Edgar Filing: MB FINANCIAL INC /MD

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

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

For the transition period from to

Commission file number 0-24566-01

MB FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of incorporation or organization)

36-4460265

(I.R.S. Employer Identification No.)

800 West Madison Street, Chicago, Illinois 60607

(Address of principal executive offices)

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

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

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

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

Large accelerated filer x		Accelerated filer o

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

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

There were outstanding 54,428,173 shares of the registrant’s common stock as of May 3, 2011.

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MB FINANCIAL, INC. AND SUBSIDIARIES

FORM 10-Q

March 31, 2011

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2011 (Unaudited) and December 31, 2010	3

	Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (Unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)	5 – 6

	Notes to Consolidated Financial Statements (Unaudited)	7 – 33

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34 – 49

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49 – 52

Item 4.	Controls and Procedures	52

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 6.	Exhibits	53

	Signatures	54

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PART I. - FINANCIAL INFORMATION

Item 1. - Financial Statements

MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2011 and December 31, 2010

(Amounts in thousands, except common share data)

	(Unaudited)
	March 31,			December 31,
	2011			2010
ASSETS
Cash and due from banks	$	123,794		$	106,726
Interest bearing deposits with banks	504,765			737,433
Total cash and cash equivalents	628,559			844,159
Investment securities:
Securities available for sale, at fair value	1,718,654			1,597,743
Securities held to maturity, at cost ($102,334 fair value at March 31, 2011)	102,206			—
Non-marketable securities - FHLB and FRB stock	80,186			80,186
Total investment securities	1,901,046			1,677,929

Loans held for sale	11,533			—
Loans:
Total loans, excluding covered loans	5,590,362			5,805,481
Covered loans	777,634			812,330
Total loans	6,367,996			6,617,811
Less: allowance for loan losses	178,410			192,217
Net loans	6,189,586			6,425,594
Lease investment, net	129,182			126,906
Premises and equipment, net	209,257			210,886
Cash surrender value of life insurance	126,014			125,046
Goodwill, net	387,069			387,069
Other intangibles, net	33,734			35,159
Other real estate owned, net	80,107			71,476
Other real estate owned related to FDIC transactions	61,461			44,745
FDIC indemnification asset	148,314			215,460
Other assets	165,481			155,935
Total assets	$	10,071,343		$	10,320,364
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest bearing	$	1,666,868		$	1,691,599
Interest bearing	6,225,138			6,461,359
Total deposits	7,892,006			8,152,958
Short-term borrowings	295,180			268,844
Long-term borrowings	275,327			285,073
Junior subordinated notes issued to capital trusts	158,563			158,571
Accrued expenses and other liabilities	100,031			110,132
Total liabilities	8,721,107			8,975,578
STOCKHOLDERS’ EQUITY
Preferred stock, ($0.01 par value, authorized 1,000,000 shares at March 31, 2011 and December 31, 2010; series A, 5% cumulative perpetual, 196,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, $1,000 liquidation value)	194,255			194,104
Common stock, ($0.01 par value; authorized 70,000,000 shares at March 31, 2011 and December 31, 2010; issued 54,567,455 shares at March 31, 2011 and 54,576,043 at December 31, 2010)	546			546
Additional paid-in capital	726,604			725,400
Retained earnings	406,594			402,810
Accumulated other comprehensive income	22,566			22,233
Less: 146,099 and 145,449 shares of Treasury stock, at cost, at March 31, 2011 and December 31, 2010	(2,845		)	(2,828		)
Controlling interest stockholders’ equity	1,347,720			1,342,265
Noncontrolling interest	2,516			2,521
Total stockholders’ equity	1,350,236			1,344,786
Total liabilities and stockholders’ equity	$	10,071,343		$	10,320,364

See Accompanying Notes to Consolidated Financial Statements

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MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three months ended
	March 31,			March 31,
	2011			2010
Interest income:
Loans	$	87,167		$	82,387
Investment securities:
Taxable	7,752			19,966
Nontaxable	3,345			3,428
Federal funds sold	—			2
Other interest bearing accounts	470			91
Total interest income	98,734			105,874
Interest expense:
Deposits	13,359			21,372
Short-term borrowings	217			345
Long-term borrowings and junior subordinated notes	2,953			3,339
Total interest expense	16,529			25,056
Net interest income	82,205			80,818
Provision for loan losses	40,000			47,200
Net interest income after provision for loan losses	42,205			33,618
Other income:
Loan service fees	1,126			1,284
Deposit service fees	10,069			8,848
Lease financing, net	5,783			4,620
Brokerage fees	1,419			1,245
Trust and asset management fees	4,431			3,335
Net gain (loss) on sale of investment securities available for sale	(3		)	6,866
Increase in cash surrender value of life insurance	968			671
Net gain on sale of other assets	357			11
Accretion of FDIC indemnification asset	1,831			—
Other operating income (loss)	3,162			(423		)
Total other income	29,143			26,457
Other expense:
Salaries and employee benefits	37,447			33,422
Occupancy and equipment expense	9,394			9,179
Computer services expense	2,618			2,528
Advertising and marketing expense	1,719			1,633
Professional and legal expense	1,225			1,078
Brokerage fee expense	328			462
Telecommunication expense	935			908
Other intangibles amortization expense	1,425			1,510
FDIC insurance premiums	3,428			3,964
Branch impairment charges	1,000			—
Other real estate expense, net	398			685
Other operating expenses	6,947			6,282
Total other expense	66,864			61,651
Income (loss) before income taxes	4,484			(1,576		)
Income taxes	(2,460		)	(2,523		)
Net income	6,944			947
Dividends and discount accretion on preferred shares	2,601			2,593
Net income (loss) available to common stockholders	$	4,343		$	(1,646	)
Common share data:
Net income per basic common share	$	0.13		$	0.02
Impact of preferred stock dividends on basic earnings per common share	(0.05		)	(0.05		)
Basic earnings (loss) per common share	0.08			(0.03		)

Net income per diluted common share	0.13			0.02
Impact of preferred stock dividends on diluted earnings per common share	(0.05		)	(0.05		)
Diluted earnings (loss) per common share	0.08			(0.03		)

Weighted average common shares outstanding	53,961,176			51,264,727
Diluted weighted average common shares outstanding	54,254,876			51,264,727

See Accompanying Notes to Consolidated Financial Statements.

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MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)

	Three months ended
	March 31,			March 31,
	2011			2010
Cash Flows From Operating Activities:
Net income	$	6,944		$	947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment	3,154			2,877
Depreciation on leased equipment	10,001			10,235
Compensation expense for restricted stock awards	781			649
Compensation expense for stock option grants	456			515
(Gain) loss on sales of premises and equipment and leased equipment	(624		)	292
Amortization of other intangibles	1,425			1,510
Provision for loan losses	40,000			47,200
Deferred income tax benefit	(2,259		)	(2,145		)
Amortization of premiums and discounts on investment securities, net	8,937			8,434
Accretion of premiums and discounts on loans, net	(123		)	(247		)
Accretion on FDIC indemnification asset	(1,831		)	—
Branch impairment charges	1,000			—
Net loss (gain) on sale of investment securities available for sale	3			(6,866		)
Proceeds from sale of loans held for sale	11,201			9,886
Origination of loans held for sale	(11,062		)	(9,747		)
Net gain on sale of loans held for sale	(139		)	(139		)
Net (gain) loss on sales of other real estate owned	(945		)	504
Fair value adjustments on other real estate owned	1,314			2,795
Net (gain) loss on sales of other real estate owned related to FDIC-assisted transactions	61			(136		)
Increase in cash surrender value of life insurance	(968		)	(671		)
Increase in other assets, net	(7,890		)	(15,145		)
Decrease in other liabilities, net	(10,426		)	(28,531		)
Net cash provided by operating activities	49,010			22,217
Cash Flows From Investing Activities:
Proceeds from sales of investment securities available for sale	—			593,126
Proceeds from maturities and calls of investment securities available for sale	102,598			117,627
Purchase of investment securities available for sale	(231,294		)	(2,659		)
Purchase of investment securities held to maturity	(102,215		)	—
Net decrease in loans	138,148			76,334
Purchases of premises and equipment	(3,511		)	(5,062		)
Purchases of leased equipment	(12,606		)	(4,678		)
Proceeds from sales of premises and equipment	1,343			420
Proceeds from sales of leased equipment	693			441
Proceeds from sale of other real estate owned	16,167			2,261
Proceeds from sale of other real estate owned related to FDIC-assisted transactions	4,504			—
Principal paid on lease investments	(98		)	(242		)
Net proceeds from FDIC related to covered assets	68,977			12,880
Net cash (used in) provided by investing activities	(17,294		)	790,448
Cash Flows From Financing Activities:
Net decrease in deposits	(260,952		)	(628,097		)
Net increase (decrease) in short-term borrowings	26,336			(60,254		)
Proceeds from long-term borrowings	867			344
Principal paid on long-term borrowings	(10,613		)	(11,603		)
Issuance of common stock	—			31,955
Treasury stock transactions, net	10			(90		)
Stock options exercised	38			26
Excess tax (deficits) benefits from share-based payment arrangements	(8		)	29
Dividends paid on preferred stock	(2,450		)	(2,450		)
Dividends paid on common stock	(544		)	(515		)
Net cash (used in) financing activities	(247,316		)	(670,655		)

Net (decrease) increase in cash and cash equivalents	$	(215,600	)	$	142,010
Cash and cash equivalents:
Beginning of period	844,159			402,020
End of period	$	628,559		$	544,030

(continued)

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MB FINANCIAL, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Amounts in thousands) (Unaudited)

	Three Months Ended
	March 31,		March 31,
	2011		2010

Supplemental Disclosures of Cash Flow Information:

Cash payments for:
Interest paid to depositors and other borrowed funds	$	17,099	$	27,791
Income tax payments, net	233		9,839

Supplemental Schedule of Noncash Investing Activities:

Loans transferred to other real estate owned	$	25,167	$	10,438
Loans transferred to other real estate owned related to FDIC-assisted transactions	21,282		9,465
Loans transferred to repossessed vehicles	336		455

See Accompanying Notes to Consolidated Financial Statements.

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MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

These unaudited consolidated financial statements include the accounts of MB Financial, Inc., a Maryland corporation (the “Company”), and its subsidiaries, including its wholly owned national bank subsidiary, MB Financial Bank, N.A. (“MB Financial Bank”), based in Chicago, Illinois. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been made. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year.

These unaudited interim financial statements have been prepared in conformity with U.S. GAAP and industry practice. Certain information in footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP and industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2010 audited financial statements filed on Form 10-K.

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

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

NOTE 2. BUSINESS COMBINATIONS

The following business combinations were accounted for under the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the Company’s results of operations since the date of acquisition. Under this method of accounting, assets and liabilities acquired are recorded at their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired is recorded as goodwill. When the fair value of net assets acquired exceeds the cost, the Company will record a gain on the acquisition.

During 2010, MB Financial Bank acquired certain assets and assumed certain liabilities of Chicago-based Broadway Bank (“Broadway”) and Chicago-based New Century Bank (“New Century”) in loss-share transactions facilitated by the Federal Deposit Insurance Corporation (“FDIC”). Under the loss-share agreements, MB Financial Bank will share in the losses on assets (loans and other real estate owned) covered under the agreement (referred to as “covered loans” and “covered other real estate owned”). See Note 2 of the notes to our December 31, 2010 audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2010 for additional information regarding these and other FDIC-assisted transactions.

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NOTE 3. COMPREHENSIVE INCOME

Comprehensive income includes net income, as well as the change in net unrealized gain on investment securities available for sale arising during the periods, net of tax.

The following table sets forth comprehensive income for the periods indicated (in thousands):

	Three Months Ended
	March 31,		March 31,
	2011		2010

Net income	$	6,944	$	947
Unrealized holding gains on investment securities, net of tax	331		14,515
Reclassification adjustments for losses (gains) included in net income, net of tax	2		(4,188		)
Other comprehensive income, net of tax	333		10,327
Comprehensive income	$	7,277	$	11,274

NOTE 4. EARNINGS (LOSS) PER SHARE

Earnings (loss) per common share is computed using the two-class method. Basic earnings (loss) per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards and restricted stock units, though no actual shares of common stock related to restricted stock units have been issued. Non-vested restricted stock awards and restricted stock units are considered participating securities to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company’s common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Due to the net loss available to common stockholders for the three months ended March 31, 2010, all of the dilutive stock based awards are considered anti-dilutive and not included in the computation of diluted earnings (loss) per share.

