First Merchants Corporation · NASDAQ:FRME
First Merchants — Sandler O'Neill + Partners 2017 East Coast Financial Services Conference
59 slides from First Merchants's conference presentation, Nov 14, 2017
Slide 1: Sandler O'Neill 2017 East Coast Financial Services Conference
Sandler O’Neill + Partners, L.P. 2017 East Coast Financial Services Conference November 15-17, 2017 Michael C. Rechin President Chief Executive Officer Mark K. Hardwick Executive Vice President Chief Operating Officer Chief Financial Officer John J. Martin Executive Vice President Chief Credit Offic
Slide 2: Forward-looking statements
This presentation contains forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often, but not always, be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “
Slide 3: Why Invest in First Merchants?
3 Why Invest in First Merchants?
Slide 4: Financial Highlights and Company Profile
4 Financial Highlights Assets $9,049,403 Loans, Net $6,410,094 Deposits $6,911,019 Tangible Common Equity $ 804,436 TCE/TA 9.39% 2017 Net Income – YTD $ 71,687 2017 ROAA – YTD 1.22% 2017 ROATCE - YTD 13.64% NPAs/Loans + OREO 0.69% Company Profile (as of 9/30/2017) Market Information Common Shares Ou
Slide 5: Key Market Profiles
5 Key Market Profiles Loans Deposits $1,036M Columbus $ 601M 742M Fort Wayne 844M 2,444M Indianapolis 1,699M 583M Lafayette 1,012M 919M Muncie 1,704M 759M Munster 1,051M $6,483M Total $6,911M (as of September 30, 2017) Mission Statement To be the most responsive, knowledgeable and high-performing ba
Slide 6: County market position and deposits
County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 48.98% $ 1,068,364 Jasper County, IN Lafayette (Established) 1 31.54% 205,997 White County, IN Lafayette (Established) 1 33.69% 158,748 Wells County, IN Fort Wayne (Growth) 1 26.35% 119,473 Jay County,
Slide 7: First Merchants Whole Bank Strategy
7 First Merchants “Whole Bank” Strategy Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition
Slide 8: First Merchants Strategy: Commercial Bank
8 First Merchants Strategy Commercial Bank • Located in Prime Growth Commercial Banking Markets • Indianapolis, Indiana • Columbus, Ohio • Fort Wayne, Indiana • Lafayette, Indiana • Northwest Indiana • Hire the Best Talent Supported with the Finest: • Sales Management Process • Lending and Cash Ma
Slide 9: First Merchants Strategy: Consumer Retail Bank
9 First Merchants Strategy Consumer Retail Bank • Diversely Located in Stable Rural and Growth Metro Markets • Supported by: • Talented Customer Service Oriented Banking Center and Call Center Professionals • State-of-the-Art Deposit and CRM Systems • Highly Usable Online Banking System • Widely A
Slide 10: First Merchants Strategy: Service-driven alternative
10 First Merchants Strategy “Service-driven alternative to super-regional bank competitors. Deliver superior service with presence close to the customer for . . . ” “We specialize in our communities” Retail Banking Mortgage Banking Commercial Banking • Business Banking • Commercial & Industria
Slide 11: How We Deliver: Markets and Lines of Business
11 WEALTH ADVISORY MORTGAGE COMMERCIAL BANKING RETAIL BANKING Supported by LOB Strategies Indianapolis Higher Growth Brown, Hamilton, Hancock, Hendricks, Johnson, Marion, Morgan, Shelby Counties Columbus, OH Higher Growth Franklin County, OH Lafayette Established Carroll, Clinton, Jasper, Montgomery
Slide 12: Market entry and deposit market share by MSA
