FIRST MERCHANTS CORP

Previous wording

The historical consolidated financial data discussed below reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented in Item 8 of this Annual Report on Form 10-K. In addition to historical financial data, this discussion includes certain forward-looking statements regarding events and trends that may affect our future results. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially. See our cautionary “Statement Regarding Forward-Looking Statements.” For a more complete discussion of the factors that could affect our future results, see “Risk Factors” under Item 1A of this Annual Report on Form 10-K.

Current wording

The historical consolidated financial data discussed below reflects historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented in Item 8 of this Annual Report on Form 10-K. In addition to historical financial data, this discussion includes certain forward-looking statements regarding events and trends that may affect our future results. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially. See our cautionary “Statement Regarding Forward-Looking Statements.” For a more complete discussion of the factors that could affect our future results, see “Risk Factors” under Item 1A of this Annual Report on Form 10-K.

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 110 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.

Current wording

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 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 require management to apply significant judgment to certain 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. For a complete discussion of the Corporation’s significant accounting policies see NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Current wording

Generally accepted accounting principles require management to apply significant judgment to certain 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 the Corporation’s financial condition and results of operations. For a complete discussion of the Corporation’s significant accounting policies see NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Previous wording

As discussed in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, the allowance for credit losses on loans is a contra-asset valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of allowance represents management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable economic forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, the Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending management and staff, and (vi) other environmental factors such as regulatory, legal and technological considerations, as well as competition.

Current wording

As discussed in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, the allowance for credit losses on loans is a contra-asset valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management’s best estimate of current expected credit losses on loans considering available information obtained from internal and external sources that is relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable economic forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, the Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may either increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (iv) changes in the quality of the credit review function, (v) changes in the experience, ability and depth of lending management and staff, and (vi) other environmental factors such as regulatory, legal and technological considerations, as well as competition.

Previous wording

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond management’s control, which includes, but is not limited to, the performance of the loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.

Current wording

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond management’s control, including the performance of the loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.

Previous wording

The Corporation reported net income available to common stockholders and diluted earnings per common share for the year ended 2023 of $221.9 million and $3.73 per diluted common share, respectively, compared to $220.7 million and $3.81 per diluted common share, respectively, for the year ended 2022.

Current wording

The Corporation reported net income available to common stockholders and diluted earnings per common share for the year ended 2025 of $224.1 million and $3.88 per diluted common share, respectively, compared to $199.5 million and $3.41 per diluted common share, respectively, for the year ended 2024.

Previous wording

When adjusting for certain non-recurring items, 2024 adjusted net income available to common stockholders was $203.3 million and adjusted diluted earnings per common share totaled $3.47, compared to 2023 $236.7 million and $3.98, respectively. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” 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 $224.7 million and adjusted diluted earnings per common share totaled $3.89 for the year ended 2025, compared to $203.3 million and $3.47, respectively, for the year ended 2024. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

As of December 31, 2023, total assets equaled $18.4 billion, an increase of $403.7 million, or 2.2 percent, from December 31, 2022.

Current wording

As of December 31, 2025, total assets equaled $19.0 billion, an increase of $713.1 million, or 3.9 percent, from December 31, 2024.

Previous wording

Cash and due from banks and interest-bearing deposits decreased from December 31, 2022 by $300.1 million, primarily due to deposit growth and proceeds from investment securities principal and interest cashflows in addition to sales, which were held in cash for liquidity purposes. Total investment securities decreased $452.4 million from December 31, 2022, primarily due to the sales of $395.2 million of investment securities during the year ended December 31, 2023. Scheduled paydowns and maturities decreased investment securities by $161.2 million, which was offset by a decrease of $77.0 million in unrealized losses in the available for sale portfolio during 2023. During 2023 the Corporation used cashflows from the investment portfolio to fund loan growth and pay down borrowings. The investment portfolio as a percentage of total assets was 20.8 percent at December 31, 2023 compared to 23.8 percent at December 31, 2022. This decrease reflected progress towards a more normalized earning asset mix. Additional details of the changes in the Corporation’s investment securities portfolio are discussed within NOTE 4. INVESTMENT SECURITIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Current wording

