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 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.

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 111 banking locations in Indiana, Ohio, and Michigan. 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 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.

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 three months ended March 31, 2025 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, 2024. 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, 2024.

Previous 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.

Current wording

The Corporation reported first quarter 2025 net income available to common stockholders and diluted earnings per common share of $54.9 million and $0.94 per diluted share, respectively, compared to $47.5 million and $0.80 per diluted share, respectively, during the first quarter of 2024.

Previous 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.

Current wording

When adjusting for certain non-recurring items, adjusted net income available to common stockholders was $54.9 million and adjusted diluted earnings per common share totaled $0.94 for the first quarter of 2025, compared to $50.1 million and $0.85, respectively, in the first quarter of 2024. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of GAAP earnings per share measures to the corresponding non-GAAP measures provided above, refer to the "NON-GAAP FINANCIAL MEASURES" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

As of September 30, 2024, total assets equaled $18.3 billion, a decrease from the December 31, 2023 total of $18.4 billion.

Current wording

As of March 31, 2025, total assets equaled $18.4 billion, an increase of $127.8 million or 0.7 percent from December 31, 2024.

Previous 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.

Current wording

Cash and due from banks and interest-bearing deposits increased $31.1 million from December 31, 2024. Total investment securities decreased $33.6 million from December 31, 2024, primarily due to $35.3 million in maturities and redemptions of available for sale securities and held to maturity securities. The investment portfolio as a percentage of total assets was 18.6 percent at March 31, 2025 and 18.9 percent at December 31, 2024. Additional details of the Corporation's investment securities portfolio are discussed within NOTE 3. INVESTMENT SECURITIES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Previous 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.

Current wording

The Corporation's total loan portfolio increased $154.9 million, or 4.8 percent on an annualized basis, since December 31, 2024. The composition of the loan portfolio is 75.4 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 33.1 percent and 16.7 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, commercial real estate, owner occupied, public finance and residential loans. Partially offsetting those increases was a decrease in commercial real estate, non-owner occupied, construction, home equity, and individuals' loans for household and other personal expenditures. 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 $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.

Current wording

The Corporation’s ACL - loans totaled $192.0 million as of March 31, 2025 and equaled 1.47 percent of total loans, compared to $192.8 million and 1.50 percent of total loans at December 31, 2024. The ACL - loans decreased $0.7 million from December 31, 2024. During the three months ended March 31, 2025, the Corporation recorded net charge-offs of $4.9 million and $4.2 million of provision for credit losses - loans. During the three months ended March 31, 2024, the Corporation recorded net charge-offs of $2.3 million and $2.0 million of provision for credit losses - loans. Nonaccrual loans at March 31, 2025 were $81.9 million and increased $8.1 million from December 31, 2024 primarily due to increases of $6.8 million and $1.9 million in non-accrual balances in commercial real estate, owner occupied and residential, respectively. The increases were partially offset by a decline in non-accrual balances within the commercial and industrial loan portfolio of $2.0 million. The Corporation's reserve for unfunded commitments was $18.0 million at March 31, 2025 and December 31, 2024, 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

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.

Current wording

The Corporation's other assets decreased $18.0 million from December 31, 2024 and was driven by a decline in the fair value of derivatives included in other assets from $77.1 million at December 31, 2024 to $63.7 million at March 31, 2025. The decrease in derivatives is due primarily to a decrease in market interest rates.

Previous 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.

Current wording

As of March 31, 2025, total deposits equaled $14.5 billion, a decrease of $59.6 million from December 31, 2024, or 1.6 percent on an annualized basis. The Corporation experienced decreases from December 31, 2024 in time deposits of $213.8 million and demand deposits of $193.5 million. Partially offsetting these decreases was an increase in savings deposits of $269.1 million and brokered certificates of deposits of $78.5 million from December 31, 2024. The overall deposit decrease was driven by a decrease in public funds and partially offset by an increase in wholesale deposits. Total deposits less time deposits greater than $100,000, or core deposits, represented 91.3 percent of the deposit portfolio at March 31, 2025. Noninterest bearing deposits represents 15.1 percent of the deposit portfolio at March 31, 2025, compared to 16.0 percent at December 31, 2024. The loan to deposit ratio increased to 90.1 percent at period end from 88.6 percent as of December 31, 2024.

Previous 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.

