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表格 10-Q

證券交易委員會

華盛頓特區20549

___________________

☒ 根據第13或15條(d)款提交的季度報告

證券交易所法案(1934年)

截至季度結束日期的財務報告2024年9月30日

或者

☐ 根據第13或第15(d)條的過渡報告

證券交易所法案(1934年)

轉換期從_____到_____

第一商業銀行CORATION

(根據其章程規定的註冊人準確名稱)

印第安納州
（合併的）主權或其他管轄區
001-41342			35-1544218
(設立或其它管轄地的州)			（內部稅務服務僱主識別號碼）

200 East Jackson Street, 蒙西, 所在                  47305-2814

(主要執行辦事處地址)                     (郵政編碼)

（註冊人的電話號碼，包括區號）：353-4475(765) 747-1500

不適用

請在以下單選框中打勾：

請在以下單選框中打勾：

在法案第12(b)條的規定下注冊的證券：

每種類別的證券			交易標誌			在其上註冊的交易所的名稱
每股普通股，面值爲$0.125			FRME			納斯達克證券交易所 LLC
存托股，每份代表一份非累積永續優先股，A系列的1/100份權益			FRMEP			納斯達克證券交易所 LLC

請用複選標記指示：是否在過去的12個月內（或對於要求提交此類報告的較短期間），根據《1934年證券交易法》第13或15(d)條的規定提交了所有要求提交的報告，並且在過去的90天裏一直受到提交要求的影響。 是 ☒ 沒有 ☐

請勾選表示，申報人是否在過去12個月內（或申報人需要提交此類文件的更短時期內）按照S-t規則405條（本章第232.405條）的規定，遞交了所有要求提交的互動式數據文件。 是 ☒  否 ☐

請勾選標記以說明註冊人是大型快速申報人、加速申報人、非加速申報人、較小的報告公司還是新興成長型公司。請查看《交易所法》第120億.2條中「大型快速申報人」、「加速申報人」、「較小的報告公司」和「新興成長型公司」的定義。

大型加速存取器

☒

加速存取器

☐

非大型快速提交者

☐

較小報告公司

☐

新興成長型企業

☐

如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。 ☐

請勾選以下選項以指示註冊人是否爲外殼公司(根據交易所法規則12b-2定義)。是☐  否 ☒

截至2024年10月28日， 58,671,078 註冊公司的普通股優秀。

1

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目錄

第一招商股份有限公司

						頁碼。
定義術語表						3
第一部分財務信息
項目1。			基本報表：
			合併簡明資產負債表			4
			綜合捷報表			5
			綜合收益（損失）的合併簡明報表			6
			合併簡明股東權益報表。			7
			現金流量的合併簡明報表			9
			合併簡要財務報表附註			10
事項二			管理層對財務狀況和經營結果的討論和分析			42
第3項。			有關市場風險的定量和定性披露			60
事項4。			控制和程序			61
第二部分其他信息
項目1。			法律訴訟			62
項目1A。			風險因素			62
事項二			未註冊的股票股權銷售和籌款用途			62
第3項。			對優先證券的違約			62
事項4。			礦山安全披露			62
項目5。			其他信息			62
項目6。			展示資料			63
簽名						64

2

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定義術語詞彙表

第一招商股份有限公司

ACL			信用減值準備
ASC			會計準則編碼
會計準則更新			會計準則更新
銀行			第一招商股份銀行，該公司的全資子公司
CECL（Current expected credit losses，預期信貸損失）			FASb 會計準則更新 2016-13， 財務工具-信用損失(Topic 326): 對金融工具信用損失的計量，該準則於2021年1月1日被企業採納。，於2021年1月1日被公司採納。
普通股股本的風險調整資本率			一級資本
CODM（首席運營決策人）			首席運營決策者
公司			第一招商股份
CRA			社區再投資法
房地產			商業房地產業
授信協議 (Credit Agreement)			2024年9月30日與美國銀行N.A.簽訂的信貸協議
信貸設施			與2024年9月30日簽訂的信貸協議相關的循環信貸額度
EITF			FASB的新興問題工作組
ESPP			員工股票購買計劃
FASB			財務會計準則委員會
聯邦存款保險公司			聯邦存款保險公司
聯儲局			聯儲局系統理事會
FHLB			聯邦住房貸款銀行
FMC trust II			第一招商股份資本信託II
FOMC			聯儲局系統的貨幣政策制定機構——聯邦公開市場委員會。
全額應稅當量			完全應稅等價
通用會計原則(GAAP)			美國通用會計原則
IRA			2022年通脹縮減法
出借人			美國銀行於2024年9月30日與該公司簽訂了信貸協議。
第一級			第一招商銀行股份有限公司於2022年4月1日被該公司收購。
OREO			其他房地產業擁有
PPP			薪資保護計劃由《冠狀病毒援助、救濟和經濟安全法案》（即CARES法案）設立，由美國小企業管理局實施，旨在爲小企業提供貸款。
RSA			限制性股票授予
SBA			美國小型企業管理局
優先債務			到期日爲2028年的固定至浮動利率優先票據
次級債務			到期日爲2028年的固定至浮動利率次級票據
SOFR			擔保隔夜融資利率

3

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第一部分. 財務信息

項目1. 綜合簡明基本報表

(以千美元爲單位，除每股數據外，表格金額爲千元)

合併簡明資產負債表

			2020年9月30日 2024						12月31日 2023
			(未經審計)
資產
現金和存放在銀行的款項			$	84,719					$	112,649
計息存款-存款利息			359,126						436,080
可供出售證券			1,553,496						1,627,112
持有到期投資證券，減去$的信用損失準備245 和 $245 ）1,823,006 和 $1,870,374)			2,108,649						2,184,252
待售貸款			40,652						18,934
貸款			12,646,808						12,486,027
貸款減值準備-貸款			(187,828)						(204,934)
淨貸款			12,458,980						12,281,093
土地和建築			129,582						133,896
聯邦住房貸款銀行股份			41,716						41,769
應收利息			92,055						97,664
商譽			712,002						712,002
其他無形資產			21,599						27,099
人壽保險的現金贖回價值			304,613						306,301
其他房地產業擁有			5,247						4,831
稅收資產、遞延和應收款			86,732						99,883
其他			348,384						322,322
資產總計			$	18,347,552					$	18,405,887
負債
存款：
非計息帳戶			$	2,334,197					$	2,500,062
計息帳戶			12,030,903						12,321,391
存款總額			14,365,100						14,821,453
借款：
聯邦基金購買			30,000						—
通過回購協議出售的證券			124,894						157,280
聯邦住房貸款銀行預支款項			832,629						712,852
次級債券和其他借款			93,562						158,644
借款總額			1,081,085						1,028,776
存款和其他待售負債			288,476						—
應付利息			18,089						18,912
其他負債			292,429						289,033
總負債			16,045,179						16,158,174
承諾和訴訟負擔
股東權益
累積優先股，$1,000每股票面價值 $1,000清算價值：
已授權 - 600 累積股份
已發行和流通股票數量 - 125 累積股份			125						125
優先股，A系列 否每股票面價值 $2,500 清償優先權：
已授權 - 10,000 非累積永久股份
已發行和流通股票數量 - 10,000 非累積永久股份			25,000						25,000
普通股，每股面值$0.125 面值：
已授權 - 100,000,000股
已發行和流通股票數量 - 58,117,115和頁面。59,424,122股			7,265						7,428
額外實收資本			1,192,683						1,236,506
保留盈餘			1,229,125						1,154,624
累計其他綜合損失			(151,825)						(175,970)
股東權益總計			2,302,373						2,247,713
負債合計及股東權益總計			$	18,347,552					$	18,405,887

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

4

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
INTEREST INCOME
Loans receivable:
Taxable			$	206,680					$	191,705					$	606,116					$	550,314
Tax exempt			8,622						8,288						25,242						23,757
Investment securities:
Taxable			9,263						8,590						27,062						26,563
Tax exempt			13,509						13,947						40,733						44,296
Deposits with financial institutions			2,154						5,884						11,642						9,685
Federal Home Loan Bank stock			855						719						2,569						2,281
Total Interest Income			241,083						229,133						713,364						656,896
INTEREST EXPENSE
Deposits			98,856						85,551						296,292						209,437
Federal funds purchased			329						—						455						1,420
Securities sold under repurchase agreements			700						797						2,377						2,624
Federal Home Loan Bank advances			8,544						6,896						21,715						20,775
Subordinated debentures and other borrowings			1,544						2,506						5,781						7,303
Total Interest Expense			109,973						95,750						326,620						241,559
NET INTEREST INCOME			131,110						133,383						386,744						415,337
Provision for credit losses			5,000						2,000						31,500						2,000
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			126,110						131,383						355,244						413,337
NONINTEREST INCOME
Service charges on deposit accounts			8,361						7,975						24,482						23,147
Fiduciary and wealth management fees			8,525						7,394						25,550						22,653
Card payment fees			5,121						4,716						14,360						14,425
Net gains and fees on sales of loans			6,764						5,517						15,159						11,548
Derivative hedge fees			736						516						1,488						2,336
Other customer fees			344						384						1,231						1,643
Increase in cash surrender value of life insurance			1,265						1,210						4,128						3,813
Gains on life insurance benefits			1,490						551						2,148						1,332
Net realized losses on sales of available for sale securities			(9,114)						(1,650)						(9,165)						(4,613)
Other income			1,374						1,229						3,457						2,874
Total Noninterest Income			24,866						27,842						82,838						79,158
NONINTEREST EXPENSES
Salaries and employee benefits			55,223						55,566						165,730						167,778
Net occupancy			6,994						6,837						21,052						20,770
Equipment			6,949						5,698						19,774						18,005
Marketing			1,836						2,369						4,807						4,780
Outside data processing fees			7,150						6,573						21,111						19,290
Printing and office supplies			378						333						1,085						1,150
Intangible asset amortization			1,772						2,182						5,500						6,561
FDIC assessments			3,720						2,981						11,285						7,117
Other real estate owned and foreclosure expenses			942						677						1,849						1,575
Professional and other outside services			3,035						3,833						10,809						12,191
Other expenses			6,630						6,805						19,975						20,950
Total Noninterest Expenses			94,629						93,854						282,977						280,167
INCOME BEFORE INCOME TAX			56,347						65,371						155,105						212,328
Income tax expense			7,160						9,005						18,052						31,021
NET INCOME			49,187						56,366						137,053						181,307
Preferred stock dividends			468						468						1,406						1,406
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS			$	48,719					$	55,898					$	135,647					$	179,901
Per Share Data:
Basic Net Income Available to Common Stockholders			$	0.84					$	0.95					$	2.32					$	3.04
Diluted Net Income Available to Common Stockholders			$	0.84					$	0.94					$	2.31					$	3.03
Cash Dividends Paid			$	0.35					$	0.34					$	1.04					$	1.00
Average Diluted Common Shares Outstanding (in thousands)			58,289						59,503						58,629						59,465

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

5

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Net income			$	49,187					$	56,366					$	137,053					$	181,307
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gain (loss) arising during the period			67,030						(114,630)						21,399						(90,675)
Reclassification adjustment for losses included in net income			9,114						1,650						9,165						4,613
Tax effect			(15,990)						23,726						(6,419)						18,073
Net of tax			60,154						(89,254)						24,145						(67,989)
Unrealized gain (loss) on cash flow hedges:
Unrealized holding gain (loss) arising during the period			—						(66)						—						(179)
Reclassification adjustment for losses (gains) included in net income			—						—						—						15
Tax effect			—						14						—						34
Net of tax			—						(52)						—						(130)
Total other comprehensive income (loss), net of tax			60,154						(89,306)						24,145						(68,119)
Comprehensive income (loss)			$	109,341					$	(32,940)					$	161,198					$	113,188

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

6

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

			Three Months Ended September 30, 2024
			Cumulative Preferred Stock												Non-Cumulative Preferred Stock												Common Stock												Additional												Accumulated Other
			Shares						Amount						Shares						Amount						Shares						Amount						Paid in Capital						Retained Earnings						Comprehensive Loss						Total
Balances, June 30, 2024			125						$	125					10,000						$	25,000					58,045,653						$	7,256					$	1,191,193					$	1,200,930					$	(211,979)					$	2,212,525
Comprehensive income:
Net income			—						—						—						—						—						—						—						49,187						—						49,187
Other comprehensive income, net of tax			—						—						—						—						—						—						—						—						60,154						60,154
Cash dividends on preferred stock ($46.88 per share)			—						—						—						—						—						—						—						(468)						—						(468)
Cash dividends on common stock ($0.35 per share)			—						—						—						—						—						—						—						(20,524)						—						(20,524)
Reduction of excise tax on common stock repurchases, net of share issuances			—						—						—						—						—						—						25						—						—						25
Share-based compensation			—						—						—						—						67,140						8						1,429						—						—						1,437
Stock issued under employee benefit plans			—						—						—						—						5,351						1						167						—						—						168
Stock issued under dividend reinvestment and stock purchase plan			—						—						—						—						14,903						2						573						—						—						575
Stock options exercised			—						—						—						—						6,191						1						87						—						—						88
Restricted shares withheld for taxes			—						—						—						—						(22,123)						(3)						(791)						—						—						(794)
Balances, September 30, 2024			125						$	125					10,000						$	25,000					58,117,115						$	7,265					$	1,192,683					$	1,229,125					$	(151,825)					$	2,302,373

			Three Months Ended September 30, 2023
			Cumulative Preferred Stock												Non-Cumulative Preferred Stock												Common Stock												Additional												Accumulated Other
			Shares						Amount						Shares						Amount						Shares						Amount						Paid in Capital						Retained Earnings						Comprehensive Loss						Total
Balances, June 30, 2023			125						$	125					10,000						$	25,000					59,297,148						$	7,412					$	1,233,593					$	1,097,399					$	(217,964)					$	2,145,565
Comprehensive income:
Net income			—						—						—						—						—						—						—						56,366						—						56,366
Other comprehensive loss net of tax			—						—						—						—						—						—						—						—						(89,306)						(89,306)
Cash dividends on preferred stock ($46.88 per share)			—						—						—						—						—						—						—						(468)						—						(468)
Cash dividends on common stock ($0.34 per share)			—						—						—						—						—						—						—						(20,335)						—						(20,335)
Share-based compensation			—						—						—						—						114,435						14						1,346						—						—						1,360
Stock issued under employee benefit plans			—						—						—						—						8,226						1						209						—						—						210
Stock issued under dividend reinvestment and stock purchase plan			—						—						—						—						18,524						3						536						—						—						539
Restricted shares withheld for taxes			—						—						—						—						(40,311)						(5)						(1,282)						—						—						(1,287)
Balances, September 30, 2023			125						$	125					10,000						$	25,000					59,398,022						$	7,425					$	1,234,402					$	1,132,962					$	(307,270)					$	2,092,644

7

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

			Nine Months Ended September 30, 2024
			Cumulative Preferred Stock												Non-Cumulative Preferred Stock												Common Stock												Additional												Accumulated Other
			Shares						Amount						Shares						Amount						Shares						Amount						Paid in Capital						Retained Earnings						Comprehensive  Loss						Total
Balances, December 31, 2023			125						$	125					10,000						$	25,000					59,424,122						$	7,428					$	1,236,506					$	1,154,624					$	(175,970)					$	2,247,713
Comprehensive income:
Net income			—						—						—						—						—						—						—						137,053						—						137,053
Other comprehensive income, net of tax			—						—						—						—						—						—						—						—						24,145						24,145
Cash dividends on preferred stock ($140.64 per share)			—						—						—						—						—						—						—						(1,406)						—						(1,406)
Cash dividends on common stock ($1.04 per share)			—						—						—						—						—						—						—						(61,146)						—						(61,146)
Repurchases of common stock			—						—						—						—						(1,481,565)						(185)						(49,770)						—						—						(49,955)
Excise tax on common stock repurchases			—						—						—						—						—						—						(457)						—						—						(457)
Share-based compensation			—						—						—						—						83,356						10						4,181						—						—						4,191
Stock issued under employee benefit plans			—						—						—						—						17,120						3						508						—						—						511
Stock issued under dividend reinvestment and stock purchase plan			—						—						—						—						48,793						6						1,670						—						—						1,676
Stock options exercised			—						—						—						—						49,084						6						894						—						—						900
Restricted shares withheld for taxes			—						—						—						—						(23,795)						(3)						(849)						—						—						(852)
Balances, September 30, 2024			125						$	125					10,000						$	25,000					58,117,115						$	7,265					$	1,192,683					$	1,229,125					$	(151,825)					$	2,302,373

			Nine Months Ended September 30, 2023
			Cumulative Preferred Stock												Non-Cumulative Preferred Stock												Common Stock												Additional												Accumulated Other
			Shares						Amount						Shares						Amount						Shares						Amount						Paid in Capital						Retained Earnings						Comprehensive Loss						Total
Balances, December 31, 2022			125						$	125					10,000						$	25,000					59,170,583						$	7,396					$	1,228,626					$	1,012,774					$	(239,151)					$	2,034,770
Comprehensive income:
Net income			—						—						—						—						—						—						—						181,307						—						181,307
Other comprehensive loss, net of tax			—						—						—						—						—						—						—						—						(68,119)						(68,119)
Cash dividends on preferred stock ($140.64 per share)			—						—						—						—						—						—						—						(1,406)						—						(1,406)
Cash dividends on common stock ($1.00 per share)			—						—						—						—						—						—						—						(59,713)						—						(59,713)
Share-based compensation			—						—						—						—						129,092						16						3,776						—						—						3,792
Stock issued under employee benefit plans			—						—						—						—						21,661						3						587						—						—						590
Stock issued under dividend reinvestment and stock purchase plan			—						—						—						—						52,061						7						1,596						—						—						1,603
Stock options exercised			—						—						—						—						65,025						8						1,102						—						—						1,110
Restricted shares withheld for taxes			—						—						—						—						(40,400)						(5)						(1,285)						—						—						(1,290)
Balances, September 30, 2023			125						$	125					10,000						$	25,000					59,398,022						$	7,425					$	1,234,402					$	1,132,962					$	(307,270)					$	2,092,644

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

8

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

			Nine Months Ended September 30,
			2024						2023
Cash Flow From Operating Activities:
Net income			$	137,053					$	181,307
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			31,500						2,000
Depreciation and amortization			10,602						8,666
Change in deferred taxes			3,128						3,957
Share-based compensation			4,191						3,792
Loans originated for sale			(775,504)						(567,626)
Proceeds from sales of loans held for sale			773,446						551,613
Gains on sales of loans held for sale			(10,508)						(5,865)
Net losses on sales and redemptions of securities available for sale			9,165						4,613
Increase in cash surrender value of life insurance			(4,128)						(3,813)
Gains on life insurance benefits			(2,148)						(1,332)
Change in interest receivable			5,585						(4,941)
Change in interest payable			(319)						8,943
Other adjustments			16,643						11,904
Net cash provided by operating activities			198,706						193,218
Cash Flows from Investing Activities:
Net change in interest-bearing deposits			76,954						(222,578)
Purchases of:
Securities available for sale			(93,463)						(12,543)
Securities held to maturity			—						(5,653)
Proceeds from sales of securities available for sale			149,771						347,318
Proceeds from maturities and redemptions of:
Securities available for sale			33,346						44,925
Securities held to maturity			72,938						76,427
Change in Federal Home Loan Bank stock			53						(3,272)
Payment of capital calls to qualified affordable housing investments			(22,238)						(7,478)
Net change in loans			(206,478)						(404,833)
Proceeds from the sale of other real estate owned			325						1,175
Proceeds from life insurance benefits			7,964						7,350
Proceeds from mortgage portfolio loan sale			1,716						—
Proceeds from commercial portfolio loan sale			3,273						112,124
Other adjustments			(25,046)						(40,257)
Net cash used in investing activities			(885)						(107,295)
Cash Flows from Financing Activities:
Net change in:
Demand and savings deposits			(308,714)						(581,735)
Certificates of deposit and other time deposits			140,074						845,566
Borrowings			551,851						754,229
Repayment of borrowings			(499,542)						(1,043,588)
Cash dividends on preferred stock			(1,406)						(1,406)
Cash dividends on common stock			(61,146)						(59,713)
Stock issued under employee benefit plans			511						590
Stock issued under dividend reinvestment and stock purchase plans			1,676						1,603
Stock options exercised			900						1,110
Repurchase of common stock			(49,955)						—
Net cash used in financing activities			(225,751)						(83,344)
Net Change in Cash and Cash Equivalents			(27,930)						2,579
Cash and Cash Equivalents, January 1			112,649						122,594
Cash and Cash Equivalents, September 30			$	84,719					$	125,173
Additional cash flow information:
Interest paid			$	327,443					$	232,616
Income tax paid (refunded)			6,407						32,741
Loans transferred to other real estate owned			699						1,224
Fixed assets transferred to other real estate owned			69						3,226
Non-cash investing activities using trade date accounting			17,749						4,462
ROU assets obtained in exchange for new operating lease liabilities			6,918						1,630
Qualified affordable housing investments obtained in exchange for funding commitments			40,500						25,200
Reclassification of loans and other branch assets to held for sale			13,404						—
Reclassification of deposits and other branch liabilities to held for sale			288,476						—

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

9

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 1 

GENERAL

Financial Statement Preparation

The Consolidated Condensed Balance Sheet of the Corporation as of December 31, 2023, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the year. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses and fair value of financial instruments.

