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DATE

Thursday, April 23, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Mark Hardwick
  • President — Michael Stewart
  • Chief Financial Officer — Michele Kawiecki
  • Chief Credit Officer — John Martin

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TAKEAWAYS

  • Total Assets -- $21.1 billion following completion of the First Savings acquisition.
  • Loans -- $15.3 billion at quarter-end, reported flat organic growth due to higher-than-typical payoffs in sponsor and investment real estate portfolios.
  • Deposits -- $16.5 billion, with core relationship-focused deposit growth offset by declines in public funds, consumer CDs, and repayment of First Savings brokered deposits.
  • Adjusted Earnings Per Share -- $1.03, reflecting 9.6% growth driven by net interest margin expansion and fee income strength.
  • Reported Net Income -- $27.7 million, or $0.45 per diluted share, including $17 million in acquisition-related expenses and a $29.8 million mark-to-market charge related to the mortgage loan repositioning.
  • Tangible Common Equity Ratio -- 9% after the acquisition and $24.9 million in share repurchases during the quarter.
  • Net Interest Margin -- 3.35%, up 6 basis points from the prior quarter despite a 5 basis point headwind from day count.
  • Net Interest Income -- $157.7 million (fully tax-equivalent basis), up $12.4 million sequentially and $21.3 million year over year; includes $1.2 million recovery from a resolved nonaccrual loan.
  • Noninterest Income (Normalized) -- $35.6 million, with quarter-over-quarter growth in wealth management and gains on sale of loans.
  • Allowance for Credit Losses -- $212.5 million, reflecting a 1.39% coverage ratio after $4.9 million provision and a $22.3 million increase for acquired First Savings loans.
  • Charge-offs -- $10.3 million net for the quarter, attributed to legacy First Merchants Corporation relationships.
  • Deposit Rate Paid -- 2.09%, down 23 basis points due to strategic reductions after late-2025 Fed rate cuts.
  • Noninterest-Bearing Deposits -- Increased to 23% of total deposits, up from 16% the previous quarter, driven by a consumer checking account redesign.
  • Tangible Book Value Per Share -- Declined 2.8% sequentially but increased 7.3% year over year; tangible book value dilution from the acquisition was 2.4% versus a 4.8% estimate at announcement, with a projected 2.4-year earn-back period.
  • Net Interest Income Benefit from Bond Portfolio -- First Savings’ $252 million bond portfolio was sold at closing, with expected $276.7 million in bond cashflows rolling off at a 3.24% yield through year-end, allowing reinvestment into higher-yielding loans.
  • Acquisition Integration -- Integration efforts with First Savings are on track, and First Savings’ specialty lending verticals continue to contribute to fee income and pipeline strength.
  • Loan Portfolio Yield -- 6.09%, down 23 basis points from the prior quarter due to lower day count and repricing following Fed rate cuts; new and renewed loans originated at a 6.18% average yield.
  • Noninterest Expense -- $125.1 million, including $17 million in acquisition-related expense; estimated quarterly run rate guidance (post-synergies) is $111 million to $114 million by the fourth quarter.
  • Common Equity Tier 1 Ratio -- 11.22%, supporting active share buybacks and future balance sheet growth.
  • Share Repurchases -- More than 700,000 shares bought back, totaling $27.6 million year-to-date.
  • Basel III Impact -- Management estimates a benefit of 50 to 80 basis points, driven mostly by risk-weighted asset relief, particularly on the mortgage product.
  • New Hires -- Private wealth, sponsor, investment real estate, and community bankers added; new hires expected to support 2026 loan and fee income growth.
  • Loan Growth Guidance -- Management reaffirmed expectations for mid-single-digit loan growth through 2026, citing record new loan production during the first quarter for real estate and asset-based teams, which demonstrates the value of diversified loan origination teams.
  • Specialty Lending Verticals -- First Savings contributed stable production in triple-net lease and first-lien HELOC businesses, supporting future fee and gain-on-sale income.
  • Fair Value Accretion -- Expected to contribute a little over $2 million per quarter from First Savings, plus approximately $1 million from legacy accretion.
  • Effective Tax Rate -- Management provided an ongoing estimate of 13% per quarter.
  • Nonperforming Assets -- Largest exposures are a $9.9 million multifamily construction credit and two office-related exposures totaling roughly $12 million; overall asset quality described as stable with no broad-based deterioration.

SUMMARY

First Merchants Corporation (FRME 1.98%) closed its First Savings acquisition, boosting total assets and deposits while posting 9.6% adjusted EPS growth on expanded net interest margin and healthy fee income. The company repositioned $357 million of mortgage loans, incurring a $29.8 million charge, to accelerate higher-yielding commercial lending and expects a four-year tangible book value earn-back. Integration of First Savings is progressing as planned, with specialty verticals in SBA, triple-net lease, and first-lien HELOCs contributing immediate fee income and positioning for mid-single-digit loan growth through 2026. Strategic deposit repricing and checking redesign increased noninterest-bearing balances and reduced deposit costs, with net interest margin set to rise further as asset growth resumes and loan pipelines remain robust.

