Fourth Quarter 2015 Supplemental Information January 26, 2016 FIRSTMERIT Corporation Exhibit 99.2 |
2 Forward-Looking Statements Disclosure This presentation may contain forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial condition and results of operations, including without limitation, statements relating to the earnings outlook of the Corporation, as well as its operations, markets and products. Actual results could differ materially from those indicated. Among the important factors that could cause results to differ materially are interest rate changes, continued softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Corporation's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements, and those risk factors detailed in the Corporation's periodic reports filed with the Securities and Exchange Commission. The Corporation undertakes no obligation to release revisions to these forward- looking statements or reflect events or circumstances after the date of this presentation. These slides contain non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of the registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, FirstMerit Corporation has provided reconciliations within the slides, as necessary, of the non-GAAP financial measure to the most directly comparable GAAP financial measure. |
3 Q4 2015 Financial Highlights Change 4Q 2015 vs. Income Statement (In thousands, except per share amounts) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr 2015 3rd Qtr 2014 4th Qtr Net interest income TE $ 188,979 $ 189,119 $ 196,509 (0.07)% (3.83) TE adjustment 3,748 3,796 3,998 (1.26) (6.25) Provision for originated loan losses 12,487 10,402 8,662 20.04 44.16 Provision/(recapture) for acquired loan losses 1,503 144 3,407 943.75 (55.88) Provision/(recapture) for FDIC acquired loan losses (379 3,729 1,228 (110.16) (130.86) Noninterest income 65,143 71,426 71,960 (8.80) (9.47) Noninterest expense 155,622 160,742 165,041 (3.19) (5.71) Net income 56,749 59,012 61,079 (3.83) (7.09) Diluted EPS 0.33 0.34 0.36 (2.94) (8.33) Key Ratios ROA 0.89 0.93% 0.98% (4.31)% (9.16) ROTCE 11.04 11.69 12.52 (5.56) (11.82) Net interest margin TE 3.30 3.33 3.56 (0.90) (7.30) Efficiency ratio 60.22 60.71 60.39 (0.81) (0.28) Tangible common equity to assets 8.24 8.31 7.98 (0.84) 3.26 Net charge-offs to average loans 0.33 0.24 0.12 37.50 175.00 NPAs to loans and other real estate 0.67 0.78 0.44 (14.10) 52.27 1 Net interest income on a taxable-equivalent basis (TE) is a non-GAAP financial measure. Refer to the Non-GAAP financial measures reconciliation for a reconciliation to GAAP financial measures. Increased total loan portfolio QoQ by $277.7 million, or an annualized 7%, despite reduction in acquired loan portfolios. Lower volume in acquired portfolios and lower yields on earning assets primary drivers of QoQ margin compression. Noninterest income decreased 8.80% QoQ. * Denial by the FDIC in the fourth quarter of four disputed claims of $6.0 million claimed on the final commercial loss share certificate at June 30, 2015. Noninterest expense decreased 3.19% QoQ. Favorable re-estimation of certain repurchase reserve liabilities. Highlights 1 1 % % % |
Average Balance Sheet Total Average Loans Increased $161.6 million (dollars in millions) Total Average Deposits Increased $45.2 million (dollars in millions) Originated loans Acquired loans FDIC acquired loans Savings & money markets Interest bearing Noninterest bearing CDs & time 4 Change 4Q 2015 vs. QTD Average Balances (Dollars in thousands) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr 2015 3rd Qtr 2014 4th Qtr Cash & securities $ 415,756 $ 457,317 $ 500,559 (9.09)% (16.94)% Investments 6,820,863 6,783,921 6,614,291 0.54 3.12 Loans held for sale 5,028 4,929 16,708 2.01 (70.03) Originated