FIRST MERCHANTS CORP Q1 FY2025 earnings call

• Strong first quarter performance with 4.8% annualized loan growth and 23 basis point increase in return on assets. - Board approved $100 million share repurchase program, already repurchased $10 million, and redeemed $30 million of sub debt. - Tangible common equity at 8.9% above target levels. - Commercial focus in Indiana, Michigan, and Ohio. - Mortgage unit volume up over 15%, dollar volume up over 30%. - Total cost of deposits declined 20 basis points to 2.23%. - Net interest income on fully tax-equivalent basis was $136.4 million, down $3.8 million from prior quarter, net interest margin 3.22% declining 6 basis points. - Noninterest income totaled $30 million, customer-related fees $27.1 million. - Non-interest expense $92.9 million, down $3.4 million from prior quarter, efficiency ratio 54.54%. - Common equity Tier one climbed to 11.5%.

First quarter total assets were $18.4 billion with $13 billion in total loans, $14.5 billion in total deposits, and $5.8 billion of assets under advisement. Loans grew nearly $155 million or at a 4.8% annualized rate. The commercial segment was the primary driver, increasing $169 million or a 7% annualized growth rate, with C&I loans growing $248 million offsetting a $96 million decline in investment real estate. Net income was $54.9 million, an increase of $7.4 million or 15.6% from one year ago. GAAP earnings per share increased to $0.94 from $0.80 a year ago, a 17.5% increase. Core earnings per share grew by 10.6% after adjusting for last year's technology integration expenses. Total deposits declined 1.6% annualized, with commercial deposit balance decline mainly from public funds portfolio, and consumer deposits had core relationship balances growth offset by maturity deposits decline.

• Mid to high single-digit loan growth guidance maintained. - Mortgage team expected to have double-digit growth, noninterest income expected mid to high single-digit growth year over year. - Expense growth guidance still holds at 1-3% over 2024 expense base. - Cash flows from securities portfolio reallocated to support loan growth. - M&A strategy remains to focus on Indiana, Ohio, and Michigan.

• Market volatility impacting share price. - Potential impact of tariffs on credit growth. - Increased competition for deposits.

Q: About the multifamily NPA, do you expect additional charge-offs?

A: No, the sale is scheduled soon with no principal loss.

Q: Thoughts on fee income for second quarter and beyond?

A: Expect mid to high single-digit year over year growth, with mortgage team expected to have double-digit growth and wealth management team also capable of double-digit growth.

Q: Outlook on expenses?

A: Guidance from last quarter still holds with 1-3% expense growth over 2024 expense base.

Q: Strategy for cash flows from securities portfolio?

A: Reallocating to support loan growth, not reinvesting yet.

Q: Thoughts on M&A?

A: No change in strategy, continue to stay close to partners in Indiana, Ohio, or Michigan, and stock price volatility makes M&A momentum hard to create.

Q: Expectations for margin in second quarter?

A: Margin expected to remain relatively stable, excluding day count impacts.

Q: Impact of Fed cuts on margin?

A: Each 25 basis point cut may cause 2-3 basis points of margin compression, but deposit cost cuts have offset some asset repricing.

Q: Impact of tariffs on credit?

A: Early to determine impact, but borrowers are dealing with it by pricing into projects or M&A evaluations.

Q: Plan on buyback?

A: Continue to be assertive on buyback, executing the plan given focus on organic growth and opportunistic with stock pricing.