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Story Retrieval Date: 4/17/2015 11:16:20 AM CST

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Osahon Okundaye, MEDILL

MB Financial's quarterly earnings per share remained consistent for much of the past year before dropping at the beginning of 2014.

MB Financial foresees resumption of earnings growth

by Osahon Okundaye
Jun 11, 2014

MB Financial Inc. looks to ride its aggressive acquisitions of smaller regional rivals to continued steady earnings growth, after a hiccup from its latest planned purchase. Analysts are cautiously optimistic.

The Chicago-based bank holding company has, with the federal government’s assistance, spent about $450 million to acquire six struggling regional bank chains and one equipment leasing company, bringing in $4.4 billion in assets since the recession hit bottom in early 2009. Total assets now are $9.44 billion.

MB Financial had also planned to purchase Taylor Capital Group Inc., another Chicago-area bank holding company, for $680 million before the two firms tabled talks.

The deal stalled after Taylor Capital came under investigation for allegedly deceiving new checking customers.

Taylor acknowledged it’s likely to face fines up to $3.6 million from the Securities and Exchange Commission.

Pushing pause on the deal created an uncertain investment environment, inviting a “hold” rating on the stock from seven of 10 analysts recently polled by Yahoo Finance.

The deal will still close this year, but will take time to bear fruit, SunTrust analyst Ben Lurio wrote in a report.

“We continue to view the risk/reward as balanced at this time, and on a longer-term viewpoint we see limited upside to shares as our scenario analysis suggests a price consistent with current levels. Therefore, there is no change to our neutral rating.”

The company’s stock has been relatively stable in the past year. It sold for $27.68 at the NASDAQ’s close Wednesday, with analysts surveyed by Bloomberg expecting it to reach $30.29 by the end of the year.

It reached a 52-week high last November at $32.85 a share. The bank’s 12-month low was $25.08 in June.

MB Financial’s 15.46 trailing 12-months price-to-earnings ratio lags behind the median ratio of 16.18 for 40 Midwestern regional banks

Stephen Geyen of D.A. Davidson is slightly more optimistic about the benefits of the Cole Taylor acquisition. The deal will close and drive strong returns eventually, he said.

“We believe the combined bank can generate strong profitability over time; however, near-term concerns keep us at neutral.”  

MB Financial has typically used acquisitions to power solid if unspectacular profit, earning $98 million on $428.6 million in revenue in 2013. 

About $270 million of its 2013 revenue came from loans and investments, $58 million from  management fees and commissions, and $94 million from fees such as ATM and overdraft charges.

The company operates a chain of 85 community banks in the Chicago area and one in Philadelphia, all through its subsidiary MB Financial N.A., emphasizing what it calls “relationship banking.”

It has built its more than 100-year business on extending banking services and loans to small and medium-sized businesses as well as private individuals.

Much of the bank’s recent growth came when hundreds of small banks went under or were pushed to the brink during the Great Recession, said the company's Senior Vice President of Financial Reporting John Francoeur. The Federal Deposit Insurance Corp. took control of and then sold six failing banks to MB Financial in 2008 and 2009.

Because all of these transactions took place in the heat of the financial crisis, MB Financial extracted plenty of value from the federal agency. For every deal where deposits were greater than acquired assets, the insurer paid MB the difference in cash.

MB was able to pluck choice assets while the FDIC was able to make sure someone was responsible for consumer deposits. Of the six deals, the bank only paid a premium for deposits twice — of 1 percent or less. In each deal MB Financial bought the assets at a discount.

Always consistent, MB has earned about 45 cents per share each quarter since mid-2012 until dipping to 36 cents per share at the beginning of 2014 on news of the halted Taylor Capital purchase.

The tough first quarter has shaken but not stirred Jefferies analyst Emlen Harmon’s faith.

“A soft quarter for loan growth and the delayed close of the Taylor acquisition push our estimates lower,” he wrote in a report. Harmon foresees earnings rising in 2015 due to the combination of increased income as well as substantial savings from the Taylor Capital merger.

The 10 analysts surveyed by Bloomberg expect MB Financial to earn 34 cents per share in the quarter ending June 30, 2014 and return to form at 46 cents per share for the quarter ending September 30.  

For the full year analysts project earnings of $89.4 million, or $1.79 per share, and $153.3 million, or $2.11 per share in 2015.