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What changed in FIRST MERCHANTS CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FIRST MERCHANTS CORP's 2023 and 2024 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 2024 report.

+310 added−361 removedSource: 10-K (2025-02-24) vs 10-K (2024-02-29)

Top changes in FIRST MERCHANTS CORP's 2024 10-K

310 paragraphs added · 361 removed · 250 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

73 edited+12 added−17 removed156 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) 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.
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) 2024 2023 2022 Assets: Interest-bearing deposits $ 418,163 $ 16,992 4.06 % $ 431,581 $ 17,719 4.11 % $ 296,863 $ 2,503 0.84 % Federal Home Loan Bank stock 41,736 3,527 8.45 41,319 3,052 7.39 35,580 1,176 3.31 Investment securities: (1) Taxable 1,759,578 36,086 2.05 1,854,438 35,207 1.90 2,056,586 38,354 1.86 Tax-exempt (2) 2,200,466 67,705 3.08 2,366,475 73,566 3.11 2,653,611 85,292 3.21 Total Investment Securities 3,960,044 103,791 2.62 4,220,913 108,773 2.58 4,710,197 123,646 2.63 Loans held for sale 29,650 1,792 6.04 21,766 1,292 5.94 14,715 692 4.70 Loans: (3) Commercial 8,687,638 641,393 7.38 8,519,706 603,611 7.08 7,877,271 380,621 4.83 Real estate mortgage 2,158,743 94,890 4.40 2,035,488 82,183 4.04 1,471,802 51,853 3.52 HELOC and installment 830,079 65,577 7.90 830,006 60,751 7.32 785,520 37,302 4.75 Tax-exempt (2) 928,214 43,370 4.67 891,008 40,448 4.54 793,743 31,803 4.01 Total Loans 12,634,324 847,022 6.70 12,297,974 788,285 6.41 10,943,051 502,271 4.59 Total Earning Assets 17,054,267 971,332 5.69 % 16,991,787 917,829 5.40 % 15,985,691 629,596 3.94 % Total Non-earning Assets 1,346,228 1,194,720 1,234,311 Total Assets $ 18,400,495 $ 18,186,507 $ 17,220,002 Liabilities: Interest-bearing deposits: Interest-bearing deposits $ 5,506,492 $ 157,984 2.87 % $ 5,435,733 $ 138,012 2.54 % $ 5,206,131 $ 32,511 0.62 % Money market deposits 3,061,461 106,026 3.46 2,884,271 83,777 2.90 2,915,397 19,170 0.66 Savings deposits 1,463,707 14,587 1.00 1,694,230 14,606 0.86 1,927,122 5,019 0.26 Certificates and other time deposits 2,413,900 107,530 4.45 1,923,268 69,697 3.62 881,176 6,239 0.71 Total Interest-bearing Deposits 12,445,560 386,127 3.10 11,937,502 306,092 2.56 10,929,826 62,939 0.58 Borrowings 1,005,017 40,765 4.06 1,111,472 42,394 3.81 888,392 21,864 2.46 Total Interest-bearing Liabilities 13,450,577 426,892 3.17 13,048,974 348,486 2.67 11,818,218 84,803 0.72 Noninterest-bearing deposits 2,371,004 2,783,996 3,268,417 Other liabilities 326,423 226,275 160,922 Total Liabilities 16,148,004 16,059,245 15,247,557 Stockholders' Equity 2,252,491 2,127,262 1,972,445 Total Liabilities and Stockholders' Equity $ 18,400,495 426,892 $ 18,186,507 348,486 $ 17,220,002 84,803 Net Interest Income (FTE) $ 544,440 $ 569,343 $ 544,793 Net Interest Spread (FTE) (4) 2.52 % 2.73 % 3.22 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 5.69 % 5.40 % 3.94 % Interest Expense / Average Earning Assets 2.50 % 2.05 % 0.53 % Net Interest Margin (FTE) (5) 3.19 % 3.35 % 3.41 % ______________________________ (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.
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 at 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.
Additionally, the Bank’s Indiana public funds (state of Indiana and its political subdivisions) are insured by the the Public Deposit Insurance Fund (“PDIF”). The PDIF provides insurance to those Indiana public funds deposited in approved financial institutions which exceed the limits of coverage provided by any federal deposit insurance.
Additionally, the Bank’s Indiana public funds (state of Indiana and its political subdivisions) are insured by the Public Deposit Insurance Fund (“PDIF”). The PDIF provides insurance to those Indiana public funds deposited in approved financial institutions which exceed the limits of coverage provided by any federal deposit insurance.
Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income (loss). Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss.
Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive loss. Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses.
The Corporation 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.
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 2024, 2023, 2022, and 2021.
Government-sponsored agency and mortgage-backed securities, all these securities are issued by a U.S. government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities.
Government-sponsored mortgage-backed securities, all these securities are issued by a U.S. government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities.
CREDIT LOSS CHARGE-OFF PROCEDURES The Corporation maintains an allowance to cover estimated credit losses in its loan portfolio. The allowance is increased by the provision for credit losses and decreased by charge-offs less recoveries.
CREDIT LOSS CHARGE-OFF PROCEDURES The Corporation maintains an allowance to cover estimated credit losses in its loan portfolio. The allowance is increased by the provision for credit losses - loans and decreased by charge-offs less recoveries.
Accordingly, the provision for credit losses is charged to earnings on an anticipatory basis and recognized credit losses, net of recoveries, are deducted from the established allowance. Over time, all net credit losses are charged to earnings.
Accordingly, the provision for credit losses - loans is charged to earnings on an anticipatory basis and recognized credit losses, net of recoveries, are deducted from the established allowance. Over time, all net credit losses are charged to earnings.
Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes.
BUSINESS Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes.
The Corporation has gained trust in the data for two reasons: (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.
The Corporation has gained trust in the data for two reasons: (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or losses resulting from the sale of certain securities has proven the data to be accurate over time.
BUSINESS LOAN MATURITIES The following tables present the maturity distribution of our loan portfolio, excluding loans held for sale, by collateral classification at December 31, 2023 according to contractual maturities of (1) one year or less, (2) after one year but within five years and (3) after five years.
BUSINESS LOAN MATURITIES The following tables present the maturity distribution of our loan portfolio, excluding loans held for sale, by collateral classification at December 31, 2024 according to contractual maturities of (1) one year or less, (2) after one year but within five years and (3) after five years.
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.
DEPOSITS The average balances, interest expense and average rates on deposits for the years ended December 31, 2024, 2023 and 2022 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.
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.
Historical loss rates associated with securities having similar grades as those in the Corporation’s portfolio have been insignificant. Furthermore, as of December 31, 2024, there were no past due principal and interest payments associated with these securities.
It is subject to the supervision of, and regulation by the Board of Governors of the Federal Reserve under the BHC Act, as amended. Bank holding companies are required to file periodic reports with and are subject to periodic examination by the Federal Reserve.
It is subject to the supervision of, and regulation by the Board of Governors of the Federal Reserve (“Federal Reserve”) under the BHC Act, as amended. Bank holding companies are required to file periodic reports with and are subject to periodic examination by the Federal Reserve.
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.
The Corporation and the Bank were well capitalized as of December 31, 2024. Consumer Financial Protection The Bank is subject to a number of federal and state consumer protection laws that govern its relationship with customers.
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.
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, 2024 U.S.
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.
Under that phase-in schedule, the cumulative effect of the adoption was 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.
Based on management’s judgment as to the appropriate level of the allowance for credit losses, the amount provided in any period may be greater or less than net credit losses for the same period. In any period, the determination of the provision for credit losses is based on management’s continuing review and evaluation of the loan portfolio.
Based on management’s judgment as to the appropriate level of the ACL - Loans, the amount provided in any period may be greater or less than net credit losses for the same period. In any period, the determination of the provision for credit losses - loans is based on management’s continuing review and evaluation of the loan portfolio.
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.
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 2024, 2023 and 2022. These totals equal $23.3 million, $23.9 million and $24.6 million for the years ended December 31, 2024, 2023, and 2022, respectively.
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.
There were no issuers included in the investment securities portfolio at December 31, 2024, 2023 or 2022 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.
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.
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, 2024 U.S.
“Critically undercapitalized” institutions may not, beginning 60 days after becoming “critically undercapitalized,” make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any transaction outside the ordinary course of business. In addition, “critically undercapitalized” institutions are subject to appointment of a receiver or conservator. 9 PART I: ITEM 1.
“Critically undercapitalized” institutions may not, beginning 60 days after becoming “critically undercapitalized,” make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any transaction outside the ordinary course of business. In addition, “critically undercapitalized” institutions are subject to appointment of a receiver or conservator.
Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss.
Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses.
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.
As of December 31, 2024, the amount available for dividends from the Corporation’s subsidiaries (both banking and non-banking), without prior regulatory approval or notice, was $283.4 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.
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.
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 2024, over 50 employees participated in this program.
It should be noted that a bank’s capital category is determined solely for the purpose of applying the FDIC’s “prompt corrective action” regulations and that the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects.
