First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2017 Earnings Presentation
32 slides from First Merchants's earnings presentation, Jan 25, 2018
Slide 1: 4th Quarter 2017 Earnings Highlights
4th Quarter 2017 Earnings Highlights January 25, 2018 Michael C. Rechin President Chief Executive Officer Mark K. Hardwick Executive Vice President Chief Financial Officer Chief Operating Officer John J. Martin Executive Vice President Chief Credit Officer
Slide 2: Forward-looking statements
This presentation contains forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often, but not always, be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “
Slide 3: 4th Quarter 2017 Financial Highlights
3 4th Quarter 2017 Financial Highlights Earnings Per Share of $.49 $24.4 Million of Net Income, a 9.4% increase over 4Q2016 Includes $6.5 Million in DTA write down and acquisition expenses, or $.12 per share Net Interest Margin expands to 4.10% following December rate move Completed conver
Slide 4: Full Year 2017 Performance
4 Full Year 2017 Performance Record Net Income of $96.1 Million, an 18.5% increase over 2016 Earnings per share of $2.12, a 7.1% increase over 2016; highest in Company’s history Includes $17.3 Million, or $.29 per share of acquisition expense and DTA write down Total Assets of $9.4 Billion;
Slide 5: Mark K. Hardwick, EVP, Chief Operating Officer and Chief Financial Officer
Mark K. Hardwick Executive Vice President Chief Operating Officer and Chief Financial Officer
Slide 6: Total Assets
Total Assets 2015 2016 2017 1. Investments $1,277 $1,305 $1,561 2. Loans Held for Sale 10 3 7 3. Loans 4,694 5,140 6,751 4. Allowance (62) (66) (75) 5. Goodwill & Intangibles 260 259 477 6. BOLI 201 202 224 7. Other 381 369 422 8. Total Assets $6,761 $7,212 $9,367 Annualized Asset Growth 16.1% 6.7%
Slide 7: Loan and Yield Detail (as of 12/31/2017)
Commercial & Industrial 22.1% Commercial Real Estate Owner- Occupied 10.4% Commercial Real Estate Non-Owner Occupied 23.9% Construction Land & Land Development 9.1% Agricultural Land 3.6% Agricultural Production 1.8% Public Finance/Other Commercial 5.9% Residential Mortgage 14.3% Home Equity 7.6% Ot
Slide 8: Investment Portfolio (as of 12/31/2017)
Mortgage-Backed Securities 27% Collateralized Mortgage Obligations 23% U. S. Agencies 1% Corporate Obligations 2% Tax-Exempt Municipals 47% Investment Portfolio (as of 12/31/2017) $1.6 Billion Portfolio Modified duration of 5.1 years Tax equivalent yield of 3.90% Net unrealized gain of $23.0
Slide 9: Total Liabilities and Capital
2015 2016 2017 1. Customer Non-Maturity Deposits $4,096 $4,428 $5,741 2. Customer Time Deposits 880 747 1,051 3. Brokered Deposits 314 381 381 4. Borrowings 446 572 701 5. Other Liabilities 51 60 57 6. Hybrid Capital 123 122 133 7. Common Equity 851 902 1,303 8. Total Liabilities and Capital $6,761
Slide 10: Deposit Detail (as of 12/31/2017)
Deposit Detail (as of 12/31/2017) QTD Cost = .58% YTD Cost = .49% Total = $7.2 Billion 10 Demand Deposits 52% Savings Deposits 28% Certificates & Time Deposits of >$100,000 7% Certificates & Time Deposits of <$100,000 8% Brokered Deposits 5%
