First Merchants Corporation · NASDAQ:FRME

First Merchants — Q1 2017 Earnings Presentation

55 slides from First Merchants's earnings presentation, May 9, 2017

  1. Slide 1: 1st 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 Michele Kawiecki Senior Vice Pr

  2. 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”, “

  3. Slide 3: Why Invest in First Merchants?

    3 Why Invest in First Merchants?

  4. Slide 4: Financial Highlights and Company Profile

    4 Financial Highlights Assets $ 7,326,193 Loans, Net $ 5,206,684 Deposits $ 5,635,309 Tangible Common Equity $ 671,382 TCE/TA 9.50% 2017 Net Income – YTD $ 23,193 2017 ROAA – YTD 1.29% 2017 ROATCE - YTD 14.38% NPAs/Loans + OREO 0.70% Company Profile (as of 3/31/2017) Market Information Common Shares

  5. Slide 5: Key Market Profiles

    5 Key Market Profiles Loans Deposits $2,305M Indianapolis $1,565M 951M Muncie 1,685M 719M Munster 1,029M 555M Lafayette 1,005M 745M Columbus 351M $5,275M Total $5,635M (as of March 31, 2017) Mission Statement To be the most responsive, knowledgeable and high-performing bank for our clients, teammate

  6. Slide 6: Deposit market position by county

    County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 46.17% $ 893,981 Jasper County, IN Lafayette (Established) 1 31.26% 198,089 White County, IN Lafayette (Established) 1 33.24% 159,014 Shelby County, IN Indianapolis (Growth) 1 19.18% 103,239 Jay County,

  7. 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

  8. Slide 8: First Merchants Strategy: Commercial Bank

    8 First Merchants Strategy  Commercial Bank • Located in Prime Growth Commercial Banking Markets • Indianapolis, Indiana • Columbus, Ohio • Lafayette, Indiana • Northwest Indiana • Hire the Best Talent Supported with the Finest: • Sales Management Process • Lending and Cash Management Services • Re

  9. Slide 9: First Merchants Strategy: Consumer Retail Bank

    9 First Merchants Strategy  Consumer Retail Bank • Diversely Located 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

  10. Slide 10: First Merchants Strategy: Service-driven alternative

    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

  11. Slide 11: Lines of business and market delivery

    11 WEALTH ADVISORY MORTGAGE COMMERCIAL BANKING RETAIL BANKING Supported by LOB Strategies Indianapolis Higher Growth Brown, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, Shelby Counties Columbus, OH Higher Growth Franklin County, OH Lafayette Established Carroll, Clinton, Jasper, M

  12. Slide 12: Market overviews and organic growth opportunities

    12 Lafayette MSA Entered: 2002 Total Population: 217,817 Deposit Market Share: 18.18% Indianapolis MSA Entered: 1998 Total Population: 2,017,134 Deposit Market Share: 3.41% Columbus, Ohio MSA Entered: 2003 Total Population: 2,058,417 Deposit Market Share: .55% Northwest Indiana MSA* Entered: 2013 To

  13. Slide 13: Indiana business rankings

    13 Ranked Best in the Midwest for Business*  AAA Credit Rating**  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 Nationally for Low Taxes  Leading the Nation in Manufacturing Job Growth 

  14. Slide 14: Delaware County, IN

    14 Delaware County, IN* Rank Branches Deposits Mkt. Share 1 First Merchants Corporation 12 893,981 46.17% 2 Mutual First Financial 9 476,957 24.63% 3 J.P. Morgan Chase 4 220,534 11.39% 4 Old National Bancorp 7 206,538 10.67% 5 Star Financial Group 3 136,933 7.07% 6 Woodforest Financial Group 1 1,391

  15. 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 1,397,573 17.05% 2 JPMorgan Chase & Co. 15 1,339,119 16.34% 3 Merchants Bancorp 2 1,119,000 13.65% 4 PNC

  16. 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 $ 701,835 28.72% 2 First Merchants Corporation 9 510,925 20.91% 3 Regions Financial Corp 7 296,336 12.13% 4 Old National Bancorp 5 257,117 10

  17. Slide 17: Lake County, IN

    17 Lake County, IN* Rank Branches Deposits Mkt. Share 1 JPMorgan Chase & Co. 24 $ 1,812,142 21.17% 2 First Bancshares, Inc. 29 1,790,048 20.91% 3 First Midwest Bancorp 21 1,015,796 11.87% 4 Northwest Indiana Bancorp 15 731,032 8.54% 5 First Merchants Corporation 11 670,030 7.83% 6 First Financial Ba

  18. Slide 18: Franklin County, OH

    18  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

  19. Slide 19: Growth Through Acquisition

    19 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 20: The Strength of Big. The Service of Small.

