Edgar Filing: MB FINANCIAL INC /MD

MB Financial, Inc. Form 10-K for the year ended 12-31-05

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________

FORM 10-K

(Mark One)

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

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		36-4460265
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 West Madison Street, Chicago, Illinois		60607
(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None

Title of Each Class		Name of Each Exchange on Which Registered

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o

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

The aggregate market value of the voting shares held by nonaffiliates of the Registrant was approximately $903,937,270 as of June 30, 2005, the last business day of the Registrant’s most recently completed second fiscal quarter. Solely for the purpose of this computation, it has been assumed that executive officers and directors of the Registrant are “affiliates”.

There were issued and outstanding 28,198,041 shares of the Registrant’s common stock as of March 13, 2006.

DOCUMENTS INCORPORATED BY REFERENCE:

	Document		Part of Form 10-K

	Portions of the definitive Proxy Statement to
	be used in conjunction with the Registrant’s		Part III
	2006 Annual Meeting of Stockholders.

MB FINANCIAL, INC. AND SUBSIDIARIES

FORM 10-K

December 31, 2005

INDEX

		Page
PART I
Item 1	Business	4
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comments	18
Item 2	Properties	18
Item 3	Legal Proceedings	20
Item 4	Submission of Matters to a Vote of Security Holders	20

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6	Selected Financial Data	21
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	45
Item 8	Financial Statements and Supplementary Data	49
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	92
Item 9A	Controls and Procedures	92
Item 9B	Other Information	92

PART III
Item 10	Directors and Executive Officers of the Registrant	92
Item 11	Executive Compensation	93
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
Item 13	Certain Relationships and Related Transactions	93
Item 14	Principal Accountant Fees and Services	93

PART IV
Item 15	Exhibits and Financial Statement Schedules	94
	Signatures	95

PART I

Item 1. Business

Special Note Regarding Forward-Looking Statements

When used in this Annual Report on Form 10-K 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 cost savings and synergies from our merger and acquisition activities might not be realized within the expected time frames, and costs or difficulties related to integration matters might be greater than expected; (2) 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; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (7) our ability to realize the residual values of our direct finance, leveraged, and operating leases; (8) our ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in the Chicago metropolitan area in particular; (11) the costs, effects and outcomes of litigation; (12) new legislation or regulatory changes, including but not limited to changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) our future acquisitions of other depository institutions or lines of business; (15) our deposit growth and deposit mix resulting from our new deposit gathering strategy may be less favorable than expected; and (16) the impact of the guidance recently prepared by the Office of the Comptroller of the Currency regarding concentrations in real estate lending.

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.

General

MB Financial, Inc., headquartered in Chicago, Illinois, is a financial holding company with 45 banking offices located primarily in the Chicago area. We also have banking offices in the Oklahoma City and Philadelphia metropolitan areas. The words "MB Financial," "we," "our" and "us" refer to MB Financial, Inc. and its wholly owned subsidiaries, unless we indicate otherwise. Our primary market is the Chicago metropolitan area, in which we operate 39 banking offices through our lead bank subsidiary, MB Financial Bank, N.A. (MB Financial Bank). We operate five banking offices in the Oklahoma City metropolitan area through our other bank subsidiary, Union Bank, N.A. MB Financial Bank also has one banking office in the city of Philadelphia. Through our bank subsidiaries, we offer a broad range of financial services primarily to small and middle market businesses and individuals in the markets that we serve. Our primary lines of business include commercial banking, retail banking and wealth management. As of December 31, 2005, we had total assets of $5.7 billion, deposits of $4.2 billion, stockholders’ equity of $503.4 million, a trust and asset management department with approximately $1.6 billion in assets under management, including approximately $423 million that represents our own employee benefit and investment accounts under management, and our broker/dealer subsidiary, Vision Investment Services, Inc., with $904 million in assets under administration.

We were incorporated as a Maryland corporation in 2001 as part of the merger of MB Financial, Inc., a Delaware corporation (which we sometimes refer to as Old MB Financial) and MidCity Financial Corporation (MidCity Financial). This all-stock, merger-of-equals transaction, which we accounted for as pooling-of-interests, was completed on November 6, 2001 through the merger of Old MB Financial and MidCity Financial into our newly-formed company to create the presently existing MB Financial, Inc.

We have continued to grow subsequent to the Old MB Financial-MidCity Financial merger. In April 2002, we acquired First National Bank of Lincolnwood, based in Lincolnwood, Illinois, and its parent, First Lincolnwood Corporation, for approximately $35.0 million in cash. In August 2002, we acquired Chicago-based LaSalle Systems Leasing, Inc. and its affiliated company, LaSalle Equipment Limited Partnership for consideration comprised of $5.0 million of our common stock and cash of $30.7 million paid at the time of closing, plus deferred payments of up to $4.0 million tied to LaSalle’s operating results for a four-year period subsequent to the acquisition date. Deferred payments of $1.0 million were made in both 2005 and 2004. No related deferred payments were made in 2003 or 2002. In February 2003, we acquired South Holland Trust & Savings Bank, based in South Holland, Illinois, and its parent, South Holland Bancorp, Inc., for $93.1 million in cash. In May 2004, we acquired First Security Federal Savings Bank, based in Chicago, Illinois, and its parent, First SecurityFed Financial, Inc. (First SecurityFed), for $140.2 million. The purchase price was paid through a combination of cash and our common stock totaling $73.3 million and $66.9 million, respectively. We paid an additional $5.0 million in cash to First SecurityFed option holders who elected to cash-out their options; the options not cashed-out were converted into an aggregate of 118,911 MB Financial stock options with a weighted average exercise price of $15.77. First National Bank of Lincolnwood, South Holland Trust & Savings Bank and First SecurityFed had assets of approximately $227.5 million, $560.3 million and $576.0 million, respectively, as of their acquisition dates, and all were merged into MB Financial Bank.

In May 2003, we sold Abrams Centre National Bank (Abrams), based in Dallas, Texas, and its parent Abrams Centre Bancshares, Inc., for $16.3 million in cash. Abrams, a former subsidiary of MidCity Financial, had assets of approximately $98.4 million as of the sale date.

MB Financial Bank, our largest subsidiary, has six wholly owned subsidiaries with significant operating activities: MB Financial Center LLC; MB Financial Community Development Corporation; MBRE Holdings LLC; LaSalle Systems Leasing, Inc.; Vision Investment Services, Inc.; and Ashland Management LLC.

MB Financial Center LLC is used to manage the real estate activities of our new operations center located in Rosemont, Illinois (See Item 2. Properties for additional information).

MB Financial Community Development Corporation engages in community lending and equity investments to facilitate the construction and rehabilitation of housing in low- and moderate-income neighborhoods in MB Financial Bank’s market area.

MBRE Holdings LLC, a Delaware limited liability company, was established in August 2002 as the holding company of MB Real Estate Holdings LLC, which is also a Delaware limited liability company. MB Real Estate Holdings LLC was established as part of an initiative to enhance our earnings through expense reduction as well as providing us with alternative methods of raising capital and funding in the future. The assets of MB Real Estate Holdings LLC consist primarily of 100% participation interests in commercial real estate loans originated by MB Financial Bank, as well as residential real estate loans, commercial loans and lease loans originated by MB Financial Bank and mortgage-backed securities. MB Real Estate Holdings LLC has elected to be taxed as a Real Estate Investment Trust for federal income tax purposes. The management of MBRE Holdings LLC consists of certain officers of MB Financial and MB Financial Bank who receive no compensation from MBRE Holdings LLC or MB Real Estate Holdings LLC.

As noted above, we acquired LaSalle Systems Leasing, Inc. and its affiliated company, LaSalle Equipment Limited Partnership (which we sometimes refer to below collectively as “LaSalle”) during the third quarter of 2002, and it currently operates as a subsidiary of MB Financial Bank. LaSalle focuses primarily on leasing technology-related equipment to middle market and large “Fortune 1000” businesses throughout the United States. LaSalle provides us with the ability to directly originate leases on our own. During the second quarter of 2005, LaSalle, which was the owner of 60% of LaSalle Business Solutions (LBS), purchased from the minority owners the remaining 40% of LBS. LBS specializes in selling and administering third party equipment maintenance contracts.

Vision Investment Services, Inc. (Vision) is registered with the Securities and Exchange Commission as a broker/dealer, is a member of the National Association of Securities Dealers, is a member of the Securities Investor Protection Corporation, and is a licensed insurance agency. Vision has two wholly owned subsidiaries; Vision Insurance Services, Inc. and Vision Asset Management, Inc. Vision Insurance Services, Inc. is a licensed insurance agency which functions as a distribution firm for certain annuity products, whereas Vision Asset Management, Inc. is a Registered Investment Advisor with the Securities and Exchange Commission. Vision was acquired in connection with our February 2003 acquisition of South Holland Trust & Savings Bank (South Holland). Vision provides both institutional and retail clients with investment and wealth management services, and had $904 million in assets under administration at December 31, 2005.

Ashland Management Agency, Inc. holds and/or manages certain properties purchased by the Company.

We also own all of the issued and outstanding common securities of Coal City Capital Trust I, MB Financial Capital Trust I, and MB Financial Capital Trust II; all Delaware statutory business trusts. As described in Note 12 to the consolidated financial statements, Coal City Capital Trust I issued $25.0 million in trust preferred securities and $774 thousand in common securities in July 1998, MB Financial Capital Trust I issued $59.8 million in trust preferred securities and $1.9 million in common securities in August 2002, and MB Financial Capital Trust II issued $35.0 million in trust preferred securities and $1.1 million in common securities in August 2005. As described in Note 1 to the consolidated financial statements, Coal City Trust I and MB Financial Capital Trust I, which were previously included with our consolidated subsidiaries, were deconsolidated as of December 31, 2003 as a result of our adoption of revised Interpretation No. 46, Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board.

Recent Developments

On February 28, 2006, we paid a cash dividend, distributing $0.15 per share to shareholders of record as of February 17, 2006. Our Board of Directors approved the payment at its regular meeting in January 2006.

During the first quarter of 2006 through March 13, 2006, we repurchased 370,000 shares of our outstanding common stock in open market transactions pursuant to our repurchase program, which was publicly announced on May 9^th 2005. See “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters” below for further discussion and analysis of our common stock repurchase program.

Primary Lines of Business

Our operations are currently managed as one unit and we do not have separate operating segments. Our chief operating decision-makers use consolidated results to make operating and strategic decisions.

We concentrate on serving small and middle market businesses, leasing companies, and their owners and consumers. Through our acquisition program and careful selection of officers and employees, we have positioned ourselves to take a leading role in these attractive niches. To further our position, we have established three primary lines of business: commercial banking; retail banking; and wealth management. These are described below.

Commercial Banking. Our commercial banking group focuses on serving small and middle market businesses, primarily located in the Chicago metropolitan area. We provide a full set of credit, deposit, and treasury management products to these companies. In general, our products are specifically designed for companies with annual revenues between $5 million and $100 million and credit needs of up to $15 million. We have a broad range of credit products for our target market, including working capital loans and lines of credit; accounts receivable; inventory and equipment financing; industrial revenue bond financing; business acquisition loans; owner occupied real estate loans; and financial, performance and commercial letters of credit. Deposit and treasury management products include: internet products for businesses; investment sweep accounts; zero balance accounts; automated tax payments; ATM access; a merchant credit card program; telephone banking; lockbox; automated clearing house transactions; account reconciliation; controlled disbursement; detail and general information reporting; wire transfers; a variety of international banking services; and checking accounts. In addition, for real estate operators and investors, our products include commercial real estate, residential real estate, commercial, industrial and residential construction loans, and land acquisition and development loans.

Within commercial banking, we also target small and medium size equipment leasing companies located throughout the United States. We have provided lease banking services to these companies for more than three decades. Competition in serving this equipment leasing market generally comes from large banks, finance companies, large industrial companies and some community banks. We compete based upon rapid decision making and excellent service and by providing flexible financial solutions to meet our customers’ needs. We provide full banking services to leasing companies by financing the debt portion of leveraged equipment leases (referred to as lease loans), providing short and long-term equity financing and by making working capital and bridge loans. We also invest directly in equipment that we lease to other companies located throughout the United States. For lease loans, a lessee is typically rated for its public debt from Moody’s, Standard & Poors or the equivalent. If a lessee does not have a public debt rating, they are subject to the same internal credit analysis as any other middle market customer. Our operating lease portfolio is made up of various kinds of equipment, generally technology related, such as computer systems, satellite equipment, and general manufacturing equipment. We seek leasing transactions where we believe the equipment leased is integral to the lessee’s business, thereby increasing the likelihood of renewal at the end of the lease term.

Additionally, LaSalle, a subsidiary of MB Financial Bank, primarily focuses on leasing technology-related equipment to middle market and large “Fortune 1000” businesses throughout the United States and provides us the additional ability to directly originate leases. LaSalle is a 25-year old organization that banked with MB Financial Bank since its inception, prior to being acquired by us in 2002. LaSalle’s experienced leasing personnel enhance our ability to originate operating leases, and expand the products that we offer our commercial banking customers. During the second quarter of 2005, LaSalle, which was the owner of 60% of LaSalle Business Solutions (LBS), purchased from the minority owners the remaining 40% of LBS. LBS specializes in selling and administering third party equipment maintenance contracts.

Retail Banking. During the third quarter of 2005 we implemented our new deposit gathering strategy, which has most of our branches open seven days a week with longer hours to accommodate customers. The target market for the retail banking group is individuals who live or work near our banking offices, as well as individuals who prefer the use of our on-line services. We offer a full set of personal banking products to these individuals, including checking accounts, savings accounts, NOW and money market accounts, time deposit accounts, secured and unsecured consumer loans, residential mortgage loans, Internet banking and a variety of fee for service products, such as money orders and travelers’ checks. As our customer needs change, we adjust our product offerings accordingly, and develop new products to differentiate ourselves from our competitors.

Wealth Management. Recognizing consumer demand for one-stop financial management services, we provide investment, trust, asset management, insurance and private banking services, in addition to traditional banking services. MB Investment Services, a division of MB Financial Bank, partnered with our Vision subsidiary, provides customers with non-FDIC insured investment alternatives and insurance products. Our trust and asset management department offers a wide range of financial services, including personal trusts, investment management, custody, estates, guardianship, land trust, tax-deferred exchange and retirement plan services. Our private banking department provides customers meeting certain qualifications with personalized, or “high touch”, banking products and services, including a private banker as a single point of contact for all their financial needs.

Lending Activities

General. Our subsidiary banks are primarily business lenders and our loan portfolio consists primarily of loans to businesses or for business purposes.

Commercial Lending. Our banks make commercial loans to small and middle market businesses. The borrowers tend to be privately owned and are generally manufacturers, wholesalers, distributors, long-term health care operators and service providers. Loan products offered are primarily working capital and term loans and lines of credit that help our customers finance accounts receivable, inventory and equipment. Our banks also offer financial, performance and commercial letters of credit. Commercial loans secured by owner occupied real estate are classified as commercial real estate loans in the loan portfolio composition table in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 to the audited consolidated financial statements. Most commercial loans are short-term in nature, being one year or less, with the maximum term generally being five years. Our commercial loans typically range in size from $500 thousand to $10 million.

Lines of credit for customers are typically secured, established for one year or less, and are subject to renewal upon satisfactory review of the borrower’s financial statements and credit history. Secured short-term commercial business loans are usually collateralized by accounts receivable, inventory, equipment and/or real estate. Such loans are typically guaranteed by the owners of the business. The collateral securing commercial loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. In addition, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect the amounts due from its customers. Accordingly, we make our commercial loans primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.

Historically, interest rates on our commercial loans were issued at or above our Reference Rate, which is normally equivalent to the prime rate quoted in the Wall Street Journal. However, the competitive markets in which we operate have put increasing pressure on us to make loans below our Reference Rate.

Lease Loans. We lend money to small and mid-size leasing companies to finance the debt portion of leases (which we refer to as lease loans). A lease loan arises when a leasing company discounts the equipment rental revenue stream owed to the leasing company by a lessee. Lease loans generally are non-recourse to the leasing company, and, consequently, our recourse is limited to the lessee and the leased equipment. For this reason, we underwrite lease loans by examining the creditworthiness of the lessee rather than the lessor. Generally, lease loans are secured by an assignment of the lease payments and by a secured interest in the equipment being leased. As with commercial loans secured by equipment, the equipment securing our lease loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We rely on the lessee’s continuing financial stability, rather than the value of the leased equipment, for the repayment of all required amounts under lease loans. In the event of default, it is unlikely that the proceeds from the sale of leased equipment will be sufficient to satisfy the outstanding unpaid amounts under the terms of the lease loan.

The lessee acknowledges the bank’s security interest in the leased equipment and normally agrees to send lease payments directly to us. Lessees tend to be Fortune 1000 companies and have an investment grade public debt rating by Moody’s or Standard & Poors, or the equivalent, and occasionally are below investment grade. If the lessee does not have a public debt rating, they are subject to the same internal credit analysis as any other middle market customer. Lease loans almost always are fully amortizing, with maturities typically ranging from three to five years. Loan interest rates are fixed. Many lease loans are investment grade quality, are made to well-known public companies and are therefore generally marketable.

We also invest directly in equipment leased to other companies. Our profitability depends, to some degree, upon our ability to realize the residual values of this equipment. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Residual Value of Our Direct Finance, Leveraged and Operating Leases.”

Commercial Real Estate Lending. Our banks originate commercial real estate loans that are generally secured by one or more of the following kinds of properties: multi-unit residential property; owner (which represent a substantial portion of our commercial real estate portfolio) and non-owner occupied commercial and industrial property; and construction loans “for sale” residential property. Loans are also made to finance the acquisition and development of land. Longer term commercial mortgage loans are generally made at fixed rates, although some float with our Reference Rate or LIBOR. Terms of up to twenty-five years are offered on fully amortizing loans, but most loans are structured with a balloon payment at the end of five years. For our fixed rate loans with maturities greater than five years, we may enter into a swap agreement with a third party to mitigate long-term interest rate risk. In deciding whether to make a commercial real estate loan, we consider, among other things, the experience and qualifications of the borrower as well as the value and cash flow of the underlying property. Some factors considered are net operating income of the property before debt service and depreciation, the debt service coverage ratio (the ratio of the property’s net cash flow to debt service requirements), the ratio of the loan amount to the appraised value and the overall creditworthiness of the prospective borrower. Our commercial real estate loans typically range in size from $250 thousand to $15 million.

Commercial real estate lending typically involves higher principal amounts than other types of loans and the repayment of the loans generally is dependent, in large part, on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans may therefore be more adversely affected by conditions in the real estate markets or in the economy in general. For example, if the cash flow from the borrower’s project is reduced due to leases not being obtained or renewed, the borrower’s ability to repay the loan may be impaired. In addition, many commercial real estate loans are not fully amortized over the loan period, but have balloon payments due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or completing a timely sale of the underlying property.

Residential Real Estate. We also originate fixed and adjustable rate residential real estate loans secured by first and second mortgages on single family real estate. Terms of first mortgages range from ten to thirty years. Terms for second mortgages range from five to ten years. In making the decision whether to make a residential real estate loan, we consider the qualifications of the borrower as well as the value of the underlying property. Our general practice is to sell, with servicing retained, our newly originated fifteen to thirty year fixed-rate residential real estate loans shortly after they are made, and to hold in portfolio all adjustable rate residential real estate loans. Relative to our other categories of loans, residential real estate loans held in our portfolio result in lower yields and lower profitability to us.

Construction Real Estate. We normally provide construction loans for the acquisition and development of land for further improvement of condominiums, townhomes, and one-to-four family residences. We also provide acquisition, development and construction loans for retail and other commercial purposes, primarily in our market areas. Construction lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.

Consumer Lending. Our consumer lending portfolio is primarily focused on home equity lines of credit, fixed-rate second mortgage loans and to a limited extent, auto loans and unsecured consumer loans. Home equity lines of credit are generally extended up to 90% of the appraised value of the property, less existing liens, generally at interest rates which range from the designated prime rate plus or minus 50 basis points. Our banks use the same underwriting standards for home equity lines of credit as we use for residential real estate loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to residential real estate loans, but generally carry higher risks of default. Consumer loans collections are dependent on the borrower’s continuing financial stability, and thus, are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on these loans.

Foreign Operations

MB Financial Bank holds certain commercial real estate loans, residential real estate loans, other loans and mortgage-backed investment securities in a real estate investment trust through its wholly owned subsidiary MBRE Holdings LLC headquartered and domiciled in Freeport, The Bahamas. MBRE Holdings LLC and its subsidiary, MB Real Estate Holdings LLC, were established in August 2002 to enable MB Financial Bank to enhance earnings through an overall effort to reduce expenses as well as to provide us with alternative methods of raising capital and funding in the future. We do not engage in operations in any other foreign countries.

Competition

We face substantial competition in all phases of our operations, including deposit accounts and loan originations, from a variety of competitors. Commercial banks, savings institutions, brokerage houses, credit unions, mutual funds, insurance companies and specialty finance companies all compete with us for new and existing customers. Several national financial institutions have commenced aggressive de novo branching plans that heighten the competitive pressures in our market areas, particularly in the Chicago metropolitan area. Our banks compete by providing quality services to their customers, ease of access to facilities, convenient hours and competitive pricing of services (including interest rates paid on deposits, interest rates charged on loans and fees charged for other non-interest related services).

Personnel

As of December 31, 2005, we and our subsidiaries employed a total of 1,123 full-time-equivalent employees. The employees are not represented by a collective bargaining unit, and we consider our relationship with our employees to be good.

Supervision and Regulation

We and our subsidiary banks are subject to an extensive system of banking laws and regulations that are intended primarily for the protection of customers and depositors and not for the protection of security holders. These laws and regulations govern such areas as capital, permissible activities, allowance for loan losses, loans and investments, and rates of interest that can be charged on loans. Described below are elements of selected laws and regulations. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described.

Holding Company Regulation. As a bank holding company and financial holding company, we are subject to comprehensive regulation by the Board of Governors of the Federal Reserve System, frequently referred to as the Federal Reserve Board, under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. We must file reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require, and our holding company and nonbanking affiliates are subject to examination by the Federal Reserve Board. Under Federal Reserve Board policy, a bank holding company must serve as a source of strength for its subsidiary banks. Under this policy, the Federal Reserve Board may require, and has required in the past, a holding company to contribute additional capital to an undercapitalized subsidiary bank. The Bank Holding Company Act provides that a bank holding company must obtain Federal Reserve Board approval before:

•	acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank
	holding company if, after such acquisition, it would own or control more than 5% of such shares
	(unless it already owns or controls the majority of such shares);

•	acquiring all or substantially all of the assets of another bank or bank holding company; or

•	merging or consolidating with another bank holding company.

The Bank Holding Company Act generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted by the Federal Reserve Board includes, among other things: lending; operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers’ checks and United States Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. These activities may also be affected by federal legislation.

In November 1999, the Gramm-Leach-Bliley Act became law. The Gramm-Leach-Bliley Act is intended to, among other things, facilitate affiliations among banks, securities firms, insurance firms and other financial companies. To further this goal, the Gramm-Leach-Bliley Act amended portions of the Bank Holding Company Act of 1956 to authorize bank holding companies, such as us, through non-bank subsidiaries to engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity. In order to undertake these activities, a bank holding company must become a "financial holding company" by submitting to the appropriate Federal Reserve Bank a declaration that the company elects to be a financial holding company and a certification that all of the depository institutions controlled by the company are well capitalized and well managed. We submitted the declaration of our election to become a financial holding company with the Federal Reserve Bank of Chicago in June 2002, and our election became effective in July 2002.

Depository Institution Regulation. Our bank subsidiaries are subject to regulation by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. This regulatory structure includes:

•

real estate lending standards, which provide guidelines concerning loan-to-value ratios for various types of real estate loans;

•

risk-based capital rules, including accounting for interest rate risk, concentration of credit risk and the risks posed by non-traditional activities;

•

rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks;

•

rules restricting types and amounts of equity investments; and

•

rules addressing various safety and soundness issues, including operations and managerial standards, standards for asset quality, earnings and stock valuations, and compensation standards.

Capital Adequacy. The Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation have issued substantially similar risk-based and leverage capital guidelines applicable to bank holding companies and banks. In addition, these regulatory agencies may from time to time require that a bank holding company or bank maintain capital above the minimum levels, whether because of its financial condition or for actual or anticipated growth.

The Federal Reserve Board's risk-based guidelines establish a two-tier capital framework. Tier 1 capital consists of common stockholders' equity, retained earnings, a limited amount of qualifying perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles. Tier 2 capital consists of certain hybrid capital instruments and perpetual debt, mandatory convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock, loan loss allowance, and unrealized holding gains on certain equity securities. The sum of Tier 1 and Tier 2 capital represents qualifying total capital, at least 50% of which must consist of Tier 1 capital.

Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum total risk-based capital ratio is 8%. Our Tier 1 and total risk-based capital ratios under these guidelines at December 31, 2005 were 11.62% and 12.83%, respectively.

