MB Financial 10Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36599

MB FINANCIAL, INC.

(Exact name of registrant as specified in its charter)



Maryland		36-4460265
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 West Madison Street, Chicago, Illinois		60607
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (888) 422-6562

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

There were issued and outstanding 73,762,487 shares of the Registrant’s common stock as of August 5, 2016.

MB FINANCIAL, INC.

FORM 10-Q

June 30, 2016

INDEX

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)



	(Unaudited)
	June 30, 2016			December 31, 2015
ASSETS
Cash and due from banks	$	303,037		$	307,869
Interest earning deposits with banks	123,086			73,572
Total cash and cash equivalents	426,123			381,441
Investment securities:
Securities available for sale, at fair value	1,477,395			1,585,023
Securities held to maturity, at amortized cost ($1,222,587 fair value at June 30, 2016 and $1,274,767 at December 31, 2015)	1,151,415			1,230,810
Non-marketable securities - FHLB and FRB stock	130,232			114,233
Total investment securities	2,759,042			2,930,066
Loans held for sale	843,379			744,727
Loans:
Total loans, excluding purchased credit impaired loans	10,061,076			9,652,592
Purchased credit impaired loans	136,811			141,406
Total loans	10,197,887			9,793,998
Less: Allowance for loan and lease losses	135,614			128,140
Net loans	10,062,273			9,665,858
Lease investments, net	233,320			211,687
Premises and equipment, net	243,319			236,013
Cash surrender value of life insurance	138,657			136,953
Goodwill	725,039			725,070
Other intangibles	41,569			44,812
Mortgage servicing rights, at fair value	134,969			168,162
Other real estate owned, net	27,663			31,553
Other real estate owned related to FDIC-assisted transactions	8,356			10,717
Other assets	352,081			297,948
Total assets	$	15,995,790		$	15,585,007
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing	$	4,775,364		$	4,627,184
Interest bearing	6,660,732			6,878,031
Total deposits	11,436,096			11,505,215
Short-term borrowings	1,246,994			1,005,737
Long-term borrowings	518,545			400,274
Junior subordinated notes issued to capital trusts	185,925			186,164
Accrued expenses and other liabilities	451,695			400,333
Total liabilities	13,839,255			13,497,723
STOCKHOLDERS’ EQUITY
Preferred stock, ($0.01 par value, authorized 10,000,000 shares at June 30, 2016 and December 31, 2015; Series A, 8% perpetual non-cumulative, 4,000,000 shares issued and outstanding at June 30, 2016 and December 31, 2015, $25 liquidation value)	115,280			115,280
Common stock, ($0.01 par value; authorized 100,000,000 shares at June 30, 2016 and December 31, 2015; issued 75,695,367 shares at June 30, 2016 and 75,566,885 shares at December 31, 2015)	757			756
Additional paid-in capital	1,288,777			1,280,870
Retained earnings	783,468			731,812
Accumulated other comprehensive income	28,731			15,777
Less: 1,955,019 and 1,888,556 shares of treasury common stock, at cost, at June 30, 2016 and December 31, 2015, respectively	(60,732		)	(58,504		)
Controlling interest stockholders’ equity	2,156,281			2,085,991
Non-controlling interest	254			1,293
Total stockholders’ equity	2,156,535			2,087,284
Total liabilities and stockholders’ equity	$	15,995,790		$	15,585,007

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data) (Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Interest income:
Loans:
Taxable	$	110,231		$	98,768		$	215,154		$	197,614
Nontaxable	2,741			2,259			5,327			4,433
Investment securities:
Taxable	7,799			10,002			17,365			19,936
Nontaxable	10,644			10,140			21,420			19,253
Other interest earning accounts	125			57			266			119
Total interest income	131,540			121,226			259,532			241,355
Interest expense:
Deposits	5,952			4,554			11,574			9,199
Short-term borrowings	910			355			1,631			632
Long-term borrowings and junior subordinated notes	2,076			1,844			4,421			3,656
Total interest expense	8,938			6,753			17,626			13,487
Net interest income	122,602			114,473			241,906			227,868
Provision for credit losses	2,829			4,296			10,392			9,270
Net interest income after provision for credit losses	119,773			110,177			231,514			218,598
Non-interest income:
Mortgage banking revenue	39,615			35,648			67,097			60,192
Lease financing revenue, net	15,708			15,564			34,754			40,644
Commercial deposit and treasury management fees	11,548			11,062			23,426			22,100
Trust and asset management fees	8,236			5,752			16,186			11,466
Card fees	4,045			4,409			7,570			8,336
Capital markets and international banking fees	2,771			1,508			5,998			3,436
Consumer and other deposit service fees	3,161			3,260			6,186			6,343
Brokerage fees	1,315			1,543			2,473			3,221
Loan service fees	1,961			1,353			3,713			2,838
Increase in cash surrender value of life insurance	850			836			1,704			1,675
Net gain (loss) on investment securities	269			(84		)	269			(544		)
Net loss on sale of assets	(2		)	(7		)	(50		)	(3		)
Other operating income	2,523			2,105			4,367			4,513
Total non-interest income	92,000			82,949			173,693			164,217
Non-interest expenses:
Salaries and employee benefits	95,004			86,145			180,595			170,931
Occupancy and equipment	13,415			12,177			26,675			25,117
Computer services and telecommunication	9,777			8,537			18,832			17,441
Advertising and marketing	2,964			2,497			5,842			4,943
Professional and legal	3,321			2,413			5,910			5,083
Other intangibles amortization	1,617			1,509			3,243			3,027
Branch exit and facilities impairment charges	155			438			199			7,829
Net loss (gain) recognized on other real estate owned and other related expenses	258			724			(88		)	1,620
Prepayment fees on interest bearing liabilities	—			—			—			85
Other operating expenses	21,395			18,297			42,498			36,581
Total non-interest expenses	147,906			132,737			283,706			272,657
Income before income taxes	63,867			60,389			121,501			110,158
Income tax expense	20,455			19,437			38,975			35,095
Net income	43,412			40,952			82,526			75,063
Dividends on preferred shares	2,000			2,000			4,000			4,000
Net income available to common stockholders	$	41,412		$	38,952		$	78,526		$	71,063

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

(Amounts in thousands, except share and per share data) (Unaudited)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Common share data:
Basic earnings per common share	$	0.56	$	0.52	$	1.07	$	0.95
Diluted earnings per common share	0.56		0.52		1.06		0.94
Weighted average common shares outstanding for basic earnings per common share	73,475,258		74,596,925		73,402,995		74,582,097
Diluted weighted average common shares outstanding for diluted earnings per common share	74,180,374		75,296,029		74,073,655		75,230,455

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands) (Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015

Net income	$	43,412		$	40,952		$	82,526		$	75,063
Unrealized holding gains (losses) on investment securities, net of reclassification adjustments	7,706			(10,886		)	23,282			(1,482		)
Reclassification adjustment for amortization of unrealized gains on investment securities transferred to held to maturity from available for sale	(724		)	(1,257		)	(1,527		)	(1,659		)
Reclassification adjustments for (gains) losses included in net income	(269		)	84			(269		)	544
Other comprehensive income (loss), before tax	6,713			(12,059		)	21,486			(2,597		)
Income tax (expense) benefit related to items of other comprehensive income (loss)	(2,669		)	4,736			(8,532		)	1,019
Other comprehensive income (loss), net of tax	4,044			(7,323		)	12,954			(1,578		)
Comprehensive income	$	47,456		$	33,629		$	95,480		$	73,485

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2016 and 2015

(Amounts in thousands, except per share data) (Unaudited)



	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income, Net of Tax			Treasury Stock			Noncontrolling Interest			Total Stock- holders’ Equity
Balance at December 31, 2014	$	115,280	$	751	$	1,267,761		$	629,677		$	20,356		$	(6,974	)	$	1,435		$	2,028,286
Net income	—		—		—			75,063			—			—			148			75,211
Other comprehensive loss, net of tax	—		—		—			—			(1,578		)	—			—			(1,578		)
Issuance of common stock due to business combination	—		—		217			—			—			—			—			217
Cash dividends declared on preferred shares	—		—		—			(4,000		)	—			—			—			(4,000		)
Cash dividends declared on common shares ($0.31 per share)	—		—		—			(23,494		)	—			—			—			(23,494		)
Restricted common stock activity, net of tax	—		3		(2,561		)	—			—			2,876			—			318
Stock option activity, net of tax	—		—		102			—			—			—			—			102
Repurchase of common shares	—		—		—			—			—			(3,055		)	—			(3,055		)
Repurchase of common shares in connection with employee benefit plans and held in trust for deferred compensation plan	—		—		339			—			—			(1,882		)	—			(1,543		)
Stock-based compensation expense	—		—		7,475			—			—			—			—			7,475
Distributions to non-controlling interest	—		—		—			—			—			—			(200		)	(200		)
Balance at June 30, 2015	$	115,280	$	754	$	1,273,333		$	677,246		$	18,778		$	(9,035	)	$	1,383		$	2,077,739

Balance at December 31, 2015	$	115,280	$	756	$	1,280,870		$	731,812		$	15,777		$	(58,504	)	$	1,293		$	2,087,284
Net income	—		—		—			82,526			—			—			124			82,650
Other comprehensive income, net of tax	—		—		—			—			12,954			—			—			12,954
Cash dividends declared on preferred shares	—		—		—			(4,000		)	—			—			—			(4,000		)
Cash dividends declared on common shares ($0.36 per share)	—		—		—			(26,870		)	—			—			—			(26,870		)
Restricted common stock activity, net of tax	—		1		(632		)	—			—			699			—			68
Stock option activity, net of tax	—		—		1,183			—			—			(56		)	—			1,127
Repurchase of common shares in connection with employee benefit plans and held in trust for deferred compensation plan	—		—		288			—			—			(2,871		)	—			(2,583		)
Stock-based compensation expense	—		—		8,335			—			—			—			—			8,335
Purchase of additional investment in subsidiary from minority owners	—		—		(1,267		)	—			—			—			(1,069		)	(2,336		)
Distributions to non-controlling interest	—		—		—			—			—			—			(94		)	(94		)
Balance at June 30, 2016	$	115,280	$	757	$	1,288,777		$	783,468		$	28,731		$	(60,732	)	$	254		$	2,156,535

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands) (Unaudited)



	Six Months Ended
	June 30,
	2016			2015
Cash Flows From Operating Activities
Net income	$	82,526		$	75,063
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment and leased equipment	35,676			29,879
Branch exit and facilities impairment charges	199			7,829
Compensation expense for share-based payment plans	8,335			7,475
Net loss on sales of premises and equipment and leased equipment	157			2,111
Amortization of other intangibles	3,243			3,027
Provision for credit losses	10,392			9,270
Deferred income tax expense	22,327			14,292
Amortization of premiums and discounts on investment securities, net	23,488			23,245
Amortization of premiums and discounts on loans, net	(14,961		)	(18,700		)
Accretion of FDIC indemnification asset	—			(48		)
Net (gain) loss on investment securities	(269		)	544
Proceeds from sale of loans held for sale	2,772,282			3,577,634
Origination of loans held for sale	(2,833,315		)	(3,676,454		)
Net gain on sale of loans held for sale	(19,720		)	(16,114		)
Change in fair value of mortgage servicing rights	61,197			11,124
Net (gain) loss on other real estate owned	(934		)	1,550
Net loss (gain) on other real estate owned related to FDIC-assisted transactions	466			(361		)
Increase in cash surrender value of life insurance	(1,704		)	(1,675		)
Increase in other assets, net	(95,794		)	(11,336		)
Decrease in other liabilities, net	18,352			7,665
Net cash provided by operating activities	71,943			46,020
Cash Flows From Investing Activities
Decrease in federal funds sold	—			(5		)
Proceeds from sales of investment securities available for sale	842			28,356
Proceeds from maturities and calls of investment securities available for sale	133,638			128,013
Purchases of investment securities available for sale	(17,525		)	(137,029		)
Proceeds from maturities and calls of investment securities held to maturity	80,037			42,460
Purchases of investment securities held to maturity	(10,854		)	(255,091		)
Purchases of non-marketable securities - FHLB and FRB stock	(15,999		)	(35,831		)
Net (increase) decrease in loans	(397,347		)	32,677
Purchases of mortgage servicing rights	(2,961		)	(352		)
Purchases of premises and equipment and leased equipment	(63,123		)	(31,871		)
Proceeds from sales of premises and equipment and leased equipment	2,079			2,868
Proceeds from sale of other real estate owned	7,461			2,341
Proceeds from sale of other real estate owned related to FDIC-assisted transactions	2,891			7,544
Purchase of additional investment in subsidiary from minority owners	(2,336		)	—
Net proceeds from FDIC related covered assets	(2,911		)	(4,972		)
Net used in investing activities	(286,108		)	(220,892		)
Cash Flows From Financing Activities
Net decrease in deposits	(69,119		)	(129,128		)
Net increase in short-term borrowings	241,257			451,220
Proceeds from long-term borrowings	172,075			14,881
Principal paid on long-term borrowings	(53,805		)	(8,158		)
Treasury stock transactions, net	(2,583		)	(4,598		)
Stock options exercised	1,027			87
Excess tax expense from share-based payment arrangements	548			94
Dividends paid on preferred stock	(4,000		)	(4,000		)
Dividends paid on common stock	(26,553		)	(23,187		)
Net cash provided by financing activities	258,847			297,211
Net increase in cash and cash equivalents	$	44,682		$	122,339
Cash and cash equivalents:
Beginning of period	381,441			312,081
End of period	$	426,123		$	434,420

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Amounts in Thousands) (Unaudited)



	Six Months Ended
	June 30,
	2016		2015
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest paid to depositors and other borrowed funds	$	17,416	$	14,485
Income tax payments, net	3,796		1,574
Supplemental Schedule of Noncash Investing Activities:
Investment securities held to maturity purchased not settled	$	—	$	6,978
Loans held for sale transferred to loans held for investment	—		32,469
Loans transferred to other real estate owned	2,637		13,210
Loans transferred to other real estate owned related to FDIC-assisted transactions	830		1,290
Loans transferred to repossessed assets	2,398		439
Operating leases rewritten as direct finance leases included as loans	363		6,412

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.	Basis of Presentation

These unaudited consolidated financial statements include the accounts of MB Financial, Inc., a Maryland corporation (the “Company”), and its subsidiaries, including its wholly owned national bank subsidiary, MB Financial Bank, N.A. (“MB Financial Bank”), based in Chicago, Illinois. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition, results of operations and cash flows for the interim periods have been made. The results of operations for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year.

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and industry practice. Certain information in footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP and industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not result in any changes to previously reported net income or stockholders’ equity.


Note 2.	New Authoritative Accounting Guidance

ASC Topic 810 "Consolidation." New authoritative accounting guidance under ASC Topic 810, "Consolidation" amended prior guidance over the consolidation of certain legal entities. The new authoritative guidance modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with variable interest entities and provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those for registered money market funds. The Company adopted this new authoritative guidance on January 1, 2016, and it did not have an impact on the Company's statements of operations or financial condition.

ASC Topic 835 "Interest." New authoritative accounting guidance under ASC Topic 835, "Interest" amended prior guidance to simplify the presentation of debt issuance costs. The new authoritative guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this new authoritative guidance on January 1, 2016, and it did not have an impact on the Company's statements of operations or financial condition.

ASC Topic 805 "Business Combinations." New authoritative accounting guidance under ASC Topic 805, "Business Combinations" amended prior guidance to require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new guidance requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. It also requires an entity to present separately on the face of the statement of operations or disclose in the notes the portion of the amount recorded in current-period earnings by line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of acquisition date. The Company adopted this new authoritative guidance on January 1, 2016, and it did not have an impact on the Company's statements of operations or financial condition.

ASC Topic 606 "Revenue from Contracts with Customers." New authoritative accounting guidance under ASC Topic 606, "Revenue from Contracts with Customers" amended prior guidance to require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new authoritative guidance was initially effective for reporting periods after January 1, 2017 but was deferred to January 1, 2018. The Company is evaluating the new guidance but does not expect it to have a significant impact on the Company's statements of operations or financial condition.

New authoritative accounting guidance under ASC Topic 606 "Revenue from Contracts with Customers" amended prior guidance to provide clarification on identifying performance obligations and licensing implementation guidance. The new authoritative guidance was initially effective for reporting periods after January 1, 2017 but was deferred to January 1, 2018. The Company is evaluating the new guidance but does not expect it to have a significant impact on the Company's statements of operations or financial condition.

ASC Topic 825 "Financial Instruments." New authoritative accounting guidance under ASC Topic 825 "Financial Instruments" amended prior guidance to require equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The new guidance simplifies the impairment assessment of equity investments without readily determinable fair values, requires public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from changes in the instrument-specific credit risk when the entity has selected the fair value option for financial instruments and requires separate presentation of financial assets and liabilities by measurement category and form of financial asset. The new authoritative guidance will be effective for reporting periods after January 1, 2018 and is not expected to have a significant impact on the Company's statements of operations or financial condition.

ASC Topic 405 "Liabilities-Extinguishment of Liabilities." New authoritative accounting guidance under ASC Topic 405, "Liabilities-Extinguishment of Liabilities" amended prior guidance to clarify that liabilities related to the sale of prepaid store-value products within the scope of this guidance are financial liabilities and that breakage for those liabilities are to be accounted for consistent with the breakage guidance in ASC Topic 606 "Revenue from Contracts with Customers." The new authoritative guidance will be effective for reporting periods after January 1, 2018. The Company is evaluating the new guidance but does not expect it to have a significant impact on the Company's statements of operations or financial condition.

ASC Topic 842 "Leases." New authoritative accounting guidance under ASC Topic 842 "Leases" amended prior guidance to require lessees to recognize the assets and liabilities arising from all leases on the balance sheet. The new authoritative guidance defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. In addition, the qualifications for a sale and leaseback transaction have been amended. The new authoritative guidance also requires qualitative and quantitative disclosures by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company is evaluating the new guidance and its impact on the Company's statements of operations and financial condition.

ASC Topic 815 "Derivatives and Hedging." New authoritative accounting guidance under ASC Topic 815 "Derivatives and Hedging" amended prior guidance to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. An entity has an option to apply the amendments in this new authoritative guidance on either a prospective basis or a modified retrospective basis. The new authoritative guidance will be effective for reporting periods after January 1, 2017 and early adoption is permitted. This new authoritative guidance is not expected to have a significant impact on the Company's statements of operations or financial condition.

New authoritative accounting guidance under ASC Topic 815 "Derivatives and Hedging" amended prior guidance to clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. An entity is required to consider whether (1) the payoff is adjusted based on changes in an index, (2) the payoff is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount, and (4) the call (put) option is contingently exercisable. An entity should apply this new authoritative guidance on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The new authoritative guidance will be effective for reporting periods after January 1, 2017 and early adoption is permitted. This new authoritative guidance is not expected to have a significant impact on the Company's statements of operations or financial condition.

ASC Topic 323 "Investment - Equity Method and Joint Ventures." New authoritative accounting guidance under ASC Topic 323 "Investment - Equity Method and Joint Ventures" amended prior guidance to eliminate the requirement to retroactively adopt the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The new authoritative guidance required that the equity method investor add the cost of acquiring the additional interest in the investee to the current

basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new authoritative guidance will be effective for reporting periods after January 1, 2017 and early adoption is permitted. This new authoritative guidance is not expected to have a significant impact on the Company's statements of operations or financial condition.

ASC Topic 718 "Compensation - Stock Compensation." New authoritative accounting guidance under ASC Topic 718 "Compensation - Stock Compensation" amended prior guidance on several aspects, including the income tax consequences, classification of awards as either equity or liability, and classification on the statement of cash flows. The new authoritative guidance allows for all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. For the statement of cash flows, excess tax benefits should be classified along with other income tax cash flows as an operating activity, and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The new authoritative guidance also allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. The new authoritative guidance will be effective for reporting periods after January 1, 2017 and early adoption is permitted. The Company is evaluating the new guidance and its impact on the Company's statements of operations or financial condition.

ASC Topic 326 "Financial Instruments - Credit Losses." New authoritative accounting guidance under ASC Topic 326 "Financial Instruments - Credit Losses" amended the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new authoritative guidance also requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected (net of the allowance for credit losses). In addition, the credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses rather than a write-down. The new authoritative guidance will be effective for reporting periods after January 1, 2020. The Company is evaluating the new guidance and its impact on the Company's statements of operations or financial condition.


Note 3.	Earnings Per Common Share

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards and restricted stock units, though no actual shares of common stock related to restricted stock units are issued until the settlement of such units, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company's common stock. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share (amounts in thousands, except share and per share data).



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Distributed earnings allocated to common stock	$	14,216	$	12,884	$	26,870	$	23,494
Undistributed earnings	29,196		28,068		55,656		51,569
Net income	43,412		40,952		82,526		75,063
Less: preferred stock dividends	2,000		2,000		4,000		4,000
Net income available to common stockholders	41,412		38,952		78,526		71,063
Less: earnings allocated to participating securities	2		2		4		3
Earnings allocated to common stockholders	$	41,410	$	38,950	$	78,522	$	71,060
Weighted average shares outstanding for basic earnings per common share	73,475,258		74,596,925		73,402,995		74,582,097
Dilutive effect of equity awards	705,116		699,104		670,660		648,358
Weighted average shares outstanding for diluted earnings per common share	74,180,374		75,296,029		74,073,655		75,230,455
Basic earnings per common share	$	0.56	$	0.52	$	1.07	$	0.95
Diluted earnings per common share	0.56		0.52		1.06		0.94


Note 4.	Business Combinations

MSA, Holding, LLC On December 31, 2015, MB Financial Bank acquired a 100% equity interest in MSA Holdings, LLC, ("MSA") the parent company of MainStreet Investment Advisors, LLC and Cambium Asset Management, LLC. Main Street Advisors provides investment management solutions to the bank trust and independent trust company markets. Through its registered investment advisor, Cambium LLC, MSA provides efficient, cost-effective account management solutions on a discretionary basis for high net worth clients, both individuals and institutions, and small accounts through its BluePrint portfolio solution.

This business combination was accounted for under the acquisition method of accounting. Accordingly, the results of operations of the acquired company were included in the Company’s results of operations starting on January 1, 2016. Under this method of accounting, assets and liabilities acquired are recorded at their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired was recorded as goodwill. The Company recorded $13.5 million in goodwill and $8.8 million in other intangibles as a result of this acquisition. The amounts recognized for the business combination in the financial statements as of June 30, 2016 have been determined to be final.

American Chartered Bancorp, Inc. On November 20, 2015, the Company and American Chartered Bancorp, Inc. ("American Chartered") entered into an agreement and plan of merger whereby the Company will acquire American Chartered. The merger agreement provides that, upon the terms and subject to the conditions set forth therein, American Chartered will merge with and into the Company, with the Company as the surviving corporation in the merger. Immediately following the merger, American Chartered's wholly owned bank subsidiary, American Chartered Bank, will merge with and into the Company's wholly owned bank subsidiary, MB Financial Bank. American Chartered Bank is a commercial bank that operates 15 banking offices in the Chicago area and, as of June 30, 2016, had approximately $2.8 billion in total assets, $2.0 billion in loans, and $2.4 billion in deposits.

