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Item 8. Financial Statements and Supplementary Data

2025-02-24 compared with 2024-02-29 · 425 added, 452 removed, 2020 unchanged (30% of the section changed)

6 unchanged sentences

We have audited the accompanying consolidated balance sheets of First Merchants Corporation (the “Corporation”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended

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, 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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 Company’s internal control over financial reporting as of December 31, 2024, 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 24, 2025, expressed an unqualified opinion thereon.

Basis for Opinion

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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.

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.

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

1 unchanged sentence

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.

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 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 econometric component of the ACL as a critical audit matter.

The econometric component 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.

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

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The primary procedures we performed to address this critical audit matter included:

• Obtained an understanding of the Corporation’s process for establishing the ACL, including the selection of models and the qualitative factor adjustments of the ACL

• Testing the design and operating effectiveness of internal controls, including those related to technology over the ACL, the establishment of qualitative adjustments for current and expected conditions, grading and risk classification of loans and establishment of specific reserves on individually evaluated loans and management’s review controls over the ACL balance as a whole including attending internal Corporation Credit Policy Committee meetings and Audit Committee discussions and analysis

• Testing clerical and computational accuracy of the formulas within the calculation.

• Testing of completeness and accuracy of the information and reports utilized in the ACL, including reports used in management review controls over the ACL.

• Performed reviews of individual credit files to evaluate the reasonableness of loan credit risk ratings.

• Tested internally prepared loan reviews to evaluate the reasonableness of loan credit risk ratings

• Evaluated the qualitative adjustments to the ACL including assessing the basis for adjustments and the reasonableness of the significant assumptions

• Testing the design and operating effectiveness of internal controls over the econometric component of the ACL

• Obtained an understanding of the Corporation’s process over the selection of reasonable and supportable forecasts

• Testing clerical and computational accuracy of the formulas within the econometric component of the calculation.

• Testing of completeness and accuracy of the information and reports utilized in the econometric component of the ACL, including reports used in management review controls over the econometric component of the ACL.

• Evaluating the forecast adjustment, including assessing that it is reasonable and supportable

• Tested the reasonableness of specific reserves on individually reviewed loans

• Evaluated credit quality trends in delinquencies, non-accruals, charge-offs and loan risk ratings

• Evaluated the overall reasonableness of the ACL and evaluated trends identified within peer groups.

• 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 Mazars, LLP

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

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Interest receivable 91,829 97,664

Other intangibles 27,099 35,842

Goodwill 712,002 712,002

Other intangibles 19,828 27,099

Cash surrender value of life insurance 304,906 306,301

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Cumulative Preferred Stock, $ 1,000 par value, $ 1,000 liquidation value:

Authorized - 600 shares

Issued and outstanding - 125 shares

Authorized - 600 cumulative shares

Issued and outstanding - 125 cumulative shares

Preferred Stock, Series A, no par value, $ 2,500 liquidation preference:

47 unchanged sentences

Net realized gains (losses) on sales of available for sale securities ( 20,757 ) ( 6,930 ) 1,194

Gain on branch sale 19,983 — —

Other income 6,283 2,722 1,929

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NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE DATA:

Basic $ 3.74 $ 3.83 $ 3.82

Diluted $ 3.73 $ 3.81 $ 3.81

Basic Net Income Available to Common Stockholders $ 3.42 $ 3.74 $ 3.83

Diluted Net Income Available to Common Stockholders $ 3.41 $ 3.73 $ 3.81

Cash Dividends Paid to Common Stockholders $ 1.39 $ 1.34 $ 1.25

Average Diluted Common Shares Outstanding (in thousands) 58,533 59,489 57,950

See notes to consolidated financial statements.

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Balance, 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 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

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Balances, December 31, 2022 125 $ 125 10,000 $ 25,000 59,170,583 $ 7,396 $ 1,228,626 $ 1,012,774 $ ( 239,151 ) $ 2,034,770

Comprehensive loss:

Comprehensive income:

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

Other comprehensive 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

6 unchanged sentences

Net income — — — — — — — 201,402 — 201,402

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

Other comprehensive loss, net of tax — — — — — — — — ( 12,715 ) ( 12,715 )

Cash dividends on preferred stock ($ 187.52 per share)

2 unchanged sentences

— — — — — — — ( 81,623 ) — ( 81,623 )

Repurchases of common stock — — — — ( 1,648,466 ) ( 206 ) ( 55,962 ) — — ( 56,168 )

Excise tax on common stock repurchases — — — — — — ( 517 ) — — ( 517 )

Share-based compensation — — — — 89,886 11 5,807 — — 5,818

20 unchanged sentences

Gains on sales of loans held for sale ( 12,079 ) ( 8,479 ) ( 4,373 )

Gain on branch sale ( 19,983 ) — —

Net (gains) losses on sales of securities available for sale 20,757 6,930 ( 1,194 )

12 unchanged sentences

Proceeds from sales of securities available for sale 247,747 388,254 606,873

Proceeds from maturities of:

Proceeds from maturities and redemptions of:

Securities available for sale 51,424 56,182 201,846

3 unchanged sentences

Net change in loans ( 419,410 ) ( 621,786 ) ( 1,165,548 )

Net cash and cash equivalents received (paid) in acquisition — 137,780 ( 2,933 )

Net cash and cash equivalents received in acquisition — — 137,780

Net cash and cash equivalents paid in divestiture of branches ( 243,504 ) — —

Proceeds from the sale of other real estate owned 781 1,748 496

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Repurchase of common stock ( 56,168 ) — —

Net cash provided by financing activities 75,647 133,844 1,236,314

Net cash provided (used) by financing activities ( 38,819 ) 75,647 133,844

Net Change in Cash and Cash Equivalents ( 25,033 ) ( 9,945 ) ( 44,552 )

5 unchanged sentences

Loans transferred to other real estate owned 820 1,224 6,469

Fixed assets transferred to other real estate owned 5,020 1,490 6,384

Premises and equipment transferred to other real estate owned 69 5,020 1,490

Non-cash investing activities using trade date accounting 10,018 3,273 46,106

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

In conjunction with the acquisitions, liabilities were assumed as follows:

In conjunction with the acquisition, liabilities were assumed as follows:

2024 December 31,

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Liabilities assumed $ — $ — $ 2,168,863

In conjunction with the divestiture, liabilities were divested as follows:

2024 December 31,

2023 December 31,

Non-cash assets divested $ 10,664 $ — $ —

Cash paid in divestiture 243,504 — —

Final settlement receivable 6,011 — —

Net gain on divestiture 19,983 — —

Liabilities divested $ 268,140 $ — $ —

See notes to consolidated financial statements.

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses and fair value of financial instruments.

Reclassifications have been made to prior financial statements to conform to the current financial statement presentation.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses.

The Corporation is a financial holding company whose principal activity is the ownership and management of the Bank and operates in a single significant business segment.

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Details of the Corporation’s acquisitions are included in NOTE 2.

ACQUISITIONS of these Notes to Consolidated Financial Statements.

