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FIRST MERCHANTS CORP (FRME)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 diluted EPS was $0.94 and net income to common was $54.9M; EPS modestly beat Wall Street consensus ($0.913), while “Revenue” missed consensus ($170.9M est. vs $156.1M actual). Management attributed the margin dip q/q (-6 bps) to lower day count, noting margin was stable when normalized . Results vs estimates: EPS beat; revenue miss.*
  • Loans grew $154.9M (+4.8% annualized) and CET1 rose to 11.50%; deposits declined 1.6% annualized with mix discipline, lowering interest-bearing deposit costs by 25 bps and total deposit cost by 20 bps to 2.23% .
  • Capital actions: $10M of buybacks year-to-date (246,751 shares) under a new $100M program and $30M sub debt redemption; TCE ratio 8.90% supports flexibility .
  • Guidance reiterated: mid- to high single-digit loan growth for 2025, margin stable ex-day count, mid- to high single-digit fee income growth, and 1–3% expense growth vs 2024 base; effective tax rate 13–14% .
  • Near-term stock catalysts: active buybacks post-quiet period and sustained loan growth; management noted the stock fell ~2% despite the “beat,” underscoring potential disconnect and buyback opportunity .

What Went Well and What Went Wrong

What Went Well

  • Loan growth and deposit cost traction: Loans +4.8% annualized; total deposit costs -20 bps q/q; interest-bearing deposit beta down 56% demonstrating disciplined pricing . “We are a commercially focused organization… loans grew nearly $155 million… C&I grew by $248 million” .
  • Margin stability ex-day count and strong capital: NIM (FTE) 3.22% (-6 bps q/q due to 5 bps day-count effect); CET1 11.50% and TCE 8.90% provide balance sheet strength . “When normalizing for the lower day count… margin was stable” .
  • Active capital return and reiterated growth outlook: New $100M buyback; $10M repurchases YTD; mid- to high single-digit loan growth reiterated. “Our Board recently approved a new $100 million share repurchase program… we’ve already repurchased $10 million” . “We’re sticking to our mid- to high single-digit loan growth guidance for the year” .

What Went Wrong

  • Revenue miss vs consensus and seasonal fee softness: Revenue came in below the Street; customer-related fees down q/q on lower derivative hedge fees, mortgage gains, and card fees; seasonality in mortgage noted . EPS beat but revenue miss.*
  • Loan yield compression and NPA uptick: Total loan yield decreased 34 bps to 6.21% on lower short-term rates; NPAs/Assets rose to 0.47% (from 0.43% in Q4); net charge-offs increased to ~$4.9M (from ~$0.8M in Q4) .
  • Macro uncertainty (tariffs): Management highlighted tariff-related volatility affecting borrower behavior (inventory pre-buys, analysis of input costs), adding uncertainty to back-half growth, though no clear stress yet .

Financial Results

Core Performance vs Prior Periods

MetricQ3 2024Q4 2024Q1 2025
Diluted EPS (GAAP) ($)0.84 1.10 0.94
Net Income to Common ($MM)48.72 63.88 54.87
Net Interest Income (GAAP) ($MM)131.11 134.37 130.27
Noninterest Income ($MM)24.87 42.74 30.05
NIM (FTE) (%)3.23 3.28 3.22
Efficiency Ratio (%)53.76 48.48 54.54
ROA (%)1.07 1.39 1.21

Estimates vs Actuals

MetricQ3 2024Q4 2024Q1 2025
EPS Consensus Mean ($)0.903*0.900*0.913*
EPS Actual ($)0.95*1.00*0.94*
Revenue Consensus Mean ($MM)166.44*167.84*170.91*
Revenue Actual ($MM)150.98*172.91*156.12*

Note: Values retrieved from S&P Global.*

Highlights:

  • Q1 2025: EPS beat (+3%) vs consensus; “Revenue” missed (−8.6%) vs consensus.*
  • Q4 2024: EPS and revenue both beat consensus.*
  • Q3 2024: EPS beat; revenue miss.*

Segment Breakdown (Loans, Period-End)

Category ($000)Q4 2024Q1 2025
Commercial & Industrial4,114,292 4,306,597
CRE – Non-owner occupied2,274,016 2,177,869
CRE – Owner occupied1,157,944 1,214,739
Construction792,144 793,175
Residential2,374,729 2,389,852
HELOC659,811 650,499
Individuals166,028 140,954
Public finance & other1,059,083 1,087,356
Total Loans12,854,359 13,004,905

KPIs and Credit

KPIQ3 2024Q4 2024Q1 2025
CET1 Ratio (%)11.25 11.43 11.50
Loan-to-Deposit Ratio (%)88.0 88.5 90.1
ACL / Loans (%)1.48 1.50 1.47
NPAs / Assets (%)0.35 0.43 0.47
Net Charge-offs (% Avg Loans, annualized)0.21 0.02 0.15

Additional Q1 details:

  • Deposit costs: interest-bearing deposit costs -25 bps; total deposit cost down to 2.23% .
  • Loan yield: decreased 34 bps to 6.21% due to lower short-term rates; new/renewed loans at ~6.96% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan GrowthFY 2025Mid- to high single-digit (Jan guidance) Mid- to high single-digit reaffirmed Maintained
Net Interest MarginNear-termStable ex-day count (Jan context) Stable ex-day count; Q1 NIM (FTE) 3.22% with −5 bps day-count Maintained
Noninterest IncomeFY 2025Mid- to high single-digit YoY growth Reiterated; mortgage and wealth expected double-digit growth Maintained
Expenses (Noninterest)FY 2025+1% to +3% vs 2024 base Reiterated 1–3%; running ahead early but still within range Maintained
Tax Rate (Effective)FY 2025N/A13%–14% New detail
Securities Cash Flows2025N/AReallocate to fund loan growth (not reinvesting yet) Strategic emphasis
Share Repurchases2025N/ANew $100M authorization; $10M completed YTD New program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4)Current Period (Q1 2025)Trend
Loan Growth & MixQ3: C&I-led momentum; NIM improved to 3.23% ; Q4: Loans +5.9% annualized; NIM 3.28% Loans +4.8% annualized; C&I +$248M; investment CRE down; pipelines strong Improving, C&I-led
Deposit Costs & MixQ3/Q4: organic deposit growth; branch sale; mix optimization Total deposit costs −20 bps; IB deposit beta 56%; core consumer balances grew despite maturity outflows Favorable cost trajectory
Margin OutlookQ3/Q4: NIM up sequentially Margin stable excluding day count; Q1 NIM 3.22% (−6 bps; −5 bps from day count) Stable ex-seasonality
Tariffs/MacroPrior: minimal mention in PRsTeams monitoring; inventory pre-buys; construction contracts hedging inputs; uncertain back-half impact Emerging uncertainty
Capital & BuybacksQ4: capital strong; branch sale gain; securities reposition $100M buyback authorization; $10M executed; TCE 8.90% Active capital return
Credit QualityQ3: NPAs 0.35%; NCOs 0.21% ; Q4: NPAs 0.43%; NCOs 0.02% NPAs 0.47%; NCOs 0.15%; reserve ~1.47%, target ~1.5% Stable-to-mixed (slight uptick)
Technology InitiativesQ4 PR: completion of multiple initiatives Ongoing focus; commercialization via mortgage/wealth momentum Execution continuing

Management Commentary

  • CEO on quarter strength and priorities: “The first quarter was a strong start to the year with healthy loan growth and increasing profitability… priorities… organic loan growth funded by low-cost core deposits, margin stabilization, fee income growth, expense management and credit quality” .
  • CFO on margin and revenue normalization: “Net interest margin… declined 6 basis points this quarter. When normalizing for the lower day count… margin was stable” . “Total revenues in Q1 were quite strong despite being impacted by day count and seasonality” .
  • President on loan momentum and deposit discipline: “C&I grew by $248 million… revolver usage increased… inflationary effects on inventory and receivables… we continued our pricing discipline within our consumer segment” .
  • CCO on credit: “NPAs and 90-day past due loans represent only 0.7% of total loans… classified loans leveled and declined… net charge-offs roughly $5 million… 15 bps annualized” .

Q&A Highlights

  • Margin trajectory: Management expects margin to remain relatively stable, normalizing for day-count effects; deposit repricing provides offset if Fed cuts occur .
  • Expense outlook: Reiterated +1–3% y/y growth vs 2024; running ahead early but within range .
  • Securities cash flows: Will be redeployed to support loan growth; not reinvesting into securities near term .
  • Fixed-rate loan repricing: ~$190M of fixed-rate loans repricing through year-end 2025 at ~4.65% rate, offering potential yield pickup .
  • Sponsor finance: Classifieds elevated by design; portfolio performing broadly in line with underwriting; last quarter’s ~$2.5M charge-off highlighted .
  • Tariffs: Too early to quantify impact; borrowers hedging input costs; construction projects priced with escalators and forward purchases .
  • Tax rate: Effective tax rate guided to 13–14% .
  • Buybacks: Active post-quiet period; management views price dislocation as opportunity .

Guidance Changes

(See table above; all major categories reaffirmed. Margin stable ex-day count; fee income mid- to high single-digit growth; expenses +1–3%; tax rate 13–14% .)

Estimates Context

  • Q1 2025: EPS $0.94 vs $0.913 consensus — modest beat; “Revenue” $156.1M vs $170.9M consensus — miss. Management’s commentary suggests the revenue shortfall partly reflects seasonality (mortgage/card) and normalization after Q4 one-time items .*
  • Q4 2024: EPS $1.00 vs $0.90; revenue $172.9M vs $167.8M — both beats, aided by lower funding costs and mix; core noninterest income also improved y/y .*
  • Q3 2024: EPS $0.95 vs $0.903 — beat; revenue $151.0M vs $166.4M — miss, due to bond portfolio repositioning losses offset by higher mortgage gains/BOLI .*

Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • EPS beat with stable normalized margin and strong C&I-led loan growth; the “Revenue” miss reflects seasonality and prior-quarter one-offs, not underlying deterioration .*
  • Deposit cost reductions and favorable betas are meaningful tailwinds to NIM resilience if rates decline; watch competitive deposit pricing pressure noted late in the quarter .
  • Credit remains manageable: NPAs up modestly, but classified balances leveled/declined and NCOs are low; reserve near the 1.5% target, providing cushion .
  • Active capital management should support TSR: $100M buyback authorization (with $10M executed YTD) and CET1/TCE strength enable opportunistic repurchases .
  • Tariff-related uncertainty is a watch item for back-half; current borrower behaviors (hedging/pre-buys) suggest preparedness, but growth could moderate if impacts broaden .
  • Near-term setup: Management expects margin stability and continued loan growth; fee businesses (mortgage, wealth) should accelerate seasonally into Q2/Q3 .
  • Trading lens: With EPS beats and active buybacks amid dislocated share price (management noted −2% on print), the risk/reward favors constructive positioning while monitoring macro/credit signals .