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

	Three Months Ended
	March 31,
	2011			2010
Distributed earnings allocated to common stock	$	543		$	513
Undistributed earnings allocated to common stock	6,387			431
Net earnings allocated to common stock	6,930			944
Less: preferred stock dividends and discount accretion	2,601			2,593
Net income (loss) allocated to common stock	4,329			(1,649		)
Net earnings allocated to participating securities	14			3
Net earnings (loss) allocated to common stock and participating securities	$	4,343		$	(1,646	)

Weighted average shares outstanding for basic earnings per common share	53,961,176			51,264,727
Dilutive effect of stock compensation	293,700			—
Weighted average shares outstanding for diluted earnings per common share	54,254,876			51,264,727

Basic earnings allocated to common stock per common share	$	0.13		$	0.02
Impact of preferred stock dividends on basic earnings (loss) per common share	(0.05		)	(0.05		)
Basic earnings (loss) per common share	0.08			(0.03		)

Diluted earnings allocated to common stock per common share	$	0.13		$	0.02
Impact of preferred stock dividends on diluted earnings (loss) per common share	(0.05		)	(0.05		)
Diluted earnings (loss) per common share	0.08			(0.03		)

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NOTE 5. INVESTMENT SECURITIES

Carrying amounts and fair values of investment securities are summarized as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

March 31, 2011:
Available for Sale
U.S. Government sponsored agencies and enterprises	$	56,452	$	583	$	(64	)	$	56,971
States and political subdivisions	350,851		15,736		(1,106		)	365,481
Residential mortgage-backed securities	1,247,663		22,506		(720		)	1,269,449
Commercial mortgage-backed securities	10,508		11		—			10,519
Corporate bonds	6,019		—		—			6,019
Equity securities	10,169		46		—			10,215
	1,681,662		38,882		(1,890		)	1,718,654
Held to Maturity
Residential mortgage-backed securities	102,206		128		—			102,334

Total	$	1,783,868	$	39,010	$	(1,890	)	$	1,820,988

December 31, 2010:
Available for Sale
U.S. Government sponsored agencies and enterprises	$	18,766	$	693	$	(25	)	$	19,434
States and political subdivisions	351,274		14,649		(991		)	364,932
Residential mortgage-backed securities	1,174,500		22,716		(680		)	1,196,536
Commercial mortgage-backed securities	521		9		—			530
Corporate bonds	6,140		—		—			6,140
Equity securities	10,093		78		—			10,171
Total	$	1,561,294	$	38,145	$	(1,696	)	$	1,597,743

Unrealized losses on investment securities available for sale and the fair value of the related securities at March 31, 2011 are summarized as follows (in thousands):

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

U.S. Government sponsored agencies and enterprises	$	33,298	$	(64	)	$	—	$	—		$	33,298	$	(64	)
States and political subdivisions	31,571		(897		)	2,234		(209		)	33,805		(1,106		)
Residential mortgage-backed securities	149,101		(718		)	379		(2		)	149,480		(720		)
Totals	$	213,970	$	(1,679	)	$	2,613	$	(211	)	$	216,583	$	(1,890	)

The total number of security positions in the investment portfolio in an unrealized loss position at March 31, 2011 was 87. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) whether the Company is more likely than not to sell the security before recovery of its cost basis.

As of March 31, 2011, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2011, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated statement of

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operations.

Realized net (losses) gains on the sale of investment securities available for sale are summarized as follows (in thousands):

	Three Months Ended
	March 31,
	2011			2010
Realized gains	$	—		$	7,284
Realized losses	(3		)	(418		)
Net (losses) gains	$	(3	)	$	6,866

The amortized cost and fair value of investment securities as of March 31, 2011 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.

	Amortized		Fair
(In thousands)	Cost		Value

Available for sale:
Due in one year or less	$	11,261	$	11,384
Due after one year through five years	107,707		113,180
Due after five years through ten years	252,068		261,202
Due after ten years	42,286		42,705
Equity securities	10,169		10,215
Residential and commercial mortgage-backed securities	1,258,171		1,279,968
	1,681,662		1,718,654
Held to maturity:
Residential mortgage-backed securities	102,206		102,334

Total	$	1,783,868	$	1,820,988

Investment securities available for sale with carrying amounts of $898.0 million and $877.2 million at March 31, 2011 and December 31, 2010, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

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NOTE 6. LOANS

Loans consist of the following at (in thousands):

	March 31,			December 31,
	2011			2010

Commercial loans	$	1,154,451		$	1,206,984
Commercial loans collateralized by assignment of lease payments	1,038,507			1,053,446
Commercial real estate	2,084,651			2,176,584
Residential real estate	335,423			328,482
Construction real estate	356,579			423,339
Indirect vehicle	175,058			175,664
Home equity	371,108			381,662
Consumer loans	74,585			59,320
Gross loans, excluding covered loans	5,590,362			5,805,481
Covered loans	777,634			812,330
Gross loans(1)	6,367,996			6,617,811
Allowance for loan losses	(178,410		)	(192,217		)
Loans, net	$	6,189,586		$	6,425,594

(1) Gross loan balances at March 31, 2011 and December 31, 2010 are net of unearned income, including net deferred loan fees of $2.8 million and $3.3 million, respectively.

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

The Company’s extension of credit is governed by the credit risk policy which was established to control the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Commercial and Industrial Loans. Commercial credit is extended primarily to middle market customers. Such credits typically comprise working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses’ principal owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

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

Commercial Real Estate Loans. The Company’s goal is to create and maintain a high quality portfolio of commercial real estate loans with customers who meet the quality and relationship profitability objectives of the Company. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property securing the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

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

Consumer Loans. The Company originates direct and indirect consumer loans including principally residential real estate, home equity lines and loans, credit cards, and indirect motorcycle loans using a matrix-based credit analysis as part of the underwriting process. Each loan type has a separate specified matrix which consists of several factors including debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower. Indirect loan and credit card underwriting use risk-based pricing in the underwriting process.

The following table presents the contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2011 and December 31, 2010 (in thousands):

																Non-covered
																loans related
				30-59 Days			60-89 Days			Loans past due			Total			to FDIC
	Current			Past Due			Past Due			90 days or more			Past Due			Transactions (1)		Total

March 31, 2011:
Commercial	$	1,128,918		$	4,819		$	1,702		$	8,228		$	14,749		$	10,784	$	1,154,451
Commercial collateralized by assignment of lease payments	1,032,159			5,350			—			998			6,348			—		1,038,507
Commercial real estate
Healthcare	183,519			—			—			4,181			4,181			—		187,700
Industrial	488,602			2,190			1,486			6,235			9,911			2,281		500,794
Multifamily	422,075			3,912			1,490			9,315			14,717			15,343		452,135
Retail	433,985			4,027			2,342			10,393			16,762			6,261		457,008
Office	189,127			3,882			329			5,553			9,764			2,125		201,016
Other	255,238			3,355			3,626			2,329			9,310			21,450		285,998
Residential real estate	315,644			1,794			1,175			12,430			15,399			4,380		335,423
Construction real estate	282,296			2,837			16,206			46,010			65,053			9,230		356,579
Indirect vehicles	173,181			1,100			389			388			1,877			—		175,058
Home equity	353,263			3,504			1,652			7,162			12,318			5,527		371,108
Consumer	73,545			14			1			557			572			468		74,585
Non-covered loans related to FDIC transactions (1)	44,601			760			581			31,907			33,248
Covered loans	464,549			30,424			17,498			265,163			313,085					777,634
Total loans	5,840,702			67,968			48,477			410,849			527,294					6,367,996
Less covered loans	(464,549		)	(30,424		)	(17,498		)	(265,163		)	(313,085		)			(777,634		)
Less non-covered loans related to FDIC transactions (1)	(44,601		)	(760		)	(581		)	(31,907		)	(33,248		)
Total loans, excluding covered and non-covered loans	$	5,331,552		$	36,784		$	30,398		$	113,779		$	180,961		$	77,849	$	5,590,362

Nonperforming loan classification	$	165,922		$	12,873		$	26,350		$	113,778		$	153,001		$	—	$	318,923

December 31, 2010:
Commercial	$	1,182,664		$	1,593		$	307		$	9,822		$	11,722		$	12,598	$	1,206,984
Commercial collateralized by assignment of lease payments	1,049,096			1,579			1,761			1,010			4,350			—		1,053,446
Commercial real estate
Healthcare	204,248			—			—			—			—			—		204,248
Industrial	508,026			6,603			102			6,338			13,043			2,312		523,381
Multifamily	428,948			1,814			1,373			13,040			16,227			15,603		460,778
Retail	445,961			1,732			759			19,420			21,911			6,472		474,344
Office	207,477			—			3,035			4,888			7,923			2,179		217,579
Other	271,335			1,204			—			2,342			3,546			21,373		296,254
Residential real estate	307,770			323			2,690			11,584			14,597			6,115		328,482
Construction real estate	349,178			9,383			—			55,831			65,214			8,947		423,339
Indirect vehicles	173,179			1,677			486			322			2,485			—		175,664
Home equity	364,105			2,600			1,020			7,966			11,586			5,971		381,662
Consumer	57,066			32			3			1,617			1,652			602		59,320
Non-covered loans related to FDIC transactions (1)	44,748			1,041			1,397			34,987			37,425			—
Covered loans	510,408			29,226			41,023			231,673			301,922			—		812,330
Total loans	6,104,209			58,807			53,956			400,840			513,603					6,617,811
Less covered loans	(510,408		)	(29,226		)	(41,023		)	(231,673		)	(301,922		)			(812,330		)
Less non-covered loans related to FDIC transactions (1)	(44,748		)	(1,041		)	(1,397		)	(34,987		)	(37,425		)
Total loans, excluding covered and non-covered loans	$	5,549,053		$	28,540		$	11,536		$	134,180		$	174,256		$	82,172	$	5,805,481

Nonperforming loan classification	$	202,644		$	19,153		$	6,464		$	134,180		$	159,797		$	—	$	362,441

(1) Loans related to the InBank and Corus Bank (“Corus”) FDIC-assisted transaction completed by MB Financial Bank in 2009.

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The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing by class of loans as of March 31, 2011 and December 31, 2010 (in thousands):

	March 31, 2011				December 31, 2010
			Loans past due				Loans past due
			90 days or more				90 days or more
	Nonaccrual		and still accruing		Nonaccrual		and still accruing

Commercial	$	38,588	$	—	$	51,005	$	—
Commercial collateralized by assignment of lease payments	1,694		—		1,563		—
Commercial real estate:							—
Healthcare	4,181		—		—		—
Industrial	49,436		—		36,426		—
Multifamily	26,421		—		30,344		—
Office	22,047		—		9,959		—
Retail	12,514		—		46,857		—
Other	38,155		—		35,278		—
Residential real estate	16,696		—		15,950		—
Construction real estate	97,845		—		122,077		—
Indirect vehicles	1,278		—		1,245		1
Home equity	9,501		—		10,095		—
Consumer	567		—		1,642		—
Total	$	318,923	$	—	$	362,441	$	1

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

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Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Loans that are not rated are included in groups of homogeneous loans with similar risk and loss characteristics. The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of March 31, 2011 and December 31, 2010 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Total

March 31, 2011:
Commercial	$	974,410	$	41,365	$	131,437	$	7,239	$	1,154,451
Commercial collateralized by assignment of lease payments	1,032,075		2,041		4,391		—		1,038,507
Commercial real estate
Healthcare	183,519		—		4,181		—		187,700
Industrial	373,498		30,631		95,868		797		500,794
Multifamily	377,605		16,033		58,497		—		452,135
Retail	371,693		21,148		63,126		1,041		457,008
Office	149,433		5,230		46,353		—		201,016
Other	219,343		8,130		58,525		—		285,998
Construction real estate	214,776		14,967		126,836		—		356,579
Total	$	3,896,352	$	139,545	$	589,214	$	9,077	$	4,634,188

December 31, 2010:
Commercial	$	1,011,395	$	54,906	$	132,608	$	8,075	$	1,206,984
Commercial collateralized by assignment of lease payments	1,048,787		2,360		2,299		—		1,053,446
Commercial real estate
Healthcare	199,337		—		4,911		—		204,248
Industrial	398,485		47,149		75,879		1,868		523,381
Multifamily	382,998		12,205		65,433		142		460,778
Retail	384,116		23,041		63,165		4,022		474,344
Office	159,117		18,208		40,254		—		217,579
Other	229,838		5,061		61,355		—		296,254
Construction real estate	236,959		21,170		165,210		—		423,339
Total	$	4,051,032	$	184,100	$	611,114	$	14,107	$	4,860,353

			Special
	Pass		Mention		Substandard		Doubtful		Total

March 31, 2011:
Current	$	3,886,762	$	139,306	$	457,325	$	—	$	4,483,393
Past due 30 - 59 days	8,162		239		21,971		—		30,372
Past due 60 - 89 days	1,428		—		25,753		—		27,181
Past due 90 days or more	—		—		84,165		9,077		93,242
Total	$	3,896,352	$	139,545	$	589,214	$	9,077	$	4,634,188

December 31, 2010:
Current	$	4,046,946	$	182,631	$	486,838	$	—	$	4,716,415
Past due 30 - 59 days	2,683		1,386		19,839		—		23,908
Past due 60 - 89 days	1,403		83		5,851		—		7,337
Past due 90 days or more	—		—		98,586		14,107		112,693
Total	$	4,051,032	$	184,100	$	611,114	$	14,107	$	4,860,353

Approximately $290.9 million and $333.5 million of the substandard and doubtful loans were non-performing as of March 31, 2011 and December 31, 2010, respectively.

