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FIRST MERCHANTS
CORPORATION
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
NASDAQ: FRME
Michael C. Rechin Mark K. Hardwick Michael J. Stewart John J. Martin
President Executive Vice President Executive Vice President Executive Vice President
Chief Executive Officer Chief Financial Officer Chief Banking Officer Chief Credit Officer
Chief Operating Officer
®
4th Quarter 2016
Filed by First Merchants Corporation pursuant to
Rule 425 under the Securities Act of 1933.
Subject Company: The Arlington Bank Commission
Securities Exchange Act File No. 000-17071
Subject Company: Independent Alliance Banks, Inc.
Commission Securities Exchange Act File No. 000-
17071
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 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
the expected timing and benefits of the proposed merger between First Merchants Corporation (“First Merchants”) and The Arlington Bank and
the proposed merger between First Merchants and Independent Alliance Banks, Inc. (the “Mergers”), including future financial and operating
results, cost savings, enhanced revenues, and accretion/dilution to reported earnings that may be realized from the Mergers, as well as other
statements of expectations regarding the Mergers, and other statements of 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, whether with respect to the Mergers or otherwise.
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: the risk that the businesses of First Merchants and The Arlington
Bank , and the businesses of First Merchants and Independent Alliance Banks, Inc. will not be integrated successfully or such integration may be
more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the Mergers may not be fully realized
or realized within the expected time frame; revenues following the Mergers may be lower than expected; customer and employee relationships
and business operations may be disrupted by the Mergers; the ability to obtain required governmental and shareholder approvals, and the
ability to complete the Mergers on the expected timeframe; 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. Neither First Merchant, The
Arlington Bank, nor Independent Alliance Banks, Inc. undertake any 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 companies’ past results of operations do not
necessarily indicate either of their anticipated future results, whether the Mergers are effectuated or not.
® Forward-Looking Statements
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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3
® Forward-Looking Statements
ADDITIONAL INFORMATION
Communications in this report 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 proposed mergers will be submitted to The Arlington Bank shareholders and Independent Alliance Banks, Inc.’s
shareholders for their consideration. In connection with the proposed mergers, it is expected that such shareholders shall be provided with a
Proxy Statement, as well as other relevant documents concerning the proposed transactions. SHAREHOLDERS ARE URGED TO READ THE
PROXY STATEMENT REGARDING THE MERGERS WHEN IT BECOMES AVAILABLE, AS WELL AS ANY OTHER RELEVANT DOCUMENTS CONCERNING
THE PROPOSED TRANSACTION, TOGETHER WITH ALL AMENDMENTS OR SUPPPLEMENTS TO THOSE DOCUMENTS, AS THEY WILL CONTAIN
IMPORTANT INFORMATION.
The Arlington Bank and Independent Alliance Banks, Inc. and their directors and executive officers may be deemed to be participants in the
solicitation of proxies from their shareholders in connection with the proposed Mergers. Additional information regarding the interests of
those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statements
regarding the proposed Mergers when they become available.
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.
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Why Invest in First Merchants?
www.firstmerchants.com
4
®
Financial Highlights
Assets $ 7,211,611
Loans, Net $ 5,073,608
Deposits $ 5,556,498
Tangible Common Equity $ 642,666
TCE/TA 9.24%
2016 Net Income – YTD $ 81,051
2016 ROAA – YTD 1.17%
2016 ROATCE - YTD 12.82%
NPAs/Loans + OREO 0.85%
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Company Profile (as of 12/31/2016)
www.firstmerchants.com
5
Market Information
Common Shares Outstanding 40,912,697
Market Cap $ 1,540,363
Dividend Yield 1.43%
Price/Tangible Book Value 2.38x
Price/LTM EPS 19.0x
Price/2016 Est. EPS 19.5x
Leadership Team – First Merchants
Name/Title
Michael C. Rechin, President & CEO
Mark K. Hardwick, EVP, Chief Financial Officer &
Chief Operating 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
123rd anniversary.
First Merchants Corporation, organized in 1982, is the
largest financial services holding company
headquartered in Central Indiana
®
($ in Thousands)
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
6
Key Market Profiles
Loans Deposits
$2,250M Indianapolis $1,572M
948M Muncie 1,644M
668M Munster 1,002M
565M Lafayette 987M
709M Columbus 351M
$5,140M Total $5,556M
(as of December 31, 2016)
®
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
7 THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
First Merchants “Whole Bank” Strategy
www.firstmerchants.com
8
Commercial Banking
Consumer Banking
Private Wealth Advisors
Growth Strategy
• Organic
• Merger/Acquisition
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
First Merchants Strategy
www.firstmerchants.com
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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
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
First Merchants Strategy
www.firstmerchants.com
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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
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
First Merchants Strategy
www.firstmerchants.com
11
“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)
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
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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 ®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Organic Growth Opportunities
Exists in All Directions
www.firstmerchants.com
13
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%
14
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
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
*IEDC
**S&P, Moody’s & Fitch
15
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
16
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.
