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| 8-K - 8-K 1ST QTR INVESTOR SLIDE PRESENTATION - FIRST MERCHANTS CORP | a8k-1stqtr2017investorslid.htm |
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 President
Director of Finance
1st Quarter 2017
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”, “project”, “intend”, “anticipate”, “expect” and similar expressions or future or conditional verbs such as “will”, would”, “should”,
“could”, “might”, “can”, “may”, or similar expressions. These forward-looking statements include, but are not limited to, statements relating to
First Merchants’ goals, intentions and expectations; statements regarding the First Merchants’ business plan and growth strategies; statements
regarding the asset quality of First Merchants’ loan and investment portfolios; and estimates of First Merchants’ risks and future costs and
benefits. These forward-looking statements are subject to significant risks, assumptions and uncertainties that may cause results to differ
materially from those set forth in forward-looking statements, including, among other things: possible changes in economic and business
conditions; the existence or exacerbation of general geopolitical instability and uncertainty; the ability of First Merchants to integrate recent
acquisitions and attract new customers; possible changes in monetary and fiscal policies, and laws and regulations; the effects of easing
restrictions on participants in the financial services industry; the cost and other effects of legal and administrative cases; possible changes in the
credit worthiness of customers and the possible impairment of collectability of loans; fluctuations in market rates of interest; competitive
factors in the banking industry; changes in the banking legislation or regulatory requirements of federal and state agencies applicable to bank
holding companies and banks like First Merchants’ affiliate bank; continued availability of earnings and excess capital sufficient for the lawful
and prudent declaration of dividends; changes in market, economic, operational, liquidity, credit and interest rate risks associated with the First
Merchants’ business; and other risks and factors identified in each of First Merchants’ filings with the Securities and Exchange Commission. First
Merchants undertakes no obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this
presentation or press release. In addition, the company’s past results of operations do not necessarily indicate its anticipated future results.
NON-GAAP FINANCIAL MEASURES
These slides contain non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of the
registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that
have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with
GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is
subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated
and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of
Regulation G, First Merchants Corporation has provided reconciliations within the slides, as necessary, of the non-GAAP financial measure to the
most directly comparable GAAP financial measure.
2
Forward-Looking Statements
3
Why Invest in First Merchants?
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 Outstanding 41,047,543
Market Cap $ 1,613,989
Dividend Yield 1.48%
Price/Tangible Book Value 2.38x
Price/LTM EPS 18.6x
Price/2017 Est. EPS 17.8x
Leadership Team – First Merchants
Name/Title
Michael C. Rechin, President & CEO
Mark K. Hardwick, EVP, Chief Operating Officer &
Chief Financial Officer
Michael J. Stewart, EVP & Chief Banking Officer
John J. Martin, EVP & Chief Credit Officer
First Merchants
First Merchants Bank, formed in 1893, celebrating its
124th anniversary.
First Merchants Corporation, organized in 1982, is the
largest financial services holding company
headquartered in Central Indiana
($ in Thousands)
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,
teammates and shareholders.
Our Franchise
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, IN Muncie (Established) 1 44.32% 91,506
Union County, IN Muncie (Established) 1 43.39% 47,973
Tippecanoe County, IN Lafayette (Established) 2 20.91% 510,925
Madison County, IN Indianapolis (Growth) 2 24.59% 325,704
Henry County, IN Muncie (Established) 2 37.87% 238,625
Wabash County, IN Muncie (Established) 2 14.87% 54,790
Hendricks County, IN Indianapolis (Growth) 3 11.33% 240,483
Adams County, IN Muncie (Established) 3 16.69% 104,959
Randolph County, IN Muncie (Established) 3 7.61% 63,409
Clinton County, IN Lafayette (Established) 3 13.77% 60,689
Morgan County, IN Indianapolis (Growth) 4 11.59% 98,643
Hancock County, IN Indianapolis (Growth) 4 8.61% 80,930
Carroll County, IN Lafayette (Established) 4 10.66% 32,907
Brown County, IN Indianapolis (Growth) 4 19.11% 18,656
Lake County, IN Lafayette (Established) 5 7.83% 670,030
Hamilton County, IN Indianapolis (Growth) 5 6.37% 522,258
Johnson County, IN Indianapolis (Growth) 5 7.23% 142,769
Fayette County, IN Muncie (Established) 5 8.47% 26,526
