MB Financial 8K Results of Operations and Financial Condition | SEC 30 Jan 15

EXHIBIT 99




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

PRESS RELEASE

For Information at MB Financial, Inc. Contact:

Jill York - Vice President and Chief Financial Officer

E-Mail: jyork@mbfinancial.com

FOR IMMEDIATE RELEASE

MB FINANCIAL, INC. REPORTS FOURTH QUARTER 2014 RESULTS

CHICAGO, January 29, 2015 – MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A., today announced 2014 fourth quarter net income available to common stockholders of $34.1 million, or $0.45 per diluted common share, compared to $4.9 million, or $0.08 per diluted common share, last quarter and $23.9 million, or $0.43 per diluted common share, in the fourth quarter a year ago. Annual net income available to common stockholders for 2014 was $82.1 million compared to $98.5 million for 2013. Diluted earnings per common share were $1.31 for 2014 compared to $1.79 for 2013.

In commenting on the Company’s results, Mitchell Feiger, President and Chief Executive Officer of MB Financial, Inc., said, "The fourth quarter of 2014 saw the successful completion of our Taylor Capital integration and the positive effects the merger had on our results. In addition, we saw several areas of core earnings strength, including a higher net interest margin, robust new customer activity in our commercial deposit and treasury management business, good commercial and industrial loan growth, a better balance sheet mix, and improved efficiency and credit. MB Financial is now even better positioned to provide our clients and prospects with the products, services and support they need to help their businesses grow and succeed."

Highlights Include:

Meaningful Operating Earnings Growth

•

Operating earnings, which we define as earnings excluding non-core items, increased to $39.6 million for the fourth quarter of 2014 compared to $35.7 million last quarter (+10.8%) and $24.6 million in the fourth quarter a year ago (+60.7%). Annual operating earnings increased to $120.3 million for 2014 compared to $100.8 million for 2013 (+19.4%). A table reconciling net income, as reported to operating earnings is set forth below and in the “Non-GAAP Financial Information” section.

•

Fourth quarter 2014 operating earnings growth was due to the full quarter impact of the Taylor Capital merger ("the Merger"); increases in our core net interest margin, excluding Taylor Capital loan accretion (+9 basis points); and continued growth in core non-interest income (due to both the Merger and legacy non-interest income growth). These increases were partially offset by higher legacy credit costs and lower mortgage segment profitability.


•	Merger related expenses incurred in the fourth quarter of 2014 were primarily salaries and employee benefits, computer services and telecommunication, and an impairment charge on a facility we are exiting in connection with the Merger.


•	Non-core items during the fourth quarter of 2014 included a $3.5 million gain on sale of other assets resulting from the sale of a branch property and a $3.3 million contribution to the MB Financial Charitable Foundation.

The following table presents operating earnings available to common stockholders:



										Year Ended
										December 31,
	4Q14			3Q14			4Q13			2014			2013
(Dollars in thousands, except per share data)
Net income, as reported	$	36,125		$	6,901		$	23,856		$	86,101		$	98,455
Less non-core items:
Net gain (loss) on investment securities	491			(3,246		)	(15		)	(2,525		)	(1		)
Net gain (loss) on sale of other assets	3,476			(7		)	(323		)	3,452			(323		)
Gain on extinguishment of debt	—			1,895			—			1,895			—
Merger related expenses	(6,494		)	(27,161		)	(724		)	(34,823		)	(2,483		)
Loss on low to moderate income real estate investment	—			—			—			(2,124		)	—
Contingent consideration expense - Celtic acquisition	—			(10,600		)	—			(10,600		)	—
Contribution to MB Financial Charitable Foundation	(3,250		)	—			—			(3,250		)	—
Total non-core items	(5,777		)	(39,119		)	(1,062		)	(47,975		)	(2,807		)
Income tax expense on non-core items	(2,314		)	(10,295		)	(281		)	(13,730		)	(450		)
Non-core items, net of tax	(3,463		)	(28,824		)	(781		)	(34,245		)	(2,357		)
Operating earnings	39,588			35,725			24,637			120,346			100,812
Dividends on preferred shares	2,000			2,000			—			4,000			—
Operating earnings available to common stockholders	$	37,588		$	33,725		$	24,637		$	116,346		$	100,812
Diluted operating earnings per common share	$	0.50		$	0.52		$	0.45		$	1.86		$	1.83
Weighted average common shares outstanding for diluted earnings per common share	75,130,331			64,457,978			55,237,160			62,573,406			54,993,865
Annualized operating return on average assets	1.09		%	1.16		%	1.02		%	1.05		%	1.07		%

Commercial Related Loans and Non-Interest Bearing Deposits Increased


•	Total loans grew 4.7% on an annualized basis in the fourth quarter of 2014, driven by growth in commercial related loans (+8.6% annualized, including +23.4% annualized for the commercial and industrial portfolio) and partially offset by declines in consumer related credits and purchased credit-impaired loans.


•	Total low cost deposit growth in the fourth quarter was driven by strong non-interest bearing deposit growth (+32.4% annualized). As a result, our cost of funds improved to 23 basis points in the fourth quarter 2014 compared to 26 basis points in the third quarter of 2014.

Credit Quality Metrics Improved


•	Non-performing loans decreased by $13.2 million and potential problem loans increased by $4.0 million from September 30, 2014.


•	Non-performing loans to total loans improved to 0.96% at December 31, 2014 from 1.12% at September 30, 2014.


•	Our coverage ratio of allowance for loan and lease losses to non-performing loans improved to 126.34% at December 31, 2014 compared to 102.54% at September 30, 2014.


•	Legacy provision for credit losses in the fourth quarter of 2014 was $2.5 million, driven by commercial loan growth in the quarter, compared to a negative $1.6 million in the third quarter of 2014.

•

Taylor Capital related provision for credit losses was $7.3 million in fourth quarter of 2014 compared to $4.7 million in the third quarter of 2014. These credit costs are a result of Taylor Capital loan renewals and needed reserves on Taylor Capital acquired loans in excess of the purchase loan discount. As expected, these credit costs largely offset the accretion on Taylor Capital performing loans of $10.1 million in the fourth quarter and $5.8 million in the third quarter for non-purchased credit-impaired loans.

RESULTS OF OPERATIONS

Fourth Quarter and Annual Results

Net Interest Income

Net interest income and net interest margin on a fully tax equivalent basis, for the three months and year ended December 31, 2014, were significantly impacted by the Merger. Acquired assets and assumed liabilities were recorded at fair value as required by the acquisition method of accounting. Fair value adjustments (premiums or discounts) are amortized or accreted into net interest income over the remaining terms of the related interest earning assets and interest bearing liabilities. The accretion of the acquisition accounting discount on acquired loans had the most significant impact on net interest margin.



							Change from 3Q14 to 4Q14					Change from 4Q13 to 4Q14		Year Ended						Change from 2014 to 2013
														December 31,
	4Q14			3Q14					4Q13					2014			2013
(dollars in thousands)
Net interest income - fully tax equivalent	$	126,057		$	101,699		+24.0	%	$	73,918		+70.5	%	$	374,414		$	295,045		+26.9	%
Net interest margin - fully tax equivalent	4.01		%	3.78		%	+0.23		3.50		%	+0.51		3.77		%	3.59		%	+0.18

Reconciliations of net interest income - fully tax equivalent and net interest margin - fully tax equivalent to net interest income, as reported and net interest margin, respectively, are set forth in the first table in the "Net Interest Margin" section.

Net interest income in the fourth quarter of 2014 included interest income of $10.9 million resulting from accretion of the acquisition accounting discount recorded on loans acquired in the Merger ($10.1 million for non-purchased credit-impaired loans and $833 thousand for purchased credit-impaired loans).

Net interest income in the third quarter of 2014 included interest income of $6.2 million resulting from the accretion of the acquisition accounting discount recorded on the loans acquired in the Merger ($5.8 million for non-purchased credit-impaired loans and $377 thousand for purchased credit-impaired loans).

Excluding acquisition accounting loan discount accretion on Taylor Capital loans, our net interest margin on a fully tax equivalent basis would have been 3.63% in the fourth quarter of 2014 compared to 3.54% in the third quarter of 2014, and 3.59% for the year ended December 31, 2014 as well as the year ended December 31, 2013. The increase in the fourth quarter of 2014 from the third quarter of 2014 was primarily due to an improved balance sheet mix with higher loan balances and lower cash balances held at the Federal Reserve Bank. Higher yields on covered loans also contributed positively to the increase in the net interest margin.

See the supplemental net interest margin tables for further detail.

