FRME - Earnings call transcript Q4 2019 | First Merchants Corporation

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Operator

Good day, and welcome to the First Merchants Corporation Fourth Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.

This release contains forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act. strategies; be or the relating future “may” Merchants' plan can like of to costs. statements portfolio, Business “expect” investment “believe”, and growth forward-looking identified risks use by words First asset Such quality, and and loan include statements materially company’s litigation including, First other Securities rates These First differ changes, the factors in changes worthiness of acquisitions, conditions, ability to customers, of fluctuation in to results markets, with subject forth integrate changes set are uncertainties that credit economic and those statements in requirements the of of and regulations, cause the regulators, in Merchants Commission. Merchants' filings recent may identified significant risks and Exchange to from in and such interest, and statements, the

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

of anticipated not company's In do necessarily operations the its indicate past addition, results. results future

conference Rechin, like to I go CEO. to President over turn would ahead. Please and now the Michael

Michael Rechin

thanks everyone fourth our conference in for the us the joining to XX, Welcome call. and [indiscernible]. to December XXXX. ending webcast for call Thanks quarter advance the for And earnings

Mark Financial are John afternoon Chief this and our Chief me Joining our Chief Officer Officer Operating as well Officer. as Hardwick, Martin, Credit

Fourth our will the titled, a to the and my today to point release, material speaks also page released release begin Quarter this release. Eastern presentation our XXXX directions end on X, morning were a that back Merchants earnings First press the contained AM from in and at comments Highlights. approximately slide of Time, X:XX webcast The at that

or $XX.X $X.XX were earned rate to great complete million off to fourth share. of Bank in million or comparison Merchants share of per or and a in $X.X Financial and results November $XX.X accomplished by that. Monroe our clients integration mates a quarter a & posted the pleased $X.XX very Merchants XXXX First we've to conversion were team we Included systems million well-executed in the Trust In the quarter run expense satisfying net share. get think we the totaling a income First in our with for $X.XX for

fourth we strong the looking delivering for. a execution some had of with growth quarter marketplace were We that

You and organic found gone talked might category its growth October growth the what and recall annualized in organic we and deposit including having onto annualized about sheet a growth of growth loan full was $XXX a late million saw closings our through of X.X% Much every a rate so non-maturity balance we credit and that way gathering virtually our pipeline quarter. $XXX deposit million loan of rate. X.X% into

release in a which financials. of view allows material was most either only quarter our third which on even quarter the trended our over be about on expense at the one you the equity of or bullet acquisition of on talking and full fourth It resumption average some a Our readily in five or included of $X.XX comments I point and that ratio our the plays might strong a of resumption of into high X.X% quarter I'll and in bottom include my return strong metrics to year look XX% the $X.XX. so average of on performance on page included whereas seen included fourth nearly Mark’s whether efficiency expense about return XX% mine metrics assets quarter of again four page speak captures in acquisition follow also press $X.XX is

full-year excluding acquisition $XXX.X per of Record of million net to income increase $XXX.X share. Earnings $X.XX share our of which normalized from earnings year performance. have of net page full per earnings comparison expense $X.XX million. in all over would XXXX of on So takeaways totaled X.X% to five. $X.XX in a a Key XXXX XXXX $X.XX

year in per capturing the acquisition to event year four month first as capturing in then franchise place or the throughout earlier excitement time and from in was referenced the million I all of all we're pre-tax September $XX.X which activity three months Michigan. talked the took or months fourth full about the expand Michigan. our our The four We on our expense legal was That $X.XX in share. actually quarter the

healthy a XXXX produced deposit over X% Serving year healthy organic throughout Our balance of growth market million, $XXX $XX.X loan rate, to of sheet $XXX XX.X% a growth million disciplined communities, economy, assets grew the XX% billion. organic coverage rate. growth growth

at increased over here going a financials. or deeper from little to value and a get pick XXXX. book tangible is up the share year-end XX.X% Our into $XX.XX Mark

Mark Hardwick

Thanks XXXX. year on or in were Mike. X slide X this total $X.X line line on totaled billion to loans as million My where Total Investments increased or growth and Mike comments $XXX X% assets growth start loans deposit $X.X Acquired by XX% million by nearly X liquidity. strong have increased X increased billion XX% year-end since will $XXX $XXX mentioned. from or acquired line due totaled or XX.X%. as by on organic million on

And and purchase by net Bank XXXX. Trust XX, Monroe additionally on on of million X the amortization goodwill of intangibles due September increased $XXX line & to

yield year-to-date XXXX portfolio loan shown loan the of of continues produce to on from fourth yields X.XX% the slide average totaled strong our of X.XX%. $X.X loan composition down quarter The for portfolio the billion X of

illustrate variable on the demonstrating our are our pricing for right of As daily the the graph of loans half asset sensitivity with XX% bank.

