FIRST MERCHANTS CORP

Previous wording

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 includes 116 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.

Current wording

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.

Previous wording

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 six months ended June 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.

Current wording

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.

Previous wording

HIGHLIGHTS FOR THE SECOND QUARTER OF 2024

Current wording

HIGHLIGHTS FOR THE THIRD QUARTER OF 2024

Previous wording

•Strong liquidity and capital with Common Equity Tier 1 Capital Ratio of 11.02 percent.

Current wording

•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.

Previous wording

The Corporation reported second quarter 2024 net income available to common stockholders and diluted earnings per common share of $39.5 million and $0.68 per diluted share, respectively, compared to $60.4 million and $1.02 per diluted share, respectively, during the second quarter of 2023.

Current wording

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.

Previous wording

Earnings per fully diluted common share for the second quarter of 2024, excluding income on PPP loans and non-core expenses, totaled $0.68, compared to $1.02 in the second quarter of 2023 and $0.85 in the first quarter of 2024. 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.

Current wording

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.

Previous wording

Cash and due from banks and interest-bearing deposits decreased $274.8 million from December 31, 2023 as funds were used to fund loan growth and repurchase shares of the Corporation's stock. Total investment securities decreased $58.3 million from December 31, 2023, primarily due to scheduled pay downs and maturities of investment securities of $69.7 million and an increase of $45.6 million in unrealized losses in the available for sale portfolio during the first six months of 2024. Partially offsetting these decreases were securities purchases of $62.3 million during the first six months of 2024. Additionally, while not reflected in the balance sheet, the unrealized loss in the held to maturity portfolio also increased during the six months ended June 30, 2024 by $41.1 million. Currently, the Corporation is reinvesting cashflows into the investment securities portfolio on a limited basis with a primary focus of using liquidity to pay down borrowings and fund current and future loan growth. The investment portfolio as a percentage of total assets was 20.5 percent at June 30, 2024 and 20.7 percent at December 31, 2023 which 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 2. INVESTMENT SECURITIES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Current wording

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.

Previous wording

The Corporation's total loan portfolio increased $167.0 million, or 2.7 percent on an annualized basis, since December 31, 2023. The composition of the loan portfolio is 74.8 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 31.1 percent and 18.3 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, residential real estate, home equity and commercial real estate, owner occupied. Partially offsetting those increases was a decrease in construction, commercial real estate, non-owner occupied and agricultural land. Additional details of the changes in the Corporation's loans are discussed within NOTE 3. LOANS AND ALLOWANCE 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.

Current wording

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.

Previous wording

The Corporation’s ACL - loans totaled $189.5 million as of June 30, 2024 and equaled 1.50 percent of total loans, compared to $204.9 million and 1.64 percent of total loans at December 31, 2023. The ACL - loans decreased $15.4 million since December 31, 2023, as net charge-offs during the six months ended June 30, 2024 were $41.9 million and provision for credit losses - loans of $26.5 million was recorded. Nonaccrual loans at June 30, 2024 were $61.9 million and increased $8.3 million from December 31, 2023 primarily due to a $10.8 million and a $4.3 million increase in non-accrual balances in commercial real estate, non-owner occupied and commercial and industrial, respectively. The increases were partially offset by a decline in non-accrual balances within residential of $6.3 million.The Corporation's reserve for unfunded commitments was $19.5 million at June 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 3. LOANS AND ALLOWANCE 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.

Current wording

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.

Previous wording

As of June 30, 2024, total deposits equaled $14.6 billion, a decrease of $252.4 million from December 31, 2023, or 3.4 percent on an annualized basis. Total deposits less time deposits greater than $100,000, or core deposits, represented 89.5 percent of the deposit portfolio at June 30, 2024. Noninterest bearing deposits represents 15.8 percent of the deposit portfolio at June 30, 2024, compared to 16.9 percent at December 31, 2023. The decline is the result of a mix shift occurring across the industry as clients move into higher yielding deposit products. The Corporation experienced decreases from December 31, 2023 in demand deposits of $196.7 million, savings accounts of $107.9 million and money market of $69.4 million. Offsetting these decreases was an increase in brokered certificates of deposit of $86.9 million from December 31, 2023.