Significant Accounting Policies

The significant accounting policies followed by the Corporation and its wholly-owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying Consolidated Condensed Financial Statements.

Recent Accounting Changes Adopted in 2024

FASB Accounting Standards Updates - No. 2023-02 - Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

Summary - The FASB issued ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which is intended to improve the accounting and disclosures for investments in tax credit structures. The ASU is a consensus of the FASB’s Emerging Issues Task Force (“EITF”).

The ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.

Reporting entities were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (LIHTC) structures. In recent years, stakeholders asked the FASB to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing this issue.

For public business entities, the amendments became effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. For all other entities, the amendments will become effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Corporation adopted this guidance in the first quarter of 2024 and adoption did not have a significant impact on the Corporation’s financial statements or disclosures.

New Accounting Pronouncements Not Yet Adopted

The Corporation continually monitors potential accounting pronouncements and the following pronouncements have been deemed to have the most applicability to the Corporation's financial statements:

FASB Accounting Standards Updates - No. 2023-07 - Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosure

Summary - The FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosure, which is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses.

The key amendments:

•Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss.

•Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.

•Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods.

10

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

•Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

•Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

•Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.

ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This ASU is not expected to have a material impact on the Corporation’s financial statements and disclosures as the Corporation has one operating segment.

FASB Accounting Standards Update - No. 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures

Summary - The FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures in the fourth quarter of 2023. This ASU is intended to enhance income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity’s worldwide operations.

The two primary enhancements disaggregate existing income tax disclosures related to the effective tax rate reconciliation and income taxes paid. These amendments require that public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The amendments also require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received).

For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issue. The amendments should be applied on a prospective basis. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

NOTE 2 

ACQUISITIONS AND DISPOSITIONS

Old Second National Bank Branch Sale

On August 26, 2024, the Bank entered into a Branch Purchase and Assumption Agreement with Old Second National Bank, a national banking association headquartered in Aurora, Illinois, pursuant to which the Bank will sell five branches located in Illinois. The transaction will represent an exit from the suburban Chicago markets. Loans of $9.2 million, deposits of $287.7 million and fixed assets of $3.4 million have been moved to held for sale categories as of September 30, 2024. The transaction is expected to close in the fourth quarter of 2024.

NOTE 3

INVESTMENT SECURITIES

The following tables summarize the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale as of September 30, 2024 and December 31, 2023.

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Available for sale at September 30, 2024
U.S. Government-sponsored agency securities			$	97,670					$	—					$	12,637					$	85,033
State and municipal			1,090,953						95						106,937						984,111
U.S. Government-sponsored mortgage-backed securities			541,099						2,447						71,500						472,046
Corporate obligations			12,957						—						651						12,306
Total available for sale			$	1,742,679					$	2,542					$	191,725					$	1,553,496

11

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Available for sale at December 31, 2023
U.S. Government-sponsored agency securities			$	111,521					$	—					$	16,214					$	95,307
State and municipal			1,181,029						364						116,222						1,065,171
U.S. Government-sponsored mortgage-backed securities			541,343						462						86,990						454,815
Corporate obligations			12,947						—						1,128						11,819
Total available for sale			$	1,846,840					$	826					$	220,554					$	1,627,112

The following tables summarize the amortized cost, gross unrealized gains and losses, approximate fair value and allowance for credit losses on investment securities held to maturity as of September 30, 2024 and December 31, 2023.

			Amortized Cost						Allowance for Credit Losses						Net Carrying Amount						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Held to maturity at September 30, 2024
U.S. Government-sponsored agency securities			$	361,335					$	—					$	361,335					$	—					$	53,432					$	307,903
State and municipal			1,087,980						245						1,087,735						1,157						151,227						937,910
U.S. Government-sponsored mortgage-backed securities			658,079						—						658,079						—						82,382						575,697
Foreign investment			1,500						—						1,500						—						4						1,496
Total held to maturity			$	2,108,894					$	245					$	2,108,649					$	1,157					$	287,045					$	1,823,006

			Amortized Cost						Allowance for Credit Losses						Net Carrying Amount						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Held to maturity at December 31, 2023
U.S. Government-sponsored agency securities			$	374,002					$	—					$	374,002					$	—					$	64,159					$	309,843
State and municipal			1,099,201						245						1,098,956						1,625						152,113						948,713
U.S. Government-sponsored mortgage-backed securities			709,794						—						709,794						—						99,448						610,346
Foreign investment			1,500						—						1,500						—						28						1,472
Total held to maturity			$	2,184,497					$	245					$	2,184,252					$	1,625					$	315,748					$	1,870,374

Accrued interest on investment securities available for sale and held to maturity at September 30, 2024 and December 31, 2023 of $21.7 million and $25.2 million, respectively, are included in the Interest Receivable line on the Corporation's Consolidated Condensed Balance Sheets. The total amount of accrued interest is excluded from the amortized cost of available for sale and held to maturity securities presented above.

In determining the allowance for credit losses on investment securities available for sale that are in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the income statement. For investment securities available for sale that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses is recognized in other comprehensive loss. Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities available for sale from the estimate of credit losses. Investment securities available for sale are charged off against the allowance or, in the absence of any allowance, written down through the income statement when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Corporation did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality.

12

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The allowance for credit losses on investment securities held to maturity is a contra asset-valuation account that is deducted from the amortized cost basis of investment securities held to maturity to present the net amount expected to be collected. Investment securities held to maturity are charged off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses. The Corporation measures expected credit losses on investment securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities held to maturity from the estimate of credit losses. With regard to U.S. Government-sponsored agency and U.S. Government-sponsored mortgage-backed securities, all these securities are issued by a U.S. Government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities. With regard to securities issued by states and municipalities and other investment securities held to maturity, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those in the Corporation's portfolio have been insignificant. Furthermore, as of September 30, 2024, there were no past due

principal and interest payments associated with these securities. The balance of the allowance for credit losses on investment securities held to maturity remained unchanged at $245,000 as of September 30, 2024 and December 31, 2023 based on applying the long-term historical credit rate, as published by Moody's, for similar rated securities.

On a quarterly basis, the Corporation monitors the credit quality of investment securities held to maturity through the use of credit ratings. The following table summarizes the amortized cost of investment securities held to maturity at September 30, 2024, aggregated by credit quality indicator.

			Held to Maturity
			U.S. Government-sponsored agency securities (1)						State and municipal						U.S. Government-sponsored mortgage-backed securities (1)						Foreign investment						Total
Credit Rating:
Aaa			$	361,335					$	113,233					$	658,079					$	—					$	1,132,647
Aa1			—						160,281						—						—						160,281
Aa2			—						177,858						—						—						177,858
Aa3			—						112,393						—						—						112,393
A1			—						141,608						—						—						141,608
A2			—						20,313						—						—						20,313
Non-rated			—						362,294						—						1,500						363,794
Total			$	361,335					$	1,087,980					$	658,079					$	1,500					$	2,108,894

(1) U.S. Government agency securities and U.S. Government mortgage-backed securities are included within the Aaa credit rating category due to their explicit or implicit government guarantees, which provide a high level of assurance regarding the timely collection of principal and interest payments.

The following tables summarize, as of September 30, 2024 and December 31, 2023, investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time in a continuous unrealized loss position.

			Less than 12 Months												12 Months or Longer												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Investment securities available for sale at September 30, 2024
U.S. Government-sponsored agency securities			$	—					$	—					$	85,033					$	12,637					$	85,033					$	12,637
State and municipal			40,136						1,335						934,947						105,602						975,083						106,937
U.S. Government-sponsored mortgage-backed securities			18,916						77						346,666						71,423						365,582						71,500
Corporate obligations			—						—						12,275						651						12,275						651
Total investment securities available for sale			$	59,052					$	1,412					$	1,378,921					$	190,313					$	1,437,973					$	191,725

			Less than 12 Months												12 Months or Longer												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Investment securities available for sale at December 31, 2023
U.S. Government-sponsored agency securities			$	—					$	—					$	95,307					$	16,214					$	95,307					$	16,214
State and municipal			55,514						1,076						963,584						115,146						1,019,098						116,222
U.S. Government-sponsored mortgage-backed securities			11,493						25						422,868						86,965						434,361						86,990
Corporate obligations			—						—						11,788						1,128						11,788						1,128
Total investment securities available for sale			$	67,007					$	1,101					$	1,493,547					$	219,453					$	1,560,554					$	220,554

13

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The following tables summarize investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and the number of securities in the portfolio as of the dates indicated.

			Gross Unrealized Losses						Number of Securities
Investment securities available for sale at September 30, 2024
U.S. Government-sponsored agency securities			$	12,637					13
State and municipal			106,937						662
U.S. Government-sponsored mortgage-backed securities			71,500						108
Corporate obligations			651						10
Total investment securities available for sale			$	191,725					793

			Gross Unrealized Losses						Number of Securities
Investment securities available for sale at December 31, 2023
U.S. Government-sponsored agency securities			$	16,214					14
State and municipal			116,222						691
U.S. Government-sponsored mortgage-backed securities			86,990						150
Corporate obligations			1,128						10
Total investment securities available for sale			$	220,554					865

The unrealized losses in the Corporation’s investment portfolio were the result of changes in interest rates and not credit quality. As a result, the Corporation expects to recover the amortized cost basis over the term of the securities. The Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.

Certain investment securities available for sale are reported in the financial statements at an amount less than their historical cost as indicated in the table below.

			September 30, 2024						December 31, 2023
Historical cost			$	1,629,698					$	1,781,108
Fair value			1,437,973						1,560,554
Gross unrealized losses			$	191,725					$	220,554
Percentage of the Corporation's investment securities available for sale in an unrealized loss position			92.6		%				95.9		%

In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy.  The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor classified these securities based upon these inputs.  From these discussions, the Corporation’s management is comfortable that the classifications are proper.  The Corporation has gained trust in the data for two reasons:  (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or losses resulting from the sale of certain securities has proven the data to be accurate over time.   Fair value of securities classified as Level 3 in the valuation hierarchy was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

14

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The amortized cost and fair value of investment securities available for sale and held to maturity at September 30, 2024 and December 31, 2023, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity are shown separately.

			Available for Sale												Held to Maturity
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Maturity Distribution at September 30, 2024
Due in one year or less			$	1,809					$	1,800					$	15,139					$	15,096
Due after one through five years			12,818						12,578						121,204						116,480
Due after five through ten years			162,996						151,369						165,418						151,803
Due after ten years			1,023,957						915,703						1,149,054						963,930
			1,201,580						1,081,450						1,450,815						1,247,309
U.S. Government-sponsored mortgage-backed securities			541,099						472,046						658,079						575,697
Total investment securities			$	1,742,679					$	1,553,496					$	2,108,894					$	1,823,006

			Available for Sale												Held to Maturity
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Maturity Distribution at December 31, 2023
Due in one year or less			$	1,390					$	1,382					$	3,041					$	3,043
Due after one through five years			24,899						23,372						118,592						111,723
Due after five through ten years			127,948						120,385						135,805						126,461
Due after ten years			1,151,260						1,027,158						1,217,265						1,018,801
			1,305,497						1,172,297						1,474,703						1,260,028
U.S. Government-sponsored mortgage-backed securities			541,343						454,815						709,794						610,346
Total investment securities			$	1,846,840					$	1,627,112					$	2,184,497					$	1,870,374

Securities with a carrying value of approximately $3.4 billion and $1.8 billion were pledged at September 30, 2024 and December 31, 2023, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law. Pledged securities increased from December 31, 2023 as a result of the Corporation pledging additional securities to the Discount Window at the Federal Reserve Bank to be used as an alternative funding source, if needed.

The book value of securities pledged and available under agreements to repurchase amounted to $143.7 million at September 30, 2024 and $181.4 million at December 31, 2023.

Gross gains and losses on the sales of investment securities available for sale for the three and nine months ended September 30, 2024 and 2023 are shown below.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Sales and redemptions of investment securities available for sale:
Gross gains			$	7					$	—					$	7					$	759
Gross losses			(9,121)						(1,650)						(9,172)						(5,372)
Net gains (losses) on sales and redemptions of investment securities available for sale			$	(9,114)					$	(1,650)					$	(9,165)					$	(4,613)

15

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 4

LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loan Portfolio and Credit Quality

The Corporation's primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. The following tables show the composition of the loan portfolio and credit quality characteristics by collateral classification, excluding loans held for sale.  Loans held for sale at September 30, 2024 and December 31, 2023, were $40.7 million and $18.9 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class as of the dates indicated.

			September 30, 2024						December 31, 2023
Commercial and industrial loans			$	4,041,217					$	3,670,948
Agricultural land, production and other loans to farmers			238,743						263,414
Real estate loans:
Construction			814,704						957,545
Commercial real estate, non-owner occupied			2,251,351						2,400,839
Commercial real estate, owner occupied			1,152,751						1,162,083
Residential			2,366,943						2,288,921
Home equity			641,188						617,571
Individuals' loans for household and other personal expenditures			158,480						168,388
Public finance and other commercial loans			981,431						956,318
Loans			$	12,646,808					$	12,486,027

Credit Quality

As part of the ongoing monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge-offs, (iii) nonperforming loans, (iv) covenant failures and (v) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:

•Pass - Loans that are considered to be of acceptable credit quality.

•Special Mention - Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation's credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.

•Substandard - Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

•Doubtful - Loans that have all of the weaknesses of those classified as Substandard. However, based on existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable.

•Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical or desirable to defer charging-off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

16

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The following tables summarize the risk grading of the Corporation’s loan portfolio and gross charge-offs by loan class and by year of origination for the periods indicated. Consumer loans are not risk graded. For the purposes of this disclosure, consumer loans are classified in the following manner: loans that are less than 30 days past due are Pass, loans 30-89 days past due are Special Mention and loans greater than 89 days past due are Substandard.  The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

			September 30, 2024
			Term Loans (amortized cost basis by origination year)																																				Revolving loans amortized cost basis						Revolving loans converted to term
			2024						2023						2022						2021						2020						Prior																		Total
Commercial and industrial loans
Pass			$	1,110,731					$	625,113					$	259,418					$	180,272					$	62,723					$	53,350					$	1,495,641					$	136					$	3,787,384
Special Mention			14,480						9,872						8,979						2,730						2,731						369						45,459						—						84,620
Substandard			28,078						32,296						24,365						7,007						1,655						1,670						72,482						555						168,108
Doubtful			—						1,105						—						—						—						—						—						—						1,105
Total Commercial and industrial loans			1,153,289						668,386						292,762						190,009						67,109						55,389						1,613,582						691						4,041,217
Current period gross charge-offs			1,178						37,655						242						8,577						498						236						—						—						48,386
Agricultural land, production and other loans to farmers
Pass			23,646						24,039						33,909						27,872						28,250						32,445						63,526						—						233,687
Special Mention			171						—						245						—						—						444						548						—						1,408
Substandard			491						50						936						696						516						86						873						—						3,648
Total Agricultural land, production and other loans to farmers			24,308						24,089						35,090						28,568						28,766						32,975						64,947						—						238,743
Real estate loans:
Construction
Pass			186,900						227,462						174,201						73,746						6,518						8,851						12,828						—						690,506
Special Mention			35,150						26,805						18,197						13,341						—						6						—						—						93,499
Substandard			22,000						—						8,699						—						—						—						—						—						30,699
Total Construction			244,050						254,267						201,097						87,087						6,518						8,857						12,828						—						814,704
Commercial real estate, non-owner occupied
Pass			278,958						280,167						346,311						413,970						351,260						299,771						21,681						—						1,992,118
Special Mention			81,543						19,499						19,347						23,624						1,768						28,452						—						—						174,233
Substandard			31,922						5,778						8,982						6,270						19,606						1,614						—						—						74,172
Doubtful			10,828						—						—						—						—						—						—						—						10,828
Total Commercial real estate, non-owner occupied			403,251						305,444						374,640						443,864						372,634						329,837						21,681						—						2,251,351
Current period gross charge-offs			—						339						3						—						—						—						—						—						342
Commercial real estate, owner occupied
Pass			118,117						167,922						173,512						230,821						214,975						144,123						33,613						—						1,083,083
Special Mention			2,220						2,385						8,616						6,545						4,935						1,402						460						—						26,563
Substandard			6,804						12,216						5,204						8,896						2,747						7,083						155						—						43,105
Total Commercial real estate, owner occupied			127,141						182,523						187,332						246,262						222,657						152,608						34,228						—						1,152,751
Current period gross charge-offs			—						—						—						—						9						—						—						—						9
Residential
Pass			166,807						421,280						680,588						408,017						339,835						308,575						6,117						13						2,331,232
Special Mention			1,095						1,975						5,436						3,425						1,745						3,585						—						—						17,261
Substandard			528						1,478						6,836						4,226						1,066						3,991						325						—						18,450
Total Residential			168,430						424,733						692,860						415,668						342,646						316,151						6,442						13						2,366,943
Current period gross charge-offs			—						124						653						123						21						288						—						—						1,209
Home equity
Pass			6,239						6,674						25,743						54,185						11,864						4,346						516,564						6,766						632,381
Special Mention			—						—						—						421						—						33						3,772						593						4,819
Substandard			62						—						572						561						—						206						1,955						632						3,988
Total Home Equity			6,301						6,674						26,315						55,167						11,864						4,585						522,291						7,991						641,188
Current period gross charge-offs			—						10						35						23						—						264						—						—						332
Individuals' loans for household and other personal expenditures
Pass			37,606						24,496						34,052						11,078						3,097						5,215						39,613						369						155,526
Special Mention			42						461						568						1,507						80						8						286						—						2,952
Substandard			—						—						—						—						—						2						—						—						2
Total Individuals' loans for household and other personal expenditures			37,648						24,957						34,620						12,585						3,177						5,225						39,899						369						158,480
Current period gross charge-offs			130						609						397						149						44						50						—						—						1,379
Public finance and other commercial loans
Pass			72,229						53,788						204,870						197,319						151,368						301,284						573						—						981,431
Total Public finance and other commercial loans			72,229						53,788						204,870						197,319						151,368						301,284						573						—						981,431
Loans			$	2,236,647					$	1,944,861					$	2,049,586					$	1,676,529					$	1,206,739					$	1,206,911					$	2,316,471					$	9,064					$	12,646,808
Total current period gross charge-offs			$	1,308					$	38,737					$	1,330					$	8,872					$	572					$	838					$	—					$	—					$	51,657

