Company Website: http://www.mbfinancial.com
CHICAGO -- (Business Wire)

MB Financial, Inc. (NASDAQ: MBFI), the holding company for MB Financial Bank, N.A (“the Bank” or “MB Financial Bank”), announced today fourth quarter and annual results for 2010. The words “MB Financial,” “the Company,” “we,” “our” and “us” refer to MB Financial, Inc. and its consolidated subsidiaries, unless indicated otherwise. We had net income of $3.2 million and net income available to common stockholders of $595 thousand for the fourth quarter of 2010 compared to a net loss of $9.8 million and a net loss available to common stockholders of $12.4 million for the fourth quarter of 2009, and a net loss of $2.8 million and a net loss available to common stockholders of $5.4 million for the third quarter of 2010. We had net income of $20.5 million and net income available to common stockholders of $10.1 million for the year ended December 31, 2010 compared to a net loss of $26.1 million and a net loss available to common stockholders of $36.4 million for the year ended December 31, 2009.

Key items for the quarter were as follows:

Continued Growth in Core Pre-Tax, Pre-Provision Earnings:

• Core pre-tax, pre-provision earnings increased 37.5% to $52.5 million, compared to $38.2 million for the fourth quarter of 2009. Core pre-tax, pre-provision earnings increased $1.5 million, or 2.9%, compared to the third quarter of 2010.
• Net interest income on a fully tax equivalent basis increased to $87.3 million, or by 12.8%, compared to $77.4 million for the fourth quarter of 2009. Net interest income on a fully tax equivalent basis decreased $3.0 million, or 3.3%, compared to the third quarter of 2010.
• Net interest margin on a fully tax equivalent basis increased to 3.83% from 2.86% in the fourth quarter of 2009, but decreased from 3.92% in the third quarter of 2010.
• Core other income increased 28.7% to $31.9 million, compared to $24.8 million for the fourth quarter of 2009. Core other income increased $2.0 million, or 6.6%, compared to the third quarter of 2010.

Credit Quality – Decreased Provision, Charge-offs, and Non-Performing Loans During Quarter:

• Our provision for loan losses was $49.0 million for the fourth quarter of 2010, while our net charge-offs were $50.7 million. For the third quarter of 2010, our provision for loan losses and net charge-offs were $65.0 million and $66.7 million, respectively. While lower than recent quarters, our provision for loan losses remains elevated and reflects continued weakness in real estate market conditions.
• Our non-performing loans were $362.4 million or 5.48% of total loans as of December 31, 2010, a decrease from $392.6 million or 5.73% as of September 30, 2010. The percentage of the allowance for loan losses to non-performing loans was 53.03% as of December 31, 2010 and 49.40% as of September 30, 2010.
• During the fourth quarter of 2010, we completed a sale of approximately $22 million of non-performing loans to third parties consisting of $16 million of commercial real estate loans and $6 million of construction loans.
• Our non-performing assets were $434.0 million or 4.21% of total assets as of December 31, 2010, a decrease from $452.0 million or 4.26% of total assets as of September 30, 2010.
• Potential problem loans were $291.7 million as of December 31, 2010, a decrease from $311.3 million as of September 30, 2010. Our allowance for loan losses to total loans was 2.90% as of December 31, 2010, compared to 2.83% as of September 30, 2010.

For purposes of the second and fourth bullet points above, non-performing loans exclude loans held for sale and certain purchased credit-impaired loans that MB Financial Bank acquired in FDIC-assisted transactions, a majority of which are subject to loss share arrangements with the FDIC. These purchased credit-impaired loans are accounted for on a pool basis, and the pools are considered to be performing. Additionally, non-performing assets exclude other real estate owned related to assets acquired in FDIC-assisted transactions.

Strong Capital Position:

• MB Financial Bank significantly exceeds the “Well-Capitalized” threshold established under the regulations of the Office of the Comptroller of the Currency. At December 31, 2010, MB Financial, Inc.’s total risk-based capital ratio was 17.75%, Tier 1 capital to risk-weighted assets ratio was 15.75%, Tier 1 capital to average asset ratio was 10.66% and Tier 1 common capital to risk-weighted assets was 10.61%, compared with 17.14%, 15.15%, 10.38% and 10.17%, respectively, as of September 30, 2010. As of December 31, 2010, total capital was approximately $524.9 million in excess of the “Well-Capitalized” threshold, compared with $497.0 million as of September 30, 2010.Our tangible common equity to tangible assets ratio was 7.47% at December 31, 2010, compared to 7.17% at September 30, 2010. Our tangible common equity to risk-weighted assets ratio was 10.94% at December 31, 2010, compared to 10.49% at September 30, 2010.

Strong Liquidity Position and Continued Improvement in Deposit Mix:

• Our loan to deposit ratio was 81% as of December 31, 2010, a slight decrease from 82% as of September 30, 2010.
• Our ratio of certificates of deposit to total deposits was 37% at December 31, 2010, compared to 39% at September 30, 2010.
• Our ratio of non-interest bearing deposits to total deposits was 21% at December 31, 2010, up from 20% at September 30, 2010.