  • Management expects cost synergies from the acquisition, targeting a quarterly expense run-rate of $111 million to $114 million after integration benefits materialize in the fourth quarter.
  • CET1 ratio of 11.22% allows for continued share repurchases, with over 700,000 shares bought back this year, and anticipated Basel III finalization could increase capital ratios by 50 to 80 basis points.
  • Fee income for the second quarter is projected to increase 3%-4% sequentially, leveraging a full-quarter impact from First Savings’ verticals and gains on sale, with sustained growth forecast for the balance of the year.
  • Loan portfolio yield is expected to benefit from the redeployment of liquidity into commercial loans at over 6% yield, while the fixed-rate loan portfolio sees $100 million per quarter maturing at 4.5% rates, providing a reprice tailwind.
  • Allowance for credit losses stands at $212.5 million and coverage remains solid, with net charge-offs in the period attributed to legacy relationships and asset quality trends reflecting limited concentration risk.

INDUSTRY GLOSSARY

  • Triple-Net Lease: A lease structure in which the tenant is responsible for property taxes, insurance, and maintenance in addition to rent, commonly used in commercial real estate portfolios.
  • First-Lien HELOC: A home equity line of credit secured by a first-position lien on the property, offering the lender repayment priority in a default scenario.
  • SBA Lending: Loans backed by the U.S. Small Business Administration, providing credit access to small businesses with favorable terms and partial government guarantees.

Full Conference Call Transcript

Mark Hardwick: Thanks for the introduction and for covering the forward-looking statement on Page two. We released our earnings yesterday after markets closed and today's presentation materials are available via the link on Page three of the earnings release. Turning to Slide three, you will see today's presenters and members of our executive management team. Joining me on the call are Michael Stewart, our president; John Martin, our chief credit officer; and Michele Kawiecki, our chief financial officer. Slide four highlights our footprint and financial scale. We now operate 127 banking centers reflecting the addition of Southern Indiana following the First Savings acquisition. Total assets stand at $21.1 billion with $15.3 billion in loans and $16.5 billion in deposits.

Adjusted performance metrics remain strong, including an adjusted ROA of 1.25% and an adjusted return on tangible common equity exceeding 14%, reflecting the underlying strength of our earnings engine. Turning to Slide five, first quarter reported net income was $27.7 million, or $0.45 per diluted share. Reported results included two notable non-core items. First, the legal close of the First Savings acquisition on February 1 resulted in $17 million of one-time acquisition-related expenses. Second, during the quarter, we strategically repositioned $357 million of mortgage loans from held for investment to held for sale and we expect to complete the sale of these loans by the end of the second quarter. These loans carry a weighted average coupon of 3.46%.

The liquidity provided by their sale will be used to immediately pay down higher-cost deposits and, over time, will be deployed into commercial loans at a 6%+ yield. This repositioning resulted in a $29.8 million mark-to-market charge in the quarter, with a tangible book value earn-back of approximately four years. Excluding these items, adjusted earnings per share totaled $1.03, up from $0.94 a year ago, representing 9.6% growth, driven primarily by net interest margin expansion and solid fee income growth. Our tangible common equity ratio remains strong at 9% even after completing the acquisition and continuing disciplined share repurchases, including $24.9 million in the first quarter. Now Michael Stewart will discuss our line of business momentum.

Michael Stewart: Thank you, Mark, and good morning to all. Our business strategy is summarized on Slide six. Building our Midwestern strength by growing organically remains our primary objective as a company. Our four primary business units work together in delivering financial solutions for businesses and consumers focused primarily on the maps you see on Slide seven. As Mark stated earlier, the first quarter was busy with the closing of First Savings Bank and the preparation for the May integration date. The legal close increased our overall loan portfolio size, with organic growth relatively flat during the first quarter.

After the strong fourth quarter loan growth, declines in our sponsor and investment real estate portfolio outpaced our C&I growth within our region banking markets. The portfolio declines were normal-course payoffs that simply stacked in the quarter: sponsors selling their portfolio companies that we had financed, or real estate projects that achieved secondary market takeouts. I expect growth in both these portfolios to resume in the second quarter. Our regional banking teams, inclusive of the new team in Southern Indiana, continue to deliver solid loan growth. It is very pleasing to see our Midwest economy continuing to expand, our clients' businesses continuing to grow, and our bankers continuing to win new relationships.

New loan production during the first quarter for our real estate and our asset-based teams was at record levels and demonstrates the value of our diversified loan origination teams. While this quarter's organic growth was flat, I remain confident in our expected mid-single-digit loan growth through the course of 2026. Let us turn to Slide eight, deposits. During the first quarter, our core relationship-focused deposit franchise continued to show growth through the commercial, consumer, and our Southern Indiana market. The bullet points below the table detail that the total deposit decline came from public funds, consumer CDs, and repayment of First Savings brokered deposits.

