First Merchants Corporation

Thank you for standing by and welcome to the First Merchants Corporation fourth quarter 2025 earnings conference call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial conditions of First Merchant Corporation and involves risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable gap measures. The press release available on the website contains financial and other quantitative information to be discussed today and will be as well as reconciliation of gap and non-gap measures. As a reminder, today's call is being recorded. I would now like to hand the conference over to your speaker today, Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin.

Good morning and welcome to First Merchant's fourth quarter 2025 earnings call. Thanks for the introduction and for covering the forward-looking statements. We released our earnings yesterday. After the market close, you can access today's slides by following the link on the third page of our earnings release. Joining me today are President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michelle Kaviesky. On slide four, you'll see our 111 banking centers across Indiana, Ohio, and Michigan, along with several recent awards recognizing our culture and performance. We ended the year with record total assets of 19 billion, record total loans of 13.8 billion, and record total deposits of 15.3 billion. On slides five and six, our strong balance sheet and earnings performance reflect the quality, of the First Merchants team, our customer base, and our community-oriented business model. For the full year, we delivered record net income of $224.1 million and record diluted earnings per share of $3.88, an increase of 13.8% from the previous year. Fourth quarter net income totaled $56.6 million or 99 cents per share. Annual return on assets was 1.21% and annual return on tangible common equity was 14.08%. Loan growth remained robust with 197 million of length quarter growth or 5.8% annualized and nearly 1 billion or 939 million of growth for the year representing 7.3%. Our efficiency ratio was 54.5% for the year, and we achieved significant operating leverage with revenues growing almost five times faster than expenses. We have now received all regulatory and shareholder approval to proceed with the acquisition of First Savings Group, which adds approximately $2.4 billion of assets and expands our presence into southern Indiana and the Louisville MSA. We remain confident in our strategic and financial benefits of the merger, and we'll actually close this weekend on February 1st, 2026. Now, Mike Stewart will cover some of our line of business metrics.

Thank you, Mark, and good morning to all. The business strategy summarized on slide seven has been updated. to reflect the collective work of our lines of business leadership teams. Each of these business units refined and updated their strategy in alignment with our primary focus of building on our Midwestern strength, growing organically through deeper relationships and smarter use of technology for enhanced client relationship and internal efficiencies. 2025 was a year of momentum and record results. This slide summarizes how our teams have been winning and capturing market share. We remain a commercially focused organization across all these business segments with an eye on growing within the markets pictured on the next slide. So let's go to slide eight. As Mark stated earlier, this was another great quarter of loan growth across all segments and across all markets. It is very pleasing to see our Midwest economies continue to expand Our clients' businesses continue to grow and see our bankers continuing to win new relationships. 153 million in commercial loan growth for the quarter, or 6% annualized, 852 million of increased commercial loan balances year-to-date, nearly 7% growth rate for all of 2025. CapEx financing, increased usage of revolvers, M&A financing, and new business conversion are the drivers of this growth. Another encouraging bullet point on this page is the quarter ending pipeline, which is stable from prior quarter and gives me optimism that we will be able to maintain our loan growth into the first quarter. The consumer segment also shared in balance sheet growth with the residential mortgage, HELOC, and private banking relationships driving the $44 million of loan growth for the quarter and the $87 million for all 2025. Pipelines in this segment also consisted from our end of quarter prior. So, we can turn to slide nine and talk about deposits. The fourth quarter was our strongest quarter of deposit growth with the consumer segment driving increases in new households and balances. Enhanced digital platforms are deepening our client relationships. Our marketing efforts are leveraging the strength of our local brand and the reputation that we have and driving new relationships. The bottom section of this page summarizes the fourth quarter growth of $155 million of total consumer deposit increases with over $250 million in non-maturity balance growth. The full year's results also reflect the growth in the mix of non-maturity and maturity balances assisting in the margin improvement Michelle will review next. Commercial business segment is summarized on the top of the page. While deposits have increased, in both the quarter and year to date, the primary driver has come through our public fund depository relationships. It is a higher cost of deposit, but they are local government and public relationships that utilize many other treasury services we offer. Part of the increase in loan balances come from higher line of credit utilization, which typically reduces operating deposit account balances. Improving the mix of all deposit categories has been the focus of our teams for the past year and has been accomplished by focusing on primary, core accounts, and deposit cost. Overall, I'm pleased with the active engagement our teams are having with their clients as we've continued our pricing discipline, specifically with maturity deposits and public funds, and remain hyper-focused on relationships and converting single product users. Before turning the call over to Michelle, one last comment regarding First Savings Bank. As Mark said, our integration efforts are on track. The engagement of their team has been strong. We have completed our product and process mapping, so post-legal close, we will begin the onsite training and preparation for the May integration. Their community bank model and specialty verticals have a solid reputation, and continuing their growth within southern Indiana and these verticals will be our priority. So I'm going to turn the call over to Michelle now, and she can review in more detail the drivers of our balance sheet and income statement. Michelle?