Subject to the terms and conditions of the merger agreement, each share of American Chartered common stock that is outstanding immediately prior to the merger, other than shares held by persons who have perfected dissenters' rights under Illinois law and any shares owned by the Company or American Chartered, will be converted into the right to receive, subject to the election and the proration and allocation procedures set forth in the merger agreement: (1) cash consideration in the amount of $9.30 or (2) stock consideration consisting of 0.2732 shares of the Company's common stock, with cash paid in lieu of fractional Company shares determined by multiplying the fractional Company share amount by the average closing sale price of the Company's common stock for the five full trading days ending on the day preceding the merger closing date. Holders of American Chartered common stock also can elect to receive a combination of the cash consideration and stock consideration for their shares, subject to the proration and allocation procedures.

The holders of American Chartered’s 8% Cumulative Voting Convertible Preferred Stock, Series D (“American Chartered Series D preferred stock”) and American Chartered’s Non-Voting Perpetual Preferred Stock, Series F (“American Chartered Series F preferred stock” and together with the American Chartered Series D preferred stock, the “American Chartered preferred stock”) have the right, pursuant to the terms of the American Chartered preferred stock and the merger agreement, to elect to receive the same consideration in the merger as the holders of American Chartered common stock (including the right to elect to receive the cash consideration, the stock consideration or a combination of both, subject to the proration and allocation provisions of the merger agreement). In the case of American Chartered Series D preferred stock, this right is based on the number of shares of American Chartered common stock into which each share of American Chartered Series D preferred stock would otherwise then be convertible. Any share of American Chartered preferred stock that has not been converted into American Chartered common stock prior to the merger, or that will not be converted into the right to receive the same consideration in the merger as the holders of American Chartered common stock as described above, will be converted into the right to receive one share of a newly designated series of preferred stock of MB Financial with terms that are not materially less favorable to the holder than the applicable series of American Chartered preferred stock.

Concurrent with the execution of the merger agreement, each holder of American Chartered Series F non-voting preferred stock irrevocably elected and agreed to receive the same consideration in the merger as the holders of American Chartered common stock and waived any rights that such holder might otherwise have had to receive shares of preferred stock of the Company in the merger.

The holder of each vested American Chartered stock option that is outstanding immediately prior to the merger will have the right to elect to receive, for the holder's "net option shares," the cash consideration, the stock consideration or a combination of both, subject to the proration and allocation provisions of the merger agreement. The number of "net option shares" per vested option will be determined by dividing (A) (i) the excess, if any, of $9.30 over the per share exercise price of the option, multiplied by (ii) the number of shares subject to the option, by (B) $9.30. Each unvested American Chartered stock option that is outstanding

immediately prior to the merger will be assumed by the Company and converted into the right to receive an option to purchase shares of the Company's common stock, with adjustments to the number of shares underlying the option (determined by multiplying the pre-merger number of option shares by 0.2732, and rounding down to the nearest whole number of shares of the Company's common stock) and the per share exercise price of the option (determined by dividing the pre-merger exercise price by 0.2732, and rounding up to the nearest whole cent). Each American Chartered restricted stock award that is outstanding immediately prior to the merger will be assumed by the Company and converted into a Company restricted stock award, with an adjustment to the number of shares subject to the award (determined by multiplying the pre-merger number of shares subject to the award by 0.2732, and rounding up to the nearest whole share of the Company's common stock).

The merger agreement provides that the aggregate cash consideration that will be paid for shares of American Chartered stock and for the net option shares is $100.0 million, with the remaining consideration consisting of shares of Company common stock. If American Chartered shareholders and holders of vested American Chartered stock options elect to receive more of one form of consideration than is available, the available amount will be allocated ratably among the American Chartered shareholders and vested option holders electing to receive that form of consideration, and those shareholders and vested option holders will receive the other form of consideration for the balance of their shares and net option shares, as applicable. The only exception to this is that holders of American Chartered Series D preferred stock who have made a cash election with respect to shares of American Chartered Series D preferred stock will receive the cash consideration for all of such shares (based on the number of shares of American Chartered common stock into which each share of American Chartered Series D preferred stock is then otherwise convertible), regardless of the elections of other shareholders and vested option holders.

The transaction, which has been approved by American Chartered's shareholders and the Company's and the Bank's regulators, is expected to close in the third quarter of 2016.


Note 5.	Investment Securities

Amortized cost and fair value of investment securities were as follows as of the dates indicated (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2016
Available for Sale
U.S. Government sponsored agencies and enterprises	$	53,674	$	783	$	—		$	54,457
States and political subdivisions	369,816		31,258		(126		)	400,948
Residential mortgage-backed securities	670,480		12,977		(542		)	682,915
Commercial mortgage-backed securities	98,629		4,023		(200		)	102,452
Corporate bonds	224,730		2,254		(1,459		)	225,525
Equity securities	10,872		226		—			11,098
Total Available for Sale	1,428,201		51,521		(2,327		)	1,477,395
Held to Maturity
States and political subdivisions	960,784		63,205		(57		)	1,023,932
Residential mortgage-backed securities	190,631		8,024		—			198,655
Total Held to Maturity	1,151,415		71,229		(57		)	1,222,587
Total	$	2,579,616	$	122,750	$	(2,384	)	$	2,699,982
December 31, 2015
Available for Sale
U.S. Government sponsored agencies and enterprises	$	63,805	$	806	$	—		$	64,611
States and political subdivisions	373,285		23,083		(1		)	396,367
Residential mortgage-backed securities	759,816		7,363		(3,630		)	763,549
Commercial mortgage-backed securities	128,509		1,839		(241		)	130,107
Corporate bonds	222,784		815		(3,971		)	219,628
Equity securities	10,757		4		—			10,761
Total Available for Sale	1,558,956		33,910		(7,843		)	1,585,023
Held to Maturity
States and political subdivisions	1,016,519		36,874		(638		)	1,052,755
Residential mortgage-backed securities	214,291		7,721		—			222,012
Total Held to Maturity	1,230,810		44,595		(638		)	1,274,767
Total	$	2,789,766	$	78,505	$	(8,481	)	$	2,859,790

The Company has no direct exposure to the State of Illinois, but approximately 21% of the state and political subdivisions portfolio consisted of securities issued by municipalities located in Illinois as of June 30, 2016. Approximately 97% of the state and political subdivisions securities were general obligation issues, and 58% were insured or had another form of credit enhancement as of June 30, 2016.

Unrealized losses on investment securities by length of time in a continuous unrealized loss position and the fair value of the related securities at June 30, 2016 were as follows (in thousands):



	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
States and political subdivisions	$	2,624	$	(126	)	$	—	$	—		$	2,624	$	(126	)
Residential mortgage-backed securities	81,812		(376		)	32,183		(166		)	113,995		(542		)
Commercial mortgage-backed securities	588		(1		)	11,706		(199		)	12,294		(200		)
Corporate bonds	10,501		(148		)	19,527		(1,311		)	30,028		(1,459		)
Total Available for Sale	95,525		(651		)	63,416		(1,676		)	158,941		(2,327		)
Held to Maturity
States and political subdivisions	14,209		(47		)	1,726		(10		)	15,935		(57		)
Total	$	109,734	$	(698	)	$	65,142	$	(1,686	)	$	174,876	$	(2,384	)

Unrealized losses on investment securities by length of time in a continuous unrealized loss position and the fair value of the related securities at December 31, 2015 were as follows (in thousands):



	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
States and political subdivisions	$	219	$	(1	)	$	—	$	—		$	219	$	(1	)
Residential mortgage-backed securities	357,877		(2,835		)	43,566		(795		)	401,443		(3,630		)
Commercial mortgage-backed securities	2,324		(5		)	11,809		(236		)	14,133		(241		)
Corporate bonds	73,774		(1,164		)	18,286		(2,807		)	92,060		(3,971		)
Total Available for Sale	434,194		(4,005		)	73,661		(3,838		)	507,855		(7,843		)
Held to Maturity
States and political subdivisions	66,152		(519		)	6,190		(119		)	72,342		(638		)
Total	$	500,346	$	(4,524	)	$	79,851	$	(3,957	)	$	580,197	$	(8,481	)

The total number of security positions in the investment portfolio in an unrealized loss position at June 30, 2016 was 94 compared to 193 at December 31, 2015. This decrease in total number of security positions in a continuous unrealized loss position from December 31, 2015 to June 30, 2016, was mainly attributable to the corporate bonds and residential mortgage-backed securities in the investment securities portfolio. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) whether the Company is more likely than not to sell the security before recovery of its cost basis.

As of June 30, 2016, management does not have the intent to sell any of the securities in the table above at June 30, 2016 and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of June 30, 2016, management believes the impairments detailed in the table above at June 30, 2016 are temporary.

Changes in market interest rates can significantly influence the fair value of securities, and the fair value of our municipal securities portfolio would decline substantially if interest rates increase materially.

Net gains (losses) recognized on investment securities available for sale were as follows (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Realized gains	$	302		$	324		$	323		$	1,083
Realized losses	(33		)	(408		)	(54		)	(1,627		)
Net gains (losses)	$	269		$	(84	)	$	269		$	(544	)

The amortized cost and fair value of investment securities as of June 30, 2016 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.



	Amortized		Fair
(In thousands)	Cost		Value
Available for sale:
Due in one year or less	$	81,389	$	81,831
Due after one year through five years	219,509		221,637
Due after five years through ten years	32,915		34,992
Due after ten years	314,407		342,470
Equity securities	10,872		11,098
Residential and commercial mortgage-backed securities	769,109		785,367
	1,428,201		1,477,395
Held to maturity:
Due in one year or less	83,036		83,242
Due after one year through five years	130,895		133,026
Due after five years through ten years	125,294		134,496
Due after ten years	621,559		673,168
Residential mortgage-backed securities	190,631		198,655
	1,151,415		1,222,587
Total	$	2,579,616	$	2,699,982

Investment securities with a carrying amount of $1.0 billion at June 30, 2016 and $1.4 billion at December 31, 2015 were pledged as collateral on public deposits and for other purposes as required or permitted by law, while only $785.7 million and $878.2 million were required to be pledged at June 30, 2016 and December 31, 2015, respectively. Of those pledged, the Company had investment securities pledged as collateral for advances from the Federal Home Loan Bank of $108.8 million at December 31, 2015 and none were pledged at June 30, 2016.


Note 6.	Loans

Loans consist of the following at (in thousands):



	June 30, 2016		December 31, 2015
Commercial loans	$	3,561,500	$	3,616,286
Commercial loans collateralized by assignment of lease payments	1,794,465		1,779,072
Commercial real estate	2,827,720		2,695,676
Residential real estate	753,707		628,169
Construction real estate	357,807		252,060
Indirect vehicle	491,480		384,095
Home equity	198,622		216,573
Other consumer loans	75,775		80,661
Total loans, excluding purchased credit-impaired loans	10,061,076		9,652,592
Purchased credit-impaired loans	136,811		141,406
Total loans	$	10,197,887	$	9,793,998

Loans are made to individuals as well as commercial and tax exempt entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Except for commercial loans collateralized by assignment of lease payments and asset-based loans, credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by MB Financial Bank.

The Company's extension of credit is governed by its Credit Risk Policy, which was established to control the quality of the Company's loans. This policy is reviewed and approved by the Enterprise Risk Committee of the Company's Board of Directors on a regular basis.

Commercial Loans. Commercial credit is extended primarily to middle market customers. Such credits are typically comprised of working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a significant amount by the businesses' principal owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types. Asset-based loans, also included in commercial loans, are made to businesses with the primary source of repayment derived from payments on the related assets securing the loan. Collateral for these loans may include accounts receivable, inventory and equipment, and is monitored regularly to ensure ongoing sufficiency of collateral coverage and quality. The primary risk for these loans is a significant decline in collateral values due to general market conditions. Loan terms that mitigate these risks include typical industry amortization schedules, percentage of collateral advances, maintenance of cash collateral accounts and regular asset monitoring. Because of the national scope of our asset-based lending, the risk of these loans is also diversified by geography.

Commercial Loans Collateralized by Assignment of Lease Payments ("Lease Loans"). The Company makes lease loans to lessors where the underlying leases are with both investment grade and non-investment grade companies. Investment grade lessees are companies rated in one of the four highest categories by Moody's Investor Services or Standard & Poor's Rating Services or, in the event the related lessee has not received any such rating, where the related lessee would be viewed under the underwriting policies of the Company as an investment grade company. Whether or not companies fall into this category, each lease loan is considered on its individual merit based on the financial wherewithal of the lessee using financial information available at the time of underwriting.

Commercial Real Estate Loans. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

Construction Real Estate Loans. The Company defines construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement of real estate in which the Company holds a mortgage. Due to the inherent risk in this type of loan, they are subject to other industry specific policy guidelines outlined in the Company's Credit Risk Policy.

Consumer Related Loans. The Company originates direct and indirect consumer loans, including primarily residential real estate, home equity lines and loans, credit cards, and indirect vehicle loans (motorcycle, powersports, recreational and marine vehicles). Each loan type is underwritten based upon several factors including debt to income, type of collateral and loan to collateral value, credit history and the Company's relationship with the borrower. Indirect loan and credit card underwriting involves the use of risk-based pricing in the underwriting process.

Purchased credit-impaired loans. Purchased credit-impaired loans are loans accounted for under ASC 310-30, which include purchased credit-impaired loans acquired through a business combination, FDIC-assisted transactions and re-purchase transactions with the Government National Mortgage Association ("GNMA"). The loans re-purchased from GNMA were originally sold by the Company with servicing retained and subsequently became delinquent. These loans are also insured by the Federal Housing Administration (commonly referred to as "FHA") or the U.S. Department of Veterans Affairs (commonly referred to as "VA") where the Company would be able to recover the principal balance of these loans. All re-purchases from GNMA are at the Company's discretion.

A collateral pledge agreement exists whereby at all times, the Company must keep on hand, free of all other pledges, liens, and encumbrances, first mortgage loans and home equity loans with unpaid principal balances aggregating no less than 133% for first mortgage loans and 250% for home equity loans of the outstanding advances from the Federal Home Loan Bank. As of June 30, 2016 and December 31, 2015, the Company had $3.7 billion and $3.2 billion, respectively, of loans pledged as collateral for long-term Federal Home Loan Bank advances and third party letters of credit, while only $3.0 billion and $2.2 billion were required to be pledged at June 30, 2016 and December 31, 2015, respectively.

The following table presents the contractual aging of the recorded investment in past due loans by class of loans as of June 30, 2016 and December 31, 2015 (in thousands):



	Current		30-59 Days Past Due		60-89 Days Past Due		Loans Past Due 90 Days or More		Total Past Due		Total
June 30, 2016
Commercial	$	3,551,402	$	1,595	$	1,010	$	7,493	$	10,098	$	3,561,500
Commercial collateralized by assignment of lease payments	1,784,183		1,740		600		7,942		10,282		1,794,465
Commercial real estate:
Healthcare	515,902		—		—		—		—		515,902
Industrial	484,927		—		—		1,087		1,087		486,014
Multifamily	430,018		10,378		197		448		11,023		441,041
Retail	454,784		215		555		1,161		1,931		456,715
Office	248,047		51		—		44		95		248,142
Other	677,091		459		672		1,684		2,815		679,906
Residential real estate	743,395		1,352		1,102		7,858		10,312		753,707
Construction real estate	357,807		—		—		—		—		357,807
Indirect vehicle	488,568		2,132		568		212		2,912		491,480
Home equity	194,027		543		419		3,633		4,595		198,622
Other consumer	75,476		160		98		41		299		75,775
Total loans, excluding purchased credit-impaired loans	10,005,627		18,625		5,221		31,603		55,449		10,061,076
Purchased credit-impaired loans	87,724		1,580		3,196		44,311		49,087		136,811
Total loans	$	10,093,351	$	20,205	$	8,417	$	75,914	$	104,536	$	10,197,887
Non-performing loan aging	$	41,887	$	778	$	729	$	31,340	$	32,847	$	74,734

December 31, 2015
Commercial	$	3,586,372	$	22,956	$	97	$	6,861	$	29,914	$	3,616,286
Commercial collateralized by assignment of lease payments	1,758,839		3,399		5,902		10,932		20,233		1,779,072
Commercial real estate:
Healthcare	476,939		—		—		—		—		476,939
Industrial	400,182		—		—		757		757		400,939
Multifamily	399,333		622		88		934		1,644		400,977
Retail	410,958		6,189		7,411		180		13,780		424,738
Office	223,935		58		—		5,189		5,247		229,182
Other	760,530		622		82		1,667		2,371		762,901
Residential real estate	612,573		5,193		1,729		8,674		15,596		628,169
Construction real estate	252,060		—		—		—		—		252,060
Indirect vehicle	380,899		2,085		698		413		3,196		384,095
Home equity	207,818		1,774		1,398		5,583		8,755		216,573
Other consumer	80,225		254		84		98		436		80,661
Total loans, excluding purchased credit-impaired loans	9,550,663		43,152		17,489		41,288		101,929		9,652,592
Purchased credit-impaired loans	81,250		3,311		4,439		52,406		60,156		141,406
Total loans	$	9,631,913	$	46,463	$	21,928	$	93,694	$	162,085	$	9,793,998
Non-performing loan aging	$	44,290	$	9,827	$	9,367	$	41,177	$	60,371	$	104,661

The following table presents the recorded investment in non-accrual loans and loans past due ninety days or more and still accruing by class of loans, excluding purchased credit-impaired loans, as of June 30, 2016 and December 31, 2015 (in thousands):



	June 30, 2016				December 31, 2015
			Loans past due				Loans past due
	Non-accrual		90 days or more and still accruing		Non-accrual		90 days or more and still accruing
Commercial	$	20,633	$	—	$	24,689	$	42
Commercial collateralized by assignment of lease payments	2,143		6,733		7,027		5,318
Commercial real estate:
Healthcare	—		—		—		—
Industrial	1,090		—		1,136		—
Multifamily	2,708		—		3,415		—
Office	507		—		4,496		693
Retail	1,324		—		17,594		—
Other	1,194		340		1,544		195
Residential real estate	17,928		78		17,951		253
Construction real estate	—		—		—		—
Indirect vehicle	1,817		—		2,046		—
Home equity	18,192		—		18,156		—
Other consumer	8		39		11		95
Total	$	67,544	$	7,190	$	98,065	$	6,596

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company's risk rating system, the Company classifies potential problem and problem loans as “Special Mention,” “Substandard,” and “Doubtful.” Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses that deserve management's close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants and at least annually. Loans listed as not rated are included in groups of homogeneous loans with similar risk and loss characteristics.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed, excluding purchased credit-impaired loans, as of June 30, 2016 and December 31, 2015 (in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2016
Commercial	$	3,299,801	$	174,719	$	86,980	$	—	$	3,561,500
Commercial collateralized by assignment of lease payments	1,774,901		11,574		7,990		—		1,794,465
Commercial real estate:
Healthcare	503,356		12,546		—		—		515,902
Industrial	470,625		13,759		1,630		—		486,014
Multifamily	437,022		479		3,540		—		441,041
Retail	446,132		8,972		1,611		—		456,715
Office	239,680		3,784		4,678		—		248,142
Other	645,957		10,977		22,972		—		679,906
Construction real estate	357,259		548		—		—		357,807
Total	$	8,174,733	$	237,358	$	129,401	$	—	$	8,541,492
December 31, 2015
Commercial	$	3,373,943	$	115,548	$	126,795	$	—	$	3,616,286
Commercial collateralized by assignment of lease payments	1,760,674		4,367		14,031		—		1,779,072
Commercial real estate:
Healthcare	472,599		4,340		—		—		476,939
Industrial	380,200		19,011		1,728		—		400,939
Multifamily	396,117		595		4,265		—		400,977
Retail	393,543		13,310		17,885		—		424,738
Office	216,584		3,797		8,801		—		229,182
Other	730,713		6,193		25,995		—		762,901
Construction real estate	252,060		—		—		—		252,060
Total	$	7,976,433	$	167,161	$	199,500	$	—	$	8,343,094

Approximately $29.6 million and $59.6 million of the substandard loans were non-performing as of June 30, 2016 and December 31, 2015, respectively.

For residential real estate, home equity, indirect vehicle and other consumer loan classes, which are not rated, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity, excluding purchased credit-impaired loans, as of June 30, 2016 and December 31, 2015 (in thousands):



	Performing		Non-performing		Total
June 30, 2016
Residential real estate	$	735,701	$	18,006	$	753,707
Indirect vehicle	489,663		1,817		491,480
Home equity	180,430		18,192		198,622
Other consumer	75,728		47		75,775
Total	$	1,481,522	$	38,062	$	1,519,584
December 31, 2015
Residential real estate	$	609,965	$	18,204	$	628,169
Indirect vehicle	382,049		2,046		384,095
Home equity	198,417		18,156		216,573
Other consumer	80,555		106		80,661
Total	$	1,270,986	$	38,512	$	1,309,498

The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $18.8 million and $20.8 million at June 30, 2016 and December 31, 2015, respectively.

