On July 25, 2024, First Merchants Corp (FRME, Financial) released its 8-K filing for the second quarter of 2024. First Merchants Corp, through its subsidiaries, provides its customers with financial services delivered locally by bankers. It offers personal banking, business banking, real estate mortgage lending, cash management services, brokerage, wealth management, and insurance. The company reports in only one segment which is community banking.
Performance Overview
First Merchants Corp (FRME, Financial) reported net income available to common stockholders of $39.5 million for Q2 2024, a significant decline from $60.4 million in Q2 2023 and $47.5 million in Q1 2024. Diluted earnings per common share were $0.68, falling short of the analyst estimate of $0.78. The company's revenue for the quarter was not explicitly stated in the filing, but the net interest income totaled $128.6 million, a slight increase from the previous quarter.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | Q1 2024 |
|---|---|---|---|
| Net Income (millions) | $39.5 | $60.4 | $47.5 |
| Diluted EPS | $0.68 | $1.02 | $0.80 |
| Net Interest Margin | 3.16% | 3.39% | 3.10% |
| Total Loans (billions) | $12.7 | $12.3 | $12.5 |
| Total Deposits (billions) | $14.6 | $14.6 | $14.9 |
Financial Achievements and Challenges
First Merchants Corp (FRME, Financial) demonstrated a strong capital position with a Common Equity Tier 1 Capital Ratio of 11.02%. The net interest margin improved to 3.16% from 3.10% in the previous quarter, driven by higher yields on earning assets and lower yields on interest-bearing liabilities. However, the company faced challenges with an elevated provision expense of $24.5 million due to higher-than-normal net charge-offs, which significantly impacted the quarterly performance.
"We are pleased that net interest margin improved by 6 basis points over the first quarter of 2024 and that net interest income increased by $1.5 million over the same period. Non-interest income and non-interest expense also compared favorably helping the company produce an efficiency ratio better than our stated key performance indicator of less than 55 percent," stated Mark Hardwick, Chief Executive Officer.
Income Statement Highlights
Net interest income for Q2 2024 was $128.6 million, a 1.2% increase from the previous quarter but a 6.7% decrease from Q2 2023. Noninterest income totaled $31.3 million, up 17.6% from Q1 2024, driven by higher gains on the sales of loans, private wealth fees, and an increase in CRA investment valuations. Noninterest expenses decreased to $91.4 million, primarily due to lower salaries and employee benefits and lower FDIC assessments.
Balance Sheet and Cash Flow
As of June 30, 2024, total assets stood at $18.3 billion, with total loans amounting to $12.7 billion. Total deposits were $14.6 billion, reflecting a decline of $315.5 million on a linked quarter basis. The loan-to-deposit ratio ended at 87.0%. The Allowance for Credit Losses (ACL) was $189.5 million, or 1.50% of total loans, with net charge-offs for the quarter totaling $39.6 million.
Analysis and Conclusion
First Merchants Corp (FRME, Financial) faced a challenging quarter with a notable decline in net income and earnings per share, primarily due to elevated provision expenses. Despite these challenges, the company maintained a strong capital position and improved its net interest margin. The decline in deposits and the increase in net charge-offs are areas of concern that may require strategic adjustments moving forward. Investors will be keenly observing how the company navigates these challenges in the upcoming quarters.
Explore the complete 8-K earnings release (here) from First Merchants Corp for further details.