year-end a protect duration rate portfolio we've increased a the variable billion year during has our at and On loan and the $X.X longer slide bank rates. to portfolio to $X.X from our billion peer interest X, is investment against to than excess liquidity falling good offset which deploy portfolio the

yield XX, As X.XX%. our portfolio December annualized the million $XX.X totaled and of XXXX gain totaled

XX.X%. growth billion organic growth total XX, XX.X%. annualized million Monroe $X.X while the totaled increased for deposit Trust Bank of slide deposits accounted $XXX On by or billion on an & $X.X

increased Bank equity increased earnings million beyond The equity $XXX by XXXX normal fluctuations. $XXX is during line million. and Trust by purchase Common dividends comprehensive & other X of income stock all on Monroe

Additionally, we XXXX. repurchased million of stock throughout $XX

liquidity ratios for of is and are balance structure our future Capital well sheet. the pleased and the with management positioned

loan asset to of totals ratio and ratio Our our totals loan of loan, common XX% deposit to equity tangible XX% XX.XX%.

basis As from mentioned fourth down a on totaled I previously the cost XXX our our deposit of basis of of slide is company, X costs deposits mix strengths points true XXX points. year-to-date quarter

interest cost the rate Fed in also Fed Funds the the quarter XXXX. deposit points in interest back basis of decreased third our decrease rates, June raising to first since the XX fourth Our is compared quarter. expense This by in started

quarter Monroe. that million the pleased even we're expense adding two in by for Additionally an declined interest quarter for nearly months after the fourth X additional

interest capital sheet future. flexibility reflects regulatory definition net are in The XX the corporation's strength growth. income into ratios in a on net our All driven capital slide regulatory well of slide providing XX the above XXXX growing internal by and on balance margin capitalized targets line interest

recognized decrease we our good value high to We XXXX forward. in as our the but XXX quarter fourth our down run cost XXXX feel the about pricing that interest total as all of continue full-year margin will X.XX%. equaled interest going continue fourth margin quarter net points deposit we’ve of from of and ability totaled XXXX basis that interest to quarter third throughout accretion anticipate X%. strategies for the fair don't Net the XX to

in Total increase $XX.X items of increase total $XX.X XX, an of $XX.X as for million noninterest XX.X%. noninterest Customer December XX line on slide million income totaled accounted XXXX income. million or of specific

$X.X million XX XXXX Customer fiduciary from items on million included a merger million. fee million, the of growth XXXX. $XX.X million $XX.X Noninterest million. the increases related and revenue service come $XXX.X fees wealth expenses management specific charges of of million, line in on totaled deposits Of payment $X.X of $X derivative totaled increased expense $X.X slide driving increase hedging card improved and and

acquisition the the totaled totaled efficiency ratio for XX.XX% on increase for XX/XX/XXXX the slide XX line Mike an $X.XX as when Now and when year totaled for and over On totaled highlighted and of adjusted EPS expenses ended line of on merger adjusted XXXX. remarks expense adjusted in mentioned acquisition X, in footnotes his opening when $X.XX the as for year X.X% XX.XX%. $X.XX XX EPS

and see adjustments. pleased On record the with XX% in improvement results per corresponding very acquisition XXXX we story. another quarterly you XX We're expense and year's earnings up in a slides share XX follow can that growth positive can

our to XXXX and attention total compound the share dividend and growth XX trends. portfolio yield our slide Thanks over equity loan discuss is and On John your X.X%. is back common related just Martin of quality going tangible will composition XX.XX% per asset for way annual all rate

John Martin

mentioned Mark on asset in credit forward, provide I'll allowance and summary Mark and portfolio All and quarterly a review quality as with loan the CECIL year-end right. afternoon. call of and the remarks few environment. Thanks the closed the and cover roll provisioning the asset good

Turning slide X.X% the XX quarter up million growth pace of picked or in annualized. loan $XXX the growing to

the X. on lending lending line on X commercial line finance construction growth For and quarter from and X, came on industrial line public

finance on included line last model. color A on several construction commercial million in were CNI highlighting it now growing commitments Our in activity years. and over is on am in outstandings $XXX and and permanent business our million and sponsor the roughly fundings quarter the to to loans in more stabilized line X of $XXX due $XXX industrial line our move part are originate as These loans balances unit is the while up in X. growth drove a I that's the X million the quarters in little and loans market

properties. on for to from in So and of CRE $XXX reduction our sale projects of net the million market X secondary line the quarter moving reductions non-owner with the occupied

with $XX X assets book line saw mitigated the their abilities various opportunities in we the larger is On finance take by governments credit where grew the more finance interest fixed public rate where of longer-term several public risk risk taxing by in while agencies. we generally million

an Michigan last $X.X million decline portfolio quarter. Turning million the down strong little represented in to $X.X after million adding for the X asset even payoff on the million from XX, quarterly which quarter quality were line outstanding. portfolio’s loans the of loan behind $X from change the quality remains $XX.X year for provide relationship asset To non-accrual agricultural a color and refinance largely the roughly and acquired the resulted on slide

