MB Financial, Inc. Announces First Quarter 2008 Results

Business Wire, April 25, 2008

CHICAGO -- MB Financial, Inc. (NASDAQ:MBFI), the holding company for MB Financial Bank, N.A., announced today first quarter results for 2008. The words "MB Financial," "the Company," "we," "our" and "us" refer to MB Financial, Inc. and its wholly owned subsidiaries, unless we indicate otherwise. We had net income from continuing operations of $5.8 million for the first quarter of 2008 compared to $17.2 million for the first quarter of 2007, and $7.9 million for the fourth quarter of 2007. Fully diluted earnings per share from continuing operations for the first quarter of 2008 were $0.17 per share as compared to $0.46 per share for the first quarter of 2007, and $0.22 per share for the fourth quarter of 2007.

Key items for the quarter were as follows:

Credit Quality

* Overall credit quality continues to be strong, and other than loans described in the next paragraph, our portfolio (including construction loans) is performing as expected. Excluding the issues discussed below, our provision for loan losses was $5.5 million and net charge-offs were $3.0 million. During the first quarter we experienced a $20.5 million increase in non-performing loans for this portion of the portfolio resulting primarily from one $12 million potential problem construction loan migrating to non-performing status.

* Two commercial customer loan frauds occurred which resulted in $5.9 million in partial charge-offs, with $5.9 million remaining in non-performing loans. An extensive internal review revealed that with regard to one of the frauds, an individual loan division was not consistently following our established monitoring and reporting procedures. Furthermore, all credits in this division's portfolio were reviewed and while no additional customer frauds were identified, we downgraded to potential problem status three additional commercial loans totaling $42.5 million. All three loans are current with respect to their payments of principal and interest. The impact of these events was to increase the provision for loan losses by $17.0 million.

* The impact of the additional $17.0 million provision for loan losses, as well as the impact of non-core other income and non-core other expenses (detailed in our supplementary schedules) was to reduce net income from continuing operations by $10.3 million or $0.29 per share.

Strong Balance Sheet Growth Continues

* Strong commercial loan growth continued in the first quarter. Commercial related loans increased by 18% compared to the first quarter of 2007 and 16% annualized on a linked quarter basis driven by strong commercial and lease loan growth. Furthermore, we are seeing significantly better credit spreads on our new and renewed loans.

* Our liquidity position improved as total deposits grew by 12% annually on a linked quarter basis driven by strong customer and brokered certificate of deposit growth.

Positive Operating Leverage, While Investment in Bankers Continues

* Net interest income on a tax equivalent basis increased by $1.7 million, or 3.2% from the first quarter of 2007, and remained stable on a linked quarter basis.

* Fee income growth continues to be good. Core fee income increased by $1.8 million or 8% compared to the first quarter of 2007 and 11% on an annualized linked quarter basis. This increase was driven by robust growth in loan and deposit service fees.

* Core expenses increased by $1.9 million or 4% compared to the first quarter of 2007 and declined slightly on a linked quarter basis, even though we continued to hire bankers. We added 20 bankers in the first quarter of 2008, primarily in commercial banking, in addition to the 7 bankers hired during the fourth quarter of 2007. This added approximately $500 thousand of salary and employee benefits expense in the first quarter of 2008.

* We are pleased to announce that on April 18, 2008, we purchased an 80% interest in Cedar Hill Associates, LLC, an asset management firm located in Chicago, Illinois, with approximately $960 million in assets under management. The purchase of Cedar Hill is expected to complement and expand our wealth management product offerings and revenues.

RESULTS OF OPERATIONS

First Quarter Results

Net Interest Income

Net interest income on a tax equivalent basis remained stable from the fourth quarter of 2007 to the first quarter of 2008. The increase in average interest earning assets was offset by a six basis point decrease in the net interest margin. The decline in the net interest margin was primarily due to our interest earning assets adjusting to the decrease in market rates more rapidly than our interest bearing liabilities. After remaining steady for approximately 15 months, the Fed Funds rate declined 300 basis points from September 2007 to March 2008. As noted earlier, while we are seeing much better credit spreads on new and renewed loans, fierce competition for deposits continues and has negatively impacted deposit pricing.

See the supplemental net interest margin table for further detail.

Other Income

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