17

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

			December 31, 2023
			Term Loans (amortized cost basis by origination year)																																				Revolving loans amortized						Revolving loans converted
			2023						2022						2021						2020						2019						Prior						cost basis						to term						Total
Commercial and industrial loans
Pass			$	1,175,967					$	474,601					$	253,148					$	86,226					$	47,910					$	45,020					$	1,393,756					$	60					$	3,476,688
Special Mention			34,356						3,911						1,546						5,149						2,986						241						45,994						—						94,183
Substandard			12,311						20,245						17,733						2,479						1,507						1,512						40,449						144						96,380
Doubtful			857						—						—						—						—						—						2,840						—						3,697
Total Commercial and industrial loans			1,223,491						498,757						272,427						93,854						52,403						46,773						1,483,039						204						3,670,948
Current period gross charge-offs			13,973						2,711						576						5,665						78						261						—						—						23,264
Agricultural land, production and other loans to farmers
Pass			35,633						38,145						31,511						31,048						12,995						25,462						87,534						—						262,328
Special Mention			—						266						—						—						—						122						—						—						388
Substandard			58						150						—						454						—						36						—						—						698
Total Agricultural land, production and other loans to farmers			35,691						38,561						31,511						31,502						12,995						25,620						87,534						—						263,414
Current period gross charge-offs			—						—						—						—						—						—						—						—						—
Real estate loans:
Construction
Pass			403,578						267,587						198,350						8,372						7,723						2,357						11,735						—						899,702
Special Mention			25,894						—						—						20,846						—						—						—						—						46,740
Substandard			1,451						4,330						5,322						—						—						—						—						—						11,103
Total Construction			430,923						271,917						203,672						29,218						7,723						2,357						11,735						—						957,545
Current period gross charge-offs			—						—						—						—						—						—						—						—						—
Commercial real estate, non-owner occupied
Pass			373,378						504,280						535,327						418,553						141,320						200,821						16,744						—						2,190,423
Special Mention			76,382						21,145						7,005						4,531						19,479						27,941						37						—						156,520
Substandard			20,358						10,537						219						20,236						—						2,299						247						—						53,896
Total Commercial real estate, non-owner occupied			470,118						535,962						542,551						443,320						160,799						231,061						17,028						—						2,400,839
Current period gross charge-offs			—						66						—						—						—						—						—						—						66
Commercial real estate, owner occupied
Pass			176,750						199,821						256,346						263,522						99,180						77,485						27,369						—						1,100,473
Special Mention			6,712						5,034						9,319						2,460						919						2,902						514						—						27,860
Substandard			18,092						3,712						4,183						4,545						289						2,929						—						—						33,750
Total Commercial real estate, owner occupied			201,554						208,567						269,848						270,527						100,388						83,316						27,883						—						1,162,083
Current period gross charge-offs			48						—						—						—						2						—						—						—						50
Residential
Pass			395,363						695,056						442,495						365,297						98,654						254,718						4,988						83						2,256,654
Special Mention			2,167						5,591						3,202						1,924						1,065						4,837						200						81						19,067
Substandard			804						3,708						2,529						1,199						866						4,063						31						—						13,200
Total Residential			398,334						704,355						448,226						368,420						100,585						263,618						5,219						164						2,288,921
Current period gross charge-offs			101						252						208						3						3						94						—						—						661
Home equity
Pass			9,375						29,784						61,591						11,084						1,092						3,875						484,330						5,837						606,968
Special Mention			—						715						—						1,092						15						2						5,031						149						7,004
Substandard			63						—						727						—						—						123						2,589						97						3,599
Total Home Equity			9,438						30,499						62,318						12,176						1,107						4,000						491,950						6,083						617,571
Current period gross charge-offs			69						213						224						149						193						1,596						—						—						2,444
Individuals' loans for household and other personal expenditures
Pass			35,781						49,295						28,387						6,726						2,070						5,904						38,619						772						167,554
Special Mention			184						246						138						69						—						14						176						—						827
Substandard			—						6						—						—						1						—						—						—						7
Total Individuals' loans for household and other personal expenditures			35,965						49,547						28,525						6,795						2,071						5,918						38,795						772						168,388
Current period gross charge-offs			147						770						342						77						62						156						—						—						1,554
Public finance and other commercial loans
Pass			65,357						208,347						204,863						155,132						91,619						229,355						1,645						—						956,318
Total Public finance and other commercial loans			65,357						208,347						204,863						155,132						91,619						229,355						1,645						—						956,318
Loans			$	2,870,871					$	2,546,512					$	2,063,941					$	1,410,944					$	529,690					$	892,018					$	2,164,828					$	7,223					$	12,486,027
Total current period gross charge-offs			$	14,338					$	4,012					$	1,350					$	5,894					$	338					$	2,107					$	—					$	—					$	28,039

18

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Total past due loans equaled $95.0 million as of September 30, 2024 representing a $15.8 million increase from $79.2 million at December 31, 2023. Loans 30-59 days past due decreased $3.8 million from December 31, 2023 as commercial real estate, non-owner occupied and commercial and industrial decreased $4.3 million and $3.1 million, respectively, which was partially offset by increases in construction and individuals' loans for household and other personal expenditures of $2.5 million and $1.9 million, respectively. Loans 60-89 days past due increased $7.6 million from December 31, 2023 as commercial and industrial increased $6.2 million. Loans 90 days or more past due increased $12.0 million from December 31, 2023 as commercial and industrial, commercial real estate, non-owner occupied and residential increased $1.6 million, $4.9 million and $4.1 million, respectively. The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of the dates indicated:

			September 30, 2024
			Current						30-59 Days Past Due						60-89 Days Past Due						90 Days or More Past Due						Total						Loans > 90 Days or More Past Due And Accruing
Commercial and industrial loans			$	4,023,016					$	1,906					$	7,805					$	8,490					$	4,041,217					$	930
Agricultural land, production and other loans to farmers			238,221						522						—						—						238,743						—
Real estate loans:
Construction			810,536						2,522						1,646						—						814,704						—
Commercial real estate, non-owner occupied			2,225,782						8,680						485						16,404						2,251,351						12,989
Commercial real estate, owner occupied			1,150,327						501						891						1,032						1,152,751						—
Residential			2,334,312						10,377						6,029						16,225						2,366,943						166
Home equity			632,653						3,212						1,532						3,791						641,188						20
Individuals' loans for household and other personal expenditures			155,526						2,567						385						2						158,480						—
Public finance and other commercial loans			981,431						—						—						—						981,431						—
Loans			$	12,551,804					$	30,287					$	18,773					$	45,944					$	12,646,808					$	14,105

			December 31, 2023
			Current						30-59 Days Past Due						60-89 Days Past Due						90 Days or More Past Due						Total						Loans > 90 Days or More Past Due And Accruing
Commercial and industrial loans			$	3,657,447					$	5,021					$	1,622					$	6,858					$	3,670,948					$	86
Agricultural land, production and other loans to farmers			263,414						—						—						—						263,414						—
Real estate loans:
Construction			955,588						—						1,957						—						957,545						—
Commercial real estate, non-owner occupied			2,376,184						12,995						195						11,465						2,400,839						—
Commercial real estate, owner occupied			1,161,869						—						104						110						1,162,083						—
Residential			2,259,496						11,810						5,472						12,143						2,288,921						—
Home equity			608,948						3,614						1,647						3,362						617,571						52
Individuals' loans for household and other personal expenditures			167,553						635						192						8						168,388						—
Public finance and other commercial loans			956,284						—						—						34						956,318						34
Loans			$	12,406,783					$	34,075					$	11,189					$	33,980					$	12,486,027					$	172

Loans are reclassified to a nonaccruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.

The following table summarizes the Corporation’s nonaccrual loans by loan class as of the dates indicated.

			September 30, 2024												December 31, 2023
			Nonaccrual Loans						Nonaccrual Loans with no Allowance for Credit Losses						Nonaccrual Loans						Nonaccrual Loans with no Allowance for Credit Losses
Commercial and industrial loans			$	8,612					$	2,459					$	9,050					$	1,015
Agricultural land, production and other loans to farmers			81						—						58						—
Real estate loans:
Construction			—						—						520						—
Commercial real estate, non-owner occupied			23,283						10,175						11,932						11,095
Commercial real estate, owner occupied			3,237						2,577						3,041						2,257
Residential			18,905						—						25,140						—
Home equity			4,925						—						3,820						—
Individuals' loans for household and other personal expenditures			45						—						19						—
Loans			$	59,088					$	15,211					$	53,580					$	14,367

19

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. There was no interest income recognized on nonaccrual loans for the three and nine months ended September 30, 2024 or 2023.

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

The tables below present the amortized cost basis of collateral dependent loans by loan class and their respective collateral type, which are individually evaluated to determine expected credit losses. The total collateral dependent loan balance increased $6.0 million, primarily related to an increase of $21.4 million in commercial real estate, non-owner occupied, partially offset by a decrease of $16.3 million in commercial and industrial, for the nine months ended September 30, 2024. The total related allowance balance decreased $4.4 million, primarily related to a decrease of $9.2 million in commercial and industrial, offset by an increase of $4.8 million in commercial real estate, non-owner occupied, for the nine months ended September 30, 2024.

			September 30, 2024
			Commercial Real Estate						Residential Real Estate						Other						Total						Allowance on Collateral Dependent Loans
Commercial and industrial loans			$	—					$	—					$	15,685					$	15,685					$	2,312
Real estate loans:
Construction			—						4						—						4						—
Commercial real estate, non-owner occupied			38,959						—						—						38,959						4,864
Commercial real estate, owner occupied			10,575						—						—						10,575						—
Residential			—						1,241						—						1,241						198
Home equity			—						206						—						206						26
Loans			$	49,534					$	1,451					$	15,685					$	66,670					$	7,400

			December 31, 2023
			Commercial Real Estate						Residential Real Estate						Other						Total						Allowance on Collateral Dependent Loans
Commercial and industrial loans			$	—					$	—					$	32,029					$	32,029					$	11,474
Real estate loans:
Construction			—						7						—						7						—
Commercial real estate, non-owner occupied			17,516						—						—						17,516						35
Commercial real estate, owner occupied			9,452						—						—						9,452						—
Residential			—						1,439						—						1,439						230
Home equity			—						223						—						223						30
Loans			$	26,968					$	1,669					$	32,029					$	60,666					$	11,769

20

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

In certain situations, the Corporation may modify the terms of a loan to a debtor experiencing financial difficulty. The modifications may include principal forgiveness, interest rate reductions, payment delays, term extensions or combinations of these modifications. The following tables present the amortized cost basis of loans at September 30, 2024 and 2023 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2024 and 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

			Three Months Ended September 30, 2024
			Loan Modifications Made to Borrowers Experiencing Financial Difficulty
			Payment Delay						Term Extension																		Combination Payment Delay & Term Extension						Combination Interest Rate Reduction & Term Extension						Combination Interest Rate Reduction, Term Extension, & Payment Delay						% of Total Class of Financing Receivable
Commercial and industrial loans			$	9,600					$	10,333																	$	—					$	31					$	—					0.49		%
Real estate loans:
Construction			—						915																		22,000						—						—						2.81		%
Commercial real estate, non-owner occupied			—						10,254																		—						10,828						—						0.94		%
Commercial real estate, owner occupied			—						5,841																		—						—						—						0.51		%
Residential			493						56																		—						—						304						0.04		%
Home equity			—						62																		—						—						—						0.01		%
Total			$	10,093					$	27,461																	$	22,000					$	10,859					$	304

			Three Months Ended September 30, 2023
			Loan Modifications Made to Borrowers Experiencing Financial Difficulty
			Payment Delay						Term Extension												Combination Interest Rate Reduction & Term Extension						Combination Payment Delay & Term Extension															% of Total Class of Financing Receivable
Commercial and industrial loans			$	908					$	7,734											$	134					$	—																	0.25		%
Real estate loans:
Commercial real estate, non-owner occupied			—						11,823												—						—																		0.50		%
Commercial real estate, owner occupied			—						6,950												—						—																		0.60		%
Home equity			—						63												—						—																		0.01		%
Individuals' loans for household and other personal expenditures			—						—												—						1																		—		%
Total			$	908					$	26,570											$	134					$	1

			Nine Months Ended September 30, 2024
			Loan Modifications Made to Borrowers Experiencing Financial Difficulty
			Payment Delay						Term Extension												Interest Rate Reduction						Combination Payment Delay & Term Extension						Combination Interest Rate Reduction & Term Extension						Combination Interest Rate Reduction, Term Extension, & Payment Delay						% of Total Class of Financing Receivable
Commercial and industrial loans			$	11,080					$	12,880											$	247					$	17					$	31					$	—					0.60		%
Real estate loans:
Construction			—						915												—						22,000						—						—						2.81		%
Commercial real estate, non-owner occupied			—						18,933												—						—						10,828						—						1.32		%
Commercial real estate, owner occupied			—						6,208												—						—						—						—						0.54		%
Residential			1,931						341												—						283						—						529						0.13		%
Home Equity			—						62												—						162						—						—						0.03		%
Total			$	13,011					$	39,339											$	247					$	22,462					$	10,859					$	529

21

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

			Nine Months Ended September 30, 2023
			Loan Modifications Made to Borrowers Experiencing Financial Difficulty
			Payment Delay						Term Extension												Combination Interest Rate Reduction & Term Extension						Combination Payment Delay & Term Extension																		% of Total Class of Financing Receivable
Commercial and industrial loans			$	908					$	14,822											$	239					$	—																	0.46		%
Agricultural land, production and other loans to farmers			—						34												—						—																		0.01		%
Real estate loans:
Construction			—						13												—						—																		—		%
Commercial real estate, non-owner occupied			—						11,823												5,942						—																		0.75		%
Commercial real estate, owner occupied			5,602						8,642												75						—																		1.24		%
Residential			—						—												—						472																		0.02		%
Home equity			—						63												—						—																		0.01		%
Individuals' loans for household and other personal expenditures			—						—												—						1																		—		%
Total			$	6,510					$	35,397											$	6,256					$	473

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended September 30, 2024

Financial Effect of Loan Modifications

Payment Delay

Term Extension

Combination Payment Delay & Term Extension

Combination Interest Rate Reduction & Term Extension

Combination Interest Rate Reduction, Term Extension & Payment Delay

Commercial and industrial loans

Provided payment deferrals with weighted average delayed amounts of $200,000.

Extended loans by a weighted average of 6 months.

Reduced the weighted average contractual interest rate from 9.50% to 8.05% and extended loans by a weighted average of 48 months.

Real estate loans:

Construction

Extended loans by a weighted average of 6 months.

Provided payment deferrals with weighted average delayed amounts of $475,000 and extended loans by a weighted average of 4 months.

Commercial real estate, non-owner occupied

Extended loans by a weighted average of 8 months.

Reduced the weighted average contractual interest rate from 12.38% to 7.88% and extended loans by a weighted average of 8 months.

Commercial real estate, owner occupied

Extended loans by a weighted average of 8 months.

Residential

Provided payment deferrals with weighted average delayed amounts of $8,000.

Extended loans by a weighted average of 92 months.

Provided payment deferrals with weighted average delayed amounts of $14,000, extended loans by a weighted average of 149 months, and reduced the weighted average contractual interest rate from 5.73% to 3.31%.

Home equity

Extended loans by a weighted average of 6 months.

22

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Three Months Ended September 30, 2023

Financial Effect of Loan Modifications

Payment Delay

Term Extension

Combination Interest Rate Reduction & Term Extension

Combination Payment Delay & Term Extension

Commercial and industrial loans

Provided payment deferrals with weighted average delayed amounts of $24,000.

Extended loans by a weighted average of 8 months.

Reduced the weighted average contractual interest rate from 10.75% to 7.62%. Extended loans by a weighted average of 14 months.

Real estate loans:

Commercial real estate, non-owner occupied

Extended loans by a weighted average of 11 months.

Commercial real estate, owner occupied

Extended loans by a weighted average of 4 months.

Home Equity

Extended loans by a weighted average of 5 months.

Individuals' loans for household and other personal expenditures

Provided payment deferrals with weighted average delayed amounts of $300. Extended loans by a weighted average of 3 months.

Nine Months Ended September 30, 2024

Financial Effect of Loan Modifications

Payment Delay

Term Extension

Interest Rate Reduction

Combination Payment Delay & Term Extension

Combination Interest Rate Reduction & Term Extension

Combination Interest Rate Reduction, Term Extension & Payment Delay

Commercial and industrial loans

Provided payment deferrals with weighted average delayed amounts of $180,000.

Extended loans by a weighted average of 9 months.

Reduced the weighted average contractual interest rate from 9.00% to 8.00%.

Provided payment deferrals with weighted average delayed amounts of $4,900 and extended loans by a weighted average of 3 months.

Reduced the weighted average contractual interest rate from 9.50% to 8.05%. Extended loans by a weighted average of 48 months.

Real estate loans:

Construction

Extended loans by a weighted average of 6 months.

Provided payment deferrals with weighted average delayed amounts of $475,000 and extended loans by a weighted average of 4 months.

Commercial real estate, non-owner occupied

Extended loans by a weighted average of 13 months.

Reduced the weighted average contractual interest rate from 12.38% to 7.88%. Extended loans by a weighted average of 8 months.

Commercial real estate, owner occupied

Extended loans by a weighted average of 13 months.

Residential

Provided payment deferrals with weighted average delayed amounts of $26,000.

Extended loans by a weighted average of 20 months.

Provided payment deferrals with weighted average delayed amounts of $8,000 and extended loans by a weighted average of 153 months.

Provided payment deferrals with weighted average delayed amounts of $14,000, extended loans by a weighted average of 91 months, and reduced the weighted average contractual interest rate from 5.74% to 4.03%.

Home Equity

Extended loans by a weighted average of 6 months.

Provided payment deferrals with weighted average delayed amounts of $7,800 and extended loans by a weighted average of 60 months.

23

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Nine Months Ended September 30, 2023

Financial Effect of Loan Modifications

Payment Delay

Term Extension

Combination Interest Rate Reduction & Term Extension

Combination Payment Delay & Term Extension

Commercial and industrial loans

Provided payment deferrals with weighted average delayed amounts of $24,000

Extended loans by a weighted average of 8 months.

Reduced the weighted average contractual interest rate from 9.66% to 7.39%. Extended loans by a weighted average of 13 months.

Agricultural land, production and other loans to farmers

Extended loans by a weighted average of 60 months.

Real estate loans:

Construction

Extended loans by a weighted average of 24 months.

Commercial real estate, non-owner occupied

Extended loans by a weighted average of 10 months.

Reduced the weighted average contractual interest rate from 7.81% to 7.40%. Extended loans by a weighted average of 41 months.

Commercial real estate, owner occupied

Provided payment deferrals with weighted average delayed amounts of $4,500,000.

Extended loans by a weighted average of 4 months.

Reduced the weighted average contractual interest rate from 10.25% to 6.61%. Extended loans by a weighted average of 114 months.

Residential

Provided payment deferrals with weighted average delayed amounts $3,400. Extended loans by a weighted average of 3 months.

Home Equity

Extended loans by a weighted average of 5 months.

Provided payment deferrals with weighted average delayed amounts $300. Extended loans by a weighted average of 3 months.

The Corporation closely monitors the performance of financial difficulty modifications to understand the effectiveness of its efforts. The following tables present the performance of financial difficulty modifications in the twelve months following modification.

			September 30, 2024
			Current						30-59 Days Past Due						60-89 Days Past Due						90+ Days Past Due						Total
Commercial and industrial loans			$	24,445					$	—					$	1,927					$	—					$	26,372
Agricultural land, production and other loans to farmers			22						—						—						—						22
Real estate loans:																											—
Construction			22,915						—						—						—						22,915
Commercial real estate, non-owner occupied			21,082						8,680						—						1,730						31,492
Commercial real estate, owner occupied			7,523						—						—						—						7,523
Residential			1,940						—						250						1,189						3,379
Home equity			252						—						—						—						252
Total			$	78,179					$	8,680					$	2,177					$	2,919					$	91,955

			September 30, 2023
			Current						30-59 Days Past Due						60-89 Days Past Due						Total
Commercial and industrial loans			$	15,863					$	—					$	106					$	15,969
Agricultural land, production and other loans to farmers			34						—						—						34
Real estate loans:																					—
Construction			13						—						—						13
Commercial real estate, non-owner occupied			17,765						—						—						17,765
Commercial real estate, owner occupied			13,157						—						1,162						14,319
Residential			472						—						—						472
Home equity			63						—						—						63
Individuals' loans for household and other personal expenditures			—						1						—						1
Total			$	47,367					$	1					$	1,268					$	48,636

24

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

During the three and nine months ended September 30, 2024, there were payment defaults of $1.7 million and $2.9 million, respectively, on loans to borrowers whose loans were modified due to financial difficulties within the previous twelve months. The payment defaults did not materially impact the allowance for credit losses on loans. There were no payment defaults during the three and nine months ended September 30, 2023 on loans that had been modified within the previous twelve months.

Upon the Corporation's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Allowance for Credit Losses on Loans

The Allowance for Credit Losses on Loans ("ACL - Loans") is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term. The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge-offs for loans, net of recoveries. Provision for credit losses on loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Loans are charged-off against the allowance when the uncollectibility of the loan is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance represents the Corporation’s best estimate of current expected credit losses on loans using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The CECL calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan. The level of the allowance for credit losses is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the allowance for credit losses, the loan portfolio was pooled into ten loan segments with similar risk characteristics. Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns. In developing the loan segments, the Corporation analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors.

