First Merchants (FRME) Q2 2024 earnings summary

Executive summary

• Q2 2024 net income was $39.5M ($0.68 per share), down from $60.4M in Q2 2023, with annualized loan growth of 6.1% led by C&I activity and a 0.87% ROA; provision expense rose to $24.5M due to elevated net charge-offs.

• Total assets reached $18.3B, with $12.7B in loans and $14.6B in deposits at quarter-end; deposits declined $315.5M (8.5% annualized) from Q1 2024.

• Net interest margin improved to 3.16% from 3.10% in Q1 2024, and net interest income increased by $1.5M sequentially.

• Efficiency ratio improved to 53.84%, below the 55% target.

• Major technology initiatives for the year are now substantially complete.

Financial highlights

• Net interest income for Q2 was $128.6M, up $1.5M from Q1 2024 but down $9.3M from Q2 2023; noninterest income grew 17.7% sequentially to $31.3M, driven by higher gains on loan sales and private wealth fees.

• Noninterest expense declined 5.7% sequentially to $91.4M, mainly due to lower salaries and FDIC assessments.

• Pre-tax pre-provision earnings totaled $68.5M for Q2, with a return on assets of 0.87% and return on equity of 7.16%.

• Net charge-offs were $39.6M (1.26% of average loans), primarily from two large commercial credits.

• Allowance for credit losses on loans was $189.5M (1.50% of total loans), down from 1.80% a year ago.

Outlook and guidance

• Loan growth is expected to remain in the high single digits for the remainder of 2024.

• Fee income is projected to grow at a double-digit rate.

• Margin is expected to be stable to slightly up in a flat rate environment; each 25 bp Fed rate cut would reduce margin by about 3 bp.

• Provision expense is expected to normalize after this quarter's unique events.

• Management continues to focus on organic growth, digital investments, and maintaining strong capital.