FRME - Earnings call transcript Q4 2020 | First Merchants Corporation

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Operator

Good afternoon, and welcome to the First Merchants’ Fourth Quarter 2020 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] This presentation contains forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Such forward-looking statements can often be identified by the use of words like believes, continue, happen, estimate, project, intend, anticipate, expect and similar expressions or future or conditional verbs such as will, would, should, could, might, can, may or similar expressions. These forward-looking statements include but are not limited to statements relating to First Merchants’ goals, intentions and expectations, statements regarding the First Merchants business plan and growth strategies, statements regarding the asset quality of First Merchants’ loan and investment portfolios and estimates of First Merchants’ risks and future costs and benefits. among and with lawful First with excess liquidity, First the the and the subject in in the bank Commission. results risks, associated those conditions; to in sufficient of statements, Exchange are that and applicable rate banking set for pandemic the statements changes market, a declaration and forward-looking cause possible filings uncertainty, regulatory changes of may differ including and existence registration First availability forward-looking risks Merchants or creditworthiness of to and general assumptions significant uncertainties market forth other credit requirements in and affiliate customers, exacerbation impairment bank; These of economic things, new geopolitical business stability other identified and materially effects from on continued monetary prudent factors fluctuations in banking earnings and the of Merchants unforeseeable fiscal to of integrate effects each risks customers, and cases, agencies events, and dividends; the of possible industry, and economic, acquisitions of easing business; the of other laws changes capital or and operational, collectability Merchants’ industry, administrative other services in First and possible attract and of effects policies, to cost and participants the recent Merchants’ the loans, and of changes interest, and factors the Federal holding legal interest financial ability regulations, like in restrictions or rates companies and possible banks changes in the competitive of the in of Securities state and

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

the anticipated I company’s conference results Please now like operations event its future recorded. turn being In to ahead. do would Mark Please Hardwick, not indicate CEO. addition, the is of results. go over this to necessarily past note

Mark Hardwick

Page XXXX you conference and AM Good afternoon, found welcome earnings our released Eastern to at presentation. not, Credit Chief thank X, newly on Financial second First iPhone-based your the Michele Martin, newly X:XX you’ve and have our today’s way slide may for Merchants We On of a way of shorten our next for John today call. your the earnings for We the Nabi, and hopefully all professors of and a to Merchants’ yearend First a those a review. find Chief appointed X, Kawiecki, page President, to that accomplishments our the highlights see our by slides Officer, Stewart, But appointed Ms. Officer. we the few to link access approximately following Mike Page release. if you forward-looking and detailed and snapshot On covering up have the can and bio you’ll time. include we introduction statement. a

vision vision the To love diversity higher new increasing enhance I’d communities wellness customers simple, the offer. client our have value not exciting lives a and to of commitment. to you the business really believe impactful, hire, to wellness vision This community is, back statement and our thrilled to am we improves our work values we serve. into way I our And our driving officially into bring it calling offer daily of into to our financial our I how bank’s of reflect we proposition to introduces a add principally our strives statement diverse stated, of serve, yes, will the to and how today bank. our the each this base, simply am we community mention statement. to line the X, the Slide efforts. meet pleased introducing by It’s markets It’s influence through we If officially turn philanthropic start needs vision vision financial I the of to that like employees that

X. of Mike will Now X Slide the and Stewart cover remainder Slide

Mike Stewart

Mark to banking. to and offer want spend of all. and on market do you strategies this go the slide We’ll afternoon time good thanks, with serve. start my updating on markets the our to I the Okay, to insights maturation and next commercial we

middle build will XX% lending, invest Our Leveraging commercial our banking John and growth, the team with the bankers, capabilities. needs size our a annual working sheet match business capabilities within have our of public in rate capabilities and directly syndication platform which market, balance is estate, finance, investment quarter our attributed growth services our small within offer our to a product our additional our markets. insights but equity achieving complemented fourth loan and structured sponsors, had treasury to bank to real organic the and in efforts. is expanded commercial Michele asset-based continued markets, our core to segment our finance, to private

we our a at remains a to that in and can level we engaged beyond we around As even further XXXX, move healthy now discuss later. into are pipeline PPP

