First Merchants Corporation · NASDAQ:FRME
First Merchants — Q1 2018 Earnings Presentation
53 slides from First Merchants's earnings presentation, May 3, 2018
Slide 1: First Quarter 2018 Highlights
1 First Quarter 2018 Highlights
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?
Why Invest in First Merchants? 3
Slide 4: Financial Highlights and Company Profile
Financial Highlights Assets $9,472,796 Loans, Net $6,825,276 Deposits $7,327,635 Tangible Common Equity $838,171 TCE/TA 9.32% 2017 Net Income – YTD $36,679 2017 ROAA – YTD 1.57% 2017 ROATCE - YTD 18.13% NPAs/Loans + OREO 0.55% Company Profile (as of 3/31/2018) Market Information Common Shares Outsta
Slide 5: Key Market Profiles
Key Market Profiles Loans Deposits $1,162M Columbus $590M 781M Fort Wayne 969M 2,493M Indianapolis 1,562M 624M Lafayette 1,027M 1,059M Muncie 2,102M 783M Northwest 1,078M $6,902M Total $7,328M (as of March 31, 2018) Mission Statement To be the most responsive, knowledgeable and high-performing bank
Slide 6: Market position by county
County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 48.98% $ 1,068,364 Jasper County, IN Lafayette (Established) 1 31.54% 205,997 White County, IN Lafayette (Established) 1 33.69% 158,748 Wells County, IN Fort Wayne (Growth) 1 26.35% 119,473 Jay County,
Slide 7: First Merchants "Whole Bank" Strategy
First Merchants “Whole Bank” Strategy Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition 7
Slide 8: 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 • Northwest Indiana • Hire the Best Talent Supported with the Finest: • Sales Management Process • Lending and Cash Mana
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 Deposit and CRM Systems • Highly Usable Online Banking System • Widely Ava
Slide 10: First Merchants Strategy: We specialize in our communities
First Merchants Strategy “We specialize in our communities” “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 •
Slide 11: How We Deliver: markets and lines of business
WEALTH ADVISORY MORTGAGECOMMERCIAL BANKING RETAIL BANKING Supported by LOB Strategies Indianapolis Higher Growth Brown, Hamilton, Hancock, Hendricks, Johnson, Marion, Morgan, Shelby Counties Columbus, OH Higher Growth Franklin County, OH Lafayette Established Carroll, Clinton, Jasper, Montgomery, Ti
Slide 12: Market entry dates and deposit market share
Lafayette MSA Entered: 2002 Total Population: 220,164 Deposit Market Share: 17.18% Indianapolis MSA Entered: 1998 Total Population: 2,031,027 Deposit Market Share: 3.41% Columbus, Ohio MSA Entered: 2003 Total Population: 2,075,642 Deposit Market Share: 1.00% Northwest Indiana MSA* Entered: 2013 Tota
Slide 13: Indiana business climate rankings
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 Nation
Slide 14: Delaware County, IN
Delaware County, IN* Rank Branches Deposits Mkt. Share 1 First Merchants Corporation 11 $ 1,068,364 48.98% 2 Mutual First Financial 7 537,800 24.66% 3 J.P. Morgan Chase 4 238,666 10.94% 4 Old National Bancorp 4 199,567 9.15% 5 Star Financial Group 3 135,667 6.22% 6 Woodforest Financial Group 1 957 0
Slide 15: Hamilton County, IN
