First Merchants (NASDAQ:FRME) reported record full-year results on its fourth-quarter 2025 earnings call, highlighting continued loan and deposit growth, an improving net interest margin, and progress toward its pending acquisition of First Savings Group.
Record 2025 results and balance sheet growth
CEO Mark Hardwick said the company ended 2025 with record total assets of $19 billion, record total loans of $13.8 billion, and record total deposits of $15.3 billion. For the full year, First Merchants delivered record net income of $224.1 million and record diluted earnings per share (EPS) of $3.88, up 13.8% from the prior year. Fourth-quarter net income totaled $56.6 million, or $0.99 per share.
Loans and deposits: commercial strength and consumer momentum
President Mike Stewart said loan growth was strong across segments and markets. Linked-quarter loan growth was $197 million (5.8% annualized), and full-year growth was $939 million (7.3%). Commercial loans drove results, with $153 million of growth in the fourth quarter and $852 million year to date, supported by CapEx financing, increased revolver usage, M&A financing, and new business conversions. Stewart added that end-of-quarter pipelines were stable from the prior quarter, supporting his optimism for continued growth in early 2026.
In consumer lending, Stewart noted $44 million of fourth-quarter growth and $87 million for the year, driven by residential mortgage, HELOC, and private banking relationships. He said consumer pipelines were also consistent with prior levels.
On deposits, Stewart called the fourth quarter the company’s strongest quarter of deposit growth, led by consumers. He pointed to growth in new households and balances, supported by digital platform enhancements and marketing efforts. He said total consumer deposits increased $155 million in the quarter, including more than $250 million of non-maturity balance growth.
In commercial deposits, Stewart said growth was driven primarily by public fund depository relationships, which carry a higher cost but are tied to local government relationships that also use treasury services. He also said higher line utilization typically reduces operating deposit account balances, reinforcing the company’s focus on improving deposit mix through “primary, core accounts” and deposit-cost discipline.
Net interest margin improved, with deposit repricing a tailwind
CFO Michele Kawiecki said fourth-quarter total revenues rose on growth in both net interest income (up $5.4 million) and non-interest income (up $0.6 million). Pre-tax, pre-provision earnings were $72.4 million, up $1.9 million from the prior quarter. Tangible book value per share rose 4% linked quarter and ended 2025 at $30.18, up $3.40 (12.7%) year over year.
Net interest income on a fully tax-equivalent basis was $145.3 million, up $5.4 million linked quarter and up $5.1 million from the year-ago period. Net interest margin increased five basis points from the prior quarter to 3.29%. Kawiecki said net interest income benefited from a $3.3 million recovery tied to the successful resolution of a non-accrual loan; later in Q&A, she indicated that interest recoveries contributed roughly eight basis points to core margin in the quarter.
Deposit costs moved lower, which management linked to Fed rate cuts and pricing actions. Kawiecki said the rate paid on deposits declined 12 basis points to 2.32% in the quarter, driving a $3 million reduction in interest expense even as deposits rose $424.9 million (11.4% annualized) in the fourth quarter.
Looking ahead, Kawiecki outlined certificate of deposit repricing dynamics for 2026:
- Roughly $800 million of CDs mature in the first two quarters of 2026, with weighted average rates of about 3.75% in the first quarter and 3.65% in the second quarter.
- Current “special” rates were cited as 3.30% for a 12-month CD and 3.45% for a 9-month CD.
- Another amount under $400 million matures in the third quarter, at a weighted average rate roughly in line with current specials, with limited maturities in the fourth quarter.
On the asset side, Kawiecki said the total loan portfolio yield declined eight basis points from the prior quarter to 6.32% due to the impact of recent Fed rate cuts, while new and renewed loans were originated at a yield of 6.51%.
Credit trends stable; capital returns continued
Chief Credit Officer John Martin said asset quality “remains strong.” Non-performing assets (NPAs) and 90-day past due loans rose $5.6 million to 2.54% during the quarter, but he noted the largest non-accrual loan—a $12.9 million investment real estate multifamily construction project—paid off without loss shortly after quarter-end. Excluding that payoff, Martin said NPAs and 90-day past due loans totaled $74.5 million.
Martin also highlighted portfolio composition and specific areas of focus:
- C&I loans led annual growth, up nearly $700 million for the year, while investment real estate growth was more moderate as higher rates slowed demand and some assets moved into permanent financing.
- In sponsor finance, the company took a $4.4 million charge-off tied to an individual borrower in the quarter.
- Office loans represented 1.9% of total loans, which Martin said would be “easily managed.”
For the quarter, the company reported net charge-offs of $6 million and recorded a $7.2 million provision. The allowance for credit losses ended the quarter at $195.6 million, with a coverage ratio of 1.42%. In Q&A, Martin said he was comfortable with charge-offs in a 15–20 basis-point range, varying by quarter, and said a $6–$7 million quarterly range was “probably about the right number.”
On capital, Kawiecki said First Merchants remained well-capitalized with a common equity tier 1 ratio of 11.7%. The tangible common equity ratio increased 20 basis points to 9.38%, supported by earnings and AOCI recapture, while the company returned capital through repurchases and dividends. In the fourth quarter, First Merchants repurchased 272,000 shares for $10.4 million, bringing 2025 repurchases to just over 1.2 million shares for $46.9 million. Hardwick said management intended to remain aggressive with buybacks if the stock price remains at current levels, noting that the pending transaction is expected to reduce the tangible common equity ratio to about 8.7% to 8.8% at close, still above the company’s 8% target.
First Savings acquisition: closing date, integration timing, and repositioning plans
Hardwick said the company has received regulatory and shareholder approvals for its acquisition of First Savings Group and expects to close the deal on Feb. 1, 2026. The transaction would add approximately $2.4 billion in assets and expand the company’s presence into Southern Indiana and the Louisville MSA. Stewart said integration efforts were on track, with product and process mapping completed and onsite training set to begin after legal close ahead of a May integration.
During Q&A, management discussed balance sheet optimization actions tied to the acquisition. Hardwick said the company plans to sell the entire First Savings bond portfolio, estimated at about $250 million at close. He added that any additional repositioning—potentially involving a small portion of First Merchants’ bond portfolio and some low-yielding assets—would likely be modest, and reiterated that management did not see a need to raise capital.
On expenses, Kawiecki said core non-interest expense is budgeted to rise 3% to 5% year over year, reflecting continued investment in talent. She also said the company expects to realize 27.5% annualized cost savings from the acquisition once past integration, with savings weighted more toward the back half of 2026. Hardwick noted the company added about 15 full-time equivalents in 2025 (about $4 million of expense) and planned to add about 10 more in 2026 (about $2.5 million), primarily in the sales force. Kawiecki said management expects the efficiency ratio to remain under 55% after the integration.
Looking at revenue opportunities, Kawiecki said the company’s 2026 plan includes 10% growth in non-interest income, and she stated management believes it can generate double-digit growth even on a standalone basis. Management also discussed loan growth expectations, with Stewart describing a mid-single-digit outlook near term and a plan range more like 6% to 8% for the year, supported by balanced demand across segments and geographies.
About First Merchants (NASDAQ:FRME)
First Merchants Corporation, through its subsidiary First Merchants Bank, offers a comprehensive suite of banking and financial services to individuals, businesses and public sector clients. The company’s core business activities include retail and commercial banking, lending, treasury and cash management, and wealth advisory services. With a focus on relationship banking, First Merchants seeks to deliver tailored solutions for deposit accounts, loan financing and other credit products.
On the consumer side, First Merchants provides checking and savings accounts, certificates of deposit, personal and mortgage loans, and electronic banking conveniences.
