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What changed in FIRST MERCHANTS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRST MERCHANTS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+351 added−411 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in FIRST MERCHANTS CORP's 2023 10-K

351 paragraphs added · 411 removed · 263 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

81 edited+11 added−28 removed154 unchanged
Biggest changeDISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The daily average balance sheet amounts, the related interest income or interest expense, and average rates earned or paid are presented in the following table: Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate (Dollars in Thousands) 2022 2021 2020 Assets: Interest-bearing deposits $ 296,863 $ 2,503 0.84 % $ 521,637 $ 634 0.12 % $ 319,686 $ 938 0.29 % Federal Home Loan Bank stock 35,580 1,176 3.31 28,736 597 2.08 28,736 1,042 3.63 Investment Securities: (1) Taxable 2,056,586 38,354 1.86 1,751,910 29,951 1.71 1,282,827 24,440 1.91 Tax-exempt (2) 2,653,611 85,292 3.21 2,106,180 70,039 3.33 1,440,913 53,596 3.72 Total investment securities 4,710,197 123,646 2.63 3,858,090 99,990 2.59 2,723,740 78,036 2.87 Loans held for sale 14,715 692 4.70 19,190 747 3.89 18,559 781 4.21 Loans: (3) Commercial (6) 7,877,271 380,621 4.83 6,818,968 276,368 4.05 6,755,215 286,773 4.25 Real estate mortgage 1,471,802 51,853 3.52 916,314 34,783 3.80 889,083 40,002 4.50 Installment 785,520 37,302 4.75 683,925 26,111 3.82 718,815 30,708 4.27 Tax-exempt (2) 793,743 31,803 4.01 732,253 27,987 3.82 669,483 27,194 4.06 Total loans 10,943,051 502,271 4.59 9,170,650 365,996 3.99 9,051,155 385,458 4.26 Total earning assets 15,985,691 629,596 3.94 % 13,579,113 467,217 3.44 % 12,123,317 465,474 3.84 % Total non-earning assets 1,234,311 1,251,284 1,342,952 Total Assets $ 17,220,002 $ 14,830,397 $ 13,466,269 Liabilities: Interest-bearing deposits: Interest-bearing deposit accounts $ 5,206,131 $ 32,511 0.62 % $ 4,769,482 $ 14,512 0.30 % $ 4,009,566 $ 20,239 0.50 % Money market deposit accounts 2,915,397 19,170 0.66 2,351,803 3,203 0.14 1,769,478 7,810 0.44 Savings deposits 1,927,122 5,019 0.26 1,754,972 1,886 0.11 1,534,069 3,641 0.24 Certificates and other time deposits 881,176 6,239 0.71 783,733 3,718 0.47 1,346,967 20,050 1.49 Total interest-bearing deposits 10,929,826 62,939 0.58 9,659,990 23,319 0.24 8,660,080 51,740 0.60 Borrowings 888,392 21,864 2.46 639,791 12,633 1.97 768,238 14,641 1.91 Total interest-bearing liabilities 11,818,218 84,803 0.72 10,299,781 35,952 0.35 9,428,318 66,381 0.70 Noninterest-bearing deposits 3,268,417 2,516,241 2,068,026 Other liabilities 160,922 147,743 144,790 Total Liabilities 15,247,557 12,963,765 11,641,134 Stockholders' Equity 1,972,445 1,866,632 1,825,135 Total Liabilities and Stockholders' Equity $ 17,220,002 84,803 $ 14,830,397 35,952 $ 13,466,269 66,381 Net Interest Income (FTE) $ 544,793 $ 431,265 $ 399,093 Net Interest Spread (FTE) (4) 3.22 % 3.09 % 3.14 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 3.94 % 3.44 % 3.84 % Interest Expense / Average Earning Assets 0.53 % 0.26 % 0.55 % Net Interest Margin (FTE) (5) 3.41 % 3.18 % 3.29 % ______________________________ (1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment.
Biggest changeDISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The daily average balance sheet amounts, the related interest income or interest expense, and average rates earned or paid are presented in the following table: Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate (Dollars in Thousands) 2023 2022 2021 Assets: Interest-bearing deposits $ 431,581 $ 17,719 4.11 % $ 296,863 $ 2,503 0.84 % $ 521,637 $ 634 0.12 % Federal Home Loan Bank stock 41,319 3,052 7.39 35,580 1,176 3.31 28,736 597 2.08 Investment securities: (1) Taxable 1,854,438 35,207 1.90 2,056,586 38,354 1.86 1,751,910 29,951 1.71 Tax-exempt (2) 2,366,475 73,566 3.11 2,653,611 85,292 3.21 2,106,180 70,039 3.33 Total Investment Securities 4,220,913 108,773 2.58 4,710,197 123,646 2.63 3,858,090 99,990 2.59 Loans held for sale 21,766 1,292 5.94 14,715 692 4.70 19,190 747 3.89 Loans: (3) Commercial (6) 8,519,706 603,611 7.08 7,877,271 380,621 4.83 6,818,968 276,368 4.05 Real estate mortgage 2,035,488 82,183 4.04 1,471,802 51,853 3.52 916,314 34,783 3.80 Installment 830,006 60,751 7.32 785,520 37,302 4.75 683,925 26,111 3.82 Tax-exempt (2) 891,008 40,448 4.54 793,743 31,803 4.01 732,253 27,987 3.82 Total Loans 12,297,974 788,285 6.41 10,943,051 502,271 4.59 9,170,650 365,996 3.99 Total Earning Assets 16,991,787 917,829 5.40 % 15,985,691 629,596 3.94 % 13,579,113 467,217 3.44 % Total Non-earning Assets 1,194,720 1,234,311 1,251,284 Total Assets $ 18,186,507 $ 17,220,002 $ 14,830,397 Liabilities: Interest-bearing deposits: Interest-bearing deposits $ 5,435,733 $ 138,012 2.54 % $ 5,206,131 $ 32,511 0.62 % $ 4,769,482 $ 14,512 0.30 % Money market deposits 2,884,271 83,777 2.90 2,915,397 19,170 0.66 2,351,803 3,203 0.14 Savings deposits 1,694,230 14,606 0.86 1,927,122 5,019 0.26 1,754,972 1,886 0.11 Certificates and other time deposits 1,923,268 69,697 3.62 881,176 6,239 0.71 783,733 3,718 0.47 Total Interest-bearing Deposits 11,937,502 306,092 2.56 10,929,826 62,939 0.58 9,659,990 23,319 0.24 Borrowings 1,111,472 42,394 3.81 888,392 21,864 2.46 639,791 12,633 1.97 Total Interest-bearing Liabilities 13,048,974 348,486 2.67 11,818,218 84,803 0.72 10,299,781 35,952 0.35 Noninterest-bearing deposits 2,783,996 3,268,417 2,516,241 Other liabilities 226,275 160,922 147,743 Total Liabilities 16,059,245 15,247,557 12,963,765 Stockholders' Equity 2,127,262 1,972,445 1,866,632 Total Liabilities and Stockholders' Equity $ 18,186,507 348,486 $ 17,220,002 84,803 $ 14,830,397 35,952 Net Interest Income (FTE) $ 569,343 $ 544,793 $ 431,265 Net Interest Spread (FTE) (4) 2.73 % 3.22 % 3.09 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 5.40 % 3.94 % 3.44 % Interest Expense / Average Earning Assets 2.05 % 0.53 % 0.26 % Net Interest Margin (FTE) (5) 3.35 % 3.41 % 3.18 % ______________________________ (1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments.
BUSINESS As part of a March 27, 2020 joint statement of federal banking regulators, an interim final rule that allowed banking organizations to mitigate the effects of the CECL accounting standard on their regulatory capital was announced. Banking organizations could elect to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years.
As part of a March 27, 2020 joint statement of federal banking regulators, an interim final rule that allowed banking organizations to mitigate the effects of the CECL accounting standard on their regulatory capital was announced. Banking organizations could elect to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years.
Office of Foreign Assets Control Regulation The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others which are administered by the U.S. Treasury Department Office of Foreign Assets Control.
BUSINESS Office of Foreign Assets Control Regulation The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others which are administered by the U.S. Treasury Department Office of Foreign Assets Control.
Unrealized losses that have not been recorded through an allowance for credit losses is recognized in other comprehensive income. 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 income (loss). Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss.
BUSINESS The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more complex environment for consumer finance regulation.
The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more complex environment for consumer finance regulation.
Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees.
BUSINESS Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees.
Certain merger or acquisition transactions, including those involving the acquisition of a depository institution or the assumption of the deposits of any depository institution, require formal approval from various bank regulatory authorities, which will be subject to a variety of factors and considerations. On April 1, 2022, the Corporation acquired 100 percent of Level One Bancorp, Inc. ("Level One").
Certain merger or acquisition transactions, including those involving the acquisition of a depository institution or the assumption of the deposits of any depository institution, require formal approval from various bank regulatory authorities, which will be subject to a variety of factors and considerations. On April 1, 2022, the Corporation acquired 100 percent of Level One Bancorp, Inc. (“Level One”).
These laws include, but are not limited to: • the Equal Credit Opportunity Act (prohibiting discrimination on the basis of race, religion or other prohibited factors in the extension of credit); • the Fair Credit Reporting Act (governing the provision of consumer information to credit reporting agencies and the use of consumer information); • the Truth-In-Lending Act (governing disclosures of credit terms to consumer borrowers); • the Truth-in-Savings Act (which requires disclosure of deposit terms to consumers); • the Electronic Funds Transfer Act (governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services); • the Fair Debt Collection Act (governing the manner in which consumer debts may be collected by collection agencies); • the Right to Financial Privacy Act (which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records); • the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information about home mortgage and refinanced loans; and • the respective state-law counterparts to the above laws, as applicable, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
These laws include, but are not limited to: • the Equal Credit Opportunity Act (prohibiting discrimination on the basis of race, religion or other prohibited factors in the extension of credit); • the Fair Credit Reporting Act (governing the provision of consumer information to credit reporting agencies and the use of consumer information); • the Truth-In-Lending Act (governing disclosures of credit terms to consumer borrowers); • the Truth-in-Savings Act (which requires disclosure of deposit terms to consumers); • the Electronic Funds Transfer Act (governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services); • the Fair Debt Collection Act (governing the manner in which consumer debts may be collected by collection agencies); • the Right to Financial Privacy Act (which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records); • the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information about home mortgage and refinanced loans; and • the respective state-law counterparts to the above laws, as applicable, as well as state usury laws and laws regarding unfair and deceptive acts and practices. 11 PART I: ITEM 1.
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 investments securities remained unchanged at $245,000 as of December 31, 2022.
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 investments securities remained unchanged at $245,000 as of December 31, 2023.
The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank includes 122 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers.
The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank includes 116 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers.
Historical loss rates associated with securities having similar grades as those in the Corporation's portfolio have been insignificant. Furthermore, as of December 31, 2022, there were no past due principal and interest payments associated with these securities.
Historical loss rates associated with securities having similar grades as those in the Corporation’s portfolio have been insignificant. Furthermore, as of December 31, 2023, there were no past due principal and interest payments associated with these securities.
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.
As a result, while the Corporation’s total assets exceeded $15 billion as of December 31, 2021, the Corporation had continued to treat its trust preferred securities as tier 1 capital as of such date.
The Corporation and the Bank were well capitalized as of December 31, 2022. Consumer Financial Protection The Bank is subject to a number of federal and state consumer protection laws that govern its relationship with customers.
The Corporation and the Bank were well capitalized as of December 31, 2023. Consumer Financial Protection The Bank is subject to a number of federal and state consumer protection laws that govern its relationship with customers.
There were no issuers included in the investment security portfolio at December 31, 2022, 2021 or 2020 where the aggregate carrying value of any one issuer exceeded 10 percent of the Corporation's stockholders' equity at those dates. The term "issuer" excludes the U.S. Government and its sponsored agencies and corporations.
There were no issuers included in the investment security portfolio at December 31, 2023, 2022 or 2021 where the aggregate carrying value of any one issuer exceeded 10 percent of the Corporation’s stockholders’ equity at those dates. The term “issuer” excludes the U.S. Government and its sponsored agencies and corporations.
A loan risk graded criticized is a loan in which there are concerns regarding the borrower’s ability to comply with the repayment terms and would include loans graded special mention or worse.
A loan risk graded criticized is a loan in which there are concerns regarding the borrower’s ability to comply with the repayment terms and would include loans graded special mention or worse. Consumer loans are not risk graded.
Diversity, Equity and Inclusion ("DEI") initiatives are aimed at promoting the career growth and engagement of all First Merchants employees. We continue that work through our highest profile employee resource groups ("ERGs"), First Women Connections and People of Color ERGs, by promoting the development and career growth of those employees.
Diversity, Equity and Inclusion (“DEI”) initiatives are aimed at promoting the career growth and engagement of all First Merchants employees. We continue that work through our highest profile employee resource groups (“ERGs”), First Women Connections and People of Color ERGs, by promoting the development and career growth of those employees.
Our training completion rates are very high related to required development (99 percent completion for required courses) and our Learning Management System (LMS) archives all development in the Corporation. Diversity, Equity and Inclusion : We believe in attracting, retaining, and promoting a diverse workforce.
Our training completion rates are very high related to required development (99 percent completion for required courses) and our Learning Management System (LMS) archives all development in the Corporation. Employee Resource Groups and Diversity, Equity and Inclusion : We believe in attracting, retaining, and promoting a diverse workforce.
BUSINESS Within 1 Year 1-5 Years 5-10 Years (Dollars in Thousands) Amount Yield (1) Amount Yield (1) Amount Yield (1) Securities held to maturity at December 31, 2022 U.S.
BUSINESS Within 1 Year 1-5 Years 5-10 Years (Dollars in Thousands) Amount Yield (1) Amount Yield (1) Amount Yield (1) Securities held to maturity at December 31, 2023 U.S.
Interchange fees, or "swipe" fees, are charges that merchants pay the Bank and other card-issuing banks for processing electronic payment transactions.
Interchange fees, or “swipe” fees, are charges that merchants pay the Bank and other card-issuing banks for processing electronic payment transactions.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 12 PART I: ITEM 1.
Durbin Amendment Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are "reasonable and proportional" to the costs incurred by issuers for processing such transactions.
Durbin Amendment Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.
BUSINESS As of December 31, 2022, the Bank was “well capitalized” based on the “prompt corrective action” ratios described above.
BUSINESS As of December 31, 2023, the Bank was “well capitalized” based on the “prompt corrective action” ratios described above.
Basel III specifies that CET1 consists of common stock instruments (that meet the Basel III eligibility criteria), retained earnings, accumulated other comprehensive income and CET1 minority interest. Basel III also defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1, and not to the other components of capital.
Basel III specifies that CET1 consists primarily of common stock instruments (that meet the Basel III eligibility criteria), retained earnings, and CET1 minority interest. Basel III also defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1, and not to the other components of capital.
“Significantly undercapitalized” banks are subject to various requirements and restrictions, including an order by the FDIC to sell sufficient voting stock to become "adequately capitalized", requirements to reduce total assets and cease receipt of deposits from correspondent banks, and restrictions on compensation of executive officers.
“Significantly undercapitalized” banks are subject to various requirements and restrictions, including an order by the FDIC to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets and cease receipt of deposits from correspondent banks, and restrictions on compensation of executive officers.