Transactions Update:

• During the fourth quarter of 2010, purchase accounting was finalized on our Benchmark Bank, Broadway Bank and New Century Bank FDIC-assisted transactions with no impact on the previously recognized bargain purchase gains. As of December 31, 2010, purchase accounting on all of our FDIC-assisted transactions was final.

RESULTS OF OPERATIONS

Fourth Quarter Results

Net Interest Income

Net interest income on a tax equivalent basis increased $9.9 million from the fourth quarter of 2009, and decreased by $3.0 million from the third quarter of 2010 to the fourth quarter of 2010. Our net interest margin, on fully tax equivalent basis, was 3.83% for the fourth quarter of 2010 compared to 3.92% in the third quarter of 2010 and 2.86% in the fourth quarter of 2009. The margin increase from the fourth quarter of 2009 was due to an improved average loan yield as a result of an improved loan mix, an improved asset mix with loans representing a greater fraction of assets, and a decrease in our average cost of funds as a result of an improved deposit mix and downward repricing of certificates of deposit. The margin decrease from the third quarter of 2010 was primarily due to higher levels of cash and cash equivalents held throughout the fourth quarter.

Net interest income on a tax equivalent basis increased $89.1 million from the year ended December 31, 2009 to the year ended December 31, 2010. Our net interest margin, on fully tax equivalent basis, was 3.83% for the year ended December 31, 2010 compared to 2.97% for the year ended December 31, 2009. The margin increase from the prior year was due to an improved loan mix and a decrease in our average cost of funds as a result of an improved deposit mix and downward repricing of certificates of deposit.

Our non-performing loans reduced our net interest margin during the fourth quarter of 2010, the third quarter of 2010 and the fourth quarter of 2009 by approximately 23 basis points, 22 basis points and 17 basis points, respectively.

See the supplemental net interest margin table for further detail.

Other Income (in thousands):

(1) Letter denotes the corresponding line items where these non-core other income items reside in the consolidated statements of income as follows: A – Other operating income.

Core other income increased by $2.0 million from the third quarter of 2010 to the fourth quarter of 2010. Core deposit service fees decreased primarily due to decreases in NSF and overdraft fees. Net lease financing income increased mainly as a result of an increase in the sales of third party equipment maintenance contracts. Accretion of indemnification asset decreased as expected due to a corresponding decrease in the indemnification asset balance during the fourth quarter of 2010. Other operating income increased primarily as a result of higher income from several investment partnerships. The decrease in non-core other income was mainly a result of the net gain on sale of investment securities of $9.5 million recognized in the third quarter of 2010. Gains were taken on securities to lock in those gains and shorten the overall duration of our securities portfolio. A net loss was recognized on other real estate owned (“OREO”) of $2.1 million in the fourth quarter of 2010 compared $3.9 million in the third quarter of 2010. It is our practice to reappraise all OREO at least annually and whenever we think there might be a material change in value.

Core other income increased by $28.2 million for the year ended December 31, 2010 compared to the year ended December 31, 2009. Core deposit service fees increased primarily due to an increase in commercial deposit fees related to the treasury management business acquired in the Corus FDIC-assisted transaction during the second half of 2009, and an increase in NSF and overdraft fees. Net lease financing increased primarily due to an increase in the sales of third party equipment maintenance contracts. Core trust and asset management fees increased primarily due to an increase in assets under management, as a result of organic growth and an increase in the market value of assets under management. The Broadway Bank and New Century Bank FDIC-assisted transactions resulted in accretion on the corresponding indemnification asset. Prior year accretion related to the Heritage Bank transaction and was not significant. Other income increased primarily due to fee income related to our FDIC-assisted transactions completed during the second half of 2009. Non-core other income was primarily impacted by gains recorded on the Broadway Bank and New Century Bank FDIC-assisted transactions. Non-core other income was impacted to a lesser extent by a net gain on sale of investment securities of $18.6 million for the year ended December 31, 2010, compared with a net gain on sale of investment securities of $14.0 million for the year ended December 31, 2009, and a net loss recognized on OREO of $9.3 million for the year ended December 31, 2010, compared with a net loss of $429 thousand for the year ended December 31, 2009.

Other Expense (in thousands):

(1) Letters denote the corresponding line items where these non-core other expense items reside in the consolidated statements of income as follows: A – FDIC insurance premiums, B – Salaries and employee benefits.

Core other expense decreased by $2.5 million from the third quarter of 2010 to the fourth quarter of 2010. Salaries and employee benefits decreased mainly due to a decrease in healthcare expense for the quarter as a result of lower claims within our partially self-insured plan. Occupancy and equipment expense decreased as a result of decreased property taxes and utilities expenses.

Core other expense increased $43.0 million for the year ended December 31, 2010 compared to the year ended December 31, 2009. The FDIC-assisted transactions completed in 2009 and 2010 increased total core other expense from the twelve months ended December 31, 2009 to the twelve months ended December 31, 2010 by approximately $23.1 million. Salaries and employee benefits expense also increased due to problem loan remediation staff added throughout the year. Other real estate expense increased as a result of an increase in OREO activity during the year. Core other operating expenses increased due to an increase of $1.4 million in debit card expenses due to increased activity and expenses related to our FDIC-assisted transactions. Non-core other expense was primarily impacted by a $4.0 million impairment charge incurred in 2009 relating to the consolidation of three branch offices, and the FDIC special premium imposed on all insured depository institutions in 2009.

