First Merchants Corporation · NASDAQ:FRME
First Merchants — Q1 2020 Earnings Presentation
55 slides from First Merchants's earnings presentation, May 14, 2020
Slide 1: First Merchants Corporation
First Merchants Corporation NASDAQ: FRME First Merchants Corporation | 200 E. Jackson St., P.0. Box 792, Muncie, IN 47305-2814 | 1.765.747.1500
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: Company Profile (as of March 31, 2020)
Company Profile (as of March 31, 2020) (in Thousands) First Merchants Market Information Common Shares Outstanding 53,754,137 First Merchants Bank formed in 1893, celebrating its Market Cap $1,423,947 127th anniversary Dividend Yield 3.93% First Merchants Corporation, organized in 1982, is Price/Tan
Slide 4: Why Invest in First Merchants?
Why Invest in First Merchants? 4
Slide 5: Our Franchise
Our Franchise Key Market Profiles Loans Deposits $1,323M Columbus $ 672M 825M Fort Wayne 1,055M 2,890M Indianapolis 1,889M 712M Lafayette 1,196M 1,011M Lakeshore 1,344M 694M Michigan 1,121M 1,157M Muncie 2,593M $8,612M Total $9,870M (as of March 31, 2020) Mission Statement To be the most responsive,
Slide 6: Key FMC Market Share Data
Key FMC Market Share Data County Region/Type Market Position Market % $ Deposits Delaware County, IN Muncie (Established) 1 55.53% $ 1,522,233 Monroe, MI Michigan (Established) 1 48.66% 1,005,960 Madison County, IN Indianapolis (Growth) 1 26.62% 398,825 Jasper County, IN Lafayette (Established) 1 34
Slide 7: First Merchants Strategy
First Merchants Strategy “Service-driven alternative to super-regional bank competitors. Deliver superior service with presence close to the customer for . . . ” Commercial Banking Consumer Banking Business Banking Mortgage Banking Commercial & Industrial Agriculture Private Wealth Advisory Sponsor
Slide 8: First Merchants Strategy: Commercial Bank
First Merchants Strategy Commercial Bank Located in Prime Growth Commercial Banking Markets Indianapolis, Indiana Monroe, Michigan Columbus, Ohio Fort Wayne, Indiana Lafayette, Indiana Lakeshore - Northwest Indiana Hire the Best Talent Supported with the Finest: Sales Management Process Credit and T
Slide 9: First Merchants Strategy: Consumer Retail Bank
First Merchants Strategy Consumer Retail Bank Diverse Locations in Stable Rural and Growth Metro Markets Supported by: Talented Customer Service Oriented Banking Center and Call Center Professionals State-of-the-Art Systems Deposit and CRM Systems Online Banking System Mobile Banking System Customer
Slide 10: First Merchants Strategy: Private Wealth Advisors
First Merchants Strategy Private Wealth Advisors Comprehensive and coordinated approach to personal wealth management Expertise in Investment Management, Private Banking, Fiduciary, Estate and Financial Planning Strengthen commercial relationships with personal services for executives/owners and ret
Slide 11: Organic Growth Opportunities Exists in All Directions
Organic Growth Opportunities Exists in All Directions Lakeshore - NW Indiana MSA* Fort Wayne MSA Entered: 2013 Entered: 2017 Total Population: 686,417 Total Population: 413,458 Deposit Market Share: 15.33% Deposit Market Share: 10.16% FOUNDING MARKET Lafayette MSA Muncie MSA Columbus, Ohio MSA Enter
Slide 12: Ranked Best in the Midwest for Business
Ranked Best in the Midwest for Business AAA Credit Rating since 20081 Leading the Nation in Manufacturing Job Growth 1st in Midwest and 5th Nationally for Best State for Doing Business2 1st Metro Area for Strong Job Opportunities with Affordable Housing 1st Nationally for Highway Accessibility 1st i
Slide 13: Muncie Market
Muncie Market ₎ Located 58 miles northeast of Indianapolis in the east central portion of the Notable Major Employers state ₎ Described by several national studies as a typical American community, Delaware County offers the advantages of larger cities without the hassles and costs associated with li
Slide 14: Indianapolis Market
Indianapolis Market ₎ Indianapolis metropolitan area includes four of the five fastest-growing counties in Indiana and 10 of the 11 fastest-growing cities and towns with Notable Major Employers populations of at least 5,000* ₎ The population data released by the U.S. Census Bureau show suburban Hami
Slide 15: Lafayette Market
Lafayette Market ₎ Ranked #1, MSN Money, Fastest Growing Cities in the State of Indiana Notable Major Employers ₎ Ranked #2, Forbes Best Small Places for Business and Careers ₎ Ranked #2 in Indiana for STEM job density, with 13.6% of the workforce, topping the state’s 10.9% & national average of 11.