12 Lafayette MSA Entered: 2002 Total Population: 220,164 Deposit Market Share: 17.18% Indianapolis MSA Entered: 1998 Total Population: 2,031,027 Deposit Market Share: 3.41% Columbus, Ohio MSA Entered: 2003 Total Population: 2,075,642 Deposit Market Share: 1.00% Northwest Indiana MSA* Entered: 2013 T
Slide 13: Ranked Best in the Midwest for Business
13 Ranked Best in the Midwest for Business* AAA Credit Rating** 1st in Midwest and 5th Nationally for Best State for Doing Business*** 1st in the Nation for Small Business Growth 1st Nationally for Cost of Doing Business 1st Nationally for Highway Accessibility 1st in the Midwest/8th Nat
Slide 14: Delaware County, IN
14 Delaware County, IN* Rank Branches Deposits Mkt. Share 1 First Merchants Corporation 11 $ 1,068,364 48.98% 2 Mutual First Financial 7 537,800 24.66% 3 J.P. Morgan Chase 4 238,666 10.94% 4 Old National Bancorp 4 199,567 9.15% 5 Star Financial Group 3 135,667 6.22% 6 Woodforest Financial Group 1 95
Slide 15: Hamilton County, IN
7.27% 8.00% 8.97% 3.77% 2.11% 7.34% U.S. Indiana Hamilton Co. HHI Pop. Projected HHI & Pop. Change 2017-2022 15 Hamilton County, IN** Rank Branches Deposits Mkt. Share 1 First Internet Bancorp 1 $ 1,746,030 19.11% 2 JPMorgan Chase & Co. 15 1,558,738 17.06% 3 Merchants Bancorp 2 1,254,403 13.73% 4 PN
Slide 16: Tippecanoe County, IN
7.27% 8.00% 3.77% 3.77% 2.11% 5.19% U.S. Indiana Tippecanoe Co. HHI Pop. 16 Tippecanoe County, IN** Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 6 $ 824,748 31.85% 2 First Merchants Corporation 9 504,153 19.47% 3 Regions Financial Corp 6 311,047 12.01% 4 Old National Bancorp 5 259,975 10
Slide 17: Lake County, IN
17 Lake County, IN* Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 23 $ 1,947,270 21.89% 2 First Bancshares, Inc. 29 1,853,302 20.83% 3 First Midwest Bancorp 17 1,011,308 11.37% 4 First Financial Bancorp 9 776,948 8.76% 5 Northwest Indiana Bancorp 15 762,955 8.58% 6 First Merchants Corpora
Slide 18: Allen County, IN
18 Allen County, IN* Rank Branches Deposits Mkt. Share 1 Wells Fargo 13 $ 1,860,166 27.59% 2 JP Morgan Chase & Co. 12 1,144,376 16.97% 3 Lakeland Financial Corp. 5 707,704 10.50% 4 PNC Financial Services Group 11 654,070 9.70% 5 First Merchants Corporation 8 585,513 8.68% 6 Old National Bancorp 5 48
Slide 19: Franklin County, OH
19 Second-most populous county in Ohio Within 600 miles of 60% of All U.S. and Canadian Population Ranked 2nd in CNBC’s 2010 study of state transportation systems for its infrastructure, vitality, quality roads, and ability to cost-effectively ship goods by land, air, and water** Home to Ohi
Slide 20: Growth Through Acquisition
20 Growth Through Acquisition Experienced Acquirer Expand in Current High-Growth Markets Extend into Additional High-Growth Markets Add to Franchise with Stable Deposit Gathering Markets
Slide 21: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 21 21
Slide 22: First Merchants Acquisition Process
22 Continuous Relationship Building Complete and Thorough Due Diligence Process Demonstrated Pricing Discipline Detailed Project Management Integration Process Single Charter Operating Environment Scalable Technology and Operations Center First Merchants Acquisition Process
Slide 23: Operational Delivery Highlights: Daleville Operations Facility
Operational Delivery Highlights 23 Daleville Operations Facility Strategic differentiator in support of growth and scalability Operational services execution “hub” focusing on value creation Functional focus: • Operations • Credit Administration • Risk Management • Technology • Project Managem
