First Merchants Corp. (Indiana) :FRME-US: Earnings Analysis: Q2, 2017 By the Numbers : October 3, 2017

First Merchants Corp. (Indiana) reports financial results for the quarter ended June 30, 2017.


  • Summary numbers: Revenues of USD 81.53 million, Net Earnings of USD 24.14 million.
  • Net interest income margins widened from 77.09% to 77.39% compared to the same period last year.
  • Net loan assets changed 17.20% compared to same period last year and 6.45% from previous period, total deposits changed 11.27% compared to same period last year and 6.78% from previous period.
  • Change in operating cash flow of -35.79% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 81.53 75.85 74.49 74.33 72.59
Revenue Growth (%YOY) 12.32 6.79 14.89 10.26 11.26
Earnings (mil) 24.14 23.19 22.29 21.06 20.01
Earnings Growth (%YOY) 20.64 31.09 57.25 23.39 11.34
Net Margin (%) 29.6 30.58 29.93 28.33 27.56
EPS 0.57 0.56 0.54 0.51 0.49
Return on Equity (%) 2.46 2.53 2.47 2.36 2.28
Return on Assets (%) 1.28 1.28 1.25 1.21 1.17

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, FRME-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if FRME-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 7.50% and earnings by 4.07% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by the year-on-year improvement in net interest income margins from 77.09% to 77.39%. However, the company’s loan loss provisions have prevented it from fully capitalizing on these net interest income margin improvements. FRME-US’s net interest income after provisions margin showed no improvement. Loan loss provisions as a percentage of net interest income were 4.56% this period, and 1.41% a year ago.

Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s improvement in net interest income margins was influenced by the relative increase in the level of net loan assets. In addition, total deposits as a percentage of equity went from 6.09% to 5.81%. On an absolute basis, net loan assets changed 17.20% compared to the same period last year and 6.45% from the previous period, while total deposits changed 11.27% compared to the same period last year and 6.78% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FRME-US’s year-on-year change in operating cash flow of -35.79% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 36.81% to 38.44% and (2) one-time items. The company’s pretax margins are now 38.44%, compared to 36.81% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

First Merchants Corp. operates as financial holding company. The company provides consumer, mortgage and business banking, and cash & wealth management services to its customers through its subsidiaries First Merchants Bank NA, Lafayette Bank & Trust NA, First Merchants Bank of Central Indiana NA, Commerce National Bank, First Merchants Trust Co. NA and First Merchants Insurance Services. It offers financial services, including accepting time deposits, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; renting safe deposit facilities; providing personal and corporate trust services; providing full-service brokerage; and providing other corporate services, letters of credit and repurchase agreements. The company also operates a full-service property, casualty, personal lines, and employee benefit insurance agency through its subsidiary First Merchants Insurance services. First Merchants was founded in September 1982 and is headquartered in Muncie, IN.

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