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Community bank earnings: First Merchants expounds on M&A plans; Camden exits 3rd-party loan servicing

In this feature, S&P Global MarketIntelligence takes a look at a handful of community banks from around thecountry. Those on today's list reported July 26 their earnings results for thethree months ended June 30.

Midwest

Muncie,Ind.-based First MerchantsCorp. posted net income available to commonstockholders of $20.0 million, or 49 cents per share, up from $18.0 million, or 47 centsper share, a year ago. The S&P Capital IQ consensus normalized EPS estimatefor the recent quarter was 46 cents.

FirstMerchants' nonperforming assets fell quarter over quarter to $51.1 million from$53.4 million. Of those, renegotiated loans made up $4.3 million, compared withthe first quarter's $1.0 million. The latter increase is largely from a $3.2million acquired loan. Also of note was a rise in loans held for sale to $18.9million from $8.3 million a year ago.

On theearnings call, executives touched on M&A plans. Excess tangible capital is pegged at morethan $60 million, and First Merchants plans to acquire specialty financebusinesses. According to a transcript, preferred locations include Indiana,southern Ohio, middle parts of Illinois and metropolitan areas of Kentucky.Targets would have $1.5 billion in assets or less, and the bank has been intalks with roughly one potential partner every quarter for the past three orfour.

FirstMerchants' executives added that they are doing "extensive"preparations for crossing the $10 billion asset threshold, which is expected tooccur in 2018 or 2019, after one or two acquisitions.

Northeast

Maine-basedCamden National Corp.recorded net income of $9.6 million, or per share, up from the year-agoquarter's $7.2 million, or 96 cents per share. Included in the recent quarter'sbottom line is a $2.9 million provision for credit losses, compared with thelinked period's $872,000 and the $254,000 of the second quarter of 2015. Theincrease in loan loss provision was attributed to the further deterioration ofa nonperforming loan and the downgrade of a CRE loan. Those two make up abouthalf of the company's nonperforming loans as of June 30, and their issues werecompany-specific, as opposed to economic.

Executives on the earnings call spoke of cost saves from theelimination of 14 open positions, the closing of two branches in Maine andseven related job cuts. The branch closures are expected to lower expenses bymore than $500,000 in 2017. On the other hand, about $200,000 to $250,000 willbe invested before 2016's end in people, products and services.

Camden has also decided to exit its "breakeven business" of third-partyloan servicing, a move expected to save $1.3 million.

Southeast

Franklin,Tenn.-based Franklin FinancialNetwork Inc. posted net income available to commonshareholders of $7.0 million, or 62 cents per share, up from $3.1 million, or 28 centsper share, a year ago.

When asked about future acquisitions on the earnings call,CEO Richard Herrington said the company is already "sitting on a goldmine" in terms of potential organic growth. While it is open toopportunities, particularly for small deals in Middle Tennessee, it has alreadyrejected a couple ofinvitations to do M&A.

Southwest

AndBirmingham, Ala.-based NationalCommerce Corp. reported net income to common shareholders of $4.4 million, or per share. In theyear-ago period, it was $2.3 million, or 24 cents per share. Contributing tothe improvement was a decrease in merger and conversion-related expenses to$12,000 from $168,000 a year ago.