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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

The Corporation is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. The Corporation’s common stock is traded on the Nasdaq’s Global Select Market System under the symbol FRME. The Corporation conducts its banking operations through First Merchants Bank (the “Bank”), a wholly-owned subsidiary that opened for business in Muncie, Indiana, in March 1893. The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank includes 111 banking locations in Indiana, Ohio, and Michigan. In addition to its branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.

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. 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.

ACQUISITION AND DIVESTITURE

On February 1, 2026, the Corporation completed the acquisition of First Savings Financial Group, Inc., an Indiana corporation (“First Savings”), pursuant to the Agreement and Plan of Merger, dated as of September 24, 2025, by and between the Corporation and First Savings (the “Merger Agreement”). Immediately following the Merger, First Savings Bank, a wholly-owned subsidiary of First Savings, merged with and into the Bank with the Bank surviving the merger and continuing its corporate existence.

First Savings was headquartered in Jeffersonville, Indiana and had 16 banking centers serving the southern Indiana market and had total assets of $2.4 billion (unaudited), total loans of $1.9 billion (unaudited), and total deposits of $1.7 billion (unaudited) as of December 31, 2025. The Corporation engaged in this transaction with the objective that the transaction would be accretive to earnings and add to the existing market area in Indiana that has a demographic profile consistent with many of the current Midwest markets served by the Bank. For the year ended December 31, 2025, the Corporation recorded merger-related expenses of $0.8 million related to the First Savings acquisition.

For additional information regarding the acquisition, see NOTE 2. ACQUISITIONS AND DIVESTITURES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. In addition, the Merger Agreement is filed as an exhibit to this Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Generally accepted accounting principles require management to apply significant judgment to certain accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply those principles where actual measurement is not possible or practical. The judgments and assumptions made are based upon historical experience or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgments and assumptions, actual results could differ from estimates, which could have a material effect on the Corporation’s financial condition and results of operations. For a complete discussion of the Corporation’s significant accounting policies see NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Allowance for Credit Losses - Loans

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

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

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL HIGHLIGHTS

The table below includes certain financial data of the Corporation for the previous 3 years:

(Dollars in Thousands, Except Share Data) December 31,

Income Statement:

Per Share Data:

Average diluted common shares outstanding (in thousands) 57,726 58,533 59,489

Diluted net income available to common stockholders $ 3.88 $ 3.41 $ 3.73

Cash dividends paid to common stockholders 1.43 1.39 1.34

Performance Ratios:

Return on average stockholders' equity 9.43 8.86 10.43

Return on tangible common stockholders' equity (2) 14.08 13.71 16.76

Net charge-offs as % of average loans 0.14 0.39 0.21

Allowance for credit losses - loans as % of total loans 1.42 1.50 1.64

Nonperforming assets / total assets % 0.38 0.43 0.32

Balance Sheet:

Capital Ratios:

Tangible common stockholders' equity to tangible assets (2) 9.38 8.81 8.40

Total risk-based capital to risk-weighted assets 13.41 13.31 13.67

Common equity tier 1 capital to risk-weighted assets 11.70 11.43 11.35

(3) Calculated using a marginal tax rate of 21 percent for all periods.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS - 2025

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

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

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

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

The Corporation’s total loan portfolio grew $938.8 million, or 7.3 percent, since December 31, 2024. The composition of the loan portfolio is 76.2 percent commercial‐oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 32.4 percent and 17.0 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial and public finance and other commercial loans. Offsetting these increases was a decrease in individuals’ loans for household and other personal expenditures. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Corporation’s allowance for credit losses - loans (“ACL - Loans”) totaled $195.6 million as of December 31, 2025 and equaled 1.42 percent of total loans, compared to $192.8 million and 1.50 percent of total loans at December 31, 2024. During the year ended December 31, 2025, the Corporation recognized $18.4 million of net charge-offs, or 14 basis points of average loans, compared to net charge-offs of $49.4 million, or 39 basis points of average loans, for the year ended December 31, 2024. The Corporation recorded $21.3 million of provision for credit losses during 2025 compared to $35.7 million during 2024. Nonaccrual loans as of December 31, 2025 totaled $71.8 million, a decrease of $2.0 million from December 31, 2024, primarily due to an $11.3 million, $2.1 million and $0.8 million decrease in nonaccrual balances within the commercial real estate, non-owner occupied, construction and home equity loan classes, respectively. The decrease was offset by an $8.3 million, $2.5 million and $1.3 million increase in nonaccrual balances within the residential, commercial and industrial and commercial real estate, owner occupied loan classes, respectively. The coverage ratio of ACL - Loans to nonaccrual loans is 272.5 percent at December 31, 2025. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and within the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Corporation’s premises and equipment decreased $8.7 million from December 31, 2024 primarily due to disposal of equipment no longer in use. Additional details of the Corporation’s disposal of fixed assets is discussed within NOTE 6. PREMISES AND EQUIPMENT of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.

The Corporation’s tax asset, deferred and receivable decreased from $92.4 million at December 31, 2024 to $78.7 million at December 31, 2025, which included the Corporation’s net deferred tax asset decreasing from $85.9 million at December 31, 2024 to $67.2 million at December 31, 2025. The $18.7 million decrease in the Corporation’s net deferred tax asset was primarily attributable to changes in temporary differences, including the impact of unrealized gains and losses on available‐for‐sale securities, as well as other balance sheet‐driven items during the year.

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

Deposits increased $773.2 million, or 5.3 percent, from December 31, 2024. The majority of the organic deposit growth was due to increases in non-maturity deposits of $749.4 million. Lower interest rates have resulted in customers migrating funds from maturity time deposit products into non-maturity deposit products. Total deposits less time deposits greater than $100,000, or core deposits, represented 94.0 percent of the deposit portfolio at December 31, 2025. Noninterest bearing deposits represented 14.0 percent of the deposit portfolio at December 31, 2025, compared to 16.0 percent at December 31, 2024. The loan to deposit ratio increased to 90.3 percent at December 31, 2025, from 88.6 percent at December 31, 2024.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The average account balance within the deposit portfolio was $38,000 at December 31, 2025. Insured deposits totaled 71.4 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.0 percent of deposits and the FDIC providing insurance to the remaining 57.4 percent. Only 28.6 percent of deposits are uninsured and our available liquidity is sufficient to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources.

Total borrowings decreased $158.3 million as of December 31, 2025, compared to December 31, 2024. Federal funds purchased and Federal Home Loan Bank advances declined $59.2 million and $24.0 million, respectively, compared to December 31, 2024. Brokered certificates of deposit were used to support loan growth that exceeded deposit growth, reducing the need for overnight borrowings and Federal Home Loan Bank advances compared to the prior year. Subordinated debentures and other borrowings decreased $35.9 million due to the repayment of $30.0 million of Level One subordinated notes and $5.0 million of Fixed-to-Floating Rate Senior Notes due 2028 (“Senior Debt”) during 2025. Securities sold under repurchase agreements decreased $39.1 million from December 31, 2024 as clients shifted to other deposit products. Additional details of the Corporation’s borrowings are discussed within NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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

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.

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.

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

As of December 31, 2024, total assets equaled $18.3 billion, a decrease of $93.9 million, or 0.5 percent, from December 31, 2023.