ACQUISITIONS AND DIVESTITURES of these Notes to Consolidated Financial Statements.

CASH AND CASH EQUIVALENTS

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INTEREST-BEARING DEPOSITS

Interest-bearing cash held at various banks and the Federal Reserve Bank and federal funds sold are included in interest-bearing deposits and have a maturity of less than three months.

Interest-bearing cash held at other banks, the Federal Reserve Bank and federal funds sold are included in interest-bearing deposits 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.

5 unchanged sentences

Gains and losses on sales of securities are determined on the specific-identification method.

Amortization of premiums and accretion of discounts are amortized to their earliest call date and are recorded as interest income from securities.

Amortization of premiums are amortized to their earliest call date and accretion of discounts are amortized to the maturity date.

The amortization is recorded as interest income from securities.

Details of the Corporation’s investment securities portfolio are included in NOTE 4.

44 unchanged sentences

LOANS AND ALLOWANCE FOR CREDIT LOSSES 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)

PURCHASED CREDIT DETERIORATED (“PCD”) LOANS

11 unchanged sentences

In the event of prepayment, unamortized discounts or premiums on PCD and non-PCD loans are recognized in interest income.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

ALLOWANCE FOR CREDIT LOSSES - LOANS (“ACL - LOANS”)

The ACL - Loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on loans over the contractual term.

Loans are charged off against the allowance when the uncollectibility of the loan is confirmed.

Loans are charged off against the allowance when the collectibility of the loan is unlikely.

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

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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

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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.

Additionally, the Corporation amortizes the cost of the qualifying investments in proportion to the tax credit and other tax benefits received over the life of the investment.

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

13 unchanged sentences

Details of the Corporation’s other intangible assets are included in NOTE 7.

OTHER INTANGIBLES of these Notes to Consolidated Financial Statements.

GOODWILL AND OTHER INTANGIBLES 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)

Goodwill is maintained by applying the provisions of ASC 350, Intangibles – Goodwill and Other .

5 unchanged sentences

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

GOODWILL of these Notes to Consolidated Financial Statements.

GOODWILL AND OTHER INTANGIBLES of these Notes to Consolidated Financial Statements.

BANK OWNED LIFE INSURANCE (“BOLI”)

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DERIVATIVE INSTRUMENTS

Derivative instruments, which are recorded as assets or liabilities in the Consolidated Balance Sheets, are carried at fair value of the derivatives and reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

Derivative instruments, which are recorded as assets or liabilities in the Consolidated Balance Sheets, are carried at fair value and reflects the estimated amounts that would have been received or paid to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

As part of the asset/liability management program, the Corporation will utilize, from time to time, interest rate floors, caps or swaps to reduce its sensitivity to interest rate fluctuations.

1 unchanged sentence

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:

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

(1) a hedge of the fair value of the recognized asset or liability, or of an unrecognized firm commitment (a fair value hedge);

or (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge).

To date, the Corporation has only entered into a cash flow hedge.

For cash flow hedges, changes in the fair values of the derivative instruments are reported in AOCI to the extent the hedge is effective.

14 unchanged sentences

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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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.

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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.

20 unchanged sentences

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrent with the transaction processing services provided to the cardholder.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Gains (Losses) on Sales of OREO :

10 unchanged sentences

The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards.

Compensation expense is recognized over the appropriate service period, which is generally two to five years .

Compensation expense is recognized over the appropriate service period, which is generally three years .

Details of the Corporation’s share-based compensation are included in NOTE 17.

14 unchanged sentences

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.

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Summary - The FASB issued ASU No.

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

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.

With global capital markets expected to move away from LIBOR and other interbank offered rates and move toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition.

The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

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

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 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, 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.

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.

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 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.

2021-08 - Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

Summary - The FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

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 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 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 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

FASB Accounting Standards Updates - No.

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

Troubled Debt Restructurings and Vintage Disclosures

Summary - The FASB issued ASU No.

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

Troubled Debt Restructurings and Vintage Disclosures , to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and writeoffs.

Troubled Debt Restructurings (“TDR”) by Creditors That Have Adopted CECL

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 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.

Vintage Disclosures - Gross Writeoffs

The disclosure of gross writeoff information by year of origination was cited by numerous investors as an essential input to their analysis.

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 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

1 unchanged sentence

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.

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

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

3 unchanged sentences

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.

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

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

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

The Corporation 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.

The Corporation adopted this guidance in the first quarter of 2024 and adoption did not have a significant impact on the Corporation’s financial statements or disclosures.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(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.

FASB Accounting Standards Updates - No.

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

Summary - The FASB issued ASU No.

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

The key amendments:

2 unchanged sentences

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.

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

• 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.

4 unchanged sentences

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.

All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Corporation adopted this guidance in 2024 and adoption did not have a significant impact on the Corporation’s financial statements or disclosures, as the Corporation has one operating segment.

SEGMENT INFORMATION of these Notes to Consolidated Financial Statements for disclosure.

New Accounting Pronouncements Not Yet Adopted

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

FASB Accounting Standards Update - No.

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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 Update - No.

2024-03 - Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures

Summary - The FASB issued ASU No.

2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures in the fourth quarter of 2024.

This ASU requires public business entities to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods.

The objective of the disclosure requirements is to provide disaggregated information about a public business entity's expenses to help investors (a) better understand the entity's performance, (b) better assess the entity's prospects for future cash flows, and (c) compare an entity's performance over time and with that of other entities.

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

ACQUISITIONS AND DIVESTITURES

Old Second National Bank Branch Sale

On December 6, 2024, the Bank completed its sale of five branches in the suburban Chicago market to Old Second National Bank (“Old Second”).

Pursuant to the terms of the branch sale agreement, Old Second assumed certain deposit liabilities and acquired certain loans, as well as cash and premises and equipment.

The Bank recognized a gain on sale of $ 20.0 million related to the branch sale for the year ended December 31, 2024 .

The following table summarizes the assets and liabilities related to the branch sale:

December 6, 2024

Cash and due from banks $ 419

Premises and equipment 3,233

Interest receivable and other assets 21

Total Assets $ 11,083

Deposits $ 267,448

Interest payable and other liabilities 692

Total Liabilities 268,140

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

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(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.

Cash and due from banks $ 217,104

25 unchanged sentences

Approximately $ 17.2 million was allocated to a core deposit intangible, which will be amortized over its estimated life of 10 years.

Approximately $ 1.4 million was allocated to a non-compete intangible, which will be amortized over its estimated life of 2 years.

Approximately $ 1.4 million was allocated to a non-compete intangible, which was amortized over its estimated life of 2 years.

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

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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, 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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

CASH AND CASH EQUIVALENTS AND INTEREST-BEARING DEPOSITS

At December 31, 2024, 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 $ 35.8 million .

Additionally, the Corporation had approximately $ 283.4 million at the Federal Home Loan Bank and Federal Reserve Bank, which are government-sponsored entities not insured by the FDIC.

