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):

       
Three Months Ended Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Core other income:
Loan service fees $ 1,532 $ 1,659 $ 2,042 $ 1,284 $ 1,723 $ 6,517 $ 6,913
Deposit service fees 9,920 10,705 9,461 8,848 9,311 38,934 30,600
Lease financing, net 7,185 5,022 5,026 4,620 5,799 21,853 18,528
Brokerage fees 1,231 1,407 1,129 1,245 1,272 5,012 4,606
Trust and asset management fees 4,243 3,923 3,536 3,335 3,347 15,037 12,593
Increase in cash surrender value of life insurance 930 1,209 706 671 669 3,516 2,459
Accretion of indemnification asset 3,009 3,602 3,067 - - 9,678 -
Other operating income   3,857       2,406       2,872       2,869       2,663     12,004       8,611  
Total core other income   31,907       29,933       27,839       22,872       24,784     112,551       84,310  
 
Non-core other income(1)
Net gain on sale of investment securities (4 ) 9,482 2,304 6,866 239 18,648 14,029
Net gain (loss) on sale of other assets 419 299 (99 ) 11 12 630 (13 )
Net gain (loss) recognized on other real estate owned(A) (1,656 ) (3,608 ) 52 (3,299 ) (733 ) (8,511 ) (429 )
Net loss recognized on other real estate owned related to FDIC transactions(A) (468 ) (305 ) - - - (773 ) -
Acquisition related gains - - 62,649 - 18,325 62,649 28,547
Increase (decrease) in market value of assets held in
trust for deferred compensation(A)   597       (3 )     (39 )     7       300     562       710  
Total non-core other income   (1,112 )     5,865       64,867       3,585       18,143     73,205       42,844  
                       
Total other income $ 30,795     $ 35,798     $ 92,706     $ 26,457     $ 42,927   $ 185,756     $ 127,154  
 

(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):

               
Three Months Ended Year Ended
December 31,   September 30, June 30, March 31, December 31, December 31, December 31,
2010   2010   2010   2010   2009 2010   2009
Core other expense:
Salaries and employee benefits $ 35,802 $ 37,427 $ 37,143 $ 33,415 $ 33,091 $ 143,787 $ 119,944
Occupancy and equipment expense 7,938 8,800 8,928 9,179 8,885 34,845 31,521
Computer services expense 2,445 2,654 3,322 2,528 2,882 10,949 10,011
Advertising and marketing expense 1,573 1,620 1,639 1,633 683 6,465 4,185
Professional and legal expense 1,718 1,637 1,370 1,078 1,465 5,803 4,680
Brokerage fee expense 448 596 420 462 553 1,926 1,999
Telecommunication expense 819 975 964 908 1,127 3,666 3,433
Other intangibles amortization expense 1,632 1,567 1,505 1,510 1,650 6,214 4,491
FDIC insurance premiums 3,930 3,873 3,833 3,964 4,099 15,600 12,912
Other real estate expense, net 858 734 417 685 245 2,694 871
Other operating expenses   6,855     6,598       6,530       6,282     6,092   26,265     21,143
Total core other expense   64,018     66,481       66,071       61,644     60,772   258,214     215,190
 
 
Non-core other expense (1)
FDIC special assessment(A) - - - - - - 3,850
Impairment charges - - - - - - 4,000
Increase (decrease) in market value of assets held in
trust for deferred compensation(B)   597     (3 )     (39 )     7     300   562     710
Total non-core other expense   597     (3 )     (39 )     7     300   562     8,560
                       
Total other expense $ 64,615   $ 66,478     $ 66,032     $ 61,651   $ 61,072 $ 258,776   $ 223,750
 

(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):

                 
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
Amount   % of Total   Amount   % of Total   Amount   % of Total   Amount   % of Total   Amount   % of Total
Commercial related credits:      
Commercial loans $ 1,206,984 18 % $ 1,291,115 19 % $ 1,315,899 19 % $ 1,378,873 21 % $ 1,387,476 21 %
Commercial loans collateralized by assign-
ment of lease payments (lease loans) 1,053,446 16 % 1,019,083 15 % 992,301 14 % 960,470 15 % 953,452 15 %
Commercial real estate 2,176,584 33 % 2,259,708 33 % 2,378,272 34 % 2,409,078 38 % 2,472,520 38 %
Construction real estate   423,339     6 %     445,881     6 %     496,732     7 %     558,615     9 %     594,482     9 %
Total commercial related credits   4,860,353     73 %     5,015,787     73 %     5,183,204     74 %     5,307,036     83 %     5,407,930     83 %
Other loans:
Residential real estate 328,482 5 % 328,985 5 % 321,665 5 % 302,308 5 % 291,022 4 %
Indirect motorcycle 161,761 2 % 166,163 2 % 164,269 2 % 158,207 2 % 156,853 2 %
Indirect automobile 13,903 1 % 15,928 0 % 17,914 0 % 20,437 1 % 23,414 1 %
Home equity 381,662 6 % 386,866 6 % 389,298 6 % 401,570 6 % 405,439 6 %
Consumer loans   59,320     1 %     76,219     1 %     73,436     1 %     70,247     1 %     66,293     1 %
Total other loans   945,128     15 %     974,161     14 %     966,582     14 %     952,769     15 %     943,021     14 %
Gross loans excluding covered loans 5,805,481 88 % 5,989,948 87 % 6,149,786 88 % 6,259,805 98 % 6,350,951 97 %
Covered loans (1)   812,330     12 %     859,038     13 %     879,909     12 %     155,051     2 %     173,596     3 %
Gross loans 6,617,811 100 % 6,848,986 100 % 7,029,695 100 % 6,414,856 100 % 6,524,547 100 %
Allowance for loan losses   (192,217 )   (193,926 )   (195,612 )   (177,787 )   (177,072 )
Net loans $ 6,425,594   $ 6,655,060   $ 6,834,083   $ 6,237,069   $ 6,347,475  
 

(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):

           
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
Non-performing loans:
Non-accrual loans(1) $ 362,441 $ 392,477 $ 343,838 $ 323,017 $ 270,839
Loans 90 days or more past due, still accruing interest   1       115       -       150       477  
Total non-performing loans   362,442       392,592       343,838       323,167       271,316  
 
OREO 71,476 59,114 43,988 41,589 36,711
Repossessed vehicles   82       321       191       250       333  
Total non-performing assets $ 434,000     $ 452,027     $ 388,017     $ 365,006     $ 308,360  
 
Total allowance for loan losses 192,217 193,926 195,612 177,787 177,072
Partial charge-offs taken on non-performing loans   163,972       171,549       142,872       95,960       69,359  
Allowance for loan losses, including partial charge-offs $ 356,189     $ 365,475     $ 338,484     $ 273,747     $ 246,431  
 
