First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2018 Earnings Presentation
57 slides from First Merchants's earnings presentation, Feb 11, 2019
Slide 1: 4th Quarter Earnings Highlights
th th4 Quarter Earnings Highlights 4 QuarterJanuary 2018 31, 2019 Highlights
Slide 2: Forward-Looking Statement
Forward-Looking Statement 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”
Slide 3: Additional Information
Additional Information Communications in this press release 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 merger between First Merchants Corporation and MBT Financial Corporation will be submitte
Slide 4: Why Invest in First Merchants?
Why Invest in First Merchants? 4
Slide 5: Company Profile
Company Profile (as of 12/31/2018) First Merchants Market Information Common Shares Outstanding $49,349,800 First Merchants Bank, formed in 1893, celebrated its Market Cap $1,691,218 125th anniversary. Dividend Yield 2.45% First Merchants Corporation, organized in 1982, is the Price/Tangible Boo
Slide 6: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,258M Columbus $ 621 M 776M Fort Wayne 948M 2,479M Indianapolis 1,642M 635M Lafayette 1,081M 1,144M Muncie 2,345M 937M Lakeshore 1,118M $7,229M Total $7,755M (as of December 31, 2018) Mission Statement To be the most responsive, knowledgeable and hi
Slide 7: Key FMC Deposit Market Share
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 8: First Merchants "Whole Bank" Strategy
First Merchants “Whole Bank” Strategy Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition 8
Slide 9: 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 • Lakeshore - Northwest Indiana • Hire the Best Talent Supported with the Finest: • Sales Management Process • Lending a
Slide 10: 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 11: 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 12: How We Deliver
How We Deliver Supported by LOB Strategies WEALTH RETAIL COMMERCIAL MORTGAGE BANKING BANKING ADVISORY Indianapolis Columbus, OH Lafayette Muncie Lakeshore Fort Wayne Higher Growth Higher Growth Established Established Higher Growth Higher Growth Delaware, Fayette, Brown, Hamilton, Carroll, Clinton,
Slide 13: Organic Growth Opportunities Exist in All Directions
Organic Growth Opportunities Exists in All Directions Lakeshore - NW 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 P
Slide 14: 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 15: 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 16: 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 17: 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 18: Lakeshore Market
Lakeshore 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 Industries, Al
Slide 19: 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 20: 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 21: 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 21
Slide 22: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 22
Slide 23: 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 23
Slide 24: 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 25: Operational Delivery Highlights: Customer, Digital Channel & Transaction Activity
Operational Delivery Highlights Customer, Digital Channel & Transaction Activity Retail Households: 182K Online Banking/Digital Channel Cash Management Annual Volume • Consumer: 85K Users • Automated Clearing House (ACH) • 1.5M logins monthly • # Originated: 2.5M Items ($8B) • 14K bill pay use
Slide 26: 4th Quarter 2018 Highlights
4th Quarter 2018 Highlights Earnings Per Share of $.85, a 73.5% increase over 4Q2017 $41.7 Million of Net Income, a 71.1% increase over 4Q2017 Winning marketplace execution delivering growth Organic Loan Growth of $138 Million, a 7.8% annualized growth rate Organic Deposit Growth of $121 M
Slide 27: Full Year 2018 Performance
Full Year 2018 Performance Record Net Income of $159.1 Million, a 65.6% increase over 2017 Earnings per share of $3.22, a 51.9% increase over 2017 Total Assets of $9.9 Billion; grew organically by 5.5% over 2017 1.64% ROAA; 11.84% ROAE; 50.21% Efficiency Ratio Organic Loan Growth of $471 M
