Austin Associates Webinar Series

Bank M&A 2015: The Next Wave for Community Bank Consolidation March 24, 2015

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PRESENTERS

Craig Mancinotti - Joined the firm in 1982 and co-

manages the firm’s investment banking and strategic

consulting divisions. Received a Bachelor’s degree in

Business Administration and an MBA from the University

of Toledo. Served as an instructor at the Stonier

Graduate School of Banking and the Bank

Administration Institute School. Served for ten years as a

director of a $400 million Midwest community bank.

Annual speaker at “Acquire or Be Acquired”

conferences. Licensed rep of IBS (a registered broker

dealer) and holds Series 63 and 79 (Investment

Banking) licenses.

Rick Maroney - Joined the firm in 1984 and co-

manages the firm’s investment banking and strategic

consulting divisions. Received a Bachelor’s degree in

Business Administration and an MBA from the University

of Toledo. Served as an instructor at the Stonier

Graduate School of Banking. Annual speaker at

“Acquire or Be Acquired” conferences. Licensed rep of

IBS (a registered broker dealer) and holds Series 63 and

79 (Investment Banking) licenses.

Craig Mancinotti Managing Director & Principal Investment Banking & Consulting

Craig.Mancinotti@austinassociates.com

Rick Maroney Managing Director & Principal Investment Banking & Consulting

rmaroney@austinassociates.com

Managing Directors of Investment Banking

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Community bank advisors for more than 40 years

Specialized services through multiple practice areas

Investment Banking

Strategic Consulting

Financial Management

Risk Management and Compliance

Technology Solutions

Owners are consultants/managers

Over 200 bank/thrift clients in 2014 from 26 states

Nationally-ranked leader in community bank M&A for 3 decades

AUSTIN ASSOCIATES OVERVIEW Consulting and Investment Bankers to Community Banks

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M&A EXPERIENCE Top Financial Advisors in Whole Bank Deals (2007 – YTD 2015)

Source: SNL Financial. Data through March 9, 2015.

Note: More than 100 firms are reported in the SNL M&A Advisory rankings.

Some deal values are not reported. Rankings exclude terminated deals.

Announced

Overall Number of Deal Value

Rank Advisory Firm Deals ($mils)

1 Keefe, Bruyette & Woods 289 $43,844

2 Sandler O'Neill & Partners, L.P. 274 $56,962

3 Raymond James & Associates, Inc. 91 $4,080

4 Hovde Group, LLC 70 $3,322

5 Sheshunoff & Co. Investment Banking LP 53 $1,441

6 Capital Corporation, LLC 48 $231

7 Sterne, Agee & Leach, Inc. 45 $2,376

8 Austin Associates, LLC 40 $734

T-9 Commerce Street Capital, LLC 37 $1,150

T-9 FIG Partners, LLC 37 $1,054

11 J.P. Morgan Securities LLC 34 $75,766

T-12 D.A. Davidson & Co. 32 $1,896

T-12 KPMG, LLP 32 $349

14 FinPro, Inc. 30 $734

T-15 DD&F Consulting Group 28 $818

T-15 Monroe Financial Partners, Inc. 28 $659

T-15 Professional Bank Services Inc. 28 $482

T-18 National Capital, LLC 25 $180

T-18 RBC Capital Markets, LLC 25 $15,800

20 Bank Advisory Group, LLC 23 $800

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WEBINAR AGENDA March 24, 2015

M&A Trends: What Factors are Driving Consolidation

Buy-Side Perspective: How to Price the Deal

Strategic Mergers: Critical Issues to Address

Sell-Side Strategies: The Importance of Process and

Negotiating the Exchange Ratio

M&A REVIEW

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DRIVERS OF BANK M&A Key Factors

Sluggish growth and profitability

Drive for economies of scale

Improved asset quality – reduced credit marks

Regulatory burden – director and management fatigue

Bank equity values up +/-50% since 2013

Equity pricing gap between the big and small banks

Premium deals being announced

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INDUSTRY PROFITABILITY

Source: SNL Financial

Note: Results are based on median statistics for all bank and thrifts.

