First Merchants (FRME) Q1 2026 profit drops on First Savings deal and loan loss
Filing Impact
Filing Sentiment
Form Type
10-Q
First Merchants Corporation reported net income of $28.2 million for the quarter ended March 31, 2026, down from $55.3 million a year earlier, as one‑time items weighed on results. Diluted earnings per share were $0.45 versus $0.94 in the prior‑year quarter.
Results reflected a $29.8 million loss on mortgage loans reclassified to held for sale and $17.0 million of integration and transaction‑related expenses tied to the acquisition of First Savings Financial Group, Inc. Completed on February 1, 2026, that acquisition added $2.46 billion of assets, generated $13.6 million of revenue and $3.8 million of net income in the partial quarter, and led to recognition of $70.8 million of goodwill and $30.2 million of other intangibles.
Total assets rose to $21.1 billion, loans to $15.3 billion, and deposits to $16.5 billion at March 31, 2026. The allowance for credit losses on loans increased to $212.5 million, supported by acquisition‑date credit marks and a $4.9 million provision. Nonaccrual loans grew to $89.6 million, and investment securities continued to carry sizable unrealized losses driven by interest rates.
Positive
- None.
Negative
- Net income and EPS declined sharply, with net income falling to $28.2 million and diluted EPS to $0.45 from $55.3 million and $0.94 a year earlier, reflecting large one‑time charges and a significant loss on mortgage loans reclassified to held for sale.
- Asset quality pressures increased, as nonaccrual loans rose to $89.6 million from $71.8 million and total past due loans climbed to $155.0 million, while unrealized losses on available‑for‑sale and held‑to‑maturity securities remained substantial due to higher interest rates.
Insights
Quarter shows lower earnings as First Savings deal closes with sizable one‑time charges.
First Merchants posted net income of $28.2 million, about half the prior‑year level, with diluted EPS at $0.45. Core banking revenue benefited from higher loan balances, but reported results were dominated by non‑recurring items.
The acquisition of First Savings added $2.46 billion of assets, $13.6 million of revenue and $3.8 million of net income from February 1 through quarter‑end. The deal generated $70.8 million of goodwill and $30.2 million of intangibles and drove $17.0 million of integration and transaction expenses.
Credit metrics were stable to slightly weaker. The allowance for credit losses on loans increased to $212.5 million after recognizing $22.3 million of acquisition‑date expected losses under the new purchased‑loans standard. Nonaccrual loans rose to $89.6 million, and total past due loans reached $155.0 million. Future filings may show how quickly integration charges subside and whether credit trends stabilize post‑acquisition.
Key Figures
Net income: $28.2M
Net income prior year: $55.3M
Diluted EPS: $0.45
+5 more
8 metrics
Net income
$28.2M
Three months ended March 31, 2026
Net income prior year
$55.3M
Three months ended March 31, 2025
Diluted EPS
$0.45
Three months ended March 31, 2026
Loss on mortgage loans to held for sale
$29.8M
Net loss on mortgage loans reclassified to held for sale, Q1 2026
Integration and transaction expenses
$17.0M
First Savings acquisition integration and transaction costs, Q1 2026
First Savings purchase price
$243.2M
Fair value of consideration for First Savings acquisition
Total assets
$21.07B
Balance sheet at March 31, 2026
Allowance for credit losses on loans
$212.5M
ACL - Loans at March 31, 2026
Key Terms
Current Expected Credit Losses, purchased seasoned loans, purchased credit-deteriorated loans, nonaccrual loans, +2 more
6 terms
Current Expected Credit Losses financial
"The Current Expected Credit Losses ("CECL") calculation is performed and evaluated quarterly"
An accounting rule that requires lenders and creditors to estimate and record expected loan losses up front, based on current information and reasonable forecasts, rather than waiting until losses actually occur. Think of it as a bank setting aside a rainy-day fund based on the weather report instead of only after storms hit; for investors this affects reported profits, reserves and capital levels and can change perceptions of a firm’s financial strength.
purchased seasoned loans financial
"Loans acquired through business combinations that meet the definition of purchased seasoned loans ("PSL") are recorded using the gross-up method."
Purchased seasoned loans are existing loans that an investor buys after they have been outstanding for some time and have a track record of payments. Like buying a used car with a known service history, these loans give buyers clearer information about how likely borrowers are to keep paying, which helps investors estimate future cash flow, potential losses, and the returns they can expect.
purchased credit-deteriorated loans financial
"Purchased credit‑deteriorated ("PCD") loans continue to be accounted for under existing PCD guidance"
nonaccrual loans financial
"The following table summarizes the Corporation’s nonaccrual loans by loan class as of the dates indicated."
Nonaccrual loans are loans a lender has stopped counting toward interest income because the borrower is overdue or unlikely to pay; the lender only records cash payments received and may set aside extra funds to cover potential losses. For investors, a rising number or amount of nonaccrual loans signals weaker credit quality, lower future interest revenue and larger potential write-downs — similar to pausing expected subscription income when many customers stop paying.
core deposit intangible financial
"Approximately $29.4 million was allocated to a core deposit intangible, which is being amortized over an estimated useful life of 10 years"
Core deposit intangible is an accounting asset that represents the value of customer deposits a bank gains, usually through an acquisition, because those deposits provide a stable, low-cost source of funding. Think of it like paying for a loyal customer list that will save the bank money over time; it is written down over several years and affects reported earnings and the apparent cost of acquiring new funds, so investors watch it to understand future profitability and capital impact.
standby letters of credit financial
"Financial instruments with off-balance sheet risk were as follows Standby letters of credit"
A standby letter of credit is a bank’s written promise to pay a beneficiary if the customer fails to meet a contractual obligation, acting like a backup insurance policy that kicks in only if the borrower doesn’t pay or perform. Investors care because it reduces payment risk for counterparties and can create a potential obligation for the borrower’s finances, signaling how much external credit support or hidden risk a company has.
Earnings Snapshot
Net income: $28.2M
Q1 2026
Net income
$28.2M
Net income available to common stockholders
$27.7M
Diluted EPS
$0.45
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
OR
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | |||||
| (Commission File Number) | (IRS Employer Identification No.) | ||||
(Address of principal executive offices) (Zip code)
(Registrant’s telephone number, including area code): (765 ) 747-1500
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated Filer | ☐ | Non-Accelerated Filer | ☐ | |||||||||||||
Smaller Reporting Company | Emerging Growth Company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 27, 2026, there were 63,022,741 outstanding common shares of the registrant.
1
TABLE OF CONTENTS
FIRST MERCHANTS CORPORATION
| Page No. | ||||||||
Glossary of Defined Terms | 3 | |||||||
Part I. Financial Information | ||||||||
| Item 1. | Financial Statements: | |||||||
Consolidated Condensed Balance Sheets | 4 | |||||||
Consolidated Condensed Statements of Income | 5 | |||||||
Consolidated Condensed Statements of Comprehensive Income | 6 | |||||||
Consolidated Condensed Statements of Stockholders' Equity | 7 | |||||||
Consolidated Condensed Statements of Cash Flows | 8 | |||||||
Notes to Consolidated Condensed Financial Statements | 9 | |||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 40 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 56 | ||||||
| Item 4. | Controls and Procedures | 57 | ||||||
Part II. Other Information | ||||||||
| Item 1. | Legal Proceedings | 59 | ||||||
| Item 1A. | Risk Factors | 59 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59 | ||||||
| Item 3. | Defaults Upon Senior Securities | 59 | ||||||
| Item 4. | Mine Safety Disclosures | 59 | ||||||
| Item 5. | Other Information | 59 | ||||||
| Item 6. | Exhibits | 60 | ||||||
Signatures | 61 | |||||||
2
GLOSSARY OF DEFINED TERMS
FIRST MERCHANTS CORPORATION
| ACL - Loans | Allowance for Credit Losses on Loans | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| Bank | First Merchants Bank, a wholly-owned subsidiary of the Corporation | ||||
| CECL | Current Expected Credit Losses (FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, adopted by the Corporation on January 1, 2021.) | ||||
| CET1 | Common Equity Tier 1 | ||||
| CME Term SOFR | A forward-looking term Secured Overnight Financing Rate, as administered by CME Group Benchmark Administration Limited. | ||||
| CODM | Chief operating decision maker | ||||
| Corporation | First Merchants Corporation | ||||
| CRA | Community Reinvestment Act | ||||
| Credit Agreement | Credit agreement entered into on September 30, 2024 with U.S. Bank, N.A. | ||||
| Credit Facility | Revolving line of credit related to Credit Agreement entered into on September 30, 2024 | ||||
| ESPP | Employee Stock Purchase Plan | ||||
| Exchange Ratio | 0.85 share of the Corporation's stock pursuant to the Merger Agreement | ||||
| FASB | Financial Accounting Standards Board | ||||
| FDIC | Federal Deposit Insurance Corporation | ||||
| Federal Reserve | Board of Governors of the Federal Reserve System | ||||
| FHLB | Federal Home Loan Bank | ||||
| First Savings | First Savings Financial Group, Inc. | ||||
| FMC Trust II | First Merchants Capital Trust II | ||||
| FTE | Fully taxable equivalent | ||||
| GAAP | U.S. Generally Accepted Accounting Principles | ||||
| IRA | Inflation Reduction Act of 2022 | ||||
| Level One | Level One Bancorp, Inc., which was acquired by the Corporation on April 1, 2022. | ||||
| Merger | The merger of First Savings with and into the Corporation pursuant to the Merger Agreement | ||||
| Merger Agreement | Agreement and Plan of Merger entered into on September 24, 2025 with First Savings | ||||
| PCD | Purchased credit-deteriorated loans | ||||
| PSL | Purchased seasoned loans | ||||
| RSAs | Restricted Stock Awards | ||||
| Senior Debt | Fixed-to-Floating Rate Senior Notes due 2028 | ||||
| Subordinated Debt | Fixed-to-Floating Rate Subordinated Notes due 2028 | ||||
3
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
CONSOLIDATED CONDENSED BALANCE SHEETS
| March 31, 2026 | December 31, 2025 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest-bearing deposits | |||||||||||
| Investment securities available for sale | |||||||||||
Investment securities held to maturity, net of allowance for credit losses of $ | |||||||||||
| Loans held for sale | |||||||||||
| Loans | |||||||||||
| Less: Allowance for credit losses - loans | ( | ( | |||||||||
| Net loans | |||||||||||
| Premises and equipment | |||||||||||
| Federal Home Loan Bank stock | |||||||||||
| Interest receivable | |||||||||||
| Goodwill | |||||||||||
| Other intangibles | |||||||||||
| Cash surrender value of life insurance | |||||||||||
| Other real estate owned | |||||||||||
| Tax asset, deferred and receivable | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Deposits: | |||||||||||
| Noninterest-bearing | $ | $ | |||||||||
| Interest-bearing | |||||||||||
| Total Deposits | |||||||||||
| Borrowings: | |||||||||||
| Federal funds purchased | |||||||||||
| Securities sold under repurchase agreements | |||||||||||
| Federal Home Loan Bank advances | |||||||||||
| Subordinated debentures and other borrowings | |||||||||||
| Total Borrowings | |||||||||||
| Interest payable | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities | |||||||||||
| COMMITMENTS AND CONTINGENT LIABILITIES | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Cumulative Preferred Stock, $ | |||||||||||
Authorized - | |||||||||||
Issued and outstanding - | |||||||||||
Preferred Stock, Series A, | |||||||||||
Authorized - | |||||||||||
Issued and outstanding - | |||||||||||
Common Stock, $ | |||||||||||
Authorized - | |||||||||||
Issued and outstanding - | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Stockholders' Equity | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | |||||||||
See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| INTEREST INCOME | |||||||||||||||||||||||
| Loans receivable: | |||||||||||||||||||||||
| Taxable | $ | $ | |||||||||||||||||||||
| Tax exempt | |||||||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||
| Taxable | |||||||||||||||||||||||
| Tax exempt | |||||||||||||||||||||||
| Deposits with financial institutions | |||||||||||||||||||||||
| Federal Home Loan Bank stock | |||||||||||||||||||||||
| Total Interest Income | |||||||||||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Federal funds purchased | |||||||||||||||||||||||
| Securities sold under repurchase agreements | |||||||||||||||||||||||
| Federal Home Loan Bank advances | |||||||||||||||||||||||
| Subordinated debentures and other borrowings | |||||||||||||||||||||||
| Total Interest Expense | |||||||||||||||||||||||
| NET INTEREST INCOME | |||||||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Fiduciary and wealth management fees | |||||||||||||||||||||||
| Card payment fees | |||||||||||||||||||||||
| Net gains and fees on sales of loans | |||||||||||||||||||||||
| Derivative hedge fees | |||||||||||||||||||||||
| Other customer fees | |||||||||||||||||||||||
| Earnings on bank-owned life insurance | |||||||||||||||||||||||
| Net realized losses on sales of available for sale securities | ( | ||||||||||||||||||||||
| Net loss on mortgage loans reclassified to held for sale | ( | ||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total Noninterest Income | |||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Net occupancy | |||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||
| Marketing | |||||||||||||||||||||||
| Outside data processing fees | |||||||||||||||||||||||
| Printing and office supplies | |||||||||||||||||||||||
| Intangible asset amortization | |||||||||||||||||||||||
| FDIC assessments | |||||||||||||||||||||||
| Other real estate owned and foreclosure expenses | |||||||||||||||||||||||
| Professional and other outside services | |||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||
| Total Noninterest Expense | |||||||||||||||||||||||
| Income Before Income Taxes | |||||||||||||||||||||||
| Income tax (benefit) expense | ( | ||||||||||||||||||||||
| NET INCOME | |||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | $ | |||||||||||||||||||||
| Per Share Data: | |||||||||||||||||||||||
| Basic Net Income Available to Common Stockholders | $ | $ | |||||||||||||||||||||
| Diluted Net Income Available to Common Stockholders | $ | $ | |||||||||||||||||||||
| Cash Dividends Paid | $ | $ | |||||||||||||||||||||
| Average Diluted Common Shares Outstanding (in thousands) | |||||||||||||||||||||||
See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
| Unrealized losses on securities available for sale: | |||||||||||||||||||||||
| Unrealized holding loss arising during the period | ( | ( | |||||||||||||||||||||
| Reclassification adjustment for losses included in net income | |||||||||||||||||||||||
| Tax effect | |||||||||||||||||||||||
| Total other comprehensive loss, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | |||||||||||||||||||||
See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
6
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Preferred Stock | Non-Cumulative Preferred Stock | Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Paid in Capital | Retained Earnings | Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2025 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends on preferred stock ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock related to acquisition | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Excise tax on stock repurchases | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under employee benefit plans | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under dividend reinvestment and stock purchase plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld on equity award settlements | — | — | — | — | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2026 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Preferred Stock | Non-Cumulative Preferred Stock | Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Paid in Capital | Retained Earnings | Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2024 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends on preferred stock ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock ($ | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Excise tax on stock repurchase | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under employee benefit plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under dividend reinvestment and stock purchase plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld on equity award settlements | — | — | — | — | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2025 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
7
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash Flow from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Provision for credit losses | |||||||||||
| Depreciation and amortization | |||||||||||
| Change in deferred taxes | ( | ||||||||||
| Share-based compensation | |||||||||||
| Loans originated for sale | ( | ( | |||||||||
| Proceeds from sales of loans held for sale | |||||||||||
| Gains on sales of loans held for sale | ( | ( | |||||||||
| Loss on mortgage loans reclassified to held for sale | |||||||||||
| Net losses on sales of securities available for sale | |||||||||||
| Increase in cash surrender value of life insurance | ( | ( | |||||||||
| Gains on life insurance benefits | ( | ( | |||||||||
| Change in income tax receivable | ( | ||||||||||
| Change in interest receivable | |||||||||||
| Change in interest payable | ( | ( | |||||||||
| Other adjustments | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Net change in interest-bearing deposits | ( | ||||||||||
| Purchase of securities available for sale | ( | ( | |||||||||
| Proceeds from sales of securities available for sale | |||||||||||
| Proceeds from maturities and redemptions of: | |||||||||||
| Securities available for sale | |||||||||||
| Securities held to maturity | |||||||||||
| Purchases of Federal Home Loan Bank stock | ( | ||||||||||
| Redemptions of Federal Home Loan Bank stock | |||||||||||
| Redemptions of Federal Reserve Bank stock | |||||||||||
| Payment of capital calls to qualified affordable housing investments | ( | ( | |||||||||
| Net change in loans | ( | ||||||||||
| Net cash and cash equivalents paid in acquisition | ( | ||||||||||
| Proceeds from the sale of other real estate owned | |||||||||||
| Proceeds from life insurance benefits | |||||||||||
| Other adjustments | ( | ( | |||||||||
| Net cash provided (used) by investing activities | ( | ||||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Net Change in: | |||||||||||
| Demand and savings deposits | ( | ||||||||||
| Certificates of deposit and other time deposits | ( | ( | |||||||||
| Proceeds from borrowings | |||||||||||
| Repayment of borrowings | ( | ( | |||||||||
| Cash dividends on preferred stock | ( | ( | |||||||||
| Cash dividends on common stock | ( | ( | |||||||||
| Stock issued under employee benefit plans | |||||||||||
| Stock issued under dividend reinvestment and stock purchase plans | |||||||||||
| Stock options exercised | |||||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Net cash provided (used) by financing activities | ( | ||||||||||
| Net Change in Cash and Cash Equivalents | ( | ||||||||||
| Cash and Cash Equivalents, January 1 | |||||||||||
Cash and Cash Equivalents, March 31 | $ | $ | |||||||||
| Additional cash flow information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income tax paid (refunded) | ( | ||||||||||
| Loans transferred to other real estate owned | |||||||||||
| Non-cash investing activities using trade date accounting | |||||||||||
| ROU assets obtained in exchange for new operating lease liabilities | |||||||||||
| Reclassification of loans to held for sale | |||||||||||
| In conjunction with the acquisitions, liabilities were assumed as follows: | |||||||||||
| Fair value of assets acquired | $ | $ | |||||||||
| Cash paid in acquisition | ( | ||||||||||
| Less: Common stock issued | |||||||||||
| Liabilities assumed | $ | $ | |||||||||
8
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 1
GENERAL
Financial Statement Preparation
Significant Accounting Policies
The significant accounting policies followed by the Corporation and its wholly-owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying Consolidated Condensed Financial Statements.
Recent Accounting Changes Adopted in 2026
FASB Accounting Standards Update No. 2025-08 - Financial Instruments - Credit Losses (Topic 326): Purchased Loans
Summary - Effective January 1, 2026, the Corporation early adopted Accounting Standards Update ("ASU") No. 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans, which expands the use of the gross-up method for certain loans.
Accounting Policy
Loans acquired through business combinations that meet the definition of purchased seasoned loans ("PSL") are recorded using the gross-up method. Purchased credit‑deteriorated (“PCD”) loans continue to be accounted for under existing PCD guidance, which also applies the gross‑up method; however, PCD loans represent loans that experienced more‑than‑insignificant credit deterioration since origination, while PSLs did not. Under this method, the Corporation recognizes an allowance for credit losses on loans ("ACL - Loans") at the acquisition date, with a corresponding increase to the loan's amortized cost basis. The establishment of the ACL - Loans at acquisition does not result in a provision for credit losses or earnings impact on the acquisition date.
Expected credit losses as of the acquisition date are recognized through the acquisition‑date allowance for credit losses, while the non‑credit discount reflects all other valuation factors and is accreted into interest income over the remaining life of the loans using the effective interest method.