Talent Assessment, Succession Planning and Career Path : Over 1,000 of our employees participated in our annual Calibration Process (9 Box Talent Assessment) with the goal of identifying specific development action plans to help retain employees with high potential and performance, increase job satisfaction and improve productivity.
Talent Assessment, Succession Planning and Career Path : Over 1,400 of our employees participated in our annual Calibration Process (9 Box Talent Assessment) with the goal of identifying specific development action plans to help retain employees with high potential and performance, increase job satisfaction and improve productivity. Talent calibration supports succession and career planning for the Corporation.
Education Assistance : First Merchants offers an education assistance program that supports full- and part-time colleagues as they seek degree programs that will help them advance their careers. In 2022, over 50 employees participated in this program.
Education Assistance : First Merchants offers an education assistance program that supports full- and part-time colleagues as they seek degree programs that will help them advance their careers. In 2023, over 60 employees participated in this program.
Details of the Allowance for Credit Losses and non-performing loans are discussed within the “LOAN QUALITY" 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. 20 PART I: ITEM 1.
Details of the Allowance for Credit Losses and nonperforming loans are discussed within the “LOAN QUALITY” 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. 20 PART I: ITEM 1.
The cost and yield for Federal Home Loan Bank stock is included in the table below. 2022 2021 2020 (Dollars in Thousands) Cost Yield Cost Yield Cost Yield Federal Home Loan Bank stock $ 38,525 3.1 % $ 28,736 2.1 % $ 28,736 3.6 % Total $ 38,525 3.1 % $ 28,736 2.1 % $ 28,736 3.6 % The Corporation’s Federal Home Loan Bank stock is primarily in the Federal Home Loan Bank of Indianapolis and it continued to produce sufficient financial results to pay dividends.
The cost and yield for Federal Home Loan Bank stock is included in the table below. 2023 2022 2021 (Dollars in Thousands) Cost Yield Cost Yield Cost Yield Federal Home Loan Bank stock $ 41,769 7.3 % $ 38,525 3.1 % $ 28,736 2.1 % Total $ 41,769 7.3 % $ 38,525 3.1 % $ 28,736 2.1 % The Corporation’s Federal Home Loan Bank stock is primarily in the Federal Home Loan Bank of Indianapolis and it continued to produce sufficient financial results to pay dividends.
Under that phase-in schedule, the cumulative effect of the adoption will be fully reflected in regulatory capital on January 1, 2024. Bank Regulation The Bank is subject to the primary regulatory oversight, supervision and examination of the FDIC and the Indiana DFI.
Under that phase-in schedule, the cumulative effect of the adoption will be fully reflected in regulatory capital on January 1, 2024. 8 PART I: ITEM 1. BUSINESS Bank Regulation The Bank is subject to the primary regulatory oversight, supervision and examination of the FDIC and the Indiana DFI.
Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 12 PART I: ITEM 1.
Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
A bank’s compliance with such plan is required to be guaranteed by the bank’s parent holding company. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.
A bank’s compliance with such plan is required to be guaranteed by the bank’s parent holding company. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”.
As stated previously, with its assets having exceeded $10 billion for four consecutive quarters, the Bank and its affiliates became subject to CFPB supervisory and enforcement authority effective as of the beginning of the second quarter of 2020. 11 PART I: ITEM 1.
As stated previously, with its assets having exceeded $10 billion for four consecutive quarters, the Bank and its affiliates became subject to CFPB supervisory and enforcement authority effective as of the beginning of the second quarter of 2020.
DEPOSITS The average balances, interest expense and average rates on deposits for the years ended December 31, 2022, 2021 and 2020 are presented in the Part I. Item I. Business section titled "DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL" of this Annual Report on Form 10-K.
DEPOSITS The average balances, interest expense and average rates on deposits for the years ended December 31, 2023, 2022 and 2021 are presented in the Part I. Item I. Business section titled “DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL” of this Annual Report on Form 10-K.
BUSINESS ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES Presented below is an analysis of the composition of the allowance for credit losses and percent of loans in each category to total loans, by collateral segment, as of the years indicated. 2022 2021 2020 2019 2018 (Dollars in Thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Balance at December 31: Commercial $ 102,216 38.4 % $ 69,935 40.8 % $ 47,115 37.9 % $ 32,902 32.5 % $ 32,657 31.1 % Commercial real estate 46,839 30.4 % 60,665 33.8 % 51,070 41.8 % 28,778 45.4 % 29,609 46.8 % Construction 28,955 7.0 % 20,206 5.6 % — — % — — % — — % Consumer — — % — — % 9,648 1.4 % 4,035 1.6 % 3,964 1.4 % Residential — — % — — % 22,815 18.9 % 14,569 20.5 % 14,322 20.7 % Consumer & Residential 45,267 24.2 % 44,591 19.8 % — — % — — % — — % Totals $ 223,277 100.0 % $ 195,397 100.0 % $ 130,648 100.0 % $ 80,284 100.0 % $ 80,552 100.0 % The allowance for credit losses increased $27.9 million during the twelve months ended December 31, 2022.
BUSINESS ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES Presented below is an analysis of the composition of the allowance for credit losses and percent of loans in each category to total loans, by collateral segment, as of the years indicated. 2023 2022 2021 2020 2019 (Dollars in Thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Balance at December 31: Commercial $ 97,348 39.2 % $ 102,216 38.4 % $ 69,935 40.8 % $ 47,115 37.9 % $ 32,902 32.5 % Commercial real estate 44,048 28.5 % 46,839 30.4 % 60,665 33.8 % 51,070 41.8 % 28,778 45.4 % Construction 24,823 7.7 % 28,955 7.0 % 20,206 5.6 % — — % — — % Consumer — — % — — % — — % 9,648 1.4 % 4,035 1.6 % Residential — — % — — % — — % 22,815 18.9 % 14,569 20.5 % Consumer & Residential 38,715 24.6 % 45,267 24.2 % 44,591 19.8 % — — % — — % Totals $ 204,934 100.0 % $ 223,277 100.0 % $ 195,397 100.0 % $ 130,648 100.0 % $ 80,284 100.0 % The allowance for credit losses decreased $18.3 million during the twelve months ended December 31, 2023.
As of December 31, 2022, the amount available for dividends from the Corporation’s subsidiaries (both banking and non-banking), without prior regulatory approval or notice, was $288,725,000. Brokered Deposits Under FDIC regulations, no FDIC-insured depository institution can accept brokered deposits unless it (i) is well capitalized, or (ii) is adequately capitalized and received a waiver from the FDIC.
As of December 31, 2023, the amount available for dividends from the Corporation’s subsidiaries (both banking and non-banking), without prior regulatory approval or notice, was $305.9 million. Brokered Deposits Under FDIC regulations, no FDIC-insured depository institution can accept brokered deposits unless it (i) is well capitalized, or (ii) is adequately capitalized and received a waiver from the FDIC.
Exceptions to the Volcker Rule include trading in certain U.S. Government or other municipal securities and trading conducted (i) in certain capacities as a broker or other agent, or as a fiduciary on behalf of customers, (ii) to satisfy a debt previously contracted, (iii) pursuant to repurchase and securities lending agreements, and (iv) in risk-mitigating hedging activities.
Government or other municipal securities and trading conducted (i) in certain capacities as a broker or other agent, or as a fiduciary on behalf of customers, (ii) to satisfy a debt previously contracted, (iii) pursuant to repurchase and securities lending agreements, and (iv) in risk-mitigating hedging activities.
SUMMARY OF CREDIT LOSS EXPERIENCE The following table summarizes the credit loss experience, by collateral segment, for the years indicated: (Dollars in Thousands) 2022 2021 2020 2019 2018 Allowance for credit losses: Balances, January 1 $ 195,397 $ 130,648 $ 80,284 $ 80,552 $ 75,032 Impact of adopting ASC 326 74,055 — — — Balances, January 1, 2021 Post-ASC 326 adoption 195,397 204,703 80,284 80,552 75,032 Charge-offs: Commercial (1) (1,215) (5,849) (8,536) (1,732) (2,316) Commercial real estate (2) (3,017) (4,533) (313) (3,675) (2,741) Construction — (6) — — — Consumer — — (643) (569) (749) Residential — — (993) (645) (2,177) Consumer & Residential (2,369) (1,496) — — — Total Charge-offs (6,601) (11,884) (10,485) (6,621) (7,983) Recoveries: Commercial (1) 872 724 819 1,244 2,456 Commercial real estate (2) 1,096 580 431 1,289 2,525 Construction 863 1 — — — Consumer — — 260 401 302 Residential — — 666 619 993 Consumer & Residential 1,096 1,273 — — — Total Recoveries 3,927 2,578 2,176 3,553 6,276 Net Charge-offs (2,674) (9,306) (8,309) (3,068) (1,707) Provisions for credit losses — — 58,673 2,800 7,227 CECL Day 1 non-PCD provision for credit losses 13,955 — — — — CECL Day 1 PCD ACL 16,599 — — — — Balance at December 31 $ 223,277 $ 195,397 $ 130,648 $ 80,284 $ 80,552 Ratio of net charge-offs during the period to average loans outstanding during the period 0.02 % 0.10 % 0.09 % 0.04 % 0.02 % (1) Category includes commercial and industrial, agricultural land, production and other loans to farmers, and other commercial loans.
SUMMARY OF CREDIT LOSS EXPERIENCE The following table summarizes the credit loss experience, by collateral segment, for the years indicated: (Dollars in Thousands) 2023 2022 2021 2020 2019 Allowance for credit losses: Balances, January 1 $ 223,277 $ 195,397 $ 130,648 $ 80,284 $ 80,552 Impact of adopting ASC 326 — — 74,055 — — Balances, January 1, 2021 Post-ASC 326 adoption 223,277 195,397 204,703 80,284 80,552 Charge-offs: Commercial (1) (23,264) (1,215) (5,849) (8,536) (1,732) Commercial real estate (2) (116) (3,017) (4,533) (313) (3,675) Construction — — (6) — — Consumer — — — (643) (569) Residential — — — (993) (645) Consumer & Residential (4,659) (2,369) (1,496) — — Total Charge-offs (28,039) (6,601) (11,884) (10,485) (6,621) Recoveries: Commercial (1) 995 872 724 819 1,244 Commercial real estate (2) 60 1,096 580 431 1,289 Construction — 863 1 — — Consumer — — — 260 401 Residential — — — 666 619 Consumer & Residential 1,341 1,096 1,273 — — Total Recoveries 2,396 3,927 2,578 2,176 3,553 Net Charge-offs (25,643) (2,674) (9,306) (8,309) (3,068) Provisions for credit losses - loans 7,300 — — 58,673 2,800 CECL Day 1 non-PCD provision for credit losses — 13,955 — — — CECL Day 1 PCD ACL — 16,599 — — — Balance at December 31 $ 204,934 $ 223,277 $ 195,397 $ 130,648 $ 80,284 Ratio of net charge-offs during the period to average loans outstanding during the period 0.21 % 0.02 % 0.10 % 0.09 % 0.04 % (1) Category includes commercial and industrial, agricultural land, production and other loans to farmers, and other commercial loans.
At December 31, 2022, two concentrations of commercial loans within a single industry (as segregated by North American Industry Classification System “NAICS code”) were in excess of 10 percent of total loans: Lessors of Residential Buildings and Dwellings and Lessors of Nonresidential Buildings.
At December 31, 2023, two concentrations of commercial loans within a single industry (as segregated by North American Industry Classification System “NAICS code”) were in excess of 10 percent of total loans. Lessors of Residential Buildings and Dwellings and Lessors of Nonresidential Buildings represented 12.23 percent and 10.39 percent of total loans, respectively.
BUSINESS SHORT-TERM BORROWINGS Borrowings maturing in one year or less are included in the following table: (Dollars in Thousands) 2022 2021 2020 Balance at December 31: Federal funds purchased $ 171,560 $ — $ — Securities sold under repurchase agreements (short-term portion) 167,413 181,577 177,102 Federal Home Loan Bank advances (short-term portion) 460,097 75,097 55,097 Subordinated debentures and other borrowings (short-term portion) $ 1,182 $ — $ — Total short-term borrowings $ 800,252 $ 256,674 $ 232,199 Securities sold under repurchase agreements are categorized as borrowings maturing within one year and are secured by U.S.
BUSINESS SHORT-TERM BORROWINGS Borrowings maturing in one year or less are included in the following table: (Dollars in Thousands) 2023 2022 2021 Balance at December 31: Federal funds purchased $ — $ 171,560 $ — Securities sold under repurchase agreements (short-term portion) 157,280 167,413 181,577 Federal Home Loan Bank advances (short-term portion) 60,000 460,097 75,097 Subordinated debentures and other borrowings (short-term portion) $ 1,176 $ 1,182 $ — Total short-term borrowings $ 218,456 $ 800,252 $ 256,674 Securities sold under repurchase agreements are categorized as borrowings maturing within one year and are secured by U.S.
The following are the Corporation’s regulatory capital ratios as of December 31, 2022: Corporation Basel III Minimum Capital Required (1) Total risk-based capital to risk-weighted assets 13.08 % 10.50 % Tier 1 capital to risk-weighted assets 10.83 % 8.50 % Common equity tier 1 capital to risk-weighted assets 10.65 % 7.00 % Tier 1 capital to average assets 9.10 % 4.00 % (1) The Basel III Minimum Capital Required are inclusive of the 2.5 percent capital conservation buffer where applicable.
The following are the Corporation’s regulatory capital ratios as of December 31, 2023: Corporation Basel III Minimum Capital Required (1) Total risk-based capital to risk-weighted assets 13.67 % 10.50 % Tier 1 capital to risk-weighted assets 11.52 % 8.50 % Common equity tier 1 capital to risk-weighted assets 11.35 % 7.00 % Tier 1 capital to average assets 9.64 % 4.00 % (1) The Basel III Minimum Capital Required are inclusive of the 2.5 percent capital conservation buffer where applicable.
The following table summarizes the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale at the dates indicated. Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2022 U.S. Treasury $ 2,501 $ — $ 42 $ 2,459 U.S.
The following table summarizes the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale at the dates indicated. Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2023 U.S.
At December 31, 2022, 2021 and 2020, OREO did not include any acquired assets. OREO did include assets that were acquired from MBT of $136,000 as of December 31, 2019. OREO did not include any assets acquired as of the year ended 2018.
At December 31, 2023, 2022 and 2021, OREO did not include any acquired assets. OREO did include assets that were acquired from MBT of $136,000 as of December 31, 2019.
The "prompt corrective action" regulations require the following for well capitalized status: • a minimum CET1 risk-based capital ratio of a least 6.5 percent; • a minimum tier 1 risk-based capital ratio of at least 8.0 percent; • a minimum total risk-based capital ratio of at least 10.0 percent; and • a minimum leverage ratio of 5.0 percent.
The “prompt corrective action” regulations require the following for “well capitalized” status: • a minimum CET1 risk-based capital ratio of a least 6.5 percent; • a minimum tier 1 risk-based capital ratio of at least 8.0 percent; • a minimum total risk-based capital ratio of at least 10.0 percent; and • a minimum leverage ratio of 5.0 percent.
BUSINESS For the year ended December 31, 2022, interest income of $3.0 million was recognized on the non-accruing and renegotiated loans listed in the table above, whereas interest income of $3.2 million would have been recognized under their loan terms.
For the year ended December 31, 2023, interest income of $3.2 million was recognized on the non-accruing and renegotiated loans listed in the table above, aligning with the amount of interest income that would have been recognized under their loan terms.