15 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

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Total held to maturity $ 2,184,497 $ 245 $ 2,184,252 $ 1,625 $ 315,748 $ 1,870,374

Accrued interest on investment securities available for sale and held to maturity of $ 25.2 million and $ 29.5 million is included in the Interest Receivable line on the Corporation’s Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022, respectively.

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

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(table dollar amounts in thousands, except share data)

Accrued interest on investment securities available for sale and held to maturity at December 31, 2024 and December 31, 2023 of $ 22.5 million and $ 25.2 million, respectively, is included in the Interest Receivable line on the Corporation’s Consolidated Balance Sheets.

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

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

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 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.

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

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

The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities available for sale from the estimate of credit losses.

3 unchanged sentences

Investment securities held to maturity are charged off against the allowance when deemed uncollectible.

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

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

The Corporation measures expected credit losses on investment securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

1 unchanged sentence

With regard to U.S.

Government-sponsored agency and mortgage-backed securities, all these securities are issued by a U.S.

Government-sponsored agency and U.S.

Government-sponsored mortgage-backed securities, all these securities are issued by a U.S.

government-sponsored entity and have an implicit or explicit government guarantee;

3 unchanged sentences

Furthermore, as of December 31, 2024, there were no past due principal and interest payments associated with these securities.

At CECL adoption, an allowance for credit losses of $ 245,000 was recorded on the state and municipal securities classified as held to maturity based on applying the long-term historical credit loss rate, as published by Moody’s, for similarly rated securities.

The balance of the allowance for credit losses on investment securities remained unchanged at $ 245,000 as of December 31, 2023.

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

On a quarterly basis, the Corporation monitors the credit quality of investment securities held to maturity through the use of credit ratings.

1 unchanged sentence

Held to Maturity

State and municipal Other Total

Government-sponsored agency securities (1) State and municipal U.S.

Government-sponsored mortgage-backed securities (1) Foreign investment Total

Credit Rating:

5 unchanged sentences

A2 — 20,317 — — 20,317

A3 3,467 — 3,467

Non-rated — 360,708 — 1,500 362,208

Total $ 345,531 $ 1,085,921 $ 641,513 $ 1,500 $ 2,074,465

Government agency securities and U.S.

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

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

11 unchanged sentences

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

13 unchanged sentences

Investment securities available for sale at December 31, 2023

Treasury $ 42 5

Government-sponsored agency securities $ 16,214 14

12 unchanged sentences

Gross unrealized losses $ 238,853 $ 220,554

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

Percent of the Corporation's investments available for sale in an unrealized loss position 97.6 % 95.9 %

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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(a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis;

and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.

and (b) actual gains or losses resulting from the sale of certain securities has proven the data to be accurate over time.

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

22 unchanged sentences

Total Investment Securities $ 1,846,840 $ 1,627,112 $ 2,184,497 $ 1,870,374

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.

Securities with a carrying value of approximately $ 3.3 billion and $ 1.8 billion were pledged at December 31, 2024 and 2023, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law.

Pledged securities increased from December 31, 2023 as a result of the Corporation pledging additional securities to the Discount Window at the Federal Reserve Bank to be used as an alternative funding source, if needed.

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

December 31, 2022.

Gross gains and losses on the sales and redemptions of available for sale securities for the years indicated are shown below.

The book value of securities pledged and available under agreements to repurchase amounted to $ 173.0 million at December 31, 2024 and $ 181.4 million at December 31, 2023.

Gross gains and losses on the sales of investment securities available for sale for the years indicated are shown below.

2024 2023 2022

3 unchanged sentences

Net gains (losses) of sales and redemptions of investment securities available for sale $ ( 20,757 ) $ ( 6,930 ) $ 1,194

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

LOANS AND ALLOWANCE FOR CREDIT LOSSES

2 unchanged sentences

Loans held for sale at December 31, 2024 and December 31, 2023, were $ 18.7 million and $ 18.9 million, respectively.

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:

32 unchanged sentences

(table dollar amounts in thousands, except share data)

The following tables summarize the risk grading of the Corporation’s loan portfolio by loan class and by year of origination for the years indicated.

The following tables summarize the risk grading of the Corporation’s loan portfolio by loan class and gross charge-offs by year of origination for the years indicated.

Consumer loans are not risk graded.

22 unchanged sentences

Substandard 22,305 — 18,292 — — — — — 40,597

Doubtful — — — 650 — — — — 650

Total Construction 338,806 225,682 152,105 47,728 6,398 8,589 12,836 — 792,144

43 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

3 unchanged sentences

At December 31, 2024, 30-59 Days Past Due loans totaled $ 35.8 million, an increase of $ 1.7 million from December 31, 2023.

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, 2024, 60-89 Days Past Due loans totaled $ 32.6 million, an increase of $ 21.4 million from December 31, 2023.

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

Of the $ 21.4 million increase, $ 20.0 million was in the construction loan class.

At December 31, 2024, 90 Days or More Past Due loans totaled $ 47.8 million, an increase of $ 13.8 million from December 31, 2023.

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

The primary increases were $ 2.9 million , $ 4.0 million , and $ 6.7 million , in the commercial and industrial, construction and residential loan classes, respectively.

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

51 unchanged sentences

Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due.

There was no interest income recognized on non-accrual loans for the twelve months ended December 31, 2023 and 2022, respectively.

There was no interest income recognized on non-accrual loans for the twelve months ended December 31, 2024 and 2023.

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value.

5 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, 2024 and 2023.

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.

The total collateral dependent loans for December 31, 2024 increased $ 24.1 million from December 31, 2023.

The primary changes were related to an increase of $ 22.6 million and $ 10.1 million, respectively, in the construction and commercial real estate, non-owner occupied loan classes, which was offset by a decrease of $ 8.6 million in the commercial and industrial loan class.

December 31, 2024

23 unchanged sentences

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 following table presents the amortized cost basis of loans at December 31, 2024 and 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2024 and 2023, by class and by type of modification.

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

1 unchanged sentence

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

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

Commercial and industrial loans $ 11,073 $ 19,152 $ 246 $ — $ 68 $ — 0.74 %

7 unchanged sentences

Total $ 15,812 $ 47,012 $ 246 $ 22,844 $ 111 $ 532

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

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Payment Delay Term Extension Combination Payment Delay & Term Extension Combination Interest Rate Reduction & 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 $ 469 $ 7,988

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2024 and 2023.

Year Ended December 31, 2024

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 $ 180,000 .

1 unchanged sentence

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

Reduced the weighted average contractual interest rate from 10.24 % to 7.90 %.

Extended loans by a weighted average of 67 months.

Agricultural land, production and other loans to farmers Provided payment deferrals with weighted average delayed amounts of $ 17,000 .

Real estate loans:

Construction Extended loans by a weighted average of 6 months.

Provided payment deferrals with weighted average delayed amounts of $ 475,000 .

Extended loans by a weighted average of 2 months.

Commercial real estate, non-owner occupied Extended loans by a weighted average of 16 months.

Commercial real estate, owner occupied Extended loans by a weighted average of 12 months.

Residential Provided payment deferrals with weighted average delayed amounts of $ 23,000 .

Extended loans by a weighted average of 11 months.