Slide 24: Operational Delivery Highlights
Retail Households: 175K Online Banking/Digital Channel • Consumer: 66K Users • 970K logins monthly • 12K bill pay users • 80K payments monthly Cash Management Annual Volume • Automated Clearing House (ACH) • # Originated: 2M Items ($7B) • # Received: 13M Items ($20B) • Mobile: 30K Users • 23 a
Slide 25: 3rd Quarter 2017 Financial Highlights
25 3rd Quarter 2017 Financial Highlights Earnings Per Share of $.50 $24.4 Million of Net Income, a 15.7% Increase over 3Q2016 Includes $7.9 Million in Acquisition Expenses, or $.11 Per Share Total Assets of $9.0 Billion, Grew by 28.9% over 3Q2016 $16.62 Tangible Book Value Per Share, a 6.5
Slide 26: 3rd Quarter 2017 Performance Highlights
26 3rd Quarter 2017 Performance Highlights Winning Market Strategy Delivering Consistent Organic Growth: Organic Loan Growth of $145 Million, a 9.2% Annualized Growth Rate Organic Non-Brokered Deposit Growth of $75 Million, a 4.6% Annualized Growth Rate Grew Net-Interest Income to $74.4 Mill
Slide 27: Total Assets
Total Assets 2015 2016 Q1-’17 Q2-’17 Q3-’17 1. Investments $1,277 $1,305 $1,327 $1,343 $1,469 2. Loans Held for Sale 10 3 1 4 5 3. Loans 4,694 5,140 5,275 5,613 6,483 4. Allowance (62) (66) (68) (70) (73) 5. Goodwill & Intangibles 260 259 258 310 479 6. BOLI 201 202 203 200 222 7. Other 381 369 330
Slide 28: Loan and Yield Detail
Commercial & Industrial 22.1% Commercial Real Estate Owner- Occupied 10.4% Commercial Real Estate Non-Owner Occupied 25.4% Construction Land & Land Development 7.7% Agricultural Land 3.8% Agricultural Production 1.8% Public Finance/Other Commercial 5.1% Residential Mortgage 14.5% Home Equity 7.8% Ot
Slide 29: CRE Loan Concentration
CRE Loan Concentration First Merchants Results in Relation to FDIC Guidelines 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q017 2Q2017 3Q2017 Quar te r- En d GUIDELINE #1 0.0% 100.0% 200.0% 300.0% 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Quar te r- En d GUID
Slide 30: Investment Portfolio
Mortgage-Backed Securities 29% Collateralized Mortgage Obligations 22% U. S. Agencies 1% Corporate Obligations 2% Tax-Exempt Municipals 46% Investment Portfolio (as of 9/30/2017) $1.5 Billion Portfolio Modified duration of 4.9 years Tax equivalent yield of 3.88% Net unrealized gain of $23.4
Slide 31: Total Liabilities and Capital
2015 2016 Q1-’17 Q2-’17 Q3-’17 1. Customer Non-Maturity Deposits $4,096 $4,428 $4,426 $4,724 $5,448 2. Customer Time Deposits 880 747 789 875 1,088 3. Brokered Deposits 314 381 420 418 375 4. Borrowings 446 572 587 581 656 5. Other Liabilities 51 60 53 49 66 6. Hybrid Capital 123 122 122 123 133 7.
Slide 32: Deposit Detail
Deposit Detail (as of 9/30/2017) QTD Cost = .52% YTD Cost = .46% Total = $6.9 Billion 32 Demand Deposits 52% Savings Deposits 27% Certificates & Time Deposits of >$100,000 7% Certificates & Time Deposits of <$100,000 9% Brokered Deposits 5%
Slide 33: Capital Ratios
11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 11.16% 11.11% 11.03% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50% 9.68% 9.39% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24% 14.01% 13.76% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00% 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q1
Slide 34: Net Interest Margin