It should be noted that a bank’s capital category is determined solely for the purpose of applying the FDIC’s “prompt corrective action” regulations and that the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects. 9 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.
Details of the ACL - Loans 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 Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities held to maturity from the estimate of credit losses. With regard to U.S.
The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities held to maturity from the estimate of credit losses. With regard to U.S. Government-sponsored agency and U.S.
BUSINESS As of December 31, 2023, the Bank was “well capitalized” based on the “prompt corrective action” ratios described above.
As of December 31, 2024, the Bank was “well capitalized” based on the “prompt corrective action” ratios described above.
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.
The cost and yield for Federal Home Loan Bank stock is included in the table below. 2024 2023 2022 (Dollars in Thousands) Cost Yield Cost Yield Cost Yield Federal Home Loan Bank stock $ 41,691 8.5 % $ 41,769 7.3 % $ 38,525 3.1 % Total $ 41,691 8.5 % $ 41,769 7.3 % $ 38,525 3.1 % 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.
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.
At December 31, 2024, 2023, 2022, 2021, and 2020, the remaining fair value discount on acquired loans was $17.4 million, $23.2 million, $31.3 million, $10.9 million, and $23.0 million, respectively. 18 PART I: ITEM 1.
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 are the Corporation’s regulatory capital ratios as of December 31, 2024: Corporation Basel III Minimum Capital Required (1) Total risk-based capital to risk-weighted assets 13.31 % 10.50 % Tier 1 capital to risk-weighted assets 11.59 % 8.50 % Common equity tier 1 capital to risk-weighted assets 11.43 % 7.00 % Tier 1 capital to average assets 9.96 % 4.00 % (1) The Basel III Minimum Capital Required are inclusive of the 2.5 percent capital conservation buffer where applicable.
(2) Category includes commercial real estate, non-owner occupied and commercial real estate, owner occupied. In calculating the allowance for credit losses, the loan portfolio was pooled into loan segments with similar credit risk characteristics.
(2) Category includes commercial real estate, non-owner occupied and commercial real estate, owner occupied. In calculating the ACL - Loans, the loan portfolio was pooled into loan segments with similar credit risk characteristics.
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.
BUSINESS ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES Presented below is an analysis of the composition of the ACL - Loans and percent of loans in each category to total loans, by collateral segment, as of the years indicated. 2024 2023 2022 2021 2020 (Dollars in Thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Balance at December 31: Commercial $ 94,757 42.2 % $ 97,348 39.2 % $ 102,216 38.4 % $ 69,935 40.8 % $ 47,115 37.9 % Commercial real estate 51,099 26.7 % 44,048 28.5 % 46,839 30.4 % 60,665 33.8 % 51,070 41.8 % Construction 9,784 6.2 % 24,823 7.7 % 28,955 7.0 % 20,206 5.6 % — — % Consumer — — % — — % — — % — — % 9,648 1.4 % Residential — — % — — % — — % — — % 22,815 18.9 % Consumer & Residential 37,117 24.9 % 38,715 24.6 % 45,267 24.2 % 44,591 19.8 % — — % Totals $ 192,757 100.0 % $ 204,934 100.0 % $ 223,277 100.0 % $ 195,397 100.0 % $ 130,648 100.0 % The ACL - Loans decreased $12.2 million during the year ended December 31, 2024.
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.
SUMMARY OF CREDIT LOSS EXPERIENCE The following table summarizes the credit loss experience, by collateral segment, for the years indicated: (Dollars in Thousands) 2024 2023 2022 2021 2020 Allowance for credit losses - loans: Balances, January 1 $ 204,934 $ 223,277 $ 195,397 $ 130,648 $ 80,284 Impact of adopting ASC 326 — — — 74,055 — Balances, January 1, 2021 Post-ASC 326 adoption 204,934 223,277 195,397 204,703 80,284 Charge-offs: Commercial (1) (50,199) (23,264) (1,215) (5,849) (8,536) Commercial real estate (2) (352) (116) (3,017) (4,533) (313) Construction — — — (6) — Consumer — — — — (643) Residential — — — — (993) Consumer & Residential (3,692) (4,659) (2,369) (1,496) — Total Charge-offs (54,243) (28,039) (6,601) (11,884) (10,485) Recoveries: Commercial (1) 3,153 995 872 724 819 Commercial real estate (2) 236 60 1,096 580 431 Construction — — 863 1 — Consumer — — — — 260 Residential — — — — 666 Consumer & Residential 1,477 1,341 1,096 1,273 — Total Recoveries 4,866 2,396 3,927 2,578 2,176 Net Charge-offs (49,377) (25,643) (2,674) (9,306) (8,309) Provision for credit losses - loans 37,200 7,300 — — 58,673 CECL Day 1 non-PCD provision for credit losses - loans — — 13,955 — — CECL Day 1 PCD ACL - loans — — 16,599 — — Balances, December 31 $ 192,757 $ 204,934 $ 223,277 $ 195,397 $ 130,648 Ratio of net charge-offs during the period to average loans outstanding during the period 0.39 % 0.21 % 0.02 % 0.10 % 0.09 % (1) Category includes commercial and industrial, agricultural land, production and other loans to farmers, and other commercial loans.
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 following table shows the composition of the Corporation’s loan portfolio by collateral classification, including purchased credit deteriorated loans, for the years indicated: 2024 2023 2022 2021 2020 (Dollars in Thousands) Amount % Amount % Amount % Amount % Amount % Loans at December 31: Commercial and industrial loans (1) $ 4,114,292 32.0 % $ 3,670,948 29.4 % $ 3,437,126 28.6 % $ 2,714,565 29.4 % $ 2,776,699 30.0 % Agricultural land, production and other loans to farmers 256,312 2.0 263,414 2.1 241,793 2.0 246,442 2.7 281,884 3.0 Real estate loans: Construction 792,144 6.2 957,545 7.7 835,582 6.9 523,066 5.7 484,723 5.2 Commercial real estate, non-owner occupied 2,274,016 17.7 2,400,839 19.2 2,407,475 20.1 2,135,459 23.1 2,220,949 24.0 Commercial real estate, owner occupied 1,157,944 9.0 1,162,083 9.3 1,246,528 10.4 986,720 10.7 958,501 10.4 Residential 2,374,729 18.5 2,288,921 18.4 2,096,655 17.5 1,159,127 12.5 1,234,741 13.4 Home equity 659,811 5.1 617,571 4.9 630,632 5.3 523,754 5.7 508,259 5.5 Individuals' loans for household and other personal expenditures 166,028 1.3 168,388 1.3 175,211 1.4 146,092 1.5 129,479 1.5 Public finance and other commercial loans 1,059,083 8.2 956,318 7.7 932,892 7.8 806,636 8.7 647,939 7.0 Loans 12,854,359 100.0 % 12,486,027 100.0 % 12,003,894 100.0 % 9,241,861 100.0 % 9,243,174 100.0 % Allowance for loan/credit losses (192,757) (204,934) (223,277) (195,397) (130,648) Net Loans $ 12,661,602 $ 12,281,093 $ 11,780,617 $ 9,046,464 $ 9,112,526 (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.
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
Pertinent information with respect to borrowings maturing in one year or less is summarized below: (Dollars in Thousands) 2024 2023 2022 Weighted Average Interest Rate on Outstanding Balance at December 31: Federal funds purchased 2.3 % — % 3.5 % Securities sold under repurchase agreements (short-term portion) 2.0 % 2.3 % 1.3 % Federal Home Loan Bank advances (short-term portion) 4.0 % 2.8 % 2.4 % Subordinated debentures and other borrowings (short-term portion) 1.0 % 1.0 % 1.0 % Total short-term borrowings 2.6 % 2.4 % 2.4 % Weighted Average Interest Rate During the Year: Federal funds purchased 5.4 % 5.2 % 3.0 % Securities sold under repurchase agreements (short-term portion) 2.2 % 2.0 % 0.6 % Federal Home Loan Bank advances (short-term portion) 4.0 % 3.4 % 2.5 % Subordinated debentures and other borrowings (short-term portion) 1.2 % 0.8 % 0.7 % Total short-term borrowings 3.1 % 2.9 % 1.8 % Highest Amount Outstanding at Any Month End During the Year: Federal funds purchased $ 147,229 $ 188,329 $ 240,406 Securities sold under repurchase agreements (short-term portion) 194,177 242,194 218,882 Federal Home Loan Bank advances (short-term portion) 180,000 410,000 460,000 Subordinated debentures and other borrowings (short-term portion) $ 1,172 $ 1,182 $ 1,230 Total short-term borrowings $ 522,578 $ 841,705 $ 920,518 Average Amount Outstanding During the year: Federal funds purchased $ 8,920 $ 27,115 $ 44,041 Securities sold under repurchase agreements (short-term portion) 136,010 171,291 185,082 Federal Home Loan Bank advances (short-term portion) 100,190 208,251 265,822 Subordinated debentures and other borrowings (short-term portion) $ 1,166 $ 1,178 $ 1,212 Total short-term borrowings $ 246,286 $ 407,835 $ 496,157
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.
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.
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.