Subsequent changes in expected credit losses for PSLs and PCD loans are recognized through the provision for credit losses in the period in which the estimate changes, consistent with the Corporation's methodology for originated loans measured at amortized cost.
Impact of Adoption
As a result of the early adoption of ASU No. 2025-08, the Corporation recorded acquisition‑date expected credit losses on acquired loans totaling $22.3 million, representing acquisition‑date expected credit losses on PSLs of $15.2 million and PCD loans of $7.1 million. These amounts were recognized as an allowance for credit losses with a corresponding increase to the loans’ amortized cost basis at acquisition.
The recognition of the acquisition‑date allowance for credit losses did not result in a provision for credit losses or earnings impact at the acquisition date, as both PSL and PCD loans are accounted for using the gross‑up approach at acquisition under ASU 2025‑08. There was no cumulative‑effect adjustment to retained earnings, as the guidance was applied prospectively.
After recognition of acquisition‑date expected credit losses through the allowance for credit losses, the remaining non-credit purchase discount on acquired loans totaled $53.1 million and will be accreted into interest income over the remaining contractual lives of the loans, adjusted for expected prepayments. No non‑credit purchase discount was recorded related to PCD loans, as the purchase discount on those loans was fully attributable to expected credit losses.
The adoption of this ASU eliminated the recognition of a day-one provision for credit losses for PSLs, thereby aligning the acquisition‑date accounting outcome for PSLs with that of PCD loans while preserving the distinction in underlying credit quality classification.
See NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Condensed Financial Statements for additional information.
9
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
New Accounting Pronouncements Not Yet Adopted
The Corporation continually monitors potential accounting pronouncements and the following pronouncements have been deemed to have the most applicability to the Corporation's financial statements:
FASB Accounting Standards Update - No. 2024-03 - Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures
Summary - The FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures in the fourth quarter of 2024. This ASU requires public business entities to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods.
The objective of the disclosure requirements is to provide disaggregated information about a public business entity's expenses to help investors (a) better understand the entity's performance, (b) better assess the entity's prospects for future cash flows, and (c) compare an entity's performance over time and with that of other entities.
The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.
FASB Accounting Standards Update No. 2025-09 - Derivatives and Hedging (Topic 815): Hedge Accounting Improvements
Summary - The FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements in the fourth quarter of 2025. The amendments in this Update clarify certain aspects of the guidance on hedge accounting and to address several incremental hedge accounting issues from the global reference rate reform initiative.
The objective is to more closely align hedge accounting with the economics of an entity’s risk management activities. The five issues addressed in this Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions.
The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those fiscal years. Early adoption is permitted. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.
FASB Accounting Standards Update No. 2025-10 - Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities
Summary - The FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities in the fourth quarter of 2025. This Update establishes authoritative U.S. GAAP guidance for accounting for government grants received by business entities, including recognition, measurement, and presentation. It provides specific guidance for grants related to assets and grants related to income. The amendments exclude income taxes, below-market interest rate loans, and government guarantees.
The amendments are effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those fiscal years. Early adoption is permitted for any interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.
NOTE 2
ACQUISITIONS
First Savings Financial Group, Inc. Acquisition
On February 1, 2026 (the "Effective Time"), the Corporation completed the acquisition of First Savings Financial Group, Inc., an Indiana corporation ("First Savings"), pursuant to the Agreement and Plan of Merger, dated September 24, 2025, by and between the Corporation and First Savings (the "Merger Agreement"). Immediately following the Merger, First Savings Bank, a wholly-owned subsidiary of First Savings, merged with and into the Bank, with the Bank surviving the merger and continuing its corporate existence.
First Savings was headquartered in Jeffersonville, Indiana and had 16 banking centers serving the southern Indiana market. As of the Effective Time, each share of outstanding First Savings common stock was converted into the right to receive 0.85 of a share (the "Exchange Ratio") of First Merchants common stock, in a tax-free exchange, plus cash-in-lieu of any fractional share created by the Exchange Ratio.
Immediately prior to the Effective Time, each outstanding First Savings restricted stock award held by certain directors, executive officers and employees of First Savings, whether unvested or vested, was exchanged for shares of First Merchants common stock based on the Exchange Ratio according to their respective award agreement terms.
In addition, on the day immediately preceding the Effective Time, each outstanding option to acquire a share of First Savings common stock was cancelled in exchange for the right to receive a cash payment, which was paid by First Savings, equal to (i) $32.59 per share, which is equal to the Exchange Ratio multiplied by the volume-weighted average price of First Merchants common stock over the ten (10 ) consecutive trading days ending on January 27, 2026, less (ii) the option exercise price per share, and less (iii) any applicable withholding taxes.
10
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The Corporation issued 6.1 million shares of its common stock, in exchange for all of the issued and outstanding shares of First Savings common stock.
The total purchase price of approximately $243.2 million consists primarily of equity consideration issued by the Corporation and is measured at fair value based on the Corporation’s common stock price as of the acquisition date. The purchase price also includes cash paid in lieu of fractional shares. The purchase price represents the fair value of consideration transferred in accordance with ASC 805.
Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the First Savings acquisition is detailed in the following table. If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available about facts and circumstances that existed as of the acquisition date, which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.
| Fair Value | ||||||||
| Cash and due from banks | $ | |||||||
| Investment securities | ||||||||
| Loans held for sale | ||||||||
| Loans | ||||||||
| Allowance for credit losses - loans | ( | |||||||
| Premises and equipment | ||||||||
| Federal Home Loan Bank stock | ||||||||
| Other real estate owned | ||||||||
| Interest receivable | ||||||||
| Cash surrender value of life insurance | ||||||||
| Tax asset, deferred and receivable | ||||||||
| Other assets | ||||||||
| Deposits | ( | |||||||
| Federal Home Loan Bank advances | ( | |||||||
| Subordinated debentures | ( | |||||||
| Interest payable | ( | |||||||
| Other liabilities | ( | |||||||
| Net tangible assets acquired | ||||||||
| Other intangibles | ||||||||
| Goodwill | ||||||||
| Purchase price | $ | |||||||
The Corporation early adopted ASU 2025‑08, Purchased Financial Assets, for the First Savings acquisition. Consistent with this guidance, acquired loans were initially recognized using the acquisition‑date gross‑up method, with expected credit-related losses recognized through an acquisition‑date allowance for credit losses, which results in a corresponding increase to the loans’ amortized cost basis rather than through an embedded credit discount within fair value. For acquired loans that exhibited more‑than‑insignificant deterioration in credit quality since origination, the Corporation identified acquisition‑date expected credit losses, which represent the present value of expected credit-related losses over the life of the loans and are recognized as an allowance for credit losses at acquisition with a corresponding increase to the loans’ amortized cost basis. The Corporation did not identify a non‑credit discount on these loans, as the entire purchase discount was attributable to expected credit losses recognized through the acquisition‑date allowance for credit losses. Subsequent changes in expected credit losses on acquired loans are recognized through provision for credit losses in accordance with ASC 326. Additional information regarding the acquired loan portfolio and allowance for credit losses is provided in NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES.
Of the total purchase price, $30.2 million was allocated to identifiable intangible assets. Approximately $29.4 million was allocated to a core deposit intangible, which is being amortized over an estimated useful life of 10 years, and approximately $0.8 million was allocated to a non-compete intangible, which is being amortized over an estimated useful life of one year . The remaining purchase price was allocated to goodwill, which is not deductible for tax purposes.
Goodwill primarily represents the expected synergies from combining First Savings’ operations with the Corporation’s existing franchise, including anticipated cost savings, revenue enhancement opportunities, and the value of the assembled workforce, none of which qualify for separate recognition under GAAP. Additional factors contributing to goodwill include the expansion of the Corporation’s geographic footprint in southern Indiana and the acquired core customer relationships.
11
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Integration and Transaction‑Related Expenses
The Corporation recorded $17.0 million of integration and transaction‑related expenses during the quarter. These costs consisted primarily of $3.0 million of acquisition-related professional and advisory services, $8.4 million of contract termination and similar charges, and $5.2 million reflected in salaries and benefits. Acquisition‑related professional services primarily related to investment banking, legal, and valuation services incurred to effect the acquisition. Contract termination and similar charges primarily related to the early termination of vendor and service agreements and core systems and software arrangements as part of post‑acquisition integration activities. Salaries and benefits primarily related to employee retention and severance arrangements associated with post‑acquisition integration activities.
Results of First Savings Since Acquisition
From the acquisition date of February 1, 2026 through March 31, 2026, First Savings contributed approximately $13.6 million of total revenue and net income of $3.8 million to the Corporation’s consolidated results of operations.
Pro Forma Financial Information
The results of operations of First Savings have been included in the Corporation's consolidated financial statements since the acquisition date. The following schedule presents unaudited pro forma results for the three months ended March 31, 2026 and the year ended December 31, 2025, as if the First Savings acquisition had occurred at the beginning of the periods presented.
The unaudited pro forma financial information includes adjustments for interest income on loans, interest expense on deposits and borrowings, premises expense related to the acquired real estate, amortization of intangible assets arising from the transaction and the related income tax effects.
The pro forma financial information for the three months ended March 31, 2026 excludes certain non‑recurring charges recognized by First Savings during January 2026, prior to the February 1, 2026 acquisition date. These charges primarily relate to the write‑off of assets and the settlement or extinguishment of liabilities determined to have no continuing economic benefit to the combined company, as well as other transaction‑related items, including change‑in‑control payments, severance costs, legal and investment banking fees, and accelerated equity compensation expense associated with restricted stock awards and stock options.
In addition, the pro forma financial information excludes $17.0 million of non‑recurring integration‑related costs incurred by the Corporation during the three months ended March 31, 2026 in connection with the acquisition. These costs primarily consist of employee retention bonuses and severance arrangements associated with post‑acquisition integration activities, contract termination charges, core system conversion expenses and transaction advisory services.
The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future operating results.
| Three Months Ended | ||||||||||||||
| March 31, 2026 | ||||||||||||||
| Total revenue (net interest income plus noninterest income) | $ | |||||||||||||
| Net income | $ | |||||||||||||
| Net income available to common stockholders | $ | |||||||||||||
| Earnings per common share: | ||||||||||||||
| Basic | $ | |||||||||||||
| Diluted | $ | |||||||||||||
| Year Ended | ||||||||
| December 31, 2025 | ||||||||
| Total revenue (net interest income plus noninterest income) | $ | |||||||
| Net income | $ | |||||||
| Net income available to common stockholders | $ | |||||||
| Earnings per common share: | ||||||||
| Basic | $ | |||||||
| Diluted | $ | |||||||
12
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 3
INVESTMENT SECURITIES
The following tables summarize the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale as of March 31, 2026 and December 31, 2025.
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||
| Available for sale at March 31, 2026 | |||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| State and municipal | ( | ||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||||||||||||||||||||||||||
| Foreign investment | |||||||||||||||||||||||||||||||||||
| Corporate obligations | ( | ||||||||||||||||||||||||||||||||||
| Total available for sale | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Available for sale at December 31, 2025 | |||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| State and municipal | ( | ||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||||||||||||||
| Foreign investment | |||||||||||||||||||||||
| Corporate obligations | ( | ||||||||||||||||||||||
| Total available for sale | $ | $ | $ | ( | $ | ||||||||||||||||||
The following tables summarize the amortized cost, gross unrealized gains and losses, approximate fair value and allowance for credit losses on investment securities held to maturity as of March 31, 2026 and December 31, 2025.
| Amortized Cost | Allowance for Credit Losses | Net Carrying Amount | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||
| Held to maturity at March 31, 2026 | |||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| State and municipal | ( | ( | |||||||||||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||||||||||||||||||||||||||
| Total held to maturity | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Amortized Cost | Allowance for Credit Losses | Net Carrying Amount | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||
| Held to maturity at December 31, 2025 | |||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| State and municipal | ( | ( | |||||||||||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||||||||||||||||||||||||||
| Total held to maturity | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Accrued interest on investment securities available for sale and held to maturity at March 31, 2026 and December 31, 2025 of $19.2 million and $21.9 million, respectively, is included in the "Interest receivable" line on the Corporation's Consolidated Condensed Balance Sheets. The total amount of accrued interest is excluded from the amortized cost of available for sale and held to maturity securities presented above.
In determining the allowance for credit losses on investment securities available for sale that are in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the income statement.
For investment securities available for sale that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income (loss).
13
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities available for sale from the estimate of credit losses.
Investment securities available for sale are charged off against the allowance or, in the absence of any allowance, written down through the income statement when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Corporation did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality.
The allowance for credit losses on investment securities held to maturity is a contra asset-valuation account that is deducted from the amortized cost basis of investment securities held to maturity to present the net amount expected to be collected. Investment securities held to maturity are charged off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses.
The Corporation measures expected credit losses on investment securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities held to maturity from the estimate of credit losses.
With regard to U.S. Government-sponsored agency and U.S. Government-sponsored mortgage-backed securities, all of these securities are issued by a U.S. Government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities.
With regard to securities issued by states and municipalities and other investment securities held to maturity, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those in the Corporation's portfolio have been insignificant. Furthermore, as of March 31, 2026, there were no past due principal and interest payments associated with these securities.
The balance of the allowance for credit losses on investment securities held to maturity remained unchanged at $245,000
On a quarterly basis, the Corporation monitors the credit quality of investment securities held to maturity through the use of credit ratings. The following tables summarize the amortized cost of investment securities held to maturity at March 31, 2026 and December 31, 2025, aggregated by credit quality indicator.
| March 31, 2026 | |||||||||||||||||||||||||||||
U.S. Government-sponsored agency securities (1) | State and municipal | U.S. Government-sponsored mortgage-backed securities (1) | Total | ||||||||||||||||||||||||||
| Credit Rating: | |||||||||||||||||||||||||||||
| Aaa | $ | $ | $ | $ | |||||||||||||||||||||||||
| Aa1 | |||||||||||||||||||||||||||||
| Aa2 | |||||||||||||||||||||||||||||
| Aa3 | |||||||||||||||||||||||||||||
| A1 | |||||||||||||||||||||||||||||
| A2 | |||||||||||||||||||||||||||||
| A3 | |||||||||||||||||||||||||||||
| Non-rated | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
14
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
| December 31, 2025 | |||||||||||||||||||||||||||||
U.S. Government-sponsored agency securities (1) | State and municipal | U.S. Government-sponsored mortgage-backed securities (1) | Total | ||||||||||||||||||||||||||
| Credit Rating: | |||||||||||||||||||||||||||||
| Aaa | $ | $ | $ | $ | |||||||||||||||||||||||||
| Aa1 | |||||||||||||||||||||||||||||
| Aa2 | |||||||||||||||||||||||||||||
| Aa3 | |||||||||||||||||||||||||||||
| A1 | |||||||||||||||||||||||||||||
| A2 | |||||||||||||||||||||||||||||
| A3 | |||||||||||||||||||||||||||||
| Non-rated | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
(1) U.S. Government-sponsored agency securities and U.S. Government-sponsored mortgage-backed securities are included within the Aaa credit rating category due to their explicit or implicit government guarantees, which provide a high level of assurance regarding the timely collection of principal and interest payments.
The following tables summarize, as of March 31, 2026 and December 31, 2025, investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time in a continuous unrealized loss position.
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| Investment securities available for sale at March 31, 2026 | |||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| State and municipal | ( | ( | ( | ||||||||||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total investment securities available for sale | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| Investment securities available for sale at December 31, 2025 | |||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| State and municipal | ( | ( | ( | ||||||||||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate obligations | ( | ( | |||||||||||||||||||||||||||||||||
| Total investment securities available for sale | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
The following tables summarize investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and the number of securities in the portfolio as of the dates indicated.
| Gross Unrealized Losses | Number of Securities | ||||||||||
| Investment securities available for sale at March 31, 2026 | |||||||||||
| U.S. Government-sponsored agency securities | $ | ( | |||||||||
| State and municipal | ( | ||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||
| Corporate obligations | ( | ||||||||||
| Total investment securities available for sale | $ | ( | |||||||||
| Gross Unrealized Losses | Number of Securities | ||||||||||
| Investment securities available for sale at December 31, 2025 | |||||||||||
| U.S. Government-sponsored agency securities | $ | ( | |||||||||
| State and municipal | ( | ||||||||||
| U.S. Government-sponsored mortgage-backed securities | ( | ||||||||||
| Corporate obligations | ( | ||||||||||
| Total investment securities available for sale | $ | ( | |||||||||
15
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The unrealized losses in the Corporation’s investment portfolio were the result of changes in interest rates and not credit quality. As a result, the Corporation expects to recover the amortized cost basis over the term of the securities. The Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
Certain investment securities available for sale are reported in the financial statements at an amount less than their historical cost as indicated in the table below.
| March 31, 2026 | December 31, 2025 | ||||||||||
| Investment securities available for sale reported at less than historical cost: | |||||||||||
| Historical cost | $ | $ | |||||||||
| Fair value | |||||||||||
| Gross unrealized losses | $ | ( | $ | ( | |||||||
| Percentage of the Corporation's investment securities available for sale in an unrealized loss position | % | % | |||||||||
In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy. The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor classified these securities based upon these inputs. From these discussions, the Corporation’s management is comfortable that the classifications are proper. The Corporation has gained trust in the data for two reasons: (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or losses resulting from the sale of certain securities has proven the data to be accurate over time. Fair value of securities classified as Level 3 in the valuation hierarchy was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.
The amortized cost and fair value of investment securities available for sale and held to maturity at March 31, 2026 and December 31, 2025, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity are shown separately.
| Available for Sale | Held to Maturity | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
| Maturity Distribution at March 31, 2026 | |||||||||||||||||||||||
| Due in one year or less | $ | $ | $ | $ | |||||||||||||||||||
| Due after one through five years | |||||||||||||||||||||||
| Due after five through ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | |||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | |||||||||||||||||||
| Available for Sale | Held to Maturity | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
| Maturity Distribution at December 31, 2025 | |||||||||||||||||||||||
| Due in one year or less | $ | $ | $ | $ | |||||||||||||||||||
| Due after one through five years | |||||||||||||||||||||||
| Due after five through ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | |||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | |||||||||||||||||||
Securities with a carrying value of approximately $3.2 billion and $3.3 billion were pledged at March 31, 2026 and December 31, 2025, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law.
The book value of securities pledged and available under agreements to repurchase amounted to $103.7 million at March 31, 2026 and $119.8 million at December 31, 2025.
16
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Gross gains and losses on the sales of investment securities available for sale for the three months ended March 31, 2026 and 2025 are shown below.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Sales of investment securities available for sale: | |||||||||||||||||||||||
| Gross gains | $ | $ | |||||||||||||||||||||
| Gross losses | ( | ||||||||||||||||||||||
| Net losses on sales of investment securities available for sale | $ | $ | ( | ||||||||||||||||||||
NOTE 4
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio and Credit Quality
The Corporation's primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. The following tables show the composition of the loan portfolio and credit quality characteristics by collateral classification, excluding loans held for sale. Loans held for sale at March 31, 2026 and December 31, 2025, were $401.8 million and $20.1 million, respectively.
The following table illustrates the composition of the Corporation’s loan portfolio by loan class as of the dates indicated.
| March 31, 2026 | December 31, 2025 | ||||||||||
| Commercial and industrial loans | $ | $ | |||||||||
| Agricultural land, production and other loans to farmers | |||||||||||
| Real estate loans: | |||||||||||
| Construction | |||||||||||
| Commercial real estate, non-owner occupied | |||||||||||
| Commercial real estate, owner occupied | |||||||||||
| Residential | |||||||||||
| Home equity | |||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||
| Public finance and other commercial loans | |||||||||||
| Loans | $ | $ | |||||||||
Credit Quality
As part of the ongoing monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge-offs, (iii) nonperforming loans, (iv) covenant failures and (v) the general national and local economic conditions.
