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MB Financial, Inc. Reports Loan Growth, Strong Fee Income, And Fourth Quarter Net Income Of $24.0 Million

We define potential problem loans as performing loans rated substandard that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans). Potential problem loans carry a higher probability of default and require additional attention by management.

The following table presents data related to potential problem loans by category (excluding loans held for sale and credit-impaired loans that were acquired as part of our FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

           
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
 
Commercial and lease $ 33,600 $ 48,933 $ 46,532 $ 49,197 $ 39,193
Commercial real estate 66,995 73,941 82,596 98,834 99,588
Construction real estate 10,958 11,415 11,938 11,409 10,375
Consumer related - - - - 600
Total potential problem loans $ 111,553 $ 134,289 $ 141,066 $ 159,440 $ 149,756
 

The following table represents a summary of OREO (excluding OREO related to assets acquired in FDIC-assisted transactions) as of the dates indicated (dollars in thousands):

           
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
 
Balance at the beginning of quarter $ 42,427 $ 49,690 $ 63,077 $ 78,452 $ 87,469
Transfers in at fair value less estimated costs to sell 1,811 63 910 1,751 3,657
Capitalized OREO costs 505 978 967 359 552
Fair value adjustments (1,982 ) (4,648 ) (4,507 ) (4,764 ) (3,733 )
Net gains on sales of OREO 134 497 351 416 113
Cash received upon disposition (5,918 ) (4,153 ) (11,108 ) (13,137 ) (9,606 )
Balance at the end of quarter $ 36,977   $ 42,427   $ 49,690   $ 63,077   $ 78,452  
 

Below is a reconciliation of the activity in our allowance for credit and loan losses for the periods indicated (dollars in thousands):

                 
4Q12 3Q12 2Q12 1Q12 4Q11 2012 2011
 
Allowance for credit losses, balance at the beginning of period $ 124,926 $ 128,840 $ 133,255 $ 135,975 $ 141,861 $ 135,975 $ 192,217
Provision for credit losses 1,000 (13,000 ) - 3,100 8,000 (8,900 ) 120,750
Charge-offs:
Commercial loans 343 75 1,451 539 2,932 2,408 17,571

Commercial loans collateralized by assignment of lease payments (lease loans)

1 - 1,720 - 1,373 1,721 1,466
Commercial real estate loans 2,965 2,994 2,415 3,003 3,793 11,377 96,633
Construction real estate 56 71 444 3,436 6,989 4,007 52,917
Residential real estate 1,068 474 1,108 294 860 2,944 12,643
Indirect vehicle 623 433 488 715 954 2,259 2,836
Home equity 1,394 1,209 876 1,072 2,061 4,551 11,066
Consumer loans 485   332   274   258   285   1,349   1,648  
Total charge-offs 6,935   5,588   8,776   9,317   19,247   30,616   196,780  
Recoveries:
Commercial loans 745 306 386 2,038 634 3,475 5,370

Commercial loans collateralized by assignment of lease payments (lease loans)

6,260 111 93 256 1 6,720 225
Commercial real estate loans 871 12,893 3,061 162 747 16,987 3,332
Construction real estate 561 752 141 565 3,519 2,019 8,590
Residential real estate 271 8 188 34 9 501 49
Indirect vehicle 261 224 300 311 378 1,096 1,399
Home equity 248 303 100 20 6 671 224
Consumer loans 71   77   92   111   67   351   599  
Total recoveries 9,288   14,674   4,361   3,497   5,361   31,820   19,788  
 
Total net (recoveries) charge-offs (2,353 ) (9,086 ) 4,415   5,820   13,886   (1,204 ) 176,992  
 
Allowance for credit losses 128,279 124,926 128,840 133,255 135,975 128,279 135,975
 
Allowance for unfunded credit commitments (4,075 ) (3,744 ) (7,084 ) (7,824 ) (9,177 ) (4,075 ) (9,177 )
 
Allowance for loan losses $ 124,204   $ 121,182   $ 121,756   $ 125,431   $ 126,798   $ 124,204   $ 126,798  
 
Total loans, excluding loans held for sale $ 5,770,679 $ 5,624,845 $ 5,723,249 $ 5,789,765 $ 5,950,995 $ 5,770,679 $ 5,950,995
Average loans, excluding loans held for sale $ 5,604,837 $ 5,630,232 $ 5,712,630 $ 5,802,037 $ 5,818,425 $ 5,687,052 $ 6,097,291
 
Ratio of allowance for loan losses to total loans, excluding loans held for sale 2.15 % 2.15 % 2.13 % 2.17 % 2.13 % 2.15 % 2.13 %
 
Net loan (recoveries) charge-offs to average loans, excluding loans held for sale (annualized) (0.17 )% (0.64 )% 0.31 % 0.40 % 0.95 % (0.02 )% 2.90 %
 

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.

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