FRME - Earnings call transcript Q4 2018 | First Merchants Corporation

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Operator

Good day and welcome to the First Merchants Corporation Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] We will be using user controlled slides for our webcast today. Slides may be viewed by following the URL instructions noted in the First Merchants new release dated Thursday, January 31, 2019 or by visiting the First Merchants Corporation Shareholder Relations website and clicking on the webcast URL hyperlink. statements Private to Securities forward-looking Provisions Safe contains the of Litigation presentation made the pursuant Harbor This Reform Act. can belief, and and portfolio, asset statements of benefits. plan, growth First forward-looking often risks and by business identified Such investment loan the Merchants words goals, like statements and expect, include may quality, strategies, or relating to be use future costs the including credit of to the the Commission. to forth integration are of new subject First fluctuations significant First in statements, of and differ in and regulations cost laws, loans, from Securities statements may worthiness of results collectability other changes with impairment requirements in uncertainties identified customers, business Exchange These cause recent regulators, risks and of market set Merchants materially those and such legal other ability and fillings attract interest conditions, in the the rates and factors changes of economic that in in of customers Company’s changes and effects administrative acquisitions the and to cases, and Merchant

this Merchants or obligation to update in or oral, release. any press First relating to undertakes matters discussed statement whether the forward-looking no written presentation

Executive conference past the company’s over In addition, like recorded. to Please being indicate note Michael ahead. not Officer. do this is go turn anticipated necessarily Mr. of President the results future operations its event Please now Chief and results. I to Rechin, would

Michael Rechin

quarter conference December and Thank XX, Welcome you, webcast for our Andrew. ending the fourth to call everyone earnings XXXX.

Credit X:XX Eastern XXXX and this a Officer our John Mark morning slide our results release Performance. release and Officer; in Financial Time Chief that Officer. begin Year at the a for end on page the point and that our released are four Operating our were The today at me approximately contained back speaks AM call We from webcast Joining of Martin, titled o'clock my our Chief to press the Chief Hardwick, comments and also the directions release. Full material presentation will

earned increase over XXXX's $X.XX, income per share a $XXX.X increase Earnings First over million, per record of totaled of Merchants share net earnings XXXX's $X.XX. total over just million. $XX a of a XX.X% XX.X%

grew $X.X total billion organically, XXXX's X.X% Our over to assets total.

in performance quarter; on of next a XX.XX% XX.XX% our balanced for are X% for nice Really of strong levels. the assets a growth X.X% point drove partially return for loans fourth $XXX rate efficiency equity. the the line, earnings on full Some spearheaded in measures organic bullet growth return year year total; growth, average by X.XX% both deposit ratio $XXX a million in million on year. organically A the those

a of this associated discussions $XX.XX acquisitions performance. Lastly and book earn-back the book of page, prior timing forecasted value tangible is then XX.X% the prior with looking over and our our on XXXX value group consistent relative year-end at ahead levels share, prior of tangible at some with the to or this with acquisitions, to increased in either growth

$XX.X in and company marketplace XX.X% activity. and back the of a winning where the to is $XX.X which really million our fourth come We'll subset of growth net quarter over today the page in overall on provided reported income, from organic increase earnings share equates information over fresh is where XXXX's net of XXXX's an XX.X% of a of per million $X.XX, level quarter quarter quarter. to fourth everyday fourth focus the the through the five, clients a have XXXX fourth we $X.XX, Moving to It a income. our marketplace in quarter is increase of for of the marketplace strong funding

in third similar pickup the quarter. quarter, quarters what rate the X.X% to a and back a the or nice of rates the million half first us growth of was to very the have really second annualized growth reported similar level $XXX fourth of in of for and year after XXXX would organic loan in what So, we slower

which happy resumption what the the organic into earnings mind we're at comments. But more prior highlight call growth to back on of the the million. end a signing really strong At the or in also X.X% get fresh of which this Bank we Hardwick Monroe announced growth Mark was to Trust, a and very my information level would've quarter, year, at see the results a over of point, like So, definitive $XXX our rate touched to the throughout to call highlight quarter fourth agreement bit turn deeply. then I'll annualized with & our deposit my on touch third I'd was little

