First Merchants Corporation · NASDAQ:FRME
First Merchants — Q3 2020 Earnings Presentation
44 slides from First Merchants's earnings presentation, Oct 28, 2020
Slide 1: 3Q 2020 Earnings Highlights
3Q 2020 | Earnings Highlights | October 28, 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: 3rd Quarter 2020 Highlights
3rd Quarter 2020 Highlights . Earnings Per Share of $.67; Net Income of $36.2 Million; ROA 1.06% Earnings . Pre-Tax Pre-Provision Income of $54.4 Million . PTPP ROA 1.59%; PTPP ROE 11.88% . Core Net Interest Margin Stabilized on a Linked Quarter Basis . Total Assets of $13.7 Billion; Grew by 11.5% o
Slide 5: 3rd Quarter 2020 Highlights cont.
3rd Quarter 2020 Highlights cont. . Allowance & Fair Value Marks totaling 1.65% of Loans Asset Quality . $12.5 Million Provision; Allowance increased by 57.3% over 3Q 2019 . Ample liquidity with Loan to Deposit Ratio of 84.8% Liquidity . Loan to Asset Ratio of 67.3% . Cash and Investment Security le
Slide 6: Our Franchise
Our Franchise ILLINOIS Unemployment1 MICHIGAN April 2020 16.4% June 2020 14.6% Unemployment1 August 2020 11.0% April 2020 22.7% September 2020 10.2% June 2020 14.8% August 2020 8.7% September 2020 8.5% OHIO INDIANA Unemployment1 1 Unemployment April 2020 16.8% April 2020 16.9% June 2020 10.9% June 2
Slide 7: Mark K. Hardwick, CFO and COO
Mark K. Hardwick Executive Vice President Chief Financial Officer and Chief Operating Officer
Slide 8: Total Assets
Total Assets ($ in Millions) 2018 2019 Q1-’20 Q2-’20 Q3-’20 1. Investments $1,633 $2,596 $2,698 $2,789 $2,933 2. Loans 7,229 8,468 8,612 9,2991 9,247 1 3. Allowance (81) (80) (99) (121) (127) 4. Goodwill & Intangibles 470 579 577 576 574 5. BOLI 225 288 290 291 292 6. Cash & Other 409 606 616 985 81
Slide 9: Loan Yield and Detail
Loan Yield and Detail (as of September 30, 2020) QTD Yield = 3.93% Commercial YTD Yield = 4.28% Agricultural Real Estate Construction Land & Agricultural Total Loans = $9.2 Billion Land Non-Owner Land Development Production 2.4% Public Occupied 6.7% 0.9% Finance/Other 22.7% Commercial Variable = $5.
Slide 10: Investment Portfolio
Investment Portfolio (as of September 30, 2020) $2.9 Billion Portfolio Mortgage-Backed Modified duration of 4.9 years Tax-Exempt Municipals Securities Tax equivalent yield of 2.94% 56% 30% Net unrealized gain of $141.5 Million Realized gains on Investment Portfolio 1Q 2020 $4.6 Million 2Q 2020 $3.1
Slide 11: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2018 2019 Q1-’20 Q2-’20 Q3-’20 1. Customer Non-Maturity Deposits $6,268 $8,147 $8,256 $9,567 $ 9,798 2. Customer Time Deposits 1,241 1,478 1,411 1,276 1,010 3. Brokered Deposits 246 215 203 123 98 Total Deposits 7,755 9,840 9,870 10,966 10,906 4. Borrowi
Slide 12: Deposit Detail
Deposit Detail (as of September 30, 2020) QTD Cost = 0.36% Certificates & Certificates & Time Time Deposits YTD Cost = 0.56% Deposits <$100,000 >$100,000 Brokered Total Deposits = $10.9 Billion 5% Savings 4% Deposits Deposits 1% 32% 4Q 2020 CD maturities totaling $348 Million with average rate of 1.