BUSINESS SHORT-TERM BORROWINGS Borrowings maturing in one year or less are included in the following table: Years Ended (Dollars in Thousands) December 31, 2024 December 31, 2023 December 31, 2022 Federal funds purchased $ 99,226 $ — $ 171,560 Securities sold under repurchase agreements (short-term portion) 142,876 157,280 167,413 Federal Home Loan Bank advances (short-term portion) 95,000 60,000 460,097 Subordinated debentures and other borrowings (short-term portion) $ 1,157 $ 1,176 $ 1,182 Total short-term borrowings $ 338,259 $ 218,456 $ 800,252 Securities sold under repurchase agreements are categorized as borrowings maturing within one year and are secured by U.S.
We believe in the power of inclusion and belonging. Best Places to Work / Employer of Choice : The Bank will continue to participate in the Best Places to Work surveys in the four states we operate. We constantly strive to be an employer of choice.
Best Places to Work / Employer of Choice : The Bank will continue to participate in the Best Places to Work surveys in the three states we operate. We constantly strive to be an employer of choice.
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.
At December 31, 2024, 2023, 2022, 2021, and 2020, non-accrual loans include assets acquired of $3.6 million, $5.2 million, $8.2 million, $3.2 million, and $7.9 million, respectively. Other real estate owned (“OREO”) at December 31, 2024 increased $0.1 million from the December 31, 2023 balance of $4.8 million.
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.
Volume and rate variances have been allocated on the basis of the absolute relationship between volume variances and rate variances. 2024 Compared to 2023 Increase (Decrease) Due To 2023 Compared to 2022 Increase (Decrease) Due To 2022 Compared to 2021 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 $ (547) $ (180) $ (727) $ 1,597 $ 13,619 $ 15,216 $ (383) $ 2,252 $ 1,869 Federal Home Loan Bank stock 31 444 475 217 1,659 1,876 166 413 579 Investment securities (6,812) 1,830 (4,982) (12,644) (2,229) (14,873) 22,353 1,303 23,656 Loans held for sale 476 24 500 388 212 600 (193) 138 (55) Loans 21,413 36,824 58,237 67,684 217,730 285,414 76,919 59,411 136,330 Totals 14,561 38,942 53,503 57,242 230,991 288,233 98,862 63,517 162,379 Interest Expense: Interest-bearing deposit accounts 1,818 18,154 19,972 1,496 104,005 105,501 1,440 16,559 17,999 Money market deposit accounts 5,386 16,863 22,249 (207) 64,814 64,607 941 15,026 15,967 Savings deposits (2,132) 2,113 (19) (676) 10,263 9,587 202 2,931 3,133 Certificates and other time deposits 19,927 17,906 37,833 14,157 49,301 63,458 508 2,013 2,521 Borrowings (4,215) 2,586 (1,629) 6,437 14,093 20,530 5,649 3,582 9,231 Totals 20,784 57,622 78,406 21,207 242,476 263,683 8,740 40,111 48,851 Change in net interest income (fully taxable equivalent basis) $ (6,223) $ (18,680) (24,903) $ 36,035 $ (11,485) 24,550 $ 90,122 $ 23,406 113,528 Tax equivalent adjustment using marginal rate of 21% for 2024, 2023 and 2022 617 647 (4,005) Change in net interest income $ (24,286) $ 25,197 $ 109,523 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.
Our stated mission to be the most attentive, knowledgeable, and high performing bank requires a dedicated and talented team of colleagues to succeed. Our employees prepare, every day, to deliver a customer and colleague experience that grows the Corporation.
Our stated mission to be the most attentive, knowledgeable, and high performing bank requires a dedicated and talented team of colleagues to succeed. Our employees prepare, every day, to deliver a customer and colleague experience that grows the Corporation. We seek to attract, retain and develop a team of committed colleagues who are capable of delivering a whole-bank delivery approach.
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.
Results show consistently strong employee engagement with 65 percent of our employees considered to be “highly engaged.” Our response rates are high (85 percent) with the survey results providing valuable feedback that helps managers promote work satisfaction and high contribution.
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.
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 balance of the allowance for credit losses on investment securities held to maturity remained unchanged at $245,000 as of December 31, 2024 and December 31, 2023 based on application of the long-term historical credit rate, as published by Moody’s, for similarly rated securities.
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.
The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank includes 110 banking locations in Indiana, Ohio, and Michigan. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
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.
At December 31, 2024, 2023, 2022, 2021 and 2020, OREO did not include any acquired assets. In addition to the nonperforming loans discussed above, management also identified loans totaling $746.1 million and $515.2 million as of December 31, 2024 and 2023, respectively, that were deemed to be risk graded criticized.
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.
At December 31, 2024, one concentration of commercial loans within a single industry (as segregated by North American Industry Classification System “NAICS code”) was in excess of 10 percent of total loans. Lessors of Residential Buildings and Dwellings represented 11.62 percent of total loans.
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.
COMPETITION The Bank is located in Indiana, Ohio, and Michigan 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.
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.
Government-sponsored mortgage-backed securities — — % 641,513 2.6 % 641,513 2.6 % Foreign investment — — % — — % 1,500 — % $ 1,129,147 2.6 % $ 641,513 2.6 % $ 2,074,465 2.6 % (1) Interest yields are presented on a fully taxable equivalent basis using a 21 percent tax rate.
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.
Government-sponsored mortgage-backed securities 776,074 — 776,074 — 113,915 662,159 Foreign investment 1,500 — 1,500 — 28 1,472 Total held to maturity $ 2,287,372 $ 245 $ 2,287,127 $ 647 $ 380,154 $ 1,907,865 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.
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.
As of December 31, 2024, the Corporation had consolidated asse ts of $18.3 billion, consolidated deposits of $14.5 billion and stockholders’ equity of $2.3 billion. HUMAN CAPITAL As of December 31, 2024, the Corporation and its subsidiaries had 2,120 full-time equivalent employees.
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.
As of December 31, 2024, 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 $ 185,060 $ 60,834 $ 27,134 $ 2,373 $ 275,401 Percent 67 % 22 % 10 % 1 % 100 % 21 PART I: ITEM 1.
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.
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 Bancorp, Inc.
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.
The second borrower provided notification of its plans to cease operations. The Corporation does not believe these charge-offs are indicative of the portfolio as a whole. 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.
Impact of CECL Implementation on Regulatory Capital As discussed in NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and NOTE 5.
As of December 31, 2024, the Corporation was “well capitalized” based on the required Basel III Minimum Capital ratios described above. Impact of CECL Implementation on Regulatory Capital As discussed in NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and NOTE 5.
Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2023 U.S. Government-sponsored agency securities $ 374,002 $ — $ 374,002 $ — $ 64,159 $ 309,843 State and municipal 1,099,201 245 1,098,956 1,625 152,113 948,713 U.S.
Government-sponsored agency securities $ 374,002 $ — $ 374,002 $ — $ 64,159 $ 309,843 State and municipal 1,099,201 245 1,098,956 1,625 152,113 948,713 U.S.
(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.
(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. 14 PART I: ITEM 1.
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.
Interest income accrued in the prior year, if any, is charged to the allowance for credit losses (“ACL - Loans”). 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.
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.
Government- sponsored mortgage-backed securities Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Government-sponsored agency securities $ 79,381 2.3 % $ — — % $ 79,381 2.3 % State and municipal 710,322 3.1 % — — % 863,174 3.1 % 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.
The maturity distribution and average yields for the securities portfolio at December 31, 2024 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, 2024 State and municipal $ 1,795 2.8 % $ 7,026 2.7 % $ 144,031 3.2 % Corporate obligations — — % 4,831 8.1 % 7,436 4.5 % $ 1,795 2.8 % $ 11,857 4.9 % $ 151,467 3.2 % Due After Ten Years U.S.
Government-sponsored mortgage-backed securities 776,074 — 776,074 — 113,915 662,159 Foreign investment 1,500 — 1,500 — 28 1,472 Total held to maturity $ 2,287,372 $ 245 $ 2,287,127 $ 647 $ 380,154 $ 1,907,865 Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2021 U.S.
Government-sponsored mortgage-backed securities 641,513 — 641,513 — 102,343 539,170 Foreign investment 1,500 — 1,500 — 5 1,495 Total held to maturity $ 2,074,465 $ 245 $ 2,074,220 $ 299 $ 351,244 $ 1,723,520 Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Held to maturity at December 31, 2023 U.S.
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 mortgage-backed securities — — % 431,622 2.8 % 431,622 2.8 % Corporate obligations 31 — % — — % 12,298 5.9 % $ 789,734 3.0 % $ 431,622 2.8 % $ 1,386,475 3.0 % 17 PART I: ITEM 1.
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 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 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.
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.
Our training completion rates are very high related to required development (99.7 percent completion for required courses) and our Learning Management System (LMS) archives all development in the Corporation. Employee Resource Groups : The Corporation has several employee resource groups (“ERGs”), including First Women Connections, People of Color, Pride, Emerging Professionals, Veterans ERG and an InterFaith ERG.
The Volcker Rule also prohibits banking institutions from having an ownership interest in a hedge fund or private equity fund.