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 Hamilton County, IN** Rank Branches Deposits Mkt. Share 1 First Internet Bancorp 1 $ 1,746,030 19.11% 2 JPMorgan Chase & Co. 15 1,558,738 17.06% 3 Merchants Bancorp 2 1,254,403 13.73% 4 PNC F
Slide 16: Tippecanoe County, IN
7.27% 8.00% 3.77%3.77% 2.11% 5.19% U.S. Indiana Tippecanoe Co. HHI Pop. Tippecanoe County, IN** Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 6 $ 824,748 31.85% 2 First Merchants Corporation 9 504,153 19.47% 3 Regions Financial Corp 6 311,047 12.01% 4 Old National Bancorp 5 259,975 10.04%
Slide 17: Lake County, IN
Lake County, IN* Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 23 $ 1,947,270 21.89% 2 First Bancshares, Inc. 29 1,853,302 20.83% 3 First Midwest Bancorp 17 1,011,308 11.37% 4 First Financial Bancorp 9 776,948 8.76% 5 Northwest Indiana Bancorp 15 762,955 8.58% 6 First Merchants Corporatio
Slide 18: Allen County, IN
Allen County, IN* Rank Branches Deposits Mkt. Share 1 Wells Fargo 13 $ 1,860,166 27.59% 2 JP Morgan Chase & Co. 12 1,144,376 16.97% 3 Lakeland Financial Corp. 5 707,704 10.50% 4 PNC Financial Services Group 11 654,070 9.70% 5 First Merchants Corporation 8 585,513 8.68% 6 Old National Bancorp 5 489,3
Slide 19: Franklin County, OH
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 Ohio S
Slide 20: 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 20
Slide 21: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 21
Slide 22: 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 First Merchants Acquisition Process 22
Slide 23: Operational Delivery Highlights
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 24: Digital channel and cash management volumes
Retail Households: 185K Online Banking/Digital Channel • Consumer: 83K Users • 1.3M logins monthly • 14K bill pay users • 90K bill payment transactions monthly ($30M) Cash Management Annual Volume • Automated Clearing House (ACH) • # Originated: 2.5M Items ($8B) • # Received: 14M Items ($23B)
Slide 25: 1st Quarter 2018 Highlights
1st Quarter 2018 Highlights Earnings Per Share of $ .74, a 32.1% Increase over 1Q2017 $36.7 Million of Net Income, a 58.1% Increase over 1Q2017 Total Assets of $9.5 Billion Grew by 29.3% over 1Q2017 Annualized Organic Loan & Deposit Growth of Nearly 9% 1.57% Return on Average Assets, 11.21
Slide 26: Total Assets
Total Assets ($ in Millions) 1 2017 Loans include acquired loans of $225 from The Arlington Bank and $725 from Independent Alliance Banks 2 Annualized from 12.31.2017 Annualized Asset Growth 29.9% 4.5% 1 2 26 2016 2017 Q1-’17 Q1-’18 1. Investments $1,305 $1,561 $1,327 $1,544 2. Loans 5,143 6,758 5,2
Slide 27: Loan and Yield Detail
Loan and Yield Detail (as of 3/31/2018) Commercial & Industrial 22.5% Commercial Real Estate Owner-Occupied 10.3% Commercial Real Estate Non-Owner Occupied 25.5% Construction Land & Land Development 8.5% Agricultural Land 3.5% Agricultural Production 1.4% Public Finance/Other Commercial 5.8% Residen
Slide 28: CRE Loan Concentration
CRE Loan Concentration First Merchants Results in Relation to FDIC Guidelines 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 Quar te r- En d GUIDELINE #1 0.0% 100.0% 200.0% 300.0% 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q201