17
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
®
18
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
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 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
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Growth Through Acquisition
www.firstmerchants.com
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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.
21
FIRST MERCHANTS
ACQUISITION EXPERIENCE
1893-2016
®
22
Continuous Relationship Building
Complete and Thorough Due Diligence Process
Demonstrated Pricing Discipline:
• Average Price to TBV of 129%
• Average EPS Accretion within One Year
• Average TBV Earn-back of 2.8 Years
Detailed Project Managed Integration Process
Single Charter Operating Environment
Scalable Technology and Operations Center
FIRST MERCHANTS
ACQUISITION PROCESS
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Operational Delivery Highlights
www.firstmerchants.com
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 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: 62K Users
• 810K logins monthly
• 12K bill pay users
• 74K payments monthly
Cash Management Annual Volume
• Automated Clearing House (ACH)
• # Originated: 2M Items ($5B)
• # Received: 12M Items ($17B)
• Mobile: 26K Users
• 22 average logins per month
• 80% average active user rate
• Domestic Wires
• # Originated: 33K Items ($9B)
• # Received: 31K Items ($14B)
• Business: 9K Users
• 10% use ACH/Wire/Positive Pay
• International Wires
• # Originated: 4K Items ($207M)
• # Received: 530 Items ($8M)
• Total ATMS: 124
Total Debit Cards
• 137K active cards
• 3M monthly card swipes
• $100M in monthly volume
• Commercial Remote Deposit Capture
• 462 businesses using solution
• 117K deposits annually
• 1.3M items deposited annually
• $2.7B in total deposits
24
Operational Delivery Highlights
Customer, Digital Channel & Transaction Activity
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
25
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 Billion; Grew by 6.7% over 2015
• $446 Million of Organic Loan Growth for the Year Reflects a 9.5% Growth Rate
4th Quarter Highlights
• Net Interest Margin Stays Strong at 3.90%
• 1.26% Return on Average Assets
• Efficiency Ratio of 52.18%
®
“Record Level Results”
26
Total Assets
($ 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 387 381 369
8. Total Assets $5,824 $6,761 $7,212
9. Annualized Asset Growth 7.1% 16.1% 6.7%
®
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/Other
Commercial
5.0%
Residential
Mortgage
14.4%
Home
Equity
8.2%
Other
Consumer
1.5%
QTD Yield = 4.56%
YTD Yield = 4.58%
Total Loans = $5.1 Billion
Loan and Yield Detail
(as of 12/31/2016)
27 27
®
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
Modified duration of 4.9 years
Tax equivalent yield of 3.78%
Net unrealized gain of $9.1 Million
28 28
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 $6,761 $7,212
Total Liabilities and Capital
($ in Millions)
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
29 29
®
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
30
Demand Deposits
52%
Savings Deposits
28%
Certificates &
Time Deposits of
>$100,000
5%
Certificates &
Time Deposits of
<$100,000
8% Brokered
Deposits
7%
30
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 2Q16 3Q16 4Q16
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
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%) 31
Capital Ratios
(Target)
(Target)
(Target)
®
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
$64
Q4 - '14 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16
Net Interest Income - FTE ($millions) Net Interest Margin Net Interest Margin - Adjusted for Fair Value Accretion
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
32
Net Interest Margin