The Volcker Rule also prohibited banking institutions from having an ownership interest in a hedge fund or private equity fund. In June 2020, the federal bank regulatory agencies finalized amendments to the Volcker Rule’s restrictions on ownership interests in and relationships with covered funds.
Government-sponsored mortgage-backed securities 541,343 462 86,990 454,815 Corporate obligations 12,947 — 1,128 11,819 Total available for sale $ 1,846,840 $ 826 $ 220,554 $ 1,627,112 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.
Government-sponsored agency securities $ 111,521 $ — $ 16,214 $ 95,307 State and municipal 1,181,029 364 116,222 1,065,171 U.S. Government-sponsored mortgage-backed securities 541,343 462 86,990 454,815 Corporate obligations 12,947 — 1,128 11,819 Total available for sale $ 1,846,840 $ 826 $ 220,554 $ 1,627,112 15 PART I: ITEM 1.
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.
Government-sponsored agency securities $ — — % $ 60,590 1.0 % $ 29,702 1.3 % State and municipal 3,768 4.0 % 63,414 4.2 % 144,831 3.2 % Foreign investment 1,500 3.5 % — — % — — % $ 5,268 3.9 % $ 124,004 2.6 % $ 174,533 2.8 % Due After Ten Years 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 Total Amount Yield (1) Amount Yield (1) Amount Yield (1) U.S. Government-sponsored agency securities $ 255,239 1.5 % $ — — % $ 345,531 1.4 % State and municipal 873,908 3.0 % — — % 1,085,921 3.1 % 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.
BUSINESS Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale at December 31, 2022 US Treasury $ 2,501 $ — $ 42 $ 2,459 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.
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.
All employee resource groups are open to all employees of the Corporation. Additionally, we have created an Employee Community Call, which hosts monthly Zoom/TEAMS calls that are attended by over 150 employees.
The allowance decreased primarily due to $25.6 million of net charge-offs during the twelve months ended December 31, 2023. The increase in net charge-offs was primarily related to two large commercial and industrial charge-offs of $13.7 million and $5.4 million in the third quarter of 2023.
The allowance decreased primarily due to $49.4 million of net charge-offs during the year ended December 31, 2024.
Removed
The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
Added
Through the Bank, the Corporation offers a broad range of commercial and consumer banking services to meet the diverse needs of our customers. Our commercial banking team offers a full spectrum of debt capital, treasury management services and depository products. The consumer banking group offers a variety of consumer deposit and lending products.
Removed
Through the Bank, the Corporation offers a broad range of financial services, including accepting time, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; providing personal and corporate trust services; offering full-service brokerage and private wealth management; and providing letters of credit, repurchase agreements and other corporate services.
Added
The mortgage banking team offers consumer mortgage solutions to assist with the purchase, refinance, construction or renovation of residential properties. Private Wealth Advisors offers personal wealth management services with expertise in investment management, private banking, fiduciary estate and financial planning. All inter-company transactions are eliminated during the preparation of consolidated financial statements.
Removed
We seek to attract, retain and develop a team of diverse, committed colleagues who are capable of delivering a whole-bank delivery approach.
Added
The Corporation performed an in-depth investigation and review of its attrition metrics and developed a strategy to positively impact its retention statistics, including a focus on engagement, culture and compensation. We offer specific and concerted effort in supporting our managers who score under 70 percent engagement.
Removed
And, we promote a work culture of development, growth, internal promotion and career pathing as expressed in Our Team statement: We are a collection of dynamic colleagues with diverse experiences and perspectives who share a passion for positively impacting lives. We are genuinely committed to attracting and engaging teammates of diverse backgrounds.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn 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.
Biggest changeIf 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. On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of the Bank’s noninterest and interest-bearing accounts.
These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the state and local economies in which the Corporation operates. The Corporation's offices are primarily located in Indiana, Illinois, Ohio and Michigan.
These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the state and local economies in which the Corporation operates. The Corporation's offices are primarily located in Indiana, Ohio and Michigan.
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.
At December 31, 2024, 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.
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.
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 MOVEit breach in 2023 which impacted a vendor utilized by the Bank, the Bank could still suffer reputational harm, and potentially financial losses.
In addition, the scope and content of U.S. banking regulators’ policies on incentive compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key employees. • Changes in tax legislation could materially impact the Corporation’s business and financial results and the Corporation may have exposure to tax liabilities that are larger than it anticipates.
In addition, the scope and content of U.S. banking regulators’ policies on incentive compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key employees. 28 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Changes in tax legislation could materially impact the Corporation’s business and financial results and the Corporation may have exposure to tax liabilities that are larger than it anticipates.
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.
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.
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.
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. 25 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • The Corporation’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
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.
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.
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.
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.
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.
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.
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 was fully reflected in regulatory capital on January 1, 2024.
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.
The extent to which a widespread health crisis 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 such epidemics, pandemics or other infectious disease outbreaks, and how quickly and to what extent normal economic and operating conditions can resume.
Various federal and state laws and regulations limit the amount of dividends that the bank subsidiaries may pay to the Corporation. • Acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated and may result in unforeseen integration difficulties.
Various federal and state laws and regulations limit the amount of dividends that the bank subsidiaries may pay to the Corporation. 23 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated and may result in unforeseen integration difficulties.
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.
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.
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.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. 26 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. • Climate change and related legislative and regulatory initiatives may materially affect the Corporation’s business and results of operations.
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.
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, 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.
In addition, an epidemic, a pandemic or another infectious disease outbreak could significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment and general economic and financial instability.
Operational Risks • The Corporation’s business, results of operations and financial condition may be adversely affected by epidemics and pandemics, such as the COVID-19 outbreak, or other infectious disease outbreaks.
Operational Risks • The Corporation’s business, results of operations and financial condition may be adversely affected by epidemics, pandemics or other infectious disease outbreaks.
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.
Disposal of assets cannot guarantee disposal at prices appropriate for the disposition, and future operating results could be negatively affected. • Our FDIC insurance premiums may increase, and special assessments could be made, which might negatively impact our results of operations.
At the Information Security Committee, security-related policies and standards are reviewed and approved, annual risk assessment results and action plans are noted, annual penetration test reports shared, current security incidents discussed, and relevant cyber risks and trends are presented.
At the Information Security Committee, security-related policies and standards are reviewed and approved, annual risk assessment results and action plans are noted, annual penetration test reports shared, current security incidents discussed, and relevant cyber risks and trends are presented. 24 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C.
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.
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.
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.
Moreover, the effects of a widespread health crisis may heighten many of the other risks described in this “Risk Factors” section.
As 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.
As a result, the negative effects on the Corporation’s business, results of operations and financial condition from epidemics, pandemics or other infectious disease outbreaks could be material. • The Corporation’s allowances for credit losses may not be adequate to cover actual losses.
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.
Epidemics, pandemics or other infectious disease outbreaks may result in the Corporation closing certain offices and may require us to limit how customers conduct business through our branch network.
On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of the Bank’s noninterest and interest-bearing accounts. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
An economic slow-down in, or a reversal in the economic recovery of, the regions in which we conduct our business could result in declines in loan demand and collateral values.
An economic slow-down in, or a reversal in an economic recovery of, the regions in which we conduct our business could result in declines in loan demand and collateral values. Furthermore, negative impacts on our customers caused by such a health crisis could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
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.
Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits. 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.
Removed
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.
Added
Conversely, decreases in interest rates could result in an acceleration of loan prepayments. 27 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C. In response to easing inflation pressures, the Federal Reserve is expected to decrease the target federal funds rate in 2025.
Removed
The COVID-19 pandemic, along with general economic conditions, has made it even more difficult to retain existing employees and to attract new employees.
Removed
Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

6 edited+1 added−4 removed16 unchanged
Biggest changeThe Corporation uses multiple assessors, consultants, auditors and other third parties in the fulfillment of the information security program.
Biggest changeThe Corporation uses multiple assessors, consultants, auditors and other third parties in the fulfillment of the information security program. These third parties participate in testing and validation processes, as well as the execution of certain program-related controls.
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. Mr. Sondhi’s cybersecurity expertise assists the Board in overseeing management’s cybersecurity related efforts. 31 PART I: ITEM 2., ITEM 3. AND ITEM 4.
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. Mr. Sondhi’s cybersecurity expertise assists the Board in overseeing management’s cybersecurity related efforts. 30 PART I: ITEM 2., ITEM 3. AND ITEM 4.
To govern, monitor and control operational risk, the Corporation maintains an Enterprise Risk Management (“ERM”) Program, which sets thresholds for risk appetite by key risk areas, such as strategic risk and operational risk. These thresholds are monitored by the Compliance and Internal Audit Departments and key metrics are reported to management and Board committees.
To govern, monitor and control operational risk, the Corporation maintains an ERM Program, which sets thresholds for risk appetite by key risk areas, such as strategic risk and operational risk. These thresholds are monitored by the Compliance and Internal Audit Departments and key metrics are reported to management and Board committees.
The Corporation’s Chief Information Security Officer (CISO) is responsible for assessing and managing the Corporation’s risks from cybersecurity threats. The CISO is an active Certified Information Security Systems Professional and has been with the organization for 17 years with over 20 years of experience in technology infrastructure and security.
