First Merchants Corporation · NASDAQ:FRME

First Merchants — Q4 2016 Earnings Presentation

36 slides from First Merchants's earnings presentation, Jan 26, 2017

  1. Slide 1: 4th Quarter 2016 Earnings Highlights

    FIRST MERCHANTS CORPORATION THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 4th Quarter 2016 Earnings Highlights January 26, 2017 NASDAQ: FRME Michael C. Rechin Mark K. Hardwick John J. Martin President Executive Vice President Executive Vice President Chief Executive Officer Chief

  2. Slide 2: Forward-Looking Statements

    THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 2 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 t

  3. Slide 3: Forward-Looking Statements; Additional Information

    THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 3 ® Forward-Looking Statements 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 p

  4. Slide 4: First Merchants 2016 Performance

    THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com 4 First Merchants 2016 Performance  Full-Year Highlights • Record Net Income of $81.1 Million, a 24% Increase over 2015 • Earnings Per Share of $1.98, a 15.1% Increase over 2015; Highest in Company’s History • Total Assets of $7.2 Bi

  5. Slide 5: Mark K. Hardwick, Chief Financial Officer and Chief Operating Officer

    Mark K. Hardwick Executive Vice President Chief Financial Officer and Chief Operating Officer ® 5

  6. Slide 6: Total Assets

    6 Total Assets ($ in Millions) THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 2014 2015 2016 1. Investments $1,181 $1,277 $1,305 2. Loans Held for Sale 7 10 3 3. Loans 3,925 4,694 5,140 4. Allowance (64) (62) (66) 5. CD&I & Goodwill 219 260 259 6. BOLI 169 201 202 7. Other 387 3

  7. Slide 7: Loan and Yield Detail

    ® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Commercial & Industrial 23.2% Commercial Real Estate Owner-Occupied 10.3% Commercial Real Estate Non-Owner Occupied 24.8% Construction Land & Land Development 8.1% Agricultural Land 2.9% Agricultural Production 1.6% Public Finance/O

  8. Slide 8: Investment Portfolio

    ® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Mortgage- Backed Securities 32% Collateralized Mortgage Obligations 19% U. S. Agencies 2% Corporate Obligations 1% Corporate Equities 1% Tax-Exempt Municipals 45% Investment Portfolio (as of 12/31/2016)  $1.3 Billion Portfolio  Mo

  9. Slide 9: Total Liabilities and Capital

    2014 2015 2016 1. Customer Non-Maturity Deposits $3,523 $4,096 $4,428 2. Customer Time Deposits 784 880 747 3. Brokered Deposits 334 314 381 4. Borrowings 290 446 572 5. Other Liabilities 44 51 60 6. Hybrid Capital 122 123 122 7. Common Equity 727 851 902 8. Total Liabilities and Capital $5,824 $6,7

  10. Slide 10: Deposit Detail

    ® THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Deposit Detail (as of 12/31/2016) QTD Cost = .37% YTD Cost = .38% Total = $5.6 Billion 10 Demand Deposits 52% Savings Deposits 28% Certificates & Time Deposits of >$100,000 5% Certificates & Time Deposits of <$100,000 8% Brokered De

  11. Slide 11: Capital Ratios

    11.40% 11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 9.06% 9.21% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 15.34% 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 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% 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q1

  12. Slide 12: Net Interest Margin

    3.80% 3.78% 3.81% 3.85% 3.75% 3.83% 3.86% 3.94% [VALUE] 3.69% 3.61% 3.65% 3.71% 3.62% 3.66% 3.65% 3.70% 3.72% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% $36 $40 $44 $48 $52 $56 $60 $64 Q4 - '14 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Net Interest Income - FTE ($m

  13. Slide 13: Non-Interest Income

    2014 2015 2016 1. Service Charges on Deposit Accounts $15.7 $16.2 $17.8 2. Wealth Management Fees 11.7 11.3 12.6 3. Insurance Commission Income 7.4 4.1 4. Card Payment Fees 11.8 13.4 15.0 5. Cash Surrender Value of Life Ins 3.7 2.9 4.3 6. Gains on Sales Mortgage Loans 4.9 6.5 7.1 7. Securities Gains

  14. Slide 14: Non-Interest Expense

    14 Non-Interest Expense 2014 2015 2016 1. Salary & Benefits $ 96.5 $101.9 $102.6 2. Premises & Equipment 23.2 25.5 29.5 3. Core Deposit Intangible Amortization 2.4 2.8 3.9 4. Professional & Other Outside Services 8.1 9.9 6.5 5. OREO/Credit-Related Expense 3.4 3.9 2.9 6. FDIC Expense 3.7 3.7 3.0 7. O

  15. Slide 15: Earnings

    15 2014 2015 2016 1. Net Interest Income $ 187.0 $ 196.4 $ 226.5 2. Provision for Loan Losses (2.6) (0.4) (5.7) 3. Net Interest Income after Provision 184.4 196.0 220.8 4. Non-Interest Income 61.8 69.8 65.2 5. Non-Interest Expense (163.9) (174.8) (177.3) 6. Income before Income Taxes 82.3 91.0 108.7