The following tables present loans individually evaluated for impairment by class of loans, excluding purchased credit-impaired loans, as of June 30, 2016 and December 31, 2015 (in thousands):



	June 30, 2016
									Three Months Ended				Six Months Ended
	Unpaid Principal Balance		Recorded Investment		Partial Charge-offs		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	5,080	$	5,080	$	—	$	—	$	5,266	$	—	$	2,633	$	—
Commercial collateralized by assignment of lease payments	—		—		—		—		—		—		968		—
Commercial real estate:
Healthcare	—		—		—		—		—		—		—		—
Industrial	819		756		63		—		839		—		808		—
Multifamily	2,038		2,038		—		—		2,362		—		2,377		—
Retail	2,697		957		1,740		—		963		—		3,401		—
Office	—		—		—		—		—		—		516		—
Other	—		—		—		—		—		—		120		—
Residential real estate	—		—		—		—		—		—		—		—
Construction real estate	—		—		—		—		—		—		—		—
Indirect vehicle	—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		289		—
Other consumer	—		—		—		—		—		—		—		—
With an allowance recorded:
Commercial	26,572		26,572		—		11,388		31,512		—		30,220		—
Commercial collateralized by assignment of lease payments	1,170		1,170		—		391		1,157		9		2,249		18
Commercial real estate:
Healthcare	—		—		—		—		—		—		—		—
Industrial	—		—		—		—		—		—		—		—
Multifamily	—		—		—		—		—		—		—		—
Retail	3,619		3,619		—		365		3,625		—		10,084		—
Office	—		—		—		—		—		—		1,498		—
Other	592		592		—		61		592		—		472		—
Residential real estate	15,009		13,049		1,960		2,446		12,831		—		12,938		—
Construction real estate	—		—		—		—		—		—		—		—
Indirect vehicle	248		146		102		—		313		—		299		—
Home equity	31,750		29,419		2,331		2,719		29,688		—		29,238		—
Other consumer	—		—		—		—		—		—		—		—
Total	$	89,594	$	83,398	$	6,196	$	17,370	$	89,148	$	9	$	98,110	$	18



	December 31, 2015
									Year Ended
	Unpaid Principal Balance		Recorded Investment		Partial Charge-offs		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	11,253	$	11,253	$	—	$	—	$	6,628	$	—
Commercial collateralized by assignment of lease payments	3,453		2,949		504		—		1,035		54
Commercial real estate:
Healthcare	—		—		—		—		—		—
Industrial	820		757		63		—		3,467		—
Multifamily	575		575		—		—		1,540		17
Retail	7,872		6,131		1,741		—		2,768		—
Office	1,608		1,031		577		—		1,663		—
Other	—		—		—		—		965		—
Residential real estate	970		970		—		—		717		—
Construction real estate	—		—		—		—		—		—
Indirect vehicle	—		—		—		—		—		—
Home equity	927		927		—		—		1,000		—
Other consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial	23,394		23,394		—		7,523		18,820		—
Commercial collateralized by assignment of lease payments	3,297		3,297		—		1,790		4,013		104
Commercial real estate:
Healthcare	—		—		—		—		—		—
Industrial	—		—		—		—		228		—
Multifamily	2,155		2,155		—		17		3,307		27
Retail	16,034		16,034		—		4,926		8,885		—
Office	2,929		2,929		—		1,717		2,457		—
Other	592		592		—		199		9,629		—
Residential real estate	12,950		12,769		181		2,634		13,484		—
Construction real estate	—		—		—		—		214		—
Indirect vehicle	119		119		—		—		287		—
Home equity	28,696		28,583		113		3,131		27,747		—
Other consumer	—		—		—		—		—		—
Total	$	117,644	$	114,465	$	3,179	$	21,937	$	108,854	$	202

Impaired loans included accruing restructured loans of $26.7 million and $27.0 million that have been modified and are performing in accordance with those modified terms as of June 30, 2016 and December 31, 2015, respectively. In addition, impaired loans included $28.9 million and $23.6 million of non-performing restructured loans as of June 30, 2016 and December 31, 2015, respectively.

Loans may be restructured in an effort to maximize collections from financially distressed borrowers. We use various restructuring techniques, including, but not limited to, deferring past due interest or principal, implementing an A/B note structure, redeeming past due taxes, reducing interest rates, extending maturities and modifying amortization schedules. Residential real estate loans are restructured in an effort to minimize losses while allowing borrowers to remain in their primary residences when possible. Programs that we offer to residential real estate borrowers include the Home Affordable Refinance Program (“HARP”), a restructuring program similar to the Home Affordable Modification Program (“HAMP”) for first mortgage borrowers, the Second Lien Modification Program (“2MP”) and similar programs for home equity borrowers in keeping with the restructuring techniques discussed above.

Periodically, the Company will restructure a note into two separate notes (A/B structure), charging off the entire B portion of the note. The A note is structured with appropriate loan-to-value and cash flow coverage ratios that provide for a high likelihood of repayment. The A note is classified as a non-performing note until the borrower has displayed a historical payment performance for a reasonable time prior to and subsequent to the restructuring. A period of sustained repayment for at least six months generally is required to return the note to accrual status provided that management has determined that the performance is reasonably expected to continue. The A note will be classified as a restructured note (either performing or non-performing) through the calendar year of the restructuring that the historical payment performance has been established. As of June 30, 2016 and December 31, 2015, there was one A/B structure with a recorded investment of $957 thousand and $1.0 million, respectively, which is included above as an accruing restructured loan.

A loan classified as a troubled debt restructuring will no longer be included in the troubled debt restructuring disclosures in the years after the restructuring if the loan performs in accordance with the terms specified by the restructuring agreement and the interest rate specified in the restructuring agreement represents a market rate at the time of modification. The specified interest rate is considered a market rate when the interest rate is equal to or greater than the rate the Company is willing to accept at the time of restructuring for a new loan with comparable risk. If there are concerns that the borrower will not be able to meet the modified terms of the loan, the loan will continue to be included in the troubled debt restructuring disclosures.

Impairment analyses on commercial-related loans classified as troubled debt restructurings are performed in conjunction with the normal allowance for loan and lease losses process. Consumer loans classified as troubled debt restructurings are aggregated in two pools that share common risk characteristics, home equity and residential real estate loans, with impairment measured on a quarterly basis based on the present value of expected future cash flows discounted at the loan's effective interest rate.

The following table presents loans that were restructured during the three months ended June 30, 2016 (dollars in thousands):



	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Charge-offs and Specific Reserves
Performing:
Commercial	1	$	1,870	$	1,870	$	412
Total	1	$	1,870	$	1,870	$	412
Non-Performing:
Commercial	4	$	8,607	$	8,607	$	3,500
Residential real estate	1	83		83		—
Indirect vehicle	8	69		69		21
Home equity	14	2,030		2,030		15
Total	27	$	10,789	$	10,789	$	3,536

The following table presents loans that were restructured during the six months ended June 30, 2016 (dollars in thousands):



	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Charge-offs and Specific Reserves
Performing:
Commercial	1	$	1,870	$	1,870	$	412
Home equity	2	410		410		—
Total	3	$	2,280	$	2,280	$	412
Non-Performing:
Commercial	4	$	8,607	$	8,607	$	3,500
Residential real estate	2	155		155		—
Indirect vehicle	18	149		149		43
Home equity	23	3,111		3,111		66
Total	47	$	12,022	$	12,022	$	3,609

The following table presents loans that were restructured during the three months ended June 30, 2015 (dollars in thousands):



	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Charge-offs and Specific Reserves
Performing:
Commercial	1	$	80	$	80	$	—
Home equity	6	1,467		1,467		—
Total	7	$	1,547	$	1,547	$	—
Non-Performing:
Commercial real estate:
Multifamily	1	$	334	$	334	$	—
Residential real estate	1	140		140		17
Indirect vehicle	3	21		21		7
Total	5	$	495	$	495	$	24

The following table presents loans that were restructured during the six months ended June 30, 2015 (dollars in thousands):



	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Charge-offs and Specific Reserves
Performing:
Commercial	1	$	80	$	80	$	—
Home equity	12	3,813		3,813		—
Total	13	$	3,893	$	3,893	$	—
Non-Performing:
Commercial real estate:
Multifamily	1	$	334	$	334	$	—
Residential real estate	1	140		140		17
Indirect vehicle	6	30		30		7
Home equity	5	798		798		122
Total	13	$	1,302	$	1,302	$	146

Of the troubled debt restructurings entered into during the past twelve months, $224 thousand subsequently defaulted during the six months ended June 30, 2016. Performing troubled debt restructurings are considered to have defaulted when they become 90 days or more past due post-restructuring or are placed on non-accrual status.

The following table presents the troubled debt restructurings activity during the six months ended June 30, 2016 (in thousands):



	Performing			Non-performing
Beginning balance	$	26,991		$	23,619
Additions	2,280			12,022
Charge-offs	—			(46		)
Principal payments, net	(1,639		)	(4,683		)
Removals	(882		)	(1,938		)
Transfer to other real estate owned	—			(112		)
Transfers in	754			789
Transfers out	(789		)	(754		)
Ending balance	$	26,715		$	28,897

Loans removed from troubled debt restructuring status are those that were restructured in a previous calendar year at a market rate of interest and have performed in compliance with the modified terms.

The following table presents the type of modification for loans that have been restructured during the six months ended June 30, 2016 (in thousands):



	June 30, 2016

	Extended
	Maturity,				Delay in
	Amortization		Extended		Payments or
	and Reduction		Maturity and/or		Reduction of
	of Interest Rate		Amortization		Interest Rate		Total
Commercial	$	—	$	8,607	$	1,870	$	10,477
Residential real estate	—		155		—		155
Indirect vehicle	—		—		149		149
Home equity	2,765		718		38		3,521
Total	$	2,765	$	9,480	$	2,057	$	14,302

The following table presents the activity in the allowance for credit losses, balance in allowance for credit losses and recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2016 and 2015 (in thousands):



	Commercial		Commercial collateralized by assignment of lease payments		Commercial real estate			Residential real estate			Construction real estate			Indirect vehicle		Home equity			Other consumer		Unfunded commitments			Total
June 30, 2016
Allowance for credit losses:
Three Months Ended
Beginning balance	$	46,962	$	10,505	$	46,785		$	5,596		$	14,614		$	2,732	$	5,022		$	2,277	$	3,239		$	137,732
Charge-offs	72		2,347		1,720			476			144			651		619			395		—			6,424
Recoveries	952		467		1,843			82			17			501		193			141		—			4,196
Provision	2,455		1,924		(868		)	(402		)	(257		)	518		(397		)	376		(520		)	2,829
Ending balance	$	50,297	$	10,549	$	46,040		$	4,800		$	14,230		$	3,100	$	4,199		$	2,399	$	2,719		$	138,333

Six Months Ended
Beginning balance	$	39,316	$	10,434	$	45,475		$	5,734		$	15,113		$	2,418	$	7,374		$	2,276	$	3,368		$	131,508
Charge-offs	785		2,921		2,072			844			144			1,582		857			807		—			10,012
Recoveries	1,332		517		2,437			106			44			964		511			534		—			6,445
Provision	10,434		2,519		200			(196		)	(783		)	1,300		(2,829		)	396		(649		)	10,392
Ending balance	$	50,297	$	10,549	$	46,040		$	4,800		$	14,230		$	3,100	$	4,199		$	2,399	$	2,719		$	138,333
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	11,388	$	391	$	426		$	2,446		$	—		$	—	$	2,719		$	—	$	731		$	18,101
Collectively evaluated for impairment	38,762		10,158		45,084			2,354			14,194			3,100		1,480			2,399		1,988			119,519
Acquired and accounted for under ASC 310-30 ⁽¹⁾	147		—		530			—			36			—		—			—		—			713
Total ending allowance balance	$	50,297	$	10,549	$	46,040		$	4,800		$	14,230		$	3,100	$	4,199		$	2,399	$	2,719		$	138,333

Loans:
Individually evaluated for impairment	$	31,652	$	1,170	$	7,962		$	13,049		$	—		$	146	$	29,419		$	—	$	—		$	83,398
Collectively evaluated for impairment	3,529,848		1,793,295		2,819,758			740,658			357,807			491,334		169,203			75,775		—			9,977,678
Acquired and accounted for under ASC 310-30 ⁽¹⁾	21,745		—		26,199			59,538			13,795			—		13,091			2,443		—			136,811
Total ending loans balance	$	3,583,245	$	1,794,465	$	2,853,919		$	813,245		$	371,602		$	491,480	$	211,713		$	78,218	$	—		$	10,197,887



	Commercial		Commercial collateralized by assignment of lease payments		Commercial real estate			Residential real estate		Construction real estate		Indirect vehicle		Home equity			Other consumer		Unfunded commitments		Total
June 30, 2015
Allowance for credit losses:
Three Months Ended
Beginning balance	$	32,827	$	9,825	$	41,958		$	6,760	$	9,473	$	1,715	$	8,780		$	2,074	$	3,777	$	117,189
Charge-offs	57		100		108			318		3		627		276			500		—		1,989
Recoveries	816		340		2,561			8		35		545		160			169		—		4,634
Provision	5,556		1,203		(6,335		)	219		2,954		276		(252		)	392		283		4,296
Ending balance	$	39,142	$	11,268	$	38,076		$	6,669	$	12,459	$	1,909	$	8,412		$	2,135	$	4,060	$	124,130

Six Months Ended
Beginning balance	$	29,571	$	9,962	$	41,826		$	6,646	$	8,918	$	1,687	$	9,456		$	1,960	$	4,031	$	114,057
Charge-offs	626		100		2,142			897		6		1,501		720			924		—		6,916
Recoveries	1,058		1,089		3,936			80		37		1,020		261			238		—		7,719
Provision	9,139		317		(5,544		)	840		3,510		703		(585		)	861		29		9,270
Ending balance	$	39,142	$	11,268	$	38,076		$	6,669	$	12,459	$	1,909	$	8,412		$	2,135	$	4,060	$	124,130
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,706	$	4,606	$	3,090		$	2,831	$	162	$	10	$	2,506		$	—	$	1,334	$	18,245
Collectively evaluated for impairment	34,984		6,662		34,195			3,838		12,292		1,899		5,906			2,135		2,726		104,637
Acquired and accounted for under ASC 310-30 ⁽¹⁾	452		—		791			—		5		—		—			—		—		1,248
Total ending allowance balance	$	39,142	$	11,268	$	38,076		$	6,669	$	12,459	$	1,909	$	8,412		$	2,135	$	4,060	$	124,130

Loans:
Individually evaluated for impairment	$	16,262	$	10,923	$	37,140		$	14,219	$	337	$	132	$	28,507		$	—	$	—	$	107,520
Collectively evaluated for impairment	3,338,627		1,679,943		2,502,851			518,899		189,262		303,645		201,971			86,463		—		8,821,661
Acquired and accounted for under ASC 310-30 ⁽¹⁾	52,675		—		53,141			27,861		11,764		—		86			19,248		—		164,775
Total ending loans balance	$	3,407,564	$	1,690,866	$	2,593,132		$	560,979	$	201,363	$	303,777	$	230,564		$	105,711	$	—	$	9,093,956

⁽¹⁾ Loans acquired in business combinations and accounted for under ASC Subtopic 310-30 “Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality.”

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


•	Pass rated loans (typically performing loans) are accounted for in accordance with ASC 310-20 "Nonrefundable Fees and Other Costs" as these loans do not have evidence of credit deterioration since origination.


•	Non-impaired loans (typically performing substandard loans) are accounted for in accordance with ASC 310-30 if they display at least some level of credit deterioration since origination.


•	Impaired loans (typically substandard loans on non-accrual status) are accounted for in accordance with ASC 310-30 as they display significant credit deterioration since origination.

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

In accordance with ASC 310-30, for both purchased non-impaired loans and purchased credit-impaired loans, the loans are pooled by loan type and 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 pools when there is a reasonable expectation about the amount and timing of such cash flows.

Substantially all of the loans acquired in transactions with the FDIC displayed at least some level of credit deterioration and as such are included as non-impaired and impaired loans as described immediately above.

During the six months ended June 30, 2016, there was a negative provision for credit losses of $863 thousand and net charge-offs of $501 thousand in relation to purchased loans. There was $713 thousand and $2.1 million in allowance for loan and lease losses related to these purchased loans at June 30, 2016 and December 31, 2015, respectively. The provision for credit losses and accompanying charge-offs are included in the table above.

Changes in the accretable yield for loans acquired and accounted for under ASC 310-30 were as follows for the three and six months ended June 30, 2016 and 2015 (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Balance at beginning of period	$	13,970		$	6,367		$	12,596		$	7,434
Accretion	(2,419		)	(1,817		)	(4,629		)	(3,747		)
Other ⁽¹⁾	1,609			6,906			5,193			7,769
Balance at end of period	$	13,160		$	11,456		$	13,160		$	11,456


⁽¹⁾	Primarily includes discount transfers from non-accretable discount to accretable discount due to better than expected performance of loan pools acquired and accounted for under ASC 310-30.

In our FDIC-assisted transactions, the fair value of purchased credit-impaired loans, on the acquisition date, was determined based on assigned risk ratings, expected cash flows and the fair value of loan collateral. The fair value of loans that were non-impaired was determined based on estimates of losses on defaults and other market factors. Due to the loss-share agreements with the FDIC, we recorded a receivable (FDIC indemnification asset) from the FDIC equal to the present value of the corresponding reimbursement percentages on the estimated losses embedded in the loan portfolio.

When cash flow estimates are adjusted downward for a particular loan pool, the FDIC indemnification asset is increased. An allowance for loan and lease losses is established for the impairment of the loans. A provision for credit losses is recognized for the difference between the increase in the FDIC indemnification asset and the decrease in cash flows.

When cash flow estimates are adjusted upward for a particular loan pool, the FDIC indemnification asset is decreased. The difference between the decrease in the FDIC indemnification asset and the increase in cash flows is accreted over the estimated life of the loan pool.

When cash flow estimates are adjusted downward for covered foreclosed real estate, the FDIC indemnification asset is increased. A charge is recognized for the difference between the increase in the FDIC indemnification asset and the decrease in cash flows.

When cash flow estimates are adjusted upward for covered foreclosed real estate, the FDIC indemnification asset is decreased. Any write-down after the transfer to covered foreclosed real estate is reversed.

In both scenarios, the clawback liability (the amount the FDIC requires the Company to pay back if certain thresholds are met) will increase or decrease accordingly.

For other loans acquired through business combinations, the fair value of purchased credit-impaired loans, on the acquisition date, was determined based on assigned risk ratings, expected cash flows and the fair value of loan collateral. The fair value of loans that were non-impaired was determined based on estimates of losses on defaults and other market factors.

The carrying amount of loans acquired through a business combination by loan pool type are as follows (in thousands):



June 30, 2016	Purchased Credit-Impaired Loans		Purchased Non-Credit-Impaired Loans		Total
Covered loans:
Consumer related	$	18,647	$	—	$	18,647
Non-covered loans:
Commercial loans	21,745		387,881		409,626
Commercial loans collateralized by assignment of lease payments	—		78,904		78,904
Commercial real estate	26,199		512,341		538,540
Construction real estate	13,795		2,731		16,526
Consumer related	56,425		158,443		214,868
Total non-covered loans	118,164		1,140,300		1,258,464
Total acquired	$	136,811	$	1,140,300	$	1,277,111

Effective April 1, 2014, the losses on commercial related loans (commercial, commercial real estate and construction real estate) acquired in connection with the Heritage Community Bank ("Heritage") FDIC-assisted transaction ceased being covered under the loss-share agreement for that transaction. The carrying amount of those loans was $2.1 million as of June 30, 2016. Any recoveries, net of expenses, received on commercial related loans on which losses were incurred prior to April 1, 2014 will continue to be covered (and any such net recoveries must be shared with the FDIC in accordance with the loss-share agreement) through March 31, 2017. The losses on consumer related loans acquired in connection with the Heritage FDIC-assisted transaction will continue to be covered under the loss-share agreement through March 31, 2019.

The losses on commercial related loans acquired in connection with the Benchmark Bank ("Benchmark") FDIC-assisted transaction ceased to be covered under the loss-share agreement for that transaction effective January 1, 2015. The carrying amount of those loans was $1.7 million as of June 30, 2016. Any recoveries, net of expenses, received on commercial related loans on which losses were incurred prior to January 1, 2015 will continue to be covered (and any such net recoveries must be shared with the FDIC in accordance with the loss-share agreements) through December 31, 2017. The losses on consumer related loans acquired in connection with the Benchmark FDIC-assisted transaction will continue to be covered under the loss-share agreements through December 31, 2019.

Effective July 1, 2015, the losses on commercial related loans acquired in connection with Broadway Bank ("Broadway") and New Century Bank ("New Century") FDIC-assisted transactions ceased to be covered under the loss-share agreements for those transactions. The carrying amount of those loans was $8.4 million as of June 30, 2016. Any recoveries, net of expenses, received on commercial related loans on which losses were incurred prior to July 1, 2015 will continue to be covered (and any such net recoveries must be shared with the FDIC in accordance with the loss-share agreements) through June 30, 2018. The losses on consumer related loans acquired in connection with the Broadway and New Century FDIC-assisted transactions will continue to be covered under the loss-share agreements through June 30, 2020.

Consumer related purchased credit-impaired loans also included re-purchase transactions with GNMA of $54.1 million as of June 30, 2016.


Note 7.	Goodwill and Intangibles

The excess of the cost of an acquisition over the fair value of the net assets acquired, including core deposit and client relationship intangibles, consists of goodwill. Under ASC Topic 350, goodwill is subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill to determine potential impairment annually, or more frequently if events and circumstances indicate that goodwill might be impaired, by comparing the carrying value of the reporting units with the fair value of the reporting units.

The Company's annual assessment date is as of December 31. Goodwill is tested for impairment at the reporting unit level. The Company has three reporting units: Banking, Leasing and Mortgage Banking. No impairment losses were recognized during the six months ended June 30, 2016 or 2015. The carrying amount of goodwill was $725.0 million and $725.1 million at June 30, 2016 and December 31, 2015, respectively.

The following table presents the changes in the carrying amount of goodwill for the six months ended June 30, 2016 (in thousands):



	Banking			Leasing		Mortgage Banking		Total
Balance at beginning of period	$	684,430		$	40,640	$	—	$	725,070
Goodwill from business combinations ⁽¹⁾	(31		)	—		—		(31		)
Balance at end of period	$	684,399		$	40,640	$	—	$	725,039


⁽¹⁾	Due to the adjustments recognized for the MSA acquisition.

The Company has other intangible assets consisting of core deposit and client relationship intangibles that had a remaining weighted average amortization period of approximately six years as of June 30, 2016.

The following table presents the changes during the six months ended June 30, 2016 in the carrying amount of core deposit and client relationship intangibles, and the gross carrying amount, accumulated amortization, and net book value as of June 30, 2016 (in thousands):



	June 30, 2016
Balance at beginning of period	$	44,812
Amortization expense	(3,243		)
Balance at end of period	$	41,569

Gross carrying amount	$	93,292
Accumulated amortization	(51,723		)
Net book value	$	41,569

The following presents the estimated future amortization expense of other intangible assets (in thousands):



Year ending December 31,	Amount
2016	$	3,164
2017	5,738
2018	5,242
2019	3,685
2020	3,232
Thereafter	20,508
	$	41,569


Note 8.	Deposits

The composition of deposits was as follows as of June 30, 2016 and December 31, 2015 (in thousands):



	June 30,		December 31,
	2016		2015
Demand deposit accounts, non-interest bearing	$	4,775,364	$	4,627,184
NOW, money market and interest bearing deposits	3,771,111		4,144,633
Savings accounts	1,021,845		974,555
Certificates of deposit, $250,000 or more	1,022,466		877,352
Other certificates of deposit	845,310		881,491
Total	$	11,436,096	$	11,505,215

Certificates of deposit of $250,000 or more included $644.4 million and $500.2 million of brokered deposits at June 30, 2016 and December 31, 2015, respectively. Brokered deposits typically consist of smaller individual time certificates that have the same liquidity characteristics and yields consistent with time certificates of $250,000 or more.