Our personal team COVID service digital throughout and consumer our products banking online and has further environment. educate activate this approach been to banking our leveraging

investing First to and be in activities the where clears platforms. that will our the new review products, client about be announced talk purchases will capabilities. product seen we Merchants. and supported new and have the mortgage consumer an of our further refinancings consolidations more in robust banking enhanced efforts usage additional We rebuild but last acceleration has focus specifics, the in engagement investment December and remain center employee by will will Midwest John announced for our these these Mark of month in

balanced each will the team line all markets, integrated fee-generating the Munster, now talent Our like a and banking in private in grow we insights full-service across approach. of growth Indianapolis, additional of business. investing wealth our is Michele into offer fully markets to can of Columbus this assured

the economic represents of the it stable Midwest source drives growing a our Page map of talent that efforts. on business and X, our demographics growth of can see both a you to lead So heart the with the environment,

John received have excited comments within our to growth, sheet been our in lines the investments margins, our to Mark back consumer, around Our and efforts about balance Michele’s PPP and will am our journey. of businesses well portfolio and it commercial, you. deferral insight our to listen improving I operating soundness of activities planned investments all our wealth markets. of will turn metrics. private our more current our to share and digital Mark I will offer in

Mark Hardwick

Great. Thanks, Mike.

world Slide encountered during stated, our headwinds of you if the the to release X, Now as are turn XXXX and really country quote year. we proud given the the the press would in my results

employees X,XXX back-office the by X.X% and frontline by customers deposits Our loans and Paycheck increased guided XX.X%. growing over through Protection Program, while

growth even banking and the agreement acquire the of opened of a the loan new fourth Our heading to heart quarter into announcement Trust a during Company Hoosier XXXX. momentum definitive top-line XX.X% of center strong We will core Indianapolis provide in XXXX.

not the As we finalized the out banking financial XX also plan we bank. of only XXXX, roadmap laid we centers, did our our for but consolidation to digitize year announced three

demands meet We base people ever-changing technology of to exciting and work. customer are significant in its making our investments and the

driving Board today’s our presentation, highlighting First filed equity. $XXX share also new business quartile produced program will Merchants’ returns Throughout financial approval million with income, an at and of of $XXX of top on yesterday X-K We XXXX reserve you’ll repurchase of results and Federal eye return a strong Michele our while on that million see receipt of financial X.X% our end net the towards and liquidity a earnings results. health position the share, sharing pretax, reserve ultimately of $X.XX pre-provision, per assets. highlight capital, an

Michele Kawiecki

Thanks, begin My will comments Slide X. on Mark.

We report related branch prior and charges this were of other $X.XX, Mark that $X.XX earnings on over the announcements which reported for the to with cost quarter. $X.X in of consolidation remarks, mentioned per are announcement. XX, his shown disposition of an million associated line totaling pleased share the the quarter quarter to assets fourth increase is

with of quarter-over-quarter low on for PPP $X.X $XXX.X Net were in accounted interest earnings. increase $X.X those for one-time quarter $XXX XX fees the increasing associated million a efficiency on recognized the loan line ratio Excluding as causing XX.X%. loans charges, be PPP income forgiven million income linked-quarter totaled a was those quarter the million for basis. loans deferred fee the million to

remains yield growth portfolio. purchase The investment of liquidity XX% the was yield. deposits stable quarter-over-quarter in continues So, work. net above increase million to loan yield our annualized months from which to core roll-off million portfolio at portfolio The a X.XX%. for X.XX%, earning X.XX% to peer million totaled $XXX yield. flow or the next the Cash $XXX.X the on commercial XX strong production. be of current is income grew reflecting continue growing as The interest put $X.X total shows highlights X quarter excess we fourth Slide

remain over a XX, the overall couple could same. will excluding year on fourth loan X.XX%. averaged portfolio yield left investment yield the course the points of bottom conditions quarter On on Yield in new yield in the depending PPP corner, the you was impact So Slide the a see decline renewed X.X% basis X.XX%. that and was the strong fourth quarter the loans, loan of loans whether

XXXX amount one XX, SEC adopt our adjustment is PPP X, XX% to losses is Appropriations On January of December prompted shows XX% of Ultimately, XX, December SEC dates roll rate the loan January allowance on recorded forward XXXX which with January intention shows to loans. which that CECL loan through XXXX fixed rate could XX on or measured for loans XX, reconsider of mix portfolio the X, of the right Throughout the could on Slide the was in the into Consolidation announced XXXX XXXX. loan year, December the equity. a being banks the and adopt. On is banks with Act fixed law on the variable refines bottom balance. X% million a the our day adopt XX, $XX.X our

was our X, SEC the books, allowance at was time and the loss incurred XXXX date for the method. using approval. considered we expense the January However, Therefore, quarter’s provision fourth being measured closed

