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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 486 added, 455 removed, 1986 unchanged (32% of the section changed)

8 unchanged sentences

December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Corporation changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of Accounting Standards Topic 326:

Financial Instruments - Credit Losses.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2024, expressed an unqualified opinion.

Basis for Opinion

These financial statements are the responsibility of the Corporation’s management.

Our responsibility is to express an opinion on the Corporation’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

6 unchanged sentences

The ACL is an estimate of current expected credit losses in the loan portfolio.

The determination of the ACL requires significant judgment reflecting the Corporation’s best estimate of expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

The determination of the ACL requires significant judgment reflecting the Corporation’s best estimate of expected future losses for the loan’s entire contractual term

adjusted for expected payments when appropriate.

We identified the valuation of the ACL as a critical audit matter.

Auditing the ACL involves a high degree of subjectivity in evaluating management’s estimates, such as evaluating management’s assessment of economic forecasts and conditions and other environmental factors used to adjust historical loss rates, evaluating the adequacy of specific allowances associated with loans individually evaluated and assessing the appropriateness of loan grades.

the appropriateness of loan grades.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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• Identifying fields in the various loan systems that defined the loan pools and tested the design and operating effectiveness of internal controls surrounding the input and maintenance of those fields.

FORVIS, LLP (Formerly, BKD, LLP)

We have served as the Corporation’s auditor since at least 1982;

1 unchanged sentence

Indianapolis, Indiana

March 1, 2023

February 29, 2024

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Issued and outstanding - 10,000 non-cumulative perpetual shares

25,000 25,000

Common Stock, $ 0.125 stated value:

3 unchanged sentences

Retained earnings 1,154,624 1,012,774

Accumulated other comprehensive income (loss) ( 239,151 ) 55,113

Accumulated other comprehensive loss ( 175,970 ) ( 239,151 )

Total Stockholders' Equity 2,247,713 2,034,770

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NET INTEREST INCOME 545,400 520,203 410,680

Provision for credit losses - loans 16,755 — 58,673

Provision for credit losses 3,500 16,755 —

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 541,900 503,448 410,680

NON-INTEREST INCOME

NONINTEREST INCOME

Service charges on deposit accounts 30,837 28,371 23,571

6 unchanged sentences

Gains on life insurance benefits 3,027 5,964 2,187

Net realized gains on sales of available for sale securities 1,194 5,674 11,895

Net realized gains (losses) on sales of available for sale securities ( 6,930 ) 1,194 5,674

Other income 2,722 1,929 3,008

Total Non-Interest Income 107,941 109,323 109,926

NON-INTEREST EXPENSES

Total Noninterest Income 105,602 107,941 109,323

NONINTEREST EXPENSES

Salaries and employee benefits 228,745 206,893 166,995

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Other expenses 28,502 26,713 19,300

Total Non-Interest Expenses 355,715 279,213 263,405

Total Noninterest Expenses 388,270 355,715 279,213

INCOME BEFORE INCOME TAX 259,232 255,674 240,790

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Other comprehensive income (loss):

Unrealized gains/losses on securities available-for-sale:

Unrealized gain (loss) on securities available-for-sale:

Unrealized holding gain (loss) arising during the period 70,084 ( 371,299 ) ( 30,042 )

Reclassification adjustment for losses (gains) included in net income ( 1,194 ) ( 5,674 ) ( 11,895 )

Reclassification adjustment for (gain) loss included in net income 6,930 ( 1,194 ) ( 5,674 )

Tax effect ( 16,173 ) 78,224 7,502

2 unchanged sentences

Unrealized holding gain (loss) arising during the period ( 179 ) 479 138

Reclassification adjustment for losses (gains) included in net income 521 1,044 906

Reclassification adjustment for (gain) loss included in net income 15 521 1,044

Tax effect 34 ( 210 ) ( 248 )

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(Dollars in Thousands, Except Share Data) Shares Amount Shares Amount Shares Amount Paid in Capital Retained Earnings Comprehensive Income (Loss) Total

Balances, December 31, 2019 125 $ 125 — $ — 55,368,482 $ 6,921 $ 1,054,997 $ 696,520 $ 27,874 $ 1,786,437

Balance, December 31, 2020 125 $ 125 — $ — 53,922,359 $ 6,740 $ 1,005,366 $ 788,578 $ 74,836 $ 1,875,645

Cumulative effect of ASC 326 adoption — $ — — $ — — $ — $ — $ ( 68,040 ) $ — ( 68,040 )

Balance, January 1, 2021 125 $ 125 — $ — 53,922,359 $ 6,740 $ 1,005,366 $ 720,538 $ 74,836 $ 1,807,605

Comprehensive income:

Net income — — — — — — — 205,531 — 205,531

Other comprehensive income (loss), net of tax — — — — — — — — 46,962 46,962

Other comprehensive loss, net of tax — — — — — — — — ( 19,723 ) ( 19,723 )

Cash dividends on common stock ($ 1.13 per share)

7 unchanged sentences

Balances, December 31, 2021 125 $ 125 — $ — 53,410,411 $ 6,676 $ 985,818 $ 864,839 $ 55,113 $ 1,912,571

Cumulative effect of ASC 326 adoption — — — — — — — ( 68,040 ) — ( 68,040 )

Balance, January 1, 2021 125 $ 125 — $ — 53,922,359 $ 6,740 $ 1,005,366 $ 720,538 $ 74,836 $ 1,807,605

Comprehensive income

Comprehensive loss:

Net income — — — — — — — 222,089 — 222,089

Other comprehensive income (loss), net of tax — — — — — — — — ( 19,723 ) ( 19,723 )

Other comprehensive loss, net of tax — — — — — — — — ( 294,264 ) ( 294,264 )

Cash dividends on preferred stock ($ 140.64 per share)

— — — — — — — ( 1,406 ) — ( 1,406 )

Cash dividends on common stock ($ 1.25 per share)

— — — — — — — ( 72,748 ) — ( 72,748 )

Repurchases of common stock — — — — ( 646,102 ) ( 81 ) ( 25,363 ) — — ( 25,444 )

Issuance of stock related to acquisition — — 10,000 25,000 5,588,962 699 236,690 — — 262,389

Share-based compensation — — — — 118,046 15 4,637 — — 4,652

6 unchanged sentences

Net income — — — — — — — 223,786 — 223,786

Other comprehensive income (loss), net of tax — — — — — — — — ( 294,264 ) ( 294,264 )

Other comprehensive income, net of tax — — — — — — — — 63,181 63,181

Cash dividends on preferred stock ($ 187.52 per share)

2 unchanged sentences

— — — — — — — ( 80,061 ) — ( 80,061 )

Issuance of stock related to acquisition — — 10,000 25,000 5,588,962 699 236,690 — — 262,389

Share-based compensation — — — — 133,877 17 5,141 — — 5,158

20 unchanged sentences

Gains on sales of loans held for sale ( 8,479 ) ( 4,373 ) ( 16,223 )

Gains on sales of securities available for sale ( 1,194 ) ( 5,674 ) ( 11,895 )

Net (gains) losses on sales of securities available for sale 6,930 ( 1,194 ) ( 5,674 )

Increase in cash surrender of life insurance ( 5,320 ) ( 5,210 ) ( 4,873 )

2 unchanged sentences

Change in interest payable 11,382 3,703 ( 525 )

Operating lease right-of-use abandonment 2,083 — —

Other adjustments 18,465 39,229 11,083

10 unchanged sentences

Change in Federal Home Loan Bank stock ( 3,244 ) 1,899 —

Payment of capital calls to qualified affordable housing investments ( 11,685 ) ( 11,589 ) ( 2,235 )

Net change in loans ( 621,786 ) ( 1,165,548 ) ( 60,581 )

3 unchanged sentences

Proceeds from mortgage portfolio loan sale — — 78,159

Proceeds from commercial portfolio loan sale 113,313 — —

Other adjustments ( 33,905 ) ( 17,575 ) ( 17,402 )

23 unchanged sentences

ROU assets obtained in exchange for new operating lease liabilities 2,253 10,516 2,700

Qualified affordable housing investments obtained in exchange for funding commitments 44,200 36,500 21,000

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

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CASH AND CASH EQUIVALENTS

Cash on hand, cash items in process of collection and non-interest bearing cash held at various banks are included in cash and cash equivalents and have a maturity of less than three months.

Cash on hand, cash items in process of collection and noninterest bearing cash held at various banks are included in cash and cash equivalents and have a maturity of less than three months.

The Corporation maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage.

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LOANS HELD FOR SALE

Loans originated and with an intent to sell are classified as held for sale and are carried at the principal amount outstanding.

The carrying amount approximates fair value due to the short duration between origination and the date of sale.

Loans held for sale are carried at the lower of aggregate cost or market value.

Loan fees (net of certain direct loan origination costs) on loans held for sale are deferred until the related loans are sold or repaid.

Gains or losses on loan sales are recognized at the time of sale and determined using the specific identification method.

The Corporation’s loan portfolio is carried at the principal amount outstanding, net of unearned income and principal charge-offs.

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Interest income is subsequently recognized only to the extent cash payments are received and the loan is returned to accruing status.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) established the Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”), to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic.

The Bank actively participated in assisting its customers with PPP funding during all phases of the program.

The vast majority of the Bank’s PPP loans made in 2020 have two-year maturities, while the loans made in 2021 have five-year maturities.

Loans under the program earn interest at a fixed rate of 1 percent.

As of December 31, 2022, the Corporation had $ 4.7 million of PPP loans compared to the December 31, 2021 balance of $ 106.6 million.

The Corporation will continue to monitor legislative, regulatory, and supervisory developments related to the PPP.

However, it anticipates that the majority of the Bank’s remaining PPP loans will be forgiven by the SBA in accordance with the terms of the program.

Loan commitments and letters-of-credit generally have short-term, variable-rate features and contain clauses which limit the exposure to changes in customer credit quality.

Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.

Details of the Corporation’s loan portfolio are included in NOTE 5.

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Factors considered when determining whether a loan has a more-than-insignificant deterioration since origination include, but are not limited to, the materiality of the credit, risk grade, delinquency, nonperforming status, bankruptcies, and other qualitative factors.

The net premium or discount on PCD loans is adjusted by the Corporation’s allowance for credit losses on loans, which is recorded at the time of acquisition.

The net premium or discount on PCD loans is recorded in the Corporation’s allowance for credit losses on loans at the time of acquisition.

The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using an effective yield method.

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LEASES of these Notes to Consolidated Financial Statements.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

QUALIFIED AFFORDABLE HOUSING INVESTMENTS

Qualified affordable housing investments are investments related to low income housing tax credits (“LIHTC”).

The purpose of the Corporation’s investment in LIHTC partnerships is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return on capital via the federal income tax credit.

LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships and, therefore, the Corporation is not the primary beneficiary of these partnerships.

Accordingly, the Corporation does not consolidate these variable interest entities into its consolidated financial statements.