Accruing restructured loans(2) $ 22,543 $ 12,226 $ 10,940 $ - $ -
 
Total non-performing loans to total loans 5.48 % 5.73 % 4.89 % 5.04 % 4.16 %
Total non-performing assets to total assets 4.21 % 4.26 % 3.64 % 3.58 % 2.84 %
Allowance for loan losses to non-performing loans 53.03 % 49.40 % 56.89 % 55.01 % 65.26 %
Allowance for loan losses to non-performing loans,
including partial charge-offs taken 67.66 % 64.78 % 69.55 % 65.31 % 72.34 %
 

(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):

               
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
 
30 - 59 Days Past Due $ 9,386 $ 19,302 $ 26,491 $ 17,239 $ 25,331
60 - 89 Days Past Due   5,073     6,011     3,746     1,653     5,523
$ 14,459   $ 25,313   $ 30,237   $ 18,892   $ 30,854
 

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):

               
December 31,   September 30,   June 30,   March 31,
2010   2010   2010   2010
 
Balance at beginning of quarter $ 59,114 $ 43,988 $ 41,589 $ 36,711
Transfers in at fair value less estimated costs to sell 27,170 21,383 4,967 10,438
Fair value adjustments (1,562 ) (3,429 ) - (2,795 )
Net losses (gains) on sales of OREO (94 ) (179 ) 52 (504 )
Cash received upon disposition   (13,152 )     (2,649 )     (2,620 )     (2,261 )
Balance at the end of quarter $ 71,476     $ 59,114     $ 43,988     $ 41,589  
 

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):

         
    Commercial and Lease Loans   Construction Real Estate Loans   Commercial Real Estate Loans   Consumer Loans   Total Loans
    Number of Borrowers   Amount   Number of Borrowers   Amount   Number of Borrowers   Amount   Amount   Amount
$10.0 million or more -   $ - 2   $ 29,695 2   $ 34,423 $ - $ 64,118
$5.0 million to $9.9 million 3 23,683 5 29,791 3 20,102 - 73,576
$1.5 million to $4.9 million 6 14,005 13 41,313 15 41,720 3,272 100,310
Under $1.5 million 45     14,880     30     21,278     144     62,619       25,661       124,438  
54   $ 52,568     50   $ 122,077     164   $ 158,864     $ 28,933     $ 362,442  
 
Percentage of individual loan category 2.33 % 28.84 % 7.30 % 3.06 % 5.48 %
 
Specific reserves and partial charge-offs as a
percentage of non-performing loans 44 % 47 % 32 %
 

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

    Commercial and Lease Loans   Construction Real Estate Loans   Commercial Real Estate Loans   Consumer Loans   Total Loans
    Number of Borrowers   Amount   Number of Borrowers   Amount   Number of Borrowers   Amount   Amount   Amount
$10.0 million or more   -   $ -   1   $ 14,539   4   $ 63,807   $ -   $ 78,346
$5.0 million to $9.9 million 3 23,179 6 41,727 2 12,412 - 77,318
$1.5 million to $4.9 million 9 19,297 17 53,736 20 52,540 1,575 127,148
Under $1.5 million 51     14,543     31     20,420     130     51,366       23,451       109,780  
63   $ 57,019     55   $ 130,422     156   $ 180,125     $ 25,026     $ 392,592  
 
Percentage of individual loan category 2.47 % 29.25 % 7.97 % 2.57 % 5.73 %
 
Specific reserves and partial charge-offs as a
percentage of non-performing loans 48 % 48 % 27 %
 

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):

    Risk Category    
         
Potential Problem
Non-Performing and Other Watch
Loans (NPLs)   List Loans   Pass Loans Total
Amount   % of Loan Balance Reserved(1)   Amount   % of Loan Balance Reserved   Amount   % of Loan Balance Reserved Amount   % of Loan Balance Reserved(1)
 
Church and school $ 177 36 % $ 7,147 20 % $ 58,218 1 % $ 65,542 4 %
Healthcare - - 4,899 15 % 199,349 2 % 204,248 2 %
Industrial 36,426 25 % 88,252 17 % 398,703 2 % 523,381 7 %
Multifamily 30,344 40 % 47,318 19 % 383,116 2 % 460,778 7 %
Office 9,959 44 % 49,035 18 % 158,585 4 % 217,579 10 %
Other 35,101 16 % 23,914 18 % 171,697 2 % 230,712 6 %
Retail   46,857 39 %   43,264 18 %   384,223 2 %   474,344 9 %
$ 158,864 32 % $ 263,829 18 % $ 1,753,891 2 % $ 2,176,584 7 %
 

(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):

    Risk Category    
         
Potential Problem
Non-Performing and Other Watch
Loans (NPLs)   List Loans   Pass Loans Total
Amount   % of Loan Balance Reserved(1)   Amount   % of Loan Balance Reserved   Amount   % of Loan Balance Reserved Amount   % of Loan Balance Reserved(1)
 
Church and school $ 785 7 % $ 7,204 18 % $ 54,264 1 % $ 62,253 3 %
Healthcare - - 4,915 13 % 194,521 2 % 199,436 2 %
Industrial 29,242 19 % 86,034 16 % 440,625 2 % 555,901 5 %
Multifamily 38,669 28 % 66,221 13 % 373,394 1 % 478,284 6 %
Office 15,933 38 % 41,374 16 % 165,720 1 % 223,027 8 %
Other 34,504 13 % 33,982 12 % 177,652 1 % 246,138 5 %
Retail   60,992 32 %   51,004 14 %   382,673 2 %   494,669 8 %
$ 180,125 27 % $ 290,734 14 % $ 1,788,849 2 % $ 2,259,708 6 %
 

(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):

             
Risk Category
 
Potential Problem
Non-Performing and Other Watch
Loans (NPLs)   List Loans   Pass Loans Total
Amount   % of Loan Balance Reserved(1)   Amount   % of Loan Balance Reserved   Amount   % of Loan Balance Reserved Amount   % of Loan Balance Reserved(1)
 
Total construction loans as of December 31, 2009 $ 180,991 35 % $ 126,493 16 % $ 286,998 5 % $ 594,482 19 %
 
Total construction loans as of March 31, 2010 $ 177,292 39 % $ 121,743 17 % $ 259,580 4 % $ 558,615 20 %
 
Total construction loans as of June 30, 2010 $ 176,531 44 % $ 97,162 17 % $ 223,039 3 % $ 496,732 24 %
 
Total construction loans as of September 30, 2010 $ 130,422 48 % $ 95,256 16 % $ 220,203 3 % $ 445,881 23 %
 
Total construction loans as of December 31, 2010 $ 122,077 47 % $ 64,303 14 % $ 236,959 3 % $ 423,339 22 %
 

(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):