Slide 28: Total Assets
Total Assets ($ in Millions) 2016 2017 2018 1. Investments $1,305 $1,561 $1,633 2. Loans 5,143 6,758 1 7,229 3. Allowance (66) (75) (81) 4. Goodwill & Intangibles 259 477 470 5. BOLI 202 224 225 6. Other 369 422 409 7. Total Assets $7,212 $9,367 $9,885 Annualized Asset Growth 6.7% 29.9% 5.5% 1 2017
Slide 29: Loan and Yield Detail
Loan and Yield Detail (as of 12/31/2018) QTD Yield = 5.41% Commercial Agricultural YTD Yield = 5.16% Construction Land & Agricultural Real Estate Land Public Total Loans = $7.2 Billion Land Development Production Non-Owner 3.3% Finance/Other 7.6% 1.3% Occupied Commercial Variable = $4.9 Billion 25.8
Slide 30: 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 31: Investment Portfolio
Investment Portfolio (as of 12/31/2018) Mortgage-Backed Securities Tax-Exempt 24% Municipals 48% $1.6 Billion Portfolio Modified duration of 5.6 years Tax equivalent yield of 3.54% Net unrealized loss of $8.0 Million Collateralized Mortgage Obligations Corporate 24% Obligations U. S. Agencie
Slide 32: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2016 2017 2018 1. Customer Non-Maturity Deposits $4,428 $5,741 1 $6,268 2. Customer Time Deposits 747 1,0512 1,241 3. Brokered Deposits 381 381 246 4. Borrowings 572 701 538 5. Other Liabilities 60 57 51 6. Hybrid Capital 122 133 133 7. Common Equity 902
Slide 33: Deposit Detail
Deposit Detail (as of 12/31/2018) QTD Cost = 1.04% YTD Cost = .86% Total = $7.8 Billion Certificates & Certificates & Time Deposits Time Deposits >$100,000 <$100,000 Savings 8% 8% Deposits 29% Brokered Deposits 3% Demand Deposits 52% 33
Slide 34: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.61% 14.21% 14.24% 14.25% 14.01% 13.81% 14.00% 13.76% 13.69% 13.69% 13.00% 11.98% 12.00% 11.64% 11.16% 11.11% 11.21% 11.10
Slide 35: Net Interest Margin
Net Interest Margin Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Net Interest Income - FTE ($millions) $ 62.1 $ 64.9 $ 67.2 $ 78.9 $ 83.5 $ 82.5 $ 87.2 $ 89.2 $ 90.7 Fair Value Accretion $ 2.9 $ 4.3 $ 2.3 $ 3.2 $ 4.1 $ 3.2 $ 3.8 $ 3.2 $ 3.9 1 2 4 Tax Equivalent Yi
Slide 36: Non-Interest Income
Non-Interest Income ($ in Millions) 2016 2017 2018 1. Service Charges on Deposit Accounts $17.8 $ 18.7 $ 21.0 2. Wealth Management Fees 12.6 14.7 14.9 3. Card Payment Fees 15.0 16.1 18.0 4. Cash Surrender Value of Life Ins 4.3 6.6 4.2 5. Gains on Sales of Mortgage Loans 7.1 7.6 7.0 6. Gains on Sales
Slide 37: 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 of business in delivering whole-bank solutions for clients Business l
Slide 38: Mortgage Banking
Mortgage Banking Key component of Fee Mortgage Banking Revenue Income 8 $7.56M $7.0M $7.01M Mortgage Production for sale and 7 portfolio via commissioned and $6.5M salaried loan originators 6 Strong loan origination teams in 5 high-growth areas of Indianapolis and Columbus, OH 4 Centralized un
Slide 39: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2016 2017 2018 1. Salary & Benefits $102.6 $119.8 $131.7 2. Premises & Equipment 29.5 30.1 32.7 3. Intangible Asset Amortization 3.9 5.6 6.7 4. Professional & Other Outside Services 6.5 12.8 8.2 5. OREO/Credit-Related Expense 2.9 1.9 1.5 6. FDIC Expense 3.0 2.6 2
Slide 40: Earnings
Earnings ($ in Millions) 2016 2017 2018 1. Net Interest Income $226.5 $ 277.3 $ 338.8 2. Provision for Loan Losses (5.7) (9.1) (7.2) 3. Net Interest Income after Provision 220.8 268.2 331.6 4. Non-Interest Income 65.2 71.0 76.5 5. Non-Interest Expense (177.3) (205.6) (220.0) 6. Income before Income
Slide 41: Quarterly Earnings
Quarterly Earnings ($ in Millions) Q1-’18 Q2-’18 Q3-’18 Q4-’18 1. Net Interest Income $79.9 $84.6 $86.5 $87.8 2. Provision for Loan Losses (2.5) (1.7) (1.4) (1.6) 3. Net Interest Income after Provision 77.4 82.9 85.1 86.2 4. Non-Interest Income 19.6 18.2 19.5 19.2 5. Non-Interest Expense (53.7) (53.
