First Merchants Corporation

What they do

First Merchants Corporation is a financial holding company whose wholly owned subsidiary, First Merchants Bank, conducts a commercial banking business. The bank takes deposits and makes commercial, real estate mortgage, HELOC and installment, and tax-exempt loans, and invests in securities. It earns net interest income on the spread between earning assets and interest-bearing liabilities, plus noninterest income from fiduciary and wealth management, deposit service charges, card payment fees, and loan sale gains. Its CODM structure, per the 10-K glossary, includes terms such as ACL-Loans and ACL-Investments consistent with a CECL-adopted bank.

Revenue drivers

• Commercial loans — Largest loan category, with average balances of $9.09 billion in 2025 earning 6.83%, generating $621.3 million of interest income.
• Real estate mortgage and other loans — Average real estate mortgage loans of $2.21 billion in 2025 earned 4.58%; HELOC and installment loans averaged $846.4 million at 7.36%; tax-exempt loans averaged $1.14 billion at 4.79%.
• Investment securities — Average total investment securities of $3.63 billion in 2025 earned 2.64%, producing $95.9 million of interest income.
• Customer related fees — Noninterest income includes fiduciary and wealth management fees, service charges on deposit accounts, card payment fees, and net gains and fees on sales of loans; noninterest income was $37.2 million in Q2 2026 and $43.0 million for the first half of 2026.

Recent performance

For the second quarter of 2026, net income available to common stockholders was $43.5 million, or $0.70 per diluted common share, versus $56.4 million and $0.98 in the second quarter of 2025; adjusted net income was $46.4 million, or $0.74 per diluted share. Net interest margin on an FTE basis was 3.38%, up 3 basis points from the prior quarter and 13 basis points from the prior-year quarter. Loans grew $221.7 million, or 5.8% annualized, on a linked-quarter basis, and deposits grew $267.8 million, or 6.5% annualized. The quarter included $3.8 million of acquisition-related costs; two commercial relationships totaling $41.8 million were placed on nonaccrual status with $29.7 million of associated reserves, and the company sold $271.1 million of mortgage loans moved to held-for-sale in the first quarter.

Strategy

Management stated it completed the systems conversion of First Savings Financial Group in mid-May 2026, strengthening its statewide Indiana franchise and its ability to serve clients across Indiana, Ohio and Michigan. The company is using proceeds from the sale of $271.1 million of low-rate mortgage loans to fund loan growth and pay down high-cost funding. It repurchased 976,631 shares totaling $38.3 million year-to-date 2026, including 336,145 shares for $13.4 million in the second quarter. Management cited a robust capital position with a Common Equity Tier 1 Capital Ratio of 11.16% and an adjusted efficiency ratio of 53.22% for the quarter.

Risks

• Credit quality deterioration — Two commercial lending relationships totaling $41.8 million were placed on nonaccrual status after quarter-end, requiring $29.7 million of reserves and elevated second-quarter provision expense.
• Acquisition integration and cost — The First Savings acquisition drove higher salaries and benefits and produced $20.8 million of integration and transaction-related expenses in the first half of 2026, including $10.7 million of contract termination and similar charges.
• Funding cost and deposit mix — Average money market deposits paid 3.14% in 2025 versus 2.90% in 2023, and certificates and other time deposits paid 3.68%, while noninterest-bearing deposits declined to an average $2.18 billion in 2025 from $2.78 billion in 2023.
• Loan sale losses — A $29.8 million net loss was recognized on mortgage loans moved to held-for-sale and marked to fair value in the first quarter of 2026, which were sold during the second quarter.

Outlook

Management said it believes the balance sheet remains well positioned after the First Savings integration and prompt recognition of reserves on two commercial relationships. It pointed to strong capital, liquidity and credit quality as positioning the company to execute its long-term growth strategy and create shareholder value. The company also stated it continues to build momentum with expanding net interest margin and solid loan and deposit growth.