Each of these deposit categories is a higher-cost source of funds as compared to the primary and operating accounts, which generated increases during the first quarter. Michele will be reviewing net interest margin improvement during the quarter, which was a direct result of disciplined deposit and loan pricing. Our continued deployment of new and enhanced products during the quarter on our digital platforms, wrapped with smart and effective marketing, continued to deliver quality growth within our markets. Our people are a strength in meeting the financial needs within our communities. During the quarter, we added new teammates within our sponsor, investment real estate, community banking, and private wealth teams to build on our brand and momentum.

Before turning the call over to Michele, one last comment regarding First Savings Bank. Our integration efforts are on track. The engagement of their team continues to be strong. On-site training and preparation for the May integration are advancing as scheduled. Our model of community banking in Southern Indiana has its strength. Turnover of frontline personnel has been minimal, and, as the prior page has demonstrated via the growth in loans and core deposits, their clients continue to be patient during the transition. The specialty verticals have continued to show consistent production in new business during the quarter. This production will continue to contribute to the fee income of First Merchants Corporation, as a bulk of the originations are sold.

I do want to highlight the SBA business model as a direct enhancement to the rest of First Merchants Corporation's franchise. Having the ability to offer SBA product solutions to our clients is a natural extension of being a community- and commercially-focused organization. The new SBA team will be the fulfillment team for all of our existing consumer, small business, and community bank teams. There are early successes that I expect to build post-integration. I am going to turn the call over now to Michele to review in more detail the composition of our balance sheet and the drivers on the income statement.

Mark Hardwick: Michele?

Michele Kawiecki: Thanks, Mike, and good morning, everyone. Slide nine covers our first quarter performance, including two months of operating results from First Savings following the February 1 closing of the acquisition. There was meaningful growth in total revenues in Q1. Net interest income grew $12.2 million and noninterest income grew $2.5 million linked quarter. This resulted in a $6.3 million increase in overall pre-tax pre-provision earnings to $78.7 million. Tangible book value per share declined 2.8% linked quarter but increased 7.3% over the same period in the prior year. The linked-quarter decrease was due to the impact of the acquisition and share buybacks. However, dilution from the First Savings acquisition at close was less than what we had estimated at announcement.

Actual tangible book value dilution was only 2.4% versus 4.8% that we shared at announcement, and the tangible book value earn-back is now estimated to be 2.4 years. The difference was primarily driven by a lower interest rate mark, which totaled $53.1 million at closing. Slide 10 shows details of our investment portfolio. The bond portfolio declined from $3.4 billion to $3.3 billion due to changes in valuation and principal payments. First Savings had a $252 million bond portfolio that we sold at closing, creating liquidity for future loan growth. Expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2026 total $276.7 million, with a roll-off yield of approximately 3.24%.

We plan to continue to use future cash flows generated from the bond portfolio to fund higher-yielding loan growth. Slide 11 covers our loan portfolio. The loan portfolio yield declined by 23 basis points from the prior quarter to 6.09%, which was impacted by the lower day count in the first quarter and repricing of assets due to the Fed rate cuts in late 2025. During the quarter, new and renewed loans were originated at an average yield of 6.18%. The allowance for credit losses is shown on Slide 12. This quarter, we had net charge-offs of $10.3 million and recorded a $4.9 million provision.

The transfer of $357 million of loans to held for sale reduced the loan balances requiring reserve coverage and contributed to a lower provision than the prior quarter. At closing, we also recorded a $22.3 million increase to the allowance related to the credit discount on the First Savings loan portfolio. As a result, the allowance for credit losses totaled $212.5 million at the end of the quarter, representing a coverage ratio of 1.39%. Slide 13 shows details of our deposit portfolio. The rate paid on deposits declined meaningfully by 23 basis points to 2.09% this quarter.

Our team strategically reduced deposit rates following the Fed's rate cuts late last year, resulting in a $4.6 million reduction in deposit interest expense in the first quarter even as deposits grew by $1.2 billion with the addition of First Savings. As noted on our slide, our noninterest-bearing deposits increased to 23% this quarter, up from 16% last quarter. This was driven by the redesign of our consumer checking account products. This change more accurately reflects the strength and quality of our deposit franchise. On Slide 14, net interest income on a fully tax-equivalent basis of $157.7 million increased $12.4 million linked quarter and was up $21.3 million from the same period in the prior year.

Net interest income was positively impacted by a $1.2 million recovery from the successful resolution of a nonaccrual loan. As a reminder, we had a $3.3 million recovery last quarter. Our quarterly net interest margin of 3.35% increased 6 basis points from the prior quarter despite the lower day count in the quarter, which reduced margin by 5 basis points. Our strong core margin reflected our continued pricing discipline. Next, Slide 15 shows the details of noninterest income, which totaled $5.8 million on a reported basis and $35.6 million on a normalized basis. Customer-related fees were strong with quarter-over-quarter growth in wealth management fees and gains on sales of loans.