Current wording

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.

Previous wording

The average account within the deposit portfolio totals only $33,000. Insured deposits totaled 70.2 percent of total deposits, with the State of Indiana's Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.7 percent of deposits and the Federal Deposit Insurance Corporation ("FDIC") providing insurance to the remaining 55.5 percent. Only 29.8 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.

Current wording

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.

Previous wording

Total borrowings increased $145.2 million as of June 30, 2024, compared to December 31, 2023. This increase was primarily driven by an increase of $147.2 million in federal funds purchased and an increase of $119.9 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 $40 million of subordinated debentures in the January of 2024 and $25 million of subordinated debentures in April of 2024. Securities sold under repurchase decreased $56.8 million from December 31, 2023 as clients moved into higher yielding deposit products.

Current wording

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.

Previous wording

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 gains (losses) in stockholders' equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

Current wording

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.

Previous wording

Net interest income is the most significant component of our earnings, comprising 81.5 percent of revenues for the six months ended June 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.

Current wording

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.

Previous wording

Net interest margin, on an FTE basis, decreased 23 basis points to 3.16 percent for the three months ended June 30, 2024 compared to 3.39 percent for the same period in 2023.

Current wording

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.

Previous wording

Net interest margin, on an FTE basis, decreased 35 basis points to 3.13 percent for the six months ended June 30, 2024 compared to 3.48 percent for the same period in 2023.

Current wording

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.

Previous wording

Average earning assets for the three months ended June 30, 2024 increased $45.5 million compared to the same period in 2023. The increase for the three months ended June 30, 2024 was primarily driven by organic loan growth within the real estate mortgage and commercial portfolios of $119.5 million and $86.4 million, respectively. The organic loan growth was offset by a decrease in the average investment securities portfolio of $184.6 million, as the Corporation utilized cash flows from investment securities to fund current and future loan growth.

Current wording

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.

Previous wording

Average earning assets for the six months ended June 30, 2024 increased $172.1 million compared to the same period in 2023. The increase for the six months ended June 30, 2024 was driven by an increase in interest bearing deposits of $190.7 million as well as organic loan growth within the real estate mortgage and commercial portfolios of $168.1 million and $100.0 million, respectively. Offsetting the increases in interest-bearing deposits and loans was a decrease in the average investment securities portfolio of $315.1 million for the six months ended June 30, 2024 when compared to the same period in 2023. The Corporation is reinvesting cashflows into the investment securities portfolio on a limited basis with a primary focus of using liquidity to fund current and future loan growth. The investment portfolio as a percentage of total assets was 20.5 percent at June 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.

Current wording

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.

Previous wording

Total average deposits for the three months ended June 30, 2024 increased $176.0 million, when compared to the same period in 2023. Average interest-bearing deposits for the three months ended June 30, 2024 increased $624.7 million compared to the same period in 2023, with the largest increases in the certificates and other time deposits, money market and interest-bearing demand deposits. Noninterest bearing deposits act to mitigate deposit yield increases as interest rates rise. Average noninterest bearing deposits declined $448.8 million in the three months ended June 30, 2024 when compared to the same period in 2023. The decline is the result of a mix shift occurring across the industry as clients move into higher yielding deposit products. Average noninterest bearing deposits represented 15.8 percent of the deposit portfolio for the three months ended June 30, 2024, and 19.0 percent of the deposit portfolio for the three months ended June 30, 2023, which is a decline from the peak in the second quarter of 2022 of 23.6 percent.

Current wording

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.

