First Merchants Corporation (NASDAQ:FRME) is a well-established financial institution serving customers across Indiana, Ohio, and Michigan. With a focus on commercial and retail banking, the company has built a diversified business model that has delivered consistent growth and profitability over the years.

Financials

In the fiscal year 2023, First Merchants reported annual net income of $223.8 million and annual revenue of $996.2 million. The company's annual operating cash flow stood at $260.2 million, with free cash flow being lower due to capital expenditures, showcasing its ability to generate strong cash flows to support its operations and strategic initiatives.

For the first quarter of 2024, the company reported net income available to common stockholders of $47.5 million, or $0.80 per diluted share. This compared to $63.6 million, or $1.07 per diluted share, in the same period of the prior year. The decrease in earnings was primarily due to a $22.5 million increase in provision for credit losses, which was partially offset by a $1.6 million increase in noninterest income and a $3.2 million increase in noninterest expense.

The company's total assets stood at $18.3 billion as of March 31, 2024, a slight decrease from $18.4 billion at the end of 2023. The loan portfolio decreased by $24.3 million, or 0.8% on an annualized basis, during the first quarter, with the largest declines in the agricultural land, construction, commercial real estate non-owner occupied, and commercial real estate owner-occupied loan classes. This was partially offset by an increase in commercial and industrial and residential real estate loans.

The allowance for credit losses on loans totaled $204.7 million as of March 31, 2024, representing 1.64% of total loans, compared to $204.9 million, or 1.64% of total loans, at the end of 2023. Nonaccrual loans increased to $62.5 million at the end of the first quarter, up from $53.6 million at the end of 2023, primarily due to an $11.5 million commercial real estate non-owner occupied loan moving to nonaccrual status.

Funding Sources

In terms of the company's funding sources, total deposits increased by $63.1 million, or 1.7% on an annualized basis, during the first quarter, reaching $14.9 billion as of March 31, 2024. The deposit portfolio remains well-diversified, with noninterest-bearing deposits representing 15.7% of total deposits. Total borrowings decreased by $167.1 million, or 16.2%, during the quarter, primarily due to a $100.1 million decrease in FHLB advances and a $40.0 million paydown of subordinated debt.

Capital Position

First Merchants' capital position remains strong, with a common equity Tier 1 capital ratio of 11.25% as of March 31, 2024. The company has been actively managing its capital, including the repurchase of $29.9 million of common stock during the first quarter and the redemption of $25.0 million in subordinated debt.

Outlook

Looking ahead, the company's management team remains focused on executing its strategic imperatives, which include organic growth of clients through loans, deposits, and fees, engaging and retaining its workforce, and investing in the digitization of its delivery channels. The company expects loan growth to be in the high single-digit range for the remainder of 2024, with fee income growing at a double-digit pace.

Conclusion

The company's diversified business model, strong capital position, and disciplined approach to risk management have positioned First Merchants well to navigate the current economic environment. With a focus on serving its commercial and retail customers across its Midwest footprint, the company is poised to continue delivering consistent growth and value for its shareholders.