Michael C. RechinFirst Merchants Corporation
President & Chief Executive Officer
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
Re-Shaping First Merchants
for the Future
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Company Snapshot
• First Merchants Bank, formed in 1893, is celebrating its 121st anniversary
• First Merchants Corporation, organized in 1982, is the largest financial services holding company headquartered in Central Indiana
• First Merchants Corporation operates 97 locations in 26 Indiana counties, 2 Ohio counties, and 2 Illinois counties
Banking
$5.5B in Assets
Trust
$1.6B Trust Assetsunder Management
Insurance
$75M in Insurance Premiums
First Merchants Corporation®
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THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
®
Our Franchise
Total Loans
• Indianapolis - $1,242M
• Muncie - $776M
• Munster - $594M
• Lafayette - $547M
• Columbus - $464M
(as of March 31, 2014)
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THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Capital Ratios
9.20%
9.54% 9.71% 9.62%
10.20%10.13%
10.42% 10.37%
10.86%
7.07%7.27%
7.51% 7.55%7.88% 7.74%
7.97%8.34%
8.65%
16.39%16.75% 16.62%
16.34%15.91%
15.69%
14.96%14.54%
15.04%
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%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Total Risk-Based Capital Ratio (Target = 14.50%) Tier 1 Common Risk-Based Capital Ratio (Target = 10.00%)Tangible Common Equity/Tangible Assets (TCE) (Target = 8.00%)
(Target)
(Target)
(Target)
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®
www.firstmerchants.com
2007 First Merchants®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Michael C. Rechin named President and CEO, April 24, 2007• $3.6B Asset Size, 65 Locations, Indiana and Ohio• 8 Banks, 1 Title Company, 1 Insurance Agency, 1 Trust Company• Multi-Charter Organization – 8 Banking Charters
• 8 Names• 8 Cultures• 8 Decision-Makers• 8 Regulatory Exams• 8 Boards of Directors• 8 Ways of Doing Everything – Credit Decisioning
• Result• Company Divided / Bank vs. Bank / Line vs. Operations• Duplication of Effort – Highly Inefficient• Inconsistent Service Delivery
• Need – Unify and Simplify the Company• Common Vision• Seat at the Table
“Get Simpler”
www.firstmerchants.com
2008 Our First Steps Towards Higher Performance®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Began to Simplify the Company – Project “Gold Shield”• Merged 4 Bank Charters into the Lead Bank (First Merchants Bank)
• Defined and Promoted “First Merchants” Brand, Internally and Externally • Defined and Promoted “One Company – One Culture”• Established a Corporate Credit Function• Established a Risk Management Function• Began to Adopt the Balanced Scorecard Methodology
• 3rd Quarter 2008 – Signed Definitive Agreement to Acquire Lincoln Bank located in High-Growth Western and Southern Suburbs of Indianapolis• Completed Lincoln Bank Acquisition on 12/31/2008
“Achieving Buy-in”
www.firstmerchants.com
2009 Great Recession®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Housing Bubble Burst – Housing Prices Began to Fall
• Institutions Involved in Housing Began to Realize Losses Depleting their Capital
• Overnight Borrowing Ceased to Exist
• Financial Institutions Stopped New Commercial and Consumer Lending
• Bear Sterns, Lehman Brothers, Countrywide, Washington Mutual, General Motors & Chrysler Failed
• 389 Banks Failed Between 2009 and 2011
www.firstmerchants.com
2009 Simplification Accelerated by Great Recession®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Applied for and Received $116M from Capital Purchase Program as Capital Insurance
• Lincoln Integration Completed in April
• Made Decision to Merge All Bank Charters into One; Reduced the Number of Boards to Single Board
• Experienced Significant Credit Losses
• Company Experiences First Loss Year
• Share Price Tumbles
• Dividend Reduced
www.firstmerchants.com
2010 Economic Recovery Begins – Refocus on the Plan®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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Five-Year Strategic Plan Developed• Capital Preservation
• Issued 4.8 Million shares for $24.1M in New Capital
• Restructured Capital Purchase Program Funding for $10.1M Capital Gain
• Cultural Initiatives
• Brand Promise Reinforced, “Strength of Big, Service of Small”
• Retail Banking Group Formed – 1st Line of Business Organization Structure Established
• Regional and Market President Roles Redefined
• Full Company Use of Employee Engagement Surveys and Meetings
• Results
• Company Earns $1.6M (Excluding $10.1 Extraordinary Gain)
“Protect and Strengthen the Franchise”
www.firstmerchants.com
