First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2020 Earnings Presentation
31 slides from First Merchants's earnings presentation, Jan 28, 2021
Slide 1: Investor Update Fourth Quarter 2020
INVESTOR UPDATE Fourth Quarter 2020
Slide 2: Forward Looking Statement
Forward Looking Statement 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”
Slide 3: Executive Management Team
Executive Management Team 3 Mark Hardwick Chief Executive Officer Mark K. Hardwick currently serves as the Chief Executive Officer of First Merchants Corporation and First Merchants Bank. Mark joined First Merchants in November of 1997 as Corporate Controller and was promoted to Chief Financial Offi
Slide 4: First Merchants Corporation Financial Highlights
First Merchants Corporation (NASDAQ: FRME) Financial Highlights as of 12/31/20 $14.1 Billion $9.2 Billion $11.4 Billion $4.3 Billion Assets Under Management Total Assets Total Loans Total Deposits TCE/TA: YTD Return on TCE YTD ROAA: Dividend Yield: Price / Tangible Book: Price / 2021 Est. EPS: 1.10%
Slide 5: Strategy & Key Lines of Business
Strategy & Key Lines of Business 5 Consumer BankingCommercial Banking Private Wealth Advisory Full Spectrum of Debt Capital Offerings Located in Prime Growth Markets Small Business & SBA Middle Market C&I Investment Real Estate Public Finance Structured Finance Asset Based Lending Syndications Tre
Slide 6: Attractive Markets of Operation
Attractive Markets of Operation 6 Indianapolis MSA Rank: 10 Deposits: $2.2B Loans: $3.1B Muncie MSA Rank: 1 Deposits: $2.6B Loans: $1.3B Columbus MSA Rank: 11 Deposits: $752M Loans: $1.3B Lafayette MSA Rank: 2 Deposits: $1.4B Loans: $782M Munster Lake County Rank: 4 Deposits: $1.5B Loans: $1.1B Fort
Slide 7: Fourth Quarter Highlights
Fourth Quarter Highlights 7 $45.1 Million $0.83 Per Share Net Income & EPS 1.29% ROA 1.64% PTPP ROA ROA (Annualized) 11.2% w/o PPP 0% w/PPP Loan Growth (Annualized) Year End Highlights $148.6 Million $2.74 Per Share Net Income & EPS 1.10% ROA 1.70% PTPP ROA ROA 1.3% w/o PPP 9.2% w/PPP Loan Growth
Slide 8: Fourth Quarter Financial Results
Fourth Quarter Financial Results 8 51.60 Efficiency Ratio excluding branch consolidation charges of $4.5M Pre-Tax, Pre-Provision (PTPP) Earnings totaled $57.3M Net interest income increased $9.4M over prior quarter which included an increase of $5.5M in PPP fees and interest income ROE incre
Slide 9: Investment Portfolio Highlights
Municipal Bonds 58% Mortgage- Backed Securities 27% Collateralized Mortgage Obligations 8% U.S. Agencies 6% Corporate Obligations 1% Net unrealized Gain of $164.5 Million Investment Portfolio Highlights 9 4Q20 Investment Portfolio Composition Yield on Investments(%) / Total Investments($B) $3.1B T
Slide 10: Loan Portfolio Highlights
Loan Portfolio Highlights 10 4Q20 Loan Composition Yield on Loans (%) / Total Loans ($B) $9.2B Total 4Q20 Portfolio by Yield Type Highlights Total loan rate mix as of 4Q20 • $5.6 Billion variable rate • $3.6 Billion fixed rate Non-PPP Fixed Rate 31% LIBOR-Based 37% Prime-Based 13% Other Variable Rat
Slide 11: Allowance For Loan Losses
$130.6 $74.3 ALLL 1/1/21 Allowance For Loan Losses 11 January 1, 2021 CECL adoption elected (Allowed by the SEC through the passing of the 2021 Consolidated Appropriations Act in December) With this election, Day 1 adoption through equity is measured on January 1, 2021 Reserve for unfunded com