The following table shows the composition of the Corporation’s loan portfolio by collateral classification, including purchased credit deteriorated loans, for the years indicated: 2022 2021 2020 2019 2018 (Dollars in Thousands) Amount % Amount % Amount % Amount % Amount % Loans at December 31: Commercial and industrial loans $ 3,437,126 28.6 % $ 2,714,565 29.4 % $ 2,776,699 30.0 % $ 2,109,879 24.9 % $ 1,726,664 23.9 % Agricultural land, production and other loans to farmers 241,793 2.0 246,442 2.7 281,884 3.0 334,172 4.0 334,325 4.6 Real estate loans: Construction 835,582 6.9 523,066 5.7 484,723 5.2 787,568 9.3 545,729 7.5 Commercial real estate, non-owner occupied 2,407,475 20.1 2,135,459 23.1 2,220,949 24.0 1,902,692 22.4 1,865,544 25.9 Commercial real estate, owner occupied 1,246,528 10.4 986,720 10.7 958,501 10.4 909,695 10.8 724,637 10.0 Residential 2,096,655 17.5 1,159,127 12.5 1,234,741 13.4 1,143,217 13.5 966,421 13.4 Home equity 630,632 5.3 523,754 5.7 508,259 5.5 588,984 7.0 528,157 7.3 Individuals' loans for household and other personal expenditures 175,211 1.4 146,092 1.5 129,479 1.5 135,989 1.6 99,788 1.4 Public finance and other commercial loans 932,892 7.8 806,636 8.7 647,939 7.0 547,114 6.5 433,202 6.0 Loans 12,003,894 100.0 % 9,241,861 100.0 % 9,243,174 100.0 % 8,459,310 100.0 % 7,224,467 100.0 % Allowance for loan/credit losses (223,277) (195,397) (130,648) (80,284) (80,552) Net Loans $ 11,780,617 $ 9,046,464 $ 9,112,526 $ 8,379,026 $ 7,143,915 As of December 31, 2022, the Corporation had $4.7 million of Paycheck Protection Program ("PPP") loans compared to the December 31, 2021 and 2020 balances of $106.6 million and $667.1 million, respectively.
The following table shows the composition of the Corporation’s loan portfolio by collateral classification, including purchased credit deteriorated loans, for the years indicated: 2023 2022 2021 2020 2019 (Dollars in Thousands) Amount % Amount % Amount % Amount % Amount % Loans at December 31: Commercial and industrial loans (1) $ 3,670,948 29.4 % $ 3,437,126 28.6 % $ 2,714,565 29.4 % $ 2,776,699 30.0 % $ 2,109,879 24.9 % Agricultural land, production and other loans to farmers 263,414 2.1 241,793 2.0 246,442 2.7 281,884 3.0 334,172 4.0 Real estate loans: Construction 957,545 7.7 835,582 6.9 523,066 5.7 484,723 5.2 787,568 9.3 Commercial real estate, non-owner occupied 2,400,839 19.2 2,407,475 20.1 2,135,459 23.1 2,220,949 24.0 1,902,692 22.4 Commercial real estate, owner occupied 1,162,083 9.3 1,246,528 10.4 986,720 10.7 958,501 10.4 909,695 10.8 Residential 2,288,921 18.4 2,096,655 17.5 1,159,127 12.5 1,234,741 13.4 1,143,217 13.5 Home equity 617,571 4.9 630,632 5.3 523,754 5.7 508,259 5.5 588,984 7.0 Individuals' loans for household and other personal expenditures 168,388 1.3 175,211 1.4 146,092 1.5 129,479 1.5 135,989 1.6 Public finance and other commercial loans 956,318 7.7 932,892 7.8 806,636 8.7 647,939 7.0 547,114 6.5 Loans 12,486,027 100.0 % 12,003,894 100.0 % 9,241,861 100.0 % 9,243,174 100.0 % 8,459,310 100.0 % Allowance for loan/credit losses (204,934) (223,277) (195,397) (130,648) (80,284) Net Loans $ 12,281,093 $ 11,780,617 $ 9,046,464 $ 9,112,526 $ 8,379,026 (1) Includes PPP loans of $2.7 million in 2023, $4.7 million in 2022, $106.6 million in 2021, and $667.1 million in 2020.
The maturity distribution and average yields for the securities portfolio at December 31, 2022 were: Within 1 Year 1-5 Years 5-10 Years (Dollars in Thousands) Amount Yield (1) Amount Yield (1) Amount Yield (1) Securities available for sale December 31, 2022 U.S. Treasury $ 1,171 3.6 % $ 1,288 2.4 % $ — — % U.S.
The maturity distribution and average yields for the securities portfolio at December 31, 2023 were: Within 1 Year 1-5 Years 5-10 Years (Dollars in Thousands) Amount Yield (1) Amount Yield (1) Amount Yield (1) Securities available for sale December 31, 2023 U.S.
Government-sponsored agency securities 119,154 — 17,192 101,962 State and municipal 1,530,048 438 178,726 1,351,760 U.S. Government-sponsored mortgage-backed securities 608,630 1 100,358 508,273 Corporate obligations 13,014 — 807 12,207 Total available for sale $ 2,273,347 $ 439 $ 297,125 $ 1,976,661 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2021 U.S.
Government-sponsored agency securities 119,154 — 17,192 101,962 State and municipal 1,530,048 438 178,726 1,351,760 U.S. Government-sponsored mortgage-backed securities 608,630 1 100,358 508,273 Corporate obligations 13,014 — 807 12,207 Total available for sale $ 2,273,347 $ 439 $ 297,125 $ 1,976,661 15 PART I: ITEM 1.
All inter-company transactions are eliminated during the preparation of consolidated financial statements. As of December 31, 2022, the Corporation had consolidated assets of $17.9 billion, consolidated deposits of $14.4 billion and stockholders’ equity of $2.0 billion. HUMAN CAPITAL As of December 31, 2022, the Corporation and its subsidiaries had 2,124 full-time equivalent employees.
All inter-company transactions are eliminated during the preparation of consolidated financial statements. As of December 31, 2023, the Corporation had consolidated asse ts of $18.4 billion, consolidated deposits of $14.8 billion and stockholders’ equity of $2.2 billion. HUMAN CAPITAL As of December 31, 2023, the Corporation and its subsidiaries had 2,162 full-time equivalent employees.
Results show consistently strong employee engagement with over 70 percent of our employees considered to be “highly engaged.” Our response rates are high (88 percent) with the survey results providing valuable feedback that helps managers promote work satisfaction and high contribution.
Results show consistently strong employee engagement with 70 percent of our employees considered to be “highly engaged.” Our response rates are high (83 percent) with the survey results providing valuable feedback that helps managers promote work satisfaction and high contribution. We offer specific and concerted effort in supporting our managers who score under 70 percent engagement.
Pertinent information with respect to borrowings maturing in one year or less is summarized below: (Dollars in Thousands) 2022 2021 2020 Weighted Average Interest Rate on Outstanding Balance at December 31: Federal funds purchased 3.5 % 1.4 % 0.3 % Securities sold under repurchase agreements (short-term portion) 1.3 % 0.2 % 0.2 % Federal Home Loan Bank advances (short-term portion) 2.4 % 2.1 % 1.8 % Subordinated debentures and other borrowings (short-term portion) 1.0 % — % — % Total short-term borrowings 2.4 % 0.7 % 0.6 % Weighted Average Interest Rate During the Year: Federal funds purchased 3.0 % 0.8 % 0.9 % Securities sold under repurchase agreements (short-term portion) 0.6 % 0.2 % 0.3 % Federal Home Loan Bank advances (short-term portion) 2.5 % 2.0 % 1.9 % Subordinated debentures and other borrowings (short-term portion) 0.7 % — % — % Total short-term borrowings 1.8 % 0.7 % 0.8 % Highest Amount Outstanding at Any Month End During the Year: Federal funds purchased $ 240,406 $ — $ 80,000 Securities sold under repurchase agreements (short-term portion) 218,882 199,104 197,928 Federal Home Loan Bank advances (short-term portion) 460,000 75,000 131,300 Subordinated debentures and other borrowings (short-term portion) $ 1,230 $ — $ — Total short-term borrowings $ 920,518 $ 274,104 $ 409,228 Average Amount Outstanding During the year: Federal funds purchased $ 44,041 $ 617 $ 13,126 Securities sold under repurchase agreements (short-term portion) 185,082 173,839 180,740 Federal Home Loan Bank advances (short-term portion) 265,822 64,356 67,408 Subordinated debentures and other borrowings (short-term portion) $ 1,212 $ — $ — Total short-term borrowings $ 496,157 $ 238,812 $ 261,274 22 PART I: ITEM 1A.
Pertinent information with respect to borrowings maturing in one year or less is summarized below: (Dollars in Thousands) 2023 2022 2021 Weighted Average Interest Rate on Outstanding Balance at December 31: Federal funds purchased — % 3.5 % 1.4 % Securities sold under repurchase agreements (short-term portion) 2.3 % 1.3 % 0.2 % Federal Home Loan Bank advances (short-term portion) 2.8 % 2.4 % 2.1 % Subordinated debentures and other borrowings (short-term portion) 1.0 % 1.0 % — % Total short-term borrowings 2.4 % 2.4 % 0.7 % Weighted Average Interest Rate During the Year: Federal funds purchased 5.2 % 3.0 % 0.8 % Securities sold under repurchase agreements (short-term portion) 2.0 % 0.6 % 0.2 % Federal Home Loan Bank advances (short-term portion) 3.4 % 2.5 % 2.0 % Subordinated debentures and other borrowings (short-term portion) 0.8 % 0.7 % — % Total short-term borrowings 2.9 % 1.8 % 0.7 % Highest Amount Outstanding at Any Month End During the Year: Federal funds purchased $ 188,329 $ 240,406 $ — Securities sold under repurchase agreements (short-term portion) 242,194 218,882 199,104 Federal Home Loan Bank advances (short-term portion) 410,000 460,000 75,000 Subordinated debentures and other borrowings (short-term portion) $ 1,182 $ 1,230 $ — Total short-term borrowings $ 841,705 $ 920,518 $ 274,104 Average Amount Outstanding During the year: Federal funds purchased $ 27,115 $ 44,041 $ 617 Securities sold under repurchase agreements (short-term portion) 171,291 185,082 173,839 Federal Home Loan Bank advances (short-term portion) 208,251 265,822 64,356 Subordinated debentures and other borrowings (short-term portion) $ 1,178 $ 1,212 $ — Total short-term borrowings $ 407,835 $ 496,157 $ 238,812
The Corporation elected to delay implementation of CECL following the approval of the CARES Act and, with the enactment of the 2021 CAA, the Corporation elected to adopt CECL on January 1, 2021.
The Corporation elected to delay implementation of CECL following the approval of the CARES Act and, with the enactment of the 2021 CAA, the Corporation elected to adopt CECL on January 1, 2021. As a result, the Corporation has utilized the CECL standard for 2023, 2022, and 2021.
Government-sponsored mortgage-backed securities — — % 776,074 2.6 % 776,074 2.6 % Foreign investment — — % — — % 1,500 3.5 % $ 1,269,826 2.6 % $ 776,074 2.6 % $ 2,287,372 2.6 % _____________________________ (1) Interest yields are presented on a fully taxable equivalent basis using a 21 percent tax rate.
Government-sponsored mortgage-backed securities — — % 709,794 2.6 % 709,794 2.6 % Foreign investment — — % — — % 1,500 3.5 % $ 1,217,265 2.6 % $ 709,794 2.6 % $ 2,184,497 2.6 % _____________________________ (1) Interest yields are presented on a fully taxable equivalent basis using a 21 percent tax rate.
In 2022, we launched two additional ERGs - Pride and Emerging Professionals. Additionally, we have created a DEI Employee Community, which hosts bi-weekly calls that are attended by over 150 employees. Our DEI Steering Committee provides guidance on all DEI efforts.
In 2022, we launched two additional ERGs - Pride and Emerging Professionals. In 2023, we added a Veterans ERG and announced the creation of an InterFaith ERG. Additionally, we have created an Employee Community Call, which hosts monthly Zoom/TEAMS calls that are attended by over 150 employees. Our DEI Steering Committee provides guidance on all efforts.
A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance. At December 31, 2022, non-accrual loans totaled $42.3 million, a decrease of $738,000 from December 31, 2021.
Payments subsequently received on non-accrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance. At December 31, 2023, non-accrual loans totaled $53.6 million, an increase of $11.3 million from December 31, 2022.
Volume and rate variances have been allocated on the basis of the absolute relationship between volume variances and rate variances. 2022 Compared to 2021 Increase (Decrease) Due To 2021 Compared to 2020 Increase (Decrease) Due To 2020 Compared to 2019 Increase (Decrease) Due To (Dollars in Thousands, Fully Taxable Equivalent Basis) Volume Rate Total Volume Rate Total Volume Rate Total Interest Income: Interest-bearing deposits $ (383) $ 2,252 $ 1,869 $ 412 $ (716) $ (304) $ 1,467 $ (4,754) $ (3,287) Federal Home Loan Bank stock 166 413 579 — (445) (445) 151 (479) (328) Investment securities 22,353 1,303 23,656 29,977 (8,023) 21,954 18,895 (8,744) 10,151 Loans held for sale (193) 138 (55) 26 (60) (34) 7 (6) 1 Loans 76,919 59,411 136,330 4,223 (23,651) (19,428) 65,095 (84,648) (19,553) Totals 98,862 63,517 162,379 34,638 (32,895) 1,743 85,615 (98,631) (13,016) Interest Expense: Interest-bearing deposit accounts 1,440 16,559 17,999 3,344 (9,071) (5,727) 8,341 (22,023) (13,682) Money market deposit accounts 941 15,026 15,967 1,997 (6,604) (4,607) 3,951 (10,252) (6,301) Savings deposits 202 2,931 3,133 465 (2,220) (1,755) 1,832 (7,655) (5,823) Certificates and other time deposits 508 2,013 2,521 (6,211) (10,121) (16,332) (5,896) (8,143) (14,039) Borrowings 5,649 3,582 9,231 (2,521) 513 (2,008) 2,911 (5,430) (2,519) Totals 8,740 40,111 48,851 (2,926) (27,503) (30,429) 11,139 (53,503) (42,364) Change in net interest income (fully taxable equivalent basis) $ 90,122 $ 23,406 113,528 $ 37,564 $ (5,392) 32,172 $ 74,476 $ (45,128) 29,348 Tax equivalent adjustment using marginal rate of 21% for 2022, 2021 and 2020 (4,005) (3,619) (3,881) Change in net interest income $ 109,523 $ 28,553 $ 25,467 INVESTMENT SECURITIES In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy.