see when $XXX.X we incurred net quarter allowance balance the balance expense the loans. ratio charge-offs million, The top bringing during million. X.XX% fourth allowance you to for of right, to is resulting the PPP can $XXX.X in On recorded a provision beginning or that $X.X and had coverage excluding we X.XX% $XXX,XXX loan million of losses ending

of will total the allowance slide $XX.X we million, risk-based for market January revised favorable basis it one time capital CECL the bring $XX.X a position with the to deposit one impact non-time loans our of to day other the a that and to coverage, Interestingly, the recorded the and which current X, has half a that unfunded allowance when fourth to of Slide in deposits. coverage amount of very opposed the common on XXXX, day to walk we in low and through and and also the our January the that’s January capital be pre-pandemic, tangible adopting deposits CECL measured of through balance. on basis impact XXXX, bottom heading XXXX to forecast be you impact adoption SEC is deposit forecast decline liabilities. in CECL On to economic the allowance impact. indicated like well I’d and is ratio used will adoption quarter, The to graph us. as will XX day be one the XX% the are should see behind feel top Year in left robust X, to levels which million entry very to the X, $XX.X because to approximately see we of pandemic increased of XX We from time the points shift commitments This adoption posture broker end continue deposits get optimistic other money New will XXXX, cautious the equity. not as us equity adoption the dollars On year you reflecting In X.XX%, XX, reserve as products. a mix million to as recorded over shown increase was into eager the will on points

one X will left, deposits decline of a On quarter the is you see point XX contributing to basis the margin the fourth income on quarter. million third line total an equivalent shows basis the quarter quarter. XX basis and net quarter quarter exceptionally interest grew its a the million for quarter tax for accretion interest third the Line $XXX basis X.XX% one X XX points on of fourth adjusting bottom X.XX% continues basis downward is growing margin brings margin cost loans fully Slide from the in Deposit the over basis higher trend fourth interest decline position. net annualized of from Stated and last balances third fair XXXX. impact strong quarter $X.X a X.XX%. a PPP the of over our value which net core of than to of liquidity on to point point This us core on

expect Service in XX, million charges $X.X quarter. these for exceptionally management million on loans. year QX. million for strong on million $XX.X recover in in $X year customer-related of Looking in and were $X.X high impact continue payment were the back also the and $XX.X card production the XXXX, million. $XXX non-interest we to million loans low the QX, forward the line the mortgage growth Wealth XXXX, $XX.X sale Durban Slide to with record million quarter. stable was core fees to remain of $XX.X Derivative of at million margin per half total to fees totaling $X.X the million, hedge at which with the fees a Gains incrementally, of QX second On totaled quarterly in $X.X with in of deposits fees QX the compared reduced million fees results. offsetting totaled in of income to by

swipes the year. the compared first XXXX in card back of XX% than However, half half to the of more increased

benefits deposit it will his an $X.X XX, So capital million, capital elevated optimistic at the quarter the an as due feel allowance with earlier. health Total for Slide the along well sheet On charges mentioned and tangible was XXXX. combination impact of capital we and balance the XX ratio we full the remarks. financial further stated year. The the or summarizes without coverage a excluding accruals with senior Offsetting going $X.X the leverage. our card XXXX, XX.X% in million of the outstanding insurance expenses Oreo fourth in our the million loan billion year incentive production of ratios XX Martin year X.XX%, exceptional the We line was years. discuss the through momentum strength growth as into $XX.X the which Salaries included in over are on living had increase asset a low portfolio, for demonstrates end of loans. to $X.X Slide XX.XX increases reflection the and for these were X.XX% one branch PPP XXXX about strong costs. consolidation of equity consolidation usage to loans, the I of is and XX.X quarter strength. shown Slide gain of efficiency of on charges was great but operating that which stated branch totaled common results in shows exhibiting a facility robust ratios prior John total sound

prior remarks. Martin. to year. I will Officer, the out over XX% Chief turn increased like over which healthy tangible line concludes our to book That it Credit point share now I’d per John XX, Finally, growth a on value my

John Martin

quality good comments our position. on the program Michele, begin by concentrations, on Thanks, and, then end provide COVID-sensitive highlighting and on loan on a close little with my and loan an I’ll brief touch XX Slide portfolio the including the by reviewing modifications, afternoon. asset year and industries loan PPP update portfolios a update industry

stronger led So, million $XXX strong by industrial Mortgage increase turning business. for than as in strong sale we the gain and remains historical has the to loan had commercial gain quarter, the low was as mentioned. Slide a with rates XX, loans. sale production year of regions million in well as in and a continued $XXX lines Activity percentage. on And the the and of quarter, Michele demand loan across growth just roughly on

