First Merchants Corp: Form 10-Q for the period ended Jun 30, 2026

RESULTS OF OPERATIONS

Results for the three and six months ended June 30, 2026 reflect the partial-period impact of the acquisition of 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 second quarter 2026 net income available to common stockholders and diluted earnings per common share of $43.5 million and $0.70 per diluted share, respectively, compared to $56.4 million and $0.98 per diluted share, respectively, during the second quarter of 2025. The Corporation reported net income available to common stockholders and diluted earnings per common share of $71.2 million and $1.15 per diluted share, respectively, for the six months ended June 30, 2026 compared to $111.2 million and $1.92 per diluted share, respectively, for the six months ended June 30, 2025.

When adjusting for certain non-recurring items, adjusted net income available to common stockholders was $46.4 million and adjusted diluted earnings per common share totaled $0.74 for the second quarter of 2026, compared to $56.4 million and $0.98, respectively, in the second quarter of 2025. Adjusted net income available to common stockholders and adjusted diluted earnings per common share for the six months ended June 30, 2026, totaled $109.5 million and $1.77, respectively, compared to $111.2 million and $1.92, respectively, for the same period in 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 June 30, 2026, total assets were $21.3 billion, an increase of $2.3 billion or 12.2 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 increased $335.6 million from December 31, 2025, primarily due to proceeds received from the mortgage loan portfolio sale completed on June 30, 2026. Total investment securities decreased by $86.6 million from December 31, 2025, primarily due to $88.9 million of principal paydowns and maturities. Investments represented 15.4 percent of total assets at June 30, 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 $1.7 billion from December 31, 2025. Loans acquired in the First Savings acquisition contributed $1.8 billion, partially offset by the sale of $271.1 million in mortgage loans. Excluding acquired loans and the impact of loans sold, the Corporation experienced organic loan growth of $202.9 million, or 2.9 percent, since December 31, 2025. The loan portfolio remains predominantly commercial-oriented, with commercial loans comprising 76.6 percent of total loans. Commercial and industrial and commercial real estate, non-owner occupied, represent the largest loan categories at 30.4 percent and 21.1 percent of total loans, respectively. Growth during the period was driven primarily by increases in commercial real estate, non-owner occupied, home equity, commercial and industrial, and commercial real estate, owner occupied 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 $241.6 million, or 1.56 percent of total loans, as of June 30, 2026, compared to $195.6 million, or 1.42 percent, at December 31, 2025, representing an increase of $46.0 million. The increase reflected a $22.3 million acquisition-date allowance for expected credit losses recognized in connection with the First Savings loan portfolio, and a provision expense recorded during the period, including $29.7 million of specific reserves established during the second quarter related to two commercial lending relationships, partially offset by net charge-offs of $3.9 million. During the three and six months ended June 30, 2026, the Corporation recorded net charge-offs of $3.9 million and $14.2 million, respectively, and provision for credit losses - loans of $33.0 million and $37.9 million, respectively. During the three and six months ended June 30, 2025, the Corporation recorded net charge-offs of $2.3 million and $7.2 million, respectively, and provision for credit losses - loans of $5.6 million and $9.8 million, respectively. Nonaccrual loans as of June 30, 2026 totaled $118.2 million, an increase of $46.4 million from December 31, 2025. The increase was primarily attributable to the two commercial lending relationships discussed above, totaling $41.8 million, being placed on nonaccrual status during the second quarter of 2026. The Corporation's reserve for unfunded commitments increased to $18.5 million at June 30, 2026, from $18.0 million at December 31, 2025, reflecting a $0.5 million 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 and six months ended June 30, 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 $76.2 million, cash surrender value of life insurance of $64.8 million, premises and equipment of $27.1 million, other intangibles of $25.2 million, FHLB stock of $23.6 million, and interest receivable of $8.6 million.

The Corporation's net tax asset, deferred and receivable increased $35.3 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 $11.3 million in income tax receivable.

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”.

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 and timely, providing them with material information relating to the Corporation required to be disclosed in the reports the Corporation files or submits under the Exchange Act. 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 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.

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.