Cash and due from banks and interest-bearing deposits decreased from December 31, 2023 by $162.2 million. Total investment securities decreased $350.7 million from December 31, 2023, primarily due to the sales of $268.5 million of investment securities during the year ended December 31, 2024. Scheduled paydowns and maturities and unrealized losses in available for sale securities decreased investment securities by $147.9 million and $18.7 million, respectively, which was offset by $94.7 million in purchases of CRA eligible securities. The investment portfolio as a percentage of total assets was 18.9 percent at December 31, 2024 compared to 20.7 percent at December 31, 2023. During 2024, the Corporation repositioned the investment securities portfolio with a primary focus of using liquidity generated from sales of securities to fund loan growth, the sale of deposits to Old Second National Bank and reinvestment in higher-yielding assets. 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 $368.1 million, or 2.9 percent, since December 31, 2023. The composition of the loan portfolio is 75.0 percent commercial oriented with the largest loan classes of commercial and industrial and commercial real estate, non-owner occupied, representing 31.9 percent and 17.7 percent of the total loan portfolio, respectively. The increase was primarily driven by an increase in commercial and industrial, public finance and other commercial loans, and residential real estate loans. Partially offsetting those increases was a decrease in construction and commercial real estate, non-owner occupied loans. Additional details of the changes in the Corporation’s loan portfolio are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation’s ACL - Loans totaled $192.8 million as of December 31, 2024 and equaled 1.50 percent of total loans, compared to $204.9 million and 1.64 percent of total loans at December 31, 2023. During the year ended December 31, 2024, the Corporation recognized $49.4 million of net charge-offs, or 39 basis points of average loans, compared to net charge-offs of $25.6 million, or 21 basis points of average loans, for the year ended December 31, 2023. The increase in net charge-offs is primarily related to two commercial and industrial relationships that accounted for $42.7 million of charge-offs during 2024. One borrower experienced a sudden change in revenue from the cancellation and inability to renegotiate their contracts with the U.S. Government. This negatively impacted the value of the borrower’s business and resulted in their inability to repay the principal and interest. The second borrower provided notification of its plans to cease operations, which resulted in their inability to repay principal and interest and a charge-off for the Corporation. The Corporation recorded $35.7 million of provision for credit losses during 2024 compared to $3.5 million during 2023. The increase in the provision for credit losses was primarily driven by the increase in net charge-offs described above. Nonaccrual loans as of December 31, 2024 totaled $73.8 million, an increase of $20.2 million from December 31, 2023, primarily due to a $24.1 million increase in nonaccrual balances within the construction loan class. The increase was partially offset by a $3.6 million decrease in nonaccrual balances within the residential loan class. The coverage ratio of ACL - Loans to nonaccrual loans is 261.3 percent at December 31, 2024. Additional details of the Corporation’s allowance methodology and asset quality are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and within the “LOAN QUALITY AND PROVISION FOR CREDIT LOSSES ON LOANS” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Corporation’s premises and equipment decreased $4.2 million from December 31, 2023 primarily due to the sale of five Illinois branches. Additional details of the Corporation’s divestiture of assets related to the Old Second National Bank branch sale is discussed within NOTE 2. ACQUISITIONS AND DIVESTITURES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.

The Corporation’s tax asset, deferred and receivable decreased from $99.9 million at December 31, 2023 to $92.4 million at December 31, 2024. The $7.5 million decrease was a combination of the Corporation’s net deferred tax asset increasing from $84.7 million at December 31, 2023 to $85.9 million at December 31, 2024, and the income tax receivable decreasing from $15.2 million at December 31, 2023 to $6.5 million at December 31, 2024.

The Corporation’s other assets increased $64.8 million from December 31, 2023. The Corporation’s continual investment in community redevelopment funds resulted in an increase of $57.0 million when compared to December 31, 2023. Additionally, the prepaid pension asset at December 31, 2024 increased by $4.0 million compared to the same period in 2023. Additional details of the Corporation’s investments in community redevelopment funds and pension plan are discussed in NOTE 9. QUALIFIED AFFORDABLE HOUSING INVESTMENTS and NOTE 18. PENSION AND OTHER POST RETIREMENT BENEFIT PLANS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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

The average account balance within the deposit portfolio was $35,000 at December 31, 2024. Insured deposits totaled 70.6 percent of total deposits, with the State of Indiana’s Public Deposit Insurance Fund, which insures certain public deposits, providing insurance to 14.0 percent of deposits and the FDIC providing insurance to the remaining 56.6 percent. Only 29.4 percent of deposits were uninsured and our available liquidity was ample to cover those when considering both on balance sheet sources of liquidity and unused capacity from the Federal Reserve Discount Window, FHLB and unsecured borrowing sources.

Total borrowings increased $129.4 million as of December 31, 2024, compared to December 31, 2023. Federal funds purchased and Federal Home Loan Bank advances increased $99.2 million and $109.7 million, respectively, compared to December 31, 2023 as the Corporation utilized borrowings to fund loan growth and supplement deposit balances in 2024. Offsetting these increases was a $65.1 million decrease in subordinated debt and other borrowings due to the Corporation exercising its rights to redeem $65.0 million in principal of subordinated debt in 2024. Additional details of the Corporation’s borrowings are discussed within NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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

PART II: ITEM 7. AND ITEM 7A. 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. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following tables.

Adjusted net income available to common stockholders and adjusted diluted earnings per common share are meaningful non-GAAP financial measures for management, as they provide a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Corporation’s business, because management does not consider these items to be relevant to ongoing financial performance on a per share basis.

Non-GAAP financial measures such as tangible common stockholders’ equity, tangible assets, tangible common stockholders’ equity to tangible assets, tangible book value per common share, tangible net income available to common stockholders, diluted tangible net income per common share, return on average tangible common stockholders’ equity and return on average tangible assets are important measures of the strength of the Corporation’s capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but do retain the effect of accumulated other comprehensive income (loss) in stockholders’ equity. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

ADJUSTED NET INCOME AND DILUTED EARNINGS PER COMMON SHARE (NON-GAAP)

(Dollars In Thousands, Except Per Share Amounts)

Years Ended

Adjustments:

PPP loan income — — (49)

Net realized losses on sales of available for sale securities 8 20,757 6,930

Gain on branch sale — (19,983) —

Acquisition-related expenses 800 — —

Average diluted common shares outstanding (in thousands) 57,726 58,533 59,489

Diluted earnings per common share (GAAP) $ 3.88 $ 3.41 $ 3.73

Adjustments:

Net realized losses on sales of available for sale securities — 0.35 0.12

Gain on branch sale — (0.34) —

Acquisition-related expenses 0.01 — —

Tax on adjustments — (0.02) (0.08)

Adjusted diluted earnings per common share (non-GAAP) $ 3.89 $ 3.47 $ 3.98

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS (NON-GAAP)

(Dollars in Thousands, Except Per Share Amounts)

Tangible common stockholders' equity (non-GAAP) $ 1,715,740 $ 1,548,028

Stockholders' equity to assets (GAAP) 12.97 % 12.59 %

Tangible common stockholders' equity to tangible assets (non-GAAP) 9.38 % 8.81 %

Tangible common stockholders' equity (non-GAAP) $ 1,715,740 $ 1,548,028

Plus: Tax benefit of intangibles (non-GAAP) 2,966 4,263

Book value per common share (GAAP) $ 42.87 $ 39.33

Tangible book value per common share (non-GAAP) $ 30.18 $ 26.78

(Dollars in Thousands, Except Per Share Amounts)

Average deferred tax on other intangibles (GAAP) (3,615) (5,005) (6,731)

Other intangible amortization, net of tax (GAAP) 4,762 5,744 6,907

Per Share Data:

Diluted net income available to common stockholders (GAAP) $ 3.88 $ 3.41 $ 3.73

Diluted tangible net income per common share (non-GAAP) $ 3.97 $ 3.51 $ 3.85

Ratios:

Return on average stockholders' equity (GAAP) 9.43 % 8.86 % 10.43 %

Return on average assets (GAAP) 1.21 % 1.09 % 1.23 %

Return on average tangible assets (non-GAAP) 1.29 % 1.17 % 1.32 %

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

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EFFICIENCY RATIO (NON-GAAP)

(Dollars In Thousands)

Years Ended

Less: Other real estate owned and foreclosure expense (1,525) (2,076) (3,318)

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the most significant component of the Corporation’s earnings, comprising 80.9 percent of revenues for the year ended December 31, 2025. Net interest income and net interest margin are influenced by the volume and mix of earning assets and funding sources, as well as prevailing interest rate conditions. Other factors include accretion income on purchased loans, loan prepayment activity and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from customer deposits generally costs less than wholesale funding sources. Factors such as general economic activity, the Federal Reserve’s monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding and our net interest income and net interest margin.

Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is also presented on a fully taxable equivalent (“FTE”) basis in the tables that follow to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for 2025, 2024, and 2023.

The FTE analysis portrays the income tax benefits associated with tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets. Management believes that presenting net interest margin and net interest income on an FTE basis is a standard practice in the banking industry. Therefore, management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons.