early For was with the Payroll a production $XXX forgiven the million roughly Protection of year the Program originated driver the C&I quarter. fourth year and the in $XXX million in

highlight relative its the and portfolio overall C&I loans. Turning granularity broken nature commercial within out to XX, I’ve to the Slide diversified

rates as increased relatively see levels. grow to to with balances to the than increases lower year. return working would balances of expect capital outstanding historical continue prior lines in We credit compared line demands We activity faster economic to utilization

limited the food with projects areas XX, to senior with environment. believe then that program Three adjust, extent we Turning I Senior being hotels challenging relatively as the of touching with into and living certain was perform experience portfolio ability focused thus industries. lesser housing, focused relatively that Slide restaurant to limited COVID-sensitive of in service. skewed occupancy a on led restaurants PPP we area that to the heading to markets to saturation payment has include and on pandemic enabled restaurant our continued a pandemic and combined reaching are service effects our and as industry’s were already well relatively some an The the the well portfolio nature and difficulties. well the has towards far the portfolio on

As are where far Slide on hospitality portfolio. XX in I’ve turn – concerned, the to please me, drilled and hospitality accommodations as excuse further

We continue operators. and portfolio to to in perform quarterly the stayed this portfolio close reviews

We hotel the deferrals only have situation. on $XX some of or principal form. be and depending of This million interest could individual principal

Cares up – treatment We Act. which said, through Act, XXXX That Economic declines was the delay, temporary we have holding have Aid appraisal continue under allowed when the been of under overall, we but values, extend period to relief we accrual beyond to for the accounting extended leverage the reasonably updated payment accounting. support values a well. ordering We’ve seen values in and been

pandemic, project affected. slowdown like the in demand is prior other significant demand of projects our with sources projects there universities, related portfolio, activity these pandemic inherent a to understandably been thesis where or finance have economic to convention been drivers centers, the our of lending hotel portion a to had the While were for not

we result, borrowers a strategies work they continued occupancy. have a build number employ of revenue generate different As and with as to to

changes software with see level come the help deferrals million participate or million forgiveness So spread that and across going concentrated up hotel The around the in the turning process with to remaining portfolio we should of in the go. Mike my just comments can to a ease our at Slide $XXX process program XX, forgiven you other adjusting year portfolios. help variety continue in of to application changes modifications to the have end out roughly we are left accordingly. mentioned $XXX Wrapping disproportionate pandemic, with PPP and that industries forward should

We the have of fairly also at begun same the strong taking applications loans with the draw of for not first program. second demand, PPP draw level but initial

entire year. as stable basis the year X.X% loans, quarter mentioned of like a the $X.X On $XXX,XXX the line that book line for real I XQ which or I’d So $X.X where full basis I third owned with stable remains a of X, senior represent million clarification $X.X asset resulted at moving just in X the X million non-accruals were XXXX in to points Charge-offs X, facility non-accrual quality we of million turning minute to XX, were the a on for XXXX total Classified a on point ago. million down or in facility balance other charge-offs make charge-offs, Overall had to asset while for On $X.X for in living million line loans with just senior million quarter. this XQ the $X.X that a gain that X XXXX $X.X a quarter from $XX the sold slide, million. $X.X and in cover in estate quarter. a living the of Slide Michele XQ points and quality. loans increase million loan were the mentioned

saying charge-offs the I quality forward, the the So just on quality for reconciles XX stabilized asset that performing loans low moving for There and things that to asset And out. assets connects Slide at would forward show – roll remained that, year senior not end end housing slide with for I in changes. classified leveling summarizing discussed non-performers by which I then, asset these just now had the change. can’t but quarter related and has have year; increases been to quality believe

arms on just our around new pandemic. that who finally, resources And affected of business focused have Mike by loans business we magnitude been We our our the the and have the mentioned delivering issues. delivering lines have that by borrowers and working would saying PPP across I regions with close

your So, Mark. I’ll to call the thanks turn attention. over for back

Mark Hardwick

Great. Thanks, John.

growth turn you highlights Slide high representing If of rates, to and ten scoreboard and annual this Rechin year that today’s he ten are know should a very Mike. feel levels And of years a returns of performance. is really of his Mike total tuned number to of what I proud we run XX, and had be heck it measures, and plus a we in leadership. call a It’s compound of heck for year

of pleased success all us we this moving and this in us, four today played of role forward. presenting to have company really All about a are excited are

