First Merchants Corporation · NASDAQ:FRME
First Merchants — Q3 2019 Earnings Presentation
53 slides from First Merchants's earnings presentation, Nov 14, 2019
Slide 1: First Merchants Corporation 3rd Quarter 2019 Highlights
i First Merchants Corporation NASDAQ: FRME 3 Quarter Highlights 2.019 —_. ie BEST ,|_ ToworKin 2\| INDIANA First Merchants Corporation ) 200 E. Jackson St., P.O. Box 792, Muncie, IN 47305 ) 765.747.1500
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: Why Invest in First Merchants?
Why Invest in First Merchants? 3 3
Slide 4: Company Profile
Company Profile (as of September 30, 2019) ($ in Thousands) First Merchants Market Information Common Shares Outstanding 55,345,672 ₎ First Merchants Bank formed in 1893, celebrating its Market Cap $2,083,211 126th anniversary. Dividend Yield 2.55% ₎ First Merchants Corporation, organized in 1982, i
Slide 5: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,314M Columbus $ 628M 798M Fort Wayne 1,019M 2,646M Indianapolis 1,893M 642M Lafayette 1,218M 989M Lakeshore 1,335M 735M Michigan 1,096M 1,183M Muncie 2,576M $8,307M Total $9,765M (as of September 30, 2019) Mission Statement To be the most responsiv
Slide 6: Key FMC Deposit Market Share
Key FMC Deposit Market Share – FDIC Data June 30, 2019 County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 55.53% $ 1,522,233 Monroe, MI Michigan (Established) 1 48.66% 1,005,960 Madison County, IN Indianapolis (Growth) 1 26.62% 398,825 Jasper County, IN
Slide 7: First Merchants Strategy
First Merchants Strategy “Service-driven alternative to super-regional bank competitors. Deliver superior service with presence close to the customer for . . . ” Commercial Banking Consumer Banking Business Banking Mortgage Banking Commercial & Industrial Agriculture Private Wealth Advisory Sponsor
Slide 8: Strategy: Commercial Bank
First Merchants Strategy Commercial Bank Located in Prime Growth Commercial Banking Markets Indianapolis, Indiana Monroe, Michigan Columbus, Ohio Fort Wayne, Indiana Lafayette, Indiana Lakeshore - Northwest Indiana Hire the Best Talent Supported with the Finest: Sales Management Process Credit and T
Slide 9: 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 Systems Deposit and CRM Systems Online Banking System Mobile Banking System Customer
Slide 10: Strategy: Private Wealth Advisors
First Merchants Strategy Private Wealth Advisors Comprehensive and coordinated approach to personal wealth management Expertise in Investment Management, Private Banking, Fiduciary, Estate and Financial Planning Strengthen commercial relationships with personal services for executives/owners and ret
Slide 11: Line-of-Business Strategies
Line-of-Business Strategies COMMERCIAL CONSUMER BANKING BANKING WEALTH WEALTH ADVISORY ADVISORY 11
Slide 12: Organic Growth Opportunities Exists in All Directions
Organic Growth Opportunities Exists in All Directions Lakeshore - NW Indiana MSA* Fort Wayne MSA Entered: 2013 Entered: 2017 Total Population: 686,417 Total Population: 413,458 Deposit Market Share: 15.33% Deposit Market Share: 10.20% FOUNDING MARKET Lafayette MSA Muncie MSA Columbus, Ohio MSA Enter
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 Accessibility 1st i
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 and towns with Notable Major Employers populations of at least 5,000* ₎ The population data released by the U.S. Census Bureau show suburban Hami
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: Lakeshore Market
Lakeshore Market ₎ Indiana’s second-most populous market Notable Major Employers ₎ 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 18: Fort Wayne Market
Fort Wayne Market ₎ 2nd Largest MSA in the State of Indiana Notable Major Employers ₎ 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: Monroe, Michigan Market
Monroe, Michigan Market Notable Major Employers ₎ Monroe is located on the western shore of Lake Erie, approximately 14 miles north of Toledo, Ohio and 25 miles south of Detroit ₎ Michigan is within 500 miles of nearly half the U.S. and Canadian population and commerce centers providing unparalleled
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: Acquisition Experience
