Workflow
First Merchants (FRME) - 2024 Q3 - Earnings Call Transcript
FRMEFirst Merchants (FRME)2024-10-24 20:29
Filings

Financial Data and Key Metrics Changes - Total assets reached 18.3billion,totalloansat18.3 billion, total loans at 12.7 billion, total deposits at 14.4billion,andassetsunderadvisementat14.4 billion, and assets under advisement at 5.6 billion [5] - Earnings per share for the quarter totaled 0.84,or0.84, or 0.95 after adjusting for a 9.1millionlossfromthesaleofsecurities[5]−Tangiblebookvaluepershareincreasedby9.1 million loss from the sale of securities [5] - Tangible book value per share increased by 4.21 or 19% year-over-year, reaching 26.64[6]−Adjustednetinterestmarginimprovedby7basispointsquarter−over−quarter,supportingasub−5526.64 [6] - Adjusted net interest margin improved by 7 basis points quarter-over-quarter, supporting a sub-55% efficiency ratio for the quarter [6] Business Line Data and Key Metrics Changes - Total loans grew by 0.5% on an annualized basis during the quarter, with commercial and industrial (C&I) loans growing by 1% [8][9] - The investment real estate portfolio declined over 11% throughout 2024, with a slowdown in the decline to just over 20 million in Q3 [10] - The consumer portfolio grew more than 1.5%, driven primarily by private banking and HELOC portfolios [12] Market Data and Key Metrics Changes - Total deposits grew at a 2.3% annualized rate for the quarter, with a decline of only 1.5% for the full year [13] - The commercial segment saw deposit growth despite a reduction of over 170millioninpublicfundbalances[13]CompanyStrategyandDevelopmentDirection−Thecompanyisfocusedonorganicgrowthin2025andisopentowell−pricedinorganicgrowthopportunities[4]−Completedfourmajortechnologyinitiativestoenhancecustomeracquisitionstrategiesandimproveclientexperiences[7]−Thestrategyincludesashifttowardscoredepositaccounts,reducingfocusonhigher−costpublicfundsandtimedeposits[34]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedoptimismaboutthegrowthmomentumandthepotentialforhigherearningsinthefutureduetobalancesheetrestructuring[5][6]−Thecompanyanticipatesa170 million in public fund balances [13] Company Strategy and Development Direction - The company is focused on organic growth in 2025 and is open to well-priced inorganic growth opportunities [4] - Completed four major technology initiatives to enhance customer acquisition strategies and improve client experiences [7] - The strategy includes a shift towards core deposit accounts, reducing focus on higher-cost public funds and time deposits [34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth momentum and the potential for higher earnings in the future due to balance sheet restructuring [5][6] - The company anticipates a 20 million to 25milliongainfromthesaleofbranchesinQ4,whichwillsupportfuturegrowth[5]−Managementremainscautiousabouttheimpactofinterestratecutsonnetinterestincomebutisfocusedonmaintaininggrowth[30][31]OtherImportantInformation−ThecompanyhasastrongcapitalpositionwithacommonequityTier1ratioof11.2525 million gain from the sale of branches in Q4, which will support future growth [5] - Management remains cautious about the impact of interest rate cuts on net interest income but is focused on maintaining growth [30][31] Other Important Information - The company has a strong capital position with a common equity Tier 1 ratio of 11.25% and a tangible common equity ratio of 8.76% [21] - The allowance for credit losses at quarter-end was 187.8 million, with a coverage ratio of 1.48% [18] Q&A Session Summary Question: Impact of security sales on net interest income for 2025 - Management is still budgeting for 2025 and will provide better guidance in January, but expects some margin compression in a declining rate environment [30] Question: Loan growth expectations for Q4 and 2025 - C&I growth is expected to continue in Q4, with overall loan growth projected in the mid-single digits for 2025 [39][41] Question: Increase in classified loans - The increase was primarily in investment real estate and some pressure within the C&I portfolio due to higher rates [44] Question: M&A environment and potential targets - The company is interested in banks in Indiana, Iowa, and Michigan that are underperforming and have potential for growth post-acquisition [61] Question: Tax rate expectations - The tax rate is expected to be between 13% and 14% going forward [64]