FIRST MERCHANTS CORP

First Merchants Corporation (FRME) operates as a financial holding company primarily engaged in community banking, headquartered in Muncie, Indiana. The company's core business revolves around its wholly-owned subsidiary, First Merchants Bank, which provides a broad range of commercial and consumer banking services. This includes debt capital, treasury management, and depository products from its commercial banking team, various consumer deposit and lending products from its consumer banking group, and mortgage solutions for residential properties from its mortgage banking team. Additionally, First Merchants Private Wealth Advisors, a division of the Bank, offers personal wealth management services such as investment management, private banking, fiduciary estate, and financial planning. The company's operations are concentrated in Indiana, Ohio, and Michigan, with 111 banking locations and comprehensive electronic and mobile delivery channels. As of December 31, 2025, the Corporation reported consolidated assets of $19.0 billion ¹, consolidated deposits of $15.3 billion ², and stockholders' equity of $2.5 billion ³.

The company's business model is centered on generating revenue through interest income from its loan and investment portfolios, supplemented by noninterest income from various customer fees and wealth management services. The mix of recurring income is substantial, given the nature of banking services, including interest on loans and deposits, and recurring fees from wealth management and deposit accounts. Primary customer segments include commercial clients, individual consumers, and those seeking private wealth management services. The filing does not explicitly detail platform or ecosystem dynamics beyond its branch network and electronic/mobile delivery channels.

The loan portfolio is diversified, with a primary focus on small business and middle-market commercial, commercial real estate, public finance, and residential real estate. As of December 31, 2025, commercial and industrial loans constituted $4.478 billion ⁴, representing 32.4% ⁵ of the total loan portfolio. Commercial real estate, non-owner occupied loans, were $2.339 billion ⁶, accounting for 17.0% ⁷ of the total. Residential real estate loans stood at $2.420 billion ⁸, or 17.5% ⁹ of the portfolio. Public finance and other commercial loans amounted to $1.363 billion ¹⁰, or 9.9% ¹¹. These segments collectively form the largest components of the loan book, indicating a strong emphasis on commercial and real estate lending.

For the fiscal year ended December 31, 2025, First Merchants Corporation reported net interest income of $536.013 million ¹². The provision for credit losses was $21.250 million ¹³. Noninterest income totaled $126.934 million ¹⁴, while noninterest expense was $382.583 million ¹⁵. Net income available to common stockholders reached $224.126 million ¹⁶, resulting in diluted earnings per common share of $3.88 ¹⁷. The company's return on average assets was 1.21% ¹⁸, and return on average stockholders' equity was 9.43% ¹⁹. The net interest margin (FTE) stood at 3.25% ²⁰. As of December 31, 2025, total assets were $19.025 billion ²¹, total deposits were $15.295 billion ²², and total borrowings were $999.934 million ²³. Cash and due from banks amounted to $84.158 million ²⁴, and interest-bearing deposits were $196.300 million ²⁵. The allowance for credit losses on loans was $195.597 million ²⁶.

Comparing 2025 to 2024, net income available to common stockholders increased from $199.527 million ²⁷ to $224.126 million ¹⁶, and diluted EPS rose from $3.41 ²⁸ to $3.88 ¹⁷. Net interest income increased by $14.899 million ²⁹, or 2.86%, from $521.114 million ³⁰ in 2024 to $536.013 million ¹² in 2025. The net interest margin (FTE) improved by 6 basis points, from 3.19% ³¹ in 2024 to 3.25% ²⁰ in 2025. Total loans grew by $938.8 million ³², or 7.3% ³³, from $12.873 billion ³⁴ in 2024 to $13.812 billion ³⁵ in 2025. Total deposits increased by $773.2 million ³⁶, or 5.3% ³⁷, from $14.522 billion ³⁸ in 2024 to $15.295 billion ²² in 2025. The provision for credit losses decreased from $35.700 million ³⁹ in 2024 to $21.250 million ¹³ in 2025. Noninterest income increased by $1.4 million ⁴⁰, or 1.1%, to $126.934 million ¹⁴ in 2025, primarily due to a $20.7 million ⁴¹ reduction in net realized losses on sales of available for sale securities, partially offset by the absence of a $20.0 million ⁴² gain on a branch sale recognized in 2024. Noninterest expense increased by $3.3 million ⁴³, or 0.9%, to $382.583 million ¹⁵ in 2025.

