First Merchants Corporation · NASDAQ:FRME
First Merchants — Q3 2018 Earnings Presentation
55 slides from First Merchants's earnings presentation, Nov 1, 2018
Slide 1: 3rd Quarter 2018 Highlights
3rd Quarter 2018 Highlights 1
Slide 2: Forward-Looking Statements
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”, “continu
Slide 3: Why Invest in First Merchants?
Why Invest in First Merchants? 3
Slide 4: Company Profile (as of 9/30/2018)
Company Profile (as of 9/30/2018) First Merchants Market Information Common Shares Outstanding 49,304,542 First Merchants Bank, formed in 1893, celebrating its 125th anniversary. Market Cap $2,218,211 Dividend Yield 1.78% First Merchants Corporation, organized in 1982, is the largest financial s
Slide 5: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,262M Columbus $ 612M 754M Fort Wayne 920M 2,465M Indianapolis 1,617M 600M Lafayette 1,062M 1,153M Muncie 2,346M 857M Northwest 1,076M $7,091M Total $7,633M (as of September 30, 2018) Mission Statement To be the most responsive, knowledgeable and hi
Slide 6: Key FMC Deposit Market Share – FDIC Data June 30, 2018
Key FMC Deposit Market Share – FDIC Data June 30, 2018 County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 53.48% $ 1,315,724 Jasper County, IN Lafayette (Established) 1 33.64% 201,364 White County, IN Lafayette (Established) 1 34.50% 164,957 Jay County,
Slide 7: First Merchants “Whole Bank” Strategy
First Merchants “Whole Bank” Strategy Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition 7
Slide 8: First Merchants Strategy: Commercial Bank
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 Mana
Slide 9: First Merchants Strategy: Consumer Retail Bank
First Merchants Strategy Consumer Retail Bank • Diverse Locations 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 Ava
Slide 10: First Merchants Strategy
First Merchants Strategy “Service-driven alternative to super-regional bank competitors. Deliver superior service with presence close to the customer for . . . ” Retail Banking Mortgage Banking Commercial Banking • Business Banking • Commercial & Industrial • Agriculture • Sponsor Finance • Pu
Slide 11: How We Deliver Supported by LOB Strategies
How We Deliver Supported by LOB Strategies WEALTH RETAIL COMMERCIAL MORTGAGE BANKING BANKING ADVISORY Indianapolis Columbus, OH Lafayette Muncie Northwest Fort Wayne Higher Growth Higher Growth Established Established Higher Growth Higher Growth Delaware, Fayette, Brown, Hamilton, Carroll, Clinton,
Slide 12: Organic Growth Opportunities Exists in All Directions
Organic Growth Opportunities Exists in All Directions Northwest Indiana MSA* Fort Wayne MSA Entered: 2013 Entered: 2017 Total Population: 686,153 Total Population: 438,721 Deposit Market Share: 14.70% Deposit Market Share: 7.76% FOUNDING MARKET Muncie MSA Established: 1893 Lafayette MSA Total Popula
Slide 13: Ranked Best in the Midwest for Business
Ranked Best in the Midwest for Business AAA Credit Rating since 20081 Leading the Nation in Manufacturing Job Growth 1st in Midwest and 5th Nationally for Best State for Doing Business2 1st Metro Area for Strong Job Opportunities with Affordable Housing 1st Nationally for Highway Accessibi
Slide 14: Muncie Market
Muncie Market Located 58 miles northeast of Indianapolis in the east central portion of the Notable Major Employers state Described by several national studies as a typical American community, Delaware County offers the advantages of larger cities without the hassles and costs associated with li
Slide 15: Indianapolis Market
Indianapolis Market Indianapolis metropolitan area includes four of the five fastest- growing counties in Indiana and 10 of the 11 fastest-growing cities Notable Major Employers and towns with populations of at least 5,000* The 2015 population estimates released by the U.S. Census Bureau show su
Slide 16: Lafayette Market
Lafayette Market Ranked #1, MSN Money, Fastest Growing Cities in the State of Indiana Notable Major Employers Ranked #2, Forbes Best Small Places for Business and Careers Ranked #2 in Indiana for STEM job density, with 13.6% of the workforce, topping the state’s 10.9% & national average of 11.