Previous wording

Total average deposits for the six months ended June 30, 2024 increased $316.1 million, when compared to the same period in 2023. Average interest-bearing deposits for the six months ended June 30, 2024 increased $886.1 million, compared to the same period in 2023, with the largest increases in the certificates and other time deposits, money market and interest-bearing demand deposits. Average noninterest bearing deposits declined $570.0 million, in the six months ended June 30, 2024 when compared to the same period in 2023. Average noninterest bearing deposits, for the six months ended June 30, 2024 and 2023, represented 16.0 percent and 20.3 percent of the deposit portfolio, respectively.

Current wording

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.

Previous wording

Average borrowings decreased $224.6 million for the three months ended June 30, 2024, compared to the same period in 2023. Average securities sold under repurchase agreements and average FHLB advances decreased $64.7 million and $111.9 million, respectively, for the three months ended June 30, 2024 compared to the same period in 2023. Additionally, for the three months ended June 30, 2024, average subordinated debt decreased $57.2 million when compared to the same period in 2023, due to the Corporation's redemption of $25.0 million of subordinated debt in April of 2024

Current wording

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.

Previous wording

In the second quarter of 2024, FTE asset yields increased 33 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 $15.0 million during the three months ended June 30, 2024 compared to the same period in 2023. Additionally, the Corporation's loan portfolio is 67.1 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 interest rate increases in 2023 and 2022 also resulted in increased yields on new and renewed loans, which were 8.13 percent for the three months ended June 30, 2024 compared to 7.30 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 $1.5 million, which accounted for 3 basis points of net interest margin in the three months ended June 30, 2024. Comparatively, the Corporation recognized $2.0 million of accretion income for the three months ended June 30, 2023, or 5 basis points of net interest margin.

Current wording

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.

Previous wording

As customers have migrated to higher yielding interest-bearing deposit products, interest expense on deposits increased 26.0 million for the three months ended June 30, 2024, or 70 basis points when compared to the same period in 2023. Total cost of funds was 3.21 percent for the three months ended June 30, 2024 compared to 2.56 percent during the same period in 2023. Interest costs increased 65 basis points, which mitigated the 33 basis point increase in asset yields and resulted in a 32 basis point FTE decrease in net interest spread when compared to the same period in 2023.

Current wording

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.

Previous wording

In the six months ended June 30, 2024, FTE asset yields increased 46 basis points compared to the same period in 2023. The increase in interest income, on an FTE basis, of $44.0 million during the six months ended June 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 $2.9 million, which accounted for 3 basis points of net interest margin in the six months ended June 30, 2024. Comparatively, the Corporation recognized $4.4 million of accretion income for the six months ended June 30, 2023, or 5 basis points of net interest margin.

Current wording

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.

Previous wording

Interest expense on deposits increased $73.6 million for the six months ended June 30, 2024, or 103 basis points when compared to the same period in 2023. Total cost of funds was 3.22 percent for the six months ended June 30, 2024 compared to 2.28 percent during the same period in 2023. Interest costs increased 94 basis points, which mitigated the 46 basis point increase in asset yields and resulted in a 48 basis point FTE decrease in net interest spread when compared to the same period in 2023.

Current wording

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.

Previous wording

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 six months ended June 30, 2024 and 2023.

Current wording

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.

Previous wording

During the first six months of 2024, noninterest income totaled $58.0 million, a $6.7 million, or 13.0 percent, increase when compared to the same period in 2023. The increase is primarily driven by a $2.4 million increase in net gains and fees on sales of loans, a $1.8 million increase in private wealth fees and a $0.9 million increase in service charge income, when compared to the same period in 2023. Additionally, the first six months of 2024 included $51,000 in net losses realized on sales of available for sale securities compared to $3.0 million in the first six months of 2023. These increases were offset by lower derivative hedge fees of $1.1 million in the first six months of 2024 compared to the same period in 2023.

Current wording

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.

Previous wording

During the first six months of 2024, noninterest expense totaled $188.3 million, a $2.0 million, or 1.1 percent, increase when compared to the same period in 2023. FDIC expense increased $3.4 million, primarily due to a one-time FDIC assessment credit of $2.0 million recorded in the first quarter of 2023, which was offset by increases from growth in the balance sheet over the last twelve months. Additionally, outside data processing expenses increased $1.2 million in the six months ended June 30, 2024 compared to the same period in 2023 due to the Corporation's continued investment in customer-facing digital solutions.

