Rising earnings estimates on the back of strong third-quarter
results - including a 20.7% earnings surprise - helped
First Merchants Corporation
) achieve a Zacks #1 Rank (Strong Buy) on December 26. Moreover,
this commercial and retail banking service provider has delivered
positive earnings surprises in seven of the last ten quarters
with an average beat of 75.8%.
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With a solid year-to-date return of 69.6% and a history of
beating quarterly earnings estimates, this stock offers an
attractive investment opportunity.
The Rank Driver
Better-than-expected third-quarter earnings, loan growth, strong
credit quality and capital ratios are the primary rank drivers
for this stock.
First Merchants Corporation reported its third-quarter results on
October 25, 2012 with earnings per share of 35 cents beating the
Zacks Consensus Estimate of 29 cents by 20.7%. Further, earnings
were substantially better than the year-ago loss of 25 cents.
Strong results of the quarter were primarily aided by higher
non-interest income and net interest income as well as reduced
provision for loan losses.
Net interest income increased 11.3% to $39.9 million from $35.9
million in the year-ago quarter.
However, non-interest income increased 7.9% year over year to
$14.3 million. Non-interest expense edged up 0.5% from the
year-ago period to $34.4 million. Provision for loan losses
decreased 17% from the year-ago quarter to $4.6 million.
Credit quality continued to improve. Nonperforming assets were
1.83% of total assets, down 72 bps from 2.55% as of September 30,
2011. Net charge-offs for the quarter were $5.3 million compared
with $9.6 million in the year-ago quarter.
As of September 30, 2012, First Merchants Corporation's total
risk-based capital ratio was 16.62%, Tier 1 risk-based capital
ratio was 9.71% and tangible common equity ratio totaled 7.51%.
Earnings Estimate Revisions
The Zacks Consensus Estimate for 2012 increased 6.9% to $1.40 per
share as all 5 estimates were revised upwards over the last 60
days. The current estimate implies year-over-year growth of
For 2013, 3 out of 5 estimates were revised higher over the same
time frame, lifting the Zacks Consensus Estimate by 2.5% to $1.22
First Merchants Corporation currently trades at a forward P/E of
10.7x, a 3.5% discount to the peer group average of 11.0x. Also,
on a price-to-book basis, the shares are trading at 0.93x, a
15.5% discount to the peer group average of 1.10x.
About the Company
Headquartered in Muncie, Indiana, First Merchants Corporation is
a bank holding company. It operates 79 commercial banking offices
across 24 Indiana and 2 Ohio counties through its subsidiary,
First Merchants Bank, National Association, which offers a wide
range of consumer and business banking deposit products and
services - including Internet banking and cash management
services. The company has a market capitalization of roughly
Other Zacks #1 Rank bank stocks include
First Financial Holdings Inc.
BofI Holding, Inc.