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

Extended loans by a weighted average of 152 months.

Reduced the weighted average contractual interest rate from 8.00 % to 6.00 %.

Extended loans by a weighted average of 120 months.

Reduced the weighted average contractual interest rate from 5.74 % to 4.02 %.

Extended loans by a weighted average of 90 months.

Provided payment deferrals with weighted average delayed amounts of $ 13,000 .

Home equity Extended loans by a weighted average of 5 months.

Provided payment deferrals with weighted average delayed amounts of $ 7,800 .

Extended loans by a weighted average of 60 months.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Year Ended December 31, 2023

Financial Effect of Loan Modifications

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

14 unchanged sentences

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

1 unchanged sentence

(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.

The Corporation closely monitors the performance of financial difficulty modifications to understand the effectiveness of its efforts.

The following tables present the performance of financial difficulty modifications in the twelve months following modification.

Year Ended December 31, 2024

Payment Status

Current 30-89 Days Past Due

Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total

Commercial and industrial loans $ 26,208 $ 2,858 $ — $ 1,473 $ 30,539

6 unchanged sentences

Home equity 222 — — — 222

Individuals' loans for household and other personal expenditures — —

Total $ 45,912 $ 6,668 $ 22,365 $ 11,612 $ 86,557

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

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

Year Ended December 31, 2023

Current 60-89 Days Past Due Total

Commercial and industrial loans $ 17,660 $ — $ 17,660

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

Real estate loans:

Construction 11 — 11

Commercial real estate, non-owner occupied 19,480 — 19,480

Commercial real estate, owner occupied 15,734 — 15,734

Residential 473 125 598

Home equity 92 — 92

Total $ 53,508 $ 125 $ 53,633

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

The Corporation acquired Level One on April 1, 2022 and performed an evaluation of the loan portfolio in which there were loans that, at acquisition, had more than an insignificant amount of credit quality deterioration.

The carrying amount of those loans is shown in the table below:

Purchase price of loans at acquisition $ 41,347

CECL Day 1 PCD ACL 16,599

Par value of acquired loans at acquisition $ 57,946

Allowance for Credit Losses on Loans

The Allowance for Credit Losses on Loans (“ACL - Loans”) is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term.

The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge-offs for loans, net or recoveries.

The ACL - Loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term.

The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge-offs for loans, net of recoveries.

Provision for credit losses on loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans.

Loans are charged off against the allowance when the uncollectibility of the loan is confirmed.

Loans are charged off against the allowance when the collectibility of the loan is unlikely.

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.

1 unchanged sentence

The current expected credit loss (“CECL”) calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan.

The level of the allowance for credit losses is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the allowance for credit losses, the loan portfolio was pooled into ten loan segments with similar risk characteristics.

The level of the ACL - Loans is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the ACL - Loans, the loan portfolio was pooled into ten loan segments with similar risk characteristics.

Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns.

6 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.

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

expected to correlate to losses within the loan portfolio.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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 factors, 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, investment, collection and other relevant management staff, (vi) changes in the volume and severity of past due financial assets, the volume of the nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vii) the value of underlying collateral for loans that are not collateral dependent, and (viii) other environmental factors of a borrower such as regulatory, legal and technological considerations, as well as competition and changes in the economic and business conditions that affect the collectability of financial assets.

At CECL adoption, the Corporation established certain qualitative factors that were expected to correlate to losses within the loan portfolio.

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

7 unchanged sentences

In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things.

A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

15 unchanged sentences

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

4 unchanged sentences

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 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:

Twelve Months Ended December 31, 2023

The ACL - Loans decreased $ 12.2 million during the year ended December 31, 2024.

The allowance decreased primarily due to $ 49.4 million of net charge-offs during the year ended December 31, 2024.

The increase in net charge-offs was primarily related to two commercial relationships that accounted for $ 42.7 million of charge-offs.

One borrower experienced a sudden change in revenue from the cancellation and inability to renegotiate their contracts with the U.S.

This negatively impacted the value of the borrower’s business and resulted in their inability to repay principal and interest.

The second borrower provided notification of its plans to cease operations.

The Corporation does not believe these charge-offs are indicative of the portfolio as a whole.

In 2024, the Corporation recorded $ 37.2 million in provision for credit losses - loans, which was offset by a release in reserve of $ 1.5 million related to the allowance for unfunded commitments, resulting in a net provision expense for the year ended December 31, 2024 of $ 35.7 million.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following tables summarize changes in the ACL - Loans by loan segment for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31, 2024

Commercial Commercial Real Estate Construction Consumer & Residential Total

Allowance for credit losses

Allowance for credit losses - loans

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

3 unchanged sentences

December 31, 2024 $ 94,757 $ 51,099 $ 9,784 $ 37,117 $ 192,757

Twelve Months Ended December 31, 2022

Year Ended December 31, 2023

Commercial Commercial Real Estate Construction Consumer & Residential Total

Allowance for credit losses

Allowance for credit losses - loans

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

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

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

CECL Day 1 PCD ACL 12,970 2,981 648 — 16,599

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

1 unchanged sentence

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

Twelve Months Ended December 31, 2021

Commercial Commercial Real Estate Construction Consumer Residential Consumer & Residential Total

Allowance for credit losses

Year Ended December 31, 2022

Commercial Commercial Real Estate Construction Consumer & Residential Total

Allowance for credit losses - loans

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

Credit risk reclassifications ( 10,284 ) 10,284 ( 9,648 ) ( 22,815 ) 32,463 —

Balances, December 31, 2020 after reclassifications 47,115 40,786 10,284 — — 32,463 130,648

Impact of adopting ASC 326 20,024 34,925 8,805 — — 10,301 74,055

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

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

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

CECL Day 1 PCD ACL - loans 12,970 2,981 648 — 16,599

Recoveries on loans 872 1,096 863 1,096 3,927

7 unchanged sentences

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.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.

5 unchanged sentences

Standby letters of credit $ 71,271 $ 65,580

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, 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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The Corporation maintains an accrual for credit losses on off-balance sheet commitments using the CECL methodology.

Reserves for unfunded commitments declined by $ 1.5 million and $ 3.8 million during the years ended December 31, 2024 and 2023, respectively.

This reserve level remains appropriate and is reported in Other Liabilities as of December 31, 2024 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

The following table details activity in the ACL for off-balance sheet commitments:

Balance, January 1 $ 19,500 $ 23,300

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

Provision for credit losses - unfunded commitments ( 1,500 ) ( 3,800 )

9 unchanged sentences

Net $ 129,743 $ 133,896

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.

First Merchants Corporation sold five Illinois branches in the fourth quarter of 2024 which resulted in reductions to premises and equipment of $ 3.2 million.

Details regarding the branch sale are discussed in NOTE 2.

ACQUISITIONS AND DIVESTITURES of these Notes to Consolidated Financial Statements.

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

1 unchanged sentence

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)

Goodwill is recorded on the acquisition date of an entity.

The Corporation has one year after the acquisition date, the measurement period, to record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.

