First Merchants Corporation · NASDAQ:FRME
First Merchants — Q1 2020 Earnings Presentation
44 slides from First Merchants's earnings presentation, Apr 23, 2020
Slide 1: 1Q 2020 Earnings Highlights
1Q 2020 | Earnings Highlights | April 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: 1st Quarter 2020 Highlights
1st Quarter 2020 Highlights Earnings Per Share of $.62; Net Income of $34.3 Million; ROA 1.09% Total Assets of $12.7 Billion; Grew by 24.3% over 1Q 2019 Organic Loan & Deposit Growth of 7.9% and 8.9%, respectively, over 1Q 2019 $19.8 Million Provision; Allowance increased by 22.9% over 1Q 2019 Tangi
Slide 5: Response to COVID-19: Supporting our Employees
Response to COVID-19 Supporting our Employees’ Health and Financial Stability Enabled over 1,000 associates to work from home Provided additional 80 hours of paid time off for all full time associates for COVID-19 related sick and dependent care Covered the cost of any medical testing or care relate
Slide 6: Response to COVID-19: Supporting Businesses in our Communities
Response to COVID-19 Supporting Businesses in our Communities SBA Paycheck Protection Program institution with more than 3,750 applications and greater than $750 Million funded to businesses benefiting more than 120,000 employees (FMB is, and has been, a preferred SBA Lender) Over $200 Million in Co
Slide 7: Response to COVID-19: Supporting our Communities and Clients
Response to COVID-19 Supporting our Communities and Clients First Merchants CARES... $1,000,000 commitment to impacted First Merchants markets through local non profit organizations All Banking Centers are open and accessible to clients by drive thru with lobby service and individual meetings by app
Slide 8: Mark K. Hardwick, CFO and COO
Mark K. Hardwick Executive Vice President Chief Financial Officer and Chief Operating Officer
Slide 9: Total Assets
Total Assets ($ in Millions) 2018 2019 Q1-’19 Q1-’20 1. Investments $1,633 $2,596 $1,863 $2,698 2. Loans 7,229 8,468 7,303 8,612 3. Allowance (81) (80) (81) (99) 4. Goodwill & Intangibles 470 579 468 577 5. BOLI 225 288 226 290 6. Other 409 606 432 616 7. Total Assets $9,885 $12,457 $10,211 $12,694
Slide 10: Loan Yield and Detail
Loan Yield and Detail (as of March 31, 2020) YTD Yield = 4.85% Total Loans = $8.6 Billion Commercial Agricultural Real Estate Construction Land & Agricultural Land Public Non-Owner Land Development Production 2.7% Finance/Other Occupied 7.5% 1.0% Commercial 24.6% Variable = $5.7 Billion 6.8% Fixed =
Slide 11: Investment Portfolio
Investment Portfolio (as of March 31, 2020) Tax-Exempt Mortgage-Backed Municipals Securities $2.7 Billion Portfolio 47% 37% Modified duration of 4.3 years Tax equivalent yield of 3.16% Net unrealized gain of $121.7 Million Collateralized Mortgage Corporate U. S. Agencies Obligations Obligations 2% 1
Slide 12: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2018 2019 Q1-’19 Q1-’20 1. Customer Non-Maturity Deposits $6,268 $8,147 $6,439 $8,256 2. Customer Time Deposits 1,241 1,478 1,375 1,411 3. Brokered Deposits 246 215 234 203 Total Deposits 7,755 9,840 8,048 9,870 4. Borrowings 538 599 481 716 5. Other Lia
Slide 13: Deposit Detail
Deposit Detail (as of March 31, 2020) Certificates & Time YTD Cost = 1.06% Certificates & Deposits Time Deposits Total = $9.9 Billion Savings >$100,000 <$100,000 Deposits 7% 7% 30% Brokered Deposits 2% Demand Deposits 54% 13
Slide 14: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.37% 14.25% 14.29% 13.81% 13.80% 14.00% 13.69% 13.00% 12.12% 12.14% 12.13% 11.98% 12.05% 12.00% 11.64
Slide 15: Net Interest Margin
Net Interest Margin Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Q1 - '20 Net Interest Income - FTE ($millions) $ 82.5 $ 87.2 $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 $ 101.2 $ 97.8 Fair Value Accretion $ 3.2 $ 3.8 $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 $ 5.0 $ 3.5 Tax Equivalent Yield o