Acquisition Experience * Lafayette ae Us 2015 @ 1293 Bes 39 Be013 = cooper ; ai, State Bank * Merchants * Pendleton * Lincoln * Citizens National Bank| — Banking Bank Financial | * Ameriana Bank Bank i ii 1991 1999 fi] D200: 2003 Boor Door. * First ° First * Frances * Commerce —« Shell * Community *
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 Scalable Technology and Operations Center Achieve Announced Financial Return Targets 23
Slide 24: Operational Delivery Highlights
Operational Delivery Highlights Strategic differentiator in support of growth and scalability Operational services execution “hub” focusing on value creation Functional focus: Operations Project Management Technology Risk Management Vendor Management Credit Administration Located on the interstate l
Slide 25: Operational Delivery Highlights: Customer, Digital Channel & Transaction Activity
Operational Delivery Highlights Customer, Digital Channel & Transaction Activity Retail Households: 182,956 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 users
Slide 26: 3rd Quarter 2019 Highlights
3rd Quarter 2019 Highlights Acquisition of MBT Financial Corporation Completed on September 1, 2019 $36.8 Million of Net Income, or $0.71 Per Share Acquisition Expense Totaled $11.2 Million, or $0.17 Per Share Total Assets of $12.3 Billion; Grew by 25.9% over 3Q 2018 Annualized Organic Loan Growth o
Slide 27: Total Assets
Total Assets ($ in Millions) 2017 2018 Q1-’19 Q2-’19 Q3-’19 1. Investments $1,561 $1,633 $ 1,863 $ 2,093 $ 2,489 2. Loans 6,758 7,229 7,303 7,517 8,307 3. Allowance (75) (81) (81) (81) (81) 4. Goodwill & Intangibles 477 470 468 467 580 5. BOLI 224 225 226 226 287 6. Other 422 409 432 516 743 7. Tota
Slide 28: Loan Yield and Detail
Loan Yield and Detail (as of September 30, 2019) QTD Yield = 5.28% Commercial Agricultural Agricultural Real Estate Construction Land & Public YTD Yield = 5.30% Land Production Non-Owner Land Development Finance/Other Total Loans = $8.3 Billion 2.9% 1.1% Occupied 8.1% Commercial 24.2% 5.7% Variable
Slide 29: 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 30: Investment Portfolio
Investment Portfolio (as of September 30, 2019) Tax-Exempt Mortgage-Backed Municipals 45% Securities 33% $2.5 Billion Portfolio Modified duration of 4.7 years Tax equivalent yield of 3.22% Net unrealized gain of $75.8 Million Collateralized Corporate Mortgage Obligations U. S. Obligations 1% Agencie
Slide 31: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2017 2018 Q1-’19 Q2-’19 Q3-’19 1. Customer Non-Maturity Deposits $5,741 $6,268 $ 6,439 $ 6,668 $ 7,993 2. Customer Time Deposits 1,051 1,241 1,375 1,450 1,543 3. Brokered Deposits 381 246 234 201 229 Total Deposits 7,173 7,755 8,048 8,319 9,765 4. Borrow
Slide 32: Deposit Detail
Deposit Detail (as of September 30, 2019) Certificates & QTD Cost = 1.33% Time Deposits Certificates & >$100,000 Time Deposits YTD Cost = 1.29% 8% <$100,000 Savings 8% Total = $9.8 Billion Deposits 29% Brokered Deposits 2% Demand Deposits 53% 32
Slide 33: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.37% 14.25% 13.81% 14.00% 13.76% 13.69% 13.69% 13.00% 12.12% 12.14% 11.98% 12.05% 12.00% 11.64% 11.21
Slide 34: Net Interest Margin
Net Interest Margin Q3 - '17 Q4 - '17 Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Net Interest Income - FTE ($ millions) $ 78.9 $ 83.5 $ 82.5 $ 87.2 $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 Fair Value Accretion $ 3.2 $ 4.1 $ 3.2 $ 3.8 $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 Tax Equivalent Yield o
Slide 35: Non-Interest Income
Non-Interest Income ($ in Millions) 2017 2018 Q1-’19 Q2-’19 Q3-’19 1. Service Charges on Deposit Accounts $ 18.7 $ 21.0 $ 5.1 $ 5.4 $ 6.1 2. Wealth Management Fees 14.7 14.9 3.8 3.9 4.4 3. Card Payment Fees 16.1 18.0 4.8 4.9 5.2 4. Gains on Sales of Mortgage Loans 7.6 7.0 1.3 1.7 2.2 5. Derivative H
Slide 36: Private Wealth Advisors
Private Wealth Advisors Delivers broad advisory capabilities and expertise through Integrated assets of Monroe Bank and Trust included in local, engaged and empowered leaders asset levels – strong mix of Agency, IRA and Fiduciary business Business lines include: Private Banking continuing to drive e
Slide 37: Mortgage Banking
Mortgage Banking Key component of Fee Income Mortgage Banking Revenue 8 ₎ Mortgage Production for sale and $7.56M $7.0M $7.01M 7 portfolio via commissioned and $6.5M salaried loan originators 6 ₎ Strong loan origination teams in high-growth areas of Indianapolis 5 and Columbus, OH 4 ₎ Centralized un
