First Merchants Corporation · NASDAQ:FRME
First Merchants — Q2 2020 Earnings Presentation
46 slides from First Merchants's earnings presentation, Jul 23, 2020
Slide 1: 2Q 2020 Earnings Highlights
2Q 2020 | Earnings Highlights | July 23, 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: Michael C. Rechin, President and CEO
Michael C. Rechin President Chief Executive Officer
Slide 4: 2nd Quarter 2020 Highlights
2nd Quarter 2020 Highlights . Earnings Per Share of $.62; Net Income of $33.0 Million; ROA 0.97% Earnings . Pre-Tax Pre-Provision Income of $59.1 Million . PTPP ROA 1.73%; PTPP ROE 13.18% . Total Assets of $13.8 Billion; Grew by 28.7% over 2Q 2019 Assets . Total Loans Grew approximately $900 Million
Slide 5: Response to COVID-19
Response to COVID-19 . SBA Paycheck Protection Program institution with more than 5,000 applications and greater than $900 Million funded to businesses (FMB is, and has been, a preferred SBA Lender) CARES Act . Prepared for forgiveness phase with internal and external resources . Main Street Approve
Slide 6: Response to Our Stakeholders
Response to Our Stakeholders . Protection of Clients and Employees is our priority . All Banking Center lobbies are open and serving clients Client & . Modifications and protective barriers in place to protect Employees and Clients Employee . “Safe” environment includes masked employees with appoint
Slide 7: Our Franchise
Our Franchise ILLINOIS MICHIGAN Restore Illinois Plan Phase 4 of 5 MI Safe Start Plan Phase 2-4 of 6 Unemployment1 April 2020 16.4% Unemployment1 June 2020 14.6% April 2020 22.7% June 2020 14.8% OHIO INDIANA Responsible Restart Ohio Back on Track Indiana Plan Levels 1-3 Phase 4.5 of 5 Unemployment1
Slide 8: Mark K. Hardwick, CFO and COO
Mark K. Hardwick Executive Vice President Chief Financial Officer and Chief Operating Officer
Slide 9: Total Assets
Total Assets ($ in Millions) 2018 2019 Q1-’20 Q2-’20 1. Investments $1,633 $2,596 $2,698 $2,789 2. Loans 7,229 8,468 8,612 9,2991 3. Allowance (81) (80) (99) (121) 4. Goodwill & Intangibles 470 579 577 576 5. BOLI 225 288 290 291 6. Other 409 606 616 985 7. Total Assets $9,885 $12,457 $12,694 $13,81
Slide 10: Loan Yield and Detail
Loan Yield and Detail (as of June 30, 2020) QTD Yield = 4.10% Commercial YTD Yield = 4.46% Agricultural Real Estate Construction Land & Agricultural Total Loans = $9.3 Billion Land Non-Owner Land Development Production 2.4% Public Occupied 6.9% 1.0% Finance/Other 22.6% Commercial Variable = $5.5 Bil
Slide 11: Investment Portfolio
Investment Portfolio (as of June 30, 2020) $2.8 Billion Portfolio Tax-Exempt Mortgage-Backed Modified duration of 4.7 years Municipals Securities Tax equivalent yield of 3.02% 51% 35% Net unrealized gain of $139.1 Million Corporate Obligations U. S. Collateralized 1% Agencies Mortgage 2% Obligations
Slide 12: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2018 2019 Q1-’20 Q2-’20 1. Customer Non-Maturity Deposits $6,268 $8,147 $8,256 $9,567 2. Customer Time Deposits 1,241 1,478 1,411 1,276 3. Brokered Deposits 246 215 203 123 Total Deposits 7,755 9,840 9,870 10,966 4. Borrowings 538 599 716 754 5. Other Li
Slide 13: Deposit Detail
Deposit Detail (as of June 30, 2020) QTD Cost = 0.47% Certificates & Certificates & Time Time Deposits YTD Cost = 0.67% Deposits <$100,000 >$100,000 Total Deposits = $11.0 Billion Savings 6% Brokered 6% Deposits Deposits 30% 1% Demand Deposits 57% 13
Slide 14: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.25% 14.37% 14.29% 14.18% 14.00% 13.81% 13.80% 13.00% 12.12% 11.98% 12.05% 12.14% 12.13% 11.84% 12.00
Slide 15: Net Interest Margin
Net Interest Margin Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Q1 - '20 Q2 - '20 Net Interest Income - FTE ($millions) $ 87.2 $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 $ 101.2 $ 97.8 $ 97.1 Fair Value Accretion $ 3.8 $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 $ 5.0 $ 3.5 $ 3.7 Tax Equivalent Yield o
Slide 16: Non-Interest Income
Non-Interest Income ($ in Millions) 2018 2019 Q1-’20 Q2-’20 1. Service Charges on Deposit Accounts $ 21.0 $23.0 $ 6.0 $ 4.3 2. Wealth Management Fees 14.9 17.6 6.0 5.6 3. Card Payment Fees 18.0 20.2 5.9 6.1 4. Gains on Sales of Mortgage Loans 7.0 7.9 3.4 3.7 5. Derivative Hedge Fees 2.5 5.4 1.9 1.1