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

Average Balance Sheet

Average earning assets for the year ended December 31, 2025 increased $210.3 million compared to the same period in 2024. The increase was driven by a $686.4 million, or 5.4 percent, increase in average total loans, which reached $13.3 billion. Average commercial loans and tax-exempt loans increased $404.2 million and $216.3 million, respectively. The increase in average total loans was partially offset by a $334.6 million decline in average investment securities and a $146.0 million decline in interest-bearing deposits, consistent with the Corporation’s strategy to reallocate assets toward higher-yielding loans.

Total average deposits were essentially flat year over year at $14.8 billion for the year ended December 31, 2025 compared to the same period in 2024. Average interest-bearing deposits increased by $192.1 million, driven by increases in money market deposits, partially offset by declines in certificates and other time deposits and savings deposits. Average noninterest-bearing deposits decreased by $192.6 million, reflecting continued client migration into interest-bearing products.

Average borrowings increased $133.7 million, or 13.3 percent, for the year ended December 31, 2025 compared to the same period of 2024. This increase was primarily driven by increases of $140.7 million and $38.9 million in the average balance of FHLB advances and federal funds purchased, respectively. Partially offsetting these increases was a $35.5 million decrease in the average balance of subordinated debt, reflecting the Corporation’s redemption of $30.0 million in the first quarter of 2025 and the redemption of $5.0 million of Senior Debt in the third quarter of 2025. The increase in borrowings supported loan growth and helped manage the funding mix while prudently optimizing the Corporation’s overall cost of funds.

Interest Income/Expense and Average Yields

FTE net interest income increased $16.3 million, or 3.0 percent, for the year ended December 31, 2025 compared to the same period of 2024. The net interest margin improved to 3.25 percent from 3.19 percent, driven by a 35 basis point reduction in the cost of interest-bearing liabilities to 2.82 percent from 3.17 percent. This benefit more than offset a 19 basis point decline in asset yields to 5.50 percent, which was partially mitigated by a $3.3 million interest recovery recognized in the fourth quarter of 2025, which favorably impacted net interest margin by approximately 2 basis points.

Interest income on an FTE basis decreased $21.8 million for the year ended December 31, 2025, compared to the same period of 2024. The decrease was primarily due to lower yields on variable rate loans following the Federal Open Market Committee’s 100 basis point rate cut in the second half of 2024 and an additional 75 basis point reduction in the second half of 2025. The yield on commercial loans and tax-exempt loans decreased 55 basis points and 54 basis points, respectively, in 2025 compared to 2024.

Interest expense on deposits decreased $38.1 million, reflecting lower rates across all deposit categories. The total cost of interest-bearing liabilities decreased 35 basis points, to 2.82 percent for the year ended December 31, 2025, down from 3.17 percent for the same period in 2024. The reduction in funding costs more than offset the decline in asset yields and resulted in a 16 basis point improvement in the FTE net interest spread, which increased to 2.68 percent from 2.52 percent.

PART II: ITEM 7. AND ITEM 7A. 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, 2025, 2024 and 2023.

Assets:

Investment securities: (1)

Loans: (3)

Liabilities:

Interest-bearing deposits:

Net Interest Margin (FTE):

Interest Income (FTE) / Average Earning Assets 5.50 % 5.69 % 5.40 %

Interest Expense / Average Earning Assets 2.25 % 2.50 % 2.05 %

(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. Annualized amounts are computed using a 30/360-day basis.

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

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

(4) Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities.

(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.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NONINTEREST INCOME

Noninterest income increased $1.4 million, or 1.1 percent, to $126.9 million for the year ended December 31, 2025 compared to 2024. The increase was primarily driven by a $20.7 million reduction in net realized losses on sales of available for sale securities, as net losses of $20.8 million were recognized in 2024. Partially offsetting this increase was the absence of a $20.0 million gain on the Illinois branch sale recognized in the fourth quarter of 2024. Additionally, customer fee-based revenues contributed positively to noninterest income growth in 2025. Service charges on deposit accounts and fiduciary and wealth management fees increased $1.7 million and $1.3 million, respectively, for the year ended December 31, 2025 compared to 2024.

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

NONINTEREST EXPENSE

Noninterest expense increased $3.3 million, or 0.9 percent, to $382.6 million for the year ended December 31, 2025, primarily due to increases of $3.9 million in salaries and employee benefits and $1.8 million in equipment expense compared to 2024. These increases were partially offset by a decrease of $1.6 million in FDIC assessments, driven by a reduction of the special assessment accrual originally recorded in the first quarter of 2024 following the 2023 bank failures and a $1.2 million decrease in intangible assets amortization.

Noninterest expense totaled $379.3 million in 2024, a decrease of $9.0 million, or 2.3 percent from 2023. The largest decrease of $7.6 million was in salaries and employee benefits which resulted primarily from $6.3 million in charges in 2023 related to early retirement and severance costs. Other notable decreases include professional and other outside services of $1.6 million, net occupancy of $1.5 million, intangible asset amortization of $1.5 million and other real estate owned and foreclosure expenses of $1.2 million. These decreases were offset by a $2.7 million increase in equipment expense and a $2.0 million increase in outside data processing expenses as the Corporation continued to invest in customer facing digital solutions throughout 2024.

INCOME TAXES

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

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

The Corporation’s tax asset, deferred and receivable decreased from $92.4 million at December 31, 2024 to $78.7 million at December 31, 2025. This decrease included a reduction in the Corporation’s net deferred tax asset from $85.9 million at December 31, 2024 to $67.2 million at December 31, 2025. The $18.7 million decrease in the net deferred tax asset was primarily attributable to changes in temporary differences during the year, including the impact of unrealized gains and losses on available for sale securities, as well as other balance sheet driven tax adjustments.

CAPITAL

Preferred Stock

As part of the Level One acquisition, the Corporation issued 10,000 shares of newly created 7.5 percent non-cumulative perpetual preferred stock, with a liquidation preference of $2,500 per share, in exchange for the outstanding Level One Series B preferred stock, and as part of that exchange, each outstanding Level One depositary share representing a 1/100th interest in a share of the Level One preferred stock was converted into a depositary share of the Corporation representing a 1/100th interest in a share of its newly issued preferred stock. The Corporation had $25.0 million of outstanding preferred stock at December 31, 2025 and 2024. During the twelve months ended December 31, 2025 and 2024, the Corporation declared and paid dividends of $187.52 per share (equivalent to $1.88 per depositary share), totaling approximately $1.9 million, respectively. The Series A preferred stock qualifies as Tier 1 capital for purposes of the regulatory capital calculations.

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 $100.0 million. On a share basis, the amount of common stock subject to the repurchase program represented approximately 6 percent of the Corporation’s outstanding shares at the time the program became effective. The Corporation repurchased 1,648,466 shares of its common stock pursuant to the repurchase program during 2024. As of December 31, 2024, the Corporation had approximately 1.0 million shares at an aggregate value of $18.4 million available to repurchase under the program. The stock repurchase program approved in 2021 was discontinued as of March 18, 2025.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On March 18, 2025, the Board of Directors of the Corporation approved a stock repurchase program of up to 2,927,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100.0 million. On a share basis, the amount of common stock subject to the repurchase program represented approximately 5 percent of the Corporation’s outstanding shares at the time the program became effective. The Corporation repurchased 1.2 million shares of its common stock pursuant to the repurchase program during 2025, for total consideration of $46.9 million. The average purchase price was $38.71 per share. As of December 31, 2025, approximately 1.7 million shares remained available for repurchase under the program, with an aggregate remaining authorization of $53.1 million.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1 percent excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations (like the Corporation). With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. For the twelve months ended December 31, 2025 and 2024, the Corporation recorded excise tax of $0.4 million and $0.5 million, respectively, related to its share repurchase during the period, which is reflected in stockholders’ equity as a component of additional paid-in capital.

