FIRST MERCHANTS CORP Q1 FY2024 earnings call

Financial highlights for the quarter included total assets of $18.3 billion, total loans of $12.5 billion, total deposits of $14.9 billion, and assets under advisement of $8.3 billion. Margin was stabilizing with new and renewed loan yields for the quarter totaling 8.15%. The company purchased $30 million of shares in First Merchants and redeemed $40 million of sub debt. Three out of four major technology initiatives were deployed, such as the rollout of a new in-branch account opening platform called Terafina, a new online and mobile platform for consumer customers, and a new private wealth platform. The business strategy focused on executing strategic imperatives like organic loan growth, deposit growth, fee growth, etc. The commercial portfolio had balance decline due to the seasoning and refinancing of real estate projects and seasonal factors related to agribusiness clients, while the commercial and industrial portfolio grew on an annualized basis. The consumer portfolio declined, and total deposits showed annualized growth.

Total assets stood at $18.3 billion, total loans were $12.5 billion, total deposits amounted to $14.9 billion, and assets under advisement were $8.3 billion. In the commercial portfolio, the commercial and industrial portfolio achieved an annualized growth of over 5.5% during the first quarter. The consumer portfolio declined by 0.8% in the first quarter, with the private banking portfolio being the main driver of this decline. Total deposits saw an annualized growth of 1.7%, and the consumer portfolio grew by over $155 million during the quarter.

Margin is expected to stabilize and potentially grow next quarter. Loan growth is anticipated to be in the mid to high single digits range for the year. Around $45 million of stock buyback authorization remained, and the company continued to be active with buybacks. The company's models indicated that each 25 basis point rate cut could lead to a 3 basis point margin decline, but actions were being taken to manage funding costs to mitigate this impact.

Risks included the impact of interest rate cuts on margin, where each 25 basis point cut could affect margin. The inverted yield curve and economic environment changes could impact credit quality, with classified loans increasing and nonaccrual loans rising slightly. Higher interest rates were affecting certain real estate projects and commercial real estate (CRE).

Q: Can you give insight into the cadence of margin over the next few quarters?

A: Quarterly margin for Q1 was 310, and margin is expected to be stable next quarter and potentially grow depending on market conditions.

Q: What's the outlook for loan growth?

A: Mid to high singles for the year, with commercial and industrial growth being strong.

Q: How much buyback is remaining under the current authorization?

A: Around $45 million remaining, and the company continues to be active with buybacks.

Q: On the margin commentary, is it under a static rate environment?

A: It contemplates using excess liquidity into new assets.

Q: On fee income outlook?

A: Expect to be at a reasonable level, maybe a touch lower but still positive.

Q: On credit quality, is it a normalized environment?

A: It's a return to more normalized credit environment, with charge-off rate expected in the 15-20 basis point range.

Q: On deposit actions to manage funding cost?

A: Took actions to reduce deposit costs, expecting stability in funding cost next quarter.

Q: On classified loans increase, where did it come from?

A: Approximately 2/3 from commercial and industrial and 1/3 from CRE, being normal inflows and outflows with individual issues.

Q: On deposit expectations for funding gap?

A: Desire to see loan deposit ratio tick up slightly, actively pursuing new client relationships.