Volume and rate variances have been allocated on the basis of the absolute relationship between volume variances and rate variances. 2023 Compared to 2022 Increase (Decrease) Due To 2022 Compared to 2021 Increase (Decrease) Due To 2021 Compared to 2020 Increase (Decrease) Due To (Dollars in Thousands, Fully Taxable Equivalent Basis) Volume Rate Total Volume Rate Total Volume Rate Total Interest Income: Interest-bearing deposits $ 1,597 $ 13,619 $ 15,216 $ (383) $ 2,252 $ 1,869 $ 412 $ (716) $ (304) Federal Home Loan Bank stock 217 1,659 1,876 166 413 579 — (445) (445) Investment securities (12,644) (2,229) (14,873) 22,353 1,303 23,656 29,977 (8,023) 21,954 Loans held for sale 388 212 600 (193) 138 (55) 26 (60) (34) Loans 67,684 217,730 285,414 76,919 59,411 136,330 4,223 (23,651) (19,428) Totals 57,242 230,991 288,233 98,862 63,517 162,379 34,638 (32,895) 1,743 Interest Expense: Interest-bearing deposit accounts 1,496 104,005 105,501 1,440 16,559 17,999 3,344 (9,071) (5,727) Money market deposit accounts (207) 64,814 64,607 941 15,026 15,967 1,997 (6,604) (4,607) Savings deposits (676) 10,263 9,587 202 2,931 3,133 465 (2,220) (1,755) Certificates and other time deposits 14,157 49,301 63,458 508 2,013 2,521 (6,211) (10,121) (16,332) Borrowings 6,437 14,093 20,530 5,649 3,582 9,231 (2,521) 513 (2,008) Totals 21,207 242,476 263,683 8,740 40,111 48,851 (2,926) (27,503) (30,429) Change in net interest income (fully taxable equivalent basis) $ 36,035 $ (11,485) 24,550 $ 90,122 $ 23,406 113,528 $ 37,564 $ (5,392) 32,172 Tax equivalent adjustment using marginal rate of 21% for 2023, 2022 and 2021 647 (4,005) (3,619) Change in net interest income $ 25,197 $ 109,523 $ 28,553 INVESTMENT SECURITIES In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy.
Additionally, all transactions with an affiliate must be on terms substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated parties.
It also restricts the types of collateral security permitted in connection with the bank’s extension of credit to an affiliate. Additionally, all transactions with an affiliate must be on terms substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated parties.
COMPETITION The Bank is located in Indiana, Ohio, Michigan and Illinois counties where other financial services companies provide similar banking services. The Bank faces substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources.
The Bank faces substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources.
At December 31, 2022, 2021, 2020, 2019, and 2018, the remaining fair value discount on acquired loans was $31.3 million, $10.9 million, $23.0 million, $36.6 million, and $30.1 million, respectively. 18 PART I: ITEM 1. BUSINESS LOAN MATURITIES Presented in the table below are the maturities of loans outstanding as of December 31, 2022, by collateral classification.
At December 31, 2023, 2022, 2021, 2020, and 2019, the remaining fair value discount on acquired loans was $23.2 million, $31.3 million, $10.9 million, $23.0 million, and $36.6 million, respectively. 18 PART I: ITEM 1.
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities. (5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets.
(3) Non accruing loans have been included in the average balances. (4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities.
Annualized amounts are computed using a 30/360 day basis. (2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2022, 2021 and 2020. These totals equal $24,590, $20,585 and $16,966, respectively. (3) Non-accruing loans have been included in the average balances.
Annualized amounts are computed using a 30/360 day basis. (2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2023, 2022 and 2021. These totals equal $23.9 million, $24.6 million and $20.6 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Government-sponsored mortgage-backed securities 460,843 — 460,843 17,552 — 478,395 Foreign investment 1,500 — 1,500 — — 1,500 Total held to maturity $ 1,227,668 $ — $ 1,227,668 $ 52,877 $ 252 $ 1,280,293 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.
Government-sponsored mortgage-backed securities 749,789 — 749,789 7,957 5,881 751,865 Foreign investment 1,500 — 1,500 — 1 1,499 Total held to maturity $ 2,180,047 $ 245 $ 2,179,802 $ 37,776 $ 15,320 $ 2,202,503 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.
In addition to the loans discussed above, management also identified commercial loans totaling $411.6 million as of December 31, 2022 that were deemed to be risk graded criticized. Comparatively, commercial loans risk graded criticized at December 31, 2021 totaled $369.5 million.
In addition to the nonperforming loans discussed above, management also identified loans totaling $515.2 million and $417.3 million as of December 31, 2023 and 2022, respectively, that were deemed to be risk graded criticized.
These increases in the allowance were offset by net charge offs of $2.7 million for the twelve months ended December 31, 2022. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions.
Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions.
Volcker Rule The Volcker Rule, which was adopted under the Dodd-Frank Act, places certain limitations on the trading activity of insured depository institutions and their affiliates subject to certain exceptions. The restricted trading activity includes purchasing or selling certain types of securities or instruments in order to benefit from short-term price movements or to realize short-term profits.
The restricted trading activity includes purchasing or selling certain types of securities or instruments in order to benefit from short-term price movements or to realize short-term profits. Exceptions to the Volcker Rule include trading in certain U.S.
As of December 31, 2022, certificates of deposit and other time deposits exceeding the FDIC insurance limit of $250,000 mature as follows: (Dollars in Thousands) Maturing 3 Months or Less Maturing 3-6 Months Maturing 6-12 Months Maturing Over 12 Months Total Uninsured certificates of deposit and other time deposits $ 68,584 $ 57,766 $ 102,886 $ 11,539 $ 240,775 Percent 28 % 24 % 43 % 5 % 100 % 21 PART I: ITEM 1.
As of December 31, 2023, certificates of deposit and other time deposits exceeding the FDIC insurance limit of $250,000 mature as follows: (Dollars in Thousands) Maturing 3 Months or Less Maturing 3-6 Months Maturing 6-12 Months Maturing Over 12 Months Total Uninsured certificates of deposit and other time deposits $ 105,835 $ 58,249 $ 175,946 $ 29,780 $ 369,810 Percent 29 % 16 % 47 % 8 % 100 % 21 PART I: ITEM 1.
See “- Capital Adequacy Guidelines for Bank Holding Companies (Basel III)” above for additional information. Additional Matters The Corporation and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between banks, affiliated companies and its executive officers and its affiliates.
Additional Matters The Corporation and the Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between banks, affiliated companies and its executive officers and its affiliates. The statute prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices.
At December 31, 2022, 2021, 2020, 2019, and 2018, non-accrual loans include assets acquired of $8.2 million, $3.2 million, $7.9 million, $3.7 million, and $0, respectively. Other real estate owned ("OREO") at December 31, 2022 increased $5.9 million from the December 31, 2021 balance of $558,000. The increase is primarily related to one loan with a balance of $5.8 million.
The primary increase was in the residential portfolio of $11.5 million. At December 31, 2023, 2022, 2021, 2020, and 2019, non-accrual loans include assets acquired of $5.2 million, $8.2 million, $3.2 million, $7.9 million, and $3.7 million, respectively. Other real estate owned (“OREO”) at December 31, 2023 decreased $1.6 million from the December 31, 2022 balance of $6.4 million.
Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2022 U.S. Government-sponsored agency securities $ 392,246 $ — $ 392,246 $ — $ 69,147 $ 323,099 State and municipal 1,117,552 245 1,117,307 647 197,064 921,135 U.S.
Government-sponsored agency securities $ 392,246 $ — $ 392,246 $ — $ 69,147 $ 323,099 State and municipal 1,117,552 245 1,117,307 647 197,064 921,135 U.S.
At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in the prior year, if any, is charged to the allowance for credit losses. Payments subsequently received on non-accrual loans are applied to principal.
BUSINESS Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in the prior year, if any, is charged to the allowance for credit losses.
Details of the Level One acquisition can be found in NOTE 2. ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. On April 1, 2021, the Bank acquired 100 percent of Hoosier Trust Company ("Hoosier") through a merger of Hoosier with and into the Bank.
Details of the Level One acquisition can be found in NOTE 2. ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. COMPETITION The Bank is located in Indiana, Ohio, Michigan and Illinois counties where other financial services companies provide similar banking services.
Government-sponsored mortgage-backed securities 591,210 20,984 103 612,091 Corporate obligations 4,031 104 — 4,135 Total available for sale $ 1,807,389 $ 112,079 $ 349 $ 1,919,119 The following table summarizes the amortized cost, gross unrealized gains and losses, approximate fair value and allowance for credit losses on investment securities held to maturity at the dates indicated.
Government-sponsored mortgage-backed securities 671,684 7,109 11,188 667,605 Corporate obligations 4,031 256 8 4,279 Total available for sale $ 2,268,655 $ 89,536 $ 13,640 $ 2,344,551 The following table summarizes the amortized cost, gross unrealized gains and losses, approximate fair value and allowance for credit losses on investment securities held to maturity at the dates indicated.
Government- Sponsored Mortgage - Backed Securities Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Treasury $ — — % $ — — % $ 2,459 3.0 % U.S. Government-sponsored agency securities 92,504 2.3 % — — % 101,962 2.3 % State and municipal 1,200,568 3.3 % — — % 1,351,760 3.3 % U.S.
Government- Sponsored Mortgage - Backed Securities Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Government-sponsored agency securities $ 86,362 2.3 % $ — — % $ 95,307 2.2 % State and municipal 940,765 3.1 % — — % 1,065,171 3.0 % U.S.
(6) Commercial loans included $4.7 million, $106.6 million and $667.1 million of Paycheck Protection Program ("PPP") loans at December 31, 2022, 2021 and 2020, respectively. 14 PART I: ITEM 1.
(5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets. (6) Commercial loans included $2.7 million, $4.7 million and $106.6 million of PPP loans at December 31, 2023, 2022 and 2021, respectively. 14 PART I: ITEM 1.
Government- Sponsored Mortgage - Backed Securities Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Government-sponsored agency securities $ 291,715 1.6 % $ — — % $ 392,246 1.5 % State and municipal 978,111 3.0 % — — % 1,117,552 3.1 % U.S.
Government- Sponsored Mortgage - Backed Securities Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Government-sponsored agency securities $ 273,609 1.6 % $ — — % $ 374,002 1.5 % State and municipal 943,656 2.9 % — — % 1,099,201 3.1 % U.S.
Government-sponsored mortgage-backed securities 749,789 — 749,789 7,957 5,881 751,865 Foreign investment 1,500 — 1,500 — 1 1,499 Total held to maturity $ 2,180,047 $ 245 $ 2,179,802 $ 37,776 $ 15,320 $ 2,202,503 Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2020 U.S.
Government-sponsored mortgage-backed securities 709,794 — 709,794 — 99,448 610,346 Foreign investment 1,500 — 1,500 — 28 1,472 Total held to maturity $ 2,184,497 $ 245 $ 2,184,252 $ 1,625 $ 315,748 $ 1,870,374 Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2022 U.S.
BUSINESS Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2020 U.S. Government-sponsored agency securities $ 43,437 $ 1,571 $ — $ 45,008 State and municipal 1,168,711 89,420 246 1,257,885 U.S.
BUSINESS Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2021 US Treasury $ 1,000 $ — $ 1 $ 999 U.S. Government-sponsored agency securities 96,244 437 1,545 95,136 State and municipal 1,495,696 81,734 898 1,576,532 U.S.
Government-sponsored mortgage-backed securities — — % 508,273 2.3 % 508,273 2.3 % Corporate obligations 31 — % — — % 12,207 4.3 % $ 1,293,103 3.2 % $ 508,273 2.3 % $ 1,976,661 3.0 % 17 PART I: ITEM 1.
Government-sponsored mortgage-backed securities — — % 454,815 2.5 % 454,815 2.5 % Corporate obligations 31 — % — — % 11,819 5.2 % $ 1,027,158 3.0 % $ 454,815 2.5 % $ 1,627,112 2.9 % 17 PART I: ITEM 1.
Government-sponsored agency securities 375 2.7 % 467 2.3 % 8,616 1.4 % State and municipal 1,263 3.2 % 9,510 2.9 % 140,419 3.5 % Corporate obligations — — % — — % 12,176 4.3 % $ 2,809 3.3 % $ 11,265 2.9 % $ 161,211 3.4 % Due After Ten Years U.S.
Government-sponsored agency securities $ — — % $ 8,945 1.4 % $ — — % State and municipal 1,382 2.6 % 9,568 2.4 % 113,456 3.1 % Corporate obligations — — % 4,859 6.1 % 6,929 4.5 % $ 1,382 2.6 % $ 23,372 2.8 % $ 120,385 3.2 % Due After Ten Years U.S.
Onboarding, training, talent assessment and development, career conversations, development planning and a culture of pride in high performance help us achieve employer of choice status. Trust, respect, integrity and commitment are at the core of our success. A significant event in 2022 was the adoption of a Human and Workforce Rights Policy.
Onboarding, training, talent assessment and development, career conversations, development planning and a culture of pride in high performance help us achieve employer of choice status. We have identified three core ways in which we will succeed - Authentic, Driven and Collaborative.
Government-sponsored agency securities $ — — % $ 40,991 1.6 % $ 59,540 1.2 % State and municipal 13,697 4.5 % 38,206 4.1 % 87,538 3.6 % Foreign investment — — % 1,500 3.5 % — — % $ 13,697 4.5 % $ 80,697 2.8 % $ 147,078 2.6 % Due After Ten Years U.S.
Government-sponsored agency securities $ — — % $ 70,586 1.3 % $ 29,807 1.3 % State and municipal 3,041 4.0 % 46,506 4.1 % 105,998 3.5 % Foreign investment — — % 1,500 3.5 % — — % $ 3,041 4.0 % $ 118,592 2.5 % $ 135,805 3.0 % Due After Ten Years U.S.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

31 edited+10 added−22 removed123 unchanged
Biggest changeAs a result, the negative effects on the Corporation’s business, results of operations and financial condition from an epidemic, a pandemic or another infectious disease outbreak, including the continuation or resurgence of the COVID-19 pandemic, could be material. • As a participating lender in the Small Business Administration’s Paycheck Protection Program (the “PPP” or “program”), the Corporation and the Bank are subject to additional risks of litigation from the Bank’s clients or other parties in connection with the Bank’s processing, funding, and servicing of loans for the PPP.
Biggest changeAs a result, the negative effects on the Corporation’s business, results of operations and financial condition from an epidemic, a pandemic or another infectious disease outbreak, including the resurgence of the COVID-19 pandemic, could be material. • The Corporation’s allowances for credit losses may not be adequate to cover actual losses.
The extent to which a widespread health crisis, including the continuation of COVID-19, may impact the Corporation’s business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat an epidemic, a pandemic or another infectious disease outbreak, and how quickly and to what extent normal economic and operating conditions can resume.
The extent to which a widespread health crisis, including the resurgence of COVID-19, may impact the Corporation’s business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat an epidemic, a pandemic or another infectious disease outbreak, and how quickly and to what extent normal economic and operating conditions can resume.
At December 31, 2022, the Corporation had goodwill of $712.0 million recorded on its consolidated balance sheet. Under ASC 350, Intangibles – Goodwill and Other, the Corporation is required to evaluate goodwill for impairment on an annual basis, as well as on an interim basis, if events or changes indicate that the asset may be impaired.
At December 31, 2023, the Corporation had goodwill of $712.0 million recorded on its consolidated balance sheet. Under ASC 350, Intangibles – Goodwill and Other, the Corporation is required to evaluate goodwill for impairment on an annual basis, as well as on an interim basis, if events or changes indicate that the asset may be impaired.
In addition, an epidemic, a pandemic or another infectious disease outbreak, or the continuation of the COVID-19 pandemic, could again significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability.
In addition, an epidemic, a pandemic or another infectious disease outbreak, or the resurgence of the COVID-19 pandemic, could again significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability.
The continuation of the COVID-19 pandemic, or a new epidemic, pandemic or infectious disease outbreak, may result in the Corporation closing certain offices and may require us to limit how customers conduct business through our branch network.
The resurgence of the COVID-19 pandemic, or a new epidemic, pandemic or infectious disease outbreak, may result in the Corporation closing certain offices and may require us to limit how customers conduct business through our branch network.