ROAA and ROAE Since 2000

2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y 2014Y

> $1 Bil 1.16% 1.17% 1.26% 1.25% 1.20% 1.21% 1.17% 0.93% 0.46% 0.32% 0.63% 0.77% 0.92% 0.91% 0.91%

< $1 Bil 1.07% 0.99% 1.06% 1.02% 1.01% 0.97% 0.94% 0.83% 0.59% 0.45% 0.56% 0.64% 0.72% 0.71% 0.76%

0.00%

0.30%

0.60%

0.90%

1.20%

1.50% Return on Average Assets

2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y 2014Y

> $1 Bil 14.40% 13.61% 14.16% 13.87% 13.12% 12.87% 12.24% 9.42% 4.34% 3.15% 5.80% 7.00% 8.08% 8.45% 8.30%

< $1 Bil 10.66% 9.59% 10.39% 9.83% 9.90% 9.47% 9.04% 7.91% 5.44% 4.08% 5.12% 5.85% 6.49% 6.54% 6.98%

0.00%

4.00%

8.00%

12.00%

16.00%

20.00% Return on Average Equity

15 Yr. Average = 0.95%

15 Yr. Average = 9.92%

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BANK EQUITY VALUES

Source: SNL Financial.

Note: Earnings based on core performance, if available. Excludes M&A targets and acquired/defunct companies.

Publicly-Traded Banks & Thrifts Since 2000

2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y 2014Y 2/28/2015

> $1 Billion 12.3 14.3 13.6 16.8 17.9 15.4 16.7 14.0 15.6 16.2 16.3 13.3 12.6 15.8 15.3 14.8

< $1 Billion 11.6 13.0 13.8 16.8 17.5 16.4 16.9 16.1 14.2 14.3 14.2 12.3 12.0 13.2 13.7 13.8

0.0

5.0

10.0

15.0

20.0

Median Price / LTM EPS

2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y 2014Y 2/28/2015

> $1 Billion 179% 224% 217% 261% 286% 259% 265% 190% 164% 121% 139% 111% 121% 154% 146% 130%

< $1 Billion 113% 128% 136% 157% 168% 160% 157% 129% 92% 79% 77% 69% 76% 90% 94% 96%

0%

100%

200%

300%

Median Price / Tangible Book Value

15 Year Avg. = 129%

15 Year Avg. = 14.7

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CONSOLIDATION TRENDS

Source: FDIC.gov

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mergers (533) (417) (332) (273) (319) (310) (342) (321) (293) (179) (197) (196) (208) (232) (274)

Failed (7) (4) (11) (3) (4) 0 0 (3) (25) (140) (157) (92) (51) (24) (18)

New Charter 223 146 95 118 128 179 194 181 98 31 11 3 0 2 0

Charters 9,904 9,614 9,354 9,181 8,976 8,833 8,680 8,534 8,305 8,012 7,658 7,357 7,083 6,812 6,509

Y-Y % Chg. -3.1% -2.9% -2.7% -1.8% -2.2% -1.6% -1.7% -1.7% -2.7% -3.5% -4.4% -3.9% -3.7% -3.8% -4.4%

0

2,000

4,000

6,000

8,000

10,000

12,000

(750)

(500)

(250)

0

250

500

To

tal N

um

ber o

f Ch

arte

rs

Ad

dit

ion

s a

nd

Elim

inati

on

s

High Barriers to Entry Low Barriers to Entry

Since 2000

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ANNUAL M&A VOLUME & PRICING

Source: SNL Financial.

2015 data through February 28, 2015.

Since 2000

253 251 209 262 268 267 296 283 143 109 176 145 216 223 287 39 0

100

200

300

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of Deals

183% 174% 168% 204% 213% 218% 225% 211% 159% 117% 119% 110% 117% 124% 135% 141%0%

60%

120%

180%

240%

300%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Median Price/Tangible Book

15 Yr. Average = 214

15 Yr. Average = 164%

M&A PRICING STATS Current Market Update 2014 – YTD 2015

Source: SNL Financial. YTD 2015 data through February 28, 2015.

Note: Based on median statistics. S-Corporation selling companies have been adjusted to C-Corporation status using a 34% tax rate.

