MB Financial Inc. in Chicago managed to produce a third-quarter profit after its credit costs fell dramatically, though shrinking revenue disappointed analysts.

The $9.9 billion-asset company reported Thursday earnings of $17.1 million in the third quarter, compared to a $2.8 million loss a year earlier and a $10 million loss in the second quarter. At 32 cents a share, the earnings were two cents short of the average analysts' estimate, according to Thomson Reuters.

MB Financial's loan-loss provision fell 82% from a year earlier, to $11.5 million. The provision in the second quarter was $61.3 million. The company attributed the sharp decline to improving credit quality, as nonperforming assets fell 4.4% from a quarter earlier, to $228.7, or 2.3% of total assets. Nonperforming assets were nearly halved from a year earlier, but MB Financial sold a massive pool of nonperforming assets in the second quarter of this year.

The company's net interest income fell 8% from a year earlier, to $80.4 million, and earning assets declined 6.6% from the third quarter of 2010, to $8.5 billion. The net interest margin remained relatively flat at 3.9%, shrinking 2 basis points from the second quarter and a year earlier.

Brad Milsaps of Sandler O'Neill & Partners LP, wrote in a Friday note to clients that he was encouraged by the improving credit quality, though "slippage in pre-provision revenue … is not a positive."

Christopher McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., observed in his research note that there was a 6% drop in commercial and industrial lending in the third quarter, one of the few areas of lending where some banks have experienced an up-tick. "Unlike many of its Chicago peers recently, the loan portfolio has yet to show signs of stabilization including further declines in core C&I balances," he wrote.

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