®
($ in Millions)
Q4 - '14 Q1 - '15 Q2 - '15 Q3 - '15 Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16
Net Interest Income - FTE ($millions) $ 49.2 $ 49.2 $ 51.7 $ 53.3 $ 53.2 $ 57.6 $ 59.2 $ 61.1 $ 62.1
Fair Value Accretion $ 1.4 $ 2.2 $ 2.2 $ 2.0 $ 1.9 $ 2.5 $ 3.2 $ 3.8 $ 2.9
Tax Equivalent Yield on Earning Assets 4.26% 4.24% 4.26% 4.30% 4.20% 4.28% 4.30% 4.37% 4.32%
Cost of Supporting Liabilities 0.46% 0.46% 0.45% 0.45% 0.45% 0.45% 0.44% 0.43% 0.42%
Net Interest Margin 3.80% 3.78% 3.81% 3.85% 3.75% 3.83% 3.86% 3.94% 3.90%
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/Losses 3.6 2.7 3.4
8. Gain on Sale of Insurance Subsidiary 8.3
9. Gain on Cancellation of Trust Preferred Debt 1.3
10. Other 3.0 3.1 5.0
11. Total $61.8 $69.8 $65.2
($ in Millions)
33
Non-Interest Income
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
–
–
–
–
–
34
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. Outside Data Processing 7.3 7.1 9.2
8. Marketing 3.5 3.5 3.0
9. Other 15.8 16.5 16.7
10. Non-Interest Expense $163.9 $174.8 $177.3
($ in Millions)
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
35
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
7. Income Tax Expense (22.1) (25.6) (27.6)
8. Net Income Avail. for Distribution $ 60.2 $ 65.4 $ 81.1
9. EPS $ 1.65 $ 1.72 $ 1.98
10. Efficiency Ratio 62.44% 61.19% 56.51%
Earnings
($ in Millions)
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®
36
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 before Income Taxes 23.3 26.7 28.6 30.1
7. Income Tax Expense (5.6) (6.7) (7.5) (7.8)
8. Net Income Avail. for Distribution $ 17.7 $ 20.0 $ 21.1 $ 22.3
9. EPS $ 0.43 $ 0.49 $ 0.51 $ 0.55
10. Efficiency Ratio 61.78% 57.33% 55.12% 52.18%
Quarterly Earnings
($ in Millions)
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®
37
Per Share Results
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®
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 Share $ .43 $ .49 $ .51 $ .55 $ 1.98
2. Dividends $ .11 $ .14 $ .14 $ .15 $ .54
2. Tangible Book Value $15.02 $15.53 $15.86 $15.85
$9.21 $9.64
$10.95
$12.17
$13.65
$14.68
$15.85
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Dividends and Tangible Book Value
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
.11
www.firstmerchants.com
®
.01
.03
.05
.14
.15
1.59%
Forward
Dividend
Yield
27.3%
Dividend
Payout Ratio
=
Quarterly Dividends Tangible Book Value
38
.08
38
39
Asset Quality Summary
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
($ 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 Loans 2.0 1.9 4.0 4.7 0.7 17.5% 2.8 147.4%
4. 90+ Days Delinquent Loans 4.6 0.9 1.6 0.1 (1.5) (93.8%) (0.8) (88.9%)
5. Total NPAs & 90+ Days
Delinquent
74.7$ 51.5$ 49.9$ 43.8$ (6.1)$ (12.2%) (7.7)$ (15.0%)
6. Total NPAs & 90+ Days/Loans &
ORE 1.9% 1.1% 1.0% 0.9%
7. Classified Assets 191.8$ 171.8$ 173.4$ 174.1$ 0.7$ 0.4% 2.3$ 1.3%
8. Criticized Assets (includes
Classified) 253.6$ 275.0$ 305.8$ 292.6$ (13.2)$ (4.3%) 17.6$ 6.4%
Change From Change From
Q3-'16 2015
40
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$ 109.2$ 104.5$ 101.4$ 100.9$
4. Specific Reserves 1.8$ 1.4$ 2.1$ 1.6$ 0.9$
5. Purchased Loans plus FVA 965.4 917.6 863.4 771.6 700.4
6. ALLL/Non-Accrual Loans 199.0% 169.1% 185.3% 186.1% 220.1%
7. ALLL/Non-purchased Loans 1.65% 1.62% 1.56% 1.50% 1.47%
8. ALLL/Loans 1.33% 1.32% 1.29% 1.28% 1.28%
9. ALLL & FVA/Total Loan Balances plus FVA1 2.31% 2.29% 2.15% 2.02% 1.95%
1 Management uses this Non-GAAP measure to demonstrate coverage and credit risk
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
41
®
42
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-Office Infrastructure for Efficiency and Operating Leverage
Build Out Specialty Finance Businesses and Lending Verticals
