Slide 1: First Merchants Corporation 2nd 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 Statement
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 2 The Corporation may make forward-looking statements about its relative business outlook. These forward-looking statements and all other statements made during this meeting that do not concern historical facts are subject to risks an
Slide 3: Why Invest in First Merchants?
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Why Invest in First Merchants? www.firstmerchants.com 3 ®
Slide 4: Financial Highlights and Company Profile
Financial Highlights Assets $6,906,418 Loans, Net $4,729,243 Deposits $5,407,554 Tangible Common Equity $633,056 TCE/TA 9.52% 2016 Net Income – YTD $37,699 2016 ROAA – YTD 1.11% 2016 ROATCE - YTD 12.70% NPAs/Loans + OREO 1.06% THE STRENGTH OF BIG. THE SERVICE OF SMALL. Company Profile (as of 6/30/20
Slide 5: Our Franchise
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Our Franchise www.firstmerchants.com 5 First Merchants Corporation operates more than 100 locations in 27 Indiana counties, 2 Ohio counties, and 2 Illinois counties Key Market Profiles Loans Deposits $2,067M Indianapolis $1,542M 899M Muncie 1,546M 608M Muns
Slide 6: Market position by county
County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 47.92% $ 918,048 Henry County, IN Muncie (Established) 1 39.41% 252,871 Jasper County, IN Lafayette (Established) 1 29.87% 180,331 White County, IN Lafayette (Established) 1 32.07% 155,980 Jay County, I
Slide 7: First Merchants Strategy
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 7 Commercial Bank • Lending Engine Supported by Consumer Retail Bank • Deposit Engine Growth • Organic • Growth by Acquisition ®
Slide 8: First Merchants Strategy: Commercial Bank
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 8 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 9: First Merchants Strategy: Consumer Retail Bank
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 9 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 Deposi
Slide 10: First Merchants Strategy: Service-driven
THE STRENGTH OF BIG. THE SERVICE OF SMALL. First Merchants Strategy www.firstmerchants.com 10 “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 11: Lines of business and markets
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 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 Fra
Slide 12: Organic Growth Opportunities Exists in All Directions
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Organic Growth Opportunities Exists in All Directions www.firstmerchants.com 12 Lafayette MSA Entered: 2002 Total Population: 211,900 Deposit Market Share: 18.11% Indianapolis MSA Entered: 1998 Total Population: 1,955,766 Deposit Market Share: 3.43% Columbu
Slide 13: Delaware County, IN
4.58% 2.64% 2.68% 3.50% 1.62% -0.37% U.S. Indiana Delaware Co. HHI Pop. 13 Delaware County, IN* Rank Branches Deposits Mkt. Share 1 First Merchants Corporation 12 918,048 47.92% 2 Mutual First Financial 9 471,551 24.62% 3 J.P. Morgan Chase 4 213,100 11.12% 4 Old National Bancorp 7 186,905 9.76% 5 St
Slide 14: Hamilton County, IN
4.58% 2.64% 8.32% 3.50% 1.62% 7.86% U.S. Indiana Hamilton Co. HHI Pop. Projected HHI & Pop. Change 2014-2019 14 Hamilton County, IN** Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 15 1,169,302 20.63% 2 Merchants Bancorp 2 721,276 12.73% 3 PNC Financial Services Group 11 517,540 9.13% 4 Fi
Slide 15: Tippecanoe County, IN
4.58% 2.64% 3.42% 3.50% 1.62% 4.73% U.S. Indiana Tippecanoe Co. HHI Pop. 15 Tippecanoe County, IN** Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 6 $ 637,112 27.95% 2 First Merchants Corporation 9 479,784 21.05% 3 Old National Bancorp 7 297,262 13.04% 4 Regions Financial Corp 7 277,085 12
Slide 16: Lake County, IN
