First Merchants Corporation · NASDAQ:FRME
First Merchants — Q2 2023 Earnings Presentation
31 slides from First Merchants's earnings presentation, Jul 25, 2023
Slide 1: Investor Update Second Quarter 2023
INVESTOR UPDATE Second Quarter 2023
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: Executive Management Team
Executive Management Team Mark Hardwick FMB: Chief Executive Officer 25 Yrs Mark K. Hardwick currently serves as the Chief Executive Officer of First Merchants Corporation and First Merchants Bank. Mark joined First Merchants in November of 1997 as Corporate Controller and was promoted to Chief Fina
Slide 4: First Merchants Corporation (NASDAQ: FRME)
First Merchants Corporation (NASDAQ: FRME) Largest financial services holding company headquartered in Central Indiana Financial Highlights as of 6/30/2023 $18.0 Billion YTD ROAA: 1.38% Total Assets YTD Return on TCE 18.91% $12.3 Billion TCE/TA: 7.99% Total Loans Market Cap $1.7B $14.6 Billion Divid
Slide 5: Highlights
Highlights Second Quarter Net Income & EPS1 ROA (Annualized) ROE & ROTCE (Annualized) $60.4 Million 1.34% ROA 11.29% ROE $1.02 Per Share 1.58% PTPP ROA2 18.04% ROTCE2 ▪ Balance sheet strength ▪ Improved all capital ratios ▪ Continued loan growth, while increasing new loan yields ▪ Maintained a low 5
Slide 6: Business Strategy
Business Strategy Commercial Banking Consumer Banking Full Spectrum of Debt Capital and Treasury Service Offerings Full Spectrum of Consumer Deposit and Lending Offerings Located in Prime Growth Markets Supported by: Talented, Customer Service Oriented Banking Center Small Business & SBA Asset Based
Slide 7: Business Highlights
Business Highlights Loan Growth Annualized1 2Q23 Balance ($B) Growth Michigan Commercial $9.3 (0.9)% Monroe MSA Rank: 1 Detroit MSA Rank: 9 Consumer $0.8 (0.6)% Deposits: $2.8B Mortgage $2.0 18.7% Loans: $2.4B Total Loan Growth QTD 1.5% Northeast Indiana Total Loan Growth YTD 4.7% Muncie MSA Rank: 1
Slide 8: Second Quarter Financial Results
Second Quarter Financial Results ($M except per share data) For the Three Months Ended, Variance % Variance Linked Linked QTR- 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 Quarter Annualized Balance Sheet & Asset Quality 2Q23 Highlights 1. Total Assets $17,780.5 $17,719.0 $17,938.3 $18,178.9 $17,968.4 (
Slide 9: Year-to-Date Financial Results
Year-to-Date Financial Results ($M except per share data) For the Six Months Ended June 30, Variance % Variance 2021 2022 2023 YOY YOY Balance Sheet & Asset Quality Year-to-Date Highlights 1. Total Assets $14,923.1 $17,780.5 $17,968.4 $187.9 1.1% 2. Total Loans 9,139.8 11,406.5 12,297.5 891.0 7.8% 3
Slide 10: Investment Portfolio Highlights
Investment Portfolio Highlights 2Q23 Investment Portfolio Composition Yield on Investments (%) / Total Investments ($B) Corporate U.S. Agencies Obligations 12% 1% Collateralized Mortgage Obligations 6% 2.63% 2.66% 2.66% 2.63% 2.56% $4.6 $4.3 $4.3 $4.1 $3.9 $3.9B Municipal Mortgage- Total Bonds 56% 2
Slide 11: Loan Portfolio Highlights
Loan Portfolio Highlights 2Q23 Loan Composition Highlights Construction Land & Land Development 7.7% Agricultural Land & Production 1.9% ▪ Portfolio composition is ~75% Commercial oriented Commercial Real Estate Public Finance/Other Non-Owner Occupied 19.4% Commercial 7.8% ▪ Loan yields remained str