Persistent Focus on Banking Center Optimization in Alignment with Digital
Channels Migration
Explore Merger and Acquisition Opportunities
43
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
Recent Acquisition Announcements
44
The Arlington Bank Summary
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®
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
45
The Arlington Bank 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 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
46
The Arlington Bank 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 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
47
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
Headquartered in Fort Wayne, Indiana
Founded in 2005 in a combination of two 70-year old
companies; Grabill Bank and MarkleBank
Operates 16 Banking Centers plus Wealth Management and
Mortgage Offices
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
• 9.98% TCE/TA
• 0.57% NPAs/Assets
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. Overview
48
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
Second Largest MSA in the State of Indiana
• $7.8B Deposits
• 13% Deposit Growth in 2016
• Population 433,872
• Median Income $52,039
County Seat for Allen County
Diversified Economy
• Manufacturing – 17%
• Health Care – 17%
• Retail Trade – 11%
• Food Services – 9%
Largest Employers
• Parkview Health – 6,684
• Lutheran Health Network – 4,824
• General Motors – 4,100
Attractive Location for Businesses to Locate and Expand
• High Quality Labor Force
• Easy Access to Major Markets
• Competitive Tax Structure
• Affordable Real Estate and Low Property Taxes
• Outstanding Infrastructure and Transportation Systems
Retail Hub for the Region
Fort Wayne MSA Deposit Market Share
Institution (ST)
2016
Rank
Number of
Branches
Total
Deposits
(000)
Market
Share
Wells Fargo 1 14 $ 2,429,377 31.1%
Chase 2 13 1,122,546 14.4%
Lakeland Financial 3 6 736,668 9.4%
PNC Financial 4 13 731,482 9.4%
Independent Alliance 5 14 646,055 8.3%
STAR Financial 6 12 517,839 6.6%
Old National 7 5 427,345 5.5%
1st Source 8 11 346,496 4.4%
Fifth Third 9 8 211,105 2.7%
Ossian Financial 10 2 85,504 1.1%
Total Market 125 $ 7,814,024
Fort Wayne and Northeast Indiana Markets
49
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
Implied Deal Value:
Blended Deal 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
Implied Price Per Share
Blended Price Per Share
$69.59 for 87.9% of IALB Common Stock
$66.02 for 100% of IALB Common Stock
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
Earnings and Capital
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*
50
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
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
51
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
Merger & Acquisition History Since 2000
Partner Bank Closing Dates
Partner Total Assets
(in Millions)
Independent Alliance Banks, Inc. Pending $1,088
The Arlington Bank (Columbus, Oh) Pending 305
Ameriana Bancorp 12/31/2015 483
Cooper State Bank (Columbus, Oh) 8/15/2015 136
Community Bank of Noblesville 11/07/2014 272
CFS Bancorp 11/12/2013 1,146
Shelby County Bank 2/10/2012 148
Lincoln Bancorp 12/31/2008 890
CNBC (Columbus, Oh) 3/01/2003 317
Lafayette Bancorporation 4/01/2002 746
Francor Financial, Inc. (Wabash, In) 7/01/2001 158
Decatur Bank & Trust Co. (Decatur, In) 5/31/2000 130
52
Why Invest in First Merchants?
Attractive and Growing Earnings Stream
One of SNL’s Top 25 Best-Performing Regional Banks in 2015
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
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®
53
Research Coverage
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
54
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
THE STRENGTH OF BIG. THE SERVICE OF SMALL. www.firstmerchants.com