The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:
•Pass - Loans that are considered to be of acceptable credit quality.
•Special Mention - Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation's credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.
•Substandard - Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans that have all of the weaknesses of those classified as Substandard. However, based on existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable.
•Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical or desirable to defer charging-off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.
17
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The following tables summarize the risk grading of the Corporation’s loan portfolio and gross charge-offs by loan class and by year of origination for the periods indicated. Consumer loans are not risk graded. For the purposes of this disclosure, consumer loans are classified in the following manner: loans that are less than 30 days past due are Pass, loans 30-89 days past due are Special Mention and loans greater than 89 days past due are Substandard. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.
| March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans (amortized cost basis by origination year) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving loans amortized cost basis | Revolving loans converted to term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and industrial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Home Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Total current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
18
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans (amortized cost basis by origination year) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving loans amortized cost basis | Revolving loans converted to term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and industrial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Home Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Total current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
19
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Total past due loans equaled $155.0 million as of March 31, 2026 representing a $24.1 million increase from $130.9 million at December 31, 2025. At March 31, 2026, 30-59 days past due increased $6.2 million from December 31, 2025 as commercial and industrial, construction, residential and commercial real estate, owner occupied loan classes increased $9.6 million, $5.6 million, $2.6 million and $2.2 million, respectively. The increase was partially offset by a decrease in the commercial real estate, non-owner occupied loan class of $17.7 million. At March 31, 2026, 60-89 days past due increased $6.0 million from December 31, 2025 as the construction and home equity loan classes increased $3.5 million and $2.5 million, respectively. At March 31, 2026, 90 days or more past due increased $12.0 million from December 31, 2025 as the commercial real estate, non-owner occupied, commercial real estate, owner occupied and residential loan classes increased $14.3 million, $7.2 million and $5.7 million, respectively. The increase was partially offset by decreases in the construction and commercial and industrial loan classes of $13.8 million and $4.1 million, respectively. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of the dates indicated.
| March 31, 2026 | |||||||||||||||||||||||||||||||||||
| Current | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total | Loans > 90 Days or More Past Due and Accruing | ||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||
| Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Current | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total | Loans > 90 Days or More Past Due and Accruing | ||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||||||||||||||
| Public finance and other commercial loans | |||||||||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Loans are reclassified to a nonaccruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.
20
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The following table summarizes the Corporation’s nonaccrual loans by loan class as of the dates indicated.
| March 31, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Nonaccrual Loans | Nonaccrual Loans with no Allowance for Credit Losses | Nonaccrual Loans | Nonaccrual Loans with no Allowance for Credit Losses | ||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | |||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||
| Residential | |||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | |||||||||||||||||||||||
| Public finance and other commercial loans | |||||||||||||||||||||||
| Loans | $ | $ | $ | $ | |||||||||||||||||||
Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. There was no
Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.
The tables below present the amortized cost basis of collateral dependent loans by loan class and their respective collateral type, which are individually evaluated to determine expected credit losses. The total collateral dependent loan balance decreased $1.0 million for the three months ended March 31, 2026, primarily related to decreases of $12.3 million and $6.9 million in the construction and commercial and industrial loan classes, respectively. The decrease was partially offset by increases of $10.8 million and $4.7 million in the commercial real estate, owner occupied and commercial real estate, non-owner occupied loan classes, respectively. The total related allowance balance increased $3.0 million for the three months ended March 31, 2026, primarily related to an increase of $3.0 million in the commercial real estate, owner occupied loan class.
| March 31, 2026 | |||||||||||||||||||||||||||||
| Commercial Real Estate | Residential Real Estate | Other | Total | Allowance on Collateral Dependent Loans | |||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Commercial Real Estate | Residential Real Estate | Other | Total | Allowance on Collateral Dependent Loans | |||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
21
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
In certain situations, the Corporation may modify the terms of a loan to a debtor experiencing financial difficulty. The modifications may include principal forgiveness, interest rate reductions, payment delays, term extensions or combinations of these modifications. The following tables present the amortized cost basis of loans at March 31, 2026 and 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2026 and 2025, by class and by type of modification. For the three months ended March 31, 2026 and 2025 the tables below exclude loan modifications considered insignificant. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Modifications Made to Borrowers Experiencing Financial Difficulty | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Term Extension | Combination Payment Delay & Term Extension | Combination Interest Rate Reduction & Term Extension | Combination Interest Rate Reduction, Term Extension, & Payment Delay | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Modifications Made to Borrowers Experiencing Financial Difficulty | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Term Extension | % of Total Class of Financing Receivable | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Financial Effect of Loan Modifications | |||||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Term Extension | Combination Payment Delay & Term Extension | Combination Interest Rate Reduction & Term Extension | Combination Interest Rate Reduction, Term Extension & Payment Delay | |||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | Provided payment deferrals with weighted average delayed amounts of $ | Extended loans by a weighted average of | Provided payment deferrals with weighted average delayed amounts of $ | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction | Extended loans by a weighted average of | ||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | Provided payment deferrals with weighted average delayed amounts of $ | Extended loans by a weighted average of | Reduced the weighted average contractual interest rate from | ||||||||||||||||||||||||||||||||||||||||||||
| Residential | Provided payment deferrals with weighted average delayed amounts of $ | Reduced the weighted average contractual interest rate from | |||||||||||||||||||||||||||||||||||||||||||||
22
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Financial Effect of Loan Modifications | |||||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Term Extension | ||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | Extended loans by a weighted average of | ||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction | Extended loans by a weighted average of | ||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | Extended loans by a weighted average of | ||||||||||||||||||||||||||||||||||||||||||||||
| Residential | Provided payment deferrals with weighted average delayed amounts of $ | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2026 | |||||||||||||||||||||||||||||
| Current | 30-59 Days Past Due | 60-89 Days Past Due | 90+ Days Past Due | Total | |||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
| Commercial real estate, non-owner occupied | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| March 31, 2025 | |||||||||||||||||||||||||||||
| Current | 30-59 Days Past Due | 60-89 Days Past Due | 90+ Days Past Due | Total | |||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Agricultural land, production and other loans to farmers | |||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
| Commercial real estate, owner occupied | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
During the three months ended March 31, 2026 and 2025, there were payment defaults of $12.0 million and $9.5 million, respectively, on loans to borrowers whose loans were modified due to financial difficulties within the previous twelve months. The payment defaults did not materially impact the allowance for credit losses on loans.
Upon the Corporation's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Purchase Credit Deteriorated Loans
The Corporation acquired First Savings on February 1, 2026 and performed an evaluation of the loan portfolio in which there were loans that, at acquisition, had more than an insignificant amount of credit quality deterioration. The carrying amount of those loans is shown in the table below:
| First Savings | |||||
| Purchase price of loans at acquisition | $ | ||||
| CECL Day 1 PCD ACL - loans | |||||
| Par value of acquired loans at acquisition | $ | ||||
23
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Allowance for Credit Losses on Loans
The Allowance for Credit Losses on Loans ("ACL - Loans") is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term. The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge-offs for loans, net of recoveries. Provision for credit losses on loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Loans are charged-off against the allowance when the uncollectibility of the loan is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
The allowance represents the Corporation’s best estimate of current expected credit losses on loans using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The Current Expected Credit Losses ("CECL") calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan. The level of the ACL - Loans is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.
In calculating the ACL - Loans, the loan portfolio was pooled into twelve loan segments with similar risk characteristics. Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns. In developing the loan segments, the Corporation analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors.
The expected credit losses are measured over the life of each loan segment utilizing the Probability of Default / Loss Given Default methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio. This approach is also leveraged to estimate the expected credit losses associated with unfunded loan commitments incorporating expected utilization rates.
The Corporation sub-segmented certain commercial portfolios by risk level and certain consumer portfolios by delinquency status where appropriate. The Corporation utilized a four-quarter reasonable and supportable economic forecast period followed by a six-quarter, straight-line reversion period to the historical macroeconomic mean for the remaining life of the loans. Econometric modeling was performed using historical default rates and a selection of economic forecast scenarios published by Moody’s to develop a range of estimated credit losses for which to
determine the best credit loss estimate within. Macroeconomic factors utilized in the modeling process include the national unemployment rate, BBB US corporate index, commercial real estate price index and the home price index.
The Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, charge-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending, investment, collection and other relevant management staff, (vi) changes in the volume and severity of past due financial assets, the volume of the nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vii) the value of underlying collateral for loans that are not collateral dependent, and (viii) other environmental factors such as regulatory, legal and technological considerations, as well as competition and changes in the economic and business conditions that affect the collectability of financial assets.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.
The risk characteristics of the Corporation’s portfolio segments are as follows:
Commercial
Commercial lending is primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the tangible assets being financed such as equipment or real estate or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Other loans may be unsecured, secured but under-collateralized or otherwise made on the basis of the enterprise value of an organization. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial real estate
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Corporation monitors commercial real estate loans based on collateral and risk grade criteria, as well as the levels of owner-occupied versus non-owner occupied loans.
24
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Construction
Construction loans are underwritten utilizing a combination of tools and techniques including feasibility and market studies, independent appraisals and appraisal reviews, absorption and interest rate sensitivity analysis as well as the financial analysis of the developer and all guarantors. Construction loans are monitored by either in house or third party inspectors limiting advances to a percentage of costs or stabilized project value. These loans frequently involve the disbursement of significant funds with the repayment dependent upon the successful completion and, where necessary, the future stabilization of the project. The predominant inherent risk of this portfolio is associated with the borrower's ability to successfully complete a project on time, within budget and stabilize the project as originally projected.
Consumer and Residential
With respect to residential loans that are secured by 1-4 family residences, which are typically owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans, such as small installment loans and certain lines of credit, are unsecured. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers and can also be impacted by changes in property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
The ACL - Loans increased $16.9 million during the three months ended March 31, 2026. Net charge-offs totaled $10.3 million during the three months ended March 31, 2026. Provision expense of $4.9 million was recorded during the three months ended March 31, 2026. The following tables summarize changes in the allowance for credit losses by loan segment for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Commercial | Commercial Real Estate | Construction | Consumer & Residential | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans | |||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Provision for credit losses - loans | ( | ( | |||||||||||||||||||||||||||||||||||||||
| CECL Day 1 PSL ACL - loans | |||||||||||||||||||||||||||||||||||||||||
| CECL Day 1 PCD ACL - loans | |||||||||||||||||||||||||||||||||||||||||
| Recoveries on loans | |||||||||||||||||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2026 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Commercial | Commercial Real Estate | Construction | Consumer & Residential | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans | |||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Provision for credit losses - loans | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Recoveries on loans | |||||||||||||||||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
Off-Balance Sheet Arrangements, Commitments And Contingencies
In the normal course of business, the Corporation has entered into off-balance sheet financial instruments which include commitments to extend credit and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial customers that use lines of credit to supplement their treasury management functions, and thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing for their cash flows. Other typical lines of credit are related to home equity loans granted to customers. Commitments to extend credit generally have fixed expiration dates or other termination clauses that may require a fee.
Standby letters of credit are generally issued on behalf of an applicant (the Corporation’s customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. The standby letter of credit would permit the beneficiary to obtain payment from the Corporation under certain prescribed circumstances. Subsequently, the Corporation would seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.
25
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The Corporation typically follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash, real estate, marketable securities, accounts receivable, inventory, equipment and personal property. The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should the Corporation’s customers default on their resulting obligation to the Corporation, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments.
Financial instruments with off-balance sheet risk were as follows:
| March 31, 2026 | December 31, 2025 | ||||||||||
| Amounts of commitments: | |||||||||||
| Loan commitments to extend credit | $ | $ | |||||||||
| Standby letters of credit | $ | $ | |||||||||
The Corporation maintains an accrual for credit losses on off-balance sheet commitments using the CECL methodology. The First Savings acquisition added $0.5 million of Day 1 allowance for credit losses associated with off-balance sheet commitments during the three months ended March 31, 2026. There was no provision for credit losses on unfunded commitments during the three months ended March 31, 2026. This reserve level remains appropriate and is reported in "Other liabilities" as of March 31, 2026 and December 31, 2025 in the Consolidated Condensed Balance Sheets.
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||
| Balance at beginning of the period | $ | $ | |||||||||||||||||||||
| Day 1 allowance for credit losses - unfunded commitments | |||||||||||||||||||||||
| Ending balance | $ | $ | |||||||||||||||||||||
Loans Held for Sale
26
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 5
GOODWILL AND OTHER INTANGIBLES
Goodwill is recorded on the acquisition date of an entity. The Corporation has one year after the acquisition date, the measurement period, to record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date. The First Savings acquisition on February 1, 2026 resulted in $70.8 million of goodwill. Details regarding the First Savings acquisition are discussed in NOTE 2. ACQUISITIONS of these Notes to Consolidated Condensed Financial Statements. The changes in carrying basis of goodwill are noted below.
| 2026 | 2025 | ||||||||||
| Balance, January 1 | $ | $ | |||||||||
| Goodwill acquired | |||||||||||
| Balance, March 31 | $ | $ | |||||||||
Core deposit intangibles and other intangibles are recorded on the acquisition date of an entity. The Corporation has one year after the acquisition date, the measurement period, to record subsequent adjustments to these intangibles for provisional amounts recorded at the acquisition date. The First Savings acquisition resulted in recognition of a $29.4 million core deposit intangible and $0.8 million of other intangibles related to non-compete agreements. Details regarding the First Savings acquisition are discussed in NOTE 2. ACQUISITIONS of these Notes to Consolidated Condensed Financial Statements. The carrying basis and accumulated amortization of recognized core deposit intangibles and other intangibles are noted below.
| March 31, 2026 | December 31, 2025 | ||||||||||
| Gross carrying amount | $ | $ | |||||||||
| Other intangibles acquired | |||||||||||
| Accumulated amortization | ( | ( | |||||||||
| Total core deposit and other intangibles | $ | $ | |||||||||
The core deposit intangibles and other intangibles are being amortized primarily on an accelerated basis over their estimated useful lives, ranging from one to ten years . Intangible amortization expenses for the three months ended March 31, 2026 and 2025 were $2.3 million and $1.5 million, respectively. Estimated future amortization expense is summarized as follows:
| Amortization Expense | |||||
| 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| After 2030 | |||||
| $ | |||||
NOTE 6
DERIVATIVE FINANCIAL INSTRUMENTS
Non-designated Hedges
Derivatives not designated as hedges are not used for speculative purposes. Instead, they arise from services provided to commercial banking customers as part of their risk management strategies. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Interest rate lock commitments related to mortgage loans and forward sale commitments to third-party investors are also considered derivatives. It is the Corporation's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. Fair values were estimated using observable market inputs, primarily changes in mortgage interest rates, from the date of the commitment to the reporting date. Changes in the fair value of these mortgage banking derivatives are included in net gains and fees on sales of loans.
27
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The table below presents the fair value of the Corporation’s non-designated hedges, as well as their classification on the Consolidated Condensed Balance Sheets, as of March 31, 2026 and December 31, 2025.
| March 31, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||||||||
| Included in other assets: | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Forward contracts related to mortgage loans to be delivered for sale | |||||||||||||||||||||||
| Interest rate lock commitments | |||||||||||||||||||||||
| Included in other assets | $ | $ | $ | $ | |||||||||||||||||||
| Included in other liabilities: | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Forward contracts related to mortgage loans to be delivered for sale | |||||||||||||||||||||||
| Interest rate lock commitments | |||||||||||||||||||||||
| Included in other liabilities | $ | $ | $ | $ | |||||||||||||||||||
In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in "Net gains and fees on sales of loans" in the Consolidated Condensed Statements of Income and is considered a cost of executing a forward contract. The amount of gain (loss) recognized into income related to non-designated hedging instruments is included in the table below for the periods indicated.
| Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10 | Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized into Income on Derivatives | ||||||||||||||||||
| Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | |||||||||||||||||||
| Forward contracts related to mortgage loans to be delivered for sale | Net gains and fees on sales of loans | $ | $ | ( | ||||||||||||||||
| Interest rate lock commitments | Net gains and fees on sales of loans | ( | ||||||||||||||||||
| Total net gain (loss) recognized in income | $ | $ | ( | |||||||||||||||||
The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties. The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s at or above investment grade. The Corporation’s mitigation of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.
Credit-Risk-Related Contingent Features
The Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequately capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts. Additionally, the Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. As of March 31, 2026, the termination value of derivatives in a net liability position related to these agreements was $6.7 million, which resulted in $0.1 million of collateral pledged to counterparties as of March 31, 2026. While the Corporation did not breach any of these provisions as of March 31, 2026, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.
NOTE 7
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation uses fair value measurements to adjust certain assets and liabilities and to provide fair value disclosures. Accounting Standards Codification ("ASC") 820 defines fair value, establishes a framework for measuring it and expands related disclosure requirements. It applies only when other accounting guidance requires or permits fair value measurement and does not expand its use to new circumstances.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured. The Corporation values its assets and liabilities in the principal market where it sells the asset or transfers the liability with the greatest volume and level of activity. If no principal market exists, valuation is based on the most advantageous market — one that maximizes the asset’s sale price or minimizes the liability’s transfer cost.
Valuation inputs reflect assumptions that market participants would use to price an asset or liability. These inputs are categorized as either observable or unobservable. Observable inputs are based on market data from independent sources and reflect assumptions market
28
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
participants would use. Unobservable inputs are derived from the Corporation’s own estimates, reflecting assumptions market participants might use when market data is not available. These rely on the best available information at the measurement date.
Inputs are ranked within a three-level fair value hierarchy. Level 1 inputs consist of quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are based on one or more of the following: quoted prices for similar assets, observable inputs such as interest rates or yield curves, or inputs corroborated by market data. Level 3 inputs are unobservable and reflect minimal market activity.
An input is considered significant if it contributes 10 percent or more to the total fair value of the asset or liability.
RECURRING AND NONRECURRING FAIR VALUE MEASUREMENTS
Assets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly — such as daily, weekly, monthly, or quarterly. Recurring valuation occurs at least on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement is not performed regularly and does not necessarily result in a change to the recorded balance sheet amount. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment and recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Investment Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. As of March 31, 2026, and December 31, 2025 the Corporation did not hold any Level 1 securities. Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government-sponsored agency and mortgage-backed securities, state and municipal securities, foreign investment and corporate obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities and corporate obligations. Fair values for Level 3 securities were determined using discounted cash flow models that incorporated market estimates of interest rates and volatility in markets that have not been active.
Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.
Loans Held for Sale
Loans held for sale are carried at the lower of amortized cost basis or fair value, determined at the individual loan level, and are intended for sale in the secondary market. Certain loans classified as held for sale continue to be carried at amortized cost as their cost basis does not exceed fair value and, accordingly, are not included in the fair value measurement disclosures below.
Loans held for sale that are written down to fair value, including loans reclassified from held for investment when management commits to a plan to sell, are measured at fair value on a recurring basis and are included within Level 2 of the fair value hierarchy. Fair value is determined using observable market‑based inputs, including pricing obtained from third‑party investors for similar residential mortgage loans, adjusted for loan‑specific characteristics such as coupon, term, credit quality, and expected execution costs. Quoted prices for identical instruments in active markets are generally not available for these loans.
Loans held for sale that are carried at amortized cost are not subject to recurring fair value measurement and are therefore excluded from the tables presenting assets and liabilities measured at fair value.