  16. Slide 16: Quarterly Earnings

    16 Q1-’16 Q2-’16 Q3-’16 Q4-’16 1. Net Interest Income $ 54.5 $ 56.0 $ 57.7 $ 58.3 2. Provision for Loan Losses (0.6) (0.8) (1.9) (2.4) 3. Net Interest Income after Provision 53.9 55.2 55.8 55.9 4. Non-Interest Income 15.8 16.4 16.9 16.1 5. Non-Interest Expense (46.4) (44.9) (44.1) (41.9) 6. Income b

  17. Slide 17: Per Share Results

    17 Per Share Results THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® 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 S

  18. Slide 18: Dividends and Tangible Book Value

    $9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 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 0.16 .11 www.firstmerchants.com ® .01 .03 .05 .14 .15 1.59% Forward Dividend Yield 27.3% Dividend Payout Ratio = Quarterly Dividends Tan

  19. Slide 19: John J. Martin, Chief Credit Officer

    John J. Martin Executive Vice President and Chief Credit Officer ® 19

  20. Slide 20: Loan Portfolio Trends

    20 Loan Portfolio Trends THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) 2014 2015 Q3-'16 2016 $ % $ % 186.1 186.1 1. Commercial & Industrial 897$ 1,057$ 1,147$ 1,195$ 48$ 4.2% 138$ 13.1% 2. Construction, Land and Land Development 207 367 368 419 51 13.9% 52 14.2%

  21. Slide 21: Asset Quality Summary

    21 Asset Quality Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) 2014 2015 Q3-'16 2016 $ % $ % 1. Non-Accrual Loans 48.8$ 31.4$ 34.1$ 30.0$ (4.1)$ (12.0%) (1.4)$ (4.5%) 2. Other Real Estate 19.3 17.3 10.2 9.0 (1.2) (11.8%) (8.3) (48.0%) 3. Renegotiated Loa

  22. Slide 22: Non-Performing Asset Reconciliation

    22 Non-Performing Asset Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) 2014 2015 2016 1. Beginning Balance NPAs & 90+ Days Delinquent 83.0$ 74.7$ 51.5$ Non-Accrual 2. Add: New Non-Accruals 46.8 20.0 24.6 3. Less: To Accrual/Payoff/Renegotiated (32.

  23. Slide 23: ALLL and Fair Value Summary

    23 ALLL and Fair Value Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ($ in Millions) Q4-'15 Q1-'16 Q2-'16 Q3-'16 Q4-'16 1. Allowance for Loan Losses (ALLL) 62.5$ 62.1$ 62.2$ 63.5$ 66.0$ 2. Fair Value Adjustment (FVA) 47.0 47.1 42.3 37.9 34.9 3. Total ALLL plus FVA 109.5

  24. Slide 24: Asset Quality & Portfolio Summary

    24 Asset Quality & Portfolio Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®  Strong quarterly and YOY loan growth led by C&I, Public Finance, CRE and Home Equity.  Construction and CRE portfolios are 52% and 211% of risk-based capital, respectively; well beneath regula

  25. Slide 25: Michael C. Rechin, President and Chief Executive Officer

    Michael C. Rechin President and Chief Executive Officer ® 25

  26. Slide 26: FMC Strategy and Tactics Overview

    26 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  Exploit Back-Of

  27. Slide 27: 27 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®

    27 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®

  28. Slide 28: The Arlington Bank Summary

    28 The Arlington Bank Summary THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®  Definitive Agreement Signed January 24, 2017  Headquartered in Columbus, Ohio  Founded in 1998  Balance Sheet as of September 30, 2016 • $305 Million in Assets • $244 Million in Loans • $260 Millio

  29. Slide 29: Financial Overview

    29 Financial Overview THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® Transaction Value: $75.8 Million* Consideration: 100% Stock with Fixed Exchange Ratio of 2.7245 Required Approvals: Regulatory and The Arlington Bank Shareholders Voting Agreements for 36.40% of Shares Outstand

  30. Slide 30: Transaction Rationale

    30 Transaction Rationale THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ®  Columbus Ohio Market Expansion • Adds Three, Full-Service Banking Centers to our Seven; Creating a Columbus Banking Presence with Nearly $1 Billion in Loans • Banking Centers Average More than $80 Million

  31. Slide 31: Contact Information

    31 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

  32. Slide 32: Appendix

    Appendix ® 32

  33. Slide 33: Appendix – Non-GAAP Reconciliation: Capital Ratios

    33 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com Appendix – Non-GAAP Reconciliation ® CAPITAL RATIOS (dollars in thousands): 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 726,827 739,658 749,955 766,984 850,509 867,2

  34. Slide 34: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio

    34 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Total Stockholders ' Equity (GAAP) 726,827$ 739,658$ 749,955$ 766,984$ 850,509$ 867,263$ 887,550

  35. Slide 35: Appendix – Non-GAAP Reconciliation: Efficiency Ratio

    35 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® EFFICIENCY RATIO (dollars in thousands): 2014 2015 1Q16 2Q16 3Q16 4Q16 2016 Non Interest Expense (GAAP) $ 164,008 $ 174,806 $ 46,475 $ 44,835 $ 44,115 $ 41,934 $ 177,359 Less: Core Deposit Intan

  36. Slide 36: Appendix – Non-GAAP Reconciliation: Allowance as Percentage of Non-Purchased Loans

    36 Appendix – Non-GAAP Reconciliation THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com ® ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 Loans Held for Sale (GAAP) 9,894$ 3,628$ 18,854$ 1,482$ 2,929$ Loans (GAAP) 4,693,822 4,709,907

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