Slide 12: Deposit Portfolio Highlights
Demand Deposits 60% Savings Deposits 32% Certificates & Time Deposits > $100k 3% Certificates & Time Deposits < $100k 4% Brokered Deposits 1% $9.8 $9.9 $11.0 $10.9 $11.4 0.97% 0.88% 0.47% 0.36% 0.27% 4Q19 1Q20 2Q20 3Q20 4Q20 Total Deposits ($B) Cost of Total Deposits (%) 12 4Q20 Deposit Composition
Slide 13: Net Interest Margin
Net Interest Margin 13 3.62% 3.46% 3.19% 3.15% 3.38% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% $68 $72 $76 $80 $84 $88 $92 $96 $100 $104 $108 4Q19 1Q20 2Q20 3Q20 4Q20 Net Interest Income - FTE ($millions) Net Interest Margin 4Q19 1Q20 2Q20 3Q20 4Q20 1. Net Interest Income - FTE ($m
Slide 14: 4Q20 Non-Interest Income Detail
Wealth Management $6.3 23% Gain on Sale of Loans $5.4 20% Service Charges $5.5 20% Card Payment Fees $3.5 13% Gain on Sale of Securities $2.4 9% Derivative Hedge Fees $2.3 8% BOLI $1.3 5% Other Customer Fees $0.4 1% Other $0.4 1% 14 4Q20 Non-Interest Income Detail ($M) $27.5M Total Non-Interest Inco
Slide 15: 4Q20 Non-Interest Expense Detail
Salary & Benefits $41.8 58% Premises & Equipment $15.2 21% Outside Data Processing $3.8 5% Professional & Other Outside Services $2.8 4% Intangible Asset Amortization $1.5 2% Marketing $1.8 2% FDIC Expense $1.6 2% Other $4.0 6% $39.4 $39.2 $35.7 $39.2 $41.8 $9.7 $10.2 $9.9 $10.8 $15.2 $4.4 $4.2 $2.6
Slide 16: Capital Ratios
16 Tangible Common Equity Ratio Common Equity Tier 1 Ratio Total Risk-Based Capital Ratio Capital Ratios 9.31% 9.57% 9.65% 10.16% 9.91% 9.93% 10.19% 9.99% 4Q19 1Q20 2Q20 3Q20 4Q20 TCE Ratio TCE ex. PPP Target TCE (9.00%) 9.31% 12.13% 11.58% 11.84% 12.02% 12.02% 4Q19 1Q20 2Q20 3Q20 4Q20 CET 1 Ratio T
Slide 17: 2020 Financial Results
2020 Financial Results 17 2020 Highlights 50.80 Efficiency Ratio excluding 2020 branch consolidation charges of $4.5M Pre-Tax, Pre-Provision (PTPP) Earnings totaled $228.5M Net income increased $25.5M over prior year which included $22.4M in PPP fees and interest income Tangible book value p
Slide 18: Loan Portfolio Highlights
Loan Portfolio 18 Highlights vs. Prior Quarter vs. Prior Year Total loans grew $234 Million excluding PPP loan forgiveness: • $109 Million C&I • $26 Million Sponsor • $89 Million Residential Mortgages • $32 Million Public Finance $779 Million loan growth for 2020 C&I loan growth: • $667 Million
Slide 19: C & I Loan Portfolio
C & I Loan Portfolio 19 C & I Distribution (NAICS) ($M) Diversified C&I portfolio totaling $3.7 Billion • Granularity illustrated by a C&I portfolio that is 71% of commercial accounts and only 51% of commercial loan balances Line commitments increased $337 Million in 2020 while C&I balances decl
Slide 20: Limited Exposure to COVID-19 Sensitive Industries
COVID-19 Sensitive Industries 7% All Other Loans 93% Limited Exposure to COVID-19 Sensitive Industries 20 Total Loan Portfolio as of 12/31/20 While we expect nearly every industry to have some impact from COVID-19, we have identified three industries that have been the most affected. $9.2B Total Loa
Slide 21: COVID-19 Hospitality and Accommodations