Derivative Financial Agreements
See information regarding the Corporation’s derivative financial agreements in NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.
29
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
The following tables present the fair value measurements of assets and liabilities measured at fair value in the accompanying balance sheets on a recurring basis, along with their classification within the fair value hierarchy as of March 31, 2026, and December 31, 2025.
| Fair Value Measurements Using: | |||||||||||||||||||||||
| March 31, 2026 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Available for sale securities: | |||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | $ | |||||||||||||||||||
| State and municipal | |||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | |||||||||||||||||||||||
| Foreign investment | |||||||||||||||||||||||
| Corporate obligations | |||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Fair Value Measurements Using: | |||||||||||||||||||||||
| December 31, 2025 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Available for sale securities: | |||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | $ | $ | $ | |||||||||||||||||||
| State and municipal | |||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | |||||||||||||||||||||||
| Foreign investment | |||||||||||||||||||||||
| Corporate obligations | |||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
Level 3 Reconciliation
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying
balance sheets using significant unobservable Level 3 inputs for the three months ended March 31, 2026 and 2025.
| Available for Sale Securities | |||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||
| Balance at beginning of the period | $ | $ | |||||||||||||||||||||
| Assets acquired in a business combination | |||||||||||||||||||||||
| Included in other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Principal payments | ( | ( | |||||||||||||||||||||
| Ending balance | $ | $ | |||||||||||||||||||||
There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or
liabilities held at March 31, 2026 or December 31, 2025.
Transfers Between Levels
There were no transfers in or out of Level 3 during the three months ended March 31, 2026 and 2025.
30
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
Nonrecurring Measurements
Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy at March 31, 2026, and December 31, 2025.
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| March 31, 2026 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Collateral dependent loans | $ | $ | $ | $ | ||||||||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| December 31, 2025 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Collateral dependent loans | $ | $ | $ | $ | ||||||||||||||||||||||
Collateral Dependent Loans
Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at March 31, 2026 and December 31, 2025.
| March 31, 2026 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted-Average) | |||||||||||||||||||
| State and municipal securities | $ | Discounted cash flow | Maturity/Call date | ||||||||||||||||||||
| US Muni BQ curve | |||||||||||||||||||||||
| Discount rate | |||||||||||||||||||||||
| Weighted-average coupon | |||||||||||||||||||||||
| Corporate obligations | $ | Discounted cash flow | Risk free rate | 3 month CME Term SOFR plus | |||||||||||||||||||
| plus premium for illiquidity (basis points) | plus | ||||||||||||||||||||||
| Weighted-average coupon | |||||||||||||||||||||||
| Collateral dependent loans | $ | Collateral based measurements | Discount to reflect current market conditions and ultimate collectability | ||||||||||||||||||||
| Weighted-average discount by loan balance | |||||||||||||||||||||||
31
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
| December 31, 2025 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted-Average) | |||||||||||||||||||
| State and municipal securities | $ | Discounted cash flow | Maturity/Call date | ||||||||||||||||||||
| US Muni BQ curve | |||||||||||||||||||||||
| Discount rate | |||||||||||||||||||||||
| Weighted-average coupon | |||||||||||||||||||||||
| Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | Discounted cash flow | Risk free rate | 3 month CME Term SOFR plus | |||||||||||||||||||
| plus premium for illiquidity (basis points) | plus | ||||||||||||||||||||||
| Weighted-average coupon | |||||||||||||||||||||||
| Collateral dependent loans | $ | Collateral based measurements | Discount to reflect current market conditions and ultimate collectability | ||||||||||||||||||||
| Weighted-average discount by loan balance | |||||||||||||||||||||||
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.
State and Municipal Securities and Corporate Obligations
The significant unobservable inputs used in the fair value measurement of the Corporation's state and municipal securities and corporate obligations are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input.
Fair Value of Financial Instruments
The following tables present estimated fair values of the Corporation’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2026 and December 31, 2025.
| March 31, 2026 | |||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||||||
| Carrying Amount | (Level 1) | (Level 2) | (Level 3) | Total Fair Value | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Investment securities held to maturity, net of allowance for credit losses | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Net loans | |||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | |||||||||||||||||||||||||||||
| Interest receivable | |||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | |||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||
| Federal funds purchased | |||||||||||||||||||||||||||||
| Securities sold under repurchase agreements | |||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | |||||||||||||||||||||||||||||
| Subordinated debentures and other borrowings | |||||||||||||||||||||||||||||
| Interest payable | |||||||||||||||||||||||||||||
32
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
| December 31, 2025 | |||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||||||||
| Carrying Amount | (Level 1) | (Level 2) | (Level 3) | Total Fair Value | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Investment securities held to maturity, net of allowance for credit losses | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Net loans | |||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | |||||||||||||||||||||||||||||
| Interest receivable | |||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | |||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||
| Federal funds purchased | |||||||||||||||||||||||||||||
| Securities sold under repurchase agreements | |||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | |||||||||||||||||||||||||||||
| Subordinated debentures and other borrowings | |||||||||||||||||||||||||||||
| Interest payable | |||||||||||||||||||||||||||||
NOTE 8
QUALIFIED AFFORDABLE HOUSING INVESTMENTS
The Corporation has investments in various limited partnerships that sponsor affordable housing projects. The purpose of these investments is to earn an adequate return of capital through the receipt of low income housing tax credits and to assist the Corporation in achieving goals associated with the Community Reinvestment Act ("CRA"). These investments are included in other assets on the Consolidated Condensed Balance Sheets, with any unfunded commitments included in other liabilities. The investments are amortized as a component of income tax expense.
The following table summarizes the Corporation’s affordable housing investments as of March 31, 2026 and December 31, 2025.
| March 31, 2026 | December 31, 2025 | |||||||||||||||||||||||||
| Investment Type | Investment | Unfunded Commitment | Investment | Unfunded Commitment | ||||||||||||||||||||||
| LIHTC | $ | $ | $ | $ | ||||||||||||||||||||||
The following table summarizes the amortization expense and tax credits recognized for the Corporation’s affordable housing investments for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||
| Amortization expense | $ | $ | ||||||||||||||||||||||||
| Tax credits recognized | ||||||||||||||||||||||||||
33
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 9
BORROWINGS
The following table summarizes the Corporation’s borrowings as of March 31, 2026 and December 31, 2025.
| March 31, 2026 | December 31, 2025 | ||||||||||
| Federal funds purchased | $ | $ | |||||||||
| Securities sold under repurchase agreements | |||||||||||
| Federal Home Loan Bank advances | |||||||||||
| Subordinated debentures and other borrowings | |||||||||||
| Total borrowings | $ | $ | |||||||||
Securities sold under repurchase agreements consist of obligations of the Bank to other parties and are secured by U.S. Government-sponsored enterprise obligations. The maximum amount of outstanding agreements at any month-end during the three months ended March 31, 2026 and 2025 totaled $120.3 million and $169.1 million, respectively, and the average balance of such agreements totaled $114.8 million and $159.3 million during the same period of 2026 and 2025, respectively.
The collateral pledged for all repurchase agreements that are accounted for as secured borrowings as of March 31, 2026 and December 31, 2025 were:
| March 31, 2026 | |||||||||||||||||||||||||||||
| Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||||||||
| Overnight and Continuous | Up to 30 Days | 30-90 Days | Greater Than 90 Days | Total | |||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Remaining Contractual Maturity of the Agreements | |||||||||||||||||||||||||||||
| Overnight and Continuous | Up to 30 Days | 30-90 Days | Greater Than 90 Days | Total | |||||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Contractual maturities of borrowings as of March 31, 2026, are as follows:
| Maturities in Years Ending December 31: | Federal Funds Purchased | Securities Sold Under Repurchase Agreements | Federal Home Loan Bank Advances | Subordinated Debentures and Term Loans | |||||||||||||||||||
| 2026 | $ | $ | $ | $ | |||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||
| 2029 | |||||||||||||||||||||||
| 2030 | |||||||||||||||||||||||
| 2031 and after | |||||||||||||||||||||||
| ASC 805 fair value adjustments at acquisition | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
At March 31, 2026, the outstanding Federal Home Loan Bank ("FHLB") advances had interest rates from 0 percent to 4.56 percent and are subject to restrictions or penalties in the event of prepayment. The total available remaining borrowing capacity from the FHLB at March 31, 2026, was $1.1 billion. As of March 31, 2026, the Corporation had $460.0 million of putable advances with the FHLB.
Subordinated Debentures and Term Loans. As of March 31, 2026 and December 31, 2025, subordinated debentures and term loans totaled $86.3 million and $57.6 million, respectively.
•First Merchants Capital Trust II (“FMC Trust II”). At March 31, 2026 and December 31, 2025, the Corporation had $41.7 0.26161 5.50 percent and 5.54 percent, respectively. The trust preferred securities are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Board of Governors of the Federal Reserve System ("Federal Reserve") if then required under applicable
34
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
capital guidelines or policies. The trust preferred securities and the subordinated debentures of FMC Trust II will mature on September 15, 2037. The Corporation continues to hold all outstanding common securities of FMC Trust II.
•Ameriana Capital Trust I. At March 31, 2026 and December 31, 2025, the Corporation had $10.3 0.26161 5.44 percent and 5.48 percent, respectively. The trust preferred securities of Ameriana Capital Trust I are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies. The trust preferred securities and the subordinated debentures of Ameriana Capital Trust I will mature in March 2036. The Corporation continues to hold all of the outstanding common securities of Ameriana Capital Trust I.
•First Merchants Senior Notes and Subordinated Notes. On November 1, 2013, the Corporation issued $70 million of fixed-to-floating rate notes consisting of $5 million of senior notes and $65 million of subordinated notes, both due in 2028. The notes bore fixed interest for ten years before converting to floating rates on October 30, 2023, at which time the notes became optionally redeemable. During 2024, the Corporation redeemed the entire $65.0 million of subordinated notes. During the third quarter of 2025, the Corporation redeemed the remaining $5.0 million of senior notes. As a result, no principal amount was outstanding under these notes as of March 31, 2026.
•Level One Bancorp, Inc. ("Level One") Subordinated Notes. On April 1, 2022, the Corporation assumed certain subordinated notes in conjunction with its acquisition of Level One. The $30.0 million of subordinated notes issued on December 18, 2019 had a fixed interest rate of 4.75 percent per annum, payable semiannually through December 18, 2024. The notes had a floating interest rate equal to the three-month CME Term SOFR plus 3.11 percent, payable quarterly, after December 18, 2024 through maturity. The Corporation had the option to redeem any or all of the subordinated notes without premium or penalty any time after December 18, 2024 or upon the occurrence of a tier 2 capital event or tax event. During the first quarter of 2025, the Corporation exercised its rights to redeem $30.0 million in principal and paid the debt in full on the scheduled interest payment date. The redemption was permitted under the optional redemption provisions of the subordinated notes. No principal amount remains outstanding related to the subordinated notes as of March 31, 2026.
•First Savings Subordinated Notes. On February 1, 2026, the Corporation assumed certain subordinated notes in conjunction with its acquisition of First Savings. The $29.0 million of subordinated notes issued on March 18, 2022 have a fixed interest rate of 4.50 percent per annum, payable semiannually through March 30, 2027. The notes have a floating interest rate equal to the three-month CME Term SOFR plus 2.76 percent, payable quarterly, after March 30, 2027 through maturity. The notes mature on March 30, 2032, and the Corporation has the option to redeem any or all of the subordinated notes without premium or penalty any time after March 30, 2027 or upon the occurrence of a tier 2 capital event or tax event.
•Other Borrowings. On April 1, 2022, the Corporation acquired a secured borrowing in conjunction with its acquisition of Level One. The secured borrowing related to a certain loan participation sold by Level One that did not qualify for sales treatment. The secured borrowing bears a fixed rate of 1.00 1.1 3.41 6.9 million and $7.0 million as of March 31, 2026 and December 31, 2025, respectively.
Line of Credit. As of March 31, 2026 and December 31, 2025, there was no
•U.S. Bank, N.A. On September 30, 2024, the Corporation entered into a Credit Agreement with U.S. Bank, N.A. Under the terms of the Credit Agreement, U.S. Bank, N.A. has provided the Corporation with a revolving line of credit ("Credit Facility") of up to $75.0 million. The outstanding principal balance under the Credit Facility bears interest at a variable rate equal to the one-month CME Term SOFR rate plus 2.25 percent. Interest on the outstanding balance is payable quarterly. Additionally, the Corporation is subject to a non-refundable facility fee equal to 0.40 percent per annum on the average daily unused amount of the Credit Facility, payable quarterly. The Credit Agreement contains customary representations, warranties and covenants. During the third quarter of 2025, the Corporation amended the Credit Facility to extend the termination date from September 30, 2025 to September 29, 2026. As of March 31, 2026 and December 31, 2025, the Corporation's outstanding principal balance under the Credit Facility was zero
35
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 10
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in the balances of each component of accumulated other comprehensive loss, net of tax, as of March 31, 2026 and 2025.
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||
| Unrealized Gains (Losses) on Securities Available for Sale | Unrealized Gains (Losses) on Defined Benefit Plans | Total | |||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||||||||
| Period change | ( | ( | |||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||||||||
| Period change | ( | ( | |||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
The following table presents the reclassification adjustments out of accumulated other comprehensive loss that were included in net income in the Consolidated Condensed Statements of Income for the three months ended March 31, 2026 and 2025.
| Amounts Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended March 31, | ||||||||||||||||||||
| Details about Accumulated Other Comprehensive Loss Components | 2026 | 2025 | Affected Line Item in the Statements of Income | |||||||||||||||||
Unrealized gains (losses) on available for sale securities (1) | ||||||||||||||||||||
| Realized securities losses reclassified into income | $ | $ | ( | Noninterest income - net realized losses on sales of available for sale securities | ||||||||||||||||
| Related income tax benefit | Income tax (benefit) expense | |||||||||||||||||||
| Total reclassifications for the period, net of tax | $ | $ | ( | |||||||||||||||||
(1) For additional detail related to unrealized gains (losses) on available for sale securities and related amounts reclassified from accumulated other comprehensive loss see NOTE 3. INVESTMENT SECURITIES of these Notes to Consolidated Condensed Financial Statements.
NOTE 11
SHARE-BASED COMPENSATION
Stock options and Restricted Stock Awards ("RSAs") have been issued to directors, officers and other management employees under the Corporation's 2024 Long-term Equity Incentive Plan, the 2019 Long-term Equity Incentive Plan, the Level One Bancorp, Inc. 2007 Stock Option Plan and the Equity Compensation Plan for Non-Employee Directors. The stock options, which have a ten year life, become 100 percent vested based on time ranging from one year to two years and are fully exercisable when vested. Option exercise prices equal the Corporation's common stock closing price on Nasdaq on the date of grant. The RSAs issued to employees and non-employee directors provide for the issuance of shares of the Corporation's common stock at no cost to the holder and generally vest after three years . The RSAs vest only if the employee is actively employed by the Corporation on the vesting date. For non-employee directors, the RSAs vest only if the non-employee director remains as an active board member on the vesting date. The RSAs for employees and non-employee directors are either immediately vested at retirement, disability or death, or continue to vest after retirement, disability or death, depending on the plan under which the shares were granted.
The Corporation’s 2024 Employee Stock Purchase Plan ("ESPP") provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions. The price of the stock to be paid by the employees shall be equal to 85 percent of the average of the closing price of the Corporation’s common stock on each trading day during the offering period. However, in no event shall such purchase price be less than the lesser of an amount equal to 85 percent of the market price of the Corporation’s stock on the offering date or an amount equal to 85 percent of the market value on the date of purchase. Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of $25,000 .
Compensation expense related to unvested share-based awards is recorded by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards, with no change in historical reported fair values and earnings. Awards are valued at
fair value in accordance with provisions of share-based compensation guidance and are recognized on a straight-line basis over the service periods of each award. To complete the exercise of vested stock options, RSAs and ESPP options, the Corporation generally issues new shares
36
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
from its authorized but unissued share pool. Share-based compensation has been recognized as a component of salaries and employee benefits expense in the accompanying Consolidated Condensed Statements of Income.
The following table summarizes the components of the Corporation's share-based compensation awards recorded as an expense and the income tax benefit of such awards.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Stock and ESPP Options | |||||||||||||||||||||||
| Pre-tax compensation expense | $ | $ | |||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Stock and ESPP option expense, net of income taxes | $ | $ | |||||||||||||||||||||
| Restricted Stock Awards | |||||||||||||||||||||||
| Pre-tax compensation expense | $ | $ | |||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Restricted stock awards expense, net of income taxes | $ | $ | |||||||||||||||||||||
| Total Share-Based Compensation | |||||||||||||||||||||||
| Pre-tax compensation expense | $ | $ | |||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Total share-based compensation expense, net of income taxes | $ | $ | |||||||||||||||||||||
The grant date fair value of ESPP options was estimated to be approximately $27,000 at the beginning of the January 1, 2026 quarterly offering period. The ESPP shares were purchased and issued during the three months ended March 31, 2026, resulting in no unrecognized compensation expense related to ESPP options at March 31, 2026.
Stock option activity under the Corporation's stock option plans as of March 31, 2026 and changes during the three months ended March 31, 2026, were as follows:
| Number of Shares | Weighted-Average Exercise Price | Weighted Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding at January 1, 2026 | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
Outstanding at March 31, 2026 | $ | $ | |||||||||||||||||||||
| Vested and Expected to Vest at March 31, 2026 | $ | $ | |||||||||||||||||||||
| Exercisable at March 31, 2026 | $ | $ | |||||||||||||||||||||
Cash receipts from stock options exercised during three months ended March 31, 2026 and 2025 were $465,000 and $126,000 , respectively. No options remain outstanding as of March 31, 2026.
The following table summarizes changes in unvested RSAs for the three months ended March 31, 2026.
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||
Unvested RSAs at January 1, 2026 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Unvested RSAs at March 31, 2026 | $ | ||||||||||
As of March 31, 2026, unrecognized compensation expense related to RSAs was $10.9 million and is expected to be recognized over a weighted-average period of 1.6 years. The Corporation did no t have any unrecognized compensation expense related to stock options as of March 31, 2026.
37
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 12
INCOME TAXES
The following table summarizes the major components creating differences between income taxes at the federal statutory and the effective tax rate recorded in the Consolidated Condensed Statements of Income for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||||||||
| Income Before Income Taxes | $ | $ | |||||||||||||||||||||||||||
| Federal statutory income tax at 21% | $ | % | $ | % | |||||||||||||||||||||||||
| State & Local taxes, net of Federal income tax effect | ( | ( | % | % | |||||||||||||||||||||||||
| Tax-exempt interest income | ( | ( | % | ( | ( | % | |||||||||||||||||||||||
| Non-deductible FDIC premiums | % | % | |||||||||||||||||||||||||||
| Tax-exempt earnings and gains on life insurance | ( | ( | % | ( | ( | % | |||||||||||||||||||||||
| Other non-taxable/non-deductible Items | % | % | |||||||||||||||||||||||||||
| Tax credits | ( | ( | % | ( | ( | % | |||||||||||||||||||||||
| Other | ( | ( | % | % | |||||||||||||||||||||||||
| Income Tax (Benefit) Expense & Effective Tax Rate | $ | ( | ( | % | $ | % | |||||||||||||||||||||||
NOTE 13
NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the reporting period.
Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. It is computed by dividing net income available to common stockholders by the sum of the weighted-average common shares outstanding and the effect of all potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares include stock options and RSAs granted under the Corporation’s share-based compensation plans. These securities are included in the diluted earnings per share calculation only when their effect is dilutive. Securities that would increase earnings per share are considered anti-dilutive and are therefore excluded from the computation of diluted earnings per share for the applicable periods.