The Federal Reserve Board’s leverage capital guidelines establish a minimum leverage ratio determined by dividing Tier 1 capital by adjusted average total assets. The minimum leverage ratio is 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2005, we had a leverage ratio of 9.02%.

To be considered “well capitalized,” the Company must have a total risk-based capital ratio of at least 10% and a Tier 1 risk-based capital ratio of at least 6% on a consolidated basis, and not be subject to any written agreement, order, and capital directive or prompt corrective action directive requiring it to maintain a specific capital measure. As of December 31, 2005, we met the requirements to be considered “well capitalized”.

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within these categories. This act imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of five percent of the bank's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, the Federal Deposit Insurance Corporation Improvement Act requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet these standards.

The various federal regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by the Federal Deposit Insurance Corporation Improvement Act, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. These regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a "well capitalized" institution must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive or order. An institution is "adequately capitalized" if it has a Tier 1 risk-based capital ratio of at least 4%, a total risk-based capital ratio of at least 8% and a leverage ratio of at least 4% (3% in certain circumstances). An institution is “undercapitalized” if it has a Tier 1 risk-based capital ratio of less than 4%, a total risk-based capital ratio of less than 8% or a leverage ratio of less than 4%. An institution is "significantly undercapitalized" if it has a Tier 1 risk-based capital ratio of less than 3%, a total risk-based capital ratio of less than 6% or a leverage ratio of less than 3%. An institution is "critically undercapitalized" if its tangible equity is equal to or less than 2% of total assets. Generally, an institution may be reclassified in a lower capitalization category if it is determined that the institution is in an unsafe or unsound condition or engaged in an unsafe or unsound practice.

As of December 31, 2005, each of our subsidiary banks met the requirements to be classified as “well-capitalized.”

Dividends. The Federal Reserve Board's policy is that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, a bank that is classified under the prompt corrective action regulations as "undercapitalized" will be prohibited from paying any dividends.

Our primary source for cash dividends is the dividends we receive from our subsidiary banks. Each of our banks is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. A national bank must obtain the approval of the Office of the Comptroller of the Currency prior to paying a dividend if the total of all dividends declared by the national bank in any calendar year will exceed the sum of the bank’s net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus.

Federal Deposit Insurance Corporation Insurance Assessments. Each of our subsidiary banks is insured by the Federal Deposit Insurance Corporation; accordingly, all of our deposits are subject to Federal Deposit Insurance Corporation deposit insurance assessments. The Federal Deposit Insurance Corporation has authority to raise or lower assessment rates on insured deposits in order to achieve certain designated reserve ratios in the Bank Insurance Fund and the Savings Association Insurance Fund and to impose special additional assessments. The Federal Deposit Insurance Corporation applies a risk-based assessment system that places each financial institution into one of nine risk categories, based on capital levels and supervisory criteria and an evaluation of the bank's risk to the Bank Insurance Fund or Savings Association Insurance Fund, as applicable. The current Federal Deposit Insurance Corporation premium schedule for the Savings Association Insurance Fund and the Bank Insurance Fund ranges from 0% to 0.27%. Under the Federal Deposit Insurance Reform Act of 2005, the Bank Insurance Fund and the Savings Association Insurance Fund will be merged and the Federal Deposit Insurance Corporation is authorized to revise the current risk-based assessment system in regulations, subject to public notice and comment. Under the new regulations, premium costs could increase. In addition, Federal Deposit Insurance Corporation insured institutions are subject to quarterly assessments to cover interest payments made by the Financing Corporation, established by the Competitive Equality Banking Act of 1987, on 30-year bonds issued in the 1980s in an effort to end the savings-and-loan crisis. During the year ended December 31, 2005, the quarterly assessments were approximately 0.014%.

Liability of Commonly Controlled Institutions. Federal Deposit Insurance Corporation-insured depository institutions can be held liable for any loss incurred, or reasonably expected to be incurred, by the Federal Deposit Insurance Corporation due to the default of a Federal Deposit Insurance Corporation-insured depository institution controlled by the same bank holding company, and for any assistance provided by the Federal Deposit Insurance Corporation to a Federal Deposit Insurance Corporation-insured depository institution that is in danger of default and that is controlled by the same bank holding company. "Default" means generally the appointment of a conservator or receiver. "In danger of default" means generally the existence of certain conditions indicating that default is likely to occur in the absence of regulatory assistance. Thus, either of our subsidiary banks could incur liability to the Federal Deposit Insurance Corporation for any loss incurred or reasonably expected to be incurred by the Federal Deposit Insurance Corporation for the other subsidiary bank which is in default or in danger of default.

Transactions with Affiliates. We and our subsidiary banks are affiliates within the meaning of the Federal Reserve Act. The Federal Reserve Act imposes limitations on a bank with respect to extensions of credit to, investments in, and certain other transactions with, its parent bank holding company and the holding company’s other subsidiaries. Furthermore, bank loans and extensions of credit to affiliates also are subject to various collateral requirements.

Community Reinvestment Act. Under the Community Reinvestment Act, every Federal Deposit Insurance Corporation-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act requires the appropriate federal banking regulator, in connection with the examination of an insured institution, to assess the institution’s record of meeting the credit needs of its community and to consider this record in its evaluation of certain applications, such as a merger or the establishment of a branch. An unsatisfactory rating may be used as the basis for the denial of an application and will prevent a bank holding company of the institution from making an election to become a financial holding company.

As of their last examinations, MB Financial Bank received a Community Reinvestment Act rating of “outstanding” and Union Bank received a Community Reinvestment Act rating of “satisfactory.”

Interstate Banking and Branching. The Federal Reserve Board may approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the bank holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the law of the target bank’s home state. The Federal Reserve Board also may not approve an application if the bank holding company (and its bank affiliates) controls or would control more than ten percent of the insured deposits in the United States or, generally, 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Individual states may waive the 30% statewide concentration limit. Each state may limit the percentage of total insured deposits in the state that may be held or controlled by a bank or bank holding company to the extent the limitation does not discriminate against out-of-state banks or bank holding companies.

The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether these transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of interstate mergers prior to June 1, 1997. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits these acquisitions. Interstate mergers and branch acquisitions are subject to the nationwide and statewide-insured deposit concentration limits described above.

Privacy Rules. Federal banking regulators, as required under the Gramm-Leach-Bliley Act, have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to non-affiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of the Gramm-Leach-Bliley Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. The privacy provisions have no material adverse effect on the business, financial condition or results of operations of the Company.

International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. The President signed the USA Patriot Act of 2001 into law in October 2001. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA substantially broadens existing anti-money laundering legislation and the extraterritorial jurisdiction of the United States, imposes new compliance and due diligence obligations, creates new crimes and penalties, compels the production of documents located both inside and outside the United States, including those of foreign institutions that have a correspondent relationship in the United States, and clarifies the safe harbor from civil liability to customers. The U.S. Treasury Department has issued a number of regulations implementing the USA Patriot Act that apply certain of its requirements to financial institutions such as our banking and broker-dealer subsidiaries. The regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. The increased obligations of financial institutions, including us, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, requires the implementation and maintenance of internal procedures, practices and controls which have increased, and may continue to increase, our costs and may subject us to liability.

As noted above, enforcement and compliance-related activity by government agencies has increased. Money laundering and anti-terrorism compliance is among the areas receiving a high level of focus in the present environment.

Future Legislation and Changes in Regulations. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and by the various bank regulatory agencies. New legislation and/or changes in regulations could affect us in substantial and unpredictable ways, and increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks and other financial institutions. The likelihood and timing of any proposed legislation or changes in regulations and the impact they might have on us cannot be determined at this time.

Internet Website

We maintain a website with the address www.mbfinancial.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor's own Internet access charges, we make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission.

Item 1A. Risk Factors

An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included and incorporated by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment.

Our allowance for loan losses may prove to be insufficient to absorb probable losses in our loan portfolio.

Lending money is a substantial part of our business. Every loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:

• cash flow of the borrower and/or the project being financed;

• in the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral;

• the credit history of a particular borrower;

• changes in economic and industry conditions; and

• the duration of the loan.

We maintain an allowance for loan losses which we believe is appropriate to provide for potential losses in our loan portfolio. The amount of this allowance is determined by our management through a periodic review and consideration of several factors, including, but not limited to:

• an ongoing review of the quality, size and diversity of the loan portfolio;

• evaluation of non-performing loans;

• historical default and loss experience;

• historical recovery experience;

• existing economic conditions;

• risk characteristics of the various classifications of loans; and

• the amount and quality of collateral, including guarantees, securing the loans.

If our loan losses exceed our allowance for probable loan losses, our business, financial condition and profitability may suffer.

Changes in interest rates may reduce our net interest income.

Like other financial institutions, our consolidated operating results are largely dependent on our net interest income. Net interest income is the difference between interest earned on loans and investments and interest expense incurred on deposits and other borrowings. Our net interest income is impacted by changes in market rates of interest, changes in the shape of the yield curve, the interest rate sensitivity of its assets and liabilities, prepayments on our loans and investments and limits on increases in the rates of interest charged on our loans.

Our interest earning assets and interest bearing liabilities may react in different degrees to changes in market interest rates. Interest rates on some types of assets and liabilities may fluctuate prior to changes in broader market interest rates, while rates on other types may lag behind. The result of these changes to rates may result in differing spreads on interest earning assets and interest bearing liabilities. While we continually take measures intended to manage the risks from changes in market interest rates, we cannot control or accurately predict changes in market rates of interest.

We pursue acquisitions to supplement internal growth.

We pursue a strategy of supplementing internal growth by acquiring other financial institutions that will help us fulfill our strategic objectives and enhance our earnings. There are risks associated with this strategy, however, including the following:

• With the overall strength of the banking industry, numerous potential acquirors exist for most acquisition candidates, creating intense competition, particularly with respect to price. In many cases, this competition involves organizations with significantly greater resources than we have;

• We may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks or businesses we acquire. If these issues or liabilities exceed our estimates, our earnings and financial condition may be adversely affected;

• Prices at which acquisitions can be made fluctuate with market conditions. We have experienced times during which acquisitions could not be made in specific markets at prices our management considered acceptable and expects that we will experience this condition in the future in one or more markets;

• The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity in order to make the transaction economically feasible. This integration process is complicated and time consuming and can also be disruptive to the customers of the acquired business. If the integration process is not conducted successfully and with minimal effect on the acquired business and its customers, we may not realize the anticipated economic benefits of particular acquisitions within the expected time frame, and we may lose customers or employees of the acquired business;

• We may borrow funds to finance an acquisition, thereby increasing our leverage and diminishing our liquidity; and

• We have completed various acquisitions and opened additional banking offices in the past few years that enhanced our rate of growth. We may not be able to continue to sustain our past rate of growth or to grow at all in the future.

Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. We may at some point need to raise additional capital to support continued growth, both internally and through acquisitions.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.

Our wholesale funding source may prove insufficient to replace deposits and support our future growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which include brokered certificates of deposit, repurchase agreements, federal funds purchased and Federal Home Loan Bank advances. Adverse operating results or changes in industry conditions could lead to an inability to replace these additional funding sources at maturity. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

Since our business is concentrated in the Chicago and Oklahoma City metropolitan areas, a downturn in the economy of either of these areas may adversely affect our business.

Except for our lease banking activities, which are nationwide, our lending and deposit gathering activities are concentrated primarily in the Chicago metropolitan area, and, to a small extent, the Oklahoma City metropolitan area. Our success depends on the general economic conditions of these metropolitan areas and their surrounding areas.

Many of the loans in our portfolio are secured by real estate. Most of these loans are secured by properties located in the Chicago metropolitan area, with the remainder located in Oklahoma. Negative conditions in the real estate markets where collateral for a mortgage loan is located could adversely affect the borrower's ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as tornados.

Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans and generally have a negative effect on our financial condition and results of operations.

If our Real Estate Investment Trust (REIT) affiliate fails to qualify as a REIT, we may be subject to a higher consolidated effective tax rate.

MB Financial Bank holds certain commercial real estate loans, residential real estate loans and other loans, and mortgage-backed investment securities in a real estate investment trust through its wholly owned subsidiary MBRE Holdings LLC headquartered and domiciled in Freeport, The Bahamas. Qualification as a REIT involves application of specific provisions of the Internal Revenue Code relating to various asset tests. If the REIT fails to meet any of the required provisions for REITs, or there are changes in tax laws, it could no longer qualify as a REIT and the resulting tax consequences would increase our effective tax rate.

Non-compliance with USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA Patriot and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. Although we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

New or changes in existing tax, accounting, and regulatory rules and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition.

The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a financial company’s shareholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect us are described in this report under the heading “Item 1. Business-Supervision and Regulation.” These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time.

Significant legal actions could subject the Company to substantial liabilities.

The Company is from time to time subject to claims related to its operations. These claims and legal actions, including supervisory actions by the Company’s regulators, could involve large monetary claims and significant defense costs. As a result, the Company may be exposed to substantial liabilities, which could adversely affect the Company’s results of operations and financial condition.

The loss of certain key personnel could adversely affect MB Financial's operations.

Our success depends in large part on the retention of a limited number of key management, lending and other banking personnel. We could undergo a difficult transition period if we were to lose the services of any of these individuals. Our success also depends on the experience of our banking facilities' managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key persons could negatively impact the affected banking operations.

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. To date, we have grown our business successfully by focusing on our business lines in geographic markets and emphasizing the high level of service and responsiveness desired by our customers. We compete for loans, deposits and other financial services with other commercial banks, thrifts, credit unions, brokerage houses, mutual funds, insurance companies and specialized finance companies. Many of our competitors offer products and services which we do not offer, and many have substantially greater resources and lending limits, name recognition and market presence that benefit them in attracting business. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, and smaller newer competitors may also be more aggressive in terms of pricing loan and deposit products than we are in order to obtain a share of the market. Some of the financial institutions and financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies, federally insured state-chartered banks and national banks and federal savings banks. As a result, these nonbank competitors have certain advantages over us in accessing funding and in providing various services.

We are subject to security and operational risks relating to our use of technology that could damage our reputation and our business.

Security breaches in our internet banking activities could expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures that could result in damage to our reputation and our business. Additionally, we outsource our data processing to a third party. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We conduct our business at 45 retail banking center locations, with 39 in the Chicago metropolitan area, five in the Oklahoma City metropolitan area and one in Philadelphia. We own 32 of our banking center facilities. The other facilities are leased for various terms. All of the branches have ATMs, and we have 14 additional ATMs at other locations. We believe that all of our properties and equipment are well maintained, in good operating condition and adequate for all of our present and anticipated needs.

Set forth below is information relating to each of our offices as of December 31, 2005. The total net book value of our premises and equipment (including land and land improvements, buildings, furniture and equipment, and buildings and leasehold improvements) at December 31, 2005 was $147.7 million.

Principal Business Office:

800 West Madison Street, Chicago, Illinois

Banking Office Locations:

Chicago (Central)

1200 North Ashland Avenue, Chicago, Illinois (1)

936 North Western, Chicago, Illinois

820 North Western, Chicago, Illinois

2 South LaSalle Street, Chicago, Illinois (1)

303 East Wacker Drive, Chicago, Illinois (1)

One East Wacker Drive, Chicago, Illinois (1)

One South Wacker Drive, Chicago, Illinois (1)

Chicago (North)

2965 North Milwaukee, Chicago, Illinois

5670 North Milwaukee, Chicago, Illinois

6443 North Sheridan Road, Chicago, Illinois (1)

Chicago (South)

5100 South Damen Avenue, Chicago, Illinois

1618 West 18^th Street, Chicago, Illinois

3030 East 92^nd Street, Chicago, Illinois

Banking Office Locations (continued):

Chicago (West)

6422 West Archer Avenue, Chicago, Illinois

8300 West Belmont, Chicago, Illinois

1420 West Madison Street, Chicago, Illinois (2)

Chicago (Suburban)

5750 West 87^th Street, Burbank, Illinois

7000 County Line Road, Burr Ridge, Illinois

14122 Chicago Road, Dolton, Illinois

990 North York Road, Elmhurst, Illinois

1540 Route 59, Joliet, Illinois

401 North LaGrange Road, LaGrange Park, Illinois (1)

1151 State Street, Lemont, Illinois

6401 North Lincoln Avenue, Lincolnwood, Illinois

4010 West Touhy Avenue, Lincolnwood, Illinois

6201 West Dempster Street, Morton Grove, Illinois

9147 Waukekgan Road, Morton Grove, Illinois

15 East Prospect Avenue, Mount Prospect, Illinois (1)

7557 West Oakton Street, Niles, Illinois (1)

7222 West Cermak Road, North Riverside, Illinois (1)

2251 Plum Grove Road, Palatine, Illinois

Chicago (Suburban)

1014 Busse Highway, Park Ridge, Illinois (1)

6111 North River Road, Rosemont, Illinois (1),(4)

200 West Higgins Road, Schaumburg, Illinois (1)

475 East 162^nd Street, South Holland, Illinois

16340 South Park Avenue, South Holland, Illinois

16255 South Harlem Avenue, Tinley Park, Illinois

18299 South Harlem Avenue, Tinley Park, Illinois

Oklahoma

4921 North May Ave, Oklahoma City, Oklahoma

125 East First, Edmond, Oklahoma

1201 West Memorial Road, Oklahoma City, Oklahoma

7300 South Penn Avenue, Oklahoma City, Oklahoma

312 West Commerce, Oklahoma City, Oklahoma

Pennsylvania

7918 Bustleton Avenue, Philadelphia, Pennsylvania

ATM Only

2002 West Springfield, Champaign, Illinois

223 West Jackson Boulevard, Chicago, Illinois

843 West Randolph Street, Chicago, Illinois (3)

525 S. State Street, Chicago, Illinois

177 North State Street, Chicago, Illinois

11203 South Corliss Avenue, Chicago, Illinois

13148 Rivercrest Drive, Crestwood, Illinois

388 Eastgate Drive, Danville, Illinois

2450 Jefferson Street, Joliet, Illinois

3501 South Laramie, Stickney, Illinois

Banking Office Locations (continued):

17 W 648 22^nd Street, Oakbrook Terrace, Illinois

124 May Road, Peru, Illinois

_________________

(1)	Leased facilities.

(2)	Land under building site is leased; other land and buildings are owned.

(3)	Space for ATM location leased.

(4)	The Company owns the building. However, the first floor is under a lease agreement to a third party. The branch leases the space from the third party.

We also have office locations in Troy, Michigan, Long Beach, California, and Freeport, The Bahamas. The Troy and Long Beach locations are used strictly as part of LaSalle’s lease business operations. The Freeport office houses the headquarters for MBRE Holdings LLC. None of these locations provide banking services to our customers.

Item 3. Legal Proceedings

We are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of our businesses. While the ultimate outcome of pending proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing us in such proceedings, that the resolution of these proceedings should not have a material adverse effect on our consolidated financial position or results of operation.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2005.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ National Market under the symbol “MBFI”. There were 1,188 holders of record of our common stock as of December 31, 2005. The following table presents quarterly market price information and cash dividends paid per share for our common stock for 2005 and 2004:

	Market Price Range
					Dividends
	High		Low		Paid
2005
Quarter ended December 31, 2005	$	39.60	$	35.16	$	0.15
Quarter ended September 30, 2005		42.74		37.21		0.15
Quarter ended June 30, 2005		40.50		35.57		0.13
Quarter ended March 31, 2005		42.85		37.93		0.13

2004
Quarter ended December 31, 2004	$	43.50	$	39.53	$	0.13
Quarter ended September 30, 2004		40.91		34.94		0.13
Quarter ended June 30, 2004		40.00		32.56		0.12
Quarter ended March 31, 2004		39.94		35.10		0.12

The timing and amount of cash dividends paid depends on our earnings, capital requirements, financial condition and other relevant factors. The primary source for dividends paid to stockholders is dividends paid to us from our subsidiary banks. We have an internal policy which provides that dividends paid to us by a subsidiary bank cannot exceed an amount that would cause the bank’s total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios to fall below 11%, 8% and 7%, respectively. The minimum ratios required for a bank to be considered “well capitalized” for regulatory purposes are 10%, 6% and 5%, respectively. At December 31, 2005, our subsidiary banks could pay a combined $46.6 million in dividends and comply with our internal policy regarding minimum regulatory capital ratios. In addition to adhering to our internal policy, there are regulatory restrictions on the ability of national banks to pay dividends. See “Item 1. Business - Supervision and Regulation - Dividends” above and Note 17 of notes to consolidated financial statements contained in Item 8 of this report.

The following table sets forth information for the three months ended December 31, 2005 with respect to 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		Paid per Share			Plans or Programs	Plans or Programs (3)
October 1, 2005 - October 31, 2005	-		$	-		-	500,000
November 1, 2005 - November 30, 2005	50,500			37.96		50,500	449,500
December 1, 2005 - December 31, 2005	60,275	(1)		37.79	(2)	58,000	391,500
Total	110,775		$	37.87		108,500	391,500

(1)	Includes 2,275 shares surrendered to the Company in payment of the exercise price of stock options exercised.

(2)	Includes market value of 2,275 shares surrendered in payment of the exercise price of stock options exercised.

(3)	On May 9, 2005, the Company announced a stock repurchase program to buy up to 500,000 shares of its outstanding shares in the open market or in privately negotiated transactions over a twelve-month period.

Item 6. Selected Financial Data

Set forth below and on the following page is our summary consolidated financial information and other financial data. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein in response to Item 7 and the consolidated financial statements and notes thereto included herein in response to Item 8 (in thousands, except common share data).

Our summary consolidated financial information and other financial data contain 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 margin on a fully tax equivalent basis, tangible equity, tangible book value per common share, tangible equity to assets ratio and cash return on average tangible equity. Our management uses these non-GAAP measures in its analysis of our performance. The tax equivalent adjustment to net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Tangible book value per common share, tangible equity and tangible equity to assets ratio measures exclude the ending balances of acquisition-related goodwill and other intangible assets, net of tax benefit, in determining tangible stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets, net of tax benefit, from stockholders’ equity when assessing capital adequacy. Management believes the presentation of the financial measures excluding the impact of these items provides useful supplemental information that is helpful in understanding our financial results, as they provide a method to assess management’s success in utilizing our tangible capital. This disclosure should not be viewed as a substitute for the results determined to be in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Reconciliations of net interest margin on a fully tax equivalent basis to net interest margin and tangible book value per share to book value per share are contained in the “Selected Financial Data” discussed below.

Selected Financial Data:

	As of or for the Year Ended December 31,
	2005		2004		2003		2002		2001 (3)
Statement of Income Data:
Interest income	$	293,904	$	229,514	$	206,904	$	208,866	$	227,256
Interest expense		112,518		69,114		65,368		76,188		111,882

Net interest income		181,386		160,400		141,536		132,678		115,374
Provision for loan losses		8,650		7,800		12,756		13,220		6,901

Net interest income after provision for loan losses		172,736		152,600		128,780		119,458		108,473
Other income		62,429		65,314		61,637		39,116		26,196
Gain on sale of bank subsidiary		-		-		3,083		-		-
Goodwill amortization expense		-		-		-		-		2,548
Other expenses		139,149		125,147		116,608		90,833		83,880
Merger expenses		-		-		(720)		-		22,661

Income before income taxes		96,016		92,767		77,612		67,741		25,580
Applicable income taxes		29,648		28,338		24,220		21,371		13,217

Net income	$	66,368	$	64,429	$	53,392	$	46,370	$	12,363

Common Share Data (1):
Basic earnings per common share	$	2.33	$	2.31	$	2.00	$	1.75	$	0.47
Diluted earnings per common share		2.29		2.25		1.96		1.72		0.46
Book value per common share		17.63		16.80		14.04		12.91		11.19
Less: goodwill and other intangible assets, net of
tax benefit, per common share		4.66		4.63		2.81		1.80		1.29
Tangible book value per common share	$	12.97	$	12.17	$	11.23	$	11.11	$	9.90
Weighted average common shares outstanding:
Basic		28,480,909		27,886,191		26,648,265		26,429,523		26,342,712
Diluted		28,943,176		28,625,171		27,198,607		26,987,058		26,771,228
Dividend payout ratio (2)		24.03%		21.65%		22.00%		22.80%		63.34%
Cash dividends per common share (2)	$	0.56	$	0.50	$	0.44	$	0.40	$	0.30

(1) We split our common shares three-for-two by paying a 50% stock dividend in December 2003. All common share and per common share data has been adjusted to reflect the dividend.

(2) Prior to the Old MB Financial-MidCity Financial merger, which was completed on November 6, 2001, Old MB Financial did not pay any cash dividends, and we paid our first cash dividend after the Old MB Financial-MidCity Financial merger in February 2002. Accordingly, cash dividends per common share data and dividend payout ratio information during the year ended December 31, 2001 reflects dividends paid prior to the Old MB Financial-MidCity Financial merger to holders of shares of MidCity Financial common stock, which was converted to our common stock at an exchange ratio of 230.32955 to 1.