A significant operational development was the completion of the acquisition of First Savings Financial Group, Inc. on February 1, 2026. First Savings, headquartered in Jeffersonville, Indiana, had 16 banking centers serving the southern Indiana market, with total assets of $2.4 billion (unaudited) ⁴⁴, total loans of $1.9 billion (unaudited) ⁴⁵, and total deposits of $1.7 billion (unaudited) ⁴⁶ as of December 31, 2025. The Corporation recorded merger-related expenses of $0.8 million ⁴⁷ in 2025 related to this acquisition. Additionally, in 2024, the Bank completed the sale of five branches in the suburban Chicago market to Old Second National Bank, recognizing a gain on sale of $20.0 million ⁴². The Corporation also approved a new stock repurchase program on March 18, 2025, authorizing the repurchase of up to 2,927,000 shares ⁴⁸ of common stock, with a total aggregate investment not exceeding $100.0 million ⁴⁹. As of December 31, 2025, 1.2 million shares ⁵⁰ had been repurchased under this program for $46.9 million ⁵¹, with approximately 1.7 million shares ⁵² and $53.1 million ⁵³ remaining authorized.

The Corporation anticipates continuing its strategy of geographic expansion through the acquisition of banks whose operations align with its community banking philosophy. Management routinely explores opportunities to acquire financial institutions and other financial services-related businesses and to enter into strategic alliances to broaden its service offerings and customer base. Future acquisitions and divestitures will be guided by a disciplined financial evaluation process, focusing on reasonable growth, synergies, economies of scale, and a thorough analysis of the impact on both long- and short-term financial results. The consideration for these transactions may involve cash, First Merchants common stock, or a combination thereof. The Corporation plans to early adopt FASB Accounting Standards Update No. 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans, in connection with the acquisition of First Savings Financial Group, Inc. in the first quarter of 2026. This adoption will require the gross-up approach for purchased seasoned loans acquired in the transaction, along with quantitative disclosures of activity in the allowance for credit losses for these loans.

The Corporation's operational outlook includes a continued focus on managing its cost structure and enhancing efficiency. The efficiency ratio (non-GAAP) improved from 55.17% ⁵⁴ in 2023 to 53.55% ⁵⁵ in 2024, and then slightly increased to 54.54% ⁵⁶ in 2025. Management continues to invest in customer-facing digital solutions, as evidenced by the $2.0 million ⁵⁷ increase in outside data processing expenses in 2024. The company also emphasizes employee development and retention, with an education assistance program that saw over 55 employees ⁵⁸ participate in 2025. The voluntary turnover rate was maintained at 18% ⁵⁹ in 2025, below the target of 20% ⁶⁰.

Planned capital allocation includes continued investment in community redevelopment funds, which saw a $10.7 million ⁶¹ increase in 2025. The Corporation also maintains a stock repurchase program, with $53.1 million ⁵³ remaining authorized for repurchases as of December 31, 2025. Cash dividends paid to common stockholders increased from $1.34 per share ⁶² in 2023 to $1.39 per share ⁶³ in 2024, and further to $1.43 per share ⁶⁴ in 2025.

Management has identified structural headwinds and execution risks related to the evolving expectations from customers, regulators, investors, and other stakeholders concerning the Corporation's environmental, social, and governance (ESG) practices. Failure to adapt to or comply with regulatory requirements or stakeholder expectations could negatively impact the company's reputation, ability to conduct business with certain partners, access to capital, and its stock price. New government regulations could lead to more stringent ESG oversight and expanded mandatory and voluntary reporting, diligence, and disclosure requirements.

Geographic, regulatory, and macro factors identified as constraints include the potential impact of climate change and related legislative and regulatory initiatives. Unpredictable and more frequent weather disasters attributed to climate change could negatively affect the value of real property securing loans in the portfolio. If insurance coverage is insufficient or unavailable, collateral values could be negatively impacted, affecting financial condition and results of operations. Additionally, the effects of weather disasters could negatively impact regional and local economic activity in the communities where the company operates.