The expected credit losses are measured over the life of each loan segment utilizing the Probability of Default / Loss Given Default methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio. This approach is also leveraged to estimate the expected credit losses associated with unfunded loan commitments incorporating expected utilization rates.

The Corporation sub-segmented certain commercial portfolios by risk level and certain consumer portfolios by delinquency status where appropriate. The Corporation utilized a four-quarter reasonable and supportable economic forecast period followed by a six-quarter, straight-line reversion period to the historical macroeconomic mean for the remaining life of the loans. Econometric modeling was performed using historical default rates and a selection of economic forecast scenarios published by Moody’s to develop a range of estimated credit losses for which to determine the best credit loss estimate within. Macroeconomic factors utilized in the modeling process include the national unemployment rate, BBB US corporate index, Commercial Real Estate ("CRE") price index and the home price index.

The Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, charge-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending, investment, collection and other relevant management staff, (vi) changes in the volume and severity of past due financial assets, the volume of the nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vii) the value of underlying collateral for loans that are not collateral dependent, and (viii) other environmental factors such as regulatory, legal and technological considerations, as well as competition and changes in the economic and business conditions that affect the collectibility of financial assets. At CECL adoption, the Corporation established certain qualitative factors that were expected to correlate to losses within the loan portfolio. During a scheduled review of qualitative factors in 2023, the Corporation determined there had not been significant evidence of correlation to losses for the qualitative factors that included i) changes in experience, ability and depth of lending management and staff; ii) changes in lending policies and procedures; iii) changes in the quality of the credit review function; iv) portfolio mix and growth; and v) industry concentration. The Corporation decided to refine these qualitative factors in order to improve our ability to assess related risk and enhance our ability to correlate to losses. The Corporation’s evaluation of the qualitative approach resulted in an insignificant change to the ACL – Loans estimate.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.

25

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The risk characteristics of the Corporation’s portfolio segments are as follows:

Commercial

Commercial lending is primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the tangible assets being financed such as equipment or real estate or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Other loans may be unsecured, secured but under-collateralized or otherwise made on the basis of the enterprise value of an organization. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Corporation monitors commercial real estate loans based on collateral and risk grade criteria, as well as the levels of owner-occupied versus non-owner occupied loans.

Construction

Construction loans are underwritten utilizing a combination of tools and techniques including feasibility and market studies, independent appraisals and appraisal reviews, absorption and interest rate sensitivity analysis as well as the financial analysis of the developer and all guarantors. Construction loans are monitored by either in house or third party inspectors limiting advances to a percentage of costs or stabilized project value. These loans frequently involve the disbursement of significant funds with the repayment dependent upon the successful completion and, where necessary, the future stabilization of the project. The predominant inherent risk of this portfolio is associated with the borrower's ability to successfully complete a project on time, within budget and stabilize the projected as originally projected.

Consumer and Residential

With respect to residential loans that are secured by 1-4 family residences, which are typically owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans, such as small installment loans and certain lines of credit, are unsecured. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers and can also be impacted by changes in property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The ACL - Loans decreased $1.7 million and $17.1 million during the three and nine months ended September 30, 2024, respectively. Net charge-offs totaled $6.7 million and $48.6 million during the three and nine months ended September 30, 2024, respectively. Provision expense of $5.0 million and $31.5 million was recorded during the three and nine months ended September 30, 2024, respectively. The following tables summarize changes in the allowance for credit losses by loan segment for the three and nine months ended September 30, 2024 and 2023:

			Three Months Ended September 30, 2024
			Commercial						Commercial Real Estate						Construction																		Consumer & Residential						Total
Allowance for credit losses - loans
Balances, June 30, 2024			$	91,217					$	45,514					$	14,360																	$	38,446					$	189,537
Provision for credit losses - loans			8,456						1,873						(2,609)																		(2,720)						5,000
Recoveries on loans			505						18						—																		371						894
Loans charged off			(6,375)						—						—																		(1,228)						(7,603)
Balances, September 30, 2024			$	93,803					$	47,405					$	11,751																	$	34,869					$	187,828

			Three Months Ended September 30, 2023
			Commercial						Commercial Real Estate						Construction																		Consumer & Residential						Total
Allowance for credit losses - loans
Balances, June 30, 2023			$	108,373					$	39,157					$	30,073																	$	43,544					$	221,147
Provision for credit losses - loans			3,020						4,901						140																		(3,061)						5,000
Recoveries on loans			179						—						—																		367						546
Loans charged off			(19,833)						—						—																		(1,078)						(20,911)
Balances, September 30, 2023			$	91,739					$	44,058					$	30,213																	$	39,772					$	205,782

26

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

			Nine Months Ended September 30, 2024
			Commercial						Commercial Real Estate						Construction						Consumer & Residential						Total
Allowance for credit losses - loans
Balances, December 31, 2023			$	97,348					$	44,048					$	24,823					$	38,715					$	204,934
Provision for credit losses - loans			43,249						3,476						(13,072)						(2,153)						31,500
Recoveries on loans			1,592						232						—						1,227						3,051
Loans charged off			(48,386)						(351)						—						(2,920)						(51,657)
Balances, September 30, 2024			$	93,803					$	47,405					$	11,751					$	34,869					$	187,828

			Nine Months Ended September 30, 2023
			Commercial						Commercial Real Estate						Construction						Consumer & Residential						Total
Allowance for credit losses - loans
Balances, December 31, 2022			$	102,216					$	46,839					$	28,955					$	45,267					$	223,277
Provision for credit losses - loans			9,460						(2,833)						1,258						(2,885)						5,000
Recoveries on loans			775						56						—						1,004						1,835
Loans charged off			(20,712)						(4)						—						(3,614)						(24,330)
Balances, September 30, 2023			$	91,739					$	44,058					$	30,213					$	39,772					$	205,782

Off-Balance Sheet Arrangements, Commitments And Contingencies

In the normal course of business, the Corporation has entered into off-balance sheet financial instruments which include commitments to extend credit and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial customers that use lines of credit to supplement their treasury management functions, and thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing for their cash flows. Other typical lines of credit are related to home equity loans granted to customers. Commitments to extend credit generally have fixed expiration dates or other termination clauses that may require a fee.

Standby letters of credit are generally issued on behalf of an applicant (the Corporation’s customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. The standby letter of credit would permit the beneficiary to obtain payment from the Corporation under certain prescribed circumstances. Subsequently, the Corporation would seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.

The Corporation typically follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash, real estate, marketable securities, accounts receivable, inventory, equipment and personal property. The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should the Corporation’s customers default on their resulting obligation to the Corporation, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments.

Financial instruments with off-balance sheet risk were as follows:

			September 30, 2024						December 31, 2023
Amounts of commitments:
Loan commitments to extend credit			$	5,493,144					$	5,025,790
Standby letters of credit			$	66,043					$	65,580

The Corporation maintains an accrual for credit losses on off-balance sheet commitments using the CECL methodology. Reserves for unfunded commitments declined by $3.0 million during the three and nine months ended September 30, 2023. There was no change in the reserve for unfunded commitments during the three and nine months ended September 30, 2024. This reserve level remains appropriate and is reported in Other Liabilities as of September 30, 2024 in the Consolidated Condensed Balance Sheets.

27

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The table below reflects the total allowance for credit losses for the off-balance sheet commitment for the three and nine months ended September 30, 2024 and 2023:

			Three Months Ended												Nine Months Ended
			September 30, 2024						September 30, 2023						September 30, 2024						September 30, 2023
Balance at beginning of the period			$	19,500					$	23,300					$	19,500					$	23,300
Provision for credit losses - unfunded commitments			—						(3,000)						—						(3,000)
Ending balance			$	19,500					$	20,300					$	19,500					$	20,300

NOTE 5

DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash payments principally related to certain variable-rate liabilities.  The Corporation also has derivatives that are a result of a service the Corporation provides to certain qualifying customers, and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities.  The Corporation manages a matched book with respect to its derivative instruments offered as a part of this service to its customers in order to minimize its net risk exposure resulting from such transactions.

Derivatives Designated as Hedges

The Corporation’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Corporation primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of fixed amounts to a counterparty in exchange for the Corporation receiving variable payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. As of September 30, 2024 and December 31, 2023 the Corporation had no interest rate swaps or caps designated as hedges.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2024 and 2023, the Corporation did not recognize any ineffectiveness.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation's variable-rate liabilities. During the next twelve months, the Corporation doesn't expect to reclassify income (loss) associated with derivatives from accumulated other comprehensive loss to interest expense.

The amount of loss recognized in other comprehensive income (loss) is included in the table below for the periods indicated.

Derivatives in Cash Flow Hedging Relationships			Amount of Loss Recognized in Other Comprehensive Income (Loss) on Derivatives  (Effective Portion)
			Three Months Ended												Nine Months Ended
			September 30, 2024						September 30, 2023						September 30, 2024						September 30, 2023
Interest Rate Products			$	—					$	(66)					$	—					$	(179)

28

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The amount of gain (loss) reclassified from accumulated other comprehensive loss into income related to cash flow hedging relationships is included in the tables below for the periods indicated.

Derivatives Designated as Hedging Instruments

Location of Gain (Loss) Recognized Income on Derivative

Amount of Gain Reclassed from Accumulated Other Comprehensive Loss into Income (Effective Portion)

Three Months Ended September 30, 2024

Three Months Ended September 30, 2023

Interest rate contracts

Interest Expense

$

—

$

—

Derivatives Designated as Hedging Instruments

Location of Gain (Loss) Recognized Income on Derivative

Amount of Gain Reclassed from Accumulated Other Comprehensive Loss into Income (Effective Portion)

Nine Months Ended September 30, 2024

Nine Months Ended September 30, 2023

Interest rate contracts

Interest Expense

$

—

$

(15)

Non-designated Hedges

The Corporation does not use derivatives for trading or speculative purposes.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. 

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Corporation's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair value of these mortgage banking derivatives are included in net gains and fees on sales of loans.

The table below presents the fair value of the Corporation’s non-designated hedges, as well as their classification on the Consolidated Condensed Balance Sheets, as of September 30, 2024, and December 31, 2023.

			September 30, 2024												December 31, 2023
			Notional Amount						Fair Value						Notional Amount						Fair Value
Included in other assets:
Interest rate swaps			$	1,333,382					$	61,207					$	1,355,947					$	78,743
Forward contracts related to mortgage loans to be delivered for sale			80,528						840						15,160						469
Interest rate lock commitments			38,639						223						22,706						167
Included in other assets			$	1,452,549					$	62,270					$	1,393,813					$	79,379
Included in other liabilities:
Interest rate swaps			$	1,332,410					$	61,248					$	1,355,947					$	78,811
Forward contracts related to mortgage loans to be delivered for sale			16,500						61						25,290						191
Interest rate lock commitments			28,135						77						1,025						6
Included in other liabilities			$	1,377,045					$	61,386					$	1,382,262					$	79,008

29

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in "Net gains and fees on sales of loans" in the Consolidated Condensed Statements of Income and is considered a cost of executing a forward contract. The amount of gain (loss) recognized into income related to non-designated hedging instruments is included in the tables below for the periods indicated.

Derivatives Not Designated as Hedging Instruments						Location of Gain (Loss) Recognized Income on Derivative						Amount of Gain (Loss) Recognized into Income on Derivatives
												Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
Forward contracts related to mortgage loans to be delivered for sale						Net gains and fees on sales of loans						$	(966)					$	982
Interest rate lock commitments						Net gains and fees on sales of loans						30						(100)
Total net gain (loss) recognized in income												$	(936)					$	882

Derivatives Not Designated as Hedging Instruments						Location of Gain (Loss) Recognized Income on Derivative						Amount of Gain (Loss) Recognized into Income on Derivatives
												Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
Forward contracts related to mortgage loans to be delivered for sale						Net gains and fees on sales of loans						$	(573)					$	1,691
Interest rate lock commitments						Net gains and fees on sales of loans						(15)						(133)
Total net gain/(loss) recognized in income												$	(588)					$	1,558

The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties.  The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s at or above investment grade.  The Corporation’s mitigation of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.

Credit-risk-related Contingent Features

The Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequately capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts. Additionally, the Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. As of September 30, 2024, the termination value of derivatives in a net liability position related to these agreements was $12.6 million, which resulted in $1.3 million of collateral pledged to counterparties as of September 30, 2024. While the Corporation did not breach any of these provisions as of September 30, 2024, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.

NOTE 6

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation used fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  ASC 820 applies only when other guidance requires or permits assets or liabilities to be measured at fair value; it does not expand the use of fair value in any new circumstances.

As defined in ASC 820, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants. It represents an exit price at the measurement date. Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured. Current market conditions, including imbalances between supply and demand, are considered in determining fair value. The Corporation values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability (i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability).

30

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability. Inputs can be observable or unobservable. Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from a source independent of the Corporation. Unobservable inputs are assumptions based on the Corporation’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs for which there is little or no market activity (Level 3). Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation considers an input to be significant if it drives 10 percent or more of the total fair value of a particular asset or liability.

RECURRING MEASUREMENTS

Assets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment and recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the

accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities. Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government-sponsored agency and mortgage-backed securities, state and municipal securities and corporate obligations securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities, U.S. Government-sponsored mortgage-backed securities and corporate obligations securities. Level 3 fair value for securities was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.

31

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Derivative Financial Agreements

See information regarding the Corporation’s derivative financial agreements in NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2024, and December 31, 2023.

									Fair Value Measurements Using:
September 30, 2024			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities			$	85,033					$	—					$	85,033					$	—
State and municipal			984,111						—						981,665						2,446
U.S. Government-sponsored mortgage-backed securities			472,046						—						472,042						4
Corporate obligations			12,306						—						12,275						31
Derivative assets			62,270						—						62,270						—
Derivative liabilities			61,386						—						61,386						—

									Fair Value Measurements Using:
December 31, 2023			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities			$	95,307					$	—					$	95,307					$	—
State and municipal			1,065,171						—						1,061,896						3,275
U.S. Government-sponsored mortgage-backed securities			454,815						—						454,811						4
Corporate obligations			11,819						—						11,788						31
Derivative assets			79,379						—						79,379						—
Derivative liabilities			79,008						—						79,008						—

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying

balance sheets using significant unobservable Level 3 inputs for the three and nine months ended September 30, 2024 and 2023.

			Available for Sale Securities
			Three Months Ended												Nine Months Ended
			September 30, 2024						September 30, 2023						September 30, 2024						September 30, 2023
Balance at beginning of the period			$	3,224					$	3,348					$	3,310					$	3,439
Included in other comprehensive income			65						(30)						76						(28)
Principal payments			(808)						(90)						(905)						(183)
Ending balance			$	2,481					$	3,228					$	2,481					$	3,228

There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or

liabilities held at September 30, 2024 or December 31, 2023.

Transfers Between Levels

There were no transfers in or out of Level 3 during the three and nine months ended September 30, 2024 and 2023.

32

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Nonrecurring Measurements

Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy at September 30, 2024, and December 31, 2023.

												Fair Value Measurements Using
September 30, 2024						Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Collateral dependent loans						$	55,211					$	—					$	—					$	55,211

												Fair Value Measurements Using
December 31, 2023						Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable  Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Collateral dependent loans						$	55,020					$	—					$	—					$	55,020

Collateral Dependent Loans

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2024 and December 31, 2023.

September 30, 2024

Fair Value

Valuation Technique

Unobservable Inputs

Range (Weighted-Average)

State and municipal securities

$

2,446

Discounted cash flow

Maturity/Call date

1 month to 6 years

US Muni BQ curve

BBB

Discount rate

3.1% - 4.3%

Weighted-average coupon

3.6%

Corporate obligations and U.S. Government-sponsored mortgage-backed securities

$

35

Discounted cash flow

Risk free rate

3 month CME Term SOFR plus 26bps

plus premium for illiquidity (basis points)

plus 200bps

Weighted-average coupon

0%

Collateral dependent loans

$

55,211

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

0% - 15%

Weighted-average discount by loan balance

12.1%

33

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

December 31, 2023

Fair Value

Valuation Technique

Unobservable Inputs

Range (Weighted-Average)

State and municipal securities

$

3,275

Discounted cash flow

Maturity/Call date

1 month to 15 years

US Muni BQ curve

BBB

Discount rate

3.6% - 4.7%

Weighted-average coupon

3.3%

Corporate obligations and U.S. Government-sponsored mortgage-backed securities

$

35

Discounted cash flow

Risk free rate

3 month CME Term SOFR plus 26bps

plus premium for illiquidity (basis points)

plus 200bps

Weighted-average coupon

0%

Collateral dependent loans

$

55,020

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

0% - 10%

Weighted-average discount by loan balance

4.1%

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

State and Municipal Securities, Corporate Obligations and U.S. Government-sponsored Mortgage-Backed Securities

The significant unobservable inputs used in the fair value measurement of the Corporation's state and municipal securities, corporate obligations and U.S. Government-sponsored mortgage-backed securities are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input.

Fair Value of Financial Instruments

The following tables present estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2024 and December 31, 2023.

									September 30, 2024
									Quoted Prices in Active Markets for Identical Assets						Significant Other Observable Inputs						Significant Unobservable Inputs
			Carrying Amount						(Level 1)						(Level 2)						(Level 3)						Total Fair Value
Assets:
Cash and due from banks			$	84,719					$	84,719					$	—					$	—					$	84,719
Interest-bearing deposits			359,126						359,126						—						—						359,126
Investment securities available for sale			1,553,496						—						1,551,015						2,481						1,553,496
Investment securities held to maturity, net			2,108,649						—						1,815,856						7,150						1,823,006
Loans held for sale			40,652						—						40,652						—						40,652
Net loans			12,458,980						—						—						12,251,924						12,251,924
Federal Home Loan Bank stock			41,716						—						41,716						—						41,716
Derivative assets			62,270						—						62,270						—						62,270
Interest receivable			92,055						—						92,055						—						92,055
Liabilities:
Deposits			$	14,365,100					$	11,980,746					$	2,380,600					$	—					14,361,346
Borrowings:
Federal funds purchased			30,000						—						30,000						—						30,000
Securities sold under repurchase agreements			124,894						—						124,894						—						124,894
Federal Home Loan Bank advances			832,629						—						841,458						—						841,458
Subordinated debentures and other borrowings			93,562						—						83,242						—						83,242
Deposits and other liabilities held for sale			288,476						—						266,898						—						266,898
Derivative liabilities			61,386						—						61,386						—						61,386
Interest payable			18,089						—						18,089						—						18,089

34

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

									December 31, 2023
									Quoted Prices in Active Markets for Identical Assets						Significant Other Observable Inputs						Significant Unobservable Inputs
			Carrying Amount						(Level 1)						(Level 2)						(Level 3)						Total Fair Value
Assets:
Cash and due from banks			$	112,649					$	112,649					$	—					$	—					$	112,649
Interest-bearing deposits			436,080						436,080						—						—						436,080
Investment securities available for sale			1,627,112						—						1,623,802						3,310						1,627,112
Investment securities held to maturity, net			2,184,252						—						1,859,974						10,400						1,870,374
Loans held for sale			18,934						—						18,934						—						18,934
Net loans			12,281,093						—						—						11,958,301						11,958,301
Federal Home Loan Bank stock			41,769						—						41,769						—						41,769
Derivative assets			79,379						—						79,379						—						79,379
Interest receivable			97,664						—						97,664						—						97,664
Liabilities:
Deposits			$	14,821,453					$	12,482,295					$	2,329,662					$	—					14,811,957
Borrowings:
Securities sold under repurchase agreements			157,280						—						157,265						—						157,265
Federal Home Loan Bank advances			712,852						—						707,377						—						707,377
Subordinated debentures and other borrowings			158,644						—						149,995						—						149,995
Derivative liabilities			79,008						—						79,008						—						79,008
Interest payable			18,912						—						18,912						—						18,912

NOTE 7

QUALIFIED AFFORDABLE HOUSING INVESTMENTS

The Corporation has investments in various limited partnerships that sponsor affordable housing projects. The purpose of these investments is to earn an adequate return of capital through the receipt of low income housing tax credits and to assist the Corporation in achieving goals associated with the Community Reinvestment Act ("CRA"). These investments are included in other assets on the Consolidated Condensed Balance Sheets, with any unfunded commitments included in other liabilities. The investments are amortized as a component of income tax expense.

