First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2019 Earnings Presentation
55 slides from First Merchants's earnings presentation, Feb 11, 2020
Slide 1: First Merchants Corporation 4th Quarter 2019 Highlights
i First Merchants Corporation NASDAQ: FRME 4" Quarter Highlights 2.019 First tere 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 (as of December 31, 2019)
Company Profile (as of December 31, 2019) ($ in Thousands) First Merchants Market Information Common Shares Outstanding 55,368,482 ₎ First Merchants Bank formed in 1893, celebrating its Market Cap $2,302,775 126th anniversary. Dividend Yield 2.40% ₎ First Merchants Corporation, organized in 1982, is
Slide 5: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,260M Columbus $ 674M 823M Fort Wayne 1,035M 2,788M Indianapolis 1,887M 693M Lafayette 1,266M 1,039M Lakeshore 1,336M 702M Michigan 1,104M 1,163M Muncie 2,538M $8,468M Total $9,840M (as of December 31, 2019) Mission Statement To be the most responsi
Slide 6: Key FMC Deposit Market Share – FDIC Data June 30, 2019
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: First Merchants 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: 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 Systems Deposit and CRM Systems Online Banking System Mobile Banking System Customer
Slide 10: First Merchants 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 Exist in All Directions
Organic Growth Opportunities Exists in All Directions Lakeshore - NW Indiana MSA* Fort Wayne MSA Entered: 2013 Entered: 2017 Total Population: 686,417 Total Population: 413,458 Deposit Market Share: 15.33% Deposit Market Share: 10.16% 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 Treasury Management Annual Volume • Consumer: 85K Users • Automated Clearing House (ACH) • 1.5M logins monthly • # Originated: 2.5M Items ($8B) • 14K bill pay us
Slide 26: 4th Quarter 2019 Highlights
4th Quarter 2019 Highlights $47.8 Million of Net Income, or $0.87 Per Share Completed System Conversion of MBT Financial Corporation Integration Expense Totaled $1.9 Million, or $0.03 Per Share Winning Marketplace Execution Delivering Growth Organic Loan Growth of $161 Million, a 7.8% Annualized Gro
Slide 27: Full-Year 2019 Highlights
Full-Year 2019 Highlights Record Net Income of $164.5 Million, a 3.3% Increase over 2018 Earnings Per Share of $3.19 Expanded Franchise into Michigan Acquisition Expense Totaled $13.7 Million, or $0.21 Per Share Total Assets of $12.5 Billion; Grew by 26.0% over 2018 Organic Loan Growth of $507 Milli
Slide 28: Total Assets
Total Assets ($ in Millions) 2017 2018 2019 1. Investments $1,561 $1,633 $2,596 2. Loans 6,758 7,229 8,468 3. Allowance (75) (81) (80) 4. Goodwill & Intangibles 477 470 579 5. BOLI 224 225 288 6. Other 422 409 606 7. Total Assets $9,367 $9,885 $12,457 Annualized Asset Growth 29.9% 5.5% 26.0% 28
Slide 29: Loan Yield and Detail
Loan Yield and Detail (as of December 31, 2019) QTD Yield = 5.19% Commercial Agricultural YTD Yield = 5.27% Construction Land & Agricultural Real Estate Land Public Land Development Production Total Loans = $8.5 Billion Non-Owner 2.8% Finance/Other 9.3% 1.1% Occupied Commercial 22.5% 6.5% Variable =
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 December 31, 2019) Tax-Exempt Municipals Mortgage-Backed 47% Securities 35% $2.6 Billion Portfolio Modified duration of 5.1 years Tax equivalent yield of 3.23% Net unrealized gain of $71.5 Million Collateralized Mortgage Corporate U. S. Agencies Obligations Obligations 2%
Slide 32: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2017 2018 2019 1. Customer Non-Maturity Deposits $ 5,741 $ 6,268 $ 8,147 2. Customer Time Deposits 1,051 1,241 1,478 3. Brokered Deposits 381 246 215 Total Deposits $ 7,173 $ 7,755 $ 9,840 4. Borrowings 701 538 599 5. Other Liabilities 57 51 98 6. Hybrid
Slide 33: Deposit Detail
Deposit Detail (as of December 31, 2019) Certificates & Time Deposits Certificates & QTD Cost = 1.18% Time Deposits >$100,000 YTD Cost = 1.26% 8% <$100,000 Savings 8% Total = $9.8 Billion Deposits 29% Brokered Deposits 2% Demand Deposits 53% 33
Slide 34: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.37% 14.25% 14.29% 13.81% 14.00% 13.69% 13.69% 13.00% 11.98% 12.12% 12.05% 12.14% 12.13% 12.00% 11.64
Slide 35: Net Interest Margin
Net Interest Margin Q4 - '17 Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Net Interest Income - FTE ($millions) $ 83.5 $ 82.5 $ 87.2 $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 $ 101.2 Fair Value Accretion $ 4.1 $ 3.2 $ 3.8 $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 $ 5.0 Tax Equivalent Yield o
Slide 36: Non-Interest Income