Current wording

The average account balance within the deposit portfolio was $36,000 at March 31, 2025. Insured deposits totaled 69.6 percent of total deposits, with the State of Indiana's Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 12.4 percent of deposits and the Federal Deposit Insurance Corporation ("FDIC") providing insurance to the remaining 57.2 percent. Only 30.4 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 $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.

Current wording

Total borrowings increased $184.9 million as of March 31, 2025, compared to December 31, 2024. This increase was primarily driven by an increase of $149.9 million in FHLB advances and $85.8 million in federal funds purchased from December 31, 2024. Subordinated debentures and other borrowings decreased $30.9 million compared to December 31, 2024 as the Corporation utilized excess liquidity to pay down $30.0 million of subordinated debentures during the first quarter of 2025. Securities sold under repurchase agreements decreased $19.9 million from December 31, 2024 as clients moved into other deposit products.

Previous wording

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.

Current wording

Adjusted net income available to common stockholders and adjusted diluted earnings per common share 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.

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 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

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. Non-GAAP financial measures such as tangible common equity, tangible assets, tangible common equity to tangible assets, tangible book value per common share, tangible net income available to common stockholders, diluted tangible net income per common share, return on average tangible capital and return on average tangible assets 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 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.

Current wording

Net interest income is the most significant component of our earnings, comprising 81.3 percent of revenues for the three months ended March 31, 2025. 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 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.

Current wording

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 2025 and 2024. The

Previous wording

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.

Current wording

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.

Previous 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.

Current wording

Average earning assets for the three months ended March 31, 2025 decreased $163.4 million compared to the same period in 2024. The decrease for the three months ended March 31, 2025 was driven by a decrease in the average investment securities portfolio and interest-bearing deposits of $348.2 million and $281.7 million, respectively, as the Corporation repositioned the securities portfolio in the second half of 2024 by selling $268.5 million of lower-yielding securities. Offsetting these decreases was an increase in average loan balances of $464.3 million, primarily in the commercial and tax-exempt portfolios.

Previous 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.

Current wording

Total average deposits for the three months ended March 31, 2025 decreased $461.9 million, when compared to the same period in 2024. The decline was primarily due to $267.4 million of deposits sold in the Illinois branch sale that closed in the fourth quarter of 2024. Average interest-bearing deposits for the three months ended March 31, 2025 decreased $245.3 million compared to the same period in 2024, with the largest decreases in certificates and other time deposits and savings deposits, partially offset by an increase in money market deposits and interest-bearing demand deposits. Average noninterest-bearing deposits declined $216.5 million in the three months ended March 31, 2025 when compared to the same period in 2024. This decrease reflects clients continuing to move funds from noninterest-bearing accounts into interest-bearing deposit products.

Previous wording

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.

Current wording

Average borrowings increased $251.1 million for the three months ended March 31, 2025, compared to the same period in 2024. Average FHLB advances and federal funds purchased increased $243.8 million and $62.8 million, respectively, during the three months ended March 31, 2025 when compared to the same period in 2024 as the Corporation utilized funding sources to fund loan growth and supplement deposits. These increases were partially offset by a $13.4 million decrease in average securities sold under repurchase agreements for the same period. Additionally, average subordinated debt decreased $41.9 million for the three months ended March 31, 2025 when compared to the same period in 2024, due to the Corporation's redemption of $65.0 million of subordinated debt in the first and second quarters of 2024 and $30.0 million in the first quarter of 2025.

Previous 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.

Current wording

In the first quarter of 2025, FTE asset yields decreased 26 basis points compared to the same period in 2024 and was primarily due to the Federal Open Market Committee ("FOMC") decreasing interest rates a total of 100 basis points in the second half of 2024. This resulted in a decrease in interest income, on an FTE basis, of $13.1 million during the three months ended March 31, 2025 compared to the same period in 2024. The Corporation's loan portfolio is 68.3 percent variable and repricing occurred when the FOMC decreased interest rates. As a result, yields on new and renewed loans were 6.96 percent for the three months ended March 31, 2025 compared to 8.15 percent for the same period in 2024. The Corporation also recognized fair value accretion income on purchased loans, which is included in interest income, of $1.1 million, which accounted for 3 basis points of net interest margin in the three months ended March 31, 2025. Comparatively, the Corporation recognized $1.4 million of accretion income for the three months ended March 31, 2024, or 3 basis points of net interest margin.

Previous 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.