®
55
Appendix
®
56
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) 726,827 739,658 749,955 766,984 850,509 867,263 887,550 900,865 901,657
Adjust for Accumulated Other Comprehensive (Income) Loss a 1,630 1,915 6,490 3,614 1,362 (2,066) (7,035) (3,924) 13,581
Less: Preferred Stock (125) (125) (125) (125) (125) (125) (125) (125)
Add: Qualifying Capital Securities 55,000 56,827 56,827 51,827 55,776 55,236 55,296 55,355 55,415
Less: Tier 1 Capital Deductions (4,381) (2,371) (3,418) (2,516) (1,999) (1,828) (1,440) (376)
Less: Disallowed Goodwill and Intangible Assets (218,755) (205,818) (208,980) (208,749) (247,006) (250,367) (249,932) (249,541) (249,104)
Less: Disallowed Servicing Assets (167)
Less: Disallowed Deferred Tax Assets (1,786) (1,581) (1,144) (1,677) (2,998) (2,743) (2,161) (564)
Total Tier 1 Capital (Regulatory) 564,535$ 586,290$ 600,215$ 608,989$ 656,323$ 664,944$ 681,183$ 699,029$ 720,484$
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 55,972 58,688 60,865 62,012 62,453 62,086 62,186 63,456 66,037
Total Risk-Based Capital (Regulatory) 685,507$ 709,978$ 726,080$ 736,001$ 783,776$ 792,030$ 808,369$ 827,485$ 851,521$
Net Risk-Weighted Assets (Regulatory) 4,469,765$ 4,695,073$ 4,865,157$ 4,956,737$ 5,247,617$ 5,355,827$ 5,511,557$ 5,836,806$ 5,993,381$
Total Risk-Based Capital Ratio (Regulatory) 15.34% 15.12% 14.92% 14.85% 14.94% 14.79% 14.67% 14.18% 14.21%
Common Equity Tier 1 Capital Ratio
Total Tier 1 Capital (Regulatory) 564,535$ 586,290$ 600,215$ 608,989$ 656,323$ 664,944$ 681,183$ 699,029$ 720,484$
Less: Qualified Capital Securities (55,000) (56,827) (56,827) (51,827) (55,776) (55,236) (55,296) (55,355) (55,415)
Add: Additional Tier 1 Capital Deductions 4,381 2,371 3,418 2,516 1,999 1,828 1,440 376
Less: Preferred Stock (125)
Common Equity Tier 1 Capital (Regulatory) 509,410$ 533,844$ 545,759$ 560,580$ 603,063$ 611,707$ 627,715$ 645,114$ 665,445$
Net Risk-Weighted Assets (Regulatory) 4,469,765$ 4,695,073$ 4,865,157$ 4,956,737$ 5,247,617$ 5,355,827$ 5,511,557$ 5,836,806$ 5,993,381$
Common Equity Tier 1 Capital Ratio (Regulatory) 11.40% 11.37% 11.22% 11.31% 11.49% 11.42% 11.39% 11.05% 11.10%
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 guidance
for defined benefit and other postretirement plans.
57
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$ 900,865$ 901,657$
Less : Preferred Stock (125) (125) (125) (125) (125) (125) (125) (125) (125)
Less : Intangible Assets (218,755) (218,033) (220,196) (219,503) (259,764) (261,799) (260,822) (259,844) (258,866)
Tangible Common Equity (non-GAAP) 507,947$ 521,500$ 529,634$ 547,356$ 590,620$ 605,339$ 626,603$ 640,896$ 642,666$
Tota l Assets (GAAP) 5,824,127$ 5,877,521$ 6,140,308$ 6,189,797$ 6,761,003$ 6,798,539$ 6,906,418$ 7,022,352$ 7,211,611$
Less : Intangibles Assets (218,755) (218,033) (220,196) (219,503) (259,764) (261,799) (260,822) (259,844) (258,866)
Tangible Assets (non-GAAP) 5,605,372$ 5,659,488$ 5,920,112$ 5,970,294$ 6,501,239$ 6,536,740$ 6,645,596$ 6,762,508$ 6,952,745$
Tangible Common Equity Ratio (non-GAAP) 9.06% 9.21% 8.95% 9.17% 9.08% 9.26% 9.43% 9.48% 9.24%ANGIBLE COMMON EQUITY PER SHARE (dollars in thousands):
4Q10 4Q11 4Q12 4Q13 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Total Stockholders ' Equity (GAAP) 454,408$ 514,467$ 552,236$ 634,923$ 726,827$ 739,658$ 749,955$ 766,984$ 850,509$ 867,263$ 887,550$ 900,865$ 901,657$
Less : Preferred Stock (67,880) (90,783) (90,908) (125) (125) (125) (125) (125) (125) (125) (125) (125) (125)
Less : Intangible Assets (154,019) (150,471) (149,529) (202,767) (218,755) (218,033) (220,196) (219,503) (259,764) (261,799) (260,822) (259,844) (258,866)
Tax Benefi t 2,907 2,224 2,249 4,973 6,085 5,849 5,619 5,388 6,278 6,753 6,453 6,204 5,930
