First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2016 Earnings Presentation
59 slides from First Merchants's earnings presentation, Feb 28, 2017
Slide 1: First Merchants Corporation 4th Quarter 2016
FIRST MERCHANTS CORPORATION THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com NASDAQ: FRME Michael C. Rechin Mark K. Hardwick Michael J. Stewart John J. Martin President Executive Vice President Executive Vice President Executive Vice President Chief Executive Officer Chief Financial
Slide 2: Forward-looking statements
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 2 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 t
Slide 3: Forward-Looking Statements and Additional Information
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 3 ® Forward-Looking Statements ADDITIONAL INFORMATION Communications in this report do not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any proxy vote or approval. The proposed
Slide 4: Why Invest in First Merchants?
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Why Invest in First Merchants? www.firstmerchants.com 4 ®
Slide 5: Financial Highlights and Company Profile
Financial Highlights Assets $ 7,211,611 Loans, Net $ 5,073,608 Deposits $ 5,556,498 Tangible Common Equity $ 642,666 TCE/TA 9.24% 2016 Net Income – YTD $ 81,051 2016 ROAA – YTD 1.17% 2016 ROATCE - YTD 12.82% NPAs/Loans + OREO 0.85% THE STRENGTH OF BIG. THE SERVICE OF SMALL. Company Profile (as of 12
Slide 6: Key Market Profiles
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 6 Key Market Profiles Loans Deposits $2,250M Indianapolis $1,572M 948M Muncie 1,644M 668M Munster 1,002M 565M Lafayette 987M 709M Columbus 351M $5,140M Total $5,556M (as of December 31, 2016) ® Mission Statement To be the most respons
Slide 7: Deposit market position by county
County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 46.17% $ 893,981 Jasper County, IN Lafayette (Established) 1 31.26% 198,089 White County, IN Lafayette (Established) 1 33.24% 159,014 Shelby County, IN Indianapolis (Growth) 1 19.18% 103,239 Jay County,
Slide 8: First Merchants Whole Bank Strategy
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants “Whole Bank” Strategy www.firstmerchants.com 8 Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition ®
Slide 9: First Merchants Strategy: Commercial Bank
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 9 Commercial Bank • Located in Prime Growth Commercial Banking Markets • Indianapolis, Indiana • Columbus, Ohio • Lafayette, Indiana • Northwest Indiana • Hire the Best Talent Supported with the Finest: • Sa
Slide 10: First Merchants Strategy: Consumer Retail Bank
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 10 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 Depos
Slide 11: First Merchants Strategy
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 11 “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 Bankin
Slide 12: How We Deliver
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 12 WEALTH ADVISORY MORTGAGE COMMERCIAL BANKING RETAIL BANKING Supported by LOB Strategies Indianapolis Higher Growth Brown, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, Shelby Counties Columbus, OH Higher Growth Fra
Slide 13: Organic Growth Opportunities Exist in All Directions
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Organic Growth Opportunities Exists in All Directions www.firstmerchants.com 13 Lafayette MSA Entered: 2002 Total Population: 217,817 Deposit Market Share: 18.18% Indianapolis MSA Entered: 1998 Total Population: 2,017,134 Deposit Market Share: 3.41% Columbu
Slide 14: Indiana business rankings
14 Ranked Best in the Midwest for Business* AAA Credit Rating** 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 Nationally for Low Taxes Leading the Nation in Manufacturing Job Growth
Slide 15: Delaware County, IN
15 Delaware County, IN* Rank Branches Deposits Mkt. Share 1 First Merchants Corporation 12 893,981 46.17% 2 Mutual First Financial 9 476,957 24.63% 3 J.P. Morgan Chase 4 220,534 11.39% 4 Old National Bancorp 7 206,538 10.67% 5 Star Financial Group 3 136,933 7.07% 6 Woodforest Financial Group 1 1,391