Miami County, IN Muncie (Established) 5 7.99% 31,331
Sub Total $4,717,436
First Merchants Total $5,447,848
Key FMC Deposit Market Share
FDIC Data June 30, 2016
6
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
7
First Merchants “Whole Bank” Strategy
Commercial Banking
Consumer Banking
Private Wealth Advisors
Growth Strategy
• Organic
• Merger/Acquisition
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
• Revenue-Based Incentive System
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 Available Mobile Banking System
• Customer Service and Relationship Growth-Oriented
Incentive System
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 & Industrial
• Agriculture
• Specialty Finance
• Healthcare Services
• Real Estate
• Cash Management Services
Private Wealth Advisory (private banking, investment management, personal trust,
brokerage, and retirement)
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, Montgomery,
Tippecanoe, White
Counties
Muncie
Established
Adams, Delaware,
Fayette, Henry, Jay,
Miami, Randolph,
Union, Wabash,
Wayne Counties, IN
Butler, County, OH
Munster
Higher Growth
Lake & Porter, IN
Cook & DuPage, IL
How We Deliver
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
Total Population: 687,070
Deposit Market Share: 13.72%
*Includes Jasper, Lake, and Porter counties
LEGACY MARKET
Muncie MSA
Established: 1893
Total Population:
116,511
Current Market
Share: 46.17%
Organic Growth
Opportunities Exists in All
Directions
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
2nd Nationally for Availability of Skilled Labor
2nd Best City in the Nation for Recent Graduates
(Indianapolis)
Home to the 2nd Largest Global Fed Ex Air Hub
Regulatory Climate Ranks 2nd in the Nation
4th Nationally for Cost of Living
Indiana’s 3 Maritime Ports Rank 6th in Waterborne Shipping
8th Best State for Business
Indiana
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 0.07%
Market Total 38 $1,936,334
Projected HHI & Pop. Change 2017-2022
*SNL Financial FDIC Summary of Deposits as of June 30, 2016
Notable Major Employers
Located 58 miles northeast of Indianapolis in the east central portion of the
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 living in major metropolitan areas.
Easy access to the top 100 markets in the country, Muncie-Delaware
County has a diverse economic landscape
Ranked #27, Forbes Best Small Places for Business and Careers
Workforce experienced in life science, advanced manufacturing, 21st
century logistics and information technology
Home to Ball State University
Muncie Market
7.27%
8.00% 8.01%
3.77%
2.11%
0.15%
U.S. Indiana Delaware Co.
HHI Pop.
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 Financial Services Group 12 566,061 6.91%
5 First Merchants Corporation 12 522,258 6.37%
6 Lakeland Financial Corp 3 520,349 6.35%
7 Fifth Third Bancorp 7 465,152 5.68%
8 Huntington Bancshares 12 408,965 4.99%
9 Bank of Montreal 9 359,542 4.39%
10 KeyCorp 7 271,393 3.31%
Market Total 117 $8,195,095
Indianapolis metropolitan area includes four of the five fastest-
growing counties in Indiana and 10 of the 11 fastest-growing cities
and towns with populations of at least 5,000*
The 2015 population estimates released by the U.S. Census Bureau
show suburban Hamilton County’s population grew 13% over the last
five years*
Indiana’s population has grown 2% since 2010*
Indiana’s population growth outpaced those of neighboring states
Illinois, Kentucky, Michigan and Ohio*
With 862,781 residents, Indianapolis was the nation’s 14th largest city*
*IBJ.com
**SNL Financial FDIC Summary of Deposits as of June 30, 2016
Notable Major Employers
Indianapolis Market
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 10.52%
5 Lafayette Community Bancorp 4 149,577 6.12%
6 First Bancshares, Inc. 4 125,097 5.12%
7 Huntington Bancshares, Inc. 4 123,337 5.05%
8 Fifth Third Bancorp 3 86,976 3.56%
9 1st Source Corp 3 66,711 2.73%
10 Salin Bancshares 3 47,662 1.95%
Market Total 57 $ 2,443,556
Ranked #1 in Indiana and #8 nationally, Fortune, Best Place for Small
Business, based on cost of business, jobs growth, educational achievements
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 11.9% (Lafayette up 70.6%
since 2001, with 4,850 new jobs)**
Ranked #17 of 200, New Geography, Best Cities for Manufacturing
Home to Purdue University
Projected HHI & Pop. Change 2017-2022
Notable Major Employers
*SNL Financial FDIC Summary of Deposits as of June 30, 2016
**Indianapolis Business Journal
Lafayette Market
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 Bancorp 7 652,030 7.62%
7 Fifth Third Bancorp 13 499,788 5.84%
8 Bank of Montreal 15 478,887 5.59%
9 PNC Financial Services Group 4 172,235 2.01%
10 AMB Financial Corp 4 172,143 2.01%
Market Total 163 $ 8,560,942
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 Industries,
Alcoa Howmet, Urschel Labs and Monosol**
Lakefront being revitalized through the Marquette Plan and
assistance of the Regional Development Authority**
7.27%
8.00% 8.16%
3.77%
2.11%
-0.54%
U.S. Indiana Lake County
HHI Pop.