Total Tangible NPAs/ Median Median

Assets Equity/ LTM LTM Total Price/ Price/ Price/

Deals By Seller's Assets # ($000) Assets ROAA ROAE Assets Book Tg Book LTM EPS

> 1.0 Billion 28 $1,481,569 9.21% 0.82% 6.54% 1.36% 159% 173% 21.8

$500 Million - $1.0 Billion 37 $669,983 9.82% 0.70% 7.37% 1.49% 148% 152% 19.0

$100 - $500 Million 145 $201,272 10.18% 0.55% 5.06% 1.48% 123% 126% 21.9

< $100 Million 112 $51,845 9.61% 0.30% 2.73% 0.89% 115% 115% 27.6

Deals by Seller's ROAE> 10% 37 $307,484 9.20% 1.15% 11.87% 1.22% 174% 175% 15.3

5% - 10% 111 $235,268 10.26% 0.76% 7.04% 1.07% 148% 149% 19.9

0% - 5% 112 $111,306 10.14% 0.33% 2.91% 1.40% 116% 118% 36.3

< 0% 54 $93,239 8.01% -0.63% -7.48% 3.76% 112% 114% NA

Deals by Seller's NPAs/Total Assets< 1% 116 $101,241 10.15% 0.59% 5.48% 0.42% 148% 150% 23.3

1% - 3% 117 $247,106 9.84% 0.62% 5.90% 1.75% 136% 141% 19.9

3% - 5% 32 $121,995 10.25% 0.27% 2.71% 3.76% 111% 111% 28.6

> 5% 39 $131,104 7.57% -0.15% -1.37% 7.24% 98% 98% 24.9

Deals by RegionMid Atlantic 30 $484,400 9.40% 0.41% 4.20% 1.14% 118% 127% 23.8

Midwest 129 $98,531 9.61% 0.48% 4.41% 1.22% 132% 137% 20.1

Northeast 12 $203,164 10.36% 0.46% 4.38% 0.81% 141% 141% 26.4

Southeast 65 $246,730 9.88% 0.53% 4.64% 2.09% 135% 137% 21.8

Southwest 56 $129,173 10.11% 0.49% 4.96% 1.04% 135% 135% 17.7

West 33 $173,180 10.53% 0.52% 3.78% 2.01% 126% 133% 22.6

All Bank & Thrift Deals 326 $148,856 9.85% 0.49% 4.45% 1.35% 132% 136% 21.4

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BUY-SIDE PERSPECTIVE

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M&A FROM A BUYER’S PERSPECTIVE

EPS dilution/accretion analysis

Tangible book value impact (dilution/earnback period)

Internal rate of return (IRR)

Pro forma capital ratios

Market optics: guideline transaction comparison

Strategic importance and risk assessment of specific

opportunity determines “acceptable” levels

Critical Buy-side Metrics

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EPS DILUTION/ACCRETION ANALYSIS

Compare stand-alone EPS to pro forma EPS post-acquisition

Conventional wisdom: If pro forma EPS equals or exceeds

stand-alone EPS; then the deal has acceptable financial

returns.

Reality: EPS Accretion does not necessarily mean that a deal

has acceptable financial returns.

Example: An all cash deal that is EPS neutral/modestly accretive

If you are investing capital in a deal, it is important to earn a

return commensurate with the amount invested and risk of

the deal.

Note: Purchase accounting requirements complicate this analysis.

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TANGIBLE BOOK VALUE EARNBACK

Tangible book considered “sacred” following financial crisis

Dilution to tangible book value per share (“TBVPS”) must be

fully recovered in a “reasonable” period of time

Market expects TBVPS earnback in four years or less

For a strategically important deal – TBVPS earnback should

not exceed five to six years

We are transitioning from TBVPS framework back to one

based on P/E ratios

Note: Purchase accounting requirements complicate this analysis.

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INTERNAL RATE OF RETURN (“IRR”)

IRR defined: Rate of return that equates the present value of

future projected cash flow to the amount of initial investment

Many different ways to calculate; together with subjective

assumptions – “show me the math”

Minimum acceptable IRR is a matter of opinion!

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PRO FORMA CAPITAL RATIOS

Capital is not King…it is King Kong!

Adequate pro-forma capital levels are essential to regulatory

approval (and are essential to a disciplined long-term

acquisition strategy)

What about Basel III?

Bank-level Tier 1 leverage ratio of 8% to 9%

Consolidated-level Tier 1 leverage ratio of 7% to 8%

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MARKET OPTICS

Deal pricing multiples to comparable transactions

• Price/Tangible Book Value

• Price/Earnings; Price/Core Earnings

• Premium to Core Deposits (?)

• Estimated Cost Savings

• Estimated Credit Marks

Qualitative evaluation of peer deals, including screens

for asset size, geography and financial performance

Rule: Pricing must be reasonable in relation to market.