Moving to Slide 16, noninterest expense for the quarter totaled $125.1 million and included $17 million in acquisition-related costs. The acquisition costs were primarily incurred in the salaries and benefits and the professional and other outside services categories. First quarter expenses also included $1.1 million of annual benefit plan expense as well as a one-time charge of $900 thousand for the write-down of a building. The cost synergies we expect to gain from the First Savings acquisition are on track, and legacy First Merchants Corporation expenses are in line with the guidance I provided last quarter. Slide 17 shows our capital ratios. The tangible common equity ratio declined to 9% due to the acquisition and share repurchases.

Since the beginning of the year, we have repurchased more than 700 thousand shares, $27.6 million year-to-date. We remain well capitalized with the common equity tier 1 ratio at 11.22% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality.

John Martin: Thanks, Michele, and good morning. My remarks begin on Slide 18. This quarter, we streamlined the credit slides and moved the detailed loan portfolio trend page to the appendix for reference. In today's remarks, I will focus on portfolio insights, asset quality, and the asset quality roll-forward, highlighting both the diversity and overall credit quality of the portfolio. On Slide 18, total loans ended the quarter at approximately $15.3 billion, with overall credit performance remaining solid. C&I line utilization increased modestly to 51%, which we view as healthy borrower activity rather than stress. Our shared national credit portfolio totals about $1 billion across 90 well-diversified borrowers with no outsized single-name exposure.

In sponsor finance, outstandings are approximately $832 million supported by strong credit metrics, conservative leverage, and healthy coverage ratios. We remain disciplined on structure and intentionally underwrite with room for downside. Within CRE, retail is our largest exposure at $859 million and is largely credit-tenant and triple-net leased, performing as expected. Construction lending totals about $900 million across commercial and residential projects, with continued emphasis on borrower equity and prudent underwriting. From a concentration standpoint, we remain well within regulatory levels with CRE construction at 40% of capital and total CRE around 181%, providing the flexibility to selectively grow while maintaining a strong risk profile.

Overall, we are pleased with portfolio performance and remain focused on balanced growth and disciplined credit risk management. On Slide 19, let me briefly touch on asset quality. Our overall asset quality remains stable, and our metrics are performing within expectations. As of quarter end, nonaccruals remained manageable with the largest relationships tied to income-producing real estate, including a $9.9 million multifamily construction credit and two office-related exposures totaling roughly $12 million. These credits are well known, closely monitored, and reflect areas of CRE we have been proactively managing. Importantly, we are not seeing broad-based deterioration across the portfolio. Credit issues remain idiosyncratic rather than systemic, with no meaningful migration beyond a small number of relationships.

Charge-off activity and criticized asset trends remain in line with expectations, and reserve coverage continues to appropriately reflect the portfolio's risk profile. Overall, we are comfortable with asset quality trends and remain focused on early identification, active management, and disciplined resolution where necessary. On Slide 20, turning to nonperforming asset migration, during the quarter we added a $12 million nonaccrual office, which was largely offset by a payoff of a $12.9 million multifamily construction credit. So overall, NPA levels remain well controlled, with movement driven by a small number of individual credits rather than systemic deterioration. Resolution activity continues to progress as expected, and we remain focused on early engagement and disciplined management where stress arises.

Taken together, asset quality and NPA trends reinforce our view that credit risk is contained and easily manageable. I will turn it back to Mark to discuss our capital position and outlook.

Mark Hardwick: Thanks, John. Good report. Turning now to Slide 21, our long-term track record of shareholder value creation remains a key strength. Tangible book value per share has grown at a 7.5% compound annual growth rate over the last ten years. Given the earnings enhancements created by the First Savings acquisition and the modest balance sheet repositioning, I am particularly pleased with the limited tangible book value dilution from year-end 2025 through 03/31/2026, which Michele highlighted in her comments as well. It is just really pleasing to be at this point with what was a pretty modest tangible book value reduction and such strength in the earning stream. It is a good place for us to be.

Slide 22 highlights our 11.7% total asset CAGR over the past decade, reflecting a consistent strategy of organic growth complemented by disciplined, value-accretive acquisitions that expand our demographic and geographic footprint. The First Savings acquisition is well aligned with this strategy and meaningfully strengthens our presence in a high-growth Indiana market. We look forward to building our Midwestern strength throughout the rest of 2026 by focusing on our people, our clients, our products, and technology, and I hope it is clear that organic growth is our top priority for the year. We are going to get through the integration on May 15, and we have great momentum with the First Savings team as Michael Stewart highlighted.

Thank you for your continued support and investment in First Merchants Corporation, and we are happy to take questions at this time.

Operator: We will now open the call for questions. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Daniel Tamayo of Raymond James. Your line is now open.

Daniel Tamayo: Thank you. Good morning, everyone. Maybe first just starting on the loan growth side. Seasonally down in the first quarter, you had the loan sale in there. Mike, you sounded pretty bullish on loan growth prospects going forward. Maybe just give us a little bit more color if you can on what is driving that, thoughts on paydowns, the timing of the slowing going forward, and if you are still comfortable with, I think we talked about, 6% to 8% growth for the year last quarter, that number still holds. Thanks.

