First Merchants Corporation (NASDAQ:FRME) Q1 2025 Results Conference Call April 24, 2025 11:30 AM ET Company Participants Mark Hardwick - Chief Executive Officer Michael Stewart - President Michele Kawiecki - Chief Financial Officer John Martin - Chief Credit Officer Conference Call Participants Daniel Tamayo - Raymond James Terry McEvoy - Stephens Damon DelMonte - KBW Nathan Race - Piper Sandler Brian Martin - Janney Montgomery Scott Operator Thank you for standing by, and welcome to the First Merchants Co ...

First Merchants (FRME) came out with quarterly earnings of $0.94 per share, beating the Zacks Consensus Estimate of $0.91 per share. This compares to earnings of $0.85 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 3.30%. A quarter ago, it was expected that this bank would post earnings of $0.90 per share when it actually produced earnings of $1, delivering a surprise of 11.11%.Over the last four quarters, the company has sur ...

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Core Insights - First Merchants Corporation reported a strong start to 2025 with net income available to common stockholders of $54.9 million, an increase from $50.1 million in the same period of 2024, and diluted earnings per share rose to $0.94 from $0.85 [1][7][19] - The company emphasized its focus on organic loan growth, margin stabilization, fee income growth, expense management, and credit quality amidst market volatility [1] Financial Performance - Total assets reached $18.4 billion, with total loans amounting to $13.0 billion, reflecting a loan growth of $547.2 million or 4.4% year-over-year [2][19] - Net interest income for the quarter was $130.3 million, a decrease of $4.1 million or 3.1% from the previous quarter, but an increase of $3.2 million or 2.5% compared to the first quarter of 2024 [6][19] - Noninterest income totaled $30.0 million, down $12.7 million from the fourth quarter of 2024 but up $3.4 million from the first quarter of 2024 [7][19] Asset Quality - The Allowance for Credit Losses (ACL) on loans was $192.0 million, representing 1.47% of total loans, with net charge-offs totaling $4.9 million for the quarter [5][19] - Non-performing assets to total assets increased to 0.47% from 0.43% in the prior quarter, indicating a slight deterioration in asset quality [5][21] Deposits and Capital - Total deposits decreased to $14.5 billion, down $422.6 million or 2.8% year-over-year, primarily due to the sale of Illinois branches [4][19] - The Common Equity Tier 1 Capital Ratio stood at 11.50%, reflecting a robust capital position [7][10] Efficiency and Ratios - The efficiency ratio for the quarter was 54.54%, indicating improved operational efficiency compared to previous periods [7][20] - Return on Average Assets was 1.21% and Return on Average Stockholders' Equity was 9.38%, both showing positive trends compared to the previous year [19][20]

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Core Points - First Merchants Corporation will report its first quarter 2025 financial results on April 24, 2025 [1] - A conference call and webcast will be held at 11:30 a.m. (ET) on the same day [1] - Participants can register for the call to receive a phone number and access code [2] Company Overview - First Merchants Corporation is a financial holding company based in Muncie, Indiana [3] - The company operates one full-service bank charter, First Merchants Bank, and also has a division called First Merchants Private Wealth Advisors [3] - The common stock of First Merchants Corporation is traded on the NASDAQ under the symbol FRME [4]

Core Viewpoint - First Merchants (FRME) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in earnings estimates, which are closely correlated with stock price movements, particularly due to institutional investors adjusting their valuations based on these estimates [4][6]. - An increase in earnings estimates typically leads to higher fair value for a stock, prompting institutional investors to buy or sell, thus affecting stock prices [4]. Company Performance Indicators - First Merchants is projected to earn $3.85 per share for the fiscal year ending December 2025, reflecting an 11% year-over-year increase [8]. - Over the past three months, the Zacks Consensus Estimate for First Merchants has risen by 9.4%, indicating a positive trend in earnings expectations [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - The upgrade of First Merchants to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Core Insights - Three stocks with strong momentum and buy rank are highlighted for investors: Zions Bancorporation, First Merchants Corporation, and Hancock Whitney Corporation [1][2][3]. Company Summaries - **Zions Bancorporation, National Association (ZION)**: - Zacks Rank 1 - Current year earnings estimate increased by 8.2% over the last 60 days - Shares gained 2.0% over the last six months, outperforming the S&P 500, which declined by 2.1% - Momentum Score: A [1][2] - **First Merchants Corporation (FRME)**: - Zacks Rank 1 - Current year earnings estimate increased by 8.5% over the last 60 days - Shares gained 7.6% over the last six months, also outperforming the S&P 500 - Momentum Score: B [2][3] - **Hancock Whitney Corporation (HWC)**: - Zacks Rank 1 - Current year earnings estimate increased by 6.2% over the last 60 days - Shares gained 0.6% over the last six months, again outperforming the S&P 500 - Momentum Score: B [3][4]