Mark Hardwick

of improved and fair X.XX%. XXX rate first were $X.X Mike. the for increased total begin The the strong seven. quarter up basis X% $XXX since X.XX%, of X.XX%, or portfolio portfolio or where a portfolio XXXX yields of the million or improving X.X% by comments quarter beta our normalized, prime loan the XX our very increased from total mentioned XXXX third basis total million two eight have XXXX, approximately in composition million since on Thanks The past produce quarters My slide of and Organic fourth really assets yields. bond for liquidity $XX X.XX%, year, loan of as to accretion line and Total on The loan points points Line in has of value the growth quarter loan position. seven slide quarter second our XXXX loans billion total will of on $XXX during increased line the also by on seven Mike XXXX. over increased year-end year-end yield X.X% totaled one our continues XX%.

portfolio loans continues bond on to billion our right the repricing bank. the be with nine, our graph sensitivity variable high asset XX% the demonstrating our performing. illustrates As slide daily, half of are $X.X of On

quarters X.XX% just of portfolio Our now the than unrealized previous three year, while the is loss million. the yield is $X higher of marginally

Now XXXX time million, on since grew for line and customer one those XXXX or non-maturity deposits total X.X%. deposits million $XXX XX.X%. represent on increased non-maturity Customer on slide XX, deposits two the line total XX.X% $XXX by of by customer of and deposits represent XX.X% remaining deposits or

I mentioned lines and borrowings is liquidity million. as in four in Now, you on million declines broker where had a quite and $XXX and our three $XXX declines see bit of deposits stronger we of can

liquidity are well balance So structure the future pleased and with our our for and capital of the management's positioned sheet.

XX% ratio loan Our loan-to-deposit totals asset to totals equity at tangible while ratio X.XX%. XX% our common and XX%, is now nearly

of deposits on XX of Fourth company. basis second the up is mix totaled deposit XXX the XX quarter mentioned, points. strength for XXXX XX, the slide points, quarter true the previously of our I and first third As totaled totaled our quarter quarter XX cost from basis

increased and beta Over funds quarters, basis rate again our has cost the of basis by points XXX XX%. XX the Fed deposits of a the increased for deposit has seven past points

two Our margin during net tax XX reform, are regulatory internal line, by from by and income. in for The that both million for the XXXX's acquisitions targets and of non-interest and of closed the above full from regulatory full all May however the growing reached totaled points expenses year, interest X.XX%, total on driven holds XXXX balance a year margin of X% non-interest $XX.X The increase ratios same The flexibility during expansion on the reflects net strength the on by actually expanded on Federal net income true million margin a capitalized income now of year. margin down aided the growth XXXX. XX when results of definition year all XXXX XX full on totaled slide interest sheet adjusted Total basis were slide future. months and providing our reflect slide X.X%. year. for and XX an into fee interest XX which July improvements slide capital XX capital of our $XXX

mentioned $XXX.X the December opening so, just increase percentage And X.XX income points. those his X% Line year our the given the of during acquisitions million. the base, XX.X% net and XX, and management's as for Mike total in On On -- expense in two XX, year On pleased nine, by Line $X.XX of totaled year-over-year. really relatively ended remarks, the increase the now with XXXX. slide a -- addition grew record totaled XXXX over for XX% ratio increase X.XX XXXX total efficiency an year XX, over a XX.XX% EPS improved and marginal

positive expense in and anticipated the tax of $X.XXX allowance mentioned assets. offset the an the for earnings the XX XX, by share liability on the release came totaled million per a state of state full increase and of lower release than tax XXXX income quarter year on fourth to year in impact The deferred due by the Slide As XXXX. of a $X.X in for and valuation highlighted tax press

in ago a same state Act, recorded earnings it related on state DTAs to million and remember when income helped tax XXXX. the if $X.X So Jobs by you federal ago dropped DTAs of related year to adjustments Cut improved million rates This tax a we $X.X Tax from year expense. actually year those tax side the actually

we compound share. XX, pleased contributed our a stakeholders a total share XX% this On growth who following Slide Thanks and very by all look of in M&A, to success. company's earnings celebrate that, XXXX that of again XXXX. annual per on inclusive year goes value record that nearly tangible per earn-back way our at can anniversary we're improvement the with rate metrics, So many and back XXXth to is to the XX Slide XX% book if you dilution resulting the

of quarter. dividend the a also of yield recent So proud this includes results as really we're it X.X% and most

related thanks portfolio discuss trends. asset our your John composition and attention will now and So loan quality Martin for