3.85% 3.75% 3.83% 3.86% 3.94% 3.90% 3.98% 3.95% 4.03% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% $44 $48 $52 $56 $60 $64 $68 $72 $76 $80 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Net Interest Income - FTE ($millions) Net Interest Margin 34 Net Interest Mar
Slide 35: Non-Interest Income
35 Non-Interest Income – – – – – – – – ($ in Millions) 2015 2016 Q1-’17 Q2-’17 Q3-’17 1. Service Charges on Deposit Accounts $16.2 $17.8 $ 4.2 $ 4.4 $ 5.0 2. Wealth Management Fees 11.3 12.6 3.4 3.4 3.8 3. Insurance Commission Income 4.1 4. Card Payment Fees 13.4 15.0 3.7 4.2 4.1 5. Cash Surrender V
Slide 36: Non-Interest Income YTD 9/30/2017
26.2% 20.4% 23.1% 10.6% 10.0% 2.8% 6.9% Service Charges on Deposit Accounts - $13.6 Wealth Management Fees - $10.6 Card Payment Fees - $12.0 Cash Surrender Value of Life Ins - $5.5 Gains on Sales Mortage Loans - $5.2 Securities Gains/Losses - $1.5 Other - $3.6 Total - $52.0 36 Non-Interest Income YT
Slide 37: Private Wealth Advisors
37 Private Wealth Advisors Delivers broad advisory capabilities and expertise through local, engaged and empowered leaders Business lines include: Investment Management – Personal and Institutional Retirement Plan Services Trust Administration Private Banking Retail Brokerage (not reflecte
Slide 38: Mortgage Banking
Key component of Fee Income 0 1 2 3 4 5 6 7 8 9 2014 2015 2016 9 mos Annualized Mortgage Banking Revenue Servicing fees Gain on Sale $4.9M Mortgage Production for sale and portfolio via commissioned and salaried loan originators Strong loan origination teams in high-growth areas of Indianapolis
Slide 39: Non-Interest Expense
39 Non-Interest Expense 2015 2016 Q1-’17 Q2-’17 Q3-’17 1. Salary & Benefits $101.9 $102.6 $ 25.7 $ 27.1 $ 33.2 2. Premises & Equipment 25.5 29.5 7.0 6.9 7.9 3. Intangible Asset Amortization 2.8 3.9 0.9 1.0 1.7 4. Professional & Other Outside Services 9.9 6.5 1.7 3.3 5.8 5. OREO/Credit-Related Expens
Slide 40: Earnings
40 2015 2016 Q1-’17 Q2-’17 Q3-’17 1. Net Interest Income $196.4 $226.5 $ 61.0 $ 63.1 $ 74.4 2. Provision for Loan Losses (0.4) (5.7) (2.4) (2.9) (2.1) 3. Net Interest Income after Provision 196.0 220.8 58.6 60.2 72.3 4. Non-Interest Income 69.8 65.2 14.9 18.4 18.7 5. Non-Interest Expense (174.8) (17
Slide 41: Per Share Results
2016 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .43 $ .49 $ .51 $ .55 $ 1.98 2. Dividends $ .11 $ .14 $ .14 $ .15 $ .54 3. Tangible Book Value $15.02 $15.53 $15.86 $15.85 2017 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .56 $ .57 $ .50 – $ 1.63 2. Dividends $ .15 .18 .18 – $ .51 3. Tangible Book Value
Slide 42: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.62 Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 .11 .01 .03 .05 .14 .15 1.68% Forward Dividend Yield 31.3% YTD Dividend Payout Ratio = Quarterly Dividends Tangible Book Value .08 42 .18
Slide 43: Asset Quality Summary
43 Asset Quality Summary ($ in Millions) FMB 2015 2016 Q1-'17 Q2-'17 Q3-'17 1 iAB Q3-'17 $ 1 $ % 186.1 1. Non-Accrual Loans 31.4$ 30.0$ 27.9$ 27.4$ 26.8$ 5.5$ 32.3$ (0.6)$ 4.9$ 17.9% 2. Other Real Estate 17.3 9.0 8.3 11.9 11.9 - 11.9 - - 0.0% 3. Renegotiated Loans 1.9 4.7 0.9 0.4 0.6 - 0.6 0.2 0.2 5
Slide 44: ALLL and Fair Value Summary
44 ALLL and Fair Value Summary ($ in Millions) Q4-'16 Q1-'17 Q2-'17 Q3-'17 1. Beginning Allowance for Loan Losses (ALLL) 63.5$ 66.0$ 68.2$ 70.5$ 2. Net Charge-offs (Recoveries) (0.1) 0.2 0.6 (0.8) 3. Provision Expense 2.4 2.4 2.9 2.1 4. Ending Allowance for Loan Losses (ALLL) 66.0 68.2 70.5 73.4 5.