Slide 16: 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 16 Hamilton County, IN** Rank Branches Deposits Mkt. Share 1 First Internet Bancorp 1 1,397,573 17.05% 2 JPMorgan Chase & Co. 15 1,339,119 16.34% 3 Merchants Bancorp 2 1,119,000 13.65% 4 PNC
Slide 17: Tippecanoe County, IN
7.27% 8.00% 3.77% 3.77% 2.11% 5.19% U.S. Indiana Tippecanoe Co. HHI Pop. 17 Tippecanoe County, IN** Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 6 $ 701,835 28.72% 2 First Merchants Corporation 9 510,925 20.91% 3 Regions Financial Corp 7 296,336 12.13% 4 Old National Bancorp 5 257,117 10
Slide 18: Lake County, IN
18 Lake County, IN* Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 24 $ 1,812,142 21.17% 2 First Bancshares, Inc. 29 1,790,048 20.91% 3 First Midwest Bancorp 21 1,015,796 11.87% 4 Northwest Indiana Bancorp 15 731,032 8.54% 5 First Merchants Corporation 11 670,030 7.83% 6 First Financial Ba
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
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Growth Through Acquisition www.firstmerchants.com 20 Experienced Acquirer Expand in Current High-Growth Markets Extend into Additional High-Growth Markets Add to Franchise with Stable Deposit Gathering Markets ®
Slide 21: First Merchants Acquisition Experience 1893-2016
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 21 FIRST MERCHANTS ACQUISITION EXPERIENCE 1893-2016 ®
Slide 22: First Merchants Acquisition Process
22 Continuous Relationship Building Complete and Thorough Due Diligence Process Demonstrated Pricing Discipline: • Average Price to TBV of 129% • Average EPS Accretion within One Year • Average TBV Earn-back of 2.8 Years Detailed Project Managed Integration Process Single Charter Operating
Slide 23: Operational Delivery Highlights
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Operational Delivery Highlights www.firstmerchants.com 23 Daleville Operations Facility Strategic differentiator in support of growth and scalability Operational services execution “hub” focusing on value creation Functional focus: • Operations • Cred
Slide 24: Customer, Digital Channel & Transaction Volumes
Retail Households: 145K Online Banking/Digital Channel • Consumer: 62K Users • 810K logins monthly • 12K bill pay users • 74K payments monthly Cash Management Annual Volume • Automated Clearing House (ACH) • # Originated: 2M Items ($5B) • # Received: 12M Items ($17B) • Mobile: 26K Users • 22 a
Slide 25: First Merchants 2016 Performance
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 25 First Merchants 2016 Performance Full-Year Highlights • Record Net Income of $81.1 Million, a 24% Increase over 2015 • Earnings Per Share of $1.98, a 15.1% Increase over 2015; Highest in Company’s History • Total Assets of $7.2 B
Slide 26: Total Assets
26 Total Assets ($ in Millions) THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 2014 2015 2016 1. Investments $1,181 $1,277 $1,305 2. Loans Held for Sale 7 10 3 3. Loans 3,925 4,694 5,140 4. Allowance (64) (62) (66) 5. CD&I & Goodwill 219 260 259 6. BOLI 169 201 202 7. Other 387
Slide 27: Loan and Yield Detail
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Commercial & Industrial 23.2% Commercial Real Estate Owner-Occupied 10.3% Commercial Real Estate Non-Owner Occupied 24.8% Construction Land & Land Development 8.1% Agricultural Land 2.9% Agricultural Production 1.6% Public Finance/O
Slide 28: Investment Portfolio
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Mortgage- Backed Securities 32% Collateralized Mortgage Obligations 19% U. S. Agencies 2% Corporate Obligations 1% Corporate Equities 1% Tax-Exempt Municipals 45% Investment Portfolio (as of 12/31/2016) $1.3 Billion Portfolio Mo
Slide 29: Total Liabilities and Capital
2014 2015 2016 1. Customer Non-Maturity Deposits $3,523 $4,096 $4,428 2. Customer Time Deposits 784 880 747 3. Brokered Deposits 334 314 381 4. Borrowings 290 446 572 5. Other Liabilities 44 51 60 6. Hybrid Capital 122 123 122 7. Common Equity 727 851 902 8. Total Liabilities and Capital $5,824 $6,7
Slide 30: Deposit Detail
