First Merchants Corporation · NASDAQ:FRME
First Merchants — Q2 2017 Earnings Presentation
54 slides from First Merchants's earnings presentation, Jul 31, 2017
Slide 1: 2nd Quarter 2017
2nd Quarter 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 Officer Michael J. Stewart Executive Vice President Chief Banking Officer Michele Kawiec
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 $7,805,029 Loans, Net $5,542,673 Deposits $6,017,104 Tangible Common Equity $725,305 TCE/TA 9.68% 2017 Net Income – YTD $47,329 2017 ROAA – YTD 1.28% 2017 ROATCE - YTD 14.20% NPAs/Loans + OREO 0.70% Company Profile (as of 6/30/2017) Market Information Common Shares Outs
Slide 5: Key Market Profiles
5 Key Market Profiles Loans Deposits $2,398M Indianapolis $1,630M 939M Muncie 1,737M 719M Munster 1,036M 560M Lafayette 1,005M 997M Columbus 609M $5,613M Total $6,017M (as of June 30, 2017) Mission Statement To be the most responsive, knowledgeable and high-performing bank for our clients, teammates
Slide 6: County market positions
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 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: Strategy: Commercial Bank
8 First Merchants Strategy 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: • Sales Management Process • Lending and Cash Management Services • Re
Slide 9: 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: Service-driven alternative to super-regional banks
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, Madison, Marion, Morgan, Shelby Counties Columbus, OH Higher Growth Franklin County, OH Lafayette Established Carroll, Clinton, Jasper, M
Slide 12: Market overview by MSA
12 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% Columbus, Ohio MSA Entered: 2003 Total Population: 2,058,417 Deposit Market Share: .55% Northwest Indiana MSA* Entered: 2013 To
Slide 13: Indiana business rankings
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 market
14 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 15: Hamilton County, IN market
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 1,397,573 17.05% 2 JPMorgan Chase & Co. 15 1,339,119 16.34% 3 Merchants Bancorp 2 1,119,000 13.65% 4 PNC
Slide 16: Tippecanoe County, IN market
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 $ 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 17: Lake County, IN market
17 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 18: Franklin County, OH market
18 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 19: Growth Through Acquisition
19 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 20: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 20 20
Slide 21: First Merchants Acquisition Process
21 Continuous Relationship Building Complete and Thorough Due Diligence Process Demonstrated Pricing Discipline Detailed Project Managed Integration Process Single Charter Operating Environment Scalable Technology and Operations Center First Merchants Acquisition Process
Slide 22: Operational Delivery Highlights: Daleville Operations Facility
Operational Delivery Highlights 22 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 23: Operational Delivery Highlights: Customer, Digital Channels
Retail Households: 145K 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 24: 2nd Quarter 2017 Financial Highlights
24 2nd Quarter 2017 Financial Highlights Earnings Per Share of $ .57, a 16.3% Increase over 2Q2016 $24.1 Million of Net Income, a 20.6% Increase over 2Q2016 Total Assets of $7.8 Billion Grew by 13.0% over 2Q2016 Organic Loan Growth of $114 Million, an 8.6% Annualized Growth Rate Organic Depo
Slide 25: 2nd Quarter 2017 Performance Highlights
25 2nd Quarter 2017 Performance Highlights 1.28% Return on Average Assets 9.82% Return on Average Equity $16.97 Tangible Book Value Per Share, a 9.3% Increase over 2Q2016 53.61% Efficiency Ratio Completed Acquisition of The Arlington Bank on May 19, 2017 Completed Acquisition of Independ
Slide 26: Total Assets