(3) For the year ended December 31, 2001, includes expenses totaling $22.7 million ($19.2 million net of the related tax benefit) incurred in connection with the MB-MidCity merger.

Selected Financial Data (continued):

	As of or for the Year Ended December 31,
(Dollars in thousands)	2005		2004		2003		2002		2001 (1)

Balance Sheet Data:
Cash and due from banks	$	92,001	$	88,231	$	91,283	$	90,522	$	106,572
Federal funds sold	-		-		-		16,100		19,500
Investment securities	1,405,844		1,391,444		1,112,110		893,553		843,286
Loans, gross	3,746,182		3,345,557		2,825,794		2,504,714		2,311,954
Allowance for loan losses	44,979		44,266		39,572		33,890		27,500
Total assets	5,719,065		5,253,975		4,355,093		3,759,581		3,465,853
Deposits	4,201,700		3,962,012		3,432,035		3,019,565		2,821,726
Short-term and long-term borrowings	816,863		662,248		413,064		268,695		277,262
Junior subordinated notes issued to capital trusts	123,526		87,443		87,443		84,800		25,000
Stockholders’ equity	503,413		481,666		375,493		343,187		293,588
Less: goodwill	125,010		123,628		70,293		45,851		32,031
Less: other intangible assets, net of tax benefit	8,186		8,832		4,914		1,818		1,817
Tangible equity	370,217		349,206		300,286		295,518		259,740

Performance Ratios:
Return on average assets	1.20 %		1.34 %		1.28 %		1.27 %		0.36 %
Return on average equity	13.56		14.88		14.82		14.60		4.27
Net interest margin (2)	3.63		3.69		3.72		3.97		3.65
Tax equivalent effect	0.11		0.10		0.08		0.06		0.08
Net interest margin - fully tax equivalent basis (2)	3.74		3.79		3.80		4.03		3.73
Cash return on average tangible equity	18.77		20.08		18.79		17.09		13.53
Loans to deposits	89.16		84.44		82.34		82.95		81.93

Asset Quality Ratios:
Non-performing loans to total loans (3)	0.56 %		0.71 %		0.75 %		0.88 %		0.78 %
Non-performing assets to total assets (4)	0.38		0.46		0.50		0.60		0.55
Allowance for loan losses to total loans	1.20		1.32		1.40		1.35		1.19
Allowance for loan losses to non-performing loans (3)	212.55		186.90		187.44		154.16		152.79
Net loan charge-offs to average loans	0.22		0.23		0.37		0.33		0.42

Liquidity and Capital Ratios:
Tier 1 capital to risk weighted assets	11.62 %		11.30 %		11.64 %		13.05 %		10.73 %
Total capital to risk weighted assets	12.83		12.46		12.86		14.99		12.43
Tier 1 capital to average assets	9.02		8.56		8.97		9.74		7.96
Average equity to average assets	8.87		9.02		8.63		8.68		8.45
Tangible equity to assets (5)	6.63		6.82		7.02		7.96		7.57

Other:
Banking facilities	45		45		41		44		38
Full time equivalent employees	1,123		1,030		936		809		754

(1)	For the year ended December 31, 2001, includes expenses totaling $22.7 million ($19.2 million net of the related tax benefit) incurred in connection with the MB-MidCity merger.

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

(3)

Non-performing loans include loans accounted for on a non-accrual basis, accruing loans contractually past due 90 days or more as to interest or principal and loans the terms of which have been renegotiated to provide reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower.

(4)	Non-performing assets include non-performing loans, other real estate owned and other repossessed assets.

(5)	Equal to total stockholders’ equity less goodwill and other intangibles, net of tax benefit, divided by total assets less goodwill and other intangibles, net of tax benefit.

Selected Financial Data (continued):

The following table presents a reconciliation of cash return on average tangible equity (in thousands):

	2005		2004		2003		2002		2001
Net Income, as reported	$	66,368	$	64,429	$	53,392	$	46,370	$	31,538
Plus: Intangible amortization, net of tax benefit		645		660		754		631		3,212
	$	67,013	$	65,089	$	54,146	$	47,001	$	34,750

Average stockholder’s equity	$	489,395	$	432,992	$	360,210	$	317,693	$	289,291
Less: Average goodwill		123,879		101,314		67,391		40,773		30,439
Less: Average other intangible assets net of tax benefit		8,496		7,453		4,692		1,914		2,082
Average tangible equity	$	357,020	$	324,225	$	288,127	$	275,006	$	256,770

The following table sets forth our selected quarterly financial data (in thousands, except common share data):

	Three Months Ended 2005								Three Months Ended 2004
	December		September		June		March		December		September		June		March
Statement of Income Data:
Interest income	$	79,500	$	76,377	$	72,068	$	65,959	$	64,035	$	60,601	$	53,761	$	51,117
Interest expense		33,673		30,190		26,381		22,274		19,893		18,190		15,955		15,076

Net interest income		45,827		46,187		45,687		43,685		44,142		42,411		37,806		36,041
Provision for loan losses		1,500		1,750		3,000		2,400		2,250		1,750		1,800		2,000

Net interest income after		44,327		44,437		42,687		41,285		41,892		40,661		36,006		34,041
provision for loan losses
Other income		12,384		16,723		17,706		15,616		16,383		15,469		17,196		16,266
Other expenses		36,458		36,465		34,252		31,974		32,632		32,207		30,960		29,348
Income before income taxes		20,253		24,695		26,141		24,927		25,643		23,923		22,242		20,959
Income taxes		6,088		7,656		8,154		7,750		7,997		7,198		6,772		6,371
Net income	$	14,165	$	17,039	$	17,987	$	17,177	$	17,646	$	16,725	$	15,470	$	14,588

Net Interest Margin		3.56%		3.60%		3.67%		3.69%		3.76%		3.72%		3.62%		3.63%
Tax equivalent effect		0.11%		0.11%		0.11%		0.11%		0.11%		0.11%		0.10%		0.11%
Net interest margin on a fully tax
Equivalent basis		3.67%		3.71%		3.78%		3.80%		3.87%		3.83%		3.72%		3.74%

Common Share Data :
Basic earnings per common
share	$	0.50	$	0.60	$	0.63	$	0.60	$	0.62	$	0.58	$	0.56	$	0.55
Diluted earnings per common
share	$	0.49	$	0.59	$	0.62	$	0.59	$	0.60	$	0.57	$	0.55	$	0.53
Weighted average common
shares outstanding	28,521,318		28,506,656		28,357,533		28,538,032		28,629,689		28,640,405		27,491,517		26,766,696
Diluted weighted average
common shares outstanding	28,967,551		28,997,390		28,968,885		29,275,210		29,433,018		29,375,486		28,216,504		27,502,434

Fourth Quarter Results

We had net income of $14.2 million for the fourth quarter of 2005, compared to $17.6 million for the fourth quarter of 2004. The results for the fourth quarter of 2005 generated an annualized return on average assets of 0.99% and an annualized return on average equity of 11.24%, compared to 1.36% and 14.69%, respectively, for the same period in 2004.

Net interest income was $45.8 million for the three months ended December 31, 2005, an increase of $1.7 million, or 3.82% from $44.1 million for the comparable period in 2004. Net interest income grew primarily due to a $442.2 million, or 9.5% increase in average interest earning assets resulting from organic growth. The net interest margin, expressed on a fully tax equivalent basis, was 3.67% for the fourth quarter of 2005 and 3.87% for the fourth quarter of 2004. Five basis points of the decline in the fourth quarter of 2005 compared to the fourth quarter of 2004 was due to lower amortization of loan fees due to fewer paydowns. The remainder of the decline from the fourth quarter of 2004 is due to the flattening yield curve, tightening credit spreads on loans and a shift in the Company’s funding mix towards higher cost deposits and liabilities. The increase in short-term borrowings and brokered deposits was primarily due to the Company’s strong loan growth and its long term goal of migrating to a less interest sensitive deposit base. In the short run, this resulted in a decline in deposits related to the most interest sensitive customers. This decline, as well as the Company’s loan growth, has been funded with short term borrowings and brokered deposits.

Provision for loan losses was $1.5 million in the fourth quarter of 2005 compared to $2.3 million in the fourth quarter of 2004. Net charge-offs were $1.3 million in the quarter ended December 31, 2005 compared to $2.4 million in the quarter ended December 31, 2004. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset Quality” section below for further analysis of the allowance for loan losses.

Other income was $12.4 million for the quarter ended December 31, 2005, a decrease of $4.0 million, or 24.4% compared to $16.4 million for the quarter ended December 31, 2004. Net loss on securities sold increased $2.3 million to $3.7 million compared to $1.4 million for the quarter ended December 31, 2004. The Company sold $147 million in investment securities in the 2005 quarter, which represented approximately 11% of the Company’s investment portfolio. The net proceeds generated from the sale were used to acquire higher yielding, shorter duration securities, which is expected to better position the Company’s balance sheet for the current interest rate environment. There were $20 thousand in net gains recognized on the sale of other assets for the quarter ended December 31, 2005 compared to $2.8 million in net gains for the quarter ended December 31, 2004. The net gains recognized for the quarter ended December 31, 2004 were comprised of a $4.2 million gain on the sale of two banking facilities and $1.4 million in losses on the retirement of assets in connection with the purchase of the Company’s operations center in Rosemont, Illinois. Net lease financing increased by $636 thousand due to higher levels of income realized on lease equipment in which we own a residual interest in the fourth quarter of 2005.

Other expense increased $3.8 million or 11.7% to $36.5 million for the quarter ended December 31, 2005 from $32.6 million for the quarter ended December 31, 2004. Salaries and employee benefits and advertising and marketing expense increased by $1.5 million and $198 thousand, respectively. Approximately $700 thousand of the increase in salaries expense and the increase in advertising and marketing expense was due primarily to the new deposit strategy. The remaining increase in salaries was primarily due to organic growth. Other expenses increased by $939 thousand. Approximately $385 thousand of the increase was due to outsourcing customer statement processing. The remaining increase was due to organic growth. Professional and legal expense increased $508 thousand. Computer service expense increased by $398 thousand due to organic growth and continued system upgrades and expansion related to our new MB Financial Center operations in Rosemont, Illinois. Telecommunication expense decreased $125 thousand as the Company began to see lower costs as a result of completing an upgrade of its phone systems.

Income tax expense for the three months ended December 31, 2005 decreased $1.9 million to $6.1 million compared to $8.0 million for the same period in 2004. The effective tax rate was 30.1% and 31.2% for the quarter ended December 31, 2005 and 2004, respectively. The decline in the effective tax rate was due to a higher percentage of pre-tax income coming from tax exempt sources for the three months ended December 31, 2005 compared to the same period in 2004.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial position and results of operations and should be read in conjunction with the information set forth under “Item 1A Risks Factors,” “General” in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, and our consolidated financial statements and notes thereto appearing under Item 8 of this report.

Overview

We had net income of $66.4 million for the year ended December 31, 2005 compared to $64.4 million for the year ended December 31, 2004, an increase of $2.0 million, or 3.0%. Fully diluted earnings per share for 2005 increased 1.8% to $2.29 compared to $2.25 per share in 2004.

The profitability of our operations depends primarily on our net interest income after provision for loan losses, which is the difference between total interest earned on interest earning assets and total interest paid on interest bearing liabilities less provision for loan losses. Additionally, our net income is affected by other income and other expenses. The provision for loan losses reflects the amount added to the allowance for loan losses that we believe is needed to ensure the allowance is adequate to cover probable credit losses in the loan portfolio. Non-interest income or other income consists of loan service fees, deposit service fees, net lease financing income, trust and asset management fees, brokerage fees, net gains (losses) on the sale of securities available for sale, increase in cash surrender value of life insurance, net gain (loss) on sale of assets, gain on sale of bank subsidiary and other operating income. 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, prepayment fee on Federal Home Loan Bank advances, other operating expenses, and merger expenses.

Net interest income is affected by changes in the volume and mix of interest earning assets, the level of interest rates earned on those assets, the volume and mix of interest bearing liabilities and the level of interest rates paid on those interest bearing liabilities. The provision for loan losses is dependent on changes in the loan portfolio and management’s assessment of the collectibility of the loan portfolio, as well as economic and market conditions. Other income and other expenses are impacted by growth of operations and growth in the number of accounts through both acquisitions and core banking business growth. Growth in operations affects other expenses as a result of additional employees, branch facilities and promotional marketing expense. Growth in the number of accounts affects other income, including service fees as well as other expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses.

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 is 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 and recovery 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 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 December 31, 2005, the aggregate residual value of the equipment leased under our direct finance, leveraged, and operating leases totaled $29.5 million. See Note 1 and Note 6 of the notes to our audited consolidated financial statements for additional information.

Income Tax Accounting. Income tax expense recorded in the consolidated income statement involves interpretation and application of certain accounting pronouncements and federal and state tax codes, and is, therefore, considered a critical accounting policy. We undergo examination by various regulatory taxing authorities. Such agencies may require that changes in the amount of tax expense or valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment of tax liabilities, the impact of which could be significant to the consolidated results of operations and reported earnings. We believe the tax liabilities are adequately and properly recorded in the consolidated financial statements. See “Income Taxes” section below for further discussion.

Recent Accounting Pronouncements. Refer to Note 1 of the Consolidated Financial Statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition.

Net Interest Income

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest earning assets and the related yields, as well as the interest expense on average interest bearing liabilities, and the related costs, expressed both in dollars and rates (dollars in thousands). The table below and the discussion that follows contain presentations of net interest income and net interest margin on a tax-equivalent basis, which is adjusted for the tax-favored status of income from certain loans and investments. Net interest margin also is presented on a tax-equivalent basis in “Item 6. Selected Financial Data.” We believe this measure to be the preferred industry measurement of net interest income, as it provides a relevant comparison between taxable and non-taxable amounts. Reconciliations of net interest income and net interest margin on a tax-equivalent basis to net interest income and net interest margin in accordance with accounting principles generally accepted in the United States of America are provided in the table.

	Year Ended December 31,
	2005							2004							2003
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate

Interest Earning Assets:
Loans (1) (2)	$	3,571,083	$	235,965		6.61	%	$	3,076,077	$	178,005		5.79	%	$	2,746,920	$	164,325		5.98	%
Loans exempt from federal
income taxes (3)		2,939		190		6.38			3,164		206		6.40			3,589		238		6.54
Taxable investment securities		1,132,716		47,305		4.18			1,036,372		43,061		4.15			884,619		36,933		4.18
Investment securities exempt
from federal income taxes (3)		275,012		15,479		5.55			220,148		12,563		5.61			141,171		8,035		5.61
Federal funds sold		2,243		84		3.69			5,008		48		0.94			19,439		215		1.09
Other interest bearing deposits		13,179		365		2.77			9,463		100		1.06			6,568		53		0.81
Total interest earning assets		4,997,172		299,388		5.99			4,350,232		233,983		5.38			3,802,306		209,799		5.52
Non-interest earning assets		520,965							450,929							371,002
Total assets	$	5,518,137						$	4,801,161						$	4,173,308

Interest Bearing Liabilities:
Deposits:
NOW and money market deposit	$	760,673	$	9,853		1.30		$	741,912	$	5,835		0.79		$	684,819	$	5,986		0.87
Savings deposit		508,470		3,299		0.65			506,737		2,957		0.58			462,672		3,072		0.66
Time deposits		2,165,721		69,104		3.19			1,801,494		44,582		2.47			1,646,501		44,170		2.68
Short-term borrowings		680,820		19,982		2.93			472,541		6,754		1.43			285,753		4,021		1.41
Long-term borrowings and junior
subordinated notes		179,606		10,280		5.65			169,019		8,986		5.23			125,534		8,119		6.38
Total interest bearing liabilities		4,295,290		112,518		2.62			3,691,703		69,114		1.87			3,205,279		65,368		2.04

Non-interest bearing deposits		674,353							623,650							554,191
Other non-interest bearing liabilities		59,099							52,816							53,628
Stockholders’ equity		489,395							432,992							360,210
Total liabilities and stockholders’ equity	$	5,518,137						$	4,801,161						$	4,173,308
Net interest income/interest rate spread (4)			$	186,870		3.37	%			$	164,869		3.51	%			$	144,431		3.48	%
Taxable equivalent adjustment				5,484							4,469							2,895
Net interest income, as reported			$	181,386						$	160,400						$	141,536

Net interest margin (5)						3.63	%						3.69	%						3.72	%
Tax equivalent effect						0.11	%						0.10	%						0.08	%
Net interest margin on a fully tax equivalent basis (5)						3.74	%						3.79	%						3.80	%

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

(2)	Interest income includes loan origination fees of $7.4 million, $7.7 million and $4.6 million for the years ended December 31, 2005, 2004 and 2003, respectively.

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

(4)	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.

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

Net interest income on a tax equivalent basis increased $22.0 million, or 13.3% to $186.9 million for the year ended December 31, 2005 from $164.9 million for the year ended December 31, 2004. Tax-equivalent interest income increased by $65.4 million due to a $646.9 million, or 14.9% increase in average interest earning assets. Interest income also increased due to a 61 basis point increase in the yield on average interest earning assets to 5.99% due to higher short-term and intermediate interest rates in 2005. Interest expense increased by $43.4 million, due to a $603.6 million, or 16.3% increase in average interest bearing liabilities. Interest expense increased additionally due to a 75 basis point increase in the cost of interest bearing liabilities due to higher short-term and intermediate interest rates in 2005. Approximately $154 million of the increase in average interest earning assets and $167 million of the increase in average interest bearing liabilities was due to our acquisition of First SecurityFed in the second quarter of 2004, with the reminder resulting from organic growth. The net interest margin decreased due to competitive pricing on both loans and deposits, the flattening yield curve and a shift in the funding mix towards higher cost deposits and borrowings. The increase in short-term borrowings and brokered deposits was primarily due to the Company’s strong loan growth and its long term goal of migrating to a less interest sensitive deposit base. In the short run, this resulted in a decline in deposits related to the most interest sensitive customers. This decline, as well as the Company’s loan growth, has been funded with short term borrowings and brokered deposits.

Net interest income on a tax equivalent basis increased $20.5 million, or 14.2% to $164.9 million for the year ended December 31, 2004 from $144.4 million for the year ended December 31, 2003. Tax-equivalent interest income increased by $24.2 million due to a $547.9 million, or 14.4% increase in average interest earning assets. The increase in average interest earning assets was partially offset by a 14 basis point decline in their yield to 5.38% partially due to lower intermediate and long-term interest rates in 2004. Interest expense increased by $3.7 million due to a $486.2 million, or 15.2% increase in average interest bearing liabilities, which was partially offset by a 17 basis point decline in the cost of interest bearing liabilities partially due to lower intermediate and long-term interest rates in 2004. The increase in average interest earning assets and interest bearing liabilities was primarily due to organic growth, as well as the acquisition of First SecurityFed in the second quarter of 2004, which added approximately $235 million in average interest earning assets and $240 million in average interest bearing liabilities.

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.

	Year Ended December 31,
	2005 Compared to 2004						2004 Compared to 2003
	Change			Change			Change		Change
	Due to			Due to		Total	Due to		Due to		Total
	Volume			Rate		Change	Volume		Rate		Change
Interest Earning Assets:
Loans	$	30,806	$	27,154	$	57,960	$	19,191	$	(5,511)	$	13,680
Loans exempt from federal income taxes (1)		(15)		(1)		(16)		(28)		(4)		(32)
Taxable investment securities		4,023		221		4,244		6,306		(178)		6,128
Investment securities exempt from federal
income taxes (1)		3,090		(174)		2,916		4,507		21		4,528
Federal funds sold		(39)		75		36		(141)		(26)		(167)
Other interest bearing deposits		51		214		265		28		19		47
Total increase (decrease) in interest income		37,916		27,489		65,405		29,863		(5,679)		24,184

Interest Bearing Liabilities:
NOW and money market deposit accounts		152		3,866		4,018		476		(627)		(151)
Savings deposits		10		332		342		277		(392)		(115)
Time deposits		10,087		14,435		24,522		3,981		(3,569)		412
Short-term borrowings		3,902		9,326		13,228		2,669		64		2,733
Long-term borrowings and junior
subordinated notes		582		712		1,294		2,482		(1,615)		867
Total increase (decrease) in interest expense		14,733		28,671		43,404		9,885		(6,139)		3,746
Increase (decrease) in net interest income	$	23,183	$	(1,182)	$	22,001	$	19,978	$	460	$	20,438

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

Other Income

Other income decreased $2.9 million, or 4.4% to $62.4 million for the year ended December 31, 2005 from $65.3 million for the year ended December 31, 2004. There were $20 thousand in net gains recognized on the sale of other assets for the year ended December 31, 2005 compared to $3.1 million in net gains for the year ended December 31, 2004. The net gain recognized for the year ended December 31, 2004 was primarily comprised of a $4.2 million gain on the sale of two banking facilities and $1.4 million in losses on the retirement of assets. Net lease financing declined by $879 thousand due to lower levels of income realized during 2005 on leased equipment in which we own a residual interest. Brokerage fees declined by $1.8 million to $7.9 million, because of lower fixed annuity sales, loss of key clients due to acquisitions and turnover of financial advisors due to the difficult market in 2005. Net losses on sale of investment securities available for sale increased by $1.2 million as net losses of $1.5 million were realized in 2005 compared to net losses of $308 thousand in 2004. Investment security sales are periodically made as part of our ongoing strategy to maintain good long-term investment portfolio returns. Deposit service fees increased $742 thousand, primarily due to increases in NSF and overdraft fees of $691 thousand, while loan service fees increased $546 thousand due to an increase in lending activity and an increase in fees recorded on customer swap arrangements. Other operating income increased $2.3 million, primarily due to revenue related to merchant card processing being recorded on a gross basis in 2005. In prior years, merchant card processing revenue and related expenses were netted in other income, as the amount of income and expense was not considered material. See Note 1 of notes to consolidated financial statements contained in Item 8 of this report.

Other income increased $594 thousand, or 0.9% to $65.3 million for the year ended December 31, 2004 from $64.7 million for the 2003 period. Net gain (loss) on sale of assets increased $3.4 million primarily due to a net gain of $2.8 million realized on the sale of two banking facilities and the retirement of certain assets relating to the consolidation of employees at MB Financial Center. Brokerage fees increased by $1.6 million to $9.8 primarily due to higher investment sales activity at Vision, our wholly owned full service broker/dealer. Deposit service fees increased by $1.5 million primarily due to increases in NSF and overdraft fees and monthly service charges of $1.1 million and $362 thousand, respectively. Gain on sale of bank subsidiary declined by $3.1 million, reflecting the sale of Abrams, our former banking subsidiary located in Dallas, Texas, in the second quarter of 2003. Loan service fees declined by $1.2 million primarily due to declines in loan prepayment fees and mortgage banking fees of $599 thousand and $504 thousand, respectively, as there was significantly less loan refinancing activity in 2004. Net (loss) gain on sale of securities available for sale decreased by $1.1 million due to net losses of $308 thousand in 2004 compared to net gains of $798 thousand in 2003. Other operating income also declined by $1.1 million, primarily due to a $720 thousand decline in gain on the sale of residential mortgage loans. Mortgage loans sold (excluding $88.2 million of First SecurityFed loans which were securitized and transferred to investment securities available for sale in the third quarter of 2004) decreased $97.0 million to $20.8 million for the year ended December 31, 2004 compared to $117.8 million during the same period of 2003. The volumes of mortgage loans originated and sold during 2004 were significantly lower than 2003 primarily due to less loan refinancing activity in the 2004 period.

Other Expenses

Other expense increased by $14.0 million, or 11.2% to $139.1 million for the year ended December 31, 2005 from $125.1 million for the year ended December 31, 2004. Salaries and employee benefits and advertising and marketing expense increased by $6.0 million and $741 thousand, respectively. The increase in salaries was primarily due to organic growth, a full year of First SecurityFed salaries, and the new deposit gathering strategy. The increase in advertising and marketing expense was primarily due to the new deposit strategy. Occupancy and equipment expense increased by $2.2 million, primarily due to a $1.6 million increase in depreciation expense, as well as a $1.2 million decline in building rental income, offset by a decline of $552 thousand in property taxes. Depreciation expense increased due to computer and telecommunication equipment purchased in the second half of 2004 and placed in service at MB Financial Center and remodeling at several branches. Rental income declined due to the departure of tenants at the MB Financial Center as a result of our occupancy of the space in the fourth quarter of 2004. Brokerage fee expense decreased by $794 thousand primarily due to lower investment sales activity at Vision during 2005. Computer service expense increased by $872 thousand due to organic growth and acquisition of First SecurityFed, as well as system upgrades. Professional and legal expense increased by $777 thousand. Telecommunication expense increased $507 thousand, as the Company incurred additional costs as a result of upgrading its phone systems. Other operating expenses increased $3.7 million, primarily due to expenses related to merchant card processing of $2.3 million being recorded on a gross basis in 2005. In prior years, merchant card processing revenue and related expenses were netted in other income, as the amount of income and expense was not considered material. See Note 1 of notes to consolidated financial statements contained in Item 8 of this report.