Notable Major Employers
*SNL Financial FDIC Summary of Deposits as of June 30, 2016
**www.nwiforum.org/nwi-becoming-an-economic powerhouse
Northwest Indiana Market
Projected HHI & Pop. Change 2017-2022
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 Ohio State University
7.27%
8.07% 7.59%
3.77%
0.89%
5.04%
U.S. Ohio Franklin County
HHI Pop.
Projected HHI & Pop. Change 2017-2022
Notable Major Employers
*SNL Financial FDIC Summary of Deposits as of June 30, 2016
**http://jobs-ohio.com/manufacturing/
Franklin County, OH*
Rank
Branches
Deposits
Mkt.
Share
1 Huntington Bancshares 70 $ 19,176,982 39.51%
2 JP Morgan Chares & Co 49 12,524,687 25.80%
3 PNC Financial Services Group 42 5,243,661 10.80%
4 Fifth Third Bancorp 42 4,775,613 9.84%
5 U. S. Bancorp 34 1,282,621 2.64%
6 Key Corp 21 1,171,856 2.41%
7 Wells Fargo & Co 1 802,026 1.65%
8 Heartland BancCorp 11 508,956 1.05%
9 WesBanco Inc. 10 466,849 .96%
10 First Financial Bancorp 6 458,581 .94%
12 First Merchants Corporation 7 325,171 0.67%
Market Total 330 $ 48,539,002
Columbus, Ohio Market
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
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
20
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
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 Management • Vendor Management
Located off interstate, less than an hour north of Indianapolis, IN
60,000+ square feet of flexible space Strategic Vendor Partners
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 average logins per month
• 8K mobile deposits per month
• Domestic Wires
• # Originated: 37K Items ($11.2B)
• # Received: 37K Items ($18.2B)
• Business: 9.9K Users
• 13% use ACH/Wire/Positive Pay
• International Wires
• # Originated: 1K Items ($43.67M)
• # Received: 243 Items ($4.4M)
• Total ATMS: 124
Total Debit Cards
• 146K active cards
• 2.5M monthly card swipes
• $100M in monthly volume
Commercial Remote Deposit Capture
• 498 businesses using solution
• 135K deposits annually
• 1.6M items deposited annually
• $3.1B in total deposits
23
Operational Delivery Highlights
Customer, Digital Channel & Transaction Activity
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% Efficiency Ratio
Definitive Agreements Announced
The Arlington Bank on January 25, 2017
Independent Alliance Banks, Inc. on February 17, 2017
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 $7,326
Annualized Asset Growth 6.7% 6.3%*
*Annualized from 12.31.2016
25
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%
Other
Consumer
1.4%
YTD Yield = 4.63%
Total Loans = $5.3 Billion
Loan and Yield Detail
(as of 3/31/2017)
26
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 unrealized gain of $24.2 Million
27
28
Total Liabilities and Capital
($ 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 123 122 122 122
7. Common Equity 851 902 867 929
8. Total Liabilities and Capital $6,761 $7,212 $6,799 $7,326
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%
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 3Q16 4Q16 1Q17
Total Risk-Based Capital Ratio (Target = 13.50%)
Common Equity Tier 1 Capital Ratio (Target = 10.00%)
Tangible Common Equity Ratio (TCE) (Target = 8.50%)
30
Capital Ratios
(Target)
(Target)
(Target)
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
$66
Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17
Net Interest Income - FTE ($millions) Net Interest Margin Net Interest Margin - Adjusted for Fair Value Accretion
31
Net Interest Margin