The following tables reconcile basic and diluted net income per common share for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Net Income Available to Common Stockholders | Weighted-Average Common Shares | Per Share Amount | Net Income Available to Common Stockholders | Weighted-Average Common Shares | Per Share Amount | ||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Effect of potentially dilutive stock options and restricted stock awards | |||||||||||||||||||||||||||||||||||
| Diluted net income per common share | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| RSAs excluded from the diluted average common share calculation | |||||||||||||||||||||||||||||||||||
NOTE 14
SEGMENT INFORMATION
The Corporation has one reportable segment, community banking. The Corporation’s reportable segment is determined by the Chief Executive Officer, who is the designated chief operating decision maker (“CODM”), based upon information provided about the Corporation’s products and services offered. The CODM will evaluate the financial performance of the Corporation’s business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Corporation’s segment. The Corporation generates revenue primarily by providing banking services to its customers. Interest expense, provisions for credit losses and salaries and employee benefits are the significant expenses in the banking operations. The CODM evaluates performance, allocates resources and makes key operating decisions based on consolidated net income that is reported in the Consolidated Statements of Income. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets. All operations are domestic.
38
PART I: FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)
NOTE 15
GENERAL LITIGATION AND REGULATORY EXAMINATIONS
The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. Additionally, the Corporation is also subject to periodic examinations by various regulatory agencies. It is the general opinion of management that the disposition or ultimate resolution of any such routine litigation or regulatory examinations will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Corporation.
39
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, we include forward-looking statements in our oral and written communication. We may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, in other written materials and in oral statements made by senior management to analysts, investors, representatives of the media and others. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of these safe harbor provisions. Forward-looking statements can often be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “project”, “intend”, “anticipate”, “expect” and similar expressions or future or conditional verbs such as “will”, “would”, “should”, “could”, “might”, “can”, “may”, or similar expressions. These forward-looking statements include:
•statements of the Corporation's goals, intentions and expectations;
•statements regarding the Corporation's business plan and growth strategies;
•statements regarding the asset quality of the Corporation's loan and investment portfolios; and
•estimates of the Corporation's risks and future costs and benefits.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors which could affect the actual outcome of future events:
•fluctuations in market rates of interest and loan and deposit pricing, which could negatively affect our net interest margin, asset valuations and expense expectations;
•adverse changes in the economy, which might affect our business prospects and could cause credit-related losses and expenses;
•the impacts of epidemics, pandemics or other infectious disease outbreaks;
•the impacts related to or resulting from recent bank failures or adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks;
•adverse developments in our loan and investment portfolios;
•competitive factors in the banking industry, such as the trend towards consolidation in our market;
•changes in the banking legislation or the regulatory requirements of federal and state agencies applicable to bank holding companies and banks like our affiliate bank;
•acquisitions of other businesses by us and integration of such acquired businesses;
•changes in market, economic, operational, liquidity, credit and interest rate risks associated with our business; and
•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our anticipated future results.
BUSINESS SUMMARY
First Merchants Corporation (the “Corporation”) is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. The Corporation’s common stock is traded on the Nasdaq’s Global Select Market System under the symbol FRME. The Corporation conducts its banking operations through First Merchants Bank (the “Bank”), a wholly-owned subsidiary that opened for business in Muncie, Indiana in March 1893. The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank operates 127 banking locations in Indiana, Ohio, and Michigan. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
Through the Bank, the Corporation offers a broad range of commercial and consumer banking services to meet the diverse needs of our customers. Our commercial banking team offers a full spectrum of debt capital, treasury management services and depository products. The consumer banking group offers a variety of consumer deposit and lending products. The mortgage banking team offers consumer mortgage solutions to assist with the purchase, refinance, construction or renovation of residential properties. Private Wealth Advisors offers personal wealth management services with expertise in investment management, private banking, fiduciary estate and financial planning.
Acquisitions
On February 1, 2026, the Corporation completed the acquisition of First Savings Financial Group, Inc., an Indiana corporation, pursuant to the Agreement and Plan of Merger, dated as of September 24, 2025, by and between the Corporation and First Savings. Immediately following the Merger, First Savings Bank, a wholly-owned subsidiary of First Savings, merged with and into the Bank with the Bank surviving the merger and continuing its corporate existence.
First Savings was headquartered in Jeffersonville, Indiana and had 16 banking centers serving the southern Indiana market. The Corporation engaged in this transaction with the objective that the transaction would be accretive to earnings and add to the existing market area in Indiana that has a demographic profile consistent with many of the current Midwest markets served by the Bank.
The Corporation acquired total assets of $2.4 billion, total loans of $1.8 billion, and total deposits of $1.7 billion. The total purchase price of approximately $243.2 million consists primarily of equity consideration issued by the Corporation and is measured at fair value based on the Corporation’s common stock price as of the acquisition date. The purchase price also includes cash paid in lieu of fractional shares. The purchase price represents the fair value of consideration transferred in accordance with ASC 805. Immediately following the acquisition of First
40
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Savings, the Corporation sold substantially all of the acquired investment securities portfolio. The sale was executed as part of the Corporation’s balance sheet repositioning strategy, with the resulting liquidity used to pay down wholesale funding following the acquisition.
For additional information regarding the acquisition, see NOTE 2. ACQUISITIONS of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The U.S. Generally Accepted Accounting Principles ("GAAP") are complex and require us to apply significant judgment in the application of accounting, reporting, and disclosure requirements. Management uses estimates and assumptions where actual amounts are not reasonably available, including assumptions based on historical experience and other factors management believes to be reasonable under the circumstances. Because of this inherent uncertainty in these estimates and assumptions, actual results could differ from those estimates, and such differences could be material to the financial condition and results of operations.
There have been no significant changes during the three months ended March 31, 2026 to the items disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2025. For a complete discussion of our significant accounting policies, see “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2025. However, due to the First Savings acquisition on February 1, 2026, the Corporation has expanded below its discussion of accounting practices and valuation methodologies related to business combinations, which involve significant judgment and estimation uncertainty.
Business Combinations
Business combinations are accounted for under the acquisition method of accounting. Under this method, the acquired assets and liabilities assumed are recorded at their estimated fair values as of the acquisition date, with the excess of the purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The Corporation uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates and realizable collateral values.
In connection with the acquisition, and consistent with the guidance in ASU 2025‑08, loans acquired through business combinations that meet the definition of PSL are recorded using the gross-up method. PCD loans continue to be accounted for under existing PCD guidance, which also applies the gross‑up method; however, PCD loans represent loans that experienced more‑than‑insignificant credit deterioration since origination, while PSLs did not. Under this method, the Corporation recognizes an allowance for credit losses on loans at the acquisition date, with a corresponding increase to the loan's amortized cost basis. The establishment of the ACL - Loans at acquisition does not result in a provision for credit losses or earnings impact on the acquisition date. Expected credit losses as of the acquisition date are recognized through the acquisition‑date allowance for credit losses, while the non‑credit discount reflects all other valuation factors, including differences between contractual interest rates and prevailing market rates, liquidity considerations, and other non‑credit‑related assumptions. The non‑credit discount is accreted into interest income over the remaining life of the loans using the effective interest method. Subsequent changes in expected credit losses for PSLs are recognized through the provision for credit losses in the period in which the estimate changes, consistent with the Corporation's methodology for originated loans measured at amortized cost.
The acquisition date valuations, as well as any measurement period adjustments recognized subsequent to the acquisition date, determine the amount of goodwill recorded. Measurement period adjustments are recorded if new information is obtained about facts and circumstances that existed as of the acquisition date and are reflected as adjustments to goodwill. Because these adjustments affect the fair values of acquired assets and liabilities, including loans and identifiable intangible assets, changes in these estimates could materially affect the amount of goodwill recorded.
The fair value determinations are based on valuation methodologies that incorporate management's assumptions regarding future growth rates, attrition, discount rates, and other relevant factors. In certain circumstances, third party valuation specialists are engaged to assist in the development of these fair value estimates. The valuation of acquired assets and assumed liabilities often requires a significant degree of judgment, particularly when observable market data is limited or unavailable. Changes in these estimates or in economic or market conditions could require adjustments to the carrying values of acquired assets and liabilities, including the recognition of impairment where applicable.
Results of operations of First Savings are included in the income statement from the date of acquisition. Details of the Corporation's acquisitions are included in NOTE 2. ACQUISITIONS of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
41
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
The table below includes certain financial data of the Corporation for the previous five quarters:
| Three Months Ended | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | 2025 | 2025 | 2025 | |||||||||||||||||||||||||
| Income Statement: | |||||||||||||||||||||||||||||
| Net interest income | $ | 151,303 | $ | 139,064 | $ | 133,665 | $ | 133,014 | $ | 130,270 | |||||||||||||||||||
| Provision for credit losses | 4,900 | 7,150 | 4,300 | 5,600 | 4,200 | ||||||||||||||||||||||||
| Noninterest income | 5,829 | 33,106 | 32,477 | 31,303 | 30,048 | ||||||||||||||||||||||||
| Noninterest expense | 125,145 | 99,522 | 96,561 | 93,598 | 92,902 | ||||||||||||||||||||||||
| Net income available to common stockholders | 27,687 | 56,596 | 56,297 | 56,363 | 54,870 | ||||||||||||||||||||||||
| Per Share Data: | |||||||||||||||||||||||||||||
| Average diluted common shares outstanding (in thousands) | 61,008 | 57,442 | 57,448 | 57,773 | 58,242 | ||||||||||||||||||||||||
| Diluted net income available to common stockholders | $ | 0.45 | $ | 0.99 | $ | 0.98 | $ | 0.98 | $ | 0.94 | |||||||||||||||||||
| Cash dividends paid to common stockholders | 0.36 | 0.36 | 0.36 | 0.36 | 0.35 | ||||||||||||||||||||||||
Common dividend payout ratio (1) | 80.00 | % | 36.36 | % | 36.90 | % | 36.73 | % | 37.23 | % | |||||||||||||||||||
| Book value per share | $ | 42.35 | $ | 42.87 | $ | 41.74 | $ | 40.56 | $ | 39.91 | |||||||||||||||||||
Tangible common book value per share (2) | 29.34 | 30.18 | 29.08 | 27.90 | 27.34 | ||||||||||||||||||||||||
| Performance Ratios: | |||||||||||||||||||||||||||||
| Return on average assets | 0.55 | % | 1.20 | % | 1.22 | % | 1.23 | % | 1.21 | % | |||||||||||||||||||
| Return on average stockholders' equity | 4.17 | 9.23 | 9.51 | 9.63 | 9.38 | ||||||||||||||||||||||||
Return on tangible common stockholders' equity(2) | 6.39 | 13.57 | 14.21 | 14.49 | 14.12 | ||||||||||||||||||||||||
Net interest margin (FTE)(3) | 3.35 | 3.29 | 3.24 | 3.25 | 3.22 | ||||||||||||||||||||||||
Efficiency ratio(2) | 74.45 | 54.52 | 55.09 | 53.99 | 54.54 | ||||||||||||||||||||||||
| Net charge-offs as % of average loans (annualized) | 0.27 | 0.18 | 0.15 | 0.07 | 0.15 | ||||||||||||||||||||||||
| Allowance for credit losses - loans as % of total loans | 1.39 | 1.42 | 1.43 | 1.47 | 1.47 | ||||||||||||||||||||||||
| Nonperforming assets / total assets % | 0.43 | 0.38 | 0.36 | 0.36 | 0.47 | ||||||||||||||||||||||||
| Balance Sheet: | |||||||||||||||||||||||||||||
| Total securities | $ | 3,309,902 | $ | 3,378,641 | $ | 3,382,391 | $ | 3,380,956 | $ | 3,427,121 | |||||||||||||||||||
| Total loans | 15,663,728 | 13,811,786 | 13,614,364 | 13,325,542 | 13,027,909 | ||||||||||||||||||||||||
| Total assets | 21,072,521 | 19,025,101 | 18,811,629 | 18,592,777 | 18,439,787 | ||||||||||||||||||||||||
| Total deposits | 16,485,617 | 15,294,855 | 14,869,979 | 14,797,578 | 14,461,978 | ||||||||||||||||||||||||
| Total borrowings | 1,644,995 | 999,934 | 1,177,854 | 1,161,077 | 1,343,044 | ||||||||||||||||||||||||
| Total stockholders' equity | 2,672,565 | 2,466,667 | 2,412,402 | 2,347,952 | 2,332,214 | ||||||||||||||||||||||||
| Capital Ratios: | |||||||||||||||||||||||||||||
| Total stockholders' equity to assets | 12.68 | % | 12.97 | % | 12.82 | % | 12.63 | % | 12.65 | % | |||||||||||||||||||
Tangible common equity to tangible assets(2) | 9.00 | 9.38 | 9.18 | 8.92 | 8.90 | ||||||||||||||||||||||||
| Total risk-based capital to risk-weighted assets | 13.05 | 13.41 | 13.04 | 13.06 | 13.22 | ||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | 11.36 | 11.86 | 11.49 | 11.50 | 11.67 | ||||||||||||||||||||||||
| Common equity tier 1 capital to risk-weighted assets | 11.22 | 11.70 | 11.34 | 11.35 | 11.50 | ||||||||||||||||||||||||
| Tier 1 capital to average assets | 10.23 | 10.24 | 10.30 | 10.20 | 10.20 | ||||||||||||||||||||||||
(1) Cash dividends paid per common share divided by diluted net income per common share. | |||||||||||||||||||||||||||||
(2) Non-GAAP financial measures. Refer to the "Non-GAAP Financial Measures" section for reconciliations to GAAP financial measures. | |||||||||||||||||||||||||||||
(3) Calculated using a marginal tax rate of 21 percent for all periods. | |||||||||||||||||||||||||||||
42
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results for the three months ended March 31, 2026 reflect the partial-period impact of the acquisition of First Savings Financial Group, Inc. ("First Savings"), which was completed on February 1, 2026. Accordingly, period-over-period changes in assets, loans, deposits, net interest income, noninterest income and noninterest expense reflect the contribution of the acquired operations in addition to changes driven by market conditions, volume, and mix. Further details of the Corporation's acquisition are provided within NOTE 2. ACQUISITIONS of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
The Corporation reported first quarter 2026 net income available to common stockholders and diluted earnings per common share of $27.7 million and $0.45 per diluted share, respectively, compared to $54.9 million and $0.94 per diluted share, respectively, during the first quarter of 2025.
When adjusting for certain non-recurring items, adjusted net income available to common stockholders was $63.1 million and adjusted diluted earnings per common share totaled $1.03 for the first quarter of 2026, compared to $54.9 million and $0.94, respectively, in the first quarter of 2025. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of GAAP earnings per share measures to the corresponding non-GAAP measures provided above, refer to the "NON-GAAP FINANCIAL MEASURES" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
As of March 31, 2026, total assets were $21.1 billion, an increase of $2.0 billion or 10.8 percent from December 31, 2025. The Corporation acquired First Savings on February 1, 2026, which included $2.4 billion in assets at acquisition. Details of the acquisition are discussed within NOTE 2. ACQUISITIONS of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Cash and due from banks and interest-bearing deposits decreased $7.0 million from December 31, 2025. Total investment securities decreased by $68.7 million from December 31, 2025, primarily due to $44.0 million of principal paydowns and maturities, as well as a $23.7 million decline in the valuation of available for sale securities. Investments represented 15.7 percent of total assets at March 31, 2026, compared to 17.8 percent at December 31, 2025. Additional details of the Corporation's investment securities portfolio are discussed within NOTE 3. INVESTMENT SECURITIES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Excluding loans held-for-sale, total loans increased $1.5 billion from December 31, 2025. Loans acquired in the First Savings acquisition contributed $1.8 billion, partially offset by the transfer of $357.0 million of mortgage loans to held for sale. Excluding acquired loans and the impact of loans transferred to held-for-sale, organic loan growth of remained flat since December 31, 2025. The loan portfolio remains predominantly commercial-oriented, with commercial loans comprising 76.9 percent of total loans. Commercial and industrial and commercial real estate, non-owner occupied, represent the largest loan categories at 30.2 percent and 20.9 percent of total loans, respectively. Growth during the period was driven primarily by increases in commercial and industrial, construction, commercial real estate, non-owner occupied, commercial real estate, owner occupied, and home equity loans, partially offset by a decline in residential loans. Additional details regarding changes in the Corporation's loan portfolio are discussed within NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q, and the "LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Corporation's allowance for credit losses - loans ("ACL - Loans") totaled $212.5 million, or 1.39 percent of total loans, as of March 31, 2026, compared to $195.6 million, or 1.42 percent, at December 31, 2025, representing an increase of $16.9 million from December 31, 2025. The increase was primarily attributable to a $22.3 million acquisition-date allowance for expected credit losses recognized in connection with the First Savings loan portfolio. During the three months ended March 31, 2026, the Corporation recorded net charge-offs of $10.3 million and provision for credit losses - loans of $4.9 million, compared to net charge-offs of $4.9 million and provision of $4.2 million for the same period in 2025. Nonaccrual loans as of March 31, 2026 totaled $89.6 million, an increase of $17.8 million from December 31, 2025, primarily driven by the addition of $20.5 million of nonaccrual loans acquired from First Savings. The Corporation's reserve for unfunded commitments increased to $18.5 million at March 31, 2026, from $18.0 million at December 31, 2025, reflecting a $0.5 million of Day 1 allowance for credit losses recognized in connection with the First Savings acquisition related to off-balance sheet commitments. The reserve is recorded in Other liabilities. There was no provision for credit losses on unfunded commitments recognized during the three months ended March 31, 2026. Additional details of the Corporation's allowance methodology and asset quality are discussed within NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q and within the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Several additional asset categories increased from December 31, 2025 primarily due to the acquisition of First Savings, including goodwill of $70.8 million, cash surrender value of life insurance of $62.8 million, other intangibles of $27.9 million, premises and equipment of $25.0 million, FHLB stock of $23.6 million, and interest receivable of $3.7 million.
The Corporation's net tax asset, deferred and receivable increased $38.2 million from December 31, 2025, primarily driven by the $22.9 million net tax asset recorded as part of the First Savings acquisition and an increase of $17.4 million in income tax receivable.
Other assets increased $35.7 million from December 31, 2025, of which $26.5 million was attributable to the First Savings acquisition and $5.6 million related to the recognition of a right‑of‑use asset associated with the Corporation’s new Michigan headquarters.
As of March 31, 2026, total deposits equaled $16.5 billion, an increase of $1.2 billion from December 31, 2025, or 31.1 percent on an annualized basis. The acquisition of First Savings contributed $1.7 billion in deposits, partially offset by a decline in deposits of $499.4 million from December 31, 2025. Net period activity resulted in increases from December 31, 2025 primarily in money market and savings deposits of $772.7 million, demand deposits of $239.1 million, and time deposits of $159.6 million. Total deposits less time deposits greater than $100,000, or core deposits, represented 90.6 percent of the deposit portfolio at March 31, 2026. Noninterest bearing deposits represented 22.7 percent of
43
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the deposit portfolio at March 31, 2026, compared to 14.0 percent at December 31, 2025. Due to the balance sheet growth, the loan to deposit ratio increased to 92.6 percent at period end from 90.3 percent as of December 31, 2025.
The average account balance within the deposit portfolio was $38,000 at March 31, 2026. Insured deposits totaled 71.4 percent of total deposits, with the State of Indiana's Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 13.8 percent of deposits and the Federal Deposit Insurance Corporation ("FDIC") providing insurance to the remaining 57.6 percent. Only 28.6 percent of deposits are uninsured and our available liquidity is ample to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources.