Slide 17: Northwest Indiana Market
Northwest Indiana Market Notable Major Employers Indiana’s second-most populous market Benefit from its Chicago proximity Continue to produce finest steels, refine the cleanest fuels and deliver the best products to the Midwest** New investments by world-class companies like BP, Pratt Indust
Slide 18: Fort Wayne Market
Fort Wayne Market Notable Major Employers 2nd Largest MSA in the State of Indiana Diversified economy (manufacturing, health care, retail trade, food services) Attractive location for businesses to locate and expand – located between the Chicago, Detroit, Dayton, Toledo and Indianapolis metro
Slide 19: Columbus, Ohio Market
Columbus, Ohio Market Second-most populous county in Ohio Notable Major Employers 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 go
Slide 20: Growth Through Acquisition
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 20
Slide 21: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 21
Slide 22: First Merchants Acquisition Process
First Merchants Acquisition Process 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 22
Slide 23: Operational Delivery Highlights: Daleville Operations Facility
Operational Delivery Highlights 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 Management
Slide 24: Operational Delivery Highlights: Customer, Digital Channel & Transaction Activity
Operational Delivery Highlights Customer, Digital Channel & Transaction Activity Retail Households: 184K Online Banking/Digital Channel Cash Management Annual Volume • Consumer: 83K Users • Automated Clearing House (ACH) • 1.3M logins monthly • # Originated: 2.5M Items ($8B) • 14K bill pay use
Slide 25: 3rd Quarter 2018 Highlights
3rd Quarter 2018 Highlights $41.1 Million of Net Income, a 68.8% Increase over 3Q2017 Earnings Per Share of $.83, a 66.0% Increase over 3Q2017 Total Assets of $9.8 Billion Grew Organically by 8.2% over 3Q2017 1.69% ROAA; 12.10% ROAE 49.25% Efficiency Ratio Definitive Agreement Announced
Slide 26: Total Assets ($ in Millions)
Total Assets ($ in Millions) 2016 2017 Q1-’18 Q2-’18 Q3-’18 1. Investments $1,305 $1,561 $1,544 $1,620 $1,625 2. Loans 5,143 6,758 6,906 7,083 7,091 3. Allowance (66) (75) (76) (78) (78) 4. Goodwill & Intangibles 259 477 475 473 471 5. BOLI 202 224 222 223 224 6. Other 369 422 402 414 454 7. Total A
Slide 27: Loan and Yield Detail (as of 9/30/2018)
Loan and Yield Detail (as of 9/30/2018) QTD Yield = 5.25% Agricultural YTD Yield = 5.08% Commercial Construction Land & Agricultural Land Public Total Loans = $7.1 Billion Real Estate Land Development Production 3.4% Finance/Other Non-Owner 1.2% 9.4% Commercial Occupied 5.6% Variable = $4.8 Billion
Slide 28: CRE Loan Concentration
CRE Loan Concentration First Merchants Results in Relation to FDIC Guidelines FDIC GUIDELINES TO IDENTIFY INSTITUTIONS POTENTIALLY EXPOSED TO CRE RISK: Guideline 1: Total loans for construction, land development, and other land representing 100% or more of total capital Guideline 2: Total CRE loans
Slide 29: Investment Portfolio (as of 9/30/2018)
Investment Portfolio (as of 9/30/2018) Mortgage-Backed Securities Tax-Exempt 24% Municipals 48% $1.6 Billion Portfolio Modified duration of 5.9 years Tax equivalent yield of 3.48% Net unrealized loss of $34.6 Million Collateralized Mortgage Obligations Corporate 24% Obligations U. S. Agencie
Slide 30: Total Liabilities and Capital ($ in Millions)
Total Liabilities and Capital ($ in Millions) 2016 2017 Q1-’18 Q2-’18 Q3-’18 1. Customer Non-Maturity Deposits $4,428 $5,741 $5,850 $6,033 $6,084 2. Customer Time Deposits 747 1,051 1,137 1,158 1,227 3. Brokered Deposits 381 381 341 313 322 4. Borrowings 572 701 644 706 600 5. Other Liabilities 60 5
Slide 31: Deposit Detail (as of 9/30/2018)