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For consumer, residential real estate, home equity, and indirect vehicle loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2011 and December 31, 2010 (in thousands):

	Performing		Non-performing		Total

March 31, 2011:
Residential real estate	$	318,727	$	16,696	$	335,423
Indirect vehicles	173,780		1,278		175,058
Home equity	361,607		9,501		371,108
Consumer	74,018		567		74,585
Total	$	928,132	$	28,042	$	956,174

December 31, 2010:
Residential real estate	$	312,532	$	15,950	$	328,482
Indirect vehicles	174,418		1,246		175,664
Home equity	371,567		10,095		381,662
Consumer	57,678		1,642		59,320
Total	$	916,195	$	28,933	$	945,128

The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2011 and December 31, 2010 (in thousands):

	March 31, 2011
	Unpaid						Allowance for		Average		Interest
	Principal		Recorded		Partial		Loan Losses		Recorded		Income
	Balance		Investment		Charge-offs		Allocated		Investment		Recognized

With no related allowance recorded:
Commercial	$	33,934	$	16,420	$	17,514	$	—	$	23,288	$	20
Commercial collateralized by assignment of lease payments	1,369		894		475		—		1,392		7
Commercial real estate:
Healthcare	4,911		4,181		730		—		2,510		—
Industrial	49,463		37,265		12,198		—		30,781		35
Multifamily	23,577		17,040		6,537		—		19,245		98
Retail	35,187		31,394		3,793		—		34,362		—
Office	12,972		7,827		5,145		—		9,001		—
Other	29,256		29,081		175		—		29,425		—
Residential real estate	6,221		6,221		—		—		6,246		—
Construction real estate	139,452		74,247		65,205		—		129,286		—
Indirect vehicles	—		—		—		—		—		—
Home equity	3,077		3,077		—		—		3,162		—
Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial	28,342		22,239		6,103		6,802		13,632		80
Commercial collateralized by assignment of lease payments	800		800		—		170		581		16
Commercial real estate:
Healthcare	—		—		—		—		—		—
Industrial	18,012		13,383		4,629		2,336		8,937		—
Multifamily	15,186		11,510		3,676		3,622		12,295		105
Retail	12,042		8,418		3,624		2,405		10,435		—
Office	11,493		5,468		6,025		1,909		10,026		—
Other	13,930		9,636		4,294		9,990		10,666		2
Residential real estate	—		—		—		—		—		—
Construction real estate	34,524		23,599		10,925		10,307		44,749		—
Indirect vehicles	—		—		—		—		—		—
Home equity	—		—		—		—		—		—
Consumer	716		122		594		513		716		5
Total	$	474,464	$	322,822	$	151,642	$	38,054	$	400,735	$	368

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	December 31, 2010
	Unpaid						Allowance for
	Principal		Recorded		Partial		Loan Losses
	Balance		Investment		Charge-offs		Allocated

With no related allowance recorded:
Commercial	$	20,588	$	19,031	$	1,557	$	—
Commercial collateralized by assignment of lease payments	1,125		650		475		—
Commercial real estate:
Healthcare	—		—		—		—
Industrial	25,124		21,974		3,150		—
Multifamily	14,319		11,626		2,693		—
Retail	40,549		29,096		11,453		—
Office	18,214		14,446		3,768		—
Other	3,392		2,350		1,042		—
Residential real estate	6,269		6,269		—		—
Construction real estate	126,940		76,145		50,795		—
Indirect vehicles	—		—		—		—
Home equity	1,691		1,691		—		—
Consumer	717		717		—		—
With an allowance recorded:
Commercial	55,331		33,257		22,074		8,823
Commercial collateralized by assignment of lease payments	913		913		—		122
Commercial real estate:
Healthcare	—		—		—		—
Industrial	17,221		14,895		2,326		4,213
Multifamily	28,201		20,338		7,863		5,409
Retail	31,552		19,467		12,085		5,214
Office	8,552		3,461		5,091		1,554
Other	36,593		33,483		3,110		8,489
Residential real estate	—		—		—		—
Construction real estate	82,047		45,557		36,490		18,002
Indirect vehicles	—		—		—		—
Home equity	—		—		—		—
Consumer	—		—		—		—
Total	$	519,338	$	355,366	$	163,972	$	51,826

Impaired loans include accruing restructured loans of $31.8 million and $22.5 million that have been modified and are performing in accordance with those modified terms as of March 31, 2011 and December 31, 2010, respectively. Included in impaired loans were $60.9 million and $47.6 million of non-performing, restructured loans as of March 31, 2011 and December 31, 2010, respectively. The decrease in impaired loans was primarily attributable to nonperforming loan outflow through charge-offs, paydowns, upgrades and transfers to other real estate owned.

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The following table presents the activity in the allowance for loan losses, balance in allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2011 and 2010 (in thousands):

				Commercial
				collateralized by
				assignment of			Commercial			Residential			Construction			Indirect			Home
	Commercial			lease payments			real estate			real estate			real estate			vehicles			equity			Consumer			Total
March 31, 2011:
Allowance for loan losses:

Beginning balance	$	28,747		$	6,424		$	105,875		$	5,104		$	37,215		$	3,157		$	5,062		$	633		$	192,217
Charge-offs	(3,151		)	—			(29,775		)	(3,562		)	(21,094		)	(718		)	(1,907		)	(544		)	(60,751		)
Recoveries	2,565			66			1,534			7			2,026			325			48			373			6,944
Provision	(1,571		)	22			26,160			4,001			9,373			384			1,491			140			40,000
Ending balance	$	26,590		$	6,512		$	103,794		$	5,550		$	27,520		$	3,148		$	4,694		$	602		$	178,410

Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,802		$	170		$	20,262		$	—		$	10,307		$	—		$	—		$	513		$	38,054
Collectively evaluated for impairment	19,788			6,342			83,532			5,550			17,213			3,148			4,694			89			140,356
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—			—
Total ending allowance balance	$	26,590		$	6,512		$	103,794		$	5,550		$	27,520		$	3,148		$	4,694		$	602		$	178,410

Loans:
Individually evaluated for impairment	$	38,659		$	1,694		$	175,203		$	6,221		$	97,847		$	—		$	3,077		$	121		$	322,822
Collectively evaluated for impairment	1,138,350			1,036,813			2,129,235			329,202			289,754			175,058			368,031			125,894			5,592,337
Acquired with deteriorated credit quality	93,427			—			160,238			—			192,624			—			—			6,548			452,837
Total ending loans balance	$	1,270,436		$	1,038,507		$	2,464,676		$	335,423		$	580,225		$	175,058		$	371,108		$	132,563		$	6,367,996

March 31, 2010:
Allowance for loan losses:

Beginning balance	$	39,226		$	8,726		$	56,710		$	2,934		$	59,760		$	3,230		$	5,749		$	737		$	177,072
Charge-offs	(7,363		)	(333		)	(12,201		)	(459		)	(25,285		)	(1,117		)	(628		)	(525		)	(47,911		)
Recoveries	724			—			186			41			113			301			59			2			1,426
Provision	5,883			1,632			12,946			418			25,062			791			36			432			47,200
Ending balance	$	38,470		$	10,025		$	57,641		$	2,934		$	59,650		$	3,205		$	5,216		$	646		$	177,787

Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	8,633		$	490		$	12,699		$	—		$	33,534		$	—		$	—		$	—		$	55,356
Collectively evaluated for impairment	29,837			9,535			44,942			2,934			26,116			3,205			5,216			646			122,431
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—			—
Total ending allowance balance	$	38,470		$	10,025		$	57,641		$	2,934		$	59,650		$	3,205		$	5,216		$	646		$	177,787

Loans:
Individually evaluated for impairment	$	36,595		$	1,453		$	86,705		$	—		$	177,442		$	—		$	—		$	—		$	302,195
Collectively evaluated for impairment	1,173,154			959,017			2,322,373			302,308			381,173			178,644			401,570			105,361			5,823,600
Acquired with deteriorated credit quality	275,216			—			—			—			—			—			—			13,845			289,061
Total ending loans balance	$	1,484,965		$	960,470		$	2,409,078		$	302,308		$	558,615		$	178,644		$	401,570		$	119,206		$	6,414,856

Purchased loans acquired in a business combination, including loans purchased in our FDIC-assisted transactions, are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include factors such as past due and non-accrual status. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges or a reclassification of the difference from non-accretable to accretable with a positive impact on interest income. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.

During the three months ended March 31, 2011 there was a provision to the allowance for loan losses and an equivalent charge-off of $1.2 million in relation to a pool of purchased credit-impaired loans. Subsequent to this charge-off, the remaining balance in this pool was insignificant. There was no allowance for loan losses in relation to purchased credit-impaired loans at March 31, 2011 and December 31, 2010. The provision for loan losses and accompanying charge-off are included in the table above.

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Changes in the accretable yield for purchased credit-impaired loans were as follows for the three months ended March 31, 2011 and 2010.

	Three Months Ended
	March 31,
	2011			2010
Balance at beginning of period	$	40,796		$	9,576
Accretion	(7,345		)	(1,274		)
Reclassifications and other	(144		)	—
Balance at end of period	$	33,307		$	8,302

In our FDIC-assisted transactions (see Note 2), the fair value of purchased credit-impaired loans, on the acquisition date, was determined based on assigned risk ratings, expected cash flows and the fair value of loan collateral. The fair value of loans that were not credit-impaired was determined based on estimates of losses on defaults and other market factors. Due to the loss-share agreements with the FDIC, the Bank recorded a receivable from the FDIC equal to the present value of the corresponding reimbursement percentages on the estimated losses embedded in the loan portfolio.

The carrying amount of covered loans and other purchased non-covered loans at March 31, 2011 consisted of purchased credit-impaired loans and non-credit-impaired loans as shown in the following table (in thousands):

	Purchased Credit-Impaired Loans		Purchased Non- Credit-Impaired Loans		Total
Covered loans:
Commercial related (1)	$	40,520	$	26,741	$	67,261
Commercial (2)	21,228		27,496		48,724
Commercial real estate (2)	160,238		219,788		380,026
Construction real estate (2)	192,625		31,021		223,646
Other (2)	3,256		54,721		57,977
Total covered loans	$	417,867	$	359,767	$	777,634

Estimated reimbursable amounts from the FDIC under the loss-share agreement	$	128,457	$	19,857	$	148,314

Non covered loans:
Commercial related (3)	$	31,679	$	36,074	$	67,753
Other	3,291		6,805		10,096
Total non-covered loans	$	34,970	$	42,879	$	77,849

(1) Covered commercial related loans include commercial, commercial real estate and construction real estate loans acquired by MB Financial Bank in the FDIC-assisted transactions involving Heritage Community Bank (“Heritage”) and Benchmark Bank (“Benchmark”) completed in 2009.

(2) Includes New Century and Broadway covered loans.

(3) Non covered commercial related loans include commercial, commercial real estate and construction real estate acquired by MB Financial Bank in the FDIC-assisted transactions involving InBank and Corus Bank completed in 2009.

Outstanding balances on purchased loans from the FDIC (both covered and non-covered loans) were $1.0 billion and $1.1 billion as of March 31, 2011 and December 31, 2010, respectively. The related carrying amount on loans purchased from the FDIC was $855.5 million and $894.5 million as of March 31, 2011 and December 31, 2010, respectively.

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NOTE 7. GOODWILL AND INTANGIBLES

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

The Company’s annual assessment date is as of December 31. No impairment losses were recognized during the three months ended March 31, 2011 or 2010. Goodwill is tested for impairment at the reporting unit level. All of our goodwill is allocated to MB Financial, Inc., which is the Company’s only applicable reporting unit for purposes of testing goodwill impairment.

The following table presents the changes in the carrying amount of goodwill during the three months ended March 31, 2011 and the year ended December 31, 2010 (in thousands):

	March 31,		December 31,
	2011		2010
Balance at the beginning of the period	$	387,069	$	387,069
Goodwill from business combinations	—		—
Balance at the end of period	$	387,069	$	387,069

The Company has other intangible assets consisting of core deposit and client relationship intangibles that had, as of March 31, 2011, a remaining weighted average amortization period of approximately five years.

The following table presents the changes during the three months ended March 31, 2011 in the carrying amount of core deposit and client relationship intangibles, gross carrying amount, accumulated amortization, and net book value as of March 31, 2011 (in thousands):

	March 31,
	2011
Balance at beginning of period	$	35,159
Amortization expense	(1,425		)
Other intangibles from business combinations	—
Balance at end of period	$	33,734

Gross carrying amount	$	71,560
Accumulated amortization	(37,826		)
Net book value	$	33,734

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

	Amount
Year ending December 31,
2011	$	4,240
2012	5,010
2013	4,530
2014	3,514
2015	3,090
Thereafter	13,350
	$	33,734

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NOTE 8. NEW AUTHORITATIVE ACCOUNTING GUIDANCE

ASC Topic 310 “Receivables.” New authoritative accounting guidance under ASC Topic 310, “Receivables,” amended prior guidance to provide a greater level of disaggregated information about the credit quality of loans and leases and the Allowance for Loan and Lease Losses (the “Allowance”). The new authoritative guidance also requires additional disclosures related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. The new authoritative guidance amends only the disclosure requirements for loans and leases and the allowance. The Company adopted the period end disclosures provisions of the new authoritative guidance under ASC Topic 310 in the reporting period ending December 31, 2010. Adoption of the new guidance did not have an impact on the Company’s statements of income and financial condition. The Company adopted the disclosures provisions of the new authoritative guidance about activity that occurs during a reporting period on January 1, 2011; the adoption did not have an impact on the Company’s statements of income and financial condition. The disclosures related to loans modified in a troubled debt restructuring will be effective for the reporting periods after June 15, 2011 and will have no impact on the Company’s statements of income and financial condition.

ASC Topic 310 “Receivables,” Subtopic 310-40 “Troubled Debt Restructurings by Creditors.” New authoritative accounting guidance under Subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors” amended prior guidance to provide assistance in determining whether a modification of the terms of a receivable meets the definition of a troubled debt restructuring. The new authoritative guidance provides clarification for evaluating whether a concession has been granted and whether a debtor is experiencing financial difficulties. The new authoritative guidance will be effective for the reporting periods after June 15, 2011 and should be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Adoption of the new guidance will have no significant impact on the Company’s statements of income and financial condition.

NOTE 9. STOCK-BASED COMPENSATION

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

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

	Three Months Ended
	March 31,		March 31,
	2011		2010

Total cost of share-based payment plans during the period	$	1,229	$	1,242

Amount of related income tax benefit recognized in income	$	501	$	477

The Company adopted the Omnibus Incentive Plan (the “Omnibus Plan”) in 1997. In April 2007, the Omnibus Plan was modified to add 2,250,000 authorized shares for a total of 6,000,000 shares of common stock for issuance to directors, officers, and employees of the Company or any of its subsidiaries. Grants under the Omnibus Plan can be in the form of options intended to be incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards and cash awards. As of March 31, 2011, there were 678,703 shares available for grant, of which 262,590 shares may be granted for awards in the form of restricted stock, restricted stock units, performance shares, performance units or other stock-based awards.

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

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The following table provides additional information about stock options outstanding for the three months ended March 31, 2011:

					Weighted
					Average
			Weighted		Remaining	Aggregate
			Average		Contractual	Intrinsic
	Number of		Exercise		Term	Value
	Options		Price		(In Years)	(In millions)

Options outstanding as of December 31, 2010	3,254,717		$	28.31
Granted	5,518		$	20.96
Exercised	(7,500	)	$	16.89
Expired or cancelled	(70,921	)	$	31.17
Forfeited	(131,271	)	$	28.89
Options outstanding as of March 31, 2011	3,050,543		$	28.23	4.79	$	2,407

Options exercisable as of March 31, 2011	1,631,151		$	30.28	2.58	$	850

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Expected volatility is based on historical volatilities of Company shares. The risk free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options is estimated based on historical employee behavior and represents the period of time that options granted are expected to remain outstanding.