Investments in LIHTCs are included in other assets on the Consolidated Balance Sheets and the unfunded commitments to provide additional capital for LIHTC investments are included in other liabilities on the Consolidated Balance Sheets.

Additionally, the Corporation amortizes the cost of the qualifying investments over the 10-year credit life cycle.

The amortization and income tax credits are included as a component of income tax expense in the Consolidated Statements of Income.

Details of the Corporation’s LIHTC investments are included in NOTE 10.

QUALIFIED AFFORDABLE HOUSING INVESTMENTS of these Notes to Consolidated Financial Statements.

FEDERAL HOME LOAN BANK STOCK (“FHLB”)

4 unchanged sentences

Both cash and stock dividends are reported as income.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

INTANGIBLE ASSETS

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Under ASC 350, the Corporation is required to evaluate goodwill for impairment on an annual basis, as well as on an interim basis, if events or changes indicate that the asset may be impaired, indicating that the carrying value may not be recoverable.

The Corporation completed its most recent annual goodwill impairment test as of October 1, 2022 and concluded, based on current events and circumstances goodwill is not impaired.

The Corporation completed its most recent annual goodwill impairment test during the fourth quarter of 2023 and concluded, based on current events and circumstances goodwill is not impaired.

Details of the Corporation’s goodwill are included in NOTE 7.

3 unchanged sentences

The Corporation records the life insurance at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement.

Changes in cash surrender values and death benefits received in excess of cash surrender values are reported in non-interest income.

Changes in cash surrender values and death benefits received in excess of cash surrender values are reported in noninterest income.

A corporate policy is in place with defined thresholds that limit the amount of credit, interest rate and liquidity risk inherent in a BOLI portfolio.

10 unchanged sentences

The key criterion for hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Derivatives that qualify for the hedge accounting treatment are designated as either:

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These derivative contracts are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging , and, therefore, do not qualify for hedge accounting.

The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the customer and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

The fair value of the derivative instruments incorporates a consideration of credit risk (in accordance with ASC 820, Fair Value Measurements and Disclosures ), resulting in some volatility in earnings each period.

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.

It is the Corporation’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans.

These mortgage banking derivatives are not designated in hedge relationships.

Fair values were estimated based on changes in mortgage interest rates from the date of the commitments.

Changes in the fair value of these mortgage banking derivatives are included in net gains and fees on sales of loans.

In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract.

Cash received or paid in this settlement manner is included in “Net gains and fees on sales of loans” in the Consolidated Statements of Income and is considered a cost of executing a forward contract.

Details of the Corporation’s derivative instruments are included in NOTE 13.

DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Financial Statements.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

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The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The majority of the Corporation’s revenue-generating transactions are not subject to ASU 2014-09, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the disclosures.

27 unchanged sentences

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered, or in the case of a loan participation, a portion of the asset has been surrendered and meets the definition of a “participating interest.” Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation and put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

SHARE-BASED COMPENSATION

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INCOME TAX of these Notes to Consolidated Financial Statements.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NET INCOME PER COMMON SHARE

6 unchanged sentences

FASB Accounting Standards Updates - No.

2022-06 - Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848

Summary - The FASB issued ASU No.

2020-04 - Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , that extended the period of time preparers can utilize the reference rate reform relief guidance.

The amendments in ASU No.

2022-06 were effective for all entities upon issuance.

In 2020, the FASB issued Accounting Standards Update No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

The Corporation continually monitors potential accounting pronouncement and SEC release changes.

The following pronouncements and releases have been deemed to have the most applicability to the Corporation's financial statements and will be adopted after December 31, 2022:

FASB Accounting Standards Updates - No.

2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

1 unchanged sentence

2020-04 to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

LIBOR and other interbank offered rates are widely used benchmarks or reference rates in the United States and globally.

London Interbank Offered Rate (“LIBOR”) and other interbank offered rates are widely used benchmarks or reference rates in the United States and globally.

Trillions of dollars in loans, derivatives, and other financial contracts reference LIBOR, the benchmark interest rate banks use to make short-term loans to each other.

2 unchanged sentences

The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

Originally, an entity could apply this ASU as of the beginning of an interim period that includes the March 12, 2020 issuance date of the ASU, through December 31, 2022.

With the issuance of ASU 2022-06 - Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , the sunset date for adoption of ASU 2020-04 was extended from December 31, 2022 to December 31, 2024.

The Corporation expects to adopt the practical expedients included in this ASU in 2023 as it transitions its loans and other financial instruments to another reference rate.

The Corporation adopted the expedients included in this ASU in the second quarter of 2023 as it transitioned its loans and other financial instruments to another reference rate.

FASB Accounting Standards Updates - No.

2021-01 - Reference Rate Reform (Topic 848):

Summary - The FASB has published ASU 2021-01, Reference Rate Reform.

ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

Summary - The FASB has published ASU 2021-01, Reference Rate Reform, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued.

If an entity elects to apply any of the amendments in this Update for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election.

Originally, the amendments in this Update did not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022).

With the issuance of ASU 2022-06 - Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , the sunset date for adoption of ASU 2021-01 was extended from December 31, 2022 to December 31, 2024.

The Corporation expects to adopt the practical expedients included in this ASU in 2023 as it transitions its loans and other financial instruments to another reference rate.

The Corporation adopted the expedients included in this ASU in the second quarter of 2023 as it transitioned its loans and other financial instruments to another reference rate.

FASB Accounting Standards Updates - No.

2 unchanged sentences

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , that addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606 , Revenue from Contracts with Customers , at fair value on the acquisition date.

The FASB indicates that some stakeholders indicated that it is unclear how an acquirer should evaluate whether to recognize a contract liability from a revenue contract with a customer acquired in a business combination after Topic 606 is adopted.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , that addressed diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

Under existing GAAP, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606 , Revenue from Contracts with Customers , at fair value on the acquisition date.

The FASB indicated that some stakeholders indicated that it is unclear how an acquirer should evaluate whether to recognize a contract liability from a revenue contract with a customer acquired in a business combination after Topic 606 was adopted.

Furthermore, it was identified that under current practice, the timing of payment (payment terms) of a revenue contract may subsequently affect the post-acquisition revenue recognized by the acquirer.

To address this, the ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

To address this, the ASU required entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

Finally, the amendments in the ASU improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

For public business entities, the amendments are effective for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years.

For public business entities, the amendments were effective for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

Early adoption of the amendments is permitted, including adoption in an interim period.

An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period or early application, and (2) prospectively to all business combinations that occur on or after the date of initial application.

The Corporation adopted this guidance on January 1, 2023, but adoption of the standard did not have a significant impact on the Corporation's financial statements or disclosures.

The amendments in this Update are applied prospectively to business combinations occurring on or after the effective date of the amendments.

Early adoption of the amendments was permitted, including adoption in an interim period.

An entity that early adopted in an interim period applied the amendments (1) retrospectively to all business combinations for which the acquisition date occurred on or after the beginning of the fiscal year that included the interim period or early application, and (2) prospectively to all business combinations that occurred on or after the date of initial application.

The Corporation adopted this guidance on January 1, 2023, but adoption of the standard did not have any impact on the Corporation’s financial statements or disclosures.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

9 unchanged sentences

During the FASB’s post-implementation review of the credit losses standard, including a May 2021 roundtable, investors and other stakeholders questioned the relevance of the TDR designation and the usefulness of disclosures about those modifications.

Some noted that measurement of expected losses under the CECL model already incorporates losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications.

Some noted that measurement of expected losses under the CECL model already incorporated losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications.

The amendments in the new ASU eliminate the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.

2 unchanged sentences

To address this feedback, the amendments in the new ASU require that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases.

For entities that have adopted the amendments in ASU 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Corporation adopted this Update on January 1, 2023.

For entities that have adopted the amendments in ASU 2016-13, the amendments in this Update were effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Corporation adopted this Update on January 1, 2023 and the new disclosures required in this Update are included in NOTE 5.

LOANS AND ALLOWANCE of these Notes to Consolidated Condensed Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

The Corporation continually monitors potential accounting pronouncement and SEC release changes.

The following pronouncements and releases have been deemed to have the most applicability to the Corporation’s financial statements and will be adopted after December 31, 2023:

FASB Accounting Standards Updates - No.

2023-02 - Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

Summary - The FASB issued ASU No.

2023-02, Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method , that is intended to improve the accounting and disclosures for investments in tax credit structures.

The ASU is a consensus of the FASB’s Emerging Issues Task Force (“EITF”).

The ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.

Reporting entities were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (LIHTC) structures.

In recent years, stakeholders asked the FASB to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing this issue.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years.

Early adoption is permitted for all entities in any interim period.

The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

FASB Accounting Standards Updates - No.

2023-07 - Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosure

Summary - The FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosure , that is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The key amendments:

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

• Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.

The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.

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

• Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss.

However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

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

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

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , applies to all public entities that are required to report segment information in accordance with Topic 280.

All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

This ASU is not expected to have a material impact on the Corporation’s financial statements and disclosures as the Corporation has one operating segment.

FASB Accounting Standards Update - No.

2023-09 - Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

Summary - The FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures in the fourth quarter of 2023.

This ASU is intended to enhance income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity’s worldwide operations.

The two primary enhancements disaggregate existing income tax disclosures related to the effective tax rate reconciliation and income taxes paid.

These amendments require that public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

The amendments also require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received).

For public business entities, the amendments are effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issue.

The amendments should be applied on a prospective basis.

The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

Level One Bancorp, Inc.

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Goodwill resulted from this transaction due to the expected synergies and economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition.

Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the Level One acquisition is detailed in the following table.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition.

Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the Level One acquisition is detailed in the following table.

If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available about facts and circumstances that existed as of the acquisition date, which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

Cash and due from banks $ 217,104

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The remaining purchase price has been allocated to goodwill, which is not deductible for tax purposes.

Hoosier Trust Company

On April 1, 2021, the Bank acquired 100 percent of Hoosier Trust Company ("Hoosier") through a merger of Hoosier with and into the Bank.

The consideration paid to shareholders of Hoosier at closing was $ 3,225,000 in cash.

Prior to the acquisition, Hoosier was an Indiana corporate trust company, headquartered in Indianapolis, Indiana, with approximately $ 290 million in assets under management.

Hoosier’s sole office is now being operated by the Bank as a limited service trust office.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair value on the date of the acquisition.

Based on the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the Hoosier acquisition is detailed in the following table.

Cash and due from banks $ 292

Other assets 35

Other liabilities ( 816 )

Net tangible assets acquired ( 489 )

Customer relationship intangible 2,247

Goodwill 1,467

Purchase price $ 3,225

Of the total purchase price, $ 2,247,000 was allocated to a customer relationship intangible, which will be amortized over its estimated life of 10 years.

The remaining purchase price was allocated to goodwill, which is deductible for tax purposes.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Pro Forma Financial Information

The results of operations of Level One have been included in the Corporation’s consolidated financial statements since the acquisition date.

The following schedule includes pro forma results for the year ended December 31, 2022 and 2021 as if the Level One acquisition occurred as of the beginning of the periods presented.

Pro forma financial information of the Hoosier acquisition is not included in the table below as it is deemed immaterial.

December 31, 2022 Year Ended

The following schedule includes pro forma results for the year ended December 31, 2022 as if the Level One acquisition occurred as of the beginning of the periods presented.

December 31, 2022

3 unchanged sentences

Earnings per share:

Basic $ 3.72 $ 3.96

Diluted $ 3.70

The pro forma information includes adjustments for interest income on loans and investment securities, interest expense on deposits and borrowings, premises expense for the banking centers acquired and amortization of intangibles arising from the transaction and the related income tax effects.

The pro forma information includes operating revenue of $ 56.9 million from Level One since the date of acquisition, and $ 12.5 million, net of tax, of acquisition-related expenses.

The pro forma information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of January 1, 2022 and 2021, nor is it intended to be a projection of future results.

The pro forma information includes operating revenue of $ 56.9 million from Level One since the date of acquisition, $ 16.8 million of provision expense related to CECL Day 1 adjustments for PCD loans, and $ 16.5 million, net of tax, of acquisition-related expenses.

The pro forma information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of January 1, 2022, nor is it intended to be a projection of future results.

CASH AND CASH EQUIVALENTS AND INTEREST-BEARING DEPOSITS

At December 31, 2022, the Corporation’s non-interest bearing deposits, included in cash and cash equivalents, and interest-bearing deposits held at other institutions exceeded the $250,000 federally insured limits by approximately $ 54,029,000 .

At December 31, 2023, the Corporation’s noninterest bearing deposits, included in cash and cash equivalents, and interest-bearing deposits held at other institutions exceeded the $250,000 federally insured limits by approximately $ 134.7 million .

Each correspondent bank’s financial performance and market rating are reviewed on a quarterly basis to ensure the Corporation has deposits only at institutions providing minimal risk for those exceeding the federally insured limits.

Additionally, the Corporation had approximately $ 110,502,000 at the Federal Home Loan Bank and Federal Reserve Bank, which are government-sponsored entities not insured by the FDIC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Additionally, the Corporation had approximately $ 346.4 million at the Federal Home Loan Bank and Federal Reserve Bank, which are government-sponsored entities not insured by the FDIC.

The Corporation has historically been required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.

6 unchanged sentences

Available for sale at December 31, 2023

Treasury $ 2,501 $ — $ 42 $ 2,459

Government-sponsored agency securities $ 111,521 $ — $ 16,214 $ 95,307

3 unchanged sentences

Total available for sale $ 1,846,840 $ 826 $ 220,554 $ 1,627,112

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Cost Gross Unrealized

26 unchanged sentences

The total amount of accrued interest is excluded from the amortized cost of available for sale and held to maturity securities presented above.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

In determining the allowance for credit losses on investment securities available for sale that are in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

4 unchanged sentences

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Unrealized losses that have not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income (loss).

Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss.

2 unchanged sentences

The Corporation did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The allowance for credit losses on investment securities held to maturity is a contra asset-valuation account that is deducted from the amortized cost basis of investment securities held to maturity to present the net amount expected to be collected.

26 unchanged sentences

Total $ 1,099,201 $ 1,085,296 $ 2,184,497

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following tables summarize, as of December 31, 2023 and December 31, 2022, investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time in a continuous unrealized loss position.

1 unchanged sentence

Investment securities available for sale at December 31, 2023

Treasury $ 2,459 $ 42 $ — $ — $ 2,459 $ 42

Government-sponsored agency securities $ — $ — $ 95,307 $ 16,214 $ 95,307 $ 16,214

11 unchanged sentences

Total investment securities available for sale $ 1,423,379 $ 172,828 $ 487,129 $ 124,297 $ 1,910,508 $ 297,125

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

Losses Number of Securities

Investment securities available for sale at December 31, 2023

Treasury $ 42 5

Government-sponsored agency securities $ 16,214 14

21 unchanged sentences

Percent of the Corporation's investments available for sale 95.9 % 96.7 %

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy.

5 unchanged sentences

Fair value of securities classified as Level 3 in the valuation hierarchy was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The amortized cost and fair value of investment securities available for sale and held to maturity at December 31, 2023 and December 31, 2022, by contractual maturity are shown below.

21 unchanged sentences

Total Investment Securities $ 2,273,347 $ 1,976,661 $ 2,287,372 $ 1,907,865

Securities with a carrying value of approximately $ 941.3 million and $ 873.2 million were pledged at December 31, 2022 and 2021, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law.

Securities with a carrying value of approximately $ 1.8 billion and $ 941.3 million were pledged at December 31, 2023 and 2022, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law.

Pledged securities increased from December 31, 2022 as a result of the Corporation pledging additional securities to the Discount Window at the Federal Reserve Bank to be used as an alternative funding source, if needed.

The book value of securities sold under agreements to repurchase amounted to $ 181.4 million at December 31, 2023 and $ 196.7 million at

5 unchanged sentences

Gross losses 7,689 70 828

Net gains of sales and redemptions of investment securities available for sale $ 1,194 $ 5,674 $ 11,895

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Net gains (losses) of sales and redemptions of investment securities available for sale $ ( 6,930 ) $ 1,194 $ 5,674

LOANS AND ALLOWANCE FOR CREDIT LOSSES

2 unchanged sentences

Loans held for sale at December 31, 2023 and December 31, 2022, were $ 18.9 million and $ 9.1 million, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

December 31, 2023 December 31, 2022

10 unchanged sentences

Loans $ 12,486,027 $ 12,003,894

The Level One acquisition added $ 1.6 billion in loans at acquisition, which included $ 43.5 million of Paycheck Protection Program ("PPP") loans.

Additional details of the Level One acquisition are included in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

As of December 31, 2022, the Corporation had $ 4.7 million of PPP loans compared to the December 31, 2021 balance of $ 106.6 million.

Additional details of the PPP are included in NOTE 1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements.

Credit Quality

As part of the ongoing monitoring of the credit quality of the Corporation’s loan portfolio, management tracks certain credit quality indicators including trends related to:

(i) the level of criticized commercial loans, (ii) net charge-offs, (iii) non-performing loans, (iv) covenant failures and (v) the general national and local economic conditions.

(i) the level of criticized commercial loans, (ii) net charge-offs, (iii) nonperforming loans, (iv) covenant failures and (v) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans.

6 unchanged sentences

Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.

• Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

• Substandard - Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt.

12 unchanged sentences

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

Loans that evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected are included in the applicable categories below.

Commercial and industrial loan balances as of December 31, 2022 include PPP loans with an origination year of 2021 and 2020 of $ 4.6 million and $ 102,000 , respectively.

Commercial and industrial loan balances as of December 31, 2021 include PPP loans with an origination year of 2021 and 2020 of $ 100.3 million and $ 6.3 million, respectively.

December 31, 2023

5 unchanged sentences

Substandard 12,311 20,245 17,733 2,479 1,507 1,512 40,449 144 96,380

Doubtful 857 — — — — — 2,840 — 3,697

Total Commercial and industrial loans 1,223,491 498,757 272,427 93,854 52,403 46,773 1,483,039 204 3,670,948

Current period gross write-offs 13,973 2,711 576 5,665 78 261 — — 23,264

Agricultural land, production and other loans to farmers

3 unchanged sentences

Total Agricultural land, production and other loans to farmers 35,691 38,561 31,511 31,502 12,995 25,620 87,534 — 263,414

Current period gross write-offs — — — — — — — — —

Real estate loans:

3 unchanged sentences

Total Construction 430,923 271,917 203,672 29,218 7,723 2,357 11,735 — 957,545

Current period gross write-offs — — — — — — — — —

Commercial real estate, non-owner occupied

3 unchanged sentences

Total Commercial real estate, non-owner occupied 470,118 535,962 542,551 443,320 160,799 231,061 17,028 — 2,400,839

Current period gross write-offs — 66 — — — — — — 66

Commercial real estate, owner occupied

3 unchanged sentences

Total Commercial real estate, owner occupied 201,554 208,567 269,848 270,527 100,388 83,316 27,883 — 1,162,083

Current period gross write-offs 48 — — — 2 — — — 50

Pass 395,363 695,056 442,495 365,297 98,654 254,718 4,988 83 2,256,654

2 unchanged sentences

Total Residential 398,334 704,355 448,226 368,420 100,585 263,618 5,219 164 2,288,921

Current period gross write-offs 101 252 208 3 3 94 — — 661

Pass 9,375 29,784 61,591 11,084 1,092 3,875 484,330 5,837 606,968

2 unchanged sentences

Total Home Equity 9,438 30,499 62,318 12,176 1,107 4,000 491,950 6,083 617,571

Current period gross write-offs 69 213 224 149 193 1,596 — — 2,444

Individuals' loans for household and other personal expenditures

3 unchanged sentences

Total Individuals' loans for household and other personal expenditures 35,965 49,547 28,525 6,795 2,071 5,918 38,795 772 168,388

Current period gross write-offs 147 770 342 77 62 156 — — 1,554

Public finance and other commercial loans

2 unchanged sentences

Loans $ 2,870,871 $ 2,546,512 $ 2,063,941 $ 1,410,944 $ 529,690 $ 892,018 $ 2,164,828 $ 7,223 $ 12,486,027

Total current period gross charge-offs $ 14,338 $ 4,012 $ 1,350 $ 5,894 $ 338 $ 2,107 $ — $ — $ 28,039

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

40 unchanged sentences

Special Mention 178 134 77 33 28 17 16 — 483

Substandard 1 — 3 — 84 8 — — 96

Total Individuals' loans for household and other personal expenditures 68,062 43,773 13,105 5,422 5,942 3,800 35,107 — 175,211

8 unchanged sentences

At December 31, 2023, 30-59 Days Past Due loans totaled $ 34.1 million, an increase of $ 5.0 million from December 31, 2022.

The primary increases were in commercial real estate owner and non-owner occupied and residential portfolios.

At December 31, 2022, 60-89 Days Past Due loans totaled $ 5.9 million, a decrease of $ 1.1 million from December 31, 2021.

The primary decreases were in commercial and industrial loans and residential portfolios, offset by an increase in the home equity portfolio.

The primary increases were in commercial real estate non-owner occupied and residential portfolios, offset by a decrease in the commercial real estate, owner occupied.

At December 31, 2023, 60-89 Days Past Due loans totaled $ 11.2 million, an increase of $ 5.3 million from December 31, 2022.

The primary increases were in commercial and industrial, construction and residential portfolios.

At December 31, 2023, 90 Days or More Past Due loans totaled $ 34.0 million, an increase of $ 18.0 million from December 31, 2022.

The primary increases were in the commercial and industrial and residential portfolios, offset by a decrease in the non-owner occupied commercial real estate portfolio.

The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, for the years indicated:

The primary increases were in the commercial and industrial, commercial real estate, non-owner occupied and residential portfolios.