John Martin

Mark cover with I'm then provide going portfolio to year-end asset the loan XX Thanks provisioning close roll XX a quality quarterly right. portfolio. update begin asset quality on the a on and All Slide few allowance -- and good in review the then forward, the and remarks and afternoon.

were third loan four The owner-occupied with C&I Construction mortgage XX. or C&I-related industrial the real quarterly over loans from So growing closings in $XXX loans by million combined and growth $XX quarter estate of one The $XX on Lines $XX growth from annually. came Strong million and up which robust growth. with of grew and quarter to Slide loan million turning commercial was back in to activity led and or commercial the Line along loan All $XXX this seven picked $XX respectively. resulting growth combined the portfolio increased pace million resulted the on spilled Line X.X% slide, moved million for non-owner-occupied -- combined, public into the X.X% and full commercial X% rounding while increasing mortgage year. two. in the an added additional and CRE three, the of finance on $XX quarter consumer million, $XXX consumer by other two for down Line Line they million out on investment From real estate, as loans on million.

XX. Slide to turn Let's

quarter. contrast $X.X the Central roughly region Asset Line quarter sale the presence nursing a to quality multiyear having in loans million project from was million owned was to On that non-accrual in resolution increase, our they This that to other property. home ORE of the long-term $X.X with And remains local quarter. behind a million. In provide color one, were down in experienced a for the developer though here, moving the or resulted in up the a the move million was estate resolved had some real little national it $X skilled one there declined Indiana and slide $X.X to coming solid non-accrual. problems

the loans were renegotiated that loans of Line on the increased XX-day subsequently moved result of while X, quarter delinquent loans after the were end a on to matured consumer two loans. construction Moving perm flat consumer as

and reserves in specific million the resulting mostly a $X situation Line increased million $X.X out unchanged million. X XX-day I total, on So Then reserve the classified NPAs mostly $X.X delinquent for $X up from were a finishing described. assets declining developer with specific million slide just

delinquencies. XX-day migration in assets. column $XX Turning million the XXXX NPAs started the of nonperforming We quarter far-right XX titled to the which in slide reconciles and with

For new on annual on to see X effect only Line decrease the non-accrual This gross same charge-offs $XX.X the on million the we you $X.X dropping X, Line the $XX million a of on $X.X million of million minute added loans the of year, of netted reduction. of new X resolved $XXX,XXX down to million X. Line $X mentioned a Then ago and with I ORE Line million property in can nonaccruals sale the in $X.X X. of Line

$XX.X total reduction million So XX% on NPAs million nonperforming and with loans roughly with to we a decline net Line $X.X XX-day the delinquent assets. pieces in on to XX an or Line above annual of XX

of unchanged points one total down value that Also to individual that $XX.X in outside The was refinanced non-purchased as portfolio. X.XX% charge-offs loans; credit $XXX XX, growth $X Line million. resulted $XX position the value two bank. million $X.X quarter, and quarter, of accretion $XXX slide an expense decreased Line the to by during which $XXX,XXX highlights loan as provision loans. non-purchased recovery million on mark fair we relationship at loans from X.XX% had to from expense allowance of fair there basis which coverage -- Despite summary. was had provision of to X. allowance net of adjustments million purchased down on shown million was then the the to Moving X million the for migration along the of Dropping that the driven This with left the the new $X.X

for fair originations growth basis quality loan this decline across fair XX. to contributed in in on a resulting Then say adjustments summarizing would purchased of I with value mix really and good reduction balanced asset value the FVAs in new the slide positive and loans. point just portfolio. a adjustments income slight While two to