Michael Stewart: Dan, so let us start with the end. Yes, I do feel confident with that mid-single-digit growth rate and reaffirm it. What demonstrates my confidence level is we really take a look at our commercial pipelines. They are as strong as they have been historically. What I have tried to talk about is in the first quarter, we just had some stacked normal-course payoffs that were above what we would look at in a normal run rate of reduction, but the payoffs were a little bit higher. Remember, we also had a really strong fourth quarter, and some of those anticipated fourth quarter payoffs did not happen until the first quarter.

It was the investment real estate portfolio that was paying along with the sponsor book, and both of those production levels were really strong during the quarter. We will see the growth come back into those businesses. The community bank model, which is the core C&I that sits in our franchise, demonstrates a really good growth rate there, which is really fundamental for us. Another point of view I can share is that I know where we stand as of yesterday. That growth is coming through in a really strong manner.

If you look at how we think about normal-course or known amortization, and what we think about known-course payoffs, it was just a little bit higher, but nothing unexpected out of the blue. The production level that we had, which is on pace for about $2 billion, we have got it in the first quarter; we were just stacked with some payoffs and feel really good about where pipelines are, where those two business units are already driving record production and bringing it onto our balance sheet, and then where I have seen our current April footing through, too.

Mark Hardwick: I would love to just add. You made this in your actual comments earlier, but the paydowns really came exactly the way we would hope they would come, maybe not the timing. It was investment real estate moving into the secondary market, which is what we always expect and anticipate, which is great for credit quality, and then the sponsor book, exactly as you would anticipate, that over time those sponsors liquidate those companies, sell them to maybe another sponsor, etc. It was anticipated; it was just a little more first-quarter heavy than what we had expected.

Some of it we thought might have happened in the fourth quarter slid over to this, and some that we might have had queued up in the second quarter happened early because the secondary markets are good with real estate.

Daniel Tamayo: Great. Very helpful. Thanks, guys. And maybe for Michele on the margin, just curious where you see that moving going forward. You will have the loan sale happening in the second quarter. I am curious how you are thinking about the impact from that. I do not know if you gave more specific timing or are able to yet other than in the second quarter, but just curious how that impacts the margin overall and thoughts for the rest of the year?

Michele Kawiecki: I will address the loan sale first. As Mark said in his comments, the loans that we are selling have a weighted average coupon of 3.46%. Immediately once we get that liquidity, we will pay down some of our higher-cost deposits, and I would say those are probably averaging about 3.80%. Over time, we will invest that liquidity in loans. Of course, that will happen over the course of the next 18 to 24 months, and so we will get some margin pickup over time, but it will not be immediate. It will be a little more neutral right out of the gate.

For margin over the next few quarters, just because the day count in Q1 always depresses our margin by 5 basis points, once we get into Q2, Q3, Q4, we will see margin pick up a few basis points, if anything, just because of the day count and also because I think some of the repricing from rate cuts last year, we have already seen some of that. I think rates that we pay on deposits will be relatively steady, and so I would expect there to be a few basis points of pickup on margin through the year.

Daniel Tamayo: Okay. So that is inclusive of the 5 basis points reversal from the first quarter? So just to call it a handful of basis points up from the first quarter level of margin?

Michele Kawiecki: Yes, that is correct.

Daniel Tamayo: Okay. Well, I appreciate that color. I will step back. Thank you.

Mark Hardwick: Thanks, Danny.

Operator: One moment for our next question. Our next question comes from the line of Russell Gunther of Stephens. Your line is now open.

Russell Gunther: Good morning. I wanted to see if you could touch a bit more on the deposit migration and noninterest-bearing this quarter, perhaps how you are thinking about the sustainability of the remix, whether you assume any runoff from the consumer product redesign, and then as a follow-up, Michele, you touched on this a bit, but just overall cost of deposits going forward. Assuming a Fed on pause, do you think you have the ability to flex that lower from here, or is there kind of a slight upward bias to overall deposit cost going forward?

Michele Kawiecki: I will start with the deposit checking account redesign. We have migrated those customers to our newly designed checking accounts, and we have been tracking whether there is any runoff, and it has been very stable. I think pretty well received. We are not anticipating any runoff. I would expect our noninterest-bearing to maintain that 22% to 23% level that we are seeing today. On the deposit rates, deposit markets are pretty competitive, and so I do not anticipate that we will be lowering deposit rates meaningfully through the year. I would expect it to be overall more steady.

Michael Stewart: I will add a little bit more on that. We worked at the end of last year to redesign our consumer core checking account. Now we do not have any small interest-bearing checking; it all went to noninterest-bearing. That is where the big shift from the prior quarter is. Our core primary account activity, both in units and in dollars, continues to grow. The new product set that we call Prosper and Prosper Plus is being well received in the marketplace with new features and functionalities with some of our new platforms. It aligns with how we want to represent noninterest-bearing deposits.

We are in year two of very strategically remixing the deposit base to be as core as possible with less dependence on CDs and public funds. It just takes time, but we are really pleased with the progress we are making.

