First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2017 Earnings Presentation
55 slides from First Merchants's earnings presentation, Feb 16, 2018
Slide 1: 4th Quarter 2017
Michael C. Rechin President Chief Executive Officer Mark K. Hardwick Executive Vice President Chief Operating Officer Chief Financial Officer John J. Martin Executive Vice President Chief Credit Officer Michael J. Stewart Executive Vice President Chief Banking Officer 4th Quarter 2017
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?
3 Why Invest in First Merchants?
Slide 4: Financial Highlights and Company Profile
4 Financial Highlights Assets $9,367,478 Loans, Net $6,676,167 Deposits $7,172,530 Tangible Common Equity $ 826,834 TCE/TA 9.30% 2017 Net Income – YTD $ 96,070 2017 ROAA – YTD 1.17% 2017 ROATCE - YTD 13.30% NPAs/Loans + OREO 0.59% Company Profile (as of 12/31/2017) Market Information Common Shares O
Slide 5: Key Market Profiles
5 Key Market Profiles Loans Deposits $1,109M Columbus $ 611M 718M Fort Wayne 825M 2,559M Indianapolis 1,820M 605M Lafayette 1,024M 983M Muncie 1,841M 777M Northwest 1,052M $6,751M Total $7,173M (as of December 31, 2017) Mission Statement To be the most responsive, knowledgeable and high-performing b
Slide 6: County market position and deposits
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
7 First Merchants “Whole Bank” Strategy Commercial Banking Consumer Banking Private Wealth Advisors Growth Strategy • Organic • Merger/Acquisition
Slide 8: First Merchants Strategy: Commercial Bank
8 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 Ma
Slide 9: First Merchants Strategy: Consumer Retail Bank
9 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 A
Slide 10: First Merchants Strategy
10 First Merchants Strategy “Service-driven alternative to super-regional bank competitors. Deliver superior service with presence close to the customer for . . . ” “We specialize in our communities” Retail Banking Mortgage Banking Commercial Banking • Business Banking • Commercial & Industria
Slide 11: How We Deliver: markets and lines of business
11 WEALTH ADVISORY MORTGAGE COMMERCIAL 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
Slide 12: Market profiles by MSA
12 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 T
Slide 13: Indiana business climate rankings
13 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 Nat
Slide 14: Delaware County, IN
14 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 95
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 15 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 PN
Slide 16: Tippecanoe County, IN
7.27% 8.00% 3.77% 3.77% 2.11% 5.19% U.S. Indiana Tippecanoe Co. HHI Pop. 16 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
Slide 17: Lake County, IN
17 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 Corpora
Slide 18: Allen County, IN
18 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 48
Slide 19: Franklin County, OH
19 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 Ohi
Slide 20: Growth Through Acquisition
20 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
Slide 21: The Strength of Big. The Service of Small.
THE STRENGTH OF BIG. THE SERVICE OF SMALL. 21 21
Slide 22: First Merchants Acquisition Process
22 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
Slide 23: Operational Delivery Highlights: Daleville Operations Facility
Operational Delivery Highlights 23 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 Managem
Slide 24: Operational Delivery Highlights
Retail Households: 185K Online Banking/Digital Channel • Consumer: 79K Users • 1.3M logins monthly • 13K bill pay users • 83K payments monthly Cash Management Annual Volume • Automated Clearing House (ACH) • # Originated: 2.5M Items ($8B) • # Received: 14M Items ($23B) • Mobile: 45K Users • 24
Slide 25: 4th Quarter 2017 Financial Highlights
25 4th Quarter 2017 Financial Highlights Earnings Per Share of $.49 $24.4 Million of Net Income, a 9.4% increase over 4Q2016 Includes $6.5 Million in DTA write down and acquisition expenses, or $.12 per share Net Interest Margin expands to 4.10% following December rate move Completed conve
Slide 26: Full Year 2017 Performance