Non-interest Income (in thousands):



														Year Ended
														December 31,
	4Q14		3Q14			2Q14			1Q14		4Q13			2014			2013
Core non-interest income:
Key fee initiatives:
Lease financing, net	$	18,542	$	17,719		$	14,853		$	13,196	$	15,808		$	64,310		$	61,243
Mortgage banking revenue	29,080		16,823			187			59		342			46,149			1,664
Commercial deposit and treasury management fees	10,720		9,345			7,106			7,144		6,545			34,315			24,867
Trust and asset management fees	5,515		5,712			5,405			5,207		4,975			21,839			19,142
Card fees	3,900		3,836			3,304			2,701		2,838			13,741			11,013
Capital markets and international banking service fees	1,648		1,472			1,360			978		841			5,458			3,560
Total key fee initiatives	69,405		54,907			32,215			29,285		31,349			185,812			121,489

Consumer and other deposit service fees	3,335		3,362			3,156			2,935		3,481			12,788			13,968
Brokerage fees	1,350		1,145			1,356			1,325		1,227			5,176			4,907
Loan service fees	1,864		1,069			916			965		1,214			4,814			5,563
Increase in cash surrender value of life insurance	865		855			834			827		848			3,381			3,385
Other operating income	2,577		1,145			1,162			799		676			5,683			3,855
Total core non-interest income	79,396		62,483			39,639			36,136		38,795			217,654			153,167

Non-core non-interest income:
Net gain (loss) on investment securities	491		(3,246		)	(87		)	317		(15		)	(2,525		)	(1		)
Net gain (loss) on sale of other assets	3,476		(7		)	(24		)	7		(323		)	3,452			(323		)
Gain on extinguishment of debt	—		1,895			—			—		—			1,895			—
Increase in market value of assets held in trust for deferred compensation ⁽¹⁾	315		(38		)	400			152		588			829			1,551
Total non-core non-interest income	4,282		(1,396		)	289			476		250			3,651			1,227

Total non-interest income	$	83,678	$	61,087		$	39,928		$	36,612	$	39,045		$	221,305		$	154,394


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

Core non-interest income for the fourth quarter of 2014 increased 27.1% from the third quarter of 2014.


•	Mortgage banking revenue increased primarily as the result of having mortgage operations acquired through the Merger for a full quarter compared to 44 days in the prior quarter.


•	Commercial deposit and treasury management fees increased due to the Merger as well as organic growth.


•	Other operating income increased due to higher income recognized from our investment in Small Business Investment Companies.

Core non-interest income for the year ended December 31, 2014 increased 42.1% compared to the year ended December 31, 2013.


•	Mortgage banking revenue increased due to the mortgage operations acquired through the Merger.


•	Commercial deposit and treasury management fees increased due to new customer activity as well as the increased customer base as a result of the Merger.


•	Leasing revenues increased due to higher fees and promotional revenue from the sale of third-party equipment maintenance contracts.


•	Card fees increased due to a new payroll prepaid card program as well as higher credit card fees.


•	Trust and asset management fees increased due to the addition of new customers and the impact on asset management fees from higher equity values.


•	Capital markets and international banking services fees increased due to higher M&A advisory, syndication and interest rate swap fees.


•	Other operating income increased due to higher income recognized from our investment in Small Business Investment Companies.


•	Consumer and other deposit service fees decreased due to lower demand deposit service fees and NSF and overdraft charges.

Non-core non-interest income included a $3.5 million gain recognized on the sale of other assets resulting from the sale of a branch property in the fourth quarter of 2014. In addition, non-core non-interest income for the year ended December 31, 2014 was impacted by the net loss on investment securities and the gain on extinguishment of debt as a result of the balance sheet repositioning that occurred in the third quarter of 2014.

Non-interest Expense (in thousands):



															Year Ended
															December 31,
	4Q14			3Q14			2Q14			1Q14		4Q13			2014		2013
Core non-interest expense: ⁽¹⁾
Salaries and employee benefits	$	83,242		$	65,271		$	46,222		$	44,121	$	44,929		$	238,856	$	176,307
Occupancy and equipment expense	13,757			11,314			9,504			9,592		9,269			44,167		36,878
Computer services and telecommunication expense	8,612			6,194			4,909			5,071		5,509			24,786		18,883
Advertising and marketing expense	2,233			1,973			2,113			1,991		2,081			8,310		8,268
Professional and legal expense	2,184			2,501			1,488			1,369		2,340			7,542		6,396
Other intangible amortization expense	1,617			1,470			1,174			1,240		1,489			5,501		6,084
Net (gain) loss recognized on other real estate owned (A)	(120		)	1,348			204			122		(831		)	1,554		(4,619		)
Net (gain) loss recognized on other real estate owned related to FDIC transactions (A)	(27		)	421			(13		)	65		197			446		3,091
Other real estate expense, net (A)	433			409			337			396		175			1,575		747
Other operating expenses	18,514			13,577			11,108			9,220		10,171			52,419		38,519
Total core non-interest expense	130,445			104,478			77,046			73,187		75,329			385,156		290,554

Non-core non-interest expense: ⁽¹⁾
Merger related expenses (B)	6,494			27,161			488			680		724			34,823		2,483
Loss on low to moderate income real estate investment (C)	—			—			96			2,028		—			2,124		—
Contingent consideration - Celtic acquisition (C)	—			10,600			—			—		—			10,600		—
Contribution to MB Financial Charitable Foundation (C)	3,250			—			—			—		—			3,250		—
Increase in market value of assets held in trust for deferred compensation (D)	315			(38		)	400			152		588			829		1,551
Total non-core non-interest expense	10,059			37,723			984			2,860		1,312			51,626		4,034

Total non-interest expense	$	140,504		$	142,201		$	78,030		$	76,047	$	76,641		$	436,782	$	294,588

⁽¹⁾

Letters denote the corresponding line items where these non-core non-interest expense items reside in the consolidated statements of income as follows: A – Net (gain) loss recognized on other real estate owned and other related expense, B – Salaries and employee benefits, occupancy and equipment expense, computer services and telecommunication expense, advertising and marketing expense, professional and legal expense and other operating expenses, C – Other operating expenses, D – Salaries and employee benefits.

Core non-interest expense increased by $26.0 million, or 24.9%, from the third quarter to the fourth quarter of 2014.


•	Salaries and employee benefits increased primarily due to increased staff from the Merger for a full quarter as well as increased performance-based commissions and incentives.


•	Occupancy and equipment expense increased due to having the additional offices acquired in the Merger for a full quarter.


•	Computer services and telecommunication expenses increased primarily due to an increase in spending on IT security, data warehouse and investments in our key fee initiatives, as well as due to the Merger.


•	Other operating expenses increased primarily due to a full quarter of mortgage operating expenses, higher travel and entertainment expenses due to increased staff, higher FDIC assessment due to a larger balance sheet resulting primarily from the Merger and higher other loan expense.


•	Core non-interest expense was also impacted by fewer losses on other real estate owned.

Core non-interest expense increased by $94.6 million, or 32.6%, from the year ended December 31, 2013 to the year ended December 31, 2014.


•	Salaries and employee benefits increased due to annual salary increases, incentive expense, health insurance and temporary staffing needs, and the increased staff from the Merger.


•	Other operating expense increased primarily as a result of an increase in filing and other loan expense, higher FDIC assessments due to our larger balance sheet, higher currency delivery expenses related to new treasury management accounts and mortgage operating expenses.


•	Occupancy and equipment expense increased due to the additional offices acquired in the Merger.

•

Computer services and telecommunication expenses increased due primarily to an increase in spending on IT security, data warehouse, investments in our key fee initiatives, as well as higher transaction volumes in the leasing, treasury management and card areas, as well as due to the Merger. The increase was also due to increased telecommunication expense related to transitioning to a new provider.


•	Core non-interest expense was also impacted by higher losses on other real estate owned.

Non-core non-interest expense in the fourth quarter of 2014 included merger related expenses as well as a contribution to the MB Financial Charitable Foundation. In addition, non-core non-interest expense for the year ended December 31, 2014 was impacted by merger related expenses as well as the contingent consideration expense related to our acquisition of Celtic Leasing Corp.

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



											Year Ended
											December 31,
	4Q14		3Q14		2Q14		1Q14		4Q13		2014		2013
Merger related expenses:
Salaries and employee benefits	$	1,926	$	14,259	$	—	$	104	$	—	$	16,289	$	—
Occupancy and equipment expense	301		428		14		—		—		743		—
Computer services and telecommunication expense	1,397		5,312		170		13		—		6,892		—
Advertising and marketing expense	84		262		108		90		4		544		4
Professional and legal expense	258		6,363		79		410		717		7,110		2,411
Facilities impairment charges	2,270		—		—		—		—		2,270
Other operating expenses	258		537		117		63		3		975		68
Total merger related expenses	$	6,494	$	27,161	$	488	$	680	$	724	$	34,823	$	2,483

We expect to incur additional merger related expenses during the first half of 2015 primarily in occupancy and equipment expense and salaries and employee benefits expense.

Income Tax Expense

Income tax expense was $17.1 million for the fourth quarter of 2014 compared to $4.5 million for the third quarter of 2014. The increase in income tax expense is primarily due to the $41.9 million increase in income before taxes from $11.4 million in the third quarter of 2014 to $53.2 million in the fourth quarter of 2014.

Operating Segments

The Company's operations consist of three reportable operating segments: banking, leasing and mortgage banking. Our banking segment generates its revenues primarily from its lending and deposit gathering activities. Our leasing segment generates its revenues through lease originations and related services offered through the Company's leasing subsidiaries: LaSalle Systems Leasing, Inc., Celtic Leasing Corp. and Cole Taylor Equipment Finance. Our mortgage banking segment originates residential mortgage loans for sale to investors through its retail and third party origination channels. The mortgage banking segment also services residential mortgage loans owned by investors and the Company. The third quarter segment information reflects results of Taylor Capital for 44 days subsequent to the Merger date.