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CASE #1: M&A FROM BUYER’S PERSPECTIVE Deal Profile

Buyer Data Seller Data

Company Name Community Bancshares, Inc. Citizens Bank of Ashville, Ohio

Bank Subsidiary Vinton County National Bank NA

Headquarters McArthur, Ohio Ashville, Ohio

SEC Reporting / Ticker No No

Total Assets (03/31/14) $767 Million $105 Million

Year Established 1867 1894

# of Offices 13 4

Deal Information

Deal Announcement Date July 15, 2014

Deal Closing Date November 14, 2014

Deal Terms Whole Bank Deal

Deal Value $12.2

Price / Tangible Book 141%

Price / LTM EPS 12.3 (Including DTA recognition of $626,000 in LTM earnings)

Price / LTM Adjusted EPS (1) 62.7 (Excluding DTA recognition in LTM earnings)

Note: Deal value and pricing ratios as of announcement date. (Target financials as of March 31, 2014)

(1) Adjusted net income equaled $195,000 for LTM period ending March 31, 2014, excluding DTA recognition.

BALANCE SHEET HIGHLIGHTS 2012Y 2013Y YTD 03/14 2012Y 2013Y YTD 03/14

Total Assets $737,044 $751,514 $767,422 $98,645 $98,531 $104,638

Total Loans $475,104 $502,256 $502,638 $56,460 $55,780 $58,718

Total Deposits $642,540 $644,587 $669,115 $81,563 $80,900 $86,976

Total Equity $83,992 $87,976 $90,592 $8,252 $8,499 $8,678

Tangible Equity $79,188 $83,300 $85,948 $8,252 $8,499 $8,678

INCOME STATEMENT HIGHLIGHTS

Net Interest Income $27,577 $26,724 $6,602 $3,431 $3,254 $807

Noninterest Income $3,870 $4,274 $1,058 $671 $593 $227

Noninterest Expense $21,373 $21,214 $5,272 $4,091 $3,558 $866

Pre-Tax Pre-Provision $10,074 $9,784 $2,388 $11 $289 $168

Provision Expense $1,435 $697 $149 $419 $50 $24

Securities Gains/(Losses) $0 $2 $0 $41 ($4) $1

Net Income $6,589 $6,790 $1,658 ($159) $861 $113

PROFITABILITY RATIOS

Net Interest Income / Average Assets (Tax Equivalent) 3.91% 3.60% 3.66% 3.48% 3.28% 3.26%

Noninterest Income / Average Assets 0.52% 0.55% 0.56% 0.66% 0.58% 0.90%

Noninterest Expense / Average Assets 2.88% 2.73% 2.81% 4.04% 3.50% 3.43%

Pre-Tax Pre-Provision 1.36% 1.26% 1.27% 0.01% 0.28% 0.66%

Provision Expense / Average Assets 0.19% 0.09% 0.08% 0.41% 0.05% 0.09%

Securities Gains/(Losses) / Average Assets 0.00% 0.00% 0.00% 0.04% 0.00% 0.00%

Return on Average Assets 0.89% 0.87% 0.88% -0.16% 0.85% 0.45%

Return on Average Equity 7.91% 7.87% 7.37% -1.96% 10.84% 5.26%

Efficiency Ratio (FTE) 64.69% 65.37% 66.08% 97.56% 90.66% 82.34%

CAPITAL RATIOS

Tier 1 Leverage Ratio 10.53% 11.05% 11.45% 7.89% 8.07% 8.20%

Total Risk-Based Capital Ratio 16.76% 17.42% 17.95% 14.89% 15.55% 14.96%

ASSET QUALITY

Nonperforming Assets $9,843 $8,083 $8,306 $1,598 $370 $459

Memo: Total Restructured Loans (Not Included in NPAs) $2,808 $986 $178 $992 $948 $643

NPAs/ Total Assets 1.34% 1.08% 1.08% 1.62% 0.38% 0.44%

Note: All Data from SNL Financial.

Community Bancshares data based on FRY-9C filings.

Citizens Bank data based on Bank Call Report filings.

Citizens Bank of Ashville, OhioCommunity Bancshares, Inc.

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CASE #1: M&A FROM BUYER’S PERSPECTIVE Historical Performance

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CASE #1: M&A FROM BUYER’S PERSPECTIVE Branch Map

Community Bancshares, Inc.

