MB Financial Set for Margin Improvement

CHICAGO ( TheStreet) -- MB Financial ( MBFI) is well-positioned for continued margin improvement after it acquired Corus Bank's deposits on Friday for a very low price.

MB Financial's stock was up 4.7% $17.83 in recent trading Monday, as the Chicago lender announced it had had commenced a $175 million common stock offering priced at $16.

In its press release announcing the capital raise, the company said the money would be used for general corporate purposes and help position MB for additional "attractive acquisition opportunities in the current environment." CEO Mitchell Feiger, on a conference call, stressed that the capital raise was not a requirement of the Corus acquisition.

MB Financial's capital position had already been boosted in December, when the company sold preferred shares to the Treasury, raising $196 million in capital through the Troubled Assets Relief Program, or TARP.

Corus was the third failed Illinois bank acquired by MB this year, following InBank of Oak Forest on Sept. 4 and Heritage Community Bank of Glenwood in February. But Corus was by far the company's largest acquisition. MB acquired over $6.6 billion in deposits and about $3 billion of Corus's assets for roughly $13 million, with the Federal Deposit Insurance Corp. retaining Corus's distressed commercial real estate loans and repossessed real estate.

MB Financial plans immediately to redeem $3.2 billion in CDs outside its home market in Chicago and surrounding suburbs, and allow higher-rate local CDs and money market accounts to run off, since the company is allowed to re-price acquired deposits.

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 TheStreet.com 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.

More from Stocks

The Stock Market Has Every Reason to See a Fresh Rally

The Stock Market Has Every Reason to See a Fresh Rally

3 Simple Tips on Investing From TheStreet's Jim Cramer

3 Simple Tips on Investing From TheStreet's Jim Cramer

Video: There Are Some Big Changes Coming to the PGA Championships in 2019

Video: There Are Some Big Changes Coming to the PGA Championships in 2019

Tesla's Supercharger Network Is Booming -- Here's Why That's a Concern

Tesla's Supercharger Network Is Booming -- Here's Why That's a Concern

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly