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MB Financial Set for Margin Improvement

MB Financial reported a net interest margin of 3.05% for the second quarter, improving from 2.88% the previous quarter, but down from 3.11% a year earlier. Like all banks, MB Financial is seeking to increase its non-interest bearing deposits, and these comprised 18% of total deposits as of June 30, up from 15% a year earlier.

With $1 billion of the Corus deposits originating from local sources, checking and money market accounts with an average rate of 0.97% and with an average account age of 8.5 years, the acquisition bodes very well for MB Financial's net interest margin, a key indicator for quality earnings as the economy moves through the credit cycle.

In a Monday morning conference call, CEO Mitchell Feiger called Corus an "infill branch acquisition," saying the Corus branches fit "extremely well" with MB Financial's network.

The 11 Corus branches increased MB's presence in Chicago's north side, as well as its suburban branch network. MB Financial now has over 80 branches in and around Chicago.

MB Financial has been careful to stress the company's strong capital position in SEC filings and investor presentations, and while its second-quarter annualized ratio of net loan charge-offs to average loans was 1.54% -- a moderate level for a commercial lender in the current environment -- its overall asset quality actually improved in the second quarter. Nonperforming assets, including loans past due 90 days or more or in nonaccrual status, plus repossessed real estate comprised 3.08% as of June 30. That's down slightly from 3.11% the previous quarter but up from 1.13% a year earlier. This ratio is likely to improve greatly following the Corus acquisition, which only included $47 million in loans.

While figures provided by SNL Financial based on Friday's market close couldn't factor in the capital being raised or the Corus acquisition, shares in MB Financial traded at 1.42 times book value Friday -- certainly not overpriced for a well-capitalized bank poised for organic growth.

-- Reported by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.
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