3/8/25
First Merchants Corporation (NASDAQ: FRME) is a regional bank with a strong presence in the Midwest. With roots dating back to 1893, it has grown into a $2.42 billion financial institution, serving both individuals and businesses with a range of banking services.
For dividend investors, regional banks can offer a mix of income and stability, but not all are created equal. Some banks have a history of consistent payouts, while others struggle during economic downturns. FRME has built a reputation for steady performance and reliable dividend payments, making it an interesting option for those looking to generate income from their portfolios.
Key Dividend Metrics
📌 Dividend Yield: 3.39% – A respectable yield that’s right in line with its historical range.
📌 Annual Dividend: $1.40 per share – A solid payout for income-focused investors.
📌 Payout Ratio: 40.76% – A comfortable level that leaves room for reinvestment and growth.
📌 5-Year Average Yield: 3.40% – A steady track record of maintaining a competitive yield.
📌 Dividend Growth Streak: FRME has consistently increased its dividend over time.
📌 Ex-Dividend Date: March 7, 2025 – Investors must own shares before this date to qualify for the next payout.
📌 Dividend Payment Date: March 21, 2025 – When shareholders will receive their next dividend.
Dividend Overview
FRME offers a dividend yield of 3.39%, which provides a decent income stream without being overly aggressive. Many regional banks hover around the 3-4% range, so this yield aligns with industry expectations. It’s also supported by a payout ratio of 40.76%, meaning less than half of earnings are being distributed as dividends. That’s a good sign—it leaves room for potential increases and financial flexibility in case of economic turbulence.
When comparing FRME’s dividend to its peers, it holds up well. The company has shown a steady commitment to returning cash to shareholders, and its history of dividend increases suggests management values long-term income investors.
Dividend Growth and Safety
One of the most important factors for dividend investors is growth potential. FRME has demonstrated a consistent pattern of raising its dividend, backed by strong earnings growth. Over the past year, earnings per share (EPS) jumped 51.5%, a sign that the bank is thriving despite challenges in the financial sector.
Profitability metrics add further reassurance. With a profit margin of 32.96% and a return on equity (ROE) of 8.85%, the bank is efficiently managing its operations while maintaining strong returns for shareholders. A bank with a solid earnings foundation is more likely to keep dividends secure and growing over time.
Chart Analysis
Price Action and Trend
The stock has been in a clear uptrend over the past year, with some notable pullbacks along the way. After a period of consolidation in the middle of the year, momentum picked up, pushing the price sharply higher. The 50-day moving average climbed above the 200-day moving average, confirming a bullish trend. However, recent price action suggests a bit of cooling off, with the stock pulling back toward its 50-day moving average.
Support and Resistance
The stock reached a high near $46 before pulling back to its current level of $41.31. There seems to be a support zone around the $40 mark, where buyers have previously stepped in. On the upside, resistance is forming around $42.50, as the stock has struggled to maintain momentum above that level. If it can break through that resistance, another push toward the previous high is possible.
Volume and Market Participation
Volume has been relatively steady, with occasional spikes during periods of strong upward movement. Some of the recent red volume bars indicate selling pressure, which aligns with the pullback in price. If volume increases on an upward move, it could signal renewed buying interest. Conversely, if selling volume picks up, the stock might struggle to hold its current levels.
Relative Strength Index (RSI)
The RSI shows that the stock was in overbought territory for a while but has now cooled off. This suggests that the recent pullback could be a natural correction rather than a sign of a major reversal. If RSI moves back toward oversold conditions, it could indicate a buying opportunity, while a push higher would suggest that momentum is building again.
Analyst Ratings
📈 Upgrades:
Several analysts have taken a bullish stance on First Merchants Corporation (FRME) in recent months. One notable upgrade came from Piper Sandler, which maintained an overweight rating on the stock while raising their price target from $52.00 to $55.00. The firm pointed to strong operating leverage, driven by steady balance sheet growth and consistent core fee income. They also noted that net interest margins are expected to remain stable, with controlled expenses and strong credit quality supporting future growth.
Another positive move came from Keefe, Bruyette & Woods, which upped their price target from $50.00 to $52.00 while reiterating an outperform rating. Their optimism is largely based on the bank’s solid profitability metrics and growth trajectory, suggesting confidence in its ability to maintain strong financial performance.
📉 Downgrades:
On the flip side, some analysts have voiced concerns about FRME’s exposure to commercial real estate (CRE) loans. Moody’s recently placed FRME under review for a potential credit rating downgrade, citing a high concentration of CRE loans that could pose a risk in a rising interest rate environment. If credit conditions tighten, profitability and asset quality may come under pressure, leading to potential headwinds for the bank.
This cautious stance reflects broader concerns about regional banks with higher CRE exposure, as fluctuations in property markets can significantly impact their loan portfolios. While FRME has maintained strong credit discipline, analysts remain watchful of how economic conditions evolve.
🎯 Consensus Price Target:
Despite mixed analyst sentiment, the average 12-month price target for FRME stands at approximately $49.00, indicating an expected upside from its current trading levels. Analysts see a balanced risk-reward profile, recognizing the bank’s operational strengths while keeping an eye on sector-specific challenges.
The divergence in opinions highlights both the growth opportunities and potential risks associated with FRME. Investors considering the stock should weigh its solid fundamentals against broader industry headwinds, particularly in the commercial real estate space.