The following table summarizes the Corporation’s affordable housing investments as of September 30, 2024 and December 31, 2023:

						September 30, 2024												December 31, 2023
Investment Type						Investment						Unfunded Commitment						Investment						Unfunded Commitment
LIHTC						$	149,830					$	114,756					$	114,514					$	96,408

The following table summarizes the amortization expense and tax credits recognized for the Corporation’s affordable housing investments for the three and nine months ended September 30, 2024 and 2023, respectively:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2024						2023						2024						2023
Amortization expense						$	1,695					$	2,242					$	5,018					$	4,080
Tax credits recognized						1,644						1,855						4,933						3,472

NOTE 8

BORROWINGS

The following table summarizes the Corporation’s borrowings as of September 30, 2024 and December 31, 2023:

			September 30, 2024						December 31, 2023
Federal funds purchased			$	30,000					$	—
Securities sold under repurchase agreements			124,894						157,280
Federal Home Loan Bank advances			832,629						712,852
Subordinated debentures and other borrowings			93,562						158,644
Total Borrowings			$	1,081,085					$	1,028,776

35

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Securities sold under repurchase agreements consist of obligations of the Bank to other parties and are secured by U.S. Government-sponsored enterprise obligations. The maximum amount of outstanding agreements at any month-end during the nine months ended September 30, 2024 and 2023 totaled $194.2 million and $241.9 million, respectively, and the average balance of such agreements totaled $138.1 million and $181.2 million during the same period of 2024 and 2023, respectively.

The collateral pledged for all repurchase agreements that are accounted for as secured borrowings as of September 30, 2024 and December 31, 2023 were:

			September 30, 2024
			Remaining Contractual Maturity of the Agreements
			Overnight and Continuous						Up to 30 Days						30-90 Days						Greater Than 90 Days						Total
U.S. Government-sponsored mortgage-backed securities			$	124,894					$	—					$	—					$	—					$	124,894

			December 31, 2023
			Remaining Contractual Maturity of the Agreements
			Overnight and Continuous						Up to 30 Days						30-90 Days						Greater Than 90 Days						Total
U.S. Government-sponsored mortgage-backed securities			$	157,280					$	—					$	—					$	—					$	157,280

Contractual maturities of borrowings as of September 30, 2024, are as follows:

Maturities in Years Ending December 31:			Federal Funds Purchased						Securities Sold Under Repurchase Agreements						Federal Home Loan Bank Advances						Subordinated Debentures and Term Loans
2024			$	30,000					$	124,894					$	10,000					$	1,164
2025			—						—						95,000						—
2026			—						—						75,000						—
2027			—						—						250,000						—
2028			—						—						190,000						5,000
2029 and after			—						—						212,629						90,846
ASC 805 fair value adjustments at acquisition			—						—						—						(3,448)
			$	30,000					$	124,894					$	832,629					$	93,562

At September 30, 2024, the outstanding FHLB advances had interest rates from 0.35 to 4.94 percent and are subject to restrictions or penalties in the event of prepayment. The total available remaining borrowing capacity from the FHLB at September 30, 2024, was $762.6 million. As of September 30, 2024, the Corporation had $305.0 million of putable advances with the FHLB.

Subordinated Debentures and Term Loans. As of September 30, 2024 and December 31, 2023, subordinated debentures and term loans totaled $93.6 million and $158.6 million, respectively.

•First Merchants Capital Trust II (“FMC Trust II”). At September 30, 2024 and December 31, 2023, the Corporation had $41.7 million of subordinated debentures issued to FMC Trust II, a wholly-owned statutory business trust. FMC Trust II was formed in July 2007 for purposes of issuing trust preferred securities to investors. At that time, it simultaneously issued and sold its common securities to the Corporation, which constituted all of the issued and outstanding common securities of FMC Trust II. The subordinated debentures, which were purchased with the proceeds of the sale of the trust’s capital securities, are the sole assets of FMC Trust II and are fully and unconditionally guaranteed by the Corporation. As of September 30, 2024 and December 31, 2023, the subordinated debentures and trust preferred securities bear interest at a variable rate equal to the three-month CME Term Secured Overnight Financing Rate ("SOFR"), plus the 0.26161 percent spread adjustment. The interest rate at September 30, 2024 and December 31, 2023 was 6.77 percent and 7.21 percent, respectively. The trust preferred securities are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies. The trust preferred securities and the subordinated debentures of FMC Trust II will mature on September 15, 2037. The Corporation continues to hold all outstanding common securities of FMC Trust II.

•Ameriana Capital Trust I. At September 30, 2024 and December 31, 2023, the Corporation had $10.3 million of subordinated debentures issued to Ameriana Capital Trust I. On December 31, 2015, the Corporation acquired Ameriana Capital Trust I in conjunction with its acquisition of Ameriana Bancorp, Inc. With a trust preferred structure substantially similar to that described above for FMC Trust II, the subordinated debentures held by Ameriana Capital Trust I were purchased with the proceeds of the sale of the trust’s capital securities. As of September 30, 2024 and December 31, 2023, the subordinated debentures and trust preferred securities bear interest at a variable rate equal to the three-month CME Term SOFR, plus the 0.26161 percent spread adjustment. The interest rate at September 30, 2024 and December 31, 2023 was 6.71 percent and 7.15 percent, respectively. The trust preferred securities of Ameriana Capital Trust I are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies. The trust preferred securities and the subordinated debentures of Ameriana Capital Trust I will mature in March 2036. The Corporation continues to hold all of the outstanding common securities of Ameriana Capital Trust I.

36

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

•First Merchants Senior Notes and Subordinated Notes. On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $70 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5 million (the “Senior Debt”) and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due 2028 in the aggregate principal amount of $65 million (the “Subordinated Debt”). The interest rate on the Senior Debt and Subordinated Debt remained fixed for the first ten (10) years and became floating thereafter. The rates converted to floating on October 30, 2023. The Corporation had an option to redeem the Subordinated Debt in whole or in part at a redemption price equal to 100 percent of the principal amount of the redeemed Subordinated Notes, plus accrued and unpaid interest to the date of the redemption. The option of redemption was subject to the approval of the Federal Reserve Board. The Corporation has an option to redeem the Senior Debt in whole or in part at a redemption price equal to 100 percent of the principal amount of the redeemed Senior Notes, plus accrued and unpaid interest to the date of the redemption; provided, however, that no Subordinated Notes (as defined in the Issuing and Paying Agency Agreement) may remain outstanding subsequent to any early redemption of Senior Notes. The Subordinated Debt and the Senior Debt options to redeem began with the interest payment date on October 30, 2023, or on any scheduled interest payment date thereafter. During the first quarter of 2024, the Corporation exercised its rights to redeem $40.0 million in principal and paid the debt in full on the scheduled interest payment date. Additionally, in the second quarter of 2024, the Corporation exercised its rights to redeem the remaining $25.0 million in principal and paid the debt on the scheduled interest payment date. Both redemptions were permitted under the optional redemptions provisions of the Subordinated Note Certificate representing the Subordinated Debt. The Senior Debt agreement contains certain customary representations and warranties and financial and negative covenants. As of September 30, 2024 and December 31, 2023 the Corporation was in compliance with these covenants.

•Level One Subordinated Notes. On April 1, 2022, the Corporation assumed certain subordinated notes in conjunction with its acquisition of Level One. The $30.0 million of subordinated notes issued on December 18, 2019 bear a fixed interest rate of 4.75 percent per annum, payable semiannually through December 18, 2024. The notes will bear a floating interest rate equal to the of three-month CME Term SOFR plus 3.11 percent, payable quarterly, after December 18, 2024 through maturity. The notes mature on December 18, 2029, and the Corporation has the option to redeem any or all of the subordinated notes without premium or penalty any time after December 18, 2024 or upon the occurrence of a tier 2 capital event or tax event.

•Other Borrowings. During the third quarter of 2023, the Corporation acquired a secured borrowing in conjunction with the purchase of the Indianapolis regional headquarters building. The secured borrowing bears a fixed interest rate of 3.41 percent, has a maturity date of March 2035, and had a balance of $7.2 million and $7.3 million as of September 30, 2024 and December 31, 2023, respectively. On April 1, 2022, the Corporation acquired a secured borrowing in conjunction with its acquisition of Level One. The secured borrowing related to a certain loan participation sold by Level One that did not qualify for sales treatment. The secured borrowing bears a fixed rate of 1.00 percent and had a balance of $1.2 million as of September 30, 2024 and December 31, 2023.

Line of Credit. As of September 30, 2024, there was no outstanding balance on the line of credit.

•U.S. Bank, N.A. On September 30, 2024, the Corporation entered into a Credit Agreement with U.S. Bank, N.A. Under the terms of the Credit Agreement, the Lender has provided the Corporation with a revolving line of credit of up to $75.0 million. The outstanding principal balance under the Credit Facility bears interest at a variable rate equal to the one-month Term SOFR rate plus 2.25 percent. Interest on the outstanding balance is payable quarterly, and the Credit Facility has a maturity date of September 30, 2025. Additionally, the Corporation is subject to a non-refundable facility fee equal to 0.40 percent per annum on the average daily unused amount of the Credit Facility, payable quarterly. The Credit Agreement contains customary representations, warranties and covenants. As of September 30, 2024, the Corporation's outstanding principal balance under the Credit Facility was zero and the Corporation was in compliance with all covenants.

37

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 9

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes the changes in the balances of each component of accumulated other comprehensive loss, net of tax, as of September 30, 2024 and 2023:

			Accumulated Other Comprehensive Loss
			Unrealized Gains (Losses) on Securities Available for Sale												Unrealized Gains (Losses) on Cash Flow Hedges						Unrealized Gains (Losses) on Defined Benefit Plans						Total
Balance at December 31, 2023			$	(173,654)											$	—					$	(2,316)					$	(175,970)
Other comprehensive income before reclassifications			16,905												—						—						16,905
Amounts reclassified from accumulated other comprehensive loss			7,240												—						—						7,240
Period change			24,145												—						—						24,145
Balance at September 30, 2024			$	(149,509)											$	—					$	(2,316)					$	(151,825)
Balance at December 31, 2022			$	(234,495)											$	130					$	(4,786)					$	(239,151)
Other comprehensive loss before reclassifications			(71,633)												(142)						—						(71,775)
Amounts reclassified from accumulated other comprehensive loss			3,644												12						—						3,656
Period change			(67,989)												(130)						—						(68,119)
Balance at September 30, 2023			$	(302,484)											$	—					$	(4,786)					$	(307,270)

The following tables present the reclassification adjustments out of accumulated other comprehensive loss that were included in net income in the Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2024 and 2023.

						Amount Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended September 30,
Details about Accumulated Other Comprehensive Loss Components						2024						2023						Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains (losses) reclassified into income						$	(9,114)					$	(1,650)					Other income - net realized gains (losses) on sales of available for sale securities
Related income tax benefit (expense)						1,914						346						Income tax expense
						$	(7,200)					$	(1,304)
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts						$	—					$	—					Interest expense - subordinated debentures and term loans
Related income tax benefit (expense)						—						—						Income tax expense
						$	—					$	—
Total reclassifications for the period, net of tax						$	(7,200)					$	(1,304)

						Amount Reclassified from Accumulated Other Comprehensive Loss For the Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Loss Components						2024						2023						Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income						$	(9,165)					$	(4,613)					Other income - net realized gains on sales of available for sale securities
Related income tax benefit (expense)						1,925						969						Income tax expense
						$	(7,240)					$	(3,644)
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts						$	—					$	(15)					Interest expense - subordinated debentures and term loans
Related income tax benefit (expense)						—						3						Income tax expense
						$	—					$	(12)
Total reclassifications for the period, net of tax						$	(7,240)					$	(3,656)

(1) For additional detail related to unrealized gains (losses) on available for sale securities and related amounts reclassified from accumulated other comprehensive loss see NOTE 3. INVESTMENT SECURITIES of these Notes to Consolidated Condensed Financial Statements.

(2) For additional detail related to unrealized gains (losses) on cash flow hedges and related amounts reclassified from accumulated other comprehensive loss see NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.

38

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 10

SHARE-BASED COMPENSATION

Stock options and Restricted Stock Awards ("RSA") have been issued to directors, officers and other management employees under the Corporation's 2019 Long-term Equity Incentive Plan, the 2024 Long-term Equity Incentive Plan, the Level One Bancorp, Inc. 2007 Stock Option Plan and the Equity Compensation Plan for Non-Employee Directors. The stock options, which have a ten year life, become 100 percent vested based on time ranging from one year to two years and are fully exercisable when vested. Option exercise prices equal the Corporation's common stock closing price on NASDAQ on the date of grant. The RSAs issued to employees and non-employee directors provide for the issuance of shares of the Corporation's common stock at no cost to the holder and generally vest after three years.  The RSAs vest only if the employee is actively employed by the Corporation on the vesting date and, therefore, any unvested shares are forfeited.  For non-employee directors, the RSAs vest only if the non-employee director remains as an active board member on the vesting date and, therefore, any unvested shares are forfeited. The RSAs for employees and non-employee directors are either immediately vested at retirement, disability or death, or, continue to vest after retirement, disability or death, depending on the plan under which the shares were granted.

The Corporation’s 2024 Employee Stock Purchase Plan ("ESPP") provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions. The price of the stock to be paid by the employees shall be equal to 85 percent of the average of the closing price of the Corporation’s common stock on each trading day during the offering period. However, in no event shall such purchase price be less than the lesser of an amount equal to 85 percent of the market price of the Corporation’s stock on the offering date or an amount equal to 85 percent of the market value on the date of purchase. Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of $25,000. The 2019 Employee Stock Purchase Plan expired on June 30, 2024.

Compensation expense related to unvested share-based awards is recorded by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards, with no change in historical reported fair values and earnings.  Awards are valued at

fair value in accordance with provisions of share-based compensation guidance and are recognized on a straight-line basis over the service periods of each award. To complete the exercise of vested stock options, RSA’s and ESPP options, the Corporation generally issues new shares from its authorized but unissued share pool. Share-based compensation has been recognized as a component of salaries and benefits expense in the accompanying Consolidated Condensed Statements of Income.

Share-based compensation expense recognized in the Consolidated Condensed Statements of Income is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Share-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Pre-vesting forfeitures were estimated to be approximately 0.05 percent for the nine months ended September 30, 2024, based on historical experience.

The following table summarizes the components of the Corporation's share-based compensation awards recorded as an expense and the income tax benefit of such awards.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Stock and ESPP Options
Pre-tax compensation expense			$	28					$	35					$	130					$	80
Income tax expense (benefit)			—						—						(40)						(62)
Stock and ESPP option expense, net of income taxes			$	28					$	35					$	90					$	18
Restricted Stock Awards
Pre-tax compensation expense			$	1,409					$	1,325					$	4,061					$	3,712
Income tax expense (benefit)			(204)						(393)						(727)						(906)
Restricted stock awards expense, net of income taxes			$	1,205					$	932					$	3,334					$	2,806
Total Share-Based Compensation
Pre-tax compensation expense			$	1,437					$	1,360					$	4,191					$	3,792
Income tax expense (benefit)			(204)						(393)						(767)						(968)
Total share-based compensation expense, net of income taxes			$	1,233					$	967					$	3,424					$	2,824

The grant date fair value of ESPP options was estimated to be approximately $28,000 at the beginning of the July 1, 2024 quarterly offering period. The ESPP options vested during the three months ending September 30, 2024, leaving no unrecognized compensation expense related to unvested ESPP options at September 30, 2024.

39

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Stock option activity under the Corporation's stock option plans as of September 30, 2024 and changes during the nine months ended September 30, 2024, were as follows:

			Number of Shares						Weighted-Average Exercise Price						Weighted Average Remaining Contractual Term (in Years)						Aggregate Intrinsic Value
Outstanding at January 1, 2024			90,075						$	20.21
Exercised			(49,084)						$	18.34
Outstanding September 30, 2024			40,991						$	22.44					1.94						$	605
Vested and Expected to Vest at September 30, 2024			40,991						$	22.44					1.94						$	605
Exercisable at September 30, 2024			40,991						$	22.44					1.94						$	605

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation's closing stock price on the last trading day of the first nine months of 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their stock options on September 30, 2024.  The amount of aggregate intrinsic value will change based on the fair value of the Corporation's common stock.

The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2024 and September 30, 2023 was $707,000 and $1.4 million, respectively. Cash receipts of stock options exercised during the same periods were $900,000 and $1.1 million, respectively.

The following table summarizes information on unvested RSAs outstanding as of September 30, 2024:

			Number of Shares						Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2024			452,426						$	37.94
Granted			192,663						$	35.93
Vested			(83,356)						$	42.84
Forfeited			(6,225)						$	39.63
Unvested RSAs at September 30, 2024			555,508						$	36.49

As of September 30, 2024, unrecognized compensation expense related to RSAs was $11.9 million and is expected to be recognized over a weighted-average period of 1.9 years. The Corporation did not have any unrecognized compensation expense related to stock options as of September 30, 2024.

NOTE 11

INCOME TAX

The following table summarizes the major components creating differences between income taxes at the federal statutory and the effective tax rate recorded in the consolidated condensed statements of income for the three and nine months ended September 30, 2024 and 2023:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 21%			$	11,833					$	13,728					$	32,572					$	44,589
Tax-exempt interest income			(4,409)						(4,469)						(13,157)						(13,792)
Non-deductible FDIC premiums			180						126						462						299
Share-based compensation			98						(108)						113						(172)
Tax-exempt earnings and gains on life insurance			(579)						(369)						(1,318)						(1,080)
Tax credits			(305)						(84)						(969)						(249)
State Income Tax			333						254						142						1,474
Other			9						(73)						207						(48)
Actual Tax Expense			$	7,160					$	9,005					$	18,052					$	31,021
Effective Tax Rate			12.7		%				13.8		%				11.6		%				14.6		%

40

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 12

NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding during the reporting period. Diluted net income per common share is computed by dividing net income available to common stockholders by the combination of the weighted-average common shares outstanding during the reporting period and all potentially dilutive common shares. Potentially dilutive common shares include stock options and RSAs issued under the Corporation's share-based compensation plans. Potentially dilutive common shares are excluded from the computation of diluted earnings per common share in the periods where the effect would be antidilutive.

The following tables reconcile basic and diluted net income per common share for the three and nine months ended September 30, 2024 and 2023.

			Three Months Ended September 30,
			2024																		2023
			Net Income Available to Common Stockholders						Weighted-Average Common Shares						Per Share Amount						Net Income Available to Common Stockholders						Weighted-Average Common Shares						Per Share Amount
Net income available to common stockholders			$	48,719					58,074,361						$	0.84					$	55,898					59,335,877						$	0.95
Effect of potentially dilutive stock options and restricted stock awards									215,128																		166,648
Diluted net income per common share			$	48,719					58,289,489						$	0.84					$	55,898					59,502,525						$	0.94
RSAs excluded from the diluted average common share calculation(1)									94,650																		155,653

			Nine Months Ended September 30,
			2024																		2023
			Net Income Available to Common Stockholders						Weighted-Average Common Shares						Per Share Amount						Net Income Available to Common Stockholders						Weighted-Average Common Shares						Per Share Amount
Net income available to common stockholders			$	135,647					58,413,814						$	2.32					$	179,901					59,272,401						$	3.04
Effect of potentially dilutive stock options and restricted stock awards									215,185																		192,997
Diluted net income per common share			$	135,647					58,628,999						$	2.31					$	179,901					59,465,398						$	3.03
RSAs excluded from the diluted average common share calculation(1)									122,134																		64,646

(1) Anti-dilution occurs when the unrecognized compensation cost per share of an RSA exceeds the market price of the Corporation's stock.

NOTE 13

GENERAL LITIGATION AND REGULATORY EXAMINATIONS

The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. Additionally, the Corporation is also subject to periodic examinations by various regulatory agencies. It is the general opinion of management that the disposition or ultimate resolution of any such routine litigation or regulatory examinations will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Corporation.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

From time to time, we include forward-looking statements in our oral and written communication. We may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, in other written materials and in oral statements made by senior management to analysts, investors, representatives of the media and others. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of these safe harbor provisions. Forward-looking statements can often be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “project”, “intend”, “anticipate”, “expect” and similar expressions or future or conditional verbs such as “will”, “would”, “should”, “could”, “might”, “can”, “may”, or similar expressions. These forward-looking statements include:

•statements of the Corporation's goals, intentions and expectations;

•statements regarding the Corporation's business plan and growth strategies;

•statements regarding the asset quality of the Corporation's loan and investment portfolios; and

•estimates of the Corporation's risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors which could affect the actual outcome of future events:

•fluctuations in market rates of interest and loan and deposit pricing, which could negatively affect our net interest margin, asset valuations and expense expectations;

•adverse changes in the economy, which might affect our business prospects and could cause credit-related losses and expenses;

•the impacts of epidemics, pandemics or other infectious disease outbreaks;

•the impacts related to or resulting from recent bank failures or adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks;

•adverse developments in our loan and investment portfolios;

•competitive factors in the banking industry, such as the trend towards consolidation in our market;

•changes in the banking legislation or the regulatory requirements of federal and state agencies applicable to bank holding companies and banks like our affiliate bank;

•acquisitions of other businesses by us and integration of such acquired businesses;

•changes in market, economic, operational, liquidity, credit and interest rate risks associated with our business; and

•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our anticipated future results.