($ in Millions) Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17
Net Interest Income - FTE $ 49.2 $ 51.7 $ 53.3 $ 53.2 $ 57.6 $ 59.2 $ 61.1 $ 62.1 $ 64.9
Fair Value Accretion $ 2.2 $ 2.2 $ 2.0 $ 1.9 $ 2.5 $ 3.2 $ 3.8 $ 2.9 $ 4.3
Tax Equivalent Yield on Earning
Assets 4.24% 4.26% 4.30% 4.20% 4.28% 4.30% 4.37% 4.32% 4.42%
Cost of Supporting Liabilities 0.46% 0.45% 0.45% 0.45% 0.45% 0.44% 0.43% 0.42% 0.44%
Net Interest Margin 3.78% 3.81% 3.85% 3.75% 3.83% 3.86% 3.94% 3.90% 3.98%
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 1.5 1.3
7. Securities Gains/Losses 2.7 3.4 1.0 0.6
8. Gain on Sale of Insurance Subsidiary 8.3
9. Gain on Cancellation of Trust Preferred Debt 1.3
10. Other 3.1 5.0 0.8 0.8
11. Total $69.8 $65.2 $15.8 $14.9
($ in Millions)
32
Non-Interest Income
–
–
–
–
–
–
–
–
–
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 Expense 3.7 3.0 1.0 0.6
7. Outside Data Processing 7.1 9.2 2.1 2.6
8. Marketing 3.5 3.0 0.7 0.6
9. Other 16.5 16.7 4.1 3.5
10. Non-Interest Expense $174.8 $177.3 $ 46.4 $43.1
($ in Millions)
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 before Income Taxes 91.0 108.7 23.3 30.4
7. Income Tax Expense (25.6) (27.6) (5.6) (7.2)
8. Net Income Avail. for Distribution $ 65.4 $ 81.1 $ 17.7 $ 23.2
9. EPS $ 1.72 $ 1.98 $ 0.43 $ 0.56
10. Efficiency Ratio 61.19% 56.51% 61.78% 52.61%
Earnings
($ in Millions)
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 – – –
35
Per Share Results
$9.21 $9.64
$10.95
$12.17
$13.65
$14.68
$15.85
$16.49
Dividends and Tangible Book Value
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
.11
.01
.03
.05
.14
.18
1.83%
Forward
Dividend
Yield
32.1%
Dividend
Payout Ratio
=
Quarterly Dividends Tangible Book Value
.08
36
.15
37
Asset Quality Summary
($ 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 Delinquent Loans 0.9 0.1 1.0 0.1 0.0 0.0% (0.9) (90.0%)
5. Total NPAs & 90+ Days Delinquent 51.5$ 43.8$ 54.3$ 37.2$ (6.6)$ (15.1%) (17.1)$ (31.5%)
6. Total NPAs & 90+ Days/Loans & ORE 1.1% 0.9% 1.2% 0.7%
7. Classified Assets 171.8$ 174.1$ 170.9$ 173.9$ (0.2)$ (0.1%) 3.0$ 1.8%
8. Criticized Assets (includes
Classified) 275.0$ 292.6$ 305.8$ 304.3$ 11.7$ 4.0% (1.5)$ (0.5%)
Change Change
Year End Year over Year
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. Fair Value Adjustment (FVA) 42.3 37.9 34.9 30.6
6. Total ALLL plus FVA 104.5 101.4 100.9 98.8
7. Purchased Loans plus FVA 863.4 771.6 700.4 639.3
8. Specific Reserves 2.1 1.6 0.9 1.2
9. ALLL/Non-Accrual Loans 185.3% 186.1% 220.1% 244.4%
10. ALLL/Non-Purchased Loans 1.56% 1.50% 1.47% 1.46%
11. ALLL/Loans 1.29% 1.28% 1.28% 1.29%
12. ALLL & FVA/Total Loan Balances plus FVA1 2.15% 2.02% 1.95% 1.86%
1 Management uses this Non-GAAP measure to demonstrate coverage and credit risk
39
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 and Fee Generation
Exploit Back-Office Infrastructure for Efficiency and Operating Leverage
Build Out Specialty Finance Businesses and Lending Verticals
Persistently Focus on Banking Center Optimization in Alignment with Digital
Channels Migration
Prepare to Successfully Cross the $10 Billion Asset Level
“Responsive, Knowledgeable, High-Performing”
41
Recent Acquisition Announcements
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, 2016
• Net Income of $3.1 Million
• Net Interest Margin of 3.80%
Excellent Credit Quality and Highly Profitable
• NPAs / Assets of 0.67%
• 1.35% ROAA LTM and 11.93% ROAE LTM
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 35%, or $3.5 Million
