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FIRST MERCHANTS CORP (FRME)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered stable profitability with diluted EPS of $0.98 (adj. $0.99) versus $0.98 in Q2 and $0.84 in Q3 2024; NIM-FTE held at 3.24% while core efficiency was 54.56% .
  • EPS beat S&P Global consensus by ~3% (actual $0.99 vs. $0.962*), while SPGI “revenue” (NII after provision + noninterest) missed by ~6% ($161.8m vs. $172.5m*), reflecting a lower provision-adjusted revenue base despite fee strength .*
  • Strong loan growth continued: +$289m QoQ (8.7% annualized), led by C&I; deposits +$72m QoQ; CET1 11.34% and TCE/TA 9.18% support growth and FSFG close targeted for Q1’26 .
  • Expense pressure from talent additions and ~$0.9m one-time severance/acquisition costs lifted the reported efficiency ratio to 55.09%; core OpEx otherwise aligned with guidance .
  • Call tone: cautious on deposit pricing (competition still elevated), modest NIM compression if two Q4 cuts (~2 bps per 25 bps), but ability to lower deposit rates and strong EOP loan balances support NII dollars into Q4; buybacks likely paused until FSFG close .

What Went Well and What Went Wrong

What Went Well

  • Sustained organic growth and stable margin: Net interest income rose $0.7m QoQ; NIM-FTE steady at 3.24% with fee income up $1.2m QoQ and customer-related fees stable .
  • Credit metrics remained solid: NPAs/Assets 0.36% (flat QoQ), net charge-offs 0.15% annualized, ACL/Loans at 1.43% .
  • Strategic expansion: Announced First Savings Financial Group acquisition (~$2.4b assets), expected Q1’26 close, adding SBA origination capability and optionality from a triple-net lease book .

Management quotes:

  • “Our strong year-to-date balance sheet and earnings performance underscore the strength and resilience of our business model.” — CEO Mark Hardwick .
  • “Net interest income on a fully tax-equivalent basis of $139.9 million increased $0.7 million linked quarter… Our quarterly net interest margin of 3.24% was stable linked quarter.” — CFO Michele Kawiecki .
  • “We are confident in achieving the announced three-year earned back [on FSFG].” — CEO Mark Hardwick .

What Went Wrong

  • Deposit cost pressure resumed: Cost of total deposits rose to 2.44% from 2.30% in Q2 due to competitive specials to fund robust loan growth; management expects moderation with rate cuts .
  • Modest operating leverage headwind: Noninterest expense rose $3.0m QoQ (severance/acquisition costs ~$0.9m, higher salaries/incentives), lifting reported efficiency to 55.09% (54.56% core) .
  • SPGI “revenue” miss vs. consensus: Provision-adjusted revenue of $161.8m was below $172.5m*, driven by a $4.3m provision and mix effects despite higher fees .*

Financial Results

Summary P&L and Key Ratios (oldest → newest)

MetricQ3 2024Q2 2025Q3 2025
Net Interest Income ($m)131.110 133.014 133.665
Noninterest Income ($m)24.866 31.303 32.477
Provision for Credit Losses ($m)5.000 5.600 4.300
Noninterest Expense ($m)94.629 93.598 96.561
Pre-tax Income ($m)56.347 65.119 65.281
Net Income to Common ($m)48.719 56.363 56.297
Diluted EPS ($)0.84 0.98 0.98
NIM - FTE (%)3.23 3.25 3.24
Efficiency Ratio (%)53.76 53.99 55.09

Balance Sheet & Credit (period-end; oldest → newest)

MetricQ3 2024Q2 2025Q3 2025
Loans ($bn)12.647 13.297 13.591
Deposits ($bn)14.365 14.798 14.870
CET1 Ratio (%)11.25 11.35 11.34
TCE / TA (%)8.76 8.92 9.18
NPA / Assets (%)0.35 0.36 0.36
NCOs / Avg Loans (Ann.) (%)0.21 0.07 0.15

Revenue and EPS vs. S&P Global Consensus (Q3 2025)

MetricConsensus*ActualSurprise
EPS ($)0.962*0.99*+0.03
Revenue ($m)172.5*161.8*-10.7
  • Notes: SPGI “Revenue” reflects net interest income after provision plus noninterest income; “Actual” shown per SPGI; company-reported GAAP diluted EPS is $0.98 and adjusted EPS is $0.99 . Values marked with * retrieved from S&P Global.