Moving X.X% in are $XXX,XXX. years. been around regulatory loans those X.X% relatively over days hovering up quarter respectively. down definition X million the XX X at several stable loans loans lines to only restructure past and well-defined and $XXX,XXX a to X classified were other $XX were estate weakness loans the owned of with unchanged due increasing real of line and mostly were a the unchanged On have slide All $XXX,XXX and last

of portfolio non-performing quarter non-accrual in with We titled mentioned $XX.X migration same $XX the to skilled of resulting XXXX X Michigan X added We with earlier. XX% includes Turning reconciles assets. on started in slide nursing right the column delinquencies. largely OREO which to from We a $X or the from which I MPAs line the million XX million resolved participation $XX.X the new non-accrual $X.X from far million the loans million XX-day in and loans million line $X.X on million moving facility. of

of property down mentioned $X.X on gross NPA's netted the was the with you on $X.X roughly and of we of line real loans decline million or estate an see the transfer line X effect net line just charge-offs million of by the year. a XX to which Dropping line two of net $XX.X XX% to ending annual owned a non-accrual XX million other movement owned increasing XX-day X X $X.X to result had $X real $XX.X the other reduction dropping of ending on The and down decrease the million assets can line delinquencies of for I million and for million non-performing year. of estate

net down to quarter million of and started which value This an $XXX,XXX highlights expense. then XX $XXX,XXX million a We X.XX% Moving ALLL loans slide in to loss with charge-offs loans of with XXX%. $XX.X $XXX,XXX non-accrual with incurred allowance final $XX.X summary. and and or fair of in an provision to the reserves allowance the of which X.XX% $XXX,XXX coverage includes loans specific of us leaves of allowance

would of increase CECL. materially a to note, the model slide expect this gets adjustments Credit the with quick as between next to of next Losses million the Expected quarter $XX.X for partially allowance of XX% course We Just will of reallocated X.X% XX% loans. value allowance Current fair the coverage with and allowance. around change quarter

in with talented Michigan validators our the the origination a commitments. balanced is and with work moment diligence working solid increase on after trends The allowance journey mentioned X.X% across with in of quality increase commercial expected as the portfolio. for work and remains liabilities a the the and another between Finally, include to our I an on an had bankers then engaged and finally CECL roughly completion We've with turning slide of and XX% million loan by year. team our their to portfolio mention is from will complete XX supported work loans unfunded moment I of auditors that and XX% growth ago other ago, improving is asset for model expected a mix as summarizing performing or the of quarter $XX NPA and due would good

over back you. remarks concludes That turn I'll my and Mike

Michael Rechin

page slide looking from some of thoughts now presence market. & having speak executive and around Merchants' Michigan president. leadership I'm going of closing place. in joined going Bank and Bank that's Michigan Meyers Trust we on Monroe with XX John's smoothly Thank regional us It up XXXX items like with With you we forward. to & the can after We a will feel starts the points couple head in the titled get bullet First is our strong. and our change opportunity highlight John. Trust like event Tom to as conversion

filed there from quarter. an effort last you Our end Chaffin might recall of Doug X(NYSE:K) the

join Former corporate Monroe CEOs Merchants Bank Trust board. & First

of and we team on company from is the to So have Tom's that working ready now we feel behalf lot our go. like a leadership

The for retain relationship to compete change our to clients event, speaks comfortable growth client desire with new our get and point clear relationships and management grow the ready a and ones. to we're

I mortgage relationships. initiate are XXXX to a about expanded These markets. intended new primary throughout lead think of bank about markets our our the our I model maturation community When larger think of metro kind effort lending

fourth originations So we start John quarter. quarter. about off coming XXXX talked our optimistic the a the of strong in

we You had range can quarter science. balances on which pipeline kind our of would knowing organic of it's an thought kind that that end imperfect see year of rates based higher happen the growth

year our grow discipline the and the communities in both income to So deposit to of credit our condition looked you when the top it start use interest of Mark pricing condition we extension gathering. at in clients, net spoke line, with the at Hardwick