Total borrowings increased $645.1 million at March 31, 2026, compared to December 31, 2025. Federal funds purchased and FHLB advances increased $130.0 million and $500.6 million, respectively. The increase in borrowings was primarily attributable to the First Savings acquisition, which included the assumption of $482.7 million of FHLB advances and $28.7 million of subordinated debentures and other borrowings. Securities sold under repurchase agreements decreased $14.3 million from December 31, 2025, as customers shifted into other deposit products. Additional details of the Corporation's subordinated debentures and term loans are discussed in NOTE 9. BORROWINGS of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
The Corporation's other liabilities increased $5.0 million as of March 31, 2026, compared to December 31, 2025, primarily due to $13.8 million of assumed liabilities and $4.0 million of employee severance costs related to the First Savings acquisition, as well as a $5.6 million lease liability for the new Michigan headquarters. These increases were partially offset by an $11.5 million decrease in salaries and incentives following annual incentive payouts and a $9.0 million decrease in unfunded commitments related to the Corporation's affordable housing investments.
Additional paid-in capital increased $219.1 million during the three months ended March 31, 2026, primarily due to common stock issued as equity consideration in connection with the First Savings acquisition.
The Corporation continued to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized.” Details of the Stock Repurchase Program and regulatory capital ratios are discussed within the “CAPITAL” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
NON-GAAP FINANCIAL MEASURES
The Corporation's accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Corporation provides non-GAAP performance measures, which management believes are useful because they assist investors in assessing the Corporation's performance. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure can be found in the following tables.
Adjusted net income available to common stockholders and adjusted diluted earnings per common share are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance.
Net interest income and net interest margin presented on a fully taxable equivalent ("FTE") basis, reflecting the income tax savings when comparing tax-exempt and taxable assets using the federal statutory rate of 21 percent, are non-GAAP financial measures used by management to assess what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on an FTE basis and that it provides useful information for management and investors for peer comparison purposes. Non-GAAP financial measures such as tangible common stockholders' equity, tangible assets, tangible common stockholders' equity to tangible assets, tangible book value per common share, tangible net income available to common stockholders, diluted tangible net income per common share, return on average tangible common stockholders' equity and return on average tangible assets are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but do retain the effect of accumulated other comprehensive losses in stockholders' equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.
44
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| ADJUSTED NET INCOME AND DILUTED EARNINGS PER COMMON SHARE - (NON-GAAP) | |||||||||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | |||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, | March 31, | ||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||
| Net income available to common stockholders (GAAP) | $ | 27,687 | $ | 54,870 | |||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||
| Net realized losses on sales of available for sale securities | — | 7 | |||||||||||||||||||||||||||
| Integration and transaction-related expenses | 16,968 | — | |||||||||||||||||||||||||||
| Net loss on mortgage loans reclassified to held for sale | 29,755 | — | |||||||||||||||||||||||||||
| Tax on adjustments | (11,279) | (2) | |||||||||||||||||||||||||||
| Adjusted net income available to common stockholders (non-GAAP) | $ | 63,131 | $ | 54,875 | |||||||||||||||||||||||||
| Average diluted common shares outstanding (in thousands) | 61,008 | 58,242 | |||||||||||||||||||||||||||
| Diluted earnings per common share (GAAP) | $ | 0.45 | $ | 0.94 | |||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||
| Net realized losses on sales of available for sale securities | — | — | |||||||||||||||||||||||||||
| Integration and transaction-related expenses | 0.28 | — | |||||||||||||||||||||||||||
| Net loss on mortgage loans reclassified to held for sale | 0.49 | — | |||||||||||||||||||||||||||
| Tax on adjustments | (0.19) | — | |||||||||||||||||||||||||||
| Adjusted diluted earnings per common share (non-GAAP) | $ | 1.03 | $ | 0.94 | |||||||||||||||||||||||||
| NET INTEREST INCOME (FTE) AND NET INTEREST MARGIN (FTE) (NON-GAAP) | |||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | |||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, | March 31, | ||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Net interest income (GAAP) | $ | 151,303 | $ | 130,270 | |||||||||||||||||||
| FTE adjustment | 6,394 | 6,127 | |||||||||||||||||||||
| Net interest income (FTE) (non-GAAP) | 157,697 | 136,397 | |||||||||||||||||||||
| Average earning assets (GAAP) | $ | 18,842,984 | $ | 16,960,475 | |||||||||||||||||||
| Net interest margin (GAAP) | 3.21 | % | 3.07 | % | |||||||||||||||||||
| FTE adjustment | 0.14 | % | 0.15 | % | |||||||||||||||||||
| Net interest margin (FTE) (non-GAAP) | 3.35 | % | 3.22 | % | |||||||||||||||||||
| TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS (NON-GAAP) | |||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | |||||||||||
| March 31, 2026 | December 31, 2025 | ||||||||||
| Total stockholders' equity (GAAP) | $ | 2,672,565 | $ | 2,466,667 | |||||||
| Less: Preferred stock (GAAP) | (25,125) | (25,125) | |||||||||
| Less: Intangible assets (GAAP) | (824,467) | (725,802) | |||||||||
| Tangible common stockholders' equity (non-GAAP) | $ | 1,822,973 | $ | 1,715,740 | |||||||
| Total assets (GAAP) | $ | 21,072,521 | $ | 19,025,101 | |||||||
| Less: Intangible assets (GAAP) | (824,467) | (725,802) | |||||||||
| Tangible assets (non-GAAP) | $ | 20,248,054 | $ | 18,299,299 | |||||||
| Stockholders' equity to assets (GAAP) | 12.68 | % | 12.97 | % | |||||||
| Tangible common stockholders' equity to tangible assets (non-GAAP) | 9.00 | % | 9.38 | % | |||||||
| Tangible common stockholders' equity (non-GAAP) | $ | 1,822,973 | $ | 1,715,740 | |||||||
| Plus: Tax benefit of intangibles (non-GAAP) | 11,069 | 2,966 | |||||||||
| Tangible common stockholders' equity, net of tax (non-GAAP) | $ | 1,834,042 | $ | 1,718,706 | |||||||
| Common stock outstanding (in thousands) | 62,508 | 56,952 | |||||||||
| Book value per common share (GAAP) | $ | 42.35 | $ | 42.87 | |||||||
| Tangible book value per common share (non-GAAP) | $ | 29.34 | $ | 30.18 | |||||||
45
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| DILUTED TANGIBLE NET INCOME PER COMMON SHARE, RETURN ON AVERAGE TANGIBLE ASSETS AND RETURN ON AVERAGE TANGIBLE COMMON STOCKHOLDERS' EQUITY (NON-GAAP) | |||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Average goodwill (GAAP) | $ | 760,233 | $ | 712,002 | |||||||||||||||||||
| Average other intangibles (GAAP) | 32,672 | 19,003 | |||||||||||||||||||||
| Average deferred tax on other intangibles (GAAP) | (8,415) | (4,088) | |||||||||||||||||||||
| Intangible adjustment (non-GAAP) | $ | 784,490 | $ | 726,917 | |||||||||||||||||||
| Average stockholders' equity (GAAP) | $ | 2,655,756 | $ | 2,340,874 | |||||||||||||||||||
| Average preferred stock (GAAP) | (25,125) | (25,125) | |||||||||||||||||||||
| Intangible adjustment (non-GAAP) | (784,490) | (726,917) | |||||||||||||||||||||
| Average tangible common stockholders' equity (non-GAAP) | $ | 1,846,141 | $ | 1,588,832 | |||||||||||||||||||
| Average assets (GAAP) | $ | 20,407,523 | $ | 18,341,738 | |||||||||||||||||||
| Intangible adjustment (non-GAAP) | (784,490) | (726,917) | |||||||||||||||||||||
| Average tangible assets (non-GAAP) | $ | 19,623,033 | $ | 17,614,821 | |||||||||||||||||||
| Net income available to common stockholders (GAAP) | $ | 27,687 | $ | 54,870 | |||||||||||||||||||
| Other intangible amortization, net of tax (GAAP) | 1,819 | 1,206 | |||||||||||||||||||||
| Tangible net income available to common stockholders (non-GAAP) | 29,506 | 56,076 | |||||||||||||||||||||
| Preferred stock dividend | 469 | 469 | |||||||||||||||||||||
| Tangible net income (non-GAAP) | $ | 29,975 | $ | 56,545 | |||||||||||||||||||
| Per Share Data: | |||||||||||||||||||||||
| Diluted net income available to common stockholders (GAAP) | $ | 0.45 | $ | 0.94 | |||||||||||||||||||
| Diluted tangible net income per common share (non-GAAP) | $ | 0.48 | $ | 0.96 | |||||||||||||||||||
| Ratios: | |||||||||||||||||||||||
| Return on average stockholders' equity (GAAP) | 4.17 | % | 9.38 | % | |||||||||||||||||||
| Return on average tangible common stockholders' equity (non-GAAP) | 6.39 | % | 14.12 | % | |||||||||||||||||||
| Return on average assets (GAAP) | 0.55 | % | 1.21 | % | |||||||||||||||||||
| Return on average tangible assets (non-GAAP) | 0.61 | % | 1.28 | % | |||||||||||||||||||
Return on average tangible common stockholders' equity is tangible net income (annualized) expressed as a percentage of average tangible common stockholders' equity. Return on average tangible assets is tangible net income (annualized) expressed as a percentage of average tangible assets.
| EFFICIENCY RATIO (NON-GAAP) | |||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Noninterest expense (GAAP) | $ | 125,145 | $ | 92,902 | |||||||||||||||||||
| Less: Intangible asset amortization | (2,302) | (1,526) | |||||||||||||||||||||
| Less: Other real estate owned and foreclosure expenses | (1,100) | (600) | |||||||||||||||||||||
| Adjusted noninterest expense (non-GAAP) | $ | 121,743 | $ | 90,776 | |||||||||||||||||||
| Net interest income (GAAP) | $ | 151,303 | $ | 130,270 | |||||||||||||||||||
| Plus: FTE adjustment | 6,394 | 6,127 | |||||||||||||||||||||
| Net interest income (FTE) (non-GAAP) | $ | 157,697 | $ | 136,397 | |||||||||||||||||||
| Noninterest income (GAAP) | $ | 5,829 | $ | 30,048 | |||||||||||||||||||
| Less: Net realized losses on sales of available for sale securities | — | 7 | |||||||||||||||||||||
| Adjusted noninterest income (non-GAAP) | $ | 5,829 | $ | 30,055 | |||||||||||||||||||
| Adjusted revenue (non-GAAP) | $ | 163,526 | $ | 166,452 | |||||||||||||||||||
| Efficiency ratio (non-GAAP) | 74.45 | % | 54.54 | % | |||||||||||||||||||
46
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the most significant component of our earnings, comprising 96.3 percent of total revenue for the three months ended March 31, 2026. Net interest income and net interest margin are influenced by the volume and mix of earning assets and funding sources, as well as prevailing interest rate conditions. Other factors include accretion income on purchased loans, prepayment activity and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from customer deposits generally costs less than wholesale funding sources. Factors such as general economic activity, the Federal Reserve's monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and net interest margin.
Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is also presented on an FTE basis in the tables that follow to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for 2026 and 2025. Management believes presenting net interest income and net interest margin on an FTE basis is a standard industry practice and provides meaningful comparability to peers by normalizing the impact of tax‑exempt income. For reconciliations of GAAP net interest margin to the corresponding non-GAAP measures provided below, refer to the "NON-GAAP FINANCIAL MEASURES" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Average Balance Sheet
Three months ended March 31, 2026 and 2025
Total average earning assets increased $1.9 billion, or 11.1 percent, to $18.8 billion for the three months ended March 31, 2026, compared to the same period in 2025. This increase was primarily driven by a $2.1 billion, or 15.9 percent, increase in average total loans, reflecting the impact of loans acquired from First Savings on February 1, 2026, which totaled approximately $1.8 billion at acquisition. Average commercial loans, HELOC and installment loans and real estate mortgage loans increased $1.5 billion, $295.0 million and $177.7 million, respectively. These increases were partially offset by a $108.7 million decline in average investment securities and an $81.9 million decline in interest-bearing deposits.
Total average deposits increased $1.7 billion year-over-year. Total average interest-bearing deposits increased $1.4 billion, driven primarily by higher money market and time deposit balances, reflecting the impact of $1.5 billion of interest-bearing deposits acquired from First Savings as well as changes in customer deposit mix following the acquisition. Average noninterest‑bearing deposits increased $257.1 million, reflecting approximately $190.8 million of noninterest‑bearing deposits acquired from First Savings on February 1, 2026, as well as changes to the Corporation’s deposit product offerings, under which certain accounts that previously earned interest were intentionally transitioned to noninterest‑bearing products. Average borrowings increased $145.3 million, primarily driven by higher FHLB advances associated with the First Savings acquisition, partially offset by lower repurchase agreement balances.
Interest Income/Expense and Average Yields
Three months ended March 31, 2026 and 2025
Net interest income on an FTE basis increased $21.3 million, or 15.6 percent, to $157.7 million for the three months ended March 31, 2026, compared to $136.4 million for the three months ended March 31, 2025. Net interest margin on an FTE basis increased 13 basis points to 3.35 percent from 3.22 percent in the prior year quarter. This improvement was driven primarily by a 15 basis point decline in the cost of interest-bearing liabilities to 2.59 percent from 2.74 percent, reflecting lower average deposit costs and favorable changes in funding mix, while yields on average earning assets remained relatively stable at 5.41 percent compared to 5.39 percent in the prior year period. The Corporation recognized $2.8 million of fair value accretion income from purchased loans during the quarter, which contributed approximately six basis points to net interest margin during the three months ended March 31, 2026. This compares to $1.1 million, or three basis points, in the same period of 2025.
Interest income on an FTE basis increased $26.3 million compared to the same period in the prior year, driven primarily by a $1.9 billion increase in average earning assets, which reflected the contribution of loans acquired from First Savings and growth in average loan balances across commercial, real estate mortgage, and HELOC and installment portfolios. Average total loans increased $2.1 billion, or 15.9 percent, year‑over‑year, more than offsetting lower average balances in cash and investment securities. Additionally, the Corporation recorded a $1.2 million interest recovery during the first quarter of 2026 related to the resolution of a previously nonaccrual multifamily commercial real estate loan, which favorably impacted interest income for the period.
Interest expense on deposits increased $3.5 million compared to the prior year period, reflecting a $1.4 billion increase in average interest‑bearing deposit balances, partially offset by lower deposit pricing across most deposit categories. The total cost of interest‑bearing liabilities declined 15 basis points to 2.59 percent for the three months ended March 31, 2026, from 2.74 percent for the three months ended March 31, 2025. Lower average rates on core deposit products, including interest‑bearing demand, money market, and savings deposits, reduced interest expense and favorably impacted margin, while higher average borrowings and modestly higher wholesale funding costs partially offset these benefits. Overall, the reduction in funding costs more than offset relatively stable asset yields and resulted in a 17 basis point improvement in the FTE net interest spread to 2.82 percent from 2.65 percent in the prior year quarter.
47
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the Corporation’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets/liabilities for the three months ended March 31, 2026 and 2025.
| (Dollars in Thousands) | Three Months Ended | ||||||||||||||||||||||||||||||||||
| March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income / Expense | Average Rate | Average Balance | Interest Income / Expense | Average Rate | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 212,164 | $ | 1,244 | 2.35 | % | $ | 294,016 | $ | 2,372 | 3.23 | % | |||||||||||||||||||||||
| Federal Home Loan Bank stock | 62,720 | 1,965 | 12.53 | 43,980 | 997 | 9.07 | |||||||||||||||||||||||||||||
Investment Securities: (1) | |||||||||||||||||||||||||||||||||||
| Taxable | 1,510,344 | 7,547 | 2.00 | 1,634,452 | 8,372 | 2.05 | |||||||||||||||||||||||||||||
Tax-Exempt (2) | 2,062,071 | 15,946 | 3.09 | 2,046,674 | 15,844 | 3.10 | |||||||||||||||||||||||||||||
| Total Investment Securities | 3,572,415 | 23,493 | 2.63 | 3,681,126 | 24,216 | 2.63 | |||||||||||||||||||||||||||||
| Loans held for sale | 70,911 | 1,427 | 8.05 | 20,965 | 319 | 6.09 | |||||||||||||||||||||||||||||
Loans: (3) | |||||||||||||||||||||||||||||||||||
| Commercial | 10,234,765 | 164,765 | 6.44 | 8,770,282 | 147,772 | 6.74 | |||||||||||||||||||||||||||||
| Real estate mortgage | 2,369,115 | 27,915 | 4.71 | 2,191,384 | 24,446 | 4.46 | |||||||||||||||||||||||||||||
| HELOC and installment | 1,123,844 | 19,520 | 6.95 | 828,874 | 15,191 | 7.33 | |||||||||||||||||||||||||||||
Tax-Exempt (2) | 1,197,050 | 14,634 | 4.89 | 1,129,848 | 13,332 | 4.72 | |||||||||||||||||||||||||||||
| Total Loans | 14,995,685 | 228,261 | 6.09 | 12,941,353 | 201,060 | 6.21 | |||||||||||||||||||||||||||||
| Total Earning Assets | 18,842,984 | 254,963 | 5.41 | % | 16,960,475 | 228,645 | 5.39 | % | |||||||||||||||||||||||||||
| Total Non-Earning Assets | 1,564,539 | 1,381,263 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 20,407,523 | $ | 18,341,738 | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-Bearing Deposits: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 5,430,190 | $ | 29,781 | 2.19 | % | $ | 5,522,434 | $ | 34,606 | 2.51 | % | |||||||||||||||||||||||
| Money market deposits | 4,566,275 | 32,048 | 2.81 | 3,437,998 | 25,952 | 3.02 | |||||||||||||||||||||||||||||
| Savings deposits | 1,371,796 | 2,233 | 0.65 | 1,299,405 | 2,445 | 0.75 | |||||||||||||||||||||||||||||
| Certificates and other time deposits | 2,243,417 | 20,031 | 3.57 | 1,947,854 | 17,544 | 3.60 | |||||||||||||||||||||||||||||
| Total Interest-bearing Deposits | 13,611,678 | 84,093 | 2.47 | 12,207,691 | 80,547 | 2.64 | |||||||||||||||||||||||||||||
| Borrowings | 1,408,233 | 13,173 | 3.74 | 1,262,926 | 11,701 | 3.71 | |||||||||||||||||||||||||||||
| Total Interest-bearing Liabilities | 15,019,911 | 97,266 | 2.59 | 13,470,617 | 92,248 | 2.74 | |||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 2,468,792 | 2,211,647 | |||||||||||||||||||||||||||||||||
| Other liabilities | 263,064 | 318,600 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 17,751,767 | 16,000,864 | |||||||||||||||||||||||||||||||||
| Stockholders' Equity | 2,655,756 | 2,340,874 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 20,407,523 | $ | 18,341,738 | |||||||||||||||||||||||||||||||
| Net Interest Income (FTE) | $ | 157,697 | $ | 136,397 | |||||||||||||||||||||||||||||||
Net Interest Spread (FTE) (4) | 2.82 | % | 2.65 | % | |||||||||||||||||||||||||||||||
| Net Interest Margin (FTE): | |||||||||||||||||||||||||||||||||||
| Interest Income (FTE) / Average Earning Assets | 5.41 | % | 5.39 | % | |||||||||||||||||||||||||||||||
| Interest Expense / Average Earning Assets | 2.06 | % | 2.17 | % | |||||||||||||||||||||||||||||||
Net Interest Margin (FTE) (5) | 3.35 | % | 3.22 | % | |||||||||||||||||||||||||||||||
(1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments. Annualized amounts are computed utilizing a 30/360 day basis. | |||||||||||||||||||||||||||||||||||
(2) Tax-exempt securities and loans are presented on an FTE basis, using a marginal tax rate of 21 percent for 2026 and 2025. These totals equal $6.4 million and $6.1 million for the three months ended March 31, 2026 and 2025, respectively. | |||||||||||||||||||||||||||||||||||
(3) Nonaccruing loans have been included in the average balances. | |||||||||||||||||||||||||||||||||||
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities. | |||||||||||||||||||||||||||||||||||
(5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets. | |||||||||||||||||||||||||||||||||||
48
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NONINTEREST INCOME
Noninterest income totaled $5.8 million for the three months ended March 31, 2026, a decrease of $24.2 million, or 80.6 percent, compared to the same period in 2025. The decrease was driven primarily by a $29.8 million net loss recognized on mortgage loans reclassified to held for sale during the quarter. This decline was partially offset by higher customer‑related fees, which increased $4.7 million to $31.7 million for the three months ended March 31, 2026 compared to the same period in 2025. The increase in customer‑related fees was driven primarily by higher fiduciary and wealth management fees, increased service charges on deposit accounts, higher card payment fees, and higher net gains and fees on sales of loans.
