MB Financial in Chicago is shutting down its national mortgage business.

The $20 billion-asset company disclosed in a regulatory filing Thursday that the decision was based on recent economic changes, heavy competition, “very low” margins and input from shareholders.

MB said it will stop accepting locked loans and loan applications from its national business this quarter. The company will stop operating the business as a defined segment during the fourth quarter.

Exit sign.
Adobe Stock

The company had been working to improve the profitability of its mortgage business by increasing its retail originations. The company recently determined that “it would be unable to successfully execute that strategy within a reasonable period of time,” the filing said.

MB said it will continue to make mortgages around Chicago. It will also retain its mortgage-servicing asset and its mortgage-servicing operation in Wilmington, Ohio. MB plans to hold onto the mortgages, which are substantially adjustable-rate loans, on its balance sheet.

The company said it expects quarterly origination volume to fall from $17.6 million in the fourth quarter to $1 million in the upcoming third quarter.

MB warned that it will incur $37 million to $41 million in one-time costs over the rest of year tied to the exit. More than half of the costs are tied to severance. MB also expects to take a $3.6 million hit to goodwill.

The company said that, by 2019, the move should increase its quarterly pretax income by $7.5 million at some point next year. Net interest income will likely decline by $3.5 million in the third quarter, while quarterly noninterest expense should fall by $26 million by the end of this year.

The business earned $37 million for MB last year, though nearly 90% of the profit came from a benefit tied to the tax reform law. Mortgage banking revenue at MB fell by 28% in 2017 from a year earlier, to $107 million.

The exit comes less than five months after MB obtained 165 mortgage lenders and 14 offices from Busey Bank in a move that added origination capabilities in Colorado, Iowa, Kansas, Missouri and Nebraska.

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