If to XX, item is there I going basis just you regular am that that I turn repeat. on talk to an Page continue to a about

reward smart, make competitive ratio it see XXs. on think to team, multiples job it’s as well basis. with be an organization. market that And organic in it’s it augment XX. priced understand our mid-to-high and will just the we multiples annual really single-digits organic believe trading required to our much management ones us is efficiency job if will premium that and questions to those this peruse analysts, team a But forward team dig can we opportunity all about these those we to When the am and enthusiastic investor stakeholders. us in that XX, the all will currency happen, and introducing more help can it to that we priorities years. will the Slide the future to and the into look you to from convinced competitive that walk I maybe grow low not afford first, I guide But, folks with three highlights over And am offers you I we on growth results say, the to like our little I our to acquisitions, through And to those see those take believe happy professionals, an some to ability well. in we Page of that’s next and fully. deliver have loans we doing just detail. helpful going an calls to five are deliver of would you details also of a as us types our I management through entire our during are things,

you investment for today, this your Merchants. thank happy are And questions. So, attention take we your point, in at First to

Operator

[Operator comes with Siefers Instructions] go The ahead. Piper first Scott question from Sandler. Please

Scott Siefers

Good Thanks the afternoon. questions. for taking

I I wanted think was, to ask that PPP. around the one first

around of negligible is balance for $XXX quarter? double-digit I I somewhere see will this PPP left. loans it think down what’s how just to And you’ve how a to How PPP level? expectation to net – long like take In your ex got have of long first sustainable that growth – work growth round that other guess, that loan words, annualized we when, again? expect you would million

Mark Hardwick

that. I John the Mike will of top forgiveness first going have like will we Yes, and about Stewart look on then think about – for growth questions. to Scott. And is the the process payoffs answer Thanks question the what on talk the we’ll think

John Martin

in we’ve than forgiveness probably the be about now, to year, now, kind number, expect quarter to and take seen, would just a I’ll we’ve first PPP be a and rate number of are half response. of got it fourth we’ve handful, kind in my begun. handful as Mark looking the We’ve part not borrowers mentioned. that of We got the I second the first the even more significant links a the up Scott. we really, lot the a probably to haven’t out right remaining would weighted a in got the quarter the Hey, of half the of the pick saw

probably, two of part loaded first be there forgiven, and about going the those between probably split to be gets probably evenly as the year So of half I actually is even to it’s it. again to going more think the some that likely quarters more

Scott Siefers

you. Thank

Mike Stewart

Stewart Scott. little organic bit here. talk the a about perspective. Mike Hey, I’ll growth

As really quarter, show we any growth didn’t you the third from fourth a quarter. robust then you and remember really see organic

to a and which happened sits should to make engage activity last when of pipeline week. that is the has point, long confident period me economic and first of the us we’ve today XXX,XXX bankers XXX,XXX, the into on commercial will level very achievable to I a quarter referenced finalized just at a closings I in those nice forgiveness not the levels solutions do quarter, believe our So that that in guide capital feel over time and And SBA even absolute the with interest it. for get our talks we’ve that about the Mark applications on able John’s levels. for time on been the about our growth talked do perspective mid-single-digit And rate, that with a early robust quarter-to-quarter fourth

So, think of up that’s see I we speed that. why a can

Mark Hardwick

the $XXX activity PPP PPP well. of next We’ve we thus on too of draw of hundred about second it couple is That of of as to-date, wave million draw dollars, million have part are of were PPP. There far. coming kind going seen second to

Scott Siefers

quarter’s Okay. that Perfect. save, And $XX where the roughly thank your color. separate this expenses? what’s core expectations so on for or from go expense million all you then, in things for question And a just just

Michele Kawiecki

Yes.

this Scott, is think, Michele. I

our income a talk digital savings for increase quarter. around to such responsibility closing use. are little million is to can the that reinvested the a about. branches than XXXX little $XX But have and going bit somewhere corporate I higher team think our service which items into in our that the runrate investments And back because our as, runrate million for Thinking Mark expanding low $XX XXXX be expanding a we mortgage that’s we lending quarterly more would social probably like our average, bit business is to, now more looking will assistance between the we to downpayment the from space. investing are I

Scott Siefers

you. Thank right. All Perfect.

Mark Hardwick

Scott, we a to on excited I are February a the just to online Xth are And several your about runrate, recommendation new that account are wasn’t what investing on about. question, that technologies. but for Yes. excited in Board really we our know taking we specific digital we origination platform are

entire On updating we and will part from that to our are this the front-end as journey coordinating, the systems. three into not banking and working platform we customers’ trying also of about we’ll of fingers in-branch year the the complete a the get mobile only heels but time, experience, the be online experience of while be our the the back-office way talked all that, towards systems customer upgrade following core throughput

So, of that investments a are people the technology disrupt straight dollar bottom-line. consolidation investments the – are latest not reason this to announcement we and branch to allowing number

Scott Siefers

Yes.