Operational risk is inherent in the Corporation’s activities and can present itself in numerous ways, including internal or external fraud, business disruptions or failures, non-compliance with applicable laws and regulations, cyber breach, or failure of third parties, among other events. The result of these could be reputational harm, financial losses, or litigation and regulatory fines for the Bank.
Operational risk is inherent in the Corporation’s activities and can present itself in numerous ways, including internal or external fraud, business disruptions or failures, noncompliance with applicable laws and regulations, cyber breach, or failure of third parties, among other events. The result of these could be reputational harm, financial losses, or litigation and regulatory fines for the Bank.
Furthermore, negative impacts on our customers caused by such a health crisis, including the continuation of COVID-19, could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
Furthermore, negative impacts on our customers caused by such a health crisis, including the resurgence of COVID-19, could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
Moreover, the effects of a widespread health crisis, including the continuation of the COVID-19 pandemic, may heighten many of the other risks described in this “Risk Factors” section.
Moreover, the effects of a widespread health crisis, including the resurgence of the COVID-19 pandemic, may heighten many of the other risks described in this “Risk Factors” section.
If the Corporation cannot effectively manage these service providers, the service parties fail to materially perform, or the Corporation was to falter in any of the other noted areas, its business or performance could be negatively impacted. • The Corporation is subject to environmental liability risk associated with our Bank branches and any real estate collateral we acquire upon foreclosure.
If the Corporation cannot effectively manage these service providers, the service parties fail to materially perform, or the Corporation was to falter in any of the other noted areas, its business or performance could be negatively impacted. 25 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • The Corporation is subject to environmental liability risk associated with our Bank branches and any real estate collateral we acquire upon foreclosure.
As discussed above, the increased market interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge offs, which could adversely affect our business.
As discussed above, the increased market interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge-offs, which could adversely affect our business. Conversely, decreases in interest rates could result in an acceleration of loan prepayments.
General market fluctuations, industry factors and general economic and political conditions and events, including terrorist attacks, increased inflation, economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, could also cause the Corporation’s stock price to decrease, regardless of the Corporation’s operating results.
General market fluctuations, industry factors and general economic and political conditions and events, including terrorist attacks, increased inflation, economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, could also cause the Corporation’s stock price to decrease, regardless of the Corporation’s operating results. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the effect of the economic environment on the Corporation’s customer base, or a material negative change in its relationship with significant customers. • Changes in accounting standards could materially impact the Corporation’s financial statements.
Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the effect of the economic environment on the Corporation’s customer base, or a material negative change in its relationship with significant customers. 26 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Changes in accounting standards could materially impact the Corporation’s financial statements.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. 27 PART I: ITEM 1A. AND ITEM 1B. • Climate change and related legislative and regulatory initiatives may materially affect the Corporation’s business and results of operations.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. • Climate change and related legislative and regulatory initiatives may materially affect the Corporation’s business and results of operations.
For example, changes in reference rates linked to financial instruments, such as the London Interbank Offered Rate ("LIBOR") or the Secured Overnight Financing Rate ("SOFR"), may adversely affect the value of financial instruments the Corporation holds or issues and related net interest income.
For example, changes in reference rates linked to financial instruments, such as the Secured Overnight Financing Rate (“SOFR”), may adversely affect the value of financial instruments the Corporation holds or issues and related net interest income.
Furthermore, the Corporation’s business operations may be disrupted due to vendors and third-party service providers being unable to work or provide services effectively during such a health crisis, including because of illness, quarantines or other government actions.
Furthermore, the Corporation’s business operations may be disrupted due to vendors and third-party service providers being unable to work or provide services effectively during such a health crisis, including because of illness, quarantines or other government actions. 22 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C.
There can be no assurance that the Corporation’s monitoring procedures and policies will reduce certain lending risks or that the Corporation’s allowances for credit losses will be adequate to cover actual losses. • The Corporation may suffer losses in its loan portfolio despite its underwriting practices.
There can be no assurance that the Corporation’s monitoring procedures and policies will reduce certain lending risks or that the Corporation’s allowances for credit losses will be adequate to cover actual losses. 23 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • The Corporation may suffer losses in its loan portfolio despite its underwriting practices.
In addition, changes in securities market conditions and monetary fluctuations could adversely affect the availability and terms of funding necessary to meet the Corporation’s liquidity needs. • Changes in the domestic interest rate environment could affect the Corporation’s net interest income as well as the valuation of assets and liabilities.
In addition, changes in securities market conditions and monetary fluctuations could adversely affect the availability and terms of funding necessary to meet the Corporation’s liquidity needs. 27 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Changes in the domestic interest rate environment could affect the Corporation’s net interest income as well as the valuation of assets and liabilities.
Cyber breach statistics over the past several years evidence the targeting of numerous banking institutions and credit bureaus. Phishing attempts have also significantly increased and political conflict also presents cyber threats by nation states.
Cyber breach statistics over the past several years evidence the targeting of numerous banking institutions and credit bureaus. Phishing attempts have also significantly increased and political conflict also presents cyber threats by nation states. 24 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C.
The Corporation’s management must exercise judgment in selecting and applying many of these accounting policies and methods, so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report the Corporation’s financial condition and results.
The Corporation’s accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations. The Corporation’s management must exercise judgment in selecting and applying many of these accounting policies and methods, so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report the Corporation’s financial condition and results.
The Corporation’s third-party management program helps to mitigate risks posed by reliance on third and fourth parties. To combat these ever-present cyber risks, the Corporation maintains a comprehensive Information Security Program, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to detect, prevent, and limit unauthorized or harmful actions across our information technology environment.
To combat these ever-present cyber risks, the Corporation maintains a comprehensive Information Security Program, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to detect, prevent, and limit unauthorized or harmful actions across our information technology environment.
Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made.
Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made. • Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on our operations.
Sondhi and his company provide endpoint detection and incident response, vulnerability scans, security information and event management, security employee training and vCISO services. 25 PART I: ITEM 1A. AND ITEM 1B. • The Corporation continually encounters technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.
Sondhi has experience managing companies who provide endpoint detection and incident response, vulnerability scans, security information and event management, security employee training and vCISO services. • The Corporation continually encounters technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.
As a result, the Corporation may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk, which could have a material adverse effect on our results of operations and financial condition. 26 PART I: ITEM 1A.
As a result, the Corporation may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk, which could have a material adverse effect on our results of operations and financial condition. • The Corporation’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
The Corporation may face risks related to epidemics, pandemics or other infectious disease outbreaks, which could result in a widespread health crisis that could adversely affect general commercial activity, the global economy (including the states and local economies in which we operate) and financial markets.
An epidemic, a pandemic or any other infectious disease outbreak may result in a widespread health crisis that could adversely affect general commercial activity, the global economy (including the states and local economies in which we operate) and financial markets.
AND ITEM 1B. • The Corporation faces operational risks because the nature of the financial services business involves a high volume of transactions. The Corporation operates in diverse markets and relies on the ability of its employees and systems to process a high number of transactions.
The Corporation operates in diverse markets and relies on the ability of its employees and systems to process a high number of transactions.
While it is expected that, in order to combat inflationary trends, the Federal Reserve will continue to further increase the target federal funds rate in 2023, and maintain that higher rate throughout the year, if the Federal Reserve were to aggressively lower the target federal funds, those lower rates could pressure our interest rate spread and may adversely affect our results of operations.
In response to easing inflation pressures, the Federal Reserve is expected to decrease the target federal funds rate in 2024. If the Federal Reserve were to aggressively lower the target federal funds, those lower rates could pressure our interest rate spread and may adversely affect our results of operations.
However, generally, if the interest rates on the Bank’s interest-bearing liabilities increase at a faster pace than the interest rates on its interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net earnings. • The replacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition or results of operations.
However, generally, if the interest rates on the Bank’s interest-bearing liabilities increase at a faster pace than the interest rates on its interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net earnings. • Changes in the laws, regulations and policies governing banks and financial services companies could alter the Corporation’s business environment and adversely affect operations.
AND ITEM 1B. • Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations.
Disposal of assets cannot guarantee disposal at prices appropriate for the disposition, and future operating results could be negatively affected. 28 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations.
Although the Corporation adheres to industry standard practices in conducting thorough due diligence of vendors and contract management, should a vendor experience a breach the bank could still suffer reputational harm, and potentially financial losses. Expanded use of cloud-based technologies and providing our customers more internet-based product offerings to continue to remain competitive will serve to increase these potential risks.
Although the Corporation adheres to industry standard practices in conducting thorough due diligence of vendors and contract management, should a vendor experience a breach, similar to the recent MOVEit breach which impacted a vendor utilized by the Bank, the Bank could still suffer reputational harm, and potentially financial losses.
Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected. The Corporation may also issue equity securities in connection with acquisitions, which could cause ownership and economic dilution to current stockholders. 24 PART I: ITEM 1A.
Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected.
Events or circumstances in the capital markets generally may increase capital costs and impair the ability to raise capital at any given time. Disposal of assets cannot guarantee disposal at prices appropriate for the disposition, and future operating results could be negatively affected. 29 PART I: ITEM 1A.
Events or circumstances in the capital markets generally may increase capital costs and impair the ability to raise capital at any given time.
Removed
For example, the spread of COVID-19, which has been identified as a pandemic by the World Health Organization and declared a national emergency in the United States, created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the states and local economies in which we conduct nearly all of our business.
Added
The Corporation may also issue equity securities in connection with acquisitions, which could cause ownership and economic dilution to current stockholders. • The Corporation faces operational risks because the nature of the financial services business involves a high volume of transactions.
Removed
On March 27, 2020, the CARES Act established the PPP, which is administered by the SBA, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the pandemic. The Bank actively participated in assisting its customers with PPP funding during all phases of the program.
Added
Expanded use of cloud-based technologies and providing our customers more internet-based product offerings to continue to remain competitive will serve to increase these potential risks. The Corporation’s third-party management program helps to mitigate risks posed by reliance on third and fourth parties.
Removed
Because of the short timeframe between the passing of the CARES Act and the April 3, 2020 opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the program, which exposes the Corporation to risks relating to noncompliance with the PPP.
Added
Recent events relating to the failures of Silicon Valley Bank and Signature Bank in March 2023 have caused general uncertainty and concerns regarding the adequacy of liquidity in the banking sector as a whole.
Removed
Upon commencement of the program, several larger banks have been subject to litigation relating to the policies and procedures that they used in processing applications for the program. The Corporation and the Bank may be exposed to the risk of similar litigation from both customers and non-customers that approached the Bank in connection with PPP loans.
Added
A financial institution’s liquidity reflects its ability to meet customer demand for loans, accommodating possible outflows in deposits and accessing alternative sources of funds when needed, while at the same time taking advantage of interest rate market opportunities. The ability to manage liquidity is fundamental to a financial institution’s business and success.
Removed
The Bank may also be exposed to the risk that the SBA or U.S.
Added
The bank failures in March 2023 highlight the potential results of an insured depository institution unexpectedly having to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors.
Removed
Department of Justice determines there was a deficiency in the manner in which a PPP loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the program.
Added
Current market uncertainties and other external factors may impact the competitive landscape for deposits in the banking industry in an unpredictable manner. In addition, the rising interest rate environment has continued to increase competition for liquidity and the premium at which liquidity is available to meet funding needs.
Removed
In the event of a loss resulting from such a determination, the SBA or U.S. Department of Justice may seek recovery of any loss related to the deficiency from the Bank.
Added
These possible impacts may adversely affect our future operating results, including net income, and negatively impact capital. • Regulatory requirements arising from recent events in the financial services industry, or the application of current regulations, could increase our expenses and affect our operations.
Removed
If any PPP-related litigation is filed against the Corporation or the Bank and is not resolved in a manner favorable to the Corporation or the Bank, it may result in significant financial liability or adversely affect the Corporation’s reputation. In addition, litigation can be costly, regardless of outcome.
Added
We anticipate the potential of new regulations for banks of similar size to the Bank, designed to address the recent developments in the financial services industry, which may increase our costs of doing business and reduce our profitability.
Removed
Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations. 23 PART I: ITEM 1A. AND ITEM 1B. • The Corporation’s allowances for credit losses may not be adequate to cover actual losses.
Added
Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits.
Removed
This adoption allowed the Corporation to utilize the CECL standard for each of 2021 and 2022, while its 2020 financial statements were prepared under the incurred loss model.
Added
We also expect that another result of the recent bank failures, as well as any future bank failures, will be an increase to our FDIC insurance premiums in future years, further increasing our cost of doing business. 29 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C.
Removed
AND ITEM 1B. • The Corporation’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates. The Corporation’s accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations.
Removed
Conversely, decreases in interest rates could result in an acceleration of loan prepayments. 28 PART I: ITEM 1A. AND ITEM 1B.
Removed
Financial Conduct Authority, the authority regulating LIBOR, announced that, among other things: (i) a majority of the current LIBOR rate settings would cease to exist immediately after December 31, 2021 (including the 1-week and 2-month U.S. dollar LIBOR settings); and (ii) the 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings would cease to exist after June 30, 2023.
Removed
LIBOR is commonly referenced in financial contracts and the Corporation has exposure to the termination of this interest rate index in loans, derivatives, debt agreements, and other instruments.
Removed
To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the SOFR as its preferred alternative rate for LIBOR.
Removed
SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. On March 15, 2022, the Adjustable Interest Rate Act (the “LIBOR Act”) was signed into law.
Removed
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.
Removed
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 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.
Removed
The LIBOR Act also contains “safe harbor” provisions protecting lenders (as well as “determining” and “calculating” persons) for (i) the selection or use of a Board-selected SOFR-based benchmark replacement, (ii) the implementation of benchmark replacement conforming changes, or (iii) the determination of benchmark replacement conforming changes for contracts other than consumer loans.
Removed
As federal banking regulators required banks to stop originating new products using LIBOR by December 31, 2021, the Bank began primarily using SOFR in originating its indexed-based loans and other products following such date. The Bank is also continuing the transition of its existing LIBOR-based exposures to an appropriate alternative reference rate on or before June 30, 2023.
Removed
Existing contracts without fallback provisions are expected to either be amended prior to June 30, 2023 to include such provisions or to transition to an alternative reference rate pursuant to the terms of the LIBOR Act and the related regulations.
Removed
While the regulatory framework for transition away from LIBOR to an alternative reference rate has been established, the transition could have a range of adverse effects on our business, financial condition and results of operations, which effects are unknown at this time. • Changes in the laws, regulations and policies governing banks and financial services companies could alter the Corporation’s business environment and adversely affect operations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES. The headquarters of the Corporation and the Bank are located at 200 East Jackson Street, Muncie, Indiana. The building is owned by the Bank. The Bank conducts business through numerous facilities owned and leased. Of the 122 banking offices operated by the Bank, 96 are owned and 26 are leased from non-affiliated third parties.
Biggest changeITEM 2. PROPERTIES. The headquarters of the Corporation and the Bank are located at 200 East Jackson Street, Muncie, Indiana. The building is owned by the Bank. The Bank conducts business through numerous facilities owned and leased. Of the 116 banking offices operated by the Bank, 91 are owned and 25 are leased from non-affiliated third parties.
None of the properties owned by the Corporation are subject to any major encumbrances. The net investment of the Corporation and subsidiaries in real estate and equipment at December 31, 2022 was $117.1 million.