Estimated One-Time Transaction Costs of $6.8 Million
Credit and Interest Rate Marks of $7.8 Million
Financial Impact:
Accretive to EPS During 2017
Tangible Book Value Earn-Back in Three Years
Minimal Impact to Capital Ratios
Termination Fee: $3.0 Million
Anticipated Closing: Mid-Year 2017
*Based on First Merchants’ January 24, 2017 closing price of $36.46 Per Share
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
• Improves First Merchants’ Deposit Market Position from #12 to #8
• Columbus is One of the Fastest Growing Cities in the Midwest
• Arlington Bank is the 9th Largest Originator of Residential Mortgages in the
Columbus, Ohio Area
Strategic
Opportunity
Financially
Attractive
Accretive to EPS During 2017
Tangible Book Value Earn-Back in Three Years
Significant Operating Efficiencies – Approximately 35% in Cost Savings
Attractive
Risk Profile
Cultural Fit, Retention of Key Management Members
Due Diligence Process Completed
Experienced Acquirer, Core Competency in Integration Processes
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 Million in Loans
• $861 Million in Deposits
Income Statement for Year Ending
December 31, 2016
• Net Income of $10.2 Million
• Net Interest Margin of 3.31%
• ROAA of 0.94%
• ROATCE of 9.57%
Independent Alliance Banks, Inc. Summary
*as of February 16, 2017
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 and IALB Shareholder
Key Assumptions:
Cost Savings Estimated to be 38% or $10.9 Million
Pre-Closing Charges of Approximately $8.3 Million
Estimated One-Time Transaction Costs of $7.2 Million
Credit Mark of Approximately 2.5%, or $19.7 Million
Financial Impact:
Accretive to EPS By 2% in 2017 and 5% Annually Thereafter
Tangible Book Value Earnback of 3.75 Years
Minimal Impact to Capital Ratios
Termination Fee: $5.0 Million
Anticipated Closing: 3rd Quarter 2017
*based on FRME closing price on February 16, 2017, taking into account
FRME 12.1% IALB Investment made on November 21, 2016
Independent Alliance Banks, Inc. Transaction Overview*
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
2017 and 5% annually thereafter
Tangible Book Value Earn Back of 3.75 Years
Significant and Stable Core Deposits, 91% of Deposits
Maintains a Healthy Capital Position
Comprehensive Due Diligence Process Completed
Cultural Fit and Retention of Key Management Members including Mike
Marhenke and Will Thatcher in Leadership Roles
Experienced Acquirer, Core Competency in Integration Processes
Market Opportunity
• Leverage Successful First Merchants Model into Northeast Indiana Markets
• Diverse Loan Portfolio with Significant Opportunities to Expand
• Bridge to Significant Markets in North Western Ohio and Southern Michigan
Strategic
Opportunity
Financially
Attractive
Attractive
Risk Profile
Independent Alliance Banks, Inc. Transaction Rationale
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 Center
Successful Acquisition and Integration Track Record
Focused on Providing Sustainable Shareholder Value
49
Research Coverage
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
dortega@firstmerchants.com
Appendix
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 Comprehensive (Income) Loss a 1,915 6,490 3,614 1,362 (2,066) (7,035) (3,924) 13,581 3,722
Less: Preferred Stock (125) (125) (125) (125) (125) (125) (125) (125) (125)
Add: Qualifying Capital Securities 56,827 56,827 51,827 55,776 55,236 55,296 55,355 55,415 55,474