Note 9.	Short-Term Borrowings

Short-term borrowings were as follows as of June 30, 2016 and December 31, 2015 (dollars in thousands):



	June 30, 2016				December 31, 2015
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
Customer repurchase agreements	0.22	%	$	215,494	0.20	%	$	201,207
Federal Home Loan Bank advances	0.29		1,000,000		0.17		775,000
Federal funds purchased	0.56		31,500		0.09		4,530
Line of credit	—		—		2.18		25,000
Total	0.28	%	$	1,246,994	0.23	%	$	1,005,737

Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet. The Company pledges mortgage-backed securities as collateral for the repurchase agreements and may be required to provide additional collateral based on the fair value of those securities.

The Company had Federal Home Loan Bank fixed rate advances with a maturity date less than one year of $1.0 billion and $775.0 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016, the interest rate on the advances outstanding on that date had rates ranging from 0.23% to 0.30% with maturities from July 1, 2016 to December 12, 2016. The Company has investment securities available for sale and loans pledged as collateral on this FHLB advance. See Note 5. Investment Securities and Note 6. Loans of the notes to the consolidated financial statements.

On December 18, 2015, the Company entered into a $35.0 million unsecured line of credit at the holding company level with a correspondent bank. Interest is payable at a rate of one month LIBOR + 1.75%. Nothing was outstanding as of June 30, 2016, and $25.0 million was outstanding as of December 31, 2015. The line of credit is scheduled to mature on December 17, 2016.


Note 10.	Long-Term Borrowings

The Company had Federal Home Loan Bank advances with remaining contractual maturities greater than one year of $455.2 million at June 30, 2016 and $305.2 million at December 31, 2015. As of June 30, 2016, the advances had fixed terms with effective interest rates, net of discounts, ranging from 0.23% to 5.87% and maturities ranging from March 2017 to April 2035. The Company has investment securities available for sale and loans pledged as collateral on these FHLB advances. See Note 5. Investment Securities and Note 6. Loans of the notes to the consolidated financial statements.

The Company had notes payable to banks totaling $63.4 million and $55.0 million at June 30, 2016 and December 31, 2015, respectively, which as of June 30, 2016, were accruing interest at rates ranging from 2.25% to 7.40%, with a weighted average rate of 4.27%. Lease investments includes equipment with an amortized cost of $75.7 million and $65.8 million at June 30, 2016 and December 31, 2015, respectively, that is pledged as collateral on these notes.

The Company had a $40.0 million 10-year structured repurchase agreement as of December 31, 2015, which had a fixed interest rate of 4.75% and matured in March 2016.


Note 11.	Junior Subordinated Notes Issued to Capital Trusts

The Company has established statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities. The proceeds from such issuances were used by the trusts to purchase junior subordinated notes of the Company, which are the sole assets of each trust. Concurrently with the issuance of the trust preferred securities, the Company issued guarantees for the benefit of the holders of the trust preferred securities. The Company’s outstanding trust preferred securities qualify, and are treated by the Company, as Tier 1 regulatory capital. After the completion of the American Chartered merger, the trust preferred securities will qualify as Tier 2 regulatory capital. The Company owns all of the common securities of each trust. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.

The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of June 30, 2016 (in thousands):

Coal City

Capital Trust I

MB Financial

Capital Trust II

MB Financial

Capital Trust III

MB Financial

Capital Trust IV

Junior Subordinated Notes:

Principal balance

25,774

36,083

10,310

20,619

Annual interest rate

3-mo LIBOR + 1.80%

3-mo LIBOR + 1.40%

3-mo LIBOR + 1.50%

3-mo LIBOR + 1.52%

Stated maturity date

September 1, 2028

September 15, 2035

September 23, 2036

September 15, 2036

Call date

September 1, 2008

December 15, 2010

September 23, 2011

September 15, 2011

Trust Preferred Securities:

Face Value

25,000

35,000

10,000

20,000

Annual distribution rate

3-mo LIBOR + 1.80%

3-mo LIBOR + 1.40%

3-mo LIBOR + 1.50%

3-mo LIBOR + 1.52%

Issuance date

July 1998

August 2005

July 2006

August 2006

Distribution dates ⁽¹⁾

Quarterly

MB Financial

Capital Trust V

MB Financial

Capital Trust VI

FOBB

Statutory Trust III (2)

TAYC

Capital Trust II (3)

Junior Subordinated Notes:

Principal balance

30,928

23,196

5,155

41,238

Annual interest rate

3-mo LIBOR + 1.30%

3-mo LIBOR + 2.80%

3-mo LIBOR + 2.68%

Stated maturity date

December 15, 2037

October 30, 2037

January 23, 2034

June 17, 2034

Call date

December 15, 2012

October 30, 2012

January 23, 2009

June 17, 2009

Trust Preferred Securities:

Face Value

30,000

22,500

5,000

40,000

Annual distribution rate

3-mo LIBOR + 1.30%

3-mo LIBOR + 2.80%

3-mo LIBOR + 2.68%

Issuance date

September 2007

October 2007

December 2003

June 2004

Distribution dates ⁽¹⁾

Quarterly


(1)	All distributions are cumulative and paid in cash.


(2)	FOBB Statutory Trust III was established by First Oak Brook Bancshares, Inc. (“FOBB”) prior to the Company's acquisition of FOBB in 2006, and the junior subordinated notes issued by FOBB to FOBB Statutory Trust III were assumed by the Company upon completion of the acquisition.

(3)

TAYC Capital Trust II was established by Taylor Capital Group, Inc. (“Taylor Capital”) prior to the Company's acquisition of Taylor Capital in 2014, and the junior subordinated notes issued by Taylor Capital to TAYC Capital Trust II were assumed by the Company upon completion of the acquisition. Principal balance and face value amounts associated with TAYC Capital Trust II do not include purchase accounting adjustments to such amounts, which in each case resulted in a discount of $6.9 million.

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period, the Company may not pay cash dividends on its common or preferred stock and generally may not repurchase its common or preferred stock.


Note 12.	Commitments and Contingencies

Commitments: The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At June 30, 2016 and December 31, 2015, the following financial instruments were outstanding, the contractual amounts of which represent off-balance sheet credit risk (in thousands):



	Contractual Amount
	June 30, 2016		December 31, 2015
Commitments to extend credit:
Home equity lines	$	175,985	$	187,478
Other commitments	2,720,118		3,049,152
Letters of credit:
Standby	132,390		137,945
Commercial	4,517		1,108

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. The commitments for home equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

The Company, in the normal course of its business, regularly offers standby and commercial letters of credit to its bank customers. Standby and commercial letters of credit are a conditional but irrevocable form of guarantee. Under letters of credit, the Company typically guarantees payment to a third party beneficiary upon the default of payment or nonperformance by the bank customer and upon receipt of complying documentation from that beneficiary.

Both standby and commercial letters of credit may be issued for any length of time, but normally do not exceed a period of five years. These letters of credit may also be extended or amended from time to time depending on the bank customer’s needs. As of June 30, 2016, the maximum remaining term for any standby letters of credit was September 30, 2030. A fee is charged to the bank customer and is recognized as income over the life of the letter of credit, unless considered non-rebatable under the terms of a letter of credit application.

At June 30, 2016, the aggregate contractual amount of these letters of credit, which represents the maximum potential amount of future payments that the Company would be obligated to pay, decreased $2.1 million to $136.9 million from $139.1 million at December 31, 2015. Of the $136.9 million in commitments outstanding at June 30, 2016, approximately $54.5 million of the letters of credit have been issued or renewed since December 31, 2015.

Letters of credit issued on behalf of bank customers may be done on either a secured or unsecured basis. If a letter credit is secured, the collateral can take various forms including bank accounts, investments, fixed assets, inventory, accounts receivable or real estate. The Company takes the same care in making credit decisions and obtaining collateral when it issues letters of credit on behalf of its customers as it does when making other types of loans.

As of June 30, 2016, the Company had approximately $3.7 million in capital expenditure commitments outstanding which relate to various projects to renovate the corporate office space and branches.

Concentrations of credit risk: The majority of the loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company’s market area. As of June 30, 2016, approximately 21% of our investments in securities issued by states and political subdivisions were within the state of Illinois. We did not hold any direct exposure to the state of Illinois as of June 30, 2016. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. Our asset-based loans are made to borrowers located throughout the United States. Lease banking provides banking services to lessors located throughout the United States. Our leasing subsidiaries originate leases to companies located throughout the United States. In addition, our mortgage segment originates loans to borrowers located throughout the United States.

Contingencies: In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from pending proceedings would not be expected to have a material adverse effect on the Company’s consolidated financial statements.


Note 13.	Fair Value Measurements

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert expected future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different

methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Securities Available for Sale. The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level 1. If quoted market prices are not available, the fair value is determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level 2. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as Level 3.

Loans Held for Sale. Residential real estate loans originated and held for sale in the secondary market are carried at fair value. The fair value of loans held for sale is determined using quoted secondary market prices and classified as Level 2.

Loans. The Company has elected to record certain mortgage loans at fair value. The fair value of these loans is determined using quoted secondary market prices and classified as Level 2.

Mortgage Servicing Rights. The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies and cost to service. The assumptions used in the model are validated on a regular basis. The fair value is validated on a quarterly basis with an independent third party. Material discrepancies between the internal model and the third party validation are investigated and resolved by an internal committee. Due to the nature of the valuation inputs, mortgage servicing rights are classified in Level 3 of the fair value hierarchy.

Assets Held in Trust for Deferred Compensation and Associated Liabilities. Assets held in trust for deferred compensation are recorded at fair value and included in “Other Assets” on the consolidated balance sheets. These assets are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivatives. Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative and classified as Level 2. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including LIBOR rate curves. We also obtain dealer quotations for these derivatives for comparative purposes to assess the reasonableness of the model valuations. In addition, we use forward commitments to buy to-be-announced mortgage securities for which we do not intend to take delivery of the security and will enter into an offsetting position before physical delivery to lessen the price volatility of the mortgage servicing rights asset. Dealer quotations are used for these derivatives and are classified as Level 1. We also offer other derivatives, including foreign currency forward contracts and interest rate lock commitments, to our customers and offset our exposure from such contracts by purchasing other financial contracts, which are valued using market consensus prices. For certain interest rate lock commitments, the Company uses an external valuation model that relies on internally developed inputs to estimate the fair value of its interest rate lock commitments which is based on unobservable inputs that reflect management’s assumptions and specific information about each borrower transaction and is classified in Level 3 of the hierarchy.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):



	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
Financial assets
Securities available for sale:
U.S Government sponsored agencies and enterprises	$	54,457	$	—	$	54,457	$	—
States and political subdivisions	400,948		—		400,531		417
Residential mortgage-backed securities	682,915		—		682,676		239
Commercial mortgage-backed securities	102,452		—		102,452		—
Corporate bonds	225,525		—		225,525		—
Equity securities	11,098		11,098		—		—
Loans held for sale	843,379		—		843,379		—
Loans	24,287		—		24,287		—
Mortgage servicing rights	134,969		—		—		134,969
Assets held in trust for deferred compensation	18,219		18,219		—		—
Derivative financial instruments	134,510		3,495		118,341		12,674
Financial liabilities
Other liabilities ⁽¹⁾	18,219		18,219		—		—
Derivative financial instruments	80,341		10,729		69,612		—
December 31, 2015
Financial assets
Securities available for sale:
U.S. Government sponsored agencies and enterprises	$	64,611	$	—	$	64,611	$	—
States and political subdivisions	396,367		—		395,950		417
Residential mortgage-backed securities	763,549		—		763,193		356
Commercial mortgage-backed securities	130,107		—		130,107		—
Corporate bonds	219,628		—		219,628		—
Equity securities	10,761		10,761		—		—
Loans held for sale	744,727		—		744,727		—
Loans	25,869		—		25,869		—
Mortgage servicing rights	168,162		—		—		168,162
Assets held in trust for deferred compensation	16,820		16,820		—		—
Derivative financial instruments	42,846		5,118		33,906		3,822
Financial liabilities
Other liabilities ⁽¹⁾	16,333		16,333		—		—
Derivative financial instruments	36,974		6,050		30,924		—


⁽¹⁾	Liabilities associated with assets held in trust for deferred compensation

The following table presents additional information about the unobservable inputs used in the fair value measurement of financial assets measured on a recurring basis that were categorized within the Level 3 of the fair value hierarchy:



	Fair Value at
	June 30, 2016		Valuation Technique	Unobservable Input	Range
	(in thousands)
States and political subdivisions	$	417	Discounted cash flows	Credit assumption	50% Loss
Residential mortgage-backed securities	239		Discounted cash flows	Constant pre-payment rates (CPR)	1% - 3%
Mortgage servicing rights	134,969		Discounted cash flows	CPR	13.9% - 18.2%
				Discount rate	9.50 - 12.00
				Maturity (months)	327 - 357
				Delinquencies	0.51 - 3.83
				Costs to service	$ 65 - $ 160
				Costs to service - delinquent	$ 150 - $ 1,000
Derivative financial instruments (mortgage	12,674		Sales cash flows	Expected closing ratio	60% - 95%
interest rate lock commitments)				Expected delivery price	98.95 bps - 109.46 bps

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights include prepayment speeds, discount rates, maturities, delinquencies and cost to service. Significant increases in prepayment speeds, discount rates, delinquencies or cost to service would result in a significantly lower fair value measurement. Conversely, significant decreases in prepayment speeds, discount rates, delinquencies or costs to service would result in a significantly higher fair value measurement. With the exception of changes in delinquencies, which can change the cost to service, the unobservable inputs move independently of each other.

Key economic assumptions used in the measuring of the fair value of the mortgage servicing rights and the sensitivity of the fair value to immediate adverse changes in those assumptions at June 30, 2016 are presented in the following table. This table does not take into account the derivatives used to economically hedge the mortgage servicing rights.



(dollars in thousands, except for weighted average cost to service)	June 30, 2016
Weighted average CPR	17.20		%
Impact on fair value of 10% adverse change	$	(7,518	)
Impact on fair value of 20% adverse change	(14,330		)

Weighted average discount rate	9.77		%
Impact on fair value of 10% adverse change	$	(4,090	)
Impact on fair value of 20% adverse change	(7,933		)

Weighted average delinquency rate	1.80		%
Impact on fair value of 10% adverse change	$	(911	)
Impact on fair value of 20% adverse change	(1,839		)

Weighted average costs to service	$	87
Impact on fair value of 10% adverse change	(2,625		)
Impact on fair value of 20% adverse change	(5,249		)

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2016. The Company's policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

The following table presents additional information about financial assets measured at fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3):



	Six Months Ended
	June 30,
	2016			2015			2016			2015			2016		2015
(in thousands)	Investment Securities						Mortgage Servicing Rights						Derivatives
Balance, beginning of period	$	773		$	973		$	168,162		$	235,402		$	3,822	$	5,074
Purchases	—			—			2,961			352			—		—
Originations	—			—			25,043			36,404			—		—
Included in earnings	—			—			(61,197		)	(11,124		)	8,852		(1,268		)
Principal payments	(117		)	(76		)	—			—			—		—
Balance, ending of period	$	656		$	897		$	134,969		$	261,034		$	12,674	$	3,806

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period.

Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria. For a majority of impaired real estate loans where an allowance is established based on the fair value of collateral (100% at June 30, 2016), the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include foreclosed assets and non-financial long-lived assets.

Other Real Estate and Repossessed Vehicles Owned (Foreclosed Assets). Foreclosed assets, upon initial recognition, are measured and reported at fair value through a charge-off to the allowance for loan and lease losses based upon the fair value of the foreclosed asset. The fair value of foreclosed assets, upon initial recognition, are estimated using Level 3 inputs based on customized discounting criteria.

Non-Financial Long-Lived Assets. Non-financial long-lived assets, when determined to be impaired, are measured and reported at fair value using Level 3 inputs based on customized discounting criteria.

Assets measured at fair value on a nonrecurring basis as of June 30, 2016 and December 31, 2015 are included in the table below (in thousands):



	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
Financial assets:
Impaired loans	$	58,884	$	—	$	—	$	58,884
Non-financial assets:
Foreclosed assets	36,478		—		—		36,478
December 31, 2015
Financial assets:
Impaired loans	$	76,203	$	—	$	—	$	76,203
Non-financial assets:
Foreclosed assets	42,351		—		—		42,351

The following table presents additional information about the unobservable inputs used in the fair value measurement of financial assets measured on a nonrecurring basis that were categorized within the Level 3 of the fair value hierarchy:



	Fair Value at		Valuation	Unobservable
	June 30, 2016		Technique	Input	Range
	(in thousands)
Impaired loans	$	58,884	Appraisal of collateral	Appraisal adjustments	5% - 10%
Foreclosed assets	36,478		Appraisal of collateral	Appraisal adjustments	5% - 10%

ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies.

The following methods and assumptions were used by the Company in estimating the fair values of its other financial instruments:

Cash and due from banks, interest earning deposits with banks and federal funds sold: The carrying amounts reported in the balance sheet approximate fair value.

Securities held to maturity: The fair values of securities held to maturity are determined by quoted prices in active markets, when available, and classified as Level 1. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level 2. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as Level 3.

Non-marketable securities - FHLB and FRB Stock: The carrying amounts reported in the balance sheet approximate fair value.

Loans: The fair values for loans are estimated using discounted cash flow analyses, using the corporate bond curve adjusted for liquidity for commercial loans and the swap curve adjusted for liquidity for retail loans. The Company has elected to record certain mortgage loans at fair value. The fair value of these loans is determined using quoted secondary market prices and classified as Level 2.

Non-interest bearing deposits: The fair values disclosed are equal to their balance sheet carrying amounts, which represent the amount payable on demand.

Interest bearing deposits: The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amounts payable on demand. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies the Company's current incremental borrowing rates for similar terms.

Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings with maturities of 90 days or less approximate their fair values. The fair value of short-term borrowings greater than 90 days is based on the discounted value of contractual cash flows.

Long-term borrowings: The fair values of the Company's long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Junior subordinated notes issued to capital trusts: The fair values of the Company's junior subordinated notes issued to capital trusts are estimated based on the quoted market prices, when available, of the related trust preferred security instruments, or are estimated based on the quoted market prices of comparable trust preferred securities.

Accrued interest: The carrying amount of accrued interest receivable and payable approximate their fair values.

Off-balance-sheet instruments: Fair values for the Company’s off-balance-sheet lending commitments (guarantees, letters of credit and commitments to extend credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements.

The estimated fair values of financial instruments are as follows (in thousands):



	June 30, 2016
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Assets:
Cash and due from banks	$	303,037	$	303,037	$	303,037	$	—	$	—
Interest earning deposits with banks	123,086		123,086		123,086		—		—
Investment securities available for sale	1,477,395		1,477,395		11,098		1,465,641		656
Investment securities held to maturity	1,151,415		1,222,587		—		1,222,587		—
Non-marketable securities - FHLB and FRB stock	130,232		130,232		—		—		130,232
Loans held for sale	843,379		843,379		—		843,379		—
Loans, net	10,062,273		10,099,559		—		24,287		10,075,272
Accrued interest receivable	52,174		52,174		52,174		—		—
Derivative financial instruments	134,510		134,510		3,495		118,341		12,674
Financial Liabilities:
Non-interest bearing deposits	$	4,775,364	$	4,775,364	$	4,775,364	$	—	$	—
Interest bearing deposits	6,660,732		6,668,612		—		—		6,668,612
Short-term borrowings	1,246,994		1,246,965		—		—		1,246,965
Long-term borrowings	518,545		519,773		—		—		519,773
Junior subordinated notes issued to capital trusts	185,925		111,477		—		—		111,477
Accrued interest payable	3,396		3,396		3,396		—		—
Derivative financial instruments	80,341		80,341		10,729		69,612		—



	December 31, 2015
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and due from banks	$	307,869	$	307,869	$	307,869	$	—	$	—
Interest earning deposits with banks	73,572		73,572		73,572		—		—
Investment securities available for sale	1,585,023		1,585,023		10,761		1,573,489		773
Investment securities held to maturity	1,230,810		1,274,767		—		1,274,767		—
Non-marketable securities - FHLB and FRB stock	114,233		114,233		—		—		114,233
Loans held for sale	744,727		744,727		—		744,727		—
Loans, net	9,665,858		9,626,344		—		25,869		9,600,475
Accrued interest receivable	53,457		53,457		53,457		—		—
Derivative financial instruments	42,846		42,846		5,118		33,906		3,822
Financial Liabilities:
Non-interest bearing deposits	$	4,627,184	$	4,627,184	$	4,627,184	$	—	$	—
Interest bearing deposits	6,878,031		6,875,411		—		—		6,875,411
Short-term borrowings	1,005,737		1,005,705		—		—		1,005,705
Long-term borrowings	400,274		401,539		—		—		401,539
Junior subordinated notes issued to capital trusts	186,164		122,696		—		—		122,696
Accrued interest payable	3,186		3,186		3,186		—		—
Derivative financial instruments	36,974		36,974		6,050		30,924		—


Note 14.	Stock Incentive Plans

ASC Topic 718 requires that the grant date fair value of equity awards to employees be recognized as compensation expense over the period during which an employee is required to provide service in exchange for such award.

The following table summarizes the impact of the Company’s share-based payment plans in the financial statements for the periods shown (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total cost of share-based payment plans during the period	$	4,284	$	3,870	$	8,335	$	7,475
Amount of related income tax benefit recognized in income	1,671		1,509		3,254		$	2,921

The Company adopted the Omnibus Incentive Plan (the “Omnibus Plan”) in 1997. On May 28, 2014, the Company’s stockholders approved the third amendment and restatement of the Omnibus Plan to add 3,100,000 authorized shares for a total of 11,400,000 shares of common stock authorized to be utilized in connection with awards under the Omnibus Plan to directors, officers, and employees of the Company or any of its subsidiaries. The number of shares authorized increased by 2,400,000 to 13,800,000 upon completion of the Taylor Capital merger. Equity grants under the Omnibus Plan can be in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards. Shares awarded in the form of restricted stock, restricted stock units, performance shares, performance units, or other stock-based awards generally will reduce the shares available under the Omnibus Plan on a 2-for-1 basis. No more than 10% of the total number of authorized shares may be issued with respect to awards granted after May 28, 2014, other than stock appreciation rights, stock options and performance-based awards, which at the date of grant are scheduled to fully vest prior to three years from the date of grant (although such awards may provide scheduled vesting earlier with respect to some of such shares and for acceleration of vesting as provided in the Omnibus Plan). As of June 30, 2016, there were 3,905,158 shares available for future grants.

Prior to 2014, annual equity-based incentive awards were typically granted to selected officers and employees mid-year. In 2014, these awards began being granted in the first quarter of the year. Options are granted with an exercise price equal to no less than the market price of the Company’s shares at the date of grant; those option awards generally vest over four years of service and have 10-year contractual terms. Restricted shares and units typically vest over a two to four year period. Equity awards may also be granted at other times throughout the year in connection with the recruitment and retention of officers and employees. Directors currently may elect, in lieu of cash, to receive up to 70% of their fees in stock options with a five year term, which are fully vested on the grant date (provided that the director may not sell the underlying shares for at least six months after the grant date), and up to 100% of their fees in restricted shares, which vest one year after the grant date.