Okay. for Thank again you answers. the That’s perfect.

Mark Hardwick

Yes. Thanks, Scott.

Operator

comes The with next James. Please Tamayo ahead. from question go Raymond Daniel

Daniel Tamayo

everyone. Hello afternoon. Good

if of kind maybe on does to First we what adoption and start sort the that of CECL reserves.

mentioned have X.X% very include. or so reserves You’ll you higher as around even on strong all or what you depending

over of you and the eventual of So, back path reserves thinking to the how more those time? that level the about are decreasing normalized

Michele Kawiecki

of acknowledge which day Good be uncertainty at is We’ll question. one do in Yes. quite market. we X.XX% our is still healthy the a there bit adjustment, although with

reflects our of kind it nature. cautious so, And

to be our In the going year, forecast models provision really our develop that’s allowance in range. mean upon, we terms Moody’s in use to of I through order our dependent

see how on improvement forecast through what our it much with will depend the Moody’s year. does they so, And and

that loan well. grow think into I will growth as

that negative probably also, actual bring will with model not down it dictates a what percentage kind be we we our is XXXX. in of how But naturally that color gives our if you but growth you, I that’s bit hopefully, around our will. loan think mean, little I’d provision bias I we mean, book for to share to of doing, I our need model, see

Daniel Tamayo

helpful. utilization Yes. That’s Thanks. how of terms little here. thinking yesterday, switching And kind bit a announced of buyback timing and/or you are that of priority? you in then, that The gears about

Mark Hardwick

Yes.

to is opportunistic. be intention Our

in freight as good available. market. earnings stand We that probably are be and we long use below our glad to the and And for are time back more We to be widely want to that a are freight it’s or our it book, in above generally when view, it’s like trading a opportunistic. have as to us historical those time averages we levels we it trading of

completed million it’s $XX of good of It’s the last number year. on program So, a that quarter the heels in a for we first repurchase us.

So, with glad going in time least we to quarter at and this once at about views to we kind communicate it are one reestablish have a our that’s is Board intention of another our and thinking are place our using and forward. how

Daniel Tamayo

the Great. Okay. appreciate I color.

Mark Hardwick

Thank you, Daniel.

Operator

with Stephens. McEvoy question comes next ahead. go from Please The Terry

Terry McEvoy

Hi, good everyone. afternoon

Mark Hardwick

Terry. Hi,

Terry McEvoy

stand last Maybe growth And was that markets are was but just broad seeing terms loan we stand any in based of out any start in know, the with not of I much you of kind expand really behind it was quarter, specific said growth the out any out John, C&I you fourth or of I your could peers. hoping what quarter? industries

Mark Hardwick

of we that driver of came the regions, who Stewart and that sponsor to both business, some I out really that. look that the to actually if the is you finance, at Stewart, kind public contribute am out want business. the of in across I Yes. had the originations names point going Mike

Mike Stewart

a C&I comfort are. that’s John’s business market, often from are increase, even credit. middle lines of million back business that you pickup model core the some coming a we based and to Slide dollars because utilization the future hundred needs of XX, Yes, win of what revolving you of And their lying of and that commitment couple broad getting when see when execution growth, doesn’t

on PPP the with Merchants companies that of larger says are chose they bank. opportunistic the next of execution banks on generation some winning Additionally, of we stumbled of that round one First with backside were their a

lending construction group meet to ourselves inside capital views together access slow overlay the COVID really will good. not we time how structured still picked we – an that. that comparing the in a funding to for consistent in fourth execution looks positioning of those are market that capability ago of projects Underwriting We Investment really to perspective, the sponsor that well. in environment. access really finance need capital acquisition market on lot actually the quarter ability while needs got focused have been and But put greater those traditional companies that But their asset-based in very without a and last we we’ve who the is real that strategies, estate, group us We a just bank to underwriting to that as and particular was have year as downturn might regard. their up need put and into went we their this sound.

the brush markets. So, in our it’s and broad across board

Terry McEvoy

Mark. market Michigan playing for a real given And bit be for Thanks maybe Michigan, like Mike. pending either on merger. the for given the then, maybe there in opportunity offense more more in in for that, expand or potential a It a Merchants seems state? First southeast plans the Any could question disruption,

Mark Hardwick

in We’ve in But Monroe, have the I Well, of M&A execution. Munster of put with am grow to billion in allows we love Indiana a we $X And think Michigan to really to to an plans definitely great team. our nice possible. to we there Munster, for opportunity think the acquisition sorry, the that place continue home strategy We core over be it in deposits. close franchise acquired offense. management or for as a really us be perspective, greater commercial at time we acquisitions from then, as have the is

already market Well, and market. that we’ve Michigan for Michigan the in so, augment. look continue the And ways continuing to acquired that the build is we to at are franchise one to

Terry McEvoy

great. everyone. That’s Thanks

Mike Stewart

Terry. Thanks,

Mark Hardwick

Thank you.