               
Three Months Ended Year Ended
December 31,   September 30, June 30, March 31, December 31, December 31, December 31,
2010   2010   2010   2010   2009 2010   2009
Balance at the beginning of period $ 193,926 $ 195,612 $ 177,787 $ 177,072 $ 189,232 $ 177,072 $ 144,001
Provision for loan losses 49,000 65,000 85,000 47,200 70,000 246,200 231,800
Charge-offs:
Commercial loans (9,141 ) (11,362 ) (30,211 ) (7,363 ) (8,892 ) (58,077 ) (46,113 )
Commercial loans collateralized by assignment
of lease payments (lease loans) (43 ) (418 ) (917 ) (333 ) (333 ) (1,711 ) (5,407 )
Commercial real estate loans (27,360 ) (25,265 ) (15,002 ) (12,201 ) (11,829 ) (79,828 ) (38,842 )
Construction real estate (17,136 ) (29,120 ) (22,992 ) (25,285 ) (59,435 ) (94,533 ) (103,789 )
Residential real estate (1,363 ) (1,500 ) (4 ) (459 ) (650 ) (3,326 ) (1,476 )
Indirect vehicle (968 ) (503 ) (611 ) (1,117 ) (1,324 ) (3,199 ) (4,085 )
Home equity (1,364 ) (1,369 ) (1,271 ) (628 ) (1,236 ) (4,632 ) (3,443 )
Consumer loans   (428 )     (600 )     (202 )     (525 )     (479 )   (1,755 )     (1,124 )
Total charge-offs   (57,803 )     (70,137 )     (71,210 )     (47,911 )     (84,178 )   (247,061 )     (204,279 )
Recoveries:
Commercial loans 3,842 1,900 2,322 724 1,344 8,788 1,491
Commercial loans collateralized by assignment
of lease payments (lease loans) 26 62 96 - - 184 -
Commercial real estate loans 800 907 177 186 12 2,070 40
Construction real estate 1,672 330 1,055 113 154 3,170 2,957
Residential real estate 127 7 9 41 4 184 44
Indirect vehicle 286 232 344 301 301 1,163 757
Home equity 250 11 31 59 9 351 53
Consumer loans   91       2       1       2       194     96       208  
Total recoveries   7,094       3,451       4,035       1,426       2,018     16,006       5,550  
                       
Total net charge-offs   (50,709 )     (66,686 )     (67,175 )     (46,485 )     (82,160 )   (231,055 )     (198,729 )
 
Balance $ 192,217     $ 193,926     $ 195,612     $ 177,787     $ 177,072   $ 192,217     $ 177,072  
 
Total loans, excluding loans held for sale $ 6,617,811 $ 6,848,986 $ 7,029,695 $ 6,414,856 $ 6,524,547 $ 6,617,811 $ 6,524,547
Average loans, excluding loans held for sale $ 6,723,840 $ 6,939,415 $ 6,925,140 $ 6,441,625 $ 6,460,195 $ 6,758,776 $ 6,421,249
 
Ratio of allowance for loan losses to total loans,
excluding loans held for sale 2.90 % 2.83 % 2.78 % 2.77 % 2.71 % 2.90 % 2.71 %
Net loan charge-offs to average loans, excluding loans
held for sale (annualized) 2.99 % 3.81 % 3.89 % 2.93 % 5.05 % 3.42 % 3.09 %
 

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):

           
At December 31, At September 30, At June 30, At March 31, At December 31,
2010   2010   2010   2010   2009
Fair Value
Government sponsored agencies and enterprises 19,434 24,698 49,142 55,716 70,239
States and political subdivisions 364,932 379,675 377,105 375,523 380,234
Mortgage-backed securities 1,197,066 898,837 1,326,432 1,708,512 2,377,051
Corporate bonds 6,140 6,140 6,356 6,356 11,395
Equity securities   10,171     10,315     10,172     4,384     4,314  
Total fair value $ 1,597,743   $ 1,319,665   $ 1,769,207   $ 2,150,491   $ 2,843,233  
 
Amortized cost
Government sponsored agencies and enterprises 18,766 23,826 48,138 54,672 69,120
States and political subdivisions 351,274 355,121 359,556 362,453 366,845
Mortgage-backed securities 1,175,021 887,422 1,301,301 1,696,669 2,382,495
Corporate bonds 6,140 6,140 6,356 6,356 11,400
Equity securities   10,093     10,016     9,949     4,318     4,280  
Total amortized cost $ 1,561,294   $ 1,282,525   $ 1,725,300   $ 2,124,468   $ 2,834,140  
 
Unrealized gain (loss)
Government sponsored agencies and enterprises 668 872 1,004 1,044 1,119
States and political subdivisions 13,658 24,554 17,549 13,070 13,389
Mortgage-backed securities 22,045 11,415 25,131 11,843 (5,444 )
Corporate bonds - - - - (5 )
Equity securities   78     299     223     66     34  
Total unrealized gain $ 36,449   $ 37,140   $ 43,907   $ 26,023   $ 9,093  
 

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):

                   
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
  % of   % of % of % of % of
Amount   Total   Amount   Total   Amount   Total   Amount   Total   Amount   Total
Core funding:
Non-interest bearing deposits $ 1,691,599 19 % $ 1,704,142 19 % $ 1,604,482 18 % $ 1,424,746 16 % $ 1,552,185 16 %
Money market and NOW accounts 2,776,181 31 % 2,819,731 31 % 2,773,306 30 % 2,716,339 31 % 2,775,468 29 %
Savings accounts 697,851 8 % 633,975 7 % 618,199 7 % 589,485 7 % 583,783 6 %
Certificates of deposit 2,447,005 28 % 2,649,759 29 % 2,824,075 31 % 2,737,779 31 % 3,153,310 33 %
Customer repurchase agreements   265,195   3 %     277,900   3 %     298,816   3 %     263,663   3 %     223,917   3 %
Total core funding   7,877,831   89 %     8,085,507   89 %     8,118,878   89 %     7,732,012   88 %     8,288,663   87 %
 
Wholesale funding:
Public funds - certificates of deposit 72,112 1 % 90,754 1 % 76,863 1 % 94,084 1 % 90,219 1 %
Brokered deposit accounts 468,210 5 % 498,264 5 % 500,342 5 % 492,746 5 % 528,311 6 %
Other short-term borrowings 3,649 - 4,464 - 3,271 - - - 100,000 1 %
Long-term borrowings 235,073 2 % 244,529 2 % 256,569 2 % 270,090 3 % 281,349 2 %
Subordinated debt 50,000 1 % 50,000 1 % 50,000 1 % 50,000 1 % 50,000 1 %
Junior subordinated notes issued
to capital trusts   158,571   2 %     158,579   2 %     158,605   2 %     158,641   2 %     158,677   2 %
Total wholesale funding   987,615   11 %     1,046,590   11 %     1,045,650   11 %     1,065,561   12 %     1,208,556   13 %
 