X.XX% an coverage loans total be remains comments a be. non-purchased asset well well I'll net only to of loans, us so X.XX% the and the the loan represents the of call of allowance looks with in quality Mike recoveries $XXX,XXX with back leaving positioned for over and healthy asset good year finished $X.X year to that That Asset stable. with Rechin. and on of XXXX charge-offs million and good quality place or coverage quality at finishes billion portfolio near my cycle We metrics. the turn $X.X to with good bottom reserved

Michael Rechin

the look to some opportunity Bank of Trust associated move gives forma I'm retail map page pro the and a Thank at that and at you, announcement Slide going refresher we the XX. compiled Monroe us information XX John. to a shared shows that & configuration.

the post-closing would closing work sheet combined up a $XX.X balance company is and late basis you with loans, wind with in for planned an quarter billion targeted what as billion our be So, the in $X.X billion on first $X.X deposits. [ph] proceeding

the vibrant of ahead the of share begin and Next little which a strategic page with company just us. of as management commercial cost funding with of fit. cultural low the for for Overall, just to be the and they their dominant company their We in XX% just bit really marketplace a like exercise that it's deposit XX. to the nice senior on that our careers company. bring profile with to page part activity exceedingly with and a that'll strategic portion more the as like the fit prepare us. of is a allows attractive First we Monroe, hometown fit for rate We Kind look gets work great Merchants the as market integration a to company First fit under Merchants deposit will loan-to-deposit that base and of what overall

look As the here quarter. close I might've forward mentioned earlier, to of first before we the a end

slide our Moving markets our business. and XX in market similar comfortable in past. on looking That's that plan Kind a that game forward. to remains core with in the straightforward to share grow banking you're of

at costs we space deposit commercial Monroe look needs the demonstrated edition the strategies. has gratifying targets think needs. I'm a the increase of cross business we're year's consistory ranking and our a that organically earnings all criteria of Last and of to and all be the to quality, second I rating of four in the card on that strength, middle year's they look our think going prior of and forward include then third credit America's we're In Best our Forbes the line a the advantage competitiveness earlier, to are just of Banks billion well proud we clients' we includes investment Second of to and by retail up efficiency XXXX, number on in $XX about so to point talks lines the Merchants of in all through a recognition that our use and track. we First the through integration optimizing addition both space far that bullet payment which be planning organization before greater the deposit like ratios. would card which I this from the questions take serving in debit with company our extent as both growth, mentioned as capital proud management and of The national and Magazine funding really commitment particularly point to this the quarter, to get appropriate asset in

for a reaffirmation with our in team if my team them. the great prepared any direction. point, headed right it's that to our Andrew, So, we're done there's this take At is questions, remarks and I'm

Operator

will begin first D.A. We question session. [Operator Kevin go The question-and-answer Davidson. from comes Reevey the Instructions] of now ahead. Please

Kevin Reevey

Good afternoon.

Michael Rechin

you to afternoon Good Kevin.

Kevin Reevey

congratulations So a quarter on and your great anniversary. on

Michael Rechin

feedback. Appreciate the

Kevin Reevey

First to the margin. question relates

pick They If looks they there from PAA time the you your in XXXX. lower cost loan-to-deposit to us prior in up could from same MBT you is them have about at margin then mix. bring – how rolling-off of funding It the XXXX ratio are walk through some a the some thinking you're lower PAA going a to and deals.

think in the about XXXX? NIM So should we how

Mark Hardwick

discussion it's property increases the the because the pretty tax And for the year. money Well, the State before related deposits our receipts, about quarter are had county of average income in typically dollars million excess Indiana aggressively. tax all about and higher-priced of deposits. of those to fourth I into a the important $XX on public We little is maybe quarter remainder think we go

muted the it interest a our by net about margin basis core X.X than level we what margin net so stronger at points, interest reported. So quarter little for the

to like no us increases last feel continued marginal up. of in of remainder increases a have At we've mode see couple which this been of for the than defensive we gone of over I bit puts have So further anticipating as years. the where point, we're rates kind more a XXXX, little

should continue that portfolio. depository net rates forecast deposit some a as year-over-year balance be on continue a sheet nice the lag for margin generally the have rates bond But able continued that year if effect some diligently are and to we one in the of going reinvestment pressure think of work is see stabilize, some So we'll and our we to happen. side to to have to see strong to make flat interest we're rates I