Citizens Bank of Ashville, Ohio

CASE #1: M&A FROM BUYER’S PERSPECTIVE Guideline Transactions

Seller's Financial Performance Deal Multiples

Tangible

Total Equity/ LTM Price/ Price/ Prem/

Summary Median Results Assets Tangible LTM LTM Efficiency NPAs/ Tangible LTM Core

Sale of Control Transactions ($000) Assets ROAA ROAE Ratio Assets Book Earnings Deposits

Nation (50) $102,253 10.62% 0.62% 5.73% 77.3% 0.58% 127% 21.1 3.8%

Midwest Region (13) $71,074 9.59% 0.65% 5.88% 68.2% 0.73% 127% 20.5 4.1%

Columbus MSA (3)

FFBC / Guernsey Bancorp, Inc. $122,888 7.12% -0.07% -0.83% 85.5% 3.16% 216% NM 8.8%

FFBC / Insight Bank $200,233 12.18% 0.92% 7.44% 68.0% 1.10% 166% 20.9 20.2%

FFBC / First Bexley Bank $295,404 7.69% 1.43% 17.57% 52.0% 0.71% 185% 12.1 12.7%

Citizens Bank of Ashville, Ohio $104,638 8.29% 0.98% 12.35% 87.0% 1.05% 141% 12.3 4.5%

Excluding DTA recognition 0.19% 2.43% 62.7

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CASE #1: M&A FROM BUYER’S PERSPECTIVE Review of Critical Buy-Side Metrics

Key Assumptions Target stand alone growth rate of 1% per year

Baseline ROAA at 0.20%, increasing to 0.37% over 5 years

Cost savings of 34% with two-year phase-in

Pro forma overhead/assets of 2.50%

Credit mark of 2.0%; OREO mark of 10%

Acquisition Modeling Results

1. EPS accretion 10.0% year 1 – cash deal, no new shares

2. TBVPS “earn-back” period 5.4 years

3. IRR of 12.1%

4. Capital – Pro forma Tier 1 leverage ratio of 10.05%

5. Market optics

a) Deal value 141% of TBV and P/E > 60x

b) Guideline transactions suggest Columbus market premium

c) CBI is not SEC and not publicly traded – permits a long-view

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The Math is Irrefutable: Current take-out multiples provide

superior financial returns versus remaining independent for

underperforming banks with limited growth prospects...And

many small banks are underperforming with limited growth

prospects.

Be Proactive: Unsolicited offers are not necessarily “hostile”

and may be greatly appreciated!

Seal the Deal: Although we strongly encourage financial

discipline, a “strategic” deal is often worth the “extra” premium.

Spread the Wealth: Include CIC payments in your modeling;

$$$$ helps secure the support of the target CEO!

M&A FROM BUYERS’ PERSPECTIVE Key Take-Aways for Buyers

STRATEGIC MERGERS

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Challenging operating environment (loan growth, NIM

pressure)

Slow organic revenue growth (and outlook for growth)

Compliance and regulatory costs are increasing

Economies of scale have never been more important

Increased capital requirements

Talent retention and recruitment

Regulatory fatigue

Competing with larger institutions in M&A space

Challenge to get strong community bank stocks to trade at

fair market value

FACTORS INSPIRING STRATEGIC MERGERS Current Performance Challenges

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STRATEGIC MERGERS

Also may be called a “Merger of Equals” or “MOE”

Typically an all stock exchange – sometimes involves a special

dividend/cash payment to equate value

Ownership exchange determined by relative value contribution

with little to no premium paid to either party

Value creation comes from: (i) shared cost savings; (ii) revenue

synergies; (iii) enhanced ability to grow; and (iv) expanded trading

multiples, which means higher pro forma P/Book and P/E multiple

Negotiated “one-off deal” – not a competitive bid process

Equal or proportionate (to share ownership) representation on the

board and senior management team

“Best practices” philosophy often followed with other areas

Unique Transaction Characteristics

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“Exchange Ratio” based on “relative value contribution”

Key considerations in analysis:

1. Market capitalization (for public companies)

2. Contribution analysis

3. Pro forma merger analysis

4. Guideline transactions

Timing for Fairness Opinions

FINANCIAL TERMS OF TRANSACTION Process to Establish

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Balance sheet contribution

- Loans

- Core deposits

- Nonperforming assets

Shareholders’ Equity Contribution

- Tangible Common Equity

- Adjusted Tangible Common Equity (w/ fair value adjustments)