Total funding $ 8,865,446   100 %   $ 9,132,097   100 %   $ 9,164,528   100 %   $ 8,797,573   100 %   $ 9,497,219   100 %
 

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

 
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
As of the dates indicated
(Amounts in thousands)
             
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
ASSETS
Cash and due from banks $ 106,726 $ 131,381 $ 115,450 $ 113,664 $ 136,763
Interest earning deposits with banks   737,433       857,997       262,828       430,366       265,257  
Total cash and cash equivalents 844,159 989,378 378,278 544,030 402,020
Investment securities:
Securities available for sale, at fair value 1,597,743 1,319,665 1,769,207 2,150,491 2,843,233
Non-marketable securities - FHLB and FRB Stock   80,186       78,807       78,807       70,361       70,361  
Total investment securities 1,677,929 1,398,472 1,848,014 2,220,852 2,913,594
 
Loans:
Total loans excluding covered loans 5,805,481 5,989,948 6,149,786 6,259,805 6,350,951
Covered loans(1)   812,330       859,038       879,909       155,051       173,596  
Total loans 6,617,811 6,848,986 7,029,695 6,414,856 6,524,547
Less allowance for loan loss   192,217       193,926       195,612       177,787       177,072  
Net loans 6,425,594 6,655,060 6,834,083 6,237,069 6,347,475
Lease investments, net 126,906 131,324 143,143 138,929 144,966
Premises and equipment, net 210,886 185,064 180,714 181,394 179,641
Cash surrender value of life insurance 125,046 124,116 123,324 122,618 121,946
Goodwill, net 387,069 387,069 387,069 387,069 387,069
Other intangibles, net 35,159 36,285 35,199 36,198 37,708
Other real estate owned 71,476 59,114 43,988 41,589 36,711
Other real estate owned related to FDIC transactions 44,745 63,495 75,205 24,927 18,759
FDIC indemnification asset(1) 215,460 380,342 377,060 40,818 42,212
Other assets   155,935       198,845       231,888       209,747       233,292  
Total assets $ 10,320,364     $ 10,608,564     $ 10,657,965     $ 10,185,240     $ 10,865,393  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 1,691,599 $ 1,704,142 $ 1,604,482 $ 1,424,746 $ 1,552,185
Interest bearing   6,461,359       6,692,483       6,792,785       6,630,433       7,131,091  
Total deposits 8,152,958 8,396,625 8,397,267 8,055,179 8,683,276
Short-term borrowings 268,844 282,364 302,087 263,663 323,917
Long-term borrowings 285,073 294,529 306,569 320,090 331,349
Junior subordinated notes issued to capital trusts 158,571 158,579 158,605 158,641 158,677
Accrued expenses and other liabilities   110,132       140,553       148,524       95,189       116,994  
Total liabilities   8,975,578       9,272,650       9,313,052       8,892,762       9,614,213  
Stockholders' Equity
Preferred stock 194,104 193,956 193,809 193,665 193,522
Common stock 546 540 538 527 511
Additional paid-in capital 725,400 716,294 714,882 689,353 656,595
Retained earnings 402,810 402,754 408,991 392,931 395,170
Accumulated other comprehensive income 22,233 22,655 26,783 15,874 5,546
Treasury stock   (2,828 )     (2,806 )     (2,632 )     (2,423 )     (2,715 )
Controlling interest stockholders' equity 1,342,265 1,333,393 1,342,371 1,289,927 1,248,629
Noncontrolling interest   2,521       2,521       2,542       2,551       2,551  
Total stockholders' equity   1,344,786       1,335,914       1,344,913       1,292,478       1,251,180  
Total liabilities and stockholders' equity $ 10,320,364     $ 10,608,564     $ 10,657,965     $ 10,185,240     $ 10,865,393  
 

(1) ?Covered loans? and ?FDIC indemnification asset? refer to assets MB Financial Bank acquired in loss-share transactions facilitated by the FDIC. The ?FDIC indemnification asset? represents the present value of the amounts the Company expects MB Financial Bank to collect from the FDIC pursuant to loss-share agreements with respect to covered loans and other real estate owned related to the FDIC transactions.

               
MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)(Unaudited)
 
Three Months Ended Year Ended
December 31,   September 30, June 30, March 31, December 31, December 31, December 31,
2010   2010   2010   2010   2009 2010   2009
Interest income:
Loans $ 92,701 $ 94,697 $ 94,699 $ 82,387 $ 84,015 $ 364,484 $ 331,270
Investment securities available for sale:
Taxable 7,001 11,420 12,154 19,966 22,039 50,541 45,777
Nontaxable 3,367 3,387 3,403 3,428 3,498 13,585 14,754
Federal funds sold - - - 2 - 2 -
Other interest bearing accounts   504       248       185       91       698     1,028     1,737  
Total interest income   103,573       109,752       110,441       105,874       110,250     429,640     393,538  
Interest expense:
Deposits 15,598 18,597 20,283 21,372 31,396 75,850 121,614
Short-term borrowings 255 281 264 345 1,142 1,145 5,166
Long-term borrowings & junior subordinated notes   3,065       3,256       3,213       3,339       3,511     12,873     16,206  
Total interest expense   18,918       22,134       23,760       25,056       36,049     89,868     142,986  
Net interest income 84,655 87,618 86,681 80,818 74,201 339,772 250,552
Provision for loan losses   49,000       65,000       85,000       47,200       70,000     246,200     231,800  
Net interest income after provision for loan losses   35,655       22,618       1,681       33,618       4,201     93,572     18,752  
Other income:
Loan service fees 1,532 1,659 2,042 1,284 1,723 6,517 6,913
Deposit service fees 9,920 10,705 9,461 8,848 9,311 38,934 30,600
Lease financing, net 7,185 5,022 5,026 4,620 5,799 21,853 18,528
Brokerage fees 1,231 1,407 1,129 1,245 1,272 5,012 4,606
Trust & asset management fees 4,243 3,923 3,536 3,335 3,347 15,037 12,593
Net gain on sale of investment securities (4 ) 9,482 2,304 6,866 239 18,648 14,029
Increase in cash surrender value of life insurance 930 1,209 706 671 669 3,516 2,459
Net gain (loss) on sale of other assets 419 299 (99 ) 11 12 630 (13 )
Acquisition related gains - - 62,649 - 18,325 62,649 28,547
Other operating income   5,339       2,092       5,952       (423 )     2,230     12,960     8,892  
Total other income   30,795       35,798       92,706       26,457       42,927     185,756     127,154  
Other expense:
Salaries & employee benefits 36,399 37,424 37,104 33,422 33,391 144,349 120,654
Occupancy & equipment expense 7,938 8,800 8,928 9,179 8,885 34,845 31,521
Computer services expense 2,445 2,654 3,322 2,528 2,882 10,949 10,011
Advertising & marketing expense 1,573 1,620 1,639 1,633 683 6,465 4,185
Professional & legal expense 1,718 1,637 1,370 1,078 1,465 5,803 4,680
Brokerage fee expense 448 596 420 462 553 1,926 1,999
Telecommunication expense 819 975 964 908 1,127 3,666 3,433
Other intangible amortization expense 1,632 1,567 1,505 1,510 1,650 6,214 4,491
FDIC insurance premiums 3,930 3,873 3,833 3,964 4,099 15,600 16,762
Impairment charges - - - - - - 4,000
Other real estate expense, net 858 734 417 685 245 2,694 871
Other operating expenses   6,855       6,598       6,530       6,282       6,092     26,265     21,143  
Total other expense   64,615       66,478       66,032       61,651       61,072     258,776     223,750  
Income (loss) before income taxes 1,835 (8,062 ) 28,355 (1,576 ) (13,944 ) 20,552 (77,844 )
Income tax expense (benefit)   (1,358 )     (5,253 )     9,158       (2,523 )     (4,164 )   24     (45,265 )
Income (loss) from continuing operations 3,193 (2,809 ) 19,197 947 (9,780 ) 20,528 (32,579 )
Income from discontinued operations, net of tax   -       -       -       -       -     -     6,453  
Net income (loss) 3,193 (2,809 ) 19,197 947 (9,780 ) 20,528 (26,126 )
Preferred stock dividends and discount accretion   2,598       2,597       2,594       2,593       2,591     10,382     10,298  
Net income (loss) available to common stockholders $ 595     $ (5,406 )   $ 16,603     $ (1,646 )   $ (12,371 ) $ 10,146   $ (36,424 )
 