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

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

ACQUISITIONS of these Notes to Consolidated Financial Statements.

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.

GOODWILL AND OTHER INTANGIBLES

The Corporation’s goodwill was $ 712.0 million for the years ended December 31, 2024 and 2023.

During the fourth quarter of 2024 and 2023, the Corporation performed its annual goodwill impairment testing and the fair value exceeded the Corporation’s carrying value.

Based on the analysis performed, the Corporation concluded goodwill was not impaired as of December 31, 2024 and 2023.

For additional details related to impairment testing, see the “GOODWILL” 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.

Balance, January 1 $ 712,002 $ 545,385

Goodwill acquired — 166,617

Balance, December 31 $ 712,002 $ 712,002

OTHER INTANGIBLES

Core deposit intangibles and other intangibles are recorded on the acquisition date of an entity.

The Corporation has one year after the acquisition date, the measurement period, to record subsequent adjustments to these intangibles for provisional amounts recorded at the acquisition date.

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.

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

ACQUISITIONS of these Notes to Consolidated Financial Statements.

The carrying basis and accumulated amortization of recognized core deposit and other intangibles are noted below.

Gross carrying amount $ 123,285 $ 123,285

Other intangibles acquired — 18,642

Accumulated amortization ( 103,457 ) ( 96,186 )

2 unchanged sentences

Amortization expense for the years ended December 31, 2024, 2023 and 2022, was $ 7.3 million, $ 8.7 million and $ 8.3 million, respectively.

Estimated future amortization expense is summarized as follows:

Amortization Expense

After 2028 2,435

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1 unchanged sentence

(table dollar amounts in thousands, except share data)

Estimated future amortization expense is summarized as follows:

Amortization Expense

After 2029 1,298

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

30 unchanged sentences

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.

The year ended December 31, 2023 operating lease cost includes $ 2.1 million related to the abandonment of a leased office building.

The recognized loss was recorded in net occupancy expense in the Consolidated Statements of Income.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

Maturity of lease liabilities Operating Leases

2029 and after 5,288

After 2029 6,513

Total lease payments $ 27,032

1 unchanged sentence

Present value of lease liabilities $ 23,873

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, 2024 Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022

7 unchanged sentences

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

Details of the accounting treatment of the Corporation’s LIHTC investments are included in NOTE 1.

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

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

5 unchanged sentences

Tax credits recognized 11,782 5,327 1,055

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:

6 unchanged sentences

Total deposits $ 14,521,626 $ 14,821,453

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.

Deposits decreased $ 299.8 million from December 31, 2023.

The majority of the decrease was due to the sale of the Illinois branch deposits of $ 267.4 million.

Details regarding the branch sale are discussed in NOTE 2.

ACQUISITIONS AND DIVESTITURES of these Notes to Consolidated Financial Statements.

At December 31, 2024 and 2023, deposits exceeding the FDIC’s Standard Maximum Deposit Insurance Amount of $250,000 were $ 8.7 billion and $ 8.6 billion, respectively.

28 unchanged sentences

Maturities in Years Ending December 31:

Securities Sold

Federal Funds Purchased Securities Sold

Under Repurchase Agreements Federal Home

12 unchanged sentences

(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.

At December 31, 2024, the outstanding FHLB advances had interest rates from 1.50 to 4.94 percent and are subject to restrictions or penalties in the event of prepayment.

8 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.

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.

As of December 31, 2024 and 2023, the subordinated debentures and trust preferred securities bear interest at a variable rate equal to the three-month CME Term Secured Overnight Financing Rate (“CME Term SOFR”), plus the 0.26161 percent spread adjustment.

The interest rate at December 31, 2024 and 2023, was 6.18 percent and 7.21 percent, respectively.

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

1 unchanged sentence

The Corporation continues to hold all outstanding common securities of FMC Trust II.

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.

• Ameriana Capital Trust I.

2 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.

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.

As of December 31, 2024 and 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, 2024 and 2023, was 6.12 percent and 7.15 percent, respectively.

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

1 unchanged sentence

The Corporation continues to hold all of the outstanding common securities of Ameriana Capital Trust I.

• First Merchants Senior Notes and Subordinated Notes.

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

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

The rates converted to floating on October 30, 2023.

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.

The Corporation has an option to redeem the Subordinated Debt in whole or in part at a redemption price equal to 100 percent of the principal amount of the redeemed Subordinated Notes, plus accrued and unpaid interest to the date of the redemption.

The option of redemption is subject to the approval of the Federal Reserve Board.

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 in 2028 in the aggregate principal amount of $ 65 million (the “Subordinated Debt”).

The interest rate on the Senior Debt and Subordinated Debt remained fixed for the first ten ( 10 ) years and converted to floating on October 30, 2023.

As of December 31, 2024 and 2023, the Senior Debt had an annual floating rate equal to three-month CME Term SOFR, plus the 0.26161 percent spread adjustment, plus 2.345 percent.

The interest rate on the Senior Debt was 7.18 percent and 7.98 percent as of December 31, 2024 and 2023, respectively.

The Corporation had an option to redeem the Subordinated Debt in whole or in part at a redemption price equal to 100 percent of the principal amount of the redeemed Subordinated Notes, plus accrued and unpaid interest to the date of the redemption.

The option of redemption was subject to the approval of the Federal Reserve Board.

The Corporation has an option to redeem the Senior Debt in whole or in part at a redemption price equal to 100 percent of the principal amount of the redeemed Senior Notes, plus accrued and unpaid interest to the date of the redemption;

1 unchanged sentence

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.

During the first quarter of 2024, the Corporation exercised its rights to redeem $ 40.0 million in principal and paid the debt in full on the scheduled interest payment date.

Additionally, in the second quarter of 2024, the Corporation exercised its rights to redeem the remaining $ 25.0 million in principal and paid the debt on the scheduled interest payment date.

Both redemptions were permitted under the optional redemptions provisions of the Subordinated Note Certificate representing the Subordinated Debt.

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

As of December 31, 2024 and 2023 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.

1 unchanged sentence

The $ 30.0 million of subordinated notes issued on December 18, 2019 bear a fixed interest rate of 4.75 percent per annum, payable semiannually through December 18, 2024.

The notes will bear a floating interest rate equal to the of three-month CME Term SOFR plus 3.11 percent, payable quarterly, after December 18, 2024 through maturity.

The notes bear a floating interest rate equal to the three-month CME Term SOFR plus 3.11 percent, payable quarterly, after December 18, 2024 through maturity.

The notes mature on December 18, 2029, and the Corporation has the option to redeem any or all of the subordinated notes without premium or penalty any time after December 18, 2024 or upon the occurrence of a tier 2 capital event or tax event.

During the first quarter of 2025, the Corporation distributed notice of redemption of $ 30.0 million in principal amount.

The redemption is permitted under the optional redemptions provisions of the Subordinated Notes and will occur in the first quarter of 2025 on the scheduled interest payment date.

• 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.

The secured borrowing bears a fixed interest rate of 3.41 percent, has a maturity date of March 2035, and had a balance of $ 7.1 million and $ 7.3 million as of December 31, 2024 and 2023, respectively.

