First Merchants Bank to Merge with Level One in Farmington Hills in $323M Deal

First Merchants Corp., the largest financial holding company in central Indiana, and Level One Bancorp Inc. in Farmington Hills, today announced they have executed a definitive merger agreement by which Level One Bancorp will merge with, and into, First Merchants in a stock and cash transaction currently valued at approximately $323.5 million.
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Level One Bank Bloomfield Hills location
First Merchants Corp and Level One Bancorp announced a definitive merger agreement in which Level One will merge with and into First Merchants. // Courtesy of Level One Bank

First Merchants Corp., the largest financial holding company in central Indiana, and Level One Bancorp Inc. in Farmington Hills, today announced they have executed a definitive merger agreement by which Level One Bancorp will merge with, and into, First Merchants in a stock and cash transaction currently valued at approximately $323.5 million.

Upon completion of the merger, Level One Bank will merge with, and into, First Merchants Bank. Today, First Merchants operates around 106 locations in Michigan, Indiana, Illinois, and Ohio, along with a wealth management firm. As of Sept. 30, the institution had total assets of approximately $15.1 billion.

Level One operates 16 banking center locations in southeast Michigan. Since its founding in 2007, the institution has grown to be one of the largest community banks in Michigan with consistent double-digit loan and deposit growth rates.

The bank has total assets of $2.5 billion, total loans of $1.7 billion, and total deposits of $2.1 billion earning a 1.50 percent return on average assets, and 16.3 percent return on tangible common equity for the quarter ending on Sept. 30, 2021.

Subject to shareholder and regulatory approvals, the combined banks will have combined assets of approximately $17.6 billion and First Merchants will remain the second largest financial holding company headquartered in Indiana. The combined company will have 122 banking offices across Michigan, Indiana, Illinois, and Ohio.

The merger is part of a larger trend in M&A activity among banks this year. According to Dealogic, through September banks have announced more than $54 billion in deals. During the same period in 2020, banks announced $17 billion in mergers.

Driving current bank merger activity is certainty returning to the lending market following COVID-19 when transactions were more likely to be passed on due to balance sheet concerns. But a projected wave of loan defaults never came about, and serious merger talks resumed.

The merger agreement provides that the common shareholders of Level One will have the right to receive a 0.7167 share of First Merchants common stock, in a tax-free exchange, and $10.17 in cash for each share of Level One common stock owned, currently an approximate 75 percent stock/25 percent cash mix.

Based on the closing price of First Merchants common stock on November 3, 2021, of $43.50 per share, the implied merger consideration for each share of Level One common stock is $41.35 per share. In addition, each share of Level One’s 7.50 percent Non-Cumulative Perpetual Preferred Stock, Series B, outstanding immediately prior to the effective time of the merger will be converted into the right to receive one share of a newly created series of preferred stock of First Merchants having voting powers, preferences and special rights that are substantially identical to the Level One Series B preferred stock.

First Merchants expects this combination to be mutually beneficial to First Merchants and Level One shareholders and customers. First Merchants anticipates earnings per share accretion of approximately 10.4 percent in 2023 (the first full year of combined operations) and a tangible book value earn back of 2.9 years.

The transaction is expected to be completed in the first half of 2022, subject to the affirmative vote of a majority of Level One common shareholders, regulatory approvals, and other customary conditions. The combined company, conducting its banking business as First Merchants Bank, expects to complete its system integration during the third quarter of 2022.

“Like First Merchants, Level One Bank has a strong customer-focused history and a deep-rooted commitment to community banking,” says Mark Hardwick, CEO of First Merchants. “We are excited they have chosen to become the newest member of the First Merchants family.”

Mike Stewart, president of First Merchants, added: “The Level One franchise contiguously extends First Merchants further into southeastern Michigan. Our operating approach is focused on enhancing the financial wellness and prosperity of the communities we serve. Consistent with our brand reputation, our service model reflects a genuine relationship-oriented way of meeting the financial needs of businesses and consumers within the communities we serve.”

In First Merchants Bank’s newly acquired market, the executive team will include Level One Bank President Timothy Mackay, Chief Lending Officer and Corporate Secretary Gregory Wernette, and Risk Management Officer Eva Scurlock.

Chairman and CEO Patrick Fehring, Chief Human Resources Officer Lani Barrett, and CFO David Walker will retire after completion of the merger.

“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 Level One Bank since it was founded in 2007,” says Fehring.

Tim Mackay, president of Level One, added: “This partnership brings together two organizations with very similar cultures and a go-to-market strategy that allows us to build upon our strong commercial banking performance while also leveraging the momentum and growth we have developed in consumer banking and residential mortgage lending in recent years.”

Stephens Inc. served as the financial advisor to First Merchants, while the legal advisor was Dentons Bingham Greenebaum LLP.

Piper Sandler & Co. served as financial advisor to Level One in this transaction, and Barack Ferrazzano served as legal advisor.

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