Regional banking company First Merchants (NASDAQ: FRME) missed Wall Street’s revenue expectations in Q1 CY2026, with sales falling 5.6% year on year to $157.1 million. Its non-GAAP profit of $1.03 per share was 6.6% above analysts’ consensus estimates.

Is now the time to buy FRME? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

First Merchants’ first quarter was characterized by a combination of acquisition-related activity and balance sheet repositioning. While the company’s sales missed Wall Street expectations, management pointed to key drivers such as the integration of First Savings Bank and a mortgage loan sale that will fund new commercial lending. CEO Mark Hardwick highlighted, “Adjusted performance metrics remain strong... reflecting the underlying strength of our earnings engine.” Management also noted growth in core deposits and disciplined loan and deposit pricing, even as organic loan growth was flat amid elevated payoffs. Notably, one-time costs from the First Savings acquisition and the repositioning of mortgage loans led to non-core charges, but underlying profitability improved on an adjusted basis.

Looking ahead, First Merchants’ full-year outlook is anchored by resuming mid-single-digit loan growth, cost synergies from the First Savings integration, and continued deposit remixing. Management emphasized the “record levels” of new loan production in real estate and asset-based teams, as well as the expanded SBA lending platform. CFO Michele Kawiecki expects net interest margin to benefit gradually from redeploying mortgage sale proceeds and from steady deposit costs. The company is also focused on realizing revenue growth from specialty verticals and maintaining stable asset quality as the Midwest economy expands.

Key Insights from Management’s Remarks

Management attributed the quarter’s underlying profitability to improved margin discipline, successful integration of First Savings Bank, and active portfolio management.

• First Savings acquisition impact: The closing of the First Savings Bank deal brought new loan portfolios and deposit growth, with integration progressing on schedule. Management noted limited tangible book value dilution and highlighted early successes in specialty lending businesses acquired through First Savings.

• Mortgage loan repositioning: A $357 million mortgage loan sale was initiated to free up liquidity for commercial lending. The loans were moved to held for sale in Q1, and management expects to complete the sale by the end of the second quarter. The proceeds will initially pay down higher-cost deposits and later be invested in higher-yielding loans, supporting margin improvement over time.

• Deposit remix and product redesign: The shift toward noninterest-bearing deposits was driven by a redesign of consumer checking products, resulting in lower funding costs and a more stable core deposit base. Management does not anticipate runoff from these changes and sees continued growth in core deposit relationships.

• Fee income momentum: Strong fee income growth was supported by gains in wealth management, SBA lending, and specialty verticals such as first-lien HELOC and triple-net lease, which operate on an originate-and-sell basis.

• Credit quality remains stable: Asset quality metrics were steady, with net charge-offs largely idiosyncratic and not linked to the First Savings portfolio. Management stressed proactive credit management, noting that nonperforming asset trends are driven by a small number of individual credits rather than systemic issues.

Drivers of Future Performance

Management’s outlook for 2026 is shaped by anticipated loan growth recovery, steady deposit costs, and contributions from specialty business lines.

• Loan growth recovery: Executives reaffirmed mid-single-digit loan growth expectations for the year, citing robust commercial loan pipelines and increased production across real estate and asset-based lending teams. The integration of First Savings is expected to enhance loan origination capabilities, especially in SBA, HELOC, and triple-net lease verticals.

• Margin improvement prospects: CFO Michele Kawiecki projects a gradual pickup in net interest margin as proceeds from the mortgage loan sale are redeployed into higher-yield loans and high-cost deposits are repaid. The margin is also expected to benefit from a stable deposit rate environment and repricing of maturing fixed-rate loans.

• Expense discipline and integration synergies: Management anticipates operating expense growth of 3%-5% on the legacy base, with incremental increases from First Savings. Cost synergies from the acquisition are on track, and recent strategic hires are expected to contribute to revenue growth in the back half of the year.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will monitor (1) progress on loan growth as commercial pipelines convert to funded balances, (2) tangible margin improvement as mortgage sale proceeds are redeployed and deposit mix stabilizes, and (3) execution of integration synergies and specialty vertical expansion post-First Savings. Asset quality trends and sustained fee income growth from new business lines will also be critical indicators of execution.

First Merchants currently trades at $39.99, in line with $40.37 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

High Quality Stocks for All Market Conditions

WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.

But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.