First Merchants Corporation · NASDAQ:FRME
First Merchants — Q4 2019 Earnings Presentation
33 slides from First Merchants's earnings presentation, Jan 30, 2020
Slide 1: 4th Quarter Earnings Highlights
4th Quarter Earnings Highlights January 30, 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 Chief Executive Officer
Michael C. Rechin President Chief Executive Officer
Slide 4: 4th Quarter 2019 Highlights
4th Quarter 2019 Highlights $47.8 Million of Net Income, or $0.87 Per Share Completed System Conversion of MBT Financial Corporation Integration Expense Totaled $1.9 Million, or $0.03 Per Share Winning Marketplace Execution Delivering Growth Organic Loan Growth of $161 Million, a 7.8% Annualized Gro
Slide 5: Full Year 2019 Performance
Full Year 2019 Performance Record Net Income of $164.5 Million, a 3.3% Increase over 2018 Earnings Per Share of $3.19 Expanded Franchise into Michigan Acquisition Expense Totaled $13.7 Million, or $0.21 Per Share Total Assets of $12.5 Billion; Grew by 26.0% over 2018 Organic Loan Growth of $507 Mill
Slide 6: Mark K. Hardwick, Chief Financial Officer and Chief Operating Officer
Mark K. Hardwick Executive Vice President Chief Financial Officer and Chief Operating Officer
Slide 7: Total Assets
Total Assets ($ in Millions) 2017 2018 2019 1. Investments $1,561 $1,633 $2,596 2. Loans 6,758 7,229 8,468 3. Allowance (75) (81) (80) 4. Goodwill & Intangibles 477 470 579 5. BOLI 224 225 288 6. Other 422 409 606 7. Total Assets $9,367 $9,885 $12,457 Annualized Asset Growth 29.9% 5.5% 26.0% 7
Slide 8: Loan Yield and Detail
Loan Yield and Detail (as of December 31, 2019) QTD Yield = 5.19% Commercial Agricultural YTD Yield = 5.27% Construction Land & Agricultural Real Estate Land Public Land Development Production Total Loans = $8.5 Billion Non-Owner 2.8% Finance/Other 9.3% 1.1% Occupied Commercial 22.5% 6.5% Variable =
Slide 9: Investment Portfolio
Investment Portfolio (as of December 31, 2019) Tax-Exempt Municipals Mortgage-Backed 47% Securities 35% $2.6 Billion Portfolio Modified duration of 5.1 years Tax equivalent yield of 3.23% Net unrealized gain of $71.5 Million Collateralized Mortgage Corporate U. S. Agencies Obligations Obligations 2%
Slide 10: Total Liabilities and Capital
Total Liabilities and Capital ($ in Millions) 2017 2018 2019 1. Customer Non-Maturity Deposits $5,741 $6,268 $8,147 2. Customer Time Deposits 1,051 1,241 1,478 3. Brokered Deposits 381 246 215 Total Deposits 7,173 7,755 9,840 4. Borrowings 701 538 599 5. Other Liabilities 57 51 98 6. Hybrid Capital
Slide 11: Deposit Detail
Deposit Detail (as of December 31, 2019) Certificates & Time Deposits Certificates & QTD Cost = 1.18% Time Deposits >$100,000 YTD Cost = 1.26% 8% <$100,000 Savings 8% Total = $9.8 Billion Deposits 29% Brokered Deposits 2% Demand Deposits 53% 11
Slide 12: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.37% 14.25% 14.29% 13.81% 14.00% 13.69% 13.69% 13.00% 11.98% 12.12% 12.05% 12.14% 12.13% 12.00% 11.64
Slide 13: Net Interest Margin
Net Interest Margin Q4 - '17 Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Net Interest Income - FTE ($millions) $ 83.5 $ 82.5 $ 87.2 $ 89.2 $ 90.7 $ 87.8 $ 88.4 $ 92.3 $ 101.2 Fair Value Accretion $ 4.1 $ 3.2 $ 3.8 $ 3.2 $ 3.9 $ 2.3 $ 2.2 $ 2.5 $ 5.0 Tax Equivalent Yield o
Slide 14: Non-Interest Income
Non-Interest Income ($ in Millions) 2017 2018 2019 1. Service Charges on Deposit Accounts $ 18.7 $ 21.0 $ 23.0 2. Wealth Management Fees 14.7 14.9 17.6 3. Card Payment Fees 16.1 18.0 20.2 4. Gains on Sales of Mortgage Loans 7.6 7.0 7.9 5. Derivative Hedge Fees 2.0 2.5 5.4 6. Other Customer Fees 1.7
Slide 15: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2017 2018 2019 1. Salary & Benefits $119.8 $131.7 $144.0 2. Premises & Equipment 30.1 32.7 35.8 3. Intangible Asset Amortization 5.6 6.7 6.0 4. Professional & Other Outside Services 12.8 8.2 15.4 5. OREO/Credit-Related Expense 1.9 1.5 2.4 6. FDIC Expense 2.6 2.9
Slide 16: Earnings
Earnings ($ in Millions) 2017 2018 2019 1. Net Interest Income $ 277.3 $ 338.8 $ 356.7 2. Provision for Loan Losses (9.1) (7.2) (2.8) 3. Net Interest Income after Provision 268.2 331.6 353.9 4. Non-Interest Income 71.0 76.5 86.7 5. Non-Interest Expense (205.6) (220.0) (246.8) 6. Income before Income
Slide 17: Quarterly Earnings
Quarterly Earnings ($ in Millions) Q1-’19 Q2-’19 Q3-’19 Q4-’19 1. Net Interest Income $ 84.9 $ 85.3 $ 88.9 $ 97.6 2. Provision for Loan Losses (1.2) (0.5) (0.6) (0.5) 3. Net Interest Income after Provision 83.7 84.8 88.3 97.1 4. Non-Interest Income 18.7 21.6 22.1 24.2 5. Non-Interest Expense (56.6)
Slide 18: Per Share Results
Per Share Results 2018 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .74 $ .80 $ .83 $ .85 $ 3.22 2. Dividends $ .18 $ .22 $ .22 $ .22 $ .84 3. Tangible Book Value $17.14 $17.71 $18.16 $19.12 2019 Q1 Q2 Q3 Q4 Total 1. Earnings Per Share $ .78 $ .83 1 $ .71 1 $ .87 1 $ 3.19 1 2. Dividends $ .22 $ .26 $ .