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

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

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

Replacement of LIBOR Benchmark

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law in response to the U.K.

Financial Conduct Authority, the authority regulating LIBOR, announcing that, among other things, the 1-month, 3-month, 6-month and 12-month U.S.

dollar LIBOR settings would cease to exist after June 30, 2023.

The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate.

As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements based on the Secured Overnight Funding Rate (“SOFR”) for contracts governed by U.S.

law that reference certain tenors of U.S.

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 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.

The secured borrowing bears a fixed rate of 1.00 percent and had a balance of $ 1.1 million and $ 1.2 million as of December 31, 2024 and 2023, respectively.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Line of Credit.

As of December 31, 2024, there was no outstanding balance on the line of credit.

On September 30, 2024, the Corporation entered into a Credit Agreement with U.S.

(the “Lender”).

Under the terms of the Credit Agreement, the Lender has provided the Corporation with a revolving line of credit of up to $ 75.0 million.

The outstanding principal balance under the Credit Facility bears interest at a variable rate equal to the one-month Term SOFR rate plus 2.25 percent.

Interest on the outstanding balance is payable quarterly, and the Credit Facility has a maturity date of September 30, 2025.

Additionally, the Corporation is subject to a non-refundable facility fee equal to 0.40 percent per annum on the average daily unused amount of the Credit Facility, payable quarterly.

The Credit Agreement contains customary representations, warranties and covenants.

As of December 31, 2024, the Corporation's outstanding principal balance under the Credit Facility was zero and the Corporation was in compliance with all covenants.

DERIVATIVE FINANCIAL INSTRUMENTS

12 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 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.

As of December 31, 2024 and 2023 the Corporation had no interest rate swaps or caps designated as hedges.

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

1 unchanged sentence

During the twelve months ended December 31, 2024 and 2023, the Corporation did not recognize any ineffectiveness.

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 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:

Asset Derivatives Liability Derivatives

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

Location Fair

Value Balance

Location Fair

Value Balance

Location Fair

Value Balance

Location Fair

Cash flow hedges:

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

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

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

During the next twelve months, the Corporation doesn't expect to reclassify income (loss) associated with derivatives from accumulated other comprehensive loss to interest expense.

The amount of gain 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

8 unchanged sentences

Interest rate contracts Interest expense $ — $ ( 15 ) $ ( 521 )

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Non-designated Hedges

9 unchanged sentences

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

The table below presents the fair value of the Corporation’s non-designated hedges, as well as their classification on the Balance Sheet, as of December 31, 2023, and December 31, 2022.

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

December 31, 2024 December 31, 2023

10 unchanged sentences

Included in other liabilities $ 1,514,241 $ 76,568 $ 1,382,262 $ 79,008

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.

4 unchanged sentences

Instruments under

FASB ASC 815-10 Location of Gain

FASB ASC 815-10 Location of Gain (Loss)

Recognized in

Income on Derivative Amount of Gain Recognized in Income on Derivative

Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative

2024 2023 2022

4 unchanged sentences

The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s at or above investment grade.

The Corporation’s control of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.

The Corporation’s mitigation of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.

Credit-risk-related Contingent Features

3 unchanged sentences

While the Corporation did not breach any of these provisions as of December 31, 2024, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

FAIR VALUES OF FINANCIAL INSTRUMENTS

22 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

21 unchanged sentences

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 fair value hierarchy in which the fair value measurements fall at December 31, 2023 and 2022.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following tables present 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, 2024 and 2023.

Fair Value Measurements Using:

17 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

3 unchanged sentences

Derivative liabilities 79,008 — 79,008 —

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

LEVEL 3 RECONCILIATION

5 unchanged sentences

Included in other comprehensive income (loss) ( 908 ) ( 186 )

Purchases, issuances, and settlements — 5,111

Principal payments 14 57

3 unchanged sentences

There were no transfers in or out of Level 3 during 2024 or 2023.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NONRECURRING MEASUREMENTS

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:

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

Fair Value Measurements Using

Quoted Prices in Active

Markets for Identical Assets Significant Other Observable Inputs Significant

Unobservable Inputs

December 31, 2023 Fair Value (Level 1) (Level 2) (Level 3)

December 31, 2024 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant

Unobservable Inputs (Level 3)

Collateral dependent loans $ 46,810 — — $ 46,810

Fair Value Measurements Using

Quoted Prices in Active

Markets for Identical Assets Significant Other Observable Inputs Significant

Unobservable Inputs

December 31, 2022 Fair Value (Level 1) (Level 2) (Level 3)

December 31, 2023 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant

Unobservable Inputs (Level 3)

Collateral dependent loans $ 55,020 — — $ 55,020

Collateral Dependent Loans and Other Real Estate Owned

Determining fair value for collateral dependent loans and other real estate requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value.

Collateral Dependent Loans

The fair value of real estate is generally based on appraisals by qualified licensed appraisers.

3 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

1 unchanged sentence

December 31, 2024 Fair Value Valuation Technique Unobservable Inputs Range (Weighted-Average)

State and municipal securities $ 3,275 Discounted cash flow Maturity Call Date

US Muni BQ curve

State and municipal securities $ 2,381 Discounted cash flow Maturity/Call date 1 month to 6 years

US Muni BQ curve BBB

Discount rate 3.6 % - 4.7 %

Weighted-average coupon 1 month to 15 years

3.6 % - 4.7 %

Weighted-average coupon 3.6 %

Corporate obligations and U.S.

Government-sponsored mortgage backed securities $ 35 Discounted cash flow Risk free rate

plus Premium for illiquidity

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

Government-sponsored mortgage-backed securities $ 35 Discounted cash flow Risk free rate 3 month CME Term SOFR plus 26 bps

plus premium for illiquidity (basis points) plus 200 bps

Weighted-average coupon 0 %

Collateral dependent loans $ 46,810 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 0 % - 16 %

Weighted-average discount by loan balance 12.6 %

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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

State and municipal securities $ 3,404 Discounted cash flow Maturity Call Date

US Muni BQ curve

State and municipal securities $ 3,275 Discounted cash flow Maturity/Call date 1 month to 15 years

US Muni BQ curve BBB

Discount rate 3.6 % - 4.7 %

Weighted-average coupon 1 month to 15 years

Weighted-average coupon 3.3 %

Corporate obligations and U.S.

Government-sponsored mortgage backed securities $ 35 Discounted cash flow Risk free rate

plus Premium for illiquidity

Weighted-average coupon 3 month LIBOR

Government-sponsored mortgage-backed securities $ 35 Discounted cash flow Risk free rate 3 month CME Term SOFR plus 26 bps

plus premium for illiquidity (basis points) plus 200 bps

Weighted-average coupon 0 %

Collateral dependent loans $ 55,020 Collateral based measurements Discount to reflect current market conditions and ultimate collectability 0 % - 10 %

7 unchanged sentences

changes in either of those inputs will not affect the other input.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2023 and 2022.