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Deposit Detail (as of 12/31/2016) QTD Cost = .37% YTD Cost = .38% Total = $5.6 Billion 30 Demand Deposits 52% Savings Deposits 28% Certificates & Time Deposits of >$100,000 5% Certificates & Time Deposits of <$100,000 8% Brokered De
Slide 31: Capital Ratios
11.40% 11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 9.06% 9.21% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 15.34% 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 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% 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q1
Slide 32: Net Interest Margin
3.80% 3.78% 3.81% 3.85% 3.75% 3.83% 3.86% 3.94% [VALUE] 3.69% 3.61% 3.65% 3.71% 3.62% 3.66% 3.65% 3.70% 3.72% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% $36 $40 $44 $48 $52 $56 $60 $64 Q4 - '14 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Net Interest Income - FTE ($m
Slide 33: Non-Interest Income
2014 2015 2016 1. Service Charges on Deposit Accounts $15.7 $16.2 $17.8 2. Wealth Management Fees 11.7 11.3 12.6 3. Insurance Commission Income 7.4 4.1 4. Card Payment Fees 11.8 13.4 15.0 5. Cash Surrender Value of Life Ins 3.7 2.9 4.3 6. Gains on Sales Mortgage Loans 4.9 6.5 7.1 7. Securities Gains
Slide 34: Non-Interest Expense
34 Non-Interest Expense 2014 2015 2016 1. Salary & Benefits $ 96.5 $101.9 $102.6 2. Premises & Equipment 23.2 25.5 29.5 3. Core Deposit Intangible Amortization 2.4 2.8 3.9 4. Professional & Other Outside Services 8.1 9.9 6.5 5. OREO/Credit-Related Expense 3.4 3.9 2.9 6. FDIC Expense 3.7 3.7 3.0 7. O
Slide 35: Earnings
35 2014 2015 2016 1. Net Interest Income $ 187.0 $ 196.4 $ 226.5 2. Provision for Loan Losses (2.6) (0.4) (5.7) 3. Net Interest Income after Provision 184.4 196.0 220.8 4. Non-Interest Income 61.8 69.8 65.2 5. Non-Interest Expense (163.9) (174.8) (177.3) 6. Income before Income Taxes 82.3 91.0 108.7
Slide 36: Quarterly Earnings
36 Q1-’16 Q2-’16 Q3-’16 Q4-’16 1. Net Interest Income $ 54.5 $ 56.0 $ 57.7 $ 58.3 2. Provision for Loan Losses (0.6) (0.8) (1.9) (2.4) 3. Net Interest Income after Provision 53.9 55.2 55.8 55.9 4. Non-Interest Income 15.8 16.4 16.9 16.1 5. Non-Interest Expense (46.4) (44.9) (44.1) (41.9) 6. Income b
Slide 37: Per Share Results
37 Per Share Results THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 2015 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .43 $ .47 $ .45 $ .37 $ 1.72 2. Dividends $ .08 $ .11 $ .11 $ .11 $ .41 3. Tangible Book Value $13.96 $14.15 $14.59 $ 14.68 2016 Q1 Q2 Q3 Q4 Total 1. Earnings Per S
Slide 38: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 THE STRENGTH OF BIG. THE SERVICE OF SMALL. Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 .11 www.firstmerchants.com ® .01 .03 .05 .14 .15 1.59% Forward Dividend Yield 27.3% Dividend Payout Ratio = Quarterly Dividends Tan
Slide 39: Asset Quality Summary
39 Asset Quality Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) 2014 2015 Q3-'16 2016 $ % $ % 1. Non-Accrual Loans 48.8$ 31.4$ 34.1$ 30.0$ (4.1)$ (12.0%) (1.4)$ (4.5%) 2. Other Real Estate 19.3 17.3 10.2 9.0 (1.2) (11.8%) (8.3) (48.0%) 3. Renegotiated Loa
Slide 40: ALLL and Fair Value Summary
40 ALLL and Fair Value Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) Q4-'15 Q1-'16 Q2-'16 Q3-'16 Q4-'16 1. Allowance for Loan Losses (ALLL) 62.5$ 62.1$ 62.2$ 63.5$ 66.0$ 2. Fair Value Adjustment (FVA) 47.0 47.1 42.3 37.9 34.9 3. Total ALLL plus FVA 109.5
Slide 41: THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 41 ®
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 41 ®
Slide 42: FMC Strategy and Tactics Overview
42 FMC Strategy and Tactics Overview THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Looking Forward . . . ® Continue to Win in our Markets – Geographic Community-Based Banking Model Increase Focus on Treasury Management Services for Deposit and Fee Generation Exploit Back-Of
Slide 43: Recent Acquisition Announcements
43 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Recent Acquisition Announcements
Slide 44: The Arlington Bank Summary