Deposit Detail (as of 9/30/2018) QTD Cost = .90% YTD Cost = .79% Total = $7.6 Billion Certificates & Certificates & Time Deposits of Time Deposits of >$100,000 <$100,000 Savings 8% 8% Deposits Brokered 29% Deposits 4% Demand Deposits 51% 31
Slide 32: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) 16.00% Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.18% 14.21% 14.24% 14.25% 14.01% 13.81% 14.00% 13.76% 13.69% 13.69% 13.00% 12.00% 11.64% 11.10% 11.16% 11.11% 11.03
Slide 33: Net Interest Margin
Net Interest Margin Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Q1 - '18 Q2 - '18 Q3 - '18 Net Interest Income - FTE ($millions) $ 61.1 $ 62.1 $ 64.9 $ 67.2 $ 78.9 $ 83.5 $ 82.5 $ 87.2 $ 89.2 Fair Value Accretion $ 3.8 $ 2.9 $ 4.3 $ 2.3 $ 3.2 $ 4.1 $ 3.2 $ 3.8 $ 3.2 1 2 3 Tax Equivalent Yi
Slide 34: Non-Interest Income ($ in Millions)
Non-Interest Income ($ in Millions) 2016 2017 Q1-’18 Q2-’18 Q3-’18 1. Service Charges on Deposit Accounts $17.8 $ 18.7 $ 4.8 $ 5.0 $ 5.6 2. Wealth Management Fees 12.6 14.7 3.8 3.6 3.7 3. Card Payment Fees 15.0 16.1 4.6 4.5 4.6 4. Cash Surrender Value of Life Ins 4.3 6.6 1.2 1.0 1.0 5. Gains on Sale
Slide 35: Non-Interest Income YTD 9/30/2018
Non-Interest Income YTD 9/30/2018 ($ in Millions) 23.6% 19.0% 5.1% 9.2% 28.7% 6.7% 7.7% Service Charges on Deposit Accounts - $5.6 Wealth Management Fees - $3.7 Card Payment Fees - $4.6 Cash Surrender Value of Life Ins - $1.0 Gains on Sales Mortage Loans - $1.8 Gains on Sales of Securities - $1.3 Ot
Slide 36: Private Wealth Advisors
Private Wealth Advisors Delivers broad advisory capabilities and expertise through Record quarterly revenue and assets under management local, engaged and empowered leaders Strong partnership with our Commercial and Retail lines Business lines include: of business in delivering whole-bank solution
Slide 37: Mortgage Banking
Mortgage Banking Key component of Fee Mortgage Banking Revenue Income 8 $7.56M $7.0M Mortgage Production for sale and 7 portfolio via commissioned and $6.5M salaried loan originators 6 $4.9M Strong loan origination teams in 5 high-growth areas of Indianapolis and Columbus, OH 4 Centralized und
Slide 38: Non-Interest Expense ($ in Millions)
Non-Interest Expense ($ in Millions) 2016 2017 Q1-’18 Q2-’18 Q3-’18 1. Salary & Benefits $102.6 $119.8 $ 32.2 $ 32.2 $32.9 2. Premises & Equipment 29.5 30.1 8.4 7.9 8.1 3. Intangible Asset Amortization 3.9 5.6 1.7 1.7 1.7 4. Professional & Other Outside Services 6.5 12.8 1.5 1.8 1.8 5. OREO/Credit-R
Slide 39: Earnings ($ in Millions)
Earnings ($ in Millions) 2016 2017 Q1-’18 Q2-’18 Q3-’18 1. Net Interest Income $226.5 $ 277.3 $ 79.9 $ 84.6 $86.5 2. Provision for Loan Losses (5.7) (9.1) (2.5) (1.7) (1.4) 3. Net Interest Income after Provision 220.8 268.2 77.4 82.9 85.1 4. Non-Interest Income 65.2 71.0 19.6 18.2 19.5 5. Non-Intere
Slide 40: Per Share Results
Per Share Results 2017 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .56 $ .57 $ .50 $ .49 $ 2.12 2. Dividends $ .15 $ .18 $ .18 $ .18 $ .69 3. Tangible Book Value $16.49 $16.97 $16.62 $16.96 2018 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .74 $ .80 $ .83 – $ 2.37 2. Dividends $ .18 $ .22 $ .22 – $ .62 3
Slide 41: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .22 0.22 $18.16 0.20 $16.96 .18 $15.85 0.18 $14.68 0.16 .15 $13.65 .14 $12.17 0.14 $10.95 .11 0.12 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 1.96% Forward Dividend Yield Compound Annual Growth Rate of 9.16% Equ
Slide 42: Asset Quality Summary
Asset Quality Summary Change ($ in Millions) Linked Quarter 2016 186.1 2017 Q1-'18 Q2-'18 Q3-'18 $ % 1. Non-Accrual Loans $ 30.0 $ 28.7 $ 27.5 $ 20.1 $ 20.4 $ 0.3 2. Other Real Estate 9.0 10.4 9.7 9.1 8.9 (0.2) 3. Renegotiated Loans 4.7 1.0 0.6 0.5 0.9 0.4 4. 90+ Days Delinquent Loans 0.1 0.9 0.7 0.
