First Merchants (FRME) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The earnings per share for Q4 totaled $1.10, or$ 1.00 per share after adjusting for a $20 million gain on the sale of branches and an$ 11.6 million bond loss [7][8] - Net income for the full year 2024 was $200 million, with earnings per share totaling$ 3.41 [9] - The tangible common equity ratio increased to 8.81%, and tangible book value per share rose to $26.78, a 25% increase over the last two years [8][9] Business Line Data and Key Metrics Changes - Loan growth for Q4 was 6%, with commercial loans being the primary driver, increasing by$ 148 million during the quarter [12] - The commercial segment grew over $250 million for the full year, with the C&I portfolio growing over$ 300 million [12][17] - The consumer loan portfolio saw year-to-date growth of $125 million, with the residential portfolio contributing over 50% of that increase [18] Market Data and Key Metrics Changes - Total deposits grew at a 4.4% annualized rate for Q4, although total deposit balances for the full year were essentially flat [20][21] - Public fund balances declined by 6% throughout 2024, while non-public fund account balances grew by 1% [21][22] - The cost of deposits decreased by 26 basis points to 2.43% in Q4 [35] Company Strategy and Development Direction - The company aims to deliver top quartile financial results in 2025, focusing on core markets in Indiana, Ohio, and Michigan [7][8] - The strategy includes organic loan, deposit, and fee income growth, along with enhancing client experience through new technology platforms [10][11] - The company is focused on maintaining a low efficiency ratio and managing deposit costs effectively [20][69] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to pre-Silicon Valley performance metrics and highlighted strong momentum in Q3 and Q4 [9][58] - The company anticipates minimal expense growth in 2025, projecting a range of 1% to 3% [69] - The outlook for loan growth remains positive, with expectations of mid to high-single-digit growth [92][93] Other Important Information - The company completed several upgrades to its technology platforms and sold five non-core branches, which contributed to its restructuring efforts [6][8] - The allowance for credit losses was reported at$ 192.8 million, with a coverage ratio of 1.5% [34] Q&A Session Summary Question: What is the repricing dynamics for the loan book? - Management indicated that fixed rate securities of about $250 million will be repricing in the next 12 months, with a yield of approximately 4.5% [63] Question: What are the expectations for deposit costs? - December deposit costs were reported at 2.33%, with expectations to continue reducing costs [77] Question: What is the outlook for C&I loan growth? - Management noted strong growth in the manufacturing segment and positive momentum in Michigan, indicating a favorable outlook for C&I loans [81][82] Question: What is the margin outlook for 2025? - The company plans to use cash flows from securities to fund loan growth, expecting margin growth despite some repricing down [90][91] Question: What are the capital management priorities? - The focus remains on organic growth, with potential M&A opportunities in core markets if they make sense [98][99] Question: What is the expected growth rate for non-interest income? - Non-interest income is expected to grow in the mid to high-single digits, driven by wealth management and mortgage fees [105][106]