loans 13,863,910 13,528,268 12,306,171 2.48 12.66 Acquired loans 1,830,921 1,987,471 2,599,622 (7.88) (29.57) FDIC acquired loans 226,909 244,388 384,097 (7.15) (40.92) Allowance for loan losses (151,192) (147,136) (138,540) 2.76 9.13 Other Assets 2,358,751 2,358,698 2,382,079 — (0.98) Total Assets $ 25,370,946 $ 25,217,856 $ 24,664,987 0.61% 2.86% Noninterest bearing deposits 5,982,186 5,897,768 5,706,631 1.43 4.83 Interest bearing deposits 3,352,908 3,353,541 3,021,188 (0.02) 10.98 Savings and money market accounts 8,408,703 8,480,682 8,381,548 (0.85) 0.32 Certificates and other time deposits 2,258,996 2,225,595 2,341,280 1.50 (3.51) Securities sold under agreements to repurchase 1,131,659 1,109,924 1,241,948 1.96 (8.88) Wholesale borrowings 402,679 377,594 450,587 6.64 (10.63) Long-term debt 508,954 497,566 350,535 2.29 45.19 Other Liabilities 381,593 365,526 321,652 4.40 18.64 Equity 2,943,268 2,909,660 2,849,618 1.16 3.29 Total Liabilities and Equity $ 25,370,946 $ 25,217,856 $ 24,664,987 0.61% 2.86% |
5 Yield on Average Loans Net Interest Income and Margin Trends Cost on Interest-bearing Liabilities Net interest income (TE) for the quarter of $189.0 million remained fairly constant compared to the prior quarter, demonstrating that we continue to offset the expected decline in the acquired and FDIC acquired loan portfolios with organic loan growth. Fourth quarter NIM (TE) was 3.30%, down 3 bps from prior quarter. Expected runoff in in the acquired and FDIC acquired portfolios and slightly lower yields on earning assets were the primary drivers of margin compression. Highlights 4.27% 4.19% 4.39% 4.10% 4.06% (dollars in millions) |
6 Changes in Net Interest Margin Fourth quarter net interest margin (TE) was 3.30%, down 3 bps from prior quarter. |
Acquired Loans Purchase Discount 7 1 The outstanding balance of impaired and nonimpaired acquired loans at the Acquisition Date were $1.1 billion and $4.0 billion, respectively. The outstanding balance represents the undiscounted sum of all amounts, including principal, interest, fees and penalties, owed to the investor at the reporting date, whether or not currently due or charged-off. 1 (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 As of Acquisition Date: April 12, 2013 Impaired acquired loans Loan balance $ 341,003 $ 392,278 $ 424,188 $ 464,372 $ 506,500 $ 946,465 Remaining loan mark 56,294 65,030 68,024 76,059 83,291 126,750 Recorded investment 284,709 327,248 356,164 388,313 423,209 819,715 Discount 16.51% 16.58% 16.04% 16.38% 16.44% 13.39% Nonimpaired acquired loans Loan balance $ 1,511,198 $ 1,647,246 $ 1,808,924 $ 2,012,836 $ 2,142,390 $ 4,017,304 Remaining loan mark 56,797 65,115 73,279 82,011 92,210 220,015 Recorded investment 1,454,401 1,582,131 1,735,645 1,930,825 2,050,180 3,797,289 Discount 3.76% 3.95% 4.05% 4.07% 4.30% 5.48% Total acquired loans Loan balance $ 1,852,201 $ 2,039,524 $ 2,233,112 $ 2,477,208 $ 2,648,890 $ 4,963,769 Remaining loan mark 113,091 130,145 141,303 158,070 175,501 346,765 Recorded investment 1,739,110 1,909,379 2,091,809 2,319,138 2,473,389 4,617,004 Discount 6.11% 6.38% 6.33% 6.38% 6.63% 6.99% |
8 Acquired Loans Nonimpaired Acquired Loans - Purchase Discount Nonimpaired Acquired Loans - Allowance (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Beginning balance $ 65,115 $ 73,279 $ 83,493 $ 94,543 $ 107,538 Scheduled accretion (4,400) (4,937) (5,756) (6,955) (7,395) Pay-offs (2,833) (2,167) (3,315) (2,305) (3,820) Accelerated prepayments (820) (966) (1,023) (1,525) (1,598) Total Income (8,053) (8,070) (10,094) (10,785) (12,813) Charge offs (265) (94) (120) (265) (182) Ending balance $ 56,797 $ 65,115 $ 73,279 $ 83,493 $ 94,543 (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Beginning balance $ — $ — $ — $ — $ — Charge offs (2,956) (2,878) (2,774) (3,436) (3,249) Recoveries 1,131 1,983 1,183 1,258 1,092 Provision for loan losses 1,825 895 1,591 2,178 2,157 Ending balance $ — $ — $ — $ — $ — Muni loans mark, classified as investments ............ $ 858 $ 923 $ 1,002 $ 1,483 $ 2,333 Loans mark, classified as loans .............................. 55,939 64,192 72,277 82,010 92,210 Total mark on loans, above ..................................... $ 56,797 $ 65,115 $ 73,279 $ 83,493 $ 94,543 An allowance for nonimpaired acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each nonimpaired acquired loan is compared to the remaining fair value discount for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. Charge-offs and actual losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan. Actual losses first reduce any remaining fair value discount for the loan. Once the discount is fully depleted, losses are applied against the allowance established for that loan. During the three months ended December 31, 2015, provision, equal to net charge-offs, of $1.8 million was recorded on nonimpaired acquired loans. These charged-off loans were mainly consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due. As of December 31, 2015, the fair value discount on acquired nonimpaired loans was greater than the required allowance, therefore, no allowance for acquired nonimpaired loan losses was recorded. |
9 Acquired Loans Impaired Acquired Loans - Accretable Yield and Carrying Amount Impaired Acquired Loans - Allowance The allowance for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the allowance and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established allowance is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. The first re-estimation of cash flows on the impaired loans since acquisition was completed in Q4 2013. The re-estimation performed in Q4 2015 resulted in recapture of previous impairment of $0.3 million. (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Beginning balance $ 4,199 $ 4,950 $ 7,493 $ 7,457 $ 6,206 Charge offs — — — — — Recoveries — — — — — Provision/(recapture) for loan losses (322) (751) (2,543) 36 1,251 Ending balance $ 3,877 $ 4,199 $ 4,950 $ 7,493 $ 7,457 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 (Dollars in thousands) Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Beginning balance $ 104,287 $ 327,248 $ 112,031 $ 356,164 $ 118,756 $ 388,313 $ 119,450 $ 423,209 $ 126,424 $ 479,050 Additions — — — — — — — — — — Accretion (9,329) 9,329 (9,924) 9,924 (10,285) 10,285 (11,218) 11,218 (11,834) 11,834 Net Reclassifications from non-accretable to accretable 9,253 — 6,780 — 8,217 — 12,995 — 9,165 — Payments, received, net — (51,868) — (38,840) — (42,434) — (46,114) — (67,675) Disposals (14,388) — (4,600) — (4,657) — (2,471) — (4,305) — Ending balance $ 89,823 $ 284,709 $ 104,287 $ 327,248 $ 112,031 $ 356,164 $ 118,756 $ 388,313 $ 119,450 $ 423,209 |
10 FDIC Acquired Loans Impaired FDIC Acquired Loans - Accretable Yield and Carrying Amount Impaired FDIC Acquired Loans - Allowance Loss Share Receivable Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 (Dollars in thousands) Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Accretable Yield Carrying Amount Beginning balance $ 24,713 $ 142,632 $ 26,150 $ 157,808 $ 29,867 $ 199,225 $ 37,511 $ 232,452 $ 51,945 $ 284,566 Accretion (2,387) 2,387 (2,893) 2,893 (4,100) 4,100 (5,567) 5,567 (7,723) 7,723 Net Reclassifications from non- accretable to accretable 953 — 1,785 — 2,136 — (56) — (3,449) — Payments, received, net — (14,371) — (18,069) — (45,517) — (38,794) — (59,837) Disposals (371) — (329) — (1,753) — (2,021) — (3,262) — Ending balance $ 22,908 $ 130,648 $ 24,713 $ 142,632 $ 26,150 $ 157,808 $ 29,867 $ 199,225 $ 37,511 $ 232,452 (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Beginning balance $ 45,196 $ 41,627 $ 41,514 $ 40,496 $ 42,988 Net provision/(recapture) (309) 3,986 928 4,225 313 Net (benefit)/recapture from FDIC loss share (70) (257) (1,819) (4,227) 915 Net provision/(recapture) for FDIC acquired loan losses (379) 3,729 (891) (2) 1,228 Increase/(decrease) in loss share receivable 70 257 1,819 4,227 (915) Loans charged -off (208) (417) (815) (3,207) (2,805) Ending balance $ 44,679 $ 45,196 $ 41,627 $ 41,514 $ 40,496 (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Beginning balance $ 10,926 $ 11,820 $ 20,005 $ 22,033 $ 30,746 Accretion (385) (384) (1,185) (2,187) (3,963) Net recapture of /(provision from) impairment 70 257 1,819 4,227 (915) FDIC reimbursement (390) (679) (8,713) (4,013) (4,507) FDIC acquired loans paid in full (274) (88) (106) (55) 672 Ending balance $ 9,947 $ 10,926 $ 11,820 $ 20,005 $ 22,033 |
11 Nonperforming Asset Ratios As of Q4 2015, Q3 2015, Q2 2015, and Q1 2015, $33.5 million, $40.0 million, $42.0 million, and $3.4 million, respectively, of OREO was no longer covered by FDIC loss share agreements, and therefore, was included in NPAs. OREO that remains covered by FDIC loss share agreements has considerable protection against credit risk and is not reported as NPAs. Asset Quality Net Charge Offs & Provision for Loan Losses (dollars in millions) Highlights Asset quality remains sound with low NPA levels and a robust reserve to nonperforming loans level of 2.48 times. Originated provision for loan losses at $12.5 million exceeded net charge offs this quarter by $1.1 million in support of continued originated loan growth. NPAs decreased $12.6 million, or 11.73%, over the prior quarter. Allowance for Originated Loan Losses (dollars in millions) |
12 Noninterest Income Change 4Q 2015 vs. (Dollars in thousands) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr 2015 3rd Qtr 2014 4th Qtr Trust department income $ 10,208 $ 10,948 $ 9,831 (6.76)% 3.83% Service charges on deposits 16,793 17,295 17,597 (2.90) (4.57) Credit card fees 13,931 13,939 13,305 (0.06) 4.70 ATM and other service fees 6,626 6,518 6,181 1.66 7.20 Bank owned life insurance income 3,836 4,622 7,337 (17.01) (47.72) Investment services and insurance 3,816 4,032 4,171 (5.36) (8.51) Investment securities gains/(losses), net (5) 41 16 (112.20) (131.25) Loan sales and servicing income 2,276 2,414 3,112 (5.72) (26.86) Other operating income 7,662 11,617 10,410 (34.04) (26.40) Total noninterest income $ 65,143 $ 71,426 $ 71,960 (8.80)% (9.47) Noninterest income decreased $6.3 million, or 8.80%, QoQ. Other operating income decreased $4.0 million QoQ. Denial by the FDIC in the fourth quarter of four disputed claims of $6.0 million claimed on the final commercial loss share certificate at June 30, 2015. Highlights Noninterest Income Trend (dollars in millions) % |
13 Noninterest Expense Change 4Q 2015 vs. (Dollars in thousands) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr 2015 3rd Qtr 2014 4th Qtr Salaries and wages $ 68,151 $ 68,775 $ 71,638 (0.91)% (4.87)% Pension and employee benefits 18,339 16,997 18,261 7.90 0.43 Net occupancy expense 12,716 13,540 14,188 (6.09) (10.37) Equipment expense 12,074 12,235 12,133 (1.32) (0.49) Taxes, other than federal income taxes 2,096 2,003 1,661 4.64 26.19 Stationary, supplies and postage 3,222 3,304 3,767 (2.48) (14.47) Bankcard, loan processing and other costs 11,146 12,335 11,830 (9.64) (5.78) Advertising 3,386 4,278 3,586 (20.85) (5.58) Professional services 5,056 5,154 6,440 (1.90) (21.49) Telephone 2,530 2,480 2,779 2.02 (8.96) Amortization of intangibles 2,598 2,598 2,933 — (11.42) FDIC expense 5,252 5,234 5,989 0.34 (12.31) Other operating expenses 9,056 11,809 9,836 (23.31) (7.93) Total noninterest expense $ 155,622 $ 160,742 $ 165,041 (3.19) (5.71) Noninterest expense decreased $5.1 million, or 3.19%, QoQ Salaries and wages down year over year due to fewer full time equivalent employees. Favorable re-estimation of certain repurchase reserve liabilities. The efficiency ratio remained fairly constant QoQ at 60.22%, compared to 60.71% in the prior quarter. Highlights Noninterest Expense Trend (dollars in millions) % % |