Earnings Contribution

- Net Income

- Adjusted Net Income (for nonrecurring items)

- Pre-Tax Pre-Provision Income (core earnings)

Market Capitalization (if applicable)

STRATEGIC MERGERS Contribution Analysis

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Cost savings – typically not as much as an acquisition

Revenue synergies – bring back loan participations, larger credit

relationships, new lines of business

Per share equivalent analysis (adjusted for exchange ratio)

- EPS

- TBVPS

- Dividends

TBVPS recovery period and EPS cross-over period

Expected market price enhancement – multiple expansion

Note: One party is deemed to be the acquirer for accounting purposes

STRATEGIC MERGERS Pro Forma Merger Analysis

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Compatible cultures and operating philosophy

Company and Bank name - which company/charter survives

Company and Bank headquarters

Resulting board of directors - # of seats each / titles

Resulting CEO and transition plan, if applicable

Senior management structure – all C-level positions

Employment contracts / severance / stay bonuses

Resulting benefit plans

Registration or exemption of securities being issued

Use Term Sheet to outline all key issues

STRATEGIC MERGERS Key Nonfinancial Issues

SELL-SIDE STRATEGIES

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Single party negotiated deal

Limited auction (< 10 parties)

Full auction (complete buyer candidate list)

Market assessment and other factors dictate approach:

- Current and previous overtures

- Financial condition of seller

- Market attractiveness of seller

- Confidentiality concerns

- Board/shareholder interests

- Potential lawsuits from shareholder activists (more common

for publicly-traded companies)

MARKETING APPROACH Key Considerations on How to Market the Bank

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Negotiating leverage is critical

Leverage can include willingness to say “NO” or walk-away

Leverage is better if multiple parties are involved

Bidding process – typically two rounds

Multiple party due diligence

Define negotiating roles

Negotiate LOI/DA issues as a whole not one-by-one

NEGOTIATING STRATEGIES Understanding Negotiating Leverage

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CASE #2: THE ART OF THE EXCHANGE RATIO

Buyer Data Seller Data

Company Name First Midwest Bancorp, Inc. ("FMBI") Great Lakes Financial Resources, Inc. ("GLFR")

Bank Subsidiary First Midwest Bank Great Lakes Bank, N.A.

Headquarters Itasca, Illinois Matteson, Illinois

SEC Reporting / Ticker Yes - FMBI No

Total Assets (06/30/14) $8.3 Billion $584 Million

Year Established 1983 1982

# of Offices 102 8

Deal Information

Deal Announcement Date July 8, 2014

Deal Closing Date December 3, 2014

Deal Terms Whole Bank Deal

Deal Value ($mil) $58.2

Price / Tangible Book 132%

Price / LTM EPS 18.3

Consideration Mix 70% stock and 30% cash

Note: Deal value and pricing ratios as of announcement date.

First Midwest and Great Lakes Financial – Deal Profile

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FIRST MIDWEST & GREAT LAKES Historical Performance

BALANCE SHEET HIGHLIGHTS 2012Y 2013Y YTD 06/14 2012Y 2013Y YTD 06/14

Total Assets $8,099,839 $8,253,407 $8,305,247 $628,421 $581,057 $583,947

Total Loans (Includes HFS) $5,387,570 $5,719,099 $5,969,449 $255,535 $237,359 $251,101