Slide 16: Lakeshore Market
Lakeshore Market ₎ Indiana’s second-most populous market Notable Major Employers ₎ Benefit from its Chicago proximity ₎ Continue to produce finest steels, refine the cleanest fuels and deliver the best products to the Midwest** ₎ New investments by world-class companies like BP, Pratt Industries, Al
Slide 17: Fort Wayne Market
Fort Wayne Market ₎ 2nd Largest MSA in the State of Indiana Notable Major Employers ₎ Diversified economy (manufacturing, health care, retail trade, food services) ₎ Attractive location for businesses to locate and expand – located between the Chicago, Detroit, Dayton, Toledo and Indianapolis metro
Slide 18: Columbus, Ohio Market
Columbus, Ohio Market ₎ Second-most populous county in Ohio Notable Major Employers ₎ Within 600 miles of 60% of All U.S. and Canadian Population ₎ Ranked 2nd in CNBC’s 2010 study of state transportation systems for its infrastructure, vitality, quality roads, and ability to cost-effectively ship go
Slide 19: Monroe, Michigan Market
Monroe, Michigan Market Notable Major Employers ₎ Monroe is located on the western shore of Lake Erie, approximately 14 miles north of Toledo, Ohio and 25 miles south of Detroit ₎ Michigan is within 500 miles of nearly half the U.S. and Canadian population and commerce centers providing unparalleled
Slide 20: Growth Through Acquisition
Growth Through Acquisition Experienced Acquirer Expand in Current High-Growth Markets Extend into Additional High-Growth Markets Add to Franchise with Stable Deposit Gathering Markets 20
Slide 21: Acquisition Experience
Acquisition Experience 2015 * Cooper Ik Merchants * Pendleton * Citizens State Ban National Bank! ~~ Banking Financial » Ameriana Company Bank Bank 1999 Boeoo1 2003 Door Doo Gi 2019 ° First ° First * Frances * Commerce —« Shell * Community * Monroe United National Slocum National Coun Bank Bank & Ba
Slide 22: Acquisition Process
Acquisition Process Continuous Relationship Building Complete and Thorough Due Diligence Process Demonstrated Pricing Discipline Detailed Project Management Integration Process Scalable Technology and Operations Center Achieve Announced Financial Return Targets 22
Slide 23: Operational Delivery Highlights
Operational Delivery Highlights Strategic differentiator in support of growth and scalability Operational services execution “hub” focusing on value creation Functional focus: Operations Project Management Technology Risk Management Vendor Management Credit Administration Located on the interstate l
Slide 24: Operational Delivery Highlights: Customer, Digital Channel & Transaction Activity
Operational Delivery Highlights Customer, Digital Channel & Transaction Activity Total Households: 207,783 Online Banking/Digital Channel Treasury Management Annual Volume • Consumer: 90K Users • Automated Clearing House (ACH) • 1M logins monthly • # Originated: 2.5M Items ($8B) • 16K bill pay users
Slide 25: 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 $19.8 Million Provision; Allowance increased by 22.9% over 1Q 2019 Tangi
Slide 26: Total Assets
Total Assets 2018 2019 Q1-’19 Q1-’20 ($ in Millions) 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 27: Loan Yield and Detail
Loan Yield and Detail (as of March 31, 2020) YTD Yield = 4.85% Commercial Agricultural Real Estate Construction Land & Agricultural Total Loans = $8.6 Billion Land Public Non-Owner Land Development Production 2.7% Finance/Other Occupied 7.5% 1.0% Commercial Variable = $5.7 Billion 24.6% 6.8% Fixed =
Slide 28: CRE Loan Concentration
CRE Loan Concentration First Merchants Results in Relation to FDIC Guidelines FDIC GUIDELINES TO IDENTIFY INSTITUTIONS POTENTIALLY EXPOSED TO CRE RISK: Guideline 1: Total loans for construction, land development, and other land representing 100% or more of total capital Guideline 2: Total CRE loans
Slide 29: 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 $121.7 Million Collateralized Mortgage Corporate U. S. Agencies Obligations Obligations 2% 1