The Corporation’s Chief Information Security Officer (CISO) is responsible for assessing and managing the Corporation’s risks from cybersecurity threats. The CISO is an active Certified Information Security Systems Professional and has been with the organization for 18 years with over 21 years of experience in technology infrastructure and security.
The Corporation has adopted the National Institute of Standards and Technology (NIST) Cybersecurity Framework for the management and development of cybersecurity controls and is an active participant in the financial sector information sharing organization structure, known as the Financial Services Information Sharing and Analysis Center. 30 PART I: ITEM 1A., ITEM 1B., AND ITEM 1C.
The Corporation has adopted the National Institute of Standards and Technology (NIST) Cybersecurity Framework for the management and development of cybersecurity controls and is an active participant in the financial sector information sharing organization structure, known as the Financial Services Information Sharing and Analysis Center.
These third parties participate in testing and validation processes, as well as the execution of certain program-related controls.The Committee reports its activities, key conclusions and recommendations to the Enterprise Risk Management Committee and the Board’s Risk and Credit Policy Committee of the Board on a quarterly basis.
The Committee reports its activities, key conclusions and recommendations to the Enterprise Risk Management Committee and the Board’s Risk and Credit Policy Committee of the Board on a quarterly basis.
Removed
The Corporation received written notice during 2023 that certain of its customer data was potentially included in the global incident involving Progress Software Corporation (“MOVEit Transfer”).
Added
The Corporation’s Information Security Committee consists of members with diverse experience, including the Corporation’s leaders from information security, enterprise risk management, legal, bank protection, internal audit and various business units. The Corporation’s information security professionals have a range of varying cybersecurity experience and education, many of whom have substantial experience assessing and managing cybersecurity initiatives and hold certain cybersecurity certificates.
Removed
The incident did not involve the Bank’s internal network or IT systems, but was rather related to a third party prominent financial institution vendor that utilized MOVEit Transfer in its service offering to the Bank. Based on the investigation, the Bank’s customers who use online and mobile banking could have had personal information copied through the cyberattack.
Removed
The vendor confirmed that it implemented the recommended patches released by Progress Software Corporation for the platform. The Bank worked with the vendor to determine the potentially impacted customers and the extent of information potentially exposed and the Bank notified potentially affected customers appropriately.
Removed
The incident did not impact the ongoing operations of the Bank and the Bank’s cyber insurance is expected to cover many of the costs related to the incident. The MOVEit Transfer incident is the only cybersecurity incident that materially affected the Corporation during the 2023 fiscal year.

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 116 banking offices operated by the Bank, 91 are owned and 25 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 110 banking offices operated by the Bank, 87 are owned and 23 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, 2023 was $133.9 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, 2024 was $129.7 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. 32 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. 31 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 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.
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 51 Item 8.
Financial Statements and Supplementary Data 55 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 110 Item 9A. Controls and Procedures 110
Financial Statements and Supplementary Data 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 108 Item 9A. Controls and Procedures 108

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePURCHASES 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.
Biggest changePURCHASES 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, 2024, 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, 2024 88,494 $ 37.43 88,348 1,116,985 November, 2024 78,858 $ 36.99 78,553 1,038,432 December, 2024 — $ — — 1,038,432 Total 167,352 166,901 (1) During the three months ended December 31, 2024, there were 166,901 shares repurchased pursuant to the Corporation’s share repurchase program described in note (2) below.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. PERFORMANCE GRAPH The following graph compares the cumulative 5-year total return to shareholders on First Merchants Corporation’s common stock relative to the cumulative total returns of the Russell 2000 index and the KBW Nasdaq Regional Banking Index.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. PERFORMANCE GRAPH The following graph compares the cumulative five year total return to shareholders on First Merchants Corporation’s common stock relative to the cumulative total returns of the Russell 2000 Index and the KBW Nasdaq Regional Banking Index.
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.
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.
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.
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, 2019 and tracks it through December 31, 2024.
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.
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 19, 2025, the number of shares outstanding was 58,535,244. There were 3,912 stockholders of record on that date. 32 PART II: ITEM 5. AND ITEM 6.
However, it may be discontinued by the Board at any time. Since commencing the program, the Corporation has repurchased a total of 646,102 shares of common stock for a total aggregate investment of $25,443,391.
However, it may be discontinued by the Board at any time. Since commencing the program, the Corporation has repurchased a total of 2,294,568 shares of common stock for a total aggregate investment of $81.6 million.
Period 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.
Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 First Merchants Corporation $ 100.00 $ 93.07 $ 107.02 $ 108.22 $ 101.92 $ 113.97 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 KBW Nasdaq Regional Banking Index 100.00 91.29 124.74 116.10 115.64 130.90 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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The amounts in October 2024 and November 2024 also include 146 and 305 shares, respectively, repurchased 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

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Biggest changeMANAGEMENT'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.
Biggest changeMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS - non-GAAP (Dollars in thousands, except per share amounts) December 31, 2024 December 31, 2023 Total Stockholders' Equity (GAAP) $ 2,304,983 $ 2,247,713 Less: Preferred stock (GAAP) (25,125) (25,125) Less: Intangible assets (GAAP) (731,830) (739,101) Tangible common equity (non-GAAP) $ 1,548,028 $ 1,483,487 Total assets (GAAP) $ 18,311,969 $ 18,405,887 Less: Intangible assets (GAAP) (731,830) (739,101) Tangible assets (non-GAAP) $ 17,580,139 $ 17,666,786 Stockholders' Equity to Assets (GAAP) 12.59 % 12.21 % Tangible common equity to tangible assets (non-GAAP) 8.81 % 8.40 % Tangible common equity (non-GAAP) $ 1,548,028 $ 1,483,487 Plus: Tax benefit of intangibles (non-GAAP) 4,263 5,819 Tangible common equity, net of tax (non-GAAP) $ 1,552,291 $ 1,489,306 Common Stock outstanding (in thousands) 57,975 59,424 Book Value (GAAP) $ 39.33 $ 37.40 Tangible book value - common (non-GAAP) $ 26.78 $ 25.06 TANGIBLE EARNINGS PER SHARE, RETURN ON TANGIBLE ASSETS AND RETURN ON TANGIBLE EQUITY - non-GAAP (Dollars in thousands, except per share amounts) December 31, 2024 December 31, 2023 December 31, 2022 Average goodwill (GAAP) $ 712,002 $ 712,002 $ 671,485 Average other intangibles (GAAP) 23,298 31,331 35,885 Average deferred tax on other intangibles (GAAP) (5,005) (6,731) (7,567) Intangible adjustment (non-GAAP) $ 730,295 $ 736,602 $ 699,803 Average stockholders' equity (GAAP) $ 2,252,491 $ 2,127,262 $ 1,972,445 Average preferred stock (GAAP) (25,125) (25,125) (18,875) Intangible adjustment (non-GAAP) (730,295) (736,602) (699,803) Average tangible capital (non-GAAP) $ 1,497,071 $ 1,365,535 $ 1,253,767 Average assets (GAAP) $ 18,400,495 $ 18,186,507 $ 17,220,002 Intangible adjustment (non-GAAP) (730,295) (736,602) (699,803) Average tangible assets (non-GAAP) $ 17,670,200 $ 17,449,905 $ 16,520,199 Net income available to common stockholders (GAAP) $ 199,527 $ 221,911 $ 220,683 Other intangible amortization, net of tax (GAAP) 5,744 6,907 6,537 Preferred stock dividend 1,875 1,875 1,406 Tangible net income available to common stockholders (non-GAAP) $ 207,146 $ 230,693 $ 228,626 Per Share Data: Diluted net income available to common stockholders (GAAP) $ 3.41 $ 3.73 $ 3.81 Diluted tangible net income available to common stockholders (non-GAAP) $ 3.51 $ 3.85 $ 3.95 Ratios: Return on average GAAP capital (ROE) 8.86 % 10.43 % 11.19 % Return on average tangible capital 13.71 % 16.76 % 18.12 % Return on average assets (ROA) 1.09 % 1.23 % 1.29 % Return on average tangible assets 1.17 % 1.32 % 1.38 % Return on average tangible capital is tangible net income available to common stockholders expressed as a percentage of average tangible capital.
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 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.
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 a funding source.
The amount of allowance represents management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts.
The amount of allowance represents management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable economic forecasts.
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.
Total deposits less time deposits greater than $100,000, or core deposits, represented 90.5 percent of the deposit portfolio at December 31, 2023. Noninterest bearing deposits represents 16.9 percent of the deposit portfolio, which is a decline from December 31, 2022 of 22.1 percent.
Total deposits less time deposits greater than $100,000, or core deposits, represented 90.5 percent of the deposit portfolio at December 31, 2023. Noninterest bearing deposits represented 16.9 percent of the deposit portfolio, which is a decline from December 31, 2022 of 22.1 percent.
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.