Regulatory Capital

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

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

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

The Corporation’s and Bank’s actual and required capital ratios as of December 31, 2025 and December 31, 2024 were as follows:

Prompt Corrective Action Thresholds

Actual Basel III Minimum Capital Required Well Capitalized

December 31, 2025 Amount Ratio Amount Ratio Amount Ratio

Total risk-based capital to risk-weighted assets

Tier 1 capital to risk-weighted assets

Common equity tier 1 capital to risk-weighted assets

Tier 1 capital to average assets

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Prompt Corrective Action Thresholds

Actual Basel III Minimum Capital Required Well Capitalized

December 31, 2024 Amount Ratio Amount Ratio Amount Ratio

Total risk-based capital to risk-weighted assets

Tier 1 capital to risk-weighted assets

Common equity tier 1 capital to risk-weighted assets

Tier 1 capital to average assets

On November 1, 2013, the Corporation completed the private issuance and sale to four institutional investors of an aggregate of $70.0 million of debt comprised of (a) 5.00 percent Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5.0 million and (b) 6.75 percent Fixed-to-Floating Rate Subordinated Notes due October 30, 2028 in the aggregate principal amount of $65.0 million. The Corporation exercised its right to redeem $65.0 million of the subordinated debt on the scheduled interest payment date during the first half of 2024 and the Corporation redeemed the $5.0 million of the Senior Debt on the scheduled interest payment date of July 30, 2025.

On April 1, 2022, the Corporation assumed $30.0 million of subordinated notes in conjunction with its acquisition of Level One. On February 14, 2025, the Corporation, through its trustee, distributed notice of redemption of all $30.0 million in principal amount of its 4.75 percent Fixed-to-Floating Subordinated Notes due December 18, 2029. The Corporation exercised its right to redeem $30.0 million of the subordinated debt on the scheduled interest payment date of March 18, 2025.

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

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A reconciliation of GAAP measures to regulatory measures are detailed in the following table for the periods indicated.

Total Risk-Based Capital

Add: Qualifying Capital Securities 25,000 — 25,000 —

Less: Disallowed Deferred Tax Assets (97) (100) (571) (590)

Qualifying Subordinated Debentures 47,559 — 72,040 —

CET1 Capital Ratio

Less: Qualified Capital Securities (25,000) — (25,000) —

(1)Includes net unrealized gains or losses on available for sale securities and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.

In management’s view, certain non-GAAP financial measures, when taken together with the corresponding GAAP financial measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP financial measures and ratios in assessing our operating results, related trends, and when forecasting future periods. However, these non-GAAP financial measures should be considered in addition to, and not a substitute for or preferable to, financial measures and ratios presented in accordance with GAAP.

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. The tangible common equity to tangible assets ratio was 9.38 percent at December 31, 2025, and 8.81 percent at December 31, 2024. The increase in the tangible common equity to tangible assets ratio was primarily due to tangible common equity increasing $167.7 million, or 10.8 percent, while tangible assets increased $719.2 million, or 4.1 percent, from 2024. The growth in tangible common equity was primarily due to 2025 net income earned of $226.0 million and other comprehensive income of $58.6 million partially offset by common stock repurchases totaling $46.9 million. The increase in tangible assets was mostly attributable to a $937.3 million increase in loans partially offset by decreases of $102.6 million and $102.7 million in the balance of interest bearing deposits and held to maturity investment securities, respectively.

Non-GAAP financial measures such as tangible common stockholders’ equity to tangible assets, diluted tangible net income per common share, return on average tangible assets and return on average tangible common stockholders’ equity are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the Corporation’s financial position without regard to the effects of intangible assets and preferred stock, but 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.

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, 2025 and December 31, 2024.

PART II: ITEM 7. AND ITEM 7A. 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. 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.

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. 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, 2025, nonaccrual loans totaled $71.8 million, a decrease of $2.0 million from December 31, 2024, primarily due to an $11.3 million, $2.1 million and $0.8 million decrease in nonaccrual balances within the commercial real estate, non-owner occupied, construction and home equity loan classes, respectively. The decrease was offset by an $8.3 million, $2.5 million and $1.3 million increase in nonaccrual balances within the residential, commercial and industrial and commercial real estate, owner occupied loan classes, respectively

At December 31, 2025, loans 90-days or more delinquent and still accruing totaled $2.0 million, a decrease of $3.9 million from December 31, 2024.

According to applicable accounting guidance, loans that no longer exhibit similar risk characteristics are evaluated individually to determine if there is a need for a specific reserve. Commercial loans under $500,000 and consumer loans 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 Corporation’s nonperforming assets plus accruing loans 90 days or more delinquent and individually evaluated loans are presented in the table below.

Nonperforming assets:

Loans 90-days or more delinquent and still accruing 2,042 5,902

Nonperforming assets and loans 90-days or more delinquent $ 74,473 $ 84,623

The composition of nonperforming assets plus accruing loans 90-days or more delinquent is reflected in the following table by loan class.

Nonperforming assets and loans 90-days or more delinquent:

Agricultural land, production and other loans to farmers 250 75

Real estate loans:

Commercial real estate, non-owner occupied 837 16,838

Commercial real estate, owner occupied 3,705 2,440

Individual's loans for household and other personal expenditures 20 7

Nonperforming assets and loans 90-days or more delinquent $ 74,473 $ 84,623

PROVISION EXPENSE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost based on historical experiences, current conditions and reasonable and supportable forecasts. CECL also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as credit quality and underwriting standards of an organization's portfolio. Additional details of the Corporation's CECL methodology and allowance calculation are discussed within NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The CECL allowance is maintained through the provision for credit losses, which is a charge against earnings. 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 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, including portfolio composition, credit quality trends, and changes in economic conditions.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation’s total loan balance, excluding loans held for sale, increased $937.3 million, ending December 31, 2025 at $13.8 billion. At December 31, 2025, the ACL - Loans totaled $195.6 million, which represents an increase of $2.8 million from December 31, 2024. The Corporation had $18.4 million of net charge-offs during the year ended December 31, 2025. As a percentage of loans, the ACL - Loans was 1.42 percent at December 31, 2025, compared to 1.50 percent at December 31, 2024 and 1.64 percent at December 31, 2023. The Corporation deems the current estimate for loan portfolio credit exposure as appropriate.

The Corporation’s credit loss experience is presented in the table below for the years indicated.

Allowance for credit losses - loans:

In 2025, the Corporation recorded $21.3 million in provision for credit losses - loans. In 2024, the Corporation recorded a $37.2 million 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.

Net charge-offs totaling $18.4 million, $49.4 million, and $25.6 million were recognized for the years ended December 31, 2025, 2024, and 2023, respectively. The distribution of the net charge-offs (recoveries) for the twelve months ended December 31, 2025, 2024, and 2023 is reflected in the following table.

Net charge-offs:

Real estate loans:

Construction 63 — —

Commercial real estate, non-owner occupied 265 193 20

Commercial real estate, owner occupied 377 (77) 36

Individuals loans for household and other personal expenditures 1,447 1,385 991

Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on nonperforming loans, past and anticipated credit loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding. The determination of the provision for credit losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio. The Corporation continues to monitor economic forecast changes, loan growth and credit quality to determine provision needs in subsequent periods.

GOODWILL

During the fourth quarter of 2025 and 2024, the Corporation performed its annual goodwill impairment testing and the fair value exceeded the Corporation’s carrying value. Based on the analysis performed, the Corporation concluded goodwill was not impaired as of December 31, 2025 and 2024.

PART II: ITEM 7. AND ITEM 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY

Liquidity management is the process by which the Corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries. 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.

The Corporation’s liquidity is dependent upon the receipt of dividends from the Bank, which is subject to certain regulatory limitations and access to other funding sources. Liquidity of the Bank is derived primarily from core deposit growth, principal payments received on loans, the sale and maturity of investment securities, net cash provided by operating activities, and access to other funding sources.

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, 2025, an increase of $20.6 million, or 1.5 percent, from December 31, 2024. Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity. Securities classified as held to maturity and maturing in one year or less totaled $7.0 million at December 31, 2025. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.

The 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 considered additional sources of liquidity. In addition, FHLB advances and Federal Reserve Discount Window borrowings are utilized as a funding source. At December 31, 2025, total borrowings from the FHLB were $798.5 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. The total available remaining borrowing capacity from the FHLB and Federal Reserve at December 31, 2025 was $819.9 million and $5.3 billion, respectively.