The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of the dates indicated:

December 31, 2023

33 unchanged sentences

A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:

The following table summarizes the Corporation’s non-accrual loans by loan class as of the dates indicated:

December 31, 2023 December 31, 2022

Non-Accrual Loans Non-Accrual Loans with no Allowance for Credit Losses Non-Accrual Loans Non-Accrual Loans with no Allowance for Credit Losses

Nonaccrual Loans Nonaccrual Loans with no Allowance for Credit Losses Nonaccrual Loans Nonaccrual Loans with no Allowance for Credit Losses

Commercial and industrial loans $ 9,050 $ 1,015 $ 3,292 $ 481

20 unchanged sentences

The following tables present the amortized cost basis of collateral dependent loans by loan class and their respective collateral type, which are individually evaluated to determine expected credit losses, for December 31, 2023 and 2022.

The increase in collateral dependent loans of $ 38.8 million between 2022 and 2021, which is mostly in the commercial and industrial loan class, is primarily related to loans from the acquisition of Level One.

The total collateral dependent loans for December 31, 2023 decreased $ 17.6 million from December 31, 2022.

The primary changes were related to a decrease of $ 10.1 million and $ 9.0 million, respectively, in the commercial and industrial loans and commercial real estate, non-owner occupied loan classes, which was offset by an increase of $ 2.5 million in the commercial real estate, owner occupied loan class.

December 31, 2023

11 unchanged sentences

Commercial and industrial loans $ — $ — $ 42,101 $ 42,101 $ 8,367

Agricultural land, production and other loans to farmers 524 — 251 775 —

Real estate loans:

5 unchanged sentences

Loans $ 33,520 $ 2,681 $ 42,101 $ 78,302 $ 11,512

In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a troubled debt restructuring.

A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all original amounts due, including interest accrued at the original contract rate.

If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be repaid.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the twelve months ended December 31, 2022 and 2021, respectively.

Twelve Months Ended December 31, 2022

Pre- Modification Recorded Balance Term Modification Rate Modification Post - Modification Recorded Balance Number of Loans

In certain situations, the Corporation may modify the terms of a loan to a debtor experiencing financial difficulty.

The modifications may include principal forgiveness, interest rate reductions, payment delays, term extensions or combinations of the above.

The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by class and by type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

Year Ended December 31, 2023

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Payment Delay Term Extension Combination Interest Rate Reduction & Term Extension Combination Payment Delay & Term Extension % of Total Class of Financing Receivable

Commercial and industrial loans $ 857 $ 16,572 $ 231 $ — 0.48 %

Agricultural land, production and other loans to farmers — 58 — — 0.02 %

Real estate loans:

Construction — 11 — — — %

Commercial real estate, non-owner occupied — 11,823 7,657 — 0.81 %

Commercial real estate, owner occupied 5,540 10,123 71 — 1.35 %

Residential — 129 — 469 0.03 %

Home equity — 63 29 — 0.01 %

Total $ 6,397 $ 38,779 $ 7,988 $ 469

Twelve Months Ended December 31, 2021

Pre- Modification Recorded Balance Term Modification Rate Modification Combination Post - Modification Recorded Balance Number of Loans

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023.

Year Ended December 31, 2023

Financial Effect of Loan Modifications

Payment Delay Term Extension Combination Interest Rate Reduction & Term Extension Combination Payment Delay & Term Extension

Commercial and industrial loans Provided payment deferrals with weighted average delayed amounts of $ 24,000 .

Extended loans by a weighted average of 10 months.

Reduced the weighted average contractual interest rate from 9.67 % to 7.39 %.

Extended loans by a weighted average of 13 months.

Agricultural land, production and other loans to farmers Extended loans by a weighted average of 144 months.

Real estate loans:

Construction Extended loans by a weighted average of 24 months.

Commercial real estate, non-owner occupied Extended loans by a weighted average of 11 months.

Reduced the weighted average contractual interest rate from 8.57 % to 7.89 %.

Extended loans by a weighted average of 34 months.

Commercial real estate, owner occupied Provided payment deferrals with weighted average delayed amounts of $ 4.5 million.

Extended loans by a weighted average of 6 months.

Reduced the weighted average contractual interest rate from 10.25 % to 6.61 %.

Extended loans by a weighted average of 114 months.

Residential Extended loans by a weighted average of 6 months.

Provided payment deferrals with weighted average delayed amounts of $ 3,400 .

Extended loans by a weighted average of 3 months.

Home equity Extended loans by a weighted average of 7 months.

Reduced the weighted average contractual interest rate from 9.25 % to 7.25 %.

Extended loans by a weighted average of 240 months.

Provided payment deferrals with weighted average delayed amounts of $ 300 .

Extended loans by a weighted average of 3 months.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following table presents the amortized cost basis and payment status of loans that were modified during the year ended December 31, 2023 due to the borrowers experiencing financial difficulty.

Year Ended December 31, 2023

Payment Status

Current 30-89 Days Past Due

Commercial and industrial loans $ 17,660 $ —

Agricultural land, production and other loans to farmers 58 —

Real estate loans:

3 unchanged sentences

Residential 473 125

Home equity 92 —

Individuals' loans for household and other personal expenditures — —

Total $ 53,508 $ 125

Loans in the commercial and industrial and residential loan classes made up 52.5 percent and 47.5 percent, respectively, of the post-modification balances of the troubled debt restructured loans that occurred during the twelve months ending December 31, 2022.

During the twelve months ended December 31, 2021, commercial real estate, non owner occupied made up 92.1 percent of the post-modification balance of the troubled debt restructured loans that occurred in the period.

The following table summarizes troubled debt restructures that occurred during the twelve months ended December 31, 2021, that subsequently defaulted during the period indicated and remained in default at period end.

For purposes of this schedule, a loan is considered in default if it is 30-days or more past due.

None of the troubled debt restructures that occurred during the twelve months ended December 31, 2022 resulted in a subsequent default that remained in default at period end.

Upon the Corporation’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Prior to the adoption of ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023 the Corporation’s disclosures regarding certain loan modifications were presented in accordance with the accounting for troubled debt restructurings.

Details regarding the change are discussed in NOTE 1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements.

The following table summarizes troubled debt restructures in the Corporation’s loan portfolio that occurred during the twelve months ended December 31, 2022.

Twelve Months Ended December 31, 2022

Number of Loans Recorded Balance

Pre- Modification Recorded Balance Term Modification Rate Modification Post - Modification Recorded Balance Number of Loans

Commercial and industrial loans $ 61 $ 62 $ — $ 62 1

Real estate loans:

1 unchanged sentence

Total $ 114 $ 62 $ — $ 56 $ — $ 118 $ — 2

Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for apparent loss and may result in a specific reserve allocation in the allowance for credit loss.

Commercial troubled debt restructures that are not individually evaluated for a specific reserve are included in the calculation of allowance for credit losses through the loan segment loss analysis.

For all consumer loan modifications, an evaluation to identify if a troubled debt restructure has occurred is performed prior to making the modification.

Any subsequent deterioration is addressed through the charge-off process or through a specific reserve allocation included in the allowance for credit loss.

Consumer troubled debt restructures that are not individually evaluated for a specific reserve are included in the calculation of the allowance for credit losses through the loan segment loss analysis.

Consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 2.6 million and $ 4.2 million at December 31, 2022 and December 31, 2021, respectively.

None of the troubled debt restructures that occurred during the twelve months ended December 31, 2022 resulted in a subsequent default that remained in default at December 31, 2022.

Purchased Credit Deteriorated Loans

4 unchanged sentences

Par value of acquired loans at acquisition $ 57,946

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Allowance for Credit Losses on Loans

4 unchanged sentences

Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The allowance represents the Corporation’s best estimate of current expected credit losses on loans using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

11 unchanged sentences

Macroeconomic factors utilized in the modeling process include the national unemployment rate, BBB US corporate index, CRE price index and the home price index.

The Corporation qualitatively adjusts model results for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio.

These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor.

The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in the nature and volume of the loan portfolio, (ii) changes in the existence, growth and effect of any concentrations in credit, (iii) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, 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 of a borrower such as regulatory, legal and technological considerations, as well as competition.

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 of a borrower such as regulatory, legal and

technological considerations, as well as competition.

At CECL adoption, the Corporation established certain qualitative factors that were

expected to correlate to losses within the loan portfolio.

During a scheduled review of qualitative factors in 2023, the Corporation determined there had not been significant evidence of correlation to losses for the qualitative factors that included i) changes in experience, ability and depth of lending management and staff;

ii) changes in lending policies and procedures;

iii) changes in the quality of the credit review function;

iv) portfolio mix and growth;

and v) industry concentration.

The Corporation decided to refine these qualitative factors in order to improve our ability to assess related risk and enhance our ability to correlate to losses.

The Corporation’s evaluation of the qualitative approach resulted in an insignificant change to the ACL – Loans estimate.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments.

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The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.

No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the Small Business Administration ("SBA").

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

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The predominant inherent risk of this portfolio is associated with the borrower’s ability to successfully complete a project on time, within budget and stabilize the projected as originally projected.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Consumer and Residential

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Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The allowance for credit losses increased $ 27.9 million during the twelve months ended December 31, 2022.

The allowance increased primarily due to $ 16.6 million of allowance for credit losses on PCD loans acquired in the Level One acquisition established through accounting adjustments on the acquisition date.

In addition, a provision of $ 14.0 million was recorded to establish an allowance for credit losses on non-PCD loans acquired in the Level One acquisition.

The allowance also had net charge offs of $ 2.7 million for the twelve months ended December, 31 2022.

The allowance for credit losses decreased $ 18.3 million during the twelve months ended December 31, 2023.

The allowance decreased primarily due to $ 25.6 million of net charge-offs during the twelve months ended December 31, 2023.

The increase in net charge-offs was primarily related to two large commercial and industrial charge-offs of $ 13.7 million and $ 5.4 million in the third quarter of 2023.

These charge-offs, along with related specific reserves, materially represent the entire credit risk on the loans, which were idiosyncratic in nature and are not indicative of a larger portfolio credit issue.

There was $ 7.3 million in provision for credit losses during the twelve months ended December 31, 2023.

The following tables summarize changes in the allowance for credit losses by loan segment for the twelve months ended December 31, 2023, 2022 and 2021:

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Balances, December 31, 2022 $ 102,216 $ 46,839 $ 28,955 $ 45,267 $ 223,277

Provision for credit losses 16,697 ( 20,425 ) 6,367 ( 2,639 ) —

Provision for credit losses - loans 17,401 ( 2,735 ) ( 4,132 ) ( 3,234 ) 7,300

Recoveries on loans 995 60 — 1,341 2,396

Loans charged off ( 23,264 ) ( 116 ) — ( 4,659 ) ( 28,039 )

December 31, 2023 $ 97,348 $ 44,048 $ 24,823 $ 38,715 $ 204,934

Twelve Months Ended December 31, 2022

Commercial Commercial Real Estate Construction Consumer & Residential Total

Allowance for credit losses

Balances, December 31, 2021 $ 69,935 $ 60,665 $ 20,206 $ 44,591 $ 195,397

Provision for credit losses - loans 16,697 ( 20,425 ) 6,367 ( 2,639 ) —

CECL Day 1 non-PCD provision for credit losses 2,957 5,539 871 4,588 13,955

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Balances, January 1, 2021 Post-ASC 326 adoption 67,139 75,711 19,089 — — 42,764 204,703

Provision for credit losses 7,921 ( 11,093 ) 1,122 — — 2,050 —

Provision for credit losses - loans 7,921 ( 11,093 ) 1,122 — — 2,050 —

Recoveries on loans 724 580 1 — — 1,273 2,578

1 unchanged sentence

December 31, 2021 $ 69,935 $ 60,665 $ 20,206 $ — $ — $ 44,591 $ 195,397

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Allowance for Loan Losses under prior GAAP ("Incurred Loss Model")

Prior to the adoption of ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments on January 1, 2021, the Corporation maintained an allowance for loan losses in accordance with the incurred loss model as disclosed in the Corporation's 2020 Annual Report on Form 10-K.