The Corporation’s effective tax rate, which was 13.1 percent in 2024 and 13.7 percent in 2023, is lower than the blended effective statutory federal and state rates primarily due to the Corporation’s income on tax-exempt securities and loans, income generated by the subsidiaries operating in a state with no state or local income tax, income tax credits generated from investments in affordable housing projects, and tax-exempt earnings from bank-owned life insurance contracts.
Because the Federal Reserve has long indicated that voting common shareholders’ equity (essentially tier 1 risk-based capital less preferred stock and non-controlling interest in subsidiaries) generally should be the dominant element in tier 1 risk-based capital, this focus on CET1 is consistent with existing capital adequacy categories.
Because the Federal Reserve has long indicated that voting common stockholders’ equity (essentially tier 1 risk-based capital less preferred stock and non-controlling interest in subsidiaries) generally should be the dominant element in tier 1 risk-based capital, this focus on CET1 is consistent with existing capital adequacy categories.
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.
Results for rising 200 and 100 basis points and falling 200 and 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at December 31, 2024 and 2023. The change from the base case represents cumulative net interest income over a twelve-month time horizon.
Slightly offsetting these decreases was a $7.3 million increase in subordinated debt and other borrowings due to a secured borrowing acquired in conjunction with the purchase of the Indianapolis regional headquarters building. Additional details of the Corporation’s borrowings are discussed within NOTE 12.
Slightly offsetting these decreases was a $7.3 million increase in subordinated debt and other borrowings due to a secured borrowing acquired in conjunction with the purchase of the Indianapolis regional headquarters building. Additional details of the Corporation’s borrowings are discussed within NOTE 11.
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 comparative rising 200 and 100 basis points and falling 200 and 100 basis points scenarios below, as of December 31, 2024 and 2023, 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.
Cash and due from banks and interest-bearing deposits increased from December 31, 2022 by $300.1 million, primarily due to deposit growth and proceeds from investment securities principal and interest cashflows in addition to sales, which were held in cash for liquidity purposes.
Cash and due from banks and interest-bearing deposits decreased from December 31, 2022 by $300.1 million, primarily due to deposit growth and proceeds from investment securities principal and interest cashflows in addition to sales, which were held in cash for liquidity purposes.
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.
The Corporation had $25.0 million of outstanding preferred stock at December 31, 2024 and 2023. During the twelve months ended December 31, 2024, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), equal to $1.9 million.
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.
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 2024, 2023 and 2022. These totals equal $23.3 million, $23.9 million and $24.6 million, respectively. (3) Non accruing loans have been included in the average balances.
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.
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 losses in stockholders’ equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.
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.
As of December 31, 2024, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies.
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.
INCOME TAXES The Corporation’s federal statutory income tax rate for 2024 is 21 percent and its state tax rate varies from 0 to 9.5 percent depending on the state in which the subsidiary company operates.
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.
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. 36 PART II: ITEM 7. AND ITEM 7A.
Demand and savings accounts decreased from December 31, 2022 by $482.9 million and $140.7 million, respectively. The average account within the deposit portfolio totals only $34,000.
Demand and savings accounts decreased from December 31, 2022 by $482.9 million and $140.7 million, respectively. The average account within the deposit portfolio totaled only $34,000.
(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.
(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. 42 PART II: ITEM 7.
Tier I regulatory capital consists primarily of total stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses. 47 PART II: ITEM 7. AND ITEM 7A.
Tier I regulatory capital consists primarily of total common stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses. 45 PART II: ITEM 7. AND ITEM 7A.
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.
The Bank includes 110 banking locations in Indiana, Ohio, and Michigan. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.
Only 27.9 percent of deposits are uninsured and our available liquidity is ample to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources. Total borrowings decreased $285.2 million as of December 31, 2023, compared to December 31, 2022.
Only 27.9 percent of deposits were uninsured and our available liquidity was ample to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources. Total borrowings decreased $285.2 million as of December 31, 2023, compared to December 31, 2022.
DEPOSITS and NOTE 12. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
DEPOSITS and NOTE 11. 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, 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.
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, 2024, remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk. 49 PART II: ITEM 7. AND ITEM 7A.
The Corporation continued to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized.” Details of the 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.
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.
Securities classified as held to maturity and that are maturing in one year or less totaled $5.3 million at December 31, 2024. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.
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.
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, 2024.
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.
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 8.81 percent at December 31, 2024, and 8.40 percent at December 31, 2023.
Additionally, the prepaid pension asset at December 31, 2023 increased by $4.1 million compared to the same period in 2022. Additional details of the Corporation’s investments in community redevelopment funds and pension plan are discussed in NOTE 10. QUALIFIED AFFORDABLE HOUSING INVESTMENTS and NOTE 19.
Additionally, the prepaid pension asset at December 31, 2023 increased by $4.1 million compared to the same period in 2022. Additional details of the Corporation’s investments in community redevelopment funds and pension plan are discussed in NOTE 9. QUALIFIED AFFORDABLE HOUSING INVESTMENTS and NOTE 18.
BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10K and Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “LIQUIDITY”.
BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “LIQUIDITY”.
The decline is the result of a mix shift occurring across the industry as clients move into higher yielding deposit products. The Corporation experienced increases from December 31, 2022 in certificates and other time deposits of $100,000 or more of $666.4 million, other certificates and time deposits of $381.2 million and brokered certificates of deposit of $14.7 million.
The decline is the result of a mix shift which occurred across the industry as clients moved into higher yielding deposit products. The Corporation experienced increases from December 31, 2022 in certificates and other time deposits of $100,000 or more of $666.4 million, other certificates and time deposits of $381.2 million and brokered certificates of deposit of $14.7 million.
While the 2021 CAA provided for a further extension of the mandatory adoption of CECL until January 1, 2022, the federal banking regulators elected to not provide a similar extension to the two year mitigation period applicable to regulatory capital effects.
While the Consolidated Appropriations Act of 2021 provided for a further extension of the mandatory adoption of CECL until January 1, 2022, the federal banking regulators elected to not provide a similar extension to the two year mitigation period applicable to regulatory capital effects.
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.
For analytical purposes, net interest income is also presented on an FTE basis in the tables that follow to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for 2024, 2023, and 2022. 40 PART II: ITEM 7.
Currently, the Corporation is using cashflows from the investment portfolio to fund loan growth and pay down borrowings. The investment portfolio as a percentage of total assets was 20.8 percent at December 31, 2023 compared to 23.8 percent at December 31, 2022. This decrease reflects progress towards a more normalized earning asset mix.
During 2023 the Corporation used cashflows from the investment portfolio to fund loan growth and pay down borrowings. The investment portfolio as a percentage of total assets was 20.8 percent at December 31, 2023 compared to 23.8 percent at December 31, 2022. This decrease reflected progress towards a more normalized earning asset mix.
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.
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 80.6 percent of revenues for the year ended December 31, 2024.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents the Corporation’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets/liabilities for the three-year period ended December 31, 2023.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents the Corporation’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets/liabilities for the years ended December 31, 2024, 2023 and 2022.
The coverage ratio of ACL - Loans to nonaccrual loans is 382.5 percent at December 31, 2023. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5.
The coverage ratio of ACL - Loans to nonaccrual loans is 261.3 percent at December 31, 2024. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5.
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.
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 decreased $65.1 million compared to December 31, 2023.
NON-GAAP FINANCIAL MEASURES The Corporation’s accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Corporation provides non-GAAP performance measures, which management believes are useful because they assist investors in assessing the Corporation’s performance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NON-GAAP FINANCIAL MEASURES The Corporation’s accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Corporation provides non-GAAP performance measures, which management believes are useful because they assist investors in assessing the Corporation’s performance.
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.
Under that phase-in schedule, the cumulative effect of the adoption was fully reflected in regulatory capital on January 1, 2024. 44 PART II: ITEM 7. AND ITEM 7A.
Instead, the federal banking regulators require that, in order to utilize the additional two-year delay, banking organizations must have adopted the CECL standard no later than December 31, 2020, as required by the CARES Act.
Instead, the federal banking regulators require that, in order to utilize the additional two-year delay, banking organizations must have adopted the CECL standard no later than December 31, 2020, as required by the Coronavirus Aid, Relief and Economic Security Act, or CARES Act.
Stock Repurchase Program On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation’s outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Stock Repurchase Program On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation’s outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000.
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.
The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1.4 billion at December 31, 2024, a decrease of $240.6 million, or 14.8 percent, from December 31, 2023. Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity.
For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. As of December 31, 2022, total assets equaled $18.0 billion, an increase of $2.5 billion from December 31, 2021.
For reconciliations of non-GAAP measures to their most comparable GAAP measures, see “NON-GAAP FINANCIAL MEASURES” within the “Results of Operations” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. As of December 31, 2023, total assets equaled $18.4 billion, an increase of $403.7 million, or 2.2 percent, from December 31, 2022.
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.
Adjusted earnings per share, excluding PPP loan income, net realized gains/losses on the sales of available for sale securities, acquisition-related expenses and non-core expenses, are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance.
(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.
