First Merchants Corporation · NASDAQ:FRME
First Merchants — Q2 2018 Earnings Presentation
53 slides from First Merchants's earnings presentation, Aug 10, 2018
Slide 1: 2nd Quarter 2018 Highlights
2nd Quarter 2018 Highlights 1
Slide 2: Forward-Looking Statements
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
Slide 3: Why Invest in First Merchants?
Why Invest in First Merchants? 3
Slide 4: Company Profile (as of 6/30/2018)
Company Profile (as of 6/30/2018) First Merchants Market Information Common Shares Outstanding 49,280,188 First Merchants Bank, formed in 1893, celebrating its Market Cap $2,286,601 125th anniversary. Dividend Yield 1.64% First Merchants Corporation, organized in 1982, is the Price/Tangible Book
Slide 5: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,210M Columbus $558M 771M Fort Wayne 924M 2,535M Indianapolis 1,623M 595M Lafayette 1,051M 1,148M Muncie 2,258M 824M Northwest 1,090M $7,083M Total $7,504M (as of June 30, 2018) Mission Statement To be the most responsive, knowledgeable and high-per
Slide 6: Key FMC Deposit Market Share – FDIC Data
Key FMC Deposit Market Share – FDIC Data June 30, 2017 (includes June 30, 2017, balances of iAB Financial Bank) 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
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
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 11: How We Deliver
How We Deliver Supported by LOB Strategies WEALTH RETAIL COMMERCIAL MORTGAGE BANKING BANKING ADVISORY Indianapolis Columbus, OH Lafayette Muncie Northwest Fort Wayne Higher Growth Higher Growth Established Established Higher Growth Higher Growth Delaware, Fayette, Brown, Hamilton, Carroll, Clinton,
Slide 12: Organic Growth Opportunities Exists in All Directions
Organic Growth Opportunities Exists in All Directions Northwest Indiana MSA* Fort Wayne MSA Entered: 2013 Entered: 2017 Total Population: 684,795 Total Population: 435,505 Deposit Market Share: 13.91% Deposit Market Share: 9.19% FOUNDING MARKET Muncie MSA Established: 1893 Lafayette MSA Total Popula
Slide 13: Ranked Best in the Midwest for Business
Ranked Best in the Midwest for Business AAA Credit Rating since 20081 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 in the Midwest/8th Nationally for Low
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 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 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: Northwest Indiana Market
Northwest Indiana 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 Indust
Slide 18: 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 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: 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
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 22
Slide 23: 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 24: Operational Delivery Highlights: Customer, Digital Channel & Transaction Activity
Operational Delivery Highlights Customer, Digital Channel & Transaction Activity Retail Households: 184K Online Banking/Digital Channel Cash Management Annual Volume • Consumer: 83K Users • Automated Clearing House (ACH) • 1.3M logins monthly • # Originated: 2.5M Items ($8B) • 14K bill pay use
Slide 25: 2nd Quarter 2018 Financial Highlights
2nd Quarter 2018 Financial Highlights $39.6 Million of Net Income, a 64.2% Increase over 2Q2017 Earnings Per Share of $ .80, a 40.4% Increase over 2Q2017 Total Assets of $9.7 Billion Grew by 24.7% over 2Q2017 Annualized Organic Loan & Deposit Growth of Approximately 10% 1.63% ROAA; 11.94%
Slide 26: Total Assets