Total Deposits $6,672,255 $6,766,101 $6,895,250 $499,737 $479,606 $478,583

Total Equity $940,893 $1,001,442 $1,039,438 $53,188 $47,839 $53,299

Tangible Equity $659,834 $725,076 $764,476 $46,811 $41,462 $46,922

INCOME STATEMENT HIGHLIGHTS

Net Interest Income $265,668 $260,132 $130,002 $18,878 $17,202 $8,567

Noninterest Income $102,427 $112,202 $52,853 $3,100 $4,377 $1,586

Noninterest Expense $264,183 $256,737 $127,855 $19,610 $17,338 $8,812

Pre-Tax Pre-Provision $103,912 $115,597 $55,000 $2,368 $4,241 $1,341

Provision Expense $158,052 $16,257 $6,782 $600 $0 $0

Securities Gains/(Losses) ($921) ($36) $5,590 $366 $261 $705

Net Income ($21,054) $79,306 $36,164 $1,831 $3,284 $1,325

PROFITABILITY RATIOS

Net Interest Income / Average Assets 3.28% 3.14% 3.11% 3.02% 2.84% 2.91%

Noninterest Income / Average Assets 1.26% 1.35% 1.26% 0.50% 0.72% 0.54%

Noninterest Expense / Average Assets 3.26% 3.10% 3.05% 3.14% 2.86% 3.00%

Pre-Tax Pre-Provision 1.28% 1.40% 1.31% 0.38% 0.70% 0.46%

Provision Expense / Average Assets 1.95% 0.20% 0.16% 0.10% 0.00% 0.00%

Securities Gains/(Losses) / Average Assets -0.01% 0.00% 0.13% 0.06% 0.04% 0.24%

Return on Average Assets -0.26% 0.96% 0.86% 0.29% 0.54% 0.45%

Return on Average Equity -2.18% 8.16% 7.06% 3.52% 6.50% 5.23%

Efficiency Ratio (FTE) 67.14% 66.56% 67.25% 88.04% 79.46% 86.00%

CAPITAL RATIOS

Tier 1 Leverage Ratio 8.40% 9.18% 9.61% 9.66% 10.52% 10.83%

Total Risk-Based Capital Ratio 11.90% 12.39% 12.20% 17.24% 19.02% 18.94%

ASSET QUALITY

Nonperforming Assets $133,176 $95,979 $100,592 $13,933 $14,147 $13,175

Memo: Total Restructured Loans (Not Included in NPAs) $6,867 $23,770 $5,697 $1,668 $1,895 $2,616

NPAs/ Total Assets 1.64% 1.16% 1.21% 2.22% 2.43% 2.26%

Note: All Data from SNL Financial.

(1) First Midwest data based on SEC filings.

(2) Great Lakes data based on FRY-9C filings.

Great Lakes Financial Resources, Inc.First Midwest Bancorp, Inc.

38 First Midwest Bancorp, Inc. Great Lakes Financial Resources, Inc.

FIRST MIDWEST & GREAT LAKES Branch Map

Jun-14

Deposits

City ($000)

Homewood $189,555

Blue Island $132,907

Lansing $50,898

Mokena $46,632

Matteson $32,916

Alsip $27,848

Total Deposits $480,756

GLFR Full-Service Branches

*Does not include limited-service

offices in Flossmoor and Blue Island.

39

Transaction priced initially at $375/share; GLFR wanted to

preserve that per share value as much as possible

First determined no election process – each share gets:

$112.50 in cash (30% of $375), plus

a certain number of FMBI shares

Negotiating the exchange ratio – the typical buyer and seller

concerns on interim period stock movement

Buyer wants to protect from dilution

Seller wants to protect transaction value

GLFR didn’t want traditional “outs” from movement in stock

price (e.g., indexed walk away rights)

FIRST MIDWEST & GREAT LAKES The Challenge: Negotiating the Exchange Ratio

40

FIRST MIDWEST & GREAT LAKES The Exchange Ratio Starting Point

Stock portion initially valued at $262.50 a share (70% x $375)

Initial FMBI stock price based on 20-day volume weighted

average price prior to signing the definitive agreement

The initial exchange ratio:

Stock Value $262.50

FMBI Price $16.68

Exchange Ratio 15.737

Dilemma – protecting the $262.50 value within the dilution

tolerance of FMBI

Solution: collars, cap and a creative “floor” mechanism

Formula Description Note 1 Note 2

FMBI Average Stock Price $12.37 $12.51 $13.34 $14.18 $15.01 $15.85 $16.68 $17.51 $18.35 $19.18 $19.19 $20.01 $20.02 $20.85

% Change to FMBI Avg. Stock Price -25.86% -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 15.06% 19.94% 20.00% 25.00%

Fixed or Floating Exchange Ratio Range: Option Fixed Floating Fixed Floating Fixed Cap

Stock Consideration Description:

Fixed Exchange

15% or more decline

in FMBI stock price

Floating Exchange

5% - 15% decline

in FMBI stock price

Fixed Exchange

based on +/- 5%

to FMBI stock price

Floating Exchange

5% - 15% increase

in FMBI stock price

See Note 1

for GLFR

option

Fixed

See Note 2

Cash Consideration Description: Fixed at $112.50

per share

Fixed at $112.50

per share

Fixed at $112.50

per share

Fixed at $112.50

per share Fixed at $112.50

Pricing Analysis

Exchange Ratio 17.589 17.589 17.589 17.589 16.612 15.737 15.737 15.737 15.022 14.369 14.369 14.369 14.364 13.789