Slide 29: Investment Portfolio
Investment Portfolio (as of 3/31/2018) Mortgage-Backed Securities 23% Collateralized Mortgage Obligations 26% U. S. Agencies 2% Corporate Obligations 2% Tax-Exempt Municipals 47% $1.5 Billion Portfolio Modified duration of 5.5 years Tax equivalent yield of 3.47% Net unrealized loss of $10.3
Slide 30: Total Liabilities and Capital
Total Liabilities and Capital 2016 2017 Q1-’17 Q1-’18 1. Customer Non-Maturity Deposits $4,428 $5,741 $4,426 $5,850 2. Customer Time Deposits 747 1,051 789 1,137 3. Brokered Deposits 381 381 420 341 4. Borrowings 572 701 587 644 5. Other Liabilities 60 57 53 55 6. Hybrid Capital 122 133 122 133 7. C
Slide 31: Deposit Detail
Deposit Detail (as of 3/31/2018) YTD Cost = .65% Total = $7.3 Billion Demand Deposits 51% Savings Deposits 29% Certificates & Time Deposits of >$100,000 7% Certificates & Time Deposits of <$100,000 8% Brokered Deposits 5% 31
Slide 32: Capital Ratios
Capital Ratios 11.42% 11.39% 11.05% 11.10% 11.16% 11.11% 11.03% 11.00% 11.04% 9.26% 9.43% 9.48% 9.24% 9.50% 9.68% 9.39% 9.30% 9.32% 14.79% 14.67% 14.18% 14.21% 14.24% 14.01% 13.76% 13.69% 13.69% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q1
Slide 33: Net Interest Margin
Net Interest Margin 3.83% 3.86% 3.94% 3.90% 3.98% 3.95% 4.03% 4.10% 3.92% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% $48 $52 $56 $60 $64 $68 $72 $76 $80 $84 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Q1 - '18 Net Interest Income - FTE ($millions) Net Interest Margin
Slide 34: Non-Interest Income
Non-Interest Income 2016 2017 Q1-’17 Q1-’18 1. Service Charges on Deposit Accounts $17.8 $ 18.7 $ 4.2 $ 4.8 2. Wealth Management Fees 12.6 14.7 3.4 3.8 3. Card Payment Fees 15.0 16.1 3.7 4.6 4. Cash Surrender Value of Life Ins 4.3 6.6 0.9 1.2 5. Gains on Sales of Mortgage Loans 7.1 7.6 1.3 1.8 6. Ga
Slide 35: Non-Interest Income YTD 3/31/2018
24.5% 19.4% 23.5% 6.1% 9.2% 8.2% 9.2% Service Charges on Deposit Accounts - $4.8 Wealth Management Fees - $3.8 Card Payment Fees - $4.6 Cash Surrender Value of Life Ins - $1.2 Gains on Sales Mortage Loans - $1.8 Gains on Sales of Securities - $1.6 Other - $1.8 Total - $19.6 Non-Interest Income YTD 3
Slide 36: Private Wealth Advisors
Private Wealth Advisors Delivers broad advisory capabilities and expertise through local, engaged and empowered leaders Business lines include: Investment Management – Personal and Institutional Retirement Plan Services Trust Administration Private Banking Retail Brokerage (not reflected b
Slide 37: Mortgage Banking: Key component of Fee Income
Key component of Fee Income 0 1 2 3 4 5 6 7 8 2014 2015 2016 2017 Mortgage Banking Revenue Servicing fees Gain on Sale $4.26M $5.88M $6.24M $6.46M $640 $620 $760 $1.1M Mortgage Banking $4.9M $6.5M $7.0M $7.56M 37 Mortgage Production for sale and portfolio via commissioned and salaried loan origina
Slide 38: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2016 2017 Q1-’17 Q1-’18 1. Salary & Benefits $102.6 $119.8 $ 25.7 $ 32.2 2. Premises & Equipment 29.5 30.1 7.0 8.4 3. Intangible Asset Amortization 3.9 5.6 0.9 1.7 4. Professional & Other Outside Services 6.5 12.8 1.7 1.5 5. OREO/Credit-Related Expense 2.9 1.9 0.