Other expense increased by $9.3 million, or 8.0% to $125.1 million for the year ended December 31, 2004 from $115.8 million for the year ended December 31, 2003. Salaries and employee benefits and advertising and marketing expense increased by $6.2 million and $930 thousand, respectively, due to the acquisition of First SecurityFed and organic growth. Occupancy and equipment expense increased by $3.8 million. Property tax expense, depreciation expense, utilities expense and repair and maintenance expense increased by $950 thousand, $887 thousand, $478 thousand and $459 thousand, respectively, due to expenses associated with new MB Financial Center and the acquisition of First SecurityFed. Miscellaneous occupancy and equipment increased by $575 thousand, primarily due to $477 thousand in moving expenses incurred in relocating staff to MB Financial Center. The year ended December 31, 2003 reflects a $720 thousand reversal of the remaining reserve related to the merger-of-equals between Old MB Financial and MidCity Financial in 2001. Brokerage fee expense increased by $705 thousand primarily due to higher investment sales activity at Vision during 2004. Computer service expense increased by $679 thousand due to organic growth and acquisition of First SecurityFed, as well as system upgrades and expansion related to the new MB Financial Center. Professional and legal expense decreased by $2.7 million. The decrease was due to non-routine expenses incurred in the year ended December 31, 2003, primarily the write-off of $1.2 million in costs associated with planning construction of a new operations center prior to management’s decision to pursue the more cost-effective option of purchasing an existing structure, approximately $400 thousand in legal expense as the plaintiff in litigation defending our corporate trademark, and the settlement of litigation costing approximately $300 thousand in conjunction with the sale of Abrams. Prepayment fee on Federal Home Loan Bank advances decreased by $1.1 million due to a fee incurred in the 2003 period on the payoff of $8.1 million in long-term advances; there were no prepayments in the 2004 period.

Income Taxes

Income tax expense for the year ended December 31, 2005 increased $1.3 million to $29.6 million compared to $28.3 million for the same period in 2004. The effective tax rate was 30.9% and 30.5% for the year ended December 31, 2005 and 2004, respectively.

Income tax expense for the year ended December 31, 2004 increased $4.1 million to $28.3 million compared to $24.2 million for 2003. The effective tax rate was 30.5% and 31.2% for the years ended December 31, 2004 and 2003, respectively. The decline in the effective tax rate was primarily due to a $2.9 million increase in nontaxable investment securities income during the year ended December 31, 2004 compared to the same period in 2003.

As previously stated in the “Critical Accounting Policies” section above, income tax expense recorded in the consolidated income statement involves interpretation and application of certain accounting pronouncements and federal and state tax codes, and is, therefore, considered a critical accounting policy. See Note 1 and Note 15 of the notes to our audited consolidated financial statements for our income tax accounting policy and additional income tax information.

Balance Sheet

Total assets increased $465.1 million or 8.9% to $5.7 billion at December 31, 2005 from $5.3 billion at December 31, 2004. Net loans increased by $399.9 million, or 12.1% to $3.7 billion at December 31, 2005. In aggregate, commercial real estate, commercial, construction real estate, and commercial loans collateralized by assignment of lease payments grew by $466.6 million, or 17.7%, while residential real estate and consumer loans declined, in aggregate, by $66.0 million, or 9.4%. The increases were primarily due to growth in both existing customer and new customer loan demand resulting from the Company’s focus on marketing and new business development. The decreases were due to paydowns in residential real estate and consumer loans. See “Loan Portfolio” section below for further analysis. Investment securities available for sale increased by $14.4 million, or 1.0% to $1.4 billion at December 31, 2005. FHLB stock decreased $17.0 million during the period to $43.7 million as of December 31, 2005.

Net premises and equipment increased $34.1 million to $147.7 million at December 31, 2005 partially due to the purchase of the land at the Company’s operations center in Rosemont, Illinois, for $14.2 million in July 2005. The land had previously been leased in conjunction with the corresponding 2003 purchase of the Rosemont building. Additionally, the Company continued to invest in new branches and purchase technology related equipment.

Total liabilities increased by $444.3 million, or 9.3% to $5.2 billion at December 31, 2005 from $4.8 billion at December 31, 2004. Total deposits grew by $239.7 million or 6.0% to $4.2 billion during that same period. Short-term borrowings increased by $174.5 million, or 30.6%, primarily due to increases in securities sold under agreement to repurchase, Fed funds purchased and customer repurchase agreements of $108.9 million, $30.6 million and $34.5 million, respectively. The increase in short-term borrowings was primarily due to the Company’s strong loan growth and its long term goal of migrating to a less interest sensitive deposit base. In the short run, this resulted in a decline in deposits related to the most interest sensitive customers. This decline, as well as the Company’s loan growth, has been partially funded with short term borrowings. Junior subordinated notes issued to capital trusts increased during the third quarter of 2005, as the Company issued an additional $35.0 million in junior subordinated notes on August 29^th 2005.

Total stockholders’ equity increased $21.7 million to $503.4 million at December 31, 2005 compared to $481.7 million at December 31, 2004. Retained earnings increased by $50.4 million due to net income of $66.4 million, partially offset by $16.0 million or $0.56 per share, in cash dividends. Treasury stock increased $8.7 million, primarily due to the repurchase of 609,731 outstanding shares, offset by the issuance of treasury shares in connection with the exercise of stock options during 2005 for an ending total of 362,416 treasury shares held as of December 31, 2005. Accumulated other comprehensive income declined by $13.9 million due to gains and losses realized on security sales and an unrealized decrease in the market value on investment securities available for sale.

Investment Securities

The primary purpose of the investment portfolio is to provide a source of earnings, for liquidity management purposes, and to control interest rate risk. In managing the portfolio, we seek safety of principal, liquidity, diversification and maximized return on funds. See “Liquidity and Capital Resources” in this Item 7 and “Quantitative and Qualitative Disclosures About Market Risk - Asset Liability Management” under Item 7A.

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

	Year-ended December 31,
	2005				2004				2003
		Amortized		Fair		Amortized		Fair		Amortized		Fair
		Cost		Value		Cost		Value		Cost		Value

U.S. Treasury securities	$	13,597	$	13,550	$	23,212	$	23,738	$	22,157	$	23,435
U.S. Government agencies		335,032		332,270		319,708		323,803		233,472		243,402
States and political subdivisions		295,033		293,706		251,846		255,009		177,731		180,092
Mortgage-backed securities		652,428		642,576		670,867		667,326		574,456		570,140
Corporate bonds		60,046		59,443		41,082		43,413		44,074		45,074
Equity securities		64,253		64,299		77,403		77,630		47,004		47,632
Debt securities issued by foreign governments		-		-		525		525		560		560
Investment in equity lines of credit trusts		-		-		-		-		1,775		1,775
Total	$	1,420,389	$	1,405,844	$	1,384,643	$	1,391,444	$	1,101,229	$	1,112,110

U.S. Treasury securities and securities of U.S. Government agencies generally consist of fixed rate securities with maturities of three months to three years. States and political subdivisions investment securities consist of investment grade and local non-rated issues with maturities of one year to fifteen years. The average expected life of mortgage-backed securities generally ranges between one and four years. Corporate bonds typically have terms of five years or less. Investments obtained through acquisitions and retained in our portfolio may have maturities that do not meet our normal criteria for investment purchases.

Securities of a single issuer which had book values in excess of 10.0% of our stockholder’s equity at December 31, 2005, other than U.S. Government agencies and corporations, included mortgage-backed securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA securities had an aggregate book value and market value of $315.3 million and $308.5 million, respectively, at December 31, 2005. FHLMC securities had an aggregate book value and market value of $289.5 million and $287.1 million, respectively, at December 31, 2005.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities available for sale at December 31, 2005 (dollars in thousands):

				Due after One			Due after Five
	Due in One			Year through			Years through			Due after
	Year or Less			Five Years			Ten Years			Ten Years
			Weighted			Weighted			Weighted			Weighted
			Average			Average			Average			Average
		Balance	Yield		Balance	Yield		Balance	Yield		Balance	Yield

U.S. Treasury securities	$	6,091	4.56%	$	7,162	3.93%	$	297	3.61%	$	-	-
U.S. Government agencies		41,908	4.61%		290,362	4.33%		-	-		-	-
States and political subdivision (1)		17,198	5.42%		53,939	4.93%		148,750	5.65%		73,819	6.30%
Mortgage-backed securities (2)		35	6.27%		4,869	3.95%		75,455	4.48%		562,217	4.35%
Corporate bonds		22,214	4.28%		28,271	4.40%		-	-		8,958	8.21%
Equity securities		-	-		-	-		-	-		64,299	4.29%
Debt securities issued by foreign governments		-	-		-	-		-	-		-	-
Total	$	87,446	4.68%	$	384,603	4.40%	$	224,502	5.26%	$	709,293	4.59%

(1)	Yield is reflected on a fully tax equivalent basis utilizing a 35% tax rate.

(2)	These securities are presented based upon contractual maturities.

Loan Portfolio

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

	At December 31,
	2005			2004			2003			2002			2001
			% of			% of			% of			% of			% of
		Amount	Total		Amount	Total		Amount	Total		Amount	Total		Amount	Total

Commercial loans	$	833,046	22%	$	725,823	22%	$	647,365	23%	$	558,208	22%	$	490,314	21%
Commercial loans collateralized by assignment of lease payments		299,053	8%		251,025	7%		234,724	8%		274,290	11%		303,063	13%
Commercial real estate		1,456,585	39%		1,263,910	38%		1,090,498	39%		902,755	36%		862,586	37%
Residential real estate		387,167	10%		436,122	13%		361,110	13%		373,181	15%		351,064	15%
Construction real estate		521,434	14%		402,765	12%		268,523	9%		204,728	8%		132,403	6%
Consumer loans		248,897	7%		265,912	8%		223,574	8%		191,552	8%		172,524	8%
Gross loans (1)		3,746,182	100%		3,345,557	100%		2,825,794	100%		2,504,714	100%		2,311,954	100%
Allowance for loan losses		(44,979)			(44,266)			(39,572)			(33,890)			(27,500)
Loans, net	$	3,701,203		$	3,301,291		$	2,786,222		$	2,470,824		$	2,284,454

(1) Gross loan balances at December 31, 2005, 2004, 2003, 2002, and 2001 are net of unearned income, including net deferred loans fees of $3.6 million, $4.2 million, $4.2 million, $4.2 million, and $3.6 million, respectively.

The increases for 2005 in commercial real estate, commercial, construction real estate, and commercial loans collateralized by assignment of lease payments were primarily due to growth in both existing customer and new customer loan demand resulting from the Company’s focus on marketing and new business development. These increases were partially offset by decreases in residential real estate and consumer loans. These decreases resulted primarily from pay downs in the existing portfolio. Most fixed rate residential real estate loans originated continue to be sold to third party investors. The Company will also securitize and transfer residential real estate loans to investment securities available for sale for additional flexibility and favorable capital treatment on the Company’s balance sheet. During 2005, the Company securitized and transferred $28.8 million of residential real estate loans to investment securities available for sale.

The increases for 2004 in commercial real estate, construction real estate, commercial, residential real estate, consumer loans, and commercial loans collateralized by assignment of lease payments were primarily due to growth in both existing customer and new customer loan demand resulting from our focus on marketing and new business development as well as our acquisition of First SecurityFed, which had net loans of $295.8 million at the acquisition date. Of the $295.8 million in net loans acquired from First SecurityFed, $88.2 million in residential real estate loans were securitized and transferred to investment securities available for sale in the third quarter of 2004 for additional flexibility and favorable capital treatment on our balance sheet.

Loan Maturities

The following table sets forth the scheduled repayment information for our loan portfolio at December 31, 2005 (in thousands). Loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

		Due in One Year				Due after One Year				Due after
		Or Less				Through Five Years				Five Years
		Fixed		Floating		Fixed		Floating		Fixed		Floating
		Rate		Rate		Rate		Rate		Rate		Rate		Total

Commercial loans	$	61,870	$	600,492	$	65,355	$	96,726	$	4,795	$	3,808	$	833,046
Commercial loans collateralized by
assignment of lease payments		141,079		-		157,822		-		152		-		299,053
Commercial real estate		183,601		302,347		606,395		285,117		21,084		58,041		1,456,585
Residential real estate		116,871		53,144		109,186		65,722		10,545		31,699		387,167
Construction real estate		6,016		429,578		7,672		77,970		-		198		521,434
Consumer loans		12,877		78,198		4,092		130,964		14		22,752		248,897
Gross loans	$	522,314	$	1,463,759	$	950,522	$	656,499	$	36,590	$	116,498	$	3,746,182

Asset Quality

The following table sets forth the amounts of non-performing loans and non-performing assets at the dates indicated (dollars in thousands):

	At December 31,
	2005		2004		2003		2002		2001

Non-accruing loans (1)	$	20,841	$	23,495	$	20,795	$	21,359	$	17,835
Loans 90 days or more past due, still accruing interest		321		189		317		624		164
Total non-performing loans		21,162		23,684		21,112		21,983		17,999
Other real estate owned		354		384		472		549		1,164
Other repossessed assets		-		-		-		10		38
Total non-performing assets	$	21,516	$	24,068	$	21,584	$	22,542	$	19,201

Total non-performing loans to total loans		0.56%		0.71%		0.75%		0.88%		0.78%
Allowance for loan losses to non-performing loans		212.55%		186.90%		187.44%		154.16%		152.79%
Total non-performing assets to total assets		0.38%		0.46%		0.50%		0.60%		0.55%

(1) Includes restructured loans totaling $568 thousand and $667 thousand at December 31, 2004 and 2003, respectively. There were no restructured loans at December 31, 2005, 2002 and 2001.

Non-performing Assets

Non-performing loans include loans accounted for on a non-accrual basis, accruing loans contractually past due 90 days or more as to interest and principal and loans whose terms have been restructured to provide reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. Management reviews the loan portfolio for problem loans on an ongoing basis. During the ordinary course of business, management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. These loans are placed under close supervision with consideration given to placing the loan on non-accrual status, increasing the allowance for loan losses and (if appropriate) partial or full charge-off. After a loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income. If interest payments are received on non-accrual loans, these payments will be applied to principal and not taken into income. Loans will not be placed back on accrual status unless back interest and principal payments are made. If interest on non-accrual loans had been accrued, such income would have amounted to approximately $3.1 million and $1.5 million for the years ended December 31, 2005 and 2004, respectively; none of these amounts were included in interest income during these periods. Our general policy is to place loans 90 days past due on non-accrual status. Non-accrual loans are further classified as impaired when underlying collateral is not sufficient to cover the loan balance and it is probable that we will not fully collect all principal and interest.

Non-performing assets consists of non-performing loans, as well as other repossessed assets and other real estate owned. Other real estate owned represents properties acquired through foreclosure or other proceedings and is recorded at the lower of cost or fair value less the estimated cost of disposal. Other real estate owned is evaluated regularly to ensure that the recorded amount is supported by its current fair value. Valuation allowances to reduce the carrying amount to fair value less estimated costs of disposal are recorded as necessary. Revenues and expenses from the operations of other real estate owned and changes in the valuation are included in other income and other expenses on the income statement.

Total non-performing assets decreased by $2.6 million to $21.5 million at December 31, 2005 from $24.1 million at December 31, 2004 primarily due to collections on several loans in the workout process and better credit quality in the loan portfolio. Of the $23.7 million of non-performing loans as of December 31, 2004, only $9.7 million still remained at December 31, 2005. Total non-performing assets increased by $2.5 million to $24.1 million at December 31, 2004 from $21.6 million at December 31, 2003 primarily due to $2.6 million in loans acquired from First SecurityFed that were classified as non-accrual loans, offset by a $128 thousand reduction in loans 90 days or more past due still accruing interest and an $88 thousand reduction in other real estate owned.

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 susceptible 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 adequate to absorb probable losses on existing loans based on an evaluation of the collectibility of loans, underlying collateral and prior loss experience. We use a risk rating system to evaluate the adequacy of the allowance for loan losses. With this 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, with one being the best case and nine being a loss or the worst case. Estimated loan default factors are multiplied against loan balances in each risk-rating category and then multiplied by an historical loss given default rate by loan type to determine an appropriate level for the allowance for loan losses. A specific reserve may be needed on a loan by loan basis. Loans with risk ratings between six and eight are monitored more closely by the officers and Senior Credit Management, and may result in specific reserves. The allowance for loan losses also includes an element for estimated probable but undetected losses and for imprecision in the loan loss models discussed above. For 2005, the methodology was refined and this element was calculated for each loan type. As a result, the unallocated reserve was fully allocated to all components of the loan loss reserve as of December 31, 2005. This change accounts for a majority of the increase in the allowance for loan losses in each portfolio grouping compared to prior years. Control of our loan quality is continually monitored by management and is reviewed by our bank subsidiaries’ boards of directors at their regularly scheduled meetings. We consistently apply our methodology for determining the adequacy 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 current loan portfolio.

The following table presents an analysis of the allowance for loan losses for the years presented (dollars in thousands):

	Year Ended December 31,
	2005		2004		2003		2002		2001

Balance at beginning of year	$	44,266	$	39,572	$	33,890	$	27,500	$	26,836
Additions from acquisitions		-		4,052		3,563		1,212		3,025
Allowance related to bank subsidiary sold		-		-		(528)		-		-
Provision for loan losses		8,650		7,800		12,756		13,220		6,901
Charge-offs:
Commercial loans		(4,012)		(5,600)		(7,191)		(4,286)		(8,173)
Commercial loans collateralized by		(826)		(1,538)		(131)		(2,112)		(36)
assignment of lease payments
Commercial real estate		(1,052)		(1,508)		(4,027)		(1,229)		(44)
Residential real estate		(118)		(338)		(1,621)		(820)		(520)
Construction real estate		(3,824)		(514)		(920)		-		-
Consumer loans		(351)		(496)		(1,034)		(1,019)		(2,176)
Total charge-offs		(10,183)		(9,994)		(14,924)		(9,466)		(10,949)
Recoveries:
Commercial loans		1,140		1,673		2,206		295		476
Commercial loans collateralized by		329		104		553		27		-
assignment of lease payments
Commercial real estate		51		36		975		40		6
Residential real estate		97		131		70		42		53
Construction real estate		-		28		-		108		472
Consumer loans		629		864		1,011		912		680
Total recoveries		2,246		2,836		4,815		1,424		1,687

Net charge-offs		(7,937)		(7,158)		(10,109)		(8,042)		(9,262)

Balance at December 31,	$	44,979	$	44,266	$	39,572	$	33,890	$	27,500

Total loans at December 31,	$	3,746,182	$	3,345,557	$	2,825,794	$	2,504,717	$	2,311,954
Ratio of allowance to total loans		1.20%		1.32%		1.40%		1.35%		1.19%
Ratio of net charge-offs to average loans		0.22%		0.23%		0.37%		0.33%		0.42%

Net charge-offs increased by $779 thousand in the year ended December 31, 2005 compared to the year ended December 31, 2004. Net charge-offs for 2005 included a $3.8 million charge-off related to one construction loan.

Net charge-offs decreased by $2.9 million in the year ended December 31, 2004 compared to the year ended December 31, 2003. Charge-offs declined by $4.9 million as the 2003 period included charge-offs of two commercial loans and one commercial real estate loan totaling $4.1 million and $2.2 million, respectively. Recoveries decreased by $2.0 million primarily due to three loans with recoveries exceeding $400 thousand each in 2003. The acquisition of First SecurityFed added $4.1 million to the allowance in the second quarter of 2004.

Net charge-offs increased by $2.1 million in the year ended December 31, 2003 compared to the year ended December 31, 2002 due to a $5.5 million increase in charge-offs offset by a $3.4 million increase in recoveries. The increase in charge-offs was primarily due to the charge-off of two commercial loans totaling $4.1 million, and one $2.2 million commercial real estate loan. Recoveries increased $3.4 million due to $3.1 million in recoveries related to nine loans and our continued collection efforts. In the second quarter of 2003, the allowance was reduced by $528 thousand in conjunction with the sale of Abrams. The acquisitions of South Holland and Lincolnwood added $3.6 million and $1.2 million to the allowance in the first quarter of 2003 and second quarter of 2002, respectively.

Provision for loan losses increased by $850 thousand to $8.7 million for year ended December 31, 2005 compared to $7.8 million for year ended December 31, 2004 based on the results of our quarterly analyses of the loan portfolio and growth in the loan portfolio. Provision for loan losses declined by $5.0 million for year ended December 31, 2004 compared to $12.8 million for year ended December 31, 2003 based on the results of our quarterly analyses of the loan portfolio and improved credit quality in 2004. Provision for loan losses decreased by $464 thousand for the year ended December 31, 2003 compared to the year ended December 31, 2002 due to improved credit quality. Provision for loan losses increased by $6.3 million to $13.2 million for the year ended December 31, 2002 compared to $6.9 million for the year ended December 31, 2001. The increase in annual provision in 2002 was primarily due to weakness in the overall economic environment and an increase in impaired loans during 2002. In the first quarter of 2001, we added $22.8 million of pooled home equity lines of credit to the loan portfolio through the purchase of a 100% interest in our former 97-2 securitization trust and added $2.0 million to the allowance for loan losses for these loans.

The following table sets forth the allocation of the allowance for loan losses for the years presented and the percentage of loans in each category to total loans. An allocation for a loan classification is only for internal analysis of the adequacy of the allowance and is not an indication of expected or anticipated losses (dollars in thousands):

	At December 31,
	2005 (1)			2004			2003			2002			2001
			% of Total			% of Total			% of Total			% of Total			% of Total
	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans

Commercial loans	$	15,991	22%	$	10,913	22%	$	10,327	23%	$	9,117	22%	$	6,724	21%
Commercial loans collateralized by
assignment of lease payments		7,199	8%		6,563	7%		4,301	8%		3,070	11%		2,703	13%
Commercial real estate		12,460	39%		10,340	38%		7,327	39%		7,446	36%		4,600	37%
Residential real estate		881	10%		868	13%		1,625	13%		1,750	15%		1,542	15%
Construction real estate		7,581	14%		4,451	12%		2,655	9%		1,980	8%		1,258	6%
Consumer loans and other		867	7%		925	8%		4,896	8%		2,838	8%		3,963	8%
Unallocated (1)		-	-%		10,206	-%		8,441	-%		7,689	-%		6,710	-%
Total	$	44,979	100%	$	44,266	100%	$	39,572	100%	$	33,890	100%	$	27,500	100%

(1) In 2005, the methodology was refined to fully allocate all components of the loan loss reserve.

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.

Potential Problem Loans

We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At each scheduled meeting of the boards of directors of our subsidiary banks, a watch list is presented, showing significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” Under our risk rating system noted above under “Allowance for Loan Losses,” 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 subsidiary banks’ 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 collectibility 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.

We define potential problem loans as loans rated substandard or doubtful which are included on the watch list presented to our bank subsidiaries’ boards of directors that do not meet the definition of a non-performing loan (See “Asset Quality” section above for non-performing loans), but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms. Our decision to include performing loans in potential problem loans does not necessarily mean that we expect losses to occur, but that we recognize potential problem loans carry a higher probability of default. The aggregate principal amounts of potential problem loans as of December 31, 2005 and December 31, 2004 were approximately $25.2 million and $44.2 million, respectively. Potential problem loans decreased $19.0 million from December 31, 2004 primarily due to the collection of a construction loan for $16.6 million, a $3.8 million charge-off and the remainder consisting of loan payoffs.

Sources of Funds

General. Deposits, short-term and long-term borrowings, including junior subordinated notes issued to capital trusts, loan and investment security repayments and prepayments, proceeds from the sale of securities, and cash flows generated from operations are the primary sources of our funds for lending, investing, leasing and other general purposes. Loan repayments are a relatively predictable source of funds except during periods of significant interest rate declines, while deposit flows tend to fluctuate with prevailing interests rates, money markets conditions, general economic conditions and competition.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our core deposits consist of checking accounts, NOW accounts, money market accounts, savings accounts and non-public certificates of deposit. These deposits, along with public fund deposits, brokered deposits, and short-term and long-term borrowings are used to support our asset base. Our deposits are obtained predominantly from the geographic trade areas surrounding each of our office locations. We rely primarily on customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits. Our new deposit gathering strategy offers expanded/convenient hours as a way to attract deposits. We also use brokered deposits as an alternative funding source which allows us flexibility in managing our overall interest expense.