  Three Months Ended   Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Common share data:
Basic earnings (loss) per common share from continuing operations $ 0.06 $ (0.05 ) $ 0.36 $ 0.02 $ (0.19 ) $ 0.39 $ (0.81 )
Basic earnings per common share from discontinued operations $ - $ - $ - $ - $ - $ - $ 0.16
Impact of preferred stock dividends on basic earnings (loss) per common share $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.20 ) $ (0.26 )
Basic earnings (loss) per common share $ 0.01 $ (0.10 ) $ 0.31 $ (0.03 ) $ (0.25 ) $ 0.19 $ (0.91 )
Diluted earnings (loss) per common share from continuing operations $ 0.06 $ (0.05 ) $ 0.36 $ 0.02 $ (0.19 ) $ 0.39 $ (0.81 )
Diluted earnings per common share from discontinued operations $ - $ - $ - $ - $ - $ - $ 0.16
Impact of preferred stock dividends on diluted earnings (loss) per common share $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.05 ) $ (0.20 ) $ (0.26 )
Diluted earnings (loss) per common share $ 0.01 $ (0.10 ) $ 0.31 $ (0.03 ) $ (0.25 ) $ 0.19 $ (0.91 )
 
Weighted average common shares outstanding 53,572,157 53,327,219 52,702,779 51,264,727 50,279,008 52,724,715 40,042,655
Diluted weighted average common shares outstanding 53,790,047 53,327,219 53,034,426 51,264,727 50,279,008 53,035,047 40,042,655
 
  Three Months Ended   Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Performance Ratios:
Annualized return on average assets 0.12 % (0.10 %) 0.73 % 0.04 % (0.33 %) 0.20 % (0.27 %)
Annualized return on average common equity 0.21 (1.86 ) 5.79 (0.61 ) (4.54 ) 0.89 (3.91 )
Annualized cash return on average tangible common equity(1) 0.89 (2.34 ) 9.52 (0.40 ) (6.69 ) 1.96 (6.36 )
Net interest rate spread 3.63 3.71 3.69 3.42 2.54 3.61 2.62
Cost of funds(2) 0.83 0.96 1.04 1.13 1.38 0.99 1.67
Efficiency ratio(3) 53.72 55.32 56.39 58.00 59.48 55.80 62.29
Annualized net non-interest expense to average assets(4) 1.22 1.36 1.45 1.52 1.21 1.39 1.34
Core pre-tax pre-provision earnings to risk-weighted assets(5) 3.08 2.91 2.71 2.41 2.07 2.87 1.58
Net interest margin 3.72 3.81 3.79 3.55 2.74 3.72 2.85
Tax equivalent effect 0.11 0.11 0.12 0.12 0.12 0.11 0.12
Net interest margin - fully tax equivalent basis(6) 3.83 3.92 3.91 3.67 2.86 3.83 2.97
Asset Quality Ratios:
Non-performing loans(7) to total loans 5.48 % 5.73 % 4.89 % 5.04 % 4.16 % 5.48 % 4.16 %
Non-performing assets(7) to total assets 4.21 4.26 3.64 3.58 2.84 4.21 2.84
Allowance for loan losses to non-performing loans(7) 53.03 49.40 56.89 55.01 65.26 53.03 65.26
Allowance for loan losses to non-performing loans,(7)
including partial charge-offs taken 67.66 64.78 69.55 65.31 72.34 67.66 72.34
Allowance for loan losses to total loans 2.90 2.83 2.78 2.77 2.71 2.90 2.71
Net loan charge-offs to average loans (annualized) 2.99 3.81 3.89 2.93 5.05 3.42 3.09
Capital Ratios:
Tangible equity to tangible assets(8) 9.43 % 9.07 % 9.12 % 9.02 % 8.03 % 9.43 % 8.03 %
Tangible common equity to risk weighted assets(9) 10.94 10.49 10.31 9.73 8.83 10.94 8.83
Tangible common equity to tangible assets(10) 7.47 7.17 7.23 7.04 6.18 7.47 6.18
Book value per common share(11) $ 21.33 $ 21.17 $ 21.40 $ 20.85 $ 20.75 $ 21.33 $ 20.75
Less: goodwill and other intangible assets, net of tax
benefit, per common share 7.60 7.62 7.60 7.79 8.07 7.60 8.07
Tangible book value per common share(12) 13.72 13.55 13.78 13.06 12.68 13.72 12.68
 
Total capital (to risk-weighted assets) 17.75 % 17.14 % 16.77 % 16.39 % 15.45 % 17.75 % 15.45 %
Tier 1 capital (to risk-weighted assets) 15.75 15.15 14.81 14.42 13.51 15.75 13.51
Tier 1 capital (to average assets) 10.66 10.38 10.48 10.30 8.71 10.66 8.71
Tier 1 common capital (to risk-weighted assets) 10.61 10.17 9.96 9.51 8.76 10.61 8.76
 
(1)   Net cash flow available to common stockholders (net income available to common stockholders, plus other intangibles amortization expense, net of tax benefit) divided by average tangible common equity (average common equity less average goodwill and average other intangibles, net of tax benefit).
(2) Equals total interest expense divided by the sum of average interest bearing liabilities and noninterest bearing deposits.
(3) Equals total other expense excluding non-core items divided by the sum of net interest income on a fully tax equivalent basis and total other income less non-core items.
(4) Equals total other expense excluding non-core items less total other income excluding non-core items divided by average assets.
(5) Equal net income before taxes excluding loan loss provision expense, non-core other income items, and non-core other expense items divided by risk-weighted assets.
(6) Represents net interest income, on a fully tax equivalent basis assuming a 35% tax rate, as a percentage of average interest earning assets.
(7) Non-performing loans excludes purchased credit-impaired loans and loans held for sale. Non-performing assets excludes purchased credit-impaired loans, loans held for sale, and other real estate owned related to FDIC transactions.
(8) Equals total ending stockholders' equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(9) Equals total ending common stockholders' equity less goodwill and other intangibles, net of tax benefit, divided by total risk weighted assets.
(10) Equals total ending common stockholders' equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.
(11) Equals total ending common stockholders' equity divided by common shares outstanding.
(12) Equals total ending common stockholders' equity less goodwill and other intangibles, net of tax benefit, divided by common shares outstanding.
 