Cash and due from banks and interest-bearing deposits decreased $106.0 million from December 31, 2024. Total investment securities decreased $82.1 million from December 31, 2024, primarily due to $164.9 million in maturities and redemptions of available for sale securities and held to maturity securities and $10.0 million related to amortization of purchase premiums during the year ended December 31, 2025. These decreases were partially offset by $19.7 million in purchases and a $71.5 million decrease in unrealized losses within the available for sale securities portfolio. Investment securities represented 17.8 percent of total assets at December 31, 2025, compared to 18.9 percent at December 31, 2024. Additional details of the changes in the Corporation’s investment securities portfolio are discussed within NOTE 4. INVESTMENT SECURITIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Previous wording

The Corporation’s total loan portfolio grew $492.0 million or 4.1 percent since December 31, 2022. The loan classes that experienced the largest increases from December 31, 2022 were in commercial and industrial, residential real estate, and construction real estate loans. The loan classes that experienced the largest decreases from December 31, 2022 were in owner occupied commercial real estate and home equity loans. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, 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 grew $938.8 million, or 7.3 percent, since December 31, 2024. The composition of the loan portfolio is 76.2 percent commercial‑oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 32.4 percent and 17.0 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial and public finance and other commercial loans. Offsetting these increases was a decrease in individuals’ loans for household and other personal expenditures. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, 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 allowance for credit losses - loans totaled $204.9 million as of December 31, 2023 and equaled 1.64 percent of total loans, compared to $223.3 million and 1.86 percent of total loans at December 31, 2022. During the year ended December 31, 2023, the Corporation recognized $25.6 million of net charge-offs, compared to net charge-offs of $2.7 million for the year ended December 31, 2022. The increase in net charge-offs is primarily related to a charge-off of a previously reported nonaccrual loan to a syndicated specialty finance company resulting from alleged fraud that impacted our borrower’s ability to repay. The effect of the charge-offs on the ACL - loans was offset by provision expense on loans of $7.3 million for the year ended December 31, 2023. Reserves for unfunded commitments were reduced by $3.8 million, resulting in a net provision expense of $3.5 million as of December 31, 2023. Nonaccrual loans as of December 31, 2023 totaled $53.6 million, an increase of $11.3 million from December 31, 2022. The coverage ratio of ACL - Loans to nonaccrual loans is 382.5 percent at December 31, 2023. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K 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 allowance for credit losses - loans (“ACL - Loans”) totaled $195.6 million as of December 31, 2025 and equaled 1.42 percent of total loans, compared to $192.8 million and 1.50 percent of total loans at December 31, 2024. During the year ended December 31, 2025, the Corporation recognized $18.4 million of net charge-offs, or 14 basis points of average loans, compared to net charge-offs of $49.4 million, or 39 basis points of average loans, for the year ended December 31, 2024. The Corporation recorded $21.3 million of provision for credit losses during 2025 compared to $35.7 million during 2024. Nonaccrual loans as of December 31, 2025 totaled $71.8 million, a decrease of $2.0 million from December 31, 2024, primarily due to an $11.3 million, $2.1 million and $0.8 million decrease in nonaccrual balances within the commercial real estate, non-owner occupied, construction and home equity loan classes, respectively. The decrease was offset by an $8.3 million, $2.5 million and $1.3 million increase in nonaccrual balances within the residential, commercial and industrial and commercial real estate, owner occupied loan classes, respectively. The coverage ratio of ACL - Loans to nonaccrual loans is 272.5 percent at December 31, 2025. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K 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 $36.8 million from December 31, 2022. The Corporation’s continual investment in community redevelopment funds resulted in an increase of $37.8 million when compared to December 31, 2022. Additionally, the prepaid pension asset at December 31, 2023 increased by $4.1 million compared to the same period in 2022. Additional details of the Corporation’s investments in community redevelopment funds and pension plan are discussed in NOTE 9. QUALIFIED AFFORDABLE HOUSING INVESTMENTS and NOTE 18. PENSION AND OTHER POST RETIREMENT BENEFIT PLANS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The Corporation’s derivative assets (recorded in other assets) and derivative liabilities (recorded in other liabilities) decreased $13.7 million and $13.8 million, respectively, from December 31, 2022. The decreases in valuations from December 31, 2022 were primarily driven by forward interest rate fluctuations, existing trades getting closer to maturity, terminations and maturities of existing trades which were partially offset by new production in 2023.