Slide 19: Dividends and Tangible Book Value
Dividends and Tangible Book Value Quarterly Dividends Tangible Book Value .26 0.26 $21.94 0.24 .22 0.22 $19.12 0.20 .18 $16.96 0.18 $15.85 $14.68 .15 0.16 .14 $13.65 0.14 $12.17 $10.95 .11 0.12 $9.21 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 2.50% Forward Dividend Yield Compound Annual Gro
Slide 20: John J. Martin, Executive Vice President, Chief Credit Officer
John J. Martin Executive Vice President Chief Credit Officer
Slide 21: Loan Portfolio Trends
Loan Portfolio Trends Change Change Linked Quarter 2019 Over 2018 ($ in Millions) 2017 2018 Q3-'19 2019 $ % $ % 1. Commercial & Industrial $ 1,494 $ 1,727 $ 2,034 $ 2,110 $ 76 3.7% $ 383 22.2% 2. CRE Owner Occupied 700 725 892 910 18 2.0% 185 25.5% 3. Construction, Land and 612 546 670 787 117 17.5%
Slide 22: Asset Quality Summary
Asset Quality Summary Change Change ($ in Millions) Linked Quarter 2019 Over 2018 186.12017 2018 Q3-'19 2019 $ % $ % 1. Non-Accrual Loans $ 28.7 $ 26.1 $ 22.7 $ 16.0 $ (6.7) (29.5%) $ (10.1) (38.7%) 2. Other Real Estate 10.4 2.2 7.1 7.5 0.4 5.6% 5.3 240.9% 3. Renegotiated Loans 1.0 1.1 0.6 0.8 0.2 3
Slide 23: Non-Performing Asset Reconciliation
Non-Performing Asset Reconciliation 23
Slide 24: ALLL and Fair Value Summary
ALLL and Fair Value Summary ($ in Millions) Q1-'19 Q2-'19 Q3-'19 Q4-'19 1. Beginning Allowance for Loan Losses (ALLL) $ 80.6 $ 80.9 $ 81.3 $ 80.6 2. Less: Net Charge-offs (Recoveries) 0.9 0.1 1.3 0.8 3. Add: Provision Expense 1.2 0.5 0.6 0.5 4. Ending Allowance for Loan Losses (ALLL) $ 80.9 $ 81.3 $
Slide 25: Portfolio Summary
Portfolio Summary Continued improving Non-Performing Asset trends both quarterly and year-over-year. Solid quarterly loan growth with strength in C& I, Construction and Public Finance. Michigan portfolio performing similar to anticipated by due diligence. Close match of asset types and asset quality
Slide 26: Michael C. Rechin, President and Chief Executive Officer
Michael C. Rechin President Chief Executive Officer
Slide 27: Looking Forward…
Looking Forward… Establish First Merchants Brand in Michigan Market Leadership Relationship Management and Growth Expand Community Lending Model throughout our Primary Metro Markets Grow Net Interest Income, Continue Pricing Discipline Evolving Digital Delivery Investment Strategy Top 5 Ranking Forb
Slide 28: 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 28
Slide 29: Appendix
Appendix f First Merchants Corporation
Slide 30: Appendix – Non-GAAP Reconciliation: Capital Ratios
Appendix – Non-GAAP Reconciliation CAPITAL RATIOS (dollars in thousands): 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Total Risk-Based Capital Ratio Total Stockholders' Equity (GAAP) 1,303,463 1,313,073 1,340,328 1,361,426 1,408,260 1,455,848 1,501,636 1,749,012 1,786,437 Adjust for Accumulated Oth
Slide 31: Appendix – Non-GAAP Reconciliation: Tangible Common Equity Ratio
Appendix – Non-GAAP Reconciliation TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Total Stockholders' Equity (GAAP) $ 1,303,463 $ 1,313,073 $ 1,340,328 $ 1,361,426 $ 1,408,260 $ 1,455,848 $ 1,501,636 $ 1,749,012 $ 1,786,437 Less: Preferred Stock (12
Slide 32: Appendix – Non-GAAP Reconciliation: Efficiency Ratio
Appendix – Non-GAAP Reconciliation EFFICIENCY RATIO (dollars in thousands): 2017 2018 1Q19 2Q19 3Q19 4Q19 2019 Non Interest Expense (GAAP) $ 205,556 $ 219,951 $ 56,621 $ 57,587 $ 67,354 $ 65,201 $ 246,763 Less: Intangible Asset Amortization (5,647) (6,719) (1,528) (1,520) (1,356) (1,590) (5,994) Les
Slide 33: Appendix – Non-GAAP Reconciliation: Construction and Investment Real Estate Concentrations
Appendix – Non-GAAP Reconciliation CONSTRUCTION AND INVESTMENT REAL ESTATE CONCENTRATIONS (dollars in thousands): 2017 2018 3Q19 2019 Total Risk-Based Capital (Subsidiary Bank Only) Total Stockholders' Equity (GAAP) $ 1,404,303 $ 1,456,220 $ 1,764,062 $ 1,787,006 Adjust for Accumulated Other Compreh