Sign in
FM

FIRST MERCHANTS CORP (FRME)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered a strong finish: diluted EPS of $1.10 (+31% q/q; +55% y/y) and adjusted EPS of $1.00 excluding non-core items (branch sale gain and AFS bond losses) .
  • Core operating momentum improved: NIM (FTE) expanded to 3.28% (+5 bps q/q; +12 bps y/y), adjusted efficiency ratio at 53.60% (excluding branch sale) versus 53.76% in Q3 .
  • Balance sheet quality and capital remained strong: CET1 11.43%, TCE 8.81%, NPAs/Assets at 0.43% (up from 0.35% in Q3 due to specific nonaccruals expected to resolve without loss) .
  • 2025 setup: Management guides to margin growth even with two assumed Fed cuts, loan growth around mid-single digits (~6%), minimal expense growth (1–3%), sub-55% efficiency, and tax rate of 13–14%—supported by deposit-cost reductions and technology upgrades completed in 2024 .
  • Potential stock catalysts: sustained NIM expansion via funding-cost discipline, steady fee growth in wealth/mortgage, visible capital return (opportunistic buybacks below historical multiples), and resolution of temporary NPAs .

What Went Well and What Went Wrong

What Went Well

  • Margin and core earnings momentum: “Net interest margin also improved by 5 bps Q4 over Q3 and helped drive PPNR growth of 4% on a linked basis… sub 54% efficiency ratio” .
  • Strategic repositioning: Completed sale of five Illinois branches (gain $20.0M) and securities restructuring—prioritizing core markets; multiple technology upgrades (Terafina, Q2, SS&C InnoTrust, Black Diamond; real-time wires) completed to enhance client experience .
  • Deposit-cost reduction: Total deposit cost fell to 2.43% in Q4; December exited at 2.33%, with a down deposit beta of 46%—providing tailwind to NIM .

What Went Wrong

  • Nonperforming assets increased: NPAs/Assets rose to 0.43% (+8 bps q/q), driven largely by a $22M multifamily credit dispute (expected to be repaid through sale, no loss anticipated) .
  • Non-core losses: Net realized losses on AFS securities of $11.6M in Q4 (and $20.8M in 2024) as part of portfolio repositioning, partially offsetting the branch sale gain .
  • Provision normalization after 2024 volatility: While Q4 net charge-offs were minimal ($0.8M), management still expects normalized charge-offs in 2025 between 15–20 bps, underscoring conservative credit posture .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Diluted EPS ($)$0.71 $0.84 $1.10
Adjusted Diluted EPS ($)$0.90 $0.95 $1.00
Net Interest Income ($MM)$130.06 $131.11 $134.37
Noninterest Income ($MM)$26.44 $24.87 $42.74
NIM (FTE, %)3.16% 3.23% 3.28%
Efficiency Ratio (GAAP, %)63.26% 53.76% 48.48%
Adjusted Efficiency Ratio (ex-branch gain, %)55.56% 53.76% 53.60%
ROA (%)0.92% 1.07% 1.39%

Segment breakdown (loans):

Loan Category ($B)Q3 2024Q4 2024
Commercial & Industrial$4.04 → $4.04B$4.11 → $4.11B
CRE – Non-owner$2.25 → $2.25B$2.27 → $2.27B
Construction$0.81 → $0.81B$0.79 → $0.79B
Residential$2.37 → $2.37B$2.37 → $2.37B
Home Equity$0.64 → $0.64B$0.66 → $0.66B
Public Finance & Other$0.98 → $0.98B$1.06 → $1.06B
Total Loans$12.65 → $12.65B$12.85 → $12.85B

Deposits mix:

Deposit Category ($B)Q3 2024Q4 2024
Demand$7.68 → $7.68B$7.98 → $7.98B
Savings$4.30 → $4.30B$4.52 → $4.52B
Large Time ≥$100k$1.28 → $1.28B$1.04 → $1.04B
Other Time$0.80 → $0.80B$0.69 → $0.69B
Brokered CDs$0.30 → $0.30B$0.28 → $0.28B
Total Deposits$14.37 → $14.37B$14.52 → $14.52B

KPIs and balance sheet:

KPIQ4 2023Q3 2024Q4 2024
CET1 Ratio (%)—11.25 11.43
TCE Ratio (%)8.81? (year-end TCE reported for 2024) —8.76 8.81
NPAs/Assets (%)0.32 0.35 0.43
Net Charge-offs ($MM)$3.15 $6.71 $0.77
ACL/Loans (%)1.64 1.48 1.50
Loans ($B)$12.49 $12.65 $12.85
Deposits ($B)$14.82 $14.37 $14.52
Loan/Deposit Ratio (%)—88.0 88.5

Revenue proxies (non-GAAP):

Adjusted Revenue ($MM)Q4 2023Q3 2024Q4 2024
Adjusted Revenue$164.68 $170.97 $194.49
Adjusted Revenue ex-Branch Gain$164.68 $170.97 $174.51