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



	Banking		Leasing			Mortgage Banking			Non-core Items			Consolidated
Three months ended December 31, 2014
Net interest income	$	109,148	$	4,482		$	6,181		$	—		$	119,811
Provision for credit losses	9,755		(12		)	—			—			9,743
Net interest income after provision for credit losses	99,393		4,494			6,181			—			110,068
Non-interest income:
Lease financing, net	662		17,880			—			—			18,542
Mortgage origination fees	—		—			18,716			—			18,716
Mortgage servicing fees	—		—			10,364			—			10,364
Other non-interest income	32,940		(790		)	(61		)	3,967			36,056
Total non-interest income	33,602		17,090			29,019			3,967			83,678
Non-interest expense:
Salaries and employee benefits	53,658		8,137			21,762			1,926			85,483
Occupancy and equipment expense	11,460		817			1,480			301			14,058
Professional and legal expense	1,106		338			740			258			2,442
Other operating expenses	21,451		2,049			7,762			7,259			38,521
Total non-interest expense	87,675		11,341			31,744			9,744			140,504
Income before income taxes	45,320		10,243			3,456			(5,777		)	53,242
Income tax expense	14,108		3,941			1,382			(2,314		)	17,117
Net income	$	31,212	$	6,302		$	2,074		$	(3,463	)	$	36,125
Three months ended September 30, 2014
Net interest income	$	88,793	$	3,286		$	3,533		$	—		$	95,612
Provision for credit losses	2,951		163			(5		)	—			3,109
Net interest income after provision for credit losses	85,842		3,123			3,538			—			92,503
Non-interest income:
Lease financing, net	1,186		16,533			—			—			17,719
Mortgage origination fees	—		—			8,780			—			8,780
Mortgage servicing fees	—		—			8,043			—			8,043
Other non-interest income	28,137		(234		)	—			(1,358		)	26,545
Total non-interest income	29,323		16,299			16,823			(1,358		)	61,087
Non-interest expense:
Salaries and employee benefits	47,987		6,886			10,360			14,259			79,492
Occupancy and equipment expense	9,970		689			655			428			11,742
Professional and legal expense	1,908		286			307			6,363			8,864
Other operating expenses	19,686		1,873			3,833			16,711			42,103
Total non-interest expense	79,551		9,734			15,155			37,761			142,201
Income before income taxes	35,614		9,688			5,206			(39,119		)	11,389
Income tax expense	9,074		3,627			2,082			(10,295		)	4,488
Net income	$	26,540	$	6,061		$	3,124		$	(28,824	)	$	6,901

Net income from our banking segment for the fourth quarter of 2014 increased compared to the prior quarter primarily due to the full quarter impact of the Merger. The provision for credit losses increased in the fourth quarter of 2014 compared to the prior quarter primarily due to the overall growth in MB Financial legacy loans. The provision for credit losses for MB Financial legacy loans increased by $4.1 million in the fourth quarter of 2014 compared to the third quarter of 2014.

Net income from our leasing segment for the fourth quarter of 2014 was comparable to the prior quarter. Lease financing revenues for the fourth quarter of 2014 increased compared to the prior quarter due to higher fees and promotional revenue from the sale of third-party equipment maintenance contracts which was partly offset by the increase in commission expense.

Net income from our mortgage segment for the fourth quarter of 2014 decreased compared to the prior quarter primarily due to lower servicing revenue partially offset by increased origination revenue. In third quarter of 2014, servicing revenue benefited from higher interest rates at quarter end which positively impacted the fair value of our mortgage servicing rights. Conversely, servicing revenue was hurt in the fourth quarter of 2014 due to lower interest rates during the fourth quarter which negatively impacted the fair value of the mortgage servicing rights. Origination revenue increased from the third quarter of 2014 due to increased refinance activity as a result of generally lower interest rates.

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



	4Q14			3Q14 ⁽¹⁾
Origination volume	$	1,511,909		$	724,713
Refinance	44		%	35		%
Purchase	56			65

Origination volume by channel:
Retail	19		%	18		%
Third party	81			82

Mortgage servicing book (unpaid principal balance of loans serviced for others) at period end	$	22,479,008		$	21,989,278
Mortgage servicing rights, recorded at fair value, at period end	235,402			241,391
Notional value of rate lock commitments, at period end	645,287			610,818

⁽¹⁾ For the 44 day period subsequent to the Merger.

LOAN PORTFOLIO

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



	12/31/2014				9/30/2014				6/30/2014				3/31/2014				12/31/2013
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Commercial related credits:
Commercial loans	$	3,245,206	36	%	$	3,064,669	34	%	$	1,272,200	23	%	$	1,267,398	23	%	$	1,281,377	22	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,692,258		18		1,631,660		18		1,515,446		27		1,472,621		27		1,494,188		26
Commercial real estate	2,544,867		28		2,647,412		29		1,619,322		29		1,623,509		29		1,647,700		29
Construction real estate	247,068		3		222,120		3		116,996		2		132,997		2		141,253		3
Total commercial related credits	7,729,399		85		7,565,861		84		4,523,964		81		4,496,525		81		4,564,518		80
Other loans:
Residential real estate	503,287		5		516,834		6		309,234		6		309,137		5		314,440		5
Indirect vehicle	268,840		3		273,038		3		272,841		5		266,044		5		262,632		5
Home equity	251,909		3		262,977		3		245,135		4		258,120		5		268,289		5
Consumer loans	78,137		1		69,028		1		70,584		1		64,812		1		66,952		1
Total other loans	1,102,173		12		1,121,877		13		897,794		16		898,113		16		912,313		16
Gross loans excluding purchased credit impaired and covered loans	8,831,572		97		8,687,738		97		5,421,758		97		5,394,638		97		5,476,831		96
Purchased credit impaired and covered loans ⁽¹⁾	251,645		3		288,186		3		134,966		3		173,677		3		235,720		4
Total loans	$	9,083,217	100	%	$	8,975,924	100	%	$	5,556,724	100	%	$	5,568,315	100	%	$	5,712,551	100	%


⁽¹⁾	Covered loans refer to loans we acquired in FDIC-assisted transactions that have been subject to loss-sharing agreements with the FDIC.

Our loan balances, excluding purchase credit impaired and covered loans, grew $143.8 million (+1.7%, or +6.6% on an annualized basis) during the fourth quarter of 2014. Much of the growth was in commercial and lease loan balances partly offset by the decrease in commercial real estate.

ASSET QUALITY

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



	12/31/2014			9/30/2014			6/30/2014			3/31/2014			12/31/2013
Non-performing loans:
Non-accrual loans ⁽¹⁾	$	82,733		$	97,580		$	108,414		$	118,023		$	106,115
Loans 90 days or more past due, still accruing interest	4,354			2,681			2,363			747			446
Total non-performing loans	87,087			100,261			110,777			118,770			106,561
Other real estate owned	19,198			18,817			20,306			20,928			23,289
Repossessed assets	93			126			73			772			840
Total non-performing assets	106,378			119,204			131,156			140,470			130,690
Potential problem loans ⁽²⁾	55,651			51,690			63,477			68,785			79,589
Total classified assets	$	162,029		$	170,894		$	194,633		$	209,255		$	210,279

Total allowance for loan losses	$	110,026		$	102,810		$	100,910		$	106,752		$	111,746
Accruing restructured loans ⁽³⁾	17,003			16,877			26,793			25,797			29,430
Total non-performing loans to total loans	0.96		%	1.12		%	1.99		%	2.13		%	1.87		%
Total non-performing assets to total assets	0.73			0.82			1.34			1.49			1.36
Allowance for loan losses to non-performing loans	126.34			102.54			91.09			89.88			104.87


⁽¹⁾	Includes $25.8 million, $22.4 million, $14.5 million, $15.6 million and $25.0 million of restructured loans on non-accrual status at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013, respectively.


⁽²⁾	We define potential problem loans as loans rated substandard that do not meet the definition of a non-performing loan. Potential problem loans carry a higher probability of default and require additional attention by management.


⁽³⁾	Accruing restructured loans consist primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms as of the dates indicated.

The following table presents non-performing loans by category (excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions and Taylor Capital merger) as of the dates indicated (in thousands):



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Commercial and lease	$	20,058	$	22,985	$	36,807	$	42,532	$	22,348
Commercial real estate	32,663		42,832		48,751		49,541		58,292
Construction real estate	337		337		337		782		475
Consumer related	34,029		34,107		24,882		25,915		25,446
Total non-performing loans	$	87,087	$	100,261	$	110,777	$	118,770	$	106,561

The increase in consumer related non-performing loans in the third quarter of 2014 was primarily due to a group of restructured loans that were less than 90 days past due that were reported as non-performing.