Less: Tier 1 Capital Deductions (4,381) (2,371) (3,418) (2,516) (1,999) (1,828) (1,440) (376) (80)
Less: Disallowed Goodwill and Intangible Assets (205,818) (208,980) (208,749) (247,006) (250,367) (249,932) (249,541) (249,104) (250,493)
Less: Disallowed Servicing Assets
Less: Disallowed Deferred Tax Assets (1,786) (1,581) (1,144) (1,677) (2,998) (2,743) (2,161) (564) (320)
Total Tier 1 Capital (Regulatory) 586,290$ 600,215$ 608,989$ 656,323$ 664,944$ 681,183$ 699,029$ 720,484$ 737,648$
Qualifying Subordinated Debentures 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000
Allowance for Loan Losses includible in Tier 2 Capital 58,688 60,865 62,012 62,453 62,086 62,186 63,456 66,037 68,225
Total Risk-Based Capital (Regulatory) 709,978$ 726,080$ 736,001$ 783,776$ 792,030$ 808,369$ 827,485$ 851,521$ 870,873$
Net Risk-Weighted Assets (Regulatory) 4,695,073$ 4,865,157$ 4,956,737$ 5,247,617$ 5,355,827$ 5,511,557$ 5,836,806$ 5,993,381$ 6,114,112$
Total Risk-Based Capital Ratio (Regulatory) 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24%
Common Equity Tier 1 Capital Ratio
Total Tier 1 Capital (Regulatory) 586,290$ 600,215$ 608,989$ 656,323$ 664,944$ 681,183$ 699,029$ 720,484$ 737,648$
Less: Qualified Capital Securities (56,827) (56,827) (51,827) (55,776) (55,236) (55,296) (55,355) (55,415) (55,474)
Add: Additional Tier 1 Capital Deductions 4,381 2,371 3,418 2,516 1,999 1,828 1,440 376 80
Less: Preferred Stock
Common Equity Tier 1 Capital (Regulatory) 533,844$ 545,759$ 560,580$ 603,063$ 611,707$ 627,715$ 645,114$ 665,445$ 682,254$
Net Risk-Weighted Assets (Regulatory) 4,695,073$ 4,865,157$ 4,956,737$ 5,247,617$ 5,355,827$ 5,511,557$ 5,836,806$ 5,993,381$ 6,114,112$
Common Equity Tier 1 Capital Ratio (Regulatory) 11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10% 11.16%
guidance for defined benefit and other postretirement plans.
a Includes net unrealized gains or losses on securities available for sale, net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting
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) (125) (125) (125) (125) (125)
Less: Intangible Assets (218,033) (220,196) (219,503) (259,764) (261,799) (260,822) (259,844) (258,866) (257,963)
Tangible Common Equity (non-GAAP) 521,500$ 529,634$ 547,356$ 590,620$ 605,339$ 626,603$ 640,896$ 642,666$ 671,382$
Total Assets (GAAP) 5,877,521$ 6,140,308$ 6,189,797$ 6,761,003$ 6,798,539$ 6,906,418$ 7,022,352$ 7,211,611$ 7,326,193$
Less: Intangibles Assets (218,033) (220,196) (219,503) (259,764) (261,799) (260,822) (259,844) (258,866) (257,963)
Tangible Assets (non-GAAP) 5,659,488$ 5,920,112$ 5,970,294$ 6,501,239$ 6,536,740$ 6,645,596$ 6,762,508$ 6,952,745$ 7,068,230$
Tangible Common Equity Ratio (non-GAAP) 9.21% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50%
TANGIBLE COMMON EQUITY PER SHARE (dollars in thousands):
4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
Total Stockholders' Equity (GAAP) 454,408$ 514,467$ 552,236$ 634,923$ 726,827$ 850,509$ 867,263$ 887,550$ 900,865$ 901,657$ 929,470$
Less: Preferred Stock (67,880) (90,783) (90,908) (125) (125) (125) (125) (125) (125) (125) (125)
Less: Intangible Assets (154,019) (150,471) (149,529) (202,767) (218,755) (259,764) (261,799) (260,822) (259,844) (258,866) (257,963)
Tax Benefit 2,907 2,224 2,249 4,973 6,085 6,278 6,753 6,453 6,204 5,930 5,659
Tangible Common Equity, Net of Tax (non-GAAP) 235,416$ 275,437$ 314,048$ 437,004$ 514,032$ 596,898$ 612,092$ 633,056$ 647,100$ 648,596$ 677,041$