Total Assets 2015 2016 Q1-’17 Q2-’17 1. Investments $1,277 $1,305 $1,327 $1,343 2. Loans Held for Sale 10 3 1 4 3. Loans 4,694 5,140 5,275 5,613 4. Allowance (62) (66) (68) (70) 5. CDI & Goodwill 260 259 258 310 6. BOLI 201 202 203 200 7. Other 381 369 330 405 8. Total Assets $6,761 $7,212 $7,326 $7
Slide 27: Loan and Yield Detail
Commercial & Industrial 23.0% Commercial Real Estate Owner-Occupied 10.3% Commercial Real Estate Non-Owner Occupied 25.7% Construction Land & Land Development 7.9% Agricultural Land 2.6% Agricultural Production 1.3% Public Finance/Other Commercial 4.9% Residential Mortgage 15.2% Home Equity 7.8% Oth
Slide 28: Investment Portfolio
Mortgage-Backed Securities 30% Collateralized Mortgage Obligations 20% U. S. Agencies 2% Corporate Obligations 2% Corporate Equities 1% Tax-Exempt Municipals 45% Investment Portfolio (as of 6/30/2017) $1.3 Billion Portfolio Modified duration of 4.7 years Tax equivalent yield of 3.85% Net unr
Slide 29: Total Liabilities and Capital
29 Total Liabilities and Capital ($ in Millions) 2015 2016 Q1-’17 Q2-’17 1. Customer Non-Maturity Deposits $4,096 $4,428 $4,426 $4,724 2. Customer Time Deposits 880 747 789 875 3. Brokered Deposits 314 381 420 418 4. Borrowings 446 572 587 581 5. Other Liabilities 51 60 53 49 6. Hybrid Capital 123 1
Slide 30: Deposit Detail
Deposit Detail (as of 6/30/2017) QTD Cost = .45% YTD Cost = .42% Total = $6.0 Billion 30 Demand Deposits 50% Savings Deposits 28% Certificates & Time Deposits of >$100,000 6% Certificates & Time Deposits of <$100,000 9% Brokered Deposits 7%
Slide 31: Capital Ratios
11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 11.16% 11.11% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50% 9.68% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24% 14.01% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00% 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q1
Slide 32: Net Interest Margin
32 Net Interest Margin Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Net Interest Income - FTE ($millions) $ 51.7 $ 53.3 $ 53.2 $ 57.6 $ 59.2 $ 61.1 $ 62.1 $ 64.9 $ 67.2 Fair Value Accretion $ 2.2 $ 2.0 $ 1.9 $ 2.5 $ 3.2 $ 3.8 $ 2.9 $ 4.3 $ 2.3 Tax Equivalent Yield
Slide 33: Non-Interest Income
33 Non-Interest Income – – – – – – – – – 2015 2016 Q1-’17 Q2-’17 1. Service Charges on Deposit Accounts $16.2 $17.8 $ 4.2 $ 4.4 2. Wealth Management Fees 11.3 12.6 3.4 3.4 3. Insurance Commission Income 4.1 4. Card Payment Fees 13.4 15.0 3.7 4.2 5. Cash Surrender Value of Life Ins 2.9 4.3 0.9 3.0 6.
Slide 34: Non-Interest Expense
34 Non-Interest Expense 2015 2016 Q1-’17 Q2-’17 1. Salary & Benefits $101.9 $102.6 $ 25.7 $ 27.1 2. Premises & Equipment 25.5 29.5 7.0 6.9 3. Core Deposit Intangible 2.8 3.9 0.9 1.0 4. Professional & Other Outside Services 9.9 6.5 1.7 3.3 5. OREO/Credit-Related Expense 3.9 2.9 0.5 0.7 6. FDIC Expens
Slide 35: Earnings
35 2015 2016 Q1-’17 Q2-’17 1. Net Interest Income $196.4 $226.5 $ 61.0 $ 63.1 2. Provision for Loan Losses (0.4) (5.7) (2.4) (2.9) 3. Net Interest Income after Provision 196.0 220.8 58.6 60.2 4. Non-Interest Income 69.8 65.2 14.9 18.4 5. Non-Interest Expense (174.8) (177.3) (43.1) (47.3) 6. Income b
Slide 36: 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 – – $ 1.13 2. Dividends $ .15 .18 – – $ .33 3. Tangible Book Value $16.49
Slide 37: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.97 Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 .11 .01 .03 .05 .14 .15 1.79% Forward Dividend Yield 29.2% YTD Dividend Payout Ratio = Quarterly Dividends Tangible Book Value .08 37 .18
Slide 38: Asset Quality Summary
38 Asset Quality Summary ($ in Millions) FMB 2015 2016 Q1-'17 Q2-'17 1 Arlington Q2-'17 $ 1 $ % 186.1 1. Non-Accrual Loans 31.4$ 30.0$ 27.9$ 26.1$ 1.3$ 27.4$ (1.8)$ (0.5)$ (1.8%) 2. Other Real Estate 17.3 9.0 8.3 11.9 - 11.9 3.6 3.6 43.4% 3. Renegotiated Loans 1.9 4.7 0.9 0.4 - 0.4 (0.5) (0.5) (55.6
Slide 39: ALLL and Fair Value Summary