Total Assets ($ in Millions) 2016 2017 Q1-’18 Q2-’18 1. Investments $1,305 $1,561 $1,544 $1,620 2. Loans 5,143 6,758 6,906 7,083 3. Allowance (66) (75) (76) (78) 4. Goodwill & Intangibles 259 477 475 473 5. BOLI 202 224 222 223 6. Other 369 422 402 414 7. Total Assets $7,212 $9,367 $9,473 $9,735 Ann
Slide 27: Loan and Yield Detail
Loan and Yield Detail (as of 6/30/2018) QTD Yield = 5.12% Commercial Agricultural Agricultural Construction Land & Public Real Estate Land Production YTD Yield = 4.99% Land Development Finance/Other Non-Owner 3.4% 1.3% Total Loans = $7.1 Billion 10.1% Commercial Occupied 5.5% 24.0% Residential Mortg
Slide 28: 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 29: Investment Portfolio
Investment Portfolio (as of 6/30/2018) Tax-Exempt Mortgage-Backed Municipals Securities 46% 24% $1.6 Billion Portfolio Modified duration of 5.7 years Tax equivalent yield of 3.47% Net unrealized loss of $16.4 Million Collateralized Mortgage Obligations 26% Corporate U. S. Agencies Obligation
Slide 30: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2016 2017 Q1-’18 Q2-’18 1. Customer Non-Maturity Deposits $4,428 $5,741 $5,850 $6,033 2. Customer Time Deposits 747 1,051 1,137 1,158 3. Brokered Deposits 381 381 341 313 4. Borrowings 572 701 644 706 5. Other Liabilities 60 57 55 52 6. Hybrid Capital 12
Slide 31: Deposit Detail
Deposit Detail (as of 6/30/2018) QTD Cost = .81% YTD Cost = .74% Total = $7.5 Billion Certificates & Certificates & Time Deposits of Time Deposits of Savings >$100,000 <$100,000 Deposits 7% 8% Brokered 28% Deposits 4% Demand Deposits 53% 31
Slide 32: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) 16.00% Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.67% 14.18% 14.21% 14.24% 14.01% 13.81% 14.00% 13.76% 13.69% 13.69% 13.00% 12.00% 11.39% 11.11% 11.05% 11.10% 11.16
Slide 33: Net Interest Margin
Net Interest Margin Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Q1 - '18 Q2 - '18 Net Interest Income - FTE ($millions) $ 59.2 $ 61.1 $ 62.1 $ 64.9 $ 67.2 $ 78.9 $ 83.5 $ 82.5 $ 87.2 Fair Value Accretion $ 3.2 $ 3.8 $ 2.9 $ 4.3 $ 2.3 $ 3.2 $ 4.1 $ 3.2 $ 3.8 Tax Equivalent Yield on
Slide 34: Non-Interest Income
Non-Interest Income ($ in Millions) 2016 2017 Q1-’18 Q2-’18 1. Service Charges on Deposit Accounts $17.8 $ 18.7 $ 4.8 $ 5.0 2. Wealth Management Fees 12.6 14.7 3.8 3.6 3. Card Payment Fees 15.0 16.1 4.6 4.5 4. Cash Surrender Value of Life Ins 4.3 6.6 1.2 1.0 5. Gains on Sales of Mortgage Loans 7.1 7
Slide 35: Non-Interest Income YTD 6/30/2018
Non-Interest Income YTD 6/30/2018 ($ in Millions) 24.7% 19.8% 5.5% 8.8% 27.5% 6.0% 7.7% Service Charges on Deposit Accounts - $5.0 Wealth Management Fees - $3.6 Card Payment Fees - $4.5 Cash Surrender Value of Life Ins - $1.0 Gains on Sales Mortage Loans - $1.6 Gains on Sales of Securities - $1.1 Ot
Slide 36: 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 Business lines include: of business in delivering whole-bank solution
Slide 37: Mortgage Banking
Mortgage Banking Key component of Fee Mortgage Banking Revenue Income 8 $7.56M $7.0M Mortgage Production for sale and 7 portfolio via commissioned and $6.5M salaried loan originators 6 $4.9M Strong loan origination teams in 5 high-growth areas of Indianapolis and Columbus, OH 4 Centralized und
Slide 38: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2016 2017 Q1-’18 Q2-’18 1. Salary & Benefits $102.6 $119.8 $ 32.2 $ 32.2 2. Premises & Equipment 29.5 30.1 8.4 7.9 3. Intangible Asset Amortization 3.9 5.6 1.7 1.7 4. Professional & Other Outside Services 6.5 12.8 1.5 1.8 5. OREO/Credit-Related Expense 2.9 1.9 0.