(Dollars in Thousands) December 31, 2024 December 31, 2023 December 31, 2022 Net charge-offs: Commercial and industrial loans $ 47,046 $ 22,269 $ 347 Agricultural land, production and other farm loans — — (4) Real estate loans Construction — — (863) Commercial real estate, non-owner occupied 193 20 2,817 Commercial real estate, owner occupied (77) 36 (896) Residential 1,235 471 (4) Home equity (405) 1,856 526 Individuals loans for household and other personal expenditures 1,385 991 751 Total net charge-offs $ 49,377 $ 25,643 $ 2,674 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Loan Quality The quality of the loan portfolio and the amount of nonperforming loans may increase or decrease as a result of acquisitions, organic portfolio growth, problem loan recognition and resolution through collections, sales or charge-offs.
Loan Quality The quality of the loan portfolio and the amount of nonperforming loans may increase or decrease as a result of acquisitions, organic portfolio growth, problem loan recognition and resolution through collections, sales or charge-offs.
Additional details of the Corporation’s methodology for measuring expected credit losses on loans is discussed in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The CECL allowance is maintained through the provision for credit losses, which is a charge against earnings.
LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The CECL allowance is maintained through the provision for credit losses - loans, which is a charge against earnings.
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.
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, 2024 and December 31, 2023. 46 PART II: ITEM 7. AND ITEM 7A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Corporation’s allowance for credit losses - loans (“ACL - loans”) totaled $204.9 million as of December 31, 2023 and equaled 1.64 percent percent of total loans, compared to $223.3 million and 1.86 percent of total loans at December 31, 2022.
The Corporation’s allowance for credit losses - loans totaled $204.9 million as of December 31, 2023 and equaled 1.64 percent of total loans, compared to $223.3 million and 1.86 percent of total loans at December 31, 2022.
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.
Summarized credit-related financial instruments at December 31, 2024 are as follows: (Dollars in Thousands) December 31, 2024 Amounts of Commitments: Loan commitments to extend credit $ 5,006,085 Standby letters of credit 71,271 $ 5,077,356 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.
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.
Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.
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.
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.
Commercial loans under $500,000 and consumer loans, with the exception of troubled debt restructures, are not individually evaluated. The determination for individual evaluation is made based on current information or events that may suggest it is probable that not all amounts due of principal and interest, according to the contractual terms of the loan agreement, will be substantially collected.
The determination for individual evaluation is made based on current information or events that may suggest it is probable that not all amounts due of principal and interest, according to the contractual terms of the loan agreement, will be substantially collected.
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.
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. 35 PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Allowance for Credit Losses - Loans As discussed in NOTE 5.
The increase for the year ended December 31, 2023 when compared to the same period in 2022 was driven by a $1.4 billion increase in average loans as a result of organic loan growth primarily within the commercial and residential real estate loan portfolios.
The increase for the year ended December 31, 2024 when compared to the same period in 2023 was driven by a $336.4 million increase in average loans as a result of organic loan growth primarily within the commercial and residential real estate loan portfolios, the average balances of which increased $167.9 million and $123.3 million, respectively.
Additionally, gains on life insurance benefits decreased $2.9 million during the year ended December 31, 2023 compared to 2022. Offsetting these declines was an increase of $5.6 million in net gains and fees on sales of loans. Service charges on deposit accounts increased $2.5 million from 2022, primarily due to the Level One acquisition in the second quarter of 2022.
Additionally, gains on life insurance benefits decreased $2.9 million during the year ended December 31, 2023 compared to 2022. Offsetting these declines was an increase of $5.6 million in net gains and fees on sales of mortgage loans.
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.
Income tax expense in 2024 was $30.3 million on pre-tax income of $231.7 million, or 13.1 percent. For 2023, income tax expense was $35.4 million on pre-tax income of $259.2 million, or 13.7 percent.
LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. Commercial loans are individually underwritten and judgmentally risk rated. They are periodically monitored and prompt corrective actions are taken on deteriorating loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate, public finance and residential real estate, which results in portfolio diversification. Commercial loans are individually underwritten and judgmentally risk rated.
At December 31, 2023, total borrowings from the FHLB were $712.9 million and there were no outstanding borrowings from the Federal Reserve Discount Window. The Bank has pledged certain mortgage loans and investments to the FHLB and Federal Reserve.
At December 31, 2024, total borrowings from the FHLB were $822.6 million and there was $10,000 of outstanding borrowings from the Federal Reserve Discount Window. The Bank has pledged certain mortgage loans and investments to the FHLB and Federal Reserve.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DEPOSITS AND BORROWINGS The table below reflects the level of deposits and borrowed funds (repurchase agreements, FHLB advances, subordinated debentures and term loans) at December 31, 2023 and 2022.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DEPOSITS AND BORROWINGS The table below reflects the level of deposits and borrowed funds at December 31, 2024 and 2023.
(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) 2024 2023 2022 Allowance for credit losses - loans: Balances, December 31 $ 204,934 $ 223,277 $ 195,397 Loans charged off (54,243) (28,039) (6,601) Recoveries on loans 4,866 2,396 3,927 Net charge-offs (49,377) (25,643) (2,674) Provision for credit losses - loans 37,200 7,300 — CECL Day 1 non-PCD provision for credit losses - loans — — 13,955 CECL Day 1 PCD ACL - loans — — 16,599 Ending balance, December 31 $ 192,757 $ 204,934 $ 223,277 Ratio of net charge-offs during the period to average loans outstanding during the period 0.39 % 0.21 % 0.02 % Ratio of allowance for credit losses - loans to nonaccrual loans 261.3 % 382.5 % 527.5 % Ratio of allowance for credit losses - loans to total loans outstanding 1.50 % 1.64 % 1.86 % In 2024, the Corporation recorded $37.2 million in provision for credit losses - loans, which was offset by a release in reserve of $1.5 million related to the allowance for unfunded commitments, resulting in a net provision expense for the year ended December 31, 2024 of $35.7 million.
Based on management’s judgment as to the appropriate level of the allowance, the amount provided in any period may be greater or less than net loan losses for the same period. The determination of the provision amount and the adequacy of the allowance in any period is based on management’s continuing review and evaluation of the loan portfolio.
Based on management’s judgment as to the appropriate level of the ACL - Loans, the amount provided in any period may be greater or less than net loan losses for the same period.
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.
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 $368.1 million or 2.9 percent since December 31, 2023.
During the twelve months ended December 31, 2022, the Corporation declared and paid dividends of $140.64 per share (equivalent to $1.41 per depositary share), equal to $1.4 million. The Series A preferred stock qualifies as tier 1 capital for purposes of the regulatory capital calculations.
During the twelve months ended December 31, 2023, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), equal to $1.9 million. The Series A preferred stock qualifies as tier 1 capital for purposes of the regulatory capital calculations. 43 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.
BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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.
Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate Average Balance Interest Income / Expense Average Rate (Dollars in Thousands) 2024 2023 2022 Assets: Interest-bearing deposits $ 418,163 $ 16,992 4.06 % $ 431,581 $ 17,719 4.11 % $ 296,863 $ 2,503 0.84 % Federal Home Loan Bank stock 41,736 3,527 8.45 41,319 3,052 7.39 35,580 1,176 3.31 Investment securities: (1) Taxable 1,759,578 36,086 2.05 1,854,438 35,207 1.90 2,056,586 38,354 1.86 Tax-exempt (2) 2,200,466 67,705 3.08 2,366,475 73,566 3.11 2,653,611 85,292 3.21 Total Investment Securities 3,960,044 103,791 2.62 4,220,913 108,773 2.58 4,710,197 123,646 2.63 Loans held for sale 29,650 1,792 6.04 21,766 1,292 5.94 14,715 692 4.70 Loans: (3) Commercial 8,687,638 641,393 7.38 8,519,706 603,611 7.08 7,877,271 380,621 4.83 Real estate mortgage 2,158,743 94,890 4.40 2,035,488 82,183 4.04 1,471,802 51,853 3.52 HELOC and installment 830,079 65,577 7.90 830,006 60,751 7.32 785,520 37,302 4.75 Tax-exempt (2) 928,214 43,370 4.67 891,008 40,448 4.54 793,743 31,803 4.01 Total Loans 12,634,324 847,022 6.70 12,297,974 788,285 6.41 10,943,051 502,271 4.59 Total Earning Assets 17,054,267 971,332 5.69 % 16,991,787 917,829 5.40 % 15,985,691 629,596 3.94 % Total Non-earning Assets 1,346,228 1,194,720 1,234,311 Total Assets $ 18,400,495 $ 18,186,507 $ 17,220,002 Liabilities: Interest-bearing deposits: Interest-bearing deposits $ 5,506,492 $ 157,984 2.87 % $ 5,435,733 $ 138,012 2.54 % $ 5,206,131 $ 32,511 0.62 % Money market deposits 3,061,461 106,026 3.46 2,884,271 83,777 2.90 2,915,397 19,170 0.66 Savings deposits 1,463,707 14,587 1.00 1,694,230 14,606 0.86 1,927,122 5,019 0.26 Certificates and other time deposits 2,413,900 107,530 4.45 1,923,268 69,697 3.62 881,176 6,239 0.71 Total Interest-bearing Deposits 12,445,560 386,127 3.10 11,937,502 306,092 2.56 10,929,826 62,939 0.58 Borrowings 1,005,017 40,765 4.06 1,111,472 42,394 3.81 888,392 21,864 2.46 Total Interest-bearing Liabilities 13,450,577 426,892 3.17 13,048,974 348,486 2.67 11,818,218 84,803 0.72 Noninterest-bearing deposits 2,371,004 2,783,996 3,268,417 Other liabilities 326,423 226,275 160,922 Total Liabilities 16,148,004 16,059,245 15,247,557 Stockholders' Equity 2,252,491 2,127,262 1,972,445 Total Liabilities and Stockholders' Equity $ 18,400,495 426,892 $ 18,186,507 348,486 $ 17,220,002 84,803 Net Interest Income (FTE) $ 544,440 $ 569,343 $ 544,793 Net Interest Spread (FTE) (4) 2.52 % 2.73 % 3.22 % Net Interest Margin (FTE): Interest Income (FTE) / Average Earning Assets 5.69 % 5.40 % 3.94 % Interest Expense / Average Earning Assets 2.50 % 2.05 % 0.53 % Net Interest Margin (FTE) (5) 3.19 % 3.35 % 3.41 % (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 redemption was permitted under the optional redemption provisions of the Subordinated Note Certificate representing the Subordinated Debt and occurred in the first quarter of 2024 on the scheduled interest payment date. Additional details regarding the subordinated debentures and other borrowings are discussed within NOTE 12.