Thanks, Mike, and good morning, everyone. Slide 10 covers our fourth quarter performance, which reflects a continuation of positive financial trends we had throughout 2025. Total revenues in Q4 were strong with meaningful growth in both net interest income of $5.4 million and and non-interest income of 0.6 million. This resulted in overall pre-tax, pre-provision earnings of 72.4 million, up 1.9 million from prior quarter. Strong earnings drove a 4% increase in tangible book value per share on a linked quarter basis. Turning to annual results on slide 11, we delivered record diluted EPS and achieved an all-time high tangible book value per share in 2025. Year-over-year positive trends include double-digit net income growth of 12.2% and positive operating leverage. Tangible book value per share ended the year at $30.18, which is an increase of $3.40 or 12.7% from prior year. slide 12 shows details of our investment portfolio. On the bottom right, you will see the valuation of the portfolio improved meaningfully during the quarter due to changes in interest rates. The unrealized loss on the available for sale portfolio declined 30 million or 15%. Expected cash flows from scheduled principal and interest payments and bond maturities over the next 12 months total 282 million with a roll-off yield of approximately 2.09%. We plan to continue to use this cash flow to fund higher yielding loan growth in the near term. Slide 13 covers our loan portfolio. The total loan portfolio yield declined by eight basis points from the prior quarter to 6.32% due to the impact of recent Fed rate cuts. This quarter, new and renewed loans were originated with a yield of 6.51%, which remains a tailwind for the overall portfolio yield. The allowance for credit losses is shown on slide 14. This quarter, we had net charge-offs of 6 million and recorded a 7.2 million provision. The reserve at quarter end was 195.6 million and the coverage ratio of 1.42% remained robust. In addition to the ACL, we have 13.4 million of remaining fair value marks on acquired loans, providing additional coverage for potential losses. Slide 15 shows details of our deposit portfolio. The rate paid on deposits declined meaningfully by 12 basis points to 2.32% this quarter. Our team strategically reduced deposit rates following the Fed's rate cuts, resulting in a $3 million reduction in interest expense, even as deposits grew $424.9 million, or 11.4% annualized in the fourth quarter. On slide 16, net interest income on a fully tax equivalent basis of $145.3 million increased $5.4 million linked quarter and was up $5.1 million from the same period in prior year. Net interest income was positively impacted by a $3.3 million recovery from a successful resolution of a non-accrual loan. Our quarterly net interest margin of 3.29% increased five basis points from prior quarter. Our teams continue to stay focused on growing loans and deposits using disciplined pricing, and our net interest income growth trend throughout 2025 is evidence of their success. Next, slide 17 shows the details of non-interest income, which totaled $33.1 million, with customer-related fees of $30 million. Customer-related fees were strong in all categories with notable quarter-over-quarter growth in wealth management fees of approximately $300,000, card payment fees of $300,000, and gains on sales of mortgage loans of $400,000. Moving to slide 18, non-interest expense for the quarter totaled $99.5 million, an increase of $3 million or 3% linked quarter. Expenses for the quarter included $500,000 of acquisition costs, which were offset by a reduction of the FDIC Special Assessment accrual of $700,000. Full-year non-interest expense increased only $3.2 million, or less than 1%, demonstrating significant operating leverage. Slide 19 shows our capital ratios. The Tangible Common Equity Ratio benefited from strong earnings in AOCI recapture increasing 20 basis points to 9.38% while returning capital to shareholders through share repurchases and dividends. During the quarter, we repurchased 272,000 of shares for 10.4 million, bringing total share repurchases in 2025 to just over 1.2 million shares for 46.9 million. We remain well capitalized with a common equity tier one ratio at 11.7% and are well positioned to support continued balance sheet growth. That concludes my remarks and I will now turn it over to Chief Credit Officer John Martin to discuss asset quality.