None of the properties owned by the Corporation are subject to any major encumbrances. The net investment of the Corporation and subsidiaries in real estate and equipment at December 31, 2023 was $133.9 million.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeNone of the routine legal proceedings, individually or in the aggregate, in which the Corporation or its affiliates are involved are expected to have a material adverse impact on the financial position or the results of operations of the Corporation. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 31 PART II: ITEM 5. AND ITEM 6. PART II
Biggest changeNone of the routine legal proceedings, individually or in the aggregate, in which the Corporation or its affiliates are involved are expected to have a material adverse impact on the financial position or the results of operations of the Corporation. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 32 PART II: ITEM 5. AND ITEM 6. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. [Reserved] 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosure about Market Risk 54 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 32 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Item 6. [Reserved] 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 36 Item 7A. Quantitative and Qualitative Disclosure about Market Risk 54 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 First Merchants Corporation $ 100.00 $ 83.07 $ 103.53 $ 96.35 $ 110.80 $ 112.03 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 KBW Nasdaq Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Biggest changePeriod Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 First Merchants Corporation $ 100.00 $ 124.63 $ 115.99 $ 133.38 $ 134.87 $ 127.02 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 KBW Nasdaq Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
EQUITY COMPENSATION PLAN INFORMATION See Item 12 of Part III of this Annual Report on Form 10-K for information regarding securities authorized for issuance under equity compensation plans. 33 PART II: ITEM 5. AND ITEM 6.
EQUITY COMPENSATION PLAN INFORMATION See Item 12 of Part III of this Annual Report on Form 10-K for information regarding securities authorized for issuance under equity compensation plans. 34 PART II: ITEM 5. AND ITEM 6.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES The following table presents information relating to our purchases of equity securities during the three months ended December 31, 2022, as follows: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as part of Publicly announced Plans or Programs Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2) October, 2022 301 $ 42.01 — 2,686,898 November, 2022 99 $ 43.96 — 2,686,898 December, 2022 — $ — — 2,686,898 (1) During the three months ended December 31, 2022, there were no shares repurchased pursuant to the Corporation's share repurchase program described in note (2) below.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES The following table presents information relating to our purchases of equity securities during the three months ended December 31, 2023, as follows: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as part of Publicly announced Plans or Programs Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2) October, 2023 — $ — — 2,686,898 November, 2023 — $ — — 2,686,898 December, 2023 — $ — — 2,686,898 (1) During the three months ended December 31, 2023, there were no shares repurchased pursuant to the Corporation’s share repurchase program described in note (2) below.
The graph assumes that the value of the investment in the Corporation’s common stock and in each of the indexes (including reinvestment of dividends) was $100 on December 31, 2017 and tracks it through December 31, 2022.
The graph assumes that the value of the investment in the Corporation’s common stock and in each of the indexes (including reinvestment of dividends) was $100 on December 31, 2018 and tracks it through December 31, 2023.
COMMON STOCK LISTING First Merchants Corporation common stock is traded on the Nasdaq Global Select Market under the symbol FRME. At the close of business on February 23, 2023, the number of shares outstanding was 59,640,348. There were 4,258 stockholders of record on that date. 32 PART II: ITEM 5. AND ITEM 6.
COMMON STOCK LISTING First Merchants Corporation common stock is traded on the Nasdaq Global Select Market under the symbol FRME. At the close of business on February 23, 2024, the number of shares outstanding was 59,339,426. There were 4,137 stockholders of record on that date. 33 PART II: ITEM 5. AND ITEM 6.
Removed
The share repurchases in October and November 2022 represent share repurchases pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of the Corporation's restricted stock awards and are not a part of the Corporation's share repurchase program described in note (2) below.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

142 edited+67 added−97 removed76 unchanged
Biggest changeADJUSTED EPS EXCLUDING PAYCHECK PROTECTION PROGRAM ("PPP") AND ACQUISITION RELATED EXPENSES - non-GAAP (Dollars In Thousands, Except Per Share Amounts) December 31, 2022 December 31, 2021 December 31, 2020 Net Income Available to Common Stockholders - GAAP $ 220,683 $ 205,531 $ 148,600 Adjustments: PPP loan income (3,207) (30,900) (22,418) Acquisition-related expenses 16,531 — — Acquisition-related provision expense 16,755 — — Tax on adjustment (7,376) 7,577 5,497 Adjusted Net Income Available to Common Stockholders - non-GAAP $ 243,386 $ 182,208 $ 131,679 Average Diluted Common Shares Outstanding (in thousands) 57,950 53,984 54,220 Diluted Earnings Per Common Share - GAAP $ 3.81 $ 3.81 $ 2.74 Adjustments: PPP loan income (0.06) (0.57) (0.41) Acquisition-related expenses 0.28 — Acquisition-related provision expense 0.30 — Tax on adjustment (0.13) 0.14 0.10 Adjusted Diluted Earnings Per Common Share - non-GAAP $ 4.20 $ 3.38 $ 2.43 TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS - non-GAAP (Dollars in thousands, except per share amounts) December 31, 2022 December 31, 2021 Total Stockholders' Equity (GAAP) $ 2,034,770 $ 1,912,571 Less: Preferred stock (GAAP) (25,125) (125) Less: Intangible assets (GAAP) (747,844) (570,860) Tangible common equity (non-GAAP) $ 1,261,801 $ 1,341,586 Total assets (GAAP) $ 17,938,306 $ 15,453,149 Less: Intangible assets (GAAP) (747,844) (570,860) Tangible assets (non-GAAP) $ 17,190,462 $ 14,882,289 Stockholders' Equity to Assets (GAAP) 11.34 % 12.38 % Tangible common equity to tangible assets (non-GAAP) 7.34 % 9.01 % Tangible common equity (non-GAAP) $ 1,261,801 $ 1,341,586 Plus: Tax benefit of intangibles (non-GAAP) 7,702 4,875 Tangible common equity, net of tax (non-GAAP) $ 1,269,503 $ 1,346,461 Common Stock outstanding (in thousands) 59,171 53,410 Book Value (GAAP) $ 33.96 $ 35.81 Tangible book value - common (non-GAAP) $ 21.45 $ 25.21 40 PART II: ITEM 7.
Biggest changeMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ADJUSTED NET INCOME AND DILUTED EARNINGS PER COMMON SHARE - non-GAAP (Dollars In Thousands, Except Per Share Amounts) December 31, 2023 December 31, 2022 December 31, 2021 Net Income Available to Common Stockholders - GAAP $ 221,911 $ 220,683 $ 205,531 Adjustments: PPP loan income (49) (3,207) (30,900) Acquisition-related expenses — 16,531 — Acquisition-related provision expense — 16,755 — Non-core expenses 1 12,682 — — Tax on adjustment (3,078) (7,376) 7,577 Adjusted Net Income Available to Common Stockholders - non-GAAP $ 231,466 $ 243,386 $ 182,208 Average Diluted Common Shares Outstanding (in thousands) 59,489 57,950 53,984 Diluted Earnings Per Common Share - GAAP $ 3.73 $ 3.81 $ 3.81 Adjustments: PPP loan income — (0.06) (0.57) Acquisition-related expenses — 0.28 — Acquisition-related provision expense — 0.30 — Non-core expenses 0.21 — — Tax on adjustment (0.05) (0.13) 0.14 Adjusted Diluted Earnings Per Common Share - non-GAAP $ 3.89 $ 4.20 $ 3.38 1 Non-core expenses include one-time charges consisting of $6.3 million from early retirement and severance costs, $4.3 million from the FDIC special assessment, and $2.1 million from a lease termination.
Preferred Stock As part of the Level One acquisition, the Corporation issued 10,000 shares of newly created 7.5 percent non-cumulative perpetual preferred stock, with a liquidation preference of $2,500 per share, in exchange for the outstanding Level One Series B preferred stock, and as part of that exchange, each outstanding Level One depositary share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depositary share of the Corporation representing a 1/100th interest in a share of its newly issued preferred stock.
CAPITAL Preferred Stock As part of the Level One acquisition, the Corporation issued 10,000 shares of newly created 7.5 percent non-cumulative perpetual preferred stock, with a liquidation preference of $2,500 per share, in exchange for the outstanding Level One Series B preferred stock, and as part of that exchange, each outstanding Level One depositary share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depositary share of the Corporation representing a 1/100th interest in a share of its newly issued preferred stock.
Results for rising 200 basis points and falling 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at December 31, 2022. The change from the base case represents cumulative net interest income over a twelve-month time horizon.
Results for rising 200 basis points and falling 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at December 31, 2023 and 2022. The change from the base case represents cumulative net interest income over a twelve-month time horizon.
As noted above, the derivative hedge liability increased $50.8 million from December 31, 2021. At December 31, 2021, the Corporation accrued $46.1 million of trade date accounting related to loan and investment securities purchases, of which, there was no accrual at December 31, 2022.
Also as noted above, the derivative hedge liability increased $50.8 million from December 31, 2021. At December 31, 2021, the Corporation accrued $46.1 million of trade date accounting related to loan and investment securities purchases, of which, there was no accrual at December 31, 2022.
The comparative rising 200 basis points and falling 100 basis points scenarios below, as of December 31, 2022, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario.
The comparative rising 200 basis points and falling 100 basis points scenarios below, as of December 31, 2023 and 2022, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario.
The Corporation’s allowance for credit losses - loans ("ACL - loans") totaled $223.3 million as of December 31, 2022 and equaled 1.86 percent of total loans, compared to $195.4 million and 2.11 percent of total loans at December 31, 2021.
The Corporation’s allowance for credit losses - loans totaled $223.3 million as of December 31, 2022 and equaled 1.86 percent of total loans, compared to $195.4 million and 2.11 percent of total loans at December 31, 2021.
AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROVISION EXPENSE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS The Corporation adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL") on January 1, 2021.
AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROVISION EXPENSE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS The Corporation adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) on January 1, 2021.
The Bank includes 122 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
The Bank includes 116 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of earning assets and interest-bearing liabilities.
Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on loan and investment-related assets, and the composition and maturity of earning assets and interest-bearing liabilities.
Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, interest-bearing and demand deposits, reflect management's best estimate of expected future behavior. Historical retention rate assumptions are applied to non-maturity deposits for modeling purposes.
Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, interest-bearing and demand deposits, reflect management’s best estimate of expected future behavior. Historical retention rate assumptions are applied to nonmaturity deposits for modeling purposes.
As of December 31, 2022, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.
As of December 31, 2023, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.
The acquisition-related expenses were primarily contract termination charges, core system conversion expenses, transaction advisory services, and employee retention bonuses and severance. Additionally, $20.0 million of post-acquisition non-interest expenses related to Level One operations were recorded during 2022, which primarily included $13.8 million in salaries and employee benefits and $3.1 million in net occupancy expenses.
The acquisition-related expenses were primarily contract termination charges, core system conversion expenses, transaction advisory services, and employee retention bonuses and severance. Additionally, $20.0 million of post-acquisition noninterest expenses related to Level One operations were recorded during 2022, which primarily included $13.8 million in salaries and employee benefits and $3.1 million in net occupancy expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The tables within the “NON-GAAP FINANCIAL MEASURES” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations reconcile traditional GAAP measures to these non-GAAP financial measures at December 31, 2022 and December 31, 2021.
The tables within the “NON-GAAP FINANCIAL MEASURES” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations reconcile traditional GAAP measures to these non-GAAP financial measures at December 31, 2023 and December 31, 2022.
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. 46 PART II: ITEM 7.
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.
The ACL - loans increased $16.6 million in connection with the Level One acquisition for CECL Day 1 purchased credit deteriorated ("PCD") loans and provision expense of $14.0 million was recorded for CECL Day 1 non-PCD loans. Additionally, provision expense of $2.8 million was recorded for CECL Day 1 unfunded commitments, which increased other liabilities.
The ACL - loans increased $16.6 million in connection with the Level One acquisition for CECL Day 1 PCD loans and provision expense of $14.0 million was recorded for CECL Day 1 non-PCD loans. Additionally, provision expense of $2.8 million was recorded for CECL Day 1 unfunded commitments, which increased other liabilities.
Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases. 47 PART II: ITEM 7. AND ITEM 7A.
Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases. 40 PART II: ITEM 7. AND ITEM 7A.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and within the "LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and within the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the "LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
DEPOSITS and NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
DEPOSITS and NOTE 12. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly. Management believes that the Corporation's liquidity and interest sensitivity position at December 31, 2022 remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk. 51 PART II: ITEM 7. AND ITEM 7A.
GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly. Management believes that the Corporation’s liquidity and interest sensitivity position at December 31, 2023 remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk. 52 PART II: ITEM 7. AND ITEM 7A.
Adjusted earnings per share, excluding PPP loans and acquisition-related expenses, are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance.
Adjusted earnings per share, excluding PPP loan income, acquisition-related expenses and non-core expenses, are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance.
The Corporation’s effective tax rate, which was 13.1 percent in 2022 and 14.6 percent in 2021, is lower than the blended effective statutory federal and state rates primarily due to the Corporation’s income on tax-exempt securities and loans, income generated by the subsidiaries operating in a state with no state or local income tax, income tax credits generated from investments in affordable housing projects, and tax-exempt earnings from bank-owned life insurance contracts.
The Corporation’s effective tax rate, which was 13.7 percent in 2023 and 13.1 percent in 2022, is lower than the blended effective statutory federal and state rates primarily due to the Corporation’s income on tax-exempt securities and loans, income generated by the subsidiaries operating in a state with no state or local income tax, income tax credits generated from investments in affordable housing projects, and tax-exempt earnings from bank-owned life insurance contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents the Corporation’s interest rate sensitivity analysis as of December 31, 2022.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents the Corporation’s interest rate sensitivity analysis as of December 31, 2023.
The $85.2 million increase in the Corporation’s net deferred tax asset was primarily due to accounting for unrealized gains and losses on available for sale securities and an increase in CECL from the acquisition of Level One. The Corporation's other assets increased $81.5 million from December 31, 2021.
The $85.2 million increase in the Corporation’s net deferred tax asset was primarily due to accounting for unrealized gains and losses on available for sale securities and an increase in CECL from the acquisition of Level One. The Corporation’s other assets increased $145.4 million from December 31, 2021.
Non-accrual loans totaled $42.3 million, a decrease of $738,000 from December 31, 2021, but when considering the non-accrual loans acquired from Level One of $9.4 million, non-accruals decreased $10.1 million. The coverage ratio of ACL - Loans to non-accrual loans is a robust 527.5 percent. Additional details of the Corporation's allowance methodology and asset quality are discussed within NOTE 5.
Nonaccrual loans totaled $42.3 million, a decrease of $738,000 from December 31, 2021, but when considering the nonaccrual loans acquired from Level One of $9.4 million, nonaccruals decreased $10.1 million. The coverage ratio of ACL - Loans to nonaccrual loans is a robust 527.5 percent. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the "LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and within the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Return on average tangible assets is tangible net income available to common stockholders expressed as a percentage of average tangible assets. NET INTEREST INCOME Net interest income is the most significant component of the Corporation's earnings, comprising 82.8 percent of revenues for the year ended December 31, 2022.
Return on average tangible assets is tangible net income available to common stockholders expressed as a percentage of average tangible assets. NET INTEREST INCOME Net interest income is the most significant component of the Corporation’s earnings, comprising 83.8 percent of revenues for the year ended December 31, 2023.
The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base. Federal funds purchased and securities sold under agreements to repurchase are also considered a source of liquidity. In addition, FHLB advances are utilized as a funding source.
