First Merchants Corporation Q3 FY2025 earnings call

• Acquisition of First Savings: Announced on September 25, adding ~$2.4 billion in assets and expanding into Southern Indiana. Confident in integrating and achieving the 3-year earn-back.
• Segment Details: Michael Stewart discussed the Small Business Lending team and loan/deposit growth across segments. Michele Kawiecki provided financial metrics like ROA (1.22% year-to-date), net interest income, noninterest income, and capital ratios (tangible common equity at 9.18%). John Martin addressed asset quality, noting nonperforming assets at 0.51% and robust coverage ratios.
• Operational Strengths: Strong balance sheet, efficiency ratio at 55%, and continued loan growth across commercial and consumer segments.

Loan Growth: The company achieved 9% loan growth quarter, with $268 million in commercial loan growth for the quarter and $699 million year-to-date. The Consumer segment had $21 million in loan growth. Deposits: The Consumer segment drove $96 million in deposit growth, with non-maturity categories growing at nearly 5% annualized. The Commercial Business segment saw core relationship balances grow by 4.9% or $56 million. Revenue: Total revenues were strong, with net interest income up $0.7 million linked quarter and noninterest income up $1.2 million. Year-to-date net income totaled $167.5 million, an increase of 23.5% from the 9 months ended 2024, and earnings per share were $2.90, up 25.5% during the same period.

• Anticipate mid-first quarter closing of the First Savings acquisition and mid-second quarter integration. Confident in achieving the 3-year earn-back.
• Expect deposit rates to decline due to the September rate cut, planning to reduce rates further if cuts occur in October and December. Mid-term guidance for 2026 to be provided in the next earnings call.

• Competitive deposit dynamics impacting deposit costs.
• Uncertainty around loan growth and yield differentials with First Savings' triple net lease portfolio.
• Regulatory and market risks related to acquisitions and interest rate changes.

Q: What are your thoughts on the expense outlook and margin impact of potential rate cuts?

A: Michele Kawiecki states Q4 expenses are expected to be in line with Q3, and margin compression is anticipated with rate cuts, but the team is actively managing deposit rates to minimize impact.

Q: How does the First Savings acquisition impact asset sensitivity?

A: Michele Kawiecki responds that it reduces asset sensitivity, placing the combined company in a more favorable position.

Q: Is loan growth sustainable, and what about the credit portfolio?

A: Michael Stewart and John Martin discuss normal C&I activity, stable pipelines, and solid asset quality, with no unusual factors driving the growth beyond core business activity.