First Merchants (US:FRME)2026-01-27 15:00Financial Data and Key Metrics Changes - The company reported record total assets of $19 billion, total loans of $13.8 billion, and total deposits of $15.3 billion [2] - Record net income of $224.1 million and diluted earnings per share of $3.88, an increase of 13.8% from the previous year [3] - Fourth quarter net income totaled $56.6 million or $0.99 per share, with an annual return on assets of 1.21% and return on tangible common equity of 14.08% [3] - Efficiency ratio for the year was 54.5%, with revenues growing almost five times faster than expenses [3] Business Line Data and Key Metrics Changes - Commercial loan growth for the quarter was $153 million or 6% annualized, with year-to-date growth of $852 million, nearly 7% for all of 2025 [6] - Consumer segment contributed $44 million in loan growth for the quarter and $87 million for the year, driven by residential mortgage, HELOC, and private banking relationships [7] - Total revenues in Q4 included a $5.4 million increase in net interest income and a $0.6 million increase in non-interest income [11] Market Data and Key Metrics Changes - The fourth quarter was the strongest for deposit growth, with consumer segment driving increases in new households and balances [8] - Deposits increased by $155 million in the fourth quarter, with over $250 million in non-maturity balance growth [8] - The primary driver of deposit growth was through public fund depository relationships, which are higher cost but involve local government and public relationships [9] Company Strategy and Development Direction - The company aims to build on its Midwestern strength and grow organically through deeper relationships and smarter use of technology [5] - The acquisition of First Savings Group, adding approximately $2.4 billion in assets, is expected to enhance the company's presence in Southern Indiana and the Louisville MSA [3][4] - Integration efforts for First Savings Bank are on track, with a focus on community bank model and specialty verticals [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategic and financial benefits of the merger, expecting to close on February 1, 2026 [4] - The outlook for loan growth in 2026 is projected to be in the mid-single-digit range, with expectations of 6% to 8% growth [32] - Management noted that asset quality remains strong, with stable non-performing assets and a robust coverage ratio [19] Other Important Information - The company plans to sell the entire First Savings bond portfolio, approximately $250 million, to optimize the balance sheet [25] - Non-interest expense for the year increased only 3.2%, demonstrating significant operating leverage [15] - The tangible common equity ratio increased to 9.38%, with share repurchases totaling over 1.2 million shares for $46.9 million in 2025 [15] Q&A Session Summary Question: Update on balance sheet optimization - Management is evaluating modest balance sheet repositioning, including selling the First Savings bond portfolio [25][26] Question: Expectations for loan growth in 2026 - Loan growth is expected to be in the mid-single-digit range, with strong pipelines across various segments [30][32] Question: Guidance on deposit repricing schedule - Approximately $800 million of CDs maturing in the first two quarters of 2026, with weighted average rates higher than current specials [34] Question: Outlook on operating leverage - Core operating leverage is expected to be less impressive due to talent additions, but overall growth in net interest income and fee income is anticipated [39] Question: Guidance on core expense base - Non-interest expense is budgeted to increase by 3%-5% due to talent additions and First Savings operating expenses [43] Question: Charge-off expectations - Charge-offs are expected to be in the range of $6 million to $7 million over the near term [81] Question: Impact of M&A on loan pipeline - Management sees M&A-related disruptions as opportunities for new client conversations and potential talent acquisition [58][60] Question: Buyback strategy - The company intends to be aggressive with buybacks if the stock price remains low, viewing it as a better use of capital than pursuing new M&A [88]