First Merchants (FRME) Q2 2024 earnings summary

Executive summary

• Net income for Q2 2024 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 return on average assets of 0.87%.

• Total assets reached $18.3B, loans were $12.7B–$12.9B, and deposits $14.6B at quarter-end, with deposits declining 8.5% annualized from Q1.

• Net interest margin improved to 3.16%, up 6 basis points sequentially, and net interest income rose by $1.5M.

• Efficiency ratio improved to 53.84%, below the 55% target, driven by higher income and lower expenses.

• Provision expense was $24.5M, with net charge-offs of $39.6M, primarily from two large commercial relationships.

Financial highlights

• Earnings per share were $0.68 for Q2 and $1.48 for the first half of 2024.

• Pre-tax pre-provision earnings totaled $68.5M for Q2, with a return on equity of 7.16% and return on average tangible equity of 11.29%.

• Tangible book value per share increased to $25.10, up $1.76 or 7.5% year-over-year.

• Noninterest income for Q2 was $31.3M, up 17.6% sequentially and 19.1% year-over-year, driven by 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.

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.