The following assumptions were used for options granted during the three month period ended March 31, 2011:

	March 31,
	2011
Expected volatility	52.45		%
Risk free interest rate	2.04		%
Dividend yield	1.00		%
Expected life	4years

Weighted average fair value per option of options granted during the period	$	8.30

The total intrinsic value of options exercised during the three months ended March 31, 2011 and 2010 was $30 thousand and $29 thousand, respectively.

The following is a summary of changes in restricted stock for the three months ended March 31, 2011:

	Number of		Weighted Average
	Shares		Grant Date Fair Value
Shares Outstanding at December 31, 2010	619,710		$	14.35
Granted	13,307		19.83
Vested	(13,684	)	11.70
Cancelled	(28,774	)	12.24
Shares Outstanding at March 31, 2011	590,559		$	14.64

During 2010, the Company issued 66,193 shares of performance-based restricted stock. The performance component of the vesting terms requires that the closing price of the Company’s stock be at least $25.80 (150% of the closing price on the grant date) for ten consecutive trading days. The performance component has not been satisfied as of March 31, 2011. The terms of each award also include certain restrictions that may be applicable to the award recipient to the extent necessary to ensure that the award complies with the limitations on compensation to which the Company is currently subject as a result of its participation in the TARP Capital Purchase Program of the U.S. Department of the Treasury. These restrictions, to the extent applicable, could result in a reduction in the number of shares comprising the award and/or affect the vesting of the award and transferability of the shares. A Monte Carlo simulation model was used to value the performance based restricted stock awards at the time of issuance.

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During 2009, the Company issued 164,401 shares of performance-based restricted stock. Because the performance component of the vesting terms has been satisfied, which required that the closing price of the Company’s common stock be at least $18.14 (150% of the closing price on the grant date) for ten consecutive trading days, these restricted stock awards generally will vest in full in 2012, on the third anniversary of the grant date. The terms of each award also include certain restrictions that may be applicable to the award recipient to the extent necessary to ensure that the award complies with the limitations on compensation to which the Company is currently subject as a result of its participation in the TARP Capital Purchase Program of the U.S. Department of the Treasury. These restrictions, to the extent applicable, could result in a reduction in the number of shares comprising the award and/or affect the vesting of the award and transferability of the shares. A Monte Carlo simulation model was used to value the performance based restricted stock awards at the time of issuance.

Effective January 1, 2010, the Company began issuing shares of common stock under the Omnibus Plan as Salary Stock, classified as other stock based awards, to certain executive officers. This stock is fully vested as of the grant date and the related expense is included in salaries and employee benefits on the Consolidated Statements of Operations. Salary Stock holders have all of the rights of a stockholder, including the right to vote the shares and the right to receive any dividends that may be paid thereon. As a condition of receiving the Salary Stock, the holders entered into agreements with the Company providing that they may not sell or otherwise transfer the shares of Salary Stock for two years, except in the event of disability or death. During the three months ended March 31, 2011, the Company issued 4,555 shares of Salary Stock at a weighted average issuance price of $19.43.

As of March 31, 2011, there was $6.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Omnibus Plan. At March 31, 2011, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was two years.

NOTE 10. DEPOSITS

The following table sets forth the composition of our deposits at the dates indicated (dollars in thousands):

	March 31,				December 31,
	2011				2010
	Amount		Percent		Amount		Percent

Demand deposit accounts, noninterest bearing	$	1,666,868	21	%	$	1,691,599	21	%
NOW and money market accounts	2,712,314		34	%	2,776,181		34	%
Savings accounts	718,896		9	%	697,851		8	%
Certificates of deposit	2,273,447		29	%	2,447,005		30	%
Public funds deposit accounts	53,144		1	%	72,112		1	%
Brokered deposit accounts	467,337		6	%	468,210		6	%
Total	$	7,892,006	100	%	$	8,152,958	100	%

NOTE 11. SHORT-TERM BORROWINGS

Short-term borrowings are summarized as follows as of March 31, 2011 and December 31, 2010 (dollars in thousands):

	March 31,				December 31,
	2011				2010
	Weighted Average				Weighted Average
	Cost		Amount		Cost		Amount
Customer repurchase agreements	0.29	%	$	292,352	0.31	%	$	265,195
Federal Home Loan Bank advances	3.97	%	2,828		3.81	%	3,649
	0.33	%	$	295,180	0.36	%	$	268,844

Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet.

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The Company had Federal Home Loan Bank advances with maturity dates less than one year consisting of $2.8 million in fixed rate advances at March 31, 2011 and $3.6 million in fixed rate advances at December 31, 2010. At March 31, 2011, the Company had one fixed rate advance with an effective interest rate of 4.25%. At March 31, 2011, the advance had a maturity date of July 25, 2011.

NOTE 12. LONG-TERM BORROWINGS

The Company had Federal Home Loan Bank advances with original contractual maturities greater than one year of $173.4 million and $181.4 million at March 31, 2011 and December 31, 2010, respectively. As of March 31, 2011, the advances had fixed terms with effective interest rates, net of discounts, ranging from 3.23% to 5.87%. At March 31, 2011, the advances had maturities ranging from June 2012 to April 2035.

A collateral pledge agreement exists whereby at all times, the Company must keep on hand, free of all other pledges, liens, and encumbrances, first mortgage loans and home equity loans with unpaid principal balances aggregating no less than 133% for first mortgage loans and 200% for home equity loans of the outstanding advances from the Federal Home Loan Bank. The Company may also pledge certain investment securities as collateral for advances based on market value. As of March 31, 2011 and December 31, 2010, the Company had $235.0 million and $246.8 million, respectively, of loans pledged as collateral for long-term Federal Home Loan Bank advances. Additionally, as of March 31, 2011 and December 31, 2010, the Company had $40.0 million and $36.6 million, respectively, of investment securities pledged as collateral for long-term advances from the Federal Home Loan Bank.

The Company had notes payable to banks totaling $11.1 million and $13.1 million at March 31, 2011 and December 31, 2010, respectively, which as of March 31, 2011, were accruing interest at rates ranging from 3.51% to 10.00%. Lease investments includes equipment with an amortized cost of $16.8 million and $19.0 million at March 31, 2011 and December 31, 2010, respectively, that is pledged as collateral on these notes.

The Company had a $40 million ten-year structured repurchase agreement as of March 31, 2011, which bears interest at a fixed rate borrowing of 4.75% and expires in 2016.

As of March 31, 2011, MB Financial Bank has a $50 million outstanding subordinated debt facility. Interest is payable at a rate of 3 month LIBOR plus 1.70%. The debt matures on October 1, 2017.

NOTE 13. JUNIOR SUBORDINATED NOTES ISSUED TO CAPITAL TRUSTS

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

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The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of March 31, 2011 (in thousands):

	Coal City	MB Financial	MB Financial (3)	MB Financial (4)
	Capital Trust I	Capital Trust II	Capital Trust III	Capital Trust IV
Junior Subordinated Notes:
Principal balance	$25,774	$36,083	$10,310	$20,619
Annual interest rate	3-mo LIBOR + 1.80%	3-mo LIBOR + 1.40%	3-mo LIBOR + 1.50%	3-mo LIBOR + 1.52%
Stated maturity date	September 1, 2028	September 15, 2035	September 23, 2036	September 15, 2036
Call date	September 1, 2008	September 15, 2010	September 23, 2011	September 15, 2011

Trust Preferred Securities:
Face value	$25,000	$35,000	$10,000	$20,000
Annual distribution rate	3-mo LIBOR + 1.80%	3-mo LIBOR + 1.40%	3-mo LIBOR + 1.50%	3-mo LIBOR + 1.52%
Issuance date	July 1998	August 2005	July 2006	August 2006
Distribution dates (1)	Quarterly	Quarterly	Quarterly	Quarterly

	MB Financial (4)	MB Financial	FOBB (2) (3) (5)	FOBB (2) (5)
	Capital Trust V	Capital Trust VI	Capital Trust I	Capital Trust III
Junior Subordinated Notes:
Principal balance	$30,928	$23,196	$6,186	$5,155
Annual interest rate	3-mo LIBOR + 1.30%	3-mo LIBOR + 1.30%	10.60%	3-mo LIBOR + 2.80%
Stated maturity date	December 15, 2037	October 30, 2037	September 7, 2030	January 23, 2034
Call date	March 15, 2012	October 30, 2012	September 7, 2010	January 23, 2009

Trust Preferred Securities:
Face value	$30,000	$22,500	$6,000	$5,000
Annual distribution rate	3-mo LIBOR + 1.30%	3-mo LIBOR + 1.30%	10.60%	3-mo LIBOR + 2.80%
Issuance date	September 2007	October 2007	September 2000	December 2003
Distribution dates (1)	Quarterly	Quarterly	Semi-annual	Quarterly

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

(2) Amount does not include purchase accounting adjustments totaling a premium of $312 thousand associated with FOBB Capital Trust I and III.

(3) Callable at a premium through 2020.

(4) Callable at a premium through 2011.

(5) FOBB Capital Trusts I and III were established by FOBB prior to the Company’s acquisition of FOBB, and the junior subordinated notes issued by FOBB to FOBB Capital Trusts I and III were assumed by the Company upon completion of the acquisition.

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption on a date no earlier than the call dates noted in the table above. Prior to these respective redemption dates, the junior subordinated notes may be redeemed by the Company (in which case the trust preferred securities would also be redeemed) after the occurrence of certain events that would have a negative tax effect on the Company or the trusts, would cause the trust preferred securities to no longer qualify as Tier 1 capital, or would result in a trust being treated as an investment company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period the Company may not pay cash dividends on its common stock or preferred stock and generally may not repurchase its common stock or preferred stock.

Under the terms of the securities purchase agreement between the Company and the U.S. Treasury pursuant to which the Company issued its Series A Preferred Stock as part to the TARP Capital Purchase Program, prior to the earlier of (i) December 5, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by the Company or transferred by Treasury to third parties, the Company may not redeem its trust preferred securities (or the related junior subordinated notes), without the consent of Treasury. See Note 17 below.

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NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

ASC Topic 815 requires the Company to designate each derivative contract at inception as either a fair value hedge or a cash flow hedge. Currently, the Company has only fair value hedges in the portfolio. For fair value hedges, interest rate swaps are structured so that all of the critical terms of the hedged items match the terms of the appropriate leg of the interest rate swaps at inception of the hedging relationship. The Company tests hedge effectiveness on a quarterly basis for all fair value hedges. For prospective and retrospective hedge effectiveness, we use the dollar offset approach. In periodically assessing retrospectively the effectiveness of a fair value hedge in having achieved offsetting changes in fair values under a dollar-offset approach, the Company uses a cumulative approach on individual fair value hedges.

The Company uses interest rate swaps to hedge its interest rate risk. The Company had fair value commercial loan interest rate swaps with aggregate notional amounts of $9.4 million at March 31, 2011. For fair value hedges, the changes in fair values of both the hedging derivative and the hedged item were recorded in current earnings as other income and other expense. When a fair value hedge no longer qualifies for hedge accounting, previous adjustments to the carrying value of the hedged item are reversed immediately to current earnings and the hedge is reclassified to a trading position.

We also offer various derivatives, including foreign currency forward contracts, to our customers and offset our exposure from such contracts by purchasing other financial contracts. The customer accommodations and any offsetting financial contracts are treated as non-hedging derivative instruments which do not qualify for hedge accounting. The notional amounts and fair values of open foreign currency forward contracts were not significant at March 31, 2011 and December 31, 2010.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. The net amount payable or receivable under interest rate swaps is accrued as an adjustment to interest income. The net amount payable for March 31, 2011 and December 31, 2010 was approximately $30 thousand. The Company’s credit exposure on interest rate swaps is limited to the Company’s net favorable value and interest payments of all swaps to each counterparty. In such cases collateral is required from the counterparties involved if the net value of the swaps exceeds a nominal amount. At March 31, 2011, the Company’s credit exposure relating to interest rate swaps was approximately $13.8 million, which is secured by the underlying collateral on customer loans.

The Company’s derivative financial instruments are summarized below as of March 31, 2011 and December 31, 2010 (dollars in thousands):

		March 31, 2011										December 31, 2010
							Weighted Average
	Balance Sheet	Notional		Estimated			Years to	Receive		Pay		Notional		Estimated
	Location	Amount		Fair Value			Maturity	Rate		Rate		Amount		Fair Value
Derivative instruments designated as hedges of fair value:
Pay fixed/receive floating swaps (1)	Other liabilities	$	8,139	$	(417	)	2.0	2.40	%	6.22	%	$	9,500	$	633

Non-hedging derivative instruments (2)
Pay fixed/receive floating swaps	Other liabilities	267,144		(13,848		)	4.8	1.69	%	4.81	%	261,020		(16,465		)
Pay fixed/receive floating swaps	Other assets	22,851		51			8.1	2.54	%	4.60	%	—		—
Pay variable/receive fixed swaps	Other liabilities	22,851		(51		)	8.1	4.60	%	2.54	%	—		—
Pay variable/receive fixed swaps	Other assets	265,907		13,751			4.8	4.81	%	1.69	%	261,020		16,465
Total portfolio swaps		$	586,892	$	(514	)	5.0	3.26	%	3.32	%	$	531,540	$	633

(1) Hedged fixed-rate commercial real estate loans

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

Amounts included in the consolidated statements of operations related to interest rate derivatives designated as hedges of fair value were as follows (dollars in thousands):

	Location of Gain	Three Months Ended
	Recognized in Income on	March 31,
	Derivatives	2011		2010

Interest rate swaps	Other income	$	16	$	—

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Amounts included in the consolidated statements of operations related to non-hedging derivative instruments were as follows (dollars in thousands):

	Location of Loss	Three Months Ended
	Recognized in Income on	March 31,
	Derivatives	2011		2010

Interest rate swaps	Other income	$	—	$	(79	)

NOTE 15. COMMITMENTS AND CONTINGENCIES

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

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

At March 31, 2011 and December 31, 2010, the following financial instruments were outstanding, the contractual amounts of which represent off-balance sheet credit risk (in thousands):

	March 31,		December 31,
	2011		2010
Commitments to extend credit:
Home equity lines	$	303,744	$	308,678
Other commitments	831,185		1,012,554

Letter of credit:
Standby	105,387		116,058
Commercial	2,676		2,970

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. The commitments for equity lines of credit may expire without being drawn upon.

Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

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

Both standby and commercial letters of credit may be issued for any length of time, but normally do not exceed a period of five years. These letters of credit may also be extended or amended from time to time depending on the bank customer’s needs. As of March 31, 2011, the longest maturity for any standby letter of credit was December 31, 2015. A fee of at least two percent of face value may be charged to the bank customer and is recognized as income over the life of the letter of credit, unless considered non-rebatable under the terms of a letter of credit application.

Of the $108.1 million in letter of credit commitments outstanding at March 31, 2011, approximately $18.2 million of the letters of credit have been issued or renewed since December 31, 2010.

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

Concentrations of credit risk: The majority of the loans, commitments to extend credit and standby letters of credit have been granted to customers in the Company’s market area. Investments in securities issued by states and political subdivisions also involve governmental entities primarily within the Company’s market area. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers.

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

As of March 31, 2011, the Company had approximately $3.7 million in capital expenditure commitments outstanding which relate to various projects to renovate existing branches and commitments to purchase branch facilities related to our FDIC-assisted transactions.

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Securities Available for Sale. The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level 1. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level 2. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as Level 3 inputs.

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

Derivatives. Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative and classified as Level 2. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including LIBOR rate curves. We also obtain dealer quotations for these derivatives for comparative purposes to assess the reasonableness of the model valuations.

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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

March 31, 2011
Financial assets
Securities available for sale:
U.S. government sponsored agencies and enterprises	$	56,971	$	—	$	56,971	$	—
States and political subdivisions	365,481		—		365,481		—
Residential mortgage-backed securities	1,269,449		—		1,268,170		1,279
Commercial mortgage-backed securities	10,519		—		10,519		—
Corporate bonds	6,019		—		—		6,019
Equity securities	10,215		10,215		—		—
Assets held in trust for deferred compensation	6,808		6,808		—		—
Derivative financial instruments	13,802		—		13,802		—
Financial liabilities
Other liabilities (1)	6,808		6,808		—		—
Derivative financial instruments	14,316		—		14,316		—

December 31, 2010
Financial assets
Securities available for sale:
U.S. government sponsored agencies and enterprises	$	19,434	$	—	$	19,434	$	—
States and political subdivisions	364,932		1,905		363,027		—
Residential mortgage-backed securities	1,196,536		—		1,195,200		1,336
Commercial mortgage-backed securities	530		—		530		—
Corporate bonds	6,140		—		—		6,140
Equity securities	10,171		10,171		—		—
Assets held in trust for deferred compensation	6,520		6,520		—		—
Derivative financial instruments	16,465		—		16,465		—
Financial liabilities
Other liabilities (1)	6,520		6,520		—		—
Derivative financial instruments	15,832		—		15,832		—

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

Approximately $1.8 million in states and political subdivisions bonds were transferred from a Level 1 category to a Level 2 category in the first quarter of 2011 based on third-party pricing methods.

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

	Three Months Ended
(in thousands)	March 31, 2011			March 31, 2010

Balance, beginning of period	$	7,476		$	7,897
Transfer into Level 3	—			—
Net unrealized losses	—			—
Other comprehensive income	21			—
Principal payments	(199		)	(47		)
Impairment charge	—			—
	$	7,298		$	7,850

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

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

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Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2011, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria. For a majority of impaired real estate loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

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

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

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

Assets measured at fair value on a nonrecurring basis as of March 31, 2011 are included in the table below (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial assets:
Loans held for sale	$	11,533	$	—	$	—	$	11,533
Impaired loans	247,734		—		—		247,734
Foreclosed assets	141,568		—		—		141,568
Branch property	1,097		—		—		1,097

Assets measured at fair value on a nonrecurring basis as of December 31, 2010 are included in the table below (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial assets:
Impaired loans	$	267,005	$	—	$	—	$	267,005
Foreclosed assets	116,221		—		—		116,221

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

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

Cash and due from banks and interest bearing deposits with banks: The carrying amounts reported in the balance sheet approximate fair value.

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

Loans: Most commercial loans and some real estate mortgage loans are made on a variable rate basis. For those variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values for fixed rate and all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

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

Interest bearing deposits: The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amounts payable on demand. The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar certificates to a schedule of aggregated expected monthly maturities on time deposits.

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

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

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

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

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

	March 31, 2011				December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and due from banks	$	123,794	$	123,794	$	106,726	$	106,726
Interest bearing deposits with banks	504,765		504,765		737,433		737,433
Investment securities available for sale	1,718,654		1,718,654		1,597,743		1,597,743
Investment securities held to maturity	102,206		102,334		—		—
Non-marketable securities - FHLB and FRB stock	80,186		80,186		80,186		80,186
Loans held for sale	11,533		11,533		—		—
Loans, net	6,189,586		6,112,738		6,425,594		6,330,229
Accrued interest receivable	32,881		32,881		35,158		35,158
Derivative financial instruments	13,802		13,802		16,465		16,465

Financial Liabilities:
Non-interest bearing deposits	$	1,666,868	$	1,666,868	$	1,691,599	$	1,691,599
Interest bearing deposits	6,225,138		6,239,181		6,461,359		6,480,269
Short-term borrowings	295,180		295,209		268,844		258,294
Long-term borrowings	275,327		283,546		285,073		294,623
Junior subordinated notes issued to capital trusts	158,563		99,359		158,571		92,286
Accrued interest payable	5,759		5,759		6,329		6,329
Derivative financial instruments	14,316		14,316		15,832		15,832

NOTE 17. COMMON AND PREFERRED STOCK

The Series A Preferred Stock was issued in December 2008 as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program of the United States Department of the Treasury (“Treasury”). The Series A Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends on the liquidation preference amount on a quarterly basis at a rate of 5% per annum for the first five years, and 9% per annum thereafter. Concurrent with issuing the Series A Preferred Stock, the Company issued to the Treasury a ten year warrant (the “Warrant”) to purchase 1,012,048 shares (subsequently reduced to 506,024 shares, as described below) of the Company’s Common Stock at an exercise price of $29.05 per share.

The Company may redeem the Series A Preferred Stock at any time by repaying Treasury, without penalty, subject to Treasury’s consultation with the Company’s appropriate regulatory agency. Additionally, upon redemption of the Series A Preferred Stock, the Warrant may be repurchased from the Treasury at its fair market value as agreed-upon by the Company and the Treasury.

On September 17, 2009, the Company completed a public offering of its common stock by issuing 12,578,125 shares of common stock for aggregate gross proceeds of $201.3 million. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $190.9 million. With the proceeds from this offering and the proceeds received by the Company from issuances pursuant to its Dividend Reinvestment and Stock Purchase Plan, the Company has received aggregate gross proceeds from “Qualified Equity Offerings” in excess of the $196.0 million aggregate liquidation preference amount of the Series A Preferred Stock. As a result, the number of shares of the Company’s common stock underlying the Warrant has been reduced by 50%, from 1,012,048 shares to 506,024 shares.

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The securities purchase agreement between the Company and Treasury provides that prior to the earlier of (i) December 5, 2011 and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by the Company or transferred by Treasury to third parties, the Company may not, without the consent of Treasury, (a) pay a cash dividend on the Company’s common stock of more than $0.18 per share or (b) subject to limited exceptions, redeem, repurchase or otherwise acquire shares of the Company’s common stock or preferred stock, other than the Series A Preferred Stock, or trust preferred securities. In addition, under the terms of the Series A Preferred Stock, the Company may not pay dividends on its common stock unless it is current in its dividend payments on the Series A Preferred Stock.

NOTE 18. INCOME TAXES

The Company had an income tax benefit of $2.5 million for the three months ended March 31, 2011. Approximately $2.1 million of the income tax benefit recognized in the first quarter of 2011 was due to an increase in deferred tax assets as a result of the Illinois corporate income tax rate increase which was enacted in the first quarter of 2011.

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

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

Overview

The profitability of our operations depends primarily on our net interest income after provision for loan losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for loan losses. The provision for loan losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio as well as prevailing economic and market conditions. Our net income is also affected by other income and other expenses. During the periods under report, non-interest income or other income consisted of loan service fees, deposit service fees, net lease financing income, brokerage fees, trust and asset management fees, net gains (losses) on the sale of investment securities available for sale, increase in cash surrender value of life insurance, net gain on sale of other assets, accretion of the indemnification asset and other operating income (loss). Other expenses include salaries and employee benefits, occupancy and equipment expense, computer services expense, advertising and marketing expense, professional and legal expense, brokerage fee expense, telecommunication expense, other intangibles amortization expense, FDIC insurance premiums, branch impairment charges, other real estate expenses (net of rental income) and other operating expenses. Additionally, dividends on preferred shares reduce net income available to common stockholders.

Net interest income is affected by changes in the volume and mix of interest earning assets, interest earned on those assets, the volume and mix of interest bearing liabilities and interest paid on interest bearing liabilities. Other income and other expenses are impacted by growth of operations and growth in the number of loan and deposit accounts through both acquisitions and core banking business growth. Growth in operations affects other expenses primarily as a result of additional employees, branch facilities and promotional marketing expense. Growth in the number of loan and deposit accounts affects other income, including service fees as well as other expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses. Higher levels of non-performing assets increase salaries and benefits because of the need to hire additional problem loan remediation staff, legal expenses and other real estate owned expenses.

The Company had net income of $6.9 million and net income available to common stockholders of $4.3 million for the first quarter of 2011, compared to a net income of $947 thousand and a net loss available to common stockholders of $1.6 million for the first quarter of 2010. Our 2011 first quarter results generated an annualized return on average assets of 0.28% and an annualized return on average common equity of 1.53%, compared to 0.04% and (0.61%), respectively, for the same period in 2010. Fully diluted income (loss) per common share for the first quarter of 2011 was $0.08 compared to ($0.03) per common share in the 2010 first quarter.

Critical Accounting Policies

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

Allowance for Loan Losses. Subject to the use of estimates, assumptions, and judgments in management’s evaluation process used to determine the adequacy of the allowance for loan losses, which combines several factors: management’s ongoing review and grading of the loan portfolio, consideration of past loan loss experience, trends in past due and nonperforming loans, risk characteristics of the various classifications of loans, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change significantly. As an

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integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management or require that adjustments be made to the allowance for loan losses, based on their judgments about information available to them at the time of their examination. We believe the allowance for loan losses is adequate and properly recorded in the financial statements. See “Allowance for Loan Losses” section below for further analysis.

Residual Value of Our Direct Finance, Leveraged, and Operating Leases. Lease residual value represents the present value of the estimated fair value of the leased equipment at the termination date of the lease. Realization of these residual values depends on many factors, including management’s use of estimates, assumptions, and judgment to determine such values. Several other factors outside of management’s control may reduce the residual values realized, including general market conditions at the time of expiration of the lease, whether there has been technological or economic obsolescence or unusual wear and tear on, or use of, the equipment and the cost of comparable equipment. If, upon the expiration of a lease, we sell the equipment and the amount realized is less than the recorded value of the residual interest in the equipment, we will recognize a loss reflecting the difference. On a quarterly basis, management reviews the lease residuals for potential impairment. If we fail to realize our aggregate recorded residual values, our financial condition and profitability could be adversely affected. At March 31, 2011, the aggregate residual value of the equipment leased under our direct finance, leveraged, and operating leases totaled $16.8 million. See Note 1 and Note 7 of the notes to our December 31, 2010 audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2010 for additional information.

Income Tax Accounting. ASC Topic 740 provides guidance on accounting for income taxes by prescribing the minimum recognition threshold that a tax position must meet to be recognized in the financial statements. ASC Topic 740 also provides guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of March 31, 2011, the Company had $92 thousand of uncertain tax positions. The Company elects to treat interest and penalties recognized for the underpayment of income taxes as income tax expense. However, interest and penalties imposed by taxing authorities on issues specifically addressed in ASC Topic 740 will be taken out of the tax reserves up to the amount allocated to interest and penalties. The amount of interest and penalties exceeding the amount allocated in the tax reserves will be treated as income tax expense. As of March 31, 2011, the Company had $4 thousand of accrued interest related to tax reserves. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of income.

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

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

During the year ended December 31, 2010, the Company completed two FDIC-assisted transactions. The Company recorded assets and liabilities at the estimated fair value as of the acquisition dates. See Note 2 of the notes to our December 31, 2010 audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2010 for additional information.

Goodwill. The excess of the cost of an acquisition over the fair value of the net assets acquired consists of goodwill, and core deposit and client relationship intangibles. See Note 9 of the notes to our December 31, 2010 audited consolidated financial statements contained in our Annual Report Form 10-K for the year ended December 31, 2010 for additional information regarding core deposit and client relationship intangibles. The Company reviews goodwill and other intangible assets to determine potential impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired, by comparing the carrying value of the asset with the anticipated future cash flows.

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The Company’s annual assessment date is as of December 31. No impairment losses were recognized during the three months ended March 31, 2011 and 2010.

Goodwill is tested for impairment at the reporting unit level. All of our goodwill is allocated to MB Financial, Inc., which is the Company’s only applicable reporting unit for purposes of testing goodwill impairment. Fair value was computed by estimating the future cash flows of the Company and present valuing those cash flows at an interest rate equal to our cost of capital. In addition, we compared our fair value calculation with our stock price adjusted for a control premium for reasonableness relative to our fair value calculation. Key assumptions used in estimating future cash flows included loan and deposit growth, the interest rate environment, credit spreads on new and renewed loans, future deposit pricing, loan charge-offs, provision for loan losses, fee income growth and operating expense growth. Our future cash flows estimates assume that credit performance returns to our historic experience over the next two years. If this does not happen, our future cash flows would be negatively impacted. Given the weak economy and our recent credit performance, there is a high degree of uncertainty regarding this assumption.