BUSINESS SUMMARY

First Merchants Corporation (the “Corporation”) is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. The Corporation’s common stock is traded on the Nasdaq’s Global Select Market System under the symbol FRME. The Corporation conducts its banking operations through First Merchants Bank (the “Bank”), a wholly-owned subsidiary that opened for business in Muncie, Indiana, in March 1893. The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank operates 115 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.

Through the Bank, the Corporation offers a broad range of financial services, including accepting time, savings and demand deposits; making consumer, commercial, agri-business, public finance and real estate mortgage loans; providing personal and corporate trust services; offering full-service brokerage and private wealth management; and providing letters of credit, repurchase agreements and other corporate services.

On August 26, 2024, the Bank entered into a Branch Purchase and Assumption Agreement with Old Second National Bank, a national banking association headquartered in Aurora, Illinois, pursuant to which the Bank will sell five branches located in Illinois. The transaction will represent an exit from the suburban Chicago markets. Loans of $9.2 million, deposits of $287.7 million and fixed assets of $3.4 million have been moved to held for sale categories as of September 30, 2024. The transaction is expected to close in the fourth quarter of 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Generally accepted accounting principles are complex and require us to apply significant judgments to various accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply those principles where actual measurement is not possible or practical. The judgments and assumptions made are based upon historical experience or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgments and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations. There have been no significant changes during the nine months ended September 30, 2024 to the items disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. For a complete discussion of our significant accounting policies, see “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2023.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HIGHLIGHTS FOR THE THIRD QUARTER OF 2024

•Net income available to common stockholders and earnings per fully diluted common share for the three months ended September 30, 2024 was $48.7 million and $0.84, respectively, compared to $55.9 million and $0.94, respectively, for the three months ended September 30, 2023 and $39.5 million and $0.68, respectively, for the three months ended June 30, 2024. Excluding the loss from repositioning of the available for sale securities portfolio, adjusted net income was $55.6 million and $0.95 per share for the third quarter of 2024.

•Strong capital position with Common Equity Tier 1 Capital Ratio of 11.25 percent and Tangible Common Equity to Tangible Assets Ratio of 8.76 percent.

•Net interest margin totaled 3.23 percent for the third quarter of 2024, compared to 3.16 percent for the second quarter of 2024 and 3.29 percent for the third quarter of 2023.

•Total loans grew $15.5 million, or 0.5 percent annualized during the third quarter of 2024, and $182.5 million, or 1.9 percent, during the nine months ended September 30, 2024.

•Total deposits grew by $83.7 million, or 2.3 percent annualized during the third quarter of 2024, after normalizing for $287.7 million of deposits moved to held for sale.

•Announced sale of five Illinois branches and certain loans and deposits to Old Second National Bank in the third quarter of 2024.

RESULTS OF OPERATIONS

The Corporation reported third quarter 2024 net income available to common stockholders and diluted earnings per common share of $48.7 million and $0.84 per diluted share, respectively, compared to $55.9 million and $0.94 per diluted share, respectively, during the third quarter of 2023. Net income available to common stockholders and diluted earnings per common share for the nine months ended September 30, 2024 was $135.6 million and $2.31, respectively, compared to $179.9 million and $3.03 per diluted share during the nine months ended September 30, 2023.

Adjusted earnings per fully diluted common share for the third quarter of 2024, totaled $0.95, compared to $0.96 in the third quarter of 2023 and $0.68 in the second quarter of 2024. Adjusted earnings per fully diluted common share for the nine months ended September 30, 2024, totaled $2.48 compared to $3.08 for the same period in 2023. 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 September 30, 2024, total assets equaled $18.3 billion, a decrease from the December 31, 2023 total of $18.4 billion.

Cash and due from banks and interest-bearing deposits decreased $104.9 million from December 31, 2023. Total investment securities decreased $149.2 million from December 31, 2023, primarily due to $158.9 million in sales of available for sale securities, offset by an increase in the securities portfolio valuation of $30.5 million. Additionally, while not reflected in the balance sheet, the unrealized loss in the held to maturity portfolio decreased during the nine months ended September 30, 2024 by $28.2 million. Currently, the Corporation is repositioning the investment securities portfolio with a primary focus of using liquidity to fund current and future loan growth and reinvest at higher market rates. The investment portfolio as a percentage of total assets was 20.0 percent at September 30, 2024 and 20.7 percent at December 31, 2023, down from the peak at December 31, 2021 of 29.3 percent, and reflects progress towards a more normalized earning asset mix. Additional details of the changes in 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.

The Corporation's total loan portfolio increased $182.5 million, or 1.9 percent on an annualized basis, since December 31, 2023. The composition of the loan portfolio is 74.7 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 31.8 percent and 17.8 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, residential real estate, public finance and home equity loans. Partially offsetting those increases was a decrease in commercial real estate, non-owner occupied, construction, agricultural land, individuals' loans for household and other personal expenditures and commercial real estate, owner occupied. Additional details of the changes in the Corporation's loans 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.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation’s ACL - loans totaled $187.8 million as of September 30, 2024 and equaled 1.48 percent of total loans, compared to $204.9 million and 1.64 percent of total loans at December 31, 2023.  The ACL - loans decreased $17.1 million from December 31, 2023. During the three and nine months ended September 30, 2024, the Corporation recorded net charge-offs of $6.7 million and $48.6 million, respectively, and $5.0 million and $31.5 million of provision for credit losses - loans, for the same periods respectively. During the three and nine months ended September 30, 2023, the Corporation recorded net charge-offs of $20.4 million and $22.5 million, respectively, and $2.0 million of provision for credit losses - loans for both periods. Nonaccrual loans at September 30, 2024 were $59.1 million and increased $5.5 million from December 31, 2023 primarily due to an $11.4 million increase in non-accrual balances in commercial real estate, non-owner occupied. The increases were partially offset by a decline in non-accrual balances within the residential loan portfolio of $6.2 million.The Corporation's reserve for unfunded commitments was $19.5 million at September 30, 2024 and December 31, 2023, and is recorded in Other Liabilities. 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.

The Corporation's other assets increased $26.1 million from December 31, 2023 and was driven by the Corporation's continued investment in qualified affordable housing projects. Additionally, the fair value of derivatives included in other assets decreased from $79.4 million at December 31, 2023 to $62.3 million at September 30, 2024. The decrease in derivatives is due primarily to a decrease in market interest rates.

As of September 30, 2024, total deposits equaled $14.4 billion, a decrease of $456.4 million from December 31, 2023, or 4.1 percent on an annualized basis. The decline was primarily due to $287.7 million of deposits being reclassified as held for sale related to the Illinois branch sale. The loan to deposit ratio increased to 88.0% at period end from 84.4% as of December 31, 2023, primarily due to the reclassification

of deposits to held for sale as previously described. Excluding the deposits reclassified to held for sale, the Corporation experienced decreases from December 31, 2023 in demand deposits of $140.0 million, savings accounts of $168.8 million and time deposits of $83.2 million. Offsetting these decreases was an increase in brokered deposits of $223.3 million from December 31, 2023. Total deposits less time deposits greater than $100,000, or core deposits, represented 89.3 percent of the deposit portfolio at September 30, 2024. Noninterest bearing deposits represents 16.2 percent of the deposit portfolio at September 30, 2024, compared to 16.9 percent at December 31, 2023.

The average account balance within the deposit portfolio was $34,000 at September 30, 2024. Insured deposits totaled 68.9 percent of total deposits, with the State of Indiana's Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 13.8 percent of deposits and the Federal Deposit Insurance Corporation ("FDIC") providing insurance to the remaining 55.1 percent. Only 31.1 percent of deposits are uninsured and our available liquidity is ample to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources.

Total borrowings increased $52.3 million as of September 30, 2024, compared to December 31, 2023. This increase was primarily driven by an increase of $30.0 million in federal funds purchased and an increase of $119.8 million in FHLB advances from December 31, 2023. Subordinated debentures and other borrowings decreased $65.1 million compared to December 31, 2023 as the Corporation utilized excess liquidity to pay down $65.0 million of subordinated debentures in the first half of the year. Securities sold under repurchase agreements decreased $32.4 million from December 31, 2023 as clients moved into higher yielding deposit products.

The Corporation continued to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized.” Details of the Stock Repurchase Program and regulatory capital ratios are discussed within the “CAPITAL” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

NON-GAAP FINANCIAL MEASURES

The Corporation's accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Corporation provides non-GAAP performance measures, which management believes are useful because they assist investors in assessing the Corporation's performance. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure can be found in the following tables.

Adjusted earnings per share, excluding PPP loans and non-core expenses, are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Corporation's business, because management does not consider these items to be relevant to ongoing financial performance on a per share basis.

Net interest income and net interest margin presented on a fully taxable equivalent ("FTE") basis, reflecting the income tax savings when comparing tax-exempt and taxable assets using the federal statutory rate of 21 percent, are non-GAAP financial measures used by management to assess what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on an FTE basis and that it provides useful information for management and investors for peer comparison purposes.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP financial measures such as tangible common equity to tangible assets, tangible earnings per share, return on average tangible assets and return on average tangible equity are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but do retain the effect of accumulated other comprehensive losses in stockholders' equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

ADJUSTED NET INCOME AND DILUTED EARNINGS PER COMMON SHARE - non-GAAP
(Dollars in thousands, except per share amounts)
			Three Months Ended																		Nine Months Ended
			September 30,						June 30,																		September 30,						September 30,						September 30,
			2024						2024																		2023						2024						2023
Net Income Available to Common Stockholders - GAAP			$	48,719					$	39,456																	$	55,898					$	135,647					$	179,901
Adjustments:
PPP loan income			—						—																		(8)						—						(42)
Net realized losses on sales of available for sale securities			9,114						49																		1,650						9,165						4,613
Non-core expenses 1			—						—																		—						3,481						—
Tax on adjustment			(2,220)						(12)																		(403)						(3,081)						(1,121)
Adjusted Net Income Available to Common Stockholders - non-GAAP			$	55,613					$	39,493																	$	57,137					$	145,212					$	183,351
Average Diluted Common Shares Outstanding (in thousands)			58,289						58,328																		59,503						58,629						59,465
Diluted Earnings Per Common Share - GAAP			$	0.84					$	0.68																	$	0.94					$	2.31					$	3.03
Adjustments:
Net realized losses on sales of available for sale securities			0.15						—																		0.03						0.16						0.07
Non-core expenses 1			—						—																		—						0.06						—
Tax on adjustment			(0.04)						—																		(0.01)						(0.05)						(0.02)
Adjusted Diluted Earnings Per Common Share - non-GAAP			$	0.95					$	0.68																	$	0.96					$	2.48					$	3.08
1 - Non-core expenses in the nine months ended September 30, 2024 included $2.4 million from duplicative online banking conversion costs and $1.1 million from the FDIC special assessment.

NET INTEREST MARGIN ("NIM"), ADJUSTED
(Dollars in Thousands, Except Per Share Amounts)
			Three Months Ended												Nine Months Ended
			September 30,																								September 30,						September 30,						September 30,
			2024																								2023						2024						2023
Net Interest Income (GAAP)			$	131,110																							$	133,383					$	386,744					$	415,337
FTE Adjustment			5,883																								5,911						17,538						18,090
Net Interest Income (FTE) (non-GAAP)			136,993																								139,294						404,282						433,427
Average Earning Assets (GAAP)			$	16,990,358																							$	16,947,669					$	17,042,540					$	16,913,965
Net Interest Margin (GAAP)			3.09		%																						3.15		%				3.03		%				3.27		%
Net Interest Margin (FTE) (non-GAAP)			3.23		%																						3.29		%				3.16		%				3.42		%

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS - non-GAAP
(Dollars in thousands, except per share amounts)
			September 30, 2024						December 31, 2023
Total Stockholders' Equity (GAAP)			$	2,302,373					$	2,247,713
Less: Preferred stock (GAAP)			(25,125)						(25,125)
Less: Intangible assets (GAAP)			(733,601)						(739,101)
Tangible common equity (non-GAAP)			$	1,543,647					$	1,483,487
Total assets (GAAP)			$	18,347,552					$	18,405,887
Less: Intangible assets (GAAP)			(733,601)						(739,101)
Tangible assets (non-GAAP)			$	17,613,951					$	17,666,786
Stockholders' Equity to Assets (GAAP)			12.55		%				12.21		%
Tangible common equity to tangible assets (non-GAAP)			8.76		%				8.40		%
Tangible common equity (non-GAAP)			$	1,543,647					$	1,483,487
Plus: Tax benefit of intangibles (non-GAAP)			4,642						5,819
Tangible common equity, net of tax (non-GAAP)			$	1,548,289					$	1,489,306
Common Stock outstanding			58,117						59,424
Book Value (GAAP)			$	39.18					$	37.40
Tangible book value - common (non-GAAP)			$	26.64					$	25.06

TANGIBLE EARNINGS PER SHARE, RETURN ON TANGIBLE ASSETS AND RETURN ON TANGIBLE EQUITY - non-GAAP
(Dollars in thousands, except per share amounts)
			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Average goodwill (GAAP)			$	712,002					$	712,002					$	712,002					$	712,002
Average other intangibles (GAAP)			22,388						30,293						24,185						32,446
Average deferred tax on other intangibles (GAAP)			(4,810)						(6,508)						(5,194)						(6,972)
Intangible adjustment (non-GAAP)			$	729,580					$	735,787					$	730,993					$	737,476
Average stockholders' equity (GAAP)			$	2,251,546					$	2,154,232					$	2,232,419					$	2,126,005
Average preferred stock (GAAP)			(25,125)						(25,125)						(25,125)						(25,125)
Intangible adjustment (non-GAAP)			(729,580)						(735,787)						(730,993)						(737,476)
Average tangible capital (non-GAAP)			$	1,496,841					$	1,393,320					$	1,476,301					$	1,363,404
Average assets (GAAP)			$	18,360,580					$	18,152,239					$	18,374,370					$	18,115,504
Intangible adjustment (non-GAAP)			(729,580)						(735,787)						(730,993)						(737,476)
Average tangible assets (non-GAAP)			$	17,631,000					$	17,416,452					$	17,643,377					$	17,378,028
Net income available to common stockholders (GAAP)			$	48,719					$	55,898					$	135,647					$	179,901
Other intangible amortization, net of tax (GAAP)			1,399						1,724						4,345						5,183
Preferred stock dividend			469						468						1,406						1,406
Tangible net income available to common stockholders (non-GAAP)			$	50,587					$	58,090					$	141,398					$	186,490
Per Share Data:
Diluted net income available to common stockholders (GAAP)			$	0.84					$	0.94					$	2.31					$	3.03
Diluted tangible net income available to common stockholders (non-GAAP)			$	0.86					$	0.97					$	2.39					$	3.11
Ratios:
Return on average GAAP capital (ROE)			8.66		%				10.38		%				8.10		%				11.28		%
Return on average tangible capital			13.39		%				16.54		%				12.64		%				18.10		%
Return on average assets (ROA)			1.07		%				1.24		%				0.99		%				1.33		%
Return on average tangible assets			1.15		%				1.33		%				1.07		%				1.43		%

Return on average tangible capital is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible capital.  Return on average tangible assets is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible assets.

NET INTEREST INCOME

Net interest income is the most significant component of our earnings, comprising 82.4 percent of revenues for the nine months ended September 30, 2024. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on loan and investment-related assets, and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from customer deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve Board monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and margin.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is also presented on an FTE basis in the table that follows to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for 2024 and 2023. The FTE analysis portrays the income tax benefits associated with tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis. Therefore, management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons. For reconciliations of GAAP net interest margin to the corresponding non-GAAP measures provided below, refer to the "NON-GAAP FINANCIAL MEASURES" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Net interest margin, on an FTE basis, decreased 6 basis points to 3.23 percent for the three months ended September 30, 2024 compared to 3.29 percent for the same period in 2023.

Net interest margin, on an FTE basis, decreased 26 basis points to 3.16 percent for the nine months ended September 30, 2024 compared to 3.42 percent for the same period in 2023.

Average Balance Sheet

Average earning assets for the three months ended September 30, 2024 increased $42.7 million compared to the same period in 2023. The increase for the three months ended September 30, 2024 was driven by average loan growth of $392.5 million, primarily in the commercial and real estate mortgage portfolios. The loan growth was offset by a decrease in the average interest-bearing deposits and investment securities portfolio of $250.9 million and $98.9 million, respectively, as the Corporation utilized liquidity to fund loan growth. Additionally, the Corporation repositioned the available for sale securities portfolio and sold $158.9 million of securities during the third quarter of 2024 with a weighted average tax-equivalent yield of 2.85 percent.

Average earning assets for the nine months ended September 30, 2024 increased $128.6 million compared to the same periods in 2023. The increase for the nine months ended September 30, 2024 was driven by an increase in interest bearing deposits of $42.1 million as well as organic loan growth within the real estate mortgage and commercial portfolios of $150.9 million and $143.9 million, respectively. Offsetting the increases in interest-bearing deposits and loans was a decrease in the average investment securities portfolio of $242.3 million for the nine months ended September 30, 2024 when compared to the same period in 2023. The Corporation is repositioning the available for sale securities portfolio with a primary focus of using liquidity to fund current and future loan growth and reinvest at higher market rates. The investment portfolio as a percentage of total assets was 20.0 percent at September 30, 2024, which is down from the peak at December 31, 2021 of 29.3 percent, and reflects progress towards a more normalized earning asset mix.

Total average deposits for the three months ended September 30, 2024 decreased $33.1 million, when compared to the same period in 2023. Average interest-bearing deposits for the three months ended September 30, 2024 increased $256.3 million compared to the same period in 2023, with the largest increase in certificates and other time deposits, offset by a decrease in savings deposits. Noninterest bearing deposits act to mitigate deposit yield increases as interest rates rise. Average noninterest bearing deposits declined $289.5 million in the three months ended September 30, 2024 when compared to the same period in 2023. Average noninterest bearing deposits represented 16.0 percent of the deposit portfolio for the three months ended September 30, 2024, and 17.9 percent of the deposit portfolio for the three months ended September 30, 2023, which is a decline from the peak in the second quarter of 2022 of 23.6 percent.

Total average deposits for the nine months ended September 30, 2024 increased $198.6 million, when compared to the same period in 2023. Average interest-bearing deposits for the nine months ended September 30, 2024 increased $674.0 million, compared to the same period in 2023, with the largest increase in the certificates and other time deposits, offset by a decrease in savings deposits. Average noninterest bearing deposits declined $475.4 million, in the nine months ended September 30, 2024 when compared to the same period in 2023. The decrease is the result of a mix shift occurring across the industry as clients move into higher yielding deposit products. Average noninterest bearing deposits, for the nine months ended September 30, 2024 and 2023, represented 16.0 percent and 19.5 percent of the deposit portfolio, respectively.

Average borrowings increased $39.3 million for the three months ended September 30, 2024, compared to the same period in 2023. Average FHLB advances and federal funds purchased increased $109.9 million and $19.3 million, respectively, during the three months ended September 30, 2024 when compared to the same period in 2023 as the Corporation utilized funding sources to fund loan growth. These increases were offset by a $29.6 million decrease in average securities sold under repurchase agreements for the same period. Additionally, average subordinated debt decreased $64.9 million for the three months ended September 2024 when compared to the same period in 2023, due to the Corporation's redemption of $65.0 million of subordinated debt in the first and second quarters of 2024.