The following table presents the Corporation’s material cash requirements from known contractual and other obligations at December 31, 2025:

Payments Due In

(Dollars in Thousands) One Year or Less Over One Year Total

Securities sold under repurchase agreements 103,755 — 103,755

For further details related to the Corporation’s deposits and borrowings, see NOTE 10. DEPOSITS and NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Also, in the normal course of business, the Bank is a party to a number of other off-balance sheet activities that contain credit, market and operational risk that are not reflected in whole or in part in the consolidated financial statements. These activities primarily consist of traditional off-balance sheet credit-related financial instruments such as loan commitments and standby letters of credit.

Summarized credit-related financial instruments at December 31, 2025 are as follows:

(Dollars in Thousands) December 31, 2025

Amounts of Commitments:

Loan commitments to extend credit $ 5,586,510

Standby letters of credit 73,997

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.

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK

Asset/Liability management has been an important factor in the Corporation’s ability to record consistent earnings growth through periods of interest rate volatility and product deregulation. Management and the Board of Directors monitor the Corporation’s liquidity and interest sensitivity positions at regular meetings to review how changes in interest rates may affect earnings. Decisions regarding investment and the pricing of loan and deposit products are made after analysis of reports designed to measure liquidity, rate sensitivity, the Corporation’s exposure to changes in net interest income given various rate scenarios and the economic and competitive environments.

It is the objective of the Corporation to monitor and manage risk exposure to net interest income caused by changes in interest rates. It is the goal of the Corporation’s Asset/Liability management function to provide optimum and stable net interest income. To accomplish this, management uses two asset liability tools. 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, 2025, remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk.

PART II: ITEM 7. AND ITEM 7A. 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, 2025.

(Dollars in Thousands) 1-180 Days 181-365 Days 1-5 Years Beyond 5 Years Total

Rate-Sensitive Assets:

Rate-Sensitive Liabilities:

Subordinated debentures and term loans 40,000 — — — 40,000

Cumulative rate sensitivity gap ratio

The Corporation had a cumulative negative gap of $3.9 billion in the one-year horizon at December 31, 2025, or 20.4 percent of total assets.

Net interest income simulation modeling, or earnings-at-risk, measures the sensitivity of net interest income to various interest rate movements. The Corporation’s asset liability process monitors simulated net interest income under three separate interest rate scenarios; base, rising and falling. Estimated net interest income for each scenario is calculated over a twelve-month horizon. The immediate and parallel changes to the base case scenario used in the model are presented below. The interest rate scenarios are used for analytical purposes and do not necessarily represent management’s view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings of the Corporation.

The base scenario is highly dependent on numerous assumptions embedded in the model, including assumptions related to future interest rates. While the base sensitivity analysis incorporates management’s best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, interest-bearing and demand deposits, reflect management’s best estimate of expected future behavior. Historical retention rate assumptions are applied to non-maturity deposits for modeling purposes.

The comparative rising 100 and 200 basis points and falling 100 and 200 basis points scenarios below, as of December 31, 2025 and 2024, 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.

Results for rising 100 and 200 basis points and falling 100 and 200 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at December 31, 2025 and 2024. The change from the base case represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

Rising 200 basis points from base case 4.5 % 4.1 %

Rising 100 basis points from base case 2.4 % 2.5 %

Falling 100 basis points from base case (2.8) % (2.2) %

Falling 200 basis points from base case (5.6) % (4.5) %

PART II: ITEM 7. AND ITEM 7A. 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, 2025 and 2024.

December 31, December 31,

Deposits:

Subordinated debentures and term loans 57,630 93,529

Deposits increased $773.2 million from December 31, 2024. The majority of the organic deposit growth was due to increases in non-maturity deposits of $749.4 million. Lower interest rates have resulted in customers migrating funds from maturity time deposit products into non-maturity deposit products.

Federal funds purchased decreased $59.2 million, and securities sold under repurchase agreements decreased $39.1 million from December 31, 2024, respectively. The Corporation utilized brokered certificates of deposit to support loan growth that exceeded deposit growth, reducing the need for overnight borrowings during the year ended December 31, 2025. Further discussion regarding federal funds purchased and repurchase agreements is included in NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Federal Home Loan Bank advances decreased $24.0 million compared to December 31, 2024 as the Corporation utilized brokered certificates of deposit to support loan growth that exceeded deposit growth, reducing the need for Federal Home Loan Bank advances during 2025. Further discussion regarding FHLB advances is included in NOTE 11. 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”. 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 $35.9 million compared to December 31, 2024. During 2025, the Corporation exercised its right to redeem $30.0 million in principal of the Level One Subordinated Notes and $5.0 million of First Merchants Senior Debt, and paid the debt in full on the scheduled interest payment dates. Additional details regarding the subordinated debentures and other borrowings are discussed within NOTE 11. BORROWINGS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

ITEM 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.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Stockholders, Board of Directors, and Audit Committee

First Merchants Corporation

Muncie, Indiana

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Merchants Corporation (the “Corporation”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2026, expressed an unqualified opinion thereon.

Basis for Opinion

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

As described in Note 5 to the consolidated financial statements, the Corporation’s allowance for credit losses (ACL) on loans was $195.6 million at December 31, 2025. The ACL is an estimate of current expected credit losses in the loan portfolio. The determination of the ACL requires significant judgment reflecting the Corporation’s best estimate of expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

We identified the econometric component of the ACL as a critical audit matter. The econometric component involves a high degree of subjectivity in evaluating management’s estimates, such as evaluating management’s assessment of economic forecasts and conditions and other environmental factors used to adjust historical loss rates.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

How We Addressed the Matter in Our Audit

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

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

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

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

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

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

We have served as the Corporation’s auditor since at least 1982; however, an earlier year cannot be reliably determined.

Forvis Mazars, LLP

Indianapolis, Indiana

February 25, 2026

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

December 31, December 31,

(Dollars in Thousands, Except Share Data) 2025 2024

ASSETS

Less: Allowance for credit losses - loans (195,597) (192,757)

LIABILITIES

Deposits:

Borrowings:

Subordinated debentures and other borrowings 57,630 93,529

COMMITMENTS AND CONTINGENT LIABILITIES

STOCKHOLDERS' EQUITY

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

Authorized - 600 cumulative shares

Issued and outstanding - 125 cumulative shares 125 125

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

Authorized - 10,000 non-cumulative perpetual shares

Issued and outstanding - 10,000 non-cumulative perpetual shares 25,000 25,000

Common Stock, $0.125 stated value:

See notes to consolidated financial statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

INTEREST INCOME

Loans receivable:

Investment securities:

INTEREST EXPENSE

Securities sold under repurchase agreements 2,464 3,057 3,451

NONINTEREST INCOME

Gain on branch sale — 19,983 —

NONINTEREST EXPENSE

Other real estate owned and foreclosure expenses 1,525 2,076 3,318

Per Share Data:

Basic Net Income Available to Common Stockholders $ 3.90 $ 3.42 $ 3.74

Diluted Net Income Available to Common Stockholders $ 3.88 $ 3.41 $ 3.73

Average Diluted Common Shares Outstanding (in thousands) 57,726 58,533 59,489

See notes to consolidated financial statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Other comprehensive income (loss):

Unrealized gain (loss) on securities available for sale:

Unrealized holding gain (loss) arising during the period 71,524 (39,438) 70,084

Reclassification adjustment for losses included in net income 8 20,757 6,930

Unrealized gain (loss) on cash flow hedges:

Unrealized holding loss arising during the period — — (179)

Reclassification adjustment for losses included in net income — — 15

Tax effect — — 34

Net of tax — — (130)

Defined benefit pension plans:

Reclassification adjustment for amortization of prior service cost 30 — 82

See notes to consolidated financial statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive income:

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

Stock issued under employee benefit plans — — — — 27,902 3 751 — — 754

Restricted shares withheld for taxes — — — — (40,400) (4) (1,286) — — (1,290)

Comprehensive income:

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

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

Stock issued under employee benefit plans — — — — 21,330 3 653 — — 656

Restricted shares withheld for taxes — — — — (24,246) (3) (866) — — (869)

Comprehensive income:

Other comprehensive income, net of tax — — — — — — — — 58,550 58,550

Excise tax on common stock repurchases — — — — — — (424) — — (424)