Slide 16: Non-Interest Income
Non-Interest Income ($ in Millions) 2018 2019 Q1-’19 Q1-’20 1. Service Charges on Deposit Accounts $ 21.0 $23.0 $ 5.1 $ 6.0 2. Wealth Management Fees 14.9 17.6 3.8 6.0 3. Card Payment Fees 18.0 20.2 4.8 5.9 4. Gains on Sales of Mortgage Loans 7.0 7.9 1.3 3.4 5. Derivative Hedge Fees 2.5 5.4 0.8 1.9
Slide 17: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2018 2019 Q1-’19 Q1-’20 1. Salary & Benefits $131.7 $144.0 $33.0 $39.2 2. Premises & Equipment 32.7 35.8 8.7 10.2 3. Intangible Asset Amortization 6.7 6.0 1.5 1.5 4. Professional & Other Outside Services 8.2 15.4 1.9 2.3 5. OREO/Credit-Related Expense 1.5 2.4 1.2
Slide 18: Earnings
Earnings ($ in Millions) 2018 2019 Q1-’19 Q1’20 1. Net Interest Income $ 338.8 $356.7 $ 84.9 $93.9 2. Provision for Loan Losses (7.2) (2.8) (1.2) (19.8) 3. Net Interest Income after Provision 331.6 353.9 83.7 74.1 4. Non-Interest Income 76.5 86.7 18.7 29.8 5. Non-Interest Expense (220.0) (246.8) (56
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. Tangible Book Value $20.07 $21.01 $21.26 $21.94 2020 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .62 – – – $ .62 2. Dividends $ .26 – – – $ .26 3. Tangible
Slide 20: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 0.26 $22.46 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 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 3.93% Forward Dividend Yield Compound Ann
Slide 21: Michele M. Kawiecki, Director of Finance
Michele M. Kawiecki Senior Vice President Director of Finance
Slide 22: Other Impacts of CARES Act
Other Impacts of CARES Act Deferral of CECL Elected Provision calculated using the incurred loss method; Increase in 1Q Provision driven by qualitative factor for economic conditions CECL preparedness reflected in 10-K disclosure of Day 1 CECL adoption increase of 55-65% CECL models were validated i
Slide 23: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q2-'19 Q3-'19 Q4-'19 Q1-'20 1. Beginning Allowance for Loan Losses (ALLL) $ 80.9 $ 81.3 $ 80.6 $ 80.3 2. Less: Net Charge-offs (Recoveries) 0.1 1.3 0.8 0.6 3. Add: Provision Expense 0.5 0.6 0.5 19.8 4. Ending Allowance for Loan Losses (ALLL) $ 81.3 $ 80.6
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 Change Change Linked Quarter Year Over Year ($ in Millions) 2018 2019 Q1-'19 Q1-'20 $ % $ % 1. Commercial & Industrial $ 1,498 $ 1,802 $ 1,521 $ 1,858 $ 56 3.1% $ 337 22.2% 2. Sponsor Finance 233 312 272 345 33 10.6% 73 26.8% 3. CRE Owner Occupied 725 910 714 921 11 1.2% 207 29
Slide 26: Commercial Portfolio by NAICS
Commercial Portfolio by NAICS ($ in Millions) Percent Average Q1 - '20 of Total Loan Segments based on NAICS Code Balances Loans Size Transportation & Other Segments Warehouse, $100 Manufacturing $ 666 7.7% $ 0.8 under $100MM, Manufacturing, $243 $666 Public Administration 534 6.2% 3.6 Specialty Tra
Slide 27: Commercial Portfolio Mod Requests
Commercial Portfolio Mod Requests ($ in Millions) % Loans $ Loans Q1 - '20 with with Segments based on NAICS Code Balances Mods Mods Mod Requests and Loan Balances ($ in Millions) Manufacturing $ 666 2.5% $ 16.9 Public Administration 534 - - Manufacturing $666 Agriculture 370 - - Public Administrati
Slide 28: C & I Line Utilization
C & I Line Utilization Line utilization stable Year over Year Isolated instances of defensive line draws 28
Slide 29: Structured Finance
Structured Finance Public Finance (2015) $560MM in loans and $1.5B in deposits 85% Tax Based and 15% Public Private Partnerships Sponsor Finance (2016) $430MM in Commitments and $345MM in Balances Debt Capital Markets (2018) Primarily working Sell Side Transactions (FMB as Agent) Investment Real Est
Slide 30: Sponsor Finance