Slide 43: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q4-'17 Q1-'18 Q2-'18 Q3-'18 1. Beginning Allowance for Loan Losses (ALLL) $ 73.4 $ 75.0 $ 76.4 $ 77.5 2. Net Charge-offs (Recoveries) 0.2 1.1 0.6 0.5 3. Provision Expense 1.8 2.5 1.7 1.4 4. Ending Allowance for Loan Losses (ALLL) $ 75.0 $ 76.4 $ 77.5 $ 78.
Slide 44: Total Return Performance
Total Return Performance 250.00 200.00 150.00 100.00 50.00 Total Return Percentage Return Total 0.00 First Merchants Corporation Russell 2000 SNL Bank $5B-$10B 09/30/2012 09/30/2013 09/30/2014 09/30/2015 09/30/2016 09/30/2017 09/30/2018 44
Slide 45: A Leading Midwest Banking Franchise Crossing $10 Billion with Strategic Entry into Michigan
A Leading Midwest Banking Franchise Crossing $10 Billion with Strategic Entry into Michigan Pro Forma Highlights1 Ticker: FRME Headquarters: Muncie, IN Founded: 1893 Banking Centers: 134 Assets: $11.1 Billion Loans: $7.8 Billion Deposits: $8.7 Billion Current First Merchants Locations MBTF Locations
Slide 46: Overview of MBT Financial Corporation
Overview of MBT Financial Corporation Company Highlights Geographic FootprintFarmington Hills . Northville Headquartered in Monroe, Michigan Plymouth Redford Highland Park Livonia 75 . Westland Founded in 1858 Dearborn Ann Arbor 275 Allen Park . 94 Southgate Operates 20 Banking Centers 75 MICHIGAN .
Slide 47: FMC Strategy and Tactics Overview
FMC Strategy and Tactics Overview Looking Forward . . . Manage market presence and our core banking business. Continue organic growth protocol. Optimize our retail and commercial deposit strategy… products and pricing. Build out of specialty finance businesses in sponsor finance, public financ
Slide 48: Why Invest in First Merchants?
Why Invest in First Merchants? Forbes Magazine recognition as a Top 5 Commercial Presence that Creates a Client Ranking in “America’s Best Banks” Preference Performance Ranked Best among Indiana State-of-the-Art Technology and Operations Banks by Bank Director Magazine Center Attractive an
Slide 49: Research Coverage
ist Merchants Corporation Research Coverage SANDLER =) KEEFE, BRUYETTE & WOODS Oe NE WEIL kaw | | Specialists in Financial Services + PARTNERS —_oo Piper Jaffray. Stephens a "FIG Gps, P|A DAVIDSON * Partners
Slide 50: Contact Information
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: Nicole M. Weaver Investor Relations Telephone: 765.521.7619 nweaver@firstmerchants.com 50
Slide 51: Appendix
ist Merchants Corporation Appendix FIRST MERCHANTS CORPORATION 200 E Jackson St, P.O. Box 782, Muncie, IN47305 | 705.747.1500
Slide 52: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 900,865 901,657 929,470 1,035,116 1,283,120 1,303,463 1,313,073 1,340,328 1,361,426 Adjust for Accumulated Other Com
Slide 53: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Total Stockholders' Equity (GAAP) $ 900,865 $ 901,657 $ 929,470 $ 1,035,116 $ 1,283,120 $ 1,303,463 $ 1,313,073 $ 1,340,328 $ 1,361,426 Less: Preferred Stock (125) (12
Slide 54: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2016 2017 1Q18 2Q18 3Q18 Non Interest Expense (GAAP) $ 177,359 $ 205,556 $ 53,687 $ 53,504 $ 55,022 Less: Intangible Asset Amortization (3,910) (5,647) (1,726) (1,718) (1,650) Less: OREO and Foreclosure Expenses (2,877) (1,9
Slide 55: Appendix – Non-GAAP Reconciliation: Construction and Investment Real Estate Concentrations
Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2016 2017 1Q18 2Q18 3Q18 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 973,641 $ 1,404,303 $ 1,414,109 $ 1,432,722 $ 1,436,173 Adjust for Accumulate