14 $14.1 billion Originated Loan Portfolio December 31, 2015 Change 4Q 2015 vs. Period end balances (Dollars in thousands) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr C&I $ 5,793,408 4.9% 11.9% CRE 2,077,344 (0.6) (1.9) Construction 645,337 4.2 20.0 Leases 491,741 6.5 32.8 Total commercial 9,007,830 3.6% 9.8% Mortgage 689,045 2.3 10.2 Installment 2,990,349 3.1 24.9 Home equity 1,248,438 3.0 12.4 Credit card 182,843 7.3 11.2 Total consumer 5,110,675 3.1% 19.0% Total originated loan portfolio $ 14,118,505 3.4% 13.0% Diversified Originated Loan Portfolio 1 1 Excludes acquired and FDIC acquired loans. |
15 Average Originated Commercial Loans 1 Commercial production showed continued growth. Composition of Average Originated CRE Loans December 31, 2015 1 Excludes acquired and FDIC acquired loans. Highlights Average Originated Commercial Loans (dollars in millions) |
16 Average Originated Consumer Loans 1 The originated consumer loan portfolios showed strong growth QoQ. Total originated consumer loans were up $198.3 million, or 4.09%, from the prior quarter. Leading the growth was installment, up $133.7 million, or 4.75%, reflecting our continued success in expanding the Citizens' indirect recreational lending into our legacy markets and expanding our indirect auto lending into Michigan and Wisconsin. Home equity loans were up $37.9 million, or 3.17%, over the prior quarter. Although small, the card portfolio has showed continued growth QoQ of $7.4 million, or 4.38%, as a result of consistent execution of our plan to grow this high-quality portfolio across our new customer base. Average Originated Consumer Loans (dollars in millions) 1 Excludes acquired and FDIC acquired loans. Highlights |
17 Investment Portfolio Summary Investment Security Mix (Book Value $6.6 billion) 2015 4th Qtr 2015 3rd Qtr 2014 4th Qtr Market value $ 6,624 $ 6,652 $ 6,421 Yield 2.32 2.31% 2.34% Duration 3.34 3.35 4.25 Quarterly purchases $ 425 $ 240 $ 241 % Chg NII Year 1 Year 2 Cumulative + 100 Bps 2.31% 5.01% 3.64% + 200 Bps 4.38 9.46 6.88 $ Chg NII Year 1 Year 2 Cumulative + 100 Bps $ 17.0 $ 35.9 $ 52.9 + 200 Bps 32.3 67.7 100.1 Interest Rate Sensitivity (dollars in millions) Portfolio Statistics (dollars in millions) |
18 Deposits Average Deposits December 31, 2015 Highlights Continue to successfully execute on our core deposit generation and retention strategy. Average core deposits increased $11.8 million QoQ and were 88.71% of the total average deposit base. Total deposits costs remain low at 19 bps. |
19 Capital Position Highlights Under Basel III, all regulatory capital ratios remained in excess of well-capitalized limits. Quarterly common stock dividend remained constant at $0.17 per share. 1 See Reconciliation of Non-GAAP Measures. 2 The Basel III capital rules, effective January 1, 2015, replaced tier 1 common equity and the associated tier 1 common equity ratio with common equity tier 1 ("CET1") capital and the CET1 risk-based capital ratio. December 31, 2015 figures are preliminary and presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. Common Stock Dividend Payout Ratio Tangible Common Equity to Tangible Assets Common Equity Tier 1 1,2 |