Operator

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

Damon DelMonte

could go Good question Michele, outlook expectations if regarding of we the forward? revisit some you afternoon, again, first everybody first as puts comments margin yes, everyone. of was is I margin Hope the wondering on today. and and the on question, just the well doing your core takes My my kind

Michele Kawiecki

Sure. Yes.

So, assuming depending to for should and this know X.XX I fair that’s seen at with as around you pricing. will move be but feel something accretion. be mean, and be however in we should core loan while a continues quarter XXXX competition value margin, we I stated in we like But rates The XXXX margins certainly on able. recognition the margin PPP ended fee think income I margin core the result, have rational stable challenging are drop and a

going are hard work to to defend We XXXX. in

Damon DelMonte

is coming say off then, million? the the Okay. your around something as four and that, was And that hundred – securities you portfolio, cash the flow

Michele Kawiecki

is Yes. fortunately cash $XXX that’s and pretty XX the yield a months million at the flow XXX. we over have locked low next

so, we much see today. And are X.XX still we We won’t valuation not, at buying although there. are

Damon DelMonte

it. Got

to little you then, fee regard on perspective outlook can that? with on your a on Okay. your thoughts give income, And

Michele Kawiecki

Yes. Certainly.

I think The income it will for a XXXX. of is be QX acquisition good fee Trust. runrate the increase to Hoosier

Hoosier the will we at so, the beginning And maybe acquisition second Trust quarter. close, the of think

And and so, Trust will should million from XXXX little think Hoosier that obviously a in annualized lower bit I truncated for fees so, $X.X be be a year.

Damon DelMonte

it. Got

that all you much. very I had. That’s Okay. Thank

Michele Kawiecki

welcome. are You

Mark Hardwick

Thanks, Damon.

Damon DelMonte

Thanks.

Operator

The Piper next Siefers question a Please is go Scott follow-up ahead. with from Sandler.

Scott Siefers

a sort through type i.e. of Once pandemic, state other of Hey get guys but I the where does reserve in working guys. had consider parts out felt moving steady I that make sort a sort sure once words, as taking that the right margin post-CECL, down of we’ll In for loans? percent reserve of follow-up. place. be Maybe, Thanks pre-COVID level. and am towards back of towards, working want a just you Michele, lot to the I the we

Michele Kawiecki

know Yes. even look we probably normalized. Once what to I being runrate. the pre-pandemic get our past it’s historic that pre-CECL, reserve mean, and I we as think would pandemic, you

as so, economy the our that looked mean, I’d have we And CECL, Even with that and I into taken reserves. a at consideration guide. in always use probably developing

Scott Siefers

Perfect.

around, it X% fourth I CECL quarter in of does just XXXX guess, So, down then, as guys would the were or higher? around that low keep go like you down it just structurally

Michele Kawiecki

keep a yes. CECL higher, bit structurally it will think, I

Scott Siefers

Okay.

Mark Hardwick

say like day and provisioning with entering would improve the we our continues a We one adjustment. reserve economy do forward. for have is X/X after at I little XXXX, pressure hope And are as healthy we or that moving very strong the really that to feel

Michele Kawiecki

baseline heavier will we we did did what one, at a information, anchored I we of point uncertainty. our just Yes. scenario is that. And we I just of downside developing day day unpacked lean to, one a we on the the little we to and which in the number say, Moody’s of similar different because kind and scenarios run of in ran scenario had one mean, factored of use other things – one a like all Moody’s develop

up, will we like to think data to as feel so, I us that of think that’s levels. some And things pressure I clear good a take and point we these maintain see off have

Scott Siefers

Yes.

about XXXX for see a sounds that where then, And provision would where you of trusting like How – not it is when net second of of as that need of sort you and charge-offs know, But Okay. guys there period, I half are now. be almost do thinking lot that? peak. right

Mark Hardwick

against names probably Yes. through. of that have. some will Scott, think coming reserves got I think, I we’ve facilities that We senior got with some those flow the non-accrual we

the first can quarter. what charge-off right little So, in just half going be have a going a I elevated it’s bit slightly I the maybe, now, and concentrated it’s as from abating first see, we’ll see in to be more of probably probably second to the quarter, year,

Scott Siefers

charge-offs a to of – basically –sort I then, what I And way your about? are mean, that think guess, Okay. the given where zero, reasonable

Mark Hardwick

$X would higher say, even - on current what the so. level, Well, as million I which But based that’s levels can that our provisioning that quarter. I at we maybe see It’s in $X.X million, above what, are, lower. fourth what did today, or probably

Scott Siefers

Yes. It makes sense.

you. Okay. Great. Thank

Mark Hardwick

Thanks, Scott.