Company Overview - First Merchants (FRME) is headquartered in Muncie and operates in the Finance sector, with a stock price change of 6.54% since the beginning of the year [3] - The current dividend payout is $0.35 per share, resulting in a dividend yield of 3.29%, which is higher than the Banks - Midwest industry's yield of 2.99% and the S&P 500's yield of 1.57% [3] Dividend Analysis - The annualized dividend of First Merchants is currently $1.40, reflecting a 0.7% increase from the previous year [4] - Over the past five years, the company has increased its dividend four times, achieving an average annual increase of 7.79% [4] - The current payout ratio stands at 40%, indicating that the company distributes 40% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year, First Merchants anticipates solid earnings growth, with the Zacks Consensus Estimate for 2025 projected at $3.79 per share, representing a year-over-year growth rate of 9.22% [5] Investment Appeal - First Merchants is viewed as an attractive dividend investment, supported by a Zacks Rank of 1 (Strong Buy), indicating a compelling investment opportunity [7]

Credit Losses and Provisions - The allowance for credit losses on loans decreased by $12.2 million during the year ended December 31, 2024, primarily due to $49.4 million in net charge-offs[129]. - The provision for credit losses on loans recorded in 2024 was $37.2 million, resulting in a net provision expense of $35.7 million after a reserve release of $1.5 million[129]. - Net charge-offs for 2024 amounted to $49.4 million, with two commercial relationships accounting for $42.7 million of these charge-offs[129]. - The ratio of net charge-offs to average loans outstanding for 2024 was 0.39%, compared to 0.21% in 2023[124]. - As of December 31, 2024, the total allowance for credit losses on loans was $192.8 million, down from $204.9 million in 2023[129]. - The allowance for credit losses on loans was reported at $192.8 million as of December 31, 2024, reflecting management's estimates of expected future losses[334]. - The total allowance for credit losses (ACL) on loans is adjusted quarterly, reflecting the expected credit losses based on historical data and economic forecasts[465]. - The net provision expense for credit losses on loans for the year ended December 31, 2024, was $35.7 million, after recording a provision of $37.2 million offset by a release in reserve of $1.5 million[476]. - The total ACL - Loans balance as of December 31, 2024, was $192.757 million, down from $204.934 million as of December 31, 2023[477]. - The Corporation's loan commitments to extend credit amounted to $5,006.085 million as of December 31, 2024, compared to $5,025.790 million in 2023[481]. Financial Performance - Total Interest Income for 2024 reached $948,006, an increase of 6.4% from $893,886 in 2023[340]. - Net Interest Income after Provision for Credit Losses decreased to $485,414 in 2024, down from $541,900 in 2023, reflecting a decline of 10.4%[340]. - Noninterest Income increased to $125,580 in 2024, up 18.9% from $105,602 in 2023[340]. - Total Noninterest Expenses decreased to $379,266 in 2024, a reduction of 2.3% compared to $388,270 in 2023[340]. - Net Income available to Common Stockholders for 2024 was $199,527, down 10.1% from $221,911 in 2023[340]. - Basic Net Income per Share for 2024 was $3.42, a decrease of 8.6% from $3.74 in 2023[340]. - Comprehensive Income for 2024 was $188,687, a decline of 34.3% from $286,967 in 2023[341]. - The net income for the year ended December 31, 2024, is $201,402,000, a decrease from $223,786,000 in 2023[343]. - The total comprehensive income for the year ended December 31, 2024, is $188,685,000, compared to a comprehensive income of $239,151,000 in 2023[343]. Loans and Loan Portfolio - The company's net loans increased to $12,661,602,000 in 2024 from $12,281,093,000 in 2023, showing growth in the loan portfolio[338]. - The loan portfolio reached $12,854,359 million as of December 31, 2024, up from $12,486,027 million in 2023, indicating an increase of about 2.9%[443]. - Commercial and industrial loans increased to $4,114,292 million in 2024 from $3,670,948 million in 2023, marking a growth of