equivalent basis	$	245,722		$	241,362		$	246,266		$	246,132		$	221,521		$	487,083		$	430,213
Efficiency ratio	64.19		%	63.99		%	64.62		%	62.69		%	65.32		%	64.09		%	64.44		%
Efficiency ratio (without adjustments)	69.12		%	66.29		%	69.64		%	71.24		%	68.92		%	67.72		%	68.26		%

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



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Non-interest expense - as adjusted ⁽¹⁾	$	157,724		$	154,446		$	159,128		$	154,306		$	144,705		$	312,170		$	277,210
Less non-interest income - as adjusted ⁽¹⁾	89,928			91,398			93,962			108,239			91,711			181,325			173,904
Net non-interest expense - as adjusted	$	67,796		$	63,048		$	65,166		$	46,067		$	52,994		$	130,845		$	103,306
Average assets	$	19,389,463		$	19,002,982		$	19,192,747		$	17,248,431		$	15,740,658		$	19,197,290		$	15,614,111
Annualized net non-interest expense to average assets	1.40		%	1.35		%	1.35		%	1.06		%	1.35		%	1.37		%	1.33		%
Annualized net non-interest expense to average assets (without adjustments)	1.55		%	1.36		%	1.51		%	1.43		%	1.43		%	1.46		%	1.42		%


⁽¹⁾	See "Efficiency Ratio Calculation" table for reconciliation of this item.

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



																Six Months Ended
																June 30,
	2Q17			1Q17			4Q16			3Q16			2Q16			2017			2016
Non-interest income - as adjusted ⁽¹⁾	$	89,928		$	91,398		$	93,962		$	108,239		$	91,711		$	181,325		$	173,904
Total revenue - as adjusted and on a fully tax equivalent basis ⁽¹⁾	$	245,722		$	241,362		$	246,266		$	246,132		$	221,521		$	487,083		$	430,213
Core non-interest income to revenues ratio	36.60		%	37.87		%	38.15		%	43.98		%	41.40		%	37.23		%	40.42		%
Non-interest income to revenues ratio (without adjustments)	37.79		%	39.08		%	39.00		%	45.32		%	42.87		%	38.43		%	41.79		%


⁽¹⁾	See "Efficiency Ratio Calculation" table for reconciliation of this item.

MB FINANCIAL INC /MD - FORM 8-K - EX-99 - EXHIBIT 99 - July 20, 2017

Attached files

MB FINANCIAL INC /MD Reports