UPDATE 3-MB Financial posts surprise Q4 loss as charge-offs rise

* Q4 loss $0.25/shr vs est profit $0.07/shr

* Net charge-offs rise four fold

* Net interest income rise 36 pct

* Shares fall 7 pct in early trade, recover later (Recasts, adds conference call details, analyst comments)

By Jochelle Mendonca

BANGALORE, Jan 22 (Reuters) - MB Financial Inc (MBFI.O), the holding company for MB Financial Bank, posted a surprise quarterly loss, hurt by a more than four-fold jump in net charge-offs.

Shares of the company fell 7 percent in early trade but recoverd partially and were down 2 percent in afternoon trade.

"You should look at the fourth-quarter construction charge-offs as sort of a housecleaning," Chief Operating Officer Thomas Prothero said on a conference call.

Total non-performing loans for the period fell 5 percent sequentially to $271.3 million, but provision for bad loans jumped about 56 percent, the company said.

The number of bad loans in the commercial and industrial portfolio may be "unsustainably low," its Chief Executive Mitchell Feiger said on the call with analysts.

Feiger said he did not see provisions exceeding charge-offs in the commercial real estate sector in 2010.

MB Financial, which acquired four failed U.S. banks through Federal Deposit Insurance Corporation (FDIC) backed transactions in 2009, said it sees the pipeline for such deals remaining strong.

"Our company is absolutely ready to do another FDIC-assisted transaction," Feiger said.

"I would not be surprised if they did as many FDIC-assisted deals in 2010 as they did in 2009," Stifel Nicolaus & Co analyst Anthony Davis said by phone.

Davis said the company would have many opportunities in its Chicago footprint.

CLEAN-UP QUARTER

The company said net charge-offs rose to $82.1 million from $17.4 million a year ago, while bad-loan provisions jumped to $70.0 million from $45 million in the third quarter.

"They dramatically increased provisions and charge-offs to eliminate problems in their construction and commercial real estate portfolios," analyst Davis said.

According to Davis, this was a "clean-up" quarter and he does not see provisions continuing at this level.

Analyst Daniel Cardenas of Howe Barnes Hoefer and Arnett said though credit quality issues were elevated, they were showing signs of stability.

Cardenas said the company's pretax, pre-provision numbers had increased from the third quarter and termed it as a positive sign.

Net loss applicable to common shareholders was $12.4 million, or 25 cents a share, compared with a loss of $25.6 million, or 74 cents a share, last year.

Analysts on average had expected earnings of 7 cents a share, excluding special items, according to Thomson Reuters I/B/E/S.

Net interest income for the quarter rose to $74.2 million from $54.7 million.

Shares of the Chicago-based company were down 33 cents at $22.03 in afternoon trade on Nasdaq. They touched a low of $20.83 in early trade. (Reporting by Jochelle Mendonca; Editing by Gopakumar Warrier)