Slide 12: Allowance for Credit Losses - Loans
Allowance for Credit Losses - Loans 2Q23 Allowance for Credit Losses - Loans Highlights ▪ No Q2 provision expense 1.98% 1.94% ▪ The reserve for unfunded commitments totals 1.86% 1.82% 1.80% $23.3 million and is recorded in Other Liabilities ▪ The remaining fair value accretion on acquired loans is $
Slide 13: Deposit Portfolio Highlights
Deposit Portfolio Highlights 2Q23 Deposit Composition Highlights Certificates & Time Deposits Brokered Certificates of ▪ Strong core deposit base Deposits 1 < $100k 1% • 91% core deposits2 Certificates & Time 5% Deposits • 18% non-interest bearing > $100k 8% • 43% yield 5 bps or less ▪ Total deposit
Slide 14: Net Interest Margin
Net Interest Margin 2Q22 3Q22 4Q22 1Q23 2Q23 1. Net Interest Income - FTE ($millions) $ 134.8 $ 146.6 $ 155.3 $ 150.4 $ 143.7 2. Fair Value Accretion $ 3.2 $ 3.2 $ 2.7 $ 2.4 $ 2.0 3. PPP Loan Income $ 0.9 $ 0.3 $ 0.1 $ - $ - 4. Adjusted Net Interest Income - FTE1 $ 130.7 $ 143.1 $ 152.5 $ 148.0 $ 14
Slide 15: Non-Interest Income Highlights
Non-Interest Income Highlights 2Q23 Non-Interest Income Detail ($M) Non-Interest Income Trends ($M) Fee Income / Revenue Service Charges Card 17.3% 16.8% $7.8 Payment Fees 15.5% 27% 13.4% 14.2% $4.5 Gain (Loss) on 16% Sale of Securities ($1.4) -5% $26.3M Derivative Hedge Fees $29.6M Gain on $28.3M S
Slide 16: Non-Interest Expense Highlights
Non-Interest Expense Highlights 2Q23 Non-Interest Expense Detail Non-Interest Expense Trends ($M) Efficiency Ratio 58.45% 53.34% 52.21% Premises & Equipment Outside Data Processing 51.72% $12.9 $6.6 48.60% 14% 7% 50.75%1 51.39%1 48.37%1 Professional & Other Outside Services $4.7 $92.6M 5% $97.3M $96
Slide 17: Capital Ratios
Capital Ratios Tangible Common Equity Ratio Highlights ▪ TCE Ratio including marks on held-to-maturity 7.75% 7.99% 9.57% securities portfolio is 6.45% 7.34% 7.04% 6.66% 9.31% ▪ CET1 9.31%including net unrealized loss in AOCI on available-for-sale securities is 9.75% 9.65% 9.04% 9.31% 9.31% 9.57% 9.6
Slide 18: Loan Portfolio
Loan Portfolio Loan Portfolio Trends ($M) 2Q23 Highlights ▪ Sale of $116 million term loan B portfolio 2Q22 3Q22 4Q22 1Q23 2Q23 ▪ C&I – Regional Banking loan growth of $18 1. C&I - Regional Banking $ 2,681 $ 2,703 $ 2,827 $ 2,831 $ 2,733 million adjusted for the sale ▪ C&I - Sponsor Finance growth -
Slide 19: Loan Portfolio Insights
Loan Portfolio Insights Commercial C&I C&I - Sponsor Finance ▪ $798 million to 80 companies ▪ Senior Debt/Adj. EBITDA < 3.0X ~ 68% ▪ Total Debt/Adj. EBITDA < 4.0X ~ 80% ▪ FCCR > 1.50X ~ 68% ▪ ~ 3.8% Classified C&I Includes commercial and industrial, sponsor and owner- Construction Finance occupied r
Slide 20: Loan Portfolio Insights (continued)
Loan Portfolio Insights (continued) Commercial Real Estate (Non-owner occupied) ($M) Ware- Total Multi- house/ CRE Family Industrial Retail Office Storage Hotel Other (NOO) Balance: $685.4 $381.2 $383.6 $261.1 $253.1 $153.7 $262.0 $2,380.1 Commitment: $723.5 $398.2 $389.9 $268.4 $258.2 $154.2 $303.8
Slide 21: Asset Quality
Asset Quality Asset Quality Trends ($M) Highlights 2Q22 3Q22 4Q22 1Q23 2Q23 ▪ NPAs + 90PD were up 13 bps to 0.63% of loans and ORE 1. Non-Accrual Loans $ 46.0 $ 43.5 $ 42.3 $ 46.6 $ 69.2 ▪ New Non-Accruals: 2. Other Real Estate 6.5 6.5 6.5 7.8 7.7 • A $15.9 million loan to a syndicated specialty 3.