2011 Economy Continues to Improve – Stay on Plan®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Capital Preservation• Issued 2.8 Million Shares for $21.1M in New Capital• Participated in the Small Business Lending Fund Program at
$90.8M• Redeemed Capital Purchase Program Funding (TARP)
• Strengthen the Customer Experience (Growth)• Established Commercial Sales Management Process• Small Business Banking Group Established• Expanded Brokerage Representation Throughout Franchise
• Strengthen the Employee Relationship (Engagement)• Leadership Coaching Introduced
• Results• Profitability Continued to Improve – Earned $9M
“Sales and Credit Culture”
• Shelby County Bank Acquired Through FDIC-Assisted Transaction• $126M in Deposits• $113M in Loans
• Investment Real Estate Focus and Process Implemented• Customer Relationship Management System
Implementation• Banking Center Optimization• Instituted a Management Development Program to Grow
Future Leaders
• Company Earned Record Net Income of $40.6M
www.firstmerchants.com
2012 “Defense to Offense”®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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“Gaining Momentum”
www.firstmerchants.com
2013 Growth and Top-Tier Performance®
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
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• Aggressive Market Coverage Across All Lines of Business
• Re-structured Hybrid Capital/Paid Off Small Business Lending Fund
• $70 Million Subordinated Debt Issue (6.75%)
• Citizens Financial Acquisition Announced and Completed (Nov. 2013)
• $1.1 Billion in Assets
• $955 Million in Deposits
• $603 Million in Loans
• Ranked in Top 25 Regional Banks in the U. S. by SNL Financial
• Company Set All-Time Record Earnings $42.2M
• New Financial Business Model• Access to Capital is King: Strong Capital a Necessity
• Emphasis on Top Line Revenue Growth
• Interest Income
• Fee Income
• Strong Customer Franchise, Focused on Cross-Sales
• Mature Industry Focused on Efficiency and Productivity
• Emphasis on Enterprise Risk Management
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Industry Trends to Understand®
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“Be Open to Change”
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
®
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Drivers of Rapid Consolidation in Banking
• Revenue Headwinds for the Industry
• Asset Quality Problems
• Regulatory/Compliance Requirements
• Slow/Low Growth Economic Environment
• Management and Board Fatigue
• TARP
Industry Trends to Understand
• Electronic Payments Exploding• Non-Cash Payments in the U.S. Increased from
109 Billion in 2009 to 122.8 Billion in 2012. • Online Banking
• 51% of U.S. Adults and 61% of Internet Users, Bank Online
• Account acquisition, cross-selling, etc.• Mobile Device Migration Emerging –iPhone/Android
apps, Text Banking• 48% of Smartphone Owners Use Mobile Banking
• Banking Center Optimization vs. Expansion
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
®
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“From Physical to Virtual”
“The New Battleground”
Industry Trends to Understand
• Retail Banking• Commercial Banking
• Middle Market• Investment Real Estate
• Business Banking• Cash Management• Agriculture• Healthcare Services•Mortgage Banking
• Trust Services (Fiduciary, Custody) - $1.6B Trust Assets under Management• Insurance Products - $75M Insurance Premiums
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
®
FMC Strategy
“Service-driven alternative to super-regional bank competitors.
Deliver superior service with presence close to the customer for . . . ”
“We specialize in our communities”17
•Clear Expectation from Senior Management that Ethics are a Higher Priority than Financial
Results
•Values Should Drive Decisions
•Creating an Ethical Atmosphere
•Trickle-Down Effect on Employees
•Foundation for All Other Components of Control
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Tone at the Top®
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• Tougher Environment to Be Successful
• We Believe that Smart, Engaged Employees
Build Processes that . . .• …deliver great products and services that…• …highly satisfy our clients that…• …will produce superior financial results
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Ensuring the Future®
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•Talent Attraction
•Regulatory Cost and Compliance
•Prolonged Low Interest Rate Environment
•Customer Channel Preferences
•Information Security Investment
•Outsourcing/Partner Risks
THE STRENGTH OF BIG. THE SERVICE OF SMALL.
www.firstmerchants.com
Current Challenges®
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Michael C. RechinCEO
“Keeping Me Awake . . .”
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