KPIs and Drivers (oldest → newest)

KPIQ3 2024Q2 2025Q3 2025
Cost of Total Deposits (%)2.69 2.30 2.44
Yield on Loans (%)6.86 6.32 /6.40
Noninterest Income ($m) – customer fees23.5 approx; see total 24.9 and components $29.3 customer-related; total $31.3 $29.3 customer-related; total $32.5
Adjusted Efficiency Ratio (%)53.76 53.60 (4Q24 ref), 54.54 (1Q25); 53.99 Q2’25 54.56

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
NIM sensitivityQ4 2025Not quantified previously~2 bps compression per 25 bps cut; two Q4 cuts imply a few bps lower NIM New specific sensitivity
Deposit costsQ4 2025Not quantified previouslyTrending down after September cut; ability to lower on ~$2.5b indexed deposits; saw EoQ dip Improved outlook
Core noninterest expenseQ4 2025“Disciplined” expense posture (implied) Q4 core OpEx in line with Q3 core (~$95.7m excl. one-time) Maintained
NII dollarsQ4 2025Not previously guidedExpect growth despite cuts, helped by higher EOP loans vs. average Positive
Capital actionsThrough closePrior repurchases YTD; no explicit pauseNo buybacks anticipated until FSFG close; remain active post-close if valuation attractive Paused near-term
Securities roll-offNext 12 months—~$280m cash flow at ~2.18% yield to fund loan growth Explicit plan
FSFG mergerClose/integrationAnnounced Sept 25, 2025 Target close Q1’26; mid-Q2 integration; 3-year earn-back targeted Timelines set
DividendQ4 2025$0.36 (Aug 15) $0.36 declared Nov 14 for Dec 19 payment Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current (Q3 2025)Trend
Margin/NIMQ1 focus on margin stabilization; NIM-FTE 3.22% (Q1); Q2 NIM-FTE 3.25% on better asset yields NIM-FTE 3.24% stable; ~2 bps per 25 bps cut sensitivity; a few bps compression expected if Oct/Dec cuts occur Slight near-term pressure with rate cuts, managed via deposit repricing
Deposit costs/competitionQ1: core deposits prioritized; Q2: deposit growth +$336m QoQ Cost rose to 2.44% on specials; competition still high post-Sept cut; EoQ costs began to decline and more cuts could help Mix improvement targeted; costs likely to trend down
Loan growthQ1 +$155m; Q2 +$298m, primarily C&I Q3 +$289m (8.7% ann.); C&I +$169m; pipelines stable into Q4 Sustained momentum
FSFG acquisitionAnnounced 9/25/25 Adds ~$2.4b assets; SBA platform (>$100m YOY originations) and triple-net lease optionality; close Q1’26 Strategic expansion; fee and asset mix benefits
Securities/balance sheetQ2: bond book down $372m YoY ~$280m roll-off over 12 months at ~2.18% to fund loans; evaluate FSFG and FRME bond books post-close Continued optimization
Credit/CRENPAs 0.47% Q1 → 0.36% Q2 NPAs 0.36%; largest nonaccruals identified; classified loans down; office exposures granular with conservative LTVs Stable/benign
Capital deploymentQ1 redeemed $30m sub debt; repurchases YTD CET1 11.34%, TCE 9.18%; buybacks paused pre-close; post-close optional High flexibility maintained