The following table summarizes changes in the allowance for loan losses by loan segment for the twelve months ended December 31, 2020:

Twelve Months Ended December 31, 2020

Commercial Commercial

Real Estate Consumer Residential Total

Allowance for loan losses:

Balances, December 31, 2019 $ 32,902 $ 28,778 $ 4,035 $ 14,569 $ 80,284

Provision for losses 21,930 22,174 5,996 8,573 58,673

Recoveries on loans 819 431 260 666 2,176

Loans charged off ( 8,536 ) ( 313 ) ( 643 ) ( 993 ) ( 10,485 )

Balances, December 31, 2020 $ 47,115 $ 51,070 $ 9,648 $ 22,815 $ 130,648

The following table summarizes the average recorded investment and interest income recognized by loan class for the period indicated:

Twelve Months Ended December 31, 2020

Recorded Investment Interest

Income Recognized

Impaired loans with no related allowance:

Commercial and industrial loans $ 991 $ —

Real estate Loans:

Commercial real estate, non-owner occupied 4,850 145

Commercial real estate, owner occupied 1,429 —

Residential 840 3

Individuals' loans for household and other personal expenditures 3 —

Total $ 8,113 $ 148

Impaired loans with related allowance:

Commercial and industrial loans $ 267 $ —

Agricultural land, production and other loans to farmers 589 —

Real estate Loans:

Commercial real estate, non-owner occupied 44,119 —

Commercial real estate, owner occupied 1,447 —

Residential 2,108 70

Home equity 473 14

Total $ 49,003 $ 84

Total Impaired Loans $ 57,116 $ 232

Off-Balance Sheet Arrangements, Commitments And Contingencies

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Commitments to extend credit generally have fixed expiration dates or other termination clauses that may require a fee.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Standby letters of credit are generally issued on behalf of an applicant (the Corporation’s customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary.

4 unchanged sentences

Each customer’s creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer.

Collateral held varies but may include cash, real estate, marketable securities, accounts receivable, inventory, equipment and personal property.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future.

Collateral held varies but may include cash, real estate, marketable securities, accounts receivable, inventory, equipment and personal property.The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future.

Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements.

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The adoption of the CECL methodology for measuring credit losses on January 1, 2021, as discussed more fully in the Allowance for Credit Loss on Loans section of this Note, and in NOTE 1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements, increased the opening balance of our accrual for off-balance sheet commitments at adoption by $ 20.5 million.

The Level One acquisition was responsible for an additional $ 2.8 million of provision for credit losses associated with off-balance sheet commitments, resulting in a total allowance for credit losses on off-balance sheet commitments of $ 23.3 million.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements, resulted in an accrual for off-balance sheet commitments of $ 20.5 million.

The Level One acquisition in 2022 was responsible for an additional $ 2.8 million of provision for credit losses associated with off-balance sheet commitments, resulting in a total allowance for credit losses on off-balance sheet commitments of $ 23.3 million as of December 31, 2022.

Reserves for unfunded commitments declined by $ 3.8 million during the twelve months ended December 31, 2023 due to reserve release, which decreased the reserve to $ 19.5 million at December 31, 2023.

This reserve level remains appropriate and is reported in Other Liabilities as of December 31, 2023 in the Consolidated Balance Sheets.

The following table details activity in the allowance for credit losses on off-balance sheet commitments:

December 31, 2023 December 31, 2022

Balance, January 1 $ 23,300 $ 20,500

CECL Day 1 unfunded commitments provision for credit losses 2,800 —

Provision for credit losses - unfunded commitments related to Level One — 2,800

Provision for credit losses - unfunded commitments ( 3,800 ) —

Balance, December 31 $ 19,500 $ 23,300

8 unchanged sentences

Net $ 133,896 $ 117,118

The Level One acquisition on April 1, 2022 resulted in additions to premises and equipment of $ 11.8 million.

Details regarding the acquisition are discussed in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

First Merchants Corporation purchased a new regional headquarters in Indianapolis in the third quarter of 2023 which resulted in additions to premises and equipment of $ 16.7 million.

The Corporation is committed under various non-cancelable lease contracts for certain subsidiary office facilities and equipment.

7 unchanged sentences

The Level One acquisition on April 1, 2022 resulted in $ 166.6 million of goodwill.

In addition, the Hoosier acquisition on April, 1, 2021 resulted in $ 1.5 million of goodwill.

Details regarding the Level One and Hoosier acquisitions are discussed in NOTE 2.

Details regarding the Level One acquisition are discussed in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

As of October 1, 2022 and October 1, 2021, the Corporation performed its annual goodwill impairment testing and in each valuation, the fair value exceeded the Corporation's carrying value;

During the fourth quarter of 2023 and 2022, the Corporation performed its annual goodwill impairment testing and in each valuation, the fair value exceeded the Corporation’s carrying value;

therefore, it was concluded goodwill was not impaired as of either date.

7 unchanged sentences

The Level One acquisition on April 1, 2022 resulted in a core deposit intangible of $ 17.2 million and other intangibles, consisting of non-compete intangibles, of $ 1.4 million.

In addition, the Hoosier acquisition on April 1, 2021 resulted in a customer relationship intangible of $ 2.2 million.

Details regarding the Level One and Hoosier acquisitions are discussed in NOTE 2.

Details regarding the Level One acquisition are discussed in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

13 unchanged sentences

The Corporation enters into leases for certain retail branches, office space, land and equipment.

Operating leases are included in other assets and the lease liability is included in other liabilities in our balance sheets.

Operating leases are included in other assets and the lease liability is included in other liabilities in the Consolidated Balance Sheets.

The Corporation does not have any finance leases.

27 unchanged sentences

Total lease cost $ 9,692 $ 6,753 $ 5,002

The Corporation performs impairment assessments for ROU assets when events or changes in circumstances indicate their carrying values may not be recoverable.

Operating lease cost in the table above includes $ 2.1 million related to the 2023 abandonment of a leased office building.The recognized loss was recorded in net occupancy expense in the Consolidated Statements of Income.

Supplemental cash flow information related to leases is presented in the tables below.

4 unchanged sentences

Present value of lease liabilities $ 22,335

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Other Information Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021

2 unchanged sentences

ROU assets obtained in exchange for new operating lease liabilities $ 2,253 $ 10,516 $ 2,700

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The composition of the deposit portfolio is included in the table below for the years indicated:

QUALIFIED AFFORDABLE HOUSING INVESTMENTS

The Corporation has investments in various limited partnerships that sponsor affordable housing projects.

The purpose of these investments is to earn an adequate return of capital through the receipt of low income housing tax credits and to assist the Corporation in achieving goals associated with the CRA.

These investments are included in other assets on the Consolidated Balance Sheet, with any unfunded commitments included in other liabilities.

The investments are amortized as a component of income tax expense.

The following table summarizes the Corporation’s affordable housing investments as of December 31, 2023 and 2022:

Investment Type Investment Unfunded Commitment Investment Unfunded Commitment

LIHTC $ 114,514 $ 96,408 $ 76,686 $ 63,893

The following table summarizes the amortization expense and tax credits recognized for the Corporation’s affordable housing investments for the years ended December 31, 2023, 2022 and 2021:

2023 2022 2021

Amortization expense $ 6,324 $ 812 $ 658

Tax credits recognized 5,327 1,055 874

Correction of a Prior Period Error on the Consolidated Balance Sheets

The Corporation identified a prior period accounting error substantially in the form of an immaterial understatement of other assets and other liabilities, solely related to the Corporation’s LIHTC partnerships.

This correction impacted the Consolidated Balance Sheets as other assets and other liabilities were understated by $ 96.4 million and $ 63.9 million as of December 31, 2023 and 2022, respectively.

There was a nominal impact to income tax expense in the Consolidated Statement of Operations for the years ended December 31, 2023, 2022 and 2021.

In general, the unfunded commitment related to these agreements was being carried off balance sheet and should have been recorded as part of the investment asset and unfunded commitment liability.

The Corporation concluded based on quantitative and qualitative analysis that this error was not material, on an individual or aggregate basis, to the Corporation’s previously reported financial statements and correction of the error would not be material to the current year financial statements, including any interim periods.

However, the Corporation corrected this error as a voluntary immaterial revision to the accompanying consolidated financial statements of this Annual Report on Form 10-K, as of and for the fiscal years ended December 31, 2023, 2022 and 2021, in the periods in which the error occurred.

For additional discussion related to the correction of a prior period error, see the “RECENT DEVELOPMENTS” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K.

The composition of the deposit portfolio is included in the table below as of the dates indicated:

December 31, 2023 December 31, 2022

3 unchanged sentences

Other certificates and time deposits 849,906 468,712

Brokered deposits 65,557 30,454

Brokered certificates of deposits 80,267 65,557

Total deposits $ 14,821,453 $ 14,382,745

Deposits increased $ 1.7 billion from December 31, 2021.

The Level One acquisition contributed $ 1.9 billion of deposits as of the acquisition date, resulting in an organic deposit decline of $ 280.6 million, or 2.2 percent.

Details regarding the acquisition are discussed in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

The majority of the organic deposit decline was due to decreases in non-maturity deposits of $ 513.5 million, which was offset by increases in maturity deposits of $ 232.9 million when compared to December 31, 2021.

Higher interest rates have resulted in customers migrating funds from non-maturity products into maturity time deposit products.

Deposits increased $ 438.7 million from December 31, 2022.

The majority of the organic deposit growth was due to increases in maturity deposits of $ 1.1 billion, which was offset by decreases in nonmaturity deposits of $ 623.6 million when compared to December 31, 2022.

Higher interest rates have resulted in customers migrating funds from nonmaturity products into maturity time deposit products.

At December 31, 2023 and 2022, deposits exceeding the FDIC’s Standard Maximum Deposit Insurance Amount of $250,000 were $ 8.6 billion and $ 8.1 billion, respectively.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

At December 31, 2023, the contractual maturities of time deposits are summarized as follows:

9 unchanged sentences

Total Borrowings $ 1,028,776 $ 1,313,945

The Level One acquisition contributed to the increase in borrowings due to the assumption of $ 160.0 million of Federal Home Loan Bank advances and $ 32.6 million of subordinated debentures.

