First Merchants Q3 Earnings Call Highlights

First Merchants (NASDAQ:FRME) reported third-quarter 2026 net income of $67.8 million, or $1.09 per diluted share, as the regional bank benefited from higher net interest income and margin expansion while continuing to address a limited number of previously identified problem loans.

Chief Executive Officer Mark Hardwick said adjusted earnings per share, excluding remaining acquisition-related costs, totaled $1.10. Reported EPS rose 11% from the third quarter of 2025 and nearly 30% from the third quarter of 2024.

The company, which operates 126 banking centers across Indiana, Michigan and Ohio, ended the quarter with $21.1 billion in assets, $15.6 billion in loans and $16.9 billion in deposits.

Margin Expansion Supports Revenue Growth

First Merchants’ net interest margin expanded 6 basis points from the prior quarter to 3.44%, its highest level in more than two years and 20 basis points above the year-earlier period. Fully taxable equivalent net interest income increased 20% year over year, according to Hardwick.

Chief Financial Officer Michele Kawiecki said quarterly net interest income rose $2.1 million, or 1.3%, from the second quarter, while non-interest income increased $800,000 to $38 million. The yield on earning assets increased 10 basis points to 5.56%, driven by higher loan yields, while interest expense rose 4 basis points.

Loan portfolio yield increased 12 basis points sequentially to 6.23%. New and renewed loans carried an average yield of 6.34%, compared with 6.28% in the prior quarter.

Looking ahead, Kawiecki said the company expects net interest margin to be stable in the fourth quarter. The benefit from the company’s asset-sensitive balance sheet and loan repricing is expected to be partly offset by a full quarter of interest expense from $100 million in subordinated debt issued in late September.

Management said each 25-basis-point rate increase has historically added approximately 1 to 2 basis points to margin. Kawiecki also said roughly $350 million of fixed-rate loans with an average rate of 4.90% are set to reprice during the next 12 months.

Loan Growth Moderates, Deposit Growth Improves

Loans grew at a 1.8% annualized rate during the third quarter, following stronger growth in the second quarter. President Mike Stewart said growth in construction and mortgage loans was strong, while overall commercial loan growth was held back by normal payoffs in sponsor finance and shared national credit portfolios.

Stewart said loan pipelines remained stable and management expects mid-single-digit loan growth in the fourth quarter. He cited continued opportunities in community and corporate banking, commercial and industrial lending, asset-based lending and selected investment real estate financing.

Consumer mortgage demand has softened as rates remained elevated, Stewart said. Refinancing activity has become “nil,” while purchase activity has slowed, although he said interest rates were not broadly hurting commercial loan demand.

Total deposits increased $175.6 million during the quarter, or at a 4.2% annualized rate, led by the consumer business and private wealth team. Noninterest-bearing deposits represented 22% of total deposits. The average rate paid on deposits increased 9 basis points to 2.16%, reflecting competitive pricing conditions.

On a year-to-date basis, total deposits declined at a 0.5% annualized rate, primarily due to the elimination of brokered deposits acquired through First Savings Bank, management said. Consumer non-maturity deposits rose 3% year to date.

Credit Costs Reflect Previously Reserved Problem Loans

First Merchants recorded $29.4 million of net charge-offs and a $3.3 million provision for credit losses in the third quarter. The charge-offs primarily related to an authorized wireless retailer and a commercial and residential roofing contractor that had been discussed in the prior quarter.

Chief Credit Officer John Martin said the associated provision expense for those credits had largely been recognized during the second quarter. The company also moved an $18.4 million auto parts distributor and a $4.3 million digital marketing firm to nonaccrual status during the quarter. Both relationships had been under stress, downgraded and specifically reserved in previous periods, he said.

Nonperforming assets remained stable at 57 basis points of total assets. The allowance for credit losses totaled $215.5 million, equal to 1.38% of loans at quarter-end.

Martin lowered his full-year net charge-off outlook toward the lower end of the company’s prior 40-to-45-basis-point range, indicating an expectation for 38 to 40 basis points for the full year. He described a normalized future charge-off run rate as approximately 20 to 25 basis points.

Management expects the two newly reported nonaccrual relationships to be resolved in the fourth quarter. Kawiecki said that as specific reserves are resolved, the company expects its allowance coverage ratio to settle in the low-to-mid 130-basis-point range, supported by future portfolio growth.

Capital Actions and Leadership Transition

The company’s $100 million subordinated debt issuance raised its total risk-based capital ratio by 60 basis points to 13.58%. Its common equity tier 1 ratio stood at 11.22%, while tangible common equity was 8.83%, above management’s 8% target.

First Merchants repurchased 287,000 shares for $12 million during the third quarter, bringing year-to-date repurchases to nearly 1.3 million shares for $50.3 million. Kawiecki said the company intends to maintain its repurchase activity and could execute an elevated level of buybacks in the fourth quarter and potentially the first quarter.

Non-interest expense totaled $116.3 million, including $900,000 of acquisition-related expenses. Excluding those costs, expenses rose $3.9 million sequentially, reflecting higher marketing, employee health insurance and a building lease impairment charge. Kawiecki said the third-quarter expense run rate is appropriate for the fourth quarter and forecast expense growth of 3% to 5% for 2027.

Hardwick also used his final earnings call to address his planned retirement at year-end. Stewart, who has served as president, will succeed him as CEO. Hardwick said Stewart and the existing executive team are positioned to continue building on the company’s Midwestern franchise and relationship-based growth strategy.

About First Merchants (NASDAQ:FRME)

First Merchants Corporation is a financial services holding company headquartered in Muncie, Indiana. Through its principal subsidiary, First Merchants Bank, the company provides banking and related financial services to individuals, families, businesses and institutions.

First Merchants Bank offers deposit accounts, consumer and commercial lending, mortgage services, treasury and cash-management solutions, online and mobile banking, investment management and trust services. The company also provides wealth-management and insurance-related services through affiliated operations.

Founded in 1893, First Merchants has expanded through organic growth and acquisitions and serves customers across Indiana, Ohio and Michigan.