Thanks, Michelle, and good morning. My remarks begin on slide 20. We had strong loan growth for both the year and the quarter of 7.3% and 5.8% respectively. led by C&I loans shown on line four, which grew nearly $700 million for the year. While we experienced strong C&I loan demand, we saw more moderate growth in investment real estate for the year and quarter on line seven as higher rates slowed demand and assets moved into the permanent financing market. The diversity of lending types our teams continue to originate has allowed us to grow as demand varies across various asset classes. On slide 21 and slide 22, we again provided more detail of the loan portfolio. On slide 21, the CNI classification includes sponsor finance as well as owner-occupied CRE. Current line utilization leveled off during the quarter, declining slightly from 50% to 49.8% after climbing in the first half of 2025. In the sponsor finance portfolio, we track key credit metrics across 90 platform companies. We took a $4.4 million charge in the quarter to an individual borrower. We underwrite to higher origination standards compared to traditional C&I loans and track the portfolio quarterly. The portfolio almost exclusively consists of single bank credits for private equity-backed platform companies as opposed to large, widely syndicated leverage loans from money center banks trading desks on slide 22 we break out the investment or non-owner occupied commercial real estate portfolio our office loans are detailed on the bottom half of the side represent only 1.9 percent of total loans and any potential issues are easily managed the wheel chart on the bottom right details the office portfolio maturities Loans maturing in less than a year represent 28.1% of the portfolio or roughly $73 million. On slide 23, I highlight this quarter's asset quality trends and position. Asset quality remains strong. NPAs and 90-day past due loans on line four were up $5.6 million or 2.54%. The largest non-accrual A $12.9 million investment real estate multifamily construction project paid off without loss of principal shortly after quarter end. Adjusting for this payoff, NPAs and 90-day past due loans would have fallen to 0.45%, down year-over-year from 0.66%. Turning to the asset quality migration roll forward on slide 24, in Column 4Q25, there were new non-accruals of $22.8 million on Line 2, the largest of which was a $9.6 million investment real estate multifamily construction project. We had a $9.1 million reduction on Line 3 from payoffs or changes in accrual status, primarily related to a nursing facility that had been one of the prior quarter's largest non-accruals that paid off. During dropping down to line five, there were $7.3 million in gross charge-offs, the largest of which was the $4.4 million sponsor finance CNI borrower I mentioned earlier. Then, dropping down to lines 12 and 13, we ended the quarter up $5.6 million, excluding the early quarter payoff, with NPAs and 90-day past due loans totaling $74.5 million. To summarize, asset quality remains stable and improving. Classified loan balances are largely unchanged at 2.56% of loans with 18 basis points of annualized net charge-offs. We continue to grow CNI loans with our commercially-oriented teams. And finally, we are excited about the local opportunities, and new business verticals First Savings Bank brings as we head into 2026. I appreciate your attention, and I'll turn the call back over to Mark Hardwick.

Thanks, John. Slides 25 and 26 have been updated, along with our 10-year combined aggregate growth rates. As we look forward to 26, we're committed to supporting our world-class teammates and serving the needs of our clients, which will deliver the high-quality results our shareholders have come to expect. We appreciate your interest and your investment in First Merchants, and at this point, we're happy to take questions. Thank you.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Brendan Nozzle with Hovde Group. Your line is open. Please go ahead.

Hey, good morning, everybody. Hope you're doing well.

Good morning.

Maybe just starting off here on the topic of kind of balance sheet optimization. If I recall correctly, last quarter, I think you said you were looking at how you could optimize the sheet short of a wholesale kind of raise restructure transaction. So can you just update us on what areas of the balance sheet you're looking at, you know, what you would try to achieve with those actions and what the parameters are around the existing capital base?