The following table summarizes changes in stock options for the six months ended June 30, 2016:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2015	2,192,431		$	27.77	4.44
Granted	355,765		30.56
Exercised	(197,664	)	25.52
Expired	—		—
Forfeited or cancelled	(24,832	)	30.40
Options outstanding as of June 30, 2016	2,325,700		$	28.36	4.87	$	18,776
Options exercisable as of June 30, 2016	1,608,420		$	27.82	3.16	$	13,973

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Expected volatility is based on historical volatility and the expectations of future volatility of Company shares. The risk free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the

time of the grant. The expected life of options is estimated based on historical employee behavior and represents the period of time that options granted are expected to remain outstanding.

The following assumptions were used for options granted during the six months ended June 30, 2016:



	June 30, 2016
Risk-free interest rate	1.48		%
Expected volatility of Company’s stock	28.91		%
Expected dividend yield	2.23		%
Expected life of options	5.9 years
Weighted average fair value per option of options granted during the year	$	6.92

The total intrinsic value of options exercised during the six months ended June 30, 2016 and 2015 was $1.9 million and $481 thousand, respectively.

The following is a summary of changes in restricted shares and units for the six months ended June 30, 2016:



	Number of Shares and Units		Weighted Average Grant Date Fair Value
Shares and units outstanding at December 31, 2015	945,506		$	29.92
Granted	477,192		31.17
Vested	(258,797	)	29.80
Forfeited or cancelled	(21,424	)	29.76
Shares and units outstanding at June 30, 2016	1,142,477		30.47

The total intrinsic value of restricted shares that vested during the six months ended June 30, 2016 and 2015 was $8.4 million and $4.8 million, respectively.

The Company issued 80,780, 71,560, 48,569 and 56,752 market-based restricted stock units in 2016, 2015, 2014 and 2013, respectively, which entitle recipients to shares of common stock at the end of a three year vesting period. Recipients will earn shares, totaling between 0% and 175% of the number of units issued, based on the Company's total stockholder return relative to a specified peer group of financial institutions over the three year period. The market-based restricted stock units are included in the preceding table as if the recipients earned shares equal to 100% of the units issued. A Monte Carlo simulation model was used to value the market-based restricted stock units at the time of issuance.

As of June 30, 2016, there was $26.7 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Omnibus Plan. At June 30, 2016, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 2.5 years.


Note 15.	Derivative Financial Instruments

The Company offers various derivatives, including interest rate swaps and foreign currency forward contracts, to its qualifying customers which can mitigate our exposure to market risk through the execution of off-setting positions with inter-bank dealer counterparties. This also permits the Company to offer customized risk management solutions to our customers. These customer accommodations and any offsetting financial contracts are treated as non-designated derivative instruments and carried at fair value through an adjustment to the statement of operations.

Interest rate swap and foreign currency forward contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. The net amount payable or receivable under interest rate swaps is accrued as an adjustment to interest income. The net amount payable as of June 30, 2016 was approximately $1 thousand, and the net amount payable as of December 31, 2015 was approximately $1 thousand. The Company's credit exposure on interest rate swaps is limited to the Company's net favorable value and interest payments of all swaps to each counterparty. In such cases, collateral is generally required from the counterparties involved if the net value of the swaps exceeds a nominal amount. At June 30, 2016, the Company’s credit exposure relating to interest rate swaps was approximately $46.3 million, which is secured by the underlying collateral on customer loans.

The Company also enters into mortgage banking derivatives which are classified as non-designated hedging derivatives. These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale.

The Company had fair value commercial loan interest rate swaps, to hedge its interest rate risk, with an aggregate notional amount of $131 thousand at June 30, 2016. For fair value hedges, the changes in fair values of both the hedging derivative and the hedged item were recorded in current earnings as other income.

Interest rate swaps, swaptions and treasury futures are used in order to lessen the price volatility of the mortgage servicing rights asset. The Company also uses forward commitments to buy to-be-announced ("TBA") mortgage securities for which the Company does not intend to take delivery of the security and will enter into an offsetting position before physical delivery to lessen the price volatility of the mortgage servicing rights asset. These derivatives are recorded at their fair value on the consolidated balance sheets in other assets with changes in fair value recorded on the consolidated statements of operations in mortgage banking revenue in non-interest income.

The Company’s derivative financial instruments are summarized below as of June 30, 2016 and December 31, 2015 (in thousands):



	Asset Derivatives								Liability Derivatives
	June 30, 2016				December 31, 2015				June 30, 2016					December 31, 2015
	Notional		Estimated		Notional		Estimated		Notional		Estimated			Notional		Estimated
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value			Amount		Fair Value
Derivative instruments designated as hedges of fair value:
Interest rate swap contracts ⁽¹⁾	$	—	$	—	$	—	$	—	$	131	$	(7	)	$	154	$	(9	)
Stand-alone derivative instruments: ⁽²⁾
Interest rate swap contracts	954,245		50,658		1,034,298		27,856		943,511		(49,851		)	1,025,186		(27,899		)
Interest rate options contracts	249,350		1,011		222,585		628		249,350		(1,011		)	190,622		(585		)
Foreign exchange contracts	57,223		3,723		72,529		3,970		53,805		(3,503		)	63,339		(3,671		)
Spot foreign exchange contracts	418		15		328		5		204		(12		)	132		—
Mortgage related derivatives:
Interest rate swap contracts	1,788,000		62,507		898,000		4,928		325,000		(13,994		)	665,000		(3,723		)
Interest rate swaptions contracts	150,000		427		—		—		150,000		(1,234		)	—		—
Treasury futures contracts	60,000		1,041		—		—		—		—			—		—
TBA mortgage securities	190,000		2,454		35,000		33		—		—			—		—
Forward loan sale commitments	—		—		503,500		1,604		1,135,000		(10,729		)	475,500		(1,087		)
Interest rate lock commitments	981,094		12,674		622,906		3,822		—		—			—		—
Total stand-alone derivative instruments	4,430,330		134,510		3,389,146		42,846		2,856,870		(80,334		)	2,419,779		(36,965		)
Total	$	4,430,330	$	134,510	$	3,389,146	$	42,846	$	2,857,001	$	(80,341	)	$	2,419,933	$	(36,974	)

⁽¹⁾ Derivative instruments designated to hedge fixed-rate commercial real estate loans.

⁽²⁾ These portfolio swaps are not designated as hedging instruments under ASC Topic 815.

Amounts included in other operating income in the consolidated statements of operations related to derivative financial instruments were as follows (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016		2015
Derivative instruments designated as hedges of fair value:
Interest rate swap contracts	$	1		$	1		$	2	$	2
Stand-alone derivative instruments:
Interest rate swap contracts	(1		)	(25,364		)	2,337		(14,239		)
Interest rate options contracts	(1		)	(1,264		)	35		(541		)
Foreign exchange contracts	371			64			499		186
Spot foreign exchange contracts	(2		)	54			301		26
Mortgage related derivatives	16,060			2,867			39,771		3,775
Total stand-alone derivative instruments	16,427			(23,643		)	42,943		(10,793		)
Total	$	16,428		$	(23,642	)	$	42,945	$	(10,791	)

Methods and assumptions used by the Company in estimating the fair value of its interest rate swaps are discussed in Note 13 to consolidated financial statements.

Certain instruments and transactions subject to an agreement similar to a master netting arrangement are eligible for offset in the consolidated balance sheet. The instruments and transactions would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The Company’s derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. Under these agreements, there is generally a legally enforceable right to offset recognized amounts, and there may be an intention to settle such amounts on a net basis. The Company, however, does not generally offset such financial instruments for financial reporting purposes.

Information about the Company's financial instruments that are eligible for offset in the consolidated balance sheet as of June 30, 2016 is summarized below (in thousands):



	Financial Assets						Financial Liabilities
	Gross Amount Recognized		Gross Amount Offset		Net Amount Recognized		Gross Amount Recognized		Gross Amount Offset		Net Amount Recognized
Derivatives:
Interest rate swap contracts, caps and floors	$	653	$	—	$	653	$	51,818	$	—	$	51,818
Foreign exchange contracts	3,189		—		3,189		1,421		—		1,421
Mortgage related derivatives	66,002		—		66,002		24,722		—		24,722
Total derivatives	69,844		—		69,844		77,961		—		77,961
Repurchase agreements	—		—		—		215,494		—		215,494
Total	$	69,844	$	—	$	69,844	$	293,455	$	—	$	293,455



	Financial Assets									Financial Liabilities
	Net Amount Recognized		Financial Instruments			Collateral		Net Amount		Net Amount Recognized		Financial Instruments			Collateral			Net Amount
Derivatives:
Counterparty A	$	49,572	$	(18,907	)	$	—	$	30,665	$	18,907	$	(18,907	)	$	—		$	—
Counterparty B	8		(8		)	—		—		9,771		(8		)	(9,763		)	—
Counterparty C	11,271		(11,271		)	—		—		20,082		(11,271		)	(8,811		)	—
Other counterparties	8,993		(8,980		)	—		13		29,201		(8,980		)	(18,100		)	2,121
Total derivatives	69,844		(39,166		)	—		30,678		77,961		(39,166		)	(36,674		)	2,121
Repurchase agreements	—		—			—		—		215,494		—			(215,494		)	—
Total	$	69,844	$	(39,166	)	$	—	$	30,678	$	293,455	$	(39,166	)	$	(252,168	)	$	2,121

Information about the Company's financial instruments that are eligible for offset in the consolidated balance sheet as of December 31, 2015 is summarized below (in thousands):



	Financial Assets						Financial Liabilities
	Gross Amount Recognized		Gross Amount Offset		Net Amount Recognized		Gross Amount Recognized		Gross Amount Offset		Net Amount Recognized
Derivatives:
Interest rate swap contracts, caps and floors	$	5,698	$	—	$	5,698	$	31,446	$	—	$	31,446
Foreign exchange contracts	2,728		—		2,728		1,805		—		1,805
Mortgage related derivatives	1,636		—		1,636		1,087		—		1,087
Total derivatives	10,062		—		10,062		34,338		—		34,338
Repurchase agreements	—		—		—		201,207		—		201,207
Total	$	10,062	$	—	$	10,062	$	235,545	$	—	$	235,545



	Financial Assets									Financial Liabilities
	Net Amount Recognized		Financial Instruments			Collateral		Net Amount		Net Amount Recognized		Financial Instruments			Collateral			Net Amount
Derivatives:
Counterparty A	$	3,810	$	(3,810	)	$	—	$	—	$	11,137	$	(3,810	)	$	(7,327	)	$	—
Counterparty B	6		(6		)	—		—		7,808		(6		)	(7,802		)	—
Counterparty C	3,477		(3,477		)	—		—		4,963		(3,477		)	(1,486		)	—
Other counterparties	2,769		(2,230		)	—		539		10,430		(2,230		)	(8,034		)	166
Total derivatives	10,062		(9,523		)	—		539		34,338		(9,523		)	(24,649		)	166
Repurchase agreements	—		—			—		—		201,207		—			(201,207		)	—
��Total	$	10,062	$	(9,523	)	$	—	$	539	$	235,545	$	(9,523	)	$	(225,856	)	$	166


Note 16.	Operating Segments

The Company's operations consist of three reportable operating segments: Banking, Leasing and Mortgage Banking. The Company offers different products and services through its three segments. The accounting policies of the segments are generally the same as those of the consolidated company.

The Banking Segment generates its revenues primarily from its lending, deposit gathering and fee business activities. The profitability of this segment's operations depends primarily on its net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. The provision for credit losses is dependent on changes in its loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The Banking Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of depositors and other customers, federal deposit insurance funds and the banking system as a whole. These laws and regulations govern such areas as capital, permissible activities, allowance for loan and lease losses, loans and investments, and rates of interest that can be charged on loans.

The Leasing Segment generates its revenues through lease originations and related services offered through the Company's leasing subsidiaries, LaSalle Systems Leasing, Inc., Celtic Leasing Corp. and MB Equipment Finance, LLC. The leasing subsidiaries invest directly in equipment that the Company leases (referred to as direct finance, leveraged or operating leases) to "Fortune 1000," middle-market companies and healthcare providers located throughout the United States. The lease portfolio is made up of various kinds of equipment, generally technology related, such as computer systems, satellite equipment, medical equipment and general manufacturing, industrial, construction and transportation equipment. The leasing subsidiaries also specialize in selling third party equipment maintenance contracts to large companies.

The Mortgage Banking Segment originates mortgage loans for sale to investors and for the Company's portfolio through its retail and third party originator channels. This segment also services residential mortgage loans for various investors and for loans owned by the Company. The Mortgage Banking Segment is also subject to an extensive system of laws and regulations that are intended primarily for the protection of customers.

Net interest income for the Leasing and Mortgage Banking segments include adjustments based on the Company's internal funds transfer pricing model. Non-interest income for the Leasing Segment includes income on loans originated for the sole purpose of funding equipment purchases related to leases at the Company's lease subsidiaries.

The following tables present summary financial information for the reportable segments (in thousands):



	Banking		Leasing			Mortgage Banking		Consolidated
Three months ended June 30, 2016
Net interest income	$	112,152	$	2,411		$	8,039	$	122,602
Provision for credit losses	2,995		(356		)	190		2,829
Non-interest income	36,668		15,717			39,615		92,000
Non-interest expense ⁽¹⁾	99,882		11,126			36,898		147,906
Income tax expense	13,350		2,879			4,226		20,455
Net income	$	32,593	$	4,479		$	6,340	$	43,412
Total assets	$	13,296,238	$	1,081,723		$	1,617,829	$	15,995,790
Three months ended June 30, 2015
Net interest income	$	104,352	$	2,915		$	7,206	$	114,473
Provision for credit losses	2,844		1,356			96		4,296
Non-interest income	31,108		16,193			35,648		82,949
Non-interest expense ⁽¹⁾	87,638		9,828			35,271		132,737
Income tax expense	13,369		3,073			2,995		19,437
Net income	$	31,609	$	4,851		$	4,492	$	40,952
Total assets	$	12,714,482	$	976,054		$	1,327,658	$	15,018,194


⁽¹⁾	Includes merger related and repositioning expenses of $2.6 million and $1.2 million in the Banking Segment for the three months ended June 30, 2016 and 2015, respectively.



	Banking		Leasing		Mortgage Banking		Consolidated
Six months ended June 30, 2016
Net interest income	$	221,760	$	4,834	$	15,312	$	241,906
Provision for credit losses	9,996		81		315		10,392
Non-interest income	71,687		34,912		67,094		173,693
Non-interest expense ⁽¹⁾	190,522		23,312		69,872		283,706
Income tax expense	27,700		6,388		4,887		38,975
Net income	$	65,229	$	9,965	$	7,332	$	82,526
Total assets	$	13,296,238	$	1,081,723	$	1,617,829	$	15,995,790
Six months ended June 30, 2015
Net interest income	$	208,478	$	5,930	$	13,460	$	227,868
Provision for credit losses	7,818		1,356		96		9,270
Non-interest income	62,625		41,396		60,196		164,217
Non-interest expense ⁽¹⁾	182,972		23,484		66,201		272,657
Income tax expense	23,331		8,820		2,944		35,095
Net income	$	56,982	$	13,666	$	4,415	$	75,063
Total assets	$	12,714,482	$	976,054	$	1,327,658	$	15,018,194


⁽¹⁾	Includes merger related and repositioning expenses of $5.9 million and $9.3 million in the Banking Segment for the six months ended June 30, 2016 and 2015, respectively.


Note 17.	Preferred Stock

On August 18, 2014, in connection with the Taylor Capital merger, the Company issued one share of its Perpetual Non-Cumulative Preferred Stock, Series A (“Company Series A Preferred Stock”), in exchange for each of the 4,000,000 outstanding shares of Taylor Capital’s Perpetual Non-Cumulative Preferred Stock, Series A. Holders of the Company Series A Preferred Stock are entitled to receive, when as and if declared by the Company’s board of directors, non-cumulative cash dividends on the liquidation preference amount, which is $25 per share, at a rate of 8.00% per annum, payable quarterly. The Company Series A Preferred Stock is callable in February 2018. The Company Series A Preferred Stock is included in Tier 1 capital for regulatory capital purposes.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of MB Financial, Inc.’s financial condition and results of operations and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. The words “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its consolidated subsidiaries, unless we indicate otherwise.

Overview

The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. The provision for credit losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio as well as prevailing economic and market conditions.

Our net income is also affected by non-interest income and non-interest expenses. During the periods under report, non-interest income included revenue from our key fee initiatives: net lease financing income, mortgage banking revenue, commercial deposit and treasury management fees, trust and asset management fees, card fees and capital markets and international banking fees. Non-interest income also included consumer and other deposit service fees, brokerage fees, loan service fees, increase in cash surrender value of life insurance, net (gain) loss on investment securities, net gain (loss) on sale of assets and other operating income. During the periods under report, non-interest expenses included salaries and employee benefits, occupancy and equipment expense, computer services and telecommunication expense, advertising and marketing expense, professional and legal expense, other intangibles amortization expense, branch exit and facilities impairment charges, net (gain) loss on other real estate owned and other related expenses, prepayment fees on interest bearing liabilities and other operating expenses. Additionally, dividends on preferred shares reduced net income available to common stockholders.

Net interest income is affected by changes in the volume and mix of interest earning assets, interest earned on those assets, the volume and mix of interest bearing liabilities and interest paid on interest bearing liabilities. Non-interest income and non-interest expenses are impacted by growth of banking, leasing and mortgage banking operations and growth in the number of loan and deposit accounts through both acquisitions and core banking and leasing business growth. Growth in operations affects other expenses primarily as a result of additional employee, branch facility and promotional marketing expense. Growth in the number of loan and deposit accounts affects other income, including service fees as well as other expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses. Non-performing asset levels impact salaries and benefits, legal expenses and other real estate owned expenses.

On November 20, 2015, the Company and American Chartered Bancorp, Inc. ("American Chartered") entered into an agreement and plan of merger pursuant to which the Company will acquire American Chartered through the merger of American Chartered with and into the Company, followed immediately by the merger of American Chartered's wholly owned bank subsidiary, American Chartered Bank, with and into MB Financial Bank. The consideration to be paid by the Company will consist of $100 million in cash with the remainder in Company stock (currently estimated at 10.2 million shares of common stock). The transaction, which has been approved by American Chartered's shareholders and the Company's and the Bank's regulators, is expected to close in the third quarter of 2016. See Note 2 of the notes to our consolidated financial statements for additional information.

On December 31, 2015, the Company completed the acquisition of MSA Holdings, LLC, ("MSA") the parent company of MainStreet Investment Advisors, LLC and Cambium Asset Management, LLC. The Company recorded $13.5 million in goodwill and $8.8 million in other intangibles as a result of this acquisition.

The Company had net income of $43.4 million for the three months ended June 30, 2016 compared to $41.0 million for the three months ended June 30, 2015. Net income available to common stockholders was $41.4 million for the three months ended June 30, 2016 compared to $39.0 million for the three months ended June 30, 2015. Fully diluted earnings per common share were $0.56 for the three months ended June 30, 2016 compared to $0.52 per common share for the three months ended June 30, 2015.

The Company had net income of $82.5 million for the six months ended June 30, 2016 compared to $75.1 million for the six months ended June 30, 2015. Net income available to common stockholders was $78.5 million for the six months ended June 30, 2016 compared to $71.1 million for the six months ended June 30, 2015. Fully diluted earnings per common share were $1.06 for the six months ended June 30, 2016 compared to $0.94 per common share for the six months ended June 30, 2015.

The results of operations for the six months ended June 30, 2016 and 2015 were impacted by $5.9 million and $9.3 million in merger related and repositioning expenses, respectively. See "Non-interest Expenses" section for a detailed schedule of merger related and repositioning expenses.

Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which we operate. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally expected. Management believes the following policies are both important to the portrayal of our financial condition and results of operations and require subjective or complex judgments; therefore, management considers the following to be critical accounting policies. Management has reviewed the application of these polices with the Audit Committee of our Board of Directors.

Allowance for Loan and Lease Losses. The allowance for loan and lease losses is subject to the use of estimates, assumptions, and judgments in management's evaluation process used to determine the adequacy of the allowance for loan and lease losses, which combines several factors: management's ongoing review and grading of the loan portfolio, consideration of past loan loss experience, trends in past due and non-performing loans, risk characteristics of the various classifications of loans, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan and lease losses. Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management or require that adjustments be made to the allowance for loan and lease losses, based on their judgments about information available to them at the time of their examination. We believe the allowance for loan and lease losses is appropriate and properly recorded in the financial statements. See “Allowance for Loan and Lease Losses” section below for further analysis.

Residual Value of Our Direct Finance, Leveraged, and Operating Leases. Lease residual value represents the present value of the estimated fair value of the leased equipment at the termination date of the lease. Realization of these residual values depends on many factors, including management’s use of estimates, assumptions, and judgment to determine such values. Several other factors outside of management’s control may reduce the residual values realized, including general market conditions at the time of expiration of the lease, whether there has been technological or economic obsolescence or unusual wear and tear on, or use of, the equipment and the cost of comparable equipment. If, upon the expiration of a lease, we sell the equipment and the amount realized is less than the recorded value of the residual interest in the equipment, we will recognize a loss reflecting the difference. On a quarterly basis, management reviews the lease residuals for potential impairment. If we fail to realize our aggregate recorded residual values, our financial condition and profitability could be adversely affected. At June 30, 2016, the aggregate residual value of the equipment leased under our direct finance, leveraged, and operating leases totaled $151.2 million. See Note 1 and Note 6 to the audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2015 for additional information.

Income Tax Accounting. ASC Topic 740 provides guidance on accounting for income taxes by prescribing the minimum recognition threshold that a tax position must meet to be recognized in the financial statements. ASC Topic 740 also provides guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2016, the Company had $19 thousand of uncertain tax positions. The Company elects to treat interest and penalties recognized for the underpayment of income taxes as income tax expense. However, interest and penalties imposed by taxing authorities on issues specifically addressed in ASC Topic 740 will be taken out of the tax reserves up to the amount allocated to interest and penalties. The amount of interest and penalties exceeding the amount allocated in the tax reserves will be treated as income tax expense. As of June 30, 2016, the Company had approximately $2 thousand of accrued interest related to tax reserves. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of, and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of income.

Fair Value of Assets and Liabilities. ASC Topic 820 defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree

of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, the Company would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.

See Note 13 to the consolidated financial statements for a complete discussion on the Company’s use of fair valuation of assets and liabilities and the related measurement techniques.

Goodwill. The excess of the cost of an acquisition over the fair value of the net assets acquired, including core deposit and client relationship intangibles, consists of goodwill. See Note 7 to our consolidated financial statements for further information regarding core deposit and client relationship intangibles. The Company reviews goodwill to determine potential impairment annually, or more frequently if events and circumstances indicate that goodwill might be impaired, by comparing the carrying value of the reporting units with the fair value of the reporting units.