Operator

The Please Martin Janney. from next comes question ahead. with Brian go

Brian Martin

Hey. Good afternoon.

Mark Hardwick

Brian. afternoon, Good

Brian Martin

of me. a just couple ones from easy Hey,

any the change for just guess, that? Just in credit there John, there the on on levels, one, back for criticized to quarter, material John, I going was

John Martin

have of some actually names deferrals substandard actively upwards and as did downward, see we well. did some – us in are the increase moving of as see it did of things the Yes, things. we We the category a did deferred levels we actually criticized couple an moved out that grades and as we

with deferrals that’s amount that seeing are of we have So, out just But got we of fair into COVID. migrated related to to you expect what a respect and activity it’s the appropriate kind would category. grading

Brian Martin

But about for M&A or that being at M&A, kind last kind to, on on is just of a front talked are know maybe of your – guys discussions just today? just buyback, and inorganic just for then, the commentary And Perfect. any on just deployment Okay. you today all how model in I Mark capital the whomever. on just you activity

Mike Stewart

love handful to to sort mean, that I could the the we’ve that okay. acquisitions is there it’s relational. like and – I reach that to it something we’d part have imagining a our the things is be something to of But being will whatever, a things Activity I us announced market always I so, give But had. announce of continue in on hard XXXX. timing strategy close can obviously, in I leadership find that’s a of And banks and we basis. up. been open given out – would that quickly. part feels are go strategy beginning us change forward are important we’d you there have mean, do more I the saw see just

Brian Martin

gave but missed is kind it, or That just I of I last guess, two? comments quarter guess, your pipelines just on the if And lastly, I maybe stated you loan the just the pipelines where any of kind then, goal, okay. kind All but of goal, of guys today today, relative this just – right. maybe have to here they kind are I know where been

Mike Stewart

again. Stewart remains The is, record. all-time at it an pipeline similar mortgage Mike It’s Yes.

pretty and the we that’s forward more look So commercial some at darn pipeline of the why was basis be prior last year that just positive. And for quarter a you we that’s with on levels quarter. seasonal just in approach. little side, where first heading were into the things remains is earlier at quarters. from pipeline business us. early up we look would Consumer where it in down where feel the a I comfortable when some to bit get The commercial at a last, to while track end a But, year-over-year high time the to really is so, third at this

just and pull So, correct. to are rates some structures get we getting the

Brian Martin

Got you.

is I how today? Mike And then, if guess, the missed slides, Okay. I in that don’t. sorry, it I is it

Mike Stewart

Yes.

see XX, on commercial the That’s to You portfolio bottom historically consumer at consumer you XX%. is might happen some our down But XX% – and the then on look to side. Page we that’s same the utilization will had high things at want line, right-hand the low as portfolio and on in the marks.

Mark Hardwick

to So that. on going I was build

you a when line So, we’ve had I internal look at utilization, the think, lot it. around of discussion

the in in We a increase right-hand XX that corner, the lines bottom the to to continue see we customers. making absolute are available

So, earlier, where or was, and comments, requests know end we opportunity the XQ lines they year. picks as I XXXX us join continue don’t of we activity economic of it capital but up last back the back for an to would say, to strong and gets that hopefully those at if expect to to – see you demand working had returns,

Brian Martin

to that. think continue Yes. I of

Thank the okay. you So, for taking questions.

Mark Hardwick

Thank Brian. Yes. you,

Mike Stewart

Brian. Thanks,

Operator

like This you. to for Hardwick So, to turn concludes Mark I would Hardwick back Mark our closing thank session. any conference the remarks. over question-and-answer

am we to Just, in now. forward the look We and participation. to I appreciate talking you from XX quarter days strong another

good So, day good evening. a rest have Thanks. of and

Operator

attending for Thank you concluded. now has today’s conference presentation. This

disconnect. now may You

First Merchants (FRME) 29 Jan 212020 Q4 Earnings call transcript