Hoosier Banker 25 Stock Analysis Review as of Sept. 30, 2018 The number of listed Indiana banks and thrifts with lower share prices as of Sept. 28, compared to our last report as of July 31, outnumbered those with higher share prices by a margin of 2 to 1. The exact opposite was the case when comparing July 31 to May 31. That said, only eight of the 33 Indiana banks and thrifts tracked are in negative territory for the year. Interestingly, all four broad market indices are up, and all five bank and thrift indices are down as of Sept. 28, compared to July 31. The broad market indices are outperforming the bank and thrift market indices on a year-to-date basis, as well. Drawing conclusions about the direction and health of the broader stock market, and of the banking industry market in particular, at any point in time is perilous. At the time of this writing in mid-October, the general optimism and upward trajectory of the stock market at the end of September has been replaced by wide swings in the overall stock market. It is difficult to discern which international and domestic issue is, or combination of issues are, positively or negatively impacting financial markets on any given day. Much will be learned in the coming days as U.S. banks and thrifts report third quarter earnings. Despite the uncertainty of the potential impact of tariffs, monetary policy and the direction of the general economy, it seems that Indiana banks and thrifts are prospering with improved earnings and asset quality. From a mergers-and-acquisition perspective, we have become accustomed to our Indiana financial institutions being acquired by out-of-state banks. It is refreshing to see an increasing trend among Indiana banks acquiring out-of-state banks, such as Old National’s recent acquisition in Minnesota, Merchants Bancorp’s and Northwest Indiana Bancorp’s recent acquisitions in Illinois, and German American Bancorp’s pending acquisition in Kentucky, among others. Additionally, First Merchants is about to enter Michigan. First Merchants announced on Oct. 10 that it is acquiring MBT Financial of Monroe, Michigan. FRME is buying the $1.3 billion-in-assets bank for $290.9 million in an all-stock transaction. The price represents 240.1 percent of tangible book value and 23.3 times earnings. FRME accomplishes a number of strategic initiatives in this transaction: 1. Significant geographic expansion by entering Michigan with 20 well-spaced branches stretching from the southeast corner of Michigan to towns south and west of Detroit; 2. Significant asset growth as it surpasses $10 billion in assets; 3. Acquisition of a low-cost but high-quality deposit base, which will provide a funding source for FRME’s strong loan demand (i.e. MBT has a loan-to-deposit ratio of just 65 percent, while FRME is at 94 percent); 4. Full use of FRME’s strongly priced stock valued in excess of 250 percent of book value and 18 times earnings as acquisition consideration; and 5. Ample opportunity for accretive earnings due to economies of scale. In addition to continued strong M&A activity, several other trends are becoming more pronounced among Indiana financial institutions. Several banks have recently announced share repurchase plans, others are increasing dividends, and still others are issuing subordinated debt. HB Michael A. Renninger Principal Renninger & Associates LLC mrenninger@ renningerllc.com Renninger & Associates LLC is a Diamond Associate Member of the Indiana Bankers Association. Indiana Statistics To access statistics through Sept. 30, click on the hand icon in HB Digital, or go to: indianabankers.org/bank-thrift-stock-update. INDIANA BANK & THRIFT STOCK UPDATE
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