Yeah. Hey, thanks, Brendan. Hey, we are line dropped right before the call started, and so if for some reason we drop again, just give us a little time to dial back in. But we're continuing to evaluate the possibility of some type of balance sheet kind of repositioning. But I would say as there's been some decrease in rates, the likely size of anything just continues to decline. which validates our decision and our communication in the last call that there would be no need to raise any type of capital. So whatever we do, it's going to be pretty modest. What we have already settled on is that we do plan to sell the entire first savings bond portfolio. It's about $250 million at close. And anything else that we do is really just focus on trying to take pressure off of liquidity. So We're evaluating a small portion of our bond portfolio and some of our lowest yielding bonds as well as some of our lowest yielding loans. But whatever it is, it'll be relatively small if we do anything beyond the first savings bond book.

All right. Thank you. And we'll move on to our next question.

Our next question will come from the line of Daniel Tomei with Raymond James. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Maybe starting on the loan growth side, it sounds like Pipelines are pretty consistent from where they were last quarter. Loan growth was certainly a solid, good story in 2025. Maybe you can give us a sense for your expectations for overall loan growth and where those categories that might be driving that loan growth in 2026 are.

Yeah, this is Mike Stewart. I'll try to take that. Yeah, right, the pipeline, yeah, it can remain consistent. So it's across the board when I think about geography or when I think about our segments. Our CNI teams focused on different size companies are all in a good position, engaged along the way. Our investment real estate team, the new asset base team that we talked about a couple of quarters ago has been off and running and producing fantastic results. In this marketplace, that's a really good discipline to have that rounds out a lot of things we're doing. When I look at that loan growth, I feel like it's balanced through our segments and how we manage that and through the geographies as well. We might have even referenced about a year ago, we put some additional focus on our small business lending efforts through our consumer network and that also, while not large dollar amounts, it just got good momentum across the board. I will say that part of the strong fourth quarter, we had a couple payoffs that didn't happen, so it ended our year a little stronger than I thought. So the first quarter, though, when I think about outlook, I still feel it's going to be in that mid-single-digit level. Economy is good in the Midwest, and our teams, I feel like we can convert what we're doing.

Okay. Thanks, Mike. So you said mid-single digit for the first year. I apologize if I missed it. Do you think that will carry through for the year as well?

That's the way I'm looking at it, sure.

Yeah, I mean, we're kind of mid to high expectations for the year. When you think about 6%, 7%, 8% is more how we think about the plan and consistent with what we delivered this year.

I think about the opportunities that can come our way when we're partnering with First Savings Bank. It's a new part of the state, so we get to work in new areas with their team. And then they've got those verticals that we can continue to evaluate how we want to originate and sell portfolios or continue to utilize our balance sheet. So we've got some nice levers.

Okay, great. And maybe one for Michelle on the deposits. If you have... the CD repricing schedule over the next 12 months with balances and yields?

Yes, I do. Really, in the first two quarters of 2026, we have about 800 million of CDs that are maturing. The weighted average rate on those CDs is higher than our current specials. First quarter, that weighted average rate is like a 375%. Second quarter, it's like a 365. And, you know, currently, our 12-month CD that we're offering is at 330, and a nine-month is at 345. So we'll get some nice pickup on some savings on interest expense there. In the third quarter, we've got another, it's under 400 million that will be maturing. And that weighted average rate is really in line with our special currently. And then there's just really not a whole lot in the fourth quarter. So hopefully that gives you kind of the color you're looking for.

Yeah, that's fantastic. Thanks. And then one for you, Mark. Just on operating leverage, your thoughts around your ability to achieve that, I guess probably the easiest way to look at it on an organic basis unless you want to include the deal and what might be you know, problematic or we have potential issues or benefits to achieving that? Thanks.