NON-GAAP FINANCIAL INFORMATION

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include pre-tax, pre-provision earnings; core pre-tax, pre-provision earnings; net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis; efficiency ratio, ratio of annualized net non-interest expense to average assets, and ratio of core pre-tax, pre-provision earnings to risk-weighted assets, with net gains and losses on securities available for sale, net gains and losses on sale of other assets, net gains and losses on other real estate owned, acquisition related gains and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest income components, the FDIC special assessment expense, impairment charges and increase (decrease) in market value of assets held in trust for deferred compensation excluded from the non-interest expense components of these ratios; ratios of tangible equity to tangible assets, tangible common equity to risk weighted assets, tangible common equity to tangible assets and Tier 1 common capital to risk-weighted assets; tangible book value per common share; and annualized cash return on average tangible common equity. Our management uses these non-GAAP measures in its analysis of our performance. Management believes that pre-tax, pre-provision earnings are a useful measure in assessing our core operating performance, particularly during times of economic stress. 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 by excluding net gains and losses on securities available for sale, net gains and losses on sale of other assets, net gains and losses on other real estate owned, acquisition-related gains and increase (decrease) in market value of assets held in trust for deferred compensation from the non-interest income component and excluding the FDIC special assessment expense, impairment changes and increase (decrease) in market value of assets held in trust for deferred compensation from other non-interest expense of the efficiency ratio, the ratio of annualized net non-interest expense to average assets and the ratio of core pre-tax, pre-provision earnings to risk-weighted assets, these ratios better reflect our core operating performance. In addition, management believes that presenting the ratio of Tier 1 common equity to risk weighted assets is useful for assessing our capital strength and for peer comparison purposes. The other measures exclude the ending balances of acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible stockholders' equity. Management believes the presentation of these other financial measures excluding the impact of such items provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management's success in utilizing our tangible capital. 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.

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

           
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
Stockholders' equity - as reported $ 1,344,786 $ 1,335,914 $ 1,344,913 $ 1,292,478 $ 1,251,180
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit   22,853     23,585     22,879     23,529     24,510
Tangible equity $ 934,864   $ 925,260   $ 934,965   $ 881,880   $ 839,601
 

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

           
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
Total assets - as reported $ 10,320,364 $ 10,608,564 $ 10,657,965 $ 10,185,240 $ 10,865,393
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit   22,853     23,585     22,879     23,529     24,510
Tangible assets $ 9,910,442   $ 10,197,910   $ 10,248,017   $ 9,774,642   $ 10,453,814
 

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

           
December 31, September 30, June 30, March 31, December 31,
2010   2010   2010   2010   2009
Common stockholders' equity - as reported $ 1,150,682 $ 1,141,958 $ 1,151,104 $ 1,098,813 $ 1,057,658
Less: goodwill 387,069 387,069 387,069 387,069 387,069
Less: other intangible, net of tax benefit   22,853     23,585     22,879     23,529     24,510
Tangible common equity $ 740,760   $ 731,304   $ 741,156   $ 688,215   $ 646,079
 

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

     
Three Months Ended Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Average common stockholders' equity - as reported $ 1,147,581 $ 1,152,058 $ 1,150,440 $ 1,089,859 $ 1,081,794 $ 1,135,189 $ 932,509
Less: average goodwill 387,069 387,069 387,069 387,069 387,069 387,069 387,069
Less: average other intangible assets,
net of tax benefit   23,236     22,596     22,905     23,892     25,128   23,154     18,971
Average tangible common equity $ 737,276   $ 742,393   $ 740,466   $ 678,898   $ 669,597 $ 724,966   $ 526,469
 

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

     
Three Months Ended Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Net (loss) income available to common
stockholders - as reported $ 595 $ (5,406 ) $ 16,603 $ (1,646 ) $ (12,371 ) $ 10,146 $ (36,424 )
Add: other intangible amortization expense,
net of tax benefit   1,062     1,018       978     981       1,073     4,039     2,919  
Net cash flow available to common stockholders $ 1,657   $ (4,388 )   $ 17,581   $ (665 )   $ (11,299 ) $ 14,185   $ (33,505 )
 
   

Efficiency Ratio Calculation (Dollars in Thousands)

 
Three Months Ended Year Ended
December 31,   September 30,   June 30,   March 31,   December 31, December 31,   December 31,
2010   2010   2010   2010   2009 2010   2009
Non-interest expense $ 64,615 $ 66,478 $ 66,032 $ 61,651 $ 61,072 $ 258,776 $ 223,750
Adjustment for FDIC special assessment - - - - - - 3,850
Adjustment for impairment charges - - - - - - 4,000
Adjustment for increase (decrease) in market value of
assets held in trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Non-interest expense - as adjusted $ 64,018     $ 66,481     $ 66,071     $ 61,644     $ 60,772   $ 258,214     $ 215,190  
 
Net interest income $ 84,655 $ 87,618 $ 86,681 $ 80,818 $ 74,201 $ 339,772 $ 250,552
Tax equivalent adjustment   2,609       2,614       2,642       2,593       3,195     10,458       10,625  
Net interest income on a fully tax equivalent basis 87,264 90,232 89,323 83,411 77,396 350,230 261,177
Plus other income 30,795 35,798 92,706 26,457 42,927 185,756 127,154
Less net (losses) gains on other real estate owned (2,124 ) (3,913 ) 52 (3,299 ) (733 ) (9,284 ) (429 )
Less net (losses) gains on securities available for sale (4 ) 9,482 2,304 6,866 239 18,648 14,029
Less net gains (losses) on sale of other assets 419 299 (99 ) 11 12 630 (13 )
Less acquisition related gains - - 62,649 - 18,325 62,649 28,547
Less increase (decrease) in market value of assets held in
trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Net interest income plus non-interest income -
as adjusted $ 119,171     $ 120,165     $ 117,162     $ 106,283     $ 102,180   $ 462,781     $ 345,487  
 