Results of Operations

First Quarter Results

The Company had net income of $6.9 million and net income available to common stockholders of $4.3 million for the first quarter of 2011 compared to net income of $947 thousand and a net loss available to common stockholders of $1.6 million for the first quarter of 2010. The results for the first quarter of 2011 generated an annualized return on average assets of 0.28% and an annualized return on average common equity of 1.53% compared to 0.04% and (0.61%), respectively, for the same period in 2010.

Net interest income was $82.2 million for the three months ended March 31, 2011, an increase of $1.4 million, or 1.7% from $80.8 million for the comparable period in 2010. See “Net Interest Margin” section below for further analysis.

Provision for loan losses was $40.0 million in the first quarter of 2011 as compared to $47.2 million in first quarter of 2010. Net charge-offs were $53.8 million in the quarter ended March 31, 2011, compared to $46.5 million in the quarter ended March 31, 2010.

The underlying value of collateral on impaired loans continued to remain at depressed levels during the three months ended March 31, 2011. Overall, the business environment has been adverse for an extended period of time for many households and businesses in the United States, including those in the Chicago metropolitan area. Unemployment remains at elevated levels and real estate prices continue to be significantly lower than the peak of the market several years ago. As a result of economic conditions, many commercial borrowers’ cash flows have declined due to higher vacancy rates and lower product demand. Additionally, the values of real estate securing our loans have declined over this extended period. These factors have caused us to continue to experience elevated loan charge-off rates and elevated provisions for loan losses.

See “Asset Quality” below for further analysis of the allowance for loan losses.

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Other Income (in thousands):

	Three Months Ended
	March 31,						Increase/			Percentage
	2011			2010			(Decrease)			Change
Other income:
Loan service fees	$	1,126		$	1,284		$	(158	)	(12	)%
Deposit service fees	10,069			8,848			1,221			14	%
Lease financing, net	5,783			4,620			1,163			25	%
Brokerage fees	1,419			1,245			174			14	%
Trust and asset management fees	4,431			3,335			1,096			33	%
Net (loss) gain on sale of investment securities available for sale	(3		)	6,866			(6,869		)	(100	)%
Increase in cash surrender value of life insurance	968			671			297			44	%
Net gain on sale of other assets	357			11			346			3,145	%
Accretion of FDIC indemnification asset	1,831			—			1,831			NM
Other operating income	3,162			(423		)	3,585			(848	)%
Total other income	$	29,143		$	26,457		$	2,686		10	%

(NM — Not meaningful)

Other income increased by $2.7 million for the first quarter of 2011 compared to the first quarter of 2010, primarily due to increases in deposit service fees, lease financing, trust and asset management fees, accretion of FDIC indemnification asset and other operating income, partially offset by lower gains on sales of investment securities. Core deposit service fees increased primarily due to an increase in treasury fees. Net lease financing increased primarily due to an increase in the sales of third party equipment maintenance contracts. 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 and Benchmark Bank transactions was not significant. Other operating income increased primarily due a decrease in impairments and net losses recognized on other real estate owned (“OREO”) from $3.3 million in the first quarter of 2010 to $372 thousand in the first quarter of 2011 and higher ATM and debit card fees.

Other Expense (in thousands):

	Three Months Ended
	March 31,				Increase /			Percentage
	2011		2010		(Decrease)			Change

Other expense:
Salaries and employee benefits	$	37,447	$	33,422	$	4,025		12	%
Occupancy and equipment expense	9,394		9,179		215			2	%
Computer services expense	2,618		2,528		90			4	%
Advertising and marketing expense	1,719		1,633		86			5	%
Professional and legal expense	1,225		1,078		147			14	%
Brokerage fee expense	328		462		(134		)	(29	)%
Telecommunication expense	935		908		27			3	%
Other intangibles amortization expense	1,425		1,510		(85		)	(6	)%
FDIC insurance premiums	3,428		3,964		(536		)	(14	)%
Branch impairment charges	1,000		—		1,000			NM
Other real estate expense, net	398		685		(287		)	(42	)%
Other operating expenses	6,947		6,282		665			11	%
Total other expenses	$	66,864	$	61,651	$	5,213		8	%

(NM — Not meaningful)

Other expense increased by $5.2 million from the first quarter of 2010 to the first quarter of 2011, primarily due to higher salaries and employee benefits expense. Salaries and employee benefits expense increased due to problem loan remediation staff added throughout the prior year as well as staff added through the FDIC-assisted transactions completed in the second quarter of 2010. FDIC insurance premiums decreased due to lower deposit balances. Other expense during the first quarter of 2011 also includes a $1.0 million fixed asset impairment charge caused by our decision to close a branch.

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Income Taxes

The Company had an income tax benefit of $2.5 million for the three months ended March 31, 2011 and 2010. Approximately $2.1 million of the income tax benefit recognized in the first quarter of 2011 was due to an increase in deferred tax assets as a result of the Illinois corporate income tax rate increase which was enacted in the first quarter of 2011.

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 March 31,
	2011						2010
	Average				Yield /		Average				Yield /
	Balance		Interest		Rate		Balance		Interest		Rate
Interest Earning Assets:
Loans (1) (2) (3)	$	6,331,678	$	85,637	5.49	%	$	6,325,217	$	80,999	5.19	%
Loans exempt from federal income taxes (4)	128,959		2,353		7.30		116,408		2,135		7.34
Taxable investment securities	1,313,061		7,752		2.36		2,300,072		19,966		3.47
Investment securities exempt from federal income taxes (4)	348,831		5,146		5.90		360,658		5,274		5.85
Federal funds sold	—		—		—		1,428		2		0.56
Other interest bearing deposits	747,013		471		0.26		124,301		91		0.30
Total interest earning assets	8,869,542		$	101,359	4.63		9,228,084		$	108,467	4.77
Non-interest earning assets	1,329,084						1,121,580
Total assets	$	10,198,626					$	10,349,664

Interest Bearing Liabilities:
Deposits:
NOW and money market deposit accounts	$	2,726,599	$	2,486	0.37	%	$	2,708,718	$	3,629	0.54	%
Savings deposits	710,455		420		0.24		585,628		450		0.31
Time deposits	2,896,697		10,453		1.46		3,479,794		17,293		2.02
Short-term borrowings	265,844		217		0.33		253,438		345		0.55
Long-term borrowings and junior subordinated notes	436,975		2,953		2.70		483,937		3,339		2.76
Total interest bearing liabilities	7,036,570		$	16,529	0.95		7,511,515		$	25,056	1.35
Non-interest bearing deposits	1,672,003						1,454,263
Other non-interest bearing liabilities	143,775						100,454
Stockholders’ equity	1,346,278						1,283,432
Total liabilities and stockholders’ equity	$	10,198,626					$	10,349,664
Net interest income/interest rate spread (5)			$	84,830	3.68	%			$	83,411	3.42	%
Taxable equivalent adjustment			2,625						2,593
Net interest income, as reported			$	82,205					$	80,818
Net interest margin (6)					3.76	%					3.55	%
Tax equivalent effect					0.12	%					0.12	%
Net interest margin on a fully tax equivalent basis (6)					3.88	%					3.67	%

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

(2) Interest income includes amortization of deferred loan origination fees of $1.3 million and $1.0 million for the three months ended March 31, 2011 and 2010, respectively.

(3) Loans held for sale are included in the average loan balance listed. Related interest income is included in loan interest income.

(4) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.

(5) 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.

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

Net interest income was $82.2 million for the three months ended March 31, 2011, an increase of $1.4 million, or 1.7% from $80.8 million for the comparable period in 2010. The increase in net interest income was due to a decrease in our average cost of funds as a result of an improved deposit mix and downward repricing of interest bearing deposits. The increase in the yield on loans for the first quarter of 2011 compared to the same period in the prior year was due to the

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loans acquired through the FDIC-assisted transactions completed in the second quarter of 2010. Net interest income was negatively impacted by high levels of liquidity in the first quarter of 2011. The high liquidity level reflects our cautiousness in reinvesting cash in the current low interest rate environment. Our non-performing loans reduced our net interest margin during the first quarter of 2011 and the first quarter of 2010 by approximately 19 basis points and 18 basis points, respectively.

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011. The ultimate impact of this legislation on the Company has not yet been determined.

Volume and Rate Analysis of Net Interest Income

The following table presents the extent to which changes in volume and interest rates of interest earning assets and interest bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior period rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior period volume) and (iii) change attributable to a combination of changes in rate and volume (change in rates multiplied by the changes in volume) (in thousands). Changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Three Months Ended
	March 31, 2011 Compared to March 31, 2010
	Change			Change
	Due to			Due to			Total
	Volume			Rate			Change
Interest Earning Assets:
Loans	$	82		$	4,556		$	4,638
Loans exempt from federal income taxes (1)	229			(11		)	218
Taxable investments securities	(6,998		)	(5,216		)	(12,214		)
Investment securities exempt from federal income taxes (1)	(174		)	46			(128		)
Federal funds sold	(1		)	(1		)	(2		)
Other interest bearing deposits	395			(15		)	380
Total increase (decrease) in interest income	(6,467		)	(641		)	(7,108		)
Interest Bearing Liabilities:
Deposits:
NOW and money market deposit accounts	24			(1,167		)	(1,143		)
Savings deposits	85			(115		)	(30		)
Time deposits	(2,598		)	(4,242		)	(6,840		)
Short-term borrowings	16			(144		)	(128		)
Long-term borrowings and junior subordinated notes	(318		)	(68		)	(386		)
Total decrease in interest expense	(2,791		)	(5,736		)	(8,527		)
Total increase in net interest income	$	(3,676	)	$	5,095		$	1,419

(1) Non-taxable loan and investment income is presented on a fully tax equivalent basis assuming a 35% tax rate.

Balance Sheet

Total assets decreased $249.0 million, or 2.4%, from $10.3 billion at December 31, 2010 to $10.1 billion at March 31, 2011. Investment securities increased $223.1 million from December 31, 2010 to March 31, 2011 mostly as a result of deploying cash balances held at year end. Total loans decreased by $249.8 million, or 3.8%, to $6.4 billion at March 31, 2011 from $6.6 billion at December 31, 2010. See “Loan Portfolio” section below for further analysis.

Total liabilities decreased by $254.5 million, or 2.8% to $8.7 billion at March 31, 2011 from December 31, 2010. Total deposits decreased by $261.0 million or 3.2% to $7.9 billion at March 31, 2011 from $8.2 billion at December 31, 2010. Time deposits decreased by $193.4 million, or 6.5%, to $2.8 billion at March 31, 2011 from December 31, 2010. The decrease in time deposits was related to rate sensitive customers whose certificates of deposit matured and were not renewed.

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Total stockholders’ equity increased $5.5 million from December 31, 2010. This increase was primarily due to the increase in earnings.

Loan Portfolio

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

	March 31,					December 31,					March 31,
	2011					2010					2010
	Amount			% of Total		Amount			% of Total		Amount			% of Total

Commercial related credits:
Commercial loans	$	1,154,451		18	%	$	1,206,984		18	%	$	1,378,873		21	%
Commercial loans collateralized by assignment of lease payments (lease loans)	1,038,507			16	%	1,053,446			16	%	960,470			15	%
Commercial real estate	2,084,651			33	%	2,176,584			33	%	2,409,078			38	%
Construction real estate	356,579			6	%	423,339			6	%	558,615			9	%
Total commercial related credits	4,634,188			73	%	4,860,353			73	%	5,307,036			83	%
Other loans:
Residential real estate	335,423			5	%	328,482			5	%	302,308			5	%
Indirect motorcycle	163,301			3	%	161,761			2	%	158,207			2	%
Indirect automobile	11,757			0	%	13,903			1	%	20,437			1	%
Home equity	371,108			6	%	381,662			6	%	401,570			6	%
Consumer loans	74,585			1	%	59,320			1	%	70,247			1	%
Total other loans	956,174			15	%	945,128			15	%	952,769			15	%
Gross loans excluding covered loans	5,590,362			88	%	5,805,481			88	%	6,259,805			98	%
Covered loans (1)	777,634			12	%	812,330			12	%	155,051			2	%
Gross loans (2)	6,367,996			100	%	6,617,811			100	%	6,414,856			100	%
Allowance for loan losses	(178,410		)			(192,217		)			(177,787		)
Net loans	$	6,189,586				$	6,425,594				$	6,237,069

(1) Loans subject to loss-share with the FDIC are referred to as “covered loans.”

(2) Gross loan balances at March 31, 2011, December 31, 2010, and March 31, 2010 were net of unearned income, including net deferred loan fees of $2.8 million, $3.3 million, and $4.3 million, respectively.

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Asset Quality

The following table presents a summary of non-performing assets, excluding loans held for sale, as of the dates indicated (dollar amounts in thousands):

	March 31,			December 31,			March 31,
	2011			2010			2010
Non-performing loans:(1)
Non-accrual loans	$	318,923		$	362,441		$	323,017
Loans 90 days or more past due, still accruing interest	—			1			150
Total non-performing loans	318,923			362,442			323,167

Other real estate owned(2)	80,107			71,476			41,589
Repossessed vehicles	139			82			250
Total non-performing assets	$	399,169		$	434,000		$	365,006

Total allowance for loan losses (3)	$	178,410		$	192,217		$	177,787
Partial charge-offs taken on non-performing loans	156,692			163,972			95,960
Allowance for loan losses, including partial charge-offs	$	335,102		$	356,189		$	273,747

Total non-performing loans to total loans	5.01		%	5.48		%	5.04		%
Total non-performing assets to total assets	3.96		%	4.21		%	3.58		%
Allowance for loan losses to non-performing loans(1)	55.94		%	53.03		%	55.01		%
Allowance for loan losses to non-performing loans, including partial charge-offs taken(4)	70.46		%	67.66		%	65.31		%

(1) This table excludes purchased credit-impaired loans that were acquired as part of the Heritage, InBank, Corus, Benchmark, Broadway, and New Century FDIC-assisted transactions. Purchased credit-impaired loans have evidence of deterioration in credit quality prior to acquisition. Fair value of these loans as of the acquisition date includes estimates of credit losses. These loans are accounted for on a pool basis, and the pools are considered to be performing. This table also excludes loans held for sale. Non-performing loans at March 31, 2011 and December 31, 2010 exclude $31.8 million and $22.5 million, respectively, of accruing restructured loans that have been modified and are performing in accordance with those modified terms. Non-performing loans at March 31, 2011 and December 31, 2010 include $60.9 million and $47.6 million, respectively, of restructured loans on non-accrual status.