Management Commentary

  • “We delivered another 9% loan growth quarter and $0.98 of earnings per share.” — CEO Mark Hardwick .
  • “We expect to see a few basis points of margin compression in Q4 if there are two rate cuts… our model predicts ~2 bps per 25 bps cut.” — CFO Michele Kawiecki .
  • “We had such high loan growth that we needed to make sure we had the funding… worth being a little more aggressive with specials this quarter.” — CEO Mark Hardwick .
  • “Net interest income… increased $0.7 million linked quarter… non-interest income totaled $32.5 million with customer-related fees of $29.3 million.” — CFO Michele Kawiecki .
  • “We are confident in achieving the announced three-year earned back [on FSFG]… and excited to build a true community bank in Southern Indiana.” — CEO Mark Hardwick .

Q&A Highlights

  • Expenses: Q4 core OpEx expected in line with Q3 core; normal year-end incentive true-ups but “disciplined finish” to the year .
  • Margin path: Expect a few bps Q4 NIM compression if two cuts; ~2 bps NIM impact per 25 bps cut; ability to reduce deposit rates should mitigate .
  • Deposit competition: Still elevated post-September cut; management began cutting rates late Q3 and will push further with additional cuts; ~$2.5b indexed deposits provide repricing leverage .
  • FSFG assets: Triple-net lease portfolio (~6.25% fixed) offers optionality to hold or sell; deal modeling assumes sale of ~$240m FSFG bonds; FRME will continue portfolio optimization .
  • NII outlook: Despite cuts, management expects NII dollars to grow given lower deposit costs and higher end-of-period loan balances .
  • Buybacks: No repurchases anticipated until FSFG close; potentially active thereafter depending on valuation .

Estimates Context

  • S&P Global Q3 2025 consensus: EPS $0.962 (6 ests); Revenue $172.5m (5 ests); FRME “actuals” per SPGI: EPS $0.99; Revenue $161.8m.* EPS beat (~3%); revenue miss (~6%).*
  • Context: Company-reported diluted EPS $0.98 (adj. $0.99); SPGI “revenue” aligns with net interest income after provision + noninterest income ($133.665m – $4.300m + $32.477m ≈ $161.8m) .
  • Implications: Street may lift EPS slightly on core expense discipline and fee stability, but provision-driven revenue definition and deposit cost dynamics could cap top-line revisions near term.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Core profitability intact: Stable NIM and fees delivered flat EPS QoQ despite higher deposit costs and one-time expenses; core efficiency at 54.56% supports returns .
  • Growth engine strong: C&I-led loan growth (+$289m QoQ) with steady pipelines positions Q4 for continued earning asset expansion .
  • Near-term NIM: Expect modest Q4 compression if two rate cuts; deposit rate actions and indexed balances should help pace the impact .
  • Credit benign: NPAs 0.36%, NCOs 15 bps, ACL 1.43%; office exposures are granular with conservative LTVs .
  • Capital optionality: CET1 11.34%, TCE 9.18%, and paused buybacks pre-FSFG close provide flexibility for growth and post-close capital return .
  • Strategic upside: FSFG adds SBA origination capability and triple-net lease optionality; targeted Q1’26 close and mid-Q2 integration offer medium-term fee and mix benefits .
  • Trading lens: Short-term, stock moves likely keyed to deposit cost trajectory and NIM sensitivity; medium-term, FSFG integration, organic loan growth, and capital return resumption are the catalysts.

Appendix: Additional Q3 2025 Detail

  • Reported diluted EPS $0.98; adjusted diluted EPS $0.99; net income to common $56.3m .
  • Deposit mix and cost: Total deposit cost 2.44% (Q2: 2.30%; Q3’24: 2.69%) .
  • Dividend: $0.36 per common share declared Nov 14, payable Dec 19, 2025; prior $0.36 declared Aug 15 .
  • Capital: CET1 11.34%; TCE/TA 9.18%; TRBC 13.04% .
  • Non-GAAP: Adjusted efficiency 54.56%; adjusted EPS $0.99; NIM-FTE 3.24% .