Slide 39: Earnings
Earnings ($ in Millions) 2016 2017 Q1-’18 Q2-’18 1. Net Interest Income $226.5 $ 277.3 $ 79.9 $ 84.6 2. Provision for Loan Losses (5.7) (9.1) (2.5) (1.7) 3. Net Interest Income after Provision 220.8 268.2 77.4 82.9 4. Non-Interest Income 65.2 71.0 19.6 18.2 5. Non-Interest Expense (177.3) (205.6) (5
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 $ .80 – – $ 1.54 2. Dividends $ .18 $ .22 – – $ .40 3. Tangib
Slide 41: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value 0.22 0.22 $17.71 0.20 $16.96 .18 $15.85 0.18 $14.68 0.16 .15 $13.65 .14 $12.17 0.14 $10.95 .11 0.12 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 1.90% Forward Dividend Yield Compound Annual Growth Rate of 9.11% Eq
Slide 42: Asset Quality Summary
Asset Quality Summary Change ($ in Millions) Linked Quarter 2016 186.1 2017 Q1-'18 Q2-'18 $ % 1. Non-Accrual Loans $ 30.0 $ 28.7 $ 27.5 $ 20.1 $ (7.4) (26.9%) 2. Other Real Estate 9.0 10.4 9.7 9.1 (0.6) (6.2%) 3. Renegotiated Loans 4.7 1.0 0.6 0.5 (0.1) (16.7%) 4. 90+ Days Delinquent Loans 0.1 0.9 0
Slide 43: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q3-'17 Q4-'17 Q1-'18 Q2-'18 1. Beginning Allowance for Loan Losses (ALLL) $ 70.5 $ 73.4 $ 75.0 $ 76.4 2. Net Charge-offs (Recoveries) (0.8) 0.2 1.1 0.6 3. Provision Expense 2.1 1.8 2.5 1.7 4. Ending Allowance for Loan Losses (ALLL) $ 73.4 $ 75.0 $ 76.4 $ 7
Slide 44: Total Return Performance
Drist Merchants Corporation Total Return Performance 150.00 Total Return Percentage =@=First Merchants Corporation ==Russell 2000 —4~SNL Bank $5B-$10B 06/30/2012 06/30/2013 06/30/2014 06/30/2015 96/30/2016 06/30/2017 06/30/2018 FIRST MERCHANTS CORPORATION a "200 E. Jackson St, P.O. Box 792, Muncie,
Slide 45: FMC Strategy and Tactics Overview Looking Forward
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. Capitalize on talent opportunities from performance and preferred employer
Slide 46: Why Invest in First Merchants?
Why Invest in First Merchants? Forbes Magazine recognition as a Top 5 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 47: Research Coverage
Grist Merchants Corporation Research Coverage S jvapsiea ts mae KEEFE, BRUYETTE & WOODS ©* NEILL Specialists th Financial Services + PARTNERS aasioome Piper Jaffray. Stephens RT FIG GPs, D\A|DAVIDSON ie ~~ 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
Drist Merchants Corporation Appendix FIRST MERCHANTS CORPORATION "200 E. Jackson St, P.O. Box 792, Muncie, IN 47205 | 708.747.1500
Slide 50: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 887,550 900,865 901,657 929,470 1,035,116 1,283,120 1,303,463 1,313,073 1,340,328 Adjust for Accumulated Other Compr
Slide 51: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Total Stockholders' Equity (GAAP) $ 887,550 $ 900,865 $ 901,657 $ 929,470 $ 1,035,116 $ 1,283,120 $ 1,303,463 $ 1,313,073 $ 1,340,328 Less: Preferred Stock (125) (125)
Slide 52: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2016 2017 1Q18 2Q18 Non Interest Expense (GAAP) $ 177,359 $ 205,556 $ 53,687 $ 53,504 Less: Intangible Asset Amortization (3,910) (5,647) (1,726) (1,718) Less: OREO and Foreclosure Expenses (2,877) (1,903) (402) (362) Adjust
Slide 53: Appendix – Non-GAAP Reconciliation: Real Estate Concentrations
Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2016 2017 1Q18 2Q18 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 973,641 $ 1,404,303 $ 1,414,109 $ 1,432,722 Adjust for Accumulated Other Comprehen