Question · Q3 2025
Brandon Nussbaum questioned First Merchants' strategy for capital generation and the deployment of excess capital, particularly given the strong tangible common equity ratio and the stated lack of immediate M&A interest. He also asked for the rationale behind maintaining a high allowance for credit losses (ACL) coverage ratio of 1.43%, which is above peer averages, and the expected progression of net interest income (NII) dollars even with anticipated Fed rate cuts.
Answer
CEO Mark Hardwick outlined capital deployment: a third for asset generation, a third for dividends, and the remainder for share buybacks, citing current valuation as attractive. He also mentioned balance sheet optimization opportunities but ruled out wholesale bond restructurings requiring a tangible common equity raise. EVP and CFO Michele Kawiecki explained the high ACL coverage is due to a conservative quantitative model, positive credit migration, and favorable macroeconomic variable changes, which offset high loan growth. Michele Kawiecki expressed confidence in growing NII dollars, even with rate cuts, due to effective deposit cost management and higher end-of-period loan balances.