Average borrowings decreased $154.3 million for the nine months ended September 30, 2024 compared to the same period in 2023. Average securities sold under repurchase, FHLB advances and Federal Funds purchased decreased $43.0 million, $42.3 million and $25.3 million, respectively, for the nine months ended September 30, 2024 compared to the same period of 2023. Additionally, for the nine months ended September 30, 2024, average subordinated debt decreased $50.9 million due to the Corporation's redemption of $65.0 million of subordinated debt during the year.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest Income/Expense and Average Yields

In the third quarter of 2024, FTE asset yields increased 27 basis points compared to the same period in 2023 and was primarily due to Federal Open Market Committee ("FOMC") increasing interest rates a total of 100 basis points in 2023, which resulted in an increase in interest income, on an FTE basis, of $11.9 million during the three months ended September 30, 2024 compared to the same period in 2023. Additionally, the Corporation's loan portfolio is 67.6 percent variable and repricing occurred when the Federal Open Market Committee's ("FOMC") increased interest rates a total of 100 basis points in 2023. The FOMC decreased interest rates 50 basis points in the the third quarter of 2024. As a result, yields on new and renewed loans were 7.70 percent for the three months ended September 30, 2024 compared to 7.88 percent for the same period in 2023. The Corporation also recognized fair value accretion income on purchased loans, which is included in interest income, of $1.4 million, which accounted for 4 basis points of net interest margin in the three months ended September 30, 2024. Comparatively, the Corporation recognized $2.0 million of accretion income for the three months ended September 30, 2023, or 5 basis points of net interest margin.

As customers have migrated to higher yielding interest-bearing deposit products, interest expense on deposits increased 13.3 million for the three months ended September 30, 2024, or 37 basis points when compared to the same period in 2023. Total cost of funds was 3.28 percent for the three months ended September 30, 2024 compared to 2.92 percent during the same period in 2023. Interest costs increased 36 basis points, which mitigated the 27 basis point increase in asset yields and resulted in a 9 basis point FTE decrease in net interest spread when compared to the same period in 2023.

In the nine months ended September 30, 2024, FTE asset yields increased 40 basis points compared to the same period in 2023. The increase in interest income, on an FTE basis, of $55.9 million during the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to FOMC's increase in interest rates in 2023. The Corporation also recognized fair value accretion income on purchased loans, which is included in interest income, of $4.3 million, which accounted for 3 basis points of net interest margin in the nine months ended September 30, 2024. Comparatively, the Corporation recognized $6.4 million of accretion income for the nine months ended September 30, 2023, or 5 basis points of net interest margin.

Interest expense on deposits increased $86.9 million for the nine months ended September 30, 2024, or 80 basis points when compared to the same period in 2023. Total cost of funds was 3.24 percent for the nine months ended September 30, 2024 compared to 2.49 percent during the same period in 2023. Interest costs increased 75 basis points, which mitigated the 40 basis point increase in asset yields and resulted in a 35 basis point FTE decrease in net interest spread when compared to the same period in 2023.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables present the Corporation’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets/liabilities for the three and nine months ended September 30, 2024 and 2023.

			Three Months Ended
			September 30, 2024																		September 30, 2023
			Average Balance						Interest  Income / Expense						Average Rate						Average Balance						Interest  Income / Expense						Average Rate
Assets:
Interest-bearing deposits			$	252,113					$	2,154					3.42		%				$	502,967					$	5,884					4.68		%
Federal Home Loan Bank stock			41,730						855						8.20						41,826						719						6.88
Investment Securities: (1)
Taxable			1,789,526						9,263						2.07						1,817,219						8,590						1.89
Tax-Exempt (2)			2,226,823						17,100						3.07						2,298,025						17,655						3.07
Total Investment Securities			4,016,349						26,363						2.63						4,115,244						26,245						2.55
Loans held for sale			31,991						483						6.04						24,227						386						6.37
Loans: (3)
Commercial			8,699,733						164,922						7.58						8,456,527						153,993						7.28
Real estate mortgage			2,183,095						24,333						4.46						2,079,067						21,618						4.16
Installment			832,222						16,942						8.14						827,318						15,708						7.59
Tax-Exempt (2)			933,125						10,914						4.68						900,493						10,491						4.66
Total Loans			12,680,166						217,594						6.86						12,287,632						202,196						6.58
Total Earning Assets			16,990,358						246,966						5.82		%				16,947,669						235,044						5.55		%
Total Non-Earning Assets			1,370,222																		1,204,570
Total Assets			$	18,360,580																	$	18,152,239
Liabilities:
Interest-Bearing Deposits:
Interest-bearing deposits			$	5,455,298					$	40,450					2.97		%				$	5,425,829					$	37,780					2.79		%
Money market deposits			2,974,188						25,950						3.49						2,923,798						23,607						3.23
Savings deposits			1,425,047						4,208						1.18						1,641,338						3,844						0.94
Certificates and other time deposits			2,499,655						28,248						4.52						2,106,910						20,320						3.86
Total Interest-Bearing Deposits			12,354,188						98,856						3.20						12,097,875						85,551						2.83
Borrowings			1,071,440						11,117						4.15						1,032,180						10,199						3.95
Total Interest-Bearing Liabilities			13,425,628						109,973						3.28						13,130,055						95,750						2.92
Noninterest-bearing deposits			2,348,266																		2,637,717
Other liabilities			335,139																		230,235
Total Liabilities			16,109,033																		15,998,007
Stockholders' Equity			2,251,547																		2,154,232
Total Liabilities and Stockholders' Equity			$	18,360,580					109,973												$	18,152,239					95,750
Net Interest Income (FTE)									$	136,993																	$	139,294
Net Interest Spread (FTE) (4)															2.54		%																2.63		%
Net Interest Margin (FTE):
Interest Income (FTE) / Average Earning Assets															5.82		%																5.55		%
Interest Expense / Average Earning Assets															2.59		%																2.26		%
Net Interest Margin (FTE) (5)															3.23		%																3.29		%
(1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments. Annualized amounts are computed utilizing a 30/360 day basis.
(2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2024 and 2023. These totals equal $5,883 and $5,911 for the three months ended September 30, 2024 and 2023, respectively.
(3) Nonaccruing loans have been included in the average balances.
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities.
(5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in Thousands)			Nine Months Ended
			September 30, 2024																		September 30, 2023
			Average Balance						Interest  Income / Expense						Average Rate						Average Balance						Interest  Income / Expense						Average Rate
Assets:
Federal Funds Sold
Interest-bearing deposits			$	383,007					$	11,642					4.05		%				$	340,887					$	9,685					3.79		%
Federal Home Loan Bank stock			41,748						2,569						8.20						41,160						2,281						7.39
Investment Securities: (1)
Taxable			1,787,119						27,062						2.02						1,872,267						26,563						1.89
Tax-Exempt (2)			2,237,759						51,561						3.07						2,394,864						56,071						3.12
Total Investment Securities			4,024,878						78,623						2.60						4,267,131						82,634						2.58
Loans held for sale			27,735						1,242						5.97						22,398						1,046						6.23
Loans: (3)
Commercial			8,659,088						484,979						7.47						8,515,148						444,422						6.96
Real estate mortgage			2,159,738						70,489						4.35						2,008,852						60,354						4.01
Installment			825,060						49,406						7.98						833,133						44,492						7.12
Tax-Exempt (2)			921,286						31,952						4.62						885,256						30,072						4.53
Total Loans			12,592,907						638,068						6.76						12,264,787						580,386						6.31
Total Earning Assets			17,042,540						730,902						5.72		%				16,913,965						674,986						5.32		%
Total Non-Earning Assets			1,331,830																		1,201,539
Total Assets			$	18,374,370																	$	18,115,504
Liabilities:
Interest-Bearing Deposits:
Interest-bearing deposits			$	5,487,106					$	120,935					2.94		%				$	5,412,482					$	97,016					2.39		%
Money market deposits			3,018,526						80,563						3.56						2,812,891						55,868						2.65
Savings deposits			1,497,620						11,485						1.02						1,730,110						10,693						0.82
Certificates and other time deposits			2,447,684						83,309						4.54						1,821,408						45,860						3.36
Total Interest-Bearing Deposits			12,450,936						296,292						3.17						11,776,891						209,437						2.37
Borrowings			990,022						30,328						4.08						1,144,368						32,122						3.74
Total Interest-Bearing Liabilities			13,440,958						326,620						3.24						12,921,259						241,559						2.49
Noninterest-bearing deposits			2,375,120																		2,850,557
Other liabilities			325,873																		217,683
Total Liabilities			16,141,951																		15,989,499
Stockholders' Equity			2,232,419																		2,126,005
Total Liabilities and Stockholders' Equity			$	18,374,370					326,620												$	18,115,504					241,559
Net Interest Income (FTE)									$	404,282																	$	433,427
Net Interest Spread (FTE) (4)															2.48		%																2.83		%
Net Interest Margin (FTE):
Interest Income (FTE) / Average Earning Assets															5.72		%																5.32		%
Interest Expense / Average Earning Assets															2.56		%																1.90		%
Net Interest Margin (FTE) (5)															3.16		%																3.42		%
(1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments. Annualized amounts are computed utilizing a 30/360 day basis.
(2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2024 and 2023. These totals equal $17,538 and $18,090 for the nine months ended September 30, 2024 and 2023, respectively.
(3) Nonaccruing loans have been included in the average balances.
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities.
(5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets.

NONINTEREST INCOME

Noninterest income totaled $24.9 million for the three months ended September 30, 2024, a $3.0 million, or 10.7 percent, decrease compared to the three months ended September 30, 2023. The decrease was primarily driven by $9.1 million in losses on sales of available for sale securities associated with repositioning of the bond portfolio. The decrease of noninterest income was partially offset by a $1.2 million increase in gains and fees on sales of loans, a $1.1 million increase in fiduciary and wealth management fees and a $1.0 million increase in gains on cash surrender value of life insurance.

During the nine months September 30, 2024, noninterest income totaled $82.8 million, a $3.7 million, or 4.6 percent, increase when compared to the same period in 2023. The increase was primarily driven by a $3.6 million increase in net gains and fees on sales of loans, a $2.9 million increase in fiduciary and wealth management fees and a $1.3 million increase in service charge on deposit accounts, when compared to the same period in 2023. These increases were partially offset by an increase of $4.6 million in net losses realized on sales of available for sale securities from $4.6 million in the nine months ended September 30, 2023 compared to $9.2 million in the nine months ended September 30, 2024.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NONINTEREST EXPENSE

Noninterest expense totaled $94.6 million for the three months ended September 30, 2024, a $0.8 million, or 0.8 percent, increase from the third quarter of 2023. The increase was primarily due to an increase of $1.3 million in equipment expenses primarily related to an increase in software expenses and a $0.7 million increase in FDIC assessments. Partially offsetting this increase was a decrease of $0.8 million in professional and other outside services expenses during the three months ended September 30, 2024 compared to the same period in 2023.

During the nine months ended September 30, 2024, noninterest expense totaled $283.0 million, a $2.8 million, or 1.0 percent, increase when compared to the same period in 2023. FDIC assessments increased $4.2 million, primarily due to a $1.1 million special assessment recorded in 2024, coupled with a one-time credit of $2.0 million recorded in the first quarter of 2023. Additionally, outside data processing expenses and equipment expenses both increased $1.8 million, respectively, in the nine months ended September 30, 2024 compared to the same period in 2023 due to the Corporation's continued investment in customer-facing digital solutions. Partially offsetting the increase in noninterest expenses were decreases in salary and employee benefit expenses of expense of $1.1 million and $0.9 million, respectively. Additionally, professional and outside services decreased $1.4 million and intangible asset amortization decreased $1.1 million.

INCOME TAXES

Income tax expense for the three months ended September 30, 2024 was $7.2 million on pre-tax net income of $56.3 million.  For the same period in 2023, income tax expense was $9.0 million on pre-tax income of $65.4 million. The effective income tax rates for the third quarter of 2024 and 2023 were 12.7 percent and 13.8 percent, respectively.

Income tax expense for the nine months ended September 30, 2024 was $18.1 million on pre-tax net income of $155.1 million. For the same period in 2023, income tax expense was $31.0 million on pre-tax net income of $212.3 million. The effective income tax rates for the nine months ended September 30, 2024 and 2023 were 11.6 percent and 14.6 percent, respectively.

The lower effective income tax rate for the three and nine months ended September 30, 2024 when compared to the same periods in 2023 was primarily a result of tax-exempt interest income being a larger portion of pre-tax income in 2024.

The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 11. INCOME TAX of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

CAPITAL

Preferred Stock

As part of the Level One acquisition, the Corporation issued 10,000 shares of newly created 7.5 percent non-cumulative perpetual preferred stock, with a liquidation preference of $2,500 per share, in exchange for the outstanding Level One Series B preferred stock, and as part of that exchange, each outstanding Level One depository share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depository share of the Corporation representing a 1/100th interest in a share of its newly issued preferred stock. The Corporation had $25.0 million of outstanding preferred stock at September 30, 2024 and December 31, 2023. During the three and nine months ended September 30, 2024 and 2023, the Corporation declared and paid dividends of $46.88 per share (equivalent to $0.4688 per depository share) and $140.64 per share, respectively, equal to $468,000 and $1,406,000, respectively. The Series A preferred stock qualifies as tier 1 capital for purposes of the regulatory capital calculations.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Stock Repurchase Program

On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000. On a share basis, the amount of common stock subject to the repurchase program represented approximately 6 percent of the Corporation's outstanding shares at the time the program became effective. The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during the three months ended September 30, 2024. The Corporation repurchased 1.5 million shares of its common stock pursuant to the repurchase program during the nine months ended September 30, 2024. As of September 30, 2024, the Corporation had approximately 1.2 million shares at an aggregate value of $24.6 million available to repurchase under the program.

In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was enacted. Among other things, the IRA imposes a new 1 percent excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations (like the Corporation). With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. For the three months ended September 30, 2024, the Corporation recorded a $25,000 reduction in excise tax as shares issued in the quarter resulted in a reduction of the excise tax recorded in prior periods. During the nine months ended September 30, 2024, the Corporation recorded excise tax of $457,000 related to its share repurchases, net of share issuances, during the period, which is reflected in the Statement of Stockholders' Equity as a component of additional paid-in capital.

Regulatory Capital

Capital adequacy is an important indicator of financial stability and performance. The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by four ratios that are calculated according to the regulations: total risk-based capital, tier 1 risk-based capital, common equity tier 1 ("CET1"), and tier 1 leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios.

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital, tier 1 capital, and common equity tier 1 capital, in each case, to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the regulations. Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice. Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.

Basel III requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer. Under Basel III, in order to avoid limitations on capital distributions, including dividends, the Corporation must hold a 2.5 percent capital conservation buffer above the adequately capitalized CET1 to risk-weighted assets ratio (which buffer is reflected in the required ratios below). Under Basel III, the Corporation and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2024, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.

As part of a March 27, 2020 joint statement of federal banking regulators, an interim final rule that allowed banking organizations to mitigate the effects of the CECL accounting standard on their regulatory capital was announced. Banking organizations could elect to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years. This two-year delay was to be in addition to the three-year transition period that federal banking regulators had already made available. While the Consolidated Appropriations Act of 2021 provided for a further extension of the mandatory adoption of CECL until January 1, 2022, the federal banking regulators elected to not provide a similar extension to the two year mitigation period applicable to regulatory capital effects. Instead, the federal banking regulators require that, in order to utilize the additional two-year delay, banking organizations must have adopted the CECL standard no later than December 31, 2020, as required by the Coronavirus Aid, Relief and Economice Security Act, or CARES Act. As a result, because implementation of the CECL standard was delayed by the Corporation until January 1, 2021, it began phasing in the cumulative effect of the adoption on its regulatory capital, at a rate of 25 percent per year, over a three-year transition period that began on January 1, 2021. Under that phase-in schedule, the cumulative effect of the adoption is fully reflected in regulatory capital on January 1, 2024.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation's and Bank's actual and required capital ratios as of September 30, 2024 and December 31, 2023 were as follows:

															Prompt Corrective Action Thresholds
			Actual												Basel III Minimum Capital Required												Well Capitalized
September 30, 2024			Amount						Ratio						Amount						Ratio						Amount						Ratio
Total risk-based capital to risk-weighted assets
First Merchants Corporation			$	1,994,480					13.18		%				$	1,588,927					10.50		%				N/A						N/A
First Merchants Bank			1,917,113						12.66						1,590,300						10.50						$	1,514,571					10.00		%
Tier 1 capital to risk-weighted assets
First Merchants Corporation			$	1,726,909					11.41		%				$	1,286,274					8.50		%				N/A						N/A
First Merchants Bank			1,727,585						11.41						1,287,386						8.50						$	1,211,657					8.00		%
CET1 capital to risk-weighted assets
First Merchants Corporation			$	1,701,909					11.25		%				$	1,059,285					7.00		%				N/A						N/A
First Merchants Bank			1,727,585						11.41						1,060,200						7.00						$	984,471					6.50		%
Tier 1 capital to average assets
First Merchants Corporation			$	1,726,909					9.79		%				$	705,337					4.00		%				N/A						N/A
First Merchants Bank			1,727,585						9.70						712,491						4.00						$	890,613					5.00		%

															Prompt Corrective Action Thresholds
			Actual												Basel III Minimum Capital Required												Well Capitalized
December 31, 2023			Amount						Ratio						Amount						Ratio						Amount						Ratio
Total risk-based capital to risk-weighted assets
First Merchants Corporation			$	2,021,124					13.67		%				$	1,552,685					10.50		%				N/A						N/A
First Merchants Bank			1,931,810						13.06						1,553,600						10.50						$	1,479,619					10.00		%
Tier 1 capital to risk-weighted assets
First Merchants Corporation			$	1,703,626					11.52		%				$	1,256,935					8.50		%				N/A						N/A
First Merchants Bank			1,746,299						11.80						1,257,676						8.50						$	1,183,695					8.00		%
Common equity tier 1 capital to risk-weighted assets
First Merchants Corporation			$	1,678,626					11.35		%				$	1,035,123					7.00		%				N/A						N/A
First Merchants Bank			1,746,299						11.80						1,035,733						7.00						$	961,752					6.50		%
Tier 1 capital to average assets
First Merchants Corporation			$	1,703,626					9.64		%				$	707,091					4.00		%				N/A						N/A
First Merchants Bank			1,746,299						9.89						706,331						4.00						$	882,913					5.00		%

On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $70.0 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5 million and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due October 30, 2028 in the aggregate principal amount of $65.0 million. As of December 31, 2023 the Corporation began the five year phase-out (at a rate of 20 percent per year) as defined in the Basel III capital rules, which resulted in a reduction of $13.0 million in tier 2 capital. The Corporation exercised its right to redeem $40 million of the subordinated debt on the scheduled interest payment date during the first quarter of 2024 and redeemed the remaining $25.0 million during the second quarter of 2024. As of September 30, 2024, the Corporation's remaining subordinated debentures of $78.2 million were classified as tier 2 capital and were not subject to the five year phase-out.

Management believes the disclosed capital ratios are meaningful measurements for evaluating the safety and soundness of the Corporation. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. The Federal Reserve focuses its assessment of capital adequacy on a component of tier 1 capital known as CET1. Because the Federal Reserve has long indicated that voting common stockholders equity (essentially tier 1 risk-based capital less preferred stock and non-controlling interest in subsidiaries) generally should be the dominant element in tier 1 risk-based capital, this focus on CET1 is consistent with existing capital adequacy categories. Tier I regulatory capital consists primarily of total common stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A reconciliation of regulatory measures are detailed in the following table as of the dates indicated.