Guidance Changes

MetricPeriodPrevious Guidance (Q3’24)Current Guidance (Q4’24)Change
Net Interest MarginFY 2025Aim for stable NIM; bond sale supportive Plan to grow margin despite two assumed Fed cuts (Mar/Jun); deposit costs down; 2–3 bps margin pickup in Q1 from restructuring Raised
Loan GrowthFY 2025Mid-single digits (~5–6%) “6% this quarter is a good number to think about for ’25”; mid-single-digit bullish Maintained/clarified up
Expense GrowthFY 2025Q4 run-rate reasonable; more guidance in Jan Minimal growth 1–3%, leaning low end Clarified (lower)
Efficiency RatioFY 2025Sub-55% target implied Expect sub-55% efficiency Maintained
Noninterest IncomeFY 20252H24 run-rate $30–$32MM per qtr Mid–high single-digit y/y growth; wealth & mortgage double-digit Raised
Tax RateFY 202513–14% forward 13–14% in 2025 Maintained
Deposit Cost TrajectoryNear termActive pricing; mix focus Downward beta 46%; Dec cost 2.33%; continue lowering Improved
Capital DeploymentFY 2025Buybacks if valuation below historical; optimize capital Same: buybacks below ~12.5–13x; priority on organic growth; M&A in IN/OH/MI when attractive Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Technology initiativesNot emphasized in Q2 PR Completed 4 major initiatives across digital/wealth Added real-time wire; systems in place to drive results Strengthening execution
Deposit costs/mixDeposits down q/q; NIM +6 bps Active pricing; consumer time deposits reduced; mix improving Deposit cost down 26 bps q/q; Dec at 2.33%; mix optimized; down beta 46% Improving
Margin outlookNIM 3.16% (+6 bps q/q) Stable NIM targeted; bond sale supportive Plan to grow margin in 2025 despite two cuts; funding-cost tailwinds Positive
Loan growth+6.1% annualized in Q2; C&I led Pipelines strong; mid-single-digit outlook 5.9% annualized q/q; target ~6% for 2025 Improving
CRE exposureConstruction/CRE footings declined in 2024 Decline slowing; balanced developers; selective growth Capacity to grow CRE; balanced approach; public finance up $77M Stabilizing
Credit qualityElevated Q2 NCOs from trucking loss NCOs $6.7M; 90+ days spike temporary NCOs $0.8M; NPAs up due to specific multifamily; normalized COs 15–20 bps Normalizing
Tariffs/macro——Proposed tariffs not significantly impacting margins/inventory Benign

Management Commentary

  • “The fourth quarter was a strong finish to the year… positioned to deliver strong results in 2025.” — CEO Mark Hardwick .
  • “Net interest margin improved by 5 bps… PPNR growth of 4%… tangible common equity ratio… 8.81%.” — CEO Mark Hardwick .
  • “Our intention is to use [securities cash flows] to fund loan growth… plan is to grow margin… two rate cuts [assumed]… deposit costs proactively managed.” — CFO Michele Kawiecki .
  • “Total deposit costs declined meaningfully… reflecting a downward deposit beta of 46%.” — CFO Michele Kawiecki .
  • “We love our capital base… priority is organic growth; M&A only within IN/OH/MI if appropriately priced; buybacks when valuation below historical multiples.” — CEO Mark Hardwick .

Q&A Highlights

  • Deposit costs trajectory: December cost at 2.33%; continued momentum to lower costs with a 46% down beta .
  • Margin/portfolio strategy: Q1 2025 margin benefit of 2–3 bps from funding switch; cash flows used for loan growth; margin growth targeted despite rate cuts .
  • Loan growth: Middle single-digit net growth feasible; ~6% is a reasonable 2025 marker .
  • Fee income: 2025 noninterest income expected mid–high single-digit y/y; wealth and mortgage double-digit .
  • Capital management: Opportunistic buybacks below ~12.5–13x; focus on organic growth; M&A in footprint when accretive .
  • Credit outlook: Normalized charge-offs expected in 15–20 bps range for 2025; Q4 nonaccrual increase viewed as transitory .

Estimates Context

  • Wall Street consensus (S&P Global) estimates for Q4 2024 EPS and revenue were unavailable due to a system limit error; no estimate comparison is provided. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Funding discipline is now a primary earnings lever: deposit costs are falling faster than asset yields, enabling NIM expansion; expect incremental margin tailwinds in early 2025 from restructuring .
  • Loan growth is broad-based with a C&I tilt and improving pipelines across IN/MI/OH; public finance mobilized late in Q4, offering less competitive lending opportunities .
  • Fee-income durability: wealth management and mortgage delivered in 2024 and are set to grow double-digit in 2025, supporting diversified revenue .
  • Expense control credible: after heavy lifts in 2024, management targets 1–3% expense growth and sub-55% efficiency, implying operating leverage continuity even with rate cuts .
  • Credit normalization: NPAs uptick tied to specific events expected to resolve without loss; normalized charge-offs range (15–20 bps) supports steady provisioning .
  • Capital flexibility: robust CET1/TCE enable balanced deployment—organic growth first; buybacks are an option when valuation is below historical averages; M&A only in core states and at attractive terms .
  • Trading implications: Near-term narrative hinges on sustaining NIM expansion and fee momentum; watch Q1 margin benefit (2–3 bps), deposit-cost trend, and resolution of specific NPAs as catalysts .