First Merchants Corporation Q1 FY2026 earnings call

• Business strategy is building Midwestern strength by growing organically with four primary business units. • First quarter was busy with closing of First Savings Bank and preparation for May integration date. Organic loan growth flat, but expected mid-single-digit loan growth through 2026. • Core relationship-focused deposit franchise showed growth with commercial, consumer, and southern Indiana market. • Disciplined deposit and loan pricing led to net interest margin improvement. • Added new teammates in various teams. • Integration efforts of First Savings Bank on track, engagement of their team strong, on-site training and preparation for May integration advancing. • Specialty verticals showed consistent production in new business during the quarter, SBA business model a direct enhancement to First Merchants franchise.

First quarter reported net income was $27.7 million, or 45 cents per diluted share. Adjusted ROA was 1.25% and adjusted return on tangible common equity exceeded 14%. First quarter reported net income included $17 million one-time acquisition-related expenses and a $29.8 million mark to market charge. Excluding these items, adjusted earnings per share totaled $1.03 up from $0.94 a year ago. Total assets stand at $21.1 billion, with $15.3 billion in loans and $16.5 billion in deposits. Core relationship-focused deposit franchise showed growth, with non-interest bearing deposits increasing to 23% this quarter. Loan portfolio yield declined by 23 basis points to 6.09%. Net interest income on a fully tax equivalent basis was $157.7 million, increased $12.4 million linked quarter and $21.3 million from same period prior year. Non-interest income totaled $5.8 million reported and $35.6 million normalized. Non-interest expense totaled $125.1 million including $17 million acquisition related costs. Tangible common equity ratio declined to 9%.

• Confident in mid-single-digit loan growth for 2026. • Expect margin to pick up a few basis points over the year due to day count and repricing from rate cuts. • Non-interest bearing deposits expected to maintain 20 - 23% level. • Expense base for legacy First Merchants expected to have 3% - 5% year-over-year increase, with cost synergies from First Savings acquisition on track. • Anticipate lift in non-interest income in coming quarters from full quarter of First Savings and gains on sales of loans from verticals. • Intend to continue being active in share buyback space given valuation.

Q: On loan growth side, seasonally down in first quarter with loan sale, what's driving loan growth prospects going forward?

A: Confident in single-digit growth rate, commercial pipelines strong, some paydowns were stacked normal course but pipelines are strong.

Q: On margin, where see margin moving forward, impact from loan sale?

A: Loans sold have weighted average coupon of 3.46%, will pay down higher cost deposits, over time invest in loans for margin pickup, margin expected to pick up a few basis points through year.

Q: On deposit migration into non-interest-bearing, sustainability and cost of deposits?

A: Checking account redesign migration stable, no runoff anticipated, non-interest bearing expected to maintain 20 - 23% level, deposit rates expected to be more steady.

Q: On capital perspective, impact from Basel III proposal and capital return?

A: Estimate Basel III proposal to benefit CET1 by 50 - 80 basis points, will continue to be active in share buyback.

Q: On balance sheet optimization, any additional need?

A: Not anticipating additional loan or bond sales, pleased with earn back and modeling.

Q: On First Savings specialty businesses, latest thinking?

A: Triple net lease production stable, first lien HELOC business fee generation, SBA business model a nice add.

Q: On margin fair value accretion marks and combined expense base in second quarter?

A: First two months of acquisition recorded 1.5 million fair value accretion, expense base for legacy First Merchants expected 3% - 5% year-over-year increase.

Q: On market disruption and adding commercial lending teams?

A: Very opportunistically active in overlap markets to add quality talent.

Q: On income expectations for second quarter and full year, drivers for charge-offs?

A: Expect non-interest income lift in coming quarters, charge-offs in first quarter were legacy First Merchants idiosyncratic.

Q: On tax rate and SBA business impact?

A: Expected 13% effective tax rate, no impact on SBA business outlook yet