20 Reconciliation of Non-GAAP Measures: Tangible common equity and total assets (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Shareholders’ equity (GAAP) $ 2,940,095 $ 2,937,300 $ 2,887,957 $ 2,888,786 $ 2,834,281 Less: Preferred stock 100,000 100,000 100,000 100,000 100,000 Common shareholders' equity (non-GAAP) 2,840,095 2,837,300 2,787,957 2,788,786 2,734,281 Less: Intangible assets 60,628 63,226 65,824 68,422 71,020 Goodwill 741,740 741,740 741,740 741,740 741,740 Tangible common equity (non-GAAP) 2,037,727 2,032,334 1,980,393 1,978,624 1,921,521 Total assets (GAAP) $ 25,524,604 $ 25,246,917 $ 25,297,014 $ 25,118,120 $ 24,902,347 Less: Intangible assets 60,628 63,226 65,824 68,422 71,020 Goodwill 741,740 741,740 741,740 741,740 741,740 Tangible assets (non-GAAP) $ 24,722,236 $ 24,441,951 $ 24,489,450 $ 24,307,958 $ 24,089,587 Tangible common equity to tangible assets ratio (non-GAAP) 8.24 8.31 8.09 8.14 7.98 The table below presents computations of tangible common equity, tangible assets and the tangible common equity to tangible assets ratio, which are all considered non-GAAP measures. The table below also reconciles the U.S. GAAP performance measures to the corresponding non-GAAP measures. Management uses these non-GAAP financial measures to assess the quality of capital and believes that investors may find them useful in their analysis of the Corporation. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies. % % % % % |
21 Reconciliation of Non-GAAP Measures: Capital Position (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Shareholders’ equity (GAAP) $ 2,940,095 $ 2,937,300 $ 2,887,957 $ 2,888,786 $ 2,834,281 Less: Goodwill 741,740 741,740 741,740 741,740 741,740 Regulatory and other adjustments 79,330 120,751 116,315 140,706 88,080 Tier 1 capital (non-GAAP) 2,119,025 2,074,809 2,029,902 2,006,340 2,004,461 Less: Preferred stock 100,000 100,000 100,000 100,000 100,000 Trust preferred securities — — — — — Plus: Tier 1 capital adjustments 100,000 100,000 100,000 100,000 — CET1 capital (non-GAAP) 1 (Basel III) $ 2,119,025 2,074,809 $ 2,029,902 $2,006,340 N/A Tier 1 common equity (non-GAAP) 1 (Basel I) N/A N/A N/A N/A 1,904,461 Plus: Tier 2 adjustments 614,023 614,193 609,041 591,018 649,432 Total risk-based capital (non-GAAP) $ 2,733,048 $ 2,689,002 $ 2,638,943 $ 2,597,358 $ 2,653,893 The table below presents computations of Tier 1, total risk-based and CET1 capital which are all considered non-GAAP measures. The table below also reconciles the U.S. GAAP capital measures to the corresponding non-GAAP measures. Management uses these non-GAAP financial measures to assess the adequacy of capital and believes that regulators and investors may find them useful in their analysis of the Corporation. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by regulators and investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies. 1 The Basel III capital rules, effective January 1, 2015, replaced tier 1 common equity and the associated tier 1 common equity ratio with common equity tier 1 ("CET1") capital and the CET1 risk-based capital ratio. December 31, 2015 figures are preliminary and presented on a Basel III basis and reflect transitional capital requirements and phase-in provisions, including the standardized approach for calculating risk weighted assets. 2014 amounts and ratios are reported on a Basel I basis. |
22 Reconciliation of Non-GAAP Measures: Adjusted net income (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Net income (GAAP) $ 56,749 $ 59,012 $ 56,584 $ 57,139 $ 61,079 Net income adjustments Plus: Restructure expenses, net of taxes (200) — — 1,149 564 Branch closure costs, net of taxes — — 1,149 783 — Adjusted net income (non-GAAP) 56,549 59,012 57,733 59,071 61,643 Annualized net income (GAAP) 225,145 234,124 226,958 231,730 242,324 Annualized adjusted net income (non-GAAP) 224,352 234,124 231,566 239,566 244,562 Average assets (GAAP) 25,370,946 25,217,856 