FMBI: 4Q16 Final Review – Increasing FY17 and FY18 EPS Estimates by $0.02 Each; No Change to ‘Mkt-Perform’ Rating

PDF ATTACHEDFMBI 4Q16 EPS Review

Close $24.42 / “Market-Perform” / $26.00 Price Target / HQ=Itasca, IL / $2.51 Bil. Mkt. Cap

  • Increasing FY17 and FY18 EPS estimates by $0.02 each to $1.37 and $1.55, respectively.
  • Standard Bancshares transaction closed on 1/6/17 adding $1.7 billion in loans and $2.1 billion in deposits.
  • No change to ‘Market-Perform’ rating or $26 target.

We are maintaining our ‘Market-Perform’ rating on FMBI shares and leaving our price target at $26/share. Our $26 target assumes FMBI shares trade at ~17x our FY18 EPS estimate and ~225% of forward TBV. These multiples compare to our current FIG Bank peer group medians of ~17x and 230%, respectively.

Earnings Estimates: Taking into account the 4Q16 results and the Standard Bancshares transaction (closed on 1/6/17) we are increasing our FY17 and FY18 EPS estimates by $0.02 each to $1.37 and $1.55, respectively. The EPS adjustments are driven by somewhat higher NII (mostly higher yield accretion vs. prior est.) and partially offset by lower fee income and modestly higher operating expenses. Our FY17 estimate assumes: (1) core loan growth of 8-9% (ex-Standard); (2) a NIM in the 3.85-3.90% area over the next few quarters with NII growth of 39-40% which is in-line with Company guidance; (3) provision expense averaging ~$10 million/qtr.; (4) fee income accounting for ~25% of total revenues; and (5) core operating expenses of ~$101 million in 1Q17 and then trending down modestly from there. Additionally, our FY17 and FY18 estimates assume an effective tax rate of 35%.

4Q16 Review: FMBI reported 4Q16 EPS of $0.25 vs. $0.35 in 3Q16. Core EPS were $0.32 and exclude: $7.5 million in merger expenses; a $950k charge for lease cancellation on headquarters; and $323k in securities gains. Core EPS of $0.32 compared to our $0.31 estimate and the consensus of $0.33. For the quarter, a lower provision + slightly higher fee income were offset by lower NII + higher operating expenses (vs. FIG estimates). FMBI also completed the Standard Bancshares acquisition on 1/6/17 adding $1.9 billion in loans and $2.1 billion in deposits. The combined Company now has ~$14 billion in assets.

Other 4Q16 highlights: (1) core loans increased 1.0% Q/Q vs. 1.2% estimate as C&I and agricultural loans were down modestly. At the same time, CRE balances were up 2.6%. For FY17 we are modeling core growth of 8-9% with total loan growth of ~30% (including Standard loan portfolio); (2) driven by one commercial credit asset quality showed some deterioration with total NPAs up 17% to $92 million. NPA+90/Loans+OREO = 1.11% vs. 0.96% at 9/30. Overall, FMBI still has a good handle on credit quality and NCOs remain near the low end of the projected range (FY16 NCOs = 0.24%); and (3) TBV was down 1.2% (vs. 9/30) on the move in AOCI (-$41 million vs. -$13 million at 9/30). TBV is expected to be down 2-3% in 1Q17 taking into account the Standard transaction.

4Q16 Results vs. FIG Estimates: NII was down 3.2% Q/Q to $90.1 million vs. $92.5 million estimate (-.02/share) on lower yield accretion + higher funding costs. The NIM was lower than forecasted while the level of AEA was in-line. The NIM was down 15 bps Q/Q to 3.44% vs. 3.52% estimate. Yield accretion was $1.8 million vs. $3.8 million in 3Q16 and $3.0 million estimate; fee income was slightly better (+.01/share) on higher mortgage revenues and “other” income; the provision was $5.3 million vs. $8.0 million estimate and NCOs of $4.5 million (+.02/share); core operating expenses were $84.2 million vs. $81.7 million estimate (-.02/share); and the effective tax rate was 30.4% vs. 35% estimate (+.01/share).