NONINTEREST EXPENSE
Noninterest expense totaled $125.1 million for the three months ended March 31, 2026, a $32.2 million, or 34.7 percent, increase from the first quarter of 2025. Integration and transaction-related expenses totaling $17.0 million were incurred during the quarter, including $5.2 million attributed to salaries and benefits, $3.0 million of acquisition-related professional and advisory services, and $8.4 million of contract termination and similar charges. Salaries and employee benefits expense, excluding integration and transaction-related expenses, increased by $9.3 million, primarily due to higher salaries and incentive costs during the three months ended March 31, 2026, compared to the same period in 2025. Other expense increased $1.5 million primarily due to a one-time charge for the write-down of a held-for-sale building. Additionally, outside data processing fees and net occupancy increased $1.3 million and $1.1 million, respectively, during the three months ended March 31, 2026, compared to the same period in 2025.
INCOME TAXES
Income tax benefit for the three months ended March 31, 2026 was $1.1 million on pre-tax income of $27.1 million. For the same period in 2025, income tax expense was $7.9 million on pre-tax income of $63.2 million. The effective income tax rates for the first quarter of 2026 and 2025 were (3.9)% and 12.5 percent, respectively.
The lower effective income tax rate for the three months ended March 31, 2026 when compared to the same period in 2025 was primarily due to a higher proportion of non-taxable income relative to total income before income taxes. The lower income before income taxes during the first quarter of 2026 was driven by integration and transaction‑related expenses resulting from the First Savings acquisition, and the net loss on mortgage loans reclassified to held for sale.
The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 12. INCOME TAXES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
CAPITAL
Preferred Stock
As part of the Level One acquisition, the Corporation issued 10,000 shares of newly created 7.5 percent non-cumulative perpetual preferred stock, with a liquidation preference of $2,500 per share, in exchange for the outstanding Level One Series B preferred stock, and as part of that exchange, each outstanding Level One depository share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depository share of the Corporation representing a 1/100th interest in a share of its newly issued preferred stock. The Corporation had $25.0 million of outstanding preferred stock at March 31, 2026 and December 31, 2025. During the three months ended March 31, 2026 and 2025, the Corporation declared and paid dividends of $46.88 per share (equivalent to $0.4688 per depository share) equal to $0.5 million. The Series A preferred stock qualifies as tier 1 capital for purposes of the regulatory capital calculations.
Stock Repurchase Program
On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100.0 million. On a share basis, the amount of common stock subject to the repurchase program represented approximately 6 percent of the Corporation's outstanding shares at the time the program became effective. The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during the three months ended March 31, 2025. The stock repurchase program approved in 2021 was discontinued as of March 18, 2025.
On March 18, 2025, the Board of Directors of the Corporation approved a stock repurchase program of up to 2,927,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100.0 million. On a share basis, the amount of common stock subject to the repurchase program represented approximately 5 percent of the Corporation's outstanding shares at the time the program became effective. During the three months ended March 31, 2026, the Corporation repurchased 0.6 million shares of its common stock under the program, for total consideration of $24.9 million. The average purchase price was $38.90 per share. As of March 31, 2026, approximately 1.1 million shares remained available for repurchase under the program, with an aggregate remaining authorization of $28.2 million.
49
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was enacted. Among other things, the IRA imposes a new 1 percent excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations (like the Corporation). With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. During the three months ended March 31, 2026 and 2025, the Corporation recorded excise tax of $0.2 million and $0.1 million, respectively, related to its share repurchases during the period, which is reflected in the Statement of Stockholders' Equity as a component of additional paid-in capital.
Regulatory Capital
Capital adequacy is an important indicator of financial stability and performance. The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by four ratios that are calculated according to the regulations: total risk-based capital, tier 1 risk-based capital, common equity tier 1 ("CET1"), and tier 1 leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital, tier 1 capital, and CET1 capital, in each case, to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the regulations. Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice. Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.
Under the fully phased-in Basel III capital rules, the Corporation and the Bank maintain the minimum capital and leverage ratios, including a 2.5 percent capital conservation buffer, as illustrated in the table below. In order to avoid limitations on capital distributions, including dividends, the Corporation must maintain capital levels above these minimum requirements. The Corporation and Bank have elected to opt-out of including accumulated other comprehensive income in regulatory capital. As of March 31, 2026, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.
The Corporation's and Bank's actual and required capital ratios as of March 31, 2026 and December 31, 2025 were as follows:
| Prompt Corrective Action Thresholds | |||||||||||||||||||||||||||||||||||
| Actual | Basel III Minimum Capital Required | Well Capitalized | |||||||||||||||||||||||||||||||||
| March 31, 2026 | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
| Total risk-based capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 2,301,746 | 13.05 | % | $ | 1,852,295 | 10.50 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 2,263,139 | 12.83 | 1,852,412 | 10.50 | $ | 1,764,202 | 10.00 | % | |||||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 2,004,772 | 11.36 | % | $ | 1,499,477 | 8.50 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 2,042,489 | 11.58 | 1,499,572 | 8.50 | $ | 1,411,362 | 8.00 | % | |||||||||||||||||||||||||||
| Common equity tier 1 capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 1,979,772 | 11.22 | % | $ | 1,234,863 | 7.00 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 2,042,489 | 11.58 | 1,234,941 | 7.00 | $ | 1,146,731 | 6.50 | % | |||||||||||||||||||||||||||
| Tier 1 capital to average assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 2,004,772 | 10.23 | % | $ | 783,640 | 4.00 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 2,042,489 | 10.37 | 787,813 | 4.00 | $ | 984,767 | 5.00 | % | |||||||||||||||||||||||||||
| Prompt Corrective Action Thresholds | |||||||||||||||||||||||||||||||||||
| Actual | Basel III Minimum Capital Required | Well Capitalized | |||||||||||||||||||||||||||||||||
| December 31, 2025 | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
| Total risk-based capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 2,121,288 | 13.41 | % | $ | 1,660,386 | 10.50 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 2,074,790 | 13.11 | 1,661,540 | 10.50 | $ | 1,582,419 | 10.00 | % | |||||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 1,875,892 | 11.86 | % | $ | 1,344,122 | 8.50 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 1,876,817 | 11.86 | 1,345,056 | 8.50 | $ | 1,265,935 | 8.00 | % | |||||||||||||||||||||||||||
| Common equity tier 1 capital to risk-weighted assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 1,850,892 | 11.70 | % | $ | 1,106,924 | 7.00 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 1,876,817 | 11.86 | 1,107,693 | 7.00 | $ | 1,028,572 | 6.50 | % | |||||||||||||||||||||||||||
| Tier 1 capital to average assets | |||||||||||||||||||||||||||||||||||
| First Merchants Corporation | $ | 1,875,892 | 10.24 | % | $ | 732,768 | 4.00 | % | N/A | N/A | |||||||||||||||||||||||||
| First Merchants Bank | 1,876,817 | 10.18 | 737,699 | 4.00 | $ | 922,124 | 5.00 | % | |||||||||||||||||||||||||||
50
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $70.0 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5.0 million and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due October 30, 2028 in the aggregate principal amount of $65.0 million. The Corporation exercised its right to redeem $65.0 million of the Subordinated Debt on the scheduled interest payment date during the first half of 2024 and the Corporation exercised its right to redeem the $5.0 million of the Senior Debt on the scheduled interest payment date of July 30, 2025.
On April 1, 2022, the Corporation assumed $30.0 million of subordinated notes in conjunction with its acquisition of Level One. On February 14, 2025, the Corporation, through its trustee, distributed notice of redemption of all $30.0 million in principal amount of its 4.75 percent Fixed-to-Floating Subordinated Notes due December 18, 2029. The Corporation exercised its right to redeem $30 million of the subordinated debt on the scheduled interest payment date of March 18, 2025.
On February 1, 2026, the Corporation assumed $29.0 million of subordinated notes in conjunction with its acquisition of First Savings.
Management believes the disclosed capital ratios are meaningful measurements for evaluating the safety and soundness of the Corporation. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. The Federal Reserve focuses its assessment of capital adequacy on a component of tier 1 capital known as CET1. Because the Federal Reserve has long indicated that voting common stockholders' equity (essentially tier 1 risk-based capital less preferred stock and non-controlling interest in subsidiaries) generally should be the dominant element in tier 1 risk-based capital, this focus on CET1 is consistent with existing capital adequacy categories. Tier I regulatory capital consists primarily of total common stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses.
A reconciliation of regulatory measures are detailed in the following table as of the dates indicated.
| March 31, 2026 | December 31, 2025 | ||||||||||||||||||||||
| (Dollars in Thousands) | First Merchants Corporation | First Merchants Bank | First Merchants Corporation | First Merchants Bank | |||||||||||||||||||
| Total Risk-Based Capital | |||||||||||||||||||||||
| Total Stockholders' Equity (GAAP) | $ | 2,672,565 | $ | 2,711,800 | $ | 2,466,667 | $ | 2,469,036 | |||||||||||||||
Adjust for Accumulated Other Comprehensive Loss (1) | 148,861 | 146,974 | 130,135 | 128,247 | |||||||||||||||||||
| Less: Preferred Stock | (25,125) | (125) | (25,125) | (125) | |||||||||||||||||||
| Add: Qualifying Capital Securities | 25,000 | — | 25,000 | — | |||||||||||||||||||
| Less: Disallowed Goodwill and Intangible Assets | (812,321) | (811,873) | (720,688) | (720,241) | |||||||||||||||||||
| Less: Disallowed Deferred Tax Assets | (4,208) | (4,287) | (97) | (100) | |||||||||||||||||||
| Total Tier 1 Capital (Regulatory) | 2,004,772 | 2,042,489 | 1,875,892 | 1,876,817 | |||||||||||||||||||
| Qualifying Subordinated Debentures | 76,338 | — | 47,559 | — | |||||||||||||||||||
| Allowance for Credit Losses Includible in Tier 2 Capital | 220,636 | 220,650 | 197,837 | 197,973 | |||||||||||||||||||
| Total Risk-Based Capital (Regulatory) | $ | 2,301,746 | $ | 2,263,139 | $ | 2,121,288 | $ | 2,074,790 | |||||||||||||||
| Net Risk-Weighted Assets (Regulatory) | $ | 17,640,901 | $ | 17,642,021 | $ | 15,813,198 | $ | 15,824,187 | |||||||||||||||
| Average Assets (Regulatory) | $ | 19,590,994 | $ | 19,695,335 | $ | 18,319,204 | $ | 18,442,484 | |||||||||||||||
| Total Risk-Based Capital Ratio (Regulatory) | 13.05 | % | 12.83 | % | 13.41 | % | 13.11 | % | |||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets (Regulatory) | 11.36 | % | 11.58 | % | 11.86 | % | 11.86 | % | |||||||||||||||
| Tier 1 Capital to Average Assets (Regulatory) | 10.23 | % | 10.37 | % | 10.24 | % | 10.18 | % | |||||||||||||||
| CET1 Capital Ratio | |||||||||||||||||||||||
| Total Tier 1 Capital (Regulatory) | $ | 2,004,772 | $ | 2,042,489 | $ | 1,875,892 | $ | 1,876,817 | |||||||||||||||
| Less: Qualified Capital Securities | (25,000) | — | (25,000) | — | |||||||||||||||||||
| CET1 Capital (Regulatory) | $ | 1,979,772 | $ | 2,042,489 | $ | 1,850,892 | $ | 1,876,817 | |||||||||||||||
| Net Risk-Weighted Assets (Regulatory) | $ | 17,640,901 | $ | 17,642,021 | $ | 15,813,198 | $ | 15,824,187 | |||||||||||||||
| CET1 Capital Ratio (Regulatory) | 11.22 | % | 11.58 | % | 11.70 | % | 11.86 | % | |||||||||||||||
(1) Includes net unrealized gains or losses on available for sale securities and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.
In management's view, certain non-GAAP financial measures, when taken together with the corresponding GAAP financial measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP financial measures and ratios in assessing our operating results, related trends, and when forecasting future periods. However, these non-GAAP financial measures should be considered in addition to, and not a substitute for or preferable to, financial measures and ratios presented in accordance with GAAP.
The Corporation's tangible common equity measures are capital adequacy metrics that are meaningful to the Corporation, as well as analysts and investors, in assessing the Corporation's use of equity and in facilitating period-to-period and company-to-company comparisons. Tangible common equity to tangible assets ratio was 9.00 percent at March 31, 2026, and 9.38 percent at December 31, 2025.
51
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-GAAP financial measures such as tangible common equity to tangible assets, tangible earnings per share, return on average tangible assets and return on average tangible equity are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but retain the effect of accumulated other comprehensive losses in shareholder's equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.
The tables within the “NON-GAAP FINANCIAL MEASURES” section of this Management’s Discussion and Analysis of Financial Condition and
Results of Operations reconcile traditional GAAP measures to these non-GAAP financial measures at March 31, 2026 and December 31, 2025.
LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS
The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. Commercial loans are individually underwritten and judgmentally risk rated. They are periodically monitored and prompt corrective actions are taken on deteriorating loans. Consumer loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.
Loan Maturities
The following tables present the maturity distribution of our loan portfolio, excluding loans held for sale, by collateral classification at March 31, 2026 according to contractual maturities of (1) one year or less, (2) after one year but within five years and (3) after five years.
The tables also present the portion of loans by loan classification that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.
| March 31, 2026 | |||||||||||||||||||||||
| (Dollars in Thousands) | Maturing Within 1 Year | Maturing 1-5 Years | Maturing Over 5 Years | Total | |||||||||||||||||||
| Commercial and industrial loans | $ | 921,777 | $ | 3,180,590 | $ | 509,229 | $ | 4,611,596 | |||||||||||||||
| Agricultural land, production and other loans to farmers | 91,644 | 41,571 | 177,573 | 310,788 | |||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction | 228,361 | 490,056 | 181,478 | 899,895 | |||||||||||||||||||
| Commercial real estate, non-owner occupied | 515,441 | 1,558,839 | 1,118,057 | 3,192,337 | |||||||||||||||||||
| Commercial real estate, owner occupied | 168,612 | 658,404 | 507,943 | 1,334,959 | |||||||||||||||||||
| Residential | 43,653 | 174,067 | 2,056,140 | 2,273,860 | |||||||||||||||||||
| Home Equity | 15,985 | 17,813 | 1,070,941 | 1,104,739 | |||||||||||||||||||
| Individuals' loans for household and other personal expenditures | 27,646 | 93,400 | 32,237 | 153,283 | |||||||||||||||||||
| Public finance and other commercial loans | 96,952 | 322,041 | 961,439 | 1,380,432 | |||||||||||||||||||
| Total | $ | 2,110,071 | $ | 6,536,781 | $ | 6,615,037 | $ | 15,261,889 | |||||||||||||||
| March 31, 2026 | |||||||||||||||||||||||
| (Dollars in Thousands) | Maturing Within 1 Year | Maturing 1-5 Years | Maturing Over 5 Years | Total | |||||||||||||||||||
| Commercial and industrial loans | $ | 111,293 | $ | 435,108 | $ | 145,281 | $ | 691,682 | |||||||||||||||
| Agricultural land, production and other loans to farmers | 2,644 | 25,081 | 10,351 | 38,076 | |||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction | 1,186 | 16,511 | 140,552 | 158,249 | |||||||||||||||||||
| Commercial real estate, non-owner occupied | 165,293 | 572,050 | 464,640 | 1,201,983 | |||||||||||||||||||
| Commercial real estate, owner occupied | 104,678 | 291,351 | 92,517 | 488,546 | |||||||||||||||||||
| Residential | 29,417 | 96,634 | 898,179 | 1,024,230 | |||||||||||||||||||
| Home Equity | 3,185 | 6,299 | 15,124 | 24,608 | |||||||||||||||||||
| Individuals' loans for household and other personal expenditures | 4,517 | 63,350 | 19,528 | 87,395 | |||||||||||||||||||
| Public finance and other commercial loans | 13,298 | 111,655 | 935,551 | 1,060,504 | |||||||||||||||||||
| Total loans with fixed interest rates | $ | 435,511 | $ | 1,618,039 | $ | 2,721,723 | $ | 4,775,273 | |||||||||||||||
52
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| March 31, 2026 | |||||||||||||||||||||||
| (Dollars in Thousands) | Maturing Within 1 Year | Maturing 1-5 Years | Maturing Over 5 Years | Total | |||||||||||||||||||
| Commercial and industrial loans | $ | 810,484 | $ | 2,745,482 | $ | 363,948 | $ | 3,919,914 | |||||||||||||||
| Agricultural land, production and other loans to farmers | 89,000 | 16,490 | 167,222 | 272,712 | |||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction | 227,175 | 473,545 | 40,926 | 741,646 | |||||||||||||||||||
| Commercial real estate, non-owner occupied | 350,148 | 986,789 | 653,417 | 1,990,354 | |||||||||||||||||||
| Commercial real estate, owner occupied | 63,934 | 367,053 | 415,426 | 846,413 | |||||||||||||||||||
| Residential | 14,236 | 77,433 | 1,157,961 | 1,249,630 | |||||||||||||||||||
| Home Equity | 12,800 | 11,514 | 1,055,817 | 1,080,131 | |||||||||||||||||||
| Individuals' loans for household and other personal expenditures | 23,129 | 30,050 | 12,709 | 65,888 | |||||||||||||||||||
| Public finance and other commercial loans | 83,654 | 210,386 | 25,888 | 319,928 | |||||||||||||||||||
| Total loans with variable interest rates | $ | 1,674,560 | $ | 4,918,742 | $ | 3,893,314 | $ | 10,486,616 | |||||||||||||||
Loan Quality
The quality of the loan portfolio and the amount of nonperforming loans may increase or decrease as a result of acquisitions, organic portfolio growth, problem loan recognition and resolution through collections, sales or charge-offs. The performance of any loan can be affected by external factors such as economic conditions, or internal factors specific to a particular borrower, such as the actions of a customer's internal management.