Slide 30: Total Liabilities and Capital
Total Liabilities and Capital ($ 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 31: Deposit Detail
Deposit Detail (as of March 31, 2020) Deposit Cost = 0.88% Certificates & Time Certificates & Deposits Total = $9.9 Billion Time Deposits Savings >$100,000 <$100,000 Deposits 7% 7% 30% Brokered Deposits 2% Demand Deposits 54% 31
Slide 32: Capital Ratios
Capital Ratios Total Risk-Based Capital Ratio (Target = 12.50%) Common Equity Tier 1 Capital Ratio (Target = 10.00%) Tangible Common Equity Ratio (TCE) (Target = 9.00%) 15.00% 14.71% 14.61% 14.56% 14.37% 14.25% 14.29% 13.81% 13.80% 14.00% 13.69% 13.00% 12.12% 12.14% 12.13% 11.98% 12.05% 12.00% 11.64
Slide 33: Net Interest Margin
Net Interest Margin Q1 - '18 Q2 - '18 Q3 - '18 Q4 - '18 Q1 - '19 Q2 - '19 Q3 - '19 Q4 - '19 Q1 - '20 Net Interest Income - FTE ($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 34: 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 35: Private Wealth Advisors
Private Wealth Advisors Delivers broad advisory capabilities and expertise through Strong client household growth and relationship local, engaged and empowered leaders expansion Benefitting from business owner liquidity events as Business lines include: succession plans are executed Wealth Managemen
Slide 36: Mortgage Banking
Mortgage Banking Delivers mortgage lending across our Mortgage Banking Revenue ($ in Millions) markets via commissions and salaried loan originators 30 $22.19 $21.02 30 $19.80 25 $17.52 Strong loan origination teams in 25 $15.77 high-growth areas of Indianapolis 20 and Columbus, OH 20 Centralized un
Slide 37: Non-Interest Expense
Non-Interest Expense ($ in Millions) 2018 2019 Q1-’19 Q1-’20 1. Salary & Benefits $131.7 $144.0 $33.0 $39.2 2. Premises & Equipment 32.7 35.8 8.7 10.2 3. Intangible Asset Amortization 6.7 6.0 1.5 1.5 4. Professional & Other Outside Services 8.2 15.4 1.9 2.3 5. OREO/Credit-Related Expense 1.5 2.4 1.2
Slide 38: Earnings
Earnings ($ 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 39: 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 40: 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 $9.64 0.10 .08 0.08 0.06 .05 0.04 .03 0.02 .01 0.00 3.93% Forward Dividend Yield Compound Ann
Slide 41: Asset Quality Summary
Asset Quality Summary Change Change ($ 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 42: 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 43: Total Return Performance
Total Return Performance Total Return Percentage Return Total 43
Slide 44: 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 45: 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 4,500 applications and greater than $870 Million funded to businesses (FMB is, and has been, a preferred SBA Lender)1 Over $850 Million in Commercial Loan modifications1 Evaluatin
Slide 46: 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 47: First Merchants Value Proposition
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 48: Why Invest in First Merchants?
Why Invest in First Merchants? High Performance Financial Metrics Attractive Long-Term Deposit Market Shares Commercial Presence that Creates a Client Preference Successful Acquisition and Integration Track Record Focused on Providing Sustainable Shareholder Value 48
Slide 49: Research Coverage
Research Coverage = Pa=| KEEFE, BRUYETTE & WOODS Pl Pp E R | SA N D L E R Specialists in Financial Services A Stifel Company agov°= ~—s Stephens GROUP ©< RAYMONDJAMES Formerly Covered by FIG Partners LLC pyaniney: Orirst Merchants Corporation 49
Slide 50: 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 50
Slide 51: Appendix
Appendix f First Merchants Corporation
Slide 52: 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 53: 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 54: 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 55: 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