    THE STRENGTH OF BIG. THE SERVICE OF SMALL. 20

  21. Slide 21: First Merchants Acquisition Process

    21  Continuous Relationship Building  Complete and Thorough Due Diligence Process Demonstrated Pricing Discipline Detailed Project Managed  Integration Process  Single Charter Operating Environment  Scalable Technology and Operations Center First Merchants Acquisition Process

  22. Slide 22: Operational Delivery Highlights: Daleville Operations Facility

    Operational Delivery Highlights 22 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

  23. Slide 23: Operational Delivery Highlights: Customer, Digital Channels

     Retail Households: 145K  Online Banking/Digital Channel • Consumer: 66K Users • 970K logins monthly • 12K bill pay users • 80K payments monthly  Cash Management Annual Volume • Automated Clearing House (ACH) • # Originated: 2M Items ($7B) • # Received: 13M Items ($20B) • Mobile: 30K Users • 23 a

  24. Slide 24: 1st Quarter 2017 Highlights

    24 1st Quarter 2017 Highlights  Earnings Per Share of $ .56, a 30.2% Increase over 1Q2016  $23.2 Million of Net Income, a 31.1% Increase over 1Q2016  Total Assets of $7.3 Billion Grew Organically by 7.8% over 1Q2016  1.29% Return on Average Assets; 10.15% Return on Average Equity  52.61% Effici

  25. Slide 25: Total Assets

    Total Assets 2015 2016 Q1-’16 Q1-’17 1. Investments $1,277 $1,305 $1,271 $1,327 2. Loans Held for Sale 10 3 4 1 3. Loans 4,694 5,140 4,710 5,275 4. Allowance (62) (66) (62) (68) 5. CD&I & Goodwill 260 259 262 258 6. BOLI 201 202 201 203 7. Other 381 369 413 330 8. Total Assets $6,761 $7,212 $6,799 $

  26. Slide 26: Loan and Yield Detail

    Commercial & Industrial 23.9% Commercial Real Estate Owner-Occupied 10.4% Commercial Real Estate Non-Owner Occupied 27.0% Construction Land & Land Development 6.4% Agricultural Land 2.8% Agricultural Production 1.5% Public Finance/Other Commercial 4.6% Residential Mortgage 14.0% Home Equity 8.0% Oth

  27. Slide 27: Investment Portfolio

    Mortgage-Backed Securities 31% Collateralized Mortgage Obligations 20% U. S. Agencies 2% Corporate Obligations 1% Corporate Equities 1% Tax-Exempt Municipals 45% Investment Portfolio (as of 3/31/2017)  $1.3 Billion Portfolio  Modified duration of 4.9 years  Tax equivalent yield of 3.88%  Net unr

  28. Slide 28: Total Liabilities and Capital

    28 Total Liabilities and Capital ($ in Millions) 2015 2016 Q1-’16 Q1-’17 1. Customer Non-Maturity Deposits $4,096 $4,428 $4,140 $4,426 2. Customer Time Deposits 880 747 841 789 3. Brokered Deposits 314 381 330 420 4. Borrowings 446 572 420 587 5. Other Liabilities 51 60 79 53 6. Hybrid Capital 123 1

  29. Slide 29: Deposit Detail

    Deposit Detail (as of 3/31/2017) YTD Cost = .39% Total = $5.6 Billion 29 Demand Deposits 51% Savings Deposits 28% Certificates & Time Deposits of >$100,000 6% Certificates & Time Deposits of <$100,000 8% Brokered Deposits 7%

  30. Slide 30: Capital Ratios

    11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 11.16% 9.21% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50% 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24% 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% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q1