25,129,859 24,905,094 24,664,987 Average equity (GAAP) 2,943,268 2,909,660 2,892,432 2,866,362 2,849,618 Average tangible common equity (non-GAAP) 2,039,639 2,003,423 1,983,603 1,954,930 1,935,435 Return on average assets (GAAP) 0.89% 0.93% 0.90% 0.93% 0.98 Adjusted return on average assets (non-GAAP) 0.88% 0.93% 0.92% 0.96% 0.99 Return on average equity (GAAP) 7.65% 8.05% 7.85% 8.08% 8.50 Adjusted return on average equity (non-GAAP) 7.62% 8.05% 8.01% 8.36% 8.58 Return on average tangible common equity (non-GAAP) 11.04% 11.69% 11.44% 11.85% 12.52 Adjusted return on average tangible common equity (non-GAAP) 11.00% 11.69% 11.67% 12.25% 12.64 The following table presents net income as reported (GAAP) excluding the impact of acquisition related costs incurred during 2014 to arrive at adjusted net income. Management believes these adjustments increase comparability of period-to-period results and uses these measures to assess performance and believes investors may find them useful in their analysis of the Corporation. It is possible that the activities related to the adjustments may recur; however, Management does not consider the activities related to the adjustments to be indications of ongoing operations. Return on average tangible common shareholders' equity is a non-GAAP measure that calculates the return on average common shareholders' equity excluding goodwill and intangible assets. This measure is useful for evaluating the performance of a business consistently, whether acquired or developed internally. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies. |
23 Reconciliation of Non-GAAP Measures: Non-operating items (Dollars in thousands) Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Net interest income (TE) (non-GAAP) $ 188,979 $ 189,119 $ 189,018 $ 189,554 $ 196,509 Noninterest income (GAAP) 65,143 71,426 66,582 65,847 71,960 Noninterest income adjustments: Gains/(losses) on sales of securities (5 41 567 354 16 Branch closure costs — — 1,768 1,205 — Adjusted noninterest income (non-GAAP) 65,148 71,385 67,783 66,698 71,944 Adjusted total revenue, TE excluding securities gains/(losses) (non-GAAP) 254,127 260,504 256,801 256,252 268,453 Noninterest expense (GAAP) 155,622 160,742 161,674 160,652 165,041 Noninterest expense adjustments: Less: Amortization of intangible assets 2,598 2,598 2,598 2,598 2,933 Restructure expenses (307 — — 1,767 868 Branch closures costs and acquisition related expenses — — — — — Adjusted noninterest expense (non-GAAP) 153,331 158,144 159,076 156,287 161,240 Fee income ratio, as reported (non-GAAP) 25.64 27.40 25.88 25.68% 26.80% Efficiency ratio, as reported, excluding amortization of intangible assets and securities gains (losses) (non-GAAP) 60.22 60.71 62.37 61.97% 60.39% Efficiency ratio, as adjusted (non-GAAP) 60.34 60.71 61.95 60.99% 60.06% The table below presents non-interest income and noninterest expense (GAAP) excluding certain adjustments to arrive at adjusted noninterest income and noninterest expense (non-GAAP). The Corporation believes that the exclusion of these adjustments provides a meaningful base for period-to-period comparisons, which Management believes will assist investors in analyzing the operating results of the Corporation. These non- GAAP financial measures are also used by Management to assess the performance of the Corporation's business. It is possible that the activities related to the adjustments may recur; however, Management does not consider the activities related to the adjustments to be indications of ongoing operations. The Corporation believes that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Corporation on the same basis as that applied by Management. |
Fourth Quarter 2015 Supplemental Information January 26, 2016 FIRSTMERIT Corporation |