The following table sets forth the maturities of certificates of deposit and other time deposits $100,000 and over at December 31, 2005 (in thousands):

	At December 31, 2005
Certificates of deposit $100,000 and over:
Maturing within three months	$	308,923
After three but within six months		125,097
After six but within twelve months		230,498
After twelve months		545,748
Total certificates of deposit $100,000 and over	$	1,210,266

Other time deposits $100,000 and over:
Maturing within three months	$	6,341
After three but within six months		7,086
After six but within twelve months		11,358
After twelve months		16,983
Total other time deposits $100,000 and over	$	41,768

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

	At December 31,
	2005			2004
	Amount		Percent	Amount		Percent

Demand deposits, noninterest bearing	$	694,548	16.53%	$	673,752	17.01%
NOW and money market accounts	723,157		17.21	816,580		20.61
Savings deposits	481,189		11.45	535,341		13.51
Time certificates, $100,000 or more	1,252,034		29.80	871,378		21.99
Other time certificates	1,050,772		25.01	1,064,961		26.88
Total	$	4,201,700	100.00%	$	3,962,012	100.00%

Borrowings. We have access to a variety of borrowing sources and use short-term and long-term borrowings to support our asset base. Short-term borrowings from time to time include federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank advances and correspondent bank lines of credit. Company repurchase agreements increased during 2005 due to fund strong loan demand, which outpaced organic deposit growth. We also offer customers a deposit account that sweeps balances in excess of an agreed upon target amount into overnight repurchase agreements. As business customers have grown more sophisticated in managing their daily cash position, demand for the sweep product has increased. Short-term borrowings increased by $174.5 million to $745.6 million at December 31, 2005 compared to $571.2 million at December 31, 2004. The increase in short-term borrowings and brokered deposits was primarily due to the Company’s strong loan growth and its long term goal of migrating to a less interest sensitive deposit base. In the short run, this resulted in a decline in deposits related to the most interest sensitive customers. This decline, as well as the Company’s loan growth, has been funded with short term borrowings and brokered deposits.

The following table sets forth certain information regarding our short-term borrowings at the dates and for the periods indicated (dollars in thousands):

	At or For the Year Ended December 31,
	2005		2004		2003

Federal funds purchased:
Average balance outstanding	$	47,095	$	25,431	$	20,565
Maximum outstanding at any month-end during the period		156,700		63,000		75,210
Balance outstanding at end of period		30,600		-		47,525
Weighted average interest rate during the period		3.24%		1.79%		1.34%
Weighted average interest rate at end of the period		4.46%		- %		1.26%
Securities sold under agreements to repurchase:
Average balance outstanding	$	414,239	$	251,055	$	202,875
Maximum outstanding at any month-end during the period		491,762		333,936		241,632
Balance outstanding at end of period (1)		477,329		333,936		219,075
Weighted average interest rate during the period		2.85%		1.27%		1.37%
Weighted average interest rate at end of the period		3.58%		1.89%		1.16%
Federal Home Loan Bank advances:
Average balance outstanding	$	217,583	$	192,720	$	57,998
Maximum outstanding at any month-end during the period		242,742		237,219		130,000
Balance outstanding at end of period		237,718		237,219		125,000
Weighted average interest rate during the period		3.01%		1.57%		1.47%
Weighted average interest rate at end of the period		4.43%		2.20%		1.35%
Correspondent bank lines of credit:
Average balance outstanding	$	1,904	$	3,262	$	4,315
Maximum outstanding at any month-end during the period		10,000		26,000		20,000
Balance outstanding at end of period		-		-		-
Weighted average interest rate during the period		4.35%		2.80%		2.56%
Weighted average interest rate at end of the period		-		-		-

(1)	Balance includes customer repurchase agreements totaling $196.0 million, $161.5 million and $163.4 million at December 31, 2005, 2004 and 2003, respectively.

Long-term borrowings include notes payable to other banks to support a portfolio of equipment that we own and lease to other companies, as well as Federal Home Loan Bank advances. As of December 31, 2005 and December 31, 2004, our long-term borrowings were $71.2 million and $91.1 million, respectively. Long-term borrowings decreased $19.9 million primarily due to $23.4 million in Federal Home Loan Bank advances being reclassed to short-term borrowings due to maturities of less than one year as of December 31, 2005. The migration of the $23.4 million of Federal Home Loan Bank advances to short-term borrowings was offset in part by $7.0 million of ten-year subordinated debt issued by Union Bank, N.A. in June 2005. See Note 11 to the consolidated financial statements.

Junior subordinated notes issued to capital trusts include debentures we sold to Coal City Capital Trust I, MB Financial Capital Trust I, and MB Financial Capital Trust II in connection with the issuance of their preferred securities in 1998, 2002, and 2005, respectively. As of December 31, 2005 and December 31, 2004, our junior subordinated notes issued to capital trusts were $123.5 million and $87.4 million, respectively. See Notes 1 and 12 to the consolidated financial statements for further analysis.

Liquidity

Bank Liquidity. Liquidity management is monitored by an Asset/Liability Management Committee, consisting of members of management and the boards of directors of our subsidiary banks, 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.

Our primary sources of funds are retail and commercial deposits, short-term and long-term borrowings, public funds and funds generated from operations. Funds from operations include principal and interest payments received on loans and securities. While maturities and scheduled amortization of loans and securities provide an indication of the timing of the receipt of funds, changes in interest rates, economic conditions and competition strongly influence mortgage prepayment rates and deposit flows, reducing the predictability of the timing on sources of funds.

Our banks have no required regulatory liquidity ratios to maintain; however, they each adhere to an internal policy which dictates a ratio of loans to deposits and our liquidity. Our current policy maintains that we, on a consolidated basis, may not have a ratio of loans (excluding lease loans where the related lessee has outstanding securities rated investment grade or where the related lessee would be viewed under our underwriting policies as an investment grade company) to deposits (including customer repurchase agreements) in excess of 80%, or a ratio of loans (including all lease loans) to deposits in excess of 90%. Additionally, as a general rule, our liquidity ratio (defined as cash, short-term assets and other marketable assets less pledged investment securities divided by deposits and short-term liabilities less pledged investment securities) should not fall below 10% for more than 60 days at any one time during the year. At December 31, 2005, our banks were in compliance with the foregoing policies.

At December 31, 2005, our banks had outstanding letters of credit, loan origination commitments and unused commercial and retail lines of credit of approximately $1.2 billion. Our banks anticipate that they will have sufficient funds available to meet current origination and other lending commitments. Certificates of deposit that are scheduled to mature within one year totaled $1.5 billion at December 31, 2005 including brokered deposits. Although no assurance can be given, we expect to retain a substantial majority of these certificates of deposit or acquire additional brokered deposits.

In the event that additional short-term liquidity is needed, our banks have established relationships with several large regional banks to provide short-term borrowings in the form of federal funds purchases. While, at December 31, 2005, there were no firm lending commitments in place, management believes that our banks could borrow approximately $270 million for a short time from these banks on a collective basis. Additionally, MB Financial Bank is a member of the Federal Home Loan Bank of Chicago, Illinois and Union Bank, N.A. is a member of the Federal Home Loan Bank of Topeka, Kansas and both banks have the ability to borrow from their respective Federal Home Loan Banks. 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, the temporary curtailment of lending activities or sale of certain real estate and lease loans.

Corporation Liquidity. Our main sources of liquidity at the holding company level are dividends from our subsidiary banks and a line of credit maintained with a large regional correspondent bank in the amount of $30.0 million. As of December 31, 2005, we had $30.0 million undrawn and available under our line of credit.

Our subsidiary banks are subject to various regulatory capital requirements administered by federal and state banking agencies, which affect their ability to pay dividends to us. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Additionally, our current policy effectively limits the amount of dividends our banks may pay to us by requiring each bank to maintain total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 11%, 8% and 7%, respectively. The minimum ratios required for a bank to be considered "well capitalized" for regulatory purposes are 10%, 6% and 5%, respectively. At December 31, 2005, our subsidiary banks could pay a combined $46.6 million in dividends and comply with our policy regarding minimum regulatory capital ratios. In addition to adhering to our policy, there are regulatory restrictions on the ability of national banks to pay dividends. See "Item 1. Business - Supervision and Regulation."

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely enter into commitments to extend credit, including loan commitments, standby and commercial letters of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by us. For additional information, see Note 16 “Commitments and Contingencies” to the consolidated financial statements.

Derivative Financial Instruments. Derivatives have become one of several components of our asset/liability management activities to manage interest rate risk. In general, the assets and liabilities generated through the ordinary course of business activities do not naturally create offsetting positions with respect to repricing, basis or maturity characteristics. Using derivative instruments, principally interest rate swaps, our interest rate sensitivity is adjusted to maintain the desired interest rate risk profile. Interest rate swaps used to adjust the interest rate sensitivity of certain interest-bearing assets and liabilities will not need to be replaced at maturity, since the corresponding asset or liability will mature along with the interest rate swap.

Interest rate swaps designated as an interest rate related hedge of an existing fixed rate asset or liability are fair value type hedges. We currently use fair value type hedges, or interest rate swaps, to mitigate the interest sensitivity of certain qualifying commercial loans and brokered time certificates of deposit. The change in fair value of both the interest rate swap and hedged instrument is recorded in current earnings. If a hedge ceases to qualify for hedge accounting prior to maturity, previous adjustments to the carrying value of the hedged item are recognized in earnings to match the earnings recognition pattern of the hedged item (e.g., level yield amortization if hedging an interest-bearing instrument that has not been sold or extinguished). For additional information, including the notional amount and fair value of our interest rate swaps at December 31, 2005, see Note 20 “Derivative Financial Instruments” to the consolidated financial statements.

Trust Preferred Securities. In addition to our commitments and derivative financial instruments of the types described above, our off balance sheet arrangements include our combined $3.7 million ownership interests in the common securities of the statutory trusts we established to issue trust preferred securities. See “Capital Resources” below in this Item 7 and Note 12 “Junior Subordinated Notes Issued to Capital Trusts” to the consolidated financial statements.

Contractual Obligations. In the ordinary course of operations, we enter into certain contractual obligations. Such obligations include the funding of operations through debt issuances, subordinated notes issued to capital trusts, operating leases for premises and equipment, as well as capital expenditures for new premises and equipment.

The following table summarizes our significant contractual obligations and other potential funding needs at December 31, 2005 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year			1 - 3 Years		3 - 5 Years		More than 5 Years

Time deposits	$	2,302,806	$		1,474,456	$	596,424	$	90,602	$	141,324
Long-term borrowings	71,216		8,357			39,629		1,908		21,322
Junior subordinated notes issued to capital trusts	123,526		-			-		-		123,526
Operating leases	15,961		2,418			3,507		1,489		8,547
Capital expenditures	1,140		1,140			-		-		-
Total	$	2,514,649	$	1,486,371		$	639,513	$	93,999	$	294,719
Letters of Credit and commitments to extend credit	$	1,217,153

Capital Resources

Our subsidiary banks are subject to the risk based capital regulations administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under the regulations, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. Under the prompt corrective action regulations, to be adequately capitalized a bank must maintain minimum ratios of total capital to risk-weighted assets of 8.00%, Tier 1 capital to risk-weighted assets of 4.00%, and Tier 1 capital to total assets of 4.00%. Failure to meet these capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators, which, if undertaken, could have a direct material effect on the banks’ financial statements. As of December 31, 2005, the most recent notification from the federal banking regulators categorized each of our subsidiary banks as well capitalized. A well capitalized institution must maintain a minimum ratio of total capital to risk-weighted assets of at least 10.00%, a minimum ratio of Tier 1 capital to risk weighted assets of at least 6.00%, a minimum ratio of Tier 1 capital to total assets of at least 5.00% and must not be subject to any written order, agreement or directive requiring it to meet or maintain a specific capital level. There are no conditions or events since that notification that management believes have changed our banks’ capital classification. On a consolidated basis, we must maintain a minimum ratio of Tier 1 capital to total assets of 4.00%, a minimum ratio of Tier 1 capital to risk-weighted assets of 4.00% and a minimum ratio of total-capital to risk-weighted assets of 8.00%. See “Item 1. Business - Supervision and Regulation - Capital Adequacy" and "Prompt Corrective Action." In addition, our internal policy requires us, on a consolidated basis, to maintain these ratios at or above 7%, 8% and 11%, respectively.

As of December 31, 2005, we and each of our subsidiary banks were "well capitalized" under the capital adequacy requirements to which each of us are subject. The following table sets forth the actual and required regulatory capital amounts and ratios for us and our subsidiary banks as of December 31, 2005 (dollars in thousands):

									To Be Well
									Capitalized Under
					For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2005
Total capital (to risk-weighted assets):
Consolidated	$	551,451	12.83	%	$	343,942	8.00	%	$	N/A	N/A	%
MB Financial Bank		483,468	12.11			319,337	8.00			399,171	10.00
Union Bank		38,722	12.86			24,083	8.00			30,104	10.00
Tier 1 capital (to risk-weighted assets):
Consolidated		499,472	11.62			171,971	4.00			N/A	N/A
MB Financial Bank		441,178	11.05			159,669	4.00			239,503	6.00
Union Bank		29,033	9.64			12,042	4.00			18,062	6.00
Tier 1 capital (to average assets):
Consolidated		499,472	9.02			221,439	4.00			N/A	N/A
MB Financial Bank		441,178	8.56			206,052	4.00			257,566	5.00
Union Bank		29,033	7.58			15,329	4.00			19,161	5.00

N/A - not applicable

We established statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities. The junior subordinated notes issued to capital trusts are included in our consolidated Tier 1 Capital and Total Capital at December 31, 2005. In December 2003, the Financial Accounting Standards Board issued a revised version of Interpretation No. 46 that required the deconsolidation of these statutory trusts by most public companies no later than March 31, 2004. We adopted the revised version of Interpretation No. 46 as of December 31, 2003 (See Note 1 of the notes to our audited consolidated financial statements). In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying junior subordinated notes in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill less any associated deferred tax liability. The final rule provides a five-year transition period, ending March 31, 2009, for application of the aforementioned quantitative limitation. As of December 31, 2005, 100% of the junior subordinated notes described in Note 12 of our audited consolidated financial statements qualified as Tier I capital under the final rule adopted in March 2005.

As of December 31, 2005, we had approximately $1 million in capital expenditure commitments outstanding which relate to various projects to build new branches or renovate existing branches. We expect to pay the outstanding commitments as of December 31, 2005 through the normal cash flows of our business operations.

Statement of Cash Flows

Operating Activities. Cash flows from operating activities primarily include net income for the year, adjusted for items in net income that did not impact cash. Net cash provided by operating activities increased by $4.5 million to $114.0 million for the year ended December 31, 2005. Notable items in 2005 include an increase over 2004 of $22.1 million from other liabilities, primarily as a result of a shift from deferred income tax expense to current income tax expense. Additionally, operating cash flows increased due to an increase of $1.9 million in net income and an increase of $1.7 million in depreciation.

Net cash provided by operating activities increased by $8.7 million to $109.4 million for the year ended December 31, 2004 from $100.8 million for the year ended December 31, 2003. Notable items in 2004 include an $11.0 million increase in net income, a $7.4 million increase in deferred income tax expense, and a $5.0 million decease in provision for loan losses.

Investing Activities. Cash used in investing activities reflects the impact of loans and investments acquired for the Company’s interest-earning asset portfolios, as well as cash flows from asset and security sales and the impact of acquisitions. Net cash used in investing activities increased by $82.8 million to $525.3 million for the year ended December 31, 2005 from $442.4 million for the year ended December 31, 2004. The increase was primarily due to a $93.2 million higher net increase in loans, and significantly lower proceeds from the sale of premise and equipment. This was offset by a decrease in cash paid in acquisitions in 2005 of $30.0 million.

Net cash used in investing activities increased by $154.1 million to $442.4 million for the year ended December 31, 2004 from $288.3 million for the year ended December 31, 2003. The increase was primarily due to a $229.9 million higher net increase in loans, offset by a $45.8 million decrease in net cash used by investment securities available for sale activity and a $22.2 million decline in cash and cash equivalents sold in sale of bank subsidiary, net of cash proceeds due to the sale of Abrams in 2003.

Financing Activities. Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. Net cash provided by financing activities increased by $70.2 million to $410.7 million for the year ended December 31, 2005 from $340.5 million for the year ended December 31, 2004, primarily due to $35.0 million in proceeds generated from the issuance of junior subordinated notes described in Note 12 of our audited consolidated financial statements, and a $29.6 million increase in deposit growth.

Net cash provided by financing activities increased by $163.6 million to $340.5 million for the year ended December 31, 2004 from $176.9 million for the year ended December 31, 2003, due primarily to a $184.0 million higher net increase in deposits.

Item 7A. 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 “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.”

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 rising interest rates, therefore, a negative gap would tend to adversely affect net interest income. Conversely, during a period of falling interest rates, a negative 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 December 31, 2005 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 December 31, 2005 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.

Therefore, the information in the table is calculated assuming that NOW, money market and savings deposits will reprice as follows: 34%, 15% and 4%, respectively, in the first three months, 66%, 46%, and 13%, respectively, in the next nine months, 0%, 39% and 70%, respectively, from one year to five years, and 0%, 0%, and 13%, 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	$	12,185	$	598	$	-	$	-	$	12,783
Investment securities available for sale		100,390		198,617		707,473		399,364		1,405,844
Loans held for sale		500		-		-		-		500
Loans		2,269,188		470,659		969,678		36,657		3,746,182

Total interest earning assets	$	2,382,263	$	669,874	$	1,677,151	$	436,021	$	5,165,309

Interest Bearing Liabilities:
NOW and money market deposit
Accounts	$	186,643	$	414,936	$	121,578	$	-	$	723,157
Savings deposits		19,248		62,555		336,831		62,555		481,189
Time deposits		808,576		891,316		599,744		3,170		2,302,806
Short-term borrowings		591,463		153,696		488		-		745,647
Long-term borrowings		11,607		9,974		39,546		10,089		71,216
Junior subordinated notes issued
to capital trusts		61,857		-		-		61,669		123,526

Total interest bearing liabilities	$	1,679,394	$	1,532,477	$	1,098,187	$	137,483	$	4,447,541

Rate sensitive assets (RSA)	$	2,382,263	$	3,052,137	$	4,729,288	$	5,165,309	$	5,165,309
Rate sensitive liabilities (RSL)		1,679,394		3,211,871		4,310,058		4,447,541		4,447,541
Cumulative GAP		702,869		(159,734)		419,230		717,768		717,768
(GAP=RSA-RSL)
RSA/Total assets		41.65 %		53.37 %		82.69 %		90.32 %		90.32 %
RSL/Total assets		29.36 %		56.16 %		75.36 %		77.77 %		77.77 %
GAP/Total assets		12.29 %		(2.79) %		7.33 %		12.55 %		12.55 %
GAP/RSA		29.50 %		(5.23) %		8.86 %		13.90 %		13.90 %

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 immediate changes in interest rates at December 31, 2005 and 2004, we believe that our net interest income would change over a one-year period due to changes in interest rates as follows (dollars in thousands):

Immediate	Change in Net Interest Income Over One Year Horizon
Changes in	At December 31, 2005			At December 31, 2004
Levels of	Dollar		Percentage	Dollar		Percentage
Interest Rates	Change		Change	Change		Change
+ 2.00 %	$	6,770	3.56 %	$	9,221	5.21 %
+ 1.00	4,376		2.30	5,119		2.89
(1.00)	(6,006)		(3.16)	(8,837)		(4.99)
(2.00)	(14,893)		(7.83)	NA		NA

In addition to the simulation assuming an immediate change in interest rates above, management models many scenarios including simulations with gradual changes in interest rates over a one-year period to evaluate our interest rate sensitivity. Based on simulation modeling which assumes gradual changes in interest rates, we believe that our net interest income would change over a one-year period due to changes in interest rates as follows (dollars in thousands):

Gradual	Change in Net Interest Income Over One Year Horizon
Changes in	At December 31, 2005			At December 31, 2004
Levels of	Dollar		Percentage	Dollar		Percentage
Interest Rates	Change		Change	Change		Change
+ 2.00 %	$	5,517	2.90 %	$	6,146	3.47 %
+ 1.00	3,674		1.93	3,343		1.89
(1.00)	(4,002)		(2.11)	(6,529)		(3.69)
(2.00)	(9,084)		(4.78)	NA		NA

In both the immediate and gradual interest rate sensitivity tables above, changes in net interest income between December 31, 2005 and December 31, 2004 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 tables above do not show an analysis of a decrease of more than 100 basis points as of December 31, 2004, due to the low level of interest rates at the time.

Management also reviews our interest rate sensitivity under certain scenarios in which the general shape of the yield curve changes. One such scenario is a gradual reversion to a normal yield curve, based on the mean value for the appropriate periods on the yield curve. Gradual reversion to a normal yield curve assumes a gradual rise in long-term interest rates for 10 year rates and 30 year rates of 1.78% to 6.72 % and 2.14% to 7.21%, respectively. Under this scenario, our net interest income is projected to increase by $1.5 million.

The assumptions used in all three of our interest rate sensitivity simulations 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 on net interest income. 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.

Item 8. Financial Statements and Supplementary Data

MB FINANCIAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004, and 2003

MB FINANCIAL, INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

December 31, 2005, 2004, and 2003

INDEX

	Page
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING	52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS	53
FINANCIAL STATEMENTS

Consolidated Balance Sheets	54

Consolidated Statements of Income	55

Consolidated Statements of Changes in Stockholders' Equity	56

Consolidated Statements of Cash Flows	58

Notes to Consolidated Financial Statements	60

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of MB Financial, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, has been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm, as stated in their attestation report, which expresses an unqualified opinion on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. See “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.”

/s/ Mitchell Feiger		/s/ Jill E. York
Mitchell Feiger		Jill E. York
President and		Vice President and
Chief Executive Officer		Chief Financial Officer

March 13, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders

MB Financial, Inc.

Chicago, Illinois

We have audited management's assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that MB Financial, Inc. (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that MB Financial, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, MB Financial, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of MB Financial, Inc. and our report dated March 3, 2006 expressed an unqualified opinion.

/s/ McGladrey & Pullen, LLP

Schaumburg, Illinois

March 13, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Stockholders

MB Financial, Inc.