Slide 45: Total Return Performance
First Merchants Corporation FIRSTMERCHANTS.COM Total Return Performance 500 450 @ 400 a on 2 £ c 350 o 2 300 o a 250 E S 20 eo tc “A 3 << i cm 150 S$ 10 _—— oO o i— = : —— ~ # — pan . a oO “First Merchants Corporation =m™=Russell 2000 —i~SNL Bank $5B-$10B 12/31/2011 12/31/2012 12/31/2013 12/31/2014
Slide 46: Looking Forward
46 Looking Forward . . . Complete Independent Alliance Bank integration and gain synergies and market expansion opportunities that Arlington Bank and Independent Alliance Bank acquisitions offer; continue to evaluate M&A opportunities for strategic fit Win in all our markets, in all lines of bus
Slide 47: Recent Acquisition Announcements
47 Recent Acquisition Announcements
Slide 48: The Arlington Bank Summary
48 The Arlington Bank Summary Acquisition Completed on May 19, 2017 Headquartered in Columbus, Ohio Founded in 1998 As of Sept. 30, 2017, • $229 Million in Loans • $249 Million in Deposits 3rd Quarter 2017 Integration
Slide 49: The Arlington Bank Transaction Rationale
49 The Arlington Bank Transaction Rationale Columbus Ohio Market Expansion • Adds Three, Full-Service Banking Centers to our Seven; Creating a Columbus Banking Presence with Nearly $1 Billion in Loans • Banking Centers Average More than $80 Million in Deposits Per Location of which 92% are Core •
Slide 50: Independent Alliance Banks, Inc. Summary
50 Acquisition Completed on July 14, 2017 Headquartered in Fort Wayne, Indiana Founded in 2005 in a combination of two 70-year old companies; Grabill Bank and MarkleBank As of Sept. 30, 2017, • $719 Million in Loans • $844 Million in Deposits 4th Quarter 2017 Integration Independent Allian
Slide 51: Independent Alliance Banks Transaction Rationale
51 Contiguous Market Expansion • Significant Entry into Fort Wayne MSA, Indiana’s 2nd Largest MSA, with $646 Million in Deposits and #5 Market Share Position • #1 Market Share in Wells County with Two County Seat Locations Strong and Growing Core Earnings, Acquisition Accretive to EPS by 2% in 2
Slide 52: Why Invest in First Merchants?
52 Why Invest in First Merchants? Performance Ranked Best among Indiana Banks by Bank Director Magazine Attractive and Growing Earnings Stream 2nd Largest Indiana Bank with an Energized and Experienced Management Team Attractive Long-Term Deposit Market Shares Commercial Presence that Crea
Slide 53: Research Coverage
First Merchants Corporation FIRSTMERCHANTS.( Research Coverage KEEFE, BRUYETTE & WOODS Specialists in Financial Services AStifel Company SANDLER O’NEILL PARTNERS 4 a “FIG i x Partners PiperJaffray. Stephens oa. D|A|DAVIDSON FIRST MERCHANTS CORPORATION | 200. Jacksor
Slide 54: Contact Information
54 Contact Information First Merchants Corporation common stock is traded on the NASDAQ Global Select Market under the symbol FRME. Additional information can be found at www.FIRSTMERCHANTS.com Investor inquiries: David L. Ortega Investor Relations Telephone: 765.378.8937 dortega@firstmerchants.com
Slide 55: Appendix
First Merchants Corporation THE STRENGTH OF BIG THE SERVICE OF SMALL Appendix NASDAQ: FRME
Slide 56: Appendix – Non-GAAP Reconciliation: Capital Ratios
56 Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 766,984 850,509 867,263 887,550 900,865 901,657 929,470 1,035,116 1,283,120 Adjust for Accumulated Other Comprehe
Slide 57: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
57 Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Total Stockholders' Equity (GAAP) 766,984$ 850,509$ 867,263$ 887,550$ 900,865$ 901,657$ 929,470$ 1,035,116$ 1,283,120$ Less: Preferred Stock (125) (125) (125) (125)
Slide 58: Appendix – Non-GAAP Reconciliation: Dividend Yield, Payout, Efficiency
58 Appendix – Non-GAAP Reconciliation FORWARD DIVIDEND YIELD 3Q17 Most recent quarter's dividend per share 0.18$ Most recent quarter's dividend per share - Annualized 0.72$ Stock Price at 9/30/17 42.93$ Forward Dividend Yield 1.68% DIVIDEND PAYOUT RATIO 2017 YTD Dividends per share 0.51$ Earnings Pe
Slide 59: Appendix – Non-GAAP Reconciliation: Allowance Percentage
59 Appendix – Non-GAAP Reconciliation ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands): 4Q16 1Q17 2Q17 3Q17 Loans Held for Sale (GAAP) 2,929$ 1,262$ 4,036$ 4,514$ Loans (GAAP) 5,139,645 5,274,909 5,613,144 6,483,448 Total Loans 5,142,574 5,276,171 5,617,180 6,487,962 Less: Pur
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