LOAN PORTFOLIO

The following table sets forth the composition of the loan portfolio as of the dates indicated (dollars in thousands):

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

The increase in covered loans from March 31, 2010 to June 30, 2010 was due to the Broadway Bank and New Century Bank FDIC-assisted transactions.

ASSET QUALITY

The following table presents a summary of non-performing assets, excluding credit-impaired loans that were acquired as part of our FDIC-assisted transactions (see definition of “purchased credit-impaired loans” below), and OREO related to FDIC-assisted transactions, as of the dates indicated (dollar amounts in thousands):

(1) Includes restructured loans on non-accrual status.

(2) Accruing restructured loans at December 31, 2010 consists primarily of residential real estate and home equity loans that have been modified and are performing in accordance with those modified terms. It also includes approximately $8 million of commercial related loans.

The following table presents a summary of total performing loans greater than 30 days and less than 90 days past due, excluding credit-impaired loans that were acquired as part of our FDIC-assisted transactions (see definition of “purchased credit-impaired loans” below), as of the dates indicated (dollar amounts in thousands):

Approximately $1.7 million of performing loans past due are classified as potential problem loans (defined below) as of December 31, 2010, compared to $6.3 million as of September 30, 2010.

The following table represents a summary of OREO, excluding OREO related to FDIC-assisted transactions (in thousands):

The following table presents data related to non-performing loans, by dollar amount and category at December 31, 2010, excluding credit-impaired loans that were acquired as part of our FDIC-assisted transactions (dollar amounts in thousands):

The following table presents data related to non-performing loans, by dollar amount and category at September 30, 2010 (dollar amounts in thousands):

We define potential problem loans as performing loans rated substandard that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans). Potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amount of potential problem loans was $291.7 million, or 4.41% of total loans, as of December 31, 2010, compared to $311.3 million, or 4.54% of total loans, as of September 30, 2010.

“Purchased credit-impaired loans” refer to certain loans acquired in FDIC-assisted transactions, for which deterioration in credit quality occurred before the Company’s acquisition date. Upon acquisition, these loans were recorded at fair value with interest income to be accreted over the estimated life of the loan when cash flows are reasonably estimable, even if the underlying loans are contractually past due. Acquisition fair value incorporates the Company’s estimate, as of the acquisition date, of credit losses over the remaining life of the portfolio. No allowance for loan losses has been recorded for these loans.

The following table displays information on commercial real estate loans by risk category and type, excluding covered loans, at December 31, 2010 (dollars in thousands):

(1) To calculate the percentage of loan balances reserved, partial charge-offs taken on loans with balances outstanding have been added back to both reserves and outstanding balance.

The following table sets forth information on commercial real estate loans by risk category and type, excluding covered loans, at September 30, 2010 (dollars in thousands):

(1) To calculate the percentage of loan balances reserved, partial charge-offs taken on loans with balances outstanding have been added back to both reserves and outstanding balance.

The following table sets forth trend information for construction real estate loans by risk category, excluding covered loans, for the past five quarters (dollars in thousands):

(1) To calculate the percentage of loan balances reserved, partial charge-offs taken on loans with balances outstanding have been added back to both reserves and outstanding balance.

Below is a reconciliation of the activity in our allowance for loan losses for the periods indicated (dollar amounts in thousands):

Although management believes that adequate 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 loss allowances may become necessary.

INVESTMENT SECURITIES AVAILABLE FOR SALE

The following table sets forth the fair value, amortized cost, and total unrealized gain (loss) of our investment securities available for sale, by type (in thousands):

We do not have any meaningful direct or indirect holdings of subprime residential mortgage loans, home equity lines of credit, or any Fannie Mae or Freddie Mac preferred or common equity securities in our investment securities portfolio. Additionally, more than 99% of our mortgage-backed securities are agency guaranteed.

FUNDING MIX AND LIQUIDITY

The following table shows the composition of our core and wholesale funding resources as of the dates indicated (dollars in thousands):

FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected cost savings, synergies and other benefits from our merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the possibility that the expected benefits of the Broadway Bank, New Century Bank and other FDIC-assisted transactions we previously completed will not be realized; (3) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans we originate and loans we acquire from other financial institutions; (4) results of examinations by the Office of Comptroller of Currency and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses or write-down assets; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (10) 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 and regulations adopted thereunder, changes in federal and/or state tax laws or interpretations thereof by taxing authorities, changes in laws, rules or regulations applicable to companies that have participated in the TARP Capital Purchase Program of the U.S. Department of the Treasury and other governmental initiatives affecting the financial services industry; (16) changes in accounting principles, policies or guidelines; (17) our future acquisitions of other depository institutions or lines of business; and (18) future goodwill impairment due to changes in our business, changes in market conditions, or other factors.

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

TABLES TO FOLLOW