Sponsor Finance Market to Private Equity Firms in the Midwest and Southeast who acquire companies with less than $10 Million in EBITDA. Led by former Midwest Region Chief Risk Officer for GE Corporate Lending Monthly Portfolio Sheets Reviewed by Sponsor Finance line of business Quarterly Portfolio R
Slide 31: Investment Real Estate
Investment Real Estate ($ in Millions) Percent % Loans $ Loans Q1 - '20 of Total Average with with Investment Real Estate Balances Loans Loan Size Mods Mods Multi-family $ 703 8.2% $ 1.3 1.6% $ 11.5 Commercial Real Estate 1,411 16.4% 1.1 5.3% 75.2 Retail - $233 million $ 2,114 $ 86.7 Investment Real
Slide 32: Mortgage Lending
Mortgage Lending Pipeline strong with dollars up 52% at the end of the 1st quarter Year over Year Mortgage Pipeline Strong refinance demand has allowed for $140,000 small price premium to market $120,000 $124,500 Placing 15 year fixed rate fully salable on $100,000 balance sheet at yield favorable t
Slide 33: Residential Mortgage & Consumer Loan Mods
Residential Mortgage & Consumer Loan Mods ($ in Millions) Percent % Loans $ Loans Residential Mortgage and Q1 - '20 of Total with with Consumer Loans Balances Loans Mods Mods Residential Mortgage $ 1,127 13.1% 2.2% $ 24.6 Home Equity 570 6.6% 0.1% 0.8 Other Consumer 130 1.5% 0.6% 0.8 $ 1,827 21.2% 1
Slide 34: Asset Quality Summary
Asset Quality Summary Change Change ($ in Millions) Linked Quarter Year Over Year 2018 2019 Q1-'19 Q1-'20 $ % $ % 1. Non-Accrual Loans $ 26.1 $ 16.0 $ 28.0 $ 15.6 $ (0.4) (2.5%) $ (12.4) (44.3%) 2. Other Real Estate 2.2 7.5 1.9 8.0 0.5 6.7% 6.1 321.1% 3. Renegotiated Loans 1.1 0.8 0.7 0.7 (0.1) (12.
Slide 35: Non-Performing Asset Reconciliation
Non-Performing Asset Reconciliation ($ in Millions) Q2-'19 Q3-'19 Q4-'19 Q1-'20 1. Beginning Balance NPAs & 90+ Days Delinquent $ 30.7 $ 27.6 $ 30.5 $ 24.4 Non-Accrual 2. Add: New Non-Accruals 1.6 7.5 2.3 2.8 3. Less: To Accrual/Payoff/Renegotiated (2.5) (2.1) (6.9) (1.2) 4. Less: To OREO - (6.4) (0
Slide 36: Portfolio Summary
Portfolio Summary Proactively engaging customers to chart path forward Using modifications to bridge and strategize Beginning the cycle with stronger credit profile and enhanced processes PPP forgiveness planning underway in anticipation of guidance Experienced workout staff with special asset proce
Slide 37: Michael C. Rechin, President and CEO
Michael C. Rechin President Chief Executive Officer
Slide 38: First Merchants Value Proposition Looking Forward
First Merchants Value Proposition Looking Forward… Pre-Tax Pre-Provision Earnings strength of $57.5 Million Tangible Common Equity of nearly 10% Allowance for loan losses & fair value marks total approximately 1.54% of loans 87% loan-to-deposit ratio produces excess liquidity Conservative underwrite
Slide 39: Stock information and 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 ~~. O)} First Merchants Corporation
Slide 41: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,313,073 1,340,328 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 1,777,960 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): 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Total Stockholders' Equity (GAAP) $ 1,313,073 $ 1,340,328 $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 $ 1,786,437 $ 1,777,960 Less: Preferred Stock (12
Slide 43: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2018 1Q19 2019 1Q20 Non Interest Expense (GAAP) $ 219,951 $ 56,621 $ 246,763 $ 66,171 Less: Intangible Asset Amortization (6,719) (1,528) (5,994) (1,514) Less: OREO and Foreclosure Expenses (1,470) (1,165) (2,428) (505) Adju
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 1Q19 2019 1Q20 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,456,220 $ 1,487,947 $ 1,787,006 $ 1,850,513 Adjust for Accumulated Other Compreh