Stock issued under employee benefit plans — — — — 18,741 2 626 — — 628

Restricted shares withheld for taxes — — — — (41,104) (5) (1,512) — — (1,517)

See notes to consolidated financial statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

December 31, December 31, December 31,

Cash Flow From Operating Activities:

Gain on branch sale — (19,983) —

Net losses on sales of securities available for sale 8 20,757 6,930

Increase in cash surrender of life insurance (6,521) (5,655) (5,320)

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

Cash Flows from Investing Activities:

Purchases of:

Securities held to maturity — — (5,653)

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

Proceeds from maturities and redemptions of:

Purchases of Federal Home Loan Bank stock (5,644) — (3,373)

Redemptions of Federal Home Loan Bank stock 89 79 129

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

Proceeds from the sale of other real estate owned 7,331 781 1,748

Proceeds from mortgage portfolio loan sale — 1,716 —

Proceeds from commercial portfolio loan sale — 3,273 113,313

Cash Flows from Financing Activities:

Net change in :

Stock issued under employee benefit plans 628 656 754

Additional cash flow information:

Loans transferred to other real estate owned 3,055 820 1,224

Fixed assets transferred to other real estate owned 3,330 69 5,020

Non-cash investing activities using trade date accounting 6,745 10,018 3,273

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

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

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

Cash paid in divestiture — 243,504 —

Less: Final settlement receivable — 6,011 —

Net gain on divestiture — 19,983 —

Liabilities divested $ — $ 268,140 $ —

See notes to consolidated financial statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Preparation

The accounting and reporting policies of the Corporation and the Bank conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses.

The Corporation is a financial holding company whose principal activity is the ownership and management of the Bank and operates in a single significant business segment. The Bank provides full banking services under an Indiana state-charter. Additionally, the Bank operates as First Merchants Private Wealth Advisors (a division of First Merchants Bank). The Bank generates commercial, mortgage, and consumer loans and receives deposits from customers located primarily in central and northern Indiana, central Ohio and southeast Michigan counties. The Bank’s loans are generally secured by specific items of collateral, including real property, consumer assets and business assets.

A brief description of current accounting practices and current valuation methodologies are presented below.

Consolidation

The consolidation of the Corporation’s financial statements include the accounts of the Corporation and all its subsidiaries, after elimination of all material intercompany transactions.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting. Under the acquisition method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition. Details of the Corporation’s acquisitions are included in NOTE 2. ACQUISITIONS AND DIVESTITURES of these Notes to Consolidated Financial Statements.

Cash and Cash Equivalents

Cash on hand, cash items in process of collection and noninterest bearing cash held at various banks are included in cash and cash equivalents and have a maturity of less than three months. The Corporation maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes there is not significant credit risk on cash and cash equivalents.

Interest-Bearing Deposits

Interest-bearing cash held at other banks, the Federal Reserve Bank and federal funds sold are included in interest-bearing deposits and have a maturity of less than three months. The Corporation maintains deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes there is not significant credit risk on interest-bearing deposits.

Investment Securities

Held to maturity securities are carried at amortized cost when the Corporation has the positive intent and ability to hold them until maturity. Available for sale securities are recorded at fair value on a recurring basis with the unrealized gains and losses, net of applicable income taxes, recorded in other comprehensive income (loss). Realized gains and losses are recorded in earnings and the prior fair value adjustments are reclassified within stockholders’ equity. Gains and losses on sales of securities are determined on the specific-identification method. Amortization of premiums are amortized to their earliest call date and accretion of discounts are amortized to the maturity date. The amortization is recorded as interest income from securities. Details of the Corporation’s investment securities portfolio are included in NOTE 4. INVESTMENT SECURITIES of these Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Investment Securities Available for Sale

For investment securities available for sale 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. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For investment securities available for sale that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income (loss).

Adjustments to the allowance for credit losses are reported in the income statement as a component of the provision for credit loss. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities available for sale from the estimate of credit losses.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Investment securities available for sale are charged off against the allowance or, in the absence of any allowance, written down through the income statement when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Corporation did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality. Details of the Corporation’s allowance for credit losses on investment securities available for sale are included in NOTE 4. INVESTMENT SECURITIES of these Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Investment Securities Held to Maturity (“ACL - Investments”)

The ACL - Investments is a contra asset-valuation account that is deducted from the amortized cost basis of investment securities held to maturity to present the net amount expected to be collected. Investment securities held to maturity are charged off against the ACL - Investments when deemed uncollectible. Adjustments to the ACL - Investments are reported in the income statement as a component of the provision for credit loss.

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

With regard to securities issued by states and municipalities and other investment securities held to maturity, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those in the Corporation’s portfolio have generally not been significant. An allowance for credit losses of $245,000 was recorded on 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. Details of the Corporation’s ACL - Investments are included in NOTE 4. INVESTMENT SECURITIES of these Notes to Consolidated Financial Statements.

Loans Held for Sale

Loans held for sale are carried at the lower of aggregate cost or market value. Loan fees (net of certain direct loan origination costs) on loans held for sale are deferred until the related loans are sold or repaid. Gains or losses on loan sales are recognized at the time of sale and determined using the specific identification method.

Loans

The Corporation’s loan portfolio is carried at the principal amount outstanding, net of unearned income and principal charge-offs. Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable. Interest income is accrued on the principal balances of loans. The accrual of interest is discontinued on a loan when, in management’s opinion, the borrower may be unable to meet payments as they become due. When the interest accrual is discontinued, all unpaid accrued interest is reversed against earnings when considered uncollectible. Interest income accrued in the prior year, if any, is charged to the allowance for credit losses. Interest income is subsequently recognized only to the extent cash payments are received and the loan is returned to accruing status. Details of the Corporation’s loan portfolio are included in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of these Notes to Consolidated Financial Statements.

Purchased Credit Deteriorated (“PCD”) Loans

The Corporation accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The fair value of acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, Financial Instruments – Credit Losses, the fair value adjustment is recorded as a premium or discount to the unpaid principal balance of each acquired loan. Acquired loans are classified into two categories: loans with more than insignificant credit deterioration (“PCD”) since origination, and loans with insignificant credit deterioration (“non-PCD”) since origination. Factors considered when determining whether a loan has a more-than-insignificant deterioration since origination include, but are not limited to, the materiality of the credit, risk grade, delinquency, nonperforming status, bankruptcies, and other qualitative factors. The net premium or discount on PCD loans is recorded in the Corporation’s allowance for credit losses on loans at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using an effective yield method. The net premium or discount on non-PCD loans, that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using an effective yield method. Additionally, non-PCD loans have an allowance for credit loss established on acquisition date, which is recognized in the current period provision for credit loss expense. In the event of prepayment, unamortized discounts or premiums on PCD and non-PCD loans are recognized in interest income.

Allowance for Credit Losses - Loans (“ACL - Loans”)

The ACL - Loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on loans over the contractual term. Loans are charged off against the allowance when the collectibility of the loan is unlikely. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Adjustments to the ACL - Loans are reported in the income statement as a component of provision for credit loss. The Corporation has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding the policies and methodology used to estimate the ACL - Loans is detailed in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of these Notes to Consolidated Financial Statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Pension

The Corporation has defined-benefit pension plans, including non-qualified plans for certain employees, former employees and former non-employee directors. In 2005, the Board of Directors of the Corporation approved the curtailment of the accumulation of defined benefits for future services provided by certain participants in the First Merchants Corporation Retirement Plan. No additional pension benefits have been earned by any employees who had not met certain requirements as of March 1, 2005. The benefits are based primarily on years of service and employees’ pay near retirement. The Corporation’s accounting policies related to pensions and other post retirement benefits reflect the guidance in ASC 715, Compensation – Retirement Benefits. The Corporation does not consolidate the assets and liabilities associated with the pension plan. Instead, the Corporation recognizes the funded status of the plan in the Consolidated Balance Sheets. The measurement of the funded status and the annual pension expense involves actuarial and economic assumptions. Various statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liabilities related to the plans. Key factors include assumptions on the expected rates of return on plan assets, discount rates and health care costs and trends. The Corporation considers market conditions, including changes in investment returns and interest rates in making these assumptions. The primary assumptions used in determining the Corporation’s pension and post retirement benefit obligations and related expenses are presented in NOTE 18. PENSION AND OTHER POST RETIREMENT BENEFIT PLANS of these Notes to Consolidated Financial Statements.

