Indiana bank buying Monroe Bank & Trust

10/10/2018

A view of Monroe bank & Trust on Washington Street.

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MONROE — MBT Financial Corp., which stumbled badly after the recession a decade ago only to bounce back stronger than ever, said Wednesday it has agreed to be acquired by an Indiana-based bank in what will be a 100 percent stock transaction valued at $290.9 million.

First Merchants Corp., of Muncie, which has $9.7 billion in assets and 114 branches, said it expects to finish acquiring the Monroe-based bank in the first quarter of 2019, subject to approval by regulators and shareholders of MBT, the parent firm of 160-year-old Monroe Bank & Trust.

Monroe Bank & Trust, which first opened in the back of a general store in 1858 and later grew into one of Michigan’s largest community banks, is to be rebranded as First Merchants Bank at all of its southeast Michigan locations.

First Merchants said it expects to fully integrate all of MBT’s operations and Monroe Bank & Trust’s 20 branches into its own operations by the third quarter of next year.

With $1.3 billion in assets, a loan portfolio totaling $733 million, and $1.1 billion in deposits, MBT Financial made a tempting acquisition target, said Michael C. Rechin, president and chief executive of First Merchants.

When combined the two companies will have combined assets of about $11 billion and be the second-largest financial holding company headquartered in Indiana. It will have 134 banking offices in 31 Indiana counties, as well as two counties each in Michigan, Ohio, and Illinois.

“All of a sudden we have an earnings asset mix that’s very balanced and provides us some diversity of strength whether they be loan issuance, or deposit gathering, or both,” Mr. Rechin said in a conference call.

Mr. Rechin said First Merchants will retain MBT Financial’s senior management, including president and CEO H. Douglas Chaffin, who will become a First Merchants regional president.

“They’ve got a strong tradition of leading the Monroe community. That’ll continue under the First Merchants name post integration. And it’s going to be led by the same senior management,” Mr. Rechin said.

First Merchants also will expand its board of directors to include a member of MBT management, presumably Mr. Chaffin.

In a statement, Mr. Chaffin said, “We believe our partnership with First Merchants will provide tremendous benefits to our customers, shareholders and communities as we look forward to continuing the legacy of exceptional customer service, local responsiveness and strong community engagement that has defined Monroe Bank & Trust for 160 years.”

MBT’s Michigan footprint includes Monroe Bank & Trust branches in Monroe and Wayne counties. But Mr. Rechin said he believes the MBT footprint could be expanded further in southeast Michigan and into northwest Ohio.

“If you speak to Michigan on a standalone basis, as we’ve come to know Doug and his team, they’ve talked about the recovery that’s taken place all throughout Michigan, southeast Michigan in particular over the last half a dozen years, and so they’ve been taking advantage of that,” Mr. Rechin said.

“As they look forward, as they talk about their own strategy, they look at very close-by markets like Toledo, Ohio, northwest Ohio, apart from their core market where they are a market share leader,” he said. “And as they look north into the Detroit suburbs I feel like the experience level of their team enables them to take advantage of even more growth in that market — and we will be there to support it.”

The two banks had been in discussions for a while with First Merchants concluding its due diligence two weeks ago.

The agreement provides that MBT Financial shareholders will receive 0.275 shares of First Merchants common stock for each share of MBT common stock owned. Based on the $45.71 per share closing price of First Merchants stock on Oct. 9, the implied price of MBT’s common stock is $12.57 per share.

In MBT Financial the Indiana bank is getting an institution that 12 years ago weathered a rough financial storm.

In 2006 the economy of Monroe County tanked with relatively high unemployment rates that saddled MBT with a bloated portfolio of troublesome loans. As the recession grew in strength the institution had to boost its loan-loss provisions, slash and finally suspend its dividend, and watch both its profits and stock price shrink substantially.

In 2010 the bank was formally ordered by the Federal Deposit Insurance Corp. and Michigan's Office of Financial and Insurance Regulation to increase its Tier 1 leverage ratio by 2 percent within three months.

Under Mr. Chaffin’s leadership the bank met the orders, cleared up its balance sheet, raised capital through a stock offering, and increased its profitability slowly.

In 2014 after being stuck for three years at a two-star “problematic” rating by financial data firm BauerFinancial, MBT Financial boosted its rating to three stars and kept improving. In 2016 it became a five-star “superior” rated bank.

Its share price, which hit rock bottom at 90 cents in 2011, had bounced back to $12 a share in 2018. And its capital ratios and profits were the highest it had been in a decade.

MBT is a “great company that’s joining us,” Mr. Rechin said. “Doug Chaffin as CEO and his management team have really done a nice job increasing the performance focus of this company. It shows up in their numbers, and their community has benefited from their leadership, as have their shareholders.”

Contact Blade Business Writer Jon Chavez at jchavez@theblade.com or 419-724-6128.