Slide 42: 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 $ .85 $ 3.22 2. Dividends $ .18 $ .22 $ .22 $ .22
Slide 43: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value 0.22 .22 0.20 .18 $19.12 0.18 $16.96 0.16 .15 $15.85 .14 $14.68 0.14 $13.65 $12.17 0.12 .11 $10.95 0.10 $9.21 $9.64 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 2.57% Forward Dividend Yield Compound Annual Growth Rate of 9.56% Equ
Slide 44: Asset Quality Summary
Asset Quality Summary Change Change ($ in Millions) Linked Quarter 2018 Over 2017 2016 186.1 2017 Q3-'18 2018 $ % $ % 1. Non-Accrual Loans $ 30.0 $ 28.7 $ 20.4 $ 26.1 $ 5.7 27.9% $ (2.6) (9.1%) 2. Other Real Estate 9.0 10.4 8.9 2.2 (6.7) (75.3%) (8.2) (78.8%) 3. Renegotiated Loans 4.7 1.0 0.9 1.1 0.
Slide 45: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q4-'17 Q1-'18 Q2-'18 Q3-'18 Q4-'18 1. Beginning Allowance for Loan Losses (ALLL) $ 73.4 $ 75.0 $ 76.4 $ 77.5 $ 78.4 2. Net Charge-offs (Recoveries) 0.2 1.1 0.6 0.5 (0.5) 3. Provision Expense 1.8 2.5 1.7 1.4 1.7 4. Ending Allowance for Loan Losses (ALLL) $
Slide 46: 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 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 46
Slide 47: A Leading Midwest Banking Franchise Crossing $10 Billion
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 48: 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 Operates 20 Banking Centers 94 75 Southgate . Balance
Slide 49: 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. Cross $10 Billion with the acquisition of MBT Financial Corporation and org
Slide 50: Why Invest in First Merchants?
Why Invest in First Merchants? Forbes Magazine recognition as a Top 2 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 51: 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 52: 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 52
Slide 53: Appendix
ist Merchants Corporation Appendix FIRST MERCHANTS CORPORATION 200 E Jackson St, P.O. Box 782, Muncie, IN47305 | 705.747.1500 53
Slide 54: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 901,657 929,470 1,035,116 1,283,120 1,303,463 1,313,073 1,340,328 1,361,426 1,408,260 Adjust for Accumulated Other C
Slide 55: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Total Stockholders' Equity (GAAP) $ 901,657 $ 929,470 $ 1,035,116 $ 1,283,120 $ 1,303,463 $ 1,313,073 $ 1,340,328 $ 1,361,426 $ 1,408,260 Less: Preferred Stock (125) (
Slide 56: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 Non Interest Expense (GAAP) $ 177,359 $ 205,556 $ 53,687 $ 53,504 $ 55,022 $ 57,738 $ 219,951 Less: Intangible Asset Amortization (3,910) (5,647) (1,726) (1,718) (1,650) (1,625) (6,719) Les
Slide 57: 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 3Q18 2018 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 973,641 $ 1,404,303 $ 1,436,173 $ 1,456,220 Adjust for Accumulated Other Comprehen