Current wording

Other assets decreased $12.6 million from December 31, 2024 and was driven by a $28.7 million decline in the fair value of derivative instruments included in other assets from $77.1 million at December 31, 2024 to $48.5 million at December 31, 2025. The decrease in derivatives is due primarily to a decline in market interest rates. This decrease was partially offset by an increase of $10.7 million related to the Corporation’s continual investment in community redevelopment funds and an increase of $4.5 million in the prepaid pension asset due to higher returns on plan assets compared to December 31, 2024. Additional details of the Corporation’s investments in community redevelopment funds and pension plan are discussed in NOTE 9. QUALIFIED AFFORDABLE HOUSING INVESTMENTS and NOTE 18. PENSION AND OTHER POST RETIREMENT BENEFIT PLANS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Previous wording

The average account within the deposit portfolio totaled only $34,000. Insured deposits totaled 72.1 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 15.1 percent of deposits and the FDIC providing insurance to the remaining 57.0 percent. Only 27.9 percent of deposits were uninsured and our available liquidity was 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 $38,000 at December 31, 2025. Insured deposits totaled 71.4 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.0 percent of deposits and the FDIC providing insurance to the remaining 57.4 percent. Only 28.6 percent of deposits are uninsured and our available liquidity is sufficient 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

The Corporation’s other liabilities as of December 31, 2023 increased $25.8 million from the same period in 2022, primarily due to an increase in unfunded commitments related to the Corporation’s LIHTC partnerships $32.5 million. The increase in other liabilities was offset by a decrease in the derivative liability of $13.8 million, as noted in the other assets section above.

Current wording

The Corporation’s other liabilities as of December 31, 2025 decreased $65.7 million from December 31, 2024, primarily due to a decrease in the derivative liabilities of $28.6 million, as a result of a decline in market interest rates, and a $23.0 million decrease in unfunded commitments related to the Corporation’s Low-Income Housing Tax Credit (“LIHTC”) partnerships.

Previous wording

Adjusted net income available to common stockholders for the year ended 2023, adjusting for certain non-recurring items, was $236.7 million and adjusted diluted earnings per common share totaled $3.98, compared to $242.5 million and $4.19, respectively, for the year ended 2022. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” 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 for the year ended 2024 was $203.3 million and adjusted diluted earnings per common share totaled $3.47, compared to $236.7 million and $3.98, respectively, for the year ended 2023. These adjusted net income and earnings per share amounts are non-GAAP measures. For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

