Published Oct 27, 2023 09:06AM ET
First Merchants (NASDAQ:) Corporation (NASDAQ:FRME) reported a year-on-year drop in earnings per share to $0.94 from $1.08 in its Q3 2023 Earnings Conference Call. The banking institution registered healthy net income of $55.9 million and robust growth in deposits and loan yields, indicating a strong overall performance. According to InvestingPro Data, the corporation has a market cap of $1.62 billion and a P/E ratio of 6.25, which is relatively low compared to near-term earnings growth.
Key takeaways from the call include:
- Net income for the quarter stood at $55.9 million.
- Earnings per share decreased to $0.94 from $1.08 year-on-year.
- Deposits increased by $65.4 million, or 1.8%, with significant growth in traditional, commercial, and consumer deposits.
- Loan yields rose to 6.58%, with new and renewed loan yields climbing to 7.88%.
- The commercial segment continues to drive loan growth, with higher spreads on new loan generation.
- The company’s efficiency ratio remained strong in the low 50s, and allowance for credit losses stood at 1.67%.
- Total expenses for the quarter were $93.9 million, primarily due to higher marketing costs.
- The company expects expenses to be in the $94-95 million range for Q4.
InvestingPro Tips indicate high earnings quality, with free cash flow exceeding net income, and a history of dividend growth, having raised its dividend for 11 consecutive years. The corporation is also trading at a low earnings multiple, which suggests potential for investors looking for value buys.
Despite a decline in earnings per share, First Merchants Corporation demonstrated strong performance across several key metrics. Deposits rose by 1.8%, driven by growth in the consumer deposit segment. Loan yields also increased, with new and renewed loan yields reaching 7.88%. The commercial segment remained the primary driver of this loan growth.
The company reported a net provision expense of $2 million due to a decrease in unfunded commitment balances. The total cost of deposits rose to 2.32%, and the interest-bearing deposits beta increased to 51%. Despite this, customer interaction in deposit pricing is lessening, indicating deposit price stability.
Non-interest income increased by $1.5 million, primarily due to gains on the sales of mortgage loans. However, net interest income declined by $4.4 million from the previous quarter. Total expenses for the quarter were $93.9 million, with higher marketing costs being the primary reason for the increase. The efficiency ratio for the quarter was 53.91%.
In terms of asset quality, net charge-offs stood at 22 basis points for the quarter. The shared national credit portfolio is performing in line with the rest of the C&I portfolio. The auto parts manufacturing portfolio is significant, but the impact of the strike has been minimal so far.
Regarding future expectations, executives provided guidance on expenses, fee income, and the estimated effective tax rate. They also discussed the potential for loan growth funded by deposits and the possibility of loan yield expansion throughout 2024. The company is focusing on internal projects rather than M&A and may engage in buybacks once there is stability in the market.
The executives discussed potential concerns in the construction portfolio due to higher interest rates and the need for additional capital in some cases. They expressed confidence in the loan portfolio and highlighted their underwriting practices and stress tests.
During the call, Mark Hardwick, a representative from First Merchants, expressed confidence in the underwriting process and the company’s business model, highlighting the strong margins and growth rates for loans and deposits. According to InvestingPro, the corporation’s revenue has been accelerating, and analysts predict profitability for the year. For more insights and tips, visit InvestingPro where you can find 8 additional tips for FRME.
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