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FIRST MERCHANTS CORP (FRME)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered solid profitability: diluted EPS $0.98, up 44% YoY and 4% QoQ, with ROA 1.23% and ROTCE 14.49% supported by higher net interest income and a lower provision versus Q2 2024 .
  • Net interest margin (FTE) expanded to 3.25% (+3 bps QoQ; +9 bps YoY) as earning asset yields outpaced funding costs; efficiency ratio remained tight at 53.99% .
  • Loans grew $297.6M (+9.1% annualized QoQ), led by C&I; deposits increased $335.6M (+9.3% annualized QoQ), with CET1 at 11.35% and TCE at 8.92%—a robust capital position .
  • Management guidance: expect modest margin compression in H2 as deposit competition heats up; expenses to rise 1–2% in Q3–Q4; fee income to grow mid-single digits; effective tax rate ~13% in H2 .
  • Estimate context: EPS beat consensus ($0.98 vs $0.945*), while revenue was below consensus ($158.7M* vs $172.4M*). The beat was driven by strong NII and lower provision YoY; the revenue shortfall reflects reporting differences versus non-GAAP adjusted revenue and is less indicative for banks* .

What Went Well and What Went Wrong

What Went Well

  • Loan and deposit momentum: Loans +$297.6M QoQ (C&I +$147M; public finance +$58M), deposits +$335.6M QoQ; loan yields on new/renewed originations averaged ~7.04% .
  • Margin and NII: NII rose $2.7M QoQ to $133.0M; NIM (FTE) 3.25%, up 3 bps QoQ and 9 bps YoY, aided by higher earning asset yields .
  • Credit normalization: Nonperforming assets/total assets fell to 0.36% (from 0.47% in Q1); net charge-offs were 0.07% of average loans annualized; provision $5.6M vs $24.5M in Q2 2024 .
  • Quote: “We delivered 9.1% annualized loan growth and $0.98 of earnings per share… efficiency ratio was 54%” — CEO Mark Hardwick .

What Went Wrong

  • Funding cost pressure: Total deposit cost rose 7 bps QoQ to 2.30%, and management expects modest margin compression in H2 due to higher deposit competition .
  • Wealth fees muted relative to markets: Wealth management fees were flat YoY despite equity market strength; management still expects fee growth but moderated to mid-single digits in H2 .
  • Brokered funding reliance remains elevated but within policy: Brokered deposits totaled ~$1.2B (including $505M brokered CDs), with internal threshold at ~10% of funding, limiting headroom if core deposit growth slows .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Diluted EPS ($)$0.68 $0.94 $0.98
Net Interest Income ($M)$128.571 $130.270 $133.014
Noninterest Income ($M)$31.334 $30.048 $31.303
Net Interest Margin (FTE %)3.16% 3.22% 3.25%
Efficiency Ratio (%)53.84% 54.54% 53.99%
Return on Avg Assets (%)0.87% 1.21% 1.23%
Return on Tangible Common Equity (%)11.29% 14.12% 14.49%
Balance SheetQ2 2024Q1 2025Q2 2025
Total Assets ($B)$18.30 $18.44 $18.59
Total Loans ($B)$12.64 $13.00 $13.30
Total Deposits ($B)$14.57 $14.46 $14.80
Asset Quality & CapitalQ2 2024Q1 2025Q2 2025
NPAs / Assets (%)0.36% 0.47% 0.36%
Net Charge-offs / Avg Loans (Annualized, %)1.26% 0.15% 0.07%
ACL / Loans (%)1.50% 1.47% 1.47%
CET1 Ratio (%)11.02% 11.50% 11.35%
TCE Ratio (%)8.27% 8.90% 8.92%

Estimates vs Actuals (S&P Global):

MetricQ2 2024Q1 2025Q2 2025
EPS Consensus Mean ($)0.798*0.913*0.945*
EPS Actual ($)0.68*0.94*0.98*
Revenue Consensus Mean ($M)160.51*170.91*172.41*
Revenue Actual ($M)135.41*156.12*158.72*

Values retrieved from S&P Global.*

Segment Breakdown (Loans)

Loan Category ($M)Q2 2024Q1 2025Q2 2025
Commercial & Industrial3,949.8 4,306.6 4,440.9
Construction823.3 793.2 836.0
CRE – Non-Owner Occupied2,323.5 2,177.9 2,171.1
CRE – Owner Occupied1,174.2 1,214.7 1,226.8
Residential Mortgage2,370.9 2,389.9 2,397.1
Home Equity631.1 650.5 674.0
Individuals (Consumer)162.1 141.0 141.0
Public Finance & Other964.8 1,087.4 1,144.6
Total Loans12,639.7 13,004.9 13,296.8

KPIs (Deposits)