Premises and Equipment

Premises and equipment is carried at cost net of accumulated depreciation. Depreciation is computed using the straight-line and declining balance methods based on the estimated useful lives of the assets ranging from three to forty years. Maintenance and repairs are expensed as incurred, while major additions and improvements, which extend the useful life, are capitalized. Gains and losses on dispositions are included in current operations. Details of the Corporation’s premises and equipment are included in NOTE 6. PREMISES AND EQUIPMENT of these Notes to Consolidated Financial Statements.

Leases

The Corporation leases certain land and premises from third parties and all are classified as operating leases. Operating leases are included in Other Assets and Other Liabilities on the Corporation’s Consolidated Balance Sheets and lease expense for lease payments is recognized on a straight-line basis over the lease term. Right of Use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the term. An ROU asset represents the right to use the underlying asset for the lease term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives. When an implicit rate is not available, an incremental borrowing rate based on the information available at commencement date is used in determining the present value of the lease payments. A lease term may include an option to extend or terminate the lease when it is reasonably certain the option will be exercised. Short-term leases of twelve months or less are excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease term and the leases are not reflected on the Corporation’s Consolidated Balance Sheets. Renewal and termination options are considered when determining short-term leases. Leases are accounted for at the individual level. Details of the Corporation’s leases are included in NOTE 8. LEASES of these Notes to Consolidated Financial Statements.

Qualified Affordable Housing Investments

Qualified affordable housing investments are investments related to low-income housing tax credits. The purpose of the Corporation’s investment in LIHTC partnerships is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return on capital via the federal income tax credit. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships and, therefore, the Corporation is not the primary beneficiary of these partnerships. Accordingly, the Corporation does not consolidate these variable interest entities into its consolidated financial statements. Investments in LIHTCs are included in other assets on the Consolidated Balance Sheets and the unfunded commitments to provide additional capital for LIHTC investments are included in other liabilities on the Consolidated Balance Sheets. Additionally, the Corporation amortizes the cost of the qualifying investments in proportion to the tax credit and other tax benefits received over the life of the investment. The amortization and income tax credits are included as a component of income tax expense in the Consolidated Statements of Income. Details of the Corporation’s LIHTC investments are included in NOTE 9. QUALIFIED AFFORDABLE HOUSING INVESTMENTS of these Notes to Consolidated Financial Statements.

Federal Home Loan Bank Stock (“FHLB”)

FHLB stock is a required investment for institutions that are members of the FHLB. The Bank is a member of the FHLB of Indianapolis. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost and is classified as a restricted security. Both cash and stock dividends are reported as income.

Intangible Assets

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. Intangible assets with definite useful lives are subject to amortization and relate to core deposits, customer relationships and non-compete agreements. These intangible assets are being amortized on both the straight-line and accelerated basis over two to ten years. Intangible assets are periodically evaluated as to the recoverability of their carrying value. Details of the Corporation’s other intangible assets are included in NOTE 7. GOODWILL AND OTHER INTANGIBLES of these Notes to Consolidated Financial Statements.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Goodwill

Goodwill is maintained by applying the provisions of ASC 350, Intangibles – Goodwill and Other. For acquisitions, assets acquired, including identified intangible assets, and the liabilities assumed are required to be recorded at their fair value. These often involve estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, or other relevant factors. In addition, the determination of the useful lives over which the intangible asset will be amortized is subjective.

Under ASC 350, the Corporation is required to evaluate goodwill for impairment on an annual basis, as well as on an interim basis, if events or changes indicate that the asset may be impaired, indicating that the carrying value may not be recoverable. The Corporation completed its most recent annual goodwill impairment test during the fourth quarter of 2025 and concluded, based on current events and circumstances goodwill is not impaired. Details of the Corporation’s goodwill are included in NOTE 7. GOODWILL AND OTHER INTANGIBLES of these Notes to Consolidated Financial Statements.

Bank Owned Life Insurance (“BOLI”)

BOLI policies have been purchased, as well as obtained through acquisitions, on certain current and former employees and directors of the Corporation to offset a portion of the employee benefit costs. The Corporation records the life insurance at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Changes in cash surrender values and death benefits received in excess of cash surrender values are reported in noninterest income. A corporate policy is in place with defined thresholds that limit the amount of credit, interest rate and liquidity risk inherent in a BOLI portfolio. The Corporation actively monitors the overall portfolio performance along with the credit quality of the insurance carriers and the credit quality and yield of the underlying investments.

Other Real Estate Owned (“OREO”)

OREO consists of assets acquired through, or in lieu of, loan foreclosure and are held for sale. They are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation are included in other real estate owned and foreclosure expenses.

Derivative Financial Instruments

Derivative instruments, which are recorded as assets or liabilities in the Consolidated Balance Sheets, are carried at fair value and reflects the estimated amounts that would have been received or paid to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information. As part of the asset/liability management program, the Corporation will utilize, from time to time, interest rate floors, caps or swaps to reduce its sensitivity to interest rate fluctuations. Changes in the fair values of derivative instruments are reported in the consolidated statements of operations or AOCI depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Derivatives that qualify for hedge accounting treatment are designated as either: (1) a hedge of the fair value of the recognized asset or liability, or of an unrecognized firm commitment (a fair value hedge); or (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For cash flow hedges, changes in the fair values of the derivative instruments are reported in AOCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in AOCI are reflected in the Consolidated Statements of Income in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, the Corporation establishes the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized in the Consolidated Statements of Income. The Corporation excludes the time value expiration of the hedge when measuring ineffectiveness.

The Corporation offers interest rate derivative products (e.g. interest rate swaps) to certain of its high-quality commercial borrowers. This product allows customers to enter into an agreement with the Corporation to swap their variable rate loan to a fixed rate. These derivative products are designed to reduce, eliminate or modify the risk of changes in the borrower’s interest rate or market price risk. The extension of credit incurred through the execution of these derivative products is subject to the same approvals and rigorous underwriting standards as the related traditional credit product. The Corporation limits its risk exposure to these products by entering into a mirror-image, offsetting swap agreement with a separate, well-capitalized and rated counterparty previously approved by the Credit and Asset Liability Committee. By using these interest rate swap arrangements, the Corporation is also better insulated from the interest rate risk associated with underwriting fixed-rate loans. These derivative contracts are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging, and, therefore, do not qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the customer and the offsetting swap agreements are recorded (and essentially offset) in noninterest income. The fair value of the derivative instruments incorporates a consideration of credit risk (in accordance with ASC 820, Fair Value Measurements and Disclosures), resulting in some volatility in earnings each period.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Corporation’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair value of these mortgage banking derivatives are included in net gains and fees on sales of loans. In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in “Net gains and fees on sales of loans” in the Consolidated Statements of Income and is considered a cost of executing a forward contract.

Details of the Corporation’s derivative instruments are included in NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Financial Statements.

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements represent securities the Corporation routinely sells to certain treasury management customers and then repurchases these securities the next day. Securities sold under repurchase agreements are reflected as secured borrowings in the Corporation’s Consolidated Balance Sheets at the amount of cash received in connection with each transaction. Details of the Corporation’s repurchase agreements are included in NOTE 11. BORROWINGS of these Notes to Consolidated Financial Statements.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

The allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Corporation is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Corporation has the unconditional right to cancel the obligation. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management’s best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. The allowance for off-balance sheet credit exposures is adjusted through the income statement as a component of provision for credit loss. Further information regarding the policies and methodology used to estimate the allowance for credit losses on off-balance sheet credit exposures is detailed in NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of these Notes to Consolidated Financial Statements.

Revenue Recognition

Revenue recognitionguidance establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

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

with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. Descriptions of revenue-generating activities that are within the scope of ASU 2014-09, which are presented in our income statements are as follows:

Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed, which is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned monthly, representing the period which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Fiduciary activities: This represents monthly fees due from wealth management customers as consideration for managing the customers’ assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on the market value of assets under management at month-end. Fees that are transaction-based are recognized at the point in time that the transaction is executed.