Non-Interest Income ($ in Millions) 2017 2018 2019 1. Service Charges on Deposit Accounts $ 18.7 $ 21.0 $ 23.0 2. Wealth Management Fees 14.7 14.9 17.6 3. Card Payment Fees 16.1 18.0 20.2 4. Gains on Sales of Mortgage Loans 7.6 7.0 7.9 5. Derivative Hedge Fees 2.0 2.5 5.4 6. Other Customer Fees 1.7
Slide 37: Private Wealth Advisors
Private Wealth Advisors Delivers broad advisory capabilities and expertise through Strong organic growth in AUM (over 25%) in addition to local, engaged and empowered leaders the increase due to acquisition of Monroe Bank and Trust Strong balance sheet growth in Private Banking aiding Business lines
Slide 38: Mortgage Banking
Mortgage Banking Delivers mortgage lending across our Mortgage Banking Revenue ($ in Millions) markets via commissions and salaried 30 loan originators $22.19 $21.02 30 $19.80 25 $17.52 Strong loan origination teams in 25 high-growth areas of Indianapolis $15.77 and Columbus, OH 20 20 Centralized un
Slide 39: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2017 2018 2019 1. Salary & Benefits $119.8 $131.7 $144.0 2. Premises & Equipment 30.1 32.7 35.8 3. Intangible Asset Amortization 5.6 6.7 6.0 4. Professional & Other Outside Services 12.8 8.2 15.4 5. OREO/Credit-Related Expense 1.9 1.5 2.4 6. FDIC Expense 2.6 2.9
Slide 40: Earnings
Earnings ($ in Millions) 2017 2018 2019 1. Net Interest Income $ 277.3 $ 338.8 $ 356.7 2. Provision for Loan Losses (9.1) (7.2) (2.8) 3. Net Interest Income after Provision $ 268.2 $ 331.6 $ 353.9 4. Non-Interest Income 71.0 76.5 86.7 5. Non-Interest Expense (205.6) (220.0) (246.8) 6. Income before
Slide 41: Quarterly Earnings
Quarterly Earnings ($ in Millions) Q1-’19 Q2-’19 Q3-’19 Q4-’19 1. Net Interest Income $ 84.9 $ 85.3 $ 88.9 $ 97.6 2. Provision for Loan Losses (1.2) (0.5) (0.6) (0.5) 3. Net Interest Income after Provision $ 83.7 $ 84.8 $ 88.3 $ 97.1 4. Non-Interest Income 18.7 21.6 22.1 24.2 5. Non-Interest Expense
Slide 42: 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 1 $ .71 1 $ .87 1 $ 3.19 1 2. Dividends $ .22 $ .26 $ .
Slide 43: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 0.26 $21.94 0.24 .22 0.22 $19.12 0.20 $16.96 .18 $15.85 0.18 $14.68 .15 $13.65 0.16 .14 $12.17 0.14 $10.95 0.12 .11 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 2.50% Forward Dividend Yield Compound Annual Gro
Slide 44: Asset Quality Summary
Asset Quality Summary Change Change ($ in Millions) Linked Quarter 2019 Over 2018 186.12017 2018 Q3-'19 2019 $ % $ % 1. Non-Accrual Loans $ 28.7 $ 26.1 $ 22.7 $ 16.0 $ (6.7) (29.5%) $ (10.1) (38.7%) 2. Other Real Estate 10.4 2.2 7.1 7.5 0.4 5.6% 5.3 240.9% 3. Renegotiated Loans 1.0 1.1 0.6 0.8 0.2 3
Slide 45: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q1-'19 Q2-'19 Q3-'19 Q4-'19 1. Beginning Allowance for Loan Losses (ALLL) $ 80.6 $ 80.9 $ 81.3 $ 80.6 2. Less: Net Charge-offs (Recoveries) 0.9 0.1 1.3 0.8 3. Add: Provision Expense 1.2 0.5 0.6 0.5 4. Ending Allowance for Loan Losses (ALLL) $ 80.9 $ 81.3 $
Slide 46: Total Return Performance
Total Return Performance Total Return Percentage Return Total 46
Slide 47: Looking Forward . . .
Looking Forward . . . Establish First Merchants Brand in Michigan Market Leadership Relationship Management and Growth Expand Community Lending Model throughout our Primary Metro Markets Grow Net Interest Income, Continue Pricing Discipline Evolving Digital Delivery Investment Strategy Top 5 Ranking
Slide 48: 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 48
Slide 49: Research Coverage
Research Coverage PIPER | SANDLER ran KEEFE, BRUYETTE & WOODS Seem opecialists in Financial Services ish>.°5 =~ Stephens iFirst Merchants Corporation
Slide 50: 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 50
Slide 51: Appendix
Appendix f First Merchants Corporation
Slide 52: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,303,463 1,313,073 1,340,328 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 Adjust for Accumulated Oth
Slide 53: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Total Stockholders' Equity (GAAP) $ 1,303,463 $ 1,313,073 $ 1,340,328 $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 $ 1,786,437 Less: Preferred Stock (12
Slide 54: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2017 2018 1Q19 2Q19 3Q19 4Q19 2019 Non Interest Expense (GAAP) $ 205,556 $ 219,951 $ 56,621 $ 57,587 $ 67,354 $ 65,201 $ 246,763 Less: Intangible Asset Amortization (5,647) (6,719) (1,528) (1,520) (1,356) (1,590) (5,994) Les
Slide 55: Appendix – Non-GAAP Reconciliation: Construction and Investment Real Estate Concentrations
Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2017 2018 3Q19 2019 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,404,303 $ 1,456,220 $ 1,764,062 $ 1,787,006 Adjust for Accumulated Other Compreh