Chicago, Illinois

We have audited the consolidated balance sheets of MB Financial, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of MB Financial, Inc and Subsidiaries as of and for the year ended December 31, 2003 were audited by other auditors whose report dated February 20, 2004, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MB Financial, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 3, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ McGladrey & Pullen, LLP

Schaumburg, Illinois

March 3, 2006

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(Amounts in thousands, except share and per share data)
		2005		2004

ASSETS

Cash and due from banks	$	92,001	$	88,231
Interest bearing deposits with banks		12,783		17,206
Investment securities available for sale		1,405,844		1,391,444
Loans held for sale		500		372
Loans (net of allowance for loan losses of $44,979 at December 31, 2005 and
$44,266 at December 31, 2004)		3,701,203		3,301,291
Lease investments, net		65,696		69,351
Premises and equipment, net		147,701		113,590
Cash surrender value of life insurance		90,194		86,304
Goodwill, net		125,010		123,628
Other intangibles, net		12,594		13,587
Other assets		65,539		48,971

Total assets	$	5,719,065	$	5,253,975

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Deposits:
Noninterest bearing	$	694,548	$	673,752
Interest bearing		3,507,152		3,288,260
Total deposits		4,201,700		3,962,012
Short-term borrowings		745,647		571,155
Long-term borrowings		71,216		91,093
Junior subordinated notes issued to capital trusts		123,526		87,443
Accrued expenses and other liabilities		73,563		60,606
Total liabilities		5,215,652		4,772,309

Stockholders' Equity:
Common stock, ($0.01 par value; authorized 40,000,000 shares; issued 28,912,803 shares at December 31, 2005 and 28,867,963 at December 31, 2004)		289		289
Additional paid-in capital		132,794		137,879
Retained earnings		397,814		347,450
Unearned compensation		(2,029)		(1,068)
Accumulated other comprehensive income (loss)		(9,453)		4,421
Less: 453,461 and 201,429 shares of treasury stock, at cost, at December 31, 2005 and December 31, 2004, respectively		(16,002)		(7,305)
Total stockholders' equity		503,413		481,666

Total liabilities and stockholders' equity	$	5,719,065	$	5,253,975

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005, 2004 and 2003
(Amounts in thousands, except share and per share data)
		2005		2004		2003

Interest income:
Loans	$	236,088	$	178,139	$	164,480
Investment securities:
Taxable		47,305		43,061		36,933
Nontaxable		10,062		8,166		5,223
Federal funds sold		84		48		215
Other interest bearing deposits		365		100		53
Total interest income		293,904		229,514		206,904

Interest expense:
Deposits		82,256		53,374		53,228
Short-term borrowings		19,982		6,754		4,021
Long-term borrowings and junior subordinated notes		10,280		8,986		8,119
Total interest expense		112,518		69,114		65,368
Net interest income		181,386		160,400		141,536

Provision for loan losses		8,650		7,800		12,756

Net interest income after provision for loan losses		172,736		152,600		128,780

Other income:
Loan service fees		5,194		4,648		5,829
Deposit service fees		19,469		18,727		17,270
Lease financing, net		14,232		15,111		15,049
Brokerage fees		7,924		9,766		8,204
Trust and asset management fees		5,840		5,457		5,180
Net (loss) gain on sale of securities available for sale		(1,531)		(308)		798
Increase in cash surrender value of life insurance		3,890		3,757		3,525
Net gain (loss) on sale of assets		20		3,060		(375)
Gain on sale of bank subsidiary		-		-		3,083
Other operating income		7,391		5,096		6,157
		62,429		65,314		64,720
Other expenses:
Salaries and employee benefits		74,343		68,310		62,078
Occupancy and equipment expense		23,400		21,177		17,379
Computer services expense		5,785		4,913		4,234
Advertising and marketing expense		5,786		5,045		4,115
Professional and legal expense		3,133		2,356		5,045
Brokerage fee expense		3,857		4,651		3,946
Telecommunication expense		3,395		2,888		2,751
Other intangibles amortization expense		993		1,015		1,160
Prepayment fee on Federal Home Loan Bank advances		-		-		1,146
Other operating expenses		18,457		14,792		14,754
Merger expenses		-		-		(720)
		139,149		125,147		115,888

Income before income taxes		96,016		92,767		77,612

Income taxes		29,648		28,338		24,220

Net income	$	66,368	$	64,429	$	53,392


Common share data:
Basic earnings per common share	$	2.33	$	2.31	$	2.00
Diluted earnings per common share	$	2.29	$	2.25	$	1.96
Weighted average common shares outstanding		28,480,909		27,886,191		26,648,265
Diluted weighted average common shares outstanding		28,943,176		28,625,171		27,198,607

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2005, 2004 and 2003
(Amounts in thousands, except share and per share data)
											Accumulated
											Other
					Additional						Comprehensive				Total Stock-
	Comprehensive		Common		Paid-in		Retained		Unearned		Income (Loss),		Treasury		holders'
	Income		Stock		Capital		Earnings		Compensation		Net of Tax		Stock		Equity
Balance at January 1, 2003			$	266	$	69,442	$	255,241	$	-	$	18,783	$	(545)	$	343,187
Net income	$	53,392						53,392								53,392
Unrealized holding losses on investment securities,
net of tax		(9,495)
Unrealized interest only securities gains arising
during the year, net of tax		114
Reclassification adjustments for gains
included in net income, net of tax		(871)
Other comprehensive loss, net of tax		(10,252)										(10,252)				(10,252)
Comprehensive income	$	43,140
Issuance of 9,755 shares of restricted stock, net of
Amortization						259				(198)						61
Issuance of 216 shares of common stock
for employee stock awards				-		-										-
Purchase and retirement of 156 fractional shares						(6)										(6)
Purchase of 109,800 shares of treasury stock														(3,083)		(3,083)
Reissuance of 1,030 shares of treasury stock as
restricted stock						(24)								24		-
Reissuance of 417 shares of treasury stock for
employee stock awards						(10)								10		-
Stock options exercised - issuance of
185,313 shares and reissuance of
74,850 shares of treasury stock				2		2,176								1,743		3,921
Cash dividends declared ($0.44 per share)								(11,727)								(11,727)
Balance at December 31, 2003			$	268	$	71,837	$	296,906	$	(198)	$	8,531	$	(1,851)	$	375,493
Net income	$	64,429						64,429								64,429
Unrealized holding losses on investment securities,
net of tax		(2,852)
Reclassification adjustment for deferred gain on
interest only securities, net of tax		(1,458)
Reclassification adjustments for losses
included in net income, net of tax		200
Other comprehensive loss, net of tax		(4,110)										(4,110)				(4,110)
Comprehensive income	$	60,319
Issuance of 2,021,615 shares of common stock in
business combination				21		66,852										66,873
Issuance of 97 shares of common stock for
employee stock awards				-		-										-
Issuance of 31,397 shares of restricted stock, net of
forfeitures and amortization						1,207				(831)						376
Purchase of 248,000 shares of treasury stock														(8,913)		(8,913)
Reissuance of 1,051 shares of treasury stock as
restricted stock						5				(39)				34		-
Reissuance of 115 shares of treasury stock for
employee stock awards						(4)								4		-
Stock options exercised - issuance of
7,424 shares and reissuance of 102,705
shares of treasury stock						(2,018)								3,421		1,403
Cash dividends declared ($0.50 per share)								(13,885)								(13,885)
Balance at December 31, 2004			$	289	$	137,879	$	347,450	$	(1,068)	$	4,421	$	(7,305)	$	481,666

(Continued)

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2005, 2004 and 2003
(Amounts in thousands, except share and per share data)
											Accumulated
											Other
					Additional						Comprehensive				Total Stock-
	Comprehensive		Common		Paid-in		Retained		Unearned		Income (Loss),		Treasury		holders'
	Income		Stock		Capital		Earnings		Compensation		Net of Tax		Stock		Equity
Balance at January 1, 2005			$	289	$	137,879	$	347,450	$	(1,068)	$	4,421	$	(7,305)	$	481,666
Net income	$	66,368						66,368								66,368
Unrealized holding losses on investment securities,
net of tax		(14,869)
Reclassification adjustments for losses
included in net income, net of tax		995
Other comprehensive loss, net of tax		(13,874)										(13,874)				(13,874)
Comprehensive income	$	52,494
Issuance of 44,840 shares of restricted stock, net of
forfeitures and amortization						1,883				(961)						922
Purchase of 609,731 shares of treasury stock														(24,340)		(24,340)
Reissuance of 296 shares of treasury stock for
employee stock awards						1								8		9
Stock options exercised - Reissuance of 448,448
shares of treasury stock						(8,709)								17,375		8,666
Cash dividends declared ($0.56 per share)								(16,004)								(16,004)
Shares of 91,045 held in trust for deferred
compensation plan						1,740								(1,740)		-
Balance at December 31, 2005			$	289	$	132,794	$	397,814	$	(2,029)	$	(9,453)	$	(16,002)	$	503,413

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
(Amounts in Thousands)
	2005		2004		2003
Cash Flows From Operating Activities
Net income	$	66,368	$	64,429	$	53,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		35,661		34,007		31,732
Amortization of restricted stock awards		922		376		61
Gain on sales of premises and equipment and leased equipment		(908)		(3,766)		(2,316)
Amortization of other intangibles		993		1,015		1,160
Provision for loan losses		8,650		7,800		12,756
Deferred income tax (benefit) expense		(8,014)		16,868		9,468
Amortization of premiums and discounts on investment securities, net		13,754		14,733		14,422
Net loss (gain) on sale of investment securities available for sale		1,531		308		(798)
Proceeds from sale of loans held for sale		19,753		20,784		117,848
Origination of loans held for sale		(19,579)		(17,062)		(112,314)
Net gain on sale of loans held for sale		(302)		(264)		(984)
Increase in cash surrender value of life insurance		(3,890)		(3,757)		(3,525)
Interest only securities accretion		-		(174)		(287)
Gain on interest only securities pool termination		(1,724)		(874)		(541)
Gain on sale of bank subsidiary		-		-		(3,083)
Increase in other assets		(1,323)		(4,908)		(311)
Increase (decrease) in other liabilities, net		2,058		(20,088)		(15,922)
Net cash provided by operating activities		113,950		109,427		100,758

Cash Flows From Investing Activities
Proceeds from sales of investment securities available for sale		376,976		195,054		93,837
Proceeds from maturities and calls of investment securities available for sale		183,288		222,880		413,382
Purchase of investment securities available for sale		(611,295)		(465,952)		(601,043)
Net increase in loans		(408,562)		(315,396)		(85,459)
Purchases of premises and equipment and leased equipment		(67,471)		(63,881)		(69,683)
Proceeds from sales of premises and equipment and leased equipment		2,981		15,030		8,311
Principal (paid) collected on lease investments		(719)		(261)		3,147
Purchase of bank owned life insurance		-		-		(6,000)
Cash paid, net of cash and cash equivalents in acquisitions		(450)		(30,432)		(23,404)
Cash and cash equivalents sold in sale of bank subsidiary, net of cash proceeds		-		-		(22,158)
Proceeds received from interest only receivables		-		543		804
Net cash used in investing activities		(525,252)		(442,415)		(288,266)

Cash Flows From Financing Activities
Net increase in deposits		239,688		210,070		26,050
Net increase in short-term borrowings		174,492		163,147		186,241
Proceeds from long-term borrowings		12,607		32,925		14,831
Principal paid on long-term borrowings		(32,484)		(44,252)		(39,365)
Proceeds from junior subordinated notes issued to capital trusts		35,000		-		-
Purchase and retirement of common stock		-		-		(6)
Treasury stock transactions, net		(6,957)		(8,913)		(3,083)
Stock options exercised		4,307		1,403		3,921
Dividends paid on common stock		(16,004)		(13,885)		(11,727)
Net cash provided by financing activities		410,649		340,495		176,862

Net (decrease)/increase in cash and cash equivalents	$	(653)	$	7,507	$	(10,646)

Cash and cash equivalents:
Beginning of year		105,437		97,930		108,576

End of year	$	104,784	$	105,437	$	97,930

(continued)

MB FINANCIAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31, 2005, 2004 and 2003
(Amounts in Thousands)
		2005		2004		2003

Supplemental Disclosures of Cash Flow Information:

Cash payments for:
Interest paid to depositors and other borrowed funds	$	106,639	$	68,053	$	66,353
Income taxes paid, net of refunds		17,312		20,130		17,760

Supplemental Schedule of Noncash Investing Activities:

Loans transferred to other real estate owned	$	566	$	274	$	1,058
Loans securitized transferred to investment securities available for sale		28,754		88,217		-

Supplemental Schedule of Noncash Investing Activities:

Acquisitions

Noncash assets acquired:
Investment securities available for sale	$	-	$	162,077	$	178,832
Loans, net		-		295,799		262,439
Lease investments, net		-		-		-
Premises and equipment, net		-		10,305		6,482
Goodwill, net		382		52,335		28,597
Other intangibles, net		-		7,042		5,923
Other assets		-		5,155		7,806
Total noncash assets acquired:		382		532,713		490,079

Liabilities assumed:
Deposits		-		319,907		453,140
Short-term borrowings		-		16,408		-
Long-term borrowings		-		80,956		-
Accrued expenses and other liabilities		-		18,137		13,535
Total liabilities assumed:		-		435,408		466,675
Net noncash assets acquired:	$	382	$	97,305	$	23,404

Cash and cash equivalents acquired	$	-	$	42,856	$	69,696

Stock issuance in lieu of cash paid in acquisition	$	-	$	66,873	$	-

Sale of bank subsidiary

Noncash assets sold:
Investment securities available for sale	$	-	$	-	$	26,512
Loans, net		-		-		27,249
Premises and equipment, net		-		-		439
Goodwill, net		-		-		4,155
Other assets		-		-		1,034
Total non cash assets sold		-		-		59,389

Liabilities sold:
Deposits		-		-		66,720
Short-term borrowings		-		-		17,338
Accrued expenses and other liabilities		-		-		572
Total liabilities sold		-		-		84,630
Net non cash liabilities sold	$	-	$	-	$	25,241

Cash and cash equivalents sold	$	-	$	-	$	38,458
Cash proceeds from sale of bank subsidiary		-		-		16,300
Cash and cash equivalents sold in sale of bank subsidiary, net	$	-	$	-	$	22,158

See Accompanying Notes to Consolidated Financial Statements.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

MB Financial, Inc. (the Company) is a financial holding company providing a full range of financial services to individuals and corporate customers through its banking subsidiaries, MB Financial Bank, N.A. and Union Bank, N.A.

The Company’s primary market is the Chicago, Illinois metropolitan area, in which the Company operates 39 banking offices through MB Financial Bank, N.A. The Company operates five banking offices in the Oklahoma City, Oklahoma metropolitan area through Union Bank, N.A. MB Financial Bank, N.A. also has one banking office in Philadelphia, Pennsylvania.

MB Financial Bank N.A., our largest subsidiary, has six wholly owned subsidiaries with significant operating activities: MB Financial Center LLC; MB Financial Community Development Corporation; MBRE Holdings LLC; LaSalle Systems Leasing, Inc.; Vision Investment Services, Inc.(Vision); and Ashland Management LLC.

The Company split its common shares three-for-two by paying a 50% stock dividend in December 2003. All common share and per common share data presented in the consolidated financial statements, and the accompanying notes below, has been adjusted to reflect the dividend.

Basis of Financial Statement Presentation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany items and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the year. Actual results could differ from those estimates. Areas involving the use of management's estimates and assumptions, which are more susceptible to change in the near term include the allowance for loan losses; residual value of direct finance, leveraged, and operating leases; and income tax accounting.

Cash and cash equivalents: For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing deposits with banks and federal funds sold.

Investment securities available for sale: Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale is based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors.

Securities available for sale are reported at fair value with unrealized gains or losses reported as accumulated other comprehensive income, net of the related deferred tax effect. The amortization of premiums and accretion of discounts, computed by the interest method over their contractual lives, are recognized in interest income. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. The Company evaluates the portfolio for impairment each quarter. In estimating other-than-temporary losses, the Company considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If a security has been impaired for more than twelve months, and the impairment is deemed material, a write down will occur in that quarter. If a loss is deemed to be other-than-temporary, it is recognized as a realized loss in the income statement with the security assigned a new cost basis.

Loans held for sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Mortgage loans held for sale are generally sold with mortgage servicing rights retained by the Company. Gains and losses recognized on mortgage loans held for sale, include the value of the mortgage servicing rights retained by the Company. Mortgage servicing rights are stratified based on the

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

predominant risk characteristics of rates, terms, and the underlying loan types to measure its fair value. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair value.

Loans and leases: Loans are stated at the amount of unpaid principal reduced by the allowance for loan losses and unearned income. Direct finance and leveraged leases are included as lease loans for financial statement purposes. Direct finance leases are stated as the sum of remaining minimum lease payments from lessees plus estimated residual values less unearned lease income. Leveraged leases are stated at the sum of remaining minimum lease payments from lessees (less nonrecourse debt payments) plus estimated residual values less unearned lease income. On a monthly basis, management reviews the lease residuals for potential impairment. Unearned lease income on direct finance and leveraged leases is recognized over the lives of the leases using the level-yield method.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of the related loan's yield. The Company is amortizing these amounts over the contractual life of the loan. Commitment fees based upon a percentage of a customer's unused line of credit and fees related to standby letters of credit are recognized over the commitment period.

Interest income is accrued daily on the Company’s outstanding loan balances. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income.

For impaired loans, accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are credited to the loan balance, and no interest income is recognized on those loans until the principal balance has been determined to be collectible.

Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are charged against the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans, based on an evaluation of the collectibility of loans and prior loss and recovery experience. The allowance for loan losses is based on management’s evaluation of the loan portfolio giving consideration to the nature and volume of the loan portfolio, the value of underlying collateral, overall portfolio quality, review of specific problem loans, and prevailing economic conditions that may affect the borrower's ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks’ allowances for loan losses, and may require a subsidiary bank to recognize adjustments to its allowance based on their judgments of information available to them at the time of their examinations.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Lease investments: The Company's investment in assets leased to others is reported as lease investments, net, and accounted for as operating leases. Rental income on operating leases is recognized as income over the lease term according to the provisions of the lease, which is generally on a straight-line basis. The investment in equipment in operating leases is stated at cost less depreciation using the straight-line method generally over a life of five years or less.

Premises and equipment: Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization is computed by the straight-line method over the estimated useful lives of the assets. Useful lives range from five to ten years for furniture and equipment, and five to thirty-nine years for buildings and building improvements. Land improvements are amortized over a period of fifteen years and leasehold improvements are amortized over the term of the related lease or the estimated useful lives of the improvements, whichever is shorter. Land is not subject to depreciation. Maintenance and repairs are charged to expense as incurred, while major improvements are capitalized and amortized to operating expense over their identified useful lives.

Other real estate owned (OREO): OREO includes real estate assets that have been received in satisfaction of debt and is included in other assets. OREO is initially recorded and subsequently carried at the lower of cost or fair value less estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequently, unrealized losses and realized gains and losses on sale are included in other noninterest income. Operating results from OREO are recorded in other non-interest expense.

Cash surrender value of life insurance: The Company has purchased bank-owned life insurance policies on certain executives. Bank-owned life insurance is recorded at its cash surrender value. Changes in the cash surrender values are included in non-interest income.

Goodwill: The excess of the cost of an acquisition over the fair value of the net assets acquired consist of goodwill and core deposit intangibles (see “Other intangibles” section below). Under the provisions of Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, 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 annually to determine potential impairment by comparing the carrying value of the asset with the anticipated future cash flows.

Other intangibles: The Company’s other intangible assets consist of core deposit intangibles obtained through acquisitions. Core deposit intangibles (the portion of an acquisition purchase price which represents value assigned to the existing deposit base) have finite lives and are amortized by the declining balance method over four to eighteen years.

Derivative Financial Instruments and Hedging Activities: SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, 138 and 149 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

All derivatives are recognized on the consolidated balance sheet at their fair value. On the date the derivative contract is entered into, the Company designates the derivative as either a fair value hedge (i.e. a hedge of the fair value of a recognized asset or liability) or a cash flow hedge (i.e. a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability). The Company formally documents all relationships between hedging instruments and hedging items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

For a derivative designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is designated as a hedging instrument, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the Company continues to carry the derivative on the balance sheet at its fair value, and no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability.

Transfers of financial assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Merchant Card Processing: The Company works with merchants in local markets to help process credit card transactions for Master Card and Visa. A third party vender is used to process the corresponding data. The Company records merchant card processing revenue and expense on a gross basis as other operating income and expense. Merchant card processing expense had previously been netted with merchant card processing revenue and recorded as other operating income in periods prior to 2005. The amount of merchant card processing revenue and expense during prior periods is not considered material.

Sale of Maintenance Contracts: LaSalle Business Solutions (LBS) sells third party maintenance to customers. The maintenance is serviced by third party providers, with LBS maintaining no legal obligation under the contract to perform additional services. Revenues are recorded net of cost of sales, as LBS is viewed as an agent under EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, accepting minimal credit risk, maintaining no obligation to perform maintenance under the contracts and having no control over selection of the maintenance supplier.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Stock-based compensation: As currently allowed under SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123, the Company measures stock-based compensation cost in accordance with the methods prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As stock options are granted at fair value, there are no charges to earnings associated with stock options granted. Accordingly, no compensation cost has been recognized for grants made to date, except with respect to restricted stock awards. Had compensation cost been determined for stock options grants based on the fair value method prescribed in SFAS No. 123, reported net income and earnings per common share would have been reduced to the pro forma amounts shown in the table on the following page (in thousands, except for common share data):

	For the Years ended December 31,
	2005		2004		2003
	$	66,368	$	64,429	$	53,392

Net income, as reported
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects		922		376		61
Less: Total stock-based compensation expense determined under fair
value based methods for all awards, net of related tax effects		(2,536)		(1,677)		(886)
Net income, as adjusted	$	64,754	$	63,128	$	52,567

Basic earnings per share, as reported (1)	$	2.33	$	2.31	$	2.00
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects		0.03		0.01		-
Less: Total stock-based compensation expense determined under fair
value based methods for all awards, net of related tax effects		(0.09)		(0.06)		(0.03)
Basic earnings per share, as adjusted	$	2.27	$	2.26	$	1.97

Diluted earnings per share, as reported (1)	$	2.29	$	2.25	$	1.96
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects		0.03		0.01		-
Less: Total stock-based compensation expense determined under fair
value based methods for all awards, net of related tax effects		(0.09)		(0.06)		(0.03)
Diluted earnings per share, as adjusted	$	2.23	$	2.20	$	1.93

(1) The Company split its common shares three-for-two by paying a 50% stock dividend in December 2003. All common share data has been adjusted to reflect the dividend.

In determining the pro forma amounts above, the value of each grant is estimated at the grant date using the Black-Scholes option-pricing model, with the following weighted-average assumptions for December 31, 2005, 2004 and 2003, respectively; risk-free interest rate of 4.3%, 4.7% and 3.6% and an expected price volatility of 22%, 30% and 34%. Weighted average assumptions were 1.2% for the dividend rate in 2005, 1.3% in 2004 and 1.8% for 2003. Weighted average assumption for expected life was 6 years in 2005, and 7 years in 2004 and 2003. See “Recent accounting pronouncement” section below for future changes to the Company’s application of SFAS No. 123.

Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards, and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Earnings per common share: Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock method. Earnings per common share have been computed for the years ended December 31, 2005, 2004 and 2003 based on the following (dollars in thousands):

	2005		2004		2003

Net income	$	66,368	$	64,429	$	53,392
Weighted average common shares outstanding (1)		28,480,909		27,886,191		26,648,265
Effect of dilutive options (1)		462,267		738,980		550,342
Weighted average common shares outstanding used to calculate
diluted earnings per common share (1)		28,943,176		28,625,171		27,198,607

Basic earnings per common share	$	2.33	$	2.31	$	2.00
Diluted earnings per common share		2.29		2.25		1.96

(1) The Company split its common shares three-for-two by paying a 50% stock dividend in December 2003. All common share data has been adjusted to reflect the dividend.

Comprehensive income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale, net of deferred taxes, which are reported as a separate component of stockholders’ equity on the consolidated balance sheet.

Segment Reporting: The Company is managed as one unit and does not have separate operating segments. The Company’s chief operating decision-makers use consolidated results to make operating and strategic decisions.

Recent accounting pronouncements: In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which is an Amendment of FASB Statement Nos. 123 and 95. SFAS No. 123R changes, among other things, the manner in which share-based compensation, such as stock options, will be accounted for by both public and non-public companies. For public companies, the cost of employee services received in exchange for equity instruments including options and restricted stock awards generally will be measured at fair value at the grant date. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of those options and instruments, unless observable market prices for the same or similar options are available. The cost will be recognized over the requisite service period, often the vesting period. Tax benefits will be recognized related to the cost for share-based payments to the extent the equity instrument would ordinarily result in a future tax deduction under existing law. Tax expense will be recognized to write off excess deferred tax assets when the tax deduction upon settlement of a vested option is less than the expense recorded in the statement of operations (to the extent not offset by prior tax credits for settlements where the tax deduction was greater than the fair value cost).

The changes in accounting will replace existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and will eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not require companies to expense options if the exercise price is equal to the trading price at the date of grant. The accounting for similar transactions involving parties other than employees or the accounting for employee stock ownership plans that are subject to AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, would remain unchanged. See Note 19 below for the Company’s current application of SFAS No. 123.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

On April 14, 2005, the Securities and Exchange Commission (SEC) announced the adoption of a new rule that amends the compliance dates for SFAS No. 123R. Under SFAS No. 123R, the Company would have been required to implement the standard as of the beginning of the first interim period that begins after June 15, 2005. The SEC’s new rule allows companies to implement SFAS No. 123R at the beginning of their next fiscal year (beginning January 1, 2006, in the case of the Company). The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard. As of December 31, 2005 the Company plans to continue issuing stock options. Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”, which requires the Company to expense stock-based compensation expense. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost be reported as a financial cash flow rather than as operating cash flow as was previously required. We cannot estimate what the future expense and tax benefits will be as the amounts depend on, among other factors, future employee stock option grants and exercises.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which is an Amendment of FASB Statement Nos. 133 and 140. This Statement resolves issues addressed in Statement 133 Implementation of Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Management does not believe that the adoption of SFAS No. 155 will have a material impact on the Company’s financial statements.

Reclassifications: Certain prior year amounts have been reclassified to conform to the current year's presentation.

Note 2. Business Combinations and Dispositions

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, the purchase price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired is recorded as goodwill.

During the second quarter of 2005, LaSalle, which was the owner of 60% of LaSalle Business Solutions (LBS), purchased from the minority owners the remaining 40% of LBS. LBS specializes in selling and administering third party equipment maintenance contracts. Cash of approximately $450 thousand was paid to complete the transaction. The transaction generated approximately $382 thousand in goodwill.

On May 28, 2004, the Company acquired First SecurityFed Financial, Inc. (First SecurityFed), parent company of First Security Federal Savings Bank, located in Chicago, Illinois for $140.2 million. The purchase price was paid through a combination of cash and the Company’s common stock totaling $73.3 million and $66.9 million, respectively. The Company paid an additional $5.0 million in cash to First SecurityFed option holders who elected to cash out their options. The transaction generated approximately $52.3 million in goodwill and $7.0 million in intangible assets subject to amortization. As of the acquisition date, First SecurityFed had approximately $576.0 million in total assets. First Security Federal Savings Bank was merged into MB Financial Bank on July 22, 2004.

Pro forma results of operation for First SecurityFed for the years ended December 31, 2004, and 2003, respectively, are not included as First SecurityFed would not have had a material impact on the Company’s financial statements.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Business Combinations and Dispositions (Continued)

On February 7, 2003, the Company acquired South Holland Bancorp, Inc. (South Holland), parent company of South Holland Trust & Savings Bank, located in South Holland, Illinois for $93.1 million in cash. This purchase price generated approximately $28.6 million in goodwill and $5.9 million in intangible assets subject to amortization. As of the acquisition date, South Holland had approximately $560.3 million in assets. South Holland Trust & Savings Bank was merged into MB Financial Bank on May 15, 2003.