Slide 11: Capital Ratios
11.49% 11.42% 11.39% 11.05% 11.10% 11.16% 11.11% 11.03% 11.00% 9.08% 9.26% 9.43% 9.48% 9.24% 9.50% 9.68% 9.39% 9.30% 14.94% 14.79% 14.67% 14.18% 14.21% 14.24% 14.01% 13.76% 13.69% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Ri
Slide 12: Net Interest Margin
12 Net Interest Margin Q4 - '15 Q1 - '16 Q2 - '16 Q3 - '16 Q4 - '16 Q1 - '17 Q2 - '17 Q3 - '17 Q4 - '17 Net Interest Income - FTE ($millions) $ 53.2 $ 57.6 $ 59.2 $ 61.1 $ 62.1 $ 64.9 $ 67.2 $ 78.9 $ 83.5 Fair Value Accretion $ 1.9 $ 2.5 $ 3.2 $ 3.8 $ 2.9 $ 4.3 $ 2.3 $ 3.2 $ 4.1 Tax Equivalent Yield
Slide 13: Non-Interest Income
13 Non-Interest Income – – – – – – – – 2015 2016 2017 1. Service Charges on Deposit Accounts $16.2 $17.8 $18.7 2. Wealth Management Fees 11.3 12.6 14.7 3. Insurance Commission Income 4.1 4. Card Payment Fees 13.4 15.0 16.1 5. Cash Surrender Value of Life Ins 2.9 4.3 6.6 6. Gains on Sales Mortgage Lo
Slide 14: Non-Interest Expense
14 Non-Interest Expense 2015 2016 2017 1. Salary & Benefits $101.9 $102.6 $119.8 2. Premises & Equipment 25.5 29.5 30.1 3. Intangible Asset Amortization 2.8 3.9 5.6 4. Professional & Other Outside Services 9.9 6.5 12.8 5. OREO/Credit-Related Expense 3.9 2.9 1.9 6. FDIC Expense 3.7 3.0 2.6 7. Outside
Slide 15: Earnings
2015 2016 2017 1. Net Interest Income $196.4 $226.5 $277.3 2. Provision for Loan Losses (0.4) (5.7) (9.1) 3. Net Interest Income after Provision 196.0 220.8 268.2 4. Non-Interest Income 69.8 65.2 71.0 5. Non-Interest Expense (174.8) (177.3) (205.6) 6. Income before Income Taxes 91.0 108.7 133.6 7. I
Slide 16: Quarterly Earnings
16 Q1-’17 Q2-’17 Q3-’17 Q4-’17 1. Net Interest Income $61.0 $63.1 $74.4 $78.8 2. Provision for Loan Losses (2.4) (2.9) (2.1) (1.8) 3. Net Interest Income after Provision 58.6 60.2 72.3 77.0 4. Non-Interest Income 14.9 18.4 18.7 19.1 5. Non-Interest Expense (43.1) (47.3) (58.7) (56.4) 6. Income befor
Slide 17: Per Share Results
2016 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .43 $ .49 $ .51 $ .55 $ 1.98 2. Dividends $ .11 $ .14 $ .14 $ .15 $ .54 3. Tangible Book Value $15.02 $15.53 $15.86 $15.85 2017 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .56 $ .57 $ .50 $ .49 $ 2.12 2. Dividends $ .15 $ .18 $ .18 $ .18 $ .69 3. Tangible
Slide 18: Dividends and Tangible Book Value
$9.21 $9.64 $10.95 $12.17 $13.65 $14.68 $15.85 $16.96 Dividends and Tangible Book Value 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 .11 .01 .03 .05 .14 .15 1.71% Forward Dividend Yield 32.6% YTD Dividend Payout Ratio = Quarterly Dividends Tangible Book Value .08 18 .18
Slide 19: John Martin, EVP, Chief Credit Officer
John Martin Executive Vice President Chief Credit Officer
Slide 20: Loan Portfolio Trends
20 Loan Portfolio Trends ($ in Millions) 2015 2016 Q3-'17 2017 $ % $ % 1. Commercial & Industrial 1,057$ 1,195$ 1,436$ 1,494$ 58$ 4.0% 299$ 25.0% 2. Construction, Land and Land Development 367 419 499 612 113 22.6% 193 46.1% 3. CRE Non-Owner Occupied 1,090 1,272 1,648 1,618 (30) (1.8%) 346 27.2% 4.
