First Merchants Makes Progress Resolving Two Commercial Credits After Charge-Off Spike

The Tip Desk · October 27, 2026 · 3 min read

Net charge-offs hit $29.4 million, or 0.75% of average loans annualized, as the Indiana bank booked two credits reserved in the prior quarter.

First Merchants Corporation (FRME), the Muncie, Indiana financial holding company, recorded $29.4 million of net charge-offs in the third quarter, or 0.75% of average loans annualized, as it worked through two commercial credits for which specific reserves had been established in the second quarter.

The spike reversed the second quarter’s $3.9 million of net charge-offs, or 0.10% annualized. Provision for credit losses was $3.3 million, down from $33.0 million in the prior quarter.

The allowance for credit losses on loans fell $26.1 million to $215.5 million, or 1.38% of loans, from $241.6 million, or 1.56%, at June 30. Nonperforming assets to total assets were 57 basis points, versus 56 basis points at June 30, after rising from 43 basis points at March 31. Nonaccrual loans were $117.4 million. Chief Executive Officer Mark Hardwick said the company made “meaningful progress resolving the two commercial credits identified last quarter.”

Net interest income was $161.1 million, up $2.1 million, or 1.3%, from the second quarter. Fully taxable equivalent net interest margin expanded 6 basis points to 3.44% from 3.38%, after a 3 basis point expansion in the prior quarter. FTE yield on average earning assets was 5.56%. Interest expense as a percent of average earning assets was 2.12%. Average commercial loan balances were $10.92 billion. Average interest-bearing deposit costs were 2.78%.

Loan growth slowed. Loans increased $70.2 million, or 1.8% annualized, on a linked-quarter basis, after $221.7 million, or 5.8% annualized, in the second quarter and an $18.8 million decline in the first quarter. Loans ended at $15.6 billion.

Deposit growth also slowed. Total deposits rose $175.6 million, or 4.2% annualized, on a linked-quarter basis, after $267.8 million, or 6.5% annualized, in the second quarter. Deposits ended at $16.9 billion. The loan-to-deposit ratio was 92.2%, versus 92.7% in the prior quarter.

Noninterest income was $38.0 million, up $0.8 million from the second quarter, primarily from higher deposit service charges and CRA investment income. Service charges on deposit accounts were $9.8 million. Fiduciary and wealth management fees were $9.8 million.

Noninterest expense was $116.3 million. Excluding $0.9 million of acquisition-related costs versus $3.8 million in the prior quarter, expense increased $3.9 million, led by a $1.4 million rise in marketing, $0.7 million in employee health insurance, and $0.6 million in premises including a $0.5 million building lease impairment. The efficiency ratio was 54.55%, versus 55.11% in the second quarter.

Net income available to common stockholders was $67.8 million, or $1.09 a share, compared with $43.5 million, or $0.70 a share, in the second quarter. Adjusted pre-tax, pre-provision income was $83.7 million.

The common equity tier 1 capital ratio was 11.22%. The company completed a $100 million subordinated debt issuance in late September and repurchased 287,431 shares for $12.0 million in the third quarter, bringing year-to-date buybacks to 1,264,062 shares totaling $50.3 million.

President Mike Stewart will succeed Hardwick as chief executive officer upon Hardwick’s retirement at year-end 2026.