Pro forma results of operation for South Holland for the years ended December 31, 2003, are not included, as South Holland would not have had a material impact on the Company’s financial statements.

Disposition. On May 6, 2003, the Company completed its sale of Abrams Centre Bancshares, Inc. and its subsidiary, Abrams Centre National Bank (Abrams) for $16.3 million in cash. The sale resulted in a $3.1 million gain for the Company in the second quarter of 2003. As of the sale date, Abrams had approximately $98.4 million in assets.

Note 3. Restrictions on Cash and Due From Banks

The subsidiary banks are required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was approximately $19.9 million and $16.9 million at December 31, 2005 and 2004, respectively.

Note 4. Investment Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Available for sale	Cost		Gains		Losses		Value

December 31, 2005:

U.S. Treasury securities	$	13,597	$	16	$	(63)	$	13,550
U.S. Government agencies		335,032		99		(2,861)		332,270
States and political subdivisions		295,033		1,627		(2,954)		293,706
Mortgage-backed securities		652,428		1,301		(11,153)		642,576
Corporate bonds		60,046		151		(754)		59,443
Equity securities		64,253		97		(51)		64,299
Debt securities issued by foreign governments		-		-		-		-

Totals	$	1,420,389	$	3,291	$	(17,836)	$	1,405,844

December 31, 2004:

U.S. Treasury securities	$	23,212	$	526	$	-	$	23,738
U.S. Government agencies		319,708		4,298		(203)		323,803
States and political subdivisions		251,846		3,885		(722)		255,009
Mortgage-backed securities		670,867		4,244		(7,785)		667,326
Corporate bonds		41,082		2,371		(40)		43,413
Equity securities		77,403		233		(6)		77,630
Debt securities issued by foreign governments		525		-		-		525

Totals	$	1,384,643	$	15,557	$	(8,756)	$	1,391,444

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Investment Securities (Continued)

Unrealized losses on investment securities available for sale and the fair value of the related securities at December 31, 2005 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

December 31, 2005:

U.S. Treasury securities	$	7,450	$	(63)	$	-	$	-	$	7,450	$	(63)
U.S. Government agencies		214,602		(2,350)		16,990		(511)		231,592		(2,861)
States and political subdivisions		163,478		(2,259)		23,031		(695)		186,509		(2,954)
Mortgage-backed securities		278,871		(2,908)		271,379		(8,245)		550,250		(11,153)
Corporate bonds		46,456		(536)		6,750		(218)		53,206		(754)
Equity securities		6,150		(51)		-		-		6,150		(51)
Totals	$	717,007	$	(8,167)	$	318,150	$	(9,669)	$	1,035,157	$	(17,836)

Unrealized losses on investment securities available for sale and the fair value of the related securities at December 31, 2004 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

December 31, 2004:

U.S. Government securities	$	19,557	$	(203)	$	-	$	-	$	19,557	$	(203)
States and political subdivisions		19,905		(315)		10,953		(407)		30,858		(722)
Mortgage-backed securities		219,925		(3,179)		169,903		(4,606)		389,828		(7,785)
Corporate bonds		4,974		(40)		-		-		4,974		(40)
Equity securities		509		(6)		-		-		509		(6)
Totals	$	264,870	$	(3,743)	$	180,856	$	(5,013)	$	445,726	$	(8,756)

The total number of security positions in the investment portfolio in an unrealized loss position at December 31, 2005 was 698 compared to 204 at December 31, 2004. All securities with unrealized losses are reviewed by management at least quarterly to determine whether the unrealized losses are other-than-temporary. Unrealized losses in the portfolio at December 31, 2005 resulted from increases in market interest rates and not from deterioration in the creditworthiness of the issuer. Since the Company has the ability and intent to hold these securities until market price recovery or maturity, these investment securities are not considered other-than-temporarily impaired.

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

	For the Years Ended December 31,
	2005		2004		2003

Realized gains	$	2,657	$	1,501	$	2,395
Realized losses		(4,188)		(1,809)		(1,597)
Net (losses) gains	$	(1,531)	$	(308)	$	798

The amortized cost and fair value of investment securities available for sale as of December 31, 2005 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, these securities are not included in the maturity categories in the following maturity summary.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Investment Securities (Continued)

	Amortized		Fair
(In thousands)	Cost		Value

Due in one year or less	$	87,483	$	87,412
Due after one year through five years		383,596		379,732
Due after five years through ten years		150,155		149,047
Due after ten years		82,474		82,778
Equity securities		64,253		64,299
Mortgage-backed securities		652,428		642,576

Totals	$	1,420,389	$	1,405,844

Investment securities available for sale with carrying amounts of $781.5 million and $612.5 million at December 31, 2005 and 2004, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

Note 5. Loans

Loans consist of the following at (in thousands):

	December 31,
	2005		2004

Commercial loans	$	833,046	$	725,823
Commercial loans collateralized by assignment of lease payments		299,053		251,025
Commercial real estate		1,456,585		1,263,910
Residential real estate		387,167		436,122
Construction real estate		521,434		402,765
Consumer loans		248,897		265,912

Gross loans (1)		3,746,182		3,345,557
Allowance for loan losses		(44,979)		(44,266)

Loans, net	$	3,701,203	$	3,301,291

(1) Gross loan balances at December 31, 2005 and 2004 are net of unearned income, including net deferred loan fees of $3.6 million, and $4.2 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 the majority of the loan customers are located in the markets serviced by the subsidiary banks.

Non-accrual loans and loans past due ninety days or more were $21.2 million and $23.7 million at December 31, 2005 and 2004, respectively. The reduction in interest income associated with loans on non-accrual status was approximately $3.1 million, $1.5 million, and $1.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Loans (Continued)

Information about impaired loans as of and for the years ended December 31, 2005, 2004 and 2003 are as follows (in thousands):

	December 31,
	2005		2004		2003

Loans for which there were related allowance for loan losses	$	14,802	$	17,371	$	13,780
Other impaired loans		451		-		459

Total impaired loans	$	15,253	$	17,371	$	14,239

Average monthly balance of impaired loans	$	16,438	$	17,692	$	20,629
Related allowance for loan losses		5,046		6,504		4,133
Interest income recognized on a cash basis		1,498		477		458

Activity in the allowance for loan losses was as follows (in thousands):

	Years Ended December 31,
	2005		2004		2003

Balance, beginning of year	$	44,266	$	39,572	$	33,890
Additions from acquisitions		-		4,052		3,563
Allowance related to bank subsidiary sold		-		-		(528)
Provision for loan losses		8,650		7,800		12,756
Charge-offs		(10,183)		(9,994)		(14,924)
Recoveries		2,246		2,836		4,815
Net charge-offs		(7,937)		(7,158)		(10,109)
Balance, end of year	$	44,979	$	44,266	$	39,572

Loans outstanding to executive officers and directors of the Company, including companies in which they have management control or beneficial ownership, at December 31, 2005 and 2004, were approximately $25.9 million and $32.8 million, respectively. In the opinion of management, these loans have similar terms to other customer loans and do not present more than normal risk of collection. An analysis of the activity related to these loans for the year ended December 31, 2005 is as follows (in thousands):


Balance, beginning of year	$	32,796
Additions		7,026
Principal payments and other reductions		(13,903)

Balance, end of year	$	25,919

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. 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 occasionally below investment grade.

Lease investments by categories follow (in thousands):

		December 31,
		2005		2004

Direct finance leases:
	Minimum lease payments	$	40,264	$	34,330
	Estimated unguaranteed residual values	4,801		3,744
	Less: unearned income	(3,540)		(3,175)
Direct finance leases (1)		$	41,525	$	34,899

Leveraged leases:
	Minimum lease payments	$	36,109	$	39,570
	Estimated unguaranteed residual values	4,051		3,037
	Less: unearned income	(2,649)		(2,962)
	Less: related non-recourse debt	(34,018)		(37,300)
Leveraged leases (1)		$	3,493	$	2,345

Operating leases:
	Equipment, at cost	$	127,815	$	133,918
	Less accumulated depreciation	(62,119)		(64,567)
Lease investments, net		$	65,696	$	69,351

(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 $10.6 million at December 31, 2005 and $14.5 million at December 31, 2004.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Lease Investments (Continued)

The minimum lease payments receivable for the various categories of leases are due as follows (in thousands) for the years ending December 31,

	Direct Finance		Leveraged		Operating
Year	Leases		Leases		Leases		Total

2006	$	21,223	$	21,387	$	25,525	$	68,135
2007		13,110		10,396		13,485		36,991
2008		4,917		3,419		7,050		15,386
2009		630		702		3,036		4,368
2010		201		205		781		1,187
2011 & Thereafter		183		-		25		208
	$	40,264	$	36,109	$	49,902	$	126,275

Income from lease investments is composed of (in thousands):

	Years Ended December 31,
	2005		2004		2003

Rental income on operating leases	$	37,319	$	37,618	$	36,638
LaSalle Business Solutions revenue		22,466		19,215		9,962
Gain on sale of leased equipment		2,639		3,017		3,589

Income on lease investments, gross		62,424		59,850		50,189
Less:
Write down of residual value of equipment		(654)		(576)		(301)
LaSalle Business Solutions cost of sales		(20,334)		(17,365)		(9,258)
Depreciation on operating leases		(27,204)		(26,798)		(25,581)

Income from lease investments, net	$	14,232	$	15,111	$	15,049

LaSalle Business Solutions (LBS) revenue represents the gross amount of revenue paid to LBS for maintenance contracts sold to customers. The maintenance contracts are serviced by third parties, with LBS maintaining no obligations under the contract. The cost of sales is the amount paid by LBS to the third party maintenance provider. 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 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 1,459 leases at December 31, 2005 compared to 1,442 at December 31, 2004. The average residual value per lease schedule was approximately $20 thousand at December 31, 2005 and $18 thousand at December 31, 2004. The average residual value per master lease schedule was approximately $172 thousand at December 31, 2005 and $173 thousand at December 31, 2004.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Lease Investments (Continued)

At December 31, 2005, the following reflects the residual values for leases by category in the year the initial lease term ends (in thousands):

	Residual Values
End of initial lease term		Direct
		Finance		Leveraged		Operating
December 31,		Leases		Leases		Leases		Total

2006	$	897	$	804	$	7,347	$	9,048
2007		2,001		1,315		5,094		8,410
2008		1,557		1,369		3,933		6,859
2009		221		302		2,100		2,623
2010		66		261		1,998		2,325
2011 & Thereafter		59		-		143		202
	$	4,801	$	4,051	$	20,615	$	29,467

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.

Note 7. Premises and Equipment

Premises and equipment consist of (in thousands):

	December 31,
	2005		2004

Land and land improvements	$	39,674	$	24,529
Buildings		71,066		61,941
Furniture and equipment		45,240		33,533
Buildings and leasehold improvements		32,073		25,553
		188,053		145,556
Accumulated depreciation		(40,352)		(31,966)

Premises and equipment, net	$	147,701	$	113,590

Depreciation on premises and equipment totaled $8.5 million, $6.8 million and $6.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.

The Company purchased the land at the Company’s operations center in Rosemont, Illinois, for $14.2 million in July 2005. The land had previously been leased in conjunction with the purchase of the Rosemont building. The Company acquired the new operations center in Rosemont for $19.3 million during the third quarter of 2003. The Company began occupancy of the new location starting in the fourth quarter of 2004. Approximately $9.1 million in building improvements were incurred for the new operations center during the year ended December 31, 2004.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Premises and Equipment (Continued)

As of December 31, 2005, the Company had approximately $1.1 million in capital expenditure commitments outstanding which relate to various projects to build new branches or renovate existing branches. The Company completed the new headquarters building at 800 West Madison Street, Chicago, Illinois during 2005. As of December 31, 2004, the Company had approximately $9.0 million in capital expenditure commitments outstanding which related to a new headquarters building.

In December 2004, the Company sold two branch offices with a total net book value of $5.6 million resulting in a total net gain of $4.2 million for the year ended December 31, 2004.

Note 8. Goodwill and Intangibles

Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, goodwill is no longer subject to amortization, but instead is subject to at least annual assessments for impairment by applying a fair-value based test. SFAS No. 142 also requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so. No impairment losses on goodwill or other intangibles were incurred in 2005, 2004, and 2003.

The following table presents the changes in the carrying amount of goodwill (in thousands):

	December 31,
	2005		2004

Balance at beginning of period	$	123,628	$	70,293
Goodwill from business combinations (1)	1,382		53,335
Balance at end of period	$	125,010	$	123,628

(1)

The purchase price of the LaSalle Systems Leasing, Inc. in August of 2002 included a $4.0 million deferred payment tied to LaSalle’s operating results for a four year period subsequent to the acquisition date. The transaction generated approximately $3.7 million in goodwill which includes a $1.0 million dollar adjustment made in both 2005 and 2004 for deferred payments.

Goodwill increased during the second quarter of 2005 as a result of LaSalle purchasing the remaining 40% of LaSalle Business Solutions (LBS) from the minority owners, which was previously 60% owned by LaSalle. LBS specializes in selling and administering third party equipment maintenance contracts. Cash of approximately $450 thousand was paid to complete the transaction, generating $382 thousand of goodwill.

The Company has other intangible assets consisting of core deposit intangibles with a weighted average amortization period of approximately fifteen years. The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization, and net book value as of December 31, 2005 and December 31, 2004 (in thousands):

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Goodwill and Intangibles (Continued)

	December 31,
	2005		2004

Balance at beginning of period	$	13,587	$	7,560
Amortization expense	(993)		(1,015)
Other intangibles from business combinations	-		7,042
Balance at end of period	$	12,594	$	13,587

Gross carrying amount	$	29,261	$	29,261
Accumulated amortization	(16,667)		(15,674)
Net book value	$	12,594	$	13,587

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

Year ending December 31,		Amount

2006	$	939
2007		749
2008		945
2009		1,181
2010		1,315
Thereafter		7,465
	$	12,594

Note 9. Deposits

The composition of deposits is as follows (in thousands):

	December 31,
	2005		2004

Demand deposits, noninterest bearing	$	694,548	$	673,752
NOW and money market accounts		723,157		816,580
Savings deposits		481,189		535,341
Time certificates, $100,000 or more		1,252,034		871,378
Other time certificates		1,050,772		1,064,961

Total	$	4,201,700	$	3,962,012

Time certificates of $100,000 or more included $614.8 million and $272.3 million of brokered deposits at December 31, 2005 and 2004, respectively. Brokered deposits typically consist of smaller individual time certificates that have the same liquidity characteristics and yields consistent with time certificates of $100,000 or more. Other time certificates consist of time certificates that the customer has the option to increase the principal balance and maintain the original interest rate.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Deposits (Continued)

At December 31, 2005, the scheduled maturities of time certificates are as follows (in thousands):

2006	$	1,474,456
2007		481,049
2008		115,375
2009		54,067
2010		36,535
Thereafter		141,324
	$	2,302,806

Note 10. Short-Term Borrowings

Short-term borrowings are summarized as follows as of December 31, 2005 and 2004 (dollars in thousands):

	December 31,
	2005					2004
	Weighted Average Cost			Amount		Weighted Average Cost			Amount
Federal funds purchased		4.46	%	$	30,600		-	%	$	-
Securities sold under agreements to repurchase:
Customer repurchase agreements		2.47			196,024		1.35			161,561
Company repurchase agreements		4.35			281,305		2.39			172,375
Federal Home Loan Bank advances		4.43			237,718		2.20			237,219
		3.89	%	$	745,647		2.02	%	$	571,155

Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling securities or investment grade lease loans to another party under a simultaneous agreement to repurchase the same securities or lease loans 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. Securities sold under agreements to repurchase totaled $477.3 million and $333.9 million at December 31, 2005 and 2004, respectively.

The Company had Federal Home Loan Bank advances with maturity dates less than one year consisting of $192.7 million in fixed rate advances and a $45.0 million overnight advance at December 31, 2005 and $217.2 million in fixed rate advances and a $20.0 million overnight advance at December 31, 2004. At December 31, 2005, fixed rate advances had effective interest rates, net of purchase accounting adjustments, ranging from 2.29% to 4.62% and are subject to a prepayment fee. The $45.0 million overnight advance has a variable interest rate that reprices daily based on Federal Home Loan Bank’s open line rate. At December 31, 2005, the advances had maturities ranging from January 2006 to October 2006.

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 with unpaid principal balances aggregating no less than 133% of the outstanding secured advances from the Federal Home Loan Bank.

The Company has a $30 million correspondent bank line of credit which has certain debt covenants that require the Company to maintain “Well Capitalized” capital ratios, to have no other debt except in the usual course of business,

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Short-term Borrowings (Continued)

and requires the Company to maintain minimum financial ratios on return on assets and earnings as well as maintain minimum financial ratios related to the loan loss allowance. The Company was in compliance with such debt covenants as of December 31, 2005. The correspondent bank line of credit is secured by the stock of MB Financial Bank, and its terms are renewed annually. As of December 31, 2005 and 2004, respectively, no balances were outstanding on the correspondent bank line of credit.

Note 11. Long-term Borrowings

The Company had Federal Home Loan Bank advances with maturities greater than one year of $53.6 million and $76.6 million at December 31, 2005 and 2004, respectively. As of December 31, 2005, the advances had fixed terms with effective interest rates, net of purchase accounting adjustments, ranging from 2.06% to 5.87%.

During 2003, the Company incurred a $1.1 million prepayment fee on Federal Home Loan Bank advances due to the early payoff of $8.1 million in long-term advances. No prepayments were made during the year-ended December 31, 2004 or 2005.

The Company had notes payable to banks totaling $10.6 million and $14.5 million at December 31, 2005 and 2004, respectively, which as of December 31, 2005, were accruing interest at rates ranging from 3.90% to 7.75%. Lease investments includes equipment with an amortized cost of $14.7 million and $18.0 million at December 31, 2005 and 2004, respectively, that is pledged as collateral on these notes.

On June 30, 2005, the Company’s Union Bank subsidiary issued $7 million of 10 year floating rate subordinated debt. Interest is payable at a rate of 3 month LIBOR + 1.55%, on the 23^rd day of each February, May, August and November, beginning August 23, 2005. The first optional call date is August 23, 2010 at par, or at a premium to par at any time prior to that date upon the occurrence of a specified adverse tax event.

The principal payments on long-term borrowings are due as follows (in thousands):

	Amount
Year ending December 31,
2006	$	8,357
2007		18,543
2008		21,086
2009		1,079
2010		829
Thereafter		21,322
	$	71,216

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Junior Subordinated Notes Issued to Capital Trusts

The Company has established Delaware 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 wholly 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.

The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of December 31, 2005 (in thousands):

	MB Financial Capital Trust II	MB Financial Capital Trust I	Coal City Capital Trust I

Junior Subordinated Notes:
Principal balance	$ 36,083	$ 61,669	$ 25,774
Annual interest rate	3-mo LIBOR + 1.40%	8.60%	3-mo LIBOR + 1.80%
Stated maturity date	September 15, 2035	September 30, 2032	September 1, 2028
Call date	September 15, 2010	September 30, 2007	September 1, 2008

Trust Preferred Securities:
Face value	$ 35,000	$ 59,800	$ 25,000
Annual distribution rate	3-mo LIBOR + 1.40%	8.60%	3-mo LIBOR + 1.80%
Issuance date	August 2005	August 2002	July 1998
Distribution dates (1)	Quarterly	Quarterly	Quarterly

(1)	All cash distributions are cumulative.

As of December 31, 2003, the Company adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities, as revised in December 2003. Upon adoption, the Company deconsolidated both capital trust entities above. As a result of the deconsolidation of those trusts, the Company is reporting the previously issued junior subordinated notes on its balance sheet rather than the preferred securities issued by the capital trusts.

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 September 15, 2010 for MB Financial Capital Trust II, September 30, 2007 for MB Financial Capital Trust I and September 1, 2008 for Coal City Capital Trust I. 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 and generally may not repurchase its common stock.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Lease Commitments and Rental Expense

The Company leases office space for certain branch offices. The future minimum annual rental commitments for these noncancelable leases and subleases of such space excluding the deferred gain are as follows (in thousands):

	Gross		Sublease		Net
Year	Rents		Rents		Rents
2006	$	2,878	$	460	$	2,418
2007		2,781		690		2,091
2008		2,127		711		1,416
2009		1,851		732		1,119
2010		1,124		754		370
Thereafter		10,827		2,280		8,547
	$	21,588	$	5,627	$	15,961

Under the terms of these leases, the Company is required to pay its pro rata share of the cost of maintenance and real estate taxes. Certain leases also provide for increased rental payments based on increases in the Consumer Price Index.

The Company entered into a long-term land lease with the purchase of its operations center in Rosemont, Illinois during the third quarter of 2003. The Company subsequently purchased the land for $14.2 million in July 2005, terminating the previous land lease.

Net rental expense for the years ended December 31, 2005, 2004 and 2003 amounted to $3.4 million, $2.1 million and $1.9 million, respectively.

Note 14. Employee Benefit Plans

The Company has a defined contribution 401(k) plan that covers all full-time employees who have completed three months of service. Each participant under the plan may contribute up to 15% of his/her compensation on a pretax basis. The Company's contributions consist of a discretionary profit-sharing contribution and a matching contribution of the amounts contributed by the participants. The Board of Directors determines the Company’s contributions on an annual basis.

Each participant is eligible for a Company matching contribution equal to 100% of their contributions up to 2% of their compensation plus 50% of each additional participant contribution up to 2% of their compensation, resulting in a maximum total Company matching contribution of 3%. Additionally, the Company may make annual discretionary profit sharing contributions. The contributions for profit sharing equaled 4% of total compensation for the years ended December 31, 2005, 2004 and 2003, respectively. The Company's total contributions to the plan, for the years ended December 31, 2005, 2004 and 2003, were approximately $3.0 million, $2.9 million, $2.5 million, respectively.

The Company has deferred compensation plans that allow eligible executives, senior officers and certain other employees and Directors to defer payment of up 100% of their base salary and bonus in the case of employees and board fees in the case of directors. Contributions to these plans were approximately $188 thousand, $170 thousand, $151 thousand for the years ended December 31, 2005, 2004 and 2003, respectively. The amounts deferred are invested in MB Financial stock or other publicly traded mutual funds at the discretion of the participant. The cost of the MB Financial common stock held by MB Financial’s deferred compensation plans is reported separately in a manner similar to treasury stock (that is, changes in fair value are not recognized) with a corresponding deferred compensation obligation reflected in additional paid-in capital. The amounts of the assets that are not invested in MB Financial common stock are recorded at their fair market value in other assets on the consolidated balance sheet. As of December 31, 2005, the fair value of the assets held in other publicly traded funds totaled $4.9 million. A liability is established, in other liabilities, in the consolidated balance sheet, for the fair

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Employee Benefits Plan (Continued)

value of the obligation to the participants. Any increase or decrease in the fair market value of plan assets is recorded in other non-interest income on the consolidated statement of income. Any increase or decrease in the fair value of the deferred compensation obligation to participants is recorded as additional compensation expense or a reduction of compensation expense on the consolidated statement of income. The increase in fair market value of the assets and the obligation related to the deferred compensation plan was $170 thousand for the year ended December 31, 2005.

Note 15. Income Taxes

The deferred taxes consist of (in thousands):

	December 31,
	2005		2004
Deferred tax assets:
Allowance for loan losses	$	15,743	$	15,390
Lease investments		471		-
Deferred compensation		2,753		2,719
Merger and non-compete accrual		873		418
Federal net operating loss carryforwards		2,547		2,991
State net operating loss carryforwards		1,400		1,500
Other items		1,767		1,916
Total deferred tax asset		25,554		24,934
Valuation allowance		(1,400)		(1,500)
Total deferred tax asset, net of valuation allowance		24,154		23,434

Deferred tax liabilities:
Securities discount accretion		(130)		(119)
Loans		(154)		(450)
Lease investments		-		(397)
Premises and equipment		(22,616)		(30,058)
Core deposit intangible		(4,408)		(4,755)
Federal Home Loan Bank stock dividends		(4,235)		(3,184)
Other items		(743)		(617)
Total deferred tax liabilities		(32,286)		(39,580)
Net deferred tax liability		(8,132)		(16,146)
Net unrealized holding gain (loss) on securities available for sale		5,090		(2,380)
Net deferred tax liability	$	(3,042)	$	(18,526)

Management has evaluated the probability of deferred tax assets not being realized, and determined that state taxable income in future years may not be adequate to utilize the net operating loss carryforwards due primarily to certain tax strategies implemented by the Company. Accordingly, the Company has established a valuation allowance of $1.4 million at December 31, 2005.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Income Taxes (Continued)

The Company’s state net operating loss carryforwards totaled approximately $30.5 million at December 31, 2005 and expire beginning in 2007 through 2021. The Company’s Federal net operating loss carryforwards totaled approximately $7.3 million at December 31, 2005 and expire in 2012 through 2019.