Slide 21: Asset Quality Summary
21 Asset Quality Summary ($ in Millions) 2015 2016 Q3-'17 2017 $ % $ % 186.1 1. Non-Accrual Loans 31.4$ 30.0$ 32.3$ 28.7$ (3.6)$ (11.1%) (1.3)$ (4.3%) 2. Other Real Estate 17.3 9.0 11.9 10.4 (1.5) (12.6%) 1.4 15.6% 3. Renegotiated Loans 1.9 4.7 0.6 1.0 0.4 66.7% (3.7) (78.7%) 4. 90+ Days Delinquent
Slide 22: Non-Performing Asset Reconciliation
22 Non-Performing Asset Reconciliation ($ in Millions) 2015 2016 2017 1. Beginning Balance NPAs & 90+ Days Delinquent 74.7$ 51.5$ 43.8$ Non-Accrual 2. Add: New Non-Accruals 20.0 24.6 30.1 3. Less: To Accrual/Payoff/Renegotiated (24.1) (17.0) (18.3) 4. Less: To OREO (5.0) (1.6) (8.1) 5. Less: Charge-
Slide 23: ALLL and Fair Value Summary
23 ALLL and Fair Value Summary ($ in Millions) Q4-'16 Q1-'17 Q2-'17 Q3-'17 Q4-'17 1. Beginning Allowance for Loan Losses (ALLL) 63.5$ 66.0$ 68.2$ 70.5$ 73.4$ 2. Net Charge-offs (Recoveries) (0.1) 0.2 0.6 (0.8) 0.2 3. Provision Expense 2.4 2.4 2.9 2.1 1.8 4. Ending Allowance for Loan Losses (ALLL) 66
Slide 24: Portfolio Summary
24 Portfolio Summary Strong organic quarterly loan growth led by Construction, C&I and Public Finance Year-over-year total loans grew $1.6 billion with a strong organic annual loan growth rate of 12.8% Credit quality measures continue to show improvement with Classified Assets and Total NPAs &
Slide 25: Michael C. Rechin, President and Chief Executive Officer
Michael C. Rechin President and Chief Executive Officer
Slide 26: Looking Forward . . .
26 Looking Forward . . . Tax reform benefits in 2018 will be realized in the effective tax rate change from ~ 26% to ~ 16% Tax benefit to be invested in announced compensation changes, technologies, and branding, all of which augment shareholder value Gained synergies and market expansion oppo
Slide 27: Contact Information
27 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: Nicole M. Weaver Investor Relations Telephone: 765.521.7619 nweaver@firstmerchants.com
Slide 28: Appendix
First Merchants Corporation THE STRENGTH OF BIG THE SERVICE OF SMALL Appendix NASDAQ: FRME
Slide 29: Appendix – Non-GAAP Reconciliation: Capital Ratios
29 Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 850,509 867,263 887,550 900,865 901,657 929,470 1,035,116 1,283,120 1,303,463 Adjust for Accumulated Other Compre
Slide 30: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
30 Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Total Stockholders' Equity (GAAP) $ 850,509 $ 867,263 $ 887,550 $ 900,865 $ 901,657 $ 929,470 $ 1,035,116 $ 1,283,120 $ 1,303,463 Less: Preferred Stock (125) (125)
Slide 31: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
31 Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2015 2016 1Q17 2Q17 3Q17 4Q17 2017 Non Interest Expense (GAAP) $ 174,806 $ 177,359 $ 43,099 $ 47,316 $ 58,708 $ 56,433 $ 205,556 Less: Intangible Asset Amortization (2,835) (3,910) (903) (991) (1,698) (2,055) (5,647) Less
Slide 32: Appendix – Non-GAAP Reconciliation: Allowance as a Percentage of Non-Purchased Loans
32 Appendix – Non-GAAP Reconciliation ALLOWANCE AS A PERCENTAGE OF NON-PURCHASED LOANS (dollars in thousands): 4Q16 1Q17 2Q17 3Q17 4Q17 Loans Held for Sale (GAAP) 2,929$ 1,262$ 4,036$ 4,514$ 7,216$ Loans (GAAP) 5,139,645 5,274,909 5,613,144 6,483,448 6,751,199 Total Loans 5,142,574 5,276,171 5,617,1