  31. Slide 31: Net Interest Margin

    3.78% 3.81% 3.85% 3.75% 3.83% 3.86% 3.94% 3.90% 3.98% 3.61% 3.65% 3.71% 3.62% 3.66% 3.65% 3.70% 3.72% 3.72% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% $38 $42 $46 $50 $54 $58 $62 $66 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Net Interest Income - FTE ($mil

  32. Slide 32: Non-Interest Income

    2015 2016 Q1-’16 Q1-’17 1. Service Charges on Deposit Accounts $16.2 $17.8 $ 4.1 $ 4.2 2. Wealth Management Fees 11.3 12.6 3.1 3.4 3. Insurance Commission Income 4.1 4. Card Payment Fees 13.4 15.0 3.8 3.7 5. Cash Surrender Value of Life Ins 2.9 4.3 1.5 0.9 6. Gains on Sales Mortgage Loans 6.5 7.1 1.

  33. Slide 33: Non-Interest Expense

    33 Non-Interest Expense 2015 2016 Q1-’16 Q1-’17 1. Salary & Benefits $101.9 $102.6 $ 27.3 $ 25.7 2. Premises & Equipment 25.5 29.5 7.3 7.0 3. Core Deposit Intangible 2.8 3.9 1.0 0.9 4. Professional & Other Outside Services 9.9 6.5 2.2 1.7 5. OREO/Credit-Related Expense 3.9 2.9 0.7 0.5 6. FDIC Expens

  34. Slide 34: Earnings

    34 2015 2016 Q1-’16 Q1-’17 1. Net Interest Income $196.4 $226.5 $ 54.5 $ 61.0 2. Provision for Loan Losses (0.4) (5.7) (0.6) (2.4) 3. Net Interest Income after Provision 196.0 220.8 53.9 58.6 4. Non-Interest Income 69.8 65.2 15.8 14.9 5. Non-Interest Expense (174.8) (177.3) (46.4) (43.1) 6. Income b

  35. Slide 35: 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 – – – $ .56 2. Dividends $ .15 – – – $ .15 3. Tangible Book Value $ 16.49 – – –

  36. Slide 36: Dividends and Tangible Book Value

    $9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.49 Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 .11 .01 .03 .05 .14 .18 1.83% Forward Dividend Yield 32.1% Dividend Payout Ratio = Quarterly Dividends Tangible Book Value .08 36 .15

  37. Slide 37: Asset Quality Summary

    37 Asset Quality Summary ($ in Millions) 2015 2016 Q1-'16 Q1-'17 $ % $ % 1. Non-Accrual Loans 31.4$ 30.0$ 36.7$ 27.9$ (2.1)$ (7.0%) (8.8)$ (24.0%) 2. Other Real Estate 17.3 9.0 15.6 8.3 (0.7) (7.8%) (7.3) (46.8%) 3. Renegotiated Loans 1.9 4.7 1.0 0.9 (3.8) (80.9%) (0.1) (10.0%) 4. 90+ Days Delinquen

  38. Slide 38: ALLL and Fair Value Summary

    38 ALLL and Fair Value Summary ($ in Millions) Q2-'16 Q3-'16 Q4-'16 Q1-'17 1. Beginning Allowance for Loan Losses (ALLL) 62.1$ 62.2$ 63.5$ 66.0$ 2. Net Charge-offs (Recoveries) 0.7 0.6 (0.1) 0.2 3. Provision Expense 0.8 1.9 2.4 2.4 4. Ending Allowance for Loan Losses (ALLL) 62.2 63.5 66.0 68.2 5. Fa

  39. Slide 39: Total Return Performance

    First Merchants Corporation FIRSTMERCHANTS, Total Return Performance 350 250 200 100 Total Return Percentage “First Merchants Corporation <™=Russell 2000 -e=SNL Bank $1B-$5B —s—SNL Bank $5B-$10B 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 3/31/2017 Jackson St, P.O. Box 792, Mun

  40. Slide 40: FMC Strategy and Tactics Overview: Looking Forward

    40 FMC Strategy and Tactics Overview Looking Forward . . .  Execute on Closing and Integrating The Arlington Bank and Independent Alliance Bank, Inc. Transactions  Continue to Win in our Markets – Geographic Community-Based Banking Model  Continue Focus on Treasury Management Services for Deposit