Russell Gunther: Maybe switching gears from a capital perspective, healthy levels of CET1 with the deal closed. Do you have a sense of the potential impact from the Basel III proposal on RWAs and CET1? And then from an overall capital return perspective, would you expect to remain active in the buyback here?

Michele Kawiecki: We have evaluated the capital proposals, and I would say right now our estimate is that it will benefit us probably somewhere between 50 to 80 basis points. It is really driven mostly from some of the risk-weighted asset relief, particularly on the mortgage product. That is our estimate at this time, and we will keep an eye on where it gets finalized. From a capital management perspective, given where our valuation is, we will continue to be active in the buyback space in the coming quarters.

Russell Gunther: Great. Very helpful. Thank you for taking my questions.

Michael Stewart: Thank you.

Operator: One moment for our next question. Our next question comes from the line of Brendan Nosal of Hovde Group. Your line is now open.

Brendan Nosal: Hey, good morning, everybody. Hope you are doing well. Maybe just sticking with capital for a moment. As we all know, pro forma readings came in stronger than expected even with the repositioning of the mortgage portfolio. Totally get that you want to remain active in the buyback and loan growth is going to pick up here, but just kind of curious if you see any other need for additional sheet optimization over the course of the year?

Mark Hardwick: If you mean additional loan or bond sales, we are not anticipating anything else. We think this is kind of perfect for 2026. It gives us liquidity so that we can continue a mid- to high-single-digit loan growth number that we talk about. It allows us to stay really diligent with deposit pricing and just remix the loan book at this point—we are cognizant of the loan-to-deposit ratio as well—from lower-yielding loans in our portfolio with a little longer duration to higher-yielding loans with shorter duration. At least in the coming months, I am not anticipating anything further.

We evaluate all the time what our options are, but we are really pleased with the earn-back and especially the modeling of this, the way Michele talked about it. We assumed our mid- to high-single-digit loan growth would continue in a normal course the way we budgeted for a couple of years, and instead, if we redeploy this money out of mortgages into commercial over a 24-month window, what kind of pickup do we have, and that is how the four-year earn-back was calculated. I am pretty confident that we will be able to accelerate some of that. This year, we will be using that liquidity for current loan growth. You can model it a lot of different ways.

We think the four-year earn-back is the most conservative, but just want to be sure everyone understands how we are thinking about it.

Brendan Nosal: That is helpful color, Mark. Thank you. Maybe pivoting to a question on First Savings. Now with the deal closed and on the books, can you give us your latest thinking on how you view their three specialty businesses now that you have had time to see them in action? I heard your commentary on SBA, but I am more curious about first-lien HELOC and the triple-net lease product.

Mark Hardwick: It might be a good point to just reiterate how well the integration process is going. The connectivity of our teams is the best it has ever been in an acquisition. I will let Mike jump into that answer because Mike has never been closer, on the ground, to every single action that we are taking, especially in those verticals. I am really pleased with where we stand today and excited about getting through the integration and then moving forward. Every day that we own the company, the more excited I am about the verticals.

Michael Stewart: Let us start with the triple-net lease. Since the end of the year through the close through now, their production has remained very stable, which is a good thing in my opinion. They were originating triple-net lease on somewhat of a national basis, and they would sell that portfolio or put it on the balance sheet. It is an extension of investor real estate. It is an extension of what we understood but we really did not focus on. It feels natural for us to be able to continue to support how Tony and his team are continuing to generate triple-net lease business in an originate model.

We give the option to put it on the balance sheet if we so choose or sell. The first-lien HELOC business is a unique business for us. They built a really nice model that also has continued to have similar production levels through this period of time. That has been for them a complete originate-and-sell. We have got secondary buyers on that and the secondary services. It is a fee generation business. There is some of that on our balance sheet today.

It was on their balance sheet, so we have just modeled that we will keep our balance sheet flat for the first-lien HELOC, and as they continue to generate new business, it turns into fee income—much like our current mortgage business, our originate-and-sell model. And then like I referenced with SBA, they built a really nice infrastructure and ability to not only originate but underwrite and service and collect, which is just not a model that we had built. They were doing around $100 million of SBA transactions last year. First quarter production is actually higher than they were, again during this noise period of time with First Merchants Corporation.

First Merchants Corporation’s SBA production last year was less than $10 million. Our infrastructure of small business banking and community banking looks to them as a new product set to continue to fulfill community banking and SBA products in our own backyard, which they really were not overlapping with us. It is just a natural extension of bringing them more volume and letting them be the fulfillment team. We are watching it through integration day, and then my team here is regularly working on what I call day two. We are going to continue to figure out where we want to go with growing the businesses or continue to incorporate into our core models.

Mark Hardwick: Part of the reason we are so bullish about loan growth for the remainder of the year, the verticals are a really nice add. We have stayed in the credit profile and size that First Savings operated the business, but we do see opportunity mostly in the size of credits to start to make some adjustments, especially when you think about the triple-net lease business. It is a lever that we could use. So far, we have said, wait, let us just maintain the growth profile and the size of each credit exactly the way it is, and I would just say it leans on the small side.