Current wording

Interest expense on deposits decreased $17.7 million for the three months ended March 31, 2025, or 52 basis points, when compared to the same period in 2024. The total cost of interest-bearing liabilities was 2.74 percent for the three months ended March 31, 2025 compared to 3.23 percent during the same period in 2024. The total cost of interest-bearing liabilities decreased 49 basis points, which mitigated the 26 basis point decrease in asset yields and resulted in a 23 basis point increase in FTE net interest spread when compared to the same period in 2024. The decrease in interest expense was primarily due to a decrease in the cost of all deposit products and borrowings as the average balance of total interest-bearing liabilities was comparable to the prior year period.

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 nine months ended September 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 months ended March 31, 2025 and 2024.

Previous wording

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.

Current wording

Noninterest income totaled $30.0 million for the three months ended March 31, 2025, a $3.4 million, or 12.8 percent, increase compared to the three months ended March 31, 2024. The increase was primarily driven by a $1.8 million increase in net gains and fees on sales of loans and a $0.6 million increase in earnings on cash surrender value of life insurance.

Previous 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.

Current wording

Income tax expense for the three months ended March 31, 2025 was $7.9 million on pre-tax net income of $63.2 million. For the same period in 2024, income tax expense was $6.8 million on pre-tax income of $54.8 million. The effective income tax rates for the first quarter of 2025 and 2024 were 12.5 percent.

Previous 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.

Current wording

The effective income tax rate for the three months ended March 31, 2025 when compared to the same period in 2024 experienced a favorable rate impact due to increased tax credits offset by tax-exempt interest income being a smaller portion of pre-tax income in 2025.

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 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.

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 million of outstanding preferred stock at March 31, 2025 and December 31, 2024. During the three months ended March 31, 2025 and 2024, the Corporation declared and paid dividends of $46.88 per share (equivalent to $0.4688 per depository share) equal to $0.5 million. 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 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.

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 repurchased 0.9 million shares of its common stock pursuant to the repurchase program during the three months ended March 31, 2024. As of March 31, 2024 the Corporation had approximately 1.8 million shares at an aggregate value of $44.6 million available to repurchase under the program. The stock repurchase program approved in 2021 was discontinued as of March 18, 2025.

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 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.

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. During the three months ended March 31, 2025 and 2024, the Corporation recorded excise tax of $0.1 million and $0.3 million, respectively, related to its share repurchases during the period, which is reflected in the Statement of Stockholders' Equity as a component of additional paid-in capital.

Previous wording

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.

Current wording

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 Economic 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 was fully reflected in regulatory capital on January 1, 2024.

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. 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.

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. The Corporation exercised its right to redeem $65 million of the subordinated debt on the scheduled interest payment date during the first half of 2024.

Previous wording

(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.

Current wording

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

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 8.76 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.

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 8.90 percent at March 31, 2025, and 8.81 percent at December 31, 2024.

Previous 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.

Current wording

At March 31, 2025, non-accrual loans totaled $81.9 million, an increase of $8.1 million from December 31, 2024, primarily due to increases of $6.8 million and $1.9 million in non-accrual balances in commercial real estate, owner occupied and residential, respectively. The increase was offset by a decline in non-accrual balances within the commercial and industrial loan portfolio of $2.0 million.

Previous wording

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.

Current wording

At March 31, 2025, loans 90-days or more delinquent and still accruing totaled $4.3 million, a decrease of $1.6 million from December 31, 2024.

Previous wording

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

Current wording

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

Previous 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.

Current wording

The Corporation’s loan balances, excluding loans held for sale, increased $150.5 million from December 31, 2024 to $13.0 billion at March 31, 2025. At March 31, 2025, the ACL -loans totaled $192.0 million, which represents a decrease of $0.7 million from December 31, 2024. As a percentage of loans, the ACL - loans was 1.47 percent and 1.50 percent at March 31, 2025 and December 31, 2024, respectively.

Previous wording

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.

Current wording

Net charge-offs totaling $4.9 million were recognized for the three months ended March 31, 2025, and provision for credit losses of $4.2 million was recorded for the same period in 2025. Net charge-offs totaling $2.3 million were recognized for the three months ended March 31, 2024, with $2.0 million in provision for credit losses recorded in the same period in 2024.

Previous wording

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.

Current wording

The distribution of the net charge-offs (recoveries) for the three months ended March 31, 2025 and 2024 is reflected in the following table.

Previous wording

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.

Current wording

The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1.4 billion at March 31, 2025, a decrease of $8.0 million, or 0.6 percent, from December 31, 2024. 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 $5.3 million at March 31, 2025. 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.