			September 30, 2024												December 31, 2023
(Dollars in thousands)			First Merchants Corporation						First Merchants Bank						First Merchants Corporation						First Merchants Bank
Total Risk-Based Capital
Total Stockholders' Equity (GAAP)			$	2,302,373					$	2,304,479					$	2,247,713					$	2,291,788
Adjust for Accumulated Other Comprehensive Loss (1)			151,825						149,958						175,970						174,103
Less: Preferred Stock			(25,125)						(125)						(25,125)						(125)
Add: Qualifying Capital Securities			25,000						—						25,000						—
Less: Disallowed Goodwill and Intangible Assets			(726,907)						(726,459)						(731,315)						(730,867)
Add: Modified CECL Transition Amount			—						—						11,514						11,514
Less: Disallowed Deferred Tax Assets			(257)						(268)						(131)						(114)
Total Tier 1 Capital (Regulatory)			1,726,909						1,727,585						1,703,626						1,746,299
Qualifying Subordinated Debentures			78,205						—						132,174						—
Allowance for Loan Losses Includible in Tier 2 Capital			189,366						189,528						185,324						185,511
Total Risk-Based Capital (Regulatory)			$	1,994,480					$	1,917,113					$	2,021,124					$	1,931,810
Net Risk-Weighted Assets (Regulatory)			$	15,132,640					$	15,145,713					$	14,787,474					$	14,796,189
Average Assets (Regulatory)			$	17,633,416					$	17,812,268					$	17,677,268					$	17,658,269
Total Risk-Based Capital Ratio (Regulatory)			13.18		%				12.66		%				13.67		%				13.06		%
Tier 1 Capital to Risk-Weighted Assets			11.41		%				11.41		%				11.52		%				11.80		%
Tier 1 Capital to Average Assets			9.79		%				9.70		%				9.64		%				9.89		%
CET1 Capital Ratio
Total Tier 1 Capital (Regulatory)			$	1,726,909					$	1,727,585					$	1,703,626					$	1,746,299
Less: Qualified Capital Securities			(25,000)						—						(25,000)						—
CET1 Capital (Regulatory)			$	1,701,909					$	1,727,585					$	1,678,626					$	1,746,299
Net Risk-Weighted Assets (Regulatory)			$	15,132,640					$	15,145,713					$	14,787,474					$	14,796,189
CET1 Capital Ratio (Regulatory)			11.25		%				11.41		%				11.35		%				11.80		%

(1) Includes net unrealized gains or losses on available for sale securities, net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.

In management's view, certain non-GAAP financial measures, when taken together with the corresponding GAAP financial measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP financial measures and ratios in assessing our operating results, related trends and when forecasting future periods. However, these non-GAAP financial measures should be considered in addition to, and not a substitute for or preferable to, financial measures and ratios presented in accordance with GAAP.

The Corporation's tangible common equity measures are capital adequacy metrics that are meaningful to the Corporation, as well as analysts and investors, in assessing the Corporation's use of equity and in facilitating period-to-period and company-to-company comparisons. Tangible common equity to tangible assets ratio was 8.76 percent at September 30, 2024, and 8.40 percent at December 31, 2023. At September 30, 2024 and December 31, 2023, the Corporation had net unrealized losses associated with its investment securities available for sale of $189.2 million and $219.7 million, respectively. The unrealized losses are due to interest rate changes and not due to credit quality.

Non-GAAP financial measures such as tangible common equity to tangible assets, tangible earnings per share, return on average tangible assets and return on average tangible equity are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but retain the effect of accumulated other comprehensive losses in shareholder's equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

The tables within the “NON-GAAP FINANCIAL MEASURES” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations reconcile traditional GAAP measures to these non-GAAP financial measures at September 30, 2024 and December 31, 2023.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS

The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification.  Commercial loans are individually underwritten and judgmentally risk rated.  They are periodically monitored and prompt corrective actions are taken on deteriorating loans.  Consumer loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.

Loan Maturities

The following tables present the maturity distribution of our loan portfolio, excluding loans held for sale, by collateral classification at September 30, 2024 according to contractual maturities of (1) one year or less, (2) after one year but within five years and (3) after five years. The tables also present the portion of loans by loan classification that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.

(Dollars in Thousands)			Maturing Within 1 Year						Maturing 1-5 Years						Maturing Over 5 Years						Total
Commercial and industrial loans			$	752,514					$	2,920,569					$	368,134					$	4,041,217
Agricultural land, production and other loans to farmers			69,048						37,370						132,325						238,743
Real estate loans:
Construction			367,042						295,348						152,314						814,704
Commercial real estate, non-owner occupied			366,422						1,047,286						837,643						2,251,351
Commercial real estate, owner occupied			135,795						584,809						432,147						1,152,751
Residential			23,018						155,242						2,188,683						2,366,943
Home Equity			27,588						22,444						591,156						641,188
Individuals' loans for household and other personal expenditures			19,211						92,037						47,232						158,480
Public finance and other commercial loans			4,143						55,303						921,985						981,431
Total			$	1,764,781					$	5,210,408					$	5,671,619					$	12,646,808

(Dollars in Thousands)			Maturing Within 1 Year						Maturing 1-5 Years						Maturing Over 5 Years						Total
Commercial and industrial loans			$	39,173					$	418,597					$	148,701					$	606,471
Agricultural land, production and other loans to farmers			1,772						27,657						9,489						38,918
Real estate loans:
Construction			16,559						15,881						121,421						153,861
Commercial real estate, non-owner occupied			121,372						422,103						122,068						665,543
Commercial real estate, owner occupied			86,222						341,676						114,346						542,244
Residential			15,286						115,683						903,245						1,034,214
Home Equity			8,841						7,466						11,684						27,991
Individuals' loans for household and other personal expenditures			7,004						70,267						18,214						95,485
Public finance and other commercial loans			3,620						30,776						892,670						927,066
Total loans with fixed interest rates			$	299,849					$	1,450,106					$	2,341,838					$	4,091,793

(Dollars in Thousands)			Maturing Within 1 Year						Maturing 1-5 Years						Maturing Over 5 Years						Total
Commercial and industrial loans			$	713,341					$	2,501,972					$	219,433					$	3,434,746
Agricultural land, production and other loans to farmers			67,276						9,713						122,836						199,825
Real estate loans:
Construction			350,483						279,467						30,893						660,843
Commercial real estate, non-owner occupied			245,050						625,183						715,575						1,585,808
Commercial real estate, owner occupied			49,573						243,133						317,801						610,507
Residential			7,732						39,559						1,285,438						1,332,729
Home Equity			18,747						14,978						579,472						613,197
Individuals' loans for household and other personal expenditures			12,207						21,770						29,018						62,995
Public finance and other commercial loans			523						24,527						29,315						54,365
Total loans with variable interest rates			$	1,464,932					$	3,760,302					$	3,329,781					$	8,555,015

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Loan Quality

The quality of the loan portfolio and the amount of nonperforming loans may increase or decrease as a result of acquisitions, organic portfolio growth, problem loan recognition and resolution through collections, sales or charge-offs. The performance of any loan can be affected by external factors such as economic conditions, or internal factors specific to a particular borrower, such as the actions of a customer's internal management.

At September 30, 2024, non-accrual loans totaled $59.1 million, an increase of $5.5 million from December 31, 2023, primarily due to a $11.4 million increase in non-accrual balances in commercial real estate, non-owner occupied. The increase was offset by a decline in non-accrual balances within the residential loan portfolio of $6.2 million.

At September 30, 2024, loans 90-days or more delinquent and still accruing totaled $14.1 million, an increase of $13.9 million from December 31, 2023. The increase was driven primarily by one relationship totaling $13.0 million that was renewed subsequent to September 30, 2024 and is current.

According to applicable accounting guidance, loans that no longer exhibit similar risk characteristics are evaluated individually to determine if there is a need for a specific reserve. Commercial loans under $500,000 and consumer loans are not individually evaluated. The determination for individual evaluation is made based on current information or events that may suggest it is probable that not all amounts due of principal and interest, according to the contractual terms of the loan agreement, will be substantially collected.

The Corporation's nonperforming assets plus accruing loans 90-days or more delinquent and individually evaluated loans are presented in the table below.

(Dollars in Thousands)						September 30, 2024						December 31, 2023
Nonperforming Assets:
Non-accrual loans						$	59,088					$	53,580
OREO and Repossessions						5,247						4,831
Nonperforming assets (NPA)						64,335						58,411
Loans 90-days or more delinquent and still accruing						14,105						172
NPAs and loans 90-days or more delinquent						$	78,440					$	58,583

The composition of nonperforming assets plus accruing loans 90-days or more delinquent is reflected in the following table by loan class.

(Dollars in Thousands)			September 30, 2024						December 31, 2023
Nonperforming assets and loans 90-days or more delinquent:
Commercial and industrial loans			$	9,542					$	9,136
Agricultural land, production and other loans to farmers			81						58
Real estate loans:
Construction			—						520
Commercial real estate, non-owner occupied			40,992						16,652
Commercial real estate, owner occupied			3,237						3,041
Residential			19,598						25,178
Home equity			4,945						3,945
Individuals' loans for household and other personal expenditures			45						19
Public finance and other commercial loans			—						34
Nonperforming assets and loans 90-days or more delinquent:			$	78,440					$	58,583

Provision and Allowance for Credit Losses on Loans

The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost based on historical experiences, current conditions and reasonable and supportable forecasts. CECL also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as credit quality and underwriting standards of an organization's portfolio. Additional details of the Corporation's CECL methodology and allowance calculation 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.

The CECL allowance is maintained through the provision for credit losses, which is a charge against earnings. Based on management’s judgment as to the appropriate level of the allowance for credit losses, the amount provided in any period may be greater or less than net loan losses for the same period. The determination of the provision amount and the adequacy of the allowance in any period is based on management’s continuing review and evaluation of the loan portfolio.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation’s loan balances, excluding loans held for sale, increased $160.8 million from December 31, 2023 to $12.6 billion at September 30, 2024. At September 30, 2024, the ACL -loans totaled $187.8 million, which represents a decrease of $17.1 million from December 31, 2023. As a percentage of loans, the ACL - loans was 1.48 percent and 1.64 percent at September 30, 2024 and December 31, 2023, respectively.

Net charge-offs totaling $6.7 million and $48.6 million were recognized for the three and nine months ended September 30, 2024, respectively, and provision for credit losses of $5.0 million and $31.5 million, respectively, were recorded for the same periods in 2024. Net charge-offs totaling $20.4 million and $22.5 million were recognized for the three and nine months ended September 30, 2023, respectively, with $2.0 million in provision for credit losses recorded in the same periods in 2023. The increase in net charge-offs for the nine months ended September 30, 2024, is primarily related to two commercial and industrial relationships that accounted for $41.6 million of charge-offs. One borrower experienced a sudden change in revenue from the cancellation and inability to renegotiate their contracts with the U.S. Government. This negatively impacted the value of the borrower's business and resulted in their inability to repay principal and interest. The second borrower provided notification of its plans to cease operations. The Corporation does not believe these charge-offs are indicative of the portfolio as a whole.

The distribution of the net charge-offs (recoveries) for the three and nine months ended September 30, 2024 and 2023 are reflected in the following table.

			Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in Thousands)			2024						2023						2024						2023
Net charge-offs (recoveries):
Commercial and industrial loans			$	5,870					$	19,654					$	46,794					$	19,937
Real estate loans:
Commercial real estate, non-owner occupied			—						—						192						(44)
Commercial real estate, owner occupied			(18)						—						(73)						(8)
Residential			600						(14)						1,095						67
Home equity			(222)						437						(346)						1,749
Individuals' loans for household and other personal expenditures			479						288						944						794
Total net charge-offs (recoveries)			$	6,709					$	20,365					$	48,606					$	22,495

Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on nonperforming loans, past and anticipated credit loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding. The determination of the provision for credit losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio. The Corporation continues to monitor economic forecast changes, loan growth and credit quality to determine provision needs in the future.

LIQUIDITY

Liquidity management is the process by which the Corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries. These funds are necessary in order to meet financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements. Liquidity is monitored and closely managed by the asset/liability committee.

The Corporation’s liquidity is dependent upon the receipt of dividends from the Bank, which is subject to certain regulatory limitations and access to other funding sources.  Liquidity of the Bank is derived primarily from core deposit growth, principal payments received on loans, the sale and maturity of investment securities, net cash provided by operating activities, and access to other funding sources.

The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1.6 billion at September 30, 2024, a decrease of $73.6 million, or 4.5 percent, from December 31, 2023.  Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity. Securities classified as held to maturity and that are maturing in one year or less totaled $15.1 million at September 30, 2024. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.

The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base.  Federal funds purchased and securities sold under agreements to repurchase are also considered a source of liquidity. In addition, FHLB advances and Federal Reserve Discount Window borrowings are utilized as a funding source. At September 30, 2024, total borrowings from the FHLB were $832.6 million and there were no outstanding borrowings from the Federal Reserve Discount Window. The Bank has pledged certain mortgage loans and investments to the FHLB and Federal Reserve. The total available remaining borrowing capacity from the FHLB and Federal Reserve at September 30, 2024 was $762.6 million and $1.1 billion, respectively.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents the Corporation's material cash requirements from known contractual and other obligations at September 30, 2024:

			Payments Due In
(Dollars in Thousands)			One Year or Less						Over One Year						Total
Deposits without stated maturity			$	11,980,746					$	—					$	11,980,746
Certificates and other time deposits			2,108,640						275,714						2,384,354
Securities sold under repurchase agreements			124,894						—						124,894
Federal Home Loan Bank advances			105,000						727,629						832,629
Federal Funds Purchased			30,000						—						30,000
Subordinated debentures and other borrowings			1,335						92,227						93,562
Total			$	14,350,615					$	1,095,570					$	15,446,185

Also, in the normal course of business, the Bank is a party to a number of other off-balance sheet activities that contain credit, market and operational risk that are not reflected in whole or in part in our consolidated financial statements.  These activities primarily consist of traditional off-balance sheet credit-related financial instruments such as loan commitments and standby letters of credit.

Summarized credit-related financial instruments at September 30, 2024 are as follows:

(Dollars in Thousands)			September 30, 2024
Amounts of commitments:
Loan commitments to extend credit			$	5,493,144
Standby and commercial letters of credit			66,043
			$	5,559,187

Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.

INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK

Asset/Liability management has been an important factor in the Corporation's ability to record consistent earnings growth through periods of interest rate volatility and product deregulation. Management and the Board of Directors monitor the Corporation's liquidity and interest sensitivity positions at regular meetings to review how changes in interest rates may affect earnings.  Decisions regarding investment and the pricing of loan and deposit products are made after analysis of reports designed to measure liquidity, rate sensitivity, the Corporation’s exposure to changes in net interest income given various rate scenarios and the economic and competitive environments.

It is the objective of the Corporation to monitor and manage risk exposure to net interest income caused by changes in interest rates.  It is the goal of the Corporation’s Asset/Liability management function to provide optimum and stable net interest income. To accomplish this, management uses two asset liability tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly. Management believes that the Corporation's liquidity and interest sensitivity position at September 30, 2024, remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk.

Net interest income simulation modeling, or earnings-at-risk, measures the sensitivity of net interest income to various interest rate movements. The Corporation's asset liability process monitors simulated net interest income under three separate interest rate scenarios; base, rising and falling. Estimated net interest income for each scenario is calculated over a twelve-month horizon. The immediate and parallel changes to the base case scenario used in the model are presented below. The interest rate scenarios are used for analytical purposes and do not necessarily represent management's view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings of the Corporation.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The base scenario is highly dependent on numerous assumptions embedded in the model, including assumptions related to future interest rates. While the base sensitivity analysis incorporates management's best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, interest-bearing and demand deposits, reflect management's best estimate of expected future behavior. Historical retention rate assumptions are applied to non-maturity deposits for modeling purposes.

The comparative rising 200 and 100 basis points and falling 200 and 100 basis points scenarios below, as of September 30, 2024 and December 31, 2023, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario.

Results for the rising 200 and 100 basis points and falling 200 and 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at September 30, 2024 and December 31, 2023. The change from the base scenario represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

			September 30, 2024						December 31, 2023
Rising 200 basis points from base case			4.4		%				4.0		%
Rising 100 basis points from base case			3.3		%				2.1		%
Falling 100 basis points from base case			(1.7)		%				(5.0)		%
Falling 200 basis points from base case			(3.5)		%				(7.8)		%

OTHER

The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Corporation, and that address is (http://www.sec.gov).

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PART I: FINANCIAL INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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”.

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PART I: FINANCIAL INFORMATION

ITEM 4. CONTROLS AND PROCEDURES

ITEM 4.  CONTROLS AND PROCEDURES

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. 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 in connection with the evaluation discussed above 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.

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PART II: OTHER INFORMATION

ITEM 1., ITEM 1A., ITEM 2., ITEM 3., ITEM 4. AND ITEM 5.

(table dollar amounts in thousands, except share data)

ITEM 1.  LEGAL PROCEEDINGS

There are no pending legal proceedings, other than litigation incidental to the ordinary business of the Corporation or its subsidiaries, of a material nature to which the Corporation or its subsidiaries is a party or of which any of their properties is subject. Further, there are no material legal proceedings in which any director, officer, principal shareholder, or affiliate of the Corporation, or any associate of any such director, officer or principal shareholder, is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.

None of the routine legal proceedings, individually or in the aggregate, in which the Corporation or its affiliates are involved are expected to have a material adverse impact on the financial position or the results of operations of the Corporation.

ITEM 1A.  RISK FACTORS

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, 2023.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a. None

b. None

c. Issuer Purchases of Equity Securities

The following table presents information relating to our purchases of equity securities during the three months ended September 30, 2024.

Period						Total Number of Shares Purchased (1)						Average Price Paid per Share						Total Number of Shares Purchased as part of Publicly announced Plans or Programs (2)						Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2)
July, 2024						—						$	—					—						1,205,333
August, 2024						21,685						$	35.84					—						1,205,333
September, 2024						438						$	38.41					—						1,205,333
Total						22,123												—

(1) During the three months ended September 30, 2024, there were no shares repurchased pursuant to the Corporation's share repurchase program described in note (2) below. The share repurchases in August and September 2024 represent shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of the Corporation's restricted stock awards and are not a part of the Corporation's share repurchase program described in note (2) below.

(2) On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000. The program does not have an expiration date. However, it may be discontinued by the Board at any time. Since commencing the program, the Corporation has repurchased a total of 2,127,667 shares of common stock for a total aggregate investment of $75.4 million.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable 

ITEM 5.  OTHER INFORMATION

a. None

b. None

c. During the three months ended September 30, 2024, no director or officer of the Corporation adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

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PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

ITEM 6.  EXHIBITS

 

Exhibit No:			Description of Exhibits:
3.1			First Merchants Corporation Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of registrant’s Form 8-K filed on May 22, 2024) (SEC No. 000-17071)
3.2			Bylaws of First Merchants Corporation effective as of May 20, 2024 (Incorporated by reference to Exhibit 3.2 of registrant’s Form 8-K filed on May 22, 2024) (SEC No. 001-41342)
4.1			First Merchants Corporation Amended and Restated Declaration of Trust of First Merchants Capital Trust II dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.1 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)
4.2			Indenture dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.2 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)
4.3			Guarantee Agreement dated as of July 2, 2007 (Incorporated by reference to Exhibit 4.3 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)
4.4			Form of Capital Securities Certification of First Merchants Capital Trust II (Incorporated by reference to Exhibit 4.4 of registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)
4.5			First Merchants Corporation Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to registrant’s Prospectus filed pursuant to Rule 424(b)(3) on July 17, 2020) (SEC No. 333-229527)
4.6			Upon request, the registrant agrees to furnish supplementally to the Commission a copy of the instruments defining the rights of holders of its (a) 5.00% Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5 million and (b) 6.75% Fixed-to-Floating Rate Subordinated Notes due 2028 in aggregate principal amount of $65 million.
4.7			Deposit Agreement by and among First Merchants Corporation, Broadridge Corporate Issuer Solutions, Inc., as depositary, and holders from time to time of the depositary receipts described therein, as amended on March 30, 2022 (Incorporated by reference to Exhibit 4.1 of registrant’s Form 8-A filed on March 30, 2022) (SEC No. 001-41342)
4.8			Form of Depositary Receipt (Incorporated by reference to Exhibit 4.2 of registrant’s Form 8-A filed on March 30, 2022) (SEC No. 001-41342)
4.9			Indenture, dated as of December 18, 2019, between First Merchants Corporation (as successor to Level One Bancorp, Inc.) and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of Level One Bancorp, Inc.’s Form 8-K filed on December 19, 2019) (SEC No. 001-38458)
4.10			First Supplemental Indenture, dated as of March 31, 2022, among First Merchants Corporation, Level One Bancorp, Inc. and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.11 of registrant’s Form 10-K filed on March 1, 2023) (SEC No. 001-41342)
4.11			Form of 4.75% Fixed-to-Floating Rate Subordinated Notes due 2029 (Incorporated by reference to Exhibit 4.2 of Level One Bancorp, Inc.’s Form 8-K filed on December 19, 2019) (SEC No. 001-38458)
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
32			Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (2)
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)
101.SCH			Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
104			Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)
(1)			Filed herewith.
(2)			Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			First Merchants Corporation
			(Registrant)
October 31, 2024			by /s/ Mark K. Hardwick
			Mark K. Hardwick
			Chief Executive Officer
			(Principal Executive Officer)
October 31, 2024			by /s/ Michele M. Kawiecki
			Michele M. Kawiecki
			Executive Vice President, Chief Financial Officer
			(Principal Financial and Accounting Officer)

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