26 Full Year 2017 Performance Record Net Income of $96.1 Million, an 18.5% increase over 2016 Earnings per share of $2.12, a 7.1% increase over 2016; highest in Company’s history Includes $17.3 Million, or $.29 per share of acquisition expense and DTA write down Total Assets of $9.4 Billion;
Slide 27: Total Assets
Total Assets 2015 2016 2017 1. Investments $1,277 $1,305 $1,561 2. Loans Held for Sale 10 3 7 3. Loans 4,694 5,140 6,751 4. Allowance (62) (66) (75) 5. Goodwill & Intangibles 260 259 477 6. BOLI 201 202 224 7. Other 381 369 422 8. Total Assets $6,761 $7,212 $9,367 Annualized Asset Growth 16.1% 6.7%
Slide 28: Loan and Yield Detail
Commercial & Industrial 22.1% Commercial Real Estate Owner- Occupied 10.4% Commercial Real Estate Non-Owner Occupied 23.9% Construction Land & Land Development 9.1% Agricultural Land 3.6% Agricultural Production 1.8% Public Finance/Other Commercial 5.9% Residential Mortgage 14.3% Home Equity 7.6% Ot
Slide 29: 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 1Q017 2Q2017 3Q2017 4Q2017 Quar te r- En d GUIDELINE #1 0.0% 100.0% 200.0% 300.0% 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 Quar t
Slide 30: Investment Portfolio
Mortgage-Backed Securities 27% Collateralized Mortgage Obligations 23% U. S. Agencies 1% Corporate Obligations 2% Tax-Exempt Municipals 47% Investment Portfolio (as of 12/31/2017) 30 1 Using a Federal tax rate of 21% $1.6 Billion Portfolio Modified duration of 5.1 years Tax equivalent yield of
Slide 31: Total Liabilities and Capital
2015 2016 2017 1. Customer Non-Maturity Deposits $4,096 $4,428 $5,741 2. Customer Time Deposits 880 747 1,051 3. Brokered Deposits 314 381 381 4. Borrowings 446 572 701 5. Other Liabilities 51 60 57 6. Hybrid Capital 123 122 133 7. Common Equity 851 902 1,303 8. Total Liabilities and Capital $6,761
Slide 32: Deposit Detail
Deposit Detail (as of 12/31/2017) QTD Cost = .58% YTD Cost = .49% Total = $7.2 Billion 32 Demand Deposits 52% Savings Deposits 28% Certificates & Time Deposits of >$100,000 7% Certificates & Time Deposits of <$100,000 8% Brokered Deposits 5%
Slide 33: Capital Ratios
11.49% 11.42% 11.39% 11.05% 11.10% 11.16% 11.11% 11.03% 11.00% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50% 9.68% 9.39% 9.30% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24% 14.01% 13.76% 13.69% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Ri
Slide 34: Net Interest Margin
34 Net Interest Margin Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Net Interest Income - FTE ($millions) $ 53.2 $ 57.6 $ 59.2 $ 61.1 $ 62.1 $ 64.9 $ 67.2 $ 78.9 $ 83.5 Fair Value Accretion $ 1.9 $ 2.5 $ 3.2 $ 3.8 $ 2.9 $ 4.3 $ 2.3 $ 3.2 $ 4.1 Tax Equivalent Yield
Slide 35: Non-Interest Income
35 Non-Interest Income – – – – – – – – 2015 2016 2017 1. Service Charges on Deposit Accounts $16.2 $17.8 $18.7 2. Wealth Management Fees 11.3 12.6 14.7 3. Insurance Commission Income 4.1 4. Card Payment Fees 13.4 15.0 16.1 5. Cash Surrender Value of Life Ins 2.9 4.3 6.6 6. Gains on Sales Mortgage Lo
Slide 36: Non-Interest Income YTD 12/31/2017
26.3% 20.7% 22.7% 9.3% 10.7% 3.7% 6.6% Service Charges on Deposit Accounts - $18.7 Wealth Management Fees - $14.7 Card Payment Fees - $16.1 Cash Surrender Value of Life Ins - $6.6 Gains on Sales Mortage Loans - $7.6 Securities Gains/Losses - $2.6 Other - $4.7 Total - $71.0 36 Non-Interest Income YTD
Slide 37: Private Wealth Advisors
37 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 reflecte
Slide 38: Mortgage Banking
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 Mortgage Production for sale and portfolio via commissioned and salaried loan originators Strong loan origination teams in high-growth areas of Indianapolis and Columbus,
Slide 39: Non-Interest Expense
39 Non-Interest Expense 2015 2016 2017 1. Salary & Benefits $101.9 $102.6 $119.8 2. Premises & Equipment 25.5 29.5 30.1 3. Intangible Asset Amortization 2.8 3.9 5.6 4. Professional & Other Outside Services 9.9 6.5 12.8 5. OREO/Credit-Related Expense 3.9 2.9 1.9 6. FDIC Expense 3.7 3.0 2.6 7. Outside
Slide 40: Earnings
2015 2016 2017 1. Net Interest Income $196.4 $226.5 $277.3 2. Provision for Loan Losses (0.4) (5.7) (9.1) 3. Net Interest Income after Provision 196.0 220.8 268.2 4. Non-Interest Income 69.8 65.2 71.0 5. Non-Interest Expense (174.8) (177.3) (205.6) 6. Income before Income Taxes 91.0 108.7 133.6 7. I
