Summary of First Merchants Corporation Q3 2025 Earnings Call

1Key Financial Results and Metrics

Earnings Per Share (EPS): $0.98 for Q3 2025; year-to-date EPS of $2.90, up 25.5% from 2024.

Net Income: $167.5 million year-to-date, a 23.5% increase from the previous year.

Return on Assets (ROA): 1.22% for the year-to-date.

Efficiency Ratio: 55% for Q3, indicating strong operational efficiency.

Loan Growth: 9% quarter-over-quarter, with $268 million in commercial loan growth.

Deposits: Total deposits declined by $23 million, but core operating accounts grew by 4.9% or $56 million.

Tangible Common Equity Ratio: Increased to 9.18%, providing capital flexibility.

Nonperforming Assets (NPA): 0.51% of total loans, down from 0.62% a year ago.

2Strategic Updates and Business Highlights

Acquisition of First Savings Financial Group: Announced on September 25, adding approximately $2.4 billion in assets and expanding into Southern Indiana. The acquisition is expected to close in mid-Q1 2026.

SBA Lending: First Merchants plans to enhance its SBA product offerings, leveraging First Savings' established capabilities which have generated over $100 million in SBA originations.

Loan Portfolio: Continued focus on commercial and small business lending, with strong performance in C&I and residential mortgage sectors.

Investment Strategy: The bank is reducing lower-yielding bond portfolios while increasing higher-yielding loans.

3Forward Guidance and Outlook

Loan Growth: Management expects to maintain strong loan growth into Q4 2025, supported by stable pipelines.

Deposit Costs: Anticipated decline in deposit costs due to expected rate cuts in October and December, which may lead to margin compression.

Capital Deployment: Plans to continue share repurchases and dividends while optimizing the balance sheet post-acquisition.

4Bad News, Challenges, or Points of Concern

Competitive Pressures: Despite strong loan growth, deposit costs increased due to competitive dynamics, with no immediate signs of rationality among competitors.

Margin Compression: Expected impact from potential rate cuts could lead to margin compression, particularly as a significant portion of the loan portfolio is variable rate.

Asset Quality: While overall asset quality remains solid, there are concerns regarding the performance of certain segments, particularly in commercial real estate.

5Notable Q&A Insights

Expense Outlook: Core expenses are expected to remain stable in Q4 2025, with no significant increases anticipated.

Loan Pricing: The bank is actively managing deposit costs and expects to minimize margin compression despite potential rate cuts.

M&A Focus: Management is currently prioritizing the integration of First Savings over pursuing additional acquisitions, although they remain open to opportunities in the future.

SBA Lending Risks: The unguaranteed portion of the SBA loans poses a higher risk, but the bank is confident in managing this segment effectively. Overall, First Merchants Corporation reported strong financial performance in Q3 2025, driven by robust loan growth and strategic acquisitions, while navigating competitive pressures and potential margin challenges.