FAIR VALUE OF FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

The following tables present estimated fair values of the Corporation’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2024 and 2023.

Amount Quoted Prices in Active Markets for Identical Assets

5 unchanged sentences

Interest-bearing deposits 298,891 298,891 — — 298,891

Investment securities available for sale 1,627,112 — 1,623,802 3,310 1,627,112

Investment securities held to maturity 2,074,220 — 1,716,647 6,873 1,723,520

2 unchanged sentences

Federal Home Loan Bank stock 41,690 — 41,690 — 41,690

Derivative assets 79,379 — 79,379 — 79,379

Interest receivable 91,829 — 91,829 — 91,829

4 unchanged sentences

Subordinated debentures and other borrowings 93,529 — 84,108 — 84,108

Derivative liabilities 79,008 — 79,008 — 79,008

Interest payable 16,102 — 16,102 — 16,102

9 unchanged sentences

Interest-bearing deposits 436,080 436,080 — — 436,080

Investment securities available for sale 1,976,661 2,459 1,970,763 3,439 1,976,661

Investment securities held to maturity 2,287,127 — 1,893,271 14,594 1,907,865

Investment securities held to maturity, net 2,184,252 — 1,859,974 10,400 1,870,374

Loans held for sale 18,934 — 18,934 — 18,934

1 unchanged sentence

Federal Home Loan Bank stock 41,769 — 41,769 — 41,769

Interest rate swap asset 93,036 — 93,036 — 93,036

Interest receivable 97,664 — 97,664 — 97,664

1 unchanged sentence

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

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

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

1 unchanged sentence

Subordinated debentures and other borrowings 158,644 — 149,995 — 149,995

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

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

20 unchanged sentences

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

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

Realized securities gains (losses) reclassified into income $ ( 20,757 ) $ ( 6,930 ) $ 1,194 Other income - net realized gains (losses) on sales of available for sale securities

Related income tax benefit (expense) 4,359 1,455 ( 251 ) Income tax expense

18 unchanged sentences

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.

total risk-based capital, tier 1 risk-based capital, common equity tier 1 (“CET1”), and tier 1 leverage ratios.

The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity.

2 unchanged sentences

Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank’s operations.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital, tier 1 capital and common equity tier 1 capital, in each case, to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the regulations.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital, tier 1 capital and CET1 capital, in each case, to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the regulations.

Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels.

13 unchanged sentences

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.

Instead, the federal banking regulators require that, in order to utilize the additional two-year delay, banking organizations must have adopted the CECL standard no later than December 31, 2020, as required by the CARES Act.

As a result, because implementation of the CECL standard was delayed by the Corporation until January 1, 2021, it began phasing in the cumulative effect of the adoption on its regulatory capital, at a rate of 25 percent per year, over a three-year transition period that began on January 1, 2021.

Under that phase-in schedule, the cumulative effect of the adoption will be fully reflected in regulatory capital on January 1, 2024.

Basel III permits banks with less than $15 billion in assets to continue to treat trust preferred securities as tier 1 capital.

This treatment is permanently grandfathered as tier 1 capital even if the Corporation should ever exceed $15 billion in assets due to organic growth but not following certain mergers or acquisitions.

As a result, while the Corporation’s total assets exceeded $15 billion as of December 31, 2021, the Corporation has continued to treat its trust preferred securities as tier 1 capital as of such date.

However, under certain amendments to the “transition rules” of Basel III, if a bank holding company that held less than $15 billion of assets as of December 31, 2009 (which would include the Corporation) acquires a bank holding company with under $15 billion in assets at the time of acquisition (which would include Level One), and the resulting organization has total consolidated assets of $15 billion or more as reported on the resulting organization’s call report for the period in which the transaction occurred, the resulting organization must begin reflecting its trust preferred securities as tier 2 capital at such time.

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.

Under that phase-in schedule, the cumulative effect of the adoption was fully reflected in regulatory capital on January 1, 2024.

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:

The Corporation exercised its right to redeem $ 40 million of the subordinated debt on the scheduled interest payment date during the first quarter of 2024 and redeemed the remaining $ 25.0 million during the second quarter of 2024.

On April 1, 2022, the Corporation assumed $ 30.0 million of subordinated notes in conjunction with its acquisition of Level One.

As of December 31, 2024, these subordinated debentures were classified as tier 2 capital and were subject to the five year phase-out.

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

Prompt Corrective Action Thresholds

55 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.

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 repurchased 1,648,466 shares of its common stock pursuant to the repurchase program during 2024.

As of December 31, 2024, the Corporation had approximately 1.0 million shares at a maximum aggregate value of $ 18.4 million available to repurchase under the program.

The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during 2022 or 2023.

3 unchanged sentences

With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

For the twelve months ended December 31, 2024, the Corporation recorded excise tax of $ 0.5 million, related to its share repurchase during the period, which is reflected in the Stockholders’ Equity as a component of additional paid-in capital.

LOAN SERVICING

1 unchanged sentence

The unpaid balances are as follows for December 31, 2024 and 2023.

The amount of capitalized servicing assets is considered immaterial.

Mortgage loan portfolios serviced for:

7 unchanged sentences

(table dollar amounts in thousands, except share data)

For certain loans, the originated loans are sold to third parties on a non-recourse basis with servicing rights retained.

The retained servicing rights are recorded as a servicing asset and are reported under the line item "Other Assets" in the Consolidated Balance Sheets.

The associated amortization expense is included in "Other Noninterest Expense" in the Consolidated Statements of Income.

Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

The following table presents changes in the servicing asset during the years ended December 31, 2024 and 2023:

Year Ended December 31,

Balance, beginning of period $ 8,157 $ 8,055

Servicing rights capitalized 4,444 3,160

Amortization of servicing rights ( 3,202 ) ( 3,058 )

Balance, end of period $ 9,399 $ 8,157

The fair value of servicing rights was $ 12.9 million and $ 11.9 million for the years ended December 31, 2024 and 2023, respectively.

Fair value at December 31, 2024 was determined using weighted average discount rates ranging from 2.55 percent to 8.22 percent, Public Securities Association Prepayment Model speed (“PSA”) ranging from 0 percent to 274 percent and cost to service of $ 6 per loan.

Fair value at December 31, 2023 was determined using weighted average discount rates ranging from 2.55 percent to 8.20 percent, PSA ranging from 103 percent to 555 percent, and cost to service of $ 6 per loan.

SHARE-BASED COMPENSATION

Stock options and RSAs have been issued to directors, officers and other management employees under the Corporation’s 2009 Long-term Equity Incentive Plan, the 2019 Long-term Equity Incentive Plan, the Level One Bancorp, Inc.

Stock options and Restricted Stock Awards (“RSA”) have been issued to directors, officers and other management employees under the Corporation’s 2024 Long-term Equity Incentive Plan, the 2019 Long-term Equity Incentive Plan, the Level One Bancorp, Inc.

2007 Stock Option Plan and the Equity Compensation Plan for Non-Employee Directors.

5 unchanged sentences

The RSAs for employees and non-employee directors are either immediately vested at retirement, disability or death, or, continue to vest after retirement, disability or death, depending on the plan under which the shares were granted.