Slide 13: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.61% 14.71% 14.56% 14.37% 14.29% 14.38% 14.25% 14.18% 14.00% 13.80% 13.00% 12.12% 12.05% 12.14% 12.13% 11.98% 12.02% 12.00
Slide 14: Net Interest Margin
Net Interest Margin Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Q1 - '20 Q2 - '20 Q3 - '20 Net Interest Income - FTE ($millions) $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 $ 101.2 $ 97.8 $ 97.1 $ 97.3 Fair Value Accretion $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 $ 5.0 $ 3.5 $ 3.7 $ 3.3 Tax Equivalent Yield o
Slide 15: Non-Interest Income
Non-Interest Income ($ in Millions) 2018 2019 Q1-’20 Q2-’20 Q3-’20 1. Service Charges on Deposit Accounts $ 21.0 $23.0 $ 6.0 $ 4.3 $ 5.2 2. Wealth Management Fees 14.9 17.6 6.0 5.6 5.9 3. Card Payment Fees 18.0 20.2 5.9 6.1 4.0 4. Gains on Sales of Mortgage Loans 7.0 7.9 3.4 3.7 5.8 5. Derivative He
Slide 16: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2018 2019 Q1-’20 Q2-’20 Q3-’20 1. Salary & Benefits $131.7 $144.0 $39.2 $35.7 $39.2 2. Premises & Equipment 32.7 35.8 10.2 9.9 10.8 3. Intangible Asset Amortization 6.7 6.0 1.5 1.5 1.5 4. Professional & Other Outside Services 8.2 15.4 2.3 1.6 2.3 5. OREO/Credit-R
Slide 17: Earnings
Earnings ($ in Millions) 2018 2019 Q1-’20 Q2-’20 Q3-’20 1. Net Interest Income $ 338.8 $356.7 $93.9 $93.0 $92.9 2. Provision for Loan Losses (7.2) (2.8) (19.8) (21.9) (12.5) 3. Net Interest Income after Provision 331.6 353.9 74.1 71.1 80.4 4. Non-Interest Income 76.5 86.7 29.8 26.5 26.1 5. Non-Inter
Slide 18: Per Share Results
Per Share Results 2019 Q1 Q2 Q3 Q4 Total 1 1. Earnings Per Share $ .78 $ .83 1 $ .711 $ .87 1 $ 3.19 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 $ .6
Slide 19: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 .26 0.26 $23.48 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 .11 0.12 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 4.49% Forward Dividend Yield Compound
Slide 20: Michele M. Kawiecki, Director of Finance
Michele M. Kawiecki Senior Vice President Director of Finance
Slide 21: ALLL and Fair Value Summary
ALLL and Fair Value Summary Q3-'19 Q4-'19 Q1-'20 Q2-'20 Q3-'20 1. Beginning Allowance for Loan Losses (ALLL) $ 81.3 $ 80.6 $ 80.3 $ 99.5 $ 121.1 2. Less: Net Charge-offs (Recoveries) 1.3 0.8 0.6 0.2 6.9 3. Add: Provision Expense 0.6 0.5 19.8 21.9 12.5 4. Ending Allowance for Loan Losses (ALLL) $ 80.
Slide 22: Loan Loss Coverage & Capital Strength
Loan Loss Coverage & Capital Strength ALLL ALLL/Loans ALLL/Loans - PPP Loans Allowance for Loan Losses - 6/30/20 $ 121.1 1.30% 1.44% Q3-'20 increase in ALLL $ 5.6 Allowance for Loan Losses - 9/30/20 $ 126.7 1.37% 1.52% CECL Day 1 Adoption Impact* $ 52.2 Allowance for Loan Losses with CECL Day 1 Impa
Slide 23: John J. Martin, Chief Credit Officer
John J. Martin Executive Vice President Chief Credit Officer
Slide 24: Loan Portfolio
Loan Portfolio Portfolio Trending – Q3-’20 Change Linked Quarter ($ in Millions) 2018 2019 Q1-'20 Q2-'20 Q3-'20 $ % 1. Commercial & Industrial $ 1,498 $ 1,802 $ 1,858 $ 2,576 $ 2,539 $ (37) (1.4%) 2. Sponsor Finance 233 312 345 326 340 14 4.3% 3. CRE Owner Occupied 725 910 921 915 928 13 1.4% 4. Con
Slide 25: Loan Portfolio: C&I Line Utilization and COVID-19 Modifications
Loan Portfolio C & I Line Utilization COVID-19 Modifications1 by Loan Type $176 million, 1.9% of loans, have COVID-19 Mod in Deferral Q3. Commitments up $60MM in Q3; $109MM ($ in Millions) 2 YTD $ 1st $ 2nd In Deferral Q3 Mod Mod $ # C & I utilization Commercial & Industrial $ 150 $ 12 $ 24 32 decli
Slide 26: COVID-19 Loan Modifications by Industry
COVID-19 Loan Modifications by Industry Loan Balances by Industry Balance / Covid Mod In Deferral Q3 ($ in Millions) Q3 - % of Total 1st 2nd In Deferral Q3 Segments based on NAICS Code '20 Loans Mod Mod $ # Manufacturing $795 $12 Manufacturing $ 795 8.6% $ 67 $ 5 $ 12 10 Public Administration $556 P
Slide 27: Residential Mortgage & Consumer
Residential Mortgage & Consumer Residential Mortgage and Consumer Modifications – Q3-’20 ($ in Millions) % Total 1st 2nd In Deferral Q3 Q3 - '20 Loans Mod Mod $ # Residential Mortgage $ 1,147 12.4% $ 80 $ 11 $ 7 50 Home Equity 527 5.7% 7 - 1 11 Other Consumer 128 1.4% 3 - - 20 Total $ 1,802 19.5% $
Slide 28: Sponsor and Leveraged Lending