Efficiency ratio 53.72 % 55.32 % 56.39 % 58.00 % 59.48 % 55.80 % 62.29 %
 
Efficiency ratio (without adjustments) 55.97 % 53.86 % 36.81 % 57.47 % 52.14 % 49.24 % 59.24 %
             

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

 
Three Months Ended Year Ended
December 31,   September 30, June 30, March 31, December 31, December 31, December 31,
2010   2010   2010   2010   2009 2010   2009
Non-interest expense $ 64,615 $ 66,478 $ 66,032 $ 61,651 $ 61,072 $ 258,776 $ 223,750
Adjustment for FDIC special assessment - - - - - - 3,850
Adjustment for impairment charges - - - - - - 4,000
Adjustment for increase (decrease) in market value of
assets held in trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Non-interest expense - as adjusted   64,018       66,481       66,071       61,644       60,772     258,214       215,190  
 
Other income 30,795 35,798 92,706 26,457 42,927 185,756 127,154
Less net (losses) gains on other real estate owned (2,124 ) (3,913 ) 52 (3,299 ) (733 ) (9,284 ) (429 )
Less net (losses) gains on securities available for sale (4 ) 9,482 2,304 6,866 239 18,648 14,029
Less net gains (loss) on sale of other assets 419 299 (99 ) 11 12 630 (13 )
Less acquisition related gains - - 62,649 - 18,325 62,649 28,547
Less increase (decrease) in market value of assets
held in trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Other income - as adjusted   31,907       29,933       27,839       22,872       24,784     112,551       84,310  
 
Net non-interest expense $ 32,111     $ 36,548     $ 38,232     $ 38,772     $ 35,988   $ 145,663     $ 130,880  
 
Average assets 10,452,626 10,634,556 10,584,722 10,349,664 11,786,792 10,506,028 9,777,287
 
Annualized net non-interest expense to average assets 1.22 % 1.36 % 1.45 % 1.52 % 1.21 % 1.39 % 1.34 %
 
Annualized net non-interest expense to average assets
(without adjustments) 1.28 % 1.14 % -1.01 % 1.38 % 0.61 % 0.70 % 0.99 %
             

Core Pre-Tax, Pre-Provision Earnings (Dollars in Thousands)

 
Three Months Ended Year Ended
December 31,   September 30, June 30, March 31, December 31, December 31, December 31,
2010   2010   2010   2010   2009 2010   2009
Income (loss) before income taxes $ 1,835 $ (8,062 ) $ 28,355 $ (1,576 ) $ (13,944 ) $ 20,552 $ (77,844 )
Provision for loan losses   49,000       65,000       85,000       47,200       70,000     246,200       231,800  
Pre-tax, pre-provision earnings   50,835       56,938       113,355       45,624       56,056     266,752       153,956  
 
Non-core other income
Net (losses) gains on other real estate owned (2,124 ) (3,913 ) 52 (3,299 ) (733 ) (9,284 ) (429 )
Net (losses) gains on securities available for sale (4 ) 9,482 2,304 6,866 239 18,648 14,029
Net gain (loss) on sale of other assets 419 299 (99 ) 11 12 630 (13 )
Acquisition related gains - - 62,649 - 18,325 62,649 28,547
Increase (decrease) in market value of assets held in
trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Total non-core other income   (1,112 )     5,865       64,867       3,585       18,143     73,205       42,844  
 
Non-core other expense
FDIC special assessment - - - - - - 3,850
Impairment charges - - - - - - 4,000
Increase (decrease) in market value of assets held in
trust for deferred compensation   597       (3 )     (39 )     7       300     562       710  
Total non-core other expense   597       (3 )     (39 )     7       300     562       8,560  
Core pre-tax, pre-provision earnings $ 52,544     $ 51,070     $ 48,449     $ 42,046     $ 38,213   $ 194,109     $ 119,672  
 
Risk-weighted assets 6,772,761 6,971,810 7,172,094 7,074,274 7,315,068 6,772,761 7,568,022
 
Annualized pre-tax, pre-provision earnings to risk-
weighted assets 3.08 % 2.91 % 2.71 % 2.41 % 2.07 % 2.87 % 1.58 %
Annualized pre-tax, pre-provision earnings to risk-
weighted assets (without adjustments) 2.98 % 3.24 % 6.34 % 2.62 % 3.04 % 3.94 % 2.03 %
 

A reconciliation of net interest margin on a fully tax equivalent basis to net interest margin is contained in the tables under ?Net Interest Margin.? A reconciliation of tangible book value per common share to book value per common share is contained in the ?Selected Financial Ratios? table.

NET INTEREST MARGIN

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

       
Three Months Ended December 31, Three Months Ended September 30,
2010   2009 2010
Average     Yield/   Average     Yield/ Average     Yield/
Balance   Interest   Rate   Balance   Interest   Rate Balance   Interest   Rate
Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,243,057 $ 15,053 4.80 % $ 1,385,281 $ 18,118 5.19 % $ 1,307,155 $ 16,933 5.14 %
Commercial loans collateralized by assignment
of lease payments 1,018,026 14,662 5.76 892,789 13,849 6.20 989,412 14,706 5.95
Real estate commercial 2,235,328 29,853 5.23 2,456,381 33,513 5.34 2,316,143 30,706 5.19
Real estate construction   438,622     3,741 3.34   681,868     5,455 3.13   500,644     4,452 3.48
Total commercial related credits   4,935,033     63,309 5.02   5,416,319     70,935 5.12   5,113,354     66,797 5.11
Other loans
Real estate residential 326,785 4,523 5.54 287,296 4,036 5.62 327,686 4,126 5.04
Home equity 385,119 4,234 4.36 407,044 4,496 4.38 389,996 4,284 4.36
Indirect 178,940 3,583 7.94 182,601 3,175 6.90 182,268 3,192 6.95
Consumer loans   57,709     633 4.35   58,768     582 3.93   58,166     500 3.41
Total other loans   948,553     12,973 5.43   935,709     12,289 5.21   958,116     12,102 5.01
Total loans, excluding covered loans 5,883,586 76,282 5.14 6,352,028 83,224 5.20 6,071,470 78,899 5.16
Covered loans   840,254     17,213 8.13   108,167     2,103 7.71   867,945     16,590 7.58
Total loans   6,723,840     93,495 5.52   6,460,195     85,327 5.22   6,939,415     95,489 5.46
 