Current wording

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.

Previous wording

Income tax expense for the three months ended June 30, 2024 was $4.1 million on pre-tax net income of $44.0 million. For the same period in 2023, income tax expense was $10.7 million on pre-tax income of $71.6 million. The effective income tax rates for the second quarter of 2024 and 2023 were 9.2 percent and 15.0 percent, respectively.

Current wording

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.

Previous wording

Income tax expense for the six months ended June 30, 2024 was $10.9 million on pre-tax net income of $98.8 million. For the same period in 2023, income tax expense was $22.0 million on pre-tax net income of $147.0 million. The effective income tax rates for the six months ended June 30, 2024 and 2023 were 11.0 percent and 15.0 percent, respectively.

Current wording

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.

Previous wording

The lower effective income tax rate for the three and six months ended June 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.

Current wording

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.

Previous wording

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 June 30, 2024 and December 31, 2023. During the three and six months ended June 30, 2024 and 2023, the Corporation declared and paid dividends of $46.88 per share (equivalent to $0.4688 per depository share) and $93.76 per share, respectively, equal to $469,000 and $938,000, respectively. The Series A preferred stock qualifies as Tier 1 capital for purposes of the regulatory capital calculations.

Current wording

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.

Previous wording

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 repurchased 0.6 million and 1.5 million shares of its common stock pursuant to the repurchase program during the three and six months ended June 30, 2024, respectively. As of June 30, 2024, the Corporation had approximately 1.2 million shares at an aggregate value of $24.6 million available to repurchase under the program.

Current wording

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.

Previous wording

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 andsix months ended June 30, 2024, the Corporation recorded excise tax of $185,000 and $482,000, respectively, related to its share repurchases during the first half of 2024, which is reflected in the Statement of Stockholders' Equity as a component of additional paid-in capital.

Current wording

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 thethree 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.

Previous wording

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. Subordinated debt decreased due to the pay down of $40.0 million in principal on the scheduled interest payment date during the first quarter of 2024, which resulted in an additional reduction of $32.0 million in tier 2 capital. Additionally, the remaining $25.0 million of subordinated debt was paid in full during the second quarter of 2024. As of June 30, 2024, the Corporation's remaining subordinated debt of $31.0 million was classified as tier 2 capital and was not subject to the five year phase-out.

Current wording

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.

Previous wording

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 8.27 percent at June 30, 2024, and 8.40 percent at December 31, 2023. At June 30, 2024 and December 31, 2023, the Corporation had net unrealized losses associated with its investment securities available for sale of $265.3 million and $219.7 million, respectively. This decrease in value is due to interest rate changes and not due to credit quality.

Current wording

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.

Previous wording

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 gains (losses) in shareholder's equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

Current wording

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.

Previous wording

At June 30, 2024, non-accrual loans totaled $61.9 million, an increase of $8.3 million from December 31, 2023, primarily due to a $10.8 million and a $4.3 million increase in non-accrual balances in commercial real estate, non-owner occupied and commercial and industrial, respectively. The increase was partially offset by a decline in non-accrual balances within residential of $6.3 million.

Current wording

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.

Previous wording

The Corporation adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2021. CECL replaced the previous "incurred loss" model with an "expected loss" model of measuring credit losses, which encompasses allowances for losses expected to be incurred over the life of the portfolio. 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 3. LOANS AND ALLOWANCE of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Current wording

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.

Previous wording

The Corporation’s loan balances, excluding loans held for sale, increased $153.6 million from December 31, 2023 to $12.6 billion at June 30, 2024. At June 30, 2024, the allowance for credit losses totaled $189.5 million, which represents a decrease of $15.4 million from December 31, 2023. As a percentage of loans, the allowance for credit losses was 1.50 percent at June 30, 2024 and December 31, 2023.

Current wording

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.