The Corporation faces several material risks, including operational risks such as the potential adverse effects of epidemics, pandemics, or other infectious disease outbreaks on general commercial activity, the global economy, and financial markets, which could lead to declines in loan demand and collateral values, and increased cybersecurity risks due to remote work. The adequacy of the Corporation's allowances for credit losses is subject to significant judgment and may not cover actual losses, with material additions to the allowance potentially decreasing net income. The company's reliance on wholesale funding sources means negative operating results or changes in industry conditions could hinder its ability to replace these funds at maturity, constraining financial flexibility. Acquisitions may not yield anticipated revenue enhancements or cost savings and could lead to unforeseen integration difficulties, including deposit attrition or loss of key employees. The high volume of transactions in the financial services business exposes the Corporation to operational risks like fraud, transaction processing errors, and breaches of internal controls, which could result in financial loss, regulatory action, and reputational damage. Cyber incidents and other security breaches, whether at the Corporation or its third-party providers, pose a continuous threat due to the incentives for threat actors to obtain financial and customer non-public information, potentially leading to reputational harm, financial losses, or litigation and regulatory fines. The financial services industry's rapid technological change means failure to keep pace with new technology-driven products and services could negatively affect growth, revenue, and profit. The development and use of artificial intelligence technologies by the Corporation and its vendors introduce risks such as enhanced governmental scrutiny, litigation, ethical concerns, confidentiality and security risks, intellectual property issues, increased cyberattack susceptibility, and inaccurate or biased algorithms. Environmental liability risks are associated with Bank branches and real estate collateral acquired upon foreclosure, where hazardous substances could lead to substantial investigation and remediation costs. Significant legal actions could subject the Corporation to substantial uninsured liabilities, as insurance coverage may not cover all claims or remain available at a reasonable cost. The Corporation's controls and procedures, however well-designed, may fail or be circumvented, materially affecting results and financial condition. Methods for reducing risk exposure may be less effective than anticipated, leading to unmitigated credit, market, liquidity, operational, compliance, financial reporting, and strategic risks. The Corporation's reported financial results depend on management's selection of accounting methods and certain assumptions and estimates, which, if materially different, could lead to significant increases in allowances for credit losses, impairment of investment securities, or goodwill write-downs. Changes in accounting standards can materially impact financial statements, potentially requiring retroactive application and restatement of prior periods. Negative publicity, stemming from actual or alleged conduct, can damage the Corporation's reputation, affecting customer attraction and retention, and exposing it to litigation and regulatory action. Evolving ESG expectations from stakeholders may impose additional costs or risks, impacting reputation, business partnerships, access to capital, and stock price. Changes in tax legislation could materially impact business and financial results, and the Corporation may face larger-than-anticipated tax liabilities. Adverse developments in the financial services industry, such as recent bank failures, may cause general uncertainty regarding liquidity, potentially increasing FDIC insurance premiums and affecting operating results and capital. Finally, the Corporation's stock price can be volatile due to various factors, including operating results, analyst recommendations, acquisitions, and general economic and political conditions.

Management's message to shareholders emphasizes a commitment to being the most attentive, knowledgeable, and high-performing bank, which necessitates a dedicated and talented team of colleagues. They highlight the importance of delivering a superior customer and colleague experience to foster growth. The strategic priorities for the period ahead include continued geographic expansion through disciplined acquisitions that are accretive to earnings and align with the existing market area's demographic profile, as demonstrated by the recent acquisition of First Savings Financial Group, Inc. Management also prioritizes human capital development, focusing on attracting, retaining, and developing employees through programs like education assistance and talent assessment, aiming to maintain a low voluntary turnover rate, which was 18% ⁵⁹ in 2025. Furthermore, the company is committed to prudently managing its capital, as evidenced by the stock repurchase program approved on March 18, 2025, authorizing up to 2,927,000 shares ⁴⁸ for repurchase with an aggregate investment not exceeding $100.0 million ⁴⁹. The overall tone suggests a focus on strategic growth, operational efficiency, and robust risk management, particularly in areas like cybersecurity and credit quality, while navigating a dynamic economic and regulatory landscape.