• Earnings Per Share (EPS): $1.10 for Q4, adjusted to $1.00 after accounting for a $20 million gain and an $11.6 million bond loss.
• Loan Growth: 6% for Q4, with full-year growth at 3%.
• Net Interest Margin: Improved by 5 basis points from Q3 to Q4.
• Efficiency Ratio: Sub 54% for the quarter.
• Tangible Common Equity Ratio: 8.81% at the end of Q4.
• Tangible Book Value Per Share: $26.78, a 25% increase over the last two years.
• Net Income: $200 million for the full year 2024.
• Commercial Loan Growth: $148 million increase in Q4, with C&I portfolio growing by $66 million.
• Deposit Growth: 4.4% annualized rate for Q4; full-year deposits were flat.
• Net Interest Income: Increased by $3.3 million sequentially in Q4.
• Non-Interest Income: Increased by $17.9 million in Q4, reflecting a $20 million gain from branch sales.
• Pre-Tax Pre-Provision Earnings: $73.2 million for Q4.
• Allowance for Credit Losses: $192.8 million, with a coverage ratio of 1.5%.
• Cost of Deposits: Declined by 26 basis points to 2.43% in Q4.
• Non-Interest Expense: $96.3 million for Q4, an increase of $1.7 million from the prior quarter.
• Common Equity Tier 1 Ratio: 11.43% at year-end.

• Warning! GuruFocus has detected 8 Warning Signs with FRME.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First Merchants Corp (NASDAQ:FRME) reported strong loan growth of 6% for the fourth quarter, aligning with 2025 expectations.
• Net interest margin improved by 5 basis points from Q3 to Q4, contributing to a 4% growth in pre-tax pre-provision net revenue.
• The tangible common equity ratio increased to 8.81%, with tangible book value per share rising by 25% over the last two years.
• The company successfully completed several strategic initiatives, including technology upgrades and the sale of non-core branches, positioning it for focused growth in core markets.
• First Merchants Corp (NASDAQ:FRME) maintained a low efficiency ratio of 53.6% for the quarter, indicating strong cost management.

Negative Points

• The agribusiness segment remains challenged due to high input costs and soft equipment purchases, impacting growth potential.
• The allowance for credit losses remains high at $192.8 million, with a coverage ratio of 1.5%, indicating ongoing credit risk concerns.
• Non-accrual loans increased by $14.7 million, largely due to a $22 million multifamily housing loan dispute.
• The cost of deposits remains relatively high at 2.43%, although there was a slight improvement by the end of December.
• Public fund balances, which are high-cost deposits, declined by 6% throughout 2024, impacting overall deposit growth.

Q & A Highlights

Q: Can you provide details on asset repricing dynamics for the year, particularly for the 40% of the loan book that doesn't float on SOFR or prime? A: Michele Kawiecki, CFO, mentioned that about $250 million in fixed-rate securities will reprice in the next 12 months, with a yield of approximately 4.5%, providing a positive tailwind.

Q: What are your thoughts on investment and expense plans for 2025, given the significant investments made in 2024? A: Mark Hardwick, CEO, stated that despite significant technology upgrades in 2024, there will be no increase in expenses for 2025. Michele Kawiecki added that expense growth is expected to be minimal, between 1% to 3%, maintaining a sub-55% efficiency ratio.

Q: What is the outlook for deposit costs in the coming quarters? A: Michele Kawiecki noted that December deposit costs were 2.33%, and the company aims to continue reducing these costs. The strategy will depend on competition and potential Fed rate cuts in 2025.

Q: Can you discuss the potential for loan growth, particularly in the C&I segment, and your approach to commercial real estate? A: Michael Stewart, President, expressed optimism for middle single-digit loan growth, driven by manufacturing and market share gains in Michigan. The company has capacity for commercial real estate growth, focusing on core developers and asset classes like multifamily and industrial warehouses.

Q: What are your capital management priorities, considering strong capital levels and M&A opportunities? A: Mark Hardwick emphasized using capital to support organic growth, with M&A focused on Indiana, Ohio, and Michigan. The priority remains organic performance, with flexibility for potential acquisitions if they align with strategic goals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.