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Will MB Financial's Latest Merger Deal Bolster Deposit Mix?

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MB Financial Inc.MBFI has inked a $449-million deal to acquire American Chartered Bancorp, Inc., and it's wholly owned subsidiary American Chartered Bank, to enhance market share in the Chicago region. Notably, American Chartered is one of the largest privately held commercial bank in this region, with 15 banking locations and close to $2.8 billion in assets.

American Chartered's balance sheet comprises $2.2 billion in deposits and $2 billion in loans. Of the company's total deposit balance, nearly half is non-interest bearing in nature. As such, we expect the acquisition to further bolster MB Financial's non-interest bearing deposit mix, which currently contributes 40% to its total balance.

More importantly, increased concentration of non-interest bearing liabilities will likely drive higher net interest margin ("NIM") and thereby aid revenues for MB Finanical, when interest rates eventually begin to rise in the near term.

Notably, the company's NIM of 3.82% already surpasses its peer median of 3.38% (based on data for the trailing four quarters).

In fact, the acquisition will also help MB Financial increase its deposit market share in the Chicago-Naperville-Elgin region, which dropped to 2.8% (as of Nov 20, 2015) from 3.4% in 2014.

Apart from an attractive deposit franchise, American Chartered also has a "strong middle-market commercial banking lending team" and "a proven track record of profitable organic growth". According to sources, the company is poised to record earnings of $30 million in 2015, representing a solid 15% return on equity which outpaces the industry average of approximately 10%.

However, MB Financial is paying a steep price for these benefits. According to CRAIN's, the merger consideration is equal to 2.35 times American Chartered's book value, a figure "far above what Chicago-area lenders have been selling for since" the 2008 financial crisis.

MB Financial will shell out $100 million in cash, while the remaining consideration will be paid in the form of MB Financial common stock (fixed exchange ratio of 0.2732). Further, such transaction is expected to be tax-free for American Chartered's shareholders.

Nonetheless, excluding merger-related charges, the deal is expected to be immediately accretive to MB Financial's cash earnings per share as well as annual GAAP earnings per share. The merger will likely be completed around Jun 30, 2016, subject to regulatory approvals and consent from American Chartered's shareholders.

Additionally, Robert Riter, Chairman at American Chartered, will join MB Financial's board of directors.

MB Financial currently holds a Zacks Rank #4 (Sell).

Better-ranked stocks include Middlefield Banc Corp. MBCN , Fox Chase Bancorp, Inc. FXCB and Blue Hills Bancorp, Inc. BHBK . All these stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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