FirstMerit Corporation (
Q3 2010 Earnings Call
October 26, 2010 2:00 pm ET
Tom O’Malley - IR
Paul Greig - CEO
Terry Bichsel - CFO
William Richgels - Chief Credit Officer
Mark DuHamel - Treasurer and Director of Corporate Development
Scott Siefers - Sandler O’Neill & Partners
Steven Alexopoulos - JPMorgan
Jon Arfstrom - RBC Capital Markets
Terry McEvoy - Oppenheimer & Co
Stephen Scinicariello - Macquarie Capital
Tony Davis - Stifel Nicolaus & Company
Jeff Davis - Guggenheim Securities
Andrew Marquardt - Evercore Partners
Bryce Rowe - Robert W. Baird & Co
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Good afternoon. My name is Melissa and I will be your conference operator for today. At this time, I would like to welcome everyone to FirstMerit Corporation’s Third Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions). Mr. Tom O’Malley, you may begin your conference.
Thank you. Good afternoon and welcome to FirstMerit’s third quarter 2010 earnings call. Joining me today are Paul Greig, our Chief Executive Officer; Terry Bichsel, our Chief Financial Officer; William Richgels, our Chief Credit Officer; and Mark DuHamel, our Treasurer and Director of Corporate Development. Following our prepared remarks, we are happy to take your questions.
Before we get started, I would like to mention that our press release we issued this morning announcing our financial results for the quarter is available on our website at www.firstmerit.com under the Investor Relations section.
I would like to remind you that our comments today may contain forward-looking statements that are subject to certain risks and uncertainties that could cause the company’s actual future results to materially differ from those discussed. Please refer to the forward-looking statement disclosure contained in the third quarter 2010 earnings release.
Now, I would like to introduce Paul Greig, FirstMerit’s Chief Executive Officer. Paul?
For the third quarter of 2010, FirstMerit reported earnings of the $0.27 per share compared with $0.32 per share last quarter and $0.27 per share for the year ago quarter. Our solid performance resulted in our 46th consecutive profitable quarter reflecting strong efforts and accomplishments in an economy that continues to be uncertain. Despite that, we see a number of anecdotal signs of optimism amongst our customers and our balance sheet is well-positioned to help them.
Just two of half weeks ago, shortly after we closed books on our third quarter, we successfully converted Midwest Bank and Trust, the third of our three Chicago acquisitions to the FirstMerit brand. I’m pleased to tell that less than nine months we have successfully and seamlessly completed three IT conversions in the Chicago market.
We now operate throughout the Chicago area from a solid platform of 47 locations. In less than a year, we’ve gone from having no presence in this vibrant market to being the number 14 bank in terms of deposits.
Not only are we retaining approximately 95% of our acquired Chicago deposits, we are converting many of them from CDs to core deposit products hence strengthening those relationships with us.
On the commercial side, new loan originations were $413 million up 60% which included $86 million from the Chicago market. The loan pipeline remains robust and we remain prepared to fulfill client needs as they move from the sidelines and begin to barrow.
According to the latest FED Beige Books released last week, the economies in Northeast Ohio and Chicago both shows signs of modest growth. Manufacturing is up somewhat in both markets. Business spending has increased which may provide opportunities for booking new business loans. Given that both regions remained disrupted, we continue to see opportunity to increase market share.
I’d like to review some points from the past quarter be for Bill Richgels and Terry Bichsel provide additional detail.
Our net income for the quarter was $29 million, compared with $31.5 million for the first quarter of 2010 and $23 million for the third quarter a year ago. Our linked quarter decreased to net income was due primarily to one time $4.5 million expense associated with the conversion of Midwest Bank and Trust in Chicago. It should be noted that we’ll have achieved all of the expense savings we targeted for the Midwest acquisition as of October month end.
Operating revenue in the third quarter was $181 million which was up $9.2 million or an annualized 22% over the prior quarter and 31% over the last year. Fee income excluding securities gains increased significantly up $2.5 million or an annualized 10% compared to prior quarter. While still strong our net interest margin was up slightly from the prior quarter and 3.95% compared to 4.04% in the second quarter. Over the prior year quarter, we were up from 3.61%. You will recall that we were up 32 basis points from first quarter to second quarter and historically our margin has been quite stable and predictable.
From an asset quality standpoint, net charge-offs continue to perform well relative to the rest of the industry totaling $19.9 million or 1.17% of the average loans for the third quarter. Early stage delinquencies continued its trend of improvement with what is now the four consecutive decline in year-over-year quarters.
Our core deposits continue to grow in the third quarter with a total of $8.1 billion to September 30, increase of $119 million or 5% from June 30 and an increase of $2.5 billion or 45% over September 30, 2009. This continued increase is a function of our Chicago acquisitions, our ability to retain new customers, convert CD customers to core deposit products and successes within our lines of business and achieving specific core deposit sales goals.