Taxable investment securities 1,172,751 7,002 2.39 3,086,737 22,039 2.86 1,450,608 11,420 3.15
Investment securities exempt from federal income taxes (3) 351,955 5,181 5.76 367,848 5,381 5.72 355,288 5,210 5.74
Federal funds sold - - 0.00 - - 0.00 - - 0.00
Other interest bearing deposits   784,803     504 0.25   812,261     698 0.34   377,555     248 0.26
Total interest earning assets $ 9,033,349 $ 106,182 4.66 $ 10,727,041 $ 113,445 4.20 $ 9,122,866 $ 112,367 4.89
Non-interest earning assets   1,419,277   1,059,751   1,511,690
Total assets $ 10,452,626 $ 11,786,792 $ 10,634,556
 
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,823,619 $ 3,410 0.48 % $ 3,047,721 $ 5,523 0.72 % $ 2,789,046 $ 4,022 0.57 %
Savings accounts 657,816 505 0.30 573,784 495 0.34 623,555 469 0.30
Certificate of deposit 2,529,865 7,481 1.17 3,529,995 20,225 2.27 2,740,219 9,546 1.38
Customer repurchase agreements   277,782     218 0.31   220,432     259 0.47   260,469     243 0.37
Total core funding   6,289,082     11,614 0.73   7,371,932     26,502 1.43   6,413,289     14,280 0.88
Whole sale funding:
Public funds 81,500 128 0.62 100,246 257 1.02 80,339 132 0.65
Brokered accounts (includes fee expense) 473,090 4,074 3.42 546,457 4,896 3.55 485,676 4,427 3.62
Other short-term borrowings 4,106 38 3.67 138,434 883 2.53 4,279 39 3.62
Long-term borrowings   448,106     3,064 2.68   494,398     3,511 2.78   458,657     3,257 2.78
Total wholesale funding   1,006,802     7,304 2.88   1,279,535     9,547 2.96   1,028,951     7,855 3.03
Total interest bearing liabilities $ 7,295,884 $ 18,918 1.03 $ 8,651,467 $ 36,049 1.65 $ 7,442,240 $ 22,135 1.18
Non-interest bearing deposits 1,694,179 1,737,347 1,673,259
Other non-interest bearing liabilities 120,974 122,731 173,139
Stockholders' equity   1,341,589   1,275,247   1,345,918
Total liabilities and stockholders' equity $ 10,452,626 $ 11,786,792 $ 10,634,556
Net interest income/interest rate spread (4) $ 87,264   3.63 % $ 77,396   2.54 % $ 90,232   3.71 %
Taxable equivalent adjustment   2,609   3,195   2,614
Net interest income, as reported $ 84,655 $ 74,201 $ 87,618
Net interest margin (5) 3.72 % 2.74 % 3.81 %
Tax equivalent effect 0.11 % 0.12 % 0.11 %
Net interest margin on a fully equivalent basis (5) 3.83 % 2.86 % 3.92 %
 
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $1.0 million, $1.2 million, and $1.1 million for the three months ended December 31, 2010, December 31, 2009, and September 30, 2010, respectively.
(3) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(4) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(5) Net interest margin represents net interest income as a percentage of average interest earning assets.

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

     
Year Ended December 31,
2010   2009
Average     Yield/   Average     Yield/
Balance   Interest   Rate   Balance   Interest   Rate
Interest Earning Assets:
Loans (1) (2) (3):
Commercial related credits
Commercial $ 1,324,118 $ 66,121 4.99 % $ 1,445,313 $ 70,850 4.90 %
Commercial loans collateralized by assignment
of lease payments 981,384 58,807 5.99 808,759 50,155 6.20
Real estate commercial 2,345,202 125,115 5.26 2,407,377 130,426 5.34
Real estate construction   520,734     17,357 3.29   733,718     26,742 3.59
Total commercial related credits   5,171,438     267,400 5.10   5,395,167     278,173 5.09
Other loans
Real estate residential 314,713 16,878 5.36 285,550 15,998 5.60
Home equity 394,142 17,317 4.39 407,793 17,947 4.40
Indirect 180,337 13,115 7.27 187,455 12,737 6.79
Consumer loans   58,834     2,209 3.75   57,985     2,337 4.03
Total other loans   948,026     49,519 5.22   938,783     49,019 5.22
Total loans, excluding covered loans 6,119,464 316,919 5.18 6,333,950 327,192 5.17
Covered loans   639,312     50,707 7.93   87,299     6,759 7.74
Total loans   6,758,776     367,626 5.44   6,421,249     333,951 5.20
 
Taxable investment securities 1,635,544 50,542 3.09 1,444,552 45,777 3.17
Investment securities exempt from federal income taxes (3) 356,496 20,900 5.78 391,071 22,698 5.72
Federal funds sold 352 2 0.56 - - -
Other interest bearing deposits   386,521     1,028 0.27   545,314     1,737 0.32
Total interest earning assets $ 9,137,689 $ 440,098 4.82 $ 8,802,186 $ 404,163 4.59
Non-interest earning assets   1,368,339   975,101
Total assets $ 10,506,028 $ 9,777,287
 
Interest Bearing Liabilities:
Core funding:
Money market and NOW accounts $ 2,767,044 $ 14,965 0.54 % $ 2,098,530 $ 17,773 0.85 %
Savings accounts 619,304 1,911 0.31 473,477 1,717 0.36
Certificate of deposit 2,754,492 40,481 1.47 2,924,218 75,416 2.58
Customer repurchase agreements   260,291     959 0.37   247,998     1,138 0.46
Total core funding   6,401,131     58,316 0.91   5,744,223     96,044 1.67
Whole sale funding:
Public funds 91,754 604 0.66 133,547 2,026 1.52
Brokered accounts (includes fee expense) 489,211 17,889 3.66 667,560 24,682 3.70
Other short-term borrowings 7,960 186 2.34 201,550 4,028 2.00
Long-term borrowings   465,387     12,873 2.73   512,267     16,206 3.12
Total wholesale funding   1,054,312     31,552 2.99   1,514,924     46,942 3.10
Total interest bearing liabilities $ 7,455,443 $ 89,868 1.21 $ 7,259,147 $ 142,986 1.97
Non-interest bearing deposits 1,594,504 1,307,021
Other non-interest bearing liabilities 127,099 85,890
Stockholders' equity   1,328,982   1,125,229
Total liabilities and stockholders' equity $ 10,506,028 $ 9,777,287
Net interest income/interest rate spread (4) $ 350,230   3.61 % $ 261,177   2.62 %
Taxable equivalent adjustment   10,458   10,625
Net interest income, as reported $ 339,772 $ 250,552
Net interest margin (5) 3.72 % 2.85 %
Tax equivalent effect 0.11 % 0.12 %
Net interest margin on a fully equivalent basis (5) 3.83 % 2.97 %
 
(1) Non-accrual loans are included in average loans.
(2) Interest income includes amortization of deferred loan origination fees of $4.6 million and $5.1 million for the year ended December 31, 2010, and December 31, 2009, respectively.
(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.

MB Financial, Inc.
Jill York - Vice President and Chief Financial Officer
(888) 422-6562
E-Mail: jyork@mbfinancial.com