Slide 17: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2018 2019 Q1-’20 Q2-’20 1. Salary & Benefits $131.7 $144.0 $39.2 $35.7 2. Premises & Equipment 32.7 35.8 10.2 9.9 3. Intangible Asset Amortization 6.7 6.0 1.5 1.5 4. Professional & Other Outside Services 8.2 15.4 2.3 1.6 5. OREO/Credit-Related Expense 1.5 2.4 0.5
Slide 18: Earnings
Earnings ($ in Millions) 2018 2019 Q1-’20 Q2-’20 1. Net Interest Income $ 338.8 $356.7 $93.9 $93.0 2. Provision for Loan Losses (7.2) (2.8) (19.8) (21.9) 3. Net Interest Income after Provision 331.6 353.9 74.1 71.1 4. Non-Interest Income 76.5 86.7 29.8 26.5 5. Non-Interest Expense (220.0) (246.8) (6
Slide 19: Per Share Results
Per Share Results 2019 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .78 $ .83 1 $ .711 $ .87 1 $ 3.191 2. Dividends $ .22 $ .26 $ .26 $ .26 $ 1.00 3. Dividend Payout Ratio 28.2% 31.3% 36.6% 29.9% 31.4% 4. Tangible Book Value $20.07 $21.01 $21.26 $21.94 2020 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .62
Slide 20: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 .26 0.26 $23.04 0.24 $21.94 .22 0.22 $19.12 0.20 .18 $16.96 0.18 $15.85 .15 $14.68 0.16 .14 $13.65 0.14 $12.17 $10.95 0.12 .11 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 3.77% Forward Dividend Yield Compound
Slide 21: Michele M. Kawiecki, Director of Finance
Michele M. Kawiecki Senior Vice President Director of Finance
Slide 22: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q3-'19 Q4-'19 Q1-'20 Q2-'20 1 Beginning Allowance for Loan Losses (ALLL) $ 81.3 $ 80.6 $ 80.3 $ 99.5 2 Less: Net Charge-offs (Recoveries) 1.3 0.8 0.6 0.2 3 Add: Provision Expense 0.6 0.5 19.8 21.9 4 Ending Allowance for Loan Losses (ALLL) $ 80.6 $ 80.3 $ 9
Slide 23: Loan Loss Coverage & Capital Strength
Loan Loss Coverage & Capital Strength ALLL ALLL/Loans ALLL/Loans - PPP Loans Allowance for Loan Losses - 12/31/19 $ 80.3 0.95% Q1-'20 increase in ALLL $ 19.2 Allowance for Loan Losses - 3/31/20 $ 99.5 1.15% Q2-'20 increase in ALLL $ 21.6 Allowance for Loan Losses - 6/30/20 $ 121.1 1.30% 1.44% CECL D
Slide 24: John J. Martin, Chief Credit Officer
John J. Martin Executive Vice President Chief Credit Officer
Slide 25: Loan Portfolio Trends
Loan Portfolio Trends Portfolio Trending – Q2-’20 25
Slide 26: Loan Portfolio
Loan Portfolio Portfolio – Q2-’20 Geography By State COVID Modifications by Loan Type $ Millions $ with # with Mods Mods % of $ Commercial & Industrial $ 163 681 6.3% Sponsor Finance 12 4 3.7% CRE Owner Occupied 266 435 29.1% Construction & Land Development 36 21 5.6% CRE Non-Owner Occupied 544 422
Slide 27: COVID-19 Loan Modifications by Industry
COVID-19 Loan Modifications by Industry Loan Balances by Industry Loan Balances and Mod Requests Manufacturing Public Administration Other Administrative Services Agriculture Wholesale Trade Retail Trade Senior Living Hotels Professional Service Medical Restaurant & Food Service Construction Finance
Slide 28: Payroll Protection Loans
Payroll Protection Loans Payroll Protection Summary Payroll Protection Distribution $907.5 million in loans to 5,078 borrowers $26.9 million in deferred fees on PPP loans PPP Loan Balances # PPP Loans $158.0 Average loan size of ~$178,000 Manufacturing 386 $103.4 Professional Service 551 Initial foc
Slide 29: Commercial & Industrial Portfolio
Commercial & Industrial Portfolio C & I(1) Concentration by NAICS C & I Line Utilization C&I utilization dropped in Q2 reducing loan balances by $138 million Geographic C&I Loans (1) Includes C&I, Sponsor Finance and OOCRE 29
Slide 30: Sponsor and Leveraged Lending
Sponsor and Leveraged Lending Sponsor Finance Leveraged Loans Private Equity Firms in the Midwest and Borrowers where: Southeast acquiring companies with less Greater than 3X Senior Funded than $10 million in EBITDA. Debt/EBITDA Senior Secured, Amortizing Term Loans and Greater than 4X Total Funded
Slide 31: Investment Real Estate
Investment Real Estate IRE Portfolio – Q2-’20 $ Millions % of Total Average % Loans $ Loans with Investment Real Estate Q2 - '20 Loans Loan Size with Mods Mods Multi-family $ 682 7.3% $ 1.3 15.3% $ 104.4 Commercial Real Estate 1,416 15.2% 1.1 31.1% 439.6 $ 2,098 22.6% $ 1.1 25.9% $ 544.0 Loans by Ge
