Company: FRME
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0000712534-25-000197
Chunk: 201

Company: FIRST MERCHANTS CORP
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 8
Chunk 201
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 FINANCIAL INFORMATIONITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest income on an FTE basis decreased $5.7 million compared to the same period in the prior year, primarily due to lower yields on variable rate loans following the Federal Open Market Committee's 100 basis point rate reduction in the second half of 2024 and a 25 basis point rate reduction in the third quarter of 2025. Approximately 70.1 percent of the Corporation's loan portfolio was variable rate as of September 30, 2025. New and renewed loans yielded 6.84 percent for the three months ended September 30, 2025 compared to 7.70 percent for the same period in 2024.  

Interest expense on deposits declined $8.0 million, reflecting lower rates across all deposit categories. The total cost of interest-bearing liabilities decreased 34 basis points, to 2.94 percent for the three months ended September 30, 2025, down from 3.28 percent for the three months ended September 30, 2024. This reduction in funding costs more than offset the decline in asset yields and resulted in a 10 basis point improvement in the FTE net interest spread, which increased to 2.64 percent from 2.54 percent.  The average balance of total interest-bearing liabilities increased modestly year-over-year, indicating that the improvement in spread was primarily rate-driven. 

Nine months ended September 30, 2025 and 2024

Net interest income on an FTE basis increased by 2.8 percent to $415.5 million for the nine months ended September 30, 2025, compared to $404.3 million for the same period in 2024.  Net interest margin on an FTE basis improved to 3.23 percent, up from 3.16 percent in the prior-year period. This improvement was driven by a 41 basis point reduction in the cost of interest-bearing liabilities, which declined to 2.83 percent from 3.24 percent, offsetting a 23 basis point decrease in asset yields to 5.49 percent. The Corporation recognized $3.0 million of fair value accretion income on purchased loans, contributing approximately 2 basis points to net interest margin in the nine months ended September 30, 2025.  This compares to $4.3 million, or 3 basis points, in the