39 ALLL and Fair Value Summary ($ in Millions) Q3-'16 Q4-'16 Q1-'17 Q2-'17 1. Beginning Allowance for Loan Losses (ALLL) 62.2$ 63.5$ 66.0$ 68.2$ 2. Net Charge-offs (Recoveries) 0.6 (0.1) 0.2 0.6 3. Provision Expense 1.9 2.4 2.4 2.9 4. Ending Allowance for Loan Losses (ALLL) 63.5 66.0 68.2 70.5 5. Fa
Slide 40: Total Return Performance
First Merchants Corporation FIRSTMERCHANTS, Total Return Percentage 400 Total Return Performance < . ra 100 —_—_— - _ 2 a ——SSw =@=First Merchants Corporation =™=Russell 2000 -@=SNL Bank $1B-$5B —a—SNL Bank $5B-$10B. 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 6/30/2017 FIRST M
Slide 41: FMC Strategy and Tactics Overview
41 FMC Strategy and Tactics Overview Looking Forward . . . Drive to gain the synergies and market expansion the Arlington Bank and Independent Alliance Bank acquisitions offer. Win in all our Markets in all Businesses; Lending, Deposit Gathering, Payments, and Private Wealth Management; be the s
Slide 42: Recent Acquisition Announcements
42 Recent Acquisition Announcements
Slide 43: The Arlington Bank Summary
43 The Arlington Bank Summary Acquisition Completed on May 19, 2017 Headquartered in Columbus, Ohio Founded in 1998 Balance Sheet as of May 19, 2017 • $232 Million in Loans • $253 Million in Deposits 3rd Quarter 2017 Integration
Slide 44: The Arlington Bank Transaction Rationale
44 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 45: Independent Alliance Banks, Inc. Summary
45 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 Balance Sheet as of June 30, 2017 • $1,089 Million in Assets • $754 Million in Loans • $863 Million in Deposits 4th Quar
Slide 46: Independent Alliance Banks Transaction Rationale
46 Contiguous Market Expansion • Significant Entry into Fort Wayne MSA, Indiana’s 2nd Largest MSA, with $646 Million in Deposits and #5 Market Share Position • #1 Market Share in Wells County with Two County Seat Locations Strong and Growing Core Earnings, Acquisition Accretive to EPS by 2% in 2
Slide 47: Why Invest in First Merchants?
47 Why Invest in First Merchants? Performance Ranked Best among Indiana Banks by Bank Director Magazine Attractive and Growing Earnings Stream 2nd Largest Indiana Bank with an Energized and Experienced Management Team Attractive Long-Term Deposit Market Shares Commercial Presence that Crea
Slide 48: Research Coverage
First Merchants Corporation FIRSTMERCHANTS.( Research Coverage KY FIG bead Partners KEEFE, BRUYETTE & WOODS Specialists in Financial Services AStifel Company SANDLER O'NEILL Pip erJaff ray. PARTNERS Stephens oa. D|A|DAVIDSON FIRST MERCHANTS CORPORATION | 200. Jacksor
Slide 49: Contact Information
49 Contact Information First Merchants Corporation common stock is traded on the NASDAQ Global Select Market under the symbol FRME. Additional information can be found at www.FIRSTMERCHANTS.com Investor inquiries: David L. Ortega Investor Relations Telephone: 765.378.8937 dortega@firstmerchants.com
Slide 50: Appendix
First Merchants Corporation THE STRENGTH OF BIG THE SERVICE OF SMALL Appendix NASDAQ: FRME
Slide 51: Non-GAAP Reconciliation: Capital Ratios
51 Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 749,955 766,984 850,509 867,263 887,550 900,865 901,657 929,470 1,035,116 Adjust for Accumulated Other Comprehens
Slide 52: Non-GAAP Reconciliation: Tangible Common Equity Ratio
52 Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Total Stockholders' Equity (GAAP) 749,955$ 766,984$ 850,509$ 867,263$ 887,550$ 900,865$ 901,657$ 929,470$ 1,035,116$ Less: Preferred Stock (125) (125) (125) (125) (
Slide 53: Non-GAAP Reconciliation: Efficiency Ratio
53 Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2015 2016 1Q17 2Q17 Non Interest Expense (GAAP) 174,806$ 177,359$ 43,099$ 47,316$ Less: Core Deposit Intangible Amortization (2,835) (3,910) (903) (991) Less: OREO and Foreclosure Expenses (3,956) (2,877) (531) (731) Adju
Slide 54: Non-GAAP Reconciliation: Real Estate Concentrations
54 Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2015 2016 1Q17 2Q17 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) 927,774$ 973,641$ 993,130$ 1,099,762$ Adjust for Accumulated Other Comprehensive