  41. Slide 41: Recent Acquisition Announcements

    41 Recent Acquisition Announcements

  42. Slide 42: The Arlington Bank Summary

    42 The Arlington Bank Summary  Definitive Agreement Signed January 25, 2017  Headquartered in Columbus, Ohio  Founded in 1998  Balance Sheet as of September 30, 2016 • $305 Million in Assets • $244 Million in Loans • $260 Million in Deposits  Income Statement for Nine Months Ending September 30

  43. Slide 43: The Arlington Bank Financial Overview

    43 The Arlington Bank Financial Overview 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 Outstanding Key Assumptions: Cost Savings Estimated to be

  44. Slide 44: The Arlington Bank Transaction Rationale

    44 The Arlington Bank Transaction Rationale  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 in Deposits Per Location of which 92% are Core •

  45. Slide 45: Independent Alliance Banks, Inc. Summary

    45  Definitive Agreement Signed February 17, 2017  Headquartered in Fort Wayne, Indiana  Founded in 2005 in a combination of two 70-year old companies; Grabill Bank and MarkleBank  Market Capitalization: $162.8 Million*  Balance Sheet as of December 31, 2016 • $1,088 Million in Assets • $753 Mi

  46. Slide 46: Independent Alliance Banks Financial Overview

    46 Implied Transaction Value: Blended Transaction Value: $251.3 Million $271.1 Million (Inclusive of the 12.1% Purchased for $19.8 Million Cash) Consideration: Fixed 1.6530 Exchange Ratio for the Remaining 87.9% IALB Common Stock not already owned by First Merchants Required Approvals: Regulatory an

  47. Slide 47: Independent Alliance Banks Transaction Rationale

    47  Contiguous Market Expansion • Significant Entry into Fort Wayne MSA, Indiana’s 2nd Largest MSA, with $646 Million in Deposits and #5 Market Share Position • #1 Market Share in Wells County with Two County Seat Locations  Strong and Growing Core Earnings, Acquisition Accretive to EPS by 2% in 2

  48. Slide 48: Why Invest in First Merchants?

    48 Why Invest in First Merchants?  Attractive and Growing Earnings Stream  2nd Largest Indiana Bank with an Energized and Experienced Management Team  Attractive Long-Term Deposit Market Shares  Commercial Presence that Creates a Client Preference  State-of-the-Art Technology and Operations Cen

  49. Slide 49: Research Coverage

    First Merchants Corporation FIRSTMERCHANTS.( Research Coverage Gn D|A/DAVIDSON RK” FIG bead Partners SANDLER O'NEILL Pip erJaff ray. PARTNERS | KEEFE, BRUYETTE & WOODS St hi Specialists in Financial Services ephens = FIRST MERCHANTS CORPORATION | 200. Jacksor

  50. 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: David L. Ortega Investor Relations Telephone: 765.378.8937 [email protected]

  51. Slide 51: Appendix

    First Merchants Corporation THE STRENGTH OF BIG THE SERVICE OF SMALL Appendix NASDAQ: FRME

  52. Slide 52: Appendix – Non-GAAP Reconciliation: Capital Ratios

    52 Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 739,658 749,955 766,984 850,509 867,263 887,550 900,865 901,657 929,470 Adjust for Accumulated Other Comprehensiv

  53. Slide 53: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio

    53 Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Total Stockholders' Equity (GAAP) 739,658$ 749,955$ 766,984$ 850,509$ 867,263$ 887,550$ 900,865$ 901,657$ 929,470$ Less: Pr ferred Stock (125) (125) (125) (125) (12

  54. Slide 54: Appendix – Non-GAAP Reconciliation: Forward Dividend Yield

    54 Appendix – Non-GAAP Reconciliation FORWARD DIVIDEND YIELD May 2017 Current quarter's dividend per share $ 0.18 Current quarter's dividend per share - Annualized $ 0.72 Stock Price at 3/31/17 $ 39.32 Forward Dividend Yield 1.83% DIVIDEND PAYOUT RATIO 2017 Dividends per share (as of May 2017) $ 0.1

  55. Slide 55: Appendix – Non-GAAP Reconciliation: Real Estate Concentrations

    55 Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2015 2016 1Q16 1Q17 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) 927,774$ 973,641$ 945,283$ 993,130$ Adjust for Accumulated Other Comprehensive (I

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