Slide 38: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2017 2018 Q1-’19 Q2-’19 Q3-’19 1. Salary & Benefits $119.8 $131.7 $33.0 $32.7 $38.9 2. Premises & Equipment 30.1 32.7 8.7 8.6 8.8 3. Intangible Asset Amortization 5.6 6.7 1.5 1.5 1.4 4. Professional & Other Outside Services 12.8 8.2 1.9 2.4 8.3 5. OREO/Credit-Rel
Slide 39: Earnings
Earnings ($ in Millions) 2017 2018 Q1-’19 Q2-’19 Q3-’19 1. Net Interest Income $ 277.3 $ 338.8 $84.9 $85.3 $88.9 2. Provision for Loan Losses (9.1) (7.2) (1.2) (0.5) (0.6) 3. Net Interest Income after Provision 268.2 331.6 83.7 84.8 88.3 4. Non-Interest Income 71.0 76.5 18.7 21.6 22.1 5. Non-Interes
Slide 40: Per Share Results
Per Share Results 2018 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .74 $ .80 $ .83 $ .85 $ 3.22 2. Dividends $ .18 $ .22 $ .22 $ .22 $ .84 3. Tangible Book Value $17.14 $17.71 $18.16 $19.12 2019 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .78 $ .83 $ .71 1 – $2.32 2. Dividends $ .22 $ .26 $ .26 – $ .74
Slide 41: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 0.26 0.24 $21.26 .22 0.22 $19.12 0.20 .18 $16.96 0.18 $15.85 $14.68 .15 0.16 .14 $13.65 0.14 $12.17 $10.95 .11 0.12 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 2.76% Forward Dividend Yield Compound Annual Gro
Slide 42: Asset Quality Summary
Asset Quality Summary Change ($ in Millions) FMB Linked Quarter 1 1 186.12017 2018 Q1-'19 Q2-'19 Q3-'19 MBT Q3-'19 $ $ % 1. Non-Accrual Loans $ 28.7 $ 26.1 $ 28.0 $ 25.6 $ 17.2 $ 5.5 $ 22.7 $ (8.4) $ (2.9) (11.3%) 2. Other Real Estate 10.4 2.2 1.9 1.1 7.0 0.1 7.1 5.9 6.0 545.5% 3. Renegotiated Loans
Slide 43: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q4-'18 Q1-'19 Q2-'19 Q3-'19 1. Beginning Allowance for Loan Losses (ALLL) $ 78.4 $ 80.6 $ 80.9 $ 81.3 2. Less: Net Charge-offs (Recoveries) (0.5) 0.9 0.1 1.3 3. Add: Provision Expense 1.7 1.2 0.5 0.6 4. Ending Allowance for Loan Losses (ALLL) $ 80.6 $ 80.9
Slide 44: Total Return Performance
Total Return Performance Total Return Percentage Return Total 44
Slide 45: Strategy and Tactics Overview
Strategy and Tactics Overview Looking Forward… Integration of Monroe Bank & Trust in the 4Q 2019 Grow Net Interest Income, Despite Margin Pressure Maintain Loan and Deposit Pricing Discipline Leverage Balance Sheet Position. . . Liquidity and Capital Optimization Sustain Organic Growth Protocol. Man
Slide 46: Why Invest in First Merchants?
Why Invest in First Merchants? High Performance Financial Metrics Attractive Long-Term Deposit Market Shares Commercial Presence that Creates a Client Preference Successful Acquisition and Integration Track Record Focused on Providing Sustainable Shareholder Value 46
Slide 47: Research Coverage
Research Coverage S ANDLER maa KEEFE, BRUYETTE & WOODS O "NEILL Specialists in Financial Services + PA RT N E R S A Stifel Company Piper Jaffray« Steph ens GROUP pm D\ADAVIDSON Ae x cowessy RAYMOND JAMES iFirst Merchants Corporation
Slide 48: Investor Inquiries
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 Weaver, Investor Relations 765.521.7619 nweaver@firstmerchants.com 48
Slide 49: Appendix
Appendix f First Merchants Corporation
Slide 50: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,283,120 1,303,463 1,313,073 1,340,328 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 Adjust for Accumulated Oth
Slide 51: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 Total Stockholders' Equity (GAAP) $ 1,283,120 $ 1,303,463 $ 1,313,073 $ 1,340,328 $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 Less: Preferred Stock (12
Slide 52: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2017 2018 1Q19 2Q19 3Q19 Non Interest Expense (GAAP) $ 205,556 $ 219,951 $ 56,621 $ 57,587 $ 67,354 Less: Intangible Asset Amortization (5,647) (6,719) (1,528) (1,520) (1,356) Less: OREO and Foreclosure Expenses (1,903) (1,4
Slide 53: Appendix – Non-GAAP Reconciliation: Real Estate Concentrations
Appendix – Non-GAPP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2017 2018 1Q19 2Q19 3Q19 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,404,303 $ 1,456,220 $ 1,487,947 $ 1,513,662 $ 1,764,062 Adjust for Accumula