(2) This table excludes other real estate owned that is related to the Heritage, InBank, Benchmark, Broadway, and New Century FDIC-assisted transactions. Other real estate owned related to the Heritage, Benchmark, Broadway, and New Century transactions, which totaled $59.5 million at March 31, 2011, $42.5 million at December 31, 2010, and $21.7 million at March 31, 2010, is subject to the loss-sharing agreements with the FDIC.

(3) Includes $12.7 million for credit losses on unfunded commitments at March 31, 2011.

(4) Calculated by adding partial charge-offs to both the numerator and denominator in the calculation.

The following table represents a summary of other real estate (“OREO”), excluding assets related to FDIC-assisted transactions, for the three months ended March 31, 2011 and 2010 (in thousands):

	March 31,
	2011			2010

Balance at beginning of period	$	71,476		$	36,711
Transfers in at fair value less estimated costs to sell	25,167			10,438
Fair value adjustments	(1,314		)	(2,795		)
Net gains (losses) on sales of OREO	945			(504		)
Cash received upon disposition	(16,167		)	(2,261		)
Balance at end of period	$	80,107		$	41,589

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The following table presents data related to non-performing loans, excluding purchased credit-impaired loans, by dollar amount and category at March 31, 2011 (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	$	25,195		1	$	17,328		$	—		$	42,523
$5.0 million to $9.9 million	2	16,245			3	16,597			2	18,312			—			51,154
$1.5 million to $4.9 million	3	5,827			13	42,055			19	50,748			1,575			100,205
Under $1.5 million	47	18,210			29	13,998			158	66,366			26,467			125,041
	52	$	40,282		47	$	97,845		180	$	152,754		$	28,042		$	318,923

Percentage of individual loan category		1.84		%		27.44		%		7.33		%	2.93		%	5.01		%

Specific reserves and partial charge-offs as a percentage of non-performing loans		46		%		47		%		32		%

The following table presents data related to non-performing loans, excluding purchased credit-impaired loans, by dollar amount and category at December 31, 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	—	$	—		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		%

Allowance for Loan Losses

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

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

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

General Loss Reserve. We maintain a general loan loss reserve for the four categories of commercial-related loans in our portfolio - commercial loans, commercial loans collateralized by the assignment of lease payments (lease loans), commercial real estate loans and construction real estate loans. We use a loan loss reserve model that incorporates the migration of loan risk rating and historical default data over a multi-year period. Under our loan risk rating system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is risk rated between one and nine by the originating loan officer, Senior Credit Management, Loan Review or any loan committee. Loans rated one represent those loans least likely to default and a loan rated nine represents a loss. The probability of loans defaulting for each risk rating, sometimes referred to as default factors, are estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time. Estimated loan default factors are multiplied by individual loan balances in each risk-rating category and again multiplied by an historical loss given default estimate for each loan type (which incorporates estimated recoveries) to determine an

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appropriate level of allowance by loan type. This approach is applied to the commercial, lease, commercial real estate, and construction real estate components of the portfolio.

The general allowance for loan losses also includes estimated losses resulting from macroeconomic factors and imprecision of our loan loss model. Macroeconomic factors adjust the allowance for loan losses upward or downward based on the current point in the economic cycle and are applied to the loan loss model through a separate allowance element for the commercial, commercial real estate, construction real estate and lease loan components. To determine our macroeconomic factors, we use specific economic data that has a statistical correlation to loan losses. We annually review this data to determine that such a correlation continues to exist. Additionally, as the factors are only updated annually, we periodically review the macroeconomic factors in order to conclude they are adequate based on current economic conditions.

Model imprecision accounts for the possibility that our limited loan loss history may result in inaccurate estimated default and loss given default factors. Factors for imprecision modify estimated default factors calculated by our migration analysis and are based on the standard deviation of each estimated default factor.

At each quarter end, potential problem loans are reviewed, with adjustments made to the general calculated reserve for each loan as deemed necessary. See discussion in “Specific Reserve” section below.

The general loss reserve was $126.4 million as of March 31, 2011 and December 31, 2010. Reserves on impaired loans are included in the “Specific Reserve” section below. See additional discussion in “Potential Problem Loans” below.

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

At each quarter-end, impaired loans are reviewed individually, with adjustments made to the general calculated reserve for each loan as deemed necessary. Specific adjustments are made depending on expected cash flows and/or the value of the collateral securing each loan. Generally, the Company obtains a current external appraisal (within 12 months) on real estate secured impaired loans. Other valuation techniques are used as well, including internal valuations, comparable property analyses and contractual sales information. For appraisals that are more than six months old, we may further discount appraisal values. This discount is based on our evaluation of market conditions and is in addition to a reduction in value for potential sales costs and discounting that has been incorporated in the independent appraisal. As of March 31, 2011, almost all appraisals were completed within the previous 12 months.

The total specific reserve component of the allowance was $38.1 million as of March 31, 2011 and $51.8 million as of December 31, 2010. The decrease in specific reserve reflects additional partial charge-offs taken on impaired loans. See discussion in “First Quarter Results” for additional discussion of the impacts of the economic environment on the loan portfolio.

Smaller Balance Homogenous Loans. Pools of homogeneous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include consumer, residential real estate, home equity and indirect vehicle loans. Migration probabilities obtained from past due roll rate analyses are applied to current balances to forecast charge-offs over a one-year time horizon. The reserves for smaller balance homogenous loans totaled $13.9 million at March 31, 2011, and $14.0 million at December 31, 2010.

We consistently apply our methodology for determining the appropriateness of the allowance for loan losses, but may adjust our methodologies and assumptions based on historical information related to charge-offs and management’s evaluation of the loan portfolio. In this regard, we periodically review the following in order to validate our allowance for loan losses: historical net charge-offs as they relate to prior allowance for loan loss, comparison of historical migration years to the current migration year, and any significant changes in loan concentrations. In reviewing this data, we adjust qualitative factors within our allowance methodology to appropriately reflect any changes warranted by the validation process.

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A reconciliation of the activity in the allowance for loan losses follows (dollar amounts in thousands):

	Three Months Ended
	March 31,			March 31,
	2011			2010
Balance at the beginning of period	$	192,217		$	177,072
Provision for loan losses	40,000			47,200
Charge-offs:
Commercial loans	(3,151		)	(7,363		)
Commercial loans collateralized by assignment of lease payments (lease loans)	—			(333		)
Commercial real estate loans	(29,775		)	(12,201		)
Construction real estate	(21,094		)	(25,285		)
Residential real estate	(3,562		)	(459		)
Indirect vehicle	(718		)	(1,117		)
Home equity	(1,907		)	(628		)
Consumer loans	(544		)	(525		)
Total charge-offs	(60,751		)	(47,911		)
Recoveries:
Commercial loans	2,565			724
Commercial loans collateralized by assignment of lease payments (lease loans)	66			—
Commercial real estate loans	1,534			186
Construction real estate	2,026			113
Residential real estate	7			41
Indirect vehicle	325			301
Home equity	48			59
Consumer loans	373			2
Total recoveries	6,944			1,426

Total net charge-offs	(53,807		)	(46,485		)

Balance (1)	$	178,410		$	177,787

Total loans, excluding loans held for sale	$	6,367,996		$	6,414,856
Average loans, excluding loans held for sale	$	6,460,509		$	6,441,625

Ratio of allowance for loan losses to total loans, excluding loans held for sale	2.80		%	2.77		%
Ratio of allowance for loan losses to total loans, including partial charge-offs, and excluding loans held for sale	5.46		%	4.20		%
Net loan charge-offs to average loans, excluding loans held for sale (annualized)	3.38		%	2.93		%

(1) Includes $12.7 million for credit losses on unfunded commitments at March 31, 2011.

Net charge-offs increased $7.3 million to $53.8 million in the three months ended March 31, 2011 compared to $46.5 million in the three months ended March 31, 2010. As noted in “First Quarter Results,” elevated levels of charge-offs were primarily due to continued weakness of our borrowers’ ability to repay and continued deterioration in the value of collateral securing impaired loans.

Provision for loan losses decreased by $7.2 million to $40.0 million in the three months ended March 31, 2011 from $47.2 million in the same period of 2010. The provisions for loan losses were primarily the result of migration of loans to non-performing status and the deterioration in the value of collateral securing non-performing loans. The decrease in the provision from the quarter ended March 31, 2010 was due primarily to appraisal values on underlying collateral beginning to stabilize during the past several quarters. See discussion in “First Quarter Results” for additional

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discussion of the impacts of the economic environment on the loan portfolio.

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

We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At our scheduled meetings of the board of directors of MB Financial Bank, a watch list is presented, showing significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” Under our risk rating system noted above, Special Mention, Substandard, and Doubtful loan classifications correspond to risk ratings six, seven, and eight, respectively. An asset is classified Substandard, or risk rated seven if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful, or risk rated eight have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss, or risk rated nine are those considered uncollectible and viewed as valueless assets and have been charged-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention, or risk rated six.

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

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.

Potential Problem Loans

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). We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amounts of potential problem loans as of March 31, 2011, and December 31, 2010 were approximately $307.4 million, and $291.7 million, respectively. Our potential problem loans would have decreased during the first quarter; however, approximately $29 million in loans were upgraded from nonperforming to potential problem status during the quarter.

Lease Investments

The lease portfolio is comprised of various types of equipment, generally technology related, including computer systems and satellite equipment, material handling and general manufacturing equipment. The credit quality of the lessee is often an investment grade public debt rating by Moody’s or Standard & Poors, or the equivalent as determined by us, and at times below investment grade.

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Lease investments by categories follow (in thousands):

	March 31,			December 31,			March 31,
	2011			2010			2010
Direct finance leases:
Minimum lease payments	$	61,724		$	64,525		$	68,696
Estimated unguaranteed residual values	7,355			7,387			8,023
Less: unearned income	(6,372		)	(6,801		)	(7,317		)
Direct finance leases (1)	$	62,707		$	65,111		$	69,402

Leveraged leases:
Minimum lease payments	$	15,189		$	13,819		$	17,296
Estimated unguaranteed residual values	2,638			2,842			4,340
Less: unearned income	(1,319		)	(1,295		)	(1,608		)
Less: related non-recourse debt	(13,802		)	(13,089		)	(16,494		)
Leveraged leases (1)	$	2,706		$	2,277		$	3,534

Operating leases:
Equipment, at cost	$	229,157		$	224,343		$	234,634
Less: accumulated depreciation	(99,975		)	(97,437		)	(95,705		)
Lease investments, net	$	129,182		$	126,906		$	138,929

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

Leases that transfer substantially all of the benefits and risk related to the equipment ownership to the lessee are classified as direct financing. If these direct finance leases have non-recourse debt associated with them, they are further classified as leveraged leases, and the associated debt is netted with the outstanding balance in the consolidated financial statements. Interest income on direct finance and leveraged leases is recognized using methods which approximate a level yield over the term of the lease.

Operating leases are investments in equipment leased to other companies, where the residual component makes up more than 10% of the investment. The Company funds most of the lease equipment purchases internally, but has some loans at other banks which totaled $11.1 million at March 31, 2011, $13.1 million at December 31, 2010, and $18.2 million at March 31, 2010.

The lease residual value represents the present value of the estimated fair value of the leased equipment at the termination of the lease. Lease residual values are reviewed quarterly and any write-downs, or charge-offs deemed necessary are recorded in the period in which they become known. Gains on leased equipment periodically result when a lessee renews a lease or purchases the equipment at the end of a lease, or the equipment is sold to a third party at a profit. Individual lease transactions can, however, result in a loss. This generally happens when, at the end of a lease, the lessee does not renew the lease or purchase the equipment. To mitigate this risk of loss, we usually limit individual leased equipment residuals (expected lease book values at the end of initial lease terms) to approximately $500 thousand per transaction and seek to diversify both the type of equipment leased and the industries in which the lessees to whom such equipment is leased participate. Often times, there are several individual lease schedules under one master lease. There were 2,565 leases at March 31, 2011 compared to 2,564 leases at December 31, 2010, and 2,573 leases at March 31, 2010. The average residual value per lease schedule was approximately $22 thousand at March 31, 2011, $21 thousand at December 31, 2010, and $22 thousand at March 31, 2010. The average residual value per master lease schedule was approximately $170 thousand at March 31, 2011, $168 thousand at December 31, 2010, and $205 thousand at March 31, 2010.

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At March 31, 2011, the following reflects the residual values for leases by category in the year the initial lease term ends (in thousands):

	Residual Values
	Direct
	Finance		Leveraged		Operating
	Leases		Leases		Leases		Total
End of initial lease term December 31,
2011	$	1,624	$	636	$	11,489	$	13,749
2012	1,889		1,180		10,547		13,616
2013	1,813		694		7,207		9,714
2014	1,502		114		8,793		10,409
2015	388		8		4,577		4,973
Thereafter	139		6		2,891		3,036
	$	7,355	$	2,638	$	45,504	$	55,497

Investment Securities

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

	At March 31, 2011				At December 31, 2010				At March 31, 2010
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
Available for sale
U.S. Government sponsored agencies and enterprises	$	56,452	$	56,971	$	18,766	$	19,434	$	54,672	$	55,716
States and political subdivisions	350,851		365,481		351,274		364,932		362,453		375,523
Residential mortgage-backed securities	1,247,663		1,269,449		1,174,500		1,196,536		1,696,082		1,707,917
Commercial mortgage-backed securities	10,508		10,519		521		530		587		595
Corporate bonds	6,019		6,019		6,140		6,140		6,356		6,356
Equity securities	10,169		10,215		10,093		10,171		4,318		4,384
	1,681,662		1,718,654		1,561,294		1,597,743		2,124,468		2,150,491
Held to maturity
Residential mortgage-backed securities	102,206		102,334		—		—		—		—

Total	$	1,783,868	$	1,820,988	$	1,561,294	$	1,597,743	$	2,124,468	$	2,150,491

Liquidity and Sources of Capital

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

Cash flows from operating activities primarily include results of operations for the period, adjusted for items in net income that did not impact cash. Net cash provided by operating activities increased by $26.9 million to $49.2 million for the three months ended March 31, 2011 from the three months ended March 31, 2010. The increase was primarily due to the increase in earnings and less of a decrease in other liabilities.