FMBI Stock Price $12.37 $12.51 $13.34 $14.18 $15.01 $15.85 $16.68 $17.51 $18.35 $19.18 $19.19 $20.01 $20.02 $20.85

Stock Value Per Share $217.50 $220.04 $234.71 $249.38 $249.38 $249.38 $262.50 $275.63 $275.63 $275.63 $275.77 $287.47 $287.50 $287.50

Cash Value Per Share $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50 $112.50

Total Value Per Share $330.00 $332.54 $347.21 $361.88 $361.88 $361.88 $375.00 $388.13 $388.13 $388.13 $388.27 $399.97 $400.00 $400.00

% Change to Announced Deal Value -12.0% -11.3% -7.4% -3.5% -3.5% -3.5% 0.0% 3.5% 3.5% 3.5% 3.5% 6.7% 6.7% 6.7%

Stock Consideration % 65.9% 66.2% 67.6% 68.9% 68.9% 68.9% 70.0% 71.0% 71.0% 71.0% 71.0% 71.9% 71.9% 71.9%

Cash Consideration % 34.1% 33.8% 32.4% 31.1% 31.1% 31.1% 30.0% 29.0% 29.0% 29.0% 29.0% 28.1% 28.1% 28.1%

Aggregate Deal Value ($000) $51,183 $51,576 $53,852 $56,127 $56,127 $56,127 $58,163 $60,198 $60,198 $60,198 $60,220 $62,035 $62,040 $62,040

Effective Dividends Per Share $5.63 $5.63 $5.63 $5.63 $5.32 $5.04 $5.04 $5.04 $4.81 $4.60 $4.60 $4.60 $4.60 $4.41

Note 1: Below $330.00 per share in stock/cash value, alternative consideration option to GLFR is provided.

Note 2: Total value to be capped at $400.00 per share.

41

FIRST MIDWEST & GREAT LAKES Exchange Ratio Solution: A Series of Collars, Cap and Floor

42

-25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

FMBI Price $12.51 $13.34 $14.18 $15.01 $15.85 $16.68 $17.51 $18.35 $19.18 $20.02 $20.85

Deal Value $332.54 $347.21 $361.88 $361.88 $361.88 $375.00 $388.13 $388.13 $388.13 $400.00 $400.00

$275.00

$300.00

$325.00

$350.00

$375.00

$400.00

$425.00Deal Value Per Share

-25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

FMBI Price $12.51 $13.34 $14.18 $15.01 $15.85 $16.68 $17.51 $18.35 $19.18 $20.02 $20.85

Exchange Ratio 17.589 17.589 17.589 16.612 15.737 15.737 15.737 15.022 14.369 14.364 13.789

12.000

13.000

14.000

15.000

16.000

17.000

18.000

19.000Exchange Ratio

% Change in FMBI Stock Price

% Change in FMBI Stock Price

Alternative Consideration Option = $330.00

Cap = $400.00

15% decline in FMBI stock price results in only 3.5% decline in deal value

FIRST MIDWEST & GREAT LAKES Exchange Ratio Solution: A Series of Collars, Cap and Floor

43

The Process is Critical: Carefully consider the process

including a full assessment of a negotiated vs. auction process

Maintain Leverage: Negotiating leverage is either having

multiple options or the willingness to say “No”

Understand the Mechanics of Stock Deals: In a normal M&A

environment stock deals are more prevalent and drive

premiums…the Exchange Ratio is the most critical financial

term for both the buyer and seller

Focus on Interim Period Risks: Protect the 4 to 6 month

interim period between signing definitive agreement and

closing/receiving shares

SELL-SIDE STRATEGIES Key Take-Aways for Sellers

44

Thank you for joining us today! We

would appreciate hearing from you.

If you have questions or comments

regarding today’s Webinar, or if you

would like to discuss how Austin

Associates can assist your bank

with any aspect of an M&A strategy,

please contact us.

Thank you!

Craig Mancinotti Managing Director & Principal Investment Banking & Strategic Consulting

Craig.mancinotti@austinassociates.com

419-517-1769

Rick Maroney Managing Director & Principal Investment Banking & Strategic Consulting

rmaroney@austinassociates.com

419-517-1766

SPEAKER CONTACT INFORMATION