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Jackie Lam/MEDILL

Total reserves of depository institutions at the Federal Reserve have declined from Sept. 2011 to Sept. 2012.

MB Financial generates positive returns but remains cautious

by Jackie Lam
Oct 25, 2012

MB Financial Inc. beat Wall Street expectations with a double-digit increase in third-quarter earnings by raising fees to offset the negative impact of low interest rates. The Chicago-based bank holding company also announced Wednesday it would raise its dividend ten-fold and begin buying back shares.

MB Financial earned $23.1 million, or 42 cents per diluted share, in the third quarter, up 17 percent from $19.7 million, or 31 cents per diluted share, in the same quarter last year.

Wall Street analysts surveyed by Bloomberg expected MB Financial to earn 41 cents per share.

Net interest income dropped 10 percent to $72.1 million from $80.4 million.

In a research note, Brian Martin, analyst of Fig Partners LLC, said: “Core revenues were unchanged despite good growth in fee income as top-line revenues remained under pressure reflecting margin contraction and balance sheet shrinkage.”

Even though MB Financial is maintaining healthy capital levels, the company remained cautious and elevated its reserves at the Federal Reserve. MB Financial executives said they are still worried about the pace of the economic recovery.

“I don’t think our company thinks this is a time to take a chance on being light, if you will, on our loan-loss reserve,” Mitchell Feiger, chief executive officer, said in a conference call with analysts. “So I suppose you could draw a scenario where all those things I just mentioned and the other major macroeconomic threats dissipate and our balance sheet retains the credit profile we have which is low, then we may step back and say some reserve should come out. But we have set that reserve based a lot on our fears of macroeconomic influences.”

MB Financial compensated for the decline in net interest income by raising fees on its credit card and commercial leases. The company’s income from fees increased 21 percent from $19.6 million in the third quarter.

The company also announced its board of directors had raised the company’s quarterly cash dividend to 10 cents per share, payable on Nov. 30, from 1 cent per share. The company also will begin buying back 1 million shares of stock during the next two years.

“Our first priority was to get the dividend up to the normal level,” Jill York, vice president and chief financial officer, said in a conference call with analysts. “That was really the first step. Secondarily, it will be helpful to have a small amount of flexibility in a stock buyback. This was how management and the board thought about it. We felt that this will give us the ability to protect the stock if need be.”

In the first nine months, MB Financial earned $66.4 million, or $1.16 per diluted share, more than triple the $19.3 million, or 21 cents per diluted share, it earned last year.

Net interest income fell 9 percent to $2.2 billion from $2.5 billion.

MB Financial shares closed at $19.72, up 78 cents or more than 4 percent.