Additional details regarding the acquisition are discussed within NOTE 2.

ACQUISITIONS of the these Notes to Consolidated Financial Statements.

Securities sold under repurchase agreements consist of obligations of the Bank to other parties and are secured by U.S.

1 unchanged sentence

The maximum amount of outstanding agreements at any month-end during 2023 and 2022 totaled $ 242.2 million and $ 218.9 million, respectively, and the average of such agreements totaled $ 171.3 million and $ 185.1 million during 2023 and 2022, respectively.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Transfers Accounted For As Secured Borrowings

10 unchanged sentences

Maturities in Years Ending December 31:

Federal Funds Purchased Securities Sold

Securities Sold

Under Repurchase Agreements Federal Home

6 unchanged sentences

2028 — 215,000 70,000

After 2027 — — 78,190 152,012

2029 and after — 17,852 91,120

ASC 805 fair value adjustments at acquisition — — ( 3,651 )

$ 157,280 $ 712,852 $ 158,644

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The terms of a security agreement with the FHLB require the Corporation to pledge, as collateral for advances, qualifying first mortgage loans, investment securities and multi-family loans in an amount equal to at least 145 percent of these advances depending on the type of collateral pledged.

9 unchanged sentences

The subordinated debentures, which were purchased with the proceeds of the sale of the trust’s capital securities, are the sole assets of FMC Trust II and are fully and unconditionally guaranteed by the Corporation.

The subordinated debentures and the trust preferred securities bear interest at a variable rate equal to three-month LIBOR plus 1.56 percent, with interest and dividend payments being made on a quarterly basis.

The interest rate at December 31, 2022 and 2021 was 6.33 percent and 1.76 percent, respectively.

As of December 31, 2023, the subordinated debentures and trust preferred securities bear interest at a variable rate equal to the CME Term SOFR, plus the 0.26161 percent spread adjustment.

The interest rate at December 31, 2023 was 7.21 percent.

As of December 31, 2022, the subordinated debentures and the trust preferred securities bear interest at a variable rate equal to three-month LIBOR plus 1.56 percent, with interest and dividend payments being made on a quarterly basis.

The interest rate at December 31, 2022 was 6.33 percent.

The trust preferred securities are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies.

6 unchanged sentences

With a trust preferred structure substantially similar to that described above for FMC Trust II, the subordinated debentures held by Ameriana Capital Trust I were purchased with the proceeds of the sale of the trust’s capital securities.

The subordinated debentures and the trust preferred securities bear interest at a variable rate equal to three-month LIBOR plus 1.50 percent, with interest and dividend payments being made on a quarterly basis.

The interest rate at December 31, 2022 and 2021 was 6.27 percent and 1.70 percent, respectively.

As of December 31, 2023, the subordinated debentures and trust preferred securities bear interest at a variable rate equal to the three-month CME Term SOFR, plus the 0.26161 percent spread adjustment.

The interest rate at December 31, 2023 was 7.15 percent.

As of December 31, 2022, the subordinated debentures and the trust preferred securities bear interest at a variable rate equal to three-month LIBOR plus 1.50 percent, with interest and dividend payments being made on a quarterly basis.

The interest rate at December 31, 2022 was 6.27 percent.

The trust preferred securities of Ameriana Capital Trust I are currently redeemable at par and without penalty, subject to the Corporation having first redeemed the related subordinated debentures, with the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies.

2 unchanged sentences

See “Replacement of LIBOR Benchmark” below for information relating to changes impacting the interest and dividends payable upon the trust preferred securities and subordinated debentures after June 30, 2023.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

• First Merchants Senior Notes and Subordinated Notes.

On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $ 70 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $ 5 million (the “Senior Debt”) and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due 2028 in the aggregate principal amount of $ 65 million (the “Subordinated Debt”).

The interest rate on the Senior Debt and Subordinated Debt remains fixed for the first ten ( 10 ) years and will become floating thereafter.

Once the rates convert to floating on October 30, 2023, the Senior Debt will have an annual floating rate equal to the three-month forward-looking term Secured Overnight Financing Rate, as administered by CME Group Benchmark Administration Limited (“CME Term SOFR”), adjusted by the relevant spread adjustment (which is 0.26161 percent for a three-month tenor), plus 2.345 percent.

The Subordinated Debt will have an annual floating rate equal to the three-month CME Term SOFR, plus the 0.26161 percent spread adjustment, plus 4.095 percent.

The interest rate on the Senior Debt and Subordinated Debt remained fixed for the first ten ( 10 ) years and became floating thereafter.

The rates converted to floating on October 30, 2023.

As of December 31, 2023, the Senior Debt had an annual floating rate equal to the three-month CME Term SOFR, adjusted by the relevant spread adjustment (which is 0.26161 percent for a three-month tenor), plus 2.345 percent, or 7.98 percent, and the Subordinated Debt had an annual floating rate equal to the three-month CME Term SOFR, plus the 0.26161 percent spread adjustment, plus 4.095 percent, or 9.73 percent.

See “Replacement of LIBOR Benchmark” below for additional information relating to the transition from LIBOR to the Secured Overnight Financing Rate.

3 unchanged sentences

provided, however, that no Subordinated Notes (as defined in the Issuing and Paying Agency Agreement) may remain outstanding subsequent to any early redemption of Senior Notes.

The Subordinated Debt and the Senior Debt options to redeem begin with the interest payment date on October 30, 2023, or on any scheduled interest payment date thereafter.

The Subordinated Debt and the Senior Debt options to redeem began with the interest payment date on October 30, 2023, or on any scheduled interest payment date thereafter.

During the fourth quarter of 2023, the Corporation issued notice to the holders of the Subordinated Debt that it intends to exercise its rights to redeem $ 40.0 million in principal.

The redemption was permitted under the optional redemptions provisions of the Subordinated Note Certificate representing the Subordinated Debt and occurred in the first quarter of 2024 on the scheduled interest payment date.

The Senior Debt agreement contains certain customary representations and warranties and financial and negative covenants.

As of December 31, 2023 and 2022 the Corporation was in compliance with these covenants.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

• Level One Subordinated Notes.

4 unchanged sentences

• Other Borrowings.

During the third quarter of 2023, the Corporation acquired a secured borrowing in conjunction with the purchase of the Indianapolis regional headquarters building.

The secured borrowing bears a fixed interest rate of 3.41 percent and had a balance of $ 7.3 million as of December 31, 2023.

On April 1, 2022, the Corporation acquired a secured borrowing in conjunction with its acquisition of Level One.

The secured borrowing related to a certain loan participation sold by Level One that did not qualify for sales treatment.

The secured borrowing bears a fixed rate of 1.00 percent and had a balance of $ 1.2 million as of December 31, 2022.

The secured borrowing bears a fixed rate of 1.00 percent and had a balance of $ 1.2 million as of December 31, 2023 and 2022.

Replacement of LIBOR Benchmark

6 unchanged sentences

dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.

As the subordinated debentures, the trust preferred securities, the Senior Notes and the Subordinated Notes discussed above do not have LIBOR fallback provisions, after June 30, 2023, the interest and dividends paid on those instruments will be based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor as provided by the LIBOR Act and related Federal Reserve regulations.

As the subordinated debentures, the trust preferred securities, the Senior Notes and the Subordinated Notes discussed above do not have LIBOR fallback provisions, after June 30, 2023, the interest and dividends paid on those instruments are based upon the CME Term SOFR, as the replacement benchmark, including a static spread adjustment for the appropriate tenor as provided by the LIBOR Act and related Federal Reserve regulations.

The relevant spread adjustment for a three-month tenor is 0.26161 percent.

8 unchanged sentences

The Corporation manages a matched book with respect to its derivative instruments offered as a part of this service to its customers in order to minimize its net risk exposure resulting from such transactions.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Derivatives Designated as Hedges

3 unchanged sentences

Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

As of December 31, 2022 the Corporation had one interest rate swap with a notional amount of $ 10.0 million that was designated as a cash flow hedge.

As of December 31, 2021, the Corporation had four interest rate swaps with a notional amount of $ 60.0 million that were designated as cash flow hedges.

A $ 24.0 million interest rate swap, which was used to hedge the variable cash outflows (Ameribor-based) associated with a brokered deposit, matured in the first quarter of 2022.

Two interest rate swaps totaling $ 26.0 million, which were used to hedge the variable cash outflows (LIBOR-based) associated with existing trust preferred securities when the outflows converted from a fixed rate to variable rate in September 2012, matured in the third quarter of 2022.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

During 2022, $ 10.0 million of interest rate swaps were used to hedge the variable cash outflows (LIBOR-based) associated with one Federal Home Loan Bank advance.

As of December 31, 2022, the Corporation had one interest rate swap with a notional amount of $ 10.0 million that was used to hedge the variable cash outflows (SOFR-based) associated with one Federal Home Loan Bank advance.

This interest swap matured in the third quarter of 2023.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss).

The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

1 unchanged sentence

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation’s variable-rate liabilities.

During the next twelve months, the Corporation expects to reclassify $ 164,000 from accumulated other comprehensive income (loss) to interest income.

During the next twelve months, the Corporation doesn’t expect to reclassify income (loss) from accumulated other comprehensive loss to interest income.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following table summarizes the Corporation’s derivatives designated as hedges:

10 unchanged sentences

Interest rate swaps on borrowings Other Assets $ — Other Assets $ 164 Other Liabilities $ — Other Liabilities $ —

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

Derivatives in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative

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

Derivatives in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative

(Effective Portion)

1 unchanged sentence

Interest rate products $ 179 $ 479

The amount of loss reclassified from other comprehensive income into income related to cash flow hedging relationships is included in the table below for the years ended December 31, 2022, 2021 and 2020.

The amount of loss reclassified from other comprehensive income (loss) into income related to cash flow hedging relationships is included in the table below for the years ended December 31, 2023, 2022 and 2021.

Derivatives Designated as Hedging

Instruments under

FASB ASC 815-10 Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) Amount of Gain (Loss) Reclassified from Other Comprehensive Income into Income (Effective Portion)

FASB ASC 815-10 Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) (Effective Portion) Amount of Gain (Loss) Reclassified from Other Comprehensive Income (Loss) into Income (Effective Portion)

2023 2022 2021

6 unchanged sentences

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The notional amount of customer-facing swaps was approximately $ 1.2 billion and $ 1.0 billion as of December 31, 2022 and December 31, 2021, respectively.

This amount is offset with third party counterparties, as described above.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

16 unchanged sentences

Included in other liabilities $ 1,382,262 $ 79,008 $ 1,196,898 $ 92,770

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract.

17 unchanged sentences

Additionally, the Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations.

As of December 31, 2022, the termination value of derivatives in a net liability position related to these agreements was $ 572,000 , which resulted in no collateral pledged to counterparties as of December 31, 2022.