The Corporation’s total loan portfolio grew $368.1 million or 2.9 percent since December 31, 2023. The composition of the loan portfolio is 75.0 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 31.9 percent and 17.7 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, public finance and other commercial loans, and residential real estate loans. Partially offsetting those increases was a decrease in construction and non-owner occupied commercial real estate loans. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, 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 grew $368.1 million, or 2.9 percent, since December 31, 2023. The composition of the loan portfolio is 75.0 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 31.9 percent and 17.7 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, public finance and other commercial loans, and residential real estate loans. Partially offsetting those increases was a decrease in construction and commercial real estate, non-owner occupied loans. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, 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 allowance for credit losses - loans (“ACL - loans”) totaled $192.8 million as of December 31, 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. During the year ended December 31, 2024, the Corporation recognized $49.4 million of net charge-offs, or 39 basis points of average loans, compared to net charge-offs of $25.6 million, or 21 basis points of average loans, for the year ended December 31, 2023. The increase in net charge-offs is primarily related to two commercial and industrial relationships that accounted for $42.7 million of charge-offs during 2024. 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, which resulted in their inability to repay principal and interest and a charge-off for the Corporation. The Corporation recorded $35.7 million of provision for credit losses during 2024 compared to $3.5 million during 2023. The increase in the provision for credit losses was primarily driven by the increase in net charge-offs described above. Nonaccrual loans as of December 31, 2024 totaled $73.8 million, an increase of $20.2 million from December 31, 2023, primarily due to a $24.1 million increase in non-accrual balances within the construction loan class. The increase was offset by a $3.6 million decrease in non-accrual balances within the residential loan class. The coverage ratio of ACL - Loans to nonaccrual loans is 261.3 percent at December 31, 2024. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K 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 $192.8 million as of December 31, 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. During the year ended December 31, 2024, the Corporation recognized $49.4 million of net charge-offs, or 39 basis points of average loans, compared to net charge-offs of $25.6 million, or 21 basis points of average loans, for the year ended December 31, 2023. The increase in net charge-offs is primarily related to two commercial and industrial relationships that accounted for $42.7 million of charge-offs during 2024. 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 the principal and interest. The second borrower provided notification of its plans to cease operations, which resulted in their inability to repay principal and interest and a charge-off for the Corporation. The Corporation recorded $35.7 million of provision for credit losses during 2024 compared to $3.5 million during 2023. The increase in the provision for credit losses was primarily driven by the increase in net charge-offs described above. Nonaccrual loans as of December 31, 2024 totaled $73.8 million, an increase of $20.2 million from December 31, 2023, primarily due to a $24.1 million increase in nonaccrual balances within the construction loan class. The increase was partially offset by a $3.6 million decrease in nonaccrual balances within the residential loan class. The coverage ratio of ACL - Loans to nonaccrual loans is 261.3 percent at December 31, 2024. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K 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

Deposits decreased $299.8 million from December 31, 2023. The decrease in deposits was primarily driven by the sale of $267.4 million of deposits related to the Illinois branch sale that closed in the fourth quarter of 2024. Total deposits excluding time deposits greater than $100,000 represented 92.8 percent of the deposit portfolio at December 31, 2024. Noninterest bearing deposits represents 16.0 percent of the deposit portfolio, down slightly from 16.9 percent as of December 31, 2023. The decline is the result of a mix shift occurring across the industry as clients move into higher yielding deposit products.

Current wording

Deposits decreased $299.8 million from December 31, 2023. The decrease in deposits was primarily driven by the sale of $267.4 million of deposits related to the Illinois branch sale that closed in the fourth quarter of 2024. Total deposits excluding time deposits greater than $100,000 represented 92.8 percent of the deposit portfolio at December 31, 2024. Noninterest bearing deposits represented 16.0 percent of the deposit portfolio, down slightly from 16.9 percent as of December 31, 2023. The decline is the result of a mix shift occurring across the industry as clients moved into higher yielding deposit products.

Previous wording

The average account balance within the deposit portfolio was $35,000 at December 31, 2024. Insured deposits totaled 70.6 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.0 percent of deposits and the FDIC providing insurance to the remaining 56.6 percent. Only 29.4 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.

Current wording

The average account balance within the deposit portfolio was $35,000 at December 31, 2024. Insured deposits totaled 70.6 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.0 percent of deposits and the FDIC providing insurance to the remaining 56.6 percent. Only 29.4 percent of deposits were uninsured and our available liquidity was 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

The Corporation’s other liabilities as of December 31, 2024 increased $22.0 million from the same period in 2023, primarily due to an increase in unfunded commitments related to the Corporation’s LIHTC partnerships which totaled $35.8 million.