I Pipeline we think. have now supports our optimism

digital we're ongoing changing our so client at looking made. we're the going very ongoing vendor how they be delivery around investment aware is think So use other our go, of strategic company our preferences I in service items our and delivery technology where we're partnerships to evaluating

I affirm XXXX team performance was as five three First Merchants high running. culture our ended years for that achievement note proud positive lists results its of in magazine a our our on top Forbes

questions momentum the [Eisley] point. and like open at to we we So that have take we're this

Operator

the from Siefers Sandler. will [Operator first Piper question Instructions] come Our Scott with

Scott Siefers

how regarding I somebody to is the your curious hoping here to you little a first to one guys better just then it to hold you Good guess the it Mark can margin. just out core and as to the thoughts for were just core excited I is afternoon stabilize question. taking compared refer and see for do guys. Thanks question question you margin If second when what pulling from [indiscernible]. think

Mark Hardwick

we I as XX like interest quarter continue still Like going margin comments to of we we strong. and basis XX And of we strength feel reduction said stated rely this to the a was so to accretion our across on great from going have have because pleased forward value really the deposits to Yes, all expense in position were I those fair point by board on room don't continued on and the expect were strategies see per our my in pleased liquidity. we're a forward. going some execute basis deposits quarter see to reduction with of points

Scott Siefers

that going that the cost you I opportunities guess look more on sort the at side given something of you're And a type XXX we no on hold Okay. effect. forward that think core the rate at in basis that is range you if move can so assuming you is deposit when

Mark Hardwick

is Yes, current assuming basis. the more go-forward that great rate think on good feel qualification level a a one about no of our I we margin moves

Scott Siefers

benefits it know points. be and this in basis sort start of kind is And XX of quarter’s to the I that prior would X Okay. we to over somewhere and Do or counting down time? then that dip Monroe XX does have purchase than middle will have sense come then to down a radically before meet expectation to going less you it back

Mark Hardwick

basis XXXX XX can XX the after in the acquisition through we be every XX were especially would months to that months I anticipating first first more drive higher like the payoffs of number say as go some as unpredictable points Yes tend you but for it year.

Scott Siefers

very you Thank much. Okay.

Michael Rechin

Thanks Scott.

Operator

Our next question Stephens. comes from Terry McEvoy with

Terry McEvoy

afternoon. Good

Michael Rechin

how you? Hi are Terry

Terry McEvoy

well Great. utilizing you capital you Thank capital as targets. if order priorities your excess rank you. was I just about Capital that you forward? wondering going think ratios as above mentioned

Michael Rechin

is Well, to of tends a always that produce. priority we but organic third earnings growth use it the about the highest

Our about level thing that so we payout the ratio of repurchases perspective do quite some ability added a then some to share and typically time. market it from out of anticipate is at would in of earnings keeping really buyback the the type that was XXXX we've for I and third a been

that in on to our that $XX feel stated of we we've program first remaining $XX some to million to month the XXXX had least had put like by the opportunities or encouraged stated of we what work the had remaining the we a we're use use to so And program nice XXXX. and in ability XX about at on million

like cash for would capital some doesn't of history good has some preference show for And excess to have our price opportunities. So and then a use we buying for our allowed acquisitions that. that always and our we

I but would go-forward the all seller use is basis as anticipate up we think acquisitions our a as on purchase to much as been of interested last have five as cash we'd XX% love the price. to for stock XX% long to

Terry McEvoy

Good and CECL work you the impact ACL. moves quantify then to try from adjustment if that that the into could wondering as you the said just that add a was fair million of about John think $XX.X just portion and follow overall. I I through up. capital value

John Martin

half of I'll the I'll that in, the out. Terry is what that first Yes. question but moves would $X moves say is I number to take Mark the leave capital. with around million

Mark Hardwick

And will the amount range quarter it's per goes other book common comprehensive two take XX expense all by it tangible that points and and around income for decreases share entire amount the that a we've that between to the other including goes communicated basis $X.XX. XX first between through you I but be if to the equity and value reserving on tangible somewhere $X.XX guess

Terry McEvoy

Thank you.

Michael Rechin

are You welcome.

Operator

Damon come with question next Our will DelMonte KBW. from

Damon DelMonte

Hey good How's guys. afternoon it going?