The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base. Federal funds purchased and securities sold under agreements to repurchase are also considered a source of liquidity. In addition, FHLB advances and Federal Reserve Discount Window borrowings are utilized as funding sources.
Securities classified as held to maturity and that are maturing in one year or less totaled $13.7 million at December 31, 2022. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.
Securities classified as held to maturity and that are maturing in one year or less totaled $3.0 million at December 31, 2023. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.
The Corporation's non-performing assets plus accruing loans 90 days or more delinquent and individually evaluated loans are presented in the table below.
The Corporation’s nonperforming assets plus accruing loans 90 days or more delinquent and individually evaluated loans are presented in the table below.
GOODWILL As of October 1, 2022 and October 1, 2021, the Corporation performed its annual goodwill impairment testing and in each valuation, the fair value exceeded the Corporation's carrying value; therefore, it was concluded goodwill was not impaired as of either date. The Level One acquisition on April 1, 2022 resulted in $166.6 million of goodwill.
GOODWILL 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. The Level One acquisition on April 1, 2022 resulted in $166.6 million of goodwill.
RESULTS OF OPERATIONS - 2022 The Corporation reported net income available to common stockholders and diluted earnings per common share for the year ended 2022 of $220.7 million and $3.81 per diluted common share, respectively, compared to $205.5 million and $3.81 per diluted common share, respectively, for the year ended 2021.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - 2022 The Corporation reported net income available to common stockholders and diluted earnings per common share for the year ended 2022 of $220.7 million and $3.81 per diluted common share, respectively, compared to $205.5 million and $3.81 per diluted common share, respectively, for the year ended 2021.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Allowance for Credit Losses - Loans As discussed in NOTE 5.
For a complete discussion of the Corporation’s significant accounting policies see NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Allowance for Credit Losses - Loans As discussed in NOTE 5.
The composition of non-performing assets plus accruing loans 90-days or more delinquent is reflected in the following table.
The composition of nonperforming assets plus accruing loans 90-days or more delinquent is reflected in the following table.
CECL replaces the previous "incurred loss" model with an "expected loss" model of measuring credit losses, which encompasses allowances for losses expected to be incurred over the life of the portfolio.
CECL replaces the previous “incurred loss” model with an “expected loss” model of measuring credit losses, which encompasses allowances for losses expected to be incurred over the life of the portfolio.
Additionally, the interest rate risk is included as part of the Corporation’s interest simulation discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK”. Subordinated debentures and term loans increased $32.7 million compared to December 31, 2021 due to the acquisition of Level One.
Additionally, the interest rate risk is included as part of the Corporation’s interest simulation discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK”. Subordinated debentures and term loans increased $7.3 million compared to December 31, 2022.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-GAAP financial measures such as tangible common equity to tangible assets, tangible earnings per share, return on average tangible assets and return on average tangible equity are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders.
Non-GAAP financial measures such as tangible common equity to tangible assets, tangible earnings per share, return on average tangible assets and return on average tangible equity are important measures of the strength of the Corporation’s capital and ability to generate earnings on tangible common equity invested by our shareholders.
The Corporation's tangible common equity measures are capital adequacy metrics that are meaningful to the Corporation, as well as analysts and investors, in assessing the Corporation's use of equity and in facilitating period-to-period and company-to-company comparisons. Tangible common equity to tangible assets ratio was 7.34 percent at December 31, 2022, and 9.01 percent at December 31, 2021.
The Corporation’s tangible common equity measures are capital adequacy metrics that are meaningful to the Corporation, as well as analysts and investors, in assessing the Corporation’s use of equity and in facilitating period-to-period and company-to-company comparisons. Tangible common equity to tangible assets ratio was 8.40 percent at December 31, 2023, and 7.31 percent at December 31, 2022.
Banks with lower capital levels are deemed to be “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized”, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice.
Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice.
The Level One acquisition contributed to an increase in the right of use lease asset of $5.8 million related to the addition of Level One's leased facilities and an increase in mortgage servicing rights of $3.4 million related to Level One's mortgage servicing portfolio.
The Level One acquisition contributed to an increase in the right of use lease asset of $5.8 million related to the addition of Level One’s leased facilities and an increase in mortgage servicing rights of $3.4 million related to Level One’s mortgage servicing portfolio. 39 PART II: ITEM 7. AND ITEM 7A.
The Corporation also recognized fair value accretion income on purchased loans, which is included in interest income, of $10.1 million, which accounted for 6 basis points of net interest margin in the year ended December 31, 2022.
The Corporation also recognized fair value accretion income on purchased loans, which is included in interest income, of $8.1 million, which accounted for 5 basis points of net interest margin in the year ended December 31, 2023.
Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations. December 31, 2022 December 31, 2021 Rising 200 basis points from base case 2.8% 1.4 % Falling 100 basis points from base case (2.3)% (0.9) % 52 PART II: ITEM 7. AND ITEM 7A.
Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations. December 31, 2023 December 31, 2022 Rising 200 basis points from base case 4.0% 2.8 % Falling 100 basis points from base case (5.0)% (2.3) % 53 PART II: ITEM 7. AND ITEM 7A.
Federal funds purchased and Federal Home Loan Bank advances increased $171.6 million and $489.6 million, respectively, compared to December 31, 2021 as the Corporation utilized liquidity sources to fund organic loan growth.
Total borrowings increased $679.7 million as of December 31, 2022, compared to December 31, 2021. Federal funds purchased and Federal Home Loan Bank advances increased $171.6 million and $489.6 million, respectively, compared to December 31, 2021 as the Corporation utilized liquidity sources to fund organic loan growth.
The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios. There are five capital categories defined in the regulations, ranging from “well capitalized” to “critically undercapitalized”.
The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity’s activities that are not part of the calculated ratios. There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized.
ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 44 PART II: ITEM 7. AND ITEM 7A.
INCOME TAX of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 45 PART II: ITEM 7. AND ITEM 7A.
Annualized amounts are computed using a 30/360 day basis. (2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2022, 2021 and 2020. These totals equal $24,590, $20,585 and $16,966, respectively. (3) Non-accruing loans have been included in the average balances.
Annualized amounts are computed using a 30/360 day basis. (2) Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2023, 2022 and 2021. These totals equal $23.9 million, $24.6 million and $20.6 million, respectively. (3) Non accruing loans have been included in the average balances.
The majority of the organic deposit decline was due to decreases in non-maturity deposits of $513.5 million, which was offset by increases in maturity deposits of $232.9 million when compared to December 31, 2021. Higher interest rates have resulted in customers migrating funds from non-maturity products into maturity time deposit products. 53 PART II: ITEM 7. AND ITEM 7A.
The majority of the organic deposit decline was due to decreases in nonmaturity deposits of $513.5 million, which was offset by increases in maturity deposits of $232.9 million when compared to December 31, 2021. Higher interest rates have resulted in customers migrating funds from nonmaturity products into maturity time deposit products.
These non-GAAP financial measures are also used by management to assess the performance of the Corporation's business, because management does not consider these items to be relevant to ongoing financial performance on a per share basis. 39 PART II: ITEM 7. AND ITEM 7A.
These non-GAAP financial measures are also used by management to assess the performance of the Corporation’s business, because management does not consider these items to be relevant to ongoing financial performance on a per share basis.
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities. (5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets.
(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities. (5) Net Interest Margin (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average earning assets. 44 PART II: ITEM 7.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the "LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. 37 PART II: ITEM 7. AND ITEM 7A.
The lower effective income tax rate in 2022 compared to 2021 was primarily driven by an increases in tax-exempt earnings and gains on life insurance, which are also non-taxable. The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 19.
The higher effective income tax rate in 2023 compared to 2022 was primarily driven by decreases in tax-exempt earnings and gains on life insurance, which are also non-taxable. The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 20.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basel III requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer.
Basel III requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer.
Details of the Corporation's acquisitions are included in NOTE 2. ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Additional details regarding the acquisition are discussed within NOTE 2. ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category. 45 PART II: ITEM 7. AND ITEM 7A.
Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.
The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $2.0 billion at December 31, 2022, a decrease of $367.9 million, or 15.7 percent, from December 31, 2021. Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity.
The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1.6 billion at December 31, 2023, a decrease of $349.5 million, or 17.7 percent, from December 31, 2022. Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity.
(Dollars in Thousands) December 31, 2022 December 31, 2021 December 31, 2020 Net charge-offs: Commercial and industrial loans $ 347 $ 5,185 $ 7,794 Agricultural land, production and other farm loans (4) (60) (2) Real estate loans Construction (863) 5 (101) Commercial real estate, non-owner occupied 2,817 3,334 (148) Commercial real estate, owner occupied (896) 619 56 Residential (4) (283) (160) Home equity 526 157 487 Individuals loans for household and other personal expenditures 751 349 383 Public finance and other commercial loans — — — Total net charge-offs $ 2,674 $ 9,306 $ 8,309 Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on non-performing loans, past and anticipated credit loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding.
(Dollars in Thousands) December 31, 2023 December 31, 2022 December 31, 2021 Net charge-offs: Commercial and industrial loans $ 22,269 $ 347 $ 5,185 Agricultural land, production and other farm loans — (4) (60) Real estate loans Construction — (863) 5 Commercial real estate, non-owner occupied 20 2,817 3,334 Commercial real estate, owner occupied 36 (896) 619 Residential 471 (4) (283) Home equity 1,856 526 157 Individuals loans for household and other personal expenditures 991 751 349 Total net charge-offs $ 25,643 $ 2,674 $ 9,306 Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on nonperforming loans, past and anticipated credit loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding.
The Corporation continued to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized.” Details of the Corporation's stock repurchase program and regulatory capital ratios are discussed within the “CAPITAL” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Corporation continued to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized.” Details of the regulatory capital ratios are discussed within the “CAPITAL” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. 38 PART II: ITEM 7. AND ITEM 7A.
For the twelve months ended December 31, 2022, there was one individual charge-off greater than $500,000 that totaled $2.8 million. For the twelve months ended December 31, 2022, there were two individual recoveries greater than $500,000 that totaled $1.2 million. For the twelve months ended December 31, 2021, there were four individual charge-offs greater than $500,000 that totaled $9.0 million.
For the twelve months ended December 31, 2023, there were not any individual recoveries greater than $500,000. For the twelve months ended December 31, 2022, there was one individual charge-off greater than $500,000 that totaled $2.8 million. For the twelve months ending December 31, 2022, there were two individual recoveries greater than $500,000 that totaled $1.2 million.
These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements. Liquidity is monitored and closely managed by the asset/liability committee.
These funds are necessary in order to meet financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements. Liquidity is monitored and closely managed by the asset/liability committee.
Under that phase-in schedule, the cumulative effect of the adoption will be fully reflected in regulatory capital on January 1, 2024.
Under that phase-in schedule, the cumulative effect of the adoption will be fully reflected in regulatory capital on January 1, 2024. 46 PART II: ITEM 7. AND ITEM 7A.
These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but retain the effect of accumulated other comprehensive gains (losses) in shareholder's equity.
These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but retain the effect of accumulated other comprehensive gains (losses) in shareholder’s equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME TAXES The Corporation’s federal statutory income tax rate for 2022 is 21 percent and its state tax rate varies from 0 to 9.5 percent depending on the state in which the subsidiary company operates.
INCOME TAXES The Corporation’s federal statutory income tax rate for 2023 is 21 percent and its state tax rate varies from 0 to 9.5 percent depending on the state in which the subsidiary company operates.
Interest bearing deposits decreased $348.1 million from December 31, 2021 to December 31, 2022 as excess liquidity was used to fund organic loan growth. Total investment securities decreased $260.6 million from December 31, 2021.
Cash and due from banks and interest-bearing deposits decreased from December 31, 2021 by $44.6 million and $348.1 million, respectively, as excess cash was used to fund organic loan growth. Total investment securities decreased $260.6 million from December 31, 2021.
Summarized credit-related financial instruments at December 31, 2022 are as follows: (Dollars in Thousands) December 31, 2022 Amounts of Commitments: Loan commitments to extend credit $ 4,950,724 Standby letters of credit 40,784 $ 4,991,508 Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.
Summarized credit-related financial instruments at December 31, 2023 are as follows: (Dollars in Thousands) December 31, 2023 Amounts of Commitments: Loan commitments to extend credit $ 5,025,790 Standby letters of credit 65,580 $ 5,091,370 Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.
As a result of the issuance, the Corporation had $25.0 million of outstanding preferred stock at December 31, 2022. During the twelve months ended December 31, 2022, the Corporation declared and paid dividends of $46.88 per share (equivalent to $0.4688 per depositary share) equal to $1.4 million.
The Corporation had $25.0 million of outstanding preferred stock at December 31, 2023 and 2022. During the twelve months ended December 31, 2023, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), equal to $1.9 million.
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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANGIBLE EARNINGS PER SHARE, RETURN ON TANGIBLE ASSETS AND RETURN ON TANGIBLE EQUITY - non-GAAP (Dollars in thousands, except per share amounts) December 31, 2022 December 31, 2021 December 31, 2020 Average goodwill (GAAP) $ 671,485 $ 545,374 $ 543,919 Average other intangibles (GAAP) 35,885 27,590 32,106 Average deferred tax on other intangibles (GAAP) (7,567) (5,452) (6,648) Intangible adjustment (non-GAAP) $ 699,803 $ 567,512 $ 569,377 Average stockholders' equity (GAAP) $ 1,972,445 $ 1,866,632 $ 1,825,135 Average preferred stock (GAAP) (18,875) (125) (125) Intangible adjustment (non-GAAP) (699,803) (567,512) (569,377) Average tangible capital (non-GAAP) $ 1,253,767 $ 1,298,995 $ 1,255,633 Average assets (GAAP) $ 17,220,002 $ 14,830,397 $ 13,466,269 Intangible adjustment (non-GAAP) (699,803) (567,512) (569,377) Average tangible assets (non-GAAP) $ 16,520,199 $ 14,262,885 $ 12,896,892 Net income available to common stockholders (GAAP) $ 220,683 $ 205,531 $ 148,600 Other intangible amortization, net of tax (GAAP) 6,537 4,540 4,730 Preferred stock dividend 1,406 — — Tangible net income available to common stockholders (non-GAAP) $ 228,626 $ 210,071 $ 153,330 Per Share Data: Diluted net income available to common stockholders (GAAP) $ 3.81 $ 3.81 $ 2.74 Diluted tangible net income available to common stockholders (non-GAAP) $ 3.95 $ 3.89 $ 2.83 Ratios: Return on average GAAP capital (ROE) 11.19 % 11.01 % 8.14 % Return on average tangible capital 18.12 % 16.17 % 12.21 % Return on average assets (ROA) 1.29 % 1.39 % 1.10 % Return on average tangible assets 1.38 % 1.47 % 1.19 % Return on average tangible capital is tangible net income available to common stockholders expressed as a percentage of average tangible capital.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANGIBLE EARNINGS PER SHARE, RETURN ON TANGIBLE ASSETS AND RETURN ON TANGIBLE EQUITY - non-GAAP (Dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 December 31, 2021 Average goodwill (GAAP) $ 712,002 $ 671,485 $ 545,374 Average other intangibles (GAAP) 31,331 35,885 27,590 Average deferred tax on other intangibles (GAAP) (6,731) (7,567) (5,452) Intangible adjustment (non-GAAP) $ 736,602 $ 699,803 $ 567,512 Average stockholders' equity (GAAP) $ 2,127,262 $ 1,972,445 $ 1,866,632 Average preferred stock (GAAP) (25,125) (18,875) (125) Intangible adjustment (non-GAAP) (736,602) (699,803) (567,512) Average tangible capital (non-GAAP) $ 1,365,535 $ 1,253,767 $ 1,298,995 Average assets (GAAP) $ 18,186,507 $ 17,220,002 $ 14,830,397 Intangible adjustment (non-GAAP) (736,602) (699,803) (567,512) Average tangible assets (non-GAAP) $ 17,449,905 $ 16,520,199 $ 14,262,885 Net income available to common stockholders (GAAP) $ 221,911 $ 220,683 $ 205,531 Other intangible amortization, net of tax (GAAP) 6,907 6,537 4,540 Preferred stock dividend 1,875 1,406 — Tangible net income available to common stockholders (non-GAAP) $ 230,693 $ 228,626 $ 210,071 Per Share Data: Diluted net income available to common stockholders (GAAP) $ 3.73 $ 3.81 $ 3.81 Diluted tangible net income available to common stockholders (non-GAAP) $ 3.85 $ 3.95 $ 3.89 Ratios: Return on average GAAP capital (ROE) 10.43 % 11.19 % 11.01 % Return on average tangible capital 16.76 % 18.12 % 16.17 % Return on average assets (ROA) 1.23 % 1.29 % 1.39 % Return on average tangible assets 1.32 % 1.38 % 1.47 % Return on average tangible capital is tangible net income available to common stockholders expressed as a percentage of average tangible capital.