Slide 22: Non-Performing Assets
Non-Performing Assets Non-Performing Assets Roll Forward ($M) Highlights 2Q22 3Q22 4Q22 1Q23 2Q23 Non-Accrual Migration: ▪ Top three non-accrual commercial relationships total 1. Beginning Balance NPAs + 90PD $51.2 $53.3 $50.9 $50.7 $61.4 Non-Accrual $34.6 million 2. Add: New Non-Accruals 13.1 9.0 7
Slide 23: Track Record of Shareholder Value
Track Record of Shareholder Value 10-Year Total Return (2012-2022) Earnings per Share CAGR 2012-2022: 10.5% $3.81 $3.81 $3.22 $3.19 242.2% $2.74 $1.98 $2.12 $2.09 $1.65 $1.72 $1.41 $1.41 165.4% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD'23 Dividends per Share FRME S&P BMI US Bank CAG
Slide 24: History of Organic and Whole Bank Acquisition Growth
History of Organic and Whole Bank Acquisition Growth Total Assets ($B) Growth Through Acquisition ✓ Experienced Acquirer ✓ Expanded in Current High-Growth Markets $17.9 $18.0 ✓ Extended into Additional High-Growth Markets ✓ Added to Franchise with Stable Deposit Gathering $15.5 Markets $14.1 $12.5 $
Slide 25: Vision for the Future
Vision for the Future Our Vision: To enhance the financial wellness of the diverse communities we serve. Our Mission: To be the most attentive, knowledgeable, and high-performing bank for our clients, teammates, and shareholders. Our Team: We are a collection of dynamic colleagues with diverse exper
Slide 26: Appendix
APPENDIX ss 00) First Merchants Corporation Helping you prosper
Slide 27: Non-GAAP
Non-GAAP ADJUSTED EPS EXCLUDING PAYCHECK PROTECTION PROGRAM ("PPP") AND ACQUISITION-RELATED EXPENSES 2Q22 3Q22 4Q22 1Q23 2Q23 6/30/21 YTD 6/30/22 YTD 6/30/23 YTD (Dollars in Thousands, Except Per Share Amounts) Net Income Available to Common Stockholders - GAAP $ 38,522 $ 63,283 $ 70,292 $ 63,610 $
Slide 28: Non-GAAP
Non-GAAP EFFICIENCY RATIO (dollars in thousands): 2Q22 3Q22 4Q22 1Q23 2Q23 2Q21 YTD 2Q22 YTD 2Q23 YTD EFFICIENCY RATIO (dollars in thousands): Non Interest Expense (GAAP) $ 97,313 $ 96,378 $ 89,699 $ 93,720 $ 92,593 $ 135,393 $ 169,638 $ 186,313 Less: Intangible Asset Amortization (2,303) (2,303) (2
Slide 29: Non-GAAP
Non-GAAP CAPITAL RATIOS (dollars in thousands): 2Q21 2Q22 3Q22 4Q22 1Q23 2Q23 Total Risk-Based Capital Ratio (dollars in thousands) Total Stockholders' Equity (GAAP) 1,871,800 1,977,641 1,906,666 2,034,770 2,122,448 2,145,565 Adjust for Accumulated Other Comprehensive (Income) Loss 1 (60,080) 198,55
Slide 30: Non-GAAP
Non-GAAP TANGIBLE COMMON EQUITY RATIO (dollars in thousands): 2Q21 2Q22 3Q22 4Q22 1Q23 2Q23 Tangible Common Equity Ratio (dollars in thousands) Total Stockholders' Equity (GAAP) $ 1,871,800 $ 1,977,641 $ 1,906,666 $ 2,034,770 $ 2,122,448 $ 2,145,565 Less: Preferred Stock (125) (25,125) (25,125) (25,
Slide 31: Non-GAAP
Non-GAAP RETURN ON TANGIBLE COMMON EQUITY (dollars in thousands): 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD Return on Tangible Common Equity Total Average Stockholders' Equity (GAAP) $ 535,506 $ 540,255 $ 675,295 $ 753,724 $ 884,664 $ 1,110,524 $ 1,343,861 $ 1,569,615 $ 1,825,135 $ 1,843