First Merchants Corporation · NASDAQ:FRME
First Merchants — Q3 2022 Earnings Presentation
30 slides from First Merchants's earnings presentation, Oct 25, 2022
Slide 1: Investor Update Third Quarter 2022
INVESTOR UPDATE Third Quarter 2022
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 3 Mark Hardwick Chief Executive Officer 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 Financial Offi
Slide 4: First Merchants Corporation Financial Highlights
First Merchants Corporation (NASDAQ: FRME) Financial Highlights as of 9/30/2022 $17.7 Billion $11.7 Billion $14.4 Billion $6.6 Billion Assets Under Advisement* Total Assets Total Loans Total Deposits TCE/TA: YTD Return on TCE YTD ROAA: Dividend Yield: Price / Tangible Book: Price / LTM EPS: 1.19% 6.
Slide 5: Highlights
Highlights 5 ▪ Reported EPS of $1.08 compared to $0.98 in Q3 2021 and $0.63 in Q2 2022. Excluding Paycheck Protection Program (“PPP”) income and expenses related to the Level One acquisition, current quarter EPS was $1.12 compared to Q3 2021 of $0.87 and Q2 2022 of $1.011,2 ▪ 10.2% annualized organi
Slide 6: Business Strategy
Business Strategy 6 Full Spectrum of Debt Capital and Treasury Service Offerings Located in Prime Growth Markets Small Business & SBA Middle Market C&I Investment Real Estate Public Finance Sponsor Finance Full Spectrum of Consumer Deposit and Lending Offerings Supported by: Talented Customer Servic
Slide 7: Commercial, consumer and deposit trends
▪ The Commercial portfolio grew across each segment and each region in the quarter. The pace was slower than the strong 2nd quarter 13% annualized growth rate; however, the commercial pipeline remains strong at the end of September. ▪ Consumer loan growth increases showed continued strength in the c
Slide 8: Third Quarter Financial Results
Third Quarter Financial Results 8 ▪ 53.34% Efficiency Ratio, 51.39% excluding acquisition costs1 ▪ Net interest income, excluding the impact of PPP loan income and fair value accretion, increased $12.2 million over prior quarter and $41.8 million over 3Q 2021 ▪ Pre-Tax, Pre-Provision (PTPP) Earnings
Slide 9: Year-to-Date Financial Results
Year-to-Date Financial Results 9 ▪ 54.95% Efficiency Ratio, 51.53% excluding acquisition costs1 ▪ Net interest income, excluding the impact of PPP loan income and fair value accretion, increased $84.4 million or 30.5% over prior year ▪ Pre-Tax, Pre-Provision (PTPP) Earnings totaled $205.1 million ex
Slide 10: Investment Portfolio Highlights
▪ Net unrealized AFS Loss of $392.5 million Investment Portfolio Highlights 10 3Q22 Investment Portfolio Composition Yield on Investments (%) / Total Investments ($B) $4.3B Total Investment Portfolio Gains / LossesHighlights Realized Gains ▪ 3Q 2021 $1.7 million ▪ 4Q 2021 $0.4 million ▪ 1Q 2022 $0.6
Slide 11: Loan Portfolio Highlights
Commercial & Industrial 28.5% Commercial Real Estate Owner-Occupied 10.9% Commercial Real Estate Non-Owner Occupied 19.7% Construction Land & Land Development 7.1% Agricultural Land & Production 1.9% Public Finance/Other Commercial 7.8% Residential Mortgage 17.3% Home Equity 5.3% Other Consumer 1.5%
Slide 12: Allowance for Credit Losses - Loans
Allowance for Credit Losses - Loans 12 3Q22 Allowance for Credit Losses - Loans Highlights ▪ No Q3 provision expense ▪ Year-to-date provision expense of $16.8 million reflects: • $14 million for CECL Day 1 non-PCD loans • $2.8 million for Level One’s unfunded commitments ▪ The reserve for unfunded c
Slide 13: Deposit Portfolio Highlights
Deposit Portfolio Highlights 13 3Q22 Deposit Composition Highlights $14.4B Total 1Defined as total deposits less time deposits > $100k Cost of Total Deposits (%) / Total Deposits ($B) ▪ Strong core deposit base • 97% core deposits1 • 23% non-interest bearing • ~54% yield 5 bps or less ▪ Total deposi
Slide 14: Net Interest Margin
Net Interest Margin 14 $105.1$97.1 $97.3 $105.1 $107.0$97.8 $107.0 $97.3 $105.1 $110.0$109.2 $107.0 $105.1 $109.2 $110.0 $106.9 1Adjusted for Fair Value Accretion and PPP Loan Income 3Q21 4Q21 1Q22 2Q22 3Q22 1. Net Interest Income - FTE ($millions) 110.0$ 106.9$ 108.0$ 134.8$ 146.6$ 2. Fair Value Ac
Slide 15: Non-Interest Income Highlights
Non-Interest Income Highlights 15 3Q22 Non-Interest Income Detail ($M) $29.6M Total Non-Interest Income Trends ($M) Fee Income / Revenue Highlights ▪ Customer-related fees totaling $22.9 million for 3Q22, declined $2.9 million from 2Q22 ▪ BOLI gain of $5.3 million was recorded and offset by $1.9 mil
Slide 16: Non-Interest Expense Highlights