16 Lake County, IN* Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 25 $ 1,727,334 21.32% 2 First Bancshares, Inc. 30 1,642,798 20.28% 3 First Midwest Bancorp 17 803,560 9.92% 4 Northwest Indiana Bancorp 15 705,685 8.71% 5 First Financial Bancorp 8 602,068 7.43% 6 First Merchants Corporatio
Slide 17: Franklin County, OH
17 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 18: Growth Through Acquisition
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Growth Through Acquisition www.firstmerchants.com 18 Experienced Acquirer Expand in Current High-Growth Markets Extend into Additional High-Growth Markets Add to Franchise with Stable Deposit Gathering Markets ®
Slide 19: First Merchants Acquisition Experience 1893-2015
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 19 FIRST MERCHANTS ACQUISITION EXPERIENCE 1893-2015 ®
Slide 20: First Merchants Acquisition Process
20 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 21: Operational Delivery Highlights
THE STRENGTH OF BIG. THE SERVICE OF SMALL. Operational Delivery Highlights www.firstmerchants.com 21 Daleville Operations Facility Strategic differentiator in support of growth and scalability Operational services execution “hub” focusing on value creation Functional focus: • Operations • Cred
Slide 22: Operational Delivery Highlights: Customer, Digital Channel & Transactions
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 23: 2nd Quarter 2016 Highlights
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 23 2nd Quarter 2016 Highlights $20.0 Million of Net Income, an 11.3% increase over 2Q2015 Earnings Per Share of $ .49, a 4.3% increase over 2Q2015 Delivered a strong 3.86% Net Interest Margin Total Assets of $6.9 Billion grew
Slide 24: Total Assets
24 Total Assets ($ in Millions) THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 2014 2015 Q1-’16 Q2-’16 1. Investments $1,181 $1,277 $1,271 $1,298 2. Loans Held for Sale 7 10 4 19 3. Loans 3,925 4,694 4,710 4,791 4. Allowance (64) (62) (62) (62) 5. CD&I & Goodwill 219 260 262 261
Slide 25: Loan and Yield Detail
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Commercial & Industrial 22.6% Commercial Real Estate Owner-Occupied 11.3% Commercial Real Estate Non-Owner Occupied 24.5% Construction Land & Land Development 7.3% Agricultural Land 3.1% Agricultural Production 2.0% Other Commercial
Slide 26: Investment Portfolio
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Mortgage- Backed Securities 32% Collateralized Mortgage Obligations 23% U. S. Agencies 2% Corporate Obligations 1% Tax-Exempt Municipals 42% Investment Portfolio (as of 6/30/2016) $1.3 Billion Modified duration of 4.0 years Ta
Slide 27: Total Liabilities and Capital
2014 2015 Q1-’16 Q2-’16 1. Customer Non-Maturity Deposits $3,523 $4,096 $4,140 $4,269 2. Customer Time Deposits 784 880 841 820 3. Brokered Deposits 334 314 330 319 4. Borrowings 290 446 420 435 5. Other Liabilities 44 51 79 53 6. Hybrid Capital 122 123 122 122 7. Common Equity 727 851 867 888 8. To
Slide 28: Deposit Detail
® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Demand Deposits 49% Savings Deposits 29% Certificates & Time Deposits of >$100,000 6% Certificates & Time Deposits <$100,000 10% Brokered Deposits 6% Deposit Detail (as of 06/30/2016) QTD Cost = .39% YTD Cost = .40% Total = $5.4 Bil
Slide 29: Capital Ratios
11.00% 11.16% 11.40% 11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 8.74% 9.05% 9.16% 9.31% 9.03% 9.25% 9.17% 9.35% 9.52% 15.11% 15.21% 15.34% 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00% 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q1
Slide 30: Net Interest Margin
30 Net Interest Margin THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) Q2 - '14 Q3 - '14 Q4 - '14 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Net Interest Income - FTE $ 48.1 $ 49.9 $ 49.2 $ 49.2 $ 51.7 $ 53.3 $ 53.2 $ 57.6 $ 59.2 Fair Value Accretion $