Current wording

The Corporation’s other liabilities as of December 31, 2024 increased $22.0 million from December 31, 2023, primarily due to an increase in unfunded commitments related to the Corporation’s LIHTC partnerships which totaled $35.8 million.

Previous wording

Adjusted earnings per share, excluding PPP loan income, net realized gains/losses on the sales of available for sale securities, acquisition-related expenses 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. 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.

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 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 stockholders’ equity, tangible assets, tangible common stockholders’ 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 common stockholders’ equity 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 income (loss) in stockholders’ equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

Previous wording

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

Current wording

Return on average tangible common stockholders’ equity is tangible net income expressed as a percentage of average tangible common stockholders’ equity. Return on average tangible assets is tangible net income expressed as a percentage of average tangible assets.

Previous wording

Net interest income is the most significant component of the Corporation’s earnings, comprising 80.6 percent of revenues for the year ended December 31, 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 the Corporation’s earnings, comprising 80.9 percent of revenues for the year ended December 31, 2025. Net interest income and net interest margin are influenced by the volume and mix of earning assets and funding sources, as well as prevailing interest rate conditions. Other factors include accretion income on purchased loans, loan prepayment activity 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, the Federal Reserve’s 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 our net interest income and net interest margin.

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 tables that follow 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, 2023, and 2022.

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 a fully taxable equivalent (“FTE”) basis in the tables that follow 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, 2024, and 2023.

Previous wording

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.

Current wording

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 presenting net interest margin and net interest income on an FTE basis is a standard practice in the banking industry. Therefore, management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons.

Previous wording

Net interest margin, on an FTE basis, decreased 16 basis points to 3.19 percent for the year ended December 31, 2024 compared to 3.35 percent for the same period in 2023.

Current wording

Net interest margin, on an FTE basis, increased 6 basis points to 3.25 percent for the year ended December 31, 2025 compared to 3.19 percent for the same period in 2024.

Previous wording

(2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2024, 2023 and 2022. These totals equal $23.3 million, $23.9 million and $24.6 million, respectively.

Current wording

(2) Tax-exempt securities and loans are presented on an FTE basis, using a marginal tax rate of 21 percent for 2025, 2024 and 2023. These totals equal $24.7 million, $23.3 million and $23.9 million, respectively.

Previous wording

(3) Non accruing loans have been included in the average balances.

Current wording

(3) Nonaccrual loans have been included in the average balances.

Previous wording

Noninterest income totaled $125.6 million in 2024, an increase of $20.0 million, or 18.9 percent, from 2023. The Corporation recorded a $20.0 million gain on the Illinois branch sale during the fourth quarter of 2024. This was partially offset by a $13.8 million increase in net realized losses on sales of available for sale securities. Additionally, the Corporation realized higher gains on the sales of mortgage loans and increased private wealth fees of $5.2 million and a $3.4 million, respectively, for the year ended December 31, 2024 compared to 2023. Other income increased $3.6 million primarily related to an increase in the valuation of CRA fund investments for the year ended December 31, 2024 compared to 2023.

Current wording

Noninterest income totaled $125.6 million in 2024, an increase of $20.0 million, or 18.9 percent, from 2023. The Corporation recorded a $20.0 million gain on the Illinois branch sale during the fourth quarter of 2024. This was partially offset by a $13.8 million increase in net realized losses on sales of available for sale securities compared to 2023. Additionally, the Corporation realized higher gains on sales of mortgage loans and increased private wealth fees of $5.2 million and $3.4 million, respectively. Other income increased $3.6 million primarily related to an increase in the valuation of CRA fund investments in 2024 compared to 2023.

Previous wording

The Corporation’s federal statutory income tax rate for 2024 is 21 percent and its state tax rate varies from 0 to 9.5 percent depending on the state in which the subsidiary company operates. The Corporation’s effective tax rate, which was 13.1 percent in 2024 and 13.7 percent in 2023, is lower than the blended effective statutory federal and state rates primarily due to the Corporation’s income on tax-exempt securities and loans, income generated by the subsidiaries operating in a state with no state or local income tax, income tax credits generated from investments in affordable housing projects, and tax-exempt earnings from bank-owned life insurance contracts.