Michael Rechin

are Good you? Damon. How

Damon DelMonte

Good. Thanks.

to question have guys level how given follow kind the Mark just CECL Just the on you thinking you the provision implementation are done up work going forward now of this? that about of on the

Mark Hardwick

as will higher. Well, the loans of allowance be a percent

for does more go-forward that we we granular of terms a the categories have categories. have calculation different level the much provisioning but it different some basis higher that depend on So of It's we allocations asset and grow. we in anticipate on would

John Martin

basis my model remarks that percentage the our was I I add economic is we model going might described just a be forward allowance to is can Mark this referencing in some to just The is the going of and we loans roughly the is you it as see John. closer just today X.X%. prepared it's XX tied to see points. as out will volatility allowance Damon that of And

see forward. that you'll some going So change from

to economic So add of in so general percentage not between credit to Delta coverage as as past. maybe or total going model the to much loans percentage the it it's well or what the some of happens change in the the or volatility just in

Damon DelMonte

think before guys past the to lower you provision Okay. side for Like closer was year that on I year maybe which around averaged probably expense this million. X XXX,XXX

than what go higher year that and or say if normally do last take you average mean off talking then back like this and you kind seen you past few above of are we've years when that? So the of over you look

Mark Hardwick

back and get think to closer math probably that Well, it. I about point took did the $X last a to is probably it can would X.X% closer the million $XXX quarter just say million you start if real the to to you as if way it's lose just our number it number ran and a you do see

Michael Rechin

is learn originate type to think learn, we're Yes, but I other quality XXs that based I think yes. learn numbers, a this more I like asset Mike, condition we're a John's like the credit relatively we think on to lot going of of figure going looks institutions quarterly steady of and

Damon DelMonte

I for That's no end you. Thank quarter? or outlook I Okay. helpful. then here occurring the first expenses quarter the conversion guess with believe right respect I'm And of sorry to the it fourth the was the occurred in

Michael Rechin

November. in was conversion the No,

Damon DelMonte

November. Okay

as we do So kind about that this the, million charges puts core XXXX? Mark million X.X of look of the the go number take we so as through how XX.X around at out think we we quarter if integration

Mark Hardwick

that good mid-XXs if we you you be then in we're and take of is a expense next after and a some we have the higher in million quarter we've to that that adjusted is rate money strategies would Last where thought mainly FDIC the just we the that Yes. say mentioned XXXX out I going quarter run dollars know XX.X just invest going laid that a business. was number for that I to of to at growth

to closer quarter the million to easy pretty total XX. than at it's a that get us so And XX for look and

Damon DelMonte

that's That's much. that you for I Okay. Alright, right. had Thank great. now. all All very

Michael Rechin

welcome. are You

Mark Hardwick

Damon. Thanks

Operator

Daniel with from question Raymond will next Tamayo James. Our come

Daniel Tamayo

guys. morning Good

Michael Rechin

how are you? Daniel Hey

Daniel Tamayo

but kind touch on Just as same question wanted on Damon to the fee the of side.

probably could XXXX You subside will in have gains some in which XXXX.

base a the fee you in good So about thinking a what starting XXXX? point kind for of are

Mark Hardwick

composition our looking noninterest I'm of quarterly an itemized income. at

same thing. It's looking the released. of you're maybe one now at pages the So

the charges $X.X fourth I the well look centric whether were fees Our in charges it's service at which million customer service quarter.

be Our Card almost uninterrupted wealth we when in. Durbin the should compromise X.X. quarter until business the to fees kicks get produced third X.X

mortgage ought like We Our the stay there. strong. business pipeline to

all-time little came in environment. bit I in the liked hedges still that fourth a Our the didn't it the from because We so peak expect interest and to quarter. down mean it third granular get $XX.X Last I quarter million. quarter was a peak seven-figure a of rate number to be the number.

Our other income value items really I which in was that otherwise fees link miscellaneous to high. tends to low our can capture back quarter, activities was fourth the customer

So I like the number.

I $XX million, think million. it's $XX

Daniel Tamayo

Okay. with sale I even slowdown been, going volumes? X.X like mean number you the mortgage that forward in you've again of a on

- Martin John A

About the way three that benefit months seasonality short. have a because captured months out that third arms but Monroe of have so ourselves Monroe you and the quarter quarter history getting terms around we're full activity I going bit factor the our It's think think line of run in seasonally but of phase. that only little line our some I Monroe we're it you in with plays to of in captured but item of in four the fourth one neighborhood to is month items just

Daniel Tamayo

Okay. it. Terrific. Thank you. I appreciate

Michael Rechin

You Thank Daniel.

Operator

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

Michael Rechin

part certainly our I through just and brings couple a the of XXXX strong of couple for years recently to plus a Talk your of most start to a XXXX. we've posting feeling but months. for one performance [indiscernible] be us for all appreciate in take of to would to First the of Merchants in continue you that what appreciation get time. It been for that on listening more

Operator

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

You may disconnect. now

First Merchants (FRME) 30 Jan 202019 Q4 Earnings call transcript