The following table presents a summary of other real estate owned activity (excluding other real estate owned related to assets acquired in FDIC-assisted transactions) as of the dates indicated (in thousands):



	12/31/2014			9/30/2014			6/30/2014			3/31/2014			12/31/2013
Balance at the beginning of quarter	$	18,817		$	20,306		$	20,928		$	23,289		$	31,356
Transfers in at fair value less estimated costs to sell	1,261			221			112			539			104
Acquired from business combination	—			4,720			—			—			—
Capitalized other real estate owned costs	—			—			—			—			21
Fair value adjustments	(34		)	(2,083		)	(286		)	(140		)	(176		)
Net gains on sales of other real estate owned	154			735			82			18			1,007
Cash received upon disposition	(1,000		)	(5,082		)	(530		)	(2,778		)	(9,023		)
Balance at the end of quarter	$	19,198		$	18,817		$	20,306		$	20,928		$	23,289

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



																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Allowance for credit losses, balance at the beginning of period	$	106,912		$	103,905		$	108,395		$	113,462		$	119,725		$	113,462		$	128,279
Allowance for unfunded credit commitments acquired through business combination	—			1,261			—			—			—			1,261			—
Utilization of allowance for unfunded credit commitments	—			(637		)	—			—			—			(637		)	—
Provision for credit losses - MB Financial legacy portfolio	2,472			(1,600		)	(1,950		)	1,150			(3,000		)	72			(5,804		)
Provision for credit losses - acquired Taylor Capital loan portfolio renewals	7,271			4,709			—			—			—			11,980			—
Charge-offs:
Commercial loans	197			606			446			90			676			1,339			3,706
Commercial loans collateralized by assignment of lease payments (lease loans)	546			—			40			—			—			586			—
Commercial real estate loans	1,528			1,027			1,727			7,156			2,386			11,438			7,517
Construction real estate	4			5			14			56			125			79			980
Residential real estate	280			740			433			265			722			1,718			2,796
Home equity	1,381			566			817			619			1,145			3,383			3,692
Indirect vehicle	1,189			1,043			583			920			981			3,735			2,911
Consumer loans	885			497			590			495			572			2,467			2,073
Total charge-offs	6,010			4,484			4,650			9,601			6,607			24,745			23,675
Recoveries:
Commercial loans	869			564			696			1,628			1,348			3,757			3,156
Commercial loans collateralized by assignment of lease payments (lease loans)	384			425			130			—			—			939			1,131
Commercial real estate loans	741			2,227			567			485			672			4,020			6,025
Construction real estate	51			25			77			99			789			252			1,616
Residential real estate	661			4			6			519			18			1,190			479
Home equity	176			46			127			133			152			482			594
Indirect vehicle	453			402			439			442			300			1,736			1,411
Consumer loans	77			65			68			78			65			288			250
Total recoveries	3,412			3,758			2,110			3,384			3,344			12,664			14,662
Total net charge-offs	2,598			726			2,540			6,217			3,263			12,081			9,013
Allowance for credit losses, balance at the end of the period	114,057			106,912			103,905			108,395			113,462			114,057			113,462
Allowance for unfunded credit commitments	(4,031		)	(4,102		)	(2,995		)	(1,643		)	(1,716		)	(4,031		)	(1,716		)
Allowance for loan losses, balance at the end of the period	$	110,026		$	102,810		$	100,910		$	106,752		$	111,746		$	110,026		$	111,746

Total loans, at end of period, excluding loans held for sale	$	9,083,217		$	8,975,924		$	5,556,724		$	5,568,315		$	5,712,551		$	9,083,217		$	5,712,551
Average loans, excluding loans held for sale	8,978,139			7,182,084			5,516,735			5,606,877			5,572,759			6,831,183			5,605,740
Ratio of allowance for loan losses to total loans at end of period, excluding loans held for sale	1.21		%	1.15		%	1.82		%	1.92		%	1.96		%	1.21		%	1.96		%
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	0.11			0.04			0.18			0.45			0.23			0.18			0.16

The following table presents the three elements of our allowance for loan losses (dollars in thousands):



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Commercial related loans:
General reserve	$	85,087	$	76,604	$	70,855	$	75,695	$	78,270
Specific reserve	5,189		5,802		10,270		11,325		12,834
Consumer related reserve	19,750		20,404		19,785		19,732		20,642
Total allowance for loan losses	$	110,026	$	102,810	$	100,910	$	106,752	$	111,746

The general reserve increased during the third and fourth quarters due to the addition of the Taylor Capital loan portfolio. Specific reserves decreased during the third quarter due to an improvement in the credit quality of impaired loans.

Although management believes that adequate loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may become necessary.

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 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 and the principal outstanding is accreted over the remaining life of the loans. We anticipate recording a provision for the acquired portfolio in future quarters related to renewing Taylor loans which will largely offset the accretion from the pass rated loans.

In accordance with ASC 310-30, for both purchased non-impaired loans and purchased 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 Merger were as follows for the year ended December 31, 2014 (in thousands):



	Non-Accretable Discount - PCI Loans			Accretable Discount - PCI Loans			Accretable Discount - Non-PCI Loans			Total
Balance at beginning of period	$	—		$	—		$	—		$	—
Purchases	34,219			5,626			77,728			117,573
Charge-offs	(3,178		)	—			—			(3,178		)
Accretion	—			(1,137		)	(15,952		)	(17,089		)
Balance at end of period	$	31,041		$	4,489		$	61,776		$	97,306

INVESTMENT SECURITIES

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



	12/31/2014			9/30/2014			6/30/2014		3/31/2014			12/31/2013
Securities available for sale:
Fair value
Government sponsored agencies and enterprises	$	65,873		$	65,829		$	51,727	$	51,836		$	52,068
States and political subdivisions	410,854			409,033			19,498		19,350			19,143
Mortgage-backed securities	908,225			1,006,102			797,783		726,439			754,174
Corporate bonds	259,203			267,239			275,529		273,853			283,070
Equity securities	10,597			10,447			10,421		10,572			10,457
Total fair value	$	1,654,752		$	1,758,650		$	1,154,958	$	1,082,050		$	1,118,912

Amortized cost
Government sponsored agencies and enterprises	$	64,612		$	64,809		$	50,096	$	50,291		$	50,486
States and political subdivisions	390,076			391,900			19,228		19,285			19,398
Mortgage-backed securities	899,523			999,630			786,496		717,548			747,306
Corporate bonds	259,526			265,720			271,351		272,490			284,083
Equity securities	10,531			10,470			10,414		10,703			10,649
Total amortized cost	$	1,624,268		$	1,732,529		$	1,137,585	$	1,070,317		$	1,111,922

Unrealized gain
Government sponsored agencies and enterprises	$	1,261		$	1,020		$	1,631	$	1,545		$	1,582
States and political subdivisions	20,778			17,133			270		65			(255		)
Mortgage-backed securities	8,702			6,472			11,287		8,891			6,868
Corporate bonds	(323		)	1,519			4,178		1,363			(1,013		)
Equity securities	66			(23		)	7		(131		)	(192		)
Total unrealized gain	$	30,484		$	26,121		$	17,373	$	11,733		$	6,990

Securities held to maturity, at cost:
States and political subdivisions	$	752,558		$	760,674		$	993,937	$	940,610		$	932,955
Mortgage-backed securities	240,822			244,675			247,455		248,082			249,578
Total amortized cost	$	993,380		$	1,005,349		$	1,241,392	$	1,188,692		$	1,182,533

Securities of states and political subdivisions with an approximate fair value of $291.2 million were transferred from held to maturity to available for sale during the third quarter of 2014.

DEPOSIT MIX

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



	12/31/2014				9/30/2014				6/30/2014				3/31/2014				12/31/2013
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Low cost deposits:
Non-interest bearing deposits	$	4,118,256	37	%	$	3,807,448	34	%	$	2,605,367	34	%	$	2,435,868	32	%	$	2,375,863	32	%
Money market and NOW accounts	3,913,765		36		4,197,166		37		2,932,089		38		2,772,766		37		2,682,419		36
Savings accounts	940,345		9		931,985		8		872,324		11		865,910		12		855,394		12
Total low cost deposits	8,972,366		82		8,936,599		79		6,409,780		83		6,074,544		81		5,913,676		80
Certificates of deposit:
Certificates of deposit	1,479,928		13		1,646,000		15		1,137,262		14		1,188,896		16		1,243,433		17
Brokered deposit accounts	538,648		5		655,843		6		216,022		3		222,307		3		224,150		3
Total certificates of deposit	2,018,576		18		2,301,843		21		1,353,284		17		1,411,203		19		1,467,583		20
Total deposits	$	10,990,942	100	%	$	11,238,442	100	%	$	7,763,064	100	%	$	7,485,747	100	%	$	7,381,259	100	%

Non-interest bearing deposits grew by $310.8 million (+8.2%) during the fourth quarter of 2014. Total low cost deposits increased $35.8 million to $9.0 billion at December 31, 2014 compared to the prior quarter primarily due to strong noninterest bearing deposit flows. Total deposits decreased during the fourth quarter of 2014 primarily due to the $283.3 million decrease in total certificates of deposit.

Shortly after the Merger, rates paid on the Taylor Capital deposit products, primarily money market and NOW accounts, were reduced to align with the Company’s current rate offerings. We expect to see a decline in balances from certain rate sensitive customers over the next few quarters.

CAPITAL

Tangible book value per common share was $15.74 at December 31, 2014 compared to $16.16 a year ago and $15.36 at September 30, 2014.

Our regulatory capital ratios remain strong. MB Financial Bank, N.A. was categorized as “well capitalized” at December 31, 2014 under the Prompt Corrective Action (“PCA”) provisions.

FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the Taylor Capital merger and our other merger and acquisition activities might not be realized within the anticipated 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 possibility that the expected benefits of the other acquisition transactions we previously completed will not be realized; (3) 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 loans we originate and loans we acquire from other financial institutions; (4) results of examinations by the Office of Comptroller of Currency, the Federal Reserve Board, the Consumer Financial Protection Bureau and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the possibility that our mortgage banking business may increase volatility in our revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins; (8) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (9) fluctuations in real estate values; (10) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market-place; (11) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (12) our ability to access cost-effective funding; (13) changes in financial markets; (14) changes in economic conditions in general and in the Chicago metropolitan area in particular; (15) the costs, effects and outcomes of litigation; (16) new legislation or regulatory changes, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (17) changes in accounting principles, policies or guidelines; (18) our future acquisitions of other depository institutions or lines of business; and (19) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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

TABLES TO FOLLOW

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)



(Dollars in thousands)	12/31/2014			9/30/2014			6/30/2014			3/31/2014			12/31/2013
ASSETS
Cash and due from banks	$	256,804		$	267,405		$	294,475		$	268,803		$	205,193
Interest earning deposits with banks	55,277			179,391			466,820			244,819			268,266
Total cash and cash equivalents	312,081			446,796			761,295			513,622			473,459
Federal funds sold	—			—			10,000			7,500			42,950
Investment securities:
Securities available for sale, at fair value	1,654,752			1,758,650			1,154,958			1,082,050			1,118,912
Securities held to maturity, at amortized cost	993,380			1,005,349			1,241,392			1,188,692			1,182,533
Non-marketable securities - FHLB and FRB Stock	75,569			75,569			51,432			51,432			51,417
Total investment securities	2,723,701			2,839,568			2,447,782			2,322,174			2,352,862
Loans held for sale	737,209			553,627			1,219			802			629
Loans:
Total loans, excluding purchased credit impaired and covered loans	8,831,572			8,687,738			5,421,758			5,394,638			5,476,831
Purchased credit impaired and covered loans	251,645			288,186			134,966			173,677			235,720
Total loans	9,083,217			8,975,924			5,556,724			5,568,315			5,712,551
Less: Allowance for loan losses	110,026			102,810			100,910			106,752			111,746
Net loans	8,973,191			8,873,114			5,455,814			5,461,563			5,600,805
Lease investments, net	162,833			137,120			127,194			122,589			131,089
Premises and equipment, net	238,377			243,814			224,245			221,711			221,065
Cash surrender value of life insurance	133,562			132,697			131,842			131,008			130,181
Goodwill	711,521			711,521			423,369			423,369			423,369
Other intangibles	38,006			39,623			21,014			22,188			23,428
Mortgage servicing rights, at fair value	235,402			241,391			344			378			413
Other real estate owned, net	19,198			18,817			20,306			20,928			23,289
Other real estate owned related to FDIC transactions	19,328			22,028			15,349			22,682			20,472
Other assets	297,690			244,481			178,918			166,789			197,416
Total assets	$	14,602,099		$	14,504,597		$	9,818,691		$	9,437,303		$	9,641,427
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing	$	4,118,256		$	3,807,448		$	2,605,367		$	2,435,868		$	2,375,863
Interest bearing	6,872,686			7,430,994			5,157,697			5,049,879			5,005,396
Total deposits	10,990,942			11,238,442			7,763,064			7,485,747			7,381,259
Short-term borrowings	931,415			667,160			229,809			189,872			493,389
Long-term borrowings	82,916			77,269			71,473			65,664			62,159
Junior subordinated notes issued to capital trusts	185,778			185,681			152,065			152,065			152,065
Accrued expenses and other liabilities	382,762			335,677			236,964			200,175			225,873
Total liabilities	12,573,813			12,504,229			8,453,375			8,093,523			8,314,745
Stockholders' Equity
Preferred stock	115,280			115,280			—			—			—
Common stock	751			751			553			553			551
Additional paid-in capital	1,267,761			1,265,050			742,824			740,245			738,053
Retained earnings	629,677			606,097			611,741			595,301			581,998
Accumulated other comprehensive income	20,356			18,431			13,034			10,362			8,383
Treasury stock	(6,974		)	(6,692		)	(4,295		)	(4,132		)	(3,747		)
Controlling interest stockholders' equity	2,026,851			1,998,917			1,363,857			1,342,329			1,325,238
Noncontrolling interest	1,435			1,451			1,459			1,451			1,444
Total stockholders' equity	2,028,286			2,000,368			1,365,316			1,343,780			1,326,682
Total liabilities and stockholders' equity	$	14,602,099		$	14,504,597		$	9,818,691		$	9,437,303		$	9,641,427

Certain prior period amounts on the balance sheet have been reclassified and restated to conform to current period presentation. As a result of acquisition accounting measurement period adjustments for the Taylor Capital merger, the previously reported September 30, 2014 balances for total loans, premises and equipment, mortgage servicing rights, other intangibles, other real estate owned, non-interest bearing deposits, other liabilities and additional paid in capital decreased, while other assets and goodwill increased.

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



														Year Ended
														December 31,
(Dollars in thousands, except per share data)	4Q14		3Q14			2Q14			1Q14		4Q13			2014			2013
Interest income:
Loans:
Taxable	$	104,531	$	79,902		$	53,649		$	53,946	$	55,714		$	292,028		$	228,931
Nontaxable	2,203		2,265			2,256			2,298		2,339			9,022			9,611
Investment securities:
Taxable	10,651		11,028			8,794			8,146		7,334			38,619			26,084
Nontaxable	9,398		9,041			8,285			8,067		8,166			34,791			32,564
Federal funds sold	2		14			4			5		6			25			15
Other interest earning accounts	62		211			277			113		270			663			690
Total interest income	126,847		102,461			73,265			72,575		73,829			375,148			297,895
Interest expense:
Deposits	4,889		4,615			3,754			3,769		3,966			17,027			19,240
Short-term borrowings	354		231			95			100		227			780			622
Long-term borrowings and junior subordinated notes	1,793		2,003			1,344			1,378		1,373			6,518			5,697
Total interest expense	7,036		6,849			5,193			5,247		5,566			24,325			25,559
Net interest income	119,811		95,612			68,072			67,328		68,263			350,823			272,336
Provision for credit losses	9,743		3,109			(1,950		)	1,150		(3,000		)	12,052			(5,804		)
Net interest income after provision for credit losses	110,068		92,503			70,022			66,178		71,263			338,771			278,140
Non-interest income:
Lease financing, net	18,542		17,719			14,853			13,196		15,808			64,310			61,243
Mortgage banking revenue	29,080		16,823			187			59		342			46,149			1,664
Commercial deposit and treasury management fees	10,720		9,345			7,106			7,144		6,545			34,315			24,867
Trust and asset management fees	5,515		5,712			5,405			5,207		4,975			21,839			19,142
Card fees	3,900		3,836			3,304			2,701		2,838			13,741			11,013
Capital markets and international banking service fees	1,648		1,472			1,360			978		841			5,458			3,560
Consumer and other deposit service fees	3,335		3,362			3,156			2,935		3,481			12,788			13,968
Brokerage fees	1,350		1,145			1,356			1,325		1,227			5,176			4,907
Loan service fees	1,864		1,069			916			965		1,214			4,814			5,563
Increase in cash surrender value of life insurance	865		855			834			827		848			3,381			3,385
Net gain (loss) on investment securities	491		(3,246		)	(87		)	317		(15		)	(2,525		)	(1		)
Net gain (loss) on sale of other assets	3,476		(7		)	(24		)	7		(323		)	3,452			(323		)
Gain on early extinguishment of debt	—		1,895			—			—		—			1,895			—
Other operating income	2,892		1,107			1,562			951		1,264			6,512			5,406
Total non-interest income	83,678		61,087			39,928			36,612		39,045			221,305			154,394
Non-interest expense:
Salaries and employee benefits	85,483		79,492			46,622			44,377		45,517			255,974			177,858
Occupancy and equipment expense	14,058		11,742			9,518			9,592		9,269			44,910			36,878
Computer services and telecommunication expense	10,009		11,506			5,079			5,084		5,509			31,678			18,883
Advertising and marketing expense	2,317		2,235			2,221			2,081		2,085			8,854			8,272
Professional and legal expense	2,442		8,864			1,567			1,779		3,057			14,652			8,807
Other intangible amortization expense	1,617		1,470			1,174			1,240		1,489			5,501			6,084
Facilities impairment charges	2,270		—			—			—		—			2,270			—
Net loss (gain) recognized on other real estate owned and other related expense	286		2,178			528			583		(459		)	3,575			(781		)
Other operating expenses	22,022		24,714			11,321			11,311		10,174			69,368			38,587
Total non-interest expense	140,504		142,201			78,030			76,047		76,641			436,782			294,588
Income before income taxes	53,242		11,389			31,920			26,743		33,667			123,294			137,946
Income tax expense	17,117		4,488			8,814			6,774		9,811			37,193			39,491
Net income	36,125		6,901			23,106			19,969		23,856			86,101			98,455
Dividends on preferred shares	2,000		2,000			—			—		—			4,000			—
Net income available to common stockholders	$	34,125	$	4,901		$	23,106		$	19,969	$	23,856		$	82,101		$	98,455