Slide 41: Quarterly Earnings
41 Q1-’17 Q2-’17 Q3-’17 Q4-’17 1. Net Interest Income $61.0 $63.1 $74.4 $78.8 2. Provision for Loan Losses (2.4) (2.9) (2.1) (1.8) 3. Net Interest Income after Provision 58.6 60.2 72.3 77.0 4. Non-Interest Income 14.9 18.4 18.7 19.1 5. Non-Interest Expense (43.1) (47.3) (58.7) (56.4) 6. Income befor
Slide 42: Per Share Results
2016 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .43 $ .49 $ .51 $ .55 $ 1.98 2. Dividends $ .11 $ .14 $ .14 $ .15 $ .54 3. Tangible Book Value $15.02 $15.53 $15.86 $15.85 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
Slide 43: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.96 Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 .11 .01 .03 .05 .14 .15 1.71% Forward Dividend Yield 32.6% YTD Dividend Payout Ratio = Quarterly Dividends Tangible Book Value .08 43 .18
Slide 44: Asset Quality Summary
44 Asset Quality Summary ($ in Millions) 2015 2016 Q3-'17 2017 $ % $ % 186.1 1. Non-Accrual Loans 31.4$ 30.0$ 32.3$ 28.7$ (3.6)$ (11.1%) (1.3)$ (4.3%) 2. Other Real Estate 17.3 9.0 11.9 10.4 (1.5) (12.6%) 1.4 15.6% 3. Renegotiated Loans 1.9 4.7 0.6 1.0 0.4 66.7% (3.7) (78.7%) 4. 90+ Days Delinquent
Slide 45: ALLL and Fair Value Summary
45 ALLL and Fair Value Summary ($ in Millions) Q4-'16 Q1-'17 Q2-'17 Q3-'17 Q4-'17 1. Beginning Allowance for Loan Losses (ALLL) 63.5$ 66.0$ 68.2$ 70.5$ 73.4$ 2. Net Charge-offs (Recoveries) (0.1) 0.2 0.6 (0.8) 0.2 3. Provision Expense 2.4 2.4 2.9 2.1 1.8 4. Ending Allowance for Loan Losses (ALLL) 66
Slide 46: Total Return Performance
First Merchants Corporation % os £ <7 o 2 o a c £ > 2 a i B ° e om ~®~First Merchants Corporation ayjay2011 12/31/2012 FIRST MERCHANTS CORPORATION | 200€. Ja FIRSTMERCHANTS.C Total Return Performance -m-Russell 2000 —1-SNL Bank $5B-$10B 12/31/2013 ay/ayj2014 12/31/2015 12/31/2016. 12/31/2017 P.O, Bo
Slide 47: Looking Forward
47 Looking Forward . . . Tax reform benefits in 2018 will be realized in the effective tax rate change from ~ 26% to ~ 16% Tax benefit to be invested in announced compensation changes, technologies, and branding, all of which augment shareholder value Gained synergies and market expansion oppo
Slide 48: Why Invest in First Merchants?
48 Why Invest in First Merchants? 2nd Largest Indiana Bank with an Energized and Experienced Management Team Attractive and Growing Earnings Stream Attractive Long-Term Deposit Market Shares Commercial Presence that Creates a Client Preference State-of-the-Art Technology and Operations Cen
Slide 49: Research Coverage
First Merchants Corporation FIRSTMERCHANTS.COM Research Coverage SANDLER KEEFE, BRUYETTE & WOODS O' NEILL Bw Specialists in Financial Services + PARTNERS sco Piper Jaffraye Stephens LY FIG Gps D/A DAVIDSON be ~ Partners
Slide 50: Contact Information
50 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
Slide 51: Appendix
First Merchants Corporation THE STRENGTH OF BIG THE SERVICE OF SMALL Appendix NASDAQ: FRME
Slide 52: Non-GAAP Reconciliation: Capital Ratios
52 Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 850,509 867,263 887,550 900,865 901,657 929,470 1,035,116 1,283,120 1,303,463 Adjust for Accumulated Other Compre
Slide 53: Non-GAAP Reconciliation: Tangible Common Equity Ratio
53 Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Stockholders' Equity (GAAP) $ 850,509 $ 867,263 $ 887,550 $ 900,865 $ 901,657 $ 929,470 $ 1,035,116 $ 1,283,120 $ 1,303,463 Less: Preferred Stock (125) (125)
Slide 54: Non-GAAP Reconciliation: Efficiency Ratio
54 Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2015 2016 1Q17 2Q17 3Q17 4Q17 2017 Non Interest Expense (GAAP) $ 174,806 $ 177,359 $ 43,099 $ 47,316 $ 58,708 $ 56,433 $ 205,556 Less: Intangible Asset Amortization (2,835) (3,910) (903) (991) (1,698) (2,055) (5,647) Less
Slide 55: Non-GAAP Reconciliation: Allowance as Percentage of Non-Purchased Loans
55 Appendix – Non-GAAP Reconciliation ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands): 4Q16 1Q17 2Q17 3Q17 4Q17 Loans Held for Sale (GAAP) 2,929$ 1,262$ 4,036$ 4,514$ 7,216$ Loans (GAAP) 5,139,645 5,274,909 5,613,144 6,483,448 6,751,199 Total Loans 5,142,574 5,276,171 5,617,1