First Merchants earnings increased in the third quarter of 2026 as a wider lending margin and lower credit-loss provisions supported profit despite modest loan growth. Results released on October 22 showed net income available to common shareholders of $67.8 million, or $1.09 per diluted share, compared with $56.3 million, or $0.98 per share, a year earlier.
Key Takeaways
- Net interest margin widened six basis points to 3.44%, lifting quarterly net interest income.
- Most third-quarter charge-offs involved two previously identified problem credits with reserves already established.
- Management expects a stable fourth-quarter margin, faster loan growth and increased share repurchases.
Table of Contents
- First Merchants earnings benefit from margin expansion
- Deposit growth outpaces a modest lending increase
- Existing reserves cushion problem-credit resolutions
- Stable margin outlook meets a higher expense base
- Conclusion
First Merchants earnings benefit from margin expansion
The bank’s third-quarter investor update showed net interest income rising $2.1 million from the preceding quarter to $161.1 million. Its fully taxable-equivalent net interest margin increased from 3.38% to 3.44%, supported by higher earning-asset income.
Adjusted earnings per share increased 11% year over year to $1.10, while adjusted pre-tax, pre-provision earnings rose 19% to $83.7 million. These adjusted measures are distinct from reported earnings and exclude specified items.
Lower credit-loss provisions also contributed substantially to the sequential profit improvement. The provision fell to $3.3 million from $33.0 million in the second quarter, while reported diluted earnings per share increased from $0.70.
| Item | Details |
|---|---|
| Total assets at September 30, 2026 | $21.1 billion |
| Tangible common equity ratio | 8.83%, compared with 8.99% at June 30 |
| Total risk-based capital ratio | 13.58%, compared with 12.98% at June 30 |
| Tangible book value per share | $28.86, down 3.2% from the preceding quarter because of accumulated other comprehensive income effects |
| Completed third-quarter share repurchases | 287,431 shares for $12.0 million |
Deposit growth outpaces a modest lending increase
Organic loans increased $70.2 million during the quarter, equivalent to 1.8% annualized growth. Organic deposits rose $175.6 million, or 4.2% annualized, giving the bank faster growth in funding than in lending.
Commercial lending was broadly flat as payoffs and deliberate reductions in sponsor-finance and shared national credit portfolios offset production elsewhere. Consumer lending grew at a 9.5% annualized rate, although consumer pipelines softened at quarter-end.
President Mike Stewart said management expects loan growth to return to a mid-single-digit annualized pace in the fourth quarter as payoffs and planned credit exits moderate. He identified consumer mortgages as a weaker area, with elevated mortgage rates slowing purchase activity and leaving refinancing activity nearly absent.
Existing reserves cushion problem-credit resolutions
Third-quarter net charge-offs totaled $29.4 million, including about $29 million tied to two previously identified problem credits. Management said reserves for those exposures had already been established, explaining why substantial charge-offs did not require a similarly large new provision.
Chief Credit Officer John Martin said full-year net charge-offs were expected to land around 38–40 basis points, near the lower end of the prior 40–45 basis-point guidance. He also clarified that roughly $22 million of newly nonaccruing loans would not be charged off in full.
Looking toward 2027, Martin put a more normalized charge-off rate at 20–25 basis points, above his previous expectation of 15–20 basis points. Management expects fourth-quarter reserving to relate mainly to portfolio growth rather than new specific allocations for the identified credits.
Stable margin outlook meets a higher expense base
Management expects the fourth-quarter net interest margin to remain stable. Higher loan yields and asset repricing are expected to support interest income, but a full quarter of subordinated-debt interest expense is expected to offset the margin benefit.
Noninterest expense increased $3.9 million sequentially when acquisition costs are excluded. Higher marketing spending, health insurance costs and a building lease impairment contributed to the increase. Management described the third-quarter expense level as a reasonable base for the fourth quarter and projected a further 3%–5% increase in 2027.
The bank also expects elevated share-repurchase activity in the fourth quarter and potentially the first quarter of 2027, with some subordinated-debt proceeds intended to support buybacks. That remains a management plan rather than a completed repurchase.
Conclusion
The fourth-quarter results will show whether First Merchants can accelerate lending while holding its margin steady and resolving the identified problem credits. Management’s outlook also calls for increased repurchases, alongside a higher operating-expense base.
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