We are excited about how it can continue to help facilitate our growth in the future.

Brendan Nosal: Thank you for taking my questions. Appreciate it.

Operator: One moment for our next question. Our next question comes from the line of Damon Del Monte of KBW. Your line is now open.

Damon Del Monte: Hey, good morning, everyone. Hope you are all doing well today. First question regarding the margin. Michele, hoping you could give a little color on the expectation for the fair value accretion marks that we could expect going forward?

Michele Kawiecki: For the first two months of us having the First Savings acquisition, we recorded probably $1.5 million of fair value accretion. That is on a two-month basis. I would consider the run rate on a go-forward basis to be fairly similar on a full-quarter basis a little over $2 million.

Damon Del Monte: Great. And then could you give us a little guidance on the outlook for the combined expense base here in the second quarter as you get a full impact from FSFG?

Michele Kawiecki: I would reiterate the guide that I gave last quarter on legacy First Merchants Corporation. On the legacy base, I had given guidance that we expected a 3% to 5% increase year over year, and then you add in First Savings, but in the back half of the year recognize the cost synergies that we are on track to achieve. When you put all those pieces together, the quarterly expense total, on a quarterly run rate, will probably be somewhere between $111 million to $114 million.

Damon Del Monte: And you think that level is once the savings hit, so kind of like an exit rate in the fourth quarter?

Michele Kawiecki: Yes.

Damon Del Monte: Lastly, when you think about market disruption, broadly speaking, and opportunity to maybe pick up commercial lending teams, are there any plans to add certain areas of the footprint, or do you feel that the efforts you have put forth in recent years are sufficient and you have a good team at the table right now?

Michael Stewart: Yes, we look very opportunistically and very strategically right now in overlap markets where being able to add quality talent in our markets would just augment our brand and growth, so we are very active in that space—especially the Michigan market, in particular. I referenced that we have had continued strategic hires along the way. That is part of our business model of 2026. We added new bankers through asset-based lending, through investment real estate, through sponsor, but more importantly our core community bank, with several more joining soon in treasury management. This continues to build the infrastructure.

That is not including what we have recently done in the private wealth group, which had really nice fee growth as we continue to win.

Damon Del Monte: Great. Appreciate that, Mike. That is all that I had. Thanks a lot, everyone.

Operator: One moment for our next question. Our next question comes from the line of Nathan Race of Piper Sandler. Your line is now open.

Nathan Race: Hi, everyone. Good morning. Thanks for taking the questions. Michele, was wondering if you could frame up fee income expectations for the second quarter, and just if you are still thinking kind of mid- to high-single-digit growth for the full year. And what you are contemplating perhaps coming from First Savings—whether some of the verticals that you discussed earlier, whether it is single-tenant lease or first-lien HELOC—could be a driver for gain-on-sale revenue going forward, given that I imagine those relationships do not really come with deposits.

Michele Kawiecki: When you look at our Q1 normalized level of total noninterest income, it was $35.6 million. Where I think about that going in the coming quarters, I would expect to get a full quarter of First Savings with the expectations that we have on gains on sales of loans coming from those verticals as well as our mortgage business. I would expect Q2 to see a lift of about 3% to 4% versus Q1, with a similar trajectory in the back half of the year.

Nathan Race: Got it. And I jumped on late, so apologize. John, if you could touch on the drivers for the charge-offs in the quarter. Were there any First Savings loans that came through in some of those charge-offs? Just generally, how you are thinking about some resolutions of some of the NPA inflows from First Savings and the legacy resolutions as well going forward?

John Martin: The charge-offs for first quarter were really legacy First Merchants Corporation. There were two main names I mentioned in my comments that came out of the portfolio—more idiosyncratic, normal-course charge-offs out of the regional bank and not sponsor finance. It was not really driven at all by charge-offs coming out of First Savings. The asset quality there thus far—and it is early—has been fine. We run processes every quarter and assess what is in that NPA bucket and just keep our eye on the level, actively working with borrowers to work out credits as well as any other strategic loan sale if we choose to go that direction.

For the most part, it is just normal-course charge-offs that happened in the first quarter. It was higher because we had a couple of names that we have been working for some time that finally came to a head and we moved on.

Nathan Race: And assuming charge-offs normalize to the levels that we saw during last year, do you see a need to provide for that high-single-digit loan growth guidance that you reiterated and just kind of grow into your unallocated excess reserves?

Michele Kawiecki: Typically, we start with the goal of providing for our loan growth, and then it really just has to get adjusted based on the economic model. Right now, we are in a really good place when we look at the different economic scenarios that we run and within that range.

Nathan Race: Got it. I appreciate all the color.

Operator: One moment for our next question. Our next question comes from the line of Brian Martin of Bryn Mawr Capital. Your line is now open.

Brian Martin: Thanks. Just one thought, Michele—you talked about the roll-off rate on securities. Just on loans, can you remind us now with FSFG what is repricing over the balance of the year and what type of pickup you get on what is coming due?