44 The Arlington Bank Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Definitive Agreement Signed January 25, 2017 Headquartered in Columbus, Ohio Founded in 1998 Balance Sheet as of September 30, 2016 • $305 Million in Assets • $244 Million in Loans • $260 Millio
Slide 45: The Arlington Bank Financial Overview
45 The Arlington Bank Financial Overview THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Transaction Value: $75.8 Million* Consideration: 100% Stock with Fixed Exchange Ratio of 2.7245 Required Approvals: Regulatory and The Arlington Bank Shareholders Voting Agreements for 36.40%
Slide 46: The Arlington Bank Transaction Rationale
46 The Arlington Bank Transaction Rationale THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 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 Mor
Slide 47: Independent Alliance Banks, Inc. Overview
47 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Headquartered in Fort Wayne, Indiana Founded in 2005 in a combination of two 70-year old companies; Grabill Bank and MarkleBank Operates 16 Banking Centers plus Wealth Management and Mortgage Offices Market Capitalization
Slide 48: Fort Wayne MSA
48 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Second Largest MSA in the State of Indiana • $7.8B Deposits • 13% Deposit Growth in 2016 • Population 433,872 • Median Income $52,039 County Seat for Allen County Diversified Economy • Manufacturing – 17% • Health Care – 17
Slide 49: Independent Alliance Banks Financial Overview
49 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Implied Deal Value: Blended Deal Value: $251.3 Million $271.1 Million (Inclusive of the 12.1% Purchased for $19.8 Million Cash) Consideration Fixed 1.6530 Exchange Ratio for the Remaining 87.9% IALB Common Stock not already owned
Slide 50: Independent Alliance Banks Transaction Rationale
50 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 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 Stron
Slide 51: Merger & Acquisition History Since 2000
51 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Merger & Acquisition History Since 2000 Partner Bank Closing Dates Partner Total Assets (in Millions) Independent Alliance Banks, Inc. Pending $1,088 The Arlington Bank (Columbus, Oh) Pending 305 Ameriana Bancorp 12/31/2015 483 C
Slide 52: Why Invest in First Merchants?
52 Why Invest in First Merchants? Attractive and Growing Earnings Stream One of SNL’s Top 25 Best-Performing Regional Banks in 2015 2nd Largest Indiana Bank with an Energized and Experienced Management Team Attractive Long-Term Deposit Market Shares Commercial Presence that Creates a Clien
Slide 53: Research Coverage
53 Research Coverage THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®
Slide 54: Contact Information
54 Contact Information First Merchants Corporation common stock is traded on the NASDAQ Global Select Market under the symbol FRME. Additional information can be found at www.FIRSTMERCHANTS.COM Investor inquiries: David L. Ortega Investor Relations Telephone: 765.378.8937 dortega@firstmerchants.com
Slide 55: Appendix
55 Appendix ®
Slide 56: Appendix – Non-GAAP Reconciliation: Capital Ratios
56 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Appendix – Non-GAAP Reconciliation ® CAPITAL RATIOS (dollars in thousands): 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 726,827 739,658 749,955 766,984 850,509 867,2
Slide 57: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
57 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Total Stockholders ' Equity (GAAP) 726,827$ 739,658$ 749,955$ 766,984$ 850,509$ 867,263$ 887,550
Slide 58: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
58 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® EFFICIENCY RATIO (dollars in thousands): 2014 2015 1Q16 2Q16 3Q16 4Q16 2016 Non Interest Expense (GAAP) $ 164,008 $ 174,806 $ 46,475 $ 44,835 $ 44,115 $ 41,934 $ 177,359 Less: Core Deposit Intan
Slide 59: Appendix – Non-GAAP Reconciliation: Allowance as a Percentage of Non-Purchased Loans
59 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 Loans Held for Sale (GAAP) 9,894$ 3,628$ 18,854$ 1,482$ 2,929$ Loans (GAAP) 4,693,822 4,709,907