Slide 31: Non-Interest Income
($ in Millions) 2014 2015 Q1-’16 Q2-’16 1. Service Charges on Deposit Accounts $15.7 $16.2 $ 4.1 $ 4.4 2. Wealth Management Fees 11.7 11.3 3.1 3.0 3. Insurance Commission Income 7.4 4.1 4. Card Payment Fees 11.8 13.4 3.8 3.8 5. Cash Surrender Value of Life Ins 3.7 2.9 1.5 1.3 6. Gains on Sales Mortg
Slide 32: Non-Interest Expense
32 Non-Interest Expense 2014 2015 Q1-’16 Q2-’16 1. Salary & Benefits $ 96.5 $101.9 $ 27.3 $ 25.6 2. Premises & Equipment 23.2 25.5 7.3 7.3 3. Core Deposit Intangible Amortization 2.4 2.8 1.0 1.0 4. Professional & Other Outside Services 8.1 9.9 2.2 1.5 5. OREO/Credit-Related Expense 3.4 3.9 0.7 0.9 6
Slide 33: Earnings
33 2014 2015 Q1-’16 Q2-’16 1. Net Interest Income $ 187.0 $ 196.4 $ 54.5 $ 56.0 2. Provision for Loan Losses (2.6) (0.4) (0.6) (0.8) 3. Net Interest Income after Provision 184.4 196.0 53.9 55.2 4. Non-Interest Income 61.8 69.8 15.8 16.4 5. Non-Interest Expense (163.9) (174.8) (46.4) (44.9) 6. Income
Slide 34: Per Share Results
34 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 Share $ .43 $ .49 – – $ .92 2. Dividends $ .11 $ .14 – – $ .25 2. Tangible Book Value $
Slide 35: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.53 THE STRENGTH OF BIG. THE SERVICE OF SMALL. Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 .08 www.firstmerchants.com ® .01 .03 .05 .11 .14 2.25% Forward Dividend Yield 29% Dividend Payout Ratio = Quarterly Dividends Tangible B
Slide 36: Asset Quality Summary
36 Asset Quality Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) 2014 2015 Q1-'16 Q2-'16 $ % 1. Non-Accrual Loans 48.8$ 31.4$ 36.7$ 33.6$ (3.1)$ (8.4%) 2. Other Real Estate 19.3 17.3 15.6 13.2 (2.4) (15.4%) 3. Renegotiated Loans 2.0 1.9 1.0 4.3 3.3 330.0%
Slide 37: ALLL and Fair Value Summary
37 ALLL and Fair Value Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 36.5% 15.5% 48.0% ($ in Millions) Q2-'15 Q3-'15 Q4-'15 Q1-'16 Q2-'16 1. Allowance for Loan Losses (ALLL) 62.6$ 62.9$ 62.5$ 62.1$ 62.2$ 2. Fair Value Adjustment (FVA) 40.7 37.9 47.0 47.1 42.3 3. Total A
Slide 38: Total Return Performance
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 38 -50 0 50 100 150 200 250 First Merchants Corporation SNL U.S. Bank Russell 2000 Total Return Performance ® 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 % 6/30/16
Slide 39: FMC Strategy and Tactics Overview Looking Forward
39 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 Build or Acquir
Slide 40: Why Invest in First Merchants?
40 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 41: Research Coverage
41 D. A. Davidson FIG Partners Keefe, Bruyette & Woods, Inc. Piper Jaffray Sandler O’Neill + Partners, L.P. Stephens, Inc. Research Coverage THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®
Slide 42: Contact Information
42 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 43: Appendix
43 Appendix ®
Slide 44: Appendix – Non-GAAP Reconciliation: Capital Ratios
44 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Appendix – Non-GAAP Reconciliation ® CAPITAL RATIOS (dollars in thousands): 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 652,111 670,596 684,553 726,827 739,658
Slide 45: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
45 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Total Stockholders' Equity (GAAP) $ 670,596 $ 684,553 $ 726,827 $ 739,658 $ 749,955 $ 766,984 $
Slide 46: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
46 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® EFFICIENCY RATIO (dollars in thousands): 2014 2015 1Q16 2Q16 Non Interest Expense (GAAP) $ 164,008 $ 174,806 $ 46,475 $ 44,835 Less: Core Deposit Intangible Amortization (2,445) (2,835) (978) (9