approximately 12.1%[443]. - Total loans across all categories reached $12,854,359, an increase from $1,733,843, representing a growth of about 641%[447]. - Total commercial and industrial loans reached $1,693,245, an increase from $539,311 in the previous year, representing a growth of approximately 213%[447]. - Total residential loans amounted to $2,374,729, compared to $417,417 in the previous year, reflecting a growth of about 469%[447]. - Home equity loans increased to $659,811 from $4,354, marking a growth of approximately 15,116%[447]. - The total current period gross charge-offs were $54,243, a decrease from $40,529 in the previous period[447]. Deposits and Borrowings - The total short-term borrowings as of December 31, 2024, were $338.3 million, an increase from $218.5 million in 2023[137]. - Total deposits decreased to $14,521,626,000 in 2024 from $14,821,453,000 in 2023, indicating a decline in customer deposits[338]. - The Corporation's total deposits decreased by $299.8 million from December 31, 2023, primarily due to the sale of Illinois branch deposits amounting to $267.4 million, resulting in total deposits of $14.5 billion as of December 31, 2024[498]. - Total borrowings increased from $1.03 billion in 2023 to $1.16 billion in 2024, with Federal Home Loan Bank advances rising from $712.9 million to $822.6 million[500]. Asset Management and Investments - The fair value of assets acquired in previous acquisitions was $2,510,576, with liabilities assumed totaling $2,168,863[347]. - The amortized cost of investment securities available for sale was $1.624 billion as of December 31, 2024, with a fair value of $1.386 billion[423]. - The total held-to-maturity investment securities amounted to $2.074 billion, with a fair value of $1.723 billion as of December 31, 2024[424]. - The total investment securities available for sale reported at less than historical cost was $1,353.744 million as of December 31, 2024, with gross unrealized losses of $238.853 million, representing 97.6% of the Corporation's investments available for sale in an unrealized loss position[435]. - The fair value of investment securities available for sale at December 31, 2024 was $1,353.744 million, down from a historical cost of $1,592.597 million[435]. Shareholder and Equity Information - The total stockholders' equity rose to $2,304,983,000 in 2024, compared to $2,247,713,000 in 2023, reflecting an increase in retained earnings[338]. - Cash Dividends Paid to Common Stockholders increased to $1.39 in 2024, up from $1.34 in 2023[340]. - The company repurchased 1,648,466 shares of common stock in 2024, resulting in a total cost of $56,168,000[343]. - The total number of common shares outstanding as of December 31, 2024, is 57,974,535, a decrease from 59,424,122 shares in 2023[343]. - The accumulated other comprehensive income (loss) as of December 31, 2024, is $(188,685,000), compared to $(175,970,000) in 2023[343]. Risk Management and Credit Quality - Nonperforming loans and credit quality indicators are actively monitored, with management tracking trends in criticized commercial loans and net charge-offs[444]. - The corporation's risk grading system includes categories from Pass to Loss, with all large commercial credit grades reviewed at least annually[445]. - The Corporation maintained a strong focus on credit quality, with no allowance for credit losses recorded on investment securities available for sale due to unrealized losses being attributed to interest rate changes[358]. - The Corporation's investment securities portfolio is monitored quarterly for credit quality through the use of credit ratings[429]. Accounting and Regulatory Compliance - The Corporation adopted new accounting standards in 2024, including ASU No. 2023-02 for tax credit structures, which did not significantly impact financial statements[395]. - The Corporation is assessing the impact of new accounting pronouncements, including ASU No. 2023-09 on income tax disclosures, expected to be effective after December 15, 2024[400]. - The Corporation's income tax expense includes current year tax due and changes in deferred tax assets and liabilities, with no uncertain tax positions identified[390].