Yeah, it's a great question. On our core, we were pretty aggressive with the 26 plan about just continuing to invest in people. You know, we added about 15 FTEs in 25 years. that added about $4 million of total expense. And in 26, we committed to another 10 that are part of the sales force, another $2.5 million or so. And you can see some of that coming through in the fourth quarter. And so we're just finding opportunities to add talent that we're really excited about. And I would say if it were just standalone, maybe we'd be a little bit more concerned that we're finding, the talent that we're adding, and just feel like it's consistent with the market opportunity. And so on a core basis, operating leverage was going to be a little less impressive, I guess. And maybe last year we did a hell of a job, I thought, adding operating leverage in 25. But most of it is just because of the strength of the acquisition. We're going to continue to add leverage a real positive kind of operating leverage entity in 26. And on a combined basis, I think we're going to produce the kind of results that you're used to seeing from us. And so we're pretty bullish about the growth of net interest income and fee income and how those numbers exceed any expense additions that we'll have on a net basis when you consider First merchants, first savings, less, all of our cost takeouts for the year. So, you know, we're looking closely at all the estimates that all of you have and feel comfortable with those numbers and, you know, feel like those are EPS targets that we can meet or exceed.

Terrific. Thanks for all the talk. Thank you.

Our next question comes from the line at Damon Del Monte with KBW. Your line is open. Please go ahead.

Hey, good morning, everyone. Hope you're all doing well today. Just had a question on expenses and kind of the outlook there. Michelle, could you give us a little guidance of kind of how you're thinking about kind of a core expense base for first merchants, given some of the moving parts in the fourth quarter, and then how we should kind of think about the you know, the first partial quarter with FSFG coming on board?

Well, on a core basis, just looking at year-over-year non-interest expense, we have budgeted to increase about between 3% to 5% for the reasons Mark just indicated, the addition of talent. And then, of course, you know, we're adding for savings their operating expense with, you know, the close on February 1st. So that'll bring on 11 months of operating expense But just as a reminder, we have 27.5% annualized cost savings that we've estimated that we think we can fully realize once we get past the integration. And so our integration is scheduled for May. And so I think we'll be able to realize those cost savings more in the back half of 2026.

Yeah, and I wanted to just add when I talk about some of the additions of talent, just a reminder that back in 23, when we completed or announced a voluntary early retirement, and at that time we had about 2,145 employees, and today we're about 2,035. And so that 5% reduction we've been able to hold on to, even with the addition of talent, And on a core basis, expect to add less than 2% to the FTE base and just excited about the quality of talent that we're bringing on to the company. Got it. Okay.

Good color there. And then with respect to the margin, Michelle, did you say that there was a benefit of $3.6 million from interest recoveries on non-accruals?

There was, yeah. And when I look at, you know, course, Go ahead.

Sorry, David. Oh, no. Yeah, go ahead. I was going to tell that end of core margin, so go ahead.

Yeah. Just looking at year over year, we built one rate cut in our plan that we had built in early in the year. And so on a core margin basis, we did expect that margin in 2026 would compress a few basis points. We do think that we'll be able to get some momentum on repricing deposits, which will help offset some of the asset repricing that occurs because of the commercial nature of our loan portfolio. But on a net interest income basis, we definitely expect to see growth year over year.

Got it. Okay, perfect. Okay, great. That's all that I had. I'll step back. Thanks so much.

Thanks, Damon. Thank you. And one moment for our next question. Our next question comes from the line of Nathan Race with Piper Stanley. Your line is open. Please go ahead.

Yes. Good morning, everyone. Thanks for taking the questions. Maybe on fee income, you know, nice growth quarter per quarter in 4Q. I'm just curious how you're thinking about, you know, the opportunities to grow some of the fee lines in 2026, just given the momentum in fourth quarter and some of the ongoing areas that you guys are trying to grow. I think in the past, Michelle, maybe we were talking mid to high single-digit range, but just curious if that's still a good expectation versus kind of the 4Q level.

On an uninteresting basis for 2026, I mean, we feel like we can get double-digit growth there, and so we're planning 10% growth. And some of that comes from some of the investment people that we have. We think we'll have some great momentum both in our wealth management space as well as our treasury management. Mike, I don't know if you want to add some color.

Treasury management, some of the investments we're seeing with our derivative product group, that'll add what we've done on the consumer side with how we're positioning there. That fee income should continue because that won't be double-digit, but that adds to that total. And then, again, when you get past our integration, the fee income, the opportunity to sit with our acquisition, also originating to sell with the mortgage side, originating to sell with some of their products and services or their specialty groups is additive.

Yep, definitely. And just to clarify that, you know, double-digit growth expectation for this year, is that inclusive or not including FSFG?

We think we'll have double-digit growth even on a standalone basis.