Earnings Report Summary
First Merchants Corporation wrapped up the fourth quarter of 2024 on a strong note, showing solid financial growth and some smart strategic moves.
Steady Earnings Growth
The bank reported a net income of $63.9 million for the quarter, which works out to earnings per share (EPS) of $1.10. That’s a noticeable jump from the previous quarter’s $48.7 million in net income and EPS of $0.84. Even compared to the same period last year, where net income came in at $42 million with an EPS of $0.71, this is a meaningful improvement. Adjusted for certain one-time factors, the bank’s net income stood at $58.1 million, with an adjusted EPS of $1.00.
Loan and Deposit Trends
Loan growth remained strong, with total loans increasing by $185.6 million from the previous quarter, which translates to an annualized growth rate of 5.9%. Over the past year, loans grew by nearly $368.1 million, fueled primarily by growth in commercial lending. On the deposit side, there was an increase of $156.5 million from the last quarter, reflecting a 4.4% annualized growth rate. However, after factoring in deposits that were sold as part of a recent transaction, total deposits saw a slight year-over-year decline of 0.2%.
Interest Margins and Asset Quality
The bank’s net interest margin—essentially the spread between what it earns on loans and what it pays on deposits—continued to improve, reaching 3.28% this quarter. That’s up from 3.23% in the prior quarter and 3.16% a year ago. While asset quality remained relatively stable, nonperforming assets as a percentage of total assets ticked up slightly to 0.43% from 0.35% in the prior quarter.
Strategic Moves and Portfolio Adjustments
One of the bigger moves this quarter was the sale of five Illinois branches, including $7.4 million in loans and $267.4 million in deposits. This transaction resulted in a $20 million gain and allowed First Merchants to sharpen its focus on core markets. Additionally, the bank restructured part of its securities portfolio, selling $109.6 million worth of lower-yielding investments. While this move came with a $11.6 million loss, it should help improve returns going forward.
Strong Capital Position
The bank’s capital levels remain solid, with a Common Equity Tier 1 Capital Ratio of 11.43% and a Tangible Common Equity to Tangible Assets Ratio of 8.81%. These numbers indicate a strong financial foundation, giving the bank plenty of flexibility for future growth.
Management’s Take on the Quarter
CEO Mark Hardwick seemed pleased with the quarter’s results, emphasizing that improvements in core earnings, net interest margins, and return on assets set the bank up well for the future. He also noted that restructuring the securities portfolio and finalizing the Illinois branch sale were key steps toward optimizing long-term performance.
Overall, the quarter showed solid execution, with growth in key areas, a strong balance sheet, and some strategic shifts that position First Merchants well for what’s ahead.
Financial Health and Stability
Dividend reliability is closely tied to financial health, and FRME’s balance sheet looks solid.
- Cash Reserves: The bank holds $463.64 million in cash, providing a safety net for unexpected events.
- Debt Levels: Total debt stands at $1.26 billion, which is manageable for a regional bank of this size.
- Book Value Per Share: At $39.33, FRME’s stock is trading close to its intrinsic value.
One of the standout figures here is the operating margin of 47.63%, a sign that the bank is running efficiently. Higher margins suggest that FRME isn’t just relying on loan volume to drive profitability—it’s also keeping costs under control.
Debt is always a consideration, but banks naturally operate with higher leverage. The key is ensuring that earnings growth outpaces debt obligations, and so far, FRME has done a good job of maintaining that balance.
Valuation and Stock Performance
At a price-to-earnings (P/E) ratio of 12.12, FRME is trading at a reasonable valuation relative to its earnings. This is lower than the broader market average, which could indicate a potential value opportunity.
The price-to-book (P/B) ratio of 1.06 also suggests the stock is fairly valued based on its net assets. Many regional banks trade at or below book value, so this isn’t unusual.
Looking at stock performance:
- 52-week high: $46.13
- 52-week low: $30.55
- Current price: $41.31
The stock has climbed significantly from its lows but hasn’t yet reached its previous highs. This suggests there may still be room for further upside, especially if the bank continues its pattern of earnings growth and dividend increases.
Risks and Considerations
No investment comes without risks, and regional banks have their own set of challenges. Here are a few things to keep in mind:
🟠 Interest Rate Sensitivity – As with any bank, FRME’s earnings depend heavily on net interest margins. If interest rates decline, profitability could take a hit.
🟠 Economic Conditions – Regional banks are more exposed to local economies. If the Midwest experiences economic weakness, loan growth could slow down.
🟠 Competition – Larger national banks and fintech companies are constantly looking to take market share from smaller banks. FRME will need to stay competitive to maintain growth.
🟠 Stock Volatility – While dividends provide stability, bank stocks can be sensitive to economic trends, regulations, and interest rate movements.
Final Thoughts
First Merchants Corporation has built a solid reputation as a dividend payer. With a reasonable yield, a sustainable payout ratio, and strong profitability, it checks many of the boxes income investors look for.
Financially, the bank appears well-positioned to continue growing its dividend over time. Earnings growth has been strong, and the company has enough cash on hand to maintain stability even in uncertain conditions.
For those looking for steady dividend income from the financial sector, FRME presents an interesting opportunity. It’s not the highest-yielding stock out there, but its track record of responsible dividend increases and solid financial performance make it a worthy consideration for long-term income investors.
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