Kevin Reevey

And Mike core as as on GAAP basis well is a basis? flat it on a

Mark Hardwick

interest I we fair our loan their I ability $XX levels. up should income end to have really Monroe fair it's into into had Monroe to – value Where maintain and bring portfolio we we're re-price mean, million what expecting costs to as the Yeah. build year, think really investment to about some company. be the going think we – down with value modestly a think net-net we're deposit current and that we our strong that are we accretion low this of but in from so able net absent that's we and additional

Kevin Reevey

that we the of about that anticipate to growth? in think will how and loan And portfolio XXXX organically moving should growth area then loan kind the drive along you

Michael Rechin

as John Mike. had provides we my earlier pipeline that at of the have I this some that up Officer on levels. the year. three remarks -- we end what digit used referenced at to ranges. digit might four single in the ad-on think an kind quarters mid-single high wound mine. mid-to-high and Chief of I'm material Banking thought Kevin is our X% term the We of at out of We've looking annualized for of were really that

of kind forecasting We are the same.

range but achievable staring first only bring on core have point today finishing parts like ability I that provide suggests about early and the but and Now here I out as some feel the as looks that sit XXXX good to that to into so December we company the XXXX year through loan of for majority to into X% with momentum their pipeline of not the the Monroe to fund quarter side, ours, here part very of November, X% -- the deposits they're going of still know it feel as we're first at going to that own well. the

Kevin Reevey

thank very Great, you much

Michael Rechin

Thank welcome. you, are You Kevin.

Operator

Piper of The next ahead. go question comes from Jaffray. Nathan Race Please

Nathan Race

Hey good guys, afternoon.

Michael Rechin

Nate. Good afternoon,

Nathan Race

touch of still the accreted to kind Just guys know excess board cash where down some on of to course on road the potential but want capital acquisitions I for wanted keep to levels capital, components of over you just given capital some of of company? or XXXX thoughts thoughts or of like any guys go you could will updated a any profitability payout so it seems given the have where just just buyback on the kind plenty outlook the perhaps updated ratio kind

Mark Hardwick

This is Mark again.

to dividend should we've line digit And our of about to -- think our continuing sheet what requires kind -- the one-third rate have be I increase mid growth we're mid-to-high our obviously single which single-digit with in expectations done of earnings. then should balance be historically.

buybacks much level how no stay but of couple not to have us of are cash it continuing a or comes of how apprised forward. to intend that down we P/E to we're do buybacks. having there're long that continue and part whether market the really the point also and in we're acquisition decisions discussions the at to and move -- some that so of about they stock we logic in and dialogues the firms this board have acquisition The So front we'll keep with we to see as anything something acquisitions at to this

Nathan Race

just you're more or interested Indiana you it tied helpful. some operational what I'd anything of And just -- causing happened just that's an on additional credit. in to John to then within that like any had said you color on accrual think so loan if guys I something or I seeing was was space be color kind if skilled credit some that hear Got specifically kind non there a to that issue was facility it. turn That's there? of maybe the suppose? issues just that labor of additional it

John Martin

Yes. was I issues operator. think particular We're I the we talking actually operator. probably was pretty was skilled specific that that nursing That comment fast and felt to

and own itself we has space saw dynamics specific its perform was to what in the particular continues it this it. borrower While to

Nathan Race

got in then portfolio curious be an sponsor of I'd guy’s on private terms it. stands where both leverage finance Okay And to of portfolio just update get equity kind your loans that specifically? and just

John Martin

Yes.

a Just here. second

leverage the plus is So sits million $XXX at while quantitatively -- finance about sponsor $XXX at loan minus. portfolio sits million the like business or

Nathan Race

you. two well just those thoughts seeing of what Got any you on And John you're within internal I kind portfolios? got

John Martin

what, the haven't know and that know a lot really that of and the a been We lot part I performed the some banks very well been they through the -- of issues of reading seen they've performed You the they -- thus portfolio most having. for larger well. far. media the and

the end spectrum, a we little leveraging lower the so we're times book. hilt, to at it's or playing more generally the So we're normally bit grow at we're the of leverage X like, conservatives as not

Nathan Race

the on XXXX. impressive a Understood, guys. congrats And I appreciate color

John Martin

you Thank very much.