The Company’s annual assessment date for goodwill impairment testing is as of December 31. Goodwill is tested for impairment at the reporting unit level. The Company has three reporting units: banking, leasing and mortgage banking. No impairment losses were recognized during the six months ended June 30, 2016 or 2015. We are not aware of any events or circumstances subsequent to our annual goodwill impairment testing date of December 31, 2015 that would indicate impairment of goodwill at June 30, 2016. The carrying amount of goodwill was $725.0 million and $725.1 million at June 30, 2016 and December 31, 2015, respectively. The change in the carrying amount of goodwill from December 31, 2015 was due to the adjustments recognized for the MSA acquisition.

Valuation of Mortgage Servicing Rights. The Company originates and sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Servicing involves the collection of payments from individual borrowers and the distribution of those payments to the investors. Upon a sale of mortgage loans for which servicing rights are retained, the retained mortgage servicing rights asset is capitalized at the fair value of future net cash flows expected to be realized for performing servicing activities. Purchased mortgage servicing rights are recorded at the purchase price at the date of purchase and at fair value thereafter.

Mortgage servicing rights do not trade in an active market with readily observable prices. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies and cost to service. The assumptions used in the valuation model are validated on a periodic basis. The fair value is validated on a quarterly basis with an independent third party. Material discrepancies between the internal valuation and the third party valuation are analyzed and resolved by an internal committee.

The Company has elected to account for mortgage servicing rights using the fair value option. Changes in the fair value are recognized in mortgage banking revenue on the Company's Consolidated Statements of Operations.

Recent Accounting Pronouncements. Refer to Note 2 of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and anticipated effects on results of operations and financial condition.

Net Interest Income

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the related yields, as well as the interest expense on average interest bearing liabilities, and the related costs, expressed both in dollars and rates (dollars in thousands). The table below and the discussion that follows contain presentations of net interest income and net interest margin on a tax-equivalent basis, which is adjusted for the tax-favored status of income from certain loans and investments. We believe this measure to be the preferred industry measurement of net interest income, as it provides a relevant comparison between taxable and non-taxable amounts. The table below and the discussion that follows also contains presentations of net interest margin on a tax equivalent basis excluding the effect of acquisition accounting discount accretion on loans acquired through the Taylor Capital merger.

Reconciliations of net interest income and net interest margin on a tax-equivalent basis and net interest margin on a tax-equivalent basis excluding the effect of acquisition accounting discount accretion on loans acquired through the Taylor Capital merger to net interest income and net interest margin in accordance with accounting principles generally accepted in the United States of America are provided in the table. For additional information, see "Non-GAAP Financial Information."



	Three Months Ended June 30,
(dollars in thousands)	2016						2015
	Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate
Interest Earning Assets:
Loans held for sale	$	727,631	$	6,311	3.47	%	$	781,020	$	6,839	3.50	%
Loans ^(1) (2)	9,698,466		103,920		4.31		8,638,910		91,929		4.27
Loans exempt from federal income taxes ⁽³⁾	363,721		4,218		4.59		330,903		3,475		4.15
Taxable investment securities	1,466,915		7,799		2.13		1,545,284		10,002		2.59
Investment securities exempt from federal income taxes ⁽³⁾	1,339,465		16,375		4.89		1,261,567		15,600		4.95
Federal funds sold	35		—		1.00		126		—		—
Other interest earning deposits	100,200		125		0.50		85,935		57		0.27
Total interest earning assets	13,696,433		$	138,748	4.07		12,643,745		$	127,902	4.06
Non-interest earning assets	2,044,225						1,988,254
Total assets	$	15,740,658					$	14,631,999
Interest Bearing Liabilities:
Deposits:
NOW, money market and interest bearing deposits	$	3,836,134	$	2,049	0.21	%	$	3,940,201	$	1,634	0.17	%
Savings deposits	1,006,902		174		0.07		972,327		135		0.06
Time deposits	1,835,900		3,729		0.82		1,714,548		2,785		0.65
Short-term borrowings	1,092,965		910		0.34		1,041,766		355		0.14
Long-term borrowings and junior subordinated notes	642,156		2,076		1.28		278,473		1,844		2.62
Total interest bearing liabilities	8,414,057		$	8,938	0.43		7,947,315		$	6,753	0.34
Non-interest bearing deposits	4,806,692						4,273,931
Other non-interest bearing liabilities	389,807						348,242
Stockholders’ equity	2,130,102						2,062,511
Total liabilities and stockholders’ equity	$	15,740,658					$	14,631,999
Net interest income/interest rate spread ⁽⁴⁾			$	129,810	3.64	%			$	121,149	3.72	%
Less: taxable equivalent adjustment			7,208						6,676
Net interest income, as reported			$	122,602					$	114,473
Net interest margin ⁽⁵⁾					3.60	%					3.63	%
Tax equivalent effect					0.21	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.81	%					3.84	%
Effect of acquisition accounting discount accretion on loans acquired through the Taylor Capital merger					(0.24	)%					(0.27	)%
Net interest margin on a fully tax equivalent basis, excluding the effect of acquisition accounting discount accretion on loans acquired through the Taylor Capital merger					3.57	%					3.57	%

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

(2) Interest income includes amortization of net 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.

Net interest income on a fully tax equivalent basis increased $8.7 million during the three months ended June 30, 2016 compared to the three months ended June 30, 2015 primarily due to an increase in average loan balances. The net interest margin, expressed on a fully tax equivalent basis, was 3.81% for the second quarter of 2016 and 3.84% for the second quarter of 2015. Net interest income in the second quarter of 2016 included interest income of $7.7 million resulting from accretion of the acquisition accounting discount recorded on loans acquired in the Taylor Capital merger in the second quarter of 2016 compared to $8.0 million in the second quarter of 2015. Excluding the purchase accounting loan discount accretion on loans acquired through the Taylor Capital merger, our net interest margin on a fully tax equivalent basis would have been 3.57% for the three months ended June 30, 2016 and 2015.



	Six Months Ended June 30,
(dollars in thousands)	2016						2015
	Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate
Interest Earning Assets:
Loans held for sale	$	694,326	$	12,277	3.54	%	$	719,934	$	12,624	3.51	%
Loans ^(1) (2)	9,563,981		202,878		4.27		8,603,925		184,989		4.34
Loans exempt from federal income taxes ⁽³⁾	353,286		8,195		4.59		325,550		6,820		4.19
Taxable investment securities	1,495,749		17,365		2.32		1,550,876		19,936		2.57
Investment securities exempt from federal income taxes ⁽³⁾	1,350,967		32,954		4.88		1,194,224		29,621		4.96
Federal funds sold	39		—		1.00		71		—		—
Other interest earning deposits	106,974		266		0.50		94,094		119		0.26
Total interest earning assets	13,565,322		$	273,935	4.06		12,488,674		$	254,109	4.10
Non-interest earning assets	2,048,789						2,009,690
Total assets	$	15,614,111					$	14,498,364
Interest Bearing Liabilities:
Deposits:
NOW and money market deposit	$	3,972,642	$	4,135	0.21	%	$	3,938,961	$	3,229	0.17	%
Savings deposit	995,460		333		0.07		962,391		255		0.05
Time deposits	1,804,390		7,106		0.79		1,805,054		5,715		0.64
Short-term borrowings	1,004,742		1,631		0.33		871,953		632		0.15
Long-term borrowings and junior subordinated notes	621,512		4,421		1.41		277,895		3,656		2.62
Total interest bearing liabilities	8,398,746		$	17,626	0.42		7,856,254		$	13,487	0.35
Non-interest bearing deposits	4,706,351						4,237,144
Other non-interest bearing liabilities	394,133						354,926
Stockholders’ equity	2,114,881						2,050,040
Total liabilities and stockholders’ equity	$	15,614,111					$	14,498,364
Net interest income/interest rate spread ⁽⁴⁾			$	256,309	3.64	%			$	240,622	3.75	%
Less: taxable equivalent adjustment			14,403						12,754
Net interest income, as reported			$	241,906					$	227,868
Net interest margin ⁽⁵⁾					3.59	%					3.68	%
Tax equivalent effect					0.21	%					0.21	%
Net interest margin on a fully tax equivalent basis ⁽⁵⁾					3.80	%					3.89	%
Effect of acquisition accounting discount accretion on loans acquired through the Merger					(0.24	)%					(0.30	)%
Net interest margin on a fully tax equivalent basis, excluding the effect of acquisition accounting discount accretion on loans acquired through the Merger					3.56	%					3.59	%

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

(2) Interest income includes amortization of net 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.

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

Net interest income on a fully tax equivalent basis increased $15.7 million during the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to an increase in average loans, partially offset by an increase in average borrowings and an increase in the cost of deposits as well as lower average yields earned on interest earning assets. The net interest margin, expressed on a fully tax equivalent basis, was 3.80% for the six months ended June 30, 2016 and 3.89% for the six months ended June 30, 2015. Net interest income in the six months ended June 30, 2016 included interest income of $15.1 million resulting from accretion of the acquisition accounting discount recorded on loans acquired in the Taylor Capital merger in the six months ended June 30, 2016 compared to $16.5 million in the six months ended June 30, 2015. Excluding the purchase accounting loan discount accretion on loans acquired through the Taylor Capital merger, our net interest margin on a fully tax equivalent basis would have been 3.56% for the six months ended June 30, 2016 compared to 3.59% for the six months ended June 30, 2015. This decrease was primarily due to an increase in cost of funds.

Non-interest Income

The following table presents non-interest income for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 (in thousands):



	Three Months Ended
	June 30,
	2016			2015			Increase/ (Decrease)			Percentage Change
Non-interest income:
Mortgage banking revenue	$	39,615		$	35,648		$	3,967		11.1	%
Lease financing, net	15,708			15,564			144			0.9
Commercial deposit and treasury management fees	11,548			11,062			486			4.4
Trust and asset management fees	8,236			5,752			2,484			43.2
Card fees	4,045			4,409			(364		)	(8.3	)
Capital markets and international banking fees	2,771			1,508			1,263			83.8
Consumer and other deposit service fees	3,161			3,260			(99		)	(3.0	)
Brokerage fees	1,315			1,543			(228		)	(14.8	)
Loan service fees	1,961			1,353			608			44.9
Increase in cash surrender value of life insurance	850			836			14			1.7
Net gain (loss) on investment securities	269			(84		)	353			420.2
Net loss on sale of assets	(2		)	(7		)	5			(71.4	)
Other operating income	2,523			2,105			418			19.9
Total non-interest income	$	92,000		$	82,949		$	9,051		10.9	%

Non-interest income increased by $9.1 million, or 10.9%, for the three months ended June 30, 2016 compared to the three months ended June 30, 2015.


•	Mortgage banking revenue increased due to higher origination volumes as a result of the favorable interest rate environment and higher gains on sale margins.


•	Trust and asset management fees increased due to the addition of new customers as well as the acquisition of MSA.


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


•	Loan service fees increased due to an increase in asset-based lending loan fees as well as higher unused line and letter of credit fees.

The following table presents non-interest income for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 (in thousands):



	Six Months Ended
	June 30,
	2016			2015			Increase/ (Decrease)			Percentage Change
Non-interest income:
Mortgage banking revenue	$	67,097		$	60,192		$	6,905		11.5	%
Lease financing, net	34,754			40,644			(5,890		)	(14.5	)
Commercial deposit and treasury management fees	23,426			22,100			1,326			6.0
Trust and asset management fees	16,186			11,466			4,720			41.2
Card fees	7,570			8,336			(766		)	(9.2	)
Capital markets and international banking fees	5,998			3,436			2,562			74.6
Consumer and other deposit service fees	6,186			6,343			(157		)	(2.5	)
Brokerage fees	2,473			3,221			(748		)	(23.2	)
Loan service fees	3,713			2,838			875			30.8
Increase in cash surrender value of life insurance	1,704			1,675			29			1.7
Net gain (loss) on investment securities	269			(544		)	813			149.4
Net loss on sale of assets	(50		)	(3		)	(47		)	NM
Other operating income	4,367			4,513			(146		)	(3.2	)
Total non-interest income	$	173,693		$	164,217		$	9,476		5.8	%

NM - Not meaningful

Non-interest income increased by $9.5 million, or 5.8%, for the six months ended June 30, 2016 compared to the six months ended June 30, 2015.


•	Mortgage banking revenue increased due to higher mortgage servicing fees partly offset by lower mortgage origination fees.


•	Trust and asset management fees increased due to the addition of new customers as well as the acquisitions of MSA and the Illinois court-appointed guardianship and special needs trust business.


•	Capital markets and international banking services fees increased due to higher swap, syndication and M&A advisory fees partly offset by lower commercial real estate advisory fees.


•	Commercial deposit and treasury management fees increased due to new customer activity.


•	Loan service fees increased due to higher unused line and letter of credit fees.


•	Lease financing revenues decreased due to lower residual gains and fees from the sale of third-party equipment maintenance contracts.

Non-interest Expenses

The following table presents non-interest expense for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 (in thousands):



	Three Months Ended
	June 30,
	2016		2015		Increase/ (Decrease)			Percentage Change
Non-interest expenses:
Salaries and employee benefits	$	95,004	$	86,145	$	8,859		10.3	%
Occupancy and equipment	13,415		12,177		1,238			10.2
Computer services and telecommunication	9,777		8,537		1,240			14.5
Advertising and marketing	2,964		2,497		467			18.7
Professional and legal	3,321		2,413		908			37.6
Other intangibles amortization	1,617		1,509		108			7.2
Branch exit and facilities impairment charges	155		438		(283		)	(64.6	)
Net loss recognized on other real estate owned and other expense	258		724		(466		)	(64.4	)
Other operating expenses	21,395		18,297		3,098			16.9
Total non-interest expenses	$	147,906	$	132,737	$	15,169		11.4	%

Non-interest expenses increased by $15.2 million, or 11.4%, for the three months ended June 30, 2016 from the three months ended June 30, 2015.


•	Salaries and employee benefits expense was up due to annual pay increases effective in the beginning of the second quarter, new hires and the additional staff from the acquisition of MSA, an increase in bonus expense based on projected company performance through year end, higher health insurance expense and an increase in stock-based compensation expense.


•	Other operating expenses increased primarily due to a $1.5 million contract termination fee related to the anticipated American Chartered integration as well as higher card expenses (higher rewards and product development expense).


•	Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer activity and investments in systems.


•	Occupancy and equipment expense increased due to higher depreciation expense and rental operating expenses as a result of the acquisition of MSA, new offices opened at our mortgage banking segment and an office relocation at our leasing segment.


•	Professional and legal expense increased due to an increase in litigation fees and organizational legal fees related to the setup of a Canadian entity as well as an increase in consulting expense.

Non-interest expenses include $2.6 million and $1.2 million in merger related and repositioning expenses for the three months ended June 30, 2016 and 2015, respectively. The following table presents the detail of the merger related and repositioning expenses (dollars in thousands):



	Three Months Ended
	June 30,
	2016		2015
Merger related and repositioning expenses:
Salaries and employee benefits	$	324	$	—
Occupancy and equipment expense	8		96
Computer services and telecommunication expense	511		130
Advertising and marketing expense	41		—
Professional and legal expense	101		511
Branch exit and facilities impairment charges	—		438
Other operating expenses	1,581		59
Total merger related and repositioning expenses	$	2,566	$	1,234

The following table presents non-interest expense for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 (in thousands):



	Six Months Ended
	June 30,
	2016			2015		Increase/ (Decrease)			Percentage Change
Non-interest expenses:
Salaries and employee benefits	$	180,595		$	170,931	$	9,664		5.7	%
Occupancy and equipment expense	26,675			25,117		1,558			6.2
Computer services and telecommunication expense	18,832			17,441		1,391			8.0
Advertising and marketing expense	5,842			4,943		899			18.2
Professional and legal expense	5,910			5,083		827			16.3
Other intangibles amortization expense	3,243			3,027		216			7.1
Branch exit and facilities impairment charges	199			7,829		(7,630		)	(97.5	)
Net (gain) loss recognized on other real estate owned and other expense	(88		)	1,620		(1,708		)	(105.4	)
Prepayment fees on interest bearing liabilities	—			85		(85		)	(100.0	)
Other operating expenses	42,498			36,581		5,917			16.2
Total non-interest expenses	$	283,706		$	272,657	$	11,049		4.1	%

Non-interest expenses increased by $11.0 million, or 4.1%, for the six months ended June 30, 2016 from the six months ended June 30, 2015.

•

Salaries and employee benefits expense was up due to annual pay increases effective in the beginning of the second quarter as well as new hires and the additional staff from the acquisition of MSA; an increase in bonus expense based on projected company performance through year end; and increased temporary help in our IT and mortgage areas as well as higher 401(k) match and profit sharing contribution expense.

•

Other operating expenses increased due to a $2.7 million contingent consideration accrual for our acquisition of Celtic Leasing Corp. as a result of stronger lease residual performance than previously estimated, a $1.5 million contract termination fee related to the anticipated American Chartered integration, higher FDIC premiums (as a result of MB Financial Bank, N.A. (the "Bank") exceeding $10 billion in assets) and higher card expenses (higher rewards and product development expense).


•	Occupancy and equipment expense increased due to higher depreciation expense and rental operating expenses as a result of the acquisition of MSA, new offices opened at our mortgage banking segment and an office relocation at our leasing segment.


•	Professional and legal expense increased due to an increase in litigation and consulting fees.


•	Computer services and telecommunication expense increased due to higher processing costs as a result of increased customer activity and investments in systems.


•	Advertising and marketing expense increased due to increased advertising.


•	Branch exit and facilities impairment charges for the six months ended June 30, 2015 was impacted by the branch exit charges on facilities closed in connection with the Taylor Capital merger.


•	Net (gain) loss recognized on other real estate owned and other expense decreased due to more favorable fair value adjustments on other real estate owned properties during the six months ended June 30, 2015.

Non-interest expenses include $5.9 million and $9.3 million in merger related and repositioning expenses for the six months ended June 30, 2016 and 2015, respectively. The following table presents the detail of the merger related and repositioning expenses (dollars in thousands):



	Six Months Ended
	June 30,
	2016		2015
Merger related and repositioning expenses:
Salaries and employee benefits	$	405	$	33
Occupancy and equipment expense	8		273
Computer services and telecommunication expense	816		400
Advertising and marketing expense	64		—
Professional and legal expense	198		701
Branch exit and facilities impairment charges	44		7,829
Contingent consideration expense - Celtic acquisition ⁽¹⁾	2,703		—
Other operating expenses	1,615		67
Total merger related and repositioning expenses	$	5,853	$	9,303


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

Income Taxes

Income tax expense for the six months ended June 30, 2016 was $39.0 million compared to $35.1 million for the six months ended June 30, 2015. The increase was primarily due to an increase in our pre-tax income during the six months ended June 30, 2016.

Operating Segments

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

Net income from our Banking Segment for the three months ended June 30, 2016 increased $1.0 million to $32.6 million compared to the three months ended June 30, 2015. This increase was primarily due to an increase in net interest income driven by loan growth and an increase in non-interest income (trust and asset management fees as well as capital markets and international banking fees) partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires and bonus expense. Net income from our Leasing Segment for the three months ended June 30, 2016 decreased $372 thousand to $4.5 million compared to the three months ended June 30, 2015. Lease financing revenues decreased due to lower fees from the sale of third-party equipment maintenance contracts. This decrease in revenues was partially offset by a decrease in salaries and employee benefits due to lower commissions on lower leasing revenue and a decrease in provision for credit losses. Net income from our Mortgage Banking Segment for the three months ended June 30, 2016 increased $1.8 million to $6.3 million compared to the three months ended June 30, 2015. This increase in net income was due to an increase in mortgage origination fees as a result of higher origination volumes attributable to the favorable interest rate environment and higher gains on sale margins partly offset by higher salaries expense due to annual pay increases and new hires.

Net income from our Banking Segment for the six months ended June 30, 2016 increased $8.2 million to $65.2 million compared to the six months ended June 30, 2015. This increase in net income was primarily due to an increase in net interest income driven by loan growth and an increase in other non-interest income partly offset by higher salaries and employee benefits expense due to annual pay increases, new hires and bonus expense as well as an increase in provision for credit losses expense. Net income from our Leasing Segment for the six months ended June 30, 2016 decreased $3.7 million to $10.0 million compared to the six months ended June 30, 2015. This decrease in net income was primarily due to a decrease in lease financing revenues, as a result of a decrease in residual gains and fees from the sale of third-party equipment maintenance contracts, partly offset by a decrease in commission expense and provision for credit losses expense. Net income from our Mortgage Banking Segment for the six months ended June 30, 2016 increased $2.9 million to $7.3 million compared to the six months ended June 30, 2015. This increase

in net income was due to an increase in mortgage servicing fees and net interest income, which was partly offset by lower mortgage origination fees and higher salaries expense due to annual pay increases and new hires.

Balance Sheet

Total assets increased $410.8 million, or 2.6%, to $16.0 billion at June 30, 2016 from December 31, 2015.


•	Cash and cash equivalents increased $44.7 million, or 11.7% from $381.4 million at December 31, 2015 to $426.1 million at June 30, 2016.


•	Investment securities decreased $171.0 million, or 5.8%, from December 31, 2015 to June 30, 2016 mostly as a result of principal payments on our mortgage-backed securities.


•	Total loans, excluding purchased credit-impaired, increased by $408.5 million, or 4.2%, to $10.1 billion at June 30, 2016 from December 31, 2015, as a result of growth in commercial-related and consumer-related loans.

Total liabilities increased by $341.5 million, or 2.5%, to $13.8 billion at June 30, 2016 from December 31, 2015.


•	Total deposits decreased by $69.1 million, or 0.6%, to $11.4 billion at June 30, 2016 from December 31, 2015. Non-interest bearing deposits increased by $148.2 million, or 3.2%, compared to December 31, 2015, while interest bearing deposits decreased by $217.3 million, or 3.2%. The decrease in interest bearing deposits was due to the reduction in balances of certain large money market accounts.


•	Total borrowings increased by $359.3 million, or 22.6%, to $2.0 billion at June 30, 2016 primarily due to the increase in long-term FHLB advances.

Total stockholders’ equity increased $69.3 million to $2.2 billion at June 30, 2016 compared to December 31, 2015 primarily as a result of earnings for the six months ended June 30, 2016 net of dividends declared.