Sponsor and Leveraged Lending Sponsor Finance Leveraged Loans 44 Borrowers, $340 million outstanding 64 Borrowers, $485 million outstanding Private Equity Firms in the Midwest and Borrowers where: Southeast acquiring companies with less • Greater than 3X Senior Funded Debt/EBITDA than $10 million in
Slide 29: Investment Real Estate
Investment Real Estate IRE Portfolio – Q3-’20 ($ in Millions) % of Total Average 1st 2nd In Deferral Q3 Investment Real Estate Q3 - '20 Loans Loan Size Mod Mod $ # Multi-family $ 719 7.8% $ 1.4 $102 $ 3 $ 8 6 Commercial Real Estate 1,380 14.9% 1.1 354 77 107 30 $ 2,099 22.7% $ 1.2 $456 $ 80 $ 115 36
Slide 30: COVID-19 Sensitive Industries: Hospitality
COVID-19 Sensitive Industries Hospitality ($ in Millions) % Total Average 1st 2nd In Deferral Q3 Q3 '20 Loans # Loans loan size Mod Mod $ # Hospitality (includes hotel/motel and other accomodations) $ 198 2.1% 145 $ 1.4 $ 118 $ 52 $ 92 15 Highlights Hotel Brands Hotels: 109 loans to 72 borrowers tot
Slide 31: COVID-19 Sensitive Industries: Retail
COVID-19 Sensitive Industries Retail ($ in Millions) % Total Average 1st 2nd In Deferral Q3 Q3 '20 Loans # Loans loan size Mod Mod $ # Retail - real estate secured $ 451 4.9% 719 $ 0.6 $ 183 $ 5 $ 17 12 Retail Trade 142 1.5% 1,426 0.1 4 - - 2 Total $ 593 6.4% 2,145 $ 0.3 $ 187 $ 5 $ 17 14 RE secured
Slide 32: COVID-19 Sensitive Industries: Restaurants and Senior Living
COVID-19 Sensitive Industries Restaurants and Food Service ($ in Millions) % Total # Average 1st 2nd In Deferral Q3 Q3 '20 Loans Loans Loan Size Mod Mod $ # Restaurants Real Estate Secured $ 103 1.1% 231 $ 0.4 $ 46 $ 1 $ 3 5 Non Real Estate Secured 94 1.0% 579 0.2 9 - 1 1 Total $ 197 2.1% 810 $ 0.2
Slide 33: Asset Quality Summary
Asset Quality Summary Asset Quality – Q3-’20 Change ($ in Millions) Linked Quarter 2018 2019 Q1-'20 Q2-'20 Q3-'20 $ % 1. Non-Accrual Loans $ 26.1 $ 16.0 $ 15.6 $ 50.1 $ 56.7 $ 6.6 13.2% 2. Other Real Estate 2.2 7.5 8.0 7.4 7.0 (0.4) (5.4%) 3. Renegotiated Loans 1.1 0.8 0.7 1.1 2.7 1.6 145.5% 4. 90+
Slide 34: Non-Performing Asset Reconciliation
Non-Performing Asset Reconciliation ($ in Millions) Q4-'19 Q1-'20 Q2-'20 Q3-'20 1. Beginning Balance NPAs & 90+ Days Delinquent $ 30.5 $ 24.4 $ 24.6 $ 63.6 Non-Accrual 2. Add: New Non-Accruals 2.3 2.8 35.6 20.8 3. Less: To Accrual/Payoff/Renegotiated (6.9) (1.2) (0.6) (6.8) 4. Less: To OREO (0.8) (0
Slide 35: Payroll Protection Loans
Payroll Protection Loans Payroll Protection Summary Payroll Protection Distribution • $922.9 million in loans to 5,241 PPP Loan Balances # PPP Loans $158.3 borrowers Manufacturing 393 $102.7 • $30.2 million in fees on PPP loans, Professional Service 564 $92.7 Other Admin Services 445 $3.8 amortized
Slide 36: Credit Response to COVID-19
Credit Response to COVID-19 . Proactively engaging customers to chart path forward Loan Portfolio . Maintaining existing underwriting standards while recognizing the impact of pandemic . Opportunistic portfolio growth to well positioned borrowers . Beginning credit cycle with stronger credit profile
Slide 37: Michael C. Rechin, President and CEO
Michael C. Rechin President Chief Executive Officer
Slide 38: First Merchants… Well positioned for the future
First Merchants… Well positioned for the future… Looking Forward… Succession Planning Yields Continuity and Growth Mark Hardwick – Chief Executive Officer Mike Stewart - President Michele Kawiecki – Chief Financial Officer Industry Leading Performance Return on Assets and Efficiency Ratios Pre-Tax P
Slide 39: 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 39
Slide 40: Appendix
Appendix f First Merchants Corporation
Slide 41: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 1,777,960 1,809,095 1,833,656 Adjust for Accumulated Oth
Slide 42: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Total Stockholders' Equity (GAAP) $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 $ 1,786,437 $ 1,777,960 $ 1,809,095 $ 1,833,656 Less: Preferred Stock (12
Slide 43: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2018 2019 1Q20 2Q20 3Q20 Non Interest Expense (GAAP) $ 219,951 $ 246,763 $ 66,171 $ 59,989 $ 64,709 Less: Intangible Asset Amortization (6,719) (5,994) (1,514) (1,511) (1,486) Less: OREO and Foreclosure Expenses (1,470) (2,4
Slide 44: 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 3Q20 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,456,220 $ 1,787,006 $ 1,850,513 $ 1,882,807 $ 1,908,858 Adjust for Accumula