First Merchants (US:FRME)2025-07-31 20:35Part I. Financial Information Item 1. Financial Statements Presents unaudited Consolidated Condensed Financial Statements, including Balance Sheets, Income Statements, Cash Flows, and detailed notes Consolidated Condensed Balance Sheet Highlights (Unaudited) | Account | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 18,592,777 | 18,311,969 | +1.5% | | Net Loans | 13,101,443 | 12,661,602 | +3.5% | | Investment Securities (AFS & HTM) | 3,380,956 | 3,460,695 | -2.3% | | Goodwill | 712,002 | 712,002 | 0.0% | | Total Liabilities | 16,244,825 | 16,006,986 | +1.5% | | Total Deposits | 14,797,578 | 14,521,626 | +1.9% | | Total Borrowings | 1,161,077 | 1,158,185 | +0.2% | | Total Stockholders' Equity | 2,347,952 | 2,304,983 | +1.9% | Consolidated Condensed Statements of Income Highlights (Unaudited) | Metric ($ thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 133,014 | 128,571 | 263,284 | 255,634 | | Provision for credit losses | 5,600 | 24,500 | 9,800 | 26,500 | | Noninterest Income | 31,303 | 31,334 | 61,351 | 57,972 | | Noninterest Expenses | 93,598 | 91,413 | 186,500 | 188,348 | | Net Income | 56,832 | 39,925 | 112,171 | 87,866 | | Net Income Available to Common Stockholders | 56,363 | 39,456 | 111,233 | 86,928 | | Diluted EPS | $0.98 | $0.68 | $1.92 | $1.48 | Consolidated Condensed Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity ($ thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | 115,375 | 121,875 | | Net cash provided (used) by investing activities | (329,736) | 67,294 | | Net cash provided (used) by financing activities | 208,312 | (196,446) | | Net Change in Cash and Cash Equivalents | (6,049) | (7,277) | Note 3: Investment Securities Details the investment securities portfolio, categorizing AFS and HTM, with unrealized losses primarily from interest rate changes Investment Securities Portfolio Summary (June 30, 2025) | Category | Amortized Cost ($ thousands) | Fair Value ($ thousands) | Gross Unrealized Losses ($ thousands) | | :--- | :--- | :--- | :--- | | Available for Sale | 1,598,205 | 1,358,130 | (241,288) | | U.S. Gov-sponsored agency | 91,585 | 78,239 | (13,346) | | State and municipal | 992,236 | 840,013 | (152,264) | | U.S. Gov-sponsored MBS | 503,417 | 429,461 | (75,128) | | Held to Maturity | 2,023,071 | 1,687,240 | (336,090) | | U.S. Gov-sponsored agency | 334,970 | 282,814 | (52,156) | | State and municipal | 1,076,773 | 875,364 | (201,668) | | U.S. Gov-sponsored MBS | 609,828 | 527,562 | (82,266) | - The unrealized losses in the investment portfolio were primarily caused by changes in interest rates, not a deterioration in credit quality. The Corporation expects to recover the amortized cost basis and does not intend to sell the investments before this recovery41 - As of June 30, 2025, approximately $3.3 billion of securities were pledged to secure certain deposits, repurchase agreements, and for other legal purposes47 Note 4: Loans and Allowance for Credit Losses Overview of the loan portfolio and allowance for credit losses, detailing growth, ACL, and credit quality indicators Loan Portfolio Composition | Loan Class | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | | :--- | :--- | :--- | | Commercial and industrial | 4,440,924 | 4,114,292 | | Real estate - Commercial (non-owner occupied) | 2,171,092 | 2,274,016 | | Real estate - Residential | 2,397,094 | 2,374,729 | | Public finance and other commercial | 1,144,641 | 1,059,083 | | Other | 3,143,508 | 2,932,220 | | Total Loans | 13,296,759 | 12,854,359 | - Total past due loans decreased by $14.8 million to $101.4 million at June 30, 2025, from $116.2 million at December 31, 202459 Changes in Allowance for Credit Losses - Loans (ACL) | ACL Activity ($ thousands) | Six Months Ended June 30, 2025 | | :--- | :--- | | Balance, December 31, 2024 | 192,757 | | Provision for credit losses | 9,800 | | Recoveries | 3,192 | | Loans charged off | (10,433) | | Balance, June 30, 2025 | 195,316 | - Reserves for unfunded commitments remained stable at $18.0 million at both June 30, 2025, and December 31, 2024, with no provision for credit losses on these commitments during the first six months of 2025100 Note 8: Borrowings Outlines the Corporation's borrowing arrangements, including FHLB advances and subordinated debentures, and recent note redemptions Composition of Borrowings | Borrowing Type | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | | :--- | :--- | :--- | | Federal funds purchased | 85,000 | 99,226 | | Securities sold under repurchase agreements | 114,758 | 142,876 | | Federal Home Loan Bank advances | 898,702 | 822,554 | | Subordinated debentures and other borrowings | 62,617 | 93,529 | | Total Borrowings | 1,161,077 | 1,158,185 | - The Corporation redeemed $30.0 million of subordinated notes from the Level One acquisition during the first quarter of 2025145 - On June 9, 2025, the Corporation issued a notice to redeem the remaining $5.0 million of its Fixed-to-Floating Rate Senior Notes143 Note 15: Subsequent Event Details a subsequent event: redemption of the remaining $5.0 million principal of 5.00% Fixed-to-Floating Rate Senior Notes Due 2028 - On July 30, 2025, the Corporation redeemed the remaining $5.0 million principal of its 5.00% Fixed-to-Floating Rate Senior Notes Due 2028. No principal remains outstanding from this issuance171 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance and condition, covering net income, balance sheet, net interest margin, capital, and loan quality Financial Highlights Summarizes key quarterly financial data: diluted EPS, net interest margin, and return on average assets, highlighting performance trends Quarterly Financial Highlights | Metric | Q2 2025 | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Diluted EPS | $0.98 | $0.94 | $1.10 | $0.84 | $0.68 | | Net Interest Margin (FTE) | 3.25% | 3.22% | 3.28% | 3.23% | 3.16% | | Return on Average Assets | 1.23% | 1.21% | 1.39% | 1.07% | 0.87% | | Total Assets ($B) | $18.59 | $18.44 | $18.31 | $18.35 | $18.30 | Results of Operations The Corporation reported increased net income for Q2 and YTD 2025, driven by growth in the total loan portfolio and deposits - Q2 2025 net income available to common stockholders rose to $56.4 million, or $0.98 per diluted share, compared to $39.5 million, or $0.68 per diluted share, in Q2 2024179 - Total assets increased by $280.8 million (1.5%) to $18.6 billion since December 31, 2024181 - The total loan portfolio grew by $452.5 million (7.0% annualized) since year-end 2024, while total deposits increased by $276.0 million (3.8% annualized)183186 Net Interest Income Net interest income (FTE) increased year-over-year, with NIM expanding due to reduced funding costs offsetting declining asset yields Net Interest Margin (FTE) Analysis | Period | Net Interest Income (FTE, $ million) | Net Interest Margin (FTE) | Change in NIM (YoY) | | :--- | :--- | :--- | :--- | | Q2 2025 | 139.2 | 3.25% | +9 bps | | Q2 2024 | 134.4 | 3.16% | - | | YTD 2025 | 275.6 | 3.23% | +10 bps | | YTD 2024 | 267.3 | 3.13% | - | - The improvement in NIM was driven by a significant reduction in funding costs, as the total cost of interest-bearing liabilities decreased by 39 basis points year-over-year in Q2 2025212 Capital The Corporation maintained strong capital ratios, exceeding 'well-capitalized' standards, and initiated a new stock repurchase program - A new stock repurchase program was approved on March 18, 2025, authorizing the repurchase of up to 2,927,000 shares or an aggregate investment of $100.0 million230 - During Q2 2025, the Corporation repurchased 0.6 million shares for $22.1 million at an average price of $37.93 per share230 Regulatory Capital Ratios (Corporation) | Ratio | June 30, 2025 | Dec 31, 2024 | Well Capitalized Minimum | | :--- | :--- | :--- | :--- | | CET1 Capital Ratio | 11.35% | 11.43% | 7.00% (Basel III Min.) | | Tier 1 Capital Ratio | 11.50% | 11.59% | 8.50% (Basel III Min.) | | Total Risk-Based Capital Ratio | 13.06% | 13.31% | 10.50% (Basel III Min.) | | Tier 1 Leverage Ratio | 10.20% | 9.96% | 4.00% | Loan Quality and Provision for Credit Losses on Loans Loan quality improved in H1 2025, with nonaccrual loans decreasing and the Allowance for Credit Losses (ACL) stable relative to total loans - Nonaccrual loans decreased by $6.4 million to $67.4 million at June 30, 2025, from $73.8 million at December 31, 2024251 - The Allowance for Credit Losses (ACL) on loans was 1.47% of total loans at June 30, 2025, down slightly from 1.50% at year-end 2024258 Provision and Net Charge-Offs | Metric ($ thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Provision for credit losses | 5,600 | 24,500 | 9,800 | 26,500 | | Net charge-offs | 2,315 | 39,644 | 7,241 | 41,897 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses the Corporation's market risk, primarily interest rate risk, managed through GAP analysis and net interest income simulation modeling Net Interest Income Sensitivity Analysis | Interest Rate Scenario (Immediate Parallel Shift) | Estimated Change in NII over 12 Months (June 30, 2025) | Estimated Change in NII over 12 Months (Dec 31, 2024) | | :--- | :--- | :--- | | +200 basis points | +4.0% | +4.1% | | +100 basis points | +2.1% | +2.5% | | -100 basis points | -2.7% | -2.2% | | -200 basis points | -5.5% | -4.5% | Item 4. Controls and Procedures Management concluded the Corporation's disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period280 - There were no material changes to the Corporation's internal control over financial reporting during the last fiscal quarter281 Part II. Other Information Item 1. Legal Proceedings The Corporation is not involved in any material legal proceedings beyond routine litigation incidental to its ordinary business - The Corporation is not a party to any material legal proceedings outside of litigation incidental to the ordinary course of business283 Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Corporation's 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2024 Annual Report on Form 10-K285 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the Corporation's common stock repurchases during Q2 2025 under the program approved on March 18, 2025 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased (Program) | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 107,808 | $37.61 | | May 2025 | 439,790 | $38.01 | | June 2025 | 34,888 | $37.55 | | Total Q2 | 582,486 | - |