Tangible Common Equity, Net of Tax (non-GAAP) 235,416$ 275,437$ 314,048$ 437,004$ 514,032$ 527,349$ 535,253$ 552,744$ 596,898$ 612,092$ 633,056$ 647,100$ 648,596$
Shares Outstanding 25,574,251 28,559,707 28,692,616 35,921,761 37,669,948 37,781,488 37,824,649 37,873,921 40,664,258 40,749,340 40,772,896 40,799,025 40,912,697
Tangible Common Equity per Share (non-GAAP) 9.21$ 9.64$ 10.95$ 12.17$ 13.65$ 13.96$ 14.15$ 14.59$ 14.68$ 15.02$ 15.53$ 15.86$ 15.85$
58
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 Intangible Amortization (2,445) (2,835) (978) (977) (978) (977) (3,910)
Less: OREO and Foreclosure Expenses (3,462) (3,956) (751) (915) (637) (574) (2,877)
Adjusted Non Interest Expense (non-GAAP) 158,101 168,015 44,746 42,943 42,500 40,383 170,572
Net Interest Income (GAAP) 187,037 196,404 54,455 55,962 57,682 58,374 226,473
Plus: Fully Taxable Equivalent Adjustment 7,921 10,975 3,136 3,256 3,402 3,747 13,541
Net Interest Income on a Fully Taxable Equivalent Basis
(non-GAAP) 194,958 207,379 57,591 59,218 61,084 62,121 240,014
Non Interest Income (GAAP) 61,816 69,868 15,837 16,385 16,861 16,120 65,203
Less: Investment Securities Gains (Losses) (3,581) (2,670) (997) (706) (839) (847) (3,389)
Adjusted Non Interest Income (non-GAAP) 58,235 67,198 14,840 15,679 16,022 15,273 61,814
Adjusted Revenue (non-GAAP) 253,193 274,577 72,431 74,897 77,106 77,394 301,828
Efficiency Ratio (non-GAAP) 62.44% 61.19% 61.78% 57.33% 55.12% 52.18% 56.51%
FORWARD DIVIDEND YIELD
4Q16
Most recent quarter's dividend per share $ 0.15
Most recent quarter's dividend per share - Annualized 0.60
Stock Price at 12/31/16 37.65
Forward Dividend Yield 1.59%
DIVIDEND PAYOUT RATIO
2016
Dividends per share $ 0.54
Earnings Per Share 1.98
Dividend Payout Ratio 27.3%
59
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 4,791,429 4,973,844 5,139,645
Total Loans 4,703,716 4,713,535 4,810,283 4,975,326 5,142,574
Less: Purchased Loans (917,589) (870,507) (821,158) (733,715) (665,417)
Non-Purchased Loans (non-GAAP) 3,786,127$ 3,843,028$ 3,989,125$ 4,241,611$ 4,477,157$
Allowance for Loan Losses (GAAP) 62,453$ 62,086$ 62,186$ 63,456$ 66,037$
Fair Value Adjustment (FVA) (GAAP) 47,057 47,104 42,291 37,898 34,936
Allowance plus FVA (non-GAAP) 109,510$ 109,190$ 104,477$ 101,354$ 100,973$
Total Loans 4,703,716$ 4,713,535$ 4,810,283$ 4,975,326$ 5,142,574$
Fair Value Adjustment (FVA) (GAAP) 47,057 47,104 42,291 37,898 34,936
Total Loans plus FVA (non-GAAP) 4,750,773$ 4,760,639$ 4,852,574$ 5,013,224$ 5,177,510$
Allowance as a Percentage of Non-Purchased Loans (non-GAAP) 1.65% 1.62% 1.56% 1.50% 1.47%
Allowance plus FVA as a Percentage of Total Loans plus FVA (non-GAAP) 2.31% 2.29% 2.15% 2.02% 1.95%
CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands):
2015 3Q16 2016
Tot l Ri k-Based Capital (Subsidiary Bank Only)
Tot l Stockholders' Equity (GAAP) 927,774$ 972,182$ 973,641$
Adjust for Accumul ted Other Comprehensive (Income) Loss 1 (579) (6,332) 9,701
Less: Preferred Stock (125) (125) (125)
Less: Tier 1 Capital Deductions (1,903) (889) -
Less: Disallowed Goodwill and Intangible Assets (246,558) (249,093) (248,656)
Less: Disallowed Deferred Tax Assets (1,269) (1,334) -
Total Tier 1 Capital (Regulatory) 677,340 714,409 734,561
Allowance for Loan Losses includible in Tier 2 Capital 62,453 63,456 66,037
Total Risk-Based Capital (Regulatory) 739,793$ 777,865$ 800,598$
Construction, Land a d Land Developme t Loans 366,704$ 368,241$ 418,703$
Concentration as a % of the Bank's Risk-Based Capital 49.6% 47.3% 52.3%
Construction, Land and Land Development Loans 366,704$ 368,241$ 418,703$
Investment Real Estate Loans 1,090,573 1,264,304 1,272,415
Total Construction and Investment RE Loans 1,457,277$ 1,632,545$ 1,691,118$
Concentration as a % of the Bank's Risk-Based Capital 197.0% 209.9% 211.2%
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.