Investment Securities

The following table sets forth the amortized cost and fair value of our investment securities, by type of security as indicated (in thousands):



	June 30, 2016				December 31, 2015				June 30, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
U.S. Government sponsored agencies and enterprises	$	53,674	$	54,457	$	63,805	$	64,611	$	64,211	$	65,485
States and political subdivisions	369,816		400,948		373,285		396,367		380,221		395,912
Residential mortgage-backed securities	670,480		682,915		759,816		763,549		731,399		741,178
Commercial mortgage-backed securities	98,629		102,452		128,509		130,107		158,935		160,839
Corporate bonds	224,730		225,525		222,784		219,628		245,506		246,468
Equity securities	10,872		11,098		10,757		10,761		10,644		10,669
Total Available for Sale	1,428,201		1,477,395		1,558,956		1,585,023		1,590,916		1,620,551
Held to maturity
States and political subdivisions	960,784		1,023,932		1,016,519		1,052,755		974,032		990,673
Residential mortgage-backed securities	190,631		198,655		214,291		222,012		229,595		241,167
Total Held to Maturity	1,151,415		1,222,587		1,230,810		1,274,767		1,203,627		1,231,840
Total	$	2,579,616	$	2,699,982	$	2,789,766	$	2,859,790	$	2,794,543	$	2,852,391

Loan Portfolio

The following table sets forth the composition of our loan portfolio (excluding loans held for sale) as of the dates indicated showing the balances of legacy loans and loans acquired through the Taylor Capital merger (dollars in thousands):



	June 30, 2016								December 31, 2015
	Legacy ⁽¹⁾		Taylor Capital Acquired ⁽²⁾		Total		% of Total		Legacy ⁽¹⁾		Taylor Capital Acquired ⁽²⁾		Total		% of Total
Commercial related credits:
Commercial loans	$	3,173,619	$	387,881	$	3,561,500	35	%	$	2,908,158	$	708,128	$	3,616,286	37	%
Commercial loans collateralized by assignment of lease payments	1,715,561		78,904		1,794,465		18		1,687,421		91,651		1,779,072		18
Commercial real estate	2,315,379		512,341		2,827,720		28		2,040,339		655,337		2,695,676		27
Construction real estate	355,076		2,731		357,807		3		238,918		13,142		252,060		3
Total commercial related credits	7,559,635		981,857		8,541,492		84		6,874,836		1,468,258		8,343,094		85
Other loans:
Residential real estate	608,893		144,814		753,707		7		466,794		161,375		628,169		6
Indirect vehicle	489,536		1,944		491,480		5		382,000		2,095		384,095		4
Home equity	187,202		11,420		198,622		2		202,231		14,342		216,573		2
Other consumer loans	75,510		265		75,775		1		80,329		332		80,661		1
Total other loans	1,361,141		158,443		1,519,584		15		1,131,354		178,144		1,309,498		13
Total loans excluding purchased credit-impaired loans	8,920,776		1,140,300		10,061,076		99		8,006,190		1,646,402		9,652,592		98
Purchased credit-impaired loans	89,510		47,301		136,811		1		92,429		48,977		141,406		2
Total loans	$	9,010,286	$	1,187,601	$	10,197,887	100	%	$	8,098,619	$	1,695,379	$	9,793,998	100	%


⁽¹⁾	Legacy loans include all loans other than those acquired through the Taylor Capital merger, including loans acquired in connection with our FDIC-assisted transactions and our other acquisition transactions, as well as new loans originated subsequent to the Taylor Capital merger and Taylor Capital loans that have been renewed.


⁽²⁾	Represents loans acquired through the Taylor Capital merger that have not yet been renewed. These balances will decrease to zero over time.

Total loans, excluding purchased credit-impaired, increased by $408.5 million to $10.1 billion at June 30, 2016 from December 31, 2015. Total loans increased by $403.9 million to $10.2 billion at June 30, 2016 from $9.8 billion at December 31, 2015. Residential real estate loan balances have increased from December 31, 2015 as a result of retaining adjustable rate mortgages originated by our Mortgage Banking Segment in our loan portfolio. Construction loans have increased from December 31, 2015 due to draws on new and existing credit lines primarily in the areas of apartments, healthcare and office. Indirect vehicle loans have increased as a result of growth in boat, motorcycle and other recreational vehicle loans.

Asset Quality

Non-performing loans include loans accounted for on a non-accrual basis and accruing loans contractually past due 90 days or more as to interest or principal. Management reviews the loan portfolio for problem loans on an ongoing basis. During the ordinary course of business, management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. These loans are placed under close supervision with consideration given to placing the loan on non-accrual status, increasing the allowance for loan and lease losses and (if appropriate) partial or full charge-off. After a loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income. Generally, if interest payments are received on non-accrual loans, these payments will be applied to principal and not taken into income. Loans will not be placed back on accrual status unless back interest and principal payments are made. Our general policy is to place loans 90 days past due on non-accrual status, as well as those loans that continue to pay, but display a well-defined material weakness that we believe will result in a loss of principal and interest.

Non-performing loans exclude loans held for sale. Fair value of these loans as of acquisition includes estimates of credit losses.

The following table sets forth the amounts of non-performing loans, non-performing assets, potential problem loans, and purchased credit-impaired loans as well as other information regarding asset quality at the dates indicated (dollars in thousands):



	June 30, 2016			December 31, 2015			June 30, 2015
Non-performing loans:
Non-accruing loans	$	67,544		$	98,065		$	91,943
Loans 90 days or more past due, still accruing interest	7,190			6,596			6,112
Total non-performing loans	74,734			104,661			98,055
Other real estate owned	27,663			31,553			28,517
Repossessed assets	459			81			78
Total non-performing assets	$	102,856		$	136,295		$	126,650
Purchased credit-impaired loans	$	136,811		$	141,406		$	164,775
Total allowance for loan and lease losses	$	135,614		$	128,140		$	120,070
Accruing restructured loans ⁽¹⁾	26,715			26,991			16,875
Total non-performing loans to total loans	0.73		%	1.07		%	1.08		%
Total non-performing assets to total assets	0.64			0.87			0.84
Allowance for loan and lease losses to total non-performing loans	181.46			122.43			122.45


⁽¹⁾	Accruing restructured loans consists of loans that have been modified and are performing in accordance with those modified terms.

A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that leads to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. A loan that is modified at a market rate of interest may no longer be classified as troubled debt restructuring in the calendar year subsequent to the restructuring if it is in compliance with the modified terms. Payment performance prior and subsequent to the restructuring is taken into account in assessing whether it is likely that the borrower can meet the new terms. This may result in the loan being returned to accrual at the time of restructuring. A period of sustained repayment for at least six months generally is required for return to accrual status.

Occasionally, the Company will restructure a note into two separate notes (A/B structure), charging off the entire B portion of the note. The A note is structured with appropriate loan-to-value and cash flow coverage ratios that provide for a high likelihood of repayment. The A note is classified as a non-performing note until the borrower has displayed a historical payment performance for a reasonable time prior to and subsequent to the restructuring. A period of sustained repayment for at least six months generally is required to return the note to accrual status provided that management has determined that the performance is reasonably expected to continue. The A note will be classified as a restructured note (either performing or non-performing) through the calendar year of the restructuring that the historical payment performance has been established.

Non-performing assets consists of non-performing loans as well as other repossessed assets and other real estate owned. Other real estate owned represents properties acquired through foreclosure or other proceedings and is recorded at fair value less the estimated cost of disposal at the date of acquisition. Other real estate owned is evaluated regularly to ensure that the recorded amount is supported by its current fair value. Valuation allowances to reduce the carrying amount to fair value less estimated costs of disposal are recorded as necessary. Gains and losses and changes in valuations on other real estate owned are included in net gain (loss) recognized on other real estate within non-interest expense. Expenses, net of rental income, from the operations of other real estate owned are reflected as a separate line item on the statement of operations. Other repossessed assets primarily consist of repossessed vehicles. Losses on repossessed vehicles are charged-off to the allowance when title is taken and the vehicle is valued. Once the Bank obtains title, repossessed vehicles are not included in loans, but are classified as “other assets” on the consolidated balance sheets. The typical holding period for repossessed vehicles (motorcycles, marine vehicles and recreational vehicles) can be more than 90 days as a result of cyclical trends in the motorcycle, marine vehicle and recreational vehicle markets.

Other real estate owned that is related to our FDIC-assisted transactions is excluded from non-performing assets.

The following table presents a summary of other real estate owned, excluding assets related to FDIC-assisted transactions, for the six months ended June 30, 2016 and 2015 (in thousands):



	June 30,
	2016			2015
Beginning balance	$	31,553		$	19,198
Transfers in at fair value less estimated costs to sell	2,637			13,210
Fair value adjustments	115			(1,842		)
Net gains on sales of other real estate owned	819			292
Cash received upon disposition	(7,461		)	(2,341		)
Ending balance	$	27,663		$	28,517

Potential Problem Loans

We define potential problem loans as performing loans rated substandard and that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans). We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The following table sets forth the aggregate principal amount of potential problem loans, excluding purchased credit-impaired loans, at the dates indicated (in thousands):



	June 30, 2016		December 31, 2015

Commercial loans	$	66,348	$	102,106
Commercial loans collateralized by assignment of lease payments	5,847		7,004
Commercial real estate	27,587		30,831
Total	$	99,782	$	139,941

Allowance for Loan and Lease Losses

Management believes the allowance for loan and lease losses accounting policy is critical to the portrayal and understanding of our financial condition and results of operations. Selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are subject to change. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable possibility.

We maintain our allowance for loan and lease losses at a level that management believes is appropriate to absorb probable losses on existing loans based on an evaluation of the collectability of loans, underlying collateral and prior loss experience.

Our allowance for loan and lease losses is comprised of three elements: a commercial related general loss reserve; a commercial related specific reserve for impaired loans; and a consumer related reserve for smaller-balance homogenous loans. Each element is discussed below.

Commercial Related General Loss Reserve. We maintain a general loan loss reserve for the four categories of commercial-related loans in our portfolio: commercial loans, commercial loans collateralized by the assignment of lease payments (lease loans), commercial real estate loans and construction real estate loans.

Under our loan risk rating system, each loan, with the exception of those included in large groups of smaller-balance homogeneous consumer related loans, is risk rated between one and nine by the originating loan officer, Senior Credit Management, Loan Review or any loan committee. Loans rated "one" represent those loans least likely to default and a loan rated "nine" represents a loss. The probability of loans defaulting for each risk rating, sometimes referred to as default factors, are estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time. We use a loan loss reserve model that incorporates the migration of loan risk ratings and historical default data over a multi-year period to develop our estimated default factors (EDFs). The model tracks annual loan rating migrations by loan type and currently uses loan risk rating migrations for 15 years. The migration data is adjusted by using average losses for an economic cycle (approximately 14 years) to develop EDFs by loan type, risk rating and maturity. EDFs are updated annually in December.

EDFs are multiplied by individual loan balances in each risk-rating category and again multiplied by an historical loss given default estimate for each loan type (which incorporates estimated recoveries) to determine the appropriate allowance by loan type. This approach is applied to the commercial, lease, commercial real estate, and construction real estate components of the portfolio.

To account for current economic conditions, the general allowance for loan and lease losses (ALLL) also includes adjustments for macroeconomic factors. Macroeconomic factors adjust the ALLL upward or downward based on the current point in the economic cycle using predictive economic data and are applied to the loan loss model through a separate allowance element for the commercial, commercial real estate, construction real estate and lease loan components. To determine our macroeconomic factors, we use specific economic data that has shown to be a statistically reliable predictor of our credit losses relative to our long term average credit losses. We tested over 20 economic variables (U.S. manufacturing index, unemployment rate, U.S. GDP growth, etc.). We annually review this data to determine that such a relationship continues to exist. We currently use the following macroeconomic indicators in our macroeconomic factor computation:

Commercial loans and lease loans: total industry capacity utilization, our prior period charge-off rates and the yield on BBB-rated debt.

Commercial real estate loans and construction loans: M2 Money stock, our prior period charge-off rates, the U.S. commercial real estate index and the contribution of the commercial mortgage-backed security spread to the Cleveland Financial Stress Index.

Using the indicators noted above, a predicted charge-off percentage is calculated. The predicted charge-off percentage is then compared to the cycle average charge-off percentage, and a macroeconomic adjustment factor is calculated. The macroeconomic adjustment factor is applied to each commercial loan type. Each year, we review the predictive nature of the macroeconomic factors by comparing actual charge-offs to the predicted model charge-offs, re-run our regression analysis and re-calibrate the macroeconomic factors as appropriate.

The commercial related general loss reserve was $109.0 million as of June 30, 2016 and $94.2 million as of December 31, 2015. The increase in the commercial related general loss reserve was due to the overall growth in the loan portfolio. Reserves on impaired commercial related loans are included in the “Commercial Related Specific Reserves” section below.

Commercial Related Specific Reserves. Our allowance for loan and lease losses also includes specific reserves on impaired commercial loans. A loan is considered to be impaired when management believes, after considering collection efforts and other factors, the borrower's financial condition is such that the collection of all contractual principal and interest payments due is doubtful.

At each quarter-end, impaired commercial loans are reviewed individually, with adjustments made to the general calculated reserve for each loan as deemed necessary. Specific adjustments are made depending on expected cash flows and/or the value of the collateral securing each loan. Generally, the Company obtains a current external appraisal (within 12 months) on real estate secured impaired loans. Our appraisal policy is designed to comply with the Interagency Appraisal and Evaluation Guidelines, most recently updated in December 2010. As part of our compliance with these guidelines, we maintain an internal Appraisal Review Department that engages and reviews all third party appraisals.

In addition, each impaired commercial loan with real estate collateral is reviewed quarterly by our appraisal department to determine whether the most recent valuation remains appropriate during subsequent quarters until the next appraisal is received. If considered necessary by our appraisal department, the appraised value may be further discounted to reflect current values.

Other valuation techniques are also used to value non-real estate assets. Discounts may be applied in the impairment analysis used for general business assets (GBA). Examples of GBA include accounts receivable, inventory, and any marketable securities pledged. The discount is used to reflect collection risk in the event of default that may not have been included in the valuation of the asset.

The total commercial related specific reserves component of the allowance was $12.2 million as of June 30, 2016 compared to $16.2 million as of December 31, 2015. The decrease in commercial related specific reserves was due to loans that paid off during the second quarter of 2016.

Consumer Related Reserves. Pools of homogenous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include consumer, residential real estate, home equity, credit cards and indirect vehicle

loans. Migration probabilities obtained from past due roll rate analyses and historical loss rates are applied to current balances to forecast charge-offs over a one-year time horizon. The reserves for consumer related loans totaled $14.4 million at June 30, 2016 and $17.8 million at December 31, 2015.

For loans acquired through the Taylor Capital merger, the provision for credit losses for non-purchased credit impaired ("non-PCI") Taylor Capital loans, as accounted for in accordance with ASC 310-20, is calculated using a process similar to the one used for the MBFI legacy portfolio. A general loan loss reserve is calculated for the Taylor Capital renewed and non-renewed loans separately using the same loan loss reserve model used for MBFI legacy loans. The general loan loss reserve is calculated for the four categories of commercial-related loans in our portfolio: commercial loans, commercial loans collateralized by the assignment of lease payments (lease loans), commercial real estate loans and construction real estate loans. The probability of loans defaulting for each risk rating (referred to as default factors) is estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time. The default factors are multiplied by individual loan balances in each risk rating category and again multiplied by an historical loss given default estimate for each loan type to determine the appropriate allowance. The acquired Taylor Capital loans are risk rated using the MBFI rating methodology. The general loan loss reserve amount is adjusted upward to reflect uncertainty regarding the performance of the acquired portfolios due to our limited history with the borrowers.

For Taylor Capital non-PCI loans that renewed during the period (quarter or year to date), the default factors are multiplied by the loan balance and loss given default estimate to calculate the required reserves. The amount of required reserves is recognized as a provision for credit losses in the statement of operations. For Taylor Capital non-PCI loans that were not renewed subsequent to the merger consummation, the default factors are multiplied by the loan balance and the historical loss given default estimate. The resulting general loan loss reserve is compared to the remaining acquisition accounting discounts related to credit on the non-PCI loans, with the excess to be recognized as a provision for credit losses in the statement of operations.

We recorded a negative provision for credit losses of $3.5 million for acquired loans related to the non-PCI Taylor Capital loans for the six months ended June 30, 2016 primarily due to the reduction in specific reserves. No additional provisions were recorded on the purchased credit impaired Taylor Capital loans accounted for in accordance with ASC 310-30.

We consistently apply our methodology for determining the appropriateness of the allowance for loan and lease losses but may adjust our methodologies and assumptions based on historical information related to charge-offs and management's evaluation of the loan portfolio. In this regard, we periodically review the following to validate our allowance for loan and lease losses: historical net charge-offs as they relate to prior periods' allowance for loan and lease losses, comparison of historical loan migration in past years compared to the current year, overall credit trends and ratios and any significant changes in loan concentrations. In reviewing this data, we adjust qualitative factors within our allowance methodology to appropriately reflect any changes warranted by the validation process. Management believes it has established an allowance for probable loan losses as appropriate under GAAP.

The following table presents an analysis of the allowance for loan and lease losses for the periods presented (dollars in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Balance at beginning of period	$	137,732		$	117,189		$	131,508		$	114,057
Provision for credit losses	2,829			4,296			10,392			9,270
Charge-offs:
Commercial loans	72			57			785			626
Commercial loans collateralized by assignment of lease payments	2,347			100			2,921			100
Commercial real estate	1,720			108			2,072			2,142
Construction real estate	144			3			144			6
Residential real estate	476			318			844			897
Home equity	619			276			857			720
Indirect vehicles	651			627			1,582			1,501
Other consumer loans	395			500			807			924
Total charge-offs	6,424			1,989			10,012			6,916
Recoveries:
Commercial loans	952			816			1,332			1,058
Commercial loans collateralized by assignment of lease payments	467			340			517			1,089
Commercial real estate	1,843			2,561			2,437			3,936
Construction real estate	17			35			44			37
Residential real estate	82			8			106			80
Home equity	193			160			511			261
Indirect vehicles	501			545			964			1,020
Other consumer loans	141			169			534			238
Total recoveries	4,196			4,634			6,445			7,719
Net charge-offs	2,228			(2,645		)	3,567			(803		)
Allowance for credit losses	138,333			124,130			138,333			124,130
Allowance for unfunded credit commitments	(2,719		)	(4,060		)	(2,719		)	(4,060		)
Allowance for loan and lease losses	$	135,614		$	120,070		$	135,614		$	120,070
Total loans	$	10,197,887		$	9,093,956		$	10,197,887		$	9,093,956
Ratio of allowance to total loans	1.33		%	1.32		%	1.33		%	1.32		%
Ratio of net charge-offs to average loans	0.09			(0.12		)	0.07			(0.02		)

Net charge-offs of $3.6 million were recorded in the six months ended June 30, 2016 compared to net recoveries of $803 thousand in the six months ended June 30, 2015. A provision for credit losses of $10.4 million was recorded for the six months ended June 30, 2016 compared to $9.3 million for the six months ended June 30, 2015.

The provision for credit losses for the six months ended June 30, 2016 included a provision for credit losses of $13.9 million for the legacy MB Financial portfolio and a negative provision for credit losses of $3.5 million related to the acquired Taylor Capital portfolio for loan renewals subsequent to the acquisition date. In addition, included in the table above are net recoveries for the acquired Taylor Capital loans of $1.1 million for the six months ended June 30, 2016.

Additions to the allowance for loan and lease losses, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including specific reserves, current loan risk ratings, delinquent loans, historical loss experience and economic conditions in our market area. In addition, federal regulatory authorities, as part of the examination process, periodically review our allowance for loan and lease losses. The regulators may require us to record adjustments to the allowance level based upon their assessment of the information available to them at the time of examination. Although management believes the allowance for loan and lease losses is sufficient to cover probable losses inherent in the loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan losses.

We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At scheduled meetings of the board of directors of MB Financial Bank, a watch list is presented, showing significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” An asset is classified Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets include those

characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and viewed as valueless assets and have been charged-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Office of the Comptroller of the Currency, MB Financial Bank's primary regulator, which can order the establishment of additional general or specific loss allowances. There can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially adjust our allowance for loan and lease losses. The Office of the Comptroller of the Currency, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (1) institutions have effective systems and controls to identify, monitor and address asset quality problems; (2) management has analyzed all significant factors that affect the collectability of the portfolio in a reasonable manner; and (3) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. We analyze our process regularly, with modifications made if needed, and report those results four times per year at meetings of our board of directors. However, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially adjust our allowance for loan and lease losses at the time of their examination.

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

Lease Investments

The lease portfolio is comprised of various types of equipment, generally technology related, healthcare, material handling and general manufacturing equipment.

Lease investments by categories follow (in thousands):



	June 30, 2016			December 31, 2015			June 30, 2015
Direct finance leases:
Minimum lease payments	$	381,479		$	392,901		$	333,463
Estimated unguaranteed residual values	73,076			74,411			67,763
Less: unearned income	(32,392		)	(34,675		)	(28,805		)
Direct finance leases ⁽¹⁾	$	422,163		$	432,637		$	372,421
Leveraged leases:
Minimum lease payments	$	1,575		$	3,286		$	6,132
Estimated unguaranteed residual values	293			523			938
Less: unearned income	(56		)	(126		)	(271		)
Less: related non-recourse debt	(1,535		)	(3,199		)	(5,948		)
Leveraged leases ⁽¹⁾	$	277		$	484		$	851
Operating leases:
Equipment, at cost	$	354,158		$	318,843		$	269,206
Less accumulated depreciation	(120,838		)	(107,156		)	(101,240		)
Lease investments, net	$	233,320		$	211,687		$	167,966


⁽¹⁾	Direct finance and leveraged leases are included as commercial loans collateralized by assignment of lease payments for financial statement purposes.

Leases that transfer substantially all of the benefits and risk related to the equipment ownership are classified as direct finance leases. If these direct finance leases have non-recourse debt associated with them and meet the additional requirements for a leveraged lease, they are further classified as leverage leases, and the associated debt is netted with the outstanding balance in the consolidated financial statements. Interest income on direct finance and leveraged leases is recognized using methods which approximate a level yield over the term of the lease. Operating leases are investments in equipment leased to other companies, where the residual component makes up more than 10% of the investment. The Company funds most of the lease equipment purchases internally, but has some loans at other banks which totaled $63.4 million at June 30, 2016, $55.0 million at December 31, 2015 and $45.4 million at June 30, 2015.

At June 30, 2016, the following reflects the residual values for leases by category in the year the initial lease term ends (in thousands):



	Residual Values
	Direct
End of initial lease term	Finance		Leveraged		Operating
December 31,	Leases		Leases		Leases		Total
2016	$	3,888	$	171	$	9,689	$	13,748
2017	19,217		103		9,327		28,647
2018	16,152		19		11,419		27,590
2019	15,667		—		10,421		26,088
2020	10,535		—		12,713		23,248
Thereafter	7,617		—		24,214		31,831
	$	73,076	$	293	$	77,783	$	151,152

The lease residual value represents the present value of the estimated fair value of the leased equipment at the termination of the lease. Lease residual values are generally reviewed quarterly, and any write-downs or charge-offs deemed necessary are

recorded in the period in which they become known. To mitigate this risk of loss, we seek to diversify both the type of equipment leased and the industries in which the lessees participate. Often times, there are several individual lease schedules under one master lease. There were 4,010 leases at June 30, 2016 compared to 4,369 at December 31, 2015. The average residual value per lease schedule was approximately $38 thousand at June 30, 2016 and $33 thousand at December 31, 2015. The average residual value per master lease schedule was approximately $166 thousand at June 30, 2016 and $132 thousand at December 31, 2015, respectively.