Michele Kawiecki: One of the things that generally you are interested in, Brian, is on the fixed-rate loans. Our fixed-rate loan maturities are about $100 million that mature at a rate of about 4.5% each quarter, so there is definitely a tailwind there. As you know, two-thirds of our portfolio reprices pretty much immediately with any rate changes, and the rate changes that we had in the back half of the year—I feel like a lot of that asset repricing is already reflected in our overall portfolio yield.

Brian Martin: Gotcha. Mike, you talked about the people you hired. It sounds like you hired five or six people recently. Just want to get a sense if they are already included in the loan pickup, or anything that is coming from them is not yet in the run rate?

Michael Stewart: They are not in the run rate yet, but they were smart first-quarter additions. First quarter is typically a time when bonuses get paid and people that were actively looking to move take that determination, and we were in tune with that.

Michele Kawiecki: I would add on top of that, Brian, in the guidance that I gave—if you recall my remarks when I gave the year-over-year increase on legacy First Merchants Corporation expense base of 3% to 5%—the reason why it is leaning a little bit higher than we normally operate is because we did anticipate hiring and adding to our commercial team and our private wealth team, which is what Mike is talking about. So that is built into the guidance that I provided.

Mark Hardwick: I started to mention earlier, I think we added 15 FTEs in that space last year, and we have 10 in the plan this year. We are really pleased with the opportunity—the individuals that are available to us, that are interested in First Merchants Corporation—and their performance when they are on the team. But when Mike talks about the new 10 or so that we are hiring, we are not anticipating immediate performance.

Brian Martin: And those you hired—were all those hired in the first quarter, or some of those hired last year?

Michael Stewart: The 15 were throughout the year last year, a little more back-end. We have 10 planned this year that I referenced—six in commercial and two in private wealth—and a couple of them also replace. That was not this quarter. We are off and running like we wanted to so that production should start to see itself by the back half of this year.

Brian Martin: Gotcha. Michele, just on the margin for a minute, given the day count change, is it a jumping off point maybe a little bit lower than where it ended, but you still maybe see a 3 to 5 basis point pickup just given the day count—something off of the current level—as we go into Q2?

Michele Kawiecki: That is right. I do expect to see that kind of pickup. I know we have talked about a lot of the pieces on our earnings. Overall, I feel like consensus is in the right place. It reflects what we expect to deliver this year, and I wanted to reiterate that point.

Brian Martin: Gotcha. Last two for me. Just the tax rate, and then there was some commentary recently about your commitment to the SBA by the government. Any thoughts if that changes your outlook on the SBA business?

Mark Hardwick: Not on the SBA, not yet. Our chair, Jean Witowicz, is in the SBA business and has her own company that is what they do. We have had a really good understanding of SBA for a long time. We have now acquired a significant business in that space through First Savings. We feel like we have a good handle on it and we are excited about the future.

Michele Kawiecki: And Brian, to respond to your tax rate question, a 13% effective tax rate is what we would expect on a normal quarterly basis.

Brian Martin: And I think you said, Michele, the accretion is around $3 million? What is the quarterly accretion you are thinking about with a full quarter in there—is that kind of the range of $3 million to $4 million?

Michele Kawiecki: It will not quite be that high. It was $1.5 million over the first two months that we had First Savings, and so I expect it to be a little over $2 million per quarter from their piece. The remaining pieces, aside from First Savings, have typically run about $1 million or so, sometimes a little less depending on what we see.

Brian Martin: Perfect. Thank you for taking the questions, and congrats on the quarter and the transaction.

Operator: I am showing no further questions at this time. I will now turn it back to Mark Hardwick for closing comments.

Mark Hardwick: Thank you. My closing comments are to stay as high level as possible. We remain incredibly optimistic about the remainder of the year. Some of it there is no way that you can see; it is just what we see and what we feel. The speed of play keeps improving. I feel like the culture of our company is so strong. We have incredible teamwork and a sense of urgency that I have not maybe felt in the past. Throughout all the lines of business, people are getting after it and producing results.

That includes our ability to handle something like First Savings—continuing to run the business and build great relationships and ensure an effective integration is an area where I am incredibly confident. The drivers of our performance continue to be really good. Our balance sheet growth—we remain optimistic even though the quarter was flat—feels great for the remainder of the year. Margin management is in probably the best place it has been in a while. It has been challenging since 2023, since Silicon Valley, and I feel like we are in as good a spot as we have been in a while.

Fee income has been growing double-digits for an extended period of time, and the growth rates year over year were all in the double-digit range across the categories we disclose. Our expense control has been something we have been great at for years. We have adequate capital. It is allowing us to be active in the share repurchase space. If we are going to trade at these levels, then we are going to be active in buying back our own shares. I think it sets us up for a really strong 2026 and feeds into 2027.

I appreciate your investment in the company and am happy to continue to have one-on-one discussions with any interested investors or current investors for that matter. Thanks for your time. We appreciate it, and we will talk to you next quarter.

Operator: This concludes today's conference. Thank you for your participation, and have a great day. You may now disconnect.