Income taxes consist of (in thousands):

	Years Ended December 31,
	2005		2004		2003

Current expense:
Federal	$	37,104	$	11,191	$	14,527
State		558		279		225
		37,662		11,470		14,752
Deferred expense (benefit)		(8,014)		16,868		9,468

	$	29,648	$	28,338	$	24,220

The reconciliation between the statutory federal income tax rate of 35% and the effective tax rate on consolidated income follows (in thousands):

	Years Ended December 31,
	2005		2004		2003

Federal income tax at expected statutory rate	$	33,606	$	32,469	$	27,164
Increase (decrease) due to:
Nondeductible merger expenses	-		276		214
Tax exempt income, net	(3,179)		(2,691)		(1,728)
Nonincludable increase in cash surrender value of life insurance	(1,361)		(1,315)		(1,234)
Sale of bank subsidiary	-		-		(974)
State tax, net of federal benefit	363		98		146
Other items, net	219		(499)		632

Income tax expense	$	29,648	$	28,338	$	24,220

Note 16. 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.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Commitments and Contingencies (Continued)

At December 31, 2005 and 2004, the following financial instruments were outstanding, the contractual amounts of which represent off-balance sheet credit risk (in thousands):

	Contract Amount
	2005		2004
Commitments to extend credit:
Home equity lines	$	194,579	$	178,758
Other commitments		913,142		790,159

Letters of credit:
Standby		76,651		71,427
Commercial		32,781		6,518

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 December 31, 2005, the maximum remaining term for any standby letter of credit was December 13, 2010. A fee of up to 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.

At December 31, 2005, the aggregate contractual amount of these letters of credit, which represents the maximum potential amount of future payments that the Company would be obligated to pay, increased $31.5 million to $109.4 million from $77.9 million at December 31, 2004. Of the $109.4 million in commitments outstanding at December 31, 2005, approximately $50.1 million of the letters of credit have been issued or renewed since December 31, 2004. The Company had a $982 thousand liability recorded as of December 31, 2005 relating to these commitments.

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 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 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.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Commitments and Contingencies (Continued)

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.

Note 17. Regulatory Matters

The Company's primary source of cash is dividends from its subsidiary banks. The subsidiary banks are subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval. In addition, the dividends declared cannot be in excess of the amount which would cause the subsidiary banks to fall below the minimum required for capital adequacy purposes.

The Company and its subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company's and it’s subsidiary banks’ assets, liabilities, and certain off-balance-sheet items are calculated under regulatory accounting practices. The Company's and its subsidiary banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its subsidiary banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes the Company and its subsidiary banks meet all capital adequacy requirements to which they are subject as of December 31, 2005 and 2004.

As of December 31, 2005, the most recent notification from the Federal Deposit Insurance Corporation categorized the subsidiary banks as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” the subsidiary banks must maintain the total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the well-capitalized column in the table below. There are no conditions or events since that notification that management believes have changed the subsidiary banks’ categories.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Regulatory Matters (Continued)

The required and actual amounts and ratios for the Company and its subsidiary banks are presented below (dollars in thousands):

									To Be Well
									Capitalized Under
					For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions

	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2005
Total capital (to risk-weighted assets):
Consolidated	$	551,451	12.83	%	$	343,942	8.00	%	$	N/A	N/A	%
MB Financial Bank		483,468	12.11			319,337	8.00			399,171	10.00
Union Bank		38,722	12.86			24,083	8.00			30,104	10.00
Tier 1 capital (to risk-weighted assets):
Consolidated		499,472	11.62			171,971	4.00			N/A	N/A
MB Financial Bank		441,178	11.05			159,669	4.00			239,503	6.00
Union Bank		29,033	9.64			12,042	4.00			18,062	6.00
Tier 1 capital (to average assets):
Consolidated		499,472	9.02			221,439	4.00			N/A	N/A
MB Financial Bank		441,178	8.56			206,052	4.00			257,566	5.00
Union Bank		29,033	7.58			15,329	4.00			19,161	5.00

As of December 31, 2004
Total capital (to risk-weighted assets):
Consolidated	$	473,852	12.46	%	$	304,210	8.00	%	$	N/A	N/A	%
MB Financial Bank		445,737	12.45			286,407	8.00			358,009	10.00
Union Bank		28,435	13.10			17,366	8.00			21,708	10.00
Tier 1 capital (to risk-weighted assets):
Consolidated		429,586	11.30			152,105	4.00			N/A	N/A
MB Financial Bank		403,483	11.27			143,203	4.00			214,805	6.00
Union Bank		26,424	12.17			8,683	4.00			13,025	6.00
Tier 1 capital (to average assets):
Consolidated		429,586	8.56			200,671	4.00			N/A	N/A
MB Financial Bank		403,483	8.61			187,555	4.00			234,444	5.00
Union Bank		26,424	8.14			12,977	4.00			16,222	5.00

N/A - not applicable

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Fair Values of Financial Instruments

Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises and equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.

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

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

Investment securities available for sale: Fair values for investment securities are based on quoted market prices, where available. If quoted prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans held for sale: Fair values are based on Federal Home Loan Mortgage Corporation quoted market prices.

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.

Accrued interest receivable and payable: The carrying amounts of accrued interest approximate their fair values.

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 of the related trust preferred security instruments.

Interest rate swap contracts: The fair values of interest rate swap contacts are obtained from dealer quotes. These values represent the estimated amounts the Company would receive or pay to terminate the agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counter-parties.

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.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Fair Values of Financial Instruments (Continued)

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

	December 31,
	2005				2004
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets
Cash and due from banks	$	92,001	$	92,001	$	88,231	$	88,231
Interest bearing deposits with banks		12,783		12,777		17,206		17,198
Investment securities available for sale		1,405,844		1,405,844		1,391,444		1,391,444
Loans held for sale		500		500		372		372
Loans, net		3,701,203		3,711,153		3,301,291		3,329,398
Accrued interest receivable		29,116		29,116		23,537		23,537
Interest rate swap contracts		(4,652)		(4,652)		(292)		(292)

Financial Liabilities
Non-interest bearing deposits		694,548		694,548		673,752		673,752
Interest bearing deposits		3,507,152		3,490,016		3,288,260		3,289,144
Short-term borrowings		745,647		745,202		571,155		570,758
Long-term borrowings		71,216		69,885		91,093		91,215
Junior subordinated notes issued to capital trusts		123,526		122,567		87,443		91,147
Accrued interest payable		14,277		14,277		8,312		8,312

Off-balance-sheet instruments:
Loan commitments and standby letters of credit		-		669		-		392

Note 19. Stock Incentive Plans

The Company adopted the Omnibus Incentive Plan (the “Omnibus Plan”) which was established in 1997 and subsequently modified. Options outstanding under the Company’s previous Coal City Corporation Plan adopted in 1995 were transferred to the Omnibus Plan with the number of options and exercise prices being converted using a ratio of 83.5 to 1. The Omnibus Plan as modified reserves 3,750,000 shares of common stock for issuance to directors, officers, and employees of the Company or any of its subsidiaries. A grant under the Omnibus Plan may be options intended to be incentive stock options (“ISO”), non-qualified stock options (“NQSO”), stock appreciation rights or restricted stock. The Organization & Compensation Committee, appointed by the Board of Directors, administers the Omnibus Plan.

In addition, through a previous merger, the Company adopted the Avondale 1995 Plan (“1995 Plan”). Effective with the merger, no further options were granted through the 1995 Plan.

Options granted under the plans may be exercised at such times and be subject to such restrictions and conditions as the committee shall in each instance approve, which may not be the same for each grant. Each option granted shall expire at such time as the committee shall determine at the time of grant; provided, however, that no option granted under the Omnibus Plan shall be exercisable later than the fifteenth anniversary date of its grant (ten years if an ISO) and provided further that no option granted under the 1995 Plan shall be exercisable later than the tenth anniversary of the date of its grant. The option price for each grant of an option shall be determined by the committee, provided that the option price shall not be less than 100% of the fair market value of a share on the date the option is granted. In the event any holder of 10% or more of the shares is granted an incentive stock option, the option price shall not be less than 110% of the fair market value of a share on the date of grant and the term of the option shall not exceed five years.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Stock Option Plans (Continued)

During 2004, in connection with the acquisition of First SecurityFed, the Company assumed the outstanding stock options granted under First SecurityFed’s option plan whose holders chose not to have their options cashed-out. All of these assumed options were fully vested at the merger date. No further options will be granted under the First SecurityFed plan.

The Company split its common shares three-for-two by paying a 50% stock dividend in December 2003. The option shares and prices have been adjusted to reflect the split.

Outstanding options under the Omnibus Plan and the 1995 Plan were 1,815,300 and 1,923,597 as of December 31, 2005 and 2004, respectively. As of December 31, 2005 there were no options remaining outstanding related to the 1995 plan. Substantially all of the outstanding options vest after a period of four years from their grant date. Another 55,053 and 118,911 options remained outstanding at December 31, 2005 and 2004 respectively, related to the First SecurityFed option plan. There were no stock appreciation rights outstanding as of December 31, 2005 and 2004.

Other pertinent information related to the options is as follows:

	December 31,
	2005				2004				2003
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year		2,042,508	$	19.61		1,823,156	$	16.86		1,683,854	$	13.46
Assumed in business combination		-		-		118,911		16.15		-		-
Granted		337,556		41.18		263,494		36.53		445,982		26.67
Exercised		448,448		10.87		110,133		9.41		260,163		10.90
Forfeited		61,263		29.03		52,920		22.47		46,517		20.88
Outstanding at end of year		1,870,353	$	25.29		2,042,508	$	19.61		1,823,156	$	16.86

Exercisable at end of year		624,908	$	14.90		854,270	$	11.67		808,849	$	9.70

Weighted average fair value per
option of options granted
during the year	$	10.31			$	9.55			$	6.76

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Stock Option Plans (Continued)

The following table presents certain information with respect to outstanding and exercisable stock options:

	Options Outstanding				Options Exercisable
		Weighted Average	Weighted Average			Weighted Average
	Number	Remaining	Exercise		Options	Exercise
Range of Exercise Prices	Outstanding	Life (yrs)	Price		Exercisable	Price

$7.43 - $15.77	325,473	3.46	$	9.20	325,473	$	9.20
$16.89 - $20.21	250,931	4.94	17.29		227,539	17.00
$21.21	342,600	6.55	21.21		-	-
$23.37 - $26.89	394,973	7.28	26.71		21,173	23.93
$34.16 - $39.97	256,828	6.31	36.52		37,779	37.13
$41.51 - $42.70	299,548	9.31	42.65		12,944	41.51
	1,870,353	6.36	$	25.29	624,908	$	14.90

Shares exercised pertaining to the 1995 plan were 174,666, 8,250 and 2,250 during 2005, 2004, and 2003 respectively. Options outstanding pertaining to the 1995 Plan were 0, 174,666, and 182,916 at December 31, 2005, 2004 and 2003, respectively.

The Company also grants restricted shares to select officers within the organization and directors who elect to receive restricted stock in lieu of cash for directors’ fees. These restricted shares vest over a one to three year period. Holders of restricted shares are entitled to receive cash dividends paid to the Company’s common stockholders and have the right to vote the restricted shares prior to vesting. Compensation expense for the restricted shares equals the market price of the related stock at the date of grant and is amortized on a straight-line basis over the vesting period. In 2005, 2004, and 2003, 48,357, 34,675, and 10,785 restricted shares were granted, with a weighted-average grant-date per share fair value of $39.65, $36.79, and $27.43, respectively. There were 80,018, 40,937, and 10,785 restricted shares outstanding at December 31, 2005, 2004, and 2003, respectively. The Company recognized $922 thousand and $376 thousand in compensation expense related to the restricted stock grants during 2005 and 2004, respectively.

Note 20. Derivative Financial Instruments

The Company uses interest rate swaps to hedge its interest rate risk. The Company had fair value commercial loan interest rate swaps and fair value brokered deposit interest rate swaps with aggregate notional amounts of $28.6 million and $218.9 million, respectively, at December 31, 2005. 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 or 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 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.

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 receivable (payable) for the year ended December 31, 2005 and 2004 was approximately $1.3 million and $361 thousand, respectively. 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

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Derivative Financial Instruments (Continued)

counterparties involved if the net value of the swaps exceeds a nominal amount. At December 31, 2005, the Company's credit exposure relating to interest rate swaps was not significant.

The Company’s derivative financial instruments are summarized below as of December 31, 2005 and 2004 (dollars in thousands):

	December 31, 2005													December 31, 2004
						Weighted-Average
	Notional Amount		Estimated Fair Value			Years to Maturity		Receive Rate			Pay Rate			Notional Amount		Estimated Fair Value
Derivative instruments designated as hedges of fair value:
Pay fixed/receive variable swaps (1)	$	28,553	$	837			5.4		6.40	%		5.96	%	$	28,965	$	108
Receive fixed/pay variable swaps (2)		218,851		(5,454	)		6.3		4.59	%		3.72	%		75,000		(400	)

Non-hedging derivative instruments (3):
Pay fixed/receive variable swaps		33,932		(603	)		7.4		6.17	%		6.24	%		3,541		102
Pay variable/receive fixed swaps		35,081		568			7.4		6.19	%		6.09	%		3,541		(102	)
Total portfolio swaps	$	316,417	$	(4,652	)		6.4		5.10	%		4.46	%	$	111,047	$	(292	)
(1) Hedges fixed-rate commercial real estate loans
(2) Hedges fixed-rate callable brokered deposits
(3) These portfolio swaps are not designated as hedging instruments under SFAS No. 133.

Methods and assumptions used by the Company in estimating the fair value of its interest rate swaps are discussed in Note 18 to consolidated financial statements.

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. Condensed Parent Company Financial Information

The condensed financial statements of MB Financial, Inc. (parent company only) are presented below:

Balance Sheets
(In thousands)
	December 31,
	2005		2004
Assets
Cash	$	27,909	$	558
Investments in subsidiaries		593,953		566,786
Other assets		8,876		7,248

Total assets	$	630,738	$	574,592

Liabilities and Stockholders' Equity
Junior subordinated notes issued to capital trusts		123,526		87,443
Other liabilities		3,799		5,483
Stockholders' equity		503,413		481,666

Total liabilities and stockholders' equity	$	630,738	$	574,592

Statements of Income
(In thousands)

	Years Ended December 31,
	2005		2004		2003

Dividends from subsidiaries	$	32,000	$	73,000	$	51,000
Interest and other income		507		532		3,473
Interest and other expense		(9,422)		(7,928)		(8,299)
Income before income tax benefit and
equity in undistributed net income of subsidiaries		23,085		65,604		46,174
Income tax benefit		(3,119)		(2,588)		(1,690)
Income before equity in undistributed net
income of subsidiaries		26,204		68,192		47,864
Equity in undistributed net income of subsidiaries		40,164		(3,763)		5,528

Net income	$	66,368	$	64,429	$	53,392

MB FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. Condensed Parent Company Financial Information (Continued)

Statements of Cash Flows
(In thousands)
	Years Ended December 31,
	2005		2004		2003

Cash Flows From Operating Activities
Net income	$	66,368	$	64,429	$	53,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of restricted stock awards		922		376		61
Net gains on sale of investment securities available for sale		(72)		-		(82)
Net gains on sale of bank subsidiary		-		-		(3,083)
Equity in undistributed net income of subsidiaries		(40,164)		3,763		(5,528)
Change in other assets and other liabilities		(14,807)		(10,546)		(3,038)
Net cash provided by operating activities		12,247		58,022		41,722

Cash Flows From Investing Activities
Proceeds from sales of investment securities available for sale		-		8,029		1,525
Investments in and advances to subsidiaries		(500)		-		-
Proceeds from sale of bank subsidiary, net		-		-		16,300
Cash paid, Loans Purchased		(377)		-		-
Cash paid for acquisitions, net		(365)		(52,291)		(92,945)
Net cash used in investing activities		(1,242)		(44,262)		(75,120)

Cash Flows From Financing Activities
Purchase and retirement of common stock		-		-		(6)
Treasury stock transactions, net		(6,957)		(8,913)		(3,083)
Stock options exercised		4,307		1,403		3,921
Dividends paid		(16,004)		(13,885)		(11,727)
Proceeds from junior subordinated notes issued to capital trusts		35,000		-		-
Net cash (used in) provided by financing activities		16,346		(21,395)		(10,895)

Net (decrease) increase in cash		27,351		(7,635)		(44,293)

Cash:
Beginning of year		558		8,193		52,486

End of year	$	27,909	$	558	$	8,193

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

(a)

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 December 31, 2005 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 December 31, 2005, 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) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)

Management’s Annual Report on Internal Control Over Financial Reporting: The annual report of management on the effectiveness of our internal control over financial reporting and the attestation report thereon issued by our independent registered public accounting firm are set forth under “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” under “Item 8. Financial Statements and Supplementary Data.”

(c)

Changes in Internal Control Over Financial Reporting: During the quarter ended December 31, 2005, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers. The information concerning our directors and executive officers required by this item is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.

Section 16(a) Beneficial Ownership Reporting Compliance. The information concerning compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 by our directors, officers and ten percent stockholders required by this item is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.

Code of Ethics. We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, and to all of our other employees and our directors. A copy of our code of ethics is available on our Internet website address, www.mbfinancial.com.

Item 11. Executive Compensation

The information concerning compensation required by this item is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information concerning security ownership of certain beneficial owners and management required by this item is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.

The following table sets forth information as of December 31, 2005 with respect to compensation plans under which shares of our common stock may be issued:

Equity Compensation Plan Information

Plan Category	Number of Shares to be Issued upon Exercise of Outstanding Options (1)(2)	Weighted Average Exercise Price of Outstanding Options (1)(2)	Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in the First Column) (1)(3)(4)
Equity compensation plans approved by stockholders……..	1,870,353	$25.29	1,375,040
Equity compensation plans not approved by stockholders…	N/A	N/A	N/A
Total………………………………………………………...	1,870,353	$25.29	1,375,040

(1)	We split our common shares three-for-two by paying a 50% stock dividend in December 2003. The option shares and exercise prices have been adjusted to reflect the dividend.

(2)	Includes 55,053 shares underlying stock options that we assumed in the First SecurityFed acquisition

(3)	Includes 1,026,313 shares remaining available for future issuance under our 1997 Omnibus Incentive Plan, of which, up to 206,183 shares could be awarded to plan participants as restricted stock.

(4)	Includes 348,727 shares remaining available for future issuance under the Avondale 1995 Plan. Notwithstanding this availability, we will not grant future options under the Avondale 1995 Plan.

N/A - not applicable

Not included in the table are shares of our common stock that may be acquired by directors and officers who participate in the MB Financial, Inc. Stock Deferred Compensation Plan. This plan, along with the MB Financial, Inc. Non-Stock Deferred Compensation Plan, allows directors and eligible officers to defer a portion of their cash compensation. Neither plan has been approved by our stockholders. All distributions under the stock plan are made in shares of our common stock purchased by the plan trustee on the open market, except for fractional shares, which are paid in cash.

Item 13. Certain Relationships and Related Transactions

The information concerning certain relationships and related transactions required by this item is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.

Item 14. Principal Accountant Fees and Services

The information concerning principal accountant fees and services is incorporated herein by reference from our definitive proxy statement for our 2006 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the end of our fiscal year.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)	Financial Statements: See Part II--Item 8. Financial Statements and Supplementary Data.

(a)(2)	Financial Statement Schedules: All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.

(a)(3)	Exhibits: See Exhibit Index.

(b)	Exhibits: See Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MB FINANCIAL, INC.

(registrant)

By: /s/ MITCHELL FEIGER

Mitchell Feiger

President and Chief Executive Officer

(Principal Executive Officer)

Date: March 13, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title

/s/ Mitchell Feiger	Director, President and Chief Executive Officer
Mitchell Feiger	(Principal Executive Officer), March 13, 2006

/s/ Jill E. York	Vice President and Chief Financial Officer
Jill E. York	(Principal Financial Officer and Principal Accounting Officer), March 13, 2006

E.M. Bakwin *	Director	) March 13, 2006
E.M. Bakwin		)
		)
David P. Bolger *	Director	)
David P. Bolger		)
		)
Robert S. Engelman, Jr. *	Director	)
Robert S. Engelman, Jr.		)
		)
Alfred Feiger *	Director	)
Alfred Feiger		)
		)
Lawrence E. Gilford *	Director	)
Lawrence E. Gilford		)
		)
Richard I. Gilford *	Director	)
Richard I. Gilford		)
		)
James N. Hallene *	Director	)
James N. Hallene		)
		)
Patrick Henry *	Director	)
Patrick Henry		)
		)
Richard J. Holmstrom *	Director	)
Richard J. Holmstrom		)
		)
Karen J. May *	Director	)
Karen J. May		)
		)
Ronald D. Santo *	Director	)
Ronald D. Santo		)
		)
Kenneth A. Skopec *	Director	)
Kenneth A. Skopec		)
		)
*By: /s/ Mitchell Feiger	Attorney-in-Fact	)

	EXHIBIT INDEX
Exhibit Number	Description
2.1	Amended and Restated Agreement and Plan of Merger, dated as of April 19, 2001, by and among the Registrant, MB Financial, Inc., a Delaware corporation (“Old MB Financial”) and MidCity Financial (incorporated herein by reference to Appendix A to the joint proxy statement-prospectus filed by the Registrant pursuant to Rule 424(b) under the Securities Act of 1933 with the Securities and Exchange Commission (the “Commission”) on October 9, 2001)
2.2	Agreement and Plan of Merger, dated as of November 1, 2002, by and among the Registrant, MB Financial Acquisition Corp II and South Holland Bancorp, Inc. (incorporated herein by reference to Exhibit 2 to the Registrant’s Current Report Form 8-K filed on November 5, 2002 (File No. 0-24566-01))
2.3	Agreement and Plan of Merger, dated as of January 9, 2004, by and among the Registrant and First SecurityFed Financial, Inc. (incorporated herein by reference to Exhibit 2 to the Registrant’s Current Report on Form 8-K filed on January 14, 2004 (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 Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-24566-01))
3.2	Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.2 to Amendment No. One to the Registration Statement on Form S-1 of the Registrant and MB Financial Capital Trust I filed on August 7, 2002 (File Nos. 333-97007 and 333-97007-01))
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))
10.1	Reserved.
10.2	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-end December 31, 2002 (File No. 0-24566-01))
10.3	Form of Employment Agreement between the Registrant and Burton Field (incorporated herein by reference to Exhibit 10.5 to Old MB Financial’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-24566))
10.3A	Amendment No. One to Employment Agreement between MB Financial Bank, N.A. and Burton Field (incorporated herein by reference to Exhibit 10.3A to the Registrant’s Registration Statement on Form S-4 filed on April 6, 2004 (File No. 333-114252))
10.3B	Amendment No. Two to Employment Agreement between MB Financial Bank, N.A. and Burton Field*

	EXHIBIT INDEX
Exhibit Number	Description

10.4	Form of Change of Control Severance Agreement between MB Financial Bank, National Association and each of Thomas Panos, Jill E. York, Thomas P. Fitzgibbon, Jr., Jeffrey L. Husserl and others (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-24566-01))
10.5	Avondale Financial Corp. 1995 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-8 of Old MB Financial (then known as Avondale Financial Corp.) (No. 33-98860))
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))
10.7	MB Financial, Inc. 1997 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 0-24566-01))
10.8	Amended and Restated 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, 2004 (File No. 0-24566-01))
10.9	Amended and Restated 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, 2004 (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 Old MB Financial’s (then known as Avondale Financial Corp.) Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 0-24566))
10.11	Non-Competition Agreement between the Registrant and E.M. Bakwin (incorporated herein by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-24566-01))
10.12	Non-Competition Agreement between the Registrant and Kenneth A. Skopec (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (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))
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))
10.15	Tax Gross Up Agreements between the Registrant and each of Mitchell Feiger, Burton J. Field, Ronald D. Santo, Thomas D. Panos, Jill E. York, Thomas P. FitzGibbon, Jr., and Jeffrey L. Husserl (incorporated herein by reference to Exhibits 10.1 - 10.7 to the Registrant’s Current Report on Form 8-K filed on November 5, 2004 (File No. 0-24566-01))

	EXHIBIT INDEX
Exhibit Number	Description

10.16	Form of Incentive Stock Option Agreement for Executive Officers under the Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on March 2, 2005 (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 10.2 to the Registrant’s Current Report on Form 8-K/A filed on March 2, 2005 (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 10.3 to the Registrant’s Current Report on Form 8-K/A filed on March 2, 2005 (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 10.4 to the Registrant’s Current Report on Form 8-K/A filed on March 2, 2005 (File No. 0-24566-01))
16	KPMG LLP letter re change in certifying accountant (incorporated herein by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K/A filed on July 13, 2004 (File No. 0-24566-01))
21	Subsidiaries of the Registrant*
23.1	Consent of KPMG LLP*
23.2	Consent of McGladrey & Pullen LLP*
24	Power of Attorney*
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*
99	Report of KPMG LLP*

* Filed herewith.