First Merchants (FRME) - 2024 Q3 - Quarterly Report

Capital Adequacy - Common Equity Tier 1 Capital Ratio stands at 11.25% and Tangible Common Equity to Tangible Assets Ratio at 8.76%[205] - As of September 30, 2024, the total risk-based capital ratio for First Merchants Corporation is 13.18%, while First Merchants Bank's ratio is 12.66%[267] - First Merchants Corporation's Tier 1 capital to risk-weighted assets ratio stands at 11.41%, and First Merchants Bank's ratio is 11.41% as of September 30, 2024[267] - The common equity tier 1 capital ratio for First Merchants Corporation is 11.35%, and for First Merchants Bank, it is 11.80% as of September 30, 2024[267] - The tangible common equity to tangible assets ratio for First Merchants Corporation improved to 8.76% at September 30, 2024, up from 8.40% at December 31, 2023[269] - The Corporation's total risk-based capital was $1,994,480 thousand as of September 30, 2024, with net risk-weighted assets of$15,132,640 thousand[267] - The Corporation began a five-year phase-out of $13.0 million in tier 2 capital as defined in the Basel III capital rules[263] Financial Performance - Net income available to common stockholders for Q3 2024 was$48.7 million, or $0.84 per diluted share, down from$55.9 million, or $0.94 per diluted share in Q3 2023[207] - Adjusted earnings per diluted share for Q3 2024 totaled$0.95, compared to $0.96 in Q3 2023 and$0.68 in Q2 2024[208] - Noninterest income for the three months ended September 30, 2024, totaled $24.9 million, a decrease of$3.0 million or 10.7% compared to the same period in 2023, primarily due to $9.1 million in losses on sales of available for sale securities[246] - For the nine months ended September 30, 2024, noninterest income increased to$82.8 million, a rise of $3.7 million or 4.6$283.0 million, an increase of $2.8 million or 1.0$4.2 million[249] Asset and Loan Quality - Total loans amounted to $12.65 billion, with commercial and industrial loans at$3.43 billion, agricultural loans at $199.83 million, and real estate loans totaling$8.55 billion[274][276] - Non-accrual loans increased to $59.1 million, up$5.5 million from December 31, 2023, primarily due to a $11.4 million rise in non-accrual balances in commercial real estate, non-owner occupied[278] - Loans 90 days or more delinquent and still accruing rose to$14.1 million, an increase of $13.9 million from December 31, 2023, driven mainly by one relationship totaling$13.0 million[279] - Net charge-offs for the three months ended September 30, 2024, totaled $6.7 million, compared to$20.4 million for the same period in 2023[286] - The provision for credit losses for the nine months ended September 30, 2024, was $31.5 million, compared to$2.0 million for the same period in 2023[286] - The total nonperforming assets, including non-accrual loans and loans 90 days or more delinquent, amounted to $78.44 million, up from$58.58 million at December 31, 2023[281][282] Deposits and Borrowings - Total deposits decreased by $456.4 million, or 4.1$287.7 million of deposits reclassified as held for sale[215] - Average account balance within the deposit portfolio was $34,000 as of September 30, 2024[216] - Total borrowings increased by$52.3 million as of September 30, 2024, primarily due to an increase in federal funds purchased and FHLB advances[217] - Average interest-bearing deposits increased by $674.0 million for the nine months ended September 30, 2024 compared to the same period in 2023[234] - Total available remaining borrowing capacity from the FHLB and Federal Reserve at September 30, 2024, was$762.6 million and $1.1 billion, respectively[291] Interest Income and Margin - Net interest margin for Q3 2024 is 3.23$86.9 million for the nine months ended September 30, 2024, or 80 basis points compared to the same period in 2023[240] - Average earning assets increased by $42.7 million for the three months ended September 30, 2024, driven by average loan growth of$392.5 million[231] - The Corporation's net interest income simulation modeling indicates a 4.4% increase for a rising 200 basis points scenario compared to a 4.0% increase as of December 31, 2023[302] - For a rising 100 basis points scenario, the estimated net interest income is projected to increase by 3.3% as of September 30, 2024, up from 2.1% as of December 31, 2023[302] - In a falling 100 basis points scenario, the Corporation anticipates a decrease of (1.7)% in net interest income as of September 30, 2024, compared to a decrease of (5.0)% as of December 31, 2023[302] - The projected decrease in net interest income for a falling 200 basis points scenario is (3.5)% as of September 30, 2024, compared to (7.8)% as of December 31, 2023[302] Liquidity Management - The Corporation's liquidity is primarily derived from core deposit growth, loan principal payments, and the sale and maturity of investment securities[289] - The Corporation's liquidity and interest sensitivity position as of September 30, 2024, is deemed adequate to achieve optimum interest margins while mitigating interest rate risk[296] - Management utilizes GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling, which are constructed and monitored quarterly[296] - The interest rate scenarios used for analysis do not necessarily reflect management's view of future market movements but measure potential volatility in earnings[297] - The Corporation's asset liability process evaluates simulated net interest income under three interest rate scenarios: base, rising, and falling[297] Taxation - Income tax expense for the three months ended September 30, 2024, was $7.2 million on pre-tax net income of$56.3 million, compared to $9.0 million on pre-tax income of$65.4 million for the same period in 2023[250] - The effective income tax rate for the three months ended September 30, 2024, was 12.7%, down from 13.8% in the same period in 2023, primarily due to a larger portion of tax-exempt interest income[252] Internal Controls - There have been no material changes in the Corporation's internal control over financial reporting during the last fiscal quarter[308]