Shares Outstanding 25,574,251 28,559,707 28,692,616 35,921,761 37,669,948 40,664,258 40,749,340 40,772,896 40,799,025 40,912,697 41,047,543
Tangible Common Equity per Share (non-GAAP) 9.21$ 9.64$ 10.95$ 12.17$ 13.65$ 14.68$ 15.02$ 15.53$ 15.86$ 15.85$ 16.49$
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) $ 0.18
Earnings Per Share 1Q2017 $ 0.56
Dividend Payout Ratio 32.1%
EFFICIENCY RATIO (dollars in thousands):
2015 1Q16 2016 1Q17
Non Interest Expense (GAAP) $ 174,806 $ 46,475 $ 177,359 $ 43,099
Less: Core Deposit Intangible Amortization (2,835)
(978) (3,910)
(903)
Less: OREO and Foreclosure Expenses (3,956)
(751) (2,877)
(531)
Adjusted Non Interest Expense (non-GAAP) 168,015 44,746 170,572 41,665
Net Interest Income (GAAP) 196,404 54,455 226,473 60,999
Plus: Fully Taxable Equivalent Adjustment 10,975 3,136 13,541 3,950
Net Interest Income on a Fully Taxable Equivalent Basis (non-GAAP) 207,379 57,591 240,014 64,949
Non Interest Income (GAAP) 69,868 15,837 65,203 14,846
Less: Investment Securities Gains (Losses) (2,670)
(997) (3,389)
(598)
Adjusted Non Interest Income (non-GAAP) 67,198 14,840 61,814 14,248
Adjusted Revenue (non-GAAP) 274,577 72,431 301,828 79,197
Efficiency Ratio (non-GAAP) 61.19% 61.78% 56.51% 52.61%
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 (Income) Loss 1 (579) 9,701 (4,566) 8,226
Less: Preferred Stock (125) (125) (125) (125)
Less: Tier 1 Capital Deductions (1,903) - (1,805) -
Less: Disallowed Goodwill and Intangible Assets (246,558) (248,656) (249,919) (250,047)
Less: Disallowed Deferred Tax Assets (1,269) - (2,708) -
Total Tier 1 Capital (Regulatory) 677,340 734,561 686,160 751,184
Allowance for Loan Losses includible in Tier 2 Capital 62,453 66,037 62,086 68,225
Total Risk-Based Capital (Regulatory) 739,793$ 800,598$ 748,246$ 819,409$
Construction, Land and Land Development Loans 366,704$ 418,703$ 391,621$ 336,931$
Concentration as a % of the Bank's Risk-Based Capital 49.6% 52.3% 52.3% 41.1%
Construction, Land and Land Development Loans 366,704$ 418,703$ 391,621$ 336,931$
Investment Real Estate Loans 1,090,573 1,272,415 1,107,288 1,423,792
Total Construction and Investment RE Loans 1,457,277$ 1,691,118$ 1,498,909$ 1,760,723$
Concentration as a % of the Bank's Risk-Based Capital 197.0% 211.2% 200.3% 214.9%
1 Includes net unrealized gains or losses on securities available for sale, net gains or losses on cash flow hedges, and amounts resulting
from the application of the applicable accounting guidance for defined benefit and other postretirement plans.
ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands):
2Q16 3Q16 4Q16 1Q17
L ans Held for Sale (GAAP) 18,854$ 1,482$ 2,929$ 1,262$
Loans (GAAP) 4, 91,429 4,973,844 5,139,645 5,274,909
T tal Loans 4,810,283 4, 75,326 5,142,574 5,276,171
Less: Purchased Loans (821,158) (733,715) (665,417) (608,724)
Non-Purchased Loans (non-GAAP) 3,989,125$ 4,241,611$ 4,477,157$ 4,667,447$
Allowance for Loan Losses (GAAP) 62,186$ 63,456$ 66,037$ 68,225$
Fair Value Adjustme t (FVA) (GAAP) 42,291 37,898 34,936 30,623
Allowance plus FVA (non-GAAP) 104,477$ 101,354$ 100,973$ 98,848$
Total Loans 4,810,283$ 4,975,326$ 5,142,574$ 5,276,171$
Fair Value Adjustment (FVA) (GAAP) 42,291 37,898 34,936 30,623
Total Loans plus FVA (non-GAAP) 4,852,574$ 5,013,224$ 5,177,510$ 5,306,794$
Allowance as a Percentage of Non-Purchased Loans (non-GAAP) 1.56% 1.50% 1.47% 1.46%
Allowance plus FVA as a Percentage of Total Loans plus FVA (non-GAAP) 2.15% 2.02% 1.95% 1.86%