Liquidity and Sources of Capital

Our cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Cash flows from operating activities primarily include net income, adjusted for items in net income that did not impact cash. Net cash flows provided by operating activities were $71.9 million for the six months ended June 30, 2016 compared to net cash flows provided by operating activities of $46.0 million for the six months ended June 30, 2015. The change was primarily due to lower net originations of loans held for sale.

Cash flows from investing activities reflects the impact of loans and investment securities acquired for the Company’s interest-earning asset portfolios, as well as cash flows from asset sales and the impact of acquisitions. For the six months ended June 30, 2016, the Company had net cash flows used in investing activities of $286.1 million compared to net cash flows used in investing activities of $220.9 million for the six months ended June 30, 2015. The change was primarily due to the increase in loans offset by less purchases of investment securities during the six months ended June 30, 2016.

Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. For the six months ended June 30, 2016, the Company had net cash flows provided by financing activities of $258.8 million compared to net cash flows provided by financing activities of $297.2 million for the six months ended June 30, 2015. The change in cash flows from financing activities was primarily due to a smaller net increase in borrowings offset by a smaller net decrease in deposits compared to the six months ended June 30, 2015.

In the event that additional short-term liquidity is needed, we have established relationships with several large and regional banks to provide short-term borrowings in the form of federal funds purchases. While, at June 30, 2016, there were no firm lending commitments in place, management believes that we could borrow approximately $420.5 million for a short time from these banks on a collective basis. Additionally, we are a member of Federal Home Loan Bank of Chicago ("FHLB"). As of June 30, 2016, the Company had $1.5 billion outstanding in FHLB advances, and could borrow an additional amount of approximately $504.6 million. As a contingency plan for significant funding needs, the Asset/Liability Committee may also consider the sale of investment securities, selling securities under agreement to repurchase, or the temporary curtailment of lending activities. As of June 30, 2016, the Company had approximately $1.6 billion of unpledged securities, excluding securities available for pledge at the FHLB.

Our main sources of liquidity at the holding company level are dividends from MB Financial Bank and cash on hand. We also maintain a $35.0 million unsecured line of credit at the holding company level with a correspondent bank. Nothing was outstanding on the line of credit as of June 30, 2016. The line of credit is scheduled to mature on December 17, 2016. The holding company had $86.9 million in cash as of June 30, 2016.

See Notes 9 and 10 of the Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. There were no material changes outside the ordinary course of business in the Company’s contractual obligations at June 30, 2016 as compared to December 31, 2015.

MB Financial Bank is subject to various regulatory capital requirements which affect its ability to pay dividends to us. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. The minimum ratios required for a bank to be considered “well capitalized” for regulatory purposes are a total risk-based capital ratio of 10.00%, a Tier 1 capital to risk-weighted assets ratio of 8.00%, a common equity Tier 1 capital to risk-weighted assets ratio of 6.50% and a Tier 1 capital to average assets ratio of 5.00%. In addition, we have an internal policy which provides that dividends paid to us by MB Financial Bank cannot exceed an amount that would cause MB Financial Bank’s total risk-based capital ratio, Tier 1 capital to risk-weighted assets ratio, common equity Tier 1 capital to risk-weighted assets ratio and Tier 1 capital to average assets ratio to fall below 11%, 9%, 7.5% and 7%, respectively. See “Item 1. Business — Supervision and Regulation” in our Annual Report on Form 10-K for the year ended December 31, 2015.

At June 30, 2016, the Company’s total risk-based capital ratio was 12.81%, Tier 1 capital to risk-weighted assets ratio was 11.77%, common equity Tier 1 capital to risk-weighted assets ratio was 9.52% and Tier 1 capital to average asset ratio was

10.41%. At June 30, 2016, MB Financial Bank’s total risk-based capital ratio was 11.74%, Tier 1 capital to risk-weighted assets ratio was 10.69%, common equity Tier 1 capital to risk-weighted assets ratio was 10.69% and Tier 1 capital to average asset ratio was 9.45%. MB Financial Bank was categorized as “Well-Capitalized” at June 30, 2016 under the regulations of the Office of the Comptroller of the Currency.

The Company and MB Financial Bank must maintain a capital conservation buffer consisting of additional common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. The new capital conservation buffer requirement is to be phased in beginning on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount will increase each year until the buffer requirement is fully implemented on January 1, 2019. At June 30, 2016, the Company and MB Financial Bank maintained capital above the 0.625% conservation buffer that was phased in at the beginning of 2016.

Non-GAAP Financial Information

This report 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 net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis excluding the effect of the acquisition accounting discount accretion on loans acquired through the Taylor Capital merger. 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. The tax equivalent adjustment to net interest income 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. Management also believes that presenting net interest margin on a tax equivalent basis excluding the effect of the acquisition accounting discount accretion on loans acquired through the Taylor Capital merger is useful in assessing the impact of acquisition accounting on net interest margin, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off our balance sheet. These disclosures 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 income on a fully tax equivalent basis to net interest income and net interest margin on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis excluding the effect of the acquisition accounting discount accretion on loans acquired through the Taylor Capital merger to net interest margin are contained in the tables under “Net Interest Margin.”

Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q and in other documents filed or furnished with the Securities and Exchange Commission, in press releases or other public shareholder 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 MB Financial, Inc.’s future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the pending MB Financial-American Chartered merger might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from originated loans and loans acquired from other financial institutions; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior, net interest margin and the value of our mortgage servicing rights; (5) the possibility that our mortgage banking business may experience increased volatility in its revenues and earnings and the possibility that the profitability of our mortgage banking business could be significantly reduced if we are unable to originate and sell mortgage loans at profitable margins or if changes in interest rates negatively impact the value of our mortgage servicing rights; (6) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (9) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber

theft, and that such security measures might not protect against systems failures or interruptions; (10) our ability to realize the residual values of our direct finance, leveraged and operating leases; (11) our 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.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Market Risk and Asset Liability Management

Market Risk. Market risk is the risk that the market value or estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes. Market risk is managed operationally in our Treasury Group and is addressed through a selection of funding and hedging instruments supporting balance sheet growth, as well as monitoring our asset investment strategies.

Asset Liability Management. Management and our Treasury Group continually monitor our sensitivity to interest rate changes. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The strategy we employ to manage our interest rate risk is to measure our risk using an asset/liability simulation model. The model considers several factors to determine our potential exposure to interest rate risk, including measurement of repricing gaps, duration, convexity, value at risk, and the market value of portfolio equity under assumed changes in the level of interest rates, shape of the yield curves, and general market volatility. Management controls our interest rate exposure using several strategies, which include adjusting the maturities of securities in our investment portfolio, and limiting fixed rate loans or fixed rate deposits with terms of more than five years. We also use derivative instruments, principally interest rate swaps, to manage our interest rate risk. See Note 15 to the Consolidated Financial Statements.

Interest Rate Risk. Interest rate risk can come in a variety of forms, including repricing risk, yield curve risk, basis risk, and prepayment risk. We experience repricing risk when the change in the average yield of our interest earning assets or average rate of our interest bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of our assets and liabilities.

In the event that yields on our assets and liabilities do adjust to changes in market rates to the same extent, we may still be exposed to yield curve risk. Yield curve risk reflects the possibility the changes in the shape of the yield curve could have different effects on our assets and liabilities.

Variable rate assets and liabilities that reprice at similar times, have similar maturities or repricing dates, are based on different indexes still have interest rate risk. Basis risk reflects the possibility that indexes will not move in a coordinated manner.

We hold mortgage-related investments, including mortgage loans and mortgage-backed securities. Prepayment risk is associated with mortgage-related investments and results from homeowners’ ability to pay off their mortgage loans prior to maturity. We limit this risk by restricting the types of mortgage-backed securities we own to those with limited average life changes under certain interest-rate shock scenarios, or securities with embedded prepayment penalties.

Measuring Interest Rate Risk. As noted above, interest rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, therefore, a positive gap would tend to positively affect net interest income. Conversely, during a period of falling interest rates, a positive gap position would tend to result in a decrease in net interest income.

The following table sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at June 30, 2016 that we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined based on the earlier of the term to repricing or the term to repayment of the asset or liability.

The table is intended to provide an approximation of the projected repricing of assets and liabilities at June 30, 2016 based on contractual maturities and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be reinvested and/or repriced because of contractual amortization and rate adjustments on adjustable-rate loans. Loan and investment securities’ contractual maturities and amortization reflect expected prepayment assumptions. While NOW, money market and savings deposit accounts have adjustable rates, it is assumed that the interest rates on some of the accounts will not adjust immediately to changes in other interest rates. Therefore, the

information in the table is calculated assuming that NOW, money market and savings deposits will reprice as follows: 4%, 10%, and 6%, respectively, in the first three months, 11%, 26%, and 15%, respectively, in the next nine months, 52%, 58%, and 57%, respectively, from one year to five years, and 33%, 6%, and 22%, respectively over five years (dollars in thousands):



	Time to Maturity or Repricing
	0 – 90			91 - 365			1 – 5			Over 5
	Days			Days			Years			Years			Total
Interest Earning Assets:
Interest earning deposits with banks	$	120,754		$	1,182		$	1,150		$	—		$	123,086
Investment securities	288,893			399,597			1,391,410			679,142			2,759,042
Loans held for sale	843,379			—			—			—			843,379
Loans, including covered loans	4,900,391			1,706,182			3,363,648			227,666			10,197,887
Total interest earning assets	$	6,153,417		$	2,106,961		$	4,756,208		$	906,808		$	13,923,394
Interest Bearing Liabilities:
NOW, money market and interest bearing deposits	$	186,426		$	725,422		$	2,106,975		$	752,288		$	3,771,111
Savings deposits	55,976			157,792			580,360			227,717			1,021,845
Time deposits	381,992			749,691			736,093			—			1,867,776
Short-term borrowings	1,052,788			56,320			124,226			13,660			1,246,994
Long-term borrowings	382,486			19,971			113,465			2,623			518,545
Junior subordinated notes issued to capital trusts	185,925			—			—			—			185,925
Total interest bearing liabilities	$	2,245,593		$	1,709,196		$	3,661,119		$	996,288		$	8,612,196
Rate sensitive assets (RSA)	$	6,153,417		$	8,260,378		$	13,016,586		$	13,923,394		$	13,923,394
Rate sensitive liabilities (RSL)	2,245,593			3,954,789			7,615,908			8,612,196			8,612,196
Cumulative GAP (GAP=RSA-RSL)	3,907,824			4,305,589			5,400,678			5,311,198			5,311,198
RSA/Total assets	38.47		%	51.64		%	81.38		%	87.04		%	87.04		%
RSL/Total assets	14.04			24.72			47.61			53.84			53.84
GAP/Total assets	24.43			26.92			33.76			33.20			33.20
GAP/RSA	63.51			52.12			41.49			38.15			38.15

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Therefore, we do not rely on a gap analysis to manage our interest rate risk, but rather we use what we believe to be the more reliable simulation model relating to changes in net interest income.

Based on simulation modeling which assumes gradual changes in interest rates over a one-year period, we believe that our net interest income would change due to changes in interest rates as follows (dollars in thousands):



Gradual	Changes in Net Interest Income Over One Year Horizon
Changes in	June 30, 2016					December 31, 2015
Levels of	Dollar			Percentage		Dollar			Percentage
Interest Rates	Change			Change		Change			Change
+ 2.00%	$	25,075		5.29	%	$	32,845		6.91	%
+ 1.00%	13,517			2.85		16,486			3.47
- 1.00%	(11,022		)	(2.32	)	(21,122		)	(4.44	)

In the interest rate sensitivity table above, changes in net interest income between June 30, 2016 and December 31, 2015 reflect changes in the composition of interest earning assets and interest bearing liabilities, related interest rates, repricing frequencies, and the fixed or variable characteristics of the interest earning assets and interest bearing liabilities. The changes in net interest income incorporate the impact of loan floors as well as shifts from low cost deposits to higher cost certificates of deposit in a rising rate environment.

The assumptions used in our interest rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net

interest income. Our model assumes that a portion of our variable rate loans that have minimum interest rates will remain in our portfolio regardless of changes in the interest rate environment. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) was carried out as of June 30, 2016 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2016, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting: During the quarter ended June 30, 2016, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

We are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of our businesses. While the ultimate outcome of pending proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing us in such proceedings, that the resolution of these proceedings should not have a material adverse effect on our consolidated financial position or results of operation.


Item 1A.	Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information for the three months ended June 30, 2016 with respect to our repurchases of our outstanding common shares:



	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in Thousands)
April 1, 2016 — April 30, 2016	207	$	35.08	—	$	—
May 1, 2016 — May 31, 2016	—	—		—	—
June 1, 2016 — June 30, 2016	21,258	36.32		—	—
Total	21,465	$	36.31	—


⁽¹⁾	Includes shares withheld to satisfy tax withholding obligations upon the exercise of stock options and vesting of restricted stock awards.


Item 6.	Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MB FINANCIAL, INC.

(registrant)



Date:	August 5, 2016	By:	/s/Mitchell Feiger
			Mitchell Feiger
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	August 5, 2016	By:	/s/Randall T. Conte
			Randall T. Conte
			Vice President and Chief Financial Officer
			(Principal Financial Officer)



EXHIBIT INDEX
Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated as of July 14, 2013, by and among the Registrant and Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 18, 2013 (File No.0-24566-01))

2.2		Amendment, dated as of June 30, 3014, to Agreement and Plan of Merger, dated as of July 14, 2013, by and between the Registrant and Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 1, 2014 (File No.0-24566-01))

2.3		Letter Agreement, dated as of June 30, 3014, by and between the Registrant and Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed on July 1, 2014 (File No.0-24566-01))

2.4		Agreement and Plan of Merger, dated as of May 1, 2006, by and among the Registrant, MBFI Acquisition Corp. and First Oak Brook Bancshares, Inc. (“First Oak Brook”)(incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2006 (File No.0-24566-01))

2.5		Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Corus Bank, National Association, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of September 11, 2009 (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on September 17, 2010 (File No.0-24566-01))

2.6		Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Broadway Bank, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of April 23, 2010 (incorporated herein by reference to Exhibit 2.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 0-24566-01))

2.7		Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of New Century Bank, Chicago, Illinois, Federal Deposit Insurance Corporation and MB Financial Bank, N.A., dated as of April 23, 2010 (incorporated herein by reference to Exhibit 2.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 0-24566-01))

2.8		Agreement and Plan of Merger, dated as of November 20, 2015, by and between the Registrant and American Chartered Bancorp, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on November 24, 2015 (File No.001-36599))

3.1		Charter of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (File No. 001-36599))

3.1A		Articles Supplementary to the Charter of the Registrant for the Registrant’s Perpetual Non-Cumulative Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form 8-A filed on August 14, 2014 (File No.001-36599))

3.2		Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 2, 2015 (File No. 001-36599))

4.1		The Registrant hereby agrees to furnish to the Commission, upon request, the instruments defining the rights of the holders of each issue of long-term debt of the Registrant and its consolidated subsidiaries



EXHIBIT INDEX
Exhibit Number		Description

10.1		Reserved

10.2		Amended and Restated Employment Agreement between the Registrant and Mitchell Feiger (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.4		Form of Change and Control Severance Agreement between MB Financial Bank, National Association and Jill E. York (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.4B		Form of Change and Control Severance Agreement between MB Financial Bank, National Association and each of Brian Wildman and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.4B to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.4C		Form of Change in Control Severance Agreement between MB Financial Bank, National Association and Mark A. Heckler (incorporated herein by reference to Exhibit 10.4C to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 0-24566-01))

10.4D		Form of Change in Control Severance Agreement between MB Financial Bank, National Association and Randall T. Conte (incorporated herein by reference to Exhibit 10.4D to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (File No. 001-36599))

10.5		Reserved

10.5A		Reserved

10.5B		Reserved

10.7		MB Financial, Inc. Third Amended and Restated Omnibus Incentive Plan (the “Omnibus Incentive Plan”) (incorporated herein by reference to Appendix A to the Registrant’s definitive proxy statement filed on April 11, 2014 (File No. 0-24566-01))

10.7		MB Financial, Inc. Third Amended and Restated Omnibus Incentive Plan (the “Omnibus Incentive Plan”) (incorporated herein by reference to Appendix A to the Registrant’s definitive proxy statement filed on April 11, 2014 (File No. 0-24566-01))



EXHIBIT INDEX
Exhibit Number		Description

10.8		MB Financial Stock Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.9		MB Financial Non-Stock Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.10		Avondale Federal Savings Bank Supplemental Executive Retirement Plan Agreement (incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K of MB Financial, Inc., a Delaware corporation (then known as Avondale Financial Corp.) for the year ended December 31, 1996 (File No. 0-24566))

10.11		Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock, dated as of December 21, 2009, between MB Financial, Inc. and Mitchell Feiger (incorporated herein by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 0-24566-01))

10.11A		Form of Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock between MB Financial, Inc. and Rosemarie Bouman, Mark A. Heckler and Brian J. Wildman (incorporated herein by reference to Exhibit 10.11A to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 0-24566-01))

10.12		Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock, dated as of December 21, 2009, between MB Financial, Inc. and Jill E. York (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 0-24566-01))

10.13		Amended and Restated Employment Agreement between MB Financial Bank, N.A. and Ronald D. Santo (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2004 (File No. 0-24566-01))

10.13A		Amendment to Amended and Restated Employment Agreement between MB Financial Bank, N.A. and Ronald D. Santo ((incorporated herein by reference to Exhibit 10.13A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01))

10.15		Tax Gross Up Agreements between the Registrant and each of Mitchell Feiger, Jill E. York and Brian Wildman (incorporated herein by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.15A		Tax Gross Up Agreement between the Registrant and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.15A to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.16		Form of Incentive Stock Option Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01))



EXHIBIT INDEX
Exhibit Number		Description

10.17		Form of Non-Qualified Stock Option Agreement for Directors under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01))

10.18		Form of Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01))

10.18A		Amendment to Form of Incentive Stock Option Agreement and Form of Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.18A to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.18B		Form of Performance-Based Restricted Stock Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.18B to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 0-24566-01))

10.18C		Form of Restricted Stock Agreement for grants on December 2, 2009 to Mitchell Feiger and Jill E. York (incorporated herein by reference to Exhibit 10.18C to the Registrant’s Current Report on Form 8-K filed on December 7, 2009 (File No. 0-24566-01))

10.19		Form of Restricted Stock Agreement for Directors under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 0-24566-01))

10.20		First Oak Brook Bancshares, Inc. Incentive Compensation Plan (incorporated herein by reference to Appendix A to the definitive proxy statement filed by First Oak Brook on March 30, 2004 (File No. 0-14468))

10.20A		Amendment to First Oak Brook Bancshares, Inc. Incentive Compensation Plan ((incorporated herein by reference to Exhibit 10.20A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01))

10.21		First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan (incorporated herein by reference to Appendix A to the definitive proxy statement filed by First Oak Brook on April 2, 2001 (File No. 0-14468))

10.21A		Amendment to First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan ((incorporated herein by reference to Exhibit 10.21A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01))

10.22		First Oak Brook Bancshares, Inc. Directors Stock Plan (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed by First Oak Brook on October 25, 1999 (File No. 333-89647))

10.22A		Amendment to First Oak Brook Bancshares, Inc. Directors Stock Plan (incorporated herein by reference to Exhibit 10.22A to the Registrant’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007 filed on May 15, 2007 (File No. 0-24566-01))

10.23		Letter Agreement, dated as of June 30, 2014, by and among the Registrant and certain principal stockholders of Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 1, 2014 (File No.0-24566-01))



EXHIBIT INDEX
Exhibit Number		Description

10.23A		Supplemental Agreement, dated as of August 15, 2014, by and among the Registrant, MB Financial Bank, N.A., and Jennifer W. Steans, as representative of certain principal stockholders of Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on August 20, 2014 (File No.001-36599))

10.23B		Escrow Agreement, dated as of August 15, 2014, by and among MB Financial Bank, N.A., Jennifer W. Steans, as representative of certain principal stockholders of Taylor Capital Group, Inc., and The Northern Trust Company, as escrow agent (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on August 20, 2014 (File No.001-36599))

10.24		Employment Agreement, dated as of July 14, 2013 by and between the Registrant, MB Financial Bank, N.A. and Mark A. Hoppe (included as Exhibit E to the Agreement and Plan of Merger, dated as of July 14, 2013, by and between the Registrant and Taylor Capital Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 18, 2013 (File No.0-24566-01)))

10.25		Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the Annual Report on Form 10-K of Taylor Capital Group, Inc. for the year ended December 31, 2008 (File No. 000-50034))

10.25A		Trust Under Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.17 of the Registration Statement on Form S-1 of Taylor Capital Group, Inc. filed May 24, 2002 (Registration No. 333-89158))

10.25B		Amendment to the Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.25B to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (File No. 001-36599))

10.26		Taylor Capital Group, Inc. Senior Officer Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Taylor Capital Group, Inc. for the quarterly period ended June 30, 2009 (File No. 000-50034))

10.26A		Amendment to the Taylor Capital Group, Inc. Senior Officer Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.26A to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (File No. 001-36599))

10.27		First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to First Oak Brook’s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-14468))

10.27A		Amendment to First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.27A to the Registrant’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007 filed on May 15, 2007)

10.29		Form of Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman (incorporated herein by reference to Exhibit 10.10 to First Oak Brook’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-14468))

10.29A		First Amendment to Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman ((incorporated herein by reference to Exhibit 10.28A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed March 2, 2007 (File No. 0-24566-01))



EXHIBIT INDEX
Exhibit Number		Description

10.29B		Second Amendment to Transitional Employment Agreement between the Registrant (as successor to First Oak Brook) and Rosemarie Bouman ((incorporated herein by reference to Exhibit 10.28B to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed March 2, 2007 (File No. 0-24566-01))

10.30		Form of Performance Share Unit Award Agreement (incorporated herein by reference to Exhibit 10.30 to the Registrant's Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01))

10.31		Form of Incentive Stock Option Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.31 to the Registrant's Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01))

10.32		Form of Restricted Stock Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.32 to the Registrant's Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01))

10.32A		Form of Restricted Stock Unit Agreement (Management Committee) (incorporated herein by reference to Exhibit 10.32A to the Registrant's Current Report on Form 8-K filed on September 5, 2012 (File No. 0-24566-01))

31.1		Rule 13a — 14(a)/15d — 14(a) Certification (Chief Executive Officer)*

31.2		Rule 13a — 14(a)/15d — 14(a) Certification (Chief Financial Officer)*

32		Section 1350 Certifications*

101		The following financial statements from the MB Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) the notes to consolidated financial statements*

* Filed herewith

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Bad

MB Financial Inactive 10-Q2016 Q2 Quarterly report

Content analysis