Okay, great. Good stuff. And then maybe a question for Mike. You know, there's obviously been some notable M&A announcements with some of your larger Midwest competitors recently. So just curious if you're starting to see maybe some M&A-related disruption permeate through the loan pipeline these days and maybe just any expectations in terms of how some of those competitors may be more focusing on the south can, you know, impact both

opportunities to add talent on the commercial side of things and then anywhere else across the company yeah that specifically I'm thinking about I'm responding to you in our Michigan market where you've got the third and Co America and we view it as opportunity when I think about the pipeline yes there's already early conversations happening with clients, with our teams, and maybe other outside banks too, but with our teams, that might be a little sensitive to moving from one bank to the new bank or experiences of the past or making sure they've got alternative plans ready to go. So the conversations are happening, so that's a positive. I do feel like there's opportunity to augment teams. That's probably that comes later. I think they've done a nice job of assuring that they've got their arms around individuals and giving them big hugs as they should, but Those type of disruptions and the change events that happen in the back end will be positioned because we know who that is. We understand the talent that we think would be great to add to our team and we're already having conversations there as well. Don't know from a consumer point of view, don't know yet how we can play into some banking center augmentation and adding to our footprint, but we're evaluating that as well with Michelle. opportunity for certain.

Yeah, that's really helpful. And then maybe one last one for Mark on buybacks, obviously stepped up in the quarter. And, you know, I think the valuation is still quite compelling with where you guys trade relative to peers. So just curious if, you know, we can expect to pay the buybacks to step up in 2026. Or do you think, you know, what we saw in 2025 is a good approximation for this year?

Yeah, if we continue to trade kind of below average, I guess, I mean, it's an opportunity that we'd like to take advantage of and we have the capital base to do it. So I don't have any desire really to see our TC grow above the current levels. When we close the transaction, we'll see a decrease from that kind of 940 level, more like 870, 880. but still well above our target of eight. And so we intend to be aggressive with buybacks as long as the price holds where it is. So I'd prefer the price be up when we didn't take advantage of it, but if this is where we are, it's the right thing to do.

Okay, great. I appreciate all the color. Thanks, everyone.

Thanks, Dave.

Thanks.

Thank you. And one moment for our next question. Our next question comes from the line of Brian Martin with Janie Montgomery Scott, LLC. Your line is open. Please go ahead.

Hey, good morning, everyone. Morning, Brian. Maybe, Michelle, just back to the margin for just a minute. The core margin in the quarter X that one-time item, kind of what was that? And then just remind us of kind of the normal seasonality that you'd expect in one Q, I guess, just as we think about it, I guess kind of absent, you know, FSSGs.

Well, core margin for the quarter, the interest recovery did add, you know, several basis points to our core margin. It's probably about eight basis points to core margin. And then, you know, to your question about what we would expect in Q1, because of the commercial orientation of our loan portfolio, the day count in Q1 always has a pretty significant impact. And I think last year it ended up being about five basis points. When you look at the trend of margin, the seasonality definitely takes a dip in Q1 and then obviously rebounds later quarters. But overall for the year, the overall annualized margin, we would expect just a couple of basis points of compression, assuming that we get a Fed rate cut in 2026.

OK. And just to remind us, the impact of FSFG on the margin overall,

Yeah, once we fold the deal in, particularly because of the impact of some of the interest accretion, you will see that gives our margin some lift.

Got you. Okay. All right. And then just on the expenses for a moment, just the integration occurs in May. Third quarter should be a pretty clean quarter then from an expense standpoint?

Yeah, it should be.

Okay. Okay. And then just how are you thinking about, you know, bigger pictures you get later in the year, you know, to Mark's comment or the other comments earlier about operating leverage? Just kind of where the efficiency is at a pretty nice level here, you know, 54-ish. And as you kind of get into the back, you know, the fourth quarter of the year, can you kind of be around that level, I guess? What's kind of the bigger outlook on efficiency as far as where you get to as you start to capitalize on some of the cost savings?

Well, I think our efficiency ratio will continue to be under that 55% level, and we should have really good operating leverage, I think, that it should continue to grow in Q3, Q4 for sure.

Okay, so maybe you're below the current level in fourth quarter of 26. Is that how we should think about it as we kind of fold everything in?