At March 31, 2026, nonaccrual loans totaled $89.6 million, an increase of $17.8 million from December 31, 2025, primarily driven by the addition of $20.5 million of nonaccrual loans acquired from First Savings. The largest increases were in commercial real estate, non-owner occupied, commercial real estate, owner occupied and residential loan classes which increased $11.4 million, $7.9 million, and $7.9 million, respectively. The increase was offset by a decrease in the construction loan class of $12.6 million.
At March 31, 2026, loans 90-days or more delinquent and still accruing totaled $4.1 million, an increase of $2.0 million from December 31, 2025.
The Corporation's nonperforming assets plus accruing loans 90-days or more delinquent loans are presented in the table below.
| (Dollars in Thousands) | March 31, 2026 | December 31, 2025 | ||||||||||||
| Nonperforming Assets: | ||||||||||||||
| Nonaccrual loans | $ | 89,592 | $ | 71,773 | ||||||||||
| Other real estate owned and repossessions | 1,264 | 658 | ||||||||||||
| Nonperforming assets | 90,856 | 72,431 | ||||||||||||
| Loans 90-days or more delinquent and still accruing | 4,078 | 2,042 | ||||||||||||
| Nonperforming assets and loans 90-days or more delinquent | $ | 94,934 | $ | 74,473 | ||||||||||
The composition of nonperforming assets plus accruing loans 90-days or more delinquent is reflected in the following table by loan class.
| (Dollars in Thousands) | March 31, 2026 | December 31, 2025 | |||||||||
| Nonperforming assets and loans 90-days or more delinquent: | |||||||||||
| Commercial and industrial loans | $ | 9,116 | $ | 10,861 | |||||||
| Agricultural land, production and other loans to farmers | 201 | 250 | |||||||||
| Real estate loans: | |||||||||||
| Construction | 9,929 | 23,776 | |||||||||
| Commercial real estate, non-owner occupied | 15,071 | 837 | |||||||||
| Commercial real estate, owner occupied | 12,302 | 3,705 | |||||||||
| Residential | 38,715 | 30,786 | |||||||||
| Home equity | 8,855 | 4,238 | |||||||||
| Individuals' loans for household and other personal expenditures | 92 | 20 | |||||||||
| Public finance and other commercial loans | 653 | — | |||||||||
| Nonperforming assets and loans 90-days or more delinquent: | $ | 94,934 | $ | 74,473 | |||||||
Provision Expense and Allowance for Credit Losses on Loans
The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost based on historical experiences, current conditions and reasonable and supportable forecasts. CECL also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as credit quality and underwriting standards of an organization's portfolio. Additional details of the Corporation's CECL methodology and allowance calculation are discussed within NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
The CECL allowance is maintained through the provision for credit losses, which is a charge against earnings. Based on management’s judgment as to the appropriate level of the allowance for credit losses, the amount provided in any period may be greater or less than net loan losses for the same period. The determination of the provision amount and the adequacy of the allowance in any period is based on management’s continuing review and evaluation of the loan portfolio.
53
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation’s loan balances, excluding loans held for sale, increased $1.5 billion from December 31, 2025 to $15.3 billion at March 31, 2026. At March 31, 2026, the ACL - Loans totaled $212.5 million, which represents an increase of $16.9 million from December 31, 2025. As a percentage of loans, the ACL - Loans was 1.39 percent and 1.42 percent at March 31, 2026 and December 31, 2025, respectively.
The Corporation’s credit loss experience is presented in the table below for the years indicated.
| Three Months Ended March 31, | |||||||||||
| (Dollars in Thousands) | 2026 | 2025 | |||||||||
| Allowance for credit losses - loans: | |||||||||||
| Balances, December 31 | $ | 195,597 | $ | 192,757 | |||||||
| Loans charged off | (11,179) | (6,182) | |||||||||
| Recoveries on loans | 923 | 1,256 | |||||||||
| Net charge-offs | (10,256) | (4,926) | |||||||||
| Provision for credit losses - loans | 4,900 | 4,200 | |||||||||
| CECL Day 1 PSL ACL - loans | 15,212 | — | |||||||||
| CECL Day 1 PCD ACL - loans | 7,067 | — | |||||||||
| Balances, March 31 | $ | 212,520 | $ | 192,031 | |||||||
| Ratio of net charge-offs during the period to average loans outstanding during the period | 0.27 | % | 0.15 | % | |||||||
| Ratio of allowance for credit losses - loans to nonaccrual loans | 237.2 | % | 234.4 | % | |||||||
| Ratio of allowance for credit losses - loans to total loans outstanding | 1.39 | % | 1.47 | % | |||||||
Net charge-offs totaling $10.3 million were recognized for the three months ended March 31, 2026, and provision for credit losses of $4.9 million was recorded for the same period in 2026. Net charge-offs totaling $4.9 million were recognized for the three months ended March 31, 2025, with $4.2 million in provision for credit losses recorded in the same period in 2025.
The distribution of the net charge-offs (recoveries) for the three months ended March 31, 2026 and 2025 are reflected in the following table.
| Three Months Ended March 31, | |||||||||||||||||||||||
| (Dollars in Thousands) | 2026 | 2025 | |||||||||||||||||||||
| Net charge-offs (recoveries): | |||||||||||||||||||||||
| Commercial and industrial loans | $ | 9,486 | $ | 3,929 | |||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction | (1) | — | |||||||||||||||||||||
| Commercial real estate, non-owner occupied | 62 | 192 | |||||||||||||||||||||
| Commercial real estate, owner occupied | 57 | 204 | |||||||||||||||||||||
| Residential | 372 | 370 | |||||||||||||||||||||
| Home equity | 128 | (65) | |||||||||||||||||||||
| Individuals' loans for household and other personal expenditures | 152 | 296 | |||||||||||||||||||||
| Total net charge-offs (recoveries) | $ | 10,256 | $ | 4,926 | |||||||||||||||||||
Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on nonperforming loans, past and anticipated credit loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding. The determination of the provision for credit losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio. The Corporation continues to monitor economic forecast changes, loan growth and credit quality to determine provision needs in the future.
Loans Held for Sale
Loans held for sale at March 31, 2026 and December 31, 2025, were $401.8 million and $20.1 million, respectively. In March 2026, management approved a plan to sell a pool of performing residential mortgage loans with a principal balance totaling $357.0 million. At the time of the decision, all loans included in the pool were current and performing in accordance with their contractual terms. As a result of the decision to sell, the loan pool was reclassified from held for investment to held for sale as of March 31, 2026. Additionally, the First Savings acquisition added $46.3 million in loans held for sale as of March 31, 2026.
LIQUIDITY
Liquidity management is the process by which the Corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries. These funds are necessary in order to meet financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements. Liquidity is monitored and closely managed by the asset/liability committee.
The Corporation’s liquidity is dependent upon the receipt of dividends from the Bank, which is subject to certain regulatory limitations and access to other funding sources. Liquidity of the Bank is derived primarily from core deposit growth, principal payments received on loans, the sale and maturity of investment securities, net cash provided by operating activities, and access to other funding sources.
54
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1.4 billion at March 31, 2026, a decrease of $34.7 million, from December 31, 2025. Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity. Securities classified as held to maturity and that are maturing in one year or less totaled $7.9 million at March 31, 2026. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.
The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base. Federal funds purchased and securities sold under agreements to repurchase are also considered a source of liquidity. In addition, FHLB advances and Federal Reserve Discount Window borrowings are utilized as a funding source. At March 31, 2026, total borrowings from the FHLB were $1.3 billion and there were no outstanding borrowings from the Federal Reserve Discount Window. The Bank has pledged certain mortgage loans and investments to the FHLB and Federal Reserve. The total available remaining borrowing capacity from the FHLB and Federal Reserve at March 31, 2026 was $1.1 billion and $6.2 billion, respectively.
The following table presents the Corporation's material cash requirements from known contractual and other obligations at March 31, 2026:
| Payments Due In | |||||||||||||||||
| (Dollars in Thousands) | One Year or Less | Over One Year | Total | ||||||||||||||
| Deposits without stated maturity | $ | 14,214,074 | $ | — | $ | 14,214,074 | |||||||||||
| Certificates and other time deposits | 1,992,221 | 279,322 | 2,271,543 | ||||||||||||||
| Securities sold under repurchase agreements | 89,458 | — | 89,458 | ||||||||||||||
| Federal Home Loan Bank advances | 465,137 | 834,055 | 1,299,192 | ||||||||||||||
| Federal Funds Purchased | 170,000 | — | 170,000 | ||||||||||||||
| Subordinated debentures and other borrowings | 1,282 | 85,063 | 86,345 | ||||||||||||||
| Total | $ | 16,932,172 | $ | 1,198,440 | $ | 18,130,612 | |||||||||||
Also, in the normal course of business, the Bank is a party to a number of other off-balance sheet activities that contain credit, market and operational risk that are not reflected in whole or in part in our consolidated financial statements. These activities primarily consist of traditional off-balance sheet credit-related financial instruments such as loan commitments and standby letters of credit.
Summarized credit-related financial instruments at March 31, 2026 are as follows:
| (Dollars in Thousands) | March 31, 2026 | ||||
| Amounts of commitments: | |||||
| Loan commitments to extend credit | $ | 5,986,362 | |||
| Standby and commercial letters of credit | 74,599 | ||||
| $ | 6,060,961 | ||||
Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.
INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK
Asset/Liability management has been an important factor in the Corporation's ability to record consistent earnings growth through periods of interest rate volatility and product deregulation. Management and the Board of Directors monitor the Corporation's liquidity and interest sensitivity positions at regular meetings to review how changes in interest rates may affect earnings. Decisions regarding investment and the pricing of loan and deposit products are made after analysis of reports designed to measure liquidity, rate sensitivity, the Corporation’s exposure to changes in net interest income given various rate scenarios and the economic and competitive environments.
It is the objective of the Corporation to monitor and manage risk exposure to net interest income caused by changes in interest rates. It is the goal of the Corporation’s Asset/Liability management function to provide optimum and stable net interest income. To accomplish this, management uses two asset liability tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly. Management believes that the Corporation's liquidity and interest sensitivity position at March 31, 2026, remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk.
Net interest income simulation modeling, or earnings-at-risk, measures the sensitivity of net interest income to various interest rate movements. The Corporation's asset liability process monitors simulated net interest income under three separate interest rate scenarios; base, rising and falling. Estimated net interest income for each scenario is calculated over a twelve-month horizon. The immediate and parallel changes to the base case scenario used in the model are presented below. The interest rate scenarios are used for analytical purposes and do not necessarily represent management's view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings of the Corporation.
55
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The base scenario is highly dependent on numerous assumptions embedded in the model, including assumptions related to future interest rates. While the base sensitivity analysis incorporates management's best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from those projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, interest-bearing and demand deposits, reflect management's best estimate of expected future behavior. Historical retention rate assumptions are applied to non-maturity deposits for modeling purposes.
The comparative rising 200 and 100 basis points and falling 200 and 100 basis points scenarios below, as of March 31, 2026 and December 31, 2025, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario.
Results for the rising 200 and 100 basis points and falling 200 and 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at March 31, 2026 and December 31, 2025. The change from the base scenario represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.
| March 31, 2026 | December 31, 2025 | ||||||||||
| Rising 200 basis points from base case | 4.0 | % | 4.5 | % | |||||||
| Rising 100 basis points from base case | 2.2 | % | 2.4 | % | |||||||
| Falling 100 basis points from base case | (2.5) | % | (2.8) | % | |||||||
| Falling 200 basis points from base case | (5.6) | % | (5.6) | % | |||||||
OTHER
The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Commission, including the Corporation, at https://www.sec.gov.
56
PART I: FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is included as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the headings “LIQUIDITY” and “INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK”.
57
PART I: FINANCIAL INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no changes in the Corporation’s internal control over financial reporting identified in connection with the evaluation discussed above that occurred during the Corporation’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
58
PART II: OTHER INFORMATION
ITEM 1., ITEM 1A., ITEM 2., ITEM 3., ITEM 4. AND ITEM 5.
(table dollar amounts in thousands, except share data)
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings, other than litigation incidental to the ordinary business of the Corporation or its subsidiaries, of a material nature to which the Corporation or its subsidiaries is a party or of which any of their properties is subject. Further, there are no material legal proceedings in which any director, officer, principal shareholder, or affiliate of the Corporation, or any associate of any such director, officer or principal shareholder, is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.
None of the routine legal proceedings, individually or in the aggregate, in which the Corporation or its affiliates are involved are expected to have a material adverse impact on the financial position or the results of operations of the Corporation.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
a. None
b. None
c. Issuer Purchases of Equity Securities
The following table presents information relating to our purchases of equity securities during the three months ended March 31, 2026.
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as part of Publicly announced Plans or Programs (2) | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2) | ||||||||||||||||||||||
| January, 2026 | 121,314 | $ | 37.95 | 120,851 | 1,594,925 | |||||||||||||||||||||
| February, 2026 | 237,679 | $ | 41.35 | 209,616 | 1,385,309 | |||||||||||||||||||||
| March, 2026 | 310,019 | $ | 37.50 | 310,019 | 1,075,290 | |||||||||||||||||||||
| Total | 669,012 | 640,486 | ||||||||||||||||||||||||
(1) During the three months ended March 31, 2026, there were 640,486 shares repurchased pursuant to the Corporation's share repurchase program described in note (2) below. The amounts in January 2026 and February 2026 include 463 and 28,063 shares, respectively, repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of the Corporation's restricted stock awards and are not a part of the Corporation's share repurchase program described in note (2) below.
(2) On March 18, 2025, the Board of Directors of the Corporation approved a stock repurchase program of up to 2,927,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000. The program does not have an expiration date. However, it may be discontinued by the Board at any time. Since commencing the program, the Corporation has repurchased a total of 1,851,710 shares of common stock for a total aggregate investment of $71.8 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
a. None
b. None
c. During the three months ended March 31, 2026, no director or officer of the Corporation adopted terminated
59
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS
ITEM 6. EXHIBITS
| Exhibit No: | Description of Exhibits: | ||||
| 2.1* | Agreement and Plan of Merger between First Merchants Corporation and First Savings Financial Group, Inc. dated September 24, 2025 (Incorporated by reference to Exhibit 2.1 of registrants Form 8-K filed on September 25, 2025) (SEC No. 000-17071) | ||||
| 3.1 | First Merchants Corporation Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of registrant’s Form 8-K filed on May 22, 2024) (SEC No. 000-17071) | ||||
| 3.2 | Bylaws of First Merchants Corporation effective as of May 20, 2024 (Incorporated by reference to Exhibit 3.2 of registrant’s Form 8-K filed on May 22, 2024) (SEC No. 001-41342) | ||||
| 4.1 | First Merchants Corporation Amended and Restated Declaration of Trust of First Merchants Capital Trust II dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.1 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071) | ||||
| 4.2 | Indenture dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.2 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071) | ||||
| 4.3 | Guarantee Agreement dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.3 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071) | ||||
| 4.4 | Form of Capital Securities Certification of First Merchants Capital Trust II (Incorporated by reference to Exhibit 4.4 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071) | ||||
| 4.5 | First Merchants Corporation Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to registrant’s Prospectus filed pursuant to Rule 424(b)(3) on July 17, 2020) (SEC No. 333-229527) | ||||
| 4.6 | Deposit Agreement by and among First Merchants Corporation, Broadridge Corporate Issuer Solutions, Inc., as depositary, and holders from time to time of the depositary receipts described therein, as amended on March 30, 2022 (Incorporated by reference to Exhibit 4.1 of registrant’s Form 8-A filed on March 30, 2022) (SEC No. 001-41342) | ||||
| 4.7 | Form of Depositary Receipt (Incorporated by reference to Exhibit 4.2 of registrant’s Form 8-A filed on March 30, 2022) (SEC No. 001-41342) | ||||
| 4.8 | Indenture, dated as of December 18, 2019, between First Merchants Corporation (as successor to Level One Bancorp, Inc.) and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of Level One Bancorp, Inc.’s Form 8-K filed on December 19, 2019) (SEC No. 001-38458) | ||||
| 4.90 | First Supplemental Indenture, dated as of March 31, 2022, among First Merchants Corporation, Level One Bancorp, Inc. and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.11 of registrant’s Form 10-K filed on March 1, 2023) (SEC No. 001-41342) | ||||
| 4.10 | Form of 4.75% Fixed-to-Floating Rate Subordinated Notes due 2029 (Incorporated by reference to Exhibit 4.2 of Level One Bancorp, Inc.’s Form 8-K filed on December 19, 2019) (SEC No. 001-38458) | ||||
| 4.11 | Upon request, the registrant agrees to furnish supplementally to the Commission a copy of the instruments defining the rights of holders of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2032 in the aggregate principal amount of $29 million. | ||||
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1) | ||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1) | ||||
| 32 | Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (2) | ||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1) | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (1) | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (1) | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) | ||||
| (1) | Filed herewith. | ||||
| (2) | Furnished herewith. | ||||
| * | Schedules to the subject agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities and Exchange Commission upon request. | ||||
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| First Merchants Corporation | |||||
| (Registrant) | |||||
| May 1, 2026 | by /s/ Mark K. Hardwick | ||||
| Mark K. Hardwick | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| May 1, 2026 | by /s/ Michele M. Kawiecki | ||||
| Michele M. Kawiecki | |||||
| Executive Vice President, Chief Financial Officer | |||||
| (Principal Financial and Accounting Officer) | |||||
61
FAQ
How did First Merchants (FRME) perform financially in Q1 2026?
First Merchants reported net income of $28.2 million for Q1 2026, down from $55.3 million a year earlier. Diluted EPS was $0.45 versus $0.94. Results were impacted by a large mortgage loan reclassification loss and merger‑related integration expenses.
What were the key one-time items affecting First Merchants (FRME) Q1 2026 earnings?
Q1 2026 earnings included a $29.8 million loss on mortgage loans reclassified to held for sale and $17.0 million of integration and transaction‑related expenses. These costs were primarily tied to the acquisition of First Savings and significantly reduced reported net income for the quarter.
What are the details of First Merchants’ acquisition of First Savings Financial Group, Inc.?
On February 1, 2026, First Merchants acquired First Savings in an all‑stock deal valued at about $243.2 million, issuing 6.1 million shares. The acquisition added $2.46 billion in assets, $30.2 million of intangibles, and $70.8 million of goodwill, expanding its southern Indiana presence.
How did the First Savings acquisition contribute to First Merchants’ Q1 2026 results?
From February 1 through March 31, First Savings contributed about $13.6 million of total revenue and $3.8 million of net income. Pro forma, assuming the deal at period start and excluding certain non‑recurring costs, Q1 2026 net income would have been $42.5 million with diluted EPS of $0.66.
What is First Merchants’ asset and loan growth picture as of March 31, 2026?
Total assets reached $21.1 billion at March 31, 2026, up from $19.0 billion at year‑end 2025. Loans grew to $15.3 billion from $13.8 billion, reflecting both organic growth and the First Savings acquisition. Deposits increased to $16.5 billion over the same period.
How strong are First Merchants’ credit reserves and asset quality in Q1 2026?
The allowance for credit losses on loans rose to $212.5 million from $195.6 million, aided by $22.3 million of acquisition‑date expected losses under new CECL rules. Nonaccrual loans increased to $89.6 million, and total past due loans reached $155.0 million, indicating modestly higher credit risk.
What new accounting standards did First Merchants adopt regarding purchased loans?
Effective January 1, 2026, First Merchants early adopted ASU 2025‑08 on purchased loans, applying a gross‑up method. It recorded $22.3 million of acquisition‑date expected credit losses—$15.2 million for purchased seasoned loans and $7.1 million for PCD loans—without an immediate earnings impact.