The redemption is permitted under the optional redemptions provisions of the Subordinated Notes and will occur in the first quarter of 2025 on the scheduled interest payment date. Additional details regarding the subordinated debentures and other borrowings are discussed within NOTE 11.
Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank’s operations.
There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations.
December 31, 2023 December 31, 2022 (Dollars in Thousands) First Merchants Corporation First Merchants Bank First Merchants Corporation First Merchants Bank Total Risk-Based Capital Total Stockholders' Equity (GAAP) $ 2,247,713 $ 2,291,788 $ 2,034,770 $ 2,119,316 Adjust for Accumulated Other Comprehensive (Income) Loss (1) 175,970 174,103 239,151 237,094 Less: Preferred Stock (25,125) (125) (25,125) (125) Add: Qualifying Capital Securities 25,000 — 25,000 — Less: Disallowed Goodwill and Intangible Assets (731,315) (730,867) (738,206) (737,758) Add: Modified CECL Transition Amount 11,514 11,514 23,028 23,028 Less: Disallowed Deferred Tax Assets (131) (114) (337) (345) Total tier 1 Capital (Regulatory) 1,703,626 1,746,299 1,558,281 1,641,210 Qualifying Subordinated Debentures 132,174 — 143,103 — Allowance for Loan Losses Includible in tier 2 Capital 185,324 185,511 180,870 181,086 Total Risk-Based Capital (Regulatory) $ 2,021,124 $ 1,931,810 $ 1,882,254 $ 1,822,296 Net Risk-Weighted Assets (Regulatory) $ 14,787,474 $ 14,796,189 $ 14,392,671 $ 14,410,136 Average Assets (Regulatory) $ 17,677,268 $ 17,658,269 $ 17,118,953 $ 17,092,008 Total Risk-Based Capital Ratio (Regulatory) 13.67 % 13.06 % 13.08 % 12.65 % Tier 1 Capital to Risk-Weighted Assets (Regulatory) 11.52 % 11.80 % 10.83 % 11.39 % Tier 1 Capital to Average Assets (Regulatory) 9.64 % 9.89 % 9.10 % 9.60 % Common Equity tier 1 Capital Ratio Total tier 1 Capital (Regulatory) $ 1,703,626 $ 1,746,299 $ 1,558,281 $ 1,641,210 Less: Qualified Capital Securities (25,000) — (25,000) — Common Equity tier 1 Capital (Regulatory) $ 1,678,626 $ 1,746,299 $ 1,533,281 $ 1,641,210 Net Risk-Weighted Assets (Regulatory) $ 14,787,474 $ 14,796,189 $ 14,392,671 $ 14,410,136 Common Equity tier 1 Capital Ratio (Regulatory) 11.35 % 11.80 % 10.65 % 11.39 % (1) Includes net unrealized gains or losses on available for sale securities, net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.
December 31, 2024 December 31, 2023 (Dollars in Thousands) First Merchants Corporation First Merchants Bank First Merchants Corporation First Merchants Bank Total Risk-Based Capital Total Stockholders' Equity (GAAP) $ 2,304,983 $ 2,315,701 $ 2,247,713 $ 2,291,788 Adjust for Accumulated Other Comprehensive (Income) Loss (1) 188,685 186,808 175,970 174,103 Less: Preferred Stock (25,125) (125) (25,125) (125) Add: Qualifying Capital Securities 25,000 — 25,000 — Less: Disallowed Goodwill and Intangible Assets (725,504) (725,056) (731,315) (730,867) Add: Modified CECL Transition Amount — — 11,514 11,514 Less: Disallowed Deferred Tax Assets (571) (590) (131) (114) Total Tier 1 Capital (Regulatory) 1,767,468 1,776,738 1,703,626 1,746,299 Qualifying Subordinated Debentures 72,040 — 132,174 — Allowance for Loan Losses Includible in Tier 2 Capital 190,854 191,000 185,324 185,511 Total Risk-Based Capital (Regulatory) $ 2,030,362 $ 1,967,738 $ 2,021,124 $ 1,931,810 Net Risk-Weighted Assets (Regulatory) $ 15,249,287 $ 15,261,118 $ 14,787,474 $ 14,796,189 Average Assets (Regulatory) $ 17,752,227 $ 17,904,307 $ 17,677,268 $ 17,658,269 Total Risk-Based Capital Ratio (Regulatory) 13.31 % 12.89 % 13.67 % 13.06 % Tier 1 Capital to Risk-Weighted Assets (Regulatory) 11.59 % 11.64 % 11.52 % 11.80 % Tier 1 Capital to Average Assets (Regulatory) 9.96 % 9.92 % 9.64 % 9.89 % Common Equity Tier 1 Capital Ratio Total Tier 1 Capital (Regulatory) $ 1,767,468 $ 1,776,738 $ 1,703,626 $ 1,746,299 Less: Qualified Capital Securities (25,000) — (25,000) — Common Equity Tier 1 Capital (Regulatory) $ 1,742,468 $ 1,776,738 $ 1,678,626 $ 1,746,299 Net Risk-Weighted Assets (Regulatory) $ 15,249,287 $ 15,261,118 $ 14,787,474 $ 14,796,189 Common Equity Tier 1 Capital Ratio (Regulatory) 11.43 % 11.64 % 11.35 % 11.80 % (1) Includes net unrealized gains or losses on available for sale securities, net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.
These increases were offset by a $5.5 million decrease in professional and other outside services due primarily to $7.1 million of expenses related to Level One acquisition that were recorded in 2022. Noninterest expense totaled $355.7 million in 2022, an increase of $76.5 million, or 27.4 percent from 2021.
These increases were offset by a $5.5 million decrease in professional and other outside services due primarily to $7.1 million of transaction costs related to the Level One acquisition that were recorded in 2022.
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.
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.
The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during 2022 or 2023. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.
As of December 31, 2024, the Corporation had approximately 1.0 million shares at an aggregate value of $18.4 million available to repurchase under the program. The Corporation did not repurchase any shares of its common stock pursuant to the repurchase program during 2022 or 2023. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.
HIGHLIGHTS FOR 2023 • Net income available to common stockholders for the year ended December 31, 2023 was $221.9 million compared to $220.7 million for the year ended 2022, an increase of 0.6 percent.
HIGHLIGHTS FOR 2024 • Net income available to common stockholders for the year ended December 31, 2024 was $199.5 million compared to $221.9 million for the year ended 2023, a decrease of 10.1 percent.
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.
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. 37 PART II: ITEM 7. AND ITEM 7A.
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.
The loan classes that experienced the largest decreases from December 31, 2022 were in owner occupied commercial real estate and home equity loans. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5.
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.
December 31, 2024 December 31, 2023 Rising 200 basis points from base case 4.1% 4.0 % Rising 100 basis points from base case 2.5% 2.1 % Falling 100 basis points from base case (2.2)% (5.0) % Falling 200 basis points from base case (4.5)% (7.8) % 50 PART II: ITEM 7. AND ITEM 7A.
Consumer loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis. 48 PART II: ITEM 7. AND ITEM 7A.
They are periodically monitored and prompt corrective actions are taken on deteriorating loans. Consumer loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.
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.
RESULTS OF OPERATIONS - 2024 The Corporation reported net income available to common stockholders and diluted earnings per common share for the year ended 2024 of $199.5 million and $3.41 per diluted common share, respectively, compared to $221.9 million and $3.73 per diluted common share, respectively, for the year ended 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The quantitative and qualitative disclosures about market risk information are presented in the “INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK” 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. 54 PART II: ITEM 8.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The quantitative and qualitative disclosures about market risk information are presented in the “INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK” 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. 51 PART II: ITEM 8.

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