Slide 32: COVID Sensitive Industries: Hotel and Retail
COVID Sensitive Industries Hotel $ Millions % Total Avg loan $ Loans % Bal with Q2 '20 Loans # Loans size Mods Mods Hotel Hotel (includes hotel/motel and other accomodations) $ 197 2.1% 139 $ 1.42 $ 157 79.9% Retail $ Millions % Total Avg loan $ Loans % Bal with Q2 '20 Loans # Loans size Mods Mods R
Slide 33: COVID Sensitive Industries: Restaurants and Senior Living
COVID Sensitive Industries Restaurants and Food Service $ Millions % Total Avg $ Loans % Bal with Q2 '20 Loans # Loans loan size Mods Mods Restaurants Restaurants - real estate secured $ 98 1.1% 252 $ 0.39 $ 40 40.8% Restaurants - non RE secured 96 1.0% 580 0.17 9 9.4% Total $ 194 2.1% 832 0.23 $ 49
Slide 34: Residential Mortgage & Consumer Loan Mods
Residential Mortgage & Consumer Loan Mods Residential Mortgage and Consumer Modifications – Q2-’20 ($ in Millions) Residential Mortgage and % Total $ Loans % Bal Consumer Loans Q2 - '20 Loans Mods Mods Residential Mortgage $ 1,146 12.4% $ 96.8 8.4% Home Equity 532 5.7% 1.3 0.2% Other Consumer 124 1.
Slide 35: Mortgage Lending
Mortgage Lending Gain On Sale 2Q Gain On Sale up 9.25% over Q1 to $3.7 million Offering extended locks with minimal impact on gain sale economics Taking 15 year fixed rate fully salable on Pipeline balance sheet at yield favorable to Pipeline strong with dollars up 45% at the end comparable MBS of t
Slide 36: Asset Quality Summary
Asset Quality Summary Asset Quality – Q2-’20 Change ($ in Millions) Linked Quarter 2018 2019 Q1-'20 Q2-'20 $ % 1. Non-Accrual Loans $ 26.1 $ 16.0 $ 15.6 $ 50.1 $ 34.5 221.2% 2. Other Real Estate 2.2 7.5 8.0 7.4 (0.6) (7.5%) 3. Renegotiated Loans 1.1 0.8 0.7 1.1 0.4 57.1% 4. 90+ Days Delinquent Loans
Slide 37: Non-Performing Asset Reconciliation
Non-Performing Asset Reconciliation ($ in Millions) Q3-'19MBT Q4-'19 Q1-'20 Q2-'20 1. Beginning Balance NPAs & 90+ Days Delinquent $ 27.6 $ 30.5 $ 24.4 $ 24.6 Non-Accrual 2. Add: New Non-Accruals 7.5 2.3 2.8 35.6 3. Less: To Accrual/Payoff/Renegotiated (2.1) (6.9) (1.2) (0.6) 4. Less: To OREO (6.4)
Slide 38: Credit Response to COVID-19
Credit Response to COVID-19 . Proactively engage customers to chart path forward . Use of modifications to bridge and strategize Loan Portfolio . Maintaining existing underwriting standards while recognizing the impact of pandemic . Opportunistic portfolio growth to well positioned borrowers . Net C
Slide 39: Michael C. Rechin, President and CEO
Michael C. Rechin President Chief Executive Officer
Slide 40: First Merchants… Strong & Stable, Looking Forward
First Merchants… Strong & Stable Looking Forward… Industry leading profitability, Return on Assets, and Efficiency Ratios Pre-Tax Pre-Provision Earnings strength of $59.1 Million TCE of nearly 10% excluding effect of PPP Loans Diversified loan portfolio, long-term consistent asset quality and underw
Slide 41: Investor Inquiries
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 Weaver, Investor Relations 765.521.7619 nweaver@firstmerchants.com 41
Slide 42: Appendix
Appendix f ) First Merchants Corporation
Slide 43: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,340,328 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 1,777,960 1,809,095 Adjust for Accumulated Oth
Slide 44: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Total Stockholders' Equity (GAAP) $ 1,340,328 $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 $ 1,786,437 $ 1,777,960 $ 1,809,095 Less: Preferred Stock (12
Slide 45: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2018 2019 1Q20 2Q20 Non Interest Expense (GAAP) $ 219,951 $ 246,763 $ 66,171 $ 59,989 Less: Intangible Asset Amortization (6,719) (5,994) (1,514) (1,511) Less: OREO and Foreclosure Expenses (1,470) (2,428) (505) (684) Adjust
Slide 46: Appendix – Non-GAAP Reconciliation: Construction and Investment Real Estate Concentrations
Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2018 2019 1Q20 2Q20 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,456,220 $ 1,787,006 $ 1,850,513 $ 1,882,807 Adjust for Accumulated Other Compreh