Slide 39: Earnings
Earnings 2016 2017 Q1-’17 Q1-’18 1. Net Interest Income $226.5 $ 277.3 $ 61.0 $ 79.9 2. Provision for Loan Losses (5.7) (9.1) (2.4) (2.5) 3. Net Interest Income after Provision 220.8 268.2 58.6 77.4 4. Non-Interest Income 65.2 71.0 14.9 19.6 5. Non-Interest Expense (177.3) (205.6) (43.1) (53.7) 6. I
Slide 40: 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 – – – $ .74 2. Dividends $ .18 – – – $ .18 3. Tangible Book V
Slide 41: Dividends and Tangible Book Value
Dividends and Tangible Book Value $9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.96 $17.14 .01 .03 .05 .08 .11 .14 .15 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 1.73% Forward Dividend Yield = 24.3% Dividend Payout Ratio Quarterly Dividends Tangible Book Value .18 41
Slide 42: Asset Quality Summary
Asset Quality Summary ($ in Millions) 2016 2017 Q1-'17 Q1-'18 $ % $ % 186.1 1. Non-Accrual Loans 30.0$ 28.7$ 27.9$ 27.5$ (1.2)$ (4.2%) (0.4)$ (1.4%) 2. Other Real Estate 9.0 10.4 8.3 9.7 (0.7) (6.7%) 1.4 16.9% 3. Renegotiated Loans 4.7 1.0 0.9 0.6 (0.4) (40.0%) (0.3) (33.3%) 4. 90+ Days Delinquent L
Slide 43: ALL and Fair Value Summary
ALL and Fair Value Summary 43 ($ in Millions) Q2-'17 Q3-'17 Q4-'17 Q1-'18 1. Beginning Allowance for Loan Losses (ALLL) 68.2$ 70.5$ 73.4$ 75.0$ 2. Net Charge-offs (Recoveries) 0.6 (0.8) 0.2 1.1 3. Provision Expense 2.9 2.1 1.8 2.5 4. Ending Allowance for Loan Losses (ALLL) 70.5$ 73.4$ 75.0$ 76.4$ 5.
Slide 44: Total Return Performance
GiFirst Merchants Corporation Total Return Performance Total Return Percentage 300.00 0 250.00 ut - 200.00 eet 150.00 - @=First Merchants Corporation Russell 2000 —1~SNL Bank $58-$10B 03/31/2012 03/31/2013, 03/31/2014 03/31/2015 03/31/2016 03/31/2017 03/31/2018 FIRST MERCHANTS CORPO! 200 Jadison St
Slide 45: FMC Strategy and Tactics Overview
FMC Strategy and Tactics Overview 45 Looking Forward . . . Build market presence and cultivate the First Merchants’ Brand in former Arlington Bank and Independent Alliance Bank communities Capitalize on talent opportunities from performance and preferred employer recognitions Build out of spec
Slide 46: Why Invest in First Merchants?
Why Invest in First Merchants? Forbes Magazine recognition as a Top 5 Ranking in “America’s Best Banks” 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 At
Slide 47: Research Coverage
Grist Merchants Corporation Research Coverage SANDLER =~) KEEFE, BRUYETTE & WOODS O' NEILL Specialists ii Financial Services + PARTNERS err Piper Jaffray, Stephens RY FIG GPs, D|A\DAVIDSON _ sé Partners
Slide 48: 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 48
Slide 49: Appendix
GiFirst Merchants Corporation Appendix
Slide 50: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation 50 CAPITAL RATIOS (dollars in thousands): 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 867,263 887,550 900,865 901,657 929,470 1,035,116 1,283,120 1,303,463 1,313,073 Adjust for Accumulated Other Comp
Slide 51: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation 51 TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Total Stockholders' Equity (GAAP) 867,263$ 887,550$ 900,865$ 901,657$ 929,470$ 1,035,116$ 1,283,120$ 1,303,463$ 1,313,073$ L ss: Preferred Stock (125) (125) (125) (
Slide 52: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation 52 EFFICIENCY RATIO (dollars in thousands): 2016 1Q17 2017 1Q18 Non Interest Expense (GAAP) 177,359$ 43,099$ 205,556$ 53,687$ Less: Intangible Asset Amortization (3,910) (903) (5,647) (1,726) Less: OREO and Foreclosure Expenses (2,877) (531) (1,903) (402) Adjusted
Slide 53: Appendix – Non-GAAP Reconciliation: Real Estate Concentrations
Appendix – Non-GAAP Reconciliation 53 CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2016 1Q17 2017 1Q18 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) 973,641$ 993,130$ 1,404,303$ 1,414,109$ Adjust for Accumulated Other Comprehensiv