Non-Interest Expense Highlights 16 3Q22 Non-Interest Expense Detail $96.4M Total Non-Interest Expense Trends ($M) Efficiency Ratio Highlights ▪ 3Q22 included integration costs of $3.4 million and $0.6 million of severance ▪ Core expense increased due to salaries, incentives, and marketing Salary & B
Slide 17: Capital Ratios
Capital Ratios 17 Tangible Common Equity Ratio Common Equity Tier 1 Ratio Total Risk-Based Capital Ratio 9.31% 9.31% 9.57% 9.31% 9.65%9.57%9.31% 9.57% 9.65% 9.04%8.78% ▪ Reduction in TCE due to AOCI changes in equity resulting from market volatility and cash consideration used in acquisition of Leve
Slide 18: Loan Portfolio Geography and Trends
Loan Portfolio 18 Geography Loan Portfolio Trends ($M) 1Included in C&I and Sponsor above 85% of borrowers within four state Midwest geography 3Q22 Highlights Total Loans grew $291 million, 10.2% annualized, excluding PPP ▪ Residential Mortgage grew $191 million • 76% adjustable-rate mortgages • Com
Slide 19: Loan Portfolio Insights
Sponsor Finance • Line utilization 40.2% in Q3, 44.5% in Q2 and 44.4% in Q1. Lower with inclusion of Level 1 commitments in Q3 (~34%) • $607 million in Shared National Credits • $0 dollars in operating leases • $78 million of SBA guaranteed loans. Retained $900,000 of non-guaranteed balances related
Slide 20: Asset Quality
Asset Quality 20 Asset Quality Trends ($M) 3Q22 Highlights 3Q21 4Q21 1Q22 2Q22 3Q22 1. Non-Accrual Loans 51.5$ 43.1$ 42.7$ 46.0$ 43.5$ 2. Other Real Estate 0.7 0.5 6.3 6.5 6.5 3. 90PD Loans 0.2 1.0 2.1 0.6 0.7 4. Renegotiated Loans 0.4 0.3 0.1 0.2 0.2 5. NPAs + 90PD 52.8$ 44.9$ 51.2$ 53.3$ 50.9$ 6.
Slide 21: Non-Performing Assets
Non-Performing Assets 21 Non-Performing Assets Roll Forward ($M) 3Q22 Highlights Strong and Stable Asset Quality ▪ Net non-accrual loans down $2.5 million • $9 million new non-accrual migration • $4.7 million senior living loan • $1 million environmental services • All other less than $500,000 • $10
Slide 22: Track Record of Shareholder Value
398.9% 192.2% FRME SNL U.S. Bank Track Record of Shareholder Value 22 10-Year Total Return (2011-2021) Earnings per Share Tangible Book Value per Share Dividends per Share CAGR 2011-2021: 27.3% CAGR 2011-2021: 10.1% CAGR 2011-2021: 39.7% Return on Tangible Common Equity $0.34 $1.41 $1.41 $1.65 $1.72
Slide 23: History of Organic and Whole Bank Acquisition Growth
$1.6 $1.8 $2.7 $3.1 $3.2 $3.2 $3.6 $3.8 $4.8 $4.5 $4.2 $4.2 $4.3 $5.4 $5.8 $6.8 $7.2 $9.4 $9.9 $12.5 $14.1 $15.5 $17.7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 3Q22 History of Organic and Whole Bank Acquisition Growth 23 Total Asse
Slide 24: Vision for the Future
Vision for the Future 24 Our Vision: To enhance the financial wellness of the diverse communities we serve. To be the most responsive, knowledgeable, and high-performing bank for our clients, teammates, and shareholders. We are a collection of dynamic colleagues with diverse experiences and perspect
Slide 25: Appendix
APPENDIX aad 00) First Merchants Corporation Helping you prosper
Slide 26: Non-GAAP: Capital Ratios
Non-GAAP 26 1 Includes net unrealized gains or losses on securities available for sale, net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans. CAPITAL RATIOS (dollars in thousands):
Slide 27: Non-GAAP: Tangible Common Equity per Share
Non-GAAP 27 TANGIBLE COMMON EQUITY PER SHARE (dollars in thousands): 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18 Tangible Common Equity Per Share Total Stockholders' Equity (GAAP) 514,467$ 552,236$ 634,923$ 726,827$ 850,509$ 901,657$ 1,303,463$ 1,408,260$ Less: Preferred Stock (90,783) (90,908) (125) (1
Slide 28: Non-GAAP: Adjusted EPS Excluding PPP and Acquisition Expenses
Non-GAAP 28 ADJUSTED EPS EXCLUDING PAYCHECK PROTECTION PROGRAM ("PPP") AND ACQUISITION-RELATED EXPENSES 3Q21 4Q21 1Q22 2Q22 3Q22 9/30/20 YTD 9/30/21 YTD 9/30/22 YTD (Dollars in Thousands, Except Per Share Amounts) Net Income Available to Common Stockholders - GAAP 52,770$ 47,733$ 48,586$ 38,522$ 63,
Slide 29: Non-GAAP: Efficiency Ratio
Non-GAAP 29 EFFICIENCY RATIO EXCLUDING ACQUISITION-RELATED EXPENSES (dollars in thousands): 3Q22 3Q22 YTD EFFICIENCY RATIO (dollars in thousands): Non Interest Expense (GAAP) 96,378$ 266,016$ Less: Intangible Asset Amortization (2,303) (5,972) Less: OREO and Foreclosure Expenses (328) (626) Less: Ac
Slide 30: Non-GAAP: Return on Tangible Common Equity
Non-GAAP 30 RETURN ON TANGIBLE COMMON EQUITY (dollars in thousands): 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD Return on Tangible Common Equity Total Average Stockholders' Equity (GAAP) 478,440$ 535,506$ 540,255$ 675,295$ 753,724$ 884,664$ 1,110,524$ 1,343,861$ 1,569,615$ 1,814,471$ Less