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5 Chicago Banks Poised for Long-Term Growth

1. MB Financial

Company Profile

Shares of MB Financial (MBFI - Get Report) of Chicago closed at $16.01 Thursday, down 10% over the previous year.

The company has acquired six failed institutions from the FDIC over the past two years, including New Century Bank and Broadway Bank - two of the seven Illinois banks closed by regulators on April 23. MB Financial also acquired $3 billion in deposits when Corus Bank failed in September 2009, with the FDIC disposing of the failed condominium lender's assets separately.

Income Statement

For the third quarter, MB Financial reported a net loss to common shareholders of $5.4 million, or 10 cents a share, following net income to common shareholders of $16.6 million, or 31 cents a share, during the second quarter, when the company booked acquisition-related gains of $62.6 million. A year earlier, net income to common shareholders was $4.9 million, or 12 cents a share, reflecting acquisition-related gains of $10.2 million.

The third-quarter provision for loan losses was $65 million declining from $85 million in the second quarter, but rising from $45 million a year earlier.

Brian Martin of FIG Partners maintained his "market perform" or neutral rating on the shares, saying after the earnings release that "unlike earlier quarters weakness in CRE took center stage with a significant increase in nonperforming loans," but added that "core earnings power continued to expand" and that his firm expected the company to "return to profitability without the aid of any FDIC gains."

Balance Sheet

MB Financial had total assets of $10.6 billion as of September 30 and a nonperforming assets ratio of 4.26%, rising from 3.65% the previous quarter and 2.19% a year earlier. Third-quarter net charge-offs totaled $65 million, or an annualized 3.81% of average loans and loan loss reserves covered 2.83% of total loans at the end of the quarter.

Martin quoted the company's CEO Mitchell Feiger as being "more optimistic now about credit performance in the coming quarters" because all loan portfolios except commercial real estate were "stable or behaving as expected," and that there would be "considerably less CRE renewals coming due in 2011 vs. 2010," with the company having already addressed 16% of the renewals.

Renewals of commercial real estate loans in a market with declining property prices can be a major headache because the renewal balance may no longer be supported by the property value and the borrowers are often very short of cash or other additional collateral.

The company reported a Tier 1 leverage ratio of 10.38%, and total risk-based capital ratio of 17.14% and a tangible common equity ratio of 9.07%.

MB Financial owes $196 million in TARP money and Martin said his firm continues "to model TARP repayment in late 2012."

Stock Ratios

The shares trade for 1.2 times tangible book value and 9.2 times the $1.75 consensus earnings estimate for 2012.

Analyst Ratings

Out of 13 analysts covering MB Financial, five rate the shares buy, seven have hold ratings and one analyst recommends investors sell the shares.

Based on the mean price target of $19.65 among analysts polled by Thomson Reuters, the shares have 19% upside potential.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact Philip van Doorn, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., 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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