Additional details of the changes in the Corporation's investment securities portfolio are discussed within NOTE 4. INVESTMENT SECURITIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Additional details of the changes in the Corporation’s investment securities portfolio are discussed within NOTE 4. INVESTMENT SECURITIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The Corporation’s total loan portfolio grew $492.0 million or 4.1 percent since December 31, 2022.
Deposits increased $1.7 billion from December 31, 2021, of which, the acquisition of Level One contributed $1.9 billion in deposits. When excluding the deposits related to the acquisition, the Corporation experienced an organic deposit decline of $280.6 million, or 2.2 percent. Additional details regarding the acquisition are discussed within NOTE 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Deposits increased $1.7 billion from December 31, 2021, of which, the acquisition of Level One contributed $1.9 billion in deposits. When excluding the deposits related to the acquisition, the Corporation experienced an organic deposit decline of $280.6 million, or 2.2 percent.
Income tax expense in 2022 was $33.6 million on pre-tax income of $255.7 million, or 13.1 percent. For 2021, income tax expense was $35.3 million on pre-tax income of $240.8 million, or 14.6 percent.
Income tax expense in 2023 was $35.4 million on pre-tax income of $259.2 million, or 13.7 percent. For 2022, income tax expense was $33.6 million on pre-tax income of $255.7 million, or 13.1 percent.
Interest costs increased 37 basis points, which mitigated a majority of the 50 basis point increase in asset yields and resulted in a 13 basis point FTE increase in net interest spread when compared to the same period in 2021.
Interest costs increased 195 basis points, which mitigated the 146 basis point increase in asset yields and resulted in a 49 basis point FTE decrease in net interest spread when compared to the same period in 2022.
The determination of the provision for credit losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio.
The determination of the provision for credit losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio. The allowance for credit losses remains robust, along with $23.2 million of fair value accretion remaining on the acquired portfolio.
For analytical purposes, net interest income is also presented on an FTE basis in the table that follows to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset.
For analytical purposes, net interest income is also presented on an FTE basis in the tables that follow to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for 2023, 2022, and 2021.
AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
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, of $49.1 million, as tier 2 capital.
The performance of any loan can be affected by external factors such as economic conditions, or internal factors specific to a particular borrower, such as the actions of a customer's internal management. At December 31, 2022, non-performing loans totaled $42.5 million, a decrease of $843,000 from December 31, 2021.
The performance of any loan can be affected by external factors such as economic conditions, or internal factors specific to a particular borrower, such as the actions of a customer’s internal management. At December 31, 2023, nonperforming loans totaled $53.6 million, an increase of $11.0 million from December 31, 2022.
Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate (Dollars in Thousands) 2022 2021 2020 Assets: Interest-bearing deposits $ 296,863 $ 2,503 0.84 % $ 521,637 $ 634 0.12 % $ 319,686 $ 938 0.29 % Federal Home Loan Bank stock 35,580 1,176 3.31 28,736 597 2.08 28,736 1,042 3.63 Investment Securities: (1) Taxable 2,056,586 38,354 1.86 1,751,910 29,951 1.71 1,282,827 24,440 1.91 Tax-exempt (2) 2,653,611 85,292 3.21 2,106,180 70,039 3.33 1,440,913 53,596 3.72 Total investment securities 4,710,197 123,646 2.63 3,858,090 99,990 2.59 2,723,740 78,036 2.87 Loans held for sale 14,715 692 4.70 19,190 747 3.89 18,559 781 4.21 Loans: (3) Commercial (6) 7,877,271 380,621 4.83 6,818,968 276,368 4.05 6,755,215 286,773 4.25 Real estate mortgage 1,471,802 51,853 3.52 916,314 34,783 3.80 889,083 40,002 4.50 Installment 785,520 37,302 4.75 683,925 26,111 3.82 718,815 30,708 4.27 Tax-exempt (2) 793,743 31,803 4.01 732,253 27,987 3.82 669,483 27,194 4.06 Total loans 10,943,051 502,271 4.59 9,170,650 365,996 3.99 9,051,155 385,458 4.26 Total earning assets 15,985,691 629,596 3.94 % 13,579,113 467,217 3.44 % 12,123,317 465,474 3.84 % Total non-earning assets 1,234,311 1,251,284 1,342,952 Total Assets $ 17,220,002 $ 14,830,397 $ 13,466,269 Liabilities: Interest-bearing deposits: Interest-bearing deposit accounts $ 5,206,131 $ 32,511 0.62 % $ 4,769,482 $ 14,512 0.30 % $ 4,009,566 $ 20,239 0.50 % Money market deposit accounts 2,915,397 19,170 0.66 2,351,803 3,203 0.14 1,769,478 7,810 0.44 Savings deposits 1,927,122 5,019 0.26 1,754,972 1,886 0.11 1,534,069 3,641 0.24 Certificates and other time deposits 881,176 6,239 0.71 783,733 3,718 0.47 1,346,967 20,050 1.49 Total interest-bearing deposits 10,929,826 62,939 0.58 9,659,990 23,319 0.24 8,660,080 51,740 0.60 Borrowings 888,392 21,864 2.46 639,791 12,633 1.97 768,238 14,641 1.91 Total interest-bearing liabilities 11,818,218 84,803 0.72 10,299,781 35,952 0.35 9,428,318 66,381 0.70 Noninterest-bearing deposits 3,268,417 2,516,241 2,068,026 Other liabilities 160,922 147,743 144,790 Total Liabilities 15,247,557 12,963,765 11,641,134 Stockholders' Equity 1,972,445 1,866,632 1,825,135 Total Liabilities and Stockholders' Equity $ 17,220,002 84,803 $ 14,830,397 35,952 $ 13,466,269 66,381 Net Interest Income (FTE) $ 544,793 $ 431,265 $ 399,093 Net Interest Spread (FTE) (4) 3.22 % 3.09 % 3.14 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 3.94 % 3.44 % 3.84 % Interest Expense / Average Earning Assets 0.53 % 0.26 % 0.55 % Net Interest Margin (FTE) (5) 3.41 % 3.18 % 3.29 % (1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment.
Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate (Dollars in Thousands) 2023 2022 2021 Assets: Interest-bearing deposits $ 431,581 $ 17,719 4.11 % $ 296,863 $ 2,503 0.84 % $ 521,637 $ 634 0.12 % Federal Home Loan Bank stock 41,319 3,052 7.39 35,580 1,176 3.31 28,736 597 2.08 Investment securities: (1) Taxable 1,854,438 35,207 1.90 2,056,586 38,354 1.86 1,751,910 29,951 1.71 Tax-exempt (2) 2,366,475 73,566 3.11 2,653,611 85,292 3.21 2,106,180 70,039 3.33 Total Investment Securities 4,220,913 108,773 2.58 4,710,197 123,646 2.63 3,858,090 99,990 2.59 Loans held for sale 21,766 1,292 5.94 14,715 692 4.70 19,190 747 3.89 Loans: (3) Commercial 8,519,706 603,611 7.08 7,877,271 380,621 4.83 6,818,968 276,368 4.05 Real estate mortgage 2,035,488 82,183 4.04 1,471,802 51,853 3.52 916,314 34,783 3.80 Installment 830,006 60,751 7.32 785,520 37,302 4.75 683,925 26,111 3.82 Tax-exempt (2) 891,008 40,448 4.54 793,743 31,803 4.01 732,253 27,987 3.82 Total Loans 12,297,974 788,285 6.41 10,943,051 502,271 4.59 9,170,650 365,996 3.99 Total Earning Assets 16,991,787 917,829 5.40 % 15,985,691 629,596 3.94 % 13,579,113 467,217 3.44 % Total Non-earning Assets 1,194,720 1,234,311 1,251,284 Total Assets $ 18,186,507 $ 17,220,002 $ 14,830,397 Liabilities: Interest-bearing deposits: Interest-bearing deposits $ 5,435,733 $ 138,012 2.54 % $ 5,206,131 $ 32,511 0.62 % $ 4,769,482 $ 14,512 0.30 % Money market deposits 2,884,271 83,777 2.90 2,915,397 19,170 0.66 2,351,803 3,203 0.14 Savings deposits 1,694,230 14,606 0.86 1,927,122 5,019 0.26 1,754,972 1,886 0.11 Certificates and other time deposits 1,923,268 69,697 3.62 881,176 6,239 0.71 783,733 3,718 0.47 Total Interest-bearing Deposits 11,937,502 306,092 2.56 10,929,826 62,939 0.58 9,659,990 23,319 0.24 Borrowings 1,111,472 42,394 3.81 888,392 21,864 2.46 639,791 12,633 1.97 Total Interest-bearing Liabilities 13,048,974 348,486 2.67 11,818,218 84,803 0.72 10,299,781 35,952 0.35 Noninterest-bearing deposits 2,783,996 3,268,417 2,516,241 Other liabilities 226,275 160,922 147,743 Total Liabilities 16,059,245 15,247,557 12,963,765 Stockholders' Equity 2,127,262 1,972,445 1,866,632 Total Liabilities and Stockholders' Equity $ 18,186,507 348,486 $ 17,220,002 84,803 $ 14,830,397 35,952 Net Interest Income (FTE) $ 569,343 $ 544,793 $ 431,265 Net Interest Spread (FTE) (4) 2.73 % 3.22 % 3.09 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 5.40 % 3.94 % 3.44 % Interest Expense / Average Earning Assets 2.05 % 0.53 % 0.26 % Net Interest Margin (FTE) (5) 3.35 % 3.41 % 3.18 % (1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment.
The Level One acquisition contributed to the increase in borrowings due to the assumption of $160.0 million of Federal Home Loan Bank advances and $32.6 million of subordinated debentures. Additional details of the Corporation's borrowings are discussed within NOTE 11.
The Level One acquisition contributed to the increase in borrowings due to the assumption of $160.0 million of Federal Home Loan Bank advances and $32.6 million of subordinated debentures. Additional details of the Corporation’s borrowings are discussed within NOTE 12. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
(Dollars in Thousands) 2022 2021 2020 Allowance for loan/credit losses: Balances, December 31, 2021 $ 195,397 $ 130,648 $ 80,284 Impact of adopting ASC 326 — 74,055 — Balances, January 1, 2021 Post-ASC 326 adoption — 204,703 — Loans charged off 6,601 11,884 10,485 Recoveries on loans 3,927 2,578 2,176 Net charge-offs 2,674 9,306 8,309 Provision for loan/credit losses — — 58,673 CECL Day 1 non-PCD provision for credit losses 13,955 — — CECL Day 1 PCD ACL 16,599 — — Ending balance, December 31, 2021 $ 223,277 $ 195,397 $ 130,648 Ratio of net charge-offs during the period to average loans outstanding during the period 0.02 % 0.10 % 0.09 % Ratio of allowance for credit losses - loans to non-accrual loans 527.5 % 453.8 % 212.5 % Ratio of allowance for credit losses - loans to total loans outstanding 1.86 % 2.11 % 1.41 % There was $16.8 million in provision for credit losses for the twelve months ended December 31, 2022, compared to no provision for credit losses for the twelve months ended December 31, 2021.
(Dollars in Thousands) 2023 2022 2021 Allowance for credit losses: Balances, December 31, 2022 $ 223,277 $ 195,397 $ 130,648 Impact of adopting ASC 326 — — 74,055 Balances, January 1, 2021 Post-ASC 326 adoption — — 204,703 Loans charged off 28,039 6,601 11,884 Recoveries on loans 2,396 3,927 2,578 Net charge-offs 25,643 2,674 9,306 Provision for credit losses - loans 7,300 — — CECL Day 1 non-PCD provision for credit losses — 13,955 — CECL Day 1 PCD ACL — 16,599 — Ending balance, December 31, 2023 $ 204,934 $ 223,277 $ 195,397 Ratio of net charge-offs during the period to average loans outstanding during the period 0.21 % 0.02 % 0.10 % Ratio of allowance for credit losses - loans to nonaccrual loans 382.5 % 527.5 % 453.8 % Ratio of allowance for credit losses - loans to total loans outstanding 1.64 % 1.86 % 2.11 % In 2023, there was $7.3 million in provision for credit losses - loans, which was offset by a reserve release of $3.8 million related to the allowance for unfunded commitments, resulting in a net provision expense for the year ended December 31, 2023 of $3.5 million.
(Dollars in Thousands) December 31, 2022 December 31, 2021 Non-performing assets and loans 90-days or more delinquent: Commercial and industrial loans $ 4,439 $ 8,273 Agricultural land, production and other loans to farmers 54 631 Real estate loans Construction 12 885 Commercial real estate, non-owner occupied 25,494 23,125 Commercial real estate, owner occupied 3,550 432 Residential 14,315 9,723 Home equity 2,742 1,840 Individual's loans for household and other personal expenditures 110 3 Non-performing assets and loans 90-days or more delinquent $ 50,716 $ 44,912 48 PART II: ITEM 7.
(Dollars in Thousands) December 31, 2023 December 31, 2022 Nonperforming assets and loans 90-days or more delinquent: Commercial and industrial loans $ 9,136 $ 4,439 Agricultural land, production and other loans to farmers 58 54 Real estate loans Construction 520 12 Commercial real estate, non-owner occupied 16,652 25,494 Commercial real estate, owner occupied 3,041 3,550 Residential 25,178 14,315 Home equity 3,945 2,742 Individual's loans for household and other personal expenditures 19 110 Public finance and other commercial loans 34 — Nonperforming assets and loans 90-days or more delinquent $ 58,583 $ 50,716 49 PART II: ITEM 7.
The largest loan classes that experienced increases from December 31, 2020 were public finance and other commercial loans, real estate construction loans and commercial real estate (owner occupied) loans.
The loan classes that experienced the largest increases from December 31, 2022 were in commercial and industrial, residential real estate, and construction real estate loans. The loan classes that experienced the largest decreases from December 31, 2022 were in owner occupied commercial real estate and home equity loans.

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