As of December 31, 2023, the termination value of derivatives in a net liability position related to these agreements was $ 7.7 million, which resulted in no collateral pledged to counterparties as of December 31, 2023.

While the Corporation did not breach any of these provisions as of December 31, 2023, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.

4 unchanged sentences

it does not expand the use of fair value in any new circumstances.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

As defined in ASC 820, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants.

17 unchanged sentences

The Corporation considers an input to be significant if it drives 10 percent or more of the total fair value of a particular asset or liability.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

RECURRING MEASUREMENTS

8 unchanged sentences

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 1 securities include U.S.

Treasury securities.

The Corporation did not have any Level 1 securities as of December 31, 2023.

Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy.

7 unchanged sentences

Any investment security not valued based upon the methods above are considered Level 3.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Derivative Financial Agreements

1 unchanged sentence

DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Financial Statements.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the ASC 820-10 fair value hierarchy in which the fair value measurements fall at December 31, 2022 and 2021.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2023 and 2022.

Fair Value Measurements Using:

5 unchanged sentences

Government-sponsored agency securities $ 95,307 $ — $ 95,307 $ —

Treasury 2,459 2,459 — —

State and municipal 1,065,171 — 1,061,896 3,275

14 unchanged sentences

Corporate obligations 12,207 — 12,176 31

Interest rate swap asset 41,133 — 41,133 —

Interest rate swap liability 41,968 — 41,968 —

Derivative assets 93,036 — 93,036 —

Derivative liabilities 92,770 — 92,770 —

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

LEVEL 3 RECONCILIATION

4 unchanged sentences

Beginning Balance $ 3,439 $ 5,491

Included in other comprehensive income ( 612 ) 227

Included in other comprehensive income (loss) ( 186 ) ( 612 )

Purchases, issuances, and settlements — 5,111

4 unchanged sentences

There were no transfers in or out of Level 3 during 2023 or 2022.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NONRECURRING MEASUREMENTS

Following is a description of valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy for year ended December 31, 2022 and 2021.

The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:

Fair Value Measurements Using

10 unchanged sentences

Collateral dependent loans $ 55,290 — — $ 55,290

Other real estate owned $ 96 — — $ 96

Collateral Dependent Loans and Other Real Estate Owned

5 unchanged sentences

Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

UNOBSERVABLE (LEVEL 3) INPUTS

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at December 31, 2022 and 2021.

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at December 31, 2023 and 2022.

December 31, 2023 Fair Value Valuation Technique Unobservable Inputs Range (Weighted-Average)

3 unchanged sentences

Weighted-average coupon 1 month to 15 years

3.6 % - 4.7 %

Corporate obligations and U.S.

1 unchanged sentence

plus Premium for illiquidity

Weighted-average coupon 3 month LIBOR

Weighted-average coupon 3 month CME Term Sofr plus 26 bps

Collateral dependent loans $ 55,020 Collateral based measurements Discount to reflect current market conditions and ultimate collectability

11 unchanged sentences

Weighted-average discount by loan balance 0 % - 10 % 1.1 %

Other real estate owned $ 96 Appraisals Discount to reflect current market conditions

Weighted-average discount of other real estate owned balance 0 % - 44 % 43.5 %

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

10 unchanged sentences

(Level 2) Significant Unobservable Inputs

(Level 3) Total Fair Value

Assets at December 31:

10 unchanged sentences

Deposits 14,821,453 $ 12,482,295 $ 2,329,662 $ — 14,811,957

Federal funds purchased 171,560 — 171,560 —

Securities sold under repurchase agreements 157,280 — 157,265 — 157,265

3 unchanged sentences

Interest payable 18,912 — 18,912 — 18,912

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Amount Quoted Prices in Active Markets for Identical Assets

1 unchanged sentence

(Level 2) Significant Unobservable Inputs

(Level 3) Total Fair Value

Assets at December 31:

10 unchanged sentences

Deposits $ 14,382,745 $ 13,105,936 $ 1,251,017 $ — 14,356,953

Federal funds purchased 171,560 — 171,560 — 171,560

Securities sold under repurchase agreements 167,413 — 167,396 — 167,396

1 unchanged sentence

Subordinated debentures and other borrowings 151,298 — 122,102 — 122,102

Interest rate swap liability 41,968 — 41,968 —

Derivative liabilities 92,770 — 92,770 — 92,770

Interest payable 7,530 — 7,530 — 7,530

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

3 unchanged sentences

Balance at December 31, 2022 $ ( 234,495 ) $ 130 $ ( 4,786 ) $ ( 239,151 )

Other comprehensive income before reclassifications ( 293,326 ) 378 ( 850 ) ( 293,798 )

Amounts reclassified from accumulated other comprehensive income ( 943 ) 412 65 ( 466 )

Other comprehensive income (loss) before reclassifications 55,366 ( 142 ) 2,405 57,629

Amounts reclassified from accumulated other comprehensive income (loss) 5,475 12 65 5,552

Period change 60,841 ( 130 ) 2,470 63,181

1 unchanged sentence

Balance at December 31, 2021 $ 59,774 $ ( 660 ) $ ( 4,001 ) $ 55,113

Other comprehensive income before reclassifications ( 23,732 ) 109 7,491 ( 16,132 )

Amounts reclassified from accumulated other comprehensive income ( 4,482 ) 825 66 ( 3,591 )

Other comprehensive income (loss) before reclassifications ( 293,326 ) 378 ( 850 ) ( 293,798 )

Amounts reclassified from accumulated other comprehensive income (loss) ( 943 ) 412 65 ( 466 )

Period change ( 294,269 ) 790 ( 785 ) ( 294,264 )

Balance at December 31, 2022 $ ( 234,495 ) $ 130 $ ( 4,786 ) $ ( 239,151 )

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following table presents the reclassification adjustments out of accumulated other comprehensive income (loss) that were included in net income in the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021:

2 unchanged sentences

Unrealized gains (losses) on available for sale securities (1)

Realized securities gains reclassified into income $ 1,194 $ 5,674 $ 11,895 Other income - net realized gains on sales of available for sale securities

Realized securities gains (losses) reclassified into income $ ( 6,930 ) $ 1,194 $ 5,674 Other income - net realized gains on sales of available for sale securities

Related income tax benefit (expense) 1,455 ( 251 ) ( 1,192 ) Income tax expense

13 unchanged sentences

DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Financial Statements.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

REGULATORY CAPITAL AND DIVIDENDS

1 unchanged sentence

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.

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.

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized.

9 unchanged sentences

There is no threshold for well capitalized status for bank holding companies.

As part of a March 27, 2020 joint statement of federal banking regulators, an interim final rule that allowed banking organizations to mitigate the

effects of the CECL accounting standard on their regulatory capital was announced.

Banking organizations could elect to mitigate the estimated

cumulative regulatory capital effects of CECL for up to two years.

This two-year delay was to be in addition to the three-year transition period that

federal banking regulators had already made available.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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 2021 CAA 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.

7 unchanged sentences

As a result, effective with the April 1, 2022 consummation of the Level One merger, the Corporation began reflecting all of its trust preferred securities as tier 2 capital.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $ 70 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $ 5 million and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due October 30, 2028 in the aggregate principal amount of $ 65 million.

As of December 31, 2023 the Corporation began the five years phase out (at a rate of 20 percent per year) as defined in the Basil III capital rules, which resulted in a reduction of $ 13 million in tier 2 capital.

The Corporation’s and Bank’s actual and required capital ratios as of December 31, 2023 and December 31, 2022 were as follows:

29 unchanged sentences

First Merchants Bank 1,641,210 9.60 683,680 4.00 $ 854,600 5.00 %

A reconciliation of certain non-GAAP amounts used in the determination of the above regulatory measures is detailed within the “Capital” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K.

On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking

organizations to allow those organizations participating in the PPP to neutralize the regulatory capital effects of participating in the program.

interim final rule, which became effective April 13, 2020, clarified that PPP loans receive a zero percent risk weight for purposes of determining

risk-weighted assets and the CET1, tier 1 and total risk-based capital ratios.

At December 31, 2022 and 2021, risk-weighted assets included $ 4.7 million and $ 106.6 million, respectively, of PPP loans at a zero risk weight.

Management believes that all of the above capital ratios are meaningful measurements for evaluating the safety and soundness of the

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

shareholders' 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 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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

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 shareholders’ 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 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.

The Corporation’s principal source of funds for dividend payments to shareholders is dividends received from the Bank.

6 unchanged sentences

Dividends are reinvested on a quarterly basis.

Stockholders' Equity

The Corporation adopted the current expected credit losses ("CECL") model for calculating the allowance for credit losses on January 1, 2021.

CECL replaces the previous "incurred loss" model for measuring credit losses, which encompassed allowances for current known and inherent

losses within the portfolio, with an "expected loss" model for measuring credit losses, which encompasses allowances for losses expected to be

incurred over the life of the portfolio.

As of the adoption and day one measurement date of January 1, 2021, the Corporation recorded a one-time

cumulative-effect adjustment to retained earnings, net of income taxes, of $ 68.0 million.

Preferred Stock

As part of the Level One acquisition, the Corporation issued 10,000 shares of a 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.

As a result of the issuance, the Corporation had $ 25.0 million of outstanding preferred stock at December 31, 2022.

During the period ended December 31, 2022, the Corporation declared and paid dividends of $ 46.88 per share (equivalent to $ 0.4688 per depositary share) equal to $ 1.4 million.

The Corporation had $ 25.0 million of outstanding preferred stock at December 31, 2023 and 2022.

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.

During the twelve months ended December 31, 2022, the Corporation declared and paid dividends of $ 140.64 per share (equivalent to $ 1.41 per depositary share), equal to $ 1.4 million.

The Series A preferred stock qualifies as tier 1 capital for purposes of the regulatory capital calculations.

3 unchanged sentences

On a share basis, the amount of common stock subject to the repurchase program represents approximately 6 percent of the Corporation’s outstanding shares at the time the program became effective.

During 2022, the Corporation did not repurchase any shares of its common stock pursuant to the repurchase program.

As of December 31, 2022, the Corporation had approximately 2.7 million shares at a maximum aggregate value of $ 74.5 million available to repurchase under the program.

As of December 31, 2023 and 2022, the Corporation had approximately 2.7 million shares at a maximum aggregate value of $ 74.5 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.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.

6 unchanged sentences

The amount of capitalized servicing assets is considered immaterial.

2022 2021 2020

Mortgage loan portfolios serviced for:

3 unchanged sentences

Federal Home Loan Bank 159,590 27,127

Chevy Chase Mortgage Company — 85 134

Total $ 1,792,143 $ 925,841

23 unchanged sentences

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

For the year ended 2022, RSAs vested at a stock price higher than the grant date stock price resulting in recognition of income tax benefit at vesting of $ 86,000 .

In 2021 and 2020, the Corporation had RSAs vest primarily at a stock price that was lower than the grant date stock price, which resulted in the recognition of income tax expense at vesting of $ 112,000 and $ 394,000 , respectively.