The Corporation’s 2019 ESPP provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions.

The Corporation’s 2024 Employee Stock Purchase Plan (“ESPP”) provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions.

The price of the stock to be paid by the employees shall be equal to 85 percent of the average of the closing price of the Corporation’s common stock on each trading day during the offering period.

1 unchanged sentence

Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of $ 25,000 .

The 2019 Employee Stock Purchase Plan expired on June 30, 2024.

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

5 unchanged sentences

Pre-vesting forfeitures were estimated to be approximately 0.05 percent for the year ended December 31, 2024, based on historical experience.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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 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 2024, 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 $ 130,000 .

For the years ended December 31, 2023 and 2022, the Corporation had RSAs vest primarily at a stock price that was higher than the grant date stock price, which resulted in the recognition of income tax benefit at vesting of $ 126,000 and $ 86,000 , respectively.

Years Ended December 31,

14 unchanged sentences

The ESPP options vested during the three months ending December 31, 2024, leaving no unrecognized compensation expense related to unvested ESPP options at December 31, 2024.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Stock option activity under the Corporation’s stock option plans, as of December 31, 2024, and changes during the year ended December 31, 2024, were as follows:

11 unchanged sentences

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their stock options on December 31, 2024.

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

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2024 and 2023 was $ 707,000 and $ 1.4 million, respectively.

Cash receipts of stock options exercised during 2024 and 2023 were $ 900,000 and $ 1.1 million, respectively.

The following table summarizes information on unvested RSAs outstanding as of December 31, 2024:

6 unchanged sentences

Unvested RSAs at December 31, 2024 554,436 $ 36.47

As of December 31, 2023, unrecognized compensation expense related to RSAs was $ 9.3 million and is expected to be recognized over weighted-average period of 1.82 years.

As of December 31, 2024, unrecognized compensation expense related to RSAs was $ 10.5 million and is expected to be recognized over a weighted-average period of 1.65 years.

The Corporation did no t have any unrecognized compensation expense related to stock options as of December 31, 2024.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

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 approximat ely 9 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.

2 unchanged sentences

Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The table below sets forth the plans’ funded status and amounts recognized in the Consolidated Balance Sheets at December 31, using measurement dates of December 31, 2024 and 2023.

16 unchanged sentences

Liabilities $ 2,081 $ 2,765

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.

As of December 31, 2024, the funded status of the plans increased $ 4.6 million from December 31, 2023.

The aggregate unrecognized loss decreased from $ 4.6 million at December 31, 2023 to $ 2.0 million at December 31, 2024.

The key contributing factors to the change in the unrecognized loss were the discount rate increased by 50 basis points from 5.10 percent to 5.60 percent, which decreased the liability $ 1.7 million and the assets in the plan earned a return of $ 4.0 million, which was $ 0.1 million less than the expected return.

The accumulated benefit obligation for all defined benefit plans was $ 48.4 million and $ 55.8 million at December 31, 2024 and 2023, respectively.

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.

3 unchanged sentences

Fair value of plan assets $ — $ —

The Corporation recognized expense under these non-qualified plans of $ 174,000 , $ 122,000 and $ 117,000 for 2023, 2022 and 2021, respectively.

The Corporation recognized expense under these non-qualified plans of $ 0.1 million, $ 0.2 million and $ 0.1 million for 2024, 2023 and 2022, respectively.

The following table shows the components of net periodic pension benefit cost:

83 unchanged sentences

Common Stock 2,413 2,413 — —

Mutual Funds and Exchange Traded Funds

Taxable Bond 15,648 15,648 — —

3 unchanged sentences

International Equity 3,599 3,599 — —

Specialty Alternative Equity 1,414 1,414 — —

$ 79,535 $ 69,200 $ 10,335 $ —

13 unchanged sentences

Common Stock 2,243 2,243 — —

Mutual Funds and Exchange Traded Funds

Taxable Bond 11,834 11,834 — —

11 unchanged sentences

Tax-exempt Interest Income ( 17,509 ) ( 18,193 ) ( 19,349 )

Stock Compensation ( 228 ) ( 214 ) ( 20 )

Non-deductible FDIC Premiums 624 454 427

Earnings on Life Insurance ( 1,777 ) ( 1,753 ) ( 2,344 )

54 unchanged sentences

Potentially dilutive common shares are excluded from the computation of diluted earnings per common share in the periods where the effect would be antidilutive.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

The following table reconciles basic and diluted net income per common share for the years indicated:

8 unchanged sentences

Diluted net income per common share $ 199,527 58,532,565 $ 3.41 $ 221,911 59,488,520 $ 3.73 $ 220,683 57,950,257 $ 3.81

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

RSAs excluded from the diluted average common share calculation (1)

92,175 69,421 39,830

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

As of December 31, 2024, 2023 and 2022, there were no stock options with an option price greater than the average market price of the common shares.

5 unchanged sentences

Investment in subsidiaries 2,315,701 2,291,788

Premises and equipment 85 119

Interest receivable 7 6

Goodwill 448 448

Cash surrender value of life insurance 756 736

Other assets 12,834 10,250

6 unchanged sentences

Total liabilities and stockholders' equity $ 2,395,531 $ 2,402,896

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Condensed Statements of Income and Comprehensive Income (Loss)

5 unchanged sentences

Salaries and employee benefits 4,536 4,406 3,786

Net occupancy and equipment expenses 49 46 825

Professional and other outside services 851 2,187 1,264

Other expenses 3,640 3,695 3,629

10 unchanged sentences

Comprehensive income (loss) $ 188,687 $ 286,967 $ ( 72,175 )

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Condensed Statements of Cash Flows

4 unchanged sentences

Share-based compensation 2,060 1,803 1,659

Distributions in excess of (equity in undistributed) income of subsidiaries ( 105,984 ) ( 145,057 ) ( 55,162 )

Equity in undistributed income of subsidiaries ( 32,860 ) ( 105,984 ) ( 145,057 )

Other adjustments ( 3,615 ) ( 2,446 ) ( 5,925 )

7 unchanged sentences

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

Repayment of borrowings ( 65,000 ) — —

Stock issued under employee benefit plans 656 754 706

6 unchanged sentences

Cash and cash equivalents, end of year $ 66,996 $ 100,858 $ 56,739

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

SEGMENT INFORMATION

The Corporation has one reportable segment, community banking.

The Corporation’s reportable segment is determined by the Chief Executive Officer, who is the designated chief operating decision maker (“CODM”), based upon information provided about the Corporation’s products and services offered.

The CODM will evaluate the financial performance of the Corporation’s business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Corporation’s segment.

The Corporation generates revenue primarily by providing banking services to its customers.

Interest expense, provisions for credit losses and salaries and employee benefits are the significant expenses in the banking operations.

The CODM evaluates performance, allocates resources and makes key operating decisions based on consolidated net income that is reported in the Consolidated Statements of Income.

The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets.

All operations are domestic.

GENERAL LITIGATION

5 unchanged sentences

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