											Year Ended
											December 31,
	4Q14		3Q14		2Q14		1Q14		4Q13		2014		2013
Common share data:
Basic earnings per common share	$	0.46	$	0.08	$	0.42	$	0.37	$	0.44	$	1.32	$	1.81
Diluted earnings per common share	0.45		0.08		0.42		0.36		0.43		1.31		1.79
Weighted average common shares outstanding for basic earnings per common share	74,525,990		63,972,902		54,669,868		54,639,951		54,622,584		62,012,196		54,509,612
Weighted average common shares outstanding for diluted earnings per common share	75,130,331		64,457,978		55,200,054		55,265,188		55,237,160		62,573,406		54,993,865



Selected Financial Data:
																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Performance Ratios:
Annualized return on average assets	0.99		%	0.22		%	0.97		%	0.86		%	0.99		%	0.75		%	1.05		%
Annualized operating return on average assets ⁽¹⁾	1.09			1.16			0.99			0.93			1.02			1.05			1.07
Annualized return on average common equity	7.12			1.21			6.86			6.07			7.19			5.29			7.59
Annualized operating return on average common equity ⁽¹⁾	7.84			8.29			6.98			6.53			7.43			7.50			7.77
Annualized cash return on average tangible common equity ⁽²⁾	11.98			2.23			10.47			9.39			11.23			8.52			11.94
Annualized cash operating return on average tangible common equity ⁽³⁾	13.16			13.19			10.66			10.08			11.59			11.92			12.22
Net interest rate spread	3.88			3.66			3.40			3.51			3.37			3.65			3.45
Cost of funds ⁽⁴⁾	0.23			0.26			0.26			0.27			0.27			0.25			0.32
Efficiency ratio ⁽⁵⁾	63.35			63.46			67.68			66.84			66.56			64.85			64.56
Annualized net non-interest expense to average assets ⁽⁶⁾	1.39			1.35			1.55			1.58			1.50			1.45			1.44
Core non-interest income to revenues ⁽⁷⁾	38.78			38.23			35.22			33.41			34.68			36.96			34.44
Net interest margin	3.81			3.56			3.26			3.36			3.23			3.54			3.31
Tax equivalent effect	0.20			0.22			0.27			0.28			0.27			0.23			0.28
Net interest margin - fully tax equivalent basis ⁽⁸⁾	4.01			3.78			3.53			3.64			3.50			3.77			3.59
Loans to deposits	82.64			79.87			71.58			74.39			77.39			82.64			77.39
Asset Quality Ratios:
Non-performing loans ⁽⁹⁾ to total loans	0.96		%	1.12		%	1.99		%	2.13		%	1.87		%	0.96		%	1.87		%
Non-performing assets ⁽⁹⁾ to total assets	0.73			0.82			1.34			1.49			1.36			0.73			1.36
Allowance for loan losses to non-performing loans ⁽⁹⁾	126.34			102.54			91.09			89.88			104.87			126.34			104.87
Allowance for loan losses to total loans	1.21			1.15			1.82			1.92			1.96			1.21			1.96
Net loan charge-offs (recoveries) to average loans (annualized)	0.11			0.04			0.18			0.45			0.23			0.18			0.16
Capital Ratios:
Tangible equity to tangible assets ⁽¹⁰⁾	9.32		%	9.17		%	9.89		%	10.07		%	9.65		%	9.32		%	9.65		%
Tangible common equity to tangible assets⁽¹¹⁾	8.49			8.34			9.89			10.07			9.65			8.49			9.65
Tangible common equity to risk weighted assets ⁽¹²⁾	10.38			10.34			13.97			13.82			13.27			10.38			13.27
Total capital (to risk-weighted assets)	13.62			13.60			17.18			17.09			16.53			13.62			16.53
Tier 1 capital (to risk-weighted assets)	12.61			12.64			15.92			15.84			15.28			12.61			15.28
Tier 1 capital (to average assets)	10.47			12.29			11.61			11.65			11.22			10.47			11.22
Tier 1 common capital (to risk-weighted assets)	9.94			9.91			13.71			13.59			13.07			9.94			13.07
Book Value Per Share Data:
Book value per common share ⁽¹³⁾	$	25.58		$	25.09		$	24.73		$	24.37		$	24.14		$	25.58		$	24.14
Less: goodwill and other intangible assets, net of benefit, per common share	9.84			9.73			7.92			7.94			7.98			9.84			7.98
Tangible book value per common share ⁽¹⁴⁾	$	15.74		$	15.36		$	16.81		$	16.43		$	16.16		$	15.74		$	16.16


⁽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 (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) by average tangible equity (average common stockholders' equity less average goodwill and average other intangibles, net of tax benefit).


⁽³⁾	Annualized cash operating return on average tangible common equity is computed by dividing annualized cash operating earnings (operating earnings plus other intangibles amortization expense, net of tax benefit, less dividends on preferred shares) by average tangible common equity. Operating earnings is defined as net income as reported less non-core items, net of tax.


⁽⁴⁾	Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.


⁽⁵⁾	Equals total non-interest expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.


⁽⁶⁾	Equals total non-interest expense excluding non-core items less total non-interest income excluding non-core items, and including tax equivalent adjustment on the increase in cash surrender value of life insurance divided by average assets.


⁽⁷⁾	Equals total non-interest income excluding non-core items and tax equivalent adjustment on the increase in cash surrender value of life insurance divided by the sum of net interest income on a fully tax equivalent basis, total non-interest income less non-core items, and tax equivalent adjustment on the increase in cash surrender value of life insurance.


⁽⁸⁾	Represents net interest income on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.


⁽⁹⁾	Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.


⁽¹⁰⁾	Equals total ending stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.


⁽¹¹⁾	Equals total ending 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 stockholders’ equity divided by common shares outstanding.


⁽¹⁴⁾	Equals total ending 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, efficiency ratio and the ratio of annualized net non-interest expense to average assets with net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt and increase 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, loss on low to moderate income real estate investment, merger related expenses, contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios, with tax equivalent adjustment for tax-exempt interest income and increase in cash surrender value of life insurance, as applicable; ratios of tangible equity to tangible assets, tangible common equity to risk-weighted assets and Tier 1 common capital to risk-weighted assets; tangible book value per common share; annualized operating return on average assets, annualized operating return on average common equity, annualized cash return on average tangible common equity and annualized cash operating return on average tangible common equity. Our management uses these non-GAAP measures, together with the related GAAP measures, in its analysis of our performance and in making business decisions. Management also uses these measures for peer comparisons.

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

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

Management also believes that by excluding net gains and losses on investment securities, net gains and losses on sale of other assets, gain on extinguishment of debt 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, loss on low to moderate income real estate investment, merger related expenses, contingent consideration expense - Celtic acquisition, contribution to MB Financial Charitable Foundation and increase in market value of assets held in trust for deferred compensation from the non-interest expense components, of the efficiency ratio and the ratio of annualized net non-interest expense to average assets, these ratios better reflect our core operating performance, as the excluded items do not pertain to our core business operations and their exclusion makes these ratios more meaningful when comparing our operating results from period to period.

In addition, management believes that presenting the ratio of Tier 1 common equity to risk-weighted assets is useful for assessing our capital strength and for peer comparison purposes. The other measures exclude the acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible assets, tangible equity, tangible common equity and average tangible common equity and exclude other intangible amortization expense, net of tax benefit, in determining net cash flow available to common stockholders. Management believes the presentation of these other financial measures, excluding the impact of such items, provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management’s success in utilizing our tangible capital, as well as our capital strength. Management also believes that providing measures that exclude balances of acquisition-related goodwill and other intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

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

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

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



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Stockholders' equity - as reported	$	2,028,286	$	2,000,368	$	1,365,316	$	1,343,780	$	1,326,682
Less: goodwill	711,521		711,521		423,369		423,369		423,369
Less: other intangible assets, net of tax benefit	24,704		25,755		13,659		14,422		15,228
Tangible equity	$	1,292,061	$	1,263,092	$	928,288	$	905,989	$	888,085

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



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Total assets - as reported	$	14,602,099	$	14,504,597	$	9,818,691	$	9,437,303	$	9,641,427
Less: goodwill	711,521		711,521		423,369		423,369		423,369
Less: other intangible assets, net of tax benefit	24,704		25,755		13,659		14,422		15,228
Tangible assets	$	13,865,874	$	13,767,321	$	9,381,663	$	8,999,512	$	9,202,830

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



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Common stockholders' equity - as reported	$	1,913,006	$	1,885,088	$	1,365,316	$	1,343,780	$	1,326,682
Less: goodwill	711,521		711,521		423,369		423,369		423,369
Less: other intangible assets, net of tax benefit	24,704		25,755		13,659		14,422		15,228
Tangible common equity	$	1,176,781	$	1,147,812	$	928,288	$	905,989	$	888,085

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



											Year Ended
											December 31,
	4Q14		3Q14		2Q14		1Q14		4Q13		2014		2013
Average common stockholders' equity	$	1,901,830	$	1,613,375	$	1,351,604	$	1,335,223	$	1,315,804	$	1,552,232	$	1,297,991
Less: average goodwill	711,521		550,667		423,369		423,369		423,369		528,088		423,369
Less: average other intangible assets, net of tax benefit	25,149		19,734		13,990		14,758		15,647		18,440		17,111
Average tangible common equity	$	1,165,160	$	1,042,974	$	914,245	$	897,096	$	876,788	$	1,005,704	$	857,511