For the years ended 2023 and 2022, RSAs vested at a stock price higher than the grant date stock price resulting in recognition of income tax benefit at vesting of $ 126,000 and $ 86,000 , respectively.

In 2021, the Corporation had RSAs vest primarily at a stock price that was lower than the grant date stock price, which resulted in the recognition of income tax expense at vesting of $ 112,000 .

Years Ended December 31,

25 unchanged sentences

Outstanding at January 1, 2023 155,100 $ 18.89

Transferred Options from Level One 148,600 $ 18.84

Exercised ( 65,025 ) $ 17.07

4 unchanged sentences

The amount of aggregate intrinsic value will change based on the fair market value of the Corporation’s common stock.

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was $ 533,000 and $ 559,000 , respectively.

Cash receipts of stock options exercised during 2022 and 2021 were $ 358,000 and $ 198,000 , respectively.

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2023 and 2022 was $ 1.4 million and $ 533,000 , respectively.

Cash receipts of stock options exercised during 2023 and 2022 were $ 1.1 million and $ 358,000 , respectively.

The following table summarizes information on unvested RSAs outstanding as of December 31, 2023:

9 unchanged sentences

PENSION AND OTHER POST RETIREMENT BENEFIT PLANS

The Corporation’s defined-benefit pension plans, including non-qualified plans for certain employees, former employees and former non-employee directors, cover approximately 8 percent of the Corporation’s employees.

In 2005, the Board of Directors of the Corporation approved the curtailment of the accumulation of defined benefits for future services provided by certain participants in the First Merchants Corporation Retirement Plan.

8 unchanged sentences

Benefit obligation at beginning of year $ 55,764 $ 74,274

Service cost — —

Interest cost 2,876 1,905

13 unchanged sentences

Liabilities $ 2,765 $ 3,405

As of December 31, 2022, the funded status of the plans increased $ 1.5 million and the accumulated other comprehensive loss, net of tax, decreased $ 785,000 from December 31, 2021.

A primary contributing factor to these changes was the discount rate increasing by 270 basis points from 2.7 percent to 5.4 percent, which decreased the liability by $ 14.8 million.

This was offset by a $ 200,000 increase in the liability due to incorporation of new census data.

The plans' assets experienced a loss of $ 11.8 million, as compared to an expected return of $ 4.5 million.

The accumulated benefit obligation for all defined benefit plans was $ 55.8 million and $ 74.3 million at December 31, 2022 and 2021, respectively.

As of December 31, 2023, the funded status of the plans increased $ 4.7 million and the accumulated other comprehensive loss, net of tax, decreased $ 2.5 million from December 31, 2022.

A primary contributing factor to these changes was the plans’ assets experiencing a gain of $ 9.4 million, which was $ 5.5 million more than the expected return.

The accumulated benefit obligation for all defined benefit plans was $ 55.8 million at December 31, 2023 and 2022.

Information for pension plans with an accumulated benefit obligation in excess of plan assets consists solely of the non-qualified plans for certain employees, former employees and former non-employee directors, and is included in the table below.

6 unchanged sentences

December 31, 2023 December 31, 2022 December 31, 2021

Service cost $ — $ — $ 16

Interest cost 2,876 1,905 1,760

6 unchanged sentences

(table dollar amounts in thousands, except share data)

Other changes in plan assets and benefit obligations recognized in other comprehensive income:

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):

December 31, 2023 December 31, 2022 December 31, 2021

15 unchanged sentences

At December 31, 2023 and 2022, the Corporation based its estimate of the expected long-term rate of return on analysis of the historical returns of the plans and current market information available.

The plans’ investment strategies are to provide for preservation of capital with an emphasis on long-term growth without undue exposure to risk.

The assets of the plans’ are invested in accordance with the plans’ Investment Policy Statement, subject to strict compliance with ERISA and any other applicable statutes.

The plans’ risk management practices include semi-annual evaluations of investment managers, including reviews of compliance with investment manager guidelines and restrictions;

ability to exceed performance objectives;

adherence to the investment philosophy and style;

and ability to exceed the performance of other investment managers.

The evaluations are reviewed by management with appropriate follow-up and actions taken, as deemed necessary.

The Investment Policy Statement generally allows investments in cash and cash equivalents, real estate, fixed income debt securities and equity securities, and specifically prohibits investments in derivatives, options, futures, private placements, short selling, non-marketable securities and purchases of individual non-investment grade bonds.

At December 31, 2022, the maturities of the plans’ debt securities ranged from 15 days to 9.1 years, with a weighted average maturity of 3.9 years.

At December 31, 2021, the maturities of the plans’ debt securities ranged from 40 days to 7.7 years, with a weighted average maturity of 3.5 years.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of December 31, 2023.

1 unchanged sentence

After 2028 20,577

Plan assets are re-balanced quarterly.

At December 31, 2022 and 2021, plan assets by category are as follows:

December 31, 2022 December 31, 2021

Actual Target Actual Target

Cash and cash equivalents 5.9 % 3.0 % 2.5 % 3.0 %

Equity securities 51.5 50.0 56.4 53.0

Debt securities 40.4 45.0 38.6 42.0

Alternative investments 2.2 2.0 2.5 2.0

100.0 % 100.0 % 100.0 % 100.0 %

The Savings Plan, a Section 401(k) qualified defined contribution plan, was amended on March 1, 2005 to provide enhanced retirement benefits, including employer and matching contributions, for eligible employees of the Corporation and its subsidiaries.

The Corporation matches employees’ contributions at the rate of 100 percent for the first 3 percent of base salary contributed by participants and 50 percent of the next 3 percent of base salary contributed by participants.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Beginning in 2005, employees who have completed 1000 hours of service and are an active employee on the last day of the year receive an additional retirement contribution after year-end.

9 unchanged sentences

Post retirement plan expense totaled $ 44,000 , $ 53,000 and $ 62,000 for 2023, 2022 and 2021, respectively.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Pension Plan Assets

The plans’ investment strategies are to provide for preservation of capital with an emphasis on long-term growth without undue exposure to risk.

The assets of the plans’ are invested in accordance with the plans’ Investment Policy Statement, subject to strict compliance with ERISA and any other applicable statutes.

The plans’ risk management practices include semi-annual evaluations of investment managers, including reviews of compliance with investment manager guidelines and restrictions;

ability to exceed performance objectives;

adherence to the investment philosophy and style;

and ability to exceed the performance of other investment managers.

The evaluations are reviewed by management with appropriate follow-up and actions taken, as deemed necessary.

Plan assets are re-balanced quarterly.

At December 31, 2023 and 2022, plan assets by category are as follows:

December 31, 2023 December 31, 2022

Actual Target Actual Target

Cash and cash equivalents 3.0 % 3.0 % 5.9 % 3.0 %

Equity securities 53.4 53.0 51.5 50.0

Debt securities 41.9 42.0 40.4 45.0

Alternative investments 1.7 2.0 2.2 2.0

100.0 % 100.0 % 100.0 % 100.0 %

At December 31, 2023, the maturities of the plans’ debt securities ranged from 75 days to 8.2 years, with a weighted average maturity of 3.7 years.

At December 31, 2022, the maturities of the plans’ debt securities ranged from 15 days to 9.1 years, with a weighted average maturity of 3.9 years.

Following is a description of the valuation methodologies used for pension plan assets measured at fair value on a recurring basis, as well as the general classification of pension plan assets pursuant to the valuation hierarchy.

23 unchanged sentences

$ 82,258 $ 76,849 $ 5,409 $ —

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Fair Value Measurements Using

16 unchanged sentences

$ 77,534 $ 74,032 $ 3,502 $ —

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The reconciliation between income tax expense expected at the U.S.

7 unchanged sentences

Tax Credits ( 331 ) ( 414 ) ( 354 )

CARES Act - NOL carryback rate differential — — ( 1,178 )

State Tax 1,171 2,494 2,697

11 unchanged sentences

Income Tax Expense $ 35,446 $ 33,585 $ 35,259

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Significant components of the net deferred tax assets and liabilities resulting from temporary differences were as follows at December 31, 2023 and 2022:

Deferred Tax Asset at December 31:

Differences in Accounting for Loan Losses $ 61,484 $ 52,995

Differences in Accounting for Credit Losses $ 54,734 $ 61,484

Differences in Accounting for Loan Fees 2,398 2,094

6 unchanged sentences

Differences in Accounting for Loans and Securities 1,284 1,058

Differences in Accounting for Mortgage Servicing Rights 1,987 616

Difference in Accounting for Pensions and Other Employee Benefits 6,072 3,687

State Income Tax 1,428 1,859

Net Unrealized Gain on Securities Available for Sale — 15,889

Gain on FDIC Modified Whole Bank Transaction 287 306

REIT Dividend Deferral 2,979 3,088

Other 8,692 6,502

1 unchanged sentence

Net Deferred Tax Asset $ 84,749 $ 109,457

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

As of December 31, 2023, the Corporation has approximately $ 12.2 million of state NOL carryforwards available to offset future state taxable income, which will expire beginning in 2024.

1 unchanged sentence

Management believes it is more likely than not that the benefit of these state NOL carryforwards and other state deferred tax assets will be fully realized.

The Corporation has additional paid-in capital that is considered restricted resulting from the acquisitions of CFS and Ameriana of approximately $ 13.4 million and $ 11.9 million, respectively.

The Corporation has additional paid-in capital that is considered restricted resulting from the acquisitions of CFS Bancorp, Inc.

(“CFS”) and Ameriana Bancorp, Inc.

(“Ameriana”) of approximately $ 13.4 million and $ 11.9 million, respectively.

CFS and Ameriana qualified as banks under provisions of the Internal Revenue Code which permitted them to deduct from taxable income an allowance for bad debts which differed from the provision for losses charged to income, for which no deferred federal income tax liability has been recognized.

22 unchanged sentences

Diluted net income per common share $ 221,911 59,488,520 $ 3.73 $ 220,683 57,950,257 $ 3.81 $ 205,531 53,984,229 $ 3.81

As of December 31, 2022, 2021 and 2020, there were no stock options with an option price greater than the average market price of the common shares.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

As of December 31, 2023, 2022 and 2021, there were no stock options with an option price greater than the average market price of the common shares.

CONDENSED FINANCIAL INFORMATION (parent company only)

48 unchanged sentences

Other adjustments ( 2,446 ) ( 5,925 ) ( 288 )

Investment in subsidiaries - operating activities 333 885 235

Net cash provided by operating activities 117,159 72,766 151,644

1 unchanged sentence

Net cash and cash equivalents paid in acquisition — ( 72,494 ) —

Net cash used by investing activities ( 72,494 ) — —

Proceeds from business divestitures 4,852 — —

Net cash provided (used) by investing activities 4,852 ( 72,494 ) —

Cash Flow From Financing Activities:

1 unchanged sentence

Cash dividends on preferred stock ( 1,875 ) ( 1,406 ) —

Repayment of borrowings — — ( 20,310 )

Stock issued under employee benefit plans 754 706 605

9 unchanged sentences

It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Corporation.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

ITEM 9., ITEM 9A.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data