Cash flows from investing activities reflects the impact of loans and investment securities acquired for the Company’s interest-earning asset portfolios, as well as cash flows from asset sales, the impact of acquisitions and FDIC-assisted transactions. Net cash used in investing activities was $17.3 million for the three months ended March 31, 2011 compared to net cash provided by investing activities of $790.4 million for the three months ended March 31, 2010. The decrease was primarily due a decrease in cash provided by sales of our investment securities.

Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. For the three months ended March 31, 2011, the Company had net cash flows used in financing activities of $247.5 million compared to net cash flows used in financing activities of $670.7 million for the three months ended March 31, 2010. The change in cash flows from financing activities was primarily due to less of a decrease in deposits, as during the three months ended March 31, 2010, we experienced a run-off of higher rate certificates of deposit assumed in the Corus FDIC-assisted transaction.

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We expect to have adequate cash to meet our liquidity needs. Liquidity management is monitored by an Asset/Liability Management Committee, consisting of members of management, which review historical funding requirements, current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.

The Company has numerous sources of liquidity including readily marketable investment securities, shorter-term loans within the loan portfolio, principal and interest cash flows from investments and loans, the ability to attract retail and public fund time deposits and to purchase brokered time deposits.

In the event that additional short-term liquidity is needed or the Company is unable to retain brokered deposits, MB Financial Bank has established relationships with several large regional banks to provide short-term borrowings in the form of federal funds purchases. While, at March 31, 2011, there were no firm lending commitments in place, management believes that MB Financial Bank could borrow approximately $185.0 million for a short time from these banks on a collective basis. MB Financial Bank is a member of Federal Home Loan Bank of Chicago (FHLB). As of March 31, 2011, the Company had $176.3 million outstanding in FHLB advances and could borrow an additional amount of approximately $292.2 million. As a contingency plan for significant funding needs, the Asset/Liability Management Committee may also consider the sale of investment securities, selling securities under agreement to repurchase, or the temporary curtailment of lending activities. As of March 31, 2011, the Company had approximately $866.2 million of unpledged investment securities, excluding investment securities available for pledge at the FHLB.

See Notes 11 and 12 of the Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. There were no material changes outside the ordinary course of business in the Company’s contractual obligations at March 31, 2011 as compared to December 31, 2010.

At March 31, 2011, the Company’s total risk-based capital ratio was 18.33%; Tier 1 capital to risk-weighted assets ratio was 16.31%; and Tier 1 capital to average asset ratio was 11.00%. MB Financial Bank’s total risk-based capital ratio was 16.18%; Tier 1 capital to risk-weighted assets ratio was 14.14%; and Tier 1 capital to average asset ratio was 9.51%. MB Financial Bank, N.A. was categorized as “Well-Capitalized” at March 31, 2011 under the regulations of the Office of the Comptroller of the Currency.

Non-GAAP Financial Information

This report contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include net interest income on a fully tax equivalent basis, net interest margin on a fully tax equivalent basis and the addition of partial charge-offs to the amount of the allowance for loan losses and to the numerator and the denominator in the ratios of the allowance for loan losses to non-performing loans and to total loans. Our management uses these non-GAAP measures in its analysis of our performance. 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 believes that the addition of partial charge-offs to the allowance for loan losses and to the numerator and the denominator in the ratios of the allowance for loan losses to non-performing loans and to total loans may be useful to investors because it shows what our loan loss reserve levels would have been had the partial charge-offs not been taken. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of net interest income on a fully tax equivalent basis to net interest income and net interest margin on a fully tax equivalent basis to net interest margin are contained in the tables under “Net Interest Margin.” Reconciliations of the allowance for loan losses including partial charge-offs to the allowance for loan losses, and the ratios of the allowance for loan losses to non-performing loans and total loans including partial change offs to the same ratios without the addition of partial charge-offs, are contained in the tables under “Asset Quality” and “Allowance for Loan Losses.”

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Forward-Looking Statements

When used in this Annual Report on Form 10-Q and in other filings with the Securities and Exchange Commission, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to MB Financial, Inc.’s future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from 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 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.

Item 3. - Quantitative and Qualitative Disclosures about Market Risk

Market Risk and Asset Liability Management

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

Asset Liability Management. Management and our Treasury Group continually monitor our sensitivity to interest rate changes. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The strategy we employ to manage our interest rate risk is to measure our risk using an asset/liability simulation model. The model considers several factors to determine our potential exposure to interest rate risk, including measurement of repricing gaps, duration, convexity, value at risk, and the market value of portfolio equity under assumed changes in the level of interest rates, shape of the yield curves, and general market volatility. Management controls our interest rate exposure using several strategies, which include adjusting the maturities of securities in our investment portfolio, and limiting fixed rate loans or fixed rate deposits with terms of more than five years. We also use derivative instruments, principally interest rate swaps, to manage our interest rate risk. See Note 14 to the Consolidated Financial Statements.

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

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

Variable or floating rate, assets and liabilities that reprice at similar times and have base rates of similar maturity may still be subject to interest rate risk. If financial instruments have different base rates, we are subject to basis risk reflecting the possibility that the spread from those base rates will deviate.

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

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

The following table sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at March 31, 2011 that we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined based on the earlier of the term to repricing or the term to repayment of the asset or liability. The table is intended to provide an approximation of the projected repricing of assets and liabilities at March 31, 2011 based on contractual maturities and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be reinvested and/or repriced because of contractual amortization and rate adjustments on adjustable-rate loans. Loan and investment securities’ contractual maturities and amortization reflect expected prepayment assumptions. While NOW, money market and savings deposit accounts have adjustable rates, it is assumed that the interest rates on some of the accounts will not adjust immediately to changes in other interest rates.

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Therefore, the information in the table is calculated assuming that NOW, money market and savings deposits will reprice as follows: 4%, 10% and 5%, respectively, in the first three months, 14%, 26%, and 16%, respectively, in the next nine months, 57%, 58% and 58%, respectively, from one year to five years, and 25%, 7%, and 21%, respectively over five years (dollars in thousands):

	Time to Maturity or Repricing
	0 - 90			91 - 365			1 - 5			Over 5
	Days			Days			Years			Years			Total
Interest Earning Assets:
Interest bearing deposits with banks	$	502,682		$	624		$	1,459		$	—		$	504,765
Investment securities	220,061			308,206			1,123,804			248,975			1,901,046
Loans held for sale	11,533			—			—			—			11,533
Loans, including covered loans	2,798,822			1,169,750			2,236,302			163,122			6,367,996
Total interest earning assets	$	3,533,098		$	1,478,580		$	3,361,565		$	412,097		$	8,785,340

Interest Bearing Liabilities:
NOW and money market deposits accounts	$	217,142		$	608,956		$	1,561,167		$	325,049		$	2,712,314
Savings deposits	36,946			111,241			416,525			154,184			718,896
Time deposits	728,068			1,183,938			784,645			97,277			2,793,928
Short-term borrowings	32,368			82,910			161,698			18,204			295,180
Long-term borrowings	60,714			30,268			181,278			3,067			275,327
Junior subordinated notes issued to capital trusts	152,065			—			—			6,498			158,563
Total interest bearing liabilities	$	1,227,303		$	2,017,313		$	3,105,313		$	604,279		$	6,954,208

Rate sensitive assets (RSA)	$	3,533,098		$	5,011,678		$	8,373,243		$	8,785,340		$	8,785,340
Rate sensitive liabilities (RSL)	$	1,227,303		$	3,244,616		$	6,349,929		$	6,954,208		$	6,954,208
Cumulative GAP (GAP=RSA-RSL)	$	2,305,795		$	1,767,062		$	2,023,314		$	1,831,132		$	1,831,132

RSA/Total assets	35.08		%	49.76		%	83.14		%	87.23		%	87.23		%
RSL/Total assets	12.19		%	32.22		%	63.05		%	69.05		%	69.05		%
GAP/Total assets	22.89		%	17.55		%	20.09		%	18.18		%	18.18		%
GAP/RSA	65.26		%	35.26		%	24.16		%	20.84		%	20.84		%

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

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

Gradual	Changes in Net Interest Income Over Once Year Horizon
Changes in	At March 31, 2011				At December 31, 2010
Levels of	Dollar		Percentage		Dollar		Percentage
Interest Rates	Change		Change		Change		Change
+ 2.00%	$	6,408	1.90	%	$	1,607	0.50	%
+ 1.00%	$	2,449	0.70	%	$	473	0.10	%

In the interest rate sensitivity table above, changes in net interest income between March 31, 2011 and December 31, 2010 reflect changes in the composition of interest earning assets and interest bearing liabilities, related interest rates, repricing frequencies, and the fixed or variable characteristics of the interest earning assets and interest bearing liabilities. The changes in net interest income incorporate the impact of loan floors as well as shifts from low cost deposits to certificates of deposit in a rising rate environment.

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

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

As a result of the current interest rate environment, the Company does not anticipate any significant declines in interest rates over the next twelve months. For this reason, we did not use an interest rate sensitivity simulation that assumes a gradual decline in the level of interest rates over the next twelve months.

Item 4. - Controls and Procedures

Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) was carried out as of March 31, 2011 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2011, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

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PART II. — OTHER INFORMATION

Item 1A. - Risk Factors

There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010.

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

The following table sets forth information for the three months ended March 31, 2011 with respect to our repurchases of our outstanding common shares:

				Number of Shares	Maximum Number of
				Purchased as Part	Shares that May Yet Be
	Total Number of	Average Price		Publicly Announced	Purchased Under the
	Shares Purchased (1)	Paid per Share		Plans or Programs	Plans or Programs

January 1, 2011 - January 31, 2011	—	$	—	—	—

February 1, 2011 - February 28, 2011	—	$	—	—	—

March 1, 2011 - March 31, 2011	3,884	$	20.42	—	—

Totals	3,884			—

(1) Represents shares of restricted stock withheld upon vesting to satisfy tax withholding obligations.

Item 6. - Exhibits

See Exhibit Index.

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SIGNATURES

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

	MB FINANCIAL, INC.

Date: May 3, 2011	By:	/s/ Mitchell Feiger
	Mitchell Feiger
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: May 3, 2011	By:	/s/ Jill E. York
	Jill E. York
	Vice President and Chief Financial Officer
	(Principal Financial and Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit Number		Description

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

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

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

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

3.1		Charter of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 0-24566-01))

3.1A		Articles Supplementary to the Charter of the Registrant for the Registrant’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01))

3.2		By-laws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 24, 2011 (File No. 0-24566-01))

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

4.2		Certificate of Registrant’s Common Stock (incorporated herein by reference to Exhibit 4.1 to Amendment No. One to the Registrant’s Registration Statement on Form S-4 (No. 333-64584))

4.3		Warrant to purchase shares of the Registrant’s Common Stock (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01))

10.1		Letter Agreement, dated as of December 5, 2008, between the Registrant and the United States Department of the Treasury (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 8, 2008 (File No.0-24566-01))

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

10.3		Employment Agreement between MB Financial Bank, N.A. and Burton J. Field (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 0-24566-01))

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

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Exhibit Number		Description

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

10.4C		Form of Change and Control Severance Agreement between MB Financial Bank, National Association and each of Mark A. Heckler and Edward F. Milefchik*

10.5		Form of Letter Agreement dated December 4, 2008 between MB Financial, Inc. and each of Mitchell Feiger, Jill E. York, Burton Field, Larry J. Kallembach, Brian Wildman, Rosemarie Bouman, and Susan Peterson relating to the TARP Capital Purchase Program (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-24566-01))

10.5A		Form of Compensation Amendment and Waiver Agreement under the TARP Capital Purchase Program dated July 2009 between MB Financial, Inc. and certain employees (incorporated herein by reference to Exhibit 10.5A to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 0-24566-01))

10.5B		Form of Compensation Amendment and Waiver Agreement under the TARP Capital Purchase Program between MB Financial, Inc. and each of Mark A. Heckler and Edward F. Milefchik*

10.6		Coal City Corporation 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-4 (No. 333-64584))

10.6A		Amendment to Coal City Corporation 1995 Stock Option Plan ((incorporated herein by reference to Exhibit 10.6A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01))

10.7		MB Financial, Inc. Amended and Restated Omnibus Incentive Plan (the “Omnibus Incentive Plan”) (incorporated herein by reference to the Registrant’s definitive proxy statement filed on March 23, 2007 (File No. 0-24566-01))

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

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

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

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

10.11A		Form of Agreement Regarding Salary Adjustment and Portion of Salary Payable by Stock between MB Financial, Inc. and Rosemarie Bouman, Burton J. Field, Mark A. Heckler, Larry J. Kallembach, Edward F. Milefchik, Susan G. Peterson and Brian J. Wildman *

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

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

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Exhibit Number		Description

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

10.14		First SecurityFed Financial, Inc. 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit B to the definitive proxy statement filed by First SecurityFed Financial, Inc. on March 24, 1998 (File No. 0-23063))

10.14A		Amendment to First SecurityFed Financial, Inc. 1998 Stock Option and Incentive Plan ((incorporated herein by reference to Exhibit 10.14A to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2006, filed on March 2, 2007 (File No. 0-24566-01))

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

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

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

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

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

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

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

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

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

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

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

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

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Exhibit Number		Description

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

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

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

10.24		Reserved.

10.25		Reserved.

10.26		Reserved.

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

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

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

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

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

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

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

32		Section 1350 Certifications*

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Exhibit Number		Description

101		The following financial statements from the MB Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on May 3, 2011, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows and (iv) the notes to consolidated financial statements*

* Filed herewith.