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,
	4Q14		3Q14		2Q14		1Q14		4Q13		2014		2013
Net income available to common stockholders - as reported	$	34,125	$	4,901	$	23,106	$	19,969	$	23,856	$	82,101	$	98,455
Add: other intangible amortization expense, net of tax benefit	1,051		956		763		806		968		3,576		3,955
Net cash flow available to common stockholders	$	35,176	$	5,857	$	23,869	$	20,775	$	24,824	$	85,677	$	102,410

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



																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Net income - as reported	$	36,125		$	6,901		$	23,106		$	19,969		$	23,856		$	86,101		$	98,455
Less non-core items:
Net gain (loss) on investment securities	491			(3,246		)	(87		)	317			(15		)	(2,525		)	(1		)
Net gain (loss) on sale of other assets	3,476			(7		)	(24		)	7			(323		)	3,452			(323		)
Gain on extinguishment of debt	—			1,895			—			—			—			1,895			—
Merger related expenses	(6,494		)	(27,161		)	(488		)	(680		)	(724		)	(34,823		)	(2,483		)
Loss on low to moderate income real estate investment	—			—			(96		)	(2,028		)	—			(2,124		)	—
Contingent consideration expense - Celtic acquisition	—			(10,600		)	—			—			—			(10,600		)	—
Contribution to MB Financial Charitable Foundation	(3,250		)	—			—			—			—			(3,250		)	—
Total non-core items	(5,777		)	(39,119		)	(695		)	(2,384		)	(1,062		)	(47,975		)	(2,807		)
Income tax expense on non-core items	(2,314		)	(10,295		)	(266		)	(855		)	(281		)	(13,730		)	(450		)
Non-core items, net of tax	(3,463		)	(28,824		)	(429		)	(1,529		)	(781		)	(34,245		)	(2,357		)
Operating earnings	$	39,588		$	35,725		$	23,535		$	21,498		$	24,637		$	120,346		$	100,812

The following table presents a reconciliation of Tier 1 common capital to Tier 1 capital (in thousands):



	12/31/2014		9/30/2014		6/30/2014		3/31/2014		12/31/2013
Tier 1 capital - as reported	$	1,430,702	$	1,403,218	$	1,058,504	$	1,038,600	$	1,022,512
Less: qualifying trust preferred securities	187,500		187,500		147,500		147,500		147,500
Less: preferred stock	115,280		115,280		—		—		—
Tier 1 common capital	$	1,127,922	$	1,100,438	$	911,004	$	891,100	$	875,012

Efficiency Ratio Calculation (Dollars in Thousands)



																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Non-interest expense	$	140,504		$	142,201		$	78,030		$	76,047		$	76,641		$	436,782		$	294,588
Less merger related expenses	6,494			27,161			488			680			724			34,823			2,483
Less loss on low to moderate income real estate investment	—			—			96			2,028			—			2,124			—
Less contingent consideration expense - Celtic acquisition	—			10,600			—			—			—			10,600			—
Less contribution to MB Financial Charitable Foundation	3,250			—			—			—			—			3,250			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Non-interest expense - as adjusted	$	130,445		$	104,478		$	77,046		$	73,187		$	75,329		$	385,156		$	290,554

Net interest income	$	119,811		$	95,612		$	68,072		$	67,328		$	68,263		$	350,823		$	272,336
Tax equivalent adjustment	6,246			6,087			5,677			5,581			5,655			23,591			22,709
Net interest income on a fully tax equivalent basis	126,057			101,699			73,749			72,909			73,918			374,414			295,045
Plus non-interest income	83,678			61,087			39,928			36,612			39,045			221,305			154,394
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	466			460			449			445			457			1,821			1,823
Less net gain (loss) on investment securities	491			(3,246		)	(87		)	317			(15		)	(2,525		)	(1		)
Less net gain (loss) on sale of other assets	3,476			(7		)	(24		)	7			(323		)	3,452			(323		)
Less gain on early extinguishment of debt	—			1,895			—			—			—			1,895			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Net interest income plus non-interest income - as adjusted	$	205,919		$	164,642		$	113,837		$	109,490		$	113,170		$	593,889		$	450,035

Efficiency ratio	63.35		%	63.46		%	67.68		%	66.84		%	66.56		%	64.85		%	64.56		%
Efficiency ratio (without adjustments)	69.05		%	90.75		%	72.25		%	73.16		%	71.42		%	76.34		%	69.03		%

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



																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Non-interest expense	$	140,504		$	142,201		$	78,030		$	76,047		$	76,641		$	436,782		$	294,588
Less merger-related expenses	6,494			27,161			488			680			724			34,823			2,483
Less loss on low to moderate income real estate investment	—			—			96			2,028			—			2,124			—
Less contingent consideration expense - Celtic acquisition	—			10,600			—			—			—			10,600			—
Less contribution to MB Financial Charitable Foundation	3,250			—			—			—			—			3,250			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Non-interest expense - as adjusted	130,445			104,478			77,046			73,187			75,329			385,156			290,554

Non-interest income	83,678			61,087			39,928			36,612			39,045			221,305			154,394
Less net gain (loss) on investment securities	491			(3,246		)	(87		)	317			(15		)	(2,525		)	(1		)
Less net gain (loss) on sale of other assets	3,476			(7		)	(24		)	7			(323		)	3,452			(323		)
Less gain on early extinguishment of debt	—			1,895			—			—			—			1,895			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Non-interest income - as adjusted	79,396			62,483			39,639			36,136			38,795			217,654			153,167
Less tax equivalent adjustment on the increase in cash surrender value of life insurance	466			460			449			445			457			1,821			1,823
Net non-interest expense	$	50,583		$	41,535		$	36,958		$	36,606		$	36,077		$	165,681		$	135,564

Average assets	$	14,466,066		$	12,206,014		$	9,575,896		$	9,367,942		$	9,567,388		$	11,420,144		$	9,391,877

Annualized net non-interest expense to average assets	1.39		%	1.35		%	1.55		%	1.58		%	1.50		%	1.45		%	1.44		%

Annualized net non-interest expense to average assets (without adjustments)	1.56		%	2.64		%	1.60		%	1.71		%	1.56		%	1.89		%	1.49		%

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



																Year Ended
																December 31,
	4Q14			3Q14			2Q14			1Q14			4Q13			2014			2013
Non-interest income	$	83,678		$	61,087		$	39,928		$	36,612		$	39,045		$	221,305		$	154,394
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	466			460			449			445			457			1,821			1,823
Less net gain (loss) on investment securities	491			(3,246		)	(87		)	317			(15		)	(2,525		)	(1		)
Less net gain (loss) on sale of other assets	3,476			(7		)	(24		)	7			(323		)	3,452			(323		)
Less gain on early extinguishment of debt	—			1,895			—			—			—			1,895			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Non-interest income - as adjusted	$	79,862		$	62,943		$	40,088		$	36,581		$	39,252		$	219,475		$	154,990

Net interest income	$	119,811		$	95,612		$	68,072		$	67,328		$	68,263		$	350,823		$	272,336
Tax equivalent adjustment	6,246			6,087			5,677			5,581			5,655			23,591			22,709
Net interest income on a fully tax equivalent basis	126,057			101,699			73,749			72,909			73,918			374,414			295,045
Plus non-interest income	83,678			61,087			39,928			36,612			39,045			221,305			154,394
Plus tax equivalent adjustment on the increase in cash surrender value of life insurance	466			460			449			445			457			1,821			1,823
Less net gain (loss) on investment securities	491			(3,246		)	(87		)	317			(15		)	(2,525		)	(1		)
Less net gain (loss) on sale of other assets	3,476			(7		)	(24		)	7			(323		)	3,452			(323		)
Less gain on early extinguishment of debt	—			1,895			—			—			—			1,895			—
Less increase in market value of assets held in trust for deferred compensation	315			(38		)	400			152			588			829			1,551
Total revenue - as adjusted and on a fully tax equivalent basis	$	205,919		$	164,642		$	113,837		$	109,490		$	113,170		$	593,889		$	450,035

Total revenue - unadjusted	$	203,489		$	156,699		$	108,000		$	103,940		$	107,308		$	572,128		$	426,730

Core non-interest income to revenues ratio	38.78		%	38.23		%	35.22		%	33.41		%	34.68		%	36.96		%	34.44		%

Core non-interest income to revenues ratio (without adjustments)	41.12		%	38.98		%	36.97		%	35.22		%	36.39		%	38.68		%	36.18		%

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):