Yeah, I mean, our goal is always to be below the 55% level, and we'll definitely be below that in each quarter. Once we get to the office, the immigration.

Yeah. Okay. And then just last two for me. It was just on the, you gave the CDs, Michelle, but just in terms of the fixed rate loans repricing, I think you said there's still some tailwind just given where repricing is. But what, can you remind us what's repricing on the loan side in 26?

Yeah. We had, I believe it was 300, about 350 million of fixed rate loans that are going to be maturing.

uh in 2026 and they were at like a 440 rate and so there's definitely some um you know some repricing upside there yes and tailwind okay and then uh lastly just was the tax rate um you know it's still i guess how are you thinking about that i think it's still around 13 or 13 and a half is that kind of a decent level to think about or

Yeah, good question. On a core basis, we would expect it to be about 13%. I think once you add in the deal and all of the financials on a combined basis for 26, it'll probably come in a little bit lower because of the transaction costs and such. And so I would expect it to be more like 12 for 2026 on a combined basis.

Okay. Okay, that's all I have. Thanks for taking the questions, everyone.

Thanks, Bryce. Thank you. And one moment for our next question. Our next question comes from the line of Terry McEvoy with Steven Zink. Your line is open. Please go ahead.

Hi. Good morning, everyone. Maybe a question for John. The multifamily construction, it was kind of mentioned, the MPL formation and then the payoff. So I guess my question is, what are you seeing across that $400-plus million portfolio and That is a follow-up based on your outlook today is charge-offs kind of $6 to $7 million like you saw in the third and the fourth quarter. Are you comfortable with that run rate over the near term?

Hey, Terry. Yeah, so when I think about the multifamily portfolio, it's generally in pretty decent shape. We have had a couple of names that as a result of the higher interest rates and quite frankly, just disagreement amongst partners and the strategy there. But it's kind of fallen out. The two names, one that went in and one that came out, were examples of it. But it's not some wholesale problem. For the most part, we've seen those assets stabilize and move into the permanent market. When I think about charge-offs, I think about it in that 15 to 20 basis point, you know, about, say, depending on what we have, 80 individual quarters. So, yeah, that's six to seven is probably about the right number.

Great. And then maybe a follow-up. Mike, you kind of ran through the positive consumer deposit trends, and Michelle talked about the success lowering rates. When I look at the declining commercial deposits ex-public funds, is that a good sign for loan demand or commercial loan demand in 2026, or is that just seasonality and I'm reading too much into it?

Well, there is definitely a correlation with line of credit usage and businesses using their cash. to fund and finance. So there could be seasonality in it. That seasonality usually comes more from the public fund side when tax receipts grow and tax payments go out, and you see that in the second and fourth quarters. But when I think about the business flow of the core operating accounts, we penetrate relationships really well, and I do think it's part of the working capital cycle. So when we do see revolver increases, I mean, John had a slide that showed them pretty flat, but my comments also talked about the draws that are happening under construction real estate, which also means they're using their cash into projects. So I do think it's a corollary to loan growth with where they're utilizing their excess funds.

Perfect. Thanks for taking my questions.

Thanks, Jerry.

Thank you, and one moment for our next question. We have a follow-up question from the line of Brian Martin with Janie Montgomery Scott. Your line is open. Please go ahead.

Just one follow-up, guys. I forgot to ask. Just mark your comments about the outlook for this year, just given the valuation and where the stock's at and the buybacks. You know, how does M&A fit into that? I mean, obviously, it seems like you have your hands full with the transaction and a lot in front of you, but in where the valuations add, does it feel like the buyback is a better use of capital today than considering M&A? And that's, you know, probably the way to think about near term and we'll see where things go or, you know, how are the dialogue on M&A today?

No, I think you summed it up well. We're focused on the acquisition in front of us. And we do think that using our capital to continue to repurchase shares at the current price level is the best short-term strategy for sure. So we're really not spending much time thinking about what's next on the M&A front.

Gotcha. That's understood. Just wanted to confirm. Thanks, Mark. Thank you.

Thank you. This concludes today's Q&A session. This also concludes today's conference call. Thank you for participating. Everybody have a great day. You may now disconnect.