Operator

DelMonte Damon ahead. from comes of question KBW. next go Please The

Damon DelMonte

Hey going today? is afternoon good it How guys.

John Martin

Thank Good. you, Damon.

Damon DelMonte

bit first about So a to little expenses. question talk the just wanted

there there onetime anything looked item we forward? be it kind excluding quarter First of last up that's Mark noninterest expense was other item from was almost -- on $X.X should going line the this quarter. or million like

Mark Hardwick

would extraordinary. year that in quarter the items Incentive the -- this few a run what about year that had that compensation a be that was than We a $XXX,XXX shows performance change. higher that for normal a -- of fourth rate over of based in in up expense related little about on was expensed had We to quarter. fourth that $XXX,XXX name up the our showed $XXX,XXX were other

had wrote-off you all in fourth We're a the expenses in of all change travel the we and and that -- that onetime then $X.XX onetime changes as of some fourth so the to of legal, recall different in $XXX,XXX, fourth the levels M&A-related more the of at XXXX Trust million quarter continued but of that in those name signage we of we as items quarter, market we XXXX. in $XXX a to primarily Lafayette way back would that bought merger the lot the we in $XXX,XXX DBA and about cost run that are event. $XXX,XXX we of had normalized expenses probably and that was Bank million a marketplace, expense are return number things, And that & made If plan kind it back a Monroe, that etcetera. about anticipating totaled way quarter There all the of of for related XXXX lead so absent that to XXXX. to the were level we about

Damon DelMonte

little bit the you're XXXX, can you Okay. a Great. seeing about regards That's helpful. that opportunity portfolio. construction Thank you. And then with talk to the growth loan in

the borrower? you still pullback? if it of what seeing a that bit demand for remains and strong wondering Just are is type of Wondering appetite a or

John Martin

Yes, is John. this

include fourth quarter commitments. a We're it million of last from million about but $XXX seeing a slide, We in showed another in quarter. the bit little are I this earnings didn't $X.X I pullback. down on

seeing of is it So a a bit little pullback.

Damon DelMonte

indicative that tariffs of what's a slowing idea with in think something or is you then trend any maybe And around? or the Okay. to economy just do

John Martin

Yes.

a incremental we opportunity. consider taken So with more discontinued what the construction we've I'd for conservative the portfolio, next or given are where approach

is it's as as So us much anything. it

Damon DelMonte

Got it.

XX.X% at normalized a rate, the guess still And I good That's Okay. last tax basis? great. around on question Mark the you on then

Mark Hardwick

the tax go-forward a that XX% go-forward expense probably more It's and like basis. on of is on some state income basis related the to

the tax number strategies some a of we've outgrown have kind our deployed of of that We income we've relative state tax. and strategies to

Damon DelMonte

Got it.

I lot. a all Thanks nice quarter. on That's had. congrats a And Okay.

John Martin

Damon. Thanks,

Michael Rechin

Thank you.

Operator

any session. back for the concludes turn to remarks over I our Rechin would This question-and-answer closing to Michael like conference

Michael Rechin

momentum folks the Thanks, XXXX, of Andrew. listened hours for it move we that include to feel questions. our core of excited our at Very First Bank about is call that and have what the the good teammates, feels spent about all brief the matching into of that integration business, in progress And the & the the of Culturally, going to very clients to Monroe excited We company. to track hours company provided Trust. I appreciation and cadence that us Merchants with out those would point. outside come leadership work, this

new So front having about their us. months in of throughout join couple experience for of our the some the quarter that when is forward lifting companies us the knowing economy you. that look a Thank we heavy Midwest look in market. to to in us forward with completed. to yet our you optimistically what is talking But include contribution has first Look to of

Operator

The concluded. attending today's conference Thank you is now presentation. for

may disconnect. You now

First Merchants (FRME) 31 Jan 192018 Q4 Earnings call transcript