	4Q14						4Q13						3Q14
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	604,196	$	5,850	3.87	%	$	1,270	—		—	%	$	313,695	$	2,826	3.60	%
Loans ^{(1) (2) (3)}:
Commercial related credits
Commercial	3,110,016		34,609		4.35		1,167,924		12,080		4.05		2,118,864		23,536		4.35
Commercial loans collateralized by assignment of lease payments	1,642,427		15,280		3.72		1,468,257		14,087		3.84		1,561,484		14,669		3.76
Real estate commercial	2,611,410		30,249		4.53		1,629,270		17,908		4.30		2,108,492		24,213		4.49
Real estate construction	232,679		3,996		6.72		141,041		1,402		3.89		170,017		2,565		5.90
Total commercial related credits	7,596,532		84,134		4.33		4,406,492		45,477		4.04		5,958,857		64,983		4.27
Other loans
Real estate residential	503,211		4,897		3.89		315,303		3,018		3.83		405,589		4,581		4.52
Home equity	256,933		2,711		4.19		271,898		2,925		4.27		251,969		2,549		4.01
Indirect	273,063		3,660		5.32		260,918		3,455		5.25		274,841		3,647		5.26
Consumer loans	75,264		785		4.14		60,054		629		4.16		69,699		774		4.41
Total other loans	1,108,471		12,053		4.31		908,173		10,027		4.38		1,002,098		11,551		4.57
Total loans, excluding purchased credit impaired and covered loans	8,705,003		96,187		4.38		5,314,665		55,504		4.14		6,960,955		76,534		4.36
Purchased credit impaired and covered loans	273,136		5,883		8.55		258,094		3,808		5.85		221,129		4,027		7.23
Total loans	8,978,139		102,070		4.51		5,572,759		59,312		4.22		7,182,084		80,561		4.45
Taxable investment securities	1,649,937		10,651		2.58		1,421,135		7,334		2.06		1,726,352		11,028		2.56
Investment securities exempt from federal income taxes ⁽³⁾	1,144,497		14,458		5.05		943,298		12,562		5.33		1,087,340		13,908		5.12
Federal funds sold	551		2		0.71		8,251		6		0.28		15,460		14		0.38
Other interest earning deposits	105,446		62		0.23		436,158		270		0.25		341,758		211		0.24
Total interest earning assets	$	12,482,766	$	133,093	4.23		$	8,382,871	$	79,484	3.76		$	10,666,689	$	108,548	4.04
Non-interest earning assets	1,983,300						1,184,517						1,539,325
Total assets	$	14,466,066					$	9,567,388					$	12,206,014
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts	$	4,023,657	$	1,600	0.16	%	$	2,685,343	$	861	0.13	%	$	3,518,314	$	1,469	0.17	%
Savings accounts	936,960		118		0.05		848,734		137		0.06		906,630		128		0.06
Certificates of deposit	1,563,011		1,537		0.39		1,250,049		1,256		0.40		1,411,407		1,375		0.40
Customer repurchase agreements	241,653		119		0.20		216,504		114		0.21		210,543		102		0.19
Total core funding	6,765,281		3,374		0.20		5,000,630		2,368		0.19		6,046,894		3,074		0.20
Wholesale funding:
Brokered accounts (includes fee expense)	606,166		1,634		1.07		229,635		1,712		2.96		417,346		1,643		1.56
Other borrowings	688,418		2,028		1.15		466,508		1,486		1.25		632,163		2,132		1.32
Total wholesale funding	1,294,584		3,662		1.08		696,143		3,198		1.68		1,049,509		3,775		1.33
Total interest bearing liabilities	$	8,059,865	$	7,036	0.35		$	5,696,773	$	5,566	0.39		$	7,096,403	$	6,849	0.38
Non-interest bearing deposits	4,072,797						2,352,901						3,175,512
Other non-interest bearing liabilities	316,294						201,910						267,915
Stockholders' equity	2,017,110						1,315,804						1,666,184
Total liabilities and stockholders' equity	$	14,466,066					$	9,567,388					$	12,206,014
Net interest income/interest rate spread ⁽⁴⁾			$	126,057	3.88	%			$	73,918	3.37	%			$	101,699	3.66	%
Taxable equivalent adjustment			6,246						5,655						6,087
Net interest income, as reported			$	119,811					$	68,263					$	95,612
Net interest margin ⁽⁵⁾					3.81	%					3.23	%					3.56	%
Tax equivalent effect					0.20	%					0.27	%					0.22	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					4.01	%					3.50	%					3.78	%


⁽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 following table presents, for the years 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):



	Year Ended December 31,
	2014						2013
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets:
Loans held for sale	$	231,555	$	8,676	3.75	%	$	2,758	—		—	%
Loans ^{(1) (2) (3)}:
Commercial related credits
Commercial	$	1,928,491	$	82,369	4.21	%	$	1,186,705	49,516		4.12	%
Commercial loans collateralized by assignment of lease payments	1,540,635		58,961		3.83		1,385,355		53,599		3.87
Real estate commercial	1,995,903		88,802		4.39		1,681,600		78,383		4.59
Real estate construction	169,547		9,113		5.30		129,181		5,116		3.91
Total commercial related credits	5,634,576		239,245		4.19		4,382,841		186,614		4.20
Other loans
Real estate residential	383,117		15,279		3.99		310,644		12,306		3.96
Home equity	256,240		10,650		4.16		283,341		12,184		4.30
Indirect	270,281		14,277		5.28		238,828		13,018		5.45
Consumer loans	68,292		2,960		4.33		65,704		2,459		3.74
Total other loans	977,930		43,166		4.41		898,517		39,967		4.45
Total loans, excluding purchased credit impaired and covered loans	6,612,506		282,411		4.27		5,281,358		226,581		4.29
Purchased credit impaired and covered loans	218,677		14,821		6.78		324,382		17,136		5.28
Total loans	6,831,183		297,232		4.35		5,605,740		243,717		4.35
Taxable investment securities	1,549,954		38,619		2.49		1,393,341		26,084		1.87
Investment securities exempt from federal income taxes ⁽³⁾	1,034,274		53,524		5.18		933,840		50,098		5.36
Federal funds sold	6,575		25		0.38		4,510		15		0.33
Other interest earning deposits	270,578		663		0.25		283,854		690		0.24
Total interest earning assets	$	9,924,119	$	398,739	4.02		$	8,224,043	$	320,604	3.90
Non-interest earning assets	1,496,025						1,167,834
Total assets	$	11,420,144					$	9,391,877
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts	$	3,291,808	$	4,815	0.15	%	$	2,698,226	$	3,483	0.13	%
Savings accounts	893,861		453		0.05		839,026		546		0.07
Certificates of deposit	1,336,777		5,210		0.40		1,368,835		6,990		0.52
Customer repurchase agreements	206,861		412		0.20		198,018		426		0.22
Total core funding	5,729,307		10,890		0.19		5,104,105		11,445		0.22
Wholesale funding:
Brokered accounts (includes fee expense)	368,144		6,549		1.78		270,218		8,221		3.04
Other borrowings	448,927		6,886		1.51		289,629		5,893		2.01
Total wholesale funding	817,071		13,435		1.53		559,847		14,114		2.26
Total interest bearing liabilities	$	6,546,378	$	24,325	0.37		$	5,663,952	$	25,559	0.45
Non-interest bearing deposits	3,029,464						2,234,537
Other non-interest bearing liabilities	249,702						195,397
Stockholders' equity	1,594,600						1,297,991
Total liabilities and stockholders' equity	$	11,420,144					$	9,391,877
Net interest income/interest rate spread ⁽⁴⁾			$	374,414	3.65	%			$	295,045	3.45	%
Taxable equivalent adjustment			23,591						22,709
Net interest income, as reported			$	350,823					$	272,336
Net interest margin ⁽⁵⁾					3.54	%					3.31	%
Tax equivalent effect					0.23	%					0.28	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.77	%					3.59	%


⁽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 table below reflects the impact the acquisition accounting loan discount accretion on Taylor Capital loans had on the loan yield and net interest margin on a fully tax equivalent basis for the three months ended December 31, and September 30, 2014 and year ended December 31, 2014:



	Three months ended							Three months ended							Year ended
	December 31, 2014							September 30, 2014							December 31, 2014
	Average Balance			Interest		Yield		Average Balance			Interest		Yield		Average Balance			Interest		Yield
Loan yield excluding acquisition accounting discount accretion on Taylor Capital loans:
Total loans, as reported	$	8,978,139		$	102,070	4.51	%	$	7,182,084		$	80,561	4.45	%	$	6,831,183		$	297,232	4.35	%
Less acquisition accounting discount accretion on non-PCI loans	(65,975		)	10,082				(35,285		)	5,797				(25,523		)	15,879
Less acquisition accounting discount accretion on PCI loans	(37,534		)	833				(18,579		)	377				(14,144		)	1,210
Total loans, excluding acquisition accounting discount accretion on Taylor Capital loans	$	9,081,648		$	91,155	3.98	%	$	7,235,948		$	74,387	4.08	%	$	6,870,850		$	280,143	4.08	%

Net interest margin on a fully tax equivalent basis, excluding acquisition accounting discount accretion on Taylor Capital loans:
Total interest earning assets, as reported	$	12,482,766		$	126,057	4.01	%	$	10,666,689		$	101,699	3.78	%	$	9,924,119		$	374,414	3.77	%
Less acquisition accounting discount accretion on non-PCI loans	(65,975		)	10,082				(35,285		)	5,797				(25,523		)	15,879
Less acquisition accounting discount accretion on PCI loans	(37,534		)	833				(18,579		)	377				(14,144		)	1,210
Total interest earning assets, excluding acquisition accounting discount accretion on Taylor Capital loans	$	12,586,275		$	115,142	3.63	%	$	10,720,553		$	95,525	3.54	%	$	9,963,786		$	357,325	3.59	%

Provision will be recognized on acquired Taylor Capital loans as they renew and will largely offset the positive impact of the loan discount accretion on non-purchase credit impaired loans. During the third and fourth quarters of 2014, a provision of approximately $4.7 million and $7.3 million, respectively, was recorded related to acquired Taylor Capital loans.

MB Financial Inactive 8-KResults of Operations and Financial Condition