COVID-19 Hospitality and Accommodations 21 Hospitality Highlights 129 accounts to 92 borrowers totaling $197 Million • 28 borrowers $1 Million or greater 13 loans totaling $83 Million with a COVID related modification in deferral at year-end All loans current and accruing Hotel Highlights Hote
Slide 22: COVID-19 Modifications and PPP
COVID-19 Mods by Portfolio ($M) 22 4Q20 Top Sectors with Mods in Deferral ($M) Paycheck Protection Program COVID-19 Modifications and PPP Participating in the Economic Aid Act Paycheck Protection Program and currently accepting applications for first and second draw loans • $667 Million in PPP loa
Slide 23: Asset Quality
Asset Quality 23 Asset Quality Trends ($M) Highlights vs. Prior Quarter vs. Prior Year NPAs + 90PD decreased $1.3 in 4Q with sale of $5.9 million in Other Real Estate Owned Non-accrual loans increased $4.8 Million Classified loans decreased $2.8 Million Net charge-offs in 4Q of $0.6 Million,
Slide 24: Non-Performing Assets
$16.4 Million in new non-accruals • $13 Million loan to a senior living facility moved to non-accrual $1.3 Million of gross charge-offs in 4Q2020 Non-Performing Assets 24 Highlights 4th Quarter 2020 $75.6 Million in new non-accruals during 2020 • $44 Million in senior living • $14 Million in w
Slide 25: Track Record of Shareholder Value
$0.04 $0.04 $0.10 $0.18 $0.29 $0.41 $0.54 $0.69 $0.84 $1.00 $1.04 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.96 $19.12 $21.94 $24.27 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Track Record of Shareholder Value 25 10-Year Tota
Slide 26: History of Organic and Whole Bank Acquisition Growth
$1.6 $1.8 $2.7 $3.1 $3.2 $3.2 $3.6 $3.8 $4.8 $4.5 $4.2 $4.2 $4.3 $5.4 $5.8 $6.8 $7.2 $9.4 $9.9 $12.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 History of Organic and Whole Bank Acquisition Growth 26 Total Assets ($B) Growth Through Acqui
Slide 27: Vision for the Future
Vision for the Future 27 People: Enhance our culture through the power of collaboration, accountability and effective teams Source, recruit, onboard and engage a diverse and inclusive workforce with a commitment to career pathing and market level compensation Communicate our Corporate Social R
Slide 28: Appendix
APPENDIX — i) First Merchants Corporation
Slide 29: Non-GAAP: Total Risk-Based Capital Ratio
Non-GAAP 29 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Total Risk-Based Capital Ratio (dollars in thousands) Total Stockholders' Equity (GAAP) 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 1,777,960 1,809,095 1,833,656 1,875,645 Adjust for Accumulated Other Comprehensive (Income) Loss 1 21,422
Slide 30: Non-GAAP: Tangible Common Equity Ratio
Non-GAAP 30 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Tangible Common Equity Ratio (dollars in thousands) Total Stockholders' Equity (GAAP) 1,408,260$ 1,455,848$ 1,501,636$ 1,749,012$ 1,786,437$ 1,777,960$ 1,809,095$ 1,833,656$ 1,875,645$ Less: Preferred Stock (125) (125) (125) (125) (125) (125)
Slide 31: Non-GAAP: Efficiency Ratio
Non-GAAP 31 2018 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 EFFICIENCY RATIO (dollars in thousands): Non Interest Expense (GAAP) 219,951$ 65,201$ 246,763$ 66,171$ 59,989$ 64,709$ 72,536$ 263,405$ Less: Intangible Asset Amortization (6,719) (1,590) (5,994) (1,514) (1,511) (1,486) (1,476) (5,987) Less: OREO a