Investment Brokerage Fees: The Corporation earns fees from investment brokerage services provided to its customers by a third-party service provider. The Corporation receives commissions from the third-party provider on a monthly basis based upon customer activity for the month. The fees are paid to us by the third party on a monthly basis and are recognized when received.

Interchange income: The Corporation earns interchange fees from debit and credit cardholder transactions conducted through the Visa and MasterCard payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrent with the transaction processing services provided to the cardholder.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

Gains (Losses) on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Corporation finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Transfers of Financial Assets

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

Share-Based Compensation

Stock option and restricted stock award plans are maintained by the Corporation. The compensation costs are recognized for stock options and restricted stock awards issued to employees and directors based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation expense is recognized over the appropriate service period, which is generally three years. Details of the Corporation’s share-based compensation are included in NOTE 17. SHARE-BASED COMPENSATION of these Notes to Consolidated Financial Statements.

Income Taxes

Income tax expense in the Consolidated Statements of Income is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts from the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. The Corporation files consolidated income tax returns with its subsidiaries. The Corporation is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years before 2022.

The Corporation accounts for income taxes under the provisions of ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Per the guidance in ASC 740, the Corporation has not identified any uncertain tax positions that it believes should be recognized in the financial statements. The Corporation reviews income tax expense and the carrying value of deferred tax assets and liabilities quarterly; as new information becomes available, the balances are adjusted, if applicable. The Corporation’s policy is to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense. Details of the Corporation’s income taxes are included in NOTE 19. INCOME TAXES of these Notes to Consolidated Financial Statements.

Net Income Per Common Share

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding. Diluted net income per common share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding, plus the dilutive effect of outstanding stock options and non-vested restricted stock awards. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive. Details of the Corporation’s net income per share are included in NOTE 20. NET INCOME PER COMMON SHARE of these Notes to Consolidated Financial Statements.

RECENT ACCOUNTING CHANGES ADOPTED IN 2025

FASB Accounting Standards Update No. 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures

Summary - In the fourth quarter of 2025, the Corporation adopted ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU enhances existing income tax disclosure requirements by requiring more detailed information about the effective tax rate reconciliation and income taxes paid.

The amendments require enhanced disclosure of significant reconciling items in the effective tax rate reconciliation, including disclosure of specific categories within the rate reconciliation when quantitative thresholds are met. In addition, entities are required to disclose income taxes paid (net of refunds received), disaggregated by federal, state, and foreign jurisdictions, as well as by individual jurisdictions that are significant to the entity.

The amendments are effective for annual periods beginning after December 15, 2024. The Corporation adopted the amendments for the year ended December 31, 2025. The guidance may be applied on a prospective basis; retrospective application is also permitted. The adoption did not have a material effect on the Corporation’s financial statements or related disclosures. See NOTE 19. INCOME TAXES of the Notes to Consolidated Financial Statements for additional information.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

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

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

FASB Accounting Standards Update No. 2024-03 - Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures

Summary - The FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures in the fourth quarter of 2024. This ASU requires public business entities to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods.

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

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

FASB Accounting Standards Update No. 2025-08 - Financial Instruments - Credit Losses (Topic 326): Purchased Loans

Summary - The FASB issued ASU No. 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans in the fourth quarter of 2025. This ASU requires that purchased seasoned loans be accounted for using the gross-up approach, which will enhance comparability and consistency in the accounting for acquired financial assets.

The amendments in this Update expand the population of acquired financial assets accounted for under the gross‐up approach by requiring that purchased seasoned loans—defined as loans (excluding credit cards) acquired without credit deterioration and deemed ‘seasoned’—be recognized using the gross‐up methodology at acquisition. Entities must first determine that a loan is a non‐PCD asset and then assess whether it meets the definition of a purchased seasoned loan to apply the gross‐up approach.

The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, and are to be applied prospectively to loans acquired on or after the adoption date. Early adoption is permitted for any interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Corporation plans to early adopt this guidance in connection with the acquisition of First Savings Financial Group, Inc. (“First Savings”) in the first quarter of 2026, at which time the gross-up approach will be applied to loans acquired in the transaction, along with required quantitative disclosures of activity in the allowance for credit losses for purchased seasoned loans.

FASB Accounting Standards Update No. 2025-09 - Derivatives and Hedging (Topic 815): Hedge Accounting Improvements

Summary - The FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815): hedge Accounting Improvements in the fourth quarter 2025. The amendments in this Update clarify certain aspects of the guidance on hedge accounting and to address several incremental hedge accounting issues from the global reference rate reform initiative.

The objective is to more closely align hedge accounting with the economics of an entity’s risk management activities. The five issues addressed in this Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions.

The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those fiscal years. Early adoption is permitted. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

FASB Accounting Standards Update No. 2025-10 - Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities

Summary - The FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities in the fourth quarter 2025. This Update establishes authoritative U.S. GAAP guidance for accounting for government grants received by business entities, including recognition, measurement, and presentation. It provides specific guidance for grants related to assets and grants related to income. The amendments exclude income taxes, below-market interest rate loans, and government guarantees.

The amendments are effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those fiscal years. Early adoption is permitted for any interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Corporation is assessing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation’s financial statements or disclosures.

PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

NOTE 2

ACQUISITIONS AND DIVESTITURES

First Savings Financial Group, Inc. Acquisition

On February 1, 2026 (the "Effective Time"), the Corporation completed the acquisition of First Savings Financial Group, Inc., an Indiana corporation (“First Savings”), pursuant to the Agreement and Plan of Merger, dated as of September 24, 2025, by and between the Corporation and First Savings (the “Merger Agreement”). As of such Effective Time, each share of outstanding First Savings common stock was converted into the right to receive 0.85 of a share (the "Exchange Ratio") of First Merchants common stock, in a tax-free exchange, plus cash-in-lieu of any fractional share created by the Exchange Ratio.

Immediately prior to the Effective Time, each outstanding First Savings restricted stock award held by certain directors, executive officers and employees of First Savings, whether unvested or vested, was exchanged for shares of First Merchants common stock based on the Exchange Ratio according to their respective award agreement terms.

In addition, on the day immediately preceding the Effective Time, each outstanding option to acquire a share of First Savings common stock was cancelled in exchange for the right to receive a cash payment, which was paid by First Savings, equal to (i) $32.59 per share, which is equal to the Exchange Ratio multiplied by the volume-weighted average price of First Merchants common stock over the ten (10) consecutive trading days ending on January 27, 2026, less (ii) the option exercise price per share, and less (iii) any applicable withholding taxes.

The Corporation issued 6.1 million shares of its common stock, in exchange for all of the issued and outstanding shares of First Savings common stock.

Immediately following the Merger, First Savings Bank, a wholly-owned subsidiary of First Savings, merged with and into the Bank, with the Bank surviving the merger and continuing its corporate existence.

The accompanying disclosures do not include the amount of assets acquired and liabilities assumed or any supplemental pro-forma information at the acquisition date, which was completed on February 1, 2026. Due to the close proximity of the acquisition date to the planned filing of this Annual Report on Form 10-K for the year ended December 31, 2025, the initial accounting for the business combination is incomplete. Accordingly, the Corporation is unable to estimate the financial effects of the acquisition on the consolidated financial statements as of December 31, 2025. The Corporation will provide relevant disclosures as required by ASC 805 in its Quarterly Report on Form 10-Q for the quarter ending March 31, 2026.

Old Second National Bank Branch Sale

On December 6, 2024, the Bank completed its sale of five branches in the suburban Chicago market to Old Second National Bank (“Old Second”). Pursuant to the terms of the branch sale agreement, Old Second assumed certain deposit liabilities and acquired certain loans, as well as cash and premises and equipment. The Bank recognized a gain on sale of $20.0 million related to the branch sale for the year ended December 31, 2024.

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

Assets

Cash and due from banks $ 419

Premises and equipment 3,233

Interest receivable and other assets 21

Liabilities

FRME US Equity

FRME · 10-K · period ended 2025-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FRME US Equity☆

FRME · 10-K · period ended 2025-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FRME US Equity