Deposit Category ($M)Q2 2024Q1 2025Q2 2025
Demand Deposits7,757.7 7,786.6 7,798.7
Savings Deposits4,339.2 4,791.9 4,984.7
Time ≤ $100k889.9 625.2 617.9
Time > $100k1,415.1 896.1 891.1
Brokered CDs167.2 362.2 505.2
Total Deposits14,569.1 14,462.0 14,797.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest MarginH2 2025Stable (normalized ~3.22%) Modest compression in H2 due to deposit competition Lowered
Deposit CostsH2 2025Downward beta with potential reduction if Fed cuts Competition heated up; modest increases likely; cost rose to 2.30% in Q2 Raised
Noninterest IncomeH2 2025Mid- to high single-digit growth for 2025 (mortgage/wealth double-digit) Mid single-digit growth expected in H2 Tempered
ExpensesQ3–Q4 20251–3% YoY growth (sub-55% efficiency) +1–2% sequential increase in Q3–Q4; continued discipline Maintained
Loan Growth2025Mid- to high single-digit; strong pipelines Pipelines consistent; expect continued growth into Q3 Maintained
Effective Tax RateH2 202513–14% for 2025 Approach ~13% in H2 Lowered
Brokered Deposits PolicyOngoingNot specifiedInternal threshold ~10%; comfortable below that Clarified
Capital Deployment2025Opportunistic buybacks; M&A within IN/OH/MI Less aggressive buybacks if stock moves higher; retain flexibility Calibrated

Dividends: Common dividend $0.36 paid in Q2; declared $0.36 payable Sept 19, 2025 .

Earnings Call Themes & Trends

TopicQ4 2024 (Jan 30)Q1 2025 (Apr 24)Q2 2025 (Jul 24)Trend
Technology / PlatformsCompleted major upgrades (online/mobile, PWA); efficiency focus Stable run-rate; margin stabilization aided Internal dashboards, faster account opening, upgraded TM & PWA platforms Ongoing execution, productivity
Tariffs / MacroMonitoring impacts; early signs benign Analyzing impacts; some revolver usage and inventory build Some pull-through; higher line utilization; monitoring Manageable, monitored
Deposit CompetitionDownward beta; cost reductions achieved Cost declined 20 bps; discipline maintained Competition heating; expect modest margin pressure Tightening
Loan Demand / PipelinesStrong C&I; public finance growth Strong pipelines; mid-high single-digit guidance Pipelines consistent; continued growth expected Sustained
Capital / BuybacksActive buybacks; flexibility New $100M program; active post-quiet period Opportunistic; less aggressive if stock rises Opportunistic
Fee Income OutlookMid-high single-digit growth in 2025 Same; mortgage/wealth double-digit Mid-single-digit growth H2 Slightly tempered

Management Commentary

  • CEO perspective: “We delivered 9.1% annualized loan growth and $0.98 of earnings per share… Return on assets totaled 1.23% and our efficiency ratio was 54%” .
  • NIM/NII drivers: “Yield on earning assets increased meaningfully by 11 bps… partially offset by the increase in funding costs” .
  • Credit stance: “Net charge offs were just 0.07% of average loans annualized… largest non accruals include a $12.9M multifamily construction loan… we are actively working through resolution strategies” .
  • Capital priorities: “Use a third of earnings to support balance sheet growth, a third for dividends, and the other third for capital activities… less aggressive with buybacks as stock moves north” .

Q&A Highlights

  • Margin outlook: CFO expects modest compression in H2 due to deposit competition; asset sensitivity ~2 bps margin compression per 25 bp cut .
  • Deposit funding: Internal brokered deposit threshold ~10%; focus remains on core funding .
  • Fee income: H2 noninterest income targeted mid-single-digit growth; mortgage rates declined modestly; treasury management and mortgage gains supportive .
  • Expenses: Expect +1–2% lift in Q3–Q4 as incentives/marketing normalize; continued discipline targeting sub-55% efficiency .
  • Loan pipeline & repricing: Pipelines consistent; ~$200M of fixed-rate loans to reprice in H2 from ~5% coupons .
  • Tax rate: Effective tax rate to approach ~13% in H2 2025 .

Estimates Context

  • EPS beat: $0.98 actual vs $0.945 consensus* for Q2 2025; also beat in Q1 2025 ($0.94 vs $0.913*) [GetEstimates].
  • Revenue miss: $158.7M* actual vs $172.4M* consensus in Q2 2025; note bank “revenue” definitions differ—company reports non-GAAP adjusted revenue of $170.5M in Q2 .
  • Implications: Strong NII and margin expansion, combined with lower YoY provision, underpin the EPS beat; revenue variance reflects methodology rather than deterioration* .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Momentum intact: Loan growth (+9.1% annualized QoQ) and margin expansion (3.25% FTE NIM) support earnings durability despite funding cost headwinds .
  • Near-term: Expect modest margin pressure in H2 as deposit competition rises; watch deposit cost trajectory and brokered funding mix (internal cap ~10%) for spread risk .
  • Credit: Asset quality improved (NPAs/assets down to 0.36%; NCOs 0.07% annualized); provision normalizing—supports risk-adjusted profitability .
  • Capital deployment: CET1 11.35% and TCE 8.92% provide flexibility; buyback cadence likely to slow if valuation rises; dividends steady at $0.36/share .
  • Fee income: H2 growth targeted mid-single digits; mortgage/treasury management should contribute, but market-rate sensitivity remains a variable .
  • Watch list: Deposit mix/costs, H2 loan pipeline conversion, fixed-rate repricing lift (~$200M at ~5%), and any macro/tariff impacts on line utilization .
  • Medium-term thesis: Commercially focused footprint with disciplined expense management and strengthening capital positions First Merchants to compound tangible book and sustain peer-top efficiency, with inorganic optionality in core markets .