First Merchants Corporation

First Merchants reported second-quarter net income of $43.5 million, or $0.70 per diluted share. Adjusted pretax pre-provision earnings were $84.6 million, up $5.9 million sequentially, and net interest margin expanded to 3.38%. Year to date, net income totaled $71.2 million; excluding the first-quarter mortgage sale and acquisition-related expenses, adjusted EPS was $1.77. On a normalized year-to-date basis, total revenue grew 18% versus the same period in 2025, and pretax pre-provision earnings totaled $163.3 million, up 18.2% year over year. Management said second-quarter loan growth ran at nearly 6% annualized and deposits at 6.5% annualized. For the full year, they expect mid-single-digit loan growth, noninterest income up 10% year over year, total expenses to run at $111 million to $114 million per quarter for the rest of the year, margin to improve by a couple basis points in the back half if rates stay unchanged, and a 13% effective tax rate.

Mark Hardwick emphasized that the quarter was noisy because of two credit issues, but he said the underlying business remains strong and the bank is positioned for a better second half. He highlighted the completed First Savings integration, the completed mortgage loan sale, and the redeployment of $271 million of liquidity into higher-yielding assets as positive steps for earnings power. He also reiterated that the firm remains focused on organic growth in its Midwest footprint and on shareholder value creation through disciplined execution and share repurchases.

Michele Kawiecki said Q2 revenue improved meaningfully, with net interest income up $7.6 million and noninterest income up $1.6 million sequentially after normalizing for the first-quarter mortgage-sale loss. She pointed to $165.3 million of fully tax equivalent net interest income, a 2.07% deposit cost, and a 6.28% average yield on new and renewed loans versus 6.18% last quarter, saying pricing discipline drove margin expansion. She also noted $115.3 million of noninterest expense including $3.8 million of acquisition-related costs, $241.6 million of allowance for credit losses, $156.2 million of expected bond cash flows in the remainder of 2026 at a 2.69% roll-off yield, and nearly 1 million shares repurchased for $38.3 million year to date.

Analysts focused heavily on the two problem credits, especially the syndicated wireless retailer loan, and management said the issue was specific to that borrower and tied to a sharp change in the carrier’s distribution model. John Martin said the bank is comfortable with the shared national credit strategy, but Mike Stewart added that the portfolio will get a fuller review, including asset coverage versus cash-flow lending. Other questions centered on expenses, margin, fees, capital return, and M&A; management reaffirmed expense guidance of $111 million to $114 million per quarter, said margin could rise a couple of basis points if rates stay unchanged, expected noninterest income to grow 10% for the year, and said buybacks should continue if the stock remains at similar levels.