Current wording

The Corporation’s federal statutory income tax rate for 2025 was 21 percent, and its state income tax rate varies from 0 to 9.5 percent depending on the state in which the Corporation’s subsidiary entities operate. The Corporation’s effective tax rate is lower than the blended effective statutory federal and state rates primarily due to tax‑exempt income earned on municipal securities and loans, income generated by subsidiaries operating in states with no state or local income tax, income tax credits generated from investments in affordable housing projects, and tax‑exempt earnings on bank‑owned life insurance contracts.

Previous wording

Income tax expense in 2024 was $30.3 million on pre-tax income of $231.7 million, or 13.1 percent. For 2023, income tax expense was $35.4 million on pre-tax income of $259.2 million, or 13.7 percent. The lower effective income tax rate in 2024 compared to 2023 was primarily driven by an increase in income tax credits generated from investments in affordable housing projects. The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 19. INCOME TAX of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Current wording

Income tax expense totaled $33.1 million in 2025 on pre-tax income of $259.1 million, resulting in an effective tax rate of 12.8 percent. For 2024, income tax expense was $30.3 million on pre-tax income of $231.7 million, resulting in an effective tax rate of 13.1 percent. The lower effective income tax rate in 2025 compared to 2024 was primarily driven by increased income tax credits generated from investments in affordable housing projects. A detailed reconciliation of the federal statutory rate to the Corporation’s effective income tax rate is shown in NOTE 19. INCOME TAXES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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 depositary share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depositary 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 December 31, 2024 and 2023. During the twelve months ended December 31, 2024, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), equal to $1.9 million. During the twelve months ended December 31, 2023, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), equal to $1.9 million. 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 depositary share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depositary 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 December 31, 2025 and 2024. During the twelve months ended December 31, 2025 and 2024, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), totaling approximately $1.9 million, 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 1,648,466 shares of its common stock pursuant to the repurchase program during 2024. As of December 31, 2024, the Corporation had approximately 1.0 million shares at an aggregate value of $18.4 million available to repurchase under the program. The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during 2022 or 2023.

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 $100.0 million. 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 1,648,466 shares of its common stock pursuant to the repurchase program during 2024. As of December 31, 2024, the Corporation had approximately 1.0 million shares at an aggregate value of $18.4 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 the twelve months ended December 31, 2024, the Corporation recorded excise tax of $0.5 million, related to its share repurchase during the period, which is reflected in 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 the twelve months ended December 31, 2025 and 2024, the Corporation recorded excise tax of $0.4 million and $0.5 million, respectively, related to its share repurchase during the period, which is reflected in stockholders’ equity as a component of additional paid-in capital.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Basel III requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer. Under Basel III, in order to avoid limitations on capital distributions, including dividends, the Corporation must hold a 2.5 percent capital conservation buffer above the adequately capitalized CET1 to risk-weighted assets ratio (which buffer is reflected in the required ratios below). Under Basel III, the Corporation and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital. As of December 31, 2024, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.

Current wording

Under the fully phased-in Basel III capital rules, the Corporation and the Bank are required to maintain the minimum capital and leverage ratios, including a 2.5 percent capital conservation buffer, as illustrated in the table below. In order to avoid limitations on capital distributions, including dividends, the Corporation must maintain capital levels above these minimum requirements. The Corporation and Bank have elected to opt-out of including accumulated other comprehensive income in regulatory capital. As of December 31, 2025, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.

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. 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.

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 $5.0 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 $65.0 million of the subordinated debt on the scheduled interest payment date during the first half of 2024 and the Corporation redeemed the $5.0 million of the Senior Debt on the scheduled interest payment date of July 30, 2025.

Previous wording

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

Current wording

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